TBPN - The Transformer Shortage, Uber's Autonomous Future, More Size Gongs, FAL Series B

Episode Date: February 13, 2025

TBPN.com is made possible by:Ramp - https://ramp.comEight Sleep - https://eightsleep.com/tbpnWander - https://wander.com/tbpnPublic - https://public.comAdQuick - https://adquick.comBezel - https://getbezel.comPolymarket - https://polymarket.comFollow TBPN: https://TBPN.comhttps://x.com/tbpnhttps://podcasts.apple.com/us/podcast/technology-brothers/id1772360235https://youtube.com/@technologybrotherspod?si=lpk53xTE9WBEcIjV(01:34) - James Cameron In His 20's (05:50) - Seqoia to Lead Mercury Investment (19:04) - FAL Series B (30:40) - Harvey Raises Series D (45:32) - Transformer Shortage (01:10:15) - Uber's Autonomous Future

Welcome to Technology Brothers, the number one live show in tech. We are live from the Temple of Technology, the Fortress of Finance, the Capital of Capital. Today is Thursday, February 13th, 2025, one day until Valentine's Day. We did our Valentine's Day guide yesterday, and we hope you've picked out some fantastic gifts for your loved ones. This show starts now. Jordi, how are you doing? my lovely wife listened to the full episode yesterday and she was very fixated on the gift guide and was very excited about you know what we were sort of recommending and so expectation expectations

going into tomorrow or you know at a fever pitch basically so uh wish me luck everybody i don't want to i want to disappoint yeah bad day to be a bentley dealer if yeah jortie's walking in uh yeah that's great well we got a fantastic show for everyone uh We got a bunch of fundraising news. Mercury, FAL, Harvey. We got stories about the transformer shortage. We can't even get enough power for these AI companies. Two iconic tech people did interviews.

We're going to cover both of them. First, Uber CEO, Dara Koswashiari. And second, Pernanos, former CEO, Elizabeth Holmes. She did hers in people. Dara went to Stratere. A little bit of different outlets. There you go. Great content, and we'll cover it here, and then we'll go through the timeline.

But first, I wanted to open with a little story from none other than David Senra, Founders Podcast, the Godfather of Podcasting, the Podfather, one of the greatest to ever do it. He says, when James Cameron was 20, he was a truck driver. He decides he wants to be a filmmaker, but he can't afford to go to film school. This was how he solved that problem and what a high agency person looks like. He'd go to the stacks at the library at USC, home of a Von. filmmaking program Cameron couldn't afford. I'd find somebody's 300-page dissertation on optical printing, Cameron said, and I'd be going through it and I'd think, well, I got to get this.

So I'd pull the staples out and I'd photocopy the entire 300 pages. And then I kept just doing the same thing week after week for about six months. And I'm driving a truck, but I had these binders, sodium process, blue screen, optical printing, film, stock, emulsions, lenses, cinematography. I would was going through this stuff chapter and verse and making my own notes and all of that. I basically gave myself a college education and visual effects and cinematography while I was driving a truck. Okay. So the cost of a couple hundred, $100 in photocopying, he essentially put himself through a graduate

course in visual effects at the top film school in the country without ever meeting a single professor, Jordie. Amazing story. What an icon. My question becomes, uh, you know, this was pre-year. cell phone era, was he learning and driving? You know, did he have his binders up? Did he have his binders up basically on the steering wheel?

And he's just kind of like reading. Like, imagine being slammed, you know, rear-end to the game in camera. And he's just like, oh, sorry. He's reading about blue screen and green screen. He's reading about optic film stock emulsions. And, you know, that was a different era. But I'm glad he, you know, he made it out. and I'm glad I'm glad he did that but it's crazy because that that's just like free internet

and all of that information is 100,000 10,000 times more of it. It's so much more accessible for sure. Yeah. Yeah. It's so much more accessible. But yeah, auto-didactism has been a driving force behind entrepreneurship for a very long time. It's kind of unclear if you can teach it. But yeah, I mean, I haven't the same experiences. The Dyson story is very similar, right? He just like, I'm going to make a vacuum and then just, you know, spent a decade learning how to make the best vacuums. That's awesome. He comes a go.

Rocks. Wow. But yeah, I mean, I love this. And I think why this resonates with me so much is that you can tell that even though James Cameron is like a Hollywood guy, he's a filmmaker. It's a very, it's a very word cell industry. He is the shape rotator. of the word cell industry in the sense that like he is obsessed with the science behind film emulsion and how VFX work and the blue screen and of course he also understands storytelling

acting and emotion and all the different things that go into making a movie but he doesn't shy away from the technical side and i think that's why this resonates with me so much yeah the technical side and then later in his career he gets into submarines which is every man's dream right i like one of the most one of the best ways I know to get to sleep is learning about narco submarines that they build in the jungle it's like the most fun fascinating content I'm like these guys are going to you know build this submarine in the jungle take it out drop it in the water and you know basically take millions of dollars of their CPG product across the world what how fantastic is that but you can imagine he brought that sort of like you know just obsessive learning

approach. You can imagine he brought that just obsessive approach to building his own, you know, sub-bering, which, of course, he had, you know, teams of people work on. But for sure, it's still very impressive. Well, let's move on to some insane fundraising news. Sequoia has been on an absolute tear. Holy Trinity firms, they just don't, they just don't take a break. We got two massive fundraising rounds, fundraising rounds from Sequoia. Let's kick it off with the Mercury investment. Sequoia to lead mercury investment at over $3 billion in value. Fintech is indeed so back. Kate Clark got the scoop over at Bloomberg. Let's break it down. Sequoia Capital talks. What? This was a big mix up, by the way, because you remember Kate Clark, Clark

was the scoop queen over at the information for a long time. And so Bloomberg, you know, Bloomberg scooped the scooped queen. Yeah, yeah. She's a scooper. Bloomberg. It was a super scoop. It was a super scoop. Well said. Super scoop. But they had to, they had to have taken out a max contract to get her because, you know, the information, you know, she was a core piece of their, you know, team. Well, she might have broken the news that Sequoia Capital is investing in Mercury Technologies, but we're breaking the news that Kay Clark broke the news. So stay tuned. Sequoia Capital is in talks to lead an investment in digital banking startup, Mercury Technologies at Evaluation more than $3 billion. According to a person familiar with the matter, there's one guy in Silicon Valley who leaked this. Who is it? Who could it possibly be?

Well, so the other thing. Is it a lawyer or is somebody in Sequoia? Well, so the other thing is the account R for Rock actually ended up leaking just the details, like, direct. So it's very possible that it was whoever runs Arfer that just, you know, put this out there. No idea that. And so FinTech is surging. Mercury is based in San Francisco. They're raising hundreds of millions as part of the deal.

The company was found in 2017 by Ahmad Akund. Actually, good follow on X. Highly recommend you go check him out. They have a physical credit card, an online banking tools tailored to startups. The company reached 500. million dollars in annualized revenue according to the information which earlier reported some of the funding details the deal is expected to double mercury's valuation from 1.6 billion in 2021 after it raised 120 million mercury's existing investors include andrewson horowitz co-toe management and

CRV what's interesting is so we we have a mercury account plays very nicely with ramp who we love and sequoia was actually just in the recent ramp round as well so even though you know fintech it's all a bunch of technical mumbo-jumbo, but these tools do play to play well together in interesting ways. Yeah, so one interesting read into here is one, extremely impressive that Mercury was able to, you know, basically double their 2021 valuation,

which was like the peak of ZERP, right? And they did this for a few reasons. One continued to grow and just sort of compound on their existing base. They have, you know, one of the best banking products in the world, even if you look at, you know, commercial banking, consumer banking, all this stuff. One thing that's kind of interesting is on that 500 million of annualized revenue, they put up $200 million of EBITA, which is notable because one is just very impressive doing, you know,

multiple, you know, nine figures of actual EBTA, but they're raising it, you know, they're raising a $3 billion valuation. They're actually not getting a lot of credit for that earnings, right? Like if you had a pure play SaaS company at 500 million of revenue doing 200 million of EBDA, that would easily be trading it at, that could easily trade at $20 billion, right? You know, Figma, I don't think was anything, had anything close to that level of Iveda. You're getting the size gong ready. I just heard 200 million of Iveda and that deserves a size gong of its own.

Okay. That is a good insight. But the, but the reason they're not actually getting full credit for the, They're not getting priced sort of in a way that comparable companies might is because the vast majority of their earnings are from interest yield. So when you have money in a mercury checking account, it's like 0% interest. And you can move it to their treasury or savings products and get a little bit more interest. But the majority of startups are sort of like fairly simple in their financial operations. So they just keep all the cash in one account.

And so, you know, the reason that, you know, Sequoia is clearly willing to pay, you know, values a company at multiple billions of dollars based on everything that they've built. But they're putting a huge discount on the revenue because if rates drop over the next few years, a lot of that, that actual like profit will just dry up, right? And there's nothing that there's nothing that Mercury can necessarily do about that because it's set by the bet. That's a good take. That's very, yeah, that's very interesting. I like that. And I don't know if you saw the news today, but where was it? Hot inflation chills rate cuts on the cover of the Wall Street Journal today. Yeah. So Mercury. It's rise 3% likely putting on hold any move by Fed to loosen policy. So based on your analysis, that means, hey, that EBITDA is going to stick around for a while. But, you know, there's always a risk as things progress.

And it's just that's where the discount comes to play. That's interesting. I remember when the ZERP bubble kind of popped and a lot of people were asking like who's going to be the beneficiary. It feels like Mercury might have been the number one beneficiary in the sense that everyone was migrating off of Silicon Valley Bank. So there was this massive I need a new account. And I think they onboarded a ton of people and they built a ton of goodwill and they didn't, you know, there was no disruption during that small local regional bank crisis. Forget exactly what they call it. And obviously, then as interest rates rose, they were able to generate a lot of money, grow their business a ton. And that is a fascinating story. Yeah, they went through different. They were always positioned as a startup, you know, neobank and got a very dominant position quickly despite facing pressure from Brex. But they actually had a huge amount of their customer base and revenue early on was

companies that were Amazon, you know, sellers that just needed a US bank account that they could run a bunch of cards spent through. So early on, even in like 20, a lot of their revenue would have been from debit card interchange. And then suddenly they're making five, five and a half percent on every dollar on an annualized basis. But they had billions of deposits, right? So it's a fantastic business model. And they don't actually have to do any of the sort of really complicated for a higher risk stuff around banking, which is lending because they're a neobank. And one of the things that's also worth noting here is a lot of people who are like, well, why is Mercury not buying a business?

bank charter. And the reason for that is that once you have a charter, you're getting highly, highly regulated and they will force you to diversify your customer base, diversify your sort of business lines and lending practices, because the FDIC doesn't want you to, you know, take on all this risk and then go under, right? Because then they have to bail you out. And so Mercury was able to, you know, they've hit a few of these different ways, the sort of e-com wave, the general growth and startup investment and then the post SVB being there to sort of catch the companies that needed a new bank partner. And then the other thing that they did was quickly rollout increased FDIC coverage.

At the time, I was competing with Mercury. And we had, we offered a 4% sort of annualized yield on balances. So it was like a high yield checking product, which was very interesting for companies. Because if you had a million, every million dollars was 40K a year of relatively risk-free, yield, but then SVV happened and our bank partner didn't allow us to extend our FDIC coverage by working with a bank network and Mercury had enough bankers that they were able to make it happen. And so that's when we ended up doing the deal with Roe, who also had, you know, increased FDIC coverage. So anyways, awesome, awesome to see for, you know, clearly FinTech is here to stay.

They've had a lot of the industries had a lot of naysayers over the year. but at the end of the day, the product experience is so much better for customers. Yep. On average that these companies are here to stay. Yeah. And there's something that's so satisfying about it. I mean,

this is the first time I've set up a new company, the TB, since, I guess, 2016. And everything is just like so much smooth. And it wasn't bad in 2016. Like,

but even though, you know, Strive Atlas was working. Like it was. Here's like a, here's a crazy operator workflow you're going to be able to go into operator like i guarantee you within the next year and i want to create a new company and it'll ask like okay do you want to see corp or an lcc where do you want to incorporate and i'll ask you for the information and it'll just do it for you and it'll be like

all right i want to do you want a bank account and it's like sure and it's like cool i just set you up with mercury and it's like cool i just set you up with ramp i just got onboarded you to this payroll tool so like a single agent will be able to drive this whole experience yeah which typically like in 2016, this was like weeks and weeks of kind of like administrative paperwork, annoyances, going to a bank, you know, them being like, oh, like your startup. So like, you know, it's going to take long. Yeah. And that's the type of job loss that I literally think every single person at a startup who gets

stuck with that operational role is like, I wish I could have been on strategy. I wish I could have been on product. I wish I could have been on sales. There's no one who's like, oh yeah. Like, you know, at my startup, I loved being the guy that had to set up payroll. Yeah. It's like, and the tools make it good. They make it doable, but it could be so much better.

And so the warp team, the payroll product, they, they had been working on a totally different, you know, app, a consumer mobile app. And then they had so much annoyance setting up, you know, sort of tax jurisdictions around because they had a lot of remote employees that they were like, okay, we're just going to create a payroll product that just does this stuff automatically. Did you know that three of the top 10 most valuable private Y Combinator startups are payroll providers? Rippling, Gusto, and deal. I never knew about it. Yeah. All three of them. I looked at it and was like, should I start a payroll provider?

Yeah. It seems like there's like free money for a while. Both Mercury, you know, we talk a lot about, you know, some dominant wins from Founders Fund, of course, and then Sequoia, but both Mercury and Deal were seeded and the Series A by Andreessen. So these are huge, huge windfall for the firm. Andresen did the Mercury seed round, and then they did deal at, you know, mid-double digits post. And that deal now is absolutely awesome. They just had a monster, like, did their quarterly financials leak?

I think they just announced that they're doing like 800 million of ARR, which is just like, you know, insane. A lot of money. Well, the funny thing is not only are there like three or four dominant startups that are essentially scale ups at this point, like in the in the multi-billion unicorn, decicorn range in payroll, there are also like three to four public companies that are in the like tens of billions range. And then there's a couple like power law winners.

that are even bigger. It is such a big market because it's just so much, it's just all the money flowing around from everyone getting paid. And you just take even the tiniest slice of that and boom, huge company. And so, why do bank robbers rob banks? Because that's where the money is.

And it's so hard to get money out of different parts of the organization. But when it's like, yeah, we pay our employees, our payroll cost is, you know, 10 million, 100 million a year. Sure, you're going to make that easier.

Take 0.1%. No problem. Yeah. So just to give you an idea of market size, so one of the biggest players in payroll is ADP, which stand a great acronym. Are you on public? Looking this up?

Yeah, of course I'm on public. It's automatic data processing. And they have 20 billion of TTM revenue and over almost 6 billion of EBTA. And I don't know a single company who use it like I've got 50 plus companies in my portfolio. I don't know a single one that uses ADP. And so it's just very obvious. I know who uses ADP. It's like Disney.

Yeah, sure, sure. But these companies are like cable in the sense that totally. You have a bunch of subscribers, you know, contracts locked in that that probably will never turn. But then eventually the rulings and the deals and things like that. No. No. It's a fantastic industry, fantastic. It's just a very interesting industry.

We should do a market map. Yeah. Maybe we should collab with our girl, Justine. Let's move on to our next big funding announcement. FAL has raised 49 million Series B. I thought they were talking about the Belgian-made battle rifle, the FAL, but this is a generative media platform for developers. I was excited.

49 million. That gets you a lot of FALs. enough to arm a small militia, potentially take over Silicon Valley, but these guys are taking over Silicon Valley using AI. We love to see it. The non-violent way. Let's go to Todd Jackson. He says, Rocket Ship is an overused term, but it's hard to come up with another way to describe

FAL's trajectory. Going from $1 million to $40 million in ARR in one year is more vertical line than hockey stick. Their crazy focus on performance and reliability have meant that they've built what developers and enterprises actually need to deploy AI-driven media creation at scale, handling over 100 million inference requests daily with 99.99% uptime. That's why companies like Cora, Canva, and Amazon ads rely on their platform for image generation and why the founders are perfectly positioned for the next wave of generative video. Their recent AI video starter kit, an open source in-browser editor for AI video, linked below,

was the first of many cool launches they have up their sleeve this year. First round had the chance to back this team at seed and is the team that saw where the puck is going and furiously built ahead of the curve. This time next year, even these numbers will look small. So a little bit of the glazinator 3,000 coming out for the Port Co, but we love to see it. Hey, I mean, you can, fair game to do a little,

to pull out the glazinator if you're going from. When you see it a company and they were, raise a $50 million series B. Pull out the glazinator. Let's go. I, you know, I once put, I had my first portfolio company go to zero to a hundred million of annualized revenue. And I, that I got in like sub 20 post. Yeah. And I posted, I posted that, uh, I didn't say, say the portfolio company name, but I posted that it was, um, more meaningful to me than like holding my child for the first time. Like, obviously just like baiting people and like, nobody got the joke. Like, everybody was just like, congrats, man. Like, that's amazing. And then like a couple

quote tweets that were like, this technology brother says that like getting like, you know, a nine figure revenue, you know, port go is better than, you know. So anyways, for the record, that's great. That was a joke. But yeah, anyway, fantastic, fantastic progress. So we had a debate in our, in our, in our group chat with some former brothers of the week about. about what happens to these companies that go from zero to potentially 100 plus million of ARR in this super, super, super short period of time. You see companies like cursor,

fouls on that trajectory, 11 Labs, Mercore, all these businesses. And there's a lot of reasons that you could be short these companies. But in general, I'm very, like very bullish, right? It's very hard to get people. It's very much easier to raise venture capital than it is to get customers to send you payments for your product, right? And people are clearly paying for these products. They're using them.

They're integrating them into their businesses. They're getting a lot of value out of them. One thing that I did think was, let me try to find pull up that. Well, you pull that up. It just feels. So, yeah, one of our buddies said, you know, the iron law of anything that goes up quickly must come down quickly. It's very pithy. it does make some sense.

But all of these revenue numbers just really make it clear that although the valuations feel like the dot-com boom, although AI feels like potentially even bigger transformative technology than the internet, and we are in another kind of transformation bubble, there's going to be asset bubbles when we're transforming technologies and rolling out an entirely new technology. the actual fundamentals of the business are just very, very different from the dot-com boom, where it was like, oh, you put up a web page, you got 100,000 users, and now you're IPOing. Like that was what was going on in the dot-com boom. Now it's like, well, yeah, there's some private capital at risk and maybe you're overvalued,

but you really did get $100 million in revenue. You know, hopefully a lot of that's sticky. Now, some of them slosh around other products as people roll stuff out, but I don't, I'm not counting on, you know, if you're with Curser, are you really going to go to Salesforce? You know, no. It's like you're probably going to be pretty happy with that product and stick around. Yeah, the exact line from Jeremy Gaffon, who's not entirely bearish, but is, you know, interested to see how these played out because he'll be in the position to buy, you know,

the companies that maybe build good businesses, but don't truly grow into their valuations. He said, easy come, easy go is the iron law of the universe. And so if it's, you know, not that it's easy, to experience this level of growth, but it certainly happened quickly. And so that could imply that other people will be able to achieve similar things and maybe end up being competitive, but you're totally right. In the dot-com era, companies were going public with, you know, single-digit millions of dollars of revenue or less getting valued at billions of dollars. And this is certainly far from the case. And the other thing that's good is these are experienced private market investors that

are risking their capital and their LPs capital. And so if these companies, companies don't grow out of those valuations. It's not necessarily retail investors that are going to be holding the back. I mean, even during the SPAC boom, some of the companies that went SPAC had worse financials than a company like FAL here. Let's go through this company a little bit because I didn't know that much about them, but there's a nice article here in Fortune that breaks it down. FAL stands for features and labels. You know these guys are developers when they name their company, something like that. a machine learning term referring to input data. It's like, yeah. It's like ADP automatic data processing.

Yeah, or IBM, international business machines. Great name. You know, but like, you know, why not? And I don't know, FAL, that's cool. But there's another layer. FAL is also a Turkish term for fortune telling. The startup's co-founders tell me. It's a good Easter egg that's there.

We have a lot of Turkish employees, and it's fun when they notice. The founders are both originally from Turkey. They first connected in the early 2010s in San Francisco. They both worked in AI and machine learning at tech companies. One was at Amazon. The other one was at Oracle, then Coinbase. And they became longtime friends. In the dead of COVID, the two were in the same bubble in Palm Springs talking about AI.

They founded FAL in fall of 2021, looking to provide developers with a platform and acumen to more readily use generative AI models for image and video generation. We made an early bet to position ourselves as just focusing on generative media as opposed to many other who were very excited about LLMs. We basically left the LLMs behind and specialized in image, video, and audio-type models. The company's been in the midst of rapid make sure hands and feet are inside of the vehicle. Growth and now has 22 employees.

Man, 22 employees, that's so small for how big they are. This is fantastic. Only four months after announcing it's Series A, the startup has reached a new milestone, a $49 million Series B. Notable capital led the round with Andreessen Horowitz and Ben, Bessemer is in, Kindred, first round capital, all participated with the deal A16Z general partner,

Jennifer Lee, and notable capital managing partner Glenn Solomon will join the board. If you're new to generative AI for images and videos, the most important thing you should know is using these models can feel infinite. You can rapidly generate impossible videos and images from golden astronauts in space to penguins playing instruments. And while this sounds aesthetically cool, but fundamentally abstract, What the founders are seeing is that businesses are starting to actively want to use this tech. They currently serve north of 50 enterprises, including Cora, Perplexity, and Canva. And Perplexity's CEO, who's been on the show before, he is an FAL investor.

Fortune has a business partnership with Perplexity. So one hand washes the other on this article. I like it. I like it. Yeah. Pay the bill is, Fortune. Get it done. The use case are both Legion and specific.

Good writing, too. with some startups building applications on the platform where other companies are focusing on AI-generated avatars for training and education. Design, super unicorn Canva has been using FAL as it develops and integrates its AI-powered editing tools. The use cases are very broad, much broader than I think initially expected, said the investor at Notable Capital, Dan Kahana. You play with these models and it's fun. You send them to your family and you blow your grandparents' minds with it. But as you spend more and more time, you realize this totally changes photo editing, architectural design, fashion design, all sorts of creative disputes. Again, we're talking about the Centaur model, talking about the human partnering with the AI. There's a ton of ways that you can do this with

generative fill. This has been baked into Photoshop, but not everyone has Photoshop in their pipeline. And oftentimes if you're just trying to generate a bunch of ads or you know, you're trying to give something to a user in Canva, you want something that's a little bit more, a little bit more baked into your UI, a little bit more seamless, a little better for the workflow. And this is a tool that can be integrated. So very exciting. One of the things that one of the things that's clearly happening here is you know, uh, you'll oftentimes get the advice of stay small. You can move a lot faster, right? As soon as you start bloating your organization and there's more people that need to sign off on different things, everything just slows down. And so in, in, in their situation,

and cursor situation, cursors, I think right now has like five million of error are per employee, right? So it's like pretty like best in class. Um, and, So part of what's happening is all these new AI tools that every developer now has access to, they're able to use, you know, them to build faster and just hire less people, which also helps them build faster, right, by just keeping the bloat down in these organizations. Totally. It's just fantastic to see. I think Packy actually had a great piece.

We should dig it up and cover it because I think it's starting to play out, which is that we're now, he predicted that, you know, as these tools get efficient and one person can do it, do the job of five other people, it just frees up talented people to just do more things. So before you might have had 100 people building one company, now you can have that same hundred people building five companies, all that could be as big as the original company, right, just due to that sort of efficiency increase. So we're just seeing more and more of these stories. Like, I don't, I've never been, I've never experienced a time where we had this many new

companies ripping from zero to double digit, you know, millions of dollars and they are, And so it's, it's, you know, just fantastic to see. Yeah, yeah. And the products are clearly real. Obviously, there was, you know, a similar boom during the crypto boom in 2020, 2021. But there was always a question of like, is this really a durable problem? Or are we just speculating with this? Sure, the stocks might be a little bit frothy.

Who knows where the valuations land? But, you know, when I opened one of these apps and I use generative AI to, edit a photo, I'm getting real value out of that and I love that and I think that's going to stick around for sure. Anyway, let's move on to our next fundraising announcement. Harvey has raised $300 million from Sequoia in a series D. Winston Weinberg says on X, excited to announce our series D led by Sequoia with participation from conviction. Kline of Perkins, OpenAI, GV team, conviction, Elad Gill and Lexus Nexus. Lexus Nexus is an interesting one because they have all the data that you'd want to train on.

Let's go through the announcement here. Today, we are thrilled to announce our series D. In 2024, we saw 4X annual recurring revenue growth and expanded from 40 customers to 235 customers in 42 countries, including the majority of the top 10 U.S. law firms. So that means six at least of the top 10. That's pretty huge. and I'm sure they're paying a pretty penny for this. We've also seen the legal and professional services industry shift faster than ever before.

Lawyers are adopting technology at an unprecedented rate. Centuries-old firms are experimenting with new business models, and enterprises are driving significant savings with AI-enabled workflows. The pace of change will only accelerate in 2025. Very cool. Have you seen a lawyer use Harvey or has it been revealed to you? your take on Harvey? I haven't yet. One of my neighbors and our, our, our, our council for TBPN, is at a fairly large law firm, Wilkie. And I started asking him, as soon as Harvey was like on the

map, you know, already, they quickly came out the gates and raised, you know, a few rounds back to back. They're already at their series D. I think it's a two-ish year old company, maybe a little bit more. So I started asking him, have you heard about this? Have you seen it? And so like nine months ago hadn't heard about it, used it, anything like that. I actually should, I'm not going to text him this moment because he's on paternity leave. But I'm sure they're already having conversations with the firm. Even like six months ago, there was people flooding Harvey on the timeline.

Oh, I don't know a single lawyer that even knows about it or like who's using this, blah, blah, blah. hard to fake this right hard to have the majority of the 10 largest law firms in the U.S. using your product so they're clearly crushing it I think that you know some of the best applications of generative AI are the most obvious right you look at the legal industry where every small thing costs hundreds of dollars even if it's just using boilerplate contracts and so this was just such an obvious application, but it took a ridiculously talented team and, you know, extreme focus to actually get it to this point. And so I'm sure that will be, you know, what hasn't been obvious yet is, you know, in the generative sort of engineering coding space, there's so many heavily

funded big players, everything from, you know, Cursor to Devin, which are again taking different approaches to windsurf and pool side and all these different companies. we haven't seen the same thing play out in legal AI. There certainly are cool. There are a number of legal AI companies, but none that seem to have the momentum and the sort of potential power law effect of Harvey now has hundreds of millions of dollars

to deploy against this problem space. And again, I don't think this is the kind of thing that law firms are going to want like five or six tools. They're also not the kind of thing that engineers can sort of more organically adopt software. I don't think this is going to be the same type of situation just because it's such a privacy, you know, oriented industry and so heavy around regulation. So I have a theory that I want to run by you and kind of spitball and work through. There's always this question of, okay, yeah, the company's doing well. They got more than half of the top 10 U.S. law firms.

But what is so capital intensive about this? And there was a big question about should they be raising a ton of money and training a new foundation model? Because at a certain point, Open AI is spending $500 billion on Stargate to train GPT6 or GPT5 is coming soon. And can you, if you're in a narrow niche, like a vertical software niche in AI, afford to train a new model. And I don't know that they are. I don't think that they need to necessarily. I think a lot of what they're doing is post-training, not pre-training, not the really expensive training runs more of the fine-tuning. But then the question becomes, well, these companies are making money. They don't have that many employees. Why are they raising so much money? And I think for these very specific niche AI

companies, it could be driven by a need to do deals. And, essentially pay for access to data that's not widely available on the open internet. And there's actually a case that we can go through. But what's your take on that theory that, hey, maybe you need a lot of money because you need to go pay the license and get the data legally and bring it into the LLM. And that's the value ad. I think that that's, I'm sure a percentage of this fundraise will be used to do that. that said, I would guess that this was more oriented around Sequoia wanted to own another 10% of Harvey

and, or, you know, there's a mix of investors in the round, but it's more around, hey, we're in the position where we can do another financing. We're only willing to sell 10%, you know, and we just figure out what the number is. Okay, 300 on 3 billion, right? And so I don't think at, when a company raises this much money so fast, sure, they have to have a plan for it. but of how to deploy that capital, but oftentimes it just comes down to, you know, we're willing to sell 10% of the company right now and then the market sort of sets the price, right? Interesting.

Interesting. Well, we should go through this Thompson Reuters versus Ross intelligence case. Ben Thompson broke this down on Stratory yesterday. And I thought it was very interesting to understand how data and fair use are being used in these AI training. So Reuters, which is funny because they're the ones in the lawsuit, but they're also reporting on it. Another one hand washes the other situation. A federal judge in Delaware on Tuesday said that a former competitor of Thompson Reuters was not permitted by U.S. copyright law to copy the information and technology companies' content to build a competing artificial intelligence-based legal platform. U.S. Circuit judge Stephanos Bibos, decision against defunct legal research firm Ross Intelligence

marks the first U.S. ruling on the closely watched question of fair use in AI copyrighted litigation. And so Ross intelligence was using Thompson Reuters headnotes as AI data to create a legal research tool to compete with Westlaw. It is undisputed that Ross's AI is not generative wrote the judge. And so this is a pretty important distinction. Ben Thompson argues that Ross Intelligence was building a legal research tool based on natural language processing to enable plain language search queries that would deliver relevant court decisions. This tool was a direct competitor to Westlaw, which is owned by Thompson Reuters. Here's the key aspect of the case, which does have a bearing ungenerative AI. The product itself did not violate Thompson Reuters copyright,

Rather, the judge ruled that training material that Ross Intelligence used to develop its natural language search functionality did. Specifically, while Thompson Reuters refused to give Ross Intelligence a license to its headnotes, which summarized a case and key number system, the numerical taxonomy it used to organize cases, Ross Intelligence did use a company called LegalEase to generate its training data, and legal ease is alleged to have basically copied Westlaw's headnotes. And so the reason why this is pertinent is that assuming this case holds up through a jury trial in any relevant appeals, it establishes the precedent that using copyrighted data for creating a product, even if that data is not in the final product itself, does lead to potential liability. This is also precisely why this case might not hold up.

There's two other cases and eventually it's going to go to the Supreme Court. And so it squares the circle in generative AI cases, but not if the problem was the training data. It seems to me that the entity that violated the law is legal ease, not Ross intelligence, which, by the way, has long since gone out of business because of this lawsuit, which is funded by insurance. Regardless, I wouldn't read too much into this or any other case. Just yet, all of this is going to need to be resolved by the Supreme Court at some point or Congress.

And so this is interesting because there's been this debate over, oh, Open AI is scraping YouTube or they're scraping, you know, there's all these allegations, scraping the New York Times. And then there's the question about, is it? transformative and what is fair use? And so, you know, if you're just, if you're just a, you know, a BuzzFeed reporter, even a podcaster like us, we read, I'm reading Ben Thompson's article right now. I'm like stealing his content. You're generating, you're generating content from it. Exactly. So I'm reacting to it. And so in theory, this is, this is, this is fair use. Now, the question is, is the output of these LLMs is usually transformative because it is new

sentences and and as long as they're not dumping direct quotes out, it should be fine. But there's a question about can you scrape someone's and can you use their their content as as training data? And this is something that was just clearly there was no legal basis for it. Because, you know, you look at the historical precedent of anybody just physically walking into a library, reading books, pulling out quotes, using. that material to make other things. James Cameron.

Yeah, yeah, yeah, James Cameron. And then suddenly, you know, when a computer does it, oh, whoa, whoa, whoa, whoa, whoa, can't do that. And so we've taken the other side of this. We've said, you know, I'm sure Open AI is listening to live stream right now. I'm sure they're just actively feeding this into their models. But we encourage it, right? We're trying to make the models have our extremist beliefs. And so it's actually, you know, it's part of it.

Yeah, yeah, yeah. It's part of our strategy. But, you know, it is interesting. You know, the other side of this is that for a long time, companies were able to monetize their data, you know, very effectively on like a per user basis, you know, paywalls, enterprise contracts to access that data. I have a buddy who has like this fantastic media roll up company and he charges millions of dollars for big hedge funds to get access to that data and other, you know, policy, you know,

makers and things like that. And so it is this really interesting challenge of like what happens. This is the data USAID? I actually pressed him on that Monday. I said, you know, how are you doing, bud? Our hands are clean. But the New York Times can't say the same thing. Politico is the one.

Yeah. So anyway, it's just this interesting challenge of, you know, even startups will tell you. startups have long included and not usually that compelling aspect of their pitch, which is that we're going to have so much data and that is going to be valuable inherently. And what's happening now, I think, is that you need to take the data that you have. And of course, you want to protect it because if it's part of your monetization strategy, but it's coming down to it does seem like on a long enough time horizon, the walls on all data that's shared online are going to drop, right? because and clearly it depends how easily it can be scraped because some some data i mean if you're talking about like healthcare financial records like these are truly locked down yeah sure there's hackers that break stuff open every once in a while they get a list of passwords or home depot receipts or

walmart stuff but like in general there have not been massive leaks of of really super proprietary data and certainly once it leaks it's on the dark web like as a company you are not just going like, yeah, let's ingest that. Whereas, yeah, sure, you might write a bot that scrapes the internet like Google does. And then there's a legal question of, is that okay or not? And how can that go into pre-training? So an interesting scenario that I'm sure Harvey is in is a, you know, law firms themselves generate so much data, right? And some of that, some of that ends up becoming in, you know, in like public, right? Through, you know, cases and stuff like that. But then a lot of it is highly confidential, highly private. And if you're a client of one of the companies that Harvey

works with, you don't necessarily want your internal private legal documentation to be used. I guess you could argue, oh, it doesn't affect you if they train on your stuff and allow other people to reproduce documents, you know, to solve, you know, similar legal issues. But at the same time, there's like a bunch of and I'm sure, but that said, I'm sure Harvey does some deals where it's like, you know this is going to cost you five million dollars a year but like if you allow us to train on the the full set of your law firms you know 50 years of of you know internal communications and you know things like that then we can sort of discount it or you know who knows right it could just be built into their fact I don't have any inside knowledge there yeah yeah it's uh yeah it's

fascinating to follow we'll have to dig into harvey more understand uh how they built the business I mean, the Open AI startup fund is in this deal. So obviously they're working closely with Open AI. At the same time, Sequoia is, I think, writing big checks into XAI. And Grok is now going to be able to leave relatively light legal opinions, I think, that was announced. And so there's always a question about, like, legal aids for consumers versus, you know, an enterprise product that integrates with truly proprietary data. Harvey's clearly taking the latter strategy, but it looks like it's working out and congrats to the team over at Harvey. Seems like you guys are crushing it.

Well, let's move on to more AI news, but this time on the energy side, there's a great article in China Talk, all about the transformer shortage. And we're not talking about the transformer architecture. We're talking about literal physical transformers. And the transformer shortage is choking the U.S. supply chain. If Trump wants to build, he needs an industrial policy for transformers. It doesn't matter if you want to build housing, AI data centers, renewable energy installations, EV charging stations, semiconductor fabs, or drone factories. You need transformers for all of the above. Not even the fossil fuel industry is exempt. Oil and gas drilling, both require special

transformers to supply power to rig machinery, compressors, refineries, and more. I was talking to, I mean, there are nuclear power companies that want to deliver nuclear power to oil and gas drillers so that they can get more power to run their tools. People don't realize that you need a lot of energy to get the oil out of the ground often. And so these transformers are really key. And I haven't heard of any companies building these. So I thought it would be an interesting deep dive. So technologically speaking, transformers are relatively simple. They were first invented in the 19th century.

And yet, the inability to build transformers is causing U.S. industrial policy to short circuit. In the words of the utility resource planner, AJ Pandy, the transformer shortage is bad. It's like hair on fire, biting my nails, losing sleep levels of bad. If you build new multifamily housing, you could be looking at a two and a half year wait for a transformer to supply the building. And that's if the manufacturers are even accepting orders. I had no idea. The Trump administration has ambitious plans for AI infrastructure, permitting reform, and offshore drilling projects without transformers. However, the U.S. is destined to remain a build-nothing country, no matter how many billions of dollars the federal government dishes out.

So how did it get so bad? And that is an interesting question. COVID-19 impacted transformer supply chains, but a confluence of several demand-side factors. extend to the shortage. First, the U.S. grid is aging. We know this. Transformers are typically rated for 40 years of service, and much of the U.S. grid is reaching the end of its allocated life. And so just replacing and upgrading existing transformers is driving a ton of demand. Second, overall electrification is increasing nationally. Americans are using electricity instead of natural gas to cook their food, heat their homes, take hot showers, and this trend

is effectively irreversible. And third, and perhaps most, most, obviously scores of new renewable energy projects and EV charging stations require transformers to come online. Newly leased offshore drilling projects will have a similar effect. And so we want to do more with transformers. And yet the supply side is not keeping up. And so the N-I-A-C. Yeah.

The children, we need to get children to stop playing Minecraft and start mining coal. They clearly yearn for the mines. Let's make them productive. Yeah, the answer is clearly a. steampunk future with uh me on an airship twirling my mustache powered by coal and and steam revolution that's the end that's the end goal for sure back to blimp back to blimps yeah blimps for sure yeah i saw a fantastic photo of the hindenberg docked at the chrysler building incredible or maybe it was the empire state like it's so ridiculous it just looks so cool and futuristic uh

but at the same time i think it's more like i think blimps are more like unicycles than anything else where it's like novel, but then there's so many drawbacks that it just doesn't make sense. So I think I'm anti-blimp, anti-train, and I just want supersonic jets and rockets, really. Anyway, the NIAC identified four structural supply side challenges in a report released in June of last year. Labor shortages. The U.S. does not have an effective pipeline to train and retain the manufacturing talent. We've seen this in so many different industries. There's historic industry cyclicality.

there's been a strong correlation between transformer demand and the housing market. And so when the housing market took off in the early 2000s, transformer production followed. But then when the market crashed, caused many manufacturers to exit the market. There's also a lack of standardization. It's difficult to efficiently scale up production with a custom product. And so utilities are very specific about their transformers. There's no standardization, really. Every utility has its own specification.

If you're a small utility, you're asking for a very, very small batch of this very bespoke thing. And there's also a material shortage. Transformers are made with grain-oriented electrical steel, G-O-E-S. Never heard that term before. Glad to know it now. But there's only one domestic manufacturer who is unable to meet demand. Contributing factors include the destruction of the Azovostal steel plant in Mariupil and sanctions against Russian steel producers, rising demand for non-oriented electrical steel, a key ingredient EVs that comes from the same manufacturing facilities will also increase supply tension. The net result is that domestic supply can only meet 20% of transformer demand and transformer prices have risen 60 to 80% since 2020. Not good stuff.

Should we go into physical attack? This is a great one. Crazy, crazy. Crazy. A 2014 analysis by the Federal Energy Reggings. Regulatory Commission, the F-E-R-C, identified 30 critical high-voltage substations in the National Grid and predicted that losing just nine of these substations as the result of a coordinated attack could cause a nationwide blackout lasting for weeks or even months. And so this is your call to action. Become a prepper. Get a generator, a gas, a diesel generator, get a battery pack, get a Starlink.

You know, if you have a family, you should be investing in this stuff because The power grid is sadly very, very fragile. That report is 10 years old, but according to an NPR interview with Richard Mrow's, former president of the New Jersey Board of Public Utilities, the situation today is not substantially different. Knocking out those high impact facilities is probably harder than everyone would think, but he did not say that the underlying grid infrastructure had become less centralized. What kind of security measures are in place to protect these high impact facilities?

According to Politico, protections include armed security staff, bullet resistant fencing, or video monitoring, but these measures may not be enough to protect against a major blackout. In 2022 alone, there were a total of 1,600 security incidents involving the U.S. power grid, including 60 incidents that led to outages. Notable cases include the 2013 Metcalf sniper attack and the 2022 attack on substations in Moore County, North Carolina. In both cases, the perpetrators were never caught. And so basically, people just go and buy a sniper rifle or a long range assault rifle. And then they just take pot shots at the substation. And if they hit any critical piece in the chain, one wire, one bolt, anything, it can knock out the entire grid. It's like an extremely like high leverage terrorist activity for a crazy person. And they could have any sort of motives. They could be left way and right wing.

They could be international. It's like one person, a $300 rifle and potentially millions of dollars, you know, or, you know, God forbid, billions of damage. So you think about the arson that happened in L.A. and the potential for that. Like, there are a lot of people that want to have, like, a high leverage terroristic impact. And these electrical substations are sadly one of the most high leverage. places to have something little anecdote little anecdote my mom was buying a condo

and was in escrow and they were waiting on a transformer to be able to power the building and it dragged on every single day every single week they'd say like hey we're expecting this like in the next week just dragged on and dragged on and dragged on actually for months and she eventually just failed

and bought another place because she was like, I'm not just going to keep waiting around for this, you know, this thing that who knows when it's going to come, basically. So actively, you know, slowing down various aspects of the economy. Yeah, I wonder if I can find this Will Minaitis tweet. I know he's talked about it. Transformer. Yeah, this is it. He tells the story of Metcalfe here. We should just read through this because it's so interesting. 26K likes. It's a banger, folks. On April 16th, 2013, a team of highly skilled gunmen opened fire on the Metcalfe's power substation in San Jose, California. In just under 10 minutes, they disabled 17 transformers and caused $15 million in damages.

This is the most important terror attack you've never heard of. Quick thread. The PG&E Metcalf station provides most of Santa Clara Valley with power. Facebook, Stanford, etc. are all on this grid. The attackers are still unknown. were never caught and the motive is still unknown. This is so crazy. It sounds just like complete conspiracy theory because, of course, when you don't have an answer, you're just going to generate theories and who knows, they're going to be hard to verify. A timeline of the attack,

but all this is like, this is factual, like facts. It's just no one knows how to piece all these facts together. At 1258 a.m., in the middle of the night, fiber optic lines were cut not far from the U.S. route 101, just outside the South San Jose, just outside of South San Jose. The substation loses internet and phone service. At 107 a.m., some customers lost service. Cables in its vault near the Metcalfe substation were also cut. 131 a.m. A. a surveillance camera pointed along a chain link fenced around the substation,

recorded a streak of light that investigators from the Santa Clara County Sheriff's Office think was a signal from a waved flashlight. Like, I'm ready to go. It was followed by the muzzle flash of rifles. At 137 a.m., PG&E received an alarm from motion sensors at the substation, possibly from bullets grazing the fence. At 141 a.m., Santa Clara County's sheriff department received a 911 call about gunfire sent by an engineer at a nearby power plant that still had phone service.

At 145 a.m., the first bank of Transformers riddled with bullet holes and having leaked 52,000 U.S. gallons of oil overheated, whereupon PGE and E's control center, about 90 miles north, received an equipment failure alarm. At 150, another flashlight signal caught on film, marked the end. More than 100 expended 762 by 39 millimeter cases were later found at the site. At 151, officers arrived and found everything quiet, unable to get past the locked fence, and seeing nothing suspicious, they left. In the subsequent, investigation, it became incredibly clear how professional of an operation this was. Of the 100 shell casings found, all had been wiped clean of fingerprints. There were also stacks of rocks

found all over the site commonly used to gauge firing distance. So they went, they measured, they put down rocks. This rock means we're 200 meters away, 200 yards away, and so you need to adjust your your dope accordingly, essentially. Yeah. They knew where to attack. Yeah. Just to kind of get into who might potentially be the culprit, if you've ever, anybody that listens to the show that follows Josh Steinman.

Stimman, I knew you were going to say. notorious for saying, good morning, we are going to win almost every day. And then also, anytime something like this happens, he'll quote, we didn't say how many U.S. or how many foreign sabotage teams are operating on U.S. soil. And so he was within the 2016 Trump, you know, White House, you know, working on national security as a military background. And so he had actually a lot of exposure. You know, a lot of times his attacks happen. And the government figures out what happens, but they don't necessarily deliver that to the press and the media because we, the government doesn't want the citizenry to feel like they're constantly under attack or there's sort of sort of these missions being.

carried out, but it's very, you know, something like this, to me, uh, screams like foreign sabotage more so than such a professional job. Who else would really have the incentive to do this other than, you know, foreign adversary that just wants to cause chaos, you know, U.S. and tests things, right? So. Yeah, yeah, totally. I'm, yeah, I'm, I'm staring at the tinfoil hat. It's just out of reach. But, uh, I mean, just thinking about like if me and a bunch of guys wanted to go do something in a foreign country. Could we get there on a tourist visa, overstay that visa, start acquiring weapons?

There's a million weapons all over America. Go to some gun shows, buy some stuff, figure out some back routes, buy all the gear, plan all this out. This does not seem like, you know, like a moon landing level effort. This feels like a couple guys from a pretty sharp team, putting some work in, some planning, and then going and executing it with, you know, a couple months of prep and they get a pretty crazy outcome. There's been a lot of conspiracy theories about whether this was, you know, a test of the system or an attack from an adversary or maybe just

political extremists who are, you know, Americans and they want to cause chaos for one reason or another. It's hard to say, but the important thing is that, is that, yeah. It's a relevant reposts from Bill Ackman, who reposted within the last 24 hours from his account that has 1.6 million followers. If you're not a conspiracy theorist by now, you are basically the R word. And so a little agree to clean it up, you know, remix it to be say, if you're not what would your mother say? If you're not a conspiracy theorist by now, you're just silly. That hits pretty hard too. So mix it up.

No, I have long said that conspiracy theories, like, if it's a conspiracy theory and it comes true, it's just history. Like 9-11, the default narrative on 9-11, which is that bin Laden determined to attack, that was a conspiracy theory. Let's define it. Was it a conspiracy? Absolutely. It was a bunch of guys in a far-off land, literally conspiring to attack America.

And then the second question is, was there a theory? Absolutely, because the CIA wrote a memo theorizing that bin Laden was determined to attack. And so the CIA basically said, hey, we are in the business of crafting theories about conspiracies. We think we are onto a conspiracy. And then it came true. And so now it's just, and now it's just true. And you actually ignore the theory. Ignore the theory. The definition of a conspiracy is a secret plan by a group to do something unlawful or harmful or the action of plotting. So anytime, anything, whenever something happens, it's usually because one or a small group of people plotted to do something. Now, you don't know. The opposite is when you're when you're building in public or when you're invading a country and

you're on the campaign trail and you say, if elected, I'm going to cut taxes or I'm going to raise taxes and then you do it. That's not a conspiracy. You did it out in the open. You said you were going to do something. And it wasn't unlawful or harmful. The test. The test. secret plan, that is not a conspiracy. There are conspiracies that happen all over the place, but not everything is conspiracy, but sometimes there are conspiracies that happen. And if someone is onto it ahead of time and has a theory about it, it is technically a conspiracy theory. And so we almost need a different word to denote a conspiracy theory that you think is wrong versus a conspiracy theory that you think is correct. Because obviously there are two

paths that these things can take. Yeah, and we obviously, we keep a tintfoil hat on the set. It's usually within me. And you're a good counterbalance to me because, you know, I'll have some crazy theory and you'll be like, oh, like, you know, seems complicated. You know, it could be a lot more simple and, you know, less nefarious than that. Yeah. I usually just like to go back to like, you know, is there some sort of market pressure?

Does this conspiracy theory require me to suspend the idea that, you know, people are rational economic actors. Okay, that's going to be a lot harder. But when you look at this, it's like, you know, if you're a country that's competing with America and you can send a group of five dudes over to America and just wreak some havoc for, you know, what, 100K in flights and gear. Yeah, there was. That's going to be a great L.A. And so that's not, that doesn't break my world model to consider that this might be foreign interference. A lot of the, uh, uh, moms and wellness girlies in LA had heard that Iran had posted like a day before the fires, which they always post. They always post. They're posters over there. And they had posted,

you know, in the coming days, the United States will experience a, you know, catastrophe, the world will experience a catastrophe, the likes of which it has never seen. And then as it became obvious that there was arson happening and these fires didn't all start organically. Then the conspiracy theory windmill started turning, but then since then we've established that, you know, it was arson, but we still don't really know what happened, who did it, what the motive was, was it mental illness, was it homeless people, was it, you know. They just got away with it. I don't know if we'll ever know. Like this is 12 years ago at this point and there's no evidence. There's nothing to. go off of there's no threads to pull it's like you know they've already they got the shell casings

there were no fingerprints what are you going to do anyway uh there are other problems with the transformer shortage uh mainly one is that a lot of these transformers come from china uh 54 billion dollars to exactly in uh 2022 in 2023 in 2003 china was the USA's third largest supplier of transformer components by value selling American customers 375 million worth of parts parts of electrical transformers, static converters. Only Mexico and Canada outranked China by value. Chinese made components represent 15% of America's imports in this category. This might not sound like much until you remember that this calculation is by value.

Since the exchange rate is kept artificially low, China likely provides a disproportionate volume of these components compared to other trade partners. The picture gets worse when you consider imports of whole. whole completed transformers, the OEC reports that China was the USA's number one supplier of transformers and transformer components in 2022, exporting 5.47 billion worth of product to the USA. And so, however, for the large power transformers that are most critical, China is the sixth largest exporter. So it's not all bad news, but it is very rough. And you could see that this could become one of the poker chips on the bargaining table in the tariffs. We're restricting

chips, but chips aren't the only thing we need to build these AI data centers. If we want dominance and artificial intelligence, we need Transformers too. And if China cuts us off, that's going to be a significant setback. So lots of, you know, we never talk about politics, but geopolitics always finds a way in with these stories. So let's let's wrap up the transformer discussion and see how they close this out. By supplementing the 2020 transformer executive order with real industrial policy, the Trump administration has a huge opportunity to jumpstart the construction of housing, factories, and energy infrastructure in the United States. I love the sound of that. I think that should be bipartisan. We all want to build more stuff.

To close, we'll leave you with a full list of policy recommendations from the National Infrastructure Advisory Council. the NIAC. They recommend that the federal government craft policies and designate funding, targeting at increasing domestic capacity. They want to use the Chips Act as a model. They recommend convening all parties who drive demand to achieve greater accuracy in transformer demand forecasting. So everyone who's buying transformers, let's get them all in a room and let's say,

how many transformers do you actually want? How many do you need? Stargate, like how many transformers do you actually need? Crusoe. Let's get you in here and see so that we have an accurate plan of what we need to build domestically, how important are the tariffs, etc. They recommend encouraging long-term contracts and customer commitments. They recommend establishing strategic reserve of transformers with the U.S. government as the buyer of last resort. And they recommend that the government promote collaboration between design engineers from utilities and domestic manufacturers with the goal of standardized

transformer design and reducing complexity. And so there's a couple others here, but basically you need to grow the qualified, grow the pipeline of qualified workers in the transformer manufacturing industry and also ensure sufficient supply of electrical steel by coordinating incentives. So a lot of work to do on industrial policy there,

but hopefully green shoots ahead. What you got? I got a good transition to some actually breaking news from the re-industrialized summit. Aaron Slodove and Austin Bishop actually just sent us this while we were live. They just announced Reindustrialized 2.0 is returning to Detroit. So if you don't know, reindustrialize is a basically conference to get all the different policymakers, investors, and founders together in a single room to figure out how we're going

to reindustrialize the United States, right? This is one of the top sort of national security issues of our time. and it's going to take my hotels calling me to kick me out of the room. Hopefully it's not too loud. But anyways, really exciting event. They did it last year was a huge success. They have people like Dan Gilbert, who started Rocket Mortgage and owns the cabs and is part of stockbacks. And he's going to be hosting it.

So they're going to pull it out of the stops. It's going to be an amazing event. There was a lot of good stories that came out of it. Last year, I was having my second child. literally the same week that it was happening last year. I think you were in the big boat, so we both couldn't go. But we'll have to go there this year. One of the guys who's working on it, Mike Slay, I went to his previous conference,

the Defense Tech Venture Summit in D.C. That was fantastic, really well executed. I gave a talk on stage. The mics work great. There were tons of cameras. All my slides were up. They looked great. It was a lot of fun and a really great community and really top founders went.

And so highly recommend. checking out industrialize, signing up, getting on the list, massive demand, and I'm sure it'll be a huge, huge event. Hopefully we can get out there, but if not, I'm sure we'll be live streaming it and reacting to the show as it goes on. I think that'd be really cool to do. Anything else we should cover on the breaking news, or should we move over to Dara Kosh Hashrahi over at Uber? Do it. Let's do it. And so Dara did an interview with Ben Thompson over Stratory, and I thought it was interesting because I wanted to talk about self-driving cars, but he has a very interesting background.

Dara's family left Iran after the 1978 Iranian Revolution. And to be clear, so did Dara from Delphi's family, did the same thing. Yeah, yeah. So a lot of Dara is just going to do America and just dominate. And so you were mentioning how Iran was kind of posturing that they may have started the fire in L.A. and that they're, you know, kind of a near peer adversary at this point to the United States, certainly not an ally. And it's interesting because the people, like, if a family left, what does that say, if a family left Iran in 1978, like what does that say about their

politics? Well, it actually means that they're pro-business, capitalist, pro-democracy, and those are the people that got kicked out in favor of an authoritarian regime. And so I'm a huge fan of all the Iranians who have made it over here. And, You know, if we ever do need a new leader in Iran, Darra Kosha Shari, I think would be the one to take it over. Or our friend, after Dara, you know, LBO's Google and merges it with Delphi, you know, like a generational run, then go back and run Iran. That's one of the things is, is same thing with, you know, Russia and China and Iran. our adversaries, the actual people in these countries we have so much in common with. We all generally the same things.

We want to have, you know, families and be, you know, great education and great economies. We all want the same thing. And then it's our regimes that are just like, yeah, we are mortal enemies. And so, yeah, you know, Dara, our Dara has told us, told me stories about his family coming over here with literally nothing. like basically a plane ticket and then work going you know going from being you know successful business people in iran coming to america with nothing running it back up you know becoming wildly successful here and uh just goes to show the ingenuity and creativity and drive of that people yeah it's such an interesting uh kind of like a b test on you know is there some sort of raw

CEO skill or raw business leader skill. And clearly that's the case with Dara. His family ran a very big company in Iran. And they thought that the children were going to join the family company when the time was right. And then they had a slight interruption of the revolution that caused them to flee Iran. They were lucky to have an uncle that lived in the United States with his wife. And they took us into their homes and they rebuilt their lives. And so we used to go to France in the summer. So at the time no one really knew the changes a foot in Iran. So we thought we would just leave, go to France for a while while things cooled down, calm down, so to speak, and they never did calm down. And so he goes to the United States and completely starts from scratch with basically nothing.

They were lucky to come to the states and rebuild their lives. And so he had an average suburban childhood. He studied engineering in college and quickly and quickly through that all the way to the start of a career in New York in finance. So he was like an investment banker. at Allen and Company. Then he meets Barry Diller, who was a client at the investment bank, and he worked for Barry Diller on a couple of investment banking deals, and he swears to himself, Dara Koswashari says, if I ever have the chance to work with that guy, I will. And he gave me the chance to work for him, and I went to become his deal guy, so to speak. And so he's a deal guy. We love deal guys on this show. And so he moves up in his career with Barry. He goes over to

IAC travel, which then goes into its own entity Expedia. He becomes a public company CEO. It was a trial by fire. And the early years were pretty rough. But after a while, I got the rhythm of it. Barry was the chairman and controlling shareholder. And we built that company in partnership for many, many years. And it was a really good run for me.

And so I thought that was interesting. He also talks about how he became CEO of Uber a little bit more. We have some details on this just from the reporting at the time. but I thought it was good to revisit. Ben Thompson says, one big story is that, as I understand it, there was a tense boardroom fight to even select you. And D.K. says, yes, Travis Kalanick supported you, even though you're like, you're not going to be part of this company.

Was he just trying to get back at Benchmark? Or did you sit down and talk to him and sell him on your vision? And so there's this question. Obviously, Travis was in a rough scenario. He didn't really want to leave. Why is he backing the new CEO? you would think that there'd be crazy tension there. But, D.K., Darrah, says, I still to this day don't exactly know what went down at the board.

I believe that there were two other candidates. I think it was Meg Whitman and Jeffrey Imelt, at least based on the news. And I think I was the third candidate that was the least objectionable to both sides. And since one side couldn't win over the other, they kind of went with me. Go figure as far as decision making. But it certainly worked out for me. And I think hopefully it'll work out for the company as well. And so he has experience.

He actually took over Expedia from a founder. So he was a Wall Street guy. Then he was a CEO guy. And now he's sort of a manager. And I think that was interesting. He says, Expedia taught him to be an operator. I went through a period where I was CEO of the holding company,

but also running Expedia.com. And that taught me operations and my background on Wall Street. That taught me a lot about capital allocation. So I think that training really prepared me to come into Uber and be the on the ground technical operator that the company needed, but also understand governance, understand capital allocation, et cetera. And so I have a huge amount of respect for Travis and the founding team because it wasn't just him who built the company,

and they had to take a very aggressive stances that related to regulations, the taxi unions, etc. They had to bust through an enormous amount of resistance. I do think at some point the company got so big and powerful, but it was still undertaking. Call it upstart tactics, and they weren't able to make that adjustment, which is, hey, we're no longer an upsur.

start. We now have millions of drivers. It comes with a responsibility. We have to have different kinds of discussions with regulators. And I think I brought that maturity in hindsight. So I thought that was interesting. And I want to get to the... Yeah, and the big question always with Uber is how big would Uber be with Travis still running the company? There were some dark years where Dara had this extreme pressure on him. A lot of people didn't believe that he could sort of fill Travis's shoes. And there will probably forever be a debate still of how big would Uber be with with with TK running it. I joke before that that TK would have loved the post-Dei era.

He certainly. He's starting to rear his head. He did the all-in podcast. He's done little stuff here and there. He was spotted in D.C. during the inauguration. Yeah, maybe he'll do a people, maybe he'll do a people magazine interview. We can hope. But the reason I wanted to talk about this was because I have been kicking around in my head. Is Uber a winner or loser in the AI era? And I haven't fully come to a conclusion. I wanted to hear what Dara had to say and hear him kind of go back and forth on it. So we'll go to their decision to exit self-driving cars and where they go from there. So Ben Thompson says, you're doing partnerships with different autonomous. driving companies in different cities.

Why don't you give me your high-level pitch on how you see this market? Then there's a bunch of specifics that I want to drill down into. So, DK says, yeah, definitely. Listen, I don't think it's an if, it's a when, and the AV is a huge opportunity for the entire marketplace. These robot drivers are going to be safer. I think they have the opportunity at scale, and it'll take a while to get to scale to reduce the price per ride and increase the tam of the marketplace, trillion-plus dollars.

We think it's an enormous, enormous, enormous long-term. term opportunity. Now, a couple things have to happen before that opportunity actually turns into into real financial opportunity. And so he talks about developing the advanced technology groups with ATG, which was Uber self-driving group. Is it the 2025 era in San Francisco? Well, it could be. It could be, right? But I do think the market has changed and I certainly hope it has. First, You need a consistently superhuman safety record. It's not good enough for a robot driver to be better than a human driver. It's got to be multiple times better than the human driver.

I think the capacity for society to accept human failure is much more than machine failure. I completely agree with that. There was a fatality in Phoenix. Did that change Uber's mind as far as getting out of the autonomous vehicle market or were you sort of already on that way? And that's sealed a deal. I think we were leading that way. It certainly was a very, very important factor in our determination. but there were a couple other issues that were more paramount.

One was they were in the middle of COVID, so all of a sudden capital was much more dear. We went from losing $2 billion a year to losing $4 billion a year, which is pretty scary. My job is to make sure the company survives, and this was a significant amount of money burning part of the operation. The other issue that was a big one was that even though we were developing ATG to some extent separately, we treated them as arm's length.

we did have the marketplace separate from ATG and the other players with whom we wanted to partner like Waymo didn't believe us. So they couldn't do a deal with Waymo as long as ATG was there because they were like, hey, at some point you're just going to swap Waymo out with ATG. And so they want to be asset light. Hardware was not Uber's superpower. At some point, companies have to know their superpower. There are very few companies in the world who are great at hardware and software. Tesla, Apple are probably the two of the leads. It's very difficult to pull off. The accident, capital, how the business was shaping. you either had to make a bet on a vertical or platform. We wanted to make a bet on platform. And then just superpower were the four reasons why we decided to get out of it.

And Ben, compared it to Netflix. So on autonomous cars, there's a question here. Where does he say? How does that differ around the world? U.S. federalism. So there's a question about you're obviously the ones that have variable supply. Speaking of the network possibilities before, I'm on board with that. I should have been a better devil's advocate here, but let's grant you this.

You are the aggregator sitting at the top of the stack. I'm very curious to think through what do those layers, some of which you just listed, look like. So let's take a look at the actual cars. Is the software stack and the hardware made by the same company or a different company? How do you see that playing out? And Dara says, accepting Tesla, it will probably be different. So if I look at the stack, it actually kind of looks like the hotel business. I'll expand on that in a second.

But let's look at hotels for a second. Right, you've got the brands and the owners. Well, you've got the demand layer, which can be Expedia. It can be Booking.com. It could be Marriott. Then you have the brands themselves, whether it's Marriott or an independent. And then you have the operator. The operator, these are the teams, management teams.

Sometimes Marriott is an operator of a hotel. Sometimes there's actually local management companies as well. That's an operator. Then there's the asset owners. These are REITs, real estate investment trusts. Marriott doesn't own almost any hotels whatsoever. These financial partners own the hotels, and then you obviously have the financier. And so he thinks that's going to happen in autonomous vehicles.

You have the network layer. That's Uber. That's Lyft. It could be WOMO, too. They have the wherewithal of also going direct. Then you have the driver. To me, that's kind of like the brand, which is the Marriott driver or the Waymo driver. Then you have the operator, the management company.

This could be us or Move I.O., which is a partner. of ours. Actually, 15% of our inventory today come from fleet operators that are on the ground in these cities, so we think we can move them over to managing AVs very easily. Ultimately, we think of OEM manufacturers. Most OEM manufacturers are going to have different software providers providing AV, sometimes on an exclusive basis, sometimes a non-exclusive basis. A GM, Tesla are going to develop in-house, but many of the other players are going to license it. And so he's talking about this fragmentation and he's applying the the expedia lens and it's just interesting to me because we've seen this massive AI boom and my question has always been you know we keep hearing

oh GPT5 is going to be superhuman or ASIs right around the corner and shouldn't those models be able to drive if they're superhuman like we keep hearing like they're they're going to be like better than any PhD and it's like well most PhDs can drive a car and so That should be part of the eval, I would think, would be, yeah, it can also, it can write papers, but the same model should be multimodal, multimodal enough to drive a car. And so there's a question of like, who wins that? And then how much staying power is there in this aggregation layer? Certainly Uber has a lot of people that have installed the app. They rely on it.

There's a whole system, payments, ratings, all this different stuff. But is Uber vulnerable or are they actually stronger than ever? What do you think? Yeah, and we talked about this before. I it seemed like you know here hearing this interview is like completely changed my opinion on so it's smart for Dara to go and talk with somebody like Ben Thompson because it'll actually be a very intellectual conversation more so a journalist that's just trying to get a headline or potentially dunk so I think that his point of view of comparing it to the hotel travel industry which he obviously has a ton of experience at from his time. at Expedia, that starts to make sense. I always had this lens on Uber as, okay, Waymos is dominant force. They're experiencing, you know, they have a technological lead. They have the actual traction lead. People love the product. They have their own app for bookings. And so, you know,

we had talked about this on the show before. What happens to Uber? Are they a cable company that just has a lot of existing, you know, consumer demand and, you know, comfort and usage? And they just sort of, over time, like people just still prefer human drivers for certain things. And, you know, maybe they just sort of end up taking a huge discount on their, on their multiple because, hey, this business is going to be dead in, you know, 30 years completely. And it's not really going to be growing. Maybe you grow earnings, but not revenue, you know, who, who knows. But now seeing this, I can't imagine a scenario where there's, you know, different fleets and operators and technology providers and Uber maintains that sort of, you know,

routing demand from consumers to to these fleets and sort of being that marketplace layer. So I can totally see a world where they thrive around this new trend, right? They're stripping out potentially. There's a bunch of costs being stripped out when I ride, you know, I'm about to get an Uber over to the PMF or die cage. And it's going to cost me like $60. The majority of that is going to go towards the driver who just pulling up. I open the door, I get in, you know, say a few words and he drops me off in 10 minutes, right?

Yep. I can see Uber really benefiting overall, and I think this is the right narrative for them to take when they don't have this sort of internal technological lead or even on the ground traction that away mode does. Yeah. I do wonder if maybe Uber is particularly well positioned for this like slower transition towards AV fleet rollouts because even if the next training run of the AV AI system is just flawless and superhuman in every way, it's still going to take a long time to just build that many Waymoes

like Jaguars going out of business, like where are they getting these cars from? They need to make so many of them. And then even once they do that, it's hard to maintain that fleet that can flex up or down for, hey, it's New Year's midnight, everyone wants to be in an Uber, or it's Monday morning and everyone's commuting, are people commuting in Waymos now or Uber's because we're in this like post-car ownership society that's possible? And Uber has this ability to, with the demand-based pricing, the surge-based pricing, they can say, hey, it's New Year's Eve. Surge pricing is going to be crazy, $200 to just hop in your car and go pick up someone. Even if there's a lot of AVs driving around, 100% of the AVs could be in use. And then you're going to want human flex up to actually

meet the full demand. And these are doing people that just commute and they're just going to say, hey, I want to make some extra money and the prices are so good. I'll jump into the market right now and have a little bit more flexibility there. So I could imagine that there won't just be, oh yeah, one month, like all the cars are self-driving immediately just because of how long it takes to build that infrastructure. The counterpoint is that Waymo is now venture-backed. They did a round where they raised from, you know, Google is a majority owner, but they did a venture round. And so that tells me, one, I was surprised that Google didn't just try to own the entire company. But that tells me that their ambitions are to be the next Uber. So they may play ball with Uber at some point. Maybe there's

partnerships that they can do, but they're still competing for the same pie. John, I'm going to get kicked out of my hotel room. Okay. And so we got up the show then. Well, I was going to say, if you want to run through a bit of timeline to give the people what they want, you're welcome to, or we can just pick it up. Fortunately, I'm going to the airport this afternoon. I'm flying home. We're going to be back in the studio. Back in the studio. Yeah, I think that's a good place to, to, to, to, stop it. We're done with the Dara story. Tomorrow we'll take you through Elizabeth Holmes prison interview. We'll take you through a ton of timeline. We're going to have a million posts built up. We got a whole stack here, folks. So set your alarm clocks for some time between 8 a.m.

and 10 because we're not really on a full schedule yet. But we appreciate you dealing with all the kinks of live streaming. We're still figuring this out. I think we've had a fantastic couple weeks with it. and we're really enjoying it. We appreciate you listening to the show wherever you listen. So don't forget to leave us five stars on Apple Podcasts and Spotify. Leave an ad in your review. Send us DMs. Tag us in posts you want us to react to.

We will get it on the show. And next week, we'll have some updates on PMF or die. And I got a quick line before they, you know, put me in cuffs and walk me out. But sign up for ramp. buy you know move your portfolio over to public get an eight sleep run an out of home campaign with ad quick and get a bezel watch and then take it to your wander i think those are great that's just a simple recipe for a good Thursday there you go all in a day's word noon on the east coast it's still 10 a.m. on the west coast you got plenty of time to get all that done today so go do it

Thank you, brothers. We will see tomorrow. We'll see you tomorrow. Talk soon. Talk soon. Bye.