TBPN Live - 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.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. Jordy, 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 what we were sort of recommending. And so expectations going into tomorrow are at a fever pitch, basically. So wish me luck, everybody. I don't want to disappoint.

Yeah, bad day to be a Bentley dealer. If yeah, Jordy's walking in. Yeah, that's great. Well, we got a fantastic show for everyone. 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 uh two iconic tech people did interviews we're going to cover both of them first uber ceo dara koswashari and second former ceo elizabeth holmes um she did hers in people dara went to strateery. A little bit of different outlets, but 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 vaunted 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 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 was going through this stuff chapter and verse and making my own notes and all of that i basically gave myself a college education in visual effects and cinematography while i was driving a truck okay so a couple hundred a hundred dollars 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, Jordy. Amazing story. What an icon. My, my question becomes, uh, you know, this was pre cell phone era. Was he learning and driving, you know, did he have his binders up like it was did he have his binders

up basically like on the steering wheel and he's just kind of like reading like imagine being slammed you know rear-ended camera and he's just like oh sorry yeah he's reading about optic film stock emulsions and uh you know that that was a that was a different era but uh i'm glad he you know, that was a different era. But I'm glad he, you know, he made it out. And I'm glad he did that. But it's crazy because that's just like free internet. And all of that information is 100,000, 10,000 times more available. It's so much more accessible for sure. Yeah.

Yeah. It's so much more accessible. But yeah, autodidactism has been a driving force behind entrepreneurship for a very long time. It's kind of unclear if you can teach it, but, uh, yeah, I mean, I haven't had 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 to go. It rocks. Wow. But yeah, you know, spent a decade learning how to make the best vacuums. That's awesome.

It comes to go. It rocks. Wild. 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 well then look 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 most fun fascinating content i'm like these guys are going to uh 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 of their cpg product across the world what how fantastic is that but um 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, submarine, which of course he had, you know, teams of people work on, but, um, for sure. Uh, 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 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 Capitalism talks. What?

This was a big mix-up, by the way, because you remember Kate Clark was the scoop queen over at the information for a long time. And so Bloomberg... Wait, Bloomberg scooped the scooped queen? Yeah, yeah. It was a scooper scoop. Bloomberg scooped.

It was a super scoop. Well said. Super scoop. But they had to, they had to have taken out a max contract to get, to get her because, um, you know, the information, um, you know, she was a core piece of their, um, 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 Kate Clark broke the news.

So stay tuned. Sequoia Capital is in talks to lead an investment in digital banking startup Mercury Technologies at a valuation 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- Maybe somebody, is it a lawyer or is it somebody could it possibly be well so the other thing is it a lawyer is it somebody well so the other the other thing is uh the account are for rock oh yeah actually ended up leaking just the details like directly so it's very possible that it was whoever runs arthur that just you know put this out there uh no idea that and so 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 and online banking tools tailored to startups. The company reached $500 million 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 Andreessen Horowitz, KOTU Management, and CRV. What's interesting is we have a Mercury account. It plays very nicelyOTU Management, and CRV. What's interesting is, so 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, you know, these tools do play well together in interesting ways. Yeah, so one interesting read into here is one extremely impressive that Mercury was able to 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 one of the best banking products in the world, even if you look at 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 EBITDA, which is notable because one, it's just very impressive doing multiple nine figures of actual EBITDA. 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 EBITDA, that would easily be trading at, that could easily trade at $20 billion, right? You know, Figma, I don't think was anything anything had anything close to that level of EBITDA you're getting the size congregate I just heard 200 million of EBITDA and that's a size going of its own okay but the but the reason they're not actually getting full credit for the the they're not getting priced sort of in the way that, you know, 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 actual profit will just dry up. There's nothing that Mercury can necessarily do about that because it's set by the Fed.

That's a good take. That's very interesting. I like that. 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 is 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 there's always a risk as things progress. And it's just- Yeah. So that's where the discount comes into 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. I 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, 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. 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 sellers that just needed a U.S. bank account that they could run a bunch of card spend through.

So early on, even in like 2020, 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, 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 are like, well, why is Mercury not buying a 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 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 roll out 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. Cause if you had a million, every million dollars was 40 K a year of relatively risk-free, uh, you know, yield, but then SVB happened and our bank partner didn't allow us to extend our, um, 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 Rho, who also had increased FDIC coverage. So anyways, awesome to see. Clearly, fintech is here to stay. The industry has had a lot of naysayers over the year. But at the end of the day, the product experience is so much better for customers on, on average that these companies are here to stay. Yeah. And they're like, 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, uh, since I guess, 2016 and everything is just like so much and it wasn't bad in 2016 like but even now so here's straight atlas was working like it was here's like uh here's a crazy operator workflow

you're gonna 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 corporate and LLC where do you want to incorporate and I'll ask you for the information and it'll ask like, okay, do you want to see corporate and LLC? Where do you want to incorporate? And I'll ask you for the information and it'll just do it for you. And then 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 get onboarded you to this payroll tool. So like a single agent will be able to drive this whole experience,

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, I, I literally think every, 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. It's like, they make it doable, but it

could be so much better. And so the, the warp team, the payroll product, they, they had been working on a totally different, you know different app, a consumer mobile app. And then they had so much annoyance setting up 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 Deal. Yeah. All three of them. I looked at it and I was like, should I start a payroll provider? Yeah. It just seems like there's free money for a while. Both Mercury, we talk a lot about some dominant wins from Founders Fund, of course, and then Sequoia. But both Mercury and Deal were seeded in Series A by Andreessen.

So these are huge, huge windfalls for the firm. Andreessen did the Mercury seed round, and then they did deal at mid-double digits post. And that deal now is just absolutely awesome. They just had a monster, did their quarterly financials leak? I think they just announced that they're doing like 800 million of ARR, which is just 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, decacorn range, uh, 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, yeah, I'm going to look up.

Why do bank robbers rob banks? Because that's where the money is. And it's so hard to you an idea of market size so one of the biggest players in payroll is uh adp which stands a great great acronym automatic public looking this up yeah i'm on of course i'm on public it's automatic data processing and they have 20 billion of ttm revenue and over almost six billion of of ebita and i don't know a single company who 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 you know yeah sure sure but but these companies are like cable in the sense that you have a bunch of subscribers,

you know, contracts locked in that probably will never return. But then eventually the rulings and the deals and things like that. 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 Quora, 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 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 yeah a little bit of the glazonator 3000 coming out for the Port Co., but we'd love to see it. Hey, I mean, you can, fair game to do a little, to pull out the Glazonator if you're going for it. When you see the company and they raise a $50 million Series B, pull out the Glazonator. Let's go. I had my first portfolio company go to zero to a hundred million of annualized i that i got in like sub 20 uh post yeah and i posted i posted that uh i didn't say say the portfolio company name but i posted that it was

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 they were like this technology brother says that like getting like you know a nine-figure revenue you know uh portco is is better than you know so anyways for the record that's great that was a joke, but yeah, fantastic, fantastic progress. So we had a debate in our, in our, in our group chat with, with some former brothers of the week about, you know, what happens to these companies that go from zero to potentially a hundred

plus million of ARR in this super, super, super short period of time. You see like companies like cursorowls on that trajectory, Lemon Labs, Mercor, all these businesses. And there's a lot of reasons that you could be short these companies. But in general, I'm very bullish. It's very hard to get people. It's 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 the, you know, the iron law of anything that goes up quickly must come down quickly. It's very pithy. It does. It does make some sense, but, uh, it, all of these revenue numbers just, just really make it clear that although the valuations feel like the.com boom, although AI feels like a 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 webpage, you got a hundred thousand users and now you're IPO-ing. 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 a hundred million dollars in revenue. You know, hopefully a lot of that's sticky. Now some of it might slosh around other products as people roll stuff out, but I don't, I'm not counting on, you know, if you're with cursor, are you really going to go to Salesforce? You know, 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 dotcom 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 private experience, private market investors that are risking their capital and their LPs capital. And so if these companies don't grow out of those valuations, it's not necessarily retail investors that are going to be holding the bag. 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 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 others 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 and 22 employees. That's so small for how big they are. This is fantastic. Only four months after announcing its series, a the startup has reached a new milestone, a forty nine million dollar series B. Notable capital led the round with Andreessen Horowitz and 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 Quora, 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 a little one hand washes the other on this article. I like it. I like it. Yeah. Pay the bills, 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 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, 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 ar 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 um It's just fantastic to see. I think Paki 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 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 100 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. I've never experienced a time where we had this many new companies ripping from zero to double digit, you know, millions of dollars in ARR. 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, uh, 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, Kleiner Perkins, OpenAI, GV Team, Conviction, Elad, Gil, and LexisNexis. LexisNexis 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 US 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? What's your take on Harvey? As soon as Harvey was on the map, they quickly came out the gates and raised 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. I started asking him, have you heard about this? Have you seen it? Nine months ago, hadn't heard about it, used it, anything like that. 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 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 there'll 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 Cursor to Devin, which are taking different approaches to Windsurf and

Poolside 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, you know, legal AI companies, but none that seem to have the momentum and the sort of like, you know, potential power law effective. Harvey now has hundreds of millions of dollars to, you know, 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, you know, 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 US 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, OpenAI is spending $500 billion on Stargate to train GPT-6 or GPT-5 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 add. 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.

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%, and we just figure out what the number is. Okay, 300 on 3 billion, right? And so I don't think 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 Thompson Reuters versus Ross intelligence case. Ben Thompson broke this down on Stratechery 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 reports. 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 intelligencebased legal platform. U.S. Circuit Judge Stephanos Bibas' 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 Thomson 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. 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 Thomson Reuters. Here's the key aspect of the case, which does have a bearing on generative AI. The product itself did not

violate Thomson Reuters copyright. Rather, the judge ruled that training material that Ross Intelligence used to develop its natural language search functionality did. Specifically, while Thomson 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 and 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 LegalEase, 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, OpenAI 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, uh, 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, 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 OpenAI is listening to the live stream right now.

I'm sure they're just actively feeding this into their models, but we encourage it. We're trying to make the models have our extremist beliefs. And so it's actually part of our strategy. But it is interesting. 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 rollup 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 when the data usa id or what happened i actually i pressed him on that monday i said uh you know how doing, bud? Our hands are clean. But the New York Times can't say the same thing. But 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 not usually that compelling aspect of their pitch, which is 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 health care 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, there have not been massive leaks of really super proprietary data. And certainly once it leaks, it's on the dark web. As a company, you are not just going to be 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 OK or not?

And how can that go into pre-training? So an interesting scenario that I'm sure Harvey is in is that, 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 to, 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, but that said, I'm sure Harvey does some deals where it's like, you know, this is going to cost you $5 million a year. But like, if you allow us to train on 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 contract. I don't have any inside knowledge there. Yeah. Yeah. It's yeah. It's fascinating to follow. We'll have to dig into Harvey more, understand how they built the business. I mean, the open AI

startup fund is in this deal. So obviously they're working closely with OpenAI. 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 legal aids for 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 uh well let's move on to more ai news but this time on the energy side uh 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 US 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'd 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 wait to, if you, 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 extended the shortage. First, the US grid is aging. We know this. Transformers are typically rated for 40 years of service, and much of the US 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 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 me on an airship twirling my mustache powered by coal and steam. Steam revolution. 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 hindenburg 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 in the housing market. And so when the housing market took off in the early 2000s, transformer production followed. But then when the market crashed, it 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 Mariupol and sanctions against Russian steel producers, rising demand for non-oriented electrical steel, a key ingredient in 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. So crazy, crazy, crazy. A 2014 analysis by the Federal Energy Regulatory Commission, the FERC, 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. 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 Moroz, 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 of the 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 wing right wing they can 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 la and the potential for that like there are a lot of people that want to have like a high leverage

terroristic impact and um and these electrical substations are sadly uh 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 uh it dragged on every single day every 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 Minitis tweet. I know he's talked about it. Uh, transformer.

Yeah, this is it. He, 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 Metcalfe station provides most of Santa Clara Valley with power. Facebook, Stanford, et cetera, are all on this grid. The attackers are still unknown. They 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 facts. It's just no one knows how to piece all these facts together.

At 1258 AM in the middle of the night, fiber optic lines were cut not far from the U.S. Route 101 just outside of South San Jose. The substation loses internet and phone service. At 1.07 a.m., some customers lost service. Cables in its vault near the Metcalfe substation were also cut. 1.31 a.m. 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 1.37 a.m., PG&E received an alarm from motion sensors at the substation, possibly from bullets grazing the fence. At 1.41 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 1.45 a.m., the first bank of transformers riddled with bullet holes and having leaked 52,000 U.S. gallons of oil overheated, whereupon PG&E's control center about 90 miles north received an equipment failure alarm. 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 dope accordingly, essentially.

Yeah. They knew where to attack. Yeah. just your uh your your dope accordingly essentially yeah uh yeah so yeah just to kind of get into who might potentially be the culprit uh if you've ever anybody that listens to the show that that follows josh diamond i knew you were going to start notorious for saying good morning we are going to win almost every day and then uh 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 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 these 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 they're sort of sort of these 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, for an adversary that just wants to cause chaos, you know, us and test things. Right. So, yeah, yeah, totally. I'm, yeah, I'm, I'm, I'm staring at the tinfoil hat. It's just out of reach, but, uh and test things, right? So yeah, yeah, totally. I'm staring at the tinfoil hat.

It's just out of reach. But 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. Like 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 it with a couple months of prep, and they get a pretty crazy outcome. There's been a lot of conspiracy theories about whether this

was a test of the system or an attack from an adversary, or maybe just political extremists who are Americans and they want to cause chaos for one reason or another. It's hard to say, but the important thing is relevant. Yeah. It's a relevant repost from Bill Ackman, who reposted within the last 24 hours from his account that has 1.6 million followers. Wow. If you're not a conspiracy theorist by now, you are basically the r word um and um and so a little aggressive clean it up you know remix it to be say yeah if you're not what would your mother say silly if you're not a conspiracy theorist by now you're just silly that hits pretty hard too um so mix it up. I have long said that, uh, conspiracy theories, like if it's a conspiracy theory and it comes true, it's just history. Like nine 11, the, the default narrative on nine 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. 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 a small one because a small 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 a politician 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 then you did it. The Tesla 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. We keep a tinfoil hat on the set. It's usually within reach of 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, is there some sort of market pressure? Does this conspiracy theory require me to suspend the idea that 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, 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 great ROI. And so that doesn't break my world model to consider that this might be foreign interference. A lot of the moms and wellness girlies in L.A. had heard that Iran had posted like a day before the fires, which they always post, they always post, they're, 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 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 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, uh, they've already, they got the shell casings. There were no fingerprints. What are you going to do anyway? Anyway, there are other problems with the transformer shortage. Mainly, one is that a lot of these transformers come from China. $54 billion exactly in 2022. In 2023, China was the USA's third largest supplier of transformer

components by value, selling American customers 375 million worth of parts of electrical transformer 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 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 in 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 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, 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, et cetera. They recommend encouraging long-term contracts and customer commitments. They recommend establishing strategic reserve of transformers with the US 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 standardizing transformer design and reducing complexity. And so there's a couple others here, but basically you need to 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 Reindustrialize Summit. Oh, let's do it. Aaron Slodov and Austin Bishop actually just sent us this while we were live. They just announced Reindustrialize 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. It was a huge success. They have people like Dan Gilbert, who started Rocket Mortgage and owns the Cavs and is part of StockX. And he's going to be hosting it. So they're going to pull out all 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. 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 DC. 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 look 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,

a huge, huge event. Uh, 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 Khoshwasharhi over at Uber? Let's do it. And so Dara did an interview with Ben Thompson over at Stratechery, 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.

So a lot of Dara's just America and just dominate. And so you were mentioning how Iran was kind of posturing that they may have started the fires in L.A actually means that they're pro-business, capitalist, pro-democracy. And, you know, if we ever do need a new leader in Iran, Dara Khosrowshahi, I think, would be the one to take it over. Or our friend after Dara, you know, LBOs Google and merges it with Delphi, 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, the our adversaries, the actual people in these countries, we have so much in common with we, we all generally the same things,

we want to have, you know, families and be, you know, a 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 like yeah totally and so yeah you know dara uh our dara has told us uh told me stories about his family coming over here with nothing 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, 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 the 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 afoot in Iran. So we thought we would just leave, go to France for a while while things cooled down, calmed 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, studied engineering in college 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 & 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 Khosrowshari 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 the 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 DK 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 DK, Dara 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 Immelt, 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 the training really prepared me to come in onto Uber and be the on the ground technical operator that the company needed, but also understand governance, understand capital allocation, etc. 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 stance as it 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 upstart. 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? And 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 TK running it. I joked before 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 spotting it spotted in dc during the inauguration

uh 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 long-term opportunity. And so he talks about developing the advanced technology groups with ATG, which was Uber's 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 sealed the 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 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 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 compares it to Netflix. So on autonomous cars, there's a question here. Where does he say? How does that differ around the world, US 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 Bolt. It could be Waymo too. They have the wherewithal of also going direct. Then you have the driver. To me, that's kind of like 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 io 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 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, GPT-5 is going to be superhuman or ASI is right around the corner. And shouldn't those models be able to drive if they're superhuman? Like we keep hearing like 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 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, 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 or 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, OK, Waymo is this 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 and, you know, 30 years completely, and it's not really going to be growing. Maybe you grow earnings, but not revenue, you know, who knows. But now seeing this, I can imagine a scenario where there's, you know, different fleets and operators and technology providers. And Uber maintains that sort of routing demand from consumers 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 Uber. I'm about to get an Uber over to the PMF or die, uh, 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 opened the door, I get in, you know, say a few words and he drops me off in 10 minutes. Right.

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 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 Waymos, 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 Ubers? Because we're in this 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 bucks 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 going to be 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 out this infrastructure. The counterpoint is that Waymo is now venture-backed. They did a round where they raised from, you know,

Google is the 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.

We're going to wrap up the show then. Well, I was going to say, if you want to run through a bit of timeline to, to give the people what, 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, uh, you know, a million posts built up. We got a whole stack here, folks. So, uh, set your alarm clocks for some time between 8am 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 pm for die and i got a quick line before they uh you know put me in cuffs and walk me out um but uh 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 that's great that's just a simple recipe for a good thursday there you go all in a day noon on the east coast it's still 10 a.m on the west. You got plenty of time to get all that done today. So go do it. Thank you brothers. We will see you tomorrow. We'll see you tomorrow.

Talk soon. Talk soon. Bye.