The Pomp Podcast - 289: Mike Maples on Finding World-Class Founders

Episode Date: May 7, 2020

Mike Maples, Jr is a Partner at Floodgate. He has been on the Forbes Midas List since 2010. He is one of the most successful early stage technology investors in the world with previous investments in Twitter, Twitch.tv, and Lyft. In this conversation, we discuss how to build a breakthrough company, why a founder's insight is more important than their original product, a new scientific method for identifying attractive markets, and what patterns Mike has recognized in the best founders over the years. ============================= This episode is brought to you by Koyfin. It is the only software tool that I use when trying to better understand the financial markets. They are a web-based platform that lets you analyze stocks, ETFs, mutual funds and other assets all in one place. I’ve been using it every day to track what's going on in the market and I think if you try it, you will too. Koyfin has a ton of high quality data, powerful functionality and a clean interface. The best part is that it is free. You can sign up at http://www.koyfin.com =============================== Pomp writes a daily letter to over 45,000 investors about business, technology, and finance. He breaks down complex topics into easy to understand language, while sharing opinions on various aspects of each industry. You can subscribe at www.pompletter.com

This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast. Simply the best podcast out there. Let's kick this thing off. Mike Maples Jr. is a partner at Floodgate. He has been on the Forbes Midas list since 2010. He is one of the most successful early-stage technology investors in the world, with previous investments in Twitter, Twitch TV, and Lyft. In this conversation, we discuss how to build a breakthrough company, Why Founders Insight is more important than their original product A new scientific method for identifying attractive markets

And what patterns Mike has recognized in the best founders over the years I really enjoyed this conversation and I hope you do as well Before we get into the episode, I want to quickly talk about our sponsors This episode is brought to you by Koifin Koifin is an awesome new product It's the only software tool that I use when trying to better understand the financial markets They're a web-based platform that lets you analyze stocks, ETFs, mutual funds, and other assets all in one place. They've got charts and plenty of data.

I've been using it every day to track what's going on in the market during these tumultuous times, and I think if you try it, you'll love it. KoiFin has a ton of high-quality data, powerful functionality, and a clean interface. It's basically a Bloomberg 2.0. The best part is that it is completely free. You can sign up at www.koifin.com. That's K-O-Y-F-I-N.com, Koyfin.com. You can also go into the description, and there's a link there to click. Don't forget, I also write a daily letter to over 45,000 investors about business, technology, and finance.

I break down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at Pompletter.com, Pompletter.com. Again, the link's in the description. All right, let's get into this episode with Mike. I really hope you guys enjoy this one. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management.

You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. I've got Mike here. I'm super excited about this. Mike is one of the most thoughtful people, I think, in early stage investing. And he's got all the war stories and scars to prove it as well. So thanks for doing this. All right, Paul. Thanks for having me.

For sure. For those that don't know you, maybe let's just start with kind of your background before you got into investing with Floodgate. Yeah, so if we go way far back, my first experience with business was a professional calligrapher in the sixth grade. And so I had a kind of a natural talent for it. And I learned that I could make money much faster and with less work by just hand labeling signs, you know, menus for restaurants, jewelry store signs and stuff like that. I'd follow my mom into town. So I was in the sixth grade and you make a lot more money doing that than like weeding the flower beds and stuff and so so that's kind of how i got into it and then when um personal computers came

out there was this device called the koala pad and my dad worked at ibm and so we weren't ever going to get a mac and then you know mac paint came out and so i thought well i want to create a version of mac paint that runs on pc but it's optimized for calligraphy and so you know for folks who understand calligraphy, you, you, uh, you have a wide brush that you tilt at a 45 degree angle to get that sort of, uh, the, the subtlety of the beauty of the letters. And so I, I got a koala pad and I had it, had it have different types of brushes and I could do calligraphy on this koala pad. So that's how I got, and then after that, I started writing video games and then went to Stanford and that was just kind of, you know, that was the beginning of it. Um, yeah.

Got it. And so after Stanford, did you know that you wanted to go into investing? Did you want to kind of build at the same time? How do you end up focusing exclusively on? Yeah, not at all. It's funny. I would not have, if you had told me nine months before I started investing that I was going to be a VC someday, I wouldn't have believed it. So, I mean, we were lucky, we had good VCs in the companies I was involved with. Like when the company I helped start in the late 90s, Motive had the top people from Austin Ventures invested, but also Jim Breyer from Excel at the time. And so I liked our VCs a lot. But you know, to be honest, I didn't really think about them that much, right? You're doing real company stuff. You're recruiting people,

you're trying to avert disaster, make the quarter. And, you know, you obviously they give you good advice and counsel, but my experience as an entrepreneur was not very connected to VC at all, other than they're good guys who are there to try to help us. So, so that one day John Thornton from Austin Venture said, have you ever thought about being a venture guy? And this was when I was thinking about what was next after motor went public. I said, no, you know, I don't think I don't think I understand the job. I've never made an angel investment before. All my stock market is index funds. You know, I just don't think I know what I'm doing. And so he said, well, just humor me. You got some time. You could learn it.

And so I have to admit, after about six months, I got pretty darn interested. And then I realized if I was going to do it, I needed to move from Austin to Silicon Valley because at the time, you know, it was time to get the party started again with the internet. So, you know, you had what people call Web 2.0 and things like that. And so I just immigrated up to Silicon Valley. I'd fly up every Sunday night and stay till Thursday. And, you know, my kids were still in school. So I just tried to make something happen in Silicon Valley those four days a week for about a year or so.

Yeah. And what was the biggest difference you noticed like when you got there, given the time period that this was? I think a lot of people who are especially younger in technology or Silicon Valley today, they weren't around then. So what was like the big thing that you saw or big takeaways that was the difference between somewhere like in Austin and Silicon Valley? Yeah, well, it was interesting because what seemed to be happening was that the web was transitioning from a network of connected pages to now a broader programmable platform that was going to connect people and have stronger APIs. People have been taught about web services for a few years, but now you were seeing it writ large. And, you know, you didn't really know where it was going to go, but you kind of had this sense that important things were happening. and people were sick and tired of all the bad news, the dot-com meltdown. And so this is probably late 2004, early 2005.

And you go to things like the O'Reilly Web 2.0 conference or the Emerging Tech Conference and Jeff Bezos would be there with his laptop and, you know, Stuart Butterfield and Ev Williams, all these people who ended up playing significant roles. You could have almost just written a check for everybody that was in that room and done well. So it was just an exciting time. And it was a lot like my early introduction to computers. I wasn't just so much interested in making money. It was just so intriguing.

And the people who were involved were builders and they were interested in what's the right way to do this. And it was just a really interesting, magical time. So that was kind of how I got back. And there's just a lot more of it happening in San Francisco than anywhere else at the time. So I concluded if I was going to be an investor, I had to there had to be an adequate selection of companies to work with to really make the model work. Got it. And then at what point do you decide, hey, you know what, I think I've learned at least enough to to go out and start Floodgate and kind of what was the original idea there?

Well, I mean, part of it was necessity was the mother of invention. So no, no venture firms would hire me. You know, so you could imagine I'm this guy from Austin, Texas. I've never made an angel investment before, enterprise software, and I'm saying there's this revolution happening in the consumer internet, and everybody's like, yeah, that's great, and you know, Motive had gone public and had done really well, but nobody at Silicon Valley cared, right, because that's a company in Austin, and so it was, the first 18 months were kind of tough, and it was not a very um not a very uh sort of helpful or auspicious introduction but um while but uh

foundation capital august capital were nice enough to let me spend time there and as i was there i started to see more and more founders wanting to raise only a million dollars and they couldn't and what you know not only was web 2.0 happening but the way companies were building were getting built was changing. And so when I started Motive with four other people, you had to have an Oracle database or a Solaris server hosted at Exodus. And it costs you a year and $5 million to start. And so I started to realize 500,000 is the new 5 million here. You have open source software, offshore labor, search engine marketing, broadband penetration, and all the things that cost us tons of money and time to build from scratch was now off the shelf. I was like, you

know, you're going to be able to, you're going to be able to get product market fit for an idea for like a 10th of the cost that you once could. And so, Hey, why not, why not build a fund that's optimized writing $500,000 checks and said $5 million checks. And that was, you know, there are a few other people with similar ideas. Josh Koppelman was just starting the first round. And In those days, we're kind of kindred spirits, the two of us and Steve Anderson, who ended up working on Baseline and later a few other guys. Yeah. And then the name Floodgate, where did that come from or what was kind of the genesis of that? Yeah, we were seeking a name that connoted the idea of an inflection. so like right at the so that the idea was that come to floodgate when you feel like you have

an idea that's gonna um that's gonna create massive abundance in the world but you want to find not just investor but a co-conspirator so you know i like to say we want to back the top 0.1 percent of founders but before the world believes um and so uh so floodgate was kind of like, we're going to partner with you right up until the point where it's time to just open the floodgates. And then it's like, we looked at people like Benchmark, Sequoia, Kleiner Perkins, Excel, Greylock as our customers upstream. And so we'd be the first people on Omaha Beach taking bullets with the founders. And then hopefully we could kind of get it to the next level where it's a little bit more ready for investment. Got it. And then you've made so many great

investments that I won't do it justice by rattling them off off the top of my head. But one of the key themes is many of those businesses, when you invested, they didn't exactly end up doing what you had invested in, right? So whether it's Zimride and Lyft, or it's Okta or Twitter, like you can just go kind of down the line, maybe just tell one or two of those stories. So people understand, you know, what I mean by starting out one way and pivoting and then to kind of some of the lessons learned or patterns that you recognized over the years and seeing that? Well, yeah, well, Twitch is kind of a fun example. So in 1997, or sorry, 2007, I'm in a coffee shop, and I'm talking to the Weebly guys who I just decided to invest in Weebly.

And they said, Hey, you know, we like you. And we want to introduce you a friend of ours, Justin Kahn and his team at Justin TV and as they're saying that this guy walks in with a camera on his baseball cap with wires going into a backpack you know it looked like he was like a terrorist or something with a camera on his head and he said he sits down he says I'm Justin Kahn and I'm like great Justin it's nice to meet you what like what what's up with this right and he goes, well, I'm going to live cast my life at Justin TV. And I say, Justin, come on, that's stupid, right? But like, what's in your backpack? And he describes how the internet is basically a hostile networking environment. And you think about it, YouTube, it had a big exit, but it

wasn't live. And that it was going to be difficult to create good live video experiences over the internet and I looked at Justin and you know he's just barely out of college and so same with Kyle Vogt and Michael Seibel and Emmett Shearer I was like you know these guys will be anti-fragile they'll never run out of money they'll all live in the same apartment spend next to nothing and it kind of doesn't matter how stupid this idea is because the insight behind the idea is interesting you know that live video on the internet's gonna be a thing someday and I'm like you know if the team's going to do it, I could see these guys pulling it off. You know, Kyle had the technical chops. And so I think that's one of the first lessons I've learned is when I'm doing my job

right, I realize that I'm investing in the power of the insight rather than what is the product for what it is right now. Yeah. And it feels like in those situations, you almost have to ignore what they're telling you, right? In that example, they're basically telling you something that it sounds like you might not even believe they can actually pull off it's more of well if you keep that insight and keep pursuing that insight this will change and you almost go into it understanding that it'll change or does that just kind of happen and it's unexpected when there is some pivot or change in the future yeah well I guess the way I look at it is a startup is not a company and like that's the first mistake people make is thinking that it is both in terms of

investing and running them. And I think it's, I like to call it the startup breakthrough sequence. So there's three breakthroughs in a row. The first is the insight breakthrough. And the insight breakthrough comes from an insight from the future. And I like to believe that great startup teams have founders who are time travelers from the future, who are bringing the future forward to the present and starting a movement to bring the present ahead with them uh too many startups today skip the insight phase completely so they go straight to customer development they they try to go straight to the product breakthrough which is you know what can i build that's unique that people are desperate for but it's just like you know godzilla needs an atomic egg it needs to be

radioactive and so um you can't skip the insight breakthrough then after the the product breakthrough is the growth breakthrough and so you kind of you go from having an insight to the future to having a unique product that only you can build that people are desperate for to now all of a sudden we need to shift modes from macgyver and james bond now we've got to be more like mark watney on mars and we got to science the shit out of it because it's about predictable growth with a repeatable pattern. And everything we did in MacGyver mode isn't going to work anymore in the growth mode, Mark Watney mode. So it's like, you know, you kind of ask yourself, okay, when am I investing? Well, I'm investing at the beginning of the insight breakthrough.

And so all I can really evaluate is the power of the insight. And if I try to evaluate much more than that and the founders, I just end up having false precision. Yeah. And I guess like, as you think about that insight breakthrough, part of it is not only how accurate it is, but also how important that insight is over others, right? So there can be kind of small insights or big insights. How have you seen kind of the most powerful ones? Is this something that the founder, they experience and they kind of learn from doing and then they have the aha? are they sitting in a classroom and just thinking like what have you seen there in terms of where those insights come from and then how they actually evaluate which ones to pursue and which ones not so I like to say there are three broad categories I like to say there are plausible insights possible insights and preposterous insights and so like most people live in the present. And so they forecast. And because of that, they have projected futures. But projected

futures flow from the present. And so you're not going to get much of an insight there. You're just going to get incremental improvements to what's already happened. And you're going to carry the baggage of what's wrong with the present ahead with you. So the plausible insights, an example of a founder I worked with is Todd McKinnon at Okta. So you meet him and he says, hey, I'm VP engineering at Salesforce. I know all the early adopter customers at cloud. The cloud is going to be a thing. There's going to be a lot of cloud apps. Customers are going to have problems managing it and making sense of multiple cloud apps. And so once you hear that from him, you can't really unsee it. So it's like not something that you would have understood going into the

meeting but once you hear it you can't unsee it and then you say if anybody can do it it's this guy right he knows all the customers it's like this is this it's not just why is he right but what like why is this the team that will do it um a possible insight is like mark andreessen at university of illinois or bob metcalf at xerox park so they they get into this new field and they may not even realize it yet, but they're in a time machine. So the University of Illinois was a supercomputer lab with super fast networks, and they were trying to help scientists collaborate. And so Mark builds the Mosaic browser and web server to make the internet useful to him. And so he solved his own problem for what was missing in the future that he was living in.

Bob Metcalf, same thing. Everybody at Xerox PARC had a $100,000 computer on their desk. But if you were at Xerox PARC, that was a personal computer. They all had WYSIWYG displays, and he connected them up on Ethernet to a laser printer. And so Bob was like, when he started 3Com, of course, this is how it'll be in the future. Of course, everybody will have a computer on every desk. Of course, everybody will want to share resources on a network. And so his ideas about how networks should be designed going forward, he just had a superior understanding of the future because he had already been living there. So, you know, William Gibson, I don't know if you've ever read Neuromancer, but, you know, he says the future is already here. It's just not evenly distributed.

And then the third type, preposterous, is Elon Musk. So the guy says, I'm going to do a rocket company and launch rockets into outer space and have them come back and land and be reusable when nobody's ever done that except a government agency called NASA. I mean, other countries can't even do it other than the Russians and maybe a few others. And Elon decides I'm going to start a company to do that. Or he starts an electric car company when there hasn't been a successful car company in 50 years. And like they've made a famous movie called Tucker to celebrate the most recent abject, complete failure of a new car company. So now people think that he's crazy, but actually Elon is the right kind of crazy because when he's talking about first principles, what he's really talking about is inflections that are coming together. And in all cases, regardless of the insight, they're almost always, in my experience, powered by inflections that create exponentially improving outcomes that are the rock in the slingshot of the entrepreneur. So the entrepreneurs like David, he defeats Goliath by putting an insight into a slingshot and slinging it at him.

So that's, you know, Elon understood that if you pull together battery technology, which was improving sensors, AI, big data, compute capacity, all of a sudden it became possible to pull all those pieces together into an electric car or a rocket. Yeah. And so I guess part of this is having the insight is both the easy part and the magic, right? You got to have the right insight. It's got to be a big enough idea. But it's also got to be on the right time horizon too, right? There's people who've been talking about, you know, we're going to put computers in each other's brains for, you know, decades at this point. And if you go back 20, 30 years, those people literally were considered crazy. Now people are like, that's probably going to happen, but not next year. And really somebody is going to probably build a big company at some point around that idea. It's just understanding when. And so how do you think about like why now or is now the right time? It's a great question.

And this is where, why we think inflections are so important. So we like to say there are four types. One is technology, which is like Moore's law or, you know, sequencing a genome. The next is an adoption inflection. You know, X number of people use Bitcoin now, five years from now, 10X will or 100X or 1000X will. The third is a regulatory inflection. You know, now telemedicine can be practiced across straight state lines. Will that be permanent? You know, new spectrum becoming available for communications. And then the fourth is a belief inflection and a belief inflection might be, you know, now I kind of think I would like to do most of my doctor's appointments on telemedicine.

And now that I've had to do it a few times, it's not so bad. And, you know, doctors and patients are starting to think that. So like a good why now example from a company we invested in, Lyft, the technology inflection was the GPS locators in smartphones became 10 times more accurate with the iPhone 3GS. If you'd had the idea for Lyft or Uber, but you tried to launch it before that was true, it wouldn't have mattered that your idea was right. it would have been too early because the service wouldn't have worked right but then the other component of the why now was the adoption inflection we could say okay it's 2010

10 plus or minus have smartphones will more than 50 have smartphones in three to five years we're like you know you could see that be impossible and so you say okay now let's let's look out into a world where most people have smartphones that you can locate precisely maybe now you can create a transportation network. But whereas you couldn't have done it before, and if you'd waited another couple of years, you'd have been too late. Somebody would have gotten the jump on you and built a network effect before you could have. Yeah. And then I guess the last part of this kind of insight component is how big the insight is, right? And the reason why that's important is if you think about, there's a lot of investors who they just say, look, the right markets,

the team can be actually subpar, the market will win and kind of carry a subpar team. Maybe it's a little bit of an exaggeration and you need a, you know, above average team and a great market. So one would love to know your opinion on that, but also two, just how do you know that this market will be big enough if they can actually pull this off where it can drive the types of returns that make the power laws of a venture fund work? Yeah. So the first thing I'd like to say about market is when it comes to startups, most people, in my view, misinterpret what a market even really is. So in a company, people tend to look at a market as something that you can map. It's like, I'm Lewis and Clark, I'm going to map all the tributaries of the Mississippi

River, and I'm going to say how high the mountains are, where the trees are, all this stuff, where the indians are you know where where the arable land is um that's that is a way to think of markets if you're living in the present working at a big company um startup markets are movements and movements are started by time travelers living in the future coming back to the present with a secret about the future and they enlist other people initially who believe their secret and they start a movement and the market is a consequence of the movement accelerating. And so as more and more people start to buy into the insight of the founder of the visionary founders, the conventional wisdom and belief shifts to the

point of view of the founders. And then there's this tipping point where the market tips and now people in the present think that's a market. They start mapping it. They do all the traditional things. But so the reason that I think that's important is that the mistake that I think some of my fellow investors make is they ask, what's the TAM, you know, the total available market. And I'm like, that's a myth when you invest in a startup. There is no market. The question is, is the insight powerful enough that a massive movement could start around it that will change the world. And so the insight is like the Archimedes lever of that founder who's going to move the world and they're going to start out small. And by the way, most people are going to

disagree with them at first, right? Good insights. Most people won't like it because most people live in the present. So you're trying to, you're trying to, the best startups I've ever been involved with are founders in on a secret that's right. Venture people who believe their secret, early customers who believe their secret and they all go to war together to make this mission happen which becomes this gathering movement and and the market itself is the accumulated enthusiasm and energy behind the movement yeah one of the best ways i've heard this articulated um is almost like this market expansion component right if you go back to lyft or uber uh with ride sharing if you just looked at it and said oh they can go after taxis that's actually a pretty small market compared to what

they ended up doing right they ended up actually there's a lot of people who don't have cars now they ended up going after black cars and going after taxis right there's so many different things that um they were able to almost uh take a market and double or triple it probably in size uh if not more and that's really hard to sit there with a spreadsheet early on and um you know kind of find some numbers that tell you that story you almost have to have a gut belief that that can happen which I think is kind of your idea of this movement to some degree. Yeah. You know, like too many people make the mistake, at least in startups of thinking of markets as static,

that it's the thing I need to discover as if it's already there. But, but startup founders who are great, understand that the future is designed by people with sort of a, a determined deliberate view of what the future should be. And they realize that the future doesn't happen to us. It happens because of us and the decisions that we make. And so you're not going to, part of the vocabulary of product market fit that I find problematic is, it's as if the market's there, I need to find it somehow with the product. the product market fit is more of like a dance and it's like you as the entrepreneur are the lead and the market follows your lead by creating this movement that kind of goes back and forth in this dance but um that's to me that's the thing that uh and we need more entrepreneurs

like that who are understanding that the future is what we make of it that like design is not just a word for making things look good or even making products look good the future is what we design design is a word writ large in my in my view for sure um i've heard you tell the story of i think it was ev williams and twitter and like running out to your car to get the check maybe explain that story a little bit and kind of how when you talked with them um it sounds like you made a pretty quick decision and knew relatively early like hey this is something i want to bet on, right? It wasn't, let me run back to the office and spend six weeks and do a bunch of due diligence and all of that, at least from what I understand from the story. Yeah. So, well,

there are two different ones. So Kevin Rose was the one where I went out to the car. So this was Digg. And I was really interested in journalism. And so I like to say, if I'm doing my job well, I've done all the diligence on the company for the most part before I ever met the founder. because if I'm following inflections, I have a little bit of a sense of what, what, what types of valuable, uh, businesses might be built someday that haven't been built yet. Uh, so, you know, like, uh, with, with Kevin, I already knew who Dick was. I was super excited. And at the time I had no reputation at all in the Valley. And so I heard Ron Conway was this awesome angel investor so i i took him to uh lunch and i said just give me one chance to look at one

project with you that's all i want just one chance it's all i need and so he said uh okay whatever you know you get your chance and so i said um you know i imagine that you're gonna be talking to this company dig i'm a huge fan i know exactly what's up with it i really want to see dig with use so we met dig then i told kevin and jay that if if they didn't let me invest i'd go on a hunger strike in their apartment which is probably a different tactic than most use with with ev uh it was i'd invested in audio and a week after my check cleared um apple decides to give podcasting way on iTunes for free. And at the time they had a monopoly in playback devices. So quickly we understood Odeo wasn't going to be a business and, and, you know, some investors were kind of

disenchanted. And so I have to agree to give everybody their money back, which was just an amazing gesture. And, um, and I said, look, you don't owe me anything. It's, you know, you win some, you lose some. He said, well, actually I'm kind of contractually, I need to give it back to and then he describes this thing they're working on he's like jack is working on this thing with us called uh we're either going to call it voicemail 2.0 or twttr and i asked him what it does he says you say what you're doing and what else 140 characters or less this is before the iphone and um and i i remember leaving i said well okay i want to invest in it whenever you turn it into something he goes it's not a company yet i said well i want to write a check whenever i have

a chance and I went away from that meeting thinking okay maybe I've lost it for sure now but then it blows up at South by ironically in Austin where I'd come from and then and then reaches out one day it says were you serious now's the time if you want to do it and by then and Twitter was becoming a thing it was I was afraid he was going to have forgotten that I wanted in so it was very gracious of him the whole way and so like twitter's a great example first of all it's an amazing story with the hunger strike i think that uh that is definitely one way to win and hopefully other investors don't take away that uh that they should start going on hunger yeah it's not something i'd recommend it only works it's kind of like maverick a top gun

you know it's like a one-time maneuver kind of thing for sure um but like with twitter for example, and it was still just TWCTR, what was the insight as to why you wanted to invest, right? So literally, they said, hey, we're going to go after this first thing, ODO, it doesn't work, here's your money back. And it sounds like really, they kind of just described it over the phone almost, and you knew that you wanted to invest. Was it the team? Was it something that they had said in the pitch around like the insight? Just help me unpack that. It was kind of a somewhat of a combination of a belief and an adoption inflection. And I didn't have the insight to understand the impact that the iPhone was going to have on it. But Ev basically said to me, look,

before I did Odeo for podcasting, I did Blogger. You know, he wrote this Blogger software and he got about a million people writing blogs. And he goes, you know, podcasting is harder. It's, you know, as you know, it's, you just have to do more work. You have to know more things, particularly in 2005. And so he says, you know, I figured maybe we should just go in the total opposite direction. And if people could write microblogs, it would be so easy that just imagine if 10 million people did microblogs. And if 10 million people do it, then the burden of proof is on the people who are negative, because then you've got something to build on. And I was like, you know I think he's right and so and at the time I was like I just felt a lot of confidence

in them as people and so I just thought you know that's right it's a first principles exponential type of insight but I'd love to say that I was smarter than that but it was you know it was pretty dang lucky there's a little bit of luck in everything before we go on to some of the building stuff uh you recently wrote a piece on back casting so maybe talk a little bit just like what that is and um and part of the argument that you made in that uh in that piece yeah so the the the idea was is it is it possible to apply theory to creating massive breakthroughs and so a lot of people tend to say well yeah it's easy in hindsight to say oh yeah bill gates was awesome or you know Larry Page, Mark Zuckerberg, but that's, you know, survivorship bias. And there's some truth

to that, right? If all you do is analyze the winners, you don't analyze the losers who didn't show up. But here's where I think the theory comes in. My theory is that basically inflections drive exponential opportunity and that there's a cause and effect relationship. And, you know, Moore's law, Metcalfe's law, all these different exponentially improving factors, give them enough time and they'll breach the advantage of any incumbent. So the magic of the tech industry is it guarantees us a continuous supply of amazing, awesome, new kick-ass companies someday that blow things up. And so it's almost like the gathering power of the entire ocean underneath you when you surf, right? And so the backcasting, the theory goes, you want to take a set of

inflections out into the future with you and then map those inflections. Imagine like the future is like a cone and like the possible outcomes or the plausible outcomes are at the center of the cone and then the possible are like further out in the cone and then preposterously even farther. And so now it's like this future map of the future. And you're trying to locate insights. You break armed with these inflections that you believe are going to be powerful. You try to talk to fellow time travelers and tease out secrets about the future. And these secrets, these RM secrets are insights. And what I like to say is that there's no absolute best insight. There's sort of the best insight is very personal. It's about founder market fit. And every insight is a risk adjusted bet about the future that the people in the present

don't believe. And so Elon is willing to go way out there and make preposterous looking bets to the president. But, you know, he ends up being right. And so like, that's what I like to say is like an insight is like a bet. it's a bet on a future that most people don't see but it's also a bet on you and like your confidence and your ability to be the person and the team to make that insight real and i like to say on some level and inside if you look at it through financial academia it's an arbitrage

it's an arbitrage between your understanding your better understanding of the future and somebody living in the present who can only predict project forward and even though your likelihood of failure is high your risk adjusted return is higher because the upside is asymmetric yeah it almost feels like um there's this balance between take take elon with um the electric vehicle or the rocket uh there's probably plenty of people who said hey uh rockets are expensive right and they don't quite get to well the idea of a reusable rocket so then some people get to reusable rocket but they say well there's no way to do that right how are you going to re-land a rocket and you kind of it's almost like a funnel where at the top of the funnel um there's a lot

of people that understand maybe the problem uh but as you get kind of towards the bottom of the funnel people end up opting out and saying either it's not possible they don't know the solution uh or they can't build it at the very very bottom of that it feels like there's somebody like Elon, who says, not only do I have this insight, but also to your point, I can build it, right? And to me, like, that's the disconnect that I think you see is like, there's plenty of people who have the ideas, but the belief in being able to execute it, I think really sounds like that separates people from, you know, the best from everyone else. I think so. You know, the way I like to see it is there's people living in the present, which is most people.

and there's a small set of people who are out there living in the future. But the interesting thing is when I talk to people living in the future, I very rarely ask them, well, what kind of a product do you think is going to happen? Because they don't want to think that way. Like a futurist is like, well, no,

you know, like there's going to be a sensor, you know, there's going to be a sensor-free currency that's throughout the world and it's, you know, independent of all governments. That's just, if you say, okay, well, great. what's the first step to that happening? What you realize through time is it's not a good question to ask them. It's not a question they like to hear. It's not a question they have any expertise in. And so you have this impedance mismatch. You have people living in the present who can't see

the future. You have people living in the future who can't relate it to the present and don't desire to. So I like to say the entrepreneur's job is to come from the future to the present and pull people in a structured way to the future and and so backcasting is all about rather than projecting from the present to what the future will be you go to the future you work backwards and imagine the steps backwards through time it's like you're at the top of a tree you see the tops and so you can look down and see all the branches i have to climb up the tree to get to the top if you start at the bottom of the tree you may climb what looks like obvious branches and you're out on a limb and you can't get now you can't get to the top of the tree and so

great entrepreneurs are able to to sort of reconcile the impedance mismatch they go from the future to the present to the future to the present and they can have the right conversations with all those people along the way because not just what you build it's your persuasive abilities right and getting people to want to change from their present state of comfort yeah and I guess part of this too is like, I almost envision there's a visual of like, I know where I'm going in terms of maybe not the finish line, but kind of the way point that I'm headed towards and figuring out from where I am to there as part of the company building or the entrepreneur's job. How do you

think about the best people, their ability to kind of constantly check if they're headed in the right direction. And specifically, one of the things that I've seen a lot is like, now that there's so much data available, it's really easy to use data to optimize for almost the wrong things rather than kind of where you originally set out to go. So how have you seen some of the better entrepreneurs navigate that? Because you would think data is actually a benefit, but sometimes it can be almost a distraction. Yeah. It's interesting. Like what I find is that most Most entrepreneurs that have been great are pretty firm about the future, but flexible and pragmatic about the present. And so they know that they have to convince people to go on a journey with them.

And so, you know, I like to say if you look at Star Wars as like a metaphor, the entrepreneur isn't Luke Skywalker. The entrepreneur is like Yoda. and um you you say hey look i have this mystical set of powers and tools that's going to help you get from the world of today to a better world of tomorrow but they have to be practical because they have to persuade those people and people people don't like to change even when they're uncomfortable even when people feel pain often they're comfortable in their present state of paint because they're used to it. And they don't like to change because it gets them out of their comfort zone. And so the best founders I've worked with are somewhat rigid about their view of what

the future is. And it's not even rigid. It's more just, it's inevitable. And I get asked this sometimes when I started Floodgate or, you know, I'd been an entrepreneur in the past, people would say to me things like, well, there weren't really any seed funds at the time. What would you have done if you couldn't raise money? And it never occurred to me I wasn't going to raise the money. And, you know, it's funny because I couldn't even spell LP, but it was just completely obvious to me that like that wasn't the question that mattered at all. The question that mattered was how soon are we going to back Thunder Lizards when they're lean startups? That was that was what mattered. And so what I find is that a lot of the founders that I've talked to who've been

effective, they talk about the future like it's real today. And it's like they see it and it's not a hallucination. It's just inevitable. And there's an inevitability about the founder where you're just like, wow, you know, this person, they're going to do it. They're going to make it happen. Yeah. And I guess part of this, you know, I've been fortunate to be around a couple of these these entrepreneurs, you know, especially at Facebook, where just there was a top executive team where everyone was like that, right? You know, and they were kind of magnets to each other, if you will. But that, to me, when I would hear them talk, there was an element of, they were very humble, they're very realistic. But they were very confident in the kind of a

positive way that they were going to be able to accomplish whatever it's that they set their mind to. You balance that with sometimes you hear founders pitch and that confidence is actually a level of arrogance to some degree. And how do you kind of filter between, you know, who is being pragmatic versus who's almost like saying the things that they think they're supposed to say and trying to like decipher, you know, where to put the chips when you make those bets and not almost get fooled by some confidence that ends up you know being pretty shallow yeah usually the people who are overly confident to the and even arrogant can't back up their insights and when you when you ask them when you push them they just wave their hands you know they just haven't

been thoughtful you know they haven't gone down the idea maze at all they just sort of and when you when you ask them reasonable cause and effect questions they they kind of their response is well you're just stupid and um whereas what i find is the great founders sometimes they are pretty arrogant but um they are tough-minded about what are the critical insights that that power their business and what are the must-do things that have to happen. They're almost like Pareto-like in their approach to life. Andy Radcliffe of Formula Benchmark had this great anecdote that he told me when I first got into business. When he was a VC, he would sometimes ask a bunch of questions to a founding CEO. And if the founding CEO answered every question thoroughly, he didn't

invest and the reason is that the founding ceo was better at doing their to-do list than prioritizing and so what what he wanted was a founder to say look um if you want me to do another turn of this i will but like of the 10 questions that you asked these are the two that really matter so i went really deep on these two and i just did a barely good enough job on the others because i'd really rather talk about these two and why they matter and what what andy tells me is that time and again those are the founders that win because you just can't do it all you can't check off everything on the list and so you have to do that you got to get an a plus at the small number of things even if you get a d at everything else rather than a b plus at everything yeah it's um it's

It's so funny to hear the best investors say the same, you know, five to 15 patterns. They just all articulate it a different way, but those little things of just knowing what to focus on and being determined to see it through kind of stick out through all these conversations. I want to switch gears a little bit and talk about COVID-19 obviously is raging on as we're recording this. What are you guys seeing kind of on the ground with these pre-seed and even some seed companies that the virus is either changing things that they're doing or to maybe markets that you mentioned telemedicine that maybe previously weren't there or you guys weren't excited about that now may start to be ripe for someone to go ahead and really build a big company? Yeah, so there's a few areas that I think are interesting. Distributed health care, we can come back to that. I think that changes in regulation and then just the overall problem of the cost ineffectiveness of our health care system, I think, create an opening.

I think that education, you know, now we're all finding out what it's like to homeschool our kids. And on some level, we may not never want to do that again and never do remote education. But I think on another hand, we're starting to understand what works and what doesn't work. Related is remote work infrastructure. And so I think a lot of companies thought of remote work as, you know, distributed work is something that I might let people do some of the time. But now I think people are going to be more willing to have it be a mainstream way. Relocalizing supply chains, I think, is interesting, particularly with 3D printing and advanced manufacturing. um the the the other thing though that um i've just been thinking about a lot is um just kind of this this idea that um the government seems to be you know whether they want to or not

becoming an increasing fraction of our gdp and that that worries me a little bit but i also have to be reality-based about it. So I could see a world where the government, in order to avoid deflation, starts to fund back-to-work projects, sort of like at the end of the New Deal. And if you believe that's going to happen, you could maybe squint and see a possibility that some hard tech around transportation, climate change could get funded that would have been more challenging for traditional VC to fund in the past. And so all of those areas I described, I think, have different belief inflections, technology inflections, but I think mostly it's accelerating a future we were already headed to just a little quicker. Yeah. So you mentioned

both remote work and I'll call it remote education or kind of homeschooling. Those seem to have a lot of overlap because the infrastructure may be positioned for different use cases, but for the most part, there's everything from communication to literally the ability to video conference and do all of that. How are you guys thinking about kind of what level of the stack to invest in almost, right? Is it something where you look at it as more of platforms and marketplaces? Is it something where you take up like an existing service, let's say like tutoring, and you just bring that online in a better way, you know, when you evaluate that, like, what does that framework look like to you? Yeah, well, it's funny. For me, it always does start

with inflections. And so, so for example, you know, I've been I've been reading a lot lately about like the passion economy, and people becoming solopreneurs and being able to be in business for themselves, which I love all that stuff, totally agree. But the way I would come a question like that is to say what are the inflections uh technology adoption belief or regulatory that startups will be able to use as a force multiplier to get a wedge into the market because you can believe that the passion economy is going to happen but the beneficiaries are incumbents like youtube and instagram and you know amazon and and you know the people that make fancy camcorders and stuff like that and so for me it's it's not enough to say that that

you know people coming back to work or want to do different things i'm like okay i agree or that there's a skill gap in the economy i agree you have to you have to connect that to a change event that's bigger than any one startup but that a startup uses as asymmetrically powerful weapon and i found that that that um that approach to things has felt durable for me in every market i've ever been part of you know like here's another example people say um i want to sell you know elder care you know now is the opportunity for elder care startups i'm like i agree what's the inflection that lets a startup win there rather than just traditional companies extend their product lines or sell more of their products. So to me, it always comes back to the

inflection. That's the magic that animates startups. It almost feels like as you're evaluating the insight, the three insights you just said are, I don't want to say generally accepted, but definitely they're not new ideas, right? Even to the point where you're saying, hey, I agree with you that that is a directional insight that makes sense. How important is it for the actual insight the founder has to be more nuanced and almost non-consensus versus it to be a consensus idea, but they just are, you know, they have a nuanced perspective on it or they can just out-execute people. Yeah. Well, and you know, your mileage may vary as an investor, right? So there are plenty of investors who would do a totally different set of things than I do and

and they can be right right so it's kind of like it's kind of like what's your checklist and what's your access to the good opportunities but uh I guess the way I um the way I look at it is it's funny I get pitched a lot by people and and they'll they'll tell me their idea and I'll say well, you know, I think it should have some inflections and I can't see those yet. Can you describe them to me? And very often they can't. And so sometimes the response I get is, well, starting with inflections is obvious. You're not telling me anything I didn't know. And I'm like, okay, great. What are your inflections? And they don't have an answer, right? And so like, I guarantee you, if you say, I don't know how many pitches you look at these days from founders,

But I guarantee you, if you said, what are your fundamental insights? Most don't have a good answer. And so I'm like, just because it's obvious doesn't mean people do it. And so, so like, like, for me, I'm just kind of simple. I'm like, if there's not an insight there, I get uncomfortable. but part of what I'm doing is I'm trying to provide a service to the founder because what I find is that when sometimes a founder has an insight and they just haven't put a voice to it and when they can put a voice to their insight, then they understand in a Pareto optimal way, Oh, this is where my real advantage is going to come from. This is the part that I need to stick the landing. Whereas this other stuff now that I think about it's important,

but it's not vital the way this is over here because that's where my weapon comes from that's where my uh asymmetric upside comes from and so i like to say you either have insights that you haven't figured out yet or you you just don't have any and then you ought to ask how do you feel about that you're about to go to war for this startup idea how do you feel about that it almost feels like it's also a filter for uh persistence in some degree as well right to your point of like if you don't have insights uh and you're running into the battle at what point you're like oh wait a minute this you know this is combat this is not fun i want to turn around and go home versus if you have that true insight and you really believe the world is going to look

this way and that inevitability to it it helps you weather some of those tough days and and the downturns uh that a startup just you know is going to go through uh regardless of how great the founders are so like you know love conquers all in a startup right and it's like you know all All startups are impossible and you're going to get punched in the face over and over again. You're going to have people telling you your idea is stupid. You're going to have all these near-death experiences. You're going to have bad luck come at the worst times. You're going to have founders arguing about which way to go.

And so if you don't have authentic love for the insight and a determination to make it true in the future, you'll give up. You know, you'll quit when it gets that hard. Whereas, you know, love conquers all. uh and so uh you know i think that that's really important and what i find is that that uh people who who have an insight about how the world should be find it very hard to let go of that you know they find it very hard to unsee that or let go they just have to see it come true yeah well i saw a tweet recently that you had um where uh you're saying no no it's a good one uh

you're saying basically like the fact that all of these younger people are being sent home essentially to their, to their bedrooms. Right. And they've got a lot of time to think they're not distracted with their friends or kind of the traditional experience of school. It actually may lead to a lot more invention, right? They've got time to think and kind of do that. So maybe describe a little bit about why you think that's so important. I tend to agree with you,

but we'll just unpack it a little bit more in terms of what you meant by that. Yeah, so most great founders that I've met, I've also learned in their past, they built something for its own sake, not because they were going to get course credit, not because they were going to get an allowance, not for any extrinsic motivation, purely intrinsic. and they did it just because they got obsessed with a new field and in fact obsession is a word I like when it relates to founders and you know it rubs some people the wrong way but to me obsession is like you just it's the last thing you think about before you go to bed it's the first thing you think about when you get up and when you're when you're in a situation like a lot of these 14 year old kids are in now they have time to kind of go off into their room and put the keep out sign on the door and pursue an obsession at a degree of at a level of intensity that they

might not ordinarily be able to do. And I think that's a good thing. So I think that we're going to find that a lot of inventions and breakthroughs from people who didn't know what the rules were supposed to be will will come out of this period yeah it's um we hope so at least for sure um one of the things you guys did at floodgate recently that i thought was pretty cool is you created the anchor list um and is uh very focused i think on operators and founders maybe talk a little bit about what that is and kind of the logic behind starting that yeah so that you know what you find is behind a lot of these startups is some operators who everybody who was involved with the success looks back on and says, I'm not sure it would have even happened without them.

And they're usually kind of the unsung heroes or sort of like the offensive linemen in a football team, you know. And so these operators can be enormously helpful to startups. And so we wanted to start to have a very highly curated list of who we thought the best startup operators are, which is important because a lot of big company operators provide precisely the opposite of good advice to startups. And so Sean, who's our senior associate, is kind of heading this up and is very passionate about it. And so we've gotten some really good judges and we're trying to identify the best operators who can help startups and just see where it goes from there. If nothing else, they get recognized, but if it goes beyond that, so much the better. Absolutely. And speaking of

operating, I kind of want to end with a conversation around the investing business itself is changing, right? And so a lot of people want to ask investors about the cool companies they find and their process for finding those companies. But for those that do invest, they realize there's a whole nother part of the job that usually doesn't get talked about, which is building floodgate, running floodgate, and kind of thinking about your own business. What are those changes that you guys, you know, behind closed doors are talking about and kind of cognizant of as to how your business is changing as technology, you know, improves and the virus, you know, kind of goes and all that?

Yeah, I think that the thing we always try to come back to is all great investing is about knowing something the market doesn't know. And so it's not enough just to say, hey, we were early, we've got a good brand, let's jump into the scrum and try to win our share. And so we're always pushing each other to say, what is your idea that's not obvious? because like right now, you know, it's funny, you'd think that seed pricing is going to go down all this stuff. There's a good argument that it's going to go up, you know, the series A firms and the bigger firms are going to be less inclined to do series B and C rounds unless it's an overtly obvious compelling company like say Notion and then they can just back up the truck and park a lot of money in it. But semi-risky B and C rounds I think are going to get done less and I

think that the big firms are going to say, well, you know, writing a $2 million check doesn't feel that risky to me if I have a billion dollar fund. And so I think we might see more seed checks in the short term. And so if you think your business is just jump into that scrum and try to fight for your share of deals, I don't think that you can ever be very good. I mean, I think you can do okay, but I don't think you're going to, you end up having a strategy that's based on fear of missing out. Whereas I think that what you, you can still say, well, you can always have an idea that's not obvious and you can always find startups that embody those non-obvious ideas and be non-consensus and right as an investor, not just an entrepreneur. And I believe that you can always do that,

that there's always a new frontier of getting good at that. There's always an opportunity that the market doesn't see, there's always group thinking markets. It's always true. And so, you know, hopefully we can, hopefully we can do that. It's, but it's tempting, right? We start to say, gosh, we don't do as many events as, as this firm over here. Should we have a recruiting agency or should we, you know, have all these platform services and marketing programs and newsletters? And, you know, it's every now and then you, if you're not careful, you get caught up and should we do that? Yeah. A very experienced angel investor once said to me, this game's easy. You just have to see everything and then be able to get in the deals that you want. And I said,

that sounds really easy, but obviously incredibly difficult to be able to do. And it feels like there's a lot of, you know, the ground is moving a little bit in early stage investing. Some of it for the better, some of it not. But, you know, to your point, more and more people have newsletters, more and more people, you know, want to make sure they're top of mind. And it's almost a sense of what you described with founders, making sure they're focused on the right things, right. And kind of letting everything else just be, it sounds like you guys kind of go through that exercise yourselves. Yeah. And we try to be friends with, you know, anybody who's got new ideas of how to invest, you know, a lot, a lot of the operator angels, you know, folks like Jeff Morris,

Brianne Kimmel, Bobby Goodlatte, Ryan Delk, lots of these folks. We've decided rather than think of it as a competitive threat or have a defensive posture, we should just say, hey, they're a fact and let's help them and be friends and work on projects together, find a way to be good for the ecosystem together. And so, you know, I think that you can do that and still come out ahead. but you know it's it's it's it's a lot harder than it was in 2005 in 2005 it was hard to convince people that it was even worth doing but now you got like 800 and some odd seed funds and climbing you know now it's now it's uh i like to say when you invest you got to decide do you have fear missing out or do you have joy of finding greatness and uh and so i'm more of a jofg sort

You know, I'm like, it's okay if I don't see all the good ones, as long as the stuff I spend my time on is great. And as long as the people I'm in business with are really great, you know, I'll get my share and I'll just get comfortable with the fact that I can't see it all. well you uh you've got the podcast starting greatness and uh you've brought on um you know great guests after great guests and uh i joked with somebody recently i said mike's cheating he gets to talk to all the smartest people in the world already now he's just going to show it off to everyone on the podcast yeah that one's been fun i i uh you know if i was smart about it i'd be a little more calculating i'd be like figuring out the release schedule and how to game it so i get traffic and stuff but i thought okay if i could if i could have just the the people who are the super performers and talk about what it was zero to one that that would just be that would

be a good thing to put out there uh and so i've just had tremendous fun with it and some people that are coming down the pike are going to be pretty fun too um i've got one coming out a few days now with steve blank on uh covet 19 that is going to be a little bit controversial because you know we take some pretty extreme positions in it but um but what the heck you know it's it's the truth as we see it it's uh as you know many of these cases you can optimize the little things like release schedules but at the end of the day if the content's good uh that's you know 80 90 percent of the value right and kind of people will find that the good stuff regardless of if you release it at midnight or uh or some other time yeah i hope so and i mean that's what we've so

far it's just been less but better is trying is how we're trying to think about it and you know time will tell and even if we never get a deal because of it it's just been fun and it's a fun fun way to connect with founders throughout the world and it's just you know 155 countries have downloaded it it's just way way more than i ever would have expected for sure um if people want to go find uh out more about you uh or floodgate where do you want to send them uh website twitter yeah probably probably the best place would be uh twitter at m2jr um the podcast is starting greatness so so that's on apple or spotify or where you know wherever and then um our website floodgate.com uh but yeah i mean and and i like to engage with folks particularly people who

have these you know these time travelers or these insights from the future you know those are my peeps for sure so uh before i let you go i asked two questions and then you get to ask me one to finish uh the first question is what is the most important book you've ever read um gosh one that has been poignant for me recently has been the top five regrets of the dying and it's this woman named brawny where who was in australia and she would help people in hospice the last 90 days to six months of their lives and she she found out from these people what are the things they wish that they'd done in life that they didn't get around to or that they just you know i wish i'd been my authentic self i wish i'd been not afraid to express my feelings i wish

that you know um so there's this set of things i wish i didn't work so hard um and so uh the book is really nicely done because it has an example of somebody dying who's pissed because they they missed this and they have no time left and then there will be somebody who did it right and they you know they they sort of uh end up having no regrets and so that book was helpful for me because it was like you know you get so focused on winning the here and now that sometimes you got to come up for air and say okay if if i'm in the last 15 seconds of my life am i gonna be like oh shit i've you know i have one of these five regrets so i i like that a lot i like books like that. I don't read business books as much. You know, I've always liked this book called The

Alchemist. You know, and I like a lot of Dumas books, like Count of Monte Cristo, who's such a good writer. But yeah, I don't read as, well, I read three books a week. So it's like depends on business and other stuff. But most of the stuff that sticks with me is longer term. Yeah, I think it's Bezos is the one who basically said, you know, most of the big decisions in his life the way he decides what to do is he says i fast forward you know till i'm 80 years old and then look back and say which decision am i going to regret the most not making and then he goes ahead and he does it and so a very similar type of mindset there and every company i've ever started i was way more afraid of what it would feel like when somebody else does it then uh

am i going to fail like it it just you know in racing the fast race car drivers say you don't look at the pins you look at the path through the pins you visualize the path through the pins and i think entrepreneurship's a lot like that like once once you can't visualize not doing it you're just like well i'll just find a way i don't know the way yet but i will find it i'll find there there's always a solution there's always a path through the pins i love it um the last question is uh aliens talk about uh the future uh believer or non-believer in an aliens potentially existing uh i guess for the most part i'm a believer because i think that really that's a question of how big do you think the universe is and if you think the universe is really large

it becomes approaching a hundred percent probability that there's intelligent life somewhere and it's weird it's like if you think that the universe is infinite then by definition you have to believe there's in fact you have to believe that infinity kind of blows your mind when you really think about because like the the conversation we're having right now is happening an infinity number of times somewhere because that's infinity you uh you've hit on exactly why i asked that question which is uh i actually don't care about the answer to the question is how people work through what their answer is, right? And you really can see the way that somebody thinks about,

it's similar to, my brother worked at an investment bank and he goes to the interview and they're asking him how many golf balls go in a 747, right? And he's like, you know, basically, they don't care what your actual answer is. They want to see how do you mentally get there, right? Because the process is more important than the actual result to some degree.

Yep, yep. All right, to finish up, what one question do you have for me oh boy and i hope this isn't an unoriginal uh hackneyed question do you think that the dollar is a bubble that will collapse in our lifetime this is the uh hundred trillion dollar question so soon to be more yeah yeah so basically here's my general thought. Uh, I'm going to give you two scenarios. Um, and then I'll try to put a weight of confidence of them playing out. Uh, the first scenario is, uh, coexistence of, uh, a nation state, um, backed global reserve currency, like we have now coexisting with a, uh, very popular

separation of state and money, let's call it Bitcoin, right? And so to me, that is something that looks like the United States and many of its main trading partners end up continuing on the status quo. Actually, it may get deeper entrenched, actually. But then there are some maybe smaller countries or countries who are not friends with the United States that end up saying, hey, look, let's get off this system and go our own way. This non-sovereign thing is interesting to us. And so that coexistence is kind of path one. Path two is one that is much more adversarial. And actually there is a, the nation state currencies fail, you know, whatever that ends up looking like. And then you get this non-sovereign thing. On option one, I put a very

high degree or a high probability. So I don't know exact numbers, but more than 50% likely that there's at least coexistence of fiat and a non-sovereign currency that's used with some degree of popularity. When it comes to the adversarial nature, I actually think it's this weird thing where somebody once said to me, most great things in life aren't something until they are. Right. And, and, and that's a weird saying, but, but I think it really applies here in that it's $160 billion asset right now. Right. I think most people are looking at this, like, what is this toy that these people on Twitter and Reddit are talking about? Right. And even though we're 11 years in and it's had the performance it's had, like, like it still

doesn't matter to some degree that will continue for, I actually think, you know, it could be five or 10 more years, maybe even longer. And then all of a sudden it really, really matters, right? And so ultimately this gets at the question that you're asking, which is, does the dollar fail, right? Can the US default? And I have a framework in my head, which I don't know is actually accurate, but I think it's at least interesting. So if you think of in history, every currency that's failed, each one of them basically were replaced as global reserve currency because they another country invaded or used military might to establish superiority, right? And so, you know, Rome falls, okay, somebody else gets to put their currency as the global reserve currency,

and really it's military might. And so that's what the United States has. And that's why the dollar has continued as it has. But that is all in the physical world, right? In the digital world, it's not so much actually who has the most offense it's actually who has the best defense right and the example i use is you know if the united states hacks into china's electrical grid we only can create damage until they kick us out right and then we got to get back in again but if they just never let us in the defense actually makes you more powerful than the offense and so in some weird way um bitcoin having the strongest computing network in the world has the best defense in the digital world. And it has no offense actually, right? So it's like 100%

defense, 0% offense. And about a year ago, I wrote this thing and I said, you know, it would be to steal a line from a Jeff Lewis over at Bedrock, it would be a narrative violation to think that a global reserve currency could reach that level of superiority without having an offense, right? Without having military might. And so that's like a framework to me that is less about the dollar failing and more about like the game theory of people just slowly opting into this thing that has the non-sovereign element to it. So on a probability of the US dollar failing, like it's scary, right? Like at the end of the day, it's just like, what does that world look like i i have an opinion but but like that is a really scary development and it's not obvious

that bitcoin is a hedge against it right a whole a whole nother you know thing right of like you could actually be right that it happens but be wrong on what the solution is right that's right but when you get into this um i do think this is like the big question right and so today i actually wrote a thing that said uh um you know the treasury is going to borrow three trillion dollars from april to june of this year and so i explained you know kind of how treasury bonds work but i said is it really debt if they're never going to pay it back and not so much not pay back the bond holders that they're going to issue for you know the three trillion dollars but the federal debt there's no path whatsoever i don't care what your political belief is i don't care both sides of the

aisle nobody has the intention nor the plan to actually pay back you know what will end up being 28 trillion dollars at the end of this year and so it's like you know you get into this game of like well they can't really default because they could print whatever they want but does that actually accelerate the failure of the currency and you know and then um so the concern i have about it all is if you think about bubbles they're really usually a psychosocial phenomenon and it's it's something where nobody believes that it could ever happen so it'll keep going And I think that the average person I know just believes the dollar be here forever. But the problem is it failing is such a black swan event with such profound consequences that, first of all, it would be terrible.

And second of all, it's like the fact that nobody believes it can happen makes me more concerned that it could. you know uh so i don't can i ask you one another question yeah before i let you do that one other thing i want to say on this that that um you made me think of is uh there's a lot of funds that obviously you know uh they basically lose a little bit of money every month betting on the black swan happening and then when it happens they make a killing right so there's an opportunity cost to doing it but the risk reward exists um the one thing about the dollar failing so let's say bitcoin would be the solution there's almost no opportunity cost to making the hedge to do that right because you can you know again going back to that coexistence where you can actually uh be

pseudo short the dollar by simply being long the other asset uh but it cost you nothing um in that and so that's an interesting uh kind of caveat because normally you would have some opportunity costs there yeah yeah so uh and that and that's to me the best argument for buying bitcoin is in the case of the extraordinarily rare event that the dollar is a bubble it's the most logical thing to go up uh or at least be worth what it's worth yeah and i always tell people too like the part that scares me is like the a lot of people in the crypto world call it like the financialization of bitcoin i'm not worried about like the the infrastructure or the people who come in it's the narrative and what scares me is like bitcoin is such a binary thing it's either going to be

worth tons and tons in us dollar you know terms or it's going to be worth zero right and when you start to financialize it it then comes into uh you know hey it went up 10 like the 10 doesn't matter right because because if you hold this for a long period of time it's either going you know way higher or it's going to zero. And that risk profile, I think is really hard for people to wrap their heads around as well. So I don't know. You said there's one other question? Yeah. So, you know, as someone who follows crypto pretty closely, what do you think are the technology inflections that might cause a massive acceleration of adoption in crypto? Because like most people they'll say well people are gonna believe x y and z i'm like okay great i get that

but like just humor me is there a technology inflection what do you think so i have kind of a two-part answer so one is we already had it right it with uh with the actual invention of bitcoin um and something solving um the double spend problem and that was uh such a leap forward that really empowered all of this right if we don't get that we don't see you know any of this really happen so I think that was kind of sticking point one the second one is I haven't thought enough about it to exactly articulate it but but it's the layer two layer three you know and above right so I always go to gold and the dollar where you had gold bars one of the big you know quote-unquote technology inflection points was the creation of

paper claims on the gold right and and and as people started to adopt that you know technology uh it made all the transactions easier it made everything around pricing easier like everything changed because now you were able to use the currency better ultimately we don't think of it as a technology inflection point, but it was, right? We went from carrying physical precious metals to now you had a piece of paper that was a IOU or a claim on that. I think that there's something like that.

There's some people who are trying, right? So obviously lightning network, liquid would block stream. Like they're, I think, directionally correct. Are they the correct implementation of the technology? That remains to be seen. Um, but I do feel like there are elements that get built on layer two that completely change this and it empowers the transactions. It empowers the ability to price things in BTC.

Um, you know, and really what it does is it sucks a lot of people in because that technology inflection point, um, in some weird way, almost like expands the market of people who are willing to use this. you go from like the really hardcore early adopters to now you get something that looks more usable to a much wider audience. Right. Yeah. Cause like what I've wondered about is so for better or worse, I'm an amateur cinematographer, right. And like 4k video will just bring any computer to its knees.

And so I've got this Mac that has this card in it called an afterburner card. And it's this FPGA that's purpose-built to, like, just tear through ProRes video. And, I mean, it's not just faster. It's, like, super fast, like crazy fast. And I wonder if someday in smartphones or some type of ubiquitous device, there might be a chip someday that's low-cost enough that now you can calculate, make consensus protocol calculations way more efficiently or way more distributed or just way better somehow like that's the kind of stuff i'm looking for is like what's the what's this thing

where it's like oh man now that now that we have that you know the equivalent of an afterburner in everybody's phone but for bitcoin or for ethereum or you know whatever the case would be so the one thing i would say to this um and i apologize i'm thinking a little bit out loud here so one of the things that uh i i call it like the arc of discovery of bitcoin so people come in they hear about bitcoin right uh usually that it's about price so they come and they see that then there's like enterprise blockchain then there's like the ico stuff and you kind of go throughout the entire industry and some majority portion of people come back and say okay this bitcoin thing is real but you have to go explore the other things intellectually to kind of see

that value. So if you then go, okay, well, what is it about Bitcoin that is that kind of zero to one or that inflection point? There's for sure the technology of solving the double spend problem, but actually there's plenty of other technology platforms that are using either blockchain or distributed ledger technology that are faster. They can process more transactions, all this kind of stuff. But the reason why Bitcoin continues to win is not a technology problem, right? And there's people who will say like, money's not a technology problem. It's a monetary policy problem, right? And so the one thing that I do wonder, and I don't have an answer, I wish that I did, is like money, the one asset slash opportunity where the technological

advantage is actually mute if you don't have the monetary policy um kind of superiority right or advantage there um and so it's interesting to think too because i don't know yeah yeah i mean to me bitcoin is just one of the most amazing uh it you know i mean i don't have to tell you this right you just go down infinite rabbit holes but like like what i what i find particularly really inspiring about it is a lot of the early network effects companies that I invested in after the fact have problems with abuse or have problems with unintentional consequences of the platform. And what to me was brilliant about Bitcoin is that effective governance was an emergent property of the protocol. And so the networks that I'm excited about in the future

are those that have governments embedded. Just like the U.S. has a constitution, you know, I think that network capitalist enterprises are not the same as vertically integrated corporations. And network capitalist enterprises, because they have co-creation and production with their customers, it's a lot like, it starts to look more like citizens in a country. And you kind of say, look, you know, for us to all get the most out of this,

we have to agree on a set of rules up front and what the boundaries and guardrails are. And they're not intended to restrict people, but they're intended to make it not in the interest of bad actors to act badly. And to me, some type of a governance strategy is really important for AI and some of these things that are coming on the horizon where getting it wrong is going to be way more costly than Twitter spam. Yeah, the thing that, relating back to our earlier conversation,

is like the insight that a technology solution to governance across a whole bunch of applications feels like a no brainer. There are people out there who have thought, you know, a hundred times more and longer and deeper about what are those specific applications? How do you actually productize them? Um, than I have. And the one thing that, uh, I do go back to is, um, on that governance it's not only like the actual consensus mechanism right but there's also this weird element of um how the votes are cast right so there's one way of like like you know how do you count the votes and ensure there's not fraud and all that kind of stuff but in this um you know you can almost imagine a world where like we're gonna have big problems in the future if the

quote-unquote governance of something is hey 10 of us are going to get on skype or uh zoom and uh i happen to have really good deep fakes right and i can cast votes and all this kind of stuff the beauty of bitcoin is uh the proof of work is really really hard to uh manipulate or uh or fake i don't know if that's the answer for every single application of governance in the future right there's plenty of people who are detractors of it whatever uh for money it feels like the right one but as you get into something like more akin to a network governance or um you corporate governance, are there some of these other solutions that will work? Probably. I just know that like, hey, I'm not smart enough to figure that out. And so I'd much rather go find

somebody who, you know, is the expert and feels like they've got the solution and then let them kind of do their magic. So can I be greedy and ask one more question? Okay. I could talk to you all day. So like the other thing I've been thinking about lately is, you know, you have these computing waves so when my dad was at ibm there were mainframes and then the pc came out and processing power went from super expensive like when my dad came back from vietnam was working for ibm they used to call it the ibm room and they had guys in lab coats and everything was about keep the mainframe running and don't screw it up right and then and then all of a sudden microprocessors come out computing becomes free value migrates to proprietary software microsoft

oracle companies like that then the internet happens and communications bandwidth starts to become progressively free and value migrates from proprietary software software becomes open source and it becomes who's the single source supplier of certain types of data right so you get google facebook amazon all having this massive advantage in data and so if you if you if you subscribe to the theory of evolution of computing technology, you would say people in software and technology are so smart and there's so many of them and they just keep coming that someday data is going to go from being proprietary to commoditized. And so part of what also got me excited initially about blockchain or even blockchain inspired ideas was this idea that data would

be commoditized and rather than owned by single companies it'd be pushed out to the edge and owned by we the people and then and then it seems it in that world governance becomes now the valuable scarce resource right so it's another little bit of a twist on it and that's if you believe in crypto through the lens of not just money crypto but also software crypto and you know tech crypto which sometimes i get offend people when i say i might believe yeah it's a it's a weird thing we're like so like if you said to me what is one you know view of the world uh or of the future that i think is a um it's a foregone conclusion at this point what i don't know is how somebody will build that actual solution it's this idea of uh us owning data but to me um what you're actually

doing is less about like you owning the data and it's more about removing the middleman right which is right now you actually create a bunch of data right so it's whether uh apple's got all the steps you took your heart rate you know facebook facebook has where you went and checked in or what photos you uploaded and just go down the you know twitter's got your thoughts whatever it is they've done a great job of um collecting all of that anonymizing aggregating and they don't really sell the data necessarily what they really do is they sell targeting with the data right and they've all done a great job of of monetizing well in a world where you hold that data really all you're doing is you're shifting the revenue from somebody else to you the question becomes

how lucrative is that how do you change behavior how do you automate it to some degree right like i don't think mike's gonna sit there and say oh okay somebody sent me an email and wants to pay me $3.20 to get my, you know, steps today. Approve. So I think it's, you know, you kind of get into the details of how do you actually execute on it. And I don't know what that looks like. But to me, there's governance there. And there's this, this idea of just sovereignty, right? And the internet really democratize stuff. And then I think you'll get some sovereignty on the back end of this that that'll end up being incredibly valuable as well. Okay, cool. Well, anything else we should talk about it would probably go all day if we're not careful listen you you've been

incredibly gracious with your time i always enjoy talking so uh thanks for doing this uh we will uh we'll send people to the podcast and uh go check you out on twitter because uh you're tweeting up a storm which i uh i enjoy seeing yeah yeah i've been playing with tweet storms lately but um yeah anthony i really appreciate your having me on the show it was fun it's always fun to talk to you're one of the first guys who's willing to spend any time with me when I was starting to look into crypto and always be grateful for that. I'm going to embarrass you for two seconds because you're the only person who came to me. This is pretty early on. You were one of the first, what I consider more traditional venture capitalists who reached out to me.

And I walked away from our meeting and I said, he's the only person who brought a pen. and actually took notes. So I know he was listening, right? Everyone else wanted to like, you know, kind of bullshit or shoot the shit. And, and, uh, they, they walked away and I was just like, I have no clue if they, they even got anything out of the conversation. And I remember when you walked out and you had notes, I said, you know what? I don't know if he'll, he'll agree with it or not agree with it, but I can guarantee you that he actually understood what was, uh, what was going on. Oh yeah. I've still got them. Yeah. I've got them from this podcast today. Yeah. love it all right well i appreciate it mike and uh and i hope everyone really enjoys this

all right thanks anthony appreciate the time