This Week in Startups - Five levels of AI, venture's recovery & the hottest construction startups | E1979

Starting point is 00:00:00 When Stripe goes public, those distributions happen, that's when the good times start to roll again. Why? Well, because people will have renewed faith in the venture capital industrial complex. This venture capital industrial complex, people don't believe in it right now because they haven't seen the exits. And so when you have a couple of years of very few exits, now people start to say, well, maybe they'll never be one again. they literally become so pessimistic. The Boston Celtics will never win a title again. We traded Kevin Garnett or whatever. And then all of a sudden, hope springs eternal,

Starting point is 00:00:38 and they're back in the game and they win a championship. This week in startups is brought to you by Vanta. Compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it easy for companies to get a sock to report fast. Twist listeners can get $1,000 off for a limited time at vanta.com slash twist. Adio, a radically new CRM for the next era of companies. Head to adio.com slash twist to get 15% off for your first year.

Starting point is 00:01:13 And, CLA. Innovation takes balance. CLA's CPAs, consultants, and wealth advisors can help you get from startup to where you want to end up. Get started now at CLAConnect.com slash tech. All right, everybody, welcome back to this week in startups. I'm Jason Calacanis. I am a podcaster and early stage investor here in Silicon Valley. And he's Alex Wilhelm.

Starting point is 00:01:38 He is a career journalist and database analysis S110Q geek. Yes, yes, sir. And today I'm also a construction and housing tech startup expert. because I spent a whole bunch of time going through and dozens and dozens of community submissions for the show today. So I now know a whole lot about that. Well, you know, in the area of startup land, there are some verticals,

Starting point is 00:02:09 which are kind of like the siren song, you know, the rocks on the beach, you know, and certainly education, health and construction are way up there. just, you know, it's a big prize. Health care, everybody needs it. Housing, everybody needs it. Education. Everybody needs it.

Starting point is 00:02:29 Like, this is 100%. The TAM is 100% of humanity. Problem is, in some places, this, what's the word? Regulation, the government will control these things. Yeah, and for good reason. You want everybody to get an education? Great. Jack.

Starting point is 00:02:49 Hey, you don't want people. building unsafe houses. You may not want your neighbors building something ridiculous next to your, you know, in your charming town. I get it. I'm not like naive here. But yeah,

Starting point is 00:03:02 they have a lot of friction. There's a lot of headwinds. There's a lot of. Yeah. Complexity that's hard to unspool, especially about who's paying in education districts versus parents and then in healthcare insurance companies versus patients. And then in construction,

Starting point is 00:03:18 lenders, builders, blah, blah, blah, blah. It goes on and on and on. There's quite a lot there. But Jason, the good news is that you and I not only have Twist 500 today on the show. We also have news about StubHub's IPO getting pushed back.

Starting point is 00:03:30 We have news from OpenAI about where they are in their progression towards building AGI or what we kind of consider to be AGI. And we also have a little note that a consumer app that everyone loves is changing up as business model. So lots to get to today. Where do you want to start? Well, you and I both love a good IPO story. love a good S1

Starting point is 00:03:52 and let's face it M&A is on the rocks a lot of people have been asking me why is Silicon Valley you know maybe embracing the right a little bit and I think the reason is

Starting point is 00:04:08 I did a guest appearance on a show called Pirate Wires I don't know if you know the independent publication Pirate Wires I'm familiar with it it's it's um who's the guy behind Mike Salana Mike Salana I don't know Mike at all other It's kind of like a little bit of an iconoclastic punk rock publication. It reminds me the zine movement back in the day.

Starting point is 00:04:30 You know, and so I dropped into their pod, and then I had wired email me, and they want to know why is Silicon Valley tilting a little bit right? And I'm like, like most things in life, right? People are driven by status, power, money, sex. Pretty much, right? Like, these are the things that will drive humanity space. hey, you know, when you look at money,

Starting point is 00:04:53 the big part of our ecosystem is M&A. Most companies do not IPO. Most companies shut down. And then some, a large, fat middle of the long tail, have some level of M&A. And so when you take MNA off the table, I think that's why a lot of people are starting to lean right, hoping we can get LinaCon out and get somebody who's pro M&A, right?

Starting point is 00:05:17 pro letting these mid-market things happen. And so when we see an IPO, man, that's DPI, that's, you know, venture capitalists getting to cash out, teams getting to cash out, or having some liquidity, as they say in the business, and then maybe be able to do some distributions so that you can invest in the next generation of startup. So these are desperately needed.

Starting point is 00:05:40 StubHub has been around for well over 10 years. Come on. Oh, it's more than 20. But on the point about why people are insulting, to the right, this is not just a Silicon Valley point, although I think we've seen it because a lot of folks in tech are more chatty than other CEOs and investors. David Zaslov, the CEO of CNN's parent company, said at Sun Valley this week, I'm just going to quote from Bloomberg here, asked about the upcoming presidential election, Zazlov said it mattered less to him, which party wins

Starting point is 00:06:11 as long as the next president was friendly to business. Quote, we just need an opportunity for deregulation so companies can consolidate and do what we need to do to be even better. So I think the point here is people are trying to find a moral or social issue that's driving this, but I think really it's they don't want corporate tax rates to go up and they would like to have LenaCon not looking over their shoulder every time they want to snap up a smaller company. And I wonder if they're going to get that under Trump. We'll see. There's been an interesting shift in some of the conservative Christian right against business. So that'll be an interesting thing to watch. Yeah, anti-business is a pretty tough one. You can take a look at Europe and where

Starting point is 00:06:50 that's gotten them. You know, you can increase quality of life for the average person and then decrease competitiveness on the global marketplace. And that's really, you know, we talk about the game on the field often in our industry. The field is now the planet. We talked about work and the work arbitrage going around the planet. The same is true, you know, with this jurisdiction shopping, as it were, in a business sense, not a legal sense, but in a business sense, you can pick where you put your company, you can pick where you put your venture capital dollars. And so the, you know, how to say this delicately, you know, the more you gunk things up and the more socialist you get, and, you know, there's beautiful things about socialism. You know,

Starting point is 00:07:40 I think it's absolutely fantastic that, you know, people get maternity paid for by the state or you know, you know, getting to take off when you have a baby. I'm totally fine with nursery school being covered for by my taxes, right? Some of these things seem obvious and fantastic. But, man, if you go too far, you're going to lose that next IPO. You're going to lose that next great company. But let's talk about Stubhub here. It was founded in 2020.

Starting point is 00:08:05 You're right. The 2000. I'm sorry. Founded in 2000. This thing, though, has been a bit of a hot potato, right? Yeah. So I was just going back through Stubhubhbs history, prepping for today. It's been sold kind of twice.

Starting point is 00:08:19 Most recently in, I think it was late 19, early 2020, when it kind of merged with the company called Via Go-Go for about $4 billion. Now, the company had been rumored to be considering an IPO in 2022 at a roughly $12 billion price tag. That got put on hold for whatever reason. And now people are reporting that the company is thinking about a $16.5 billion IPO. Very exciting to your point.

Starting point is 00:08:44 people love to see a big deal. However, it's been pushed back until after Labor Day. So September is now the time frame. And I wanted to bring this up, not because I just wanted to bring a piece of bad news to the show, but I think we talk a lot about the exit market here. And to see a company make this choice and have it leak in the way that it did, to me shows that people are still very much concerned about valuations and the market being, quote, choppy, if they're going to pursue an IPO.

Starting point is 00:09:11 So, Jason, to me, this is just indication that the cost, we have seen is going to persist for the next three to six months, at least on the IPO front, which is or such a bummer. Yeah, and this is a mid-market company, right? Stubhubs revenues, hundreds of millions of dollars. This isn't like a giant company. I think it's in the hundreds of millions. And they were going to do a direct listing, if I remember correctly. And so, you know, it's, and that, and that Vigogo is another lesser known ticketing hub.

Starting point is 00:09:43 But these are all up against Ticketmaster, right? This is the 800-pound gorilla. And so, yeah, things get pushed back. It could be summer daldrums, but the market keeps hitting records. You know, this is one of the topics we did on All In this week as well, was just macro. Yeah.

Starting point is 00:10:00 I mean, this is one of the most peculiar moments in time because you have so many people feeling like the economy's bad, even though record low unemployment, real wages rate rising and inflation getting really tampered down. We had a great inflation print this week and cuts are coming apparently. That's 80, 90% chance of a cut in the fall or 90 plus chance of a rate cut in the fall. So in the stock market hitting all-time highs over and over again. So people keep making excuses of why this economy is bad or good.

Starting point is 00:10:36 It really does feel like consumers, you know, maybe feel it when they go to grocery stores and it's an emotional thing. Like, it's pretty palatable when your happy meal costs 12 bucks versus six or seven, right? And maybe when you have a variable interest mortgage or a variable interest loan payment. So I do understand that there's a group of people who feel this very acutely. I don't want to be like clueless. Well, let's be a little mean about it. I mean, I've always been very confused by gas prices are such a big deal because it's never been a huge chunk of my household expenses.

Starting point is 00:11:09 And then it was explained to me that, people tend to be a bit more over-leavered on their car purchases than you and I might expect them to be longer loan times, higher costs. Cars are expensive these days. And so people often end up with a car they can barely afford. And then gas prices go up and suddenly just running that vehicle makes their entire household budget stretch. And that's why those are so directly linked to like consumer happiness polls and such. And so when we think about how the economy is doing, I mean, our equity holdings have appreciated. But if you do it, don't have any, how much do you care that today the Dow Jones Industrial average did hit a new

Starting point is 00:11:46 all-time intraday high? You and I are like, sweet, free money. But, you know, so to me, I get both sides of this picture, but I don't see a reason why strong companies can't put on their big boy pants and go public. Absolutely. Do a big boy press conference, do a big boy IPO. Let's go. Get out there and do it. I mean, just do it. I mean, do you think that it's going to be that much better in a couple of months. There might be a rate cut, but as you pointed out to be on Twitter yesterday the day before, priced in. It's already priced in.

Starting point is 00:12:15 It's all priced in. It's always been priced in. It always will be priced in. There are really smart people who operate in the global casino known as the market. So this idea that nothing is going to be, that's not priced in is crazy. Ticketmaster is owned by Live Nation, as most people know. That's got a $22 billion market cap. And so, you know, it's a $2 billion.

Starting point is 00:12:35 So, you know, I think this is actually, I might want to put a J trade on for this. I have to, we'll have to do a deep dive. You and I, when we get closer to the IPO and we'll do that, since that's your speciality. Listen, a strong sales team can make all the difference for a B2 startup. But if you're going to hire sharks, you need to let them hunt. And you can't slow them down with compliance hurdles like SOC2. What is SOC2?

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Starting point is 00:13:29 So here's your call to action. Stop slowing your sales team down and use Vanta. Get $1,000 off at Vanta. Vanta.com slash twist. That's vanta.com slash twist for $1,000 off your sock too. The reason I really like these kind of companies is because people want experiences.

Starting point is 00:13:44 I think you talked a little bit about the stretching that people do, buying a home, buying a car. I think generationally, that's stopped with my generation Gen Xers. We started to say like, you know, I really want that BMW,

Starting point is 00:14:00 but you know, get the 325 I, but maybe I should go for the five, you know, like, and you kind of had this like little competition going with your friends and your peer group. Yeah. Oh, I got a three bedroom apartment. Like, I remember, I knew somebody who had like a three bedroom and there was like one person. Like, why do you have a three bedroom? He's like, oh, what's a guest room?

Starting point is 00:14:17 And, uh, is it Manhattan? Oh, once my guest room. Oh, my gosh. And, you know, then I have my bedroom. And I'm like, but, but it's $1,200 per room. That's $4,000 in the 90s. And I'm like, that doesn't make any sense, but it's nepo, baby, whatever. You know, and that is, I think.

Starting point is 00:14:33 with each subsequent generation, they look at home ownership and say, you know, I can't hit that. Therefore, I'm never going to own a home because they're too expensive. There's too few of them. But I can own experiences on my time. And I look at my parents working really hard, boomers. And then, you know, people who have Gen X parents, they're working hard. They're 50 years old. They're 60 years old. They're 70 years old. They're still working hard. And like, now they're going to start going on vacation when they're 68 years old. Like, I'll just take the vacations now. I'll do the reverse. I'll, you know, F around. There you go.

Starting point is 00:15:08 When I'm younger, and then I'll, you know, work harder when I'm older. And so there's just a little bit of that going on. But I love anything that's experience-based. I like the hotels. I like the cruises. I like, you know, airlines, you know, tickets. People want to do this. And it's amazing.

Starting point is 00:15:24 They're willing to spend for it. These summer concerts, Taylor Swift. Dude, they're so expensive. So expensive. I'm independent. post money and I looked at the Taylor Swift's I was gonna like oh maybe I'll take my kid

Starting point is 00:15:38 I was like whoa whoa whoa $3,000 is a ticket to go to a concert that's a two I mean I get it's a two hour concert but we're talking about I don't know what that is $10 a minute I started doing the math on and I'm like this is not making sense

Starting point is 00:15:52 you should go to heavy metal shows they're like $8 and they're like four hours long it's super cost efficient so yeah I actually always did this entertainment per hour and I always thought about what had the most entertainment value per hour. What do you think has the most entertainment,

Starting point is 00:16:08 lowest entertainment value lowest cost per hour? Oh, that's easy. You go to your local grocery store, you get a six pack of fizzy water or beer, whatever your friends drink, you get some chips and some, like maybe some little carrots and some dip, and then you put your favorite, like six people around in your living room,

Starting point is 00:16:29 put on some music and just hang out. If you have the right people, that is the single most efficient way to have fun. It works every time. Five bucks an hour, boom. Well, poker, right? Poker's another good one. Yeah, I mean, if you're playing low stakes, you could play a six-hour session,

Starting point is 00:16:43 everybody throws in a hundred bucks. So essentially, it's free because the money is just moving around the table and getting distributed. And you got to drink and eat food anyway. So that's sort of baked in. Yeah, that is. Actually, activities with your friends would be a great one, absolutely. What are you thinking about? Well, I thought video games on a media basis.

Starting point is 00:17:01 If you think about packaged media, a movie going to the movies winds up being like 20 bucks a person with parking or whatever, two hours, $10 an hour. You go to a theme park, a hundred bucks you stay for 10 hours, 10 bucks an hour. And as I went through this, you know, when I used to think about this when I was a journalist, I was always like, it always seems to be working out to the minimum wage plus or minus, like maybe minimum wage times two. And I think that there's something to this where like if you're charging people for entertainment, they're willing to pay like, I work. two days this week and I spent it on one day of entertainment. You go to a sports game, right? Okay, so I go to sports on the weekend. I go to a Yankee game, 50 bucks a ticket.

Starting point is 00:17:43 I go to a basketball game, 150 bucks a ticket. You know, it's three or four hours of entertainment. That's pretty expensive, 25, 35 bucks an hour. But, you know, if you make that an hour, you kind of hash it out, right? So, they have it. Yeah, no, I'm totally on that. I think video games. I'm sorry, video games for the one I was thinking.

Starting point is 00:18:00 If you hit a video game that you love, like Age of Empires, I've played a couple of thousand hours of Age of Empires. It's kind of like chess to me, and it costs 50 bucks. So now, you know, if you play 50 hours, you're at $1,500 hours, 10 cents. You pay for 5,000 hours, you're at penny an hour. It's essentially free. So I think video game's also very, very cost-efficient. You should see the number of games I have in my Steam Library

Starting point is 00:18:25 that I haven't even actually installed yet that I've just bought the warehouse, like, Google employees, but I'm totally with you on that. The thing about, I think, concerts that I'm very excited about, just put a pin in this, is that people are still going. I know music has always been a tough business and inflation has changed the cost of touring and such, but every time a band that I love goes on tour, they post pictures from their shows, and it's packed. And I think that there's, it's good that humans are still going out and doing that, even in this very modern digital, Instagram-y kind of era. So that's what it's encouraging. Also, I think it's a reaction

Starting point is 00:18:56 to just how pernicious and addicting social media is. And I see this with young kids. You know, I have a 14-year-old, they have two eight-year-olds, and they have peers, and so we'll host kids over the house or whatever. And, man, there's the television and streaming services, YouTube on iPads, video games, social media. We don't want social media, but a lot of other parents do. And like, I just remember one time we were at the ski house

Starting point is 00:19:23 and they, you know, had to sleep over or whatever, and one of the kids' friends came over, happened to be into, like, social media, they were allowed. And this kid was curled up in a ball going, scrolling up, scrolling up, and I was just like, this is not a childhood, you know, and I was like, I talked to this parent about it. You know, no judgments, I understand, like, you know,

Starting point is 00:19:40 it's hard to enforce these things. But, you know, here we are at a ski mountain. There's three feet of snow outside. There's a heated pool at the lodge. They could go in a game room there. Nice. With, like, pool and stuff. there's a pool and there's pool

Starting point is 00:19:56 and I'm like in there sleds and I'm like in our childhood we didn't have internet we didn't have distractions you know we may have had a video game console and that was something that was a bit of an allure and I just basically tell them like listen no screens until the sun goes down and you can use screens

Starting point is 00:20:11 if you had an active day on the mountain and you know what everybody bought into that and I think in some ways kids want that and it really was disturbing during this pandemic to see the psychological negative effects and I just had John Haidt on the All In Interview Show that we tested. And his book is really good about this anxious generation.

Starting point is 00:20:30 They need to get out there. They need to be allowed to grow. There's a really cool organization called Let Grow. You can Google it. And it's just about getting kids off screens and getting them in the real world, building their confidence, let them play tag, let somebody lose at tag, let there be a wrestling match where somebody gets heard, and then let them sort it out themselves without parental intervention.

Starting point is 00:20:54 thing. Everyone talks about how the kids are soft, but then, you know, have you seen parents in the world? You can see why they get it? Because they're, if you heard of snowplow parenting? No. So not helicopter parenting. Snowplow parenting is when the parent goes in front of the child and clears everything out of the way for this. It is really, yeah, no, I learn the language. Language is so important. You and I as wordsmiths and word sales, you know, really care about this. And when you have kids, super important. So when they come to you with their problem, I say, oh, what's your plan? What's your strategy?

Starting point is 00:21:29 And they're like, what's my strategy? I'm like, yeah, you got in a fight with your sibling or you and your friend can't decide something. And so what's your strategy? And they'll be like, well, they want to go in the pool and I want to watch a movie. So I think, well, we'll do the pool, then the movie, because that makes sense. And we'll just take a shower in between. And I'm like, okay, great. Sounds like you have a good plan, as opposed to getting in the, you know, the rail.

Starting point is 00:21:54 and then blowing the snow and tearing a path of them. Now, you guys are going to sit down and mediate this right now and I'm going to be the refraits. Like, learn, because otherwise life is just bad for you. Like, you're not helping your kids. You're making them. Absolutely not.

Starting point is 00:22:06 Learned helplessness is a, um, it's really strange. Like, there are some kids. I see them, you know, at the schools and the functions who have this learned helplessness. And they just, anytime there's a problem, they just cannot solve it.

Starting point is 00:22:20 They give up. No resiliency. constantly going to their parents and this leads them to get into the real world and they're not prepared to work at a job. They're not prepared for anything. Well, I mean, you and I could talk about parenting

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Starting point is 00:23:48 No, actually, because there's some very interesting stuff, And then I want to work into venture capital numbers because I think we can paint a positive picture for all the founders out there and give them a little bit of good news. So we just learned that the consumer inflation rate has cooled in June. We actually saw a decline in 1 point and a 3% gain year over year, better than expectations.

Starting point is 00:24:07 Now, today wholesale prices, the PPI, this is the consumer inflation chart from BLS, showing how far it's come down. And the last tick is actually the best one. So that's very encouraging. And then more recently, we saw the producer of pricing index or the PPI rise by 2.2% in June a little bit higher than it's expected, but not that bad. And I think the overall inflation picture is cooling. And as you said earlier, we're expecting a rate cut.

Starting point is 00:24:34 Here's my question for you. Knowing all of that, the rate cuts coming, maybe even two this year. We'll see. When does the good vibes begin to trickle down to the VCs and then trickle down to the startups? because rates have been high, money's been expensive, valuations have been down. When does it begin to flip now that the good news is coming? So when the exits occur, bringing up the stub pub thing, whoever the investors are, now that's a really old company, but let's say another company like Stripe,

Starting point is 00:25:03 when Stripe goes public, those distributions happen, that's when the good time start to roll again. Why? Well, because people will have renewed faith in the venture capital industrial complex. this venture capital industrial complex, people don't believe in it right now because they haven't seen the exits. And so when you have a couple of years of very few exits,

Starting point is 00:25:27 now people start to say, well, maybe they'll never be one again. They literally become so pessimistic. The Boston Celtics will never win a title again. We traded Kevin Garnett or whatever. And then all of a sudden, hope springs eternal, and they're back in the game

Starting point is 00:25:43 and they win a championship. So, you know, the psychology of here, humans is very strange. You know, you could see the Airbnb, Coinbase, and Uber IPOs, uh, and, you know, that wasn't too long ago, what, five years ago. And then people all of a sudden, it's five years ago, like, it's, you know, the industry's over. It's over. It's never going to happen again. And it's like, um, are you watching what happened with Nvidia? Are you watching what's happening with Tesla? Are you watching what's happening with Facebook and meta going from $91 a share to $500 a share in 18 months? Like,

Starting point is 00:26:17 Wake up, folks, like, these are, the world can still change. Companies can still have IPOs and there can be exit. So there's just a little malaise. And once that gets lifted, when people feel rich, they behave differently. When they feel optimistic, they behave differently. So the reason why people were willing to spend $250,000 on JPEG was because they felt rich. It was a link to a JPEG. JPEG itself. Sure. The hash of the JPEG.

Starting point is 00:26:50 Sorry. But it, this was the craziest moment. Like I'm like, okay, listen, I, I, I'm super like open to new innovations, but I'm sorry, what? You're, you're buying, you know, immutable JPEGs and imaginary money. The whole crypto, you know, frenzy was because people believed everything went up and to the right. And stonks go up. That was kind of, you know, um, uh the dave port and i's kind of joke when he was doing his day trading it was like stocks go up that's why we buy stocks because they go up and he was it's kind of like his like you know pizza reviews every everybody knows to rule one bite and then he takes four bites like he's obviously

Starting point is 00:27:31 joking with you stocks can go down as well um and so you have moments of irrational irrational pessimism we've been in for the last couple of years irrational optimism during crypto and stocks and game stop and etc so i think we're probably over-indexing on pessimistic. That's why so many venture firms are going out of business. That's why you're seeing this consolidation. Companies got a business. But it's, I've learned over these last

Starting point is 00:27:58 three boom-bust cycles. Because now I'm old. And you're getting old too. I know. As I pointed out on a show recently. You've lived through two. There's now a theme. There's now a theme to the show. There's no theme. We're getting old. Jason tells Alex he's also old. That's also old. I'll put that on the show nuts. I mean, 18 years younger, but still old.

Starting point is 00:28:17 People were really taken back by my, I would give up every penny in order to. Yeah. That kind of caught like, people were like off guard. They're like, what? I'm like, yeah, 18 years back. The difference is how much people put someone's success to luck versus work. Because if you can go back and you don't have the same luck, some people might think that there's no hope for a similar rebuild. But you're saying, if I get 18 years back, what would I pay per minute per hour?

Starting point is 00:28:44 Per year? Of your time per year. Incredible. So long story short to your original question, it's going to get better. And the lunacy will come back when people feel rich again. People are, because of the stock market, feeling pretty good. But there's kind of like, when's this rug going to get pulled out? When's the correction coming?

Starting point is 00:29:05 It feels a little too good. Yes. The inflation feels like, okay, it's trending, but there's still this fear like it's going to come back. So there's a low-grade anxiety. in the markets and a low grade and a high grade anxiety in Silicon Valley about venture. You kind of layer these things on. And I was just talking to a friend who has had some stomach problems.

Starting point is 00:29:26 And I'm like, are you feeling existential angst? They're like, maybe, maybe I am. I'm like, okay, that manifests in the stomach. Like, you're hurted an ulcer? Like, ulcers like, ulcers. Like, this is like a known thing. Like, uh, and so we're gonna see these two things get worked out over the next year, I think.

Starting point is 00:29:44 Or very, very quickly actually, I think. It could be by the end of this year. See a couple of IPOs, see a couple of rate cuts. People start feeling really good about it. Now, if inflation comes back with a three-four print instead of a three-o print, that could put a big dampening on it. Yeah. There's a lot of what is inflation done in its most recent tick,

Starting point is 00:30:03 and then we all kind of forecast off of that. The rate cuts will happen when the break cuts happen, probably one this year, maybe two. Now, the thing that I've been kind of looking for are green shoots in the world of venture, because I also agree that things have been a little bit too pessimistic for too long. And so I pulled some data, but I want to start with the bad news and then tell you the good news. So let's talk about what happened in Asia on the venture capital side in the second quarter. Crunchbase has some new data out that I pulled for us. Quoting from CrunchBase News, Asia suffered its worst quarter for venture funding since the final quarter of 2015,

Starting point is 00:30:37 with Asia-based startups raising only $14.6 billion, off 24% from the first quarter and 32% from last year. This is, of course, Jason driven by China, which has always been the biggest player in Asian venture capital. And VCs in that country only put $6.9 billion to work in their first quarter. That was off 46% from Q1 and a third off from Q2 of last year. Just brutal, brutal numbers. And I don't think either one of us are surprised by them, given some high-flying Indian startup struggling. And, of course, China's authoritarian tilt, if you will, towards business in the last couple of years. Now, that's the bad news.

Starting point is 00:31:16 There's good news for founders in Europe. And so I was so glad you teed up the European comment earlier on because we have something that's better than expected. So pulling from deal room data. So from the deal room presentation, this is the historical amount of venture capital dispersed inside of Europe. And in the second quarter, it was up 14% compared to Q1 and 12% year on year. So Jason, tell me why you now must eat all of your words about your.

Starting point is 00:31:44 European regulation because, ha ha, we have seen some gains. Um, I mean, they're modest gains. Let's, let's be clear. But, um, you know, if you were to normalize the line and take out the ZERP era, um, it would look pretty animic, right? It would look, not flat, um, but it would, it would look slow. So, you know, like everything else in Europe, it's just slow growth. Um, oh, man.

Starting point is 00:32:10 Yeah. All right. Tell what you really think. Almost, I mean, it's, it's almost slow by design, right? If you don't, if you don't, if you, if you, want to create regulations that protect workers, protect the environment, you know,

Starting point is 00:32:22 and, you know, that's your choice as a society to do that. It will just take away the, the speed at which things get done, right? We're seeing it here in the United States with regulation as well, right?

Starting point is 00:32:31 So things can get slowed down. You want to build a factory, can't do it in California, can do it in Texas, you know, et cetera. So the Asia thing is the most interesting to me because India,

Starting point is 00:32:41 of course, is included in that data or not, because I know some people, when they do Asia, they'll leave India out because it's so big now. Yeah, so that is included. And if you want the India numbers, 3.4 billion in second quarter funding, 27% up from Q1, but 9% down year over year. So kind of mixed picture there.

Starting point is 00:32:59 India is very, well, venture data because of big deals, like we talked about with the XAI deal, can get skewed, right? A big deal can drop in one quarter. So we've got to look year over year and look at a 10-year trend. I do think people are looking for where to deploy money. And China was a really great place to deploy money for a couple decades. Now with isolationism, you know, both chosen and imposed. You know, the Chinese have chosen to isolate a bit.

Starting point is 00:33:29 And it's being imposed upon them because we have, FISA, you know, when you're at foreign investment in some of these regions, they're slowing you down. Sequoia had to deal with us. Anybody investing in chips has had to deal with this. Oh yeah. You'll get a little knock on the door like, hey, you're investing in something over there. Let's talk about it.

Starting point is 00:33:48 Yeah, let's talk about because if you do invest in China, you're essentially investing in the Chinese government, just by default, right? Because they own and they're on the boards of these companies and D.D. and TikTok, it's all their companies at the end of the day is the way it works in those ecosystems. So, yeah, China's quite a story in terms of just a lack of investment there. We talked about that before. And India's, I know that a lot of Americans, a lot of American investors and investors in MENA, the Middle East, North African region, are kind of looking at it and saying, hmm, population growth and there's a middle class that's emerging. And this is, when you want to make money as a capital allocator, you're looking for trends that are so pronounced that they will, um, you know, create really big waves you can surf. Yeah.

Starting point is 00:34:43 India's population is growing. China's is contracting and Japan's is contracting. Okay, there's one really big trend you could ride. They've also started these $10, um, uh, that maybe they cost $15 Android phones. There's a very, there's a specific company that's selling $15 Android phones. And then the service is $3 or $4 a month. I forgot the name of it, but it's become like a huge trend in India.

Starting point is 00:35:07 This one of the richest people, people in India, has been doing this. It's a very bold move to just be like, you know what, screw it, I'm going to just flood the country with cheap Android phones and it worked.

Starting point is 00:35:17 Geo. This is Reliance, the Reliance umbrella of companies, geo is their low-cost mobile provider, very big company. And I believe that much of American tech companies bought a small stake in it because they want to make sure

Starting point is 00:35:29 they had access to the engine consumer. I think Facebook might be the one who has a big partnership with them and they made this like Facebook light, like a lower footprint app that could work on like, you know, what are essentially,

Starting point is 00:35:39 three or four year old Android level phones. So I think they've got a couple of hundred million people and so you've got people who are living in essentially poverty but have an Android phone now. It's very interesting

Starting point is 00:35:55 on a science fiction societal basis. This probably hasn't happened in a long time but to be living, you know, under the poverty line on a dollar a day, whatever those statistics are, maybe, you know, running water shared, maybe, you know,

Starting point is 00:36:13 electricity being inconsistent, or not having it in your home, whatever it is. And then you have a smartphone with broadband, with access to chat GPD and Wikipedia and YouTube. Like, this is kind of crazy. And where did this happen last? It happened to China. Yeah, I was about to say.

Starting point is 00:36:33 It happened in China. Everybody started to work in factories. and they worked in factories in order to build the smartphones. So this is all, like, the smartphone revolution has had such a profound impact on so many different dimensions.

Starting point is 00:36:50 That black mirror has had a massive, massive impact that's very different than, I think we'll look back historically on the introduction of the smartphone, specifically. In a way, like we look at steam engines, airplanes, factories, other things, writing. Oh, yeah.

Starting point is 00:37:10 Personal computing, the internet, and then mobile internet connectivity computing is like, like those are the three big epics we've seen those far. And what's interesting about your point about smartphone manufacturing being actually a way that people rose from, let's call it agricultural rural poverty to a rising working class towards the middle class in a more industrialized society in China was through often smartphone construction. Where is that movie now, Jason? well, people are moving factors out of China into Vietnam and into India.

Starting point is 00:37:42 Yeah. I mean, Foxcon is doing a big push into India right now. They're making iPhone 14s, I think, and maybe even 15s now in India. So all of this means India is like a really interesting market. All right, everybody, welcome back to the program. Stephen Estes is with us again. He's a principal at CLA. They're a professional services provider.

Starting point is 00:38:01 They specialize in CPA, tax consulting, and wealth advisory. His areas of expertise lie in VC-backed startups, VC funds, high-growth startups with complex tax issues in multi-state and international filings. Welcome back to the program, Stephen. Hey, thanks, Jason. Appreciate it. When you look at these growth periods, right? When startups start rapidly growing, how do they screw it up? First and foremost, the sales tax. There was a big shake up in that about four years ago. It kind of opened the floodgates. The states really being able to force small companies to collect and remit sales tax in a lot of different states. When we had the pandemic hit in the rise of remote work, that really intensified that as having employees in various

Starting point is 00:38:40 states creates the requirement to collect and remit to sales and customers in that state. So that was huge. And then secondly, I think really just like how to handle the issuance of equity key employees. It amazes me that founders don't know more about various restricted stock awards and stock option plans that are out there. SAFs have been a godsend when it comes to keeping 409A values low for early stage companies. But a lot of founders don't have a clue when it comes to how like a priced round can negatively impact your ability to bring on those critical hires because it really massively increases the tax liabilities that come with the receipt of equity in those companies. All right. You need a trusted advisor. Tax is accounting. You don't want to play games of this stuff.

Starting point is 00:39:20 Get it right. Get a great partner like CLA. Go to CLA connect.com slash tech and let them know. Your boy, J.Calc sent you once again, CLA connect.com slash tech. I also noticed a lot of Indian entrepreneurs when I was in the Middle East, when I was in Dubai, Abu Dhabi, Saudi, Doha, a lot of them are moving there. Now, that's really interesting bedfellows. That is very interesting because... Why? Well, I have a...

Starting point is 00:39:46 Yeah, you... Sorry, you tell me. No, no, you tell me. Why? Well, I realized I was about to get in trouble. So I was backpedaling away from my own comment, like a prodded cradat. Yeah. Well, if we pull up flights from Dubai to Mumbai...

Starting point is 00:40:01 Uh-huh. Oh, my gosh. That's free. Yeah. So, you know, round trip, $229, a three-hour flight. This is Mumbai to Dubai. Three-hour flight. You know, this is like going from New York to Miami, right? It's not quite Los Angeles to San Francisco, but it's a hop-skip. It's a hop-skip. And I don't know other cities are, if other cities are closer, but if I were to do, I think Saudi, yeah, four-hour nonstop from, uh, Riyadh to Mumbai. And I think there are other cities that are closer. You know,

Starting point is 00:40:39 there's some cities that are like an hour. Uh, so you start looking at that. There are like states that are next to each other. Okay. Now let's peel back one more time. The mean of region is very small countries. Uh,

Starting point is 00:40:55 Saudi's big, 30, 40 million people, UAE's couple million people. Doa, I'm sorry, Qatar, Doza City. Qatar is like, I think, 1.5 million people

Starting point is 00:41:06 and maybe 400,000 nationals. The number of nationalists in these countries is very small. In fact, Saudi is a very large country. People don't realize that compared to the others. India is giant, billion people.

Starting point is 00:41:18 So you've got a billion people here. You've got 2 million people over here. When they need help in those countries to build something. Pakistani, Indian, Sri Lankan, construction workers, domestic staff, staff, waiters, it's everywhere.

Starting point is 00:41:36 And then also Thai, Singapore, they also can go to those regions. So then you have entrepreneurs happening. Well, if you're an entrepreneur in Indian, you can't raise funding. And then you have nationals who have large wealth. When I was there, I spoke to a group of like 30 angel investors, and they hosted a lunchroom with 30 family slash angel investors. And they had all read my book because there's really only one book on angel investing. so I'm like one of one.

Starting point is 00:42:03 But they had all read the book and they were all pursuing techniques in angel investing. So this is the first decade that they're doing it. And they're looking at markets and they're like, yeah,

Starting point is 00:42:11 it's nice to launch something Karim, you know, the Uber of the region. Yeah, the Middle East. Like, okay, yeah,

Starting point is 00:42:19 those things are going to happen, but there's a billion people over there. Maybe we should build some stuff over there. It's only three hours away. So it's the same way Masayoshi in Japan was like, you know, okay,

Starting point is 00:42:29 the Japanese market's great. but we could also go to Vietnam, Singapore, Korea, and let's take this line company, soft bank, whatever. Let's try to find other regions that we can go build businesses in. So it's pretty interesting. I want to just double click on one thing before we move on and talk about OpenAI. How bullish are investors on India today in the venture capital community? And how does that compare to 12 or 18 months ago?

Starting point is 00:42:57 I want to understand that what's changed to that. I think they're very interested. They're very interested because it's a democracy. It's not a high-functioning democracy. It's like one of these democracies that's kind of, you know, I don't want to say teetering, but it's a democracy. But if you were to look at the Democratic Index, they would put it as like a tier down or two tiers down.

Starting point is 00:43:18 So it is a democracy. You could feel relatively safe making a bet in India or in Dubai or Abu Dhabi. and then people would feel less secure making a bet, you know, in Russia, obviously. If you've read Red Notice, your lawyer will be murdered. That book, by the way. Incredible. I mean, it's just, if you want an incredible book to read this summer or listen to the audiobooks fantastic as well, go for it. And so, you know, I think that's what's happened in China.

Starting point is 00:43:53 You know, if you own shares in Alibaba, you know, do you trust what's going on there? They do financial manipulation of their currency. They're on the boards of these companies. They have data agreements with these companies. And of course, like, could the account, I mean, with this whole real estate thing that was going on in China, like the government, we're in a democracy where investigative journalists have to figure out. And traders and shorters have to figure out the fraud in the United States, right? So we have this like weird antibodies here. Stret selling?

Starting point is 00:44:25 you know, all the Hindenberg research, like they serve a really good purpose to find fraud. I love these guys. Yeah, me too. I love your reports. We have whistleblowers.

Starting point is 00:44:36 Another incredible tradition. And people don't, people forget here, a whistleblower gets paid half of the money that they get recovered. You can make $100 million right now going and,

Starting point is 00:44:47 you know, finding the next made-off. This is a big prize for you. Hindenburg gets a big prize. You short the stock, goes down, you make all your money, secure your bag, you get out. and of course we have journalists who win awards and prizes and status. That's the worst.

Starting point is 00:45:00 Like, you can have a bazillion dollars, you can have a bazillion dollars, or a small plastic statue and a crappy dinner at a round table. But if you're an elite, if you're a wordsmith like us, to break the story of, you know, of the Catholic Church at the Boston Globe in your, you know, whatever, second-tier city supposedly,

Starting point is 00:45:20 and you break a story like that, come on. I mean, that's as good as it gets. You could be really, I mean, for your entire life, you have that. If you're John Kerry, Rue, and you expose Theranos, I mean, the joy that would come from that is just for certain people, including myself. Yes, I was just laughing at the end of the world series of poker. That does come with a couple of dollars, though, as well as the pride elements of it. By the way, when are we going to go do the main event together?

Starting point is 00:45:49 Oh, absolutely next year, for sure. And I will, I will stake you. You are not no, no, no, no. You can buy half my action. But, okay, I'll buy half your action. I realize that it was going on, I think, right now. And I wasn't there. And I need a buddy to go with.

Starting point is 00:46:05 Next summer, we'll go for two weeks. And we'll do interviews there. We'll do the show for two weeks. We'll absolutely book that. I'll buy you into a bunch of stuff. You know, I'll play for charity. You pay for your kids charity for college education. And we will have a blast.

Starting point is 00:46:22 We'll do some meetups. We'll interview. people, because there's a lot of founders there. It would be great. There's a great idea. I really think we need to twist on the road at some point in time. But just for the sake of time, let's talk about Open AI. So the big news this week is that OpenAI had an internal meeting and they sat everyone down and said, hey, here's how we're thinking about the world and here's where we are.

Starting point is 00:46:43 So in Open AI's perspective, there are five levels of artificial intelligence. The first one, we're all familiar with chatbots. We've all used them. Easy. Number two, level two, is reasoners. So essentially things that can think as well as humans. Level three is agents, essentially AI that can do stuff. We talked about that.

Starting point is 00:47:04 Yeah, I talked about that. Level four is innovators, essentially AI that can help us come up with new ideas. I like that. And then level five in Open AI's view is organizational AI or AI that can do the work of a team. Now, the thing is, and why this is so interesting to me is Open AI thinks they're at level one and they're nearly at level two. But agents in their conception are level three. But right now we're seeing venture capitalists and founders fund and build a lot of

Starting point is 00:47:32 agentic AI startups like Sierra with Brett Taylor. Of course. Yeah. And so the thing that I'm trying to sort out here is who's right? Because Open AI is saying, oh, we're not there. Even we're not there. We're not there. Yeah.

Starting point is 00:47:43 And founders are saying, we're there. We're doing this. And so there's an interesting tension between who's actually correct about agents in an AI context. I'm fascinated by this. It's great to make a list like this and start thinking about it. This is like I-Robot Territory, Asimov. You know, I haven't read his stuff, but I've seen the movies based on his stuff.

Starting point is 00:48:03 So we're sort of getting into rules of robotics here, rules of being sentient, Blade Runner territory. Agents are easily available today. They're just locked down. So, you know, Apple does not let you have AI. open apps up and do things. AI is capable of that today. It's that the cost of running an agent that then went awry, who's responsible for it is problematic.

Starting point is 00:48:31 So if I were to say to Gemini or chat GPT4, I need a flight to Dubai, book me a flight based on my criteria, and it went and booked me something and it was like, I don't know, there's a $27,000 ticket because it's the last one available and it knows that I like to fly this certain time. but the two flights on either side of it are $2,700. That's a big mistake to make, right? Or, hey, order me sushi, the chef cooks all the sushi, they bring it,

Starting point is 00:48:58 and they gave you the sushi you don't like, and you send it back. So anyway, it kind of reminds me of the Amazon Alexa conundrum where nobody really trusted Alexa to say, hey, Alexa, buy me coffee. What if it buys the wrong beans? Like, people are very particular about their coffee. So agents have worked for some time. could work today, it's that the cost is a human one. And the cost of a mistake is just really challenging and who bears the cost of the mistake. So I would argue reasoning, they're like 30%

Starting point is 00:49:32 of the way there, you know, and then I think with agents who are probably 50, 60, 70% of the way there, it really is that trust piece. I do think they have the order of the last two incorrect. I think their, like, obsession with organizations is like kind of silly. Because once you have five agents doing things, that's kind of an organization. I think the innovation is the key. And you have to really define that. I would say to be able to solve problems humans have yet to solve, to be able to solve problems, humans can't solve. These are really two different things. So it might be that AI figures out, hey, where are, you know, where are these endangered species by looking at satellite images? And it's just because it's like such a big project,

Starting point is 00:50:18 humans haven't gotten to it. Or like studying these folding of proteins and finding some new thing. It's really kind of like brute force. Like a human can do it, but AI can do it a thousand times faster. Then there's Meek a unique novel discovery in the world. How does dark matter work?

Starting point is 00:50:36 What happened before the Big Bang? You know, that's the kind of stuff where if it could solve conundrums that we don't understand, solve math equations that are not solved by humans yet, Those are two different levels of unique innovation in the world. And I think there's like soft and there's hard. And I think that's the two levels.

Starting point is 00:50:56 When we see it solve something hard, that's when it's going to get really weird, like really weird. That's like the aliens coming to your planet and being like, you know what? Oh, you guys have been dealing with cancer. Oh, we saw that 300 years ago.

Starting point is 00:51:11 Here's the formula. And they just hand you like a thumb drive or like they just tap you on the nose and it's in your brain. And you're like, oh, yeah, we wouldn't have gotten to that for another 300 years because we're just, our brains aren't big enough. So that's the one I think is like, whoa, that's going to change the species forever. This kind of stuff's going to be just a lot of incremental speed and velocity to solving

Starting point is 00:51:35 problems in the world. But the fact that they're thinking like this speaks to their noble origin of wanting to make this technology accessible to everybody for free. and do it in a thoughtful open way. I combine this. Yes, I agree with that. Yeah. That was kind of the ethos that I think, you know,

Starting point is 00:51:57 got people like Elon to write eight-figure checks into this nonprofit. But now to take that entire ethos and say commercial, IPO, secondary offerings, that's where I think there's an ethical problem. I think that's why people are now, I mean, I don't know if you've seen the pile on on Sam Altman, who we had on All In, but there's basically this, I mean, I don't want to speak. I like Sam and I'm friendly with him, so I don't want to say anything negative about him, but basically people are saying outwardly, you cannot trust this person. Like Ari Emanuel said it, right?

Starting point is 00:52:37 Like, I haven't seen this in my career where a whole group of people have come out and said, this person is not to be trusted. Can you think of any time that's happened in business where people have recently, Like in unison, a bunch of people were just like, don't trust this person? Well, there have been certain examples. I mean, you mentioned Madoff earlier. I think after he got exposed, that was the case. I think, I think, like largest Ponzi scheme in history, but a person who has not been

Starting point is 00:53:00 convicted of a Ponzi scheme. Trump, famous for not paying his bills. Okay, sure. Not to bring politics to this, but that was the first example that came to mind having read his history in Atlantic City and so forth. Yeah, yeah, yeah, Trump University. Yeah, he's been a low-level, you know, bending the rules, grifter, hustler guy, yeah, sure.

Starting point is 00:53:16 Yeah. So anyway, I just think this is like a, this is what really is at stake with AI is whoever gets to, you know, when you go down that list, who gets their first matters? I think that's definitely the case. But my question is, will it be like what we've seen so far? Because one thing that's blow in my mind is chat GPD comes out. Everyone goes, holy crap, this is amazing. Look at this thing. Look at the things we can do with it.

Starting point is 00:53:40 Look at the liquid can unlock for us. And then the market quickly caught up in LLN potential. Like, I mean, Lama, Claude, Gemini. I mean, there's a lot of models out there that are pretty good and all progressing pretty quickly. So when you say who gets there first, I want to know how close is the second place to catching up? Because if the answer is 20 minutes, it's probably less valuable than if it's 20 years.

Starting point is 00:54:03 So that's one thing that I just don't know if everyone can keep progressing at the same rate, more or less, or if people are going to start to pull ahead with better talent, more compute, or whatever it is that is the differentiating factor. But at least according to. Open AI, we are early on all things AI. I mean, the fact that they're level 1.5 out of five is either encouraging or depressing. I don't know which one I favor more. I put them at two out of five.

Starting point is 00:54:29 I put them at two out of five. If you, you know, were to pro rate, you know, they're 30% on agents. Oh, I see. I see. 30% on this, 10% on the other two. I kind of give them a little bit more. But the product's gotten, I feel like the product is if it was a, if this product was a human being.

Starting point is 00:54:49 Yes. I feel like it's growing 10 years every year or more in terms of experience. Because, yeah. You know, like, it didn't feel like a child. It felt like a college student for a little while, like a high school college student. Like, it's naive, but it can answer the questions on the standardized test. And now I feel like it's a young adult. It's an adult.

Starting point is 00:55:11 Like, it's a researcher who's 30 years. working at McKinsey or something or a 28-year-old working, you know, at the corporate headquarters of Walmart or something. Like, you can ask it to do a task that's multi-pronged. And it will do it like a research. I put it like as a researcher. It's like somewhere between a researcher and analyst today. Yeah.

Starting point is 00:55:33 One thing I want to get to not today, you know, of time, but I want to go, I want to go back and interrogate the, uh, who's going to win SaaS plus AI or software that's rebuilt from the ground up to be AI first. You talked about this with Sarah Tavel. on an interview back in September that I was going through. And I'm really curious to see how much of software needs to be rebuilt to take advantage of all the stuff that we're discussing today. Because if it's growing by 10 years, every year, AI, eventually everything else is going to look pretty silly and dated. Yeah.

Starting point is 00:56:03 I agree. And it's just as a product, it has been getting better and better. I've been talking about some, like, complex examples. I've been giving chat GPD4 and Claude. 3.5. Yeah, but it's got a name. Sonnet? Is it sonnet?

Starting point is 00:56:21 Yeah, it might be sonnet, yeah. And it's pretty, pretty darn impressive. I think we're at the researcher phase. And, man, so what it means to me is you just for every, I think one researcher is two researchers today using chat GPT. Yeah. Oh, this goes back to your point about static employee bases and rising revenues at companies for the next three to five years as people have more. I don't know. Let's just call it overall leverage on their time using more technology.

Starting point is 00:56:48 Yeah, this is not the bicycle for the mine. This is the, uh, the, the, the, the moped up to the decati of the mind. And we'll see when we get to the F1 car of the mind. It's almost like, I think you would have almost unlimited researchers at some point. And then you're just like the value of research becomes kind of commodified. It's almost like having, um, accountants back in the day. Um, or a typing pool. Um, like you, you had a photocopies.

Starting point is 00:57:14 and a document storage and a typing pool and a research department and you had an accounting department and you had data entry people. Like all that stuff kind of got abstracted away by technology and I do feel like research and analysis. Like if you, I wouldn't short, I don't like to short companies,

Starting point is 00:57:32 but McKenzie, Boston Consulting Group, like all those consultants like, what they're doing what ChachyPT does. Go take the corpus of knowledge. Yes. And then regurgitate. it with some context for this application. And it just works.

Starting point is 00:57:51 So one thing that AI cannot do is provide cover in the same way to corporations who want to cut staff but not have it be their idea. That's what I think the real job market is for the McKinsey's and the Boston consulting groups is you pay them $4 million. They come in and they say, you need to fire half your staff. And then you go, oh, guys, we got to do some layoff. McKenzie told us to. It's not like we invented that and then hired them.

Starting point is 00:58:14 to tell us what we knew. That's what I think that their real model is. And that would be hard to take away. But anything that was lower level is just going to get consumed because you don't need to pay a human to do it anymore. And frankly, I wonder what that's going to do to us in 50 years. But, you know,

Starting point is 00:58:28 graphing calculators came out. People still learn geometry. So it's probably going to be okay. It's going to be okay. J-Cal, let's do Twist 500. I have so much for you. So you sent a call.

Starting point is 00:58:37 You said everybody in the community, hit us with your favorite construction and housing startups. And holy crap, did people right in dozens and dozens and dozens of companies. And I have put them into two main buckets. There's the world startup that's going to help you build things. And then there are the startups that are working on software and marketplaces for the construction tech world. So in the building things group, there are companies working on ADUs or additional dwelling units, companies like cover, houseable, Zomes, and Samara. Then there's prefab construction, build it offsite, bring it on,

Starting point is 00:59:12 install it. Companies like Boxable, plant, preflab, and Zeni. Then a lot of 3D printing startups working with concrete, names like mighty buildings, Asher printed homes, and ICON. And then my favorite group, robotic construction. Talked about robots the other week. There's really cool companies like dusty robotics, QB, monumental, agoros, advanced construction robots and paint jet. We'll have videos have a couple of those in just a second. And then, keeping my monologue alive, the software group. These I broke down into digital design software. often with a collaborative twist, companies like Outgrade, Rayon, SnapTrued, and Palazzo AI.

Starting point is 00:59:47 Then there's marketplaces for goods and services, Kojo, build stock, visual note-taking, and essentially bringing images of the worksites to your computer, OpenSpace company, Cam, and then finally, a lot of vertical SaaS for construction, built technologies, high arc, propy, data form lab, permit flow, hammer, shepherd, field wire, building swell, and more. The thing that hit me was how many,

Starting point is 01:00:12 companies are tackling a big chunk or a smaller chunk of this market. I did not know that there are this many companies that have raised $5, $10, $50 million that are working here. Did you know that there were this many companies? Yeah, we had an investment in a company called Blockable and they've had a bit of a tough time because when you actually have to get it, and there was Caltera, which SoftBank dropped like a billion dollars on and they had like 50 different businesses they were pursuing and the management was a bit of a disaster, I'm told, on the back channel. And so it's such a big prize.

Starting point is 01:00:48 It's so complex that when you go and you do the problem set, the problems to be solved in construction are never ending. Everything can be improved. So everything from the HVAC system, right, and the electronics in the house, that that in and of itself is a startup. Then there's, I want to build a home.

Starting point is 01:01:15 Okay. Do you want to build a small home, a big home, multi-family? So you have such a range of use cases for construction. And then, you know, if you've ever built a home or you've been involved in a project, there are all these phases and there's all these different vendors that are involved. So managing the process is software, and all of that can be improved. So how the architects and the general contractor and the subcontractors all work, well, you take that process and then you take every new technology that comes out,

Starting point is 01:01:54 and then you make a grid. And I've done this before as an exercise. And then each box should get filled in some way. So what are three recent trends, horizontal trends, in technology. What are the last three or four that are interesting? The horizontal trends, I would say, is a movement of, well, define horizontal in this context. Like AI is a horizontal cloud computing. So like a new technology that's come out, that affects everything. So AI, I'll give you that one. Cloud computing is over. But, so we have AI as one.

Starting point is 01:02:25 So now you take AI. Okay. What's another one? Apple released a new product recently. Well, the Vision Pro, but I don't think that's actually going to pull off. Okay, so fine, ARVR. A-R-V-R. Okay, so you get ARVR. You have crypto. I was about to say blockchain, but I didn't want you to shout at me. So I was going to-

Starting point is 01:02:41 No, no, you do it. I mean, it is a horizontal technology that you could apply to everything, and you have blockchain. Yes. So we had a startup that we invested in that's taking homes and allowing people to sell shares in a home

Starting point is 01:02:53 and putting it on the blockchain. And then you could buy tokens that represent shares in a home, and that's a way for you to kind of do a reverse mortgage or for a home to be owned by many people. You take ARVR. We have a company, I believe it's Argyle, that takes your, uh, you put goggles on, you walk around a construction site with the general contractor, with the owners,

Starting point is 01:03:17 with a potential buyer of this apartment or this unit, and they get to see it. And then the person who's doing the construction can look down and it says, here's where you put the electrical trial here. And this is where each screw goes. And they're seeing where the screw goes. And then they put their screw gun on and go, like, whoa. So, you can take any new horizontal technology, once you know the problem set and say, well, how does AI impact the construction of homes? Well, I don't know, but maybe it's an AI robot. Then you take robotics, robotic brick layer. Then you take 3D printing. Okay, 3D printing can do, can you make plastics? Can you make walls? What can you make with 3D printing? And, you know,

Starting point is 01:03:59 then the challenge becomes it's a slow incumbent industry that's resistant to change. that's the problem. And it also depends on it also depends on a lot of folks who swing a hammer for a living. So bringing technology solutions to people who are working with their hands is difficult.

Starting point is 01:04:16 I mean, we have recognized tablets. We have ARVR, but like it's going to take a while to go ahead and move this industry forward. Now, I have a couple of videos to show off of what we're talking about here because I know you love some videos. So here is a clip from a company

Starting point is 01:04:30 called Cover that I want to put on the Twist 500 because I think they're awesome. They're working in the best. backyard ADU space, and we're going to kick that off right now. Okay. Here we go. In a factory. And this is what they build.

Starting point is 01:04:44 So this is a backyard ADU, additional dwelling unit, I believe. Nanny unit. A teaser. What they call in-law unit, yeah? Yeah, yeah, exactly. But separate. So not inside the same house somewhere else. And what they're doing is building stuff at a factory, as you can see, bringing it out to

Starting point is 01:05:00 the site and putting it together quickly. I love cheap, fast, and roomy are my things for housing because I think everyone should have space and a low cost. Love cover. They have raised a good amount of money. They have put together a total of 73 million so far. Let's move on to the next one here. Icon. 3D printing for homes. Now you can see this robot in action here and JCal, I believe it is doing layers of concrete sequentially in a shape. And it's just awesome. Because you know, once that dries, it is immovable. So.

Starting point is 01:05:36 Yeah, those are fascinating to me because they're just taking what people were using at home with 3D and just saying, well, we can build a honeycomb here. We can build a wall. Of course, you know, the question is the cost of those materials versus doing the studs and the beams. And then do you want to live in a concrete mausoleum? You know, so they're, you know, that's going to. be the rub with icon, I think, but I do think you can build pretty quickly. And so now you have a really nice competition. Building in a factory with new

Starting point is 01:06:12 materials, new science, and then driving it from the factory and using a crane to put it in your backyard. Or setting up a giant 3D printer and you live in a stone, Adobe, mausoleum prison cell. Like, you know, and which one's cheaper and faster? And, you know, when some, there might be some climates or some places where the stone ones much better. I would think if you were in Florida. And I don't know about heat and sewn, but, you know, you build one of those concrete things and it's two stories.

Starting point is 01:06:45 And the first story has a pass through where when it floods, it just goes underneath it. So a lot of the homes in Florida and the bayou and a lot of those places that are being impacted by rising sea levels, the first floor, you park your cars under it, Alex. and there's no first floor and there's no basement obviously. You just drive your cars or you store your surfboards or whatever under the house. When the eventual flood happens,

Starting point is 01:07:11 no problem. You're just on your porch during the zombie apocalypse and the water's flowing under it. These zombies are walking around. You're up one story. You have like a lot of stairways up to your house. So I do think these things are going to have great applications.

Starting point is 01:07:24 They're going to face regulations. And that's one of the great things. The reason why these ADUs are working now and blockable was a bit early and some of the other startups were a little bit too early. Yeah. Timing so much of this business.

Starting point is 01:07:36 The reason was they were, you would be up against nimbism. You want to put an extra unit in your backyard. Yeah. Can you rent it? Can you rent it?

Starting point is 01:07:48 Oh, you're renting it? Oh, it's an ADU? Okay, so you're renting it for $1,000. Oh, so you're renting it to those people? Oh, those people? Yeah. And those people are, poor people.

Starting point is 01:07:59 Or anyone who's just even one socioeconomic class lower. Yes. Those people are below me. Right. Those people were me 10 years ago. I don't want them anywhere near me. Yes. And it's like, uh, those are the people who are changing your kids' diapers or like

Starting point is 01:08:16 cleaning your garden or teaching your kids at school or the firefighter who comes to your house and puts out the fire. Like the nibious, I'll never understand. I'll never understand it either. I'm not even from a city. I mean, you're a Brooklyn kid. I'm from rural Oregon and I don't get it. Like I grew up with cows literally.

Starting point is 01:08:33 Like if you walked down our backyard to the wire fence, the other side was cows. And I understand though that if I want to live in a society that has a working high street, as they say in the UK, then there's going to be other people around me and they need a place to live. And you know how San Francisco radicalized me. San Francisco radicalized me against NIMBY's. Like watching anyone try to build in San Francisco

Starting point is 01:08:58 I remember there was this one time there was a laundromat. Decades. Well, yes, but the reasons why are hilarious. There was a historically important laundromat. And I'm like, I've been there. It's not. It's a laundromat. Tear it down.

Starting point is 01:09:16 Ginsburg wrote poetry in this laundromat while he was cleaning his dirty shorts. Okay, great. You know what? Put a plaque on the first floor of the new 40-story building. Because people, cities are for, people, they're not living museums. Now, I want to go back there to your mausoleum comment and just run some defense here for concrete buildings. I don't know anything about temperature control or airflow control, but I will say this, I will live in the concrete mausoleum because it looks

Starting point is 01:09:42 awesome and I want to be able to say my house printed. That just, as a nerd, that just really sits about with me. But we have a place in New Orleans. So I've seen a lot of the different construction styles down there about how to handle flooding. It's going to be a different world in a lot of places. Let's keep moving, though. Sure. Court, I want you to grab me the dusty robotics video. This one is fantastic, Jason.

Starting point is 01:10:04 What is this adorable little guy? This is a robot. It looks like a Roomba, if you're not watching the video. And it goes around a concrete floor and prints out the floor plan for studs, for screws, and for all the other things that humans have to do with chalk, chalk lines. Or, you know, with rulers, essentially. This is the coolest thing of what I was just. prepping for the show today. I was entranced by how

Starting point is 01:10:28 adorable this thing is. Great. Well, so here you go. There's a concept here of finding a really acute problem. I think Paul Graham calls a hair-on-fire problem. Some people call it a pain killer. You know, like you sprained your ankle.

Starting point is 01:10:44 You need something now to turn off that pain. This is like one of those perfect examples. You also can call this a wedge strategy. Somebody looked at, or somebody was in construction, and they said, you know, it'd be great if robots could build the entire building and they're like, yeah, robots can't do that yet.

Starting point is 01:11:01 And it's like, okay, it'd be great if they could build the walls and I can't do that yet. And I guess with the 3D robot, they can. And they said, well, tell me what takes a lot of time. And the person's like down on their hands and knees with that color chalk, with the things. And they're like, I don't know. Well, how long does what you're doing take?

Starting point is 01:11:20 And they're like, oh, this is the worst. It takes 10 hours. It takes you 10 hours. like, oh, no, it takes us 10 hours per floor, per room, whatever. And they're like, huh, Roomba, I got a Roomba at home. What if a Roomba did it? And it would be more accurate. So this is more accurate, cheaper, better, perfect application.

Starting point is 01:11:39 So that's the timing I was talking about when you're doing a startup. You really have to be able to do something 10 times better than it's currently being done to get what's called product market fit and to get market pull. So the strongest aspect of product market market. market fit is market pull, which means people are calling you on the phone. And they're like, I need that. I heard you got that. I need you to bring it over right now.

Starting point is 01:12:04 Here's my credit card. I'm sending a messenger over with a check. I need that. And you think about in your life, like how many times that's happened? Very rare. But when you see something like this, and if somebody's building a construction site and they, you know, the person who puts those chalk lines down isn't available and this is available, you could see people being like, I need that over here today.

Starting point is 01:12:24 Can you get me a couple of those? How do I get those? Like any other groundbreaking product, the market would pull this one. And that's really the high art of being an entrepreneur. If something is so obvious, then the solution is out there already. But if the timing is right with technology,

Starting point is 01:12:45 10 years ago, robots wouldn't have been able to do this pretty well, and it would have been expensive. Now, Roombas, you know, there's 100 million Roombas and other, similar products that have been made. So when you go to the factory in Chezen, and you describe that product, they're probably 90% of the way there

Starting point is 01:13:02 in terms of your product design. The wheels, the computer vision, you know, the depth and it knowing with the sensors where it is and the depth and the being able to create a virtual map, all that software's been built already. It's been around for a long time.

Starting point is 01:13:17 So when you make the lawnmower version of Roomba, you're kind of standing on those shoulders. And the Roomba is standing on the shoulders of all the sensors inside of mobile phones, back to the mobile phone revolution. Boom. Yeah. I mean, and what that mobile phone point means is people can use these robots from Desty Robotics anywhere in the world, eventually, because you'll be able to put the software

Starting point is 01:13:36 onto your phone and then make it work. Because we're talking so much about Dasty, let's give them a couple of points here. According to CrunchB, their last fundraise was Series B of 2022, $45 million, 250 post, and money from scale venture partners, Root, Cantos, Canaan, and, baseline. So there's one to watch. There's another company that actually I did not put into this list because I couldn't find a great video to share on the on the on the on the on the podcast today but advanced construction robots is doing concrete rebar tying. Have you ever done this? I have not but rebar is norily and concrete rebar tiling is hard. So what you do is if you

Starting point is 01:14:17 if you don't know you rebar crosses each other and what you need to do is take metal wire and and wrap it around them and then twist it off so it's tight. That way the revar stays rigid in a shape so you can pour concrete around it. And what this does to your hands is cut them up into confetti. And you end up with just, just as you said, gnarly messed up hands and arms. And so when you're talking about like, you know, 10x better. Yeah.

Starting point is 01:14:41 That case, one X. As long as it's just not us doing it. It's going to be a hit. But it's so exciting, Jason, to see the number of companies building awesome things to build more houses because it gives me optimism that the housing. crisis in the UK and in the US and in Canada, that we might actually be able to rectify that and make a profit while we're doing it. So it's a win, when, and I love having a little hope. And I also saw a robot that it was doing, and I don't know if it's a startup or not,

Starting point is 01:15:09 it was a proof of concept, but there was a brick-laying robot. And that to me was also very interesting because you think about backbreaking work. And it's not like bricks are going away. Bricks are like part of society. You clear a field and you dig something. You have all this clay. You got to do something with that moved earth. You start making bricks. So the making of bricks is something that could be done by a startup.

Starting point is 01:15:33 And the laying of bricks could certainly be done by a startup. And I wonder if the laying of bricks or the 3D model, which one of those would be more cost efficient eventually. Oh, here it is. Yeah, this is a Dutch company called Monumental. And it's on our list that we're going to add to the Twist 500. robots that bring bricks, robots that place bricks. And I have done, well, I've done rebar tying and I've also done bricklaying.

Starting point is 01:15:56 And let me tell you, it's really hard to do well. So if there's a robot that can do this, I'm totally into it. And you know what's cool about this, Jason? It's not fast, but it works, as you said the other day, 24 hours a day. And you can get so much done. And I just, I want more people to have more space and more safety and more security and more just home. So this, this, this has been a really fun set of companies. to add the Twist500 because...

Starting point is 01:16:19 Yeah, fantastic. Go to Twist500.com. We're building this with our friends at Coda. They're not the sponsor of it. We just pick the best tool for the job. Coda is a really great tool for this kind of job.

Starting point is 01:16:29 I have sponsored the program before. So just shout out to Cota. I really just love your product to the team over there. We just met with them, actually. Oh, you did? Yeah, Bianca and I met with him yesterday. And if you now go to twist 500.com,

Starting point is 01:16:39 one, the WWW should be fixed. Okay, we resolve domains. Look, the... No, no, I love getting down the punch list and doing the bug fix. Yeah, it's great. That should be fixed now. If it's a problem, email me.

Starting point is 01:16:51 Good. But also, we learned a lot about how to use Coda in a public setting. So now there's a lot better sorting groups and so forth. And if you give us another two days of everyone's patience as we put our learnings into effect, it's going to get super duper cool. I think it's going to be awesome as a tool and also just as a web property to go and visit. Well, you know, I just want to build on your ideas here, you know, in this collaboration that you and I've been doing for a month now.

Starting point is 01:17:15 And I really appreciate you coming here and doing the show with me. that's made it really enjoyable for me. So thank you. A heartfelt thanks because I look forward to our time here together. I wonder if it would be fun for you and I to take, you know, when we get these lists and we kind of build up our knowledge of them, we could do like a little series here, you know, where we say, hey, you know, we really, you and I fell in love with construction or you fell in love with construction. Sure. We get the producers going. We say, you know what, let's bring 10 of them to New York, L.A., San Francisco.

Starting point is 01:17:48 or Austin, you know, whatever, great city. And we just do a Twist Live with those members of the Twist 500. And we just invite them, it doesn't need to be like a money-making thing. You just be like intellectually curious for us to say to those members, hey, there's 50 of you in construction.

Starting point is 01:18:04 We have this theater, you know, or our friends at Microsoft or Google or, you know, Dell or Oracle. They always, you know, they're very kind to us and we'll give us their conference space. We say, hey, can we use your conference space? We got 200 seats. and we just have those 50 companies over two days present

Starting point is 01:18:19 what they're working on the latest, take a couple of questions. It could be like a really fun thing to do based on this research we're doing. And then I'm building on that, I've been thinking about what we're actually building is like a mutual fund index, right? In some ways.

Starting point is 01:18:35 And so I was wondering if, you know, as we get good at this, if we said, I wonder if we could acquire shares. And so we, let's say we do the construction. And we say there's 50.

Starting point is 01:18:47 companies here. Yeah. And we think these are the 10 best of the of the 50. We're going to raise a fund to acquire shares in the research we've done and what we think the 10 best privates are. So we're setting up a $20 million vehicle to go buy secondary in these specific companies. And so if you own shares in these companies, you're looking to sell them, we've got the process going here. It could be like very interesting. I think all this work we're doing for you and I to understand the ecosystem better and not do all companies like you did at Mattermark. Shout out to Mattermark. Who was the founder of Mattermark? Danielle Morrill.

Starting point is 01:19:25 She was so great. I love Dee. She's fantastic. Dee was awesome. What a great idea for a company. It didn't work out. It was crunch base before crunch base. Um, and, uh, pitch book, you know, those being comprehensive is noble and awesome, but skimming the cream, you know, in terms of investing and understanding deeply the dynamics of what makes companies work is going to be a really great partnership for you and I. Those are the two things I've been thinking about. So I don't want to turn all my cards over, but obviously. Don't worry.

Starting point is 01:19:53 Turn the cards over. I'm taking notes as we go through here. By the way, if you're curious what it's like to work for Jason, it's a lot of that, by the way, like you're just hanging out and he's like, oh,

Starting point is 01:20:01 by the way, what I want to do is set up a series of SBVs. I want to do a global tour with Google's theaters. Alex can put that together, right? Good. All right. So,

Starting point is 01:20:11 and you know what we get a lot done? I'm not going to all. Um, here's the thing. If you hire great people, um, who are, you know, GSD people, um, and who are just positive, you know, you can get a lot done if, you know, you get rid of the, the, the, what I call the EORs, you know, the, it can't be done people. When I even just brought up the concept, hey, I wanted it as like Twist 500 thing. I just, for my own intellectual curiosity, I'm having a hard time keeping in my brain.

Starting point is 01:20:39 What are the most important companies? Yeah. And, uh, you know, everybody was like, okay, great. I'm like, let's make it into a database, use Coda. Works for that, boom. The amount of time people spend debating and discussing things, I find sometimes is greater than testing things. Yeah.

Starting point is 01:20:55 I think you have to be willing to be 5% more vulnerable than I think most companies want to be. Because, like, you know, right now, if you go to twistfire 100.com, I'll confess this. There's an erroneous entry entitled Alex, listed as a unicorn, that we were doing as a test case when we were learning, something that I forgot to delete afterwards.

Starting point is 01:21:15 So you have to be willing to have a little mud on your shoes if you're going to do this live. Sure. But companies like Beehive are building in public. Yeah. And they're sharing as they go. And to me, it makes me care so much more about the success. Are you using Beehive or using Substack right now? I use Substack for my newsletter because I was already there.

Starting point is 01:21:32 But the, um, 200 newsletters on behalf. So I use Beehive every day to put that together. What's your take on it? Because it does seem like they're going faster than Substack now. I just had a very high profile person tell me. they're leaving sub-sac for Beehive. And they were just saying the product velocity at Beehive is really good.

Starting point is 01:21:49 The product velocity at Beehive is good. The people are awesome and they're very much like, woohoo, newsletters. They have that high, high energy, that's energy, you might say. And they also have an ad network that I'm very interested in. But I still feel like I'm still in experimentation mode. And just because I'm having a baby in less than two months,

Starting point is 01:22:07 I'm going to probably not throw extra complexity into my life until. Switching costs, yeah. Yeah, get that baby out, a live, Fed, and then I'll swap URLs. But Jason, before we go, a couple of things for everyone to remember. First of all, like, subscribe, comment if you're on YouTube or the live streams with us. And the Launch Accelerator cohort number 32 is live. The companies are Chef Reaction, Ellis, LayerPath, MasterTech, AI, Raf, the PH, and then Cario, Q-U-E-R-I-O. Make sure to take a look at them.

Starting point is 01:22:38 Cool companies. I got to take a peek at all of the yesterday for the newsletter. Excellent. Yeah. We are trying to, one of the efforts we're going to make here is to have what we're doing in the investment company and what we're doing on this podcast, just a little bit tighter. Bianca's been doing a great job bridging those two groups. And yeah, congratulations to the people in our 30 second cohort. If you don't understand what an accelerator is, it's usually you do seven people per cohort.

Starting point is 01:23:03 We might increase it a little bit because we have so much demand. And we'll give those founders 125K. And we're okay losing it. We're looking to make high risk bets here. Typically, the companies have a product in market and MVP. They might have between $3,000 and $50,000 a month in revenue. Over 14 weeks, we introduced them to 500 investors or more. We help them with their pitch.

Starting point is 01:23:26 We help them with product market fit. And then they're all going to spend, you know, a little bit of time with me. We're going to do some sort of retreat in Austin Hill Country with some barbecue and, you know, hanging out and some casitas and, you know, just co-working together. for three or four days. So I'm super excited about the LA 32 retreat we're planning, which they didn't know, nobody knew about until this moment. So back to your your, my blank face was, oh, I wasn't aware of that. We should just in live twist while we're there. Absolutely. I, yeah, we really like to help these companies get through,

Starting point is 01:24:02 you know, the first, what I call year zero when they're trying to figure out if they even want to do a company. That's found university. And then there's launch accelerator, which comes with an investment by default. And that's like, you kind of already got a product and, you know, maybe two, three, four people. Just like Y Combinator, just like Techstar. Shout out to the two Davids at TechStars. All right.

Starting point is 01:24:21 All right, everybody, that is the show. We are back next week with more news. Jason and I will never stop. But don't forget, we also have the Twist 500 newsletter, which is well worth your time. And we will have a link to that in the show notes. Jason, thank you. We'll see everyone next week.

This Week in Startups - Five levels of AI, venture's recovery & the hottest construction startups | E1979

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