This Week in Startups - The Automation Endgame, VCs Returning Cash, and the OpenAI Wager | E2019

Starting point is 00:00:00 Would I invest in Open AI at $150 billion? I said absolutely not, because I believe it's a 2x in seven years. I believe the company will go public, complete this insane flip from a nonprofit into a for-profit. As a public company in seven years, if they were to grow, 30% year over year, they would double every two years. So we'd see a doubling three times. Ballpark. This is a similar moment because this is, I think, the largest traditional-ish. venture round we've ever seen?

Starting point is 00:00:32 Oh my gosh, are we seeing real dollars in flight here? Especially after coming off the conversation about how there's no DPI. It's a little bit dissonant to see the crisis and then also the enormous infusion of cash. I worry, but also I love the boldness of it. This week in startups is brought to you by Notion. Notion combines your notes, docs, and projects into one beautifully designed space with AI built right in. Try it for free today at Notion.com slash twist. Fidelity Private Shares.

Starting point is 00:01:06 Manage your cap table and data room, get faster, more accurate 409A valuation, and fully automate your next financing round. Visit FidelityPrivate shares.com. Mention our podcast and receive 20% off your first year paid subscription. And, kite. Looking to get out of the city? Rent a car with kite. Kite delivers rental cars to your door. No counter, no lines, no hassle. Download the Kite app today and use code Jason to save 10% on your first rental. All right, everybody, welcome to this weekend startups. I'm Jason. He's Alex. We're going to talk about a lot of great news stories today, but I wanted to just get right to it, Alex. This port stripe is a very interesting story to me because it pulls together what an incredible.

Starting point is 00:01:59 incredible impact technology is having on the real world and the startup opportunity here, plus it talks about labor and employment and unions, and it's got spicy, spicy videos. So I think, you know, just queuing this up, do we want to start, I think we should just start with maybe you explaining what is happening with the port strike and why they're going on strike. And then we're going to talk about the technology, the startups we found, and then we're talk about what we think the startup opportunity is in ports. Let's get started. Okay, so the big news item is that nearly 50,000 members of the ILA or the International Longshoremen's Association are on strike as of Tuesday. This is shut down ports on the

Starting point is 00:02:45 east coast of the United States and in the Gulf region. The West Coast is actually under a different union. I've learned a lot about unions today, Jason. But the point is this impacts 36 ports, of which 14 are considered major. And without longshoremen, you cannot get stuff. off on and off of boats. It's more complicated than that, but that's the key thing, which means that these ports are essentially shut down. And whenever I see a dispute of this sort, it always comes down to money. And in this case, yes, there is a contractual dispute between the labor union, the ILA, and a group called USMX, which is a kind of business conglomerate for the shipping industry. But the thing that really, I think, makes this a technology and therefore

Starting point is 00:03:22 also a startup topic is that the union is vehemently anti-automation. And so when we talk about this, are they are fomenting for more money, very reasonable unions do it all the time. But they're also saying no to automation and semi-automation. And so that is, I think, going to be a sticking point. I think that's why this is spiral to a shutdown versus getting sorted out in a contractual monetary dispute. Okay. So this is like, what was the famous tale of the guy who would do the railroad spikes? Is that John Henry? John Henry versus the steam engine, I guess, was the tail. So these humans, I don't think they believe that they're better than the technology. They believe that their jobs need to be protected from technology and automation. This is, you know, a tale as

Starting point is 00:04:10 old as time, right? With factory automation, there's been movies in the, you know, every decade, probably, and news stories about this. But this is the first one that I think our generation is looking at and going, wait a second. This is coming to a head. And this could be, something we're going to see a lot more of. And we're not going to just see it in blue collar, we're going to see it in white collar. But let's start here with, what is the state of technology in other places?

Starting point is 00:04:37 Because on X, formerly known as Twitter, and in a bunch of publications, people are starting to share videos of how insanely automated other ports are. So let's look at, I guess, a good jumping off point here before we get into the controversial statements and the unions and the labor issues.

Starting point is 00:04:55 Just what's the state of technology in a port in China and other places? All right, so let's go over to Guangzhou, which is the capital of the Guangdong province. And I know I'm butchering those. I'm sorry, everybody. This is a video that blew up on Twitter and, or sorry, X and shows, I think, what we might call the current state of the art. You'll note when you watch this that there are no major cranes inside. This looks like an e-sports den.

Starting point is 00:05:18 All right, hit play. Okay. So what we're looking at is human beings with joysticks and buttons, like giant joysticks. and they are not in the port. They're in an office with eight or nine monitors. It looked like a three by three, so that would be nine. And then there are containers.

Starting point is 00:05:40 I don't know what the official word is for a shipping container, but they're shipping containers. It's a TEU or a 20-foot equivalent unit. Thank you. A TEU. So you got these containers ship, you know, these containers that people will use for pools or other things,

Starting point is 00:05:54 and they're moving around automated as you would expect. Because if you think about self-driving in the real world, Waymo, as we well know, is doing contained areas. Now they're in Austin. And then we've had other people

Starting point is 00:06:06 on the podcast here. And there are remote interventions. But the more predictable the location is, in other words, a grid that you set up, the easier it is to do self-driving. Well, this is the ultimate and easy because you're talking about

Starting point is 00:06:20 a couple of football fields, right? It's a couple square miles of port. And then you have the ability to control, it. There's no where for homeless people to, or, you know, people who are high out of their mind in San Francisco to jump in front of a waymo. There's no way for somebody who's, you know, a vandal to put a cone on it, you know, a bicycle, say any number of things. So that looks like the

Starting point is 00:06:45 way they should work. That kind of technology is going to save lives and it would make these things move faster, I would think. We don't have that in the U.S. is what I'm getting from the reason why this spread, and this is specifically the type of thing, the type of work that the longshoremen don't want to do. Well, it's what they don't, it's what they do want to do. They don't want this to become more, more automated. And you make a good point, though, about the US being a bit of an outlier. When you actually look at companies that are working in this space, and we're going to get to a list of some startups that are adjacent that we think are cool in a minute. But if you look at ports and companies that are working on port related technology, it's often European companies. And one thing I learned

Starting point is 00:07:23 is that ports like Rotterdam and so forth are actually very highly automated. And so here in the U.S., we often look down on Europe as this, you know, fuddy-duddy place full of regulation and, you know, labor rules and so forth. Ironically, in this case, the U.S. is much further behind in terms of automating its ports. And actually, Jason, this is kind of fun. I found a list of the most efficient ports in the world. Can we pull that up, guys? And I want you to guess what is the first American ports that are running. arrives on the list here, and where does it rank? So what's the best American poor compared to

Starting point is 00:07:58 the best in the world? Well, here's the thing. There are a lot of ports in China and Asia. The amount of access to the South China Sea, the Pacific Ocean, I mean, that's a lot. That's a long coastline, and they produce more exports than anybody. So I got to think the entire list is a combination of China, India, Vietnam, Japan. And then the United States is far away, but we buy a lot of imports. So we have them on the East Coast, the West Coast, obviously, and then some in the Gulf. But, man, based on what I'm seeing, especially from like this anti-technology, we're not in the top 50 or 100. Like, there's just, there's a large number of large ports in other countries, yeah.

Starting point is 00:08:44 Yeah. So the only American port in the top, like, I think, like 75 is Philadelphia at rank number of 53. So that means. And what is this ranking? This is a ranking. This is World Bank data of major global shipping ports. And these are based on total container ship in port time. So essentially a boat comes in.

Starting point is 00:09:04 How fast do you get it unloaded? Got it. Which is a great, great metric. Wow, what a great metric. So this is speed to offloading. What a great metric. And so we're terrible at this. And this is a super important one because there's only so many ports in a port.

Starting point is 00:09:18 In other words, there's so many bays in a port to get stuff off there. we're terrible at it. And other people are great at it. And, you know, you look here, you see Singapore. Yeah. I mean, Hong Kong is in there. Lots of Chinese names, as you might expect. Yep.

Starting point is 00:09:32 And also Japanese. There's Kobe, Tokyo. Yeah. But those seem to be very similar to ours. So, oh, and then you have Rio de Janeiro, Colombo? Hmm. Barcelona doing really well. In Spain, they're really getting those ships clear quickly.

Starting point is 00:09:48 Congratulations on being 34th. I would have thought, based on, on all tropes that they would be relaxing at the port in Spain. And this is why data beats tropes. There's no siesta at the port is what Jason's trying to say. I mean, I've been to Barcelona, man. It doesn't look like people that work in much there. It's one of my favorite places to go.

Starting point is 00:10:07 But congratulations to them for cracking the top 40. All right. If you watch this week in startups, you know there is no shortage of AI tools out there to help you get through the day. But it's such a chore to switch back and forth between them and the tools you use every day. You can wind up with so many of these AI solutions that you just wind up getting less than not more. And that's why I love Notion. And we use Notion here on this week in startups every single day. In fact, I'm reading from Notion right now. We do it for show notes.

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Starting point is 00:11:48 There's just like two-minute video that everybody's going crazy, and they outline just how fragile our supply chain is. And not only do we, and we all know, based on what happened during COVID, exactly how brittle this supply chain can be. We also have learned that humans are resilient and can, in fact, if they want to, fly things in at three, four, five times the price.

Starting point is 00:12:12 We've seen that things can return to normal pretty quickly. Container ships, you know, shipping one of those from China went from like 2000 to 15,000 and then back. So things can normalize. So that's the good news, even with the sports strike. But this doomsday scenario I thought was worth playing here. If you haven't seen this, this is who? Harold Daggett, the leader of the international Longstormance Association,

Starting point is 00:12:38 the ILA, the union in question. These people today don't know what a strike is. Right. When my men hit the streets from Maine to Texas, every single port will lock down. You know what's going to happen? I'll tell you. First week? Tell us.

Starting point is 00:12:56 Be all over the news every nine, boom, boom. Second week. Bum bum. Guys who sell cars can't sell cars because the cars ain't coming in off the ships. No cars. They get laid off. No jobs. Malls start closing down.

Starting point is 00:13:11 They can't get to. the goods from China. They can't sell clothes. They can't do this. Everything in the United States comes on a ship. They go out of business. Construction workers get laid off because the materials aren't coming in. The steel's not coming in. The lumber's not coming in. They lose their job. Everybody's hating the longshoremen now because now they realize how important our jobs are. Now I have the president screaming at me. I'm putting a taff heart. on you. Go ahead. Taff Harley means I have to go back to work for 90 days after cooling you up period. Do you think when I go back for 90 days those men are going to go to work on that pier?

Starting point is 00:13:52 It's going to cost the money, the company's money to pay their salaries while they went from 30 moves and now and maybe to eight. They're going to be like this. Who's going to win here in the long run? You're better off sitting down and let's get a contract and let's move on with this world. and could today's world, I'll cripple you. I will cripple you, and you have no idea what that means. Nobody does. Wow. I mean, what?

Starting point is 00:14:21 I mean, number one, I want this guy on my side for any negotiations I'm in. Number two, I mean, I have a strategy here of how to deal with this union. Give them anything they want. Just give them everything. Okay. and then automate the hell out of these ports and then start laying them off. Because you cannot live with this kind of approach

Starting point is 00:14:46 to, I'm going to create chaos in society. This is like a moment where a union is threatening to slow roll, slow roll in order to go back to work. I mean, this is like really damaging. Speaking this way is really damaging, I think, to the cause of unions. And then when you look at what they get paid, I've seen now on TikTok and other places on social media,

Starting point is 00:15:14 and of course, caveats that this could all be, you know, different puppets and people trying to get their agendas out, obviously, it's hard to fact-check this stuff. But construction workers and people are responding to that video who look like civilians,

Starting point is 00:15:28 and they're like, but I don't get paid anywhere near that. So if you look at what these individuals are making, what they're asking for, I mean, these are big numbers, you know, the, the annual salary, from what I understand, you know, these folks are doing manual labor, hard work, and nothing wrong with that. But they're getting paid 150 grand a year, 100, 150 grand a year. And the starting pay is, you know, pretty generous, 30, 40 bucks an hour.

Starting point is 00:15:55 Starting pay, I think, is 20. The current cap is 39. The way people make a lot of money right now in longshoremen activity is working overtime, and then they make a higher rate. the contention on the pay side is that the union wants a 77% bump over the next seven years, which would bring them up to $69 an hour, which we factor in overtime does dramatically increase their earnings. But I think that there's a lot of data out there, Jason. We were going down to like per port data. But the gist is I think you can clear over 100K if you're a long-jorm and doing reasonable

Starting point is 00:16:30 amounts of overtime. Here's my question. isn't that great that people can make that amount of money? We talk about it as a negative, but I think it's positive. I think the negative thing here is if it's extortion, if it feels extortionary, and we're going to slow roll, and we're going to not embrace efficiency to a lower cost for consumers. In other words, it feels selfish if this union boss and this union has a stranglehold, and they essentially have a monopoly.

Starting point is 00:17:00 you could talk about this as if it's a monopoly like AT&T, right? They can charge you whatever. If you only have Spectrum as an option, there's no Starlink, Spectre can charge you whatever you want for broadband because you're going to pay it, right? Cable TV, you don't have an option. Remember the cable TV bundles were $100 a month? It was crazy. People were spending $1,800 a year just to watch sports and have TV and entertainment.

Starting point is 00:17:24 That's a big number. Now it's broken down. You buy Netflix, you buy, you know, whatever. You get some stuff for free. Apple, you know, and an internet connection. action, you're under it for half that amount. And so this feels anti-competitive. So if it was competitive and there were

Starting point is 00:17:38 non-union ports competing for the work and they had lower prices, great. But how do you compete in the port business? This is an absolute a monopoly. The only other option is air freight and air freight is known to be four to ten times more. So, you know, this then trickles down to, hey, if we're getting bananas from South America and they're coming up here on a, they're going to be twice as much, you know, coming on or 50% more when they come from an airplane versus a port.

Starting point is 00:18:15 So I think that's why this feels totally unfair to people. It also feels like we're not taking advantage of the latest technology to make things safer, faster, better. but this could be, this could wind up being like a preview of what happens in white collar work. Anyway, what do you think? It's a great question. Is it fair or not? So the way that I think about this is we, there's two different groups that I care about

Starting point is 00:18:40 because I'm a, I'm an interest guy, a little bit more than you are, not as much as Lena Con, but I'm somewhere to your more extreme side of that. But when the reason why I don't get that mad about unions with monopolies is they're not the corporations themselves. the money goes to the individual workers. And that's kind of what I care about a lot. I want people to be solidly middle class and have a shot at putting some money aside,

Starting point is 00:19:03 buying a house, et cetera. So that's kind of where I start. The other thing that I'm going to say is port automation is coming. These guys are going to eventually lose. So from that perspective, isn't it rational as an actor? Like, they just think about this in economic terms. Isn't it rational for them to try to get as much as they can before they get entirely automated because I doubt the guys

Starting point is 00:19:26 that joysticks in the U.S. that are eventually going to run all of our ports are going to be highly paid union folks. They're going to make 13 bucks an hour and who cares? Or they could be union folks, but they just are able to do five times as much work, which is, you know, what's happening with the static team sizes that we talk about here as a

Starting point is 00:19:42 theme, which is, hey, maybe your startup is going to be 10 people you know, in year 1, 12 in year 2, and 14 in year 3, where usually that would double. Every time you wanted to double revenue, you doubled the team size or more in some cases as you were investing. So maybe what's going to happen here is like that kind of efficiency would take us from number 50 or 75 in terms of offloading stuff back into the top 25 and it would lower prices for consumers. So that's what we have to think about.

Starting point is 00:20:10 And now this is only 50,000 people. So there is an argument if it's only 50,000 people to just overpay them and deal with it. But then this is the last time. And then we have to start thinking if they are sincere about shutting down the economy and having millions of people or hundreds of thousands of people impacted by losing their jobs or being furloughed, you know, temporary layoffs, I think would be more... I think he's exaggerating the shutdown here.

Starting point is 00:20:35 I think it's more like furloughs. People might be furloughed and that's a real thing. So, yeah, I mean... I just think it's the rational choice for the union to try to get as much as they can. The thing that I'm not sure about is how much they're going to hold fast on the automation point.

Starting point is 00:20:52 Because under your idea, pay them a lot, automate them, fire them. I think they see that off ramp. They want to avoid it. But at the same time, we can't have the only set of ports in the world that are so far behind the times. At the same time, it scares me a little bit that where we are finding a lot of savings in automation is the underbelly of the economy where labor has carved out a portion of profitability for the individuals,

Starting point is 00:21:22 and we're going after those as places to automate first, it feels, which again, makes economic sense. I absolutely get it, but it's hard on people who had a shot at a middle or maybe even upper middle class life that are going to get their life turned upside down.

Starting point is 00:21:36 And I've seen a lot of really, I'm just going to say it, shitty comments on Twitter, X, about people who have been saying, oh, you know, we need to just, basically classic like Margaret Thatcher, union busting stuff. and it makes me kind of giggle that people are willing to look at workers collectively bargaining and say that they are evil, whereas we allow for huge price inefficiencies.

Starting point is 00:21:57 For example, new drug comes out. They charge a million dollars for it, cost five bucks to make. And we look at that and we go, that's business. They can charge what the market will bear. Well, why is it bad when the workers do it? So I think if we're going to get mad about people rent seeking and profit grabbing, whichever one likes to do, we should at least be mad at everybody for doing it and not just demonizing the gold chain union guy. yeah who makes by the way reports are he makes nine hundred thousand dollars a year so he's doing really well um i think you know the tone i think that he's putting out there is going to work against them i think what they should say is hey we know that automation's coming it's only 50,000 of us

Starting point is 00:22:37 give us a plan towards retirement the average age is 37 we retire at 62 just like 35 so we got 25 years on average in our career path. Can we just keep the layoffs or the automation to, you know, this percentage and you just guarantee us that, hey, if you are going to lay us all off and automation comes in the next 10, 20 years, we'll get the following retraining and the following seven. So we want to fight for, you know, if you lay off more than 5% of people, everybody gets two weeks per year of service. So people who had 15 or 20 years of service get you know, 40 weeks of severance. Dude, that's, that would be a more compassionate way to look at this. This also reminds me of like the coal voting, like the people working in coal mines had such

Starting point is 00:23:28 electoral power for so long. And then you look at the numbers, there's like 13,000 coal miners left in the U.S. That always blew my mind. Like, love y'all, but you're the economic past. How do you still have so much poll in West Virginia? Crazy. It makes no sense. And I guess it's because, you know, sometimes these are swing states, you know, uh, Pennsylvania being, know, one of the really critical swing states. So we just over index on it. But that would be the easiest thing in the world is to just give them unlimited training and pay them to go to retraining.

Starting point is 00:23:59 So there's a really, this is how I would do it. Because I do have like compassion for the, you know, I come from a lower middle class background or blue collar background. I think providing we will pay you during retraining is going to be what happens in this new automation. As jobs compress, we should just say to people, here's your choices. These are seven careers in the future, solar panels, nuclear data center podcasting. I mean, I'm joking, but like the idea that we have an influencer podcaster career that you and I are here soaking in and there's another, I don't know, call it, I don't know, low millions of influencers who make a

Starting point is 00:24:42 salary. I would like to know how many influencers make a full-time salary. Yeah. Of a, that would be the equivalent of a teacher or a journalist. Okay. I have a data point for you on that, though. Can it just to jump in? So yesterday, I was, I did a Q&A with future founders, which is a Chicago, I think, based program.

Starting point is 00:25:00 My friend's a manager there. She asked me to come by and just talk to everybody. So I just swung by for an hour and a half and basically got to just play Q&A with founders. It was great fun. But one of them was doing a company that makes special socks. I don't know. And she was talking about her influencer budget and was talking about how much money influencers can make. And if you look at the power law distribution, it goes up higher than you'd think.

Starting point is 00:25:21 So I don't know the total number, but I do know that eight people at the top of that market crushing it and good for them. Yes. Yeah, there's been a bunch of surveys, but globally there's five million people. This is something that didn't exist. I mean, there was sponsorship for, you know, Brad Pitt or George Clooney to drink. Yes. you know, a scotch, you know, like lost in translation in Tokyo and only have the ads there. And then there are, you know, obviously endorsement deals here.

Starting point is 00:25:48 OJ. Simpson for Hertz, whatever. He's running through an airport. Like, that's kind of stuff with the top end worked for everybody. I don't know why that one came to mind. I was going to say, that is quite the example. I was thinking about the most memorable commercial I've ever seen for an endorsement. And just OJ. Simpson running through an airport because he was a running back, I believe. and he's just hurtling stuff

Starting point is 00:26:09 and spinning around other people. It's a very genius. It was a genius thing. So that would be a really interesting way to handle this is if you have X amount of years, you get X amount of retraining and maybe just have the salary taper off. So you can have up to two years,

Starting point is 00:26:28 let's say you're a lifer, you've been there for 20 years. You got two years of retraining free. Your salary is like 100% for the first six months, 75% for the next six months, 50%, then 25%, and you give people the soft landing that, by the way, CEOs get. You know, you look at the CEO, the exit package is usually like a couple years, a couple

Starting point is 00:26:47 a million. So give the rank and file like a path here and let's make this less contangorous, I would say. Yeah, no, I mean, I think that would be great. I don't think that union dude is particularly interested in the Jason and Alex theory of changing economies thanks to automation. But I do think that's going to be what happens no matter what in enough time. All right, listen, interest rates are coming down, but it's still hard to raise a new round. Everybody knows that. The last thing you need is to get bogged down in the minutia while raising.

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Starting point is 00:28:13 community. They do a lot of cool events with founders and VCs. I'm going to be going to some of them. So check out FidelityPrivate shares at FidelityPrivatechairs.com. Mention our podcast. You're going to receive 20% off your first year paid subscription. Here's my concern, though. We've talked a lot on this show about automation, AI, static team size, increasing productivity per worker, all things that I'm excited about. about can't wait to see. Yeah. What are we going to do when there's just fewer total jobs? Because if everyone's more efficient, if everything is more automated, are we going to once again need full employment? And historically, we always have gotten back to it. Look at right now,

Starting point is 00:28:51 after the internet, after the personal computing revolution, after mobile, after air travel becoming big in the earlier century. We're at 3% and 4% unemployment. But I wonder if this time's going to be a little bit different and harder on people, if their jobs literally just get automated for about one-third the cost. What are we going to do with all those people? Yeah, great question. So I don't buy it that there aren't problems to solve that people will be able to go solve.

Starting point is 00:29:18 For AI to really displace, and I'm just talking about the USA here. Let's just start with what we're having an American-centered conversation here. In the United States, the idea that we would have a massive disruption is possible. Then the question becomes, do we find other work for those people? And what I can tell you is, you know, as I've seen automation come to podcasting as an example,

Starting point is 00:29:41 there was research that we did two day before the show, where I am pushing our team harder to do better research and better research. And I had a conversation with you. I really want us to go deeper in every episode. And that costs money to do. And now it's like, well, if you use, you know, Claude, chat, GPT, and you type in, hey, what are the startups working in ports or which are the largest ports or how much support people pay? You start doing this first level of research.

Starting point is 00:30:09 Instead of firing team members, I'm just looking at saying, increase quality, increase quality, increase quality. So I think that's what's going to happen. That's my best prediction. I could be wrong. It could get to the point where you and I show up and an AI says in Zoom,

Starting point is 00:30:26 here's what you're talking about today. And then when we hit the leave button in Zoom, it automatically knows how to produce it, do the audio balancing, and you don't need producers, you don't need video editors, et cetera. That's possible. I just don't think it's probable.

Starting point is 00:30:39 And if it is possible, I think it's like maybe in 20 years, like you wouldn't want to put it a polish on it. Right. It's a ways out, is what I would say. Because I'm looking at this tech and I'm just like, it's definitely making us 20, 30% better every six months, 10% better a month, 50% better every six months. But it still takes time to do a lot of other work.

Starting point is 00:31:01 What were you going to say there? Well, I was just going to say, I'm thinking about these improvements that you get from automation, in the case of Shanghai when they automated their ports, I think they saw something like a 70% reduction in labor costs. And so like these things, yeah, 70% reduction in labor costs and 50% boost in productivity by automating

Starting point is 00:31:19 a port in Shanghai. 70% reduction in labor is a lot. And maybe what I'm highlighting is that there's going to be a period of time when there is massive job dislocation and then eventual later full employment, to your point. but I'm worried about that that gap period. And frankly, societal unrest here in the U.S. and around the world,

Starting point is 00:31:41 I mean, you and I are pretty big bowls on how much of the world's going to get automated in the next five years. Yeah. Significant. So then it's just, is there other work for those people? As we talked about with Generation Tool Belt on a previous episode,

Starting point is 00:31:55 we need plumbers, we need nurses, we need doctors, we need construction workers, all of those things, waiters, people working in the services industries, the blue collar industries,

Starting point is 00:32:07 we still need those. And it just might be, people have to move around, you know. Now, on the other side, there is the argument of, hey, everybody's going to have a robot. Those robots are going to go out into, you know, whatever 10-acre plot,

Starting point is 00:32:24 you know, out in the hill country, where I am in Austin or, you know, outside of, you know, somewhere in Rhode Island, where there's plots of lands, and they're just going to be, out there in the fields building small homes. And then they're going to be cleaning your laundry and changing diapers.

Starting point is 00:32:40 And okay. Please God. Come to laundry in my house, somebody. But I mean, think about it. That's the counter argument, which is what is going to get dramatically cheaper, transportation, entertainment, medicine, health care, and all other services. So there is an argument here as well that you'll need less money and you'll need to be employed less because you will not require as much money to do things. And this is

Starting point is 00:33:07 actually scary to capitalism. So this is where the snake eats its tail. What if consumers are like, I got a home, I'm living out here, I'm going to choose to work three days a week. I'm not going to come in for the other two. I'm going to take four days off work three days. I make enough money being a super commuter. And then I can get in a self-driving car and drive 90 minutes, watch a TV show. Whereas I wouldn't take that 90 minute or two-hour commute previously. I do the geographic arbitrage. That's the kind of stuff I think we're going to actually see enabled as well. And so it's going to be very, the amount of money you need to sustain yourself in America

Starting point is 00:33:43 could go down in the modern world greatly. You do see this in other places. The average household in the United States is 2.5 people. You start looking at like how many people live in other households. If you look at, and I just did a search, you know, in Asia, in the Middle East, Oman, they have bigger families, larger family structures, parents stay with the kids. They live on compounds. You might have seven people, eight people living in a structure.

Starting point is 00:34:12 In the United States, everybody, like, is kind of moving towards, I got my own place, I got my own car. And if things truly did get bad here, I think what you'd see is people bunking up with each other. Like, I'm talking about, like a cataclysmic kind of thing, like a depression-era situation. there's room for people to kind of, you know, consolidate, live together, lower expenses, and we're seeing that with that movement of the fire movement,

Starting point is 00:34:40 retire early, financial independence, retire early. A lot of people going towards that, you might be on that track, you might be fat fire where you want to have a really nice lifestyle, but, you know, maybe work less as you, you know, have more options available to you, and then put more money away, you seem to be doing pretty good with that.

Starting point is 00:34:56 And then as soon as crunch base goes public, boy, I'm out. See you. You know? I got some equity over there. Yeah, like 60,000 shares. So that company better get off the couch. Let's go. I think you raise a really good point about possible future labor changes.

Starting point is 00:35:11 I think that's maybe a better way than disruptions. And I want to contrast the the hustle and grind vibe that we often get in the world of technology and startups, which I don't have a beef with, big fan of work, frankly. And the idea of working less, living further away. way almost living a lower consumption lifestyle. I wonder if there's a way to have both because it feels like the technology group right now is we're going to build the future. We're going to build it now and we're going to hurry.

Starting point is 00:35:38 Hell yeah. And then some people are like, well, I'd rather not do that. And I wonder if there's going to be tension there. Well, the fact that that's available is a beautiful thing. That's the way I look at it. There are people, there's a movement called homesteaders. I happen to know this because I live on a horse ranch now. My horse ranchers, like, I'm not that far out, folks.

Starting point is 00:35:56 I can get to Austin, like, in 20 minutes, like, down, down Austin. It's literally like living in Palo Alto and going to San Mateo or San Mateo and going to the city. It's really not like I'm way out in the sticks. But, you know, you go an hour outside of Austin. Land is close to free. I mean, and construction is massively cheap. If you're a startup, like, you hear my voice, like, I'm, the reason I'm here in a lot of ways, too, just aside from the personal stuff,

Starting point is 00:36:22 and what my family wanted, is I think there's an opportunity to build a really tip of the spear community here. And if you're building a company here, people can afford to live here. They can afford to buy a house. Even with people complaining about, like, Austin got more expensive,

Starting point is 00:36:36 like the core of Austin's gotten really expensive. You go two rings out. It's unbelievably cheap. And then in between that wing, that one ring in between, which they call infill, I think, around cities. That is, you know, still very affordable. You can buy a home for 250K. So, you know, if two people have two internet

Starting point is 00:36:57 salaries or two decent salaries or even longshoremen salary, you know, you're in good shape. You're going to own your home pretty quick. The American Dream is here in Texas and some other places. One way that Austin actually crushes here, can we pull that chart up, John? This shows a median rental price over time in Austin. It's going down. And the reason why it's going down in Austin is that they built an enormous amount of house. Yes. See that chart? That chart is going down. That is possible.

Starting point is 00:37:26 It is possible. You have to get the hell out of the way. You know what people complain about here? It's really interesting to see this juxtaposition. People over here are complaining that they built too much houses and that I bought my house and now the value of my home, I'm underwater 10%. And people are like, boo-hoo. Like everywhere else you live, it's just completely unaffordable.

Starting point is 00:37:48 And they're like, oh, we built too much because there's no regulation. and I was talking to somebody who bought a beautiful penthouse. I'm like, do I please buy my penthouse? And I'm like, no thanks. I'll wait another year or two and buy your penthouse maybe. But, you know, there's like five or six massive skyscrapers going up in Austin. If you travel a lot, you've got to deal at renting cars. It's just a fact.

Starting point is 00:38:11 It can be slow, confusing. And most of the time, the experience is stuck in the past. It takes an hour to rent a car, two hours to rent a car. and I recently became aware of a really cool startup called K-Y-T-E. With Kite, instead of going to a dingy desk tucked into the bowels of some airport parking garage, a car is delivered right to you. That means you can get a new professionally maintained car brought to your door without dealing with the lines. And I used this. Many of you know, I moved to Texas. I'm in Austin. And I was in the Bay Area. I was going to be doing a lot of meetings. I was going to be traveling around. I needed a car.

Starting point is 00:38:45 All my cars were in Austin now. So I popped out the kite app. Bing, Bing! I had my car waiting for me at SFO, and I avoid waiting around, and I had my own car, so I could go to all these disparate meetings I had across the Bay Area. You can manage your entire trip in Kite's app,

Starting point is 00:39:04 meaning you can avoid waiting around while someone else enters your data into a computer by hand. One slow key shrunk at a time. It's like that scene from the movie with the sloth at the DMV. Anyway, Kite doesn't do extra fees. It operates in large, cities around the United States and I've used it in both LA and San Francisco and love it.

Starting point is 00:39:22 Here's your call to action. Download the kite app or book online at KYTE.com. That's KYT-E.com. Go ahead and download the app now so you have it ready to go. Use the code Jason at checkout. You get 10% off your first rental, which could be significant. Don't forget to use the code Jason. Download the app, KYT.E.com right now. Let's look at the opportunity here for startups. I think I think startups need to start looking at ports for opportunities because when we did our research, we found adjacencies, but we didn't find things in the core automation. It seems like that video from Guangzhou is the port company is probably building that technology themselves and it's state-owned. So we think there's probably a lot of state-owned technology in there or, you know, a homespun.

Starting point is 00:40:03 But we really should start thinking about how do we, if we do modernize these ports, how do we modernize them around the world? Because I was just looking at a statistic one of our producers had given to us only, according to Axiott. 62 of 1,300 global container terminals were automated or semi-automated by the end of 2021. Pro research conducted by Nats and others published by maritime economics and logistics. So we are just starting here. There's a lot of container terminals to be automated. We are just starting that process.

Starting point is 00:40:35 So let's look at what that process would be. You have to move the containers around. You've got to get the containers off the boats. You've got to get the boats to shore. there's a lot of pieces here, I would think. Yeah, I want to show a quick graphic that we have prepared from the GAO, which goes and shows the different areas of port automation. And what this does show is that everything from the gates themselves at the actual port,

Starting point is 00:40:59 over to the ships to how the containers are moved, how they're tracked and how they're loaded onto trains, for example. All of that can fall under the automation umbrella. And it's not an idle point because the reason why contractual negotiations broke down, Jason, between the ILA, and their employer group in June of this year was they'd begun to automate gates and the union said no to that.

Starting point is 00:41:21 I don't know, it sounds a little whimsical, but they're predicting their jobs. So they want to have a human at the gate, raising the gate. When? Yes. Like, literally the gate software available for homes, I'm in like researching it because I'm on a ranch,

Starting point is 00:41:35 I got gates, all this stuff. I got like a solar power gate. I got to like get electricity to it. The new gate technology, I can put into the gate, software, the license plates of our cars. When we drive up to our gate automatically opens. I can get an alert as to a license plate at my gate on my phone. Yes. And I can get alerts and I can then tag them and say, that's the gardener, that's the pool cleaner, that's garbage, whatever it is. Or it

Starting point is 00:42:07 can alert me to, hey, these are unknown or like this unknown license plate has come to the gate three or four times, especially at these time. And I, like, that's for home use. And I'm, the entire cost of that package, putting aside, putting electrical to the gate and not having solar there, um, is maybe going to be $1,000 or something. Yeah. Which is effectively zero for what it offers you. Yes.

Starting point is 00:42:31 And you're, I, I am, uh, I've done okay in my life. I literally was thinking about putting a gatehouse there and saying to myself, maybe, uh, you know, when I have events, I'll just. but a staffer at the gatehouse, and whatever, and then I was like, what am I doing here? This is crazy.

Starting point is 00:42:47 Like, that's unnecessary, completely, I wouldn't have a permanent one, obviously, but, you know, when I have an event or something, I have somebody at the gate.

Starting point is 00:42:54 And I was like, that's completely unnecessary. I can control the gate from my phone. So what they could do here would be very similar. They would know your license plate. They would have facial recognition.

Starting point is 00:43:02 They would record all that. My security cameras now have a database of everybody who ever comes on the property. So somebody hops the fence, I get them facial recognition. It sends me an alert, an unidentified human beings on the property.

Starting point is 00:43:16 Then I can look for that human being, the database, record it, like, this stuff is available for consumers. So that, the gate, that's an obvious one. But also, when the truck comes in, they should be able to text the truck driver. It's your turn. Go to this bay,

Starting point is 00:43:33 back your truck in, and it should automatically put the container on that truck. That's what's happening in China. That's not happening here. It should be even more than that. It should be an automated truck that comes in, automatically decouples from its standardized base that holds one to EU or two. It gets routed somewhere else to get recharged.

Starting point is 00:43:53 That could speak to buy a robot, brought in, auto loaded, brought out onto a new self-driving truck and out. That is where we are going. It is going to be very efficient when we get there. That's actually a really interesting idea. Like when you get those containers, those containers should be on little robots like the ones we see, like the sleds. in those other videos. I'm sure those sleds are bringing them

Starting point is 00:44:15 from the port to a parking lot. Then the rigs can just back into them if they're using human rigs. And that would just get in terms of the time to clear these containers from the port. That would go super fast. You would need zero humans to do that.

Starting point is 00:44:28 Yeah. Yeah. And that's my concern. Because it's going to be great for me, Mr. buys too much stuff on Amazon. Well, he's up all night with the newborn. Last night.

Starting point is 00:44:37 Sorry about that. Well, it's my fault for having, too. But for folks, that are currently doing those jobs, just worry about their displacement and how they survive. Because in a post-inflation world, shit isn't cheap, Jason.

Starting point is 00:44:50 And so I, yeah, my compassionate human side always competes with my, woohoo technology libertarian side. It's this war inside of me. I have two walls. We'll find new work for folks. All those people will find great jobs.

Starting point is 00:45:02 You just have to do a little bit of retraining and, you know, give them a soft landing. But let's look at just some of the companies we found because I know one of the things is hugboats. right? You have to get tugged into port. You can't run these commercial shipping containers into port because they spew a lot of dirty fuel, etc. In fact, they have two different types of fuel. One they use on the open ocean that is really dirty. Then I think they use like a cleaner fuel as they get closer to shore. That's all got to be turned into batteries at some point or nuclear reactors on these ships at some point. But that company is called OpenTug. So we thought, We found OpenTug.

Starting point is 00:45:43 They've raised three million bucks. Yeah, they're really cool. And one thing I like about Open Tug is that they've absolutely aped Apple's naming nomenclature. So Open Tug has a service called Barge OS, the operating system for barges. I know that's funny for us. Probably in their world, no one gets why that's humorous, but it's super cool. And if you do need to move stuff around rivers or around ports and so forth, having Tugs

Starting point is 00:46:07 is super important. That's a cool company. It's adjacent, though, to what we're. talking about. Other things that are a bit closer, Jason, identical solutions does a lot of the kind of automation tracking for refrigerated containers or what are called reefers. So that is really stuff moving on and off the boats,

Starting point is 00:46:24 but it's not the cranes. It's not the automated robots that we're talking about. Those companies that we found prepping for today were older. And so I was thinking, isn't this a massive opportunity for startups to go out there and build the next generation of automated port tech? comma, not in the U.S. though, because currently the union is kind of control there,

Starting point is 00:46:46 at least for now. So I wonder if this is really a European and Asia, Latin America, and African startup opportunity, Australian, you know, versus a domestic one. Yeah, and then you have to think, I wonder if there is a first principles way of looking at this and going faster. So one of the

Starting point is 00:47:01 startups I saw was going to do delivery with drones from ships to consumers. that to me was insane. Now, I know that when you get your, you know, stuff shipped from Timo or Apple products, if you pre-order them,

Starting point is 00:47:19 like your return address is Shenzhen or Guangzhou or something, and you'll, you ever get that? And you're like, wow, that's really weird. Like, they're putting the shipping labels on in Guangzhou for me, for my Apple device. Like, this is Tim Cook's brilliant. So I think there's something around, you know, maybe thinking from first principles,

Starting point is 00:47:37 how do we get those containers and those ships to, you know, operate even more effectively? What if there were different sizes of these containers? I know there are half containers and all kinds of other interesting things. What if these containers had more autonomy in them themselves? In other words, the ship comes up and these things just unload themselves. There's no cranes. They just are smaller and they look like minivans or something and they get off. like a procession of cars themselves.

Starting point is 00:48:10 So they drive on and drive off more efficiently themselves. Or they, I mean, this sounds really crazy, but like soldiers at the beach in Normandy, the ship gets close to the port, and they just get off the ship into the water, and they make their way to micro ports or smaller ports. Like maybe there's other options here.

Starting point is 00:48:31 Maybe the shipping containers are smaller, and they ship more efficiently. and those ones are also becoming robotic and need less folks. So what about automated smaller ones that go from smaller ports? And then we open up many more ports, which reduce the shipping time. So it does seem like some first principle thinking here would be really powerful for how to do this, you know, in a more interesting way. Yeah, we have actually reached kind of the limit of some things we can do. I think it's getting harder and harder to actually put the largest container ships through major throughways, like canals, for example.

Starting point is 00:49:05 Yes. Because we have some boats that are now so big, they can't fit through places or they can't dock at certain ports. It's kind of the Airbus A380 problem. If you recall, if that came out, airports had to like make separate terminals, runways, yeah. Terminal, yeah, those for it because it was so big. And now the boats are so big, we've almost kind of run that playbook to the end. And I would say that is like the peak of the TEU era because having containerized shipping that is the same around the world unlocked a lot. Because it meant that they were the same in every single port, every single city.

Starting point is 00:49:35 same technology, super cheap, super easy. But maybe we have run that kind of to its natural conclusion and maybe we need something else. Last thought here for me, Jason, is we talk a lot about geopolitics, generally speaking, not here on the show as much, but shipping is a big thing that does rub up against geopolitics, as we've seen in the Middle East recently. We talk a lot of the South China Sea and shipping lanes through that area. This is not just a port labor story.

Starting point is 00:50:02 It's much bigger. But I do think lately this flashbacker. Point underscores, as you said, the upcoming battles between labor and automation. We're not done here. Yeah, we're going to have truck drivers. And then it will go to, yeah, who would come after truck drivers? Uber drivers, taxi drivers, taxi drivers, livery drivers, drivers, drivers in general. We had cashiers.

Starting point is 00:50:25 Nobody seems to be crying about the cashiers making 15 bucks an hour losing their jobs because they don't seem to have a great union. When that union fought really hard, and this is the, the thing I've learned as a technologist and an investor in technology companies. When one side overplays their hand, people start looking for solutions. I perceive that's what's happened here. They've overplayed their hand. People are starting to look for solutions.

Starting point is 00:50:49 I know this because I was looking at a category of kiosks that would let you order food. And everybody was like, people want to talk to a human. It'll never happen. You know, McDonald's is not getting rid of their cashiers. Starbucks is not getting rid of their cashier. of their cashiers. Like, that was the sentiment 15 years ago when I first looked at this cohort when the iPad came out because the iPad, oh, and again, this is what happens with platforms.

Starting point is 00:51:15 A platform comes out. Founders get inspired. The iPad was actually a platform. It was a micro platform, but it was one nonetheless. And people said, hey, if you took these iPads, you put them on stands, and they would build stands for them. And they say, look, you can order the food and the ticket goes in. And you don't have to talk to this person here.

Starting point is 00:51:32 And so instead of having six cashiers, we're going to go to two. and we'll force people over there. Now you go to McDonald's, you go to Starbucks, you know, even Dunkin' Donuts has it now, app ordering. The app is the same as the kiosk.

Starting point is 00:51:50 And when you go into almost every fast food place, and I don't go to fast food places all that often, they have these kiosks, and the kiosk now is pushing you to the app. The drive-thru is pushing you to the app. I took my daughter, she wanted the McFlurry. I eat the flail fish, actually. I think that's quite tasty.

Starting point is 00:52:10 I hate McDonald's, like, you know, as a, like, staple of food source, but once in a while, man, that flaila fish will hit the right spot, and I don't eat it often. But the guy's like, did you, when I went through the drive-thor, which I thought was peak efficiency, and I know that person is probably remote in India or Manila, taking my order.

Starting point is 00:52:32 The first thing he said was, did you order through the app? And I was like, no. He says, do you have the app? I said, I do have the app. He goes, oh, if you order through the app, you can skip the first window, go right to the second. And I was like, ah.

Starting point is 00:52:43 So this is what people are doing now. They put their water in, boom, and they drive there. So again, this technology is going to get rid of jobs. Hopefully, we can have some basic humanity in while this happens. The McDonald's example is really good, because McDonald's employment is at once something that we kind of like mock, like, oh, you're going to be flipping burgers, right? Just the colloquialism for you're going to end up

Starting point is 00:53:08 at one of these lowest paid jobs in the economy. But at the same time, there's a stat that I don't have pulled up because I didn't know we were going to end up in McDonald's zone. But the percentage of Americans who have worked at McDonald's or was their first job. And it's a pretty astoundingly large number, just given how pervasive that chain is in the U.S., which you can tell from the obesity numbers.

Starting point is 00:53:27 But it is a place where people get that first work experience, often when they're still in high school, when they're 16. And so as long as we don't automate a way, the on ramps to like labor. Like that, that is the concern that I have. The first rung on the ladder. Yeah,

Starting point is 00:53:42 you start taking the first or second rung out. Where do people even start to learn how to be an employee? Like as a child, as a young adult, being a barista, working at McDonald's is kind of like a right of passage for a lot of people. Working in retail, working at Target,

Starting point is 00:53:56 working at, you know, I don't know, Sephora, where my daughter wants to work at Sephora. She keeps asking me, what's the youngest age I can work at Sapphora? Because she loves to make up.

Starting point is 00:54:04 Well, she wants a discount. discount too, I think, but she also loves the idea of, like, helping people with that. Yeah. Yeah. I was talking to a VC who people would know by name and their children work at an ice cream store over the summer. And that's their summer job to have work experience. And you could automate that encounter, but I just, I want to leave enough inefficiency

Starting point is 00:54:25 in the labor market that people can eat well and have a career path. I want to make sure we don't end up automating everything away. that way only eight people can afford to live. But at the same time, automation's coming. You cannot stop the economic forces behind it. It is a wave that is approaching every economy in the world at once. Yeah.

Starting point is 00:54:48 All right. There you go, folks. A lot of opportunities in startup land. If you have a great idea, hang us launch. dot co slash apply to apply for funding. Go to founder. Dot university.

Starting point is 00:54:58 Come up with a great idea. Get two people. I'll fund it. I'll give you the first 25K C check, your friends and family. check for 25K or I'll give you the first 125K like the YC

Starting point is 00:55:08 tech stars bet if you come to our accelerator if you're a little further along you got a prototype or a customer you know we're here for it we want to see people take risk and pursue bold amazing visions

Starting point is 00:55:21 of the future okay all right now moving on Jason two options do you want to do open AI first or the venture capital firm that's returning $275 million to its investors uninvested yeah

Starting point is 00:55:33 I think the CRV story is the one that we didn't see coming. So I think we go with that. All right. So CRV, Charles River Ventures, is going to return just over half of its $500 million select fund. It's going to basically ship back $275 million to its investors. So Jason, in fact check me here, if they're giving that money back, it just means they're not going to call that capital from their LPs. The way it works in venture capital is you do what's called a capital call. So your LPs agree.

Starting point is 00:56:03 let's say this is a $500 million fund. Let's say you had 10 LPs of 50 million each. When you do your first closing, you might take 10% of that down, you deploy it. Then in year two, or you have a big investment, you call down the money as you do the investments. Some of these folks will call the money

Starting point is 00:56:19 as they're doing the investments. That's annoying, but why do they do it? Well, the marks for your IRR are set for when you make the investment. So if you pull down the $500 million day one, but you only deployed 50, let's say 100 million a year over five years, your clock is ticking on the 400 million you didn't deploy in the first year.

Starting point is 00:56:42 So there's an even more interesting device. There are people who give you a loan against your capital calls or the GP, the venture firm. So instead of me making a capital call on day one for this 500 million, I've got all the documents signed, so that's locked up. It's very rare that somebody drops out if they do this. they'll lose their stake. I do the first capital call. I take down 50 million. But the next 50 million, when I make the next investments over the next six months, I draw down from a 5% a year line of credit.

Starting point is 00:57:14 I deploy that money. Now, if I'm expected to earn 15 or 20% per year, I'm arbitraging that and I don't have to do a capital call. So I can do less frequent capital calls because I have that loan as a device to pull down the money from the capital calls, which then sets the clock further back, which then goose is your IR. Okay, that to me sounds smart. Is that slimy at all, or is that, do you think a legitimate approach to... I think it's fine to do. I think it's actually okay.

Starting point is 00:57:42 I think it's over-optimizing, perhaps would be the thing to say about it. It does... Yes. If you didn't know about it and you're an LP, would you care? It doesn't affect you. Yeah. And it actually, in a way, kind of abstracts out them sitting on the money. So you get the advantage of sending the money later.

Starting point is 00:57:59 and money has time, you know, the money time value equation is there. Yeah. But CRV is saying here by doing this, we're not going to call down half the fund. Why? Why are they saying this, Alex? Why do they not want?

Starting point is 00:58:13 They spend all this time raising that fund and they're giving half of the back. Why? They raised it in 2022. So this is not something that just came out. They've had this money for a while and they've only invested $225 million. So what they said was,

Starting point is 00:58:25 is that the firm's partner said in a joint interview with the times is that, quote, market conditions have changed for the worse, and valuations for startups are too high relative to their potential payoff. And this matters racing because the select fund was not their early stage fund. This was designed for later stage investments, defending ownership percentages, putting bigger checks to work into later stage companies that would go public. And then my read is there's no DPI. Late stage is kind of locked right now. And there's just not that many attractive deals. So as a review said, look, we don't want our

Starting point is 00:58:58 RLPs to think that we're just sitting on their capital to collect 2%. If we can't use it, here you go. I mean, it's a bold statement. I think it's a focus issue too. You know, when you try to build the full stack of venture capital, it's very hard. I know this because, you know, I went from an angel investor to running programs like an accelerator, and then I created this new concept that nobody ever had, but pre-accelerator. Like a year, I call it the year zero accelerator.

Starting point is 00:59:25 Like, you're not even incorporated, but come hang out. and we might give you some money to incorporate. And just running those two programs, Founder University and Launch Accelerator, it competes with us doing, and the time it takes to do direct investing, when we start doing direct investing, putting 250K in a seed or pre-seed investment,

Starting point is 00:59:42 now we're working with seed funds, and then there's the Series A, the Sequoos, the Andrescent, they all want to do that Series A, CRV, Series A, craft, Series A, sometimes seed. And you have to be great at something. Now, if you start trying to do this late-stage stuff, why Combinator did it? Gary Tan canceled it.

Starting point is 01:00:01 These guys did a late-stage fund. It was available to them, and they've now canceled it. Why? I think there's, the limit is, how many things can you be good at? And what is the return profile of each of these? If the returns in seed are, you know,

Starting point is 01:00:17 higher, typically, let's say, a 20% IRA, and then Series A is a 15% IRA, and then you do late-stage, and it goes down to 12%, which is still better than the 7% of the market. Well, if you're really good at the earlier stage, why not focus on that? Because it's not like we can't find

Starting point is 01:00:33 another founder university or accelerator company. So then why would we be competing for series A's? We don't compete for series A's. We will say we might participate in one. We might defend. We might do pro rata. But generally speaking, there's so many people doing the series A

Starting point is 01:00:46 and there were too many people doing the series B. This is a great thing. Focus on your knitting. Do what you're great at. Let other people do what they're great at. And that's a better, ecosystem. It's kind of like Nike. I don't know if you were following this Nike saga where they decided they would be a direct-to-consumer company and they kind of, this entire channel system

Starting point is 01:01:05 they had of like Nike's in every store and you go buy Nike's anywhere. When they kind of got rid of the retail channel, it caused problems for them, it seems. Now, going direct is also great, but I think you've got to be, you don't be good at so many things. That's what this signals to me. It's a mature thing to do. And it's also saying that late-state is so broken because the valuations of public companies are dramatically lower than the valuations of private companies and that they don't think there's an opportunity there, which means entrepreneurs and board members are going to have to start thinking about maybe the valuations in that it's kind of like a snake that ate an elephant. It's like the valuations are low on either

Starting point is 01:01:51 end. They're skinny. You know, the snake is skinny at the beginning in the accelerator in series A. The snake is skinny when it goes public, but it's got this big fat part indigestion in the middle. So that's where we are. The snake is digesting the water buffalo. The python is, you know, swallow an alligator. And, you know, it's like, we'll see if the python survives it or if the alligator starts ripping out of its stomach. I hate to be graphic here, but that's the analogy here. We went from Lion King to Alien there real quick. I don't know how. pretty crazy. Yeah, the images in my head are terrible.

Starting point is 01:02:23 I want to point out that the tension that you're describing is pretty pandemic in the venture industry. I was going through some All In Summit talks, and I found a couple of charts from Coatou's Thomas LaFont, and I want to just quickly run through these. So can we get the, uh, yeah. Oh, great talk. This is VC distributions over time. And if you're on the audio version, essentially VC distributions as a share of net asset value for funds age five to 10 years has fallen to basically, It's high for the all-time low at 5% was as high as about 33%

Starting point is 01:02:54 in 2021. A complete collapse. Is it how I read this chart? Yeah, we have no distributions after a massive, you know, a great run from 2013 all the way to 2022. You know, you had this really nice distributions. And now, you know, it's,

Starting point is 01:03:12 there's a lot of funds who just haven't distributed. And there's not a lot of IPOs, but hopefully that picks up. And so Bill Gurley and, and Brad Gersonner have a chip company they just put up to go IPO. I'm sure we'll talk about that here on the show. And hopefully we get, you know, stripe out the door and SpaceX maybe or Starlink spins out, whatever. You know, these kind of things would be colossal for the industry

Starting point is 01:03:35 to have all that DPI start flowing out, would recharge the industry. And of course, we've talked about it here a million times. If Lena Khan and her reign of Terra ends, we can start having mid-market M&A, the industry might get up off the floor. Because right now,

Starting point is 01:03:50 we're on the floor, it's literally like 2009. But what you see from 2009, 2010, which is when I started Angel investing and became a Sequoia Scout, it was straight up, and we just had this really great run. So hopefully we go back to the future. It's worse than it was back in 2009. Let's pull up the very few new IPOs chart here.

Starting point is 01:04:09 Not to correct, but to improve and extend your point, Jason. No, no, no. Even beyond correcting, I'm just saying great, like, oh, God. I do remember this from, from, his talk, Thomas's talk. But you'll note that in 2001,

Starting point is 01:04:25 so the year after the first dot-com bubble burst, there were still 21 IPOs. And then in 2008, there were nine. So compared to last years, five. And 2022s,

Starting point is 01:04:37 two, this is the worst IPO technology venture back company crunch that I think we've ever seen. And I've been screaming about this, but the tensions are behind the scenes between LPs and GPs, and so they're not,

Starting point is 01:04:52 it's not super public, it's not like a founder on founder beef. It's no WordPress engine versus automatic. You know what I mean? I just, I really worry, and eventually it has to change, and I don't think you can blame it all in Lena Con. I think, you know, things got too overheated, low. The thing about Lena Con is, you know, she's not responsible, the company's not going public.

Starting point is 01:05:14 She's responsible for the M&A market freezing. So what we're showing here is the other side of the coin, which is a lot of founders aren't brave enough to go public. When we did things like SPACs and we put out product early, some of the product was nascent, would be generous. They were really venture-backed companies that didn't have product market fit. You know, you look at something like Virgin Galactic or Joby,

Starting point is 01:05:38 and two of my friends did those companies or two of my friends were involved in those companies. You know, those are incredibly speculative. Space tourism and flying cars. Now, do I think people should have the ability to invest in them? Yes. But did people get too excited about these and think, well, everything's going to be Uber, Airbnb, Stripe, SpaceX? Yes, as well. And so you had too enthusiastic of a population who wanted to play VC. They wanted to be venture capitalists. I get it. It's alluring. They wanted

Starting point is 01:06:09 to be angel investors. They wanted to be seduced by getting the 100x, the 1,000 X. The problem was those companies, people didn't look at the valuation. So if you blindly, invest, whether it's Donald Trump's back or Virgin Galactic or Joby, you know, the list goes on and on, you're playing venture capitalists, which means zero is a default possibility. It is the majority. Public market investors did not understand that zero was a possibility. They thought up and to the right stonks go up as, you know, the president of Dave Portnoy says, stonks go up. You know, it's, that's The, that's not the case for venture. No.

Starting point is 01:06:52 As we just went through, venture can freeze up. It can lock. And then we're sitting here with our LPs, with our founders, trying to grind out some wins. Is it not for the faint of heart? I can tell you, I'm living it. You know what I've- Not for the faint of heart.

Starting point is 01:07:06 Nothing, nothing is easy. That's a lesson that I've learned. If you're doing something and you're getting tons and tons of easy success, either you're riding a wave or you found a market opening that will soon become crowded. But everything is hot. And I think that's, good because it shows there's a competitive market out there. But being a VC looks, I think, pretty glamorous in the outside, but it's mostly a sales job,

Starting point is 01:07:26 and you're always in save the company and portfolio mode. It's not easy, and you work a lot more than I think people sometimes note with the August, September vacations we joke about here on the show and elsewhere. Here's what VCs do. They source. They find companies. Number two, they make a decision to back a company. number three, they compete to get an allocation if that company is oversubscribed or this competition

Starting point is 01:07:51 that doesn't always happen. And number four, they then support the hell out of that company to have an outcome. Number five, they make a decision of when to sell. I've just described for you the five components of how I pick which venture firms I'm going to invest in from my family office, which means I need somebody who's got great proprietary deal flow. I need them to demonstrate that they're good pickers. I need them to demonstrate that VCs will, founders will pick them over competitive VCs and then that, you know, do they support, do they have an impact on the outcome and then do they know when to sell? Do they take advantage of a secondary opportunity? Do they sell it all and then miss the majority of the

Starting point is 01:08:34 upside upside? What's their thinking on sales, right? That's the collection of skills you need to have. And, you know, as I went through my career, I realized, man, I am great at my deal flow is awesome because of podcasts and because of events, TechCrunch 50, all this stuff I was doing being a public figure. And now a lot of people have copied that to increase their deal flow. Decision making, I learned how to be a good decision maker over time, competing. We didn't have to compete because at the early stage you're passing the hat. And then supporting them, we just built content and have them on the pods. That worked out pretty well. And then in terms of exits, I always just said sell 10%, 10, 20% on the way up if we get opportunities.

Starting point is 01:09:13 So we have some idiot insurance if things don't work out. And sure enough, that's a big part of why I'm still in business as a VC is that I took advantage of, you know, orally opportunities to exit some positions early. And some of those positions, you know, they could wind up going to zero and we exited in secondary and nobody else did. I have an interesting question for you because occasionally you drop a new tibbit about your life that I find very interesting. You're an LP in other venture capital funds?

Starting point is 01:09:43 20 firms probably, including our own. 20 firms, okay. Four of them or 16 others, yeah. Yeah, but is, is the lack of DPI consistent across each one of those? Or are there some firms and funds that have managed to, you know, Matrix style dodge that bullet of not having any actual cash and cash returns? Most of them are suffering through this and then a couple, a handful, have gotten lucky, quote unquote,

Starting point is 01:10:12 to either take advantage of a secondary market or have a high profile company go public. So it is a feast or a famine type situation. But that's what I expected going into it, which is the majority of the firms, you know, let's say there are 20, I would expect, you know, 10 of them, let's say 15 of them to return 2x plus or minus a little bit.

Starting point is 01:10:32 And then I expect maybe five of them to or two of them to have some outlier. Like I'm in two firms, one's a 10x. One's a 7x right now, right? So those will take care of all of the others, right? If I'm in, if two of the funds return combined, let's say 20x, which I think they actually have done almost exactly that. Now I'm in the black for the entire couple of million dollars I put into other people's

Starting point is 01:10:57 funds. Now I'm playing with the house's money. But I also have to look at, hey, if I had put that in my public market accounts, I would have tripled. And that is the truth. And I have taken a pause on putting any more money into venture capital, except my own funds for funds because I'm overexposed suddenly because of this lack of DPI. Which is a key problem because people need to recycle that capital. That's how we get new

Starting point is 01:11:20 funds put together. Oh, it's, it's really tricky out there. I'm literally telling that to, I'm telling that to people who are like, hey, I know that, you know, this person told me you're an LP in their fund. I've got a fund. I'm like, not doing any funds in 2024 or 2025. Oh, wow. Okay. Well, because I want to focus on my funds, you know, like, and so I was just like, In 2026, contact me, you know, and I've been saying that's at the beginning of 24. So I told everybody, contact me in two years when you're on your next fund. If you may get to the next fund, good luck. I'll see you on the other side.

Starting point is 01:11:49 Every man for themselves. Every man and woman for themselves. I love that you just got a power law on top of the power laws. Because venture capital firms make all their money off of the investments that return the fund. And you're saying that you're going to use the funds that do better to replace the funds that don't. And it's just, it's just power laws kind of compounding. Oh, man. It's crazy.

Starting point is 01:12:07 Well, this is a good segue. into what you and I have been talking about, and you and I love to do back with the envelope math. Would I invest in Open AI at $150 billion? I said absolutely not, because I believe it's a 2x in seven years. I believe the company will go public, will be publicly traded in the next seven years.

Starting point is 01:12:23 They will complete this insane flip from a non-profit into a for-profit. As a public company, in seven years, if they were to grow, 30% year over year, they would double every two years, so we'd see a doubling. three times.

Starting point is 01:12:40 Ballpark, I'm saying. If we're growing 20, 30%, every two or three years, they double. So you said they're at basically $3.7 billion in revenue, or $3.6 billion in revenue was the whisper number. Yeah. So let's say we double in two years to $7 billion.

Starting point is 01:12:56 We double again in two or three years to $14 billion. And they had another two years. Maybe we double in those next two or three years to a $30 billion company. That would put it at 10 times price to sales ratio. Top line revenue to valuation. Let's assume they can do three double ups, three and a half to seven, seven to 14, 14 to, you know, call it 30.

Starting point is 01:13:22 Three double ups in seven years, they get to $30 billion in revenue, $30 billion in revenue puts them at nine times, ten times the top line. Forget about price earnings because that would be 50x, 30x, who knows? Yeah. And that's where I get to is $300 million. So you would double your money. I think the people who invest now will have a good shot at doubling their money. There's an outside chance.

Starting point is 01:13:45 Maybe they run away with it. I doubt it. I think that's like, I think the 80% chance is you double your money. The 50% chance should double your money. 30% 25% chance should do a little bit better than that 25% chance should do a little bit worse, which means it's a bad bet. I don't think it's a great use of capital to invest in this round. I think it's all strategics. well I mean it's thrive soft bank invidia

Starting point is 01:14:07 Kostla altimeter and MGX which is a state back company from the UAE not all of that is strategic I mean you know Microsoft is Nvidia is in this round but I mean a lot of people are are putting straight cash into this company so here's the way that I see the more bullish case the company went from like I don't like 1.3 billion run rate you talked about this in your newsletter I give a shout off for your newsletter you know cautious optimism dot news if you're into such things um I I write about this a lot. 100 bucks a year,

Starting point is 01:14:34 200 bucks a year, everybody should pay. And it's in your, it's behind the paywall. Um, I forget if this particular entry is behind the paywall, but I'll put it in the, uh, on the YouTube channel as well.

Starting point is 01:14:44 Um, at the pace of the company's growth in the last 12 months, I think that your projection of year of year growth rates is just about half of what other people are expecting. And if you take that into account, it compounds relatively quickly. And then you can end up with the price earnings, sorry,

Starting point is 01:14:59 price sales ratio of like five. at the time frame that you mentioned, which is pretty low. So I think it comes down to just how bullish you are about opening AI's ability to capture market share and then hold on to it. And then I would say also to eventually stop losing $5 billion a year. But I can kind of see it. It's not the first place I would put money. But think about entries in Horowitz and other major funds.

Starting point is 01:15:22 Why do they raise these big funds? People want to put a lot of capital to work. Your thrive capital, where else can you put $1.25 billion in a single check? Not many places could absorb that check. Yeah, maybe SpaceX, you know, maybe Stripe, but even Stripe, I don't think they can because their primary deployment of capital would be into human capital, right? So, maybe acquisition. So, you know, there's very few people who can actually put this kind of money to work. Waymo could put this kind of money to work, right? They need $100 billion to build out

Starting point is 01:15:50 their network of cars, and they just raise five, I think. So, you know, there's going to be opportunities there. And then there's also risk, but, you know, I do think there's logo chasing that occurs amongst top firms. So you want to, you know, if you're Mark Andresen and Ben Horowitz, you got like billions of dollars, you know,

Starting point is 01:16:09 in sovereign wealth funds sitting around, you want to impress the folks who are your LPs in the Middle East, let's say, or, you know, in Europe, China, whatever, they hear about Open AI, you gave them Open AI.

Starting point is 01:16:21 They now have exposure to Open AI. Those LPs can now go to their investment community to say, yeah, we have exposure to Open AI. That's the leader in the space. Now we've got that. And so that's why

Starting point is 01:16:29 they're able to command a price That's very expensive, and that maybe doesn't have all the returns because there is a bit of FOMO and there's logo chasing that occurs. If you have Open AI on your web page as an investment fund, other people come, oh, you're an open AI, great. Now, you also have to look at, like Instacart, people who bought Instacart at $40 billion and then lost 75% of their investors' dollars or whatever was to happen at IPO. Maybe they lost half of it, maybe they lost 75. they were underwater. So again, it's kind of like real estate, you know,

Starting point is 01:17:05 it goes up into the right until it don't. And so here I think that's probably what's happening with, you know, my friend at Altimeter, he probably has a bull case. It's triple the money. You know, I have a bull case that you could double your money.

Starting point is 01:17:17 He might have a triple. Somebody else might have a quadruple. But it's not more than that, folks, because this is an extraordinary evaluation, right? 50 times price to sales ratio, 40 times price of sales ratio, or ready.

Starting point is 01:17:29 My favorite detail from this was that we were talking about this $150 billion valuation. And then it comes out that it was actually a pre-money evaluation. So when you add the $6.6 they raise, it's actually now $157 billion. Because what is $7 billion more, Jason, between friends? You know, it's just pocket change. Just pocket change, exactly. What a crazy, crazy round. No matter who's right, though, this is a similar moment because this is, I think, the largest

Starting point is 01:17:54 traditional-ish venture round we've ever seen. The $10 billion Microsoft deal was more cloud credits and time and so forth. So I think this is the biggest one, just bigger than XAI, $6 billion round. But oh my gosh, are we seeing real dollars in flight here? Especially after coming off the conversation about how there's no DPI. It's a little bit dissonant to see the crisis and then also the enormous infusion of cash. I worry, but also I love the boldness of it. Yeah.

Starting point is 01:18:25 Okay. I think it's bold and awesome. Let's take one or two questions from the audience if we have them. Lance Simon says, how do we check the containers for contraband in an automated world? I highly recommend you watch the TV show The Wire, where all kinds of crazy stuff is coming into Baltimore's ports, and humans are easy to pay off. Computers are hard to pay off. I think you actually would get less corruption at the port and less ability to sneak things in. and that might be part of why there is also a resistance here.

Starting point is 01:18:58 You could, you know, this person who we heard from earlier talks like he's a character on the Sopranos, perhaps for a reason. He might come from a certain, he might, from a certain club, I'm not saying he's in the mob, but certainly the ports have had all kinds of characters adjacent to them from Jimmy Hoffa till now.

Starting point is 01:19:20 That was really delicately put. I like it. Well, well done. And I don't know if it's still occurring. but I do know that there's a lot at stake. If you can bring in a container of contraband, somebody can make a hundred grand. Somebody can make a million bucks for one container, right?

Starting point is 01:19:37 I mean, what could you fit on a container? Stolen goods, drugs, weapons, I mean, my lord, stolen cars. What can you send on the containers back? You know, that was always something I found fascinating in Brooklyn when I was growing up. There were elements I knew that wanted to, I'm going to have to put this statute of limitations over, But let's just say, if you were in a job where you encountered cars on a regular basis,

Starting point is 01:20:01 there were cars that were sought after in South America. There were elements in Brooklyn that would work with people who worked with cars on a regular basis to identify cars and then where they were. And then to very quickly in one night grab 10 of those cars that were incredibly sought after, let's say like a 500 SL Mercedes, right? Like something really that people in South America, Russia, wherever might really appreciate them and they don't care about the VIN numbers. Imagine 10 of those cars

Starting point is 01:20:32 at 10 p.m. all get knocked off and all by 2 am. are on a ship and by 4 a.m. that ship's gone and nobody knows where those cars are. They're gone. They're lost forever. Or they were chopped up into parts, put into a container, into another country where those engines and everything could be cut up

Starting point is 01:20:52 for more than their value than they were worth as even whole car. in some cases because of the arbitrage. So, yeah, all kinds of crazy things can happen with ports, I think, is the way to say it. I'm going to throw in one more just because I think it's interesting. Harry Massor has a great question. I'm going to just down here. Jason, do you think it's going to be a greater impact regarding automation on white collar or blue collar work in the near term?

Starting point is 01:21:17 Who gets automated first? Who gets automated first? I think everybody's getting automated right now concurrently. And I didn't feel that way three or four years ago. I felt like white collar wasn't getting automated. I think, so I think it went from 80% of the automation and the job, let's say, job disruption, disruption or destruction was occurring blue collar to 20% white collar. Now I think it's like 50, 50. And then ultimately, I think in the short term, blue collar will be impacted first and then white collar second.

Starting point is 01:21:50 Because there's always more work for people to do in a white collar job, right? It's not finite in the way that making a cup of coffee is finite or taking an order for a McRib is a finite task. You can complete, as we saw with CafeX, the reason we invested in CafeX and it did really well for us in terms of, you know, it raised a lot of money and consumers loved it. Now it hasn't broken out as a business yet.

Starting point is 01:22:16 It's hard to run retail, obviously. But the technology, and it took a long time to build that technology of the last 10 years, but it was, order to delivery 100% automated. Whereas making the pizzas, making the burritos, making the burgers, momentum burger,

Starting point is 01:22:32 all these things that we saw, you know, over the last 10 years in automation, none of them did the whole process. And when I looked at them, I was like, who can do the whole process? Because doing 90% is not enough.

Starting point is 01:22:44 And I think when we look at Kish, getting rid of cashiers, that's 100% done. That's 100% done. And so I do think the dock workers, like, putting the, as we talked about, getting the things off the ship

Starting point is 01:22:57 and moving the containers around and the gate, those can all be 100%. Whereas a producer on a podcast, an attorney, an accountant, a writer, you know, you might be able to, instead of writing one story a day

Starting point is 01:23:09 for TechCrunch, be able to write two, and your research, instead of being done by a researcher, working with a great writer and two people collaborating on a story, you don't need the researcher. Just, you know,

Starting point is 01:23:20 or you can write a better newsletter every day, with cautious optimism. News. You can write a better one every day with better content and beat your competitors because of AI because your research process

Starting point is 01:23:30 is faster, right? So that's, I think, is a really provocative question, I think. What do you think? So then, blue collar, then, just to summarize, blue color is going to get, blue color jobs will get fully automated

Starting point is 01:23:41 and therefore eliminated. White color jobs are going to get compressed in which people are expected to do a lot more and there'll be fewer of them, but there'll be less whole-scale destruction of employment, more of a, pressure.

Starting point is 01:23:53 Yes, which goes to static team size, our other theme on the show historically, which is, hey, I just think it would just keep the same number of jobs. Keep the same number of jobs at the company, right? I think it's going to be- More viewers, listeners, customers. So one salesperson sells twice as much, which if you look at the revenue per employee, it's doubled in Silicon Valley at some of these companies. Metas doubled its revenue in the last couple years and has less employees are the same. Uber doubled its revenue, same number of employees. So you know what we call that?

Starting point is 01:24:23 Operating leverage. It's a great and beautiful thing that every business should have. Anyways, guys, we got to go. This has been Twist. That's Jason. I'm Alex. He's Jason on X. I'm Alex on X.

Starting point is 01:24:33 We do live news, interviews, Twist 500. So much good stuff coming. We'll see you soon.

This Week in Startups - The Automation Endgame, VCs Returning Cash, and the OpenAI Wager | E2019

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