David, welcome to the show. How you doing? Why limit it to the south of France? There are a lot of destinations. You guys are being quite isolated in... Okay. Okay. So, give us the full tour. How do we make sure that the show doesn't implode in August when all the venture capitalists go on vacation and we have no one to yap with?
I think you need a yacht.
A yacht. Okay. Yeah. Like you guys need a yacht and then you travel from port to port the VCs. Yes. Okay. And what ports are the show on the road? We going... I mean there's like level VC and then as they get more advanced I feel like you can find new destinations. Antarctica for the really successful adventurous.
Yeah. If your yacht doesn't have an icebreaker, I'm sorry. You're not ready to lead the series B's.
I agree. I think we should get into halo jumping. So when we get intel, hey, there's a big VC in Antarctica. We're just pulling the parachute minutes before hitting the ground, seconds before hitting the ground. Show up with the mic. What do you do for a living? Boom. And if this period, as you alluded to, works, I mean, the destinations we're going to expand to. Tremendous.
I think so. There's something here. There's something here. We'll keep noodling on it. Anyway, how they have a wander location in all the places you need to go. I mean, let's get the plugs going. We do need a wander. We do need to wander in Antarctica. Yeah, they should definitely get some of those locations on board the Greenland location, the ones that just pop up purely for marketing mostly. But, you know, I would take them up on that for sure.
Yeah. But yeah, how was your weekend? How are you processing all the flurry of news and business and trade deals and biotech? Do you have any exposure in your portfolio? What are you excited about right now?
I think my wife makes clothes in China. Oh, okay. So that's my main exposure. So I live with exposure, if you will. And making clothes is not a good business for anybody. And then when you get tariffed aggressively, you start doing math and your math already doesn't work. So then you're like, oh, what if we make it worse? And so I think I live with her emotions, which impacted me. I think as a venture firm, we're generalists. We have exposure in all different categories. I think TJ who's joining you after I think we'll talk about the pharmaceutical side of this. I think you're in a world where reading headlines, reacting to them, and then waiting until the news comes out, right? You read about the China deal. It's like we made a deal. We'll let you know the details. Yeah. Okay. No rush. Market immediately starts pricing it in. Zero rush. Just let us know whenever you get a chance and then we'll understand things better. And I feel like all of the news is getting rolled out like that where you're like, here's the headline, more to come. And I think reacting to that as an early stage VC is important for Twitter, or what we call X, it's important for podcasts and really unimportant for the actual job. So you have to balance these two stressors out which is like how do I get engaged and sound like this is really impactful to me and it matters and I have to overreact and then on the same time just doesn't matter.
Well, I think for you, if you're a true contrarian, which every VC should be, everybody's bearish biotech, you know, they've had a bunch of issues over the years. You should just invest in like 30 new biotech companies today, even without any sort of real insider edge.
Just probably did. I was on an airplane today and there's a chance that we did that today. Like 30 new deals. Yeah, we're investors in Zach Weinberg's Curie, which in fact does 30 new biotech deals regularly. So, we have achieved your goal.
Yeah, I think he's hopping on the show next week to give us his take of all the biotech. Yeah, there's going to be three more news and chill. Yeah, I'm sure. Yeah, I mean, wait, talk more about that idea of like patience and venture. There was this headline recently that Tiger Global, they got really stung during the ZERP era, but they're looking a lot better because they put a bunch of money in OpenAI and that eventually seasoned. We saw the same thing with the FTX fund buying a big stake in Anthropic and the deal winding up looking great over time. What... and they invested in Cursor too.
Oh yeah, Cursor. OpenAI invested in Cursor, right? Yeah. Yeah. Didn't FTX as well? Yeah, they might have. Yeah, I think so. But they sold that. That got sold in the bankruptcy. No one knows who bought it. Yeah. That FTX's investment was not one of the best investments ever. It was the person who bought it. The Cursor math on Twitter that was shared made no sense. Yeah. The 200 to 500 million, that's not how math works. Yeah. Like there's no equation that equals that. Like you can't get there. I was confused by that, but I didn't want to keep my mouth shut. Maybe they invested like a $50,000 post money. O3 is not very good at numbers yet. We invested in the seed pre-seed of Cursor and that math wasn't correct. Yeah. Okay. I can tell you that. Otherwise, you wouldn't be doing podcasts anymore from a hotel room. Yeah. I would be on my yacht.
Yeah. Yeah. I mean speaking of Cursor and just like the AI application market broadly, how are you thinking about demand from the hyperscalers for finding a dance partner in the application layer companies? There was a big meme for a while that all these companies are just going to get steamrolled by the foundation model companies. Now we're seeing deals get done and I've been arguing with Jordy about what if there is a world where every hyperscaler needs a dance partner in the AI application layer and there's just a flurry of M&A deals. That seems plausible but Jordy's a little bit more hesitant about that. What's your take on how the M&A markets look for application layer AI companies and big tech now in the new era?
I think application layer companies is a catchall of so many different behaviors and paths. Does every application layer company look the same? No. I think what you're looking at is in many ways a brand and there is a speed, momentum and scale advantage to not being first mover but to being fastest mover. Is there a barrier to switching like there has been historically in software? Probably not. But in many spaces barriers haven't been the thing that defends winners. It has been brand and it has been sort of recognition and I think that piece has been underappreciated. And OpenAI is the perfect example of that, right? ChatGPT, the idea that that name created it became a household name. It's like hard to say, it's weird. I don't think technical people understand why is that the name but yet here it is. Yep. Household name. Yep. It's very hard to disrupt that on a better model. Yeah. A better piece of technology isn't going to suddenly... like the same way Google won search by Google becoming the verb. Not because Google's search engine necessarily was always the single best product, the single best tech, even though it was for the most part. I think there's a brand value. And so at the app layer, I think brand is equally going to be important here. And more users, more usage on your product, it ideally improves because of AI and that's going to matter. There's a compounding value of scale that's different than just the initial momentum and I think that's underappreciated in terms of M&A. I'm more interested to see if the big companies need to buy app layer companies, right? The FAANGs of the world or the big seven. If the government allows actual M&A to happen anymore, I think that's the more intriguing unlock versus all the foundation models buying a handful of app layer companies. I think there is a value of sort of buy users and buy scale that you're probably looking at at the beginning stages.
Yeah, it's almost more like product. Like I feel like Google has their destination website. They can point Google.com to anything and they can funnel a billion... I mean Sundar recently said that Google has over a billion users of generative AI and this is the same story with Llama getting stuffed into WhatsApp and Instagram. They have a billion users, but the product isn't thought of in the same conversation as ChatGPT, which is a destination, a front end, the front door to artificial intelligence. And so yeah, there's something... there's some still secret sauce to building really great products that happens kind of only in the startup ecosystem. And if you look at Facebook now, Meta on the way up, right, they were buying things every step of the way that felt either threatening or felt interesting. So if you go back to FriendFeed, they bought a CTO there, right? And so Bret stayed on and built a big chunk of the technology inside of Facebook, but FriendFeed was an interesting early momentum company and then they bought obviously Instagram and WhatsApp, totally sort of separate channels within this bigger ecosystem. It ties into the business model. I look at those acquisitions as how you historically built companies in tech. If you go to this previous 10-year period when the government sort of stopped allowing it and valuations and founder expectations just became misaligned with acquirers, you saw so little M&A in terms of companies growing and getting bigger. And I think you're coming back into an era where the valuations of the foundation model companies, the valuations of the big tech public companies are so large that you can actually hit a founder expectation in terms of acquisition and not make as big of a dent. You're not paying, you know, Twitter paid 10% of their equity for Summize back in the day, which is crazy.
Can venture as we know it today survive even in a low M&A environment just because all that matters is the power laws or does it make things a lot... you know, the power law, it has survived for 10 years because you had a period of ZERP and then you had... I think for me 10 years is like one fund cycle if you're lucky. But I think it created momentum of liquidity for a moment and I think we're in this era of M&A liquidity after 8 years of very minimal M&A. Do I think VC needs M&A as a secondary channel for exits? Yes. I think 15 years into my career that was like a bet I've been mostly wrong on is that there would be a lot of old companies buying new companies. I think AI might be a catalyst for that forcing function, right? If you are not able to buy software, you might have to buy companies to modernize.
Yeah, it's super interesting like playing back some of the other Facebook acquisitions like they bought Control Labs. Do you remember this? It's a wristband that could basically read your mind. And so if you pinched your fingers, it would pick up on the electrical signals and be able to put that into the computer and the VR face. They acquired Control Labs between 500 million and a billion and this was when was this 2019 I guess. So it's been six years they still haven't commercialized that technology but they're going to in the new Orion smart glasses. And so just so much they have... John, it's in the iPhone when you squeeze it, it's like give John more of this dopamine he likes it.
The iPhone is made by Apple. I just don't know that. Just want to clarify.
But then Facebook was trying to buy a VR fitness app and they got blocked and everyone was like it's so dumb because the FTC said that they were creating a monopoly in the VR fitness industry and everyone's like what are you talking about? There is no VR fitness industry. But at the same time when you think about Facebook's really or Meta's really long-term horizon if they can sit on Control Labs for six years before seeing any sort of economic return, they're still not even close. What could that team have gone on to do? Maybe they could have done something cool. I don't know.
Facebook from 2005 to 2015, 50 acquisitions. Wow. 50. Right. These are real and some of them were acqui-hires or some of them were the version of acqui-hire that was aligned to like future value at Facebook. I think Sam Lesson came in through an acqui-hire too. Right. There was Hot Potato, Justin Schaefer's early company. There was a bunch of early acquisitions that were team acquisitions when it made sense and those people became important at Facebook. And I think when you look at today's modern companies, they were not built off of that same talent acquisition, the same way to build a company. I think you might get back to that because not every one of these companies is going to succeed. But if the value of the ones that are succeeding skyrockets quick enough, your equity becomes attractive to a company that is looking for a home. And I think that's a real alignment.
You talked earlier about companies potentially buying brand from all the companies that you've invested in. Brand in the early days doesn't matter. You know when usually when you guys are writing a check, brand, if somebody's trying to sell you on how great their brand is it probably means there's other fundamental issues with the company like the team's not... anyways brands take a long time to build. I'm curious if you have any framework for evaluating whether or not a team has the capability of building a brand that is going to resonate over time just because brand can originate from so many different places, right? You can build a great brand because you ship quickly. You can build a great brand because you have good taste, you know, and your marketing assets are... I think brand is this big amorphous word that when applied to specific spaces means something totally different. The brand that Cursor has built, their audience and how they've gone about building that is totally not related to a DTC. You know, we're early investors in like Warby Parker. Warby Parker is a version of a consumer product brand. I think in software capital helps. I think there's this two-sided thing. One is users and a community, however that fills in within your company. A community can be like a B2B startup building customer momentum where the customers are telling other people to sign up. But I think it's users and the community of users sort of spreading the word. And I think in this moment in time, capital helps. If you're telling this like every six months fundraising story, you're creating momentum for your company that is different than your competitive set. And so if you can go out into the market and say, our valuation doubles up every six months. We're able to raise from top tier investors, you're able to hire differently, right? When you're going to pitch in a competitive hiring process and you're able to show that this is the rocket ship, that you're trying to tell that potential hire that it is. I think those things matter and I think that a brand in all those components can compound to make you, you know, some version of... I don't want to say too big to fail, but you're getting made the winner. You have a lot of people that care about your success.
Yeah. And you're getting made the winner. You're the default winner. At some point you're not fired for picking that company if it gets to be that big of a name. No one's fired today for picking Salesforce. And I think when you're trying to challenge a company that no one's fired for picking, you have to really be a unique outlier to get somebody to risk their job in essence by picking your company.
We're an investor in the 8-year overnight success of Clay. Can you do your sound effect, please? Which one? I mean, we got a lot of them. Just do them all. Congratulations. Perfect overnight success that one. But you know Clay today, eight years in, is starting to do a go-to-market motion that starts to compete with some of your entrenched software players. And I think that it takes a lot of product build and that's been in the past 10 years something that's been hard to do as a startup because you're not funded for these five, seven-year builds of software. And I think as the Intercom founder said if you can develop software automatically or through a combination of your engineers and AI, the scale of product that you can build will happen a lot more rapidly. Tell us a story of meeting and investing in TJ back in the day since he's coming on next.
Good one. TJ. Yeah. I met TJ. Must have been a rascal back then, I think. I think Skype to be fair. It wasn't Zoom. It had like... it wasn't like Google Meets. It was pretty old. So, it had to be Skype. Yeah. And I was in the room with I believe TJ's like first employee, not TJ and not Elliot. So, it's like the first employee was physically in the room and he Skyped in luckily TJ. And TJ and I really liked each other but we didn't meet for like four or five months after we Skyped and I invested. So, it's been a journey. You know, we were the first investor in PillPack in that original... he was in Techstars in Boston and that's how I met him. Thank you. It really feels good when you get the sound of that emotion. You got to work for it. Brings the energy level like way out. As a VC, it takes a long time to get feedback and this is like reinforced. Immediate. All you had to do is do something 10 years ago. Exactly. So I appreciate that. 12 years ago. It's a thankless job venture capital. So yeah and then watching TJ's journey and then tricking TJ into becoming a VC is probably a point of pride in my career and watching him thrive being able to ski, golf and invest all at the same time. Which is... first to do it.
No it's funny with TJ. We got to... I got to ask him about this when he comes on, but it's like I don't know if I've met anyone who's a VC who hates VC broadly as much as TJ. Like he seems like he has like a disdain for pride in that.
Yeah, he has a pride in how much disdain he has for the profession. But I think part of it he gets some ability to kind of laugh at the industry given that he got to a billion dollar outcome in less than five years. He knows something about an industry that no one else knows about and his company got to a billion dollars of revenue in less than 10 years. And so I think you get the ability to kind of just laugh at powering Amazon's pharmacy like it's still a product in the world. And I think his ability to have seen the inside of one of the biggest companies in the world and then operate there, which he also found funny. I think gives him this unique insight as an investor to really have a top-down look at the health care system and a bottoms up as you built a startup by competing against the world and then sitting inside of Amazon, you got to see the world operate at scale. I think it's a unique perspective.
So, did you see Business Insider's new list of the 100 best early stage venture capital? Dream in 26 to be on that list. Do you feel like you got snubbed? What happened?
