Bill Gurley: Become the Most AI-Enabled Version of Yourself

[Snorts] To embrace direct customer connectivity. You know, and Anthropic so one business model they could have, which they have had in the past, is we'll sell the token machine to a third party and that third party will turn it into an application. So think, Anthropic powering Cursor that people then used for programming. More recently, Anthropic's launched their own competitor to Cursor. So that this move to say I want to be directly connected to the customer is a sign, I think it's a pretty strong sign, that there was fear that being a model provider solely was as protectable as they wanted it to be.

Because people were switching out the models, sometimes with open source from China and things like that. But if you have the customer lock-in and contract, then you don't have to worry about that as much. So that's one thing we're seeing.

Well, that's a very interesting question. I've said this before, but there's a wonderful book by Carlota Perez where she says that only real waves cause bubbles. So when the question's asked, there's this notion of, well, if it's a bubble, then AI is not real. And you get into this argument. No, what happens is when there are real waves, people get rich quick. That's already happening here. These huge secondaries at these AI companies. So people are stuffing billions of dollars in their pocket. When people get rich quick, it attracts interlopers and charlatans. And this, by the way, was true in the gold rush. Like this isn't a new concept. If people are getting rich quick, everyone rushes in, and that's what creates bubbles. So, yes, I'm seeing actions and activity that looks speculative, and that probably is over risk-seeking. And when will that correct? I don't know. It's a very big wave. There's real customers buying real products. There's people taking massive bets, the biggest bets ever taken in the venture capital world. And it may be that some form of correction doesn't happen until 5 years from now. But there will be one day because the speculative part is showing up.

Man, at this point, the odds that you're going to have some kind of insight around some AI company when they're raising money at the highest prices they ever have, I think it'd be foolhardy. And by the way, if you just had the index, you're pretty well exposed. Nvidia got so big as a percentage of the index. Like if you just had an S&P index, you have a pretty strong Nvidia position. Like and you certainly have Microsoft and Google, you're doing well. That back to Burton Malkiel, like that generic advice would have served you fine for the AI wave.

Yeah. I think both are true. I mean, I think anyone that does a layoff today is going to write it in the 'Oh, we're just being smart. Like, why wouldn't you? Like, it's just such an easy take.' And I think Square was the one that kind of kicked this off and plenty of people pointed out that on an employee revenue dollar per employee basis, they were like three or four X many of their peers. So, highlighting the fact that they needed to get fit, regardless of whether AI might help or not. And so, I think you're going to see some of both. Yeah, I go back to what I said earlier. Whether you're a company or an individual, if you're worried about AI disruption, become the most AI-enabled version of yourself you can possibly be. If there are 30 paralegals at a law firm, and you're the one that knows most about how to use AI to do what a paralegal does, what are the odds you get fired? I think very low.

They're going to want to keep you around to run the AI tools.

I'm not bought in yet to the notion that that will happen. I'm one of these big believers in that phrase, 'What is strong opinions loosely held?' So my strong opinion right now is that's not going to happen. I know that certain people believe that it will and I know other people that are skeptics on that. Regardless, like you have to know what it's capable of at the edge of your field. And the only way you're going to do that is by playing with it. I've met many mostly academicians for some reason who are skeptics and they got it to fail once and that's the memory they locked in their brain and then they quit testing it. And I said, 'Well, when did you do that?' And I said, 'Have you tried that experiment across four versions of the same AI bot because you can do that now. You can go back and use the older version.' And if it's getting better, you should be aware of that. Like does it still make that mistake or not anymore? And if it's not anymore, then you can't sit around and tell me that it doesn't work because this thing you did. They're definitely getting better. And so like knowing what's possible, certain fields are going to be more deterministic than others. I'm not saying to rely on everything it says a hundred percent of the time, but it can turbocharge what you do. And if you listen to different people explaining, especially small business people, go out in your community and talk to small business people that have figured out how this can help them and listen to the list of things they have it doing for them, it'll blow you away.

I'm a big believer in open source for almost any technology. I'm probably out on some kind of wild edge of the curve where I actually think the patent system may be a waste of time and just get in the way. And part of it comes from being exposed to open source and how wonderful it is, but there's this great book by Matt Ridley called The Rational Optimist and he says most progress, and I love that word, progress, in the world has come from when ideas have sex. That's the phrase he uses. And the easy example to imagine is you go back to an agrarian society and a farmer walks into market and tells another farmer how he can double his crop output by doing this technique. That transfer cost nothing. That idea went through and then that other farmer goes home and his whole community prosperity improves. So, the teaching each other things that the other person knew is a free gift to increase prosperity. And to me, patents just get in the way of that. And the argument that someone would use against me making that argument is, 'Oh, well, what's the incentive to succeed?' But there is a litany of academicians that have developed new ideas without ever being paid for. Like there's no proof I don't think there's any proof whatsoever that progress would stop if there wasn't an immediate economic lock-in. You know, I think this may relate to regulatory capture of like a 17-year window. And open source is just another incredible data point against that argument in that people contribute tons of time and ideas to these projects with no immediate economic gain. And these technologies become building blocks for other entrepreneurs because they're free. Like it's just so like any entrepreneurial endeavor, if there's an open source alternative, they'll tilt towards it because it just makes their job easier and cheaper.

The previous five-year plan, I think that's the 14th five-year plan, specifically mentioned open source. And I think what happened is for 20 years, they're accused by the West of being IP thieves, like flat out, like just straight up called that. And so, if you're in that place where you're accused of that and you see Linux and you see MySQL, this looks like a pretty good solution to your problem, right? Like the world has said this stuff's free. And so, they got behind these programs and in a big way. On a global scale, they got I mean, and this started 20 years ago. And so, I think it's a pretty good foil to the accusation of being an IP thief if you embrace this idea that IP should be free. And in AI in particular, there's a situation there where there's probably 10 deep-pocketed players who are all competing, and open source has become part of the competitive requirement [Snorts] and that's super powerful because they can all co-learn from one another. It's wildly powerful.

So my firm Benchmark has had liquidity events on over 10 open source companies. Like you come up with ways to do it. It's just more competitive. There's a notion in economics called pure competition. You can also go find a Wikipedia page on that. And in pure competition marginal revenue equals marginal cost and that's what drives the most prosperity for everyone in the ecosystem for all the consumers that are out there because you can end up with the lowest price product and that's pure competition. Things like patents and lock-in and regulatory capture, these things prevent us from getting towards pure competition. And so you end up with products that are priced too high. You end up with margins that are ridiculously high. So I think it's bad for consumers to have that stuff. But you can build businesses in pure competition. Like they happen. And there have been tons and tons. DB, huge public company around an open source technology.

It in different ways. You sell support, you sell security, you sell like

To Yeah, yeah, there's a huge continuum of what open source is. So different people use different licensing models and things so that they can have add-ons and that kind of thing.

It's all good. It's all competitive. Yes, it is. Because one of the key reasons we've been such a big backer of open source is because open source has a distribution advantage, which relates to the mod thing you're talking about. Like, if people contribute to it and adopt it organically, then you don't have to go out. You're not hiring a salesperson to go convince someone to use your technology. You're calling into an account that's already using your technology and say, 'How would you like us to help you feel more secure about this and provide patches and help you with problems?' And so, it has distribution built in. Like, it's an

Saying it's good because it's competition. If you believe in free enterprise, you believe in capitalism and why America exists, it's a more intense form of competition. So, as a business person, you don't like it because it feels more wild and woolly, but it's actually better for the ecosystem.

You would have a hard time convincing me that risk capital is in shortage in America right now. I'm seeing the most risk-seeking venture capital behavior I've ever seen in my entire life.

Certainly the long period that people now called ZIRP, where we had near zero interest rates, which was unprecedented in the history of the country, led to I think had that not happened, you would have had a correction in venture capital, maybe in private equity as well. That I would have called it a healthy correction. But because of it and then because AI came on the heels of it, that correction never happened. And so you had this prolonged availability of capital that I do think has contributed to what I described as the most risk-seeking, venture capital movement I've ever seen.

When it was zero, I've only met Warren Buffett once in my life and it was at a group function, so we all had one question each and I said, 'You know, we've had zero interest rates for like 4 years in a row and your DCF models just don't even work. If you set interest rates negative, they literally fall apart.' And I said, 'So, how do you' and I said it just seems to create a bunch of risk seeking behavior.' And he goes, 'You bet you.' That's what he said. [Laughter] So, I do think that Yeah, I mean, rates have come back up and you know, and there's questions about the dollar and whether other currencies compete with it. So, it could I would be a I would I'm a believer that healthy resets are good, not bad. And so, ironically relative to your concern, and I'm not as big of a Dalio convinced it's all coming to an end. But, if I were, I would want corrections to happen because they get people more in touch with the reality of it all.

I wouldn't go as far as to say like he's a very smart man and he's thought about this a long time in that little video he created. Like, I want to crawl under a rock every time I watch it. So, he's able to convince me that it's a problem. And I also think humans in general have a hard time looking over time. Um and politicians certainly aren't held accountable over time. [Clears throat] There it's an area where transparency can help. Like, there are states that don't have their public pensions on their balance sheets. What's that about? Like, and so anyway, I'd like to go study it more. I think [Snorts] I don't find any I don't find value in the notion that there's no way to stop it. And it goes back to what I said about fishing all day. Like, let's go try and affect change to prevent that from happening. That's I just want to tilt towards that frame of mind.

I think that I think this exact issue you bring up was part of the impetus for my former podcast partner to launch the Invest America that became the Trump accounts. Like, I think this was on his brain when he came up with the idea and it's one of the quickest policy wins I've ever seen in my entire life. Like, the way they pushed that through and then getting private public partnership was that's a policy win I've never seen the likes of. So, Michael Dell put 6 and 1/2 billion behind this and there's more momentum around it. And it's even given me an idea like I keep wondering, what if you could do that for teachers? What if public What if

Private donors could help create teacher bonuses in different states in a state-versus-state competition. Like, a way to give back that feels and and I talked to Michael about it. Like it just felt he's got a huge foundation that's been doing charity work for 20 years and there's a in your brain you're like, is [Snorts] this really affecting anything? Is this really working? And the notion of a direct transfer of wealth from one party to the other feels way more way more of a win in his brain intellectually than funding a nonprofit that may or may not affect change, you know? So, anyway, that's an example of a very recent thing that has transpired. There's a lot of ways it could go wrong, but it's interesting. Everyone should go to claim their Trump account for their kids. Not everyone has claimed them yet. But a little million something. People just don't know.