SPEAKER_00: okay everybody got an amazing angel interview for you today not only do we have a three cycle investor today our first four cycle investor that's right jeff yang is the co-founder of red point and he started venture capital back in 1985 right out of school we cover his entire career everything he's learned we talk about the different downturns and their impact on startups at that time from black monday in 1987 to the dot-com bus then the gfc the great financial crisis as well as now our 2022 uh speculative asset bubble bursting the downturn that we're in right now we discuss the characteristics of the companies and founders that make it through these rough economic times and so much more he was an investor in snowflake uber the list of them goes on tivo excited if you're going from the dot-com era it's an amazing episode please stick with us bring

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SPEAKER_09: subscription when you mention twist all right everybody welcome back to the show we have been wondering what this boom bust cycle is going to look like and we went and we did a ton of research we

SPEAKER_11: said who has been in venture capital through the last three boom bust cycles who is old and weather

SPEAKER_12: and a warrior we were looking for the samurai that the jedi's the obi wans in our space and of course

SPEAKER_09: jeff yang came up because jeff started his interest in venture capital i kid you not in high school uh welcome to the program jeff uh everybody knows thanks jason you're the co-founder or the actual

SPEAKER_16: singular founder of redpoint no one of the co-founders one of the co-founders we started yeah we started redpoint really with uh you know three partners from ivp and three partners redwood

SPEAKER_00: so got it the six of us started redpoint yeah now you were interested in venture capital in high school is this because a relative was in venture capital or because you were an uber nerd

SPEAKER_23: uh i don't know i i'm ashamed to say maybe a little bit of both so i i grew up i grew up in new york

SPEAKER_25: and uh my parents were both uh engineers my mom had actually worked at ibm and had left ibm to start a software company uh in the 70s uh late 60s early 70s and uh and i'd always been interested in technology and then a family friend was in venture capital and i went with him to work one day you know one saturday and he was with exxon enterprises at the time and you know they had invested in atari and quip and you know a whole bunch of uh kind of really cool companies and i'm like wow this is really neat and it was more than you know it was technology it was innovation but it was also kind of the business side and i always thought that was really neat and so i kind of got it in my head that it'd be a really fun thing to do not really knowing what it was all about but in the back of my mind i i was i had kind of zero it was zeroed in on that and when i went to college you know i went as a as an

SPEAKER_16: engineer not really thinking i was going to be a professional engineer but more thinking i wanted to be on the business side of engineering and and you know i applied to grad school and went to work

SPEAKER_25: at goldman sachs for the summer in between years of business school and then at when i was finishing business school i'd always i said god i've been thinking about venture capital forever i might as

SPEAKER_16: well try to go in and it was a very hard industry to break into but you know when i got an opportunity to do it i i i just joined and then that was 38 years ago wow and so tell me what was it like trying

SPEAKER_29: to break into venture capital because this was a very small and listen when you got in ivp in 1987 i was just graduating high school and i went to fordham at night uh i was right behind you uh in terms of like my interest in technology and investing because i met fred wilson shortly thereafter and

David Friedberg: jerry colonna in the early 90s i was like whoa that's a cool job um but what was it actually like what was it like going and trying to find a venture capital firm and get a job from them because there weren't that many right it was a very small number of people in venture right i mean you know i thought

SPEAKER_25: it was it seemed like it was it was a larger number but in in retrospect it's tiny right i think when i joined in 1985 i think the aggregate amount of capital that was raised in the industry was like 3.7 billion right which was a local maximum but by contrast it's just like a drop in the bucket right you know it's it's a size of of some medium-sized funds you know for in certain categories now and i was in business school and and i wanted to do it but most venture firms really didn't have a hiring process and so there was something called stan pratt's guide to venture capital listed every venture capital firm in the country which wasn't that big and i went through and i basically wrote

SPEAKER_16: letters and called uh called almost everyone uh that was either in silicon valley boston or new york and i just we're talking dozens hundreds i don't know i probably reached out to

SPEAKER_25: 30 or 40 and there weren't that many firms uh and and the firms that that and many firms didn't recruit people fresh out of uh grad school you know they would only some some firms would just recruit operating execs so i'd say about a third the firms only recruited operating execs as as partners and i was looking for places that had the capability of bringing on an associate or knew what an associate was and you know i i uh i lucked out and i got in i got in the industry and i and i thought hey i'm going to stay for for a few years and if i don't like it i'll leave you know it's not a big deal and so i started at the uh venture affiliate of smith barney it was called first century partners and at the time a lot of financial institutions had uh venture arms like uh uh commercial banks investment banks uh uh actually ge had a venture arm called ge ventures you know jovenco which was kind of you know i iconic uh uh city city city group venture capital which is now known as cvc and you know a lot of the those institutional firms tended to hire associates versus smaller private partnerships which may only have kind of three partners may or may not hire an associate and so it was just kind

SPEAKER_16: of pounding the pavement and and and kind of grinding through it but it felt a lot like a door-to-door

SPEAKER_25: salesman job but i got my foot in the door and and uh and you know that was 38 years ago 1985 right

SPEAKER_03: in 1987 you go to ivp right and then of course you have the great stock market crash so without knowing

David Friedberg: it you actually uh are the first person on the program who i think we've had who in this series who actually lived through four of them tell me about the first deal you ever did tell me about the first deal that you either sourced research were were critically involved in and that resulted in a

SPEAKER_41: check everybody says you remember your first deal so tell us about it gosh uh so the first deal i was

SPEAKER_25: ever point on was at first century and it was it was in this uh it was in a company it was a communications company called conquered communications and what they did was they did manufacturing uh they demand manufacturing floor networking uh so that so that different uh pieces of equipment on the manufacturing floor could all talk to one another and there was a protocol at the time which was based on um tcpip called map manufacturing automation protocol and that's that's what they did uh when i got to ivp the first one that i really worked on that kind of came to fruition was uh

SPEAKER_16: probably something called synoptics uh which was which was a uh the first hub networking hub

SPEAKER_45: i was about to say i remember it like cisco and there were a couple of other yeah and then and then

SPEAKER_25: shortly thereafter i uh i invested in something called wellfleet communications which was a router

SPEAKER_16: company yeah and so cisco and wellfully were the two routing companies kind of in in you know in that in that period of time which was kind of uh a late 80s early 90s and then uh and then i also invested in a seed company that was selling equipment to telcos called applied digital access which ultimately went

SPEAKER_29: public and and then got acquired by somebody else so funny in the early 90s i was fixing laser printers and then i was at an i.t company and this is how i paid for college they said hey um you should come work at this company land systems in new york sure yeah and mike civino who works with me now as an investor hired me just because i had gone to a high school and i came in and they were putting in wellfleet routers and we were putting in banyan vines ethernet all this stuff was just coming out people forget that before the internet you had computers where people were just trading floppy discs inside of an office and then you could connect them and law firms were wait a second we don't have to run this document up 12 floors or down to the office and wellfleet would have these

David Friedberg: fifty thousand dollar routers and we would set them up between the two uh with the hubs and you could then have a document from sherman sterling's office in another city in that same city being worked on the same day it was mind-blowing to attorneys at the time listen if you want to crush it this year

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SPEAKER_53: for free terms conditions apply because they give you something for free um that's right but yeah then

SPEAKER_12: the crash happened uh how did the crash did the crash impact the the venture scene uh because at that

SPEAKER_25: time man the the the pc era and the networking era was a boom yeah it was um it was uh i just remembered you know it was uh 80 87 i think it was black monday yeah yeah and uh and actually somewhere in my office i have this little clock that uh there was this firm this this uh technology banking firm called montgomery securities and every year they would have is headed by this guy tom weisel who's kind of you know a legend and and montgomery securities would have a big party every year around their montgomery security party and i remember they had a big party the day the market crashed you know on black monday wow and the giveaway was this little clock and it said montgomery securities annual investment conference october 1987 and so i saved that thing for you know whatever 36 years and and it sits as a reminder you know to me but you know it was it was a big correction and and by big correction i don't i can't remember how much the market dropped but the the dow probably dropped 500 points or something like that you know and it was this big monumental event um and you know by today's standards on a percentage

SPEAKER_16: basis that was a big you know that was a big percentage drop but by today's standards you know that happens on a volatile day you know but it was um it didn't pretty much you know i guess i lived through

SPEAKER_25: that and then in 1990 there was a small kind of recession the internet bubble was obviously very impactful and and i'm sure we'll we'll talk about we'll talk about that the gfc in 2007 was a big impact to the financial system and and kind of uh how economies and markets uh um interacted but we were

SPEAKER_16: really on the periphery and the internet bubble we were the center of the the blast radius right yeah and this one is is definitely worse than gfc but not as bad i think as the internet as the internet bubble was because you know this one feels like a fundamental revaluation and of course there's a

SPEAKER_25: global downturn it's not as it's not as we're not as much on the periphery as we were on the gfc but

SPEAKER_21: we're we're not really the center of the storm like the internet bubble when you look at the

SPEAKER_29: companies that made it through previous bubbles what do they have in common what were the traits that when hey venture dollars dry up public markets close and ipos can't happen and all the venture tourists which we always experience at the last third of the bubble when the venture tourists are like

David Friedberg: yeah you know it was fun to live in tahoe or it was fun to live in hawaii for a year but i'm out going back to wherever i was what what are those companies that make it through what are the

SPEAKER_29: qualities of them and what are the techniques that venture capitalists use because you know there's a there's a lot of moving parts here um in terms of saving these companies because that's what we're

SPEAKER_50: that's where we're at right now i assume i'm assuming in your portfolio you're in hey what can we save

SPEAKER_25: mode yeah um gosh yeah i mean the common trait on all of them is they survived right okay and there's some attributes about you know we should we can talk a little bit about well what are you doing when the downturn first starts to to kind of assure or or increases your chances of survival and then we can talk about people who thrive in these types of periods but let me talk about the differences if you will between kind of the internet bubble and the the gfc and the first one i think and then i'll come back to your question i think sure yeah but but the difference was um in the internet bubble and i remember at the time before the bubble burst i think the market peaked i think in march 2000 i think it was march 10th of 2000 and i and i remember beforehand thinking boy these things are you know like uh like in the year coming up beforehand thinking boy these valuations are really uh kind of out of control and these companies are going public on especially internet internet advertising businesses and e-commerce businesses on basically no revenue and everyone everyone was spending you know spending all the public market dollars because that's what the public market you know the the public market investors wanted to do is to get get eyeballs and growth and i remember thinking boy uh we probably should back away from that space because it it seems right it seems right for uh you know a possible correction and and but where we'll go is we'll start going in you know to uh internet infrastructure basically data networking right and and so we started leaning more uh into being arms you know uh being arms dealers for an arms race and then i remember i had a lunch with a guy named dave dorman who was running bt concert at the time and they were the fourth backbone internet network and i was talking to him and he said yeah you know we're building out our network and i'm not really sure the world needs for you know backbone networks but that's what the public is giving us uh the um the dollars for and but there's a ton of capacity out there right and there's probably way more capacity than we're ever going to use and this is the time when when backbone networks were being built out and fiber you know all the fiber optics companies were were you know selling this incredible equipment but when you started looking into it there was so much extra excess capacity i remember sitting we're leaving the lunch going oh this is really not good right you know because if there's too much excess capacity something's going to blow up and so we went around and talked to all our companies and said hey raise a bunch of money because there could be a correction company and everybody raised money and the difference between uh like the gfc and when the internet bubble burst is when it burst that people went on a buyer strike i mean there was a buyer there was a buyer strike and there was basically no no customers in the market they were for either consumer or for or for uh networking and that lasted more than two years almost three years and i think early stage innovative companies can't really go that long without selling product right because everything starts getting stale and you you can't you can't really you can't really make it the difference between the g uh with gfc was we had a correction but it was relatively short-lived right within you know things had corrected a bunch of companies went out of business and buyers kind of came back into the market because it really wasn't targeted at the technology business was kind of targeted around around the world and so the first thing is you know surviving right and so it feels to me like this is a period of time that's more like the gfc kind of correction than it is like the internet bubble bursting correction where we got a ton of excess capacity but and a bunch of business models that that really didn't work yet right and so now getting to your question i think some of the lessons you learn in downturns is you know for first you got to survive you got you got to be there you know at at the end and so one of the things you always say you know i always say is you know always be early and adjusting expenses and burn rate and it's a little bit frustrating uh because i feel like i've been through this movie a few times i kind of see how it ends and i can almost have the role play the discussion of how it's going to go with a lot of relatively young management teams where they're going to say well you know what's going on you know you told us that we had to grow and and we can't really cut because it'll scare people and and there's nothing to cut and all this kind of stuff and and i always say yeah but you you really want to lean up and you want to do it you want to do it quickly and do it deep because you're going to have to do it at some point the earlier you do it the more runway you'll you'll save and and actually the people around in the company they'll have more confidence that there's a sustainability you know that the company itself can be self-sustaining and that it's a hard thing to do but the people who remain will be more motivated and they'll totally get it and most management teams don't aren't comfortable with it right and they think well you know i've cut i've cut all the fat and the reality is it and that ends up going a couple cuts and almost every company can take out their bottom 10 to 15 on any given day on performers and really not feel and actually probably get better performance and so you know that's kind of the magnitude um the death by a thousand cuts is really hard the second thing that i think people do is they they then change their philosophy on how to how to get expenses they start layering expenses with revenue not in advance of it and so you know one of the things you really got to do is as a manager in one of these companies is have really understand that the world has changed and and everything's about risk reward right you know how much risk do you do you really need to take for what reward and to the extent that you layer expenses with revenue that de-risks the plan gives you a better chance of success um the third is i think you got to focus vigil vigil vigil vigilantly on the value core value proposition and cut all the extraneous projects cut all the stuff that was kind of nice to have we'll see how in a loose capital environment it's okay to do that just go back to you know what is core what's your core value proposition the fourth is spend time with your team you know be present right um it's it's a very it shakes the confidence of everybody when they see what's happening out out in you know out there in the world and you really that's the time when you really and i think being in person is really important for that you know being present and being around and having your door open and checking in with people just to know just so that your your the company sees you're not scared you know that that this is really this is really important and then the last is creative sustainable business model you know lots of times you may even if you didn't have a sustainable business model because because you had a lot of capital and capital was free well you got to change that because that's that's not you're not going to survive if you don't have a sustainable business model

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SPEAKER_29: yeah i think it's just such a brilliant observation as simple as it is you have to survive and that means uh by any means necessary and when founders say to you oh you know we're going to get this venture loan we're going to raise another round uh we're going to we got these like the pipeline these conversations and you've had them many more times than i have across a couple of more of these um cycles than i have but the reoccurring theme is people don't take the medicine and they just wait and they think they're going to ride it out and i am getting so many people emailing me oh no we're going to do five million dollars in venture debt we're going to do ten million dollars in venture and i'm

David Friedberg: like wait a second if we can't raise money from the market right and we don't have a path to profitability we're now going to do a 12 loan that's due in 24 months we have to start paying like wow this is this seems incredibly dangerous to me why are we doing this instead of making the cuts

SPEAKER_09: and increasing revenue and yeah i guess it's really hard to change gears for people it's really

SPEAKER_76: hard to accept reality for first-time founders or management teams no i i think you're exactly right

SPEAKER_25: and that gets a little bit to you know who thrives in these kind of periods right and and one of the things you just said it's it's people who are who have the flexibility uh and also the intelligence to kind of recognize what's happening right and they're rarely straight lines from a to b you know the secret is knowing when to adapt and when to stay the course right and and you got to be flexible and you got to you got to adjust to the changing environment and one of the things i have found is one of my lessons is it's really hard to substitute for raw intellect you know really smart you know backing people who are really smart is is an important aspect not not just book smart or subject matter smart but just people who kind of get it and they kind of see see what's happening in the world and you need you need uh perseverance but your people also have to be able to understand when the world has changed they've got to change or else they're gonna they're gonna get run over yeah and and

SPEAKER_29: the change that we're experiencing now yeah how would you define if we were to look at this correction where we are in the correction and what were the the mistakes that we made that need to be corrected

SPEAKER_25: um well more generically i would say you know great great entrepreneurs are people who really um manage a great managed risk takers in other words you kind of see you know everybody thinks oh entrepreneurs love risk right my experience is the best entrepreneurs are the ones who understand risk and but they also understand reward and they know when to take what risk for what reward i mean nobody really just likes risk just to take risk right yes i mean nobody wants to jump off you know jump out of a out of a building you know with with a blanket hoping that they build a parachute but if that's your only choice then you're gonna have to jump off the the building right and and so you know when you go from periods of very loose capital where raising money is easy you don't have to be as as tight uh with kind of how you spend your money and you're able to kind of experiment more uh to get to bigger outcomes with more speculative models and the market lets you do that that's great but as soon as that world has changed you have to change with it right and that's a hard thing to do because it's culturally you know kind of very difficult but i think the best entrepreneurs view is a challenge and they see it's happening and they realize they they have to do it right you know greatness comes from understanding risk and reward and when to take risks is as important as understanding kind of what the reward is um and and so it's um it's it's those types of people who who who can can can kind of see those things and and adjust that that ultimately you know really thrive and survive you know in these these kind of really uncertain times you know the other things i'll say is they're also i also find that they're very realistic and they're very honest and you know i said this before but i think you always have to assume that your employees your customers your partners are smart and they understand what's going on right and i often see people who think hey my job is to be the unbridled optimist and they confuse that with leaders confident leadership right and i found that employees are generally really smart customers are generally really smart partners are generally really smart they they see the same world that you see and if and if you're headed down this path of driving off a cliff they're it's gonna it's gonna shake their confidence in you much more than this person is doing kind of what it takes to survive and to thrive and i think if you use these types of um crises as view them as opportunities and opportunities i mean in times of great uncertainty and crisis i think metal is forged and and it's very easy to see who on your team locks up and who goes and solves problems right and so the opportunity is you're gonna leadership is gonna become evident and so promote the people who rally the troops to solve problems and cull the herd of the people who lock up you know

SPEAKER_29: yeah i mean i think probably watching what elon has done at twitter uh watching what zuckerberg did at first kind of driving meta off this cliff in terms of spending and just hiring and then all of a sudden he was like hmm stocks at 90 a share nobody believes in us anymore i think we're gonna get rid of this middle layer of management and he i don't know if you saw this past week where

David Friedberg: he said if you're not building stuff here please leave if you're like if we have too many layers of management if you're just managing and you don't actually believe you're actually contributing you can leave please leave i mean this was like talk about a 180 uh maybe you could talk a little bit

SPEAKER_29: about how bloated our industry got in the free money environment and then this reaction where hey it almost seems like people are now saying well what's the what's the uh least amount of resources we need to achieve a goal as opposed to what's the largest amount of money we can raise and my net my value is how many employees i have and how big this company is well i i think you're i think

SPEAKER_25: you're exactly right um i i think i think this um shake out if you will is going to take a while i i mean and and when i say shake out i don't just mean in the venture world i mean i think just generally you know there's been for whatever reason the money supply grew at a very rapid rate right and if for a very long time we got an at we got asset bubbles and companies including ours raised kind of too much money it's going to take a while for that to to kind of leave the system and the mentality is it's going to take a while for the mentality to leave the system you know we've been going on a kind of go big or go home kind of path for uh pretty much since after the gfc so kind of oh nine something like that oh nine ten maybe start happening in kind of oh six oh seven and that's a long time right and and so people are going to have to go back to how do i accomplish the most with the least right and one of the things i yeah you know i always believe that a lean company ends up producing a better company right you know uh necessities are the mother of invention and i've always been in general for raising a little bit less than a lot more and i understand that when a company is offered a lot of money at low dilution it's probably the right thing to do to put it on the balance sheet but i but my history has been that culturally it leads to more sloppy decisions right and and someone the management always says oh don't worry we're going to raise it and it'll be a rainy day fund right but what ends up happening is you know employees go well we have all that money let's just do a parallel project or let's not cut this peep this person let's just hire another person to kind of do what this person was supposed to do and you don't have the you don't have the the the razors edge you know that makes startups successful you know more than not it gets a little bit it gets a little bit sloppy it gets a little bit more like a bigger company right and and so i think ultimately this will be really positive and and i think the companies will come the companies that make it will come out better companies and the new companies that'll get started will definitely be better companies

SPEAKER_98: yeah but it's going to take a while for this to you know uh for this to shake itself out maybe

SPEAKER_100: maybe several years several years yeah because this has been a year 2022 completely down market brutal

SPEAKER_29: 2023 seems like the dead cat has bounced at least in the public markets and people are saying oh maybe this isn't going to be a soft landing um but you say a couple more years of working this out for founder startups capital allocators so two three four year cycle and we're a third of the way through

SPEAKER_23: it is that kind of where you're thinking yeah that's kind of what i'm thinking and part of it is a lot of the bigger companies have raised a lot of money and they've got a couple years of cash

SPEAKER_25: and you know the shakeout won't really occur till everybody's kind of out of out of cash you know similarly with capital allocators a lot of people raise fun big funds and you know they'll they'll try to um they'll try to be disciplined but the fact of the matter is when you're funded and your job is to quote unquote invest you'll probably invest are you focused on subscriber retention this year well

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SPEAKER_29: slash twist for 10 off when you look back on uh the great investments you've made and man so it's a long list that's almost gratuitous to go through this but if people remember going backwards tivo netflix excite or just looking at the current amazing companies you know and some of them you've done personally from your family snap uber dd instacart dell i mean so many different

David Friedberg: companies um which company uh and the effort they put in that you were sort of front row seat for are you the most proud of or amongst those which ones are the one you said wow what what an amazing

SPEAKER_29: effort there by the team uh and that gives you just hmm that was a pretty great moment in my career to have found that company to back it and been part of their story of changing the world yeah

SPEAKER_25: gosh um hard to pick you know yeah i mean every everyone's a little bit different everyone's everyone's kind of really uh has its own uh fun unique story i guess you know if i go if i go way back um you know when i i made an investment in this company excite right and and that was one of the first internet search engines and one of the reasons i got interested in in um in the internet was as you mentioned earlier high performance networking came out of work that was done uh by arpa and something called the arpanet and the arpanet was the pre-genitor to the internet and because i'd done so much work in high performance networking i knew a lot of the original architects of arpanet and i start hanging around them and i'm like wow this internet thing could be something something interesting and and so i met i met a bunch of kids at the time who were just still in college or just coming out of college and they had no appreciation for how the internet was built what you could do with it and and they were and i put some seed money in a few of these companies you know um and ended up they became consumer companies consumer media companies right and what was really fun about that journey was none of us knew what we were what the business model was i mean most of the other kind of data networking things whether it was wellfleet or juniper or calyx or um you know what have you you know they're they're doing the same thing kind of faster faster better cheaper right you know arista when i put some money and it was because i knew i knew the founder jayshari lal from a previous company and but but but you knew they knew how to do it they were just building you know a faster better cheaper thing you know the ones that are really gratifying is when there's no business model you're kind of in there trying to figure out is there something here and are our customers gonna do what has never been done or a company's gonna use this to get into a world that that they've never done before and and that and those are somewhat the most gratifying the most sort of the most fun you know that's what excite was like you know i did something called mmc networks which was the first network processor company which came to us as a systems company and it talked them into being a chip company you know and we did all the market research to see if there was a market there you know uh when we did tivo there was this concept of you know how can we how can we change the way people watch television right you know how can we go from live television into something that's that's time delayed and they could watch the shows whenever they want to what they want to watch whenever they want to watch it you could pause live television i think that was their tagline pause live tv he was like what exactly you know and when we did do you know it's invested in snowflake it was well you know this data data is going to be a really important kind of resource in the cloud and and well is that really going to be true right and and so it's it's in these things where the most fun is working with with people who have this vision and they say things with like we're going to do something that people have never been able to do and and and you know whether it's live their lives or how corporations do their work or how how how people kind of communicate with each other and those are those frankly are some of the most fun they're the most nerve-wracking because you you're you're talking about markets that don't really exist but when when they don't it does work it's it's it's incredibly fun it's amazing when

SPEAKER_03: market pull occurs like people talk about product market fit okay yeah people like this product yeah they're spending a little bit money but then something weird happens when there's market pull

SPEAKER_53: and like all of a sudden everybody's got a tibo or everybody's taking an uber or you know using excite whatever it happens to be you're like whoa the world recognizes this is brilliant and they're

SPEAKER_49: knocking our doors down that is kind of the height of entrepreneurship i think well you know what's

SPEAKER_25: really funny is and and you've experienced this when um when someone says boy that's you know in the beginning when you start a company you start company you have this idea and typically uh either someone brings you the idea you have the idea and you kind of noodle over it you noodle over it but you know somebody has to take the initiative to say you know what i can't stand the thought that this doesn't exist or i can't stand the thought that someone else is going to do this because it's so obvious to me that something like this exists so then you go do you go do the work and then at one point you know the founders look each other they look each other in the eye and they go okay do we really believe this we believe this enough to leave our jobs and actually go do this and you go do it right and nobody really believes nobody knows it's really going to work and you have this period where you're willing the company into existence right you know you have to you have to uh believe enough and be able to convince others that this is really going to work in order to raise money or bring in employees or get your first customer what have you there's that period where you just will it into existence and if you stop willing it the founders stop willing into existence it dies right yeah and in that period you're telling everybody what you do and they go yeah it sounds like a good idea but but but you know is the market big enough or will this really work or you know it will this person put you out of business and then it starts working and people start coming on and you go and the founders inevitably turn to each other and go wow i wasn't really sure this is going to work i can't believe it's working right we're flying it's working we're flying it's working and then somebody comes up to you and goes oh i know that company it was so obvious i can't believe so obvious yes i can't believe nobody did it before you and you go and you sit there and you go thanks but then what you're what i'm really what you're really thinking is yeah it's obvious now but it wasn't obvious then and if i and if i and i told you about it then and and you didn't jump all over it right you know and it's it's an incredibly fun process it it literally is

SPEAKER_29: the definition of what's so exhilarating about being a capital allocator and helping place these bets uh literally had joe um jebbia from one of the three co-founders of uh airbnb on just yesterday

David Friedberg: uh or two days ago and uh the number of vcs who said no was just unbelievable you know dozens and dozens of people and the smartest ones in the room and he's like it was crazy j cal uh we were like pitching legends and people who we totally respected who had backed youtube and google and this and that and they kept saying no and we're like okay well maybe we should pull the plug on this no

SPEAKER_12: we know this is going to work we know that it works and it really was paul graham who told him like hey keep going keep talking to your customers you got 30 people who are hosts go meet those 30 people and if paul graham hadn't just you know as he said like wag his finger in the air and said just go meet those customers and talk to them it would have never have happened same thing with uber i

SPEAKER_57: introduced uber to maybe 20 people and three of us invested everybody else was like that's a stupid idea cars gonna get an accident somebody's gonna get killed in a car and i'm like i think 30 000 people get killed every year in a car like that's not a reason not to make a business like maybe we could make cars safer who knows um you've worked with two really interesting people uh one i had on the show frank sleutman and then one i've met a couple of times zaslav and i think you're still on the board of uh wbd i've been buying their stock i'm a complete zaslav fan since i met him when he gave a pitch on discovery at a investor conference um tell me about these two individuals because they do seem

David Friedberg: to be i call him general zaslav like he seems like a real hardcore guy and sleutman as well seems like

SPEAKER_49: a general tell me about working with those two individuals and why they're so absolutely successful

SPEAKER_25: at what they do well you know i i i haven't worked directly with frank so i i can you know he he just exudes confidence and and experience and uh determination you know uh and he's someone that he just just don't you know don't get in the way of because he's just gonna you know go through but i can really talk much more about uh uh zaz and and you know i met zaz because uh originally because when we had invested when we you know started tivo um i brought in i was really worried that the networks were going to try to shut us down because we were potentially you know skip commercials and stuff and so we went to a few networks and and asked them to invest in the company and help us kind of define how uh the dvr was going to work and and how consumer experiences and how to work with content owners and providers and stuff and so nbc ended up investing and uh zaz ended up coming on the board and so he was on the we were on the board of tivo together for about for about 10 years and i just really liked the guy he was really pragmatic he said exactly what he what he thought and he was kind of a no bs type of person and i had been on the at&t board and when at&t spun off warner media uh in with discovery to create warner brothers discovery you know i i i was asked you know would you have an interest in going over to warner brothers discovery and when zaz called me about it i said yeah i'd love to work with him right and he is um he's kind of a remarkable guy he is he is very high eq you know what i like about him is firstly he he's a great guy uh and he's got he's he's got his head on straight screwed on straight and he has very strong principles and morals and and understands you know he engenders a ton of loyalty from the people around him and the people who work with him and that doesn't mean he he uh either there's something in hollywood generally where lots of times you can't really tell if someone who commits to you is really committing to you he's the kind of guy who will look you in the eye and he said you know we're not we'll commit to you and he will uphold his commitments and so he engenders a lot of trust and and a lot of loyalty you know he he took over this company or they took over warner brothers uh um or warner media and discovery put them together at a you know without a ton of due diligence about what the combined entity was going to look like uh without a lot of knowledge about what all the different management people were going to go and and how the integration was going to work and he did it into a down market and and i gotta give him a lot of credit because through this whole experience they they jumped in they they solved it you know in the public eye if you know if you will they rationalized expense they made some really hard decisions they they did they uh did a bunch of you know layoffs and they cut some products and shows and and they they merged different uh functions that were doing the same thing but through the whole um through the whole experience he had a very strong unifying vision of what what warner brothers discovery could be and what the legacy was and why it was really important and what kind of company he and the rest of the management team wanted to build for its employees and for its customers and uh and for its partners and it hasn't been easy and i hope um i hope we're on the path

SPEAKER_87: uh where a lot of hard work yeah yeah but he's he's a remarkable guy too yeah i'm watching disney now

SPEAKER_29: like um just the last 48 hours of this taping they're like hey you know what this business needs

David Friedberg: to be profitable there needs to be a path to profitability here and everybody's spending money

SPEAKER_29: everybody's making shows but we need to make shows that actually fit the brand and you know they're cutting their spending and and they're getting fit and saying hey you know how do we make this into a business that can pay a dividend that that is worthy of people owning large chunks of stock in it and i i've been buying disney and warner brothers just you look at the hits coming out of those two companies and we were having a conversation of it um with the producer of this podcast and everybody was like

David Friedberg: white lotus uh euphoria last of us what you know just we were going down like the favorite shows of the last couple of years it was like holy cow like these are all like either a disney plus show or it's uh on hulu or it's on hbo max secession house of the dragon like and the and the and the ones that actually had the quality that you would watch them live uh in an era where there's absolutely

SPEAKER_57: no need to do that other than the absolute joy that the show brings you uh and the excitement that it brings you was hbo that was the only one yeah that really had that water cooler factor

SPEAKER_25: which was just extraordinary uh it is it is extraordinary because in an era where um i mean hbo it's hard to it's hard to argue with the success they've had in in the hits that many many of which you just named and to kind of to release something on a episodic basis on a sunday night in a in a environment where netflix is all about binge viewing is uh but they stuck to it and i remember a friend of mine uh david kelly uh is a is a producer and he was doing um i think he was doing uh big little lies and and i and i asked him why did you do it why did you do it on hbo you know i'm sure you had a lot of other offers at the end of the day he said you know being sunday night being on hbo on sunday night still means something right and i like the promotion and i and i really wanted an audience to see see our work you know and i went okay i get it that that makes sense to me

SPEAKER_53: yeah for sure that's incredible you know uh david kelly as well i mean he's done some of the most amazing shows in the history of all this so uh when you look at your career i know you've kind of

SPEAKER_00: i don't know if you've stepped back from redpoint a little bit but you're kind of thinking about

SPEAKER_139: retiring but man this list of things you're doing seems very long so uh how do you think about

SPEAKER_25: a career or not well i you know i'm um i'm not as active with redpoint as as i have been yeah i'm still i'm still a huge supporter i'm kind of an advisor if you will i work on deals on a one-off on a one-off basis i'm still like i'm here at the redpoint offices now and i'm still the largest individual investor i think in the in the funds um but part of what i wanted to do is the next step i really don't have an interest in retiring i just want to but but i want to you know be able to do you know some more things that i really wanted to do uh so i've been investing you know in my own account uh but i also have helped start four companies and i have an active management role in in all four companies and so i've gotten really involved in a smaller number of companies and i

SPEAKER_16: really i enjoy it and i regret it at the same time but but but but because it's so all-encompassing

SPEAKER_25: right yes and you can't stop thinking about it yes and nothing happens unless you know unless i've got much more responsibility for what happens with these companies versus you know kind of calling

SPEAKER_15: up calling up the ceo and saying hey you know you should you should do better or you know you should

SPEAKER_29: sell more or whatever we just watched i'm sure is your thoughts on this crypto you know this like decade or you know almost a decade of people talking about they were going to change the world and as far as i can see yeah bitcoin pretty amazing radical concept and after that it trails off pretty quick at least for me as an investor and as you know somebody who comments on this stuff and then i watch ai and in a couple of months we've watched just an absolute flurry of real products dropping that have real impact on people's careers etc maybe you could talk a little bit about what you

SPEAKER_53: think of chat gpt google releasing theirs finally which they seem to have had on ice they didn't release it for some reason i wonder what the speculation is there i have some ideas but what what do you think about this massive uh generative ai ai moment that we've seen in the last couple months and then

SPEAKER_09: maybe contra comparing it to vr and other things that maybe have fizzled or just not gotten critical

SPEAKER_25: mass and certainly crypto which was a weird one for me right so you know um obviously ai has been something that people have been talking about you know since the 70s right and i remember being at stanford you know for grad school for business school and taking some ai courses you know uh back back in the mid 80s right but to me this the the and i think to a lot of people the chat gpt announcement felt a little bit like a seminal event like a real wow moment right and if you think back on the major discontinuities that have driven kind of technology and as a consequence of venture the venture business you know because it's so closely tied with with technology you know you have the transistor and then you have the mini computer then you have the desktop pc then you have kind of ip networking and then the growth of the internet you know the search box you know the first time you type something in the search box and return to result no one's ever going to forget that you know the mobile phone and if you had to put one thing on it is probably the launch of the iphone right cloud computing and it feels like you know ai in its multiple forms but really as personified by the release of chat gpt it feels like a kind of a seminal moment that is like a major discontinuity right yeah and you know whether it is in fact chat gpt or it's it's another you know uh conversational ai or it's other any kind of some other generative ai it kind of it took this broad concept that people have been talking about and it kind of all of a sudden personified it as this is what it is this is how i use it boy i can see all these you know extensions of how it's going to change my life yeah you know i i think you can take it obviously to an extreme which is which is probably not going to happen but i i happen to think ai is going to improve our lives not replace them and i think it's going to allow people to to really add value at kind of higher order higher order stacks it it's undoubtedly going to disenfranchise a lot of a lot of uh jobs and and and and things that can be done by computers and and it'll accelerate what's kind of been happening but as an example customer support you know you can see it'd be really easy to kind of train data sets into conversational ai and and reduce your customer support staffs by like you know 90 or something like that right but but but i choose to think that it'll become a tool so that people can do what people are really great at which is original thought and you know these systems aren't really systems of original thought you know they somebody has to program them and then you give them you give them learning sets data sets to learn from and what it does is it quickly optimizes kind of known problems with known solutions and it it gets you quicker to you know where you would be by doing you know multiple iterations but in terms of thinking out of the box and and creating true original thought i i just think it probably raises the bar and helps us do what we do best anyway

SPEAKER_29: augmenting human talent and human uniqueness feels like what this is going to do which is what word processors did spell check did right every time somebody told me like that's the end of writers or whatever it is and it's like you know grammarly is pretty great but you still have to think about what you want to communicate right rapidly makes almost everybody you know close to perfect writer right amazing piece of software but i mean it really is fascinating to think about what will happen to developers and white collar jobs we're living in a time where we have not enough people to fill blue collar jobs right healthcare etc and then we're saying oh you know what you may only need 10 as many customer support people or maybe you need two developers not five to get the same output really fascinating somebody sent me an image of a company where you give it text prompts and it comes back with ux designs so it's like i would like to make a marketplace for dog sitters um and it's like okay boom and it shows you a design it's like i want to have a you know a change your login uh and you know reset my email page and it's like boop here it is and you're like oh well that's interesting ux design and then somebody else made the same thing um autopilot right like github where we'll write the code and i'm

David Friedberg: like wait a second when are they going to put those two things together where it does the ux design and then it adds the you know reset your password functionality and boom the code is there and then it says yeah publish it go ahead and publish it to the app store and let's see if anybody uses it like you could literally just be sitting there talking to your computer and make an app

SPEAKER_23: right well i mean when you think about it on on web pages right before that you need you needed a lot

SPEAKER_25: of expertise you know probably a lot of java expertise to kind of create a web page and then all of a sudden you had you had html editors and you know graph graphical user interface editors and stuff and now anybody can kind of create web pages and now all of a sudden everybody can kind of put stuff up right and and so i don't know i to me that moment it just it just smells like an important moment right where it clearly is yeah it's to me akin to that first time you see the search box and you type your name in and all of a sudden you go wow whoa i didn't know you could do that yeah nobody

SPEAKER_166: told me about these web pages where they mentioned my name uh the inside line i got from somebody uh listen

SPEAKER_53: it was an anonymous tip anyway so they said listen i work at google we've had but they told me this months ago in gpt the previous gtpt came out which was two or something they're like yeah yeah they're like listen we've had this we've got better um the point is like we don't want to release it because

SPEAKER_57: it's a little bit scary you're going to just think about all the jobs that are lost and it's a bad

SPEAKER_53: look for google to be killing jobs you know in an environment where we're winning so big kind of

SPEAKER_29: situation and i was like that tracks for me like this is going to be scary for people who have certain jobs but i don't think it needs to be you know you think about the number of people who are creating podcasts today or doing other jobs creatively humans find something to do i just

SPEAKER_75: think entrepreneurship is the thing i am very concerned about is kind of um the ai ethics around it

SPEAKER_25: and uh and that and that that manifests itself in a in a whole number of ways including the fact that i think people tend to um when it comes from a computer they give it a higher rate authority yeah authority exactly right and it's got to be accurate when in fact it's only as good as the code that went into it and it's only as good as the training set you know like that that leads to the conclusion but when they're learning models and you can't you can't trace their black boxes they just give you answers you know i'd hope you'd never uh put you know nuclear launches in the hands of machines like this right you know there are certain there are certain decisions that should always have a human you know kind of in the middle but anyway and i think there are a lot of interesting sociological

SPEAKER_16: and ethical questions um this is the one i'm concerned about as a content creator my whole life

SPEAKER_43: blogger writer etc is where'd you get the data and how do we get paid and uh this there's a search

SPEAKER_29: engine i think it's called neva and they showed me an example of them doing citations so it's like oh okay you use this chat gpt to give us an answer but then it was like this first sentence was constructed from a cnbc article this next one was from a financial times article this third one was from the wikipedia and i was like oh well google and chat gpt have the ability to do that so let's get some citations going here and then there's so what you're talking about it's like really interesting

David Friedberg: and fascinating i hadn't even thought about it like if it's trained on a bad data set and it gives a bad answer and then people were like oh yeah that fits my world view or you're a computer so i guess i'll go with that like people when they had gps some people literally drove off roads and they were

SPEAKER_183: like in a you know you remember those stories like it's like yeah you literally drove into a cornfield

SPEAKER_166: you didn't see the cornfield in front of you you made the left it said turn left and you went right into the cornfield okay great um it literally happened and they were like i'm gonna sue apple i'm like because you turned left into a cornfield okay got it the one that's going to be actually

David Friedberg: really scaring for people is this is going to find up find some things that are going to be uncomfortable and that humans might have correctly or incorrectly use their bias to say you know what that's an answer i don't think i want to publish in the real world come the bell curve comes to mind you know you have this scientist who's like hey we're going to give this iq test to a bunch of different populations oh it turns out certain populations have slightly ever so slightly scores and then people are like going to run with that oh no these people are superior than these people it's like no the test was made by this group of people maybe doesn't apply to other places in the world it's like a million different reasons but what could this thing thing find when it gets its hand on genetic data right what

SPEAKER_57: is it going to tell us about intelligence or genetics or whatever about humans and populations and

SPEAKER_23: it could be uncomfortable for you i think you're right and and and i think a little bit about kind of

SPEAKER_25: facebook you know as as a present uh precedent uh kind of environment where you know i think facebook was created to connect people of like-minded communities and to find people reconnect people that you hadn't seen in a while or meet new people who are who want to be in like-minded communities and have discussions to kind of feel a greater sense of community right and yet what's kind of happened is it's become at its at its on the bad side it's become these echo chambers for extreme thought right where people just say you know um i was kidnapped by an alien and someone says oh yeah aliens are there all the time and they're just and it just kind of reverberates right and it was an unintended consequence of kind of the the other side of the coin right yep and i'm sure the same thing happened with telephones you know no one created a telephone to have spam calls or to defraud people but cut just kind of happens and so i think we're a little bit in the the romance period right now about god look at this this this universe of opportunities right of all the things how it could improve our lives but soon it's going to be all the downside stuff right and if if you if that happened if you look at facebook as an example you know i feel like um zuck and the team have always been trying to catch up because they they were very in my opinion they they're very positively inclined about all the altruistic things they could do and didn't really spend all this time thinking about all the negative aspects you know to it and i'm worried that there aren't enough people thinking about all the neg potential negative aspects and cutting those off at the past right i

SPEAKER_29: mean and if you think about capitalism you think about entrepreneurship you know move fast break things

David Friedberg: was literally you know uh zuck's credo and he didn't come up with it but he embraced it and you know like oh you broke a democracy here you know you broke the truth over here like you really with this technology this one feels faster and more powerful than right social networking social networking seems

SPEAKER_57: benign by comparison to a computer telling people here's the canonical answer to your question and

SPEAKER_53: go forth and execute based upon it like oh boy we gotta really try all right listen i've taken an hour of your time it's been amazing come back on the show like in a year let's just chop it up again um and continued success um thanks for sharing all these great war stories and everything

SPEAKER_51: uh what a great career and it's just great to get to learn from you and hear all these stories and

SPEAKER_183: this is like a great you know the audience gets to hear all this and i'm like literally this is how i'm getting better as an investor is just having a series where i'm like who's done this three times longer than me let's talk for an hour it's it's uh it's it's it's a it's a fun way to get reconnected

SPEAKER_198: so it's nice to see you again yeah let's hang soon hopefully uh i'll see you in person soon yes

SPEAKER_121: it's been too long all right everybody we'll see you next time on this week of startups bye bye