SPEAKER_00: Normally, here on Twist, we don't talk about earnings because it's not a startup story. And so we just leave it to CNBC, we leave it to Bloomberg, and we let them do it. This week, however, I just want to tell everyone out there who is building a startup that they may want to pay a little bit of attention to a couple of reports. And the reason why is this week, we're going to hear from Meta and Alphabet and Microsoft and Amazon, which is essentially the hyperscaler set. And all these companies have been pouring tens of billions of dollars into AI infrastructure. And as of the end of last quarter, they were saying, we are so compute constrained. It is so tough out here for us to get enough GPUs. And so everyone is buying into the AI boom because there's still needed capacity. And that implies demand. It's going to be good for NVIDIA, good for OpenAI, good for everybody. But what we don't know is what they're going to say this time about not only the trailing three months, but also the rest of this year and into early 2026. All of Wall Street wants to know that they are laser focused on this particular topic. And that means we're going to get a good look at what they are seeing. So if you pay attention to no public markets whatsoever, and as a founder, I get it, totally fine.

SPEAKER_02: But you may want to tune into a couple of these because there's going to be interesting notes about industries that are buying.

David Friedberg: Yeah, we should cover this for sure because it does relate to the overall opportunity for AI.

SPEAKER_06: And what's interesting about this cohort of companies is of the four you mentioned,

SPEAKER_07: meta, alphabet, Microsoft, Amazon, mama, of the mama, three are the top three cloud computing providers in the world. Alphabet, Microsoft, Amazon. So they are going to have two-sided discussions about AI. First, Amazon is going to be talking about robotics and all that leaked information. And they're going to be asked by analysts, so you're not going to hire 600 people. What happens to the 1.4 million people who work here? You employ 1% of the country works at Amazon. 1% of the country works at Amazon. And they're not growing anymore. They're not going to grow that staff anymore. And I would say they're going to probably redeploy to save face, to keep the guillotines and the let them eat cake memes maybe settled down. Because they're, you know, so concerned about this bad narrative that they're saying, hey, let's call them co-bots, co-workers.

SPEAKER_08: They're not co-bots. They're robots. They're robots taking your job, period, full stop. Find another job quickly.

SPEAKER_10: This Week in Startups is brought to you by AWS Activate. AWS Activate helps startups bring their ideas to life. As you build and scale your business, Activate Credits grow with you to support your changing needs. Apply to AWS Activate today and receive up to $100,000 in credits. Visit aws.amazon.com slash startups. Monarch Money. Get control of your overall finances with Monarch Money. Visit monarchmoney.com slash twist for half off on your first year. And Pipedrive. Bring clarity and control to your sales process with Pipedrive. The number one CRM for small and medium-sized businesses. Supercharge your sales today. Start with a 30-day free trial at pipedrive.com slash twist.

SPEAKER_06: All right, everybody. Welcome back. Welcome back to This Week in Startups. It's Monday. It's October 27th.

SPEAKER_07: The summer is long over and the ski season is upon us. But first, we go through the fall ritual of Halloween, also known as Kids Christmas. And then we have Thanksgiving. And then, boom, it's all about to happen. We'll be talking about Black Friday and Cyber Monday deals before you know it, which is interesting. I had this acronym from one of our companies, BFCM.

SPEAKER_15: Yeah, you know, the BFCM, we're going to BFCM it. You know what BFCM is? Black Friday, Cyber Monday, as I just learned by implication, but never heard that before. I never heard it before either.

SPEAKER_07: But this is a term for not just people selling physical goods, but if you're in the app space and you're selling a product like ToneBass, which is our how to learn classical music, an investment we made. Great company. They're just crushing it. Go to ToneBass.com. You'll check it out. And then, you know, FitBod or Steezy for Dance or Calm, they will offer things on those two levels. Yeah, here it is. You know, this was like one of these crazy ideas that came to our accelerator, learning to play classical music and then playing with the top artists. It turns out, you know, it's a really hard career in life.

SPEAKER_17: Being a classical musician.

SPEAKER_20: Correct.

SPEAKER_19: I telegraphed that one as well.

SPEAKER_21: Well, I know that intimately because I was a very serious trumpet player growing up in concert bands and symphonies. And this was an idea that I had. I toyed with it. And then I realized that I was never going to be good enough to be anything better than the worst player at the pro level.

David Friedberg: Yeah, so the idea here is if you go back to the website, you can pick some of those like famous artists. Now, if you're a famous artist, how do you make money? Well, you know, like you perform, right?

SPEAKER_07: I guess you make a little bit of money there. I don't know what like the best, you know, pianist makes when they play live. But, you know, it's a reasonable sum if you're at the top of the game. But it's not an NBA player, but what would people learning to play the trumpet pay to play or interact with, was Louis Armstrong the most notable trumpet player of all time, Louis Armstrong? Probably of all time. Yeah, I'd think so. Yeah. I mean, I don't know if he was the best. Clearly, there were people probably who were better, but imagine Louis Armstrong's life. What would you have paid in college or as a young adult?

SPEAKER_27: What would your parents have paid to go to a lesson with him with, I don't know, 10 students?

SPEAKER_21: I mean, I mean, more money than they should have afforded for that. But they would have definitely invested in that because they were... Give me a number.

SPEAKER_06: What would a middle-class family pay?

SPEAKER_21: Today. Today? Today, yeah.

SPEAKER_00: What would they pay? For a lesson. So today, it's Wynton Marsalis is the best trumpet player in the world. Yep. Would have been Miles Davis.

SPEAKER_15: Players that want to get to college for at least 500 to 1,000 for an hour. Sure. Why not? Yeah. To be in a...

David Friedberg: Some of the greats, you can do interactive stuff. Go check out Tonebase. It's a really great company, but I saw in their update, BFCM. So that's the time to really get a lot of sales in. So they prepare for this great rush, which is a great thing for startups to do.

SPEAKER_07: When you have a team, you want to work towards a goal. And so we're going to work towards our end of the year predictions for this show and the year in review. And I think that'll be like a really interesting episode. So I'm going to tell the producers now, every week, we want to make a little bit of progress on that.

SPEAKER_06: So we're not waiting till December 25th to do it. So it's going to be November. So for six weeks between, yeah, for the six weeks up until December 15th, I want progress every week at the most important stories of the last year. And we're going to just recap the year and the best moments on the show. And we'll have the twisties, the twisty awards will be back. Actually, Lon used to do the twisties with me. So let's just bring it back with the songs and everything, Lon. Let's bring back the twisties and prediction show. Two unique shows. Okay, let's get started. There's a lot going on today.

SPEAKER_00: All right. So the Financial Times had a story out today that was the funniest thing that I've ever read. Because it turns out people are using AI to create not funny images, but fake receipts that they didn't submit to their companies to effectively get paid out either more for legitimate expenses, Jason, or to invent entirely new expenses that are complete BS. Now, what's actually funny about this is because that's just kind of crappy. But what's funny is companies like Ramp are also using AI to sniff out the AI usage. But that will only last until the next better model comes out and then the fakes will get better. So then we're now in an AI arms race inside of companies between cheats and management.

SPEAKER_37: And I just find this to be so funny because if there was ever going to be a way to make expenses worse, I didn't think AI was going to be it. I thought it was going to help, but people suck. So now we have to deal with this.

SPEAKER_06: Yeah. So listen, a million and fraudulent. This is another one of these stories to get us to mention Ramp, who's not an advertiser. I love it, though. They're so good at it. So I'll give them credit this one last time. But from now on, we won't mention any content marketing. With peace and love, any content marketing must be scrubbed from the docket. I was going to skip the whole story, man. So I think some of this is not just fraudulent. I bet you some of these are people who forgot to get a receipt, just being like, I got a bagel at the airport on my way to a sales call. Make me a bagel receipt. So probably no harm, no foul on most of them. But this is going to be something people do over and over again. And the countermeasures from SaaS companies and the HR department will always be greater than the people trying to cheat. So I don't recommend this because once you show that you're not trustworthy, it's over. And the smaller the untrustworthiness, the worse it looks.

David Friedberg: If you stole $50,000 because you're, I don't know, you had a healthcare crisis in your family or something, you embezzled that, or like your mortgage or something, you were destitute, people would be like, oh my God, that's a crime, but I understand the circumstances. When you steal a $15 bagel and coffee, if you in fact did that, it really reflects on your character.

SPEAKER_07: I know this because when I was coming up in the game and I was fixing laser printers,

SPEAKER_06: there was a policy for expenses at barrister information systems, BIS, one of the first places I worked. And all the engineers who were fixing laser printers with me had gamed the system. They did two things specifically to game it. Number one, you can be a brilliant founder with a great product and you can have an amazing

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SPEAKER_07: They took their time and they had figured out amongst themselves how to, as a group, say it took three or four hours to fix a laser printer, when in fact, I was doing it in three or four minutes.

SPEAKER_52: And then when I showed them how to do it in three or four minutes, they told me to shut the F up. Right, because you're killing our revenue. Well, not that. We could do more work. We could get more jobs done.

SPEAKER_06: And it turns out with the laser printer in the early days, like literally the first HP

SPEAKER_53: laser printer and the HP Laser Gen 2, I would fix. And it turned out the fusing unit was nine out of 10 problems. And we had extra fusing units that we used to fix. And then we'd have them on a shelf there. They were the spare parts. I kept two of these in my bag. I would go to the Blue Cross Blue Shield office where we had a thousand of these printers under maintenance for $40 a month each. So we were making a half million dollars a year with just that one account. And some of these would break. I would go up. I'd go with my electric screwdriver, battery charged, replace the fusing unit, reset it. It worked. I'd leave. In under 15 minutes.

SPEAKER_55: They were like, no, no, no, no, no. Take the whole thing apart. Put all the pieces back.

SPEAKER_53: Do a little show. Lay out your napkin. Put all the parts there.

SPEAKER_07: Pull out the schematic guide. Open it up. And pretend that it's a larger job. Or else they're not going to pay us $500 a year for these. And I was like, okay, well, why don't you get more contracts to charge $30? Right. And they have PCs too. I'm thinking like a business entrepreneur. These guys were thinking like union workers on how to screw.

David Friedberg: Anyway, the second piece was they had a whole racket going with tokens for the subway. And, you know, you got food if you worked past a certain hour.

SPEAKER_06: So these guys would all wait a certain number of hours, get food, wait a certain number of more hours, get a Lincoln Town car home. And they would have packs of receipts.

SPEAKER_07: So back in the day, you would just go to your local diner and you'd say, hey, sweetheart, can I get a couple extra receipts? And you'd be like, yeah, there you go, love.

SPEAKER_06: And they'd give you 20 receipts. And you'd get their receipt thing. Then you would trade those out. Everybody would do fake receipts.

SPEAKER_20: So what you're telling me here is that this AI receipt fraud is really just a remix on a very, very old melody.

SPEAKER_06: Old as time, old as time. This is why my feeling is I just like the idea of a stipend. I tell everybody who works for me, like, hey, you're traveling, you know, you get whatever it is, a 50 buck, a 75 buck a day, you know, stipend. Sure. Spend it however you want. Because people are fasting. Anyway, don't cheat. It makes you look stupid. And if you're the boss, just give people a card from various providers, neobanks that provide cards.

SPEAKER_58: I wouldn't say which one you should use. Yeah.

SPEAKER_59: I'm waiting to be willing to say the first letter of these companies, you know, where there's an R or a B or an N. Pick the one that sticks to you.

SPEAKER_61: Or if you remember one with the twist code, that's even better.

SPEAKER_20: So there you go, folks. Yeah.

SPEAKER_00: All right. Let's move on. Jason, normally here on Twist, we don't talk about earnings because it's not a startup story. And so we just leave it to CNBC. We leave it to Bloomberg and we let them do it. This week, however, I just want to tell everyone out there who is building a startup that they may want to pay a little bit of attention to a couple of reports. And the reason why is this week we're going to hear from Meta and Alphabet and Microsoft and Amazon, which is essentially the hyperscaler set. And all these companies have been pouring tens of billions of dollars into AI infrastructure. And as of the end of last quarter, they were saying, we are so compute constrained. It is so tough out here for us to get enough GPUs. And so everyone is buying into the AI boom because there's still needed capacity. And that implies demand. It's going to be good for NVIDIA, good for OpenAI, good for everybody. But what we don't know is what they're going to say this time about not only the trailing three months, but also the rest of this year and into early 2026. All of Wall Street wants to know that they are laser focused on this particular topic. And that means we're going to get a good look at what they are seeing. So if you pay attention to no public markets whatsoever, and as a founder, I get it, totally fine.

SPEAKER_02: But you may want to tune into a couple of these because there's going to be interesting notes about industries that are buying.

David Friedberg: Yeah, we should cover this for sure because it does relate to the overall opportunity for AI.

SPEAKER_06: And what's interesting about this cohort of companies is of the four you mentioned, Meta, Alphabet, Microsoft, Amazon, Mama, of the Mama, three are the top three cloud computing providers in the world.

SPEAKER_07: Alphabet, Microsoft, Amazon. So they are going to have two-sided discussions about AI. First, Amazon is going to be talking about robotics and all that leaked information. And they're going to be asked by analysts, so you're not going to hire 600 people. What happens to the 1.4 million people who work here? You employ 1% of the country works at Amazon. 1% of the country works at Amazon. And they're not growing anymore. They're not going to grow that staff anymore. And I would say they're going to probably redeploy to save face to keep the guillotines and the let them eat cake memes maybe settled down. Because they're, you know, so concerned about this bad narrative that they're saying, hey, let's call them co-bots, co-workers. They're not co-bots.

SPEAKER_08: They're robots. They're robots taking your job, period, full stop. Find another job quickly.

SPEAKER_07: And then you have Alphabet, also known as Google. And Google is really, I think, the most interesting one. They're up 40% this year of their stock because people were like, they're going to get killed. So last year, search was going to get killed. As I said on this program and the other program, my thesis is people are going to be doing more searches and that the pie is going to continue to get bigger. Why? The answers are better. And if the answers are better and you solve problems quicker, you still have a certain amount of time. You will be more inquisitive. So as but one example, because I'm getting through my work so quickly, I'm frequently doing things like, hey, I'm going to Saudi Arabia. Remind me of the history of Saudi Arabia, you know, the 10 years before MBS took over and since then and make me a timeline. And I was reviewing that literally, you know, while working out just to give, you know, I wouldn't have normally done that.

SPEAKER_53: But now I'm getting through work so quickly. So this is inducing a massive amount of extra activity on Google services. Then you start using Google Docs and you see the AI assistant or Excel and the AI assistant will do the formula for you. That's going to make you use these products more.

SPEAKER_06: It's counterintuitive. It's Jevon's paradox, as you guys have heard many times in the last two years, or me say, induced traffic.

SPEAKER_07: You build more highways, people drive more because they can get to cooler places and they get inspired to go on a road trip, period, full stop. If you raise the speed limit to 75 or 85 miles per hour between Austin, Dallas, Houston, and San Antonio, people drive to those places more often. I notice people drive to these cities more often. They'll go to have dinner or to see a basketball game, stay over. Why? Because they can drive like 85 miles. And I don't know, the posted speed limit might be 75 or 85, which means you can go 85 or 95 and you don't get full of them.

SPEAKER_70: It sounds like you can go 100 now. Yeah.

SPEAKER_00: Yeah. It's very impressive. I'm stoked about this. We'll talk about it. I'll bring it up on the Friday show then, Jason, because it's Wednesday and Thursday. We're going to get the numbers. So it's going to be a good time. And just for the sake of everyone's wealth, may all the reports be strong because that would be good.

David Friedberg: Sanke charts would be great.

SPEAKER_07: The specific dialogue around AI. So I want to know how many times they say AI in their conference call and then what percentage of the questions are AI. So if they had 10 questions, how many were related to AI and just pulling out all the quotes about AI. So what we should do is we should use AI to do this. So producer Marcus, what I want you to do is grab those calls, get the audio files, put them into Google notebook LM, or put them into Descript, which will take, this is less than an hour of work. There'll be four conference calls, put them in there, and then we'll pull clips from it. And then we will have those clips ready to go. And we'll have the ability to analyze them because we'll have the transcripts. We can just say how many times has AI, how many times has AI said in these four calls and make me a graph based on those four calls. So you can grab all four transcripts and I think you could just make them into PDFs or documents. And we can put them in the context window of Claude because it's got a huge context window. So that's another way to do it. Anyway, let's use AI ourselves to analyze this more deeply.

SPEAKER_00: Next up on the docket, we're talking about the East versus West in the context of drone shows.

SPEAKER_30: Jason, you wanted to put this on the docket because something crazy happened over in Luoyang, China, in which one of their drone shows had a bit of a mishap.

SPEAKER_78: I'm going to play this for everyone so they can see it.

SPEAKER_52: Hosting podcasts, running my accelerator, doing speaking gigs all over the world. Man, I got a lot going on, folks.

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SPEAKER_06: Well, it looks like the Battle of Endor happening while, like, the Empire are fighting and, like, the Death Star is blowing up.

SPEAKER_84: My lord, there are thousands of drones in the sky, but apparently a large number of them look like they're on fire and dropping from the sky. Yes, yes.

SPEAKER_06: Like, it's, I mean, if, if this is real, you know, I, I constantly want to know if this stuff is real now. I, I, I, every tweet when I'm talking about ICE agents or, you know, something going on in the world with, if this is real and not AI.

SPEAKER_52: Yes. Just because I feel like there's a whole camp of people who are taking my tweets, waiting three years to repost them and say, remember when you got this wrong?

SPEAKER_07: It's like, yes. If you're responding to 20 things a day in real time, you're going to get it wrong. But apparently, yeah.

SPEAKER_20: Some people keep folders of stuff about each person they don't like, and then they just have it.

SPEAKER_89: No, Sax said that on the show.

SPEAKER_58: He said, I have these folders of, you know, then they just pull it up when he's ready to dunk.

SPEAKER_93: Man, I, I do not have sufficient amounts of pick in my soul to do that.

SPEAKER_94: There was actually a service that Jack convinced to turn off that would specifically record everybody's tweets of note, anybody who was verified back in the time.

SPEAKER_07: And then if they deleted it, you could subscribe to this and know the deleted tweets. And if you look at this person deleted this tweet stories from 2005 to 2015, it was all journalists signing up for that service.

SPEAKER_94: And it was like, oh, this person tweeted something when they were at a bar and had a couple of cocktails. And it was like the total gotcha thing.

SPEAKER_00: But in this case, the, the drone show we're talking about was reported by CNN. So we can probably say that it's pretty valid. What happened, Jason, was very dry weather. And these are not just drones with lights. These are drones with fireworks. What? They combine the two. Yes. Uh, they're attaching fireworks to a drone. Would you like to see a better example of this from the same city in China?

SPEAKER_02: Yes. Yes, you would. Okay.

SPEAKER_84: That's, I was trying to figure out like what happened to them? Like, why would they all spontaneously go up?

SPEAKER_30: So here's the same city and I'm just going to zoom ahead here to about here, Jason. Ooh, look at that beautiful tree. Now watch. How about that?

SPEAKER_06: That's gorgeous. So it's a tree of life, like dropping, you know, seeds or something. It's beautiful. So I guess the idea is the drones have those, uh, fireworks on them and it, yeah, it looks

David Friedberg: like avatar. Yeah. Good one. It does look like avatar. And they're just dropping, um, yeah, the stuff, but I guess they lit on fire.

SPEAKER_30: It's sparklers. Yeah. Yeah. Uh, one last thing here on this one, Jason, you'll love this. Uh, I got to get the branding in there from the geographical indication of PR China. Um, great. This is just such impressive stuff.

David Friedberg: I, I, I mean, I would love this. We should be sending this into, uh, like battlefields and convincing people to, uh, defect.

SPEAKER_53: I mean, if you sent this over a Russian territory and said defect and get amnesty, put your weapons down, go this direction and point an arrow, uh, you will not get killed.

SPEAKER_20: If you go through here, you're surrounded.

SPEAKER_00: Like it'd be great for psyops, these things, what should we drop in world war one in mass quantities leaflets from airplanes saying you should defect. This is the modern version of that back to the fraud conversation. But what's interesting though, is I almost wonder if you should have to be instead of up like this, so you can see from a distance flat. So now if you look up, you see like, like a canvas, uh, right over people.

SPEAKER_36: We know you're there. We, yes, we know this is your base. It's about to get blown up.

SPEAKER_00: There's a target right over you. Uh, now there's another example that, uh, Marcus wanted to show you, which is a Bitcoin conference in Switzerland did something that is, well, I'm not going to, I'll just show it to you. So everyone, we're going to play one more clip here really, really quick. And Jason, you'll see why it's slightly different.

SPEAKER_115: Okay. Okay.

SPEAKER_07: It's the Pepe, the frog flying across the sky, like Superman, and then turning into money machine, uh, Alan Greenspan, money machine goes burr, but they don't know meme from the party. Yeah. All the trolling memes. Uh, yeah. There's the midwit versus, uh, the elite, uh, there's Bitcoin rollercoaster meme, Satoshi, uh, by the way, there's a poly market. There's a Pac-Man eating up a Bitcoin, eating up all of the cryptocurrencies.

SPEAKER_08: Oh, take the Bitcoin pill or take the blue pill. Yeah. It's hilarious.

SPEAKER_21: Sped up. By the way, if you watch everyone's heads, you can see how fast they're moving. This is definitely compressed. Okay.

SPEAKER_94: Cause I was about to say that's moving really fast. I'm impressed by the speed of the movement, but it was actually moving slow.

SPEAKER_00: Um, two things here. One, the Chinese show is much more technologically advanced than what we just saw from Switzerland. But, uh, I was chatting about this with the broad team and the thought was kind of this, Jason. And it is true that the demonstrations in China have more drones. They've set Guinness world records. Very impressive. But one thing we really liked about the Bitcoin one was how dumb and silly it was. This is not showing off national pride. This is not, you know, trying to set the East versus West narrative. This is Bitcoin kids having fun. And that to me just shows like, uh, we may have fewer drones in the West, but we have more freedom of speech.

SPEAKER_119: And I'll take that.

SPEAKER_06: Um, yeah, I mean, we could be a raw shock test, uh, for any number of things.

David Friedberg: I'll just say this is a great alternative to fireworks. I love seeing a good fireworks display, but these are, uh, obviously, uh, super green, I guess. Uh, they, they're less dangerous. I would think theoretically, unless they fall out of the sky.

SPEAKER_07: Um, and, uh, I think this is going to turn into a new form of narrative. I would not be surprised if we see in the next year, somebody do short films, uh, where you can sit and watch a short film, or, uh, these things could get small enough that you could take an existing film like Star Wars, put it through an eight bit or a 16 bit converter, and then watch Star Wars, the entire full film in the sky. That's coming folks. And I think Disney, uh, Universal Studios, they're all going to have these kind of installations and they're going to get rid of the fireworks. I noticed that the Disney celebration, the last time I went, they did have more physicality

David Friedberg: to it. So they had strings set up like wires and they had a real, you know, Buzz Lightyear fly by on that string, but you wouldn't be able to tell. So I do think live performances, I saw Barry Diller being interviewed by, I think the guy's name is Shane from Vice Magazine. Yeah. He's doing Vice interviews. Shane Smith. Shane Smith. Um, who's a, you know, he's pretty good interviewer, smart editorial producer. And he was interviewing Barry Diller, whose book is amazing. And he was asking him if you could put all your chips in, like he did for QVC and make a bet here, what would you bet on? And he said, things that are alive that cannot be disrupted.

SPEAKER_06: So going to something in the real world, like an MGM resort, that's, you know, a casino to go see a show that's not being disrupted by AI.

SPEAKER_07: That's what I would invest in. I think this falls into the live entertainment care category where live entertainment is

SPEAKER_123: going to be huge for these and people will start doing them on the regular. I could see these being franchised everywhere.

David Friedberg: And I think, uh, that's Kimball. Uh, my friend Kimball Musk has a drone company that's a pioneer in the space. And I think that's what they're pursuing is these things being like touring versions of the Harry Potter show. So you could tour them around the United States, go to every single fair, and then people buy tickets to go see a drone show. And now imagine a drone show with a live orchestra like they do at, uh, the Greek theater in, uh, Los Angeles.

SPEAKER_07: Sure. They'll have, uh, you know, they'll play gladiator or good fella or, um, the Godfather and put the symphony orchestra to play the soundtrack live, which is really cool. Oh, here's the Vatican.

SPEAKER_96: Yeah.

SPEAKER_00: Yeah, yeah, yeah. Check this out. So this is from, I think Kimball's company. And this is, uh, the confluence of Christianity and modern technology. Here we go. Famous combination.

SPEAKER_129: This is not sped up in case you were curious.

SPEAKER_115: Hmm. Beautiful. Yeah. So there's a Vatican with this drone show. And then I guess they're playing the, I would assume they're playing the music live. Uh, gorgeous. Yeah. I mean, there's, there's the Pope.

SPEAKER_135: Prior Pope.

SPEAKER_00: Pope is dope. Tesla is training on synthetic data in its FSD regime. This is a video that Tesla shared on X recently, Jason, you wanted to take a look at it. So here it is. And we'll talk about it on the other side. Hey, startup founders.

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SPEAKER_142: So I guess we're seeing nine squares here.

David Friedberg: It's a, I guess this is all the cameras on the car. Maybe it's eight actually. Yeah. The new Tesla hardware stack is eight cars. And this looks incredibly real. If you showed this to a hundred people, a hundred people would say that's real. So they now have the ability to build situations for the car to navigate. And then test it over and over and over again, which is extraordinary because what are the chances that like, I don't know, a deer comes running out into the street in this or a dog, you know, it's like to capture that on video very hard.

SPEAKER_07: But I would say, sadly, I know this from living in the hill country in Texas, like there's a dead, I always know when there's a dead deer because you see all the hawks and everything circling. Yes. And sadly, there's a deer dead on the road every day somewhere I'm driving. Like you'll see at least one every day or two. So they could simulate all this. I think it's going to get them closer and closer. They said they believe FSD has been solved. Of course, there's the natural criticism that Elon's been saying, hey, we're very close for a long time. But, you know, he was very close at landing rockets, you know, and then they did and had reusable rockets. Yeah.

SPEAKER_145: So he's often late, but never wrong is what I always say when people ask me for a quote always. Yeah.

SPEAKER_07: You know, frequently late, never wrong is, I think, the track record so far.

SPEAKER_00: But I think this is this is freaking awesome. And just to be clear, to double click it in case you're watching the video version, none of that Tesla video was real. It was all synthetic or as Tesla put it, video below is fully generated and not a real video. But I love this idea, Jason. We talk a lot about how, you know, once we get self-driving, it's going to save lives. Here's a way to accelerate our timeline to that point. Fantastic. I did a little more research, so I was curious if anyone else is doing this. There's one or two other examples. Not that many, to be clear. But Wave, W-A-Y-V-E. We talked about them on the show a couple of times. They just raised a few billion dollars. They made something called the Ghost Gym back in 2023. Seems to be a similar idea. They said, quote, simulation supports large scale synthetic data generation, allowing us to leverage thousands with diverse driving scenarios, blah, blah, blah. And then Wabi, a company that I had totally forgotten about, but it's working with Uber on self-driving semis, is also working on a thing called Wabi World, which is a closed loop internal simulator. It's powered by generative AI. So companies are really putting this to work. And I'll just say, people asked what the use case was for AI 24 months ago, and it seems that we've stopped asking that question. But here's one more example of what we're doing with it.

David Friedberg: Yeah, Wave is probably under-reported on. They have tests going on in UK, which is where I think they're based.

SPEAKER_07: And San Francisco, they've been testing. Germany, they've been testing all over the place. And I think what's going to happen very soon is we're going to see the commodification of self-driving software, and it's going to be built into the NVIDIA hardware stack and built into every car. Now, that's going to take a little more time, but there was an under-reported story. Everybody knows, like, there's a relationship with Uber and NVIDIA. Just last week, this under-reported story, you can pull it up, about how NVIDIA and Uber have revealed a little bit more of what they've been working on together. They're taking all the Uber ride data. They're giving it to NVIDIA as part of this partnership to be part of their Thor stack. They have a hardware stack that is doing self-driving.

David Friedberg: So the Uber team here, Uber teams up with NVIDIA to accelerate autonomous mobility. And you can find the paragraph where they talk about what they're doing. But this is going to be, I think, and you can read it for the audience. Yeah.

SPEAKER_21: So millions of trips occur every day on Uber. It's a lot of data. They're going to pull that into the NVIDIA Cosmos platform. And NVIDIA loves brand names.

SPEAKER_00: The NVIDIA DGX Cloud to help AV partners build stronger AI models. The idea here, Jason, is that this is a platform that has state-of-the-art generative world foundation models. And so you can run around in a car inside of them. And what do you need to build them? You need lots of data. What does Uber have? Lots of that.

SPEAKER_21: Actually, you know, you talk a lot about, you know, Tesla having cars on the road. So many of them, giving them a data advantage. Yeah. Uber has a lot of cars on the road, too.

David Friedberg: This could make you build a more even playing field. You know, just obviously people will claim I'm like talking about my friend or talking about like an early investment of mine. And they're like trying to figure out my motivation here.

SPEAKER_53: I've said the same thing consistently for a decade. I think there's three or four players who are going to get there all around the same period of time. Yes.

SPEAKER_08: So for everybody like, oh, my God, Tesla's never going to get there. Oh, they're, you know, they missed all these different benchmarks over 10 years.

SPEAKER_07: They're going to get there. They're going to get there. It's obvious. They are going to build something that hopefully this is the dream. This is the objective. We'll be able to navigate things it hasn't seen before better than the people who are building perfect models like Waymo.

David Friedberg: Waymo is also doing this, you know, language model kind of version of this where it just reacts to what it's seeing.

SPEAKER_07: And then you have all the different people who make cars. So there's like four or five pieces to the stack. There's like the data and the cloud and your algorithm. And like the data is one piece, the algorithm and your system for doing this, your model for doing it. Then there's the hardware stack on your car. Then there's building a car itself. And then there's running a network.

SPEAKER_53: There's like many pieces here. And what we've seen is the pieces are, there are people who are specialists and there are full stack people. And then there are people who have two or three pieces of stack. And then there's the giant Uber network, which is betting on all of them. And Nvidia, which is kind of betting on all of them and commodifying it. I think self-driving becomes commodified and then it's going to be a deployment issue and a regulatory issue. And oh my God, don't have an accident issue. Tesla's rightfully being very cautious as they should be. And they have permits to run ride sharing in 10 cities. And as I said here on this program many times before, just do a year with the safety driver. Prove that you can do 10,000 rides, 100,000 rides without any instance. Share all the data publicly. Waymo should share all the data publicly.

SPEAKER_07: The regulators should share it all publicly. Because really what we have to do is convince the public that when a random death occurs, it's not a reason to shut all this down.

SPEAKER_94: That will only happen with transparency and cautious rollouts.

SPEAKER_00: Can I tell you why I'm not that worried about that, Jason? Because everything you're saying, totally valid. We had a friend of ours come visit the other week. She is a physician. So far, far, far away from our world. Doesn't care about XAI versus OpenAI. Doesn't know who any of that stuff is, right? She was raving about Waymo in LA. Just raving about it. She's a complete convert and is never going back. And she is a normie. So to me, I think that as customers touch and see these cars in the real world, get to take a ride on them, it changes minds. I'm hoping. So I think you're dead on, but I'm less concerned than I was six months ago.

SPEAKER_46: Also, WeRide is the other one.

SPEAKER_06: And they're part of the Uber network. But I think, you know, a lot of these companies are going to be part of every network. Like for WeRide, why would they only be with Uber?

David Friedberg: They'll be with Grab in Malaysia and Singapore. They'll be with DD in China. They'll be with everybody. But WeRide and Uber have launched their robo-taxi in Riyadh. I'm going to be in Riyadh next week, Monday, Tuesday, and Wednesday, and the UAE after that. And both of those places have these services operating now. So I'm hoping that my team...

SPEAKER_94: Can we do a twist from you inside of one of those cars? Literally is about to say that. Producer Marcus, let's get on it.

David Friedberg: If anybody's listening, I need WeRide contact info and then whoever else is in UAE.

SPEAKER_07: And I'd like to jump in those cars. So... And Waymo published just their incredible safety data. I don't know when they published it, but it was a couple of weeks ago. Miles through 2025. They've done 16 million in Los Angeles, 30 million in San Francisco, 46 million in their first market, Phoenix, and 3 million. And as you can see, 91% fewer serious injuries, 79% fewer airbags deployed, 80% injury-causing crashes, and crashes involving vulnerable road users. 92% fewer pedestrian crashes with injury, 78% fewer instances with cyclists, and 89% fewer with motorcycles. So you have to be saying, well, wait a second. Does that mean they've hit a human or they've hit a motorcyclist? You know, all of that data? What it means is, typically, motorcycles, tragically, there was a motorcyclist that hit a Waymo and died last month.

SPEAKER_123: Nobody talked about it. I think we were the only show to ever talk about it. Why? The Waymo was stationary and it got hit.

SPEAKER_07: So the press is even like, that's not a story. Now, when Teslas do this, some motorcyclists will run into a Tesla.

SPEAKER_94: I guarantee you that they will be treated much different than Waymo. Why? Because Elon got involved in politics. And so there is going to be like a much higher... There's another reason for that, though.

SPEAKER_162: Yeah. There's a more cynical reason.

SPEAKER_00: You're applying a lot of intent to that. One of the reasons is that Elon Musk is one of the two most clickable terms in the world. And news business does have a business element to it. We had a joke at TechCrunch in like 2014, which was put iPhone in the headline. Just somehow just weasel it in there.

SPEAKER_163: Get the iPhone in there.

SPEAKER_00: And I joke, but I do think that there's a positive feedback loop between covering Elon Musk, people getting mad about it, driving more attention to it, which makes editors want to cover it more. So it's kind of one of those things. You're right too, but don't forget the money part of it.

David Friedberg: I think that, yeah, it's going to be one and the same. There'll be people who do it because right now, if you look at the number of journalists who identify as Republican, it's like three or 4% now it was 30% Republican, 40% identifying as like, or it was maybe 35% Democrat, you know, 27% Republican and then 40% or so independent. Okay, great. That's how it was in the seventies and eighties when I was growing up. Now it's down to only 3% of journalists report that they are conservatives.

SPEAKER_07: So then you have, that explains a lot of the downstream handling about this, which I've told all the Republicans I know, start publications that do journalism, not just commentary. The reason Wikipedia, and I just got asked a comment for this New York Times story coming out about the Wikipedia's bias. It's very easy to understand Wikipedia bias. They only will let you put a fact on Wikipedia. If you can cite something, what are citable sources? They're trusted news sources or trusted like research studies. You cannot link to a Breitbart editorial. You can't link to a podcast with you and I giving our opinions. That's not a trusted source in Wikipedia's definition. At the same time, they did that.

SPEAKER_53: The number of conservatives doing actual journalism versus commentary has plummeted.

David Friedberg: You have a lot more doing comedy, a lot less doing reporting. Therefore, they don't get cited. The New York Times, Breitbart are not allowed to be cited. Now, sometimes Breitbart and the New York Post will actually do journalism, but often they're doing commentary. And this is why I think the free press is an interesting example because they will, you know, I don't know exactly their politics. I don't know. How would you describe the free press? Moderate right-leaning or moderate left-leaning?

SPEAKER_167: No, it's MAGA with a thin veneer of intellectualism smeared across the top of it.

SPEAKER_169: Okay, so showing your bias, like I think there's probably a million people who would say it's not MAGA.

SPEAKER_55: Because didn't they disconnect from MAGA massively with a lot of these things? I think they... Not really.

SPEAKER_00: Really? I also, I was around, I read a lot of the free press around the election time, so I don't think I'm even being that unfair about it. I think they're masquerading as the center right when they're actually a bit further right than that. Okay. And that's fine. That's fine. It doesn't bother me.

SPEAKER_94: But they're doing real journalism, like they actually do...

SPEAKER_167: About half and half. There's a lot of commentary.

SPEAKER_94: Sure, but they're like one of the few of the right, if they were considered right-leaning, which I think they are... Yeah, that's what I was saying.

David Friedberg: I would say moderate to right, but maybe not. Yeah, she was... Briar Weiss is a New York Times columnist, correct? Anyway, I think, to the point as well, there's two things going on here.

SPEAKER_53: The press is overwhelmingly left-leaning, and you have things like the Tech Meme Leaderboard here. To your point, who ranks high? The number one is Mark Gurman, who is an Apple... You know, who covers Apple. Apple for clicks, Elon for clicks, you get the idea. You move up the rankings if you cover these things. And when you were at TechCrunch, without revealing too much, people's compensation based on, in some way, or their career advancement based on traffic, views, leaderboard?

SPEAKER_94: No.

SPEAKER_00: No, we had a... Not to bring it up again, but we had a very, very lightweight, tiny bonus system that might add up to like 1% of your total comp if you wrote the most stories or got the most traffic. We tried really hard, actually, to not, from the top down, think in those ways. But if you're a reporter, and you publish a story, and no one cares, and then the next time you pick up a little shorty about, you know, Tesla does X, and then everyone reads it, that's a signal that you respond to. You, as a market participant. I think, while I would love to riff with you for about an hour and a half on the media thing, let's keep going. Next up, Sequoia has raised new funds. And Jason, I have a question for you, because I need to better understand fund dynamics. So, the news item here is Sequoia Capital, probably the single most famous venture capital firm of all time, has raised a couple of new funds. A $750 million fund aimed at Series A focused firms, and another $200 million fund for seed, pre-seed investments, the earliest stuff they do. The thing is, if you go back to 2021, Sequoia famously became a RIA, and they also announced a permanent capital setup. And my understanding of that, Jason, was that they were kind of done raising discrete funds. And instead, they were just going to use their recycled capital in the so-called Sequoia Capital Fund. And now we're doing this. So, just help me understand what's going on here, because I assume you know better than me.

SPEAKER_06: I think it's probably people, it's a little bit of both, and people are confused.

David Friedberg: There is the permanent capital model, things go public, and then you as, I don't know, some endowment. And you say to Sequoia, we're a giant endowment. There's a billion dollars in distributions over the last two years. You manage it as part of this Sequoia, you know, capital fund.

SPEAKER_07: You tell us when to get in and out of these stocks, because you're still on the board of Square, or Newbank, or, you know, Uber, or whatever they were early into, Airbnb.

SPEAKER_53: And you will probably understand the fate of the company better than our internal people, because you met the founders in the Series A. And you've been with them for 10 years, so why not stick with them for the next 20?

SPEAKER_07: And so, they have that permanent capital base, and I think you can redeem every year. You can have a chance to, you know, pull out some money from it. Then, they're still doing their venture funds, because some LPs just want to have the venture fund access. They don't want that. Okay. So, that's what's going on here.

SPEAKER_53: And what's notable here is their discipline. Their Series A fund is 750 million. Yes. I don't know what the past ones were for Series A funds, but I'm guessing they were typically 350, 500. So, they've gone up modestly. They've doubled. They've probably doubled in size in 10 years. But that's because the Series A check size has doubled in size. And the Series A feels more like a Series B in the industry. And the $200 million seed fund, our last seed fund, 45 million, is probably double what they previously did in seed funds. And the fact that they've separated those in the seed fund, they don't join the board.

David Friedberg: In the Series A, they do join the board. And that gives them two swings at bat. The seed fund can just make these 500K to $3 million checks. They can put 40 of those investments maybe into the $200 million fund for about $5 million on average.

SPEAKER_53: A $2 or $3 million original check. And then, you know, maybe follow on for some of them. And then the Series A make their own independent decisions. And the growth fund makes their own independent decisions. The only challenge here is, when you're a Sequoia CEO, you know, you have to then figure out, okay, which fund am I going to be in? Is the growth fund going to do this? Right. And it can be a little conflicted.

SPEAKER_07: And then, you know, your later stage investors, let's say you go to Founders Fund or Andreessen for your Series C. The first question, who's participating from the Series A and the Series B? Is Sequoia participating? Are Benchmark participating? How much is available in the C? Is that a negative signal? If they don't, if they have a growth fund. Now, the growth fund is looking at the seed fund. So, if the seed fund owned 6%, and they didn't do the Series A, now the growth fund is looking at Uber and saying, huh. And just as that example, I did the Uber investment as a Sequoia Scout from the seed, or even though it was its own fund, it was the Scout fund. Okay. Then, they didn't, they did do, my understanding is that the growth fund had invested in Uber. I don't, I can't confirm that right here, but that was what I had heard. So, but they, in the middle, they didn't do the Series A, B, or C. They didn't get there, or they didn't compete for it. I don't know what the terms were, but they didn't benchmark. And then, eventually, Shervin did the B with Menlo.

David Friedberg: So, you can look at those two, and you can see that they have discipline. I don't think they want to chase the average return. No.

SPEAKER_186: No.

SPEAKER_20: I mean, that's why I started off by saying, this is Sequoia. This is not, you know. In Dresden. Yeah.

SPEAKER_00: I was trying to avoid that example, but the reason to avoid it.

SPEAKER_115: I mean, this is what everybody would say in a bar talking after a demo day.

SPEAKER_00: So, lower fund size, higher expected returns, more concentrated positions. Correct. Sean McGuire, a partner over at Sequoia, did a separate interview with, oh man, I forget the name of the publication. The Israeli-focused publication, Calacastec, or something like that. Anyways, he was talking about how individual Sequoia investors invest. And he said, look, we only do, per partner, three deals a year. So, we're talking about fund size discipline. We're talking about partner discipline in terms of what they have to choose. So, in that vein, Jason, I went through the Sequoia announcement. And I pulled out some themes from individual partners and what they're looking for over there. So, if you're a founder that's working on apps built on top of cutting edge image and video models or voice, that's very interesting to them. Several mentioned cybersecurity. Observability was in there. On a geographic basis, one partner was really into Europe. McGuire had mentioned Israeli founders. And then they said that they think there's a trillion dollar opportunity at the intersection point of commerce and AI. So, something in the e-commerce realm. I don't know what that would look like, but I liked the boldness of that bet. Hmm. Yeah.

SPEAKER_115: Um, there's tons of opportunities in Israel as well.

SPEAKER_53: I don't know how you run a seed fund from the US and invest there without boots on the ground. Everybody asked me to invest in their region. And I've always had the same position, which is, I don't, if I don't speak your language, I don't understand the culture. I don't understand the legal stack. Okay. And I can't use the product myself. And I can't come to your office and hang out if I need to. It's going to be really hard. You're better serviced having a local investor. So I'm not sure how they're going to get that done. Um, but there was a big, um, another story with Sean.

David Friedberg: Uh, I don't know if you, uh, saw that story in the financial times, but the CEO of Sequoia reportedly left in protest, uh, because she felt his, um, uh, comments on X were, and I think it was the financial times who broke this story. Yeah. I have it up on the screen.

SPEAKER_115: Um, but maybe you could explain, um, what his spiciest quotes were, uh, and, uh, yeah.

SPEAKER_20: Uh, well, maybe the background on that story.

SPEAKER_00: I think if I was to choose which of his comments I think are the spiciest, I think I would invite a whole bunch of invective on myself from various online people. I'll just say that if you are sympathetic to, um, criticisms of the Israeli military operation

SPEAKER_30: in Gaza, um, well, I feel like you just threw me a hand in there. I'll just say it.

SPEAKER_202: You just threw me a hand in there. Mandami comes from, here's, no, it's very simple. Like, uh, it is what it is. Oh, you mean just the Mandami?

SPEAKER_200: Just the Mandami stuff?

SPEAKER_202: I think that's the one that she was objecting to. Oh, oh, okay.

David Friedberg: Mandami comes from a culture that lies about everything. It's literally a virtue to lie if it advances his Islamic agenda. The West will learn this lesson the hard way.

SPEAKER_94: Islamist. I'm sorry. Islamist agenda. Sorry.

SPEAKER_46: That's an important distinction. Yeah. So that is a pretty spicy comment.

SPEAKER_53: Um, if you were talking about radical Islam, I think that would be an important way to say that. Like if you were talking about Al Qaeda, but I don't think that applies to all people

David Friedberg: who follow the religion of Islam. So I think this is where politics is toxic. And having leaders spout out about it all the time can cause chaos.

SPEAKER_117: Sean's tweets are very, very, uh, spicy all the time, Jason. They're spicy at night. They're spicy in the morning.

SPEAKER_53: Well, and also Paul Graham's. Paul Graham's been, you know, accused of anti-Semitism countless times. You know, now Sean's being accused of being an Islamophobe, I guess would be the, uh, the, the term that people are using online. You know, if you're independently wealthy and you don't care about the fallout, you know, you can spout off. Uh, but it's gonna have downstream ramifications.

SPEAKER_07: My lesson here for startups and founders is you may not be in that position and it could cost you your funding. It could cost you your employees.

SPEAKER_52: It could cost you partners. Yeah. Why would you even do that?

David Friedberg: Like, why would you make that part of your, um, so this is a very important case of do what I say, not what I do.

SPEAKER_07: If you're Jason Calacanis and you're 54 years old and you're on one of the top 10 podcasts in the world and then you have This Week in Startups and you want to say spicy stuff because you already made your money and you don't care if you lose some partnerships on this side of the margin or that side of the margin or you're David Sachs and you're a partisan and you're part of the White House and you want to defend their position. Or if you're Paul Graham and you've already made your money and YC is so big that you don't care about losing Israeli founders who think you're an anti-Semite.

SPEAKER_216: Paul Graham. Okay. Is Paul Graham still that involved operationally? He's, he's the mate. He's the patriarch of the program. That's true.

SPEAKER_94: So there are plenty of people. And he, yes, he still owns it. He owns it. Period. Full stop. He benefits from it. He gets all the carry. So yes. Um, well, let's clarify. I, I did not know that wrinkle. I was, I just, I mean, he didn't gift it to anybody.

David Friedberg: There's still, I think, three founding partners. I'm sure they get the bulk of the economics or half the economics. And then, you know, Gary Tan and the current partnership gets some percentage of it. And he gets to hang out in London and enjoy his life. Very smart move. I think smart, but yeah. Um, my, what I would tell any young executive, what I tell my young analysts, like not worth it. Yes. That's not worth it.

SPEAKER_04: Just stay out of politics. It gets messy.

SPEAKER_00: Uh, Keith Raboy went back to Khosla and Khosla backed, uh, Amjad Mossad of, uh, Replit, I believe. Mm-hmm. If I have all my things correct. Yes. And, and Keith was just going after Amjad, who we had on the show. I've talked to him. He's lovely.

SPEAKER_30: Great guy. We talked about our favorite boats. And Raboy, also a great guy, by the way. Uh, Raboy doesn't talk to me. But I'll just say like, the thing I want to bring up here is that it seems that the

SPEAKER_00: era of expected founder friendliness, even across political lines has been broken. And I think that that is the loss. So I'm with you. Yeah.

David Friedberg: I mean, I'll, if you think like chiming in on one of the oldest and most bitter conflicts in the world is like, you're going to make some incredible progress with your opinion

SPEAKER_52: that hasn't occurred and you've never been to the region and you have no influence in the region, but you feel you need to sound off by all means.

SPEAKER_226: I certainly have fallen for that many times.

SPEAKER_00: You know what I do is I, in situations like this, I call my Jewish friends. I call my Palestinian friends and I ask them how they're doing. I tell them, I love them. And I let everyone else who knows more about geopolitics than me sort out the Middle East, because it's not, I'm, I have nothing novel. I love, I love you all. All right.

David Friedberg: I mean, the, the Arab Israeli conflict in modern day, uh, like the modern era of this conflict

SPEAKER_07: is 75 years old and it's in 50 years on the planet, 40 years of which I can remember it from the age of 10 on. I remember reading about it. Yep. I'm not sure that this is the one where a venture capitalist or the CEO or the startup founder

SPEAKER_94: or the person who, and the accelerators going to make much progress on it. I don't think that like their statements on Twitter are going to move anything.

SPEAKER_07: Now, if you want to go there and start an inter, start YC in Israel or Palestine, you know, if Paul Graham feels so strongly about it, he should start Y Combinator in Palestine. He should make a, you know, a version of it there to help the people have a sustainable life, et cetera. If, you know, um, and if Sean feels so strongly about this, he should quit Sequoia or, you know, and create a venture firm in Israel and, and put all his energy into that.

SPEAKER_94: I just think these, you know, incessant all day long, I wonder if incessant all day long, harping on these issues is actually good for the Sequoia brand, the Y Combinator brand,

SPEAKER_07: or if it's doesn't make a difference because those brands are so strong.

SPEAKER_145: Well, I do know for the small folks who are coming up, stay out of it. It's not going to work for you.

SPEAKER_239: It's just, can I read that one? Can I read the comment from Lon?

SPEAKER_242: Okay. All right. Lon's making jokes, but let's keep moving.

SPEAKER_00: Lon disrupting the show. All right. Uh, we're going to do one more awesome story, Jason. Then we're going to talk to a great founder who has a pitch for us. But first I want to talk very briefly about Mercor, M-E-R-C-O-R. We've had them on the show. Uh, I think it was back in August episode 21 and 59. What do they do? And they're raising $350 million at a $10 billion valuation, blah, blah, blah, blah, blah, blah, blah, blah, blah, 20 X ARR. But is it? I was going back through reporting from the information and they said in April that Mercer pays up 60 to 70% of its top line revenue. That means that its net revenue is far less than half of the then current $100 million figure that they announced. So this yields an interesting question about gross revenue versus net revenue. We talked a lot about people kind of doing fuzzy things with ARR, but I don't think Mercer is. I just think they're counting the bigger number. I also found a great question from Reddit about people talking about how easy it is to game ARR and recurrent revenue in that context. So Jason, could I please better understand from your perspective when something should be counted as recurring revenue, when annualized run rate makes more sense and how founders can avoid accidentally tying their shoelaces together and getting a pink flag from firms like launch?

SPEAKER_244: Because I keep seeing the story come up.

SPEAKER_46: Yeah. So this is a valid issue. And we have an investment in micro one.

David Friedberg: You may have seen we are the seed investors in this company. And it's now grown to, I think, I think they've reported a 500, a raise at 500 million. And these two companies, Mercor and Micro One are always mentioned, I think, in the same sentence. So I have a horse in this race. Got it. Of course I wish all founders well. And just so people know, I don't see the items on the docket. I mean, I do see them if I want to, but often I'll respond to things on the show if I'm busy. Like I didn't know Mercor was going to be on the docket today. I had like three or four stories I wanted to talk to. And then I rely on my team to present them. So there is this is an editorially independent program this week in startups. They if I have an investment in Uber, we'll talk about Lyft and we'll talk about Grab. And I'll I interviewed the Lyft founders. You know, Travis never had a problem with Lyft founders speaking at the event. Elon's never said to me, oh, you can't, you know, or got mad at me because I had a Tesla competitor on the program, whatever. There we have done 2,300 episodes of this podcast.

SPEAKER_94: I don't pick the topics anymore. Probably a third of them. And we don't give favoritism to the portfolio companies here. I might say I'm really excited about the space.

David Friedberg: So just looking at this, there is a new group of companies like Athena, which I was the first investor. And I was the first investor in Jonathan's other company, Thumbtack, where investors in Micro One, I won't speak for them. They can speak for themselves. We'll have Ollie on the program at some point.

SPEAKER_07: Mercor and these companies, if they are, in fact, not reoccurring, they're working on projects.

SPEAKER_94: And it's low margin for Mercor, let's say 70% goes, by the way, you know, another company that gives 70% or 80% of the revenue? Uber. Uber. Apple. Oh, yeah, good point. Yeah, yeah, yeah. 55% goes to YouTube creators. So it's pretty standard to when you have a marketplace to give the bulk of the revenue, the majority of the revenue, Airbnb would count in this as well, to the people providing the service. And that's marketplace dynamics.

SPEAKER_07: If you wanted to call it reoccurring revenue, yeah, that might be dishonest or not accurate.

David Friedberg: Because unless the person says, we want to do, you know, I don't know, a hundred, I don't know how they price, but a hundred million questions answered per month to train our data or a hundred million, a billion per year. We're going to pay you $3 per, or whatever it is, a hundred million. We're going to pay you $3 per, you're going to make 300 million from us. And that's a two year contract paid monthly. So that is reoccurring and it's a two year contract, but it doesn't feel exactly like Slack reoccurring or Microsoft Office reoccurring or Salesforce, where your lifetime value would be considered four or five, six years. So the opportunity here is you're getting into something where people, this is a new product or service. That's what makes these new companies exciting. It's not just like the standard software stack. So I think all of these are going to do great. I think these are great companies and they're providing a massive service. That's never ending.

SPEAKER_94: I don't think the need to train data is going away.

SPEAKER_21: Ah, that was my next question was how long, how long is this business model going to last? Because Mercore has a much bigger vision for what they want to build as a company. And their AI work was the wedge originally.

SPEAKER_00: I think it just got bigger than they expected. But they had a much larger plan that I thought they would just use this new capital to go off and pursue. Because if you can sell 3.5% of your company, Jason, for nine fricking figures.

SPEAKER_20: Sure. Well, and wasn't the other company here, the one that Facebook bought?

SPEAKER_46: There was another company. Scale AI, which they bought.

SPEAKER_00: They would have been competitors, yeah? Yes, absolutely. In fact, Mercore and Micro One and other companies we've talked to saw their business just absolutely accelerate in the wake of that deal because no one trusted Scale AI anymore because of their meta ties. Sounds reasonable. I'm just reporting what everyone said. Jason gives that a thumbs up. But I think that they're benefiting quite strongly from this.

SPEAKER_21: I just wonder if VCs are properly de-risking the downside of this is contract labor and it's going to be price competitive.

SPEAKER_117: And, you know, that's what I think.

David Friedberg: The same argument was made about Airbnbs and Uber drivers and, you know, Athena assistants. Like, can it scale? Can anybody replicate it? What I'll say is my understanding of this data engineering work is that it's incredibly sophisticated already and it's only your, like, whatever, two, three, four of this really starting to click in.

SPEAKER_07: It's not going to end, folks. It's only going to get bigger because as lawyers and accountants as but two examples or doctors, radiologists, nutritionists, engineers, as they start using these services and they go, wait, it's hallucinating. Wait, this is wrong information. Wait, cite your sources. Yeah. You're going to want experts to be in there saying, yeah, somebody wrote this page on Reddit. Somebody did this clipped article and they rehashed it with somebody in the Philippines for, you know, $6 an article. Sure. And it's slop. It's, you know, outsource slop versus AI slop. Somebody's going to need to make sense of this and say, okay, this is slop. This is 60% accurate. This is 80% accurate. This is 95% accurate, except the 5% that's wrong in this article is because they didn't update the article in seven years and it was written in, you know, 2013. And boy, we found out that you really don't want to be taking this statin anymore because there's a new one or it's, you know, the whole philosophy has changed because of this reason. Yeah. That's going to keep happening. Information is going to get harder and harder to discern. And if you look at what we just talked about in, I think the second or third story today of creating synthetic data. Yep.

David Friedberg: Well, I'm sure these companies are involved in that pursuit as well. I don't know that, but I would assume. I would assume so. I mean, if you were like, hey, let's make some synthetic data. They'd be like, okay, let's get some experts in here to tell you what synthetic data to make.

SPEAKER_52: Like we don't need a bunch more Austin streets since there's 17 people on the streets mapping it. And like, we know where every like pothole is at this point. We know every, you know, homeless person wandering into the street at every intersection. Yeah. Yeah. Yeah. Literally like these things have, but we do need to do, you know, the, the drive between Austin and San Antonio and the cattle coming out of this ranch and the construction being done on this highway. It seems like those things are going to just keep popping up.

SPEAKER_15: So I'm very bullish on that. And going from Biloxi to Lake Pontchartrain, you know, we need other routes too.

SPEAKER_264: Yeah.

SPEAKER_00: All right. Really quickly. Why market Jason, because we talked about a very fun thing last week. If you recall, there was a game going on in which a company set all the AIs against one another to do trading. And I'm not going to name the name of the company because I didn't want to give them points, but we did enjoy this chart of watching, watching the crypto guys trade. Sorry, watching the AI models trade cryptocurrency. And as you can see, currently Gemini and open AI are down quite a lot. Grok and Claude are flat up 10, 12%. And then the Chinese AIs from Alibaba and deep seek are crushing the game.

SPEAKER_265: Now, why, but that's because they're using inside information.

SPEAKER_52: Um, maybe, maybe, but I mean, you would think that they maybe are crushing. I mean, I'm, I'm making a joke here.

SPEAKER_268: Yeah.

SPEAKER_94: I think there might be something to the fact that they maybe don't respect copyright or, you know, paywalls and that kind of stuff. Maybe they have an edge. Maybe. And maybe the LLMs from America have been trained to not use inside information, or they could have some red teams that have constrained them in some way. Maybe. So that makes this competition to get the most returns. It would give an unlicensed, you know, more freewheeling LLM a massive advantage.

SPEAKER_00: It could be. All I can say is by looking at this, I want to set up my own deep seek trading bot. But here's the fun thing over on poly market, watching AI's trade crypto. Wasn't good enough. There's now a market for which of the models is going to become the best one. So now Jason, we have humans setting wagers on AI, setting wagers on humans, setting wagers on crypto. And this is what technology is for.

SPEAKER_194: And if you're curious over on poly market, currently deep seek and Alibaba, as you might expect.

SPEAKER_275: I think we can say this is the alpha arena AI training competition. It's this isn't like content marketing. I don't think it's not like it's this isn't like Carta or whoever saying like, let's get ourselves ads on this weekend startups to sell our product. I'll put this a separate alpha arena AI training competition winner.

SPEAKER_96: Everybody seems to think it'll be, I mean, 90% chance here that it's going to be one of the Chinese language ones. But what's fun is since I took the screenshot, I put it into the docket.

SPEAKER_20: This changed quite a lot because this changed quite a lot. And when you say this, the people listening don't know what you mean. Thank you, Jason, of course. The two leading lines became much closer together.

SPEAKER_21: So people are now making a much more even trade between deep seek and Alibaba than they were. Because the results from those two models have changed dramatically in the interim, as you can see right here, Jason.

SPEAKER_37: So I just I love seeing synthetics on top of AI because it just humans will speculate on anything.

SPEAKER_21: And I love seeing polymarket kind of cross over into our little world. So shout out to our friends over at PM. Microsoft has a service called Microsoft 365.

SPEAKER_00: It was previously called Office 365, previously called Office. It's Word, Excel, PowerPoint, Cloud Storage. You pay by month. Yes. And now it includes AI because Microsoft, of course, is working a lot on AI. Now, down in Australia, they reached out to their customers on the consumer side of Microsoft 365. And they said, hey, you got to pay us more money to get AI or you got to cancel. So a lot of folks were like, well, I can't not have Word and Excel. So they did convert to the higher paying tiers. But if you clicked cancel, then they offered you the ability to keep your current plan without AI. Scummy.

SPEAKER_21: Scummy from a multi-trillion dollar company that doesn't need to grind out the extra 48 cents, Microsoft.

David Friedberg: This is something Satya Nadella needs to get his hands around. We call these dark patterns. I give Lina Khan a hard time because she destroyed the industry for four years. One of the things she did well, always I'm calling balls and strikes, you know, as the official chairman of the interwebs, which I'm now serving my third term. Third term.

SPEAKER_283: Wow.

David Friedberg: Third eight year sequential term.

SPEAKER_123: Now 24 years as a chairman of the interwebs. I'm pretty sure that's his dictator at that point in time. I mean, if the people vote me in, the people vote me in. It's up to them. I'm not saying I won't run for a fourth term, even though the limit is three.

David Friedberg: Start making the hats. I'll start making the hats now. Jake out for his fourth term. Here's the thing. Dark patterns are not good. They, especially to your point, Alex, when you're a big company, you don't need to do dark patterns.

SPEAKER_07: Now there's somebody trying to hit a number for retention and for their AI goals. So there's somebody who tried to hit their goals and it's understandable. They want to do great. So they did a dark pattern, apparently, allegedly here. The problem with doing these is you always get caught and then it always gets amplified and you become an abusive, large company. And the resentment builds up over time. If you're winning, you need to be magnanimous in life. As I started to win in life, investing in companies, doing podcasts, whatever it is, I always kept this in the back of my head because my book author, John Brockman, pulled me aside one time. He was like, you made it, kid.

SPEAKER_145: You can stop fighting with everybody. You can be magnanimous in victory. And like, boom, it hit me.

SPEAKER_07: And I was like, oh yeah, you're right. I've been battling for 20 years to try to get something going in my career, but I hit. So now I have to flip to magnanimous. What does it mean to flip to magnanimous? It means I don't need to be fighting with people over things that don't matter. I need to be helping founders and remember what got me here. What got me where I am is, uh, you know, entertaining on a podcast and I help founders. You gotta stick to your knitting and just really lean into that. That's why I love having founders on here. And I love Founder University and getting involved in year zero. For Microsoft, how did they get there? By building productivity tools that helped people. Yes. Not dark patterns. No. Dark patterns make you look lame. Like you're using your technological business savvy to abuse your own customers. That builds resentment over time. And then when you get three, four or five of these strikes against you, you know what happens? You know, your customers are gonna start talking about it. The press is gonna get on it. And then you're gonna get different federal agencies who are gonna go, Oh, I'd like to have that pelt on my wall.

SPEAKER_145: I'd like to have that scalp on my wall.

SPEAKER_289: That's my example, Jason, of just what you're talking about from September.

SPEAKER_290: And this is all allegedly by the way, I give them the benefit of the doubt.

SPEAKER_21: Fair enough. But, uh, we talked about the FTC case against Amazon for their prime renewals upgrades. I forget the exact details of this, but last month, just about a month ago, the FTC security quote,

SPEAKER_20: historic $2.5 billion settlement against Amazon. What? So you will get caught. This happened a month ago. I didn't even see this. The FTC... That's because it's the Trump era, Jason. Everything's blowing up all the time. Got it.

SPEAKER_58: So between the White House, East Wing being knocked down the Epstein files, Tower of Chaos,

David Friedberg: I didn't actually know that the Federal Trade Commission secured a historic order against Amazon that enrolled millions of consumers in prime subscriptions without their consent, knowing it made it difficult for consumers to cancel. Amazon would be required to pay $1 billion civil penalty and $1.5 billion in refunds back to consumers harmed by this.

SPEAKER_123: And here's the thing. If you want to raise the price of Amazon Prime, I'm here for it. Sure.

SPEAKER_53: You lunatics. I was ordering some camera equipment. I'm teaching my daughters how to take pictures. I found my old cameras. Nice. Turns out, one of my nannies is in photography school. I was like, hey, when you're here, if I gave you this old camera equipment, will you take the girls out on the ranch and take pictures of animals? She was like, I can do that? I was like, yeah.

SPEAKER_07: And I had to buy a bunch of old compact flashcards and batteries because, you know, this literally... I found a duffel bag of the equipment I had from the Weblogs, Inc., and Gadget Days.

SPEAKER_295: That's awesome.

SPEAKER_07: It was just in a box. So I took it out.

SPEAKER_53: I cleaned it up. And I was like, oh, the batteries don't work. They brought the batteries at 4 a.m. today and the compact flashcards.

SPEAKER_07: I don't need them at 4 a.m. I don't need them until next weekend. If you want to charge me an extra $10 a month, $5 a month, we love you, Amazon. We love what you're doing. You're getting us stuff too fast. I have now gotten to the point where I'm like, I don't need it that fast. And opening up four boxes on three different days is more painful than getting these things early. Wait till Tuesday. Put it in one box. I only have to open one.

SPEAKER_20: That's how good Amazon is. You don't need dark patterns. Exactly.

SPEAKER_00: You also don't need Amazon to start putting unskippable blocks of minute long insurance ads into my prime video. Because let me tell you, everyone in the world, I'm not buying insurance. Not Allstate. Not State Farm. Not the annoying yellow brand. Off. Off.

SPEAKER_301: Off.

SPEAKER_94: Anyways. Here's the other thing. Yeah. How about communicating instead of in a dark pattern? Why don't we become the white wizard Gandalf? Gandalf the white, right? I think.

SPEAKER_90: He was the gray and he came back as the white for Return of the King. Yeah.

SPEAKER_210: If this is a good analogy, let's go with it. If there's a better one, pop culture expertise. Sorry.

SPEAKER_157: You can't bring up Lord of the Rings and not get my nerd back up. Okay.

SPEAKER_46: But is it close to like, he's as good as it gets as the white wizard?

David Friedberg: Nailed it. Perfect. Be the white wizard in this, which is say to people when they're watching Amazon, your Amazon Prime subscription is $12.95. If you want to get rid of these ads, which we only have two per episode, you have to pay $16.95. If you'd like to do that, that option is always available to you.

SPEAKER_53: Would you like me to remind you of this? Or would you like me to never remind you of this? Take the opposite approach. Be super generous. You know who does this? I knew it with Stratechery, which is like one of the best newsletters ever. It's like the OG of like newsletters really considered. He would send my $10 a month bill to me every month. I had never seen somebody in a newsletter do that. They all just hid their updates of their monthly billing. He sent it to me every month.

SPEAKER_07: And it said right on the thing, click here to cancel. And I was like, I'll never cancel Stratechery because A, it's great. B, you're so upfront about it.

SPEAKER_20: So upfront about it.

SPEAKER_00: Now I want to take all of this and apply it to startups because briefly, I know we've gone a little bit long today, but the Microsoft thing we're talking about from the perspective of here's a company that doesn't need to do this. And they're burning goodwill. But if you're a startup out there trying to raise money competing with other companies for capital customers attention, it's pretty tough, Jason. And there might be a temptation to make it a little harder to cancel or maybe a little dark patterning. So how do you, as a founder with less capital, less cash, more pressure, always stay on the right side of things and not fall prey to essentially growth hacking gimmicks at the expense of customers?

SPEAKER_07: You have to be obsessed with your reputation at all times in your life. Now, when you're young and you're just on adrenaline and nicotine patches and caffeine and you're burning the midnight oil, you might not always be thinking sensibly. You might have pressure from, well done with your vape and coffee. Uh, you might not be seeing straight. Just always go back to, if my mom knew I was doing this, just do the mom test. If your mom, if you work for Microsoft and you did this or Amazon and your mom saw it, what would your mom say? My mom, when I would drop an F-bomb, she'd say, you know, I thought the book was spectacular, but the F-bombs I'm not comfortable with. And I started saying frackin' or frickin'. And my mom gets upset if I curse. God bless her. You know? And she's right. You know, if I'm cursing too much, it's my Brooklyn side and it means I don't have clarity of thought that I can't come up with a better word to use to express my frustration or feelings or my point of view. And so, just run the mom test.

SPEAKER_94: Hey mom, I trick people into upgrading their Microsoft 365 package. Can I, can I show you what I did and how many people, percentage of people I tricked at Christmas?

SPEAKER_07: If your mom's not going for it and she's like, I'm very disappointed in you, then don't do it. Don't do it.

SPEAKER_306: Don't do it.

SPEAKER_07: And if you're the leader of a company, what happens is you have to be careful about incentives. Incentives matter. Show me an incentive. I show you the outcome. So, in the case of a startup, if you make sales, hey, if you book a sale, you get 10% of the sale.

SPEAKER_123: And if you book the sale for the premium product, you get 20% of it when they sign up and give us their credit card and we charge them. Okay, fine.

David Friedberg: I get it. What you want to do is say, you know what, instead of 10 and 20%, you're going to get seven and 15%. Then you're going to get the other 7% and another 5%. If they use the product and they use the product more than 10 times a month, you'll get another bonus.

SPEAKER_210: And if they renew, you're going to get another bonus so that you're not incentivizing them just to turn people and sell it to the wrong people and trick people into getting it. You want alignment, alignment. So, a lot of times people will make the renewal of a sale much less than the initial cost of the sale when in fact the renewal speaks more to the entire team doing their job.

SPEAKER_53: So, think about, hey, if our renewals are 80%, the product team, the sales team, everybody gets, you know, two days off at Christmas. More valuable than any amount of money. If our renewals are 90% or 85%, everybody gets three days off on the holiday. If we hit 90%, everybody gets four days off on the holiday.

SPEAKER_123: You come up with something like that now to get that esprit de corps. You ever hear about the esprit de corps? Yes, I do. I don't know what it means. No, it means the spirit of the group, right? Yeah.

SPEAKER_37: It means essentially how does the team feel and esprit de corps usually in a positive sense as in we have good esprit de corps, which means we have lots.

SPEAKER_15: All right, everybody. It's been another extended, amazing edition of This Week in Startups.

David Friedberg: If you care about startups and technology and you want to be the tip of the spear, if you want to be part of the vanguard, the early adopters, tune in Monday, Wednesday, Friday, here. And we'll be announcing a second show in the new year shortly. We're going to have a second show, a spin-out show from This Week in Startups. The This Week in Startups family is going to grow.

SPEAKER_00: I'm excited. I don't even know what's going to happen. So I will be tuning in to hear about our show's expansion. Tune in.

SPEAKER_315: Tune in. You know what I'm talking about. But just don't spoil the surprise.

David Friedberg: And please sign up for our YouTube channel, This Week in Startups.com slash YouTube.

SPEAKER_07: And if you could do me one favor, please write a review or post a comment on Spotify, YouTube, or write a review on Apple Podcasts. If you do, we're going to include your comment. If it's an intelligent, funny, insightful, spicy comment in the YouTube comments, the Spotify comments. And you can tell us what company you're from. We'll give a shout out to your company. And we're going to play those at the end of every single episode. So if you make it to the 75 minute mark, 60 to 75 minutes, or if you want to just advance to the end and see if you got picked for that for today's show, go ahead and do that. We'll see you all next time on This Week in Startups. Bye-bye.