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Anyway, yes, what's going on with this like Coinbase protocol situation?

Yeah, so at the highest level, it's an Ethereum L2. And so, you know, that gives the ability to have pretty low transaction costs, high transaction throughput, and then, you know, ultimately, you can settle on Ethereum. Um, why are they doing this? Let's take a step back. So, um, we've talked about this before. If you actually look at Coinbase, right. The ad for, as a company, for the most part, you know, it's a, it's a custodial system. And so, um, a lot of, um, a lot of what happens in Coinbase itself, isn't really happening on the blockchain. Like they may enter, like, so if you go to Coinbase and buy, you know, any type of asset, Bitcoin, Ethereum, you're most likely not buying it from, uh, like a, like a blockchain transaction. you're probably buying it from a pool that exists within the Coinbase custodial system. So I think one, you know, there's an interesting push to kind of create this system where a whole bunch of other applications and services, whether it's their own or others, start getting created. What you get by Coinbase putting it out there is you get, you know, there's a lot of these L2s that exist. There's even, you know, other blockchains. You get the backing of a public company running this system for you now. And so if you're a company and you're thinking of building on blockchain for whatever that may be, could be NFTs, could be loyalty systems, anything along those lines, Coinbase is like the AWS in this case. offering a blockchain that's run by them. Hopefully their services are put on it. They maintain the development and growth around it. And so it's a sort of a choice for enterprises and companies to build on. I don't think we see startups go there because I think startups are closer to what's happening more at the core of the crypto and blockchain ecosystem, whether it's in Solana or Polygon. But I do think if you're a big company and you're looking to leverage blockchain for some type of service you're building, it becomes sort of an answer that you can go after. Now, that said, all the big clouds also offer services they don't have their own. L2 that they're running, but I believe AWS has an Ethereum service that they run if you want to interact with it through that system. I think it's a play as part of becoming an infrastructure provider, so looking more and more like an AWS. Although I'm not sure, you know, how much energy from enterprises right now, given everything that's happening is going to go towards this. And unfortunately, like, you know, with Coinbase, they had their own marketplace as well, like an NFT marketplace that didn't really take off. And so the track record here on these kind of expansions from their core offering hasn't been so great yet. But, you know, it's a trusted place for an enterprise, Vinny. Got it.

Got it. So this is more like we popped up a for pay playground in a neighborhood that doesn't have any kids. And we're not even going to send our own kids there. Yeah, they haven't made that clear, but that's what it seems like a dangerous swing set. Yeah, I'm pushing. I'm taking this too far. And then I'm going to use that one. I like that for playground. You know, I only have one skill in life and it's translation through metaphor. Um, what, who would they hope be hoping to attract? outside of that 20 million hardcore users that you mentioned, though, like, would they be wanting to become the development platform for a choice for like, the next time a Starbucks wants to do an NFT based rewards program?

Yeah. And on the AWS example, Molly, you know, I know this quite well. Like one of my co-founders, my last company is one of the early creators wrote one of the first papers on AWS. Um, that was created for AWS, sorry, for Amazon. The reason they had to create it is, you know, they had to scale their e-commerce business. And, you know, every time, you know, these certain seasons came around and they wanted the ability to do that sort of with their own control. And so, um, you know, I think. uh for for coinbase what they really have to show that's where i started with that is maybe if they move their hundred plus million people and a set of addition like their core services plus some additional services to this blockchain and show the benefit of using it so as aws did we may see some innovation happen there but i think in advance of that, like, I haven't seen anything about Coinbase moving their entire, you know, trading system and everything else to this protocol, to the size of this L2. And so, you know, that's also a more difficult one. In the case of Amazon, there was a, well, we run our entire business on this thing. And so, and we get some leverage for doing it, you should do the same thing.

Interesting. So okay, before I let you go, we just have a few more minutes. What else is what else is happening? That's cool. We have other stories in our, our lineup, but let's do a little like a lightning round here.

I would think, yeah, exactly. Like, you know, some of the examples we've talked about before, so like big corporates that want to make a choice around a blockchain. And, you know, they've probably seen and I think on this, you know, we got to give the Polygon team credit, right? Polygon is getting a lot of wins recently. with, you know, companies, definitely like fortune 500 companies. And so they're probably looking at that saying, Hey, how do we how do we participate in that? Right? And so we we stand by the blockchain, it's to Vinny's point, we run it. And, you know, bring your loyalty system here, bring your NFT project here, bring, you know, whatever, bring your bring great marketplaces here. But they really now have to have a creation of an entire ecosystem, which is, you And that's also vastly different than AWS. When you create something on AWS, it's kind of usable everywhere. If you create something on this, on this particular blockchain, it's not usable everywhere else, right? So you're really, you know, feels much more like walled garden than it does sort of an open platform.

So token gated playlist, let's do a little explanation here. According to a series of tweets by Kingship, I'm reading from tech crunch, a metaverse band signed to universal music group. That's happening already? Okay. Anyway, according to Kingship, the streaming company Spotify is piloting playlists that could be unlocked through NFTs in certain geographies. So under this pilot, Kingship has released a special playlist that could be accessed only by Kingship key card NFT holders. So is this like a more complicated way to buy an album?

Uh, I thought the Spotify testing, uh, you know, playlist that could be unlocked by NFT holders was pretty cool. This goes, you know, we've, we always kind of search for these, um, uh, use cases. And I thought, I thought that was very, very interesting. So, um, what did you guys think of that?

I feel like this could totally work with K-pop. Like, I don't know if you know, I mean, all of the kids who are into K-pop right now are, they buy CDs to like crazy so that they can have the album art. And most of them don't even have CD players. Like they don't, like they literally have a piece of dead media that most of them don't listen to. Although I did get my son's friend, like a super cute standup CD player. It's like pink and she can, you know, K-pop it up. I'm like, okay, great. You've unlocked a series of accessories that can go along with this. But this is very physical. Anyway, I could imagine K-pop kids would be very excited about this or people who are really Spotify just side note, kind of experimenting. They're also doing the AI playlists. Yep.

I think it's maybe a way to have a collectible that's associated with the album. So if we think back in the days, I don't think it ever happened in the CD era, but definitely in the vinyl era, weren't the, I guess, what did you call it? the vinyl covers, collectibles for people. And so this is a way to kind of recreate that in a digital environment. Like why take that joy away from folks? And so I view it as that. It's kind of recreating something and it feels exciting.

Yeah. I have a purple rain poster from the, you know, from the actual vinyl album.

They are pushing really hard on a lot of these. That's great. Great to see that good innovation in the space. But yeah, so I kind of chalk it up to collectibles. Right. I still have, uh, you know, my dad was a big fan of Pink Floyd and he has like an original dark side of the moon. And so that lives somewhere in my parents' house. So I can see the value there.

Oh, where do you keep it? Actually, it's in my kid's room right now. Awesome. I should probably protect it better. But yeah, I have that. Yeah. Oh, see, there you go. All right. I get it. You know, I get it. OK.

Really? Yeah.

I'm picking up what you're laying down. I'm not super into collectibles, but like, you know, yeah, I could I could see it. I could see it. Benny, what do you think? He's like, we're not talking about identity anymore. I've lost interest. How do you feel about Spotify's identity service? Have they nailed it?

All right.

No, I wouldn't say that. I'd say you can keep doing what they want to do. Like, I think everyone, the more experiments we run in NFTs, the better. I have an NFT project launching later this month called Explorers. Actually, I think the website is ExplorersNFT.com. Sonny, do you have anything you want to pitch today? We've had a long Civic pitch. Explorers.digital. There you go. And we're using Civic for identity, of course.

This episode is sponsored by Vinny Lingham.

I'm bullish on NFTs. I'm bullish on NFTs. I think it's just that we're in the trough of disillusionment right now for NFTs. If you look at the Gartner curves, we're in the trough part and we'll come out of it.

You know, what's really positive to see though, Molly, like through the arc of everything that's happened, you know, since the formation of this podcast is there are some awesome things being built right now. And the Spotify thing is exactly that, you know, it's not, you know, like. What are all the criticisms? A scam, no utility, right? And you're seeing all that come together. There's a real utility here, collectible, you know, people can understand it. It's tied to a real world thing. I want to listen to this album from this team. It's not like this thing that just, you know, people criticize like a picture of a monkey and, you know, what does it really mean? And so we're actually, if you take a step back, like this is pretty cool. Like it's a real utility. And you know, we know the the physical analog for it. And let's let's run with it. It's being promoted by a company that's doing a lot of innovative things right in Spotify. So I think this is all these things are really good for the ecosystem, right?

And frankly, if it's a way for these artists to make money more directly and not rely on that crappy little split from Spotify streams, I think that could actually be really powerful.

Yeah. And you can support your favorite artists through that. You have something connected to them. They can create future things associated with this NFT. I think it's really, really great. Yeah.

Thanks, Molly. All right. Thanks for listening, everybody. We will see you back here tomorrow. If in the meantime, you have suggestions for topics or news you want us to cover, email the producers producers at this week in startups dot com. And make sure you join us on Twitter if you're still there at TWI startups. Have a great week.

Awesome.

I'm more than happy to. Thank you for having me.

Okay, so you're a GP at Canaan Partners where you have been since 2000. Tell me a little bit about yourself, your journey and Canaan and what you do there.

Yeah, it's amazing how time has just flown by. I cannot believe that I have been doing what I've been doing for almost 23 years now through, as you mentioned earlier, through three cycles. It has been a wild ride. And I think the wonderful thing about this profession, and most VCs will say this, is you just get to meet the smartest, most ambitious people with, you know, these great ideas every day. I just, I feel very fortunate to be doing what I'm doing.

It is a cool job.

Yeah, it is. It is. I mean, it's, it's stressful. Don't get me wrong, but it is. When I, when I step back and really take a good look and perspective of what I do, I'm, I'm really fortunate. So I've been doing this, as I mentioned, for a really long time. I started out wanting to be an academic and was on that road, got a PhD in economics, was pretty much gonna do that. And then I decided that it was a really solitary existence and a pretty isolating profession. And so I went to the West Coast. I was on the East Coast at the time. I followed my now husband back to the West Coast, and got a job at a upstart telecommunications company called Quest Communications. And I was there for a couple of years, then, as a result of that made my way into venture and spent probably the first five or six years of my venture career really looking only at infrastructure, software, data center, data, BI type stuff. And I only did my first consumer deal most likely 2005, 2006. And now fast forward to 2023, I'm very much a generalist. Interesting. Which is rare. I wouldn't suggest that for anyone entering the business now by any stretch of the imagination, but it's rare for somebody to look in consumer and enterprise at the same time.

Yeah, absolutely. And very different skill sets. How did that evolution How did that evolution come about? It's just accumulated knowledge. Was it because you found the reel-reel and you were like, this is it?

Totally. Actually, my first three consumer deals, one was Kabam, which was a mobile gaming company, which sold for about a billion dollars. The second was a reel-reel. And then the third was a company called Kuyana, which is still in business. It's an apparel and accessories company. and doing really well. So I've been very fortunate on the consumer side. And I'd say that, yes, part of it was skill, but a lot of it was luck.

Um, tell me about, okay, so let's go to the cycle. So you really started at Canaan at least in 2000. Were you, was that the first, that was the entry into venture or had you been doing venture somewhere else? Yes. So was it equally bubbly in enterprise kind of software at the time? I mean, was it, was the bubble pretty widespread? I was mostly familiar with it on the consumer side back then.

It was very much widespread. So my first day at Canaan was March 23rd of the year 2000. And about two weeks later, we went into a nuclear winter for several more years. So my first experience in venture was just seeing things either very quickly crash and burn or just experience a very slow death, but it was just like, wow, I've seen this movie, I've seen this movie, like you're watching the same thing over and over again for years. It was a learning experience. I mean, that's, I'll put a positive spin on it now.

having come from economics, though, did you feel like you saw that coming? Or was it as much a shock to the system as it was for so many other people? Were you like, Oh, what have I done? I've entered this at exactly the wrong time.

You know, I was so early in my career, and I couldn't believe that they were giving me, which is, you know, I was in my mid-20s at the time, I couldn't believe that they were giving me the experience and the opportunity to be investing. So I was more thinking about it from that perspective, as well as the perspective of, oh my gosh, we're in a macro bust cycle here. And what's going to get us out of that? And really thinking about the time it was going to take to get us out of that, which is very different from the 2008, 2009 issues, which is very different from what we're experiencing now. So, each cycle is separate and distinct. And that's also been pretty fascinating.

So, It must have been I wonder, like, you may have had an extra awareness, because I, you know, was probably a similar age had come here to the Bay Area in 99 was doing, you know, sort of consumer technology writing, but didn't have any of the kind of broader economic understanding of what might be happening in the world around me. You're just, you know, you're just in your 20s being a ding dong, like, I'm at work, and I hope I don't get laid off. And So I do wonder, like, do you feel like you were sort of like, okay, this is actually something I can study or something that I have you know, interesting, you it sounds like you had a broader awareness of the macro conditions that might have been led you to be more aware than the average mid 20 something.

I won't say that, but I was definitely thinking about this in the broader context of where this is going to lead. And what was so fascinating, and this is where my economics hat kind of mixed with some psychology classes, and economics is very much about psychology. You know, I would sit down with these VCs who had been doing it been investing through the cycle and been very, very successful. And even 2001, 2002, you know, they were still puffing their chest out. They were still thinking, gosh, my portfolio is awesome. Life is great. And I'm like, really? Because like, all I'm seeing are falling knives everywhere. I don't know what, you know, you must have a special portfolio. But then I have lunch with one after the other after the other, and it's the same thing. Like we are, as a species, almost as venture folks, we have to exude, they felt that you had to exude this confidence level, which was born out of really nothing. And, you know, as I look back to that time, that was probably the most interesting part about that bust cycle. It was just so, there was such a facade that was put in place.

I can't wait to hear the extent to which you think that you know, I'm just gonna jump ahead. I don't there are no rules. I don't have to follow a timeline. Do you see that happening now? Because I will say I certainly have the occasional founder conversation where I think that those expectations are still in place or that facade of like, my business is special. Or my investment thesis is so special that this will not affect me.

It was, there were sources of information out there, but again, certainly not as rich and as prevalent as there are today. The diligence took long, a long time. You know, it was not uncommon for me to see a company and then issue a term sheet three months later. Wow. we are just coming out of a cycle where it was see a company and issue a term sheet within three days. Right. Right. Where you have absolutely no time to get to know the business or the founders or the dynamics of the company. Um, so you have to do a lot of that information and diligence in ahead of time. You have to be smart before you get, get into the company, which is why this business has changed so dramatically. It's also changed because a lot of those deals that were getting done were based on Excel spreadsheets. Does this business fit into the model of what an LTV to CAC or what the sales efficiency looks like or whatever metric looks like? If your formulas spit out something, if your magic number is the right thing, then let's go ahead and do it. And that wasn't the case in 2000. It was much more about, do we feel like the market is big enough? Yes, this company is early, but the team looks good and the references are great. So let's go ahead and dive in.

Okay, so back going back in time again. What was VC like? We're just going to bop all over. We can do whatever. We're under DeLorean and we're taking our trip through. Oh, we're that old. Oh, geez. I'm going to take you all the way behind the curtain and say that apologies to the producers on the line. Earlier, I made a comment about Xerox and none of them had ever seen one. Really? Never seen a copy machine. Yeah. Wow. So that's where that's where we are in that cycle. What was investing? I mean, to that point, right? What was investing like in 2000? And how has it sort of changed over the years? What was diligence like? How did you do it all without, you know, pitch book?

Fair enough. The expectations around outcomes have understandably and naturally changed. coming out of the nuclear winter, as I call it, in 2003, 2004, if I had a company that exited for $200 million, I'd be thrilled. In 2021, if I had a company that exited for $200 million, I'd be like, oh, crap, right? The high watermark was more like 10 billion or 20 billion, and that's what we were all shooting for. that hasn't gone away, but it's it's not going to be as common as it was two years ago.

That's what we're here for.

Molly, this is the chicken and the egg problem that you're describing, which came first. The Outcomes became larger. Venture funds, as a result, were able to raise more capital. That means that they put more money into companies, which means that my desired outcome or my required outcome, whichever one you want to call it, was much higher. So it was just this kind of perverse incentive circle or flow. And that's, you know, we all got caught in it.

Is that a function of check sizes getting bigger so that you need returns that are outsized like that? Because one of the things that has happened is that funds themselves have swelled? Or is it just that the expectation became, you know, more and more multiples?

So right now we're investing out of Canaan 12, which is $800 million in size. We are series a focused for the most part. Um, if I were talking to you in 2015, I would have said, all we do are series A's. We want to lead those rounds. We want to take 80 to a hundred percent of the rounds and we want to be the largest investor on your cap table. Today, that's changed and it's changed over the last couple of years because we've had to be flexible to deal with market conditions. It was just far too competitive of an area or a space to go into it with that strategy. So, you know, now we're a bit looser, but Series A and C is still the sweet spot.

How big is Canaan's Fund?

Oh, gosh, not at all. Right. Yeah. We had to convert. This is the fun stuff to talk about time.

All right, I'm gonna ask you more about that. But now I have to go on back to my timeline. Okay, so then, you know, we're coming out of nuclear winter, it's 2004 2005. At what point do you go there? If at all, there might be another bubble building here? Or was that bubble really so exogenous because it was sort of over there in housing while venture was just doing venture?

I mean, it was awesome. Right. You had to at least two, I'll call them, let's say three, three combining massive forces. So, you have virtualization, which was bringing the cost of compute down to the floor. You had mobile, which for obvious reasons, did what it did. And then you had social. And those three combined forces almost concurrently, just, I mean, almost every company that we now consider big came out of those three trends. Maybe not all of them, maybe two out of the three, but those three trends were responsible for what we're seeing today. And just to put a finer point on that, if we then look, we're all looking for what the next best thing is, what the next big wave is that we can just surf. And, you know, we've tried the Web3 thing. We've tried the crypto thing. We've tried looking at, you know, various other areas, health tech. And there's something in all of those. But there's been a ton of money poured into those areas because we are all in search of the next big wave.

Exactly. Right. I mean, this is the fun stuff. The party is going to happen.

Right. Let's talk about what we've been wrong about. Maybe not. I don't even think I need to rewind it that far back. But I'll rewind it five years back. So think about, and we've made a good amount of money in fintech. And we continue to be really bullish in that area. But think about the number of financial services investments that have been born out of low interest rate environments, right? And that have gone public, and that have been huge, right? But fundamentally, these businesses are not sustainable businesses in higher interest rate environments. And we just, as a venture class made the assumption or made the bet, I'm not going to say assumption, made the bet that a low interest rate environment was going to last for a decade plus as opposed to the door being shut in 2022. So there's timing bets. Guess what I'm trying to say is at the end of the day, so much of success in this industry, yes, it's about riding the wave, but it's also about riding the wave at the right time, making sure you're not too early and making sure you're not too late. And I'll tell you, when I have, I have lost plenty of money in this job. And when I've lost money, it's almost always, it's not because the founder sucked. It's not because the tech sucked. um it's because I got the timing wrong.

Right which is which is brutal because that is the hardest part but it also sounds like you're saying it doesn't necessarily The wave doesn't necessarily need to last forever. You just have to get there at the right time. Like you just have to hit that Coinbase, Coinbase IPO. And then after that, it's not your problem.

And know when to get out. And know when to get out. It's like, it's not only when to get on the train, it's knowing when to get off the train, particularly if it's a public company. right? Do you want to be holding that company for four more years post going public? Do you want to sell that, maybe it's not a public company, do you want to sell a company at this price or do you want to wait and see if we can ride the wave for another two more years and get double your money? Right. So it's not just about the going in is what I'm trying to say. It's also about the getting out.

Yeah, I like that, too, because we talk about exits as though the exit itself is so final. But in fact, there's a whole series of events that happen post exit, if the exit, for example, is an IPO, that you still have to get right, you have to know when to distribute.

Yeah, especially if you are, it becomes more complicated when you are a very large investor in the company, when you have a ton of shares and when you're on the board. It's a lot easier if you hold 2% of the IPO as opposed to owning 20% of it, of the company that's gone public, not the IPO. Because the scrutiny and the regulatory issues associated with this distributing the stock and not wanting to not wanting to distribute too much is to disrupt the flow. Like there's, there's just, there's a litany of issues that we have to consider, but, and we'll get it wrong just as many times as we'll get it right. Because again, the timing is, is not something we can predict. And that's, that's another challenge in my industry.

How much are you able or willing to tell us about how you might have handled? For example, you're best known for the real real for being the first investor into the real real, which had a huge IPO, and has since struggled. What can you tell me about how you surfed that one?

So I have been off the board there for a couple of years. And I'll tell you what we tried to do as a policy internally. So again, as a reminder, we are series A investors. So by the time a company goes public, we've probably been in the company from anywhere between seven to 12 years. It's a long road. And we want to make sure, given that our fund life can be somewhere between 10 and 13 years, we want to make sure that we actually distribute that stock within a reasonable amount of time. So post a company going public, we want to get off the board within a year. because we want those degrees of freedom to be able to distribute or sell the stock when we can. And that is, I guess, the benefit of being an early stage investor. It's also a curse because, again, we're holding a lot of the stock in our hand and the stock can be volatile based on how much we're distributing at any given time. So we try to be very, very sensitive. I didn't answer your question directly about the real real, but that's as much as I'll say.

You don't have to. Yeah, exactly. But to put a finer point on it, if you own 5%, and you sell and you distribute and you're sort of saying as an early stage investor, it behooves you to sell as soon as possible after an exit or distribute at least. But the sensitivity that you have mentioned, just to be more explicit for people who may not understand means you're potentially putting a lot of stock back into the market and that could have an impact on the share price.

Correct. The float, the average daily volume is something we look at That is a huge variable in our decision of when and how much stock to distribute at any given time. You know, we're not dumping it all on the market at one period. We do it over, we can do it over a year, sometimes two, depending on the float. But again, our job is to give, put money back in the hand of our limited partners. It's not to sit on public stock, right?

And there is this kind of debate right now, right about when firms should distribute whether they should then get into the business. And we've seen some big firms do this of managing then public stock. Where do you where do you fall on this?

So we are not a fund that is a registered investment advisor. We're also not a fund that has a hedge fund attached to it. We are an early stage fund. So we do not try We don't try to time the market and we don't have enough expertise internally to time the market. There are funds that do and God bless.

Why do you think though it got so much more popular? Like, because some of the funds that are doing that now, weren't doing it before. They were just early stage funds. Is that a function of the chicken and egg problem that we talked about earlier? Like at some point, you're just got to figure out how to manage and or maximize all this money?

Absolutely. And I also think it, first of all, yes, yes, and yes. And We have seen nothing but up and to the right up until the last year for 13, I would argue probably 15 years. Nothing but up and to the right. When people don't have a history of a negative experience, they just assume it's going to continue until it doesn't. And by the way, everyone is rewarded for it continuing until it doesn't. And when the music stops, everybody's hurt. So it actually behooves you to continue to put your bets down as much as you can until the music stops. Because once the music stops, it doesn't matter if you put $5 down or $500 down, you're still going to lose your money.

Right. But while everything has happened and every table is a winner. Why not? You can see why everybody would want to be sitting at every table.

Absolutely.

Yep. It's going to be an interesting couple of years, don't you think?

Yeah, I mean given the boards that I'm on and the behaviors that I've seen I would absolutely agree with you. Again, we've seen, there's just people who have not, who've been in the industry now for 15 years. They're veterans of venture, but they have never seen a downturn. Some of them have never even fired a CEO, not to say that's a rite of passage, but it's, it's an odd thing, right? And you don't necessarily have to do that when it's been so easy for companies to raise capital at up rounds, round after round after round.

I am actually sort of just sitting here reeling at this idea that you could have been in this business. And this is a conversation I had somewhat recently, where I said, actually, you know, in conversation about someone who was 40. And I thought, well, there should be all this wisdom here, right? This person is 40. And then I thought, like, actually, yes, there is probably a lot of experience. and water under that bridge, and yet there's not a downturn. And I wonder how it's easy, maybe easier for us to sort of sit here and say, like, look, I've seen this story before, and I know what's going to happen. And there's incredible value in having gone through this trial by fire. What, what isn't learned when everything's so easy? Like,

I mean, I'd say that there's a bit of envy that I have for people who have only seen up and to the right because it did seem so easy. It did seem so, so easy when this business just you could do it on a spreadsheet and make a ton of money and not be worried about the downturn or not be worried about a company that's burning too much money because it didn't matter. Right? Whereas I, I have never lost that. I've never lost that. I'm always like, Oh my God, this company is burning a lot of money. I don't understand it. What's going on. Um, and, and now in board meetings, um, I think those people are getting their learning and we'll continue to learn. We still haven't seen a cycle of down rounds and recaps. I think that's coming. We'll see that in the next year or two. And people will learn. And then things will go up and to the right again.

It does seem like there's value in that too, in that not only do we probably think about budgeting and governance differently, and I will get into that in a second, but we also potentially have a little more hope because we have actually seen a recovery. It's one thing not to have seen a bust. It's another thing not to have seen a recovery or even experienced it as a recovery.

Absolutely, because you think it's going to last forever. Right. And as a result, you are or one is planning for a down, down, downside scenario, for sure. Yeah.

How would you say, over the last 23 years, have you seen the average helpfulness of the average VC board member? develop? How do you think about governance and what you see happening on boards, potentially by, again, like you said, perfectly like veteran investors, who don't have that same kind of depression era mentality.

If I take a strip out the governance piece, I'd say that the one of the benefits of the industry growing so much and being so hyper competitive is that we've all had to be much more helpful to our companies than we ever have been. So I don't know one firm out there that doesn't have a services or platform arm that is helping with recruiting or marketing or go-to-market stuff for legal or you name it, right, or corp dev. So if I'm a founder right now, I'm feeling pretty good about leveraging the venture firms that I work with in ways that I haven't before. from all of those perspectives, right? And as a result, I don't have to spend as much money myself on any of that. In terms of governance, I think time will tell. I've seen people not wanting to deal and just get off the boards. I've seen that. I've seen other folks just really spend a lot of time, rightly so on counseling the companies on, you know, cost efficiencies and, and all of that, that stuff. So I actually have been pretty impressed by how the venture industry has handled this most recent downturn. It's been, I think, everyone got the message really quickly that belt tightening was a needed thing. Right.

How about the, probably because there was so much money around and return expectations had gotten so high. Talk to me about the just sheer number of venture capitalists compared to outlier startups.

Yeah, crazy, huh? Yeah.

You can see why deals had to get done in three days and sometimes three hours. I mean, it was like feeding frenzy.

So I guess this is where the economics comes in. You know, we're there are there's a lot of money chasing returns. The returns are not coming from the public market or they are but if you're basically day trading and not long, if you've been long, you've been losing money. Maybe the returns are coming at in the mid single digits from bonds. But for folks that have a pension funds, um, endowments that effectively have a requirement to get to five, 6% annual return, you have to be chasing beta. And that beta is in venture. It is in private equity. So what parts of venture right now look awesome and climate tech is one of them. Right. And early stage venture is still on that list of what is going to give me beta. And it will always be on that list, irrespective of whether we are catching a wave or whether we're not. You do not want to time the market if I am, if I'm an LP. So that's, I mean, I just, I'm, I'm raising your question up a little bit and trying to give an answer to that.

Is that so You have been involved in some climate tech investing, I mentioned this at the top of the interview. And so that's what I'm doing at launch within a generalist firm. And I feel like this sort of interesting thing is happening. And I wonder, you know, to what extent you're seeing this, because within these kind of cycles, there was a clean tech bubble that was built almost in between, right, the bust and then the new boom. And then now, we have this kind of crash, but also like a bit of a bubble in climate. And I wonder how you think about like these kind of simultaneous occurrences where you can have a bust potentially in one vertical, but a baby bubble in the other.

The latter. It's too competitive of a business. There's still a lot of money there. There's a lot of people. When I say I'm a generalist, I go from area to area. I go deep in areas that in six months from now, I might not even touch. right? It's just that I've accumulated 23 years of that. And that's why I say I'm a generalist, because I can always look at a storage software company, and then the next day look at an e-commerce startup, because I've done all of that before. But in today's universe, if I am looking in one space, I'm just, I'm heads down on it for a really long time because I have to get smart. Yes, I might have four weeks instead of four days to do it. But hopefully, people are just taking the time and not only getting to know the company, but more so getting to know the founders. Why are these founders doing it? What's their incentives? Because, I mean, the surprises that people have had over the last year as things have contracted, have really been around the expectation management of the VCs versus, not versus, the VCs and the founders. Right.

And is that answer about how bubbles are formed or just the fact that there will always be money coming in? There will always be some vertical within early-stage venture that will be frothy because early-stage venture itself will be frothy. Yes. Just to kind of translate. Exactly right. Yeah. And then I dig in a little bit more on this idea of being a thesis investor or having specialties. I wonder as we move into a less competitive a universe in which we have the chance to be more thoughtful. Like, it's sort of interesting what you were saying about the way that diligence used to happen before versus now where, you know, we do this, we talk a lot about accounting, spreadsheet outcomes. Is there an opportunity, do you think, in being more of a generalist and in being more thoughtful in looking for outliers? Or is that like a, you know, rosy, nostalgic view of The way we have invested in the past. The latter.

So the shine is not coming off. It's might be a little less shiny. Yeah. But it's not it's not coming off. I mean, the reason that The reason that we have not, as an industry, not raised as much capital is basically the denominator effect, right? That the pension funds, endowments, people putting money to work, our limited partners have now an over allocation to privates because the public markets have been hit. So in order to make their own math work, they've had to contract their commitments to privates, including private equity, including venture, including alternative assets, et cetera. And that will stabilize, but at the same time, the private returns are still in comparison good, And at the same time, the private returns in comparison will lag. So a company that didn't raise money for two years, you're not going to see a down round until maybe next year. And so you're not going to see the venture industry taking a hit for a while. And by that time, the market may take off again.

I want to go back to this early stage investing will always attract money. Is there a world so just yesterday, the Wall Street Journal published some data on that actually and said that venture capital firms raised $20.6 billion in new funds in Q4 down 65% year over year and the lowest amount in nine years. Mm hmm. Is there a universe where the shine comes off? Or do you think that that's in those bigger, those bigger, bigger, bigger funds that may not be might it might just be harder than let's say early stage.

You got it. And, and that's why like, it's just always so hard to time things and to time the market and to time our exits. I mean, that is the biggest variable in success or failure of companies.

Right. But then the market may correct, readjust itself, great venture returns are starting to come in like it all just might. Exactly. And so because that is the reason we call it cycles. Time is a wheel.

Sometimes and sometimes no. I mean, for the last several years, I've been like, Oh, my God, I don't get this. Like, I'm a dinosaur. I don't understand why you would value a series A company in the triple digits. Like, it's just, it's shocking to me. But then again, those companies went on, a lot of them went on to raise a lot of money and have nice exits. So I I just, I'm not sure I've learned anything except to say, timing is, again, the biggest variable. I will say this, that with every deal that I've done, I try to sit down with my CEOs before the term sheet is signed, and I say, listen, the chances that this company gets to the finish line, the finish line being a fantastic exit, we don't know what they are. But what I do know is that there is a chance, a high probability that the company will fail. And I want you to think about this as an opportunity cost. I want you to think about every day you walk in the door to this company, or turn on the zoom as an opportunity cost. If it is not working, I want you to tell me It's not working. And let's have just a dispassionate conversation about what that means so that we don't waste any more time trying to make it work. And I promise you that I'll do the same. And if you can set those guidelines from the beginning, then timing, you can move on to something that might have better timing. The founder can and I can.

And do you still feel like how do you think about timing now having done this for 23 years having seen the cycles? Like, do you think there are patterns that you are in a position to spot that might make you better at timing?

Fail fast.

Fail fast.

Or just be aware of what failure looks like, as opposed to hitting your head against a brick wall.

Yeah.

Yes. And so much of it is based on what the core values of the GPs are, and how the firm is structured, both from a carry perspective and a governance perspective. You know, there are some funds that like Benchmark, that have a really open carry policy. Canaan is like this, too, where we're set up for generational transition, right? There's a well-established on-ramp and there's a well-established off-ramp. A lot of funds aren't necessarily like that, or they govern by, I like to say they govern by monarchy or oligopoly, where it's like the carry is doled from on high. And that's again, that's a fine, fine model, but it just makes generational transition a bit harder. And so in those models, it's actually really, it's easier to answer the question of generational transition by just getting bigger and giving people pieces of a bigger pie than keeping the pie the same size.

Exactly. I would even go one step further and say, be aware that the possibility of failure exists, even though it has not existed for 15 years, or might feel like it has not existed for 15 years. Yes. I think you raise a really great point, though, about the tension between kind of sticking to fundamentals, right? For example, Canaan clearly could have raised a billion dollar fund. You know, like Benchmark legendarily keeps its fund sizes around $500 million. And there is this kind of tension between like, all right, I'm going to stick to fundamentals here. I am going to believe that even though valuations are bananas, they will come back down to earth. but also you kind of have to play on the field that is given to you at any given time. You got it. And it seems like it's really the dance in some ways is evolving without losing that core fundamental.

So there may be a way of... So, in some firms, the management company is owned by a select few, and the management company has value. And that value means that if I own half the management company, in order for you to come into the firm, you have to buy out my stake or buy out a part of it. And that's very expensive because the management company in a growing bigger and bigger and bigger firm is bigger and bigger. And I mean, it can be worth hundreds, if not billions of dollars in some cases, right? So buying into that is not easy. And as a result, leadership transitions are not easy. There are funds, there are some structures of firms where the management company doesn't have value, where the value is at the GP. And as a result, the transitions are a lot easier.

Say more about that. What does that structure look like, the one that guarantees the generational off-ramp?

Oh, Molly, I think most people who are just entering venture, who have been hired into it in the last couple of years, don't know enough to answer to ask that question. When I joined 23 years ago, I didn't know enough to answer to ask that question. I just lucked into where I am right now. I have plenty of friends that entered venture 23 years ago, that are no longer in venture because fundamentally at the very core because of how their firm was structured, And they didn't know and I didn't know enough to start it. One of the reasons we started All Raise was to educate women who are in this industry or coming into this industry because there have been so many hired in the last couple of years on what questions to ask about their own firms because it's not enough for us to have more diversity or representation at the investing table. We have to stay there. We have to retain diverse investors. And one way of doing that is to make sure people are educated on what my compensation could be, needs to be, what governance should be and could be and what I should be asking for and a bunch of other things that it's not just about, hey, I've been promoted to partner.

Got it. Okay. That is super interesting. I had not thought about as like a baby VC fund structure as it relates to carry and incentivize. Yeah, like there will probably be people listening to this who are embarrassed on my behalf, but there will be people who are happy that I'm asking you because they didn't know that either.

Yeah, when I started at Canaan, there were no other women in the firm. And within, well, I'll fast forward to today, we have 40% of the investors around the table are female. We have a really diverse set of investors around the table. It's not just, you know, white men and white women. We want to be representative of the entrepreneurial pool out there. We want to make sure that our investments look diverse as well. And when I started at Canaan, it was by no means an objective of mine. I didn't think about it. I used to think, I don't want anyone to think about me as a woman. I don't want to do consumer deals because then I'll be looked at as a woman. I just avoided it altogether. I'll just do the hard tech stuff. That's where my mindset was at. And it took me a while to realize that In a way, I was cutting off my nose to spite my face. If we want this country to be as successful as it can be, we have to become an industry that welcomes diverse founders, that welcomes immigrants, that welcomes everybody to the founding table and backs them. Backs them, not just with seed checks. And that's actually an asterisk that people don't talk about, right? It's not just the seed checks. It's the bigger checks. It's the folks that write $20 million, $50 million checks.

Right, right. It's what is your equity as a result of having been promoted to partner? Well, you read my mind because my next question was, let's talk about women. Shocker. Exactly. So you helped her. Well, it's been actually quite interesting. And one of the critiques of this series when it first started was, you know, how come there aren't more women? And this has been an industry that has been exclusive, which is almost like too nice a word has excluded women for a long time, but particularly the further back in time you go. So talk to me about what it was like to break in yourself and then the men then starting all race.

Yeah, that's exactly right. And, and, um, we'll, we'll continue to make progress, but it's just, it's a much longer road than I thought it was going to be. I was very naive about that.

Are there enough of those? No, not at all. No, no, no, no, no, no. Look around. Absolutely not. Because it feels like one of the things that's happened is that women have started their own firms in a lot of cases, possibly because of uncovering the structure of the firms they were at, or because it's sort of in an environment where there's a lot of money around, the easiest way to force change. But if a lot of women started early stage firms, and then these founders that they invest in get to growth stage and hit the wall, it isn't. We're not. We've only made so much progress.

Yeah. So alienly brought us all together. Um, and you know, there were probably 15 of us at the very beginning. Um, and, She said what so many of us were thinking, but she put it in a way that brought us all together and rallied us around a mission. And that was to, and I said this before, not only assure that there were more females at the investing table, but make sure they stay there. Make sure they stay there and they know what to ask and what to push for and what equality looks like in a venture firm versus just being happy with the partner title.

Tell me more about the goals of all race for people who aren't familiar. I think most people are, but just in case.

Just give us something. What should we do next? You know, it's like what happens in high interest rate environments that are sustained for a really, really long time. Yeah. You know, it's just, this is, I think this is going to be a tough period for at least two to three years. There are still areas that are white hot and will continue to be. So I'm really, really bullish in security. I'm really bullish on areas of workforce management. We are in a period where the numbers show that we're in a very, very low unemployment environment. I don't believe that at all. I think that people are doing side hustles and a bunch of other things, but You know, we probably have another nine to 12 months of consumers having to not dip into their savings as much as we thought. So there's going to be an inevitable strain put on consumer spending. And as a result, people will go back into the workforce more and maybe not do one side hustle, but do a bunch. So workforce management, absolutely. Education, absolutely. EdTech needs to be disrupted in a big, big way. And security.

What do you think How are you looking at the next, you know, I want to be mindful of your time here. How are you looking at the next five years? Like as you're, you know, we're looking out, we're like, okay, this is a story we are at least somewhat familiar with. We know that there's, we're in a bust. We know there's going to be an upswing. Give me your best. with the caveat that timing is hard. Give me your best predictions about what we should do next.

Thank you. It was a pleasure.

Amazing. I'm sitting here in Oakland, where the whole city is being held hostage by a ransomware attack at this exact moment. So I could not agree with you more. Lucky you. That's the kind you're talking about. Maha Ibrahim is a GP at Canaan Partners, where she has, in fact, invested through three cycles. Thank you so much for joining us for this episode of Angel. This is incredible.

So you probably heard us, everybody, audience talk about Neva back on episode 1674. Sridhar is also a former SVP of Google's ad business, currently a VC at Greylock. And if you wouldn't mind, I guess, let's start for those who may have missed that episode. I hope no one did. Tell us what Neva and Neva AI is and what you're building. And also, are you building that while you are a VC at Greylock?

Thank you, Molly. Thank you, Jason. Super excited to be here.

So you were sort of unpacked some parts of that, that gets into my next question, which is sort of what's the technological underpinning? Are you using the kind of large language learning models that we keep hearing about with GPT-3? It sounds like you're not using that exclusively. You're combining that with some special sauce to make sure that the answers are more than maybe what we have seen recently from being in chat GPT. Like turns out it's not all as accurate as one might have imagined.

I'm a venture partner, so it's very much a part-time job. I'm on a board of like a synthetic data AI company on Greylock's behalf. Most of my time is spent at Neva. Yeah, just unwinding a little bit, I was at Google for close to 16 amazing years, early part of the search ads team, but sort of grew with Google to run the ads and commerce teams. Left about four years ago with my co-founder Vivek. And we embarked on this crazy mission of reimagining search. You know, we love the problem of search, but we just felt like Google was trapped in its own success. And so Neva is about rethinking, you know, what is a core product, you know, core part of our daily lives, most of us search without even thinking about it. So we wanted to create a product that was all about the user, all about actually just, you know, creating a great product serving. So that's why we had an early focus on privacy on being ads free. But just as importantly, we thought we could build a better product. Like privacy is not a product privacy is like it's a feature of a product. So for the first three years of Neva, we've been busy building up a search stack, running a crawl at internet scale, building the search system, widely acknowledged to be one of the hardest problems out there. And some nine, 10 months ago, we saw, you know, early versions of things like GPT-3, and realized that this was a magic power that we could harness in the context of, of search. And so we've been working on deeply integrating language models into search. But, you know, while ChatGPT took the world by storm, we again took a contrarian approach and said language models should enhance search, things that you and I love about search, which is you want quick, authoritative information, you want timely information. We said we want those characteristics to be present. So we've been working on this technique to basically run a search engine and language models in parallel And while there's work to do, we're pretty proud of what we have accomplished as a 50% team, being able to generate answers, fluid responses to more than half the queries that people put into Neva. And we expect that number to keep growing with time. We are pretty confident about showing you answers for 75, 80% of queries. So fundamentally, Niva is now sort of again reinventing itself to be an answer engine, but provide you with reliable, cited, timely information about things that you might be interested in.

Without exactly knowing the baseline for this question, how hard is this to build? If the baseline is, I don't know, right? Zero to 10, or if it's, if the baseline is Google to the moon, like how hard is it to integrate? I mean, search technology already, all of that signals processing, all of that determination of noise versus value, plus integrating these language models, which are somewhat new, at least this must be like, you must have a really good team.

That's right. That's right. So, you know, chat GPT is what I would describe as like open loop, meaning that it is in purely generative mode. Now, these large language models have been trained pretty much on every document that exists in the world, but they don't understand things like provenance. When you and I take a course or when you and I want to learn about something, we pay attention to, well, who is the authority on this topic? Who is saying what? Who should we believe? Like, you know, we go through a process of constructing our belief systems. But what ChatGPT is doing is it's just like understood literally every sentence on the planet but at a superficial level and if you ask it a question it'll start saying things. Some things will be true but some things will just not be. What we do is, you know, when you when you put in a query, we run the search stack. And what that gives us is, are things like, you know, we know what the authoritative sites are, you know, that the New York Times is more believable for news than someone's blog. And we then take the the top results for that query, look at the contents of those pages, often, it's a lot we extract summarize portions that are relevant to the query that you have, And then we do a second level of summarization, which is what generates the answers. But it's basically constrained generation, we try very hard to make sure that these models are not in this open loop mode where they are making up things. And we try to, you know, we would rather not give you an answer that's wrong, then, you know, like, like, we don't want to be in the business of providing bad answers. So we refrain from answering questions that we're not really sure about. We do get things wrong, Jason pointed out earlier this morning, that if you ask us about how the NICs are doing this year, we take old articles. To a certain extent, this is like a problem with how search engines have operated, where they return results for every query, no matter what. The fact of the matter is like, there are very few articles that are talking about how the NICs are doing this year. But we just picked like the top ones that there are, some of them are from last year. And we don't understand, like, the temporal meaning of this query. And that's why we generate a bad answer. These are things that the team is busy fixing. But this combination of a search engine and a generative model we think provides a good balance for making AI useful.

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Well, we have an amazing team. It's very small. It's a little over 50 people. But, you know, we've been working at search for a while, we have many of, you know, the brilliant engineers that helped build search that are part of our team. Search is widely acknowledged to be one of the hardest problems to crack, because it's just runs at a scale that is like not really fathomable to most people. And then, integrating the large models, also doing all of these at a budget that works for us. Now, don't get me wrong, we are a well-funded startup, but we are not OpenAI, we are not Bing. We don't have hundreds of millions of dollars to throw at the problem. Our annual infrastructure budget is less than $10 million. So, part of what we have had to do is be very inventive about distilling models, about making them smaller. How do you get more bang for the buck? So we pre train a lot of our own models, we fine tune them. And so a lot of effort and sweat has gone into making this work at scale, but within the constraints of how much budget we have. And a lot of it goes back many years, you know, from early on, we've been building a search stack. what we release would not really have been possible. If you are just like a thin shim on top of someone else's API. At this point for pretty much any meaningful page on the planet, we can generate summaries for you. And we will soon have some of these pre computed. So it's it's it's a very technical problem. But obviously, the result is a simple, easy to understand, hopefully brief answer that gets to the heart of what you're looking for.

Let's break down, we're talking about sort of parallel technologies working together and then parallel sets of problems to solve with each one of those technologies. So let's go back to Google for a minute and talk about the problems with search that you wanted to solve and dive into those a little bit more. We can start with privacy, but it's a longer list than that.

Yeah, so I would broadly put them into two buckets. And the irony does not escape me that I certainly had a large role to play in one of those buckets. One is that ad load just keeps going up. Text ads are one of, you know, it's pretty much the most incredible business invented. No one in their right mind for like the first 10 years of this decade thought that Google would make more than $100 billion of revenue just in search ads. It's remarkable, but that's the business it is. And it's also a reflection of our times that, you know, there's no limit to expectation. While Google is a very successful business, it is still judged by how much it can grow. And so, as I said, I approved many of the decisions that increased ad load, But I also felt ultimately that there was no limit to it. It would just keep going up and up unless some externality like the one we are going through happens. And then on the organic side, they are hemmed in their own way by the ads model. The dirty secret behind the ads model, and this actually goes back to even TV, is that ads have to stand out. And so, broadcasters, for example, would increase the volume of the ads as they started playing because they knew that that would get a little bit more attention. Similarly, you can't make organic search too attractive because that's going to kill how much money you make on the text ads. It's the same reason why on your Facebook feed or Instagram feed, you're going to see video ads interspersed with mostly pictures, because moving video gets more attention than a static picture. It's the same theme. And so it's hard for the organic team to say, we can create the best product that there is. while they're constrained by but don't kill ads monetization too much. Right. These are some of the problems the ads ecosystem, you know, with things like the double click acquisition, essentially, Google became like this purveyor of ads for the entire internet. The other side of ads is measurement. is conversion tracking is basically measuring to see which ads are successful in getting the customer to take the action that you want. And that sort of unleashed a whole ecosystem of thousands of companies, keeping track of every single thing that you and I do. And Google's a big part of that. And that's what people talk about when they talk about this rampant loss of privacy. every single thing we do goes into all of these databases to be used for sort of monetizing at a later time. And so, you know, a lot of Neva is really about, okay, start with a clean slate, start with no constraints, focus on the product, what can you create?

How let's there in terms of Google, there are also sort of other maybe complaints about search, like the idea of a filter bubble that is created almost as a result of that data collection. Is that something that Niva has an opportunity to avoid? I mean, there still is even some controversy around ranking and ranking pages and the idea like there is somebody out there who just heard you say that the New York Times is a trusted source who is losing his mind, which haven't helped us, but still it's happening.

Yeah, I think honestly that filter bubbles are less of an issue in a search-based system because it's not a recommendation system. YouTube definitely has filter bubble issues where if you start on a topic, I'm sure you'll run into this, all of a sudden there'll be a whole bunch of exciting material about that topic that start appearing in your feed and it can be a vicious cycle. My mom, who is 80 years old, got super energized about one of our last two presidential candidates for reasons I simply did not understand. I'm like, how do you know this and how do you have these opinions? You barely watch anything outside of religious videos. It turns out that she was in a loop that fed her a bunch of videos from one candidate. And so, that obviously is extreme, but a lot of us fall victim to these subtle ways in which content that we see is engineered. And the way we think about this is we give control back to the user. So as part of Niva's design early on, we said, you can express your preferences for which sources you prefer. We don't think we should be in the business of deciding that one newspaper is better or more trustworthy than others, if it roughly looks like, you know, they are, you know, they are high quality. We've also launched features like Bias Buster, which is a fun little feature that lets you see viewpoints from different ends of the spectrum. So you can, you know, if you search for something political, you'll see a slider, and you can decide, ah, I want more, you know, right wing opinions on this, or I want more left wing opinions on this. And we change the news results based on based on what you pick. So our approach to a lot of this is to return choice back to you. People will, you know, did ask us for features like not having Amazon or not having Walmart in their search results because they wanted to shop from the little retailers out there. An ad supported search engine cannot do these things. On the other hand, a customer supported search engine you know, we are all about serving customers. So we are like, oh, you don't want that particular site, that's fine, we'll give you all the others. And so very much an aspect of Neva is this personalization is giving that control back to you. But doing that, again, with privacy in mind, we don't track your search queries by default, there's like, you know, there's no list of queries that you have issued. Search is a deeply personal product for most people, and we want to respect that.

You can also, side note, there's all kinds of things you can search, right? You can attach your email to it and different accounts and actually be able to search things that have otherwise been a little bit hard to, it's almost like organize instead of the world's information, like your life.

It's changed over time. A set of people definitely were attracted by the customer focus by how we actively prevent tracking by third parties. People have said things like after a few days, of using Neva, the world just feels like a quieter place. It's just there's not, you know, stuff chasing you all across and demanding your attention. Andrew Orlowski, who's a journalist for the Telegraph, he once wrote an article about us, he's like, ah, this feels like breathing clean alpine air after you have lived in the smog of a city for, you know, four years. But privacy by itself doesn't, in my mind, attract enough of a mainstream audience. Privacy is a little bit like being fit or eating clean. All of us want it, but not so many people are actually going to do it. Part of what is really exciting about the current moment for us with AI is we are able to harness its power to truly create better experiences. I know we are going to get into things like copyright and fair use, but these short answers are super attractive to people, especially in this day of not that much attention. And so, these answers are a big step forward in the experience of search. And in a bizarre way, we are able to do this quickly, much faster than others, because we've been at this problem for a long time. And we have a business model where I don't have to worry about, oh, is this going to lose 5% of revenue? because this is all about making the product better. So it becomes neither original part was about ads free and private, but it is very rapidly transitioning into it's just a superior product experience in addition. It's just efficient.

Yeah, once you have like local indexing, and you can just sort of index all the 75 sticky notes that I have all over my desktop for various things, and I can search those, please, I'll pay extra for that. Um, let's talk about the business model. And then I do want to move into some of the kind of more controversial aspects of large learning. How do you make money?

That's right, that's right. So we built these apps, these connectors to various things. We have not pushed those, especially in a work context as much as we should be. We're looking into things like how do we get more companies to adopt these things, as you can imagine, especially with AI thrown in. there's just a lot of time efficiency to be had. And there's stock of things like enterprise language models. But part of what we have already figured out is how to pay attention to permissions, how to make sure that like your docs don't get mixed up ever with anyone else's doc, or do we make sure that that stuff is kept strictly segregated. And then this retrieval augmented generation, this search and large language models working in parallel are also very privacy safe, because we don't have to ship information from your private documents out over the API or have a language model that that mingles these things. So there's a lot of other exciting stuff that we can add on top of the base product.

How does that? I mean, knowing that we live in a world where Google, as you mentioned, has nearly unlimited growth potential and revenue potential. How do you pitch to VCs that this is a Google-esque 100x investment?

So we are a freemium product. We, you know, the base product is free to use. It's a pretty generous, you know, basic product that is free. For much of Niva's existence, we've been focused on user growth. We have a paid subscription product. It's roughly $50 a year, about $6 a month. And so in addition to essentially getting unlimited NIVA, unlimited number of connectors, unlimited searches, and so on, we also work with partners to give you additional benefits like a VPN and a password manager. But it's really, it's a freemium model. And the people that end up converting are the ones that use search a lot, use things like our personalization features, like setting preferred providers for news, for example. But yeah, there's there's a lot of focus on getting people to try the product. And we have a pretty decent conversion rate from people that try the product or to people that become paid paid subscribers.

Everyone needs search. at the end of the day, right? And people want better search. Well, you also, I think it's also a reasonable question about whether the ad supported model, which obviously makes insane amounts of money now, but it's like under attack from a million different directions. Like one assumes that you just cannot continue to make infinite money forever on a model that may be outlawed in entire countries.

Well, as you know, you know, multiples for companies and expectations have changed dramatically over the last year. And yeah, it is a very different, you know, environment. The important thing to remember, though, is that Google is so large, that our search is so large because it's everyone on the planet, that even a small fraction of people becoming Niva subscribers is enough to make us a self-sustaining company. And so, I've done these estimates, something on the order of 5 to 10 million subscribers. I mean, now, that's a lot of ARR, mind you, you're talking $250 to $500 million a year. by our estimates would be enough for us to run a search engine for the whole world, so to say. you know, like being available in all in in all countries. And that is enough to get going. So even a few percentage points of market share is still very large, simply because, you know, the population of the world is very large. In addition, we are also looking into we have active conversations about taking our technology and licensing it, whether it is the search API's that sites like Reddit or others can use, or being a search provider for large language models, because other people have realized that doing the kind of constraint generation is actually very useful for generating authentic output that users will like. So there's a lot of basically business-to-business opportunities that have also, you know, come about just within the last three months, given how much excitement that there is in the area. The direct answer to your question is like, we see scare because the potential market is so gargantuan.

Right. And this gets back to your tagline and our kind of accidental tagline. We're moving from a paradigm of search to a paradigm of answers. That's right. Fundamentally. Yeah. At what point did you realize that that could be the disruption? Like at what point were you like, nobody wants to search. Everyone wants answers. That's the key.

More than that, right? It's, you know, if you get into sort of the excitement of last week with Microsoft and Google, a sufficiently deep pocketed competitor is basically saying, I am going the state of the art for search is no longer going to be a wall of links. many of which are ads, the state of the art is going to be this succinct answer that people can consume and they will be much happier with it than a wall of links. I think that is something that is true if somebody can do a good job. That's number one. They also have the clout then to be able to take large amounts of market share. This is a problem with very successful business models. when there is a fundamental change in the assumptions of the model, you're very, very vulnerable. And that's the place Google is at. Google is amazing as a search engine, as a search company. But if you rapidly move to a world in which you want a paragraph of text, and that is the state of the art, it's not really clear where the wall of ads fit into that. And that as much as anything else, might be the thing that drives change into this whole ecosystem.

And that gets us, I think, directly to this question about publishers, even when Google introduced those snippets and the summaries, publishers You know, somewhat rightly, I mean, I have worked at these publishers, lost, freaked out. I mean, it was a massive drop, because the link to an answer ecosystem created its own secondary and tertiary ad cottage industry that couldn't have existed. I mean, I'm thinking of all of the recipe pages right now that are about to die, because it's like 1500 words, 5000 words of personal story with an ad every paragraph and then finally the recipe at the bottom. That only exists because of the search paradigm that we live in now. What happens when, even when you cite your sources, no one clicks on those links anymore. They have their answers.

This is actually, this has been known for some time. Google has this feature called featured snippets. It's an edgy feature where they would pull out a snippet of text from a site and show it directly on the search result. And every experiment that's been done to raise coverage of that feature would have wildly user positive benefits. I mean, this is like users always love it. And it's very, you know, to a certain extent, this is like instinctive, which is, would you like, do you want to read three sentences and have your question be answered? Or do you want to tap on a site and go to that site and try and figure out where that answer is. You know, a few years into Google, I sort of realized it's dumb. But I was like, yeah, no one wakes up and says they want to click on an ad. Similarly, no one wakes up and says, yeah, I want to click on a link to find out something. If you can just give it to them, they're much happier. We've always known this. But the question, the real breakthrough is, oh, wait, we can do this. at scale for billions of web pages and essentially assemble a single answer on the fly. We are like constructing mini Wikipedia pages on the fly for every query. That required a lot of things to come through and that happened over the course of like Q3 and Q4. We had a lot of stumbles just trying to figure out how to make this thing work at scale. Our first systems would take eight seconds to, you know, do like the first level of summaries. We were like, ah, that's never going to work. So a lot of things had to come together. But the basic insight still is answers trump links all the time.

it's, it's great to have this honest conversation about it, because it's sort of it reminds me of the conversations about something like minimum wage, like we always say, okay, if you know, if we want people in America to be able to afford houses, we have to raise a minimum wage to, you know, $15 minimum, maybe $20, and companies will go out of business. And that is just a fact. And it is a hard fact. And we are sorry that that will happen. But it's very interesting, because the Google ad-supported search model created in some, I mean, the ad-supporting publishing model obviously predated Google, but because you had this huge ecosystem that got even bigger, exponentially bigger under Google, it sounds like what you're saying is that a lot of the ad-supported publishing ecosystem as we know it now only exists because of the Google ad-supported search ecosystem.

It's a real question. We try to be very thoughtful with how we do these snippets. We want to keep the length short. We want to convey the answer. And clearly, people want to take action. They're going to go click on the link and actually go to the site. But I do think that we are at a moment where the traditional search engine publisher model is just going to go through a lot of stress. The second order And many ways you can think of this as like the ads ecosystem sort of coming back full circle. What I mean by that is that the contract between search engines and sites was that they would make their content available to search engines and search engines would deliver traffic. Now, over the past 20 years, Google slowly but surely has been lowering the amount of organic traffic that goes out, especially for commercial clicks. You show more and more ads, then fewer and fewer people are clicking on those organic links. So this is a This is a slow but steady degradation. And similarly, because of the ads model and the kind of things that search engines have prioritized, which is like, how much time do people spend on site, bloggers, for example, rather than just show you the recipe, they have made them long because you want more space to put in more blocks of ads because you know that that drives more click through. I think we are headed to a world in which a lot of these things are going to be short circuited. And I won't pretend that I know exactly what the consequence is going to be. But I think one important consequence will be that a lot of sites that simply thought of their role as just creating lots of content, and traffic would just roll in from search engines and ads would monetize. are going to think long and hard about what does it mean to actually attract, acquire, keep customers and have them coming back. So for example, one of our predictions is that the same technology that's used to generate answers on Neva can be used to, you know, as a publisher product, so that a publisher like Vox Media can essentially offer a conversational interface to content that's on Vox Media, we have the tech to already do this. So that's a much more engaging experience right on the site. But right now, most of these sites don't even bother to put a search box because no one's going to search here. They're just going to search on Google. And that's how we get people back. So I think there's a little bit of back to basics of every customer that shows up at our site is precious. We have to figure out how to convert that into a meaningful long term relationship. And what are the tools that we need to have in order to in order to do that. And I for one, you know, have to say like, I will not be sad to see the anonymous internet and pages full of ads designed to grab your attention go. I'm old enough that I remember the time when I used to like subscribe not just to magazines, but also newsletters that I paid for. And, you know, I think there will be quite a bit of back to basics, plus also consolidation. I think that is something else that will definitely happen.

All right, everybody. I'm here with the same daughter. He is the CEO and founder of pilot you guys know pilot they help everybody with their accounting CFO and tax services. Welcome to the program. Thanks for having me. Let's talk about one or two of the serious mess ups that founders make when it comes to doing their taxes in their books properly.

That's right. That's right. And by the way, the thing that I'll also, I don't think anyone planned this. The thing that I'll also say is that the ultimately, I don't think that the ad supported ecosystem turned out to be a great deal for publishers or creators of great content. I think it's the platforms. If you think about it, it's the Facebooks, it's the Googles of the world that are the largest media companies on the planet, because they became aggregators of all of our collective attention. So, you know, again, this is me being a little philosophical, but I think there is something fundamentally unjust about, you know, one company like spending a billion or so to run a product and making $120 billion of money on it. And essentially, advertising became a winner-take-all sort of game. And there are only three winners. They're called Amazon, Google, and Facebook. And I don't think, as I said, anyone predicted this. But definitely, in an answer world, I think one of these players is going to be under heavy stress.

It's so it's so interesting to be you, like how, what has it been like to sort of undergo this transition? And you must have been realizing this at at Google for all of those years, that there could be this better way that it would be massive, like, it's very brave to want, you know, I'm not trying to blow smoke, like it's scary. It's a scary thing to be the person at the center. And now you've got some cover, because other companies are headed in this direction also. But to be saying, this is going to be a huge disruption, this is going to be a massive change, right billions of dollars of value. will be at best redirected under this new regime. And that even though it will be better, revolutions are always painful.

Solutions are very painful. I think. Yeah, I mean, leaving leaving Google itself to start Niva was was and is a scary thing. You know, you realize, I'm often reminded by life that a 50% company is nothing. And it's very hard to get the browsers to work with you. It's very hard to stop Chrome from putting up these obnoxious screens to try to get people to convert back to Google after they have made Neva their search engine. But, you know, in many ways, I think of like what we have done with Neva AI and Answers as the ultimate vindication that like competition matters, that a small team can create a product that is state of the art in some way, in my mind, tells me that the more competition that there is, the better that we'll all be. And I'm not just saying it in a trite fashion. As I said, it's very hard for the organic team at Google to launch a lot of things because they will have a big impact on ad revenue. I also like to remind people that AT&T invented the answering machine in the 1930s, but basically canned it for a long time because they thought it would reduce the number of phone calls that people made. Successful people always prevent things that are going to, you know, undermine that model. What is really interesting about this moment is this dam is about to like break wide open.

Yeah, let's talk a little bit more about the revolution that we're in, because one of the things that Jason has said many times on the show, and I'm sure you've heard, is that publishers are lawyering up, that the lawsuits are going to come flying, that the copyright questions are intense. We've had, he and I, a little bit of an argument about how citations can even work in a world of neural networks, where in theory, they're learning and ingesting information and repackaging it. Where do you sit there? What do you think that the next couple years of this upheaval look like?

I think there's going to be all kinds of lawsuits. Jason's absolutely right. I do disagree that language models cannot cite. If you run them open loop, yes, they cannot cite, but there are other ways to run them. As I said, we provide context for the generation that also protects us because we are less likely to hallucinate and just make up something. So this is how we are able to provide citations for each sentence that we write. We went to a lot of trouble to make sure that we were able to do that rather than say provide like four links at the bottom. And we also try to keep our summaries short. We've been playing around with length. You know, sometimes it's gone to like 300 words, but we're trying to reduce that back to 80 to 100 words. You know, but fair use is a complicated legal concept, not just involving things like the nature of the work or the purpose of the use, but also things like the effect of the use on the potential market. Now, Neva is so small that I can tell you that we are not going to have an impact on the potential market, but Google doing this at a large scale clearly is not going to be that. So I do think that there is going to be litigation on, you know, on this topic. And I don't, I agree with Jason, I don't think it's okay for a model to just ingest all of somebody else's content, and have it be duplicated very easily. So for example, image models, I think are particularly vulnerable, if they're going to ingest every painting that someone's made, so that you can easily say, ah, you know, draw a sunset in the style of Mali and off it goes and creates a painting that's just like one that you have created. I would say that looks the weakest. You know, on the other hand, if sort of open loop generation becomes a big business, I think that can also be subject to attack. We are trying to, for our own reasons, we are trying to create a space in which A, we are being thoughtful, citations are mutually beneficial, but there's obviously a lot more to come as the big players get up to change their products.

Are you compensating publishers?

So we made an early commitment to compensate publishers. That was part of the whole subscription model. So, you know, we have arrangements with people like Quora and Medium, where we show their content on the search result page. So we committed to sharing 20% of our subscription revenue. We are a pretty small company. We have millions of users, but in terms of subscription dollars, we're going to hit like a million in ARR shortly, so we are pretty small. But there are informal arrangements already with publishers where we pay them a fixed token amount of money every month in exchange for the privilege to be able to show you know, essentially, these are right hand side panes that show more content than what would be deemed fair use. So yes, we've made a commitment, we are paying out small amounts of money, if we grow, this will absolutely become a more meaningful thing.

But will that be sustainable for every publisher? Or will you have chosen partners? And then will that sort of distort what gets presented? Seems like it could get messy in a hurry, huh?

100% can and will get messy in a hurry. Again, the rule that we have, we've actually talked about this, there's even an internal doc that we have about this. The nice thing is like, you know, part of the benefit you get from running ads for a decade is you sort of run into every policy problem that there is on the planet. So we have a document internally, for example, that says that we are not allowed to take into account whether we have a partnership with somebody when it comes to ranking their content, the ranking has to be organic. And things like an answer pane on the right hand side is more that's the consequence of the partnership, but it's not that we are going to that we are going to change the ranking. But I agree with you that this is going to become a complicated area.

And then other hard problems you have decided to tackle because you do not make your own life easy, involve content moderation. Now we're starting to have this question about what should be allowed to show up from these models, you know, to what extent content is moderated or filtered or censored, depending on what kind of word you want to use. Obviously, that has been a problem, certainly a policy to grapple with at Google for a really long time. How are you approaching that?

So roughly the way a search engine thinks about content is that a search engine's job is to present you with all the legal content in response to like a query from you. We represent the internet. We don't pretend that, you know, we know what is right or wrong, or that we know who is, you know, like whose position is better. So in that sense, it's a little bit different from say a hosted platform like Twitter and YouTube are often held to a different standard because they also host the videos that express these opinions. So a search engine in some sense is very much of show all the content that's out there. And by the way, European people who think about things like content moderation and free speech differently would be livid with us for showing response, this is Google. for showing responses to things like how to make a bomb. They're like, you're helping terrorists. And the answer from Google would always be like, hey, listen, as long as the page that tells you how to make a bomb is legal and can exist, it's our job to help you find it. We are not in the business of saying these queries are wrong. Obviously, this does not apply to legal things. But you know, hopefully, that gives you an idea of like, how does a search engine think about content moderation, we do not do open loop content generation. So none of the stuff that for example, you've seen an EY answer is something from language model that is not constrained to, okay, please focus on the content from these sites. This is what they say. Now, now summarize it for the new user.

Can you give us, this seems like a good place and probably that good place was 42 minutes ago, but to give us a baseline definition of open loop versus closed loop, is that the difference between generative and not?

So, generative AI is a broad term. It is used to, you know, it's used to refer to models that can like synthesize, generate content that has not existed before. Okay. I think the primary breakthrough in these models is that they understand language really, really well. I think a few years from now, while there is hype about chat GPT and Sydney and other things, I think what we are also going to realize is that these are amazing, like interfaces between us and the world of computers. So traditionally, like things like websites, they're hard to deal with, they want information in a very specific format, not help you if you like, you know, change the order of months and days when you're entering a birthday on some site, like they're very, I remember the days of Boolean. Yeah, they're very finicky. These models are much more flexible. And they are able to understand our input much better. They're also able to generate output that we can consume much better. They can also be used in a way where you just query them. and they will tell you about whatever topic that you ask them. What we do is basically constrained generation. That's what I mean by open loop versus constrained. Open loop is the model has learned once and you're treating it like an oracle and asking it questions. While in our case, as I said, we do constrained generation because we essentially fix the belief system of the model to content from a small set of pages and say, answer this question within this context. If you can't answer, say so. Don't try to make up facts.

I think it is a revelation to people that these models can make up facts. That seems like a thing that maybe not quite enough people realize that open loop means, you know, people are encountering these hallucinations where they're getting these kind of rants or machine freak outs.

Well, these models do not understand, as I said, they don't understand provenance. They don't understand what is right and wrong. They don't understand which site is more trustworthy than others. They don't really understand which author wrote what book. They might understand a little bit of it. So, there are language savants. I think it is pretty amusing what they can do if you just ask them questions. But it's like someone gave you a box that like knew all of the books in the world, but didn't like really understand it at any deep level. You're asking it questions, it's giving you answers. Sometimes it's right, sometimes it's amusing, sometimes it's horrifying.

And sometimes it's subjective. It feels like that's sort of the important difference too. Constrained models are going to give you facts. They cannot be subjective.

That's correct. That's correct. They're subjective. There are also all of these artifacts in how these models are trained that we don't even begin to understand. Now, we used to run in my ads team, we ran these massive machine learning models like in 2006. And it freaked out everybody that came into contact with that team, like how little we understood about what the models did. They were right on average, but it is impossible to predict any particular action that's taken. So it won't surprise you, for example, that Chad GPD will not write a poem about Donald Trump's accomplishments, but will happily write a poem about Joe Biden's accomplishments. And I don't think like the people that created the model understand why it does that. So these models are pretty mysterious.

But so they don't know why I want to this is a Jason point that I need to clip and take back to them. They don't know why that's happening. That was not like a decision by no engineer to say don't know.

It's like it could have been what they trained on, it could have been feedback data that they got like, you know, maybe there were poems of Donald, I don't know, there were poems generated and somebody pressed like the, you know, the thumbs down button lots of times and that made the model realize maybe it should not be generating those. We don't really understand that. But again, I think our obsession on sort of the strange things that these models can create, I mean, it's fine, but there are lots of really good practical uses for these models. It's a little bit like if you go back and think about evolution, clearly language was a big breakthrough for humans. All of a sudden, you can express concepts. Similarly, tool usage was a big breakthrough. I think what you're seeing with Neva, for example, is very much just like, oh, a language model. Oh, a tool. That's a search engine. Let's see what they can do together. But these models are now going to be integrated with browsers, with different APIs that can get you facts, with structured information. So we are very much at the beginning of what these can accomplish. I said, it's fun to look at them and see, oh, my God, they're saying crazy things. But I think it takes away from all of the practical uses that you can put these models to. And, you know, as a business, that's the thing that we focus most on.

I mean, I wonder, does it start to create a marketing problem for you if everything that you see, you know, an engine that looks a little bit like Niva produced is made up or somehow biased in someone's eyes? Or do you just think this is a long game and we will win it with accuracy in the end?

It must be kind of annoying. Yeah, it's a long game. And it feels very much like, you know, so much can happen in one week. Um, you know, all of this was super quiet. And then Microsoft came out with all guns blazing last week and they were like, they could do no wrong. And today Kevin Bruce writes an article about how deeply disturbing, um, interacting with Sydney is, um, it's, it's a wild ride. But as I said, there is so much raw power in these models that like for Vivek and me, every week, we are like, we can get more done in one week than we could have in like, three months of sweating it with the search engine even last year. So there's a lot of benefit that you can get from it. And you know this, you know, as a startup, you have to roll with the punches. If answers are a problem, then You know, we're going to rebrand as believable answers and work hard to earn that trust. These are things that you just have to be, you have to be reactive. We stopped, we used to make quarterly like goals. Early this year, we said like, no more than six weeks. The world is just like got a whole lot more unpredictable. You know, as a technologist, it's exciting. It's exhausting. But as I said, all technologies have positive and negative sides. We are focused on how do we actually use them to create better products. And you're going to see a lot of people do that.

What a fascinating time. You're right at the eye of the storm. Shraddha Ramaswamy is CEO and co-founder of Neva, found at Neva.ai. I think you should all check it out. Thank you so much, Molly.

Thanks for your time.

Alright, everybody got a really interesting story to tell. Y'all know Reddit, the great online community that's been going for two decades, and which might go public any day now. They've been planning on going public. And different subreddits, aka communities have gotten incredibly popular over the years. And there's explained to me like I'm a five year old or something to that effect. And you have AMAs, etc. Well, it turns out Reddit has been taking these community names, which are clever and iconic, and trademarking them. And this is unbeknownst, I think, to the founders of these communities. One of the breakout communities in the history of Reddit is Wall Street bets. I don't need to explain to you what that is. But I will anyway, the tagline like 4chan found a Bloomberg terminal, 13 million subscribers, they call themselves degenerates. And you may remember the meme stock frenzy, GameStop, AMC, Bed, Bath and Beyond, etc. It's a bunch of really interesting, smart, and perhaps not so smart folks debating the virtues of investing. Well, it turns out the founder of Wall Street bets, who deserves credit for the name is on the program today because he's in a lawsuit with Reddit over who actually owns the name. Jamie Rogozinski. Did I get it right?

You did Rogozinski. Yep.

Rogozinski is on the program. He's the founder and creator of Wall Street. The Wall Street bets subreddit. You started in 2012. You got kicked out as a mod in 2020. And now you're suing Reddit. At the time you created Wall Street bets. Did you have an expectation this was going to be like a big business or something? Why'd you create it?

No, I did not expect it was going to be a big business. I've spoken about my incentives or at least my motivation around the time when I created it. This was around the time that the financial crisis was over with. I had lost my job directly because of the financial crisis and I was working in Washington DC at a big bank and I was walking past like this Occupy Wall Street movement every day and I'd see like these tents or whatever and people were occupying like proxy. Obviously, there's no Wall Street in DC but I do remember that the wounds were still fresh from having been unemployed for a while and feeling that helplessness of just not being able to be in control of the system, right? Like of being helpless in the sense that you have these institutional... I mean, I'm not going to rehash the story, people know it, right? And I was just upset about it. So I'm like, look, everyone's talking about how Wall Street, they're insulting these banks because they're treating Wall Street like a casino. There's no rule that says individuals, retail participants can't treat Wall Street like a casino. So I said, all right, well, if you can't beat them, join them. Let's go ahead and Let's go ahead and start using Wall Street like this. High risk, high return. I'm going to start using some of my disposable income. At this point, I have a really well-paying job. I'm single at the time. I'm able to take on a lot of risk and I decide to figure out how the stock market works so I can accept that risk, hopefully make a lot of money, being irresponsible with it just the way the banks were because they were able to make a lot of money with it and stash away some money so that that doesn't have to happen to me again if they are irresponsible and crash the system. And so in doing that, I figured, hey, let's bring on some like-minded individuals that have gone through something similar and we can all go through this together, have fun, learn, enjoy the ride. And it turns out that there was a lot of like-minded individuals and so it took on a life of its own.

So spend the next almost decade building this community on Reddit. That's right, becomes iconic and important in the world. When did you first realize this was an important place? what are the milestones of the wall, the or WSB, I guess people refer to it as? What are the major milestones here? We all know GameStop and AMC. But were there other milestones where you saw WSB having real world impact on equities and stocks and how the markets operated?

There were, you know, and for a lot of people, when they hear wall street bets, they obviously think GameStop. It was a big, uh, uh, for most people, it's the first time and probably only time they've heard about wall street bets. And it makes sense, right? Because it's a very niche community. It's very finance centric. Uh, you know, the only time that CNN covered wall street bets was during GameStop. That's the only reason why they ever would cover something like wall street bets. Uh, outside of that, they go back to covering the normal stuff. Um, But WallStreetBets was never about moving stock prices around. There was a lot of milestones throughout the way. So this is a community of people that are, once again, the incentives are, let's try and make money. Let's try and take on risk. Let's try and find advantages, inefficiencies, competitive advantages that we can exploit for our own benefit. There's lingo that gets used on WallStreetBets. It's funny. It's easy to understand. Sometimes you see Bloomberg actually trying to decipher it, but the concepts are finance concepts. It's known as arbitrage. When you find an inefficiency in the system, you say, hey, looks like looks like there's an error, but maybe it'd be a pricing error or maybe it'd be like some type of an asymmetry. You can say, we can actually take advantage of the way that this thing, this mechanism works out and we can profit from it. There's been a lot of examples. This sounds abstract and I apologize. I can break it down in many examples that are simple. GameStop is one such example of that. How does that look like an arbitrage opportunity? Well, If you have a lot of people that buy a thing, the price goes up, that's supply and demand. And so the arbitrage comes in in many forms. That's a lot of us and it's few of them. So even if we don't have a lot of money, if we purchase the thing, then it goes up and then we can start doing it. But it's a lot more sophisticated than that because then they go, well, we're still not enough to be able to purchase. We don't have enough money to actually push the stock high enough. So we'll wait for it to be shorted a lot. You need a high short flow so that it has a higher propensity to... It magnifies the effect. Once again, I'm not sure how technical your audience is, but it's one of those properties that makes it exacerbates the price moves. And then they said, well, we want it to even be worse. We want the price to even be more exaggerated. So then they take on these things that are called gamma, delta, they use stock options. to make it even more exaggerated. So that's how you take a price to go from $20 to $500. They do a lot of little things and they do it because they can get away with it and they understand the market well, but they've done other stuff. So I know it's a long-winded answer, but I've covered a lot of different things as far as the mentality is concerned, as far as what the incentives are concerned, as far as how the culture... These are people looking... You're talking about it as a casino, right?

That was the origin story. They want to make money.

They want to have fun. They use GIFs. They use memes. They use... They make fun of each other.

my way, would I be correct in saying they look at this in a way like somebody might look like going to Vegas and playing in a poker tournament or blackjack or betting on sports. In other words, it's partially entertainment. And it's partially a pastime. And it's partially to make money.

It is. That's exactly right. Yeah. And it's going to be a little bit like going to Vegas with a big group, and then you'll have the group that sits down and actually knows how to count cards. They'll sit down like the blackjack table, or you'll have the ones that actually know a lot about sports. You can play sports and say, Hey, look, I'll just bet on whatever, like the sports team that you want and the number of touchdowns with the spread. You have individuals that know a lot about the statistics of the sport and baseball. I know that has a gazillion things that you can go off of. And there's people that just say, I'll enjoy the ride. I got 50 bucks on the team over there. Right. Uh, or you could, or you have a lot of the thing, you have the social component of it, where it's like, well, I don't know anything, but those people are doing that. So I will do what they're doing. Right. I'll have what they're having. Uh, there's that component as well. That's like the craps component. Right.

And there are some really smart people that you've met as part of this community. There are people who are quants. There are people who are just master strategists and everything in between.

They're extremely sophisticated. That's one of the ironies behind Wall Street bets. Wall Street is always hidden behind a veil of sophistication. Like, oh, no, no, no. You don't know what you're doing, son. This is complicated stuff, these derivatives. You just give me your money and I'll handle it for you. And they're right. I don't mean to fully make fun of it. It is complicated stuff, but it's not. If you want to get your CFA, your certification, it's mostly jargon. It's just words with lots of syllables in it. The concepts behind them, they're not that tricky. So WallStreetBets is like, you know what I'm going to do? I'm going to say what you said, but I'm going to say the word YOLO.

Diamond hands, all-time high, due diligence. Exactly.

Or Buffett is diamond hands, right? That's the same thing. It's just more, it's palatable when it's like done with a picture.

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Well, let's be clear. You just said all those things, not me. I'm in a lawsuit right now. So I have to be really careful since you used a lot of words there. So I can't just blink and say yes to all of those things you just said.

So let's do a piece by piece here.

Tell me what happened. I'll explain. I'll explain what like Reddit is a place where people come with their ideas, right? You go to Reddit. And you say, I would like to participate here. And Reddit says, okay, not a problem. You can participate any number of ways. You can read, right? And you can just click on stuff. You don't need an account for that. And so you consume information. And that's that. So it's hardly interactive. And you're able to digest stuff. So that's that. And there's not very much to it. If you actually want to participate, that's where it gets more interactive. You have to create an account, and there's only one way to use an account. You sign up and you click, you pick a name, pick a password, you agree the terms of service, and then you're good to go. Those terms of service then define, say, okay, you have to abide by all these different rules, and then you click yes, and you're good to go. Then you start contributing, right? In many which ways. You can contribute by creating a comment, right? If somebody says, here's a picture of my dog and you say, here, this is what I think of your dog. It looks like whatever, right? And you create a joke out of that. Or you can create a post, right? Because you go to a community about where people talk about dog pictures and then you create a post and you say, this is a picture of my dog. What do you think of Or you can create a community of people that talk about your dog, right? So it's just... It's all within that same scope. And that's how it works out. This is a typical social media place where they're like, here's my servers, here's my formula, you can use all these things. And that's the typical Reddit framework. And they're subdivided into these little categories. And it's entirely run by... Sorry, it's entirely... The content is entirely generated by the community, right? So from the comment... And then once people submit their contents, then the community can then decide to... They call the upvotes and downvotes. It's the same thing as saying like or dislike, right? Twitter has similar things. Facebook has... Every social media platform has some kind of a ranking. scoring type thing where if something is extremely popular, it gets more visibility. And therefore, when people come to consume the information, the stuff that people tend to agree with gets the most visibility. That's the general formula for it. that's how it's set off. I go to Reddit with my idea. I come up with the idea of WallStreetBets along with the name, along with the original framework, with the original post and try to get everybody to come on board. And I grow it and I nurture for many years and I'm, you know, involved with it for however long it is. And yeah, and then eventually get kicked out. And then eventually, I am prevented from taking that idea with me, right? So, there's a lot of things here that are at play. And this is kind of the crux of the loss. And this is the part that has It's easy for armchair spectators from home to narrow down to different components of it. But the part that I like to point out is I came to Reddit with an idea. I create my content on Reddit. I get removed from Reddit and I am prevented now from taking my ideas with me. And I am not alone with this, right? I've been accused of writing a book and breaking the rules because of those, selling my book on Reddit or promoting it or whatever, and doing a stock trading competition. There are many other people who have also been kicked out of Reddit. all of which have different circumstances. I believe I'm the only one that wrote the book and I believe I'm the only one with a trading competition. But I do believe that Reddit has trademarked and prevented these people from taking their stuff with them as well. I know for a fact that there is at least one other individual who got kicked out after he trademarked his particular community and he didn't write any book. But it's a weird situation that I don't understand because social media companies rely on content creators. There's this symbiotic relationship between, hey, here's my platform. I'll give you traffic. I will pay for the servers and I will pay for people to come here. I'm going to give you lots of neighborhoods and it does work. I recognize that symbiotic relationship. WallStreetBets grew because of Reddit, Reddit grew because of WallStreetBets, makes sense. YouTube grows because of, you know, Logan Paul or whatever, and Logan Paul grows because of YouTube, right? But at no point, you know, like, if YouTube kicks out Logan Paul, they don't keep his brand and his followers.

That's the thing that's a little confounding to me. But one example, I would bring up the Joe Rogan experience podcast, obviously has a subreddit probably has a couple. they don't get to own Joe Rogan's IP, because they created that. And it would be kind of strange if the Joe Rogan team could not participate in that. So it seems like because there wasn't a previous website, I guess I'm interpreting Reddit's have an identity crisis, right?

They have an identity crisis, because I don't know what they would say. I'm left with that question. I'm speculating, right. But I would be I would be tempted to guess it's speculating that they would say, well, that was a brand that existed before. If it existed before, then it's fair game. You know, we don't have its comments, you know, like, But it's weird because it's not part of their framework. So, if that were the case, then it's still kind of a weird situation because then you've got a business where you're harvesting intellectual property only when it's not protected. And so, you're setting that expectation where people have to go to their – they have to lawyer up before they actually create their content, which is prohibitively impossible. Nobody's gonna do anything.

I mean, there's also a concept of fairness here. I mean, if I created the Goldman Sachs elevator, or, you know, some other iconic Twitter handle, history and pictures, I don't know what you know, or some Instagram handle, would Instagram want that handle, which is subreddit is kind of like a handle, it's different, but it is a similar thing. the name of the community, would there be an expectation that Twitter could take Goldman Sachs elevators handle and say, you know what, this is our IP. Now, we're gonna make the Goldman Sachs elevator, but Reddit has said they don't want moderators to go monetize. And when I looked at the complaint, they told you they were kicking you out as a mod, because you were trying to make money off being a moderator.

Yeah, but it's like a weird thing, right? I don't understand that. Because In the complaint, it also states that everybody else makes money being moderator. And there's a screenshot in the complaint where they say, here's the link to the book that I was monetizing. And in that same screenshot, there's the T-shirts that the other moderators were selling T-shirts with. And those T-shirts were being sold for years prior to my book and for years post my removal, right? Yeah. Like, in other words, monetizing the community seems to be like this really strange selective thing. And it appears to be that you could, you know, it appears to be the fact that I was behaving as if that brand belonged to me. That was the actual infraction, right? Because those other moderators that were monetizing that subreddit forever, before, during, after my removal, never tried to possess that brand and actually try and own it and try to take control over it. And so they never posed a threat. So that's the common denominator because I've seen an infinite number of brands in subreddits and moderate, but I don't even try and stray away from it because it's enough to say, it's within my same subreddit, it's within Wall Street bets. that the same moderators were monetizing it. So I don't even have to use, you know, like examples of saying, well, the thing is that that was Fidelity Investments. They're a- What is your goal? No, no. Wall Street bets. Yeah.

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There's lots of things that I consider success. Reddit knows of things that I consider success. There's a lot of things that are in factually incorrect, some of which you just cited. I don't know where some of it is. It's interesting to think about the news that like you have you have some sources. I've always been aware that sometimes like the news gets something wrong and then everybody just kind of takes it. And it's like, And it's weird because I can't go out there and correct it because by correcting it, then I'm actually making statements that I then have to stick to. You know, it's Reddit knows. We've been in talks for years. Here's another thing that's kind of tricky, right? Reddit comes out of the flying gates and says, look at this guy lining his pockets waiting for the IPO. Three years he's been waiting in silence, right? Like how convenient. It's so funny to me because it's like, dude, you really want to play this card? Reddit... The moment that Reddit could oppose my trademark application, the instant they could oppose it, they started opposing it. So I've been in court battles with them for years and years and years. And I've just been moving about my life, building my career, doing all sorts of different things and projects and just trying to move on and racking up my lawyer fees. And out of nowhere, last September, something changed with them. They're like, yeah, we're just kind of tired of this anymore." And for some strange reason, they're the ones that got in a hurry. They're like, we'd like to just kind of speed things up over here. We're just trying to tie up loose ends. And so, they're the ones that decided to take me to the trademark court. So I said, hold on, hold on. Okay. Now, you're in a hurry. Now, I've been trying to say this for years. This is mine. And this isn't cool, right? Anyways, and so, you know, so then I ended up reaching out to them. And I said, I still have a lot of issues. And a lot, you know, I suffered a lot of damages, a lot of grievances, we need to figure this out, people, you guys never reached out to me for clarification, or comments or anything like you ghosted me entirely never gave me a valid reason for my removal, like it's just, and, and they just, you know, anyways, so I so I said, Alright, well, If you really want to do this, if you really want to go to court, we can play this game. But I'm going to give you another chance. Let's go mediate this thing. I don't want to do this. And I swear, I look forward to the day that we go to court because then I can actually show everybody how much goodwill I've had throughout. So you try to settle this with them amicably? You want to know how good I was behaving? Reddit has this rule that said you're not allowed to use alt accounts, right? You know, alt account is like where you can do, you know, you have two accounts. Yeah, sure. Yeah. Okay. Everyone has. I refused to use an alt account on Reddit. Not that I had much interest in going there in the first place, but I'm banned from Wall Street Bets because the moderators banned me. So I can't really do anything there anyways. But I was like, you know what? I'm going to play nice. Because I'm hoping that at some point, I can show Reddit I was behaving nicely. And and they'll understand, like, I was on my best possible behavior. I have access to the media, I have access to like podcasts, I have, I've had an opportunity to really air my grievances publicly, and I chose not to. And.

And so what so I really easy solution here might be, hey, we both contributed in some way, we were the platform, you were the content. hey, let's come to some sort of arrangement. Here's some equity, but I guess I would open them up to a large number of people doing this. It's a fascinating case. When does it go to trial?

Is there a love? What I would love to understand is at what point Is it not beneficial to have our interests aligned? Like, I don't there's there's so many things that are just counterintuitive that just don't make any sense.

They're trying to make a business, right? So they started doing explain to me like, I'm five years old. And I don't know if there's an equivalent. But now they have me pissed off.

Right? Now they have me fighting them.

And when's the trial date? When do you think this goes to trial?

I have no idea. Like, but you're willing to go all the way?

Are you willing to go all the way?

I'm willing to go all the way. Absolutely. Look, I, I'll put it to you this way. Uh, you know, like, let me just finish that previous that way. I said, when we're ready, it's like, I'm just trying to do a cash rack. I'm willing to wait until after their IPO. I'm not sure that they are willing, but like, when it comes down to this, I've waited three years patiently. I will wait another 30 years patiently for this because of what I'm doing is like, what I'm doing is right. Like for what's right. I've moved on with my career. this is my baby that I care about, right? Like, and so I will go all the way 100%. And I am nowhere near done. You know, with with regards to this fight, right?

There's, there's, well, this is going to open up a large number of other cases. So they would be it would behoove them to settle this and make it clear on the website, who owns what?

To say the least, yes, that is correct.

All right, Jamie, we're going to monitor this. Thank you so much for coming on the program. And we'll see you all next time. Bye bye.

Andrew Hart is co founder and CEO of hyper, which was formerly known as dent reality. And it's an augmented reality platform intended to introduce indoor navigation and retail stores to save shoppers time. Welcome. And did I get that? Right? Yeah, yeah. Perfect. Amazing. Okay, well, so first off, I guess, in your own words, tell me how this works. This is like the holy grail of efficient shopping right here.

Right? Yeah. I mean, like, maybe I should start with a bit about my background and how I like got into the space in the first place, please. The technology itself is really interesting. So I got into augmented reality, which is kind of the thing that powers under the hood. I got into that in the very early days. like do you remember when people were doing those kind of novelty experiences where you would hold up your phone and there'd be like a giant shark or whatever i did them all totally right exactly yeah that's the time when i got into it and people were doing that kind of thing and i think that was kind of like the GeoCities version of AR. You remember GeoCities when people would do fancy homepages? And that's fine to start there. I was always really interested in the potential of augmented reality as a technology, looking like 10 years in the future, where you've got virtual screens. If you can take technology beyond the screen, and you can do virtual overlays of information on all aspects of daily life. Imagine virtual screens with context on the real world, sort of like a like an upgrade for the real world experience. And that's kind of what I've always been super interested in, is that feature and how we get there. And so I started in AR, and I basically pioneered AR navigation. And I did that for the first time, and I started putting videos out, which a lot of people have seen, and created the largest open source project for Apple's ARKit. And that technology is used by Google Maps, Apple, Uber, and a handful of others. And so what we're doing at Hyper is really like a 10x version of that, right? So if we're looking towards that big feature of virtual overlays on the real world, and we want to take a big piece of that pie, we want to build the infrastructure to enable all of that interaction to happen. And so we're thinking about today, and we're thinking about, okay, how do we get started today on mobile? How do we bring this to businesses like retailers, offices, airports, conferences, there's so many different applications. And it turns out there's some core technology challenges there. First of all, how do you map all of this information? But actually, one of the more interesting ones is our key innovation that we've made is how do you get hyper-accurate indoor location? And that's something we've went super deep on. It's incredibly important to enabling all of this stuff. And so that's what we've done. We've built that technology. We're building it as a mobile-first experience. I think when a lot of people think about AR on mobile, they imagine stuff which is designed to simulate a headset or wearable. But actually, I think what you want to do is you want to build a really great experience for mobile first. And so we've got maps and AR and a bunch of things that work incredibly well together because we've done real research and development and how to build that into a great user experience. And we found incredible demand from retailers who want to bring digital interaction experiences into their stores. And so right now we're working with some of the biggest retailers in the world, some of whom we can't talk about because some of these things haven't rolled out yet, and they like to save the surprise and stuff like that. But yeah, we're having a great time.

Alright, so I have a whole bunch of questions to drill down. The primary question being this indoor mapping and precise location indoors has always been the bugaboo, right? There have been attempts to do this before and it's always just like, you don't quite know where you are. Yeah, exactly. How have you nailed that part of it? Because without it, it's like speech recognition that's 90% good, right? The 10% is what makes you sound.

A little crazy. Yeah. Yeah. I mean, when you look at a lot of the history of the space, a lot of it has been stuff like beacons, like Estimote and a handful of other companies. And Google and Apple also have their indoor location or indoor technologies. And those are about all of that entire area. What we found is everything is about five meters of accuracy, which is about the same as if you imagine GPS, right? If you walk out of the subway and you see yourself on the street and it's like It doesn't even know which side of the street you're on. So if you imagine applying that technology to a retail store, where you have to know which aisle you're in in order to serve up a relevant experience, it just doesn't cut it. It's not accurate enough.

It can't be five metres from the bread.

Yeah, 100%, right. And there's no way that you can serve up a useful user experience. And so that was really the first thing that we looked at. And what we've done is we've done years of research and development on basically combining augmented reality and the high precision motion sensors that you get from AR with Wi-Fi. So we can use the Wi-Fi to triangulate, and then we can use the augmented reality to really hone in your location. to get it hyper accurate. And so that's what we've done. And so we've got location, which is five times more accurate than anything else out there. When we put it in people's hands, when you see the videos that we put out, you can tell we've also put a lot of work into our user experience to make that a really smooth and elegant user experience. So when we actually try it with customers, and we ask them at the end, okay, well, how accurate if you had to say how accurate it was? people go, well, you know, it was effectively perfect, right? They don't notice any inaccuracy or any kind of jumpiness with the experience that you might get with GPS, because we've put all of that effort into the user experience. And so we're just so far ahead of other people in that space with that technology.

One of the things that's remarkable, too, is that the experience on the phone transitions from a map to literally as you lift it, And, you know, there's some gyroscope magic happening in there. But as you lift the phone, it just seamlessly switches from map to AR and you just sort of follow this line exactly to your cup of soup.

Yeah, so that was one of the UX things that we've invented. I actually think that as we see more of these experiences over time, that's going to be like pull to refresh, right? Where it seems so obvious when somebody does it. And yeah, we've built this really awesome mechanism. You hold the phone upwards, and the map drops down. You get the camera mode. You bring the phone back down again, and the map flips up to full screen. Yeah, if people haven't seen it, I'd highly recommend. I always find these conversations are so much more effective when people have seen what we build. So if you go onto our website, hyperar.com, I'm also on Twitter, Andrew Hart AR, if you can spell my surname. But yeah, I'd highly recommend just looking at my pinned tweet, which has a video of the technology because that's where it really comes to life.

So who is the ideal customer here? Like, I'm an efficiency minded single mom, I want to get my shopping done fast. But is it just me? Or do you imagine that this is something you could license to every Instacart shopper?