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It's just really interesting to think about luck and skill, and if you really are humbled, how much luck there is in the world and in whatever pursuit and domain you're doing, then it opens you up to the possibility that there's randomness and optionality and you try to maximize that as cheaply as possible.

[00:00:22]

Hello and welcome. I'm Shane Parrish and this is the Knowledge Project, a podcast exploring the ideas, methods and mental models that help you learn from the best of what other people have already figured out. Unmourned Step to date F-stop Blogs Podcast. This conversation is with Josh Wolf, a founding and managing partner. Lux Capital in New York now is a VC firm, but not your typical PC firm. They spend most of their time in the hard sciences.

[00:00:49]

Josh is a believer in the idea than inventing the future is the best way to predict the future. As you'll see in this conversation, Josh is exceptional. We talk about learning, finding ideas, information processing and our shared interest in old school rap. Let's get started. Before we get started, here's a quick word from our sponsor. Farnam Street is sponsored by Medlab for a decade, Medlab has helped some of the world's top companies and entrepreneurs build products that millions of people use every day.

[00:01:27]

You probably didn't realize that at the time, but odds are you've used an app that they've helped design or build apps like Slack, Coinbase, Facebook Messenger, Oculus, Lonely Planet and so many more. Medlab wants to bring the unique design philosophy to your project. Let them take your brainstorm and turn it into the next billion dollar app from ideas sketched on the back of a napkin to a final ship product. Check them out at Medlab Dutko. That's Medlab Dutko.

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And when you get in touch, tell them chainsawing you. Josh, I'm so glad to be here with you today, man, Shane. Nice to be with you. Can you tell me a little bit about what looks capital does?

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At root, we are trying to find brilliant people and back them and get really, really lucky. I mean, if you think about it as a midwife, we raise money from endowments and foundations and wealthy families and individuals, and then we deploy it into people who are inventing the future.

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As the old adage goes, that the best way to predict the future is to invent it. And then we are basically trying to figure out who's full of shit and not and who is real and who is faking it. And we try to deploy money to the people who are real. And typically there are people that we're drawn to who have irreverence and slight arrogance, and they have a conception of the world that some people would conflate with arrogance of the highest order.

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They basically say this is the way that the world ought to look. And I disagree with the consensus. And then we try to find those people and back them and give them the resources that they need to recruit and raise further money and execute on some plan. But we, in essence, are trying to fund the future and trying to bet against the past and find the people that are inventing it.

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It sounds like that's an almost an investing issue.

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But when you think about a large part of our lives are spent trying to distinguish between people who know what they're talking about and people who don't and people who sound like it, look like it and feel like it, but aren't the real deal versus the people who are the real deal. How do you go about separating the people who know what they're doing from the people who are just being you?

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Well, a big portion of what we do, our fun scientists and entrepreneurial scientists. And so you have a mechanism which society has evolved over hundreds of years where you have peer review and you have publications and those serve as a filtering process to determine is something just a hypothesis hypothesis or was it observed and tested? And you actually have conclusions and evidence. And so anybody that is coming up with a claim like, you know, this market by 2025 is going to be, you know, this hockey stick projection.

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I mean, you're extrapolating into the future. And the crazy thing about venture capital is you often have no priors. You have no prior comps that you can look at because the most important companies that are going to exist never existed before. And so you're trying to figure out, extrapolating from the recent past into an unknown future, you're trying to look at science, which itself is real, because you know, the number one question, it's amazing when you talk to some late stage growth investors, they go into companies and they say, what's the company?

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What's the question that I should be asking of this company? And the number one question is, does it work? And you'd be amazed. Intelligency, how many big investors fail to ask a simple question like, does it work? So we have the benefit where we have a bias toward scientific entrepreneurs. And those are people that are generally rigorous. They're inventing something. It's patented, it's peer reviewed, it's replicable. And so it's not B.S. And if you look at some of the frauds in our field, you know, typically with all of those things, right.

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It was not exactly I mean, that was, you know, the iconic one in this book, Bad Blood, which details it salacious.

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I just I just finished an amazing sort of story.

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But what's amazing about it is I always say technologies change and businesses change and markets change, but human nature is a constant. And so it's interesting because in the early days of WLOX, I really believed if we had an edge in understanding something technologically that other people did not understand, we would have an advantage. So whether it was nanotech or advanced materials or something in chemistry or something in semiconductors or understanding solid-state physics and what it could imply for energy dense, all that's important.

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But what really matters is understanding human nature and psychology. And so 90 percent of our successes and 99 percent of our problems in our companies are us playing armchair psychologists and trying to diagnose why is this team not effective? Why is the CEO a narcissist, you know, and and trying to find ways to ameliorate the situation or edgett towards a way that we want to go. But it all comes down at the end to these two legged mammals, these people and psychology.

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Let's go back to that for a second, because you operate in one of the most competitive markets in the world. Everybody wants to get an edge and understand it like everybody out there trying to do that. What are you doing? That's different?

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Part of it is understanding first of what is everybody else looking at? And then you try to find the whitespace space. What are people not looking at? And I would argue public markets have had a lot harder because you have a universe of companies, those that universe of companies is known, and then people are basically diagnosing whether something is undervalued, overvalued, if there have higher expectations than what the fundamentals support. And and and that's relatively, you know, inefficient market.

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In venture capital, it's a really inefficient market because there is no known universe, you and I could be talking in a private room and we could decide that we're going to start up a company tomorrow and nobody else knows that information. And in fact, if you accept that premise that the best way to predict the future is to invent it, the people who are inventing it are asymmetrically distributed. So there's a scientist or a group of scientists in a lab or there's an entrepreneur who teams with a scientist.

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And my job is to find those people and persuade them that I'm the best partner as they persuade me that their science and vision is real before everybody else does. And so we always say even in venture capital, which you could argue is the most lemming like field that there is. Right. You see, one company gets done and then there's a hundred followers. We're trying to find something that we think nobody else has discovered or found. And we actually, even though we view ourselves contrarian, we want to we want people to agree with us just later.

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And so it's really finding these people asymmetrically distributed and then being the midwives to get it out to the masses later,

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And you find them through the publications, the journals, the how do you how do you not like somebody who's great at science versus like running a business?

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Or do you partner them up with people or.

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It's a fascinating question.

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So on the business side, you are generally you get to observe people who are great operators and there there's some pattern recognition and you have a network of people who can triangulate and diligence and tell you, OK, they're a horrible manager, but boy, are they a great communicator. They can really raise money, but they can't deploy it well. And so over time, you develop a cadre of people who you trust that are operators. Now, that said, some of the greatest entrepreneurs in history never ran a business before.

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Right. I mean, Steve Jobs or Zuckerberg or Bill Gates or Larry Ellison like that was their first foray and is just have this founder passion and, you know, right place, right time, brilliant technological advantage, whatever it was. But on the scientific side, you're looking for sort of the informational surprise right now. There's a, I think, correlation between people who are very prodigious. They're putting out a lot of papers. They're doing a lot of research.

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They're doing pretty cutting edge, non obvious things. They're not just trying to get grants, but they're trying to really, like, make a name for themselves. They're driven by the same virtue that they want discovery and all these sort of benevolent things. But they're also driven by the greed and ego of reputation. And if you find those people, they tend to be the aggressive postdoc and some other famous scientist lab because they navigated to that. So, for example, Bob Langer at MIT is a prodigious output of PhDs who are very commercially minded.

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This is a guy who has made hundreds of millions of dollars, created billions of dollars of market value in companies and attracts postdocs that want to be like him. They want to be rich. They want to be renowned. So that's a great vein to tap.

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And there's probably a dozen such scientists in the world, in the country where that you in the U.S., where you can go and find these people and the postdocs and where they sort of traverse to and find that diaspora and develop relationships with them, stay close to them. They, in turn, are going to attract the postdocs who are going to want to be like them, rich and renowned. And it becomes this fountain of opportunity and innovation.

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You mentioned something, that response that really struck a chord with me, which is patterns. What are the patterns of success?

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It's successful to people, successful leaders like are there commonalities?

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You know, post facto, it's easy to find these patterns. But apriority, sometimes I think it's like what I call randomness and optionality, which defines so much of what we do and so much of my own personal life patterns.

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Somebody that is a great storyteller is really good for a startup business because they can recruit really well. They are telling a story where you meet with that person. And one of my partners used to call it somewhat inappropriately the Pampers effect. You're like wetting yourself like, oh my God, I need to I need to join this person. I need to invest with them. And you it's one of those things like the Justice Stewart Potter definition of pornography. You know it when you see it,

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you can't define it.

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But you just you have this palpable sense that this person has something special.

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Right.

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And you can see that they're talking to Person X and person X is going to go home to her spouse and say, oh, my God, I need to join this person. And you can sort of predict that. You can predict that you put them in front of a sophisticated investor. This person is going to get them to part with their money. And so that is one pattern, which is, I think, great storytelling ability.

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Now, it's very hard in the early nascent embryonic stages of a business to really and I'm being intellectually honest, you know, if somebody is going to be an absolute genius or total fraud because the best storytellers are also the best con men or women as it wasn't Theranos.

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And so I think it's really important to pass that. But that definitively is a pattern, amazing narrative storytelling ability that captures all of the best and worst things about humanity. It captures our aspiration, our virtues, our sense of status, desire, greed, and people that are able to tap into that, who understand people I think are really influential with people are almost always predictive of great success.

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If you can't predict to the star and you go into this with optionality and randomness, which I like that approach, I want to come back to that, especially in your personal life.

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But if you can't to start, what are the signs as you're you're working with these people are going along that it's they're not who you thought they were or what are the patterns that are emerging that are, you know, reducing or increasing the odds of failure?

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I guess

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I'll give you one.

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And this is in a few instances, somebody might be a great storyteller. They might be a great pitch person. And so we meet them and we spend an hour or two with them and and we're really persuaded, wow, they can tell a succinct story. They can get people really excited, but we don't yet know how they operate a business. And you can start telling very early on, if somebody is a control freak now, somebody would be a control freak either because they're not hiring well and therefore they don't trust the people that they're working for, because if they do, they would delegate to them very frequently.

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But there's other people that want to be involved in every decision, they want to control every decision. Now, if they do that, it's either because their standards are so high and again, they don't trust the people or they've got something to hide and they're trying to control the information.

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That's interesting.

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And so I think it's really hard to tell if somebody's going to be a control freak or not. You can get little clues of that in a presentation.

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If somebody is there with three people presenting to us and they do all the talking and they are talking for the other people, it's usually not a great sign. If somebody sort of steps back and starts lauding, let's say CEO is the founder and they turn to their CTO and they say, oh, my God, she's incredible. And then just hand the floor over.

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That's a good sign.

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Any other signs that somebody would be a control freak or any negative signs that you look for, that you get a hint of through presentation?

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I have a really politically incorrect one which is going to older CEOs that by choice, not biologically, because there's a big difference. Never had children. I find that for whatever reason, they tend to be very controlling.

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Now, my sample size here is like five of five in, you know, CEOs, CFOs, people who were at a variety of our companies that were over 50, never chose to have children. And I find that you maybe never experience the humility, you know, maybe never experience the the fact that, you know, I mean, you've got kids, you grow up with them, you see them. They could be like little terrorist, right?

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You you can't control them. They act irrationally. Well, sometimes your suppliers or your vendors or your employees or your investors or your board act the same way. And there's something that is very humbling about having children that I find that the best operators tend to be able to manage their employees better when they've managed their kids well.

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How is the Josh I'm sitting across from right now different post kids than the Josh? I would have been interviewing pre kids,

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probably a little bit more patient.

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I would say on the spectrum. I am very impatient. You know, people here joke that I have this little lip curl and you can sort of read my impatience or if I'm in a meeting, I unfortunately have a terrible poker table, which is this deep sigh, which is basically signaling my partnership will laugh because they know, OK, Josh is done with this meeting, you know, but but I would say patience, because I think I'm a reasonably intelligent and influential person and being able to persuade somebody of something.

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But geez, when you have an eight and a half year old and a six year old and a two and a half year old, and you're trying to get them to do something, you can use every tactic that Robert Cialdini has come up with in every tactic from Mongar and every behavioral psychology thing you've learned from cornerman. And you still get tantrums and crying and dogmatic, you know, intransigent kids. And so a little bit a little bit more patience.

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People with their kids laugh when I tell them I get negotiated by my eight, nine year old, like, on a regular basis.

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And not because they're necessarily that's sophisticated. They're not using tactics of like, you know, I know.

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Dogged persistence

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and just like a willingness to totally embarrass you in public and scream and throw a tantrum. And by the way, when they do those things, they do them because it works.

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Yeah, definitely.

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I try not to to give in to that stuff. Talk to me a little bit about randomness and optionality and how you use that at work and how you use it in your personal life.

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So a lot of this is a post facto, intellectually honest observation, which is, my gosh, so many things that have happened in my life, for better and worse, are largely outside of my control. And so, you know, you always have that sort of overlapping, stoic mindset.

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Right, of of what are the things that matter and one of the things that you actually control. And that's where you should focus. But I look at the circumstances post facto of how probably the most important decision in my life, which was meeting my wife and her agreeing to date me and marry me and, you know, choosing to have kids, the circumstances of where we lived, timing, you know, sort of the the old sliding doors, you know, phenomenon and all the counterfactuals that could have been that could have happened.

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And so when you look at the panoply of things in life, there is so much randomness. And of course, you have to be smart and when you see an opportunity to seize it. But there's so many things where just a a chance meeting or somebody that you're meeting with who is in a good mood or a bad mood, you know, it could have been a totally different situation on a singular pivoting turn of events, one fulcrum of an individual.

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So I look at this. There's nothing in my life that apriority would have predicted that I would have met this guy, Bill Conway, the founder of the Carlyle Group, who would have put us in business. And the day that he put us in business, I believe he was in a good mood. He could have been in a terrible mood. He could have gotten bad news. He could have been meeting with me and said, you know, what am I doing?

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I mean, with this young guy, I don't have time, you know? And I've been in that right. I've been in that situation where I'm distracted. I've got something else on my mind. And the person that I'm sitting across from is suffering from the misfortune of the circumstances of that moment. And there's other times where I just ate a great lunch and I just had some chocolate and caffeine and I'm feeling great. And I just got a great news from my wife about something else.

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And and I'm going to ebullient mood and it's totally changed. The circumstances has nothing to do with the person that I'm sitting across from. But the circumstances are just in their favor at that moment. And you see this you know, there's there's empirical evidence. I don't think it's pocketful of judges and the fate of people who are standing before judges, before or after lunch and whether the judges are cranky or whether they're well-fed and and sated. So so that's one thing, which is when I look at the at the post facto circumstances of my life, ex post facto, it's this perfect linear chain of events.

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But apriori, you never know you never know the person you're sitting next to on a plane. You can sit there quietly or you can strike up a conversation. And it might turn out that one of the topics that you talk about is relevant because their brother in law's friend is actually the exact person that you need to meet. And you never would have known that. You know, so meeting my wife, meeting our first big investor who really changed our life, even across the portfolio, I have this phenomenon that I call 100 zero one hundred.

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And it's an interesting observation that is a mix of arrogance, certainty, total uncertainty, humility, ambition. And you put all these things into this framework. What it basically says is it's different probabilities. The first probability, 100 percent is the arrogant assertion. I'm 100 percent certain that Luks will be investing in the most cutting edge, crazy stuff that you can imagine over the next two years. The zero that follows is I have zero percent certainty what those things will be.

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No idea.

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Now I have an inkling and it's near 100 percent certain of where I will find them, which is at the edge of our already cutting edge companies in case after case of starting a company in a crazy area like metamaterials, which led to this company called Chimaira, which I co-founded with Bill Gates. And I'm in a board room with Bill Gates and he's on the board of his companies, the only board he's been on beside Berkshire and Microsoft. So there's nothing that a kid from Coney Island, Brooklyn, could have imagined or done or classes to take or that would end up in a boardroom with Bill Gates.

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Nothing. You know, it was a series of circumstances and luck. But I'm in this boardroom, and then I find out that these young guys in San Francisco want to take these antennas that are as flat as an iPad and put them on small satellites. And so we go and chase those guys down. Now, that was a piece of lucky information, followed by, you know, the instinct to go chase it down. But that led to our investment in a company called Planet.

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And then from that, we get the insight that all the imagery that's going to be coming off of these satellites is going to be commodities. And the real value is going to be the processing of that using artificial intelligence and machine learning to look at different spaces over different times, to make insights for hedge funds and corporate espionage and all that kind of stuff. And that led to this company, Orbital Insight. None of those things apriority was knowable. It's how one thing led to the next, led to the next.

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And I've got five or six different companies where the only way I would have found them was because we were invested in some prior company where I got some secret insight inside of a boardroom that led me to it. So total randomness and optionality. And if you're, I think, humble to the idea that luck matters so much and particularly, you know, I always love Michael Mobius. And I think as the the best measure of whether something is luck versus skill, can you fail on purpose?

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And in our world, you know, you could totally fail on purpose. And so I think that there's a little bit more skill in the public markets. Interestingly, if I tried to pick the very worst company in the world, it could still double on me if I was shorting it because you could have a promotional CEO. And so it's just really interesting to think about luck and skill. And if you really are humbled, how much luck there is in the world and in whatever pursuit and domain you're doing, then it opens you up to the possibility that there's randomness and optionality and you try to maximize that as cheaply as possible.

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How do you go about maximizing that?

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Well, keeping in mind opportunity cost

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It is a constant trade off between exploration and exploitation. I am trying to read as much as I can and I get information, anxiety. I read not only the things that I think everybody else is reading because to me that's anteing, that's table stakes. So I read in the morning the Financial Times, I read The New York Times, I read The Wall Street Journal. I read The Washington Post. I read USA Today.

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My wife makes fun of me. I say, well, I need to read USA Today because I need to know whatever X million Americans are waking up in Marriotts and being influenced by that gives me another angle of information. But then when I'm reading those things, I'm also reading them not for what it says on page one, because I've got this other theory, which I'll share with you, but I'm reading for what does the editor put on c 22 of the newspaper that they decree to be less important?

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And I have a different weighting of the magnitude of its importance. That to me is the meta insight. So I've got this framework on information processing, which I call Fitzgerald, Twain and Schopenhauer, and each of these was a famous literary giant that had a quote that I think defines where we should direct our attention. And so Fitzgerald's famous quote was The test of a first rate intellect is the ability to hold two opposing ideas in your head at the same time and still retain the ability to function.

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I mean, great, who wouldn't want that?

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Most of the front page news for The New York Times or The Wall Street Journal or the FTC or Fitzgerald situations, there's a smart person saying that gold is nothing but a shiny piece of metal. There's a smart person saying it's a great store value in an otherwise fiat currency world. There's somebody saying that China is a fraud about to blow up with overindebtedness and state manipulation of statistics. And there's somebody else that's saying this is the engine of growth for the next decades to come.

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And the only certainty is the uncertainty in the volatility between these two sides that are playing out over time. The second situations are twin situations. And his famous dictum was, it ain't what you know, what you don't know that kills you. It's what you know for sure that just ain't so. And so what is the thing that everybody is predicting linearly is going to continue and then, boom, there's informational surprise and informational surprise will turn to also because I think it's such an important concept to me.

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It's like the physics of information. It's entropy in. Formational surprise, I think, defines everything in markets especially, but here, great examples, you know, 10 years ago as housing housing prices could only go up and on that false assumption, which you had historic support for, all of a sudden, boom, there's this big shock and big surprise and so informational surprise when people are predicting linear continuation of some trend and then it surprises to the downside, shocks the heck out of people.

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And so there were basically saying, what do people know for sure and where might they be wrong? And we're looking for the non obvious low probability thing. And then the final situation, which is where we spend most of our time, is the Schopenhauer dictum, which is talent can hit a target that nobody else can can hit and genius can hit a target that nobody else can see. And that goes back to the asymmetric information contained in the minds of the scientists who feel like they have the answer or have a secret that nobody else knows.

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And our job is to find those people before everybody else knows that secret typically is a technological secret and then give them money.

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I want to I want to deep dive into not only what else you're reading, but how you go about processing this information and specifically like the physics of information.

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OK, so my processing I wake up in the morning, I check my email because I've got a West Coast team that's, you know, three hours behind. So, you know, if I go to sleep 12 or one o'clock and I'm usually most productive in the evenings, that is a long standing thing because I'm a psychotically competitive person. And I would feel most productive when I thought that everybody else was sleeping. So I was motivated thinking that my peers were sleeping on Sundays when they were watching American football.

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I would be reading and learning something. And, you know, I loved football, but I loved playing it on like Madden and I could do it quickly. And that's how I learned my team rosters. So I'm typically in the morning waking up and catching up on, let's say, what's the equivalent of nine p.m. West Coast time to midnight where my team is also competitive. And so so that's the morning email first that I'm checking Twitter. You know, I follow a lot of people on Twitter.

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There's a lot of engage in conversations, a lot of rich content. You never know. I mean, it's total randomness and optionality. Then I'm reading that. I'm reading a handful of papers in the morning. And when I say read, I'm really skimming headlines and trying to find patterns and trends. I'm taking screenshots of various charts and information and I might share with my team or cross reference things. I might even assemble a little collage of interesting phenomenon or headlines.

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Then there's a whole slew of blogs, including yours, that I find really information rich and give me lots of interesting ideas. Then when I get to the office on any given week, I've got nature and science and Chemical and Engineering News and Proceedings of National Academy of Science and New England Journal of Medicine. And I'm flipping through these things again, just looking for interesting trends. And sometimes the trends pop up and I never know. Right. There are times where I get depressed.

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I say, oh, my God, you know, I just had this great idea on nuclear, which we'll talk about. And then a few years go by and I was successful. I'm like, I have no idea what my next idea is going to be, but it's that 100, zero, 100. I'm always confident that's going to come from somewhere. I mean, there's endless you know, it's just like this cornucopia of possibility and ideas and you just reach and grab and there's this thing that nobody else is thinking about.

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And so it's sort of this mosaic of just finding different sources, putting them together, seeing trends and patterns. And it's really for me, is anybody else talking about this or thinking about this? You know, like to me, crypto today is not really interesting because too many people know so interesting to everybody. Yeah, exactly. I mean, you know, the clean tech and green tech thing going back almost a decade. Everybody was talking about it when nobody was talking about was nuclear.

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And it's just interesting. It's like some famous people set the agenda and that was Al Gore and it was John Dure. And it was who's a venture capitalist, Kleiner Perkins. And was Vinod Khosla, another famous VC?

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And they were talking about solar and wind and biofuels and ethanol and electric cars and batteries. Nobody was talking about nuclear. And so I got really interested in the thing that nobody was talking about. Maybe they weren't talking about it for good reason, but equally or more probable was that it didn't support with a world view or didn't comport with something that they understood or they didn't know about it. And so as I dug into nuclear, I started looking at every part of the fuel cycle and nuclear.

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Now, mind you, this is 2009 10. I knew nothing about nuclear. I mean, literally nothing. I knew how to pronounce it better than George Bush. But aside from that, I knew nothing.

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We look at the uranium miners, mostly hucksters and fraudsters in New Mexico and Nevada, and we said, OK, not really venture back. We looked at the people that were doing processing and enrichment. And that's really for, you know, defense and very small contract.

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We looked at the services business and we looked at every part of the fuel cycle and then we looked at modular reactors and we said, OK, wait, maybe there's something here. Instead of building a billion dollar nuclear plant, you could build 30, 30 megawatt plants for very cheap and build them one at a time. But it turns out that the time frames and the regulatory risk and is just in the amount of money that you would. It was too capital intensive and too risky, and then you look and I always turn my turret of attention to this very sophisticated tuart question, what sucks?

[00:28:23]

And it's amazing in the same way that big investors often don't ask, does it work about a technology? You just turn to something and you look around almost everything that we use. Everything that was invented started with somebody saying, huh, that sucks.

[00:28:35]

You know, that could be better.

[00:28:36]

I've got a better idea. Yeah.

[00:28:38]

And then they take that better idea and actually instantiated and raise money and build a team and so on.

[00:28:42]

And the more sophisticated the technology that captures the solution, the better advantaged they are. In this case, we looked at nuclear and said, well, what's the biggest problem? The biggest problem is what do you do with the waste? You've got this big political debate about whether you take it to a place, Yucca Mountain, and make this geological repository. You've got people saying that they're going to transmit it and process it. And so we looked for the best and the brightest in the field.

[00:29:03]

We locked up a whole bunch of people, a whole bunch of technologies, started this company from scratch, really had a crazy idea named that after Madame Curie, who discovered and ultimately died from radiation called a Kurian spelled with a K. We funded that in 2010 and then a year later positioned it again. Randomness and optionality. We have no idea. Is nuclear going to be a renaissance? Are people going to catch on and say, yeah, this makes a lot of sense?

[00:29:26]

Or are people going to just say shut down nuclear? We want alternatives like solar and wind, or are things just going to stay status quo in any one of those situations? If you look at it, you were intelligently positioned. If there's new nuclear, you have more demand for waste cleanup. Status quo plants get older, they produce more waste, more demand for waste cleanup, catastrophe strikes, or Zygi that says shut down nuclear, more demand for waste management.

[00:29:50]

So any way you cut it, we could win. And we got very lucky as a company, a small company when Japan got very unlucky and the Fukushima disaster, which was never forecast, it was never imagined. We never thought, you know what?

[00:30:01]

We'll find a nuclear waste company that does high tech cleanup. And jeez, I really hope that there's going to be some geological, you know, catastrophe that leads to a tsunami, earthquake, tsunami in this Fukushima disaster. But this little company became the only U.S. company picked for the cleanup. And we are on very little capital invested in that end, up having this positive black swan, this really low probability, high magnitude event. That was a reaction to a really low probability, highly negative event in Japan.

[00:30:26]

And that all started because we had this crazy idea that nobody else was thinking about.

[00:30:32]

I've two questions on the first one is, how did you go about knowing nothing to getting comfortable starting a company in a very complex industry?

[00:30:43]

So it's interesting because when we started locks, people told me that I was taking the biggest risk. And I looked at this and said, what's my risk? You know, I come from no money. My mom's a schoolteacher in Coney Island, Brooklyn. My worst case scenario is I fail and then I go back and join the mainstream, which was just not part of my sort of mindset.

[00:31:02]

When you start a company, everything is a risk financing, risk technology, risk management, risk product risk. In fact, I always think of this like the first law, thermodynamics, that energy is not created or destroyed.

[00:31:12]

Risk and value themselves are just changing form. And every time that you can kill a risk, subsequent value gets created because a later investor arguably is taking less risk. They should demand a lower quantum of return because they're taking less risk.

[00:31:25]

And so I always think about risk is killing it to create value. But in this case, we're starting a company. Sure, it's all risk, but the worst case is we put a few million dollars in. It doesn't take off. We can't recruit a team. We don't get traction. The technology doesn't work. But, you know, that to me is a really risky now for an entrepreneur. Remember, there's an asymmetry of risk taking. We have a portfolio 100 plus companies for an entrepreneur.

[00:31:49]

They're putting all of their eggs in one basket. And so, you know, it really depends on the risk tolerance of the entrepreneur. But in this case, we were able to find a group of people that were really passionate, deeply believe that they're that nuclear was the answer, believe that it was under discussed and under invested. And we teamed with them. We funded them and then really together a combination of good execution and an enormous amount of luck.

[00:32:14]

But you did a deep dive on those.

[00:32:16]

I spent a year and a half.

[00:32:17]

What was that process?

[00:32:19]

OK, so it started with reading, right?

[00:32:21]

Reading scientific papers and reading journals and trying to understand, okay, what's this nuclear waste problem? And I had a few analysts that were working with me that were feeding me information in helping to distill it. But most importantly, they were setting up calls. And so we would talk to somewhere between four and six people a day. So you're talking to 20 to 30 people a week and you're trying to triangulate. And I would actually map out, you know, different people use different mind mapping kind of software.

[00:32:45]

We actually use the thing called popline, which, you know, you can download for free iPad app.

[00:32:49]

And I happen to like it because you just you start with a square and then you make a link to somebody else and it's like, OK, who who you just spoke to. And then you can change. I do it visually. The sort of weighting of the size of these squares over who you think is more valuable and insightful with every person that you talk to incrementally, you become a little bit more intelligent so that when you have your subsequent your third conversation, your fourth conversation, you now have taken the best ideas that you learned from the second person and you're sharing it.

[00:33:11]

And now I have a little bit more credibility when I'm talking to the fifth person. And so a combination of learning from each subsequent conversation and then almost like a neural net, you're back propagating. I speak to the fifth person and they're like, oh, yeah, that person that you spoke to the second time, they're, you know, they're full of it. Well, now I have to understand, are they academic rivals or are they just disagreeing about something?

[00:33:29]

Or is this person like really more of a promotional scientist and don't know what they're talking about? And sometimes I have to change the weighting and so I change my story.

[00:33:36]

And that really for the first year was just talking and learning from everybody so that I would be able to go, let's say, to the head of the Nuclear Energy Commission and impress because I knew what I was talking about. And so I'm reducing my ignorance. I'm sucking up as much as I can from different people. I'm evolving my narrative.

[00:33:54]

And then the more credible I get, the lower the slope for me to be able to recruit people. So as we became more informed, then I start talking to people. I start sharing a vision. They get excited. Now they're on board. Now, all of a sudden, I start with this entity that was just a total crazy idea. And now I've got somebody who's very serious involved and then I go and start recruiting an advisory board. And these are, you know, very famous people that built big businesses in the space.

[00:34:16]

And now I've got more credibility.

[00:34:17]

And so it really is very much like starting a movie. It starts with a script. And before the script, you know, you have sort of a napkin sketch.

[00:34:27]

It's like a storyboard. I have an idea of what this movie should look like. And now I have to go on a casting call and I've got to find the actor. But the actor does want to go unless the directors, their director does want to join, unless the producer is going to do it.

[00:34:38]

And so it's a little bit of a con game where you're trying to build confidence amongst everybody in this hugely risky and uncertain thing to them, which to me is very risky because my worst cases doesn't work.

[00:34:50]

And but for them the risk is reduced if this other person's involved

[00:34:55]

totally because it's social proof. And but but then you say, OK, you see somebody and they say, OK, that person's a credible person and they've got a good reputation and I want to be affiliated with them. And so, like, we get pitched, by the way, I'm going to name names, but there are some people that come in and I love what they're doing.

[00:35:09]

But then I see an advisory board with one or two people. And for me, these are like red flag people. They're like total B.S. scientists or promoters or like authors that I think are full of it. And I just like shake my head. And to me, it's a it's a signal of bad judgment for the CEO who doesn't know how to discern between the scientifically credible and the total promoters. And, you know, I'm not going to.

[00:35:31]

I admire that person and say, oh, my God, you shouldn't be in business with them, but like, we'll just pass sometimes, but

[00:35:35]

it's a signal to you.

[00:35:37]

So the process we started, we read voraciously. You meet with a ton of people, you're sharing what you're learning, you're testing your hypotheses in real time. They're giving you feedback. You're changing your narrative. You're using that narrative to then talk to and recruit other people.

[00:35:50]

Those people beget credibility for the next person and then all of a sudden just gets a life of its own.

[00:35:55]

And then you wake up a year and a half later and you're like, I think I understand this.

[00:35:59]

Yeah.

[00:35:59]

And we're going to put real money to work here and we're going to recruit people and we're starting this company. And then it's the signal also. And so I'm doing this right now in the genetic space, you know, a space that I know a little bit about. But we started with this crazy thesis about X-Men. Could you find the rare mutants in the world and could you sequence them and search for them and then sequence them and then develop drugs that might be opposite of the condition that they have to help humanity, that they may possess the secrets inside of their code?

[00:36:26]

And it starts with an idea when I start talking to people and I get referrals and and then I think I've got one scientist and then somebody else is like, oh, that person is not really credible. And so then I discount the wait on that person. And it's literally like waiting a neural net. And then before you know it, I've got five people that are scientists that are like, oh my God, this is what I want to do for the next ten years of my life.

[00:36:45]

And they're so inspired by the story. And then those people I'm able to point to these executives and say, I have some of the best scientists in the world. And then one thing leads to another. And all of a sudden you have a company.

[00:36:56]

What is nobody talking about today, aside from the X-Men thing that people will be talking about in your mind in five or ten years?

[00:37:04]

Well, it's it's it's interesting. There is a bit of a broad set of phenomenon that I like to identify across segment sectors, industries that I call directional arrows of progress and the directional arrows of progress. They're sort of undeniable. They and by the way, this is what led us to the company. Kurian, in nuclear waste. If you look at a directional arrow of progress in energy, you went from carbohydrates to hydrocarbons to uranium and the undeniable arrow of progress.

[00:37:36]

There was more and more energy density per unit of raw material. When you discover the directional area of progress, to me, it's almost like this universal principle. It's trending in a certain way, regardless of who the actors are, regardless of who the people are or the companies are, it's just trending that way. Same thing with semiconductors you went from or computing. You went from spinning disks and mechanical systems to solid state hard drives with lighting. You went from filament bulbs in the analog or you went from fire to filaments to solid state LEDs.

[00:38:06]

So you see these trends where you're like, yeah, why would we ever go back to that other thing? And so in energy, people were going back to to agrarian economies where we were growing biofuels. And that made no sense. You know, the idea today, if somebody was like, hey, I've got a more efficient flame, you know, candle, you'd be like, why would we ever do that? We've got LEDs that are more light than heat.

[00:38:25]

They don't give off heat and and they're energy efficient.

[00:38:29]

And so you see some of those arrows of progress. One that I don't think people are paying a lot of attention to today is one that I've called the half life of technology intimacy. This is a trend about how we interact with our computers. And you you see it. And regardless of how it is instantiated, undeniably to me, this is the direction that things are going. Now, we've made one recent bet, one investment around a team, a technology, and it embodies all of the things that we love to do.

[00:38:58]

I don't know if we're going to be right. I have high confidence in it, but you can see the trend of which I feel really certain about. Here's how it works. 50 years ago, you had a giant Aniak computer sitting over there in the corner of a room and it was the size of multiple refrigerators. And the way that you would interact your human body with that computer was to go up and flick some switches, pull some plugs.

[00:39:19]

And it was, you know, enormous body sized. First Half-Life. Twenty five years ago. Now you have a personal computer on your desk, a desktop. You are tickling the keys with your fingers. You have a mouse under your palm. That's the way you're physically interacting with it and you're touching the monitor with your thumb on and off. Twelve and a half years ago, the dominant form is now a laptop. Now you're tickling the keys. You have a touch pad instead of a mouse.

[00:39:44]

Maybe you still use a mouse and now it's physically on your lap. The computer has gotten closer to you six and a half years ago. The next half life. Now you have an iPhone. The first thing you touch in the morning, the last thing you touch a night, you swipe it, you tap it, you caress it, you click it. And for most men, the only separation from the human body is a thin film of fabric in your pants as you keep it in your pocket all day long.

[00:40:07]

Three and a half years ago, I'm wearing and I watch right now constant physical contact with my skin with no barrier a year and a half ago. Next, Halflife airpods.

[00:40:15]

People forget them, right? They leave me in the ear. They're so comfortable. The undeniable arrow of progress that directional trend is more and more intimacy.

[00:40:23]

It's becoming closer to you totally. Soon it'll be either like inside you or just omnipresent.

[00:40:29]

Exactly. Now.

[00:40:30]

And what's interesting as. As the technology becomes, quote unquote, more technological and more sophisticated, it actually becomes more invisible and more human. And so what has intrigued me is not, you know, standing in front of these giant supercomputers, you know, like boop boop boop boop boop boop with flashing lights.

[00:40:46]

And it's human interaction. It's literally gesture and voice things that feel more natural. And there is a trend across a lot of fields where this idea of natural, I think not in a moral sense, but in a technological era of progress. I'll give you another one in a moment. But in this case, we found a scientist. And how do we find this person? Because they were a postdoc under one of our other scientists that we it so randomness and optionality.

[00:41:14]

We back one guy. He happens to be this brilliant scientist at Columbia who reverse engineered the neural correlates for taste. And and we funded him in a company called Calliope that is reverse engineering your gut brain access to understand how you feel, the sense of satiety and fullness or sugar sensing inside of your gut or psychosocial feelings, like I have a gut feeling or I have butterflies in my stomach. That guy, his name is Charles Zuker. He was a thesis advisor to this guy, Thomas Reardon, who, like any good sci fi character, goes by Rearden single name and Reardon's work after.

[00:41:47]

I mean, this guy is fascinated. He's got 18 brothers and sisters. He was a math and science prodigy, didn't go to college, gets tapped by Bill Gates, becomes Bill's right hand guy for a decade plus in Microsoft, single codes, Internet Explorer and makes a lot of money, retires, does another company retires and then did early 30s.

[00:42:05]

Now being rich and retired, technologically praised, does what anybody ought to do and goes to Columbia and gets his undergraduate degree in classics and Latin and and literature and then spends the next eight years getting a Ph.D. in neuroscience.

[00:42:20]

And the result of that work was exactly this trend of technology that we're talking about, which was being able to put something like a wristband on your forearm where it can detect your neural signals as you move your fingers perfectly.

[00:42:33]

But what's crazier is I could hold your your hand in a fist and you could just think about moving your fingers and it's able to detect the signals from that. What that implies is that you will wear something akin to a bracelet or wristwatch and you will be able to gesture like Disney Sorcerer's Apprentice, to flick your fingers, to turn on the lights, to swipe like you would swipe in three dimensional, three dimensional free space to change a song on Spotify to raise your fingers like you were a conductor in an orchestra to raise the volume or to lower it.

[00:43:07]

And I fell in love with a science, with a technology, with the possibility, with the fact that it was singular, that there was nobody else doing this and and we funded it. But that is an example that I don't think people are really talking about today. And as they see it and experience it, it's like that quote that any sufficiently advanced technology is indistinguishable from magic. It feels magical and people's response when they experiences. I want that.

[00:43:32]

And that's a really powerful thing. So so that's a trend that I think people are are are underappreciated. In the same vein, the idea of technology becoming more natural, more invisible. There is a phenomenon in 3D printing called generative design, and it's really a computational approach to making stuff. As we sit in this room and most people are listening, most of the objects around them, if they just look around, are rectilinear, they're squares, they're rectangles, they're straight lines.

[00:44:01]

And that's the way that we engineer things because they're mathematically precise. The way that nature engineers things. You look at a forest, a tree, you look at river. I mean, all the stuff is is sort of crooked timber bent and but it's mathematically precise, but in a biological way, even the structure of our bones, they're not perfect rectangles, but nature evolved mathematical precision in these amorphous asymmetric structures. Well, it turns out that the best way, if you want to make a hinge, is not to just make a right angle hinge, but to tell the computer, figure out for the given material, the best structure and what it evolves computationally in silico in the computer is something that looks more like goudey architecture or in nature, gieger alien looking model.

[00:44:48]

It looks floaty and organic. And I believe that within a decade you will see architectural structures, you will see product design, you will see components inside of vehicles and industrial products that look way more biological because they were designed, interestingly, by a computer that are figuring out ways that don't rely on what humans have evolved or created mathematically precise architectural structures.

[00:45:15]

It won't be that strict, you know, right. Angle federalised kind of building. It'll be this weird phloem thing and it'll have properties that have almost outsmarted us.

[00:45:27]

I wonder, what will office buildings look like if, like I mean, we have this this very square design, usually with like this is what an office looks like, this is what a cubicle looks like.

[00:45:40]

If this were if we had a biologically designed office building, what would that and what variables with the computer be maximizing for it?

[00:45:49]

Would it be interactions between people quiet like you have to pick something?

[00:45:53]

Totally.

[00:45:54]

And there's tradeoffs. Right. So so this is interesting, because if you look at the Gates Foundation building, it's sort of two to two boomerangs that traverse and look like an X and you say, OK, well, the people the foreigns of the X are, you know, very distant from each other. If you look at the new Apple headquarters, it's a giant circle, sort of infinite loop. It's symbolic, but I think she's if I had to get from one place to the other, like, you know, you have to sort of go back inside the radius and then, you know, traverse in a different angle.

[00:46:23]

And so it's going to be very interesting thinking about that.

[00:46:26]

I do remember

[00:46:27]

there is a building like the Apple building that existed long before the Apple building, which is GCU, which is the British version of NSA, created the exact same building.

[00:46:37]

Were the sociological effects of that, where people are more likely to bump into each other, less likely to bump into each other?

[00:46:43]

I think the the argument was they're more likely to bump into each other. But whether that makes them more productive or better or happier workers, that remains to be.

[00:46:53]

Remains to be seen.

[00:46:54]

So I'm a kornblum when they were building the engineering center at the time, is called Darfield Hall after David Oil-Field, I remember the architect had all these different designs.

[00:47:03]

And typically when you see these designs, they're like these big flowing atriums and they've got these three dimensional animated, you know, models of the people, you know, interacting in the engineering in the halls.

[00:47:16]

Most of these people are very introverted. They're not social people. They want to do their work. They keep to themselves. They're not interacting. If they had the structure that was this big atrium, they found that people were not interacting with each other, they would hug the walls and stay away from each other in the empty space, they'd really up there. The way to create interaction, interestingly enough, was to constrain the space. So they had to make the halls narrower and the buildings, you know, tighter in structure.

[00:47:40]

But it is fascinating thinking about it. I know you've written about this. You've covered this like how our spaces define our behavior, which in turn define our spaces and, you know, city planning and organize. It's a fascinating phenomenon.

[00:47:55]

What are your thoughts on how your environment here it looks influences your decision making, your curiosity, your.

[00:48:02]

Well, I like the randomness and optionality, so I like bumping into everything here. We have, you know, very open glass offices. We have big open space for people to get to my office. They have to pass through, you know, everybody else's office people are seeing. So there's information flow as people see who's walking by. You know, it increases the optionality where somebody is meeting with somebody and they can come and just sort of signal outside my office and, you know, I pop out and say hello.

[00:48:27]

And so we really want that sort of randomness and optionality in the flow and the networking and the connectivity of people that are coming and going here.

[00:48:35]

But but I don't know that we've optimized it.

[00:48:38]

And, you know,

[00:48:39]

how do you create you said information flow, which is super interesting because it's also a highly competitive field externally. Yes. Venture, it's highly competitive internally. I would imagine the type of people that you're attracting. How do you create a culture where knowledge is not necessarily power, which would enable people to share it?

[00:49:01]

So I am not very fond of many management books, but there's one that I like a lot that was tribal leadership. And it's interesting because it details exactly what you just said about how people silo information. If you think about the different tribes inside of a culture, you have, you know, call a tribe number one, which are basically people who have the life mantra of life sucks. They're just bitter. They're totally alone. You know, they're they're miserable.

[00:49:26]

And there's like two percent of organizations. And that would be like, you know, people in jail and homeless populations and really unfortunate circumstances. The next layer up, which would be tribe two, is my life sucks. People who feel like they're victims. And you probably have 20 percent of people in organizations that are like that.

[00:49:41]

And probably the vast New York City Square rectilinear office buildings are filled with people that feel no sense of loyalty to, you know, their local worker. They they just are punching a clock. Can't wait to go home, watch TV, pop a beer, be with their family. The next layer is, I'm great. You are not. And these are people that are exactly as you described. They silow information. It is a zero sum game. They are competitive because ultimately somebody else's loss is their gain internally.

[00:50:10]

They're fighting for promotion. They're fighting for title. They're fighting for bonus. They're fighting for credit. They're fighting for status. The next layer up, which is I think is where we are, is where great they're not. We have an internally collaborative, externally competitive culture. So we are trying to share information. I mean, probably half my emails on any given day are internal emails where we are recapping meetings that we took, information that we gleaned, you know, knowing what's confidential and what should it be shared outside the organization or with our portfolio companies.

[00:50:39]

But it's just there's so much intel and information that we're triangulating amongst the team. And we typically, if somebody is like quiet right among us, we've got ten investing professionals. If somebody is not opting in, sometimes they're traveling a lot. But we want to make sure that they're recapping their meetings, recapping their conversations, recapping tidbits that we heard from board meetings because that institutionally shares and creates this network effect internally. But at the same time, we're siloing that from our competitors.

[00:51:04]

Now, on occasion, we want

[00:51:06]

everybody internally has access to that.

[00:51:08]

All we do is very simply right, like we do through Gmail, Gmail, super easy to to search and query. We use slack. It gets varying levels. You know, some of these systems are only as good as their weakest user. Oftentimes that weakest user is me.

[00:51:20]

But Gmail is really effective. And we have, you know, simple subject. We have certain queries and elements that we use and the syntax of how we describe these things, whether we're meeting with a person or giving a recap of a board meeting. But it's all there. And so if I type, you know, Shane Parrish into Google, it's going to show everything in Gmail, including because we share so much that my colleagues had interactions with. And so that's, I think, a really rich way to do it.

[00:51:43]

It's imperfect, but we definitely are on transparency.

[00:51:48]

Talk to me a little bit about how the information flows, like I'm just envisioning you get 100 companies, you have outside investors, you have people internally who are summarizing meetings at these companies, summarizing technological trends, giving you information.

[00:52:03]

You're the mecca of where this information flows, like how do you process that? Like how much of your time is on email? How do you filter information? What's the.

[00:52:13]

So. So if we think about what's important, you know, in any given company, the first thing is how can we help them? So somebody you know, we always put literally at the bottom or top of emails, depending on what it is we're describing the net of the meeting. So it could be OK. We just got back from the board meeting. Here's the cash position. Here's a number of employees. We're reminding people that snapshots is the most important thing for the next month, depending on the cadence of different companies have different cadence.

[00:52:33]

Some we have monthly board meetings, summits by monthly, sometimes quarterly. But this is the most important thing. And so we're tracking that internally, both so that we know how the company is performing, but also what can we do to help them? They really need help with these three hires, somebody hiring a VP of finance. Somebody is hiring a VP of product. Somebody needs a chief people officer. And then we're thinking in our network, OK, who do we have access to?

[00:52:56]

And so now everybody is primed. And through our Monday and Thursday weekly meetings, we're thinking, OK, you know, this is our recruiting list. And then we have to make the decision. A candidate comes up or we find out about how do we route them, to which opportunity. And so there are some companies where they could be the perfect fit but relative in our portfolio, there might be a higher and better use for that person. And so part of that is people routing the collective information that we have.

[00:53:20]

We're recapping we're sharing information, we're getting tidbits of information. And then you're just trying to connect a dot to one of our companies. Somebody else might say, you know, we just got these terms from this particular venture debt lender. Well, that for us is information that we can use across our portfolio if we say, jeez, they're lending at a lower rate than OK, we now have competitive information that an existing bank ought to match these prices.

[00:53:44]

And so it's important for us as an aggregating noted value add to our portfolio that if we know that Silicon Valley bank or square one or somebody else is offering somebody better terms, you know, that should normalize across the portfolio. If there's somebody that is teeing up a media opportunity, if Bloomberg is looking for the 40 under 40, we're going and figuring out who are the technological geniuses inside of our portfolio that we can tee up to give them media exposure.

[00:54:09]

And so everybody sort of always, you know, all hands on deck. We call this one hemlocks, one locks. And it's not just about your portfolio companies.

[00:54:18]

And we want people to know, even as portfolio managers of your individual companies, where you're sitting on boards like, you know, the good things are all one locks and the bad things are all one looks. So, you know, sometimes you might have a situation in a company and you've got a difficult CEO and, you know, maybe you have a good relationship with them. And I have to come in and be the bad guy or maybe another partner has, you know, the ability to recruit technological people and they're coming out.

[00:54:41]

But everybody sort of always working on each other's companies.

[00:54:44]

It sounds like you could almost get caught up and just spending your day reading all the other information coming in. How do you prevent that from.

[00:54:52]

I get information, anxiety that never stops. You know, it's like way beyond the Red Queen theory. Like, you know, you have to run like three times faster to even keep up. And and a lot of things will get lost, you know, in the in the mix. Now, obviously, if something is, like, super important, somebody internally will resend it.

[00:55:09]

You know, at various times, you know, our VP of finance might be asking people to fill out something related to reserves, how much money were reserving for a given company. And sometimes, you know, that's the most important thing for her. And somebody else might be saying. The most important thing is I need your candidate recommendations for this media list. And somebody else might be saying, you know, we're going to host an event around the future of technology and automation in manufacturing.

[00:55:34]

And I need and so at any given point, somebody has a priority. That to them is the most important thing. And part of the job that Peter and I who run the firm have is dialing up and reinforcing those priorities, saying, hey, you know, we need answers to this, this or that from the people. But reading is a huge part of it. I mean, there's against this exploration versus exploitation, you're ingesting enormous amounts of information.

[00:55:53]

Public information are sort of secret proprietary information from all the information flow that we have, the network of our entrepreneurs, tidbits that we're hearing, you know, here and there passing what is public gossip versus what is private and really confidential. And then, by the way, at any given point in time, we've got bad news. You know, across a hundred companies, you know, something's going wrong. You might have misbehaviour by a CEO, you might have a contract, you might have a dispute, you might have a litigation.

[00:56:19]

I mean, you know, and so you have to prioritize those. And every now and then you have fire drills. And that can be all consuming because now you're reacting to something that you fail to anticipate. I have a quote internally, which everybody has been indoctrinated by, which is that failure comes from a failure to imagine failure. So venture by definition is a cheerleader business. You're optimistic, you're promoting the future. You're supporting companies who, against all odds, are likely to fail and you're cheering them on.

[00:56:45]

But I think internally and privately you have. Anticipate what is everything that could possibly go wrong with this company so that you can help to put time and talent and money to prevent those bad things from happening.

[00:56:57]

Do you schedule time to think and reflect?

[00:57:00]

You know, not enough.

[00:57:02]

There were times where I would have two or three hours and often it was reactive. I would tell my assistant Beeby, who runs, you know, I would say we allocate time and we allocate cash and be really helps to allocate time. But there are weeks where I would say, OK, I need, you know, these two or three hours from the day blocked off almost. Charlie Munger. Right. He used to sell himself the best hour of his day for himself.

[00:57:20]

And sometimes you just can't do it. Sometimes I have a board meeting for three hours and then I'm recruiting people and it's just it's chaos. I find that late nights for me are really good. My kids, you know, obviously pilots, eight, nine o'clock. My wife and I are up for another two hours talking, catching up, watching TV, binge watching something, you know, plotting and planning family stuff and travel and, you know, business stuff that we help each other on.

[00:57:43]

And then I probably have another hour, hour and a half from eleven thirty or twelve till like 1:00 in the morning. And that's like my personal time to like just read and listen audiobooks and you know, all of which I do. I like three speed and.

[00:57:54]

But what time do you get up in the morning.

[00:57:57]

Typically like six to seven. So I'm getting about, you know, five and a half to six and a hours sleep, drink a lot of coffee.

[00:58:04]

Are you one of those superhumans who just doesn't need a ton of sleep now?

[00:58:07]

I mean, I wouldn't say I'm ever chronically tired. I think after the birth of my first child, I realized how much you can get, you know, with with little sleep, you know? And I always marvel at people who are like, oh, I'm so tired. And they don't have kids. And, you know, they're waking up at like nine thirty or ten on a Saturday. I haven't seen the north side of seven a.m., you know, in nine years.

[00:58:24]

I'm the exact same way my kids aren't around every morning person.

[00:58:27]

Yeah, yeah, me too.

[00:58:28]

You're a voracious learner. And tell me some of the lessons that you've learned about parenting and how you've become a better parent.

[00:58:36]

You know, the best advice I got actually was from another venture capitalist who said that the most important thing that you can do with your kids is is the most important currency is is attention. And when I look at the behavior most of the time, whether somebody is acting really well or misbehaving, they are seeking your attention and rewarding them with positive attention when they do something that you really are proud of, whether that's studying for test and getting a great grade or performance or even just kind behavior, you know, sitting down with them.

[00:59:06]

And, you know, I think about this like if you allocate time during the day, you know, I've roughly got two hours in the morning with my kids and I walk them to school every day. And then I've got like another hour and a half to two hours at night before they go to sleep. And so that's not that much time.

[00:59:21]

And but I feel lucky because I hear other people, you know, oftentimes they have to get to work before, you know, their kids are up and they get home after the kids are asleep.

[00:59:28]

And it's really hard.

[00:59:29]

A friend of mine who sees his kids on weekends.

[00:59:32]

Exactly right. And and so so I in that sense, I feel really lucky. But but in the time that I'm with them, we're increasingly really thinking about attention itself as a reward. Now, you have three kids. I have three kids who are competing for our attention and they're competing with each other. And so and I and we can over time figure out the tactics that they use, you know, to sort of divide and conquer.

[00:59:52]

And sometimes they want mom's attention. Sometimes they want dad's attention. Sometimes, you know, they're vying for both. But but allocating attention, sitting down and be like, oh, my God, you know, I'm so proud on the science thing. You just did, you know, tell me more about that and really fully engaged and eye contact. It's just that is the best positive feedback that I think can encourage really positive things.

[01:00:12]

With our first child, I think we probably micromanaged a bit and over time you become, you know, more lax. I mean, we used to joke like by the time Arthur was born, it would be at the dinner table and he'd be in his high chair. And like, we forget about him, right? You just heard him make a noise.

[01:00:26]

You're like, OK, but but the one thing that I know for sure is the mere existence proof. When you walk into a Barnes Noble and there are a thousand books on parenting means nobody knows what they're talking about, because if there was an answer, you would have won one book.

[01:00:42]

Right. And so it's the same thing with business and the same thing with relationships. And, you know, maybe people in religion have figured it out. I don't you know, because each one has seemed to have one book. But with parenting, you know, it's to each their own and every child is different in every circumstance is different and what they need is different.

[01:00:57]

And so how do you teach your kids to think critically?

[01:01:01]

And I would imagine read widely?

[01:01:04]

So so the the two of the three older read my older loves to read the oldest one's eight and a half and she likes to read graphic novels. And so, you know, like sort of more mature comic book type books. And it's usually the characters. She is very into the. I know that. You know that. I know that very psychologically astute. The middle is very into science and engineering

[01:01:28]

How old is the middle?

[01:01:30]

Six and and from birth I could see this like I could look in my olders eyes and I know that she knows that.

[01:01:37]

I know like there was there was just a connection psychologically. She's very astute. In fact, I remember we were at Disneyland and she looked at my wife and there was like this princess thing and she looked at my wife. She goes, you know, Mom, I don't think she wants to be here. And she was able to tell the disdain from this actress in a Cinderella princess who didn't want to be around these bratty kids, but she could read the face.

[01:02:00]

And so, you know, that sort of her superpower is interesting because I talk about our family as like The Incredibles, where everybody's got their own little superpower. And if you try if I try to get my older one to have the patience of my middle one with time on task, I'll fail. And if I try to get my middle one to be more psychologically astute like my older one, it'll it'll fail. But I realize, like each one, you know, one might be really fast or one might be really stretchy or really strong as a family unit.

[01:02:25]

You know, it works.

[01:02:27]

What's your superpower?

[01:02:28]

Oh, I don't know. I think very high expectations and ambitions. There's certain things I indoctrinate my kids with certain sayings. So at a young age, I would always say it's better to have it and not need it than need it and not have it. And that applies to everything. An umbrella when you're going outside, you know, an extra sweater if you're going to the movies, but to always basically getting them to think about hedging and these little recitations of these sayings over time.

[01:02:58]

You know, at first they're just words that don't mean anything. And then there's a moment and the moment has salience emotionally because they are like happy or they forgot something. And then suddenly it's like that. Aha, you know, I get it.

[01:03:09]

That's why Dad have been saying,

[01:03:11]

what are the other sayings that you inoculate them with.

[01:03:14]

I mean there's one and again, this is, you know, probably touching on controversy, but at a very so I you know, I grew up Jewish, I got a bar mitzvah it and then basically collected my bar mitzvah money and ran.

[01:03:24]

I became atheist. I, you know, rejected it at all. And my wife would consider herself spiritual.

[01:03:29]

And and I want the kids to be really skeptical and rational and questioning everything. And so we've negotiated about how we've talked about, you know, the tooth fairy and Santa and all these sort of childhood things so as to quote unquote, not strip them of their imagination, but make them query things. But at a very young age, I would walk out of the house and say, do you see an invisible man in the sky? And and they'd say, no, I'd be like, huh, interesting.

[01:03:50]

You just sort of let it sit there, you know? But my preference has been that they embrace, you know, open skepticism and not take dogma, because particularly for kids, it's just kids evolved to listen to authority figures in adults and just believe whatever they said. And I don't want them to be credulous in life. I want them to be skeptical and to encounter other kids who believe things and say, well, why do you believe that?

[01:04:13]

And they say, well, my mom told me that, you know, and to just sort of question things,

[01:04:16]

how do you talk to them about religion?

[01:04:18]

Then I say, you know, this is what dad believes. This is what my mother did with me, by the way. And she's probably more well, she is more religious than me. But she was like, this is what I believe in my parents. But when I was super young and this is what your father believes and this is what other people believe, and she sort of gave me the freedom to choose. So she didn't really powerfully indoctrinate me.

[01:04:36]

But I basically am always just indoctrinating with skepticism. So. Well, for example, older one, you know, Santa Claus real. She's reading my face to see if I'm lying, if I'm going to say yes or no. And when I read with my wife was rather than say yes or no, I would basically just keep asking, what do you think? And eventually and this was like one of my proudest moments when she was younger. I think she was six when she came up with this.

[01:04:58]

She came up with a Santa trap. If Santa is real, she concocted this sort of like mouse trap like thing. And, you know, she didn't actually design it, but she described how she was going to design it, which was it had a laser and it had a bird cage. There was an. Fall on him and like the cook, you know, if he took the cookie and I'm like, well, what if he's invisible?

[01:05:16]

And like, it was just that to me was success because she was using critical thinking to say, OK, if this guy is real, then, you know, I would be able to design an experiment to test it at six years old. So I was really happy with that. Now, my wife decided to play a trick on me and she hires we have a rooftop and she hires a guy to play Santa and she gets up and he knocks on the roof and comes down.

[01:05:41]

And I, you know, anyway but thankfully, the girls were looking at him like, I don't think he's real.

[01:05:46]

He fell off the roof, man.

[01:05:49]

He could not do it.

[01:05:50]

Gillian

[01:05:51]

exactly

[01:05:52]

do you always do that with your kids?

[01:05:55]

I don't want to dwell on parenting too much, but I find it really interesting and we get a lot of good feedback on the questions we ask about parenting. Like, what else do you do with your kids to encourage sort of thinking, critical thinking skills, not not just being fed something and going, oh, that must be true.

[01:06:13]

So a lot of it is is things that they ask questions about. You know, kids, I think are natural, inquisitive scientists. And I think over time education systems, conformity basically starts to stultify kids to stop asking questions. And we put them in science camp for the month of July up at Columbia. It's this amazing group called Hollingworth.

[01:06:37]

And I would have an hour on the train from Tribecca up to the Upper West Side and Columbia. And we would pick a topic or I would pick a topic sometimes and we would just talk about it the entire way on the train. Sometimes I pull up some things on an iPhone.

[01:06:49]

We'd reference it, but it could be, you know, action and reaction. So simple concept, that's universal action, a reaction.

[01:06:56]

So, you know, you push on them, they push back, you push on people, they push back. So it could be action or reaction in the context of physics or in interpersonal relationships or in markets. And I start to explain these things, and I know that some of these things will not make sense to them. But if I keep repeating it over time, then suddenly it clicks and they see something like, oh, you know, I get it.

[01:07:16]

And again, it's such a great feeling when you see that they reason through something and then you feel a sense of pride of like I think in part they got that because of this thing that we talked about a year or two ago.

[01:07:27]

And you just kept repeating it, the same sort of themes. What are the other common themes that you

[01:07:32]

a lot of them are sort of scientifically rooted.

[01:07:34]

So action and reaction, long term consequences. You know, if you think about you want to sort of delay gratification. This to me, by the way, is the perennial paradox, right. Seize the day and, you know, capture the moment and plan for the future. And those two things are irreconcilable. Right? It's like, I guess, a life in balance, you know, finds the right portion between that. But getting them to delay gratification, you know, we've done our own version of the marshmallow test with cupcakes.

[01:08:01]

You know, you can have one now or if you wait two hours, you can get two. And watching how they reason through that.

[01:08:07]

I do that with Fortinet now.

[01:08:08]

Oh, boy. Make it look, this is interesting. I grew up playing copious amounts of video games and watching a ton of television and some people that were friendly with restrict screen time. And my view is when you restrict something, it sort of becomes more desired.

[01:08:27]

Yep.

[01:08:28]

And so we allow them screens.

[01:08:30]

Is it a limit or is it unlimited?

[01:08:34]

OK to our now I used to do this actually when my daughter, my older daughter earned through lemonade stand sales, a laptop, she contributed half a point to lemonade. So we just did this last week. I mean, one hundred sixty bucks and, you know, pretty good. But we got our A laptop last year and I said parental limits on it, on how how often she could use it. And and through good behavior, I would, you know, increase the limits.

[01:08:59]

And now I trust her. And trust is a really important thing. So this is something I

[01:09:04]

You trust her to be responsible.

[01:09:05]

Yes. And, you know, she loves ROBLOX and she loves for night. And we explain appropriate and inappropriate behavior and what the consequences are. And so far so good. You know, I mean, I leave myself open to the possibility that there's going to be some disaster in the future.

[01:09:20]

But so far, OK, here's another thing we do. We detail and this is something that I think I got from Charlie Munger thinking about human misjudgements, the dumb things that people do. So I will pull up every day and the best catalogue of the dumb things that people do.

[01:09:35]

New York Post, you can pull up The New York Post and you can find example after example of people that behaved badly. It could be a corporate executive doing something stupid. It could be. So there's one that I remember just a few weeks ago of a kid who was on Instagram that was standing on a roof or something like this and plummeted to his death. Now, a lot of parents be like, oh, my God, that's horrific. I'm never going to show my kids that.

[01:09:57]

But me in my craziness sat down with them. I saw my crazy look at this idiot. Yeah, exactly. Yeah. Now so so you can learn from the mistakes of others. Don't make that mistake ever.

[01:10:07]

Yeah. Like, what is he doing that caused this to happen and think back through the. Yeah

[01:10:11]

he was. Trying to impress friends, and so I talk about that, I talk about peer pressure, I talk about the importance. Here's another one. Another quote that we indoctrinate them with is finding the balance between fitting in and standing out. And there are times where you want to fit in and there are times where it's really important to stand out from a very young age.

[01:10:30]

If there was somebody who was disabled, if somebody was being made fun of and the way that we would do this is our family does this. And this is almost like a tribal norm. Our family does not make fun of other people. If you see somebody in need or there's a group of people that are teasing somebody, our family stands up for that person. And I feel like that's really important. And I've seen the behavior and I've been so proud of the kids.

[01:10:52]

When they do that, it could be somebody with a disability, it could be somebody with the disease. I mean, that's another really important one.

[01:10:59]

I like how you bring about the family or other things that you say your family does.

[01:11:03]

We never give up. I mean, I literally my my two and a half year old, he gets frustrated. I said, does our family give up?

[01:11:09]

You know, do the wolfes give up? Never.

[01:11:11]

You know, and the kids are like, no, you know, it's like it's like watching Rudy. You know, we we watch a lot of family movies and we try to come up with the principles of this. And we watch a lot. You know, you watch Myracle and Lega their own and Rudy. I mean, there's so many great sports movies. I'm not a big sports guy watching, but so many great Horatio Alger coming of age of personal responsibility, you know, rise of the under Trodd.

[01:11:34]

And I just like the hero's journey. They love those

[01:11:38]

Do your kids listen audio books at all?

[01:11:40]

We listen to one recently and we switch off between dad reading and when we're in the car. I put it on the Magic Misfits.

[01:11:48]

Oh, it's Neil Patrick Harris, who I think is a great entertainer and a great magician, wrote a book about a young kid who loses parents, has a disreputable uncle who is basically a con man magician. I happen to love magic. I love the philosophy of magic. I love the the the honest liars that most magicians are. And and the kids love magic, too. So so this was one that that we all loved recently.

[01:12:16]

Have you have you tried the 39 clues?

[01:12:18]

I just downloaded it because of you.

[01:12:20]

Yeah. That is my kids are like addicted to this.

[01:12:24]

we drove to New York and we started playing.

[01:12:26]

I read I read your note. It said you came to New York last weekend. You had the kids and you just did Vol. one.

[01:12:32]

Yeah, but the kids were like running into the bathroom at the rest stops running.

[01:12:35]

You going, OK, put it back on. Oh my God.

[01:12:37]

Like they were just so I kid you not you sent it out I think yesterday or the day before and I downloaded immediately on your recommendation. So thank you.

[01:12:45]

I want to switch gears a little bit and talk about decision making. Do you guys have what is the process that looks for making decisions and what are the feedback mechanisms that you set up to know that you're oh, this isn't going as planned.

[01:12:58]

And we either need to, like, cut bait or intervene or

[01:13:02]

so a few different things, decisions in terms of will something make it into the portfolio somebody is recruiting an entrepreneur in because it fits with a thesis or they think that they're bankable entrepreneur or maybe another firm has reciprocated in share deal flow with us.

[01:13:16]

Whatever the circumstances of somebody coming in the way that we do this is it is the entrepreneur knows that they've got a certain amount of time with the partnership. We're getting a apriority come up with questions. So what we do is if somebody is presenting on a Monday to the partnership, when everybody is assembled between New York and Menlo Park on Thursday or Friday, the champion partner is sending out. Here's my thesis. This is what I'm thinking about. Here's the opportunity for us to invest.

[01:13:41]

The team is then populating a whole series of questions. Some of them might be generic questions. I'm always very psychotically focused on competitive advantage. What can they do or assert that they can do that nobody else can do? Somebody else might be focused on a very specific aspect of the technology.

[01:13:55]

Somebody might be focused on the landscape for the industry structure.

[01:14:01]

Somebody might be focused on the business model. Somebody might be focused on their first four hires that they have to make. Whatever it is. The champion then takes that information and gives the entrepreneur the advantage of saying these are the most important things based on what the team knows, from what I've shared with them, that you're going to be asked so they have an opportunity to prepare, which would be very disappointing if somebody came in and didn't address all those questions.

[01:14:22]

As a result of that, people come in more prepared. They know the kinds of things that we're going to ask at the end of the hour. And it's typically an hour. Sometimes it's a little bit longer, shorter, but typically an hour. We immediately detail our thoughts and we do it through a technological mechanism.

[01:14:37]

People we have an online internal proprietary lock system. People are basically saying, you know, do we invest? Do you want to lead? Does any more work? Do we participate if somebody else is leading or do we pass? And and if you do want to lead, what's your recommended investment amount and what are the valuation parameters? And oftentimes then you have a comment section that is just filled. Right. Some days, like I loved Chiari, they were incredible, but I'm really skeptical about this or this or we know these people on our network.

[01:15:06]

We need to diligence next. And so when the team has total consensus. We typically make an investment and we've typically been very wrong.

[01:15:15]

Interesting

[01:15:16]

when everybody agrees,

[01:15:17]

when the confidence is high,

[01:15:19]

we are missing something.

[01:15:20]

If we pride ourselves as being contrarians and we think that we're thinking differently from everybody outside the walls of the firms. But then internally, we all 100 percent agree something's wrong. We're missing something. And so only in hindsight, after a few examples of that, where we had 100 percent consensus, we all thought that we should lead the conviction correlated with our sizing of the investment, which was higher. The speed with which we moved because we felt so confident was high and we were typically wrong.

[01:15:45]

We missed something. And in each case that we did this, we missed something. But now we try to identify sometimes it's me by default, but who's going to be the red corner? Who's going to be the person that's going to be the devil's advocate to identify? What are the reasons why we shouldn't do the deal apriority? What could go wrong?

[01:15:59]

Does that person rotate or is it the same person?

[01:16:02]

It depends. Sometimes it just occurs naturally. Somebody's got a bias against a market. You know, we had a bunch of people coming in with the scooters, you know, the electric scooters. And I had some very skeptical, cynical views. We wanted to learn about the market, but I just did not feel strongly that this was something that was a quote unquote luks deal that we should be investing in this market.

[01:16:21]

And so I was a natural, you know, sort of antagonist. But it depends. There's nobody that's appointed it with ten people really contributing and voting at any given point. You know, you got at least a 10 percent chance that somebody is going to be the devil's advocate. But more often than not, just my disposition, it often is me. So then a decision is made. Now, it's best when there's, you know, support and enthusiastic support.

[01:16:43]

But a few dissenters. At the end of the day, the buck stops with Peter and I. We make the final decision. Everybody's got a voice in a vote. Pete and I are never going to invest if everybody doesn't want to do it. And we're going to be a little bit hesitant if everybody wants to do it until we find the skepticism. But here's where it gets interesting. If you have one partner that is dogmatically table pounding and everybody else has said, I don't see it, what we decided to do for the tribe is everybody gets one of those.

[01:17:11]

So if I'm the one that sees it

[01:17:13]

One per year? One per career?

[01:17:15]

One per fund.

[01:17:17]

Now, the funds typically are invested over a year and a half or two years, but one per fund. Why? If we made an error of commission, find it. OK, everybody gets one. You made a mistake, OK? Everybody else gets to tell that person look, told you. So you saw something that we didn't and you were wrong. OK, but if there's an error of omission where this person is like, I'm telling you guys, we should have done this, you know, that regret will exist forever.

[01:17:44]

Well, it's not only that. It's like you feel like you didn't believe in me

[01:17:48]

totally.

[01:17:48]

So everybody still knows, by the way, we don't believe we don't see what you see, but will give you this one. We trust, trust. And typically it's not sized as high as we would with another, but the sum total of the dollars if that were to occur. And the reason we do one, by the way, is in part because of me, because I can be persuasive in a table pounder. And if I did that all the time, we would end up with a portfolio where I was being dogmatic and assistant.

[01:18:12]

And so we've put in a structural constraint where everybody gets to have input. But if you feel really strongly, you get one of those. And so we want to restrict somebody being able to say, you know what, fine, I'm going to do it personally because that's total on the line.

[01:18:26]

And everything has to be sort of like, you know, snapping the the bracelet on the wrist, like what would be best for our LP's. And if somebody's making a personal investment because the partnership rejected it, that's a bad thing, because now they're personally rooting for the company to succeed. They want to prove people wrong. And so we don't know that we have the perfect mechanisms, but we think that that helps to create long term camaraderie in the team.

[01:18:48]

And it gives people the ability to do just one of those things where they dissent from the consensus.

[01:18:54]

What are the other structural? Things that you put in place to either keep people engaged and encourage that or make better decisions.

[01:19:04]

I think the best thing that we've done for better decision is, you know, people talk about decision journals and these kinds of things. The process of recording people's judgments and perceptions and observations at each deal is really important, because what we observed before we started doing this in a very formal way was that people had very selective memory. They would say, oh, yeah, no, I always thought that they were going to be wildly successful and then somebody would be banging their head like, no, you didn't.

[01:19:31]

You thought they were total idiots. So being able to go back and refine our judgment has made everybody a little bit more nuanced and a little bit less absolute.

[01:19:41]

Oftentimes, I will say, even with skepticism, I'll be like, you know, if I really don't see it, people joke.

[01:19:45]

I'll be like, well, maybe, you know, it could be. But it has reduced. I think the extreme certitude and I think that helps to make us a little bit more nuanced. And from that you get a diversity of viewpoints and the diversity of viewpoints leads us to the best questions.

[01:20:01]

We just had somebody in on Monday, immediately after the ranking process where we go through and analyze it doesn't start with why should we do this? It starts with, OK, if we are going to do this, let's look through the dissenting comments. What are the things that are diligent and we can find out. So there's actual information that you could get discern fact check, find out, you know, could be market size.

[01:20:25]

It could be you're trying to figure out what's knowable, what's knowable.

[01:20:28]

And and and let's go in and find that out. And if it does, let's go back to the group and say does reduce people's uncertainty or give you heightened confidence that, you know, it's not what you thought it was, because sometimes somebody just might be ignorant on the team that doesn't know something that somebody else does. But other times it might not be knowable.

[01:20:43]

We don't know if the dogs are going to eat the dog food. They make this product. We don't know there's market risk and then we have to look OK. Well, what how do we underwrite that market risk? What is the amount of capital that we're willing to put in until we can turn over that card? And what's the compensation that we would want to get?

[01:20:57]

How much money do we need to figure out exactly to make that knowable?

[01:21:00]

By the simple question, really, if you if you reduce our business to a simple question, how much money accomplishes what in what period of time? Now, the great virtue in venture capital is you get to fund two milestones, so in a perfect world, we're able to put a little bit of money in. We can d risk a set of things.

[01:21:17]

You're trading off that risk

[01:21:19]

and then we can put in more money later on.

[01:21:20]

And I'm going to put it in at a higher price because you risk something. But but I think that's the best way to to proceed sort of round by round.

[01:21:28]

I want to I want to go back to what you record around people, not only to calibrate them and give them feedback, but record about the decisions so that you're making you're getting better. And we're in a competitive world, like getting better at decisions might not make you better on a relative basis because the world is always changing.

[01:21:46]

You might need to do that. Those might be the table stakes just to stay where you are. How are you actually pushing beyond that and getting somewhere?

[01:21:53]

So we're constantly ranking people, whether it's the team, which to me is the most important thing, because over time you have more and more examples where you were able to say, you know, that person sort of reminds me of this person and you start to see your earlier questions about pattern recognition, what you see in certain people that give you the sort of like nuanced instinct that they're going to be able to raise money and recruit and sell a story and actually execute and operate.

[01:22:17]

So people is the biggest thing, technology you're sort of assessing what's the uniqueness and is there IP, their patterns, the market, you know, not just like the competitiveness of the market, but are the dogs can eat the dog food. And so you're recording at least on those three metrics, people's judgments about the market, about technology, about the people. And then you're coming back and you're looking and saying, you know, in part because of availability bias, you might look at a company and say, well, you know, how can we say this?

[01:22:44]

And about Company X, Y, Z when we just did company ABC and don't those things hold? And so you're always looking at reference cases and somebody will say, well, those are actually apples to oranges and we really shouldn't look at that. Right. What we should be looking at are the public comps. And, you know, there are precedents in this case. And like I said earlier, I think the best performing companies often have no comps because they're doing something that nobody has done before.

[01:23:09]

And there's sort of the singularity of it. But but it's a really iterative process. And then, by the way, to your point about the markets, you can have your best internal process and you can underwrite and say, you know what, we've decided that we think the right amount of money is five million dollars and we need to own 20 percent. And we're going to value the company at a twenty five million dollar Posman evaluation. And we think that these are the milestones that they want to do.

[01:23:34]

But then somebody else comes in and says, we'll give you 10 million and 50 million our valuation. Well, now you have to decide, OK, you know, do you just let it go and be price disciplined or do you participate or do you try to compete because you think, OK, maybe even if their pricing is too high, we can be in the deal and then we can figure out the next round of financing. And so it gets very complicated when you have what I would consider irrational actors that are changing the market today in the market environment we're in, there are more irrational actors than ever before just because there's more money than ever before.

[01:24:08]

And so you have this phenomenon right now. I call the Minnows and the magazine venture capital. You have tons of individuals that are competing to write early stage checks, and that's creating a lot of noise now for us. Those are our peers, our friends. We're trying to be helpful to them. In some cases, they are our source of deal flow for us. And so we like to feed them and be helpful. At the other end, you have the Megas, which Softbank is the great example of this, but there are other firms that are raising multiple billions of dollars and doing very late stage rounds.

[01:24:35]

And there I think the best way is that you want to have product, you want to have companies that you can bring to those guys to finance. But thinking about how those guys are changing this ever undulating fitness landscape where somebody can write one hundred million dollar check and somebody else is funding 10 competitors, it's always evolving.

[01:24:55]

How do you stay true to what you want to do in that situation and feel how do you make it OK to feel left out of this game?

[01:25:02]

It is about being long term greedy and, you know, it's this idea of process for outcome. And so I'll give you a great example. We had a process with an autonomous vehicle company called Kroos. We gave them, I think it was 10 or 12 million bought by GM and they did. And they got bought by GM in part.

[01:25:21]

And they will give credit to my partner, Shaheen, who made the introduction to GM during our diligence, during our diligence, we decided we want to invest.

[01:25:30]

They didn't have a product on the market. There wasn't revenue. It was risky. There were some competing efforts. And we underwrote this, I think a ten million dollar valuation at a forty or fifty million pre.

[01:25:39]

And we wanted to own call it fifteen percent of the company. And what ended up happening with somebody else was able to say, no, you know, we can get a better price. And they were right.

[01:25:48]

And they ended up getting, I think a ten or twenty million dollar investment and an 80 million dollar valuation. So about double what we were offering.

[01:25:54]

And the rational thing for them to do at that point was to take it. Now, we had a choice, try to match the offer, try to compete with it, try to fit into it, or just stay priced disciplined. And the typical mantra we have internally is I would rather lose half. My LPs that half my LPs money and so we felt the right thing to do was that that was too high of a price to pay. Now, that was our process, the outcome.

[01:26:16]

Nine months later or 11 months later, GM buys them for a billion dollars, nominally a little bit less, actually, but nominally a billion dollars. That would have been 11 X in under a year. And so we look at that and say, was that an error of omission or an error of commission? Now, nine times out of ten, we would make that same decision. We felt that there was too high of a price to pay, given what we had at the turn at the time.

[01:26:37]

And it's not clear whether we made a mistake by not investing at that price in hindsight or if GM made a mistake by paying too high of a price. And so you never know and you can't run the counterfactual because you only get one shot at these things. And so most of the time we try to stay price discipline. We know that there's always going to be some other great entrepreneur or some other great venture that's going to come along in that process.

[01:27:01]

The most important thing is that we treat those people well so that they don't resent us during the process that they would come back to us. In this particular case, I think the founder and CEO who made a lot of money is grateful to my partner Sheheen for making the introduction to GM. And we've stayed, you know, close to them. We've we've applauded them from afar. And, you know, we just didn't make money for our investors in that case.

[01:27:22]

Sounds like you get a lot of information that would lead to perhaps difficult conversations with people not only who run companies that you're invested in, but difficult conversations with people that you work with. How do you go about having those difficult conversations?

[01:27:38]

You know me personally. I'm very blunt and very direct. And so and I expect

[01:27:43]

Were you always that way or that?

[01:27:45]

you know, I think it evolved over time.

[01:27:49]

Part of my circumstance, as you grow up in Coney Island, Brooklyn, you know, people are pretty tough. They're not, you know, dancing around things. It's interesting because the cultures of companies matter. I was at a board meeting and there was somebody there from Google and there was somebody there who spent a lot of time at Microsoft and somebody was talking about how Microsoft you had sort of this blackball culture where, you know, the winner of an argument in a conference room was the person that sounded the smartest, you know, sort of shunned the other people.

[01:28:18]

You know, you're an idiot. How do you believe that?

[01:28:19]

And it's interesting because Bill Gates, in a sense, was notorious for that. You know, Nathan Myhrvold, brilliant, you know, but would sort of eviscerate people if they were on the Google person was saying, you know, Google is a very kind culture and that kind of behavior like wouldn't exist. And so people sort of danced around the issue. Now, I don't know if one is better than the other. I think it attracts a different kind of person internally.

[01:28:43]

People know that if I have something to say, I'm saying it very bluntly. So that could be like, look, you had a situation with that particular company and you should have stepped up and owned it entirely yourself. And you put me in a position where I had to get involved and I shouldn't have. And it created this complicated dynamic, you know, psychologically with the founder. And I'll just be blunt about that. And somebody else might come and say, you know, you talked way too much in that meeting and you didn't let the person get a word in edgewise or whatever.

[01:29:11]

But we expect that it's not an ad hominem attack, that it's about making the firm better. And so very, at least internally, very direct conversations externally. Different partners have very different styles. I am very blunt. And so I will be very direct with the CEO. I also tell my CEO is probably the first thing that they hear from me when we make an investment or I join the board. I want the bad news. Good news.

[01:29:34]

You're going to get applause from me. All right. I'm going to slap you on the back. It's a great job. There's nothing I can help with. But I'm your partner. I'm invested with you. I want the bad news. I want to know what happened, what's going wrong, because that's where I can actually help. Other people are way more diplomatic than me on the team. And so we sort of have different horses for different courses, different pardoner personalities.

[01:29:53]

But I really feel you waste so much time if you are not direct and honest

[01:29:57]

Two final questions before we end this.

[01:30:01]

The first is, what have you learned from working with Bill Gates and sitting in a room watching him work and being a part of what you guys are doing together?

[01:30:09]

Amazingly, he's able to get to the ninety ten of an issue where he reads everything and he's got a yellow notepad and he'll sit there and take notes and then it'll be he'll be quiet for thirty minutes and then he'll say the one thing that matters of the 20 things that we talked about, you know, publicly, he sort of has this Mr. Rogers persona, you know, sweater.

[01:30:35]

And I think in the boardroom, you know, he'll eviscerate somebody. Somebody will say something. He'll be like, why would you possibly do that? You know, that's a stupid ass idea.

[01:30:43]

And if he's right on the merits, he's not holding his tongue and he's almost always right. It's interesting. I just had a negotiation with him on a company that we're we're investing three or four companies together. But in this one, we had a particularly tough direct toe to toe negotiation. And it's like it's crazy, right? I mean, Bill Gates and I made an argument and he wrote me an email and I was upset reading it because it was so damn logical.

[01:31:16]

It was so damn logical that I couldn't disagree with him and I had a proposal, he rejected the proposal. He gave me a fair and reasoned reason why I agreed with his logic, modified my proposal.

[01:31:29]

We ended up agreeing, coming to terms on this particular financing for a company, but. I just was amazed at how simple and clear the logic was

[01:31:38]

and how he identifies, like what really matters.

[01:31:41]

He was like the you know, I'm talking about these other things that I'm sort of making an emotional case about why we should do X, Y and Z. And he was like, I don't understand why you're resisting A, because I think that it's B and C, and if we do that, at least to D, and it was just it was very clear and separating out, you know, I wanted a very specific thing, but aside from the fact that I wanted this, the logic of the situation, objectively, he got to and it was irrefutable.

[01:32:07]

And I think that that is the best way to win arguments is to find the normative thing and the objective truth of a situation. And you can't disagree with it unless you're either not seeing it clearly or you're lying to yourself. And he was really good at getting to the objective truth of the situation.

[01:32:25]

And I couldn't refute

[01:32:26]

a developed skill or something you think he's had all his life?

[01:32:29]

I think that's probably partially genetic

[01:32:32]

because that's what people say about mongered, too, right?

[01:32:34]

Like he just gets to the heart of the issue. Buffett said he had the best 30 second mind in the world.

[01:32:40]

I think it I think it's partially genetic for many, but I think it's if you turn again, you're tired of attention and say, I want to think like that. I find that. Whereas I normally might, you know, write a screed of, you know, emotional late and things to try to influence somebody. If I actually want to try the bill method, you know, I sort of put that thing on your list. OK, what would Bill do then?

[01:33:02]

You will stop and revise the logic of your argument and make it irrefutable because you were talking about it some sort of objective truth.

[01:33:08]

I love that mechanism. People think of mental models as concepts just from the physical world that you're maybe applying to a different domain. But one of the best ways that you can have a mental model is like sit there and go like, what would Josh do?

[01:33:19]

What would

[01:33:20]

I tell people all the time? And it literally is like, you know, the what do they call it? When you had all the Roman, you know, headstones and the like the Colosseum or the.

[01:33:31]

And so, yes, you know, I've met Mongar. I've never met Buffett. Bill Conway for me is like one of these are the pantheon, like, you know, the pantheon of these people.

[01:33:41]

But you get to observe them in their decision making. You can say, like, what would this person do in this situation? And by the way.

[01:33:48]

You can see, like the bad actors to write an invert, and so I find that that if having, like, this Hall of Heroes of people that you think make good decisions, it's almost like you get to have these little mental quiet conversations with them and say, like, what would they do in this situation? And that's your best guess, right? Sometimes you have the benefit in the fortune of being able to actually ask them, hey, what would you do in this situation?

[01:34:10]

But I do think that having that sort of hall of heroes, that pantheons is really valuable. And that comes with just reading. You get all these dead people living people whose ideas and decision making is you can study and you are like an amazing chronicler and profiler and compendium of all of this kind of decision making. So I'm grateful that I get to read you.

[01:34:30]

That's very generous. He thinks last question has nothing to do with anything of interest to probably anybody but you and me. But I know we share a love of old school, right? Yes, one song.

[01:34:44]

Oh, man.

[01:34:45]

Favorite song, so which one,

[01:34:46]

it depends

[01:34:47]

no depends

[01:34:47]

altogether you get to go out there, you got to put it out there.

[01:34:50]

I mean, my favorite song, which goes back to 1991 or 92 is it's called Shit is Real by Black Moon. That to me, you know, is like old school. It's amazing because somebody was on Twitter the other day and they were like, first things first. And I think they were referencing a Nicki Minaj song. Yeah. And I was like, first thing. First you hear Biggie.

[01:35:08]

Yeah. We hear ODP from Yutang. Yeah. And they they never heard those verses.

[01:35:13]

No, no.

[01:35:14]

People need to go. But I've introduced a couple of friends to it and they're like, I never listen to this when I was young, but like I get it, like this is kind of cool. And it's a lot of people don't know this, but old school rap takes me out of a bad mood. I have no idea why.

[01:35:29]

You know, some people's favorite music is, I think, emotionally tied to formative emotional periods in your life.

[01:35:38]

So for me, let's say 1970, I was 14 years old in 92. Yeah. I mean, that's you know, you have all kinds of firsts. You know, your hormones are going and you're hanging out with girls really for the first time and you got your crew of guys and like you're in high school, a freshman sophomore year. It's just like the world's possible and you got change and you got social dynamics. And then you got this amazing everybody's favorite music, I think is like from thirteen to like twenty two, those formative post junior high high school.

[01:36:07]

You know, you're making all these memories. It's tied to this emotional content of music. But like the early 90s rap, not not you know, not even like Mace and Puffy, but like, you know, Ice Cube, Predator and Grand Poobah and Brand Nubian. And the tribe is amazing.

[01:36:23]

Yeah.

[01:36:23]

Yeah, definitely. Thank you so much, Josh. This has been a great conversation.

[01:36:27]

Awesome. Be with Shane. Hey, guys, this is Shane again, just a few more things before we wrap up. You can find show notes at Farnam Street blog, dot com slash podcast. That's fair. And am s t r e t blog. Dotcom slash podcast. You can also find information there on how to get a transcript.

[01:36:52]

And if you'd like to receive a weekly email from me filled with all sorts of brain food, go to Farnam Street blog, dotcom slash newsletter. This is all the good stuff I've found on the Web that week that I've read and shared with close friends, books I'm reading and so much more.

[01:37:06]

Thank you for listening.