Packy McCormick, Not Boring | How writing led to investing in Ramp, Scale AI, Replit, Varda

Packy McCormick I've teamed up with Passes to grant us access to a pro podcast studio in LA, exclusive early releases, audience Q&A, & BTS content. Sign up for Passes for more Sourcery content! https://www.passes.com/ Follow Sourcery for the latest updates! https://www.sourcery.vc/ Molly on X: https://x.com/MollySOShea Packy on X: https://x.com/packyM TIMESTAMPS: 1:30 - Growing to 239k+ Subscribers 5:00 - How Writing Led to a $50M VC Fund 8:00 - The 'Not Boring' Creative Process 13:50 - Top Founder Characteristics 16:00 - Following Instincts vs Over-Intellectualization of VC 22:00 - Packy’s Best Investments (Ramp, Scale AI, Replit, Chroma, Varda, Hadrian, Pipedream) 25:55 - Intro to Vertical Integrators (Base, Fuse, Varda, Hadrian) 38:00 - Why American Dynamism Won 42:45 - YC RFS Hot Take 46:00 - Can Heavy CapX Companies Raise Growth Funding? 49:15 - Packy’s Hot Take On AI - Is It Alive? Just A Marketing Stunt?! DOGE Recruiting? 1:00:00 - What Packy Is Most Excited About in 2025 #podcast #investing #technology #venturecapital #entrepreneur #startup #siliconvalley

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Here's a spicy take for the podcast. When YC puts out their request for startups, I'm like, I can't imagine that anything good is going to be built.

• 0:06Molly O'Shea?

  You said AI will not become God or Satan because it's software. It will become an incredibly profitable super sass.

• 0:14Speaker 00

  There hasn't been any leap that I've seen that have been like, that thing is alive. You get to talk to some of the smartest people and the most driven people and whatever in the world who have dedicated like every fiber of their being and like all of their financial wellbeing and like everything to thinking about like this particular problem. I like really love this and I want to do this for a very long time. That's kind of what I knew that this is what I want to do for a while.

• 0:39Molly O'Shea?

  Packy McCormick, thank you for joining us.

• 0:42Speaker 00

  Thanks for having me. I like to be of these swivel chairs. I'm just going to be like awkwardly swiveling this whole time.

• 0:46Molly O'Shea?

  You know, your voice sounds so familiar. Have you heard of this podcast called Not Boring News?

• 0:51Speaker 00

  I have boring news.

• 0:53Molly O'Shea?

  What did I say?

• 0:53Speaker 00

  Not boring news.

• 0:54Molly O'Shea?

  Oh, it's boring news.

• 0:55Speaker 00

  It's the exact opposite. Yeah.

• 0:59Speaker 00

  Shout out to the good folks at Eleven Labs. Like I've worked with them, fed them a bunch of, they're like, send us like 30 minutes worth of stuff and we'll like make you a professional voice. And they nailed it. It like actually sounds like me.

• 1:08Molly O'Shea?

  I feel like I know you now because I've been listening to that every day.

• 1:12Speaker 00

  You're one of the 10.

• 1:12Molly O'Shea?

  Even though I did know you before, but you know, it's a different kind.

• 1:16Speaker 00

  That's, that is wild. Uh, yeah, there's like a little, there's a couple of things that like aren't me, but even my parents like heard that and they're like, oh, cool. You did like a podcast. I was like, no, no, this is like all AI generated. They're like, shit, it actually sounds like you. So yeah, they nailed, they nailed that.

• 1:30Molly O'Shea?

  It's fantastic. Okay. So we have to talk about not boring.

• 1:34Speaker 00

  Yep.

• 1:35Molly O'Shea?

  You've grown it very large over the course of however many years, right? Okay. So now you're at over 239,000 subscribers. You've scaled it from a newsletter to not boring capital to podcast. Now you have a tiny office.

• 1:50Speaker 00

  Yep.

• 1:50Molly O'Shea?

  So what was the exact turning point that you were like, oh, this is, this is a real business and I'm going to go full force on it?

• 1:56Speaker 00

  Yeah. So it was, uh, I guess quit my job at the end of 2019 that I was at before, like perfect timing was going to start something physical space based and, uh, and didn't. So it was like, you know, COVID hit. And so I started writing the newsletter and not A single dollar out of their like, you know, 400 subscribers. So I asked my wife for three months to start like trying to do something with it and see if it would grow. At three months, I think we've gotten to like 5,000 subscribers, which is like my annual subscriber goal, but still making zero dollars. We were pregnant and so I needed to do something at some point, but I was like, I think we can like actually just turn this into a business. If we get to X number of people and I turn on subscriptions. And I think it was like nine months in that I made my first dollar, but like I made like a shitty ad deck.

• 2:38Speaker 00

  And tweeted it after I made it because somebody asked me for an ad deck and I was like, if I have this, I'll tweet it. And I think public and a couple of others kind of came in and were like, we'll pay you like a thousand bucks or something. I was like, that sounds great. That's amazing. And so that's, that's how the business side of it started and then just kind of kept growing a little bit for, you know, a couple of years. And so it just kind of felt more and more like there was, you know, something there.

• 2:59Molly O'Shea?

  And then it led to a venture fund.

• 3:01Speaker 00

  And it led to a venture fund. So I've been doing SPVs just like, you know, I feel like in some ways like I want this. I now want to be an investor for the rest of my life. In some ways it's like the most 2021, 2020 like story of all time. It's like I was doing some SPVs as I was writing about companies and, you know, raised, raised my first fund. And when I raised Fund One, I had like no idea that I wanted to do this for a while. I was like, this is like very cool. I have no idea if I want to be an investor, but you know, I'm seeing, I think a bunch of interesting companies and, and I do think that it's much more fascinating to put skin in the game than just to like kind of write and snipe from the sidelines. And then kind of, I think kind of halfway through Fund Two, I was like, I really want to do this. And then as the market crashed and tried to raise the third fund at like the worst environment ever and just like did such a shitty job fundraising.

• 3:47Speaker 00

  That's when I was like, oh, like this is awful and I like really love this and I want to do this for a very long time. That's kind of what I knew that this is what I want to do for, for a while.

• 3:55Molly O'Shea?

  What has it grown to at this point?

• 3:58Speaker 00

  What has it grown to?

• 3:59Molly O'Shea?

  What's your AUM?

• 4:00Speaker 00

  Like 50 total. There you are now, yeah.

• 4:03Molly O'Shea?

  And what's the strategy? Like, what kind of companies are you investing into?

• 4:07Speaker 00

  Yeah, so doing kind of this barbell where it's mostly these vertically integrated companies. I've written much about these. We can, we can talk about them. But kind of thesis being companies that use both kind of hardware and software, build vertically integrated systems, can build better, faster, cheaper products than incumbents and beat incumbents. And so I guess like the shorter way of saying it is like SpaceX and Android for everything. And I think a lot of that SpaceX and Android thesis has turned into like, let's invest in space and defense. And I think those are super interesting, but I think what's more interesting is like that in every other kind of big category where there's incumbents that, that are, that are beatable. And then there's a little bit of like, you know, there's 20% of the fund that's just like, I'm not

• 4:51Speaker 00

  smart enough to know what really smart people are going to build. That's like mostly crypto, but it's like mostly just meant to be, people are going to come in and tell me like something that I didn't know was true, but that I, that I believe after I hear it from them. And so I want to keep a piece of it open for, for those kinds of opportunities.

• 5:07Molly O'Shea?

  And did the writing fuel the investments?

• 5:10Speaker 00

  Totally. Yeah, the writing fueled the investments. In the beginning, it was, it was mostly just because the writing meant that people would give me money to invest, but it also meant that founders would talk to me and, and take my money and all of that. Over time, I think it's helped me develop my thesis more and more. So I really started to understand crypto through writing, came to this vertically integrated thesis through writing. Kind of started because, you know, we've done a small investment in Replit. I was seeing kind of more crypto companies and, and like little apps kind of being built on top of protocols and just seeing software development get easier and easier. And I was like, well, I don't think we can actually like really invest in that much like pure software anymore. This is like 2022. And so I kind of started thinking about like what comes next. And then like it became like a hard startup thesis,

• 5:52Speaker 00

  but that was kind of too vague. And so this vertical integrators is I think the best expression of, of how I'm thinking about it now. But I just think like, you know, we did atoms development for like all of human history. And then we had 50 years of software development and like caught up. And I think that's like amazing. Tyler Cowen calls it the great stagnation, but I think it's like awesome that we had 50 years. We're just like, all right, we're just going hard on software. Now software is like maybe pulling ahead a little bit. And so now we're trying to combine hardware and, and software, bits and atoms, and, and just kind of build kind of like all new infrastructure for, for the country and the world. And so that to me is the most exciting opportunity now.

• 6:26Molly O'Shea?

  With the pieces that you've written, what were some of the early pieces and the companies that you started to profile and how has that evolved over time?

• 6:34Speaker 00

  Honestly, in the beginning, it was like, my friends have companies and they want me to write about them. And so like, I'll write about my friends' companies. One, I think the first one that we did, that we did also in SPBN was, was a friend's company, kind of doing something in real estate, who had read something that I wrote, kind of pre-not boring, when it was just like packy m.com or something. And it was like, actually, like, we're basing a lot of our strategy off of that. That company has since shut down, so maybe shouldn't have based the strategy off of that. The other one, composer, was another early one that we wrote, another friend's company from Bree, that they're doing very, very well. It's my favorite investing, investing product. And so they're, they're doing super, super well. But it was really in the beginning, it was like, kind of friends I wrote about. Ramp, actually, was one of like, the earliest companies that I wrote about. I've now written

• 7:17Speaker 00

  about Ramp four times. And like, the fun thing about that is, they just, like, there's something new every time I write about them, or like, a new way to talk about the company. Like, now Saquon, I was actually, so they're now sponsoring the newsletter. And so I was in shooting, like, a video with them last week. Yeah, literally, like, a week and a half ago. And she was like, I'm so sorry, Kendall on their team was like, I'm so sorry for not getting back to you. We, it's been like, a really chaotic day. Yesterday, we got word that we got a Super Bowl slot, and we've been like, spending the whole past day trying to coordinate with Saquon and his people to get this thing done. And they filmed it and like, you know, they did the whole thing in like, three or four days.

• 7:55Molly O'Shea?

  Wow.

• 7:55Speaker 00

  But the Eagles are my team, so go Birds, huge Super Bowl win.

• 7:58Molly O'Shea?

  Congrats.

• 7:59Speaker 00

  Thank you. And so like, the combination of Saquon and Ramp is just like, I mean, dream come true.

• 8:04Molly O'Shea?

  Yeah. You, you write really deep, rich pieces. I, I've worked in VC for a while. I use them for my own diligence. Like, they're very well written. So how did you get to like, that kind of format? And what's kind of the thinking behind it?

• 8:20Speaker 00

  I think they've gotten longer and longer over time. I just did a 99 or 100 page piece on a company called Meter. And I've been thinking a little bit about this. Like, I've been reading, you know, more Robert Carroll, which is very cliche, if I just read his, his book. And there's a lot of like, I think a lot of it comes from the fact that like, I'm not smart enough to just be like, here's like the beautiful like three sentence thing on this company and why like, you know, like, why everybody should be excited about this. Like for me, it's kind of like, all right, everything that I write, I'm like kind of, I'm like just dumb enough that I have to like re-derive everything from like the beginning, whenever I write about a new topic. I also like, you know, go across a bunch of different categories. I'm like really trying to learn. So I'm like, oh, that's cool.

• 8:59Speaker 00

  Like the mining industry, like let's talk about the mining industry and like what makes that interesting and what makes now an interesting time for a company to go attack that. Like these companies should be stories that are a combination of who the founder is, what the like, how the market has evolved over time, like what the levers are in a particular market, like how the company is strategically thinking about like what they want to do to play the situation that they see. Like it's just a million factors and like anybody who like boils it down to like a market map or like, like a one sentence thesis on a company. I think it's like just a very tough way to, uh, to invest. And maybe if I were smarter, I'd be able to do that. But for me, it's kind of just like, I don't know. I'm like, here's me trying to figure it out. And like, here's me putting it on the page and here's what I think is, is really exciting.

• 9:41Speaker 00

  I feel like I'm writing about this now. It's like trying to figure out how to like work this in. It's either like deep dives on companies or like these like thought pieces, which I hate that word, but, writing about kind of like the how, how much I think we realize like, we actually don't, or we will realize we actually don't care about answers like at all. I think like AI will make us see like answers are like really not important. But you want to read Robert Caro because like you want to read thousands and thousands of pages that like really make you feel and understand what it was like to be in the room with Lyndon Johnson. You don't want a sentence. It's like political power comes down to like, are you able to get money and allocate it to this thing? Like you just want the stories and the experience and like to be in that room. So if anything, my pieces might get like longer and deeper now.

• 10:27Speaker 00

  And like maybe I'll have an audience of like 10 people, but like really like I think that.

• 10:33Speaker 00

  That like Jim Simons at Rentech versus like Robert Carroll, like who would be a better earlier stage, early stage investor? And I think it's actually like Robert Carroll. Like, I think like literary nonfiction done really, really well, or journalism done really, really well, like should actually be the best way to understand an early stage company. If you talk to everybody around it, you like really try to like, put yourself in the shoes in this moment in time and like, why now works like, I think you can write a piece that is like the best underwriting that you could possibly do. And so more and more, I want to like, figure out how to get that kind of richness in the pieces to understand, to understand companies. What is a shame is, is to write a piece that deep and then be like, actually, you know what? I don't think this is a good investment.

• 11:14Molly O'Shea?

  Has that ever happened?

• 11:15Speaker 00

  Yeah, for sure. There's definitely been companies that have gotten.

• 11:17Molly O'Shea?

  You've gone like halfway through and you're like, oh, you know what?

• 11:19Speaker 00

  I've gotten, I don't think I've ever gotten halfway through. I think I've gotten like, I've started doing research.

• 11:23Molly O'Shea?

  Is the process like outline, like research, like reading?

• 11:28Speaker 00

  It's a lot of, a lot of research, a little bit of like, so I don't outline, it'll be like a lot of conversations, a lot of like reading to get up to speed on the industry, talking to the team, then talking to people around the team, maybe their investors, maybe customers, maybe like a competitor ideally telling me like, why, like I shouldn't be as excited about this company. So talking to a bunch of people around the company, doing a bunch of research, and then I just kind of start writing. And then I'll realize when I'm writing, like what other questions I have, because I get to a certain point where like, I need more information on something else. And then I'll go back and do more research and kind of go from there. So I don't think I've gotten, I've never like, well, I've certainly written pieces and not invested for whatever reason, often because I'm writing about a company that's later stage than we would invest or something like that. But I will get kind

• 12:13Speaker 00

  of through that first round of conversations and just be like, this doesn't seem like it's, it's the one. I think there's also probably a fair amount of like,

• 12:23Speaker 00

  you know, pretty quickly. And then there's a lot of like explaining to the world what like feeling you got and why, why you know, but it's like a lot of backfilling that like initial feeling that you get, that you get from a company. And so I think I can kind of tell that in, you know, the first few conversations and then a bunch of it is checking, like, does this all make sense? I do think like, And people say this and it's cheesy and it's like also true is that the founder really matters? And like, there's definitely a midwitt curve on that that I've written about before, which is like, you think founders really matter and then you're like, no, no, no market and like strategy and whatever else in the founders. And it's, it's true for like an interesting reason, which is that like if this person is actually really good, every question that you've had, like they've thought about, they've answered really well and they're willing to commit their life to it.

• 13:06Speaker 00

  Where you're like talking about one of your however many checks in a given fund. And so I think like the right founder is like the shortcut for everything else that you would research is like, they've thought about it and is right.

• 13:19Molly O'Shea?

  Right.

• 13:19Speaker 00

  But then a lot of that research is figuring out like, actually, are they good? So like it's definitely circular, but if you can figure that out, uh, you know, it is a compression algorithm for the rest of it.

• 13:28Molly O'Shea?

  Love what you're hearing on Sorcery VC. Unlock even more with passes, you'll find exclusive bonus content from this podcast. Deep dives, behind the scene insights and extra resources tailored for founders, investors and startup enthusiasts. Head to passes.com to access everything you need to take your knowledge to the next level. Are there certain characteristics of founders that you've noticed over time? Carry the same narratives within your writing? Like, how does that come through?

• 13:58Speaker 00

  So I just read about Meter. We didn't find that this is an example of one that is later stage than, uh, than we invest in, but that I, that I love Meter. And I thought they were a really good, uh, device for exposing like one thing that is like really hard to wrap your, like to, to put into words. But it's essentially that like they get, they make great people want to do great work for them. And it's like this really subtle thing that I don't know like how they, how they do it really, but like, you just don't want to mess up for them. And like, that goes to employees, that goes to their investors, that goes to like me certainly writing this piece, like wanting to make sure that I like got it as right as I possibly could. And I took a year to write this piece. I think that is a really valuable thing. It all comes down to people and like the team that you build and like what you get out of your people in the end.

• 14:41Speaker 00

  So if you have this like magnetism or like this almost like people have a fear of disappointing you and that they really want to like do their best work for you. I don't know how to like, you can, you can tell, I think, when you talk to somebody, but like, that's a hard, hard thing to put into words. That's a big one that I think is maybe not like discussed enough. And then I think there are just like, you know, curiosity, like walking through the idea maze with somebody like I really love. Like, they just like, just know absolutely everything about the history of their industry and like, why like the individual like, personality tick of a founder who tried it before, like actually was like the reason for their downfall. Like, just like the more nuanced and specific information, uh, the more they know like why people, I love when, when, you know, people have failed. There's industries where people have tried to do something and failed and the time just like wasn't right. And now someone's going to come in and do it right.

• 15:24Speaker 00

  And so an understanding of like, what was wrong then and why it might work now. Uh, I think all of those are really good, but yeah, the one that, the one that I'm trying to like get, get more and more of, uh, like get more clarity on is, can they get great people, try to do their like absolute best work for them?

• 15:38Molly O'Shea?

  Yeah. You mentioned Renaissance and then you mentioned authors and journalists.

• 15:43Speaker 00

  Yep.

• 15:43Molly O'Shea?

  And that creative nature of just understanding a company going through an idea maze and that sort of thing. I've noticed at least like throughout the years, like the over intellectualization of doing research and just diligence in companies through and through, like it does come down to just kind of like five key instincts at the end of the day, you know?

• 16:04Speaker 00

  It is like a really interesting VaynerPulon.

• 16:06Molly O'Shea?

  Yeah.

• 16:06Speaker 00

  Cause I do think there's like just so much venture theater where like, you just have to do a bunch of stuff because like, your boss, you know, your GP expects it or their LP is expected, like there's just a bunch of like shit that you have to produce to like, talk yourself into a decision. I view a lot of my writing, it's one of the most recent decisions I made, it was like over a three hour coffee. I didn't write a single word, you know, I'd met the guy and read the deck and loved him and, and invested.

• 16:33Speaker 00

  I think a lot of it's like prepared, like almost like each

• 16:39Speaker 00

  piece that I write is like preparing for the next one, almost, it's like, it's explaining them to future investors. Cause I think like, instead of having to go through the data room and do whatever, like just to be like, all right, here's like kind of what this company is going for, uh, in a simple way. Uh, I like prepare that thing for the world and then, uh, it prepares me like to kind of just like get a better intuition.

• 16:58Molly O'Shea?

  Right.

• 16:58Speaker 00

  In the next one, like.

• 16:59Molly O'Shea?

  Yeah. I mean, I think macro wise, the industry has taken a really large shift over the last couple of years where. We all know, like, it's no surprise, so much capital has come into it. Every fund had to really tighten up and like make their thesis more poised than the next. And so you get really large analyst class, you get lots of diligence, you get more research. And so now I feel like we might be tipping back a bit because that doesn't necessarily lead to the best outcomes. Um, if you're just picking through things, doing market maps, doing lots of research, you kind of lose the script. And another thing I want to point on on this is one thing I learned at upfront ventures, what I thought was like really interesting was when we were doing partner meetings and we

• 17:42Molly O'Shea?

  were looking at companies, Mark, Mark Suster was always thinking like, is this really the narrative of the company or is this the narrative you want to think of the company? Like, where's, where's the difference between that and where's the truth? And I think those are like really interesting questions to pull upon on decision making and thinking through which ones you want to do. So do you think like macro wise, we've gone too far on intellectualizing this industry and we should probably pull back and go more into the journalist nature of let's just research and discover and figure out like if there are little trends beneath that will pull this up and create a power law dynamic in the future?

• 18:18Speaker 00

  Yeah. It's a good question. I think the way that I do it is exactly right and the way that everybody else over intellectualizes is like totally wrong.

• 18:25Molly O'Shea?

  Okay.

• 18:26Speaker 00

  I'm kidding. Uh, no, I, I like, I think actually some of the biggest mistakes that I made early on. And like, you know, sometimes you can be a junior person at another, at a, you know, at a bigger VC and make your mistakes that way. Mine was kind of like making them as I go running a fund. A lot of it was like, I would be like, oh, cool. I can see like if this happens and then this happens and then this happens and then that happens. And like things go just right here. Like this could be a really big company and like it never works. Like you can't like, you know, there's the, the compounding miracles or whatever that you like, don't want to bet on. And like that is, that is totally true. And I think you can like, or at least I can over talk myself into something being the case.

• 19:00Molly O'Shea?

  Yeah.

• 19:01Speaker 00

  The way that I think about it now is like, I, Hopefully, like, one of the things that has certainly changed and that I've gotten better at is I've just gotten to spend a lot more time with great founders. You know, as I've like, as I've just gotten to write about a bunch of companies and, and spent a lot of time like, kind of studying and writing about and just working with these companies. My sense for like, what's great is getting a little bit better. And I think that is just like, literally time spent. And some of that is writing and reading and like, seeing how they think and all of that. And so when I write, like, sometimes it's me like, really thinking through, does this make sense or does this not make sense? And like, let me pick apart the strategy. But I think to your point, like, a lot of the time, the decision is made, like, before I start writing the piece, because it is a big investment of time before I write the piece.

• 19:45Speaker 00

  And so try to do like, the basic research that I need to, but often, like, we just invested in a company called Somos Internet, based in Columbia, founder is named Forrest. They're like, he's absolutely unbelievable. And we had coffee and like, I like to tell, you know, LPs and conversations, I'm like, yeah, I do all this research, like, that's how I make decisions. And then Forrest, like, I tell them this also, like, I met this guy and like, kind of within 30 minutes, I knew. And then like, at the end of three hours, I was like, all right, like, just take my money before the series A comes together. Like, let me put it in a safe, please. And like, we'll, we'll go from there. And so that was not over intellectualizing, but because I'd been writing about meter, Somos is a, like, almost like a telco.

• 20:28Speaker 00

  Because I'd been writing about meter, which is a networking company, I became a lot more familiar with the space. Because I did an Age of Miracles podcast on nuclear energy and like, went super deep there. And we talked about nuclear and I could see the way that he thought about a topic that I knew really well. And I knew a little bit about networking, but not a ton, but like, knew enough to know that he thought about that in the same way. And because I'd kind of thought about this vertical integrated thesis, like, there's definitely could have been some overfitting because he'd also read my stuff. And it's like, you know, giving some of the facts back to me. But just the way that he thought through the whole system is something that I don't think I would have been prepared to judge had I not done all of that other stuff. And I wouldn't have been prepared to judge in the moment and like, it developed my intuition that way. Now, will I like, write a piece on them eventually? Like, absolutely.

• 21:09Speaker 00

  But a lot of that is like, you know, explaining to the rest of the world why this crazy. Internet company in Columbia where you don't think like I thought vertical integration like maybe a level too deep would be like trying to compete with the Comcast and the AT and Ts of the world because like it's just so expensive to to lay fiber and build out a network and like what they are is just like capital machines that can like just spend a bunch of money on CapEx and how could a young startup ever compete? And then he goes out and like totally proves me wrong. And so there'll be a really interesting story there to tell and you know, hopefully can can explain it in a way that future investors uh can at least like no one should ever make a decision based on what I write, but it's like a good way to say like, oh, here's kind of what this company does that maybe I wouldn't have looked at before.

• 21:49Speaker 00

  And so I'll write the story and they kind of back into that initial feeling initially and explain it. But like really, a lot of it comes down to like developing enough knowledge that I can like get that kind of gut feeling.

• 21:59Molly O'Shea?

  Yeah.

• 22:00Speaker 00

  When I meet somebody.

• 22:01Molly O'Shea?

  I want to talk about your overall investments. So if you could just lay them out, like what were the most significant investments for you that you felt like, oh, I I've got I've got something on my hands. Like, I'm going to continue doing this.

• 22:13Speaker 00

  Yeah. So I mean, there's a bunch and yeah. So the first couple of funds were kind of broader, different stages, different kind of categories. And there's a bunch of like great ones in there. We have, you know, Bram, we did Scale AI, we did Replit, we did Chroma, Varda, Hadrian, Pipe Dream. I'm going to forget like a million companies, but like a bunch of like really good companies. And so I got to know along with a bunch of companies that I did that thing where I like ping ponged my way into thinking that they might be one of those one day. And like, I definitely have seen this thing where a lot of my smaller checks are the ones that have failed already, where it's the ones where I'm like, I don't like fully, but like maybe like if it does, it'd be like really huge. And like, it's a pretty cheap price. And so like you can.

• 22:52Molly O'Shea?

  I'm not going to write it to zero. Yeah.

• 22:53Speaker 00

  Yeah, you can see that in the numbers, the smaller checks, the smaller checks are the ones that are doing doing worse. So there is something about the gut there. I think I think also, I think what's like really been exciting recently is kind of having a thesis that we're that we're going against on this vertical integrator thing and like kind of seeing seeing it start to work like Earth AI, we did this mining company, you know, and they're they're in the middle of Australia.

• 23:17Molly O'Shea?

  They just had a funding round announced.

• 23:18Speaker 00

  They just had a funding round announced. And with that one, I felt like I was taking crazy pills. Like the there's just like, I was like, this is the greatest company I've ever. Seen in my whole entire life, like this business just becomes like unbelievably cash generative. They're making discoveries at a greater rate than than a traditional kind of like explorer would. And like, like, what, what am I missing here? Like you get like a couple, you start selling stakes in some of these mines and like, it just becomes this business that just like spits cash back in and then you get more rigs and it just like accelerates. Like everything about this business makes all the sense in the world. Obviously, we have this critical minerals problem. He did like this whole thing where he was in Y Combinator with software and realized like the, you know, the customers that he was selling to, these explorers were actually like awful buyers and awful customers for the product, which meant that they're like amazing to compete with.

• 24:02Speaker 00

  And so if you vertically integrate, then you like go right after them like, and it's all like kind of working. And it's this weird company that's taken seven years to get to this point. And it was like, not the most expensive round when we invested, but it was between rounds. And so like for a while there, it's kind of like hanging out. There's this like small group, Ian at Kantos was in there before, before me and has been, you know, been a huge Earth AI fan. And like, there's just this like growing, small, like passionate core. People are like, isn't this like, what are we missing here? Is this the greatest business of all time? So then Kantos and Tamarack Global just, just co-led a big round in Earth AI. We had, there were investors who underwrote them and were like, you know, we love them and we love the business. But like, I don't know about, you know, it's a tough one, like to, you know, fundraise in the future. Like what if they need a lot of money? And I thought that was such a fundamental misunderstanding of the business.

• 24:47Speaker 00

  Cause if things go well, like they might opportunistically do a big round. But if this model goes well, like they do not need to raise again because they can sell state little, little stakes in their minds and use it to fund. And like, it just, it's a beautiful, beautiful business. And so like, there's little signs or it feels like it starts to work when those rounds come together on the ones that are like, I'm hanging out in the middle of, you know, like, I'm just like, I love this one. Like, does anybody else love this one? And someone, someone else comes in and says like, oh no, yeah, we actually also love this one too. Those are the exciting ones. I mean, I like, yeah, consensus ones where they also get marked up and like, that's cool. But it's, I think it's more fun to like, try to have a unique point of view on the world and on particular companies and the people who are running them. And then see like that become consensus over time.

• 25:30Molly O'Shea?

  Hey, it's Molly. If you enjoy our interviews, check out our newsletter, sorcery.vc, where we deliver a one time a week, top deals and tech headlines report and go deeper on our conversations. Subscribe to Sorcery today and don't forget to subscribe to the podcast on YouTube, Spotify, Apple, or wherever you listen. The link is in the description to sign up. I want to break down vertical integrators. You've written about this multiple times. Most of your portfolio is somewhat associated with it. A couple trends that are going on, of course, AI is great. It's it's helping many industries out there. Legacy industries have always been left in the dust.

• 26:15Molly O'Shea?

  People are saying it's this is helping them leapfrog into the next generation of technology and actually make their businesses more efficient. Get better technology in, lower their their headcount, their CapEx, all that kind of stuff. So if we break down vertical integrators, like what? What are the fundamentals that that make a great business there? And what did you learn from that you were like, oh, my gosh, I got to spend time on this?

• 26:37Speaker 00

  Yeah.

• 26:40Speaker 00

  So it's I think there's like a few different things that are kind of in this same ballpark. There's like deep tech is becoming more popular. Hard tech is becoming more popular, defense and aerospace. And there's like this particular view of the world. I think deep tech is amazing, and I'm not the guy to to like underwrite deep tech. Because a lot of it is you have to build a particular type of portfolio where you're taking a bunch of like early stage risk on things.

• 27:04Molly O'Shea?

  Yes, but you've invested into many deep tech companies.

• 27:08Speaker 00

  Deep tech ish, you know, like, well, I'll go for that on a limb and bio because we have Elliot Hershberg on the team who like knows what he's talking about there. There's a lot of like deep tech that I think you're taking science risk. And I think with vertical integrators, you're taking integration risk where there's like five different kind of like cutting edge ish, but proven technologies that you're trying to put together in in a system. And you're betting that that system delivers a product that's better, faster, cheaper, and ultimately has higher margins that you can reinvest in the business and grow faster than the incumbents and like hopefully a slope in or over intercept thing over time where not only not only kind of should they eventually be able to beat them, but like they should be bigger than the incumbents that they replaced because they have higher margins and faster growth.

• 27:51Speaker 00

  And so their their valuation should theoretically be higher. And I think, you know, like the the case that's happened now, Manorall just raised a two X step up again, and they're at 28 billion. And they're not that far off now. They're like a quarter of the way to the big defense primes kind of market caps and continuing to grow really fast and like what doubled revenue last year and doubled doubled their their valuation in line with that.

• 28:16Speaker 00

  And so I think that's like a big, a big part of the thesis. Like my favorite example to use base, base power company, which I wrote about last year. There's like a bunch of, they're, they're doing batteries and doing residential batteries.

• 28:26Molly O'Shea?

  Can you go deeper into base? Because I, I feel like this is a company that's, that's hypey for people who know about it. Like it's a big deal, but most people don't know about it. So could you share more about base?

• 28:37Speaker 00

  I think base is going to be a generational company.

• 28:41Molly O'Shea?

  Who founded it? Like, how much have they raised? What do they do? Why is it so significant?

• 28:45Speaker 00

  So founded by Zach Dell and Justin Lopez. Justin ran manufacturing at Andro before this. Zach was at Thrive and Blackstone and had a bunch of good kind of like finance side experience. They have a guy who's building their kind of telemetry and distributed systems who ran the laser mesh network for, for Starlink. They have the guy who did the Tesla Powerwall three manufacturing is now doing their battery manufacturing. They're just building this like unbelievable team. Their insight is there's this like great chart that Justin showed me. That's essentially like the cost of electricity is not getting cheaper, even though the generation side, like how much it costs to actually produce the electricity, whether that's through solar or wind or nuclear, whatever generation is when you're making the, the electricity upfront.

• 29:28Speaker 00

  That's actually getting cheaper and cheaper over time as you add more renewables to the grid. Like it actually does get cheaper because when, you know, there's, there's sometimes in Texas and California, when it's so sunny that they pay you to take electricity off of their hands. Electricity is not getting cheaper though, because transmission ends up getting more and more and more expensive over time. So like getting it from point A to point B, there's like long delays on the, on the interconnect queue. It takes forever to build transmission. There's transformer shortages, like that whole piece of the puzzle is like completely messed up. And so there's one view of the world where it's like, oh, I'm, I'm sure like we'll figure out how to like fix transmission or whatever. The other is let's put batteries next to houses and like you, by, by putting batteries next to houses, you can fill them up when things are cheap or when the network's not congested or whatever else you store it.

• 30:12Speaker 00

  And then like when there's demand from this house right next to you, you just like kind of feed, feed them the electrons and, and it all works out. And it's like a more decentralized way of fixing the grid. And it means that you don't actually need as much transmission because you get more out of the transmission that you have. Or you might not need to add a new transformer because you can get more out of like the, the infrastructure that you have there. The thing that I like love about it is. If you believe that renewables are happening or nuclear is happening or like any of these generation sources are happening, you want to have batteries like they're just like complementary to any new electricity source because anything that has kind of high CapEx and low OpEx. So even that's like that's solar because the sun shines and it's free, but that's nuclear

• 30:55Speaker 00

  also because you're spending a lot of money upfront and then like the actual fuel costs are de minimis over time. Because if like even if you have a nuclear plant kind of going 24/7, you know, right now that energy is not needed 24/7, but you can fill up a battery when it's like not needed as much on the grid. And so it's complementary to that. It's complementary to solar as wind and solar make the grid more volatile, batteries are more valuable. But also as we electrify everything and everyone gets home at five o'clock to charge their Teslas, batteries also become more valuable to smooth out kind of the demand side of things too. So like both of these huge trends in terms of electrification and in terms of like the types of energy that we're putting on the grid, both of them like really benefit to have batteries kind of attached to the house. And so base is the one that's doing that and they're doing

• 31:38Speaker 00

  that in a way that's like fascinating. They, you know, like I love this example and I use this one of the vertical integration pieces. They do battery pack assembly. And so like there's different things that you could do on the battery. You could try to like figure out a new cell chemistry or something. And like that's like more of a deep tech type bet. Yeah. They're like, I don't know, we'll just do the battery pack assembly because not only like then we can plug in kind of whatever cells people come up with that end up being the best cells that we could possibly use. And so like if someone has like some breakthrough chemistry, we just throw that in our pack. They can also design the battery pack to be part of kind of like a larger system where like the thing that they're trying to go for is is not just like how big the battery is, how it discharges, like how it talks to the rest of the grid, but also how easy it is to install and how fast it is to install. Cause like part of their

• 32:22Speaker 00

  goal is just like, how do we get these things installed quickly is as part of like, you know, the whole factory that they're thinking about is like, how do you make the battery, but then get it installed? And so they make different trade offs because they control the whole system that you just couldn't if you weren't vertically integrated. They're a retail electric provider. So they like are your power company when you install the battery. They, because of that, they don't have to sell it to you. They just rent you the battery essentially. And you pay for the install costs and then they're able to make money trading power and doing all sorts of things. And so just being vertically integrated at the right level, not doing everything, they're not doing the cell chemistries, but being vertically integrated at the right level. They're providing this like unbelievable service to the grid that is valuable to the people starting in Texas, like who are having, you know, record numbers of blackouts and outages.

• 33:03Speaker 00

  So yeah, clear value prop to the customers at a cheaper price and they can make more money off of it than than somebody who's who's selling you the battery, like just everything about the business is just like this beautifully well thought out thing. And then they're executing violently and like growing super, super fast against that.

• 33:20Molly O'Shea?

  How are they commercializing?

• 33:22Speaker 00

  Yes, kind of in two ways for now. One, they'll just sell direct to consumers. So as somebody in the markets that they're in in Texas and they're doing Houston maybe soon. And in and around kind of Austin now. You can sign up direct, they'll come install a battery, you pay the install costs and then they become your electric company. And so you pay them kind of every every month and then they'll make money by storing storing the energy when it's cheap. And when the sun is shining, the wind's blowing, store up the energy and then put it back on the grid. When the grid needs it and when electricity is more expensive. And then the other way they're doing it, they sign a partnership with Lennar, which is a big home builder. That people can sign up to just get a free battery as part of their new house when they when they sign up with with Lennar to, you know, to get a new house.

• 34:06Speaker 00

  So I think there's another thing that I love about this business is just a million ways to kind of get this thing to market. One of the big questions, I think, when I wrote the piece, like, which is interesting, I think, actually true for a lot of these vertically integrated companies is. Okay, I you believe that they can do the technical stuff, like it's hard, but you like they can do it, it's all possible. The go to market, I think, is like a harder thing and you have to prove that there's that there's demand. They've really, really proven that and their waitlist is like a mile long now. And so it really becomes like a, you know, if you build it and figure out how to install quickly and all that, like the demand is there. And so that was a really big kind of unlock that they they've proven since I wrote the piece and.

• 34:49Speaker 00

  I don't know, it's just, it's just like excellent founders who you expect now to just execute really well and they build an amazing team that can execute well too. And so, I don't know, it's, it is an interesting thing about these vertically integrated companies as well, where like upfront, I think people think it's riskier and more capital intensive than it actually ends up being, or particularly from the perspective of the equity, like you will need debt and project financing.

• 35:11Molly O'Shea?

  Yeah, it's like, it's a different asset to what venture capitalists are used to where it's like, okay, here's like $5 million, build it cheap, get like an 80% margin, you'll be good, you're starting to start cooking, you're going to grow really, really exponentially. With this, it's like capex heavy, you really got to prove it out, you're not raising 5 million, you're probably raising like 15 to start, maybe 50, maybe 100, like whatever it is. And then like an inflection point happens and then it's like, oh, that's 10 times more impressive than that. And like, that's actually really hard, so it's valued more.

• 35:43Speaker 00

  And it's harder to kind of come in and, and as like a new startup and knock it down, you've actually probably, as one of those companies that starts working, like you look at the SpaceX cap table and it's like actually amazing they've found anybody else who was like willing to fund a competitor just because there's so much capital on that, that cap table. And I think, you know, that ends up happening too, where like the ones that start working, it becomes clear that you should be able to pile a lot of money into these. And so larger funds like want to be involved in what looks like the winner, which means that they maybe even wait a little bit longer, but like, once they do, it's, it's kind of game on. If you look at, I mean SpaceX is such a weird example and it's like a unicorn in like the truest sense of the word, like an N of one company.

• 36:20Speaker 00

  But I think they're like 50% dilution over the past 20 years, even though they've raised $10 billion of, of, you know, of equity aside from secondaries. And a lot of that's just because like the valuation step ups on these things just like continue to get higher and higher. Cause once you're the space launch company and you have this cash flow machine that is, that is Starlink. It's just like, it just works.

• 36:43Molly O'Shea?

  It's a true moat.

• 36:44Speaker 00

  It's just a true moat. And so like, you know, you actually, it ends up not being very dilutive at all. You have, you know, the government contracts that they were able to, they were able to sign early that funded some of it. And then if you hit a certain point where like, it's just, it's just a good business. Like it becomes a real business, I think, very quickly. Whereas I do think with a lot of software, we're seeing this in AI now. Like, there's so many businesses that get to $10 million in ARR, $100 million in ARR, like so, so, so fast. What scares me is they'll be able to attract a ton of money early on. Are they around and growing really fast in seven to 10 years? Like certainly some of them will be. And I think by choosing to like not play in this space, I'm definitely missing a trillion dollar company or two.

• 37:26Speaker 00

  But I think for the most part, like, I think there's going to be like a lot of these types of things happening. Or even like these types of curves where the growth just kind of like flattens and like people keep using it and whatever. And it's fine, but it just is like very hard for me to see IPO in seven years or whenever they, they need to go public. I could be totally wrong on that. Like it's the fun part about this, about this game, but like that scares me. Very fast growth early on, uh, really scares me. Whereas like building something durable and then taking off is, is more exciting to me.

• 37:55Molly O'Shea?

  There's like such a psychological component to it too, because I feel like most of these hard tech founders that have to raise a lot for CapEx are just told they're like idiots. It's not going to work. Like it's crazy. Like what are you doing? Like, I mean, look at Elon, he's been told he's crazy every day, every hour. He's also, you know, a different beast.

• 38:16Molly O'Shea?

  He's a different beast. In your portfolio, I've noticed this, I'm in LA, not right now, we're in Matt's studio, which is great.

• 38:24Speaker 00

  Great studio.

• 38:25Molly O'Shea?

  Great studio. But in LA, like I've noticed this with some of my friends' companies and some of your portfolio companies like Varda, Hadrian. I feel like they've all hit this inflection point in the last year and the American dynamism trends really helped push them over the edge. And now with the new administration, they're going to the inauguration, they're going to different events, they're getting involved. And it's not like there's, there's real reason for it because they, they are the player. Like they are the one that's going to be chosen. So if you could break down like any more of these vertical integrators, I'd love to understand like how they build out that stack.

• 39:01Speaker 00

  Yeah, I mean, the really fun part, and I think why like I got nerdsniped by these is that they're like all completely different, right?

• 39:08Molly O'Shea?

  Yeah, well, they're all so they're all different and they're all different categories. So how did you like line up like all the different spaces you want to go after?

• 39:15Speaker 00

  I don't like a lot of it is this is my like big thesis. If you're doing something that looks like this, come, come find me. And that it's either like through investors that are on the cap table or just the founders directly will be like your vertical integrator series like, yes, like I'm actually not building deep tech like this is the thing that like, this is actually more of the shape of what I'm building, like would love to talk to you about it. So a lot of that ends up being inbound like again, like if I'm coming up with like, oh, you know, you know what really needs a vertical integrator is this like, it's probably not. It's either too obvious or whatever. Whereas, you know, something like a Colombian telco that could use that to then like bootstrap to world domination, like not something that I ever in a million years would have thought of myself, then you meet the founder who read the piece and wants to come talk about it and you're like, yes, like this is right.

• 40:00Speaker 00

  You're the right person to be doing this. Like this, this makes a ton of sense. I think JC at Fuse is like another perfect, perfect example of this where like, I think I've thought fusion was fascinating, like most people in the world do, I'm probably more just like kind of by nature and also having studied it like more optimistic on when we actually get fusion power than than most people are. My one gripe with the industry generally is that they're all like, this is safe on like vision and like vision's a disaster and like, we really need fusion when I think the you guys are all on the same team and like, let's not throw anybody under the bus. But having studied fusion, I was still kind of like, I'm so glad that Sam Altman and Bill Gates and like billionaires are burning their own money on fire, trying to get us to fusion because like this is not an investable category as much as I like, love it.

• 40:43Speaker 00

  And then you meet JC at Fuse is like, actually, no, it is. If you go with this one particular architecture, what you're really doing is selling radiation by building these pulse power generators and you can use that for rad hard electronics and nuclear arsenal testing and like all these things that can generate money on the same exact path that you need to go to like, put enough pulse power generators on to actually create fusion. Power and so you can build this like really big business with a call option on fusion power like never in a million years would I have thought of that myself and then you like talk to somebody you study it and you're like this actually makes all the sense in the world and I think there's like a little like you need a little glimpse of like holy shit JC is special like this is a kid who's 11 years Canadian immigrant who's like started the company when he's 19 years old and every time I talk to him he gets like smarter and smarter and smarter not

• 41:27Speaker 00

  just on fusion but like how to navigate the government and like you have all these three letter agencies that are the buyer of this technology and so like by the third or fourth of those conversations or like he knows what he's talking about like it's probably worth taking it seriously then I do the work and like go in and try to understand like how you know using what I learned about fusion doing the podcast but then also like talking to him about his specific thing and just like doing a ton of research and analogizing I think actually rightly hopefully in this case with SpaceX so like you want to be like his whole thing is they want to be the NNSA the National Nuclear Safety administrations I think that's the right acronym they want to be the NNSA is SpaceX essentially like like you know like SpaceX was to NASA they

• 42:12Speaker 00

  want to be to the NNSA so you go do a lot of research like after you realize like there's something special about this person and what they're telling me actually sounds like it makes a lot of sense and then I think from there like that's when I like I can talk myself into this business does make does make a ton of sense and I think in fuse's case like it really does and I think investors you know they raise and over subscribe round this this last round that they did and they just like continue to execute and so those are those are super fun to be and like none of them could be like me market mapping beforehand yeah like I think there's actually an opportunity in fusion if you do this thing like I have no idea like how in the world would I know that

• 42:51Molly O'Shea?

  Are there any areas that you've been cooking on that you're interested in going into or maybe some that yeah are there any areas that you've you've thought about for a while but you haven't found like the right founder the right opportunity but like you would love to see done right

• 43:09Speaker 00

  That's like really not how my mind works on this

• 43:12Molly O'Shea?

  You're like I don't I don't think that way

• 43:15Speaker 00

  It's not that it's partially that I don't think this way here's a spicy take for the podcast

• 43:22Speaker 00

  Like when YC puts out their request for startups, I'm like, I can't imagine that anything good is going to be built against these categories, starting now, because you've read the YC request for startups. One, because it becomes like, there's just a lot of, even if they have the best ideas, it becomes too much attention on that idea and whatever else. But two, like, the beautiful thing about being able to write and invest in, write about and invest in these founders is like, you get to talk to some of the smartest people and like most driven people and whatever in the world, who have dedicated like every fiber of their being and like all of their financial wellbeing and like everything to thinking about like this particular problem. If they're not coming up with insights that I couldn't come up with, or like even opportunities that I couldn't, like something is horribly wrong and I'm like talking to the wrong, the wrong founders.

• 44:06Speaker 00

  And so I think a lot of it is just, is just that, like if I'm like, I would love to see someone like, you know, do faster cars or it's something, you know, like there, there will be, if faster cars are possible right now, like there will be a good founder out there kind of building it, you know, like we'd all love faster travel. And I think that, that hopefully, you know, between boom, what they've been doing recently, but you know, Ian at Astro Mechanic, I wrote about like, I think there's a path where we wake up in 10, 15 years and like, first it's supersonic private planes and then supersonic commercial planes. And like, that is a long path to, to kind of get there, but like, the technology is there and actually like, just batteries back to, back to base, like batteries getting better actually like make that possible now for the first time in a long time. And if I'm not tracing that battery cost curve and like what that means for the weight

• 44:50Speaker 00

  balance in a plane, like I don't know that it's the right time to do a triple electric adaptive jet engine, but like certainly the person who's like, wanted to be a pilot or has been a pilot forever and has wanted to be a supersonic pilot forever, like that person is obsessively tracking that curve and seeing like, yep, now is the right time to do that. And so I think like, it is just so particular, the circumstances that lead to there being good opportunities that it's better left to kind of inbound than me.

• 45:13Molly O'Shea?

  Yeah, it's very particular. You would, you would hope with the YC market maps and those requests for startups that there is like some confirmation bias of someone who's been thinking about it for a while that's like, oh, now I can like, now I have an excuse, go do it.

• 45:25Speaker 00

  Yeah. It would be very interesting. And I'm, there's so many areas where I'm like, probably like partially right in the general, and then there's like a specific case that just like knocks me out of the water and like pays for all of the ones that don't work. And so it'd be interesting actually to go back and look at their request for startups and then what has been founded kind of after that date. And like, which I'm sure there are going to be a bunch in there that actually like do make a lot of sense.

• 45:51Speaker 00

  But I just think investors like shouldn't often be the ones thinking of like, here's the opportunity. Like it's just not how it ever works. It's like a very obsessed person who's like all in on something, figuring out like the specific reason that something might, might work.

• 46:05Molly O'Shea?

  So I want to talk about the downstream capital for these capex heavy businesses.

• 46:13Molly O'Shea?

  I've noticed that there's not much capital there. Surprise. So what, what are you seeing in terms of maybe, maybe power law dynamic companies are one category and then the rest are another. But what are you seeing in terms of how they're getting their series B, their series C, their series D funding? Obviously SpaceX is in a different category because now they just have recurring like tender offers and like, that's fine. But like, there was a huge dislocation in late stage capital for these companies, at least in the last year. I feel like it might be shifting, but what do you see?

• 46:49Speaker 00

  Yeah.

• 46:51Speaker 00

  I think it really depends. Like Anduril has had, you know, is in the SpaceX category now where they've also had a very easy time. I think that's one of the most interesting stories that we tell ourselves and I love Anduril have written about them, invested in them, like all of that. For that like early story that like nobody wanted to touch it. It was actually like a pretty crowded round at a hundred million dollar valuation. Like, you know, like it was like fairly obvious if you get that group of people together, like they're going to build something pretty special. And like, obviously having the, the courage to say like, you know, we're going to take the, the, the heat and the hate for investing in defense at a time when that's unpopular. Like that is still a hard decision to make, but it wasn't like, it was like, you know, Anduril's first round got done at five posts or something. Like it was fairly obvious that like, if anybody was going to build something great in the space, it would be this group of people.

• 47:34Speaker 00

  And that's really what I'm like looking for in a lot of these is like, uh, one, is it, if anybody's going to do something in this category, like is this the team that is going to do something?

• 47:45Speaker 00

  Bonus points if that is like, if somehow that can be like very legible to you and then like, you know that it'll be legible to other people, but like sometimes to your point, like you do have to kind of like just invest in Grin and Barrett and I wish I had more capital to like continue to support these companies down, down the line. I thought actually that at the series A, there was going to be a ton of competition for these companies. Like it just, I guess from writing about it and like speaking to so many of them, like it became obvious that like this was going to be a thing. And it's less competitive in a lot of cases at the series A than I thought. And it often ends up being like a specific thing. The downstream investors are like, if you do like this very particular thing, I don't want to like call out any of the companies or investors who've

• 48:27Speaker 00

  like told them, but they're like unbelievably specific, like single things. So there's generally the valley of death where you have to like build out manufacturing and all of that. And that's like traditionally hard to raise capital for. And I'm not talking about the valley of death at all. I'm talking about like literally, if you prove this like one thing, we're in with like a big check and like the valuation will double at the next round and all of that. I think that's a really interesting mispricing where I think like the chances they actually get that thing done is like 80, 90% and it means a 2X valuation step up and kind of becoming the anointed one if they get it done. And like venture is not an arbitrage game. So like you shouldn't like risk on that, on that arbitrage in particular. I just think it's interesting. But I think actually the B and then the C, like, once they get to a certain point and do some of those things and it becomes

• 49:11Speaker 00

  clear to others that like if anybody wins this category, it's going to be this company, then capital, I think actually becomes like really, really easy.

• 49:17Molly O'Shea?

  I want to shift over to AI.

• 49:20Speaker 00

  Yeah, let's do it.

• 49:21Molly O'Shea?

  Okay. So, Packy, you said AI will not become God or Satan because it's software. It will become an incredibly profitable super sass. What are your thoughts on the future of AI?

• 49:35Speaker 00

  I think that's holding up well. I was like, I was really nervous. I get nervous every time there's a new model release or like, you know, oh, three is like just solved everything. And then you like get a chance to play with it and you're like, oh, it's like a slightly smarter version of the last thing. And if maybe if I were asking like really hard math problems all the time, like I'd be super impressed, but like a new model like that comes out or, you know, we'll talk about deep sea separately because I think that's really interesting. Also, But a new model will come out and everyone's like, I played with it and it is like, it's going to change the whole entire world. And then you play with it and you're like,

• 50:06Molly O'Shea?

  You mean, deep research? Because everyone's talking about how that's changed their lives.

• 50:09Speaker 00

  Deep, I, deep seek is separate. So my deep seek point is that like, this like crack team, like figured out all these algorithms, breakthroughs and whatever, essentially just figured out how to do the same thing cheaper. Like, there hasn't been any leap that I've seen that have been like, yeah, that thing is alive. And like, I think people want to talk themselves into it. I think there's a lot of social capital on the line, like in SF in particular, and being like, the most excited about AI and like, the biggest believer in scaling laws. And it just, to me, does not feel like, as a user, qualitatively, and I've have pro mode and like, I pay the $200 a month, and qualitatively, it feels like, kind of slightly more impressive, and it can like, do longer context stuff. Like, the one that I still like talking to the most is Claude. Like, I think, yeah, there's a lot just on the product side, in, in making it feel a little bit more

• 50:52Speaker 00

  human. But it's a very impressive, it's like, it's a super, super impressive thing that you can like, ask this in question, it like, knows pretty much about anything. And like, there's not been one experience that I've had where I've been like, holy shit, like, that thing is godlike. Or, you know, even Darkesh, who I think is like, a pretty big, like, he's like, his career is like, staked on AI, he's like, interviewing everybody, he's like, right in the middle of this whole thing, shared the other day, a screenshot of his conversation with Dario Modi, where he was like, if this thing is so smart, like, why is it not made like, any new research breakthroughs? And like, you could argue, that's like, two ooms away or whatever, and like, you just throw more compute and better data at it, and like, we're gonna, but like, it doesn't feel like, actually, like, you're on that trajectory, like, it doesn't, I don't understand why, like,

• 51:36Speaker 00

  adding more scale gets you to like, this qualitatively different thing, whereas like, every experience that I've had going from like, playing with GPT-2, which like, talks like a baby, to GPT-3, to, like, it's really cool each time, and no time, I'm like, and this is, I don't even think like, a moving goalpost thing, it just like, doesn't feel human, like, it feels like a computer that was programmed to like, kind of talk like a human, because it's like, read all of the things that humans have ever produced.

• 52:00Speaker 00

  And so I don't know, like, I, I, I think it's gonna do like amazing thing. I think like companies are gonna get more efficient. I do think it's gonna be a useful tool for, uh, you know, making new drug discoveries. Like, I think like all of that is gonna be true. I think in a lot of these vertically integrated companies, like AI is the reason that a company that might not have been winner take all before would be winner take all now. Like, I think Ramp is a really interesting example of like, there might be a winner take all dynamic in corporate cards at some point. If like that system gets smarter and smarter and like has better data and like can just make smarter financial decisions for companies. And so I think like all of that is true. I called it super sass in, in that like 2025 prediction. And I think it is like, I think it's really amazing. And like in no way godlike. And it's just like, I feel like I'm being psy opt whenever people are like, oh my god, like this is like, this is, this changes everything.

• 52:45Speaker 00

  And like, I'm like worried from the future. And yeah, so that, that is, that's kind of my general opinion on AI. And it seems like cracks are starting to show now. And like, people are starting to kind of believe it of like talking to friends and private chats. They're like, yeah, it's like, it's very cool. It's not like, I think people, as I was talking about before, like, the question is really interesting. Like, having a great question is, is like really important. Getting the answer is like actually not that important to people in like most cases in anything where you can like just get a simple answer, like, isn't super valuable and won't be super valuable. I wrote about a couple of weeks ago that like, when something becomes commoditized, we're like, it could be answers or intelligence or whatever, like, there will be value at the next layer of the stack. And like, that's just how the world works. And like, whatever we can commoditize, it was one scarce. Like, that's a great thing for humanity.

• 53:31Speaker 00

  So like, maybe I like, I'm optimistic, more optimistic about the world by being like slightly bearish on, on AI, like taking over everything and just like displacing the need for humans. But it just like really to me does not feel like that's the path that we're on. And I'm like, we'll eat my words and I've did like, you know, the Rocco's Vassalist. Rocco, who like came up with Rocco's Vassalist, like I made this like humans, uh, you know, like the commoditization point. And he, there's just like weird group of people and he's one of them. And I think like, if you like, just like if you bought a ton of Bitcoin, like you make that your identity, if your like thing is like praising the AI god, that's what you're famous for and your like name is in that. He tweeted something about just like, it's a misunderstanding of economics and blah, blah, blah. And the way that he did it, and I'm not gonna get the words right, but it was just like this weird, like, anti-human, like coming to the defense of AI thing that I've seen from a few people that like really creeps me out.

• 54:19Speaker 00

  The people are like, oh, like.

• 54:23Speaker 00

  I need to like send you some of the tweets and maybe we can flash it on the screen.

• 54:25Molly O'Shea?

  Yeah.

• 54:26Speaker 00

  It just feels very like, almost like, uh, like species trader behavior from people where they're like, oh, you don't get it. Like, these things are gonna take all of our jobs. Like, it's like, what kind of cuck are you? Like, this is such a weird, a weird stance to take. Uh, and so maybe I'm taking the opposite of that. But again, I just like, just going based off of my own experience, I've not seen anything where I'm like, well, shit, I'm done.

• 54:49Molly O'Shea?

  Packy, are you just saying AI is a marketing stunt?

• 54:51Speaker 00

  No, I don't. Like, I think it's a technological, like, miracle, and you never bet against a curve. And it is so cool that it's getting 10 times cheaper. And it does a lot of really useful things. I think it is like a more valuable sass, like, because it can think on its feet. And like, I think all of that is true. And I also just like, I think it's very weird that, like, so many people are convinced that we just, like, throw more computer this thing, and it like replaces the need for all of us.

• 55:12Molly O'Shea?

  Yeah, I think, I think, uh, one of the biggest cracks that started to show was with the whole Stargate situation. Like, the, that one week was insane. You had the Stargate 500 million dollar announcement, or sorry, billion. What am I thinking? Oh, my god.

• 55:27Speaker 00

  Wrong um.

• 55:28Molly O'Shea?

  Wrong one. Anyways, so we had, we had that announcement, and then, uh, DeepSeek came out. And then we're like, oh, okay, so this is just a competition. Because then OpenAI released like five new models after that, and they're all named something different. And I don't know which one to use at this point.

• 55:44Speaker 00

  Yep.

• 55:45Molly O'Shea?

  And I'm very confused as a consumer, and they're really a consumer company, so I don't know what to do. But like, you started to see like, oh, okay, like, I, I, I really see what's going on here. And like, where the dollars are going. And no one talks about Stargate anymore. You're not hearing about it.

• 55:58Speaker 00

  You're not hearing about Stargate anymore.

• 55:59Molly O'Shea?

  You're not hearing about it.

• 56:00Speaker 00

  I think something like that will happen, though. I mean, like, it, I do actually think, like, if you can figure out how to make, you know, like, you make the model so good that, that they're really, really smart, and then inference cost comes down, and then everybody just gets like genius, like, like really good question answers.

• 56:16Molly O'Shea?

  Okay, so I do, I do know a lot of teams that have, have switched over to DeepSeek.

• 56:20Speaker 00

  Yeah.

• 56:21Molly O'Shea?

  They've, they've downloaded it, they're using it, and their costs are much better. They're using it. Like, it's, like, it's commodity business. We all know that. Um, like, we've known that from the beginning. So I don't know why we go through these circular phases. Uses of like thinking it's gonna change the world and it's like a power law thing and it's a it's a commoditized product. So whatever whoever is gonna get us the cheapest one that's the best we're just gonna use it like there's really no loyalty there and that's why there's so much switching and I kind of believe in more like the platforms where you can just choose from whichever one and turn on the dials.

• 56:53Speaker 00

  Openai is doing what like fifteen billion dollars and

• 56:55Molly O'Shea?

  But they're doing great. They're doing phenomenal. I'm not bashing them at all.

• 56:58Speaker 00

  They did their Super Bowl commercial and like this was crazy to me cuz like my son, my four year old, like when he has a question that I don't know the answer to, I'm like, I don't know, let's ask ChatGPT. And it starts with like the little black dot and then like turns into the blue dot. And as the black dot came on, he was like, oh, it's ChatGPT.

• 57:16Molly O'Shea?

  Oh, my gosh.

• 57:17Speaker 00

  And he's four and like that is a brand that like, you know, he might be with like talking to ChatGPT for the rest of his life, you know, or like some version of it. And so I do think there's real value in brand. I think actually like and this is not a interesting point either, maybe.

• 57:34Speaker 00

  But like, I think brand for like a lot of these like now nuclear is like getting and I like I'm so happy cuz like if you told me a year ago that like I I've been pitched like four SMR companies in the past week, like new, you know, baby SMR companies in the past week, which is awesome. And I think like nuclear ends up coming down, will end up coming down to like brand, like who got something working early on and like, you know, nobody ever got fired for buying like reactor company X that is good enough and cheap enough and and whatever else. Um, and safe enough and like

• 58:08Speaker 00

  that nuclear, something that technical and crazy would be like a brand thing is wild. That AI might end up being like kind of a brand thing because it's commoditized below. Uh, ends up being pretty wild and there's probably some iPhone thing with ChatGPT now where like you want to pay like it's a Veblen good where you wanna pay more for your intelligence and I know Gavin Baker has talked about on podcasts before like that you'll wanna just pay like a shitload of money for your iPhone that is just like really, really, really smart and knows a ton about you and I I generally believe that. But I think as as everything becomes like easier to make from AI to SMRs, like brand ends up playing a big role. This is another, and I know I sound like Paul Graham with my four year old now and like this actually happened. My son has become obsessed with building worlds like a planet, uh, and

• 58:51Speaker 00

  He was like, well, we can't spacewalk because it's way too slow. I'm like, totally bud. Like definitely. And he's like, well, how would we like, what rocket should we use to get there? And I was like, actually, I've just met this really cool company. They're doing single stage to orbit. And like, actually, that might make more sense in a normal rocket because then it can come back down. And he was like, no, we should do SpaceX because they've, you know, they've done more launches. I was like, that again is like this weird, you know, like thing where the

• 59:14Molly O'Shea?

  So you're talking to your kid about this?

• 59:16Speaker 00

  Yeah.

• 59:17Molly O'Shea?

  That's insane.

• 59:18Speaker 00

  It's insane because we like, watched, you know, it's a fun thing to watch the Starship launch and all of that. And so we've, we've done that and like, they will love watching the videos. My daughter loves like the robot videos and she's two and

• 59:28Molly O'Shea?

  Hacky, you're raising geniuses.

• 59:29Speaker 00

  I'm raising like kids who are equally obsessed with this, this stuff that I am more than, than geniuses and probably like imposing my, my view a little bit too much. But all of that was just not even have to say the genius part, more to say like, it is crazy that Star, that Starship and SpaceX have a brand again with like a four year old. That I think actually like, there's probably a lot of grownups who will make a very similar decision where it's like, we're putting our payload into orbit. Like, I know that this one actually like could be cheaper or like it has this like little advantage, but like the flight heritage on Starship is just like far superior. And like, nobody ever got fired for buying Starship. So there's all these categories that are so technologically hard that like brand will end up becoming like a really important thing. And so there is like a real value, I think, to being first to market and like just being fast in a lot of these categories.

• 1:00:11Molly O'Shea?

  As you think about this next year, what are you most excited about?

• 1:00:17Speaker 00

  Just as, I mean, like the intersection of kind of like writing and investing, like, I think it's just a vein that I can keep tapping for a while. Like really like, how do you like, how do you become as much of like a Carol level journalist on the companies that you're excited about as like humanly possible to understand them better? And like through that, understand where the world is heading and why the future is going to be good and like how to make the future good. All of those types of things I think are like, I'm still trying to figure out like what my central question is, but I think it has something to do with like, how can you use storytelling and writing to like, really figure out like where we're going and how to make that, how to make it good. And I think the more that I can have tools that help me in that, like the better, but it's actually again, like just more,

• 1:01:01Speaker 00

  how do I spend more time with people that I think are really interesting and have good perspectives? And, um, you know, the, the human thing, I think is just like, it's never going away.

• 1:01:09Molly O'Shea?

  Have any large funds tried to poach you?

• 1:01:12Speaker 00

  For sure, over time, yeah. I think not as much now. But for a while there, for sure. I was an advisor at A16Z for a while. But not as much anymore now, I'm doing my own, my own thing.

• 1:01:25Molly O'Shea?

  Okay, well, we can continue to watch you build the not boring empire and your boring news. Packy, thank you so much, it was great.

• 1:01:34Speaker 00

  Thanks for having me, this was fun.