20VC: The OpenAI Memo: Why Invest? Is it too Late to Catch OpenAI? Are OpenAI's Models Truly Defensible? Does the Value in AI Accrue to Incumbemts or Startups - Application Layer/Infrastructure? What Happens with Regulation? with Vince Hankes @ Thrive

Vince Hankes is a Partner @ Thrive Capital where he has led the firm’s investments in OpenAI, Melio, and Airplane.dev. He currently sits on the board of Airtable, Benchling, Lattice, and Melio. Prior to joining Thrive, Vince was an investor at Tiger Global where he learned the craft of venture from the legend that is Lee Fixel. In Today's Episode with Vince Hankes We Discuss: 1. From Tiger Global to Partner @ Thrive Capital: How Vince made his way into the world of investing with Tiger Global? What are 1-2 of his biggest takeaways from working alongside the legendary Lee Fixel? Why did Vince make the move from Tiger to Thrive? How do the two firms differ? 2. The OpenAI Investment: The Memo: How did the OpenAI deal come to be? What were the round dynamics? Market Evaluation: How did Vince and the team analyze the market top down? Competition: Who did Vince identify as the core competitors to OpenAI? Defensibility: How did Vince think through the long-term defensibility of OpenAI's model? Does Vince believe these models will become commoditised? Price: How did Vince and the team get comfortable with the $29BN price? 3. AI: Hype or Generational Defining Transformation: Trend or Transformation: Why does Vince believe AI will be the defining technology of our generation? Startup vs Incumbent: Does Vince think the value will accrue to the incumbent or the startup? Open or Closed: Does Vince think we will operate in a closed (one model rules them all) environment or an open-source environment with many models? AI Talent: Where does Vince think the majority of the best AI talent will concentrate? Speed: Why would Vince be scared if he were a startup today looking at the incumbents? 4. The Changing Investor: Lessons from Good and Bad: How has Vince changed most significantly as an investor over time? What has been his single biggest investing mistake? How did he learn from it? What has been his biggest investing success? How did that change his mindset? What has Thrive done in their org structure to allow them to make bets very few other firms can do?

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

• 0:00Speaker 00

  I remember getting off the call and Josh was also there and we looked at each other like wow, like the way companies are going to get changed is going to be incredible. Software is going to look so much different. That kind of transformation is just so rare in our job, company after company. I think OpenAI is quickly figuring out the cost curve. They have done a lot in the open source community on regulation, security and safety. I think they're being pretty proactive.

• 0:23Harry Stebbings?

  This is 20 VC the memo with me, Harry Stebbings. And stay with folks on the most discussed company on earth right now, OpenAI. We're joined by the investing partner who led the financing for Thrive Capital in OpenAI's latest round, Vince Hanks. Vince is a partner at Thrive, where he's led the firm's investments in OpenAI, Melio and Airplane Dev. And he also sits on the board of Airtable, Benchling, Lattice and Melio. And prior to joining Thrive, Vince was an investor at Tiger Global, where he learned the craft of venture from the legend that is Lee Faisal at Edition Now. But before we dive into the show's day, we need to talk about Sana. Sana is an AI-powered learning and knowledge sharing platform. Think of it like ChatGPT for all of your company's knowledge. Sana integrates with all your company's apps in under five minutes

• 1:06Harry Stebbings?

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• 2:31Harry Stebbings?

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• 2:52Speaker 02

  You have now arrived at your destination.

• 2:55Harry Stebbings?

  Vince, I am so excited for this. I've heard so many good things from Kareem, from Josh, from Jack Altman, from Brad at OpenAI. I've clearly got far too much free time, but thank you so much for joining me today.

• 3:06Speaker 00

  Thank you so much for having me, Harry. I'm really excited to be here. I'm a big fan of the show.

• 3:10Harry Stebbings?

  That is very kind of you, but I want to start with a little bit of context. So how did you make your way to Thrive and become a partner at Thrive where you are today?

• 3:18Speaker 00

  Started my career like many folks. I studied this in accounting in undergrad. I went to a big bank out of school, which was Goldman, and in a lot of ways, going to these big banks is like doing an MBA. It's a two-year program for the most part. And if you go there, you want to work on these really complicated big companies. And most of what I worked on where that was that it was things like AT&T and Verizon or actually Dell announced it was going to merge with EMC at the time. And so they shipped us down to Austin and we worked on carving out a bunch of software companies to go finance that big transaction. And after doing that for about 18 months, I ended up wanting to do something different and I got staffed on Flipkart, which is this e-commerce business in India. And lo and behold, the largest shareholder was Tiger.

• 3:59Speaker 00

  And so I worked pretty closely with the folks at Tiger on Flipkart for about three or four months. And as I was going to leave Goldman, the stars kind of aligned and I ended up joining Tiger to go work really on private company investing for this guy, Lee Fickell. As luck would have it, the first company he handed to me was a software company. And so I spent the first three years of my career with him, looking at lots Software companies and trying to really find what were the next generational big companies there. Lee ended up leaving Tiger and I was also chasing Airtable at the time. And the folks at Thrive, Josh and Miles, had let around at the company. And what I've learned from Thrive is always be recruiting. One coffee chat led to another coffee chat. And about four years ago, I ended up joining the team at Thrive.

• 4:40Harry Stebbings?

  There's so many things for me to unpack there. I think Thrive's recruitment machine is just incredible. I'm always trying to unpack from Josh how he does it. He never quite tells me. I do want to ask, Lee is one of the most special people in this business in my eyes. I love him as a person. He's gifted in many ways. What did you learn from working with Lee and from your time at Tiger?

• 4:57Speaker 00

  First of all, I feel really lucky to have started my career working with Lee's. I credit a lot of where I got started to working closely with him. Tiger also is in the news a lot more recently, but the firm's been around for more than 20 years. And if you look at how it got off the ground, it is very much in these kind of hedge fund roots. Chase Coleman, who started the firm, he was in his mid 20s. He was really young. He had this hedge fund mentality, mindset, coming out of Tiger Management post the dot com bubble. And the way we thought about investing in companies was very financial. Look at the P and L and understand deeply, how do the numbers tell the story of what the business does? And how does that ultimately make a good business, a great investment? I learned a lot just from the financial rigor of doing that. But what's interesting is when you contrast that to what we do at Thrive and how Josh has built the firm.

• 5:42Speaker 00

  We started from the roots of where Josh was, which was a founder. He was the same age as Chase when he started Thrive, but ultimately he was trying to build a startup. And so the mindset was very much, how do you empathize with the entrepreneur? And we focus much more on the product and the customer. And ultimately, how does that manifest itself into a business? At the end of the day, we're looking for the same thing. I was looking for a Tiger, which is iconic, market leading companies that are going to generate great returns. I think every investor wants that stuff. But to make it tangible, at Tiger, I would have asked a question if you were the founder. And I'm trying to figure out who your customer is. I would say, who's your ICP or like, who's your core customer? That's a very investor lens. At Thrive, the way we'd ask that same question is if I'm a SDR on your sales team and I'm trying to qualify a prospect, what am I looking for?

• 6:27Speaker 00

  At the end of the day, it's really the same question. You could even argue that the way We do it at Thrive is less efficient, but I think it shows a much deeper level of empathy with the founder and it's a very different mindset.

• 6:36Harry Stebbings?

  I think the words we use are very important. I often kind of change my tone and say, we, what do we need to do to achieve the next core milestone? And it's little things like changing from you to we and how you address that question, which I think actually make a big difference in how tones go in terms of founder relations. So I totally get you there. Vince, you had a fascinating background. And so before we dive into many more technical things, I have to ask, I always believe that we're all a function of our past, which means we're all running from something. What are you running from, Vince?

• 7:07Speaker 00

  Everyone's motivators are to actually unpack and understand. We talk about this a lot in founder assessment. And I, just like you're saying, I believe that we're all a byproduct of these accumulated experiences. And I'm sure have had a lot. I grew up in Michigan. I've got three brothers. I've got two parents that are divorced. And so there's lots of things in that I'm sure manifests into who I am today. But I'm sure like a lot of people that are listening or listen to your show, I'm trying to figure out who I am. And I'm trying to figure out how that impacts the decisions I make and how I react to what I'm seeing as I go through the world. And I think for me personally, the motivator is just maintaining this mindset. How do you maintain the steepest slope possible that you're learning on?

• 7:46Speaker 00

  One of the things I've grown on a lot over the last eight years of my career is I think when you start, you take a very solo mentality to doing things. Cause the ship on your shoulder, you want to accomplish things. And so you do that really on your own. But over time, I've realized your friends, your spouse, your coworkers, the people you're around and so forth. All of those folks, you can compound your learning curves together. And so for me, I think a big part of where I've come from and where I'm going is trying to make sure I utilize all of these people or ecosystem to really compound how I learn in that slope. And ultimately that's been, I think, the most powerful thing for me over the last 10 years of my short career and really my entire life.

• 8:24Harry Stebbings?

  How do you approach trust, Vince? Trust is a tough one. It's very difficult. It's hard to gain, easy to lose. How do you approach that?

• 8:32Speaker 00

  We talk about this as a team from our culture. A lot of when you join the Thrive team, the focus is how do you build trust with the organization? And trust is one of these things where in great organizations, it can be given by default. In many organizations, you have to earn trust. I think we have a culture in Thrive that definitely people get a lot of trust by default because of how small our team is and how autonomous our model is. For me personally, I actually had a really great investor that you guys would know told me something that was interesting, which is trust with founders is actually just being very predictable. People want to not feel like they're getting surprised by how you're thinking. They want to understand how you think, how you're going to react and feel like they understand you. And that ultimately kind of breaks down these boundaries between people and allow you to have some mutual trust and empathy with each other.

• 9:16Speaker 00

  And so I think with founders in particular, when we talk about building trust, it's like any partnership. You've got to increase the reps, get in the water in the trenches with them and they have to understand how you think. And ultimately, I think you've got to telegraph how you're going to make decisions with them and make sure that they get there alongside of you. They don't feel like you're superimposing things top down on them and they don't feel like they're getting surprised in the left field because if they feel that mutual level of partnership with you, I think it's really actually pretty easy to have trust with founders.

• 9:44Harry Stebbings?

  I spoke to many of the founders who you have that trusting relationship with. And I promise we're going to bring it back to schedule, but I'm enjoying this too much. And they said bluntly, your ability to keep a level head is actually one of your strongest points as an ambassador. How do you think about maintaining an even keel in terms of mindset?

• 10:01Speaker 00

  I think part of it is you're a byproduct of your environment. I think for me, I've gone through a bunch of different waves in my career and that's helped me understand what volatility looks like, feels like. And so I don't think you just become level head as a person. I think you kind of build into that psyche over time. Someone said to me once, which is a line that I've been saying to the team a bunch internally, is things are never as good as they seemed and they're never as bad as they appeared. And I think just keeping in mind that the rest of the environment around you does react to these peaks and troughs of your emotion and the market and the volatility. And ultimately, in good times, people over extrapolate. In bad times, people under extrapolate. If you maintain this kind of more balanced approach, I do think it helps you hold more clearly, what are we ultimately looking for and solving around

• 10:45Speaker 00

  for a given investment or person or situation? I've just found that it's not productive to necessarily get caught up in the emotions. You've got to try to think clearly. And if you can remove that noise from the volatility of the emotion, it allows you to focus on the core a lot more easily. But that said, I think you do need to trust your gut and you do need to be emotional to react that way. And so I wouldn't say it's all about being just this kind of robotic, level-headed person. You need to figure out what are the types to do that and what are the types to lean into your instinct.

• 11:12Harry Stebbings?

  But speaking of kind of leaning into instinct, I think everyone's leaning into the instinct around AI being the fundamental next platform that changes all of human history, which it very much could be. But I just want to ask on the hype cycle there and the ups and downs that we mentioned. Hype for AI has never been greater. Is AI the next big thing? Or is it the new hype cycle that will fade?

• 11:33Speaker 00

  This is the question I think every investor is probably asking themselves right now, or certainly the ones I talk to. And it's the quintessential question of like, do you sit on the sideline and be patient and stay disciplined? Or do you jump in on the gold rush? Because if we don't get in now, we're going to miss all the seed and series A companies that create tens of billions of dollars of value, which understandable. I think there's a reason why we're in the business of being optimists in venture capital. And I think for us, and really Thrive in general, we try to get into the psyche of, why are people so excited? And less about chasing the next deal and more about what's the core value to the customer? What's the product? What's happening? Crypto obviously had an amazing run and I think has kind of pulled back a decent amount. We've been comparing and contrasting,

• 12:16Speaker 00

  how much is AI potentially the thing people are latching on to? Like crypto, maybe for the marginal investor a couple of years ago versus how much is it real? I think just to use crypto as an analogy, it was very ideologically driven. Bitcoin came out after a financial crisis and it was all about, take this centralized financial system and make it decentralized. Allow people to take their money anywhere. Don't let the government insert themselves in the financial ecosystem. And really, like, you have to believe in that as a concept to take all of the trade-offs of using. Crypto as a consumer is a pretty bad user experience. And so when we think about other hype cycles, I mean, if you go back to even the dot com bubble, when that ran up, Microsoft, Intel, Cisco were the top three technology companies in the peak of the dot com bubble.

• 13:00Speaker 00

  They were all infrastructure related in some way, and they were 50% of three trillion in market cap in the hype cycle. And so people really latch on to these companies and they can run for a long time when people believe and speculation fuels more speculation. And so at the end of the day, you know, if you invested in Microsoft in 2000, it would have taken 15 or 20 years to break even on your investment. And so it's hard to really time and predict hype cycles. And so we ask ourselves, what's the core primitives of AI? We don't know them all today, but we can try to figure out what some of them are. And we can really try to understand products and there's obvious benefits of those things today. Obviously all the search that's coming with chat GPT and the L L Ms. But also just like companies that allow you to trigger actions without having to do 20 clicks. Or I mean, for your show, I'm sure you're using AI in some way to edit or create content or something like that.

• 13:45Speaker 00

  The marginal cost of content production has come down a lot with these tools. I think when these are the foundational questions you're asking because of technology shift, it forces every company to think about what could happen to their business over the next five years. That would be really disruptive. Or how should we be thinking about redisrupting ourselves to ultimately take advantage of the platform? And all the boardrooms I'm in and many of the founders I work with are thinking about that question.

• 14:08Harry Stebbings?

  The question which really came to me was someone posted on Facebook, this picture, put a picture of themselves below and said, is it AI or is it real? And I genuinely was like, I don't know, I'm not sure. And that's a real realization moment of like where we are today. I do want to focus specifically on OpenAI, obviously thrive very prominent in the latest round. Tell me, how did the deal go down? How did it come to be, Vince?

• 14:32Speaker 00

  Yeah, we really first started focusing on the company maybe 18 months ago, because there were a number of startups that were really rising with software products, with these kind of tools that you could use to do marketing copy, or you could create blog posts with them. I think many of these companies, we spent a bunch of time with them and we kept coming back to the fact that they were thin user experiences on top of this cool thing, which Was this model, which really no one talked about, at least not mainstream 18 months ago. And so that triggered us to go spend time with the company. And ultimately, maybe in the classic Sam kind of way, the way we kicked off the round was he did almost like a closed demo with lots of investors on a couple of calls of the technology they're working on and ultimately GPT four. And we were on that call, like many other investors.

• 15:17Speaker 00

  And I think I remember getting off the call and Josh was also there and we looked at each other like, wow. Like the way companies are going to get changed is going to be incredible. Software is going to look so much different. And we were reflecting on it and that kind of transformation is just so rare in our job, company after company. And so many things seem marginal, but when you see these things that are discontinuous or seem so different, we trigger this inner instinct to pause, focus, reflect. And ultimately, we have to spend more time learning about the financials and the products they're releasing and the customers. But that's what encourages us to really lean in.

• 15:48Harry Stebbings?

  You said you're one of several firms who saw this. Why do you think they chose you? Because this was one of the most hotly competitive rounds to finance. Why do you think they chose you?

• 15:58Speaker 00

  I think there was a lot of people that said no. As much as I like to think we want a really competitive deal, it was not obvious to everybody. And even now, I don't think it's still obvious to everybody, even folks that use the product.

• 16:07Harry Stebbings?

  Why do you think it's not obvious? Cause you have to assume that essentially we'll move from a search interface to a chat interface as the primary UI of engagement. Is that why? Or are there other reasons why it's not obvious?

• 16:18Speaker 00

  I think a lot of investors get tripped up on trying to be so precise on TAM and market and defensibility and the moats around businesses and trying to map that all to price. And those are so important in the investment decision making process. But when it's so early in a technology cycle like this, it almost is a little bit more of a venture mindset where there are going to be 50 reasons you can say no. And we're not going to have answers to every question, but we need to really think about the things that can go right. We're not talking about building the next unicorn or Decicorne. We're talking about disrupting search or Google. I mean, that's a trillion dollar opportunity. Sure, I can't put a TAM around chat GPT, but I can tell you like, we're not talking about a small prize at the end of the day.

• 17:00Speaker 00

  And so I think when we say it's not obvious, if people aren't thinking about it in this lens, they're thinking about it in the Of what does this chat interface do? And oh, those use cases aren't that valuable. And I think it does take a higher level of creativity or imagination to ultimately think about the world that way.

• 17:14Harry Stebbings?

  I totally agree with you in terms of applying that kind of different lens and mindset. But then there are also core that you have to do, which we all do when we make an investment. When you thought top down on market analysis, how did you approach top down market analysis? When you were sitting with Josh on this one?

• 17:30Speaker 00

  Yeah, as these new technologies scale, it's so hard to be precise about a TAM. And so more of what we got into the psyche of thinking about is if you looked at other big technology movements, how did they scale? The iPhone went from a million phones a year kind of post-launch to 100 million in five years. AWS took six or seven years to get to $100 million of run rate, but then went from 100 billion to 10 billion in six or seven years. Google went from nothing to 10 billion in the first six years of monetizing. Obviously, this is rarefied air we're talking about. And these are three of the most transformational companies on the planet. But the technology, if you really think about it and the zeitgeist it's captured, it is of that ilk of the transformation it can have of the world. And so for us, it's less about thinking about the exact TAM.

• 18:16Speaker 00

  And it's more about if we think about what the world's going to look like in five or 10 years from now. How are we going to look back and say, wow, I can't imagine the world without this kind of thing? When you have experiences like that, that's what gets us out of bed. These are the kinds of things that create new categories, new companies. That was what a lot of the discussion was. And maybe that sounds less precise to people and they think it's a little bit too finger in the air. But I think for us, a lot of this is instinct mapped with why it's a really great business.

• 18:41Harry Stebbings?

  I think something that dictates whether it achieves that scale and enterprise value is whether it is actually kind of the one defining model to rule them all, or whether there's an alternative mechanism that will kind of bifurcate the market. Now, when we look at OpenAI, it fundamentally says that there will be one model that rules them all versus the world of many models with hugging face and the like being others. How do the two views differ? And why do you think there will be one model to rule them all?

• 19:10Speaker 00

  I mean, obviously, these are my opinions, not the company's, just to make that clear to everybody. I don't think I would characterize OpenAI as one model to rule them all. And obviously, there's all kinds of talk right now about it being closed source. And the model should be open source for the value of the community and all of those factors. But I'd say, actually, if you give the company credit for this stuff, which they've released, they have done a lot in the open source and contributed back to the community. CLIP was a model that they put out there that helped a lot of the image generation open source models. Whisper was for audio. They open sourced the inference framework called Triton on top of GPUs and CUDA to ultimately drive more efficacy and scalability of inference. And so they have done a bunch of that side. They obviously have kept the core GPT model behind an API and paywall.

• 19:54Speaker 00

  I think thinking about it as this entirely closed ecosystem in my mind doesn't really give credit to what the company has done on the open side. Founders we at least talked to are choosing their model has quickly changed from who's got the biggest model and who has the lowest cost model to these new dimensions, which is if you're going to build a company today, Harry, you don't want to have to think about the scalability of it or the reliability of the infrastructure or supporting all of that stuff. If you use an open source model, you've got to go figure out all of these infrastructure problems. And so now, if you talk to OpenAI and you think about what they're spending time on, it's how do you support this onslaught of scale that has come into their system? And that's infrastructure engineering problems. It's the same thing we talked about in cloud 10 years ago.

• 20:36Speaker 00

  I'm sure there are banks out there saying, you know, we're not going to move to public cloud because we can run all our infrastructure ourselves and do it really well. You would never have told a startup 10 years ago to go run your own infrastructure if Amazon was there doing it for you. I think we're kind of getting into this world now where, sure, there are lots of open source models and they can be used for great things. And some companies will choose that path. But by and large, for the vast majority of companies, particularly ones that have scarce resources, which are many of the ones I work with, I don't want you spending time building infrastructure and scaling open source models. I want you just getting your product out there with lots of value to your customers. And I think OpenAI is quickly figuring out the cost curve, which is probably the biggest competing interest against that. They put out 3.5 Turbo, which is, I think, at least one, if not two, orders of magnitude less expensive than before.

• 21:19Speaker 00

  And in my opinion, I'd bet on these ecosystems to scale the infrastructure. And ultimately, that's becoming more important than decision factors.

• 21:25Harry Stebbings?

  You mentioned that kind of the model still being kind of behind lock and key. Can I ask, people often suggest like the commoditization of the model as a challenge. When you thought about that when making the investment, how did you get comfortable in terms of model commoditization and long-term edge for OpenAI?

• 21:41Speaker 00

  This is a question we talked about a lot. I think part of it, we're already seeing the evidence of, in my opinion, where commoditization of the core model output is not really what people will make decisions out over time. You know, I'm sure there are lots of companies that give similar search results to Google, but the reason these companies get built up to scale is because the ecosystem around them grows. And you're even seeing this, they had launched plugins about a month ago, and ChatGPT has taken off and taken the world by storm. I think it's the fastest company to 100 million users ever. And so even if the raw model does get competed against, there are maybe companies like Google or Facebook or Microsoft or some of these startups that can compete on that. I do think, again, the dimension by which people are going to think about this in five years from now, looking back,

• 22:24Speaker 00

  isn't going to be about the commoditization of the model and the raw output. It's going to be, oh, the ecosystem around the model has become much more robust, such that you can do a lot more with the model than just get text outputs. Or the convenience of putting these things together such that it's not just text, it's now text and image or video and audio all through one interface. That's complicated. And again, it's not to be dismissive that the model doesn't matter in terms of accuracy or size, but it's to say that people are going to optimize for companies, builders are going to optimize for the inputs that allow it to be much easier for them to build and much easier for them to capture this new channel of hundreds of millions of users that are flooding here. And that is not about commoditization model. That's about ecosystem and the kind of classic things that make great businesses.

• 23:09Harry Stebbings?

  In terms of the ecosystem around it, you always highlight competitors or competitive threats when making, I'm thinking of literally going down investment memory here. It's great training for any wannabe investor. But like going down the competitive threats, who did you identify as the competitive threats that you saw as having potential to be noticeable?

• 23:28Speaker 00

  Elephant in the room is big tech companies. This is not something where they're sitting flat footed. Facebook, Google, even Microsoft. Another great partner in opening.

• 23:36Harry Stebbings?

  Do you think so? I have Tom Tungas on the show recently and he said that Google have been the most disappointing of all. And they were his former employer and he said terribly disappointing. We've seen AWS partner with Hugging Face. Who do you think is doing well?

• 23:50Speaker 00

  I think it's hard to be dismissive of these companies. If you think about where the best talent in AI is right now, I think it's OpenAI. And then I think everyone would tell you it is Google and Facebook and Microsoft and Amazon. And maybe there are folks that have kind of dripped their way into the startup ecosystem. But by and large, the talent is so clustered in these big tech companies. And so I get it that they're tripping over themselves, trying to figure out how to navigate these giant organizations they've created. But let's not also kid ourselves. We've talked about this maybe outside of the context of OpenAI to uplevel it to AI. We work with lots of startups that compete on things like presentations or content creation. What's scary to me right now is if you're a startup, large companies are shipping product.

• 24:32Speaker 00

  The kind of canonical examples were that, oh, the big incumbent can't move and they're slow footed. And you got years to execute before they do something. Microsoft's 200,000 person company, they've shipped AI and Bing, AI and PowerPoint. They're rolling out the other products. Adobe's got the content creation in their product already. Even the big startups like Notion, those folks, I've been so impressed with how much they've shipped in their product so quickly. And so if you're a startup, I get that you have the advantage of speed, but you need a multi-year execution window to be able to take advantage of all that product you can ship quickly. If these big companies are able to ship this quickly, they've got so much distribution, so much talent. I just think it's going to be very hard to compete with them.

• 25:13Harry Stebbings?

  So the reason I'm also so bullish on OpenAI is like Alex Rampell says very wisely. The big question when investing in startups is will the incumbent acquire innovation before the startup acquires distribution? And I think the challenge for everyone with OpenAI is it's still really a startup in terms of processes and a lot of its structure. But it's got the distribution of a large incumbent, so it can move as fast with the distribution. That is a very real and competitive threat that I would not want to come up against. My question to your point there, though, is actually in this next wave of AI, is the value captured predominantly by incumbents? Or is it captured by startups?

• 25:52Speaker 00

  I think it's too early to call. Maybe that's a cop out answer, but to put it in context, if you go look back in time at these big technology cycles, they are great moments to create new categories. And so maybe that's a better lens to look at it through. Where will new categories get created where being an incumbent or being a startup won't matter? And if you look back at the dot com, Google PayPal came out of it. Google about finding information PayPal about bank online. Social came after, you know, Facebook was connecting all these people online and Twitter was the town square for broadcasting information, you know, mobile. The answer wasn't Salesforce was going to build mobile CRM and that's where all the value was. The answer was you put a computer in everyone's pocket. DoorDash and Uber came out of that because there's geolocation, the ability to have connectivity.

• 26:37Speaker 00

  In my view, what we're looking for, if I was to answer that question is yes. If you're going toe to toe right now with an incumbent on their home turf and their shipping, I think it's a hard bet to take the opposite side of, you know, in our business. But if you're creating something that's totally a different user experience that no incumbent has today, I'd bet on startup 10 times out of 10 in that case.

• 26:56Harry Stebbings?

  The reason the show is successful because I just get to interview smarter people than me and just ask questions that I'm thinking brilliant model I've built. But my question is, if the value accrues like incumbent versus startup, the other question is value accrual at the infrastructure layer versus the application layer. How do you think about value accrual there? Because you quite rightly mentioned earlier, three companies, two trillion, you know, and I think in the prior application layer, there's about a similar market cap, two trillion, but 50 companies, so much more distributed kind of enterprise value. Where does the value accrue infrastructure or application layer?

• 27:29Speaker 00

  I have to believe it's going to accrue mostly to the application layer. I think if you think about infrastructure companies as platforms, you know, if you think about the software market as the relative value of AWS and Microsoft and Google Cloud versus the software companies built on top or all of the internal software tools built on top. I think it's probably an order of magnitude to one, you know? So I just have to believe where value gets created to end customers is where it will get captured. And the nice part about the infrastructure business is there's effectively toll roads on that whole ecosystem and applications might compete more aggressively with each other. AI or Amazon or the infrastructure provider might be able to clip a coupon on it. That's really valuable and we might capitalize it at a high multiple. But I have to believe that there's going to be a lot more value in the new experiences and

• 28:13Speaker 00

  applications than the infrastructure.

• 28:15Harry Stebbings?

  How do you think about investing in the space when it moves so fast? For your investor in Benchling, Airtable, Lattice, these markets are not changing on a daily basis. So how do you get comfortable with the rapidly changing market like we haven't seen before?

• 28:31Speaker 00

  It's hard and I think at the early stage, you know, we think about investing in founders first and foremost. You want extraordinary people in really great sandboxes and those folks will be able to figure out how to pivot and adjust and iterate to take advantage of opportunity. In this environment, if you told me, would I rather be in the sandbox with the great founder, experimenting and iterating or sitting on the sidelines? I'd rather be iterating, even if things changed a bunch from underneath you at the early stage. But that said, I think you can't make every investment without knowing what's going to happen. And so some things, there is an obvious evolution that makes your business less interesting than it was six months ago. If you think about where we were on infrastructure companies nine months ago,

• 29:11Speaker 00

  there were all kinds of companies branding themselves as ML ops or these end to end solutions for AI. Now, in this environment we're in now, there's specialized companies that are doing individual components in the infrastructure stack, whether it's lane chain on connecting all of these tools and stitching them together, or these vector databases that are allowing you to store information. And so things specialize, you know, our reaction, it's not that hard to say. I have a friend and mentor of mine that I spend a lot of time with who says there's only two questions that matter for a company. Who is the customer and what is the product? And you'd be shocked at how many folks can't really answer that question with clarity. And if you can answer that question with clarity, everything else about the business stems from there. And so if you're really answering that question, you're struggling because you think in two weeks from now,

• 29:56Speaker 00

  there's a chance that the customer doesn't care or the product won't have any value. That's hard to build a company around. And so in any of those environments, I think you'd rather just wait for that there to be more clarity than try to keep firing investments into that market.

• 30:09Harry Stebbings?

  I made an investment and I lost money in it and I lost money because of an externality. That was outside of our control, which is a very frustrating reason to lose. How do you think about the impact in coming year or so of regulation? Elon has been very clear in saying we can't wait until it's in the hands of everyone because then it is too late. How do you think about regulation in the next six to 18 months?

• 30:33Speaker 00

  I don't want to speak for the company on anything because I know this is a topic that's out there in the mainstream. I think regulation will come to AI and it will be necessary. I don't doubt that at all in my mind. I think it has to be done in partnership with the companies that are building because you know, regulation for the sake of regulation is not going to be what solves the problems people are concerned about. You've got to go understand the nuances, you have to understand the technology. And so I would hope that other companies building in AI are also working with regulators to understand what is the technology and help educate them to get to the right decision. I do think there's kind of some negative stigma going around OpenAI on regulation, security and safety. And in my view, I think they're being pretty proactive. As an example, on GPT four, we saw the demo in the fall.

• 31:17Speaker 00

  They didn't just release the product then they took, I think, four or five months to test and learn about safety in the edges of the model. And then ultimately released it to the world. And so they're not going to get it perfect every time. But I do think trying to let people build with and understand it is important. And poorly designed regulation on a technology this early is not going to be effective for anybody. And we've got to find the middle ground.

• 31:39Harry Stebbings?

  My concern is the chasm of knowledge between private and regulator side has never been greater. How do we set effective regulation when the regulators do not understand so much of the infrastructure and the opportunity?

• 31:55Speaker 00

  This is a solvable problem. There's information out there, there's experts out there. Regulators, I've been impressed with how up to speed they've gotten on crypto and they've really taken time to learn about it. And sure, they're going to make mistakes, but ultimately that gap is solvable. And it's got to start the dialogue between the people working closest on AI and these regulators. And it might take years to get to a solution, so people got to be patient. But this isn't an unknown, this is something that you guys can work together on.

• 32:19Harry Stebbings?

  Final one on OpenAI and then we are going to move to kind of your investing style before a quick fire. I have to ask, I would get in trouble if I didn't, Vince, I'm a very charming British guy otherwise. The price was high, I reported $29 billion. What was the discussion internally around price? Because you still have to see real upside. What was the discussion and how did you project upside scenario planning?

• 32:42Speaker 00

  We certainly had a discussion, a heated discussion around it. We have a very team-oriented firm. And so we disagree and commit once we make decisions and we make decisions to this team. We live by that. No one person makes a decision and the price here was high. Just on an absolute basis, it doesn't matter what company you're investing in. At the prices that this round was done, you're talking about very upper echelon type outcomes to justify good returns. But I kind of come back to the intangible. It's really hard to understand the pace of adoption of these major technologies. And any numbers I would put on paper for you would look insane. You would look at them on a spreadsheet and tell me there's just no evidence to support this. But then you look at these iconic technologies and the great ones all follow that insane curve.

• 33:26Speaker 00

  And so the balance we try to hold, I think this was makes Thrive a really special firm, is we're able to kind of separate ourselves from the kind of quantitative rigor that we rely on for a lot of investments we do and hold the tension of what could go right. Think creatively, understand how this could look like the most transformative things. And if that happens, again, we're talking about search potentially getting disrupted or something that enables workflow automation for hundreds of billions of dollars spent on different jobs and categories out there. And even now, we didn't know this at the time of the investment, but with ChatGPT Pro and the traction that's seeing, maybe that won't be the durable revenue engine for the company over time.

• 34:06Speaker 00

  But the velocity with which that's ramping, you know, Kareem, my partner Kareem has always saying this, the scalability properties of what they have built are so good that we'd rather bet on the compounding upside of that scalability than sit on the sidelines because once it's clear, it'll get priced up very quickly. And so we ultimately decided to lean into that.

• 34:26Harry Stebbings?

  How do you determine when to throw the financial rigor that you do have in the team out of the window versus when it's needed to make a sound and wise investment?

• 34:37Speaker 00

  It's less about throwing it out the window and it's more about putting it in context. A financial model is a tool to help you make a decision. You need many tools to make a decision. It's less about is that the only thing we use and we throw it out the window and it's more about What's the weight by which we put on the financial rigor and model as the tool to make the decision? I think for us, there aren't that many iconic companies that get created. And so no iconic company, at least that we've been a part of, was it clear and obvious in the early days of that technology? They always get priced well ahead and they look cheap in hindsight because they defy the gravity of the model. And so it's kind of the quintessential humans think linear and the best things happen exponential. We have to understand, going back

• 35:20Speaker 00

  to being level-headed, when do our psyche or heuristics break down in an investment decision-making process? And when they do, we need to compensate them with a different tool in our toolkit.

• 35:31Harry Stebbings?

  Can I ask you a bit of a weird, personal one, Vince? But this is a big check for you. It's a really big check and it's kind of you leading. Were you nervous about that?

• 35:40Speaker 00

  I think we have the same level of excitement that we have in most investments. We don't have a culture where there's this kind of sharp-elbowed mentality, or people feel on edge for making investments because prices are high or checks are really large. We have a culture where we support each other and we have a growth mindset and learn. And so if this ends up not working out, I don't think we're going to look back on this and put all the onus on one person or two people that made a decision. I think we're going to look back on this and say, we got there as a team. It was the right thing at the time, but here's the learnings from it and here's how we're going to adapt our lens and course correct in the future. It is intimidating and it's nerve-wracking sometimes to write large checks in investments, but in the right team and culture, this is how we enable ourselves

• 36:23Speaker 00

  to make these kinds of transformational investments. And frankly, I think there are a lot of firms that could not have done this because their organizations are not set up to make these kinds of big decisions.

• 36:33Harry Stebbings?

  Your ability to make these big decisions is the one single fund? It's the one single team? Sorry, help me understand specifically with Thrive about the structure that enables you to make a decision that others maybe couldn't.

• 36:45Speaker 00

  I think the thing that enables us to make this decision is we have this single, small team that thinks extremely creative about how the world works. And we are ultimately trying to concentrate our investments in the best products that are out there in the world. And so when you simplify it down to that, and we allow this autonomy and focus to happen on a single team across the entire investment cycle, from early stage all the way to growth, we are enabled to go find these kind of iconic companies. And we're young in our career, obviously, but we also, we can appreciate when these kind of transformational technologies come around. And certainly, this was the most transformational thing I've seen in my career. And being able to lean into that and not be afraid that if it goes wrong,

• 37:29Speaker 00

  we're gonna get fired, or if it goes wrong, we're gonna be pushed down in the firm. I think having that psychological safety, that enables a firm to do it. And I think we have that at Thrive.

• 37:40Harry Stebbings?

  I think we change so much as investors over time in terms of what we value in the companies we invest in, in the founders we invest in. When it comes to what's changed in what you appreciate in an investment, what has changed about that mindset?

• 37:54Speaker 00

  It's actually very clear. The thing I've developed the most on in my investing mindset is this deep empathy for the customer. Trying to really think deeply about not just what's the product and trying to write that down on paper, but really to understand how the business is going to get built. And mapping those nuances to who the person is, what the product does, how does that manifest itself in the business? Do you have a sales-intensive product that's going to require people to be constantly out there and on edge and with their customers? Do you have a product that's more middleware and so you need somebody who's going to be willing to grind it out and not be in the limelight? Do you have a product that requires a lot of creativity? That means you need to set up your org to be creative. There are certain org structures that promote that more.

• 38:38Speaker 00

  And when you think about where you can develop as an investor, I think where I have developed the most is continuing to understand the connectivity between this rigorous financial lens, very much of where I started at Tiger, to how do you build a company? And at that intersection, it's really hard to get to clarity. But when you do, it is clear. And I think the best companies have very simple explanations. It trickles down in the company. The CEO can articulate in one sentence, but the manager four rungs down also can articulate it. And that means that manager knows how to go left when they should go right, or they know how to make that decision and communicate it through their team. And so having appreciation for that, I think, is where I've grown the most on these investment decisions.

• 39:18Speaker 00

  And again, it's hard to quantify, but I think it results in just like a deeper empathy for what a great company looks like.

• 39:24Harry Stebbings?

  Final two questions. I think we learn a lot from wins and losses, and we don't often analyze the wins as well in the same detail. If we start on the loss and then we'll move to the win, what's been the biggest investing mistake for you? And how has your mindset changed as a result?

• 39:40Speaker 00

  I've made lots of mistakes. The one that I think stands out the most to me, or at least comes back to me a bunch in my psyche, is when I was at Tiger, I flew out to Sydney and spent a bunch of time with the Canva team in person. And obviously now people know about it. It's a remarkable company. At the time, it was much smaller than it is now. And at the same time, we were so focused on investing in enterprise software as an emerging category at Tiger. And so when we were spending time with Canva, I very much, and this is early in my career, but I very much let the pattern matching and the DNA of what I was thinking about of a great enterprise software company creep into us looking at Canva. And the learning, I think, just to distill it down to something is every company is unique.

• 40:23Speaker 00

  Even within the balance of enterprise software companies, they're unique. And we took this lens of what a great enterprise software company was. We've retrofitted to Canva and we said, okay, well, the churn looks a lot higher than what grade looks like. And the engagement looks very whimsical relative to deep workflows and integrations. And so we shouldn't value this like a highly recurring software business. We should value it like a consumer subscription business. And there's merit to that, but ultimately, because we were so much in this one dimensional mindset of enterprise software, we missed what was so special about the company. The learning for me is just you can't walk in biased about what you're looking for out of the metrics of a company or what the product should result.

• 41:05Speaker 00

  In metrics, you should walk in and try to have a very open mind and say, do these metrics explain the qualitative of the business that I'm so excited about? And reinforce why it's special. And if you think those things are true, I think then you should lean into it a lot more and try to really get to the guts of could it be a great investment? And I see this a lot with investors. When you get too pattern matching on why companies should be the way they are, I think it leads to a lot of mistakes.

• 41:29Harry Stebbings?

  Flip side, because I that could lead into another fucking hour. You can see why I do this for a living.

• 41:36Harry Stebbings?

  But on the flip side, like when you think about kind of biggest investing win or success, I get it's like earlier and DPI takes time. When you think about biggest investing win or success, what was that? And what did you learn from that process?

• 41:49Speaker 00

  You're only as good as your next investment, Harry. And I've still got a lot to prove, so it's hard to say we've won. But I do think an important part of winning and just understanding how to embrace kind of this culture of making great investments is you've got to figure out how to be authentic to yourself and map that to how you go win. You know, what a founder might be attracted to for me might be different than you, Harry. It might be different than the next investor that's listening to this podcast. And so you can't just apply someone else's style and say it's going to work for you and you're going to win. You gotta try to figure out how to map what's really authentic to you and evoke that emotion in the entrepreneur and get them bought into why that could be a really fruitful partnership for them.

• 42:33Speaker 00

  And it's hard to do that. You can't do a lot of those things at once. You can't treat it transactionally. You've got to invest the time. There's no substitute for the time. The things I look back on that were the most exciting and rewarding for us to be a part of, we've been able to establish that kind of ground with whoever is most important in that process or the team. And when you do that, I think those things become obvious. And the decision is less about all these other variables in the process. And it's much more emotional because they want to work with you.

• 42:58Harry Stebbings?

  Vince, that was bizarre. Like one, most people are like, oh, I'm not going to give an answer to the mistake, but I'll give you the answer to the success. You did the opposite. And then two, when you were like being political at the beginning, I was like, ah, come on, man. But that was a really good answer. Which is fantastic. I really like that. I want to move into a quick fire. So I'm going to say a short statement and you give me your immediate thoughts. Does that sound okay?

• 43:25Speaker 00

  Sounds great.

• 43:26Harry Stebbings?

  Kareem told me that you are basically the encyclopedia of business. What does your content consumption look like? What are the favorites?

• 43:34Speaker 00

  The short answer is just reading anything. I think for me, I like to try to subscribe to lots of different angles of reading. So sometimes it's podcasts on topics, sometimes it's newsletters, sometimes you go find the blog focused on the developer to go learn about the thing. Most importantly, like learning about the history of things is really important. All this AI stuff is happening right now and some of where I've been reading is trying to trace the key figures from all the way back to like 1980s in AI to today. And so for me, it's really just about variety. Simulate the personas, simulate different people that are in the ecosystem and go learn about them. And wherever you can find content on that, I'm willing to read it.

• 44:11Harry Stebbings?

  Vince, you can invest in one multi-stage firm other than Thrive. Which one do you invest in and why that?

• 44:18Speaker 00

  Harry, I'm only investing in Thrive. There's no other answer to that.

• 44:21Harry Stebbings?

  You could do founders fund, a nice upside, or you could do Sequoia. Are we going for a Sequoia? Give me one.

• 44:26Speaker 00

  We're concentrated. We only invest in ourselves. I can't give you one, Harry.

• 44:30Harry Stebbings?

  If you were to invest in one seed firm, can you give me a seed firm?

• 44:33Speaker 00

  I can. I don't know him personally, but Nat Friedman, who's now focused a lot on AI and I think has his own fund, I really respect some of the stuff that I've seen him go do and I would be certainly interested in putting money in his fund.

• 44:45Harry Stebbings?

  What have you changed your mind on in the last 12 months, Vince?

• 44:49Speaker 00

  This is not for the rapid fire, but one thing that's become clear as we've kind of gone into this more difficult environment to operate in is in the good times, we probably over attribute to teams and products how good they are. And in the bad times, you can't just blame everything on macro, but I think it makes you reflect on the over attribution you probably did in the good times. And one thing I've changed my mind on is you got to be more balanced about how much credit you give to the momentum of a company from the market environment versus the actual execution they're doing and know that there's the balance there. And good execution doesn't always mean that it leads to great momentum. Sometimes great momentum is also influenced by these market environments

• 45:32Speaker 00

  or variables that are harder to quantify.

• 45:35Harry Stebbings?

  What do you think was the craziest thing we saw happen in the low interest rate environment of 2020, 2022?

• 45:42Speaker 00

  Crypto stands out. We talked about peak market cap in dot com. I think crypto's peak market cap for tokens was like three trillion, somewhat similar. The most iconic company that people talked about was a fraud. I think like we're going to look back on that, particularly from an investor lens and say, there's these hype cycles that lead to massive speculation. And sometimes even the things people think are most real are just not.

• 46:03Harry Stebbings?

  Okay, you're on incredible boards. You can choose one board member for your company. Who would you choose?

• 46:09Speaker 00

  The person that stands out that I've learned so much from is Eric Vishria. He's on the bench link board. He's on the board of this company I work with called Airplane. Eric is, I think, just an incredible blend of has the operational instinct rigor, but also is fun to be around and he's able to land his messages in a really effective way with entrepreneurs. And he also just has a really great balanced perspective on being commercial and understanding how all of that works in your place as the strategy of the company. And I found that perspective to be something that I'm continually learning from as I'm listening to him. And when you find those kinds of people, I think you just want to surround yourself with them.

• 46:43Harry Stebbings?

  What's your biggest lesson from working with Josh, Vince?

• 46:46Speaker 00

  There's so many lessons. It's hard. Josh is an amazing person. This is not about investing, but I think with Josh, biggest lesson is really that like to be successful, you don't have to compromise on all of the things that are important that are not your career, your family, your friends. Josh, one of the most amazing parts of being around him is his warmth and empathy and his priority of his family over everything else is so obvious when you spend time with him. I've respected that so much about him. And I think it's even changed the way that I prioritize how I run my life.

• 47:19Harry Stebbings?

  Tell me, Vince, final one. What are the last five years hold for you? When we sit down in 2028, where do you want Vince to be then?

• 47:27Speaker 00

  Hopefully, we'll be talking about some amazing AI companies we invested in that created lots of value for us both. But I think, you know, we have a lot of ambition at Thrive as a firm, and I hope to be a big part of us building it and ultimately going and backing some of the next transformational companies, but also building our team and maintaining this amazing culture that I think we have and attracting some of the most talented people that want to go invest in these kinds of companies to come work with us. And so I hope if we talk again in five years, we're talking about those companies, we're talking about the people on our team, and ultimately, we're really excited about all that stuff.

• 47:58Harry Stebbings?

  Vince, thank you so much for putting up with my prying questions and kind of not letting you get off on some of them. I really appreciate it, but this has been fantastic, man. And I've wanted to do it for a while because I've heard so many good things. So thank you so much, man.

• 48:10Speaker 00

  Thank you, Harry. It's really fun to chat.

• 48:13Harry Stebbings?

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