Pod Insights a16z Podcast 2023 Big Ideas in Technology (Part 2) About this episode At the end of 2022, our team at a16z asked dozens of partners across the firm to spotlight one big idea that startups in their fields could tackle in 2023.
Emerging from this exercise came 40+ builder-worthy pursuits for the year, ranging from entertainment franchise games to precision delivery of medicine to small modular reactors, and of course loads of AI applications.
In our 2-part series, we’ll be covering 12 of these big ideas with the partners that shared them.
Here in part 2, we’ll cover Fintech, American Dynamism, and Bio & Health. Listen in as we chat with Anish Acharya, Angela Strange, Michelle Volz, Ryan McEntush, Vijay Pande, and Julie Yoo.
And for the full list of 40+ ideas, check out the full article: https://a16z.com/2022/12/15/big-ideas-in-tech-2023/
Topics Covered:
(0:00) Intro
(1:12) GPT Unlocks Credit Counseling - Anish Acharya
(10:31) Compliance as a Competitive Advantage - Angela Strange
(23:48) Small Modular Reactors Advance the Nuclear Renaissance - Michelle Volz
(34:38) Overhauling the Space Supply Chain - Ryan McEntush
(46:36) The Biggest Company in the World - Vijay Pande
(53:29) The Value-Based Care Stack - Julie Yoo
Resources:
- https://a16z.com/2022/11/02/america-space-age/
- https://a16z.com/2022/11/11/the-biggest-company-in-the-world/
- https://a16z.com/2021/01/08/the-new-tech-stack-for-virtual-first-care/
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Follow our host: https://twitter.com/stephsmithio
Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. For more details please see a16z.com/disclosures.
Transcript 12,666 words · 7 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:01 Steph Smith? In today's part two of Big Ideas for 2023, we've got big ideas spanning fintech, American dynamism, and my own health, featuring the voices of EJ Pondy, Julie Yu, Angela Strange, Anish Chitarya, Ryan McIntosh, and Michelle Foles. If you missed part one, we covered consumer, AI, enterprise, and games. Let's get to it.
0:25 Steph Smith? As a reminder, the content here is for informational purposes only, should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16Z fund. For more details, please see a16z.com/disclosures.
0:55 Steph Smith? Carrying over some of the themes around AI from part one, let's start with Anish.
0:59 Anish Acharya? Hi, everyone. I'm Anish from Andreessen Horowitz. I'm a GP on the fintech team. And my big prediction is around GPT applied to credit counseling and that it's going to really unlock credit counseling at scale. So here's the idea. OpenAI, makers of ChatGPT, has created this amazing new technology that you've all seen all over Twitter that's doing all of these remarkable things. And, you know, one of the things that's been under discussed is its ability to drive new product cycles in fintech and financial services. The one that I've been thinking about based on my own experience has been how it can improve credit coaching, credit counseling, and advice. And the reason for this is that the technology sort of unlocks
1:41 Anish Acharya? a labor supply at 10x a lower cost than humans. So if the only cost-effective way to deliver credit counseling in the past was to subsidize the human costs with, you know, high fees, high prices, or providing meat gen to financial products which weren't that awesome for consumers, we now actually have a technology that can make it possible for companies to offer the same quality of service without monetizing them in that way. And really, the problem that's being solved here is that Credit counseling and coaching is something that is a moderately complex sort of expert system that no UI is able or has so far been able to perfectly capture. It's really hard to build a UI that captures all the duance of, you know, having a 15 minute discussion
2:27 Anish Acharya? with someone that really understands how the credit system works and can help guide you into how to improve your credit. Like that 15 minutes is invaluable and so far no user interface or technology has been able to perfectly capture it. And with Credit GPT, you can really deliver that service and deliver it at scale. And I think it's going to change a lot of people's credit and really change financial services more broadly as potentially the entire country and many people who engage with financial services become more creditworthy.
2:55 Steph Smith? So Anish, this is really interesting to really set the stage. How big is this market? And let's break that down, not just in terms of the people who are currently using credit counseling, but also the folks who maybe could benefit from it, but could not afford it in the past.
3:08 Anish Acharya? For sure. So credit counseling, there's a few ways to think about the market size. There's no perfect answer. You know, there's the sort of what I call the dark heart of credit counseling, which is you go to some mom and pop diner in some town in America and you see a stack of business cards for someone that promises to fix or improve your credit in just a week or a month. And usually those people do it through some shady techniques and charge really high prices. And surrounding that are the technology companies that really took the first swing at this. And these companies were successful. I mean, if you look at a company like Credit Karma, they were acquired for $7 billion and they've provided credit improvement and credit coaching to over 100 million people.
3:51 Anish Acharya? With that said, if you take a look at the actual credit impact in terms of how many people's scores got how much better of a service like that, only a small subset of people that use Credit Karma actually saw dramatic uplift in their scores. If you think at the most broad level, really every person in this country that is mis-scorred, which is the idea that they're sort of seen as being more risky than they actually are because they don't know how to play the credit game. That's an enormous number of people, certainly more than tens of millions of people who could potentially benefit from this. And look, lenders and creditors also stand to benefit as the people they lend to make better decisions and manage their money more effectively.
4:34 Steph Smith? Yeah, I like that framing and I can definitely see how this could be a wonderful democratizing tool for those who can't access it today. But I also have to think about how finance as a space is, as you could say, less fault tolerant than maybe some other spaces that AI is currently being applied to. So just as an example, if I enter into ChatGPT, hey, I'm looking for a recipe on how to make rosemary chicken. Well, if that recipe tells me to add a little more salt than desired, I'm gonna be okay. However, if I'm asking for some of this credit counseling through an AI and it tells me to allocate my money in ineffective ways.
5:10 Steph Smith? Well, that maybe again is something that is less desirable and something that people will have less of an appetite to withstand in terms of the error rate. And so how do you think about that? And as kind of tacking on to that, how do you think regulation might play a role?
5:26 Anish Acharya? The truth is that credit coaching and most financial advice is actually less subjective than you might think. So the amount of salt to put in a recipe is a little subjective. You know, a certain chef may like a little more, a certain chef may like a little less. Whereas there's an answer, albeit one that may be moderately complex to derive as to how to optimize any given person's credit and finances. And I think that, you know, these large language model-driven systems will perform, I know they will perform very well against that problem set. It's a, it's a sort of closed demand answerable problem.
5:58 Steph Smith? I do wonder though, do you think that there's going to be a couple errors that actually get attention? That therefore prohibit the ability for people to really implement this at scale? Do you know what I mean? Like the people who are the first movers on this. It feels like you need to get it really right at the beginning.
6:16 Anish Acharya? Yeah, I think that's right. Look, I think that there are a subset of challenges within this space and a subset of customers who either desperately need the service and are getting it so wrong that, you know, any rational advice would be better than nothing, or who have a set of problems that are actually very boxed and very easy to address. So yeah, look, I do think that you need to have an incremental approach to this, but I think the wrong reaction is that because this is actually coming from a piece of technology instead of from a subjective judgment-driven human, it's probably going to be wrong. I think it's probably going to be much, much more right.
6:52 Steph Smith? You know, something else that comes to mind is the incentives at play here. So some people might say that these financial services companies, they make money on these people with bad credit and perhaps more money than the people who have good credit. And so maybe there's an incentive for them not to want to put this technology into place. So what do you have to say to that?
7:10 Anish Acharya? I disagree. I think that a lot of financial services companies charge the prices they need to charge in order to turn a profit to every customer based on their respective creditworthiness. A painting of some companies, you know, companies as good or evil is just a fundamentally incorrect framing. They have to turn a profit, they charge a price, and the price they charge depends on the default rate of the consumer. If that default rate goes down, they can charge a lower price and receive the same profit. And more importantly, they're subject to less volatility in markets like this when market cycle is changing and their business can get blown out by a sudden shift in consumer creditworthiness.
7:51 Steph Smith? That's a good way to put it. I think another framing I like from your big idea was this idea of just unlocking a 10x cheaper labor supply. And so where else in fintech do you think this maybe could apply? And specifically looking to 2023, do you think there's any low-hanging fruit?
8:06 Anish Acharya? There's lots of low-hanging fruit. I mean, the most low-hanging fruit is anything that requires customer support. I think one of the most decadent features of getting to work with a private bank or being wealthy is the ability to email, you know, or phone to have your problem solved that way. And that's going to get unlocked for everyone. Having to use an app that doesn't have a field or a dropdown that can answer the problem that you have on that day with your bank is a very frustrating experience, as is calling into a call center and waiting forever. And that's going to be a thing of the past. I think that everyone is going to have a private bank-like set of interactions, or at least interface to their interactions with their bank. So that's one. Wealth management, I think, is another. Wealth management is
8:50 Anish Acharya? tricky because it's one part counseling, one part advice, and it's just hard for people to, for obvious reasons, build empathy with the system. So the therapist aspect is going to be difficult, but the advice aspect is going to be commoditized.
9:04 Steph Smith? Well, I'm glad you brought up the therapist element because it's been fascinating to see how even companies like Replica, people are forming real relationships with technology. Sometimes it's at the forefront where they know that it's an AI who's responding and interacting with them, and sometimes it's invisible.
9:21 Anish Acharya? Totally. It's really cool. I mean, if you read the newspaper, everyone's very mad at technology. If you look at the NPS of Google, Apple, Facebook, all of these companies, it's not just better than the NPS of financial services companies and most media outlets. And I mean, they're amongst the most beloved companies in the world. So the idea that consumers would adopt this at scale despite the fact that their mental model have to, we have to change around things like therapy in the context of financial advice, isn't crazy.
9:53 Steph Smith? Next up, we have Angela.
9:54 Speaker 02 Hi, I'm Angela Strange. I'm a general partner on the fintech team here at Andrisian Horowitz. And I believe that in 2023, doing compliance well, tech-enabled, is going to become a competitive advantage versus an annoying thing that you have to do in the background. So if software is eating the world, it has not yet taken a big enough bite out of compliance. Post-ODD Bank, financial services companies face more than 50,000 regulations across dozens of federal and state agencies, and that's just in the US. The existing and very manual compliance policies and risk processes are failing at both large financial institutions and at fintech startups supported by sponsor banks. Furthermore, while compliance is complex for businesses operating in just one geography,
10:39 Speaker 02 it is even more difficult to manage across multiple countries. And as more global companies embed fintech, the need for global compliance and risk infrastructure is increasing significantly. In 2023, companies of all sizes will turn to software to solve their challenges. We expect to see more tools for sponsor banks to manage third parties, for fintech companies and companies embedding financial services to manage all aspects of risk and compliance, and importantly, more compliance infrastructure serving default global companies.
11:08 Steph Smith? Angela, you mentioned 50,000 regulations. That is a ton. And I want to give our listeners a sense of the weight that this puts on companies without really commenting on whether this is a good or bad thing. What kind of operational or economic, again, using the word weight, do these regulations place on fintech firms? Is it 1% of OpEx, 10%, 50% that they're having to allocate resources to in order to make sure that they're compliant?
11:32 Speaker 02 Compliance is both very expensive and, if existing solutions still works very well. As you can imagine, the number is very widely, but there's large banking surveys that go out every year. Estimates are between 6% to 10% of banks' revenue, of their entire revenue, is spent on compliance costs. And they're spending all of this money. And despite that, you know, we feel like we read a different headline every week about fines. Like, for instance, since the last financial crisis in 2008, there's been more than $250 billion in fines for poor compliance procedures. And if you look at like, how does this actually impact operations, right? It's bad, and it's getting increasingly bad. Like, some of the larger banks, if you read their annual reports, 10 years ago, 4% of
12:16 Speaker 02 their employees were in the compliance and risk functions, and now it's up to 15%. And if you look at, all right, ton. It's an amazing number of people, amazing number of people. But also, you look at this and you look from our perspective, like, this is a huge opportunity. But first, it's helpful to understand why, and primarily three reasons. One that everybody points to is the Dodd-Fried Act that came in after the last financial regulation, right? And so there used to be 30,000 regulations across a variety of state and federal agencies, and in a very short period of time, that ballooned up to 50,000. Across multiple agencies and the creation of new agencies in often some very well intentioned,
12:57 Speaker 02 right? Like this was meant to help regulators' ability to monitor and address financial threats, to help consumers protecting against their loans, protecting against their mortgages. It's, you know, everything to banks needing to provide consumer access to their data. But this happened very quickly and in many cases didn't have enough time to become very clear, which points to problem two, right? If you had compliance procedures that were working well in the old world, and there was some software and many manual procedures, and all of a sudden that complexity doubled, your software was just not set up to be modular, accommodate new rules. And so what did banks have to do? They often just threw a lot of people at the problem.
13:41 Speaker 02 If you talk to some of the large banks and they have thousands of people often sitting offshore that are monitoring AML alerts, OFAT sanctions rulings. So it's just a very, very people-heavy business. And then the third reason, which is actually, I think, great for the industry, is the industry has evolved a ton in the last 10 years, right? Like, not that long ago, all financial services was done by walking into a bank. I'm fond of saying that every company is going to be a fintech company. Now we get our financial services from all sorts of different software companies. We're way more global. We pay in different ways. And there's lots of different types of regulations that come along with that that all financial services are having to adopt to. Compliance is very expensive.
14:24 Speaker 02 The solutions often don't work very well, which we at Andreessen Horowitz actually see as a very large opportunity for new software companies to be built.
14:32 Steph Smith? Absolutely. I mean, you sent me an article where recently Coinbase was fined $100 million for background check failures. And Coinbase is a large public company. They're heavily capitalized and they're struggling with these compliance needs. If they can't keep up, how are smaller startups even going to navigate this?
14:51 Speaker 02 Listen, and Coinbase takes compliance very seriously. And this compliance had had nothing to do with crypto. It was simply, you know, all financial services institutions have an obligation to KYC, like, understand who their customers are as they go through the onboarding process. So imagine any company, right? Like, you're set up, you've got your systems working well. And in their case, what happened is Prices were rising in cryptocurrencies. They are a regulated cryptocurrency company in the U.S. They do a very good job of what they do. And all of a sudden, they had 25 times more monthly transactions. Like, how do systems that are not completely software-based actually scale to that?
15:34 Speaker 02 And so you ask, like, how do small companies deal with this? In some ways, companies that are starting now have a little bit of an advantage, right? Because if you're starting something de novo versus you're trying to fix systems that you already have in place, you know what you're going to be dealing with. And then two, and this is the piece that's exciting for me, and that's my perspective. The technology in this space has come a long way. I have the teams that deeply understand the tech and really understand the compliance procedures. Like, for instance, if you KYC somebody and you need to do what's called enhanced due diligence, often you need to actually check a photo of their physical ID. And there's lots of companies that have been doing this for a long time. You might expect that they'd all be automated.
16:17 Speaker 02 Oftentimes, they're sending pictures of your ID off to people who are manually checking, is this ID real or not, right? Like, that doesn't scale. Now, image recognition technologies have gotten much, much better. That technology can solve this type of problem. And we're seeing this applied across many different areas of compliance.
16:35 Steph Smith? Well, I'm glad you mentioned automation because something that really stood out to me in the article about Coinbase was that they had a backlog of 100,000 transaction monitoring alerts and 14,000 users requiring extra due diligence. And so that is just an unwieldy amount of information for a company to pour through. And it seems like, again, even a heavily capitalized company, that's just not realistic. And so I'm trying to understand whether these things can be automated with technology, whether they can be actioned or regulated through code, or if we're kind of resigned to this idea that we hire a bunch of offshore assistants to pour through the data manually. Like, what are we seeing in terms of the introduction of technology into this space?
17:19 Speaker 02 Yep. Well, if you ask ChatGPT that answer, they will basically say, surprise, AI. But let me tell you a little more specifically. Let's take anti-money laundering, for instance, right? And there's, again, billions of dollars that are thrown at this problem. Depending on what estimation you believe, it's only 3% of dollars that are actually captured. There's $2 trillion that are still laundered every year. And so you look at the technology that's behind this and it's very manual based alert systems. So for instance, anyone that does a transaction over $10,000, you need to flag it. Somebody on the backend has to go check who exactly is this customer? Is this laundering or not? And so it's rule based systems that, as we've seen with other companies, just don't
18:04 Speaker 02 scale. Now with the introduction with AI and machine learning, you could do things like, two things. One, just better gather a lot of customer information that sits all across the bank, thus vastly speeding the manual review. And then two, dramatically reducing the number of manual reviews that you actually have to do because these systems can learn based on what compliance officers are doing and so throw out far fewer false positives. Such that if it does need to go to manual review, it's a much more reasonable number of things that a human could actually handle. I think that's just one simple example. You can apply this and other technologies across just large, large areas across all financial purposes.
18:46 Steph Smith? Yeah, we'd be talking instead of 100,000 transactions to go through, maybe 100,
18:51 Speaker 02 Exactly.
18:52 Steph Smith? which is manageable.
18:52 Speaker 02 Yeah.
18:53 Steph Smith? So when we're talking about these different regulations, again, we mentioned 50,000 of them and they span different types of regulation as well. And so when I think about companies in these spaces that are helping other small or large companies navigate this ecosystem, Deal comes to mind for cross-border compliance with respect to payroll, Sardine for KYC, which we've already mentioned, and AML. Are there other gaps that you see in this, I'm going to call it this compliance web, because it really does seem hard to navigate, that you don't really see companies effectively servicing?
19:27 Speaker 02 So any industry that is hard to navigate has spawned a very large industry of necessary consultants, right? And you talk to well-intentioned, larger financial institutions, earlier startups, it's now very top of mind. People want to do this well. And then they just see a web of vendors. And what do you do? And so I'd say there's, there's really, well, there's many opportunities, but three I would highlight. One, traditionally, compliance has been very siloed. Like you think you start with know your customer, and then you get the customer on, you've got to monitor their transactions, and then you might have some separate system for fraud. And none of these necessarily speak to each other. You have all these different types of vendors. You have new data sources
20:09 Speaker 02 that might come on board. How do you integrate those? And so now there's new companies, you mentioned Sardine, that are really looking at this from a fraud has a lot to do with who you onboard, has a lot to do with the transactions, from a holistic perspective, and just better feeding this data into a circle and making it much more modular to integrate new types of data sources. So just looking at this problem from a holistic point of view. Opportunity two, you know, we talked a little bit of Coinbase, just in the US, more than 10% of people have a crypto wallet. And so does it make sense that you would have entirely separate on-chain compliance systems from the off-chain world if oftentimes that people
20:54 Speaker 02 are the same? And so that's an opportunity to bring more data into the set into a proof of compliance. And the third part I'm pretty interested in, which has a coordination challenge, but everyone that deals with financial services is sitting on often very siloed pieces of data. So for instance, if I suspect as a bank that one of my customers is a money launderer, and I want to get information from another bank to be able to check that out, there's a long compliance procedure. So just how do we better enable data sharing, which can help elevate every financial institution in doing a better job of compliance?
21:33 Steph Smith? Yeah, I'm going through this right now as a customer of several banks and financial services firms where I'm changing my residency and I'm having to go through the exact same very lengthy, very arduous process with every single one. And of course, there's privacy concern about what information is shared between these different entities. But one thing I want to ask you about as we close this out is how compliance relates to competition, what role it plays there. And as we're seeing increased number of regulations, whether companies are choosing to go to other jurisdictions where maybe this isn't the case.
22:04 Speaker 02 You know, we've invested in in many global companies. And like every country has pretty significant compliance ratios. And they're they're very different. And so I think from a just how does this look going forwards? I think there's opportunities for new compliance companies to just help keep us with. What are all the different changing regulations in all sorts of different jurisdictions? Right? So if I'm a company in the U.S. and I want to expand to Brazil, I have to learn an entirely new, different compliance regime. Wouldn't it be great if I had an infrastructure provider that would help make sure that I was compliant and help stay continuously compliant? So I think that the opportunities here are really twofold.
22:43 Speaker 02 One, obviously, new companies that help rethink this highly manual procedure in different jurisdictions in different ways. And then two, I think new companies that aren't compliance companies but need to be compliant are going to think about what are their compliance systems and what is their approach to compliance, very much from day one, in the same way that they think about many other elements of their infrastructure. And they get into their strategy to, one, often provide a better customer experience, but then, two, keep these costs really down so that they can spend their profits on other things.
23:19 Steph Smith? Yeah, I mean, coming back to what you mentioned before, 10% of revenue, that's a lot. That's not 10% of profit.
23:25 Speaker 02 Think of all the new products you could be building with 10% of your revenue.
23:29 Steph Smith? Next up, we have Michelle.
23:31 Speaker 03 Hi, I'm Michelle Voels. I'm a partner on the American Dynamism team, and this is my big idea for 2023. My big idea is small modular reactors advance the nuclear renaissance. Though nuclear energy accounts for 20% of the U.S.'s electricity, it's commonly misconceived as a dangerous and nonviable option when it comes to adding reliable sources of carbon-free energy. But recently, nuclear energy has been having a bit of a renaissance with the Inflation Reduction Act earmarking $30 billion for tax credits towards existing nuclear reactors, a first for the US. The timing is right now to usher in new innovation in this space.
24:14 Speaker 03 There are opportunities across the nuclear supply chain, from fuel sources to mining to manufacturing vendors and beyond. And one area I am particularly excited about is small modular reactors, or SMRs. By leveraging advanced manufacturing techniques and modular design, SMRs can be quickly and efficiently mass-produced, bringing down costs significantly. This can make nuclear energy more accessible for a variety of applications, including providing clean and reliable power to remote communities, or even, one day, in space. While there's still a way to go in reforming the regulatory frameworks for these types of reactors, SMRs in the broader nuclear industry are likely poised for growth in the year ahead.
24:58 Steph Smith? Energy has been top of mind with some of the geopolitical shifts that have happened, especially in the last year. But I feel like, within that conversation, nuclear has become a more prominent topic, but at least in my world, not SMRs. So can you go a little more deeply into what SMRs are, and maybe how they differentiate from a traditional nuclear plant, whether it's the difference in size, cost, time it takes to actually build?
25:22 Speaker 03 Totally, yeah. So, SMRs are basically exactly what they're called. They're small and modular reactors. What that does is, that means they can be deployed in places that traditional nuclear plants can't. They won't ever provide the scale that like a traditional nuclear power plant would, but they require significantly less capital expenditures, and can be essentially shipped to wherever they're needed. So it can be like, remote communities, or on ships, or in space. And because of their size and because of the timeline, it just like, unlocks a lot of new opportunities within a timeframe that's actually reasonable. So we could get this within years instead of within decades.
26:05 Steph Smith? Can we get specific on those years? Like, how long does it typically take to set up a traditional nuclear power plant versus an SMR?
26:12 Speaker 03 The bulk of the time in a traditional nuclear power plant is actually just like getting the site location, going through all the specs, getting all the designs approved. And that, that just takes a ton of time. There's just a lot of holdups. And we haven't seen a new nuclear plant get built in decades. With SMRs, we think it can be done in years. There's still regulatory things to get through because this hasn't been done yet. There hasn't been a, like, design framework on the regulatory side to, to say, like, this is how they should be built, this is the timeline. But there are a number of startups, like, actually building today and getting designs approved and starting on the path to get these built.
26:54 Speaker 03 So we are excited in what could happen in the next couple of years or, or before 2030.
27:01 Steph Smith? That's exciting, and I like the framing of decades versus years. Something that you just spoke to there, which has come up in my very limited research into this space, is regulation. It seems like the time it takes to get all of the necessary approvals to build a plant is astronomical, or at least more than I think most people would think. And it sounds like maybe there's some regulatory reform happening. You also mentioned the IRA, which is allocating funds towards nuclear. What should people be looking for here in terms of reform? Like, what kind of reform do we need? Whether it's with respect to the traditional nuclear power plant or these SMRs, which sound like they're a little newer and maybe their form is less concrete?
27:43 Speaker 03 So in the US, the Nuclear Regulatory Commission, or the NRC, is the body that would approve any new nuclear site or nuclear reactor. And it's often cited as one of the top bottlenecks in progress towards building more reactors. There are super high fees, like multimillion dollars, just to get designs looked at and approved. There's very long timelines to go through the end-to-end approval process. There's disputed frameworks for how it regulates radiation, which slows things down even further. And as I mentioned before, like, critically, there's a lack of the regulatory framework for SMRs in particular. Like, they haven't really been built before, so there are no guidelines yet.
28:27 Speaker 03 Lowering the fees to approve the designs and accelerating the timelines overall are both, I think, the essential steps if we want to see more SMRs come into production within the next few years.
28:38 Steph Smith? I was really surprised to hear that in the case of some of these regulations, like, there isn't actually even a threshold of the appropriate amount of radiation, which is allowed. It's just kind of this vague sentiment of do whatever you can, which is not something that many people can action off of. Are there examples of other countries that have maybe set up more legible, maybe more actionable regulatory frameworks with nuclear? And what have we seen in terms of maybe what we can learn?
29:09 Speaker 03 Other countries are kind of at various stages of development and support for SMRs in particular, for nuclear overall. We've seen some progress in Europe towards approving, like, building sites more. I know China's putting a lot of money into nuclear innovation. But at the end of the day, the countries that are lowering the barriers towards actually, like, building and testing these reactors and getting plans to start development are the ones that we should be looking towards and following along with. And overall, like, international coordination is going to be really critical here in this domain. Once something gets approved in one country, it should help lessen the burden in other countries.
29:50 Speaker 03 And so there are some organizations kind of working towards coordinating across countries and internationally. But I think that will be something we should look towards and really participate in.
30:02 Steph Smith? That's great. Something you spoke to in your big idea was this idea of the nuclear supply chain and all of these other businesses that kind of ladder up to the end product, whether that's mining or manufacturing. Can you tease this a little bit more in terms of the different types of businesses or gaps that people might explore if they're actually looking to be a part of this industry in 2023?
30:23 Speaker 03 Totally. So as we hopefully start building more reactors, there's going to be material needs in things like uranium or the cooling materials, depending on how the SMRs need to be cooled and built. There'll be needs around the manufacturing and transport of the reactors. They're small modular, so you can move them around. But there's still some things to think through of how to move this intensive material. And then there'll be needs around, like, disposing of nuclear waste and thinking through the recycling process. Maybe on the more exciting side, there's potentially new areas unlocked like decommissioning or repurposing other types of energy plants, like coal plants into nuclear plants.
31:05 Speaker 03 And so I think there's going to be tons of opportunities across the full chain and even like software to coordinate all of this or to track and monitor emissions and things like that.
31:14 Steph Smith? On that note, nuclear, we're currently talking about it in the stance of fission, which people are more familiar with, but there have been other advancements in fusion, which I think is a little further out. I don't want to get too ahead of our skis in terms of talking about its viability, but 2022 was kind of this exciting year where at least one group was able to demonstrate net energy gain. And I think 2021 was a banner year in terms of investment into nuclear fusion companies. And so although these are two very different things in terms of their ability to be implemented today, do you have any thoughts around where that's going, what fusion's role is in this wider matrix, or how we might think about that?
31:53 Speaker 03 So I think the overall energy needs over the next few decades and beyond are big enough that there can be many solutions. And I would love to see more progress on fusion. I think it could be something that's absolutely game changing if we can get there. Unfortunately, I think it is further away than we'd like and that people are hoping, especially if you think about anything close to a scalable solution or something that could be powering an entire power plant. One of the main reasons I'm so excited about SMRs is that we actually aren't waiting on any new scientific breakthroughs. And these things are getting slated to be built in the near term. Again, on the order of years,
32:34 Speaker 03 we can see these actually producing the energy we need. So while fusion is very exciting, and I definitely hope scientists keep working in that area, I think in the near term, it's fission and it's the smaller modularity that's going to be the breakthroughs we see.
32:53 Steph Smith? I feel like I have to ask this question after you brought up this idea that the technology already exists. If we look out, let's say, five, 10 years from now, and we're still at the place where nuclear has not really made any advancements. It's still taking decades to create our plants. We still don't have the right regulatory infrastructure in place. Like, what would cause that? What is causing us to be at kind of this like friction-filled spot in the arc of history as it relates to nuclear?
33:20 Speaker 03 I think a lot of it is on the regulatory side. Like, we need to decide as a country that we want to invest here and we want to push this forward. It's not going to be about were we able to build it? It's did we decide that we wanted to invest in this? Did we decide that we wanted nuclear? The biggest barrier is just humans, not the innovation, just us getting in our own way.
33:46 Steph Smith? Next up, we have Ryan.
33:48 Ryan McEntush? Hi, I'm Ryan MacIntosh. I'm a partner on the American Dynamism Team, overhauling the space supply chain. Civilization's ancient past is segmented by advancements in mining and metallurgy, the Stone, Bronze, and Iron Ages. In each period, success over your rivals was determined by your ability to collect resources and produce increasingly useful technology. Today, we are in the space age, and the same rules apply. Space supremacy will be the measuring stick of industrial and military power for the foreseeable future. It's already supporting our digital economies and guiding our autonomous systems, but the true space industrial base is much broader. We then only need to construct advanced rockets and satellites, but gather the materials and industrial capacity to do it reliably at scale.
34:34 Ryan McEntush? Space does not begin at liftoff. A complex global supply chain, from mining to launch pad, must be overhauled and secured within our global alliance networks. Beyond Earth, infrastructure must be built to service existing assets in orbit and power more ambitious missions to deep space. In 2023, the space industrial base will continue to grow in size, birthing critical companies serving our nation's interests. At the heart of this resurgence, inspiring founders are pursuing difficult problems in materials, manufacturing, and space infrastructure.
35:06 Steph Smith? I feel like we have to start with the why question on this one. Why must we build advanced rockets and satellites, using your words, reliably and at scale?
35:15 Ryan McEntush? Well, I think most importantly, the United States should be the leader in space. This actually goes back to a J. F. C. quote when he gave his famous moon speech at Rice University, where he said, "No nation which expects to be the leader of other nations can expect to stay behind in the race for space." And I think that's incredibly important, not only back then, but today, as we have new, near-peer rivals entering the domain. Satellites already drive much of our economy. This telecommunications infrastructure, this is GPS. And these are things that are relevant not only to the commercial side, but for the military side as well. Speaking of military side, in wartime, as example of Ukraine, we have sort of near-real-time Earth observation and signal intelligence coming from that. And this is essentially, you know, the ultimate height advantage in war.
35:59 Ryan McEntush? But even something like climate change, having that Earth observation, being able to see where the minute emissions are coming from, being able to detect weather and variations in climate, it's all critically important to solving those problems. Lastly, and perhaps the most long-term, there's essentially infinite resources in space. So a lot of these things we think about, mining, or even just accessing energy, there's all of that in space. So in the longer run, if we want to actually continue to grow as a species, we're eventually going to have to figure out how to harvest and utilize space resources.
36:30 Steph Smith? I think an important aspect as we explore the idea of pursuing space more frequently is, as you mentioned, the supply chain. A lot of people think about the last mile there, which is actually launching a rocket into space, but there's a lot that leads up to that. As we explore that, that full space supply chain, as you've said, from mining to launch pad, I want to understand what part of this chain you think is most at risk? Or we could actually reframe that to say, what part of that supply chain has the most entrepreneurial opportunity? What part of that has the largest gaps for new critical companies to be created?
37:04 Ryan McEntush? So the way I think about space and space supply chain holistically is that space is sort of the final frontier. It's where our industrial capacity and the stuff that we can build can actually extend into. And so it's not just, you know, the launch pad. It's not just the rockets going to space and the satellites, but it's everything else that allows us to do that. And so these are things like mining. So actually getting the resources that we need to build the stuff. And it's not just the stuff that goes up into space, which is predominantly aluminum. Everything else, like actually building the factories, the computer chips, even things like energy generation. So how are we actually going to get the energy to do this stuff and build, you know, thousands of satellites or thousands of rockets? These are all things we need to think about. So mining is the first one.
37:48 Ryan McEntush? And specifically within mining, I look at midstream refining. So not just mining the materials, but turning them into workable metals. And there are specific metals that are highly relevant, you know, some of the battery metals and stuff for energy storage and generation, but even things like rare earths that are using magnets as well. The second one is actually manufacturing space components. So this is one of portfolio companies, Apex, they're actually building satellite buses. So a lot of companies are looking at potentially scaling out the space infrastructure that we have today. Whereas today, it's sort of bespoke, building rockets, building satellites. If we're going to do thousands of those and scale it up, we need to be able to develop a mass manufacturing process.
38:31 Ryan McEntush? And that might require separating out these vertically integrated businesses like SpaceX that does everything and doing each individual component and building a separate company that handles just that. And the last piece is what's called OSAM. So like on orbit, servicing, manufacturing, basically activity that services this market of satellites and space stations. If we're going to have 30,000 satellites in orbit, we need to actually have the sort of companies that are able to repair them, fuel them, service them, de-orbit them. And so I think those three areas are the most immediate opportunities.
39:04 Steph Smith? I have to say that whenever exploring these space opportunities, they are inherently moonshot opportunities. I mean, you take a company like SpaceX and SpaceX, I think, has provided a good example of a company that has moonshot ambition to, you know, make us a multi-planetary species, yet also has kind of brought that back down to Earth, you could say, by having a business model that funds their progress, in SpaceX's case, by providing Internet to people on Earth today. So again, not just betting on tomorrow, but actually showing that they're providing value through the revenue that they're driving towards that eventual moonshot. And so I'm curious to know if there are examples that you could provide of other companies, perhaps, that have been able to build that bridge?
39:48 Steph Smith? Because I think perhaps one of the reasons that maybe more founders aren't pursuing space companies is due to this moonshot nature. It's kind of like build or bust. And I'd love to share different examples where maybe that's not the case.
40:01 Ryan McEntush? Well, I think the most poignant example is the company I mentioned a second ago, Apex, where today they're building satellite buses. So they're sort of riding the curve of everyone's building satellites, everything is getting washed up into space. Some companies are going to find it a lot cheaper to outsource that, have another company build satellite buses. So the actual product is this mass manufacturing of space hardware, but today they're focusing on what is immediately addressable, which is satellite buses. More broadly, there's sort of two areas that I think are interesting in terms of how you're approaching the market. The first is what I call like Jamestown businesses. If you remember historically, Jamestown was the first successful settlement on the eastern seaboard of the United States. The reason they're successful was they had a competitive advantage of growing tobacco
40:44 Ryan McEntush? there and selling it back in England and Europe. And that's sort of what we've seen with space, particularly in the mature Earth observation market, where they were able to put satellites up and they had a competitive advantage because it was the only way to get satellite imagery and to handle these telecom networks. They had the immediate market for that and they were able to build that. In the long run, those companies likely expand it to other domains, but in the beginning, you service that market. The second one is tracking military contracts. First sort of customer for a lot of space, pushing the frontier, if you will, is often government. SpaceX is still largely derives a lot of the revenue from government. But looking at areas like space domain awareness, which essentially is knowing what else is around you.
41:27 Ryan McEntush? Specifically, if it's like a very important satellite, being able to see what's around you, whether that be orbital debris or an enemy satellite. That's very important for Space Force and for other government programs. Also, space tugs, so being able to take something from a lower energy orbit and push it up higher. Now, there's companies like Northbrook, which have proven this, what's called life extension, which essentially taking a very expensive satellite and pushing it up a little bit more so it can last longer in space before it falls to earth. And then for Artemis and some of these programs going to the moon, you're going to need something to actually take it, once it's in space, that long mile to the moon. And then lastly, there's a bunch of areas like tactical response that have sort of more military applications.
42:12 Ryan McEntush? But looking for the military and government contracts as sort of the pathway for revenue. And then when the commercial opportunities catch up to that, you're going to be there and have the technology ready to go.
42:22 Steph Smith? You'll be ready to ride that wave. I would be remiss if I did not cover this question as we close this out, which is just you, in your big idea, kind of framed this idea of space providing the, you could say, this measuring stick of power. And I think some people would say, no, Ryan, that's still on earth, right? Like access to land, water, critical materials like cobalt. That's really what is going to be the measuring stick of the different countries or entities that succeed. What would you say to that?
42:53 Ryan McEntush? I think people don't realize how important and how critical space already is to even land battles. And Ukraine is a good example of this, where the United States is able to provide a sort of real-time intelligence of troop movements, signal intelligence, being able to detect everything that's said, every message that's sent, and targeting capabilities. So being able to actually know where people are, then also be able to send missiles to where they are. All of that assets to be able to provide that infrastructure takes place in space. So even though they're land-based battles, the infrastructure to facilitate that and to actually win wars in the future. Require these assets in space. So these are not only important for winning, but also they're one of the first targets. If there was a real conflict between the United States and China or Russia,
43:37 Ryan McEntush? they would go after the satellites first. So that is absolutely critical. And also in terms of minerals, mineral discovery companies, like one of our portfolio companies, Cobalt, they utilize these data sources from satellite imagery as well. So even in terms of minerals, they're highly relevant. And more broadly, looking at resources, there's just an insane amount of material available in asteroids. And being able to actually mine some of these other celestial objects. I think some of the numbers I've seen were like a small M-type asteroid might have twice as much nickel and iron that is produced on Earth in a single year. So a country is able to actually do this at scale, solves a lot of these material component problems. And I think in the long run, once we start getting a lot of resources from space, we might move other industrial,
44:22 Ryan McEntush? very high-energy intensive activities into space. You don't have to worry about nuclear radiation if you have a nuclear reactor in space and doing other sort of CO2 emitting processes in space. You might be able to do a lot of industrial stuff and then send it back down to Earth. That'd be the long-term plan.
44:38 Steph Smith? Next up, we have Vijay.
44:40 Vijay Pande? Hi, I'm Vijay Pande, General Partner at BioHealth at H16Z. And this is my biggest idea. The biggest company in the world will be a consumer health tech company. This may sound crazy to some, but why shouldn't this be true? Four of the top five biggest companies in the world are consumer companies. And healthcare is one of the nation's biggest industries, much larger in fact than the size of the global advertising industry in which consumer giants like Google and Meta operate. From that standpoint, the number one slot should be a consumer health company. So we see two paths to consumer health company becoming the biggest company in the world. The first is a vertically integrated path of being a so-called pay provider, a combined payer and provider, that eventually owns most care. Imagine UnitedHealth Group, but with the user interface of Apple.
45:25 Vijay Pande? Who wouldn't choose this insurance plan and provider? The second is a horizontal path of building a consumer marketplace or infrastructure layer that enables all other care delivery companies. Imagine Amazon and Visa but of healthcare. We'd go as far as to say that there is almost infinite room to improve the consumer experience in healthcare and build massive companies as a result. And we expect consumer healthcare to be front and center in 2023.
45:49 Steph Smith? All right, BJ, this is a big prediction. So before we jump into the nitty gritty, I want to hear from you. Just how big is this healthcare industry?
45:58 Vijay Pande? Yeah, actually, people forget just how huge it is. It's approaching 25% of US GDP. It's about 22 right now is 20% in 2020, and it's just been gradually increasing. It's what's the healthcare crisis that we worry about. And so in that sense, it's 10 times bigger than marketing budget of consumer giants like Google and Meta.
46:21 Steph Smith? Well, I'm glad you brought them up because some of these large companies like Google, Apple and Amazon are pursuing healthcare to some degree. And they have so much capital to pour into this nascent space for them. But to date, they have not succeeded. So why do you think these super heavily capitalized companies have not come out on top yet?
46:39 Vijay Pande? Yeah, I think there's a couple of different ways to think about it. From purely a tech lens, you could imagine the days of Google fighting Microsoft. Like, how could something like a little startup known as Google sort of compete against a giant like Microsoft? And it did because they were web native. They were sort of built upon a different set of rails and with founders that think of things differently. And so even just from a tech company perspective, it's something that's so different is hard for giants to go after just because of the way they're built. And this is basically classic disruption theory. Healthcare is also different than just tech. You can't come in with, I think, a dive of understanding of how healthcare works. Either on the medical side, the life science side, or even just how the system works and come in and make big changes.
47:23 Vijay Pande? And so a combination of those two things, I think, will make it very difficult for the existing incumbents, at least on the tech side, to dominate.
47:29 Steph Smith? So we've covered the incumbents on the tech side, but there's also large healthcare companies out there today. One that you've mentioned is United Health Group, which is the largest healthcare company in the world. I think it's also the eighth largest company overall. What do you think is stopping them from dominating in the way that you're describing?
47:46 Vijay Pande? Well, just like we talked about it for tech incumbents, I think there's the same issue now for healthcare incumbents in that the winner is going to combine a deep knowledge of tech and a deep knowledge of healthcare. Just as it's very difficult to sort of build that into a tech company, it's very difficult to build tech into a healthcare company the same way. It's just not the way these companies are built in. So it's the analogous problem on both sides.
48:07 Steph Smith? So something that you seem to be alluding to is the fact that we need new founders pursuing this problem. So if you were a founder today, what angle would you tackle this from?
48:16 Vijay Pande? I think the key thing is that the founding team ideally would bring together people that have this deep knowledge in tech and in healthcare. And I think now sitting in 2023, we're in a different world where people have grown up with tech their whole lives. So if you're graduating from medical school now, or if you've been working the healthcare system, tech is not something that is unfamiliar. It's part of your daily life and has been part of your daily life now for decades.
48:40 Steph Smith? It's important for us to pay attention to these inflection points. And so it sounds like technology has changed in a way where there's new opportunities. But I want to really drill into this idea that you said that there's infinite room to improve the consumer experience in healthcare. And I feel like this has been true for quite some time. And so perhaps in addition to some of the technical changes or the talent changes, why haven't we seen many of these developments yet?
49:05 Vijay Pande? It's actually analogous to some areas in tech where people from a consumer background came into enterprise. And enterprise software started having the look and feel of a really smooth UI you'd expect from Meta or from Google or something like that. Similarly, it just takes a different type of founder to really understand how to create that experience on the tech side, which is user interface and so on. But it's also MPS is more than just about the software. It's about what you can actually do and what you can accomplish. And but there, there really isn't the same focus on user experience often in healthcare. Because frankly, often the user, the patient, isn't the payer. That's really, I think, one of the key differences for a consumer facing healthcare company,
49:48 Vijay Pande? where finally now we'll be involved and maybe to some degree, things will be out of pocket and that will change things. But even still, I think someone with consumer mindset where the patient is really paramount and that the patient's user experience is maybe even a part of how we think about their healthcare. That's a fundamental shift.
50:04 Steph Smith? Vijay, I think this is a really interesting concept, but pushback that I expect from this idea of the biggest company in the world being in healthcare is that there shouldn't be these massive companies profiting off of patient health. So what would you say to that?
50:19 Vijay Pande? Yeah, well, first off, I think if you think about what human endeavors should be, taking care of the sick is one of the most important things that we could be doing. I think it's important to realize that a company that's very successful at doing that is creating so much value that for it to become a large company is a very positive thing just in general. But also, I would add that there's different ways that companies become big. And one is through rent seeking, where they have some advantage that they leverage and they don't really contribute or innovate. Or, and this is the spirit that we see in a lot of tech companies, where they actually bring huge degrees of innovation. And that innovation is really dramatically improving the patient experience, dramatically improving outcomes. And as a side effect, this is building the biggest company in the world. That's the vision that we would
51:04 Vijay Pande? love to build towards, where the human condition, improving human healthcare is considered to be one of the most important things we could be doing and would be, in some sense, represented by the fact that such a huge company could be built.
51:15 Steph Smith? And finally, we have Julie.
51:17 Speaker 06 Hi, everyone. I'm Julie Yu, general partner on the E16Z Bio and Health Team, and this is my big idea for 2023: the value-based care stack. As we sit somewhere in the murky middle of the adoption curve and hype cycle of value-based care, or BBC, we are unabashedly BBC optimists. But we are also eyes wide open that many value-based models haven't delivered value yet. And one of the major reasons for this is that the clinical and operational models from the legacy fee-for-service world have simply been transplanted into value-based paradigms, resulting in the gaming of the system versus a fundamental reorientation of care models to be focused on value from the ground up.
51:59 Speaker 06 And so VBC Done Right demands purpose-built approaches that will be built on a fundamentally different stack. This emerging stack will support new entrant value-based digital health players and incumbents alike around unique requirements to deliver higher value care. Things like data aggregation and activation, actuarial modeling, contracting adjudication, panel management, continuous care, workflow support, and provider ecosystem integration around referrals, co-management, and network design, just to name a few. So if the first generation of the digital health tech stack, which we wrote about in 2020, was about enabling administrative and operational efficiency for virtual-first
52:39 Speaker 06 providers, the next generation will be about helping providers bear risk and enabling peers to collaborate in a more integrated fashion with their risk-bearing provider networks. We see this stack emerging in many different product phenotypes, from SaaS platforms to solution marketplaces to MSOs, to service an entire range of buyer segments and levels of technical sophistication.
53:03 Steph Smith? Julie, can you just break down for the listeners what the difference is between some of the value-based care that you're speaking of and the legacy fee-for-service systems in healthcare?
53:13 Speaker 06 Of course. The first thing I'll call out is that you would hope that all the healthcare that you receive is value-based. So it's sort of telling that we've had to concoct this term to qualify what is value-based versus not. But you know, the premise of value-based care is that so much of the bloat of our healthcare system is the result of the sort of massively misaligned incentives due to the third-party payment model that is the dominant way for how healthcare is paid for across this $4 trillion industry in our country every year. And it's probably actually not even accurate to call the fee-for-service system legacy because it's still the dominant model today. But the fee-for-service system is one in which, as the name indicates, providers essentially get paid for what they do.
53:55 Speaker 06 So for every visit that they do, every test that they run, every procedure they perform, they are submitting this atomic claim for each of those tasks and getting paid a fee for each of those tasks. As you can imagine, that kind of system incentivizes doing more stuff and also incentivizes kind of a focus on treating people who are sick as opposed to this value-based system in which providers are getting paid for managing the health of the population of their patients and preventing sickness versus treating it. The purest form of body-based care is where providers get effectively a set budget on an annual basis to manage their patient population. And any overages that you have on that budget, you have to eat.
54:39 Speaker 06 But also any underages on that budget, you get to keep a share of that savings. And so again, it incentivizes a different care model associated with that, which is you want to be much more proactive about getting ahead of any escalation of health issues to avoid all those catastrophic costs that might come from people really getting sick and ending up in the ED and things like that.
55:00 Steph Smith? So what you're describing sounds great. It sounds like we're driving efficiency, productivity, we're dealing with sickness before it happens. And so what have been the key roadblocks to actually achieve this reality that you're painting?
55:13 Speaker 06 Yeah, so I mean, fee-for-service has been the dominant payment model for many decades. I think technically it was like the 1960s when the first billing codes were implemented that led to this type of proliferation. And so it's fundamentally just inherently hard to change the business model of an entire industry. So I think there's just some inherent inertia that the entire way that our system operates has been optimized for fee-for-service. Everyone knows how to game it. Everyone knows how to benefit from it. There's an entire $150 billion industry dedicated to just submitting and processing claims so that you optimize your revenue flow. And so just because so much money is on the line, there's a ton of friction against changing the status quo.
55:54 Speaker 06 I liken it to the legal industry where who is familiar with the minute-by-minute billing system that law firms use. And how many times have we heard about some upstart law firm who's trying to move away from time-based billing to fixed-speed billing? But as quickly as it comes up, it goes away because there's so much inertia in the system. And so therefore, I think you would really just have to take a top-down government mandate to force an industry to make that kind of switch. And while it's not what I would call a full out mandate, we effectively have had that where we've had a number of significant government initiatives that have been put into place that create financial incentive to get into the value-based care game for providers and payers and take full risk, as it's called, in the form of these budget-based payment
56:37 Speaker 06 models. We've had a number of examples of that. It's been Medicare Advantage, I think, is a primary example that was started in 2003. We've had accountable care organizations, or ACOs, which were initiated as part of Obamacare in 2012 and subsequent flavors of that. So we're still in super early days, I would say, as far as seeing the impact of those top-down mandates. That's really what it took to kind of shake the system up and say there's a different way of doing things.
57:02 Steph Smith? Yeah, so it sounds like some of those initiatives were over a decade old. And so what is it about today in 2023 that you see changing, whether it's through legislation, through the founders who are stepping up to change things, or through maybe just the step-by-step changes that are happening to kind of reorient the inertia that we've seen in the past? What are you seeing that makes you hopeful about maybe some of the shifts today?
57:26 Speaker 06 Definitely on a baseline, just the general sort of like, it takes time for these things to take hold. I mean, it's the same way that we talk about technology shifts, right? Like even, you know, the internet having been invented, quote unquote, on a mainstream basis in the 90s, it's really only now that we're seeing some of the fruits of that innovation. So I think there's just some law of physics type things that are fundamental like that that apply here. But I think it has to go, without saying that certainly the pandemic and everything that's happened in the last couple of years have had a huge impact on, frankly, like the financial beating down of providers that has created this huge burning platform for providers to diversify their revenue and just create much more resilient ways to survive. And value-based payment is one way to do that, where you actually have a recurring revenue stream versus these atomic payments
58:10 Speaker 06 that rely on patients coming into your office. And so that, I think, has been a huge tailwind for the adoption of value-based care models. You also see a lot of decentralization of care away from traditional hospital and clinic-based settings. Virtual care, home-based care, community-based care, all these things are now very much getting adopted because they are fundamentally lower cost, more convenient, and much more reliable than having to force patients to go to decentralized settings. So, you know, I think that those are some of the key, obvious drivers of seeing kind of the why now that's occurring right now. That said, we're still looking at, depending on what reports you read, we're only at roughly about 20% of all healthcare payments being in some kind of risk-based model.
58:52 Speaker 06 So to use the crossing of the chasm framework, we're probably still in kind of like the early adopter, maybe early majority phase. But again, it comes back to that concept of we're just still fairly early in kind of the fallout from some of these top-down government mandates and what impact they can have on the industry.
59:09 Steph Smith? Yeah, completely. And I think to your point, the change in inertia doesn't happen right away. I like how you've broken down the healthcare tech stack into three parts in the past. So that includes care delivery services, the back office admin, which is required to run a practice, and then the front office, which interfaces with customers. Is there a part of that tech stack that you think is really particularly ripe for disruption today?
59:31 Speaker 06 Yeah, and just for context on where you mentioned, you know, we had written a couple of years ago about this new tech stack for virtual first care. And the premise of that thesis was that all of these new virtual care companies are very ill-served by existing IT solutions because those IT solutions were very much predicated on fee-for-service payment rails, sporadic facility-based patient encounters. So their entire data model was predicated on kind of these, again, these sporadic visits. And the workflows were basically all provider-centric, not patient-centric. And so we predicted that there would emerge this new tech stack of horizontal platform companies that are designed to deliver value-based care, launch to and all continuous care models, and treat the patient as a primary end user.
1:00:15 Speaker 06 And so that did come to bear. You know, the first wave of companies that came out started to build what I would call kind of the low-hanging fruit capabilities in that stack. So the operational infrastructure for billing, things like financial services, CRM-type capabilities, more kind of administrative workflows. And so, you know, to your question, I think the next wave of innovation is going to be more on the kind of the higher levels of sophistication of that stack on the clinical side, as well as on kind of the risk management side. What I mean by that is on the clinical side, I think we're all waiting for the promise of things like AI and ML to help supercharge the way that clinicians make decisions about patients and enable them to access in real time all of the intelligence that is available
1:00:57 Speaker 06 to us as society about what works and what doesn't work for a given patient population versus being beholden to, you know, the very heterogeneous distribution of knowledge and experience that inherently exists in any provider population. And then I think the risk piece, as we were discussing earlier, is providers are basically going to have to learn new skills. If they're going to be taking risk on these kind of budget-based payment models, they have to both learn how to deal with payers in a different way, the insurance companies, and be able to design and negotiate these contracts in a way that they will be successful. And also, again, understand their populations in a fundamentally different way to avoid these clinical catastrophes that could lead to insolvency under these models. And so I think that's another area where things like actuarial capabilities, waves to
1:01:40 Speaker 06 underwrite risk, and proactively intervene in populations in a scalable fashion, that's going to be another area where we need to see innovation within this tech stack.
1:01:51 Steph Smith? You know, something you touched on there is the focus in the past on provider-based care versus patient-based care. Do you see that changing? As in, do you see healthcare becoming more of a direct-to-consumer model? Or do you think that, again, using the term inertia that we've had in the existing system where care is focused on a middle layer of the provider?
1:02:13 Speaker 06 Yeah, I mean, we actually have written a couple of pieces recently about this notion of our definition of direct-to-consumer care. I think the traditional, common interpretation of that phrase in healthcare has been out-of-pocket payments, where you, as a patient, are paying for a service. We argue that the definition is much broader than that. It's really any service in which the patient has a direct loyalty to an entity that is either delivering a service and/or facilitating payments, but not necessarily one that they're paying for out of pocket. So in that sense, absolutely yes. And I think it's a necessary component of value-based care, that the patient be engaged in their healthcare, because that is really the predominant way by which we're able to catch risk early. And so you hear about things like remote patient monitoring, or continuous measurement, where you're putting
1:02:58 Speaker 06 devices into people's homes, and they're participating in the creation of data sets that are novel, and also create a whole new dimension of visibility. And I think that's one prevailing example of how patients are taking more accountability and just more participation in these care models. So yeah, I would definitely expand the definition of direct-to-consumer beyond what we typically think about in the e-commerce sense, to one in which patients are aware of the services that they're receiving, and contributing novel insights and data sets to ensure that their providers can effectively be successful in these value-based orientations.
1:03:36 Steph Smith? I've also heard you speak about the increasing affinity that consumers sometimes have with some of these companies that are building more of a relationship, even if the consumer is not the direct payer for that service. Could you speak to maybe just one or two examples of companies that have been able to facilitate this successfully?
1:03:53 Speaker 06 The first company that comes to mind is Firefly Health, which is a value-based care company. So they, a lot of the examples that I mentioned earlier were in the government-sponsored insurance space, Medicare, Medicaid, et cetera. One of the areas that we think is extremely ripe for value-based care innovation is the commercial insurance space, so employer-sponsored insurance in particular in this case. And so Firefly effectively sells a solution to employers that helps employers manage their healthcare expenses in a much more effective way. And as all of us know, insurance premiums continue to just skyrocket year over year, especially given the macro environment right now. This is just a burning platform issue for CFOs and CEOs across the board. So Firefly is kind of inserting itself into that equation. But the way that they
1:04:35 Speaker 06 manage their patient populations is through a very concierge-type model where you can literally text their staff on a real-time basis 24/7 and be able to have clinically meaningful encounters with that staff about everything from appointment scheduling to pharmacy needs to just questions about whether I need to take my kid into the clinic or not and everything in between. And the phenomenal stat that I always highlight for Firefly, actually, I'll ask you this question, Steph. You know, all of us kind of typically see your primary care doctor maybe once a year at most. How many annual encounters do you think clinically meaningful encounters do you think Firefly has on average with its patient population?
1:05:17 Steph Smith? Well, now I feel like it's high because I feel like it's more than one. But this is per patient, you said?
1:05:23 Speaker 06 Yeah.
1:05:24 Steph Smith? I'm gonna guess.
1:05:24 Speaker 06 Take a wild guess.
1:05:25 Steph Smith? Three?
1:05:26 Speaker 06 So 45.
1:05:28 Steph Smith? What?
1:05:29 Speaker 06 Forty-five clinically meaningful interactions that they have on an annual basis with their patient population, these are, you know, commercially insured, right? So these are people who have full-time jobs where they're receiving healthcare benefits. So typically, you're speaking about a much more healthy population than you would see in like the Medicare or Medicaid populations. And so because of that context, it's even more phenomenal that they're getting that level of engagement, but they use this tech-masting modality, they do proactive outreach to their patients, they also provide remote monitoring devices, they will send providers into the home when there needs to be kind of hands-on on the body to do some kind of assessment or treatment. So because they're taking this multimodal approach to delivering primary care, they're able to earn the right, you know, to have very frequent touchpoints with their member
1:06:13 Speaker 06 population, which not only helps with kind of just consumer experience, frankly, and the development of loyalty towards them, but also obviously from a clinical lens that allows their clinicians to really be proactive about highlighting opportunities to intervene early in their care journey. So that, that to me is a kind of a primary example of the way that you can implement using technology in really systematic ways and not just relying on throwing bodies at the problem as traditional providers have done, which obviously is inherently unscalable, to be able to, you know, provide a delightful experience to the patient while also delivering clinical outcomes and lower cost.
1:06:47 Steph Smith? That's insane. Forty-five versus, as I think you said, less than one encounter for most people. And I assume that the price point of that is much lower as well.
1:06:58 Speaker 06 That's exactly right. The insight here is that only because of the technology that now exists to be able to facilitate multimodal care, meaning virtual care, home-based care, care in your community, as well as, you know, when needed, steering you towards in-person care, because they're able to diversify the sites of care that across which they're able to deliver their services, the cost structure of their clinic versus traditional clinic is a fraction, right? So that ultimately I would call out is also another key driver and key unlock for making value-based care work, is the ability to fundamentally reduce the cost structure of care delivery. And I would go as far as to say it's not even possible to do that without the technology
1:07:41 Speaker 06 that we now have today, whether it be mobile, whether it be these connected devices, et cetera, and even just frankly, technology adoption amongst providers, which did not exist until very recently, for better or for worse, and their ability to communicate directly with each other as they're managing collectively these patients in these budget-based risk models. That is absolutely a fundamental part of the unlock that Firefly and many other companies have been able to take advantage of.
1:08:05 Steph Smith? I hope you enjoyed this two-part series. If you're looking for the full list of 40-plus ideas, you can head over to a16z.com and you'll find it on the homepage. See you next time.
1:08:17 Steph Smith? Thanks for listening to the a16Z Podcast. If you liked this episode, don't forget to subscribe, leave a review, or tell a friend. We also recently launched on YouTube at youtube.com/a16z-video, where you'll find exclusive video content. We'll see you next time.
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