#1280 Peter Berg | Microsoft’s VC on Artificial Intelligence & Bitcoin

Peter Berg is a Managing Partner at M12, Microsoft’s venture capital arm. He leads the fund’s vertical SaaS invests & work. Peter is also a two-time founder, and most recently ran strategy & business development for Very Good Security. In this conversation, we talk about corporate venture capital, success stories for M12 & his career, artificial intelligence, recent OpenAI news, and advice for founders & entrepreneurs. ======================= Auradine, a leader in web infrastructure solutions including blockchain, AI, and privacy, has unveiled the world's first 4nm Bitcoin mining systems, featuring breakthrough EnergyTune™ technology, setting new standards in performance and energy efficiency. The Teraflux™ product line from Auradine offers best-in-class performance, efficiency, and total cost of ownership (TCO), positioning it as the optimal choice for Bitcoin mining needs. With EnergyTune™, a patent-pending technology, Auradine's Teraflux™ systems enable rapid demand response and optimal energy usage, fostering a symbiotic relationship with electrical grids, and contributing to sustainable energy practices. Designed and manufactured in the US, Auradine's Teraflux™ product line not only ensures cutting-edge technology but also mitigates supply chain risks and provides increased supply chain resiliency. Visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠www.auradine.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ for more information the Teraflux bitcoin mining systems. ======================= Cal.com is leading the charge of scheduling platforms in the open-source sphere, offering you the chance to harness the efficiency previously reserved for elite corporations and tech gurus. That's right, Cal.com is transforming sophisticated calendar management into an accessible tool for all via a user-friendly interface. Discover how countless users are optimizing their time in unprecedented ways. Use code “POMP” for $500 off when you set your team up with Cal.com. ======================= Pomp writes a daily letter to over 250,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

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

• 0:02Anthony Pompliano?

  What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Peter Berg is a managing partner at M12, Microsoft's venture capital arm. There, he leads the fund's vertical SaaS investments and work. He previously is a two-time founder, and he most recently ran strategy and business development for Very Good Security. And prior to that role,

• 0:45Anthony Pompliano?

  Peter also spent six years leading Visa Ventures, where he directed a team of investment and portfolio development professionals focused on investments in the fintech ecosystem. In this conversation, we talk about corporate venture capital, what many of the success stories are for M12 and Peter's career, how they're thinking about artificial intelligence, especially with all of the recent OpenAI news, and what exactly founders and entrepreneurs should be thinking about when approaching a firm like M12 and how to work with corporate venture capital to your advantage. I really enjoyed this conversation with Peter, and I think you guys will find this incredibly valuable. So I'm excited for you all to listen to my conversation with Peter Berg.

• 1:20Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 1:44Anthony Pompliano?

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• 2:26Anthony Pompliano?

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• 2:56Anthony Pompliano?

  This episode is brought to you by Cal.com. What do I have in common with Chad Hurley from YouTube, Toby from Shopify, and Alexis from 776 and the co-founder of Reddit? We all use Cal.com instead of Calimly and we are all early investors as well. Cal.com is leading the charge of scheduling platforms in the open-source sphere, offering you the chance to harness the efficiency previously reserved for elite corporations and tech gurus. If you like to have your calendar organized and be able to have an efficient exchange when scheduling, but you love all of the benefits of open-source technology, then Cal.com's for you. They are transforming sophisticated calendar management into an accessible tool for all

• 3:38Anthony Pompliano?

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• 4:07Anthony Pompliano?

  All right, guys. Bang, bang. I've got Peter here. Peter, you're at M12, Microsoft's venture arm, OpenAI, absolute chaos, controversy, uncertainty for an entire weekend. Every single person in tech was like buried with their nose in their phone. What is going on in your head or M12's kind of internal communications when all of the chaos is happening? Like, are you guys freaking out? Or is it cool, calm and collected the whole time?

• 4:31Speaker 02

  You know, we try to keep a cool head about these things, generally speaking. I will say, just for the, for the interest of transparency and disclosure, M12, so we are Microsoft's venture arm, we did not actually do the direct investment in OpenAI, just for the sake of clarity. Microsoft's, the parent company, invested in that. And so I, you know, I'm not privy to the, all the details of that arrangement. So suffice it to say, I think we're happy kind of where it netted out. You know, I mean, Satya's comments, he talked about it publicly. We're very encouraged by kind of how things landed and how it was navigated. I know it was a little, probably a little touch and go, who knows? But I think overall, you know, we have a lot of confidence in OpenAI. We have a great relationship there. And then from the M12 perspective, specifically, like,

• 5:15Speaker 02

  we also have a good relationship with OpenAI. So we actually collaborate with them from time to time. In fact, recently, not that long ago, about 30 of our portfolio companies had like a day onsite with OpenAI, walking through their latest technology, you know, some hands-on kind of keyboard engineering, I guess, co-engineering. It was a really productive sort of collaboration session. So we do that, that type of stuff and provide kind of that level of access to the extent we can for our portfolio companies. Kind of the, you know, membership has its privileges, so to speak, with the M12 portfolio. So, you know, big fans of OpenAI generally and hope things continue to go well.

• 5:55Anthony Pompliano?

  Now, as you mentioned, you guys may not have made the direct investment in OpenAI, but you have made an investment in a plethora of other artificial intelligence startups. Talk a little bit in terms of a corporate venture capital firm, how much of the investment decisions is like, I want to make money versus I'm trying to do something that's in the best interest of Microsoft or give them an edge in the market?

• 6:16Speaker 02

  It's a really good question because I think there are as many flavors of corporate venture capital or CVC as there are probably corporations that do it. And you mentioned the kind of strategic versus financial spectrum. We're actually evaluated on both metrics, which I think is, I think makes sense. Frankly, it aligns incentives in an interesting way. So we're evaluated on financial returns. We have to make money. Our leadership is quite clear about that. And then on the other hand, we're trying to deliver strategic impact. And so that takes a variety of different forms. And we usually, it's whatever makes the most sense with and for a given portfolio company. So one thing I'll be, I want to be clear about is we don't actually, we deliver signal and kind of insights

• 6:59Speaker 02

  in both directions, but we're very clear about sharing information. We do not share information without express permission of our startups with Microsoft. So we actually operate what I'll call pseudo independently. We are Microsoft's venture arm, but we have our own investment process. We have our own investment committee. We make our own decisions. We're very grateful and thankful and, you know, fortunate to have support from the, you know, our senior leadership has been very supportive of M12. But we do make our own decisions and we don't necessarily cross pollinate or share any information back with Microsoft. Again, without the express permission of our portfolio companies or the startups we talk to. It's an important distinction because I think, you know, some, not every CVC runs that way. And so we do, back to the strategic impact question.

• 7:41Speaker 02

  We try always pre and post investment to look for ways that we can add value to our portfolio companies, right? So it may not surprise you to learn that people take our money in large part because of who our LP is not in spite of. And so they're looking for ways to, you know, either partner with Microsoft or get exposure to our partner or customer ecosystem. And so we actually have an entire portfolio development team stacked against this objective. I, they're like my superpower. A previous gig, I didn't have a team that was dedicated to kind of portfolio success. We do have that at M12 and we're very fortunate to have that. And so they look, they help the investing side, which I'm on the investing side, to find ways to accelerate outcomes for our portfolio companies. And those, you know, can be product partnerships. Recently, we just announced something with Inworld, where they're one of our portfolio companies.

• 8:27Speaker 02

  They're doing a really deep partnership with Xbox and the gaming side. So that was a long, a lot of effort went into making that real, but Typeface is another one we did recently in the AI space. So we're, you know, they're a generative AI company helping enterprises use AI for their marketing and content generation. And so we're working, we're finding interesting ways to work with these companies and then connect them to the right folks, both within Microsoft directly as well as our broader ecosystem. So both dimensions matter.

• 8:56Anthony Pompliano?

  Yeah, let's talk a couple of success stories, maybe kind of the examples will prove the point. What's like an example of you guys make an investment in a company and you are able to bring them into Microsoft and you're like, man, that wouldn't have happened or that company wouldn't be nearly as successful as it is today without being brought inside of Microsoft?

• 9:14Speaker 02

  Yeah, I think In World is a great example, right? So the one we just announced recently, but that was an investment that we made. We then introduced them to the gaming team. Number of conversations ensued and a lot of work on both, you know, both the M12 side as well as the Microsoft and Xbox teams. Ultimately, what that led to was, so In World is an AI-driven, as a generative AI company, they focus on like non-playing characters in games. And so think of this as like enabling an infinite combination of choose your own adventures within a game, right? You can, every time you interact with a game, you can have a new experience because there's AI brains essentially powering these NPCs in the games to power essentially creative

• 9:58Speaker 02

  gameplay, like side quests, like, you know, to power dialogue that is contextually relevant. And so In World and Xbox have this now deeper product partnership that wouldn't have come about had it not been for the M12 investment and for the work that our portfolio development and our investing teams did alongside the Xbox teams, kind of embed their technology into some of these, into the platform. So that's one example. I think Noble AI is another one. We're doing a lot of interesting things in like material science development. So Microsoft Quantum, Azure Quantum Elements, our quantum computing initiative and Noble have partnered. They're very, very complementary technologies. Noble is helping companies like do new chemical

• 10:41Speaker 02

  formulations. Instead of running physical experiments, which take a lot of time and are costly and, you know, you can only do a set number of physical experiments in a certain amount of time, you can now run AI-powered simulations to do, you know, thousands of these for a fraction of the cost. So those are two examples of things where, you know, kind of better together.

• 10:58Anthony Pompliano?

  Now, those are examples where you guys made an investment, you bring them inside of Microsoft. There's more value that's accreting to these startups. How many of these startups is the end goal for them or for Microsoft? Is Microsoft to acquire the business versus actually the success story ends up being the business is successful outside of Microsoft? Microsoft's happy to be a shareholder and kind of, you know, get some sort of benefit in terms of either partnering or being a user or whatever, but it's not actually to go and acquire those businesses?

• 11:25Speaker 02

  Yeah, it's a good question. We do not set out in M12 to find companies for acquisition, right? We're not hunting for acquisition targets. We are a dedicated venture fund and we are really trying to do, you know, true venture investing in the sense that we invest in early-stage seed through Series B, let's call it, companies that are doing transformative things in technology. And part of that is to bring signal and insight from the Mac, from generally what's happening in the market, back to Microsoft, not in an individualized fashion, because I mentioned the firewall around information, but more like where's the market headed? What technologies are emerging? What should we maybe be paying attention to? And we're trying to see kind of see around corners or see into the future, right? To a certain extent, to figure out where the technology landscape is headed.

• 12:10Speaker 02

  And so that's really one of the, you know, information and signal is like, that's one of the ways we, we bring that back on the M12 side. And then, of course, direct investment in companies, right? And finding meaningful ways to work with them. And we learn things, each party learns things through that. And so we don't go out hunting, you know, we have a very capable and corp dev team and we have a good relationship with them. And they'll send us deals that are, you know, true venture deals and will, you know, also funnel, I guess, help folks, connect folks within Microsoft to the relevant teams, whether it's business development or corp dev or whomever, as needed.

• 12:47Anthony Pompliano?

  Now, there's another group of people that you seem to be able to help these startups with. So you can bring Microsoft, you can bring capital, but also sometimes you can bring Microsoft's customers or Microsoft's partners, so it's kind of like a step away from the company. Talk a little bit about how that works.

• 13:02Speaker 02

  Yeah, so we have a number of, there's a whole range of different resources available. And oftentimes, M12 can help act as the front door to Microsoft and the different resources that we have for startups. We work really closely with the Microsoft for startups team, for example. They, you know, have a whole suite of capabilities that they roll out for start, early-stage startups, Azure credits, access to a wide variety of internal resources, including sometimes AI assistance. They actually run our AI co-innovation labs. We have a number of these around the globe, including in San Francisco and a bunch of other places. We just opened the SF1 recently. The, and those are like hands-on keyboard, like engineering help to optimize and test

• 13:47Speaker 02

  new things, like real, you know, building with AI. And they also run a program called Pegasus, which is an invite-only co-sell program for really high, or I guess, very promising startups or ones that are highly aligned to kind of our own business objectives. And so we will actually provide co-sell assistance where Microsoft sellers can, I guess, go in and co-sell alongside these early-stage startups and get them access to our customer and partner ecosystem. So we've done this with and for a number of companies, and it really meaningfully accelerates their trajectory, right? Gets them in front of a large number of enterprise and other customers. In some cases, there's also product integrations that, where it makes sense.

• 14:30Speaker 02

  And so that can really, you know, move the needle for a lot of these companies to be able to co-sell. They can also be on the Microsoft marketplace. So a number of our, both M12 portfolio companies and just general startups can put in offerings on our marketplace, and those can be then, companies, Microsoft customers can then take advantage of those, in some cases also use that as credits to their cloud commitments. So there are a wide range of ways we can accelerate outcomes on the go-to-market side. We have a very capable sales team, and they've been certainly a force multiplier for a lot of startups we were with.

• 15:05Anthony Pompliano?

  Yeah. Now, this isn't the first time that you've done corporate venture capital. You were previously at Visa, and I think if I went around and asked a bunch of people across the industry, like, hey, who's done this well as corporate venture capital firm? Visa is one of the organizations they'd point to and say, hey, those guys seem to have figured it out. Talk a little bit about lessons you learned at Visa, and then things that maybe you were able to bring to M12 and help implement and say, hey, look, these are ways that we can be really successful here.

• 15:29Speaker 02

  Yeah, as you pointed out, I helped start what is now Visa Ventures. So we had some great support from the top. I think that's key. We were very fortunate to enjoy that at M12 as well. But we had a CEO at the time at Visa who really leaned in and wanted us to do more with the technology ecosystem. So we were engaging with everyone from Apple and Microsoft and Google, all the way down to early-stage startups, which was actually the world I had come from prior to joining Visa. But most of my career has actually been spent on the operating side, building companies. And so I helped stand up Visa Ventures and did a number of investments in early-stage companies. Everything from Stripe, Chain, Marketo, a number of other now high-flying companies.

• 16:12Speaker 02

  They were emergent companies at the time. And interestingly, we were actually structured, you know, when I was running it, very similarly to how M12 is built. And I think, you know, there are probably as many flavors of corporate venture capital as there are corporations that do it. I really feel strongly about, you know, not requiring any unnatural acts from the startups that you work with. We don't do that M12 either. We try to do only things that are organic or like, you know, additive, mutually beneficial, and then finding ways to genuinely help. I think actually, my opinion, you know, corporate VC can often be maligned. You know, like sometimes there are many things that have been said about CVC. I won't repeat all of them. But I think actually right now is a great time.

• 16:57Speaker 02

  And, you know, folks like Visa and certainly M12 are like ideally positioned to be able to meaningfully add value to the startups. You know, the macro headwinds are real. We see this all the time. And I think the ability, you know, the joke in VC is like, oh, let me know how it can help, right? Well, we're actually being helpful in a quantifiable way, right? Like we're meaningfully, you know, changing outcomes with and for our startups. And so that's, I think, the best world. And I think the other thing is startups and enterprises don't always speak the same language. And so if you can find ways to connect sort of the strengths of a startup, the speed, the agility, the creativity with the resources of an incumbent, right? The distribution, capital, access.

• 17:41Speaker 02

  And if you can actually find ways to constructively marry the two, I've long believed that magic can happen. We were fortunate to do some of that at Visa, and I think we're doing that at M12 as well. So I feel very strongly about the opportunity. If you really, you know, I think if you really do it well and set it up the right way, magic can happen.

• 18:03Anthony Pompliano?

  What are the downsides or maybe the challenges with having usually one LP? It's a corporation. There's kind of this like impact or signal component along with making money. What have you seen there in terms of just things that maybe other venture capital firms don't have to handle that you guys do that maybe either slow things down, make it more difficult, or potentially could just change things?

• 18:24Speaker 02

  Yeah, it's a good question in that, you know, a lot of people compare the sort of the financial VC, like, oh, we don't have to manage any corporate stakeholder. We don't have to like, you know, ask permission to do a deal, et cetera. Thankfully, at M12, we don't have to ask permission either. We actually have our own investment committee. So like, things get a little bit more, a lot more streamlined there. And the governance is, you know, set up in a constructive way. Definitely, you know, again, it varies by corporate VC. And so if you're a startup looking to take money, I would say, you know, just understand how, whatever corporation you're talking to, or whatever CVC you're talking to, how they're structured, what their deal process looks like. We're very transparent with founders in terms of like how, what it looks like on our end, like what are the things we need to get through?

• 19:06Speaker 02

  It's pretty streamlined for the most part, actually, partly because of the way we've set up our governance structure. And, you know, people talk a lot about like, oh, you have to like deal with your corporate LP. Like, to me, that's actually a benefit, right? Like, this is, we were just talking about it, like, having a relationship with internal stakeholders at Microsoft allows us to do a lot more for our companies, right? If we didn't have those relationships, we wouldn't be able to open those doors. And I think the flip side is, you know, financial VCs. I don't, as a CVC, I don't have to raise a new fund every three years, right? And go out to LPs. Like, a lot of startups don't realize, like, VCs actually are beholden to their LPs. Right? They're, they have bosses, so to speak, right? That they need, that they need to manage.

• 19:50Speaker 02

  They have to deliver fund returns. They have to manage a whole set of stakeholders, which is non-trivial. So I don't have to do any of that necessarily. But in return, what I am doing is engaging my, my leadership team, engaging key stakeholders with, across Microsoft. And that all accrues to the benefit of our portfolio at the end of the day. And so, you know, it's just, there's extra work to do on both sides. I think it's just the nature of the work. And I, I feel very good about kind of the, the end product that comes out of the engagement that we have with our, with our parent LP.

• 20:20Anthony Pompliano?

  That makes a ton of sense. Let's talk about artificial intelligence. There's a lot going on. There's a lot of capital flight, uh, flying around. There's a lot of startups that are getting started. Where are you guys most excited about? Or where do you think kind of value is going to accrue? And there's really big opportunities for startups and for venture capitalists that are funding them?

• 20:37Speaker 02

  Yeah. So one thing I'll say is M12 actually has been investing in AI well before this latest type cycle. I know it's like the hot thing to do these days. And certainly we're very focused on AI now, again, continue or still. But we've actually been an AI investor, so to speak, for a long time and have a, have a pretty strong portfolio.

• 20:58Speaker 02

  To your point, like, there's a lot of really interesting stuff happening in, in the space. We're paying very close attention for everything up and down the stack, right? From the, the enablement layers, the developer tools, all the way through the application layer. I'm very focused personally on what is real and like, how, what is actually driving business value? At M12, we're really only invest in B2B companies. We don't really any do any direct to consumer plays. And so we're focused on B2B, primarily software. And so the way we see AI, I mean, certainly it's transforming everything. I think AI and software inevitably just merge, right? And to say in it, in short order, it won't make much more sense to say you're an AI investor than it's

• 21:43Speaker 02

  than it is to say, I invest in electricity. It's like, okay, great. To what end, right? Like, what's the application? That being said, there are a lot of like core enablement technologies that are merging. And we're obviously, you know, both investing in and paying very close attention to everything that's happening. I think the application layer so far, what we're seeing is that a lot of the value creation and kind of the differential between like the cost of inference, for example, and the ability of to capture value at the application layer is there's a pretty big spread there, right? So you see, you know, like, for example, image generation companies, right? A lot of these folks are making a large amount of money.

• 22:19Speaker 02

  Even though their inference costs are very, very low. And so they're able to like capture a lot of that spread and a lot of that value. It'll be interesting to see how long those things stick around and and do they have durability to them? Or are they just like early movers that that have a lead right now, but that lead might shrink over time or as things become commodified? I'm really looking for enterprise applications. I think what we what we really want to see, and I think what really needs to happen for AI to have a long lasting, meaningful impact is we need to take this from, you know, the bubble of technology centers like Silicon Valley and make sure that Main Street, Main Street and, you know, the rest of the world really understands and sees the benefit.

• 23:01Speaker 02

  And so those are the things that I'm looking for is like, how does AI actually move the needle in terms of business impact? Or like things that, you know, normal people can understand and see.

• 23:11Anthony Pompliano?

  Now, there's a cohort of people who are scared about AI and all the AI safety stuff. They think we should pause, stop, et cetera. Microsoft doesn't seem to be in that bucket, given the investing, OpenAI, kind of all that stuff. But then there's another kind of very far extreme of just like accelerate without thinking at all about downsides, et cetera. How do you balance these two things between like, let's go build and let's go, you know, actually create value? Along with people who, you know, seem to have at least genuine concerns about the ramifications of the technology.

• 23:44Speaker 02

  Yeah, I understand why people might be apprehensive. At the same time, I think if you look through the history of technology, there have always been these factions of people that are like, oh no, like this new technology, electricity or whatever is dangerous. Like, yes, you can electrocute yourself if you don't use it the right way. But it like, it's unquestionably, it moves the world forward in meaningful ways. Microsoft's been very, I think, vocal about its position on responsible AI, building things responsibly and deploying in a way that is, you know, accounts for, it takes a lot of, you know, things, different things into account. So I won't repeat all the, the, the stuff that we've said publicly, but I mean, it's all out there, publicly available. And I think we do think about AI as like a great technology.

• 24:27Speaker 02

  It's going to move the world forward in meaningful ways. We're already starting to see that. I'm really excited about future waves of innovation powered by an AI and what, you know, what net new experiences that we can't even conceive of yet today might still come down the pike. But that has to be done in a way that obviously balances that with, you know, you know, you gotta think about bias, you have to think about responsible uses of AI. Those are meaningful, right? And like, we're as an enterprise company, we're very focused on delivering things that our, our customers and our stakeholders care about, right? They want AI used in a responsible way that is defensible and understandable by their own businesses. Right? Microsoft's been, I think, had a leadership position in this

• 25:07Speaker 02

  in terms of indemnifying a lot of our customers around uses of Microsoft technologies that involve AI. So we obviously take a leadership position there. I, you know, I mean, where this goes, is anybody, anybody's guess? I think it's actually very exciting. And so I'm not on the, on the doom side of things. But I think with every new technology, there are unforeseen, you know, implications. And it's just our, our job to think about those things thoughtfully.

• 25:32Anthony Pompliano?

  Now, there's also maybe a debate between Google, Microsoft and other large companies. They have tons of data, they have tons of distribution, they have tons of advantages in the market. AI is going to reinforce those advantages and they're going to capture all of the value versus, hey, Joe Blow and his startup or, you know, some person who's spinning out of one of these big companies can go start a company to try to disrupt and value is going to accrue there. What's the balance or how do you all looking at those two things?

• 26:01Speaker 02

  It's really, it's a fascinating question to me, and I think it's one that continues to evolve. One of the things, this is the, one of the fastest technology adoption curves that I've seen in my investing career and in my career in startups. So I'm old enough to have seen a few cycles now. But enough, enough data points to know that like this is pretty impressive, the speed at which both startups and incumbents are leaning into this. I think we're seeing both parts, both ends of the spectrum really like eagerly embrace this new technology. I think certainly, you know, folks with large data sets and unique, in particular, unique and proprietary data probably stand to gain or

• 26:44Speaker 02

  be able to do some really interesting things with AI, given the importance of data in this technology. At the same time, you know, I've been investing and or building SaaS for a long time. I think the same things that have always been true are still true today in that you need something that's differentiated. You need a wedge, you need to deliver a unique value proposition. And I think there will still be opportunity for startups to find wedges, to find points of differentiation that are not being addressed by incumbents, to find new approaches of doing things. And actually, the part I'm even most excited about is net new like AI native experiences that I don't think we've really seen like

• 27:26Speaker 02

  great like canonical examples of this yet, but with every platform shift, you have companies that are built that just weren't possible before that platform arrived, right? Uber unquestionably would not have been possible at the scale and success level of success without mobile phones, right? And the internet. I mean, they were giving out, they were literally giving every driver a cellphone, an iPhone to seed the market, right? And that would never have been possible prior to that. And so I think we're going to see similar types of companies be built that are like AI native that we haven't, by definition, haven't been invented yet. But to your, back to your question, I think there are opportunities for both ends, right? Like clearly enterprises are leaning into this, but they want to know what's real.

• 28:10Speaker 02

  I think startups, there's definitely going to be wedges and plenty of opportunity on the startup side, which is, you know, why I'm very excited to invest.

• 28:17Anthony Pompliano?

  Now, AI has a software component and a hardware component. Hardware seems to be getting more and more attention. Microsoft got a pretty big cloud business, seems to have these, you know, I'll call them free compute in a variety of different ways that is being handed out. Some of the times it's just handed out to accelerators, other types of startups. Sometimes it is being handed out in exchange for capital as an investment from, let's say, Microsoft or the OpenAI's case. How do you all think about the compute resources of Microsoft and your ability to leverage that to win deals, maybe from an investment standpoint or anything else?

• 28:57Speaker 02

  Yeah, I mean, every GPUs is the thing that's on everyone's mind, right? Everyone wants more of it, more compute, please. Look, I, I, you know, I think this bottleneck is probably a somewhat of a short term problem for the overall landscape. That's my, my hunch. I think, you know, the, the level of demand and adoption probably surprised a lot of people, you know, going back, if you think about a year ago and ChatGPT was first unleashed to the world. And so I think we're, the hardware manufacturers are catching up. There, you know, there are obviously a lot of innovation happening in that, in that space. Micro, M12 is actually invested in a company, Dematrix, which is really interesting, doing interesting things on the hardware side, improving efficiency.

• 29:41Speaker 02

  Obviously, Microsoft talked, has talked about its own work in that space. And then on the GPU side, we're actually, for M12 and Microsoft for startups in particular, we're trying to make access, we're, we actually announced access to some GPUs for really high, high potential and promising AI companies to help train workloads. And so we're initially rolling that out for M12 portfolio companies as well as Y Combinator. The hope is to expand that to a much broader audience and make that available to, for really high potential AI companies, because we really want to support the market as best we can. And, and builders who are building transformative things using AI want to help seed that and accelerate it.

• 30:24Anthony Pompliano?

  How do you think about portfolio construction? And specifically, when you have a single LP who, you know, has the proverbial like unlimited money? How do you guys think about not maybe falling, following in the same footsteps as other very large players in the market? Who have thrown hundreds of millions or billions of dollars at companies that maybe weren't ready for it? What is kind of the, the discipline or like, how do you kind of think through? Okay. If we have unlimited money to give to people, you know, kind of theoretically, how much do we actually give to a seed or series A type business?

• 30:59Speaker 02

  I wish, I wish that we had unlimited money. I love.

• 31:03Anthony Pompliano?

  I knew you were gonna say that.

• 31:04Speaker 02

  I'm gonna take that back to my CFO and see how well that goes over. Yeah, no, we definitely do not have unlimited capital. It would be nice if we did, but I think this is what I was alluding to at the beginning, right? Like the financial and strategic impact. We, it's very clear. We are evaluating financial metrics as well as the strategic piece. And so, you know, we're here to make money at the end of the day. And so we have to be disciplined and I actually think, you know, not to pat ourselves on the back, but I think we've actually been pretty, pretty disciplined in our deployment of capital. There are a lot of deals getting done there, done out there and at some of which are prices that I don't quite understand. I can't quite make the deal math work for, in my head.

• 31:50Speaker 02

  But we've been, tried to be very disciplined and really invest in companies that we believe in, that we think have commercial viability and have an opportunity. You know, I think there's a lot of money chasing, chasing a bunch of deals. It's, it's a very challenging time to be an investor, frankly. I mean, it's not, not easy right now, being a VC and figuring out where to deploy capital intelligently. And so I think in some cases, you might see a lot of money chasing shiny objects and potentially, you know, bidding up those prices. For our purposes, we are trying to be very responsible. You know, we, we get measured on this and so it matters a great deal, right? So I, I wish we had unlimited capital and just like the blank check, not the case.

• 32:31Speaker 02

  So we, we're, we think about it a lot in terms of also, you know, the macro, like SaaS multiples in particular, right? Like AI aside, it's just gotten a beating in the, in the public markets and I think that's. Translated to the private markets as well, right? I mean, we're the median, right? A sat like forward ARR multiple for SaaS, I think is somewhere around like 6X, which is like where it was like 10 years ago, you know, we're gone are the free money days. So including, including our own fund.

• 33:02Speaker 02

  Not that we ever, thankfully, we ever, we never really got wrapped up in that, which is actually really nice because that we don't have the hangover from that as a fund, but we've been pretty disciplined along the way, trying to stay that way.

• 33:12Anthony Pompliano?

  Let's talk Bitcoin and cryptocurrencies. I know at Visa, you were very integral in a number of kind of crypto initiatives, investments, kind of strategic things. What about Microsoft? Is that an area that you guys are looking at from M12? Or are you just, there's so much opportunity in the AI stuff right now that that's not really a focus?

• 33:33Speaker 02

  A little bit of both. I mean, we obviously AI and, you know, B2B software are like first and foremost for us. I mean, they're really front and center. We've done a number of investments in the kind of web three crypto space, mostly, again, we only do really B2B investments. And so we focused on primarily on infrastructure on the web three side. Space and time actually is a portfolio company of ours. I think, you know, I've long, I've had a longstanding thesis personally that the way that Bitcoin or cryptocurrency or any of these things really gets to scale and massive adoption is going to be some version of a mashup with TradFi and, you know, crypto. Now, that may be, you know, antithetical to some people and like the all, you know, who are all in on crypto.

• 34:16Speaker 02

  But really, if you want mainstream to mainstream to adopt this, it's going to have to be in some, you know, regulated way or in some way where like there's a, there's an integration with TradFi. And so I think, you know, on the infrastructure side, space and times, I think are really interesting, doing some interesting stuff around blockchain and helping connect more traditional databases with like blockchain enabled ones. And then just generally speaking, I think, you know, we look at kind of infrastructure or like plays that are moving the ball forward in a meaningful way. But again, it's really very B2B focused. So not really on the consumer or coin end.

• 34:49Anthony Pompliano?

  Now, when you look at some of these B2B companies, I would say that there's been a rise of like hard tech, you know, cutting edge innovation, et cetera. But there's still a massive market for just traditional B2B. Hey, I can make the calendar better. I can make Excel better. I can make, you know, whatever the products are. Does it ever play into the investment decisions when you talk about the strategic component? Like, Microsoft Excel is pretty popular. There are now companies who want to disrupt Microsoft Excel. Does that increase or decrease the odds that you all may want to invest? Where it is something that is actually coming after like a Microsoft product itself or a category where you guys are dominant? And so, you know, some people would argue like, hey, you actually may not want to participate because you hope it doesn't disrupt, you know, the mothership.

• 35:33Anthony Pompliano?

  On the other hand, some people may say, no, it's every great, you know, company wants to disrupt themselves. And so let's go invest. How have you guys thought about that so far?

• 35:41Speaker 02

  Yeah, it's so I actually love companies that are like just either deep industry, like have a founder with like deep wonky industry expertise or like doing like, you know, nothing related to AI. I love AI, don't get me wrong. But I also love the more traditional, you know, SaaS companies that you were alluding to in the beginning.

• 36:00Speaker 02

  I think those are some of the more interesting companies still. I mean, in fact, I'm talking to one right now and like the oil and gas space, right? And like they, nothing AI related, but it's very interesting in terms of what they're doing. Like the alternative is if, you know, humans moving physical buttons and doing physical things like, and like there's no software involved, right? Like, so there are industries that haven't even fully realized or even partially realized the advantages that software or the cloud can bring. And so there's massive upside. I mean, if you're looking like financial services, believe it or not, like about, I think it's like 50, 50 ish, 55% of financial institutions have even like a cloud presence. And like something like less than 3% are spending more than 25% of their IT budget on the cloud.

• 36:42Speaker 02

  Like, think about that. That's in financial services where you think like, oh, it's all in the cloud already. Like, no, no, like it's still just tiny, you know, just making inroads still a huge upside potentially. Back to your other question around like competitive dynamics, I think. Actually, the canonical example for me in like SaaS is like, can you own a workflow or create software that displaces Excel, right? Excel is massively, it's like a Swiss Army knife on steroids. It's amazing. I'm a huge Excel junkie. But if you can replace it with something that's more specialized and like a software application for an industry or a particular use case that you, where you can like maybe co-opt or or create the workflow, like that's a, that's a great indicator for me and like where you can actually, and I've seen some of these companies recently and just historically,

• 37:28Speaker 02

  like that's, that's a great sign. On the competitive stuff, we try not to invest in like obviously competitive things because back to where we, what we were talking about earlier in the conversation, we try to find ways to add value, right? And if you're doing something that is like obviously competitive to something that we're doing first party, there's probably a limit to what I'm going to be able to do for you. And so, you know, we, I'm not trying to create, you know, I'm trying to create productive relationships with our startups. And so finding ways to like accelerate their outcomes or add value. And so I think we look for more complementary things. And actually, you'd be surprised, there are a lot more complementary, I think, opportunities than there are competitive ones. It might look at first blush to be competitive, like, oh, you're, you're threatening whatever. But a lot of times there are really interesting ways to work together.

• 38:14Speaker 02

  And actually, I actually think Microsoft has done this better than most companies in its history. There are a lot of partners where, you know, we have this co-opetition dynamic where they're selling something that is, you know, it looks, or it maybe even is somewhat competitive to our first party stuff, but we're still partnering, right? And we actually find ways to collaborate. So this has been a longstanding dynamic within Microsoft. And I think we actually do it better than most companies I've seen. But from the M12 side, you know, we're always looking for ways to like, to find the one plus one equals three to the extent we can.

• 38:46Anthony Pompliano?

  What is the thing that you do on a daily or weekly basis that would surprise people the most, right? Like, I think most people understand kind of startup founders and their day-to-day activities, venture capitalists, well, you do some of that, you talk to founders, you also kind of manage the mothership, right? Like, what would surprise people about your, your daily or weekly kind of habits or a schedule?

• 39:08Speaker 02

  I love your, I love this question.

• 39:13Speaker 02

  You know, VC, I think in VC, you see the deals that get announced, you see all the, you know, the, the, the stuff that makes the headlines. And we don't see is like the, the discipline and the, I don't want to call it a grind because I enjoy it, but it is a little bit of a, you know, there's this like the repeatable, like consistent, like grind to a certain extent in terms of like sourcing deals, talking to founders, like doing diligence, like all this, the work that goes into one deal that gets announced or that gets headlines. And, you know, other VCs have talked about this, but we talked to many, many more companies than we ultimately invest in. And so that's all like a huge amount of effort that happens below the surface that is not

• 39:53Speaker 02

  particularly visible, but you know, informs our thesis driven investing, it informs, you know, us knowing what good looks like. And then ultimately, when we find a deal that we really have conviction on and really want to partner with a founder on, that, that, all that then, you know, is worth it because you, you were able to really have a meaningful relationship there with the company. But I think that's something that would maybe surprise people is like the amount of work that goes in that is just invisible to the outside world in terms of sourcing and constantly evaluating like the, the deal funnel, right? It's actually not dissimilar from, from the sales in terms of like top of funnel and like deals that make it through the, through different stages ultimately to, to an investment.

• 40:36Anthony Pompliano?

  Before I let you go, let's talk Twitter slash X. You are like the fourth or fifth person who's come on the podcast that has a first name handle. So you just have at Peter, which means you either been around or you somehow finagled your way into it.

• 40:51Speaker 02

  I'm just old, I'm, I'm, yeah, I've just been, I've just been around that long. Yeah.

• 40:55Anthony Pompliano?

  All right, that's good. That, that's, that's better than the other answer. But one of the things that was fascinating to me is you just tweet out, you're like, hey, if anyone wants to talk to Microsoft's venture harm, DM me. I can only imagine what happens after you do that. Tell us, like, like, is it thousands of DMs?

• 41:14Speaker 02

  It's a good problem to have, Anthony.

• 41:16Anthony Pompliano?

  Yeah, I mean, yeah. Do you find deals from that?

• 41:18Speaker 02

  Like, like, yeah, absolutely. So I, look, I, I'm not, I have derived so much personal and professional value from Twitter slash X. But I hope it continues on forever. I mean, there's a, it's going through a rough patch right now, I think. But like, I just love that network and I've actually made really strong IRL, you know, like in real life connections with people. And yeah, I mean, like when I, when I tweeted that recently, I was like, yeah, it was, you know, if you're building an AI, it might be a good time to talk to us. It's always a good time to talk to M12, I'll just add. Would love to, any, anyone, my DMs are open, RIP my DMs. But so feel free to reach out. I mean, look, I think deals, good deals can come from everywhere. And, you know, back to your last question of like, what, what is the part that people don't see?

• 42:02Speaker 02

  Is like me responding to DMs late at night, you know, looking through pitch decks, like all that stuff. It's a good problem to have. It's a problem I love having. So feel free to send us your, your startups. But, um, yeah, no, that's, I, I.

• 42:15Anthony Pompliano?

  I just loved it. I, when I saw you do it, I was like, man, what a move, right? It was right after the open AI and you tweeted, you're like, yeah, now might be a good time. And, uh, and I could see from the comments, I knew that people were DMing you. So I was like, oh, that guy's DMs are gonna be destroyed for the next couple of days.

• 42:29Speaker 02

  I'll take it, I'll take it. I would much rather that than the alternative. No one, no one caring that it exists. So if I'll give a follow at Peter on Twitter and send me a DM if you're, if you're building an AI.

• 42:40Anthony Pompliano?

  Amazing. Now that we know where to find you, where can you find more about M12 and kind of understand really what you guys are looking to invest in?

• 42:48Speaker 02

  Yes, M12.vc is our website. We have a bunch of information there. You can, you can reach out through the website, you can reach out through DM, LinkedIn, whatever, whatever your preferred medium. There's a lot of information online about us. We've got a great team as well, so you can read more about the other investors and also our kind of a thesis area, so.

• 43:11Anthony Pompliano?

  I don't want to say who it is because I don't want to embarrass them, but people have listened to the podcast for a long time will know who I'm talking about. We had a gentleman come on. He's older, very successful entrepreneur, built a company that you would know. And at the end, I asked him, how can people find you? And before I could like stop him, he not only said his name, his social handles and stuff. He also said his email and his phone number. And so we cut out the phone number after, you know, post-production. But, but the emails, like, you sure you want me to leave that? And he's like, yeah, don't worry about it. And then he literally later was like, I should not have given out my email.

• 43:44Speaker 02

  He doesn't understand the power of the pomp, right?

• 43:46Anthony Pompliano?

  Yeah, no, no, no. It was just that he, he is somebody who a lot of people want to talk to, and he's not like really on the internet. So the only way to communicate with him was through this email.

• 43:55Speaker 02

  Well, I can give you my P O box, but let's not go there.

• 44:00Anthony Pompliano?

  All right, Peter, thank you so much for doing this. If anyone has not checked out M12, highly suggest doing it. You guys have a great track record and obviously been deploying a lot of capital into artificial intelligence, many other areas. So I highly suggest they come and check you guys out and we'll definitely do this again in the future.

• 44:15Speaker 02

  Love it. Anthony, thank you so much for having me. It's really been a pleasure.