(Transcript) Alexandre Arnault // Talks at GS

Having studied many of the greatest conglomerates throughout history, regardless of geography, it’s been clear that success is often tied to a single leader. When that leader leaves, the company falls apart (ie Henry Singleton at Teledyne). However, LVMH may actually buck that trend – Alexandre Arnault has a special ability to marry modernity and heritage (time) and east and west (geography) like no one I’ve seen before him. I, for one, am quite excited to see how LVMH continues to evolve going forward.

This is a talk Alexandre gave at Goldman Sachs back in 2020, when he was still CEO of Rimowa. In this talk, he touches upon his journey with Rimowa, his management style, philosophy on technology and heritage brands, the synergies that come with the conglomerate structure, his favorite CEO, and how he thinks about partnerships.

*Any transcription mistakes should be attributed to me.

Host: Welcome to Talks at GS. I’m Josh Murray, managing director in the investment banking division. And we’re pleased to have with us today Alexandre Arnault, the CEO of Rimowa. Alexandre took over Rimowa in 2017 when LVMH, his family’s business, bought a majority stake in the company. Over that time, as we’ll spend a little bit today talking about an emphasis on the digital strategy, retail stores over the wholesale channel, and then partnerships, which if any of you guys follow him on Instagram, you’ll be very familiar with. So thanks for joining.

Alexandre Arnault: Thanks for having me.

Host: Let’s start the beginning. You obviously grew up in Paris, I think folks know who your father is, your mother’s a professional pianist. What advice as you were growing up did they give you? Let’s start pre-Rimowa as you were getting into business, going through school.

Alexandre Arnault: I think more than advices it was bit more about education and values, learning about the values of work, values of family, trust, things like that. Also very present parents throughout my life, they were here. My mom was working from home on her piano so it was quite easy. And my dad was very present also, meals, dinners, breakfast, and stuff. It was a great time with them. More than advice, really more about education, excellence at school, and things like that.

Host: And you went to school in Paris. What did you study?

Alexandre Arnault: Engineering, Computer Science.

Host: Got it. Okay. That’s an interesting transition from…

Alexandre Arnault: Yeah, France also has a way where engineering schools are supposed to be the best. So when you don’t really know what you want to do, you go there because it was what opens the most doors.

Host: Got it. And then you went to KKR and McKinsey, you didn’t go to Goldman Sachs?

Alexandre Arnault: I did not, no.

Host: I’m offended by that.

Alexandre Arnault: I tried. I applied. I didn’t get it.

Host: I find that hard to believe.

Alexandre Arnault: But they didn’t call me back.

Host: So what did you take away from those experiences? You ultimately came back and joined LVMH. What led you to that decision, as opposed to sort of staying in the sort of finance, consulting worlds?

Alexandre Arnault: Yeah, I did those two experiences in New York, which were great, because I was basically a junior guy at those companies, treated like every other junior people, which is good to start any career, because you really understand what is really work like at those levels. And I was interested in consulting and private equity just to have access to different kinds of businesses than the ones I had seen my whole life. I remember, I was working at McKinsey with a team working on financial services in a bank in Wilmington, Delaware, topics I had no idea of. And KKR was also super interesting. To learn how to become a real shareholder, make investments, buy companies, sell them, things like that, it was with with a really structured mindset, whereas at LVMH, sometimes the mindset is not that structured [unintelligble] acquisitions or things like that.

Host: So then why what led you to sort of come back closer to home and join the business,

Alexandre Arnault: I guess, personal passion A, which is something that I’ve grown up with my whole life. I always like to say I started working when I was born, because going to stores and seeing brands being built out since my younger age was a real chance. And then just wanting also to build something there of my own and work in this industry, for sure.

Host: So you decided to come back to LVMH. What was it about Rimowa? It’s obviously not a brand that was already in the portfolio. What was it about that? How did that conversation go?

Alexandre Arnault: I think it’s a good set of coincidences, to be honest. I was actually, when I came for my internship at McKinsey, I needed a big suitcase and I bought a Rimowa suitcase back then in Paris at [unintelligible], one of our stores. And why did I buy it? Because obviously I like the quality, I like the design, I thought it was a super cool product, useful. And little by little, when I started also continuing to see all the stores from the group, I would see stores from Rimowa pop over in LA and Tokyo. I would see a set of really relevant people carrying the suitcases and I always thought they were the best quality ones. We were making some, mostly at Louis Vuitton, our hero brand. They were great, but it was like 3,000, $4,000 pieces of luggage that also you can’t really show up everywhere when you’re 18 or 19 years old. So originally what I did…

Host: He might disagree.

Alexandre Arnault: Oh, he disagreed, believe me. I was a bit of a rebel. And little by little, I tried to basically get in touch with the owner. I found out it was a German company, family-owned since 120 years. And I reached out with two ideas in mind, because coming from a family business, he had a son. In my mind, he was going to give the company to his son and perpetrate what his grandgrandfather had founded. So I thought A) we could either try to make a minority investment and help him grow or B) make a partnership with one of our brands so that our suitcases become better. Took about two years of courtship where I kind of showed him what we were doing in the group, in our factories, in our wineries, and so on. He was also showing me what they were doing there. And one day he he calls me up in his office in Cologne, I had absolutely nothing to tell him because I had really spent two years really getting to know him. And he said, You know, look, I have one son, he doesn’t want to take over the business. Are you interested in buying the company? So he took out a big book like this from his briefcase that was handwritten with all the accounts. A real family business in Germany. And you know, I said, Look, we have to look into it, and everything. And then he said, I have one condition if you make the deal, is that you become CEO. So I, I had no…

Host: It was not already your intention?

Alexandre Arnault: No, no, it was not my intention. So then I came back to Paris, we made the case, and it made sense. So the group approved.

Host: And how was the discussion with LVMH, your dad, whoever the person was?

Alexandre Arnault: Yeah. So I didn’t want to have it with my dad, to be quite, I guess partial, also. And I had discussions with the key people there. So CFO, Managing Director, and it was a growing business that I thought we had a lot of leverage to…

Host: Quality, obviously…

Alexandre Arnault: Yeah, quality fit, it had all the criterias of one of our brands. It was also kind of uniquely positioned. The price was good at the right time, as well. So it was it was quite a no brainer when we came to this. No bankers were involved in the transactions.

Host: That’s okay.

Alexandre Arnault: Sorry.

Host: You can’t win them all. So you took over a CEO. How did you, and I guess you were co-CEO initially, and became CEO, how did you introduce new ideas while honoring what had already been in place? Was that a challenge? How did you sort of go with that?

Alexandre Arnault: Yeah, it was, honestly, it was a bit of a challenge in the beginning because the whole team had been handpicked by the former CEO. They were all working together for 20, 30, 40 years, they knew each other perfectly well, they were used to a certain way of working. And obviously, when I arrived with different ideas, it was a bit of a challenge for some of them. But little by little, you know, when you make the first collaboration people tell you you’re crazy, and then they see stores getting hijacked and people camping in front of the stores, maybe the second one will work as well. And it’s sort of those little wins that that were quite good for the company itself. Same with the stores. Because originally, people didn’t think that opening those standalone retail stores, when you look at the highest, the most expensive Avenues in the world, was necessarily a good idea. But you know, little by little we did it, we started getting away from from the non-qualitative wholesale that we had a lot of in the US, mom and pop shops around the street corners, to open our own stores to tell our own story, have our own relationship with clients. And it’s been very successful. Again, open one, two, you have to push it forward. And then when they work, it’s easier.

Host: Yeah, I guess the obvious question is, So, young guy, French, taking over a German business that has been run by family for a long time. Was that, Was there any resentment there, was that culturally difficult to deal with?

Alexandre Arnault: So I think, it was obviously, in the beginning, the first day where we acquired the company, people were very scared, they thought that they were going to lose their jobs or we were going to… nobody really understands from the outside what LVMH is, so they thought, I heard a million things. I heard, Are you going to close the business and rename it Louis Vuitton to build Vuitton suitcases? Are you going to fire everyone and hire a new team? None of which we did. The most fun thing, which was actually quite interesting, and gave me a lot of goodwill was the first day, when it came out in the press, I went to Germany and I asked for the whole company to come into the this big hall, like 400 or 500 people to introduce myself, introduce the group, tell them who we were and everything and I started my speech and after two, three minutes, I was seeing the faces of people really starting to almost cry. So I said, What am I saying wrong? I thought I had scripted something and then some came up on the stage and told me nobody speaks English. So I said, okay, thank God, I had learned German for 12 years at school. So I switched immediately and I spoke German. And immediately people are like, Oh, my God, wow, thank God, you speak German. And that was actually quite good to give me goodwill within the company.

Host: So you’ve now been in that role for three years?

Alexandre Arnault: Yeah.

Host: What have you learned about yourself, management style, sort of over those three years?

Alexandre Arnault: So many things. Because obviously, I’d never managed a company before. I had seen them at board level, and investing level, and all these things, but never in the core business. I think, two or three things that are very important, One is that I guess you could never go fast enough. And at the beginning, it’s always very difficult to make decisions. Hire people, fire people. The faster you go, the faster the company is able to grow again. And then I think, also being present on the, I guess you say on the field or on the grounds, was also something that’s extremely important that I also learned from my father. He visits stores every weekend since he has the group and goes to the US, Asia, like, every month, basically. And you need to spend time with the teams to understand what they need, what the customers need, also. And, yeah, I think also what was important was building a core team of people, some of which are here today, who understand the vision, understand where we want to go, what we want to build, from scratch. And having people really trust you, trust themselves, and understand the bigger picture.

Host: And you talked about growth of the business. Is there a balance to be had there in terms of hypergrowth in terms of expansion and overexposure? How do you think about that? Because obviously, history is littered with a number of companies who tried to grow too quickly and outgrew themselves. And that didn’t…

Alexandre Arnault: Yeah, so if you look at it from the outside and numbers wise, the company was, the numbers are public, when we bought it, it was 440 million euros in sales. And this is, 2019 was the first year that we’re going to close at a higher number than this. The first year, we did a lot of noise, a lot of store openings, a lot of collaborations. But we had such an important wholesale presence that getting rid of that and closing down those accounts was making us lose a lot of revenue. So in terms of actual growth, we didn’t grow super fast. But retail grew extremely fast, for sure. I think the category is so big, we sell almost a million suitcases a year. There’s potential to sell several million. If you look at the population in the US, look at the size of Tumi, the size of other companies here, the population in Asia, China, there’s I think 70 million people every year who go from low class to middle class in China, which is people that basically get some disposable income. So 1% of that is already a quite big number to target, and I don’t think we’re at the stage where we can be scared of hypergrowth so far.

Host: So switching gears a little bit. As a millennial, and somebody who’s very much into tech, how have you tried to marry technology with this long-standing brand?

Alexandre Arnault: Yeah. So there’s a few things. There’s technology to communicate and tell the story. There’s technology within the product. First within the product, I’m not a big believer in adding tech to some sort of products like these because the suitcase is something you’re super, it’s quite an expensive product, it retails for 800 to $1,000 in the US, and you’re supposed to keep it for 10 years, basically, it’s super resistant. There’s no piece of technology that can stay relevant for 10 years in a suitcase and you’re always gonna have to update it, to change it or something. So even if you put you know a battery charger or things like that, I don’t really see the value created in this. We’ve tried to pull away from technology embedded in the product, invest everything into the technicity of the products, of the materials, the wheels, the handles, the lightness, all the things that make it a great engineering product. Then when it comes to communication, we’ve really tried to, on that side, get ahead of what’s happening in…

Host: You’ve moved all digital?

Alexandre Arnault: Yeah, we have zero print advertising since since we took over the company. Everything digital, experimenting with new platforms as soon as they come out, the latest one being Tiktok. We’re, I think, the first first brand to partner with them. And some initiatives with Snap. All these things who I think allow us to reach new customers and tell our story in a better way and also get more data. Because one thing that I’ve always been frustrated about being, like you say a millennial, is that I don’t really spend a lot of time reading magazines yet I see how much our brands spend in Vogue, GQ, Alister. I always questioned myself on the efficiency of this, and the end of the day, everybody questions the efficiency because you don’t really know.

Host: And is that a philosophy that’s being brought more broadly to the LVMH family?

Alexandre Arnault: No. Because for brand building purposes, I think it’s, well, general belief is that it’s quite important to still be present in those mediums. There’s definitely a rebalancing of the share between digital and print. But I think print stays quite important for us and for the brands.

Host: One of the things that a lot of people in this room, particularly on the banking side, over the last handful of years, one of the things we’ve seen is very large conglomerates breaking themselves up. LVMH has obviously gone the other way. What benefits do you feel like you derive from being part of the larger parent?

Alexandre Arnault: So the way the group is structured, we have 70 houses, basically, and I was telling you this before we came, it’s basically like a private equity fund, on an evergreen model, where all the brands are very independent with their own management companies, own teams centrally in the regions and everything. But we never sell the businesses, hence the evergreen model. There’s some very light synergies at the central level. Why light? Because we think that if you bring too many synergies, you lose creativity. For example, if Rimowa was going to start supplying other brands with luggage, then the other brands would have to have the constraints that we have and it wouldn’t be creative. Same with fashion and everything else. Evident synergies are media-buying, obviously. When you buy media for 70 brands, you get better deals than if you buy brand by brand. Real estate, when you go and open up in a mall and you have 70, or I guess 25 from the fashion and leather goods side come and sign leases, you get better rents. People, 140,000 people who all want to evolve and change positions and be promoted and everything. In one company, it’s not possible. In a group, it’s quite good. Yeah, I guess those are the three main main synergies we have, and no synergies when it comes to creativity or anything else.

Host: Okay. One word I don’t think you’ve used, which I know you don’t like using, is luxury.

Alexandre Arnault: I don’t use it.

Host: Can you explain why you don’t use it?

Alexandre Arnault: Yea, for sure. In our financial communication, we call ourselves the world leader in luxury goods. I don’t like to use it because I think it’s too linked to price. And I don’t think our industry has anything to do with price. When you think luxury, you think stores where you’re going to have things you can’t afford and you’re going to be scared to go inside and everything. And to me, when you buy a Vuitton bag for $4,000, it’s a lot of money, it’s a luxury product. When you buy a bottle of Moet champagne for $40, it’s a luxury product. A lot of people can afford this. Or Dior mascara for 25. Why? Because all those products, whether it’s the $40 bottle of champagne, the $1,000 Rimowa suitcase, or the million dollar Tiffany necklace, or whatever, are made with the same level of craftsmanship, of quality, of all the things that make those products desirable. And I don’t think price should really come into the equation.

Host: What are you most excited about? That’s in the future for Rimowa.

Alexandre Arnault: I think product expansion. One thing that’s very frustrating to me and to most people in the teams is that the suitcase is present with the customer only at the dreadful part of traveling. I don’t know a lot of people who enjoy spending time in an airport. When you’re at your destination or at home, the suitcases in your hotel room or in your closet. So the interactions between the brand and the customers are in a bad moment of the travel. And so we’ve been trying to develop products to be present with the customers more on a day to day basis. The first one is, you know, iPhone covers that we have here that we just, we launched [crosstalk]… we’ve sold 10s of 1000s of them and it was it was a big success and now we’ve launched small clutches as well with Dior recently that have been going super well. And little by little, you’ll see us come out with new products in the travel sphere that are both true to our brand and yet true to our promise of functional desirability. And they have to stay A) desirable and B) extremely functional also.

Host: And how do you, what is the, you talked a little bit about the cycles? How do you decide that it’s going to work? Like how do you test that product from sort of an idea to actually creating it to market?

Alexandre Arnault: You make that, you take risks. You can’t really test it the way you could test, like, you’re going to launch a red suitcase, let’s put the red suitcase in a few stores and see if it works, and then produce big ones because it’s such a new product and the brand is such not known for these that our teams know the customers and the brand inside out. And we really talk with them, the sales teams in the market and everyone, and from there, we make a decision of pushing it or not pushing it. The small clutch was a great example. We were doing it with Dior, and we had, really people telling us that you should only produce 500 of them, or you should produce 30,000 of them. The answer is closer to 30,000 than to the 500. In the end of the day, it was a risk that we took. We produced them all, we put them in the stores. And they worked [unintelligible] because we had the feeling and the [unintelligible] that it was it was going to resonate well with clients.

Host: So you’ve talked a couple times about the partnerships that you’ve pursued. Initially it was Off-white and Supreme. How did those come about? What was the strategy behind that? If you can talk a little bit about that.

Alexandre Arnault: Yeah, yeah, sure. So there’s there’s no strategy. It’s really…

Host: Brands that you like?

Alexandre Arnault: No, I think it’s a few things. One, it’s A) authenticity. So we never want to do something just to, we don’t want to partner with Supreme to target millennials, or we don’t want to do this to target older women, or whatever. We really want to do things that are authentic. So in everything we’ve done, we’ve partnered with brands who have real legitimacy in their own fields. If you look at, Fendi was the first luxury brand we partnered with which is renowned for travel goods. Also, Supreme, Off-white, Aesop, the cosmetics, Bang and Olufsen, the headphones. Now Dior. I’m forgetting a ton of them, obviously, but I think authenticity was key. And then excitement of the idea. We didn’t want to just make a suitcase with a brand because the brand was cool. We wanted to have a broader project around it and have something that was A) true to us and true to them. So I always like to say that I view the suitcases like a canvas, because they’re silver with a shape that’s very recognizable with the grooves, but anyone could express themselves on them. Brand, celebrities, artists, whatever, and it would still be A) a Rimowa suitcase and then B) reinterpreted by someone else.

Host: Over the next 5, 10 years, how do you see your business evolving as technology changes? Obviously, there’s been a seismic shift in retail generally. We’ve seen in the US malls closing, brick and mortar going away, things moving online. How does that all impact you guys and what do you see going forward?

Alexandre Arnault: So I think for us at Rimowa, and at the group, retail is very important for a few reasons. The main one being the experience. I think when you spend that much money on a product, you want to go and see it. You want to go and see it, touch and feel it. People like spending time in stores. Here in New York for two days, it’s a lot of, it’s very fun and instructive and creative and things to just walk through the streets and see stores see who’s doing what instead of just being behind the screen. Yet, especially at Rimowa, you don’t want to leave the store with two bags with things the sizes of washing machines. So it’s quite good to go and see the suitcase and then buy it online. So we really try to focus on the one experience between shopping online and shopping in the retail environment. We haven’t been too hurt by the retail apocalypse and those things in the US either. I think our brands are still doing well, physically. I think that’s more because of the industry we’re in. Because yes, as you say, the retail has been quite problematic and it’s even tough.

Host: Why don’t we do a lightning round of questions? Favorite brand in the LVMH portfolio outside of Rimowa?

Alexandre Arnault: Favorite brand or favorite product?

Host: Either. Both.

Alexandre Arnault: Okay, favorite brand, Dior. Favorite product, Chateau d’Yquem sweet wine.

Host: Good choice. All right. CEO you most admire other than your dad.

Alexandre Arnault: David Solomon.

Host: Haha. I don’t think he’s here. Sorry to disappoint you.

Alexandre Arnault: No, I say, I think one of my dear friends, Evan Spiegel. My age. We have [crosstalk] a lot of the same problematics and spend…

Host: Last one. In 10 years, I hope to have blank. You can fill it in however you want.

Alexandre Arnault: The most successful travel company.

Host: All right, that’s a good one. Well, thank you. Thank you very much.

Alexandre Arnault: Thanks for having me.

Host: Thanks you all for coming.

If you enjoyed this, and want to learn more about Alexandre, check out my this transcript I made of his talk at the Oxford Union. If you want to learn more about LVMH, check out my compilation here. And if you want to keep up with what I’m reading, you can find me on Twitter at @kevg1412.

(Transcript) Eventbrite CEO Julia Hartz // Series A with Keith Rabois

Founders Fund Partner Keith Rabois recently launched a new podcast on Sirius XM – Series A with Keith Rabois. In the first episode, he interviewed Doordash cofounder and CEO Tony Xu. For this second episode, he’s interviewed Eventbrite CEO Julia Hartz. You can listen to the entire conversation on Sirius XM. But if you prefer reading, I’ve transcribed the conversation below.

Keith Rabois is a general partner at Founders Fund, a San Francisco based venture capital firm with an unparalleled track record as an entrepreneur, investor, and executive, Keith has been instrumental in some of the most ubiquitous social and commerce platforms like Doordash, Lyft, Airbnb and YouTube. Now, he’s here to share conversations with some of today’s most accomplished CEOs and innovators in the technology advancing our future. Welcome to Series A with Keith Rabois on Sirius XM Business Radio.

Keith Rabois: Welcome to series A with Keith Rabois on Sirius XM Business Radio Channel 132, where I interview once a month, the best CEOs all across technology and bring their stories, their company’s stories and their histories to you. Today I’m here with my friend Julia Hartz, CEO of the ticketing platform Eventbrite. Julia, welcome to Sirius XM Radio.

Julia Hartz: Thank you, Keith. I’m excited to be here.

Keith Rabois: Cool, Julia. So you want to tell us what is Eventbrite? And what do people use Eventbrite for?

Julia Hartz: Sure. So Eventbrite is the world’s largest self-service, online, event ticketing platform. And we’re focused on enabling anyone to be a successful event creator by helping them publish, promote, and sell out their events online. And with that, we help them find audience and connect the right people to the right live gatherings. And our entire mission is fueled by human connection and the importance of creating indelible memories in real life through live events.

Keith Rabois: And how many people in a typical year use Eventbrite to host or create an event?

Julia Hartz: Yeah, so about a million active event creators use Eventbrite to publish over 5 million events, gathering hundreds of millions of people at those events. The events can be free, paid, online, in person. And I would think about Eventbrite as a cross between Shopify for small merchants, we are to small and medium event creators, and Etsy in terms of homemade, we power unique and local events. So these are the events that typically fill your calendar. It’s the Tuesday night book reading and the Sunday morning yoga workshop. We’re really building the mosaic of the experiences that really color your life, and again, create those unforgettable memories that are with you for a lifetime.

Keith Rabois: And when did you start Eventbrite?

Julia Hartz: We started Eventbrite back in 2006.

Keith Rabois: Wow.

Julia Hartz: Yeah, we’re 15 years old.

Keith Rabois: It’s amazing. And what was —

Julia Hartz: Learner’s permit. We can almost drive.

Keith Rabois: What was the original vision behind the company? How did you know it was a good idea and that the world needed this?

Julia Hartz: Well, I think that we came to it from several different angles. So the founding team was Kevin Hartz, who at the time was my fiancee, and is now my husband and partner in crime. And you and Kevin go way back. The second founder was Renaud Visage, an engineer who also was a passionate, and is a passionate photographer. And then myself, I came from television, so I was working at MTV on a show called Jackass. And then at FX Networks on shows like Rescue Me, Nip/Tuck, and The Shield.

So Kevin’s early career really focused on microtransactional platforms. So he was lucky enough to be a seed investor in what became PayPal. And that really inspired him to think about how moving small amounts of money efficiently and cheaply around the world could open up industries, could democratize industries like international money remittance, which was what he focused on with Xoom, X-O-O-M, our children love to tease him about that now. And so he was working on that when I met him. And we, you know, I had really seen the way in which experiences shape audiences, there was nothing quite like being in real life and experiencing something together, whether it was a screening, or it was a documentary that we were working on about fandoms where we went to all these crazy conventions around the world. And we discovered that there was just this unbelievable energy around these communities gathering.

And then Renaud was really interested in how entrepreneurs could turn their passions into profit, and start to teach people their skills, which is something we saw come true on the platform through the first crisis, which was the great recession. So in 2008 2009. So we all came from different angles. And we all started thinking about what would the entry point be to the idea of democratizing the event ticketing industry.

At the time, there was really nothing that you could use if you wanted to sell tickets online. You could, you know, you could certainly put a PayPal button on your website, you need to have a website. You could, you know, sign up for some really antiquated old software and pay a bunch of money and be locked into a contract. But our core customer doesn’t want to do that, or can’t do that. So the majority of our customers came from offline, which is a beautiful thing, because that’s full enablement of technology, making it easier and faster, and more reliable to do something online.

So we did not know it would be a great success. Well, I should take that back. Kevin always thinks that things are going to be a great success, which makes him an excellent entrepreneur. He’s missing that chip that says this might not work out in his brain. And so, you know, we just put one foot in front of the other. But I think that the thing is, is like, everything starts small. We were in a windowless phone closet in a warehouse in Potrero Hill, you’d been there many times, Keith. And we had sawhorses and plywood as desks. I sound like an old timer. But it was important because we bootstrapped the company. We truly bootstrapped the company. We spent less than a quarter of a million dollars in the first two years.

Keith Rabois: What led you to change from bootstrapping the company to raise outside capital from VCs or angel investors?

Julia Hartz: Yeah, the reason why we bootstraped the company was really more of an academic choice. It was Kevin had, you know, raised a lot of money with Xoom, because they had to, they had to have a certain amount of money on the balance sheet in order to get the regulatory compliance they needed to move money online post 9/11. I mean, the reason why is Xoom was a success, it went on to go public and then get acquired by PayPal, is because that was insane, right after 9/11 to try to do that. And yet it took a ton of capital. So he had to take on a lot of capital really early.

And so we decided to do it the other way with Eventbrite. And what that afforded us to do with be very flexible, and also take our time, to some extent. We got to know our customers. First, our core creator was the tech bloggers who were hosting meetups in Silicon Valley. The best early customers to have, because they are very vocal about what they hated about the product. And then we started to see organic adoption happen. So, East Coast speed dating, you know, European tours. We were global from the get go, because we were built on the original PayPal API. And it was just completely taking off in the early years in a way that we had hoped, but you know, didn’t know if it would actually happen.

So the point at which we raised money was exactly when we knew that the only way for us to get to the next level was to hire a team. And prior to that, we’d just been super scrappy. It was just the three of us. We had some contractors. We funded the company ourselves, but also raised a small Angel round with people like Michael Birch, and I’m pretty sure you were in those very, very early days, Keith, so thank you. We begged, borrowed, and stole. And then, I don’t think we stole, and then we reached that point where we felt felt like, wow, this idea is going to become a business, and then the business is going to become a company.

That was 2008. A really bad time to decide to go fundraise. So we actually, we pitched 27 firms on Sand Hill Road, and we received 27 Nos. And, you know, ever the optimist, Kevin left our 2009 annual plan with every VC. And they’re sort of like, yeah, okay, the sky is falling, good luck with this whole, you know, ticketing thing. And what happened was, people became their own entrepreneurs. Because they’d lost their jobs, they turned to live experiences, they turned to either gathering to learn a new skill or to teach a new skill or to create a new road for themselves, a new path to prosperity.

And 2009 was a banner year for us. Much of our growth is to this day organic, but that was just when the flywheel started to turn faster. So we went back to Sand Hill Road at the end of 2009, to show everybody our results, and it was sort of this huge novel idea that we actually would have made and exceeded this plan that we had left them with. And so that fundraising went a lot faster. And we were able to raise a small round with Sequoia Capital, which was our first choice firm. It was our sort of priority zero.

Keith Rabois: So effectively, the first financial crisis, the first crisis that you sort of encountered as a company became actually a propellant, a wave that you could ride and turn Eventbrite into the modern, you know, sort of visions. You’re able to embrace adversity the first time.

Julia Hartz: Well, yes. And what an interesting, you know, sort of, I don’t know, it’s like this, these two bookends in terms of opportunity born out of crisis, which we’ll get to. But I think, yeah, I think that what it proved to us was that Eventbrite was resilient. It had self-healing properties and it was a company that could survive in the worst of times. You think about that as like an organism. And like, you know, Darwin theory. It’s like, you want to find those things that can that can actually be in the harshest climates, and survive. So that’s fundamental to who we are as a business. And it’s also a thesis that I think Kevin has, and I believe you do, too, in terms of investing.

Keith Rabois: Yeah, no, absolutely. Kevin certainly applies that filter as do I to entrepreneurs. When entrepreneurs pitch Kevin, he’s looking for that resilience, that tenacity, the grit that’s going to survive in any environment and thrive, actually, in environments that other people would be terrified about. Kevin’s also, as you pointed out, extremely optimistic. When did you get persuaded that this was really going to work?

Julia Hartz: I’ve always been a really good counterbalance to Kevin and you know, it is unique to be a husband and wife team, scaling a company, although there’s, at last count, over a million companies in the US that are founded by a husband and wife team. In tech, it’s a little less rare. And even back then it was really rare.

It’s actually something that we had to expectation manage when we went out and pitched VCs. And you know, the way we were so different, but we have some striking similar similarities. And one of them is we like to go right at the awkward subject. So we would walk into these meetings and just say, you know, we’re married, because at this point, we’ve got married, and we’d had our first kid. Look, we’re married, here’s how we deal, here’s how we operate, here are our rules, we had like three rules. And here’s what we’re gonna do if things go sideways, or someone needs to exit the business. And that seemed to really sort of satiate that doubt or the questions that people had. But it has been an incredibly rewarding journey, because we are two parts of a compliment.

And, you know, I think while Kevin is an eternal optimist, and really just like, is fueled by this insane conviction and optimism, I’m more of a realist, and sort of look for things that are broken and fix them. And so, you know, I sort of think about myself as an operator to his entrepreneur, and optimizing is really one of my core strengths. And then also building culture.

And that was something that I think, given the fact that we were working together, and we were both active in the business, when we started to scale the business from 30 people to 100 people in a year, which felt, you know, like a team to accompany, I got to really dig in, and be the architect of the culture. And I think that made all the difference in the world. Not necessarily because it was me, but because it was me.

Keith Rabois: Knowing both you quite well, I agree. It was clearly because of you. Can you share what three rules were? Given, you know, as you pointed out, there’s a million people running businesses all across the United States that are basically husband and wife or family members. What are those rules and what principles might they borrow from your sort of history?

Julia Hartz: Yeah, so the first one was divide and conquer. Never work on the same thing at the same time. And if you have, if you’re listening, and you have a partner in life, you understand exactly what I’m saying. Because, you know, imagine trying to control the mouse on a Google spreadsheet together. It’s just a disaster. And we’ve broken that rule very few times. And it’s been a disaster. And you know, Michael Birch actually, Michael and Xochi Burch founded several businesses together, one of them Bebo, that was acquired by AOL, you know, like scaled and became this really successful early social media platform. And that was their role. We were in a pub one night and in there like just never work on the same thing at the same time. So we took that to the bank, and we really focused on making sure that we could adhere to that. And the benefit of that is not only conflict, I mean, you don’t really want to avoid conflict, but like conflict management, you’re not setting yourself up to have constant sort of turf wars. But the big benefit is that you can get from point A to point Z 10x faster if you’re in your lane.

The second rule was pretty funny, which is that if we did run into conflict, we never wanted that to become tension in the office. There is absolutely nothing worse than a couple that is romantically involved having a fight at the office. I mean, I just, I can’t honestly think of a worse social dynamic. And it’s just weird, right? So what we would do is, if we did get into a conflict, we would turn out the lights, this was just one way when it was just the two of us. But we were surrounded by all these other founder teams. So it was pretty funny, like this founder commune. We would turn off the lights in our in our little conference room office and we’d lay on the floor and hold hands. And just the act of doing that, and having to break it up was like enough to get us past any conflict. You know, Kevin and I don’t really harbor a lot. So by the time we were on the floor, we’d be laughing about whatever happened. And, and that really worked well.

And then the third thing is probably is pretty simple. But we had to really quickly or like, because we got married, and we had a baby pretty quick, you know, it was like 18 months from starting Eventbrite, getting married, having kids. So we had to, like, maybe this sounds obvious, but we had to make it very clear to one another that our relationship mattered more than the company. That like, that sounds super simple. But times, especially when the scaling was happening, and there were a lot of questions about what the future of the company was going to be like, that came in handy. So in the beginning, it felt like Well, duh. But you really have to, the way that that rule benefited us is that we put so much care and intention into being great founders and operators together, because we both didn’t want to lose the magic of working together. And we certainly didn’t want to lose our relationship over it.

So, um, so those were the three rules. The exit plan was we never agreed on an exit plan. In one meeting, we’d say I’d leave and the other meeting we’d say he left. And we never ever agreed on it. It was like Oh no, I’ll leave. Oh, no, I” leave. You know, it’s like, that was a little bit…

Keith Rabois: I wonder if you’d A/B tested that and see which one got more termsheets?

Julia Hartz: Exactly. And even back then, that was a different time.

Keith Rabois: Oh, my God. Yeah. Like No, that was incredibly controversial or rare to see. Now there’s many more examples of success. In fact, you know, you’re like the role model for people that want to do this and have aspirations. With the benefits of 15 years of history, any new rules you’d advise people like, or edits Tto those rules?

Julia Hartz: Um, that’s a good question. Well, I think that every founder team is like relationship, right? With the obvious differences. But I would say now, 15 years later, it is as important for you to approach that relationship as you would if you had a lot on the line, like you know, your marriage. Because I think the more that you can invest in that relationship early on, the better and faster you’ll be able to scale the culture of trust. You can’t actually establish trust if the founders aren’t shoulder to shoulder and absolutely, like would, you know, practically die for one another. That’s my opinion. Because I’ve seen it now happen a lot, where you’ll find a really great founder, and then all of a sudden you find out like, they have some sort of cantankerous relationship with their other founder. And that’s a big red flag for me, because I think that you’re spending so much energy on that, that you’re not thinking about how to scale your business or scale your company. And if you’re on shaky ground, there’s no way a culture will be able to thrive, that has any element of trust, or competence in it.

Keith Rabois: Great. Let’s talk about the second big crisis that Eventbrite confronted, which was probably March of 2020. Like almost everybody else in the planet, all of a sudden, the world was turned upside down by COVID. I assume a reasonable fraction of events on Eventbrite, were in the real world. And those started, either very quickly, or very slowly disappearing. So walk me through like your thinking internally in March of 2020. And then what did you do after you realized that the world was changing very quickly?

Julia Hartz: Well, I think that for any company that faces a crucible moment like this, it’s one that you just absolutely will never forget. And and I’ve taken time to write it down just to make sure I don’t forget all the details, but it’s it’s incredibly vivid, like it was just yesterday. It starts in February. So Kevin and I had traveled down to Argentina with our girls to meet the team down there. We have about 150 brilliant engineers in Mendoza, and we went down to introduce the girls to that team and you know, really steep them in that culture. And we were on our way back. And we both noticed that there were a number of people on the plane with masks on. And, you know, things were starting to, to heat up from the media perspective on what was happening in Wuhan. We came back and two things happened. We had our board meeting, and then we had an earnings call. And at the board meeting, we have an unbelievable board, but two people had business in China, and they were just completely panicked. And I will never forget, this is my worst moment. When I said, Let’s not make this whole board meeting about Coronavirus.

Keith Rabois: Hopefully, they forgot. They forgot. They’ve forgotten. Don’t worry.

Julia Hartz: And I just, I’m calling it out. So for anybody listening, who has had a moment like that, you too can survive a moment like that. Um, and so the whole board meeting ended up being about Coronavirus. And, you know, we came out of that with like a todo, a pretty big todo, which was create, codify the disaster plan, if Coronavirus came to the United States, and really started to impact the business. Because at that point, we saw nothing in the business.

The second thing that happened was the earnings call, and you know, there’s another large ticketing company that is public that has nothing to do with our business. But typically people tend to like look at the two and try to get reference. And they mentioned nothing, or I think they said something like this will not impact our business. And, you know, I just felt like the right thing to do would say, would actually tell the truth, which is if this is truly the 100 year pandemic, this will impact our business. And we really got a lot of trouble for that, like people didn’t like that, our stock was down, we’d already had a really rough first year being public. So I mean, this is not, you know, this was not like my first rodeo of a not great earnings call. So it immediately stoked this sense of uncertainty in the company. And I, you know, I knew what I was doing. It’s not like I thought, oh, nobody will notice. And we started working on the plan, and the ink was barely dry.

And I woke up one morning in early March and our CFO texted me and said, It’s here. And I just had chills as I opened my laptop to look at Tableau. And COVID came in like a wrecking ball. But with no naked Miley Cyrus on it. It was not here to play, it was here to kill our business. And it was not messing around. And it was not like a little bit of a blip. It was like a big blip. And for a company that is so well measured and consistent, it was just a complete anomaly.

And it was just the beginning of this really crazy downward slope. So we didn’t have any time to wonder if COVID was going to impact our business. It was very clear that it was going to. And what happened was the demand side almost all dried up within two weeks, as news headlines turned from, you know, Bernie versus Biden to Oh, my God, there are these cases in Washington, and you know, everything related to what then was starting to be referred to as COVID-19. And in two weeks, in late March, we went from, you know, roughly $30 million monthly run rate to negative $7 million. We were processing more refunds than revenue.

Keith Rabois: Oh, my God.

Julia Hartz: It’s just, the impact was so severe that it just, I mean, it at least took the guessing out of it. I can put it that way, you know. And I think that the way that it felt to me and to Kevin was that our firstborn was in the ICU. And we were going to do everything in our power to save the company. So I remember coming home on the Friday that we all decided to start working from home, which was like, March 13. And our entire office had been turned into the gnarliest War Room, and I have pictures. Um, Kevin took all of these gaming monitors, these like, I don’t know what is, like a five foot gaming monitor that’s like curved and created almost a 360 War Room with these monitors, and he had all the stats and everything up, whiteboards, the whole thing. And I realized in that moment, he had dropped everything. And like, there was no question that we were going to work together with the team and the board to save the company. And that was like, that was like a warm, fuzzy feeling. And then from there, it was just ice water on my head for like three months.

Keith Rabois: Yeah, so after you set up the War Room, you have all the data, but data is not that useful, because it’s just all bad news. It’s more bad news. You told Kevin, I could have told Kevin to skip the monitors like, it’s bad.

Julia Hartz: Yeah. Totally. It set the mood.

Keith Rabois: Yeah. So, after that the realities sort of sunk in pretty quickly that this was potentially catastrophic for your company, let alone you know, individuals. How did you go about like, coming up with a plan, developing a contingency, deciding what to do, actually?

Julia Hartz: Well, so we came up with a plan in the first 24 hours, and it was really, we reached out to everyone. I mean, I can’t believe how many people helped us in those early days. But the feedback we got from all of our mentors, advisors, you know, people we didn’t even know was, you have to raise money.

You know, there’s that famous story about Southwest and 9/11. And Herb Kelleher was like, in the in the background, he wasn’t running the company, he was like, the chairman. And he wrote on his his famous, you know, yellow line paper, GET CASH. And that’s what we needed to do.

And so it became this very quickly this, you know, war strategy of shore up the business. There was a whole host of activities that we did around that, which was, you know, things like we had an advanced payout program that was about to release the next payout to a bunch of people who weren’t going to be hosting those events. We needed to stop that, we needed to educate our customers about what was happening and get them, basically, you’re turning a huge, huge engine in reverse.

So imagine, like it was the Titanic, you know. It’s like, okay, that’s not very exciting. And it’s scary, and it doesn’t work very well, sometimes. So we’re trying to like, not run it into the glacier. And then the second thing was that we needed, and we needed to restructure the company. Like there was no way we were going to make it through a global pandemic for however long and be able to raise money if we didn’t immediately restructure the company.

And the heart there for me… So there’s the head, of like, you know, we can’t continue with this cost basis if we’re not making revenue. The heart was, if we’re going to do this, let’s do this fast. Because who knows what’s around the corner. I wanted to get the people that we were inevitably going to be telling that they didn’t have a job at Eventbrite, I wanted to get them a job somewhere else. So we announced our layoff on April 8, which I think was one of the earliest layoffs, significantly off, not like a 10%. It was 45%.

And we announced it on April 8, and there are no words to describe how horrible that feels. But what I am proud of is that we did it with such heart and intention. You know, we had our entire alumni from years and years populating this hub of jobs that were available at the companies that they were now working at. We had over 100 companies in 24 hours. We have an entire TA team, our talent acquisition team, actually flipped their job and become recruiters for the people who are leaving Eventbrite. We would let everybody keep their laptops. It’s like, we just we did it our way. And that’s not something I want to be good at. But I’m so proud of what it really showed people about who we are.

And then we needed to raise money. So it was stop the bleeding, restructure the company, which by the way, we needed to restructure it against a strategy that we could execute on. And the way that was I got everybody in a room, a virtual room, and I said to my executive team, I said, With the wisdom that we have now about this business, what would we do if we could do it all over again? And we started just, we had this like respite from the crisis management. We like started to dream, we started to draw, we started to talk about what we do best. What is Eventbrite and what do we do best? And then we came up with what that would be. And then my closing line was, We’re going to do it all over again. This is going to be Day One. Like Eventbrite, is no longer Eventbrite. It does not exist the way it was. So we’re gonna start over. And so, go build your team against that strategy. And that’s what we used as the basis of the restructuring.

And then we had to go raise money. And getting out before our earnings call to people who had no idea what was going to be happening at that point. You know, the markets were in an downward spiral, like nobody knew what the benefit was going to be. And we were the company that I mean, you would be insane to finance. And so, that was super interesting.

Keith Rabois: So how’d you find investors that loved in insanity?

Julia Hartz: We found people, good people, through our, mostly our board, who knew who we were and knew what we could do, and understood that we would do the right thing. And it was all personal. Like there was, and that’s how Kevin and I have always operated, which is find the right people. And so we ended up with several options. And we chose the right partner, we chose Francisco Partners, and DJ and his team there. And you know, it was a great deal for them. But it also was really important for us, because what I didn’t want to do, you know, it’s like, we’re cutting off limbs to save the kid. We’re like injecting the kid with like, you know, an infusion. I didn’t want to go ahead and do something that six months later, I would have regretted or would have turned the course of the business.

We just needed somebody to be in that moment with us and be that financial backstop. So from beginning to end, it was, you know, early March COVID happens, April 8, we announced our layoff, May 11, we do our earnings call and announce the financing, June 12, we turn right around and do a public market convert, which is a major benefit of being a public company. And we start to refinance, we raise a bit more, and we start to refinance that initial tranche. And then in March of this year, we did a public market convert that completely changed the economics of what we’ve raised, and I can’t tell you how beneficial that is to the company now. Because we’re leaner, we’re much leaner on all accounts. And stronger. And faster.

Keith Rabois: So let’s talk about the positive version. So you reinvented the company, you have the clarifying vision. What were the elements of like, what could Eventbrite be if you’re starting all over again?

Julia Hartz: Yeah, so Eventbrite, the job that Eventbrite does best for event producers is we give them a self service platform that they can really use as their operating system. And we’re the front door to the event. And we help them do two things really, really well: Save time, which is money, when you’re a sole proprietor, you have a small team. And reach a larger audience. And during COVID, in the background to all of this, our customers, our creators pivoted toward online events, so much so that in 2020, we had 5 million active events, same numbers as 2019. And, you know, online events went from like 5%, to at one point 80% of the events on Eventbrite. And it doesn’t matter if you’re hosting an online event, an in person event, a hybrid event, Eventbrite is that operating system that not only allows you to have a web presence, but also allows you to build audience and to convert that audience into event goers that are going to be part of your community. And what I learned was, we have such an awesome opportunity to be that Trusted Choice for those event creators who are hosting frequent events.

So our core customer is someone who’s hosting at least one event a month. And that is a business that they’re running. And Eventbrite understands that core customer so well, so much so that we can go out and help them match to the right audiences to extend their community.

But something happened that I didn’t expect at all, which is that these unique and local events, which is really the hallmark of the Eventbrite supply actually started to build these huge global audiences online. So we had things like Daybreaker, which is this awesome, early morning rave that used to just happen once a month in these, you know, unique locations around New York, Miami and LA. And they immediately pivoted to an online Saturday dance party that was sort of like Yeezy Sunday service. It was like two hours of just like, crazy themed party dance. And, you know, kids are showing up online and Zoom. And it’s this whole thing. They went from, you know, a successful business that was unique and local to a global brand that now has tens of thousands of people every week coming from 115 countries. So this whole new avenue of growth opened up for our customers. And that really gave us the fuel and momentum to understand, Okay, where does our product play a role in making their jobs easier?

Keith Rabois: Do you think that people revert back to real world events at the same scale? Are you going to be back at 80%? Or do you think there’s been a permanent shift in how people interact with each other?

Julia Hartz: It’s already happened for us right now that we will revert. So we’ve seen that happen over the last two months as countries like the US and the UK start to communicate more about reopening. We also saw in Australia, even despite the volatility of being open and then in [inaudible] shut downs that people wanted to get out, they wanted to be together. Absolutely. But also, the frequency increased and [inaudible] it’s so much in Australia that you saw things like beer tasting festivals that would happen maybe once a month, were starting to happen every week and sell out. And so, um, so it’s started to become more of an ingrained habit to get out, you know, there’s just this pent up demand. I think online gathering absolutely is going to continue to soar. Um, I think, you know, I don’t know where we’ll end up sort of, ultimately, where that shift will sort of settle out. But we see a rise in in person events that’s just unprecedented. That we’ve never seen on the platform.

Keith Rabois: What about on the professional side? How do you think people are going to perform their jobs or tasks? You mentioned that you do your war rooms by zoom? What do you think the future of working together looks like?

Julia Hartz: Yeah, it was all online, except for Kevin and I, who were perpetually lying on the floor with the lights out. So, it’s interesting. I have two board seats that I hold that were really, really fortuitous during this time. One is Four Seasons Hotels, and the other is UC[inaudible]. And so these data points have come in from these board meetings, you know, that were just like, either confirming or horrifying. And having that kind of knowledge, that well rounded knowledge, has helped a lot. I think that business travel, and this is not an unpopular idea, but I think business travel for the next five years is just totally different. I think people just don’t, as much as they know that they don’t need to commute, they also don’t need to fly somewhere for a meeting. However, I would say that conference-wise, never underestimate the power of FOMO. I think that we’re going to start to see that these conferences are going to come back in a major way, these gatherings, I mean, I know Keith, you’ve been starting to host gatherings in Miami. And, you know, I’m almost certain people are traveling to be there. So I think it’s about the community, I think it’s about how people connect to one another. And I really am skeptical about the ability to successfully execute a great live experience in a hybrid way. So meaning in a synchronous hybrid fashion.

I think our customers will have hybrid businesses, because I’ll tell you, they’re not going to give up that online business that they’ve grown now. And they need to Eventbrite more than ever to continue engaging those audiences. But they’re also going to bring back their in person events. They’re not going to try to do the both of them at the same time for different audiences. I think that we are, I don’t know, at least a decade away from telepresence enabling that in any meaningful way. And so, I think for now, you’re going to see these synchronous experiences. And I think that there’s been on the work front, there’s been a big disruption. I think that people feel a very big, kind of liberating feeling of freedom and choice.

However, I wonder what happens when people started to gather in offices and share ideas together and collaborate and how that’s gonna feel if you’re opting out to be virtual versus opting in to be there in person. I just think there’s just a huge growth curve in front of us. I think there’s way more unanswered questions to tackle.

Keith Rabois: Yeah, I agree with that. I think it’s like the professional version of FOMO. So if your colleagues are gathering in the office, and they’re gossiping, and they’re brainstorming, and there’s a lot of spontaneity, and that changes the plan, people who are not able to participate are going to feel like they’re missing out professionally. And they’re going to feel therefore the need to, you know, be in an office with other people. Do you think there’s a solution that’s different than where we started, where companies have a different way of operating to take advantage of, you know, the liberty, the freedom, the diversity of choices of where people want to live, but can have the constructive dialogues in person?

Julia Hartz: Yeah, I think it just takes us organizing ourselves in a different way. So I always believe that any system can be broken down and rebuilt better over time as we learn more and more. And I think there are a lot of systems in our corporate world that don’t work and or don’t make any sense. I think having everybody in the office five days a week was just a really easy way, it was a shortcut to having a dynamic environment. And I think we can achieve a dynamic environment, but I believe it has to be highly organized.

Now, I’m a highly organized person. Like if I could put my family members in Container Store bins, I would, and label them. But alas, I can’t. And so it’s probably, you know, the operator and the optimizer in me, I mean, it’s probably it’s probably not a shocker, but I think that, what we’re trying to do at Eventbrite is, we’re delineating paths. So we understand that there’s agency and choice in this new world of working. And we honor that. However, I think it’s important for people to be really intentional about what path they are going to be on.

So we have this three tiered system or the three paths, not tiers, it’s pathways, you can be a remote. So we’re BriteLinks, go with me on this one, Keith, you’re gonna like vomit into your microphone, we’re BriteLinks, we have FlexLinks. So those are people who are going to be in the office two to three days a week, but they don’t have a dedicated desk, and they do have to reserve their spot because it’s going to be scarce, the space. We have HubLinks, which is someone who is going to be at an office, which we call a hub, three to five days a week and have a dedicated desk. And then we have RemoteLinks, who will not be anywhere near a hub or come into a hub very often, except for you know, special events or, you know, retreats or whatnot.

And we’re gonna give everybody a 30 day grace period. And then, and then you need to make a commitment for 12 months. And so there’s, I think that’s okay. Again, here, I’m on the like, first chapter of this, I’m like, I think this is a brilliant idea. But I think I like the design, because I think it gives autonomy and choice. But it also has a commitment level that’s important for you to understand the social contracts and the ways in which we offer perks and the way we optimize the working environment for our team.

And I also think that the learning and development and training has to become far more thoughtful and proactive. And so that’s an opportunity for us at Eventbrite that we’re investing heavily in. To really ensure that we don’t lose people who are early on in their career, you know, that they don’t kind of drift between the virtual space, and that we can help them grow and accelerate and have the best work that they’ve ever done happen at Eventbrite.

Keith Rabois: Yeah, I agree that one of the two biggest disadvantages of either a hybrid or remote culture is the ability to learn by osmosis. People typically progress in their craft by learning through peers. And it’s much more difficult when you have to orchestrate that. And you have to be much more intentional and more programmatic. I’m interested to see what kind education you can create, because I don’t think any company has really solved this problem before. And I think a lot of companies will default to therefore trying to hire more experienced people, which is not necessarily the right answer. But if you’re going to sort of hire inexperienced people and groom them, we’re going to do an alternative to osmosis.

Julia Hartz: Right. And I mean, you are, this is my Keith commercial break. Kevin said you were the smartest person, you were one of the smartest people at Stanford. I would say that since I’ve known you, which has been about as long as I’ve known Kevin, you’ve always taught me something either, you know, intrinsically or extrinsically. Like how to run an incredibly elaborate and multi day wedding and have everyone arrive on time and prepared in the right dress. You are my spirit guide when it comes to really managing people and teaching them. And I wonder how you’ll change that. Right?

You’ve now expanded to a different location, and you’re teaching people remotely and through, you know, podcasts like this. There might be something there for you to develop in terms of what does it look like in this next era, to really teach and inspire? And you know, and I think that’ll be really exciting, because it’ll accelerate some different ways of learning and models of teaching that I think we didn’t really appreciate before that.

Keith Rabois: Yeah, I think that’s a really interesting challenge. And I would like to embrace it, not the wedding planning part. I definitely, definitely do not need – No, I don’t need a new career. I’m already juggling enough jobs. But however, I think the challenge at the core of the root challenge is some of the best learnings come without structure. And as you by intent create programming, the learnings that are best achieved through unstructured environments tend to get crowded out. And so it’s how do you preserve the types of learnings that really thrive in without structure and figure out a way to replicate that. And that’s the intellectual challenge.

Julia Hartz: Yeah, that’s right. That will be very interesting to see how that plays out. And I think we can both agree that some of the greatest lessons we’ve learned has been on the job, so to speak. And what I learned coming out of this last crisis is help is everywhere if you ask for it. And you know that probably should have been something I learned decades ago, but I really saw it in action. And so it changes the way I operate as a person in our tech community, because I know how much it meant to me when somebody just jumped on a Zoom or picked up a phone call. And so I’m much, much more unstructured about how I help people now, because of just the accessibility. It’s like, that could be the difference between someone deciding to quit, or stay in it. And certainly, I know, one of our dear close friends Roelof. He is absolutely, you know, one of the most important people in this Eventbrite story, and you often kind of stays behind the scenes, but he was our first VC and the first, you know, person besides us on the board, and he’s the person I call and I’ve only done this twice, when I didn’t know if we should keep going. And both times it was like a 30 second conversation. And it made all the difference in the world. There’s just that complete little injection of confidence that I needed. So I think that’s, I don’t want to see that be lost in this era.

Keith Rabois: Yeah. Hopefully we can all work together to preserve that. That’s Roelof Botha at Sequoia Capital who used to be a colleague of mine at PayPal back when we were all young.

Julia Hartz: All little young whippersnappers.

Keith Rabois: Yeah, young whippersnappers. Somewhat naive. With that, I’d love to thank Julia Hartz for taking the time to join us on Sirius XM Radio Business Channel 132. Thanks for all of your time, advice, wisdom.

Julia Hartz: Thanks so much Keith. It was great to see you.

Keith Rabois: Pleasure to be with you.

(Transcript) Doordash CEO Tony Xu // Series A with Keith Rabois

Founders Fund Partner Keith Rabois recently launched a new podcast on Sirius XM – Series A with Keith Rabois. For the first episode, he interviewed Doordash cofounder and CEO Tony Xu. You can listen to the entire conversation on Sirius XM. But if you prefer reading, I’ve transcribed the conversation below.

Keith Rabois is a general partner at Founders Fund, a San Francisco based venture capital firm with an unparalleled track record as an entrepreneur, investor and executive. Keith has been instrumental in some of the most ubiquitous social and commerce platforms like Doordash, Lyft, Airbnb, and YouTube. Now he’s here to share conversations with some of today’s most accomplished CEOs and innovators in the technology advancing our future. Welcome to Series A with Keith Rabois on Sirius XM Business Radio.

Keith Rabois: I’m delighted to record the first episode of Series A with Keith Rabois, where we interview the best entrepreneurs in the planet. And we’re going to start with one of the most phenomenal entrepreneurs I’ve ever worked with, Tony Xu of Doordash, cofounder and CEO of doordash. So Tony started Doordash, I believe in 2013, when he was working on a project while he was in business school at Stanford. Tony, what led you to the idea of starting a delivery service in Palo Alto of all places?

Tony Xu: Well, the truth is, we didn’t start with really with the idea of food delivery. We started, my co founders and I, with the idea to help every brick and mortar business. And really, the fascination about these local businesses, for me, came at a very young age when I was five years old. My family immigrated here from China, to Illinois. My dad was getting his graduate degree and my mom, as a way to put food on the table, worked three jobs a day for about 12 years. Now all of those jobs happened to be inside local businesses. One of which was a local Chinese restaurant that I moonlighted at times as a dishwasher. So I think at a very young age, I had a massive appreciation for all of these store owners. And in adulthood, my co founders and I realized that for every amazing technology company, it’s actually these physical businesses that produce the vast majority of jobs and GDP in every city globally. And that’s been true consistently through the decades. And we were looking for ideas in helping this customer segment. And so we really started with a passion for a customer group more so than necessarily a problem that we were trying to solve. And speaking with hundreds of these businessowners, we basically learned that they struggled with everything from customer acquisition to customer service. If you think about it, more and more orders are happening outside of their four walls, they’re happening online. And so something as simple as customer service, which used to happen by just a waitstaff helping take care of it at the table now needs to be solved outside of their restaurants or outside of their stores. And so these businesses struggle with a lot of different things in order to compete effectively in e commerce. We decided to pick one of those things to start. We chose delivery. And when we looked at every category of delivery, we really had two ideas. One was, we wanted to serve every store in the neighborhood. So we might as well start with the largest category of stores, which was restaurants. And second, we thought if our idea is to build a logistics network that could serve all of them, while something like order density is going to really matter. And so we made a bet that restaurants would give the highest frequency of activity. And that turned out to be true. It took us a few years to figure that out and kind of collect that data. But those are the reasons why we launched with delivery, but it really started with the passion for these local business owners.

Keith Rabois: So why do you think Doordash has been so successful? There’s other people providing food delivery back then directly and indirectly. There’s other people providing today. But my understanding is over 20 million Americans use Doordash. Why have so many Americans voted with their feet to choose Doordash?

Tony Xu: Well, I think it starts with offering the best combination of the selection of restaurants, we bring the quality of the delivery experience of the timeliness, the speed, the accuracy, and the affordability of the service. And I think getting all of those things, right, is what’s important. And it’s really hard to get all of those things right. I think sometimes it’s really easy to focus on one of those things. But candidly, for customers, if we offer all of the restaurants, but they’re too expensive, or if we offered all of the restaurants and we never show up on time, none of those things are good enough to fit this equation that customers demand when it comes to convenience. And so I think by figuring that out, and offering a better combination, that’s why we were able to build a better product. And I think you can see that with our industry leading retention and why more people vote with their wallets and spend more of their stomachs with us than with anyone else.

Keith Rabois: And you had to confront some pretty substantial, large, well established companies along the way. Any lessons in competing with very large incumbents that other entrepreneurs can take with them?

Tony Xu: Yeah, we certainly, I think historically, have never been the most resourced company. For the first five and a half, almost six years of our eight year history, we were operating on a fraction of the budgets of some of our peers. In fact, up until 2018, so about three years ago, we didn’t even have a marketing team. Because we couldn’t afford one, I think a few lessons. I think one is, you have to start by building a better product and trying to differentiate through that basis versus any other basis. And building a better product starts with an intense obsession over that customer experience, more so than it does what others are doing. The second thing I would say is you have to compete on your own vector or your own basis where you don’t want to play someone else’s game, especially if you can’t do it better. So it would be probably a foolish decision if you wanted to compete spending capital if you don’t have the greatest war chest, for example. And one of the things we did was we also looked at geographies that were less penetrated or maybe overlooked by others. And this really goes back to I think, the question you asked at the onset of our conversation, where we started in a place where there was no delivery. And I think this was one of the misunderstandings in the industry where I think a lot of people when they thought of delivery, they thought about pizza places, they thought about Chinese food. I think the final thing I would say, to entrepreneurs, competing against maybe others that might be better resources is to think about where the industry is, in terms of its growth and evolution, because there’s always these disruptive moments in industries. And that’s really where you have the opportunity. In Doordash’s case in 2013, it really stemmed from the fact that most people did not offer delivery. But that’s different today. But these disruptions and changes are constantly happening. And so if you can hold a long term view, and you can enter a market at a point where there can be a disruptive moment, whether it’s because you’re causing it or because externally there’s a global pandemic or there’s some other exogenous factor. I think that’s also where you want to seize the opportunity.

Keith Rabois: Yeah, I think I recall when you first presented the idea to me in 2013, that you have a slide that said 7% of restaurants maybe in the United States offered delivery, but 93% did not.

Tony Xu: Yeah, that’s right. That’s exactly right. And it was testing the thesis that if we offered convenience to those who didn’t have access to it, would people care? And I think what we learned and have discovered is, is that there’s nothing special about New Yorkers. No offense, Keith, [crosstalk] for the Yankees and all things New York City. But really, it’s that what was special about New York City was that they had access to that convenience. It wasn’t that people didn’t want the convenience elsewhere, it was just that that access wasn’t available anywhere else. And so absolutely, back in 2013, the vast, vast, vast majority of restaurants, and if you go outside of restaurants, just about no one else offered their own delivery.

Keith Rabois: You’ve been working on Doordash, realistically, for about eight years now. How early in the trajectory of the company did you realize you were right? Like when did you really know emotionally that you were on the right side of history?

Tony Xu: Sometimes it’s hard as an entrepreneur, I think to to know that you got something right. But I think that when we started going from Palo Alto, where we started into I think, zip codes that looked more like the rest of America. So for example, our second launch market was actually East San Jose. So part of San Jose that looked a lot more representative here in the Bay Area of the rest of the US than than say Palo Alto did, we started gaining confidence and with each successive city that we launched, as we saw that customers from all backgrounds were actually as engaged in ordering delivery and seeking that convenience as those customers that we started with. That’s when we started gaining confidence. So probably your one year two in that time period. And as we saw that replicability across different customer groups, different cities, different types of markets, the NBA markets or the tier one cities to the minor league markets and saw kind of the same level of usage and engagement. That’s when we started having point of view that maybe this is something mainstream.

Keith Rabois: So you also mentioned the vision of Doordash, it’s always transcended beyond the logistics for restaurants and the delivery of food from restaurants. In some ways, many people would argue that you bought off actually the hardest problem first. Hot food delivery, on time, reliably from a wide selection. Did you consciously choose the hardest problem first? Or is that a byproduct of some other decision framework?

Tony Xu: I think it was half a byproduct. So what I mean by that was, when we started, and we chose restaurants, really, because of how pervasive restaurants were as a category as well as just the frequency of activity. Those are the dominant reasons why we chose restaurants. But one of the other reasons why we chose restaurants was we knew, to your point, it would be the most difficult type of delivery. Obviously, if we can deliver pizzas before they get cold or ice creams before they melt, that is a much more difficult problem at scale, consistently doing the time and again, every order versus delivering something that is less perishable in more time. And we knew the reverse isn’t true, right? It’s like someone who can run a five minute mile can probably run a seven minute mile. But the inverse isn’t true, right? And so I think that, that has had a benefit as we’ve now gone into serving other types of categories in the neighborhood, whether it’s convenience stores, grocery stores, other types of stores. And so it definitely, though, gave us quite a lot of very difficult problems we had to solve at the beginning of our life. And I do think there is something about, as an entrepreneur, if I were to look backwards, if you can solve the hardest problem first, I’ve often found that, that gives you quite a lot of runway and defensibility, even though others may not appreciate it.

Keith Rabois: Great. And let me transition a little bit into hiring because of course, scaling a company requires you to hire, maybe, I’ve seen an interview before, where you mentioned that you allocate up to 50% of your time on hiring. One thing that I’ve noticed is that you hire a lot of ex-athletes. Can you explain why?

Tony Xu: In the beginning, we used to, for some of our city managers or people who ran the P&Ls of our cities, we looked for folks who had almost this background that was a mix between what we call the Rhodes Scholar and the Division One athlete. And one of the things we’ve learned about our business is that it’s a grind. You have to start every city from first principles. City A and City B and City C, you kind of have to start all over again, because our business is so hyper local, that customers even in neighborhoods A do not necessarily know or care about customers a neighborhood B. And so as a result, we’re looking for folks who have a very strong bias for action, who have really high standards for everything that they do, who are always trying to get better, who are competitive in nature, because a lot of the work that we do, obviously has other players involved. And I think, who really get into the details of focusing on the process over the scoreboard. And I think that those are some of the most critical components that have certainly formed the foundation of the Doordash culture. And a lot of that was exemplified in some of these folks that came from other backgrounds or training programs that I think solidified those attributes. And I think sports is one of them.

Keith Rabois: And you also played sports when you were growing up?

Tony Xu: I played some sports. Yeah, I played a lot of basketball as a way to learn English. So there’s two ways in which I learned English. One was playing basketball. The other is watching TV.

Keith Rabois: I won’t, well yeah, I guess that’s a pretty common trait. My friend Max Levchin also learned how to speak fluent English by watching TV in Chicago, which also, I guess he moved not that far away from you. Tell me about your basketball experience. What lessons from basketball translated into being an entrepreneur, being a CEO?

Tony Xu: As a kid, I was lucky to play somewhat competitive basketball because I was, I’ve been the same height ever since the age of 12. And so I’m a short guy, five eight now, but as a 12 year old, that’s above average, I suppose. And so even though I was not the most talented person on the team, the number one thing I remember, and frankly, probably, it’s the most insightful management lesson. I remember where I got that training, it was a long time ago as a kid, was that everyone has a superpower. My coach used to say, you can’t shoot, you can’t dribble, you have no speed, you have no jumping ability, and you don’t really have height, but you could shoot the ball. So whenever you’re in the game and the ball comes to you, your job is to shoot the ball. And if you shoot the ball, you get to stay in the game. Otherwise, I’ll bench you. And I think even though this isn’t always the most positive motivating story, I think what it taught me was that everyone has a place on the team. And I think that everyone has something that they can be excellent at. And that if you can focus everyone, if you can manage people to their superpowers, and find them the widest exposure for that superpower, you’re going to have a lot of success. Because at the end of the day, I think everyone wants to be successful, everyone wants to feel like they’re contributing to the team and to the greater company collective. And I found that if you can move people around, based on what you’ve identified as their superpower, I think that that’s really where they can sustain quite a long runway of running really, really fast.

Keith Rabois: How do you diagnose what a superpower of one of your colleagues, employees, someone you interview is?

Tony Xu: I think it starts by listening to what they like to talk about in one on ones. And what types of issues they like to bring to you first. If they bring to you lots of topics that are about a particular team or organization and what they would do about it, that may suggest that actually, they’re quite interested in solving lots of peoples challenges. A lot of times, if you can listen to what someone would do for free, as if it’s not a part of their jobs. That’s how you find them work that does not feel like work.

Keith Rabois: Yeah, that sounds like a great formula. Over the last eight years, you’ve had to evolve from working with three colleagues and co founders, to managing over 3000 employees. What are the biggest lessons that you’ve learned along the way?

Tony Xu: In the beginning, especially if your company is in hyper growth, or at least doubling every year, you have to fire yourself quite often from what you’re doing, because there’s way too many challenges to solve. And the way to fire yourself is really by a identifying who’s the best in the field at the area that may, or one of the areas that you’re trying to get out of, and then recruiting those individuals. But I think over the years, the other lessons that I’ve learned are one, it’s really important to manage your time, and to constantly be okay adjusting how you manage your time. Because, especially if you’re in a company that’s growing fast, or you’re an entrepreneur and you’re juggling, I don’t know, a dozen different activities, the return on your time actually is not uniform at all. It’s actually quite uneven. So you mentioned that I spend quite a lot of time on on recruiting. One of the reasons why I do that is because I believe that the return on time is highest in recruiting than maybe anything else I can do. Whether it’s helping work on a partner relationship with one of our merchants or fixing a product problem or helping in engineering, the best thing I can do is making sure that we get the best person for a particular position, who can probably save 100 times the the hours that it would have taken us to do something in the first place. And so I think learning how to change my habits of where I spend time has been a big lesson. And I always have two todo lists. One is really around the things I have to do for the week. And the other is things what I call on the horizon, which have an indefinite time period, but typically longer scale. And I review my calendars usually on the weekends, Sunday nights or something, to see if the previous week was spent efficiently on my two todo lists. If I spent three quarters or more of my time there I think that’s a pretty good week. Otherwise, I’m probably tweaking my calendar in the upcoming week so that I can readjust. So I think that managing time has been a big lesson. I think the third one is, it really is about, especially if you aspire to build a generational company, it’s really about the team and the culture that you build that’s ultimately going to create the system that can make the next products, build the next businesses, because businesses and products are always dynamic. They’re constantly changing, the market is constantly changing. And so the only thing that you can hold constant is what are the systems that you want to build internally so that it can be most agile to those changes. And so a lot of my time as the company has moved from a product to a business now to a company has also shifted towards spending most of my time thinking about, do we have the right people in the right places? Do we have the right internal systems and rewards such that we can actually improve our culture over time? So that’s probably how things have changed.

Keith Rabois: That makes sense. What are the foundations of the Doordash culture today?

Tony Xu: Well, a lot of them have been kept from the beginning. And it really starts with what we call the the six attributes of excellence. These are things that we definitely look for when we look to hire. People who love operating at the lowest level of detail is something we really believe in. Our business is really not about the average delivery time. It’s about the distribution of outcomes. People who have a very strong bias for action, recognizing that it’s impossible to analyze your way to the answer. People who are able to hold two opposing ideas at the same time, recognizing that no matter how much we care about being right, what we should care more about is what’s the right answer, as opposed to who gets credit for it. People who are strong recruiters, because it’s always about the team and it takes a team to build something meaningful. People who care about getting 1% better every day because our business is one that is recurring, which means that even if we got the first nine deliveries correct, if we messed up the 10th order, the customers are gonna remember that last one, and they’re not going to remember the 90% score we got over their last 10 deliveries. And finally, I think people who inspire followership. I believe that leadership is far less about how many direct reports you have, but how many people would like to follow you. And we have lots of people at Doordash, who have zero direct reports, but their influences is disproportionate.

Keith Rabois: That’s an amazing description and I think it’s quite accurate from afar, anyway. What’s the most challenging part of your job these days?

Tony Xu: The most challenging part, if you’re part of a growing organization, is how are you going to spend your management bandwidth, which is a function of your time and your energy, because we’re running a multi decade game, we’re playing a multi decade game. It’s very different from sports in this regard, where sports you have a defined start and finish, and whoever has the higher score or the lower score, depending on the game, emerges. But in business, if we’re doing it right, we should be doing it forever, which is so against human nature. Human nature likes things very fast, on demand, and and it can’t wait, and it likes definitions of starts and closings. But that’s not how business works. And so the hardest part is, where am I going to allocate my time and my energy, because both are really important to a) make sure that our company has the right people in the right positions with the right support system to actually go and achieve the priority, and b) where I personally, alongside the rest of the management team can run this race like a marathon as opposed to just a sprint after sprint after sprint.

Keith Rabois: Let’s talk finally about decision making. When you have to make a decision under conditions of uncertainty, when there’s no right answer that’s obvious from bottom up data, how do you how do you decide how to proceed?

Tony Xu: A very simple framework I go back to is just thinking about what’s the size of the opportunity versus the size of the challenge. And if the size of the opportunity is really small, and it’s a decision that’s highly reversible, that’s something that actually we would make sure in our company it gets made really fast with very, very little consensus or debate. I think that for the more consequential decisions, where the size of the opportunity is large or potentially large, and the size of the challenge is also difficult, because usually in order to achieve something very outsized, it you have to solve some very hard problems. I look a lot at who are we putting on the problem. And are we able to give that individual the necessary cross functional team to be successful? And usually when we’ve been able to do that, we’ve found very good success, where even if we failed, we learned quite a lot that we have taken to be productive in other business pursuits. And usually, when that hasn’t gone as well, it’s because either we were not able to assign the right, directly responsible individual and give that leader a cross functional team. So that’s really how we’ve approached a lot of things. And I think it’s because every problem is pretty different, you kind of have to start from first principles. You can’t assume that it’s going to have the same set of constraints, the same set of optimization strategies. A lot of times if you’re going from zero to one, there is no optimization strategy. You’re trying to figure out what it is, should even be built in the first instance and instead, we’ve made a bet on can we pick the right person for the right problem with the right cross functional team as more a framework that is more in our control.

Keith Rabois: I really appreciate you joining us. I think there’s a lot of very serious lessons here that entrepreneurs in the audience can take advantage of. Hopefully everybody who hasn’t tried Doordash in the audience will actually try Doordash and be satisfied. But I really appreciate you taking the time to be our first guest on Series A with Keith.

Tony Xu: Great, thanks so much, Keith.

Keith Rabois: Thank you. Thank you.

(Transcript) Philippe Laffont, Bill Gurley, Jeff Sine Panel // 2013

Digging through my archives and wanted to share another Philippe Laffont transcript, this time of a panel with Benchmark’s Bill Gurley and Raine Group’s Jeff Sine. This is a rather unique panel, because while all three panelists are in tech, one focuses on early stage venture (Bill), one focuses on public markets (Philippe), and one focuses on advisory work (Jeff). A lot of gems in this one.


Moderator: You can see we’ve really narrowed the focus of this. It is to tech and finance. So we want to be real specific, etc. I’m really pleased, though, to have this group up here because, you know, often when you have one of these panels, you end up with a bunch of people who do almost exactly the same thing, just for different firms. But what we really have here is three folks who even though they’re all focusing on tech, and sometimes focusing at different stages of the same company, are in very different parts of the market. On the far side of me, is Bill Gurley, who is a partner with Benchmark, used to be Benchmark Capital, but after they got rid of their website, they decided that having two names was a bit too extensive. So they had to cut back. Next to him is Philip Laffont from Coatue Management. He’s one of the so called Tiger Cubs. Is that offensive? Is Tiger Cub, something that Tiger Cubs are okay with? Yes? Yes, you’re okay with that. Okay, I didn’t, I thought, oh, maybe that’s a bad word. So anyway, they are a tech focused hedge fund, but also one that has started to get into growth investing for private companies, opening an office in Silicon Valley. And right next to me, is Jeff Sine, who is co founder of Raine Group, which is a merchant bank which does advisory work on the Sprint-SoftBank deal, for example. They were working with SoftBank on that. But they’ve also got an investment group as well, former banker with UBS. I’m hoping this is going to be a good conversation among us. But I do have a specific question for each one of you that’s specific to you that I’d like to start with. And Bill, since you’re down there, I’ll start with you. When I look at your companies, one of them is Snapchat. I know you were the early stage investor in that not the lead of the last round? Can you explain to me broadly speaking, why Snapchat’s worth $800 million?

Bill Gurley: So the thing I would say that has become fundamentally true in the venture world is that when these social network-type plays have taken off and generated immense, you know, viewership very quickly, it has typically been associated then with a higher probability of a higher price later stage outcome. And that’s happened over and over and over again. And you combine that with what I would say is probably one of the loosest and most active late stage finance markets. And I think that’s, you know, the answer to your equation. We have some fundamental beliefs about why Snapchat’s working that I’d mentioned real quickly, which is just that a lot of younger people feel like Facebook’s — what we heard from people is that Facebook is LinkedIn to them. And what they mean by that is the permanence of it, and who can see it, and it’s their mother and their teacher and their neighbor. And they just wanted a place to communicate that didn’t have that element, that lack of privacy. And it’s one of the fastest growing companies we’ve ever seen or been involved with.

Moderator: Given that you did the original early investment, are you surprised by how quickly it’s grown? Both both in terms of users, but also in terms of value?

Bill Gurley: Absolutely. But it’s consistent with the network effect premise, you know, that these these types of applications, yeah.

Moderator: Let me move over. Philippe, one of your top holdings is his Apple, has been for a while. Though, you guys sold some shares in q4, part of your position. This question got asked yesterday of Mike Moritz. And so I’ll ask of you: are Apple’s best days in front of it or behind it?

Philippe Laffont: I don’t know. The stock reflects great uncertainty that the best days are over. The issue is that almost everyone has a smartphone and a tablet in let’s say the US and Western Europe. And when you start growing outside of the US and Western Europe, the profit per unit is much smaller. So most of the growth has happened. Apple needs to introduce new categories. We know they’re working on the TV, that could be a huge one, the watch seems like a bit more of a smaller one. The one thing that I wonder about is Google is so active with acquisitions. They just bought Waze to improve their maps. They acquired YouTube, they acquired Android. And Apple just seems like everything has to be invented there. And I just wonder, in a world where it’s so easy to invent new services now that you have two strong platforms, can Apple continue to afford to have this sort of we invent everything at home. And that gets me really worried.

Moderator: Interesting. Final question, Jeff, for you. We were talking about this a bit outside, that you’ve worked a bit on the Dell deal on the on the Silverlake side of this. Let me see how to say this best, leaving the money aside, do you think Carl Icahn would know what to do with Dell if he got it?

Jeff Sine: Well, I have a little history of Carl Icahn and I have a lot of respect for his financial acumen. And he definitely has a way of identifying pressure points in a situation. I remember years ago, he asked me to work with him on Time Warner when he was making his run on Time Warner. And he had no idea what the angle was on AOL. He had a strong idea about the balance sheet and about stock repurchasing and levering up. So, you know, and I told him, I didn’t mind being unpopular, but I didn’t want to be unpopular and lose. So I turned him down on that assignment. So, based on that experience, I haven’t talked to him about Dell. So I don’t know firsthand, but based on that experience, I think his power alley is really on balance sheets and finance and looking for pressure points. Which is actually not that different from a lot of other hedge funds who get involved in these public situations.

Moderator: Do you think he’s wrong about his math, because he’s coming up with very specific, well, specific’s the wrong word since he has a range, but he’s making, broadly speaking, an argument that $13.65, which is what’s being offered is in his word, stealing the company and is turning, and I think he referred to often as a Banana Republic this morning, and a new letter. It’s for those pressure points. You’re right, he understands balance sheets. Is he right? Is the company worth more than that? Or should the company be worth more than that?

Jeff Sine: Yeah, so I can’t comment directly on that, I guess the observation I could make is that, you know, the stock is trading at below $13 right now, I think. So it’s a fairly unusual situation. In fact, I can’t think of another one where you didn’t have a sell through situation where the price had actually passed through where the bid is sitting and the bid sitting at $13.65 right now, that’s where the deal is, and where you got where you got a turn down. So obviously, there’s an opportunity for anyone who agrees with Carl to buy stock and make a lot of money, and they’re not buying in droves right now. So you know, there is this math situation on these public deals where where you have majority of the minority requirements, where there’s a whole other dimension to the to the deal than simply the traditional fundamental value, intrinsic value, fairness, you know, Board approval, that sort of thing. And that’s what’s going on here.

Moderator: So let’s broaden this, let’s talk generally, which is, you know, as I said, the three of you generally are working in different markets. I’m curious how much attention you pay to each other. And I don’t mean specifically to one another, but at least to, so I guess so Bill for example, for you. Early stage investor, but obviously your companies get older, get more mature, either have late stage financings, maybe want to go public, etc. How much attention for example, do you pay to the hedge funds, whether tech specific or not?

Bill Gurley: So I probably spend more time than most in the venture industry, probably partially tied to my background. I was a sell side analysts before I got into venture and I had relationships that I brought with me, but I kind of fundamentally believe that, that one of the paths to exit for our companies is to sell them to the buy side. So knowing how they think about things is pretty, pretty damn important. I think Silicon Valley is way more — Silicon Valley’s performance is way more correlated with the NASDAQ than anyone admits, like when the markets are doing well, everyone thinks they’re smart. But it’s just a big, high beta business. And trends come and go, and how the different buyside players perceive things is really important. And then the other thing I would say is, Silicon Valley has a, they just fundamentally got it wrong. They don’t respect the intelligence level of the buy side. And there’s a lot you can learn, some of the buy side today with the sell side fading, we’re doing incredible work, like first, first level research, I’ve seen like 60 page PowerPoint decks. And smart CEOs will engage with them, even at a private level.

Moderator: Is that something you encourage your CEOs to do?

Bill Gurley: Absolutely. Absolutely.

Moderator: That’s interesting. And so for you, I guess, how much attention do you pay to — I know, you’ve gotten an office in Silicon Valley now. And you’re investing in private companies, but you’re not investing in an A round of a startup. So I wonder, you know, when Benchmark does a deal or somebody else does a young deal, or maybe a B? Are you guys following that neck and keeping tabs on that kind of what is it you’re looking for? When you, if you do that.

Philippe Laffont: Let me tell you something truthful. I pay a lot more attention to Bill than he pays to me. That’s a fact. The job of the hedge fund business is not as creative, but it’s a business at scale where you can buy a lot of shares, and you have to value the shares. But the companies in the public markets tend to be more mature. When you get involved earlier on in a company, the imagination aspect is a lot more interesting. You’re thinking about how could this company revolutionize and break the status quo and potentially displace an existing incumbent? It seems to me, not right now, but over the next 5-10 years, there will be a blurring between the people that are involved in the public markets, late stage, middle stage, early stage, because having that database of information… so for instance, what Bill knows about Snapchat probably has huge value to someone who’s trying to understand Facebook. And at the same time, if you know Facebook well and you’re like, wow, look, this version of Facebook in Korea has started doing something like Snapchat, shouldn’t Snapchat — I’m making it up, but… and so I don’t know how it’s going to happen, because all of us, we’re trying to do one thing well, and it’s already hard enough to do one thing well, but in 5 or in 10 years, there will be some firms that will offer all the services and we just want to make sure we don’t get squeezed out where…

Moderator: So you don’t think it’s a trend like, you know, you think about the dot com era where you had — now it’s a little bit different, but you — actually maybe some hedge funds, who started doing quasi venture capital investing, you saw some traditional private equity buyout firms who start doing it. So you don’t think this is a trend that’s kind of sparked by the fact that you had a handful of companies which decided to stay private later, the Groupons, Facebooks of the world, and obviously there’s others now, so you think this is something that’s a sea change, not not something that’s cyclical?

Philippe Laffont: I think it’s a sea change, because the information knowledge, this is, I mean, I’m repeating a lot of things that Bill’s said before, but now when you’re internet company, you only need to raise maybe 5 or 10 or 20 million, you don’t need to raise a billion dollars to create a fab. So that’s the first thing going on, you need less capital. And the second one is you catch the ramp up like Snapchat seems to be catching, you can go so big, so quickly, that the time it takes is compressed. So it feels to me that these are trends that are here to stay. And that over the long run, the best firms will be the one that either through partnerships or directly are able to address every side of the market.

Moderator: Jeff, for you, you guys, a lot of your work is obviously advisory work, but you also do have the investment fund, how did those two businesses inform each other? You know, does the investing side, which is more, you know, young private companies… does that have any impact on how you understand a… I don’t know, SoftBank deal or, you know, years ago WME deal? How do those two things work together? Or are they separate businesses under the same umbrella?

Jeff Sine: So the answer has to be both, that you have to have the discipline of having separate management, we’re accountable to LPs in each of our funds. So we have a hedge fund, a venture fund and a late stage Growth Fund plus the advisory business, merchant bank model. The thesis though, is we just focus, we target one area. And we target on a global basis. So I’ll give you a particular example, which is one of our portfolio companies in our late stage fund is a messaging company. It’s called TextPlus. So in the realm of Viber, and WhatsApp, but there’s also a whole world out there that’s also playing in this world. So there’s two Asian companies Kakao and Line that are actually bigger than any of the American companies, and really leading through content strategies, gaming strategies. And so if you kind of look at the world, and there’s a lot of telecom integration, there’s, you know, they’re, they’re kind of frenemies of the telecom industry. So you really do have to understand things like line charges and connection charges. The business models are similar, but not but distinct in a lot of ways, some of them are more ad supported, some of them are freemium models, some of them are really communication utilities. And then, you know, none of these companies are close to going public, I don’t think. So ultimately, they’re all looking to be bought out some stage by a strategic so you have to come at it from the strategic perspective to understand what are these companies add to a large strategic player in terms of where they’re going? So they all do come together at some point.

Moderator: You know, I asked about intersections on that side, I wonder for you, you’ve had some, some battles with hedge funds over the… are hedge funds, from your perspective, getting that, you know, the term activists on the tech side, are they getting more active? Are they getting and I hate say this, but I guess probably, from your perspective, more problematic?

Jeff Sine: Well, some of my best friends run hedge funds. And by the way, the the term I think, obscures a lot of differences and styles and strategies and techniques and so forth. So it’s always dangerous to label anybody. But I think if you want to talk about activist, obviously, we saw a lot of that around the Clearwire deal. Not so much the Sprint side of it. And I do think that and you know, you’ve seen Michael Wolfe here, and Dan Loeb around around Sony. And, you know, I’d say those, that’s a hedge fund that kind of trades very carefully, and very softly, and gets paid paid very well for their work. They added a lot of value to all the shareholders of Yahoo, I would argue, but, you know, there’s other guys who I think are maybe not as adroit and adept at what they do. And, you know, there is a, definitely, at least this is my personal soapbox. I think there’s definitely something about signaling among hedge funds through the press, especially when you have these majority the minority situations where relatively small group of shareholders can control outcomes on big public deals that the SEC ought to be looking at. But, you know, that’s sort of the average, I think behavior, the hedge, you know, you don’t see as many IPOs anymore. So to the extent hedge funds are participating, these late stage pre IPO rounds, that’s really just a substitution of capital, you know, that we used to see coming into the IPO more.

Moderator: But you, ultimately for you, you know, if you’re doing that round, if you’re doing the the pre, you know, if you’re doing say, the Uber round, you know, that pre IPO round, you need, I mean, you’re looking at that, though, that there’s going to be an IPO that you’re really you’re not replacing, you’re postponing it, whatever it is, 8, 12, 15 months, or am I wrong about that? Or… guys, how do you view that?

Philippe Laffont: Yeah, the way we look about it is in the public markets, we look for stocks that can double in five years. So that would be a 15% return, which would be twice the sort of long term returns of the market. On the private side, against the lack of liquidity, our bogey is more like a triple in five years. And so it’s all about sizing up the market. So you take an Uber in an example, you say, well, where could the company be in seven or 10 years, work your way backwards, and see if you can get to a valuation that satisfy your returns. And sometimes it will. And sometimes it happens. But the one thing I wanted to say is a lot of people always say, My God, but look at this company, this is the craziest round, we in 2000 —

Moderator: — I may have written that once or twice…

Philippe Laffont: Yes. We in 2004 by Tencent, which is an Asian, large Asian internet companies, that stock went public at $6 and went down to $4, we bought some more, and we sold it at $10. And we felt like champs, and today the stocks at $330.

Moderator: How do you feel about that now…

Philippe Laffont: I wouldn’t be here if I’d held on to the stock. I would be on vacation. And so there is something about these tech companies where sometime when you catch on to winner, a lot of incredible things can happen. And so we sort of think we want to get a triple in five years, but you have to throw in a little bit of like, option value. What if this company could become much more?

Moderator: Is your expectation usually that you’re going to also buy at the IPO? Is that your expectation going in originally, my job is to change, but…

Philippe Laffont: It’s the expectation that we would tell the entrepreneur. But, the reality, and we will tell him that right after what I just said, is at the IPO, you have to make a new decision. And if the IPO, let’s take the case of Facebook. Imagine Facebook had gone out at $20. And the stock today is a $27. People would have said incredible IPO, the stock’s up 35%. But instead went out at $39. And now it’s $27. It’s the same incredible company. So a lot of it is the perspective, but as a prospective investor, you have to decide what decision do I make at that price?

Moderator: Bill, for you, what’s your thought about kind of this this new, you talked about the fact that it’s a very easy late stage, fundraising environment, both because you know, because you’ve got folks coming in from upstream, but also you’ve got a lot of big, you know, late stage firms, you know, “venture firms,” the IVPs of the world. What’s your sense about what they’re doing to your portfolio companies incentives? I know you like your companies to go public, you want IPOs rather than M&A? Do you care that it’s possibly being delayed 12, 15 months?

Bill Gurley: So I’m gonna try and say a bunch of things real quick. So the number of people entering that market is phenomenal. Because it’s not just the public guys coming down. It’s expansion nature of the late stage targeted fund market themselves. A lot of the early stage venture funds have added growth funds, there’s corporate strategics that are now participating, they always get it wrong, they always come in at the wrong time. We use it as a contrary indicator. And so there’s just a lot of money, and then the low interest rates, I think affect it as well. And then in the valley for the past 10 or 15 years, there’s been a anti IPO sentiment that I think was started by Larry and Sergey, and Zuckerberg really got behind that. And that meme was spread. And so I don’t think, you know, and so yes, IPOs have been pushed out. It’s one of the reasons the late stage guys, or the buy side is reached back. There’s also an allocation issue, you can get 80% of a round if you lead it, but no bank is going to give you more than 5% of an IPO. So you can get a bigger stake than you ever would at the IPO if that’s what you’re interested in. And so, yeah, I mean, it’s interesting. I don’t think delaying an IPO forever is in a lot of companies’ best interest. And it’s a very complex problem.

Moderator: Are you surprised companies are doing it at all now just because you’ve got such a good public market, and, you know, we’ve seen what’s happened in the past where there’s been environments where basically, you know, nothing can get out.

Bill Gurley: Well here’s the irony, which is we have an incredible public market. Yet if you went around and asked a bunch of entrepreneurs in Silicon Valley, they’d tell you that it’s not any good. Like, because there’s so much rhetoric around this meme that the IPO market’s broken, which it’s not. You know, we had 22 IPOs in venture backed IPOs in last quarter. And the only time it’s been at a pace that materially different than that is late 99, which is completely unsustainable. So the only thing you could possibly want is a mania that’s going to blow up in your face, because there’s no like, you know…

Moderator: I think people want that. By the way, as a reporter I want that even more.

Bill Gurley: Anyway. So the one thing I would tell you that concerns me is, there’s so much money chasing it that we have firms proactively coming to the companies we work with, and demanding they take money and making up excuses for taking money. Large secondary sales, take your burn rate way up. And I think it’s foolish to think that those actions won’t then have impact on how people act later down the field, that it won’t change motivation, that having a higher burn rate might be over risking the situation. And I think that’s how the circles, you know, self correct over time.

Jeff Sine: Yeah, I was just gonna say, I mean, there is a, I think, a good reason to delay the IPO decision for a lot of the companies that are sort of in this network effect mode of accelerating growth and winner takes all, maybe see themselves as consolidators, in the space where the three and four players might have a product, but don’t really have a company, but you know, could accelerate the number one player. You hit the pause button when you’re going public, you know, especially if there’s an acquisition, that’s going to require pro forma financials. So a lot of times companies will seek private capital, so they don’t have to hit the pause button, because time is critical. And, you know, the urgency of a lot of these businesses is, I think, higher than it was even in 1999, to really leverage that network effect.

Moderator: Okay, so you mentioned that a bunch of early stage firms have raised growth funds, some call them opportunity funds, or overage funds. And a lot of them are really, okay, we’ve got, we did something at series A, and suddenly this thing has exploded, and we don’t want to get diluted, and we legit, you know, you’re what, a 250 million fund? [400]. You’re 400, okay, but even so some of these rounds, it can get a little difficult to participate pro rata. Why have you guys not raised something to cover you for when you, and if you don’t use the money, you don’t use it. But if there’s a deal, so you know…

Bill Gurley: There’s a famous, I don’t know if he really said it, but there’s a quote attributed to Warren Buffett that there’s a fool in every market. And if you don’t know who it is, it might be you. And I think that having discipline in finance is really important. And so if you know what you’re good at, and you’ve had good returns from doing that, getting greedy and expanding, could lead to you discovering who is perhaps. And so I, it’s just we’ve decided to focus. That’s it. By the way, I wanted to say one more thing on the IPO, I was, I saw Jed York in the room. So I was I have an analogy, there’s another issue to this public thing, which is you want a CEO who’s not afraid to play at the next level. So imagine an NFL Draft, where the number one quarterback candidate, you know, the day before the draft, calls a press conference and says, You know, I just don’t want to play on Sunday, because they track every metric, you know, they analyze every pass. It’s just so hard to work under that spotlight. And I’m just not going to do it. I’m going to go play in the minor leagues. No one would want to back that guy. No one, you know, compare it to RGIII, right? He shows up, I’m ready. I’m ready to play tomorrow. And I’m looking forward to leading this team. Those are two very different… and so I always like to point to Jeff Bezos, Marc Benioff, Reed Hastings… never once complained about being public, never worried about being public. They saw it as part of the playbook to get to the next level. So I think there’s another element, which is you don’t actually want to back people who are afraid to be out there.

Moderator: For you, when you’re looking at some of these companies, how do you view that the CEO, and something Bill’s talked about before is this concept that you’re most, not most, but a lot of these companies get created by somebody who’s effectively a product person, that’s where it starts, because they had an idea they were able to build a product. And then they de facto most likely become CEO or still CEO? How do you, when you look at CEOs and the company you’re potentially going to invest in, a potentially still private company? How do you figure out if that person is a good CEO, or just a really, is somebody who has a really good idea?

Philippe Laffont: Well, that dovetails into what Bill was saying. I think there’s a big difference between being public and controlling your company. And a lot of the people who don’t want to be public, they’re confusing it with the control. They say, I want the entrepreneur to keep control. And if I go public, I’m gonna lose control. There’s actually a number of companies that have gone public with dual voting stock. If the entrepreneur turns out to do everything in a great way, you’ll find that there’s absolutely zero discount between the controlling shares and the non control shares. In fact, Google’s had a plan now to offer some non voting shares shares, I don’t know exactly what’s going on. But the company is striving, nobody really cares. You look at companies where there’s quasi control, Oracle, Microsoft, Salesforce.com, Facebook, nobody cares. These are great entrepreneurs and stuff. So I think at the end of the day, you make a bet on the person. We’re a little bit less concerned about if there’s voting or non voting share who controls what. Over the five or seven years, if you come and play every Sunday, you’ll achieve your business plan over the long run.

Moderator: Fair enough. Gentlemen, I want to be able to have plenty of time for Q&A. Let’s the other side of IPO, obviously, is M&A. And you know, it’s interesting, and we talked about two of the, the two big tech deals this year, which is the SoftBank-Sprint deal, and also the Dell deal. But in general, this is across markets. This isn’t just a tech thing, but it applies to tech too. M&A has been surprisingly sluggish in 2013, like it wasn’t 2012 and 2011. And in each one of those years, I have written the same story at the beginning, which has been based on surveys and talking to not you necessarily but folks. It’s going to be a banner year, everything’s right, right? We’ve got a good stock market, companies have crazy amounts of cash. You’ve got, you’ve had a good, you’ve got good private companies, etc. All the conditions are right. What’s gone wrong? Or maybe not what’s gone wrong. But why are we not seeing more deals? Why do I know of the two biggest deals this year and their obvious?

Jeff Sine: Well, I do think there are very few contrarians in corporate boardrooms, large companies. And I do think that when economic conditions are strong, when doubts are low about the future, when the international markets are stable, and basically when capital markets are available. Those are the kinds of environments when boards tend to make big decisions about the future and take risk and step up and do consolidating transactions. We have not had one of those markets for a long time, even though as Bill said, the capital markets in some respects are strong, even the high yield markets are coming back. But you know, certainly the international climate is questionable. We haven’t had long term periods of stability in the financial markets in this country. We still are kind of digesting the hangover of the financial crisis here in a lot of industries. So I don’t think we’re kind of at that point where in corporate boardrooms, people are feeling chippy, and willing to make big bets. They’re still conserving capital, they’re still buying stock back at record levels. And that’s the prevailing sentiment. Now, the time when they start to get chippy and start to feel like it’s time, would probably be exactly the wrong time from the value creation point of view to do big deals. Obviously, the best time to do big deal is when values are suppressed.

Moderator: Well, the values are very high right now. I mean, values are high. I wonder, is part of this in the tech market. You know, you think of big tech M&A deals over the last six years, and maybe not even, you know, huge $20 billion, do you think of some of the better VC backed exits, you know, which might be enough 500 to a billion dollars, it seems like a lot of those, and maybe these just get written about more, but a lot of them ultimately not worked out well for the acquirer. You’ve ended up with whoever the founder was leaving not thrilled. Some have been good, but you’ve had a bunch of ones that haven’t succeeded terribly well. I just wonder, is there any sense that, for some reason, big tech acquisitions don’t necessarily work out most of the time, and it’s a lot of money to spend if you’re taking that sort of chance?

Jeff Sine: Well, I don’t think you’ve seen transformational deals in the industry. You know, since what, you know, Compaq, and HP. So that whole category of deals is sort of, you know, I think got a bad reputation. You could say SoftBank and Sprint was a transformational deal. It was, but for the most part, you know, you’re talking about large, important acquisitions to fill in, you know, product gaps or fill in market gaps. And you’re right, sometimes they work out sometimes they don’t, but I haven’t seen any bet the company deals in a long time.

Bill Gurley: I push back a little bit. I mean, I think, you know, YouTube, obviously, is something that people view as a really successful billion dollar acquisition. I think, if Facebook had not bought Instagram, their stock would be a lot lower than it is today. And I think Waze was a pivotal asset, because that UGC network is so hard to actually get established and once it started, it could have shaped the industry very differently had it landed it at Apple.

Moderator: How do you advise your entrepreneurs when there is an acquisition offer, leaving if he can’t, but leaving the money aside when it comes to this issue of you know, cultural fit? Is this going to work? Or is your product gonna ultimately, you know, be screwed up for lack of a better term? How do you advise them?

Bill Gurley: Well, the cultural fit thing I find the founders in the management team are the ultimate deciders on. And their company means a lot to them, and they, they literally don’t want to sell it to someone who they don’t feel good about. And so that just kind of naturally plays out. You can’t sell a company that doesn’t want to be sold. And then you know, the other thing, just on whether you take a bid or not just, a lot of it comes down to, you know, looking in the eyes of the founder, the entrepreneur, and whether they want to stay on the field or not, and occasionally offer encouragement to do so. We were able to do that in the Yelp round, and bring in some elevation to help provide some secondary so that they could say no to an acquisition, and that worked out well for the founding team and for us. So occasionally…

Moderator: Actually, let me ask the secondary thing. You brought it up, and I’ve written about it a bit lately. Is there a, limit might be the wrong word, but you know, the theory of secondaries, not necessarily in that in the Yelp situation, but the theory of secondary, I guess Snapchat might be example is, you know, you don’t want the founders to be worried about, for lack of better term, paying the mortgage. But it’s obviously gone well, well, past that, unless you’ve got one of those houses up the hill there.

Bill Gurley: You can write rhetoric to either side of this argument.

Moderator: Well, how do you how do you judge it, though? I mean, how do you or I mean, do you ever get concerned when you see either see these deals or involved and say, Man, that’s more money than they should, I don’t want they should have, but it could skew the alignment.

Bill Gurley: Yeah, so I think seeing the word should…

Moderator: From an alignment standpoint…

Bill Gurley: … It says they don’t deserve it. But um, yeah, I think it kind of goes back to my RGIII comment. If there is a founder who’s saying, I’m not going to sell a share. I’m crazy. I’m gonna go all the way. I want to back that founder. And so anytime it’s not that, it’s less, you know, less down. And look, you know, it every, you’re getting into, like behavioral science and a whole bunch of issues around individuals. But taking too much money off the table, theoretically, could impact alignment and drive.

Moderator: Let me ask one final question to each of you, then do some Q&A, which is, I know, from experience that when you ask investors, and maybe you’re a little bit different, because I know you talk about this more, when you ask investors, you know, where are you looking at, particularly somebody like you, either get no comment or not a straight answer, because that’s giving away, that’s giving away the secret sauce. So let me ask the opposite, which is, within your general, within tech, I guess you could say broadly speaking, or areas you’ve historically invested or could have, where are you intentionally not looking? In other words, where are there things that you just have a bias and say, I don’t want to touch that, broadly speaking, because it does X? Is there anything? That you’re just soured on?

Philippe Laffont: I understand you’re saying this to, therefore triangulate where we are looking.

Moderator: There’s a lot of verticals, I’m asking you knock a couple out.

Philippe Laffont: I’d rather tell you exactly where we are, because we’re very transparent. I think it’s investing in tech is so simple. It’s all about like coming up with big ideas. And whenever someone pitches us a tech idea that I’m like, wow, this 10 minutes, I can’t understand, it rarely turns out to be a monster idea. So basically, tech is most interesting in the consumer side. And it all starts with the fact that within a very short period of time, we’re going to 500 to five gigabits at home. So who’s going to provide the five gigabits? We make a bet that the cable companies are going to win, and that the fiber or very small Verizon FiOS and stuff, it’s very small. And that Google’s fiber project, it’s only there to annoy people enough to force them to continue to invest. So we think the cable companies are really well positioned. In the cell phone business, it’s the same thing, an LTE phone is four times the speed of a three and a half or 3g phone. So we like the tower businesses, because you’re going to need so much more spectrum, you’re going to need to have more towers to connect. So anything related to broadband. The theme that we don’t like as much anymore is the people that make smartphones and iPads. I sort of feel — [interruption: you mean Apple?] — Samsung would be another one. Just because look at the room here, everyone has a smartphone, everyone’s an iPad, yes, and iPhone six or seven is gonna come out, but it’ll replace the iPhone four or five, feels more like a replacement market. But content. We love content. Because if everybody has a screen, the first thing you do is more content. So whether it’s a Spotify on the music side, or whether it’s a Netflix, but even Time Warner, for instance, it’s fascinating. And I’ll stop with that. The economics of movies are disastrous. You have to plunk down $200 million, and you have no idea if the movie’s gonna work. Now let’s go through one of these shows where you have five seasons of 12 episodes. You put three episodes, each episode is 5 million bucks. Either the episode works and it’s great. Or if it doesn’t, maybe you offload it at a cheap price to Amazon or Netflix. And there’ll be a small group of people that we want. And if it turns out to be great, they’re much cheaper to produce. So there’s a lot of good things going content. So we would say content, mobile, broadband, yes. Hardware and anything related to PCs, No.

Moderator: You mentioned content, you obviously have a big, decent sized Time Warner position, I must ask the selfish question, which is, when you ultimately get timing shares, which you will at some point in the next six, eight months are you going to dump them as fast as possible or are you going to hold?

Philippe Laffont: Because you work for Fortune, I will say that we love print media. There you go.

Moderator: That’s a dumping at the minute they get it. Well, I’d like to ask this, but we don’t have that much time. So yeah.

Audience Question: Hey Bill. What are the ideal conditions for a company going public, not in terms of the public markets, but the companies you look at. Like are they a certain size, in terms of margins, reflections… we’re rising market. You talked about the Tencent example, which of… how do you figure out when to sell a stock that’s done really well for you?

Bill Gurley: I’ll go first. I think it’s somewhat dependent on how competitive the industry is. I think if you’re in a competitive industry, the incentive to be public first is really high, because you can get out and control what I call the bully pulpit. But you can define the metrics that matter. I mean, this is sales versus the three other SaaS based sales, you know, companies that came along afterwards. And we’ve seen a little of it with Zillow, Trulia that were, I’m on the board of Zillow. And there’s just, there’s an inherent advantage to being the leader, as you come out of that gate. That doesn’t mean you can be reckless, like you have to have a good CFO, you have to have your financials in a good place, you have to be able to be Sarb-Ox compliant within a year. So you have to have prepared for being there at that moment in time. There’s a lot of people who walk around the valley that think you need $100 million revenue run rate to go public, which is far from the case, a lot of companies go out in the 10-15 range. But you need the gumption of the team to get there. If you’re going to go out at that lower value, I think you do need more proof of profitability. If you’re gonna go out and tell the world that it’s okay to lose $30 or $40 million, you probably need to be at a higher run rate. But the SaaS world is is an amazing thing right now. So anyway, that’s how I think about it.

Moderator: I should ask now, I’ve got a panel coming up after this saying is there an enterprise bubble. Is there? Or is there a SaaS bubble?

Bill Gurley: So here’s what I would say. And, he may be a better person to talk about this. But the SaaS companies have convinced the buy side that GAAP financials aren’t the right thing to look at, which is okay, and maybe they’re right, maybe they’re not. [Moderator: Private equity did that too]. But here’s the problem. They don’t have an agreed upon set of alternative metrics that are well scoped and well audited and checked out. So they’re all creating their own rhetoric and their own narrative around their own metrics that are somewhat similar. And it leaves a lot of room for error. That’s what I would say.

Philippe Laffont: So to… on the enterprise side, I totally agree. And I think the problem is, everybody thinks one of these company might become Microsoft. So let’s say they all have market caps between five and 10 billion, but one might have a market cap of 200. So everyone’s playing like lottery. So everybody bids up every enterprise companies saying, Well, you know, I just own a little bit, but there’s a 10 x chance. Yes, there’s a 10x chance, but there’s a gigantic chance that it turns out to be a -80% chance too. And so there’s a little bit of that going on. Also, a lot of these stocks have small float, they’re not well held by institutions, they’re stocks that are driven by retail, maybe Salesforce.com would be an exception. And so it’s very difficult to say what the true value like, I don’t know what the true value of Workday, I think the float is 10%. Does that really, you know, create a real price? On to your question of how do you know when to buy and sell? Originally, we thought that valuation was 100%. So you have to buy a 12.2x earnings, and you have to sell at 17x earnings. I found that this doesn’t work as well, I don’t know why, to me is you buy the companies that you think absolutely have the winning hands, and you let them play it out. And if you’re patient investor, you may get 100% return in one year, and then it’s flat for two years. And then you get another 50% in year four. So you have to create a fund, where you don’t expect all your horses to win every race. We need to have multiple horses, different people do well. So let’s take a case like Apple. Apple, to me, it’s in a transition. It could become great again, or maybe not. Is it going to come with a new hardware category? Or is it going to wake up and say Wait, I can’t let Waze and all these other great companies… Apple could buy Netflix, Spotify and 10 other private companies and you wouldn’t even see a dent on their cash balance. You know, they could afford it in six months. And then there are companies like Intel, like I wouldn’t buy Intel at any price, because we have a view that in time, iPads will replace most of the notebooks, intermix a lot of your notebooks. You’re moving to cloud, you don’t need as many desktops. They’re very threatened. And there, I feel valuation is going to be a counter indicator to it.

Moderator: We got time for one more. We have one more? If we don’t, we’ll just move on. Yeah.

Audience Question: This is kind of a broad question. Take a company going public, and this is from your perspective, you’re trying to sell a company, might be a great new idea. But Philippe, when it comes out to the market, you say it looks just like Millennial Media, which is like Groupon. How do you reconcile that?

Bill Gurley: Done. Get out I guess.

Philippe Laffont: With a nice bottle of red wine. That’s how.

Moderator: That’s a very good way to end. I want to thank the panel a lot. Thank you guys for coming.

(Transcript) Philippe Laffont of Coatue

Since I first learned of hedge funds, I’ve been fascinated by Julian Robertson and the Tiger Cubs. Of those, one of the most well known is Coatue Management. Coatue famously is very private, but with Philippe sending out his first Tweet (not a comment), I figured it would be a good time to resurface this video and share the transcription I made of it back in 2013.

Part I:

Part II:


Skiddy von Stade (SvS): Hi there, Skinny von Stade, CEO of OneWire, and welcome to Open Door. Today we’re gonna go interview my very good friend Philippe Laffont, who is the founder and CEO of Coatue, one of the most successful technology hedge funds on the street. He’s a great guy. He really knows his stuff. Let’s go see what he’s up to.

Skiddy von Stade (SvS): Today, I’m here with my good friend Philippe Laffont, who is the CEO of Coatue, which is one of the most successful technology oriented hedge funds on the street today. And Philippe you’re also a tiger cub, I believe, as well. You really know your stuff. You have a math and science background. Take us from your, first of all, why did you decide to go to MIT? And did you think you were gonna get into finance? How did you get to where you are today? Yeah.

Philippe Laffont: Yeah. When I was 16, I either did not have the confidence or my parents did not let me go out enough. So I was stuck at home. And I developed the love of computers. And that led me to go to MIT. When I was at MIT, I realized that there were a lot of people that were so much smarter than me that I had to find a new way to repurpose my interest in computers. And when I graduated from MIT, I desperately tried to get a job at Apple Computer. And I interviewed three different divisions at Apple Computer, and I got turned down all three times. Now 20 plus years later, I’ve sort of built our fund, in part, thanks to investing in Apple that’s done so well. So it just shows how sometimes you do get the things that you want, but maybe through a different door. Again, you have to be a little practical and show a little bit of grind. So it wasn’t easy. It wasn’t immediate. The engineering world is very interesting intellectually, but it’s not where you’re going to necessarily find the most… sort of… not interesting, because the people are very interesting, but animated. And it’s sort of a culture engineering where a lot of stuff you create on your own you work late at night, this was just not for me. There are some unbelievable tech investors that also have not studied tech. So I’m not sure whether having studied technology and investing in it, if it helped most PhDs would be great investors, and thus, we would all be put out of business. I think the PhDs are much smarter than us. But investing… it’s about… I think it’s a different set of skills.

SvS: Okay. From MIT, did you immediately go to Tiger, or what was your path?

Philippe Laffont: After MIT, I spent some time at McKinsey. The career advice that I would have for people is you need to do two things when you graduate. You need to do them both passionately. You need to do one thing passionately that is the obvious thing that you’re supposed to do after you graduate. So if you want to go in business, going to Goldman Sachs, or Morgan Stanley or McKinsey is probably an obvious one. But then really dedicate your wealth for two or three years to take and learn the most that you can from there. At the same time you do that, in my mind, you need to do one thing completely off the beaten path, but also passionately, because some things come through the regular channels, also some things come through completely different channels. You never know. So in my case, I was at McKinsey for three years. I fell in love with a beautiful Spanish woman who’s now my wife, and she did not want to move to the US immediately. So I was stuck for one year in Spain doing nothing. So I went to work for her families. And of course, that didn’t really pan out. But I had nothing to do because the uncle put me in an office in the basement and so I got stuck here. And so I started buying the Herald Tribune and reading stocks. And the way I would find out about stocks is literally the next day the Herald Tribune, I would find out what the price of stocks were. And my brother and I started buying stocks in the blue chips, Microsoft and Dell, whatever they were in the mid 90s. Dell. And at that time, we just bought companies that we knew a bit like Peter Lynch said, and we were incredibly lucky that we started a period of time where the market was up 50% every year. So of course our stocks were going up. We confused luck with skill. But nevertheless, it gave us the passion. And then I said that’s it. Stocks, tech, it works. And I came back to look for a job in the US. But let me tell you, if the market had gone down the three years that I did this, I would have for sure given up and done something else. So the luck is very important. And also being able to try different things, you don’t want to spend too much time doing something obvious. But you also don’t want to have your resume full of like you spent two months here one year there two years there and like the guy looks at your resume and says, Wait a minute, you’ve been a bit everywhere. Your career is too scattered, right? So you need to show the appropriate amount of commitment, but also creativity. I would try to find a way to do a bit of both.

SvS: Well listen, that’s hugely helpful. In terms of, you worked at McKinsey, and then, when did you get into the hedge fund space?

Philippe Laffont: After McKinsey, and after my sort of one year of bubbling around in Spain, I came back to the US. And I looked for a job. And I couldn’t find a job because it was harder. I arrived in New York and I knew nobody. And then, I got a job at a mutual fund, very small mutual fund, where I worked for free. But while I was there, somehow I went to a conference, met someone so I sent my resume to Tiger. But since they saw that my resume was MIT, they sent me to the IT department to fix the computers. The IT department said they don’t need me. So the first letter I got said, we have no space for you. But you have a wonderful resume. Thank you. And then by pure luck, through another coincidence, a friend of a friend knew the founder. And I got to meet him for two minutes. And he sent me off to some of the analysts and I got to interview there. And somehow I managed to get the job.

SvS: And what was it like meeting with Julian Robertson?

Philippe Laffont: The first meeting was very brief. But I went straight to the point, he said, What do you want to do? And I said, I want to work for you. I know about technology. And I want to pick tech names. And I was so direct to what I wanted, I gave him no choice but to sort of say, Okay, fine, I’ll introduce you to the people who are my tech guys. I think that when someone opens a door for you, and you will, everyone in life will have a few times doors open. You have to come to that meeting prepared to achieve one thing. For me, I knew I would only speak to him for 60 seconds. I was like, This is what I want. Yeah, I went straight for it. Because if you’re like, hey, great to meet you, yes. Tell me more about your company. There’s too many ways that he can just brush you out.

SvS: And so you ended up going to tiger, which was obviously one of the best hedge funds out there on the street. And how many years were you there?

Philippe Laffont: I was there for three and a half years. And enjoyed every minute of it. And he’s obviously done so well at Tiger, after Tiger. He’s an amazing mentor and amazing person. And it’s one of those, again, what, I mean, most of my business today is in part due to the fact that I had started working at Tiger before.

SvS: That’s great. Now listen, Julian is a fantastic guy. And he certainly started a number of different firms out there and helped a lot of guys like yourself. If you could give us a little background as to your investment philosophy and strategy, that would be awesome.

Philippe Laffont: Sure. Well, I started go to in 1999. And it wasn’t an easy ride to where we are today. We started with $50 million dollars in 1999. And the NASDAQ was at 4000. And then one month later, it was at 5000. So February 1, 2000, the NASDAQ was at 5000. In 2003, the NASDAQ was at 1300. So in our first two years, the NASDAQ went down 80%. And I just say that and I’ll get back to the investment philosophy, because in your professional life, you’re gonna more than once come across something that goes absolutely the opposite way of what you were hoping and the only people who, sort of things go their way all the time, is the sort of the one in the million guy who also wins 300 million bucks in the lottery. They will be the one person who by luck, his roommate founded Microsoft, and he’s part of Microsoft from the beginning, right? But for the average person, you have to be ready for the fact that things are not going to be as expected, and how do you prepare yourself to deal with the unexpected? Back to the question around the investment philosophy, like many people at Tiger, for us the key to investing is thinking about how can a company perform three to five years out? What can be great investments over three to five years? Not focused so much on the short term. Try to see the forest from the trees. Think about the long term. Few people in the market think about the long term. And that’s our edge. It’s sort of patience and a longer term thinking.

SvS: And you guys are long-short, how do you how do you go about picking short stocks?

Philippe Laffont: The long side is hard, because, again, you’re sort of like trying to project what could happen five years out and come back. And it’s really hard to prove something in life. It so happens that it’s much easier to disprove things. And in fact, some of these little math problems, that when you go to prove is that you disprove that the opposite is possible. Therefore, you’ve proved the problem in the first place. So for instance, on the short side, if you find a company where the stock’s gone from one to 100, and the company has one product and two customers, and the CEO is selling a lot of shares, you’re like, hmm, you know, maybe that’s a good telltale. And if there’s enough red flags, sooner or later, it’s like a sandcastle. If there’s too many bad pillars, sooner or later, the castle crumbles. So the short side is more about pattern recognition, and seeing a lot of odd things. And if there’s enough odd things that leads you to believe the company is wrong. There’s a second type of shorts, which is the opposite of your long, which is, if Google does really well, the Yellow Pages are probably not gonna do well. If Apple does really well, that’s probably not great for Nokia Rim. So that’s the sort of the thesis anti-thesis, winner loser. But there’s a whole big other groups of shorts that are more sort of like strange anomalies that you have to pick.

SvS: Philippe, you hire a lot of people here. You don’t hire a lot of people, but you do hire a few. What is it? What’s the DNA of somebody that you sit there and say, you know, this guy is perfect, this woman’s perfect, gotta hire her.

Philippe Laffont: The first… we don’t have a lot of time. We have a couple people that work on this. We get a lot of resumes and stuff. So the first one is we obviously screen according to the education. If you’ve gone to a better school versus not better school that makes a difference. The second one is that on Wall Street, there’s sort of a true and proven way to succeed when you’re young. Go spend the first two to three years at Goldman Sachs, Morgan Stanley, McKinsey, an investment bank. There’s so many people right now who say, oh, working on Wall Street, you’re not gonna learn anything, you’re not adding any value. I disagree. Wall Street is a very competitive environment full of smart people. And if you can start your career in a competitive environment full of smart people, you’re gonna learn a lot. And you can choose to carry those skills, whether you want to work at a large corporation, whether you want to create your own small business, whether you want to go to Silicon Valley, create a tech company, it doesn’t matter. But what a great training ground. In fact, if you spent some time at Wall Street when you’re young, you may not even need to go back to business school. It’s that good of a training. So I would encourage people, despite the fact that now it’s much less in Vogue, is go spend two or three years with a bunch of competitive, high testosterone people, see if you like the environment. And then after that, while you’re there, like when I graduated, I have no idea what’s the difference between M&A, proprietary trading, sales, equity, Private Wealth Management, all these things, like I didn’t even know one of them. If you spend your two to three years there, you’re going to know what all these areas are, you’re going to figure out what you’re interested in, what you’re good at. And then there’s ways to migrate from that. I think it’s hard to start right after college in a hedge fund, and that you need some training before. And also, if you’re the hedge fund, you want to make it there when you have the best training possible so that your chance of succeeding is good. But imagine that you don’t know anything. And the first two investment funds or mutual funds or private equity you go at, you sort of you don’t really learn anything. But then after a while, we like oh, you had a chance to work here, here, and here. And it didn’t work out, you know, what are you? I think it’s much better to prepare yourself in a large company, so that the smaller the company is and the more entrepreneurial it is, the more incredible the opportunity is, but the most prepared you have to be. People don’t expect you to be prepared at JPMorgan on day one. But when you come to a small company, you have to be up and running because we don’t have as much time to train people. We expect them to be already productive.

SvS: Yeah. Well, Philippe, listen, really appreciate your time. You’re a very busy man. Philippe Laffont, CEO of Coatue. Thank you so much.

Philippe Laffont: Thanks.

Ann Miura-Ko Crowdsourced Startup/Leadership Course Reading List

*Books listed in alphanumeric order

7 Powers; Hamilton Helmer

21 Irrefutable Laws of Leadership; John C. Maxwell

A Compass to Fulfillment; Kazuo Inamori

A Short Guide to a Happy Life; Anna Quindlen

Animal Farm; George Orwell

Are You Ready to Succeed; Srikumar Rao

Atlas Shrugged; Ayn Rand

Atomic Habits; James Clear

Awake at Work; Michael Carroll

Bad Blood; John Carreyrou

Badass: Making Users Awesome; Kathy Sierra

Band of Brothers; Stephen Ambrose

Be Like Amazon; Jeffrey Eisenberg, Bryan Eisenberg

Blindspot; Mahzarin Banji, Anthony Greenwald

Blitzscaling; Reid Hoffman, Chris Yeh

Blue Ocean Strategy; W. Chan Kim, Renee Mauborgne

Brilliant Crazy Cocky; Sarah Lacy

Brotopia; Emily Chang

Business Model Generation; Alexander Osterwalder, Yves Pigneur

Business Secrets of the Trappist Monks; August Turak

Things a Little Bird Told Me; Biz Carson

Confessions of an Advertising Man; David Ogilvy

Conscious Business; Fred Kofman

Conscious Leadership; John Mackey

Covering; Kenji Yoshino

Creativity Inc; Ed Catmull

Dare to Lead; Brene Brown

Delivering Happiness; Tony Hsieh

Disciplined Entrepreneurship; Bill Aulet

Diversity in the Workplace; Bari Williams

Drive; Daniel Pink

E-Myth Mastery

Endurance; Alfred Lansing

Essentialism; Greg McKeown

Exponential Organizations; Salim Ismail

Eyewitness to Power; David Gergen

Factory Man; Beth Macy

Finite and Infinite Games; James Carse

Founders at Work; Jessica Livingston

Hard Facts, Dangerous Half-Truths and Total Nonsense; Jeffrey Pfeffer, Robert Sutton

Hatching Twitter; Nick Bilton

High Growth Handbook; Elad Gil

High Output Management; Andy Grove

Hooked; Nir Eyal, Ryan Hoover

How to Be a Brilliant Thinker; Paul Sloane

How to Measure Anything; Doublas Hubbard

How to Say Anything to Anyone; Shari Harley

How to Win Friends and Influence People; Dale Carnegie

Ideas: A History of Thought and Invention, from Fire to Freud, Peter Watson

Intentional Integrity; Robert Chesnut

It’s Your Ship; Captain D. Michael Abrashoff

Launching a Leadership Revolution; Chris Brady, Orrin Woodward

Leaders Eat Last; Simon Sinek

Leapfrog; Janet Givens

Let My People Go Surfing; Yvon Chouinard

Lost and Founder; Rand Fishkin

Love Leadership; John Hope Bryant

Man’s Search for Meaning; Victor Frankl

Management Mantras; Sri Sri Ravi Shankar

Mastering the Rockefeller Habits; Verne Harnish

Meaningful Work; Shawn Askinosie

Measure What Matters; John Doerr

Mindset; Carol Dweck

No Rules Rules; Reed Hastings, Erin Meyer

Nonviolent Communication; Marshall Rosenberg

Not for the Faint of Heart; Ambassador Wendy Sherman

One; Lance Secretan

Only the Paranoid Survive; Andy Grove

Out-Innovate; Alexandre Lazarow

Outliers; Malcolm Gladwell

Own Your Culture; Bretton Putter

Principles; Ray Dalio

Race After Technology; Ruha Benjamin

Radical Candor; Kim Scott

Reinventing Organizations; Frederic Laloux, Etienne Appert

Rich Dad, Poor Dad; Robert Kiyosaki

Seabiscuit; Laura Hillenbrand

Shoe Dog; Phil Knight

Start with Why; Simon Sinek

Straight Talk for Startups; Randy Komisar

Strengths Based Leadership; Tom Rath, Barry Conchie

Super Pumped; Mike Isaac

Supermaker; Jaime Schmidt

Switch; Chip Heath, Dan Heath

Tao Te Ching; Lao Tzu

Thanks for the Feedback; Douglas Stone, Sheila Heen

The 1-Page Marketing Plan; Allan Dib

The 7 Habits of Highly Effective People; Stephen Covey

The Advantage; Patrick Lencioni

The Autobiography of Malcolm X; Alex Haley

The Billionaire Who Wasn’t; Conor O’Clery

The Cave; Alok Kejriwal

The Challenger Sale; Matthew Dixon, Brent Adamson

The Creator’s Code; Amy Wilkinson

The Culture Code; Daniel Coyle

The Culture Code; Clotaire Rapaille

The Difference; Scott Page

The E-Myth Revisited; Michael Gerber

The Five Dysfunctions of a Team; Patrick Lencioni

The Four Steps to the Epiphany; Steve Blank

The Founder’s Dilemmas; Noam Wasserman

The Ghagavad Gita for Daily Living; Eknath Easwaran

The Hard Thing about Hard Things; Ben Horowitz

The Highest Goal; Michael Ray

The Immortal Life of Henrietta Lacks; Rebecca Skloot

The Innovators; Walter Isaacson

The Innovator’s Dilemma; Clayton Christensen

The Towering World of Jimmy Choo; Lauren Goldstein Crowe, Sagra Maceira de Rosen

The Law of Success; Napoleon Hill

The Leadership Challenge; James Kouzes, Barry Posner

The Lean Startup; Eric Ries

The Man Behind the Microchip; Leslie Berlin

The Memo; Minda Harts

The Mission, The Men, and Me; Pete Blaber

The Myth of Sisyphus; Albert Camus

The No Asshole Rule; Robert Sutton

The Obstacle is the Way; Ryan Holiday

The Power of Positive Leadership; Jon Gordon

The Score Takes Care of Itself; Bill Walsh

The Startup Owners Manual; Steve Blank, Bob Dorg

The Startup Playbook; Rajat Bhargava, Will Herman

The Startup Playbook; David Kidder

The Thin Book of Trust; Charles Feltman

The Ultimate Sales Machine; Chet Holmes

The War on Normal People; Andrew Yang

Theory of Constraints; Eliyahu Godratt

This is Marketing; Seth Godin

Traversing the Traction Gap; Bruce Cleveland

Troublemakers; Leslie Berlin

Turn the Ship Around!; David Marquet

Unbroken; Laura Hillenbrand

Uncanny Valley; Anna Wiener

Undaunted; Kara Goldin

Unfair Advantage; Robert Kiyosaki

Unleashed; Frances Frei, Anne Morriss

Waiting for Godot; Samuel Beckett

Walt Disney; Neal Gabler

Way of the Wolf; Jordan Belfort

What You Do is Who You Are; Ben Horowitz

When the Penny Drops; R Gopalakrishnan

Why Do So Many Incompetent Men Become Leaders; Tomas Chomorro-Premuzic

Why I stopped Wearing My Socks; Alok Kejriwal

Work Rules!; Laszlo Bock

Zen at Work; Les Kaye

Zero to One; Peter Thiel

Steve Jurvetson bats 1.000 at the Churchill Club (2008-2017)

Prompt: What is a non-obvious trend that will see massive growth in the next 5 years?

For 21 years, the Churchill Club hosted an annual Top 10 Tech Trends Panel where guest panelists would answer (bring their own) and debate (others’ views) the above prompt. Steve Jurvetson was a regular panelist — but what struck me most was the accuracy of his “predictions” — his trends were correct, were mostly non-obvious, and have all played out within the given timeframe.

I’ve shared videos of and transcribed his trends — although I would highly recommend watching the entire videos for Steve’s responses to others’ trends and for the small-talk/banter defending his own.

*Note: I can’t find the recordings of Steve’s appearances in 2006 and 2007 — if you have them, please email them to me at kevin@12mv2.com. Thanks!


Other Panelists

  • Vinod Khosla (Founder, Khosla Ventures)
  • Josh Kopelman – (Managing Partner, First Round Capital)
  • Roger McNamee – (Co-Founder, Elevation Partners)
  • Joe Schoendorf – (Partner, Accel Partners)

Trend 1 (19:53 – 25:10)

Moderator: Number one is Steve’s and it’s basically Demographics are Destiny: Creating Opportunity. Every 11 seconds a baby boomer turns 60. This internet savvy cohort represents an enormous market of time and money driving new opportunities in mental exercise, online education, and eventually an ebay for information that exceeds the market for physical goods. So all I have to say is we’ll have to exercise some mental exercise to understand what this trend is. So will you care to explain what you mean here?

Steve Jurvetson: Sure. But I don’t promise to speak slowly. I can’t help myself. This is a pretty exciting one. It’s obviously a market trend and later we’ll get to some geeky stuff, but this is more a US, Canadian, UK, developed world market trend, so obviously I’m only speaking about part of the world in talking about baby boomers. But what’s exciting about this group is that they’re qualitatively different. This generation is qualitatively different from their predecessors. There’ll be the first internet savvy cohort of seniors and it is an enormous market. It’s hard to fathom how enormous this could be. To put some numbers behind this, they’re about three times as Internet active as the prior generation and twice as likely to have a college degree. So imagine a smart, active group not wanting to retire entering those ages when AARP knocks on your door with a different sentiment about what the future holds.

And they are basically driving the economy today, there are about 75 million of them, over half the workforce in America. And if you look forward just about 18 years to 2025, you can think of America, the entire country, looking like Florida does today. So there a lot of statistics you hear about, demographics, that is a certainty. There’s nothing that’s going to change that, it’s not really a forecast, it’s not something to vote on, because demographics being destiny is not something that’s likely to change barring bird flu or something dramatic like that.

So given that though, what’s interesting about it? What makes it special? Some, like Mary Furlong in the back, have estimated that this market for healthy aging is a half-trillion dollars in size. And this includes all kinds of interesting opportunities that you might not expect, like the fact that according to our estimates over half of all businesses and franchises today are started by people in this cohort, entering a sort of a second phase of their life. So they’re a very active group, and getting to this bold prediction that one day they may usher us into an eBay for information kind of era.

Let me share some of the thinking behind that. Because that’s just one of many opportunities that the Boomers provide. If they’re at home, educated, internet-savvy, what might they do? Some of the greatest pearls of wisdom that have been accumulated across a variety of service industries are in their minds. They have a connection now like they’ve never had before, and they’re not looking to retire. There are a lot of technologies coming along that allow you to partition workflows to farm out work, to outsource if you will, freely and more granularly than ever before. Think of everything from simple stuff like web services and legal services and advice on this that or the other thing. The services economy is the majority of the developed world economy and it will increasingly become so. And services aren’t easily traded today and they should be. So I think one day the services economy online will exceed that of physical goods if you think a marketplace is like eBay.

And I think boomers might be a beneficiary. Clearly others will as well, and this will be a globalization trend, not just a US trend, but it’s an opportunity for those boomers to really tap into the economy. Because there’s a wonderful asymmetry between those who have money and those who have time, and those who are seeking answers and those who don’t have the answers that they’re looking for. And you can imagine boomers working flex time from home on a variety of work that’s partitioned out to them. So this, I think, creates investment opportunities in education and retraining.

Investment opportunities in telecommunicating technologies and, you know, doing all this over the internet and video. And, sort of a kicker to make this maybe feel different than our parents’ generation, we might remember the last generation of folks going through this with a mental acuity that we haven’t seen before. And this gets to the mental exercise point that I think is very important and it probably relates to everyone in the room. It’s sort of a take-home thought: that if you’re 35 or older, your rate of cognitive decline right now is the same as a healthy 80 year old. It’s the same slope. It’s just when you’re older, you’ve accumulated more and you forget most what you try to remember. It’s sort of an important threshold, but your pace of decline is the same. But that’s just the average.

You can dramatically affect that outcome. If no one exercised, we’d see a very unhealthy population physically. If no one does mental exercise you see a very unhealthy population mentally. As our medical systems get better and better and extend our lives, we’re not doing anything to exercise the brain. So I think we’ll look back five, ten years from now and be amazed that the concept of mental exercise wasn’t on our radar screen just 10, 20 years ago. And as one data point of what it can do, there’s a company called Posit Science up in San Francisco that’s done a bunch of tests with UCSF and Mayo Clinic, and they’ve shown that just with 40 hours of trust and trained exercises, you can take 10 years off that pace of decline.

So now imagine these boomers in their 60s with the mental acuity of someone – we don’t know how far this can go, right? The research is just beginning – you know, someone with the mental acuity of a 50, 40, 30 year old now, but with all the accumulated wisdom of a 60 year old. And now with an Internet globally connected, economy to tap into. It could be a brave new world unlike we’ve ever seen. So in short, I think lifelong learning is more than just enlightenment. It’s an economic imperative.

Vinod Khosla – red
Josh Kopelman – green
Roger McNamee – green
Joe Schoendorf – green

Trend 2 (1:11:25 – 1:16:20)

Moderator: Alright, Steve’s second one. And this one’s giving me flashbacks when I had dyslexia: Evolution Trumps Design: Many interesting, unsolved problems in computer science, nanotechnology, and synthetic biology require the construction of complex systems. Evolutionary algorithms are a powerful alternative to traditional design, blossoming first in neural networks, now in microbial re-engineering, and eventually in artificial intelligence. Now what the hell does that mean?

Steve Jurvetson: Ok, so I’m a geek. I’m sorry. It’s a thing that excites me a lot. It’s a weird pattern, it seems to stripe across a variety of disparate areas of technology. So this is obviously a very different kind of trend from the demographic market trend before. This is a pure geek tech trend and it’s also a combination of near-term obvious stuff like neural networks, that have already happened – microbial stuff I’ll focus on because that’s the current activity that’s pretty exciting in terms of what the artificial evolution could do. In the long term, the big hairy unsolved problems like: how do you make operating systems not crash? How can you make artificial intelligence that exceeds that of a human?

These kinds of problems that may seem impossible to tackle may be solvable using evolutionary algorithms. So I’ll explain what that means in a moment and that’s why I think the trend is important even though I’ll dive deep a little bit into microbial stuff because it’s the here and now. I think the trend transcends that. So what are we talking about? What in the world is this thing? So evolution, we all know biological evolution, we’re trained about that – variation, selection, differential selection – you get evolution. In fact, some like Daniel Dennett will tell you that you will always get evolution if you have the simple ingredients of variation, selection, the rinse and repeat. In every context. So you can instantiate this in a computer program that just trains computer programs and breeds them and cross pollinates them and selects the one that does some task well. Brute force over generations. That’s an approach to artificial evolution programs.

So the forecast, the trend, the near term trend that I guess we’ll ask for a vote on, because there’ll be a mishmash of stuff in here, is that in the near term, the next year or two, the important components of the most successful and the most robust microbial re-engineering projects will involve some form of evolutions in their making. They won’t just purely be designed. It won’t be biotech where you splice a gene because you suspect it works, stick it in an organism, have it do something useful, and have complete control over the process. It’ll be a hybrid, where you designed for evolution. You design something, then evolve it further to make it more successful. So I step back a bit: where has this been successful? It has been used, as I mentioned, in neural networks. So if you have speech recognition, almost all those are run by neural networks that are not programmed by people that figured out how to recognize speech. When a computer wants to recognize either vision systems or acoustic signals it uses a neural network much like our brain is trained through an iterative algorithm.

Currently in the microbial work – I’ll get to that more – people are doing directed evolution and adaptive evolution where they, what they literally do is cripple a microbe so that all of its redundant metabolic pathways are removed. And there’s only one way that it can live. One way it can process a food, a feedstock, to produce the sugars and energy it needs. And all other redundant pathways are removed and the reason you do this is not because you don’t need those other pathways. In fact, you’ve crippled the organism. It’s because the organism will then evolve to do the one thing it can do to survive better and better and better. And then that one thing you’re left with makes some chemical of interest as a by-product.

So this feeds into a whole raft of companies that Vinod and I invested in, and our firm DFJ, that are doing this as we speak, to make chemicals of interest, industrial chemicals, biofuels, everything from jet fuel to diesel substitutes and what have you. And a lot of things in the petrochemical industry that aren’t as well-known – in pure industrial chemicals. So, the future of this – oh, let me just say what it’s produced so far. So so far in terms of published work, people doing design using their brain have been able to improve the microbes’ ability to make chemicals about 4x in some easy cases – just put the genes in, it does what you want, about a 4 X improvement.

The company, same company, in this case Genomatica, that then evolved that organism with the method I described, found a 20x improvement in the chemical of interest. So the organism that reproduces the fastest, by definition makes the chemical you want the most. And all you do is reproduce – they reproduce like bunnies on steroids – every 20 minutes you’re pulling off a new generation that’s the fastest growing and so on. And by the end, you have a solution that’s better than any human’s design, and no one knows how it works. And that’s how evolution tends to go. This has been applied in analog circuit design – there’s a little company, not even venture backed – that’s got 23 patents all done by computers running the algorithms to do analog circuit design, antenna design. And they claim that they have machines routinely beating human intelligence. Better than any human on the planet in those two domains.

And that’s just the beginning – what I hope to excite you about is a trend that’s playing out today in microbes, in the past in pattern recognition, in the future in what we would think of as AI or human intelligence gray. And I think it’s important.

Vinod Khosla: Half
Josh Kopelman: Neither. Had no idea what Steve was talking about
Roger McNamee: Green. “This is a matter of trust. I’m going with Steve”
Joe Schoendorf: Neither. “I wish I was smart enough to know what the hell Steve was talking about”


Other Panelists

  • Vinod Khosla (Founder, Khosla Ventures)
  • Ann Winblad (Partner, Hummer Winblad Venture Partners)
  • Ram Shriram (Managing Partner, Sherpalo Ventures)
  • Joe Schoendorf (Partner, Accel Partners)

Trend (1:17:10 – 1:24:00)

Steve Jurvetson: So perhaps like Vinod’s forecast, I’m trying to look a little farther out than just the next year. So I think there’ll be some important trends from this that play out in the next year but it’s more over the next five or so years that I see this having an impact. What is it referring to? The distributed web. The aggregate power of all of you – what you think, what you do, your daily activities – will have some pretty profound impact not only on large media properties of the past, but also telecom industries, and I’ll try to end with one forward-looking example: search as we know it going forward.

So what does the trend say? That innovation occurs at the edge. This is true in biological innovation, this is true in startups. It’s not the warm center of the thinking or centralized model, but people out on the fringe. Sort of as a metaphor. More precisely, what I’m referring to is the power of you. So, user generated content is already more important than the centralized media of the world. Most of what a teenager reads today is written by someone they know. Which is kind of astounding – it speaks perhaps to Joe’s point. We’re inevitably moving down a path where the aggregate creation of many authors is more important than a few centralized media outlets. If you think about where information is spread and how people communicate, you look within social networks, it’s again, among clusters of small social graphs – a group of peers communicating with each other within a social network, not all reading the same centralized star topology of information flooding out from one place. And recently there was a Nielsen report just a couple days ago showing that sure enough, as you suspected, more time is spent on social networks than email. So we’ve reached that tipping point already. Now that’s the past.

What I think is interesting about the trend is, how can you leverage this from a business sense? Where are the opportunities for new entrants to make some money off this, to aggregate and take advantage of this capability at the peers, out at the nodes, out at your clients’ desktop, as opposed to a web server. And of the interesting things, I think, is that although intelligence moves through the edge, whether that be web services, whether that be client software on your iphone and iapps, whether that be peer to peer networking and what you can do with that, that’s a trend that’s been going on for many years. But people haven’t really figured out a business model. How can you take advantage of all that aggregate output that’s out there? In fact, the concept of crowdsourcing is one way of thinking about that – how can you rise up one layer, and say how can I take advantage of the group? The fact that half of this year’s were crowdsourced, if you will, is one indication that things are tipping for the first time.

So how do you take advantage of this federated group? Let me give three quick examples.

In the area of content, let’s say you’re a media property, let’s say you want to reach women on the web. iVillage has been trying this for 10 years with a centralized model. And recently they’ve changed, but for 10 years, they tried the centralized model. And they were stuck at around 16 million uniques, meaning it just wasn’t that compelling to women. I don’t know how many of you go to iVillage regularly, but in aggregate, the statistics say they’re not the winner. They were number one; they’re no longer number one. A new entrant from 2005 came in called Glam, an Accel portfolio company as well as one of ours, to be fair. And they aggregated all the long-tail, all the little blogging sites, all the user generated content, rolled them up, and provided an advertising model, a business model, for all that content that was going unmonetized. And they rose, within two years, to be the number one women’s site. One year later, they became a top 10 property in the internet, according to ComScore. More than Facebook, more users per month than many other companies you’ve heard of. And certainly within their demographic, which is aiming just at women, they exceed the traffic of all traditional media properties combined: iVillage, Yahoo Women, AOL Women, Conde Nast, and just about every one you can think of that was targeting women. Add them all up – this one user generated content blogging aggregation play gets more views per month. 100 million a month. Pretty amazing. And they are just one example. There’s countless examples of this. If you’re Facebook, right? Very interesting story, right? How would you best advertise on Facebook? We’re just now learning that you don’t, let’s say, if you’re BMW, you don’t advertise to someone who says “I like BMW. I have one.” Much better to look at the social graph and advertise to the person whose friends say they like BMW, but they don’t. They’re more likely to be a buyer than an already-existing customer or enthusiast. And we’re just beginning to see the beginning of this. I think UGC will trump centralized content.

I’ll be more brief in the second example. Telecom. Trillion dollars a year services industry. Radically restructured. One day, you will not pay a phone bill as a separate bill. That is just a truism. And it’ll probably take 20 years before we look back and say, “Oh yeah, I once paid a phone bill” just like one day, I mean today, you look back and say “I once paid an email bill. I used to pay for email software and I used to pay an annual $5 subscription fee.” It’s just a data service. Telephony is just a data service. Video conferencing is just a data service. And when Skype spins out of eBay and goes public in six months, which they claim they’re going to do, you’ll finally see what they always dreamed of. Which is mobile communications. They were Europeans, for God’s sake – they never thought you’d speak with a computer. Their founding vision was wifi handsets – and it’s been the carriers’ perpetual attempt to crush Skype that has prevented that from happening. And because eBay is a multinational corporation they have to kowtow to the carriers and their overt pressure. A free standalone company – you’ll finally see the wifi phones. They’re always meant to be. Whenever you’re at home, work, or anywhere you get wifi, you just talk for free. And that’ll be, of course, the catalyst for changing the entire telecom industry to data services overlay.

Last example – looking forward. Something that hasn’t been announced yet. But there are a number of companies working on an entirely new, a better way, of doing search. You hear some rumbles about it around Twitter and other products that can give you the real-time web. What’s hot right now? What’s going on right now? The blog search engines don’t quite do it – they’re getting better. What you’d really love to know is where are people surfing right now? For certain types of search. Not information search. The Wolfram Alphas will still have a role. Google will still have a role. But there’s a kind of finding of information that’s missing out there. And if you think about it, a lot of that has to do with web crawling – the centralized model. Build a big data center, heat it, put tons of energy into it, and try to know everything from the structure of the web. The founding vision of PageRank. Much more effective would be: What if I knew what actually was going on in every browser? Where you were actually surfing. If I could preserve privacy, yet watch where people surf – where do they spend time? You will get recency (for free), you’ll avoid spammers and SEO (kinds of problems – the search engine optimization game of cat and mouse that Google has – so all the bad results around IRS searches and stuff that have been notorious would go away for free), you get the deep web for free, Craigslist, eBay, things you didn’t even think to find in the search engine. Because you need to be very fast and not put a load on all those sites that ban robots. You get all that for free too. So all the problems with search are solved if you instead distribute the entire search engine, have no servers, no crawlers, and federate the desktops of many individuals and what they do day-to-day. There’s companies like Wowed that will be soon releasing a product in the US – it’s right now only in Europe – and others that are pursuing that vision. And I think that’d be quite exciting. It may fail, but if it succeeds, I think it would harness the power of the collective wisdom of the crowds in a way that you can’t do with just algorithms and centralized servers. I think you all are smarter than any one computer.

Vinod Khosla – green
Ann Winblad – red
Ram Shriram – red
Joe Schoendorf – green


Other Panelists

  • Aneesh Chopra (CTO, United States of America)
  • Ajay Royan (MD, Clarium Capital)
  • Paul Saffo (MD, Foresight, Discern Analytics)


This year the Churchill Club tried another different format – none of the panelists brought any of their own trends. They simply commented on the ones proposed.


Other Panelists

  • Kevin Efrusy (GP, Accel Partners)
  • Bing Gordon (Investment Partner, KPCB)
  • Reid Hoffman (Partner, Greylock)
  • Peter Thiel (President, Clarium Capital)

Trend 1 (33:35 – 36:10)

Moderator: All vehicles will go electric. Remember, these trends, the timeframe is five years, huge growth within five years. So eventually all motor vehicles will transition to – we already have a red card back there – to an electric drivetrain affording greater efficiency, convenience in a multitude of new design options. Within five years, this inevitability will become clear. This is Steve’s trend – this excludes rockets, I assume – and includes golf carts. So we’re already on the kind of the shallow part of the curve with golf carts and Segways. But, Steve, Explain.

Steve Jurvetson: Sure, and very important. Of course, if anyone was saying red already that’s because it’s not going to happen in five years. We’re not going to switch a billion vehicles in five years. The point of the trend is that hopefully by the end of five years, most people in the room wouldn’t disagree with the trend. So maybe it’s a bit self-referential in that way. So why is it important?

First of all, the US spends two billion dollars a day on oil and another four billion a day if you count full indirect cost, economic and military, to protect that supply chain. It’s big. If you ask anyone, inevitably we will be off oil. You just have to look far enough in the future. It’s kind of an obvious point. You can’t do it forever. It’s a question of when, how. And so why would it be an important trend over the next five years? What’s going to be catalytic to change all this?

Well the first is why are you going to go electric? What about hybrids or biofuels or this or that? So even if you wanted to burn oil for some reason, and you wanted to burn ethanol and biofuels, you’d be better off doing it in a centralized, large plant – the Cogen plant from Siemens is about seventy percent efficient converting those fuels to electricity – transmission line, battery. You’re still more efficient doing that than today’s cars, which average about 20% in waste. All that extra energy and heat. They’re basically too small an engine to burn oil. So even if you want to burn oil, don’t do it in these little engines.

Second point of course, is that it’s just much better if you don’t burn oil. That’s sort of obvious, right? An electric car can be up to 88% efficient – the ones that are driving around today. Okay, so it’s a great endpoint. How do we get there? Why now? If we can show a slide, I actually put some visuals up to give people a sense of why you might want to do this. And the short argument is that it’s going to be cheaper, more convenient, and give you all kinds of interesting new design options.

I don’t know if you can put the slide up – you have it up there? Okay.

So there’s a bunch of vehicles, all different types, all different cars that are going to come out either in the next few weeks or in the next couple years. Back to 29 different electric cars coming out in the next 18 months. Interesting thing about all these that you see up there, all these passenger cars, total cost of ownership is less than a Ford Taurus. They’re really nice cars. They accelerate like crazy. The one on the top right with that really funky doors – an SUV with more space than a minivan and more convenience but outperforms a Porsche 911 both acceleration and handling. These are cars people are going to want. They’re going to be cheaper to own, there’s almost no maintenance, and it’s just a more efficient way to go.

Now this is great on the high-end, but what about the rest of the world? Wouldn’t China and other places want to also do this? And how might they afford to go electric? And I’m here to tell you today there are now 200 million electric vehicles buzzing around China. Today. They’re mostly two-wheeled scooter Vespa-like things, but there’s 200 million of them. If you can go the next slide please.

It’s been the most popular vehicle in China since about 2007. It’s been growing like crazy – originally around SARS fears, and now they realize it’s cheaper to do one of these than to ride a bus. So in summary, well all I’m saying, is that people will realize, not that we’re shifting a billion cars in the next five years, but we’ll hopefully shift a billion minds. Just like we did around smoking, which we thought was inevitable. Just like our cars, they should not be smoking. And I think we can shift that zeitgeist and that people’s thinking around it because they’ll realize the alternative is not like going off the binge or the addiction of oil – it’s a car you’re going to want to drive, that’ll be cheaper to own, and frankly is a lot more fun .

Kevin Efrusy – Red
Bing Gordon – Red
Reid Hoffman – Red
Peter Thiel – Red (exchange is really funny)

Trend 2 (1:20:55 – 1:25:50)

Moderator: Moore’s Law accelerates beyond silicon. This is just like a really big idea in a fairly quick statement. When we consider Moore’s Law in the abstract, the dropping cost of computation is not tapering off. Rather, it will accelerate further still as we look beyond the silicon era. What’s beyond the silicon era?

Steve Jurvetson: Something big, new, and different. If we can put the slide up please. So obviously I’m not going to try to defend Moore’s Law – it just chugs along and nothing’s new. That would not be new. In fact, Moore’s law is in many ways the mother of all trends, sort of metaphorically in the sense that there’s not any other trend you can think that last 110 years, is important, and relates of technologies – at least I can’t think of one. And if you look at Kurzweil’s version of this, which you see a sort of a modern rendition up here, there’s nothing about Moore’s Law that’s specific to integrated circuits. It translates back through vacuum tubes to mechanical devices and on this – by the way, this is an exponential curve to look at the right axis – a straight line would be an exponential.

So the trend, the prediction, the argument is that if in fact we’re going to pick up in speed, that the experience of how much compute power you can buy for a fixed amount of money is actually going to accelerate beyond the pace we’ve been on. And one simple way would be if this curve in fact is curving up, which some data analysis indicates it might, that trend would be a self-fulfilling prophecy. But how? Beyond silicon, we’ll probably move to a moleculartronics, doing things with carbon nanotubes, as IBM and a bunch of companies are all predicting, it will have to keep scaling things smaller and smaller at the transistor level. But it’s also, I should come back to this to say, it’s also the mother of all trends in that just about everything we’ve talked about on this panel and just about everything disruptive in entrepreneurial innovation relies on Moore’s law continuing. So whether you’re in biotech, telecom, obviously computing, software, increasingly just about every industry, eventually becomes subject to simulation science instead of a trial and error experimental science. And it moves on to a much more rapid pace of innovation. So this is what we see in industry after industry and why entrepreneurs keep having opportunities to start new businesses in new and interesting areas. So it’s important. A lot of people within the industry predict it’s going to end when they look just at silicon.

So what could take us beyond this? Well, it’s not just getting them smaller, smaller, smaller, smaller, because eventually you’re going to reach some fundamental physics limits. It’s going to be architectural improvements. Even Intel’s CEO, who has a lot to vest in the old model, says we’re going to have much more computational and architectural improvements in the next 10 years than the prior 30. Not Moore’s Law itself, but the systems level improvements. Things like mimicking the brain, which is 100 million times more power efficient per calculation than our best computers.

But let me share something if I may on the next slide, which is completely different. Something to give you – I try to geek out at least once every one of these sessions. Something completely out of left field that may or may not change the world and is nothing like what you’ve seen before. This guy, Jordy Rose, started a company called D-wave. Uses little niobium circuits that are super cooled down just above absolute zero to engage literally parallel universes to compute. Sounds like science fiction – he’s here, sold one to Lockheed Martin.

So if you go to the next slide, and I’ll just try to end with this, if you do the build. He’s plotted a curve, I called it Rose’s Law, with just a few data points going over seven years, showing the number of qubits again growing exponentially. But here the power of the computer grows to the power of 2^n, meaning every time you add a single qubit, a single qubit, it doubles the power of the computer. So if you go forward one more click, soon, within a year we’ll have computers that are competitive with existing ones. In 2009 they already out-performed Google Goggles by Google – they used this computer to outperform their own data centers. One more click, it gets kind of weird. Suddenly it starts to outperform all computers on earth combined. One more click, it outperforms the universe. One right click, what am I talking about? This is if you use the entire matter of the universe to compute for all time, they can solve certain problems that are otherwise unsolvable, like the Traveling Salesman Problem, portfolio optimization, things that are used throughout machine learning that are used today through heuristics – we do our best. We don’t actually solve these problems. It relates to molecular simulation and everything. Now, it may or may not play out. It’s just one example. But it’s completely unlike anything we’ve ever seen with Moore’s law before, and if it continues for just three more years the way it has in the past seven, then within the next five years we’ll see computing accelerate way off of Moore’s law within the scientific community domain.

Just try to summarize: It’s that it’s not just silicon. There’s new things coming. And it could accelerate the pace of change when you measure it not as transistor counts, but it’s computational power that you can buy for a certain amount of money. There’s a 25 gigaflop computer being developed this year by Nvidia, the GPU company. Fastest computer on earth. It’s a [compiative (???)] different architectures, different ways of building computers that will continue Moore’s Law beyond what we’ve known it to be.

I’m arguing for a curve that leaves – exactly. On a on a linear scale it’d be massive, on an exponential scale, it’ll be like that [hand gesture curving up].

No, it’s actually much lower energy consumption per calculation of course. Otherwise it’d be nonviable.

You have to have a different programming model, more like machine learning where you just you program inputs and outputs like a neural network and it just learns.

By the way, I should say, I knew in advance that my trends were two of the things that Peter disagrees with more than anything else I know that he disagrees with.

Kevin Efrusy – red
Bing Gordon – green
Reid Hoffman – red
Peter Thiel – red


Other Panelists

  • David Cowan (Partner, Bessemer Venture Partners)
  • Venky Ganesan (MD, Menlo Ventures)
  • Alfred Lin (Partner, Sequoia Capital)
  • George Zachary (GP, Charles River Ventures)

Trend 1 (33:50 – 37:15)

Moderator: Deus Ex Machina: Machine Learning Innervates the Tech Frontier. Machine learning is the technology under the covers that power many of the exciting new products that leverage big data to appear nearly magical. Imagine a Google Research approach to everything.

Steve Jurvetson: So, this is a bit abstract. But I think it’s really important, and hopefully interesting. Innervate means to envelop, take over, sort of like a nervous system. To add intelligence to things that formerly weren’t intelligent.

So what is machine learning? It’s a set of software algorithms that allow computers to learn patterns in data without explicit programming models. So as a programmer, or designer, you don’t tell the computer how to recognize faces, or human speech, or translate. You just give it thousands and millions and billions of examples, and give it a learning engine. So it’s a little out of control, you sort of get what you want, but you don’t have precise control of the process. You in a sense have to relax your presumption control. So companies like Google are all over it as a humble approach to the world. Later, physicians and bankers might eventually adopt it whole cloth. But not early on, because of that relaxation of control.

Now, why is it important? Well, the argument, the prediction is that if there is anything in the next five years that blows you away, like Siri might have, or Google autonomous cars would, or these Google glasses, or Google beer goggles thing I just described, it probably was made possible because of machine learning. And the thing to pay attention to, as a technologist, a programmer, or someone in a tech or nearly-tech business, is how could I use machine learning in my business?

If you look at big data, you hear a lot about that, it’s not interesting if not for machine learning. There’s nothing special of big data this time around that’s any different from data overload, there’s data everywhere. It’s the way we now process data. Like Google processes data. The same is true for the Internet of Things – sensors everywhere. All these phones being sensor networks – only interesting if you have machine learning to process that which is beyond human comprehension.

Increasingly, the artifacts we want to build exceed human comprehension. You couldn’t sit down and program the Google autonomous car to do what it does. You need a learning algorithm. It’s like growing a kid or growing a brain. You don’t control what you make, but you control the process of its creation. It’s a very powerful tool.

So the prediction, again: things that blow you away. What might that be? Humanoid robots entering the workplace, from Baxter from Rethink and others, that seem and act uncannily human and have common sense in the way they behave. That’s just now starting to ship. You may or may not have been exposed to some of that. Or the Google Glass applications. Or autonomous cars, for anyone who’s worried about a kid that’s eventually going to drive. Depending on how old they are – if they’re less than 10, they may never need to drive. I hope my kids never drive. And I actually honestly believe they won’t. And that’ll be great. Real-time translation services. Just about anything you’ve ever heard of at Google that sounds interesting and new, was based on machine learning. And it’s the one way to make coherence out of their business strategy after the fact. Is that they’re looking at every industry. Everywhere that technology is starting to percolate into an otherwise prosaic non-tech industry. Apply big data, apply machine learning, revolutionize it. Even places like personalized medicine and eventually places like – actually, it’s starting to happen in banking, to tell you the truth. They’re already starting to use it for programming trading. But it’s just starting. Because of that out of control element of it.

So again, the prediction is: machine learning is important. It will innervate businesses that weren’t smart before, and make them smart, and it’s important.

David Cowan – red
Venky Ganesan – green
Alfred Lin – red
George Zachary – green

Trend 2 (1:24:50 – 1:28:00)

Moderator: Erasing the Digital Divide Ironically Accelerates the Rich-Poor Gap. Technology democratizes upward mobility and raises the bottom of the pyramid bu stretches it into a conical spike – where an ever-shrinking percentage of people control the info economy embedded with winner-take-all network effects and power laws.

Jurvetson: This is an awkward one for me. I am a raging techno-enthusiast. I almost always talk about very geeky subjects. I’ve done this panel for 10 years and I’ve only talked about geeky subjects. I know nothing about politics. But this is such a large societal trend that seems to be the elephant in the room behind so many debates that are talking about other things and missing the core issue that I thought I should at least surface it and have us explore how technology might play an intimate role in the future.

So the rich-poor gap – pick your various statistics to the scale of countries, companies like Google or Apple, or people and power laws and income distribution – it’s been accelerating over the last 30 years. Most recent statistic I saw was in 2010: 93% of the income growth in America accrued to the top 1%. Now, whether or not you believe that, in the past or the present, doesn’t really matter. My only point is: what if that’s not self-rectifying? What if, in fact, it doesn’t just get better if we ignore it? What if, in fact, we’re at peak jobs and the future where every business becomes an information business – something that I proselytize, and that’s everything that we invest in, is the conversion of traditional, non-tech businesses into tech businesses – brings them onto the information economies and network effects of global information work.

If you think about why that might accelerate the rich-poor gap, the first obvious one we just talked about with the MOOCs, which is, if you’re competing globally all of a sudden, life might be a little bit more difficult. Historically, you’ve had regional isolation separation. So imagine you’re a mediocre barber. You could have lifelong employment if you move to a small town. True for most service industries. As soon as you’re competing globally, let’s say as a programmer, as an information age worker, you can’t be a mediocre one if you want the best jobs.

So the competitive landscapes with crowdsourcing, with MOOCs, democratizing – this is all good. Raising the bottom of the pyramid for all, democratizing access for the global population. Oh by the way, two billion people come online in the next five years for the first time. Is going to create an influx of new talent competing for jobs. And these network effects – you don’t 100 companies winning in search, 100 companies winning in social networking. You see a few. And more and more businesses will be like that. This could rend the fabric of society, if we don’t address it in some way, to think: how do we get to a post-scarcity world of abundance? Where you don’t worry about your job to provide healthcare, food, shelter, and clothing. That sort of, in some way, that I can’t even anticipate, is not your cause of existential angst. And you can focus on creation, and nirvana, of this world we might have in the future.

But in the near term, I see a bifurcation of people. Those who are on the tech bandwagon, and those who withdraw. In the past, you could recover. In the future, as the drum beat of destiny becomes decades instead of centuries, I don’t know if you can ever catch up if you opt out of the technology venture of the future.

David Cowan – red
Venky Ganesan – green
Alfred Lin – green
George Zachary – red


Other Panelists

  • Shervin Pishevar (MD, Sherpa Ventures)
  • Rebecca Lynn (Co-founder & GP, Canvas Ventures)
  • Jenny Lee (Managing Partner, GGV Capital)
  • Bill Gurley (GP, Benchmark)

Trend 1 (37:55 – 40:50)

Moderator: The Skynet Economy: broadband access for the unconnected billions. From thousands of satellites orbiting around the poles, and new airborne transponders, the entire Earth will be bathed in broadband, bringing an unprecedented influx of human talent to the global economy.

Steve Jurvetson: ­­­­­So I’ll try to be different. As I thought about Top 10 trends, I tried to think of something that was profoundly important for a huge number of people. And this, I think, will be for most people on Earth. Those people who are not currently on the internet, who don’t have access to all the things we take for granted – whether it be online education, whether it be access to resources, starting a company, connecting with people, communicating. They’re fundamentally decoupled from the global economy, certainly decoupled from modernity. And 2/3 of those people who aren’t on the internet today are that way because they live in rural areas outside of the cities, and it’s just too expensive run fiber out to all those different places. So they don’t have broadband.

Some of you are familiar, if you want to show the slide, with Google’s approach to this. They are going at it with drones and with balloons to try and cover urban areas primarily, and that’s great. It’ll go directly to the handset, route around governments and telcos and direct to the consumer. That’s fantastic, but it doesn’t really solve this last mile problem out to the hinterlands.

So if you go to the next slide, what I’m describing is a new generation of low-altitude satellites, much lower than geosynchronous satellites, about 35x closer to Earth. So the latency is actually better than fiber for most terrestrial applications. So think of something that’s fast, about 16 gigabits per second, to each space station, and only possible now because of technology in phaser ray antennas and some new solid state amplifiers that make these things cost effective. They wouldn’t have been just as recently as five years ago.

So you have thousands of these satellites circling the Earth so that every part of the Earth is equally covered. Every remote farm, every boat, plane, car, anywhere you might to put a ground station. And if we go to the last slide, I can show you what some of those look like. This one that you see here is from a company called OneWeb backed by Virgin and Qualcomm. And it literally is everything that you need: the solar cells, the batteries, the transponder (which is in that little dome). It’s $250. And you get 16 gigabits per second anywhere. No power needed, no grid needed. You can put it in a village, on a school roof, wherever.

This is going to be transformative for the developing world. And I think it’s also going to be transformative for all the entrepreneurs in the room who are thinking about their target audience in the future, which could be, not just three billion people on the internet, but eight billion people on the internet by the year 2025. And by the year 2020, this constellation will be first operational. That’s the deadline set by the regulatory bodies that issues spectrum rights. And so SpaceX and OneWeb are racing towards that goal and fully intend to have two constellations operational by then. There’s possibly a third one in Europe as well.

This is going to profoundly change the lives of these people. They can have access to online education, they can entrepreneurs, they can do the sort of things we take for granted. And I think it allows the American Dream to reach everyone on this planet. And to me, I can’t think of anything more important over the next five years than giving people the basic access that makes all the other trends that we’re going to talk about today possible

Shervin Pishevar – green
Rebecca Lynn – half
Jenny Lee – green
Bill Gurley – red

Trend 2 (1:28:25 – 1:31:30)

Moderator: Rise of the Robocars: Driven by a Machine. By 2020 we will no longer debate the inevitability of autonomous electric vehicles when we first experience the convenience and efficiency of urban autonomous driving services.

Steve Jurvetson: So again, trying to think what’s really big, important, going to affect a lot of people. The $2T automotive industry comes to mind. The fact that we spend $2B/day on oil in the United States, just the United States. And it’s an incredibly inefficient system. To be clear here, I’m not saying you’re all going to have robocars – I wish I could have one by then, I probably won’t. But for those of us who have the chance to be in one, whether it’s in Vegas, wherever the pilot deployments occur, there’ll be one of those epiphanies. Kind of like she had driving her Tesla that’s like, you would never go back. Like once you’ve experienced what this can be, you’ll see what it can be.

I’ve been in these vehicles, you can show the one slide I have if you want, several times, several different types. And I can tell you: I believe they’re already safer than my parents. And I would trust my kids with them. No doubt about it. And they’re just going to get better. The sensors are getting cheaper, the Moore’s Law is improving. And the opportunity here is quite amazing. So initially they’ll be low-speed services, 25 mph or less in urban settings. Something like a robo-Uber or robo-Lyft. It’ll be feathered into those services of course, as well. Not just new entrants that are doing it.

And what it’ll offer is unprecedented efficiency – both fuel efficiency, timing efficiency, the safety concerns that people mentioned would of course go away. It will be the ultimate future. But it’s also going to extend out to all the other kinds of vehicles. Every automotive maker is working down this path. And it’ll be for both urban and highway driving, and it will offer you opportunities that are roughly 10x better. All the deaths that were mentioned, all those problems, at least a 10x improvement, 10x efficiency, and the number of cars you need per city to get the same job done.

With many fewer taxis than we have in New York today, you can get one of these within 30 seconds of wanting one. At a much lower cost per mile driven. It’s in fact more cost effective than mass transit itself in urban and suburban environments, which is kind of amazing. The thing that many of you probably felt today trying to drive here, is that hellish commute that we all experience. The average American spends 52 minutes a day, 4 billion hours a year, wasted in a car. These autonomous vehicles, because they know before they move, are they going to accelerate, brake, turn, they can compensate with active suspension to totally eliminate all the drifts. So you could read without getting nauseous. You could actually be productive. You could be drunk. You could do whatever you want in your car. Because you’re not driving. And, this to me, will be such a compelling future that it will drive urban redesign, the removal of parking lots. The fact that people spend 40% of their urban time looking for parking shows you how painful it is in an urban environment. So it’ll start there. Once you have a taste of it, you’ll never want to go back. And it’ll usher in a future where we’ll just have much safer roads, avoid global gridlock, and oh yeah, and ideally no teen driving, so hopefully your son will be like mine – just avoid those first years altogether. Here you can see crash risk by age. By the way, boys with ADD are worse than drunk drivers every day of their life. I want that to end.

Shervin Pishevar – half
Rebecca Lynn – green
Jenny Lee – half
Bill Gurley – half


Other Panelists

  • Mike Abbot (Partner, KPCB)
  • Rebecca Lynn (Co-founder& GP, Canvas Ventures)
  • Sarah Tavel (Partner Benchmark)
  • Hans Tung (Managing Partner, GGV Capital)

Trend 1 (21:50 – 24:35)

Moderator: The Revival of Voice. The multi-touch screen UI finally cracked the code for smartphones. Major breakthroughs in voice will vastly broaden the compute fabric of the world.

Steve Jurvetson: This, I think is a big thing that could affect a lot of people, certainly the fabric of society and how we think of computers much like the smartphone did to its predecessors. We gained some perspective on voice from our investments in Skype and Twilio and TellMe, but what I’m talking about today is something entirely different. A renaissance, if you will, in the use of voice as a user interface in our everyday life. And if you have an Alexa or Google at home product, you might know roughly what I’m talking about. And for those who’ve only experienced Siri and the other false starts we’ve had in voice recognition, believe me – it’s getting a lot better.

And let me tell you why. The computes gotten a lot better, the data for training sets have gotten better, and the use of deep learning in the background to make this all work and make it human-like is making a huge improvement. There’s also some good chips by companies like Vesper and Mythic that basically make it a near zero power thing that you could layer onto anything – into a Fitbit, into a Roomba, into any appliance in your home for roughly 40 cents of cost. So you could have an always-on, ambient listening thing that could respond to your voice and only your voice and do what you want it to do.

Again, think of something the size of the button on your shirt that could do all this in the near future. Right now, speech recognition has an error rate of about 5%, the same as a human, interestingly. And just a few years ago, in 2013, that error rate was 23%. So that’s probably your experience – most of the time it gets something wrong in the sentence you’re trying to tell it. So we’re stuck to short commands and things like that today.

But it is already the case, according a recent study out of Stanford, that we can speak as a user interface input three times faster than we can type and five times faster than if you’re using a glass keyboard. It’s just a better way to speak, especially for rapid speakers like myself.

And if you look at Alexa, you get a peek into that future. Alexa’s in 10% of homes today. And today, literally today, compared to a year ago it’s grown 500%. They have partners throughout Whirlpool, GE, light bulbs, all over the place, to bring Alexa everywhere. And you have Apple and Facebook entering later this year with their comparable products. So what’s next?

From interactive voice response, you’re going to go to continuous, persistent communication where it knows you and knows what you want and the context. That requires memory within the deep learning networks. That’s what a lot of the research is focused on, and in the next two to five years all that will bear fruit. These things will be battery powered. You won’t even need an internet connectivity. And you’ll have this long march from the keyboard to the mouse to the touchscreen to voice as the ideal user interface. The thing that is most natural and feels like you don’t even notice that technology is there.

And if that wasn’t compelling enough, think about the rest of the world. Globally, the majority of people will not be using the screens that we’re still stuck in, because they’re either children, they’re illiterate, or they’re too old to use that user interface. So actually, for the majority of the world and the developing world, as they get online medical care and education, it’s going to be by voice.

Mike Abbot – green
Rebecca Lynn – green
Sarah Tavel – half
Hans Tung – green

Trend 2 (1:04:55 – 1:07:55)

Moderator: Steve Jurvetson with The Deep Edge: The Embedding of Inference Engines/Neural Nets/Tiny Brains in Everything. Couple local intelligence to each sensor and the Internet of Things becomes the sensory cortex of the planet.

Steve Jurvetson: So in 2013 when I was on this stage, I gave what I thought was my favorite trend that I’ve ever done in these things and that was this machine learning thing which at the time deep learning, machine learning was fairly nascent and I really think it’s become important. I’ve been continuing to invest in it and follow up on it ever since. And what I’m trying to share today is something new and different that I think is the next phase of this. And that is pushing intelligence out to the edge. And by the edge we mean all the devices that are out there. The edge is your car. It’s your appliances. It’s your Fitbit. It’s of course drones and robots and all those things out there that are connected to the Internet. And you hear about the Internet of Things by a lot of people who don’t really know what it is – like this Internet of Things – because they know what’s coming but they can’t really describe why.

Well, this is the thing that’s going to make it happen. That is, putting a little brain in each one of those sensors, adjacent to it. They have to be cheap, like 40 cents or less. But they’re going to be everywhere. So the perspective I’m sharing comes from the chip companies we’ve invested in since that 2013 prediction. Companies like Nervana and Movidius, both bought by Intel, and most recently my newest investment Mythic, which is doing an analog chip in a really interesting way to dramatically lower the cost and power consumption of these little brains that you can put anywhere. Basically little neural networks, little deep learning engines. There’s many terms for the same thing.

So this Internet of Things, everyone thinks it’s going to be big. 30 billion devices connected the internet just in the next three years. And somewhere between two and 14 trillion dollars of economic value just in that, making it much larger than the smartphone industry. So it’s a big thing. And this I think is the thing that’s going to enable that big thing. In fact, Nvidia’s CEO says that there’ll be trillions of these devices connected to the Internet and he’s not going to be in that business because these are chips that are much smaller than anything Nvidia makes.

Now, Cisco themselves estimate that of the data from these devices that comes back to the data center in any way, there’s 270 times as much data that’s going to stay local and be processed local. So think of a video camera doesn’t send all the video up. It has an intelligent algorithm looking for faces, looking for your face, looking for something that’s not your face before it sends that Dropcam via data up to the internet. It gives you privacy, it gives you better latency, it gives you better security, it gives you much lower cost, much better bandwidth utilization. In fact, if it weren’t for these smart brains out at the edge, the internet would collapse under the weight of all the IOT traffic.

So it’s an essential thing, but it wasn’t possible until now with these new cheap neural networks. The other thing that it also enables is the AI in any device. So imagine your fitness band or your device becomes a fitness coach. Your fridge becomes a health monitor. All these security cameras become a smart security system or built in building inspectors. Your self-driving car has to have this. You cannot rely on the cloud to make a split-second, last-minute decisions on what you’re doing. Those neural nets have to run locally.

And in a sense it’s like we are recapitulating our own biology. We have a sensory cortex and reflexes. We only share the subset of that information to our frontal lobe to make strategic decisions. That’s what the internet and computing [fabic] of the future will look like as well.

Mike Abbot – green
Rebecca Lynn – green
Sarah Tavel – green  
Hans Tung – half

(Transcript) Peter Kaufman Q&A at the Redlands Forum

If you’ve visited my compilations page, you’ll know that Peter Kaufman was one of the people responsible for my compilations. He encouraged me to take copious notes, organize them, and write them up. He doesn’t write/speak publicly often, but when he does, you’d be wise to listen.

For those who don’t know him, Peter is the longtime chairman and CEO of Glen-air, a multi-billion-dollar aerospace company that creates and distributes mission-critical interconnect solutions. He is also the editor of Poor Charlie’s Almanack (which I have based many of my compilations on), one of the greatest books of all time, and recommended by people such as Warren Buffett, Lu Li, Bill Gurley, Bill Gates, Naval Ravikant, and Josh Wolfe.

This is a transcription of the Q&A session after Peter’s speech at the Redlands Forum on 1/16/2020.

A transcript of the speech can be found here.

*Transcribed 7/11/2020
**Lightly edited; any errors should be attributed to me

And if you want more from me, you can follow me on Twitter @kevg1412, or subscribe to my substack A Letter a Day, where I share some notes on one of the letters from my compilations each day.

Peter Kaufman Q&A ft. John Dorsey

Emcee: I think that Peter will take some questions, right? If there are some questions. And do we have our fine mic runners, Dr. Walker and Mrs. Burgess? Thank you.

We didn’t get the word out to our students tonight. Not their fault, our fault. But these guys love to run stairs right, Shar? Okay, we got a question right up there, Shar.

Please introduce yourself and then ask your question.

Q1: Hi, my name is Anne. I’m just curious to know how long he lived and where he ended up. I mean, did Mr. Rockefeller, you know, honor him till the end of his life? I mean, I’m sure it’s in your book, but I want to know now.

PK: Well, it’s not in the book. It’s actually kind of sad. Because Rockefeller’s son, as sons tend to do, thought that he ought to be in charge of his dad’s foundation. And… he kind of got pushed aside.

He wrote his memoir, called Chapters in My Life, which hasn’t been in print, for you know 80 years or something. I bought the rights to that book, and I’m going to reprint that book. Because I think this is a story that needs to be told.

And I’ll tell you something else. I sent copies of this book to Warren Buffett, Bill Gates, several university presidents that I know with a note to each one of them. And I said, if you’re looking for a model for large scale philanthropy, how to do it right, it’s here in this book. This is how to do it right. It’s not just top down, is it? It’s bottom up. You have to know the details or you actually do more harm than good. So actually, it is rather sad. And perhaps it’s because he never promoted himself.

Any other questions? Yes.

Q2: Have you run into any other people that, similar to this, that perhaps we’ve not heard of, or have you–

PK: Well my best example I mentioned, is George Marshall of top down and bottom up. He’s been nominated by Stephen Ambrose, a historian, as the greatest man of the last 100 years, and I think that’s


Let me tell the D-Day story. I love telling the D-Day story. Top-down, bottom-up.

What’s the top down understanding of D-Day? Well it’s very simple. We have to stop Adolf Hitler. We have to. He may enslave the world. Millions could be killed. That’s the top-down understanding. So is D-Day necessary? Absolutely necessary.

What’s his bottom-up understanding? My stepson is one of the soldiers that’s going to be in harm’s way. I could lose my stepson, my wife could lose her son. Okay? Is that bottom-up understanding? You bet it is. What decision did he make? Got to go ahead.

When you combine top-down and bottom-up, you make correct decisions. So I’m sorry I can’t give you more names, these are very rare people – exceedingly rare – but boy do they leave their imprint on human civilization and we should be very grateful that they did so.

Q3: Okay, he was a very unusual man, but is this something that institutions, colleges, organizations can teach people? Or is this something [that] just has to come naturally?

PK: Well, let me ask you. What do you think? Do you think if you’d have heard this story when you were in high school, in college, do you think it would have made any impact on you? would it would you have lived your life any differently?

Q3: I think I probably would have, if I couldremember it – [I think] that you have to have a vision, I mean,you – you can learn – we all can have tools, but if we don’t have the creativity to know how to implement them, it doesn’t go very far. So as I sat there listening, I thought, well, what can I take from this, or what can we all take from this? He obviously was a detail man, but he was also a visionary. He obviously probably could write and communicate in a manner that the people he needed to convince understood him. So I’m just thinking, like you know, where can we go with this to improve what we do in our own organizations.

PK: Well, I mentioned earlier today an African proverb that’s one of my favorites. It says if you want to go quickly go alone, if you want to go far go together. And if you’ll notice, every single thing that Frederick Taylor Gates did, involved going together, didn’t it?

We’re going to stop and take the time to go talk to all the Baptists and find out what do they think the educational structure in Minnesota should look like. And then he said, and then we’re going to fundraise from all the Baptists, even the small donations. Why? Because where your treasure is – that’s where your heart is. He did a fantastic job of always staying together with the group.

So I think we can all learn from that. I speak at a number of different universities every year, and I can tell you they’re not all the same. And one of the great compliments I’ve given Shelley and her group on University of Redlands, is they are a go together, go far group. And some of the Ivy League schools I talk to, they’re not that way. They’re go fast, go quickly, go alone. So, hopefully, these things can be taught.

Now, this story has had an influence on at least one person, certainly influenced me. You know, grab my Apple again and hold it up. I want to live a life like Frederick Taylor Gates did. I want to do things that are additive sum, potentially infinite in nature.

Now this gentleman, stand up John – John  Dorsey’s visiting from Greensboro, Alabama, and he has a program there that we’re currently having conversations with the University of Redlands regarding his program. It’s a Medical Fellows Program that perhaps Redlands students can participate in. And it’s one of the ways that I’m trying, in my own life, I’m supporting John to try to be like Frederick Taylor Gates.

I hope that one day we can scale this program across the whole United States, and deliver medical care as it should be delivered:  community-based one-on-one. We’re moving in the exact opposite direction. I don’t need to tell anybody in this room that that’s what’s going on – digital files, artificial intelligence, doctors via Skype.

But our motto is that the only true remedy for whatever ails a human being, is another human being. John has a fabulous model for doing exactly that, and I hope after our work matures a little bit, John will come back and give a talk here to you and report on our progress.

Thank you.

John, why don’t you share?

[Can] we have the microphone?

John’s never going speak to me again after this.

JD: I was not prepared. Can you hear me? I really wasn’t prepared to speak tonight, so… But basically, I think most people in the room would agree that, sort of, healthcare is a mess right now and everybody’s looking for a solution.

And I don’t know that there is a silver bullet that sort of fixes it all. But one thing – when I came through medical school, I was extraordinarily frustrated and felt as though there were these good people: medical students, residents, nurses, [attendants] all working very, very hard – but there just seemed to be this odd disconnection where everybody seemed frustrated, and the patients seemed frustrated. And I had a hard time sort of understanding what was going on. Why was it that we were doing what we were supposed to be doing, but it just didn’t seem to be making such an impact?

And so I ended up doing a residency and community psychiatry – and how many of you guys know what community psychiatry is? So community psychiatry is basically taking care people are down and out, people who are in and out of homelessness, people who are in and out of incarceration, people are living in a lot of turmoil – drugs and alcohol – and that really crystallized to me what was the disconnect.

Was we were trying to provide technical solutions for things that were much broader than technical solutions could really address. And so I started to think about how could we develop a system that actually met the needs of the bulk of patients.

Because if you look in any emergency room setting, or family medicine setting, or almost any hospital, most patients, they may not be as extreme as that, they do have a lot in common with those sorts of patients. And I really wanted to sort of not only develop a system that address their needs, but really mobilize the next generation of community health leaders, college students, and medical students to really be part of shaping that future solution.

And so I moved to Greensboro Alabama about 14 years ago. Small town from Orange County. Made a trip across the country and landed in a small rural town down there and started a fellowship program for students who are between college and medical school to really begin to shape this and develop this model.

And basically, what we do is, as a psychiatrist or a family medicine doctor, you see 25 30 patients a day. they come in with a lot more going on than you can fix with medication or other things. We assign them to – assign fellows, we call them – students between college and medical school. Each of them are assigned around 10 health partners and they work with the patients and actually extend what I can do into the community and into the home and actually address the broader issues.

And it takes me from a position of where I feel powerless to actually empowered to actually make a difference in patients’ lives. And as the students really learn about this sort of – the human side and the community aspects of healthcare – and we extended that same idea not only into healthcare but looking into education.

So there’s very – there’s actually weird parallels between what’s going on in healthcare and education. If you think in elementary school you’ve got, let’s say take a third grade teacher, you’ve got 30 kids in your classroom, all at different academic levels, all different behavioral issues, all different attention spans, and they all end up in my office because they need medicines for attention deficit disorder.

And I’m like maybe that’s not entirely the answer for this. Instead, why don’t we take these same students who are working with health partners, and have them work in pairs in teachers’ classrooms to provide the one-on-one, sort of small group attention to the kids so that the kids who are behind can be caught up the kids who are ahead can be pushed forward and the teacher’s actually set up for success in managing the different sort of issues that the teachers are going through.

And what’s been remarkable, is if you think about it – Shelley and I were talking earlier – If you think what’s happened, I think broadly across the country, is these community-based, citizenship-based, non-professional initiatives, used to be by talented women who sort of ran sort of educational initiatives and healthcare initiatives. But the world’s changed, obviously, women are working and so you don’t have that infrastructure.

And so, really, my thought was, let’s take the next generation of students and really teach them about community-based citizenship where they can actually participate in reshaping and supporting that sort of structure in that community-based structure and actually make a difference within the healthcare system, in the education system.

So that’s kind of what we’re doing.

Q4: Can you describe… [inaudible]

JD: Yes. Yes. So we started out – so it’sincreasingly – when I went to medicalschool the idea was you graduate fromcollege and you went straight to medicalschool. That was just kind of the commonpath. More and more I think collegesRedlands and most schools across thecountry and most medical schools – areencouraging students to take a year ortwo to gain a little bit of real-worldexperience and life experience. [There’s] more tobeing a doctor than just being a goodstudent. And so we – there reallyweren’t that many – or aren’t really anycommunity health gap year programs.

There’s Teach for America which focuses on education, but nothing really focusing on healthcare or community health. So 10 years ago we launched this program with three students. They spend one year with us, some stay on for a second year and take on a greater leadership role. We started with the three students. Over the last 10 years, we’ve had 90 students come through, with Peter’s generosity.

We started in Greensboro, Alabama. Tested a pilot in the next town over in Marion, Alabama to see if it really could be scaled, but that was very culturally similar. And Peter’s generously offered to support a pilot in Pomona, California to see if it could be done in California, a different cultural setting.

And that Pomona had a variety of reasons, Peter had been connected and knew the president of Pomona College, that’s where I went to college, and so it seemed like a natural sort of movement in that direction. And so we’re excited to have 12 fellows working with the schools.

One story I was telling, when we didn’t know how the partnerships we’re going to go with the healthcare organizations in the schools, so we approached the School District in Pomona, we said what would you think of having this group of students, twelve students, straight out of college, work with an elementary school, work with your teachers in grades K-5. And their response was how many of our 27 elementary schools could you work with?

We were like, we can start with one. So that’s – so I liked I liked Peters, sort of in his story, talking about take small steps, but incremental small steps. If you have a good idea, and you implement it properly and pay attention to the details, you really can over time. Because there’s no way when you take something as big as healthcare, it could just seem so overwhelming. That’s what I think everybody is trying to do – is take the Big Shot.

And that’s just not going to work. It’s just too big and too complex. But if you take small-scale steps, you can actually make a difference both at that individual level but then by preparing the community health leaders of tomorrow.

And I think that we really can grow exponentially in terms of the number of sort of health leaders who over the next 30-40 years, because it’s really going to be their system, and they should take responsibility for helping to shape the solution for the system.

PK: Thank you. Shelley?

Emcee: Oh, Jack has a question.

Q5: Peter, what caught your imagination and why did you do the research you did on this person? And I want to know more about who you are. What is it that’s motivating you? I mean you have had huge success in your career. You run a multibillion-dollar business. Why are you so interested in going bottom-up in communities making them work? I want to understand who you are.

PK: So I grew up in Santa Ana in a middle-class family. Went to public schools. But for a young kid, I had lavish tastes. I wanted a stingray bicycle. I desperately wanted a stingray bicycle. My dad was so cheap. He wouldn’t buy me my stingray bicycle.

So I started at age 13, sorting deposit bottles at the pantry market. They paid me in cash. you know, I’m super sure it was totally illegal what I was doing. But I really liked it I liked. I liked working with my hands and I liked making money and I was saving for my stingray bike.

Shortly thereafter, I went down and got a work permit, and I actually got a job as a busboy. and then I got a job at Hogue Memorial Hospital in Newport Beach working in the kitchen. One summer I spent the whole summer scrubbing pots next to Gabriel Guzman – an immigrant from Mexico – he didn’t speak a word of English. That’s why I speak Spanish. I spent the whole summer scrubbing pots talking Spanish, learning Spanish with Gabriel Guzman. Okay? Now I love Gabriel Guzman – he’s one of my most dear people I’ve ever met my whole life.

So I saw the world from the bottom, didn’t I? I saw it from the bottom of a range of institutions. And what did I see? Almost universally, how bad the managements were of all these institutions. My direct supervisors almost without exception were assholes. And they specialized in abusing down and kissing ass up. Now do you think we had any respect for these supervisors of ours? Of course we didn’t have any respect. But what about the people above them? We didn’t respect them either did we? Well, how capable can they be if this idiot is fooling them? He’s not fooling us and we’re high school kids. Okay?

So I saw all this, Jack. I saw it from the bottom. A series of fluke-ish circumstances brought me into contact with some masters, some mentors, who taught me what the top looks like. So suddenly, by a fluke, by accident, I’ve got the bottom, and I’ve got the top. And I just applied it. And did it ever work. Oh my god did it work.

And I’ve used it in everything in my whole life. I’ve done six major capital campaigns. Every time there’s a project that fails in Pasadena, a school project, they come find me. Let’s go get that Peter, you know, he knows how to do this.

Yeah, because I do it like Frederick Taylor Gates did. I go and talk to everybody. I get all the input from everybody. and what does that do? It designs the plan, doesn’t it? And then when you go to raise the money, everybody’s willing to contribute. Why? It’s their plan. they own it.

So, you know, that’s who I am. Part of who I am is, I love history. I just love learning from the past. And I studied Rockefeller and that’s what got me into Gates. Who in the world is this Frederick Taylor Gates? Rockefeller says he’s the best businessman that he ever encountered? Better than Henry Ford and Andrew Carnegie?

Well I’ve studied Henry Ford and Andrew Carnegie. They were unbelievably capable businesspeople. Who in the heck is this Frederick Taylor Gates? And I found this book. And I went out on the Internet – I have more disposable income today than I did when I was trying to buy that stingray bike, okay? And I bought every single copy that was available of Frederick Taylor Gates’ memoirs. I got like 24 of them, and the last few, is you know, getting scarcity. Where there’s scarcity, the price goes up. I paid $300 a piece for them. But what did I have? I had the inventory. And I sent them to Bill Gates and I sent them to Warren Buffett, and I got really nice letters back from them saying, you know, this is the most thought-provoking book I’ve ever seen on philanthropy.

But I’m going to take that book and I’m going to redo it and I’m going to put annotations on the side. I’m going to navigate the reader through the book and I’m going to try and make it – I’m going to target it – for these big, philanthropic family foundations. I’m going to send them all a copy of this book. They throw in the trash, they throw it in the trash. But maybe, maybe one of them, two of them will read this book and say, you know, this is correct. This is what our family fortune should be devoted to. And if we do it right, guess what will happen dear? We’ll go from being on the letterhead to being on a postage stamp.

And isn’t that what you really want in life? Be remembered on a postage stamp. His program has the has the potential to be a postage stamp program. It’s the best thing I’ve ever seen, okay? And I’ve been around. It’s the best thing I’ve ever seen. Do you mind if I tell the story of how it happened? That I called you?

This is, it’s kind of creepy, it’s kind of weird, okay? I don’t go to church. I’m the chair of the Cathedral in LA. I’ve been the chair since it opened, because Cardinal Mahony asked me to do it. He says, the only guy I know who could make everybody get along, okay? So I said okay, I’ll do it.

I’ve learned a lot doing it, but I don’t go to church. But I’m going through my mail one day—I get all this mail. I stand over the trashcan. I just throw it [and throw it into the trash]. And I come to the Pomona Alumni Magazine. I didn’t go to Pomona. I’m not interested in Pomona Magazine. And yet I couldn’t throw it out. My hand would not throw it out. Something in my head said you need to read something in it – I’m not making this up. I know it sounds weird – you need to read something in here.

I opened it up. I open it up to this page – and here he is standing there. It says, Something’s Happening in Greensboro. And it’s the story of what he’s doing. And I start reading this, like I had to get my yellow pen, I go get my yellow pen, highlighting almost the whole thing.

This is exactly – this is the model. This is the solution to the healthcare problem in America. And a guy, an unknown guy in Greensboro, Alabama is doing it. A top-down, bottom-up guy. John Dorsey.


End Notes

This is Part 2: The Q&A. Part 1: The Speech, can be found here.

Peter doesn’t have a public web presence, but if you enjoy this speech, the next best person to follow is Blas Moros, who works with Peter at Glenair. You can find his website here and follow him on twitter @blasmoros.

  • The book in question, Frederick Taylor Gates’ autobiography, can be found on Amazon. Unfortunately, it’s going for $996.99. Fortunately, Blas has written up (and read) a summary and shared his takeaways here.

And if you want more from me, you can follow me on Twitter @kevg1412, or subscribe to my substack A Letter a Day, where I share some notes on one of the letters from my compilations each day.

Additional Reading

Written by FTG

Writings about FTG

(Transcript) Peter Kaufman Speech at the Redlands Forum

If you’ve visited my compilations page, you’ll know that Peter Kaufman is one of the people responsible for my compilations. He encouraged me to take copious notes, organize them, and write them up. He doesn’t write/speak publicly often, but when he does, you’d be wise to listen.

For those who don’t know him, Peter is the longtime chairman and CEO of Glen-air, a multi-billion-dollar aerospace company that creates and distributes mission-critical interconnect solutions. He is also the editor of Poor Charlie’s Almanack (which I have based many of my compilations on), one of the greatest books of all time, and recommended by people such as Warren Buffett, Lu Li, Bill Gurley, Bill Gates, Naval Ravikant, and Josh Wolfe.

This is a transcription of the speech given by Peter at the Redlands Forum on 1/16/2020.

A transcript of the Q&A can be found here.

*Transcribed 7/10/2020
**Lightly edited; any errors should be attributed to me

And if you want more from me, you can follow me on Twitter @kevg1412, or subscribe to my substack A Letter a Day, where I share some notes on one of the letters from my compilations each day.

An Unsung Hero

This is our unsung hero by the way [holding up a booklet with a picture of man on its cover], and the mystery is: who is this man? Because I’m going to argue that this man has had more of an impact on all of our lives here tonight than almost anybody else we can think of. and yet, unless some of you are very astute historians, my guess is you’ve never heard of this man.

Now, to properly frame this talk, I have an apple. There’s this beautiful Zen line that I really love. it says that anyone can count the number of seeds in an apple, but very few can count the number of apples in a seed. Isn’t that beautiful? Okay? So the first half, counting the seeds in an apple, that’s a finite life. The second half, counting the number of apples in a seed, is an infinite life, additive sum. And this man I’m going to talk about tonight, boy did he ever nail the infinite life, did he ever leave the world a better place than he found it.

By the way, as you leave tonight, you [can] all take home a copy of the story, okay?

From 1880 to 1888, these are ages 27 to [34] of our unsung hero. He was the uncommonly honest, pious, and hard-working pastor of the lowly Central Baptist Church in Minneapolis, Minnesota. He was not without a sense of humor, saying his church was mainly populated by those made to feel unwelcome at the fancy First Baptist Church of Minneapolis. He was born on July 2, 1853 in Broome County, New York. Graduated from the University of Rochester in 1877, and from the Rochester Theological Seminary in 1880. He was obsessed with living a life completely aligned with strict religious beliefs, and in his first stint as a pastor he was working himself to exhaustion. But this extreme ethic – work ethic and piousness was noticed around town. And one day [as] he’s working in his office, there’s a knock on the door. And he looks over to see who’s coming in, and he is shocked, absolutely shocked, to see it is George Pillsbury. The leading citizen of Minneapolis, the flour baron. Now, George Pillsbury was not one of his congregants. Where do you think George Pillsbury went to church? Exactly right. Jack, Laura, this is a very astute audience you have here tonight.

An account survives of this meeting in our young pastors own hand. The effects that still unfold from this meeting, 132 years ago, [continues] to profoundly affect all of our lives here tonight, and all those in America. In fact, I would argue, that such effects are among the most impactful and transformative in American history. Now you are probably thinking, Peter’s setting the bar way too high here, okay. How in the world is going to live up to this intro? But we’re going to clear that bar. Now if you’ll bear with me for a minute, I’m going to do a little side bar. Before I recount the events of that historic meeting, I want to take a short detour, and I think it’ll be worth it. It’s the why.

Just why was this man able to do all the amazing things that I’m going to tell you about tonight? I say the answer comes from simple chemistry. A chemistry model that perhaps offers the greatest potential for self-improvement for any human being. And I hope after you hear this chemistry model, I hope you share it. With your children, your grandchildren, with everyone you know. Because I think this is the best pathway to self-improvement that’s available to any of us.

Now, in chemistry there’s a scale of hardness called the Mohs’ scale. M-O-H-S.

Diamond is the hardest substance, it’s a 10, and baby powder is the weakest, it’s a 1. Now on the Mohs’ scale of hardness, tin, which I just happen to have, some tin here, is only a 1.5 on the Mohs’ scale of hardness, it’s very weak. I’m going walk all the way over here, as far away as I can get. I’m going to put the tin there, and while I’m walking all the way over here, I’m going to talk about copper. Copper on the Mohs’ scale is only a three. If we have a 1.5 over there and a three over here. why am I separating these two like this? Because in nature, for whatever reason, tin and copper are not generally found in the geographic proximity of one another. And as I will ultimately connect up, that’s the beauty of this model. they’re not generally found in the geographic proximity of one another.

Now, somewhere all along the line in history, somebody had a very bright idea: I wonder what would happen if I went way over here and got some tin, and then went way over here, reached way across, to something not generally found in the geographic proximity of tin, namely copper, and I blended them together. Now arithmetically, what should we get? 1.5 plus 3 is 4.5, divided by 2 to get the average, we should get 2.25. Do we get 2.25? No. I wouldn’t be telling this story, would I, if you have 2.25.

Does anybody know what you get when you blend tin and copper to get – not Dave Sorensen. Dave Sorensen is an expert in metals. Brass is close, but not – bronze – who said bronze? You see me afterwards. I have a prize for you.

You get bronze. Now, does anybody know what bronze is on the Mohs’ scale of hardness? We know it’s not 2.25. I’ll give you a hint – who said 6? You see me afterwards as well.

It’s a 6. Iron is 5.5. Can you imagine taking two independent characteristics, neither of which is all that powerful, and putting them together in just the right way, and getting a 6? Now, in physics, they have a name for this. It’s called a leaping emergent effect. Now, what if in your own life you could put together some characteristics and become bronze yourself? Become a 6? What would you need to do? Well, you need to identify what kind of a person am I? Am I tin? Am I copper? What would I need to reach across and blend into myself? Okay?

Now, in terms our unsung hero, I’m going to argue that the reason he was able to accomplish what he did, and the reason you’ve never heard of him, is because what he blended in together was something you almost never see. He understood the world from the bottom up, and he understood the world from the top down. In the military, we see NCOs. they understand the world from the bottom up. We see generals, they understand the world from the top down, okay. They’re fighting with each other all the time, aren’t they? And every once in a while, you get a George Marshall. What was George Marshall? He was bronze, wasn’t he?

He understood it from the bottom up, he understood it from the top down. And our unsung hero’s one of the best in history at blending bottom up understanding and top down understanding. but that’s also why you’ve never heard of him. Because the people who blend these two characteristics together, are they ever a self-promoter? No they’re not, are they?

This auditorium that we’re in tonight, this building that we’re in tonight, who were they built by? This couple over here. They have that rare combination, don’t they? They understand everything from the bottom up, they understand everything from the top down. Are they self-promoters? No. This is a beautiful combination. I wish the world was full – I wish our country was full of bronze leaders, but it isn’t.

We’ll go back to our story now.

I’ve told this story 50 times, and every time I tell it, it surprises me again. I said this is impossible, one human being could not do this. Okay, here’s what happened when George Pillsbury comes in. These are the words of our unsung hero, from his memoirs, word-for-word.

Mr. Pillsbury said he wished to have a little conversation with me, which he would be glad if I were to regard as confidential. While to outward appearance he was hale and hearty, such he said was not the fact. His physicians had warned him of an insidious and incurable disease that must in no long time terminate his life. In other words, he’s dying. He said he had made in his will a bequest of $200,000 towards a Baptist Academy, an educational project. But, he said, I’m concerned my gift will be neglected, and I’m contemplating a change in my will. I don’t trust these people. I don’t want to leave them $200,000. I don’t trust these people.

Okay? Why is he talking to our young guy? Because I trust our young guy. I’ve watched our young guy. There’s nothing not to trust about our young guy, who’s 34 years old.

He said he had come to me for any counsel I might give him, or were his doubts justified? if so, could I suggest a way of correcting the situation as to render it more assuring. I asked him to give me a little time for reflection on his problem.

Okay, now this is me talking. I have a deep, deep background in development work. I’ve chaired several capital campaigns and advised many others. But I am aware of no story that approaches the one you’re about to hear when it comes to sheer top-down bottom-up genius in development work. Like a first domino, the way our pastor responds to Pillsbury’s problem sets into motion a series of effects that forever change the young man’s life, and in turn the whole world.

Remember, he’s only 34 years old, but already the George Pillsburys of the world are noticing the unusual combination of factors present in this young man and seeking him out for counsel. So what does our pastor do? He goes to work on his assignment. he embarks on a due diligence tour to understand every last nook and cranny of what the educational structure should optimally look like in the Minnesota area. His tour brings him into contact with every Baptist of note in the state.

From this huge bottom-up dataset he amasses, he develops a sound top-down big-picture plan and submits it back to George Pillsbury. Here in his own words is the four-part plan he submits. Not just for any Baptist Academy, no. For the optimal Baptist Academy.

  1. Such an academy must be well endowed and equipped. A much better school than the ordinary high school. It should be modeled on such great Eastern schools as the Phillips Exeter Academy. Similarly, with hundreds of thousands in endowment. To convince Minnesota Baptists of the value to them and their children of a well-endowed Academy, a series of popular addresses can be given from influential pulpits.
  2. Success for such an Academy will only be assured if local Baptists themselves contribute a considerable sum. where your treasure is, there will your heart be also.
  3. Instead of your $200,000 pledge, Mr. Pillsbury, you should offer conditionally to give say, $50,000 to the Academy, provided the Baptists of the state first contribute an equal sum. funds that I will go out and raise myself.
  4. Of the hundred thousand thus raised, half should go into a needed new building and the other half into endowment. With proper safeguards in place that all this proves successful, with confidence, you can then safely leave the remaining $150,000 in your will.

This is awesome. Just awesome. Superb top-down and superb bottom-up. In the history of large-scale development, has anyone ever turned down a major gift in exchange for the privilege of going out and raising a big chunk of money themselves, only then to be matched and then propose contingencies for the remaining estate gift?

Needless to say, George Pillsbury is bowled over. Our young pastor gets the green light. He forms the committee. He heads it up. He speaks everywhere to talk up the plan. From bottom to top, he raises the money, inspiring and energizing the community. These instincts as we will see, for informed engaged top-down bottom-up interaction, will go on to benefit him enormously.

The project succeeds. Magnificently.

His work comes to the attention of a group of Chicago-area Baptists, including Dr. William Rainey Harper, who have been trying for years to interest New Yorker John. D. Rockefeller, the richest Baptist in the world, in founding a Midwestern Baptist University – one to rival the Ivy League schools of the East.

But they have been singularly unsuccessful in such asks to the oil titan. In fact, they have been so clumsy, Rockefeller has banned them from ever calling on him again. But in watching the awesome development skills of this 34 year old pastor, Harper and his group think they may have a second chance.

Young pastor, they ask, will you go see Mr. Rockefeller on our behalf?

Armed with a formal letter of introduction from Dr. Harper to Mr. Rockefeller, our unsung hero agrees to travel to New York to take a shot. But Rockefeller won’t meet with him. Refuses. I’ve been through this before. Not going through it again. However, he says, I’ve been watching you at a distance. I’m very impressed with you. if you want to write me a letter, you can write me a letter.

Our pastor writes him a letter. It’s the perfect letter. He just nails it. In previous asks, Rockefeller has been repulsed by the haste advocated by Harper and others. too big, too fast. Not respecting the details. in stark contrast, our pastor’s letter suggests a methodical, bottom-up, incremental step-by-step approach. an exact match for Rockefellers lifelong temperament.

He says, Mr. Rockefellers ideas happen to coincide with my own. Happen to coincide? It was no coincidence. our hero is a natural. How many 35 – he’s 35 by now. How many 35 year olds have a blend of top-down, bottom-up thinking in perfect harmony with that of the richest man in the world? A financial titan who made his fortune combining these very traits himself? You can see why Rockefeller was so impressed with this letter. There’s a letter from a 35 year old – he goes: I could have written this letter myself.

Time does not allow the reading of the full masterpiece of a letter, but it survives to this day. here is the money paragraph that so resonated with Rockefeller:

“All things come to him that waits. Our best and greatest schools have developed broadly and hardly step-by-step in this way. holding the possible scope of the institution and abeyance for a few years will cost nothing, while time will of itself solved the question easily and with certainty.”

The letter is such a home run with Rockefeller it results in an invitation to go visit him in person in New York. Our young pastor makes the ask face-to-face, and the rest is history. Rockefeller becomes the funding founder of what becomes – anyone? The University of Chicago!

Our kid is all of 35 years old! He’s responsible for the existence of the University of Chicago. Would not exist without his ask. Wouldn’t have existed without the George Pillsbury exercise that came before. If our story ended here it would be worth a big fuss. Imagine a 35 year old pastor being responsible for the very existence of the University of Chicago and it’s over 100 Nobel Prizes.

But the story doesn’t end here. It only gets more and more incredible. For Rockefeller is so taken with the bronze-level talents of this young man, he requested my early removal to New York, especially to help him with his benevolences. Meaning all the people that are pestering him, asking him for money all the time. when it came to philanthropic solicitations, the tycoon was constantly hunted, stalked, and hounded, almost like a wild animal.

He relocates to New York City and is put in charge of all of Rockefellers philanthropy. Using what he calls wholesale scientific giving, he begins to steer donations towards large-scale, focused philanthropy for the betterment of humanity. More on this later – much more.

No surprise, his performance is so good – everything he gives this this kid. Rockefeller decides to put even more on his plate. Will you on your travels, Rockefeller says to him, take a quick look at some of my non-Standard Oil investment properties throughout the country?

Yes, he says. He responds by visiting three of Rockefeller’s principal non-Standard Oil investments: an iron furnace in Alabama, a mortgage on a steel mill in Wisconsin, and various mining properties in Colorado. Like a great detective, he seeks validation of the legitimacy of each property. He verifies recorded documents and county record offices. he interviews objective third party of experts. He even chats up miners on a Colorado train.

He finds most of Rockefellers investments are worthless scams pawned off on Rockefeller by seemingly upstanding Eastern individuals and investment banks. Our kid’s the only one who figured out these are scams. Now, in this thing you’re going to take home later, is the whole chapter from this man’s memoirs where he tells you how he did this. It’s incredible. It’s like reading a detective story.

Extricating Rockefeller from these messes, he turns instead to an investment area his investigations deem is legitimate: the Mesabi Range of the Great Lakes region – which Jack you and I were just talking about this this morning. Taking amazing advantage of the aftermath of the panic of 1893, one of the worst financial plunges the US has ever suffered, he commits $33.5MM of Rockefellers fortune, amassing oil  resources, mines, railroads, docks and building an [oar?]-carrying fleet of sixty vessels.

In 1901, he sells the properties to JP Morgan and US Steel for $88.5MM. That’s a $55MM profit in eight years. You know what that is in 2020 dollars? It’s roughly $1.5B that this Baptist preacher with no educational background in business, no business experience to speak of, makes his employer $1.5B in eight years. And John D. Rockefeller never set foot on any of those properties.

In an era of no income taxes, he makes Rockefeller 55MM large. Such performance led Rockefeller to later say, he was the greatest businessman I ever encountered in my life. Better even than Henry Ford and Andrew Carnegie. Well this is, this is impossible, isn’t it?

This kid is responsible for the University of Chicago, he makes what’s the equivalent today of a $1.5B in eight years all by himself? Yet this is just kid stuff. In 1897, our unsung hero prepares a memo for Mr. Rockefeller, and our show really gets rolling.

The story unfolds like this: when he first went into the employ of Mr. Rockefeller, he wrote to himself: medicine, as his generally taught and practiced in the United States is practically futile. He wrote that to himself. Does he have a background in medicine? No. But he does he care about humanity? Yes.

We’ll let him tell the rest of the story.

On a whim, four years later in summer 1897, with his family in the Catskills on vacation, he revisits the subject of medicine, having brought along for leisure reading, William Osler is 1,000-page textbook: Principles and Practice of Medicine. I’m sure that we all, when we go on summer vacations with our family, take along William Osler’s 1000-page textbook.

Now we’ll let him tell the rest of the story.

I saw clearly from the work of this able and honest man, perhaps the ablest physician of his time, that medicine had in fact, with only four or five exceptions, no cures or disease. Medicine could hardly hope to become a science until medicine was endowed, and qualified men were enabled to give themselves to uninterrupted study on ample salary entirely independent of practice. To this end it seemed to me an institute of medical research ought to be established in the United States on the general lines of the work of Koch in Berlin and the Pasteur Institute in Paris. And here was an opportunity for Mr. Rockefeller to do an immense service to his country and perhaps the world.

This idea took possession of me, he says. Mr. Rockefeller entertained my suggestion hospitably, as indeed I encouraged further and further detailed inquiry. It was in this way that my name became associated with the origin of the great Institute of Medical Research subsequently founded and so munificently endowed and equipped by Mr. Rockefeller. Anybody know the name of this institution? Rockefeller Institute. It’s now Rockefeller University. New York City. 27 Nobel prizes in medical research. It was the first Medical Research Institute founded in the United States exclusively devoted to figure out what? – how to cure diseases.

We’re almost done.

In 1905, seeing firsthand the impact that Rockefeller’s immense fortune was having towards humanitarian work on a great scale, our unsung hero pursues an entirely new vision: the establishment of the first permanent private foundation.

There were no foundations back then. We’re all familiar today with the Gates Foundation and the Walton Foundation – all these big – they didn’t exist. It was his idea – there should be a permanent foundation.


He says, it was not until 1905 that I ventured with many misgivings to approach Mr. Rockefeller with the question of the use and disposition to be made of his fortune. It might be argued that I was trespassing on a domain in which I had no proper business. But to myself it was very intimately my business, for I had come clearly to see that unless Mr. Rockefeller were to make some such disposition of his fortune, for a great part of it my life was doing more harm than good.

Rockefeller’s fortune was rolling up so fast that his heirs would dissipate their inheritance or become intoxicated with power unless we set up a permanent corporate philanthropy for the good of mankind. So at last I broke my silence. I wrote a letter. It is dated June 3,1905. This of course becomes the Rockefeller Foundation, which due to its highly complex nature was not officially chartered until 1913 – actually making it technically second in establishment to the Russell Sage Foundation. However, it appears Rockefeller’s idea was first.

In any event, over the rest of his professional association with Rockefeller, as he headed up this Foundation, he oversaw the distribution, Personally, of $500MM in philanthropy to benefit mankind, exceeding the $350MM overseen by the very well-known Andrew Carnegie.

Let’s recap, and even add some more factors. There once lived a man of top-down, bottom-up understanding. A non-self-promoting man. A man of honesty, piety, aptitude, and genuine love for humanity. A man likely you’ve never heard of, because he wasn’t a self-promoter.

  1. Was called the greatest businessman of his time above Henry Ford and Andrew Carnegie.
  2. Was perhaps the greatest development asker of all time at age 35, responsible for establishing the University of Chicago.
  3. Conceived the world’s first permanent private foundation, then personally oversaw $500MM in distributions – that’s over $10B in today’s dollars.
  4. Conceived the Rockefeller Institute and it’s unique research model.
  5. Eradicated hookworm in the American South and the rest of the world.
  6. Established black high schools in the south that allowed graduates to attend the best southern universities.
  7. Finally, his most important move of all – one each of us and all Americans benefit from today – he sparked the 1910 Flexner report, establishing Johns Hopkins as the model for medical school education reform, which moved American medicine from the bottom of the barrel internationally to number one where it remains today. There’s not a person in here who hasn’t benefited from that.

Talk about an infinite life. Is the world better off because this man lived? His name was Frederick Taylor Gates. Now be honest, show of hands. How many of you have ever heard of Frederick Taylor Gates? Anybody? That’s the solution to our mystery.

I thank you.

End Notes

This was Part 1: The Speech. Part 2: The Q&A can be found here.

Peter doesn’t have a public web presence, but if you enjoy this speech, the next best person to follow is Blas Moros, who works with Peter at Glenair. You can find his website here and follow him on twitter @blasmoros.

  • The book in question, Frederick Taylor Gates’ autobiography, can be found on Amazon. Unfortunately, it’s going for $996.99. Fortunately, Blas has written up (and read) a summary and shared his takeaways here.

And if you want more from me, you can follow me on Twitter @kevg1412, or subscribe to my substack A Letter a Day, where I share some notes on one of the letters from my compilations each day.

Additional Reading

Written by FTG

Writings about FTG

(Transcript) Start: The Love Principle in Investing // Shervin Pishevar

Over the weekend, I came across Shervin Pishevar’s new podcast, Start. Although episode 1 is short (only 4 minutes) it is packed with wisdom, and a great introduction to Shervin’s investing and life philosophy.

You can listen to the full podcast episode here.

*Transcribed 7/6/2020. Any mistakes should be attributed to me.

Many times, I talk about the love principle as a key principle in entrepreneurship and investing.

When my daughter was 11 years old, we were at her favorite sushi place, and she asked me, “Dad, how do you invest?” I told her that I use the love principle. That if you’re going to invest in something, you have to love the product, the founders, the team, the company, the market. And if you don’t love any one of those things, most likely, it’s not going to be a great investment. One that’s going to change the world.

And she looked at me and she said, “Well dad, I love Great America.” And she was right. She would go to Great America with her best friends, almost every weekend. And she said, “Is that an example?” And I said, “Absolutely. That’s a great example. You love Great America, so now you should go do what’s called diligence. Go and study Great America as a business. Go interview the employees.”

And she did that. She treated it like a homework project. And she came back, after going to Great America, and interviewing employees, and she said, “Dad, the company is called Cedar Fair (that owns Great America). Everyone loves the CEO. There’s a bunch of rides that are coming that they’re investing in that are going to be very exciting. And, the 49ers are building a billion-dollar stadium right next to Great America. Basically on the same property.” And I said, “Well, there you go. That’s a great job on your diligence.”

And we looked it up, and it was a public company, and she made her first investment. And she returned 100% on that stock. And she’s using the profits from that investment to start her own company now, that she started when she was 18. And she’s launching soon.

And so, it was an important lesson in learning about the love principle. And I was watching an interview recently, with Jerry Seinfeld, and he was being interviewed by someone and he said, basically, you have to love what you do. The same love principle. And when you love something, you are tireless about it. It’s not about having the willpower to go through it. It’s about the love.

And my greatest investments, my greatest experiences with companies and founders and teams and products and helping build global brands, have always been about the love. Has been about the times you’re talking to a founder at any hour… I was talking to one of my favorite founders last night, at midnight, checking in on them. Checking in on his round, checking in on his company. And it was a joyous thing for me to do, and there is love there.

And when founders and teams feel like they are supported and loved, guess what happens? They thrive. And they work through their mistakes. They learn, they grow. Because they feel like they can take the risk to be vulnerable, and to ask for help. To ask for mentorship. And that’s only possible when there’s love.

If you enjoyed this podcast, and want to follow Shervin, you can do so at his Twitter @shervin.

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