A (2:35)

Easier said than done.

B (2:36)

Easier said than done is a good point. It's like, I'm sure some people have jobs that like, every day is just like, it's all fun and sunshine and rainbows. Discovering and developing drugs is very, very hard. As anyone in biotech or pharma will tell you, it's deeply rewarding when it works, but at the same time, there's nothing about it that's easy.

A (2:53)

Another quote that I have quoted you on several times is on your worst day, if somebody comes in with a suitcase of 2,300 million dollars in cash, it's hard to say no.

B (3:02)

Hard to say no for me, hard to say no for you.

A (3:04)

This was a decade ago, so let's call it 2 to 3 billion. Today we're talking about the ups and downs and how when somebody comes to you with a deal, it's hard to say no, although obviously you've said no threat.

B (3:12)

How do you continually say yes? How do you create opportunities so you can say yes to the thing that they really want? So can I. If what they really want is access to a technology and somebody's coming in trying to buy your whole company, we'll stop and listen and say, what is it you really want? Do you really want to own this exclusively and then have the problem of managing the team and also the problem of managing future innovation? Or is it really you just want to own the one or two or three drugs that we already have that might have used the technology? I think mostly what pharma wants is drugs that really work. I think the ability to maintain a competitive advantage and think about other drugs that look like that, sort of. Sometimes you want to own the platform. We can accommodate that in a way that our partners will be happy. So you can give certain restrictions around what other things are we allowed to do after the partnership? Perhaps you can give target exclusivity. You could give domain exclusivity. We could give time bound Exclusivity. So, yeah, someone coming along and saying, hey, here's so much money that you want to walk away. I would, I don't want to walk away because I think we've got a lot of work to be done.

A (4:14)

That's kind of the test. That's how you test your thesis. Is this the business that you want to work in the rest of your life? So another way is there amount of money that could. Could. That you would sell for? And if the answer is no, although obviously there's always these crazy amounts, but if generally it's no, that means that is the business.

B (4:28)

There are crazy numbers where you're like, oh my gosh, especially for my shareholders, my employees and everyone else, of course you would have to say yes to something. But I would. What I know is on the other side of that number, the acquirer still owns the problem of future innovation. And that acquirer is going to be sophisticated enough to know that it's an enormous challenge to wake up every single day and to create the right structures of how to manage people and how to manage future innovation. I think that's one of the challenges of innovation, is that you can't just throw more money at the problem and get more innovation. You can't just scale up fundamentally creative processes. It has to be a way that you reward people for their innovation. You make them feel safe and supported. And I mean, we don't even have a, a bulletproof playbook on it. This is more of the decentralized model of how we support really creative people in building new technologies and doing new drug discovery. So if someone came with a sufficiently large check, I would listen and I would try to engage in a conversation of, well, how do we give you everything that you want, plus what we have? How do you let me. And let us actually try to manage future innovation? And maybe there's a consortium model here. Maybe, maybe you have a vision for how massive amounts of capital can accelerate what we're doing.

C (5:33)

Great.

B (5:33)

I would love to have that conversation. But what I believe is on the other side of that, there's going to be more opportunities to create even more value and more medicine if we collaborate with others. So we shouldn't just.

A (5:41)

I tried to stump you with a binary choice. You gave me a framework. We've known each other since 2010, convinced me to go talk to business school. That's where we first met. And we've had a lot of these, guess not really late nights, but early morning kind of philosophical discussions. And we started in the mid 2010s, probably 2014, 2015. Talking about this concept of the perpetually private company.

B (6:01)

Yeah.

A (6:01)

Palantir at that point had not gone public. I think it was like 10 years in or something. SpaceX was still probably seven, eight years in. How have your thoughts evolved around this perpetual private company? Does it make sense? Are there private companies that should stay private for long, forever?

B (6:16)

There are some companies that probably should stay private, that there are. There's an advantage to being perennially private. It's still a similar philosophy, which is you should go public when the value of being public is greater than the value of being private. And for a lot of companies, going public is the liquidity event for their investors or it is a necessary access to capital sort of being public, you're tapping into other things. Alloy can go public at some point, but I would evaluate it through that lens. At what point does it make sense for us to be public? Is it more valuable to be public than private? As a private company, we enjoy being private because we are super flexible. We don't carry the overhead of being public. There's a lot of decisions that you can make as a private company that you can as a public company and just being more nimble. But at some point there's an advantage to us having a conversation with a million, 2 million, 3 million people. It's like, I'm jealous of the public companies that are biotech companies that when they start talking about their philosophies on what their capabilities are, whether they're going to be around in five or 10 years, that as a public company you have a really good sense for that. I think that all over the world there's a global bioeconomy. It's a lot easier for our international partners to look at a public company and, and really get a sense for who you are, what you do as a private company. There's always this question of, like, oh, like let's get to know each other and really try to figure out how big you are. Like, on the financing we have, we haven't raised money since 2022 because our team has executed like maniacs to be a successful private company. We just closed this recent round of financing at a good valuation as a reflection of the value that we had continued to be creating. And now we're thinking out to the future of. Oh, my Gosh, if we 10x this again, or even 10x it twice from here, what would that look like in terms of access to capital and access to opportunity and really helping the world and scaling what we can do around the world.

C (8:03)

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B (9:48)

howi invest and maybe it makes sense to go public.

A (9:51)

I have to be honest, my bias has been against the public markets. Obviously LPs don't necessarily want to hear that about DPI. But in general I think most companies, most great companies should stay private as long as humanly possible. And I think we're starting to see an evolution of different vehicles and different solutions to liquidity while staying private. There's continuation vehicles that are coming from the buyout space. By last measure, $110 billion in continuation vehicles, which is basically a secondary, into a new pool of capital that's allowing companies to stay private longer. The secondary market is starting to institutionalize. It went from kind of this black hole to this gray market to now you have like Charles Schwab and Goldman Sachs getting into this industry and really like providing more access. And now also you have these companies OpenAI Anthropic, which is a portfolio company raising these insane amounts of money privately comparable to the SpaceX IPO. I think it's probably going to be roughly around 30 to $50 billion. Also company in mind, but I don't have any insight there. But if the private market starts to catch up to public market, why should a company go public?

B (10:56)

Well, if you can continue to get access to capital as a private company at good valuations, where everyone continues to see their investment go up, reflected on the fundamentals of the business. So not just like total hype, but you actually can kind of see a path to future cash flow. I'm a little bit provincial in my thinking. I do still think in terms of discounted cash flows and like building real businesses, real revenue, real profit, eventually that place where you can get access to capital and you stay private, I mean for most companies that's going to be. That's a great place to do it. Post GFC right in 2010ish, when we were all looking around and debating whether companies would stay private or go public, there was a lot of liquidity crisis there of LPs who were unable to fund their capital calls into the privates. And remember back then we're like, oh my gosh, we think this is the end of privates. It's like private equity is going to get smaller, maybe venture capital and these. But actually the opposite happened. The market became more sophisticated in its ability to underwrite. And I think as companies stayed private longer, we saw all the alpha flowing to those companies. So why was that? Being private allows you to have a conversation with investors in a deeply involved way where they can understand your business and stick with you across a time horizon that's more than a quarter or a year. And I imagine for a lot of public investors, where their capital is flowing in and out all the time, maybe it's in a mutual fund in kind of an extreme case, but even in hedge funds that are very highly specialized in the biotech space, you always have this threat of redemptions in the capital coming out. As a private company, especially a private company that's profitable, say as a, as a company like Alloy that's continued to scale as an EBITDA positive company, that allows us to have a conversation with our investors about how we put capital in and we compound over time and being locked into a trajectory that says we're committed to a path that's going to play out in 5, 10, 15 and 20 years and being able to demonstrate that you have accretion in your business model. You have an accretive business model, and you have your stock prices going up over time because you're helping people get in and out of your stock, even in the private markets. Well, then why wouldn't you stick with that engine that compounds over time? I'm sure a lot of family offices have this problem, but so do large pools of capital. That one of the challenges you have is when you have an exit. You got to do something with that capital. It's like, don't give me. Like, there's so many investors I talk to, especially on the family office side, where they're like, no, no, I don't want you to sell your company. Like, could you just keep compounding it? And I wonder where.

A (13:15)

I think that's uniquely to your cap table.

B (13:17)

But it's maybe a little bit unique to my cap. But I've talked to a lot of other folks who have a similar issue. I mean, we'll just look.

A (13:22)

Well, a thought experiment is like this. And this is how I think about my companies go. That goes public, okay, so I sell it. Then what do I do? I pay 32% tax and then put in the S&P 500. You need to have a good answer to that second question. Warren Buffett said the number one consideration investment is opportunity cost. What is opportunity cost? And sometimes opportunity costs could be getting into the next 3 seed company that could go 100x. Sure, in theory, at least. But you have to think about what am I doing with that capital. People just want this reinforcement. Oh, I crystallize this 10x, which I think is kind of a simple way.

B (13:51)

Warren is a perfect example. Like, so why aren't there more companies that look like Berkshire over time where he has. I mean, he's. He's sitting on a ton of cash right now, waiting to deploy. We'll see. I'll see what happens.

A (14:01)

Right.

B (14:01)

The. But he has, on the behalf of his shareholders, he has solved the compounding problem to some extent.

A (14:07)

Structurally.

B (14:07)

Structurally, Exactly. So why don't we see more companies like that, sort of large conglomerate companies with permanent capital. I wonder about that all the time at Alloy.

A (14:17)

That's Bill Axman, Bill Ackman's dream. That's what he's trying to do.

B (14:19)

It completely is right. And it's. And it's. I think we all understand how amazing and how awesome that would be. And you'd love to just give someone $100 and have. Just keep compounding forever. And you just check in and like, how's my investment and it's just, it's doing great. We do see Alloy as a compounding engine. I mean when I think about Alloy, not just from a dollars and cents standpoint, although that should play out as well. But there are some things in cutting edge technologies where you compound your insights as much as your capital. And it's not just a synergy of 1 +1 equals 2 or 1 +1 equals 4. Really there are insights that only come from the intersection of, of the parts of the puzzle coming together. And biology is a complicated multi dimensional problem. Warren Buffett, if you, if you look back, right. How did he get in the, in the last 40 years, he's, he's returned about a hundred times his money. If my, if, if, if, if my data are correct, okay, that's about a 14% compounded rate, which 14% doesn't seem like a lot for like a really high tech company or risky company. But if you told me you could give like you have an opportunity where I could put in a hundred dollars and you will make, give me a hundred times my money in 40 years, I would do it in a heartbeat.

A (15:25)

Yeah.

B (15:25)

If I believe.

A (15:26)

And tax is a big, tax is a big aspect of that. There's that whole retirement paradigm where if you put in a thousand dollars now in like 40 years, it'll be, it continues to compound. It breaks down many different ways. One is people take it out, people don't hold. It's not a tax deferred way. So, so, but it does, the math does work. It's just there's so many nuances to that and how to execute it.

B (15:44)

One of the things we talk about at Alboy is we reinvest a hundred percent of our revenue back into innovation and access to innovation. And the reason why I can say that with such certainty is I know there will always be one more opportunity where we can leverage our technologies, our services to create a new drug. You know, may we live long enough that we've cured all disease that I'll be made a liar by the, like that statement. We continue to reinvest, no longer deploy. It kind of comes like there is always something more we can deploy and it's innovation and access to innovation as it relates to making medicine. But there's, there's always going to be a supply chain problem, even on the back end of a new drug that we've discovered trying to reduce the cost, trying to increase the access around the world. I get excited about those problems. And so that's a, that's a statement we can make as a business that we are so fully committed to taking the knowledge that we have, the capital that we have, the resources that we have, and then trying to figure out what is the best way that we can use those, those resources to make an even better drug and even better technology that will lead to a better drug or even access to those drugs. So at the end of the day, maybe we're just like a big logistics company just moving around drugs.

A (16:46)

My bias against public companies is the short termism and also the implicit lack of control from founders. And obviously Google and Facebook has these super voting shares. Have you looked into that and looked in the how do you make public companies function more like private companies?

B (17:00)

Absolutely. And I think the controlling class of stock is a really important one. It's more common in tech.

A (17:04)

Does it work in practice?

B (17:06)

I think it works in practice. I think it comes down to the quality of the leader and what do they believe. So it works both ways.

A (17:13)

Yeah, it's if somebody has control, it's too out. Exactly.

B (17:16)

You could drive that, you could drive that car right off a cliff because you've got the wrong driver there.

A (17:20)

And I think also the market punishes that and least historically, last time I looked at this, Meta was trading lower because Mark Zuckerberg had that premium. Maybe that's changed since then. But the market does not like control in the, in the hands of the founders.

B (17:33)

It's impossible to completely run that experiment. Right. But does, does Mark take a near term hit like the. The market today gives him a haircut. But he's going to win over the long run and for the right founder with control stock who also surrounds him or herself with good people advising them and is mindful of what's happening in the world. You can, you can make a lot of mistakes as a very, very profitable company that you have control of over and. But if you integrate it as a learning model, I believe you'll win over the long run. If we look at some of the colossal mistakes perhaps historically around acquisitions like AOL Time Warner immediately comes to my mind, right. It's like, was that a good acquisition at the end of the day? Like is everybody happy with the level of dilution that was taken through that merger? Not really. Public markets don't necessarily get these things right as well. And the short termism that you talk about is a real challenge for public companies. Obviously the pressure that you feel as the management team looking at your stock price every day and really your employees and how you manage their psychology, it's how do you get outside of that trap. How do you stay focused around real value creation? It's a big challenge in the biotech and the biopharma space. I think most people are not familiar with the control provisions in the stock class that Regeneron has. And so there's a, just an incredible success story that the founders of the company had a special class of stock that gave them more control over that outcome than not. And so they were able to prevent an acquisition through that special control that they had. And that gave them the room to do the right things, to invest in science over long time horizons. I mean, there were many different scientific bets that they placed that had to play out in a little bit longer time horizon and eventually were very correct in a lot of different technologies and have great drugs and a great pipeline. So they were able to kind of make it through that transition to being a very big, very successful pharma company without getting acquired, in part because they did have that.

A (19:27)

It's another way. The public markets obviously are extremely efficient, but they're extremely efficient in the short term and they keep founders and management from doing the things that you need to do for the long term. They're just shortsighted.

B (19:39)

World is changing really, really quickly. We think about OODA loops a lot. Does it ever come up with your folks that have observed orient, decide and act? So John Boyd wrote the playbook around dog fighting for the, for the, for the US Air Force. And it's this principle of you have to observe what's happening in the world, you have to orient yourself to it. You decide and then you act. And as a fighter pilot, if you can do that, if your OODA loop is shorter than your adversary, your adversary is totally cooked, right? Because you can, you can change an update. I saw that back when I was at Lehman Brothers Venture Capital during telecom deregulation in the first Internet bubble, we saw this pattern where we could, I mean, it almost seemed like we could start a whole telecom company or telecom equipment company and start to get it financed faster than the incumbent Telco could schedule their third meeting. Just like the OODA loops, there were like, kind of amazing. The pace of your decision making and your ability to make decisions and to be very rapid, to adjust to market conditions is incredibly important. And sometimes as a public company, you can't do that because it functions a bit like a bureaucracy, right? It's like you have to bring constituents along. You are not the Viceroy always in charge of, with absolute power of your decision making. And you have to bring folks along. You have to bring the markets along and your stock price can get punished if they don't understand what you're doing in the near term, or perhaps they understand what you're doing in the near term. They just don't believe that it's worth the payout that might happen in year five or ten instead of thinking about it in an indefinite future. I think a lot about the temporal arbitrage of how do we make investments today, how do we tell stories today, how do we have conviction today about what the future will look like in an uncertain future? And the more indeterminate what's going to happen in the future? Biotech, AI, sort of even regulatory policy, the threat of competition from foreign adversaries in our industry, these are all unknowns. And if you sit back and try to predict the future because you believe that the future will come with or without your intervention, I think you do get punished. As a public company, you have a bureaucracy and effectively you're managing it. But how do you exert your will on the future so that you build the future that you want to live in and you create the system or the technology or the drugs that you want to see exist and you go out and you change the industry to make sure the future that arrives is one that's efficient and is a learning model that allows us to make better drugs. I mean, it's almost easier to do that as a private company where you have complete control.

A (21:59)

I've been curious about this. You started your first company, Adamab, you co founded it while you were at Dartmouth and you weren't even a biotech background. You taught yourself and you learned through your master's program and created this phenomenal business and you've just kept on creating businesses and creating the future that you wanted to see throughout your career. Do you believe in the great man in history or tell me about kind of your updated model?

B (22:19)

I believe in the great man or woman of history for sure. How much credit you ascribe to the agency of the individual or not, like fair. But at the heart of what we do at Alloy, I mean, this is the most important thing I ask the folks who work at Alloy is that you got to believe that what we do matters. That like, if you don't believe that what you do every single day, the care that you take at the bench, or the thought you put into the analysis you do, or the conversations we have with our partners or paying attention to the problems of the pharma companies we work with or the academics we work with, if you don't believe that what you do matters. This is not the place for you. And it's. Again, we're just not going to debate it. Like, it's just there's. There's no quarter here to sitting back and deciding, like, oh, my gosh, maybe it doesn't matter and if I don't do this job, somebody else will do this job.

A (23:01)

Is there a way to weed through that during recruiting?

B (23:03)

I think we try. I mean, we do a lot of. It's just like looking someone in the eyes and trying to figure out other questions we can ask. We use various different sort of like, personality or communication models. But part of our philosophy, recruiting, is we try to tell people who we are anti selling. Anti selling a little bit. Like, I love that you like who we are is like, anti selling. Like, yeah, I mean, it can be.

A (23:23)

Well, it could to the wrong person. It is anti absolutely.

B (23:26)

It's. Look, it's. It's hard to work at Alloy.

A (23:29)

My name's Eric.

B (23:30)

You know, like, this job's going to be terrible. Like, by the way, like, we're going to ask more of you than anyone else has ever asked of you and try to hold you accountable. But, hey, dirty secret, you're going to have to hold yourself accountable because we're all too busy, you know, working on all of our things and trying to stitch it together. The I do believe in the great man theory or the great woman theory of history, because people need to wake up in the morning and they need to believe that what they do matters. And if you don't believe that, I don't think you push the future into the place where you want to live or anyone else does. Now, how much of it is a single individual? There's a lot of things in the world where you take out a single person, and I don't know that that ever happens. One of the things we do talk about, of the history of companies, you and I have talked about this before, I'm sure. This idea that in the history of all mankind, humankind, every company has failed for the same reason. And it has failed because it ran out of money. Right? That's. The failure mode is always the same. But the success mode is highly idiosyncratic. It is of a moment in time with just the right people, with just the right macro environment, cost of capital, what the competition is doing. You know, is there a war going on overseas right now? And how it affects your gas prices and everything else. These are all the idiosyncratic things that sort of add up to the moment in time of a company that can be successful today that requires the person and the people also being there and showing up to the office today to do the work that needs to be done today. And if you don't take advantage of that opportunity or you don't build that thing, the moment will pass by. And that isn't necessarily that the moment will pass by and someone else will build the thing that you are building. I mean, do we think someone else would have built SpaceX in our lifetime if not for Elon?

A (25:06)

I don't think so.

B (25:06)

I don't think so.

A (25:07)

Very low chance.

B (25:08)

I think so. And by the way, like, get. Get someone on the podcast or get someone to try to make that case. And I want that. I want to build. I want to build a company with that person, the person who thinks they can do that and, like, truly believes it in their bones.

A (25:21)

Great.

B (25:21)

Let's go do it. Let's. Let's you go do something, and I'm here to support you. I would love to get behind that. Let's go do something. Great. Holding greatness in your mind of, like, what? Like, something that's, like, scary in the future, that you want to see the future look like, and then having the will to go out and try to motivate not only yourself but others to build it is hard. It's just really hard. And I. You know, where we sit in this crossroads of biology, there's a lot of things that are super exciting in the biotech industry right now, but I don't believe if left to our own devices, all of those things will emerge. I think it does require great scientist entrepreneurs who wake up every day a little bit psychotic about doing the thing that needs to be done today. And if anything, it's even harder in this industry because we all have pretty good knowledge about where the competition lies. Like, if you're working on a particular drug target, maybe you published it in your academic lab, and then Maybe we saw 30 or 40 million dollars of venture capital go behind that, and we're aware of the target and what you're doing. And then all we know is that you went out of business. It's reasonable that, like, maybe you collected some data that said that that was a bad drug target or that there was something about your medical hypothesis, your scientific hypothesis didn't work out. We don't have perfect information. We just view it from the outside that might set that biology back by 5 or 10 or 20 years. Right? There's. There's so many incredibly complicated problems that are at our fingertips today as an industry that you're constantly deciding which bet to place. If I only had $10 million, what's the drug target? Like, what's what. What is the, what is the scientific problem that I want to go solve? And so I worry a lot about when we work on a drug program that if we screw it up, there might not be a second shot at it. And so we need to take we as as the partner for our folks, the customers we work with. I want us to take really great care because there might not be a second or a third opportunity to go hit that in the next five, 10 years. Eventually we'll probably figure it out. But eventually might happen a long time.

A (27:09)

It muddies the water for the entire,

B (27:10)

for the entire muddy the water. I mean look what happened with gene therapy or cell therapy or just kind of gene therapy in particular in these early days. Like we had some problems with the technology and how we handled it and as an industry and it did set us back a bit by maybe as much as a decade or so in where we're at.

C (27:29)

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A (30:18)

Said another way, the entrepreneur that, let's say an entrepreneur decided to go after that in two years every investor is going to be asking him this question, asking him or her. Every potential high intelligent employee is going to ask him the same question.

B (30:29)

Yeah.

A (30:30)

So you have all these frictions above and beyond starting a company, which itself is hard. So it's like what target are you going to go after? Unless you're very passionate about this one target, you're going to go after something that has less friction.

B (30:41)

Right? And boy, we live in a crazy industry with biotech or biopharma because the time horizons of answering that question are years, if not decades. The amount of capital required historically has been 10. If not hundreds of millions of dollars. And so these are not small experiments and they're not ones that are. You've got a great feedback loop like your OODA loop kind of stinks.

A (30:59)

For drug development and drug discovery, there's no lean startup.

B (31:02)

There's no lean startup, although that is the alloy dream. That is our model which is how do we help everyone operate a bit more lean and truly to be committed to that too to reduce the cost of every single step of the. We started in drug discovery, we started in antibodies, we've expanded into other types of biologics and ever increasingly we're doing more in pre clinical and clinical development. But it's all towards an eye of how do we reduce the cost, shorten the timelines and increase the probability of success of every single inflection point with a goal towards making all of the revenue of answering a question. So the cost of answering a question smaller every time we do it and providing that service to the world, what you get in exchange for doing that is more innovation. I think that's what's not obvious to folks is if you have a million dollar experiment versus a $10 million experiment as a field, we're just going to get more experiments, the less expensive they are.

A (31:52)

If you think of the bottleneck as the professionals doing the experiments.

B (31:55)

The professionals, but also the capital. I mean biotech is only so much risk taking capital. Exactly. I mean it's a specialist driven industry. Like it just. Friends don't let friends invest in biotech. We talk about friends and families. We've done investments together and like every time you do like that early stage, like friends and family round, there's, there should be no such thing as a friends and family round. When we put money into our venture studio we only invited colleagues and collaborators because it has to be people who

A (32:20)

are like, it's a way of diligencing your investors.

B (32:23)

Oh it's more of like so that

A (32:24)

they know what they're getting into.

B (32:25)

You know if your mom asks you because she's nice and she likes what you do to like put money into your biotech fund, you're like mom, I really appreciate the support but I don't know this is the place where you

A (32:34)

better just to grant her shares and

B (32:37)

it's, I mean this is. And I say that jokingly sort of there's only so much I have money in the venture studio. No, I don't think I even let my mom.

A (32:44)

It's only so much pressure you could take as a human being losing mom's

B (32:47)

money is not ideal. We need to diversify as a family here. But no, it's because it's a deeply specialist driven. You look at specialists just on the hedge fund side and the crossover side and the venture capital side. Like this is an area where the reason why it's driven by specialists is in part because of the complexity of the science and also the time horizons, these compounding complexity. Whereas if we're building a software company, at least we have the advantage of it being something that we might use ourselves. Like we, you can, you can experience a software product and get a bit of an intuitive sense of whether it's useful. And if we've got a, a new CRM that competes with HubSpot, like I use HubSpot, like I can sort of experiencing that as an investor, someone can come to me and be like, hey, this is going to be better. Well, how would it be better? It's going to have all the features, then it's going to be 110 the cost. Okay, great. Like if that was the pitch in biotech, like that would be pretty easy. Like I've got your drug that today is $100,000 and it's going to work and it'll only cost 10,000. Now the problem is that pitch, if you give it to me today as a biotech investor, well, that drug won't be approved for at least a decade because of the process of how we run clinical trials today. And you kind of don't know what competition will look like in a decade. Like a lot of things can change in 10 years. Maybe that first drug has gone generic and then the generic competition cuts the price by 90%. Also there's just, there's a lot of things can happen in years.

A (34:02)

So is there a rational case for investing in biotech today?

B (34:06)

Absolutely, I think. And maybe it comes down to time horizons. So I, I, how do you get in early? How do you invest in, how do you, how do you get into deals that no one else can get into? One of our philosophies in our family office is you want to own someone that no one else has. So sometimes something that's patent, is that super obvious? Like a patent is something that you can own, something that no one else has. You defend your ip, a brand, the New York Yankees. No one else gets to own the Yankees.

A (34:31)

Like an nft.

B (34:32)

It's like an nft. Yeah, sure. It's this.

A (34:35)

That's the best argument that I've heard about sports teams because I, I went deep into this. I interviewed Cass for, from Christopher Zook there's parts of me that are conservatives investors. There's parts of me that are very gung ho as an entrepreneur. But when I see an asset bid up like a sports team by 10x over the last short decades, I'm like, is this not a greater fool's theory? And the best argument that I've heard about that is that there's 30 NFTs in a specific league and it's a index of billionaires and DECA billionaires. If there's going to be more deca billionaires in the future, there's going to be more demand for these 30 NFTs and they're going to bid up the price. There's also obviously an economic argument and cash flow, media rights, all those. But this NFT and scarcity is an interesting argument.

B (35:13)

We also have a sports team and a sports league.

A (35:15)

You want to talk about it?

B (35:16)

Happy to talk about it. Happy to track back and see the analogies in biotech perhaps. But the, if you look at the big four in the United States and like the most expensive teams on it, I'm not sure that's like an NPV positive, like just there on the mark, like the value, almost the equity.

A (35:29)

Not from a DCF perspective.

B (35:31)

It has to be an equity value play. Right? And so what. Why does the equity value of an NFT rise like in that, like sort of the rarity. It's like, I don't know, like all the Monets that were already painted, they're worth more today than they were 50 years ago. Like why is that they're the same, like the product is the same. The way that you experience. They're collectible of sorts of, they're collect. There's, there's a reason why it's worth more because it, because it's unique. I think the trade in sports today, I mean obviously we think a lot about AI and ML, we think a lot about software, we think a lot about this in the, in the field of drug discovery and development and incredibly exciting things that are happening in our labs and around the world. But I think about it a lot for our sports team as well. And so you, you look at what is the value of live entertainment and in a world where we are awash with even better AI generated entertainment, I predict that we will value something that's real and tangible more that we as humans. The experience like that, that stirring that you have in your heart when you read something that a human wrote where you experience a play or you look at a painting that you know is made by someone who's real is that there's a whole internal story in your own mind, in your own heart that connects you with that in a way that if you know that it's made by AI, it can still be as equally beautiful. They can like you can experience it in a way that like maybe it's wonderful, but the fact that there's no human there, you're just going to feel differently about it. In our experience, we experience life through a temporal lens. Like we, we consume our reality through time. Like this, this experience we're having today. There's no, like we're both spending hours of our day for this, preparing for it and otherwise. And we only have one life to live. And the true, the, the only true currency that we have that is scarce is our time.

A (37:08)

Venture capital and biotech, where is it at today? Where are the opportunities? And where can VC still make money in biotech?

B (37:16)

Great question. The venture capital and biotech looks like venture capital in general, which is the funds have gotten bigger. And it's logical why that happens. We talk about this a lot, you know, all of us do, which is if you're successful and you've got a hundred million dollar fund, well then you earn the right to have a $200 million fund. And if you're successful, you earn the right to have a $500 million fund. There's just this inevitable growth that if you're good at what you do, you have a bigger and bigger fund in biotech. There's a few exceptions to that. Atlas is a fund that has always had discipline to say that there's like a right size of fund. I deeply respect them for that. Those partners, they believe this is right scale to the number of partners they have and the amount of money they can deploy.

A (37:57)

The benchmark of biotech, they do a great job.

B (37:59)

They, you know, funds wax and wane. And it's a power law model or even like you look at an exit like Moderna, it's like did we get to like a third power law there like two power laws. I mean that was such like a black swan event. But these are, these are power law exits in biotech. It takes a very strong person to say this is the right size fund and I'm not going to have an AUM driven model like benchmark.

A (38:21)

Yeah, right.

B (38:23)

So you said benchmark and like they said benchmark and now like yes, just like benchmark. So but let's unpack why benchmark looks the way it does. We can, you know, this as well, as anyone else, and I don't want to speak for them, but I, one of the things that I observe is that they also have, have a lot of their own capital in it. So it's a little bit like your super successful hedge fund friend that at some point wakes up and is like, I'm going all personally at my family office. Yeah, exactly.

A (38:46)

Like, what's better than 20, 25% carry is 100% carry on your own money.

B (38:50)

Right. And so why would you ever do that? Well, that also bumps into the gravity of the quality of the opportunities that you can source and manage. At some point there's just a limit to that. You look at like Rentech and the medallion funds. There's like, it can't be a $60 billion fund. There's a, there's a size of that.

A (39:04)

I don't know if anyone's ever run the math on that, which is let's say you could be a $700 million fund with management fees and carry and let's say you could get it 2x, let's say 2 to 2.5x. Is it smarter to do a $300 million fund and put in 50 million or 100 million of your own money? It's a math question, but I don't know if anyone's actually run that.

B (39:22)

They put it down.

A (39:24)

I'm not surprised.

B (39:24)

You can talk to some folks on our Venture Studio team and otherwise there is an optimal size fund. If you believe in what you're doing. Like if you believe in yourself, if

A (39:32)

you believe you have alpha, then there's actually a financially greedy disposition to fund size.

B (39:38)

Yeah, I like the way you say that. Like a financially greedy. So, so take that in biotech.

A (39:41)

Long term greedy.

B (39:42)

Long term greedy. Exactly. But it's a, like, where can your conviction and your knowledge, the limits of your knowledge and, and your conviction actually return alpha? So one of the challenges you have in biotech or biopharma is we spend so much money in clinical trials, in particular late stage clinical trials. So no one has enough money on their own to build the right portfolio. But then you also, you can't watch and manage that portfolio effectively. Where are the exciting places in biotech? We vote with our feet on this a little bit. So it's, I don't know if this is self serving or just like what we do. We go early stage. Exactly. So it's also just really rewarding that you can, by being early stage, you're at the, you're at the point of, of creation of the technology or creation of the drug itself. And it's very little capital. So your reward on your own activity, on your contribution is actually very high. It's disproportionately high. And the later stage you go, we really reward capital as opposed to rewarding innovation. It's sort of just because if you're spending $200 million in a clinical trial where it turns out, especially if it's a binary event and so it's risky, you better have a lot of capital. And so because it requires so much capital and it crowds out other returns, I mean these are highly predictable events. If they were highly predictable, you could go out and raise that money or there'd be lower cost of capital and then more value would probably accrue to the operator. But the later stage you get, the more you get into the clinic. Phase two, phase three, a lot of the values accumulate into the capital instead of to the operator. So the earlier stage you go, it's more supporting great scientists, entrepreneurs.

A (41:11)

I know you're not concerned about it, but I'm sure your investors are. What does a DPI look like for an early stage biotech?

B (41:17)

I would separate is most biotech companies are drug companies. So even if you have a platform, you're really trying to use the platform to make a drug that works. So the, the fund itself, I mean if you're returning 3x the fund 3 to 4x the fund, you're doing great. You biotech is, is uncoordinated.

A (41:35)

But in terms of is that a 14 years until you get your money back.

B (41:40)

Funds still have to operate within kind of the ten year fund horizon. These. Yes. Some of them extend out and whether it's continuation vehicles or they're coming to biotech as well. They are coming to biotech as well.

A (41:52)

Do you like them?

B (41:53)

I. Yeah, I think it makes sense

A (41:55)

and it's an interesting alignment.

B (41:56)

It's. Well, we see so many take the alternative where you go public and there's just a zombie company that is trading below cash. And so the public markets, because there's no readout. There's no readout. But also just I mean for anyone trading below cash, there's like, is there confidence from the public markets that you're creating value? If, if, if you're trading like well below cash, there's an argument to be made that you should take that company. This is not in all cases but like in some of those cases you can look at it and you just look, let's just shut down the company, let's return cash to investors. And unlock value here.

A (42:26)

That's why I like it. For venture and for private equity. It may not be the perfect solution. There's a lot of different issues. LPs have to re underwrite the asset, but it's better than the alternative which is cutting off the legs from your assets, selling at a steep discount. I think it's way better than the alternative. Capital markets are more efficient, they're more driven by returns. And there's a straight off between drug discovery, return of capital and something has shifted with recent legislation. How do you think about this framework between. We want to cure as many people, but we also have to have the right financial returns in the industry. What's your best paradigm?

B (43:01)

You have to make money like it's just the. The capitalist system is one that helps to organize all of the world's resources down to a moment in time of like, what are we going to do today? And the decision that one of our employees makes today is do I come to work today? Okay, great. There's like a lot of trade offs that go into that. Maybe they want to stay at home and like tend to their sick child, but they have obligations today and they want to continue to be employed tomorrow. Not that we would left somebody off like that, but like that is the calculus that goes through everyone's head. It is going to cost trillions and trillions and trillions of dollars to cure everything. And that money has to come from somewhere. And if there was some magical way to motivate people and to align the economy without having a capitalist system, like a capitalist reward system, I think we should just do that. I'd be on board with that. The truth is that if you don't reward innovation and risk taking, you don't get innovation and you don't get risk taking. There is no evidence in the history of humankind that there is a system that gets new innovation and gets creativity without rewarding those things. There's like even painting. A painting that is new and is different, you will get ridiculed for that if it looks different, right? You will just like whatever's coming from your heart. And to turn, like to turn it into a painting, you. You will suffer the, the criticisms of the critics and you will suffer the criticisms of maybe your wife who loves you or your children who are like dad, I thought you were good at painting. And therefore those are all costs associated with doing something new and different. Now what are the rewards? The rewards might be that you feel your own personal sense of satisfaction. The rewards can also be from that creative endeavor that someone values it and pays a premium because it, because it's different, right? It's unique, it's your style. So I multiply that by like every single observation of how creativity works. Looking backwards, as a student of history, if you don't reward creativity and you don't reward risk taking, you don't get more of it. And so the future that I worry about is a command and control economy that is too top down and not bottoms up where we think we've got it all right, and we tell people what the rules are and who's going to get rewarded. And we set too many of the, let's say the constraints of the system up that limit people's ability to capture the value that they create. Because I don't worry about that because I'm going to make less money. I could care less. I just need the resources to do what we do. What I worry about is how do every incremental person that's going to show up and give their best self today and be really creative. Because if we're going to cure everything, if we're going to live in this like amazing, abundant future where energy is free and medicine is cheap and affordable and accessible to everyone and we all live forever, we need innovation, right? Like, like it's innovation that's going to get us out of this trap that we have.

A (45:37)

It's, it's actually the exception proving the rule, which is in spite of all these financial incentives and all this fame and accolades, you could get to doing the hard thing. Still so few people do the hard thing. So if you even take that away, what are, where are we going to be, right?

B (45:51)

And why do so few people do the hard things? I totally agree with you. It just so happens that if you're, if you went to a great school, like you went to Tuck, like that had a great job, you're like, you get paid a lot of money in like your job that, you know, your last jobs were probably easier than what you do today. You can, you, you also constantly challenge yourself. Well, it's not about the binary of like, am I going to do something that makes money or not make money? Am I going to do something that's meaningful or not meaningful? It's like, am I going to do something that's a little bit easier and still get paid enough? And I think a lot of people approach their lives and they're not bad people. That's just how life plays out, that they're, it's just, you kind of just want to Be home to see your kids soccer game tonight. And you, you, you want to be able to take a few vacations in a year and like you just want to chill or get some sleep tonight. And then there's the psychos who just for whatever reason they're miswired. And you wake up every day feeling this feeling that you better get something done.

A (46:47)

Paradoxical, because it's this deep sense of agency which becomes self fulfilling. You believe that you're the person that must solve this problem and then you end up being the person that solves the problem totally.

B (46:56)

And, or then you surround yourself with the folks that all do. And so I. The most magical thing is when you can find yourself in an environment with a team where you all believe that you're going to figure it out. And the more pressure you're under, you find yourself in situations in history where the constraints really push you to dig deep and to solve problems. And I think there are 350 million people in America, 8.3 billion people on the face of the planet. I think most folks have an opportunity for greatness and that they have an ability to perform well above what they're doing today. It's just they don't have to.

A (47:29)

I've gotten to flex or to brag about myself a little bit. I've gotten much better at developing people and kind of getting this greatness out of them. One thing that I've found is oftentimes they resist for a while till they get a big outcome and they're like, wow, I could do great things.

B (47:44)

What does that big outcome look like?

A (47:45)

Depending on the position, they work really hard. Even like our editor worked really hard on our second Hermosi episode.

B (47:51)

Yeah.

A (47:51)

And she hated me for that. Two weeks of just pressing, pressing, pressing.

B (47:54)

You could do better.

A (47:55)

You could do better. And now she's like the number one fan. She. And she like, it's memed this experience to other employees at agency.

B (48:01)

I mean, look, this is what we want for all of our children. I think you just encapsulated like as a parent, what I want for my children, but what I want for everyone, which is you work hard enough at something that you realize that you're better than what you thought you were. And then that gives you that taste of like, oh my gosh, like I am a. I. I'm a. I'm a human of great worth. And it does it kind of like that's, that that's the best dopamine hit possible. That the hard work that you have done leads to something that you find useful and that others maybe find useful and whatever your domain is. Again, coming back to the painting work, maybe it's, maybe it's you, you work in biotech, maybe your antibodies, maybe you're in our genetic medicines team that like when you're pushed and you kind of dig down deep and something works. I totally agree with that. You just, I mean that's a drug kind of unto itself. You just want, you just want more of that. I think for some folks to your

A (48:47)

point, you rewire your brain which is pain. It's just like when you start working out pain is pain, then pain becomes pleasure. And then you start to equate your brain just rewires it to pain as pleasure.

B (48:57)

Flow state and this, this idea that you can get to this like state of flow where you like lose track of time and it's, There's a woman who wrote a book on this and I remember in her, in her preamble it was like, oh man, I've, I've, I realized there was this thing called flow and I've experienced it like a few times in my life and I forget her number, but it was like single digit numbers. And I remember reading and I've read the whole book but in the beginning I was like, I'm reading like the introduction. I'm like, like a few times in your life like you wake up in the morning, then it's like put yourself into that, that state where you're working on a problem that is occupying your full mind and your talents and it's hard, like it's stressful, like it's, it's actually very, very hard.

A (49:36)

One thing that I've done, learned this from Dave Fontenot from HF0, Great Accelerator. They, they just like turn these hundred million dollars AI startups in like 12 weeks. It's unbelievable, it's crazy. And he really taught me this concept of context windows. And I think you just naturally do this, which is when you're in flow, you box yourself out. I don't check emails, I don't do. Everything's on silent. And I take it through this two hour to our window at full context on everything. And then I close a tab and then I can move on to other things. But just encapsulating, basically forcing flow onto the activity has been just a game changer for me.

B (50:09)

Do you know what that's like? And one of the first places where I saw that that comes from a negative place is when you like procrastinate or you get under a deadline And I think when I was like a teenager, I'd, like, procrastinate, force, flow. It's like, it becomes more slow. I've realized later in life that, like, oh, my gosh, that tendency.

A (50:25)

Have you ever procrastinated?

B (50:27)

Yeah, I think. I'm thinking I predisposed to procrastination at times when I was younger. But what I realized is you just. You force yourself into, like, oh, my gosh, here's the deadline. And ideas come better. It kind of gels in. It's just. I don't know, there's something going on, chemicals in your brain that just make you do better work. If you're writing on a deadline, for instance, I talked to friends who are.

A (50:49)

Who are.

B (50:50)

Who are writers, editors. They have to produce something every day that you just. You kind of develop that muscle a little bit better. The writer's room for the Onion. If you remember, our GC was at the Onion before. He goes without him, which we joke.

A (51:03)

That's how.

B (51:04)

That's how seriously we take the law at the family offices. Our GC used to be the gc, the Onion. But Logan would tell stories in the writers room. Like, they put out so many ideas in a day, and you could only pitch. Like, everybody would pitch an idea, but you could never pitch it a second time. And it was this, like, forcing function of, like, coming, like, just creative coming up with ideas, and then they get lost the next morning, more and more and more. And it just. It sharpens that. Sharpens that ability to just, like, do it really, really well. With that almost since we last chatted,

A (51:32)

I changed my religion to quality is downstream of quantity. It's one of the things, one of my central tenets since last time we saw each other.

B (51:40)

Like, you got married, I got married,

A (51:42)

and I changed my religion to quantity is upstream of quality or quality is downstream of quantity. I believe it's on such a deep level, we all embrace it. I made everybody convert.

B (51:51)

Quality is downstream of quantity.

A (51:53)

Yes. Meaning if you want to do more, we now do five episodes a week. Everything on the entire stack has gotten better, from editing to podcast booking to social media, everything. Quantity forces quality.

B (52:03)

So what do you think is going on there? And maybe what's the lesson for a biotech executive?

A (52:07)

The way that you distill that is in the negative, which is people could only improve so much, each single at bat. Meaning if you gave me, here are the 12 ways to do a podcast better today, one of two things would happen. One is I would ignore it. My ego would come up or even if I wanted to, if I'm like, oh, Eric's giving me the best advice, I just couldn't do it. My brain's just not able to process 12 pieces of feedback at once. But if I now do six podcasts

C (52:35)

this week and you tell me two

A (52:37)

things, I will process that in the same week versus one podcast a week. So there's some finite ability for the brain to process information. I think that's one thing. There's. There's many layers of that. There's the ego. I think the ego and the self could only change so much on an attempt. You can't see how far away you are from being good.

B (52:54)

That makes sense. And then there's an agency person because you. You got here because you're good at a bunch of things. And if you can't throw out everything at once and still be decent at

A (53:01)

what you do, you can't. And look, watching videos of yourself constantly failing and constantly improving is itself, like, hard to do. But I force myself on it. But I do it now five times a week, and that's just one example. And it's a bit paradoxical, and people don't necessarily embrace it, and it's hard to internalize.

B (53:17)

Do you rewatch, like, this whole episode or as an editor editing and just pulling out the good stuff, you watch it yourself?

A (53:23)

I do the first edit on every episode for other reasons, but partially it forces me to watch it. I will never put something out to somebody else. I won't myself watch.

B (53:30)

Okay.

A (53:31)

It also. It makes me empathize with the listener better as well. So there's other. But this idea of quantity being upstream of quality is a very important. And I think it's one of those, you know, this Peter Thielism, which is like, what is something that you believe that other really smart people don't believe? That's kind of my answer these days.

B (53:45)

That's okay. I like that. Well, what's paired with that somewhat, and hear you describe it, it is. It's not quantity, the sacrifice of quality. Right. Some people just do massive quantity, but. But you're embedding in your quantity.

A (53:57)

There's processes to it. There's still taste to it, there's still high standards, but at the same time, it's the quantity that's pushing the quality,

B (54:07)

trying to bring that into the pharmaceutical. So some of the things. It resonates, though, which is you. Some experiments we design could take years, right? So it's a little bit like, let's come back to SpaceX. Right? So NASA can do a phenomenal job overthinking and over engineering and sort of coming up with the perfect way that we might build a rocket. Or you can go out and make a whole bunch of incremental changes and improvements quickly and realize what works and doesn't work. The biopharmaceutical industry tends to look more like let's measure 12 times and cut once. Long time horizons, lots of money, patients, lives dealing with regulators. There's like all. It comes all from a place of strength and great care to really overthink it and the outcomes are uncertain. So I think that also kind of just feeds into almost the mentality that maybe we should take great care. One of our values at Alloy is that we plan carefully and act urgently. That's like one value. Plan carefully, act urgently. But that started as like, act urgently, like have a bias towards action. Sort of like the patient is waiting, like we need to do this. And it didn't quite work for us on, on the balance of how we think about science and how we think about medicine. Because just to have a bias towards action, like are we empowering people? Is one of our values. So you use your values when you're not sure exactly what the, what you should do and so you rely on them. You're like oh my gosh, just move fast. That's actually not usually the thing. It's this implicit by planning carefully, you have to do the pre work, you have to be sharpening your ax every single day. So then when it comes in the moment to swing that ax, it's like really sharp.

A (55:35)

You could distill it to going in every day and just doing a bunch of attempts of improving your study, improving all these things. It doesn't mean literally submit a hundred FDA studies per month or per year, but it's upstream of that before you even submit like do all, all the.

B (55:50)

But I would like a system where the FDA would give us feedback on like an AB test of like what about this? What about that? That, that's, that's extreme. They can't do it. Although in some of these, you know, some of the great innovations today happening at the fda I think are largely happening behind the scenes of, of how does the agency power the reviewers with AI tools? Sort of the, the, the large language model, perhaps internally that is all of the private knowledge that the FDA knows that can't, they can't share with the rest of us. And to bring all of that to the reviewer and say based on everything we've known, like how do you think you would respond to this, like, those tools are sort of being built and used today. And so maybe there is a world where we could ask that LLM some questions. We could a B test a little bit. Based on your infinite knowledge of the FDA and all the private data you have. If I ran my experiment this way versus this way, like, which way do you think will be better? I'm very optimistic that we're going to be able to recognize the patterns in the historical data, to make better decisions, to shorten timeframes, to be more efficient with the agency, which will save us a lot of money and a lot of time, I think, change the calculus of drug discovery and development.

A (56:52)

Well, Eric, as always, this has been unpredictable and intellectually stimulating. Thanks so much for jumping on.

B (56:58)

Great. Thanks for having me. It was awesome. Anytime.