Loading summary
Transcript166 lines
- [00:00]
Wells Fargo Representative
Wells Fargo seeks broad impact in their communities. They're focused on building a sustainable, inclusive future for all by supporting housing affordability, small business growth, financial health and other community needs. That's why They've donated nearly $2 billion to strengthen local communities over the last five years. Wells Fargo the Bank of Doing see how@wellsfargo.com say do Wells Fargo's philanthropic support includes contributions from Wells Fargo and Company, Wells Fargo Bank N.A. and the Wells Fargo Foundation.
- [00:31]
Bloomberg Representative
What could you if your data was working for you and not against you? With Bloomberg delivering enterprise data directly to your systems, you get easy access to the details you want, optimized for higher level analysis and financial data experts committed to helping you maximize your every move. Our data is made for more so you can show the world what you're made of. Visit bloomberg.comenterprisedata to learn more.
- [01:03]
Tracy Alloway
Bloomberg Audio Studios Podcasts Radio News.
- [01:20]
Jill Wiesenthal
Hello and welcome to another episode of the Odd Lots Podcast. I'm Jill Wiesenthal.
- [01:25]
Tracy Alloway
And I'm Tracy Alloway.
- [01:27]
Jill Wiesenthal
Odd Lots listeners, you are going to be listening to a special recording of the podcast, one that we recorded live in San Francisco.
- [01:35]
Tracy Alloway
Yep, that's right. This was a conversation that we had at the San Francisco MoMA on November 20th. It was an event sponsored by Principal Asset Management and our guest is Ethan Kurzweil, the founder and managing partner of Chemistry vc.
- [01:52]
Jill Wiesenthal
Yep, we talked about all things tech, software investing, how investing today is different than it was say in 2014 when rates are at zero. We obviously talked about AI and how that changes the game of software investing. Take a listen. Thrilled to be here with the perfect guest, Ethan Kurzweil at his new fund, Chemistry. It basically launched like three weeks ago or something like that. And prior to that, 16 years at Bessemer. So literally the perfect guest to talk about, you know, VCs, the landscape changing over time or something like that.
- [02:30]
Ethan Kurzweil
Well, thanks for having me. This is actually the first episode of anything we've done since we launched Chemistry.
- [02:35]
Jill Wiesenthal
So that's very exciting. We're thrilled. There is obviously so much. There's so much we could talk about. Talk about the macro environment, we could talk about AI, we could talk about the political environment. Maybe we'll touch a little bit on all of it. So I'm just going to ask like a really simple question to kick it off, which is in the 2000 and tens, people talked about the ZIRP era, and some people even look on that period quite fondly right now with nostalgia, even though at the time ZIRP was Seen as, like, this negative thing. Didn't seem that bad out here, though, strictly from a macro standpoint. You've been in this game, so to speak, for a long time. What's the difference right now versus, say, if we were having this conversation in 2014?
- [03:20]
Ethan Kurzweil
Oh, the good old days of 2014. I miss those days, too. I wish we could go back. So right now there's lots of things happening, happening in the tech landscape broadly as well as venture. And so maybe just taking a few around Venture, you had this era of explosion of different things, lots of different funds, new products, money being kind of invested in the asset class beyond what it could take, beyond the capacity of those companies to absorb the capital and do good things with it. I'm an optimist about tech and venture. I think more is generally better, but there's a limit to that. I think everyone would now agree. Kind of in hindsight, we went a little bit beyond that limit. Now we're in this kind of new era where that's happened. We're kind of digesting the impact of that, of all this capital coming into the space. And you have this kind of new technology phenomenon. And by the way, it's not really new. It's maybe new as it applied to startups.
- [04:11]
Jill Wiesenthal
You've heard about it for a while.
- [04:13]
Ethan Kurzweil
I've been hearing about AI for, I don't know, a few decades or something like that.
- [04:17]
Jill Wiesenthal
We'll talk about that.
- [04:18]
Ethan Kurzweil
We'll get there. But that's now kind of the building blocks are now there. The technology startups without a lot of capital can take advantage of it. And so that's getting people kind of very, very excited again. Even as everyone knows, it's still this fresh memory in everyone's head of how we kind of overcapitalized everything. And so those two forces are sort of countervailing, and it's having some interesting impacts that I think we'll probably get into.
- [04:42]
Tracy Alloway
We definitely will. The new fund. Why does the world need a new venture capital fund? Or if I was going to phrase it more diplomatically, like, what is it that you can do at Chemistry that you couldn't do at Bessemer?
- [04:54]
Ethan Kurzweil
The world does not need a new venture capital fund. That's. That's the last thing the world needs after Chemistry launched.
- [05:00]
Jill Wiesenthal
That was the last one we needed.
- [05:02]
Ethan Kurzweil
Even before Chemistry, we were oversupplied on venture capital funds. But the world does need the right venture capital fund. And I'll get to why we launched Chemistry in a second. But I do think the effect of the capital that came into the asset class over the past kind of five to 10 years has been to create a little bit of a misalignment. A misalignment between LPs, that's who's invest in venture firms and the venture managers and then a misalignment with founders ultimately. And that's what got us this sort of passionate idea to bring venture back to its roots. Chemistry is sort of a simple idea. It's a boutique venture firm, it's small, it's designed to scale very slowly. We are not a hypergrowth startup. Even though we try to find those to invest in, we want to bring some sort of personal service back to venture capital. We don't have big teams of people. We are the portfolio services team that works kind of hands on with our startups. And that ethos we felt like was missing from a lot of the way that kind of as the asset cuts got institutionalized, you lost a little bit of the personality and the personal relationships. And we felt like it didn't have to be that way. There's nothing bad about the way venture used to be practiced and that really, it just became so missing that we felt like, okay, we'll go do this.
- [06:14]
Jill Wiesenthal
Let's say I have a lot of money, I'm an endowment or whatever and I'm thinking about allocating money to a VC fund or firm. That sounds really nice. Personal relationships, all that. But mostly I just care about getting returns. And let's say my assumption is okay, yeah, again it all sounds very nice. But there are advantages to scale. There's deal flow that large firms see that maybe they're the first call in some round or something like that. Why would that be wrong?
- [06:46]
Ethan Kurzweil
It's not wrong, but it's not the only way to practice venture. There's definitely advantages to scale, but I think it comes at a cost of being able to focus uniquely on companies that are at this inflection point moment, this pre inflection point moment where they're about to take off. Because when you have a lot of capital to manage, you're going to make decisions that aren't necessarily about how do I find that company that needs a 3 to 7 million dollars check. At that moment you're thinking about how do I move the. Move the merchandise, move the money that I have in the system. And so it may be appropriate to make that investment, but it may be appropriate to make a whole host of others that are at cross purposes with making finding the one defining company of that era. And I think for us that have been experienced at working at venture firms and identifying the patterns that lead to that, we felt like we could pick those out pretty well and that we would have a good sense of where to spend our time without the resources and without the brand magnets of other firms, and that it's a small community, we could get our brand out there pretty quickly to folks that are used to identifying those patterns and referring those deals on to us.
- [07:55]
Tracy Alloway
So I think you just finished your first fundraising. Was it 350 million?
- [07:59]
Ethan Kurzweil
350 million was the first fund. That's right.
- [08:01]
Tracy Alloway
What was the fundraising experience like now versus, say, going back to the good old days of 2014?
- [08:08]
Jill Wiesenthal
Oh, yeah.
- [08:09]
Ethan Kurzweil
Oh, yeah. Good question. So it's different in two respects for us because we were a new entity too. And so we had a whole bunch of vetting around. Hey, what's our track record and experience? Do founders want to work with us? Because this whole premise was on, we're going to bring the individual personal service back. We need to be able to say our personal service is good, like you want to work with the chemistry team, because we're known for that. So there was a lot of vetting around that there were LPs that felt like the asset class had underdelivered. Those were generally came into conversations very skeptical. And our argument to them, and some of them invested, some of them didn't. But our argument to them was, look, that's true writ large. But by having exposure to just the earliest stages of the asset class going back 40 years, that phase of the market has always performed. If you took a slice of the venture market and looked at just early stage investing, just the phase of your typical kind of series A and series B investment, maybe the median fund hasn't performed, but there's always been outlier funds throughout that period. If you looked at all of the asset class writ large, including all the growth checks, the later stage investments, the sort of pre IPO rounds that came on, that asset class has really underperformed over the last five years. So we were sort of orienting around. We give you exposure to just the early stages, and we don't want to do anything else. We formed the firm just to do that.
- [09:33]
Jill Wiesenthal
So there's no guarantees ever in venture. And we know there's outliers, but the basic idea here is that venture may be cyclical or there may be structural, but early stage is not cyclical in the same way that these potential returns have been stable at this level.
- [09:49]
Ethan Kurzweil
If we make the right. If we make the Right number of investments. We have to make the right investments and we have to get a few right. Maybe there's a little luck involved, but if we do that right, that will outperform. We won't water it down with bad investments later.
- [10:01]
Jill Wiesenthal
Let's talk about how to make good investments then, because that's really what matters. Obviously the 22,000 and tens, the sort of cheap cloud computing and all the SaaS trends that made people a fortune. How does evaluating a company today, and this is where, like, I guess, the AI part comes in, whether the company is AI specific or in some level, is going to be plugged into an AI model somewhere, how does that make the process of evaluation, evaluating a company different?
- [10:34]
Ethan Kurzweil
It makes it radically different and exactly the same all at the same time. All right, so what do I mean by that radically different in that the entrepreneur can now promise pretty incredible things. You can talk to a system and get it to code for you is something that three or four years ago you would have said, sure, good luck with that. You need some engineers on your team. You can now make promises like that. But ultimately, the way we're evaluating companies is thinking about the end market that they serve the business user or the consumer, and how are their lives made better? How is this process improved? If you're making a consumer video editing app, how is that awesome for consumers to use? And so you start with the question of can the technology deliver what the entrepreneur says that's radically different. And then you step back to, hey, is this a good business opportunity or not? Is this something that people will pay a lot of money for or that will be able to monetize itself in some other way? That's very similar to how we've always done the job.
- [11:34]
Tracy Alloway
Is there a difference in the sort of due diligence process for AI versus old school SaaS?
- [11:42]
Ethan Kurzweil
Not terribly, honestly. Old school SaaS often had a data element to it that's somewhat similar to AI, how they harness data in the application. What's different now is you can apply a frame of reference of what's possible. That's just much broader, that's just much more interesting. That's just much more potentially transformative to business users or consumers. That's a little different. You might not be as skeptical about a founder's ability to deliver. There's this whole democratizing element to AI. Just riff on that for a second. In that you maybe don't have to have the most ultra specialized skill set of engineer to be able to deliver something pretty transformative. And so if you back up from that and think about a due diligence process, you don't necessarily need to spend as much time questioning the entrepreneur's ability to deliver. And there is this maxim that like most entrepreneurs, will build what they want to build. Just is that the right thing and is the timing right? With the AI era that's, you know, you get that on steroids. Most products can be built the way the entrepreneur says them. Now, will they have the impact that the entrepreneur thinks they'll have? That's still a question that we have to answer when we make our judgments.
- [12:55]
Tracy Alloway
What's the differentiator in that case? If it's not necessarily about the skillset of the engine engineer, what is it that makes you think an AI project is better than another AI project?
- [13:06]
Ethan Kurzweil
Ultimately, it goes back to what impact will it have in the market. I don't think about AI as a category so much. I think about AI as an enabling tech. Just like cloud computing or mobile or mainframes back in the day, or data center technology. It's just a way of building tech that can potentially allow an entrepreneur more weapons to be able to deploy. But there's nothing inherently like the end user that's using a finance application or that's using a communication app. At the end of the day, they're using that app because they want to do something with it. They want to communicate, they want to run their expense reconciliation process, they want to do X, Y or Z. And there's nothing different about AI that makes that any bit of a different analysis than we had before around what is the impact that that particular product is going to have in the world.
- [14:09]
Wells Fargo Representative
Wells Fargo seeks broad impact in their communities. They're focused on building a sustainable, inclusive future for all by supporting housing affordability, small business growth, financial health and other community needs. That's why They've donated nearly $2 billion to strengthen local communities over the last five years. Wells Fargo the Bank of Doing see how@wellsfargo.com Saydoo Wells Fargo's philanthropic support includes contributions from Wells Fargo and Company, Wells Fargo Bankna and the Wells Fargo Foundation.
- [14:40]
Bloomberg Representative
What could you do if your data was working for you and not against you? With Bloomberg delivering enterprise data directly to your systems, you get easy access to the details you want optimized for higher level analysis and financial data experts committed to helping you maximize your every move. Our data is made for more so you can show the world what you're made of. Visit bloomberg.comenterprisedata to learn more.
- [15:10]
Jill Wiesenthal
Today we got Nvidia earnings, a company that people may have heard of, and they were really strong. I think the stock slipped a little bit.
- [15:18]
Ethan Kurzweil
Is that an important company?
- [15:19]
Jill Wiesenthal
Sorry, yeah. And Jensen Huang saying AI is full steam ahead and they have all these scarcity. When you're writing a check to a company today, one of the things that characterized the 2010 was just persistently falling cost of computing power. When you're writing a check, how much of that today is going to pay some sort of Nvidia tax to have access to that? And how does that make the capital decisions of a company or the types of companies that you're invested in going to look different than they were?
- [15:52]
Ethan Kurzweil
Well, there's this interesting kind of two countervailing forces because the more of your check that goes to pay a tax like an Nvidia tax or an OpenAI tax or.
- [16:01]
Jill Wiesenthal
Yeah, right, yeah.
- [16:03]
Ethan Kurzweil
Generally for us it's being built on a model. They're not using the sort of bare metal of the gpu. There's puts and takes there, but the more you invest in that, the more you've got your own technology that's more defensible. So a lot of times we're seeing open source, so a lot of times we're seeing not a lot of money go towards that. But they're deploying open source tools or they're built on models that are freely available to anybody. And so it's a question of can the founder or the entrepreneur make a process improvement or productize commercially available technology to everyone in a radically different, unique, 10x better way? So much better of a user experience. The deep tech founders who are doing what you're saying were a lot of the check goes to building the core technology. You have to believe then in the business outcome being so great that it's worth it. It's worth this huge R and D investment or this huge investment in training specialized models.
- [17:00]
Jill Wiesenthal
But just to be clear, you say, okay, the non deep tech ones that are using some existing models is the amount of money that's going to say an OpenAI or some entity that already built the model is that fundamentally look different than say the expense sheet of another software company in 2014. When they think about how much outside.
- [17:22]
Ethan Kurzweil
Tech they're paying for, it's not radically different for the ones that are. The thin layer.
- [17:25]
Jill Wiesenthal
Yeah, the thin layer.
- [17:26]
Ethan Kurzweil
The thin layer ones are not that radically different. Think of it as a small incremental tax on top of their Amazon Web Services bill that they would already be paying. And the technology is so good, it's so performant, it's so available to everyone that most of the companies we look at because we believe in the lean startup and most startups that can be built on that kind of technology will build on that kind of technology. It's not a huge tax and cost. The huge tax and cost comes when you try to sell it and you scale up the go to market operation, the sales and marketing, but the tech itself. There's only a handful of companies where that's a real barrier to entry and.
- [18:02]
Tracy Alloway
There are some just on this sort of big versus small point. I think one of the weirdest things about the sudden rise of AI over the past couple of years has been the fact that Microsoft has been really good at it, which I think three years or so no one would have expected. Going forward, do you think who's going to be the best at this? Is it going to be the incumbents who now have a head start, who have the deep pockets, the access to data, or is it going to be the leaner startups who are maybe experimenting with new things and building on top of existing models?
- [18:36]
Ethan Kurzweil
Our view would be the foundational layer, the model layers that a lot of people build on top of or that we as consumers use for our basic chatbot style applications is going to go to the big players, plus maybe one or two new entrants and that looks like that game is sort of established. I mean, I don't know if you count OpenAI as a separate company from Microsoft, but that they're clearly around to stay and maybe there'll be one or two others, but that's not in our view a humongous startup opportunity because there's such amazing capital investments that need to be made there on top of that layer. Look, how do we take that tech, take those abilities that the amazing researchers at OpenAI aided by Microsoft and others have built and make it useful to the end consumer and to the end business user. I think that's where we're going to see kind of this new era, kind of like we saw of cloud computing where there were a few early entrants in HR tech and financial applications and things like that. And then this explosion of cloud computing applications that disrupted the status quo.
- [19:34]
Jill Wiesenthal
The platforms that emerged to dominance in 2010 just like exerted to varying degrees, but just tremendous lock in for their clients. And some, I'm not talking in the formal legal sense, although maybe we'll get to this. But like monopolies, but like de facto, just like some without truly without competition. And there's like this debate about like when it comes to these foundational models, there seem to be, you know, there's a lot of entities, there's not thousands, but there's quite a few that can make incredibly impressive performant models. Some open source, some closed source. Do you see any of them emerging with the same sort of like true lock in, kind of dominant? Or when you look at the companies that you're funding, do they seem like issues like yeah, we could use OpenAI but also without too much trouble, we could switch to another provider fairly trivially?
- [20:28]
Ethan Kurzweil
I think it's a really good question. I think the lock in is not too dissimilar from the cloud era where you could switch off of one cloud computing vendor from one to the other, but there weren't that many of them. Now in this era there might be a few more. And I think open source, there's no open source cloud computing provider. Someone's got to plug in the hardware, air condition the data center, make the networking work. With large language models, there are open source models that are going to get to be pretty good. And so I think that's another element here that's a little different from the cloud era where it probably allows a little more fluidity than even you have among clouds. But there's not going to be dozens and dozens of models because to be performant, to be human, like be able to provide people with responses that make sense, that have emotion, that really fulfill on the promise of what AI can do, there's only so much money that can, there's so much money needed to that that there's not that many companies that can capitalize on it.
- [21:26]
Tracy Alloway
Setting aside the big foundational models themselves, what's the coolest application of AI that you've seen so far that's sort of built on the big guys?
- [21:35]
Ethan Kurzweil
Well, the consumer applications, the companion apps are probably the coolest right now. They're not very realistic yet, although they're sort of getting, getting up there in that, you know, they start to emulate real people in the world. And like podcasters, I think there should be a Tracy, there should be a Tracy character app that's out there in the public and could in fact with Google's, with a Google system, you can actually create a whole podcast from a notebook that you people have done some automation. It's lacking a little color.
- [22:07]
Jill Wiesenthal
No, but this is, this is really important because I, I've listened to some of those, Google Creative, I mentioned this on another episode, I've listened to some of those and they're not as good as me and Tracy are. Nothing could be completely unbiased, but they're not terrible. It sort of disturbed me because I listened to the AI generated podcast about some document that the Department of Energy made and I was like, oh, shoot, this isn't that bad. It's not totally boring. It's not a terrible way of consuming that content.
- [22:40]
Ethan Kurzweil
So someone I know well had it read an entire book and generate a 12 minute podcast on that book. And it was not.
- [22:47]
Tracy Alloway
It was.
- [22:48]
Ethan Kurzweil
I totally agree. It was sort of complicated, like the personality was lacking.
- [22:52]
Jill Wiesenthal
That's right.
- [22:53]
Ethan Kurzweil
And they tried to make it personable and it just fell flat. And I think that's a little bit what's missing today. But AI will get better. Yeah, you're probably not as good as you guys.
- [23:03]
Jill Wiesenthal
That's true.
- [23:05]
Tracy Alloway
We're doomed.
- [23:06]
Ethan Kurzweil
No odd lies.
- [23:06]
Jill Wiesenthal
Well, okay, I'm just going to ask this question. You know, most people in this room have probably been talking a lot about AI for two years now. Probably in this room, it's three years. In the rest of the country, it's probably about two years. You, as you alluded to, have been probably thinking about AI in some respect for 30, probably 40 years. Tell us a little bit about your background, having thought about this for at least three or four decades longer than the rest of us. And how does that inform when you make predictions now or when you try to pick winners, how does 40 years worth of experience inform your choice of today?
- [23:47]
Ethan Kurzweil
All right, so a confession. The book that the podcast that I just mentioned is written about was my dad's book, but you're alluding to Perfect. My father, AI technology futurist, has been thinking about AI for about 65 years, is what he would say. And large language models for 40, because that's his field too, is pattern recognition, being able to recognize patterns and apply them to language. That was one of his first companies.
- [24:10]
Jill Wiesenthal
So did the podcast do a good job of talking about your.
- [24:13]
Ethan Kurzweil
So I was debating with him, he thought it was great. And I said, I think the podcasters aren't as good as Tracy and Joe.
- [24:19]
Tracy Alloway
Thank you.
- [24:19]
Ethan Kurzweil
Now your names. That's sort of what I said. And that was the debate we had. But they got this. It got the substance right. But yes to your question, AI. And it's maybe made me both more excited about AI and slightly more cynical about this moment, because AI has been around for a long time and now it's becoming hype cycles.
- [24:39]
Jill Wiesenthal
There have been many.
- [24:39]
Ethan Kurzweil
Yeah, yeah. And we will be in a disappointment about what AI brings hype cycle in about my calculations, 2.6 months from now, and then we will come back out. That's a very precise estimate. And then we will come back out from that. And then it will start how many months after that? 4.3.
- [24:57]
Jill Wiesenthal
Okay, wait.
- [24:58]
Tracy Alloway
What's the catalyst for disappointment?
- [25:00]
Jill Wiesenthal
Yeah, yeah.
- [25:00]
Ethan Kurzweil
What's coming that some of the companies that have been hyped to fulfill on this promise of completely human like lifelike understanding, reasoning abilities and emotion won't quite fulfill on that promise right away. And we'll have to wait another 4.9 months for that or longer. A couple years.
- [25:21]
Jill Wiesenthal
I can't tell how much of a joke they say.
- [25:23]
Tracy Alloway
Anyway, you know what else is coming in about two months is a new administration. I've heard about that. Yeah, it's kind of been in the news. You talk to lots of people in the VC space and in the founder space. What are people saying about the incoming administration? What are the hopes, dreams, fears that people are talking about?
- [25:44]
Ethan Kurzweil
There's people that are prominent out there that advocated for this or for or against it, that have their passionate points of view about why the new administration is good or bad. At the surface level, day to day this felt like, okay, there's a change coming and there's just not a lot of translation between that and the day to day of venture capital. Because technology is this force that sort of plows through market cycle, plows through market cycles. Technology, administrations, unless you're in a very highly regulated industry, crypto for instance, or something like that, I feel like in my circles around how is AI going to be commercialized for business and consumer. It's not an event that people are as focused on as perhaps the most prominent personalities out there.
- [26:46]
Wells Fargo Representative
Wells Fargo seeks broad impact in their communities. They're focused on building a sustainable, inclusive future for all by supporting housing affordability, small business growth, financial health and other community needs. That's why they've donated nearly $2 billion to strengthen local communities over the last five years. Wells Fargo, the bank of doing see how@wellsfargo.com Saydue Wells Fargo's philanthropic support includes contributions from Wells Fargo and company, Wells Fargo Bankna and the Wells Fargo Foundation.
- [27:18]
Merrin Sums
Not everybody likes talking about money. Some people find it awkward. Sometimes they even find it a little embarrassing. I do not. I like talking about money, whether it's the boardroom, the newsroom, the trading floor. I've spent the last 30 years talking about money, writing about money and talking about it and writing about it a little bit more. I'm Erin Sums at Webb and every week senior reporter John Stepek and I answer your questions about personal finance and we discuss the best strategies for making the most of your money. Listen in for the kind of insights and explanations everyone can use to help them make better saving and investment choices for themselves and their families.
- [27:50]
Ethan Kurzweil
My question is whether whether you think maxing out my company Pension Match is.
- [27:54]
Merrin Sums
Enough for when it comes to saving.
- [27:56]
Ethan Kurzweil
For my pension, should I attempt to pay my Charles University fees and living costs?
- [28:01]
Tracy Alloway
My partner and I have excess savings. So should we overpay on our mortgage or should we put the money into stocks?
- [28:08]
Merrin Sums
From Bloomberg podcasts, tune into Marin Talks Money, follow Merrin Talks Money on Apple podcasts, Spotify or wherever you listen.
- [28:18]
Jill Wiesenthal
I'm very curious about like the sort of tech inflected side of this administration, the influence of Elon Musk, JD Vance having been to vc. But the really low hanging fruit policy question is on the merger side and we don't know who's going to run the ftc. We don't know who's going to run the doj. It certainly seems plausible, however, that the new administration will have a much more liberal attitude towards letting mergers go through. How much is just from a nuts and bolts standpoint, when you're thinking about retirement, when you're thinking about investments, does it exits of various flavors, Does a big sort of 90 degree turn or maybe 180 degree turn on merger policy change your thinking?
- [29:01]
Ethan Kurzweil
Not a ton. But there's no question that the current administration, not just here but in the EU and the UK where remember any global merger now has to get through basically three antitrust bodies, has been really a lot tougher than any administration we've seen, Democrat or Republican in the past. So do you when you're getting when you're sitting with an entrepreneur and getting excited about something big dreams for tech, are you thinking about well, I wonder what Lina Khan's thinking about the consolidation of the market for design tools? No, not at all. But is it probably a good thing for entrepreneurs options to be able to exit their business and our business which relies on that? Yeah, probably.
- [29:37]
Jill Wiesenthal
It is the reality of the prospect of an exit into machine design tools or the prospect of who would be a buyer. Those kind of conversations weren't coming up in the early stages of a conversation.
- [29:48]
Ethan Kurzweil
With an entrepreneur, not with an early stage founder. Now, in a growth context it's tremendously important because if you don't have the option to exit for billions and billions of dollars, you can only go public. There's a pretty narrow set of criteria you have to meet to be able to go public. So then it's a pretty material thing. We're at chemistry focused on the earliest stages. Is this technology going to get out and have an impact there? You just kind of take a flyer, you kind of assume that if it does, it'll be valuable in any kind of context, whether it's in an M&A1 or some other example it.
- [30:20]
Tracy Alloway
So another aspect of the incoming administration is they seem to be crypto friendly. And I'm going to co opt a question that's been submitted by the audience, but what do you think about crypto in general as an investment? Is it something you're interested in?
- [30:36]
Ethan Kurzweil
That's one where the administration probably matters a lot. I have been pro crypto for certain use cases in the past thinking about what's the infrastructure layer needed to make crypto a part of the financial system. And so that's the security, the protocols, the permissioning, the privacy, all that kind of stuff I think is really necessary because crypto is still such a wild west to where you have to be pretty deep in it to benefit from it. And so I still think there's that like bridge technology to make it useful for kind of everyone in their everyday lives. Like you know, the coinbase is kind of wallet type software for everything else. And it's probably true to the extent you can kind of read the tea leaves on these things that the current administration is a lot more friendlier there. At least that's the messaging. How will that manifest itself in policy? No idea. But right now a lot of people are scared of this space because there's a lot of uncertainty around it.
- [31:26]
Jill Wiesenthal
Then the other element is just sort of the people in the orbit, you know, tech accelerationism, exciting things, getting to Mars. Seneca said the Mars question specifically a lot of it seems very vibes based and I don't know what policy levers any of that means. In your view, are there other policy levers that could be pulled that would be good for the American tech infrastructure or sorry, not the industry?
- [31:57]
Ethan Kurzweil
Probably yes. It's really hard to start a company and have it be successful. There's so many things stacked against you. So what are the things you can do to remove all the unknown obstacles that might come up beyond the really hard ones of like will you deliver the product on time, will the product, can you deliver it for a reasonable cost and will it have an impact on the market? The regulation? That kind of is another curveball that you might have to answer to. That's an impediment that's a blockage that serves at the cost of innovation for sure. And so I think what probably has an impact, just maybe using crypto as an example, is clear regulation and lack of uncertainty where you have a sense of what are the rules going to be. Not that we'll apply these arcane tests and we don't know exactly how a court will interpret it, but exactly do these six steps and you'll be fine. That's taking out any uncertainty that's beyond the normal startup risks is a good thing for innovation.
- [32:57]
Tracy Alloway
Another question from the audience. They mentioned that obviously we've been talking about AI a lot and you talked about the disappointment and redemption cycle. Are there any other nascent tech areas or growth areas that you are excited about beyond AI? Yeah.
- [33:13]
Ethan Kurzweil
Oh, you have to think it's a hard one. Beyond the AI Rubicon. Let me think about that. I mean, I think the democratization of tech, broadly this is aided by AI, but not principally the fact that a normal business user or even a consumer can now create an intelligent system. Doesn't have to be a coder necessarily to be able to write a complex kind of logic flow and be able to build a, build an application or a messaging tool or something. For a business context, I think that's pretty powerful. I mean, I've always been interested in the democratization of tech. Like even cloud computing had a democratizing impact because you could give lots of people logins to a system and let them have impact even if they weren't technical. You could let people kind of edit the flow on a website, personalize a page, be able to engage with their customers directly on the website without having to code anything. And so I think there's this democratizing aspect of the Internet of cloud computing. AI is a part of this that's going to give more people the ability to be more creative and that's going to have a kind of second order impact on just the kinds of things we're going to be able to do, even for like little niche audiences for.
- [34:20]
Jill Wiesenthal
Do you see yourself writing checks to companies that are making apps for virtual reality?
- [34:28]
Ethan Kurzweil
Goggles for virtual reality. What goggles possibly is that I've written one before. Wait, virtual reality?
- [34:36]
Jill Wiesenthal
The goggles? Like goggles? Yeah, yeah. Like, is that exciting to you?
- [34:39]
Ethan Kurzweil
Yeah, Virtual reality gaming could be a thing. Virtual reality messaging, communication, working in virtual reality. Before I was a venture capitalist, I worked at a company called Lyndon Lab, which is a company behind Second Life, if you remember.
- [34:51]
Tracy Alloway
Oh, Second Life, that's a buzz it's.
- [34:53]
Ethan Kurzweil
Not a core theme for us at chemistry, so odds are we won't. But I'm open to it.
- [34:58]
Tracy Alloway
Sorry, I just, I had a flashback to the time when you thought electric scooters were the future of transformation.
- [35:04]
Jill Wiesenthal
They are. They're so great.
- [35:06]
Ethan Kurzweil
They are.
- [35:07]
Jill Wiesenthal
I love the electric scooters. Yeah.
- [35:10]
Ethan Kurzweil
Although it's part of the future, so.
- [35:12]
Jill Wiesenthal
I'm just going to. This will be now. I forget when was that that we came out here and I was like, oh my God, lime scooters are going to change the world. But for me, like I've taken it's Waymo this time and like, I'm just so completely Waymo pilled. I'm just gonna. I'm just. It's just so amazing. I don't never ever, I never want to take an Uber again.
- [35:30]
Ethan Kurzweil
The wow of the Waymo experience is greater than the wow of the lime scooter experience.
- [35:34]
Jill Wiesenthal
Yeah, it is.
- [35:35]
Ethan Kurzweil
Because there's a lot less risk of death. I mean, maybe if you think the way my crash, but they don't.
- [35:40]
Tracy Alloway
No.
- [35:40]
Jill Wiesenthal
It feels so safe and I felt so comfortable. And actually then I took an Uber today and it felt worse and like it was, it was, it was a worse experience. And now when I go back to New York and take an Uber, it's like going back to the land of flip phones.
- [35:53]
Ethan Kurzweil
You're going to have to move out to the west coast.
- [35:55]
Jill Wiesenthal
Yeah. No.
- [35:56]
Ethan Kurzweil
Yeah.
- [35:57]
Tracy Alloway
Okay. So when it comes to AI, one of the, one of the debates that's been going on is like, well, do you invest in the actual AI companies? Or maybe you invest in sort of picks and shovels and data centers and things like that? Is that like on your radar at all? Or do you. This is a question from the audience. At a minimum, do you look at, for instance, investing in new technology that could help AI manage energy usage or something like that?
- [36:22]
Ethan Kurzweil
Yeah, I think there's a lot of like second order effects of AI that we can make investments to make better energy usage. Being one of those, or helping create the primitives to allow developers easier access to some of the more advanced functionalities of AI. There's a whole side theme that's maybe orthogonal to your question around the provenance, like how it. You don't really know what data has been inputted into an AI system is relevant to your answer. So it could have stolen some content or it could have like, who knows what trained it to provide you with that particular thing that it said. And so there's a whole side theme of like, okay, how do you make that okay for the people that made the actual IP that. That that AI was trained on? So that's another kind of side theme of AI that I think.
- [37:07]
Tracy Alloway
Oh, interesting. So managing the ip, managing the ip.
- [37:10]
Ethan Kurzweil
The rights of that, the privacy. You might, for a base level, want an AI trained on a corpus of data. That's pretty basic. But then the Taylor Swift of data, the really advanced IP holders, you want to pay more, but then you want to get some of the money to the people that created that IP that made that AI even better. Actually, that's hard to do right now, but maybe not yet solved.
- [37:35]
Jill Wiesenthal
I want to go back to what you were saying about how having thought about in your life AI for four decades, that in some ways it makes you more optimistic because you see, like this grand sweep, but also at least a temporary sort of cynicism because you know that AI winters exist, and it's very plausible. And there's all kinds of stories about, you know, running up against current limits of scaling and all of that. Can you tell us a story about what was the past AI winter that happened? What was something that at some point people were like, oh, we got this. This is moving. And then they ran into a wall. And what's the lesson that can be drawn from a past experience?
- [38:11]
Ethan Kurzweil
Well, speech recognition was probably a wall where people thought AI you'd be able to talk to AI.
- [38:17]
Jill Wiesenthal
Yeah.
- [38:17]
Ethan Kurzweil
What was the year in the 90s? That was one of the eras of AI where my father was involved with. In fact, he named one of his companies Kurzweil AI. And AI Stand stood for Applied Intelligence, not Artificial Intelligence, because it was a bad word to say AI and have it mean artificial intelligence because it felt like it was under delivering on an artificial intelligence. It was more applied than the AI that we think of today. And so that was an era where.
- [38:43]
Jill Wiesenthal
And then what happened? What was like the moment they're like, oh, this is not growing or scaling or improving the way we expect.
- [38:50]
Ethan Kurzweil
People forget. And then something that. That counters that, a counterfactual comes out, and then everyone kind of hones in on that. And that period where people are forgetting about it. That's the trough of disillusionment, where the beginning of that is the trough of disillusionment period, where there's a lot of prognostication about how this technology didn't deliver. Then people forget something, does deliver, and then move on to a new cycle and the expectations get high again that probably can't be met.
- [39:17]
Tracy Alloway
All right, another question from the AUDIENCE Also sort of a Trump related question. Poly market and other prediction markets. Do you think those are like in for. Well, where are they going?
- [39:29]
Ethan Kurzweil
That's a really good question. I don't know. I mean, I think that probably, I believe that system had the best way of taking stock of kind of all the known universe of information that was out there and distilling it down into a. Okay, what does it mean for a particular event like the election? So that's kind of cool. Now. Is it legal? I don't know. It sounds like maybe not because somebody's going to jail, but no one's going to jail yet somebody might face criminal prosecution about it.
- [39:58]
Jill Wiesenthal
It's very easy for an American to use it, which does not seem like it's supposed to.
- [40:02]
Ethan Kurzweil
Right. People having real money on the line does create a more purist system that it's sort of hard to replicate with any other approach, similar to how the stock market sort of works and in theory gives you kind of the, the right price of every particular asset that's listed. So I think for prediction markets that incentive is hard to replicate any other way. Should there be prediction systems? And there's a policy question that I don't know.
- [40:28]
Jill Wiesenthal
Speaking of prediction markets and it's sort of a broader philosophical question, I was wondering. We live in an era of people betting on everything. And one aspect I think, of people betting and speculating on all kinds of things is that it seems to me that the sort of VC mindset of you want to just have a couple of gigantic winners and get that big score is spread to the non VC world. Right. And people really look for those right tail opportunities, both in investing in stocks, their careers. There seems to be a sort like, do you perceive that the sort of VC worldview has seeped out of the VC realm and sort of, I don't want to say infected because that's like a bad word, but as a trans.
- [41:19]
Tracy Alloway
Are we all VC people now?
- [41:20]
Jill Wiesenthal
Yeah, that's exactly the question. I feel that way 100%.
- [41:23]
Ethan Kurzweil
What you're pointing out is true. And it'd be interesting to do root cause analysis. Like, are we to blame for that? Yeah, but first of all, is it a bad thing or not? Yeah, it's certainly happening. And I think the cause of it, I would say, is, well, there's probably a number of kind of psychological causes, but there's been this democratization of access to private assets that's happened over the last 10 years too. We haven't talked about either where, where rather than trading it Used to be you traded stocks, then it was sort of you could trade IPOs. And now there's some access for Main street consumer to private company assets as well. More typically venture vetted and there's investor protection laws. But the move has been towards more and more and more democratization. And so the VC way of thinking is just seeping into more things. Is that good, is that bad? There's probably pros and cons.
- [42:17]
Tracy Alloway
A lot of people here probably want to know how to spot winners in the market. But part of this is about avoiding losers as well. What's your best tip for spotting, I guess, or finding, identifying froth in tech?
- [42:31]
Ethan Kurzweil
Well, I'm the wrong person to ask because we back as a good, even as a good venture capitalist, we back so many losers like it's just an occupational hazard of the job. Now you asked about froth though, and so that's the sort of like perception disconnect of like what's the reality of a particular tech. And I think you have to go to the source, you have to see like, what impact is this having? Not what are other people saying about it. What are these kind of second order effects? What does the entrepreneur look the part in some way? Or are they kind of playing a role that makes their impact seem great? But like what's the impact of the technology? And kind of like have blinders on for the noise that's out there in the ecosystem? Because that's another impact of everyone. More and more vc like thinking is there's more and more hype around really exciting tech. Some of it's real, some of it's froth.
- [43:24]
Jill Wiesenthal
We talked about this earlier. The fact that there are not terrible podcasts that are produced by AI, and it does cause me as a professional podcaster, like, yeah, it causes me anxiety. But like this is the other sort of big question, this sort of future of labor question. In a world where AI gets better and better. And what are we as humans good at? I mean, I'll start with that question, what are we? And I'm talking not just like in the next year or five years, but like in 20 years or 50 years. And I know your dad made predictions that were 50 and 60 years out, so you probably think I wouldn't. I imagine you also have in your mind predictions that are 50 and 60 years out. And so when you think about like what are humans good at? What are we going to be good at?
- [44:16]
Ethan Kurzweil
People say the same thing about vc, by the way. It happened for many years. You'll be able to Put this data into a system and it'll be better.
- [44:24]
Jill Wiesenthal
You can't even really do it for stocks yet, right?
- [44:27]
Ethan Kurzweil
Probably at some level there will be systems that aid people. But I still think what tends to happen. I'm not the 50, 60 year out banker, I'm the sort of 5 year out kind of thing. But let's go with that time horizon. We tend to as humans kind of move up the stack. We still have to do the creative work, we still have to guide the AI systems. We still have to sort of harness the tech that's coming out of them, figure out how to apply it.
- [44:49]
Jill Wiesenthal
We can't chip, so we can't just plug in more energy into our systems and like, are we just going to like fall further? Like. All right, sorry, keep.
- [44:55]
Ethan Kurzweil
I think we'll still stay on top of the systems. We're going to tell the systems what to do. Like what challenges do we want them to solve? What's the problem space that we want them interested in? What's success look like for these systems? I said there's like, there's real work that as we move higher and higher up and we do less of the grunt work, that's the sort of pattern as it exists, has been existing today.
- [45:16]
Tracy Alloway
So we've been focused on software for obvious reasons. But when do we get the good robots that can do the terrible jobs? Like I don't like the future where AI can do a podcast and write songs and poetry and all the fun stuff, but I still have to vacuum and fold my laundry.
- [45:34]
Ethan Kurzweil
There are robot vacuums.
- [45:35]
Tracy Alloway
Yeah, okay.
- [45:35]
Jill Wiesenthal
They're not that great, but they can't.
- [45:38]
Tracy Alloway
Fold the laundry though.
- [45:38]
Jill Wiesenthal
Yeah, talk about that.
- [45:40]
Ethan Kurzweil
Yeah. I don't know. I mean, I have seen some systems now that have sort of like, some robots on have like kind of human like characteristics and walk upstairs and carry things and you know, pick things in a warehouse. And so because it's hardware, there's less of an exponential to that. So it's more a blocking and tackling around the sensors. And what's the cost of the particular parts that go into that? But cars now drive themselves, so that's a big step change versus what we used to have. Drive themselves in difficult environments with rain. And so it's coming now. How soon and which industries is it going to hit? That's a hard one.
- [46:18]
Jill Wiesenthal
The first question I asked you is like, how is Venture different today in 2024 versus 2014? And you gave a good answer to the question I asked. But actually I meant to just ask you about what the impact of of 5% interest rates were specifically versus zero. And then I asked a very vague question, but I am curious about the strictly macro element. We're also in a weird moment because rates have gone up but the NASDAQ is at all time highs and it seems intuitive that private company valuations have some tether to public company valuations either by dint of being acquired or by IPOs. Is there a difference though? So just from the sort of macro environment rate side that affects your thinking today versus zero percent rates in 2014?
- [47:06]
Ethan Kurzweil
Well in theory it should be a lot harder because there's so many more alternatives for where to put your capital these days that are appealing. There's macro big tech that's taking advantage of a lot of the trends that we're talking about, not just startups. And there's risk free treasury bonds now countervail that with all this excitement around AI and you kind of have the current moment where it should just feel like a sort of post 2000 era bubble. That's what it should feel like. If you take the financial flows. That's where we should be and we're not because there's just excitement about what technology can do and the cycles are getting faster and faster. People don't feel like it's 10 years away now. It's like almost here.
- [47:48]
Jill Wiesenthal
Ethan Kirsch, thank you so much. That was fantastic and I really appreciate you doing this live audience with us.
- [47:54]
Ethan Kurzweil
Thanks for having me. This was fun.
- [48:08]
Jill Wiesenthal
And that was our conversation with Ethan Kurzweil, founder and Managing Partner of Chemistry vc.
- [48:13]
Tracy Alloway
And a big thank you to everyone who came to this live recording. It was a very rainy evening in San Francisco, so appreciate so many people coming out. And a big thank you as well to our sponsor, Principal Asset Management for making this possible. Joe, should I leave it there?
- [48:30]
Jill Wiesenthal
Let's leave it there.
- [48:31]
Tracy Alloway
All right. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me raceyalloway and I'm Jill Wiesenthal.
- [48:39]
Jill Wiesenthal
You can follow me at the Stalwart Follow our guest Ethan Kurzweil. Ethankurz Follow our producers Carmen Rodriguez, carmenarman Dashiell, Bennett at dashbot and Cale Brooks at Calebra Brooks. Thank you to our producer Moses Andam. For more Odd Lots content go to bloomberg.com oddlots where we have transcripts, a blog and a daily newsletter. And you can chat about all of these topics 24. 7 with fellow listeners in our Discord.
- [49:05]
Tracy Alloway
Discord, GG, Odd Lots and if you enjoy Odd Lots. If you like it when we do these live recordings, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, in addition to getting the first heads up about these types of events, you can also listen to all of the Odd Lots episodes absolutely ad free. All you need to do is connect your Bloomberg account with Apple Podcast in order to do that, just find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for.
- [50:10]
Akshat Rati
There are two kinds of people in the world. People who think about climate change and people who are doing something about it. On the Zero podcast we talk to both kinds of people. People you've heard of like Bill Gates.
- [50:20]
Ethan Kurzweil
I'm looking at what the world has to do to get to zero, not using climate as a moral crusade, and Justin Trudeau.
- [50:28]
Jill Wiesenthal
There are still people who are hell.
- [50:30]
Tracy Alloway
Bent on reversing our approach on on fighting climate change.
- [50:35]
Akshat Rati
And the creative minds you haven't heard.
- [50:37]
Ethan Kurzweil
Of yet really don't need to have a tomato in December. It's gonna taste like nothing anyway. Just don't do it. What we've made here is inspired by sharkskin. It is much more simplified than actual sharkskin.
- [50:48]
Jill Wiesenthal
Drilling industry has come up with some of the most creative job titles. Yeah, tell me more you could imagine. Tool pusher?
- [50:56]
Ethan Kurzweil
No.
- [50:56]
Jill Wiesenthal
Driller? Motor man? Mudlogger.
- [51:00]
Akshat Rati
It is serious stuff, but never doom and gloom. I am Akshat Rati. Listen to Zero every Thursday from Bloomberg Podcasts on Apple, Spotify or anywhere else you get your podcasts.