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- [00:00]
Michael Eisenberg
We may be at the end of the venture capital industry.
- [00:03]
Alex
Five US firms captured 73.1% of all LP commits in the first quarter of this year.
- [00:10]
Michael Eisenberg
This is the era of consensus capital. Basically the end of a 50, 60 year run of an industry or a craft business. And that won't be the first time that a craft business has gone extinct.
- [00:20]
Mike Granoff
I don't think that the demand for medium sized firms is going to disappear. It probably will increase. It's difficult to make returns work at a very high level and then it's also, I think difficult for founders to, you know, work with enormous behemoths of a venture firm.
- [00:41]
Michael Eisenberg
The math may just cease working in the venture capital business.
- [00:45]
Alex
This week in startups is brought to you by Grasshopper Bank. Time is money. Don't waste either. Go to Grasshopper Bank Twist and get an exclusive $500 cash bonus just for opening an account. Pay Paperos Building an empire. Paper OS offers the largest library of AI driven workflows for both founders and fund managers. Whether you're raising capital, launching a fund or wading through diligence, Paper OS unlocks simplicity and scale for your ever growing empire. Claim your $10,000 credit@paperos.com twist and LinkedIn jobs hire right the first time. Post your first job and get $100 off towards your job post at LinkedIn.com/twist. Hello and welcome back to Twist. My name is Alex. Today is a venture capital roundtable and I have brought three of the smartest minds in the entire world of VC right here. But today is Wednesday, May 6th, or as Jason says, AO100. So we're now 100 days after we all got claw pilled. Now, before I introduce our guests, I do want to say that we here at Twist are absolutely obsessed with our applaud pins. We talked about it on the show ad nauseam for the last couple of months because we can't stop using them. If you are someone who takes notes, talks to themselves, goes to a lot of meetings, does a lot of phone calls, I cannot say this enough. You should try out Plod. They're fantastic. And if you go to Plaud P L A U D A I slash Twist, use the go to twist, save 10%, get yourself a Plaud Notepin S. Jason's obsessed and thus the entire launch team uses them. All right, thanks for that guys. Glad to have you here. In one corner we have Michael Eisenberg from Aleph vc. Michael, how you doing?
- [02:19]
Michael Eisenberg
Good, Alex, how are you?
- [02:20]
Alex
Good.
- [02:21]
Michael Eisenberg
Good man.
- [02:22]
Alex
We also have, we have Mike Granoff from Maneve. How you doing?
- [02:26]
Mike Granoff
I'm great. Thanks for having me, Alex.
- [02:27]
Alex
And we sent you that mic and it made it all the way from you said LA to Israel to London. Well, why are you taking our equipment around the world, man?
- [02:35]
Mike Granoff
Well, it's hard to send things into Israel on a timely basis. And I happened to go to la, so you sent it to me there, and then I went home and now I'm in London. So I've enjoyed traveling with your microphone.
- [02:45]
Alex
I'm very glad. Please treat it well. And then last but definitely not least, we have Larry Covert from Oxcart Ventures. Larry, you are in Austin, Texas. How are things down south?
- [02:55]
Larry Covert
They're great. They're great, Alex, thanks for asking. We got a storm moving in and I think we're going to be okay, though.
- [03:02]
Alex
All right, well, if you lose power in the middle of this, we'll just pretend to know what you were going to say and say it for you.
- [03:06]
Mike Granoff
That's right.
- [03:07]
Alex
Listen, I want to start with an amazing statistic that blew my mind when I saw it. Five US firms captured 73.1% of all LP commits in the first quarter of this year. For context, Everybody, it was 12 firms and 75% back in 2025. So we're seeing from an already concentrated world of venture capital an increasing concentration even of what we had before. The next 10 firms raised 15.4%, and then every other fund in the US in the first quarter raised 11.5%. I'm curious what impact this amount of venture concentration has on. On founders themselves and how they should react to it. Each one of you is behind a fund that has nine figures of aum. And so I would say traditional size venture capital funds, not the Andreessen's of the world. So, Mike, starting with you one, is this bad for the venture capital industry? And then how is it impacting founders in your portfolio?
- [04:04]
Mike Granoff
I mean, in the aggregate? I think it's not unlike most industries that you get into waves of concentration and then people see an opportunity and to establish niche operations that have special purposes. And then you see proliferation of more. And then I think these are just cycles that most industries go through, and ventures is no exception in that regard.
- [04:30]
Alex
So it's kind of the old rift that all of technology is just bundling and unbundling. That also applies to the money behind technology, I suppose.
- [04:37]
Mike Granoff
I think that's true.
- [04:38]
Alex
When does the wave turn around then? Because if it moves in cycles, we're going to see the other side of this at some point in Time. So is this a five year cycle, A ten year cycle? I'm just curious about how much money you guys can put together in the next couple of years and if you can compete with these funds that seem less price conscious.
- [04:52]
Mike Granoff
We don't have to compete with them in size in our case. We have a very particular specialty in industry and we look for companies that are around those families of industries that we specialize in. And it's not just about the companies we invest in, but our LP base is more than half strategic investors in Automotive and Tier 1 suppliers, fleet management, energy infrastructure, insurance and so forth. So you know, we, we look for partners both on the LP side and on the company side that, that fit our, our niche and I'm very comfortable with, with where we are. We do not aspire to be in the world of Andreessens in terms of a.
- [05:35]
Alex
So you're not really excited about building a, a startup index fund, I take it? Not that I'm being when in doubt Michael, same question over to you about how this impacts both your firm and your portfolio companies. Now I think you're a little bit less industry based on the LP side. So a slightly different kind of mix of capital on your, on your cap table. But yeah, venture concentration, totally nuts. How is that changing your life?
- [05:58]
Michael Eisenberg
A couple weeks ago I tweeted in a set of annual meeting last week that somebody had wrote on Twitter that this is the era of consensus capital. I think that's true on the venture level. It's true on the company level as well. And at Olive we're the opposite of consensus. It's an equal partnership like benchmark where I was before we debated out heartily and we're not investing where everyone else is. You won't find us in Gen or by the way, even though we're in Israel, even in cyber, we've never done cyber and, and we think that venture capital as a whole should be a craft business. Now to directly answer your question, I think we may be in one of two moments right now we may be at the end of the venture capital industry and we may be witnessing with this concentration of the capital basically the end of a 50, 60 year run of an industry or a craft business. And that won't be the first time that a craft business has gone extinct to scale. And if that happens it will be sad because there'll be less money over time to to fund, weigh out their innovation because it'll just converge around the consensus. I think that's one option that we see. I think the Second option is that we're in this wave of massive consensus capital. And I've been around long enough that I remember the bubble, the dot com bubble. Jcal, who's not here, also remembers it. We were around at the same time when he was at Silicon Alley and I was at starting venture capitalist. And one of the things you learned back then is all sorts of funny monkey business went on and Bill Gurley's highlighted this, which is, you know, venture capital funding, customer contracts funding, you know, down the road. And we see this, you know, both around, you know, purchasing of AI, you know, of chips, of GPUs. Like we saw purchasing ads before. I invest money in your startup business. You buy ads from AOL and they take that and invest equity in your company. And we're seeing the same thing. And that allows kind of the flywheel of money to spend for a very long time. We had a massive boat then kind of, you know, cleaned out. To Mike's point earlier, I don't know which of those two is going to happen, but I think one of them will. And the last thing I'll say is we also are now finally investing in businesses and technologies that require more startup and upfront capital, which is some of these hardware businesses or defense tech business. But we're like, you know, engorging them with capital at the same time, and that always leads to bad behavior. And, and we're big fans of capital efficiency and not building too much preference on the cap stack.
- [08:26]
Alex
All right, well, that's been a great show. I think Michael covered it all, so we can just wrap up here and, and bounce. Larry, we're going to get to you in a second. I really don't mean to put you at the last of the line here, but Michael, you said that venture capital as we know it might be dead. I think I know what you mean by that, but can you unpack that for us? Because I think there's a lot inside that that we're going to want to touch on. So give me the one paragraph version of that idea.
- [08:48]
Michael Eisenberg
Venture capital works because of asymmetric upside to a small number of companies after you've taken a pile of bets when the bets get too big up front. And bets is not a gambling term. It's like you buy asymmetric options.
- [09:02]
Larry Covert
Sure.
- [09:03]
Michael Eisenberg
On extraordinary human beings and individuals who develop extraordinary innovation. And if you start to engorge too many of these companies, the losses become too big and the big gain can't cover them. The more important part of this. Let's go Back to a question you asked in the pre show about the IPOs coming, which maybe we'll touch on is the ownership levels have sunk in so many of these business. In our firm, we Learned this from LPs. We're at more than double the ownership of most of these, you know, engorged venture capital firms and engorged companies. Ownership matters in asymmetric businesses. If you can't maintain the ownership, it's going to be a problem. You pile up the cap stack, you take dilution, then oops, the IPO doesn't deliver. It goes down after the ipo. If there is an ipo, and it becomes, it becomes trouble. So I think the math may just cease working in the venture capital business because of the capital engorgement and the capital concentration, the consensus nature of it. And then the outliers. You know, they exist out over here where probably Larry's playing and Mike's playing, but for most of them, it won't.
- [10:01]
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Michael Eisenberg
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- [11:00]
Alex
Okay, so, Larry, I was going to ask you about venture concentration, but first respond to what Michael just said because I don't think I disagree with anything of it, but I can't quite get myself to the same level of. Of polite pessimism. So I'm curious what you think.
- [11:12]
Larry Covert
Polite pessimism? Well, essentially, I believe it's become two asset classes. One would be consensus vc, cvc, and then tvc. Traditional venture capital. And we're more certainly more focused on the traditional venture capital in the spirit of Xerox parc. You know, the old days when, when you made that bet, as you noted, on an N of one founder doing something that was truly frontiering and pioneering in the form of a step function. And we believe that is the true heart of venture capital. There certainly is a place for this cvc, this consensus venture capital in the United States across the institutional investor cohort who never wants to have to apologize for taking a chance on a new manager. They're they're happy investing in and the A16s and the larger firms that have a legacy behind them and may not have the returns of a traditional vc, but they also won't have to apologize for making that bet. So what we ended up doing was not even visiting the larger cities. We just went to what we call the Southern smile. We went from Southern California to South Carolina visiting very large institutional sized families who don't normally get access to true venture capital. And that proved to be a rather speedy and worthwhile effort and we were happy to bring a normally inaccessible asset class to these investors. It's been so much fun.
- [12:39]
Alex
Are those institutional like family offices more risk tolerant than the endowments and the pension funds or are they less risk interested? I'm just curious about how that might impact how you make wagers at Oxcart.
- [12:52]
Larry Covert
Yeah, what we found is they typically don't have much, if any at all of a venture capital allocation. So this is new for them and they know that it's a higher risk place to put the money with the asymmetric return capabilities that the rest of their portfolio doesn't provide.
- [13:09]
Alex
All right, Mike, I know that CVC usually means corporate venture capital, but now we're going to call it something else. Consensus vc. I believe Larry said your take on the death of venture or perhaps its evolution into something that is just a little bit boring, like vanilla ice cream.
- [13:25]
Mike Granoff
You know, everything evolves all the time. And yeah, I like the way Larry put it there that really there may be this divergence. I don't think that the demand for medium sized firms is going to disappear. In fact, it could probably will increase as it's difficult to make returns work at a very high level. And then it's also, I think, difficult for founders to work with enormous behemoths of venture firms. We're on a WhatsApp basis with our founders on an hourly basis. And I don't know if you get that kind of access when you're in such a. So I think there's on both sides of the equation, it's going to be a demand for something more modest than the large scale vc. And even though I'm sure they will continue to raise money and thrive, I think those of us in the more modest world will as well.
- [14:25]
Alex
Yeah, Michael, Aleph really stresses, you know, hands on high founder touch services, kind of what I might call like the old school venture capital value prop. Like it's not just capital we're going to help you build, we're going to connect you and so forth. Does that actually get people to take capital from you versus one of these major funds that is a little bit less hands on a data point for everybody. I forget where I read this, but I think the Andreessen crypto team alone has like 80 people. Doing what? But the point is like, you're probably not going to be on a WhatsApp basis with your partner in that case. So how does the left use essentially high touch to win deals? And do founders care about that?
- [15:02]
Michael Eisenberg
Today? We have the fortune of being in Israel and away from Silicon Valley right now. So although Andreessen is flying in, I just literally read two hours ago, they're flying in in early June with, I don't know, 30 founders or 30 investors. I'm not sure what to Tel Aviv. We don't, we don't compete exactly on that same, on that same basis. But to your point, I think if you have a founder in a foreign country, they need access. And access is a high level game. It is not dialing for dollars or dialing your cold calling for connections. Although cold calling's got a place. And so you need people with access. And I think, you know, what we provide at Aleph, what I try to provide is a network of people. In fact, one of our largest investment of our management fee at Aleph is we built this ridiculous database. Mike is nodding because he knows about it, that before people were talking about AI, we were using earlier versions of it to traverse multiple networks and connect our founders to do that. But ultimately the call or the email has got to come from me or one of my partners. And we are of course a partner only firm. You know, like I learned to benchmark when I was there. But I think the bigger point is the following. And Mike Granoff kind of mentioned that a second ago, which is, you know, thrive. And I have incredible respect for Josh Kushner. He's somebody I love dearly and have incredible respect for. I think he's done an incredible job. Now last week he bought not, but he bought a piece of the San Francisco giants in this legacy capital and that's an outgrowth of a venture fund. And, you know, we're looking at venture deals together. We are. But if you can deploy. I'm making up the number. I have no idea what is few hundred million dollars into.
- [16:39]
Sponsor/Ad Voice
Sure.
- [16:40]
Michael Eisenberg
Into the New York Giants.
- [16:42]
Mike Granoff
San Francisco.
- [16:43]
Michael Eisenberg
San Francisco. Sorry. New York Giants used to be around, you know,
- [16:49]
Mike Granoff
some of us, that's how old I am. Football, Tampa.
- [16:52]
Michael Eisenberg
Oh, true. Yeah. That's all I am. But the, you know, that, that's just a different business. And he's made a hell of a business out of it and he's doing an incredible job. I'm just not sure that's the same business of venture capital that we're, you know, Larry's point, what we all grew up on.
- [17:08]
Alex
I was always told that your fund size is your strategy in terms of how you invest, how you conserve capital, how you keep track of dry powder, think about exit timings and so forth. And so, you know, maybe we should just have essentially a fund cap size for VC. Like maybe it's 500 million and below and everything above that is, you know, to Larry's point, cvc, or essentially just like pre IPO money with less information rights. Like, I don't know, man, Call it
- [17:32]
Michael Eisenberg
what you want,
- [17:34]
Alex
Larry. What would you call that back half if you couldn't use CVC as the moniker now?
- [17:39]
Larry Covert
We'll have to come up with something clever. Better than CVC since corporate venture capitals adopted it. But it's definitely consensus VC versus traditional VC in my opinion. And traditional VCs, you know, what I've been doing for 30 years, and it's the most fun thing. It's my seat on the bus. I love it. And it's that. It's that touch with the founder, that very handsy, helping kind of approach that makes it the most fun of all. We found a few guys in Grand Rapids, Michigan, who had an edge AI technology completely ignored by Silicon Valley. And we engaged at 70 million valuations. And we've gotten them partners, customers, help them hire. Now they're here in Austin, Texas, with their name on one of the tallest buildings in the City at a $2.5 billion valuation, led by Time Ventures in January. So we're just so excited for these guys and to build something meaningful with great people and go from five people to 300 in just a few years. And to me, that's traditional venture capital. And nothing against that larger asset class. There's absolutely a place for it. It's just not my seat on the bus.
- [18:44]
Michael Eisenberg
Hey, here's my proposal. Alex, you ready? CCC.
- [18:48]
Alex
4C's 4C's stands for consensus Colossal.
- [18:54]
Michael Eisenberg
Collaborative Capital.
- [18:56]
Alex
Consensus Colossal. Wait. Now do it again.
- [18:58]
Michael Eisenberg
Consensus Colossal. Collaborative Capital.
- [19:01]
Alex
Good. I'll get that tattooed by next week and we'll see how it does in the market and see how it tests. Maybe we can get a billboard, you know. No. I do think that as we push the IPO window back to the teenage years of companies, we've extended the, the, the venture capital time period as well. But I don't think that venture capital fits for anything today. Series C and beyond. I mean if you're raising a quarter billion dollars, great. You went public without listing your stock. I, but I, I don't want to be a hater and say that we can't change things, but it has been a different, a different flavor. Did you guys see the news? That Angel List is putting that USVC fund together to allow retail investors to buy into certain venture allocations through their own network. Did you guys see that?
- [19:43]
Mike Granoff
I didn't see that.
- [19:44]
Alex
Oh really? Basically they're putting together a unlisted closed end fund that anyone in the US can buy into for $500 minimum. And the idea is to get retail investors to come in and what this could do, I think because part of USVC strategy is to take that money and to deploy it to emerging managers perhaps like Oxcart and then it may increase dollars flowing into smaller and mid sized funds. And I was going to ask could that help your firms and other firms of similar size have access to more capital? Larry, is that a problem that you need to solve or am I trying to fix something you don't currently have
- [20:18]
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- [21:19]
Larry Covert
We don't have a struggle with it. We have very few investors and we're just really careful about, you know, who is, who's part of the family. But I want to imagine it could be quite useful for a firm that wasn't as discriminating about, you know, who, who was in the LP base for their fund. Yeah, it could be a really powerful tool.
- [21:37]
Michael Eisenberg
I think it's important to acknowledge a very uncomfortable truth about the venture capital business. And uncomfortable truth about the venture capital business is most funds don't make money. The index doesn't make money. And so there is a small slice of the venture capital business, the top quartile, for argument's sake, that makes money that's worthwhile to invest in this, you know, call it riskier asset class. I'm not sure it's an asset class is riskier craft business. And I'm not sure that, you know, what you call the mid market or the small market or traditional VC or whatever we're going to call it, getting money from doctors and dentists puts puts more top decile or top quartile venture funds into business. It's not clear to me that that's an accurate portrayal. My sense is that guys with craft venture capital firms who are good at this can raise money from institutions. You know, we are, and I'm sure Larry is and Mike is. And so this is not an, this is not an area of investment that benefits from additional capital necessarily. In fact, I think the opposite's true.
- [22:44]
Alex
So this is a question that I wanted to put you guys later on, we'll do it now. Are there more breakout startups being built now than in, say, five years ago? Because to me there would be more room, Michael, to deploy capital into investments that could have fund level returns, venture capital level returns. If there are more total companies that are that good, but if we're seeing capital increase but the number of breakout companies stay static, then I feel like we're going to have price inflation dilution of your stake, as you mentioned earlier and so forth. So are we seeing actually more breakout companies today and is that enough to absorb the greater amount of capital flowing into venture?
- [23:22]
Michael Eisenberg
The complicated answer, generically the answer is no, they're not more breakout companies. But the fine point is the following. The more capital that comes into the system, there's more competition. We Learned this in the bubbles in whatever the area that the unique entrepreneur that Larry described earlier is in. And that reduces overall returns in that area that that startup or unique innovation is pursuing. So actually the increase in capital will reduce overall returns for the industry. Well, I do think we have right now, because it doesn't matter if you call it a bubble or not a bubble, everyone, the narrative is way ahead of the, the results. There are some companies, you know, growing at extraordinary rates and at the same time there's 50 companies funded in each category because it's so easy to gin up these companies in many, in many categories. So over time you will have decreasing outcomes to scale of capital focused on, on the same area. And I think that's what we see right now. Because the valuation is so large, everyone is kind of, even though they're illiquid, everyone is kind of fooled that there are so many more outcomes right now. But I think in reality what we're building is a lot bigger losses down the road in many of these categories. Look, we've seen a lot of companies go public and their stock drop 50, 60, 70, 80%. That tells you something. A market where a fund, private fund measures it is a valuation determined by two people market with a public values. It tends to be a true evaluation.
- [24:45]
Alex
Yeah, Larry, can you jump in on this? I'm curious what you think about what Michael just said.
- [24:49]
Larry Covert
Yeah, well, I was thinking about the definition of the word breakout. And the rule of numbers applies here. As you noted, Mike, the more entrance into a market, the capital spread out and it's harder to be that, that big breakout unless you truly are unique, uniquely qualified and uniquely positioned. So I can't disagree with what you said there. We're focused on national security and there's just obviously been way more entrants in national security over the last five years than probably ever, maybe not since early Silicon Valley, but, but since then. And they're not all going to win. And what we tried to do is say what are the non obvious places to put money related to national security? They don't all have to be sharp, pointy and explode. And there's many infrastructure opportunities where it's less crowded and less hyped up, where you can still contribute to national security without paying, you know, overpaying rather for a position or competing for a place in the cap table. That's, that's kind of our way to hedge that.
- [25:53]
Alex
We're going to get to some of your report codes in a second, but I want to get Mike in here because 11 labs just added a bit more to its Series D. I think it's now a $550 million round. But at the same time the company announced that it has crossed 500 million ARR, up from 350 at the end of last year. Pretty insane growth at scale. In the old days this would have been an IPO already. That's why I asked if there's more breakout companies, because it feels like the companies that are truly scaling on the startup side are getting so much bigger, so much more quickly that I wonder if that makes the math math a little bit more even. If to Michael's point, there aren't a greater number of these companies as they get bigger, maybe they'll have enough returns to make everything settle out.
- [26:34]
Mike Granoff
Well, I think what we've seen there is there are more companies for sure. Deal flow is always increasing. And in terms of breakout, I may have distorted this metric for a period of time because there are just, you know, so many enormous companies in that space that have received unprecedented financing and are seeing unprecedented growth. But at the end of the day, will that portend a long term trend for venture? Probably not. Probably return to the mean. So I think we might be in a moment where it's very difficult to assess whether what we're seeing is really a harbinger of things to come to one of our portfolio companies. Harbinger. But I think, I think it's difficult to take a static picture right now and make judgments.
- [27:24]
Alex
Michael, would you buy into 11 labs at like a $11 billion valuation today or is that one of those companies that you think will come back down to earth in time?
- [27:32]
Michael Eisenberg
I know nothing about this company. I think benchmarks invested there, which gives me a lot of comfort, but I know nothing about the company. So I won't say invest, but I will say that revenue is a crappy metric because it's a proxy for gross margins. And the other thing that nobody wants to talk about is that AI company gross margins are not software margins. There is a cost to those tokens, there is a cost to that compute. And I can't tell you how many fast growing companies I've seen that have gross margins. Now I am of the belief that gross margins are talked about way too much in early stage startups. And when you grow up and get bigger, you can actually manage those margin problems and probably the cost of compute will go down, but maybe not. I kind of think we're looking at surge pricing for compute going forward because otherwise you won't be able to manage the Grid. And so you think about that and you think about the applications. You have to kind of think two levels deep. Okay, is this application is going to have to be during surge times, which means can have surge pricing, means it's going to eat in the, in the gross margins. And you go, I don't know, you know, and we'll see whether Wall street has a similar view of some of these companies. You know, by the way, I'm old enough to remember also there were a lot of companies in the late 90s that were go public or go bust and we may have some of those too, where, you know, they need the public market capital in order to ensure they don't go out of business. We may have some of those now too. It's just, it's impossible to know. We haven't seen the financials piggyback on
- [29:06]
Mike Granoff
what Michael said with regard to energy as a limiting factor. You know, I've been following batteries now for more than 20 years. And it's interesting that the decline in the price of energy storage alongside the decline in the price of PV of solar is leading to a situation in which people are going out now, especially in Larry's part of the world, and saying, you know, we don't need the grid. Like we can create virtual power plants or we can create specialized energy sources for a data center, for a manufacturing facility, facility off the ground. And I think as energy becomes clearly the limiting factor in compute and therefore in growth in a lot of ways, then I think we're going to see more and more innovation around that and more scaling of these types of systems and really transform the energy world, which has profound implications for all industries.
- [30:04]
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- [31:04]
Michael Eisenberg
Fun fact. There's a Turkish boat off the coast of Texas. I think it's the southeast corner of Texas. That is an energy producing boat. You can go see it.
- [31:13]
Alex
Is it like a, like a tanker? That's a power plant?
- [31:15]
Michael Eisenberg
Yeah. It's not oil. It doesn't hold oil. It actually has a power plant on the boat and provides surge power.
- [31:20]
Alex
I never thought I'd get to the point when humans were so power constrained that we'd be talking about beaming solar from space or making power boats. But I guess this just goes to show that the demand for AI commute is as high as we say it is. On this exact note, we did have base power on the show October 8, 2025, if you want to check that out. Listeners that are with us. And also today a company called Span, they make smart electrical panels for your home, announced a thing called xfra, which is a distributed data center, essentially taking the base power model of having in home battery storage for off peak power and then putting GPUs in your house in partnership with Nvidia to create a scaled compute network. No idea if it's going to work, but I think it just goes to show how demand is for those products. Michael, looping back to the AI gross margins point. Did you see that cursor? I think the information reported they had like negative 23% gross margins for a while and they were growing so incredibly quickly. Is that the rare case or is that something that's actually happening more frequently? When I see these headline ARR numbers come out from companies.
- [32:23]
Michael Eisenberg
Look, we need to get a look at financials in order to know this. And each company is a little different. But what we can say is the hyperscalers are investing money in, look, all the anthropics, the cursors, you know, and now Elon's doing a deal with, with Cursor, which I think makes a lot of sense for what it's worth for X. But. And, and they're funneling that money in. They're buying chips with it and they're deploying them on the hyperscalers. It's hard to know what the gross margins are. By the way, by accounting standards, some of that might be negative revenue. I think a lot of venture people have forgotten how to, how to do these financials. And so it's really, it's just impossible to know. But one thing is clear is that the cost of compute has not yet approached the cost of energy. And the cost of energy has been rising. That's tied to the war in Iran also. But it's just, there's a shortage and it takes a lot longer to lay copper and pipes and build nuclear and all these things that it takes to, you know, to bruise semiconductors. And so this is like where the rubber meets the road, how you connect the pipes, you connect the fiber. It's like this is real physical labor. Do you have enough electricians and enough H vac, guys? It's like hard. And so I expect actually the cost to kind of keep on cooking. And you know the point you made earlier about like the GPUs in the homes, this is like so reminiscent. Again, pity JCal is not here, but back in the 90s, there was a company called, or a product called SETI at home.
- [33:47]
Alex
I don't shout out, yeah, no, no, it was the screensaver that would number crunch to find signals of extraterrestrial life.
- [33:55]
Michael Eisenberg
Right, exactly. Yeah, exactly. So here we are. It was like Back to the Future again, that didn't make it after some period of time, I don't remember why, but it's like, okay, now put GPUs in people's homeless, one steady at home, we'll search for extra terrestrial life, we'll crunch some numbers, we'll do some matrix multiplication, I don't know.
- [34:09]
Larry Covert
And so, but on that point, like, like Intel, Snapdragon, amd, they're all shipping chips right now inside laptops that do 50 to 80 trillion operations per second on 15 or so watts. Like, it's not like we don't have compute in our, in our fingertips right now. And, and you know, all of this is probably going to be the answer. We're going to need all of it. We're absolutely insatiable when it comes to compute demand. And it's going to require, you know, you know, a tremendous amount of innovation at each one of those levels at the grid, at the management of the grid, at the generation, at the home. And it's going to be a lot of fun. There's a lot of opportunity there. The durability and the cost of each are questions for me.
- [34:57]
Alex
Larry Michael was talking about how compute prices could be essentially surged when everyone wants to power at the same time, could stay very expensive. Your firm works a lot in kind of the dual use space, I might say. And I'm Curious. On the more hardware focused side of things, are you seeing your portcos struggle as much with their AI costs as perhaps some of the more software focused startups are? Or are you as exposed to, I don't know, let's just say Opus 4.7 pricing as anyone else's.
- [35:23]
Larry Covert
Well, very interesting. So when we first started the firm, our first Investment was Web AI, which is Edge AI. 75% of a business's generation of data and usage of data is actually on premise. And so they end up doing a lot of air gap work in the public sector, but also a lot of work. Thank you. Also a lot of work in the enterprise, like commercially. So that was our first investment and now our most recent investment, as of just three, four weeks ago, is a magnesium company. So we went from bits to atoms and this company uses electrolytic processes to generate magnesium from seawater. So they couldn't be any more different. They're alike in that they're unique n of 1 companies, led by extraordinary founders. But that's where the commonality starts to diverge.
- [36:14]
Alex
And you're. You're talking about Magrathea, right?
- [36:18]
Larry Covert
Yeah, that's right.
- [36:19]
Alex
Who I recently spoke to. And a little teaser for everyone who's listening. They're on the show on Monday. So if you want to learn more. Yeah, so if you want to learn more about how we're going to yank magnesium out of seawater and not torture the environment while we do it and take down China's metals advantage, well, tune her up, because I'm going to pretend to understand physics for about 25 minutes on Monday. It's going to be, it's going to be a good time. Mike, I do want to ask you kind of the question that we're talking about AI and margins and spend. An Nvidia exec recently said that some people are spending more on tokens now than humans. Kind of an inversion. We thought that I was going to save money. It can actually be kind of a cost center. How are your port goes handling rising token costs? And is it changing how they're investing and deploying AI?
- [37:02]
Mike Granoff
Yeah, you know, I mean, it varies. A lot of our companies are also early on in their cycles. But, you know, there are, I have seen cases in which, you know, projections for headcount have gone down over time because of the agents. And yes, there's also, you know, new line items around tokens as well. Right now, it's hard for me to say which is the more profound trend, but, you know, all of us are in the Progress business. And we know from history that these waves of technology ultimately deliver more value and deliver more opportunities for everyone. But there are disruptions in the shorter terms in the transitions, and it's very difficult to manage those sometimes and can have a lot of implications for our industries and beyond.
- [38:01]
Alex
Your firm has done a lot of work with chips for the automotive world. We talked about Halo actually in the pre show. H A I L O has the race to build more chips globally leading to essentially TSMC and other companies having a hard time keeping up the capacity. Has that harmed the ability of people that are working in the automotive space to build new things? I'm just curious if essentially Nvidia stole all the fabs and has left other companies bereft.
- [38:26]
Mike Granoff
Well, it has not slowed down competition in the chip sector. And in fact, aside from Halo and our first fund, we have two other chip companies also based in Israel in our third fund. One of them is in stealth, so one of them is called Neologic. But I think what it's showing is that there's still a lot of room for innovation. And when it comes to scaling, obviously the Nvidia effect is, is pretty having a big impact. But when it comes to automotive in particular, and our chip companies are not specific to automotive, but they, at least in Halo's case it was autonomous driving. That was kind of template on which they built the original chips for edge computing and the auto industry, that's a whole other direction of conversation. But they're education, I should say. The traditional auto industry in technology and particularly in semiconductors has caused lots of disruptions over the last decade and that's a story that's continued to play out and particularly when it comes to China
- [39:35]
Alex
on the chip front. I want to go off topic here for a little bit off piste, if you will. We're seeing all the major companies build their own chips, talking about the latest TPU generation from Google, Trainium and Inferencium or whatever from Amazon. Meta wants to do chips. OpenAI wants to do chips etched. A lot of other startups are doing Asics and so forth. Do you think that there's going to be something that actually replaces the Nvidia GPU as kind of the core beating heart of the AI economy in the next couple of years? Or are we talking more about like serious players? But to the side of the main show, which is Nvidia, a couple things.
- [40:08]
Michael Eisenberg
I actually just released a podcast on my podcast today with the CEO of this company, Next Silicon Elad Raz, who says that Nvidia chips from generation to generation are scaling, compute and power linearly. And so somebody will need to break it with exponentiality. And they intend to do that. And they're already showing those results during Gen 3 of their chip, which is coming out, which is coming out now. So you know, these things never last forever. But I think kind of chip leadership lasts for a very long time, A very, very long time. And you know, intel is even making an incredible comeback right now. You look at that stock, it might be the best performing stock in the world over the last six months. It's unbelievable because chip design and chip manufacturing is really, really, really hard. Really, really, really hard. And you know, by the way, interestingly, one of the things I've said a few times is there's like six countries in the world which have the full stack of AI. The United States is one that's like semiconductor design, semiconductor checking equipment and you know, semiconductor manufacturing, you know, tokens and call it AI applications. So that's like the United States, China, obviously Japan, South Korea.
- [41:29]
Larry Covert
Yep.
- [41:30]
Michael Eisenberg
And Israel. And a little known fact, a lot of the CPUs and TPUs that you describe right now that are at Amazon and Google and Apple in particular are designed and built in Israel, a significant number. And Nvidia, by the way, you may not know this, but Nvidia has like 3 or 4,000 people and Israel growing to 6,000. Now the, the acquisition that enabled Nvidia to scale GPUs to data centers, which is what we have right now, is a company called Melanox, purchased in Israel, started by a guy name Waldman, who unfortunately his daughter was killed on October 7 in the terror attack. And this, what's going on in the semi space is unreal right now. And I think we're going to see ever more competition. Why? Because there's a lot of money there. And So I think CPUs we're going to find on the edge, more GPUs at the core. And I think going back to the point Larry made earlier, which I think is spot on, is the AI model companies that are going to be successful or kind of small model companies will figure out how to make access, make use of the CPUs at the edge in your laptop or on your phone as the case may be more than the GPUs at the data center. My own bet by the way, is very bullish on Apple because of that,
- [42:50]
Alex
because they have some of the best consumer CPUs in the market today with the M series chips. I'm reading they're close to the data
- [42:57]
Michael Eisenberg
on the edge, the personal data on the edge.
- [42:59]
Alex
As long as the models can get small enough and strong enough. Do you think distillation will allow people to get models small enough and good enough to actually pull that off? Because I think today's smaller models, even in the more recent Gemma4 family I believe are fine, but they're a pretty material. Step back from the edge, Michael.
- [43:16]
Michael Eisenberg
I think they, you'll see more. It always happens this way, right? You've got these kind of general models and then you'll get to specificity and so I think the models will get smaller. Virtuous specificity. The company Mike and I are co investing this company called Nexarp released a model called badass. Badass 2.0. It, it beats, it beats Cosmos by Nvidia by like 2 and a half 3x and it's I think an order of magnitude smaller in model size because it's trained on real world data. Training on simulated data or trading on digital data has been highly inefficient and I think we're going to find more efficient ways to do this. And by the way, these guys next are started on the edge. It literally started by putting dash cams next to cell phones on people's dashboards. And Badass is a badass. And, and, and it's kicked the crap out of Nvidia's Cosmos model, which I'm very pleased to say right here on your show.
- [44:10]
Alex
I'm glad you, you put Jensen in his place. You know, let's, let's bring that guy down a pick.
- [44:15]
Michael Eisenberg
No, no, he's the greatest. That guy. He's the greatest.
- [44:17]
Alex
Anyone who wears a leather jacket in the Sutton is something I'm not.
- [44:21]
Michael Eisenberg
What a mention a star. That guy is.
- [44:24]
Mike Granoff
He's great. Is great.
- [44:26]
Larry Covert
I was going to say 50 years ago, five megabytes would fit in the back of a tractor trailer. Right. And so I think you're going to see the same thing as Mike you noted, it's a forcing function. This constriction with GPUs and cost of GPUs is a forcing function to push models down to more widely available and frankly much more widely distributed compute devices and use cases. It's a good thing. But again we'll need all of it for sure. But I think the vast majority of the models will end up being in your hands, so to speak. And for AI to truly. Jensen actually said this. You have AI then you have AGI. And if you will not achieve ASI until We accumulate the billions of models, these nano models, if you will, into a super layer of synthesis and then you can actually trust AI right now. Yes, you can. You can use it to help plan your week or go to the grocery store or write a PowerPoint to 80 to 90% trust and then you got to go make it judgment worthy. We can't use it to make any true meaningful high stakes judgment calls yet. And we won't be able to do that, I believe until we synthesize these trusted models, which are personal models. And once everyone has the ability, particularly experts in whatever chosen field can make their model at 100%, we're just never going to be able to trust it for high stakes judgment calls. And that would be as high it is ahead though.
- [46:08]
Mike Granoff
Larry brings up an interesting point which is like public trust and AI and I think we're seeing that actually begin to play out in real time in, in a way that people can really understand with their own eyes, which is in the world of autonomous vehicles. And if you look at the statistics, for example, on Waymo and the safety statistics, the conclusion I think you have to come to is at what point should government simply mandate autonomous vehicles? Because it is the most. It's proven to save lives better than almost any medication that's ever preached.
- [46:41]
Alex
Preach.
- [46:42]
Mike Granoff
Yeah, but I think that will kind of be. You know, there's an Israeli professor, Dan Ariely, wrote a famous book years ago called Predictive Irrationality. And I've always said that the most predictably irrational consumer is the mobility consumer. And it has a serious edge when it comes to the world of AVs. Because, you know, when I was in LA last week and I had dinner with a cousin I hadn't seen a long time, I said, you know, how do you like Wayne Mo? And she says, oh, I'm afraid to get in there. I said, you're afraid? It's like statistics. I can show you that you're like 10 times safer at least in there than you are in any human driven Uber. And I think obviously we don't know what the end is that you have to get to until the public has comfort in it. But it is going to be an interesting test case, I think for AI in general.
- [47:35]
Alex
Yeah, it's going to be a cultural conversation, I think, because so many people in the United States associate their self worth with the car they drive that I think we're have a hard time breaking into those people to get them to step out of, you know, actually driving their own vehicles. But is it the same Vibe in Israel or are people that are perhaps more open to self driving than some people in the United States? I'm just curious if there's a cultural difference.
- [47:57]
Mike Granoff
I think next week will be a very interesting week in that regard because Elon is supposed to come over for Israel's big mobility conference and we'll see what that leads. Mobileye has obviously been one of the world leaders in autonomy and is right there in Jerusalem and they've been testing cars, but there hasn't been any consumer AVs so far in Israel. Even the Teslas have not been permitted to have the FSD engaged. So we'll see if that changes next week.
- [48:26]
Alex
Is that a safety security thing?
- [48:29]
Mike Granoff
Think as Michael can talk about better than I can. Israel's kind of divided along this line of the incredible high tech sector and then the socialist founding ethos of the state which makes a lot of the rules and is sometimes very slow to come around to innovation. So it's kind of an interesting dichotomy to live in.
- [48:54]
Larry Covert
I'll say. I've always been a car guy and Alex, you brought up people associate their net worth with cars, but I just like a great driving car and, and it's a lot of fun. But my wife and I both got Teslas and we use the full self driving all the time. And recently we were driving out to what we call the hill country out here just outside of Austin and it was about one in the morning getting to our Airbnb, cruising at maybe 75 miles an hour on full self driving and the car slams on the brakes. I, I said a few cuss words but then a deer, you know, lollygagged across the road. Not one, but two deer. Then another deer came by and it saved our life. And I believe they're at 10 billion miles worldwide with Teslas now. So I mean that's an extraordinary amount of data. I would imagine you can get very good at full self driving and we feel very safe in it. But you're right, I think some sort of, I don't know about a mandate but man, I wish we were greater adopted and we would save a lot of lives.
- [49:54]
Alex
Yeah, which is the point.
- [49:55]
Michael Eisenberg
No, I'm not sure you're right. That is the point. And this is I think the important thing. Here's an insight. Full self driving cars don't vote in elections and in democratic countries, therefore it's very difficult to mandate these things. You know, Mike makes the point about, you know, the kind of socialist origins that still kind of occupy some of the Organs of state in Israel. We don't have Uber in Israel. No, I don't have Uber in Israel because of the taxi lobby that they vote for the current ruling party.
- [50:24]
Sponsor/Ad Voice
Yeah.
- [50:25]
Michael Eisenberg
Now, so we're gonna have to like leapfrog uber self driving. You know, we gotta get all the way out there.
- [50:30]
Mike Granoff
But it was like 12 years ago that, that, that Netanyahu went to Davos and met Travis and came back and said, we're gonna do this here. And then like his party came to us. No, we're not.
- [50:39]
Michael Eisenberg
Yeah, they vote. And so what we underestimate as a democratic society, the power of certain interest groups to prevent technological leaps. We also underestimate the power of the media to develop narratives. You just showed irrefutable data about the safety of self driving, yet you rarely see a news article or a TV broadcast about a car accident that, you know one of Larry's friends was in. And you'll never see an article about the FSD and his Tesla saving his life. You'll see a ton of articles on the one time that the Tesla ran into a truck because there was a glare because its dog didn't eat man, Its man ate dog. And so the press will continue to be against this because they too are afraid of losing their jobs, you know.
- [51:33]
Alex
You know, Michael, disagree with you there. Everyone's already been fired from the world of media. There's like seven people left. So I think that that's already kind of run its course. The reason why I don't agree with this being the media's fault, it's because I think you're looking at a human condition and then looking at how the media represents it and putting the blame there. But when I talk to normies in my life about these very issues that we're talking about here, and I think we're all agreed that self driving cars, safer, better going to help the world. The average person feels much less confident letting a machine drive them than their friend who's an idiot. And I don't think you can put that bit of human stupidity on the shoulders of the media when that's how the people who vote think. I think it's more reflection than points of derivation.
- [52:20]
Michael Eisenberg
I'll take the other side of that. Now we have a robust debate which is helpful, which is the media writ large creates narratives that open permission windows. That's the way it works. That's how the Overton window works. And these are permission architectures. And so you may be right that the average, what you called normie is, is, feels more comfortable with a human driver than Larry's very safe fsd. But if we amplified the Larry story of not running into the goat, instead of amplifying the Tesla car going under the white semi trailer, we would create the permission architecture in which were more, as you call them, normies would feel more comfortable with this. Here's the crazy thing. We see a pilot going to the cockpit of an airline. They don't fly to damn plane. It's all flown on autopilot.
- [53:18]
Alex
Yes.
- [53:19]
Michael Eisenberg
Permission architecture is the following. I'm in the back and there's a giant wall or a curtain between me and the pilot. So I got no idea and no one's ever told me. And so all we need to create is the permission architecture for people to feel more comfortable.
- [53:32]
Alex
It's interesting that we're talking about this because actually the way that I think about self driving here in the States at least is that it's been pretty open. I mean, it seems that Waymo's been able to go to most places they want to. And yes, I think Boston, not New York.
- [53:44]
Mike Granoff
Now that's the first place that effectively them. And that's I think also a harbinger of things to go.
- [53:50]
Alex
Well, Mike, we got to 500,000 paid Waymo rides a week.
- [53:54]
Larry Covert
Yeah.
- [53:54]
Mike Granoff
Go into a million by the end of this year.
- [53:56]
Alex
It's oh, Waymo is going to be one of the best companies of the last 50 years. I'm such a believer in them. But I've been really encouraged actually by how cities have been relatively okay with you.
- [54:09]
Mike Granoff
I was just making the point of New York is the outlier here, which, you know, I think is in many respects the case.
- [54:16]
Alex
Yeah, well, I mean, going back to the point about lobbies in Israel for the taxis, I mean, New York City has a lot of entrenched interests. You might say that. I'll have their opinion. But you know, let's broaden this one notch because people talk about, you know, AI doomerism and worry about job loss and, you know, worry about, you know, it going rogue and what's your P Doom? And despite all of that, I think the last stat that I saw was that more than half of Americans use AI at least once a week at work, which is pretty quick adoption for a population of the US's size. So I guess I don't see as much of a problem, Michael, in. In the media narratives with the overtime windows you're describing it because technology seems to be advancing and being adopted at a pace that surprises me, frankly, in a positive way. So maybe I'm just more. Maybe I'm just more of an optimist than you.
- [55:01]
Michael Eisenberg
No, no. I'm a venture capital investor. I must be an optimist.
- [55:06]
Alex
I was kidding.
- [55:08]
Michael Eisenberg
But I'll ask you the following question. How many people will die in car accidents this year?
- [55:13]
Alex
Too many.
- [55:14]
Michael Eisenberg
If we had a federal mandate to greenlight FSD for everyone or insist on FSD for everyone, how many people's lives would be saved this year?
- [55:23]
Alex
Many. Well, presuming you can get the technology rolled out in time and hardware, why
- [55:28]
Michael Eisenberg
isn't there a national campaign in the media to do that?
- [55:32]
Alex
I don't think that's the media's job. I mean, when Waymo goes to Miami, there is national and local coverage of that and so forth. So I think maybe you're ascribing more motive to media coverage than I think there is. With my experience in Newsroom.
- [55:50]
Mike Granoff
I think Michael and I are on the same page here because you have a very different perspective on global media. When about you think in Israel and come to London as I did today for a board meeting and have chats with folks about what they're seeing on BBC and so forth and compare it to my own reality. And I see their jaws drop when I describe the variations between the truth and what they are consuming. And so yeah, I think media bias takes lots of forms, including oversaturation and including under coverage of truly enormous changes that could be for the better, like the safety of self driving.
- [56:31]
Alex
Yeah, I enjoy that. Half my friends think that the New York Times is a communist rag taking us all the way down the rabbit hole to the left. And the other half of my friends think that it's a reactionary conservative publication out to crush the nascent labor movement. So let's put media criticism aside. I want to talk about a couple more things.
- [56:47]
Larry Covert
While I'll just say in AI you have something called attention steering to make models more efficient. And that's what media is as well. It's the same deal.
- [56:57]
Alex
Well, you do have humans watching and then deciding what to write down. Yeah, I wish we had better funding for more media so we could have more voices talking about things in a more even keeled format, you might say.
- [57:11]
Mike Granoff
But I would just point out that there are some glimmers on the horizon in the media world, like for example, the free press, which I think is doing extraordinary journalism. And there's a new platform which I've become a little bit affiliated with called Two Way, that has now seven or eight programs on YouTube and on other platforms. And is taking a different approach to media that is interactive. So some of those things give me hope and I hope that they continue
- [57:41]
Alex
to proliferate so people can look it up later. What's the two way URL just in case they want to find it.
- [57:47]
Mike Granoff
The number two way tv We've talked
- [57:50]
Alex
about a lot of countries in the last couple of minutes and one that comes up a lot in the AI realm is China. And a couple of people in Congress are basically haranguing some US companies for using open weight, open source Chinese models. Think about Cursor which used Kimik 2.5 to form the base for their Composer 2 model. And then of course Alibaba is well known for using some models from Alibaba's Quinn team. And we're seeing other companies like Pinterest kind of work in some open models to their stack. I'm curious, let's go with Larry on this one. I'm curious if any of your port cos are using open models from China and if you think that's a concern or simply a great way to get quite a lot of intelligence at a relatively low price.
- [58:33]
Larry Covert
It's certainly a way to get intelligence at a low price for sure and try to infer their own inference capabilities. No pun intended. Pun intended. But they try not to. They try not to. I know one of our portfolio companies does for the research side and then testing and benchmarking and seeing where we are at adversarially from a leading edge perspective. We used to say of the top 60 critical categories of technology, we owned 90 plus percent of those as far as having the leadership position globally and now China has that. So a lot of our companies are well aware of that as part of their mission and they're executing and they're doing well. But specific to Chinese models, I mean, you know, they have the ability to tell an entire village or town or city for that matter, to just go do one thing and just focus on that. And then, and some of that's manufacturing that, you know, it's hard to beat them on speed and cost. Maybe you can beat them on vector, the right vector, but hard to beat them on speed and cost in that regard. And as far as AI, there's a lot of, a lot of theft, a lot of theft and frankly a lot of infiltration into some of our largest, most powerful companies in the United States. So it is a high stakes environment.
- [59:54]
Mike Granoff
I would say one of the most important books recently is by Patrick McGee on Apple in China. And really to tell the story of how sort of one company's endeavor to find cheaper labor in China changed the entire trajectory of the global economy, in a sense.
- [60:13]
Alex
Tim Cook, frankly.
- [60:15]
Mike Granoff
Right. And I think a friend of mine, Michael Dunn, is writing what I would call the sequel to Patrick McGee's book about Chinese cars, which just to give you a sense, in the US when I talk about Chinese cars, I mean, you know, there's a bias because you don't see them and so you don't think that it's such a big deal, even though it is pretty fairly well covered in the media. But in Israel, the first Chinese cars came in in 2022, and we're now at a point where it's almost one out. Every new two. One out of two new cars sold is a Chinese EV in Israel. And then just goes to the fact that the quality is there and the pricing is just unbelievable, completely unbeatable for lots of different reasons. And, you know, next week, in addition to Elon coming to Israel, Trump is going to China. And I frankly wouldn't be surprised if he comes back with a deal on bringing Chinese manufacturers to the US if it doesn't happen next week, I think it's going to happen within the next couple of years for lots of reasons, but not the least of which is that, you know, the algorithm, the same algorithms that promote some propaganda in certain ways to young people, are also now pushing the incredible technology of Chinese cars into the phones of young Americans. And they're starting to say, hey, where can I buy one of these things? And so, no, you can't. And I don't think that's a sustainable situation. So it'll be.
- [61:40]
Alex
As a free trade guy myself, I'm absolutely on board with you. And I think that it would put a lot of fire underneath the company that keeps making larger F150s as their only form of innovation to maybe do something slightly, slightly different for once. And I say that as someone who learned to drive.
- [61:54]
Mike Granoff
Ford is very cognizant of this. He drove a Chinese car for a year and he talked about how much he loved it. And I think he's doing what he can, but it's very difficult given the advantages that these Chinese companies have.
- [62:08]
Alex
Defense, Iran, drones. Lots is going on here, Larry. I'm thinking about companies like Saronic, Vatten Systems. A lot of people are making for drones, both for the air, for the on the water and below water. What impact has the Iran war had on your portfolio companies? And I would say interest in the government, in dual use technologies in general.
- [62:31]
Larry Covert
I mean, as long as someone else has an offense, we're going to have to have defense, that's for sure. So, so the, the industry has been around a long time. It will continue to be around the, the most recent, let's go from you know, Ukraine, that was absolutely a new epoch in, in defense investing and defense innovation, primarily on the, the kind of drone sector if you will. They've been extraordinarily innovating, frontiering in, in Ukraine, using that environment as a theater of war, of prototyping and proving out Iran a little different, a little different there. We're tending to use more of the legacy primes in that environment than we would be in more of the Ukraine environment. But both of them are lifting the, the sea if you will. And, and what we're seeing is you've got legacy primes out there valued between 100 to, you know, $400 billion. And now all these new primes, these new entrants, you know, Anduril, you could argue Saronic at you know, reaching nine and a half billion dollar valuation in two and a half years is quite a burgeoning firm. They, they aren't an n of 1 completely, but they are an end of 1 when it comes competitively at the moment. And, and what Dino's done is remarkable. So he has a capital mode, he's got speed, he's got credibility and I'm really proud of what they've done. It's not a portfolio company but they are local and he's a friend. So I got to give them a shout out to really proud of those guys. I think you'll see a lot of zeros being added to valuations much like these AI companies who haven't proven that that ARR is different than Carr and, and, and some of that's going to go away. There will be some, you know, a cemetery of defense companies out there there. There was something that happened during the Middle Eastern wars when we were fighting in like austere sandy places and a lot of IEDs were blowing up our, our troops and our equipment. There were about 200 firms that came into the marketplace to develop bomb proof or bomb resistant type vehicles to save lives. And for a couple of years BAE and Oshkosh just sat back and watched all these people come and go and then took the best in class reading the green, so to speak. And then they came out with MRAP and got all the contracts and still do. So I think you're seeing that in the drone space. We tried to stay away from drones just because they're at least 2,000 drone companies out there. I'm not saying they're bad. It's just they're not all going to win. And to the point earlier, the more interest you have into a market, the harder it is. So we've stayed away from that. I think that Android effect is real. Therefore, you got to be extraordinarily careful about the valuations that you're coming in at these companies. And I do believe to, to close up my, my defense soliloquy, I do believe you're going to see a lot of, a lot of assimilation, a lot of M and A go on to absorb some of this innovation versus letting them fall.
- [65:41]
Alex
All right, Larry, sticking with you for one more second. I'm trying to keep tabs about what's going to happen in the broader Middle east regarding the Iran conflict. And as you can tell from this poly market chart, it's all over the place. People don't quite know what's going on. What are you telling your report co about disruptions to supply chains, how long the situation could last and when things might kind of get back to quote, quote, normal. I'm curious what your timeline is and what you're telling your portfolio friends.
- [66:04]
Larry Covert
My personal opinion is summer. I would, I would love to see a bow put on this. It is extraordinarily dynamic. There are dynamic leaders involved on both sides and kind of hard to predict leaders on both sides. Both of. Both of the leadership have a bombastic way. I'm not taking an opinion either side. I think America should be a leader and sometimes it's required that we take that more bombastic approach. At the same time, Iran is very unpredictable and they're not Venezuela. This isn't a drop in, get something done, come back home and celebrate. So I would like to see it happen sometime in the summer, get a bow on it and move on. The strait is extraordinarily important. Supply chain is very important to us being able to accomplish what we need to accomplish. All of our companies are paying close attention to supply chain, not just from this most nascent activity, but the last several years have proven that supply chain is critical. And if you look at any theater of war and, and human history, supply chain is kind of the crux.
- [67:18]
Alex
Yeah, just see the Bronze Age collapse. For more about that. But Mike, I think you were going to jump in.
- [67:21]
Mike Granoff
I thought it was important to note. Larry's absolutely right, especially when he pointed out about the American troops that were blown up by IEDs that happened in Iraq. And it was done by Iran. And that's an important thing to remember. But it's also important, I think, to understand that there's an upside here. As Michael well knows. Tel Aviv stock, except exchange, has kind of outperformed every other index over the last year and change. And part of the reason for that, I think, is because investors in that fund are understanding that there has been for decades this Iran overhang on the Israeli economy, which actually is on the global economy. To think about a place like Iran with the talent and the resources that they have, if they were actually to become a democratic country, if they were actually to be a place where we could go look at innovation and portfolio companies. For years I've spoken of Iran as the single biggest binary in the world because at least up till now, they have been the most disruptive force in the world, not just in our region. And the nuclear threat has been an apocalyptic one. And now, on the other hand, if the regime goes away, and I believe it will go away, whether it comes from kinetic action in this next period of time or whether it comes from the people. Because remember last year when we had the war in June, it took six months till people came out in the streets and then were slaughtered. And that's when Trump said, we're standing up and help is on the way. And so I do believe the people will win and they will turn on government and then think about the resources they have. Think about that oil coming onto the global market and what that does for oil prices, for the economy, for energy, and then the innovation that will ultimately come from the talented Iranian people that have been suppressed for half a century.
- [69:02]
Alex
Michael, you mentioned October 7th earlier, and I think there's been quite a lot of pain in the Middle east in the last couple of years. How has the situation impacted the Tel Aviv technology scene and founders and building inside of Israel versus building, maybe with some Israeli roots, but having a headquarters somewhere else.
- [69:19]
Michael Eisenberg
We've had an unbelievable capital inflow, not just to the public markets, as Mike said before, but also the venture ecosystem. Andreessena Harwood, as I mentioned before, has turned up. You know, Accel Sequoia has opened a an office since the war started. Just the inflow of capital is extraordinary. And what we've learned is that Israeli founders just incredibly resilient and they're innovating in real time and they want to do something meaningful, you know, as this war has really affected everyone in the country. And part of that meaningfulness is defense, and some of it is around AI and health and other areas but you see these founders just like aspiring to do something world beating, that really matters. But I actually want to take that, with your permission, to the previous question and connect it. And so there's a meta question here we need to answer, which is has the global supply chain changed forever due to bipolar great power competition between the US And China, the war between Russia and Ukraine, and the war currently in the Middle east, which has also been exported to other places? Has it changed because NATO is on, probably on the verge of collapse. Right, Because President Trump has decided he's not going to support it anymore. And that'll change the entire Europe while we're at it. And by the way, you know, Europe's contending with its own problems. The rise in energy costs and the loss of an ability to compete in so many areas. Inflation and kind of overhung balance sheets. It's, the world is changing and the world is not going back to the way it was before Russia invaded Ukraine. Like, it's over. We need to acknowledge that. And so, you know, in our annual letter this year, I talked about sovereign countries, sovereign companies and sovereign individuals. And we're going to a world, I believe, where you're going to have to have a sovereign allied supply chain. You will not be able to necessarily to rely on adversaries for key components of supply chain. That will certainly be true in defense, it's obviously true in semiconductors. But it's taken a long time to get there and we'll take an even longer time because these are, these are atoms. And so you need to kind of figure out how the globalist supply chain changes to an allied supply chain if you're going to want to compete. So that's point one. Point two is Apro October 7th in the Iran war. As Mike was saying before, you know, the collaboration between the United States and Israel is literally unprecedented in the history of global warfare. It is unprecedented. The intelligence sharing, the use of AI, the use of modern technologies, without getting into too much detail, the collaboration on the battlefield, the refueling to allow jets to go endless, endless thousands of kilometers, and the tight ability to connect intelligence services to operational efficiencies is stunning. They're going to write books about this for the next 100 years. It also says who are the allies of the United States, not just when it comes to warfare, when it comes to supply chain. The uae, for example, has turned up in spades. And that is going to be, it is an incredible country. It's going to be even more incredible country. The race for AI because they can be trusted. And that's why they're building a 5 gigawatt data center there that US companies are allowed to go to and Nvidia chips can go to. So the world is going to rearrange in entirely new alliances as NATO fades, as globalist supply chains kind of realign to sovereign allied supply chains, as Europe gets weaker, significantly weaker over the coming decades and parts of the Middle east and Southeast Asia rise. India for example, in Indonesia, we're going to see the whole world reordering itself over the next decades. Companies need to get into that jet stream in order to be successful for the coming decades.
- [73:03]
Alex
So, so does that change the, the prominence of Silicon Valley and let's just say Shanghai as global hubs, does it, does it create more or does it shift where the center of gravity is in the world of technology somewhere else?
- [73:16]
Michael Eisenberg
Michael, you know, I think Larry's comments earlier about the magnesium company and the grand and the Grand Rapids anecdote is critically important. So Gen AI is won by Silicon Valley. There's no sense investing in Gen AI anywhere else on planet Earth. They've won their 91% of the dollars. 91 of the companies. It's, it's over. Yeah, we, we incubated, beginning like three years ago, what we call a creationary chemistry company that does three things. It makes rocket fuel, makes energetics, and it makes chemicals that purify rare earth minerals. And they have solved manufacturing because you don't need scalp manufacturing. You can kind of spin up modular manufacturing in Austin or Grand Rapids or Tel Aviv, it doesn't matter. That's the kind of company that has a big moat that can be created in Israel and you can win, you know, through distribution of that and local manufacturing by doing that. And Larry's point is we're going to see a tremendous amount of innovation. I believe that's not in kind of the, what do we call it, the four Cs, the consensus colossal capital areas that, that, that's been around Gen AI and a few of these other areas, then they can spin up anywhere. By the way, look at Defense Tech, which is now in Southern California. People didn't see that coming. Austin, Texas become a center. Miami is kind of maybe on the rise and Tel Aviv continues to outperform at a meaningful level. And Shanghai is Shanghai. You know, China's going to have, going to have a center. The next question we need to ask ourselves though, which I'll just finish with and shut up, is no, you're good. You know, who's going to finance all this stuff. So Nasdaq and the New York Stock Exchange has raised the threshold so much you can't go public anymore. These places, unless you're, you know, go public or co bust at a 10 billion dollar valuation or $100 billion, whatever the number is, or, or you're anthropic or SpaceX. Those IPOs may dry up a lot of liquidity for other companies very, very quickly. So the question becomes who's going to be the financier of choice for the companies that Larry was talking about, Mike's talking about, and I'm talking about, well, Hong Kong is the gateway for these Chinese companies, for Shanghai. That's where you finance those companies. Here's my radical comment. The Tel Aviv Stock Exchange is going to be the Nasdaq of the current decade. And you're going to take Larry's Grand Rapids, Michigan company, the Magnesium company, and my creation of chemistry and cyber companies who are not going to reach, you know, not going to hit the $10 billion threshold. You need to go public on Nasdaq, New York Stock Exchange and the robust financial markets of Tel Aviv that Mike pointed out is the best performing stock index over the last three years. That's where you're going to take companies public in the areas that we're investing in over the next couple of decades.
- [75:49]
Alex
So the Nasdaq's future equivalent of the Shanghai Stock Exchange star market, the smaller tech focused index, will be in your view, essentially the Tel Aviv stock market.
- [76:02]
Michael Eisenberg
That's correct.
- [76:02]
Alex
Larry, do you agree? Are you going to get Magrathea to list over in Tel Aviv? I haven't been. That's why I don't have an opinion.
- [76:11]
Larry Covert
I don't, I don't know if it's, if it's that toxic anymore. I mean, five years ago, like you said, you wouldn't assume that the greatest or some of the greatest future defense primes will be coming out of, out of California and said that's absurd. I, I think the markets will, will absorb these companies here in the United States blended with your, your Tel Aviv assumption or, or positioning. Probably some of both. And we, we've met with several companies by the way, out of there that are really attractive. We haven't made a, a bet there yet, but the, the level of engineering and commitment and tenacity is extraordinarily evident. So I wouldn't say that wouldn't happen in the near term.
- [77:00]
Mike Granoff
I think that's right, Larry. And just to put a finer point also on what Michael said before, our kids generation is being called Israel's greatest generation. And I firmly believe that they are going to create some of the most incredible startups that the world has seen. And I say this not only because I'm obviously biased towards my own kids, but because we sit, we sit around the table every Shabbat and have our neighbors and their kids and they talk about their experiences and what they've been through the last few years and how it has inspired them to go out and build. And as they talk about it, often in very specific and particular ways and are out there getting ready to start companies. So keep an eye out for that. For our ecosystem to have another step up over the next few years.
- [77:41]
Alex
Well, here's hoping that the CCCC firms don't show up and torch everyone's early stage valuations in Tel Aviv. I would like you guys to have fat returns. We have, we have to wrap. But I want to do one last question for each of you. Kind of a lightning round. What is your current favorite portfolio company, or if you're too cowardly to say which one has recently performed well, that you would like to shout out?
- [78:02]
Michael Eisenberg
You know, when you have eight children, you learn not to answer that question. I'll tell you something to pay attention to. There's a company in our portfolio called Giga, which is done an extraordinary amount of work in AI for procurement, particularly for discrete manufacturing. How if you're an engineer, an engineering team at a manufacturing company, it doesn't matter if it's your defense company, Larry, or you need to produce magnesium or whatever it is, I need to get a discrete part, how do I get that ordered and designed up, etc. And this company is explosive, both from a growth perspective, but also for how much faster they can turn, you know, the turns on manufacturing. And that matters in the market. And it also matters what I described earlier, which is a supply chain. They're able to show you how to create a supply chain that's no longer dependent on China.
- [78:56]
Alex
They do custom CNC machining. Ah. I grew up having non CNC machining tools, so I've always been like jealous of the people that actually had the good ones. But if you want to take a look at that one, it's J I O. Thank you, Michael. Larry, favorite child.
- [79:14]
Larry Covert
You know, there's a company called Divergent that's in our portfolio that does something similar to what you just described. Really, really interesting company. They build hypercars under the name Zinger, about 2 million a piece. But what really got us interested was the fact that they could print essentially Print maritime assets, terrestrial assets on demand in austere places when you need them to. So they're, they're actually a pretty meaningful supplier right now to let's say F1 and other automobile manufacturers. But the, the really powerful thing that attracted us to the company was, was the fact that they're getting, you know, Navy and army contracts out there doing really, really important work behind the scenes and they're not out there talking about it.
- [80:00]
Mike Granoff
Really, really cool.
- [80:02]
Larry Covert
Our greatest return would be our oldest investment, which was our first one, the web AI that you know, we engaged at 70 million. We co led the round of 700. Then they did a two and a half B and there's a multiple of that coming out this summer, a new round for them. So we're really proud of them. That's the edge AI company. We also have a company of omniscience called Umbra where they, they do a tremendous amount of the United States reconnaissance from, from space using synthetic aperture radar. We've got a wonderful portfolio. Another one that's, that's crazy is called Volabac. And they do, they've for about six years been building things out of really crazy materials. So their material science company creating consumer clothing and, and I met with the CEO, I said why don't, why aren't you doing things for the DoD or the Ministry of Defense? They're out of London and now they are. They've hired the head of human performance from NASA, people from the agency and they're doing really extraordinary things behind the scenes. Not very showy, but really important. Another One, Firehawk, that 3D prints propulsion, 3D prints rocket fuel. It's just my favorite, it's really favorite
- [81:07]
Alex
from your portfolio there.
- [81:08]
Michael Eisenberg
He's got three more companies, so it hits my number of kids. He's got to go. Come on.
- [81:11]
Alex
I was gonna say he couldn't even get to conviction on picking his favorite. I mean how is he gonna lead a deal? No, no, he's cut off. Larry, you've made all of Austin look wishy washy. Mike, you get the last word here.
- [81:24]
Mike Granoff
Yeah, well, with all the disclaimers that have already been stated, I'd say the company that of ours getting the most attention right now is out of the LA called Harbinger, Harbinger Industries. And you know, they, they, they figured out that, you know, there, I, I've been, you know, in, in the electrification, space and especially around transportation for a couple of decades now and seen a lot of ups and downs. But, but the thing that Harbinger figured out was that there are segments of the trucking space, particularly the middle duty trucking space, where you can today produce electric trucks cheaper than you can produce traditional trucks. So you go out and start the conversation from a discount upfront cost and then you get to appreciate the operating reduction in costs as well. But they've figured something else out also by the fact that they've brought in an extraordinary team and their manufacturing is led by the same guy actually who fixed the production hell of the Tesla Model 3. And as a result of the team they put together and the innovations they've made around putting these chassis together for mid duty trucks, they've understood that there's other things that you can do in industrial manufacturing with today's tools and with AI. And so they're beginning to look at other areas in there as well. They've raised a lot of money and we're in very close touch with those guys, in spite of the 10 time zone differences. I was out there last week and so keep deeper eye on them.
- [82:57]
Alex
If you want to learn more about Harbinger, check out twist episode 2154 from July of last year when I spoke to the company. Fantastic. They're making these essentially like EV skateboard chassis for trucks and you can just drop whatever you want on top of them. It's kind of the old coach built car model, but for the EV world. And it's a super cool company. I love what they're doing and anything that gets more electrification is fine by me. Mike. Appreciate it. All right, guys, we got a wrap. Thank you all so much. A real treat. I learned a lot. I hope everyone enjoyed this. I guess the gist is AI matters. Compute's expensive, Israel's going to be fine. Technology is good. We need more IPOs and it's all Biden's fault. All right, this has been Twist. Thanks everybody.