This Week in Startups
00:42:24 · Jason Calacanis, D.A. Wallach
[00:42:24] S0: Capitalism is so brutal, D. A. It's so brutal. [00:42:28] S1: Speculate? I I I would love to get your speculation, Thomas, about what the steady state margin ought to be for these companies. What you just said sounds like an argument for Frontier Labs having no sustainable margin in steady state. Tell me one, is that a correct representation? But two, if you start to think through these other layers, are the memory guys gonna be doing 80% gross margins four years from now, five years from now? I mean, Micron's trading at a forward P of four and a half, Hynix trading at a forward P of 2.8. I mean, if you believe what you're saying about the scale of this, how do you not put all of your retirement funds into Micron? [00:43:08] S0: I'll be right back. Jay trading like a lunatic. Well, as the market came down, I just bought a million dollars at Uber and Tesla, and I totally hit the bottom. But, Thomas, answer the question here about this. This steady state because we're kind of evoking Jevon's paradox here, I think.
00:43:25 · Thomas Tunguz
[00:43:25] S3: Yeah. Look, think the problem... Okay, so the problem with the hardware companies and why I wouldn't load up on those stocks is primarily because there are GPUs lying fallow in warehouses. We don't have enough electricity to light them up. So at some point, NVIDIA bookings plateau just because we can't deploy them within The US, and then you have a seismic shock to those stocks. I think on the other question, D. A, what is the terminal margin for some of these businesses? You look at AWS, right? AWS, massive, the largest hyperscaler. A lot of the business before the AI wave was selling commodity compute. If you rent a server on AWS, it's a server just like there is on Amazon... Sorry, on Azure, just the way there is on GCP. The operating margins not the gross margins, but the operating margins of that business in other words, the profitability of that particular business unit is 35% to 36 net. So even if they're selling a commodity good, even if you're an oil company and you're selling crude or diesel, you can still have a really nice healthy business with competition. Coca Cola's gross margins and net margins are not zero because they're competing with Pepsi. They just continuously try to develop new products and innovate. So I think having even for the broader macro economy geopolitically, having these companies generate 70 to 80% gross margins is very healthy, sustainable, and it's probably the right thing because we want to encourage them to continue to develop and innovate.
00:44:44 · Jason Calacanis, Elana Gold, D.A. Wallach
[00:44:44] S0: Yeah, at the $50 to one ratio I put my spend, Elana, at $50 in value for every dollar. Now, I might not have built that stuff, so maybe it's really 10 to one or something. But I see the revenue going up in the projects I'm doing. I'm seeing the ambition, the dollars invested. Everything's going up into the right because when we deploy the software, we kind of get more efficient. That argues to me that they're undercharging me. And I think everybody's getting undercharged here massively. And plus, I just ordered a 12,000 Mac studio to run local models, which is exactly what I paid for my PC Junior, PC XT, PC AT in the eighties. They were $4,000 computers, dollars 5,000 computers, maybe you can get down as low as I think $2,000 back then. In today's dollars, that would be three or four X. So here we are, it used to cost the equivalent of $15,000 to buy a desktop computer. You just go back to $15,000 desktop computers and you got unlimited unmetered, well not unlimited, but unmetered local compute. [00:45:49] S2: And then just to add to that, you're still hiring at your podcast. So it's not like you're doing everything, it's all automated and you're completely done. Like I saw on your Twitter, you're hiring for 10 jobs, 14. [00:46:01] S1: Yes. [00:46:02] S2: I had to check the numbers and it's like, okay, sure, you're able to automate a lot of the manual tasks, maybe some of the editing that's made for your podcast, some of the preparation, but there still needs to be hands on. And I think some people forget that, especially as we continue to grow.
00:46:02 · Elana Gold, Thomas Tunguz, Jason Calacanis
[00:46:02] S2: I had to check the numbers and it's like, okay, sure, you're able to automate a lot of the manual tasks, maybe some of the editing that's made for your podcast, some of the preparation, but there still needs to be hands on. And I think some people forget that, especially as we continue to grow. [00:46:15] S3: But on this local inference point, Jason, I think you're right. In an era or a year in 'twenty seven when GPUs are limited, local inference will become really big. We're investors in a company called Ollama that has about 10,000,000 people using local inference. Of course. Stanford released a study that 90% of the work that non coders do with AI can be executed on a local model. So I think this is a really big wave, and you'll start to do stuff locally, and then when you need a cloud model, you'll spike, and this is one of the ways that we'll maintain cloud. [00:46:40] S0: I would have no problem, D. A, buying everybody in the company, a Mac studio or NVIDIA, Windows, Spark enabled computer. I would spend 20 ks per person, Because if I'm spending on average right now, 2 ks per person per year, it's going to kind of net out eventually, know, if I sell them in five years for half the price.
00:46:40 · Jason Calacanis, D.A. Wallach
[00:46:40] S0: I would have no problem, D. A, buying everybody in the company, a Mac studio or NVIDIA, Windows, Spark enabled computer. I would spend 20 ks per person, Because if I'm spending on average right now, 2 ks per person per year, it's going to kind of net out eventually, know, if I sell them in five years for half the price. [00:47:05] S1: I agree. And I think it's like, as they used to say in the Internet 1.0 era, information wants to be free. The Internet wants to be free. I think intelligence wants to be free. Yes. And hardware can't be free. And so I don't know how long this takes, but ultimately, you're going to have to, to Thomas's point, you're going to have to have hardware companies that earn a big enough profit to attract the people who know how to do these crazy complicated things. Right now, margins are maybe people are over earning. You've got a situation right now where Elon is financially incented to put literal rocket engineers on general contracting type jobs. Right? Because it's just so valuable to build these data centers as quickly as possible. That isn't steady state. Mean, it's not what we want those rocket scientists doing over the long run, but still someone's going to have to be assembling those ASML machines. Someone's going to be having to produce all the stuff that we need to make this work over the long run. And that I think is the most durable business in a way.
00:48:18 · Jason Calacanis
[00:48:18] S0: Yeah. Elon Web Services came out of nowhere. SpaceX all of a sudden has Colossus two going four times bigger than Colossus one. Who better to build real stuff in the real world like factories and data centers than Elon? He's got really great engineers working for him, but yeah, they're shifting key talent, I think, over to Elon Web Services because it's such a money printing business. When we get back from this quick break, I want to talk about changes at Sequoia, my alma mater, where I started and I was the first scout. The scout program has now been retired at Sequoia. I have feelings about it. Before we do that, I want to just give a shout out to my friends at Fintrx, F I N T R X. This is a great subscription that applies to all of us in the venture business. We started a forward motion. We wanted to meet a bunch of family offices. We looked for a database of them. Didn't exist. Then I tweeted, Hey, is there a database of this? And the founder of Fintrx contacted me, and we got this incredible database. They have... They are tracking tens of thousands of decision makers across the four or 5,000 family offices there are. I started doing late stage deals, Elana, from my syndicate. We did Zipline. We did Vast Space. We did Atoms, Travis's new company. But I needed bigger check sizes, not the average check size from angel list level syndicates that I was doing early stage, those were 5,000 to $50,000 checks. I needed $250 to $2,000,000 checks for those allocations, got on Fintrix, built a database, built some AI, queued everybody up, started doing family office meetings myself personally and with my team, and it worked. Go to fintrix.com to learn more. An incredible database if you want to meet family offices. And the detail they had in there was crazy because I found my family office in there, which was like a family office of two, me and my wife, which we just started allocating stuff in a little more of a thoughtful way. They had details of us. So thanks to Fintrix for supporting the show and supporting my syndicate, syndicate.com. All right. Let's talk about Sequoia. And I'm obviously close to this. Roelof Botha, I met him. He invested in my company. He's no longer there. And a number of the projects he set in motion, along with the rest of the team there, now that he's not leading it anymore, have been retired.