00:35:09 · Eric Newcomer, Yoni Rechtman
[00:35:09] S0: Every AI hater is just gonna be like, oh, they're just, they're pumping out tons of words, but it's not valuable, it's creating problems [00:35:16] S1: with When it's like free to produce code, you produce more code, but it's not free to review that code. So like, I think, I mean I think Git is like really, really structurally challenged, and GitHub is, you know, in this weird moment where they're like basically all the good talent is left, and they're in this feature freeze, and GitLab is like sort of perpetually on the verge [00:35:34] S0: Do you have a bet in this race? [00:35:36] S1: Of course. What is it? Yeah. So so we backed this business called Atomic, which rather than trying to be like this layer between Git and, you know, the LMs or something like that, which a lot of people are working on, they want to just be an entirely new, you know, replacement for Git. So it, like, exist, you know, down here, and we've seen this happen before. You used to have centralized version control systems, and then sort of the advent of like open source and specifically Linux, like broke that open, like none of those centralized version control systems could manage it. Linus Torvalds created Git, and we have this like, you know, an unbelievable amount of enterprise value created off of the back of that. Well, that's twenty years ago. It seems unlikely to me that Git is gonna really survive like code gen and LLM assisted, you know, software development for the next twenty years. One
00:35:36 · Yoni Rechtman, Eric Newcomer
[00:35:36] S1: Of course. What is it? Yeah. So so we backed this business called Atomic, which rather than trying to be like this layer between Git and, you know, the LMs or something like that, which a lot of people are working on, they want to just be an entirely new, you know, replacement for Git. So it, like, exist, you know, down here, and we've seen this happen before. You used to have centralized version control systems, and then sort of the advent of like open source and specifically Linux, like broke that open, like none of those centralized version control systems could manage it. Linus Torvalds created Git, and we have this like, you know, an unbelievable amount of enterprise value created off of the back of that. Well, that's twenty years ago. It seems unlikely to me that Git is gonna really survive like code gen and LLM assisted, you know, software development for the next twenty years. One [00:36:38] S0: approach that has taken venture capital by storm, and you guys were early on it but are also passionate, is this roll up idea. Take some old world business, give it AI, make a bunch of money. What is Slow doing in Easy. [00:36:53] S1: Three steps. What is [00:36:55] S0: Slow's approach and what's your view of sort of venture capital
00:36:55 · Eric Newcomer, Yoni Rechtman
[00:36:55] S0: Slow's approach and what's your view of sort of venture capital [00:36:59] S1: Sure, the so cost for this is what we internally refer to as a GBO or growth by buyout. We've been doing this for a long time, since well before I joined the firm. So, you know, the first kind of canonical example of this that we have is our business Metropolis. Metropolis started off as software for parking lots. They eventually wound up raising a $100,000,000, buying a parking lot operator, installing their software, making that business way more profitable. They then raised another, I think, billion and $0.5, bought the biggest public company in their space, took it private, did the same thing. They recently announced that [00:37:32] S0: they raised another, I think, 4,000,000,000. AI for parking lots, just underline that. [00:37:37] S1: AI for parking lots. [00:37:40] S0: I think they It's doing well. [00:37:41] S1: Oh, I mean, they just raised, I think, another $4,000,000,000.04, $5.06, who's to say? [00:37:47] S0: And the idea is just like computer vision and the monitoring is much easier now?
00:37:50 · Yoni Rechtman
[00:37:50] S1: Yeah. It's, they basically run these parking lots now entirely autonomously and they monetize the payments Harder to not pay. Yeah, And so the basic idea in all of this stuff, in our view, is that like, there's a lot of markets that are screaming out for, like, software or AI, but are, like, fundamentally unsound places to build a business selling it. So rather than trying to like, you know, invest a tonne in sales and marketing to bring this product to market that nobody wants to win a very, very small amount of budget, you know, each one of these customers, like, Why don't you just go, if economics are transformational enough, just go and buy the business, transform it yourself, own all the upside, and compete on the basis of technology using M and A as a go to market motion. So this is I think where this is very different than private equity, where our view is like, is really trying to be laser focused on product not process. So we meet a lot of people who will say like, well I'm just like really smart, I went to this school, I did this thing. Like we're just gonna be really good asset owners here, and I think that is an awesome private equity approach that is actually gonna perform really well in this moment. Where like we're gonna know how to use these tools the best, we're gonna integrate them the best, but it's not necessarily built for scale or built for repeatability or built for defensibility. So we're very interested in these opportunities where we can underwrite like a product team to go and really validate some kind of transformational, economically transformational product in a market that we think will support this kind of motion. But, you know, you could envision buying a professional services firm, you know, that has like, you know, call it 10 or 15% EBITDA margins, and if you've built a product that you think transforms that into a, you know, call it 30 or 40% EBITDA business, like that is huge value creation for yourself, obviously. It also means that you can afford to buy these businesses like much more aggressively, like maybe not quite as sensitive on entry price, like maybe you can pay, you know, 11 times instead of 10 times earnings, something like that.
00:40:11 · Yoni Rechtman, Eric Newcomer
So you have your pick of the litter on which business you wanna buy, and if you can go and start buying increasingly large businesses over time, as Metropolis has done, you have a chance to, within a relatively short amount of time, own this like huge cash flow generating, really really like unique asset, and just like run it forever and take it public. So we're not interested in these opportunities to say like, we're gonna go and fix a broken business and like modernise it, and you know, we really want to think about, and this is I think why it really is fundamentally venture, is like be very very focused on the upside that we can create in these businesses, rather than thinking about how we can make money through, you know, financial engineering or turnarounds or any of that. It's just a different go to market for software instead of some different business model for us. [00:41:09] S0: But all the competition for these businesses has got to drive you crazy, Now there's all this money pouring in, so every strategy's gonna have, all of a sudden if you have a dry cleaning business, all these VCs said, oh I need that company, we're gonna
00:41:09 · Eric Newcomer, Yoni Rechtman
[00:41:09] S0: But all the competition for these businesses has got to drive you crazy, Now there's all this money pouring in, so every strategy's gonna have, all of a sudden if you have a dry cleaning business, all these VCs said, oh I need that company, we're gonna [00:41:23] S1: bring AI to it. So I think the answer, just like anything else, is it means you have to be willing, like a few years ago it was unconventional enough to even be thinking about this strategy that like, that alone was the off kilter, unique kind of end of one approach. I think today we just need to be looking in weirder places. I think we need to be looking at like weirder types of teams. I think we need to be looking at them earlier, different kinds of interventions, different kinds of product approaches. But it's the same, it's like [00:41:53] S0: Private equity at least respects expertise in the domain. Whereas venture capital often scoffs at the people who've been running the dry cleaning business or whatever, and then they don't understand sort of the particular things that make a business succeed or So I don't