Brad Lightcap serves as OpenAI's COO, overseeing its business, operations, and strategic partnerships across Research, Applied AI, and go-to-market. He also manages the OpenAI Startup Fund. Previously, Brad was part of Y Combinator Continuity and led finance and operations initiatives at Dropbox.

We discussed the shift from chat-based AI to agents that can take action, and what that means for software and the broader economy. We also covered how these systems are being built and deployed, how tools like Codex are changing how work gets done, and what this next phase of AI unlocks for startups and incumbents alike.

Timestamps:
(0:00) Intro
(0:39) The early days of OpenAI
(3:47) A research centric culture
(7:32) Post-ChatGPT chapters
(11:54) Sci-Fi future or good software
(15:26) AI’s impact on rural communities
(18:57) Codex and coding of the future
(24:04) Doing a lot of things at once
(27:55) What VCs should invest in
(35:43) The software sell off
(38:23) Using Codex over ChatGPT
(42:32) FDEs and Private Equity
(44:53) Working with Sam

Links:
https://x.com/bradlightcap
https://x.com/jaltma

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Transcript

Disclaimer: Transcript generated with AI assistance and lightly edited for clarity and accuracy.

Joining OpenAI

Jack Altman

Brad, thanks for doing this with us. I’m excited.

Brad Lightcap

Me too.

Jack Altman

Do you have enough drinks? Would you like one more?

Brad Lightcap

I’ll take whatever I can get.

Jack Altman

I really appreciate you making time for this. I’ve been really looking forward to it. Here’s what I wanted to start with actually. I was thinking about this last night. You joined OpenAI in 2018. It was a research lab. You guys are beating Dota and then four years in, ChatGPT launches. It’s this whirlwind that’s been, I guess three years, but I’m sure it feels like a lot more.

I was curious if you could share your narrative or recollection of what the journey’s been like. What are the chapters? What’s your experience been like as you look back on this so far?

Brad Lightcap

Chapters is the right word. The journey of OpenAI—which I think tracks the journey of AI as a field, as an industry—has been broken up into these weird periods. When I joined, no one had really heard of OpenAI. Our work was relegated mostly to small niches of San Francisco tech culture that followed such things as us beating the best Dota players in the world. Really, I didn’t have anyone to talk to about it. Everyone was like, “What are you doing there? What do you do there?”

Jack Altman

You were the CFO when you joined, right?

Brad Lightcap

I was our CFO.

Jack Altman

What were you thinking when you joined? What did you expect it was going to be?

Brad Lightcap

I didn’t know. I was 27, and maybe I should back up a minute. I was at Y Combinator prior, working with Sam. I was starting to spend a lot more time with what I call our hard-tech portfolio in YC. All the companies that are building everything that wasn’t pure SaaS and internet, consumer internet. So I was spending a lot of time with everything from nuclear fusion to satellites to biotech, anything that would fit outside. OpenAI was kind of in that camp. AI was one of those things that was promised as this future technology, but I wasn’t really sure who’s actually building this.

OpenAI started as a YC research project and so it was in the family. Sam had called me and was like, “Hey, I need someone to help basically do everything that isn’t just the research at this company. Do you know anyone that would be good?” I tried to help them find someone, couldn’t find anyone, and so I was like, I’ll just help you myself on the side.

But I started spending a lot of time with Greg and Ilya and the team that was there at the time. I realized that they had these crazy properties that apply to AI, which now we understand to be basically the scaling laws. Consistently the field was starting to discover that when you make things bigger, the results just get predictably, consistently better.

At that point, this is just a compute problem, and intelligence basically can just be bootstrapped from scaling up very basic general architectures that can turn into a more general intelligence. I was like, I don’t know if this is true, and I don’t know if this will hold. I’m certainly not qualified to judge that. But if it does, and these guys seem convinced that it is true, it’s going to be the most important thing ever. At 27, that just seemed more interesting than investing in tech.

From Research Lab to ChatGPT

Jack Altman

So you started doing that and then what happened in those early years? People are building things that are working, beating the game and a lot of other projects. What were you seeing on the inside from 2018 to 2022?

Brad Lightcap

I would say it was much, much more of a research-centric culture. OpenAI is still highly research-centric. I feel like people think post-ChatGPT it became much more this product-centric culture. But research really drives everything. I think that started because of how much that was cemented in that period as the cultural foundation of the company.

I spent a lot of my time really just trying to figure out what researchers needed to be successful. That spanned from the capital that we need to invest in supercomputers to working with partners to do the supercomputer design and build out, to things as trivial and pedestrian as, “our robots keep breaking” and “it takes too long to drop ship parts from this one supplier that sits in some small town in England. How do we tighten that loop and go faster?”

So it was this very diverse set of problems early on that were really just about pure research acceleration. Obviously now it’s both research and deployment and our business. But early on it gave me an appreciation. I just spent all my time with researchers and so it gave me a firsthand understanding of what was happening before I think anyone else really appreciated it.

Jack Altman

So then there was ChatGPT at the end of 2022. Did you guys on the inside feel like, “Oh, this is going to be something?” When you were playing with it before it got released, was the vibe inside that this is another cool thing, it’s a playground? Or were people like, this is something?

Brad Lightcap

There’s a word that sometimes people use in AI to describe when there’s an indication of something that’s happening, but it’s not quite happened yet, but you get these little sparks. That was how I would describe the pre-ChatGPT period: there were a lot of sparks. You could see that the models were now starting to get good enough that they could emulate humans in a conversational format. You could see that there was an interest that people had in directly prompting the model.

People forget that this was not the way that we originally engaged with language models. We thought of language models as completions engines. You start a text string and then it basically takes that as an input and continues the text string on. This more conversational, dialogue-based format is not the original invention of language models.

But what we were seeing is we had an API that was a completions API, and we had an interface that basically let people put text into an interface that would then show a preview of what the model would actually produce as an output. But people were trying to use that interface in a more dialogue, conversational turn-based format. You could see it. If you paid attention, you listened, you could see that people wanted to talk to the model. That was the natural, intuitive way that people wanted to engage with it, but it wasn’t actually quite built that way.

The other thing that we saw ahead of time was that we had trained an early version of DALL-E. It was our first image model. It wasn’t very good, but it was really a breakthrough at the time. For the first time you could now generate images. We had seen some adoption of that model in a more consumer prompt-based format.

So we had guesses leading up to ChatGPT that it was going to be something important, but we didn’t appreciate the scale. My guess at the time—we all took guesses because we had to do the compute planning—was at peak there’d be a million concurrent users, and obviously we were very wrong.

Jack Altman

So what are the chapters since, if you look back the last three years? What are the phases? If you were describing to a friend, here’s the phases of my journey post-ChatGPT, how would you bucket it?

Brad Lightcap

There’s phases of the company’s life, and then there’s phases of the industry and the technology. On the technology side, I would say obviously there is this proto period of research just starting to work. I call that the scaling period, where we just realized that you actually could go from something that was unusable to something that was usable across most model formats. That was before mass consumer adoption. That was 2018 to 2022.

I think 2022 to 2024 was really the period of chatbots, where all of a sudden it was generative AI. It was people realizing that you actually could have something that was useful, but it was not totally clear exactly what it was useful for. It was new and novel. The utility was still not totally there. It was a slightly better version of search.

Then the next chapter, and I think the one that we’re in now, is this period of agents, which is AIs that actually can go do things for you. They run asynchronously. You can give them instructions and they can take an arbitrary amount of time and tokens to go off and think and figure it out. They can use tools. I think we’re in the middle of that period. I think that started for me in December of 2024 with the release of o1 and then through 2025 and into 2026.

Jack Altman

You think we’re in the middle of that now?

Brad Lightcap

Yeah, I think so. I think weirdly, in each of these things—because the utility quotient on the models goes up by some enormous factor—I actually think there’s almost more time it takes in each of these eras to explore the full potential of the model. I’ve always said to our customers and partners all the time, you could stop progress right now and I still think there’s a 10 or 20 year diffusion and innovation cycle that just comes—

Jack Altman

Just to get it into the economy.

Brad Lightcap

Just to get it into the economy and for people to realize what these things are capable of. With chatbots that maybe would have been five years. With agents it’s probably some multiple. Obviously the technology will progress much faster than that. So that dissonance of the diffusion period being much longer than the actual innovation cycle is going to be something interesting to watch.

The Age of Agents

Jack Altman

How far away are we from the completion of what agents can do? Is it the beginning of a thing that will never end? Are we halfway up an S-curve? What is the current sentiment for what the endpoint of agents’ capabilities will be?

Brad Lightcap

I personally feel totally unmoored here. I don’t know. The historian and technological economist in me wants to think that everything has to fit into these very nice S-curve-shaped paradigms and the innovation cycle will look exactly as it always has.

Jack Altman

Even if there isn’t a script, that we could be right here.

Brad Lightcap

Yeah. The Carlota Perez thing, like this will all be the way that it has been. But there’s a lot of meta levels to this. We don’t quite understand that when you’ve got systems that now have in some sense their own agency, there’s almost infinite levels of things that can happen. They can now start directing other agents.

Jack Altman

They can work together.

Brad Lightcap

You have the temporal aspect. They can think and work for longer, as long as they can cohere the context basically through that period, which is something that I think will get solved. Even basic primitives like memory and other things that are core to very long-horizon work and work that you would do over multiple sessions… All of those things haven’t even yet been sorted out, but are starting to get figured out.

Jack Altman

I’ve always thought, in the last year, why are we not going to get to a place where you can just prompt, “Build me a business, make no mistakes.”

Brad Lightcap

Exactly. Yes.

Jack Altman

I don’t see why you couldn’t be like, “Hey, can you go make me a million dollars please?”

Brad Lightcap

You play it out in the limit and you’re like, I don’t know, maybe that’s possible. If you go back and say, even if you pause progress right now, maybe it’s longer. Maybe it’s 40 years or something, or 50 years of progress that will come from this, just on the basis of this step of the cycle.

The Sci-Fi Paradox

Jack Altman

One of the interesting things that I’ve experienced is right after ChatGPT, I think a lot of the conversation around AI was living in sci-fi land. Are we going to have the next species take over? Are there Dyson spheres? It was very big.

Then what I’ve experienced over the last few years is that it’s been extremely commercial in a good way, but in a very down-to-earth way. It’s in the economy, operated by humans, it doesn’t feel scary. It just feels like insanely sick software. But there’s still this lingering thing in the background that I think gets talked about a little bit less.

Is there sentience? Does it go to this other place? Is that still a conversation that matters? Is it something that’s still thought about, or is it just, “Hey, we actually feel now this is just really good software, there’s nothing to be worried about, it’s just an insane technical revolution”?

Brad Lightcap

This is a really interesting question. I think in some sense the better the technology gets and the more it pushes toward that sci-fi future, the more we actually end up having the conversation about it almost diminishing to it just being a tool. It’s a weird paradox.

I’ve noticed the same thing because I used to sit at the OpenAI that was very much having the conversation about Dyson spheres, because in 2018 that was all you could talk about. You basically had something that was barely working at the beginning, and then you could try and see—

Jack Altman

You think about the whole thing. Once you’re in the middle of it, you think about the steps right in front of you.

Brad Lightcap

Yeah. There’s a local linearity that starts to set in where you’re a little bit like, okay, I appreciate that this thing is a gazillion times better than what it was in 2018, and the capabilities are multitudes more than what they were even two years ago.

Jack Altman

As an example, you talked about DALL-E. When that came out, I was like, oh, that’s cute. But now, just a few years later, I can’t tell if a video’s fake or real half the time. That’s going to get all the way there where you’ll have no idea.

Brad Lightcap

And I think in some sense there will be these parallel conversations that happen. There will be the enterprise productivity conversation because that is something that people are actually thinking about, want to talk about. Everyone’s going to glom on to what the narrative is there. It’s just—

Jack Altman

Are we waking up a new God or are we helping lawyers be more productive?

Brad Lightcap

I think we’re doing both. I think the parallel track of this insane level of empowerment of an individual person to do things that would have been inconceivable even a couple years ago… You’re already seeing examples of it. That to me is the weird sci-fi future.

There was the story over the weekend of a guy in Australia who is curing his dog’s cancer, who has no background, as I understand it, in biology. He basically just had GPT-5 effectively try and come up with some sort of RNA-based vaccine that could treat his dog. And then he worked with a lab to do the design of the treatment and they sent it back and it seems to be working. It happened for $3,000 and in a matter of a few weeks. It’s a crazy thing. That to me would qualify as a spark of a sci-fi outcome.

Jack Altman

It’s just crazy how fast we adjust to anything. We could learn that there’s aliens tomorrow and next week we’d be like, “Yeah, of course.” One of my takeaways with this whole thing is people just adjust to any new surrounding. You just think it’s normal in no time.

Brad Lightcap

A hundred percent. That’s been my experience. Things are novel for about three seconds. The next day it’s, “Okay, what have you done for me lately?”

The Optimist’s Case for AI

Jack Altman

On this topic of “what is the thing”, I’m watching it all and I’m from St. Louis. Now I’m living in Silicon Valley. There’s a very different perception of AI in the St. Louises of the world versus Silicon Valley. I think here the general sentiment is, this is amazing, thank goodness this happened. Around the country, maybe the world, there’s real skepticism and anxiety and fear.

People here have that too, but it’s this interesting reckoning where you’re grappling with, simultaneously, “Oh my God, that’s amazing, that’s awesome,” versus “Oh my God, that’s amazing, that’s a threat.” How do you think about the right way to interpret this? What are the genuine concerns and fears that we’re going to need to work through, and what are the things that you think are misunderstandings that will actually just be really positive?

Brad Lightcap

No one knows the future exactly. So I think everything here is speculation on all sides. I come at this from more of an economics, history-of-markets background, which was more where I spent my time in college. I’m still trying to understand the world through that lens. First of all, I think it is really a bummer that the world’s view of AI is what it is. I blame no one other than the industry for that. I think we as an industry have done a horrible job of being able to paint for people a picture of a future that is way better than the world we live in today.

The crazy thing is I actually think that is the reality. The stories of the guy who is curing his dog’s cancer are going to become much more commonplace. I tend to find a lot of comfort in the idea of individual empowerment. Anyone anywhere on Earth can have an idea, and the time to value from conception of idea to thing that exists in the world starts to collapse to zero, not only from a time-to-value perspective, but also a cost-of-creation perspective. I think amazing things are going to happen when you reduce that friction and you increase that access. People are incredibly innovative, they’re incredibly creative. Everyone is motivated by their own set of circumstances and the problems that are in front of them to want to improve the world they live in.

I think 99% of it is a tools problem. They historically had no means to be able to do that. When you give people something that now enables them to start a business, do research, create a new thing, build a new service, serve customers more efficiently or cheaply, only good things can happen in my mind. Now obviously there are things that come with that. We have to be thoughtful about what the technology presents in terms of the flip side, because it’s as capable of doing harm in some cases as it is of doing good.

But I tend to think that we will figure that out. We are resilient and equally creative as a species. Whenever we’ve been confronted with the opportunity to create something that has potential for greatness, we also have been really thoughtful about how we build institutions that protect against the downsides.

So I have a more optimistic view. I think the industry has more of a duty to help people appreciate and understand what’s happening, and to help people live the experience of it, to use these tools to do the types of things we’re talking about.

Coding and AI

Jack Altman

An interesting instance of this conundrum is in coding. This is something that’s easy for us to talk about because we’re very familiar with it, and it’s one of the best applications of AI so far. AI is really good at coding. So then you could bump that up into the real world and say, are we going to have more developers? Are there going to be more people doing more things? Is it going to replace people? I think the data I’ve seen so far is actually that there’s more engineering jobs being posted every month than ever before.

But I’m curious how you think about this, with coding as an example of what’s going to happen when it bumps up into the real world of people doing stuff.

Brad Lightcap

This is where I try to come back as rationally as I can to this economics-based, market-space view of how things have worked in the past. You have distortions in supply, demand, and costs that create these weird inflection points in human productivity. If you reduce the cost of software engineering, for example, to virtually zero on the margin, the simple thing to think would be, okay, software engineers won’t exist anymore.

The thing we’re seeing in reality with tools like Codex and other things is, actually, when you reduce the cost of something to zero, the demand for it goes up significantly. The job of the people who were previously described as software engineers, who were hand-typing every character of code—

Jack Altman

They’re now guiding agents.

Brad Lightcap

They’re now just doing a slightly different version of the job.

Jack Altman

I think some of this is that the cost is lower, but it’s not zero. Which is a good thing, I think, because between two companies that are competing for a new market—let’s say they’re doing AI for construction—if you have two companies, even if engineering got much cheaper, if one still decides to spend ten times more than the other, presumably those people are not going to do nothing to improve the product. So I think we’re just going to get better software rather than fewer people working on it.

Brad Lightcap

Software is wildly underpenetrated in the world. I think if you actually zoomed out and said, of all the places where software—and good software, not just software—

Jack Altman

By the way, there’s still so much bad software everywhere. If you go to a hotel and you look behind their screen, you’re like, “What are you typing on?” There’s a lot of work to do.

The Codex Breakthrough

Brad Lightcap

It’s crazy. And that to me is also, by the way—you want to talk about risks—that’s actually where I think the risk surface exists. It’s the software systems that hospitals use, that power grids use, that store customer information through a hotel. These are all fairly archaic systems for institutions that actually span meaningful percents of the world’s GDP.

I would look at this as, in some sense, almost the greatest thing to ever happen. You’ve now got systems that can help update all of that software, that can bring software into places where there’s zero percent penetration, that can help reinforce and harden systems that are exploitable or vulnerable. In terms of how much we actually needed software relative to how much we’d penetrated, I think if you could actually measure that, we’d be at 1% today.

So I have a maybe slightly different view of this, a personal view of course. If you have AI that can write really good and obviously safe software, I think that is going to be one of the greatest gifts to the world. The speculation around whether there will be software engineers in the future or not is the wrong question. There are going to have to be people who oversee the design, implementation, and maintenance of what could be 10,000x the amount of software and code that gets written in the world. That is going to create a unique demand cycle that may not look exactly like what we do today in software engineering, but it’s going to be important.

Jack Altman

Absolutely. What was the breakthrough that happened for you all recently with Codex? It seems like some step-function thing changed in the last few months in the industry, and for Codex in particular.

Brad Lightcap

It’s a few things. One is the focus of the team at OpenAI building Codex. I’ve been at OpenAI a while, as you said, and the work that team is doing to drive that product with the amount of focus and intensity that they’re doing it with is a singular and unique effort in the history of the company. They are obsessive about the quality of the product, obsessive about the quality of the model. Because of where we are in terms of how models are trained, the cycle time on how fast we can drive improvement is starting to collapse. That’s why you’re seeing these jumps from GPT-5.1 to GPT-5.2 to GPT-5.3 to GPT-5.4.

Now it’s not surprising that you get a model like GPT-5.4 that, as of today—here we are in mid-March—the model’s a few days old and is doing a billion-dollar run-rate revenue, doing 5 trillion tokens a day. It is now far and away our most dominant model of our set of API models, and is also driving Codex growth at the rate it’s going. I think that’s only going to increase this year. By the end of the year, I think we’ll look at the models that power Codex and our APIs today and think they’re pedestrian.

Jack Altman

Obviously OpenAI started in chat and then moved into all these different things. Over time I think it has become probably one of the most unique companies. Included in that uniqueness is that you guys have done a lot of things. How are you thinking about that now? The market is starting to somewhat mature. You’ve had new companies come out, spin out of OpenAI, and focus on areas that have turned out to be really productive. I’m sure that’s changing the way you guys are thinking.

So I’m just curious, the state of the union in early 2026. When you look at where you are, what’s around you, what matters now, what do you care about? What do you say got you here, and what’s going to get you there? What’s the focus?

Brad Lightcap

One of the cool things about OpenAI is it has a very wide aperture on how it looks at what its ultimate mission is. The lines that people drew in the world prior—you’re B2B or you’re B2C, or you’re hard tech or you’re software—all of the things that the VC ecosystem segments themselves by—

Jack Altman

“Got to have a lane.”

Brad Lightcap

Yes. We don’t see those walls. We see AI as this enabling technology that is going to drive innovation cycles across all of the above. It could be in the enterprise, it could be in consumer, it could be in creativity, it could be in robotics, it could be in hardware.

What we want to understand is, what do each of those bets look like? OpenAI has an operating model that has been tried and true for us really since the company started. It’s able to be experimental, able to try and iterate, able to be very model-forward in how we think about a problem, and not really feeling like we have the incumbency of the last generation. And then we try to see if we can build the thing that we think is possible. If it works, you build an effort around it. If it doesn’t work, you shut it down and you recycle those people back into a new thing.

That was really the way that OpenAI operated early on. It still somewhat is, this expansion-contraction model in research where you’ve got maybe 20 projects that are all trying different things going on at the same time. Maybe two or three of them will really work. You scale those up, you consolidate people back into those projects, and then over time, as you shift into a next paradigm. You spread back out again and take more bets.

I think that’s going to be how this goes. Everything is, in my mind, downstream of research. If that’s the cycle of how research is working, the product and deployment cycle should look similarly.

Jack Altman

I also feel like I can tell from the way the product’s feeling, it’s a unified model. It’s going to all just be a unified thing at some point here soon. It’s already going that direction. That thing will just be used by people whether they’re at home or work. People use Google at home and at work, and it just becomes the tool.

Brad Lightcap

We need the models to start doing more work for users is what I would say. If there’s been one really big gap in the consumer experience in AI so far, it’s been that users have to do too much work. You’re promised this future of these really smart models that can solve all your problems very dynamically. Yet here we are with 18 things in a model picker. Do you want thinking fast mode, do you want pro thinking hard mode?

Jack Altman

It’s crazy. It’s time to move on.

Brad Lightcap

It’s time to move on. That to me feels like the direction you’re describing, this more consolidated experience. I just don’t want to think about it. I just want intelligence, and I’m going to let the model decide how to allocate that on a token level most efficiently.

Where Startups Should Build

Jack Altman

Okay. I want to move the conversation to a selfish place now. You’ve been an investor before. My question is, what should I invest in? Maybe to put a little framing around it, there’s a frequent worry among founders of OpenAI releasing something and getting their face blown off. What’s safe from AI? What will or won’t the models do? Where can a startup predictably add value?

Sam talked about how you should build your company such that you’re planning for the models to get smarter. If the models getting smarter is good for you, that’s a good thing. If the models getting smarter is bad for you, that’s going to be really tough. Can you unpack it a little bit more now, just as months and years have gone on, what are the safe places for a startup to try to do work that they can expect to still be available to them in three years? Or should they just all join OpenAI?

Brad Lightcap

I don’t think they should all join OpenAI. First of all, the level of energy in the ecosystem right now is nothing I’ve ever seen. The quality of founders and the—

Jack Altman

And the effort.

Brad Lightcap

The effort. There’s this intensity and this urgency.

Jack Altman

Do you remember the startup ecosystem right before ChatGPT? After ZIRP, we had come down from the SaaS glory moment. That was tough. I don’t know where we’d be right now without it. It would be not fun.

Brad Lightcap

I was at YC in 2016 to mid-2018.

Jack Altman

That was good.

Brad Lightcap

The front end of that was a fun time to invest in growth. We were fortunate enough to invest in the growth rounds of a lot of the companies that had been built in the last five years prior to that. Then weirdly, it just got less fun, I think in 2017, 2018, I don’t know what it was, it just felt like the ecosystem was tired. It didn’t feel like there were a lot of new ideas.

Jack Altman

I think a lot of the obvious stuff had happened at that point. I think without a new technology shift… There’s always more to do, but at some point the first 80 of the 80/20 gets done. Now you’re rooting around in the 20.

Brad Lightcap

I think that’s right. But it feels firmly now there’s this entirely new cycle, and the urgency and the excitement is very much there. Also just the ambition of the companies that we engage with, it’s stunning to me sometimes. I’m like, you’re going to do what?

Then you realize there’s an enablement factor. As soon as you get models, for example, that are good enough at software engineering that they can start to design and write in new programming languages, or that they can speed the time from being able to take old code bases, refactor them, and then rewrite them into new and modern frameworks that enable another company to exist and serve an area that was historically underserved… You realize that there’s an entire industry here that didn’t exist that’s about to get built. Then you’ve got a founder who sees that and they’re like, I’m going to go after that.

That’s partly the answer to the first question. If you think of model capability as dropping successively larger rocks in the pond, the ripples from those rocks reverberate wider and further and it creates more and more surface area around the circumference. I think the way I would look at it is you don’t want to be right under the rock dropping. You’re going to drown. That’s a very hard place to be. But you want to really be right out on that outer edge, on that surface of what is the thing now that is enabled by this advancement in capability that wasn’t previously workable before, in a very specific and opinionated area on a very hard problem that has historically been underserved.

Jack Altman

I guess to stick with your metaphor, I feel like some of the fear is that the next rock you drop is going to be bigger than the circumference of the ripple of the last rock. So things that were at the edge before are now squarely in the center of the model.

Brad Lightcap

I think there’s no substitute though for being familiar with a user, a problem, how the existing industry serves that problem or doesn’t serve that problem, and just being very close. YC always had this thing, basically just talk to users. It’s simple advice. Sounds trivial, but not enough people do it. When you actually get into it you realize the world is gigantic. 99% of people get to use bad tools or don’t have any tools at all.

The quality of experience of the people that exist as their customers and users is not very good. Everyone’s lived that in some capacity. Everyone has lived the bad experience of going through modern life and dealing with the things that we have to deal with. I just think if you’re sitting there lamenting the idea that there’s no more good ideas and no more new ideas, it’s just lazy.

Jack Altman

I feel like there’s at least two other things that can give you comfort as a founder. One is that I don’t think any company, no matter how great it is, can do everything. There might be 10,000 people working at the labs, but there’s millions of people in other places and you just can’t do everything.

The other thing that has surprised me is that some of these markets are just so ridiculously big. There are eight things that are all doing well around, let’s say, code gen and website building and internal tool creation and whatever. You could do that probably straight out of Codex, but you can also use other products that are great, that are based on Codex and things like that. So I think some of it is just that these markets are hard to appreciate, how big they are.

Brad Lightcap

Again, there’s no substitute for being able to talk to users and being able to identify what people really want. At OpenAI, our focus is really on trying to improve the models and do the best research we can possibly do. But for someone in a very specific area of the world who has a very specific set of needs, who wants to do one thing and they want to do it really well, there’s probably some alpha there.

The New Way to Build a Company

Jack Altman

I do think it changes the way you need to build a company versus in the past though.

Brad Lightcap

I agree.

Jack Altman

What I’ve noticed is a lot of the great founders today seem very willing to just rip everything out that they’ve done up till this point and keep only their team knowledge, customer relationships. But if the product we built so far is wrong, we’re going to just trash it in a way that I think people were much more precious about before.

Some of this goes to there’s a new ephemerality to a lot of these things. When software is super easy to build, I can make a UI that works for me today, but I’ll throw it away because I can just make a new one tomorrow. I think that’s an interesting trend too.

Brad Lightcap

I have seen, a handful of times now, founders of companies that were built in that period between, call it 2008 and 2016 or something like that—who are the canonical darlings of software from the last decade or so—who have founders who are still running the company, who have basically decided, I’m effectively restarting the company.

They have taken it on themselves to fork off of the mainline effort to basically go figure out what the second chapter of this company looks like in a world where the primitives and the tools and the assumptions have changed.

Jack Altman

Which is a hard thing to do. There’s just so much sunk cost to it all.

Brad Lightcap

Yes.

Jack Altman

But I think the people who are able to adapt to that, it’s a huge advantage it seems like.

Brad Lightcap

Totally. You can iterate so fast now. You can explore the action space so quickly. And you have the benefit of legacy customer relationships. You’ve got the benefit of existing teams. So in some sense you almost are starting with a head start. The way I see it is you can learn faster. Whereas if I were to start a new company tomorrow, I’m starting with no customers and no funding, no product and no team.

Jack Altman

I guess related to this, how do you feel about the selloff in public markets? Obviously outside of the big companies which have done great, public software companies have taken a pretty bad beating. When you think about the work that you’ve been doing with them and what you’ve been seeing, are you watching that and you’re like, this makes sense, or are you like, actually this is a misunderstanding and you’re feeling bullish about those companies?

Brad Lightcap

Hard to comment specifically on the market. The market is a very frenetic thing. Here’s what I live day to day. We work with basically every company that sits in the Nasdaq that you could imagine. A, all of these companies are as motivated and moving as quickly as any startup. B, they’ve got amazing customer relationships. They’ve got amazing depth of understanding of the problems they’re trying to solve, the areas that they serve. Obviously they’ve got years and years of perspective that have been built. I think now in some sense they’re able to leverage and benefit from the same tools that anyone else is.

So the conversations we’re having with them are really about them starting to rethink, end to end, their entire customer experience, their product, starting to think about how they serve adjacent markets, starting to think about ways that they can pass capability through to their users. Creating entirely new experiences that weren’t possible before. So I think you could take the other side actually. I think you could take a very long view here.

Jack Altman

In some ways the software itself is the easiest thing at this point. Having all the relationships, the team, the trust with all the customers… That’s actually the hardest pole of the tent to have now.

Brad Lightcap

If that class, if that segment was asleep, I would say okay, maybe that concern is more warranted. But—

Jack Altman

But they’re not.

Brad Lightcap

No. And it’s happening at the CEO level and the founder level in some cases where everyone is as motivated to figure this out and figure out how to create value for their customers and their business as anyone else. So I think it’s the beginning of a new cycle, that’s my guess.

You’re always going to get new companies that form that are trying to take a fresh and new approach. Often the benefit that those new companies have is that the incumbents don’t realize what’s going on and are too slow to move. Here, you actually don’t have that dynamic. You’ve got everyone running, trying to run at the same speed. So I think that’s exciting. I would say if you’re long AI and long startups, then it might even make sense—maybe as a contrarian opinion—to be long legacy software too.

Codex as a Daily Driver

Jack Altman

I don’t know if you’re experiencing it one way or another. It doesn’t have to be founders, but even people joining OpenAI from some older company that had not been AI-native. How do you help people reset? What does it take for people who have lived in the pre-AI era to work the new way?

Brad Lightcap

I think you have to see it firsthand. If you’re not playing with Codex every day, I think it’s hard to intuitively grok just how disruptive and crazy it is. Codex for me has replaced ChatGPT on a daily-driver basis, and I’m not even technical. I don’t write software for a living, but it has a general capability. I’m specific enough about the set of things that I want, and I’ve developed enough familiarity with it.

Jack Altman

What are you doing with it? What’s a daily quick use case?

Brad Lightcap

My life is basically a daily struggle of things that I would like to see get done.

Jack Altman

I thought you were going to just end it with “my life is a daily struggle.”

Brad Lightcap

Well, that too. But things that I would like to see get done, and then how fast our team can mobilize and operationalize to get it done. At a busy, fast-growing company, sometimes those timelines drag. When those timelines drag then the thing that I want to see us do starts to drag. Everything elongates into this thing where if everyone were a hundred percent focused on this thing it would take two days, now it takes basically a month.

One of the things I’ve started using it for is supplementing that. It gives me a first version of everything. For example, we’re building a fairly substantial forward-deployed engineering org, which we can talk about, but recruiting for that has been challenging. Recruiting’s hard.

Jack Altman

You’re using it to recruit?

Brad Lightcap

I’m using it to basically go figure out lists of people that we’re thinking about recruiting, how do you navigate and stack rank among that list before you start getting into the candidate engagement? It’s crazy because everyone today has this online presence and a lot of people have blogs and X accounts and all that.

I just told Codex, “Take this list and basically go figure out what public presence any of these people have. Come back to me and effectively read their online content and score it against how you think about some of the technical elements of our work and the job descriptions of the things that we’re doing.” It works even for a non-technical task like that. It basically writes a program and will figure out how to efficiently look at each of these profiles and come back and give me scores on how good it thinks each of these candidates’ online writing has been.

It’s cool because it actually surfaced for me three or four candidates who I couldn’t have picked off the list staring at a list of 200 names, but where I was like, “Okay, let me go double-click on this.” Now it gives me an opportunity to really look into that candidate’s profile and their blog and whatever and start to just get to know them better. That process would’ve taken a busy recruiter probably a couple weeks. It’s a lot of names. Here it just collapses down to 20 minutes.

Jack Altman

By the way, I bet a lot of this is what is going to be needed for people to just broadly be excited about AI, not frustrated about it. Using it and realizing that it’s super empowering. Versus thinking, “Oh, all these other people are using it to be empowered.” No, just start using it. I guess a lot of that is you getting the tools to a place where it can be adopted super easily by everybody.

Brad Lightcap

For sure. One of the things that I feel is the story that hasn’t really diffused into more mainstream conversation is just how general these tools are. You don’t have to be a software engineer to use Codex.

Jack Altman

It’s fascinating that you prefer Codex over chat for a lot of your work. It’s cool.

Brad Lightcap

The Codex app is amazing. If you haven’t used it, check it out. The terminal-based use is maybe a little more intimidating if you’re not technical, but in an app interface it just looks like chat, and I think it’s got much more general agent capabilities.

Forward-Deployed Engineering

Jack Altman

On the topic of the forward-deployed stuff and private equity, what’s the thinking there?

Brad Lightcap

The thinking is very much what I was talking about earlier. If you think about the way that software is going to get built in the future, in some sense now any specific problem within any company, in any part of their process, historically it would not have made sense economically to have spent a lot of time thinking about how to solve that one corner of a problem. It’s too expensive to hire a bunch of people, to build a bunch of software, and for that software to then have to be maintained. Obviously for the most important problems in most large enterprises, you could hire people to do that type of thing, and there’s entire industries that have gotten built around that.

But for 99% of problems, for 99% of businesses, that’s totally out of reach. You’d have to either decide that you wanted to hire a couple people to try and build something on their own that maybe didn’t work super well, or you look to see if the market offers a solution. But the problem is that the solution doesn’t necessarily fit exactly what the shape of your problem is.

So now you’ve got people contorting themselves trying to figure out how to adopt the thing off the shelf that wasn’t really built for their company. It was just built as a general-purpose tool. I think that entire era is over. Now you actually can reason about how almost every problem inside of a business can have solutions that are custom-built for it. It goes back to this weird paradox of what do you think is going to happen with jobs.

We wouldn’t be wanting to hire FDEs as aggressively as we would if it felt like software engineering jobs were going away. The jobs of those FDEs are different. If you’d hired an FDE five years ago, they’d be doing something different than what they’re going to do in the future.

But the amount of demand and the amount of opportunity that we see, to be able to go address surgically every area in a business that could benefit from solution design—and not solution design that happens on the order of 18 months, as is the industry norm, but solution design that happens on the order of maybe 18 days, if not faster—that to me is an incredibly large opportunity that I think will be the story somewhat of how the next few years go. The FDEs we’re hiring are really to help address that.

Working with Sam

Jack Altman

Last question I have. Just your reflections working with Sam. It’s funny, I obviously know him as a brother. You know him as someone you’ve worked with for a long time now. I’m curious what the evolution you’ve seen has been like, now that he’s obviously gotten to a different place in the public sphere. There’s this whole public persona, and then you obviously work with him on a daily basis. What’s the whole experience like for you with him?

Brad Lightcap

We’ve worked together for 10 years. 10 years in January.

Jack Altman

And the first year or two was YC.

Brad Lightcap

First two and a half years was YC and then I got to OpenAI before he did. I would say I recruited him to OpenAI.

He’s a remarkable individual. I wish more people could spend more time with him off the record. I think he’s not innately someone that enjoys being a public face of things. I think it certainly feels like an unnatural thing for him. He’s someone who much prefers spending his time sitting in a huddle of five people talking about the future and having a deeply technical conversation about some niche topic. That’s who he is internally at OpenAI. It’s what I’ve always known him to be. I think if more people could spend more time with him, you’d realize he’s an infinite optimist.

Jack Altman

That’s crazy. Because the way I experience it, it’s almost like this sacrifice to have put himself out so publicly, which is a requirement to make all of this happen and show the world that by accumulating talent, compute, and all these ideas in one place—that’s what made all of this possible—then everybody can see it. But that’s such an uncomfortable thing to have done.

Brad Lightcap

It’s interesting because he thinks on a timescale that’s more like a decade-plus, and I think the world struggles to think beyond a quarter forward. I’ve always felt there’s this kind of mismatch.

Jack Altman

There’s a total mismatch. He’ll say something and everybody’s like, “That’s crazy.” Three years later, it’s exactly where we are. Sometimes sooner than that. Then there’s no reconciliation backwards. It’s just like, now he’s said a new crazy thing, and people are like, “Oh, you’ve been crazy all along.” That’s a weird thing to watch and there’s no way to tie that together really.

Brad Lightcap

Everyone’s trying to figure out what’s happening right now, because I think in some sense the whiplash is so real. I have a lot of empathy for that. I spend a lot of time with our customers, with friends, family that are looking at me and calling me being like, “What is going on? What is happening? What is this Codex thing?” I think in Sam’s head we are already so far beyond that point, in terms of what’s coming, that it’s trying to bridge for people where we’re going relative to where we are. I think it’s disorienting.

Jack Altman

It’s really an insane thing that you all have done and continue to do to pull all these pieces together. I think this has got to be the most hard-mode company of all time. It’s very, very impressive. I’m sure you just get used to it all, but hopefully you appreciate what a ridiculous feat you guys are pulling off.

Brad Lightcap

I appreciate that. I very much feel like it is far from complete. It’s highly incomplete. It’s interesting. When we formed the company early on, the mission orientation of the company was very strong. But I always tell people, in a very literal sense, a lot of companies have these high-level, lofty missions that you can’t really actualize. No shade on anyone specifically, but it’s “don’t be evil.” Okay, that seems like a good thing. Or it’s “make the world more connected.” Seems good.

Jack Altman

It’s also like, so if the plan is “don’t be evil,” then what? It’s very debatable from there.

Brad Lightcap

How do you actualize that? What do you do? One of the interesting things about OpenAI is the mission from day one is this very actualizable mission. We try and run everything that we do through the lens of, “Okay, is this consistent with the outcome that we are trying to create?”

I always used to joke at OpenAI: there is a world where we do the thing we say we’re going to do, and then we go home and we’re done. That’s the end of the story and we all go back. In practice, is it going to work that way? I don’t know. I don’t think so. But maybe.

It is a company that has a very specific orientation toward a very specific goal. I think amid all the craziness of all the things that are happening, it’s very focusing to be like, “Okay guys, there’s still this one thing that we are really trying to deliver.” It’s very easy to come back to that mission and say, “Is this something that drives toward that outcome or not?” If it’s not, we’re just not going to do it.

Jack Altman

Love it. This was really fun, Brad. Thanks for taking the time to do it.

Brad Lightcap

Good to see you.

Ron Conway is the Founder and a Managing Partner of SV Angel. He has been an active angel investor since the mid-90s and has received wide recognition for his role in the tech ecosystem. He has been included on Vanity Fair’s 100 most influential people in the Information Age, awarded Best Angel at the TechCrunch Crunchies Awards, and has been named on Forbes Magazine’s Midas list of top “deal-makers” since 2011. Prior to founding SV Angel, Ron was with National Semiconductor Corporation in marketing positions (1973-1979), Altos Computer Systems as a co-founder, President, and CEO (1979-1990), taking the company public on Nasdaq in 1982.

Ron reflects on decades of investing, from semiconductors to AI, and what it really means to be an “all in” partner to founders. He shares how relationships compound into an unfair advantage, why the best investors show up at inflection points, and how being willing to fight, whether in boardrooms or Washington, can change outcomes.

Links:
https://svangel.com/
https://x.com/RonConway

Watch on YouTube; Listen on Apple Podcasts or Spotify

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Clips

Fearless for founders

Ron is the nicest guy you'll ever meet, and he's also the most ferocious defender of founders when he needs to be.

"If you're fighting for a founder you have to be fearless. If I had a gravestone...just 'fearless for founders.'"

The Human Router

Ron explains that his edge isn’t capital—it’s relationships. He’s constantly connecting people, not for immediate gain, but because over time those introductions compound into real outcomes, earning him the nickname “the human router.”

The mindset is simple: meet great people, connect them generously, and trust that something valuable will come out of it.

Transcript

Disclaimer: Transcript generated with AI assistance and lightly edited for clarity and accuracy.

From Semiconductors to Angel Investing

Jack Altman

This is my first go at a live podcast, so I don’t know what’s going to happen, but we both have a sufficient number of microphones. So this will be good.

Ron Conway

I feel rude not facing the audience, but because it’s a podcast…

Jack Altman

The audience is out there.

Ron Conway

My camera is over there. If you’re back there, don’t think I’m rude. I’m doing what we do on a podcast. I’m going to leave the second we’re done because I have Nancy and Paul Pelosi sitting with Gayle and me on the floor of the Warriors game tonight. If you know Nancy Pelosi, she is always prompt and has told me to be prompt.

Jack Altman

We will not be late. We’re going to get to that type of thing as one of your superpowers. Everybody knows who you are, but as I was thinking about this conversation and this audience… We have a bunch of seed investors here in various forms of the job and various stages in their career. You are sort of the archetype of angel investing. You’ve been almost embarrassingly successful investing in Stripe, LinkedIn, Facebook, Google, PayPal, Airbnb, Pinterest. It’s almost more than is reasonable to name.

What I wanted to do was try to open up how you’ve made that happen and how you look back over the decades of your investing and try to glean what an investor in 2026 can learn from you and your success. Can you give your own narrative of your career, starting from when you first got into investing and what played out over time, just to ground us in what your professional life has been all about?

Ron Conway

I think it all starts with age and seniority. And speaking of age and seniority, your mom is here and I want to recognize her.

Jack Altman

My mom’s young. There’s no age.

Ron Conway

I view myself as young too, but I want to recognize that Mama is here. We had a good time at Sam’s 40th. This is why I bring up age, because I’ve been through every technology cycle, starting with semiconductors, which is where I started my career.

I did not like school. I couldn’t wait to get the hell out of school. I left San Jose State and the next Monday I started work at National Semiconductor in the Santa Clara Valley, when most of the valley was fruit orchards and an occasional semiconductor factory. I’ve been through the semiconductor phase, which gave way to the computer phase, that gave way to the software phase, then into the nineties with the internet boom. Today, the AI boom is bigger than all of those combined, I swear to God. It’s hard to fathom. It’s hard to keep up with, but I think we all have that problem because there’s so much change happening at once.

Even in the internet boom, you could keep track of things. Netscape was Mission Central. Netscape is the one that allowed you access to all of this corpus of information on the web. From that we got the internet boom. I was fortunate to go work at National Semiconductor. A few people at National went off and started a company called Altos Computer. They asked me to join. This is when the microcomputers were disrupting DEC, Data General, Prime, Wang. Does anybody remember these names? But this little Altos Computer was upending them.

Technology is all about disrupting. We were disrupting the minicomputer companies, and I love it because I interviewed sitting on the floor. There were no desks, nothing. I was the head of sales, on Walsh Road in Santa Clara, literally five blocks from National Semiconductor.

I was the sales guy, justifiably so. Technology companies are engineer-driven. Our engineering CEO, Dave Jackson, had more charisma… This Brit just oozed charisma, and he helped me close anything that was hard to sell. “You’re the sales guy. You sit next to the copy machine next to the factory.” That was fine with me because I was traveling a lot.

Anyway, we built Altos. Altos went public. We had a very successful IPO.

Jack Altman

What year was this?

Ron Conway

I want to say ‘86. Mid-eighties. Our stock went public at 21. We had our closing dinner at 21 Club in New York. I told my wife when I left, “This is not a normal business trip. We’re going public at the end of this week. We’re going to be what we call wealthy.” She said, “You are so full of shit.”

She happened to go to the bank the day we went public and I sold some stock, and the guy goes, “This is the biggest deposit we’ve ever had.” She called me up in New York and said, “What in the hell is going on? You’ve done something bad.” I said, “No, we just went public.”

Jack Altman

She’s like, “You need more IPOs.”

Ron Conway

I ran Altos, but we ran into bumpy water. Because if you don’t disrupt yourself, you will be disrupted. That’s one of my benchmark sayings: if you don’t disrupt yourself, you will be disrupted.

We were complacent. We had a great IPO, we thought we were king of the hill. Along came this little thing called the PC connected to the Ethernet, which replaced these multi-user systems. So we had to sell the company to Acer for the value of our real estate. I told this to Acer when I was selling them, “This real estate’s worth a hundred million, so it doesn’t really matter what you pay for anything else.” It’s on Trimble Road, that real estate’s now probably worth half a billion.

Then I was out of a job. Don Valentine was our lead board member. Everyone knows Don Valentine, the founder of Sequoia Capital. He came on the board very soon, was the only investor, and came on the road show with us. Don has two sons and a daughter, and like any father, he’s going to see where that daughter goes. He picked Altos out of his whole portfolio because he liked our culture.

Another thing that a founder has to do is build the culture. Some companies have bad culture. They allow philandering, et cetera. That’s not a good culture. Those people are not role models. I’m just not going to name them.

Jack Altman

We can name a couple if you want.

Ron Conway

But culture’s important. Don knew that we built a great culture. We had all these young kids. Dave Jackson’s kids worked there. It was a really cool place and our motto was: play hard, work hard. There was alcohol, but it was on Friday night, and then Monday everyone was back to work.

Don says to me, “What the hell are you going to do?” I said, “Let me tell you, I don’t like managing people.” I found that out because once you’re close to a thousand people, you just become an HR director in my opinion. Some people like managing and God bless those people. We need managers.

Don said, “If you don’t like managing people, why don’t you just come hang out with me, come to board meetings and watch me give founders advice? You’ve already been a founder, so you know what it’s like. Why don’t you become an angel investor?”

I went to board meetings with Don, and in the middle of the first board meeting I was spellbound, because he was giving this founder advice that I knew I could give. So I just started investing in startups on my own, and that led to becoming institutional, et cetera.

Jack Altman

Was there a moment in your early angel investing journey where something important happened? Was there a seminal investment that changed everything for you? Was it a slow build? How did you go from sitting in that first board meeting to getting the traction that you got?

Ron Conway

We made a bunch of investments and a lot of them failed. The very first angel investment I ever made was a company called Natural Language Incorporated, Berkeley, California.

Jack Altman

Sounds like AI.

Ron Conway

AI, yeah. My first investment ever. I’m not exaggerating. I dredged this up after the AI boom, who would care five years ago? It was run by two guys, John Manferdelli and Ginsburg. I forget his first name. That’s how my synapses are working right now. It was way too early for AI. So guess what we did. Like all good founders, let’s go find a home for ourselves.

We went up to Microsoft and Bill Gates was already all over AI, and he wanted the team. So we brought the team up. I didn’t tell him, but we were out of payroll. He goes, “I’m going to buy the company.” I said, “You gotta buy it today.” He goes, “I’m going to buy the company.” I said, “No, we’re going to do it today, because otherwise I’ll go sell to somebody else.”

He got really furious and down came the guy who now owns the Giants, who was the general counsel, because I said, “You can’t leave until we sign the deal.” It became a game. He goes, “How about if I bring down my general counsel? He doesn’t leave until the deal’s done so I can go run my company.” I said, “Yeah, that’s good.”

Manferdelli still works at Microsoft. But the investment that kind of got the clock ticking was Ask Jeeves. Ben Rosen and I… Ben Rosen was a Morgan Stanley star analyst who loved and covered Altos Computer. Altos was always a buy. We all loved each other. He went and started Sevin Rosen Partners. Compaq and Lotus were his wins. He retired from there when I was getting started. He said, “Ron, let’s go do this together. Just investing our own money. Nothing formal.”

Ben sourced Ask Jeeves, not me. The guy on the East Coast sourced Ask Jeeves in Berkeley. Him and LJ Sevin, they each had a private plane, this was years ago, I would pick them up at the airport and we’d go have not a board meeting but a build-the-company meeting. The three of us with the founders of Ask Jeeves built that company together, and it was so much fun.

The funnest part was in the car: me, much younger than the two of them, chauffeuring these two who were pretty old at the time. The shit that they would say and the stories they would tell. It was all about, “We’re going to make Ask Jeeves a huge company.”

Jack Altman

It’s interesting hearing you talk about this, because you’ve used the language of building companies a lot. I know in a lot of the companies you’ve been involved with later—Airbnb, OpenAI—that you really get in there. There’s a reputation a lot of people associate with angel investors that is extremely passive. I don’t think you think of it that way.

What does your experience of angel investing look like when it’s done well? Is it passive or should it be active? What’s the boundary?

Ron Conway

With SV Angel, you are all in or don’t bother. We’ve always taken the approach that… If SV Angel had a moniker, it would be “advocates for founders.” How we approach investing is holistic. We want to help the whole founder. We want to help them advance their career, because when they start they have no experience whatsoever. We want to help them build their team. But along the way they’re going to run into all kinds of stumbling blocks, and we are afraid of no stumbling block.

These are unusual stumbling blocks. I get the call, “My mom just got diagnosed with stage four breast cancer. How am I supposed to run this company and help my mom?” And off we go. We have formed a very close partnership with UCSF in San Francisco, one of the best medical centers west of the Mississippi. We know every department head. They make us go through procedures. Occasionally I violate those and go directly to the head of neurology, like I did last summer for a luminary in this valley.

I’m digressing here but his name’s Andy Josephson. I was in Venice. I got a call in the middle of the night from your brother—hint, hint what company it was—and I went to work. Before morning, Andy got the hint, because I said, “I want to know what doctor you’re going to assign.” He gave me a bunch of names and I said, “Give me a name.” He goes, “How about if I am the attending?” The head of all neurology at UCSF. I said, “Andy, took you a while, but you got it right. He’s in the car now coming to see you. I don’t want anyone less.” So what we do is bring some comfort to the founder and the family.

Jack Altman

You’re talking about the ability to do that, and right after this you’re leaving on time because we’re going to go see Nancy Pelosi. Part of my experience with you, when you invested in my company Lattice, was that somehow—and I knew you were involved in a lot of companies—if I called, you answered. You connected me to Marc Benioff and then he took it.

Ron Conway

Don’t ask me to do that now.

Jack Altman

One time ask.

Ron Conway

We don’t have troops and I don’t talk to Benioff.

Jack Altman

Politics comes in 20 minutes. But part of what allows you to do what you’ve done must be having the ability to be a power broker and to have these connections. There are firms now who have built a brand around that, Andreessen comes to mind, but you’ve done that on your own. You’ve been able to be in touch with the right regulators so that you can help a marketplace running into issues with the city, or things like that with the hospital, or CEOs of big companies.

What did it take to get to a place that let you have those relationships where you could help companies in a real way with a small amount of your time? Because I feel like that’s the only way this works.

Ron Conway

First, everyone at SV Angel has an attitude of: we are always on for founders. We’re advocates for founders. We’re always on. If they have a problem at two in the morning and I’m in Venice, I’m picking up the phone. But instead of the word “power,” I would swap in the word “relationship.” SV Angel has built a relationship network that no VC comes close to. Andreessen Horowitz has tried and succeeded. Marc and Ben take tiny salaries and they have the huge service org. But some of it is organic.

For me, it’s because I started my career at National Semiconductor. Guess what Steve Jobs did when he started? First it was semis and then PCs. When Jobs started the PC, the only place he had to go to find executives was the semiconductor companies. So he went and got Mike Markkula to be the chairman, and he got Mike Scott, who was the head of hybrid semiconductors at National Semiconductor, to be the president of Apple. I’m sitting in Mike Scott’s office one day and he goes, “I’m going to Apple.” I said, “What the hell is Apple?” He goes, “It’s this microcomputer thing and I’m sick of building semiconductors.”

Then Jobs came back to get Floyd Kvamme to be the first VP of Marketing of Apple. So based on National Semi, I had two relationships at Apple Computer. Then just imagine that flywheel going for 40 years. I went into software, I got to know every single software executive, a bunch of them peeled off and went to internet companies.

So when our founders need help, I have this Rolodex. Some of them are getting old, but I have this Rolodex of any company. What was fortunate is we ended up investing in some of the defining companies: Google, Twitter, Meta…

Jack Altman

Which creates more relationships.

Ron Conway

That a lot of our founders need distribution deals from. We built the management teams of those companies. Those are very easy calls, to call Chris Cox and say, “Hey, I’m sending somebody over.”

The Human Router

Jack Altman

I assume you think that being a relationship broker is very important to being a good seed investor.

Ron Conway

It’s our most valuable asset.

Jack Altman

What do you do to nurture those relationships? Obviously it couldn’t have happened without some of those early relationships, but there are a lot of other people who have early relationships like that who don’t turn into a relationship broker the way you have. I’m curious if you can talk about some of the things that you’ve done to authentically build those.

I’ve watched you at an event where you pull two people together at a party and say, “You guys should talk.” You’re not going to get anything immediate out of this, but you’re constantly brokering these relationships. So what’s going through your head as you navigate the world to cultivate this?

Ron Conway

First of all, you have to have a personality where you enjoy meeting new people. I love meeting new people. My wife hates meeting new people. I would imagine 40% of the population hates meeting new people. They’re shy, they’re not interested. There are various reasons. I happen to love meeting new people, so I love gathering people. If you don’t have that trait, it’s going to be harder for you.

I love connecting people. Marc Andreessen calls me the human router. That’s a compliment. I love connecting people, because something good is going to happen. If I made a list of all of them, it’d be a long list.

Jack Altman

So you’re obviously not keeping track though. You’re just doing this and who knows what’ll happen.

Ron Conway

I keep track of the big ones, actually. Very key intros. Somebody yesterday was telling me—I wish I could remember—but they were bragging about this thing and I said, “Who do you think did the original intro?” They kept talking and I said, “I did that intro.” Then they looked at me like I was nuts. I just described it exactly and they go, “Oh yeah, you obviously put that deal together.” I said “Yeah, we put it together, but then I moved to the next one. We have a lot of founders, and there’s a lot going on.”

Jack Altman

Is it a constant background function for you as you’re meeting people, who could I be connecting here?

Ron Conway

Oh yes. We love helping all founders. Cloudflare, that company had all kinds of problems in the early days. I helped that company because they were part of the ecosystem. If a founder stops me and has a problem I can solve, I’ll solve it.

Here’s a good one. The founder of Zoom, Eric Yuan, accosted me in a parking lot a long time ago as I’m getting in my car. He goes, “I actually alarmed you” and he said, “Guess what you did for me.” I only saw him again after Zoom. We ran into each other somewhere and he said, “We’ve got to talk about the parking lot.” I said, “What parking lot?” He goes, “You sat in a parking lot and gave me a whole bunch of advice at the beginning of my career.” I said, “Yeah, that’s fun.”

Jack Altman

It’s interesting because as a seed investor if you wake up one morning like, “what should I do today”, the common body of work is “what are the companies I should go try to meet and get time with?” I feel like there’s another orientation, which you very much have, which is just “who could I be connecting today? Who are the people I know that I could be putting in touch with each other?” I think that’s something that you have to have a long-term commitment to. You can’t just do that once.

Ron Conway

It’s a commitment to the ecosystem. The tech ecosystem in the Bay Area is really important.

Jack Altman

Do you go out of your way to build relationships in other ecosystems? For example, are you ever thinking, I should go meet people, I should go spend time with this part of the government or these people in Hollywood? Because you just know that somebody in tech will need this.

Ron Conway

Very premeditated. Media, we were way too early. We were poking around Hollywood in like 1988 because of Len Armato, Shaquille O’Neal’s agent. This is the height of the Lakers. He was a tech nut and he goes, “It’s all going to happen tomorrow.” Streaming audio, video. We invested in audio and video companies way too early.

Now we did not invest in YouTube, but I sat in the rat-infested place in San Bruno with Chad and Steve, because that’s a company I knew was exploding. That one, I actually drove, parked, put money in the meter, went in and said, “Guys, I want to be of service. Video’s going to explode.” But then we had all the copyright shit, and I feel so sorry for them. Chad, by the way, sits two seats down from us tonight. They knew they had to sell.

Thank God they sold to Google and we know what happened to Google stock. They deserve all of the benefits those two have gotten, but they knew they didn’t have enough lawyers and infrastructure. There is a right time to sell. So we tend to actually predict stuff kind of early. Look at Natural Language.

Jack Altman

If you’re thinking about going deeper with the government, because you’ve got a lot of companies bumping into regulations, you’ll go to DC for a week and just spend time with people? What does it look like?

Ron Conway

I’ve always felt like the tech industry should be civically engaged generically. We have to vote. We have to tell legislators about all the jobs we’re creating, and if we run into trouble, they should be loyal to us because of job creation. The reason I love Nancy Pelosi, you say “job creation” to her and she doesn’t care what it is. If it’s creating jobs, she’s going to help, she gets it.

But there are a lot of lawmakers—Bernie Sanders, God help us—who don’t get it, who want to demonize tech. All they’re doing is costing America jobs. That’s not fair to anybody. So yes, I’ve made it my business over the years to always know the two state senators, know the governor, know Nancy, and Schumer. Building a relationship with them is hard.

Jack Altman

But it’s true, coming to those relationships transactionally is never going to work. They have everybody coming to them transactionally all day. I guess you did it naturally, but you built those kinds of relationships over the course of your career. Of course, to be able to help the next person, you’ve got to have done something before.

Ron Conway

Exactly.

Inflection Points and Fighting for Founders

Jack Altman

Before we come back to politics, there are a couple more investing things I wanted to get your take on. There are a few times where I’ve observed you going really deep with a company. Maybe you made a small investment early and then you might have invested more. You take these really deep engagements. I know you’ve worked with my brother at OpenAI. I think you’ve gone deep with Airbnb.

How do you think about that work as it relates to the business of angel investing or seed investing? Looking back, has doing that with a small number of companies been important? Was it just fun? Is it both?

Ron Conway

SV Angel always gets involved at what we call inflection points. We tell founders that we’re not going to bother you, we’re not going to look over your shoulder. But if you’re at an inflection point where it’s life and death, that’s the shit that we’re good at. So you come to us when you’re at an inflection point.

COVID hits and Brian Chesky’s board tells him, “Jesus, do we have a company?” Poor Brian was struck by that and calls me, and I said, “You bet your ass we have a company. You’re going to have to make some hard decisions.” He already knew what they were. He was going to have to lay off half the company. These founders are smart. But that was a crisis where he was being told that the game was over, and I was like, “The game is not over. The game is just starting.”

It was so bad. I said, “Hey, this is COVID, COVID’s Armageddon. When the three of you are free—Joe, Nathan, and Brian—you call me. I don’t care if it’s three in the morning, but I’m going to give you a little lecture about who’s in charge here. You’re in charge of your own destiny.” I knew we could go raise, I forget, a couple of hundred million.

They were told that they could not raise anything. Zero. Do not bother to raise money. You can’t raise money. There’s this thing called COVID. I said, “You’re being given a bunch of shitty advice, and we’re going to go raise the money.” In ten days we had the money. We didn’t have it where I thought we were going to get it, but that didn’t matter. We got it from Silver Lake in some fancy instrument. God bless Silver Lake. Silver Lake’s quite happy right now with that.

So these inflection points, they’re kind of obvious. A founder who’s really in need…

Jack Altman

They matter so much to a founder.

Ron Conway

We’re going to put all of our stuff to the side and go help. The Silicon Valley Bank crisis, which hit the day of our founder summit three years ago, was definitely the most consequential project I’ve ever worked on. I never thought about it that way until just a couple of months ago, because I was having dinner with Wally Adeyemo, Deputy Secretary of Treasury under Janet Yellen during SVB. He said to me, “Do you understand what you did and how it came down? You got really nasty at the right time.” The government wasn’t doing anything and all they needed to do was guarantee the deposits.

Jack Altman

So what did you do?

Ron Conway

I didn’t sleep for three days. But by Sunday morning, about six hours before the Tokyo Stock Market opened, we had to have this solved or there was going to be a worldwide financial crisis. We had people in Washington, DC who just didn’t get it.

By Sunday morning… Sherrod Brown’s one of them, the head of the banking committee. We can’t spend too much time on this. But the FDIC, which is the one who had to process the guarantee of the deposits, they wouldn’t budge. I didn’t realize it but they only report to Congress. It’s very unusual because I’m like, “Who’s your boss? I’m going to go talk to them.” And Nancy Pelosi, everybody.

Their boss is Sherrod Brown and Maxine Waters. Sherrod in the Senate, Maxine in the House. So I was talking a lot to Sherrod and Maxine. By Sunday morning I got very firm with them like, “You are going to be responsible for a worldwide crisis. I don’t know what the hell you’re doing, but get off your duffs and make the announcements.”

Jack Altman

It’s an interesting thing about you, because I feel like you, as you said, you love people. You’re incredibly supportive of people, you’re there for them in their times of need. But this story is an example—and there are a lot of other examples too—where you’re also not afraid to fight and you’re really willing to fight.

Can you talk about an investor’s role in those situations? I think there was a story recently where Neil at Greenoaks was in a real fight with government for a founder. I think that’s really important to do. You’ve been willing to do it, but it’s different than the “I love people, I’m going around and meeting”... It doesn’t naturally show up. I think from you, it’s coming from a place of “I love my founder, so I’ll fight for them.” Can you talk about the mindset that lets you go fight?

Ron Conway

You have to have conviction and know how to wiggle your way in to solve that problem. The OpenAI coup, when Sam was asked to leave, was a good example. I had conviction that the founder had been mistreated, and we were going to make that right. We were taking no prisoners. We knew what we had to do and we went and did it.

Jack Altman

Do you think in general Silicon Valley lacks the toughness needed in a lot of cases? I feel like other industries often will do this sort of tougher work at a higher rate. Do you feel like enough of it happens in tech?

Ron Conway

Probably not. There are a lot of companies that go out of business because they shouldn’t. The other thing—this might sound trivial—but I do not like losing. I am competitive.

Jack Altman

You have to be okay with being disliked or having people mad at you.

Ron Conway

I think if you’re fighting for a founder, you have to be fearless. If I had a gravestone, it would just say “Fearless for Founders.” That’s what we’re about, because founders do get abused. What happened to Sam is unconscionable, but this does happen. When that happens, we don’t like it and we get the blinders on until we fix it.

Thematic Investing

Jack Altman

I love it. One other investing topic I want to ask you about, and then I want to talk a little bit about politics. I want to hear about the way you think about building portfolios. SV Angel has had remarkably good returns. You’ve taken a pretty diversified approach in general. You’ve made a lot of investments, then you’ve hit some really big companies.

What’s your mindset when you think about what seed investing should look like in terms of concentration or exposing yourself to enough companies?

Ron Conway

Today it’s kind of easy because everything’s AI. But if you go back 40 years, SV Angel has always been thematic investors. I like what I do because it’s interesting, and I watch founders succeed. Watching Jack Dorsey go through shit at Twitter, he resurrected Square. It’s the best thing that you could ever witness.

We’re always thematic. We’re thematic because it’s interesting. So when I first started, I said, “What the hell do we think is going to explode? You’ve got Yahoo and AskJeeves and Lycos. There were ten search companies. Something must be going on in search.” So search became a theme. B2B became a theme. We’ve always been thematic.

We have this piece of paper. We’re always looking at probably six themes. Any company in that theme that comes in the door, we’re going to at least take a look at. If it doesn’t fit those themes, we pretty quickly turn them down.

So SV Angel is very thematic oriented. Now within AI, we have to be thematic within AI because everything’s AI. But we’ve always been thematic investors.

Civic Engagement and the California Wealth Tax

I know we don’t have that much longer, and I really want to talk to you about politics. I know it’s something that’s important to you. You talked about how you think it’s really important for people in tech and companies in tech to be engaged.

I know right now you really care about what’s happening at the state level. In particular, I’d love to start by talking about the wealth tax that is being proposed. I know you’ve been fighting it and you care a lot about it. Can you talk about why you think it’s a bad idea?

Ron Conway

One more global thing, SV Angel has always been civically engaged and encouraged founders to be civically engaged so that you know your local politicians. So when you have a crisis, you have a relationship. But we’re also philanthropically engaged. We believe founders want to give back. Guess what? You have this byproduct that morale explodes when the company also has a philanthropic bent.

But right now on this state wealth tax… I hate to be pessimistic, and I’m not normally pessimistic, but we have a crisis. We have one SEIU union that’s associated with healthcare who has a ballot proposition. They need 900,000 signatures for it, which is possible. When they get that, it will go on the ballot.

On top of all the other taxes we pay. It’s a 5% wealth tax on every asset that you have. So if this happened, they would go through your house, appraise every piece of art, appraise your car, and whatever that is, you pay 5%.

What makes it worse is if you have voting control, like Larry and Sergey do. Larry and Sergey, let’s say they own 10% of Google today, but they have 80% voting control. Zuckerberg has the same thing. A lot of founders have this. This horrible piece of legislation says your tax is based on whatever that top number is. So even though Larry and Sergey own 10% of Google, they want to tax them for 80% of the market cap of the company. That is why Larry and Sergey had to leave. It wasn’t multiple choice for them.

So this is one of the most onerous proposed ballot initiatives. Our job is to get Gavin to negotiate this so that it doesn’t get to the ballot. So maybe they don’t get the signatures.

Jack Altman

Because you think if it gets to the ballot, it’s got a good chance of going through?

Ron Conway

It could. We can’t let that happen, in my opinion. Gavin knows that and Gavin’s with us on that. So if they get the signatures… They only have money for the signatures. They don’t have money to even run a campaign. So they’re not thinking that well. At that point, there needs to be a negotiation to keep it off the ballot. That’s why there are counter ballot initiatives against this also getting signatures. We need a couple of those to get the 900,000 signatures as well, because that will give Gavin some bargaining chips.

The other labor unions are furious at the healthcare guys. Imagine what you think the teachers’ union thinks of this? And all the other unions.

Jack Altman

This is all driven by the healthcare union?

Ron Conway

It’s just one isolated healthcare union. There are even other healthcare unions. This is just one guy who is self-appointed. So the other unions, they’re watching what’s going on, their blood pressure’s going up. That will be another negotiating lever that Gavin has. We must keep this off the ballot. A whole bunch of work has to happen.

Jack Altman

Obviously you’re putting a lot of work in now. Were you doing this work earlier in your career as well, or is this something that you’ve gotten into later in life?

Ron Conway

No, we started with SOPA/PIPA when music first came to the internet. I hate to say it, Orrin Hatch and Dianne Feinstein… All the media people said, “Oh, they’re going to take all of our music away.” Also, Napster, we were the first investors in Napster. So we got involved in SOPA/PIPA when they tried to outlaw media generated by the internet on the web. This is crazy.

Topher, remember this? I was the rookie and all these other lobbyists were telling us what to do. I said, “What the hell do we do? We’ve got to stop this. This is crazy.” They said, “You should go down to City Hall and stand on a soapbox.” I said, “Oh, I’ve heard that saying all the time.” They said, “No, we’re not kidding.”

Jack Altman

Literal.

Ron Conway

We were in the middle of our weekly meeting, and they said, “Get down to City Hall. There’s a whole bunch of cameras down there. You go down, literally get on a soapbox. We’ll meet you there. You give your speech. A lot of good shit’s going to happen.” I felt like a fool. I got on the soapbox, gave my lecture, lots of cameras, and we started to turn the tide.

Shawn Fanning helped a lot with that. I remember Shawn Fanning happened to be with Orrin Hatch that day, and I said, “Shawn, whatever the hell you’re talking about, stop talking about that and tell him about this.” He was the first senator to say, “I’m voting against this.” My pal Shawn Fanning.

Jack Altman

It goes back to the thing I said earlier about your willingness to fight. I think a lot of people don’t do this, even if they believe certain things, because they’re like, “I’ve got to go have a lot of people mad at me. If I’m running a company a lot of things internally might come up. Or the media’s going to say things, and I’m tired and I’ve got a family and I’m busy.” I think a lot of people don’t do it not because they don’t care, but because it takes a lot of courage and energy.

Ron Conway

You’ve got to recognize the problem, want to solve it, have conviction, and want to win. And off you go. In my later years, because I’m the one doing it and I’ve done enough of these, I can call people up now and say, “You want to do it the hard way or the easy way?”

Jack Altman

God, I would hate to get that call from you.

Ron Conway

I did one today.

Jack Altman

That’d be tough.

Family and Legacy

Jack Altman

You mentioned Topher. You have three kids and you’ve worked with your kids over the course of your career. I think that’s a beautiful thing. I’ve got kids and it’s something I’ve thought about. I’m just curious what that’s been like for you. It seems awesome.

Ron Conway

It has been awesome. I did not ask my sons to get into the investing business. I thought it was interesting, but I don’t tell people it’s interesting. But one by one they all left jobs in LA—because they all went to UCLA—and came up and said, “Hey, this looks pretty interesting.”

Topher left his job in LA and said, “I just want to come find a place to work. So I’ll sit in your weekly meeting and pick a company and start interviewing at a bunch of companies.” Three weeks later he goes, “I don’t want to interview. This is interesting just sitting here.”

Jack Altman

It just seems like such a good way to have an adult, ongoing relationship with your kids.

Ron Conway

Of course. We all operate out of the same office. Ronny has A.Capital, Danny has Symphony. We love founders.

Jack Altman

So good. Ron, thank you so much for doing this. You’re a total legend. I love learning from you. Thanks for making time for it.

Ron Conway

It’s a pleasure.

Jack Altman

Now you’ll be on time with Nancy.

At 23, with no legal background, Max Junestrand co-founded Legora to transform how lawyers work.

Legora recently (March 2026) raised $550 million at a $5.55 billion valuation in a Series D funding round to accelerate its expansion across the United States. Over the past year, Legora has grown from 40 to 400 team members across the globe and the platform supports tens of thousands of lawyers each day across 800 customers in more than 50 markets.

Max shares the story of building Legora, what it really means to build AI-native software from day one, why legal work is uniquely suited for AI, and how a small team from Stockholm convinced some of the world’s largest law firms to change how they work.

Timestamps:
(0:00) Intro
(0:31) Legora's origin story
(9:05) Building an AI-native company
(18:16) No sacred cows, the models will be amazing
(27:36) Winning pilots and global expansion
(36:43) Starting in Europe
(47:15) Stockholm culture and "blodsmak"

Links:
https://x.com/MaxJunestrand
https://x.com/chetanp
https://x.com/jaltma
https://legora.com/

Watch on YouTube; Listen on Apple Podcasts or Spotify

Subscribe now

Clips

The untold inception story

They were working on this intersection between AI and law for three years with the early BERT models and even a Swedish trained version called SweBERT, it was impossible to work with.

Everything changed with GPT-3.5, which convinced them to go all-in on the space even before they knew the exact product.

The models are no longer the bottleneck

AI models are no longer the main limitation. The real challenge now is building the surrounding software systems that let models operate in real workflows while humans can review and trust the output.

In other words, the frontier has shifted from better models to better products that integrate those models into the real world.

No sacred cows, the models will be amazing

Founders who never built companies pre-AI have at least one big advantage: they have fewer preconceived notions about how to build a company.

This applies to how software should be built, when a product that people worked really hard on should get dissolved, what tools finance should use, how GTM should work, or really anything and everything else.

“The culture is: you don’t maximize for your function, you maximize for the company.”

Transcript

Disclaimer: Transcript generated with AI assistance and lightly edited for clarity and accuracy.

Legora’s Origin Story

Jack Altman

This is going to be a cool new format. I’m here with my new partner, Chetan, and Max. Max, you’re the founder and CEO of Legora, which is an amazing legaltech company that Chetan sits on the board of. I just feel really lucky to be doing this with both of you. Thank you for making this happen.

Max Junestrand

Thank you so much, Jack. It’s great to be here.

Jack Altman

I want to start with the topic of competition. Chetan, when you invested in the company, there were already competitors out there. This was only two years ago. It’s crazy because Legora is a big company already.

Max Junestrand

Almost 400 people.

Jack Altman

The seed was two years ago. At the time of the seed it was an early market, but there were competitors out there. I actually want to start with you, Chetan. What was in your head at the moment you invested? Were you thinking about the landscape around? Were you just thinking Max was so special that you didn’t care? What was going through your head when you did that?

Chetan Puttagunta

The first meeting that we had with Max was with me, Peter, and Max in the other room. Interestingly, I had invested in two other legal software companies, pre-AI. So there was a shape of the legal market that I intuitively understood because I participated in the market. I understood the different kinds of lawyers, who buys software, do in-house lawyers buy software, do law firms buy it… There was an intuitive understanding that I had. There’s two things that happen when you’ve sold into an industry before. Either you end up hating it or you have some strong bias against it.

There was always this idea that there’s opportunity for AI in the legal market. There was a player in the market that had already raised at a billion-dollar valuation. When Max came in to chat with me and Peter, the thing that immediately jumped out was the clarity of thought that Max had on why the general foundation models had a lot of room to grow in intelligence and how that was going to be a huge boon for the legal profession over the next couple years. He had this very strong viewpoint that there was something about legal data that the general models were going to serve in a very unique way.

Jack Altman

Max, since you’re here, can you explain what that was?

Max Junestrand

It’s worth going back to 2023 and 2024 when part of the paradigm was that you should train your own models and the general models aren’t great and fine-tuning is going to be really important. For two reasons, we were like, fuck that. One, fine-tuning doesn’t really seem to work, at least on the scale that we were operating. To train the new generational model, you had to put billions of dollars into it.

Secondly, there was so much application that you had to build on top of the models to make them useful in your environment. Back then, just solving basic data, compliance, privacy, and great file uploads and great parsing and great chunking and all of these things, that was where the value was.

Chetan Puttagunta

There was another part of your experience, which was that you were actually embedded in a law firm. So you were studying the shape of what data law firms had in a way that was… Bill talks about this a lot — does an entrepreneur strike you as a learn-it-all? It was clear that the early Legora team—when we invested it was five people—was just trying to learn everything they could about how the legal profession worked and they didn’t have any bias towards it.

The other thing Max said, which you should share with everyone, is that because they were embedded in a law firm in a windowless conference room in Stockholm—

Jack Altman

Sounds nice.

Chetan Puttagunta

Sounds great. They had a deeper understanding of the data model of a law firm in ways that most of us didn’t.

Max Junestrand

Just to take it back even further, when we started, I offered to buy a lot of lawyers lunch on LinkedIn because I wanted to learn. I would literally cold write them and say, “Hey, I’d love to meet, I’d love to talk about IP law. I’ll offer to pay you your hourly fee and lunch.” They were all too nice to make me pay for lunch, and they’re often not even paying for it. But as Chetan put it, I think it allowed us to work with customers from the very beginning. The founding team at Legora were all engineers. The first lawyer didn’t join until nine months into the journey.

Jack Altman

When you had a lawyer join, had you already set the plan and the goal for the company? Was that done without experts? Was that important to do without experts?

Max Junestrand

It’s actually funny. This is a bit of the Legora untold, first revealed here. The company formation was in 2020 and there were four co-founders.

Jack Altman

I didn’t know that.

Max Junestrand

And I was not one of them.

Jack Altman

Didn’t know that either.

Max Junestrand

They were working on this intersection between AI and law for three years with the early BERT models and even a Swedish-trained version called SweBERT. It was impossible to work with. Not only was it not very intelligent, it was also blatantly racist because it had been trained on Swedish forums.

Jack Altman

Some racist data there.

Max Junestrand

When the LLMs like 3.5 came, that was when the moment shifted. We turned this into a company. Two of the co-founders left, I joined. We basically said we’re going to work in the intersection between AI and law. We don’t know what that product is, but we’re going to run like hell in this direction.

Funny enough, the first lawyer who joined was a soon-to-be customer of ours. He was the CIO at one of the big firms in Sweden that we wanted to sell into. He had built an early version of a GPT plus the document management system, basically an LLM that could RAG into the existing precedent and data that the firm was using. He basically said, “These guys are going to run faster than me, and if you can’t beat them, I might as well join them.” That turned out to be a good decision.

Jack Altman

Are you surprised by how strongly the legal market has adopted AI? If I had thought in 2023 or 2024 about what’s going to really adopt quickly, I don’t know if I personally would have seen it coming that lawyers would be near the top of the list. You’ve invested in stuff before too, so I guess this is for both of you. Has it been a surprise over the last two years, the rate of adoption?

Max Junestrand

Yes. It’s been vivid. But second and maybe more importantly, the law firm market is very interesting because it’s this perfect equilibrium with, frankly, pretty low differentiation. If you need to do a VC deal here in the Valley, you could go to any of the top five firms and you’re going to get roughly the same thing. If one of them starts leveraging Legora to offer a better service at a better price point faster, all of them have to adopt it. So the equilibrium shifts down and then everybody has to move.

What happened in the law firm market was that as soon as one big firm in a market adopted Legora and went public with it, everybody else had to do the same. That’s not necessarily the same in the in-house legal sector. If one big bank has it, another big bank doesn’t necessarily need it.

Jack Altman

But was there something about the process of the way work got done, or the structure of it, that allowed Legora’s product to drive so much value so fast in a way that it did force that sort of prisoner’s dilemma?

Max Junestrand

I just think the legal sector was so underserved with great software for such a long time that there was a lot of built-up problems that we could easily solve with LLMs, but that were really hard to solve pre-LLMs.

Chetan Puttagunta

I also think you guys had a great insight early on, which was that there was a deference in respect to the customers. That lawyers are really smart. They’re extremely well-educated, they’re tech-savvy. They’re not programmers, but they’re very tech-forward. They use the latest software, they use the latest devices. So they were all going to be playing with ChatGPT and Claude. If you showed up with a legal AI product, it had to be better than the foundation models. Otherwise they were just going to say, “Why are you deserving of my dollars?”

Max Junestrand

Microsoft Copilot rolled out very quickly. Every law firm in the world is a Microsoft shop. Everybody works with Outlook, Microsoft Word, and where they store their documents basically.

Building an AI-Native Company

Jack Altman

To the point of you have to be better than the models, if you had to break down, as a vertical AI application, what have been the things that have allowed you to be so much better than the models that it’s worth the incremental investment?

Max Junestrand

In the beginning there were a lot of just foundational problems with the models. You had to guardrail them very hard to make them useful. You had to build citations, you had to build good RAG systems, you had to overcome context window problems. There were a lot of rate limit issues, so you had to juggle different models for different types of tasks. There were just so many incremental, basic things to solve.

As time has progressed, our product has moved further away from what the foundation models are and much more into this enterprise-wide platform where we’re going to transact billions of dollars of legal work on the platform. We’ve moved from building a lot of the agent work ourselves and we let the models rip a little bit more, like OpenClaw or ClawdBot or whatever it’s called these days. With Opus 4.5 and Opus 4.6, there was an extraordinary difference in level of intelligence and instruction-following capability.

So I see our job as: let’s provide the model the right environment and the right tools and skills to leverage, then let’s build a UI and an interface with the rest of the business so that they can all leverage it comfortably and with a lot of trust. I do think that the model capabilities improving so quickly makes us run faster, because we have to be three standard deviations ahead of any general capability. That’s a very good motivator.

Chetan Puttagunta

As somebody that’s invested in a lot of software companies, one of the unique things about an AI software company is that it’s tactically built differently than a traditional software company. I think it’s becoming more known now, but when you guys first started and built up this org, the way you designed the org made a lot of sense for the product you were building and what you just described. We need to deeply understand model capabilities and then bring that to our customers in a way that’s deeply differentiated. As you explained to me, that meant you needed to invest heavily in understanding the models, which then would lead to understanding what to build. But as models go better, your features may not matter in six months.

Max Junestrand

Yes.

Chetan Puttagunta

Talk about how that led to an organization that was heavily technical, heavily engineering and researcher-led. For a company as big as you are, you have very few product people. The number of product people you have essentially rounds to zero. You have a couple of leaders, but that’s it.

Max Junestrand

The founding team were three engineers. The most natural hires were where we were like, let’s grab all the smart engineers that we know from college and add them into the org. In the beginning, we had to build our own agent framework because LangChain and these things that we initially built on couldn’t get customized to the level that we needed, back in 2024.

As we understood more about the model capabilities and the problems we wanted to solve… Let’s take due diligence as an example. It’s really hard to solve a due diligence task in a chat-based format because you need to review hundreds of documents. Hundreds of documents are never going to fit into the context window of a single model call, at least not back then and probably not now either. So we built this new product that we call Tabular Review. It’s a big matrix where you would throw in tens of thousands of documents and throw in all the prompts, and it started running all of them in parallel. What we basically did was say, three engineers, you’re now on Tabular Review. This is your own company. Run.

Over 10% of the EPD org at Legora is ex-YC founders. Our head of engineering who joined, Jake, was a solo founder in YC. Our VP of product, Adrian, was also a legaltech founder in YC and happened to be both a GC and a lawyer. As we progressed, engineering and product have stayed at the core of who we are and what we do. I also think that everything else is an expression of that. We can only market what we actually build. We can only sell what we actually build, and product lead compounds.

As you put it in the beginning, we did not show up first. Legora was not the first product that many legal teams looked at because there were earlier entrants. So we knew that we had to show up and be best. If you want to be best, then you need to invest in product, you need to invest in engineering, and you need to build that culture of reliability first. We actually had a time period in the company for six months where we didn’t sell, basically, because we weren’t ready to hit the gas on onboarding a thousand lawyers a day and knowing that the product was going to keep up with that. So we took the early hits of investing in that.

Chetan Puttagunta

Talk more about that period specifically. The seed round you did with us was in March of 2024. The product went to GA October 1st, 2024.

You called me early September 2024 and said I need to come to Sweden because all of us need to sit in a room and just talk about where we are and what we need to do to get this thing out in a month. We came and sat with the whole company. It was literally the whole company, which wasn’t that big back then, only 20 people. It was the whole company, the founders, chicken wings and beer.

And peanuts actually. Those were the three things served. There was a very open dialogue of, how do we get this thing out in 30 days? Because at that point, you essentially weren’t facing the market test. You were building. There were 10,000 things you could build. The outcome of that discussion was that we’re only going to focus on three use cases.

Max Junestrand

That’s right.

Chetan Puttagunta

So talk about one, you calling me to tell me to come to Sweden to have that discussion—

Max Junestrand

And you actually showing up.

Chetan Puttagunta

I did show up. Reflecting on it, that was one of the most important things that you and the founders did in the company, at that moment saying, we have 30 days to go. We’re just going to sprint at these three things, not the 15 things that we could do.

Max Junestrand

There was this feeling of: you get these LLMs, they’re so powerful. We learn about all these use cases in the firms and with the clients that we work with, let’s go solve all of them. Wrong decision. You can’t solve 15 things at the same time. We had to kill a few darlings and really double down on the stuff that we thought was going to work.

We looked at the market and basically saw a few things that were really working as a paradigm for LLMs in legal. One of them was this big tabular extraction. Another one was embedding it deeply into Word and Outlook, basically having Legora be accessible wherever the lawyer is already working. We were still called Leya back then, this was very early. We took the entire company and had a town hall. I remember showing some numbers where a particular company that just had one of these features was doing more revenue than us. We were doing 1.5 million at the time.

That felt very painful because we thought that we had a better suite, but we didn’t have as much revenue because we were based in Sweden and we were mostly selling to European firms at the time. So we just said, let’s do these three things. Let’s do them better than anyone else, and it’s going to be worth it to buy our suite over anybody else’s.

I wrote this very short product manifesto, sent it out to the entire company, and we rallied the troops. It was off the back of that that we had our first quarter where we doubled revenue. We went from 1.5 to four. We were like, oh, this is ripping and it’s flying off the shelves. Then in Q1 we had another quarter where we doubled, going from four to eight. Whoa, okay, now we’re talking. It became time to launch in the US. We hired Patrick and Evan who joined from a competitor, and we had our first boots on the ground in the US. Then we felt okay, what we have is a winning formula, so we just need to crunch it out everywhere.

Now I think we’re at another interesting point in time where we’ve built all these different tools, but the paradigm from now onwards is that humans are probably not going to work with all these tools. Agents will basically leverage the tools that we built. I remember when MCP came, our CTO basically went, “Now Legora has two users. It’s human users and agent users, and every new feature that we build has to be able to cater to both.” Now we’re seeing more people basically use our agent that uses the tabular grid, or our agent who uses our word editing capabilities, than humans actually going and using those features at all.

No Sacred Cows, the Models Will Be Amazing

Jack Altman

Chetan made a cool point to me recently.  We were talking about how companies that are pre AI and companies that are fully AI native just have to be built differently in various ways. Because you didn’t build a pre-AI company, I think it gives you this unshackled mind. You’re not even trying to think about some past alternative. You’re just like, given what’s in front of me, what should a company look like?

You talked about how having YC founders inside the company has been helpful and I’m sure there’s a lot there. I’m curious, what are the main tenets that you’ve observed? Because now you’ve probably hired a lot of people who did work and built companies pre-AI. What do you think are the main tenets, ideas, and cultural concepts that have been important to you, just to make it work in a fully AI-native world?

Max Junestrand

I think this idea that Chetan brought up—you have to be willing to kill the stuff that you’ve done in the past—is very important. In more traditional software, you have to build the foundations and then you build the stuff on top of it and keep building the stack. In that world, it was also very good to have a technical architecture where one feature would rely on the same microservices as other features.

But the problem is, in AI, maybe that feature now needs to scale really quickly, and the cost of writing software is so low that it’s basically better to build your own stack for each thing. Now that we hire finance professionals or even lawyers internally to Legora—we just hired our first tax person—they come with a set of ideas. “Oh, this is how I used to do it in my old company.” Everybody’s forced to relearn, and also question what their value is on top of the general model capabilities, which was very painful.

Jack Altman

Totally. Bret Taylor talked about this on this podcast too. Basically people are going to build something and six months later we might just kill that thing and everybody needs to be comfortable with that. Historically, that would be a lot of painful internal conversations. Do you have to change? Is that a different culture for people?

Max Junestrand

I think it’s a different culture completely. The culture is that you don’t maximize for your function, you maximize for the company always. I’m very upfront with every exec who joins Legora that, in a way, you’re joining with an expiration date. You have to continuously prove that you scale out of that, because the company is scaling so exponentially. I don’t know if it was Mark Zuckerberg or somebody who talked about hiring people with high y-slopes and not high y-intercepts.

I think about that a lot, mostly because I’ve had to do that. I did not join or start Legora with a lot of experience, but I’ve proven that at every new point in time I’ve scaled with the business. Other people at Legora need to do the same. I think that goes for every function. An engineering team that’s shipping the amount that we do, previously had to be 500 people, and now we can get away with being 50. There’s even a question of whether we need to be more than a 100 engineers, or is the bottleneck really knowing what to build and building it the right way, and designing an experience that works for hundreds of thousands of people that we now have on the platform.

The paradigm is shifting all the time. What’s nice about our work is that engineering is a roadmap of what’s going to happen in other industries too. The general models have come the furthest in coding, but also those organizations are very quick to adopt and shift. Engineering orgs are today looking slightly different, and I think we can expect the same in legal organizations.

Chetan Puttagunta

Two things you brought up that it’d be great if you could dive into. One is that Legora doesn’t really have a long-term roadmap. You guys react and build today. When you first got started, you had this nearly weekly cadence. That’s how long you would roadmap to. These days it feels like you almost roadmap on a daily cadence. Things change tomorrow. You wake up and it’s like, we have to do something different. Talk about that lack of roadmap.

Also the other thing that you’ve invested heavily in is just understanding model capability and the proprietary eval infrastructure you’ve built. You’ve had these conversations with the foundation model companies about how you’re able to identify latent model capabilities that they themselves are not aware of.

Max Junestrand

On roadmap, way back, every new model just unlocked new things. When we got early access to GPT 4.5, you just realized that holy shit, now it can finally draft an end-to-end thing and we don’t need all these harnesses and things around it. That’s amazing. Let’s unleash it in a way that works.

Chetan Puttagunta

By the way, to do that, you need a low-ego organization. Because you build all this IP and all this software—

Max Junestrand

And you just toss it.

Chetan Puttagunta

And you’re like, okay, now the model can do it. Delete it all.

Jack Altman

“You worked really hard for six months. We’re deleting everything.”

Chetan Puttagunta

It’s incredible.

Max Junestrand

But I think a lot of the things that we have built, we know that we’re going to delete someday.

Jack Altman

I guess you need people to opt into that at the front end for that culture to really work.

Max Junestrand

We’ve also talked about it like this. If we were here today and we started building for the future that’s way over there, that’s too far out. Our customers are not going to adopt that. They don’t understand it yet. So we need to take them on the journey. We need to take them on the path of being successful.

Every iteration cycle now is shorter. Back in 2023, 2024, I think it was slightly longer. You’d have a quarter or two quarters because the models weren’t moving that fast. Every upgrade was pretty incremental. But now it flipped. Opus 4.6 flipped in capabilities. So now we have to revisit a lot of the things that we built.

Jack Altman

Do you know what the next flip you’re waiting for is? Is there a thing?

Max Junestrand

It was funny, I was at the customer advisory board at Anthropic yesterday. I’m wearing my Dario shirt here.

Jack Altman

You look like Dario.

Max Junestrand

Thank you. Most of that conversation was about how the models are now intelligent enough where they’re no longer the bottleneck. The bottleneck is all of the software around putting the models in an environment where they can execute and do work, and humans can review that work in a trustworthy way. They’re seeing that across basically every single vertical and every single company.

I don’t really think that we’re waiting for new model capabilities anymore. There’s nice things to have. It’s nice to have better context windows, it allows us to do less garbage and context management. When you overflow the context in memory and so on, you have to deal with it to refresh it. So there’s nice-to-haves, but we’re at a point now where we just have so much building in front of us in terms of bringing the model capabilities into our world. That’s where all of our focus is.

On discovering what the models can do, we thought very early on that evals were going to be important, both building up an exercise of building new evals, but also building out evals for all the use cases that we want to cover. Because in the beginning it was a lot of, “how good is Sonnet? How good is Gemini? How good is GPT?” We had to test them on the different evals. A lot of our customers actually contributed to this. They would give us manual tasks that they used to do, and they’d tell us, “Here’s the evals, and we’re going to call you when we can get to 100% on these evals.”

I actually remember. It was a funds-related use case, an LPA key-term review report that a Danish law firm was spending three days on. Basically an associate would spend three days putting together that report. In summer of 2024, we had 60% accuracy on that task. By the end of that summer, we had 100% accuracy. Once you get to 100% accuracy, that task is done, it’s over.

I’ve adopted this mentality internally that if AI can do something, it will do it. With our product, we think a lot about solving legal tasks end to end. Once a task is conquered, it’s done. We just strike it out and we’re on this path of solving more and more complex tasks. You start with NDAs, but at some point you get to full-on share purchase agreements, which are very complex. But we’re going to get there.

The question for these organizations who are maybe more traditional and trying to keep up with the pace of AI is, how do you do that while at the same time doing your normal job? A lot of the organizations that we work with really struggle with keeping up with the technology uplift, even with our developments. We’re struggling by getting all the latest models and turning that into product, and they have to adopt it, and then their customers have to adopt it.

Winning Pilots and Global Expansion

Jack Altman

Here’s a question for both of you. As I’m listening to you talk, I can sort of see the hill climb that you’re on. You’ve attacked one part of it and the next one’s coming and the next one’s coming. One of the things I’m thinking about is, for a new startup in legal, what would the right strategy be for them? How do you possibly get into the mix fast enough for all of these things and then—

Max Junestrand

Exit to Legora.

Jack Altman

Sell to Legora, that’s a good one. How urgent is it to grow really big, really fast for Legora, given all of the dynamics around this? Chetan, I’m curious how you think about this. Is it the same urgency as always, or do any of these dynamics mean that getting to real scale is more urgent here than other places?

Chetan Puttagunta

We can go back to launch day, October 2024. When they launched, roughly the ARR of the business rounded to a million dollars. If you go back into that moment, there was this exercise of, should we make a budget? What we all decided around the table was there was no reason to make a budget because we don’t know anything about the market. We don’t know if people even like our product. We had instincts, but we just needed to go literally as fast as we could to get the product in as many hands as we could. Because ultimately the whole theory of the company didn’t work until we got product feedback. That was literally the aim. Get this out as quickly as possible into as many hands as possible.

One of the things that Max did… It’s cliche to say it’s first-principles thinking, but it is, because the team was unbiased by how to build a software company. One of the things you learned in SaaS was the way you do pilots is you would go in, do a time-trial pilot where you would give them access to the application. The minute the trial was done, you would turn it off and then they would have to make a purchasing decision. A big thing that happened with Legora is they would go put Legora into your organization and whatever you put into Legora, they would leave behind even if you didn’t want it.

So there was this idea that, “Hey, you adopted AI, you did stuff with AI, you built some practices. Whatever skills you built or whatever IP you built, it’s kind of yours. We can leave that behind. It’s not a big deal. It’s your skills, it’s the things that you’ve learned.” Then Max went around and just gave people 30-day pilots, 60-day pilots, whatever they wanted. 90-day pilots.

Max Junestrand

They would run these competitive pilots. They would say, “Okay, there’s a couple of companies on the market. We’re going to want to A/B test all of them because it’s really hard to pick based on the feature set on your website.

In those pilots, I think we did an extraordinarily good job of delivering value. When the 30 days were up, if we shut it down, it would be a riot. People would roar and they’d be like, “We’ve never seen software adoption like this in a legal organization. We need this and we need it now.”

In those pilots, we would demonstrate much better than any other company the value that the product and the service around the product could bring. We hired all these lawyers, who are now called legal engineers. It’s a great term, forward-deployed legal engineers.

Jack Altman

I was just going to say, what about FDLE?

Max Junestrand

That’s right, FDLE. They’re amazing. They’re the most tech-savvy lawyers in different organizations who don’t want to make partner, because that’s one type of life. They want to work in a tech company and now they get to work with their practice that they’re amazing at, and technology. Then they get to work with the best legal organizations in the world and drive that change.

Jack Altman

I would think once you’re embedded in these organizations, it’s got to be sticky.

Max Junestrand

I think Legora is very sticky. We’ve ripped out our competition at many organizations at this point.

Jack Altman

What creates stickiness?

Max Junestrand

The stickiness is the use cases and the cadence. If you’ve invested time in building up a workflow that works for you, why would you want to switch? It’s usage stickiness.

Jack Altman

It’s not data.

Max Junestrand

No, not yet. Not any real technical implementation, which is great, because our competition has been deployed in a lot of places with no real usage or very simple use cases. That means that we can go there, show them, and display clearly in a pilot that we deliver much better, and then we can easily swap it. So we actually have a dedicated migration team moving deployments over to Legora.

Chetan Puttagunta

This is where we often talked about not only product engineering velocity—which came naturally to the founders here because they were engineers—but also this idea of velocity of customer interaction. If a customer wanted to buy a certain way, wanted to do a pilot, whatever, just don’t add friction. That was actually the key unlock. There was this idea of, let’s just go get this in everybody’s hands and not have any bias.

One of my favorite stories about Max is that he came to San Francisco to sell a bunch of clients and then he texted me and was like, “Are you free for dinner?” So we met for dinner and then he asked for a ride to the airport. I casually asked, “Where are you going?” expecting him to say Seattle or LA or something. He was like, “I’m going to New Delhi.” I was like, “Why are you going to New Delhi?” He was like, “Well, one of the largest firms in India wants to buy. So I figured I’d go give it to them.”

Jack Altman

That’s crazy.

Chetan Puttagunta

You know this. In SaaS it was like, “No, do the West regional, then do the East regional, then do Western Europe, and then eventually hire an APAC head.” It was this whole thing.

Jack Altman

And by the way, there’s going to be a year of engineering work to be even ready to serve India.

Chetan Puttagunta

100%. And because this company and this team had never built a pre-AI software company, they didn’t know they weren’t supposed to go sell in India early, one quarter into selling the product. So Max got on a flight, went to India, and a customer in India bought. It was one of those things where because they didn’t have the patterns, they were able to get big globally in parallel.

Jack Altman

I also wonder about this. We talked about this a little bit. Being a Europe-based company means that you are multinational from the beginning.

Max Junestrand

You have to be.

Jack Altman

I think some of this is pre-AI, a lot of it is. But I also think there’s a thing where if you started in Europe, you’ve already learned how to sell to ten countries. You know that there’s differences in the way the cultures work and the way they purchase software and what the rules and regulations are. I’m curious if you thought about that when you invested, that actually, maybe coming to the US will be easier one day. And I’m curious about your experience on that.

Max Junestrand

Y Combinator weren’t particularly excited about backing a company in Sweden. I remember the first interview with Gustaf—he’s a Swedish partner at YC—and he goes, “So you’re going to move to the States, right?” And I go, “Yes, of course.” That’s the cue to say yes so that you get the invite to go to YC.

Jack Altman

Now I’m going to Sweden. “You guys are opening in Sweden, YC, right?”

Max Junestrand

I came to YC and I left three days later because I had so much business going on in Sweden and I couldn’t do work between 1:00 AM and 10:00 AM. That was just impossible. But the Swedish legal market is smaller than Kirkland & Ellis. So of course you have to expand. Naturally we went to Finland and then we went to Denmark. Then I was like, I think we got the hang of it. The most important thing was that the first customer we got, Mannheimer Swartling—the big firm in Sweden—their managing partner has such a good relationship with the other firms in other non-competitive countries that he would just introduce me. I would fly down and say the same thing I told him: “AI is going to change the world, you’re going to need a partner, I’m here, let’s work.”

That sort of made it all start. But then the move to the UK and the US was when we really started ripping.

Jack Altman

How different was coming to the US versus going to Finland?

Max Junestrand

I had a rule. There’s actually a few Swedish companies that tried to go to the US but did so unsuccessfully. Like Klarna, they tried many times before they actually made it work. My rule was, if we can serve two of the biggest clients in the US from Stockholm, then we’re ready, and then we’ll open an office here.

So Cleary Gottlieb—amazing Wall Street firm—and Goodwin Procter, we served them both. We won their business in competitive pilots, and we could serve them from Sweden. We did a lot of flights back and forth. But after they signed, we said, “Okay, amazing. Now we’re ready. Let’s open an office here.”

Starting in Europe

Chetan Puttagunta

One thing about the market structure of legal, that we knew about at Benchmark ahead of investing, is that legal has this unique market feature. It’s a services industry. In services industries technology adoption is slow at first and then rapid later.

If you look at any marketplace idea in a services area, the marketplaces are usually supply constrained, and then the minute supply unlocks, all of the supply comes online into the market and you become demand constrained. If you study marketplaces, especially marketplaces around services, this is something you fundamentally learn. It’s one of the rules of marketplaces.

In legal, the market structure is such that the initial adoption will be very slow and hard, but once it unlocks, it really unlocks. There’s some exponential viral coefficient that happens there. That’s one part about the legal industry that’s really interesting. How it overlays into software in legal is that if you look at the most successful legal software companies, they were all started in Europe, pre-AI too, by the way.

I had a hypothesis that part of the reason why you get that way is that you’re used to selling multi-geography and multi-rule systems from day zero. For example, Legora sold to a Swedish firm, a Spanish firm, and a Finnish firm. Yes, there are laws at the European Union level.

Jack Altman

But from the beginning, this needs to work for many people.

Chetan Puttagunta

That’s right. If you start in the US, what you end up designing is… There’s the federal legal system, there’s a state legal system, and then there’s regional. But it’s not as bifurcated as literally different countries.

Max Junestrand

And different languages.

Chetan Puttagunta

And different languages. So you build all this stuff on day zero that you don’t if you start in San Francisco. One of the interesting things that Max showed us in the prototype in the first meeting is that he had multi-language support already built and he had multi-legal-framework support already built.

Max Junestrand

I remember. I demoed Sweden and Spain.

Chetan Puttagunta

That’s right. That was remarkably impressive because it was a company with five people thinking on a global scale, because they were forced to. They couldn’t just serve the Stockholm legal market. Those two things meant that from the moment they launched the product and got a bunch of people to sign, immediately it was like, “Let’s go get the two big firms in every geography. Because we have to.”

Jack Altman

And it was global from day one.

Stockholm Culture and “Blodsmak”

Max Junestrand

Now, I think Legora has become a technology hub in Europe. People from Germany, from the Netherlands, from Spain, from Italy, they’re all moving to Stockholm, even in the winter, to come work with us.

Chetan Puttagunta

Talk about the culture part of it, which I think stands out a lot. It’s hard to describe to people what it’s like to visit the Legora office.

Jack Altman

When you came back from a Legora visit recently, you were like, “Oh my God, they are so good. Something’s going on there that I haven’t seen before.” It sounded different. I don’t know if it’s Legora-specific or if it’s something that happens in Sweden that can’t happen in America, but you were affected by it.

Chetan Puttagunta

It’s true. Initially, even in the group of five or ten or fifteen, however big the company was in September of 2024, there was a common thread amongst everybody. They were deeply technical, deeply intense, and had a desire to win. And they were thinking globally from day zero.

Because they were in Stockholm, they also decided to recruit all over Europe from day zero to bring people to the Stockholm office. What ended up happening is that you ended up becoming a magnet for anybody that wants to build at the forefront of AI with a level of intensity and determination, this idea of wanting to win.

Jack Altman

So what did it feel like to you on your recent trip? There’s a few hundred people there. What did that feel like?

Chetan Puttagunta

The level of engagement and buy-in to the company mission was truly unique. I think the company has done a great job with this idea of building for the company. I really do think building an AI company is a real test in ego. You literally can’t have an ego because you have to have this idea that AI is just going to do this.

Jack Altman

AI is going to be better than us at everything at some point.

Chetan Puttagunta

It’s just going to do this. The foundation model will do this capability. I’m puzzling through this and it’s really hard, and it’s an amazing feature. We have these high bars of quality and polish. So we’re going to ship fast, work really hard, build this amazing feature… and it’s going to disappear within twelve weeks. That requires an extreme amount of buy-in and an extreme amount of humility, that we’re just riding this massive wave and we don’t know where it’s taking us, but every day we solve today’s problems. We don’t worry about tomorrow because it’s a different world.

There’s a different type of energy, buy-in, and cadence that comes with that culture. It’s really interesting. The disadvantage of Stockholm has now become Legora’s advantage of being in Stockholm. Their talent population that they get to hire from is not just in Stockholm. It’s all over Europe and now it’s all over the world. Anybody that has that attitude is welcome to come join in Stockholm.

Max Junestrand

Our competition has remote days, three days in office, everybody leaves at six. From very early on… We serve dinner at eight, every day. A lot of people in our region are sort of tired of all these big American winners. We know that we have the talent and the grit and the prerequisites to build a generational company. Yeah, we had to go to the US to raise money because we want to work with the best VCs in the world. But there is a level of, we can also do it. We have Spotify just down the street.

Jack Altman

How are you going to get this level of fervor in the US?

Max Junestrand

I think we have. I think we have a very unique culture in our New York office.

Jack Altman

Is it different?

Max Junestrand

Very different. Well, it’s not different from Stockholm. We seeded it with the culture carriers from Sweden who came to New York, and I spent—

Chetan Puttagunta

I think tactically this was a really cool thing they did. You should talk about how you make everybody interview in Stockholm and then they have to onboard in Stockholm.

Jack Altman

Oh wow. So you live in New York, you’re going to join the New York office, and you’re going to Stockholm?

Max Junestrand

Onboarding in Stockholm. People who join in Sydney have to go on a 24-hour flight to onboard in Stockholm.

Chetan Puttagunta

You can’t onboard anywhere else but Stockholm. When they first opened the first international office, New York, and actually London too, people that were based in Stockholm moved to set a cadence. It’s all going to be the same as Stockholm.

Max Junestrand

The Germans who joined Legora have to move to Stockholm and work there for a year, and then they can move back to open the German office. You have to get it right.

Chetan Puttagunta

It’s a fascinating thing. I’ve been part of many companies that have many offices, and every office tends to take its own character. I remember the founders of Legora saying, “We want every office to feel the same,” which was itself a different way of thinking.

Every time Max has had me visit the company, I visit during dinner time, which is 8:00 PM. That’s when they have guests, 8:00 PM. That’s been the case in every office. That’s another thing that happened at this company. It’s interesting to me that it continues to scale. You can continue to onboard in Stockholm because every one of the 400 people that joined before you onboarded in Stockholm. So you should too.

Max Junestrand

The only reason we have that rule was because I did an internship at McKinsey and we’d have dinner at eight. So I was like, I guess that’s how you do this.

Jack Altman

Doing the US office in New York, obviously it’s not some outsider city. But from a tech perspective, there’s a lot of people in New York who want to work at a great tech company. There’s obviously been more there than in Stockholm, but it’s still different from San Francisco. I think you could probably bring some of that cultural thing there as a result.

Max Junestrand

Now we just opened in Houston and we’re opening in Chicago, all the big legal hubs.

Is this correct? Did you do a reference with Daniel Ek?

Chetan Puttagunta

Yes.

Max Junestrand

I think I heard this from you. You asked him about the culture at Legora and I think he said something like, “They’re pretty intense.”

We were very upfront with that, even in interviews. Not intense to the point where it’s not fun, but being number two in this space is not an outcome worth fighting for. Then we might as well go do something else. We’re only going to play here to win.

Jack Altman

You think number one and number two will just be vastly different outcomes?

Max Junestrand

Oh yeah, completely. It doesn’t actually matter if that’s the case or not—

Jack Altman

It gives you the right mindset.

Max Junestrand

Yeah. I think everybody’s dialed into that. I remember doing this interview in Swedish and there’s a saying: blodsmak. You taste the blood because you’ve worked so hard. I basically told her in Swedish that, “Yeah, sometimes I wake up and…” It’s a Swedish thing. I’m so tired… Then she publishes the article in English and the saying doesn’t make any sense in English.

Jack Altman

“Max is bloodthirsty.”

Max Junestrand

So it’s like, “At Legora we wake up with a metallic taste of blood in our mouths.” People in the company go, “Holy shit, is Max a vampire or does he just floss badly?”

Jack Altman

How do you feel about that now?

Max Junestrand

Now it’s become this thing. The Americans are #blodsmak. Everybody’s in on it. It’s amazing.

Jack Altman

I can feel the energy of it. It’s not a culture that I think would quite work in San Francisco. I don’t know if that’s something that you can do uniquely…

Max Junestrand

Well, when we open our San Francisco office, they’re going to taste the blodsmak.

Jack Altman

I love it.

The Series D

Jack Altman

My last question. You just raised a big round, which is awesome. Congrats. What does this mean for the future? What’s coming?

Max Junestrand

Maybe first off, just to give you a bit of insight into the round. Every round at Legora since Chetan has been a preempted round. I don’t think I’ve ever actually gone out to fundraise since the seed round. It’s been very pleasant.

We actually also have a history of taking the lowest term sheets. So this is funny. We were negotiating the number of shares that Chetan was going to buy, on Excel, in front of us. He goes, “I’ve never ever bought a company where I didn’t get 20%.” And I go, “Well, I’m never going to dilute more than 17.5%.”

We sort of look at each other and go, I guess we’re in a bit of a stalemate. It was like the immovable object meets the unstoppable force. So we put it on Excel. We write down the exact number of shares, and we start going decimal by decimal until we’re both—

Jack Altman

Wow. That is so legal coded. Just the nerdy Excel.

Max Junestrand

It was wild. So you end up investing like 19.521%. We’re both equally unhappy, or happy. I think we’re both happy.

Chetan Puttagunta

Of course.

Max Junestrand

But the Series D has been really great because it’s the first time I’ve done it together with someone else. David, our CFO who just joined from Vanta, he’s an absolute monster. It was funny. We had our company-wide kickoff and you get to pick the song you want to walk out to. He goes, “Max, I want ‘Monster’ by Kanye West.” And I go, “Okay dude.” The lights drop and I’m like, “I have a big surprise for you everyone. David is joining us, our CFO.” The speakers just explode with this. I don’t know if you’ve heard this song. He comes up on stage with so much energy. In the references, people refer to him as the CF-Go. I was like, that’s amazing.

So he and I did the round. It was super fun. It was the first time we went out to actually do a fundraise. We had a deck this time. It was wildly oversubscribed. I think we ended up having $1.5 billion in demand for the round.

Jack Altman

That’s a lot.

Max Junestrand

It was crazy. But we’re super thrilled about Accel coming in and leading it. Some great participation from Menlo and Bain.

Jack Altman

It’s awesome. It’s a huge testament to what you’ve done. It’s super exciting. I think you’re just getting started. Max, thank you for doing this. Chetan, thank you as well. Really enjoyed it.

Max Junestrand

Thank you so much, Jack.

In this episode, the team behind Y Combinator reflects on what has — and hasn’t — changed since the early days of YC, and how AI is reshaping what it means to be a founder. They discuss how they evaluate builders now, why execution still matters more than competition, and what YC is prioritizing as the startup landscape evolves. At its core, the mission remains the same: increase the number of great startups in the world.

Garry Tan is president and CEO of Y Combinator and a group partner. He was a partner at Y Combinator from 2011 to 2015, where he built key parts of the YC experience for founders including Bookface and the Demo Day website. Garry is the co-founder of Initialized Capital and Posterous (YC S08), a blog platform acquired by Twitter, and prior to that, he was an early designer and engineering manager at Palantir.

Harj Taggar is a Managing Partner at YC. Of the 1,000+ companies Harj has advised while at YC, 5 have gone public. He was previously founder and CEO of Triplebyte (YC S15) and Auctomatic (YC W07), which was acquired by Live Current Media in 2008. He first joined YC as a partner in 2010, leaving in 2014 to start Triplebyte and rejoining in 2020.

Jared Friedman is a Managing Partner at YC. Jared has advised more than 20 YC unicorns while at YC. He was co-founder of Scribd, which was funded by Y Combinator in 2006 and grew to be one of the top 100 sites on the web. Jared previously worked at a pioneering AI company.

Timestamps:
(0:00) Intro
(0:18) The YC product
(5:05) AI and the new builder
(13:01) Pivots and upcoming trends
(22:26) Making something people want
(24:50) What’s in store for SaaS
(33:02) Capital in the age of AI
(36:28) The human capacity for desire
(42:18) Building in America
(44:29) Fixing San Francisco
(47:58) Scaling YC

Links:
https://x.com/snowmaker
https://x.com/harjtaggar
https://x.com/garrytan
https://x.com/jaltma

Watch on YouTube; listen on Apple Podcasts or Spotify

Subscribe now

Transcript

Disclaimer: Transcript generated with AI assistance and lightly edited for clarity and accuracy.

The YC Product

Jack Altman

I’m really excited to be here with you. Thanks for all doing this with me. To start, when did you all first go through YC as founders?

Jared Friedman

I think I did it first. Summer 2006, so the third batch ever.

Harj Taggar

I did winter 2007, six months later.

Garry Tan

Summer ‘08.

Jack Altman

So a long time, pretty close to the beginning. Where I want to start is, you all have seen in many incarnations what YC has been like as founders, as partners. You’ve worked outside of YC and inside of it. What has changed? Maybe the lens I want to ask this question through is: what was the value proposition to founders in 2006 versus 2016 versus 2026? What has changed and what has stayed the same?

Garry Tan

Yeah, what was it like in ‘06?

Jared Friedman

The most surprising thing to people from the outside is actually how little it’s changed. I think that’s by design. The thing that Paul Graham created that we all did in the early 2000s was great. It was a great product. As you know, when you have a great product, don’t fuck with it. There are some things that had to change, but in broad strokes it’s much more the same than it is different.

Jack Altman

How would you capture the essence of that product? To a founder, if you had to boil it down to two or three things, what is that product about?

Jared Friedman

We recently worked on a redesign of the Y Combinator website. Actually, Garry and I did. We actually tried to write it down possibly for the first time. Do you want to explain this since it’s really your words on the website?

Garry Tan

It was a team effort. Honestly, we tried to return to what the founder’s experience is. We found all of these old photos. Actually, your brother is the first one on there, and it’s him with the double popped collar.

Jack Altman

We’ll pop that up on the screen.

Garry Tan

Then you start flipping through and it’s Patrick and John Collison. It’s Brian and Joe and Nate at Airbnb. You see them so young, and then you see them ring the bell. Basically what we’re trying to create is like Disneyland for transformation: from startup founders who are just starting out to literally the people who make the companies that really matter. It’s actually a social process. All reality is socially constructed.

I remember when I found YC and came to my first Startup School. It was like being a fish out of water and then jumping into water. I was surrounded by people who were builders, who were earnest. When you get into YC, we take people who are earnest and technical and at the end of that process, hopefully they become formidable.

When you go to the homepage, that’s what it’s about. YC is a transformative process. It’s like Hoffman or something. It’s not that New Age-y. It’s actually very chill. I don’t know how you would describe it.

Jared Friedman

I’m a Harry Potter fan, so I prefer to think of it like Hogwarts.

Jack Altman

When I did YC in Winter ‘16, starting a company felt like such a weird, odd experience. In some ways, having this group that normalizes what it’s about — where you’re surrounded by other people who talk about the new language and the new set of things you should be thinking about — it almost calibrates the strange dream that you’re in. That was a big part. There’s also always been the stamp of approval, which is hard to underweight.

I’m curious how you guys think about that with outsiders in particular.  One of the things that seems different to me at least is that now more than 10 years ago, and I’m sure more than 20 years ago, the ecosystem is an understood thing. Founders can read a lot of stuff online. People can read a lot about them online. There’s more known in general. But I still feel like there’s this thing YC can do, which is take people who maybe aren’t yet in that vortex, identify talent somehow, and bring them into that vortex. I’m curious if you guys spend active cycles thinking about that?

Garry Tan

All the time. I’m in the middle of my very intense addiction to Claude Code and Codex. Actually using this stuff is pretty wild. I basically recreated my 2008 startup, 70,000 lines of code, in about 90 hours over two weeks, while having a full-time job and trying to raise kids. It just really compressed a lot of my sleep. But at the end of it, I have a codebase that is better than what it took five engineers, and me taking anti-narcoleptics, to build for my YC startup.

Jack Altman

It’s crazy.

AI and the New Builder

Garry Tan

Something happened at the end of November when Opus 4.5 came out. I heard about it and I was like, “Hey, what’s going on?” The most interesting thing for us is that we’d been talking about it for years, been using it for years, and then it wasn’t really until December where it was like, “AGI is here guys, for code.” I feel like I could create in 80 hours something that I could not create with $5 million and five engineers in two years.

Jack Altman

Let’s stick with that, this coding topic. First, what are you trying to identify as greatness? If before this moment you needed to find great engineers, what is the thing you’re looking for now? How has that changed? Second, the startup advice has always been “write code, talk to users.” What is that now?

Garry Tan

Prompt and talk to users.

Jack Altman

But there’s a lot less time prompting.

Garry Tan

This literally just happened and all of us have been collectively doing it. Harj did a project, Jared‘s coding all the time. Our whole team is using this stuff. We realized, “Hey, why don’t we actually put it in the application process?” For the first time, for the spring batch, you can upload a transcript of your Codex or Claude Code making a feature. We’re starting to figure out how to process it. We put it in a security sandbox because we figure it’ll be prompt-injected very quickly.

You can tell a lot about whether someone can build just from how they prompt the agents. Do they know systems? For YC, you get a t-shirt that says “Make Something People Want” on day one. If you look at a résumé, you can sort of guess at whether they can make something, but you can’t really tell whether they can make something people want. You can look at their GitHub and maybe see if they can make something. The only way you can really tell if they can make something people want is if they did it already.

Jack Altman

And there’s not exactly a GitHub for prompting, if that’s what you’re asking people for.

Garry Tan

But you can tell… Do they use plan mode? Do they think about systems? Are they prematurely optimizing? Are they over-engineering? Basically, what is a feature to them? What is the complete release? Do they think about the edge cases? How you do anything is how you do everything.

My favorite Steve Jobs quote, he talks about how if you’re a carpenter, you can tell other really great carpenters. You don’t look at the front. Everyone looks at the front and they’re like, “This seems good.” But a great carpenter, an artisan, looks at the back of the cabinet. The back of the cabinet only other carpenters are going to look at.

That was one of my favorite things. When I funded companies at Initialized, and when I was a partner at YC the first time around, that was the number one thing that I loved. Is there “game recognize game”? Would I go work for this person if I weren’t doing the thing I was doing now?

Harj Taggar

This is how you spotted Apoorva with Instacart, right?

Garry Tan

Yeah. He came in and honestly it was craft again. He’d literally built an iPhone app that was a demo app. Claude Code didn’t exist, so he actually had to build it himself. The way I could tell was that — turning the cabinet to the back — he could scroll it and it scrolled really smoothly. That wasn’t true for that era of iPhone apps. The App Store and iOS apps were brand new. I feel like you guys do this all the time.

Harj Taggar

To your question about how this changes the way we think about picking founders, I think it’s going to expand the net rather than necessarily change it. We’re all still in agreement that we absolutely want to fund genius engineers who aren’t necessarily using Claude Code. There’s going to be a Patrick Collison of every era and you want to fund those people.

The way we’ve talked about it internally is that this is probably an era where we might find more Parker Conrads. I remember the application when Parker applied with Zenefits in 2013. It was extremely well-written, but single founder, not central casting, not quite technical. He was technical enough where had a demo but didn’t have a CS degree, wasn’t the traditional YC archetype.

The only reason we interviewed him was that his previous company, SigFig, I had used it, it was a personal finance app. So he was clearly capable of doing stuff. The interview made it immediately clear that he deeply understood what he was talking about. He was super articulate, clearly a really strong product thinker.

It worked out for him because he recruited a co-founder during the batch, and then obviously Zenefits had its thing, but Rippling is obviously huge.  If Parker hadn’t got his co-founder during the batch, it would’ve been a totally different story. I suspect that the Parker Conrad of today is just in Claude Code, actually building quite sophisticated applications.

Jack Altman

It’s also interesting because Parker’s one of the most commercially intelligent people there are. Coding applications are probably increasing the advantage for people with that shape. Obviously, I’m sure the real technical breakthroughs are always going to be really important.

Garry Tan

This is markedly better than just looking at a resume. When I first came back to YC, I read all the feedback. We’re on r/ycombinator too with our anons and we know what people are saying. It was like, we should pay attention to this and frankly we need to do better than that.

Parker did go to Harvard, but we shouldn’t fund someone because they went to Harvard. We should fund someone because they actually understand the user and are unbelievably tenacious. That’s actually universal for any product, any vertical, any set of customers: the most important thing is agency and taste. Agency is: I see this person, they have this problem, and I believe I can solve it using technology. Taste is: let me actually build the first version and get it in the hands of people. Did it work? How did it break? You go all the way into the weeds.

Imagine hundreds of thousands of lines of code and you’re going through and fixing all the bugs. Think about the tireless, ceaseless gardener. Have you ever been to the Baha’i Gardens in Haifa? It is the most beautiful garden I’ve ever been to. There’s not a single weed, not a leaf out of place. I think the best products in the world, the best experiences in the world, are like that set of gardens. It’s because — it’s actually a religion — they really, really care.

Jack Altman

On that topic, a piece of advice I’ve found myself changing on a little bit over the years is that it used to feel a little bit more like you could just ship something broken fast and then iterate from there. I still think that’s a good general mindset. But I do feel like the bar for products is just so high now. The quality of a software product at Series A seems really high to me lately. How do you guys advise people as they’re getting MVPs out?

Jared Friedman

If Garry was able to ship 70,000 lines of code in a week while also running YC at the same time…

Jack Altman

And raising kids.

Jared Friedman

Then the bar for what two founders working on their idea full-time could do before they interview with YC should be a lot higher.

Harj Taggar

And we see this in the batches. A few weeks into the batch, some of the groups do what we call a product showcase now. You just get up there and give a quick demo of what you’ve built so far. Every six months over the last three years, the bar for what you should demo even a few weeks into the batch just keeps going up and up.

Pivoting, Competition, and Making Something People Want

Jack Altman

It also makes me wonder. Inside a batch, a company ought to be able to pivot more times than they used to be able to. A company ought to be able to try stuff, see if they get traction in a few weeks, and if they don’t, move on. Are you seeing that happen? I know a lot of this is new, but do you feel like that’s going to be happening? Is it happening?

Jared Friedman

Absolutely. We’re seeing companies try many things during the batch.

Jack Altman

Do you advise in that direction? I felt like historically there was a YC school of thought. I interpret it as: ship fast, iterate, see where you’re at, go from there. I’ve interpreted in contrast the Keith Rabois school of thought as: you’re a movie producer, dream your movie and then ensure it happens, and don’t let anybody say no.

Harj Taggar

I feel like the YC job is so much more, almost on the psychology therapist end of the spectrum on this stuff. At least for me, a lot of it is going off the vibe of the founder. I don’t really have a blanket view on whether you should pivot quickly and give up on this idea or stick with it for a long time.

Usually when you’re meeting with founders, you can just tell if someone’s been working on something and they just never seem excited about it, and two weeks in, they’re still not very excited about it. It’s hard to tell them, “you just need to persevere and keep going.” It’s usually better for them to find the thing they have the spark about. What do you think?

Jared Friedman

Yeah, I agree. An anti-pattern for founders who are pivoting is that they have no existing prior on what a good idea is. They’re hoping the outside world will tell them what a good idea is. So they launch five totally different things for five totally different groups of users hoping that one takes off. They usually don’t. What I’ll typically try to do is dig deeper with them to find an idea they actually care about and then see how we can turn that into a startup idea.

Jack Altman

One of the things that I’ve noticed — and a lot of people have noticed this, it’s not some big insight — is that the median startup in YC batches is a good indicator of upcoming trends. I noticed a couple of years ago, before AI was really everywhere, there was one batch where all of a sudden like half the companies were AI companies. Then the next batch. it was like 75%. And then it was basically all AI companies, except for hard tech. You’ve got hard tech too.

Garry Tan

10% hard tech.

Jack Altman

YC is the hard tech of hard tech.

What is the trend right now that you’re seeing a lot of, that you think YC might be particularly attuned to early?

Jared Friedman

I don’t think there are any strong trends yet.

Jack Altman

It’s all just AI right now.

Jared Friedman

It’s all just AI right now. Some things that are smaller trends might be glimmers of the future. Just in the current batch, prediction markets are big. Kalshi is really inspirational to a generation of people. Stablecoins and crypto stuff might be another interesting non-AI trend to talk about.

Jack Altman

Do you have a sense for why? Why are these the companies? Because I agree they have captured something. What is that, do you think? I feel like there is clearly a generation that has been really motivated and interested in this and it’s clearly taking off.

Garry Tan

Any time there’s a regulatory change… These things were in a gray area and now it’s green lights. Everyone’s going to do it. Capital flows to it. Capital is required for building consumer businesses. Boom, you’ve got a consumer business growing super fast. You get more capital, the flywheel happens, and you’ve got another DoorDash, which is great. Capital as a bludgeon works really well there. But what’s funny is it’s not clear to me that capital as a bludgeon works as well with AI companies anymore.

Jack Altman

What do you mean?

Garry Tan

You don’t need to have a thousand-person company anymore.

Jack Altman

It’s interesting. I still feel like I’m waiting for that. There are obviously some companies. I’ve backed YC companies that I’d love to invest more in, but they’re super profitable and I’m like, “Okay, that’s great, I’m very happy for you.” But there are also companies raising bigger rounds than ever and consuming crazy amounts of capital. In some ways it looks even more capital-consumptive than ever before, and I don’t feel like I have a good mental model to square exactly why that’s happening.

Harj Taggar

It certainly seems like it’s easier to get to $1-2 million of ARR without hiring anyone. We get so many investor updates. We’re used to seeing “we just hit a million ARR and we had ten people”. But now it’s more like “...and we haven’t hired anyone.” So that’s genuinely new. I agree about the step after that though. The Series B rounds seem bigger than ever.

Garry Tan

Venture is contracting a little bit, not on a dollar basis. On a dollar basis, there’s a “flight to quality”. One thing we’re talking about internally is that the world is increasingly full of these mega funds. They are friends and they do great work, but it’s more and more dollars behind fewer and fewer people.

Jack Altman

Fewer firms.

Garry Tan

Yeah, fewer firms and fewer people at those firms. The natural thing then is capital as a bludgeon. The fix is in, which is great. Often for YC, we’re sometimes the number one, number two, and number four in any given vertical SaaS space. We’re in the billion-dollar one, we’re in the half-billion-dollar one, we’re in the “arm the rebels” one that works with the partner. This happens over and over again.

Jack Altman

So do you think in this environment the king-making meme is more true because of the capital-as-a-bludgeon thing? Is it more effective in this type of environment?

Garry Tan

Basically, if the founders are good, the capital helps them get there a little faster. But I don’t believe capital as a bludgeon…

Harj Taggar

Especially when things move so quickly. You can end up having capital and then moving fast in the wrong direction.

Garry Tan

Harj funded Giga. Those guys beat — I mean we love Bret, we love Sierra — but Giga, this sort of ten-person team, beat all the incumbents for things like DoorDash. It’s back to back to back. They have the best tech and I think they’re maybe still under 20 people right now.

Jared Friedman

And Jack, speaking of insiders versus outsiders, that’s such a classic insider versus outsider story. What were the backgrounds of the Giga founders?

Harj Taggar

They were two IIT guys in India.

Jared Friedman

They were still in India when you funded them?

Harj Taggar

Yes, they were in India. They actually couldn’t make it out here for the batch for visa reasons, but they were just clearly brilliantly smart. They were the top-ranked IIT students. As undergrads they had done sort of PhD-level research in fine-tuning LLMs before everything really took off. Just clearly exceptional.

Jack Altman

On this point about king-making stuff, and not to talk our own book too much, Legora was a startup coming behind something that seemed really established, and they’re based in Europe. They went through YC and they’re doing great. So it doesn’t seem like stuff is locked up immediately.

Harj Taggar

And that’s a good example. Even if you have the capital, you might not build the right product off the bat, and then things change.

Garry Tan

The model’s getting better. Back to back to back, every single year, the models are getting better. The rumor for Harvey is that they might have spent a bunch of VC capital on fine-tuning models that turned out not to be better than the frontier models. You don’t have a crystal ball. You couldn’t have guessed that. It was just an idea that maybe it might happen. Of course it did happen. Now we’re in this situation where if you have hundreds of millions of dollars sitting in your bank account, you’re tempted to use it….

Jack Altman

The models thing is so interesting to me because one of the things that has struck me is that a lot of the source of product-market fit actually exists outside the startup delivering the service. You take an amazing founder like Max, you put them in a market like legal where there’s just a lot of uptake for some set of reasons, and then you have this tailwind outside the startup that’s actually driving a lot of the aha moment. Not to take away from anything they’ve done, but this is the case for all these startups. That just changes some things.

Harj Taggar

From the founders’ perspective at least — and a reason why they’re raising the B rounds — one, there’s always just the case of banking the money while you can get it. But it also feels like the surface area for the products is bigger than ever and they are still fundamentally constrained by the number of people they have to go execute on things. It feels like in the SaaS era you build one core feature, hit product-market fit with that, and maybe just run with that for a few years and then add things.

Whereas now, even within the batch, people are trying to add more into the product and have it do more.  So they just fundamentally feel constrained by how much they feel they should be doing. Then they have competitors and the competitors are moving faster. So I haven’t yet seen the “once you hit product-market fit, you don’t need to hire as many people”. Or at least people aren’t acting on the belief yet that they don’t need to hire as many people.

Jack Altman

One thing that doesn’t seem automated yet is sales, for example. A lot of people thought it would be automated by now, but it hasn’t been. Support has, but sales hasn’t. So you still need a lot of salespeople. It seems like engineers are way more effective, but if you’ve got the capital, 50 engineers is still going to be better than five engineers. Some of these things just haven’t played out intuitively.

Harj Taggar

It’s great for everyone using the products. The bar for what you expect out of the products you use just keeps going up and up, which is awesome.

Jack Altman

There are also a lot of markets that are so genuinely blue ocean. They look like good ideas and they are good ideas and it’s totally new. The result is 50 startups doing something similar. I think that’s a good thing for end consumers. Obviously you guys have a lot of companies in that situation, like we all do.

In this competitive of a market moment, when every startup has a ton of competition, does that change anything? When you’re working with specific companies, do you find yourself saying “you need to go faster, you need to be thinking about something differently”? Does  it update anything when we’re in this type of environment?

Garry Tan

Me?

Jared Friedman

I felt like Garry was holding back.

Garry Tan

I’m hoping you guys have a good answer.

Jack Altman

I can answer my own question by the way.

Harj Taggar

I guess the reason we’re pausing on it is just again, YC is about getting things off the ground. Especially during the batch, we’re so focused on: is this even worth investing another two weeks of your time in?

Jack Altman

Is there a glimmer of product-market fit or not? And that doesn’t really have anything to do with competition.

Jared Friedman

At all. Exactly. We actually spend the vast majority of our time on competition telling founders not to worry about competition. Because imagine if the Legora founders had not launched Legora because they looked at Harvey and said, “oh, it’s over.” That’s what we see a hundred times a batch, that story. So it’s just being like, “don’t worry about it, just out-execute them.”

Garry Tan

We always just go back to “make something people want”. It says “make something people want”, it doesn’t say “do a market map, based on what Perplexity tells you…”

Jack Altman

You could say, “make a market map, then make something people want within it.”

Garry Tan

We should make an April Fools T-shirt that says that. “Make a market map, then make something people want.” It’s like, what the hell are you talking about? That’s definitely not how you do this.

Jack Altman

So let’s say somebody’s working on customer support. I’m pretty confident that market is not saturated. A good team that comes into customer support and says “I’m going to go find some more customers” could do it. So the view is just, if you can find customers and get it going, don’t even think about who else is out there, just go.

Harj Taggar

I think that’s basically it. Go out and get customers, and if you have good competition then you’ll have a hard time getting customers. If I try to launch a new payment processor, I’m going to run into Stripe. It’s going to be hard for me to grow really quickly. That ends up being a lot of the advice during the batch.

Is SaaS Dead?

Jack Altman

I’m curious how much you guys think about stuff at a macro level. I know the most important thing — which I believe is obviously correct — is to think about the micro. Get this startup off the ground and going, and then things can go from there. But I am curious about some of the macro things. One that comes to mind is the recent trend in public markets where SaaS multiples have just been totally hammered. Do you guys feel like SaaS is dead? Does that resonate for you? Do you see anything different in the companies you’re working with?

Jared Friedman

Is SaaS dead?

Jack Altman

Is SaaS dead?

Garry Tan

I think it’s dead. The thing is, if you run a SaaS company, you don’t have to be dead. All you have to do is embrace Claude Code. You have to embrace, top to bottom, an agentic view of how everything is going to work.

Put it this way. The same week that I personally realized everything was different, I funded a team from Meta Superintelligence who had left. They were pointing out that Meta has 20,000 people working on Reality Labs and Alexa has 20,000 people. I thought about my experience. I didn’t even have 20,000 people. I had five people. Why did it take two years?

Because I knew what the architecture was, I knew what I wanted to build, and then I had to farm this out. I had to have meetings, come up with a doc, and then other people have other opinions. We’d have five meetings about the architecture and argue about it. Two weeks later, maybe something happens. If you’re in a big company, it’s three months later and maybe something happens.

But we don’t have to do that now. We could just try both. Go into plan mode and then just do it. Literally an hour later, we will have something done that would have taken two weeks, or two months, or sometimes two years. If you’re not a tech company and you’re an incumbent, it’s two years or never that you would even make that decision.

The speed of making that decision, how decisive you can be… Going back to the transformation thing, that’s actually what I feel like I learned at YC. It’s not that I didn’t know how to do it. I was employee number 10 at Palantir. We were moving fast. I was sleeping at the office. The big difference was realizing that instead of getting 20 basis points of Palantir… That’s now an astronomical amount of money, by the way. We didn’t know it at the time.

Jack Altman

We’ll run some math. We’ll put the math up on screen. That’s a thumbnail. That’s perfect.

Harj Taggar

Right above Garry.

Garry Tan

Basically I wanted 97% of the company that I started. I went from a place that was already fast. Then being the founder and CEO, YC sped me up even more. Because you’re in office hours with people and it’s like, “Oh man, this person actually grew 10% this week, 20% this week. How did they do it? I need to do it.”

I think all of this is an accelerant. Claude Code and Codex, being able to make two years of product progress in about two weeks, how could that not make YC more insane? The amount of things you could try and do. You could do two years of work, realize that nobody wants it or there’s too much competition, throw it out, and do it again.

That’s not a throwaway. You learn something, you also got better at using these tools, and you get another shot. What’s funny about seed is you could think of people raising two or three million dollars. That used to be a Series A by the way, which is hilarious.

Jack Altman

Now it’s barely a seed.

Garry Tan

Yeah, it’s like “oh, that’s a small seed.” Are you serious?

Jack Altman

It’s a pre-seed.

Garry Tan

That’s so much money. This is outrageous. You don’t even need this money. It’s crazy that you can go so much faster now.

Jack Altman

I actually want to come back to fundraising advice because I feel like it’s gotten into an interesting place. But the opposite question of the “is SaaS dead” question is, what do you feel is not AI but safe from AI? Are there areas that you think are insulated from this mega-trend, that you’re happy to back without fear of that?

Harj Taggar

I think the obvious one first is just marketplaces that are aggregating people. I think Airbnb is very safe. I think there’s a bunch of marketplaces. DoorDash is totally safe. That’s a very clear one.

Garry Tan

One thing we’ve been talking about is what the agents want. What the coding agents tell you to do turns out to be itself a really big moat. GEO, making your API docs actually written to prompt inject Claude Code to force it to use you… I’m just joking, it’s not clear that you can do that. But if you could you would because it’s that powerful. People will just say “I need X” and then “what’s the best thing on the internet to do that?” I just think that’s really powerful.

Harj Taggar

The other thing you might say, going back to this SaaS thing, is even within SaaS you might say things that feel like they are essentially databases or systems of record — things like Rippling — feel like they’re going to be in a good spot. Then things where the moat was around the number of integrations built, or data connectors, or that kind of stuff — which you can now just code up in 10 or 30 minutes — that’s brittle.

Jack Altman

Do you think it’s system-of-record that makes payroll sticky, or do you think it’s touching money?

Garry Tan

Touching money. Regulatory. You have systems that are working, you don’t want to touch that unless you have a really good reason.

Jack Altman

Because one of the ones that comes up a lot right now is, are CRMs safe? I don’t have a particularly strong opinion, but it seems like an interesting question. It doesn’t exactly touch money, doesn’t exactly touch regulatory . It includes a lot of important information, but that information can now live in email or somewhere else.

Harj Taggar

I think Salesforce is probably screwed. There have been so many attempts to do the Stripe strategy. Get startups in a YC batch using your CRM, because everyone hates Salesforce. But no one could ever really grow into a big company because at some point your head of sales says, “No, I need these reports,”

Jack Altman

And to your point, you need all those integrations, badly.

Harj Taggar

Exactly. Now that’s all just going away. I suspect the next Salesforce is going to come out of a YC batch that sells to all the other YC startups. Investors will say, “Oh, it’s not going to grow because no one can compete with Salesforce.”

Jack Altman

Also, “all its customers are YC companies. It’ll never work.”

What about hardware? Is hard tech safe?

Garry Tan

Hard tech is just hard. The moat comes from it being hard to source, hard to make it work. It’s just another muscle.

Jack Altman

It’s atoms. AI hasn’t exactly come for atoms yet.

Garry Tan

Robotics is still a little ways off, but we need ASI. I think we have AGI now, and ASI is coming. Superintelligence is clearly just around the corner.

Jack Altman

Do you think when we know we’ll know? Or do you think there’ll be a thing to you that would say that a new moment is here?

Garry Tan

I think we have limited versions of ASI right now. I saw a demo—

Jack Altman

All the bots talking together? That was crazy.

Garry Tan

Yeah, that was crazy. That’s the first real example of swarm intelligence. In AI research, swarm intelligence is like this huge field. This was a massive validation of that field. It’s kind of an interesting question. All the main AI labs talk are like, “We’re just going to build the God model, just make it mega-big.” Think about Dr. Manhattan or something.

Biological systems and human society are not modeled that way. We have lots of people with lots of diverse hardware, and different opinions about all kinds of things. You come together and see what sticks. That’s what research is, for instance.

Swarm intelligence versus god-level intelligence is a very interesting thing and that’s just the beginning of that. That just happened literally last week.

Capital in the Age of AI

Jack Altman

Is there a type of project or pathway for a startup to build that you’re not currently funding that you’d like to? I’m thinking of hardware companies or projects that at the beginning I don’t think can start with $1 million. Some of these genuinely need to start with $10-20 million. Is that something you think about? Would a divergence like that ever be worth it to YC? Or is it like, “we don’t need to back every single type of company of all time?”

Harj Taggar

We would like to back every single type of company of all time if we could.

Jack Altman

That’s actually the kind of thing I was curious about. When you’re thinking about YC growing, is the conversation like “we have our style and we like to get everything within that,” or is it “no, we’d like to back every company of all time”?

Garry Tan

We’re generalists. YC funded Coinbase when crypto was like the weirdest thing. Brian Armstrong was on the risk team at Airbnb — in the anti-fraud team — and he was already in the family. He said, “How do I start a company? This is clearly the way to do it.”

What’s funny is you could start 20 other Coinbase competitors but all of them died. When you’re early, it doesn’t matter. It matters more who the person is and what they believe, and then that person goes and creates the future. Being a generalist is an incredible thing, it’s truly the best.

Jack Altman

Is there a slice of the market, or a type of founder, that you feel like you want better exposure to, something you’re actively working on?

Garry Tan

Coming back to YC, one of the things we realized is that we have a huge media presence. On the other hand, on its own, if you just watch the YouTube channel it’s like “oh, this is something in the sky. I heard it’s a 1% acceptance rate.” People think that it’s maybe not for them. What we find is that all of our best people either know someone who did YC, or they met a partner directly at an event. We actually have to be in the community. We can’t just be up in the sky, on the internet.

Jack Altman

You can’t just wait for apps to come in.

Garry Tan

Jared led this. You got us to how many college campuses last year?

Jared Friedman

Over 30 college campuses. We have a huge boots-on-the-ground effort now to go talk to undergrads everywhere. We just got back from a big trip to Europe. We’re going to India in the spring.

To go back to your point about groups of people we’d love to see more of, we have a big effort here to do what we’ve done with undergrads over the last two years — which I think has been pretty successful — and expand that to grad students and people who are more like Brian Armstrong’s age, mid- to late twenties.

Jack Altman

I will say, in a good way because they’re unbelievably impressive, YC founders are young. In recent batches it seems like they’ve trended even younger.

Jared Friedman

They have.

Jack Altman

Which makes sense. I think a big change like AI favors younger people for all sorts of reasons.

Garry Tan

For what it’s worth, I’m a late bloomer. I did YC when I was 27.

Jack Altman

I was 26.

Garry Tan

Late bloomers, high five.

Jack Altman

The old guys. But that’s the old guys for YC.

Harj Taggar

Many of the biggest YC companies were started by founders in their mid to late twenties, DoorDash and Airbnb.

Jack Altman

Oh, that’s old.

Harj Taggar

Yeah, super old. You should definitely quote me on that.

Jack Altman

“We have tons of old people in YC…”

Harj Taggar

We have 26-year-olds.

Garry Tan

We started with going back to colleges. This was kind of driven by them though. I think big tech stopped hiring and simultaneously to that, there’s a real vibe inside the batch sometimes among the young founders that this is the last time to participate in capitalism. I definitely don’t think so, but it’s a powerful idea.

Jack Altman

I think a lot of people feel that way.

Garry Tan

Why is that?

Jack Altman

I think there are a lot of people who feel like, if AI is going to stay on this trend, what are we possibly going to be better at? So I’ve got to do it while I’m still better at something.

Garry Tan

I feel like that is so shortsighted. It’s unbelievable. Ryan Petersen always talks about this. Don’t you think that human capacity for desire is virtually unlimited? We have a god-shaped hole in our heart. We’re just going to want more and more stuff. The thing is, we can do it now.

I was just thinking about that turn of phrase.  I’m sure you’ve been in business meetings or making decisions about products where it’s “whoa, let’s not boil the ocean now.” I love that turn of phrase. I’ve said it a lot. I’ve used it to justify not doing things. But in the age of intelligence, why not?

Jack Altman

You can just do things.

Garry Tan

Maybe not boil the ocean, but let’s boil a few lakes. Why not? Actually, this is the moment. When you connect that to what Ryan says, that’s what that would look like. If you’re an investment firm and you beat the market, you have 20% net IRR back to back, what does this stuff mean? Does that mean you fire all your analysts and have the AI do it, and this one person who runs the firm makes all the money? Why would you do that? Because your competitor isn’t going to do that. Your competitor is going to say, “You know what, we have AI now. I want 50% IRR.”

Jack Altman

That’s the thing I have not understood about the “we won’t need capital” argument. Why would you only want five engineers if your competitor has 50? Unless they can’t do anything productive with all the agents, it doesn’t make any sense to me.

Garry Tan

Let’s boil a few lakes first and then we can boil the ocean. I’m not serious about that, obviously there are limitations to it. But the invective against AI, this idea that society is going to fall apart, is so extreme that we need some alternative turn of phrase, other than apocalypse, for this.

Jack Altman

Totally. It’s been a weird thing watching the efforts to both manage and also impact societal understanding of what AI is. I feel there is still a lot of fear embedded. Outside of San Francisco, you go to other places in the country… I’m from St. Louis. I don’t think everybody trusts AI fully. Whether that’s right or wrong, I do think it’s important to get out of our bubble sometimes just to know where the world is at a bit more.

Garry Tan

That’s for real.

Harj Taggar

It’s interesting though. It feels different this time because clearly in our little bubble here, everyone is all pro-AI. On the other extreme, I have immigrant parents who don’t speak great English. My mom is totally into ChatGPT because now she can do all this stuff. She can send letters and reply to people in a way that’s super empowering for her.

It’s the middle, the people who are threatened by it. Is AI going to take my job? Has it really been a threat to knowledge work or white-collar people? I feel like the people who aren’t early adopters — who usually tend to get on the train immediately after the San Francisco train takes off — are now resistant to it. It’s sort of bypassed them and gone to the other end.

Garry Tan

I sympathize with that. As labor that became management and capital, I totally feel that. I think it is actually about, in the Marxist sense, where you fit in there. My argument would be that it has been way more important to become a founder — which is management that becomes capital — now than ever. It’s way more possible. That fear that workers have about what is going to happen is something that management and capital has to take responsibility for.

Jack Altman

It’s serious. I think so too. It’s very easy to be like, “In the arc of history, there’s always new technology and people find new jobs.” Well yeah, but there’s a lot of structural unemployment that happens in the middle of that, and that’s real.

Garry Tan

But that unemployment only happens in zero-sum games. It happens in a case where my company does X, makes widgets that will never change, never get better. Some of it exists in the context of no competition. One of the things we learned from hard tech companies, for instance, is that it’s impossible to get a certain block of metal. You have to get it fabricated or smelted in China. America’s lost the ability to do it. When you have a market so broken that you can’t get it inside America, how did this happen?

I would go back to capital and management and say, “this is a lack of fucking imagination. We’re not here to just shave off one or two percent every single year and increase net profit and that’s it.” We need to think way more about how to use this technology to radically change how businesses work, what products are. How much better they could be?

Jack Altman

I completely agree. I think if capital and management don’t take some responsibility there, it’s not just unemployment, there’s reduced employment. There’s the whole world getting more expensive. Home prices are going up while there might be pressure on wages because you can do more cheaply with AI. So you have inflation happening alongside wage pressure at the same time. I do think it’s a more real thing than our echo chamber wants to… Again, I’m totally for it too, but I think it’s an important thing.

Building in America

Garry Tan

That’s why we’ve been vocal about this idea of little tech. We have Luther Lowe, who used to work at Yelp, and he’s in DC full-time fighting for startups to be able to actually train AI models and enter markets.  Frankly, I know we have lots of friends at Apple and Alphabet, and we have huge respect for those companies…

Once in a while you’ll see in the press, “Oh yeah, we submitted an amicus about Apple and Alphabet”. It’s not because we hate those guys, but because we need tech to allow new startups and new entrants to come in. So to me it’s all very consistent. We need to be way more aggressive about what our products and services should be and can do, and we need markets that allow those people to actually exist, thrive, hire lots of people, and create new jobs.

A lot of people are like, “Oh, I work in tech, I don’t know how to do this.” But look, it’s actually abundance. We actually have to build again. We’ve become a litigious culture. I’m sure you’ve read this book Breakneck about China versus the US.

Jack Altman

No but I want to.

It’s Dan Wang’s book. It’s incredible.

Jared Friedman

It’s really good.

Garry Tan

We built a lot in the forties and fifties, and then sometime around the sixties and seventies, they literally stopped building. We can’t build high-speed rail. It’s insane. Why? Because we’re a totally litigious culture that cannot get out of its own way.

Jack Altman

I saw some Peter Thiel talk about how we built all this stuff through the seventies and then for 50 years nothing happened except computers. Even right now most of the revolution is in computers, which is great. It’s better than nothing.  Obviously other stuff is happening too. But you look at what China does, standing up a city in no time. They’re really good at robotics. What are we doing?

On this societal topic, obviously you guys are very engaged with the city and state.

Harj Taggar

Some more than others.

Jack Altman

Some more than others. What do you think is the posture that San Francisco and California need to take? What’s the most important thing posturally that we need to be taking?

Jared Friedman

This is Garry’s area. How do we fix California politics? Garry has a plan. I’m kidding but actually he does have.

Garry Tan

Matt Mahan just announced his race for governor. I think he is the perfect example of someone who is not virtue signaling. He built more than 1,400 homes in San Jose. The year before that, he hadn’t passed all the legislation he wanted, so zero market-rate housing was built in San Jose in 2024. When he came into office, he reduced homelessness by 20%. More than a thousand people came inside and got treatment and recovery because he actually supports treatment and recovery.

I didn’t want to be involved in politics. But when I saw that my Asian American grandpas and grandmas couldn’t walk down the street without being assaulted and killed… When I saw people like me when I was 16 or 18… I knew I wanted to participate in tech. I knew I wanted to be an engineer. I didn’t know that I would get into Stanford.

I wouldn’t have been able to do that if I didn’t have algebra in middle school, public middle school. My kids go to private school, but I went to public school. We should have a government that doesn’t require you to be rich to become a startup founder or be good at math. How did we get this bad?

Jack Altman

I’m glad you’re fighting for it. It’s very important and it’s not pleasant. I see you fighting on Twitter in a way I would not have the stomach for, and I’m glad you’re doing it.

Garry Tan

I appreciate it. For people watching, look I’m not going to get every take right. I want to hear when I don’t get it right. But on the flip side, let’s have the debate. Let’s actually talk about it.

Jack Altman

It takes a lot of courage to say stuff that you think and you might be wrong about, and you might get big blowback on. Even if you have it right, people are going to get mad.

Garry Tan

San Francisco and California got this bad because people who run businesses, who have jobs, who are trying to raise families, it was all so big and so scary that we stopped paying attention. San Francisco is on a better path because we started talking about it. At dinners, we started talking about it. “Hey, did you hear about so and so? They got assaulted? Did the police actually show up? What happened with the judge?”

We’re going to try to unseat some judges in San Francisco. I was looking at the records. I’ve looked at a hundred cases for this judge, and in 90% of the cases this judge just dropped it on the floor, at an extreme rate. I think it was a three or four times higher rate of just dropping cases on the floor, purely for ideology. It’s unbelievable. How is this person serving the people? They’re not.

The thing is, there’s a reason why we elect these people. There is an election coming, and we have to make sure we hold these leaders to account.

Jack Altman

Totally. It’s great and it’s super important. It’s not easy work. Someone’s got to do it and I’m glad you’re doing it. Okay, politics tangent aside, although I could talk about that the whole day.

Garry Tan

I know, right? We’ll do the politics episode later.

Jack Altman

Going to get you and some politicians on here.

Scaling YC

Jack Altman

One thing I’m curious about — which has been an obvious topic for me on other episodes — is the mega influx of capital into venture. Is that positive or negative for you? In what ways do you experience it as both?

Jared Friedman

I think it’s mostly positive for us. YC at its best is not competing with other venture firms for deals. YC at its best is convincing people who didn’t seriously think about starting a startup to go for it, and then being their first believer. YC only works if there’s a large pool of downstream capital that can then fund all the subsequent rounds for those companies. So I think actually YC does best in those environments.

Garry Tan

We’re a managed marketplace, so we need as many great investors as possible. Actually what’s funny is that in that managed marketplace, if the supply of capital goes up, we need to go out and find the best possible people. We’re actually really good partners to the rest of the industry. VC can 2x, 5x, or 10x over the next ten years. We will meet the demand.

Jack Altman

With companies?

Garry Tan

With really, the smartest people of our generation. And if that happens…

Jack Altman

So you’re saying you feel limited by the amount of capital still?

Garry Tan

How about this? Capital from VCs like you, VCs like our friends… You’ve got to do the work, show up, don’t disappear, don’t be a dick, do no harm. When I first came back to YC, one of the most interesting evolutions in how to deal with investors was that most investors are actually B or B+. You should be so lucky to have someone who does not mess with you. That’s really good.

Jack Altman

The bar is so low.

Garry Tan

Basically yeah.

Jack Altman

Just don’t damage the company.

Garry Tan

Right. If there’s someone who has a great network or can make the Keynesian beauty contest happen for you and your company and your round, obviously they’re an A investor and they’re going to catalyze something crazy for you. You should work with them. Last time we were here it was like, “yeah, if you can get Keith Rabois to invest in your startup and give you twenty million dollars, you should probably take that money. Do it.” But for everyone else, you’ve got to find people. Sometimes you’ve got to do B+ capital. It’s okay.

Jack Altman

It’s interesting. You made the point — which I agree with — that despite the total volume of dollars going up, there’s in some ways a consolidation of the number of venture firms and players. I don’t know if it’s more companies getting funded or just a lot more dollars going to a couple of breakout successes. I guess both of those help.

Garry Tan

We actively think about how we need more A and A+ investors.

Jack Altman

Humans doing the work.

Garry Tan

Exactly. And I think they’re all going to be YC alums like you. You’re great. Ilya Sukhar is incredible. Dan Levine at Accel. Yuri Sagalov now runs the seed program at GC and he’s incredible. I fully hope and expect that 80 out of the top 100 spots on the Midas list in the next 10-20 years will be all YC alums.

Jack Altman

That’s funny. You’re funding VCs, just on a 10-year delay.

Garry Tan

Liz at First Round is great, is killing it. She’s incredible. I think that’s scratching the surface. We’re going to have dozens of the most legendary investors, and they’re all going to be YC alums who deploy all the world’s capital.

Harj Taggar

Increasing the number of great startups in the world is, I would argue, just the core founding principle of YC. When I first started working at YC in 2010, it was the first thing PG said to me. I wasn’t actually clear why he even wanted to hire anyone. I was like, “This seems like it’s a nice little family business, two of you working on it, seems great.”

But his whole point was that conventional wisdom in the VC industry, which all comes out of Andy Rachleff’s research, is that there are only going to be about 10 companies per year that will go on to reach a hundred million dollars in revenue and be significant and IPO at some point. You just have to be in one of those 10 companies every year or otherwise you may as well have just stayed at home. PG was like, “I’m not a VC. I don’t want to go out and fight for those 10 companies. I’m going to—”

Garry Tan

“We’re going to make more of them.”

Harj Taggar

“Yeah. Let’s make more of them. Let’s see if we can make two of them. Why is it 10? It’s such an arbitrary number.” Clearly over the last 15 years, that’s proven to be true. Everything we do is driven by how we want that number to go up. What are the bottlenecks? Are the bottlenecks more founders? Let’s go find more founders.

Jack Altman

You went to four batches. That was great.

Harj Taggar

Yeah, that was exactly a good example of it. That was a bottleneck. You shouldn’t have to wait six months to do a YC batch.

Jack Altman

What needed to be true for you guys to go from two to four? What was hard about that?  What did you have to change, if anything? Was it just that you didn’t get as much time between to source new companies?

Harj Taggar

Maybe this is in the weeds, but one of the structural changes we made at YC since Garry came back is to decentralize it. I would argue that pre-Garry coming back, it was a lot more centralized. There was a team that sort of ran the batch, things were more top-down.

Jack Altman

Decentralizing decisions? Batch operations?

Harj Taggar

Yeah. Maybe if I start at the bottom, now each YC partner is essentially picking their own companies and then we club together to form a group that runs a batch. We’re just more nimble.

Garry Tan

Plus we have 15 people now. That’s the most partners we’ve ever had. We have 15 visiting partners right now, so it’s actually something like 30, 31 partners total.

Jack Altman

Do you feel that there’s a limit to those numbers? Do you think you could double the number of YC partners and therefore double the number of companies? If you’re imagining a world where you’re funding four times more companies than you are today, what would you need to overcome still?

Jared Friedman

A cool thing about the way YC is structured now… I think this is something that’s often misunderstood from the outside. When most people hear a YC batch is 200 companies, they imagine the batch experience is a room full of 400 founders showing up every day.

Jack Altman

It’s actually four batches of 50.

Jared Friedman

Right. It’s actually more like each partner is running their own autonomous mini-YC of about 30-ish companies. We call them pods. I had my whole pod over to my house for dinner last night. That pod is approximately the same size as YC was when Garry went through it.

Garry Tan

We basically run seven or eight simultaneous “2008 batches with PG” and we have 15 PGs now.

Jared Friedman

With that kind of structure, there’s no inherent change that has to happen if you go from 15 to 30, because it’s already fully parallelized.

Jack Altman

One of the ways I’ve perceived YC change over the last several years was that there was a period — I guess when my brother was there — where there were a bunch of new projects. I felt like you guys clearly went back to the core and did more of it. I could feel that very clearly, that “this is our thing, we’re going to refocus on that, and we’re going to make it more and bigger.”

I think that’s been super successful. You’ve clearly throughput more companies. The companies are awesome. I’m saying that as a biased person who invests in a lot of them, but it feels that way to me. Are there initiatives outside of that core that you’re interested in with this new market moment, or are you going to just do more and more of this distilled core? Or does it depend on the day?

Jared Friedman

First of all, I think that’s a good overall description of how YC has changed, especially since Garry came back: refocusing on the core. That’s been the high-level for the last three years. But yeah, we do have some big projects in the works. I’m not sure which ones we can talk about.

Garry Tan

I know. There are so many, and they’re all in the works.

Jack Altman

Just talk about them all. Come on.

Harj Taggar

It’s not like we have new initiatives that don’t feel core. I still think it all falls under the umbrella of the core thing. How do you create more great startups? Keep pushing down on that. As Jared mentioned, Fellows is just an example of something we just launched last year. What’s another bottleneck? More founders. We want to meet founders earlier, college students before they’re ready to do startups. So we started offering grants and community to exceptional college students who we feel aren’t ready to start a startup right now, but they might be in a year or two.

Jack Altman

That’s a good example of widening the base even further. Because you could almost narrow the top and say, “we’re going to put a bunch of money into growth.” Obviously you did that. But the other way to go is you could widen the base and say, “we’re going to try to have some engagement with 10,000 founders.”

Jared Friedman

That’s basically what we think about a lot. The amount of follow-on capital is not really the bottleneck right now. The bottleneck for us is really getting more great founders to want to do startups and to do YC. That’s what the bottleneck should be. If the bottleneck is anything else, something is weird about the world. That’s what the bottleneck always should be.

For a long time, YC was struggling so much to just scale the operational side. We were like a post-product-market-fit company that couldn’t keep up with demand. So instead of focusing on growth, how do we get… We were like YouTube when it was scaling 2x every month. Everyone was just trying to figure out how to keep the site up.

That was certainly the first few years of me at YC. We were just trying to figure out how to not fall over. But now that we’ve really got the operations down, we can go back to focusing on what we should be focusing on. How do we broaden the base? How do we get more great people into our ecosystem early? How do we inspire more people to start companies?

Garry Tan

One of the most fun things… I pinch myself that I get to… I had left YC and now I get to go hang out with PG and Jessica again, hang out with Brian Chesky who’s on the board. One of the directives from the board that’s awesome was: “You need to make sure that we’re having fun.” That was true back in 2011.

Harj Taggar

The laughter test.

Garry Tan

Basically that’s the directive we got this year, and it’s not a directive at all. It’s awesome. If we’re not having fun then we’re doing something wrong actually. I remember being around YC and the partners and PG and PB and Geoff. It was just very, very hilarious all the time. It was unbelievable how weird startups can be. It’d be like, “Can you believe this thing happened?” I feel like our partner lunches are that again, which is really fun.

Jack Altman

That’s so important, having a partnership where everybody trusts and enjoys each other, and respects what people think. That’s got to make the whole experience so much better.

Harj Taggar

It’s why all the partners are former YC founders. It feels a little bit more than a job for everyone. Everyone’s paying it forward. YC changed their life in some way. It just adds to the good vibes.

Jack Altman

It is obviously an iconic and very important institution. You guys are doing a great job running it. I’m sure it feels like a heavy responsibility, but I’m glad you’re having fun with it. You guys, this was really fun. Thanks for doing it. Really appreciate you making time.

Garry Tan

Thanks, Jack. So when are you going to be a YC partner?

Jack Altman

I keep checking my inbox.

Bret Taylor is the founder and CEO of Sierra, an AI agent company transforming customer service. Bret’s legendary career includes being CTO of Meta, co-CEO of Salesforce, chairman of the board at OpenAI, co-creating both Google Maps and the Like button, and founding three companies.

We unpacked the so-called “SaaS-pocalypse” and what AI agents mean for the future of enterprise software. We talked through the shift from systems of record to autonomous agents, outcome-based pricing, platform transitions, Codex and the transformation of software engineering, and who is structurally positioned to win in the next era of AI.

Timestamps:
(0:00) Intro
(0:20) The SaaS-pocalypse and systems of record
(12:34) Sierra's competitive landscape
(17:05) Outcomes-based pricing
(24:22) The rapid evolution of AI support technology
(28:21) Young founders vs. experienced founders
(34:12) Beyond support: The full customer lifecycle
(38:47) Codex and the future of software engineering
(51:49) OpenAI and advertising
(54:59) How to run a board

Links:
https://x.com/btaylor
https://x.com/jaltma

Watch on YouTube; listen on Apple Podcasts or Spotify

Subscribe now

Clips

AI’s impact on the system of record

I asked Bret a question that a lot of people are thinking about lately since he's as equipped as anyone in the world to answer:

"Does a system of record have a place in the world if nobody logs into it?"

The “Strategy Tax”

Why can a startup with 50 engineers make up ground against an incumbent with 5,000? You'd think big platforms have the data, distribution, money...why can't they build technology faster than startups can earn distribution?

Bret calls it a "strategy tax" and gives a crisp articulation of exactly why startups have the opportunity to win.

Transcript

Disclaimer: Transcript generated with AI assistance and lightly edited for clarity and accuracy.

The SaaS-pocalypse and systems of record

Jack Altman

Bret, thanks a bunch for doing this with me. I’m super excited for it.

Bret Taylor

Thanks for having me.

Jack Altman

You’re one of the best people to ask this following question. What is your view on the SaaS-pocalypse, if we can call it that?

Bret Taylor

SaaS-mageddon.

Jack Altman

SaaS-mageddon. In public markets, all of these companies are trading way down. You go on X and everybody’s talking about how software can now be written in two seconds so there’s no moats anymore in software. It’s leading a lot of people to ask, where does durability come from?

I wanted to start with this topic because you’ve built your own companies, you’ve been the co-CEO at Salesforce, you’re now building one of the fastest growing AI startups, and you’re on the board of OpenAI. How do you see software in this moment, in February 2026?

Bret Taylor

First, I don’t think the market is necessarily reflecting an indictment of individual companies. It’s more of a broad view of these bigger questions you were saying. Every software stock is down, but I don’t think that means every software company is equally disadvantaged. It’s basically just anxiety about the future.

It’s a few things. We can talk about defensibility broadly, it’s a really interesting question. If you look at the history of enterprise software, a lot of the value has gone to the big systems of record: ERP systems, CRM systems, the core databases that Oracle famously powered in the early days of software. Then you end up with all the software-as-a-service companies: SAP, Workday, Salesforce, ServiceNow.

If you look at what a system of record is, it’s essentially a database with a bunch of workflows around it. To date, those workflows are manipulated by people clicking on buttons in a web browser, filling out forms.

Jack Altman

If you had to synthesize pre-AI, why were those businesses so good? Was it the source-of-truth thing? That there had to be some immutable thing, so the database row… Is that what it was? Was it the ecosystem of integrations? What do you attribute the success of systems of record to?

Bret Taylor

The reason why a system of record has always been the most valuable is that it’s the anchor tenant of your technology deployments. If you wanted to create a workflow for quote-to-cash or something like that, you had to integrate with your ERP system and your CRM system.

As a consequence, the companies that owned those databases could either develop that functionality as an add-on, a new SKU. Or if it was a third-party company, they would often be a part of the ecosystem, like Salesforce’s AppExchange or whatever the marketplace equivalent is for SAP.

You ended up with a lot of value in those systems, which meant switching costs were really high because that system plus all the partners that integrated with it created gravity and high switching costs. Similarly you end up accruing a lot of value either by collecting rent from your ecosystem or developing premium add-ons on top.

It became the sun in the solar system for each of the different lines of business that these systems of record were sold into. Then you’d get scale, sales capacity scale. The larger you grow, the more salespeople you have, you can reach more and more people.

Then there’s the proverb: “No one gets fired for buying IBM,” which obviously is a somewhat dated expression. But it was like, “Hey, if you’re going to put in a new ERP system, no one’s going to blame you for choosing SAP because everyone chose SAP.”

Jack Altman

If you choose something new and it doesn’t work perfectly, big trouble.

Bret Taylor

So all those things accrue. But then the question is, now that a lot of those things start getting chipped away with AI agents… First, could you just vibe code it in a weekend? Does it change build versus buy? That’s one risk. Does it change when you come up on that renewal? Are you going to make a different decision?

Secondly, I actually think the more fundamental thing is: what is the role of that system of record if AI agents are doing most of the work? Rather than people clicking around on an ERP system to onboard a vendor, if you just delegate to an AI agent to do it, all of that is invisible to you. All of a sudden it goes from being an application to a database. Similarly, if you imagine a CRM system, and rather than having people staring at it all day to manage their leads, contacts, and opportunities, you just say, “Hey, generate me some leads.”

Jack Altman

In other words, does a system of record have a place in the world if nobody logs into it?

Bret Taylor

It does, but the real question is how valuable is it? How important is it? Going back to my metaphor of a solar system, how important is that gravity versus the gravity of the agents running around it?

It’s just really interesting. If you imagine you’re running a sales team, how much do you value the database of leads versus the agent that generates the leads? In ancient history—three years ago—those are the same thing. But now you’re like, “Gosh, I actually probably care more about the lead generation. How it’s stored and tracked is maybe a more tactical part of it.”

That’s true of every system of record. I just know CRM systems pretty well. If you look at ITSM, which is what ServiceNow plays in, or ERP systems, which is Workday, SAP, Oracle, et cetera, all these questions start coming up.

What’s interesting though is I think every single one of those companies could transform and benefit from AI. I really do believe that. You saw what Microsoft did in the cloud transformation. They went from being dependent on Windows revenue to Active Directory and Azure and all those other things. But it was really awkward. Folks like you and me back in the day used to probably dismiss Microsoft. I certainly did. I didn’t foresee them becoming as powerful as they are today. But it was good leadership, good technology.

But I don’t think the market knows who is Siebel Systems and who is Microsoft in this landscape of software companies. Probably no one knows what Siebel Systems was. That was the company that Salesforce beat to become the cloud CRM.

So can you actually develop this ecosystem of agents around your platform and will it become more valuable than the platform you had? On top of it, you have the existential risk of, is the value of software just going to zero? I don’t necessarily believe that. But you look at all of that, and if you’re just an investor in public markets, you’re like, “I’m going to sit on the sidelines. I’m going to let the market play out a little bit.” I think that’s what’s going on with a lot of these.

Jack Altman

Totally. You can never know for sure who’s going to turn into the next Microsoft, but you can try to think about who has the structural ability to expand. Who’s got the right, with customers, to make the expansions? And then which products will be easier?

In the database question: is it easier for today’s databases to build agents on top? Or is it easier for a modern agent to say, “I’m going to go build a database at some point because I can do that and I’ve got the customer relationship”? How do you think about what creates the rights to expand?

Bret Taylor

I think all the incumbents have a right to win in a lot of ways. In the same way we talked about why a system of record is powerful, you could say the same logic for all the agents running on top. The dynamic that plays out though, not just with AI, is when a new technology comes out—like the web browser or the smartphone—rarely is the expertise on how to do exceptional things with that technology at the incumbents.

There’s this thing in enterprise software, a phrase called “best of breed” and “best of platform.” Best of platform means, “Hey, we’re a Microsoft shop. We just buy Microsoft stuff.” It sounds silly, but actually there’s a lot of logic to it. You get good procurement leverage, everything works together.

Jack Altman

You don’t have to deal with a ton of people.

Bret Taylor

There’s probably some benefits, all sorts of things.

What ends up happening when new technologies come out is the pendulum swings from best of platform to best of breed.

Jack Altman

It’s much easier to get a 10x experience.

Bret Taylor

A hundred percent. Also just think of pre- and post-web browser enterprise software. You’re running client-server Windows software. It’s a completely different skillset to make a web application, as you and I know. So at the time, there’s this window where best-of-breed competitors are light years ahead of the incumbents and it’s a race. Basically, can the best-of-breed upstarts get scale in time before the incumbents figure out the technology.

That’s what’s going on right now. I would argue very few of the incumbents have any credible, decent AI technology, but they will. It’s inevitable they will.

Jack Altman

You know what I don’t understand? Why is that? What’s the real reason for it? These companies have infinite resources, roughly speaking. They ought to be able to hire who they want. They ought to know what the products could look like. They ought to be able to try them.

Why is it so hard for legacy companies to catch up quickly, versus an AI startup with 50 engineers that seems to outperform the teams that are 10x bigger at a big company? Is it cultural? Is it systems?

Bret Taylor

I like the phrase “strategy tax.” I don’t remember who to attribute that to, but we could pull up ChatGPT and ask.

The idea is that in these moments of big platform shifts, what were your strengths can become weaknesses. Let’s take Siebel Systems and the birth of the web browser. They have an on-premises CRM system. When you say, “Okay, let’s compete with this cloud-native CRM system in Salesforce,” you start to say, “I don’t want to just start from scratch. We’ve got all these assets. How do we do it in a way that takes advantage of all of our assets?”

All of a sudden you’re like, “Okay, let’s not just build a great product. Let’s transition from this product to that product. What if someone wants on-premises too? That’s our strength. We should play to that strength.” You start basically making all these decisions that sound really clever because you’re playing your strengths. In practice, if the technology wave is bigger than the category, which I think the web was as an example, you end up basically chipping away at having a pure-play value proposition.

It can also happen with business models. At that time, you’d have perpetual license software. Moving to software as a service, that’s a huge change for a business to make. For your customers, it goes from being CapEx to OpEx. For you as a company, it changes to ratable revenue. Shantanu did this at Adobe. Very few companies can make that transition. You have to sell it differently. You have to compensate salespeople differently. Revenue recognition is different.

So you have the product strategy tax, you have the business model strategy tax. Even with the incentives of salespeople there’s a strategy tax because you don’t want to just have your business collapse overnight. It’s so easy for a clever Silicon Valley person to say, “Just pivot.” If you’re a public company, you have to go in front of your investors every single quarter and be like, “Yeah, hey guys, I know our revenue just went off a cliff, but trust me, it’s going to turn around next quarter.” You don’t survive that.

You compound all those things and all of a sudden you’re like, why does a 50-person company succeed? They have none of those. All of the advantages that you had all of a sudden become anchors that are holding you back from actually doing the right thing.

That’s why I always like to remind our company, Sierra, that the wave that we’re riding, of large language models and this next generation of AI, is greater than any company riding it. Don’t fight AI. It’s going to happen with or without us.

If you go back to the internet, if we were talking in 1995, we’d probably be like, “Search as a category, e-commerce as a category, digital payments… That’s definitely going to happen.” Google hadn’t been founded yet. Amazon probably had around then. PayPal, probably not founded yet. The categories are obvious. Whether or not any of those founders existed, there would be winners.

Jack Altman

And it’s the same now.

Bret Taylor

And it’s the same now. Everyone knows what’s going to happen and you’re competing for the privilege of winning. In a world where the technology is that remarkably powerful, the strengths of the incumbents start to wither in the face of the technical change. That’s why you tend to get new, great companies. The companies that are enduring tend to be created in platform shifts more than any other time.

Sierra’s competitive landscape

Jack Altman

I’m actually curious on this topic, that there are obvious things. Within AI, not to discredit your insight, but support I would count as an obvious thing, in a good way. It looks like it works and you did it early enough to get to a place at the right time. But other people did too.

In some ways you have been playing in a very blue ocean, wide fields. The incumbents are categorically different. It seems inevitable that we’re going to have agents doing support. And then on the other side, a lot of other companies see the same thing. A lot of other people have been building it.

Before getting into the specifics, I’m curious. Experientially, day to day, does your operation of the company feel competitive or wide open?

Bret Taylor

It feels competitive and it feels like a really big market. It doesn’t feel particularly demand-constrained, which is a really great feeling as a fellow entrepreneur.

Jack Altman

So you feel like there’s lots of demand and there’s a contest with each situation?

Bret Taylor

Yeah, that’s right. It feels like there’s too much capital available. Put another way, there’s obviously going to be competition in meaningful markets. It feels like there’s too many competitors that don’t necessarily have strong differentiation. I think it’s probably healthy though. There will be a culling as the market progresses. But it does feel quite competitive.

I’ll give you a quick glimpse of the past couple years. We’ve had remarkable growth at Sierra. We closed $100 million in seven quarters, $150 million in eight quarters, which has exceeded my expectations. But this past year has felt like an inflection point. The first year of our company’s history, we would often go in and explain to clients what an “agent” was. The term was novel and it was part of our marketing, explaining what an agent was.

Number two, people would be talking about, “Hey, AI is maybe non-deterministic.” They wouldn’t necessarily use that word, but that’s what they would be describing: “How can we trust this technology directly engaging with our customers or consumers? What are the risks?”

Now the conversation is, “Clearly we need this yesterday.” Over a quarter of our companies have $10 billion or more in revenue. We’re talking about big companies. We serve most of the Fortune 20, as an example. These are big companies coming in saying, “We’ve evaluated, we know what we want. We’ve heard of you, we’ve done all this evaluation. Here’s an RFP. Let’s go.”

As a consequence, because the market has matured—illustrated by the existence of things like RFPs—you end up in more competitive conversations. And then it’s a question of, why Sierra? I’m happy to talk more about that. Obviously I’d love to as an entrepreneur. I could tell you all the reasons we’re the greatest. But you end up in this world where you’re not explaining what the word “agent” is anymore. You’re saying, “Here’s why we’re the right partner for you”, which is a very different conversation.

Jack Altman

So they’re like, “Yeah, I’m bought in on an agent. So why is it Sierra?” What have you found is the most important thing that makes you win?

Bret Taylor

One thing we really did uniquely at Sierra—the reason why over a quarter of our customers have over $10 billion in revenue—is we’ve tried to serve more complex, more regulated industries. We serve most of the US healthcare insurance market, as an example. We serve US banks, Spanish banks, UK banks. These are companies that, if you know the industry, are regulated by everybody.

It’s easy to make a demo in AI. That’s why you can go on X and see a thousand demos. Demos are cheap. But making an agent industrial-grade is hard. We’ve really uniquely been able to make agents that can have complex conversations.

The other thing we do really uniquely is, in addition to having a really easy-to-use product, we help companies move faster. We went live with Cigna in two months.

Jack Altman

That’s crazy.

Bret Taylor

Which is remarkable.

Jack Altman

How big is Cigna?

Bret Taylor

It’s a Fortune 20 healthcare company. I was on stage with Sachin, who runs their AI practice, at the HLTH conference, and he was talking about this. Part of that is, how can you show up? We’re really great at AI, Cigna’s really great at healthcare. How do you bring those two together to move extremely fast? So for a lot of our clients, the reason they bring us on is, can you help us move quickly? That requires knowledge of AI, knowledge of business. I think we show up with a greater sense of maturity there.

Outcomes-based pricing

Jack Altman

You mentioned that the pricing scheme was one of the difficult things in the past era. We don’t have to belabor it but obviously, going from just buying a license to a cloud subscription… and now usage-based is the future. What are you feeling is important as you’ve created, and probably continue to iterate, on pricing? What are the important levers for agent companies?

Bret Taylor

We do something specific at Sierra that I’m an evangelist for, which is outcomes-based pricing. It turns out in our industry, the outcome is usually well-defined. In a service context, the outcome is: could the agent solve the problem? In a sales context—we do a lot of sales agents as well—could it make the sale? Your companies paid your salespeople commissions, right?

Jack Altman

Yeah.

Bret Taylor

If you can measure the outcome, you want to incentivize the outcome. The interesting thing about agents is they’re autonomous, or can be autonomous. So if the outcome is measurable and trackable, what an interesting opportunity to actually charge for that.

Look at the history of software. Let’s take advertising. We went from impression-based ads to cost-per-click ads to now, for mobile ads, you can do pay-per-install. At least that’s my understanding. Then you had enterprise software where you went from on-premises licenses to subscription-based software. Could outcome-based software be the next?

What’s so neat about that is, for a company, what an interesting and accountable business model. There are some challenges to it because you obviously put some revenue at risk. But I don’t think most advertising tech people would say CPC ads put revenue at risk. It’s the opposite. The closer you get to the outcome, the more valuable it is for the companies. They’re actually willing to invest in it.

My view is that, to the degree agents have a measurable outcome, outcome-based pricing feels like the secular business model for agents. I think it’s both disruptive and a huge step forward.

Jack Altman

Why is it better than token-based? If those are the two reasonable options now, why is an outcome better than token-based, even over the long term?

Bret Taylor

Let’s say you had an AI agent to generate leads for your sales team. What do you care about? You care about the number and quality of the leads. You really don’t care how many tokens the model uses. In fact, it’s not obvious to me that there’s a correlation between used tokens and leads generated.

In the same way, there’s no correlation in a SaaS product between their cost to serve and the quality of the product. You could have a really good engineer write it or a really bad engineer write it. What you really care about is the quality of the product. The reason why I don’t think token-based makes sense is that it’s charging for an input that is uncorrelated with the output that your clients actually care about.

I’m a huge believer in applied AI, but I actually define applied AI as: can you describe your value proposition without mentioning models? Because if you think about, “Hey, we can answer the phone and solve 80% of phone calls without human intervention, with a CSAT score of 4.8 out of five”, you don’t mention models. Models are an input to that, not an output. If you have to mention token utilization, it’s probably a tool. It’s not an application of AI. It’s just a tool around AI.

The closer you get to a business outcome, you should charge for the business outcome, which is uncorrelated with tokens. I also think it’s almost a measure of whether you’re actually an applied AI company, if you don’t have to talk about tokens.

Jack Altman

Do you think there will be markets where things get so competitive that people have to price based on cost rather than value? Or maybe the other format would be where you can’t describe the outcome cleanly. For example with coding, which we both probably think is super important, it’s a little harder to say what the outcome is there versus usage. What are the conditions where tokens do make sense?

Bret Taylor

There’s this old Apple site where they had Apple folklore. There was this one boss at Apple that made people fill out a form saying, “How many lines of code did you write?” This engineer infamously wrote a negative number because he had just refactored a bunch of stuff. It’s the good historical analogy for why tokens don’t matter. It was his way of saying, “Fuck the man. Lines of code have nothing to do with my value”, and he was doing it to piss off a middle manager to make that point.

It’s interesting because in the world of software engineering, the customers of coding agents right now are software engineers who intimately understand these models. So there’s a bit of a customer-product-market fit. So it’s a nuanced point.

But I’ll say where I see it might happen. Right now, if you’re evaluating a coding agent, you’re probably comparing it to the cost of a software engineer. If you fast forward five years, you’ll probably be comparing it to the cost of other coding agents. So I think the second-order effect as AI becomes prevalent is that the reference point for its value will change.

The thing I would say is that’s true where you’re thinking about a cost center. If you’re thinking about top-line revenue growth, that doesn’t necessarily apply. In my example of an AI agent generating leads for your sales team, depending on what you’re selling, a lead is a lead is a lead. You’ll probably value quantity and quality of leads, and there’s a math equation. That probably will remain independent of token costs, is my guess.

A large part of AI is productivity and reducing costs, and there’s a big part of it. But the other side of it is outcomes. Could you imagine a world in four or five years where there’s one coding agent that can actually produce something of greater value for your company? Will you value that? Or will you just look at the token cost? I think you’ll probably start looking for value. Will they all be the same? I don’t know.

I was just reflecting on the past year. There have been all these articles about whether AI progress has slowed down. In our world of software engineering, it’s been the opposite. Every new model comes out and you’re like, “Oh my gosh, it can write increasingly complex software.” My theory of that is that it depends on what you’re testing. If you’re using ChatGPT for trip planning, you probably haven’t seen a material change over the past year and a half because you reached sufficient intelligence for trip planning a long time ago. If you’re using AI to write Rust code, Codex is mind-blowing right now.

So one of the interesting things when I think about second and third-order effects and the progress of AI is where you pass the horizon where every model is sufficient in that task. Then there’ll be some things where the frontier continues to move. It’s hard to imagine, but we’re in a crazy time.

The rapid evolution of AI support technology

Jack Altman

Where are we at with support agents right now? Are there still edge cases, last-mile things that AI can’t do still?

Bret Taylor

I imagine a lot of the technical problems, as opposed to product problems, will become easier. But there’s still a lot of them. We at Sierra support most spoken languages in the world. If you want to support Cantonese and Tagalog, most of the good voice models don’t come from the traditional Western model companies.

One of our clients is Safelite AutoGlass, roadside assistance. It turns out that car noise, background noise, kids talking in the background, are actually all fairly hard problems to solve. Even in some of the advanced voice mode stuff, if you are in a noisy environment, it constantly thinks it’s being interrupted. So you end up having to build proprietary voice activity detection, multiple speaker detection, all these other things.

We develop all this technology because we need to be the best now and I think we are the best now. You’re like, “Okay, that’s probably going to be a commodity two years from now, one year from now.” Who knows? But you have to do it because you need to be the best at every stage of your company’s existence. The way we think about the world is we have a product called Agent Studio, Agent OS. In three years you’ll judge us by our product. Right now, our clients don’t really put it this way, but we’re judged by the technology.

If you go back to 1996, I remember when Netscape had a web server and Apache was new. No one cares how you serve webpages now. It’s a commodity. But at the time, that was what you sold. Now you have increasingly higher-order website building like Shopify. I just think the AI agent market’s going to take that progression. We’re going from a tech-centric sales cycle to a product-centric sales cycle.

Jack Altman

It’s interesting that you’re obviously having to be the best at something that you know is going to get commoditized. I don’t know if you ever had to experience something like that. For that to be true, you just have to be in the middle of an insane rate of change. But that means you have teams who are putting a lot of their life force for two years into something that everybody knows is just for two years. But it still matters nonetheless.

Bret Taylor

It’s crazy. If you look at traditional enterprise software—consumer’s a little different—you think about building up this asset, your intellectual property. There’s a fancy name for it. “Look at this platform that we’re building. It took so many years to build it. It’s got all these features. Now you’re like, “I’m building this and I’m a hundred percent certain we’ll throw it away in the next 48 months.”

Jack Altman

It’s a sand castle.

Bret Taylor

But I have to build it because if I don’t, I can’t serve the bank that has a big business in Hong Kong, or whatever it might be, where they need Cantonese support. That is the reality right now. I’ve been thinking a lot about this.

I think it was Tobi Lütke who said something provocative. When generating the code is easy, it’s almost like the system and the prompts are actually the durable asset. Put it another way: could you terraform your software from scratch? It’s the prompts that led to it. I do think that is the software of the future in a lot of ways. How do you encode the infinite number of little product decisions that you made? So much of that is encoded in code today. If you think about a product requirements document versus the code, what percentage of the emergent product is encoded in the code? Almost 90%. A lot of the little details are in there.

Software companies of the future and the products that they make are just going to take a really different shape. I’m so excited to be a part of it. I think it’s really fascinating. There’s something really interesting about AI impacting the software engineering industry almost first and most. We’re disrupting the craft of making what we’re building in real time. It’s a fascinating time.

Young founders vs. experienced founders

Jack Altman

There’s a prevailing idea in tech that AI is moving so fast that young founders have this massive advantage. I mean this with no offense, you’re not old, but you’re also not young.

Bret Taylor

You’re telling me I’m old. I get it.

Jack Altman

No, but you’re not the youngest founder and you have one of the most successful AI startups. It does seem like you’ve brought a lot of your previous experiences to what you’re doing, but I can tell from talking to you that you’re also just rethinking everything.

I’m curious about your own experience, for yourself and for other founders. Do you think by and large young founders have the advantage? What does it take for more experienced founders to have the advantage?

Bret Taylor

I’m always a big believer… I don’t know if it’s a real quote, but some venture capitalist said, “Why was this founder able to conquer this market where so many others had failed?” And they said, “He was too naive to know it couldn’t be done.”

There’s a certain element of that I love because you end up with this kind of naivete that is actually a form of principled first-principles thinking. A lot of young founders have that. You just don’t know why this messy, bad product dominates the market. You think there’s a better, faster, cheaper way to do it. You don’t have any of the hard-won lessons that can end up as oversimplified analogies keeping you from actually taking that leap. Tony made DoorDash and didn’t care about Webvan’s failure or Kozmo or whatever it was called. I can’t remember all the dot-com bubble companies.

But I do think, especially in enterprise software, the experience that some of our team members bring—including the old men, me and Clay—really does matter. Part of the reason we’re able to serve so much of the Fortune 100 is we can go into a bank or a healthcare payer or healthcare provider, or a revenue cycle management firm, or a big telecommunications company, and understand their business. We’re working with one large medical device company consolidating 40 of their call centers into one, and we can have a discussion about the change management of doing that. That’s not really a tech problem, but it does require understanding business.

We always joke at Sierra that there’s a Venn diagram. There’s a circle of people who understand the next generation of AI and a circle of people who understand business, and we’re the company right in the middle of that, and maybe the only one. That matters. You know that infamous MIT study saying all these AI projects fail? None of ours do. That’s our value proposition. We can actually help you go live. I think the experience has benefited us.

Jack Altman

I’m curious if you can point to what has created the lead you have so far. Obviously I know you’re just getting started, but at the moment you have pulled away in a big way. I’m sure there’s a lot of daily blocking and tackling. But I’m curious if there are any foundational decisions or strategic approaches that over the last couple years you look back at and think, “That was pretty essential to make this happen.”

Bret Taylor

There’s two almost independent areas of investment. They’re not independent, but they’re very different. One is the product and one is our go-to-market and partnership model. They’re both really intentionally built.

On the product side, we’ve tried to balance ease of use and extensibility. When you serve really large companies that have been around for 200 years, you need to work with mainframes, you need to work with a thousand different systems. You’ve done 10 acquisitions. Enterprises are messy. That’s why most enterprise software designed for larger companies tends to be quite extensible. Often that extensibility comes at a cost, which is: is it easy to get up and running?

As a product designer, one of the things I’ve spent a lot of time thinking about is: we’re trying to have our cake and eat it too. Can you go live in two months and still be maximally extensible? I’m really proud of the product that we built. Some of that is born from experience of what extensibility means. We have an opinionated view of what it means and have been able to accommodate some fairly exotic deployment requests and still do it fast. That’s really unique.

The second thing is our go-to-market and partnership model. We knew when we started the company that we wanted to work with the largest companies in the world. Not only, but we wanted to be able to work with the largest companies in the world and we’ve focused on that. As a consequence, we have a really unique partnership model.

There’s a fashionable thing to talk about: forward-deployed engineering in Silicon Valley. We don’t call it that, and it’s a very unique model because it’s not all about technology. Most of our clients build and maintain their agents themselves. It’s pretty easy to do. But we show up and we help you be successful. We’ll just show up. We’re not going to let you fail. I think that is very different. Because we have this outcomes-based pricing model, we don’t get paid unless it works.

Jack Altman

How much of that is technical versus change management?

Bret Taylor

It’s a mix of both. I don’t know if it’s 50-50.

Jack Altman

Do you think of it as two people or one person who does both?

Bret Taylor

We have a mix of roles. We’ve evolved that. We try to hire really technical people in all roles though because part of our secret is we want to be your trusted partner in AI. So you want the person who is working with you every day to be the most knowledgeable AI person.

Jack Altman

It’s like a forward-deployed change management engineer.

Bret Taylor

Yeah, exactly. What’s really neat about it, if you’re a really talented technical person who wants to transform an industry, you can do it at Sierra. We’re working with most of the healthcare insurance companies. If you want to change healthcare costs, what a cool vantage point to do it from. We’ve been able to attract some really remarkable people.

Beyond support: The full customer lifecycle

Jack Altman

You said that it’s not just support agents now. What else are you finding shoots in?

Bret Taylor

I’ll give you one of my favorite relationships: Rocket. Based in Detroit, remarkable story. Their founder’s done more for Detroit than I think any one person’s done for any city. Remarkable company.

They own Redfin, which is a home search site, Rocket Mortgage, which is the number one consumer mortgage originator in the country. They recently bought a mortgage servicing firm as well.

You can go to redfin.com and use an AI agent to search for a house. You can go to rocket.com and finance that house with an AI agent. And then with the acquisition of the mortgage servicing firm, when you’re servicing your mortgage, you’ll talk on the phone with an AI agent as well. Everything from finding a house to originating the mortgage to servicing that mortgage, I think that’s pretty cool.

They have an amazing CTO named Shawn Malhotra, pretty visionary. I love their CEO Varun too. It’s everything from finding a house all the way through servicing. It’s what we believe a lot of businesses will do, look at their entire customer lifecycle from purchase consideration—which is a fancy way of saying browsing. I think homes are probably one of the more considered purchases you could do—through executing the purchase, through having issues with it, all the way through retention.

For a lot of our telecommunications customers, their AI agent is actually doing negotiations. You’ve probably negotiated your cable bill at some point. Our agents are doing billions of dollars of negotiations for everything from satellite radio subscriptions to cable television subscriptions. It’s pretty cool. Over a billion dollars of mortgage folders a month.

Jack Altman

Basically all transactional communications eventually.

Bret Taylor

The way I think about it is: a website is a technology, but your .com, the one with your brand at the top, is your website. We’re doing that for agents. Agents will do a lot of things. The one with your brand at the top that your customers go to, whether it’s buying or servicing, we’d like to help you make that.

As agents go, they often interact with other agents. If you think about a home and auto insurance company, you may have a claim adjudication agent that’s quite complicated. Our agent that’s having the phone conversation when you’re in a fender bender will interact with that. But it is almost the intersection of all of that technology because it’s your front door.

Our whole hypothesis is that every company needed a website in 1997. Every company needs an agent in 2027. We want to be that company.

Jack Altman

What’s the nuance about agent builders though? I know you have a view that just being a generic agent builder is not the right thing.

Bret Taylor

I’ve been surprised by how many large incumbent enterprise software companies’ first foray into AI was an agent-building tool. It just feels like an inevitable commodity in my mind. Maybe making a website was hard in 1995, but today there’s a million ways to make a website. Most of them are open source. You have cool companies like Vercel, which I love, but it’s not like there’s a huge market for this stuff.

In practice, I think the same will happen with agent building. OpenAI will have a great tool. Probably all the foundation model companies will. There’ll be open source packages like LangChain and LangGraph. The idea that you have the right to win there… I don’t know if anyone has the right to win there because it’s just a horizontal technology and I believe in open source. It’s going to become a commodity.

My belief is that value is really going to be in agents that do things, hiring those agents and purchasing those agents for what they do. I believe in companies like Sierra, I believe in companies like Harvey. I really admire what they do. They have an agent that will do an antitrust review. I think there’ll be a finance agent that audits your financials. There’ll be one that helps you onboard a supply chain vendor.

Just think about onboarding a new vendor. There’s a procurement process, a legal process, a contract review process. Whether or not it’s completely autonomous or human-in-the-loop, all of that could be augmented by AI. That’s a product. Agent building’s not a product. Agent building is a technology.

Codex and the future of software engineering

Jack Altman

Speaking of the platforms, aside from being the founder of Sierra, you’re also on the board of OpenAI. You’re the chairman there. I wanted to ask you specifically about Codex. Over the last couple weeks, it’s been unbelievable. It’s like a curtain just came down. Did you expect this? Did you think that what has happened here was going to happen? When did you start to have an inkling that code was going to go vertical like this?

Bret Taylor

I’ll say yes, I expected it just because being on the board of OpenAI we talk a lot about it. All the labs—Anthropic and OpenAI in particular—talk a lot about using coding agents to help build AI. Certainly building an AI researcher is an important part of building an AGI lab.

The weird part about it, for me as someone who is a software engineer, is I didn’t feel it until I used it. You can talk about it all the time, and then the first time you one-shot something and it turns out really good—not slop, but really good—it’s an emotional experience. For me it was. It was like, “Holy shit. This is real.” As you said, it’s really over the past three months that it has felt really materially different to me. I’ve been thinking about it a lot.

I’ve been thinking about the past 20 years of software engineering. I remember the first time I worked on an engineering team that had real CI/CD, where you’d check in code and it would just automatically end up in production. I remember how it felt. If you’ve ever worked on an engineering team that did that versus one that did manual releases, it’s completely different.

Because to have something that can safely go from commit to production, there are so many things that have to happen to make that work. You end up relying a lot on testing—unit testing, integration testing, and canary testing—because the last thing you want is someone clicking a button and taking down the service. It’s almost impossible for a team that is doing manual releases to convert into true continuous delivery because there are so many implied processes that are incompatible with that. It’s easy to start that way and very hard to convert.

Clearly in three years, we could talk about what the best practices are to set up a software team that’s optimized for this technology and we’ll know what those best practices are. Right now we’re just figuring them out in real time. My hypothesis is that the companies that figure it out first will move the fastest. The other part of that is the companies that don’t will move much more slowly. Andrej Karpathy had a really interesting post about this too. A lot of folks are deep in here and have been thinking about it and it’s fun to see the industry you love flipped on its head in real time.

Jack Altman

It’s interesting because you have software engineers on one end and then somebody who’s in some part of the country where AI has not yet gotten its tentacles fully extended into. There’s a wide gap in people’s current comprehension of what AI’s going to do. It’s a little bit unknown. There are a lot of blog posts going on right now that are breathlessly saying it’s all over. I’m probably more in the camp of, maybe software is solved? I don’t know if it’s that.

But I’m curious if you have a view on whether Codex and Claude Code, the latest in coding, is going to change the way companies are built? Here’s one easy straw man question there. People, like my brother, have been claiming there’s going to be these 10-person billion-dollar companies. Are we at the precipice of that? Does that make sense? Are there other changes? What’s going to happen now?

Bret Taylor

There probably will be a 10-person billion-dollar company, but I don’t necessarily think it’ll be the norm. The reason for that is competition. If you imagine the mobile phone market in the United States, there are three main competitors: Verizon, AT&T, and T-Mobile. They’re all competing for a fixed pie of mobile subscribers. It’s why it’s extremely competitive. There’s promotions, there’s ads.

Jack Altman

They can’t make more of us.

Bret Taylor

They can’t make more of us. They can build up their network, they can do pricing and packaging. It’s a really complex business to run. All of them have access to AI, every single one. So the idea that you could deploy AI and not have to do things that you’re currently doing because of AI is probably true. But if any one of them figures out a way to use a person to gain market share against the other one, they’re going to do it. As a response, their competitors will do it too.

We spoke about this earlier. It’s the reason why when automated teller machines were introduced to banks, the teller job went away, but there are no fewer bank branches and no fewer people in those bank branches. Because JPMC or someone figured out, “Hey, if we put financial advisors in there and other things, we can actually make more revenue per branch.”

My personal take is that in a competitive market—and that’s the key, you need competition so people can’t just pass the cost savings onto shareholders or dividends—the second-order effect of the efficiencies of AI will be investment to compete, lower prices or customer acquisition or whatever it might be.

Jack Altman

We won’t have fewer engineers per company. They’ll just be way more productive, so you end up with way better software.

Bret Taylor

Or you might have fewer engineers and more of something else. Or you might have more engineers, I’m not sure. But the idea that it’ll be what it is today but just more efficient, I think that’s a lack of imagination, in my opinion. The interesting thing though is that software engineering does feel special. I think people extrapolating too much from software engineering are being a bit simplistic.

Jack Altman

You’re saying the same thing might not happen to every other function.

Bret Taylor

I’ll be really simple about it. Finance and software engineering might be limited by intelligence, meaning they’re largely digital. They’re largely manipulating digital things. You could imagine AI automating that.

Most of the economy isn’t exclusively digital. If you need to ship a t-shirt from Vietnam to here, you could automate some of that stuff, but at the end of the day, that cargo ship still needs to be in the water. Imagine you run a pharmaceutical company. You can think about how to make a therapy, but you probably need a wet lab. That intersects the real world. Maybe you could do robotics. But then you need a clinical trial. A lot of the economy is real.

It definitely will change the way companies are built, but I think when people say everything will be 10 people, billion dollars—

Jack Altman

It’s maybe just the stuff that lives in bits.

Bret Taylor

Yeah, that’s right. Which is a lot of the economy, but not the economy.

Jack Altman

It’s easy to talk about this, but you’re right. If you just move around the physical world and you get off of this podcast and this computer and into the world, there’s trucks moving dirt around and people who need a building that has lights in it. There’s a lot of physical things.

I tend to think the value of that stuff’s all going to go up until maybe robots happen. But in general, I think the value of bits goes down, the value of stuff goes up.

Bret Taylor

I think you’re probably right. Robotics will have a big impact as well. But I think people are thinking about this a bit simplistically. Intelligence is clearly on the cusp of going up exponentially, but it doesn’t mean adoption of that can be absorbed by the economy perfectly exponentially. I just think people are being a little bit simplistic.

Jack Altman

Do you think there are any cognitive things that are immune from intelligence? Dylan Field, when he was on this podcast, gave the example of “Brat Summer“ as something where he was just like, “That would’ve been such an insanely hard call for an AI to make. You needed so much context and taste and opinion.”

Where my head was going is, with coding, whatever’s happening there is happening. But what about brand or storytelling? I’m asking you this both as an operator and as somebody who’s very deep with OpenAI. Do you think that these other parts of intelligence also go the way of AI?

Bret Taylor

I don’t know if taste is necessarily related to intelligence. It might be. I’ve got three kids, including a 16-year-old and a 15-year-old. When they decide what they’re going to wear to school, I don’t think they would consider ChatGPT’s opinion. They care more about what the person in class next to them is wearing.

Similarly, if you go to the most elite, competitive college preparatory school, or the worst school in the world, there’s always going to be the smart kid in class and the dumb kid in class, the strong kid and the fast kid, and all these other things. It’s all relative and it’s all very local and it’s all very human.

The idea that because AI is smart, it takes something away from us as humans, I don’t necessarily subscribe to that. You see these things that go around online where people are lamenting older technology like the bicycle. We’ve been weaker than machines for my entire life. I don’t think it makes me feel weak as a person.

This is the first time we have computers that are going to be more intelligent than us. The emotions I had about Codex writing code that was high quality was an experience, because I might have some of my identity tied up in that task. The next day I woke up and I’m using it as a tool and now I can make better software. I’m like, “This is great.”

Jack Altman

Probably actually a good self-actualization anyway to go through that and be like, “Oh, I’m not my ability to code.”

Bret Taylor

People’s vocations and their identities are often very intertwined. But once you absorb the technology, I don’t think it’s actually your identity. I’m actually quite optimistic that we will be human. We’ll all be status-seeking animals. We’ll all compete for the real estate here in San Francisco. Even though our standard of living will go way up, we will all be jealous of people still. We will all compete. As a consequence, I think humanity will be just fine. That’s my view on it. It’s hard to imagine, but it doesn’t mean it’s going to be catastrophically bad. I think it’ll be largely good for humanity.

Jack Altman

Everybody’s already completely addicted to their phones and it’s a disaster. Now you have all this AI happening. A friend of mine was saying that he basically thinks it’ll actually become a status signal to become increasingly offline.

That might be an interesting call. I do think people will hit a tipping point with a lot of this stuff where all of it will happen. Intelligence will get so good and then people will just be like, “Enough of all of this.” Hopefully there’s a big screen time reduction.

You saw parents revolting about social media for their kids. A bunch of schools now, all the parents are like, “Nobody takes a phone. Everybody agrees.” So that’ll be an interesting thing. Is there an essential humanity that gets sharpened?

Bret Taylor

I hope so. I love the iPhone. It’s one of the greatest inventions of this century. I hope we’re not staring at a glowing rectangle in 10 years.

Jack Altman

It can’t be the right way to do it.

Bret Taylor

Now that AI can talk to you and you have human-computer interfaces, this is my hope. Hopefully humanity can become more self-actualized as a consequence of this. That is the purpose of technology.

Just like the Industrial Revolution had Luddites, and globalization led to job loss in the Rust Belt of the United States but certain goods got less expensive in other parts, there’s not going to be no issues. It would be callous and insincere to imply otherwise. But I think it will largely just really accelerate humanity in a really positive way. For me—and for anyone thinking about how this impacts them—have a more flexible view of your own identity. How you do your job every day doesn’t define you.

I love this metaphor, because it was so obvious before and after. Imagine being an accountant before Microsoft Excel and after Microsoft Excel. So much of the act of being an accountant was adding up numbers. Now it’s building a model. What you did, the value you provided, didn’t change, but the actual act of doing it is completely different. The skillset is completely different. A lot of us are just going to go through that in a very compressed period of time. It’s okay. It’s just a little anxiety-ridden.

OpenAI and advertising

Jack Altman

My last question about AI. There was a shot from Anthropic at OpenAI around the Super Bowl commercial about the ads. There were good ads, they were funny, but I think it sparked a debate around the whole topic of the role of these foundation labs, how they should bring AI to the masses, the appropriate business model, the trade-offs.

You’ve obviously had experience with social networks and a lot of different pricing models. You know OpenAI well. You know how to consume AI. I’m curious how you think about this. What is the right thing when you consider a lot of these dimensions?

Bret Taylor

I’m very optimistic about ads done in a tasteful way. I started my career at Google. I think I arrived the day AdWords came out. It was interesting because when I started there—you’ll laugh at this—everyone in my family when they found out I was working there was like, “How do they even make money?” and laughed. I think I listened to the Acquired podcast and it’s literally the most profitable business ever created. But as a consequence, Google is widely available for free for people who want to use it and has created an economy around it for demand-fulfillment advertising.

There are reasonable criticisms of advertising if it starts to get in the way of the sanctity of what the AI is recommending you, which was the backhanded implication. But I just think it’s not true. I actually think if ads are clearly labeled and not changing the experience, it’s really aligned with the OpenAI mission. Our mission is to ensure artificial general intelligence benefits humanity. Obviously the most important part of that mission is safety. But after you get past the Hippocratic Oath—first, do no harm—the job of a doctor is to cure you.

So after you say, “okay, it’s safe”, how do we widely distribute it? We have an obligation, being mission-driven. I’m the chair of the foundation and on the PBC board. Our mission matters. Being able to offer it for free widely is a huge part of that and we need to be able to afford that.

I just find it inauthentic. This is an incredible opportunity to provide this at scale to society. The idea that it will somehow taint the experience is too strong.

Jack Altman

It’s funny. I grew up in the suburb of St. Louis, so it’s a whole different world than what we’re in now. When I think about people that I grew up with or from other parts of the country, $20 a month is a lot. It’s easy to forget in our ecosystem that not everybody wants to or can spend $20 a month on stuff, but they really want these services. If the whole world had to pay for Google, that’d be a worse world. It’s really good that everybody has access.

Bret Taylor

Absolutely. I just think it’s important we do it well and we will.

Jack Altman

People want good ads. I like good ads. If people bring me the right product, I’m like, “That’s really nice.”

Bret Taylor

This is the other part of it. You want businesses to be able to grow from scratch. There’s such a purpose to it. It just needs to be done in the right way. I find the discussion not particularly authentic.

How to run a board

Jack Altman

The last thing I wanted to ask you about was how you’ve chosen to finance the company. I’m curious about three parts: 1) how you got started and working with Peter Fenton, then 2) what you’ve done since then to date and what’s been important for you, and then 3) as you think about the future, what’s important to you as you think about other partners or capitalizing?

I’m asking because this is a podcast that has a lot of VC in it, so I gotta have a little flourish.

Bret Taylor

We have three members of our board, which represent our three rounds of investment. Peter Fenton from Benchmark, Ravi Gupta who just left Sequoia though he’s still a venture partner there, and Neil Mehta from Greenoaks. Just a fantastic group of people. I chose them all for both the firm and the person.

Notably, with Peter, I’ve worked with him at both my previous companies. For our first round of financing, I didn’t talk to anyone else. I introduced him to Clay, my co-founder, who hadn’t spent time with him. We talked once, he sent me a term sheet, I signed it, no edits. It was very much a trust relationship.

One of the things I’ve really appreciated about Silicon Valley… There are some downsides to how insular the community is, but one of the great parts is the relationships you can forge over years. For me, it meant Peter and I could start on third base just because we’ve worked together a lot before. You don’t end up with a lot of the… There’s no funny business in the fundraising process. No funny business in the boardroom. It’s just, “Let’s get to work.” It was fun to get the band back together there.

But the fun part for me is I had never worked with Ravi nor Neil before, and Clay and I just… It’s just a great board, people we seek out advice from as opposed to people we report to every quarter. It’s amazing.

Jack Altman

We won’t go back through the story, but when OpenAI had its “Oh my god” moment, Sam was like, “Bret, you’re the board member”, and then you’ve also got a board. You’re in both roles at once. How do you make the most out of a board? Obviously you’ve got these particular relationships, but what do you expect that relationship to look like?

Bret Taylor

First, I really like written documents for boards over presentations, both as a board member and as a founder of a company. You end up letting people synthesize information ahead of the board meeting, so you end up with more substantive discussions in the boardroom.

I’ve done this for the last two companies I’ve started. It’s just been great to send out a board document. Sometimes people will comment ahead of the meeting, but the main thing is it has been read, ahead of time. Then you end up with a meeting about the actual meat and potatoes of the topics. You’re not staring at a bunch of sales numbers for the first time.

Jack Altman

You’re not running through slides.

Bret Taylor

You’re not running through slides. I find it to be incredibly… I think most companies should be run this way. The other thing that is really interesting: don’t write it with AI. It’s so funny to have to say that now, but I find that—

Jack Altman

The process of the writing.

Bret Taylor

The process of writing is a process of clarifying your thoughts. For Clay and me, this is a process by which we synthesize what’s been happening. You know it and talk about it, but to actually write it and write it eloquently and concisely is incredibly important because it’s essentially a way of… What’s that famous line? “If I had more time, I would’ve written a shorter letter.” Spend the time, because that’s actually how you can show respect to your stakeholders, that you’re thinking about the strategic issues going on in your business.

The last thing I’d say is that board members aren’t single-issue voters, but everyone has their strengths. At OpenAI we’ve recruited a pretty diverse set of skills. Zico Kolter is a professor at CMU and specializes in, among other things, jailbreaking. He’s one of the experts on some of the more subtle safety aspects. Nicole Seligman was a great attorney and she’s an expert in a lot of legal issues. What’s really nice is that when you grow out a board beyond your initial investors, find people that your management team will want to go to for advice. Obviously the audit committee chair and your CFO have a really unique relationship.

Who’s your head of sales going to go talk to? Do you have someone who’s been there, done that? Because you want them to have that kind of relationship. I always think of it as, who are the advisors you want to surround your management team with? A functional board really has those relationships. Then when you’re in a board discussion, you have all these board members who have had lots of engagement with the company, but in a really valuable, targeted way.

I like to think of the board as a collection of people. Don’t look at the individuals. The whole should be greater than the sum of its parts.

Jack Altman

That’s awesome. Anything this year you’re particularly excited about that you can share?

Bret Taylor

The real exciting part is going to be adoption in regulated industries. We are moving beyond the early adopters to everyone. If we talk a year from now—

Jack Altman

You’re going to be doing the hard stuff.

Bret Taylor

It’s going to be the really hard stuff.

Jack Altman

That’s awesome.

Bret Taylor

If you want a hot take, my intuition is that regulators will start asking for agents. The idea that you have a human set of controls over a regulated process will start to feel like a risk, rather than the risk being AI. I don’t know if that will happen this year, but I think that will happen.

Jack Altman

Alright, I’ll call you in a year and we’ll do take two of this and see.

Bret Taylor

That sounds great.

Jack Altman

Thanks so much for doing this, Bret. This was great.

Bret Taylor

Thanks for having me.

Peter Fenton is the longest-serving full-time general partner at Benchmark. Over the last two decades, Peter led investments in Twitter, Yelp, Elastic, Docker, Zuora, and many others. More recent investments include Sierra, Ollama, ClickHouse, and Airtable. Peter has been on the Forbes Midas list 18 years in a row.

Eric Vishria is a general partner at Benchmark. Eric led investments in Confluent and Amplitude, both of which IPO’ed in 2021. He is also an investor and board member at Cerebras Systems, Benchling, Contentful, among others. Most recent investments include Fireworks, Quilter, and Greptile. Before joining Benchmark, Eric was the co-founder and CEO of a social web browser company called Rockmelt, which was sold to Yahoo.

Chetan Puttagunta is a general partner at Benchmark. Eric is an investor and actively involved with Elastic (which IPO’ed in 2018), Legora, Manus, LangChain, Airbyte, Cursor, Reducto, Numeral, and the list of great companies goes on. Noteworthy exits include MuleSoft, which was acquired for $6.5B by Salesforce and Acquia, which was acquired for $1B in 2019. Prior to Benchmark, Chetan was a general partner at NEA for seven years.

Ev Randle is the newest general partner at Benchmark. Prior to joining the firm, Ev invested in Anthropic, Chainguard, Databricks, Flock Safety, and SpaceX, among others as a partner at Kleiner Perkins. Through his experience at Founders Fund and with personal capital, Ev also has invested in Rippling, Ramp, Wave, Faire, Figma, among others.

Timestamps:
(0:00) Intro
(0:18) Becoming more rare to stay small
(4:58) Activities that degrade with scale
(9:08) The principles of Benchmark
(14:07) Contributing as much as you take out
(18:37) Doing the right, hard-to-sell things
(23:31) Benchmark’s relationship with founders
(31:29) What makes a quality investor
(36:15) Cultivating different tastes in founders
(39:56) Spotting special people
(46:06) Consensus vs non-consensus bets
(47:50) Investing in founders, then AI
(53:06) Founder centricity matters more than ever

Links:
https://x.com/peterfenton
https://x.com/ericvishria
https://x.com/chetanp
https://x.com/EverettRandle
https://x.com/jaltma

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Clips

What degrades with scale

As many VCs raise eye poppingly large funds, Benchmark is one of the few hold outs staying small.

Peter articulates why this is integral to how Benchmark works.

"More capital equals a whole bunch of activities that...eat at the essence of why we practice the business.”

Most people talk themselves out of investing

Eric Vishria is an incredibly clear thinker and communicator.

Here he talks about passing on investing even when the founder is clearly special -- he gives the example of Alex at Scale.

"People will see that specialness...and talk themselves out of stuff for other reasons."

Transcript

Disclaimer: Transcript generated with AI assistance and lightly edited for clarity and accuracy.

Why Benchmark Stays Small

Jack Altman

Benchmark team, it is an honor to be here with you all. I’m not going to make you all reply in unison to me, but I’m really excited to do this with you.

I want to start with an observation. Of the top VC firms, whatever you want to call that—I’m thinking of Founders Fund, Sequoia, Thrive, Andreessen—most have scaled in a big way. For whatever set of reasons, that has been the dominant strategy. Benchmark has been a stalwart in some ways to hold out, with a small firm, small team, small-ish capital base.

I’m curious why. I’m sure you all have different opinions on this, so to pick somebody randomly, Chetan, what is your take on this topic?

Chetan Puttagunta

We only do one thing, which is partner with founders early. We really like to partner with them really early.

I think the favorite amongst all of us is partnering with a founder pre-launch, at the idea phase, or when it’s two or three people in a room, and just growing with the firm. In terms of measuring happiness for each of us, that’s where we derive the most professional satisfaction.

If you think about what that does in terms of alignment between Benchmark and the founders and that company, it’s pretty amazing if you’re there from step zero. I would argue you can’t do that as you scale, the interests… We see it in all our board meetings. Every round becomes its own thing, its own game.

Jack Altman

One of Benchmark’s things that we’ve talked about is that you don’t do the future rounds. There’s no conflict of interest.

Chetan Puttagunta

That’s right. We’re fully aligned on dilution. We’re fully aligned on trying to make this the biggest outcome we can. Capital constrains you in that way. Time constrains you in that way. Each time you partner with a founder, you’re doing it with extremely high conviction and going all in.

That, to me personally, is an extraordinary experience. There are different models, different ways of practicing the business, but for me, this is the way I love practicing it. It’s becoming rarer by the day, and therefore it becomes more differentiated.

Jack Altman

Peter, you’ve been here the longest, so you’ve obviously seen Benchmark in its context through a bunch of changes around you. Have you felt tempted at any points? Have you felt strengthened in your clarity on what it should be?

Peter Fenton

You have your behavioral experience on a Monday, which is when we aggregate. Today is a Monday, we’re here with you. It feels great. There have been eras in the business that I’ve participated in when the Mondays sucked. Some of those were just cyclical. You have a downturn in the economy. Your partners are bringing in their struggles, their pains, channeling the entrepreneurial landscape at that moment in time.

What I was struck by is that period of time that I’ve spent—I’ve had time at Accel and I’ve had time at Benchmark—when that felt more self-inflicted, not market-driven. The lived experience, the behavioral experience, the joy of the business, is centered on serving entrepreneurs. As Chetan related, getting close to an entrepreneur, being a deep partner to them, a social, emotional partner, strategic partner. On a Monday, if we’re talking about that, it feels really good. It feels aligned and purposeful.

When the Mondays were talking about friction with the European effort—and I’m sure the European partners at the time, now called Balderton, were talking about problems with us—it felt draining. When I joined Benchmark, they had just raised over a billion-dollar fund in Benchmark IV. The overhang of the misfit of how we practice our business of partnering early, going shoulder to shoulder with the entrepreneur, and deploying that volume of capital…

There are a number of things that happen when strategies are misaligned with purpose and values. The main thing that happens is it’s just less fun. I looked at this simple question. Our Monday meetings go somewhere between six to eight hours. How much of it is joyful and aligned, and how much is dealing with stuff that doesn’t bring us purpose and meaning and value in the business?

What I feel like we got right is that we select people who care mostly about the proximity to the entrepreneur and being able to deliver a meaningfully differentiated experience for them. So they come away and give a reference to us that says, “Benchmark shows up on all the recruiting calls. Benchmark is at the epicenter of our tough decisions. They’re always available.” “They” being us individually, and then as a group.

Scaling, just asking the question of more capital, equals a whole bunch of activities that I think degrade, they eat at the essence of why we practice the business. The outcome of maximum cash-on-cash multiple is degraded with scaling. The quality of the relationship with the entrepreneur is degraded by scaling. Ultimately the joy is degraded because there’s some other thing that’s growing, an incentive system that fuels “more is more.”

It isn’t wrong for other people to do it. I just know what their Mondays feel like. We leave Monday and carry that energy and effervescence and sense of purpose into every day that follows. When we didn’t do that and we had more activities, more extracurricular activities, man, it felt the opposite. You wanted Monday to end, and then you were a little less of yourself the rest of the week.

Jack Altman

How about you, Eric?

Eric Vishria

This strategy is not financially maximal, for us. No one’s crying for us, we’re doing fine, but it’s not financially maximizing. It’s happiness maximizing. It’s happiness maximizing for the kind of person who wants to do the work.

Jack Altman

Can I put a third variable there? There’s happiness and financial. If you had to put a third variable of “impact”, do you think that you can have the most impact this way? Or do you think you could increase your impact if you worked with more companies, even if you suffered a little bit for it?

Eric Vishria

I don’t know that the way we do it scales, unfortunately. It just doesn’t scale.

Jack Altman

Is that because of the board seats?

Eric Vishria

Yeah, it’s the engagement. The engagement with the entrepreneur is the time limiter and the constraint. That’s it.

Jack Altman

Ev, you obviously came from bigger firms, Founders Fund and KP. I guess you’re only two months in now?

Everett Randle

Three months.

Jack Altman

Your experience on this has to be notable because it must operate so differently.

Everett Randle

One of the beautiful parts about the asset class today is that the menu is so large in terms of how you want to spend your day to day and what you want your life to look like as an aggregation of that.

Even among firms that are larger, KP is very different from Founders Fund, which is very different from Sequoia, which is very different from Andreessen, which is different from Lightspeed and GC. Some firms are more similar than others, but every firm is actually quite distinct.

The thing that really stands out about Benchmark—to Chetan’s point about it being even more relatively differentiated than it was in the past—is that as the prevailing trend has been toward scaling and getting to mega scale… I talk to some of my friends and peers at some of these larger firms and the way that they talk about their day to day and their job and how they’re getting fulfillment out of their job… Let’s say it’s over the summer, they’re like, “Yeah, I’ve already done four deals this year, so I’m having a pretty good year.”

Jack Altman

That’s quite a lot.

Everett Randle

That is the North Star and KPI of what’s giving you fulfillment? Do you like the founders? Do you like the companies? Or is it just the fact that you’ve shoved capital into four investments and four companies?

Jack Altman

This gets at one of the things that was a noteworthy difference for me, going from running a company to now doing investing. As a company, money’s involved, but the primary work is about a product and customers. In venture, there is at least one way to practice it where it’s primarily about dollars. I just don’t think that’s a path to happiness.

Everett Randle

It can be for some people. This is a group that’s very much self-selected into maybe the Charlie Munger punchcard approach, where over your lifetime you might only have ten meaningful partnerships. So every single one of those partnerships should be unbelievably meaningful for you and for the founder you’re working with. I think that fundamentally comes into conflict with the idea of each of us going out and doing eight investments a year or scaling up massively.

The Equal Partnership and Benchmark’s Culture

Jack Altman

What are the principles or foundational tenets of Benchmark? If you had to describe the three to five things that define what Benchmark’s about, how would you name those?

Chetan Puttagunta

We want to be the first call for an entrepreneur. We want to be their most important and most impactful partner. It’s pretty easy to quantify. You can ask any of the companies we all work with. Who do you call first when you hit a patch of bad news? Who do you share that with? We want to be that person. That can only come from being there for the founder, having full trust between you and the entrepreneur, and the entrepreneur knowing that when they speak to one of us they’re getting an authentic experience.

I’ve noticed with these large groups that we’ve all been part of, boards and stuff, whenever bad news gets presented in a board meeting, you can see panic in some people in the room because they have to go tell their boss, with the board meeting notes afterwards, “Things are off track.”

Jack Altman

By the way, it’s also a reflection of something in the relationship if they’re learning bad news live in a board meeting.

Chetan Puttagunta

Sure, 100%. We’re working with such unformed companies and people that there’s going to be bad news. If you aren’t expecting that, then you’re doing this job all wrong.

Things go well, things go badly, things go sideways, things go up, things go down, stuff happens. As long as the entrepreneur knows that they can call you and you’re going to be there and there’s trust there and you’re that first call—that’s what we aspire to in every single one of our relationships.

Eric Vishria

So there’s that part of it, which we’ve talked about a bunch. And then the other part is the equal partnership. I think that’s a very special thing. Ev’s been here for a quarter, Peter’s been here for twenty years. I think I’m on eleven. You’re on what, eight?

Chetan Puttagunta

Yeah.

Eric Vishria

That equal partnership is really special and something that also doesn’t scale, frankly. It has a very special dynamic. I remember when I joined and you’re just this new person. It’s my first investing job. Peter and Bill and Mitch and Matt, who were the four that I joined, they’re asking me about doing things. You’re like, “I have no idea. I have no idea how to do this job or anything else.” But I think it relates to this deep belief in the equal partnership. I think it’s very empowering for a new person. I found it very empowering.

Jack Altman

Ev told me he was disempowered.

Eric Vishria

He was disempowered right out of the gate. I think it is very empowering for the new person. It also creates, for the right kind of person, a lot of internal drive and expectation because you’re like, “Oh, I better not fuck this up.” I think that’s a magical piece of it.

Jack Altman

Why is it so hard for most people to do this? I think a lot of other firms want it, but it effectively rounds to zero the number that can do it.

Eric Vishria

I have this belief that the biggest leap wasn’t at the founding of Benchmark. The founders came together and figured out how to cut things up, and they decided it’s equal. But then they had an amazing first fund. Benchmark I was a legendary 70x return or something like that.

Jack Altman

eBay.

Eric Vishria

So they built all this brand value.

Jack Altman

They gave it away.

Eric Vishria

And then they gave it away. I think that was the leap.

Jack Altman

Nobody can do that.

Eric Vishria

That, I think, is the hard part, right? It’s like, “I built the firm, I built the brand. I should get some economics from that.” Whatever it is.

Chetan Puttagunta

No residual economics is the craziest thing.

Jack Altman

Nobody does that.

Eric Vishria

It’s the craziest thing. It’s the craziest thing.

Jack Altman

There’s no incentive really to do it unless you really care about legacy and something other than yourself. The incentives are very thin.

Peter Fenton

It’s also just rooted in the culture of Benchmark. You go back to Bob, Bruce, Andy. All the founders have played their part. But it was rooted in this idea of respect and affection. You should have a partnership where you really respect and admire your partners. You’d give all your money to any of your partners but then you admire them. There’s an old saying that a virtuoso is somebody who surprises even themself. I believe that about all my partners practicing the business. They’re virtuosos in the aspects of the business that motivate us to do the work.

So Bob raised his hand, I was there, and just said, “It’s time. I’m out.” Others had left before, Andy and others, but there was never a conversation. It was actually the opposite. We gave him economics in the fund. They weren’t giant economics, but it was just a way of saying thank you.

I think as soon as you get into the parts of everyone’s identity that are ego-driven, they lay claim to things psychically that make sense to them. It would never make sense to ask for something from this firm that would entail taking more than you’re giving.

It’s a weird thing to say, but it’s a pressure that I feel as the last of the prior generations. I want to be raising my hand first, before I realize I’m not contributing more than I’ve taken out. Not because it’s an explicit trade, but it’s a cultural ethic.

Cultures, as you’ve found in your company, are so durable. The inertial forces of a culture that gets founded… You asked, what is Benchmark? If I read one book that captures Benchmark, it’s Carl Rogers’ book, On Becoming a Person. The premise of the book is very simplistic in a sense. It was the apex of client-centered psychotherapy. The premise of the book is that to be useful in a relationship, you have to first permit yourself to understand the other person fully.

I think if Benchmark is doing its best work, an entrepreneur comes in here and says, “They see me.” I bet if you ask Andrew at Cerebras who understands him and the founding team most fully—the purpose and the vision of the company—it wasn’t that we found this hire for him, or we gave him this advice about negotiating a contract with company XYZ. It’s that Benchmark understands what he wants to do.

We then do something else that I think is equally important: unconditional positive regard. There are examples in the past at Benchmark where that’s been broken. I think an immune system builds around those failures and says, “How do we not do that again?” as opposed to saying we’re defined by that one act.

So what you see in the current lineup at Benchmark is a really emboldened immune system. We’ve had some vaccinations from past experiences to basically say that we never want to be in a position where the relationship degrades, where there isn’t that faith that we’ve delivered unconditional positive regard. We believe in founders, oftentimes more than they believe in themselves.

If you understand the founder fully and you have unconditional positive regard, then you really can empathize with what they’re going through. I think that nurtures the sorts of success possible with founder-entrepreneurs that we all hold out as the great examples of why we do this job.

Jack Altman

I remember when we spoke last, you talked about the fact that when the Benchmark seat was given to you, from the beginning it’s like, “I’m going to give this to the next person.” I can see why. You’re saying the seminal moment was actually the handoff, because that creates the instigation for all the future handoffs.

Eric Vishria

Yeah and you feel responsibility with that. I think all of us feel responsibility. That was one of the big things we talked to Ev about as Ev was joining.

Jack Altman

The responsibility.

Eric Vishria

That responsibility, you just feel it. Not everyone feels that, which is fine, but—

Jack Altman

Totally. Also, I think if you’re walking in and it’s equal from the beginning, a bunch is given to you at the start. You’re like, “I gotta pay this off to somebody. The people who set me up from the beginning, I can’t really pay them back anymore.” So I can see why you’d be like, “I gotta make sure I give enough before I go”, even though you’re, in a weird way, paying back prior generations. That makes sense.

Peter Fenton

Rooted in that as well, Eric says responsibility and I think he feels it and I respect that. I think the founders gave us permission to basically not take it too seriously.

Eric Vishria

Yeah, they did.

Peter Fenton

They said, “Listen, come on. There’s a group of you. No one’s going to be around in a million years.”

Jack Altman

It doesn’t have to be so heavy.

Peter Fenton

“Everything’s ephemeral.” So what you want is a tight-knit group of people at maximum potential manifestation. The energy, the joy.

The heaviness of “Oh, we’re going to have to maintain this relic and wheel it out. The old tablets in the back about what the founders said…” None of that bullshit. This is a day-to-day thing.

By the way, forgive me. We’re in an entrepreneurial environment where when somebody has a legacy, we want to destroy it. We’re in the business of creative destruction, not permanence and enduring. Forgive me.

Our startups bubble up from nothing, and we stay true to that. I think the firm’s premise is that we should have our own form of creative destruction. There’s no legacy or claim to it at Benchmark. It’s the immediacy and present moment that we deliver. Everything else is secondary.

Being Founder Friendly

Jack Altman

One of the things you just said, I hope is okay for me to press on. I’ve wanted you guys to talk about this. I know each of you individually and I know you all are founder friendly. It’s very easy for people in a competitive venture landscape to poke at one historical example that everybody else has done. If you’re just loud, you can poke at people.

I would say you’re not loud externally and you have a mindset of “we’re going to let our actions speak.” But I’ve wanted you guys to speak because I know you’re very founder friendly. I’ve talked to founders you work with and all of that.

So I’m actually curious to hear your thoughts. You’ve seen some of this stuff. Is it important for you to talk about… It’s what you just said. There’s a thing and then you have an immune reaction to it and the firm updates? How do you process all of that?

Peter Fenton

Humans are storytelling animals. Every firm has their story, and depending on the situation and the motivations of the counterparty, you accentuate certain parts of a firm’s history.

The ethic of the firm—and I think this is borne out even in our worst moments—is that the company must come first. We’re not more important than the company. Nobody’s more important than the company. It’s the initiative, the collective premise of an entity that’s bigger than one individual.

There are moments in the past—and I’ve been around through the generations—where it used to be the standard model that at some point you’d ask, “When are you going to get a real management team?” That sort of faded to, “Well, perhaps we can go the distance. You have the Steve Jobs narrative, which raises the question of what crimes were committed against this notion of general management versus the founder mode reality that we all support.

The part that’s most relevant, and this is what happens every day here, is that we view our job—I do personally, and this has been borne out in the references—as making the founders the best version of themselves. Like any relationship, if it’s simply sycophantic and enabling and codependent, we make them worse. If it’s harsh and judgmental or absent, we make them worse.

So one of the things you need to figure out in references is, what questions should you ask? If you’re going to engage with any great firm, you want to do references. First it’s a phone call but I actually think you could go a level deeper and ask, “How does this person make you a better entrepreneur? How have they unlocked your potential?”

What we care about more than happiness is flourishing. In our companies, I think what’s borne out in the work we’ve done is that if I work with that group, I’m going to be a better version. I’m not going to be living in fear, because then you’re not a better version of yourself. Nor am I going to be getting… Forgive me, what happens in our job right now, I’m struck by the number of boards where I see a relationship that’s sycophantic, where people are afraid to pursue truth because they don’t want to hurt anyone’s feelings.

Worse, I think the greatest crime that occurs in many boards is that somebody says something behind the entrepreneur’s back that they won’t say to their face. One of the things I think is a deep ethic at Benchmark is that we are transparent. We’re going to say it to your face. We may not say it behind your back. We’re not going to be in a situation where it’s like, “here’s what I really thought about the board meeting….”

This idea of congruence, which is a key term in psychotherapy, is that you really want to know that you can trust your partner, that they’re not putting on a mask because they want you to feel a certain way. They’re being real.

Jack Altman

By the way, this also goes to your point about not putting more dollars into the company. If you almost structurally can’t put more dollars into the company, then you just want to tell them the truth.

Peter Fenton

You’re truth-seeking.

Jack Altman

If you’re hoping to win the next round, you don’t want to piss them off because next month you might be writing a term sheet.

There’s the references piece. There’s the “I want to put more money into this company” thing. There’s just the “I don’t want to fight” type of stuff. I do think it leads to that. I think the best version of being founder friendly is not comfort all the time, obviously.

Everett Randle

There was a recent example of this. I recently led an investment that’s still unannounced. We actually had the founders over for dinner in the dining room where we’ll have lunch in about an hour. During the dinner they showed a demo. We were going through their commercial strategy and we gave them a lot of very direct feedback. A lot of it was constructive. It was a really productive conversation. But not every founder responds super well to that.

So I called the founder afterwards and said, “How was that for you? How would you respond to that?” In that call he said, “You as a team are going to make us better founders. I can tell that right away.” Because of that, he really wanted to work together, because it wasn’t just going to be slaps on the back and congratulations. It was going to be a relationship where we really pushed both the founders and the whole team to be a better version of themselves.

Jack Altman

Does it feel structurally different to you than KP and Founders Fund in any way?

Everett Randle

I think maybe the biggest difference is with Founders Fund, because Founders Fund really leans on this kind of Hippocratic Oath of VC, which is “do no harm.” In doing so, we’re going to be completely hands off, that’s kind of the pitch, and if you need something, call us.”

I think that sells really easy. But in practice, I think it sometimes materializes as… I don’t want to say laziness, but it is more passive. It’s like, “We should back founders that are going to figure it out all on their own and don’t need help and don’t need any VC assistance.” Sometimes that works out, and maybe there are founders like that. But I think the vast majority of the time, almost every single founder could use feedback, a sparring partner, any of these things.

Jack Altman

Even Tiger Woods has a coach.

Everett Randle

A hundred percent. Having that position is a great soundbite and goes over really well on Twitter, but when it comes down to it, there are very few practitioners, even the Tiger Woods of the world, that don’t benefit from something like that.

Peter Fenton

Ultimately, the highest accolade of a firm that it seeks is a manifestation of its value system. Everyone in this room—I’ve heard this and I know I’m going to hear this on your newest investment—is that if we’ve really done our job, and you’ll hear this in our references, they feel like a co-founder. Benchmark feels like they were a co-founder.

What does that mean? It wasn’t a conditional transaction. It wasn’t a one night stand where “they gave us money and then we could brag about the brand.” It was that they were proximate with me. What a co-founder does, it’s a bit like being in a partnership where you have a child. There’s something existentially deep that’s permanent in that relationship.

I believe most companies with single founders end up finding proxy co-founders because they need support systems. They need a relational balance with the ups and downs of being an entrepreneur. If we’ve achieved that— You could say it’s not for everybody. Some firms might want more of just the money and the brand. Or they want services delivered by people who work at the firm. Those are different facets.

But the depth that can occur when you have that kind of proximate relationship ends up taking you through troughs that would otherwise leave companies to be sold early or to have a destitute founder who’s just tired.

Jack Altman

There’s also a through-line to it. I felt this as a founder where even a longtime exec might be four or five or six years, but then you have a board member who’s there through the first round, and the second round of execs, and the third exec team. So you’re working many more hours per day with people on your team. But when you look back over a decade, there was somebody who was with you the whole time and it’s hopefully your co-founder and your board members. There’s something about the long arc of it too that is special.

Eric Vishria

I have moved away from talking about it as guidance or advice. I loved your “sparring partner” thing because I think that’s what it is. That’s what the co-founder thing is too. Startups are hard. They’re really hard. The most successful startups are doing things that are new, innovative, and haven’t been done before. Therefore, you’re figuring things out for the first time. They’re things that are challenging and hard and no one knows the answer.

A huge part of the co-founder thing… We should be careful about using it, but that aspiration or that idea is: we’re asking each other questions that sharpen our thinking. We are trying to figure things out together.

That’s a very specific way of working. I’m thinking of a very specific example from last week. Oftentimes, the entrepreneur knows what she wants to do and it’s in there. You’re asking questions to help them realize it and have it surface or get clarity on it. That’s very different from getting advice. That isn’t advice. That’s a sparring partner and a sounding board.

Peter Fenton

Part of what I feel is—forgive me, this is where I have to be the older person in the room—the degradation of our industry. It really has been a degradation. The system has shifted to winning. Our goal is to win.

Eric Vishria

Right, because there’s capital supply now.

Peter Fenton

You have these large sums of capital that need to be deployed. The system is built to create, in the mind of the entrepreneur, a selection criteria. The old saying: if you’re doing POCs, you want to design the criteria of the POC so you win it.

What’s happening is that the industry is programming entrepreneurs in a way to select for things that I think are off target. They’re aligned with the target of the firms and the capital basis they’re deploying, but they’re off-target relative to the quality of the relationship the entrepreneur seeks.

Jack Altman

So what are the big ones?

Peter Fenton

The biggest thing— I’m not going to pick on the off-target things. The on-target things are: when I want a co-founder, what questions do I ask? Do they make me a better version of myself? Do they provide the kind of expansion of my horizons that makes me feel more joy every day for doing this work? Do they keep me honest? Are they available? Do they put me first?

A lot of winning, as opposed to serving… Winning is a moment in time. We average 10+ years on our boards. If you go back and look at the history of my boards, it’s 10+ years. Maybe three or four executive teams, as you say, might go through those years.

The sense of continuity of, “my partner is there.” Not to pick one, but I love my relationship with Howie Liu at Airtable. Howie’s going through a genesis right now and a creativity that I think occurred at the beginning of Airtable. It is so fun to watch. But I understand the human and I know what he’s gone through. I know how to help him at parts, to say, “This is an area you want to be asking some questions about.”

I think that’s different from winning. Winning was a transaction: “Take my capital, I’ve got to get onto the next one.” Because if you win, you’ve got to win the next one.

We say yes once or twice a year, and serve for a decade long. The differentiation of that—because our incentives aren’t the same as deploying capital—creates in the entrepreneur’s mind that they have to ask the right questions. What do you want in that co-founder? Because you can’t fire your board member.

Jack Altman

I’ll take a shot at one of the things I think is off target. It’s become a thing to sell “no board seat”. The pitch is, “one of the advantages of working with our firm is we’ll give you all this capital with no board seat.”

I think there’s a misunderstanding of boards as governance and control rather than boards as signing up to work on the company, which is how it should be understood in 99.9% of cases. But I think it has been very effectively and somewhat disingenuously sold to founders because it sounds good. You keep control of your company and there’s no risk. That means we don’t have to help, so we can deploy a lot more capital.

Everett Randle

It probably says something about the experience of the average founder with the average board member. Can you blame a founder for thinking that’s a good pitch based on the experience that they’ve probably had with the average firm?

Jack Altman

Yeah and also you hear about a terrible situation once and it makes a big impact without nuance. It’s hard.

Peter Fenton

It’s going on right now. These seed rounds at over a hundred million with no board. I know how it ends. It’s just that between now and then, the amount of entrepreneurs that will miss the opportunity to really seek out a close partner, it’s such a shame.

What Makes a Great Founder

Jack Altman

Here’s one of the things I wanted to ask you all about. I’ll take it as a premise that we probably all agree a great entrepreneur is unique or odd or strange or just beats to their own drum in some important way. Maybe there are examples where it’s not like that. We can talk about that too.

Do you think to be a great investor you have to be the same way? Do you have to be unusual as a person to be a great investor? Or is that not the case? Can you just be a regular person who can spot unusualness? I’m asking selfishly because I don’t think I’ve got the oddities that sometimes I wish I had.

Chetan Puttagunta

One of the things about Benchmark in our conversations with Ev… I think Peter framed it perfectly, which is that when you know, you know very clearly. Given our structure of equal partnership, you’re essentially refounding the firm every time somebody new comes on, because the whole dynamic of the partnership changes. The conversations change, the feel changes, everything sort of changes. So it feels like a refounding moment.

There’s some alignment that happens. It goes back to the core of what values you prescribe to as a person. Part of it is that you are competitive. I think that is important. There is a competition aspect to this asset class. At the end of the day, we are investment managers. You enter a company and there’s competition to enter the company, then you invest, and then the company itself faces competition at some point.

You can run competition-free for maybe twelve months, and then the big guys show up. Each of us has faced immense industrial competitive threats from external bodies. You have to have some kind of competitive, persevering spirit about you that can be that stabilizing force for the founders.

You also have to have that empathy that the founders feel it 10-100x more than you. At the end of the day, you as an investor are diversified. You get to work on lots of projects. The founder is simply not diversified at all. This is the only thing they get to work on. This value system of hyper-competitive energy and empathy, that is actually not present in a lot of people.

Jack Altman

You and I talked about this a little bit with Max at Legora. It’s an interesting example. You did the seed. We’re not here to pump Legora, but while we’re here—

Chetan Puttagunta

Let’s pump.

Jack Altman

It was in YC. It’s a legal tech company in Stockholm. There was already Harvey. The question I think I asked you right before we sat down was: why’d you meet? I think once you meet Max, you can see it’s good. But to the extent that that’s a case study in spotting someone who I think is unusual in a very positive, strong way, what was that for you?

Chetan Puttagunta

Peter and I actually met Max in this exact room together, and that was the first meeting we had. I think within fifteen to thirty minutes, we both came away with that unspoken language between us that we want to be in business with this person.

Yes, it was legal tech, but there was some core purpose with him as he was expressing it and the founding story of how he picked that problem. They’re sitting in Stockholm watching Harvey. At the time of our seed round in March 2024, I think Harvey had already raised at a billion and a half dollar valuation or two billion. By the time the product had launched in October of 2024, I think their number one competitor had already raised at a three or four billion dollar valuation.

But what we were backing was him and his co-founders. When we invested, it was a team of five people. They had a very core insight on how to attack the legal market and why LLMs were the perfect fit for lawyers.

When he expressed it… Eric likes to say this a lot. There’s a magic when founders explain something very complex and they explain their unique insight into it, and it becomes very obvious. That’s obviously how the world should work, and with their fire and their energy, that will probably be how the world works.

In Max, we saw it right away. So we needed to be in business with him. That was it. The conversation immediately went to, “Great. What are you doing the rest of the day? We just want to spend time with you because clearly you’re spectacular. Clearly there’s something here.” It’s been amazing.

We didn’t see it right? The product didn’t launch until six months after our money went in. You don’t start to see the amazing stuff that a person can do for a while, but it’s amazing.

Jack Altman

If you look back at other great investments that you’ve had, do you think it’s always clear that the person’s unique to you? In the Legora situation, did something jump out faster? Or are there other situations where you don’t see it for a while? Do you always see it quickly?

Chetan Puttagunta

No, I think you see it quickly, but each person spikes differently.

Peter Fenton

Coming back to your question of whether there’s one way to succeed as an investor: God, no. In this firm, we joke: imagine two circles, entrepreneurs that I respond to, entrepreneurs Eric responds to. There’s this tiny little gray area in between with six people in the universe.

Eric Vishria

For two people who do a lot of software infrastructure, enterprise, or open source or whatever, for our Venn diagrams of entrepreneurs to be so separate is—

Jack Altman

You guys will meet a founder together and one of you will be like, “This person’s amazing,” and the other one’s like, “I don’t see it at all”?

Eric Vishria

I don’t know about that.

Peter Fenton

No, no… “I could never work with that person.”

Eric Vishria

That’s a different statement than whether they’re good or not. I think we often—

Peter Fenton

“Good for you, not for me.”

Eric Vishria

Yes. We do have that.

Peter Fenton

By the way, Bill Gurley and I had that where there’s almost no intersection. This actually relates to any entrepreneur thinking about working with a venture firm. A friend of mine was raising money, a family friend so it wasn’t appropriate for Benchmark. He asked, “How do I choose?” I said, “The question I would be asking if I was an entrepreneur is: which of these esteemed venture capitalists is most personally resonant with you and committed to you?”

They’re going to say they’re committed because they want to win. Codify it. Make them be explicit about the kind of commitment they’re going to make and make it uncomfortably concrete. With most of the entrepreneurs I work with, we speak every Friday. Make it real.

If you don’t want to put the time in, if you don’t feel that response for you with running your fund and for us individually… I knew with Max at Legora, Chetan would be 24/7. He’d fly to Stockholm on a moment’s notice, and he has. And he is today.

Eric Vishria

You’re going today?

Peter Fenton

He’s going today. So there you go. As you introspect in your commitments, does it clear that threshold for you personally? Because if it doesn’t and you’re doing it because it’s a good investment, that is a reliable path to a bad investment and a bad relationship.

I think you’re going to find… Chasing what is it that you see and then allowing that to get washed with experience… Sometimes you’re going to get it wrong. When you get it wrong, you learn. “Okay, don’t make that mistake again.” Because you’ve seen me make that mistake, and vice versa.

Jack Altman

So it’s interesting that you guys have these Venn diagrams. Let’s just say they don’t touch, to make it simple. But they’re both good. I know you both make very good investments. Is that basically because you can cultivate any set of tastes as long as it includes the good stuff? Is that basically what you shake out to?

Chetan Puttagunta

There is a lot of overlap on the people, though. If you look at the people in these Venn diagrams that the four of us have, there is overlap in that.

Eric Vishria

In the qualities of the people.

Jack Altman

Something Keith and Vinod said something interesting when I talked to them together is that they’re really different people. It’s very apparent when you talk to them. But they said one thing that they basically always agree on is: did we walk out of the meeting with a founder and was that person special or not?

I thought that was interesting because I wouldn’t have expected that out of the two of them. They’re quite different, so I would’ve thought there would be very different tastes in there. That doesn’t mean they always want to make the same investment.

Chetan Puttagunta

It’s very rare that one of us thinks a person is special and the other person thinks absolutely not.

Seeing Greatness and Avoiding Mistakes

Jack Altman

Another question I always have is: with really special people, can you miss it?

Chetan Puttagunta

Yes definitely.

Jack Altman

Is it a special ability to identify special people? Let’s take Max at Legora. Let’s say you have a hundred reasonably okay VCs who’ve been doing it for a while. Do you not think most of them would’ve come out and been like, “This guy is great”? Is it unique to be able to see greatness early, or is it more about getting into the right room with Howie and Jack Dorsey at the right time?

Eric Vishria

That’s a good question. I think most of the time people react similarly. People who are good at this will identify or see that specialness. We miss it, everybody misses it sometimes. But there’s a bigger thing that happens, which is that people talk themselves out of stuff for other reasons. The competitive situation. Can the outcome for what they’re working on be big enough? Those kinds of things.

Take Alex at Scale. You met Alex and you were like—

Jack Altman

Something’s going on.

Eric Vishria

This guy is a winner. We saw it very early. We saw it together. Those were particularly painful because we absolutely recognized that he was amazing and a super special person. We absolutely recognized that the autonomous vehicle labeling revenue was bullshit and going to go away in not that long.

So the facts and the read were correct, and the conclusion was incorrect. It’s like, “goddamnit”. That’s a particularly painful one and a good lesson for me.

Jack Altman

But you thought he was special and you passed anyway?

Eric Vishria

Yes.

Jack Altman

Have you ever passed on a special person because you didn’t like something else about the setup and still been glad you did that? Or is the lesson just always to back them if you feel that way, no matter what else?

Eric Vishria

At this particular moment in time, I would say: yes, I did. With the hindsight benefit, if you feel that way… And I think you have chemistry with the person, that’s part of it. Who do we respond to?

Peter Fenton

We’re focusing on the positive case. The negative case, which is useful also to think about—and it’s actually true if you’re an entrepreneur—is this word “inauthentic.” It’s easy over time, over many decades, to see the masks, the fakeness, the posing. If there was one trigger for all of us—and I think this is true in entrepreneurship, it’s true for the employees you’re recruiting—it’s that they think you’re faking it.

If there’s a little “fake it to you, make it” thing, put that aside. I think that’s broadly bad advice. If someone’s not willing to be vulnerable with us in the meeting and expose what they don’t know and be real, then how can we have a relationship?

There have been people who’ve come in here, who’ve done well, who’ve raised money. Particularly now in the cycle, you get people who are playing a promotional game because there’s something attractive in the external metrics. It could be a research background—pick your favorite—and they think, “Okay, we’ve got to sex that up a bit and then we’ll flip these people.”

One of the common threads in Benchmark investments is that there’s very low representation of the promoter. There are exceptions. The case where you find someone who’s really talented but they’re in the wrong market and we don’t back them but we love them, that happens.

But when we get in trouble as an industry is when we start to become quite accepting of the… Forgive me, this is the distinguishing trait between founders and entrepreneurs. In a market like the one we’re in, the number of founders increases geometrically. I think the number of entrepreneurs stays as a fixed constant. So what happens is we have a lot of founders. Anyone could be a founder. I could be a founder. You were a founder, but you’re also an entrepreneur.

Entrepreneurs have this guile. There’s a sense of leverage. Brendan at Mercor to me is an entrepreneur in any cycle, in any market. He happens to also be a founder right now. I think that’s not the case for a number of people who found companies who would otherwise, if the market was shitty, be employees at big company X, Y, or Z.

As a founder, you have to introspect. Do you have the entrepreneurial qualities? Study entrepreneurship. A vast majority of entrepreneurs drop out. The phenotype of the personalities is that they don’t want to be validated by a system they didn’t create. They’re not looking for fancy brand names and they’re not attracted to big, fancy whatever. They look for things that are substantive.

Eric Vishria

Yeah, they’re dropouts, not straight-A students.

Peter Fenton

And there are exceptions. Bret got great grades.

Eric Vishria

Bret’s in that Venn diagram, those “six people in the universe”.

Peter Fenton

This market right now, because it’s so attractive to be a founder, has brought in a degree of promotion and the sorts of stuff that get people into trouble over the mid to long term.

Our whole system is identifying and getting proximate to the entrepreneurial energies, which are, as we know, forces beyond all measure.

Chetan Puttagunta

There was a period of time between Q4 of 2022 and the end of 2023. There was a broader macro tech correction where a bunch of public tech stocks corrected. There was a tightening of the late-stage market. Interest rates were going up and all the tourist capital had fled the scene for a little bit of time. Capital just got a little bit harder to raise.

At that time, what was really interesting is if you look at all the seed and Series A deals that we did and where those companies are now, it will look like our hit rate went way up. But I actually think what happened is that if you were willing to start a company at that point in time, in AI, you were a true believer. There was some natural inspiration for what we were doing.

Think about it: Lin at Fireworks, Bret at Sierra, Harrison at LangChain. They’re companies where the entrepreneur had some fire.

Eric Vishria

God, were all those done in that era, that one year?

Chetan Puttagunta

Yeah.

Jack Altman

I think you’re right. A lot of people read it as, “What happened here is they just got to the blue ocean thing first.” Maybe there’s a degree of that. But a lot of it is that if you want to do this at a time when it looks really painful, that’s just a different subset than people who are going to do it at a time when it looks incredibly attractive.

Chetan Puttagunta

That’s right.

Peter Fenton

2008 to 2011, when we did the Series A at Uber, Instagram, Twitter—

Eric Vishria

Snapchat.

Peter Fenton

Snapchat. But then by ‘13, ‘14, it became very—

Jack Altman

It’s funny because all the think pieces and essays about this stuff are always like, “There was a new technology and on top of that new technology came ‘X’. You get cloud, you get blah blah blah.. You get mobile, you get blah blah blah. You get AI, you get blah blah blah.”

I think it’s true, but you don’t really see people talking about how in the moments when the psychology requires a different kind of hardness, it’s probably a bigger explainer.

Chetan Puttagunta

A hundred percent. And I think in that moment in time in 2022, 2023, early 2024, if you wanted to be in AI applications and AI application enablement, it actually took a special kind of person that truly believed regardless of what anybody else thought. Because at that time it was quite unpopular and weird to decide you wanted to build an AI application. The natural assumption was that fundamentally the foundation models were so powerful that as they reached more and more intelligence, they would just start to gobble up the applications themselves.

Jack Altman

Even if you look at the people who worked at the labs in the late 2010s and now you compare those people to the people who are working at the labs… Obviously, the people are brilliant now. But you look at Ilya and Greg Brockman and all these people. They were doing it when it was really not cool.

Eric Vishria

Yes.

Jack Altman

Those are still, I think, the most brilliant people.

Eric Vishria

Yes.

Chetan Puttagunta

That’s right.

Jack Altman

There’s something there.

Investing in AI

Jack Altman

The last topic I want to get to is basically how you all are thinking about AI. I realize it’s something we’ve probably all talked about a lot, but I do think it’s the most interesting thing going, and I don’t think any of us want to talk about politics right now.

Going through a lot of your recent investments, it’s actually clear that you guys caught the AI wave in a pretty substantial way. A lot of them were not obvious companies. Even Legora, which is like a middle-of-the-fairway venture type of company, was not an obvious thing to do from Sweden. There was already Harvey.

I think Manus was a very unusual investment as well. I think Cerebras is extremely interesting. Obviously Sierra was before it was happening, and when it happened, it’s like, “Wait, Bret Taylor’s doing customer support?” I don’t think you guys were loud about AI, but just empirically speaking, you look back and you caught a lot of it.

So what I’m curious about is, as you’re thinking now and looking at companies today, what are you excited about? You guys having these conversations as a partnership and being really curious. What is at the top of your curiosity list in AI right now?

Chetan Puttagunta

You just have to roll back to the end of 2022 when we happened to get involved with these spectacular entrepreneurs. The thing that became clear to us sitting around a table was that AI was the thing. Even if it wasn’t the thing, it didn’t matter. That was where we were drawn to. It was the thing that had this gravity pull for us. All we wanted to do was spend all of our time talking about it, thinking about it, meeting all the people working on it.

Then you have to overlay your value system on the thing that you’re excited by. The thing that we laid on top of that was: what kind of relationships do we want to get into with companies, in that moment in time? We decided we wanted to be in business with companies where that ethic of being the primary partner—board partner, lead investor, first investor, principal investor, principal believer in the mission—is how we wanted to practice investing in AI.

That meant we were looking for spectacular entrepreneurs with unique approaches to the market. If you want to do that in a place where you want to be the first investor and back teams with two, three, four, five people, you’re often meeting people that are probably a little bit early on whatever the next curve is.

Remember what was happening in 2022 and early 2023. Everybody wanted to start a foundational lab and everybody wanted to aggregate GPUs. There was a big drive to aggregate capital to buy GPUs that would be utilized for training runs. It wasn’t that we had some hypothesis or some macro view of why we don’t want to do that or do want to do that. We were looking for companies and entrepreneurs that resonated with us and wanted to partner with us.

In that moment, we met a lot of people that were working on really aggressive ideas. We thought they were spectacular people with spectacular approaches. As a result, you saw this list of companies that we compiled at that time. That was when we did Sierra, when we did Fireworks. We did LangChain, we did Mercor, we did Levelpath, we did Legora, Manus, et cetera.

All of that came together. When Eric did Cerebras, the Series A, it’s all of that same stuff: partnering super early with founders working on something that they’re deeply passionate about. Frankly, it’s cliché to say, but all of those investments at the time were a little bit non-consensus. I think you have to be.

Everett Randle

It’s interesting because from the outside in, before I joined Benchmark, if you look at the investments that were made in that ‘22, ‘23 time period… You had an inference cloud with Fireworks, you had a data infrastructure platform with Mercor, you had a horizontal AI play with Sierra, you had a vertical AI play with Legora. Obviously it’s only four of the ten great investments that were done in that era. It was easy to ascribe a kind of thematic nature.

Eric Vishria

Then you got here and you were like, “Oh my God!”

Everett Randle

“These guys had no idea what they were doing!”

Eric Vishria

That is correct.

Everett Randle

But you come in and you’re like, “Oh wow, they had vertical, they had horizontal, they had data. They must have done a market map.” Then you come in and start asking about each of the investments and the story behind each of them. 90% of the story on every single one of the investments is the person, the founder and the entrepreneur, and the relationship that they built and why the entrepreneur was so special.

That was so revealing to me coming into this organization and this partnership. The founder centricity just bled off the page in terms of the stories of all those investments. The way we’re approaching it today, obviously we love to talk about all of the newest and greatest things going on in AI every single week. But in terms of the actual investments, it’s always founder-centric.

It lends itself especially to this era, because the sands are shifting beneath the founder’s feet so quickly in AI and things are changing so rapidly. Founder centricity as an investment strategy matters more now than anytime in the last decade.

Eric Vishria

I agree. The underlying technology substrate is changing very quickly with AI. Any software that you could have built in 2022, you could have built in 2010, plus or minus. Once we had the cloud, we got little APIs here and there, but for the most part, for twelve years it was pretty stable. If you compare that to today, you’re getting more change every quarter than we did in a decade in terms of the substrate.

A founder’s ability to navigate that and actually understand where their edge is and where their edge is going to come from, and how quickly the moats are deteriorating—because they’re deteriorating really quickly—and how do you build the next one… It’s critical.

So I think it becomes even more important. We see all the same things. It sure feels like the infrastructure cycle is going to continue. It sure feels like five years from now, or maybe even sooner, we’re going to have really interesting things in robotics.

Everett Randle

Agents are getting really good.

Eric Vishria

Agents are going to get really good and the applications are going to get better. All these things seem really clear. But that isn’t enough to make an investment.

Jack Altman

It’s impressive to me. It would’ve been so tempting to answer my question with some high-minded thesis, and you all just said “founders.”

Peter Fenton

Also if you step back and think of these as forces, not specifically AI or social or mobile, there are windows where the disruption is so high that entrepreneurs come in and they see something with such clarity that they can’t not do it. Then there’s this lag effect where years later all the other people come in afterwards.

In a sense, that happened already with AI. It happened with the first generation. It happened with the people saying, “Okay, now we’ve got to do our model company.” But when your brother and the team of people were at OpenAI, before it was obvious, lightning struck. My belief is that it is likely to happen again at least one or two times in the AI cycle. There’s something so disruptive that no one can fully understand it. Then there’s a completely new kind of entrepreneur that emerges.

What we’ve been watching for the last three months, post-Opus 4.5, is that the force of that disruption has awakened a whole group of entrepreneurs that were otherwise not seeing things— they’re seeing them now—three months ago.

I’m a big believer in what you’re doing with Sunday and robotics, because that’s a world where we all know that in a decade we’re going to have these things in our house. But the path from here to there, is that an incumbents’ game where the big companies are going to push down complex products? Or will there be entrepreneurs?

So much of this is, where is there disruption? But then the lag effect of our industry is that 90% of the capital flows in afterwards, after the entrepreneurs have figured things out. By the time it’s figured out and there’s the next thing, it’s not for us. That’s our faith: Silicon Valley is an adaptive landscape that will continually have these disruptions. As soon as there’s a winner, we’re uninterested. We move on.

Jack Altman

It’s a great place to end. Thank you, guys. This was really fun.

Vinod Khosla and Keith Rabois are Managing Directors at Khosla Ventures.

Vinod is an entrepreneur, investor and technologist. In 2004, Vinod formed Khosla Ventures to focus on both for-profit and social impact investments that have included OpenAI, Stripe, DoorDash, Commonwealth Fusion Systems and many more. Vinod previously co-founded Daisy Systems, the first significant computer-aided design system for electrical engineers, which led to an IPO. He later went on to co-found Sun Microsystems in 1982, serving as its first chairman and CEO. After joining Kleiner Perkins Caulfield and Byers (KPCB), Vinod incubated the idea for Juniper Networks to take on Cisco System’s dominance of the router market.

Keith is also currently the CEO of OpenStore and led the first institutional investments in DoorDash, Affirm, and Faire, invested early in Stripe, and co-founded Opendoor. While a General Partner at Founders Fund, he led investments in Ramp, Trade Republic, and Aven, and before that made early personal investments in YouTube, Airbnb, Palantir, Lyft, Udemy, and Eventbrite. Keith started his career in leadership roles at PayPal and LinkedIn before becoming COO of Square.

Timestamps:
(0:00) Intro
(0:58) The working relationship
(4:26) Pie chart on what’s discussed
(7:11) Ethos of investors today vs yesterday
(10:42) Comparing FF and KV
(12:46) What makes a great founder
(22:56) Alpha in today’s market
(30:05) Themes within AI
(38:23) AI companies built differently
(46:23) Excitement outside of AI
(53:12) Politically active on X
(58:24) Evolution of political leanings

Links:
https://x.com/vkhosla
https://x.com/rabois
https://x.com/jaltma

Watch on YouTube; listen on Apple Podcasts or Spotify

Subscribe now

Clips

AI companies are built differently

I asked Keith and Vinod if they think AI companies need to be built in different ways to previous generations of startups.

“I think it’s fundamentally different.”

Harsh on X, but really nice in person

I asked Keith why he is kind of harsh online but nice in person and he just said WRONG and stared me down.

First institutional investor in OAI

Khosla doesn't get nearly enough credit for their OAI investment.

They were the only institutional investor in the first round and they made the investment that was truly hard to make when others thought it was dumb.

They aren't the type to take credit but they deserve it here.

Transcript

Disclaimer: Transcript generated with AI assistance and lightly edited for clarity and accuracy.

How Keith and Vinod Work Together

Jack Altman

Keith and Vinod, I’m incredibly excited. I got to do this with each of you individually last year. The first thing I wanted to do coming into the new year was ask the two of you to come on together. So thanks for doing it.

Keith Rabois

Pleasure to be with you.

Jack Altman

I follow both of you a lot online and watch a lot of podcasts you’ve done, and I’ve never seen you together in this kind of format. So I was really excited to set this up. One of the first things I want to get into is how the two of you work together. Because it’s rare that you have two people who are both super individually accomplished at a venture firm, working side by side. You’ve done it for many years now.

You’re obviously very different people, but there’s a lot in common. I see you as this Venn diagram with a lot in the middle, but you also have your own styles. To start, what’s the texture of your day-to-day working relationship? How do you guys operate together? How do you communicate with each other? What does it look like all the time?

Vinod Khosla

Do you want to start?

Keith Rabois

Sure. We first started working together when Vinod joined the board at Square. I learned a lot of things from him.

Vinod Khosla

Actually, Slide.

Keith Rabois

Well we worked together at Slide, but that was more intermediated through Max. I would hear about these meetings with Vinod and all these ideas and grand theories about how we should reorient the business, but it wasn’t hands-on.

I actually worked with another one of our partners, David, at Slide very directly. He told me my first revenue model was terrible. David’s a little bit of an acquired taste.

Jack Altman

Sounds like David.

Keith Rabois

His exact quote was, “This revenue plan is very mediocre.” Which turned out to be right. But while Vinod was on the board at Square, he taught me a lot of things, including the most important precept: the team you build is the company you build.

So when I was considering being a VC, it was a very natural fit because a lot of the contributions that Vinod had at Square resonated with me. I could see the style of KV and how that translated through my brain. I felt like it would be a really good pairing.

Jack Altman

What was it like for you, Vinod? When you started working with Keith, could you tell immediately that stylistically it was what you liked? How did you know?

Vinod Khosla

For me, it’s really one thing: first-principles thinking. If you can do first-principles thinking, it’s easy to know where you agree and where you disagree. It isn’t this hand-wavy thing. A, B, and C. Then we can debate those three factors, and it’s worked out very smoothly. It’s seldom that we grossly disagree. We’ll even come down to, “If these facts were true, then this is a good decision or a bad decision.”

Keith Rabois

Which is incredibly helpful. There’s one specific investment I remember last summer where I couldn’t actually decide what to do. It was close to the line, I wasn’t quite sure. And then Vinod said that the key attributes of the founder that really matter for this are, one, two, three. And then our junior colleague John Chu and I were like, “Well on those three dimensions, this founder’s A, A, A.” So it made the decision really easy because he was able to isolate the key variables for that particular company.

Jack Altman

Do you guys get into strong debates over ideas? Or have you mind-melded so hard at this point that you don’t even need to as often? Because it’s hard for me to imagine either of you shying away from debate. You’re obviously both going to say whatever you think all the time.

Keith Rabois

I think that helps, the direct style which you’ve talked about for years.

Vinod Khosla

I’ve always said I prefer brutal honesty to hypocritical politeness.

Jack Altman

I can’t imagine you dancing around a topic with each other.

Vinod Khosla

No and it doesn’t matter whether it’s internally in a debate or on Twitter. It doesn’t matter. Being very direct saves a lot of hassle. Once you have that culture, nobody’s guessing at what you think. That’s worked really well within the partnership. Nobody’s ever guessing what you think or why you think that.

Keith Rabois

Externally, I think one of the reasons why we pair well with really ambitious founders is they appreciate clear communication, succinct and direct communication. They process it extraordinarily well.

Jack Altman

If you had to guess the pie chart of the time that you guys are spending talking to each other, how much of it is about existing investments, new companies, operating the firm, anything personal?

Vinod Khosla

Nobody ever discusses operating the firm very much inside Khosla Ventures.

Jack Altman

You don’t discuss that? Interesting.

Vinod Khosla

I would guess it’s far less than 5%.

Jack Altman

Is that because it’s so clear how it works?

Keith Rabois

If you include hiring, then there’s an allocation to assessing potential people.

Jack Altman

We’ll call that separate. Out of curiosity, is that because it’s already so clear that there’s nothing left to discuss? Or is it just so much relatively less important than the work of investing itself?

Vinod Khosla

First, we have a lot more fun investing than managing. The firm doesn’t take much management, honestly, other than comp once a year and hiring, that we talk about. I can’t remember when we had a strong policy disagreement.

Keith Rabois

 At the end of the day, Vinod is energized by investing in the future through technology and founders. And I’m energized by pairing with people who want to change the world, which is roughly similar. So the management part is a distraction, to some extent, from those two core activities, which are exciting.

Vinod Khosla

Then we spend almost no time with LPs.

Jack Altman

That’s nice.

Keith Rabois

You may have to edit that. Just kidding.

Vinod Khosla

Look, I don’t mind. I spend less time with LPs than almost any other senior partner.  I think that’s generally true of all the senior partners at Khosla.

Jack Altman

Well you’re at a place where you probably don’t need to spend that much.

Vinod Khosla

Frankly, entrepreneurs are a lot of fun to work with.

The Khosla Ventures Philosophy

Jack Altman

So are you spending most of your time talking about new companies, existing companies? Is that basically all of it?

Keith Rabois

Actually both. We take the current portfolio very seriously. Every single Monday meeting starts with the current portfolio before we ever talk about a new opportunity, because we’re in the build-a-company business. That’s what we focus on. We’re an investor, we’re going to be a partner for 10-20 years. How do we help the company achieve its highest ambition and potential? So we literally start intentionally that way with the portfolio before looking elsewhere.

Vinod Khosla

The funny thing is, in the 40 years that I’ve done venture capital, I’ve not once called myself a venture capitalist or an investor. I always say I’m a venture assistant to entrepreneurs trying to build companies. That’s what our website is focused on. That’s what we talk about mostly internally, how do we help a company change its trajectory, if the potential exists to change it?

Jack Altman

How differently do you see today the ethos of new young investors, versus when you were getting started? Because right now it is such a thing.

Vinod Khosla

Young and old doesn’t matter as much. What matters is, have you built companies and earned the right to advise an entrepreneur? I think most people who advise entrepreneurs haven’t earned the right to advise an entrepreneur.

Almost all the senior partners in our firm have earned the right by helping build a company, being inside a company, and having empathy for the founder. So I think that’s a pretty distinctive feature of how we think of our role. A lot of firms just want to be nice to founders and it hurts the founder.

It’s like saying yes to your kids all the time, no matter what they want. You want them to know you love them, but you’re trying to get them to be the best they can be. That includes pushing them to be the best they can be. I think we both agree our business is much more about helping the entrepreneur build a successful company than about investing.

Jack Altman

I’m newer to this obviously, but it seems like there was some moment in time where the dominant marketing strategy for VC firms flipped towards just being extremely founder friendly, whatever that means. I don’t know if that was 10 years ago or 15. But it was something like that. You guys probably experienced this going through being on one side of it and then the other. I kind of almost lived in that world. But was there a moment or a period of a few years where it just became the strategy for some reason for VCs to go full founder friendly?

Vinod Khosla

Our goal has always been what’s good for the company, not what sounds good or what will get us more referrals for the founder next time. I think this hypocritical politeness, which is pervasive in our business, is really bad for founders. When a founder selects for that, they’re generally a weak founder.

Strong founders almost always select for the best feedback they can get. They also know how to say, “No thank you. I disagree with you.” I think that’s a really important characteristic. One of my favorite thing is… There are two founders who did something called founderschoicevc.com. It was some survey of founders.

What I love is that they wanted to avoid the hypocritical politeness. So they said that only the VCs that you’ve worked with you can vote on, the VC firms. And you can’t say, “We have these three investors. They’re all great.” They forced them to rate them head to head, like a chess Elo rating. I’m very proud that we are at the top of that list among 400 VC firms and hundreds and hundreds of voters.

I think it’s the most important survey for me, to know that in retrospect our founders prefer us. And we prefer backing the same founders again and again. Our LP decks always have a huge component of how many repeat founders have come back to us to work with us.

Jack Altman

Keith, I’m actually really curious because obviously Founders Fund is an amazing firm as well as Khosla Ventures, and the ethos is the same in the sense of wanting to do what’s right for the company. But I think the pathway to get there is the opposite in some sense.

Keith Rabois

The goal of finding bold, ambitious founders and companies is very similar. I think the way we actually practice what we do is very different. Our craft is to be the partner in building the company. I look at my role as being the consigliere to the founder. Sometimes the consigliere tells you that’s a bad idea, and sometimes they tell you that’s a great idea. Then they help the principal, and they’re not confused about who’s the CEO and who’s the consigliere. That’s how I think of my role.

Founders Fund thinks their role is to provide the capital and get out of the way. And if you have an idea where they might be helpful, please call, and we’ll do everything we can to try to help. Proactive versus reactive.

Vinod Khosla

That’s exactly right. Very similar goals, betting on really bold ideas whether they’re popular or not, whether they’re on trend or not. They’ve done an incredible job of that and we like to think we do that also.

Jack Altman

You can imagine how the conversation would play out. On one side it’s, “we should back entrepreneurs that don’t need help.” Then the other side of the conversation it’d be “yeah, but even amazing people can still be helped. Even the best baseball player has a coach.”

Keith Rabois

Yes, even the best best ball players have coaches.

Jack Altman

I knew it, I was going to use sports for you.

Keith Rabois

Or they have shooting coaches even, or fitness coaches. There’s almost no profession where the best at what they do don’t have an advisor, coach, mentor.

Vinod Khosla

Take a really strong founder, like Max Levchin. I’ve never been on the board. The company’s gone public. We’ve distributed, a great outcome. We were the first investors. To this day, Max and I do quarterly phone calls because he wants my help and advice and second opinion on something he’s thinking about. I’m always looking for areas I’ll prod him in to think harder, like “you’re ignoring this or that.”

Identifying Great Founders

Jack Altman

I want to talk about clicking into the source of great founders and great companies. Obviously that’s the center of the work. I posted that I was going to have you guys on the podcast. Somebody said they wanted to hear about this, but Keith, that you can’t say the thing about comparative advantages and you’re like, “but it’s true.” And I think it is true.

But I want to try to click in, as closely as possible, to what makes a great founder. One of the things that stuck with me was you both have said that you guys are basically always aligned on the read of the founder. You might disagree on a market or if this is a business you want to be in, but more or less, you think the same thing about if a person is a great founder.

Keith Rabois

Very rarely is there significant divergence on the assessment of the founder. I can probably name two, three examples in eight years.

Jack Altman

What specifics can you describe?

Keith Rabois

I’ll give you my formula and feel free to edit. Mine is one of two traits. One, I meet a founder and in some dimension they’re the best I’ve ever met in my life. They can be different. They can be the smartest person, they can be the most tenacious person. They can be the best assessor of people. They can be the most strategic. It’s just, “oh my God, top one basis point on some dimension.”

We do mostly first institutional capital, we want to be as bold and as early as possible. What I’m trying to find out is, is there a non-zero chance this person can change a vertical or the world? That’s really it. One of those two things.

99% of humanity is not going to change and reinvent an entire industry, let alone the world. So what’s the probability? Usually the people who succeed have some trait where, oh my god, your ears perk up.

The other exception is that they have a Venn diagram overlap of traits that you don’t see in common. For example, with Max Levchin, I’ve talked about this before. Literally, when I met him in December 2000, Reid Hoffman came up to me and said, “you’re getting ready for your first one-on-one with Max. Max is a first-rate technologist and a first-rate business mind. There’s fewer than five people in all of Silicon Valley that are that.” Reid was dead on. 25 years later, it’s still true. There’s fewer than five people and Max is one of them, and that’s led to his trajectory.

Jack Dorsey, whom we’ve both worked with, is actually a pretty damn good design mind, pretty good technologist, and a very good business strategist. He has three, which is also why he’s been very successful.

Jack Altman

So somebody that you trust refers someone, you’re going to meet them. You’re in the meeting with them for an hour. Are you trying to pull that out in that meeting? Is this work happening outside the meeting?

Keith Rabois

It usually is so strong that it shows up in three minutes. Literally you meet someone who’s the smartest person ever and you just feel this energy.

Jack Altman

Aren’t there some less obvious traits than super smart though, like grit or something like that?

Keith Rabois

Yes, there are. For example, one of my favorite gritty founders told me the story of when he was working at Uber. His team in this foreign country that he just joined—because he was a launcher—was going to run a triathlon on Saturday. And this is Thursday. He’s like, “I want to be part of this team, I want to fit in, I’m going to do it.”

He hadn’t trained at all and didn’t own a bike. So what did he do? He rented a Citi Bike and did the triathlon on a Citi Bike. That shows so much grit. That’s all you need to hear.

Then his co-founder finished second in the spelling bee when he was in high school and passed out due to stress. So he didn’t quit his senior year. He went back and tried to win it. I was like, “there’s a dimension there that you don’t hear very often.”

Jack Altman

So to get some of these ones that don’t show up in a live meeting, do you have certain things that you’re prodding towards? Are you asking more about life than business? Or are you just free flowing and seeing what comes up?

Keith Rabois

No, I actually don’t do the Doug Leone/Daniel Gross-style thing where it’s “tell me about your history and your siblings.” It does work. For those people, it definitely does.

Jack Altman

Have you tried it?

Keith Rabois

It’s usually, “tell them about your company and why you’re doing this company.” And it just shows up somewhere. There’s just a spark, they can’t help themselves.

Jack Altman

Have you tried the Doug Leone thing and it just didn’t work for you?

Keith Rabois

I never really tried it. It’s like when you assess people. Vinod’s been interviewing executive candidates for literally 40 years for companies. There’s a mechanical way of doing an interview where you go experience by experience. Why’d you leave VP of sales? What did you accomplish? What was the biggest challenge? What are people going to say about you?

Then there’s a different way where you interview people that’s a bit more freeform. I’m definitely in the freeform version of the interview.

Jack Altman

Do you do a founder meeting similar to that? Or is it a whole different thing for a founder?

Vinod Khosla

Every situation’s different. I want to add a couple of other things to what Keith said. I think the most important thing is exceptionality in some dimension, whether they’re going to be a good CEO or not. But related to that are two things. In the areas where they’re not good, it’s perfectly good to back a founder if they don’t know an area. Often it’s a professor or something. That’s where the venture assistance comes in that I was talking about, where we can help them be a complete founder.

But also the thing I want to emphasize is, to me what’s key is the learning rate of the founder: how open-minded they are to new ideas and how good they are at rejecting bad ideas. Too many founders just take every idea and try and execute. If a person listens to me all the time, I’ll almost never invest with them because I know they’re not critically examining.

I often take positions I don’t believe in just to test how the founder’s thinking about something. I have a document I put out, it’s a public document on how to do an interview. It is very much freeform. Everybody knows what answers to give in an interview. So how do you get past that? I have an internal document I give only to our founders on how to interpret the answers they get. If I put it out publicly, then every candidate would understand how I’m interpreting so I can’t put that out publicly.

But the first half, I made it public. Here’s how I assess somebody. I have a pretty clear style. It’s usually about putting people in a situation they haven’t been in. It’s not a soft, “tell me about your life history,” because people know how to storytell, and the best storytellers may not be the best candidates.

So you have to get past the obvious answers. “I did this in that company” or “I opposed that, in retrospect”. I think it’s very nuanced. So that’s a great example and ties back to “the team you build is the company you build, not the plan you make.” Because the right team will evolve the plan to the right thing and your initial plan is seldom the right plan.

But if you can help pick the right team in a new context—which is that you’re trying to do something bold and different—that’s a pretty critical part of it. So it’s both part of what we can do to help a founder and why most people are not qualified to even interview candidates. I’ve seen such bad specs for what the company needs. Most of the time they’re wrong on what a company needs to hire.

Keith Rabois

You have a great example in marketing specifically where you talk a lot about the zero-to-n marketing versus.

Vinod Khosla

Most startups are trying to create a brand. If you’ve been marketing at Cisco, you know nothing about creating a brand. You know how to incrementally sustain a brand. That’s a very different skillset.

Jack Altman

I was going to say something even worse than that. How to make this quarter’s number look a certain way so that your manager—

Vinod Khosla

I got in trouble for saying that if you’re at Cisco for more than 10 years, you’re not qualified for a real job in the entrepreneurial world.

Keith Rabois

It’s not Cisco specifically.

Jack Altman

They’re just so different. They have nothing to do with each other.

Keith Rabois

You have to find the dimensions that lead to success for what the startup needs. Then how do you find that trait or that proven ability and make sure there’s a Venn diagram overlap there? First it’s diagnosis and then assessment.

Vinod Khosla

This is the kind of place where venture firms are pretty different. We’ll agree if somebody can advise somebody on marketing, but if you look at a spec a board will put out, it’ll be cookie-cutter, “Get somebody from ‘X’ related business.” It’s just a terrible idea.

Jack Altman

It’s actually a source of a lot of management mistakes, which is that it has to look good on LinkedIn for the board and that’s a disaster.

Keith Rabois

Worst thing ever.

Jack Altman

And it’s really hard if you’re a young founder to stand up to that and the board’s confident.

Keith Rabois

This is the role of a really good advisor or board member. Sometimes just giving the founder confidence—

Jack Altman

Permission to trust their own gut.

Keith Rabois

Just saying, “You’re not wrong.” Just saying that when they’re getting a lot of pressure from somewhere else, especially for a first-time founder. Just saying, “No, you’re probably more likely right, actually.” Then all their instincts kick in and they have enough confidence to just say no.

Jack Altman

Outside of this idea of exceptionalism and finding this dimension of special, basically what you’re saying is if somebody’s B+ at everything, that’s not a good investment for you.

Keith Rabois

Usually an A+ and incomplete. Vinod likes the term incomplete. A+ and incomplete is a really good formulation. The rate of growth is hard to tell in your first meeting. That is one of the hardest things, because you have one dot. Geometry, you can draw a number of lines through one dot.

Jack Altman

What do you do about that? Do you try to go historically?

Keith Rabois

The best thing is you know someone over time. The reality is—

Vinod Khosla

Let me interrupt with my favorite example. For YC founders, the most important question I can ask the partner who’s working with the company is, how much have they learned in the last three months? Three months is enough to tell if they have a high learning rate or not.

Jack Altman

I guess in a fast-moving process, all you can do is basically try to get a data point from the past.

Keith Rabois

Yeah. Once in a while you can try to get data points from external people, but most people have the wrong prism. Unless you ask the question perfectly, unless you can really retrain their eyes, it doesn’t help.

Vinod Khosla

But there’s other ways. Imagine you were in this business that you’re not familiar with. How would you go about learning X or Y? Putting them out of context and having them think through, it’s very easy to tell.

One of my favorite questions… It doesn’t matter whether they’re doing a startup or not. Let’s say they’re a candidate for a marketing job. If I gave you a seed amount of funding to investigate three ideas, which three would you pick? How would you go about evaluating them over the next six months? It’s a pretty simple test. You can tell a lot about a person just based on how they answer that question.

Jack Altman

That’s good. Are there any things that a founder can’t be completely deficient in?

Vinod Khosla

Ethics. No question.

Jack Altman

How do you figure that one out?

Vinod Khosla

Mostly through references.

Jack Altman

Even on that point, a lot of people that seem not so friendly are actually very ethical. I’ve noticed that a lot of the highly disagreeable, intense founders actually have a very strong moral compass.

Vinod Khosla

Yes. That is absolutely true. Because they believe in their principles.

Jack Altman

And it’s the source of both. That’s interesting.

Vinod Khosla

You’ve seen this in the Valley. We were talking about this earlier. People have changed their political affiliation at a whim, not stayed with what they really believe in.

Jack Altman

Yep. We’re definitely coming back to politics in a little bit. I have a lot there. Is there anything around ability to recruit?

Keith Rabois

Ability to recruit is a very important dimension. Can you envision this person hiring the first hundred people? The first hundred are really critical, because those people are going to replicate themselves. Patrick Collison talks about this at length. The first 10 are going to multiply by 10.

Jack Altman

You can imagine somebody who’s really exceptional in some dimension, but you just don’t think they could recruit well.

Keith Rabois

Right, but then the question is, can they parlay whatever unique assets they have into convincing people to work with them? Sometimes they can actually, even if they’re very uneven. Or you can help them. You can help them communicate. Why is this ambition worth chasing? What kind of people do you want? But their energy or their special secret sauce comes through. Let’s say I set you up to interview one of these great founders. I think you would pick up on the fact that this person’s kind of unique, even if you couldn’t articulate the exact reason.

Jack Altman

You just come out feeling that way.

Keith Rabois

You come out feeling like, “wow, that was interesting.” At a minimum, that was interesting.

Jack Altman

One of the things I often think about is that somebody who is good at selling anybody is on some level good at selling everybody around. It’s the same person who can convince candidates and investors and customers and all of it. It all does bundle together.

Keith Rabois

You definitely have to be able to tell a story. At the end of the day, you have to convince people. You haven’t proven almost anything usually in the beginning. You’ve got to convince people to come along on the journey with you. Those are investors, early beta/alpha customers, employees. You have to retain your employees in a hot market. You’re doing some version of that constantly.

Jack Altman

Look back at a bunch of the greatest investments over the last 15 years or so, Airbnb or whatever. There’s a bunch of companies that were not hot early and everybody passed. Is that still the case, do you think? Has the consensus become more accurate? Or is it still the case that it’s random signal?

Keith Rabois

I don’t think it’s random at all, by the way. For example, let’s talk about Airbnb. To me it was obvious three minutes into Brian’s monologue. I was like, “this is the coolest thing since YouTube.” I literally told him this, told him exactly why. It was so obvious to me I needed to meet him. I didn’t like the “air bed and breakfast” name that they were using at the time so I kept rescheduling the meeting, which was a very costly decision for me.

But at the end of the day, if you met Brian for three minutes, there was no way of missing that this team was very special and he was able to convey three key things he said in the three minutes that made me like, “oh my God, this is really amazing.”

Jack Altman

You saw it but most people didn’t.

Keith Rabois

Yeah but I’m saying it’s not random. You saw OpenAI, a company we all know. The key investment decision… Literally, if you read our memo—which we sent to the LPs because it was so much of an outlier at the time—outside Google and DeepMind specifically, this was the only critical density of research-grade people that could possibly pull off AI. That was the investment hypothesis in a rough sentence.

Vinod Khosla

And given all the other stuff—it was a nonprofit, there was no product plan, no revenue plan, just this AI capability—it’s the only time in the 20-year history of Khosla Ventures we sent an apology letter to our LPs when we made the investment. Because it was twice the largest initial investment we’d ever made. We sent an apology letter: “I know it makes no sense, but we are doing it anyway.” Not asking for permission. That letter’s now part of our fundraising deck. We sent it in 2018.

Keith Rabois

Here’s a good example too of rate of growth. It did help a lot that David, me, and Vinod all knew Sam for a long time, over a sustained period of time. So you could see certain lines there. The critical density of talent that he assembled, plus certain traits about Sam specifically, led to that investment.

Jack Altman

As time has gone on and more people are in tech and there’s more founders and more investors, not from people who can really see it but from the average reception to investors, do you think that the consensus hot deal is becoming any more or less likely over time…

Keith Rabois

At seed? I don’t think so.

Jack Altman

You think it’s still the case that these hot seeds are no better than the non-consensus seeds?

Keith Rabois

In my personal opinion?

Vinod Khosla

I agree totally.

Keith Rabois

Rocket Lab was one of the best investments anywhere. I don’t think they would’ve raised money from anybody.

Vinod Khosla

It’s worth $40 billion now. We bought a third of the company for $5 million because nobody wanted to invest in space. Or Commonwealth Fusion, or even OpenAI. We were the only venture investor in 2018 that committed, because it didn’t make sense. I think at the seed level, consensus hot bets are generally around people, not around the idea.

Jack Altman

If you have two people who left, pick your super hot current company… Let’s say an engineer and a designer leave Cursor tomorrow. What’s that going to go at?

Keith Rabois

A lot. But a seed investment around undiscovered people, I think the consensus ones aren’t going to outperform the outliers at all.

AI Investment Landscape

Jack Altman

Maybe just talk about themes that you guys are interested in. I know that you’re mostly focused on people, but you also care a lot about markets and technologies. Maybe start with AI and then we can go outside of AI. Obviously AI is in the midst of playing out. I don’t know what inning it’s in, but it’s probably one of the early ones.

I think there’ve been a lot of changes to what the labs say that they’re focused on. Maybe the types of companies that are getting funded are adjusting a little bit, if you track it every six months or so. I’m curious what you guys see as the lay of the land outside the labs, where you think most of the opportunity lives, what you’re most interested in, what you think is going to be a big deal in the next year or two.

Vinod Khosla

That’s such a broad surface. I think I was counting this. There’s 30-some startups in our portfolio that are building an AI worker of some sort: AI oncologists, AI mental health therapists, AI chip designer, AI structural engineer. As many professions as there are, there’s that many opportunities.

Jack Altman

Basically to fully do the work.

Vinod Khosla

Do the work. One thing we decided a couple of years ago, probably three years ago, we wouldn’t do a lot of copilots. Copilot had just come out and we said, “Copilots, humans get in the way. Let’s just do the work.” So we love people doing the work as opposed to helping a human do the work. Now there’s exceptions to that, but mostly that’s true. That’s a big category. We haven’t invested in any competitor to OpenAI, obviously.

We should come back and talk about it. We are fiercely loyal to our companies. We can talk about loyalty. With OpenAI, I think I was the very first one when Sam got fired to come out and say, “We’ll fund Sam for whatever he wants to do next.”

Jack Altman

The loyalty, does that stem from a business decision or idea, or does it stem from, “this is how it ought to be”? Is it more of an ethics kind of thing?

Vinod Khosla

This is how it should be. It’s about ethics. If I disagree with an entrepreneur, then my job is to sit down, tell them why, and agree that we agree or disagree before taking the right position publicly.

Keith Rabois

If we believe, on the principles, that you’re on the right side, then we’re willing to use our brand capital and audience to help.

Vinod Khosla

Along the AI question you were asking, we’ve invested a bunch in other approaches than transformer models that make sense. We probably have four or five different efforts. They don’t have to replace transformer models. But they’re different because I think the big labs are doing transformer models really well and then doing some other things.

Jack Altman

So what else do you think is promising?

Vinod Khosla

It’s too early to tell. I think any of us who pretend we know this technique or that… We have a bet on neurosymbolic techniques, we have a bet on category theory in math, we have a bet on interpretability that leads to different models, we have diffusion models. There’s plenty of others. I’m very excited about real-world models.

Jack Altman

I was just going to ask you that.

Vinod Khosla

I think that game hasn’t played out yet. It is not clear at all who will win. It’s very clear what the major labs will do in that area, and at least the major labs all have efforts. But I think it’s completely up for grabs.

Jack Altman

And you have no doubt it’s going to work. It’s just a matter of how.

Vinod Khosla

I have zero doubt it’ll work and work increasingly well.

Jack Altman

And it’ll be embodied robots.

Vinod Khosla

It’ll be embodied and more than that. Understanding the physical world… Let me give you an example. This is a public clip we showed. Intuition is a very big deal, and I don’t think current models embody intuition.

So we have a company called General Intuition, based on gaming data. I saw a clip of this. It was a live feed of Ukrainian soldiers trying to escape Russian attackers. We gave the AI half the clip and said, “Replicate the other half.” It replicated the intuition of the Ukrainian soldiers trying to escape almost identically. That’s intuition. There’s many dimensions like that.

But there’s many obvious ones. We all talk about the fact that frontier models hallucinate and there’s probably not a good way to avoid them. There’s ways to minimize them, and the labs will do a pretty good job. But you see the hot agents startups like Sierra and Decagon, they’re completely, I think, missing the point.

We’ve focused on customer support agents that do not hallucinate. If you’re a bank, if you’re a Visa or MasterCard or insurance company, you can’t afford to hallucinate an answer, even if it’s a low percentage. We’ve heard a lot about mental health therapy where bots take people down untoward paths. Those are all examples. So I think the winning customer support thing will be something that does not hallucinate for a class of applications. With some applications some hallucination is fine.

Jack Altman

Are you saying that you think a company can’t just increment its way from hallucinating sometimes to hallucinating never? Those companies can’t just improve their way to no hallucination?

Vinod Khosla

It’s possible, but I think if you architect for low hallucination, know when to use “no hallucination” when you can afford to. Giving somebody’s bank balance, you better not ever hallucinate. I think it’s pretty important to look beyond normal. Lots of people will do the normal extensions of LLMs to lots of applications. It’s a massive market. Lots of people will do it. Every area will have 10 startups.

Jack Altman

Keith, are you interested in hard tech as much, or do you invest more in B2B typically?

Keith Rabois

I’ve invested a lot in AI.

Vinod Khosla

I love your quote about AI and how you’d have done it differently if you hadn’t joined Khosla Ventures.

Keith Rabois

Before I joined KV—I literally rejoined two years ago, basically this week—I had literally invested in zero AI companies before. Since then, in the last two years, I’d say about 70% of my investments have been AI. Had I not rejoined KV, I think I either would have missed the whole wave and been completely irrelevant, or been reckless. Neither one’s good.

What I was able to do when I joined is learn by osmosis. I’d sit in partner meetings and 80% of the companies that we would discuss, in the portfolio or new opportunities, would be AI-based. I would listen and learn. As I started meeting founders, who were interested in AI that fit my normal standards, I could send the deck to three people here—Vinod, Sven, and John Chu, and sometimes Kanu too—get feedback and then actually often have some combination, maybe all four, meet the team.

So when I first started making AI investments, I felt like I had this air cover. They could understand A) how good is the team B) how smart is their approach, how differentiated is their approach? And C) is there anything else in the landscape that’s even better? That allowed me to start making new investments. You then develop some taste and some ideas about what works. You join the board of the companies and you learn how these companies are built and what works, what doesn’t, what are problems, what are not. So now I basically do all AI.

Jack Altman

On the topic of how companies are built, obviously you’re super involved with company building, you’ve built companies yourself a bunch, and it’s something that you talk about a lot. Do you think AI companies are built in any substantially different way?

Keith Rabois

I think it is fundamentally different. First of all, they are growing at rates that are unprecedented in the history of technology. To me, it’s a little bit like running the four-minute mile. Once you see someone run the four-minute mile, then no company should have an excuse for not growing rapidly.

You see all these enterprise companies going from zero to $50 million. You start asking questions. Why can’t you, at least what are the limiting factors? There sometimes are real reasons, but you start with the question of why not? Why not? Versus, oh, that’s impossible.

If you had said we’re going to start a company and have $10 million of revenue in year one from launch, 10 years ago all of us would’ve said that’s impossible. Definitely not the right answer. Now it doesn’t mean every company should do that, but it’s an open question.

Then the question is, what do you do about that? Borrowing from Peter Fenton here, the idea of PMs does not make sense in a rapidly emerging technology field. What do PMs do? They go talk to customers and they create a sequential roadmap over the next four months. If the field’s evolving and the capabilities are evolving—literally every month there’s papers published, you probably read papers every week, let alone things that are launched live—you can’t have a 12-month roadmap. That makes no sense. So you have to rethink that.

Then also, how does sales work with your research team? OpenAI actually pairs, as far as I can tell, the people doing customer acquisition with the research team. That’s a completely different model than how most technology companies were built.

Compensation—this is in the public domain—it’s completely different. People haven’t even thought through the implications. There are so many companies like Meta that can afford, because of how they mint money, or Google because of how they mint money, to pay salaries that only professional athletes could aspire to when we were growing up.

However, if you’re starting, how you can afford that level of cash compensation when you’re not minting money—

Jack Altman

You can’t, right?

Keith Rabois

Well, you still have to compete with people who can.

Jack Altman

Doesn’t that go to your “diamonds in the rough” type of idea?

Keith Rabois

That’s one possible solution. Or you’ve got to hire people that don’t care about short-term cash comp and have a different missionary zeal or different orientation. Or you’ve got to take a lot of money from somewhere else that you’re not paying for. But very few people have thought through company building from scratch if you need research-grade talent and you have to compete with the market. How do you reorient the entire P&L of a company?

It depends on what you’re trying to do. It depends on what market you’re in and who you’re competing with and how much cutting-edge AI talent you need. Do you need one person? Do you need a team of 10? Those are all very different. There’s a lot of financial consequences to those.

Jack Altman

Let’s say somebody is building a new AI-centric system of record or something like that. How different do the first 30 hires look like? Could you guess what you think that might approximately look like?

Vinod Khosla

I think it’s very different. First, the whole idea of systems of record is going to change pretty dramatically. It may be that the old systems of record don’t go away, but the operating substrate is wholly different. In fact, most likely that’ll be the case.

Take ERP, a hot area. It’s really becoming unbundled. There’s procurement and then there’s finance. You can go through the various modules in an ERP system. If you don’t have the right substrate to have it operate under an agent architecture, you’re not going to have huge success.

It used to be that in the ERP system it’s, what features does it have? I’m a manufacturer, do I have manufacturing features? I think now it’s about how do I reduce the number of people I need in accounting or supply chain or others. One of my favorite examples, we invested in DualEntry. They have a client called Slash that does small business lending. It’s a complex business. It’s both regulatorily complex, and you have credit scoring and all those complex areas. $150 million ARR company with only one person in accounting. That was my reference when we invested. Why? Because the architecture’s right.

By the way, these aren’t founders who are credentialed. I think they’re from Venezuela. Really great people, love entrepreneurs. That was number one, we loved the entrepreneurs. Loved the architecture, loved the impact. The benefit is very different from a feature list.

Jack Altman

Here’s another difference. For example, if you traditionally built an ERP-ish system of record or whatever, you think your defensibility would be around the number of integrations you would do. Think Rippling. We have all these integrations, blah, blah, blah, and it creates a big moat. With things like Cognition Devin, doing a hundred integrations is something you could actually feasibly do in a month at very low marginal cost.

Jack Altman

Totally. A company like MuleSoft makes no sense now.

Keith Rabois

Exactly. So a lot of these incumbents are much more vulnerable, I suspect.

Jack Altman

Given that you’ve got all these different intentions for the company, the way success is measured, the way you build a company, the old playbooks, to whatever extent those ever were any good, are definitely no good now. Have you found that retraining, for lack of a better word, experienced execs who came up in pre-AI ports over well? Do you have to be more cautious with that as you’re bringing in higher execs into new companies?

Keith Rabois

I think it’s fun and challenging. I’ll give you a good example. One of the best companies ever is going to be Ramp, but Ramp started in the pre-AI era. We’re very AI-forward. We’ve talked about this publicly, there are stats about it. We’re leaning in, we’re hiring AI-native people constantly. We have the best intern pool on the planet for the last three or four years in a row.

But we actually have to rethink the company because we really started in 2019. So we have a lot of things that were based on doing the best possible version of a technology company in 2019. That’s changing. It’s an interesting board-level conversation that we have of, “wow, should we rip up everything we’ve learned, or which pieces should we rip up so that we can be the best company in the next 10 years?” If Ramp’s doing that, imagine what every other company should be thinking.

Vinod Khosla

Here’s my way of explaining this. Most experts are experts in a previous version of the world, not the one you’re trying to create. So fast learning, and I come back to that, is much more important than lots of experience in this AI world. How you do anything—computer architecture, system integrations, marketing, customer support—all that is so radically different. You want rapid learners, whether they’re experienced or fresh.

Keith Rabois

Let me give you a mundane example. Think Lattice back in the old days. Right now in enterprise, because of the hype of AI, top-down sales can work extremely well. The CEOs feel pressure from their board to be AI-forward. Their executives feel pressure to be leaning into AI.

Historically, it’s not the best way to build a company, to depend upon top-down CEO sales. But it actually does work in certain verticals right now extremely well. So the whole go-to-market playbook, you have to rethink too.

Jack Altman

It’s funny, like in legal or a couple other categories, they just want to buy AI even more than what the specific solution is. It’s like, “we have a big budget for AI.”

Keith Rabois

In the short term, they have the budget. They may not care about the impact. In the long term it’ll harmonize. You have to produce results ultimately. We care about that. We evaluate it. When we look at application-level companies, the actual impact you’re driving for your customers is a key input.

Jack Altman

But I assume if you have a founder you love and there’s this crazy market pull, even if they haven’t worked out all the pieces yet, that’s a good enough starting point to bet on.

Keith Rabois

If they really understand that they need to, versus just chase revenue.

Other Investment Areas

Jack Altman

You said 70% is AI, so there’s other stuff you guys are interested in. We talked about robotics last year.

Vinod Khosla

Robotics is AI. We’re pretty big on robotics.

Keith Rabois

One thing people know less about us—but we’ve been consistently excellent at it across the history of the fund—is in financial services. We have this point we make to LPs that in every single fund we’ve had, we’ve returned the fund solely on one financial services investment. So we love things like Square, Stripe, Affirm, just as examples in the modern stuff.

Vinod Khosla

First investors in all of those, except Stripe where we were second.

Keith Rabois

We have Aven, which is a very excellent company.

Vinod Khosla

It’ll be the next surprise Stripe.

Keith Rabois

Upstart was incredibly successful. We did some of the seed and led the A.

Jack Altman

Has finance gotten less AI-ified than other areas?

Keith Rabois

People are using it maybe not as strategically yet.

Jack Altman

You think it’s because people are a little scared, or rightfully scared? Because I do feel that the fintech companies of the last era seem more insulated from the AI wave and threats. I haven’t seen as many—

Keith Rabois

Some of it is hallucination concerns.

Vinod Khosla

Aven is a good example of a company that’s deeply using AI in every aspect of it. That’s why you can get a home equity line of credit and consolidate all your credit cards onto a new credit card that has a 10 points lower interest rate.

Jack Altman

Then they have your credit card.

Vinod Khosla

They issue a credit card based on your whole home equity line of credit. They can get it done in an hour. Normally that’s weeks and weeks.

Jack Altman

AI is what makes it possible to go so fast, which makes it fit in the right way into the process.

Keith Rabois

And Ramp’s using AI very aggressively, but I think it hasn’t been quite as transformative across the broader sector.

Vinod Khosla

The thing is, there aren’t too many great fintech companies. I would venture to guess Ramp and Aven will end up being two of the best of the new breed started in the last five years.

Keith Rabois

I agree with that. So that may be true. Once every so often there’s an amazing fintech opportunity, at least in the United States. There’s been Nubank and a company in Germany, Trade Republic. They’re awesome. Revolut. But in the United States it’s once every two or three years at most that you have a true iconic company—

Vinod Khosla

That can get to tens of billions or $50 billion or a $100 billion market cap. There’s not that often. So I do think the next generation will use AI in a very significant way.

So fintech’s a really interesting area. We still do a lot of sustainability stuff. I’m really bullish on energy. We are very bullish that that area will keep sustaining. By the way, manufacturing is another area we haven’t talked about. It’s a huge interest for us. Defense is another huge interest.

Jack Altman

What in manufacturing?

Vinod Khosla

Applying AI to completely change the paradigm of how manufacturing is done. As part of that you can onshore stuff that was offshore. So it’s these two trends colliding.

Jack Altman

Is robotics part of that too?

Vinod Khosla

It is part of that. It’s not the most essential part.

Jack Altman

What’s essential?

Vinod Khosla

Essentially reducing labor costs in other ways. Not by a robot doing the job, but running a system in a way… An iPhone assembly line would have a few thousand manufacturing engineers. If you can do that function with AI, then you have a pretty large advantage manufacturing onshore.

Jack Altman

How much of the opportunity is that the points of creation of goods versus the operations and logistics around a manufacturing company?

Vinod Khosla

Both. We are seeing both. Supply chain was a minor part of all ERP, we talked about that. There’s going to be lots of opportunities to replace supply chain software with new AI software.

Jack Altman

Then in defense, obviously with Anduril, SpaceX, there’s huge inroads here. Is your guys’ sense that there’s a lot more opportunity for those flavors of companies to be built? Will those companies dominate in their markets? How do you think about how those markets will play out?

Vinod Khosla

I think there’s room for lots of new startups. We are big investors in Hermeus. That was not started in the current fashion. It was started five years ago to do hypersonic aircraft. I think that’ll be an important part of national defense. It’ll become even more prominent because Russia has used hypersonic missiles in Ukraine and we don’t have any. So that’s an important area we did a while ago. There are many other areas. Keith, you can talk about Mach and some of the others.

Keith Rabois

We’ve been concerned geopolitically about the threat posed by our adversaries, the CCP, etc. Vinod got involved in The Hill & Valley Forum before it was cool. He was one of the first 20 people when it was sitting up to alert—

Vinod Khosla

By the way, under a Democratic administration because it was a common concern.

Keith Rabois

The country needs to take advantage of the best and brightest in technology and cutting-edge technology, or we are going to sacrifice our way of living to people who do. We started investing in things like that ahead of the curve. There’s now more interest among VCs because some companies are perceived to be doing quite well.

VCs are always like a herd. But we invested in Varda, which has a significant defense component. Mach Industries is a very high potential company.

Vinod Khosla

Rocket Lab many years ago.

Keith Rabois

All of these were before it was “cool”. Now the country needs to take advantage of technology. The country has more threats and more potential adversaries to worry about. It has to do it with less money. It has to survive or thrive with less money.

Technology is a great magic wand. It has been for consumers for 40 years. You get more for less. The government needs to embrace that. This administration is putting people like Emil in place, hopefully to catalyze a new world order where we take advantage of technology and make America better.

Politics

Jack Altman

On politics, both of you are pretty willing to get into politics stuff on Twitter/X. You have very different politics obviously.

You both are willing to just get into, I don’t want to say “fights”, but fights on X about politics and stuff. It clearly comes from strongly believing in what you think. Why spend the cycles on it?

Keith Rabois

I’ll give you my answer. I don’t actually know yours. Through technology, I developed a following. I woke up one day and said, “I don’t want to die one day and regret that I didn’t use my audience to proselytize about ideas and things that I find important.”

So if I can surface new ideas or rebut bad ideas, I want to finish my life thinking I did the best I could to have influence and have a platform. So I started using it that way, particularly on topics related to politics. I was just like, “I don’t want to regret having not tried to change people’s opinion”.

Jack Altman

Are you stressed at all? When you’re getting into it on X with somebody, are you feeling anything about it or are you just, “oh, I’m just saying what I think”?

Keith Rabois

There’s times when I wish I had more time to research, if I didn’t have a day job. I know how to construct an argument, I know where all the evidence is. There’s a time when I don’t have time to go do that. My friend David Sacks back in the day hired a research assistant secretly to help him. I don’t have time to do that.

So there’s times when I happen to know the answer. I used to be very involved in politics, I know a lot of details. But I do wish sometimes that, if I wasn’t doing a real job, I would be spending more care and marshaling more evidence, and probably be more effective.

Jack Altman

One other bit that I’m now curious to ask about because I think it’s funny, is that you’re kind of harsh on Twitter, but you’re really friendly in person. Is that just how you write, or do you mean to? Are you doing it for the bit?

Keith Rabois

I also have this crazy idea. This is a dumb idea. A decade ago, I was like, I’m going to combat every bad idea on the internet with the worst idea. If someone puts a bad idea or something wrong, false out there, and nobody responds, people think it’s true. LLMs are going to pick it up and think it’s true. I’m just going to respond so at least there’s a written record. But there’s so many bad ideas and dumb ideas in the world that this is like the worst idea I’ve ever had in my life. You get addicted to trying to fix every mistake on the internet.

Jack Altman

I like the ones where you don’t even explain what the problem is. You’re just like “Wrong.”

Keith Rabois

That was a funny Square joke. It was an old Square joke. We had this critic at Square named Rakesh and he used to just constantly complain about Square. It was never going to be successful and he knew payments for 20 years. He’s a canonical expert in payments. So sometimes I’d engage and write back substantively, but sometimes he’d be so far off, I’d just write “Wrong.” So it became this internal Square joke and it became a meme. That’s where it started.

Jack Altman

That’s good. Why are you motivated to get into it online?

Vinod Khosla

I don’t spend very much time. On all of social media I probably spend less than an hour a week. So if I incidentally run into something that is blatantly wrong, then I’ll express an opinion. But I won’t even have the time to read the replies.

Jack Altman

So if you’re fighting with somebody on X about whatever and you’re getting all these replies, you’re not bothered?

Vinod Khosla

I’m not bothered. But if something’s an important idea or something… Usually it’s some principle somebody’s violating. Like this weekend I happened to run into a tweet by Bill Ackman that was sucking up to Trump on capping interest rates at 10%. He’s sort of recommending that idea and then saying, “Maybe there’s a market approach”, hedging the truth. He’s clearly a market person.

So I replied to him pretty bluntly. I like Bill, he’s a good guy. I know him. But I just couldn’t let that pass, sucking up to Trump on a truly bad idea of capping interest rates. It’s almost like Trump and Kamala Harris would have the same idea: price controls. Come on, speak up! Don’t be dishonest about your opinion and he was being dishonest. So when it bothers me, I reply. But I don’t spend a lot of time and I don’t have a lot of time otherwise.

Keith Rabois

I do it mostly when I’m in an Uber. You know you have these moments where it’s really hard to be effective. I just use it as a snack while I’m in an Uber ride, I’m not going to be able to schedule a call while I’m in an Uber ride. So I—

Jack Altman

Get on there and dunk on someone?

Keith Rabois

The worst is when I do it when I’m eating, which is a bad habit truthfully. I’m having breakfast and I’m on Twitter or something.

But when I started, it was actually a business reason. I was kind of famous back in the day at Square. I read every single tweet, every single day, about Square for years. Because occasionally you’d see a gem. It’s either a great story that you could re-share, a positive experience like “you helped my life” and you get this great anecdote. Or you’d see a customer complaint and you could route it directly to someone. Or you’d see a product feature. So I literally started every single day reading everything. But then that gets you in this trained habit of having to read everything. Maybe not the best.

Jack Altman

10 years ago maybe, you were one of the first vocal conservatives.

Keith Rabois

Maybe the only one.

Jack Altman

Maybe the only. I think now you’re maybe one of the only vocal, at least liberal-leaning—

Vinod Khosla

I’m an independent for the record. I’ve never been a Democrat.

Jack Altman

So what was the political journey?

Vinod Khosla

I used to be a lifelong Republican over fiscal issues and switched to independent over climate issues. I’ve stuck with that pretty consistently. Principles matter a lot. My fight against Trump is his values. He has none. We can disagree, or he tries to go to extremes to get his constituency rallied around him. Either way, I don’t like the idea that people don’t mind lying about things.

Jack Altman

When you watch that and it’s violating your principles… You’re seeing everybody around you. What is your assessment or read on the situation? Obviously 10 years ago this wouldn’t have been the dynamic and it all flipped.

Vinod Khosla

Clearly people have changed their affiliation for convenience. Doing things for convenience is a bad idea. Now I realize some CEOs have responsibilities to others other than themselves. Some will just change political affiliations, and if the next president is Bernie Sanders, they’ll become liberal again. That I hate.

Keith Rabois

I agree. By the way, I don’t like the convenience. I believe in principles. A reasonable fraction of people, I think that’s true. Then I think there are some who just watched the evidence of a lot of things the last administration did badly and jeopardized the country in some ways. Then some things that Trump has done have clearly worked or seem to be working at least. And for some people, it is fine to change your mind based upon evidence.

I would say there’s an element of convenience too. There’s probably a mix. It’s hard to sometimes know who’s who and what camp and all that stuff. Then there are some who have customers and employees that they have to represent, absolutely. That’s an important consideration. So for example, if you have significant government contracting revenue, you do have to think that. You’re fueling your families, your employees’ families. There are real responsibilities.

Vinod Khosla

There are responsibilities. You see them from a number of companies where they clearly, fundamentally haven’t changed their principles, but they have to take the responsibility of the role or get out of the role.

Jack Altman

It’s also interesting because it’s new for tech to even care, or for it to even be reasonable for tech to care, about politics. It just didn’t matter in the past. Also it was not possible. Tech was much more monoculture on the left before. There also just weren’t government-related tech startups.

Keith Rabois

Some of it is that the government has found tech much more interesting for a variety of good and bad reasons probably. You could argue that the best thing ever was that tech was built mostly on the West Coast, far away from Washington. It allowed tech to thrive and invent itself without a lot of scrutiny. Because generally speaking, government scrutiny early in emerging technologies is not a good thing.

Jack Altman

This is why I’m afraid of AI regulation. What are the odds of getting it right? It just seems hard to do.

Keith Rabois

I think that’s a real risk with emerging technologies. The government is less likely to be right than wrong on something that’s rapidly emerging. Maybe when something stabilizes, the government might have a better predictive accuracy record or something.

Jack Altman

You obviously need regulation at some point in these journeys.

Keith Rabois

But then you also have to think about the rest of the world. Vinod, even though he’s probably a little bit more pro-regulation generally speaking than I am, has been very concerned about losing AI to China and what that would mean for this country. If you have a threat, you have to think very carefully about regulating a new technology if you know a very serious adversary is putting the pedal down and isn’t constraining itself.

Jack Altman

They’re really good at robotics, they’re really good at manufacturing.

Keith Rabois

They’re really, really good at robotics.

Vinod Khosla

Look, it’s very clear. Four years ago at The Hill & Valley Forum I talked about how we are in a techno-economic battle with China. We must do everything to win and everything we can to disadvantage them. It’s just the truth.

Jack Altman

What does that look like? What needs to happen there?

Vinod Khosla

I think too much regulation in AI would be a really bad thing. State-level regulation is a horrendous idea.

Jack Altman

Just generally?

Vinod Khosla

They just don’t understand the global implications. Not everybody abides by American rules. The Chinese for sure don’t. So I think we have to be realistic and pragmatic about what battle we are in. Over the next 10-15 years, economic superiority is up for grabs and we’ve got to win or we’ll live under President Xi’s rules.

Jack Altman

Obviously you’ve talked about this a lot too, the China stuff.

Keith Rabois

It was a bipartisan effort four or five years ago, and fortunately it was very effective. It started changing people’s minds. There were a lot of people that were very naive about the threat five years ago. There’s still debate about whether we should export this chip or that chip, what the restrictions should be on different technologies. There’s a lot of nuance to this, but at least the central idea that we just cannot lose this race for AI is pretty mainstream now.

Jack Altman

It’s part of why a lot of the America-centric companies and investment firms are really resonant for people. People want to work at those. There is a growing patriotism out of necessity.

I have a final question for you, Vinod. Did you see the report that Keith went to Barry’s 2,000 times last year?

Vinod Khosla

Too many times.

Keith Rabois

It’s only 430 a year. The interesting thing about it is, literally this morning I went to Barry’s at 7:10 AM and a founder comes up to me after class and says, “Nice to meet you.” I was like, “what do you do?” He said, “I run an AI company detecting cancer, funded by a16z.” I was like, “that’s cool, that’s interesting. Who knows if one day we’ll invest or whatever.”

But he said, “thank you so much” and I said, “what are you talking about?” He said, “I started getting myself in shape by going to Barry’s because I read about you doing it.” So you changed someone’s life indirectly through that, that’s actually really rewarding.

Jack Altman

It’s a bit much, but it’s good.

Keith Rabois

That was just this morning.

Jack Altman

That’s great. Alright you guys, thank you very much for doing this. I had a great time. Really appreciate it.