Legendary Investor Outlines His AI Thesis in 14 Minutes — Bill Gurley

AI bubble or not? [laughter]

[snorts] And if so, what does that mean?

>> Yeah. So, I think this is super interesting. My my partner Peter

interesting. My my partner Peter reminded me of a book that we had seen a a while ago by Carla Perez. It has

[clears throat] this very benign title, Technological Revolutions and Financial Capital. It was written in like 2002.

Capital. It was written in like 2002.

And what Perez kind of simplifies and notices, which I just find perfect for trying to understand whether there's a bubble or

not, is that every time there's been a technology wave that leads to wealth creation, especially fast wealth creation, that will inherently invite

speculators, carpet baggers, interlopers that want to come take advantage of it.

think of the gold rush, you know, and so people want to make it a debate. Do you

believe in AI or is it a bubble? And if

you say you think it's a bubble, they say, "Oh, you don't believe in AI." Like

this gotcha kind of thing. And if you study Perez, and I I think this is absolutely correct. If the wave is real,

absolutely correct. If the wave is real, then you're going to have bubble-like behavior. like they come together as a

behavior. like they come together as a pair precisely because anytime there's very quick wealth creation, you're going

to get a lot of people that want to come try and take advantage of that or participate in it. So, you get a flood of those types of people coming at it.

And so, it's odd. There's a real technology wave that's that's fundamentally changing the world and there's also massive speculation

simultaneous. Yeah, they come as a pair.

simultaneous. Yeah, they come as a pair.

I recall not too long ago, maybe two weeks ago, saw a short interview with your friend Jeff Bezos and he

distinguished between financial bubbles and industrial bubbles and cited and I'm paraphrasing here, but 2008 as an example of a bad bubble, right?

financial bubble versus let's just say the early 2000s like 99 98 99 2000 where

a lot of very important technology was created that then was durable after the fact and created new generations of entrepreneurs and a lot of economic

growth and he believes that AI would fall into the industrial bubble category of things. But I suppose given that the

of things. But I suppose given that the dancing pair you described come together, how would you [clears throat] think about investing in private

companies, modern venture capital at this point in time? And just I suppose as it's changed since you were most active, >> a quick comment on that industrial

bubble thing. You know, one thing that

bubble thing. You know, one thing that is surprising to me is that [snorts] even though I fundamentally believe this is an important real technology wave,

the big players, even the Max 7 have all decided to do things from a deal perspective. You've read about these

perspective. You've read about these circular deals and whatnot.

>> Could you explain what you mean by that?

>> Yeah. I mean, there's a lot of talk out there, but it all started when Microsoft invested in OpenAI, OpenAI agreed to buy services from Microsoft. Yeah.

>> Which is called a circular deal because you're giving them money they wouldn't have otherwise.

>> And when Daario was on stage at Dealbook last week, he said, "Oh, I can explain this. It's not that hard. Amazon wanted

this. It's not that hard. Amazon wanted

us to spend money we didn't have, so they gave us even more money." And I'm like, well, that's precisely why this is a questionable behavior. But it's gotten bigger. You know, Nvidia's handing out

bigger. You know, Nvidia's handing out money, and then Nvidia gave Coree money, but then also agreed to buy any services they have left over. this stuff's not ideal. Like if you were to say,

ideal. Like if you were to say, [clears throat] "What's crisp, clean accounting?" You know, you wouldn't do

accounting?" You know, you wouldn't do these kind of things. And some of them say, "Well, it's not material." And

which I would say, "Well, then why are you doing it?" I've asked other people to try and understand how even big sophisticated companies might get speculative using a word from the

previous discussion. And I hear things

previous discussion. And I hear things like, well, you know, loss aversion tends to go down when you're winning.

Like if you're on a hot streak in a casino, you take more risk. Things like

that. But it is surprising to me. When

it comes to retail investors, I mean, I would be particularly concerned for them at this stage in the

AI game because there is a plethora of SPV vehicles. You've heard that phrase,

SPV vehicles. You've heard that phrase, I'm sure, SPV. This [clears throat] is where someone has an in on an investment and they do a oneoff VC fund if you will >> special purpose vehicle.

>> Yeah. It's a single entity just for that >> to invest in X. We have an allocation of however much money and then they can allow sort of Jane Doe and John Doe potentially

>> and they take a rake on it and there's people promoting SPVS in situations where they don't even actually have the underlying stock or maybe they hope to

get it. It's the wild wild west and most

get it. It's the wild wild west and most of the people on that edge I would put in the category of interloper carpet bagger these are people that have come

to this thing and I just think you got to be quite careful the the investments that were made that have already had 100x plus returns were made a while ago

you know before this thing started >> and that's not to say there won't be an incremental AI investment that makes money I think there But your odds right now of of that being the case are really

really low.

>> Yeah, I would add to that and say, and this this applies to me as much as anyone else, but your actual risk tolerance may differ probably does differ

significantly from your your perceived risk tolerance if you haven't had a huge draw down, right? If you haven't actually ridden a few of those waves and see how you respond in those

circumstances.

And you should be, I suppose, skeptical of how you view your own intestinal fortitude with some of those things or maybe the losses you can absorb because I recall, for instance, I've seen this

many, many times, but with these types of SPVS, people get involved and let's just say they're not typically an angel investor, they don't have the experience

of watching 60, 70, 80% of their investments go to zero or become the walking dead. and they sign off on all

walking dead. and they sign off on all of the not necessarily waivers, but they accept accept accept on like the SPV terms of service, which all say you could lose all of your investment. This

is incredibly risky.

>> Yeah.

>> But then when it does go to zero, you know, the financial and psychological impact is catastrophic.

>> There's a lot there's a lot of people, and I think this comes from a very good place. I think they're very

place. I think they're very well-intentioned who look at the world and say, you know, well, first of all, you know, rising inequality, like why

can't everyone have access to the same things? And and then companies are

things? And and then companies are staying private longer. So they say we need to institutionalize the generic public's ability to invest

in private companies. And the problem, I think there's two problems. one you just hinted at which is most private company VC backed even go to zero like the

majority which is not something people really they sense that they want the lottery ticket they want the the Uber they want the one that goes to the moon >> but they don't understand that that

comes along with it >> they don't want to buy losing lottery tickets for 12 years >> right exactly and the second problem is the information transparency in the

private company game is just low. And I

think the institutional investors have come to understand that and kind of know what they're getting into and know how to evaluate things. But if you come at it with a public market mindset

thinking, oh, every set of financials I've been handed is is audited and is correct and like that's just not the case. It's it's super loosey goosey. So,

case. It's it's super loosey goosey. So,

if you were, this may be a difficult question, but if you were angel investing right now, how would you be thinking about your approach?

>> I'll tell you a funny story. When I

decided to hang up my gloves, if you will, and stop making institutional venture capital investments, I had a whole bunch of ideas about what I wanted to do next. And one of them was, oh, I'll do a bunch of angel investing. You

know, Bezos did it on the side. You

know, this would be fantastic.

>> He did pretty well with his angel investing. I was explaining this to a I

investing. I was explaining this to a I won't say who it is but a a Silicon Valley CEO very successful and he said what are you going to do now? I said I was thinking of doing angel investing.

He goes why would you do that?

[laughter] He said I got 50 of these things. People

don't return my calls. He goes I [clears throat] wish I'd never done it.

[laughter] So there is a unglamorous side to it as much as there is a glamorous side. And

you've participated in this world before. What would I say? I think if I

before. What would I say? I think if I were doing angel investments, I'd try and find an intersection of people that are super curious and are playing with

all these AI tools, but bring a perspective from a particular industry that gives them an advantage in that area where they could simultaneously be

maybe the smartest user of AI in their genre, in their vertical. So despite the or maybe because of because we talked about the pair

the AI bubble, you would still be looking at AI intersected opportunities if you were angel investing.

>> Yeah, there's a weird reality out there right now and this could end if ever a bubble has popped or whatever, but the institutional investors have zero interest in non AI deals.

>> Mhm.

>> Zero. It's more black and white than I could be successful in >> for people who do not know the term.

Define the institutional investor.

>> People who are paid both a a salary and a piece of the return to be active investors of other people's money using other people's money. But the reason

that kind of matters is if you angel fund a deal and have any hope of it raising money in the future, if it's not AI related right now, >> could die of neglect.

>> There is no interest. I can't state clearly enough how there's zero in and I could I could [snorts] simultaneously make fun of that reality, but I could

also justify that reality, but it is the reality right now. And by the way, while I mention that, I feel obligated for your audience. Like, I don't care what

your audience. Like, I don't care what field you're in, you should be playing with this stuff.

>> Like, it has the potential to impact your role in your career. And the best way to protect against any risk of your

career being obuscated or eliminated from AI is to be the most AI enabled version of yourself you can possibly be.

How would you think about maybe you can give a hypothetical example of looking for someone who has very very sophisticated domain expertise

and experience who's now intersecting with AI and has a unique because of the combination perspective on things to invest in as an angel investor separate

that from something that's just going to be consumed by the fundamental the kind of fundamental models and these larger companies >> from a career perspective. perspective

or >> from an angel investment perspective, how would you pick folks you don't think are just going to end up working on something that gets replicated in short order by the bigger companies?

>> The key is just to stay pretty far away from the edge of whatever. I mean, you can go online and see interviews with people at Anthropic or OpenAI and what they're working on. Like, if it's the

next thing they're going to do, >> I don't think you're going to be protected. But as I think about, you

protected. But as I think about, you know, founders and angel investors, you're talking about a pretty broad array of things at this point. As I

mentioned earlier, you're not going to back the next big model company.

Besides, if if you were, you need a billion dollar angel investment to go make that happen. Like, it's just really the game's changed. There's so much money involved. I think you're going to

money involved. I think you're going to want to be off the beaten path anyway.

When I think about these deeper verticals, I don't think it will make sense for open AI to go crush every little vertical >> waste management.

>> And even if the model's capable of understanding that subject matter, there are workflows, there are data sets that are local to your customer and that

stuff has to be stitched together. Mhm.

>> So I think having an understanding of a particular industry and and one that's not going to be on the next thing to do list at OpenAI would probably be your best bet.

>> Got it. So is it fair to say if I'm understanding you correctly that effectively looking for something that would not be a high priority for one of these larger companies and also a proprietary data set of some type?

proprietary data sets. The more kind of workflows that exist are are better because you can build software around those things.

>> What is a workflow?

>> The thing that popped in my head, I'm on the board of Zillow. You know, Zillow's been investing for the past 5 years in tools that help the realtor do their day-to-day job.

>> Mhm.

>> They have a tool called Showing Time that helps you book inerson tours at houses, as an example. But there's

putting the mortgage together, getting the sign offs on, like there's just all these tasks that have to be happen that can be automated.

>> Tasks that can be automated that can be integrated with AI. The more of that stuff you can build into a system, the better off you're going to be protecting yourself from a model that just answers

questions, right? Which is why which is

questions, right? Which is why which is why I brought it up.