Final Thoughts and Market Predictions

The world going forward, there is going to be nothing that no one can build. Everyone is trying to commoditize the other. Value accrual is a time dependent phenomenon. So many of the tasks that we're doing, we don't need the very frontier to do it. We might see a short -term contraction of usage of the very frontier models. I think it's pretty embarrassing that we don't have frontier open models in the United States. Name a legendary company that has a shit sales or marketing team. You can't. The age of the polymath is back. All right, you have a meeting with the Sequoia partnership tomorrow morning. Be ready to present. No one else would have believed in me except him. We will see the best companies treat teams more and more like whatever SEAL Team 6 or NBA, like professional athletes. So I invested millions of dollars in the founder that we're about to meet, and I invested millions of dollars on a walk around Hyde Park after about four minutes. He was that compelling. Meet Matan Grinberg, CEO and co-founder of Factory. Before Factory, he literally never had a job. He was a physicist, okay? He spent 12 years trying to be one of the best string theorists in the world. Now he's changing the world of software development. He raised money from Sequoia. The first check was a million dollars at five million dollars. He just raised an incredible round at one and a half billion dollars. He works with some of the biggest enterprises in the world. He does look like Matt Damon from Goodwill Hunting. So what a treat if you're watching on video, but he is one of the best founders I've met in the last year, and that's why I wanted to write him a multiple million dollar check after just five minutes. But before we dive into the show today, here's a question for any founder listening. What would your marketing team do with an extra 30 hours a week? That's roughly what teams get back when they stop manually building every campaign, every work flow, every email. 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While Granola handles the recap , Superhuman handles the inbox. I do this show three times a week. That means three sets of research, three sets of prep, three sets of follow-up, and about 400 other things in between. My inbox does not sleep , and neither do I, which is why I look about 700 years old. I was using AI tools, but honestly, most of them just made it worse. Another tab, another window, copy this, copy that. God, I couldn't even keep up. That's why I started using Superhuman Go. It's an AI chat that's always there when I need it. Already up to speed on what I'm doing. Last Tuesday, two minutes before I went live, I had a 40 message thread I hadn't read. I asked Go to summarize it right there in the inbox. No new tab, no switching apps. From the makers of Grammar Leap, Superhuman Go works inside the tools and sites that I already use. Inside my browser, my inbox, my docs. It handles the really repetitive stuff. So I can just focus on doing hopefully great shows. AI that works with you, not on top of you. Superhuman go keeps up so you can move forward. Find out more at superhuman.com. You have now arrived at your destination. Matan, it is so good to have you in the studio. You've just uh insulted my continent with the suggestion that we've only come up with bottle caps while you came up with transformers. Not wildly untrue . But this is gonna be a fun show, so thank you so much for joininging me. Thank you for hav me, Harry. It's a pleasure to be here. Now I was just doing a show yesterday with Rory and Jason, and Rory was basically saying: the fundamental question is: will we see an increase in GDP coming from AI and the coding developments that we're seeing and will it lead to GDP increasing above the two percent average for the last two hundred years? Do you think we will see meaningful productivity gains from the AI tooling that we're seeing, or is Uber's concerns validated? So I think yes, absolutely we will see tremendous growth from these tools. I think it takes time to permeate through. Because you can tell like on an individual basis, like almost like on a problem by problem basis, we can solve problems faster with these tools Now, companies generally organize around solving problems. If you're organized around solving problems and you have some set of personnel, you might say this is the number of problems we can solve at a given time based on how many people that we have. Everyone is now going to be able to solve more problems with the same number of people, or solve the same number of problems with fewer people. But it takes time for the resource allocation to adjust. A lot of businesses will have to ask: do we want to solve more problems now because of the increased leverage that we get? Or do we want to solve the same problem, but now we can do it in a more efficient manner? That's I think a question that a lot of businesses will be grappling with. Do you think we will have fundamentally smaller teams, which ultimately suggests that number two is the option that most people take? Or do you think we will have actually the same size teams and we'll just go after a more expansive area? Aaron Powell It's really not obvious because there are dynamics that it's hard for me to predict. But what I will say is again, bringing it back to problems, all of these companies are now going to have to think, okay, we have all this new leverage. Do we want to solve the same problem? Do we want to increase our ambition and solve a bigger problem? Or do we want to solve more problems our users maybe have? Aaron Powell I was watching Andre Capathy and he was talking recently about you know the 10X engineer actually is wildly misunderstood and you won't see the 10x engineer, you'll actually see a small er number of hundred X engineers and kind of the rest and this bifurcation of engineering talent. Do you think that is the right way to look at the future of engineering talent? I think directionally, yes. Because what is a 10X or 100 X engineer? I I don't necessarily agree with the language around it, but like I think like uh it just implies as if like ten X ten X of what? Is it pure output? Like if you when you say 10x it, means like how much code they're writing. Yeah, now I can write a billion lines of code with these tools. It might be shit lines of code, though. So the way that I like to think about it is like load-bearing individuals in an org. It's kind of like if you remove this person, things fall. Where there in some orgs there might be people where if you remove them, nothing happens. And they're you know not load-bearing in that case. And so basically these people who have very high leverage are now being handed a tool that gives them even more leverage. And so using the language of 10X or 100X, yes, they're levered up. They can have even more impact. With that leverage language, those who know how to use leverage will be able to have even more impact. And those who don't will kind of on a comparative basis be that much less valuable to a business. When we think about kind of the two different parts, you said that hey, you have the option of you can do more with the same size teams or you can reduce teams and do what you already did. If I am thinking as a leader today, what would be your biggest advice to me on how I should think about resource allocation for tokens internally? Yes. This is a a great point. This resource allocation problem of token, it's not just tokens. It's like doll ars, it's tokens, it's people. This is, I think, going to be the thing that over the next 24 months, every C suite is going to be thinking about. And I think the right way to go about it is what is the core competency for our business? What actually matters for the business that we are doing? And then how do we allocate resources accordingly? In other words, if you're a logistics company, your core competency is probably not software development. Now you might have had a lot of software engineers as a means to an end to deliver on your logistics goals, let's say. But that might not be your core competency. And so what you should be thinking about is not how do we get more engineers to make more features, because that's what engineers have in the past been judged by, like how many features do they ship in a quarter? Instead, it's like what are the actual output metrics that matter for our business? And how do we now allocate resources, whether it's dollars, whether it's tokens, whether it's headcount, to more dramatically move the need le on that business outcome. And I think this is this is great for the world because I think part of the reason why so many organizations got so bloated is because we were in a period of time where everyone was focusing on intermediate metrics. If you're an engineering team, we wanted to ship three features this quarter. Did you ship three features? We shipped four. What a great quarter. Like that doesn't necessarily matter for the business at all. And so now it's like finally coming back to what matters in the first place. What are the business metrics that we want to move the needle on? Is it customer satisfaction? Is it revenue? Is it market share? And you can kind of tie back every individual's work to that, whether it's marketing, sales, engineering, all of it. Kirkland announced a five hundred million dollar spend. You're you're friends with uh Winston from Harvey, fantastic guy. You obviously I'm sure has I don't know if you guys have spoken about this actually, but like that's a it's a big spend, five hundred million dollars across five years to internally build their own Harvey or Lagora. How did you think about that? Aaron Powell I mean it's fun you know talking about core competencies. Kirkland's spending half a billion dollars to build their own AI tools. My understanding is that building AI tech nology is not a core competency of that firm. So I was surprised to see it. Now, I actually think this is good for Harvey because it's nothing like trying to do something yourself to make you realize, oh shit, this is actually really difficult . This doesn't actually matter for us to have the in-house ability to build this ourselves. Let's go and have someone who is an expert in this to go and build this for us. That is my sense. We told you how easy it was and you're like, it's so easy they're committing half a billion dollars. That would suggest the opposite. I had Brandon on from McCall the other day and he was fundamentally saying that the next twelve months would be the most value accruing twelve months for AI infrastructure companies. We would see that the models of the products and the AI application layer companies would be most at risk denigrated. Would you agree with that? I would disagree. I'd pretty strongly disagree. For a couple things. One actually sticking with the Kirkland thing, I think as an example, we're so used to a world where moat in software was I know how to do this and you don't, and so you're gonna pay me because I have the engineers who know how to build this and you simply cannot. The world going forward, there is going to be nothing that no one can build. Every single piece of software anyone will in theory be able to build. Now, back to the resource allocation though, is it worth your time and your energy to go and build it, or should you go to someone else who has already built it or can do it faster? To me, it kind of an example of this is like suppose we had a a very busy day at work. I could probably go and pick up lunch for everyone on the I know how to do it. I know how to walk out the door, place an order, hold the bags, bring them in. Now, just because I know how to do it, is that an efficient use of my time? Probably not. I'm probably gonna say, you know what, for my resource allocation, I'm gonna pay someone to go and do that for us because at factory, our core competency is not that the CEO goes and gets lunch for everyone. And I think it's somewhat similar here, which is like just because you can build a lot of these things does not mean you should. And in fact, oftentimes you want to be really ruthless about what are the few things that you and your team own and do end to end. And then if it's not relevant to your like core business and your core competencies, outsource it. What would you like to do, but it's not core competency for you and so you don't do it because of focus? Oh man, I I enjoy like making breakfast. I haven't done it in like three years. I love like there's nothing like it's just it's it's not time efficient. It just doesn't make sense to spend my time doing that. But like I I it is, you know, it's something that I do enjoy. But to your point on model applications infrastructure. I'm not sure if you've seen the the meme of this. There's a meme of the Microsoft org chart. And it shows like, you know, different segments and they all have guns pointed at each other. Just to show like in Microsoft, you know, there's a there's a lot of bureaucracy and everyone's kind of fighting for who gets to do what. I think that image is pretty accurate to what's happening right now with the models, the application companies, and the infrastructure companies, where everyone is trying to commoditize the other.y Eonever is trying to say, oh no, this one is irrelevant. This all the value is going to be here, all the value is going to be there. The reality is value accrual is a time-dependent phenomenon. It's not like there is one person whose steady state gets all of the value. That's not how it works. It's maybe for this next year, this person is who has the pricing power who gets the value. This next period of time these people get it. We are all, whether overtly or not, and maybe I'm saying the quiet part out loud, like everyone is trying to commoditize the people that are not them. So for example, we're model agnostic. We want to give our customers the best pricing, the best performance, the best speed for whatever task they want to do in their software development. And we want to make sure that OpenAI, anthropic,, Google Microsoft are all under pressure to make sure they give the best models for as cheap, as quick as they can, and don't feel like they can just charge whatever they want. Now, similarly, you know, the model companies want to make it such that the applications are all trivially easy to build and really the the product is the model. And then the infra companies have their own spin on this. But the reality is like everyone's trying to commoditize the one that's not them. And so from Mercor's perspective, it's very much in their interest that models that have access to proprietary data get differentiated value and capture a huge amount of value, because that validates their business model. It's a big push and pull of who can who can get the leverage. Trevor Burrowell What is the belief that would invalidate yours? Aaron Powell The Bear Case Against Factory is if one model provider gets significantly better than all of the others. So basically I think a key thing for us is that all the models are going to be roughly as good as each other. They'll be good at well, one is a little bit better at review, one is a little bit better at testing, one's better at Python, this and that. It all kind of fluctuates every week. Even already people have a have uh a hard time keeping track what model is number one? What's the latest thing that came out? If one model ends up going way above all the others, that's a case where it's like, okay, we want to companies might want to just completely go in with them, but then that's a monopoly for the entire economy to be worried about. Is the rate of model development sustainable? And what I mean by that is like, you know, I was I was with the founder of Nebius the other day and he was talking about it on uh oh every few weeks we see new models. And I said you're you're you're wrong, every few days. Yes. Especially when we look at Chinese open source, it's like three or four a week. Is that rate of model development a feature of the time that we're in or is it an ongoing characteristic or trait of this environment? I think eventually we'll stop seeing them as model releases and they'll feel more continuous. Like just how before it was, you know, GPT two, then GPT three, then GPT three point five, then four, four point one. But like and then you get more and more desk, and like, you know, four point five, two, three, like eventually they're just gonna not announce it and it's just like, hey, look, here's our model that's continuously getting better because it already people have fatigue. Like engineers at the enterprises that we work with can't keep up with every single model that comes out, nor should they. And I think that's the the the whole you know the case for the application layer, whether it's us or like a Harvey or whoever else is we're gonna figure out what model is best for what use case, where the trade-off is between cost, quality, speed, and we'll just deliver that to you based on the task that you have because it's hard to focus on what matters for your business and then also keep track of all these models that keep coming up. Can I ask a a big question that people have is around the rise of open source and whether everyone is concerned by the amount they're spending on tokens just being so much larger than they thought, hey, we spent our annual budget and it's May. Shit. Maybe we should move to open source. Yeah. And we're seeing more and more great companies use frontier models, see where they can get to, and then move to open so urce to get as close to that as possible. How do you feel about that being a considerate threat to maiming the market for frontier models? I think it's a really important counterbalance. It basically allows you to make the trade-offs of what tasks do you want to put what level of intelligence on? And I think it's a really important counterbalance because a lot of enterprises will realize so many of the tasks that we're doing, we don't need the very frontier to do it. Like and we can do it much faster, much cheaper with these open models. Again, it's part of the resource allocation. And to do good resource allocation, you want to be able to be anywhere in that cost, quality, speed trade-off. I love the gifts on Twitter or memes on Twitter when it's like, you know, me naming a file and then it's like the the massive cigar with the blowtorch museum . Yeah. I love that. No, because it's such overkill. But also there's a funny dynamic that emerges which is there's kind of an ego thing where, oh no, no, the work that I'm doing only a frontier model could handle. Oh, this mere open model can't deal with the work that I'm dealing with. And this is like even admittedly, when I first started switching over, I'd be like, ah, I don't think an open model could handle this. And it's like, no, it probably can. And it it's kind of a funny thing to mentally deal with of deciding manually or then you having the router do it for you. My question is enterprises like security, they like reliability, they like ease. Yes. And when you have frontier models which are packaged perfectly, priced clearly and it's secure, do they not just go for that? The easy option over trying to be smart and intelligent routing to different open models. So So a couple things. One, it's easy when there's only one of them. But again, as we said, a new model comes out every week. And if you have to go through the full enterprise process to get every new model in, it's not very easy. Two is it's also really expensive. If you're seeing your costs go up like crazy and not having an ROI case, it doesn't make as much sense. And I think something that's interesting is there's kind of like three phases that we're seeing happen in these enterprises. So phase one, this was a uh a couple months ago, was board yells at CEO, hey Mr. CEO, what's your AI strategy? CEO's like, shit, I don't know. CTO, hey, what's our AI strategy? Let's make sure we adopt AI. And so then phase two was AI at all costs, token maxing, part of your performance reviews, we're gonna measure how much you guys use AI, everyone. You have to adopt. That was phase two, right? Get as as many people to adopt as possible. Phase two happened a lot faster than people might have expected. And so now we're ending phase three. Like phase two was kind of like the the debauchery, the long night, you know, taking shots, having a great time, using all the AI. Phase three is the hangover where you go and look at the bill and it's like, oh my God, we are spending so much. I have no idea what the ROI is. Does this is this helping our business? That's where a lot of these companies are at now. And I think this is why routing is so important. Because they're realizing, and this is a true story. One of the CIOs I was speaking with realized we've been spending hundreds ofs of thousand dollars per month on people asking Opus four point eight questions like, hey, how's it going? Like, what sh what are my macros from the food I ate today? Like, what's the weather like? And it's like, guys, like we don't we don't need the the frontier of human intelligence to be doing this stuff for us. Let alone it's not even work-related in some cases. But will we see a contraction then given the hangover period being realized? Aaron Powell We might see a short-term contraction of usage of the very frontier models. But I think it's healthy. I think it's healthier healthier to do that than to like be blind to it and then have a real sudden change there. Last night I think it was or yesterday, that they were having like a fifteen hundred dollar budget per individual. How do you respond or think about that? We I've literally seen this with dozens of our customers where initial and this is a lesson on our post sales team where initially we came in, we were like, oh, by the way, we have these user limits, but here these are the models go crazy. This is before we had routing. It happened a couple times with customers where the usage would go crazy. They hadn't spent the time to actually determine what parts of the code base do we want to dedicate these tokens to versus not? And then they were like, oh my God, we're spending so much. This is crazy. We need to put in token limits. And at first, the first time this happened, we were like, oh my God, their usage went down, what's going on? But spending time with them, we realize, wait, we need to make sure with every customer we are having a very clear conversation with them of, you know, it looks like you guys are spending a lot of tokens on some of these things. Have you thought about consciously? Yes, we want to do this. Sometimes we'll proactively set in those user limits. It's better to be aware as you're going up as opposed to just going crazy and then kind of realizing. And so what's happened with Uber publicly has happened privately with a lot of customers of ours. And yeah, there' s a little bit of shock where it's like, okay, wait, let's put in these user limits. But then you come into a question of, well, wait, this team is really important. They should have a different user limit than that team. And we're just getting towards this world where you have very nuanced resource allocation throughout your org? Aaron Powell To me the biggest question that I ask myself, and I think we need to ask ourselves as an ecosystem today, is if Mark Bennyoff says that he spends 300 million on anthropic, okay, for his devs, that is three point eight percent of salaries. Okay. Great. What will that number be in three years' time? Because if it's still three point eight, fuck. If it's twenty, fuck again, but fuck positive. And if it's Brandon at McCaw who says that he's spending more on tokens than he is on headcount, fuck again, but even more positive. What do you think that percent of dev's salary is in three years? I think it's actually a more nuanced question than we might think. I actually think it can be as low as zero percent for some individuals, and it can be as high as like thousands, tens of thousands of percent for some individuals. Aaron Powell And what's the dependence there? It depends on what the unique skills of those individuals are. And I'm saying individuals and not devs in particular, because I think the way we even organize roles is going to be very different where I'm not sure like dev as a word makes sense. Traditionally it's like custodians of code, right? The people who do anything relating to code are engineers or developers. Everyone is going to be loosely interacting with code in your org, whether they're sales or marketing. But I think the difference is there are going to be certain people where, again, we're coming back to resource allocation, they get more leverage by using more tokens. And then there are going to be certain people where actually they don't really need tokens at all. And that's not what how they deliver value to the business. Like for example, maybe our best salesperson, the way we use them best is not by having them use tokens, but by going and meeting people face to face. That's an obvious example because they don't write code in the first place. But I think similarly, maybe there's some engineers who they actually do their best work by spending time with users, spending time with our customers, maybe doing some data analysis that's not very token expensive. But then there are gonna be others who are delegating to dozens of droids in parallel, working on a ton of different crazy features and refactors and migrations. But I don't think it's gonna be a consistent number across the board. In fact, I would argue that if your org has a standard number where it's like we want every engineer to be at this percent of their salary and token use, you're probably painting with way too wide a brush. If I were to say give me an average number , what will that average be? Like what will the median be? I would say order of magnitude, it'll probably be comparable to salary. Comparable to salary. Within the three year timeline. Yeah. What percent of tasks today be using frontier models could be done with open source models? Probably eighty to ninety percent. It's typically the planning that really needs the frontier models. But is is that not like the most I'm I'm sorry I'm I' reallym you know, dim that's nonsense code. But but but if it's eighty to ninety percent, does that not just present the biggest bear case ever against codacy or cruel code, because you're just taking away eighty to ninety percent of that time. Well it depends, because those that ten to twenty percent could be the most important tokens. Ten to twenty percent of the tokens, but those are really, really important because it's kind of decision making tokens, perhaps. Sure. Um but it's it's very similar to how we structure human orgs. Oftentimes leadership makes very key decisions that determine the fate of the company. And that they don't spend the most hours. Like if you look at the human hours of a company, most human hours are not spent on making the decisions. They're on gathering data or implementing things. But then there's a select few hours where it's like, here is where we're gonna you know make this irreversible decision on the strategy. And those people that make those decisions are also typically paid a lot. Trevor Burrus, but the assumption there would be then that you'd have to increase that spend for that 10 percent even higher. Trevor Burrus, P and that's what's happening already. It's like the frontier models are c sometimes they're getting more expensive, or you're using the ultra-high reasoning or you know this type this type of thing. And so it's like, okay, if this planning thing is the very key thing, we'll spend on it. But it doesn't necessarily mean that most of your tokens are going there. It's just for certain key steps, maybe you want to spend a lot and it's worth that allo cating the budget there. But then once it comes to okay, we have the plan now let's implement the open models are typically really good. Aaron Ross Powell When we think about what you're willing to spend on, I asked Brandon how much it costs to hire great AI research And he was like tens of millions of dollars. Have you found the same? And is it impossible to hire great AI researchers in competition with anthropic and open AI? We are a very opinionated organization. And so the people who like the opinionated stances that we take are willing to not necessarily go and try to, you know, maximize the dollars that they can get out of in the market. That said, it is still pretty competitive, though. Aaron Powell What do you think is the strongest opinion that you have that most people disagree with? I would say the opinion that we have that I think in the space that we are in is the most controversial. The way that we treat what product is at factory. I think there's some very common ly held beliefs at the labs or at some of our competitors who are also doing kind of software development. And this is honestly growing up in the Bay Area, there's a very common Silicon Valley fallacy, which is there's like research is like the pinnacle. then And there's engineers who implement the research. They're not quite there, but you know, they're still great. And then there's sales and marketing and all that dirty stuff. Oh, if only we could build a better product and it would sell itself and we wouldn't need to deal with sales and marketing. And it's just completely delusional. The product at factory is the entire journey from the very first time they hear our name till their tenth renewal after a decade of being a happy customer. The software is a big part of that journey, but so too is the marketing that we do and the people that we have running that. Same with the sales process, the people that present themselves in discovery calls or in demos or in solution engineering. Like that entire thing is the product. Everyone is first class. It's not like we have engineers who are like wholly at the office and you're not allowed to speak to them unless you're an education. It's like no no no. We have engineers and salespeople sitting next to each other. There are no like engineer corner, sales corner, or any of that stuff. Everyone is completely intermixed. When salespeople close a deal, engineers say we closed a deal. When engineers ship a feature, salespeople say we shipped a feature. It is entirely one team, entirely cohesive. Everyone, there's no like first class or second class. And this is shockingly controversial in the Bay Area and in particular in coding or in AI. It's messed up. It's so messed up. And I think the the reality is it will come to haunt some of these companies one day. Because I think right now where there's a gold rush and everyone's like desperate to sign, you know, and and get more tokens from these people, it's easy. In my mind, it's kind of like they're astronauts in space where there's no gravity, your muscles will atrophy. Gravity will come back. And if you don't have a good sales and marketing team, because you don't give it respect. The second gravity returns, all of your muscles will be atrophied and you won't be able to compete. And I would say this name a legendary company that has a shit sales or marketing team. You can't no, but I can name companies that have ship products, but great sales and marketing teams. That's that's the ironic thing on the flip side. And in fact it seems like I'm not gonna name them because I'll get in trouble. If Chad Pieters were here, he would Does what it takes to be a great engineer change when you essentially become prompter and manager of agents versus creator and doer of tasks? Yes. It very seriously changed it. And this is actually why we're selecting for very intentionally, like this culture that we just mentioned is really important, because the best engineers are gonna be the ones that don't see sales and marketing as dirty work, but as again, an important part of the product. Because as an engineer, you're no longer, you know, just your job is ship feature. It's no, you are owning full end-to-end outcomes of here's the way the customer is behaving, here's how maybe we can change that behavior that makes them a better user long term. It makes them more agent native, they get more out of our product. We can then follow them through that journey, enable the salespeople so that they know how to talk about it or they know how to demo it. This like this is like a full stack engineer that goes way beyond just engineering, but into sales, into market ing, into enablement and all that. And those are the parts of engineering that really, really matter. Those are the parts that have made engineers typically good founders is when they have that. And the parts of engineering that become less important are funny enough, the things that the Silicon Valley has really bragged about a lot, which is like competition winning or like Olympiad type are you like as fast as possible at coding? Are you do you memorize all the different nuances of these different languages? Those are the parts that don't matter. If you memorized some coding language or some you know syntax of a coding language that someone else didn't it doesn't matter. People like not the credentialism, but I think they misunderstand VC mindset right now. And as a VC, I'm happy to share how we feel, which is just like fundamentally there is intense uncertainty around what anthropic and open AI will do and who they will kill at the application layer. And so in a world where we desperately seek certainty, we look for validators and the validators of someone being a math olympiad or you name it, whatever that is, that validation, in the wake of not having other certainty, that serves as a good crutch. Yes. But it's a crutch. It's a crutch. It's helpful. It's a good indicator. Like generally, you can't win competitions if you're dumb, right? Like it's pretty it's pretty rare. However, for these types of engineers that we're looking for, that's cool, but that's kind of irrelevant. Like what have you built? How have you taken ownership and agency of things end-to-end? This is not like we have people on our team that have won Olympiads and I think they're great and it's fantastic and a lot of my friends have. But there's also a certain like, especially there's some high schools that like really focus on like you must do the math Olympia, like you must do this, the Amy to then go to the IMO and like this is the path to success. Where actually that's kind of anti-signal. Because there it's like you're not owning your fate or choosing your agency. You're kind of going through the funnel. But then there are people on our team who are like from the middle of nowhere where no one else in their high school ever did this stuff and they kind of took the agency of like, I think this is really fun. I'm really competitive. I want to compete at this. And they kind of go and do those competitions on their own. Those are when the signal is still positive for this kind of engineer of the future. I don't think I've told you this, but do you know who you always remind me of? Who? Matt Damon and Goodwill Hunter. Oh that's so I mean I'll take that to the bank. Let me re- say that one more time into That's very common. This is the starter to the show. And they're going to be like, uh huh, I totally get it. That makes absolute sense. Can I ask you when we go back to actually like what makes devs great and how we think about structuring the team, what role does not exist today that you think will be incredibly common in the next few years? So it's starting to exist more and more, but I think it's kind of this like GM or general manager like role for someone who used to be an engineer, where basically you own end-to-end an outcome that is not just a shipped feature, but like a business outcome. So even at factory, we have this now where there are people who will own the marketing copy if they're going to be releasing something. They'll own the outcomes in the product metrics. They'll own enabling the salespeople. So it's way beyond what a typical engineer does. And it kind of feels like again owning more of a business outcome, more entrepreneurial, higher agency, just like spreading their reach beyond just. it or not, I sometimes post on different social media platforms. And I I just said like my biggest advice to any students here would just be just be full stack in whatever you do. Yes. If you're doing marketing, create the copy, make sure that it's ready to post, post it at the right time, amplify it. You have to be in every element from start to finish. Yes. Not just, oh, I just do the copy and then I hand it over to designers to create the visuals and then they hand it over to a social team. Is that not just the same for every function? We're expecting everyone to be full stack in every function. The age of the polymath is back. Like I gr growing up, I was so like I was obsessed with math and physics and I was so jealous that hundreds of years ago people like Da Vinci or Euler or Newton could be polymaths, and it was because their fields were relatively shallow. Chemistry wasn't that built out, mathematics wasn't that built out, physics wasn't that built out in Da Vinci's case, like art and engineering and sculpture. And so you could get to the frontier of these disciplines in multiple disciplines within your lifetime. And then growing up in you know the early two thousands and two thousand tens, pre AI, fields were so deep, in my case, theoretical physics and strength, it was so deep that you could spend literally fifty years catching up on all of the literature and academia that's existed before you contribute anything new. And so it was like this was infuriating to me because it was so frustrating. With AI, we're now completely the opposite. These tools can get you up to speed to the frontier Obviously with a lot of uncertainty about certain details, you won't have the depth of other people, but it'll get you to the frontier way faster than ever before. And so now if you're someone that's good at thinking around constraints, thinking about systems, holding uncertainty in your head and being okay with that, like know knowing there are unknowns and knowing that you can still push the frontier forward despite that, you can be a polymath. You can push forward and create innovations on how to do developer marketing, well at the same time pushing forward the frontier of token caching for software development agents at the same time as like you know being an incredible solution engineer. Like these are things that you can now do all at once. And so this is something that's very top of mind for me. And in our hiring process, we want to find the people that can be those polymaths. The era is totally back. Polymaths are back. I've had a lot of people say on the show that agent operations will be like with the leading function that doesn't exist today that will be very common in three to five years. Do you agree with that? What is the definition of agent operations? Agent operations is the creation of agents and the maintenance of them. So to be able to go into different functions and say, ah, social media. I'm gonna create agents that allow you to create, distribute, share, posts. Ah, marketing and design. I'm gonna create agents that allow you to create visuals, share them amongst each other, edit them, collaborate on the Trevor Burr I think to some degree everyone should be able to do that on their own. But I could imagine a world where there's kind of someone whose job it is is to like find places that aren't as efficient and c similar to operations now, like in organizations, but now it's just agentified. So they're using agents to make the organization more efficient wherever possible. But I think in general, if you have people that in certain functions that aren't proactively doing that, probably a bad sign. Aaron Powell What do we do today that we'll look back on and go, oh my God, I can't believe Aaron Powell For an engineering team like writing release notes, that's crazy that people used to spend hours of time writing release notes or like writing documentation. So not everyone knows what release notes is. What is release? So it's basically cataloging the changes that you've made in the last whatever a month or so, you know, and sending it out to either internal or external to your users. And generally like this and like documentation. Like Stripe has a really great reputation. They had incredible documentation. Like so many APIs had horrid documentation. Stripe was like the pinnacle. They were so good at this. Spent a lot of time doing it. Five years from now, it's gonna be like, oh my god, I cannot imagine, cannot believe that these people that get paid so much money spent hours of their time doing this . I think that's something that we definitely won't do. Aaron Powell Does that reduce the impact of Stripe's great documentation if everyone is equalized? Aaron Powell Yes. But I think Stripe has plenty of places that they can differentiate. And I think it's a better world where everyone has documentation as good as Stripes. How does the product review and especially that code review process change in the next few years? What's cool about this agent-native software development is review has been a big problem. Because basically, first phase of rolling out AI coding tools was, oh my God, look how much code we can generate. It's incredible. I'm generating a ton of stuff. Phase two was some poor staff engineer who has to review hundreds of these slop PRs that are like don't adhere to your standards, are like completely misformatted and all this stuff. But what's great about having this kind of like full end-to-end software factory, as it were, is it's now very clear the ROI of investing in things that make your agents more kind of ready for production. So examples of this are making sure your agents have access to up-to-date documentation, making sure agents can spin up a remote machine so that they're not just generating the code, but they can actually run it and see what the outputs are and iterate based on that to make sure that it's actually good. Setting up things like CICD or good linters or good pre-commit hooks, these are all things that the best organizations at like developer experience would invest a lot of resources in, but they would do it because it makes it easier for engineers to work, easier for them to onboard. But the impact of doing that well is just like one-to-one kind of correlated to how many engineers you have. With agents, though, the impact of that is now like 10X or 100X, depending on how many agents you're using. Because the better your devx, the better your agent ends up adhering to your standards, which means there's less time that that poor staff engineer has to go through reviewing your PR, which means you're kind of faster throughput in your software development. Aaron Powell When agents are the buyers and you're selling to agents, how does the world change and does the value of great API increase ? Aaron Powell That value is increasing, especially because the thing that makes it easier for agents tends to be the same as the things that make it easier for humans. At some point in theory, that could change. Where you know if you're actually training models or training agents to be as efficient as possible communicating to each other. But then the downside there is it's not as human readable. But if you think about agent agent, agent agent doesn't give a shit about UI or design, but it does fundamentally care about data structures, potential integrations, uh documentation. Do you know what I mean? Yeah, yeah, yeah. So I think one thing that if you don't have careful standards in place, it can get bloated pretty quickly. But I think the best organizations who are the most agent native actually put in a lot of guidance on like here's like the UI side of things and how things need to be. Being very aggressive about like pruning anything that's unnecessary, making sure there's not like bloated like I don't know, comment in all of your code that's like kind of gratuitous or there are ways around it, but that's kind of where the humans job changes a little bit, where their job goes from part of our name. Our name is factory. Part of why it's called factory is because the future of software development is where these organizations, instead of having engineers that build the software, they're gonna have engineers that build the factories that build their software. Visually, whenever I say this, I always think of Tesla's factories. I don't know if you ever seen videos of the inside of Tesla's factories. It's all these like robotic arms going and you have the assembly line going through. And there might not be as many humans in that assembly line, but you know damn well that humans designed this process to optimize the throughput to produce more Teslas in this case. And so in this new world of software development, human engineers are not going to be involved as much in like writing the actual code. But they're the ones that are going to be involved in how do we make sure it's not just creating all this bloat or it's technically getting the job done and passing tests, but doing it in a way that it's really dramatically increasing debt. So there's they're kind of like building the scaffolding around this factory that produces their software. Do you worry about labor displacement when we move from working in the factory to working on the factory? Aaron Powell Short term, yes. Long term, no. Short term, yes, because it's just a shock to the system where there are all these big layoffs that are happening that are pretty aggressive and thousands, tens of thousands of people that had a job that no longer do. And so I think that does worry me. Long term though, I am very not worried because the reality is there is a huge number of problems in the world. Ridiculous number of problems in the world. And a large percent of them can be solved or can be helped with software. Very few of those problems that can be solved with software are we currently solving with software. And so if we're going to be flooding the job market with tons of engineers, that means that we can now allocate them on the broader economy to solve more of these problems in the world. And if we have more engineers who are going and solving more problems in the world, that is a net good. What problem is not currently being solved with software that will be enabled by this new technology? Because everyone's like climate change. And I'm like, great. You know how many people I've found doing climate change technology? Well none. Yeah. Well, and maybe part of that is because all like the Googles of have been hiring all these engineers. So distributing great engineering talent to more problems, I think, is going to be a good thing. The economy has to match though and properly incentivize them. And that's something that I think will take a little bit of time, which is like the intermediate period. But like so many health problems, like so much of pharmaceutical research can be advanced with better engineering. The thing that really upsets me with some of the people who are talking about, you know, pausing AI development or it's a bad thing and it's gonna you, know har,m society . Dementia is kind of a go-to example where everyone understands how big of a deal that is. That is something that can be solved with better AI and better software. Like it's a matter of time. Like we will solve it and we can solve it. And by saying you want to slow down AI, that's saying like these people who have relationships with loved ones who have dementia, you're like, no, no, no, sorry, you guys you gotta maintain that relationship for a little bit longer. We're scared, we don't know about AI. I think it's like it's pretty it's pretty harmful and it's pretty selfish to say that it's something that to me it doesn't make sense. Do you agree with government intervention? In what capacity? In free markets, when you think about like the allocation of resources, there are times when it is suboptimal from a human morality societal standpoint in a lot of cases to see engineers and anthropic working on optimizing claw code when they could be working on optimizing healthcare systems or optimizing more critical or mission critical things immediately. Governments can intervene, offer subsidies, offer economic incentives. Do you agree with that or do you believe in Adam Smith's invisible hand? It's certainly useful in some cases. Like I don't think anyone would argue that the government should never intervene ever in the economy because there are some things, especially as it relates to like military uses or safety or things like like weapons, like you're definitely gonna need, you know, some involvement there. I think there's some incentivization that can be helpful just because there might be some problems for a society that maybe capitalism doesn't see the immediate feedback loop of. And so you might want to juice the incentives a little bit to get an outcome that you're looking for. Generally I'm pretty reluctant. I think you need to have a very good case for why you need to do that. Even like the example of climate change, you know, talking about that one, it's obviously a very sensitive subject or a very important subject for a lot of people. You could make the case that the faster we develop AI, the sooner we solve climate change. Because AI, you know, can help us solve a ton of these problems. But to develop AI faster, you might need to consume fossil fuels and emit them and emit CO two into the atmosphere. And so the question is like, you know, short term, it might be slightly worse, but it ends up getting us to solve the problem way sooner instead of dragging it out over fifty years or a hundred years. There's some of these cases where the natural kind of free market will incentivize it the right way, and there's some cases where it won't. But I think you need to be very, very, very careful about the cases where you do want the government to say, hey, we want to step in here. Do you think we are in an AI infrastructure bubble? Maybe there's like some short-term blips, but like long-term, absolutely not. Like not even close. There might be similar corrections to like this thing at Uber where, oh, we were going a little haywire, we weren't allocating it appropriately. And there's like, okay, let's lower consumption a little bit. But like on the net, absolutely not. Aaron Powell What bottleneck do we have today that will be completely solved within a few years? I think the biggest bottleneck by far working with all these organizations is the human side of it. It's just like behavior change. Aaron Powell And what you're saying there is selling into large enterprises and how they do change management. Aaron Powell Yeah. Or even on an individual level. Like if you're an engineer who's been an engineer for 30 years, it's hard to change those patterns. Like you're stuck in your ways to a certain degree. But there's also a funny thing where some of these engineers who've been engineers for a very long time or who have been engineering managers, they might be more reluctant to use these tools, but sometimes they're better because they know how to delegate. They know how to deal with some of the like junior engineers where if you tell them the wrong thing, they're off in the cave doing the wrong thing for seven days, they come back with something completely useless. And then on the other end of the spectrum, there are people earlier in career who don't have as much of a standardized workflow that they're used to. So they're more eager to adopt these new workflows, but they don't know how to manage people. They don't know how to delegate as well. So there's kind of an interesting balance there. When you look at now you sell to some of the largest enterprises in the world in some cases, what do you know now about selling to large, large enterprise So this is the first job I've ever had, which I think is always a funny thing to say. Literally never have had a job. Like never have been paid to do anything aside from physics until this, which is a whole separate thing. But Matt Damon. But I will say the thing that has been the craziest learning, and this is obvious to anyone who's in sales or like Chad and Chris. To them, it's obvious. To me, the thing that was the most visceral altering thing was meeting people face to face makes such a big difference if you're trying to sell them something. But also, you should never try to sell something. You should always try to understand their problems and see if the solution that you might have can actually help them solve that problem. Like if you go in a conversation trying to sell something, especially to engineers, don't waste your time. If you go in trying to have genuine curiosity about it's really easy because these organizations do their engineering so differently, and I find it fascinating. How like all of these different banks, you know, consulting firms, pharmaceutical companies, they have the most different ways of building software. And it's really interesting to go talk to them and to understand it. The best way of talking about it with them is face-to-face. People love talking about their problems. And they love talking about all of the bureaucratic nightmares that they have to deal with. And then by understanding all of that, you can actually get a sense, you know, is our software a good fit for them? Will it help solve their problems? It's also just so fun to then like meet up with them a year later and be like, I remember when you had to deal with that bullshit and now you don't have to? And that's just such a rewarding feeling of making their lives better in that way. In terms of like being there in person and the sales process, you got Sequoia very, very early on. Sequoia obviously one of the best and most prominent investors. Can you just tell me the story of how you got Sequoia having never had a job and only being paid to do physics? Yeah. So I was obsessed with physics basically since I was twelve because I was a bad student and my geometry teacher told me that I had to retake geometry in high school. And like I never tried in school, but I always prided myself on being good at math. And when she told me that I was like, You kidding me? She thinks I need to retake geometry? Like, I'll show her. And so my first order on Amazon ever was textbooks for algebra 2, trigonometry, pre-calc, calculus one, two, and three, differential equations, and maybe a linear algebra textbook. So I bought those textbooks. And then the summer between middle school and high school, I studied all of those, like did all the problems in all of them, and then in high school took exams to place out of all of those classes. And then I asked my dad what, the hardest math was. He said string theory, which is technically physics, not math. But I was like, okay, I'm gonna be a string theorist. And that was literally all I cared about for basically the next twelve years of my life. All I cared about was math and physics. Ended up going to Princeton because I had a great physics professor I wanted to work with. He's uh this famous professor named Juan Maldesena. And I was like the first undergrad to work with him and write a paper with him. Then I ended up coming to Berkeley to do my PhD and you know work with a great advisor there. And then only at Berkeley I realized, like it kind of all comes crashing like, holy shit, I've just been doing this because it's hardened because someone said I couldn't do it. What the hell do I do with the rest of my life? Like this is crazy, like everything came crashing. And why did it take so fucking long? Twelve years. You're slow. I have I have tunnel vision. When I get obsessed with a problem, it is all I think. I was at law school for two weeks. See, some people are faster. You know, I wasn't as I wasn't as quick. Honestly, part of it was being uh uh as part of a grad student at Berkeley, you have to teach classes and I was teaching a class to like whatever eighteen year olds who didn't about physics. And I was like, oh my god, this would literally be the rest of my life. It's like sitting and doing lectures and doing these classes . On rate my professor, I think I had a one out of five. I was like horrible. Yeah. It wasn't it wasn't good fit. But it was the kind of this existential crisis. Like what what do I do? And so, you know, kind of realized it was probably gonna be either quant finance, which is what a lot of math and physics people do, big tech or startups. I ended up doing the quant finance interviews like every good physicist does and almost took it, almost went to New York to do it. And then last second I had a advisor that I spoke to who was like, you know what? Stay at Berkeley for a bit. Don't do it. You're always going to be good at math. You could always go and do quant finance. Stay at Berkeley, explore, learn some stuff, whatever. So I was like, okay, fine, you know, I'll I'll do that. You know. Ended up taking my first CS classes at Berkeley. I learned like to code for physics, for like simulations and all this stuff, but never in a formal class. And I'm very competitive. And I found that in these classes I was doing better than some of the CS students, which was very competitively satisfying. It was like, oh, okay, I'm going to take more of these. And then it wasn't until I took a seminar in what was called program synthesis at the time, now we call it code generation, and it just completely nerd sniped me. Because the idea here is not machine learning for video or audio or images, but it's code with the explicit purpose of creating itself. And there's something just so fundamental about that. And a decade of physics, like physicists and mathematicians, they're never interested in the case of like n equals three or like n equals four or four dimensions. It's always like what is the n-dimensional solution? What is the arbitrary, the fundamental, you know, solution to things? And there was something so fundamental about this idea of like code generating itself. And it just got me obsessed. So we stayed at Berkeley. And for the next year, that was kind of what I spent my time on. My advisor was very chill and just allowed me to just, you know, take AI courses. And eventually I realized that the way to actually solve this problem was not in academia, but in the industry. And to properly solve it in the industry, you would have to start a company. But I knew nothing about starting companies. Because again, all I cared about was math and physics, didn't know anything about this. So what does someone who wants to learn about starting companies do? Well, they order on Amazon Peter Thiels zero to one and they look up on YouTube how to start a company. And so you know, read zero to one. Incredible book. I know it's so cliche, but like to someone who didn't know growing up in the Bay Area, shockingly, I just like did not care about any of that. And reading this, it was like so concise, beautifully written, all that, you know, loved that. And then you, know it was watching these videos, a lot of them like why combinator of you know videos and all this stuff. And then I stumbled upon this, I think it was like a Stanford VC Club podcast with this guy whose name I recognized because at Princeton when I wrote that paper with Juan Maldissena, I had cited one of his papers. So it was a a theoretical physicist. Like I remember this guy's name, but he was on this podcast talking about how he sold a company for a billion dollars and was an investor at this place called Sequoia. And he also in this video seemed like pretty sociable and normal, which I don't know if you've interacted with compared to theoretical physicist though, look he can maintain eye contact, you know, he was somewhat normal . Very rare. He can he can may hold himself in a social setting. Yeah. And so I was like, okay, who is this guy? You know, I gotta talk to him. So I ended up writing him an email being like, hey, I'm a ton. I also used to be a physicist. I wrote a paper with Juan. Didn't say the last name, because it's like if you know, you know, I would love to get your advice. And you know, he responded that day and invited me down to Sand Hill. And it was supposed to be a thirty minute meeting. But we ended up going on this walk and it ends up being a th ree-hour walk. And on this walk, it turns out we had very similar reasons for getting interested in physics, very similar reasons for leaving physics. At the end of it, he was basically like, you know, it was great to meet you, Maton. You absolutely need to drop out of your PhD. And you should either join Twitter right now, because Elon just took over and it's hardcore like for your resume if you like voluntarily go there, or you should start a company. And I was like, okay, thank you so much. I appreciate you taking the time. Like I'm gonna, you know, I'm gonna go think about it. But in the meantime, I like I' aldready known about factory. You didn't want to transactionalize this. Yeah. Because it was so like it was incre like we had the exact same reasons for getting interested. Dirty it within the thing. It's kinda like an LP where at the end you're like, I don't want to ask for a track. then the crazy thing, the next day I go to a hackath on in San Francisco and see across the room this guy who also went to Princeton who I like recognized, but I didn't like know super well, end up talking to him. He's also interested in this problem. We like we joke that it was like intellectual love at first sight. This is my co-founder, Eno. And basically that day forward, we spend like every day talking nonstop. I had some shitty demo that I built. Eno is 1,000x better of an engineer than I ever will be. And so he and I, for the next like 72 hours, like put together this better demo. And then I call up this investor and I'm like, hey, I have something cool I want to show you. So we hop on a call and I show him this demo. And I'm like, what do you think? He's like, eh, it's okay. I'm like, are you fucking kidding me? This is gonna change the world. What are you talking about? He's like, okay, well, would you work on it full time? And I was like, Yeah, absolutely. He was like, Okay, drop out of your PhD and send me a screenshot. And keep in mind, like my parents immigrated from the Soviet Union to the United States with basically nothing. The fact that I was doing a PhD to them was like their pride and joy, like it was the thing that they were the most proud of. But there was so much momentum. So much momentum. I'm you know, I'm he answered my email, we got along well. I met the co-founder the next day, and I was like, you know what? Fuck it. Dropped out, sent him a screenshot. And he was like, All right, you have a meeting with the Sequoia partnership tomorrow morning, be ready to present. You've never presented to a venture partnership before. No. So what happens? Yeah. Put some slides together. Oh, these are these random people, like okay, whatever. Yeah, I'll go talk to them. I wish it was recorded because I'm sure I came across as so arrogant. How did it go? I thought it went fine. They asked some questions. I think I was pretty again, I didn't know anything about VC land or startup land or any of that stuff. Retrospectively, I know like Alfred and Pat and Roloff, they were all like in there, they were all asking questions, and I was probably dismissing some of the Oh yeah, we'd solve that easily, we'd do this, we'd do that. Keep in mind, this was in April of twenty twenty three. So this was like way before anyone was thinking about agents, way before people were even using Copilot, we were talking about fully autonomous software development agents. And uh it was kind of a blur. You know, the next day Sean calls me and he's like, Hey, we wanna give you a check. How big was the check? A million dollars. A million dollars. And you know what he gives him shit for? You know what the terms? Five post. Five post. I mean, I'm not being rude. Why did they bother doing a partnership meeting? Like in the nicest way. That's like a coffee. Like I know it's a dick comment, but when you managed it at seven, eight years. It was a different time. It was a different time. Early 2023 was a different time. Things got crazy. On mass funding on that'd be like a three hundred million dollar position, not including donation. And it was one of those things. A lot of my a lot of people I spoke to were like, you should go shop that around, you could get better terms because it's Sequoia. And it's just like when you have a connection like that, there's a certain thing to me where like obviously you want to maximize the position for the business, but like no one else would have believed in me except him. No one else would have understood. Like I literally had never had a job before. Like no other partner I would have met. Retrospectively, it's like, oh yeah, whatever. No one else would have done it. And it's one of those things where like trust and loyalty and like belief to me that matters so much more than like the price tag you get or whatever. I want to make sure that the people that I have in my corner, because we're building a legendary company, it's not just going to be 10 years. This is like a lifetime. Would you tell founders to take a discount for Sequoia? So generally, yes. I mean they're the best firm. In particular, if there's like a special connection with you and the partner or there's a special reason why them in particular. But I think what really matters is you want to have people that are there for you when the days are tough and when it's not obvious, because when you're a hot company raising a hot round, everyone's your best friend. It is their job to make you feel special and they are really good at it. What's the best way someone's tried to we? I don't want to name names, but there's this one investor in particular, who's like still in the game, but more of the old guard, I'll say that much. And I remember beforehand, people were like people told me, like, by the way, he's really good at making you feel good about yourself. And I was like, yeah, whatever. I'm I can deal with that. That's fine. And then I remember leaving the meeting, being like, I'm the fucking man. This is my destiny. I'm gonna build a legendary company. Like I got this. And then like 30 minutes after, when it wore off, I was like, oh my God, he got me. Like he did it. Like he did the thing. He made me feel special. And like a lot of investors, when a company is hot, are gonna do that and they're really good at it. That's why they're great investors. I think for me, what's really important as we've built out our board in particular is people who have like deep conviction when it's not obvious. Like that's what really, really matters. Because when a company's hot, everyone's gonna be excited. It matters when it's not, and there are gonna be tough times. How how do they behave then? How did you get a Van Catrump as an investor? That was um one of the best hires that I've ever made at Factory was this woman, Francesca. And so the way that Francesca and I met was at a random conference, I was seated next to her and Alex Paul, who's one half of the chain smokers. And obviously people know them as the chain smokers. They're also incredibly good investors. Incredibly good investors, which sometimes people are surprised by. And we got along quite well. Weirdly enough, Francesca and I also grew up in the same hometown, which is a whole and had a ton of that was another kind of weird coincidence, but just in the process of like them wanting to put a check in and the way she did diligence and just the way that she kind of carried herself, it was so clear like she was a killer. And they wanted some allocation. I was like, no, no, no, sorry, like, you know, it's gonna be this. And she was fucking relentless, like came to our office, like was like, Hey, like we need to get to this much, how can we do it? I'm gonna make these. If I do this and this and this, the business value that we provide to you is gonna make it worth this more so than giving that allocation to someone. She was like kind of hounding. You know, we were having a conversation. I was like, look, Francesca, like if you want more ownership of a factory, you could just join us. And it was like kind of as a joke I was like, oh, you could just join us if you want more. Like this is the highest we can do. But then we kind of both were like, oh, interesting. And you know, we talked about it a bit more and then realize, wait, this is an incredibly strong fit. And so we ended up bringing Francesca on board. Alex was kind of tough because she was incredible and they were very close. He's since been happy because she's helped us deliver a lot of returns for them and we the' breiggest fans of theirs and you know, kind of we still have a very deep relationship. And she was very close with their firm affinity from her investing days. Then, you know, we were introduced, we got along really well, and so then that was how the connection was made there. Does Ivanka Trump provide value? People will look at it and be like, oh, branding, just a name, whatever. And I didn't mean that disparagingly at all. I think people often think that with kind of famous celebrity names. Does she actually provide value? Yes. She is, first of all, she's one of the kindest and smartest people that I've met. There are people that you meet that, you know, are famous that are kind of like a letdown or like, oh, they're different than I expect. She is genuinely so kind, so intelligent, and like people throughout tech, throughout the world really love her and for good reason. And she has an incredible network. She's so generous with her time. There is kind of dirty work investor help that she helps out with that some other investor That's really good to hear. I I hate the statement. I I I I'm not sure if Anka was quite your hero, but like people say never meet your heroes, so always disappoint. And I think it's just total bullshit. Yeah. I remember meeting Doug Leone, who was one of my heroes, did not fucking disappoint. Like I laug being more like God he should have been even more of like a a a poster boy for me 'cause he was so great. Oh yeah. So I I I totally agree with you that. That's very funny. I would love just your thoughts on some market composition that I'm struggling with, which is like when you look at cognition, you look at claw code, you look at codecs, you look at cursor now with Grok . H doowes this market evolve and mature? Is this an AWS as your GCP? Is this an Uber Lyft? What is the mature state of this market? Yeah. So I think what is necessary for the best outcome for the consum ers is going to be models that are separate from the applications. You as a consumer do not want to use applications that are provided for you by the same people that are giving you the model because the incentives are misaligned. The incentives are misaligned, why? Because if let's say uh the example of coding. Like if I'm a model provider and I'm working with a large enterprise and I'm giving you a coding tool, I want you to use as many tokens as possible. Because I'm an API business and I get more money the more tokens you use. And I don't have a huge incentive to be more token efficient , other than like, yeah, I want to give a good product experience, but not strong incentive. Versus if you have model providers and you have an application layer that allows that enterprise to decide between the different providers. If you're a model provider, you better damn well be the best or the cheapest or the fastest, or else you'll never get tokens through to you. So it puts the best incentives on the model providers. There's that independent agent in our case there. And then that gives the best prices to the enterprise. It also gives them the best in terms of like if one model is really good at this language or that language. It allows them to kind of adjust between them. And the world where they're you're like vendor locked in, then you can slowly get like laziness and slow er shipping and and as a you know consumer you end up getting a worse experience. Okay, so it's not good for the consumer if the model is tied to the application. But bluntly, we are seeing codac and crawl code eat a huge part of the market. What does the market look like in three years in terms of market maturation? This is gonna be different from cloud. I think cloud a lot of people suffered because you know the cloud providers came and said, Hey, look, sign this three-year deal. We're gonna give you a big discount. We'll get everything good for you. It'll be all right. Come on in. And then they would do that. And then they would jack up the prices. And once you're standardized on one, it's going to take you two years to switch to something else. So good luck, you're stuck with us and we're going to charge you more. Everyone has scars from that. So now every CIO I speak to is really keenly aware of we cannot throw our lot in with just one model provider. We're going to need to be agnostic. And so you could be agnostic by saying, hey, every engineer, we're going to give you cloud code and codex and Gemini CLI and all these other tools. But then the problem is now you're asking your engineers to use 10 different tools, or you can use someone like Factory, where you can use one tool and you can kind of decide kind of like in an auction on a task by task basis, which model provider do we want to use? Do we want to use an open model? Do we want to use Frontier? You know, which one of those? Can you help me understand the paradox of hey, we need to be more cost efficient with RapPlit? We're going to run the same prompt on three models at the same time. And I don't mean that di is no diminishment to Raptor. That's like them providing a great product. But well so I haven't seen them or that use case as much in the enterprise. I could see for maybe consumer use cases where you're not as cost sensitive because you're not doing things at crazy scale, where it's kind of fun to see, oh, I wonder what Gemini does versus open eye versus anthropic. And you know, for some enterprises, if there are things that are like very sensitive or very secure, you might want to do that. But for a lot of like if you're a non-technical person building an internal dashboard, you probably don't need ten different models to generate different iterations of it. In terms of the market maturation, what happens to the lovable and wrap load market? We saw OpenI release a competitive product last night. I just don't know what happens there. Can you help me understand it? It's not obvious to me and part of it is because not too many people that are close to me use those tools frequently. Like most of the people that I know either don't use like AI tools or they're like technical and using factory. Also, like I'm not gonna be f no none of my friends don't use Factory. Like, what do we get? Come on. We wanna be friends . So I need to understand a little bit more about that user. My sense is they're probably and we're still in the early innings. So I'm sure they're quite agile to figure out what is the exact niche that they want to occupy, but it's not super obvious to me what the kind of focus is . Because my understanding is some of them have been pivoting towards the enterprise a little bit. I think they've been pivoting towards the enterprise in non-developer centric functions. So like hey, if I'm lovable of the world, I'm going to sell to sales teams, marketing teams, customer support teams to allow you to create amazing materials with no experience developing. Aaron Powell I mean in that case I think that that niche does make sense a little bit more. I think it would be ill advised if they were to try and go to the niche of non-technical people writing code for code's sake. Because I think that is going to be run by like if you're going to need enterprise controls over who has access to what databases and what code and all that stuff, that's going to be run by the engineers. That's going to be where factory goes. If it's things like if a salesperson wants to build a customized demo app or customized website for something, I could see in some cases that that having some value there. Trevor Burrus Are we entering a danger zone for security? A huge amount of net new code created that may not be as secure as previous and we're seeing just the worst hacks security leaks, and this is just the start? Yes. Yeah, it's gonna be crazy. When you say it's gonna be crazy, like what does that actually mean? Like code generated is growing exponentially. The security efforts aren't growing in kind. And I so I think there's kind of a lag there. I think there are probably going to be in the next couple of years some pretty big incidents that occur because of AI generator. There honestly probably have been, I just whatever incidents that have occurred, no one's going to admit, or typically they'll be reluctant to admit if it was like AI involved or not. But also I think we haven't even seen the most adversarial behavior yet. Like I think people can use these tools to be quite adversarial. I think security, like the higher the stakes, it's gonna grow in importance. And so I think the security part of the market is really important. Aaron Powell Do you think US startups should be allowed to operate so extensively on Chinese open source models? Yes. Using an open model is fine. Like there are kind of two concerns. There's one concern is if you're sending your data externally to like a different nation, which is one concern. And I think that the concerns there about like we don't want to send our data to China or j generally. I mean you should probably want to keep your data to yourself regardless, or like within country regardless. But I think the the separate concern is like, oh, the model itself. Like even if we host it in the US, is there a concern with the model itself? And to explain some of the concern there, I think the idea that some people have is like, I don't know if you've seen in like those spy movies where there's like a code word where suddenly someone starts acting like you say the right word and then they're like in robot mode where they're gonna go act adversarially. I think the concern is that some of these models might secretly have that ingrained within where you say a trigger word and then suddenly, even if it's hosted in the US, it's gonna like send data somewhere else or it's gonna start you know trying to intentionally kind of break whatever it it is that you're doing. Suppose any nation were to try and do that. Suppose they wanted to make a model that had one of these trigger words that's gonna go and act adversarially. Theoretically you would, want to do that as late as possible. Because if you do that in an early model and someone discovers it, they're literally never going to use your models ever again. So I don't see that as a big concern. And also if you're deploying correctly, like not as a consumer, but in the enterprise, if you're deploying correctly, data exfiltration or like kind of some of this adversarial stuff generally you can fight against. But I do think just from a I'm quite patriotic, I think it's pretty embarrassing that we don't have frontier open models in the United States. So I do hope to see us, you know, reclaim superiority there. Europe is significantly behind, especially on the model development side. Do you think Europe is too far behind to catch up? Probably on the frontier model lab side. There's so much to do on the like infra build out and energy side of things. But again, the thing that's very difficult in the different parts of the world is you have democratic countries where things generally are slower. Suppose you say we need to do this thing, you need to get a lot of support, you need to convince certain people to do things, you need to pass legislation, it takes a long time. But the benefit though is theoretically we get this balancing act where we don't go too crazy in any which direction. Other parts of the world where it's more authoritarian is like this is the thing we're doing. We are doing it, we're acting now . You get to move quickly. Now, there's less kind of correction because what if you're going on the wrong course? But in cases like AI where it's pretty clear like for build-out, you need to build data centers, you need energy, and energy requires a lot of build-out as well, that has a huge amount of lead time. You can act faster. In the West, things are slower. So that's one thing that kind of goes against us. It's a little bit slower to get this stuff done, especially when there's all the politics that you have to deal with it. Do you worry about the public backlash to data center development that we've seen? I think it's like forty out of a hundred data centers post approval don't actually get built out in the end. Do you think data centers will be seen as a symbol of wealth concentration and technology superiority? Yes, but I think that's at least in the United States, the beauty of having states is we get some selection where we can have different experiments of like what's it like for a state that says no to all data centers? Well, okay, there won't be as many jobs that get created there. Whereas the states that do allow for data centers to be created, people will prosper. They're going to have great jobs. They'll see the downstream benefits of it. But it's nice. It's like we have little petri dishes to test out and see how things work. That is the beauty of the United States. And I think in Europe, I mean, it's tough. I think there was some good positioning that Europe had, you know, a few years ago, a few decades ago with nuclear that I think hasn't been you know delivered on as much as of late, but that would have been a world in which Europe would have a way to bounce back a lot in AI on the on the energy side. Well 100%. I blame the Germans. And that's our German audience gone. Dude, I want to do a quick fire round with you. So I say a short statement, you give me your immediate thoughts. Nebius versus cool weave, who has a larger market cap in five years' time and why? To me, and this is this is speaking from strongly biased as an application person, like I'll take the grab bag. It doesn't matter. I I actually hope for a world in which our users don't even know which one is under the hood. For you I would want Core Weave to be bigger. Why? Because Nebius I think have more ambitious plans to be full stack which will eat into some of your plans in a way that Core Weave don't. Ambitionitionss. What are amb ? I don't think it makes sense for them to do that. Okay. Go businesses need to think about their core competencies. If people are trying to expand beyond their core competencies, Kirkland and Ellis, great. Look, have fun. It's not your core competency. I don't think it makes sense. Yeah, I get you. I think you could argue that it's a lot more adjacent there. Do we have a series of businesses like a Nebius, like a McCool, where customer concentration is like ninety percent of revenues. Will we see more of that? Yeah. Yeah, probably. Is that a bad thing or a good thing? It's bad if you're an investor in one of those companies because it's a little riskier. But I think you can find a steady state. It's just scary. You just know there's kind of a sort of Damocles above your head of like it it's just risky. It's risky. A sort of Damocles. First time it's ever been said on the show. Tell me, can you sell to enterprises today without an FDE model? Yes. Have a good product. The thing about the FDE thing blows my mind is like for us, when we do FDE, the way I think about it is their goal should be acceleration. Basically, if there's a customer where if we just give them our product, they'll scale to like a million in six months, I'll throw in FDEs if they're gonna scale them to a million dollars worth in three months. Great. They accelerated that. If I'm sending in FDEs as services, like I'm not Accenture here. Like I'm not trying to be like or Infosys or Cognizant or whatever. We are not a services company. If we need FDEs to make the product work, we have a shit product. Like the point of FDEs should be accelerate and get them consuming faster. If you're putting in FDEs, because that's the only way you'll get a deal done, I'm sorry, my friend, you have a shit product. What do you think of the whole grind slop? element We talked a little bit before about the show with Nico at Corgi, which generated a little bit of discussion online. Yeah, just a little bit. Dude, I said nothing. This is honestly it's like it's like someone comes to your party and does something well and say, this isn't me. What do you think of the grind slop? I feel like a lot of the things we've talked about actually is like something everyone needs to be wary of is intermediate metrics. And grindslop comes from intermediate metrics. Like, oh, generally to do things, you need to spend time on it. So let's focus on how much time do we spend instead of like are we doing the thing? The analogy I use is imagine trying to measure who won a basketball game by who sweat the most. Like you could sweat a ton, but look at the scoreboard. Like are you doing what actually needs to be done or not? And I think for us, we want to focus on like getting the best players. I don't care if you sweat a ton or if you sweat very little. If you're scoring a lot, great. We want you on our team. Now generally, for most people, you have to sweat if you want to get things done. But I think you are doing a bad job on hiring if you need to like mandate certain crazy hours or you need a bed in the office. It's like, dude, get a good night's sleep. Like you don't need a bed in the office. Like just go get a get an apartment nearby that's nice and cozy, get eight hours of sleep. If you as an important member of your team at your company can get your job done on two hours of sleep, you're not doing very high leverage work. Do you know what I did think it was an amazing opportunity for eight sleep to do like an amazing social campaign. I would have delivered it. I would have got the fans outside being like, we got you covered. It's funny. Like that's literally like when we were 30 people, we had like a what we call a surge, like a pretty aggressive like two week sprint. And as part of it, I got everyone on the team eight sleeps. Like fully free, whatever, three thousand dollars per person. Like the decadence of startups, right? But I think the idea there is like we are optimizing for output. And the people that we are bringing onto the team, it's like SEAL team six, like the NBA All-Stars. Like it is worth every dollar to make them more productive, to deliver on these amb itious goals that we have. And so we can do that. And you know, this at least for me, I think eight sleep helps with my sleep. Engineer, like great, let's do it. They're going to be better, they're going to have more of their wits about them, they'll be sharper. And the type of engineering work that we do is not just like grunt work, how can we spend as many hours to do it? We have droids for that. The work that we do is like might require like really deep thought, really kind of like every ounce of brain power that you have, in which case, if you didn't sleep well, like you're not going to make as good of a decision. Aaron Powell If I gave you unlimited money, what would you spend on today that you're not spending on? I think generally we will see the best companies treat teams more and more like whatever, SEAL Team 6 or NBA, like professional athletes. Not in the way that Google did it with like, oh, you get like a bounce castle and all this like weird shit. But like we're like athletes, it is kind of like it seems like they're getting pampered, but it's kind of a burden. Your diet is monitored . You get like you have to do your like hour-long massage after a game to make sure your muscles are recovered for the next game. You have to do like an ice bath and all this stuff. Like it seems glamorous, but sometimes it's not. I think spending on that type of stuff, but obviously in, the more like intellectual domain, I think that's what more and more companies will do. If I could spend an incremental dollar to make every person sleep that much better, recover that much better, be that much better at making decisions, it's probably worth it. You're such an American. Do you know what I like? I like Lee Moncello. Do you know what I like? I like smoking. Do you know what I want to do? I want to sit in the sun under the intense vitamin D rays. And I want to take in life with my friends. Yeah. For what if you guys are like optimized to the extreme. Did you see the Stephen Bartlett video the other day? And then the next day I ate more, I podcasted worse, I didn't go to the gym, and then I slept badly again and three days ruined. Okay, honestly, I get that. To be fair, the first year at factory, I would drink a whiskey every night, and my argument was, and you'd probably agree with this, was like for robustness, like if you want to be a robust human, you can't have like one drink ruins the next five days of your life. Like the wind blows and then you're like you're ruined, right? To some degree, I get it. Like you want to have some of this stuff. But I also think maybe, you know, again, looking to athletes, what they do is they have in season and out of season. Maybe it's like when you're in season, you're fucking locked in, you're not drinking, you're like optimizing all this stuff with your eight sleep. And then take a week off, go on the beach, drink some you know, moj itos or whatever the hell people drink on the beach. If you can recover after, you know, to each throne. Oh god, that would be the funniest thing ever. Work hard, play hard. Yeah. Okay, you can invest in one company on IPO Day. Sorry, dude. Anthropic or OpenAI? In my mind, the answer here is I think they're approximately equivalent. Like to me it doesn't really matter. The biggest reason that affects like the EV is like volatility of the company. That's the only thing like 'cause I think from the business perspective, they're both very well suited and like well positioned there Trevor Burrus So you were saying anthropic. Probably. Past is an indicator of the future, and like there's just been more like random, chaotic, turbulent events at OpenAI. But like from a business perspective, to me, that's like they're both great choices. Has Dario done a misservice or disservice to the ecosystem by saying, We're gonna take your jobs, we're gonna take your jobs, we're gonna take your jobs. Yes. It actually this like really upsets me. So on one hand I d maybe just implied enthropic there, but on the other hand, I think that has been not only like disingenuous and wrong, but it's like really hurt the psychology of a lot of developers, like just people in the world, does AI a disservice, does the world a disservice, because this is again talking about the use cases that are gonna and the problems that will be solved for society, this feeds fuel of like we should slow down AI, we should stop doing it. And honestly, it's for selfish reasons that they did that. Because if you're trying to raise unprecedented amounts of money, you know, hundreds of billions of dollars, whatever. The best way to convince people to do that is to say, all of capitalism is gone. The only company that's left will be me. So you better give us your dollars. And then suddenly when it comes to IPO, when now suddenly all the humans and the people that you might be replacing now have money that you want them to put in your IPO, then suddenly it's whoa whoa whoa. Oh no, humans are pretty important. There are gonna be jobs again. You know, we like you guys. That pisses me off. I totally agree. And what's ironic is the ones who've never said it are the ones who've never needed the money. When you look at a Zark or a Damis, they've always had a very different stance to Sam and Dario when it comes to labour displacement and jobs. It's really interesting. The ones who need it and the ones who are not. It's like incentive is driving the outcome and the incentive is I want to raise a lot of money Which legacy company do you think has most embraced A aron Powell Honestly, EY, the accounting firms, is one of our largest customers. I know. They are so agent-native, it's crazy. They're one of our largest customers. They're just like basically they saw what happened with the cloud. They saw scars of being like late and kind of not jumping onto it aggressively. They have some great engineering leaders there who are like, look, this is gonna be scary. Some people are gonna get upset. It's not gonna be the e asiest thing, but we are going to make our org agent native it's if it's the last thing we do. And they were honestly pretty early to it as well. To me, I think that's one of the most interesting things seeing is like they're more agent native than some like startups, which is wild. Brave New World. Brave New World. Final one. What have you changed your mind on most in the last 12 months? What I've changed my mind on the most in the last 12 months is there was a brief period of time where I thought it might be just one or two companies that run away with being kind of the frontier and the best. What seems pretty clear to me is it's probably gonna be at least four that are gonna probably be approximately as good. And that is a win. That is the win for humanity. The bad case for humanity is when there's one that's really, really good. I think there's probably going to be at least four, if not many, others. And that's something that it seems there's like kind of growing evidence of, which it's kind of my sense is it's a hot take, because I think right now people are a little bit enamored with maybe one or two, but listen Matt Damon, it's been so wonderful to have you on the show. I'm gonna let you go back to Robin Williams. And this show was brought to you by Eight Sleep. Kidding Dude, it's been so much fun. 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