Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is Master's in Business with Barry Ridholds on Bloomberg Radio.
Speaker 1: This week on the podcast Wow, this is really so
Speaker 1: exciting to share with you. We hosted a conference out
Speaker 1: in Huntington Beach, California, my firm ridhel Schwap Management along
Speaker 1: with Advisor Circle called future Proof. It's a giant event
Speaker 1: on the beach in Huntington Beach, California.
Speaker 3: Part of the.
Speaker 1: Event is a series of panels and interviews. In fireside chats,
Speaker 1: I got to sit down with Pallenteer co founder Joe Lonsdale.
Speaker 1: He's really a fascinating guy. He's been a serial entrepreneur,
Speaker 1: managing money for Peter Thiel, interning initially at a Whole
Speaker 1: Places PayPal, which he then just one successful company after another.
Speaker 1: Just a fascinating guy. So we spoke for about thirty
Speaker 1: thirty five minutes. I thought the conversation was fascinating. We
Speaker 1: talked not only about Pallenteer and the defense industry and
Speaker 1: how the world of warfare is changing. Lonsdale is a
Speaker 1: serial entrepreneur who has had success after success after success,
Speaker 1: and is still a relatively young guy. And there's more
Speaker 1: fascinating things to come from him.
Speaker 3: Here.
Speaker 1: It is my discussion with palenteers Joe Lonsdale in Huntington
Speaker 1: Beach at future Proof twenty twenty four. So I just
Speaker 1: highlighted a handful of things about your career, but I
Speaker 1: really want to delve into the specifics. You're at Stanford
Speaker 1: studying computer science and somehow you land a job as
Speaker 1: an intern at PayPal.
Speaker 3: Tell us a little bit about that.
Speaker 4: Well, this was a pretty cool place. So Elon Musk
Speaker 4: with his smartest friends started the company back then in
Speaker 4: the nineties called X and Peter Thiel and his smartest
Speaker 4: friends started Confinity, and they were two of eight competitors,
Speaker 4: and they decided rather and destroy each other, to merge.
Speaker 4: It was actually interesting times, like people were working so
Speaker 4: hard that some of the people working for Peter at
Speaker 4: one point had not gotten enough sleep and were suggesting
Speaker 4: ways to bomb the office of the other guys.
Speaker 2: They realized this is betterly bad.
Speaker 4: We should probably stop this, and so the companies merged
Speaker 4: a form PayPal, and a lot of the most talented
Speaker 4: people from stan Aford computer science went there.
Speaker 2: At that time. It was amazing place.
Speaker 4: Elon kept trying to rename PayPal back to x dot com,
Speaker 4: which they didn't let him do, so I guess he
Speaker 4: eventually got his way twenty years later with Twitter. But no,
Speaker 4: it was a really fun place to learn and a
Speaker 4: lot of my friends there, these guys were like ten
Speaker 4: or fifteen years older than me. A lot of people
Speaker 4: who were working there ended up going on to start
Speaker 4: YouTube and Yelp and you know, LinkedIn and all sorts
Speaker 4: of great companies.
Speaker 2: So a fun place to learn.
Speaker 3: Right, that was quite a brain trust over there.
Speaker 1: Yeah, your next role is it Peter Teal's hedge fund,
Speaker 1: Clarium Capital. You described that as one of the top
Speaker 1: intellectual think tanks in the world. Tell us a little
Speaker 1: bit about your experience working with Teal at Clarium Capital.
Speaker 2: Yeah.
Speaker 4: Sure, that was a global macro hedge fund, and so
Speaker 4: that's a really fun part of finance where you just
Speaker 4: get to try to figure out at a high level
Speaker 4: what's going on in the world, and lots of arguments
Speaker 4: about politics and economics and history and financial markets, and
Speaker 4: you try to on one hat as quantitative you're modeling
Speaker 4: different things like, you know, the Australian currency versus a
Speaker 4: price of commodities versus you know, what's going on in China,
Speaker 4: and on the other hand, you're kind of just just
Speaker 4: discussing what's going to happen the next five or ten years.
Speaker 4: And we you know, we had a really good ten
Speaker 4: year run. But why I was there. I tried to
Speaker 4: hire a bunch of my smartest friends to help us,
Speaker 4: and they thought finance was boring, and we started a
Speaker 4: project based on how PayPal was going after all the
Speaker 4: bad guys because you know, the child in Russian mafia
Speaker 4: I had been stealing our money at PayPal, and we
Speaker 4: ended up building these investigative tools and create pounder out
Speaker 4: of there. So that's what that's what I ended up
Speaker 4: doing it instead.
Speaker 1: So I just want to put a little flesh on
Speaker 1: the bones. You said you had a pretty good run.
Speaker 1: You ended up with a very nice ten year track record,
Speaker 1: but first two years out of the gate something like
Speaker 1: plus thirty percent and plus fifty percent?
Speaker 3: Am I getting those numbers about right?
Speaker 2: Yeah?
Speaker 4: I mean, if you want to know, this is macrofinance, right,
Speaker 4: So it's a fun area. Like an example of one
Speaker 4: of the best trades we figured out that worked for
Speaker 4: a few years is Greenspan had cut interest rates and
Speaker 4: there is more money than ever before going into the GSS,
Speaker 4: Fanny May and Freddie Mack, and so you had this
Speaker 4: massive amount of money there, and because these guys were
Speaker 4: so big, when they would hedge their mortgage portfolios, it
Speaker 4: would move all the global fixed income. And so what
Speaker 4: happened was, you remember, like late two thousand and two,
Speaker 4: you had like five six percent interest rates and the
Speaker 4: race started to fall, and so people started refinancing their homes.
Speaker 4: And when people start refinancing their homes, the duration of
Speaker 4: mortgages goes down. So in order to balance the durations,
Speaker 4: Fanny Man and Freddie Mack had to buy huge amounts
Speaker 4: of ten year notes, but they about to buy so
Speaker 4: much that actually made their industrates go lower, which led
Speaker 4: to more refinancing, which led to have them having buying more.
Speaker 4: So was this feedback effect, and you're able to measure
Speaker 4: the feedback effect.
Speaker 2: You got down to like one.
Speaker 4: Year duration three percent ten year notes back then, and
Speaker 4: then all of a sudden it was snapped back really
Speaker 4: quick because all the money was seeing the economy. So
Speaker 4: anyway you can kind of mapped this stuff out, figure
Speaker 4: out how to trade fixed income. You know, it's a fun,
Speaker 4: fun environment.
Speaker 3: That that must have been a fun environment.
Speaker 1: So, so you mentioned Palenteer, I have to mention how
Speaker 1: old were you.
Speaker 3: When you were one of the co founders of Palenteer.
Speaker 3: You were a young guy.
Speaker 4: It's twenty one. I'm forty two now, so it's a
Speaker 4: long time ago.
Speaker 1: And since now we're going to talk about Palenteer. Congratulations
Speaker 1: they're entering the S and P five hundred.
Speaker 4: It's an an awesome milestone.
Speaker 3: At twenty one, did you ever imagine something like that.
Speaker 4: Yeah, I was a pretty obnoxious kid, so you know, actually,
Speaker 4: Palenteer it was great. We gave offers, so we were
Speaker 4: known for having the top engineering culture. Peter was investor
Speaker 4: in Facebook at the time, so our competition was Palenter
Speaker 4: and Facebook for the best engineers. And you really had
Speaker 4: to convince these people this is going to be a
Speaker 4: big upside place.
Speaker 2: And so you give them offers, and you give them
Speaker 2: three options.
Speaker 4: They could have a higher salary but less equity, less stock,
Speaker 4: you know, medium, medium, where you have a lower salary
Speaker 4: but more stock, and.
Speaker 2: I draw up on the option for the first two
Speaker 2: hundred people.
Speaker 4: We'd put a table and we'd say, here's how much
Speaker 4: your stock might be worth. If this company's worth half
Speaker 4: a billion dollars or a billion dollars or five billion dollars.
Speaker 4: I got so much shit for including five billion dollars
Speaker 4: as one of the possibilities.
Speaker 2: People are like, this is a ridiculous show.
Speaker 1: And the market cap today it's about eighty two billion now,
Speaker 1: So it worked out for it's a long time.
Speaker 3: But it worked out twenty years. It for eighty billion dollars.
Speaker 3: It's a well worth trade.
Speaker 1: So when the company launches, it's a big data analytics company.
Speaker 1: Today the focus is defense, commercial and government. Was this
Speaker 1: a natural evolution or was there a pivot somewhere alonger No, we.
Speaker 4: Started the company to kill the bad guys. Yeah, let's
Speaker 4: be clear. I don't know they're supposed to say. I
Speaker 4: don't work there anymore, so I can say it now.
Speaker 4: We started company after nine to eleven to kill the
Speaker 4: bad guys and stop attacks. And we ended up helping
Speaker 4: run the targeting systems in forty alted countries and wiping
Speaker 4: out over ten thousand terrorists, including a lot of the
Speaker 4: most important ones.
Speaker 2: So, and it protects celebrities too. But let's get the
Speaker 2: bad guys.
Speaker 4: Yeah, And it turns out the hard data problems you
Speaker 4: solve when you run the infrastructure could be used for
Speaker 4: a lot of other things. You're basically building ontologies of
Speaker 4: information and workflows and organizing all the data the government
Speaker 4: And when we start a palenter, the government at the
Speaker 4: time spent like thirty eight billion dollars gathering data, So
Speaker 4: I don't even know what it spends now, but massive
Speaker 4: amounts of information and tens of thousands of databases. How
Speaker 4: to hell do you make all this stuff talk to
Speaker 4: each other? And so by solving those problems to kind
Speaker 4: of organize that, it turns out you now how the
Speaker 4: data in a.
Speaker 2: Form where AI can be used really easily.
Speaker 4: So today polunteers really caught the AI wave because it
Speaker 4: enables AI workflows no one else can.
Speaker 1: And am I correct in saying During COVID, plunteer helped
Speaker 1: governments figure out how to monitor, how to track, how
Speaker 1: to roll out vaccines. What was Pallenteer's role during the pandemic.
Speaker 4: Yeah, I mean it's it's it's used by the armed
Speaker 4: forces to organize all their logiosis and supplies and everything.
Speaker 2: So it's a very similar problem.
Speaker 4: How do you use all the data coming in about
Speaker 4: how to prioritize things in a pandemic? Because you're coordinating
Speaker 4: just massive numbers of things and production and all sorts
Speaker 4: of stuff. I mean, you have a lot of fortunate
Speaker 4: y funder companies using it to manage all of their
Speaker 4: and optimize all.
Speaker 2: Of their production and distribution. So obviously it works very
Speaker 2: well for that.
Speaker 4: For the pandemic, I think, I think like thirty six
Speaker 4: countries used it for that too, So it's good.
Speaker 1: So it's a proven technology today. What was it like
Speaker 1: getting governments to recognize the value of this in the
Speaker 1: early two thousands, they would distress It.
Speaker 4: Was almost as difficult as it was to get Arias
Speaker 4: to take auta par seriously the first five years. So no,
Speaker 4: it's uh, it's actually very funny. You do you think
Speaker 4: you think after a punteer, we were like, oh, this
Speaker 4: is going to be easy. No, it's it's listen, governments.
Speaker 4: Governments are very funny. They they want to use things
Speaker 4: that are new and innovative, but they want to use
Speaker 4: things that everyone else is already using. So breaking in
Speaker 4: is a very chicken and egg problem. That's very hard.
Speaker 4: It turns out that there's a lot of money in
Speaker 4: the special forces and special operations units who frankly their
Speaker 4: lives are a lot more on the line than almost
Speaker 4: anyone else because they're they're constantly doing really dangerous missions
Speaker 4: around the world, and then they're running a lot of
Speaker 4: the most important things that our armed forces do. And
Speaker 4: those groups have such bold and such confident people that
Speaker 4: we're able to break in work with them, get them
Speaker 4: to prove that it worked, and then that kind of
Speaker 4: set the precedent for other parts of government to then
Speaker 4: work with us.
Speaker 2: So thank thank goodness for our special obsc groups.
Speaker 1: So wasn't DARPA that first started with you or would
Speaker 1: did you have any work with them?
Speaker 4: I think DARPA was helpful a little bit, but it
Speaker 4: really the thing that really matters is people using it
Speaker 4: on the ground where lives are on the line. You want,
Speaker 4: if you have something that's the best you want to
Speaker 4: it's going to break in because people need it because
Speaker 4: there because something something is existential where they're going to
Speaker 4: die if they don't have it. They're not gonna be
Speaker 4: able to the mission if they don't have it. So
Speaker 4: DARPA is more of an academic thing. That's smart, but
Speaker 4: I'd much rather work with the people whose lives are
Speaker 4: on the line, and that that's how you really break
Speaker 4: in with the best things you.
Speaker 3: Mentioned at a par and Ai.
Speaker 1: Just so you know, chat GBT is what told me
Speaker 1: it was five trillion dollars.
Speaker 2: Well, nachieven, chat GBT is behind.
Speaker 1: So so you found the company in two thousand and nine.
Speaker 3: Today you're the chairman.
Speaker 1: It began life as a cloud based software platform specializing
Speaker 1: in data aggregation, analytics, and reporting of portfolios.
Speaker 3: What was the original business model?
Speaker 4: Well, you know, I had my family office at first,
Speaker 4: right around then it was a smaller family office, and
Speaker 4: then I had a lot of friends and people I
Speaker 4: talked to who ran family offices, who ran rias. There
Speaker 4: were new groups on the West Coast like Iconic and
Speaker 4: others building these firms around the tech world on raa Land,
Speaker 4: and everyone hated their software. And I looked at it
Speaker 4: and it was like, this is a mess, and there's
Speaker 4: not a really good solution here. And you know, we
Speaker 4: were mapping out there's a lot of new possibility thanks
Speaker 4: to the cloud, thanks to what you could do with data.
Speaker 4: So we said, let's build something that's better. And I
Speaker 4: naively thought we would have something that was significantly better
Speaker 4: within a year or two. It turned out it took
Speaker 4: us hundreds of millions of dollars in several years. But
Speaker 4: I am quite confidence the best at this point.
Speaker 1: So the genesis was, Hey, I have to manage my
Speaker 1: own capital and the tools aren't good, I'm going to
Speaker 1: create it. Or was the original plan. I have an
Speaker 1: idea and everybody should be using it.
Speaker 4: It was a business I think in general, in general,
Speaker 4: when you have like some area that you realize is
Speaker 4: broken for you and for people you know, rather than
Speaker 4: just build it for yourself, I think it's like it's
Speaker 4: a good excuse to build a business around it. So
Speaker 4: I was actually CEO full time for a few years
Speaker 4: getting us off the ground. Eric Poryer, who's running for
Speaker 4: over ten years now, is a much better CEO than me.
Speaker 4: So I'm a proud chairman now. But no, we built
Speaker 4: it as a business. I mean, listen, you guys. When
Speaker 4: we first took there's seven thousand custodians in the US,
Speaker 4: and so we first hooked up data. The biggest custodians
Speaker 4: are people like Fidelity and Schwab and others. And we
Speaker 4: get this all set up. We spent, like you know,
Speaker 4: a bunch of time on the first year. We hook
Speaker 4: up the live day we're getting going and it's all wrong.
Speaker 4: They're like, oh, what do we do wrong? And you know,
Speaker 4: and it turns out even those custodians just how bad
Speaker 4: data this is. The space is a message that shows
Speaker 4: out there's lots of hard problems to solve to make
Speaker 4: this stuff all work right together. So it's it is
Speaker 4: and everyone wants to customizing differently. Every ria has their
Speaker 4: own way of doing things, their own way of showing things,
Speaker 4: and so which it.
Speaker 2: Turned out it took us several more years to get
Speaker 2: it right.
Speaker 1: So so seven trillion dollars, you have some very large
Speaker 1: rias on it, you have broker dealers like Morgan standing
Speaker 1: on it. How big can at a par scale?
Speaker 4: Well, I think there's about two hundred and fifty trillion
Speaker 4: dollars globally that's addressable. Maybe only one hundred and fifty to
Speaker 4: two hundred of that would use a resolution. So even
Speaker 4: though we're going really quickly now I think we're growing
Speaker 4: like over thirty percent a year, still are still probably
Speaker 4: at least an our decade of fast growth.
Speaker 2: I mean, this is a giant market, and you know,
Speaker 2: we're still learning.
Speaker 4: I think I think they're still learning every every week
Speaker 4: from clients about how to serve them better. There's there's
Speaker 4: I think about twelve hundred firms or so give or
Speaker 4: take on the platform now, and and you know, I'd
Speaker 4: love to see them triple out over the next over
Speaker 4: the next few years.
Speaker 1: So the most of what out of part focuses on
Speaker 1: our private our public markets, stops, bonds, mutual funds, ETFs.
Speaker 1: But you also said, hey, this private market thingy is
Speaker 1: going to get big one day.
Speaker 4: Well, being able to report on every possible thing someone
Speaker 4: owns its key for out of part, but out of
Speaker 4: by out of part itself doesn't help people access the
Speaker 4: private markets.
Speaker 1: So let's talk a little bit about opto and that platform.
Speaker 1: The idea behind opto and your chairman of Opto Investments
Speaker 1: is to focus on private markets. Tell us what you
Speaker 1: see in that space. Well, what I saw is that
Speaker 1: the way people tend to come to you.
Speaker 4: So so obviously I run an investment firm, A lot
Speaker 4: of my friends run investment firms, have a lot of
Speaker 4: strong opinions about private markets, right, and this is this
Speaker 4: is an area where in the nineteen nineties there is
Speaker 4: a lot more public companies. There's a small number of
Speaker 4: private companies today, you have more private companies and public companies,
Speaker 4: and frankly, a lot of my smartest friends, people doing
Speaker 4: things that are changing how the world works, are mostly
Speaker 4: doing that within private companies. And so today, if you're
Speaker 4: not accessing private markets, you're going to get left way
Speaker 4: behind your returns. I think, especially the next ten years,
Speaker 4: given how AI is changing productivity in so many parts
Speaker 4: of our economy, we could talk about it's very clear
Speaker 4: you get left behind, and that it's messed up that
Speaker 4: a lot of people don't have access to what's clearly
Speaker 4: the higher returning areas if if they're done right. And
Speaker 4: what I saw is the way people were trying to
Speaker 4: sell people on private market stuff is basically purely a
Speaker 4: brokerage model where they come to your firm and they say,
Speaker 4: we're going to make money by selling you kind of
Speaker 4: mediocre crap. That's how a lot of these things operate.
Speaker 4: And I think that's actually frankly discussing it's not it's
Speaker 4: just not. It's just misaligned, Like it's not how any
Speaker 4: of us would do business normally. Is that you you
Speaker 4: don't want to put money into the things that you're
Speaker 4: getting paid to put money in, so you want to
Speaker 4: you want to have an aligned model where we all
Speaker 4: make money together by accessing the best things. And private
Speaker 4: market is especially venture capital, but frankly, certain parts of PE,
Speaker 4: certain parts of all credit, all these other things, they
Speaker 4: have a very high disparity. You really want to get
Speaker 4: in the top decile, top quartile stuff and you're gonna
Speaker 4: do great and if you get into mediocre stuff, you're
Speaker 4: gonna have mediocre results. And so so just the whole
Speaker 4: spaces seemed misaligned to me. And then on top of that,
Speaker 4: it's really stressful for a lot of people to get
Speaker 4: all their clients into these things because they're just lots
Speaker 4: more paperwork, lots of messes, lots of legal stuff, and like,
Speaker 4: why not make it as close as possible to doing
Speaker 4: something in the public markets to do something in private markets?
Speaker 4: And really technology and AI can solve that. So opto
Speaker 4: it's about making people aligned is having one platform.
Speaker 2: Where you do everything.
Speaker 4: And frankly, it's about using my network and my friends
Speaker 4: networks to put what we think is the very best
Speaker 4: stuff on it that my family office is doing, and
Speaker 4: let's share that with others.
Speaker 1: So at this event, we have over two thousand rias
Speaker 1: of these some of them are single practice, small small operations.
Speaker 1: Some are really big firms with tens of billions, hundreds
Speaker 1: of billions of dollars on them. How can large and
Speaker 1: small firms integrate opto into their practice?
Speaker 2: Yeah, I mean they go.
Speaker 4: There are both lots of small firms and some very
Speaker 4: large firms now on opto.
Speaker 2: The goals that it makes it as.
Speaker 4: Easy as possible, similar to Adapar, which has obviously been
Speaker 4: around longer and as a giant, giant company. Now, I mean,
Speaker 4: opto is growing very quickly and we want to learn
Speaker 4: from rias like what about this could be easier for
Speaker 4: you to use it? But we have dozens of firms
Speaker 4: that have that have created custom funds on it for
Speaker 4: their clients and access things that I think otherwise they
Speaker 4: never would have accessed, and made it really easy for
Speaker 4: them to do it.
Speaker 2: So I would love people's feedback on what we're doing.
Speaker 4: Here is a younger company but growing really fast, and
Speaker 4: I'm really proud to kind of get people the best
Speaker 4: access in the alt world. I think it's such a fun,
Speaker 4: interesting world that a lot of people don't know how
Speaker 4: to approach if they know, if they haven't been doing
Speaker 4: it in the past, or if they have been doing
Speaker 4: some but maybe they would have certain expertise in other areas.
Speaker 4: Sometimes for our custom funds, like they'll choose certain areas,
Speaker 4: certain managers they know, but they will compliment it and
Speaker 4: help them do that with other areas they haven't studied
Speaker 4: as much.
Speaker 2: And so you know, we'll love people's feedback.
Speaker 1: So you wear a lot of hats, you're chairmen of
Speaker 1: out of par you're deeply involved in, opto tell us
Speaker 1: about your day job.
Speaker 3: Eight VC a venture capital front.
Speaker 2: Yeah, I know. At the end of the day, I
Speaker 2: went an entrepreneur.
Speaker 4: I like to build things, and a lot of a
Speaker 4: lot of the people from from palent here from Adapar
Speaker 4: have gone on to build a build lots of other companies,
Speaker 4: and so I've been coaching. I started coaching a lot
Speaker 4: of them, just like with PayPal, where we had sixteen
Speaker 4: billion dollar companies come out of that. After eBay bought us,
Speaker 4: Palenteers now had over one hundred successful companies come out
Speaker 4: of it that people have started over the last couple
Speaker 4: of decades. And and so you know, I ended up
Speaker 4: ended up saying, you know, it makes sense to actually
Speaker 4: build an investment firm. My mentors told me I basically
Speaker 4: was doing an investment firm. Didn't have enough money, enough people,
Speaker 4: so so we so the last twelve years we put
Speaker 4: together a pretty big firm in the venture capital space.
Speaker 4: We build, we build and launch companies. We back companies early,
Speaker 4: and I mean we're not Yeah, it's nice and venture
Speaker 4: If you don't raise big funds, they become very, very oversubscribed.
Speaker 4: So I'm not here to raise money for AIGHTVC. But
Speaker 4: it's a it's a fun area. And I'll tell you
Speaker 4: since you're asking about there, there's really two areas that
Speaker 4: we're probably really well known for the last few years.
Speaker 2: One of them is defense.
Speaker 4: We've started multiple new defense companies, including nearby here. We
Speaker 4: actually backed early ANDROL with Palmer Lucky and so my
Speaker 4: expounder colleagues, and they're become a new defense prime, which
Speaker 4: is really cool. If you haven't checked it out online,
Speaker 4: there's amazing videos of the things they're doing. And then
Speaker 4: the other the other two one of them, you know,
Speaker 4: drone swarms have become a huge problem.
Speaker 2: This is really hard to stop.
Speaker 4: We're spending two million dollars missiles to shoot down cheap
Speaker 4: little drones with bombs coming in our troops and they'll
Speaker 4: swarm one hundred at once. So we figured out how
Speaker 4: to use new technology to send out microwave radiation really
Speaker 4: really far from pretty small, pretty small device to shoot
Speaker 4: down swarms of drones, and we're now deployed live. It
Speaker 4: turns out the AI chips can get the power to
Speaker 4: hit the guy. You might try tomitter all at once
Speaker 4: turn them off. So we build that, and we have
Speaker 4: another company building thousands of ships for the US Navy,
Speaker 4: smaller ships because it turns out China has two hundred
Speaker 4: times our shipbuilding capacity, which is frankly a huge crisis.
Speaker 4: You know, it used to being World War Two, Germans
Speaker 4: had better ships than we did, but every time we
Speaker 4: lose a ship, you'd build three morecs. We have the
Speaker 4: best building capacity America now with with literally two hundred
Speaker 4: times the ship building capacity in China, very scary for
Speaker 4: our ability to turn them. So we're figuring out how
Speaker 4: to take our best and brightest. Frankly, Elon Musk's Who's
Speaker 4: a Good Friend has like really revitalized advanced manufacturing in America.
Speaker 4: We're taking some of that talent putting it into military
Speaker 4: areas as well to make sure we stay ahead.
Speaker 2: Of the bad guys. So so wors we're doing a
Speaker 2: lot of defense.
Speaker 4: And then the one one other area I'll mention is
Speaker 4: what we call AI services. And so there's a huge
Speaker 4: part of our economy right now that we can we've
Speaker 4: showing we can actually double or triple a productivity using AI.
Speaker 4: And so this is this is this is stuff like healthcare, building, logistics,
Speaker 4: building back office processes.
Speaker 2: In the alts world, it's like how do you know,
Speaker 2: how do you manage and subscribe and deal with all
Speaker 2: the al paperwork and stuff.
Speaker 4: There's just lots of these areas that are gonna just
Speaker 4: be completely changed, and so we think there's multi trilion
Speaker 4: dollar opportunities in those areas and building a lot of
Speaker 4: companies that are succeeding in them.
Speaker 1: I want to stay with defense a little bit because
Speaker 1: you're involved in so many really interesting areas. I first
Speaker 1: heard of Palmer Lucky with the Oculus, which you were
Speaker 1: an early investor in before I think Facebook ended up
Speaker 1: buying buying that.
Speaker 4: Yeah, Facebook bought up for over two billion dollars just
Speaker 4: a few years. Then you made an ability here at
Speaker 4: like twenty two or something, which is go go to
Speaker 4: your head pretty fast.
Speaker 1: And then not too long ago, maybe it was Wired
Speaker 1: magazine did a profile on really interesting things that Palmer
Speaker 1: is doing with drone technology and defense technology.
Speaker 3: Tell us a little bit about what's going on in
Speaker 3: that space.
Speaker 2: Yeah.
Speaker 4: So, basically, Pounteer in SpaceX were the first two companies
Speaker 4: to break in and effectively become some form of defense prime,
Speaker 4: the first new ones in thirty years because we had
Speaker 4: we had all these old primes, they all consolidated after
Speaker 4: the Cold were end in the nineties, and they basically
Speaker 4: had a total lock on DC and Poundeer. It took
Speaker 4: us a long time, a lot of stubbornness to break
Speaker 4: in and and you know, some points we had to
Speaker 4: sue the US government because they were doing crazy things
Speaker 4: that we want. SpaceX similarly had to sue the US
Speaker 4: government because they just discriminated against new things, right, and
Speaker 4: obviously SpaceX good thing they want because they're obviously one
Speaker 4: hundred times better than they alternative. Frankly, after doing Palenteer,
Speaker 4: I said, this defense stuff is just really stressful. It's
Speaker 4: really you know, hard to break into. You I'm gonna
Speaker 4: do out of par instead. Turns out you guys are
Speaker 4: stressful too. But but but you know, I'm like, I've
Speaker 4: done enough defense. And we started up being pretty bullish
Speaker 4: on things going on between China and the US, and
Speaker 4: very naively thought the world is just gonna go in
Speaker 4: a kind of more peaceful, more prosperous direction. And we
Speaker 4: saw this guy is Shiji Ping come in and I
Speaker 4: have friends with a lot of guys who built these
Speaker 4: companies in China. A lot of them believe in free
Speaker 4: markets read Milton Friedman, like share a lot of our values.
Speaker 4: These are not just because they're Chinese. They're not about people,
Speaker 4: you know, they're not CCP themselves. And we saw Suji
Speaker 4: Pink start cracking down on these guys. A lot of
Speaker 4: them disappeared. They have had multiple friends who knew really
Speaker 4: well who died in their sleep in their forties, you know,
Speaker 4: after being tech billionaires. And we saw him also making
Speaker 4: a lot of our friends force their top engineers to
Speaker 4: work on defense projects. Obviously we don't do that in
Speaker 4: the US, but this became very concerning because China does
Speaker 4: have really top talent and they are forcing them to
Speaker 4: build new things in defense hardware. Meanwhile, in the US,
Speaker 4: those old companies that solidated in the nineties, they're hiring
Speaker 4: basically none of our smartest friends. So this is a crisis.
Speaker 4: You have China building really new advanced defense things. You
Speaker 4: have us spending lots of money very wastefully with without
Speaker 4: top talent. And we said, wow, we need to get
Speaker 4: back in and fix this. So Palmer with three of
Speaker 4: my old palanteer guys, after you know, after selling Oculus
Speaker 4: to Facebook, and they kicked him out of Facebook because
Speaker 4: he did some politics they didn't like.
Speaker 2: He's on the right.
Speaker 4: But so he and these guys start this new company
Speaker 4: nearby here and it's become the most important new defense
Speaker 4: prime in hardware. They have all sorts of products. The
Speaker 4: one you should check out onlines called the Roadrunner. If
Speaker 4: you've ever seen Elon's rockets that kind of go up
Speaker 4: and land themselves. He has the same thing for advanced missiles.
Speaker 4: And so these missiles come in his box and it'll
Speaker 4: go up and it'll track and destroy the bad guys.
Speaker 4: But if not, if you don't use it, if it
Speaker 4: doesn't explode, it'll come back in a land and it'll
Speaker 4: wait to be used again. And so not only is
Speaker 4: it like the twelfth the cost of a Patriot missile,
Speaker 4: it also can be reused we're actually putting member that
Speaker 4: ePRESS company that shoots things down with microwave radiation. We're
Speaker 4: putting it up with that on it. So you can
Speaker 4: imagine a swarm of these going flying, shooting that, turning
Speaker 4: things off and coming back and landing to use it again.
Speaker 4: And you know, modern warfare is gonna be swarms of
Speaker 4: autonomous small vessels, small drones like all these things. And
Speaker 4: we can't afford to do what we've been doing with
Speaker 4: the defense primes, which is to build things that are
Speaker 4: way too expensive, kind of last generations technology, and you're
Speaker 4: gonna run out of them against against the swarms our
Speaker 4: adversaries are gonna have, so we're really trying to make
Speaker 4: sure we stay ahead of them.
Speaker 1: So I want to combine two things you mentioned, the
Speaker 1: new technologies swarming and the massive overcapacity to build chips
Speaker 1: of China versus the US. What have we learned from
Speaker 1: the Russian invasion of Ukraine and how the Ukrainians are
Speaker 1: defending themselves with technology. How can that be applied towards
Speaker 1: any potential invasion of Taiwan by China.
Speaker 4: Yeah, so I mean Palans here, and uh Palnce here,
Speaker 4: and Androl Palmer's company are very active in Ukraine doing
Speaker 4: a lot of doing a lot of important things there.
Speaker 4: We've learned it's about dorn droness. We learned it about costs. So,
Speaker 4: for example, the US makes these anti radiation missiles that
Speaker 4: are three million dollars each. We sold three hundred of
Speaker 4: them to Poland I think a few months ago for
Speaker 4: a billion dollars. And these missiles are able to find
Speaker 4: jammers and take them out. Russia's figured out how to
Speaker 4: build these gammers, and these gemmers, by the way, they
Speaker 4: stop artillery from targeting. They really are dominant on the battlefield.
Speaker 4: So it's electronic warfare. They figure out how to build
Speaker 4: them like twenty thirty thousand dollars. You can't win a
Speaker 4: war with three million dollar things being use to take
Speaker 4: out thirty thousand dollar things. You're just gonna run out
Speaker 4: of No matter how rich you are, you're gonna run
Speaker 4: out of money on the battlefields. A war is like
Speaker 4: an engineering thing where it's about scarcity, right, And so
Speaker 4: we've learned you have to build cheaper, smarter, distributed systems,
Speaker 4: and you know, the electronic warfare stuf's fascinating. I listen,
Speaker 4: there's a lots of smart people who are against us
Speaker 4: going into Russia, like we probably should be careful with
Speaker 4: nuclear power. So I'm not gonna say this is good
Speaker 4: or not, but it's interesting. Ukraine was able to basically
Speaker 4: create like these electronic warfare bubbles by figuring out how
Speaker 4: to jam sensors in different ways and kind of create
Speaker 4: a protection bubble around their forces. Is that then did
Speaker 4: the major incursion and it was all about electronic warfare
Speaker 4: and turning on and off these sensors along with like
Speaker 4: how to manipulate swarms and so battlefield is totally changing
Speaker 4: versus how we do these things twenty years ago. And
Speaker 4: we're trying to make sure we build companies here in
Speaker 4: technologies general response to this and go fast on it.
Speaker 1: So all of these ships, that giant ships that China's building,
Speaker 1: is it likely or possible that there will be a
Speaker 1: small autonomous swarm of vessels that counter balance that.
Speaker 4: Well, China's pretty smart, so I think they're mostly building submarines,
Speaker 4: which are difficult. But yes. So Saronic is the latest
Speaker 4: company we helped starts run by a former nav cl
Speaker 4: of eleven years in Austin, Texas. Law of the Admirals
Speaker 4: of the Fleet are very involved, and what we're doing
Speaker 4: is gonna is We're even next year in Austin. We're
Speaker 4: gonna have six hundred ships we build that are twenty
Speaker 4: four feet, fourteen feet and six feet. These are weaponized
Speaker 4: automus vessels. We're teaching a navy how to use AI
Speaker 4: to have the coordinate. So what we showed them when
Speaker 4: they agree is we can basically triple the battle effectiveness
Speaker 4: of our fleet by complementing all the big ships of
Speaker 4: the line with about thirty smaller weaponized vessels that swarm
Speaker 4: and coordinate and help in different ways.
Speaker 2: It's kind of fun. It's like a little video game
Speaker 2: sort of thing.
Speaker 4: I actually have a lot of La Vido game talent
Speaker 4: helping us map it out and practice battles and stuff.
Speaker 4: But no, yes, we have to do lots of small
Speaker 4: ships if we want to stay ahead of them. And
Speaker 4: unfortunately our DoD is not as competent as it used
Speaker 4: to be. But our private companies are the best in
Speaker 4: the world. So we're going to keep getting involved same
Speaker 4: as private companies did in World War Two and make
Speaker 4: sure we stay ahead of the bad guys.
Speaker 3: So let's shift gears.
Speaker 1: I want to talk about open GOV which is another
Speaker 1: product project of yours. You provide software for over two
Speaker 1: thousand municipalities and state agencies.
Speaker 3: What was that adoption practice?
Speaker 1: Like?
Speaker 3: How long did that take?
Speaker 4: Well, we sold open gov earlier this year for one
Speaker 4: point eight billion dollars to Cox. And you know, originally,
Speaker 4: my friends and I we were wondering why California was
Speaker 4: taxing us so much and where they were spending the money.
Speaker 4: This is about thirteen fourteen years ago. And so I
Speaker 4: got about twenty Stanford students in a nonprofit at first,
Speaker 4: and we tried to just put everything online.
Speaker 2: It was great. I didn't have my name on it.
Speaker 4: So all these students get getting attacked by the unions
Speaker 4: because they really don't like it when you show them
Speaker 4: spending lots of money and government departments. So it basically
Speaker 4: showed that California had a bunch of departments that were
Speaker 4: dominated by the special interests, that we're spending about fifty
Speaker 4: to sixty percent more than this was thirteen years ago
Speaker 4: than you'd imagine by the model.
Speaker 2: Right, of course, it's corrupt.
Speaker 4: And all these cities started emailing us saying, oh, this
Speaker 4: is really cool, show us for our spending.
Speaker 2: Are we doing something good?
Speaker 4: Or not. And we said, sure, send us the data,
Speaker 4: and the cities would say, well, how do we send
Speaker 4: the data over? And we looked into it and there's
Speaker 4: tens of thousands of municipalities in the US and they
Speaker 4: mostly don't have access to their own information. They have
Speaker 4: to pay their IT consultants huge amounts of money to
Speaker 4: do a report. They couldn't even see what they're spending
Speaker 4: versus city next door for similar services. And so we
Speaker 4: decided to build this thing called open gup and we
Speaker 4: build a way for them to see all their data.
Speaker 4: And then we realized governments don't like paying for new things.
Speaker 4: They only can pay for the things they're already doing.
Speaker 4: So we built a bunch of software for them to
Speaker 4: run all their budgeting and their transparency and their processes
Speaker 4: and asset management.
Speaker 2: And it just built a big gup tech comp.
Speaker 1: So I'm kind of fascinated how you've bounced the cross
Speaker 1: sectors big data, defense, government, healthcare, finance, even now education.
Speaker 1: How do you approach learning a space that you have
Speaker 1: been in before.
Speaker 4: Well, you know, the for building these companies and for
Speaker 4: succeeding as an investor and ventor. There's really two things
Speaker 4: that matter. The most one is the very top technology
Speaker 4: talent and technology cultures. So culture is a places like
Speaker 4: Opto where we're iterating with you. It's because we have
Speaker 4: like these really amazing talented people who are building really
Speaker 4: quickly and who are speaking to people and getting feedback
Speaker 4: with them. And the other thing we're looking for is
Speaker 4: like where is a gap in the world, where is
Speaker 4: something Here's where it could be, and here's where it
Speaker 4: is now. So again with so I think, go back
Speaker 4: to all and think about that. It's very clear there's
Speaker 4: a gap. The incentives are misaligned for how people are
Speaker 4: accessing alts, the platforms are wasting a lot of their time,
Speaker 4: and it's just it's not easy for them to see
Speaker 4: what the best things are and to really quickly iterate
Speaker 4: and do their.
Speaker 2: Job for the clients. And so it's very obvious there's
Speaker 2: a gap there.
Speaker 4: And so what you do is you use UCLA hypothesis.
Speaker 4: You get a really great tech culture where the people
Speaker 4: at opto own a bunch of the company themselves, are
Speaker 4: really talented people who've had wins before, know how to
Speaker 4: build and iterate in texts that from out of par
Speaker 4: or from other places. And then and then, and then
Speaker 4: you build and you iterate with clients because no matter
Speaker 4: how smart we think, we are going to come to
Speaker 4: you and show it to you. There's gonna be things
Speaker 4: that are wrong. There's gonna be things that are not
Speaker 4: useful for you. But because you have a great tech culture,
Speaker 4: you can iterate very quickly and learn. And so the
Speaker 4: company's now been around for a few years, is now
Speaker 4: the point where people are starting to really love it
Speaker 4: because they've been, you know, doing a based on feedback.
Speaker 4: So when you approach a new space, it's not about
Speaker 4: being an expert in this space. It's about having a
Speaker 4: really amazing culture that talks to the experts and learns
Speaker 4: from them and builds with them over time.
Speaker 1: And Joe, I love this quote of yours and I
Speaker 1: have to ask you about it. My passions are repairing
Speaker 1: broken industries and government in calculating classical virtues, prioritizing families,
Speaker 1: and enabling a free and prosperous society. I'm kind of politician, right,
Speaker 1: you're running, well, discuss the quote.
Speaker 3: I can't imagine you're ever running for office, are you.
Speaker 4: Sounds like it'd be a horrible job, to be honest,
Speaker 4: I listen, our society is facing a lot of really
Speaker 4: broken things right now. There's a lot of stuff that's wrong,
Speaker 4: and I think I think virtue, classical virtues are missing
Speaker 4: in our society. I think courage is not a virtue
Speaker 4: that's taught to our lead. If you go to a
Speaker 4: top one hundred university, you are taught the opposite of courage.
Speaker 4: You're taught to shut up, virtue signal, go along, don't
Speaker 4: think for yourself, don't oppose the borg. Whatever they say
Speaker 4: is right, and it's really broken. I think it's really
Speaker 4: scary what we face in our society right now. So
Speaker 4: you know, I think the fundamental units of the West
Speaker 4: are the classical virtues, are the liberty values around the Enlightenment,
Speaker 4: are our functional families with two parent households. I think
Speaker 4: these are all things that make our society functional. And
Speaker 4: if we don't say it and we don't fight for it,
Speaker 4: we're gonna have a really broken society.
Speaker 3: All right.
Speaker 1: We have time for a couple of questions from Slido.
Speaker 1: Let's take look, what do you look for when evaluating
Speaker 1: fund managers for yourself and your family office?
Speaker 4: So when I'm looking for fund managers, I mean for me,
Speaker 4: because I have a network with these people. I want
Speaker 4: to know that a lot of my friends really respect them.
Speaker 2: I want to know they have some unfair advantages.
Speaker 4: I want to know that they have obviously an amazing
Speaker 4: track record, and then I want to know that there's
Speaker 4: some reason why they're still in the game and focus.
Speaker 4: I think a lot of people who've had a lot
Speaker 4: of success, there's various things happen in their lives and
Speaker 4: they're no longer working.
Speaker 2: They all long have the same.
Speaker 4: Culture, So I mean, I want to know the culture
Speaker 4: of the organization around them at their fund and know
Speaker 4: that they are still working as hard as they were
Speaker 4: when they first created that, you know, for the first success,
Speaker 4: because I think that's that's something that slips very easily,
Speaker 4: so you got to watch out for it.
Speaker 1: And here's a perfect question to wrap up on what
Speaker 1: are the most exciting trends you're seeing in the marketplace today?
Speaker 4: So the most exciting trend by far, I started to
Speaker 4: hint at it earlier is what's going on with applying
Speaker 4: AI to services industries. There's about five trillion dollars of
Speaker 4: wages in the US in the services sector. Over two
Speaker 4: trillion dollars of those wages are in the areas where
Speaker 4: we've already shown you can double the proctivity, in some
Speaker 4: cases triple the cash flow from these old legacy businesses.
Speaker 4: This is a whole new area of tech enabled services
Speaker 4: that actually works.
Speaker 2: Now.
Speaker 4: We're seeing, example, healthcare billing two to eighty billion dollar revenue,
Speaker 4: industry typical margins twenty percent. We already have companies getting
Speaker 4: fifty sixty percent margin. Fixing that space, there's huge parts
Speaker 4: of our economy. We're gonna have proctivity shoot upwards. If
Speaker 4: we can manage not to break our country with the
Speaker 4: stupid government stuff the next several years, we're gonna have
Speaker 4: a very productive society.
Speaker 1: That was my conversation with Joe Lonsdale. He is the
Speaker 1: co founder of Palanteer, as well as a number of
Speaker 1: other finance and technology related startups. I thought the discussion
Speaker 1: was fascinating and I can't wait to get him in
Speaker 1: the studio for a full ninety minutes to really do
Speaker 1: a deep dive into his career. If you enjoy this conversation,
Speaker 1: well be showing and check out any of the five
Speaker 1: hundred previous discussions we've had over the past ten years.
Speaker 1: You can find those at iTunes, Spotify, Bloomberg YouTube, wherever
Speaker 1: you find your favorite podcasts, and be sure and check
Speaker 1: out my new short form podcast, At the Money ten
Speaker 1: minute discussions with experts about topics related to your money,
Speaker 1: earning it, spending it, and most importantly, investing it. At
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