Blue Water Autonomy emerges from stealth building autonomous ships for the US Navy

I want to follow up with him on that, but I think we have him here. Ev, are you there? Welcome to the studio. Hey guys, Jordy Kugan, great to be here. long time friend of the pod. Finally, dude, it shouldn't have t It should not It should not have taken this long.

You're in our original pitch deck because you posted like, "How can I go long? " which hilariously caused a lot of problems for us because someone created a fake uh pump. Fun token about us. And everyone was saying, "Oh, they endorsed this. " And we were like, "We did not. We just Yeah.

By the way, I didn't get rich off that. " So that that is I I have a bone to pick with either the creators of the coin or you. I don't know which one. Don't even joke about it. It's just don't even joke about it. You say anything, they'll they will they will turn it into a into a coin.

Anyway, but it's great to have you. Thank you for the early support. Um why don't you John gave a little introduction, but why don't you introduce yourself? Yeah. Yeah. What are you uh what are you working on most recently? What's interesting? Yeah, of course. Yeah.

So, I'm a partner here at Kleiner Perkins KP obviously one of the more storied firms um kind of in venture capital history. Um as a firm we've led early rounds of you know companies like Amazon, Google, Janentech, Sun Micro Systemystems, more recently companies like Ripling, Figma, Glean, Harvey and many others.

Um you know ventures evolved dramatically. Um obviously over the last 5 years but especially over the last decades and I think what made KP special back then is what makes it special now is that we're a very small team. There's 10 of us total on the investment team.

Um, and we all just care very deeply about the craft of venture, founders, company building. Um, and and we want to keep it a craft. So, we um, I mean, we're fully multi-stage. So, we have an early stage fund, we have a growth fund. Uh, we announced a new set of, uh, of funds last summer that were $2.

1 billion in total size. We can do seed through preIPO. I personally help head up our growth fund. Um, so I spend, you know, the vast majority of my time kind of on series B and beyond investing. Um, but all of us invest across the venture and growth funds.

Um, so I've led, you know, our investments in companies like Flock Safety, um, Huntress, a cyber security company, Captions, uh, involved in our investment in Rippling, and a few others soon to be announced. How would you how were you processing the tariff news?

Were you just texting every portfolio founder like, "Hey, have you seen this? " Yeah. Sending them a sending them a uh screenshot of the 15%. What are we doing about this? Hey, wait. Yeah. Can you fix this? Hey, what are we doing about this? Yeah. Is there a memo coming? Is there a black swan memo?

Are you going to get in the black swan memo game? Give a run for their money. Sequoa has pretty good market share of the of the black swan, you know, memo market. And so it feels like, you know, it feels a little too mimedic. I'm I'm a little too chill pill still to to do something that mimemetic. Yeah.

Uh well, but uh I mean, how have you been processing it? Uh do you think it affects tech? Do you think it affects any of the I mean like immediately the reaction was like all the the NASDAQ was way down but at the same time like even semiconductors were you know on day one kind of excluded.

Uh was there is this something that all founders should just tune out or is there something here to pay attention to? I think I think it's it's probably both, right?

Like I think um I think Mike Mcdano from from Lightseed had a good tweet um or or post today or yesterday where uh he was like I'm getting a lot of questions from maybe it was LPs about the tariffs um and they have to to realize you know I invest in companies that aren't going to exit for 7 to 10 years and so there's like something about the like duration of the asset class where um you know something like economic turmoil that happens today if you're investing in the venture asset class isn't going to necessarily impact like your your exit because ultimately the founders and the board and the management team have some control over when they exit.

Um and so you you can kind of theoretically wait a little bit for for a better environment to to either IPO or sell or whatever you want to do to get liquidity.

I think at the same time um the the like underpinning like the undercurrents of what's going on um uh especially politically are immensely relevant for for startups and tech like obviously everything around Taiwan and and just like semiconductors generally um and and if that escalated how bad it would be for not only technology companies especially in AI but like just our day-to-day lives like I think our day-to-day lives would would pretty much come to a halt um and I don't think that people really have an appreciation just for how permeated um you know semis and other um critical materials and inputs um from from places like Taiwan are in our day-to-day lives.

Um so I think it's it's of of critical importance, but again it's like it's one of those things where it's like well what are you going to do about it, you know, unless you uh there there's very few um uh you know there's very few companies or or or um folks that can actually have an impact on this.

And so I think for most companies it the best advice is always just to go heads down and and well yeah let let's talk about one of the immediate impacts which is the IPO window which was so briefly open uh feeling like it slammed shut.

Uh I love when it's open personally I wake up I wake up I I get out of bed of open window huge fan of open IPO windows. Not so poor poor CLA and StubHub you know they've they've been uh waiting around. Yeah. A moment of silence brought to you by RAMP.

Um, no, but uh, yeah, I don't even know if like, you know, Circle gets out at this point.

Um, but, uh, at some point you can imagine the companies that end up going out are the ones that have to go out and then that just becomes a vicious cycle where they maybe underperform because they're not these sort of best-in-class companies and then it's like, well, it's really shut now. Yeah.

We're not going to touch it. But what's your what's your kind of read on on that situation?

Yeah, I think I mean obviously before before this all kind of blew up obviously it was unfortunate that there was like you know four or five IPOs kind of on the shelf um ready to go right when this blew up and so so it seemed like ah you know we we're opening things back up and then uh immediately some black swan event happened and it kind of shut it back down but for for you know uh like a full almost 9 to 12 months before that it was a solid environment.

It wasn't, you know, IPOing in 2021, um, where where you could go and, you know, spack for 50 times AR or something, but it was not a bad environment.

And I, like I kind of have a slightly orthogonal take on the IPO window, which is there's this kind of like rock and hard place situation for the IPO market, which sums up to like one, do the IPO markets want you? Um, but then also just as important, like do you want the IPO markets?

Um so on the first one I went and counted this morning the number of public software companies on um you know the merit kind of software comparables index that they run um that currently have over $500 million in ARR um which is like an incredible achievement and right now there are over 80 public SAS companies that have more than $500 million of AR.

Um, so if you want exposure to some trend or idea and you want it to be a big company that is profitable, there is very likely a public SAS company that can give you exposure to some theme or trend or idea that that you want that already exists.

So it is much much harder today to have an IPO that bankers, long only public funds, like the people that make the IPO machine work. Um, it's much harder to have an IPO that they're going to care about. Like you probably need to be free cash flow positive.

It probably helps a lot if you're closer to a billion dollars of revenue scale than even $500 million, which is already incredible. And you need to have some unique angle or something that's really cool or or unique in the story like the qualitative kind of framing of your IPO that's special.

So, I think like one that's like that's already hard enough. And then on the other side in terms of like do you want the IPO markets? I think what we're seeing out of several of the very very best tech companies um is is that they've gone to pretty drastic measures to not IPO.

And I think there's like many reasons why you'd not want IPO. So SpaceX obviously is kind of the poster child of this, but then you saw Stripe obviously do that that really large kind of like RSU catalyzed round um at like $55 billion I believe it was. Data Bricks obviously in Q4 did a mega raise for the same reasons.

And the asset class has grown so much that if you're an amazing company compounding your intrinsic value at 25 30% a year at scale, you can raise practically unlimited capital. Like data bricks raised 10 billion of equity.

Um they did a you know multi-billion dollar debt raise too but 10 billion of equity in like I think you know it was probably like 3 months. Like it didn't take very long to raise an unbelievable amount of equity.

Um, so, so the the fund sizes have gotten so large and the amount of capital that's available for these companies, um, is so large, as long as you're one of these like top 10 companies that if you don't want to IPO, you don't have to. And I think there's several reasons why you wouldn't IPO.

Um, the main one or one of the main ones is that you can be a lot more aggressive on M&A. Um, you know, Data Bricks, for example, you know, bought this company Tabular. Um, I think the reported valuation was 2 billion and it was also reported that they were either pre-revenue or close to pre-revenue.

Um, if you're, you know, Snowflake and you're a public company, um, you probably can't buy a pre-revenue company for $2 billion. Like, your stock probably goes down 20% the next day. Um, almost said effing, but I think this is a PG show, so I'm not going to not going to cuss.

Um, uh, but, you know, the stock probably goes down 20% if you do something like that. That's an extremely strategic acquisition that Data Bricks is able to do because it's completely founder controlled. No activist can buy 10 to 15% of your stock. No one can mess with you. So, I think there's good reasons to do it.

And the only thing that you have to figure out um if you don't want IPO is you have to give employees liquidity. Like you have to give employees regular opportunities. We we love when employees get liquidity but what about if you're a you know just a $2 billion fund and you know you're trying to show DPI to your LPs.

Are you seeing these sort of funds that you know like KP that there's now funds that are like effectively like four or five times larger and then these sort of crossover funds that are getting involved and are you seeing more like do traditional venture funds like KP ever try to sell into these rounds that are intended more for uh employee liquidity?

Is that a potential future if companies are just staying private? Yeah, I think we are we're just now in the early innings of this. Um, but we are 100% starting to see it.

We we certainly have not done like a a continuation vehicle um is is kind of like the most common term for this like a CV where you can sell essentially like a slice of your fund.

Um because you know commonly venture funds have like a 10-year life and then sometimes you can have an option for like two years of extension. Yeah. And then after that, you're kind of supposed to be have the capital returned and like everyone can move on with their lives. Um hopefully hopefully much richer for it.

Um and uh and you know, SpaceX has been a private company for what 20 years now. Um you know, over 20 years. Um and so I think the most common vehicle for this would be a a CV um where you sell either like a bundle of company, like a slice of your holdings or like a slice of your fund.

And you're starting to see that like several funds have done that. I think I think NEA um has has has done it in the last year or two and you're seeing more funds do it.

We certainly haven't done that before, but I think as an asset class, we're going to have to start coming to grips with the fact that the liquidity timeline for these amazing companies is very different than it used to be.

Um and it's actually um really flipped on its head because it's almost like the better the company the longer they wait to IPO because they can be private, you know, again compounding their value at 30 plus% IRRs for much much longer than they used to.

And so um obviously you can sell in these rounds like I think like obviously SpaceX SpaceX is extremely liquid. Stripe is pretty liquid. Data bricks I think is like very liquid. There's some names that are very liquid but it's only the best names where that exist.

And so if you have a portfolio of names that are good but not like SpaceX level call it um then then your your best bet is probably one of these CVs which is um which is very very common in private equity. Um but as venture kind of becomes more more institutionalized um we're going to see a lot more of them for sure.

Speaking of DPI, it seems like you got some mathematical formula behind you. Can you break that down for us? Are we are we leaking alpha right now? What's going on? Just copy paste that and I get your returns. Yeah, I um I was trying to figure out the equation for DPI. I've been searching for a long time.

That's the first one. The second one um I was also trying to find the equation for Delian's gross margins on his investments. Oh yeah, that one that one actually might be that one might be harder to find than the equation for DPI.

Um yes, a little little Easter egg for uh for um how do how do you and the the team uh decide if something is is in the wheelhouse or not? obviously 10 10 people on the investment team.

I'm sure you get pitches all the time where you're excited about the entrepreneur and and kind of their vision, but maybe feel like it's not, you know, right in in in the wheelhouse, but you know, clearly, you know, you're doing flock safety to these other sort of like app layer companies.

Clearly willing to kind of, you know, look uh everywhere for opportunity. Yeah, 100%. Yeah.

I love to say that there's um you know a lot of people talk about um Conway's law which is like you ship your org chart um and as it relates to to kind of like how companies mature and ship product over time uh and I love to say that like Conway's law exists for venture firms for sure which means that you like you invest your work chart um and it's like very hard to you know have an investment strategy or a portfolio construction strategy that doesn't match the size and kind of scope of your team.

Um, so for our team, seven partners, 10 total on the investment team, what that means is that like if we want to be company builders, if we want to be involved in our companies, we can't do that many investments per investment professional. Like we we need to we need to really stay concentrated and stay tight.

I think you also see this at at my, you know, my previous employer, Founders Fund. Um, you see these these headlines where they're doing massive massive checks into really high quality companies.

And I think it's because it's also a small really lean team um that has the trust and a high uh degree of relationship with really strong founders. And I think we we approach especially growth investing with the same model. Each of our growth funds is typically only 10 to 12 core investments.

Uh and so every single investment that we're looking at needs to have something very unique or special about it where um we can you know look around the table and say this is going to be a company that we're talking about on TVPN in 10 years.

um as as you know one of the top five companies in the world like it has that potential every single time.

Can you take us through a little bit of a retrospective on playing different games now that it's been I guess four years in two days April 12th 21 you dropped playing different games or why Tiger is eating your lunch and your deals.

uh this cycle it feels like we haven't no crossover funds have really made a name for themselves but at the same time data bicks is doing bigger deals than ever there must be new pools of capital coming in what does the late late late stage look like and how is it changing yeah so it's funny I actually dropped a sequel to playing different games like very quietly I initially wrote it in 2022 and it was one of those things where like I think it's like solid but it's just nowhere near the banger that playing different games was and so I had a lot of like SQL anxiety about it and so I just like kind of like quietly put it out there because I'm like ah like my thoughts should probably be out there.

Um but it's called game over question mark and you you can go read it on my Substack and I I think it it's held up pretty well since I wrote it in 2022 and I think the like overarching message from that um and and I use a Game of Thrones analogy in in playing different games so I'll use one for this too.

um that there's like, you know, there's a a part in Game of Thrones where, you know, spoiler alert if anyone hasn't watched the show where like Roose Bolton for a while is this like lord who's kind of like one of the big bads.

He's one of the main bad guys and he gets killed by Ramsay Bolton, his son, and then you realize like, oh my god, this guy is like so much worse. And it's like he has like the scope of his destruction is like so much greater than like this guy was actually kind of a pedestrian bad guy.

And I think the kind of version of that that happened to our asset class is that um obviously people saw Tiger kind of fail the marshmallow test of like they went too far too quickly and kind of stretched the bounds of what you could do um and and definitely paid the price for it.

But instead of Tiger, you know, continuing to be this large platform, you now have like four other platforms that were actually established in those days of 2021.

And so it's like, okay, yeah, like you don't have Tiger, but like how big is Andre's last fund, and how big is General Cat's last fund, and how big is Lightseed's last fund?

There's like four or five of these folks that have like filled that gap um and continued what I think is like a um like a a secular trend towards platformization in the asset class.

Um I think that the to your specific point around um like our crossovers kind of like coming back into venture and playing in in the asset class again. I think the most important thing here is that like venture means at least like four or five different subasset classes, right?

Like venture includes growth, but then like investing in an in in you know entropic at 62 billion and investing in a 100 million AR company that's growing like 20% at like eight times AR. Both of those are called growth investing. Yeah. But they're like like as different as you could get in every single way.

Um so like are crossovers doing venture again? I think yes, but they're sticking more to their knitting like is like do you want capital doing series B's? Like no, but they're you know I know several crossovers that have invested in like majorly in the big labs for example.

Was there any investments that Tiger did that you wish you did? There has to be there has to be some, right? Because like I remember FTX was like spraying money like crazy too, but then they invested in Anthropic and like they kind of made it all back in one trade, right?

So do and and Tiger hasn't I don't have a full list of of their investments or anything like that, but do you think it's possible that in the fullness of time they just did okay or did they actually light money on fire? You know, it's f I mean, this is probably just a rumor.

Um, so this is, you know, assume this is total hearsay, but I I had heard that there was like maybe an internal like, you know, justice for John Curtis trend at at Tiger where like, you know, like he did push for them to to get into data bricks and like that's gone really well and it's like a truly generational company and like, you know, it's probably going to be an amazing investment for them and like uh and so I I I don't know their their full investment track record and returns, but I do think there is like a potential where like I don't know if data bricks is a $500 billion company, you end up with like a pretty good portfolio even though you had a bunch of strikeouts.

Like I think if you look at someone like Neil Meta's track record, it's like is his hit rate like 90%. No, there's like a ton of flame outs in there.

Um but he's just invested in situations where he's put you know 400 in and gotten 5 billion out and it turns out like if you just do that at even at the growth stage like the power loss still exists and you still have like an amazing track record. So I mean they're they're huge investors in Whimo.

This is Tiger would love to be in Whimo. Um I think I mean it's like an unbelievable technology company. Obviously, they they're huge investors in data brick, so I'm sure there's lots of investments like that for them. Yeah, that's fascinating. Well, well, uh this was a really great conversation.

We'll have to have you back really really soon because I'm sure we could talk for two hours about Yeah, let's make it a regular thing. This is great. Anytime, guys. Thanks so much. Thanks. Thanks for the alpha. Talk soon. Cheers. See you. The uh the little jab back at Dallion is perfect. It's great. Chef's kiss.

Uh we're not going full like Jerry Springer yet, but we like a little bit of drama on the stream. When the when the SAS companies are spying on each other, we're covering it. When uh the Wall Street Journal's putting a robotics company in the truth zone, we're covering it. That's right.

And coming up next is uh just a great story about Zipline. We got Keller coming in the studio to break down uh the news that Zipline, the drone delivery company that has been around for a long time.

uh although not operating on America's shores went and found a less regulated environment delivering life critical medical supplies and blood I believe uh scaled their business did all the R&D risk in a low regulatory risk environment and is now ready to come back and has some really amazing partnerships and so they are back we're excited to uh invite Keller on to the