Slow Ventures' Will Quist on why most AI startups are selling 'vibe revenue' and the case for capitalist founders

um hopefully going to have a lot more AI researchers and investors on the show to kind of answer some of the bigger questions that I have. But uh in the meantime, we're continuing to yap about venture capital with a venture capitalist. Welcome to the stream, Will. Good to have you here. Boom. Are we live?

Are we doing this? Oh, we're live. Yeah. Hit the soundboard every 5 seconds for this one. We need to raise the energy in the studio. We got to go. Venture capitalist yaps about venture capital. Every time we have someone on for slow, we we go crazy with the Chiron. Uh, expect some expect some wild Chiron going on.

It's Friday, but we're not letting the energy go down. How's your Friday? I'm all good, man. I'm about to amp up. I I got this I got a few more things to get out and then we got two little league games this afternoon. So, we're just we're just getting going here. Fantastic. Yeah. And we're coming up on the playoffs.

So, it's a big little league game. Are you a screamer? Are you Are you yelling at coach? Are you a coach? The ref. I'm a coach. Yeah. Yeah. I'm You are the ref. The other guys yell at you. I'm a I'm a zened out coach. Okay. I'm a zen out I'm a zen out coach. That's my philosophy. That's good. Anyway, what's up, boys?

Great to see you. Have you ever Have you ever been thrown out of a game? No. No. I had a dad who was a screamer. I had a dad. No, no. I had a dad who I love dearly. Rest in peace. We were best friends, but he was uh he was a yeller at the at the refs and so I kind of swore that off a long time ago.

adapted, learned, improvised over Hey, when I coached, actually, when I coached water polo, I did get thrown off a uh I got thrown out of a game when I was coaching high school varsity water polo because I was being too sarcastic.

I wasn't I was I wasn't yelling, but I was too sarcastic and the referee didn't appreciate that. Anyway, you guys look great. I almost busted my suit out, but it wasn't uh for the next one. We hope so. Didn't feel like my role. Didn't feel like my role.

By the time we're done, all of Silicon Valley is going to be dressing in suits every single day. And we're going to be we're going to be switching to business casual. Well, if you go to our website, you'll see in classic form slow slow zigged when everyone was zagging. That's great.

And and decided to show our LPs when things got a little tight that we are extremely We're not just serious capitalists. We're extremely serious capitalists. Buttoned up. Um a suit a suit a suit is one thing, but a tuxedo really shows people that you're serious about managing money. Well, yeah, that's right.

I know it's a great it's a great photo. Uh well, I've wanted to have you on for a while. Always enjoyed our conversations. And I want to know what you disagree with Sam on. He's got a lot of hot takes. Uh he's probably probably everything. Probably everything. Welcome to Slow.

What about his idea of like uh you know, he's pretty anti- AI. He likes the AI cherry on top businesses. Are there any of these uh pure AI plays? We were just talking to Sonia at Sequoia. She's had a lot of luck finding enterprise AI application layer companies that are pure AI.

They are kind of rappers, but they find these particular enterprise niches that can go really big. The honest answer is Sam. Sam Sam, you keen and I have a really we really enjoy pushing each other and using Twitter as internal Slack and highlighting where we disagree.

But the reality is is we're all pretty well aligned. We say it differently. We get there differently. But no, I'm just as anti-AII as Sam. But I think, listen, the important thing, we're not anti-AII. You know what I mean? I think that's like the easy way to take it. Our answer is like AI is rad.

AI will definitely What do we do with swear words on this show allowed? It's a family-friendly show. We We won't c We won't cuss, but we also don't have a bleeping mechanism, so we can't I can cut I I coach Little League. I can cut it both ways. Okay. Um, let's keep it clean. Say swear like you're five years old.

Don't dr. Like listen, I think we all agree AI is going to break the economics as of the world as they work in a massive way, right? So they and the problem in Silicon Valley like that's step one to a compelling venture capital thesis and a lot of people just stop at that step.

They're like okay cool economics are going to break let's start investing against it. And I think for us once you click okay but where are those economics going to flow disproportionately right against someone that has a really compelling business model right that that can get from here to there on very little equity.

That's where our AI thesis breaks down.

Um, and I and I don't it's hard to argue, you know what I mean, that a lot of the game I mean I think the hottest take that I do agree with of Sam's is this is not nearly as disruptive as people talk about and it's more of an enabler and the winners are going to be big companies with balance sheets and distribution and data and all those things for for a long while.

So I I'm totally on board with that. That doesn't mean we're not doing things with AI, but I think they meet the next couple click steps for us, right? And a lot of those do look like AI cherry on top businesses with great founders who get who get sectors and understand what's going on, right?

And then they leverage AI in addition to a bunch of other stuff. At the early stage, there's been this pattern I've been tracking with the new generation of like Gen Z founders essentially where they need to break into Silicon Valley. It's really noisy.

There's a lot of I mean honestly the millennials are dominating like the latest you know hundred billion dollar company is Sam Alman and you know a decade ago it was Mark Zuckerberg when he was in his 20s uh we have a new big power law winner and it's and it's as an elder millennial that makes me extremely extremely excited happy yeah yeah yeah but the Gen Z entrepreneurs have been they haven't had this massive power law win yes there scale AI which is doing fantastically but there but there aren't there aren't as many like like Gen Z hasn't really found their zuck yet and so they need to break through in a different way.

And I've been seeing a number of of young founders break through through viral stunts on Axe and and in the media. Um and and when we talk to them, we often come away saying like, well, like maybe we didn't love the fact that they have to play this game, but it just feels like a game that they have to play.

And I'm wondering if you have a take on like the the the requirement of modernity that you have to be such a showman now to get attention for your startup that you often have to push it really hard, make all these crazy claims and do all these stunts.

There's a kid that we had on the show who's hiring 50 interns to do uh social media for him and he's, you know, getting kicked out of Colombia and it's allowed him to raise money and it's allowed him to break into Silicon Valley.

Uh, but there's always that risk that it's taking you away from just going heads down, building the product, doing like the Dylan Field thing at Figma where he was just grinding for years and then produce a great product.

So, uh, are we in a new era or is this kind of just the natural evolution of breaking into Silicon Valley? I think a lot of that is like compensating for not actually having extremely interesting novel hypotheses that screw with the economics of the world and a sick business model.

So I number one is like I think it's copium um for the most part. I have another take that I've been wrestling with which is like I don't think we have founders that are capitalist enough.

Um I think like when you see whiz print that outcome and then you find out it's like Sequoia Doug Leone a second time founder who was IDA like you start going like oh my god those are people that you know what I mean? They play they play to win and and they and they the scoreboard for them and everybody is in dollars.

And so I think that's like another thing that comes to mind when you talk about founders struggling to do that. It's like I I I've been kind of curious on like has there been an entire generation of founders on the back of hey it's product right that like aren't as capitalist as necessary.

And my my take on that is like there's actually three markets. You got to back people are like the big rad companies end up coming for people that can do like are addicted to winning in three places. The market for customers, the market for talent and the market for capital.

And they have like a tremendous amount of interest and respect in all three games. And they want to go maximize and manipulate all three of those. I'm not saying the illegals like no don't go that but like they're looking at all three going constantly how do I move chess pieces to like win this game more?

And so, um, I think a lot of the stunts are are either from a product oriented mindset of like I just need people to see my thing and try my thing, which I just think as totes out at a certain point. Um, so I I'm not sure.

I mean, listen, I think if you're really good at it, it is a way to bend some of those markets, you know what I mean? But I think you need to understand I I would say, and again, I don't want to talk about Sam our takes overlap. No, no.

He had a good point about this, which is like you sell AGI to raise free money for a consumer application. You know what I mean? And you sell self-driving in order to have enough equity to get the margin structure on your cars to a place that's sustainable.

And like there is a role for that, but it can't be the whole thing. Yeah. And my interesting working strategy, I've been trying to figure out who patient zero was that like robbed founders of their like cutthroat capitalist nature. Um, and my working theory that I'm curious I want to get more feedback on.

I think Google was patient zero because they built a product and a business model that itself was like the most beautifully efficient capitalist thing that was like constantly operating at the efficient frontier all the time where they could come off of like, hey, we're just vibes in product, you know what I mean?

And and it that was like the exception that proves the rule, you know what I mean? because it was such an amazing uh I mean I still I I live in awe of AdWords every day. I think about Google is 100% right.

Like they built a monopoly that just spit out cash and then they could just do whatever they wanted because like they didn't need to be ruthless at all in anything else because they built the perfect Well, and and uh Morgan earlier was saying you could potentially say the same thing about Steve Jobs around, you know, the the original the product goat in some ways who wasn't Yeah.

wasn't as he didn't have to be as obsessed about the business model of the Oh, so I so I I totally disagree on that take actually and I and I think I uh Sorry, not to cut your No, no, no. Go for it. We love disagreements. So, no.

So, this this I I didn't pick this up till recently or maybe I knew it and forgot it, but um I mean, everybody knows like they founded Apple. He got thrown out when it was time to like run a serious business because he couldn't do that. Went away, wandered in the woods for reals, started Next. Yep.

Um, and I didn't realize he plowed almost all of his Apple profits into Pixar. Did you guys read this article? Uh, no. No. I I mean, I'm like loosely familiar with that story. Okay.

So, not not only did he do that, he ended up getting super deep in the weeds and like running the game theory on their IPO and strategic investment from uh from Disney. And he basically like ran the most gnarly capitalist playbook there. He like he ran brinksmanship using the capital markets as a lever. Yeah.

And that's when he went back into Apple and crushed it. So I actually think he like is it this counterfactual? He's exactly the rule which is you need to be on you need to be on tilt in all three ways like what are customers how do customers value? How do you win them? How do you win talent?

And how do you win capital markets? And I and I when I read that story, I felt uh I felt like my cooked up theory is actually correct, which is like then he re-enters, right? And Apple's up 100,000x as he reenter. Yeah.

I mean, I I I agree with uh that and I have like kind of a similar take just the the difference between Apple and Google is that Apple does operate a little bit in the world of atoms. They have to actually make a thing.

And so there is some sort of ruthlessness that comes from like the screws have to be screwed into the metal. and and if you're not on time, you're not on budget, like things can really go wrong.

Whereas, if you just have this beautiful algorithm and this website that people just have as their default home page, it gets better and more profitable with using like it is a little bit easier to run Google than it is to run Apple.

Like Apple like you know your supplier could kind of screw you like what is going to happen in goo in Google's world anyway. I don't know. I mean it's a good take anyway that that that was that's sorry you you you mentioned millennial founders and stunts and it got me on one of my nine talk tracks that I grab.

But I mean we we we were just talking about this like there has been this trend and we were tracking it from uh yeah it probably started at Google uh but then uh Mark Zuckerberg drove like the Accord for a long time and then Sam Bankman Freed kind of took that like yes I'm a billionaire but I'm like the I'm like the down to earth billionaire the benevolent billionaire and he was like driving a Toyota Corolla and it kind of you know created this meme around like you can be really successful and wealthy but like you don't want to display it and then the next generation kind of got caught up in this meme of like Uh, it's all about the experience.

I just want experiences. I don't want any material things. And it's a big question about if you can't concretize what you want in life from a material perspective, like you can't say, "Hey, I actually want a house for my kids to live in. I actually want that cool car that I've been obsessed with since I was a kid.

Can you concretize building an empire, building a big company? " If you're not thinking concretely in materialist p in materialist like perspective, maybe. Okay. I just think people who want want to win, you know what I mean? They're just like, I'm playing a game. Yeah.

I mean, and he knows about Zuck is like extremely competitive. Whatever he gets into, it's like I'm going to learn Mandarin faster than anybody else has. Like, so I I don't disagree that like I don't know. I I I joke everyone talks about Sam Alman as this like visionary product guy. He also drives a $3 million car.

He like cares about, you know what I mean? He he knows the scoreboard's kept in money. Um, but it's also a $20 million car, by the way. Oh, he does. There you go. The three million Koix egg. That's the daily I think and then the F1 is in the Okay.

Well, so on on the young founders note, something that I think is is happening is that so much venture capital appeared and became available to very young people that weren't necessarily exceptional in San Francisco. Let's blame this on Will, right? People that are people that smallest fund you've interviewed all week.

No. So, so, so founders that are that are talented but not not the the sort of necessarily top of their class. And if you give a young founder $5 million and you tell them to run their first business, they're going to act like somebody who won the lottery effectively.

They're going to spend money in a way that is just Yeah. Give me your YC take. I thought that was Yeah. And I and and and I saw a founder there was a No. So, there was a founder who recently raised around. We've we've had him on the show. I think he's super talented. And he was like, you know, hiring 50 interns at once.

And then he put out a post. He's he's going to hire a videographer this summer for like five half a million dollars a year.

And and I was like, that's the one thing that YC gets right because they basically say, spend no money until your thing is really working and then you can start pouring, you know, fuel on the fire, but until your thing is working, spend 20 grand a month, right?

It's been proven time and it's really, really hard to buy product market fit. Like you can buy growth post product market fit, but it's very hard to buy. If you could buy product market fit, big companies would be doing it all day long for new products.

I heard I heard about another I heard about another company that h that that's planning to spend 20% of basically two rounds that they've put together on a single launch day effectively, right? And this is for a product that doesn't have any users right now. Yeah.

And so it's like stuff like that where it's like you're giving talented young people an obscene amount of cash.

And it's the same thing that would happen to, you know, somebody that's scratching something off in, you know, uh, uh, you know, at a gas station and they get $5 million and they blow it in a year kind of, but it's almost worse than that, which is like, hey, here's a bunch of money that was like pretty easy to come by.

And we don't actually want to hold you accountable to the money coming back because it's product and like it's almost we fell on this trap of and you know I I'll get on my rant about value proposition but we fell in this trap of like backing people to do like subjectively valuable things. Mh.

And that's like a really hard capitalist endeavor to scale which is like we we so we talk a lot about value proposition existing on a 2 by two of quantitative and qualitative causal and correlating.

And you can build great businesses in all quadrants, but like what you do to scale them out of the gate is totally different. And I think we got down this like, hey, what's the value of that product? It's like I don't know. Let's like it's different to me than it is.

It's like handbags are clearly valuable, but like why are they worth $10,000 for some people? Like you can't there's no math, science, logic, or anything behind that. It just is.

And so I I I think Jordan is actually another thing we're like here's a bunch of money and go do things that like do not have we talk a lot about our job and our money is to figure out does something work right like with a true or false answer and the problem is a lot of things got started that like don't have that true or false answer right so it becomes about derivative signals that actually aren't like connected to building killer businesses so I I yes and your comment yeah uh Sam's been really big on AI as a sustaining innovation in the mag 7 in the big tech world uh at the same time it feels like the big tech like the stocks are performing very well the financials are fantastic but the products seem to be faltering you can't find the right Gemini app for Google very easily Apple intelligence no one's really raving about it at least in the tech community uh what is your take on big tech is it a better time than ever to start a company that takes a shot at a product that normally would be you know owned by big tech.

I I still think that that if I were running Google, well, I don't think 90% of the use cases in AI are actually like interestingly monetizable.

I I don't know that I don't know that it like and I'm starting to watch my own usage now and question that a little bit, but like the majority of the con the the content being generated from AI and the majority of my usage is like not adamant.

So I I don't know that I'm like that stressed if I'm you know what I mean like what am I I'm like going into chatk and talking to them about what I'm going to talk to you guys. I didn't do that but like that use case is like really great really valuable to me.

What's actually the Ben back to subjective value prop like what's the value of that? Very hard to put a number on and very hard to monetize.

So, I I I was on I tweeted it a while ago, but like someone did I forget who did someone did a really good like take on this, which is AI is going to be awesome and change the world and AdWords is mostly safe from that.

So, I and I don't I just I don't like I don't love the hey, I want to take on the product because they're not good. You know what I mean? I think problem statements when it comes to building companies are not nearly as powerful.

They don't lead to important companies nearly as much as like I just believe the world works in this way. nobody else thinks it works. And if I don't work on that, somebody else is. And I'm not I've been big on like will the future. It's like no, no, go work on things you think are like just truths.

You know what I mean? Because you'll be pissed if somebody else works. So I I don't have a good answer for you on like do you take on Google right now because I think the answer you have to be you have to like come out and think the world works dramatically different in 15 years and start building against that.

Can you give us an update on on your guys's franchising thesis?

uh these sort of um four I I feel like uh the venture world got excited about four-wall businesses because there's been there had been a bunch of M&A over the last few years and people realizing like hey you can kind of spin up a brand and you know prove it out a little bit and get a bunch of other people to um you know scale it.

Uh and I I feel like this idea of of you know this business in a box has been um very prevalent for the last few years. you guys have had, you know, your own thesis around it. Um, but I'd be curious to get an update there on where you see that kind of category and and how you see that opportunity today.

Yeah, I mean, top of funnel has been lighter than we wanted. I think the overlap with people who think this way and like think of slow is not. So, that's that's something we're constantly working on is like seeing more in that space.

Um, listen, the way we got to that space is like what are the rattest businesses out there? You know what I mean?

just from a year in year out efficiency efficiency on equity just like what are the things you would want to own for 30 years and hand off to your family which I think is like a really great framework on this stuff. Yeah.

And you kind of quickly get to franchises you know what I mean like they kick off a ton of free cash flow pretty durable for the most part really efficient scale dot dot dot.

Like that was just always my interesting take is somehow venture capitalists became software investors and not uh and not folks looking for novel hypotheses that have killer business models attached to them. Um and so anyway that's how we ended up there. How's it gone? It's like really fun.

I think it's a very logical output for a lot of innovation. Um I don't think we're doing nearly as much as we would like there but we continue to look every single day.

And again for us for us it exists on a like the the it's it's like one expression of you created some novel IP that has rad economics you know what I mean that like does something that creates a ton of value in the world.

Um and so we talk a lot internally and we're spending a lot of time on our our GBO thesis our growth by buyout thesis that we rolled out probably I know maybe first I think we did but uh with some friends in our in a company called Metropolis. And it's like I'm not wedded to that.

I just thought that that you know what I mean I looked at vertical SAS and I was like oh my god it actually came to me if it's interesting in industrial rail I got pitched by these guys with a sweet industrial rail logistics company and I was like I love this I want to be involved right and then I started digging in and realizing there were some tough go to market dynamics where you might actually double the earning power of an entire industry but be an 8 millionaire company.

Wow. I was and I I mean directionally correct I'm making that up but I was like that's wild. You know what I mean? And I was like, how did like how does how did we get to this place that you could actually do something wildly disruptive and everyone else but you gets paid for it?

And that's where I started peeling away the layers of like what Right. So like it's like oh what if you bought a railroad and you doubled its profitability? You'd make more money than an 8 million or a SAS company, right? And then you go off it. Yeah. Right.

Then you go to what are the other versions that it's like a maybe some some places it's more efficient to vertically integrate.

maybe some places business in a box and then a woman who works to me is much smarter than I am when I was outing all this off quickly was like what about toast and I was like yeah should definitely be a software company so that kind of informed our framework that is slot into how do you think about buyouts um I mean there there's venture capitalists that are getting in and on the equity side there's some funds private equity funds that do equity investments and they have bank partners that do the debt piece um I imagine that you don't have a credit fund sep separately that's managing that.

But is that coming? Okay. And then and then there's also like the the the private credit guys that come in with just the credit piece. Um how do you think that that's going to evolve and is it important for VCs to kind of have at least partners in the whole capital stack? You'll have the partner.

I mean like so again Metropolis is our kind of lighthouse case study in this. If you look at I think the where there's a hole is kind of the growth equity portion of this, right? We'll fund someone to go do some breakthrough product work and go, "Oh my god, the economics are changed.

" And we'll fund them to do a small scale buy of a business in Evat and see if you can like there's basically two experiments. Does the product actually transform economics and does it translate when you own and operate the P&L? Then there is a hole on the equity side for like great, let's go buy 10 of not one.

Um, but if you look into the Metropolis deal, it's Wall Street. You know what I mean? So, I think at enough evidence this all slots right into their models and Vista's credit fund comes in and D Um, I'm curious.

Uh, we had Harley on from Shopify yesterday and it feels, you know, in many ways it's the most significant SMB platform in the world. It's a product that at scale entrepreneurs uh it it's so critical to the business that yes, they're going to have issues with it, but generally people feel great about Shopify.

And I've been interested to think about um in a lot of other categories you have these sort of like Jirro dreams of sushi type opportunities where linear was able to uh look at everybody hates Jira but like we need tools like that.

And so what if you just built an amazing issue tracker from the ground up and really cared about the craft. And if you look at Shopify, you could look at, you know, oh, this design thing's not great or what if this was better or what what if we, you know, made this more intuitive.

But I don't believe that you could take you could take the talent most talented people in the world right now and try to get them to rebuild, you know, a commerce platform like Shopify and just given the developer ecosystem and now shop pay and all these other things. I don't know.

I don't think like I'm struggling to see how somebody replaces Shopify in the market right now and I'm curious uh how you know if you guys have looked at any other any other players that is anybody even daring enough to try to to take on uh Shopify. I just I'm with you. I think it's it's a fool's errand.

So, back to like value prop, which my whole north star is like I need to buy someone that's creating a ton of value and can capture a lot of it pretty efficiently. Like that's the end of the day what we're trying to find in the world. But value prop has to sit on two axises.

And again, this is like everyone calls me professor Will and you're hearing why I go in some long tangent that's like all theoretical. Uh, love it. But you got to have an absolute value prop, but also a relative one, right? Like if you go out great, you create a dollar for people, they're stoked.

If the other solution creates like 98 cents of value, right, and it solves the both same, you guys are going to be in a dog fight from a sales and marketing standpoint, right? You're gonna you're like you, yes, you create value, but you're communicating that to the market is going to be super hard.

And so, I think the issue with taking on someone like Spotify or Shopify is the value like it's hard to create relatively more value. Can you do things nicer on the edges? Yeah. But like the core functionality of like I have a business that generates profit for my family. Yeah. you know, it's like that's a lot of it.

It's very hard. The switching costs are super high. There's a ton of risk and it's hard to do that dramatically better and be like, "Hey, just by using our platform, you know what I mean? You will get make dramatically more money.

" And so, yeah, and Shopify can say to be clear, they can say, "Look, if you have Shopay, you're going to get an incremental you're going to get an incremental 10% of revenue just by default because the check you're going to have less abandoned carts. We lose you. Well, he's frozen. Let's kick it over.

He's absolutely some ads. Go to getbzzle. com. Your bezel concierge is available now to source you any watch on the planet. Seriously, any watch. Let's bring in some more soundboard. Uh, and we can also sing the wander song. Find your happy place. Find your happy place.

Book a wander with inspiring views, hotel grade amenities, dreamy beds, top tier cleaning, and 24/7 concier service. It's a vacation home, but better, folks. Can you imagine if Slow is just so committed to just being lean like their companies that they didn't pay for Zoom, the internet bill or something? No, no ISP.

Um anyway, uh we uh we have three founders coming on back to back to back. Tell Will he's happy to jump back on. We can close out, but we don't have anyone in the studio right now. Uh but we are going to talk about Nourish, Madic, and Fastino. Three wildly different companies, one in the healthcare space.

Um one in the We actually have the robot in the box over there. We should unbox it on the show with him. Uh it's kind of a next generation Roomba talking about uh cleaning uh in your house and very excited to talk to him about that. And then yino is training AI models on uh commodity graphics cards.

So, I'm sure there'll be a bunch of interesting things that we can dive into on how Deep Seek was able to train on low-grade unoptimized cards. If they can do it on uh gaming quality cards, I'm sure uh you know, other people can do it on all sorts of uh different cards. Uh should