Insight Partners co-founder Jerry Murdock: AI bubble parallels the dot-com era — and companies on old platforms won't survive the next wave

Jerry, are you in the re waiting room? Are you in the TV and Ultra? Welcome to the show. How are you doing, Jerry? [laughter] What's happening? I'm really good. Thank you so much for joining. We're super super excited to meet and uh and chat. Why don't why don't you give a quick introduction? What is venture capital?

What is growth equity? What is growth equity? No. What is investing? Uh yeah, I would I actually love to know a little bit about your journey, how you wound up uh co-founding Insight Partners. It's obviously a firm everyone knows, but I'm not sure everyone knows exactly the earlier story here. Early story.

Well, because I'm old, that's why. But where do you want to start? Uh maybe uh the moment you when did you know you wanted to get into asset management? Yeah, exactly. Yeah, I'd love to I'd love to know just the the the minutes before you sign the uh incorporation documents. That's always interesting. Uh okay.

So Jeff Hy and I were um Jeff was an associate at a big venture capital firm called Warberg. Oh yeah. He didn't even have an office. He had a desk under the stairs.

Um, I was a consultant and we had this crazy idea to start a company called Open Vision and we wrote a business plan and the partner, Bill Janeway, said, "Well, if you can recruit the president of Oracle, I'll fund it. " And at the time, the president of Oracle was a guy named Mike Fields that worked for Larry.

And uh, and Mike said, "Well, I think Larry's going to fire me, so I'm open to it. " And then a month later, Larry fired him and he became our CEO and Open Vision merged with Veraritoss in a 6040 merger and was worth 30 billion in 1999. And that funded Jeff and I into Insight. It got you into business.

Why did he get why did he get fired? Yeah. What's the story there? Coming for Larry's You're You're get Larry. He'll tell you why he fired him, but Okay. But Larry Larry has his own reasons, you know. Yeah.

Uh and then uh yeah, take us through a little bit of the journey on like the early Insight Partners uh days like uh Sure. Yeah. Yeah. I just want to hear I just want to I want to hear your craziest stories from the '9s. You have some crazy stories yourself.

What I mean uh I mean that what a what a wild uh decade and you were what what was the timing overlap between uh your guys that the IPO you mentioned and founding insight partners at Insight like yeah I think so in so insight if you look at the website we say January 1 1995 in truth we we shook hands in August of 94 we funded the very first company December 30th 94.

So we said, "Okay, January 195, but we didn't close the first fund until July of 1996. Um, we were investing friends and family money in what became the first part of the portfolio. And uh, we had an advisory board because we didn't have any credibility, right? Jeff and I both had acne. He was 30, I was 35.

We were we didn't really know much about what we were doing other than we got lucky with open vision. Um but I uh I lived in Aspen and still have I still live in Aspen and I um was involved in the Aspen Institute and I invited a bunch of people to join me in a little round table and they became my advisory board.

So the advisory board for insight was Eric Schmidt who was a VP at Sun, a guy named Scott Cook who was the founder of Intuit, a guy named Ray Lane who replaced Mike Fields at Oracle as the president.

Um, and uh, those and a few other people, but those guys really gave us their money, they gave us their time, gave us credibility, and they helped us succeed.

What did they they they you said you were didn't have experience or credibility back then, but clearly to get those kind of people to spend time with you, trust you with their capital. What what made you guys special? What did they see in you?

I think like you look at you two guys, you get everybody on your TV show and why are you getting them, right? You guys aren't on 60 Minutes or somewhere else. You guys got personality, you got brains, you got aggressiveness, you got a gong that attracts people. Yeah. Come for the What's current AUM?

Can you share any AUM figures? I'd love to ring the gun. Somewhere around 100. So So, so right now it's 110 I think. There.

Not every not every day we get to hit the gong forund 110 million of I mean we're we're we're super we're super in the weeds tracking how venture funds today are positioning themselves in the AI boom folks will say uh I'm only betting on one foundation model company but I love the infrastructure layer I'm doing some energy investments and then I think there's a lot of opportunity in the application layer for example uh how were people in venture talking about the dot boom or like the internet boom that like I it was obviously now we collapse it just just down to internet or do but back then there had to be dividing lines between themes and and how was it being discussed amongst venture capitalists at the time.

Okay. So let's take insight. Insight we thought we were really genius and said we're not going to invest in dotcom companies. We're going to do infrastructure and applications, but we're gonna avoid the dot bubble because it's crazy, right? I mean, I sit there and said, "Look, there's not enough. Everybody's on dialup.

You're not going to do commerce on dialup. We don't have enough broadband for this to work out. " And so, we avoided it thinking we were going to be safe. And we did all this infrastructure deals. Well, guess what? March 2000, the stock market dropped 40% for tech and we all got killed.

everybody got killed and so our our safe strategy was a total failure. Um uh everybody went down and then in 2001 with 911 we got trashed and so we had the worst year in venture capital history.

I think our 99 fund returned a whopping 1% maybe I think we were top quartile or basically a break even fund in 99 and that was so break even was top quartortile. Yeah, that's right. That's right. [laughter] Insane.

So, were you guys feeling did you did if it being top quartortile, were you like, okay, like that was rough, but we made it through like we we still look better than than most of the industry, so we're going to be able to continue to build momentum or was there ever a point where you thought it was over?

No, we just were cheap basically. We we didn't want to we just wanted to get every dime we could possibly get back. So, we had to work hard on three or four investments from 2001 to 2005 just to get back to break even. Mhm.

Was that that was like rolling rolling up your sleeves and and like getting operational with the companies to make sure that they Yeah. Yeah. helping helping build a team and and and change the strategy for a new world.

The one thing we learned from that lesson is that when the boom ends and the crash begins is that all those companies on the old platforms, the old technology are not going to be very attractive when the next boom and the next thing happens, right? So, think about web companies in 2008.

They were before that crash, you know, they were looking great and then mobile companies became what was important after 2010. Yeah. Right. So if you weren't mobile, you weren't very attractive. And I think we're going to have the same thing here when this next cycle goes down. There's three major trends, right?

We only talk about AI today, but crypto, I think, is becoming more and more important. And eventually, not sure if it's 5 years or 10, but quantum computing will become a major platform. Absolutely.

M and so it's just so the question becomes is when does the crash happen and then how long does it last and then when you come out of it what are the new technologies that all the companies have to be built on what was your what was your state of mind in let's say 1998 1999 and then those first few months of 2000 like did you what kind of conversations were you having as the deals and the IPOs got crazier and crazier?

Was there a sense at any point in your even even you know friend group and network and advisers that there was another was it was you was it late 1999 and people were like we got at least 3 to five more years of this or or was there was there any type of uh sense or or real concern about how I think it was 90 early 99 or late '9 and I were walking down Fifth Avenue with two adviserss is Bob Rubin who is former Secretary of the Treasury and Steve Freriedman who is former CEO with Bob at Goldman Sachs go into Jack Walsh's office to sit down and listen to him you know and both Bob and Steve said you know the banks are not accounting for risk that was pretty big number they knew they felt that it was not they didn't know where the risk was coming from we didn't know exactly which area was it subprime was it real estate Was it corporate bonds?

Was it swaps? You know, there wasn't obvious which one of those were the greatest risk because all of them were risky. And so we were walking to listen to him and and uh on our way down there, a guy called me and said, "Yeah, it was I think it was an analyst at Morgan Stanley.

I forget his name, but I said, "Look," I said, "But we're in the bubble. " And he says, "Yeah, but it's an iron bubble. " iron bubble. So I thought, okay, an iron bubble. I got to process this. What does iron bubble mean? Right? And and bottom line, what he meant was it's going to be a iron bubble until it's not.

And and if you're a believer in making money in in booms, you have to stay in the game till the very end. You can be smart and hedge your bets, but if you bail out too early, you're going to miss a lot of great returns. Yeah.

And so that's what that guy meant by that iron bubble that it was, you know, it was just going to be there for a while. And sure enough, it was an iron bubble for over a year. And March of 2000, inexplicitly the stock market shifted. People moved out of tech and 40% would drop everywhere across the board.

And that was like, okay, now we got to work hard. How how are you thinking about recycling or managing LPS in that year where you're you are top quile but you only return 1%.

Uh are you set up as a fund to kind of I mean there were comp it seemed like every company even if it sold off a ton they were IPOing they were getting out.

So, were you able to get some liquidity and then reinvest that or did you have to go back to LPs and raise new funds uh and kind of restart the whole process or were they already kind of bought into giving you another run in 20 uh in 2003 for example, 2002? Yeah, I mean I mean no, nobody was bought into anything.

It was a pretty nasty thing that was going down and so we just had to slug it out with the funds we had. um which got us through um until we were able to raise the next fund which of course was a smaller fund. Uh we had raised fund four just about the time of the crash.

So we actually had capital but it was still ugly because we had a bunch of investments that we knew were not going to be great going down the road. And so um we didn't really raise fund five until four years later.

So it was the four toughest year in venture capital and a lot of our people who were started in 95 didn't make it right. So I mean if you look at who started 95 benchmark did and they survived and they did great but a lot of other funds didn't. Yeah. Remarkable.

How would, you know, if you were still running a a platform venture firm today, like how would you be currently assessing the market? Because there's a a hot debate right now of like where we're really seeing a a bubble, right?

If you look at uh obviously there's plenty of companies in the public markets that that do that don't make any sense. there's some, you know, there's hyperscalers that that don't uh that that actually seem priced pretty reasonably.

Uh and then in the private markets, you have, you know, if you're an AI company, you know, you're you're going to, you know, probably with a a solid team pretty easily get uh 100x 200x revenue, even if you have little to no margin on that revenue. Yeah.

I mean, look, we don't know what's gonna what's going to be the the straw on top of the camel's back that ends it. We don't know when. [snorts] And there's all kinds of political things that you don't want to bet against, right? Yeah. I mean, we could end up with zero interest rates in March, you know?

I mean, you don't want to bet against that. So, um I mean, a lot of people who bet against the Fed, if you remember that five years ago or during the COVID times, lost lost out huge. So, look, anything rational, like I could say, oh, the laws of physics still apply.

You know, I'm on the board of the Santa Fe Institute where we've got some of the smartest minds in physics and math in the world. Irrational things like bubbles can last a long, long time. And you can say, "Oh, it doesn't look like a bubble.

" Well, I hate to say it, but I think a lot of these hyperscalers are are going to regret the capex commitments unless they can get out of it. We'll see. I think what's interesting to me is I think they may be underestimating the the sort of drop in token price.

I mean, I really think that the um that that the that the the the amazing power of the of the chips and things that Jensen has done is [clears throat] going to outstrip our ability um to get electricity to really power this stuff. Yeah. What SA SA has been saying this for over a year now. is are more a power constraint.

I I think I think if you look at the amount of of chips he sold and look that's out there I don't think there's a power out available today. they have to find a new source in order to be able to sort of benefit from all this buildout.

And if there is a economic recession then the enterprise the expected enterprise you know explosion of AI usage will be delayed right and if there's any kind of a sort of major security problem around AI that'll scare off the enterprises that'll also delay so I don't think you can I don't think you can continue the AI boom without the Fortune 5000 getting on board.

It's not going to happen without that. And so if there is an economic interruption, a serious one, then the demand is going to is going to change. That that has to happen.

How do you think about different opportunities to buy assets, buy whole companies throughout a cycle, there's the companies that are or the firms that are kind of waiting for a crash and maybe going to buy up stuff as after post crash.

Uh there's also firms that are going and buying Fifth Avenue and they want to get the best asset right now. There's other folks who are purely founder bet pay any price. Others much more quantitative. How have you thought about your overall investing thesis throughout tumultuous times?

Well well well the difference here is AI is affecting everything.

the the the you know Bezos is right it it's an industrial bubble uh not necessarily a financial bubble because the value of AI is not going to not going to go away that that is absolutely [clears throat] the future and it's here now it just isn't here at scale yet in my opinion at least not for enterprise um so I do think that the problem with buying up companies is what are you buying is it going to be valuable you know down the road or not valuable.

It depends a lot on the quality of the management. It depends a lot on the technology. And so buying SAS companies hoping they're going to be more valuable in five years, I I I think that's a questionable questionable strategy.

I think you have to think about like I said from each if you assume that there must be some disruption like if it's a covid types disruption where it's you know literally a few months then you know and the fed bails you out then you know people just keep going the bubble bounces back and it just keeps rocking. Yeah.

If on the other hand it's a it's it's a serious economic issue right now M2 money supply is all-time highs. So you've got massive amount of capital out there. It's not a liquidity crunch.

It's just going to be a a challenge, you know, with the overall economy and then there'll be a liquidity crunch because the debt that's out there is massive everywhere. So I I I I think here in this particular case, if you're going to strategize to buy up a bunch of things after a bus, that's a bad strategy.

egg is most of the companies are going to be first generation AI and they're not going to be the right how I say technology platform right I mean first of all most people are betting on these large language models and what we learned at Santa Fe we had in middle of March we had the top research scientists from all the hyperscalers the 40 person conference I hosted with the scientists and the thing that came out of it is everyone's too focused on LLMs not focused enough on the complexity between the humans training them and the humans consuming them.

And I think the secondary part of that is that LLMs are we're going to find a new new technology um and cheaper forms of of models that are going to come out.

I'm certain that what China did with Deep Seek by releasing open source, there'll be many, many more open source models in a year, and you won't need to spend all this money on an LLM. I have a feeling that it'll be a multiodel world with lots of free open-source models going down the road.

So, if you buy a company that's based on, you know, foundational models, technology, it may not be so valuable in the next wave of AI. Mhm. Can you bridge this to trade for me?

I heard an interesting stat last night that America has more data centers than the rest of the world combined, and it feels like America might actually be winning in terms of industrial power on the data center side, but lacking in many other industrial capacities.

How how do you think the way that AI and the AI infrastructure buildout is changing America? How do you think that flows to trade policy? I'm not sure we I understand or anybody understands American trade policy right now. [laughter] Yeah. Uh it's like a kangaroo. It's jumping up and down constantly.

That's keeps you on your toes. Yeah. I I I don't know anyone really really truly understands it. And I'm not sure policy is the right word. Um, I think uh I think it's a it's an innovative game that's being played with with trade policy. So, I I don't know I don't know what that's going to look like in four years.

There's a lot of uncertainty and that's part of the problem making these long-term investments. I think that the data centers themselves, the actual physical properties, you know, are are important and will be important long term.

The question is is you know if the if if Jensen keeps his word and the and the chips are going up by some multiplier every year, how valuable is the chips in the data centers being built? Yep. The depreciation is just going to be crazy. Yeah.

And and so look, I think the one thing that's for sure about this bubble that's different than anything else is that the innovation is real and the innovation is profound. And I think that innovation and what what it's going to unlock is challenging.

And you have geniuses like Elon Musk and others out there that are um how can I say uh they're inventing so much so fast and they have so many resources. If you think about it, the CEOs of the Magnificent 7 and SAM have a lot of influence on how the world is going to play out over the next three or four years, right?

You could you could add a couple chip guys. You could have Hawk and uh Hawkton and and Fifth Way. And you could add maybe there's three women that are upandcomers, maybe FFE and and Mera and Lynn at fireworks that could become more influential.

But right now, the assets and the power is in the Magnificent 7 and Sam Alman. Mh. And those guys are going to have a an amazing impact on how the world rolls out in the next five years, three to five years.

So, I mean, when you think about that, those are the guys that are going to shape the politics of what's actually happening. In fact, I kind of think that we're in for a different world where right now we're worried about immigration and we're worried about all kinds of, you know, social issues.

I think in the future when robots are walking around, we're going to be more interested in like, wow, how who has who are the AI halves and who are the AI have nots.

And I think that better or worse, the Magnificent Seven and 8 are going to change the political dialogue in this country pretty dramatically within three years.

And uh and I think they know it, which is why there's some pretty good ideas that I've heard about giving every child, you know, $1,000 in the stock market, something like that. That could be a great idea. That could be a great idea. I I I heard Jensen and Brad talking about it.

that could be very helpful because there will be a have and have not world in America and that'll be the primary dialogue I think of the future not the stuff we're going through right now. How how have you processed the boom in private credit?

It's going on a long time and I don't think there's enough u that it's so big it's so profound. I think the banking system in America, you know, because of the rules, they're not really accounting for that risk, right? I mean, in the normal way you would think about it. So, I mean, it depends on the disruption, right?

What happened in 2008 or what happened in in in in 2001, that would be challenging for private credit big time. Does it uh like it where do you put that on on uh in terms of how the probability that private credit plays a significant role in the next financial crisis? Well, put it this way.

Um the banks have have made these investments and right now private credit looks reasonably safe, right? I mean people seem to have enough capability to overcome it. The question becomes is how deep and how bad is it is the future liquidity crisis and how how challenging is it? How much and and and we don't know.

So I don't I I'm not betting that there's going to be another banking crisis. I'm just betting that there's going to be an end of the bubble and there's going to be some kind of recession whether it's short-term or long. Whether it's a crisis or not depends on the nature and the severity of it, right?

Right now, it's always a break of trust, right? I mean, what happened in 2008 that people had to take the TARP loans because trust was essential when Hank Pollson told him the story about about what he was dealing with. Um, and it was basically, you know, forcing all the major US banks to take TARP money.

He said, 'Look, when you're boiling in oil, you don't ask how hot it is. You just act and you move. And I think he saved the country. I I mean, um, uh, I'm not necessarily a fan of anybody during that era, but I do think he saved the country by restoring trust in the banking system.

I don't see private credit being that big of a threat. Um, but it absolutely could play a role. That makes sense. uh what single deal are you most proud of? It doesn't have to be as an investor.

It doesn't doesn't have to be like it generated the greatest return, but something that you look back on, you know, 1995 to 2011 index. Look, I mean the current portfolio of AI investments I've done like Avan, I mean Sadi Khan is one of the truly great CEOs of the generation.

I recommend you put him on your show, but Venode Koshel and I talked about it because Venode is one of the large investments there.

Um, but Fireworks AI, E2B, you know, Lotus AI, Dynasty, uh, Dynasty is one that I'm really interested in because I just think trusts are something that people like me have used successfully for a long time and I think entrepreneurs should be using them more often. Give the pitch for Give the pitch for dynasty.

uh you know, you can put it put it simply, but uh for for those that are hearing about it for the first time. Yeah. Okay.

So, look, if if you starting a company out there and you've basically don't have a lot of money, but you've got your shares, um you should you should go put those shares in whether it's Dynasty or somebody else, you should put those shares in trust for yourself and your family.

And depending if it's your mommy or your dad or or your wife or potentially kids or or whatever charity you want to put it in, um you should it's it's a way of def of of protecting it and it's definitely a way of taking advantage of um QPS exemption which came in during Clinton which Bush you know uh embellished more and and which Obama did more which Trump did more.

every president since has pushed it. And what's happened as a result, I think, um, is you've got a lot more startups. You went from about a half a million startups a year in the '9s to close to 5 million startups a year now.

And so think for inside and I think for most other funds, right, I think about 80% of the of the investments return less than 1. 3x. Okay, but that means over 20% return multiples and and those 20% return multiples, those entrepreneurs should be thinking about putting their assets in trust.

Um, and not just stock, but also their crypto um, you know, and and and protect it. I mean, and there's lots of reasons why. It doesn't cost a lot thanks to Dynasty. They're democratizing it. So, it doesn't cost a lot. You're crazy not to take advantage of the of the tax exemption that's associated with it. Yeah. Mhm.

Well said. Uh well, thank you so much for coming on. I'm sure we could keep talking for hours more, but really just appreciated the stories and insights and um and uh we'll have to have you back on again soon. Yeah. Well, well, thanks guys.

And look, you guys are the most fun entertainment show out there and that's why I'm here. So, uh keep it going. It's fun. Thank you so much. That means a lot to us. Means a lot. We'll talk to you soon. Thanks so much, Jerry. Great rest of your day. You're the man. We'll talk to you soon. All right. See you. Bye.

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