0:00:06 Hi everyone, welcome to the A6NZ podcast. I’m Sonal and this is our second episode of 16 Minutes,
0:00:12 our new news show where we cover recent headlines of the week, the A6NZ way, why they’re in the news,
0:00:16 why they matter from our vantage point in tech, and share our experts’ views on the trends involved
0:00:21 as well. The first episode covered Neuralink and Brain Computer Interfaces, TikTok influencers
0:00:26 and AI, FaceApp and more. You can listen to that as well, it ran last week. But in this episode,
0:00:31 we covered these two topics that came up in the news this week, a new kind of mobile malware
0:00:36 that’s out there in the wild, and a new bipartisan proposal for lowering drug prices for senior
0:00:41 citizens with a short lay of the land on drug pricing in general. Remember, as we mentioned,
0:00:45 specific companies that none of this is investment advice, nor is it a solicitation for investors
0:00:51 in any of our funds. Please be sure to read a6nz.com/disclosures for more important details. Finally,
0:00:54 you should be able to find the show in the current A6NZ podcast feed, which is probably where you
0:01:00 found it, as its own show, 16 Minutes, in your favorite app shortly, and on our website at
0:01:09 a6nz.com/16minutes. So the first news item is on malware, which sounds very scary and malicious,
0:01:13 aka the mal. So let me actually quickly summarize the news and then I’ll introduce the a6nz expert
0:01:18 joining us to talk about this. So here’s the news. This week, a report was released by
0:01:22 Mobile Security Company Lookout, which also happens to be an a6nz portfolio company,
0:01:26 and basically researchers there discovered some of the most advanced mobile surveillance
0:01:31 wear ever seen. And to quote the Ars Technica article, which is one of my favorite news sites,
0:01:37 by the way, for this type of topic, the malware is called monocle. Sounds like a James Bond character.
0:01:43 And it’s been in the wild since at least March 2016, so over three years ago. And let me just
0:01:47 quickly say what it is. It’s an Android-based application that was developed by a Russian
0:01:52 defense contractor that’s apparently been linked to meddling in the 2016 presidential elections.
0:01:55 And I’m an Android user, but iOS folks, you’re not off the hook because
0:02:00 apparently a version of monocle for Apple’s operating system has been very likely developed
0:02:03 as well. And I’ll go into more details about what it can do, but let me introduce our expert
0:02:08 joining us to have this conversation, a6nz general partner, Martin Casado, who is a
0:02:13 serious expert in software-defined networking and actually has a very long and storied history
0:02:17 and security as well. Welcome, Martin. Thank you. So, Martin, can you just quickly help
0:02:22 break down what this category is? This isn’t practical advice. What is mobile malware? Tell
0:02:28 me about that. Sure. So, traditionally, in security, there’ve been two large markets. There’s been
0:02:32 network security, which are things like firewalls, which try and intercept bad things on the network,
0:02:37 and endpoint. So, endpoint is probably the most familiar. This is like protecting
0:02:42 traditionally at desktop. So, have you noticed things like Mac-A-Pee, Norton-Andy virus,
0:02:47 that’s right, Symantec, Trend Micro. So, this is the traditional endpoint security market where
0:02:52 you had a Windows desktop, typically, and you want to protect yourself from viruses. You’d get one
0:02:56 of these. You would download a package, install it, and run it on your machine. Right. Now,
0:02:59 there’s been a few things that have happened over the last, say, 15 years that have disrupted that
0:03:03 market, right? I mean, there’s been the move to cloud, which means there’s just, you know, fewer
0:03:07 desktops in the same way, and those desktops run fewer applications as opposed to like cloud
0:03:12 applications. But there’s also been a proliferation of operating systems. So, Windows used to be the
0:03:16 dominant personal operating system. Now, we see a lot of macOS, we see Android, which are mobile
0:03:20 operating systems. Right. You know, Chrome OS is another one. But also, like the form factor has
0:03:25 changed from something that sits on our desktops to laptops and, you know, like iPads, mobile phones,
0:03:30 tablets, etc. And by the way, just to emphasize, this is not like a static shift in terms of here,
0:03:33 the underlying secular trends, which I love that you just summed up for me. But we’re also talking
0:03:38 about mobile people, mobile workers. These devices enable them to move around. People are working in
0:03:42 coffee shops, you know, connecting, they’re doing their work with new tools that are letting them
0:03:46 do their work in the cloud. So, all of this affects all of that. It’s very important that
0:03:49 you point that out. Also, like there’s just a different life cycle for a mobile phone and different
0:03:54 behavior behind it. And a lot of detection of malware is behavioral. This is how a desktop
0:03:58 should act. Now, of course, a mobile phone will just be quite different. And so, mobile malware
0:04:04 is focused on that segment. Okay. So, given this recent news, tie it back to Monocle. I mean,
0:04:08 should we be freaking out or what? Actually, we’ve known that there’s, you know, like,
0:04:13 pretty serious malware out there for a long time. Here’s what’s so significant about this to me,
0:04:21 which is, for whatever reason, we’ve decided to use phones as a security device more than we have,
0:04:25 for example, desktops traditionally, right? So, they’ll give you an example of that. Often,
0:04:29 in order to secure an account, we do what’s called two-factor authentication. And the second factor
0:04:33 is an SMS. By the way, two factors, something you have, something you know. That’s right. So,
0:04:37 for example, like, for me to get into my email account, well, I’ll have a password, which is
0:04:42 something I know. But often, if they don’t know that it’s me or they want a second factor, they’ll
0:04:46 send me an SMS text to my phone. So, that’s the second factor, maybe that’s something I have,
0:04:50 which is the device. So, often, we say, well, the mobile phone is something you have. And we’ve
0:04:55 been treating it like a security device. So, like, if this is a bank account, if this is your email,
0:04:59 if this is your Coinbase account, whatever it is, actually, it turns out, like, phones aren’t
0:05:04 that secure even though we’ve been relying on it. And you can see there’s been a huge spate recently
0:05:10 of attacks against phones in order to get access to accounts. And so, this just further proves
0:05:13 that phones are very much a weak link into personal security.
0:05:16 In fact, this would be very specific about what monocle in particular can do, what we are talking
0:05:20 about the broader category. So, here’s some of the things according to the report. It can retrieve
0:05:25 calendar information, including the name of the event, when and where that event is taking place,
0:05:29 and a description of it. It can collect account information and retrieve messages from WhatsApp,
0:05:34 Instagram, Skype, et cetera. It can send text messages to an attacker-specified number.
0:05:38 It can reset a user’s PIN code. And it can download attacker-specified files,
0:05:42 reboot the device, and uninstall itself, and remove all traces from an infected phone.
0:05:44 It’s like it has a life and personality of its own.
0:05:47 Yeah, yeah, yeah, yeah. That’s the attacks I was talking about. Let’s imagine, for example,
0:05:54 like, your bank account was protected via SMS to your phone. If you have malware there that can
0:05:57 intercept that and send that to the bad person, they can reset your password on your bank account.
0:06:01 So, these things are actually very serious. In fact, how many of us authenticate using
0:06:05 SMS as our second factor? It’s very common. The first thing I do when I sign up to a new
0:06:08 thing is I turn off two-factor SMS for exactly this reason.
0:06:12 So, bottom line it for me. How should we think about security in a post-parameter world, which,
0:06:17 by the way, is what Lookout’s tagline is? And you and I talked about that topic in 2016 when you
0:06:22 first joined A6 and Z, and we did a podcast about networking as sexy. Yeah. How does Monocle and
0:06:26 Malware fit into the overall landscape of how security is changing just in the big picture?
0:06:30 I do think that there is a macro trend, which attacks are just becoming more personal and
0:06:34 dealing more with social engineering, right? So, there’s just less about, like, “Oh, I’m going to
0:06:38 have some bad bug that, like, does something malicious,” and more, “I’m going to have something
0:06:42 that’s closer to the human being, so I can trick them into doing something I can pretend to be them,”
0:06:47 because it really is these social aspects that we’re seeing become really predominant when it
0:06:51 comes to these attacks. I think the phone is about as close and personal as the devices we have.
0:06:53 It’s like a body part for many people.
0:06:56 It really is. I mean, it’s an extension. It’s like the coprocessor to our brain.
0:06:59 Yeah. I mean, I just think that the first thing is to realize that attacks are becoming incredibly
0:07:04 personal and they’re focused on us, right, especially if you’re anywhere near, like,
0:07:09 you know, a large company with a lot of assets. And so, I think it’s very important for listeners
0:07:13 to understand best practices for protecting themselves. For example, getting a password
0:07:18 manager is a big deal using hardware tokens where you can, turning off two-factor authentication,
0:07:25 not relying on SMS. I mean, just knowing that there are these targets that are focused on us
0:07:30 as people and understanding, you know, best practices to defend against that will go a long way.
0:07:31 That’s fantastic. Well, thank you for joining, Martine.
0:07:32 That’s a pleasure.
0:07:37 Okay. So, the next item is on drug pricing. So, here’s the news. Just this week,
0:07:41 the Senate Finance Committee released a bipartisan drug pricing proposal that would cap
0:07:47 senior citizens out-of-pocket costs for drugs, as well as, this is really interesting,
0:07:51 limit price increases in Medicare. And according to the Congressional Budget Office,
0:07:56 as reported by the Washington Post, the proposal is projected to save the government about $100
0:08:01 billion over 10 years, save senior citizens about $27 billion in out-of-pocket costs over that same
0:08:07 time period, save $5 billion from lower premiums. And just to be clear, this is one of many proposals
0:08:11 in a couple of months. The House of Representatives is also expected to release a different drug
0:08:16 pricing proposal than this Grassley-Widen one, which would actually allow Medicare to negotiate
0:08:20 the prices of some drugs, and that’s currently prohibited by law. And there’s two other proposals
0:08:25 on the horizon as well. Clearly, it’s a very political, tough topic with many proposals
0:08:30 and many players involved because drugs, the argument goes, should not be so expensive.
0:08:35 They’re life-saving. They’re meant to keep us healthy. It’s insane that drugs can be so expensive.
0:08:39 And I also just want to mention that this is playing out against other recent news, which we’ve
0:08:43 talked about on A6 and Z quite a bit already, which is that in the past month, for the first
0:08:49 time ever, we’ve seen the approval of not one but two gene therapies with approximately $2 million
0:08:55 price tags each. So I’m going to welcome A6 and Z Biogeneral Partner Jorge Conde and A6 and Z
0:09:00 Biomarket Dev Partner Jay Ragani. This is a really meaty topic and something I can’t believe
0:09:07 or even trying to attack as a part of a 16-minute segment. I would just love to start with just
0:09:12 quickly the lay of the land. Why is drug pricing so damn hard? So one of the things that often comes
0:09:17 up, and it’s currently in the headlines right now, is why are drug prices in the United States so
0:09:22 much more expensive than other countries? Why can’t the government and specifically Medicare
0:09:26 use its purchasing power to negotiate against pharmaceutical companies? As you mentioned,
0:09:30 it’s illegal, but the history is interesting. So the Medicare Modernization Act of 2003,
0:09:35 the one that actually established Part D in the first place. What is Part D? Part D is the drug
0:09:40 benefit for Medicare to cover prescription drugs. And what’s interesting in that is
0:09:46 it established the Part D benefit, but it included a provision known as the non-interference clause,
0:09:50 which effectively prevents the HHS from interfering. Department of Health and Human
0:09:53 Services, the government agency that developed here. Exactly. So the Health and Human Services
0:09:58 Secretary from interfering with any negotiations between the drug manufacturer and any of the
0:10:03 other stakeholders in the value chain. Fifteen plus years later today, we have some bipartisan
0:10:09 momentum to give Medicare the ability to negotiate. And I think it’s very important to note that when
0:10:14 we talk about drug pricing, in general, you run the risk of conflating things. What’s being conflated
0:10:19 here? Well, it’s one thing that the price of insulin continues to rise at the rate at which
0:10:24 it’s risen. It’s one thing where sort of things that have been off-patent or have been generic
0:10:29 for a long time all of a sudden get these very, very large price hikes. That’s different than
0:10:33 saying a new therapy like a gene therapy that has the potential to be a cure, you mentioned,
0:10:38 a $2 million price tag. Those therapies are A, expensive to discover. B, they’re very,
0:10:42 very expensive to make. And C, they have real benefit. In this case, they’re potentially
0:10:46 cures. And so you’re not giving someone a dose of a medicine. To be clear, you’re basically saying
0:10:51 that it’s a one-time treatment and cure versus having to see a doctor with chronic therapy over
0:10:55 and over and over again. For example, in the case of Zolgensma, it’s a gene therapy that was approved
0:10:59 to treat children with spinal muscular atrophy, which is one of the leading genetic causes of
0:11:02 infant mortality. Exactly. In that case, you’re not only giving these children health, you’re
0:11:06 giving them life. And so these are two very different things. It’s talking about how we control
0:11:10 rising costs of drugs that may not be on the cutting, still necessary, but not on the cutting
0:11:14 edge of innovation versus the new… And that can get lost in the dialogue because these are
0:11:18 obviously very complex debates. And for the latter, people can listen to your episode. Jorge
0:11:24 did an episode with famous MIT economist Andrew Lowe, who has a really interesting proposal for
0:11:26 thinking about how to fund these. So you can listen to that for more of a deep discussion.
0:11:31 So now let’s go back to the big picture, lay of the land. So let’s remove the deep special
0:11:36 new therapies off this particular discussion and talk about why are drugs so goddamn expensive?
0:11:40 I’ll give you the thrust of some of the more common arguments. The first one is,
0:11:45 they’re expensive because R&D is expensive. Developing a drug is time consuming. It’s risky
0:11:50 and it costs a lot of money. And because there are a lot of failures along the way,
0:11:55 the ones that are approved have to be priced as such to not only make money for that drug,
0:11:59 but also to pay for all of the things that have failed. As Jay mentioned, it’s very clear that
0:12:04 the United States, we pay a far higher price for most drugs than we do in the rest of the world.
0:12:08 For a lot of the reasons that he mentioned, the counterargument from industry would be,
0:12:12 well, for better or for worse, the United States is subsidizing R&D for the world.
0:12:13 Right, the research and development.
0:12:19 So that’s one issue. Another issue is that we do have this question of who has market power and
0:12:24 it is illegal in the United States at the moment for the government to negotiate drug prices that
0:12:27 would be considered price controls here in this country, even though that’s not the case
0:12:32 in many parts of the rest of the world. Number three, we have a very complex industry structure.
0:12:34 Tell me more about that, like the players that are involved here.
0:12:39 Sure. So there are manufacturers who, generally speaking, discover and develop the drugs in
0:12:42 the first place and commercialize them. And probably want to make money off of it.
0:12:46 Then you have distributors and the distributors get paid to move drugs through the channel and make
0:12:50 sure that the drugs get to where they need to go and can be in a hospital, a pharmacy, whatever it is.
0:12:53 There’s a middle layer here. Yeah, there’s a middle layer here, the pharmacy benefit
0:12:58 manager that helps actually the PVMs that helps manage who gets access to the medicines,
0:13:00 who’s eligible versus who’s not.
0:13:03 They sort of consolidate some of the information too, right? They sort of summarize the formularies
0:13:07 for what are the drugs, for which condition, et cetera, et cetera, and that helps influence
0:13:12 what gets prescribed. Yeah, so the B in pharmacy benefit manager, the idea was this sort of layer
0:13:18 of the industry arises to help the insurers, the payers, control who gets access to the drug to
0:13:21 make sure the right people get the drug and the wrong people don’t, and to help manage
0:13:25 the benefits spent, which that’s the idea to the benefit of the insurer. But then, of course,
0:13:29 that layer takes a cut of the economics, and it’s a very complex thing in form of rebates
0:13:33 and otherwise. And then you have the insurers and the payers. The payers obviously want to
0:13:37 minimize costs. They’re, in fact, just tying it back to the news. As I understand it, they’re in
0:13:42 support of this current bill. Because it controls the increase of the cost of the drugs, but there’s
0:13:46 always a risk for an insurer. If you’re reducing your drug spend, is there a potential that you’re
0:13:51 going to have more expensive interventions? As you go through the system, there are various
0:13:56 stakeholders that all get piece of economics, but there’s been studies that have been done that
0:14:02 show that for every dollar of drug spend, the manufacturer gets a percentage that is surprisingly
0:14:05 low. I would never have assumed that, because right now the narrative is like they’re extracting
0:14:09 all the value. Yeah, and the reality is that there’s value taken along the way. So that’s an
0:14:13 amazing breakdown of who the players are and their incentives and motives and just sort of how
0:14:16 they’re thinking about it, because obviously we’re not going to answer and fix this in one
0:14:21 episode. Now, let’s bring it back to the current news. So how does this sort of tie back into what’s
0:14:26 on the table right now? The proposal here is to cap the amount of spend or the amount of cost
0:14:30 that Medicare patients pay out of pocket in any given year and dropping it pretty significantly.
0:14:35 I think it was in the $8,000 range, and now they’re talking about the $3,100 range. Oh,
0:14:39 wow. Big difference. So that’s one big piece. The other one, at least as I understand the original
0:14:44 proposal, is to cap how much you can increase the prices and tie it either to inflation or
0:14:49 other mechanism by which annual price increases can occur over time. Now, the risk, of course, is
0:14:53 having drugs be introduced at even higher prices, because if I’m capped at how much I can grow,
0:14:57 right, I’ll start at a higher price. That’s right. Using maybe a terribly stretch analogy of rent
0:15:02 control and the San Francisco apartment, the rent is going to start off thousands of dollars higher
0:15:05 because you know you can barely incrementally increase it after that if you’re going back on
0:15:09 the market. Yeah, I think the other element to add there is walking through the chain of
0:15:15 stakeholders from the manufacturer to when a medicine ultimately gets in the hands of a patient.
0:15:20 There is also a lot of narrative externally on the list price to net price differential.
0:15:26 Oftentimes, a manufacturer will set a list price for a medicine, but that’s actually not the price
0:15:32 that is paid for by the payer or by the patient. That rebate that is given back by the pharmacy
0:15:37 benefit manager very rarely makes it to the patient or to the payer. So a lot of inflation
0:15:42 without any felt tangible benefits whatsoever. Exactly. And so that’s why I think some criticize
0:15:50 that some of the complexity in the chain and the lack of transparency creates unfair pricing policies.
0:15:54 We can obviously dive into all the solutions, but just at a quick take in the 16 minutes episode,
0:16:00 what are some of the things that technology can do? If you’re an entrepreneur looking at this space,
0:16:05 the opportunity for technology to drive transparency across various different steps in this process,
0:16:11 at least hopefully, and we’re optimists here, can drive down a lot of the waste that happens in
0:16:15 the system. One of the things that people really are challenging, one of the things that we’re
0:16:21 excited about is value-based care contracts or outcomes-based pricing. Yes. For some of these
0:16:26 novel one-time cure therapeutics that have entered the market, you mentioned Novartis Zolgensma,
0:16:31 Bluebirds and Tenglo. What’s challenging there and where there’s a real technology problem
0:16:38 is how do you get the data to actually facilitate that contract? Basically, because if it’s saying
0:16:42 value-based, how do you know it actually is being paid on value versus just some theory that it’s
0:16:46 going to work? It actually works and therefore you pay based on that. Exactly. Manufacturers are
0:16:52 proposing a money-back guarantee, but the data, the infrastructure, the plumbing does not exist
0:16:56 today to effectively arbitrate those contracts at scale. That’s where technology can help.
0:17:01 It’s a critical point because the chain is not only complex, it’s also not transparent,
0:17:05 and so the potential for technology to have an impact there is pretty significant,
0:17:12 but it also requires some help from policy to essentially make transparency, if not an obligation,
0:17:17 at least to write. If you have that, then you can help to drive out some of the inefficiencies,
0:17:20 drive out some of the frictions that exist in the system that ultimately lead to a higher cost.
0:17:24 Well, quite frankly, the argument that I would make here as a believer in free markets is that
0:17:27 they only work if there is transparency of information or symmetry of information and
0:17:31 that that’s the thing that people always forget when these debates become all about free market
0:17:36 economics versus price controls versus X versus Y. That is the key ingredient. The irony is that’s
0:17:39 a very thing you need, yet it’s a very thing that’s being obscured. Okay, so bottom line it for me.
0:17:43 What’s on the horizon here? Look, it’s clear that we as a country need to have a debate on how to
0:17:48 deal with rising cost of health care generally and specifically rising cost of drug spend,
0:17:53 and so I think it’s important that proposals are being made. This is obviously the first step of
0:17:57 what’s going to be a broader and ultimately very complicated conversation because we’re talking
0:18:02 about drugs that can cost tens or hundreds of thousands of dollars a year for chronic therapies.
0:18:06 We need to find a solution to contain those costs and to make sure that the patients are
0:18:09 getting the right therapies and that the system becomes accessible to everybody. Yeah, that access
0:18:14 is taken care of and that the system can support it. But what’s coming down the pipe is that we have
0:18:20 new modalities, new therapies like gene therapies, engineered cells that are really changing the
0:18:25 definition of what a medicine can be. I think it’s a very important thing because the outcomes,
0:18:30 and Jay was just describing value-based contracts and all that, the outcomes of what these therapies
0:18:34 can do are very different than what we’ve seen. Cures are a very rare thing in medicine,
0:18:38 but some of these things start to approach things that look like cures, but they’re very expensive
0:18:44 to make. You mentioned Zolgensma. SMA is a disease where you otherwise did not have an option,
0:18:50 and that can be a 10-year treatment horizon that now can be potentially addressed by one cure,
0:18:55 and the cost that that pulls out in the system from an administration standpoint
0:18:59 is also part of the value of that medicine. So the Center for Medicare and Medicaid Services
0:19:04 Administrator Seema Verma earlier this year highlighted the fact that the current system is
0:19:11 not set up to execute and support these kinds of new medicines. And less than until we have a system,
0:19:16 and this includes policy, this includes technology layers and pipes to have the data of feeds that
0:19:22 we need to understand what’s working and what’s not, and a way to address the cost that is entirely
0:19:26 up front and mismatch with the benefit, which is over a very long period of time. We will find
0:19:30 ourselves, I think, in the very challenging position where we have a healthcare system that is not
0:19:34 able to support innovation, and I think that’d be the worst thing for society. Thank you, Jorge
0:19:38 and Jay, for joining this segment. Thank you. Thanks for having us.

0:00:03 – Hi, and welcome to the A16Z podcast.
0:00:05 I’m Hannah, and this episode is all about
0:00:08 the exploration for and mining of minerals,
0:00:10 specifically cobalt.
0:00:12 In this conversation, I’m joined by Kurt Haus,
0:00:14 CEO and co-founder of Cobalt Metals,
0:00:18 Professor John Thompson of Earth and Geosciences at Cornell,
0:00:21 and A16Z general partner on the consumer team, Connie Chan.
0:00:24 We explain why it is that cobalt is suddenly one
0:00:27 of the most important and in-demand metals on the planet,
0:00:29 and how technology is transforming
0:00:32 how we find it and the mining industry as a whole.
0:00:34 Along the way, we touch on a little bit
0:00:36 of battery tech history and science,
0:00:39 and how entire chapters of human civilization
0:00:42 are driven by the search for and mining of metals
0:00:45 from ancient civilizations first finding copper
0:00:47 to the major ground shift in the 1950s
0:00:50 with geophysics and knowledge of plate tectonics.
0:00:52 And finally, what kinds of new data sources,
0:00:54 technologies, and techniques we can use
0:00:56 to find more cobalt today.
0:00:59 Everything from geophysical and geochemical data
0:01:01 to agricultural information to old boxes
0:01:03 collected over centuries in the basements
0:01:05 and attics of mining companies.
0:01:08 All of this to satisfy the incredible new demand
0:01:11 as we enter a new age of battery metals.
0:01:13 Why are we even sitting around this table
0:01:14 talking about cobalt today?
0:01:17 What is it that’s suddenly so interesting about cobalt?
0:01:19 I think of it as a color, as a prep, right?
0:01:20 – Well, that’s actually right.
0:01:23 And that was the very, very first use of cobalt.
0:01:26 The very, very first use was in dyes,
0:01:29 and to get a particular type of blue,
0:01:30 that was the principal way to do it.
0:01:32 – And when was it discovered?
0:01:34 – The actual metal was first isolated as a metal.
0:01:36 And I think I’m pretty sure it’s 1739.
0:01:39 – So if you go back 15 years or so,
0:01:42 its principal uses were in high,
0:01:44 sort of high strength steels and things like that.
0:01:48 So cobalt demand sort of grew gradually,
0:01:50 but everybody listening to this podcast
0:01:53 and presumably listening to this podcast on their device
0:01:57 has 10 grams of cobalt in that device about.
0:01:58 – Some might be listening from their cars.
0:02:01 – That’s true, so good point.
0:02:02 In which case, if they happen to be driving
0:02:05 an electric vehicle, it could be closer
0:02:07 to 10 or 20 kilograms of cobalt.
0:02:09 – It’s the battery that uses the cobalt.
0:02:11 – It makes the best batteries.
0:02:13 Everyone knows they have a lithium,
0:02:15 sort of a lithium-ion battery in their phone,
0:02:17 but that’s a chemical reaction
0:02:19 between lithium and cobalt oxide.
0:02:22 And so the two parts of the chemical reaction are essential,
0:02:23 and the greatest energy density,
0:02:26 greatest rate capability,
0:02:28 how fast you can discharge the battery,
0:02:30 greatest cycle life, that kind of thing.
0:02:32 That has some or all cobalt in it.
0:02:33 – Why is that?
0:02:36 Can we get into the science of why that’s the best battery?
0:02:38 – The reason cobalt makes a great battery
0:02:40 is that the battery in your iPhone
0:02:44 is what we call a lithium intercalation cathode.
0:02:46 That’s a fancy name, but what it means is,
0:02:47 lithium is the mobile ion.
0:02:51 So a battery has an anode and a cathode,
0:02:54 and an ion that moves from the anode to the cathode
0:02:58 to react chemically and form a new molecule
0:02:58 that’s more stable.
0:03:01 The cathode looks like kind of like a layered sandwich.
0:03:04 It has cobalt oxide, then lithium,
0:03:06 then cobalt oxide, then lithium, then cobalt oxide.
0:03:07 – Oh, like a layer cake.
0:03:09 – A layer cake, in a fully discharged sense.
0:03:11 You can imagine very intuitively why that’s good,
0:03:14 because the lithium has to get access to the cobalt.
0:03:15 So when you fully charge it,
0:03:17 when you push the lithium out of the cathode,
0:03:20 the lithium can intercalate into those spaces very easily.
0:03:23 And put simply, cobalt forms
0:03:25 the most stable layered structures.
0:03:27 So as you pull lithium out,
0:03:29 it doesn’t sort of disorder or change,
0:03:32 and other similar metals tend to change.
0:03:36 And when they change, then you lose capacity.
0:03:37 Your battery fades over time.
0:03:38 Basically because it forms
0:03:40 that really robust crystal structure,
0:03:43 it forms the longest lasting batteries.
0:03:45 And then it also has the sort of the greatest energy
0:03:48 per molecule for a lithium oxide battery.
0:03:50 – And this is by orders of magnitude.
0:03:53 So like right next to lithium on the periodic table is nickel.
0:03:55 And if you made a nickel oxide,
0:03:57 lithium nickel oxide battery, it would work okay.
0:03:58 But on your first cycle,
0:04:02 it would have maybe 10% less energy density.
0:04:03 Over a hundred cycles,
0:04:06 then it would have maybe 50% less energy density.
0:04:07 – So it really adds up.
0:04:09 In the same age when you’re shopping for your iPhone,
0:04:12 battery life is one of the key things you think about.
0:04:14 – And especially with your electric vehicle.
0:04:16 – And with your electric vehicle, right?
0:04:18 It determines how long you can drive with a car.
0:04:19 – And batteries,
0:04:21 the whole battery technology world is really interesting
0:04:23 ’cause it’s such an important part of our life now.
0:04:25 So if you go back 50, 100 years,
0:04:28 the lead acid battery, which is the first car battery,
0:04:31 which is still the dominant battery
0:04:34 for starting lights and ignition, the SLI battery.
0:04:35 But once you’ve got an established battery
0:04:37 that works that people trust,
0:04:38 it’s quite hard to displace it.
0:04:40 So you’ve got to be convinced people
0:04:41 with any new battery technology
0:04:44 that it’s gonna deliver the right amount of charge
0:04:46 at many, many times.
0:04:49 If you bought your phone and tomorrow had to go back
0:04:51 to get a new battery, you wouldn’t be very happy.
0:04:52 – Right.
0:04:55 – This is where Cobalt is a key piece of that puzzle
0:04:57 ’cause it offers a level of reliability
0:05:00 that it’s gonna be hard to substitute.
0:05:01 – To sum it up simply,
0:05:03 it’s the things you really care about
0:05:05 are rate at which you can charge and discharge it,
0:05:07 how much energy there is per unit mass
0:05:08 and per unit volume,
0:05:11 and how long it lasts in a single charge
0:05:14 and then how much that charge fades over many cycles.
0:05:17 And for all those elements, Cobalt is superior.
0:05:20 – So we went from using it to make a pretty color
0:05:23 to suddenly needing it all around us.
0:05:24 – You can almost define human history
0:05:26 by the types of metals that we were pulling
0:05:28 out of the ground during that time.
0:05:31 And in fact, if you look at the 8,000 years
0:05:34 from the beginning of the metal ages to about 1970,
0:05:37 we produced a certain amount of metals
0:05:38 we pulled out of the ground, called that X.
0:05:41 In the last 50 years, we pulled out the same amount again.
0:05:43 So throughout all human history, now we’ve pulled out two X.
0:05:45 We reproduced it in the last 50 years.
0:05:47 In the next 30, we’re gonna pull out another two X
0:05:49 just on current trends, okay?
0:05:51 It’s the mass of materials coming out of the ground.
0:05:52 But here’s the thing,
0:05:54 the types of metals that we’re pulling out of the ground
0:05:58 are changing and they’re changing for both society trends
0:05:59 and society’s needs, right?
0:06:01 So in the next less than 100 years,
0:06:04 we have to rebuild the entire energy infrastructure
0:06:05 of the world.
0:06:07 Some of that requires the types of metals
0:06:08 that we’ve been pulling out of the ground for a long time,
0:06:10 but some of it requires totally new metals.
0:06:12 And we need lots of new materials.
0:06:13 We need lots of lithium.
0:06:14 We need lots of manganese.
0:06:15 We need lots of cobalt.
0:06:19 If we’re going to convert the entire automobile fleet
0:06:20 to an electric fleet,
0:06:23 we need vastly more cobalt than we’ve pulled out to date.
0:06:24 And in order to do that,
0:06:26 we need to find new sources of cobalt
0:06:27 and that’s what we do.
0:06:28 So how do you do that?
0:06:29 The metal that we need is changing
0:06:30 and now we need cobalt.
0:06:33 How is the way we mine the way we source it changing too?
0:06:35 And actually, let’s go back and start earlier.
0:06:37 What does the history of mining cobalt look like?
0:06:39 The act of exploration and discovery
0:06:42 is fundamentally an information problem, right?
0:06:45 And so the mineral exploration business
0:06:47 is an incredibly old industry
0:06:49 and it’s essentially driven and been driven
0:06:53 by the evolution of civilization.
0:06:55 Right, it’s as old as humanity.
0:06:56 It started pretty much with copper
0:06:59 and that’s because people have actually found copper,
0:07:00 the metal sticking out of the ground.
0:07:01 So they used it.
0:07:02 They could make it into different things
0:07:04 and make it into ornaments and so on.
0:07:06 So this was the very beginnings of metallurgy
0:07:08 as a science, as a discipline.
0:07:11 It’s very cool because they somehow very creatively
0:07:13 worked out how to extract metals from rocks
0:07:16 that looked green ’cause they have copper in them
0:07:18 but didn’t obviously show the copper
0:07:21 until they were smelted effectively in a very hot fire
0:07:24 and a fire that was a lot hotter than a campfire.
0:07:25 So somehow these people had figured out
0:07:28 how to get the temperature of the fire up to a level
0:07:32 where it could reduce the copper bearing material
0:07:34 and extract the metal from that and that’s amazing.
0:07:37 So that’s six, 7,000 years ago.
0:07:39 And that process of exploration back then
0:07:41 just looked like kind of studying the land,
0:07:44 understanding and reading the earth around us.
0:07:46 I read an article recently about the Vikings
0:07:51 and the age of iron and how the Vikings, they think,
0:07:53 were able to identify where the iron,
0:07:56 the bog iron was through a kind of microbial sheen,
0:07:57 apparently.
0:07:59 It’s all based on observation.
0:08:02 And then sort of correlation of different factors
0:08:05 that were purely observation and experiential.
0:08:07 Effectively, that’s the sort of original prospect
0:08:09 of the person who could go into the ground
0:08:11 and recognize that this had potential.
0:08:15 And that really was the way all exploration was done
0:08:17 until about 1950.
0:08:19 They went to places where they could still observe
0:08:20 the metals or the minerals then
0:08:22 that they knew had the metals in,
0:08:24 even if they didn’t understand exactly why
0:08:26 or how or what the concentration was.
0:08:27 – But oftentimes the minerals
0:08:29 aren’t sitting above the earth.
0:08:30 – No, not now.
0:08:33 They’d find it on the surface and they’d keep mining down.
0:08:34 And originally they would mine down
0:08:35 till they hit the water table
0:08:37 and then they couldn’t deal with it.
0:08:40 The Romans then started using wheels to actually de-water.
0:08:42 So they could then go deeper.
0:08:44 And the breakthrough in the Industrial Revolution
0:08:45 was the steam engine,
0:08:47 which then allowed them to make pumps
0:08:50 that then could take the water from much, much deeper levels.
0:08:52 So at that point then they could chase it further and further.
0:08:54 But they didn’t know where it was going.
0:08:55 They just followed it.
0:08:56 – Blindly.
0:09:00 – So the 1950s was when we started to develop technologies,
0:09:02 remote technologies, geophysical technologies
0:09:04 that could predict where things were going
0:09:07 and predict where things might be.
0:09:08 – Really recent actually.
0:09:10 – And what were those sort of different sources
0:09:12 of information in the 1950s that changed
0:09:13 that we started becoming aware
0:09:15 of these new Earth’s processes?
0:09:16 – So two really.
0:09:19 One was what was called the plate tectonic revolution
0:09:21 of the 1960s to 70s.
0:09:24 When people realized that the planet is dynamic
0:09:26 and that the planet is descending
0:09:29 off the west coast here of North America,
0:09:31 the ocean plate is going beneath us
0:09:34 and that’s giving us all earthquakes and volcanoes and so on.
0:09:37 And simultaneously was the development of geophysics.
0:09:40 So the ability to detect the signature of the Earth
0:09:43 beneath the surface in terms of its physical properties.
0:09:46 So how magnetic it is, how dense it is,
0:09:47 how conductive it is,
0:09:49 we started to be able to measure those things.
0:09:51 Those measurements, the data that comes from that,
0:09:54 correlates in some cases with the presence of metals.
0:09:56 – How much does it correlate?
0:09:57 How predictive was it really?
0:09:58 – Poorly is the answer.
0:10:00 (laughing)
0:10:03 There were many false positives.
0:10:06 So we generated maps of magnetic signatures
0:10:08 and people would say there’s all these
0:10:10 fancy looking anomalous bumps in the data
0:10:13 and they drill them, they put holes in the ground
0:10:15 and it turned out that one in a hundred
0:10:16 would actually be interesting.
0:10:18 – Incredible amount of investment and effort
0:10:20 and tools, interesting.
0:10:21 – And that hasn’t changed.
0:10:22 We’ve got more and more tools now,
0:10:26 but if statistically when we look at the chance of discovery,
0:10:27 our odds are still very low.
0:10:28 You know, we’re in thousands,
0:10:30 one in thousand, one in 5,000.
0:10:31 – Well, let’s go back to Cobalt
0:10:33 and talk about what that process has looked like
0:10:35 for Cobalt because it hasn’t,
0:10:37 we haven’t, there hasn’t been a reason
0:10:41 to invest a lot of discovery in Cobalt, right?
0:10:42 Up until this point.
0:10:43 – Yeah, that’s exactly right.
0:10:44 – Besides pretty pictures.
0:10:45 – Right, that’s right.
0:10:46 So one of the interesting things
0:10:49 about Cobalt in particular as a metal
0:10:51 is that you have big copper mines
0:10:52 that are principally there because of copper
0:10:55 and they also have a lot of copper and a little bit of Cobalt.
0:10:57 – And that just happens to be because Cobalt and copper
0:10:58 tend to be–
0:10:59 – Hang out together.
0:11:00 – They hang out together.
0:11:01 – Not always, but in certain circumstances they do
0:11:04 and so it was, effectively the marginal cost
0:11:06 to produce Cobalt out of these mines is very low.
0:11:07 – A nice little extra perk.
0:11:08 – It’s an extra perk, right?
0:11:09 You would develop the mine anyway
0:11:11 if there was no Cobalt there.
0:11:14 So you have this sort of kind of gift to the world.
0:11:16 We’re gonna invest in copper production
0:11:18 and we get a little more, a little Cobalt.
0:11:19 And same thing with nickel.
0:11:22 You get a lot of Cobalt associated with nickel.
0:11:25 So that byproduct production of Cobalt
0:11:28 alongside copper and nickel was more than sufficient
0:11:32 to supply the world up until now.
0:11:33 – When you say more than sufficient,
0:11:35 does that mean sometimes people didn’t?
0:11:36 – Absolutely.
0:11:38 – So there’s just piles of Cobalt sitting around?
0:11:40 – Even just in the last 15 years
0:11:42 where copper mines were developed,
0:11:45 the Cobalt was well-known, its presence was well-known
0:11:47 and investment decisions were made
0:11:49 not to extract the Cobalt from the ore,
0:11:51 to extract the copper and to throw the Cobalt
0:11:53 into the tailings pile.
0:11:54 – Why?
0:11:58 – Because at the time if you did make that investment
0:12:01 and supplied that Cobalt, it would have tanked the market.
0:12:02 – Too much.
0:12:05 – Because the demand was not there from the smartphones
0:12:07 and the laptops and the electric cars yet.
0:12:08 – Nobody needs it.
0:12:09 – Quite literally.
0:12:10 – Exactly.
0:12:12 And so now the whole situation has flipped.
0:12:15 So now all of those mine tailings
0:12:19 that are full of Cobalt and that are known
0:12:21 are being reprocessed or investments are being made
0:12:22 to go reprocessed.
0:12:24 – So everyone that was sitting on a garbage pile of Cobalt
0:12:26 is suddenly feeling good about it.
0:12:27 – Oh, absolutely.
0:12:30 In fact, the two largest projects to come online
0:12:34 in the next 18 to 24 months are exactly that,
0:12:36 our waste pile reprocessing projects.
0:12:40 But in order to convert the entire global vehicle fleet
0:12:45 to electric vehicles, we need vastly more than is available.
0:12:47 – Even just current predictions,
0:12:48 if you include global demand,
0:12:52 especially from Asia of electric vehicles,
0:12:56 we’re likely gonna run out of Cobalt from known supply
0:12:57 in less than 10 years.
0:13:00 – Wow, we have the sudden increased demand.
0:13:02 What are the sourcing efforts starting to look like?
0:13:05 How is it changing how we actually find and source Cobalt?
0:13:06 – If you look into the scientific literature
0:13:09 and you look at gold or deposit formation,
0:13:12 you’ll find a very rich scientific literature
0:13:13 on how gold deposits form.
0:13:15 You’ll find a very rich scientific literature
0:13:17 on how copper deposits form.
0:13:19 You will not find a rich scientific literature
0:13:21 on how Cobalt deposits form
0:13:22 because people haven’t looked for it
0:13:23 and people haven’t done that.
0:13:24 – Right, there was not the same incentive.
0:13:25 It just wasn’t important.
0:13:27 – So, John, what does that science look like
0:13:29 for how to find Cobalt?
0:13:30 How much do we know?
0:13:32 – Not very much is the simple answer.
0:13:35 I mean, it’s kind of starting pretty at a basic level.
0:13:37 If we wanted cobalt, we’d have gone looking for copper
0:13:38 and we know how to do that quite well.
0:13:40 And we’d have to go looking for nickel.
0:13:42 – So it’s kind of like piggyback on other knowledge.
0:13:44 – And when we’d hope that we found some copper
0:13:45 and oh, this is terrific.
0:13:47 We’ve got a bit of extra cobalt.
0:13:49 But there’s no science basis for that
0:13:51 to what actually makes cobalt tick.
0:13:56 So understanding what kind of liquid will transport cobalt?
0:13:59 So if we have a fluid that moves through the earth,
0:14:02 you know, just water dominated, maybe salty water,
0:14:05 it moves through the earth and it interacts with a rock,
0:14:07 will it actually extract cobalt?
0:14:09 We know kind of how much copper it might extract,
0:14:10 but we don’t know with cobalt.
0:14:13 So if it did and then it keeps moving
0:14:15 and then that liquid kind of comes up on the surface
0:14:17 or comes into a different environment,
0:14:18 would it precipitate cobalt?
0:14:20 We don’t know the answer to that either.
0:14:21 And yet we know it did that
0:14:23 because we can find occurrences around the world
0:14:25 which are rich in cobalt.
0:14:27 And we can see the evidence that came
0:14:30 from the passage of a liquid through the rock
0:14:33 and it left the cobalt behind in cobalt minerals.
0:14:34 – So that’s one clue.
0:14:35 – So that’s one clue.
0:14:36 And if we understand how that work,
0:14:38 then can we extrapolate to other areas
0:14:40 and predict where it might work again
0:14:42 or where it might even work even better
0:14:44 and give us a greater concentration of cobalt?
0:14:47 So that’s the science kind of basis.
0:14:49 – And what are some of the other clues
0:14:50 that we’re starting to gather
0:14:51 and where you wanna dive deeper
0:14:54 into why is this happening with cobalt?
0:14:56 – Well, it’s key to understand it’s not that rare.
0:14:58 – When you look at the distribution of cobalt,
0:15:01 it occurs in environments that formed from liquid rocks,
0:15:03 so very high temperature, plus 1,000 degrees,
0:15:06 but also it’s precipitating on the ocean floor,
0:15:08 deep, deep on the ocean floor below 4,000 meters
0:15:10 beneath the surface.
0:15:13 We have the nodules, these little concentrations of metal
0:15:15 that are precipitating out of seawater.
0:15:17 And so at seawater temperature,
0:15:19 that’s two degrees in the deep ocean.
0:15:20 – And how do we know those are there?
0:15:23 – They were found in the late 1800s on an expedition
0:15:25 that was just dredging stuff off of the bottom
0:15:27 for the heck of dredging stuff off of the bottom.
0:15:28 – Oh my gosh.
0:15:29 – We pulled up these little round balls
0:15:30 called manganese nodules
0:15:33 because the major constituent actually is manganese,
0:15:35 but they contain significant cobalt.
0:15:38 – And how interesting that that’s what exploration was back
0:15:39 then like let’s just drag.
0:15:42 – Yeah, let’s just pick stuff up on the ocean
0:15:44 and see what’s there.
0:15:45 – The result is we know cobalt can form
0:15:46 at really high temperatures
0:15:49 and we know it can form at really cold temperatures.
0:15:50 That’s a huge range of conditions,
0:15:52 range of pressures, temperatures.
0:15:53 Now we want to get a little bit smarter
0:15:56 and cleverer understand which of those range of conditions
0:15:58 will give us more cobalt
0:16:01 relative to copper or nickel or manganese
0:16:01 or other things that make them more.
0:16:04 – I think that’s where the data play makes so much sense.
0:16:07 – Exactly, that takes us into now the data world.
0:16:09 – Because rather than like comparing
0:16:10 various exploration efforts,
0:16:11 they’re looking at places
0:16:13 that are fundamentally so different.
0:16:17 Now you can track every known source of cobalt
0:16:20 and what aspects or what qualities
0:16:22 around that land made it particular
0:16:23 and then pattern match.
0:16:25 – There’s pattern matching that process
0:16:28 and then there’s just looking at the patterns of data
0:16:30 until and get them to tell us a story.
0:16:33 – That almost reminds me of like the initial way
0:16:35 of looking at the landscape with very little information
0:16:38 and trying to pattern match the green rocks
0:16:40 or the iron sheen or what have you,
0:16:42 but this is like at a much higher resolution
0:16:45 and much greater than any one human could ever do, right?
0:16:49 – What the data world can do for us now AI machine learning,
0:16:51 it is the 21st century prospector
0:16:54 because it’s not biased and prospectors weren’t biased.
0:16:55 They were just observers.
0:16:57 So the digital world can observe and integrate
0:17:01 and interrogate the data in ways that we humans,
0:17:04 geologists with all our biases will never do.
0:17:07 – And we can go back and look at all the other historical
0:17:10 known traces of cobalt and all the reports that are written
0:17:13 that are like in PDF form right now actually
0:17:15 over the last several decades.
0:17:18 – Or not even in PDF, yes, or in paper form.
0:17:21 – So where are you pulling these different
0:17:22 information sources from?
0:17:23 What are they?
0:17:25 What are the main streams of different kinds of information?
0:17:27 – There’s a huge amount of information out there.
0:17:30 The challenge is that it’s not well-structured
0:17:32 or even digitized in some sense.
0:17:34 You have geophysical data, which is that we’re talking
0:17:36 about things like gravitational anomalies,
0:17:40 magnetic anomalies, electromagnetic responses,
0:17:42 things like that, it’s a whole class of data.
0:17:45 Geochemical data is compositional data
0:17:48 in basically a point in space
0:17:52 and a list of concentrations at that location.
0:17:53 Then you have mineralogical data,
0:17:55 which is like geochemical data, but it’s more complex
0:17:58 because it gets into not just a list of elements,
0:18:01 but actually what molecules the elements were in.
0:18:04 And then you have things like agricultural information,
0:18:05 right, which are sort of indirect
0:18:07 or topological information.
0:18:09 – Meaning like what is the soil like here?
0:18:11 – I mean, this is used for inference, right?
0:18:13 It’s not necessarily direct observation,
0:18:14 but that’s really important.
0:18:18 Then hyperspectral data, which is just the wide band
0:18:21 of electromagnetic emissions and reflection
0:18:22 from the surface of the earth.
0:18:23 – Is weather a part of that as well?
0:18:25 – Groundwater is a great source of information.
0:18:30 So you have very, very wide sets of data.
0:18:33 That data has been collected over centuries really.
0:18:35 – Right, it sounds like basically every piece of knowledge
0:18:37 we have about the earth and the way the earth works.
0:18:39 – That’s exactly right.
0:18:40 To first order, every piece of knowledge
0:18:42 about how the earth works and what about the earth
0:18:43 is relevant.
0:18:45 It’s just a matter of how relevant,
0:18:47 those sort of relative weightings of importance.
0:18:49 And so in certain jurisdictions,
0:18:52 that data has been sort of aggregated in certain ways.
0:18:54 And there’s a lot of it as public in certain places.
0:18:56 It has not even been digitized.
0:18:58 – Over what kind of time scale are you looking at?
0:19:00 Is this all like fresh new data?
0:19:02 Is this data from 200 years ago?
0:19:04 When people were panning for gold?
0:19:06 – Both, new and old.
0:19:07 So something like–
0:19:09 – The good thing is the rock doesn’t move that quickly.
0:19:11 – That’s the one possible.
0:19:13 – So 200 years ago is not really that.
0:19:15 – That’s so fun.
0:19:16 – Unlike a lot of, it’s actually interesting.
0:19:19 Unlike a lot of data analytics and data science plays,
0:19:22 we are looking at effectively a static system.
0:19:23 I mean, of course the earth is dynamic,
0:19:25 but on a time scale we’re looking at it,
0:19:26 it’s effectively static.
0:19:30 That’s a very different data science problem,
0:19:31 but we’re dealing with sparse data
0:19:34 and then we’re dealing with highly, highly disparate data.
0:19:37 So we have a program of trying to aggregate
0:19:38 all these different data sources
0:19:40 and then do two different things on it.
0:19:43 From one side, we have our basic science approach,
0:19:46 which is sort of how these ore bodies formed,
0:19:49 cobalt or any other material we might be looking for,
0:19:51 and then looking for those sorts of indicators.
0:19:53 And then you have the really exciting thing,
0:19:56 which is the data, rather than us asking the data questions,
0:19:58 the data tells us stuff, right?
0:20:00 So this is where your machine learning
0:20:02 or statistical association modeling becomes important, right?
0:20:05 Because the data itself can make predictions
0:20:07 based on the patterns that it sees.
0:20:10 And that’s where you eliminate the human bias
0:20:13 and the non-systematic approach of historic exploration.
0:20:15 – Yeah, and just like to tie that back to again,
0:20:18 like the demand for cobalt is so new.
0:20:20 So there’s lots of reports out there
0:20:23 where they’ll say there’s known cobalt in these places,
0:20:24 they just didn’t go mine them.
0:20:27 If you even get all those reports and digitize them
0:20:28 and look on a map, oh, you know,
0:20:31 all those reports are clustered in these areas.
0:20:33 That already surfaces some interesting sites.
0:20:37 – And probably enough, if you go back 30, 40 years,
0:20:39 a lot of the people out exploring
0:20:41 were very good at identifying minerals,
0:20:43 and better than we probably are now,
0:20:46 because we rely on a lot of extra tools to do it for us now.
0:20:47 And they recorded that presence of that mineral.
0:20:50 So now you’re not looking through all these old texts
0:20:52 for the word cobalt, because they didn’t write cobalt down.
0:20:55 They wrote down the name of a scooterotorite,
0:20:58 which is a very, you know, as a particular code arsenic.
0:21:00 So yes, they would have found that interesting,
0:21:02 but not from a commercial perspective.
0:21:04 They just thought it was cool.
0:21:05 They found another mineral,
0:21:06 because they were just like being a birdwatcher.
0:21:08 They were mineral watchers, so they recorded that.
0:21:10 So now you’ve got to go through the data
0:21:12 and find those references to that kind of thing.
0:21:15 – I just want to drill one level down just for like fun color.
0:21:17 Where do those reports live now?
0:21:19 Where are these types of data coming from?
0:21:21 I mean, the modern data must be easier to access,
0:21:23 but the old data– – Boxes.
0:21:25 Boxes and boxes and boxes and boxes and paper.
0:21:26 – In warehouses. – Warehouses.
0:21:28 – Dusty basements. – Basements.
0:21:31 – How do you even get access to all these?
0:21:31 – It’s hard.
0:21:33 I mean, some of the mining companies
0:21:34 are 100-year-old companies,
0:21:36 and they have 100-year-old data.
0:21:38 And so they have boxes and boxes sitting there.
0:21:41 Some would be well-archived and cataloged,
0:21:43 and some is completely unknown.
0:21:45 And inside those boxes could be anything.
0:21:47 It could be actual good information,
0:21:48 a mention of a mineral,
0:21:50 or it could be some mention of a conversation
0:21:51 between two people.
0:21:54 And in the conversation, they made mention that,
0:21:57 “Oh, when I was in the hills, I found this rock,
0:21:58 and it has this mineral in it,
0:22:00 and that happens to be a cobalt mineral.”
0:22:03 – 20 years ago, if you went to a new city,
0:22:05 and you wanted to find a business in a new city,
0:22:07 you had to get the yellow pages for that city,
0:22:09 and you had to get a paper map for that city,
0:22:12 and you had to look up the address in the book,
0:22:15 and then you had to look on the map for that location.
0:22:17 And a lot of what mineral exploration does now
0:22:18 is exactly that.
0:22:21 It’s very site-specific.
0:22:23 You kind of collect all the data for a new project
0:22:24 in a new area at a new time.
0:22:28 But it’s relatively easy to image the surface of the earth
0:22:29 and the infrastructure of the earth
0:22:30 and the way Google Maps did,
0:22:33 and to catalog all the businesses.
0:22:36 The problem we deal with is data sparsity, right?
0:22:37 So in some locations,
0:22:40 we have tremendous amounts of surface data density
0:22:43 and meaningful amounts of subsurface data density.
0:22:46 And in other locations, it’s very data poor.
0:22:49 And so then we have to use really sophisticated statistics,
0:22:52 really, to try to figure out and predict
0:22:53 what is in those materials,
0:22:55 what is in those areas where there is no data.
0:22:58 How do you actually deal with that incredible variety
0:23:00 and huge amounts of data in some areas
0:23:02 and very little, very old data in other areas?
0:23:04 It’s about making predictions, right?
0:23:07 So it’s about using places where there is a high density
0:23:10 of data and you can train and make predictions
0:23:11 and then make those predictions in areas
0:23:13 where there isn’t high densities of data
0:23:16 and then go out and validate it by collecting new data.
0:23:18 It’s interesting because in some ways
0:23:20 it feels incredibly modern and new,
0:23:22 but in other ways it also feels like a kind of old fashioned way
0:23:24 of exploring again.
0:23:25 Actually, a lot of this reminds me
0:23:28 of like their original idea of venture capital,
0:23:31 which is when kings and queens would fund
0:23:34 these exploration efforts to look for natural resources
0:23:36 or look for new land or whatever they were looking for.
0:23:39 – The whole idea of exploring the earth
0:23:42 to encourage people to look for the materials that we need
0:23:45 such that society can improve and do new things.
0:23:47 That’s an old concept.
0:23:49 That’s what developed California ultimately,
0:23:52 was that influx of people looking for gold.
0:23:55 And governments also fairly early, 150 years ago,
0:23:57 started mapping the rocks on the surface
0:23:59 because they knew if they map rocks
0:24:02 that somebody would recognize associations
0:24:04 and realize that that might have potential
0:24:05 and therefore they’d go exploring,
0:24:07 therefore they’d find things and that would then open up
0:24:09 and create economic activity and so on.
0:24:12 It’s a very old cycle we’re repeating,
0:24:13 but more efficient and more effective.
0:24:15 – Because now one of those explorers is a computer.
0:24:18 – Yeah, it’s also gonna help us actually mine
0:24:21 more efficiently and more effectively and more cleanly.
0:24:23 And that’s really important because to me,
0:24:25 there’s no point in us going electric
0:24:27 and having electric cars using cobalt for batteries
0:24:30 and so on to do that if we create a big mess
0:24:31 in terms of providing those materials.
0:24:34 So we’ve not only got to find it better,
0:24:36 we’ve also got to then exploit it and develop it
0:24:38 in a way that’s more efficient and cleaner
0:24:39 and doesn’t have the kind of problems
0:24:41 that we’ve seen all over the world.
0:24:44 – Well, I think it’s fantastic to think about the way
0:24:46 that the searches and exploration for these metals
0:24:50 have driven sort of entire chapters of human civilization.
0:24:53 And if we think about that, the age of copper,
0:24:55 the age of iron, if we think now we’re entering
0:24:57 the age of cobalt, what are some of the ripple effects
0:25:01 that we’re gonna see as we begin to more smartly mine
0:25:05 and access this new incredibly important mineral?
0:25:08 – Trying to solve climate change and other major issues
0:25:10 that requires very specific use of commodities
0:25:12 that we’re not so familiar with, like cobalt.
0:25:15 And so that changes the way we need to think about them
0:25:17 and the way we therefore also need to exploit them.
0:25:20 And the exploitation part is to be more selective.
0:25:22 We’ve been, we’ve bulk mined everything.
0:25:23 So we make big, big holes in the ground
0:25:26 in order to get iron ore or copper out of the ground.
0:25:28 And if we want to be really clever,
0:25:31 we’ve got to only find higher concentrations
0:25:33 because higher concentrations are more efficient.
0:25:36 But we also now need to try and be very selective
0:25:37 about how we mine them.
0:25:38 – Have much higher certainty.
0:25:40 – Yeah, so, and it’s great if we go back
0:25:43 and reprocess the tailings, which as we’re doing for cobalt.
0:25:45 And actually the Romans were the first people
0:25:48 who started reprocessing waste rocks to do that.
0:25:50 They did a couple of cycles of this kind of stuff.
0:25:52 So that’s not a new idea either.
0:25:53 But it’d be much better to be a really efficient
0:25:56 at the outset and extract as much metal as we can
0:25:58 from the less and less volumes of rock
0:26:01 instead of moving more and more rock to get, you know,
0:26:03 to get metal. – And from a consumer perspective,
0:26:05 this can result in much better batteries.
0:26:08 Because right now even the amount of cobalt
0:26:11 in the battery is kind of a financial decision.
0:26:11 – Oh really?
0:26:12 – And sourcing this decision.
0:26:14 – A financial and sourcing decision, right.
0:26:17 Like if these companies could put more cobalt
0:26:19 than they put in today in their batteries,
0:26:20 it would still be a better battery.
0:26:22 So if we want batteries or iPhones
0:26:25 that last one, two weeks without a charge.
0:26:27 – Yeah, we need more cobalt.
0:26:28 – Yeah.
0:26:29 – You know, there must be a cobalt craze, right?
0:26:31 Like everyone, everyone and their mom
0:26:33 suddenly wants to go mining cobalt.
0:26:35 – That’s the other cobalt issue
0:26:37 is that a lot of it comes from the DRC.
0:26:40 – Over two thirds of the world’s supply.
0:26:42 And again, remember, cobalt’s not a rare metal.
0:26:45 So the fact that two thirds of our supply
0:26:48 comes from the DRC, the Congo right now
0:26:48 is largely a function
0:26:51 of where those copper and nickel mines historically were.
0:26:54 – And it’s mined at a scale of local people
0:26:56 who don’t aren’t regulated,
0:26:59 don’t necessarily do it in an appropriate manner
0:27:01 and use child labor and may have links
0:27:03 to all sorts of other potential problems.
0:27:05 It’s basically done by local people
0:27:07 and DRC in other parts of the world.
0:27:11 They’re doing it because they are impoverished
0:27:14 and they feel they can probably make a better living
0:27:16 by scraping up the material
0:27:19 than plowing a little piece of land.
0:27:20 – Well, this highly valuable material.
0:27:21 – Highly valuable material.
0:27:24 – So it’s these small teams that are taking the gamble
0:27:29 and using shovels and very basic tools to go look for this.
0:27:30 – Correct.
0:27:32 – So that’s actually how it’s happening right now still
0:27:34 is just small groups of people
0:27:37 with eyeballs and shovels in the dirt.
0:27:40 Consumers care about where their products came from now.
0:27:42 They care about the ingredients.
0:27:44 They care about how they were made.
0:27:47 They care about if this came from a local farmer.
0:27:49 So they will eventually start also caring
0:27:52 about where their batteries came from.
0:27:54 – In the DRC where this is done,
0:27:56 they are mining material where,
0:28:00 which was originally a copper cobalt deposit
0:28:04 that then suffered thousands of years of weathering.
0:28:07 So rain came down and dripped through the rocks
0:28:10 and it actually separated the copper from the cobalt.
0:28:12 So the cobalt stayed near the surface
0:28:14 and deeper down it gets more copper rich.
0:28:15 And the mineral that they mine now
0:28:18 is it’s got this great name called heterogenite,
0:28:20 which as you might guess,
0:28:21 is something to do with being heterogeneous.
0:28:22 It looks all over the place.
0:28:23 It’s really messy stuff.
0:28:26 And they can just literally dig that up and put it in bags.
0:28:27 But unfortunately,
0:28:29 that also concentrate quite a bit of thorium,
0:28:30 which is radioactive.
0:28:34 So now we have artisanal miners, local people and kids
0:28:36 who are mining bags for this stuff,
0:28:37 which is slightly radioactive.
0:28:38 It’s not super radioactive,
0:28:40 but it’s radioactive enough to cause concern.
0:28:41 They don’t know that.
0:28:43 They’re just interested in getting bags full
0:28:46 and getting paid for the bag of dirt that they scrape out.
0:28:49 Some people estimate as many as 100 million people
0:28:53 on the planet involved in some kind of activity
0:28:54 like this at this scale.
0:28:55 Not just cobalt.
0:28:56 Not just cobalt.
0:28:59 Gold diamonds, other coltan, other minerals.
0:29:03 Okay, so let’s talk about what this new kind of endeavor
0:29:07 of exploration and mining and knowledge aggregation,
0:29:10 what does that mean on the company building side?
0:29:11 Who do you need?
0:29:13 What kind of people do you need
0:29:16 to sort of represent all those different elements?
0:29:17 It’s a fantastic question.
0:29:21 And basically it’s two very different classes of people
0:29:23 and they’re both essential.
0:29:26 Our company is effectively half made up
0:29:29 of economic geologists, geochemists,
0:29:30 mineral explorationists,
0:29:33 people who have spent their careers
0:29:34 looking in sort of the conventional manner
0:29:36 for mineral deposits of all kinds.
0:29:39 And then the other half is data scientists, right?
0:29:41 And so one of my co-founders,
0:29:44 has got his PhD in quantum computing.
0:29:46 And the other one was the chief reservoir engineer
0:29:49 for ConocoPhillips for many years.
0:29:52 Oil and gas has been incredibly sophisticated
0:29:54 in how they use technology
0:29:56 because there’s a very clear financial reason
0:29:58 to go find oil and gas.
0:29:59 Right, right.
0:30:02 But that same sophistication has not brought
0:30:04 over to mineral and metal exploration.
0:30:07 We relatively well understand the environment
0:30:08 in which we find oil and gas
0:30:10 and we have very good sophisticated tools
0:30:12 to then help us do that.
0:30:15 So the mining business is playing cash up on discovery
0:30:17 and it’s playing cash up on exploitation as well.
0:30:19 And so just in the last 10 years,
0:30:23 everything now in mining is being sensors all over it.
0:30:25 Data is being gathered in the mining process.
0:30:27 Autonomous vehicles are coming into mining so on.
0:30:30 And that’s why the team makeup I think is so interesting
0:30:32 because you have data scientists,
0:30:35 you have people who are truly experts in cobalt
0:30:36 and they already know
0:30:39 and have this gut feeling of where to look.
0:30:41 And then you have people from oil and gas
0:30:43 who can take that sophistication
0:30:45 and kind of bring them up to date.
0:30:46 Okay, so we’re entering a new era
0:30:50 not just about sort of the importance of cobalt
0:30:53 but also about new ways of mining as a whole,
0:30:56 transforming a whole industry and a whole model
0:30:59 of how we find and explore in the earth.
0:31:03 So what changes as a result of that entire model
0:31:04 shifting so dramatically?
0:31:06 That’s a fantastic question.
0:31:08 I think when you think about,
0:31:10 when you think about like the metallurgic epochs, right?
0:31:14 The sort of copper age, the bronze age, the iron age,
0:31:18 the steel age, giving rise to the industrial revolution
0:31:20 and then petroleum that’s we’re basically at,
0:31:24 we’re still in a petroleum age from a material standpoint.
0:31:26 I would say we’re entering the battery materials age.
0:31:29 And so battery materials will be the sort of,
0:31:32 the backbone of energy infrastructure
0:31:33 in the next 100 years.
0:31:36 And that requires a staggering amount of new material
0:31:38 and different materials than we needed in the past.
0:31:41 Cobalt being a salient one, but not the only one.
0:31:44 I think that the tools that we’re developing specifically
0:31:46 to develop, to look for cobalt
0:31:47 actually have a lot of generality to them.
0:31:50 And ultimately I think we’ll probably be looking
0:31:53 for a lot of things other than cobalt
0:31:58 to feed the need of the battery materials age broadly.
0:32:00 So a new kind of exploration
0:32:01 for a new age of new materials.
0:32:03 When you create the Google Maps,
0:32:04 you don’t just know where that stores,
0:32:07 you know where everything else is too.
0:32:09 And funnily enough, it’s different, but it’s the same.
0:32:13 It’s still source to material, to technology,
0:32:15 to people’s desire to change the world.
0:32:16 And that’s the way it’s been
0:32:18 when it was the sword 5,000 years ago
0:32:21 to electric vehicle now, it’s that same process.
0:32:24 But what we’re doing is gonna speed it up,
0:32:27 make it more efficient, use the data more effectively.
0:32:29 So we’re bringing all our tools that we have now
0:32:32 to do the same thing as it was done 5,000 years ago.
0:32:33 – That’s wonderful.
0:32:35 Thank you so much for joining us on the A16Z podcast.
0:32:36 – You’re welcome, thank you.

0:00:02 – Hi, everyone, welcome to the A6NZ podcast.
0:00:03 I’m Sonal.
0:00:05 Sonal Choksi, our editor-in-chief,
0:00:07 and I’m excited to share a new show from us today.
0:00:10 16 Minutes, a short news podcast,
0:00:12 where we cover recent headlines of the week,
0:00:13 the A6NZ way.
0:00:14 Why are they in the news?
0:00:15 What’s hype?
0:00:16 What’s real from our Vantage point?
0:00:19 And what are our experts’ quick takes on the trends?
0:00:21 Today’s episode is a little over 16 minutes,
0:00:22 covering TikTok with General Partner
0:00:24 for Consumer Connie Chan,
0:00:26 FaceApp with Operating Partner for Security,
0:00:28 and former CISO@Box, Joel de la Garza,
0:00:29 iHeartRadios Direct Listing
0:00:31 with Operating Partner Jamie McGurk.
0:00:35 But we began with A6NZ Bio General Partner, VJ Pande,
0:00:37 on the recent headlines around one of the companies
0:00:40 co-founded by Elon Musk, Neuralink,
0:00:43 and go over that news for the first half of this episode.
0:00:45 – Elon Musk this week announced advances in BCIs,
0:00:48 or brain computer interfaces, or neural interfaces,
0:00:50 and it’s something that people have been talking about forever.
0:00:52 And while they did acknowledge it’s a long road,
0:00:54 he even hinted, and this is where it gets a little crazy,
0:00:57 but sci-fi cool, he even hinted at the option
0:00:59 of merging with AI in the future.
0:01:01 What’s interesting is they announced a sewing machine,
0:01:03 which is basically a robot that sews
0:01:06 in delicate flexible electrodes called a neural lace,
0:01:08 which by the way is not a marketing term
0:01:09 that Elon Musk invented.
0:01:12 It’s actually a term from the culture sci-fi series
0:01:14 from Ian Banks, which was written
0:01:16 from the late 80s to 2000s.
0:01:18 The processor is an application-specific
0:01:20 integrated circuit, and basically it monitors
0:01:23 brain activity, decodes it, and ideally in the future,
0:01:25 way future claim is that you could even potentially
0:01:28 translate machines to not just read,
0:01:30 but actually even write to the brain.
0:01:32 But the paper they release, which you can download,
0:01:34 it’s called an integrated brain machine interface platform
0:01:36 with thousands of channels, was not peer reviewed,
0:01:37 it’s a white paper.
0:01:39 So I think we wanna figure out, Vijay,
0:01:40 like what’s hype, what’s real here,
0:01:43 especially given the trend of brain computer interfaces,
0:01:45 like where are we really in this journey?
0:01:46 – Well, you know, if you think
0:01:47 about like what this technology can do,
0:01:48 there’s different styles.
0:01:50 Like so one style is to be non-invasive.
0:01:52 That sounds appealing, ’cause you don’t have to like,
0:01:54 literally go into your brain.
0:01:56 But the reality is there’s just very little information
0:01:58 you can get out if you’re non-invasive.
0:01:59 Now, of the invasive categories,
0:02:01 there’s one maybe slightly less invasive technique
0:02:03 where actually they go through your femoral artery,
0:02:05 which is the artery on your leg, near your femur,
0:02:07 and it’s a well-known path to go from there
0:02:09 all the way into your brain.
0:02:11 And they insert through the femoral artery
0:02:12 something that would go into your brain.
0:02:14 So this is invasive, but you’re not drilling holes
0:02:15 in your head.
0:02:18 I don’t know how reliable you can depend
0:02:19 on where it’s gonna stay there.
0:02:21 What Neuralink’s doing is literally drilling
0:02:26 multi-millimeter holes and then sewing wires
0:02:27 directly into your brain.
0:02:28 Like flexible electrodes.
0:02:29 Flexible electrodes.
0:02:32 And so this has the greatest chance for bandwidth
0:02:34 and getting real information out and in.
0:02:36 It’s almost like a direct connection.
0:02:39 I think, you know, all of us have sort of a,
0:02:41 ooh, the ouch kind of reaction to that.
0:02:42 So they make analogy to Lasik,
0:02:45 which if we were, let’s say, 50 years ago,
0:02:46 and I told you that, hey, look,
0:02:48 I’m gonna have these lasers
0:02:49 and they’re gonna fix my eyes.
0:02:52 And by cutting them and reshaping the eyeball
0:02:54 on the lens, I’m gonna do that on the ball.
0:02:55 I think everyone would think that’s insane.
0:02:57 – That’s actually super interesting analogy.
0:02:59 So Lasik, when it was new, it sounded very invasive,
0:03:00 but now it’s like cookie cutter.
0:03:02 – Now, I mean, it’s still, I don’t know
0:03:03 if everyone like loves the idea of Lasik,
0:03:05 but it’s pretty standard, you know?
0:03:08 And so it sounds like there’s a huge adoption issue
0:03:10 or concern, but really I think the question is,
0:03:11 what can it do?
0:03:12 – Okay, so where are we in the technology now
0:03:14 for what it can do and where do you,
0:03:16 given your vantage point in the bio world,
0:03:19 think BCIs or brain computer interfaces are interesting.
0:03:21 – Yeah, it’s interesting to think about where you can start
0:03:22 because start with a population
0:03:24 that really probably is in dire need.
0:03:26 People that are paraplegic, quadriplegic,
0:03:28 their lives are obviously very limited
0:03:30 compared to what they were at birth.
0:03:31 – In terms of movement.
0:03:32 – In terms of movement.
0:03:35 And really just in terms of access to the rest of the world,
0:03:37 because their brains are just like ours,
0:03:40 but they can’t move their limbs and it’s just really tragic.
0:03:41 A natural place to start would be,
0:03:42 and I think where they’re starting,
0:03:44 is just in communication.
0:03:45 And it’s not just typing,
0:03:47 but it’s really being able to use a computer.
0:03:49 And you think about what that means,
0:03:51 that’s the difference between being in the modern world
0:03:53 and being isolated from the modern world.
0:03:55 That would be a huge game changer.
0:03:57 – And is it only for paraplegics and quadriplegics
0:03:58 or are there other like sort of
0:04:00 neurological movement disorders where it could play?
0:04:02 – I think in time, I think they’ll,
0:04:05 would you shift from cases where it’s sort of a easy,
0:04:08 it’s so hard to avoid puns like no brainer,
0:04:10 easy, no brainer kind of a thing to where,
0:04:14 okay, maybe it’s less obvious, but become more accepted.
0:04:16 – Maybe, who knows, 20, 30, 100 years from now,
0:04:18 we could get to the Lasik point.
0:04:19 But let’s talk about the timing.
0:04:21 The company’s been around for two years.
0:04:23 Five years is roughly the FDA process
0:04:25 for them to get to human trials with five patients,
0:04:26 or so they claim.
0:04:27 They said the road is long.
0:04:29 So given the evolution of BCIs,
0:04:31 and then as a topic that’s been around forever,
0:04:33 where do you see, not prediction,
0:04:36 but where are we in the evolution of this entire journey?
0:04:39 – It’s clearly very early in this journey.
0:04:41 What’s interesting though is that we’re actually talking
0:04:45 about even if it’s just a trial, putting this in patients.
0:04:47 – ‘Cause right now I think it’s only in rats implanted.
0:04:48 – And in monkeys.
0:04:50 – And that’s right, he claimed on stage,
0:04:51 I think it surprised his president,
0:04:52 who’s like, “What, are we talking about this now?”
0:04:54 And he realized this, which is so funny
0:04:55 and so typical musk.
0:04:58 – And so to be in humans, that’s a pretty major job.
0:05:00 – Is it, ’cause I was gonna say,
0:05:02 don’t people argue that our DNA is very similar
0:05:02 to that of monkeys?
0:05:03 – Oh yeah, no, but I’m just thinking
0:05:05 from a cultural point of view, not from a technology.
0:05:07 The thing is that actually humans are probably easier
0:05:09 than mice because mice brains are really little.
0:05:11 So actually ironically, I think that part would be easier,
0:05:12 but the reality is now you’re talking about people,
0:05:14 and you don’t wanna mess around with people.
0:05:16 – Okay, so the swimming social acceptance
0:05:17 is a separate issue altogether.
0:05:21 Technologically, and this is the heart of what you love
0:05:22 when science becomes engineering.
0:05:23 – Yes.
0:05:25 – Where is the engineering reality of this?
0:05:27 – Where the engineering comes in is that,
0:05:29 I think much like, we’ve seen Moore’s Law
0:05:31 and other things on the computer side,
0:05:33 once you can make this interface,
0:05:35 then the advances on the computer side
0:05:36 get to translate over.
0:05:39 So for instance, machine learning is a very, very natural way
0:05:41 to take the signals out of our brain
0:05:43 and then use that to interpret what you mean
0:05:44 and what’s going on.
0:05:45 And so as machine learning gets better and better
0:05:48 and that’s sitting on Moore’s Law and other areas of compute,
0:05:49 that will just come along for the ride.
0:05:52 The other one is I suspect the sewing will get better and better
0:05:54 and that you’ll have more and more electrodes in there
0:05:56 and be able to sort of pinpoint other areas.
0:05:58 And so year after year after year,
0:06:01 if it only gets, let’s say 20% better every year,
0:06:03 that’s a dramatic change over 10 years.
0:06:04 – So bottom line it for me though,
0:06:07 because getting that the social thing can happen,
0:06:08 getting that engineering,
0:06:11 it can be empowered by Moore’s Law,
0:06:13 still not sure where it feels a little nutty
0:06:16 that there’s literally electrodes floating around
0:06:18 in our juicy, gooey brain.
0:06:20 And that’s pretty much like a mess if you think about it,
0:06:21 like reality of a hardware.
0:06:23 – But you know, people have artificial hearts.
0:06:24 – Oh, that’s a good point.
0:06:26 – People who have Parkinson’s often have devices
0:06:28 that are actually in their skulls
0:06:30 that are put there to sort of mediate that.
0:06:33 So there’s actually a lot of precedent for this.
0:06:36 I think in all those cases, the alternatives are pretty dire.
0:06:37 – I mean, right now,
0:06:39 if they don’t have like transmitters right now,
0:06:40 they actually get from their rats,
0:06:42 I think they’d take it out by a USB-C sticks.
0:06:44 So in this case, you probably for a while,
0:06:45 I assume you’re gonna be wired tethered.
0:06:47 But again, for this population,
0:06:50 it’s better than they have limited mobility, unfortunately.
0:06:51 – Right, they already have wheelchairs
0:06:53 and devices that they’re tethered to already.
0:06:54 Any final thoughts?
0:06:57 – Yeah, you know, I think this is like a great example
0:06:59 of something we talk about in the firm
0:07:02 is sometimes really great ideas look like bad ideas.
0:07:03 And what makes them great
0:07:06 is that they’re just so inherently controversial
0:07:08 and it’s so inherently paradigm shifting.
0:07:10 And I don’t know what could be more controversial
0:07:13 than paradigm shifting and drilling holes in your head
0:07:15 to access the internet or something like that.
0:07:17 Now, also bad ideas look like bad ideas.
0:07:19 So time will tell and there are many other players.
0:07:21 And that’s what partially makes this particularly exciting
0:07:22 is that there’s gonna be, I think,
0:07:24 in time, an ecosystem of alternatives.
0:07:25 – By the way, DARPA tweeted,
0:07:26 “They’re the ones who pioneered
0:07:28 “the sewing machine technology with UCSF
0:07:30 “and funded it as part of their thing.”
0:07:32 So what Musk is doing is actually using that technology.
0:07:34 But the funnier part is this paper.
0:07:36 So I came out of academia, I’m an editor,
0:07:38 I care a lot about bylines.
0:07:39 I think it’s crazy that the author said,
0:07:43 “Elon Musk and Neuralink, he didn’t list his authors.”
0:07:45 Like, do you think that’s okay if you run a lab?
0:07:48 – Yeah, I mean, I think especially if you wanna reach
0:07:50 the academic audience, that’s not the way to do it.
0:07:51 I don’t know if an average person cares
0:07:53 about the individual authors in there,
0:07:54 but if I were in the company,
0:07:57 I’m sure I would love to sort of have my contributions.
0:07:58 – Yes, exactly.
0:07:59 Well, maybe when they do a peer-reviewed paper,
0:08:01 this is how I justified it to myself.
0:08:03 They might then do that paper with the actual authors,
0:08:05 whereas this was like a marketing white paper.
0:08:07 – You could also choose to interpret it
0:08:07 in a more positive way,
0:08:09 which is that he wants to really acknowledge
0:08:10 the whole company.
0:08:12 – Ah, it could be the other interpretation.
0:08:14 – There’s generous and non-generous interpretations of this.
0:08:15 – I like your glass half full view
0:08:17 of the world of VJ Pande.
0:08:18 Thanks for joining. – Yeah, thank you.
0:08:19 – So the next item on our list,
0:08:22 TikTok has actually been in the headlines plenty of times,
0:08:24 but it’s the third most installed app worldwide
0:08:27 since Q1 of this year behind WhatsApp and Facebook messengers.
0:08:31 It has 1.2 billion MAUs, monthly active users or something
0:08:32 in the last reading.
0:08:34 So given that phenomenon is happening
0:08:35 and it’s been happening for a while,
0:08:38 the news this week was about them having
0:08:40 a huge influence at VidCon,
0:08:42 which builds itself as the world’s largest celebration
0:08:43 of digital video and online creators.
0:08:46 Basically a huge ask conference for a video.
0:08:47 It’s sponsored by YouTube,
0:08:49 but ironically it was not dominated by YouTube.
0:08:52 It was actually dominated by TikTok stars,
0:08:54 according to Taylor Lorenz, a writer at The Atlantic.
0:08:55 This is actually the first time
0:08:58 that TikTok had such a huge presence at VidCon,
0:09:00 but on top of it, the other recent news
0:09:03 is that there’s talk of banning it in India,
0:09:06 which is its biggest overseas market.
0:09:08 The question here, Connie, for you is,
0:09:09 what is going on with TikTok?
0:09:11 Tell us really quickly, what is TikTok?
0:09:14 Frankly, the ability to do short 15 second videos
0:09:15 is a very familiar model.
0:09:17 Vine tried that, many people have tried that.
0:09:19 – It’s a series of short video apps,
0:09:21 but the difference between that and say like a YouTube
0:09:24 is rather than search for anything, there’s no search bar.
0:09:27 The app completely dictates what you see
0:09:28 by using AI algorithms.
0:09:30 – It’s purely AI driven.
0:09:32 There’s no preference selection,
0:09:34 except by what you choose to watch.
0:09:35 – Yeah, I mean, if there’s a TikToker
0:09:37 that you really love, you can follow them.
0:09:39 But when you initially start,
0:09:41 that whole entire feed is dictated by the platform.
0:09:45 So it chooses things that are high quality or high impact,
0:09:46 and it surfaces that.
0:09:49 And that’s why it was such a big deal at VidCon,
0:09:50 because you had all these people
0:09:52 who had trouble becoming famous on YouTube,
0:09:55 because YouTube’s been around for so long right now.
0:09:58 It was so much easier to become an influencer 10 years ago
0:09:59 than it is today.
0:10:00 But on TikTok, it’s different,
0:10:04 because you create one really hit piece,
0:10:07 it can through AI be shown to a ton of people worldwide,
0:10:09 because it’ll trigger the algorithm
0:10:11 to share it with a lot of people.
0:10:13 And that’s how you can gain followers really quickly.
0:10:15 Whereas on YouTube, unless you’re searched
0:10:16 or unless a friend shares it,
0:10:18 it’s much harder to get surfaced.
0:10:19 The article talked about how someone
0:10:22 who tried to become famous on YouTube
0:10:25 struggled for a really long time getting followers.
0:10:27 But on TikTok was able to amass a following far greater
0:10:29 and a much shorter period of time.
0:10:31 – So this particular segment is focused
0:10:34 on our friend Taylor’s piece in the Atlantic on this.
0:10:36 She has an open-ended question at the end though,
0:10:37 which I think is worth answering,
0:10:39 which is how are they gonna make money?
0:10:40 – The answer to me is really obvious,
0:10:45 because TikTok is the English version of a Chinese app,
0:10:46 same company, right?
0:10:47 This is just the American– – All by Byte Dan.
0:10:49 – English version, all by Byte Dan’s.
0:10:51 And then the Chinese one is called Dohing.
0:10:54 And it has a bunch more features and monetization methods
0:10:56 that you just don’t see in the English version yet.
0:10:59 And if you just imagine that stuff translating in America,
0:11:01 which I think it perfectly can–
0:11:04 – Yeah, yeah, I mean, a lot of it is around e-commerce.
0:11:08 A lot of it is around becoming a super app actually even,
0:11:11 allowing people to find restaurants or even book hotels.
0:11:13 You have leaderboards of top brands.
0:11:16 Basically commercials you can instantly buy, right?
0:11:20 In the US we’ve talked about when is this interactive TV
0:11:21 world ever gonna happen.
0:11:22 I don’t think it’s gonna happen on the TV.
0:11:23 It’s gonna happen on the mobile.
0:11:25 And short videos are a great way to do it,
0:11:27 because short videos are in essence commercials
0:11:28 you wanna watch.
0:11:29 They can become commercials you wanna watch.
0:11:30 – That’s such an interesting idea.
0:11:32 What’s fascinating to me, because in China
0:11:35 you have a lot of these TikTok or Dohing short videos,
0:11:39 and you can purchase directly there with like three taps.
0:11:42 Right after the video loops twice, a little thing pops up.
0:11:44 You can click in, you can buy it,
0:11:46 and it gets delivered to you.
0:11:48 I’m talking like buying physical things.
0:11:50 Fruit is a huge category.
0:11:51 – What?
0:11:52 – I’m not kidding.
0:11:54 Fruit, random gadgets, like for the fruit,
0:11:57 the grower who’s growing oranges,
0:11:59 he’s showing you his orange farm,
0:12:00 or he’s squeezing the orange juice.
0:12:02 So you see how juicy it is,
0:12:04 and then you can just buy a box of oranges.
0:12:05 – That’s a thing.
0:12:06 Oh my God.
0:12:06 – That’s a huge thing.
0:12:07 – That’s fantastic.
0:12:09 The fruit meme is way better than a 10X engineer meme,
0:12:10 I gotta say.
0:12:12 Well Connie, thank you for joining this segment.
0:12:15 All right, so we’re doing the next segment on FaceApp,
0:12:17 which is an app that is in the headlines this week.
0:12:20 First of all, what it does, it basically morphs your face.
0:12:22 So if you’re a woman, you can change your gender
0:12:23 into a man, vice versa.
0:12:25 It can show you how you age,
0:12:26 like how you look when you’re old.
0:12:28 And of course people are freaking sharing this,
0:12:30 ’cause how interesting to share it.
0:12:32 Now I personally am too vain to share something like that,
0:12:33 so I would not even share that.
0:12:36 The reason it’s in news is not because it’s going viral,
0:12:37 ’cause that’s not news.
0:12:40 The news is that there are claims of Russia
0:12:43 collecting facial recognition data based on this.
0:12:46 And it’s so concerning that a US senator
0:12:49 wrote a letter to the FBI and FTC asking for investigation
0:12:52 into its potential national security threat,
0:12:54 and its risk to the privacy of Americans,
0:12:55 given the fears of election hacking.
0:12:57 The privacy policy basically says,
0:12:59 you’re allowed to have a perpetual, irrevocable,
0:13:01 non-exclusive, royalty-free, worldwide, fully paid,
0:13:05 transferable, sub-licensible access to your photo,
0:13:07 but that’s kind of what all apps already do.
0:13:09 So what I really wanna talk to you about Joel,
0:13:11 especially as a security expert,
0:13:13 I wanna get your take on should people be worried,
0:13:14 the people who downloaded this,
0:13:16 or is this just app business as usual?
0:13:18 – Well, I’m a strong believer in the fact
0:13:20 that you should never waste a crisis, right?
0:13:22 And so any opportunity we have to get privacy
0:13:24 front of mind in people is really important
0:13:26 because consumers just don’t really appreciate
0:13:27 or understand privacy.
0:13:30 That said, I think that you actually really,
0:13:32 risk is a really funny thing,
0:13:33 and it varies from person to person.
0:13:35 And so does the average teenager
0:13:36 need to care about this?
0:13:37 Probably not.
0:13:40 If you are a Democratic or Republican politician
0:13:42 that is in the public space,
0:13:44 it’s probably a bad idea that you give your access
0:13:46 to your photos to anybody, right?
0:13:47 – Why?
0:13:48 I don’t understand the distinction there, to be honest.
0:13:50 – Well, there may be photos in there
0:13:52 as a high-profile individual
0:13:54 that may make you susceptible to things like blackmail.
0:13:56 When you’re a public official,
0:13:58 when you’re working in the national security space,
0:14:00 when they say something as a threat to national security,
0:14:02 they don’t always mean that like,
0:14:04 they’re gonna get the launch codes and take our weapons.
0:14:07 They often mean that you’re gonna get some kind of information
0:14:09 that you can use as leverage over a public official.
0:14:12 And if you look at most of the national security investigations
0:14:14 that happen in this country,
0:14:15 they’re usually over someone trying
0:14:17 to get negative information,
0:14:20 or they’re over some form of kind of information leakage,
0:14:21 right?
0:14:23 – So that helps explain the national security side.
0:14:25 I’m very patriotic, and of course,
0:14:27 I’m worried about people hacking elections or other things.
0:14:29 It did strike me as kind of xenophobic, actually,
0:14:32 to just blandly accuse an entire country
0:14:34 of anything that comes out of Russia and China
0:14:35 and all these other countries is dangerous.
0:14:37 Like, that just feels like a little bit of fear mongering.
0:14:38 – I think the important thing
0:14:39 that we should be talking about,
0:14:41 rather than saying that Russia, China,
0:14:42 and these countries are evil,
0:14:45 that’s just kind of a ridiculous position to take, right?
0:14:47 I think the real discussion we should be having
0:14:50 is that every country conceives of privacy in a different way.
0:14:51 – What’s the US is?
0:14:53 – Well, in the US, generally,
0:14:57 we’re in this weird place where convenience or features
0:14:58 or user experience, right,
0:15:01 will always trump privacy and security.
0:15:02 So if I can provide you with a widget
0:15:05 that gives you 15 minutes of joy,
0:15:07 there’s some amount of private data
0:15:08 that you’ll let me extract from you.
0:15:11 And so I think the fundamental problem here
0:15:15 is that US consumers generally undervalue their private data,
0:15:17 whereas I would say German or European
0:15:20 or people that have very strong data protection cultures
0:15:21 have a much higher price on their data.
0:15:23 But these apps are global.
0:15:24 I was going to say these glass,
0:15:27 ’cause it’s like global apps, these apps are global.
0:15:29 And so is their infrastructure.
0:15:30 Like in the case of FaceApp,
0:15:33 specifically the servers are in the US,
0:15:35 or so they claim in their response to the concerns.
0:15:38 They also claim that images are deleted within 48 hours
0:15:39 from the upload date.
0:15:42 So I guess my question for you is,
0:15:44 as a user in a practical way,
0:15:46 how should someone who’s not a politician
0:15:47 with a high profile,
0:15:49 how should someone really think about
0:15:50 whether they should trust these apps or not?
0:15:53 I mean, there’s the no brainer kind of answer
0:15:54 to that question, which is that if you have stuff,
0:15:55 you don’t want other people to see,
0:15:57 don’t give them access to apps
0:16:00 that let them get access to that information.
0:16:03 And so generally, I think, be conscious and cognizant
0:16:05 of the fact that these apps are taking information,
0:16:06 they may be taking information
0:16:08 that you’re not fully aware of.
0:16:10 The way that these companies present their terms of service
0:16:12 is really designed so that they get people
0:16:14 to kind of buy in and accept that transfer.
0:16:15 – Quite frankly, I don’t know anybody
0:16:17 who really fucking reads them.
0:16:18 I just accept.
0:16:20 I’ve never read a policy.
0:16:21 – I must shamefully admit
0:16:22 that I am one of those people that does.
0:16:24 I’m also gonna be home alone on Friday,
0:16:28 but the fact of the matter is that this language
0:16:30 and this legalese is just done to confuse consumers.
0:16:33 And so exercise some level of practical caution.
0:16:36 Understand that access to your private information
0:16:37 is actually really important.
0:16:39 And as we move into this new world
0:16:40 and you look at these new apps,
0:16:43 these are essentially becoming massive data collection efforts.
0:16:44 – And just wait till we add Neuralink
0:16:47 and BCIs into this whole equation.
0:16:48 Well, thank you for joining, Joel.
0:16:52 So let’s do the last segment of the news on direct listings.
0:16:54 Our next agency expert is Jamie McGurk,
0:16:57 who runs our corporate development function
0:16:59 and is a former investment banker.
0:17:02 We recently put out a post all about direct listings,
0:17:04 which explains what they are, how they work,
0:17:06 and especially given this new trend of companies
0:17:09 like Spotify and Slack having done them.
0:17:12 So the news here, though, is that iHeartRadio,
0:17:15 which this shocked me because first of all,
0:17:17 I’m into podcasting and they’re an audio company
0:17:19 and they’ve been around for a while
0:17:20 and they just announced a direct listing
0:17:21 and that shocked the hell out of me.
0:17:23 So like that’s the news, like what’s going on?
0:17:25 – No news, actually.
0:17:26 – Okay, you’re telling me
0:17:28 we shouldn’t bother recording this episode now?
0:17:30 – So I guess what people don’t realize is
0:17:32 this product has been around for a long time.
0:17:34 There were two primary use cases previously
0:17:36 for doing a direct listing.
0:17:38 One was companies emerging from bankruptcy
0:17:40 and the other was companies being spun off
0:17:41 of larger companies.
0:17:41 – Ah, interesting.
0:17:44 – And so iHeartRadio falls into the former category
0:17:45 emerging from bankruptcy.
0:17:48 So the direct listing product has been
0:17:51 more or less repurposed by Spotify and Slack
0:17:55 in recent history as an alternative to the IPO.
0:17:57 They don’t suffer the dilution of a traditional IPO
0:17:59 and there’s no lockup period.
0:18:01 So traditionally you would have a 180 day lockup period
0:18:03 in a traditional IPO and that goes away.
0:18:08 So there’s strong momentum for a new way of going public.
0:18:09 – I mean, basically the point of direct listing
0:18:11 is that the company’s not raising capital.
0:18:12 – They’re not raising capital
0:18:14 and they’re not doing so at an artificially low valuation
0:18:16 that exacerbates the dilution
0:18:18 that they would otherwise get from fundraising.
0:18:21 – Right, but just in the big picture why this matters,
0:18:22 why do you think it’s gonna be such a big trend
0:18:24 in terms of the importance of it?
0:18:26 – In our blog post we talked about several different features
0:18:27 of the direct listing
0:18:30 and why we think that it’ll be more popular.
0:18:31 You know, I think the short soundbite
0:18:34 is that there’s a lot of things broken
0:18:36 about the legacy IPO process.
0:18:38 Who really benefits?
0:18:39 Is it in the company’s best interest to raise capital
0:18:41 or to go public in this way?
0:18:42 – Yeah, by the way, a lot of those are structural things
0:18:44 that are due to lack of technology
0:18:47 and transparent information and just time and old policies.
0:18:49 – Doing things the way that things have always been done.
0:18:51 So it’s more of an inertia argument
0:18:54 as to maybe why the legacy IPO has persisted
0:18:56 as long as it has.
0:18:57 You know, it works at raising capital
0:18:59 and it works as entering the public markets.
0:19:01 It just so happens there is a better way.
0:19:02 That’s the trend that we see.
0:19:03 That’s what you and I wrote about.
0:19:05 – So to bring it back to iHeartRadio,
0:19:07 then why this is different Spotify and Slack
0:19:09 versus the iHeartRadios of the world?
0:19:11 – So I think iHeartRadio got a lot of attention
0:19:14 because it fell in close time proximity to Slack.
0:19:15 It also has a business model
0:19:17 that is very similar to Spotify.
0:19:19 I think they drafted off the PR headlines of those two
0:19:20 about the direct listing,
0:19:23 but the emerging from bankruptcy use case
0:19:24 is a well-worn path.
0:19:26 It just so happens that they had similarities
0:19:28 to two of the recent more, you know,
0:19:30 the newer use case direct listing.
0:19:31 – Thank you, Jamie, for that.
0:19:33 And just to be clear to everyone listening,
0:19:34 please note that the content here
0:19:36 is for informational purposes only,
0:19:38 should not be taken as legal business tax
0:19:39 or investment advice
0:19:41 or be used to evaluate any investment or security,
0:19:43 including the ones that we mentioned.
0:19:44 It’s not directed at any investors
0:19:47 or potential investors in any A6 and Z fund.
0:19:49 And honestly, any investments or portfolio companies
0:19:52 mentioned, referred to or described in this episode
0:19:54 are not representative of all A6 and Z investments.
0:19:56 And so there can be no assurance
0:19:58 that the investments will be profitable
0:19:59 or that other investments made in the future
0:20:01 will have similar characteristics or results.
0:20:03 You can find a full list of investments
0:20:05 at asixandz.com/investments
0:20:07 and more details on our disclosures
0:20:08 at asixandz.com/disclosures.
0:20:12 And thank you everyone for joining our news segment today.

0:00:05 The content here is for informational purposes only, should not be taken as legal business
0:00:10 tax or investment advice or be used to evaluate any investment or security and is not directed
0:00:14 at any investors or potential investors in any A16Z fund.
0:00:19 For more details, please see A16Z.com/disclosures.
0:00:20 I’m Frank Chen.
0:00:26 Today I’m here with Scott Cooper and we are now in part three of three of our de-mystifying
0:00:28 Silicon Valley.
0:00:31 This part is all about living with your investor.
0:00:35 As Scott will point out, the average length of time that you will work with a venture
0:00:42 investor, 8, 10, 12 years, is longer than the average marriage, terrifying statistic.
0:00:46 And so you want to make sure that you understand how to work and pick with an investor that
0:00:49 you can live with over a long period of time.
0:00:53 And so we’re going to talk about ways that you can think about getting the most out of
0:00:59 your venture investor and board member and how to handle situations from the bad situations
0:01:04 where you have to wind down the company to the awesome situations where we hope you find
0:01:07 yourself, which is you’re doing an IPO for your company.
0:01:09 So let’s dig right into it.
0:01:13 Let’s talk a little bit about, fundamentally, what do I want from my investor?
0:01:16 And usually they’ll live basically as my board member.
0:01:17 Yeah.
0:01:18 Right?
0:01:19 Like what are the big things I’m looking for?
0:01:20 Yeah.
0:01:21 So look, I think, you know, certainly you want a board member and all the things that a board
0:01:25 member entails, which is hopefully they are a good coach, a good mentor, a good sounding
0:01:29 board for you, hopefully they’re good stewards of corporate governance and help you kind of
0:01:31 think through important strategic decisions for the company.
0:01:35 But then I think more importantly, you know, and this extends beyond often just the general
0:01:40 partner who’s sitting on your board, you want some value from them that allows you to help
0:01:41 you accelerate the growth of the business.
0:01:46 I mean, ultimately, you and the venture capitalists are along for the same ride, which is you’re
0:01:51 both trying to achieve an outcome that yields a very important, longstanding, hopefully independent
0:01:52 and publicly traded company.
0:01:57 And so, you know, whatever the venture capitalists can do to help you with that, whether it’s
0:02:01 making customer introductions or helping you understand, you know, how and when to add
0:02:06 a CFO or a head of sales or, you know, how best to kind of navigate, you know, the PR
0:02:09 and marketing world and who are the right press relationships to have.
0:02:13 All those things are, I think, fair game where, you know, kind of good VCs find ways in which
0:02:17 they can be valuable to entrepreneurs in that regard.
0:02:22 So one of the jobs of the board is that they can fire me as the CEO.
0:02:23 Yes.
0:02:24 Okay.
0:02:26 So now I’ve got this weird incentive, which is on the one hand, I want that partnership.
0:02:27 Yeah.
0:02:28 I want to get great advice.
0:02:32 And on the other hand, like if I share too much or like I, you know, too open about my
0:02:35 vulnerabilities or my shortcomings, like I could get fired.
0:02:38 And so how should I think about transparency, trust?
0:02:39 Exactly right.
0:02:42 It’s a little bit like the relationship, you know, probably your youngest has with you
0:02:43 as a parent, right?
0:02:44 Which is okay.
0:02:45 I want to be truthful.
0:02:46 Right.
0:02:48 I want to tell them what I’ve wrong, but I know there’s consequences for doing that, right?
0:02:53 So yeah, look, I think, so you’re absolutely right, which is, look, the fundamental power
0:02:55 the board does, of course, is to be able to hire a private CEO.
0:02:58 Now we talked about this in a different session.
0:03:02 It’s also changing these days, which is often the boards are not controlled by the venture
0:03:06 capitalist, but controlled by the CEO and, you know, kind of, you know, other common shareholders,
0:03:09 in which case the board really can’t, you know, the venture capitalist can’t, you don’t
0:03:10 really do anything.
0:03:14 They would have to actually really generate consensus with a much broader set of folks.
0:03:19 So I think some of those risks of kind of, you know, a VC being, you know, kind of random
0:03:23 or, you know, kind of, you know, not thinking through these things and, you know, and doing
0:03:26 that is much, that risk is much lessened today.
0:03:27 Technically they can’t out-vote me.
0:03:28 That’s exactly right.
0:03:29 Right.
0:03:31 They would have to kind of, you know, co-opt other members of your kind of, you know, constituents
0:03:33 to do so.
0:03:37 But that notwithstanding, I think even in the scenario where that’s not the case, I think
0:03:38 you’re right.
0:03:42 In some cases, look, you have to, you still have to build a relationship, though, where,
0:03:46 you know, you are willing to share enough information to, you know, to kind of, you know, get their
0:03:48 advice and get their help.
0:03:52 Yeah, in some cases, maybe that means you’re vulnerable, but I think in most cases, I think
0:03:56 most VCs would say, hey, look, if there’s, if you can tell us stuff and we can help you
0:04:00 fix it and help you address it, then, you know, there’s no reason, it doesn’t necessarily
0:04:03 mean that every time you do something wrong, you know, you get punished and you basically
0:04:04 find yourself out of a job.
0:04:06 So I think most people are pretty rational about this, but you’re right.
0:04:12 There is this kind of strange dichotomy of kind of, you know, having somebody who’s also
0:04:17 your boss essentially be your consigliary as well.
0:04:23 And then sort of as I build the company, I’m going to basically grow the board from, you
0:04:24 know, people who invest in money, right?
0:04:27 So I have a Series A investor who takes a board seat, then the B investor takes a board
0:04:28 seat.
0:04:32 So now I’ve got like a whole cat herding exercise to go through.
0:04:37 And there are situations in which the economic interest of my investors, A’s and B’s and
0:04:38 C’s, can diverge.
0:04:39 Absolutely.
0:04:42 Like I might get into a situation where somebody’s heading into a fundraise.
0:04:43 They need a liquidity event.
0:04:44 Yeah, yeah, yeah.
0:04:48 They need to put up some dollars and so like now they’re pressuring me to sell the company.
0:04:49 Yeah, yeah, yeah.
0:04:50 Right?
0:04:53 Whereas the A and B investors might be like, no, no, no, we’re like, let’s go for a bigger
0:04:54 outcome.
0:04:55 Yeah.
0:04:56 So how do I manage these situations?
0:04:59 Those are tough issues in managing, I think, again, as a CEO, it’s really important for
0:05:02 you to kind of understand exactly what those incentives are.
0:05:06 And you mentioned it, hey, maybe I, as the VC, need to go fundraise a new fund and so
0:05:10 I need to show my LPs that I’m smart and I’m making some money and we get an acquisition
0:05:11 offer for your company.
0:05:14 And for me, it’s a good outcome, but maybe it’s not a good outcome for you and others.
0:05:20 Now the good news is, as a board member, you are a fiduciary to those shareholders.
0:05:24 And so you do have legal constraints on your ability to be completely self-serving.
0:05:26 But still, even within that, you have to think about it.
0:05:31 And so this is, you know, oftentimes you’ll see, you may have heard of this term called
0:05:35 a waterfall analysis, which is oftentimes it’s a mechanism by which often the lawyers
0:05:39 will do it for you for the company and they’ll say, hey, look, if you sell the company at
0:05:42 this price, here’s what the A people will get, here’s what the B people get, here’s what
0:05:44 you and your employees get.
0:05:48 And it’s good in those situations to look at that because that will help you understand
0:05:51 if you do have this kind of divergence of interest among folks.
0:05:55 You know, again, I think, as with all things, look, the best thing you can do is hopefully
0:05:58 you’ve stacked your board with good people who are rational and who respect things like
0:06:00 fiduciary duties.
0:06:03 And you can have a meaningful conversation around that.
0:06:04 Yeah.
0:06:08 In theory, the board is supposed to be exercising duty of care.
0:06:15 In theory, they’re not supposed to put their own interests ahead of all of the, but there
0:06:19 are situations where you will get this sort of self-serving behavior.
0:06:25 Yeah, well, you kind of find this weird situation and is often times when company, we talked
0:06:29 about liquidation preference in one of our prior sessions, where a company is getting
0:06:31 sold for at or around the liquidation preference.
0:06:34 This is where you tend to kind of get these issues that come up, right?
0:06:39 Because the VCs are, you know, if they’ve got $30 million of liquidation preference,
0:06:44 they’re probably indifferent between a $30 million sale and a $35 million sale and a
0:06:46 $40 million sale because, you know, I’m just making up these numbers.
0:06:49 But let’s assume in those cases, they’re still going to get the same amount of their
0:06:53 liquidation preference because the price isn’t high enough to actually cause them to convert
0:06:55 and take their normal equity ownership.
0:06:57 And so you do get these weird scenarios.
0:07:01 Now, again, as I said, the good news is most of the time, you know, people still act rationally.
0:07:05 There are a couple cases, though, that we’ve seen where the courts have kind of said, “Hey,
0:07:08 we don’t like the behavior we’re seeing from the VCs because you kind of didn’t take
0:07:12 care of the common shareholders, which is really your main job here.”
0:07:18 And so, you know, I don’t want to put everybody to sleep on this webcast here, but, you know,
0:07:21 there’s a whole chapter on this in the book which kind of helps you understand how we
0:07:22 got there.
0:07:24 And then, importantly, what are the kinds of things that you can do to make sure that
0:07:27 you don’t run afoul of those problems?
0:07:31 So the take home message for me as the startup CEO is like, “I need to understand all of
0:07:37 the incentives and the timeframes of the people who are on my board so I can try to understand
0:07:38 why are you saying what you’re saying?”
0:07:39 That’s exactly right.
0:07:41 Yeah, and look, it goes, again, you know, it goes back to, you know, where we started
0:07:42 the conversation.
0:07:46 Our first session when we started talking was, you know, incentives drive behavior for
0:07:47 better or worse.
0:07:48 Right?
0:07:52 You know, you know, we, again, you and I spent time in the enterprise world where, look,
0:07:55 if you want to change the way you sell your product, the best thing to do is change the
0:07:57 quota structure for your sales reps, right?
0:08:00 And that’s not, you know, a denigrating statement.
0:08:03 It’s just the way that, look, incentives may have a matter and people respond to incentives.
0:08:06 And just like that, you know, venture capitalists are people, too.
0:08:09 And so, they respond to the incentive structure they have, and the more you understand that,
0:08:14 the more I think you can finally cut through and actually have a rational dialogue.
0:08:15 Great.
0:08:19 Now, I want to do some sort of play acting with you on three scenarios.
0:08:23 So scenario one is things aren’t going well, we’re going to have to do something tough
0:08:27 like raise a down round or a bridge, and then a scenario where, hey, yeah, we’re getting
0:08:30 acquired and, you know, we’re going to clear the liquidation preferences.
0:08:31 It’s going to be happy.
0:08:32 Yeah.
0:08:34 And then the super happy scenario where we’re going public.
0:08:35 All right.
0:08:36 So let’s, advice for each one of those.
0:08:37 All right.
0:08:38 Tough times.
0:08:39 Yeah.
0:08:40 It’s not going the way I expect.
0:08:41 I have to raise a bridge.
0:08:42 Yeah.
0:08:43 Maybe I have to raise a down round.
0:08:44 How should I think about this?
0:08:45 Yeah.
0:08:46 This is hard.
0:08:49 I talk about this in the book a lot, but I’d say the most important thing I think to think
0:08:52 about here is, and this is where I do think having good relationship with your VC is critically
0:08:55 important, is having a real open, honest discussion, right?
0:08:59 So sometimes, unfortunately, despite your best efforts and, you know, despite our best
0:09:03 efforts, hopefully to be supportive of you, maybe the market’s just not there or the product’s
0:09:07 not taking, you know, for whatever reason, you know, look, you gave it 110% and it’s
0:09:08 just not there.
0:09:13 And, you know, it’s interesting when I’ve had those conversations with entrepreneurs,
0:09:16 I was kind of, I was, you know, dreading going into that conversation because I was worried
0:09:18 that, you know, it was going to be a contentious discussion.
0:09:21 And more times than not, they actually come out and they say, you know what, I’m kind
0:09:25 of relieved because I was thinking the same thing you were, which is I was doing this
0:09:31 because I thought my job to you as the VC was to just run through walls no matter what.
0:09:34 And honestly, I don’t know that spending another three, four years doing this is likely to yield
0:09:35 a better outcome.
0:09:38 It doesn’t always happen that way, but more often than not, I’d say that happens.
0:09:42 And so I think in those cases, look, it’s perfectly respectable to say, hey, look, we
0:09:44 all gave it our best and it didn’t work.
0:09:47 And the right thing to do is let’s wind it down in a reasonable fashion so that we can
0:09:51 hopefully, you know, take care of our employees and take care of our vendors and do all the
0:09:53 things we can.
0:09:57 If you still feel like, you know, the alternative is true, which is, hey, yes, maybe we got
0:10:01 the product wrong or maybe the market’s developed more slowly, but you know what, like, I’m committed
0:10:05 as an entrepreneur and I really believe this market is still here in the survival business.
0:10:08 Then, you know, kind of, I talked about this in the book, but things like what you call
0:10:11 like a recapitalization, which is kind of almost a reset, right?
0:10:14 Which is we say, hey, look, we raised a bunch of money, we spent it, it didn’t yield what
0:10:18 we want, but we’re all still believing this thing and I want to go spend the next 10 years
0:10:20 of my life trying to do this.
0:10:22 Then let’s set the company up for success, right?
0:10:26 And it’s unpleasant, the word recap is obviously has such a negative connotation, but in that
0:10:30 respect, it’s actually a positive thing, which is we’re going to figure out, okay, how do
0:10:34 we kind of make the company attractive for potentially new investors to come back in
0:10:38 by cleaning up some of these things like liquidation preference we’ve talked about, resetting the
0:10:42 price to a point that actually reflects the progress of the business.
0:10:44 But importantly, and this is where I think entrepreneurs need to make sure they’re aligned
0:10:49 with their VCs, for you as an entrepreneur and your employees to also make sure that
0:10:50 you get reset as well, right?
0:10:55 So there’s no sense in any of us putting more money in the company if it turns out all of
0:10:59 your stock options are underwater and you’ve got no financial incentive and then tomorrow
0:11:01 everybody’s going to walk away from the business, right?
0:11:04 So this requires kind of give and take on both sides, which is, you know, the VCs will
0:11:07 give up a lot of the rights that they otherwise had.
0:11:11 But importantly, the give that the VCs, you know, need to do to make this successful is
0:11:15 to kind of re-insent the team as well and make sure that you all are, you know, shooting
0:11:18 for the same ultimate outcome.
0:11:21 So there’s a lot of emotional freedom, just sort of listening to you talk, right?
0:11:26 Because even if we have to wind it down, we can have the conversation and then realizing
0:11:29 that like half your portfolio is going to go belly up anyway, right?
0:11:32 I don’t have to feel like, oh my god, I’m like the world’s biggest failure, right?
0:11:34 Which is like you’re kind of expecting this.
0:11:35 I think that’s right.
0:11:36 Yeah.
0:11:39 But it’s, you know, it’s more, obviously look, it’s more emotional and more personal
0:11:41 for you as the entrepreneur, of course, right?
0:11:45 Because you’ve, you know, this has been your life’s dream.
0:11:46 But you’re right.
0:11:47 So you shouldn’t feel sorry for the VCs, right?
0:11:51 And I certainly never, would never suggest that you should feel sorry for the VCs because
0:11:52 you’re right.
0:11:54 We expect that that kind of risk is what’s inherent to the business.
0:11:57 The more important question is really, do you still believe in the market?
0:12:01 Do you still want to pursue this or also do you feel like, hey, it was a good idea, but
0:12:05 just for a variety of reasons, didn’t materialize in the way we thought and the more rational
0:12:07 thing to do is go do something else?
0:12:08 Got it.
0:12:09 Great.
0:12:10 Let’s move on to scenario two.
0:12:11 Right.
0:12:14 So we’re getting an acquired and an attractive price, yay, it’s not quite an IPO, but it’s
0:12:15 not a wind-down.
0:12:16 Yeah.
0:12:17 It’s not a recap.
0:12:21 So what are things that are important to think about as we’re going through this process?
0:12:24 So maybe let’s start with sort of how, you know, how are we getting value?
0:12:27 Is it cash or private stock or public stock?
0:12:28 Yeah.
0:12:29 Yeah.
0:12:30 So there’s lots of things to think about, right?
0:12:32 One is you’re right, which is look, what’s the economic interest we’re getting here?
0:12:36 And, you know, sometimes, as you said, that could be you might be getting paid in cash,
0:12:38 sometimes you might get stock of the other acquirer.
0:12:42 And so depending on the scenario, right, you may want to do some homework if you’re getting
0:12:45 stock to understand what do I think about that stock, what do I think about the prospects
0:12:49 of that company, because your economic future is now going to be tied to the success of
0:12:51 that business as well.
0:12:54 I think the most important thing, though, to think about, obviously price is important,
0:12:56 so I don’t want to belittle that.
0:13:01 But the next most important thing to think about is what is the go-forward business going
0:13:02 to look like, right?
0:13:05 Are you being acquired because they really love your product and love your vision and
0:13:09 now you’re going to go be the general manager of some new unit in the company and have the
0:13:13 ability to affect the vision that you had hoped you would affect as a standalone company,
0:13:17 but now inside of a bigger, you know, better resource, better capitalized company?
0:13:18 That’s wonderful.
0:13:21 Obviously if you’re signed up to do that and your employees are signed up for that, or
0:13:25 are they saying, hey, you know what, we really like those engineers, but all these sales guys,
0:13:27 all these product guys, you know, we don’t need them.
0:13:31 And so like we’re going to, you know, incent the engineers to stick around, but quite frankly,
0:13:34 we want you to lay off everybody else before you kind of, you know, come over.
0:13:37 So those are, I think those are the most important things, which is kind of, you know, what is
0:13:38 going to happen to the employees?
0:13:40 What does the go-forward business look like?
0:13:44 And you know, again, I know we all get excited and we like to talk about the price because
0:13:48 of course it’s a lot more fun and sexy to talk about money, but it’s, I think, I think,
0:13:52 you know, managers and CEOs make their reputations quite frankly in these types of situations
0:13:55 where, you know, they are thinking first and foremost about kind of the prospects for their
0:14:01 employees and their team members, you know, kind of, you know, not secondary to the actual,
0:14:02 you know, value of the company, right?
0:14:03 So who’s getting a job?
0:14:04 Who’s not getting a job?
0:14:05 That’s right.
0:14:07 What are the terms of the stock options?
0:14:08 That’s exactly right.
0:14:10 What’s the financial incentive look like, right?
0:14:12 Are they going to give you new stock options in the new company or are they just going
0:14:15 to take the ones you had and move them over?
0:14:18 Sometimes people do what are called retention bonuses, right, where they say, hey, you know
0:14:22 what, like, for the first two or three years of the deal on each of the one-year anniversaries
0:14:25 of the deal, if you’re still here, we’re going to give you maybe a cash bonus or we’re going
0:14:27 to give you a stock bonus.
0:14:30 So all those things that kind of allow you to kind of get a better sense of what is that
0:14:34 go-forward structure going to look like and is that something that you as a CEO believe
0:14:39 you can sell to your employees to say, hey, look, you know, we gave it a shot, we did well,
0:14:42 and now here’s an opportunity for you to both enjoy financial reward as well as feel like
0:14:47 you’re enjoying the reward of being in a bigger company and having access to more resources.
0:14:52 I hear that sometimes in these cases and also with the recaps or the down rounds, there
0:14:54 are these things called management carve-outs.
0:14:55 Yes.
0:14:56 What are they?
0:14:57 Yes.
0:14:58 Should I be looking for one?
0:14:59 Is that a good thing, a bad thing?
0:15:01 Yeah, sometimes you’ll see, yeah, management carve-out, management buyout, MBO sometimes
0:15:02 is what they’re called.
0:15:07 Yeah, so the basic idea is typically sometimes what happens is, and it goes back a little
0:15:10 bit to this liquidation preference discussion we’re having, is the company might be doing
0:15:15 well, but there may be so much money invested in the company that even in a nice acquisition,
0:15:19 a lot of that money ends up going towards people like me, the VCs, as opposed to you
0:15:22 and the people who are going to actually go have to run this business now.
0:15:26 And so oftentimes what the VCs will do is say, “Hey look, we want to incent you to kind
0:15:30 of be motivated to try to find a buyer for this business if we all agree that that’s
0:15:32 the right outcome for the company.”
0:15:35 And so essentially the VCs will say, “Look, let’s carve out some of the money that might
0:15:40 have otherwise gone to the VCs or in some cases other common shareholders and make a
0:15:44 pool that effectively becomes a bonus pool for the executives and/or the people who are
0:15:46 responsible for the acquisition.”
0:15:49 And that’s a perfectly fair and reasonable thing to do.
0:15:52 We do it, you know, in many cases in that scenario.
0:15:56 And then in addition, on top of that, sometimes the acquire themselves will also put an additional
0:16:01 incentive pool in place and say, “Okay, as we talked about post the acquisition, maybe
0:16:05 on the first and second and third year anniversaries or something, we will also contribute to a
0:16:08 pool that will inset longer term retention for people.”
0:16:09 Got it.
0:16:16 So the management carve out pre the transaction is about, “Look, this is the way the waterfall
0:16:17 would have worked.”
0:16:18 That’s right.
0:16:20 And that’s the portion of it and basically giving it a choice.
0:16:21 That’s exactly right.
0:16:22 Yeah.
0:16:23 So think of the just time periods, right?
0:16:26 Which is kind of, you know, let’s reallocate some of the dollars to the existing shareholders,
0:16:29 you know, and then post and post, you know, acquisition as we talked about.
0:16:33 It’s just an incentive structure to kind of create a long-term, it’s like new options.
0:16:34 That’s exactly right.
0:16:35 Yeah.
0:16:36 Got it.
0:16:37 Good.
0:16:38 Well, let’s talk about the happy scenario.
0:16:39 We’re going public.
0:16:40 All right.
0:16:41 We don’t want to end on a depressing note.
0:16:42 Yeah, of course.
0:16:43 Exactly.
0:16:44 Here we go.
0:16:45 This is what Silicon Valley does, is create IPOs.
0:16:53 So maybe talk a little bit about picking an investment bank and what are some of the incentives
0:16:54 they have.
0:16:55 Yeah.
0:16:56 And they bring the bear.
0:16:58 And are they always aligned with my existing investors or can they be?
0:16:59 Yeah.
0:17:00 Yeah.
0:17:01 Sort of differently.
0:17:02 Yeah.
0:17:04 The investment banks, you know, you’ve heard of these names, Goldman Sachs, JP Morgan, Morgan
0:17:05 Stanley.
0:17:08 You know, their main job is to kind of, you know, help you prepare for the IPO and make
0:17:10 sure all the documentation of things ready.
0:17:13 And then to basically kind of shepherd you through the process by introducing you to
0:17:17 all the relevant institutional investors who will hopefully go on to kind of, you know,
0:17:19 be the long-term shareholders for your business.
0:17:21 And so, you know, they do that.
0:17:22 They’re professionals.
0:17:23 They do this all the time.
0:17:25 So, you know, you certainly generally don’t go through that process without an investment
0:17:26 banker.
0:17:31 Where the conflicts potentially come up is, you know, they’ve got kind of two clients,
0:17:36 right, which is you’re their client for this transaction, but, you know, a firm like Fidelity
0:17:42 or T-Row Price or BlackRock, who is a institutional investor who buys, shares all the time in lots
0:17:47 of IPOs and also trades, shares through the desks that the firms have.
0:17:48 They’re also a client of the bank, right?
0:17:49 And so, there’s this tension.
0:17:54 You see this in the pricing for when IPOs are priced, where your incentive as the entrepreneur
0:17:58 is I want the price to be as high as possible because that means I raise more money for
0:18:01 less dilution, right?
0:18:04 But I don’t want to be too high where obviously the stock trades, you know, kind of poorly
0:18:05 the next day.
0:18:08 And, you know, the financial investor has the opposite incentive, of course, which is
0:18:12 I’d like to buy it as cheap as possible so that I have the maximum amount of upside in
0:18:13 the stock.
0:18:16 And so, this is where I think sometimes, you know, sometimes fairly and sometimes unfairly
0:18:21 I think that bankers, you know, are accused of potentially kind of favoring the institutional
0:18:25 investors because they are the repeat players for the business at the expense sometimes of
0:18:26 the company.
0:18:30 Having done this once, you know, I was a banker, you know, earlier in my career and having
0:18:34 seen the process, I, you know, there’s always some, you know, I think true to that, but
0:18:38 I think more likely these are just more art than science, quite frankly, and it’s really
0:18:42 hard to know based on the demand signals that they get exactly where to price the stock.
0:18:46 And so, you know, sometimes they get it right, sometimes they don’t, I think it’s probably
0:18:49 a little bit unfair to assume that there’s all kind of nefarious, you know, activity
0:18:51 at work here.
0:18:53 And what do I want to get out of my board in this situation?
0:18:56 Are they basically sort of at this point not that important?
0:19:00 Yeah, the board really starts to shift as you go public from being kind of, you know,
0:19:03 more active and probably more, you know, in some cases, more valuable in the business
0:19:07 to more of, quite frankly, a governance and a legal board in that sense, right, which is
0:19:11 making sure that the process is good, making sure that you’re doing your audit committee
0:19:12 and all the other things.
0:19:16 So it’s not that boards are irrelevant as a public company, but I would say the nature
0:19:20 of where boards spend their time starts to shift towards more compliance related activities
0:19:24 versus kind of, you know, potentially forward business looking activities.
0:19:25 Great.
0:19:26 Fantastic.
0:19:28 Well, Scott, thank you for spending so much time demystifying this entire process.
0:19:32 I appreciate it and I hope this is helpful and I hope people will find, you know, they
0:19:35 can go buy the book and, you know, dig deeper into a lot of these topics.
0:19:39 Yes, there’s one big takeaway from having written the book and then been on the circuit
0:19:40 promoting it.
0:19:42 Like, what’s the big takeaway you would want entrepreneurs to take?
0:19:46 Yeah, look, I think the biggest thing, and we hit on a lot of this, is, you know, look,
0:19:49 understand, you know, who your partner is, as I mentioned, you know, somewhat facetiously,
0:19:51 but it’s true, you know, these are marriages, right?
0:19:55 You’re going to be with these companies for eight, 10, 12 years.
0:19:58 And so, you know, I don’t want to over strain the analogy, but the concept of dating and
0:20:02 understanding them really is relevant here, which is, you know, you wouldn’t get married
0:20:05 without really understanding your spouse and who they are and what makes them tick.
0:20:09 And I think in many respects, that is the equivalent of the dating process in the venture capital
0:20:13 game is know what their incentives are, know what they’re interested in, and, you know,
0:20:14 make sure you’re aligned.
0:20:15 Great.
0:20:16 All right, congratulations.
0:20:21 You’ve made it to the very end of part three of our three-part series with Scott Cooper.
0:20:25 Hopefully, you’ve got a really good sense of what goes on inside our heads when you meet
0:20:30 with us because you understand what our incentives are, how we work, and how we’re trying to help
0:20:34 you build a big, great, durable software business.
0:20:40 We hope that this encourages you to continue your entrepreneurial journey, that it demystifies
0:20:41 part of the process.
0:20:44 Look, we’re in this together.
0:20:47 Entrepreneurs and investors are here to change the world together.
0:20:49 And yeah, there’s going to be tension on the line.
0:20:51 There’s going to be times when we disagree.
0:20:56 But fundamentally, we need to be about being side by side entrepreneur and investor because
0:20:59 that’s the way that we get to change the world.
0:21:02 So, we encourage you on your entrepreneurial journey.
0:21:07 And if you’ve got a company that you’re building that seems like a good fit for the types of
0:21:10 investments we make, the house is open, and we’d love to meet.
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