# Foundation Models are the Fastest Depreciating Asset in History Lina Kahn is a Threat to American Capitalism, PE is Not Coming to Save the M&A Market & How China Could Overtake the US in the AI Race with Michael Eisenberg 20VC · Jun 19, 2024 · 57 min · 12,814 words Speakers: Michael Eisenberg, Harry Stebbings Source: https://www.996.fm/episodes/20vc--ep-4ed96fc3/ ## Cold open **Michael Eisenberg** [0:00]: Foundation Models are the fastest appreciating asset in history. Why invest in a business where the assets walk out at night? If I'm in Europe and I'm starting a company, I would get out. Lina Khan, would say it openly is, I think, a threat to American capitalism. Whether Biden or Trump gets elected, she needs to go. I don't buy that the IPO window is closed. The IPO window is wide open. The question is what's the price you're willing to take? ## Intro **Harry Stebbings** [0:19]: Welcome back to 20 VC with me, Harry Stebbings, and what a show we have for you today. Joining me is a dear friend, LP in 20 VC, and one of the best, Eisenberg. Now Michael is a co founder and general partner at Aleph, one of Israel's leading venture firms with a portfolio including the likes of Wix, Lemonade, Empathy, HoneyBook, and more. And before leaving Aleph, Michael was a general partner at the world renowned Benchmark. ## Sponsor read **Harry Stebbings** [0:42]: But before we dive in, I want to talk about Cooley, the global law firm built around startups and venture capital. Since forming the first venture fund in Silicon Valley, Cooley has formed more venture capital funds than any other law firm in the world with sixty plus years working with VCs. They help VCs form and manage funds, make investments, and handle the myriad issues that arise through a fund's lifetime. We use them at 20 VC and have loved working with their teams in The US, London, Asia over the last few years. 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And when you're ready to launch, go to squarespace.com/20vc and use the code 20 v c to save 10% off your first purchase of a website or domain. **Unknown** [3:01]: You have now arrived at your destination. ## Conversation **Harry Stebbings** [3:04]: Michael, I'm so excited. Dude, we've been friends for years, and this is the first time that we get to do this in person. So thank you for joining me. **Michael Eisenberg** [3:09]: Thank you for having me. The first time we get to do the podcast in person, but not the first time we meet. **Harry Stebbings** [3:13]: No. No. No. No. First time podcast in person. But, know, it's so funny. I'm sure you find this, actually. But I was saying the other day on Twitter that actually it makes such a difference doing in person shows. I totally agree. Really, for me, it's game changer. Thank you for having me. Not at all, but I wanna dive straight in because it seems like we're in this kind of bizarre AI bubble now. We have one side of the table that says, no, this is the most transformational technology that we've seen in twenty years. And we have another side of the table that says this is completely nuts. The valuations are crazy. The amount of cash that's being burned is crazy. This is peak. How do you just think about that from a starting point before we do a comparison? **Michael Eisenberg** [3:46]: I think one of the hardest things to do in the venture business is hold and in life, by way, is to hold two truths in your head at the same time. I think both of those things are true. This is the most transformational technology I think I will ever see in my lifetime. And at the same time, there is, like happens with many transformational technologies, it's an incredible gold rush that brings in a lot of people. Both these things are true. You know, when the Internet came on, and I was starting my venture career, this is in 1995, it was incredible. I mentioned to you before we came on air. The first deal I did was called Picture Vision, and it was an online photo sharing when there were still cameras with film and negatives. You had to actually scan the negatives in order to send the pictures. You upload them. It looked like paint drying. Then there was pets.com and pets.com.com and pets.com.com.com there's an incredible gold rush. But the Internet, eBay, Amazon, etcetera, turned out to be incredible companies. And I think the same will be true about AI, which is, by the way, a giant bucket that we need to kinda break apart. You know, right after the .com thing, people have forgotten, but there was like a fiber optic craze. Everyone's forgotten because it's called the .comcrash, but there was a fiber optic equipment and infrastructure craze. And we laid a ton of fiber optic cables, and it was a bubble. And the stocks went crazy, but we live off that infrastructure today. And that's what's made the current moment possible. Same thing happened, you know, Cisco bought, like, on the name of the company, for $6,000,000,000 in the fiber optic routing space in, I think, 2001, then that bulb bubble burst, and, you know, it took a bunch of years to kinda find our footing again. So, yes, AI is the most transformational technology I think I'll ever see in my lifetime. True. It's also true that there's a massive financial gold rush going on and what turns into a bubble. True. What's also true is those bubbles create the infrastructure that we need going forward, and that's also true. So a lot of people are gonna lose a lot of money during this, like, lot of money, And some foundational companies and technologies will be built. **Harry Stebbings** [5:33]: Who are those people who lose a lot of money? I'm not asking for the names of those people, but what sort of styles, what behaviors, what categories is the ones that will lead to that loss versus the value creation? **Michael Eisenberg** [5:42]: Let's start with a non obvious point, which is that there's a lot of LPs with a lot of exposure to a lot of the same kind of companies through multiple different funds. So they think they have portfolio diversification across a significant number of venture capital funds, but everybody's piled into the same trend, and in many cases, piled into the same company. Do you think LPs are aware of that? I don't know. I think the best ones probably are, and others probably aren't. There's a second kind of category, which I call logo chasing. This happens in every one of these cycles where I gotta be in the hot one. There could be five or six or seven hot ones, and I need to have that logo. Why? Because I wanna tell people I'm in OpenAI. I'm in Character AI. I'm in diff I'm in all these things. Then I think there's a third category of people who think you can replicate a model that exists in one geography and make it another geography, and it's gonna work to the same scale. And they pay up a high price, but it doesn't work in those geographies to the same scale. I think that's kind of a third category of people. And then I think it's important to say, you know, our mutual friend Gavin Baker of a trade. He says this line, which I completely agree with, that foundation models are the fastest appreciating asset in history. And I think that is absolutely true. I was talking to our founder of Seeking Alpha, which company, by the way, I did nineteen years ago on Benchmark, and I'm still on the board of. He made a super interesting observation that financials or stock markets, which is a minute to minute update business or or or set of data, doesn't do well with a lot of these training models. So you can predict like a lot of things and even write an analyst report, but it doesn't matter because the numbers are off because they changed two minutes ago. And I think how we deal with also the refreshing of information, which is getting to a higher velocity, specifically in areas like financial and stocks, but, you know, that's gonna be another area. So we **Harry Stebbings** [7:18]: actually just released a show today with, the founder of Perplexity. Yeah. And I said to him, you know, about the depreciating asset that is these models and and what that means for that, you know, aligned price. And he said, you don't get it. The price is actually aligned to the teams that are able to bring these models together. That is where the value in these companies are. That is why OpenAI is worth $90,000,000,000. It's not the model itself. It's the collection of specific people with specific skills that are able to bring them together that is worth the value. **Michael Eisenberg** [7:46]: Perplexity is my favorite app. It's on the home screen of my phone, and still, last I checked, indentured servitude was outlawed in The United It's like what Bill Gates' father said to him that everyone's forgotten why he invested in a business where the assets walk out at night. It's true that this is a unique talent business. But if you don't have a lasting kind of asset, and I do believe that software in that case of Microsoft was a lasting asset. The data is not. And the models, as we're starting to see, Andreas, was people are walking out the door, and some of them didn't work. Right? There was Mustafa's company that was picked apart for its bones and flesh by Microsoft, and a very, very elegant exit. Exit, super elegant. And I think we'll see more of those. But I don't buy that five, six, seven, eight, nine, ten of these are gonna work. It's just not true. Financially, it's not true. **Harry Stebbings** [8:30]: I think that you're gonna see all the large cloud providers, Google, Amazon, you name it, essentially say, hey. We need to acquire the foundation models. You'll go, here's the smaller ones who can be acquired. And then you're gonna see a battle for the crown between Anthropic and OpenAI. And so large cloud providers acquire kind of smaller providers, and you have a battle there because they're too big to be acquired. Do you agree with that summary? **Michael Eisenberg** [8:51]: I think about it a little differently, which is where do people who use AI start their day? It's a little bit like the Google question. Because I think as you kind of play this forward, you're gonna see a whole series of agents. Like, I'm not gonna go to the newyorktimes.com to read it. I'm gonna go to my AI screen and say, fetch me the articles that interest me from the New York Times today, and something that, you know, entertains me or is different or something I gotta know. I think where people start their day is what's important. And then there'll be kind of an underlying layer that gets accessed via APIs, which feels like Anthropic is is ahead on right now, which will service a lot of these companies. And a lot of this will be built into what you talked about, the hyperscaler. **Harry Stebbings** [9:29]: Do you think these are even businesses, though, for Venture? They are so cash consumptive consumptive that we also have irrational financial buyers and investors who are obviously large corporates who have different motives to venture investors. Do you think validation rules are even an asset class that venture investors can make money in? **Michael Eisenberg** [9:45]: Yes. I don't think we should think about anything in the venture or startup business as an asset class. There are asset classes out there like commercial real estate. You can make money in a class. The venture business is completely sui generis. It's not a class. There is a small number of people in this craft who make money, and there's a small number of startups. You know, the S and P 500 has kept going up on the back of four companies who are venture backed. And these are incredible generational companies that have pushed forward. The rest of them are kinda trailing behind. And we just need to focus on the question of, are all of these just incredible companies that will land their themselves into some index and some fortune some S and P 500 that works? I think the answer is no. And so this is not a class of companies' foundation models. There are one or two companies in there that will make their venture investors a lot of money, and the rest of them will cost their LPs and GPs a lot of money. It's just life. It's what it is in this business. **Harry Stebbings** [10:44]: I do just wanna break down then. When you look at AI, you said it like we put it in a bucket. How should we break down that bucket, and how do you break down that bucket when you think about investing in it today? **Michael Eisenberg** [10:52]: You know, we should back up one step, which is AI, AI, AI. The real moment is the LLM moment, which is AI has been around for a while. Like, in 2,013, we invested in a company called Windward, which is now traded in London, which does maritime AI. That's just since 2013. 2015, I invested in Lemonade, which was AI for insurance. We said bots, not brokers, before bots were fancy. What's happened in last two years or so is the emergence of the LLM, which is yet another leg up, a different way to kinda prosecute AI. AI itself is not new. When you think about that for a second, the bucket we look at, we invest only in Israel. We asked, can Israel do foundation models? We said no, and we've said that for a very long time. Why? Because a lot of this comes out of academia, comes out of a lot of these very large companies. We didn't think there was the talent density in Israel specifically for foundation models, because a lot of the Israeli technology comes out of the military and not academia. You know, why is France so good all of a sudden at AI? Because of academia. What we said was, what we wanna do is applied AI. And what we wanna do is kind of full stack stream **Harry Stebbings** [11:55]: through the system of AI. How do you think about industries which are ripe for AI to be fully efficient in terms of every process from start to finish or as much as possible versus those that are not actually and cannot be verticalized in that way? I don't know the answer to the question. That's the first time anyone said that on 20 VC. **Michael Eisenberg** [12:14]: VC's are a modest bunch. **Harry Stebbings** [12:16]: I don't know. **Michael Eisenberg** [12:17]: Well, let me tell you, Harry. So what's what's an area that I think there can be efficiencies in? Places where there's huge amount of paper processes, where people are overburdened, but it's compressible into a bunch of short workflows that you can kinda use AI to do right now. But I think kinda more broadly, there used to be nuclear countries and non nuclear countries. Now they're gonna be AI countries and non AI countries. And in the same way, there's gonna be AI companies and non AI companies. And I think what's gonna be shocking about this that's not like the Internet is it's going to be harder for legacy companies to catch up to AI companies, which is different from the Internet. You could kinda keep your retail business and still do ecommerce. You could kind of in the early days, in the nineties, we had this thing called the intranet, which is how Fortune 500 or Fortune 5,000 companies embrace the Internet into their companies. They use the Internet, they got better out of customer service, they digitized. AI is different. If your data is not set up right, you're just not gonna get there. And I, you know, I listened to Warren Buffett say about his insurance businesses that they thought they had 60 different databases. They found out I can't remember if the number was they had 600 or 6,000 different databases. They didn't talk to each other. It's good luck. When I heard that, you know, I said, we should hold our lemonade for a long time. **Harry Stebbings** [13:27]: Can I ask you, when you think about value occurring in the stack, I think what I worry about with a lot of them is customer service AI, SDR for sales teams AI? There is so many competitors in in very specific niches. **Michael Eisenberg** [13:41]: That's not a specific niche, by the way. Those are classic areas where software has done work. There was Siebel. There was salesforce.com. There was Zendesk. There was those are classic areas where people run to first. The more interesting places to invest, not to overuse Howard Marks' four quadrants of non consensus right, is to look for kinda out there things that it's hard for people to compete in because you have specific domain knowledge that other people don't have. **Harry Stebbings** [14:04]: So I really don't like competitive markets when I invest. I find that you have really challenging times in terms of product marketing. You have higher CACs. You have lower retention rates, higher churns. You're all competing on the same channels. Do you agree with me, or do you take the view that, no, competitive markets are competitive because they are where big markets are? **Michael Eisenberg** [14:22]: I'm in the Harry Stebbings camp. Thank god. **Harry Stebbings** [14:24]: We would edit it out if you weren't. **Michael Eisenberg** [14:28]: On the one hand, I never think about competition because I don't think that's what undoes companies. Bad execution undoes companies. And at the same token, I prefer actually market education. I prefer these completely unchartered spaces. A few examples, we just backed a AI to synthetic biology and chemistry rocket fuel company. And you go, rocket fuel? So the one that's very competitive. A lot people provide rocket fuel, but there's nobody who provides synthetically engineered rocket fuel from the bottom up. You know, that that's at one twelfth of the cost. And we may succeed. We may fail. I don't know. There's a lot of market education that will come to saying, hey. We're not gonna take oil and refine it. Instead, we're gonna build it from the bottom up. It's gonna take a lot of market education to do that, but I think that's okay. **Harry Stebbings** [15:08]: I much prefer that. How do you size that in portfolio? So it's like that is a inherently more risky play than a SaaS business or a fintech business, I would argue. How do you size that in a portfolio? **Michael Eisenberg** [15:18]: Oh, so I don't think it's a more risky play than a SaaS thing. I'll I'll argue that SaaS is way more risky. One, because of the competition and price erosion. We had a false sense of security from models. Like, I can pull the model forward. I gave this presentation at our annual meeting a few years ago, which I said, you know, we've hit peak SaaS. Anytime you can kinda stamp out MBAs from universities, can pull the model forward, that's not gonna be a venture business. When I hear people talking about some of the growth funds, oh, software is like a bond, you know, with a higher yield. Just know. That's not the venture business. I gave you cringe. Yeah. Hate **Harry Stebbings** [15:51]: speech bonds and like software is like a bond. Is that all? **Michael Eisenberg** [15:54]: Yeah. Tons of growth funds and even peeve on seeking that they can predict the future revenue. So for in some cases, can. It's not something you can't, doing that as a strategy, I think, is both inherently risky and non remunerative because it's really, really, really tough to be unique. When I first joined Benchmark in 2005, I had some time on my hands because didn't have a portfolio. So I I did this little piece of research to try to figure out why do companies get premium multiples. The obvious answer is high growth, but it wasn't always the case. And the thing I I discovered, I kind of called and interviewed at the time sell side analysts on Wall Street, who had a more prominent place in the world in those days. And in all my research, I came away with the following insight, which is companies get premium multiples when it's the only way to play a future trend in the public markets. If I think the world is going towards xAI, whatever it is, and I'm the first AI company, the only AI in a given market, I'm gonna get a premium multiple because it's the only way public investors can play that trend that they wanna play. This is NVIDIA. No? I think this is big time NVIDIA. Being unique actually has real value. Again, provided that you have the growth and, you know, the gross profits, etcetera, you can't ignore that stuff. But all things being equal, if I have multiple ways to play a market, you'll get a lower multiple. If I have a single way to play a market evolution, I'll get the premium multiple. **Harry Stebbings** [17:07]: I actually think about this a lot too, and I'm just, like, looking at you know, I've got the founder of Klaviyo on the show tonight, which is a $7,000,000,000 company, you know, doing 750,000,000 a year in revenue, growing 60% year on year. **Michael Eisenberg** [17:17]: It's quite remarkable because most public companies today in the software space are going 10 to 20%, which is part of my peak SaaS theory. **Harry Stebbings** [17:23]: It's absolutely remarkable, but, you know, the multiple on it is not great. I think the multiple is, like, a six x or a seven x. And then I look at an Atlassian, which is trading in a 12 x, and it's not an inherently better business. I'm just trying to figure out the difference between the two and to your point now, like, why one is premium and one is not. **Michael Eisenberg** [17:42]: But I would assume that if you wanna play kind of developer growth, which I is a real trend, that's why you wanna own Atlassian. There there are more developers in the world today. It'll be interesting to see what happens with AI. But I think in general, horizontal SaaS processes are going to be disrupted by AI. We just actually did a portfolio review where we looked at, like, the cat we categorized our investments. Of the last 17 investments we made at Aleph, one was a SaaS company. Sorry. Last 17 investments, all but **Harry Stebbings** [18:06]: one was a SaaS **Michael Eisenberg** [18:07]: company? No. Only one. Only one. SaaS company. Vertical or horizontal? Horizontal. Only one was a horizontal SaaS company. **Harry Stebbings** [18:15]: But it's when we look at a lot of the big companies that we see today, and I'm not naming any or denigrating quality or anything like that, but like your air tables, your notions of the world, these are all horizontal SaaS companies. Yeah. You know, bluntly, a lot of people say, well, AI actually kills vertical SaaS because it means that the cost of creating that same vertical SaaS, but customizing it for your organization is way easier. So vertical SaaS is the one that dies. **Michael Eisenberg** [18:35]: I heard a rumor. I don't know if it's true, but I've heard it from three people now, which either means I'm in an echo chamber, or it might be true is that Amazon has said, don't buy any more software. AI can take care of all the kind of business process needs we need in software. I think that's going to be a trend. What does that mean in AI? I think you'll see a lot of companies build their own software, or you have tools that create kind of unique business process software for a lot of these companies. I don't know if it's tomorrow or in five **Harry Stebbings** [19:00]: years, but I think there'll be more of that. I think we drastically overestimate the internal education or knowledge of company employees, and I didn't mean that disparagingly. But, you know, when we look at Accenture, they just posted 2,400,000,000 in generative AI revenues. You know, why is that? Because companies have no freaking idea how to integrate AI into their business units. What kind of business is Accenture? It's a consulting business. **Michael Eisenberg** [19:22]: Right. It's not a software business, consulting business. So you have unique knowledge. By the way, McKinsey is also doing extremely well today in these at risk fee businesses. Right? They're not taking a lot of their fees today in kinda consulting fees, but they're saying, we can improve your bottom line. We can improve your top line. And they go in there and they use a ton of software and a ton of data that they bought and created themselves. Right? The fastest growing business side of McKinsey is software. And they go in and say, I can bring, like, a lot of really, really smart people and a lot of technological capabilities and upgrade your business into the next era. That either does or doesn't include off the shelf software. I don't know. But I think there's a lot less of it going forward. Again, have to ask a very simple question. I'm more of a big picture guy than a than a micro guy, but why are so few of these companies growing better than 20% in the public markets? You can barely find any. I think the market for purchasing software is slowing down. **Harry Stebbings** [20:12]: A 100%. Well, so, I mean, there's a couple of different options. There's one, you know, you could have, like, a box, which is just like the saturation rate of the market is so high already. I mean, they already have pretty much everyone as their customers. They need to upsell a new product, which they've been too slow to do. Same with the Dropbox as well, which you would admit to. Or to your point, they're slowing down or not buying as much. **Michael Eisenberg** [20:32]: Whatever it is, I think, is slowing down. **Harry Stebbings** [20:34]: Yeah. **Michael Eisenberg** [20:35]: So is that a trend? I don't know. I think we've squeezed a lot of efficiency out of businesses using kind of basic software already. And so to get to another level of efficiency or revenue generation is a big deal. I think also corporate buyers and whatever business they're in, what they're interested in is not the software to squeeze the incremental dollar of efficiency out of my business. Where's my new revenue opportunity from this? And that's gonna require kind of a big leap, and you don't **Harry Stebbings** [20:58]: get that in traditional SaaS software. I guess the question that's interesting there is, like, are you able to actually extract value efficiently? Because if you are making millions and millions for your customers in that way, how do you actually extract the value that you are providing in an efficient way that's not like a a SaaS model where you only get 50 k and you're actually saving them 10,000,000? **Michael Eisenberg** [21:18]: Buyers today are willing to pay for value. It's harder for companies who are used to price per seat models or used to large enterprise to kind of adapt to this. There's been a bunch of pieces written, think Sarah Table wrote one, that people pay for work. I think that's a real thing. I think people will pay for improvements to their business, and I think the consultants like Accenture and McKinsey are at the leading edge of this. But I think it's gonna come into software very, very quickly. **Harry Stebbings** [21:42]: I remember speaking to our mutual friend, Marc Evans, before, and he said, Harry, the thing you just always have to remember with adoption cycles is we always overestimate in a year and underestimate intent. So just breathe. And I just always remember that, and it it really actually affects how I think about investing and, you know, adoption cycles. Do you think that's the case here, or do you actually think, no. No. No. We are seeing the fastest technological breakthroughs in development within LLMs every single week. It is a velocity that we haven't seen before. **Michael Eisenberg** [22:11]: I think both of those things are true again. **Harry Stebbings** [22:13]: Well, Wise Man once told me that it's about holding two opposing opinions. Exactly. I think **Michael Eisenberg** [22:17]: I think the adoption is is incredible, and the the pace that these things are learning at and and adapting at is incredible. I mean, you just by the way, you see the efficiency customer service a lot of these fintech companies, is Lemonade or Adyen or or or any of these people. It's it's it's stunning. And at the same time, when you kinda look across a broad economy, it's gonna take a lot longer than people think, and there'll be some disruptors and some people who get this, and regulation will have something to say about it. Not in way everyone's talking about, you know, like, Sam Altman trying to do regulatory lock in, but there's just a lot of business that are regulated, like farmers regulated and financial services are regulated, and, you know, it's hard for regulators to keep up with AI, and that's gonna be a big deal for how much it can be deployed. And **Harry Stebbings** [22:55]: so my biggest concern actually is that you have regulators who fear that it's getting away from them, place these very punitive policies or, you know, regulations on data on data access. And, actually, we have a real plateauing in the development of AI systems because of regulatory challenges. Super high **Michael Eisenberg** [23:11]: level. That's more likely to happen in Europe than in The US. I think that is gonna set Europe back in competitiveness more than it's already been set back in competitiveness over the last twenty years. If I'm in Europe and I'm starting a company, I would get out. Sorry. Oh, thanks, Michael. Welcome to London. I think I think The US can ill afford to slap too many shackles of regulation on AI companies because they're in competition with China. Yeah. And I think Israel won't do it. And so when you look at kind of the key markets for AI development where The US is first and China is second and Israel is third, I think those are likely to be less regulated than most, certainly than Europe. And so these those will be advantaged economies going forward. **Harry Stebbings** [23:54]: So we had Alex from Scale AI on the show the other day. Mhmm. And he said the thing that we're not talking about enough is that, you know, really, AI is the most demonstrable power that any country or nation can hold and leverage in a in a case of war. And we should have closed systems as a result. Open systems would mean that our our biggest enemies, Russia, China, are able to access the same levels of technology that we are. We have to close the systems, and we have to leverage AI to build AGI to win wars. Do you agree with that perspective? **Michael Eisenberg** [24:24]: I agree with it in part. I think it is true that AI is likely to be a key competitive advantage in wars, even significant. Look, we're living through a war in Israel right now. And so kinda closing the kill chain using AI is a thing. Not just in Israel, it's all over the world. And there's there's a big European company now. It's doing a few $100,000,000 of revenue that uses AI to close the kill chain for European armies. This is a real deal. I said before, if the twentieth century was about nuclear countries versus non nuclear countries, the twenty first century is AI countries versus non AI countries. Shouldn't We lose sight of the nuclear ones because there's these terrible people in Iran out there, you know, who are looking to acquire a nuclear weapon. By the way, not just threaten Israel, threaten Europe. That's the key thing people don't understand. They have missiles long enough to hit Israel, new missiles long enough to hit Europe. And thinking of them as an AI country is quite frightening actually, and they may be. They're very smart people there. What is naive about what Alex said is that you can keep it closed. I just think it's tough. You know, The US put a banner on NVIDIA chips going to China. I don't sense that it slowed China down in a meaningful way. I think there's enough semi degraded chips that you can string together or open source designs. You can figure this out. I think the world is far more open than we give it credit for today, so it's really, really, really tough to shut this down. I think we just have to be ever more competitive **Harry Stebbings** [25:42]: technologically to stay ahead of the bad guys. Someone said recently that China is two years behind The US on AI. Never heard that. Would you agree with that? I think they were ten years **Michael Eisenberg** [25:51]: ahead of The US on AI and psyops using TikTok. I think they were ten years ahead of The US in sophistication of how to manipulate the minds of young people using AI algorithms in TikTok. I would assume I generally assume of my competitor or my enemy that they're much smarter than I am. That's the only way to stay ahead. So even if by some bizarre notion you think that they're two years behind, you should think they're two years ahead. **Harry Stebbings** [26:17]: I slightly worry, honestly. We mentioned a little bit about kind of, know, geopolitics and global conflict. In the investing world, I feel a little bit uncomfortable when I have these, like, 30 to 35 year old MBAs, nothing against them, but who are, like, getting super jacked up about the margins of defense companies and how defense is, like, the best place to be right now. And I'm like, you are aware of the weight of your words. Yeah. I know that we have enemies and people have different rights or whatever whatever. But, like, this is still about closing kill chains, and you're, like, talking in your MBA language about margin optimization. It just feels a bit off. How do you feel about this new wave of excitement towards defense, also being aware of the weight of what that actually means to fund with billions of dollars more efficient killing? **Michael Eisenberg** [27:05]: As a father of four children who have served in Gaza and on the northern border, which Hezbollah has been burning nonstop in Israel, war is a real thing. It's a very serious thing. It's serious because people get killed. It's serious because it shows what you're fighting for, which is freedom and the values of the West. There are enemies out there. I've written publicly that I think this generation of Israeli kids is the defining generation. They've stood up and fought for what matters. I think there aren't enough people willing to stand up and fight. Now these kids, because they've been in battle, have a level of maturity than your average MBA student does not have, and they understand what it means to hold a weapon. Holding a weapon is a responsibility. Israel has a tiny homicide rate despite the fact that most of the population is armed, and many of them walk around with automatic machine guns on their backs. Like, you can go to a wedding. I was just at one. There are eight girls in wedding dresses of sorts, and they have machine guns slung on their back. But you learn to respect it. You learn to understand that this is a serious matter, and that if you're not careful and you're not responsible, people get killed. At the same time, I think that there was always an alliance between Silicon Valley and the defense industry, and patriotism to use you know, I'm from United States originally is is a real thing, and it should be in tech. You should be patriotic. I think patriotism is a great thing, a wonderful thing. People should be proud of their people and proud of their country and proud of their cultures. That's not the same thing as your margin is my opportunity. I think there will be a lot of money made in defense going forward. I think people way underestimate what it takes to sell defense, you know, to government buyers, the regulations, how hard it is to sell. If you've never sold defense technology and you just come out of an NBA, good luck. Palantir took twenty years to crack this code. Andrew will crack it much faster because of Palantir. Palmer Luck ate people kind of because he's dressed in a Hawaiian shirt. Don't take him seriously enough. Trey Stevens is there who was at Palantir. Trey Stevens is a founder's fund. That guy is incredible, and he knows more about selling defense technology than than everyone's forgotten. And that's just different. And so people will lose a lot of money chasing the new new thing, which today happens to be defense in addition **Harry Stebbings** [29:04]: to I I completely agree with you on on Palmer and Trey. But we're seeing this, like, move to hard tech. It's like people seem to agree with you, actually. SaaS is over proliferated, too competitive, whatever we wanna say on that. But, actually, we need to move to hard tech. We need to move to whether that's climate, but much more physical challenging style of investing. How do you see that, Michael? Because I think a load of software investors are gonna lose their shirts investing in a completely different type of company. So I'm unencumbered **Michael Eisenberg** [29:33]: by any knowledge of technology or or or software, and I've been no management experience, by the way. I've never managed anything, and I can't write a line of code. Last line of code, wrote in the seventh grade. This is the venture business. You're gonna lose a lot of money. You're gonna lose a lot of companies. The question is actually why does a founder wanna take your money if he comes from something else other than software? And I think that'll be interesting and very Darwinian in that some founders or the great founders are likely not taking SaaS investors' money because the SaaS playbook, as it's become called, doesn't apply to **Harry Stebbings** [30:03]: any of these harder technology. You said before when we were chatting before the recording that I could just exploit you for your wisdom and your more experienced. Let's put it that way. I you said age. My age. Yeah. But I I increased wisdom is what I'll go through. **Michael Eisenberg** [30:17]: No. On my podcast with Beezer, I said we should talk about ageism because she should probably get rid of me from the fun I'm told to be doing this business. **Harry Stebbings** [30:24]: Listen. I wanna I wanna start on my my big concern right now, and I sound like I'm the old one, but I'm wondering where where is liquidity gonna come from? Like, I'm looking at the different avenues, which is IPO, it's m and a, and then it's like PE. And I just wanna hear your wisdom and experience on this because I'm concerned. M and a seems totally shut. Lina Khan seems like, you know, the ultimate challenge Socialist. To M and A. How do you see M and A, Marcus? Is it completely shut? Am I right to be worried? **Michael Eisenberg** [30:51]: Lina Khan, I would say, openly is, I think, a threat to American capitalism. Whether Biden or Trump gets elected, she needs to go because we need to be able to have m and a for the big companies. And as best I can tell, she hasn't redefined what antitrust is, and so I think she's taken a lot of liberties that are just bad for capitalism globally. Where's liquidity coming from? So I have bad news for you. 98% of people don't get liquid. This is a very difficult environment, number one. But number two, this actually is a hard business. I know there's like an explosion of venture capitalists. **Harry Stebbings** [31:21]: It's a hard business. Let let's just go back a Stebb. You you said that most people don't get liquid. One way to get liquid ahead of time is secondaries or to sell parts of positions. **Michael Eisenberg** [31:31]: If there are buyers. **Harry Stebbings** [31:32]: If there are buyers. **Michael Eisenberg** [31:33]: You know, one of these have to scare so let's just back up. A tiny number of companies get sold or go public. I don't buy that the IPO window is closed. The IPO window is wide open. The question is what's the price you're willing to take? You can go public. Reddit went public. It's done very well in the public markets. It developed delivered a stellar first quarter after going public. It's doing very well. It's like a 7 or $8,000,000,000 company right now. You don't need to have a 500,000,000 or $1,000,000,000 of revenue to go public. We took Lemonade public with 60,000,000 of revenue. You should go public early, and the markets are open. Take the price the public markets will give you and build your company in the public markets. You will be better off for it. I am a huge believer in that. **Harry Stebbings** [32:09]: Would you really say that to to your companies today? Here are 200,000,000 now, and they're going, you know what? Actually, public markets will probably give us two x premium in eighteen months' time. **Michael Eisenberg** [32:19]: I don't know if they'll give you two x premium in eighteen months' time, but go. And by the way, if if the bankers are playing this game, want you to have $500,000,000 instead of find a second tier banker. They're just as good. You don't need to raise $500,000,000 and go public. Go get take your company public. Let's say 100,000,000 of revenue. Take your company public at 600,000,000, raise $80,000,000, build an efficient business, and go. **Harry Stebbings** [32:39]: I think people forget that your Shopify went public at 700,000,000. Yeah. Some of the best businesses in the world. **Michael Eisenberg** [32:45]: No. Amazon, the best business in the world went public. Everyone's forgotten that Facebook went down 50% after their IPO. It's one of the biggest companies in the world today. This is okay. And everyone's, like, expecting, like, PE to turn up and buy these companies. I got bad news. Number one, they're gonna buy a tiny percentage of companies. Number two, interest rates are way up. They can't borrow anymore. Number three, they're incredibly price sensitive. Most companies waiting for PE to come save, and I hear that there's, like, this whole meme right now that PE is gonna be the buyers of the future. Well, **Harry Stebbings** [33:09]: listen. We have Marc Cursor on the show, and he said, listen. PE will be the primary buyers for the next generation of software companies. I just wanna touch on a couple of different components that you mentioned that you said about the cost of capital. How does that impact how they think about buying? **Michael Eisenberg** [33:21]: It drives prices down. Increased cost of capital drives multiples down. Just what it does. When interest rates go up, multiples go down. It's the laws of physics. **Unknown** [33:28]: Mhmm. **Michael Eisenberg** [33:28]: They'll pay a lower multiple because their cost of capital is higher. You know, people are just not gonna get liquid the way they think they are. And the top part of the cap this happened, by the way, in o two thousand o one, o two, o three, o four. The top part of the cap table got us lick pref back. People forgotten the lick prefs matter, and they got their lick pref back. In some cases, there used to be an 8% coupon on these things. Many cases, now there isn't. They took an 8% coupon, and then what was left went to the rest of the cap table. **Harry Stebbings** [33:52]: Are you concerned we're gonna see many more plural sites? Plural site obviously happened last week, which Vista wrote down from three and a half billion to zero because, you know, the cost concerned. I'm certain. It's it's **Michael Eisenberg** [34:01]: happening. We just don't know. By the way, in new venture portfolios, there's a lot of this also. And I I also wonder a lot about how many SaaS companies get undermined by AI right now, and there's a lot of SaaS portfolios sitting at hefty prices in people's portfolios, hefty values in people's portfolios that aren't worth that anymore. **Harry Stebbings** [34:16]: You you're certain. So that means that there's a ton of companies that PE have bought while the cost of that debt is now way too high, and they are in trouble. Does that mean we have a generation of, as I think Jason Lampkin puts it, PE funds, and do they just get let off the hook for it? **Michael Eisenberg** [34:30]: I have no idea. Whether they get let off the hook for it, I don't know if it's a ton of companies, but it's not one. It's not just Pluralsight. There's a lot more like that out there. There's a lot more like that out there. And we also think about the following. If you were a PE fund that just took a significant write down on one or two big software purchases, you're have appetite to buy something? I don't think so. There's a small number of really great businesses that are built in Venture. It's like 10 a year. And some other ones get smaller liquidity events, which is great. We should have that. But if you can get paid 10 to 20 times on your medium companies or even five to seven times on your medium companies, it's not a bad outcome. You know, we talk I don't wanna mention company name. We before on the show. We just took a 100% of our equity off the table in a company. I think we did 11 x or so. We have a different view of the company than than management, some of the other investors do. That's fine. It's totally fine. We're very happy. We'll be super happy if the founder makes it into a 30 x, and we're wrong. We'll be so happy for him. But liquidity is a thing. And by the way, the last thing I'll just say about the secondary markets, we've discovered you know, you get these emails like you probably get them also. Two a day that says, I got a buyer in the market for so and so company. So over the last three or four weeks, we decided to do a little experiment. We reach out to them now. We used to ignore them. But now it's interesting because, like, you discover there are actual buyers there. There aren't. Okay? There are not actual buyers there. It's, hey. Okay. We can hold this price if you get us due diligence from chilling the company. These are just people looking for data. I think most of those buyers aren't out there either. Very **Harry Stebbings** [35:53]: rarely do you hear the advice to sell all of your position. The kind of canonical advice is, well, I'll sell 33% at a time in increments. Selling all of a position is respectfully a strange take. I would never sell all of the position, Michael. I would sell 80% maybe even when I didn't believe, but I would still wanna ride the upside on 20% in case I was wrong. How did you think about that 100%? **Michael Eisenberg** [36:15]: You asked me before we got on the show what was the biggest mistake I made during ZERP. One of them was not selling a 100% of one or two positions when the prices were high. I'm actually in the opposite camp generally, which is ride your winners. That's the general camp I'm in. I think the question you'd ask yourself if you're a venture capitalist and sit on the board is, do I have an information advantage or a unique insight that somebody else does not have? If I think I have that, I should act on it. And if I should act on it, I should act on it with conviction. It's like when I go into companies, I don't wanna have position. If I have conviction, I'm gonna take a whole position. This business is out an outlier business. It's just the nature of it. So take the whole position, and if you think you've hit a good return, take the money off the table. I don't think you average into positions in the venture capital business. Can you just unpack that for me? You do it right in the public market, so you kinda average into a position and then average out of a position. I I don't think this is like this. This is a binary industry. Very, very binary investments, and I'm I'm in that binary camp. Do you do pro rata? Rarely. Why? I kinda drank the Benchmark Kool Aid. We don't get the same kind of credit the Benchmark gets because Aleph invested, so someone's gonna invest. We generally have to do one more round, but we try to kinda peel back on it. We think we we have to buy our ownership in the first round. Our unique insight is in c and an a. Buy it. Write the check. Buy it. We wrote this giant check to a company called Dream Security, which is AI infrastructure for protecting critical assets in countries. It was the biggest check we wrote. Crazy competitive deal. Incredible team. When you say the biggest check you wrote, it's like proportion of fund, like 10%? No. Initial check, six and a half, 7% of the fund. They're not gonna need to raise any more money, it looks like, after the a. They can, but they probably don't need to. If I didn't get my ownership in the a by writing this big check, I I I wouldn't have a position. And I I still **Harry Stebbings** [38:01]: feel like I'm sub low. I'd love to have more. I think one of the biggest misnomers is, hey. We'll place a load of bets, and then we'll be able to concentrate capital into our winners. Whenever I hear this, I'm like, are you high? Like, when does that ever my best performing companies, generally speaking, like 99% of the time, have Sequoia and all the bets all over them. I'm not like, oh, sure. I'd love to go travel pro rata. I was talking to a venture capitalist, **Michael Eisenberg** [38:23]: Jesse Bearudi at AI Ventures. And I like him. He's a too. He made a very smart observation. He said that we do pro rata into our middling companies. Super interesting. He said the good ones just kind of get they become runaways, you kind of get more capital, and the bad ones you want put money into. But sometimes, one out of some number of these kind of middling companies where most people don't see what's going on there at the beginning, but I do. You give them a little extra capital, or you kind of double down once or twice, and you end up with a winner out of this kind of middle part of the portfolio. It's a giant winner. I thought that was super insightful. **Harry Stebbings** [38:54]: I look at my my my fund one, which is a tiny 8,000,000 fund, and actually, best value drivers today were all in the meh, and the worst performing companies were all in the rocket ship category. They're the ones that went to zero quickest. Those are the ones you should have sold a 100% of as they were on their way up. I should have done. No. I know. Absolutely, I should have done. But actually, I think there was a big difference between consumer and enterprise there. Consumer sell. I mean, what I found was, like, it's much more transient of whether it works or not. Enterprise, you've got a lot more predictability. Consumer is ephemeral. **Michael Eisenberg** [39:26]: Sometimes work, sometimes doesn't, sometimes goes out of style. I think of consumers fast fashion in many cases unless you build a moat. I think there are rare consumer companies who who build a moat. You know, after all the AI conversations, some of them target consumers, it's really hard to tell the difference visibly between OpenAI and Anthropic and many one of a number of models. So you kinda ask yourself, what's the moat? So I'll tell you the moat's the data. And over time, some people will note that it's significantly better. It's like Elon Musk is talking about xAI is gonna be the place of truth. I hope he's right. I'm not sure how I'll know. That's kind of a question. How do you build the moat on those businesses? It's not clear to me right now. Google built a moat because they were by far the fastest, and then they had this kind of reinforcing ad business that added onto it. But who gets to build a moat in these businesses? **Harry Stebbings** [40:09]: It's not obvious to me. We spoke about the three different exit sources being M and A, IPO, PE. When you're making investments, do you think about kind of value creation and pathway to exit? Nope. Nope. Nothing at all. So we don't outcome scenario plan of, okay, If HoneyBook does x, y, and zed, then we have this outcome. We don't think **Michael Eisenberg** [40:28]: Nope. For a variety of reasons. Number one, because companies pivot. Number two, because you convince yourself of all sorts of stupid things by kinda dreaming about the exit. And number three, it never works out like that, so why bother? Do you think we're gonna see a generation of funds die, Michael? Of course. Bruce don't leave you from measure. Used to say that Venture Capital is the highest barrier to exit of any business out there. No one wants to leave. You know, the management fees kinda keep coming. I I think that's true. So it takes longer than people think, but, yes, of course. And which segment is that for? You know, the whole generation of people go up during zerp. You know, now reality is biting. That's not a bad thing, by the way. It's like startups going out of business. You recycle the talent into something better. **Harry Stebbings** [41:02]: Who is that segment? Is that kind of old ailing funds that haven't innovated in the Valley style, or is it the micro funds where it was like, you know, operators who had $5,000,000 funds on the side and were doing it part time because it was kinda cool? **Michael Eisenberg** [41:17]: I think the first style of funds that goes out of businesses is funds where there's three, four, five partners, and only one of them is good. That And person gets tired of holding everybody on their shoulders, and they leave and set their own thing up, and everyone knows. I think that's one. There's just some people who won't deliver capital back to LPs, and they'll be gone, and some will be big, and some **Harry Stebbings** [41:33]: will be small, and it's fine. I've been shocked by how much focus LPs still place on TVPI. I speak to a lot of LPs, and I thought given the last few years, they would reduce the importance of TVPI and just focus on t No. That's still like, oh, wow. I'm like, really? You still give a shit about that? **Michael Eisenberg** [41:49]: Well, no. They should actually. You know, I'd had this tweet and back and forth with Ibrahim Ajami of Mubadala. The DPI is what matters. And that's true. If you didn't take money off the table during, you know, the ZERP era, there's something wrong. Let's just be clear about that. But TVP actually matters because I had this conversation with one of our LPs at our at our annual meeting, which is if the thing is compounding at a higher rate and keeps going, that's not a bad thing. I can kind of think through if I kinda wait another two or three years that this will be worth a significantly larger amount of money. The question is one level beneath TVPI, which is how real is it and how sustainable is it? People in the venture business, and this goes back to the previous conversation about competitive markets versus noncompetitive markets, underestimate moats on businesses, the value of moats and competitive advantage on business. There is insufficient time spent on how do I deepen competitive advantage in this business. To take a financial rendering of this, multiple is my expectation for future cash flows. So the question of future cash flows is not just how much cash it is per year, but how many years this goes on for. How many years this goes on for is a function of competitive advantage. So you need to think through how deep my competitive advantages is in a given category. There's a lot of talk about Google right now. Does AI undermine their ad model? Yes, but that competitive advantage is actually really deep, think, for the time being. How long that lasts though is really the question, and that depends on consumer behavior, which is fickle. Right? How much of it moves to a different modality other than the search? And so the question that I think needs to be asked in TVPI land is these underlying portfolio companies, how deep is their competitive advantage? Sustainable is the growth? And I think when you kinda dig that level deeper, you'll find that a small number of companies matter to TVPI, and and that matters. **Harry Stebbings** [43:34]: You said how sustainable is the growth there? We're seeing this kind of transition from a lot of companies, from hyperscalers or hypergrowth to actually just quite slow growth and maybe sustainable growth, but just low growth companies that need to just grind it out. What happens in that world? **Michael Eisenberg** [43:50]: You know, we talked about, like, 100 growth like it was easy for a decade. So but it's not. 40% growth is great business. So let's just say that first of all. Second of if you have it. Very you have it. 10 to 15 to 20% growth is tricky. That's a tricky middle place if you're a venture capitalist because it's not clear how you get out of it. These would have been great businesses if they didn't take venture capital. If they took venture capital and, you know, stacked a large preference on the cap table, it's challenging. What happens to them? Some of them will grind it out for a very long time until some sort of exit market opens up as long as they're in control of their own destiny and they're profitable. That's not a terrible way to think about this. Others will be traded in large secondary trades and portfolios, and some of them, if they're good enough, will buy back stock. I just had a company actually that bought back stock from early investors. I I didn't sell because I thought the price was too low, but I have a company that generates more than enough cash. We bought back stock. So I reduced dilution in this company, which already wasn't much. It's a profitable business for a while. We'll see what happens to the asset over time. You know, we we will make, by the way, a significant multiple on our capital whenever it comes out. It's not growing. It's probably the CAGR is probably 35%. You know, it's had a slower growth year, but it generates a lot of cash. We'll see what happens. By way, one of my bigger exits in in my career, I we distributed hundreds of millions of dollars in dividends. It's a strain. It doesn't **Harry Stebbings** [45:03]: happen, but it's never happened to me again. Final one, if you were to analyze yourself as an investor, where do you most need to improve? That's a great question. **Michael Eisenberg** [45:12]: Two areas. It has been said about me multiple times that I am very, very direct and therefore an acquired taste. That's that should be the name of the podcast, an acquired taste. And it takes time for entrepreneurs to understand that I'm just I'm asking the hard questions and being very direct because this is important and urgent, and they need to get going about this. And there's no sense of beating around the bush. And so probably I should find a better way to deliver messages. **Harry Stebbings** [45:39]: Do you care? And what I mean by that is No. I don't. It was because truth be told, what I find is the Bass founders, take it or not, they appreciate the directness and move on. You know, one of the **Michael Eisenberg** [45:48]: things I found about myself as I'm getting older, I'm getting cranky about board meetings. There's a lot of pontificating at board meetings. I've come to the conclusion that with good preparation, most board meetings can be finished in forty five minutes. There's real governance that needs to go on there. There's core strategic issues that you need to pound on, but most of them can be finished in forty five minutes. Some need two hours. None need three to four hours. It's just a lot of kinda endless sharing of opinions. **Harry Stebbings** [46:12]: For boards that are done in forty five minutes, what is the prep that is done? Is it a Google doc with three core questions that people think about ahead of time? It's generally a letter and **Michael Eisenberg** [46:20]: not a presentation. Mhmm. It's rich in data, but it upfront identifies these are my core one, two, or three strategic issues that I gotta get board input on. You prep for it. You do calls beforehand, and then the conversation is super concentrated. Because you're attacking the question, I find that people die and kind of don't expand. All these boards, they show endless amounts of numbers, and people, you know, wanted to get in the margins, and they show a product plan. Everyone wants to be the product manager on the board. It's like, just no. I'm getting cranky about this, and I probably should moderate my behavior, so there's another area for improvement. Do you find Zoom board meetings are effective as in person? Not at all. I don't I don't think I don't like Zoom at all. I hate Zoom. This is better? Way better. You know, I didn't invest over Zoom during the pandemic. I just I met people out of a farm. I met people, and I do everything in person that I can. It's harder now because you have board members who've invested from all over the world. It's just hard to get everyone in one place. But I think in person board meetings matter a ton. And by the way, I'll spend two hours in person because I like people, love the people, and I think it's harder for people to pontificate in person. By the way, the other area I gotta get better at by a long shot. You you can get really absorbed into these companies. Sure. And sometimes I need to kinda pull myself out at a high level because I think, you know, you could just be too intense around these companies. And my job is actually to sit at 10,000 feet. Why is that bad? Because I think you can rattle entrepreneurs, particularly first timers. Second timers don't get rattled. Well, Tom Barr didn't get rattled by anything. Ron Gordon didn't get rattled by anything. Do prefer a second time founders? No. No. I love the whole first time thing. I have this company that's building the monetization layer for LLMs now in a very unique way using blockchain. This is a company that started during the pandemic. We're about four kilometers from each other, and when there was shutdown, I had a pass to get around Israel because I chaired the largest volunteer organization in Israel. And I would pick him up and bring him to my house, and we'd sit face to face. And slowly, we built this company. It hasn't been launched yet, but they have a couple 100 customers already. He's an incredible entrepreneur. But he was a first timer, and I think it took us time to find out find our rhythm. And we would spend a couple hours just pounding on this idea month after month after month during the pandemic. I think he probably would've gotten started earlier if I hadn't been so aggressive. Final **Harry Stebbings** [48:26]: one for a quick fire. Do you prefer founders who've got experience in the market or who are net new naive? Oh, net new naive. Net new naive. The **Michael Eisenberg** [48:33]: fact that Shay and Daniel of Lemonade didn't know anything about insurance, like, helped a ton. When we first invested in Lemonade, I called a bunch of fintech investors and said, who's the insurance guy? Said, nobody. That's the beauty. So none of them would invest until Sequoia turned up. These guys have broken every rule, every rule of how you build an insurance company for the better because they knew nothing about it. By the way, everyone told us, don't go to New York first. You'll never get a license there. That's the hardest DFS. And we said, go to New York. Actually, I didn't say it. Daniel said, let's go to New York. It was against every insurance expert's advice. I generally have a healthy skepticism for expertise. **Harry Stebbings** [49:06]: Listen. I wanna move into a quick first. I say a short statement. What have you changed your mind on most in the last twelve months, Michael? **Michael Eisenberg** [49:12]: Younger people. I was concerned about younger people being too absorbed in TikTok and Instagram and watching what happened in Israel over the last twelve months and how the younger people went out to fight for what mattered, fight for their brothers and sisters, and fight for women who are raped. Younger people, particularly in Israel, but maybe elsewhere, are gonna surprise us, and this is gonna be an incredible generation who's gonna be forced to stand up and fight because, you know, Israel's one place, but there's Ukraine, and there's more of this going on around the world right now. We saw what happened in Germany last I think younger people are gonna surprise us. What's the biggest misconception of the Israeli startup ecosystem? That's a good question. I'll tell you this, by the way. We've raised an incredible amount of foreign money into our company since October 7, an insane amount of money. It's wide open for business right now. Investors are on the ground every day. That's right now. But the biggest misconception is people think Israelis know how to scale things. And for the most part, when you grow up in a small country, it's harder to think of scale. And so when you're a foreign investor, you need to help Israelis think in big scale. Which competitor do you most respect, and why them? I said before, I respect all competitors, and I think they're two x better than I am. I have to work harder than anyone. If I I said this to Beezer. If I'm not the hardest working venture capitalist out there, shame on me, and I'm gonna get killed. These guys are all two x better than I am. That was an email with from this morning. That guy is so good. I think, how do I become a moon? I I just think they're all better than I am and, you know, more naturally suited for this business, so I gotta work harder. What's the biggest **Harry Stebbings** [50:33]: piece of BS you hear most often? Board members giving product advice. What's the biggest sin of **Michael Eisenberg** [50:38]: the zero interest rate environment? Probably not having sold enough of my portfolio. But in general, you know, when things get too easy if something is not hard, it doesn't matter. This is supposed to be hard, and life is supposed to be challenging. And when we succeed in challenging things, whether it's relationships or hardships or defending freedom or building a startup company, that's hard to build like, and or, you know, or, which is the synthetic chemistry company. Satisfied afterwards. This is meant to be challenging. Life is not supposed to be necessarily easy, and you gotta keep working at it and keep working at it. The protestant work ethic is a real deal. It matters, and you gotta keep this Hard work matters. The other thing I think, by the way look. I've never invested in nickel in China. I think China was a zerp phenomenon also, China investing. Why? People look for yield in other places and ignored the risk, what I call stroke of pen risk. I'm not the only guy who calls it that, where, you know, the government just take away your assets. And so but because people are chasing yield, they just kinda, you **Harry Stebbings** [51:35]: know, send it over. That's like a mic drop at the end. Tell me, my friend, where do you wanna be in ten years? Where is Aleph in ten years' time? You now do the content platform as well. Yeah. And then your partner does the data platform. **Michael Eisenberg** [51:47]: Yeah. **Harry Stebbings** [51:47]: What do you want for Aleph in ten years? **Michael Eisenberg** [51:49]: Well, I don't know. I hope they'll keep me around. Like, I'm old for this business at 53. I don't ignore the data which says as you get older in this business, you don't do as well. **Harry Stebbings** [51:57]: And so I hope they'll keep me around. Okay. You've got sourcing, selecting, servicing. Yeah. Three components of Venture, just say. Where do you think you're best and worst? So Keith Rabois on the show said he's worst at sourcing, and as time, relevance, and that sourcing is his biggest challenge. How do you think about **Michael Eisenberg** [52:12]: sourcing? I've stopped sourcing. I get all my deals right now through referrals of thirty years of being in this business. And so I actually don't do proactive sourcing anymore. I don't if I was good at it or bad at it, but I don't do it anymore. I need to do two or three deals a year. There's enough that come my way that I think are super interesting. I don't think I provide enough kind of management help to companies because I don't know how to manage my way out of a paper bag. I think what I do better than average is networking. I have large global network, and I think that is valuable. I think if you have good chutzpah and are not bashful and you know enough people, you can reach anyone in the world, and I think that's valuable. I had to get the CEO of a Fortune 10 company. In the last forty eight hours, it took two ops. **Harry Stebbings** [52:49]: Final one. What question do you not get asked that you think you should get asked more? I get asked the the **Michael Eisenberg** [52:56]: first level question of how do you balance your time? And I told I think there's no such thing as work life balance. You've heard me say it a 100 times. I get asked that one too. The second level question is how do other people think about the way you balance your time? That's the better question to ask. If I'm self reflective, there are many people who I love and respect who probably think I don't give them enough time and that I don't have enough time for the things I should be having time for, whether it's my day job as a venture capitalist, community work, family, etcetera. Think I as I say in Hebrew after a 120, which is when you go to the pearly gates, I'll probably have to give judgment for not having given people who wanted **Harry Stebbings** [53:33]: that time to time. Michael, I I always love our chats. I'm so glad we could do this in person. So thank you so much for joining me. **Michael Eisenberg** [53:39]: Harry, it's so good to see you. Keep doing what you're doing. You're providing just an incredible service, and thank you for taking me as an LP in your fund. **Harry Stebbings** [53:46]: God, I so enjoyed doing that show with Michael. He really has been an incredible supporter, friend, mentor. I'm so grateful to him for being an LP in the fund. I love doing that show. If you wanna watch the full episode, you can, of course, on YouTube by searching for 20. That's two zero VC. But before we leave you today, ## Sponsor read **Harry Stebbings** [54:03]: I want to talk about Cooley, the global law firm built around startups and venture capital. Since forming the first venture fund in Silicon Valley, Cooley has formed more venture capital funds than any other law firm in the world with sixty plus years working with VCs. 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