The transcript from this week’s, MiB: Joe Lonsdale of 8VC, Palantir, Adapar & Opto, is below.
You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.
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This is Masters in business with Barry Riol on Bloomberg Radio
00:00:16 [Speaker Changed] This week on the podcast. Wow, this is really so exciting to share with you. We hosted a conference out in Huntington Beach, California. My firm Ri Holsworth Management, along with Advisor Circle called Future Proof. It’s a giant event on the beach in Huntington Beach, California. Part of the event is a series of panels and interviews and fireside chats. I got to sit down with Palantir co-founder Joe Lonsdale. He, he’s really a fascinating guy. He’s been a serial entrepreneur managing money for Peter Thiel, interning initially at, of All places PayPal, which he then just one successful company after another. Just a fascinating guy. So we spoke for about 30, 35 minutes. I thought the conversation was fascinating. We talked not only about Palantir and the defense industry and how the world of warfare is changing. Lonsdale is a serial entrepreneur who has had success after success after success and is still a relatively young guy. And there’s more fascinating things to come from him. Here it is my discussion with Palantir’s Joe Lonsdale in Huntington Beach at Futureproof 2024. So I just highlighted a handful of things about your career, but I really want to delve into the specifics. You’re at Stanford studying computer science, and somehow you land a job as an intern at PayPal. Tell us a little bit about that.
00:01:58 [Speaker Changed] Well, this was, this was a pretty cool place. So Elon Musk with his smartest friends started the company back then in the nineties called X and Peter Thiel and his smartest friends started Infinity and they were two of eight competitors and they decided rather destroy each other to merge. It was actually interesting times, like people were working so hard that some of the people working for Peter at one point had not gotten enough sleep and were suggesting ways to bomb the office of, of the other guys. They realized this is barely bad, we should probably stop this. And, and so the companies merged a foreign PayPal and a lot of the most talented people from Stanford Computer Science went there at that time. It was a amazing place. Elon kept trying to rename PayPal back to x.com, which they didn’t let him do. So I guess he eventually got his way 20 years later with, with Twitter. But no, it, it, it was a, it was a really fun place to learn and a lot of my friends there, these guys were like 10 or 15 years older than me. A lot of people who were working there ended up going on to start YouTube and, and Yelp and, you know, LinkedIn and all sorts of great companies. So it was, it is a fun place to learn. Right.
00:02:56 [Speaker Changed] That that was quite a brain trust over there. Yeah. Your next role is at Peter Teal’s hedge fund, Clarion Capital. You describe that as one of the top intellectual think tanks in the world. Tell us a little bit about your experience working with Teal at Clarion Capital.
00:03:13 [Speaker Changed] Yeah, sure. That was a global macro hedge fund, and so that’s a really fun part of finance where you just get to try to figure out at a high level what’s going on in the world and lots of arguments about politics and economics and history and financial markets. And you try to, on one hand it’s quantitative. You’re modeling different things like, you know, the Australian currency versus the price of commodities versus, you know, what’s going on in, in in China. And on the other hand, you’re kind of just, just discussing what’s gonna happen in the next five or 10 years. And we, we, you know, we, we had a really good 10 year run, but while I was there, I tried to hire a bunch of my smartest friends to help us and they thought finance was boring. And we started a project based on how PayPal was going after all the bad guys. ’cause you know, the Chinese and Russian mafia had been stealing our money at PayPal and we ended up building these investigative tools and, and, and creating Palantir out of there. So that’s what, that’s what I ended up doing instead. So,
00:04:02 [Speaker Changed] So I just wanna put a little flesh on the bones. You said you had a pretty good run. You ended up with a very nice 10 year track record, but first two years out of the gate, something like plus 30% and plus 50%. Am I getting those numbers about right?
00:04:17 [Speaker Changed] Yeah, I mean, if you want to know, this is macro finance, right? So it’s a fun area. Like an example of one of the best trades we’ve figured out that worked for a few years is Greenspan had cut interest rates and there is more money than ever before going into the GSEs, Fannie Mae and Freddie Mac. And so you had this massive amount of money there and because these guys were so big, when they would hedge their mortgage portfolios, it would move all the global fixed income. And so, so, so what happened was, you remember like in late 2002, you had like five, 6% interest rates and, and, and it rates started to fall. And so people started refinancing their homes. And when people start refinancing their homes, the duration of mortgages goes down. So in order to balance the durations, Fannie Mae and Freddie Mac had to buy huge amounts of 10 year notes.
00:05:01 But what they had to buy so much that it actually made their interest rates go lower, which led to more refinancing, which led to have them having buying more. So it was this feedback effect and you’re able to measure the feedback effect. You got down to like one year duration, 3%, 10 year notes back then. And, and, and then all of a sudden it was snapped back really quickly ’cause all the money was seeing in the economy. So anyway, you can kind of map this stuff out, figure out how to trade fixed income. We, we, you know, it’s a fun, fun environment
00:05:23 [Speaker Changed] That, that must’ve been a fun environment. So, so you mentioned Palantir, I have to mention, how old were you when you were one of the co-founders of Palantir? You were a young guy.
00:05:33 [Speaker Changed] I was 21. That’s, I’m 40, I’m 42 now. So that was a long time ago.
00:05:37 [Speaker Changed] A and since now we’re gonna talk about Palantir. Congratulations. They’re entering the s and p 500. It’s,
00:05:44 [Speaker Changed] It’s an awesome milestone at,
00:05:46 [Speaker Changed] At 21. Did you ever imagine something like that happening? Yeah,
00:05:49 [Speaker Changed] I was a pretty obnoxious kid. So, you know, actually when Palantir was great, we, we gave offers. So we were known for having the top engineering culture. Peter was investor in Facebook at the time. So our competition was Palantir and Facebook for the best engineers. And you really had to convince these people this is gonna be a big upside place. And so you’d give them offers and you give ’em three options. They could have a higher salary, but less equity, less stock, you know, medium, medium where you have a lower salary but more stock. And I drop on the option for the first 200 people. We’d put a table and we’d say, here’s how much your stock might be worth if this company’s worth half a billion dollars or a billion dollars or $5 billion. And I got so much shit for including $5 billion as one of the possibilities. People are like, this is ridiculous, Joe. And the
00:06:30 [Speaker Changed] Market cap today,
00:06:31 [Speaker Changed] That’s about 82 billion now.
00:06:33 [Speaker Changed] So it worked out for, it
00:06:34 [Speaker Changed] Took a, it took a long time, but it worked out
00:06:36 [Speaker Changed] 20 years for $80 billion. It’s a well worth trade. So when the company launches, it’s a big data analytics company. Today the focus is defense, commercial and government. Was this a natural evolution or was there a pivot somewhere along the way? Oh
00:06:53 [Speaker Changed] No, we started the company to kill the bad guys. Yeah, let’s be clear. I don’t know we’re supposed to say that post nine 11, I don’t work there anymore, so I can say it now. Like, we started the company after nine 11 to kill the bad guys and stop attacks. So we ended up helping run the targeting systems in 40 allied countries and wiping out over 10,000 terrorists, including a lot of the most important ones. So I, and it protects civil liberties too, but let’s get the bad guys. Yeah. And, and it turns out the hard data problems you solve when you run that infrastructure could be used for a lot of other things. You’re basically building ontologies of information and workflows and organizing all the data, the government. And when we started pal, the government at the time spent like $38 billion gathering data. So it’s, I don’t even know what it spends now, but massive amounts of information and tens of thousands of databases. How the hell do you make all this stuff talk to each other? And so by, by solving those problems to kind of organize that, it turns out you now have the data in a form where AI can be used really easily. So today Palantir’s really caught the AI wave because it enables AI workflows no one else can.
00:07:49 [Speaker Changed] And am I correct in saying during COV Palantir helped governments figure out how to monitor, how to track how to roll out vaccines? What, what was Palantir’s role during the pandemic?
00:08:02 [Speaker Changed] Yeah, I mean, it, it it’s, it’s, it’s used by the armed forces to organize all their logistics and supplies and everything. So it’s a very similar problem. How do you use all the data coming in about how to prioritize things in a pandemic? ’cause you’re coordinating just massive numbers of things and production and, and all sorts of stuff. I mean, you, you have a lot of Fortune 500 companies using it to manage all of their, and optimize all of their production and distribution. So it obviously it works very well for that, for the pandemic, I think, I think like 36 countries used it for that too. So it was good.
00:08:29 [Speaker Changed] So it’s a proven technology today. What was it like getting governments to recognize the value of this in the early two thousands? They were distracted.
00:08:40 [Speaker Changed] It, it was almost as difficult as it was to get RIAs to take adipar seriously the first five years. So, no, it, it is, it’s actually very funny. I I you, you, you think, you think after Palantir we were like, oh, this is gonna be be easy. No, it’s, it, it’s, listen, governments, governments are very funny. They, they want to use things that are new and innovative, but they want to use things that everyone else is already using. So breaking in is a very chicken and egg problem. It’s very hard. It turns out that there’s a lot of money in the special forces and special operations units who, frankly their lives are a lot more on the line than almost anyone else. ’cause they’re, they’re all, they’re constantly doing really dangerous missions around the world. And then they’re running a lot of the most important things that our armed forces do. And those groups have such bold and such confident people that we’re able to break in work with them, get them to prove that it worked and, and then that kind of set the precedent for other parts of government to then work with us. So thank thank goodness for our special ops groups.
00:09:36 [Speaker Changed] So it wasn’t DARPA that first started with you or would, did you have any work with them?
00:09:41 [Speaker Changed] I think DARPA was helpful a little bit, but it really, the thing that really matters is people using it on the ground where lives are on the line. You, you, you want, if you have something that’s the best you wanna, it’s gonna break in because people need it because they’re, because something, something’s existential where they’re gonna die if they don’t have it, they’re not gonna be able to do the mission if they don’t have it. So DARPA’s more of an academic thing that’s smart, but I’d much rather work with the people whose lives are on the line and, and that that’s how you really break in with the best things.
00:10:05 [Speaker Changed] You mentioned Adipar and, and ai, just so you know, chat, GBT is what told me it was $5 trillion, not seven. Well,
00:10:14 [Speaker Changed] Chat GBT is behind.
00:10:16 [Speaker Changed] So, so you found the company in 2009 today, you’re the chairman. It began life as a cloud-based software platform specializing in data aggregation, analytics, and reporting of portfolios. What was the original business model?
00:10:33 [Speaker Changed] Well, you know, I had my family office at first right around then, it was a smaller family office. And then I had a lot of friends and people I talked to who ran me off family offices, who ran RAs. There were new groups on the west coast, like iconic and others building, building these firms around the tech world on RA land. And everyone hated their software. And I looked at it and it was like, this is a mess and there’s not a really good solution here. And, and you know, we were mapping out, there’s a lot of new possibilities thanks to the cloud, thanks to what you could do with data. So we said, let’s, let’s build something that’s better. And, and I naively thought we would have something that was significantly better within a year or two. It turned out it took us hundreds of millions of dollars in several years, but I, but I am quite confident it’s the best at this point.
00:11:13 [Speaker Changed] So, so the genesis was, hey, I have to manage my own capital and the tools aren’t good, I’m gonna create it or was the original plan, I have an idea and everybody should be using it. It
00:11:24 [Speaker Changed] Was, it was a business. I I think in general, in general, when you have like a, some, an area that you realize is broken for you and for people, you know, rather than just build it for yourself, I think it’s like, it’s a good excuse to build a business around it. So I, I was actually CEO full-time for a few years getting us off the ground. Eric Poer, who’s running it forever, 10 years now, is a much better CEO than me. So I’m, I’m a proud chairman now. But no, we, we built it as a business. I, I mean, listen, you guys, we, when we first hooked, there’s 7,000 custodians in the US and so when we first hooked up data, the biggest custodians are people like Fidelity and Schwab and others. And I, we get this all set up. We spent like, you know, a bunch of time on the first year we hook up the live data we’re getting going and it’s all wrong. And we’re like, oh, what do we do wrong? And no, and it turns out even those custodians just have bad data. This is, space is a mess. There’s, there’s shows out, there’s lots of hard problems to solve to make this stuff all work right together. So it, it is a and everyone wants to customize things differently. Every RIA has their own like way of doing things, their own way of showing things. And so, which we, it turned out it took us several more years to get it right.
00:12:22 [Speaker Changed] So, so $7 trillion, you have some very large RIAs on it, you have broker dealers like Morgan Stanley on it. How big can Adapar scale?
00:12:33 [Speaker Changed] Well, I think there’s about $250 trillion globally that’s addressable. Maybe only 150 to 200 of that would use a resolution. So even though we’re growing really quickly now, I think we’re growing like over 30% a year still. We are still probably, at least in our decade of, of of fast growth. I mean, this is a giant market and you know, we’re still learning. I think, I think they’re still learning every, every week from clients about how to serve ’em better. There’s, there’s, I think about 1200 firms or so, give or take on the platform now. And, and you know, I, I’d love to see ’em triple that over the next, over the next few years.
00:13:04 [Speaker Changed] So the most of what APAR focuses on our private, our public markets, stocks, bonds, mutual funds, ETFs. But you also said, Hey, this private market thingy is gonna get big one day. Well, being
00:13:16 [Speaker Changed] Able to report on every possible thing someone owns is key for add part, but add, add part itself doesn’t help people access the private markets. So,
00:13:22 [Speaker Changed] So let’s talk a little bit about Opto and that platform. The idea behind Opto and your chairman of Opto investments is to focus on private markets. Tell us what you see in that space. Well,
00:13:36 [Speaker Changed] Well what I saw is that the way people tend to come to you, so, so obviously I run an investment firm. A lot of my friends run investment firms. I have a lot of strong opinions about private markets, right? And this, this is an area where in the 1990s there was a lot more public companies and there’s a small number of private companies today you have more private companies and public companies and, and, and frankly a lot of my smartest friends, people doing things that are changing how the world works are mostly doing that within private companies. And so today, if you’re not accessing private markets, you’re gonna get left way behind your returns. I think especially in the next 10 years, given how AI’s changing productivity in so many parts of our economy, we could talk about, it’s very clear you get left behind and that it’s messed up that a lot of people don’t have access to what’s clearly the higher returning areas if they’re done right.
00:14:22 And, and what I saw is the way people were trying to sell people on private market stuff is, is basically purely a brokerage model where they come to your firm and they say, we’re gonna make money by selling you kind of mediocre crap. That’s how a lot of these things operate. And I think that’s, that’s actually frankly disgusting. It’s not, it’s just not, it’s just misaligned. Like it’s not how any of us would do business normally, is that you, you don’t want to put money into the things that you’re getting paid to put money into. You wanna, you, you wanna have an aligned model where we all make money together by accessing the best things and private markets, especially venture capital. But frankly, certain parts of pe, certain parts of of alt credit, all these other things, they have very high disparity. You really want to get in the top decile, top quartile stuff and you’re gonna do great.
00:15:03 And if you get into mediocre stuff, you’re gonna have mediocre results. And so, so just the whole space just seemed misaligned to me. And then on top of that, it’s really stressful for a lot of people to get all their clients into these things ’cause there’s just lots more paperwork, lots of messes, lots of legal stuff. And like why, why not make it as close as possible to doing something in the public markets to do something in private markets? And really technology and AI can’t solve that. So opto, it’s about making people aligned, is having one platform where you do everything and, and frankly it’s about using my network and my friends networks to put what we think is the very best stuff on it that my family office is doing. And let’s share that with others.
00:15:38 [Speaker Changed] So at this event, we have over 2000 RIAs of these, some of them are single practice, small, small operations. Some are really big firms with tens of billions, hundreds of billions of dollars on them. How can large and small firms integrate opto into their practice? Yeah,
00:15:59 [Speaker Changed] Like, I mean the goal there, there are, there are both lots of small firms and some very large firms now on Opto. The goal is that it makes it as easy as possible, similar to Adapar, which has obviously been around longer. It is a giant, giant company now. I mean, opto is growing very quickly and we wanna learn from res like what about this could be easier for, for you to use it? But we have dozens of firms that have, that have created custom funds on it for their clients and access things that I think otherwise they never would’ve accessed. And it made it really easy for ’em to do it. So no, I would love people’s feedback on what we’re doing here. This is a younger company but growing really fast and I’m, I’m really proud to kind of get people the best access in the alt world. I think this iss such a fun, interesting world that a lot of people may don’t know how to approach if they, you know, if they haven’t been doing it in the past or if they have been doing some, but maybe they don’t have certain expertise in other areas. Sometimes for our custom funds, like they’ll choose certain areas, certain managers they know, but then we’ll compliment it and help them do that with other areas they haven’t studied as much. And so, you know, with a lot of people’s feedback.
00:16:54 [Speaker Changed] So you wear a lot of hats. You’re cha chairman of apar, you’re deeply involved in Opto. Tell us about your day job. Eight vc, a venture capital firm.
00:17:04 [Speaker Changed] Yeah, no, at the end of the day I’m an entrepreneur. I like to build things and a lot, a lot of the people from from Palantir, from Adipar have gone on to build, build lots of our companies. And so I’ve been coaching, I started coaching a lot of them. So just like with PayPal where we had $16 billion companies come outta it after eBay bought us, Palantir’s now had over a hundred successful companies come out of it that people have started over the last, you know, couple decades. And, and so, you know, I I ended up ended up saying, you know, it makes sense to actually build an investment firm. My mentor told me I basically was doing an investment firm, didn’t have enough money or enough people. So, so we, so the last 12 years we put together a pretty big firm in the venture capital space.
00:17:42 We, we build, we build and launch companies. We back companies early and I mean we’re not, yeah, we, we we, it’s nice in, if you don’t raise big funds, they become very, very oversubscribed. So I’m not here to raise money for HC but it’s a, it’s a fun area. And, and I’ll tell you since you’re asking about there, there’s really two areas that we’re probably really well known for the last few years. One of them is defense. We’ve started multiple new defense companies, including nearby here. We, we actually backed early Andro with Palmer Lucky and some of my ex Palantir colleagues and they’re become a new defense prime, which is really cool if you haven’t checked it out online. There’s amazing videos of the things they’re doing. And then the other, the other two, one of ’em, you know, drone swarms have become a huge problem.
00:18:20 It is really hard to stop. We’re spending $2 million missiles to shoot down cheap little drones with bombs coming in our troops and they’ll swarm a hundred at once. So we figured out how to use new technology to send out microwave radiation really, really far from pretty small, you know, pretty small device to shoot down swarms of drones. And, and we’re now deployed live, it turn turns out the AI chips can get the power to hit the gallium nitrate emitter all at once, turn ’em off. So we build that and we have another company building thousands of ships for the US Navy smaller ships. ’cause it turns out China has 200 times our shipbuilding capacity, which is frankly a huge crisis. You know, it used to be in World War ii, Germans had better ships than we did, but every time we lose a ship you’d build three more.
00:18:57 ’cause we have the best building capacity America now with, with literally 200 times the shipbuilding capacity in China. Very scary for our ability to deter them. So we’re figuring out how to take our best and brightest, frankly, Elon Musk who’s a, who’s a good friend, has like really revitalized advanced manufacturing in America. We’re taking some of that talent, putting it into military areas as well to make sure we stay ahead of the bad guys. So, so we’re doing a lot in defense. And then the one, one other area I’ll mention is what we call AI services. And so there’s a huge part of our economy right now that we can, we’ve shown we can actually double or triple the productivity using ai. And so this is, this is, this is stuff like healthcare, billing, logistics, billing back office processes and the alts world. It’s like how do you, you know, how do you manage and subscribe and deal with all the alts paperwork and stuff. There’s just lots of these areas that are gonna just be completely changed. And so we think there’s multi-trillion dollar opportunities in those areas and building a lot of companies that are succeeding in ’em.
00:19:49 [Speaker Changed] I I wanna stay with defense a little bit ’cause you’re involved in so many really interesting areas. I first heard of Palmer Lucky with the Oculus, which you were an early investor in before I think Facebook ended up buying buying
00:20:02 [Speaker Changed] That they, yeah, Facebook bought it for over $2 billion just a few years. Dan, you made a billionaire at like 22 or something, which will go to your head pretty fast.
00:20:09 [Speaker Changed] And, and then not too long ago maybe it was Wired magazine did a profile on really interesting things that Palmer is doing with drone technology and defense technology. Tell us a little bit about what’s going on in that space.
00:20:23 [Speaker Changed] Yeah, so, so basically Palantir and SpaceX were the first two companies to break in and effectively become some form of defense prime the first new ones in 30 years. ’cause you had, you had all these old primes, they all consolidated after the Cold War ended in the nineties and they basically had a total lock on DC and Palantir. It took us a long time, a lot of stubbornness to break in. And, and then, and and and you know, at some points we had to sue the US government ’cause they were doing crazy things and we won SpaceX similarly had to sue the US government ’cause they just discriminate against new things, right? And obviously SpaceX a good thing they won ’cause they’re obviously a hundred times better than the alternative. Frankly, after doing Palantir, I said this defense stuff is just really stressful. It’s really, you know, hard to break into.
00:21:03 I’m gonna do add APAR instead. Turns out you guys are stressful too. But, but, but you know, I’m like, I I’ve done enough defense and, and and, and we started being pretty bullish on things going on between China and the US and very naively thought the world’s just gonna go in a kind of more peaceful, more prosperous direction. And we saw this guy Xi Jinping come in and I have friends with a lot of the guys who built these companies in China. A lot of them believe in free markets. Reid, Milton Friedman like share a lot of our values. These are not just ’cause they’re Chinese, they’re not bad people. They, you know, they’re not CCP themselves. And and we saw Xi Jinping start cracking down on these guys. A lot of ’em disappeared. They had multiple friends who knew really well who died in their sleep in their forties, you know, after being tech billionaires.
00:21:44 And we saw him also making a lot of our friends force their top engineers to work on defense projects. Obviously we don’t do that in the US but this became very concerning because China does have really top talent and they’re forcing them to build new things in defense hardware. Meanwhile in the us those old companies to consolidated in the nineties, they were hiring basically none of our smartest friends. So this is a crisis. You have China building really new advanced defense things. You have us spending lots of money very wastefully with without top talent. And we said, wow, we need to get back in and fix this. So Palmer with three of my old Palantir guys after, you know, after selling Oculus of Facebook and they kicked him out of Facebook ’cause he, he did some politics, they didn’t like he’s on the right. But, so he and these guys start this new company nearby here and it’s become the most important new defense prime in hardware.
00:22:30 They have all sorts of products. The one you should check out online’s called the Road Runner. If you’ve ever seen Elon’s rockets that kind of go up and and land themselves, he has the same thing for advanced missiles. And so these missiles come in this box and it’ll go up and it’ll track and destroy the bad guys. But if you don’t, does not, if you don’t use it, if it doesn’t explode, it’ll come back and it’ll land and it’ll wait to be used again. And so not only is it like the 12th, the cost of a patriot missile, it also could be reused. We’re actually putting, remember that ep, that EPT company that shoots things down with microwave radiation, we’re putting, gonna put that on it. So you can imagine a swarm of these going, flying, shooting that turning things off and coming back and landing to use it again. And you know, modern warfare is gonna be sworn of autonomous small vessels, small drones like all these things. And, and you, we can’t afford to do what we’ve been doing with the defense primes, which is to build things that are way too expensive kinda last generation’s technology and you’re gonna run out of them against, against the swarms our, our adversaries are gonna have. So we’re, we’re really trying to make sure we stay ahead of them.
00:23:24 [Speaker Changed] So I wanna combine two things. You mentioned the new technologies swarming and the massive over capacity to build ships of China versus the us. What have we learned from the Russian invasion of Ukraine and how Ukrainians are defending themselves with technology? How can that be applied towards any potential invasion of Taiwan by China?
00:23:49 [Speaker Changed] Yeah, so I mean Palantir and Palantir and Andel Palmer’s company are very active in Ukraine doing a lot of, doing a lot of important things there. We’ve learned it’s about dorm drones hors we’ve learned it’s about cost. So for example, the US makes these anti radiation missiles that are $3 million each. We sold 300 of ’em to Poland I think a few months ago for a billion dollars. And these missiles are able to fly in jammers and take ’em out. Russia has figured out how to build these jammers and these jammers by the way, they stop artillery from targeting and they really are dominant on the battlefield. So it’s electronic warfare. They figured out how to build them like 20, $30,000. You can’t win a war with $3 million things being used to take out $30,000. Things you’re just gonna run out of, no matter how rich you are, you’re gonna run outta money on the battlefields.
00:24:31 A war is like an engineering thing where it’s about scarcity, right? And so we’ve learned you have to build cheaper, smarter distributed systems. And you know, the electronic warfare stuff’s fascinating. I listen, there’s a lot of smart people who are against us going into Russia like, well we probably should be careful with nuclear power. So I’m not gonna say this is good or not. But it’s interesting. Ukraine was able to basically create like these electronic warfare bubbles by figuring out how to jam sensors in different ways and kind of create a protection bubble around their forces that then did the major incursion. And it was all about electronic warfare and turning on and off these sensors along with like how to manipulate swarms. And so the ba battlefield is totally changing versus how we would do these things 20 years ago. And we’re trying to make sure we build companies here and, and technology here in response to this and go fast on it.
00:25:16 [Speaker Changed] So, so all these ships that giant ships that China’s building, is it likely or possible that there will be a small autonomous swarm of vessels that counterbalance that?
00:25:29 [Speaker Changed] Well, China’s pretty smart, so I think they’re mostly building submarines which are, which are difficult. But, but yes. So Ciran is the latest company we helped start, it’s run by a former Navy Seal of 11 years in Austin, Texas. A lot of the admirals of the fleet are very involved and what we’re doing is we’re gonna, is we’re even next year in Austin, we’re gonna have 600 ships we build that are 24 feet, 14 feet and six feet. These are weaponized at autonomous vessels. We’re teaching the Navy how to use AI to help them coordinate. So what we showed them when they agree is we can basically triple the battle effectiveness of our fleet by complimenting all the big ships of the line with about 30 smaller weaponized vessels that swarm and coordinate and help in different ways. It’s a, it’s kind of fun, it’s like a little video game sort of thing. I actually have a lot of LA video game talent helping us map it out and practice battles and stuff. But, but no, yes, we have to do lots of small ships if we wanna stay ahead of them. And unfortunately our DOD is not as competent as it used to be, but our private companies are the best in the world. So we’re gonna keep getting involved, same as private companies did in World War II and make sure we stay ahead of the bad guys.
00:26:27 [Speaker Changed] So let’s, let’s shift gears. I wanna talk about OpenGov, which is another product project of yours. You provide software for over 2000 municipalities and state agencies. What was that adoption practice like? How long did that take?
00:26:43 [Speaker Changed] Well we sold OpenGov earlier this year for $1.8 billion to Cox. And you know, originally my friends and I, we were wondering why California was taxing us so much and where they were spending the money. This is about 13, 14 years ago. And so I got about 20 Stanford students and a nonprofit at first and we tried to just like put everything online, it was great. I didn’t have my name on it. So all these students kept getting attacked by the unions ’cause they, they really don’t like it when you show ’em spending lots of money in government departments. It basically showed that California had a bunch of departments that were dominated by these special interests that were spending about 50 to 60% more than you. This was 13 years ago than you’d imagine by the model, right? Of course it’s corrupt. And, and all these cities started emailing us saying, oh this is really cool.
00:27:22 Show us for our spending. Are we doing something good or not? And, and we, and we said, sure, send us the data. And the cities would say, well how do, how do we send the data over? And we looked into it and there’s, there’s tens of thousands of municipalities in the US and they mostly don’t have access to their own information. They have to pay their IT consultants, huge amounts of monies to do a report. They couldn’t even see what they’re spending versus sitting next door for similar services. And so we decided to build this thing called OpenGov and we built a way for them to see all their data and then we realized governments don’t like paying for new things. They only can pay for the things they’re already doing. So we built a bunch of software for them to run all their budgeting and their transparency and their processes and asset management and it’s a just build a big gov tech company.
00:28:00 [Speaker Changed] So I’m kind of fascinated how you’ve bounced across sectors, big data, defense, government, healthcare, finance, even now education. How do you approach learning a space that you have been in before?
00:28:15 [Speaker Changed] Well, you know, the for for, for building these companies and for succeeding as an investor and venture, there’s really two things that matter the most. One is the very top technology, talented technology cultures. So culture is a places like Opta where we’re iterating with you. It’s because we have like these really amazing talented people who are building really quickly and who are speaking to people and getting feedback with them. And then the other thing we’re looking for is like, where is a gap in the world? Where is something, here’s where it could be and here’s where it’s now. So again, with so think go back to Alts and think about that. It’s very clear there’s a gap. The incentives are misaligned for how people are accessing alts. The platforms are wasting a lot of their time and it just isn’t, it’s not easy for them to see what the best things are and to really quickly iterate and, and do do their job for their clients.
00:29:00 And so it’s very obvious there’s a gap there. And so what you do is you, you, you have a hypothesis, you get a really great tech culture where the people at Opto own a bunch of the company themselves are really talented people who’ve had wins before, know how to build and iterate in text from add par, they’re from other places. And then, and then and then you build and you iterate with clients. ’cause no matter how smart we think we are, we’re gonna come to you and show it to you. There’s gonna be things that are wrong. There’s gonna be things that are not useful for you. But because you have a great tech culture, you can iterate very quickly and learn. And so the company’s now been around for a few years now the point where people are starting to really love it ’cause they’ve been, you know, doing it based on feedback. So when you approach a new space, it’s not about being an expert in this space. It’s about having a really amazing culture that talks to the experts and learns from them and builds with them over time.
00:29:44 [Speaker Changed] And Joe, I love this quote of yours and I have to ask you about it. My passions are repairing broken industries and government in calculating classical virtues, prioritizing families and enabling a free and prosperous society. Sounds like
00:30:01 [Speaker Changed] That kind kind of politician,
00:30:03 [Speaker Changed] Right? You’re running for, well discuss the quote, I can’t imagine you’re ever running for office. Are you?
00:30:09 [Speaker Changed] Sounds like it’d be a horrible job to be honest. I listen, I I our society is facing a lot of really broken things right now. There’s a lot of stuff that’s wrong and I think, I think vir classical virtues are missing in our society. I think courage is is not a virtue that’s taught to our elite. If you go to a top 100 university, you are taught the opposite of courage. You’re taught to shut up virtue signal, go along, don’t think for yourself, don’t oppose the borg, whatever they say is right. And, and, and it’s really broken. I think it’s really scary what we face in our society right now. So, you know, I, I think the fundamental units of the west are, are the classical virtues, are the liberty values around the enlightenment are our functional families with two parent households. I think these are all things that make our society functional. And if we don’t say it and we don’t fight for it, we’re gonna have a really broken society. Alright,
00:30:56 [Speaker Changed] I we have time for a couple of questions from Slido. Let’s take a look. What do you look for when evaluating fund managers for yourself and your family office?
00:31:07 [Speaker Changed] So when I’m looking for fund managers, ob I mean, for me, because I have a network of these people, I, I I, I want to know that a lot of my friends really respect them. I wanna know they have some unfair advantages. I wanna know that they have obviously an amazing track record. And then I wanna know that there’s some reason why they’re still in the game and focus. I think a lot of people who’ve had a lot of success, there’s various things happening in their lives and they’re no longer working, they no longer have the same culture. So I mean, I want, I wanna know the culture of the organization around them at their fund and know that they are still working as hard as they were when they first created that, you know, for that first success. ’cause I, because that’s, that’s something that slips very easily. So you gotta watch out for it.
00:31:44 [Speaker Changed] And, and here’s a perfect question to wrap up on. What are the most exciting trends you’re seeing in the marketplace today?
00:31:52 [Speaker Changed] So the, the most exciting trend by far, I started to hint at it earlier, is what’s going on with applying AI to services industries. There’s about $5 trillion of wages in the US in the services sector. Over $2 trillion of those wages are in areas where we’ve already shown you can double the productivity in some cases triple the cash flow from these old legacy businesses. This is a whole new area of, of tech enabled services that actually works. Now we’re seeing, you know, example healthcare billing, two $80 billion revenue industry, typical margins 20%. We already have companies getting 50, 60% margin fixing that space. There’s a huge parts of our economy where you’re gonna have productivity shoot upwards. If we can manage not to break our country with the stupid government stuff the next several years, we’re gonna have a very productive society.
00:32:36 [Speaker Changed] That was my conversation with Joe Lonsdale. He is the co-founder of Palantir, as well as a number of other finance and technology related startups. I thought the discussion was fascinating and I can’t wait to get him in the studio for a full 90 minutes to really do a deep dive into his career. If you enjoy this conversation, well be sure and check out any of the 500 previously discussions we’ve had over the past 10 years. You can find those at iTunes, Spotify, Bloomberg, YouTube, wherever you find your favorite podcasts. And be sure and check out my new shortform podcast at the Money 10 minute discussions with experts about topics related to your money, earning it, spending it, and most importantly, investing it at the money in the Masters in Business feed or wherever you get your favorite podcasts.
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