Transcription
[Music] Hello, Smart Money Tree podcast listeners. Welcome to this week's show. My name is Kirk Chisum and I'll be your host.
So, today I'm joined with Kate McAndrew. How you doing today, Kate?
I'm great. It's a beautiful day in San Francisco.
It's always beautiful in San Francisco, isn't it?
Yeah, we occasionally get rain and call it winter, but you know, so far so good.
Good. Good. Well, glad glad you're getting all the good weather. We're we're in Boston and uh it snows pretty much all the time. So, it's it's good. We're getting the other half of that.
Uh so, Kate, for people who don't know you, maybe you can tell us a bit about your background and and how you got started as a VC.
Yeah, absolutely. So, I've been in venture capital since 2012, which oh my gosh, that's getting up there in the number of years. Um but I I didn't start in the way that most VCs start. the typical path is, you know, go to Harvard or Stanford, get a CS degree, go do a couple years in management consulting, and then maybe you get, you know, a role at a at a big firm. And that was not at all the trajectory that I took.
I actually went to McGill University in Montreal, um, after growing up in LA, studied art, history, and cultural studies, which, you know, at the time felt as far away from the business school as you could get. But I was also always entrepreneurial. I was always starting companies. Um, I was very early in kind of the social media kind of blogging kind of trend uh back in the day. So, I started a consulting practice after college kind of helping startups and medium-sized businesses, including some financial institutions, learn what the heck Facebook was, you know, in the early 2000s.
um and then moved out to the southeast to do a year of service actually with Habitat for Humanity, which is the last place you would go if you were trying to find a venture capital job. But in fact, that's where I found my first venture capital job. I met some retired bankers who had moved to the southeast who were angel investors that wanted to start an accelerator program which had been popularized by kind of white combinator at that time. This was, you know, 2011. And it really opened my mind to a totally different way that knowledge and money and power could flow. I was thinking about business school where I would have to pay money to go get knowledge to start a company. But they were saying, "No, no, we take money and we invest it in people who have good ideas and we help them build the business." And so from the the moment that I heard that that was a thing, I said, "I want to do that."
And so I ran that accelerator for for two years and then moved to San Francisco in 2014 kind of following one of the portfolio companies and was you know living in their warehouse in Soma uh you know surrounded by kind of weirdo techies who had magnets implanted in their hands and I was like this is the future and I love it and I'm here to stay and I got my first real venture job um at a startup fund. I was there for eight years, went from associate to partner um and then started my own fund with a couple of partners in 2022. So we um are now proud co-founders of a fund called Balkst. It's a hund00 million fund that exclusively leads preede rounds, which is really all I've ever done. It's kind of brand new business. You know, half the companies we've invested in have been unincorporated when we invested. So, we're really putting the first 500K to one and a half million into brand new technology startups. Um, and it's been a wild, beautiful ride. I I love I love VC and I'm really proud to to be an investor.
Nice. So, what talk a little bit for the listeners who aren't familiar with the different um different parts of the cycle and where VCs come in and where they don't. uh how if you're taking like a company from like just an idea all the way up to a company that's going public like where's where's the VC's role and where where are they you know where where's your piece in that in that cycle
yeah so we really invest at the very beginning and that's I think always been the heart and soul of what venture capital is about right I think from the early days you know in the early 90s VC was about putting the first couple million into a business betting on the team and the technology and kind of going on that company building journey with the founders and that is what we do at Bunst. In the 90s it was called series A. In the early 2000s it was called seed. Now it's called preede. So the names have changed but the really heart and soul of what the activity is um has stayed the same.
Um but venture capital exists from the stage that I invest now called preede that first 500k to two million all the way up to the preipo phase which is really about growth right and so um the majority of venture capital dollars are getting deployed at series A series B series C series D and and up into the IPO but my practice which I truly love is the zero to one phase where it's just as they say like a team, a dog, and a garage. Uh, you know, starting to build stuff, getting your first customers, hiring your first people, um, and and making something out of nothing. So, that's where where I focus, um, in the VC asset class.
Okay. And do you have certain, um, sectors or areas that you primarily focus on?
Yeah. So, our focus at Bowunst is really high conviction investing um at the frontiers of technology and design. And I'll I'll say more about what that means to us. Um, you know, I think that there's been a big sort of fetishization of technology itself as if technology is going to solve the problems or technology is the answer. And we really see technology as the core enabling force, the core force that enables whatever it is that you're building to scale, right? That's been the the absolute gamecher of software. And now we're seeing it in AI. And so technology is one piece, but technology alone does not build a great company. And so our focus is really on people who have a design thinking approach to innovating and leveling up their own industries, their own tool sets. And many of them um have for us a focus in around design, engineering, manufacturing. How do we conceptualize, make and distribute the objects in the world around us? So everything from computer aided design that you know designs this water bottle to manufacturing software um to supply chain right that's a big focus for us um but also taking a more abstracted view around design thinking and thinking about whole industries and how they operate and are there more efficient ways to use technology um to transform those industries in a fundamental way. So um, it's a, it's a really kind of interesting ven diagram approach to looking at people to looking at problems and to looking at companies.
Yeah. So let me ask you because I I always imagine that the 0ero to one phase you mentioned is more in the angel space and the venture capitals are kind of like the phase 2 phase three phase 4 up to X. Um, why start so early? I would imagine there's a lot higher probability of failure at the early stage.
Yeah, you know the old axiom buy low sell high. You know it it holds in VC2. So my perspective is that if you look at the price of equity at preede you know at the zero you know unincorporated phase which is where we invest you know the valuations jump dramatically usually by you they usually double or you know triple between where we invest and that first seed round which is where you have a product in the market some customers some revenue And my belief is that between preede and seed, the company matures a little bit, but it's not meaningfully derisked for the higher price that you have to pay at seed. And so I think for myself, I love preede. It's what I'm good at. It's what I've always done. So I my personal reason is that I I love investing at that phase. And the economic reason is that I don't believe that the risk is significantly um less or is reduced enough at the seed stage say in order to merit the rise in price between where I invest and seed. Uh and if you look at series A and beyond, it's kind of a different beast, right? So I really believe that the heart of VC is this really early stage investing model and um it's tried and true. It's where the the greatest alpha, the highest returns live. Um and so that's where, you know, I focus my time both because I love it and I think it's where kind of the best the best alpha is.
Yeah, it makes a lot of sense. Um, so what is your what's your exit strategy when you invest in a company, right? As as the old adage is, you have to know how you're getting out before you get in. So, how do you how do you assess that?
Yeah. My slightly contrarian opinion is that I believe that if you build businesses that have fundamental enterprise value, you will make money, right? A lot of VCs think a lot about um the exit. And it's important to understand, you know, is this something that we think has a high likelihood of, let's say, an M&A transaction? If it were to be acquired, who might it be acquired by and for how much? That might inform how we grow the business, right? Or do we think this has the chance of becoming a publicly traded company? If it did, what are the multiples that it might be traded at? Like those are things that we think about when we're making the investment decision. But ultimately, I think the number one thing that we need to do is find phenomenal founders who are really building strong robust businesses that have real enterprise value in them, real revenue, right? Real really good underlying metrics, strong usage, all of those things that make a good business a good business, strong margins. And if you do that, our belief is that you will make money somehow. It'll get acquired. it'll IPO, you'll pay dividends. There's lots of ways to get your money back, but we really try to focus on um great people and going long, right? Our business is a long-term investment strategy. Our fund life, venture capital fund lives are typically 10 years long, right? So, in the first three years, we're making our investments into portfolio companies. We're kind of picking the horses, if you will, but we're expecting those horses to run for 10 years, right? And oftentimes there are extensions on that maybe 13 years 15 years. And so the goal is that some of those horses are so strong that they can become 1, three, five, 10 billion dollar businesses, right? And that's what venture capital is all about. It's about investing in those horses and helping them get really really big. That's where the dynamic power law returns come in that are very hard to access in other asset classes.
Yeah. So, um, one question that kind of comes to mind because I I know, um, you know, if I hear a lot about private equity now, private equity is like the the hot button. Everyone wants private equity. And, you know, it I've always seen that as just they're just financial alchemists. They're not really, you know, necessarily providing value. Like some people's, like you mentioned a comment like you want to get in early, you want to help them. whereas they tend to uh I guess just look for how can we structure this and extract as much equity as possible. Um, how do you how do you kind of assess your role as a venture capitalist in the in the equation?
Yeah, I mean we are um very high conviction investors. We have a relatively concentrated portfolio which just means we're not working with a ton of people, right? And the reason that we want to invest that way is we want to be able to spend a lot of time and give a lot of attention to the entrepreneurs and meaningfully help them build their businesses. So a couple of ways that that happens um one we take board seats or board observer seats and so we're really building uh a real robust structure around our relationship with the companies and helping them you know be professional from the outset. We're helping recruit from our networks like I was just helping someone recruit a head of product, right? Everything from junior level engineering talent, but re really accessing our networks to get that senior, you know, 10x engineer or really sometimes we're backing a solo founder. We've got to find a co-founder for them. So, there's a big people component. How do you bring great people around the company? Um, and then helping to make really good decisions around product and strategy. Right? When you're starting something from scratch and you have a lean budget, there's a million things that you can do. And so mostly what you're trying to figure out is what are the one, two, or three things that I have to do, right? And if you make good decisions with that, those kinds of decisions set you up to either build the foundation of a shack, the foundation of a single family home, the foundation of a skyscraper, right? And so a lot of what we're doing is helping the founders who might be subject matter experts in let's say the vertical or industry that they're building in but be first-time founders how to think about the strategic decisions that they can make in their business from the get-go that will create a foundation for them to build a business that can scale really big because again that's what early stage VC is all about.
Okay. Yeah, makes a lot of sense. Um, how's the industry changed over time? I I mean I've been you know involved in the market since 99 and the industry my industry's changed dramatically. How how do you feel like the VC industry has changed and where do you think it's going from here?
You know it's really interesting because I feel like one of the um the things that is hardest and most important about the work that we do is ignoring the noise. Right. I think the thing that has that will always stay the same that has been true that will be true forever is that great businesses are built by great founders. Right? The number one thing that you have to do as a venture capitalist is to find the top talent. Right? That that will always be true. Now the asset class or venture capital firms have tried a hundred different ways to do that. Right? you know, from the rise of mega funds, the rise of, you know, the A16Z services industries, the rise of um, you know, micro funds or alpha funds. There's a million ways that the that the industry has tried to innovate around itself in order to get an edge on owning big chunks of the brightest talent. But ultimately, the thing that always stays the same is that great businesses are built by great people. and you've gota you've got to find them right so that's the thing that hasn't changed I do think over the 12 years that I've been investing now um I have seen a real shift in how much capital is available in the market right so when we had low interest rates there was a lot of LP money or limited partner money who are the investors in venture capital firms out there backing a lot of managers ers who had no investment experience. They might have operated for a few years, but there were a lot of people raising 20, 30, 40, $50 million funds. And most of those funds have been wiped out at this point or are struggling to continue to raise as the interest rate environment has has changed and also as these mega funds have taken primacy. And by mega funds I mean huge multi-billion dollar vehicles that are called venture capital funds but really look a little bit more like a new kind of bank, right? And so that has totally changed the dynamics around valuations, the dynamics around how business how big a company has to be to be successful um and the the early stage option market. So things things have changed a lot but I think the number one thing to remember is that top talent will always find capital and capital will always seek top talent. Um, and if you do that and if you know, you know, for us it's about where is the top design technology talent, right? And you don't need in VC, you don't need to own the market, right? Like we need to find 34 great companies to invest in um over the course of three years. That's our job. I don't need to be in every deal, but I need to be in 34 that I think have a good chance of being becoming billion-dollar businesses. So, I think it's a little bit of it can be very noisy. You got to stick to your knitting. Um, and and know that my job is to find the best people.
Nice. So, what what does the math look like when you're running a fund of companies? Because I imagine some will do well, some won't do well. You might get some home runs, you might get some, you know, base hits, but how do you how do you assess that?
Yeah. So, the way that we think about it is we have a hund00 million fund, which makes for very convenient numbers. Um, and you know, we're investing in somewhere between 30 and 35ish companies, depending on where our average check size um, ends up. And again, we're investing them at the very beginning. And when we do the math of what does this company need to look like to be a fit for our portfolio, the question that we're asking is, does this investment, this one investment have a shot-on goal to return our entire fund? Which means that at the time of exit, our ownership has to be worth $und00 million, right? And that's where for us, you get the bottoms up math. If I I have to believe that every company has the opportunity to be a billion dollar company. So that's our math, right? We have the math has to math. We have to believe and and that you know that equation is a mix of how much do we own, right? How much money did that company have to raise to get to exit? Because that creates delusion. Any money they raise ahead of us creates delusion, right? And then what's the upside? Is it a is it a billion, two billion, $3 billion outcome? So th those things kind of influence that math and and we're doing that math to understand does this have to potentially be big enough. What's really interesting, I mentioned mega funds. We have a hund00 million fund. Well, if you have a billion dollar fund, think about the size of exits that you have to have to drive returns to your portfolio, right? And so, as funds have gotten bigger, the exit value that that fund needs to see in order to be meaningful to them has also gotten bigger and that's been a big shift and um in the industry as well. Um, so that's sort of what we're looking looking for. Now, do we expect that every one of those companies will actually do that? No, we don't. Right? We expect that we will have some companies shut down. And in VC versus PE, it's different. VC, we don't really worry that much about failure rate, right? We're maximizing for upside, not protecting for downside. Whereas PE is a little different. So, some will shut down, some will be singles or doubles or triples. They might exit in the three, five, 700 million range. But for us, what really drives the returns that we're looking for, that our LPs are looking for are those one, two, three, five, you know, billion dollar exits. Um, so that's kind of how we think about the math.
Okay. Yeah, that that helps. That's a good understanding. So, obviously there's um a lot of changes in technology. There always is. Uh AI is is kind of a a big whopper of a change. Um although I'm of two minds on it at the moment but uh but I am curious to get your opinion on how AI is changing the playing field for you and what that means for some of your companies.
So I think the shift with AI cannot be understated or you know underscored enough. Um and I think it's changing things in a couple of ways. So number one, it is changing how efficiently one can run a business. Lots of people are out there, including I think Sam Alman was the one who said this first, are saying, you know, we think there are going to be billion-dollar companies with one founder or two founders and perhaps hundreds of agents doing the work that employees used to do. And so we're seeing the beginnings of that now with a lot of different founder skillshares and brown bag lunches where people are talking about how are we integrating AI into the actual operations of the startup itself. Right? So we're seeing a dramatic efficiency quote unquote improvement um on the number of dollars or people because people are dollars that you need in order to build something and scale it. So that's number one. The building of the company itself is getting more efficient with AI. Number two, I think we're in a really interesting point where we're moving out of the era of AI infrastructure investment and into the era of AI application layer investment. And I forecast that, you know, in the next year to three years, because this is moving very very quickly, AI will be AI investing quote unquote will be the equivalent of, you know, mobile investing, right? We won't talk about it that way anymore. It'll just be, well, if you're building a company, it's on mobile. And so today, anyone who's building anything, if I were to look at the hundreds of pitches that I get a week, whether or not they're calling themselves an AI company, they're now using an AI. They're using AI substantially in in what the product is. So I I think that we've moved very swiftly from big capital inensive infrastructure investing into lean um AI enabled experiences both on the enterprise side and the consumer side that the entire VC market is now looking at. Um, what I think is good about that or hopeful about that is that if we see AI just as the enabling technology hopefully we can focus on investing in companies that are applying AI to solve people's real problems right so how are we using it to solve the fundamental problems of society or, you know, businesses consumers etc um now not all the companies that are getting funded are doing that but I do think that there are a lot of opportunities to think about AI in that context and that's kind of the maybe glass half full version.
Okay. No, that that that's helpful. It's helpful to understand. I I I think it's Yeah, I I I talked to a lot of people in AI and you get a lot of different opinions. So, I I think it's a very helpful way to look at it. Um, can I ask you your opinion, Kirk? What are what are the two minds that you have?
Um, you know, I've I've been um a little bit older than you. Not much, but definitely have seen like when the I was in college when the internet was kind of like a hot thing like when when you know we were day trading in the you know coming back to class and day trading. Yeah. You know I graduated 99 so it's um it was a it was a big part of of kind of that era and like you said like it's at some point it's just becomes a thing. We don't talk about the internet anymore, just kind of what you do. But for a relatively long period of time and like the iPhone came out in 2008, you know, the you think about like Google, I I forget when it came out. It was like 2003 or four, you know, like the if you think about the the time scale of things, I feel like on the one hand, AI is going to change everything, but I don't I don't snap to extremes scenarios like, oh my god, it's going to change the world. Like, yeah, it probably will. So will blockchain and so all the other technologies. Uh I think people are over their skis at this point. Like they're a little bit too far ahead. Like they think it's going to change everything. I'm like it still can't tell jokes, you know? Like jokes are my jokes are my test for when AI actually has its stuff together because if if it can't tell me a joke or riddle, it doesn't then it doesn't understand anything. And so unless it gets to that stage, I look at that as my test and like how good is it at this? Okay. When you solve that, I'll believe. All right. It's, you know, it's there because right now it's still not 100%. And I think I I have a a friend who's in um who's in your world and uh he he's starting a company for uh arbitration. And you know, you look at the legal world, you look at the regulatory world, there's so many fascinating applications, but I think about like when are people going to actually use it? So here here's here's an example. So I think that we have a marketing apocalypse coming upon us in the next year or two and people aren't ready for it and it's been happening. It's it's before AI. It's been it's been happening. AI is going to speed it up. Um think about it this way. So you you familiar with SEO, search engine optimization. Sure. Yeah. Okay. So think about that. When I go on Google and I do a search, what am I looking for? or I'm getting a bunch of, you know, halfbaked results based on who they think is a good website. If I go on to, you know, chat GBT or any of the AI platforms, I get a much better result than Google. So SEO is dead. Like as soon, but it comes down to when it's mass adopted by people, right? It's just the adoption rate. as soon as people use AI instead, which they should because you get a better result, then what's the function of of um of SEO? So, you know, I think a lot of it comes down to the adoption rate of people like when are people comfortable using it? When are they comfortable with all the stuff they're hearing like that it's hallucinating or it's giving bogus results? So I I I I feel like the potential of AI is massive, but I think it's going to be a lot slower adoption than people think just because of the human element of it and that people are just getting adapted to the to new things. So while I see the upside and I think it's inevitable, I I still think that it's maybe a little overhyped for where it is at the moment. And I think Yeah. Yeah. I think what you're putting your finger on is there's a real difference between AI in the context of broad consumer queries. Allah chat GPT there's a big difference between that and where I'm seeing most of the AI getting deployed at the application layer which is in specialized functions where the AI doesn't need to do everything. It just needs to do the thing that you need it to do again and again and again within your context with your data. Right? And so I think that's where we I think are some time away and I'm not going to make any predictions um from AGI. But what's interesting is that for the AI to be really good at supply chain queries or um training it to be a Louisiana divorce attorney or, you know, what have you like it can it can get uh good at spec get specific things. I don't know if I was just picking up the divor I I have a friend who's um getting divorced in Louisiana and he McMade an AI Louisiana divorce attorney to just ask questions to before talking to his attorney. Yeah. Right. U so anyhow I I I think that it's it's interesting. Jury's out. We're in it, but there's there's it's moving fast, right? Um how fast I think is a is an interesting time will tell, right? It's I I think the problem is it's hard to track because it's moving so fast. Like I listen to some of the absolutely supposedly the top minds in AI or at least the biggest thinkers in that area who've spent a lot of time and thought and a lot of them are kind of like well it's either going to be uh utopia or dystopia. I'm not really sure. Uh, you know, it's either going to take over it's going to be either Terminator or um trying to think of a good example of the utopia but anyway like like I I feel like they don't really know and so which I get. I I totally understand. I mean, nobody knew where the internet would go. They thought they did. And we would all be run by URLs. We'd have a URL and everyone used the URL. Like, no, this company actually just set up their own URL. Like, we don't always have the the best perspective in in the thick of it. But, um, I do find that um, from the people I've talked to, you're right, like the agents, the specific tasks like the one I mentioned for arbitration, brilliant, right? Or doing medical research, like, hey, I've got this thing. What is it? like I could get better results now on Chad GBT than from a doctor who's been doing this for like 30 years. So I I the applications are are brilliant. It's basically an extension of big data. I think one of the things that we're seeing is just in the last two years people were saying oh AI is going to augment and supercharge the white collar workforce. And now if you look at like YC's latest call for startups they're literally saying we're not interested in augmentation. are looking for a rip and replace. So things like medical billing, right? A lot of white collar 100k a year jobs people are looking at and actively seeking companies to fully automate those repetitive tasks. Um, and so I think that is coming very very fast. Uh, I personally am uh quite terrified by what that means for us economically, culturally, society. Um, I and and I don't don't want to bring my politics into it, but I I think if you're going all the way in on that AI future, you need to think a lot about the fallout that's going to happen culturally, society, and, you know, I I think one version of um the future is Terminator. One future is like the solar punk future, right? where we have uh, you know, both these like, you know, lush gardens and flying cars and and I'm kind of like what what can we make out of myelium like h how do we we're going to lean into this technology what are the ways that we can do it in accordance with nature what are the ways that we can do it where we're actually building something and building towards a world that we want to live in and I think that's a little different than the, you know, effort we're going to Mars sort of attitude um, but I think there are a lot of people in Silicon Valley who are holding that vision and who are thinking a lot about the ways that they can use their talent, time, effort, this one precious life, as Mary Oliver would say, um, to try and direct us not towards a a negative technological future or not an anti-technological future, but at least one that's infused with a a sense of, you know, responsibility towards our neighbors and um the environment.
Yeah, it's it's interesting. I mean, I I share I share your your perspective there. I mean, I've been hearing people talk about universal basic income for like quite a number of years. And I was like, you're a bunch of cooks. Like that's that's it's just like basically communism social like you you people need to work. Like I think the function is like people need to actually have a purpose. You can't just sit in your couch and get a paycheck because that you don't have a purpose. Like having a purpose is very valuable. And so as soon as they started to lay out the argument with AI, I'm like, "Oh, now I understand where that's coming from." That was before people were talking about AI. Now that they talk about I'm like I get it because I think about my industry and uh I mean people still want to work with people. So I don't expect that my industry will go away anytime soon. Um, but I can see a lot of industries that will. I mean, I could certainly see um I could see attorneys. I could see doctors. I mean, they've their jobs have changed a lot where they're not diagnosticians anymore. they're just basically writing scripts. Um, not all of them, but it it's kind of changed the profession because they're trying to be efficient and they're trying to be a business now and it's it's changed a lot. So, I find it is similarly uh wonderful and scary at the same time. I don't worry about my profession so much. I I think there's some professions that are first and then there's some professions are kind of in the middle and then some professions probably last. you know, like a plumber is basically when robots, you know, become, you know, sentient or whatever. But but certain industries will get the first the first hit. And I wonder um like my kids like what should I push them into for a profession? I don't know. Like I honestly have no idea what I would say. Well, if you're going to spend the rest of your life in this industry, what should it be? I have no idea. I mean, how would you think of that? Like if if you had kids and you're trying to or you're teaching some young person like what industry should you get into like where would you send him?
I mean I have a 4 and a halfyear-old son so I think about this a lot now. He's obviously quite far away from you know professional life but, you know, there's a great a great quote uh just I forget exactly how it goes but something like if you want to teach a man to sail don't teach him how to, you know, pull lines and, you know, tie knots teach him to yearn for the sea right and so I think a lot about raising a son who can take care of himself who is kind uh who takes care of his uh who knows himself and more than ever the timelessness of knowing oneself who know knowing your morality for what what you stand for I I think that needs to be the north star more than ever optimizing, you know, towards a profession or what have you feels fairly shortsighted in a world that's moving this quickly. Um, and so if you teach someone to know themsel, you teach someone to learn, you teach someone to be kind, you teach someone to evolve, right? I I think those are the things that was settled up for success. Now, he's also a tall white boy born to, you know, born to be the son of a venture capitalist in San Francisco. So, he was set up with some pretty good cards. Um, and I hope that he'll use that cards to play a beautiful hand, not only for himself, but, you know, for others. So to me, there's never been a better time to think about the fundamental principles of what does it mean to make a good human. Um, if we lose sight of that, we're entirely screwed.
Yeah. No, I I think that's I think it's a good perspective. I like that. I think it's uh And by the way, I mean, I studied cultural studies and art history. So I I think, you know, part of it and what my dad said to me is he said, "Go study what you like and can get A's in." And that's what I wanted to do. I wanted to read. I wanted to write. I wanted to think critically, right? I was interested in engaging in the intellectual dialogue of my time. And to me, that's what was exciting. And then the way that I felt like I could have the biggest impact on it, that I could be a player, I hm, we live in a capitalist society. Why did I move capital? Right? That's a way that you get to start playing the game. Um, being being a mover, right? And so I think the more that we think about the agency that we have, the tools of our agency, and we we bring a sense of critical understanding um and humanitarian promise, I think there's a lot of things that we can do, you know, in this life.
Yeah. No, I I agree with you. I I think uh we're uh we're bound for a a very big um pivot or seismic shift in in the world. And you know, I think we all hope it's in the good direction. I mean, wildly, I mean, my son and I walk around our neighborhood and there are cars regularly driving around without people and, you know, without people driving and he thinks that's totally normal. That's so weird for me, right? That is completely normal to him. He doesn't even look twice, you know? So, the the future is here. It's It is amazing. I mean, I think you're somewhat fortunate that he wasn't of a certain age during COVID where like socially people got smacked in the head. Like my kids were around that age and some kids had it worse, but um, yeah, I mean I think the amount of the speed the thing that I fear is, you know, I'm a Gen Xer, so I I grew up, you know, at a time where uh we were basically left to our own devices, you know, Latchki kids, you know, you had to figure things out. I saw a funny meme the other day. It's like, you know, we survived on water from garden hoses all day. We got kicked out at at in the morning and we told to come back at dinner time and maybe we were lucky to get a sandwich from somebody's house, but like like that was a different era, right? And things were slower and and and more paced. But I see things now and like things move so fast and I'm sure the kids will adapt because kids are very malleable. But it just makes me um when I see certain things uh like social media, kids doing things on social media, it's cringeworthy and you're like, "Oh my god." Like you don't realize that you're that this is a permanent part of your record forever and you can't remove it. Like you you have to be so careful now. Whereas when I was growing up, it's like, "Okay, you got reprimanded then people forgot about it. Now it's like permanent." And I kids don't have the perspective that we have because, you know, we've been around longer. And so I wonder how that's going to impact that generation. Um, and I think like you said, I think it's a good good uh mental model to think about is is just make a good kid and and they'll take care of themselves. So I think that's kind of a wise perspective.
Yeah, we we run a 150 person collective of operators, designers, engineers, philosophers, artists um at Balkst and one of the things that we do is we do six to eight week learning sprints that we call study groups and people selfse self self- select into learning about things that they want to learn about and right now we're doing um a study group around a book called understanding media by Marshall McLuhan who's you know one of the top media theorists of the 20th century We're doing it with his grandson, Andrew McLuhan, who runs the McLuhan Institute up in Canada. And one of the things that McLuhan talks about is hot and cold media. And the hotter like a hot media moves really fast. So the hotter it is, like the faster it moves. And a cool media moves really slow, right? And so one of the things is the the hotter a media is, the faster it crashes or the faster it teaches you about itself. And AI is real hot, right? It's moving really fast. And so what's interesting is I don't think it's going to take a lifetime to really see the implications of that. I think it's going to take a decade. Um, and you know, the hotter the media gets, the faster it moves, the faster you get the the blowback. Um, and so I I I think may maybe that's good, maybe that's bad. I don't know. But I think we live in a fast time and um, we need to pay attention.
Yeah, I couldn't agree more. Well, Kate, we're going to wrap it up here in the interest of time. I appreciate your time. I I I certainly uh I appreciate your opinions and uh what where can people find more about you and any sort of final thoughts that we haven't talked about that you think would be useful?
Yeah, absolutely. So, uh my firm is called Balkst B- A Ku N T. It means the art of building and I'm on LinkedIn all the time. So, if you want to, you know, follow startups, you know, startup life, venture capital, um follow me on LinkedIn. I'm also on Tik Tok if you're a Tik Tok person. Um, Kate McAndrew.
Well, Kate, really appreciate you coming the show. Thanks for joining us and uh we love you back on the future.
All right. Thanks, Kirk.
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All right. Well, that was a great interview with Kate. Really appreciate her coming on the show. Now, we're into the panel portion of our show where we have our very own Phil Weiss. Hey, Phil.
Hey, Kirk. Happy to be here.
How's it going today?
Glad to have you. And you're a panel of one, so it's just just me and you again today, Phil. Uh, we're it's a busy season, so it's it's hard to wrangle some people sometimes. We're going to get a we're going to get a bunch of new panelists. Uh, just because people's schedules people are getting crazy busy, which I guess is a good thing. But um, but we need a little more variety here. So we're we're So if you're if you're looking to be a panelist, if you're a listener to the show and you're an expert, uh, let me know. We're we're looking for high quality people. We're very discerning. So uh, we've had a lot of people come to us in the past and we don't, you know, accept just anybody, but certainly if you have a background, you're interested, uh, we're always looking for new new voices, new talent just to mix things up and give people different opinions. Um, ideally we're trying to find people with the opposite opinion. It's just hard to find. So anyway, um, all right. So, Phil, what what were some of your thoughts about the interview uh, today?
I really enjoyed the interview that you did with with Kate. I think a lot about um, what the impact, you know, I'm not a person that invests
In VC. It's just not something that I do. It, I know it's become more accessible than it used to be, but it's not something that I regularly do. I, I look at it, um, but I wonder a lot about the impact of the increased role of VC investing in the markets and what it's doing to the small-cap space. Because historically, like if I look at small caps, look at the long-term data, and small cap, especially small-cap value, is like the best performing asset class. That hasn't been the case for a while. And so I wonder about if it's a permanent thing, if it's temporary. I definitely feel like there's some fundamental changes, and we can get into those a little bit more.
Um, you know, I thought it was really interesting. As you know, I'm a value investor at heart, and I think about Buffett. And, you know, he, he always wants, he wants good managers, but he wants even more than he wants good managers, he wants good businesses. And when Kate talked about that, she, because of the state that the companies are in, she wants to have good managers. I also thought it was interesting when she said how, you know, she's looking for margins and earnings and revenue. Like, it's such an early stage, and I often, I don't often think of companies that small as exhibiting those characteristics yet because they're still building and they're not there yet. Uh, and then the other thing that I thought was interesting was when you guys kind of turned the conversation into a different direction and you started talking about like what the impact of AI is going to be on society and what type of jobs are going to be available. And, you know, her comment about raising good humans. I thought those were all interesting aspects of a conversation.
Yeah, it was, it was a fun conversation. I enjoyed having Kate on the show. I think she's a very thoughtful, thoughtful person in many ways. It sounds like, as we kind of veered into the raising good humans, I thought she was very thoughtful about her approach. So, appreciate that about her.
Um, you know, it's interesting. You, you talk about small caps. Let's kind of dive in there a little bit. Um, what's interesting about small caps? The small caps have been kind of, I don't want to say out of favor, but if you look back a hundred years, like small caps have always outperformed at a long enough scale, you know, uh, large caps. Um, you know, they're riskier. There was always the thing I remember, uh, I don't know, 15 years plus ago, the the theory, you know, the thing was, well, they're riskier, but they give better performance. And if you look at the late 90s, people wanted to invest in a bunch of small caps because they were, you know, producing ridiculous returns. Uh, and of course, it was all tech. But, but that was, that was kind of the thing. So I always found it interesting.
And, um, what I found interesting in probably the last, whatever it is, 10 years or so is small caps haven't really done much. And yeah, they're up, but if you actually look at the performance. Um, you know, they, they've pretty much, uh, just like the S&P 500. They, they broke out in 2013, started to go higher. You know, they, they've definitely had, they broke higher and then they had a lot of sideways movement after COVID. They did well, um, you know, in comparison, certainly, but then, you know, hit a high right around 2021 and then it, it dropped and then it's, it's back to the the peak, but it hasn't really taken off in the same way like the S&P has and other indexes have. It's really kind of been lackluster, and I've been very curious about it because, you know, I'm wondering why is it so lackluster? And, you know, you start to dig into it and you realize, well, you know, it comes down to a lot of factors, right? Because some of it is the dollar, because small caps tend to be more domestic, large caps tend to be more international. So it could be that, um, it could be the fact that, um, inflation and interest rates impact these companies more than they would impact a large company.
So if you look at, uh, the Russell 2000, which is an indication of small caps, it peaked out in 2021, 2022, it dropped a lot and then came back in, uh, 2024, really. Um, and so, you know, you look at it and say, well, obviously interest rates are very sensitive, or small caps are very sensitive to interest rates because they, interest rates rose, small caps went down, and as interest rates started to, they were flatlining, it looked like, oh, well, they're going to lighten up and they're going to lower interest rates, and so small caps went up. So to me, it appears, and I'm, I'm looking at this not from a, um, here's my opinion. I'm looking at it from a correlation standpoint because I think being correlated is really instructive to reality. Uh, it doesn't mean it's true. But if I say, well, small caps should do great because they're, you know, they're, they're more volatile and thus they should get a better return. Well, that 100-year rule of thumb doesn't apply anymore because if it did, then they would be doing what we expect, but they're not. However, there is a high correlation to interest rates, obviously, based on this, because if you look at, um, you know, if you look at basically when they raised interest rates, small caps dropped, uh, were other assets did fine. No, they dropped, but they came back. But small caps are very sensitive because if they're borrowing money, they don't have the same, uh, depth, uh, or strength of their balance sheet that maybe a large company has. So that has a very high correlation. Now, is it the reason? Don't know. I, you know, we don't, we'll never know, right? We'll never know for sure. All we know is really correlations. So, I'd say, all right, that has a correlation.
Um, another thing I look at is, um, uh, institutional interest. So, institutions can invest in large companies, and it makes sense for people to invest in Apple or the Mag 7. We'll just say forget Apple, the Mag 7 because they're so large. So, if I have a billion-dollar mutual fund, I can put a chunk into Apple, and it's not going to move Apple's, you know, price all that much, and it's not going to take me a year to get in. But if I have a billion-dollar fund and I got to invest in small caps, well, a small-cap company may only have like a $50 million market cap. Well, how am I going to put enough money in there to move the needle? It's not going to be worth it. It might have like 0.1% of the fund. So, why do it at all? So I think some of the challenges, um, is somewhat institutional-based or operationally based, which has nothing to do with whether they're good companies or not. It just has to do with can institutions justify putting money into this company? Because I, I go back to Warren Buffett's quote where he said if he had $500 million, he could make 50% returns a year. Now, I don't know if he could or not. I believe he probably could, knowing him. He, he could probably figure that out. But making 50% returns on small caps, if you know what you're doing, I think is probably reasonable. But most people don't. And I know some people play in that area, and you have to have an understanding of the markets that most people don't. So I would never want to play in that area because it's going to require things like, let's just say, for example, let's say you find a perfect company. It's great. You, you, you even know the owners. You know the financials. You're very comfortable. You know there's going to be massive growth, and they get growth, and the stock price doesn't really move that much. Well, nothing you can do about that because you need other people to realize this thing you realized, or otherwise you could have these very undervalued companies because no one knows about it. Which means you got to tell everybody about it, and everyone's got to, you know, and that's why these hedge funds go out there and they promote their book and, oh, you got to buy this company, it's great because they're trying to bring attention to their investment, and so everybody sees what they see. So now you got to be a marketer, a PR agent. It's not really just being an investor anymore. So, there's a lot of things that go into this that are really important. So, I'm always fascinated with small caps. I find that the bigger the market gets, the less attractive they become because there's less institutional money that can make a dent there. So, it's basically individual investors. So, I don't know. I, I don't know if they hold the same value as they did before currently because of the, the, um, the discrepancy in institutional money. Now, if we had a huge stock market crash where the, the large caps were down 50% and the small caps were down 20, well, now you've narrowed that spread. Now, maybe you could make more of a dent, but I don't know. What are your thoughts, Phil?
I want to look at some different factors, too. So, one of the things that I think about is a lot of that small-cap data goes back years, as you said, like if we look at a 100 years of return, small caps have really outperformed. But I have a client, just to give you an example. Her father bought shares of Apple 3 days after it went public. They still have those shares. Now, they've changed hands through the family inheritance and all that. But if I go back to the original purchase, the cost basis in those shares is about $14. And we know that Apple's trading considerably above that today. And Apple, when it went public, was a very, was a small cap. Now, we have companies like, let's just use for an example, Airbnb. It came public as a $50 billion company. So all the growth that drove those small caps like Airbnb, it totally missed that because it came to market as a large cap. So you have that weighs against small caps because a lot of the companies that have the biggest growth potential, at least in my view, in the small-cap world, as they come public, are going to be biotech. Why? Because they need a lot of funding. Because they have to do a lot of R&D to develop their product and all that. It's harder for them than it might be for a tech company to get funding. So, that's one thing that's weighing on them.
The other thing is that, you know, I get a newsletter from Edardi. It's called The Daily Briefing that I get. And he, I actually asked him this question, too. And one of the things that he pointed out is that because of the fact that there's not new companies coming into that small-cap arena, a lot of these are old companies. They've been around for a long time. If they've been around for a long time, probably the chances of them really exhibiting that growth are probably not there. And then if we look at some of the indexes that the small caps are in, you have like the Russell 2000 that you mentioned. I know that's what most people think of as a benchmark. That includes a lot of companies that don't make any money. And so it kind of distorts the valuations. If you want to get like just earning small cap, that earning money, you look at something like the S&P, the small cap 600. And, um, I pulled up, uh, one of the newsletters from Yard Denny this week, and he has value, he has growth, and he has, um, earnings for the S&P 500, 400, which would be mid-caps, and 600, which would be small caps. And so, like we look here, um, the small caps are testing their 17-week lows right, which were set during January in mid-January. The large cap, I mean, their average PE right now is 22.2, which is only half a, uh, percent below its 43-month high of 22.3 from the December 6th. You know, mid-caps, their forward PE is 15.6, and small caps, theirs is 15.3. And you wouldn't expect that. That's like, seems the opposite of what I would expect. And if you look at the, um, the earnings, like it's the same thing. Like the growth that is expected from large caps is actually higher than for small caps. Like it all seems distorted from what we've historically come to expect. And I think a lot of it is because of the fact that these, the venture capital investors are holding on a lot longer, companies are coming public a lot later, and so the original founders and the early investors have a lot more opportunity to benefit because the companies don't need the funding. It's coming through the, the VCs. It's even coming through mutual fund companies like T. Rowe Price and Fidelity. They invest now in venture capital companies. They didn't used to do that. I mean, I worked for T. Rowe Price at one point in time. We couldn't invest in those back then. Now they can. So there's a lot of things that have changed. So, I wonder about small caps and if the, and think that the long-term trends are less likely to hold. And therefore, like when I've looked at my client portfolios, I actually have made an adj, downward adjustment in my small-cap allocation because I'm concerned that we're seeing a fundamental change in the small-cap market.
Yeah, it's interesting. Um, I mean, we're talking about a lot of like similar things here, which is basically the markets have changed fundamentally. And if you look back, I think one of the challenges with Wall Street is, uh, we, we like our rules of thumb, right? We, we like our, um, our kind of tried and true, uh, you know, we, we talk a lot about them in the show. We should probably bring them back out this year is the, the myths, um, you know, the Wall Street myths, which is, you know, like, oh, well, cash is trash, is what what Ray Dalio said. Well, no. Cash is king in the right timing, right? It's, it's, it's trash if you hold it for 100 years. Sure. But I don't know a lot of people who do that. So, you know, I think the challenge is is how do you challenge these age-old rules of thumb? And I think that I think what you have to do is you do have to challenge them because if you think about some of these rules of thumb, like small caps are more volatile and risky, but they'll get a better return. Okay. Well, that may have been true, but as, as Phil said, things have changed, right? And we've talked a lot about why fundamentally things have changed. Um, and also things go through cycles, right? Like, uh, Timberland was one of the best performing asset classes if you were doing an institutional level. Like Harvard was making like 37, 38% a year from Timberland until, uh, it became more, uh, widely available to like the retail side, and then it just kind of got watered down. And people realized what the Harvard, uh, found, uh, endowment was doing, and then they actually, there's some stories behind this. They, I think, uh, what's his name? Uh, Summers, Summers, is that, uh, yeah, I think it was former president, he just basically fired a bunch of those guys and, and they were like, all right, we'll go on our own. And they were, they were getting paid like no money, like they're getting a low salary, and someone's like, you, we don't need this, we don't need to pay them. So they brought in other people, paid them a lot more, and these guys went out and got paid a ton of money to keep doing what they were doing because what they were doing was highly valuable and they were making great returns. But the point being is you were, they were doing something that very few other people are doing. But when everybody figured it out, the returns just flatlined. Yeah. Same thing with hedge funds. Hedge funds were great back in the day, and now everyone was doing it. Now it's hard to get good hedge funds. All these different asset classes go through these cycles. And I think the challenge is is that most people are set in their ways and they do one thing and they only do it and they never think any outside the box. And the problem is, what if your box shrinks and you can't see that because you're only in your box? Um, it's like we're talking about small caps. Small caps used to have a thing. Hey, it's more risky. As Phil said, he's, he's reducing his allocations to small caps. We don't even have an allocation to small caps because I just, you know, unless there's a, I look at small caps as well, if there's a strategic value to it, we'll do it. Otherwise, what's the point? Um, so I think, you know, my style is a little bit different. I'm not an allocator. Most advisors are just allocators and they just, you know, put it and leave it. Um, but I think if you don't understand how the markets have changed, as we're talking about here, then you're not going to understand why you're underperforming, right? So, if you're a value investor for the last 20 years, well, sorry, it's all I can say. I'm sorry. It wasn't my fault, but I'm sorry. Um, you know, because value has been out of favor for many different reasons. And, and I think what we have to realize is if, if things change and you don't, um, that's the problem. The problem isn't that, you know, oh well, you know, we were in the wrong asset class. The problem is that things fundamentally changed and you didn't realize it and you're still doing the same thing. You know, it's, what's the definition of insanity? Doing the same thing over and over expecting different results. And I, I think that applies here in some ways because if you're investing and expecting value to do well, well, next year it's going to do well. Next year it's going to do well. 20 years later, all right, it's, it's going to happen this year. You know, no whammies. Like, that's not really a great way to invest. Now, it might be fine if you're okay underperforming every year as an value investor. I'm not saying you shouldn't be, right? Because that has merit. I'm by my nature a value investor. I'm just not investing in value stocks because I know they're out of favor and I'm not really touching them. But it's, it is a style. It's a style that can do very well if you know what you're doing. Um, but you shouldn't expect to beat the index or the Mag 7 because you're in a different league. You shouldn't expect to beat crypto. Maybe you're okay with getting, you know, five, six, seven% returns. That's fine, right? If that's what you want, then what's wrong with that? There's nothing wrong with that. So, I think it's just really figuring out like, have things fundamentally changed? Um, and does it still warrant investment in those areas?
So, obviously, we're talking about venture capital with Kate. Um, venture capital is kind of this interesting area where it got hot with tech, um, and it's kind of stayed hot. It hasn't overheated, you know, like PE's overheated right now. Um, way too much money flooding in there. Kind of like hedge funds in the late 90s. Everyone wanted to be in a hedge fund. Um, so much so that it watered down the industry, and now everyone has one, and now it's, you can't get into the good ones. Uh, I feel like private equity is kind of going down that road where it's just, they can get access to money, so they're just buying everything they can, even though it doesn't make sense. I've seen a lot of business models, private equity is getting in, and it should make money, but it doesn't because private equity just, they're just, you know, they've got money and they're spending it, and they're not always, you're not always making a profit. But venture capital seems to kind of fall in this little Goldilocks zone where they just kind of do their thing. You know, it's sexy enough, but not too sexy where you've got money flooding in there and making it too messy. So, like people like Kate and others, I've met a bunch of venture capitalists. They just kind of crank away and they do it because they're in that part of the cycle. Um, and so it's, it's a fascinating niche to me. But the question is, should you invest in it? What are your thoughts, Phil? Should, should you know, investors listening to the show be investing in venture capital or, you know, how should people be looking at this as an asset class?
So before I get to that, there's one thing I want to address too. Is when you talked about value, like I'll, I'll bring up something Buffett said again. Like, look, the, the distinction between value and growth, in some ways it doesn't make sense. When you buy a stock, it should always be a value, right? You should always be thinking that it has the opportunity to appreciate. And nobody wants a company that doesn't grow at all. So it's just the way that we like traditional value, that's what's really underperformed. There's still opportunities to find companies that are good values. You know, as far as venture capital goes, I tend to think it's not the place for the average investor. Right now, I don't do it. That doesn't mean that can't. And it doesn't mean that just because I say that I don't do it, doesn't mean anything for anybody else because we all have to do our own research and make our own decisions. But if you want to do it, I think it's one of those things that you say, okay, I'm gonna take X percent of my portfolio, whether that be 1%, 3%, 5%, 10%, whatever it is. I don't think I'd ever go above five. But say, I'm going to put 5% of my portfolio into those type of investments if I have access, right? Because that's the other thing. You can't just say I'm going to invest in venture capital. You have to be able to have a way to get to it, a way to access it. But just say this is a small portion of my portfolio. I'm going to put it into venture capital, and that's it. And not mess within. You never unless you're that's all you do, right? Like Kate, maybe her portfolio is all in venture capital because that's what she does, and she has a lot of knowledge, and she has a lot of insights, and, and everything else. But for the average investor, if you want to invest in venture capital, I think the best thing to do is say, I'm going to take this X% of my portfolio, and that's going to be for venture capital, and that's all I'm going to do. And, and I also know that if I lose that money, I go in knowing that I could lose it because it, there is more risk because not every venture, you know, not all the VC investments turn into something. So, I have to be willing to lose it and also know that it's not going to be money that I can easily access because once it's in venture capital, it's not like you can say, "Okay, I put my money in, it went up X%, I want it out," or, you know, "I'm not happy with how the investment's gone. I want it out." Because usually money's tied up. So, you have to understand that you've allocated a specific portion of your portfolio to this type of investment and be willing to know that that's also at risk.
Yeah. No, I agree. I agree. I think it's, um, you know, I, what's, what's going to be really interesting going forward, and I know we, we kind of talked a lot about, um, AI in the interview as well, is the impact of AI on different, uh, different types of companies, different market caps, different, you know, whatever. And I, I think it was, um, it was a good conversation with Kate because I, I am fascinated with AI and its impact on different, um, different companies because if you think about like small cap, for example, um, small cap is, um, much more sensitive to some of these changes than like a large cap. So for some of these company, large, large cap companies who are trying to implement AI into their companies, the CEOs have been talking about lately, and how it's not actually going to move the needle for them, and they're getting frustrated because they're spending like a lot of money on this, and it's not really changing much. Now, I look at it and I see, you know, like my wife works for a Fortune 500 company, and, you know, it's, um, you know, I, I hear the conversations that are going on about AI. It's like, you know, and I hear like clients who work for Fortune 500 companies, and like I hear these conversations that the internally companies are having, like, should they do it? How should they do it? How's this going to impact jobs? Like, there's a lot of scope that goes into this because everyone's trying to reduce cost. But, you know, what do you do? Do you fire employees and hire AI? Well, maybe in some instances, but, you know, AI is not at the point yet where you can just say, all right, go do it, right? You, you have to manage it, and you have to understand how to operate it. Um, I was just watching a show called Person of Interest, which I, I have to say, I give it, give, I don't know if this is, um, coincidence or deliberate, but when I see like Hollywood put out shows that are way ahead of their time, and you're like, hm, how did that happen? So, like this show, Person of Interest, is basically about these people going around saving people, but it's, it's based on an artificial intelligence that is, um, determining when someone's at danger of, of, you know, being killed. And so, this guy, they run around the city and they save people. And it's, it's actually, it's a really well-done series if you're interested in that sort of thing. I, I loved it. Uh, it's, it ties everything together. It's very well. It's like five seasons. It all ties together. It's really cool. Anyway, so I was watching the show in the last few weeks, and I'm looking at, I'm like, this is just so interestingly spot-on for a lot of this stuff. I'm like, how did they get it so right? Because it was put, it was started in 2012. It's 2011, 2012 when it came out. How is it that accurate, like 20, like 12, 13 years ago, 14 years ago? How is it that spot-on when AI is coming out now? Like, how did they get it so, so accurate? And so I'm just, I, I'm just just fascinated by all this stuff. So makes me wonder with corporations, how much of this is going to apply. I think it's going to take longer. Uh, you know, as Kate and I talked about, I think she's probably smarter in this topic than I am. Um, I'm more of a hobbyist in this, but my opinion is I think things are going to take a lot longer to to apply because I think companies are trying to do it, and they're not quite getting it. You know, they're, they're using it, but it's, it's like, what, what's the value here? But they don't want to be behind. It's like ESG. Oh, we're ESG friendly, or we're this, and, you know, we're green friendly, and now we're in crypto, and now we're in AI. It's like, we're, we're in everything because we want to make you happy as shareholders. I, I feel like that kind of goes on because now that Trump got in, oh, we're, we're against ESG. ESG is terrible. We're not doing that. Right. So, it's kind of like this. Um, it's like Zuckerberg who went on the Rogan show and came out and said, oh, I didn't like when the government was telling us what to do. I'm like, really? Cuz, uh, I, I think if you came out during the Biden administration and said this, I would have given you a lot of credit for that. But now you're coming out after and saying, "Oh, there's nothing we could have done." And it's like, you don't get any credit for coming out after when it's safe, right? You don't get credit for that. You get credit when it's hard, right? That's what leaders are about is doing things when they're hard and when they're risky, not when it's easy. Um, anyway, point being is, um, you know, I think a lot of big companies tend to be trendy. They tend to go along with the trends. What I'll be interested to see is if small companies start to adopt this and get a lot of growth and, uh, margin expansion because of it. That would be really interesting to me. Um, so far, I've heard of a lot of things that are happening, but they're not quite out yet. So I feel like we're on the cusp of some really interesting stuff. Uh, like I was talking to one, one guy who was who was telling me that in the legal system, they're trying to do AI arbitration, which I think that's kind of a little difficult. Um, you're relying on an AI to come up with the right answer for arbitration. It's like, what if they're wrong? What are your, like, you know, because it can be wrong. It's not right 100% of the time. So it's little things like that. It's kind of like, are people going to accept it, right? Are people going to say, "Oh, well, yeah, of course AI is right." No, they're not going to say that. Like, screw you AI, I didn't like your outcome. So, and to take it a level deeper, um, so what does that mean for AI? So, let's say for instance, we build this AI and it's perfect, right? And we say, "All right, AI, what, how do we solve the world's problems?" Okay? And it comes up with an answer. And we don't like the answer. Or it somehow disadvantages a certain part of society. What are we going to say? You're screw you AI, you're wrong. I'm not going to listen to you. You're obviously wrong. Even if they're, even if it's right, we're going to say it's wrong. And then we're going to, you know, we're going to trash the machine and, you know, the lites and it's, I, I, you know, human nature is a weird thing. And human nature is such that our, we don't like our ego to be impacted. Right? We have a view on the world that we think is correct. None of us have it correct. We have a more or less correct version, but we don't have a 100% correct version. We just, we just have our opinions. Like, we're built on opinions based on experiences. So if AI comes up with a solution that we don't like, we're going to say you're wrong. So what value is AI if we're just saying, nah, you're incorrect because we didn't like it? I don't know. I mean, these are deep questions that I think need to be addressed, and I don't think people are really talking in that way yet, but I think at some point we will because we'll realize that, well, maybe it's right and we're wrong, but we're not going to accept the answer. So, we need to find a, a palatable answer for AI to give us that we will accept. And then it's like, well, we're just, it's just a reinforcement loop, right? We're reinforcing our own, um, we're in our own echo chamber, right? We're reinforcing what we already think. It's why people on the left, uh, read the New York Times, you know, they, uh, you know, they watch MSNBC and CNN. The people on the right read, they watch Fox, and they read other things that are that are associated with that. It's because we want people to talk about things that we think are correct so that we feel we're smart. If you're on the right, go watch MSNBC and CNN and try really hard not to shut off the TV or yell at it. Right? It's hard. But in some ways, that is the best thing you can do because you're looking at the other side and you're saying, "All right, what am I missing?" And you have to sit there and take it and not have it like mess with you. It's hard for most people. They're like, "Wait, what?" Like, and, you know, because their brain implodes because it's somebody else's opinion, and you want, you want to be comfortable in your own opinion. So it takes a smart person to really sit there and, and it's, I don't want to do it. It's just, it's painful. So, but sometimes the best thing you can do because it opens up your mind to other ideas that maybe you haven't thought of or haven't fully thought through. Um, and sometimes you can change your mind. Most people won't because it's not how your brain works. But, uh, if you can, Well, that's interesting. So, I don't know. We're going to wrap it up here soon, Phil. But what are your thoughts on AI?
So, first, I just want to follow up on what you just said. I mean, that's confirmation bias, right? Like, we want to find opinions that agree with our with ours because then we think we're right. And so it's really important. Like when I think about investing, I want to find somebody that's taking the opposite view because I want to understand what that is because maybe they know something that I don't, or maybe they point out something that I didn't think of, and I want to make sure that I look at things from all sides. I think it's really important. Social media has made this so easy too, right? We can go find these groups on social media that agree with our point of view, and then we just read what they say, and then it just reinforces, and we never understand the other side. And like you said, it's important to understand both sides, and sometimes it can change your mind, and it just increases your knowledge and your understanding.
As far as AI, I mean, I think it's fascinating. I, I, I love to read AI. There's certain ways that I use AI. I think that one thing you didn't mention, like on the business front, like my wife also works for like a Fortune 500 company, but they are a government defense contractor, so they can't use AI the way that some companies can because they're really afraid of things being discovered, found, whatever. Like, I remember they're not allowed to have TikTok on their on their phones there if they have applications for because the company won't let them. So there are some things that there are some places where it's going to be harder for it to apply because we don't know how protected, how safe the information that we put out there is. And look, we put a lot of information out there. There's a lot of things that people could find out about you if they want to. But AI itself, I mean, like I said, there's ways that I use it. I read about it a lot. There's companies that I invest in that are benefiting from AI. I'm really curious to see where it goes. Like, we hear about all these industries that could go away. I tend to think, I mean, you talked about it a little bit during the interview. I think that our, it, it's a lot harder for it to hit our industry in some ways. And one of those is that there's no personal interaction. And I think that's such an important part of what we do. It's not just all about numbers and reporting things. And so AI, I don't think it can totally replace that. Yes, I know that there's AI models that can talk to you and everything else, but it's not the same as having a conversation with a human being that can have, you know, that can really interact with you. And you talked about telling jokes, right? Like, does AI really do that? Like, that part of it's missing. But I do think that there's a lot of ways that it can have an impact on our businesses and on our lives. And I am really curious to see exactly what comes all this. And like I said, I just think it's a fascinating topic that I, I'm always looking for more things to read and learn about it.
Where can people find more about you, Phil?
Well, I'm Phil Weiss. My firm is Aprize Wealth Management. I know experiencing big life transitions can be stressful. My job is to help empower women facing new beginnings with the financial knowledge and tools they need to make self-assured decisions. My firm is Aprize Wealth Management. We'd love to get to know you. You can go to our website, which is AprizeWealth.com, and sign up for our weekly blog or schedule a free introductory call. Thanks for having me today, Kirk. Enjoyed the conversation as always.
Yeah, thanks for coming on, Phil. That's the show for this week. Thank you again for joining us on MoneyTree Investing Podcast. My name is Kirk Chisum, wealth manager of Innovative Advisor Group. We don't just manage your wealth, we make your life better. You can find more about me at innovativewealth.com. And of course, you can find me every week here on this show. You can also check out our show at MoneyTreeInvestingPodcast. On our website, you'll have access to the show notes, resources, and the archive shows. Please remember to subscribe on our YouTube channel for immediate access to the new shows when they're released. When you subscribe to the show, it allows us to get access to some of the top minds of investing in personal finance. While you're here, please leave a comment and question if you want us to address it on the show. Have a great week ahead and remember, no one will care about your money like you do. So, invest in your life.