Here’s what we cover during this week’s Partner Meeting segments:
Transcript (this is an automated transcript):
MPD: Welcome everybody. I'm Mark Peter Davis, managing partner of Interplay. I'm on a mission to help entrepreneurs advance society, and this podcast is part of that effort. Today we're doing our typical partner meeting format, having a bunch of internal conversations that I hope are pretty insightful to you.
We're talking about big breakthroughs and artificial intelligence. China's evolving covid strategy and what that means, some new inflation data and what we think the government's gonna do. And lastly, Fong jumps into founder dynamics and how to maintain really strong and healthy relationships. I think it's a great episode.
All right. Now Mike's gonna give us a little color on the venture market. Mike, you're wearing your Star Trek colored shirt today. What's up with that? I don't even know
Mike Rogers: what that means, . It's like a bow and white. Oh, you mean the collar? Yeah, that's what you're thinking about? Yeah. It's a fashion thing now, apparently.
If there's a term for it,
MPD: what's the term? I think it's called a SHA call or something like that. I dunno. I dunno. That's too
Mike Rogers: sophisticated for me. I don't figure it out. They just, I just put on what they tell me to put on. All right. The, I'll
Mike Rogers: throw a shout out though. It's my friend's company wrote to nowhere clothing.
Check it out. Oh, very cool. We'll put that one shown up. Free
MPD: advertising. There you go. Advertising. Okay. All right. Let's talk about the market. What's going. What are we talking about in tech? Cool.
Mike Rogers: I, big thing this week is the open AI chat, CPT three released. Everyone's talking about it. I thought, eh, should we talk about it too?
But I actually think it's so important to talk about that. We should talk about it. So if you haven't played with it yet, I highly recommend just going in and playing with it. And, the aha moment, I think for most people is when they realize that they're talking to a, like a. And this computer is forming thoughts and replying to you based upon the data sets that it has inside of it, and it's incredibly impressive.
I think, I started in this industry about seven, eight years ago now. That was the original wave of ai and we heard a lot of AI funds popping up. We saw a lot of entrepreneurs building AI companies. AI was its own vertical and it feels to me a lot like what we hear in the blockchain space.
Where people are building companies in the space. It's got its own dedicated funds. Its own teams. Its own companies, and ai. Now what you're seeing, how it actually manifested seven years later is in the API layer. So open AI is an API that you can plug into, any entrepreneur can plug into and build their company on top of their on top of their API and on top of their AI network.
And it's incredible. So where do I think this goes? What's interesting about it is, first and foremost, I think for the last five years we've been hearing a lot about like data. Oh, we've got all this data. We can monetize the data. The data's really interesting, the data, this and very few companies have actually been able to monetize to the point where in our own conversations, we basically have just ignored that from founders and said, great, you might figure out how to monetize the data later, but we can't underwrite that in revenue stream.
And now that data might actually be everything because if everyone can plug into these. Whether it's through open AI or other competitors eventually APIs and plug their data into it, it's really going to be a competition on who has the best data to power the best AI and neural network.
I think what we're gonna see in the next few years is a bit of a revolution there in terms of how people build and scale products. People with the best data lakes might end up having the best products. A bit of a turn but super interesting.
MPD: None. What I think is so momentous about this release is AI has been used behind the scenes in tech for a long time.
It's machine learning, natural language processing. There's all, there's layers of this stuff, but it hasn't been on the front end. It hasn't been at the stage where consumers actually see. It's been used in small pieces, more or less, to enable things that humans interact with, like in that are different levels of the tech.
This is the first time where it feels like we're doing a lot of heavy direct interaction with the AI machine. At a level where you can see the caliber and the quality of it is so good that there's real clear commercial applications. We had a, I have a friend who's very highly educated and all of that went on and actually used one of the open iai feeds to write the applications for his kids' school program.
Yeah. So it wrote a better essay than he. And so now for sure, AI is getting to the level where it actually has real practical daily utility and there's probably gonna be a flood of entrepreneurs coming in now making it accessible and creating use cases around it. Totally. I
Mike Rogers: think the the essay one is interesting as you way to think about, it'll have to is this gonna write everyone's college essays?
I think the shortness to that is no, and. So now before you used to start at zero, right? And then you'd have to start constructing the opening, thinking through the paragraphs, writing the essay. Now, why not just start with the ai? So put in, Hey, I need a 500 word essay for college, and then it'll pump out the answer, and then you can take that and you can go and tweak it, update it, change it a little bit.
But 90% of the work is already done in structuring the essay. So I think. A lot of people are like, this is going to replace everyone's jobs. I actually don't really believe that narrative, to be honest with you. I think this will replace some people's jobs. It will create new jobs as well, but what it'll really do is allow people to do their jobs to 5, 10, 50 times better or faster.
And what gets me excited about that is, What does that mean for guys like you and I and what does it mean for the rate of innovation? So if before companies could build and grow code X, at 50% a year or a hundred percent a year, because every time they wanted to grow more code, they had to hire an engineer.
Now if AI like this can have the engineer rate code five times faster, maybe that company can grow five times faster, or they can build a product five times faster. They can improve features five times faster. All things. Right now, let's be real. Like product innovation is still slow on a relative scale to how fast people want things, right?
You want your deliveries in 15 minutes, but adding a new feature to a product might take 2, 3, 4 weeks or months. What if we can do that in days or hours? So that's what gets me excited. I don't think this is the end of the world. I don't think Terminators coming for us tomorrow, but I do think that this in the next three to five years will be a huge accelerant for the pace of innovation.
MPD: I. Yeah, the every time innovation goes through a major milestone, you accelerate people's human productivity, right? You create new challenges to values, right? There's now a question of is it ethical to use this for your applications or your homework or whatever else? And then it creates an increasingly complicated regulatory environment, which the US system, which is designed by intentionally to be slow.
Not necessarily well equipped to react to. Cause these things continue to move faster and faster. So Totally, yes. More complexity to come, but this is a pretty big milestone when we look back at the timeline of techno technological innovation. I think this is gonna be one of those dots that has a little call out.
Mike Rogers: Super cool. And I think the coolest part too is this is, Chad, you could see three or some people were saying it's three and a half four, which apparently is gonna be 10 or a hundred times better, is coming out in months, not years. And I think the pace of innovation here is gonna be really fast.
And now that they've released this, I think you're gonna see a lot of their competitors start to release similar type products, which will only fuel the pace of innovation. And I'm excited to see what companies do with it and what entrepreneurs will be able to build on top of of this.
Chris Zhang: Thank you, Mike.
MPD: All right. Now it's time for Fong's Business Tip of the Week. Fong, what do we got?
Phuong Ireland: Hey a few weeks ago we talked about how to decide whether or not you need a co-founder. So today I'd like to discuss what to do once you have one. The co-founder relationship is really one of the most intimate relationships in business.
And like a lot of other things in life, like in a marriage this relationship requires a lot of work, a lot of time, and a lot of deliberate. So I pulled together some tips on how to maintain a productive relationship with your co-founder. First tip is from the beginning, make sure you're aligned on the vision and the mission of the company.
So I've mentioned this last time in a previous e episode, you really wanna make sure that you're aligned on the culture you wanna build and why you're building the company. You know the example I used before. If one person is gunning for an intense high growth VC bated company, and the other wants to build a slower, steady growth business that allows them to have balance in their lives if you're not in agreement on something as basic as that, you're gonna have conflict every single day.
Number two is making sure that you're crystal clear on who's doing what. Clarity and rules is absolutely essential. It's really easy in the beginning just to both make decisions on everything together, but really it's not that effective way to make decisions in the early stages and definitely not as you grow.
So look at the skills that you guys have with regards to each of the core functions and decide which co-founder has the final say on. And then make sure that everyone on your team knows that. So every employee should know who they should be going to for what issue. Number three is to strive for honest, transparent communication.
You've gotta speak truthfully and speak often. You've gotta let the other person know if you're struggling, so they can help support you. Tell the other person if you've got doubts about a direction that you're taking or the company in general so that you guys can work it out. And then remember that conflicts are gonna happen.
They're unavoidable, but don't sweep them under the rug. Even though talking about conflict is hard, avoiding them is even worse because it can talk, it can foster resentment in a toxic environment. Number four, this is one of my favorite ones, is assume positive intent. This is something that I learned years ago at a leadership retreat when I was working for a big company, and it's always stuck with.
So assuming positive and intent means choosing to believe that people are working to the best of their abilities with the information and the resources that they have. So if someone makes a mistake, or if something's not done the way that you would've done it, keeping the perspective that your co-founder is doing their best and is as invested in the success of your company as you are, keeps you from going to a negative place that maybe they just don't care or they're incompetent.
And that leads to a lot of misplaced blame and a lot of conflict. And then last tip, spend quality time in different settings outside of work together. If you want friends before, get to know each other as people. If you guys were already friends, continue to invest in that relationship and make sure that you still have that bond outside of the work stuff.
I didn't know my co-founder for long before we started our company together, and I found that the time that we spent in different situations was really valuable for us to see each other in different perspectives and add a depth to our bond. We took our kids out together and we got to know each other as moms.
She spent a weekend with my family when we were doing a pop-up shop in Montauk, and she got to see me as a wife, as a daughter-in-law, as an aunt, and that, I think, gave her a deeper understanding that really transcended into how we work together. So to sum it up, your co-founder relationship is one of the key determinants of the success of your company.
It's also really impactful to your overall wellbeing. Having a bad relationship with your co-founder just sucks and can make you miserable. So it's really important to put the effort and investment in building effective ways of communicating. That's all I've got.
Chris Zhang: Huge
MPD: topic and super important and super good insights.
The building the relationship with people, even if it feels forced outside of the office, is so critical. Doing like a quarterly, something outside the office. Call it an offsite, but you do some business, but you also hang out. Yeah. It's a game changer for those relationships. And the assuming positive intent thing too is huge.
It's not just for mistakes, it's what someone meant by a comment. Exactly. It's really easy to build up scar tissue when there's really no need for it.
Phuong Ireland: Yeah, I actually keep that in mind through so many of my relationships with my husband, with my friends. It's just a really helpful thing to keep in mind.
MPD: completely agree. What do, what's your take on titles? Every now and then I'll see two co-founders come in. To pitch and they are co CEOs now. They probably in the background have divided up a lot of the decision making. What's your take on the co CEO concept?
Phuong Ireland: No, it's funny, when I started my company, one of the first board meetings we had they asked us who's in charge?
And my co-founder and I looked at each other, I was like the business one and she was the creative one. And but we both wanted that CEO title and we said maybe we could be co CEOs. And I know that there are certain. Models where it has worked, but in general, I think someone's got to make the final call.
There's gotta be someone, where the buck stops and it's just more efficient. It's just leaves less room for conflict. So I think, with regards to the co c e o thing, like you've gotta make a decision. I think in terms of other titles, as long as you've really gotten the framework of who's doing what, who's responsible for which core functional area, call it whatever you want.
MPD: And I think there are founder groups that have figured this out and done the co CEO thing, but behind the scenes there's one that kind of the group defers to, and that is the actual person with the decision making responsibility. But it's it's dangerous. It's a complicated thing. I find people psychologically connect their titles and so if they get a title they will perceive themselves to.
Be obligated or entitled to what that title suggests, even if it's, a a bit more of a branding effort or a complimentary thing. For those out there, be careful with that. And the co c o thing is complicated. It's not un undoable, but it's not easy.
Chris Zhang: Thank
MPD: you. Fun. All right, everybody.
Now we've got Chris who's gonna give us an update on the market and usually some geopolitics. What's going on,
Chris Zhang: Chris? There are three things I think worthy of discussion this week. Let me start as usual with domestic data. First one. So p Producer price index. Just came out this morning and a little bit hotter than expected.
So since moving market a little bit, it's a measure. So just to remind everyone, PPI is a measure of inflation from the perspective of the producers. For a lot of folks in the market, this is the leading indicator of inflation since a measure of price changes before they reached consumers versus a cpi, which is more of a a current.
The headline, p I came in at 0.3% month over month. About 10 basis points hotter than expected. And this is on top of the October data that was already revised upwards. What's a bit con, a bit more concerning I think is the core, which is again, X energy and food that came in at 0.4% a month over months, which is about 20 basis point higher than expected.
But I always like to zoom out a little bit. On a year on year level, headline stands at 7.4% would versus sort of 8% in October and 11.7%. That's the high water mark that we reached in March. So we've come a long way down from the peak which is I think what market participants should be looking at more and talk about.
Looking ahead though, we do have CPI next Tuesday. Obviously that's the one that grabs most of the news attention these days. And f omc race decision, which will be on Wednesday, likely we're gonna get 50 pay, 50 basis point versus 70 basis point that we've had in the past couple of meeting.
This particular p I idea that came out shouldn't move any expectation on that. I think the Fed would've signaled the market otherwise. But I do expect that potentially in the minutes that will come out in a few weeks, that the fed will signal that they will keep rates higher for longer. To be clear though, that market expectations have already started to shift that way.
I think we backtrack a little bit in March or happened a few months after March. Market of pricing market pricing is a the high highest rates to, of a race to peak maybe in March next year, and a drastic of turned downwards in the past few months, we've seen market expecting, rates stay high until maybe Q3 next year.
But I think more likely, or a more realistic scenario is rates stay high for pretty much the entire year. Next year, it's gonna take that long for inflation to finally come to back down to normal. And then maybe in 2024 we start to have cuts. That's the end of my first topic. Before I move on, mark, any questions?
Okay, Chris, so when
MPD: we're looking at this, what you're saying is it's not that inflation is declining, obviously it's the rate of inflation. Has come down a little bit throughout the year. Okay. And given the fact that there's still more inflation than expected, we're expecting the the Fed to continue to raise interest rates, then hold them high for longer.
What's high now? Everyone talks about holding them high for longer, but Yeah. High relative to the last 20 years. Everything's high relative the last 20 years. Yeah. What is high historically is getting to a five or a 6%. Above the average? Or is that actually hitting the historical norm?
Chris Zhang: Yeah, that's a great question. So it depends on your obviously your time horizon and your, you have to also put the economy in context. But if we ever get to the point of hyperinflation and we're not there yet, and let's say we use the 1980s as a context, the Fed had to hiked to 15 to 20% interest from an interest.
To combat inflation back then, so that's real high. In terms of interest rate expectations, right now the market is pricing in a 5% top rate that will likely reach by March next year. I think any, there are a lot of debate. I think it's basically a 50 50 in the market out there, whether this is enough.
I'm more in the camp that we're close to what's potentially enough to bring back inflation down to normal over time, but we're not there yet. I think potentially we'll adjust to five, 5.5% or even 6%. But is it needed to get to 10%? Not necessarily because you know what? There's other indicators of the market that's showing that cons on the consumer's level, on a household level.
Consumers are already spending beyond their means a little bit. Household debt is going up, credit card debt is going up. Even with straws from your retirement accounts are going up. So at some point when consumers will have to realize that they're spending beyond their means.
So they'll have to slow down demand. And now we'll hopefully bring down inflation faster than what's currently input. All right. Thank you buddy. Let's keep. Of course, second one, I think very interesting Russia oil price cap. So in, on Monday this week at the u g seven Australia came together and set the highest price that they will pay for Russian oil at $60 per barrel.
Of course the goal is to limit Russia's profit to fund as war effort, which is a good thought and an interesting strategy. And interesting enough, it's a very good countermeasure against opac, which is effectively an oil cartel that shouldn't exist. There's a lot of sort of positive coverage in at News media on this, but I, my personal view is that unfortunately, this won't necessarily make a dent or really impact Russia's balance sheet per se.
Because what's missing from this pack is China to India, two of the largest oil consumers in the world that Russia has partnered with. And just to make it very concrete, Russia exports about 10 million barrels a day of oil China imports about 8 million barrels, and India imports about 4 million barrels.
So yes, these contracts are signed over time. There's usually a duration around it, but if the G seven, Australia and EU were to decrease their or set the price cap, which is effectively a tariff on, on, on oil, China and India can step in and substitute all the demand over time. How effective this is this oil price cap is yet to be seen and I, per my personal views, unfortunately it's not going to be too effective.
But if the work, the rest of the world can come together more as in unison and use this as a countermeasure long term against opac. I think this is a very interesting experiment. It seems
MPD: like this is just one of those we need to put a headline out and say that we did and it will placate most people. But the actual, when you sharpen the pencil and dig into this, from everything I've read, it's not gonna actually have too much impact or, really change much.
Chris Zhang: Yeah. I think that's also sort of Ukraine's perspective too, I think. But I agree. But, the positive of all of this is at least we're trying to do something and this is an experiment that's worth not.
By the public community, if it works in any way, shape, or form, or even if it signals to the producer of the world, that this could be effective and this could bring more countries into the fold. That in itself is an effective political strategy. I in some all
MPD: right, let's keep going buddy.
Chris Zhang: What's next? Sure. China. So last week we talked about. The protests, the potential strategies that China could come up with at the back end of the protest regarding its covid zero policy. Sure enough, on Wednesday this week CH China basically came out, revamped its entire covid zero strategy, at least domestically.
So local officials can no longer lock down districts at a time, up until this point, basically for the past two and a half years. Any local officials in China can basically, without any evidence, lockdown 80% of the city right away, that's no longer allowed. They can still lock down specific buildings if covid cases are identified.
Covid patients and contacts can now quarantine a whole instead of being a ship to basically government facilit. And for domestic travels, folks no longer need to show this sort of green QR code and PCR test and yada yada. That's our, that's really has been really cumbersome for for businessmen and really trade domestically all that are gone.
So it's very drastic, frankly, a lot more drastic than pretty much everyone expected. But it's important to highlight that's only domestic. The foreign travel, international travel is still basically as it was before. However, the government has indicated that over time this, that would be also loosened.
But, and the time, the timeframe for it to happened has been accelerated. So three to six months instead of six to 12 miles previously expected. What's the implication of this? Number one definitely good news for some of the companies like Apple. That's very much dependent on still to the state.
China. China, man, Chinese manufacturing, my hometown, the iPhone city, people are going back to work. iPhones are being produced. So the lead time on new iPhone fourteens is, has now decreased because of this. But will this still dis disrupt supply chain on a broader scale? I think so, because again, international travel is not.
Still very cumbersome. I think to travel to China is still requires seven day, seven day quarantines. Eventually that's gonna be a more a zero three policy, meaning zero zero days in government facility in three days at home. That'll take six months. So supply chain will take time to adjust, but nevertheless this is a positive step to the right direction.
Hopefully this will be bring down inflation. It will be one, one of the factors that brings down this inflation in the US and the rest of the. It also means, doesn't
MPD: it that everyone in China's gonna get covid? Cause eventually everyone's getting covid is my sense of it. Yeah. And if they're not stamping out every little spark of the fire, it's gonna spread like it does everywhere else.
Is that gonna create a whole set of new problems when everyone starts showing up and testing positive? Or are we at a point in society, in the world where everyone's ready for it and they know what it means and they know how to handle it operationally?
Chris Zhang: Yeah, that's the question that I think everyone's asking right now.
I think it's likely that we will ex, we should expect some of disturbance in society and people are, even though the, the restrictions have been loosened, my sense is that people are still not. Willing to travel, especially older folks in China are still not willing to step, step, step out of their apartments and walk around freely.
So it's going to take time for people to feel comfortable again. And by the way, the government's really trying to increase their vaccination rates, amount, elderly, especially succeeded above. That's gonna take time. And as long as we're not seeing a jump in, in sort of death rates, I think we, the country can probably manage, this is also one of the theories why they're not trying to open international travel as fast as they're opening domestic travels.
Cause they don't want all these they don't wanna deal with complications, both mean, domestic and international travelers. So at once, so it's a sensible thing to do, but on my hope is that it doesn't translate to higher our death rates. This sounds
MPD: like the first step. Like she sec, secured his.
And now has taken the first step towards a, probably a method, like a robust plan to eventually open everything back up over a period of years or whatever. It's, that's, is that the right guess?
Chris Zhang: Yeah. That's happening. Yeah. Stability as we talked about last time is the name of the game in China.
That's what the government wants overall else, and they really have to debate what's the right move here to increase bit of stability and economic recovery. This is to me definitely in the right move. What's ironic among all these things is in the background, the government's also targeting these pro protestors, locking down their social media accounts and God knows what what's happening to them.
So that's always, unfortunately in the background. Yeah, it doesn't
MPD: matter if you were right, you just pissed off the wrong person. Okay. Thank you Chris. And a reminder for everybody, Chris is an s e c registered R ia. And nothing he said should be taken as financial advice.
All right, everybody, thanks for listening to that. I just wanna put an exclamation point on what Fong was talking about maintaining and strengthening founder relationships. It is. So important. And it's the little things, assuming the best, getting time together remembering that you're humans and hopefully friends.
So good luck with that. This is a huge problem that a lot of people face. They have bad founder dynamics. Very important to proactively invest in that. If you want to get in touch, just feel free to reach out to me. You can get me on Twitter at M p d. Otherwise, we'll catch you next week.
Interplay Family Office LLC (“Interplay”) is registered as an investment adviser with U.S. Securities and Exchange Commission (“SEC”). Registration of an investment adviser does not imply any level of skill or training. Information about the qualifications and business practices of Interplay is available on the SEC’s website at www.adviserinfo.sec.gov._ Interplay only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. Offering of asset management services through Interplay is pursuant to an investment advisory agreement.The views expressed in this <<insert advert type, i.e., podcast>> are subject to change based on market and other conditions. The <<insert advert type>> may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.Information communicated during the <<insert advert type>> does not involve the rendering of personalized investment advice but is limited to the dissemination of general market information. A professional adviser should be consulted before implementing any of the strategies or options presented. The <<insert advert type>> is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Neither Interplay nor its advisory persons render tax or legal advice. Please consult your tax and legal advisors for advice concerning your circumstances.