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Concordia Summit 2021: The Future of Innovation in America

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Investor, entrepreneur, and philanthropist Joe Lonsdale joins Yahoo Finance’s Akiko Fujita to discuss the future of innovation in the United States.

Video Transcript

ZACK GUZMAN: But first, we want to get out to the Concordia Summit live coverage today where our very own Akiko Fujita is hosting a fireside chat with Palantir's co-founder Joe Lonsdale on the future of innovation in America. Let's listen.

AKIKO FUJITA: Should mention he founded the software firm along with Peter Thiel and many others when he was just 21 years old. But he now heads up venture capital funds 8VC. And Joe, it's good to talk to you today. So much to get through too. We're talking about the future of innovation in America. But I'd love to start by talking about the current state. It's a big question we're going to kick off with. What do you see as the current state of innovation in the US?

JOE LONSDALE: Well thanks, Akiko. Well gosh, yeah. There's a lot of inputs to innovation. There's the science and basic science and the ecosystem we have there. There's the startup and technology ecosystem, building off of that. And then there's the interaction of innovation with the regulators. And I think probably the biggest fact of what's going on right now is kind of a banal one, which is that there's a lot of resources. There's a lot of money towards innovation. And so there's a lot of things that are able to happen right now that wouldn't have happened in the past if you couldn't go raise hundreds of millions of for some of these companies, work on these important problems.

And the other part of innovation, there's a lot of new things that have become possible thanks to what's coming out of the scientific world. I think the revolution of biology is a huge area where there's a lot of things. And there's a lot of areas there. And then there's a lot of interaction with government. There's places where our government's quite competent. There's other places where things like the FDA, and like how we regulate infrastructure, are potentially causing huge problems for us holding a lot of things back that are important.

I think overall, there's a lot of innovation going on. I think there's big challenges in the scientific world where a lot of ways science works right now is not as healthy and dialogue's not as open as it could be. So but I mean it's a huge topic to cover. But it's a very exciting time with what's going on, especially thanks to the startup part of it.

AKIKO FUJITA: You talked about the resources that are available to startups today. And I want you to sort of think back to, what was it, 2003 when you co-founded Palantir? You think about the environment today in the VC space for startups. You think that Palantir would have been able to grow in the way it did, scale in the way it did, and raise funds easier in today's environment? Or you think it's the opposite?

JOE LONSDALE: Well it's an interesting question. In terms of the talents, we got a lot of the-- we'd measure who the top 10, you can't always be right. But you'd get who are the top 10, top talent technologists coming out of the top schools who are and going into these PhD programs. And we got a lot of really amazing people who these days would have been a lot harder. Because a lot of them would have started their own companies. And so because there's a lot more capital to start your own company.

And then weren't people back then, 2005, six, seven, I'd meet who were thinking of starting their own company. And we convinced them, listen. Come join us instead. And when you get this critical mass of amazing people, you're going to learn from them, it's growing so quickly. And so I think today it would have been harder to get all the same talent in one place. The other thing, though, is Palantir would have been built-- technologically, it would've been a lot easier to build Palantir. This is right before the whole cloud even came out, this was-- there were a lot of tools we had to create for ourselves that then eventually the market created for everyone else 10 or 15 years later.

And so Palantir would have been a lot faster to build but it would have been a lot harder to get the same talent. So and back then, it was very hard to raise money for Palantir. I had a lot of conversations with venture capitalists that said, Joe, why aren't you guys doing web 2.0? That's where all the cool stuff is. This is the early days of Facebook and LinkedIn and all these web 2.0 companies like, what are you guys doing working on government problems? That's not how you make money.

So it was very hard to raise money. And that part would have been easier. But the talent would have been harder. The building would have been easier. It's hard to know the counterfactual of what would have happened if Palantir hadn't been built. But it definitely was probably more of a slog back then.

AKIKO FUJITA: Yeah, a lot has changed over the last almost 20 years now since Palantir was founded. You're on the flip side now here as a venture capital investor at 8VC. Walk me through the way you approach these investments. What's your framework? What's your checklist when you think, what's that next big company?

JOE LONSDALE: Sure. And we're builders at 8VC as well as investors. And so I think we like to think like builders as much as we can. And what we're doing, what you do as a great entrepreneur, I've started over 10 big companies now, is you look for conceptual gaps in the world. You say, here's how this industry works now. And here's how it could work if it was using modern technology, if it was using everything that was possible, if it was coordinating with these networks and platforms that could exist. Then look how much better that make this process work.

And so as investors or as entrepreneurs, you start with that conceptual gap. You start with what's possible and then you go explore. OK, how do you fix this? And a lot of times in exploring that, you find companies. Then you find talented people that also have identified this gap and also are working on it. And then we end up investing them and helping them do it. But we really start with that kind of high level conceptual point is our way of approaching a space.

AKIKO FUJITA: How do you think about the market that could potentially exist five years, 10 years down the line? Because I know it's not about investing in the now, but sort of seeing the potential down the line. You look at a company like Joby for example, the air taxi service that 8VC invested in. What do you see there? And how did what they were doing tick off the checklist?

JOE LONSDALE: Well Joby is a pretty unusual company. It's a flying car basically. And so I kind of make a joke at my fund. And we get one really crazy one per fund. We led the early round in Joby with a couple of friends of ours. It was more crazy than most things we do. But the thing that happened with that is that, listen, all of a sudden it was possible to have battery technology, and the carbon fiber technology, and the simulation technology. They were able to figure it all out. And they were able to figure out that you could actually have something that goes 200 miles on a charge very, very safely, much safer than a helicopter and goes faster than a helicopter.

And you said, wow. This is obviously something that should exist as a commuting vehicle and that a lot of people could use. Or as in some cases just if someone's in a rush. And so some people use it to commute, some other people will only use it when they're in a rush as-- a more rare thing. But that you could have thousands of these vehicles in major cities and they can make the major cities work a lot better. So that's the vision we're excited to see. Joby just took a billion dollars as part of going public after raising several million dollars before that from Toyota and others.

And so it's really awesome to see this vision starting to come true. The prototype works. Let's see if we can scale up the production.

AKIKO FUJITA: Yeah, how long do you think we're going to start long until we start seeing some of these--

JOE LONSDALE: I think it's a combination of the FAA and how quickly they're able to-- it's really going to be up to them in large part. I think if the FAA moves at a reasonable speed, you should have at least one or two cities where people are flying these around using something like an Uber app within three to four years. So let's see if we can get it done.

AKIKO FUJITA: Yeah. We'll see where the timeline is. You mentioned that there is so many pools of money that startups can now tap into when you compare it to where things were even a decade ago. What sets 8VC apart from the pack?

JOE LONSDALE: Well I think when you're doing early growth investing, and you're doing early building of a company, you want to be working with the other top builders. You want to basically find people who are great entrepreneurs who know the space and are able to help you. I think the two things we focus on is one, there's 50 people on my team, 10 of us are partners, we're all builders, we're all still involved in creating lots of companies. And so we know how to build really, really well. Your job as an investor is you try to figure out how to give unfair advantages to the people you're working with because these things are really hard. The world is basically set against you as an entrepreneur. You need a lot of advantages to make this work.

And so I think we know how to do that because we're builders. I think the other thing that we focus on is we get to industries very well. So we go very, very deep on different parts of logistics, healthcare, biology, fintech, and so we're friends with the people who run all the big companies in these spaces. There's very much of a positive winner take all effect when you start winning. Once we have 15 really great logistics investments, we know everyone who runs the big carriers, or runs the big warehouses, or runs the other parts of it, if someone comes to us, we're able to very quickly get them feedback, quickly understand if it's going to work or not.

We're going to be able to get them some of their early deals when [INAUDIBLE] comes to us and we're able to get them $100 million deal with UPS to do the vaccine. It's the kind of thing because we know the right people. And so I think in general when you're picking an investor, you want them to have experience in your space. You want them to have experience as builders. And because entrepreneurs much rather work with other entrepreneurs than to work with bankers who don't really understand what they're doing.

AKIKO FUJITA: Let's talk about the role the government plays in fostering innovation. You've got a bunch of lawmakers right now on Capitol Hill that are calling for what is effectively a break up of some of these big tech companies like Facebook, saying their dominance in the market is what stifles competition. When you look at the discussion that's playing out in Washington, you think the government hands in this is ultimately a good thing that levels the playing field?

JOE LONSDALE: I'm not completely against antitrust myself. I think in our society, we should be skeptical of concentrated power. I think the government itself has lots of concentrated power we should be skeptical of and make sure it's checked. But I think big companies also have concentrated power. So that's an area where if they do it carefully in a way that's fair, I'm not opposed to it. I'm much more concerned when government says, we're going to create new companies in this area. And we're going to have a $100 billion fund to create innovation in important areas.

There's not a problem right now with lack of capital in important areas. And so I'm actually-- what ends up happening when the government puts lots of money together to try to help, is it creates cronyism. It creates the fact that if you're friends with the right person, or if you come across as something that society wants the lot right now, it becomes a popularity contest basically where you get money. And the market is much, much more efficient than a popularity contest. And I'm not saying the market's perfect. But I think the government's much more likely to make mistakes.

And when the government starts to get really involved here on giving out money to things, basically it means my job and the job people like me is all of a sudden to spend a bunch of time flying to Washington DC and telling everyone how great we are. And I'd much rather spend my time actually creating value for the world than doing that. If you look at it how a third world country works, all over the world, we have third world countries where almost all of their wealth's in their capital city. That's because these governments don't have checks in their power, they control a lot of money. And everyone who makes money has to go and has to explain to the people running the government how great they are.

It has to be their friends, has to go golfing with them, and it has to get all the money. So if you look at the wealth in countries that are run badly, it's all around the capital. And I think we don't want that for America. I think we want to try to go the opposite direction and stop having the government get involved and to kind of do all the handouts. And the politicians love it because they get to give handouts, they get to be more popular and more powerful. And so I think we got to be really careful to push back on that. And that's a value that America could do a lot better on than we have lately.

AKIKO FUJITA: But if we're talking specifically about the tech sector, and you say there's enough capital out there right now, you've got President Biden calling for, for example, Climate Innovation Fund. I mean, isn't that ultimately a good thing to just expand that pool of money?

JOE LONSDALE: It's not if the money's going to the wrong places. It crowds things out. So if we're trying to build a great company that's going to solve things in climate because that's something that's actually sustainable that a market would support that's real, and he's giving $20 billion to some goofball who's doing something that's never actually funded, but they're able to pay off the right people, and their friends with them, they're going to now hire up all this talent that is going the wrong direction. It's doing the wrong thing.

You're doubling the cost of talent for the area for the thing that actually would have worked. And it's a total mess. And so it's a misallocation of capital in the economy is a bad thing in general. And we should be very careful about misallocating capital. I think that the government's going to play a role in something like climate. There's smart ways of doing it. They're saying, OK, anyone who can get carbon sequestration at this efficiency, we're going to give a $5 billion prize and buy the tech, or whatever. There's ways of doing things like that that set goals for the economy that non crony because everyone's open to compete against them.

In a free society, you have ideas coming from everywhere. And you want to let the ideas that come from anywhere to be able to win versus the idea that comes from the person who happens to know the politicians. And so the more they can use the money towards things that support a free society and open competition and the less they can do things that are going to give to crony connected people, the better.

AKIKO FUJITA: I'm curious to get your thoughts on what's playing out in China right now. Sort of sticking with the theme, because we've heard for many, many years there's this race between the US and China, particularly on tech. You've got the government now cracking down on everything from ride hailing, to gaming, to social media. Do you see that ultimately as a gain, especially for US startups? How do you view this in the prism of--

JOE LONSDALE: It's very sad. It's very sad what's going on in China. It's definitely based on internal politics where there's fighting between different sources of power. It seems to be from my smartest friends there that there's lots of stuff that's broken right now in China in the non tech areas. There's probably lots of bad debt in real estate that we're kind of seeing it implode. There's probably a lot more challenges than we realize with some of the other kind of state run parts of the economy.

The part of the economy that was really working in China was the free market tech part of the economy. It was a free market thing. This is something that people bought them up, work really hard, come up with ideas, and have created a huge amount of wealth. And they've created so much wealth that the new tech money in China had become the real cool power center, become the place everyone admired, it'd become the place where they felt like Jack Ma felt like he could say, yes, this is the right way of doing things. oh, yes. This regulator's clearly doing something really stupid. And everyone knows it's really stupid.

And that people running the government saw this and they were very jealous. They were very threatened. They're very envious of all the money and popularity and functionality in the tech sector. And they said, those are our competitors. And we're going to have to knock them down a notch because we need the smart people coming to the government and being on our side. And the apparently, Xi Jinping really does still believe in a lot of Marxist values. And so they decided, you know what? It's gone far enough. I think the US has had a bit of a tough year. So it's able-- you know what? The US is weak anyway right now. Let's take advantage of this and clean house, and knock some of these tech guys down a notch.

And so you've seen tens of people disappear who are technology leaders in China. You've seen they've moved against the media leaders in tech. And it's very sad for the world. It probably is good from a competitive standpoint for the US against them. But it's the kind of thing I usually wouldn't even wish on my worst enemy. Because it is good for the world for China to innovate and create value in a positive some way. And it's really sad to see the Marxists taking out their tech people as if their internal competitors. It's a very damaging thing going on right now.

AKIKO FUJITA: The argument for many years though, has been that despite the uncertainty around regulation, the ideas are there in China and the growth opportunity is there. Would you put money behind any one of these Chinese startups right now if they've got a good idea, even with what's happening in the regulatory space?

JOE LONSDALE: I think there's going to be some smart people who still make a lot of money betting on really smart people in China right now. There's a lot of talent in China. There's a lot of innovation in China. I personally am so concerned about what I call the evil framework the government's using to run that country. And I see that. I mean, I work a lot with the DOD. I work a lot on defense issues. I think the world is likely to have peace if America is able to out innovate China overall in defense and if America is able to stay strong versus China.

So as a patriotic American, I'm not currently investing in China because China has become too obviously a competitor to us on the geopolitical stage. And it's too obviously threatening global peace with the way they're acting. But I do think that you could probably still make money there. At the same time, you have to know it's arbitrary. If you're going to make money there, you have to be willing to sacrifice your ethical framework and not criticize China's government and go along with them. Because that becomes your optimal strategy as a capitalist. And so for me, when the capitalism intersects with my ethical frameworks, I'm going to choose the ethical frameworks. And so I'm not willing to invest in there and back things and be nice to the Chinese government.

AKIKO FUJITA: Let's look ahead to the future. When you think five years, 10 years down the line, what's the technology? What are the ideas that excite you most that you want to bet on?

JOE LONSDALE: Gosh, there's a lot of stuff right now. I think the revolution in biology is probably one of the most important things going on in the world right now. And I think it's been talked about a lot. There's probably three or four really major scientific breakthroughs in the last decade that are leading to new tools, that are letting us edit genes more accurately, they're letting us program cells to be used as therapy. So it used to be that it was all molecules, there were therapeutics, then you had something called biologics in the '80s, right, with Genentech, and you got antibodies, and peptides, and little things you could use.

And now, you could take a cell which is hundreds of thousands of times more complicated and bigger than a peptide or an antibody, and the cell itself becomes the drug. And you program it. And you're seeing all sorts of amazing things there. We've been involved in stuff with mRNA for the last four or five years. Obviously that was a big deal. We started a company last year called Resilience Bio because we wanted to make America more resilient for biomanufacturing. And it's now being valued at $10 billion by some of the banks because we basically bought up and equipped a bunch of the plants around the US, and Canada, and England to do manufacturing of cell therapies and mRNA and gene therapies.

And you're just seeing so much innovation here with the tools and with what's possible. And every month, we're learning more about biology and learning more about how life works than we used to learn every year before. So that space to me is one of the most exciting. About a third of what I do is there.

I'll give you one other area that I think people are vastly underestimating, which is there's some really cool new possibilities in infrastructure. And people make fun of it. But I actually think the tunnels thing is like-- I know Elon-- is he serious? Is he joking about it? Is it real? But the tunnels thing to me is actually one of the most exciting things we do for the country because we could change economic access for hundreds of millions of people to our major cities. And it's fast and it's cheap. We could actually get it done.

This is now purely a government competence issue. Is our government competent enough to take this new technology? It's very cheap, very affordable. Austin just passed a bill to spend $7 billion on our infrastructure here-- does a little infrastructure thing. For $2 billion, we could do something in effect 100 times as many people if we built tunnels around the area. So the question is, is there a competence and will to actually do these things in our city? So but there's some really exciting opportunities there as well.

AKIKO FUJITA: When you talk specifically about the tunnels, how do you see it being deployed? How do you see the technology being deployed? And what's the one problem you think? Or what's the one solution it poses in terms of the broader infrastructure?

JOE LONSDALE: Sure. So the Boring Company is an example is based now in Austin, Texas. And they're drilling a bunch of tunnels already in Las Vegas that are being used. They are proving it works. They could do it about $6 or $7 million per mile, which is extremely cheap. You can have electric cars driving through these. You need about a tenth of an acre per station above ground, which costs almost nothing. Or else you could do a big station underground if there's no room above ground, which they've gotten down to $20, $25 million.

And for $6, $7 million a mile, if you spend $700 million you get 100 miles of tunnels. And for under a billion dollars, you can have 20, 25 stations that all get connected and all just skip traffic all around the city. This is much, much cheaper than anything we've done in the past. And the barrier is purely, can government get out of its own way? This is not hurting the environment. It actually helps the environment massively. It reduces carbon output, it reduces idling time.

So it's clearly good for the environment. It's clearly good for the middle and working class. It's good for the economy of a city. It's just a positive something. And this is a great example of are our leaders competent or not right now? And if the permitting stuff's going to delay this 10 years, there's something wrong with the permitting stuff, frankly. And the question is, do our leaders control our government's the other issue. It's a big question in the Western countries. Is these bureaucracies have gotten to be so big and so out of control. If the leader agrees this is a good idea, can the leader actually get it done?

It's a fascinating question. You talk to people running a city council, running a mayor, say, yeah Joe. I totally agree with you. This is great. I wonder how we do that. And you're like, what are you talking about? You're the leader. But our countries don't work that way. Our government's so broken. So I think it's some fascinating questions we have to answer right now in terms of reforming our governments so they actually can get things done that they want to get done that makes sense to do. It's almost a ridiculous thing. But this is where we are right now. There's so much red tape and so much nonsense in our society.

And this is a really good point about innovation as a whole because there's so much innovation right now that we all kind of know works, but then we're just not allowed to do it. It's just slow, it's hard, it's billions of dollars more expensive than it should be. And we have a choice to make as a society. Are we going to just kind of go into a morass of red tape and grow slowly, and be decadent? Or are we going to be able to be bold and do big things quickly? And I think those are our two choices. And I would like us to be a bolder, more courageous society. And we've got to figure out how we do regulatory structures to let us do that.

AKIKO FUJITA: Joe, you said offline that one of the things you really think about before putting your money behind a company is, what specifically is a problem this addresses. And I wonder where crypto falls in that category. When you think about where the future is headed, how much of it involves crypto?

JOE LONSDALE: I like crypto in the sense that it's a force for liberty. The biggest thing crypto solves so far, if we're totally honest, the biggest thing it solves so far is that fiat currencies don't make sense and aren't trusted by people, and that there's lots of parts of the world where you can't actually even use THE Fiat currency because it's got them broken, whether it's Brazil, or not Brazil, sorry. Whether it's Venezuela, whether it's Iran, whether it's North Korea. I mean, Brazil has its own issues. But there's there's all these parts of the world that have become failed states. And crypto's the only alternative other than the dollar.

And crypto's a better alternative for many of these things. So I think the anti fiat thing makes sense. I personally am very scared of the Central Bank of America and what it's doing and how it's acting as a reserve currency for the world and yet being very irresponsible with how it's printing money. And so I don't believe fiat currencies are the way we should be running things 100 years from now. So to me, that's what crypto's solving. In terms of what crypto's solving otherwise, most of what it does could be done with a good database in the cloud.

So most of when people say, oh we're going to do this in the blockchain, the vast majority of the time, you don't actually need the blockchain for that. You probably do for NFTs. NFTs to me as a form of modern art. It's like a cool form of modern art. But we shouldn't fool ourselves. It is modern art. And so how much is modern art worth? I don't know. You have to ask other people. But and then I think if you're going to say, OK, what of the really cool uses of blockchain? I think there are ways you might be able to align consumers with brands where you give them an incentive for the brands to win. Because you basically can let them kind of buy into them in different ways and promote them to their friends. And then they win if the brand wins.

There's cool ideas like this for distributed incentives that I think people haven't quite done yet. So I think you will see some cool uses of blockchain. But overall, it's an anti fiat currency thing. And that's why it's done so well. A lot of extra money in the world. And people are willing to bet on assets other than fiat currencies.

AKIKO FUJITA: We had some comments from SEC chair Gary Gensler saying that he doesn't see long term viability for 5,000 to 6,000 private forms of money, saying essentially, he doesn't expect all of these tokens to last.

JOE LONSDALE: Oh of course not.

AKIKO FUJITA: It sounds like you kind of agree with that. What are we going to be left with?

JOE LONSDALE: I think Bitcoin is the original one and is going to be an anti fiat thing forever. I think some of the new ones, whether it's Ethereum or whether it's the new advances relative to Ethereum that are like Solana or whatever that are pretty popular right now, I think there's some of those that people are going to use for interesting things. And there's probably going to be a handful of alternatives to Bitcoin that people can use.

Listen. If Elon Musk succeeds in building colonies on Mars and he makes Dogecoin the currency, you're going to have Dogecoin be the currency. I mean, it could be a joke, but it could be real. It's arbitrary. These things are network effects. The more people get around them, the more valuable they are. There's probably going to be several that people use. There's several communities where people decide to use their own that's going to be around forever. But these are a real thing. And they're an important thing. There's definitely a lot of gambling going on as well right now. It's a bit silly.

AKIKO FUJITA: So Joe, I hate to just end on crypto. So let's ask one last question here. To say, if we're talking about the future of innovation, give me one company that you think is overlooked right now that is about to change the world.

JOE LONSDALE: I have to go back to Resilience Bio, which is the one raising a billion dollars at $10 billion valuation. It's built all these plants, it's partnering now, it's like an AWS for bio. It's partnering with people instead of having to go raise their own $100 million for gene therapy, they could do it with us really, really cheaply. And you're going to have hundreds of these gene therapies, hundreds of these cell therapies. We're going to cure tons of diseases. I think people underestimate how important that space is in the next decade.

AKIKO FUJITA: Joe Lonsdale, co-founder of Palantir, and managing partner for 8VC. Good to talk to you today.

JOE LONSDALE: You too. Thanks, Akiko.

AKIKO FUJITA: And thank you all for joining.

ZACK GUZMAN: All right. Akiko Fujita wrapping up that fireside chat with Joe Lonsdale at the Concordia Summit. Appreciate that. Interesting headlines coming out of that one.