32 – US Fed Looks for an Economic Soft-Landing | VC Bullwhip Effect | Kroger Health’s Strategic Shift | Google & HCA’s AI Collaboration

Marcus: [00:00:00] Episode 32. What’s up,

Vic: Vic? How are you doing? I’m doing pretty well. I was in Chicago last couple of days. It is cold in Chicago. Happy to be happy to be back in Nashville already. Super cold. It is super cold. I thought I’d walk to dinner, I guess, two nights ago. And I walked outside the hotel, and then I’m like, Ah, the hotel restaurant will be fine.

You know, it’s too damn cold.

Marcus: I spent a lot of time in Chicago this year, and it was all like, September. I mean, it’s such a beautiful city. Oh yeah. If you can get there before it gets cold. Yeah. It’s so beautiful. Scheduling a board meeting in December probably wasn’t the smartest

Vic: thing. Yeah, you

Marcus: probably could have done that one by Zoom.

Yes,

Vic: exactly.

Marcus: In the future, just plan your trips for the summer, you know, play trips for summer. No, no more beautiful city in America than Chicago in the summer. I mean, it’s just, it’s just gorgeous. Uh, all right, look, uh, we are heading into the holidays. We are, you know, getting some, some end of year [00:01:00] financial, uh, news.

That’s kind 2024. And, uh, you know, I’m kind of happy with where things are landing right now. It feels, uh, like a little bit of a relief, but, um, you ready to dig in? Yeah.

Vic: Yeah. Yeah.

Marcus: All right. Let’s do it.

All right. So let’s, let’s start with the consumer price index, uh, rolled out Tuesday, December 12th, what can you tell us about it?

Vic: Uh, kind of the same story. There was a small increase 0. 1 percent in November, basically a, um, 3. 1 percent annualized rate. Very similar to what it has been kind of trending at.

Not a big change. Pretty much as expected. Um, not a lot of new things there. Uh, good to have it. You know, not go up. Yep. I think it’s benefited a lot [00:02:00] from uh, the price of energy coming down Um, no, we have a chart just to show, you know, we’ve shown up and shown it before so For people that are listening this goes back.

Um, well, I can’t really tell but it goes back 12 12 longer than that. I think so This goes way back to like before the great financial crisis And for people that are listening at home, it, you know, pretty much sits between zero percent, uh, inflation and four maybe? Yeah. Um, and then in the pandemic, it, it spiked to nine or something, a really high peak.

And then as, as we’ve been covering on the show, it’s come down pretty dramatically at, at three right now. That’s not two where the Fed wants it, but, You know, much lower than it was a year ago.

Marcus: Yeah. And almost no one, I think, believes we’re going to get back to, to two. I mean, you know, Jerome Powell keeps saying two.

Vic: Yeah.

Marcus: [00:03:00] Um, I don’t hear a lot of people that believes that we’re going to get back to 2 percent inflation.

Vic: Yeah, I don’t know. I mean, I, I’m more worried about deflation than I am inflation right now. So I think we could. We could go down, I mean, after the shelter kind of runs through, which will happen in the first half of the year.

So by next summer, that’ll be gone, which covered that maybe a couple of shows ago. I think that we’re going to have a significant reduction in inflation, but that could be wrong. It depends how the, how the markets, uh, how the Fed behaves and how markets go. But I, I’m more nervous about the, Downside to inflation than going up again,

Marcus: but you do have to admit that probably the betting odds of a Goldilocks situation are improving every week and that’s a good thing.

That’s kind of unbelievable. I mean, credit to the U S economy and look, credit to the fed for, for like raising rates and making it really ugly for us VCs. And, you know, but [00:04:00] somehow the stock market, well, we know how, uh, you know, because all of it’s aggregated and big tech. So we, we, we know how the stock markets continue to grow, but, um, even crypto rebounded, I mean,

Vic: yeah.

I mean, I think that, uh, let’s say it’s a Christmas. It’s a Christmas, uh, holiday or, you know, end of year, it’s good to have everyone happy going into the year.

Marcus: Mortgage rates are dropping.

Vic: Yeah. So, I mean, I think let’s maybe go to the, so that was Wednesday, I think. And then the Fed came out, no wait, Tuesday and Wednesday.

Right. And I think the general outlook from the Fed was sort of a Goldilocks positioning where they were talking about things are getting much better. Inflation, easing, words like that. They didn’t make any policy change. But it was much more friendly to Wall Street, you know, it was a Goldilocks kind of press conference, um, which is great.

And I’m hopeful. [00:05:00] I think it’s important to say the Fed has never Executed a soft landing, and so I’m hopeful it seems like they’ve done a great job sort of pushing the economy to to kind of some pressure, reduce inflation, inflation was probably coming down a little bit on its own, and they helped it.

There’s a good chance that they could pull off a soft landing, which would be wonderful.

Marcus: Yeah, um, Janet Yellen, uh, said that, uh, you know, inflation was making a a lot of meaningful progress. Um, Fed says, uh, uh, Powell said that the Fed is at the beginning of their policy easing talks. I mean, the fact that he said we’re, we’re even using the word easing.

Vic: They’re still doing QT, but they are talking about when they will ease, how they would ease, talking about easing the rate environment, which is great. I mean, I, I agree completely. The fact that they are talking about that is, Really positive. [00:06:00] It’s

Marcus: the first time in a year and a half. Yeah, exactly. But we’ve heard anything like that

Vic: Yeah, and then everyone was talking about this dot plot thing Yeah We need to talk about what the dot plot is and why anyone cares All the voting members of the committee are asked to put their their guess of what the future rates Will be and then that is published as a dot plot And so I think it is, everyone was excited that the, the dots on the dot plot are coming down

Marcus: on, on, on average by

Vic: 75 basis points next year, if you take the average of everybody and they don’t all have equal voting power, it’s the best we have right now, the projection is that they would cut 75 basis points next year.

Marcus: Yeah. And so, so kind of 25 basis points in three across three different cuts.

Vic: Yeah. So I mean, maybe a pull up the dot plot itself. We can talk through it. It’s, um, you know, for, [00:07:00] for 2033, no one thinks it’s changing, of course, but then, you know, one, one, I think they’re all guys, one of the members, Uh, has it under four end of the year, super aggressive.

Yeah,

Marcus: that’s really aggressive. Um, two, two, two had it holding, had it holding still. One had one very small 25 basis point cut, but the majority, yeah, so coming below 5%. So the majority see two or three cuts.

Vic: Yeah. In the longer term, they want to get the rates down, you know, back to the Three, two to 3%. So like, as they go on in the future, they, they sort of come down and down and down.

Um, so anyway, that the stock market celebrated, I think everything was up to big highs immediately after the press conference. And so it’s, I think it’s good whether they have, uh, executed the [00:08:00] soft landing. perfectly or it gets a little bit bumpy and we have a, we have a recession in the first half of the year.

I don’t know that, that I’m ready to say one way or the other, but, but definitely yesterday was a good, I think a good move on the Fed’s part.

Marcus: So let’s, let’s, uh, let’s just riff a little bit on this. I mean, where do you think our industry of venture capital ends up next year? I mean, because the dislocation that we’ve seen as an industry this year, I actually think it’s, it’s way more severe than, than so, than so many industries.

Right. Um, there’s been a lot of talk about corporate real estate, but there hasn’t been a lot of like fallout. Yet, you know, it’s been a lot of strong hands, just kind of hanging in there. Uh, a couple of leases here and there sort of, you know, handed back, um, to the bank, but for the most part, not [00:09:00] really yet.

Yeah. Not, not

Vic: yet.

Marcus: Yeah. Uh, you know, construction capital has basically stopped seemingly everywhere, but Nashville, uh, it’s still building here. Um, but mostly construction capital has stopped, but gosh, in our space, I mean, so many companies. Gone so many funds not raised. Um, yeah, we were talking earlier shutting down.

Vic: There’s a there’s a whole bunch of Pretty aggressive highly structured complex deals trying to get done more than a year because companies are running out of money, right? And I don’t know if I mean, they’re not all gonna get funded There’s still companies that are going to fail or about to fail, um, in the next three months.

Marcus: Right. And, and the fallout from that is going to be poor performance in, in vintages, right? Which is going to lead to LP scrutiny and just a rebalancing of, of the overall [00:10:00] allocation strategy. Yeah. Right. Um. Yeah. Absolutely. We got a Bitcoin ETF that’s likely going to land in January.

Vic: And, and the, the having.

Marcus: Yeah. So, I

Vic: mean, I, I, I’m, uh, outside of healthcare, I’m a, I follow crypto, you do too. I think Bitcoin’s going to be Up a lot next year.

Marcus: Yeah. So, so, okay. Back, back. And then, and then, and then you have AI, which is layering in this, this threat of dramatically lowering the cost to bring innovation to market.

Right. Um, that plus the fact that Elon has somehow made X into a far more robust product with like a 10th of the, the, the human capital.

Vic: Yeah. I listened to. My first full spaces, maybe two nights ago, and it’s pretty good. I mean, it’s, it’s, it’s a good platform, high quality. Um, I don’t know. It’s, it’s, it’s a, it’s an old, good alternative to the, to the [00:11:00] basic media that is all the same shit.

Marcus: Yeah. So, so, so, I mean, where do you think that lands? I mean, I, I’ll tell you, I still feel good about the seed stage. Um, I think the seed stage is a very. Viable stage in terms of the entry points, meaning, you know, the price of the equity, um, it’s reasonable. You can do the math, right? It’s not 400 million at a 4 billion value.

And then you got to create a 20 billion company to make it make sense. It’s not that right. You know, our valuations are generally speaking 20 or below. Um, we don’t have to cut super large checks. Um, and it’s reasonable to create enough value to get to, you know, A quarter billion dollar exit sort of in a, in a 10 year timeframe and create a nice return.

Um, I

Vic: mean, I, [00:12:00] I’ll invest in that. Yeah. Yeah. So I mean, I’m biased, but I agree with that.

Marcus: That still feels viable, right? Yeah. I

Vic: mean, I think my view, which of course, I mean, we’re two seed investors talking to each other. Yeah, no, I mean, I’m literally, well, I’m, I’m literally asking you because I have two things.

I want to talk through about the venture market. Um, and again, I’m, the first one is my biases may be coming out, but, but I think that it is true that the world, but certainly the healthcare industry needs innovation to be created and then brought to market. And the seed is the first significant institutional investor there.

There aren’t many companies that don’t have a seed investor. I think the seed market has to be in place. Now, whether we get the chance to continue to do that or not, we have to [00:13:00] perform, right? But there will be seed investors always, I think. As you get up the stack and you do A, B, growth equity, and then sort of later than growth, I don’t know that I would say that’s required.

It just depends on how you build the business, how the model is, when the public markets are open, what your goals are. So, um, that’s my view of where seed fits in the, in the, Venture capital markets. So I, I like our position. It’s also though hard. I mean, like it’s very hard. I mean, risky. Yeah, it’s

Marcus: risky.

It’s not a lot of revenue. So people don’t take you very seriously.

Vic: Yes, it’s, it’s, it’s risky. There’s a lot of failure. There’s not a lot of revenue, so people don’t take it seriously. But the real issue is the funds are small just because you can’t deploy that much money. And then that means the overhead has to be kept low.[00:14:00]

You know, both of our wives would be happier if, if we had bigger funds. Uh, we wouldn’t have as safe of a position in the market. That’s the trade off, I think, is that you, I can’t imagine deploying three billion dollars in healthcare seed. It just wouldn’t, you can’t, you can’t put enough money in those companies to do it.

So that’s sort of the trade, that’s the trade off, maybe, there. But, okay,

Marcus: so, So, but we do have a challenge, which is that our business used to be based really on the milestone of graduating a company into later stages. Yeah. And it seems like the later stages are so screwed up now. I just don’t trust the later stages to work.

Be a functional next step for our companies. I mean, we’ve talked about this in, in, in past episodes, but when I [00:15:00] look out to 2024, I’m not thinking about our companies graduating to, you know, series a and series B broadly, uh, you know, there are a couple of cases where they’ve got great investors that are surrounding them and they’re going to, they’re going to get there.

Like I know that right now, but in a lot of cases, I’m thinking. I need to be the capital partner. I need to continue to support them and they got to grow revenue, you know, and we got to make sure we’re putting the right people in the right seats and they’re executing and they’re, you know, getting as close to a hundred percent growth rate as possible on, on execution.

Yeah, right on, on execution and product market fit. Um, it’s just, it just doesn’t feel like it feels like it’s going to be a long time before we’re flush with capital again. And part of the growth is, is related to graduating to the next fundraising round. [00:16:00] Like it feels like it’s going to be much more PNL focused, which is at the end of the day, like that is a shift.

You know, that is, that’s a fundamental operating shift. Uh, I, I think it means the portfolio management work is, is more significant because a lot of people may not understand this, but you know, let’s say you’re, you’re us and you’re a seed stage investor and you, you know, you get the company graduated to series a.

Okay. Well, the series a investors coming on the board and, you know, they kind of take over. I mean, you’re still there. You have a say, but they’ve written a bigger check than you, and they’re planning on writing, you know, more bigger checks, uh, you know, in, in, in the later rounds. And so it’s not that your work is done, but the burden of portfolio management decreases.

Whereas if you are continuing to be that capital partner and really be the key value creation partner, it’s more work. It’s more time. It’s more work. Okay. There’s

Vic: no, there’s no question about that. And I think it’s um, I mean it leads to the next part I [00:17:00] wanted to talk about, which is I have this thesis that I want to get your thoughts on.

We haven’t talked about this before, so we’ll just do it live, um, which is probably good. So I, I think that, uh, the venture capital assets, right? So our assets and in general. The asset class. The asset class. I think it is late to The party, I mean, it public markets react first and multiples come down very quickly.

And then it kind of flows through the private markets in, in order of sort of the inverse order of, of how the company takes the investment. So like the, the people that invest just before an IPO take the next hit, then it’s a growth, then later stage venture seed is the last to really see the effect. So the correction was probably.

a year ago, maybe a little over a year ago in public markets, November, I think. I can’t totally remember it. A long time [00:18:00] ago, there was a public market correction and we are feeling it like today. I think the Q4 valuations are going to be Significantly down in venture might even be Q1 next year. And so it’s lagged.

It’s like this, uh, slow moving process. The image I have is, is like a whip because I think it’s like called the bullwhip effect in supply chain, but like the public markets come down quickly. And then we take a lot longer to come down, but I think we go further. Like, I think, I think it’s more impactful.

Like we, there’ll be companies in our stage that just don’t exist anymore. Right. And public companies, they go, they take a hit in multiple, but they, they have more girth to them. Yeah. And then I think the opposite happens where like the, the public market will come back faster and then our space will be the last comes back slower, but it comes back much.

It’s much more [00:19:00] bubbly. It would come back much higher. So I think our asset class is significantly lagged. And also two, three, four times as volatile, which is, I’ve been just thinking about that in the last month and trying to map it to my portfolio management strategy. Right? So like there’s, there’s going to be a time when the whip effect is, is back really high and the multiples are high and flush with cash.

People are raising huge rounds. And I think I want to be positioned to sell into that. Um, so I’m just trying to map this, uh, both the timing is the hardest thing to get. Um, but it feels like that’s the order. It kind of go, you can watch the public markets, you know, probably yesterday might be the start of the next sort of uptick.

Maybe there’ll be more corrections. Um, [00:20:00] and then it will sort of flow through the capital markets. In roughly in order until where last,

Marcus: but isn’t there also like a bit of a. Prestige knock that’s gonna be a little bit harder to shake. I mean, did you see what happened with the bird the scooter company?

Vic: No, I didn’t see him.

Marcus: Okay, so bird was I think the fastest unicorn in yeah, the history of the markets I think they were they were D listed and they’re now worth like seven million dollars and and the headline I saw on X was That they’re, they’re now worth less than the 22 million mansion that the founder bought, you know, with the money that he earned from growing the company into a unicorn faster than anyone else.

Right. And, and it just feels like posts are post COVID post SVB, right? People are just getting much more [00:21:00] oriented and focused around fundamentals and are just smarter about. These propped up companies that are really valued based on hype and narrative and not based on any PNL fundamentals, so to speak of just it just feels like people get that more now, um, and that unfortunately, the entire venture space gets painted.

around that, you know, even though we’re, we’re, we’re based in Nashville, you know, Tennessee, let’s just round up and say Tennessee represents 1 percent of all venture capital in the United States. I don’t, I don’t, I don’t think it’s 1%, but we’ll just round up to, to 1%. You know, that’s certainly not the way that venture capitalists in, in Tennessee have been operating

Vic: healthcare, really?

Marcus: Yeah, because they have not had Access to that kind of capital, um, to, to be able to operate that way. So they’ve had to be much more focused on building viable companies, you know, [00:22:00] uh, that actually produce and are, you know, generate EBIT on things of that nature. Um, but unfortunately the whole asset class gets.

Painted around these stories around, around these flame out stories or around we work or around, you know, any of the, the, the 2021 stories. I mean, I just had a conversation an hour ago about, about all of them and the 800 million that, that they raised in a year. And, you know, you just try, you try to wrap your head around any industry that would allow 800 million in capital.

To go into a company in a year and two years later, that company is vanished. There’s something not quite right about that industry. Right. And, and like you and I, we kind of look at it as, yeah, there’s not, there’s something not right about those players in the industry, right? Not everyone is, is, uh, Dialed in enough to sort of be able to suss out.

Yeah, who’s who who’s [00:23:00] who yeah, who’s who and what’s what so I? Do feel that there is a bit of a prestige knock that that VC broadly is getting and I think that that’s gonna be another headwind going forward Unfortunately, I mean, I

Vic: don’t agree with that. I think that uh My view is people have short memories.

So I think I hope you’re right. My, my belief is that today everyone is worried about their mortgage payment or their credit card bill or their job or their neighbor’s job. Everyone’s concerned about possibility of a recession right next year. Right. And that’s because the Fed just like put the brakes on everything and made us all focus on that.

That was their intent, I think. Um, but I think as soon as the Fed relents and they do 75 basis points next year, and then they do another [00:24:00] 50, there’s going to be some, some new exciting thing. It won’t be scooters this time. But risk on, basically. It’ll be risk on. And I think, There will be some folks that are slow to the party, but after they’re playing tennis, or pickleball, or golf, or basketball, or whatever they’re doing with their buddies, and they missed out on this huge home run, then you come around to it.

Unfortunately, the mass market tends to come around to it right at the wrong time. And at the peak, at the peak, at the peak, and so they plow in at, you know, in the public stock of bird and then they just like. Experience the downdraft and then they’re super sad and conservative and depressed and so they’re very conservative and then they miss all the upside right?

They [00:25:00] chronically like off off off cycle continuously.

Marcus: Yeah.

Vic: Um, I think there are different times in in venture. What’s really interesting about today is, uh. I mean, there’s not a lot of VCs that were in the business in oh one, there just aren’t that many that are around. Yep. And most of them that are around are flying their private jets somewhere.

They’re not like me, still actually hustling and the number of people that are trying to figure out, okay, how do we do this complicated pay to play? What is the legal authority to get it passed through the board and the shareholders? And how do we structure this? Just not the people have done it before.

And I think that there’s, um, it’s our responsibility as, as directors in our portfolio companies and advisors to the startups, we help need to not play into that mass market sort of mindset. So like, I think today is still completely risk off you need. I [00:26:00] mean, I was in a board meeting yesterday. talking about getting to cash flow viability, not because we want to stay there, but because it sort of gives you, you know, your default alive.

You’re going to be alive no matter what. You keep growing at 30 percent a year without raising capital and maybe the Fed will change things and the markets will open up, but maybe not. And that’s not in our control. And if we can get to break even, now we have full flexibility of anything. We can always like raise money and go.

That’s not hard to do. Right. But if we don’t make the decisions to get there today, then we’re just going to be at the whim of someone who’s not, we don’t even know their phone number.

Marcus: Right.

Vic: And so I think that’s right. But there’s going to be a shift sometime that Bullwhip will come back around. The beautiful thing about seed is we will see it like populate through it.

We don’t need to have a crystal ball. We can see the the growth stage groups [00:27:00] and later stage. Um, I am frustrated because I have seen these cycles go, but I didn’t sell enough in the last peak. Like I should have been selling some of my positions and I was greedy. Like I like we we should keep building.

We’re not ready to sell. We haven’t achieved it. ABC strategic thing that would be really valuable and

Marcus: not not recognizing that, you know, the market has to say to, right? Yeah, I mean, so like, you’re not, you’re not some independent actor that like, right, just gets to do whatever you want in any market cycle.

Yeah. So just hypothetically,

Vic: two years ago, I’m with a chairman of a company with, say, 25 million in revenue, and we could have sold the business But we wanted to do A, B, C, and D to grow to, just say, 50 million.

Marcus: Assuming that the market was going to stay where the market was at that time. Yeah, and so

Vic: we, we have executed fairly well.

The business has [00:28:00] grown, but the multiples have collapsed, right? So we, we did a whole bunch of work, and we destroyed value. And I’m on air talking about it because I think I need to not make that mistake again. I need to, when it’s time to sell, I need to sell some assets that are ready to sell.

Marcus: I look, I I’m seeing that happen with, with companies where they made a bunch of progress and they are raising at lower valuations due to lower multiples.

No fault of their own. Yeah, just like literally they made progress. They have more revenue. They have a more robust product. They have more logos on their slide and their valuation is down. Not necessarily from where it was, but it’s down from where they have projected. It would be. Yeah, and in that respect, they like, they kind of lost.

Yeah, you know, they kind of lost because they just raised at the wrong moment. Yeah. No, your portfolio [00:29:00] is younger.

Vic: So it may be that they, they didn’t really have a choice to sell 18 months ago. But I guess what, for the first time, I’m thinking about, um, secondary markets because, you know, there, there are board discussions where the company doesn’t want to sell.

And it, it might be that I think for my LPs, I, I do need to sell some of the position because just the valuations are, are super frothy. Yeah,

Marcus: right, right, right. And you

Vic: need to take some

Marcus: chips off

Vic: the board. Yeah. And I never had done that before. But I think both, the secondary market is getting much more liquid, much more closer to fair market price.

And I think the market is just much more volatile. And

Marcus: it’s

Vic: becoming tech enabled.

Marcus: Yes, right. Yeah, I mean, we didn’t really have secondary markets that were that tech enabled 10 years ago. But now Yeah, you

Vic: had to know the person and just like call them and do it, which is not going to work.

Marcus: Right, right.

Vic: Yeah, so anyway, [00:30:00] um, I’m just trying to process through all that, but I think it’s, um, I think the world’s getting more volatile over time and not less.

Marcus: Alright, thanks for riffing with me, man. No, really, I mean, this is, this is helpful because we’re at the end of the year and, you know, I’m, obviously, it’s the time to process, right?

It’s the time to kind of say, What the hell do we think is going to happen in 2024? And specifically, how is it going to impact the work that we try to do? You know, and the founders we try to help and the LPs we, we try to generate returns for, right. And, and, uh, it’s, it’s really dynamic.

Vic: Yeah. And for any listener, right?

Like you can hold your portfolio for 20 years and that’s what we all were taught to do. I think market timing is getting to be more attractive.

Marcus: Yeah, it’s getting to be more important.

Vic: I used to think it was too hard. There were too many transaction costs and you were going to time it incorrectly. [00:31:00] And I still think there’s a risk there.

But, but the multiples are swinging incredibly fast. It’s crazy. I don’t know if it makes sense just to buy and hold forever.

Marcus: All right. That’s a good time for us to take a break. We’ll let Doug share a little bit about Jumpstart Foundry. And then we will be back to dig into some stories on the healthcare and AI side.

Doug Edwards: Thanks guys for the opportunity to talk about our pre seed fund, Jumpstart Foundry. My name is Doug Edwards, CEO of Jumpstart Health Investors, the parent company of Jumpstart Foundry. We’re so excited to be able to talk about, uh, early stage venture investing. Certainly the need for us to change the crazy world of healthcare in the United States.

We are spending 20 percent of our GDP north of 4 trillion a year on healthcare with suboptimal outcomes. so much. Jumpstart Foundry exists to help us find and identify and invest in innovative companies that are going to make a difference in healthcare in our country. Every year, Jumpstart Foundry invests a fund, raises a [00:32:00] fund, and deploys that across 30, 40, 50 assets every year, allowing ease of access for our limited partners to invest to help us make something better in healthcare.

Some of the benefits of Jumpstart Foundry is there’s no management fees. Jumpstart Foundry. com We deploy all the capital that’s raised every year in the fund. We find the best and brightest, typically around single digit percentage of companies that apply for funding from Dumpstart, and we invest in the most incredible, robust, Innovative solutions and founders in the United States.

Over the last nine years, Jumpstart Foundry has invested in nearly 200 early stage, pre seed stage companies in the country. Through those most innovative solutions that Jumpstart Foundry invests in, we also provide great returns and a great experience for our limited partners. We partner with AngelList to administer the fund, making that ease of access, not only with low minimums, but the ease of investing in venture much better.

We all know that healthcare is broken. Everyone deserves better. [00:33:00] Come alongside us with Jumpstart Foundry, invest in making the future of healthcare better and make something better in healthcare. Thank you guys. Now back to the show.

Marcus: So you found this story on a wall street journal pro venture capital about a startup called orchid that is rolling out a genetic testing service for IVF.

Uh, they raised 12 million, uh, just to kind of jump right to the point, this is a startup that is doing, you know, a little bit of what everyone had been concerned about, uh, as we continue to advance sort of the combination of both genomics as well as, uh, machine learning, which is starting to kind of give some predictions as to whether or not your offspring is going to be genetically predisposed to any particular diseases.

Vic: Yeah, that’s, that’s. That’s why it’s an important story. Uh, I mean, I think testing your offspring for all of these genetic diseases, and some that [00:34:00] I think are chronic diseases, but I, I guess they do have markers for that. Um, I just don’t, I think it’s a slippery slope. Like I don’t know where it stops. And so, and I do not think we have any guidance or any idea where, where the regulators will stop it.

So nevermind other countries, like this is in the U S. And so, testing for, um, I mean, type 2 diabetes is the one that really caught my attention. So, I, I don’t know how you can test for type 2 diabetes. We were talking earlier, maybe there are, um, markers, or flags, or there are obesity, uh, genes. But I just think it’s I don’t know.

It makes me nervous.

Marcus: Yeah, it should. I mean, it’s interesting that I think we’re, [00:35:00] we’re entering an era where we’re going to have the rise of the ethics, uh, professionals, I think, because we got a lot of questions around how okay is this stuff? I mean, this, this thing is out in the wild. It’s, it’s already operating.

It’s got 12 million. It just raised. So it’s happening. And. I’m with you. I got real questions now. Look, do I believe most people are going to be able to afford this in the in the near future? No, but technology only the cost just come down. And if 23 and me can broadly, you know, handle genomes for everybody in the country.

I don’t think this thing is that far. I mean, How, how different is this from Kologard or, you know, um, any of these kind of, uh, you know, test delivery things that you do for allergies or things like that. We just, you know, put something, some blood in a box and send it off to the mail. So I think [00:36:00] it is going to become more widely available.

And just the idea that people are deciding potentially, it’s not even like whether or not they’re going to have offspring. And it could be who they’re, Going to be life partners with, I mean, the implications of this are really serious.

Vic: Yeah. And I think we’re getting to, I like your idea about ethicists, we’re getting to the point we may, I think we may be already at the point where the capabilities of our technology are not in question.

We have the capabilities to target offspring that are. The tallest of their cohort, the smartest, the fastest runners there, whatever you want to select for my view is that either now or very soon we have that capability, the question is not, can we do this? Which has limited human sort of advancements forever.

It’s, you know, should we? And I don’t know that you and I are the ones to answer that but it makes me nervous that no one is No [00:37:00] one is really in charge of this and this is in the u. s I mean who knows what people are doing in other unregulated countries totally so and then there’s also a rich and poor Divide right?

Like if I have enough money to get this for my I don’t want any more kids for my grandkids Then they’re going to be able to do better in school, do whatever, do whatever, some way better. And that’s just not, I don’t think it’s good to society. It’s not the American way. It’s not good for the morale of everyone.

It’s just not good.

Marcus: We don’t have any answers for this, but I think maybe one big takeaway I’ve been noticing as, as, uh, as people are more hip to what’s going on, on AI and they’re using it more, they’re seeing all the limitations of it. Right. And, um, And that’s good. That’s good, because it’s hard to be well educated on the space unless you’ve actually used it.

Vic: Yeah.

Marcus: But I am starting to see a narrative [00:38:00] develop where people are getting really locked into where the technology is today. Right, and using that to sort of extrapolate where it’s going to be even next year, and I just

Vic: linear with

Marcus: linear correct, linear, right, I think we need to really move ourselves to a mind space where we just sort of.

Come to terms with the fact that we are absolutely living in the future that we Dreamt of and wrote about and made movies about and make cartoons about like we’re living in it now And there ain’t gonna be a whole lot. We’re not able to do in our lifetimes Yes, it’s I I can I it’s very clear to me that the floor the floor where we’re at today is going to yield Science I can’t even I [00:39:00] can’t even imagine actually, right?

Science I can’t even imagine, but I no longer have any sense of limitation. So, you’re right. It now all boils down to a lot of conversations around should we? A lot of conversations around Thinking through the long term implications of these things, thinking about the societal implications of things, thinking about, you know, ramifications that could happen to our biology as a result of, of, of these things.

Uh, but it’s not a question of whether or not we’re going to do it. We should have been hip to it with the speed with which the MRNA Vaccines were created like that, you know, I think we were under such psychological duress that we didn’t fully appreciate what happened to get out of the house. Exactly. I don’t think we fully appreciated what had happened there.

But if you just look at the scientific achievements that have happened since then, you got to just stop with the limitation discussion. Cause roadmap from this point forward. Right. But it is inevitable. [00:40:00] Yeah. It’s inevitable. We’re going to be able to do all these things. We’re going to be able to clone, we’re going to like all, all the crazy wacky things.

We’re going to be able to do these things.

Vic: leaders to lead them in the most productive, most fruitful, most fulfilling direction for the, for the most people in the society. And I’m pretty fearful that we, we don’t have leaders that do that. We have leaders often that are taking polls of what the society wants today and then sort of trying to give them that in soundbites and just makes me worried.

But I guess the, uh, the only way to think about this. Where I can feel like I have some frame of reference is the internet or something else that happened that was significantly different that we that we all lived through and I think when the when the internet [00:41:00] first came out, it was, it was a pretty poor replacement for existing media, right?

So I don’t know. It’s like a magazine. That was super slow and a pain in the ass. And a lot of people in 95, 96, 97 took that view like the tech socks and this, this. You know, I read this economist in my hand. And why do I want that?

Marcus: There’s a video clip of David Letterman, you know, making fun of email. Yeah, it’s great.

Yeah, yeah, yeah. You should look up on YouTube. This is a clip of him making fun of, I think it was interviewing Bill Gates and he was talking about email and he was like, you know, so it’s like a letter and like the whole audience like blah, blah, blah, blah, blah, blah. Yeah. And, and, and now. David Letterman’s show is on Netflix.

Yeah.

Vic: Right?

Marcus: Yeah.

Vic: You know what I mean? Like, that’s the Yeah, so I think the, the question is not apples to apples. Does the tech [00:42:00] today replace, uh, the, the old tech? Right. It’s, what’s the rate of change? And then the real thing that is, that you sort of talked about that I think is the game changer is that we don’t use the internet for magazine publishing, like that’s just what the early people that didn’t know how to use these tools, that was the first thing that they thought of.

Because it was the easiest, like adjacent space. And I think we’re seeing that AI right now that like people are using it for the kind of, uh, uh, a fun thing to play with in a space that they’re already doing this, this job. And in some ways it’s better. In some ways it’s kind of worse, but the rate of change is, is dramatic.

And what I think I want to talk about with you is it’s not that it’s, what is the new use case? Like, it’s not a new letter, it’s Netflix. Right. Or it’s [00:43:00] like Amazon. I, I almost never drive to the store to buy something now, I, I, I don’t know, Amazon does that for me. And so, we can’t really conceive of how these tools will be used because we don’t know what their features are, they’re growing so quickly, it’s, it’s going to be, it’s just going to be a different, you know, A different experience.

And so saying it’s, it’s not as good at writing. This poem is not really the point. I don’t

Marcus: think, you know, actually this conversation makes me, it returns me to my bullish position about venture capital because the reality, and this is the reason why I got into venture capital in the first place, because I came into the space as a technologist and an entrepreneur, but once I learned about it, I realized.

That venture capital is where all the innovation happens. That, that’s it. Now, now, now venture capital is changing. We

Vic: need to start a job to translate it.

Marcus: Yeah. But venture capital is changing, right? I mean, you have, you have crypto, you know, and there’s a bunch of [00:44:00] innovation happening in that space. So, so the, you know, the formats of venture capital are changing, but the reality is it’s capital that is investing in innovation that is changing the world.

And that, that’s not stopping. That’s not stopping. And so that’s, that’s probably the, that’s probably the fundamental, uh, bullish case for venture, regardless of economic cycles, fed monetary policy, all those other kinds of things. The reality is that science and technology. Is going to continue to radically change our world and how that technology is going to get funded to do that is venture capital.

That’s it. There’s not a, there’s not a, it’s not going to happen in academia. No, it’s not going to happen in incumbent corporations.

Vic: No, no, it’s wasn’t. Someone has to understand what the founders are saying. Just literally understand [00:45:00] what they are talking about. And the incumbents typically have a natural tendency to not understand or want to know because it’s going to change their, their career path.

And then provide capital, but also provide advice on like how to bring this thing to the world. That’s, that’s the job that I love to do. And I think that never is going to disappear. Now the form it happens, whether we’re structured as an LP structure and how it all works out, that can all change, but that sort of a process of understanding that this team is really doing something that’s game changing and the market is ready to adopt it and then sort of.

funding them, but more importantly, like guiding them through the process, bringing them to hospital A versus hospital B because you know A will do the pilot experiment and B wants to wait till it’s fully ready. Um, [00:46:00] I’m, I’m very bullish on innovation continuing to change the way the world works and VCs have to be part of that.

Now in healthcare and this story, Reminds me of it. You know, it’s someone’s life at stake and it is our future generations. And how are we going to manage the way that we procreate? It used to be. You know, you got married and you settled down and then nature happened and you had kids and now that is maybe not how it works anymore.

The, the culture and the society, I think there was a reason for family and community and all these things have benefits that we’re sort of. We’ve taken away from society, and I think it has a lot of negative consequences.

Marcus: Let’s shift to our next story. Uh, Kroger, they are shifting some of [00:47:00] their little clinics, uh, to be totally focused on senior care.

Um, now, you know, we are gonna talk a little bit more about, uh, what’s happening broadly in MA with Cigna and Humana here in a second, but, um, this seems like, Just a totally smart play, because I don’t know about you, but I can tell you, like, of all the places that my mom goes on a weekly basis, she’s definitely in the grocery store and, and she also kind of likes going to the doctor.

Yeah. So if you can kind of bundle that in a lot of communities, especially where there’s inadequate, you know, PCPs, um, seems, seems like a winning proposition to me.

Vic: Yeah, I think it, I think it makes a lot of sense. I think focus and. Building out an urgent. This is really an urgent care thing. Yeah, urgent care is now maturing where I think you almost have to have a niche of the market that you’re catering to so you are [00:48:00] I mean a friend of mine’s in in philly he he has a Urgent care that is really only for 20 year olds that don’t need a lot of health care and they want a Kind of a hip, kind of crazy colors and very tech enabled sort of experience.

And I think he’s been able to focus on that and really kind of pay attention to it. I was in Dallas two weeks ago, I guess, I met a guy who has a pediatrics urgent care. That’s all he does, because if you have a one year old at, you know, Saturday night at 10 p. m., and you realize he ate something or fell or whatever, you need kind of specialized care.

I think we’re seeing a, uh, kind of a segmentation piece, and I think it makes a lot of sense for Kroger to focus on this space, because they’re already, I think you’re exactly right, they’re already in the store, and it’s a, you know, It’s a good, it’s a good population group.

Marcus: Yeah, and, and we know that Kroger, um, has a ton of data on [00:49:00] their customers.

Yeah. If they can match up that, they’ve been working on health scores and tracking. Yeah. You know, um, what aisles their, their customers spend a lot of time in. You know, we, we haven’t heard a lot. from them on this front, but they’ve been building this database and these algorithms for a long time now, probably more than a decade.

So, you know, we

Vic: have a friend, we should call Mark and try to talk to him. We should,

Marcus: we should. Yeah, but, but, you know, when you combine all that data, right, it positions you pretty well to be able to execute value based care. And perhaps they’re looking and saying, we think we can clean up in MA, right? I mean, yeah, I, I

Vic: don’t know if they, I don’t know if they underwrite risk at all right now, but they could be a really good partner.

And then I think, I mean, listen, most of chronic disease will have some diet. component. Yeah. So being able to just walk right out into the produce section and say, Hey, why don’t you consider this? Or let me show you these [00:50:00] different kinds of soup that are better and they taste just as good. Like that hands on thing is much better than a, like a printed off flyer that I’m not going to remember to bring into the store.

And if I do, I can’t even figure out which can of soup they want me to get. Right? Okay.

Marcus: Yeah, I mean, you know, they, they could go and they could partner with health systems that are doing MA and be sort of a continuous, uh, partner, uh, you know, touch points, data collection, things of that nature. Yeah.

Vic: Yeah.

Humana has a, uh. It’s a brand in urgent care. Can’t think of the name center. So

Marcus: this, uh, is it center? Well,

Vic: yeah. Center. Well, that’s right. Yeah. Yeah. They’re sort of designed like this. It’s, it’s because of their MA business, but they, they, they, they don’t say they cater to older Americans, but I think they definitely do.

Yeah. Yeah.

Marcus: All right. So let’s, let’s shift to, to Cigna and Humana. Um, so lots of discussion. We, we did a whole [00:51:00] Yeah. Well episode talking about singing Humana and uh, already the deal’s off.

Vic: Sorry for that, uh, false alarm. Right. We’re out.

Marcus: Yeah. Instead we’re going to buy our stock.

Vic: Right. Yeah. I mean, I’m excited to dig into Medicare advantage next week with Emily.

Cause there’s a, It’s a huge space and super complicated, but I, I think the answer was, um, the stockholders, they want share buybacks. They wanted to have a return in 90 days, 60 days, and anything that’s long term, they just can’t focus that far out. And I don’t know, I, I still feel like it was a good combination over a two, three, five year view, but, um, I don’t know, all the institutional public stock groups, I mean, Cigna stock lost a lot of value, and then they came back, and now they’re back again, they took it away, and now it’s back again, they will probably, if you buy, I [00:52:00] think it’s 10 billion that they’re planning to get for the health spring thing if they use all that to buy stock it’s great buy a lot of stock it’ll prop up the stock that’s right um but i don’t know that it is a long term strategy

Marcus: no it’s not a long term strategy but they are very very strong in the commercial space yeah and their shareholders are probably saying you just stay good in the commercial space and you weren’t good at ma before what makes you think merging with humana is going to make you that much better You know, there probably was a little bit of that going on.

So anyway, it definitely feels like a Wall Street didn’t allow it kind of thing. You know, we, we, we’ve seen these kind of things. You remember when we watched, uh, uh, what was it? Um, Healthways and, uh, and, uh, and, and Weight Watchers? Yeah. What was it? Was it? No, it was NutriSystem. It was NutriSystem. Yeah, yeah, yeah.

The, the whole Tivity Health thing. And, you know, we watched them try to pull that off. And that was, that was. As soon as you get, uh, on the

Vic: wrong side of Wall

Marcus: Street momentum, it’s just a hard thing. I mean, they didn’t even have a chance to try to make it work. Yeah. You know, it was just [00:53:00] like, no, this is a disaster.

So, yeah.

Vic: And I think that’s why, I mean, that’s one of the arguments for private equity. Get off the public markets, not the 90 day cycle in the limelight all the time. Everything you do is, is announced and then take your strategic actions over the next two, three, four years with us. And then we’ll bring it back public once it’s pretty again.

I think that’s pretty compelling. Yeah, I agree.

Marcus: All right, and just kind of wrapping up here, um, Humana was Yet another company that was, there’ve been several payers that are getting called out, mostly because the providers are all upset about their claims getting denied. Uh, but where is AI most prominently being used in healthcare today?

Uh, it’s being used in, in claims adjudication. Uh, it’s being used to determine whether or not we’re gonna, we’re gonna pay for a claim or not. We’re not, we’re not using humans for that anymore. We’re using AI.

Vic: Yeah. I mean, it was a hard week for Humana, right? The deal got called off [00:54:00] and then they got this, this lawsuit.

I mean, the lawsuit kind of confused me. I mean, they certainly are using AI to review claims. Of course. I mean, there’s no question about that. Of course. It’s not clear to me that that is in violation of anything. I think, I think you’re right. Providers are upset about it. Yes. And what they should do is get their act together and use AI on their side.

That, that’s what has to happen. But there’s been several suits, you know, on the list now. I think it just means that they denied a lot of claims. And I think the strategy that is frustrating for providers is there, they can deny many more claims you can possibly appeal.

Marcus: Yes, exactly.

Vic: And so, you know, do you have to buy your own arms?

It’s an arms race. You need to get your own

Marcus: AI. It is, it is an arms race. Yeah. You’re going to have to have your own automation. Uh, and, and, and fight back with that. Um, okay. Final, [00:55:00] final thing I want to talk about on the, on the AI side, man. Uh, I just love the empire strikes back version of Google and the AI world.

Um, I I’ve, I’ve, I’ve the whole time I’ve been pretty long Google on the AI stuff. I, I just feel like they started all this with deep mind and they. We’re definitely in the, you know, do no evil, you know, sort of mindset. And so they

Vic: invented the transformers. Totally. The technology that has created chat GPT.

I think Google invented and then open sourced because they are kind, um, yeah, so they’ve been laying back that they have a lot of talent, a lot of big brains there,

Marcus: but this whole, this whole open AI thing has got them going and they have leveraged, uh, this, this setback that open AI has experienced with the board firing Sam Altman, then him coming back and all the uncertainty there with Microsoft and it’s a nonprofit.

Can we trust this company? Blah, blah, blah. Yeah. They’ve leveraged that to roll out [00:56:00] so much stuff in the AI world. They rolled out Gemini. They’ve incorporated Gemini into BARD. They’ve incorporated Gemini into the Google cloud platform. And now they’re rolling out new versions of their models, a specific version called MedLM, uh, that is being used by HCA.

Uh, already, um, you know, Dr. Mike Schlosser, another person we should try to get on the show, um, is, is testing it out in, in various pilots right now. Yeah. So, and they’re pairing it with Augmetics, right? The, the, the, the, the, the ambient, uh, listening technology. So they’re basically cutting down their, their scribing by 60%, right.

And the EMR records, isn’t that right?

Vic: That’s probably right. I don’t know the quote, but that’s, I’m sure you’re right. The, um, Yeah, this, this is a specific language model called MedLM, and it has a longer name. I’ve seen, uh, scientific papers last summer, where it is, it’s specifically trained on, medical research, clinical [00:57:00] research, all of the aspects that are, you know, very, um, acronym intensive, lots of, um, you know, Latin words for different diseases.

That’s what it trained on. And it’s, um, I think it’s going to be really powerful as they come into the healthcare space. And then, well, augmentics is better for the, um, kind of processing how the, how the offices it went. Okay. Who was interacting? What were you looking at? Make sure you check on this thing.

And so it’s a great pairing. Cause I don’t think they are really focused on the clinical side. And so it’s a good, it makes sense that HCA would bring the, you know, it should be bringing the best of different models and putting it together. So it’s interesting.

Marcus: Yeah. I mean, it still will hallucinate. Um, I read an article, Dr.

Schlosser said it hallucinates. So we’re not, we’re not past that, right. That’s still a, just a fundamental limitation of all this. Large model technology is it hallucinates that means it cannot be trusted 100 [00:58:00] percent to do any of this stuff, right? It’s a

Vic: predictive model. Yeah, so mean it’s predicting hallucination is the easiest way to understand it Yeah, but even if you’re at you know, five nines reliability It’s gonna be once in a while that it doesn’t predict the right thing And we have to account for that by putting like duplicate, uh, checkpoints or different things in when, when we’re in a medical setting.

Marcus: Yeah. And also like, we don’t necessarily know how to enter interact with it yet. You know, we, we, we have eons of time where we’ve known how to interact with each other as humans. We don’t know how to interact with this thing yet. So, you know, like,

Vic: uh, for instance, it doesn’t have body language,

Marcus: right?

Vic: There’s no, there’s no, well, I mean, even if you give it a voice, there’s no real voice tone of voice interaction that it’s not. So you lose a lot of the value that humans are used to processing, and we have to learn to deal with that.

Marcus: Exactly. So anyway, uh, keep your eyes on Google in [00:59:00] the AI space. Uh, if, if you have not been tracking all the stuff that they’ve rolled out, uh, they are, look, they’re not necessarily ahead of the game.

Of, of open AI, I would say everybody is sort of a little bit running their own race and, and, and trying to just show that they have competency in the AI space. But what everyone needs to understand is Google has a ton of competency in this space. They have, they have the people, they have the underground, uh, network and, and cloud to be able to pull it off.

Um, you know, they built their own GPU chips, uh, uh, and, and they’ve been in the space for, you know, more than a decade at this point. So this is, this is definitely. Uh, a space they are going to take very, very seriously.

Vic: Yeah. And when you think about training these models, right, like access to data is going to be a really important piece.

And YouTube is just a, is a huge ocean of humans doing all in everything under the sun. And it’s. It’s multimedia, right? So they have the [01:00:00] transcripts, but they also have everything else. Ridiculous data. And so I think they’re starting to teach the machines how to do things by showing it a video of here’s how you do this, this procedure.

Um, so, I mean, Google has a lot of assets. To sort of work on. So,

Marcus: all right. Uh, good rundown. Anything else you want to talk about?

Vic: No, we’ll be, uh, diving deep into, into Medicare Advantage next week. Yep. Looking forward to it. Talk to you then.