Amias Gerety, Partner at QED Investors, brings an unconventional perspective to venture capital shaped by his eight years at the US Treasury Department during the financial crisis. A mechanical thinker, Amias applies an essentialist approach to understanding how businesses work. He explains why QED looks for companies that triple every six months at Series A, how inverted AI creates new opportunities in financial services, and why the best advice for founders remains timeless: build something people want and charge more than it costs to make. With insights on the AI bubble, the application layer renaissance, and why saying no 99 times out of 100 is the real job of a VC, Amias offers a masterclass in disciplined, thesis-driven investing.
Amias Gerety, Partner at QED Investors, brings an unconventional perspective to venture capital shaped by his eight years at the US Treasury Department during the financial crisis. A mechanical thinker, Amias applies an essentialist approach to understanding how businesses work. He explains why QED looks for companies that triple every six months at Series A, how inverted AI creates new opportunities in financial services, and why the best advice for founders remains timeless: build something people want and charge more than it costs to make. With insights on the AI bubble, the application layer renaissance, and why saying no 99 times out of 100 is the real job of a VC, Amias offers a masterclass in disciplined, thesis-driven investing.
In this episode, you'll learn:
[01:24] Amias's unique path from politics and Treasury to venture capital
[05:13] The lever theory: how government and VC create systemic change
[07:12] Why mechanical thinking and first principles matter in VC
[14:48] QED's investment sweet spot: Series A and series B with undeniable momentum
[19:25] What product-market fit really means and how to recognize it
[22:14] Inverted AI: Why the world needs financial services for the AI economy
[26:43] The AI bubble paradox: overvalued companies, transformative technology
[32:57] Why early-stage founders should ignore the macro and focus on customers
[34:31] The brutal math of venture
The nonprofit organization Amias is passionate about: Easterseals
About Amias Gerety
Amias Gerety is a Partner at QED Investors, where he focuses on FinTech and InsurTech investments. Before joining QED in 2017, Amias spent eight years at the US Treasury Department from the first day of the Obama administration through its final day. During his tenure, he helped write the Dodd-Frank Act and built the Financial Stability Oversight Council, the organization responsible for monitoring systemic risk in the US financial system. His government experience during the financial crisis gives him a unique perspective on market dynamics and regulatory frameworks. A mechanical thinker who approaches investments with an essentialist mindset, Amias has invested in companies like Kin Insurance, Prosper, and Tint. He previously worked as a management consultant and with Save the Children in East Africa.
About QED Investors
QED Investors is one of the most successful venture capital firms focused on FinTech investments globally. As a multi-stage, global firm with a $650 million early-stage fund and $300 million growth fund, QED specializes in Series A and B investments in companies demonstrating exceptional momentum and product-market fit. The firm requires portfolio companies to show dramatic growth—expecting tripling in six months for Series A and tripling in a year for Series B investments. QED's partners bring deep domain expertise from building and scaling financial services companies, with a particular focus on companies that are reshaping financial services through technology. The firm is known for its rigorous, thesis-driven approach to investing and its high conviction in backing founders who have found authentic product-market fit in large, expanding markets.
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"We do have to be disciplined. Momentum is lifeblood of venture companies. At the Series A, if you have not tripled in the last six months, honestly we're not gonna be the right partners for you. At the Series B if you have not tripled in the last year, we're not gonna be the right partners for you.
It is the job, especially as a large fund, once you have revenue, people will ask how much. Once you have revenue, people will ask, how fast are you growing? And it's never enough. But that's the truth." - Amias Gerety
[00:00:32] Gopi Rangan: You are listening to The Sure Shot Entrepreneur - a podcast for founders with ambitious ideas. Venture capital investors, and other early believers tell you relatable, insightful, and authentic stories to help you realize your vision. Welcome to The Sure Shot Entrepreneur. I'm your host, Gopi Rangan. My guest today is Amias Gerety. He's a partner at QED Ventures. QED Ventures is one of the most successful VC firms. I've co-invested with the firm at least once. And the topic of InsurTech is a common theme between Amias and me. We geek out on those topics quite often. We're gonna learn more about how he became a VC. He comes from a very non-traditional background.
[00:01:24] Why he invests in startups, what kind of startups he chooses to invest in, and why does he say yes when he says yes? And sometimes he says no. Perhaps more often he says no. We'll find out why. He says no. Amias, welcome to The Sure Shot Entrepreneur
[00:01:39] Amias Gerety: Gopi, thank you for having me. I'm glad to be here.
[00:01:42] Gopi Rangan: Let's start with you. You grew up in, Connecticut, but you spent time in many other places, and now you live in DC, which is not the hub for venture capital. So I'm curious to learn more about how your education and your career channeled you to where you are today.
[00:02:01] Amias Gerety: Yeah, so I had an eventful childhood. We moved around. My dad was an academic, so, Pittsburgh, Cincinnati, Hartford, Connecticut, a year in Palo Alto. And then in my career I also moved around a bunch. When I graduated, I ended up working for Save the Children in East Africa for a year. I came back to work in politics. I worked for the John Kerry President campaign way back in 2004 for a guy named Gene Sperling, who had been National Economic Advisor for President Bill Clinton, and then later President Obama. And then I became a management consultant. So I had sort of a winding tour into the, uh, the normal way that people get started in business. And then I went to the US Treasury Department.
[00:02:42] So I joined the US Treasury Department on the first day of the Obama administration. I was sworn in 24 hours before Tim Geitner was confirmed. The first 24 hours we actually spent at the Treasury Department, it was a tough time at the height of the financial crisis, and senators wanted to ask a lot of questions.
[00:03:00] So they had this process of, they submitted almost 300 questions, which we, as his team had to answer in writing before the vote the very next morning. So from 10:00 AM after the hearing on the first day to the next day, we were at the Treasury Department answering all these questions. That was a welcome to the big leagues moment.
[00:03:19] And then I stayed there until the very last day of the Obama administration. So I rode the full roller coaster of 8 years writing Dodd-Frank, implementing, thinking about financial stability, which is again, a topic of conversation, people are talking about the B word, meaning bubble a bunch.
[00:03:36] And so everyone's trying to figure out, well what does this mean? Is this a crisis? Could it be a crisis? Glad to talk about that. So spent eight full years kind of living and breathing the plumbing of the financial system and how it was changing. And then I met the QED folks in March after I left the Treasury department and I joined in 2017, so have now been a VC for longer than I was anything else in my career.
[00:04:01] Gopi Rangan: Fantastic. And you've invested in some great companies like Kin, in the past Prosper and Tint. InsurTech has become sort of your main area. you focus on FinTech as well. Why do you like being a VC?
[00:04:14] Amias Gerety: I think first of all, it's a very fun job. I remember right after I finished at the Kerry campaign, I remember as a 25-year-old going into analyst interviews at Goldman Sachs, and roughly speaking at a certain point in every conversation at Goldman in the interview process. Someone will ask you a version of how are you gonna feel hating your job? And I'll tell you, Gopi like as a VC, no one ever asks you that. Venture capital is a thing that a lot of people do as like a high status way of being quasi retired. Now I think some of us do it professionally but it is still true that probably most VCs by count are people who've made money and enjoy investing in their friends businesses and enjoy contributing back to the community. So there are ways to do VC that are very comfortable and even in high intensity VC, it still is a not terrible lifestyle.
[00:05:13] So first of all, it's a great job. It's a really fun job. In the why, I've always thought in my career, in terms of levers, like how do you affect the world? There's this old saying that Archimedes could say, "gimme a lever long enough, and a place to stand and I could lift the earth."
[00:05:29] Obviously like what's the material science behind the stiffness of that lever? But anyway, leave that aside. And I do think that this is a place where there is a real consistency between government and venture. In government, you have, if you're lucky enough to be in government when policy is being made, you can affect the entire economy.
[00:05:50] And while it's quite different, and we operate with much smaller tools, the theory of what we do in early stage of what you do at the absolute earliest stage is that with a couple hundred grand or a couple million dollars, you get a company on the way that might change the entire course of the world economy.
[00:06:11] And I think that is an intoxicating possibility. And we've been lucky enough to participate in ones that are sort of approaching some relevance in the economy, but it's incredibly exciting to be able to be along the journey with these companies that go from functionally nothing to something very big in the span of just a few short years.
[00:06:36] Gopi Rangan: You have a very, very different background compared to most other VCs. You were not an entrepreneur and you were not an operator in its true definition. You are an advisor. You were a consultant. Yeah. And you were in politics, but you were right in the middle of some high impact activities right in the middle of the global financial crisis, and you got front row seats to see strategic problems at large companies and how they face those challenges.
[00:07:04] And that's the perspective that you bring as a VC. You have a very fresh way of thinking. How has that helped you?
[00:07:12] Amias Gerety: Don't tell Nigel that I'm not an operator. He, he says we're all operators, so, so, you know, he would like my government experience to count, but I know where you're coming from.
[00:07:19] And look, I am a very mechanical thinker. Show me a business and I just want to know like who's paying what to whom and how. Like, I'm always very interested in the, how does this thing actually work?
[00:07:33] And I think on the one hand, I'm not sure that that is my government experience or my consulting experience. I think that might be me getting expressed, like I think that might be a personality quirk. And then it turns out that that personality quirk, I think, resonates with founders because it is very similar to the builder's mentality.
[00:07:54] What's the first thing you do as an entrepreneur? You have to diagnose the problem. You have to take it apart until you get some atomic insight about why it is messed up. Entrepreneurs who walk into a problem and say, "well, surely digital should fix this." Those entrepreneurs don't succeed. The entrepreneurs that succeed are the ones who can, even if they're new to the industry, they really take the process of unpacking it and rebuilding it from the ground up. And I think it turns out that my personality, whether it was in consulting or in policy or in VC, is that mechanical, that plumber's mindset of, "wait, what happens if I unscrew this? Oh, that makes sense. okay. There's a weight over here. There's a lever over there." And I think that's the mindset that I've brought to all of these problems. So I actually think it's a consistency of problem solving.
[00:08:42] Now, as you know, Gopi, like it is a competitive market out there for capital. The absolute best companies, the best founders have lots of choices. And I think actually it's that part of it, of the business where my government experience is most helpful because people love hearing the war stories of having been in the room with Tim Geithner, you know, during the financial crisis, having been in the room in meetings with President Obama having sat at the table with big decisions getting made.
[00:09:12] I think that is the kind of the umbrella, the reputational halo that founders like. So yes, I'm not a person who founded a great company that they can look up to, but when they're at their cocktail parties or at their bootcamp and hackathons and saying, "oh, so and so invested in me." I think that that government experience that having been at the table, sure maybe the w lessons from those translate, but I actually think it's kind of a simpler and more emotional thing, which is, "wow, like this is a person who had really cool experiences, and I want this person on the journey with me." Just like when we're investing in founders, there's something shiny about them. That's why we invest. We want to be with them. We want to hang out with them. And the why there I believe, is actually very complicated and very emotional more than rational. So I always say it's like. There's a confluence of reasons, and maybe it's the big building at 1500 Pennsylvania Avenue, maybe it's something else. But those are the things that I think resonate with founders.
[00:10:16] Gopi Rangan: You arrive with insatiable curiosity. You want to get into the details to understand how things work, and you start with first principles, like why is it the way it is, instead of assuming status quo as the right thing to do. And that's very similar to how founders think.
[00:10:34] So you very quickly become a good friend to the founder because you think the way they do.
[00:10:39] Yeah. Look, I don't, I don't know if this is a good practice or a bad practice, but. I almost never let a founder start with the first page of their slide deck. Almost always my first question is on page seven or eight or nine or 10, or not even in the deck.
[00:10:57] Amias Gerety: You could convince me that like I could be winning more deals if I just let the founders pitch. But for me, I think this is some value. I think it's saying I've thought enough about your business that the question I want to ask is a question that I could not have answered reading your deck, and I think that's what are we doing in this world, right?
[00:11:17] We're having conversations with people. We're ultimately trying to convince them to take our money if we want to invest, and they're trying to convince us that we should them money, right? That's what we're doing. We're having conversations about whether to invest or not. And in that context, the only tools we have are our brains and our sounds.
[00:11:35] That's why I always try to say, I'm doing it because it's the way I am. It's what's most interesting to me, as you said, it's the curiosity and I like to call myself an essentialist, right? Like what is the essential thing that is going on?
[00:11:47] What is the value creation moment? What is the value exchange moment? How do people win? How do you make this transaction win-win? That's always the most interesting thing for me. Certainly there are dynamics where this has worked against me. I could not figure out what the heck was going on in crypto, honestly still can't. I totally understand stable coins. There is a great thing happening in stable coins. Prior to stable coins, there was not a viable 24/7 denominated global payment rail and the world needed an instant payment rail that was global and in dollars and stable coins provided that.
[00:12:23] Moreover, stable coins provided a way for people who were underbanked internationally to get access to US dollars. And to hold them. And that's also incredibly valuable. And I am super interested in all the cryptography and some of the database dynamics with what's under underlying a blockchain. But I could never figure out why the technology adoption, these world computers or blockchains linked to the value creation in the speculative assets.
[00:12:51] And as a consequence, I as an investor, just didn't make any money in those. We have a large and growing stablecoin portfolio, partly because we're investing in stablecoin companies, partly because our companies are adopting stable coins. And so that's a good example where I just had this kind of essentialist view.
[00:13:08] I like to say I've been wrong about Bitcoin since 2014. I mean, I am literally the person who explained how Bitcoin worked to then Treasury Secretary, Jack Lew. And if I just put a thousand dollars into Bitcoin, then I'd be much better off. But I couldn't figure it out. I could understand the function, I could understand why it was gonna be valuable for certain people. I couldn't understand why it should be worth a hundred thousand dollars a token that did not make sense to me. And here we are. it's a completely viable, speculative asset and a totally non-viable payment system. I was interested in the payment system part and when I didn't see the payment system working out, I got uninterested and that's made me a much less successful investor if we're being honest.
[00:13:50] Gopi Rangan: So you're authentic the way you show up and it helps you quite often in making investment decisions. Sometimes it holds you back as well. It happens.
[00:13:58] Amias Gerety: Yeah. We have a view at QED, which is, we like to say to founders in particular, you basically can't persuade anyone of anything. You just should be searching for people who already agree with you.
[00:14:11] Gopi Rangan: That's a very different way of looking at it. Look for people who already belong to your side.
[00:14:17] Amias Gerety: Yeah. Think about sales. You're not trying to convince someone to buy your software. In fact, that's the worst way to be a salesperson. The best way to be a salesperson is find someone who is ready to buy your software and doesn't know it yet.
[00:14:30] Gopi Rangan: I wanna get into some of the details of how you make investments. What's your sweet spot? What stage do you invest? How many investments do you make in a year on average?
[00:14:40] Amias Gerety: So as a firm, we are large, we're global, we're multi-stage, but the core of what we want to do is series A's and series Bs.
[00:14:48] And in this market environment we've actually been relatively slow. So, we're a $650 million early stage fund. We're a $300 million growth fund. And in the US we really only did two lead checks this year, and then two more follower checks. So that's pretty low pace. I think part of that is there's equal measures of uncertainty and excitement around AI.
[00:15:17] I am as bullish as anyone about what this technology is gonna do to our working lives. I've become a vibe coder. I'm in it all day all the time, and very bullish about that. And at the same time, where the value capture will reside, what business models are going to work, what the best practices are for applying it.
[00:15:38] I think there's uncertainty there. And we have because of that, been a little bit slower. Now, some of this is surprising. I'll give you an example, Gopi. My partner Victoria, who's based in San Francisco, she led a Series A into a company called Lorikeet, an AI driven customer service for regulated industries, complex use cases, and of course the primary wedge is voice because the power of voice AI, I think is surprised.
[00:16:04] Frankly, I think anyone paying attention, I think even the bullish people would say that it's probably been adopted faster than they might've expected. And certainly for me as someone who's maybe a little bit skeptical about voice, would consumers accept it? It's amazing. Actually, in many cases, across our portfolio, consumer satisfaction goes up when they're talking to a voice agent, not down.
[00:16:28] That's a fascinating finding. It's a surprising finding to me, but because of that, what it told us as investors is we can't wait on the AI customer service opportunity. We have to invest now. This is a thing that is happening now and sure there are more companies competing for the market's attention than we would love, but we felt like Lorikeet was a fantastic team (ex Stripe, ex Google). They had a fantastic insight about more structured, more auditable, more action oriented, AI driven customer service. And the momentum was off the charts for a very early company. And so we said, okay, yeah, in some abstract sense, I'd love to wait, but this is happening now.
[00:17:11] And that's the nature of venture. You have to decide when to have conviction. Another theme that I'm super interested in, and if you had asked me 12 months ago, I would've said my top priority for 2025 is to invest in an agentic payments company. It just felt like agentic commerce is happening. AI agents are going to be an important part of the economy. If they are, they're going to have to make payments. So therefore I definitely wanna invest in one of these companies. 12 months later I have not invested in any of them, and I think the answer for that is that simply speaking, that moment has not yet crystallized.
[00:17:45] Visa has been more aggressive, Coinbase is more aggressive. OpenAI has been more aggressive. So some of the largest companies on the earth have been more aggressive than we might have expected to attack this very nascent market opportunity. And maybe partly because of that, maybe because consumer behavior hasn't gotten there yet, the startups that are trying to facilitate consumer or small business transactions by AI agents have not had enough demand to really get momentum. And as a consequence, we haven't made an investment in that space yet. I'm still super bullish on the space, but if you had asked me 12 months ago, I would've said I would wait on voice and I want to go on agentic commerce, and in practice we've done the reverse.
[00:18:28] Gopi Rangan: This is getting very interesting. You're getting into a lot of details on specific things that you focus on, why you get excited, and even in some areas where you thought it was interesting, you haven't really pulled the trigger. I wanna talk about the founders who come and meet you, at what stage should they come and meet you?
[00:18:46] How early is too early and how late is too late?
[00:18:49] Amias Gerety: In themes we are interested in, we want to talk to founders roughly as early as possible, but I would say founders who are still in the exploration phase. It probably isn't necessarily that interesting.
[00:19:04] Now, if there's a founder that's in our network, if they know one of our founders, there's other good social reasons for us to be talking to them. But what we've found is that many founders at the ideation stage will pivot once or twice before they even build their first product. And to their credit, these founders should not only be exploring ideas within FinTech.
[00:19:25] So as a consequence, as a FinTech specialist firm, sometimes that ideation phase is a little too early. Now we're always interested because many founders don't end up becoming founders, end up becoming COOs and CTOs and other things. So from a talent funnel perspective, we're definitely open. But I would say that it's very, very rare for us to invest at that stage. So from that perspective, I always say to founders like, "Hey, I'm probably not gonna invest. If you still want to talk to me, I'm interested in your theme."
[00:19:54] We do have to be disciplined. Momentum is lifeblood of venture companies. At the series A if you have not tripled in the last six months, honestly we're not gonna be the right partners for you. At the series B if you have not tripled in the last year, we're not gonna be the right partners for you. It is the job, especially as a large fund, once you have revenue, people will ask how much. Once you have revenue, people will ask, how fast are you growing and it's never enough, but that's the truth. And so we do want to capture these founders at their inflection points in themes we're excited about. And certainly if you think you're on a path to tripling in the next six months, come talk to me now because I'd love to talk to you in six months. But if you say, "Hey, look, the last six months we grew 20%, but we just signed a big customer and I really think we're gonna grow and I wanna raise money now." Those just deals aren't deals we really can do.
[00:20:46] The things we're looking for are product market fit, and that's easy to say. But what does that actually mean? It means that there is undeniable momentum in your revenue traction and that there are signs of repeatability.
[00:21:00] One customer loving your product is not product market fit. No matter how big that customer is, no matter how much they're paying you, multiple disparate customers buying your product showing that every week or every month or every quarter depending on the size of your contracts, you are closing people, that is the kind of momentum that we need to see. So it's really those dynamics: how fast you're growing? Are there signs of repeatability? And then obviously, do we already believe that you have a big market? Are we interested in your theme? And then finally, do we agree with your insight on the market? Does the way you think about your market speak to us? And if it doesn't, we're not gonna do the deal. I mean, you could try and persuade us. I'm always open-minded. But the real truth is that when push comes to shove. You are gonna tell me a story and if I find that story intoxicating, then we'll we might get there on the numbers.
[00:21:50] And if I don't find that story intoxicating, no matter how good your numbers are, we probably won't get there.
[00:21:56] Gopi Rangan: This is awesome. This is the brutal truth of how things work within a VC firm. You already mentioned crypto stable coins. You mentioned AI and you mentioned. Financial services as a theme in general, but can you talk about a few trends that you're excited about for your investments?
[00:22:13] What do you focus on?
[00:22:14] Amias Gerety: Yeah, so one of the trends I'm, I'm most interested in right now is a trend I call inverted AI. So Gopi, here's a very straightforward thing that I know you know, the world is not ready for the world that AI is building.
[00:22:30] Gopi Rangan: Absolutely.
[00:22:31] Amias Gerety: It is not ready. And because of that, I think that there are a series of financial services skill sets that are gonna be necessary to allow AI value to be created. We just talked about one with payments, right? Okay. How can an AI agent affect the economy if they can't make a payment? So that's an idea. And by the way, the agentic payments company might not even need to be an a, I mean, it will be an AI company 'cause all companies will be, but, but it itself might be a mechanistic, deterministic system rather than a probabilistic system and yet it's gonna be necessary to enable, capture that intent, structure it, pass it through a system, control fraud, et cetera. Risk management, fraud, compliance insurance. One of my favorite examples is, again, here are very simple statements about the world. It is true that the founder of fig.ai, the robotics company, wants a 300 pound semi-autonomous robot in your house. It is also, without a doubt true that State Farm does not want a 300 pound semi-autonomous robot in your house. The bridge between those two facts is an insurance product. There's customer acceptance and that sort of thing, but there's an insurance product there, which is can you handle the liability associated with a semi-autonomous robot?
[00:23:56] I'm actually excited about robots, but we're going to need products. So what's the inverse image of the world that AI is creating? And I think that's a really exciting theme. And there's a dozen sub themes in that. Another thing that I would say, and I think this is something I've actually changed my mind a bit on in the last 12 months is the application layer is I think more interesting to us now than we thought it might be. And the reason for that comes down to a couple of things. I think it is still true that it is hard to get real value from AI in enterprise settings. And because of that, I think that there is real product excellence, design excellence, technology excellence, that can come to bear. And because of that, I think that's a way for the application layer to capture value.
[00:24:48] Now you can pair that with a lesson that I think companies are taking from the cloud era. Companies that went into the cloud era, I think came out with two very strong convictions. One to a company they felt they moved too slow and basically to a company, they felt that they were too committed to the initial cloud provider, and I think enterprise executives, mid-market executives across the US economy are absolutely committed to not letting that happen again. So they are moving faster to try and adopt AI, number one. And number two, they are very sensitive to the question of whether the fundamental LLM is something that's gonna lock them in. And so actually one of the things that we see, again in this application layer, both as the product excellence, which I find interesting and the structural commitment that because of that, the application layer is going to build in a model agnostic way and deliver whatever the cutting edge is.
[00:25:54] Is it Deepseek? Is it Quinn? Is it llama? Is it Gemini three? Optimizing between efficiency, cost, latency, effectiveness, intelligence, whatever those factors are. We are seeing right now, a lot of enterprises enjoying the possibility that the application layer acts as a buffer between them and overcommitting resources to one LLM provider given how dynamic that ecosystem is. So that's something that we are pretty excited about and I think if you had asked me 12 months, I would've been more nervous about it.
[00:26:31] Gopi Rangan: Inverted AI and innovation in the application layer.
[00:26:36] Amias Gerety: Yeah.
[00:26:36] Gopi Rangan: Do you feel like generally the theme of AI is overhyped? Are we in a bubble? How do we know?
[00:26:43] Amias Gerety: Yes and. One way to say this is how many conversations can you have Gopi in the span of a week where the bubble does not come up. It's like zero. If everyone thinks we're in a bubble, we're probably in a bubble. Another fun fact, just to contextualize it, in the year that Google made $15 billion in revenue, it produced more than $5 billion in free cash flow.
[00:27:07] OpenAI, I don't know, obviously private company, but the last I heard is that OpenAI is going to produce about $15 billion in revenue this year and will burn $7 billion. It's different here, but the fundamental economics of AI do not support runaway valuations. Google's the most profitable company in the history of the planet, and now of course Google continues to succeed in AI too. Who knows how all this plays out?
[00:27:34] But in terms of unit economics, these are not businesses that are as strong. They're not as free and clear. Yes, Google had competition, but very quickly it emerged as the dominant provider and it was untouchable, and that is what enabled its business model. Whereas I think almost the second that ChatGPT came out, we learned that Google could do a version of ChatGPT and a year later we learned that $6 billion and Elon Musk could create Grok. And Anthropic continues to succeed as probably the best model for a huge number of, it's my preferred model for coding and for a bunch of tasks.
[00:28:13] And that's all before we get to the open source models out of China. So I think that the market structure for how these things will work is much more competitive than we could have anticipated or than we might have anticipated. And because of that, I think you can see clearly, these companies are locking themselves into a kind of prisoner's dilemma where the only way out is escalation. So I'm gonna spend a billion dollars on a model. Gopi you say, I see your billion, I'm gonna spend $10 billion. All of a sudden because we're just, making words we say a trillion dollars. And I think simultaneously, the scaling laws, again, I'm not a scientist, I can't tell whether these are laws or observations.
[00:28:55] They're obviously more likely to be observations than laws, but to the extent that the scaling laws are true. It actually means these companies are going to have a very hard time being profitable. And the reason for that is very simple. If the scaling laws are true, I have to invest 10 X more to get a doubling in the model.
[00:29:14] And if they are true, then the next person who can invest more than me will have the best model. Two years, hence three years hence. If that's true, then I can never monetize my training costs because the best model is always the model that comes out tomorrow, and you actually need a stable hierarchy in order to recover your fixed costs. That's what we learned in software: Is at some point you need to have a very high margin business and they'll tell you things like, oh, if you exclude training, the next model, we actually do have high margins. Okay, that's probably true. Again, these are private companies I don't know, but just like in software, if you have to invest in R&D to get the next feature and the next feature and the next feature, you can call it R&D all you want, it still means you have negative cashflow.
[00:30:05] So I think these are the things that when you think about this, how long will it last? I don't know, that's the nature of things, and I think you can believe two different things. I certainly believe two seemingly contradictory things. One, I think that we are. Some form of a bubble. Two, I think this technology is, again, depending where you are, this technology is not totally overhyped. I don't personally believe in AGI, so like I'm not that far out, but in terms of transforming the way white collar work gets done, I a hundred percent agree with that statement. And if that's true, then the opportunity here is absolutely massive. So I believe that we as investors, people who think about the macro economy, probably have to have both of these thoughts in our brains at the same time. It is not true that there will be good ROI on a trillion dollars of CapEx.
[00:31:00] Gopi Rangan: The exuberance of raising capital and spending all of that on R&D with a shorter time span for LTV and the total amount of LTV is also questionable. All of this leads to an unsustainable situation, which kind of describes why we are in a bubble.
[00:31:20] It makes sense.
[00:31:20] Amias Gerety: That's kind of my take and look, it's important to, to say and look, I was at the treasury in the height of the financial crisis. I built the organization to think about financial stability called the Financial Stability Oversight Council. That's the closest I ever came to be a founder. I was the first staff. I built a team to 25 people. We created all of the ways the US federal government thinks about financial stability, were created by a team that I led and then the principles that we served in the agencies that we served. I think that until you see this AI bubble significantly become levered, and by levered I don't just mean funded by credit, but I mean funded by credit significantly more than earnings. So if I have sufficient earnings, but I choose to use credit, that's a very different model than if I take 6X the debt to EBITDA, then I think the true risk factor that we all need to look for is: when does the infrastructure start getting funded with short-term credit? Because it is short-term credit that is always and everywhere the source of financial crises because it is shortterm credit that creates runs. Long-term credit creates losses and losses hurt the economy, but they don't create sudden stops.
[00:32:33] That I think is the lesson that a lot of people miss when they think about financial disability. They think about leverage. That's the right thing to think about. Think about credit. Sure. Absolutely. But it's the combination of long-term assets and short-term debt that is always in everywhere the recipe for financial crises.
[00:32:50] Gopi Rangan: What's your advice to founders in today's world when they're building a new business? How can they prepare for the future?
[00:32:57] Amias Gerety: So the good news is if you are a founder, if you're an early stage business, your business is almost entirely defined by Alpha, not by beta. So the old advice is always the best advice.
[00:33:10] Build something that someone wants to pay for. Charge them more than it costs you to build it. And if you have that, you have a good business. Now, hopefully you have hundreds of thousands of someones, but the best way to figure out whether you have a hundred is to get 10.
[00:33:27] So there's no reason that any company should ever buy software from a seed stage company. Why would you? It's crazy risk except for one great reason, which is that company has built an amazing product. That's always where you start. They shouldn't buy for you. You don't have brand, you don't have capital. You might not exist in two years. They're taking incredible risks, so why should they buy? There's only one good reason, and it's because your product is amazing. For early stage founders, that's the most important advice. You don't have to worry about the macro, you don't have to worry about politics.
[00:33:59] You just have to worry about your customers. Now if you're a later stage business, I think it's much more complicated. Per se, you do take on macro risk. You take on beta risk, you become a dominant player in your market. You will go up and down based on the economy but those founders have more people around the table to help them with the positioning that's particular to their business. For early stage founders, it's easy to think about the macro, but it's almost entirely irrelevant.
[00:34:26] Gopi Rangan: How many companies do you meet for every one investment you make and why do you say no?
[00:34:31] Amias Gerety: It's easily a hundred to one. We have, at any given time a list in our CRM, which we call watchlist. So watchlist means we are actually interested. We've either met the company or we've heard about them from another investor, and we think the theme could be interesting. We think the market could be interesting.
[00:34:49] In the US we probably have about 300 companies on the watch list. That's probably too many, honestly, to do a good job tracking but that is the number, like if I pulled it up right now, it would be, you know, order of magnitude 300. We maybe do three, four investments in year. That's even after you weed out companies that we have a radar status. Like, yes, I've heard of the company, maybe I've even met with them, I don't really believe in what they're doing. It didn't really speak to me, so I'm not gonna try to keep up with them. I'm not trying to track them for the next round.
[00:35:19] So anyway, every day, Gopi. My job is not investing in companies. My job is waking up and not investing, right? Like every day I wake up and my job is to say no. Like, that's the actual job. Now I'm saying no in the hopes of finding a yes but if you look at the what I do every day, right?
[00:35:37] I barely ever get to say yes. I'd love to say yes, but that's not my job. My job is to say no. So that's how we think about it. It really is, we wake up in the morning and we don't invest our LP capital, and then we wake up the next morning and we do the exact same thing. And then we hope over the course of a year, probabilistically, I mean, one in a hundred. It might as well be zero. I mean, one in a hundred rounds to zero. It's a very interesting business day to day to say, I have to keep my heart open. I have to keep my mind open to really be persuaded while also being rigorous enough, disciplined enough, ruthless enough to say no 99 times out of a hundred,
[00:36:17] Gopi Rangan: you wanna say yes, but you have to go through so many nos and it feels like on a daily basis your job is to just keep saying no. But you're fishing for that one yes. That you wanna say That happens probably three or four times a year.
[00:36:30] Amias Gerety: Yeah. You're fishing for that one yes. I mean, we often say about diligence. The ones you're gonna say yes to at the more you scratch, the more convinced you are.
[00:36:40] There are tons of companies you're so excited after the first call and you get the data room and you're so excited by the projections, and then you get into the model and you say, "oh boy, the customer concentration is 80%." Or you get into the model and you say, "ah, the committed revenue is way higher than the realized revenue. What's going on here?" Or you get into the model and you say, "boy, they haven't signed a big customer for six months." And by the way, this is not a critique. It is really hard to build a great company. So it's with the utmost respect that I say to companies " we can't invest". Not because they're not trying hard, not because they don't have great ideas, not because they might even create good companies, maybe even great companies, but we have a very narrow sliver of companies that we can commit capital to, and the slightest sign that we're not persuaded, we have to say no.
[00:37:30] Gopi Rangan: Amias, we're coming towards the end of our conversation. I have one last question. I wanna learn more about your community involvement. Is there a nonprofit organization you are passionate about? Which one?
[00:37:42] Amias Gerety: So I'm no longer on the board, but I spent a number of years on the board of a group called Easterseals. It's a national parent org, but I was on the board of the local one.
[00:37:50] It really has focused mostly on serving those who need the most in any given community, so children with disabilities, veterans with mental health challenges, what we call the invisible disabilities. Seniors, like, there's a elder daycare. How do you handle a senior who can't care for themselves?
[00:38:09] That's my biggest contribution and organization that I spend time with in DC.
[00:38:14] Gopi Rangan: Amias, thank you very much for spending time with me today. Thank you for sharing deeply insightful and practical nuggets based on your day-to-day experiences and your thought process on how you look at the market and how you make investment decisions.
[00:38:29] I look forward to sharing your nuggets of wisdom with the world.
[00:38:32] Amias Gerety: Thank you Gopi. Really appreciate it.
[00:38:36] Gopi Rangan: Thank you for listening to The Sure Shot Entrepreneur. I hope you enjoyed listening to real-life stories about early believers supporting ambitious entrepreneurs. Please subscribe to the podcast and post a review.
[00:38:48] Your comments will help other entrepreneurs find this podcast. I look forward to catching you at the next episode.