Re-Founding Incumbents for the AI Era with Sequence Holdings Co-Founder and CEO Michael Lee

Michael Lee (0:00)

Every company on the planet has a celebrated persona. In a world where you believe that alpha comes from engineering and AI, you need to create a culture whereby the celebrated persona is the engineer. And that's what's required. You think about your typical investment in a fund, and you're typically trying to figure out how do we start to package to sell this thing in three years. That is just a very different framing for how we think about technological transformation and what are the investments you're willing to bring to bear here. What we do is scarce. We're trying to do one deal per year. That's it. Our job is to do one.

Sarah Guo (0:33)

Hi, listeners. Welcome back to No Priors. Today, I'm here with Michael Lee, co-founder and CEO of Sequence Holdings. They just announced the largest AI take private to date with the Dell Family Office of Baldwin for $7.7 billion.

We talk about this, the Sequence story, how AI transformation is actually going to permeate the economy and what transfers from public investing to private equity to operating. Welcome, Michael. Michael, thanks for doing this.

Michael Lee (1:01)

Thanks for having me.

Sarah Guo (1:02)

So you started Sequence Holdings, which is a permanent holding company that works with management teams to buy and refound their businesses to be market leaders with AI. We should talk about that and it's a very exciting model, but you also announced this big transaction in Baldwin. Tell us about it.

Michael Lee (1:19)

Yeah, we started the company 20 months ago, really with an eye towards, can we partner with world-class businesses and management teams, working closely with our frontier engineering team to forge market leaders. The brokerage space is an area that we've been spending a lot of time on since the founding of the business. We've met dozens of insurance brokers and Baldwin was truly N of 1 of all the insurance brokers that we've met.

It's been a privilege over the last few months to spend a lot of time with Trevor Baldwin and the management team and we cannot be more excited about the journey that lies ahead between us, the Baldwin team and the Dell Family Office that supported us in this transaction.

Sarah Guo (1:54)

I want to zoom all the way out to a little bit about your background, you and your co-founder Alex, how this idea for Sequence came about because you've been an investor, now a hybrid investor operator. Tell me about how you arrived at the idea to begin with.

Michael Lee (2:09)

When I first joined Lone Pine in 2017, one of the first areas that I was asked to cover was AI.

Sarah Guo (2:16)

That's actually quite early.

Michael Lee (2:17)

Yeah. It was, as I'm sure you recall, it's when AlphaGo came out, it's actually when the first Transformer paper came out, and there was a lot of excitement at the time around what would be commercially viable if you scale these architectures. At the time, these were convolutional neural nets, GANs, LSTMs and the like. I think we all know how the story ends, which is we obviously saw a lot of exciting things come out of it, but as you scale these architectures, they're degrading effects over time to scale. I share that context because when the models came out or ChatGPT came out at the end of 22, what became obvious to me at least was that the world had forever changed. We finally had an architecture that we knew could scale infinitely. Now, whether or not that was possible, what will come from that was not clear, but we did know that we could scale with compute, that the architecture would improve.

Like an investor, I started to think about what were the impacts to the world. I felt strongly that AI would have an uneven impact on the economy. There are certain parts of the economy that I felt that AI just wouldn't impact at all. Take restaurants, golf courses, things like that. There are certain industries that I just felt like a startup would win.

Take coding, for example, like conviction and sequence going to go by, and outsource coding services business feels like a terrible idea, which you will give money to Cognition or Toanthropic.

But as a student of business, there have always been certain industries where I felt like the incumbent had all the advantages. That could be brand, that could be scale, network effects, regulatory, and in light of what is going to be the biggest technological shifter of our lifetime, I felt very strongly that if you could acquire the right incumbent, inherit the advantages of being that incumbent, could you forge the market leader. The kernel of that idea is the one that really is upon which Sequence was founded upon. Came up with the idea in early 23, had a handful of people try to get me to leave Lone Pine and go do it then. Just wasn't the right time for me. Then I remember going for a walk with my wife in 24, letting her know that, hey, it's pretty rare in life to be in the middle of the most important technological change of our lifetime. Having the kernel of the idea I felt very strongly about and feeling very strongly that I could pull together the team to go and pull it off. And so that's why we started Sequence and couldn't be more excited about kind of what we've been able to achieve to date and kind of what we see ahead of us.