Which Businesses Will Survive AI? | Michael Dempsey

Jason Yanowitz (0:00)

Nothing said on Empire is a recommendation to buy or sell any investments or products. All right, everyone, very excited about this. Welcome back to Empire. We have Michael Dempsey, Managing Partner of Compound. Welcome to the show.

Michael Dempsey (0:14)

Thanks for having me.

Jason Yanowitz (0:15)

Yeah. Context here is there are, I don't have notifications on for anybody, but I do have a list, a private list on Twitter called Brains. I don't allow myself to have any more than 10 people on that at any given point in time, you're on the list. Wow. So. This is pretty big. Yeah. We'll see if you make it after this podcast. You remain on the list. But I did want to bring you on.

We may talk crypto, but there's just, I feel like you're a, can you maybe explain like what you do? I don't even fully know what you do, but I do like your tweets. So.

Michael Dempsey (0:48)

I have a close friend who describes investing as I sit in, I think, and sometimes I just sit.

I run a, I help run a investment firm. We do venture capital at the seed stage in deeply technical areas. And we also do public market investing across public equities, as well as crypto tokens on a long short basis. A firm is called Compound. We do it in a very thesis driven way. So the simplest form is like we spend a bunch of time in research. We think about what is going to happen at the bleeding edge. How does it cascade through markets of technology? And then we try to figure out what are the futures we believe in, and we deploy money against those futures. So highly prescriptive.

Jason Yanowitz (1:29)

If you are doing everything, everything starts with the research. So then how do you make an investment if there's like a... I feel like these markets are so FOMO driven.

So how do you invest in a market like this, where hot deal comes along and you've done all this research on these other 10 areas, and then you haven't done it on this new area? Do you sprint to do the research or you just pass it? Mostly just pass.

Michael Dempsey (1:51)

You just pass.

We have a pretty tight-ish aperture of deeply technical businesses sitting across machine learning, robotics, healthcare, bio, crypto, and then adjacencies are like material science, energy. We've looked at space things, things like that. But if it doesn't carry like large science or engineering risk, typically it's not for us. So I think the thing that we've learned over like a 10 year period has been we are, we think we're pretty good at looking at like N of one style businesses and being like, oh, this could be very interesting and very large. We don't think we're good at looking at like five early stage companies and being like this is the best one.

Jason Yanowitz (2:25)

This is the best prediction market of the 45 markets.

Michael Dempsey (2:27)

Yeah, like, yeah, that like AI for legal AI for accounting, like all these different types of businesses, we're just like, that's not our style. And that's not where we spike highest. And that's, we just shouldn't do it. I think investing is figuring out, like, what are the specific areas where you have alpha, if someone wants to use that word, and like continuing to push those.

Jason Yanowitz (2:46)

Yeah, are all of your founders in the PortCo, are all of your portfolio companies scientists and engineers?

Michael Dempsey (2:54)

A lot of them. Yeah, not all of them, though.

Some of them are more kind of like, I don't know, creatives at times or creative technologists. Some of them are, I guess, doctors or considered scientists. But yeah, and sometimes they're just operators who have novel insights.

Jason Yanowitz (3:11)

Did you do all of this deep tech back in 2021, which I would largely call the SaaS plus crypto bubble?

Michael Dempsey (3:19)

Yeah, we started in 2016 So we've been doing it. Like the telltale life, like my life as a person, talking to LPs, running Fund Revers, like 2016, we were doing a bunch of AI things. And then we also started doing crypto then. We amended our LPA and said, we want to buy crypto tokens. And our LPs were like, why are you buying things that people use to buy drugs on the internet?

2018, our crypto portfolio drew down like 95%. And they were like, why did you do crypto? We told you not to. 2020, our crypto portfolio went up a bunch and they were like, why don't you do more crypto?