What's up, party people? My name is Sunny Ray. This is the Sunny Ray Show. I believe this is our fifth or sixth interview. Today, I'm for this interview, I'm going to have someone back on for the second time. His name is Paul Anthony Claxton. He's one of my favorite guests that I had at the beginning part of this year. We're going to talk about the infrastructure behind tomorrow when tech becomes us. Oh my goodness, I'm getting excited just thinking about the title. Paul, how you doing, bud?
Man, I'm so glad to be here. I'm doing really well. So,.
Yeah. Did you change something on the audio? a little bit or no? sorry. I'm hearing you a little bit more.
Sorry. It would help if I put my mic in front of me. Huh?
There we go. Okay. Now we got you. Okay, cool, bud. So yeah, you were saying I guess how's life been just in short since the last time we met?
Man, life has been busy. right now you know, we're really focused on the explosion of focus around data centers and all of the commentary in the the business community that's going on around that. you know, we've really been focused on kind of the shift to more responsive capital deployment systems. so, you know, moving I think the era is moving away from FOMO and hype and much more to you know, capital deployment that is compliant, that is milestone attached, that's not built on hopes and dreams. I think Carta points out in one of their recent reports that what we're seeing is we're seeing a more a larger pool of capital, but we're seeing less deals. So, we're seeing more capital being deployed, but much less deals.
Interesting. Hey, let's dive into some of these like super interesting topics we were talking about earlier. I guess first question, why are data centers suddenly the hottest asset class on Earth? I mean, it maybe seems a bit obvious, but let's dive in with that one. Well, you know, data centers so AI can't operate without data centers, right? And I don't think that the likes of the two biggest probably AI companies in the world right now, OpenAI and Anthropic, I don't think that they predicted how much consumerism would be required how much infrastructure would be required to support the consumerism from the power grid. Right? So we've got very what I would call centralized data center infrastructure right now and I think the market is moving much more towards a edge kind of data center infrastructure approach so micro data centers in our communities and right now there's a lot of push back with kind of what I not in my backyard right I know in Pennsylvania there's been a number of laws passed against data center buildouts in the communities because the communities don't want it unless it benefits them economically in some sort of way, right? Because data centers require a lot of power. they increase the tax base significantly. They increase or decrease the affordability in local communities etc. It's hard on the environment. So local communities absolutely have to be stakeholders in any kind of data center initiative and buildout. And that's what we're working with. Like at our company, we don't just invest we're not just focusing on capital deployment towards data centers, but we're focused on federal garnering federal support and through lobbying, etc. to support building out data centers that not only advance the AI kind of economy for but also support the everyday citizens and benefit the everyday citizens. So we have capabilities within the federal government. One of our team members previously served on a presidential administration. He works with us and helps us to support, you know, federal dollars, federal grants, approval of federal systems to u get approved through federal pathways and whatnot. So, it's not just all about the private sector, but this is a huge public sector initiative, and that's what we've been working on a lot lately.
Wow. That sounds crazy. Hey, what's who actually controls the power behind tomorrow's tech? what are your thoughts on that?
We do.
The people.
We do.
Yeah. Believe it or not, it's not the anthropics. It's not the open AIS, but we do. And you know, it all comes down to access, right? And so right now the not everybody can afford AI. you know, some people can afford it at various levels and scale. but it comes down to access and, the wider that gap, that affordability cap becomes, the more of a access disparity that we're going to have, right? And if you the people that can access it control it, right? like so most mostly most people can access you know a chat GPT but eventually these systems are going to get more sophisticated and more expensive where companies are going to be directly reliant on having access to compute power a data center GPUs etc and that's going to become very expensive for the everyday startup or enterprise right and so right Now, we still have control over this, but I think as that access disparity widens and we start becoming more and more in one with AI, that control is going to become less it's going to be we're going to lose our grasp on that control if that makes sense. So, right now we do control it, but I think we're slowly getting away from that. Hey, Paul. yeah. No, that makes a lot of sense. I was going to ask you what do most investors get wrong about data center deals?
So I think, a lot of, well, first off, I don't think a lot of VCs are really focused on data centers. I think we're still caught up in the shift from SAS to AI tech companies, AI rapper companies. and repurposing what we used to have, right? so any kind of SAS with AI bolted on top. and we're in a kind of repurposing phase of that, but I don't think a lot of the market really truly understands data centers. It's very complex. there are a lot of line items that come into that go into you know data center production data center capacity etc. So like data center viability there's a lot that goes into it. There's a lot of line items. It's not like a regular business, right? And so you got to have a lot of stakeholders, a lot of variable forms of financing, whether it be capex, equity, debt, etc. and I just think that for the average VC, at least in my space, our capital is generally not patient enough, for what data centers require and how long it takes to build a data center, get the contracts in place and the usage and then actually bring it towards revenue, right? So but I look at it very differently than I think you know maybe your average VC would. I look at it as hard assets you know collateral that can be used as maybe short-term liquidity but also hard assets in our portfolio that can support our startup companies as well as the long-term play and having control over the picks and shovels of our infrastructure. So it's really a long-term play. It's not our entire thesis. it's a part of our thesis. It's a small part of it. But also, you know, I have a venture studio as well. So, also leveraging the venture studio to get involved in JV deals or manage SPVS in conjunction with supporting our adjacent thesis with the fund. Does that make sense?
Yeah. that does. Hey, just to switch gears a little bit, Paul, where do bad actors hide in this gold rush?
Well, right in front of my face, I just made a post about this. I'm like, look, if you're raising any kind of capital under 506 C, 506b, everyone associated with the offering, everyone that sits inside of a company, particularly if they own 20% more voting shares, they need to fill out a bad actor questionnaire form and it needs to be signed and processed and it needs to be a part of the company's over overall documentation set. so that means that anybody that sits in the company that may have had a legal disputes, you know, previous litigation, etc., any anything that could potentially be a disqualifying event that could sabotage the round, so they sit right in our own companies. And then additionally, any investors, employees, etc. need to also fill out the proper KYC and due diligence forms. which I don't see a lot of founders doing, you know. So, I don't I get founders that approach me and I'm like, I don't know who these people are, but they want $2 million from me. Like, I don't know who these people are. you we need to spend time to go through the appropriate diligence pathways and take the appropriate measures there. So, because the worst thing that you want is to have, you know, one to$2 million injected into your company and then, you know, 10 months down the road, you've got a you you've got a recision happening where those funds are being pulled back or worse yet you're getting sued. It's embarrassing. Reputations and futures are at stake. So, you know, I take that very seriously. So bad actors sit internally to the company but also externally. And I tell founders all the time do not rely on on a investor to dictate the terms of your round. Re it's your round. It's your company. It's your responsibility. So own that. Own the narrative. and for anyone that potentially sits on the camp table, investors included, they can be potential liabilities, depending on if they've had, you know, bad actor events in the past or disqualifying events that, for the, exemption that's being relied upon.
What's a disqualifying event and like why should founders care? disqualifying event could be criminal convictions litigations, outstanding litigations, disqualifying event could be potentially maybe even a stake in a competitor or company. things like that.
Makes sense. and how does how does quantum computing change the data center game?
I actually wrote an article about this a few two or three years ago and so I've been writing about this for a while. but quantum computing it in short it requires a tremendous amount of power much more power than what is currently required in kind of prequantum computing era. so you know we're going to essentially in order to move to the quantum computing phase is an AI era, right? I don't think we're in quite at general intelligence yet, but to get to general intelligence, especially with humans on the go, think about what they're doing. like they're people are talking about putting chips in their heads and their wrists and you know technology is on the go. So it it's really an AI these are edge cases that we're talking about and in order to truly have like edge computing capability like at distributed massive scale we're going to have to move into the quantum computing phase. and for that, we're going to need more distributed power, so to speak. which requires micro data centers, right? Because if you look at the way the American grid system is.
Yeah.
Like there are power sections in the American grid, right? Like so say like in a northeast in New England there are that's a power grid section but maybe in like Chicago that's another power grid section in the upper Midwest and power is distributed from one region to the next right so when New England maybe they have a surge of I don't know sporting events or they have a surge of power usage they might borrow power from another sector of the grid. But with the amount of power that AI requires, you cannot do that at scale. You cannot continually shift power back and forth. When one region requires you know a massive amount and another region requires a massive amount, the system breaks. So we have to deliver power at micro scale, not at macro scale, if that makes sense. It does. Can you go deeper though like why does decentralizing data centers matter?
Because access again so if we don't decentralize it's going to be like AI is going to be very expensive. It's like it's going to like so access will be much harder. it'll be further to reach. we'll have connectivity issues, you know, and everyone is going to be using AI more than what we're using it today. Like, you know, we're basically like walking human cyborgs already. Like, I can't think of a day where I don't use AI. So, you know, I mean, think about the evolution of tech, right? Like it used to be when I was growing up in the 80s and 90s, we had a desktop computer. I might sit on the computer for a couple hours, but that was it, right? like and I didn't have a cell phone. We had a landline, right? So, we were a bit like removed from tech, right? Like we were separated. But then they had cell phones and then like internet two 1.0 and then like social media and then we became on it all the time, right? And then from there what happened, right? Then like we put everything in the cell phone, music, everything. And then pretty soon like we had overthe-ear headphones and then we had earbuds that go in your ear, right? So you can see what's happening here. Like we're becoming more and more converged with tech. And now it's getting to a point now. we can wear it, right? We used to just walk up to it and use it like walk up to a desktop. Now it doesn't leave our body. Now we've got the Google X glasses or whatever and it doesn't leave our body. The next step is surgical AI implants.
Oh, that's going to ask you. Oh lord. I mean, what is it called? What's the one called that Elon's working on? Cyber.
I think like Neuro.
Neurolink. Neuralink, right?
Is it neural? Yeah, Neuralink.
Neurolink. So, I guess that's kind of where it's going. It seems inevitable. I mean, dude, I this thing I just bought this like a week ago.
Yeah,.
It somehow I don't know even how it transmits like audio to my ears without like earplugs. And anyway, it's pretty cool. Hey, I got a question for you. Is capitalism really headed for a supernova?
It is. And let me expound on that real quick. because I want to talk I still want to add on to the access disparity how the system breaks right and so when you have an entire.
Consumer society like that we're dependent on AI now like we are on gas stations and cars, right? And so what happens when you can't get access to gas? Well, the cars can't travel. Society breaks down, right? And so that's where AI is at. And so if you don't have the ability to how do I say like if you don't have the ability to distribute that access and that computing capability the entire system breaks right so if people don't have AI if the power system how many times has chat GPT shut down in the last six months people freak out like I mean you can go on you can go on there there's a website that is like I think it's called uptime or something, but you can go on website and see what sites are down.
Why they're down like and you'll see like people are freaking out,.
Dude. I track my claw usage to the minute like meaning.
Like I know by 6 p.m. today I should be at.
28%.
Right. So,.
And if I'm at less than that, I'm like, "Okay, let's crank it up a bit and like I mean, so yeah, I totally hear you."
So, we So, the point is like we can't once we've venture like it's the point of no return because if we were to go back 10 15 years like the society would completely break down like we didn't have Uber, none of that. So, when you start putting like chips and stuff in your head, it's a point of no return. And if that breaks, if we can't if the systems don't work, if the if they're not processing like our data and our inputs, etc., and they're not working, then we have a real problem. And that's I want to lead into like capitalism being a supernova. So, capitalism was always meant to expand. It was always meant to get bigger and bigger, but you can only get so big before it like you can't infinitely expand. I mean that people like why are we going to Mars? Because we need the ability to commercialize and expand. Like humans, capitalism is built on human evolution. If humans can't evolve, the entire system the entire human race breaks down. So capitalism is built on human evolution, right? And so the thing is if we don't find ways to expand, then society is screwed. You know what I mean? So and that's what I'm saying is like people you've got people out here anti- lobbying against data centers. Oh, you can't take way more cars. Well, if you don't give the technology a chance to expand, then we've got a problem. So you have to allow the technology to make mistakes and then over time it gets better and better. Like we used to have a lot of plane crashes but like now we barely have any because over the years the you know the technology got better, right? So.
How do communities actually win when a data center moves in?
How do they win? there's actually a great model called the Quincy method. if you're listening to this podcast, you should definitely look it up. But the Quincy method is bas basically hold on a second. I'm actually I don't remember the you know I don't remember the ABCs of it, but it's called the Quincy method. And essentially it it's a beneficial system for building AIS that where the people basically have a say right like where the people have a say the people it's almost like a union for AI if that makes sense.
So it's pretty cool. yeah.
Cool. I wanted to say some I wanted to say something. I'm trying to.
I'm trying to remember what I was going to hit on here for you, but I was talking about capitalism and whatnot.
The supernova.
Oh, do what?
The supernova.
Oh, yeah. the supernova. So, anyways, capitalism was meant to break, right? Like so as it continues to expand and expand it is going to like it has to expand like that's the way it's built but it is eventually going to break just like a supernova explodes because you can only expand so far. So that day is coming. and I think the evolution of AI will be it. And then you know once it explodes then you know a new life form is born a new ecosystem or you know a new celestial body is born right. but it is going to explode and we're going to have the greatest economic fallout that no one has ever seen probably for like a thousand years. It's going to happen. I've I actually went to a seminar about two months ago. and they were talking about it's called the retirement renegade and basically they were talking about how like no one owns their money, right? And so this is what happened with Silicon Valley Bank collapse. No one owns their money, right? The banks own your money. It goes to an organization called the DTCC. but once the banks have your money, they trade your money back and forth. They do whatever they want with it. And that's what happened with Silicon Valley Bank collapse is they couldn't they were overleveraged. So what happens when the DTCC in the who actually controls the money in the banks? What happens when they overlever? Then the entire system fails. So the only safe place to really put your money is really in fixed annuities. Believe it or not, that that's probably the safest place. You find that a lot in insurance. That's why insurance has been notably one of the safer investments. But it is going to implode, right? And so I think, you know, a lot of what we see with spatial exploration is not like there was a post the US military has weapons in space. China freaked out like, "Oh my god, the US has weapons in space." Yeah, we have weapons in space. We probably had that for a long time. But the thing is that the whole plight of going to Mars is to allow capitalism to expand because we pretty much I think reached we're reaching our threshold here on Earth and if we don't continue to expand the whole system's going to crack.
So if capitalism is a supernova, are we buying the dip or riding the blast radius? Are we what now?
Are we riding the blast radius? Anyways, don't worry about it. When what happens when AI access becomes a luxury good?
When it becomes a luxury good, you know, I think I think we have a real problem. That's like I was saying you know I think when it becomes a luxury you get you have a real problem because and along with the access disparity I mean think about like you have physically strong people walking around on earth right but what about when you have like mentally strong people like what if I can read your thoughts and I can you're thinking about your bank account and I can like actually look in your bank account I can hack your freaking brain man like so I mean that's where we're headed so what happens when you have you're just trying to have a conversation with someone or do a business deal and they're manipulating your mind, right? Because they have a better chip than you have.
They have a better chip than you have. So, you know what happens when they have that much power over you? know, so you know I think you know to your question you know what happens when you know AI fails, right? Was that your question? What happens when it fails? I think that's what happens.
What's manufactured traction? You brought this up earlier. You What's manufactured? And I know we're kind of getting to the end of our interview as well, but just a couple more for you, Paul.
Yeah.
What is manufactured traction and like I guess how do you spot it?
Manufacturer traction. So I have a lot of founders that might come to me and you know they're talking about oh you know we've got this much interest like you know 10 million in our pipeline for example.
You know they're telling basically telling investors what they want to hear but you know it's pitch theater you know oh we got 10 million right? What do you have to back that up right like oh we we've got an LOI doesn't mean anything. what do you have that's like revenue today? and what's going to be, you know, what's near-term, ready to be commercialized, right? Like, so, you know, LOIs, pilots, none of that really means anything unless, unless we can tangibly expect those opportunities to convert over at commercial scale. what else? oh, we've got these advisors on our cap table or in our company, right? You've got some big names. It sounds good, looks pretty, but what are they doing for the company? Like, that's a great example of manufacturer traction. Oh, you've got some big names that own part of the company or whatever, but they're not really doing anything for the company. So, I mean, you have to look deeper.
Into things with substance. and I get a lot of founders that are they're pitching like the best. it's like going on a date, like, oh, you know, you're putting your best foot forward, but you know, then when you get behind closed doors, it's a different story as you get to know the person. So, I'd rather hear all of the bad crap first. Like, let's get through all the problems that you have and all the difficulties that you're having. Like, you know, disclosure is the biggest thing. And so manufacturer traction telling me what I want to hear is not really gonna get us anywhere useful because we're going to find out anyway. So it's best to just tell me how jacked up the opportunity is because we invest in people. It first and foremost that's what we're doing and their ability to pivot and execute and under pressure and pivot and whatnot. and a market opportunity really comes next. and I always like to use the example of the video game glitch by TinySpec. it was a failure, but the I think it was Anderson Horowitz and some other firm. they it was a failure. So, you think they pull out and you know, Tiny Spec said, "Hey, you know how we're going to you know, give your money back and make you whole." but they said the investors said no keep the money go build something else and that became slack and so it would ended up being a good deal right and so it's not the market opportunity per se it's the founders's ability to pivot and execute over time. Yeah,.
Got it. Cool. I'm going to bring this one to an end here. Paul, thank you so much, man. Awesome. Always super insightful and yeah, and for everyone listening live, thank you all for tuning in. Yeah, until next time, Paul.
Maybe hang out for one minute, Paul. I'm going to bring the stream to an end. take care everyone. Cheers.
