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ABOUT JOHN COOGAN:
I am the co-founder of http://soylent.com and http://lucy.co, both of which were funded by Y Combinator (Summer 2012 and Winter 2018).

I've been an entrepreneur for the last decade across multiple companies. I've done a lot of work in Silicon Valley, so that's mostly what I talk about. I've raised over 10 rounds of venture capital totaling over $100m in funding.

I work mostly in tech-enabled consumer packaged goods, meaning I use software to make the best products possible

CONTACT:
You can get in touch with me via Twitter: https://twitter.com/johncoogan

Disclaimer: This video is purely my opinion and should not be regarded as a primary source. I am not a financial advisor and this is not a recommendation to buy or sell securities. Always do your own due diligence.

The Pope wearing a dripped out Balenciaga jacket.

French President Emmanuel Macron running away from protesters.

Donald Trump being wrestled to the ground by cops.

We've all seen these images, and we know they're fake, but can you imagine a computer generating something like this even 5 years ago?

Sam Altman is testifying in front of Congress.

But not enough people are talking about what I think is 1

of the most interesting AI companies in the world, Midjourney.

It's become by far the best way to create AI generated images, And it's also 1 of the most fascinating stories in the history of Silicon Valley.

David Holes grew Midjourney from nothing into a real business that likely makes tens of millions in profit in about a year.

The way he did it holds so many interesting lessons for the future of tech and entrepreneurship.

Midjourney has become by far the best way to make AI generated images.

These posters behind me were actually generated by Midjourney.

The company makes tons of money even though the team is really small.

And as I'm recording this, there are 18 million people in their discord.

In a way, it's crazy how quickly this has all happened, but this overnight success story actually took years to happen.

Before David Holes became 1 of the most important leaders in AI, he ran a company that never really took off, And long before then, he was a curious kid from South Florida.

David's dad was a dentist, but not your average dentist.

His office was on a boat, and he would sail around the Caribbean in South America, where he'd pull up

Once David came along, his dad settled down and rented out an office near Fort Lauderdale.

Because of his job, David's dad had a computer.

Of course, David quickly became obsessed.

He learned how to program in this really old language called Scheme.

1 of his favorites was this old DOS game called Star Wars Dark Forces.

You play it as this guy named Kyle Katarn who discovers this top secret galactic empire project.

I was obsessed with this stuff as a kid and used to read tons of these Star Wars spinoff books.

Anyway, David hacked the game so that Kyle could shoot rockets out of his hands and stuff like that.

This is such a classic trajectory for people who get into tech.

Lots of time on the computer, gaming, little bits of programming, and then more serious projects later on.

David applied the skills he learned really early on.

He ran a design business while still in high school.

He attended tons of science fairs and even ended up judging a few of them.

So it probably didn't come as a surprise to any of David's friends or family when he decided to study physics in college.

David really admired the great physicists, people like Einstein, Newton, and Feynman.

As he spent more time in college, he also took lots of math courses.

He ended up graduating with degrees in both and then started a PhD in applied math.

David was clearly super smart and people were taking notice.

While he was doing his PhD, he started working as a graduate researcher at the Max Planck Institute, named after the famous theoretical physicist.

He also worked for NASA at their Langley campus.

He was doing really cool stuff, mapping rat brains, atmospheric science, even working on LIDAR.

But at a certain point, David became worried that he was getting locked into a career path where he would just do research, write papers, and then nothing really happened.

He wanted something that could become his sole focus.

So David did what lots of super smart, slightly aimless people do.

The company's first name was Accuspec, but that wasn't a great name, so David and his co-founder soon changed it to Leap Motion.

The idea for Leap Motion's main product actually came to David back in middle school.

He was in a typing class and he must have been bored because the teacher told him if he could type more than 60 words a minute without looking at the keyboard, he didn't have to do the class.

So David learned how to type really fast, got out of the class, and then all of a sudden he had time to work on other projects.

That experience of learning how to type fast made David realize that there was a problem with how people interacted with technology.

I know, most middle school students never think about stuff like this.

Basically, he thought that there was a bottleneck.

People's Minds worked really fast, but seamlessly transmitting that information was difficult.

Cost, size, and speed are all important factors, but for David, the most important thing was the interaction model.

The end result of that thinking was the Leap, a small device you'd place in front of your computer that would track the motion of your hands and then translate those gestures into commands.

But well before the Leap was released, in fact, even before David founded Leap Motion, he had an interaction that foreshadowed the debate we're having today about AI.

Leap Motion kind of invented a lot of gestural interface technology, but people weren't really ready.

The iPad had only just been released, and the Windows operating system didn't yet work with touchscreens at all.

People didn't really think about touch beyond their phones and the trackpad on their laptops.

Of course, today, touch is everywhere, and Apple recently announced the Vision Pro, which includes hand tracking as a core feature.

But it's taken more than 10 years after Leap Motion's first product to get us here.

Because Leap Motion was trying to do something new, David was very focused on user interaction.

1 of the people he talked to early on was a professor named Alan Kay.

Alan is a legendary computer scientist who basically invented both object-oriented programming and the graphical user interface.

And he said something which crystallized the problem David was trying to solve.

Don't think about features, think about how the user learns.

In many ways, Leap Motion never really solved that problem.

They tried to introduce a new technological paradigm before people were truly ready for it.

But today, user education, both in terms of people learning how to use the technology, and also how people train the algorithm is a big part of why MidJourney is so amazing.

Leap Motion had a promising first few years.

Their seed round in 2011 received investments from Andreessen Horowitz and Founders Fund.

There's a great story from when David was first pitching investors.

David pulls a mountain out of the wall, rotates it, and pushes it back into the wall.

At that, the lead investor took off his pair of glasses, stepped forward, and said with total confidence, I get it.

After a rough week, this was like music to David's ears.

Can you also track things in 2 dimensions?

David responded that because 3D is more complex, the device could definitely handle working in 2D.

The VC nodded and then asked David, have you ever considered giving the first 2 dimensions away for free and then charging for the third dimension?

David said that no, he hadn't, but that it was a really interesting idea and 1 that he promised to think about.

This story is interesting because it shows that bad VCs don't bother to think about what a technology can really do, and instead, they just jump right ahead to how much money it can make, all while destroying the core value proposition.

But it's also a story about people misunderstanding the kind of problems David was facing.

He didn't have a monetization problem, he was trying to solve novel hardware problems.

It's possible that experience soured David on VCs in general.

I'll go into this in more detail later on, but Midjourney hasn't raised a cent of external funding.

Leap Motion, however, followed a more conventional path.

After the successful seed funding round, they raised $12.75 million in Series A funding in

and then a $30 million Series B round in 2013 led by Founders Fund.

That gave them the money to release the Leap in mid

Apparently, that was below expectations, but I think it's actually pretty solid for a new hardware company selling a totally new type of product right out of the gate.

Tech support was tricky, user retention wasn't great, and that sales figure was probably bumped up by partnerships with other companies in addition to direct sales.

Still, Leap Motion was doing well enough that Apple was interested in acquiring them.

But David, the founder and CTO, wasn't interested.

In fact, he apparently told Apple's representatives that their company was no longer innovative and even praised Android.

Needless to say, the deal didn't go through.

But still, there's an interesting alternative history here.

At the time, Apple actually acquired a few companies like PrimeSense that had technology that will end up being used in the Vision Pro.

Had Apple bought Leap Motion around the same time, who knows how that would

have affected the creation of Midjourney or, for that matter, the Vision Pro.

I remember there being some buzz about Leap Motion around this time.

People thought that they were building a cool new technology, and they were interested to see where it would go.

The company sent about 12, 000 of its devices to developers who were interested in building apps that used hand-tracking technology.

had pivoted away from the desktop input of their first product and toward virtual reality,

but it wasn't obvious how their tech would be integrated into existing VR products.

the Oculus which would let you use the Leap Motion controller, but that just added a layer of complexity to a device which, to be honest, people were trying to wrap their heads around anyway.

After that, the VR industry sort of cooled down a bit.

But in 2018, a few years after their first attempt, which went so badly that David ended up basically insulting them, Apple came back and made another attempt to buy Leap Motion.

The effort to buy Leap Motion this time was only around $30-50 million, which was just a fraction of the $306 million valuation after the Series B round.

It would have been a massive drop in valuation, Investors would have only been getting cents on

the dollar, and the founders and employees probably would have received basically nothing.

Despite all that, the deal almost happened.

to the point where Apple sent out offer letters to Leap Motion employees who were happy that they'd get the chance to keep working on cool tech from inside 1 of the world's biggest companies, but it fell through, and we never got that version of history.

Around this time, Leap Motion, which now had around 100 employees, built and open sourced their augmented reality headset, North Star, underpinned by their hand tracking technology.

The decision to open source the North Star was an

of the problems that have plagued VR headsets.

It's a combination of software and hardware.

The technology has to be dynamic and responsive to user experience.

be comfortable, and there have to be enough interesting apps for people to actually want to use them.

When you look at how long it's taken for Apple to develop the Vision Pro and how expensive it'll be on release, you get a sense of how tricky VR headsets really are.

So David's decision to open source the development was really smart.

And I think Midjourney is a perfect example of how that commitment to collaborative, peer-driven development can work.

But the North Star didn't really go anywhere under Leap Motion.

And frankly, neither was Leap Motion as a whole.

It was a good company with really interesting and novel technology behind it.

The product market fit was just never there.

When it came to the Leap, people weren't quite ready for the tech.

And when it came to the Northstar, VR headset technology just wasn't quite mature enough to be built outside of a massive tech company like Facebook.

If the market isn't ready for your product, no matter how good it is, you're in trouble.

In May of 2019, Leap Motion was bought by a company called UltraHaptics.

It was a $30 million deal, way down from the peak valuation, so employees with stock probably got wiped out.

But from a technological perspective, it made a lot of sense.

UltraHaptics had been working with David and Leap Motion for about 6 years by this point, and they worked on interesting technology.

UltraHaptics makes virtual control solutions that let someone feel an object in their hands when they interact with it in virtual reality without needing to use gloves.

and it's unclear where their hand control sensing technology is headed.

There are some cars that let you turn up the volume on your sound system by spinning your hand.

But in general, people aren't using their hands to interact with computers just yet.

David ran Leap Motion for almost 10 years.

He got a ton of experience building new technology, raising money, and growing a company from nothing into something that Apple tried to buy, twice.

He set up a studio to explore new opportunities.

He told himself to wait until the right 1 came up.

As it turned out, he wouldn't have to wait very long.

David Holes chose to become an entrepreneur instead of an academic because he wanted to make a big impact.

So this next part is kind of ironic, because an academic paper was about to change his life.

In June of 2020, 3 Berkeley researchers, Jonathan Ho, A.J.

Jane, and Peter Abbeel, published their research into how diffusion models can create images.

David had enough technical knowledge to understand that diffusion models were about to increase the quality of AI images by an order of magnitude.

He realized that the opportunity he'd been waiting for had arrived.

The first version of OpenAI's DALI model proved him right, but in reverse.

Today, DALI-2 is 1 of the leading AI image generators, but when the first 1 was released in January of 2021, not that many people actually paid attention.

DALI-1 was the first text-to-image model based on diffusion models that existed.

It was a step change from everything that came before.

The DALI 1 launch also included a package called CLIP, which could evaluate how well

AI researchers had tried to build image generators before, but using older methods like generative adversarial networks and variational autoencoders.

People who were paying close attention, like David was, knew that this was a turning point.

Sam Altman, the head of OpenAI, wasn't exactly sitting around either.

Dolly 2 was released in April of 2022, Stable diffusion followed in August, and Midjourney entered open beta in July.

David Holes was actually experimenting with the preliminary Midjourney model as far back as January, before Dolly 2 dropped, doing things like creating vaporwave monkeys in

The discord went public a couple months later.

This was actually a really important milestone, because it allowed David and his team to go really hard on user testing.

For example, 1 model took about 20 minutes to create a really high quality image, while another took about only 15 seconds, but produced worse images.

The first approach was really fast, but it sacrificed quality.

The second approach resulted in amazing images, but users would often get bored.

In the end, David found a great midpoint.

Today, it takes Midjourney about 60 seconds to generate an image, and it shows you the image as it's generating.

There were lots of interesting trade-offs like this.

Just a few weeks later, John Oliver did a segment about it.

I have no idea, but here's what Mid Journey's AI created based on that phrase.

The crazy thing is that even since that segment aired less than a year ago, the images you can create using the same exact prompt have gotten way better.

Around the same time, an image generated by Midjourney won the Colorado State Fairs contest for emerging digital artists.

And it's a cool proof of concept for the Midjourney Discord.

The guy who won the prize was invited to the Discord in summer of 2022.

He was making hundreds of images, sometimes in collaboration with other users, and was always amazed at what Midjourney could do.

After he won, the winning image ended up on Twitter.

People said he'd plagiarized the work of real artists.

Someone even said they were watching the death of artistry unfold right before their eyes.

There were people who defended him, but they were in the minority.

I totally understand that lots of people feel like Midjourney is letting people take credit for stuff they didn't create and that it's taking opportunities away from quote unquote real artists.

But I think that's not quite the right way to look at it.

David says he views artists as customers of Midjourney, not competitors.

Artists are using Midjourney to prototype concepts to show clients before they start work themselves.

And hopefully it'll mean more people commission work from real artists.

Of course, by 2023, Midjourney was making super realistic images, like those ones of the Pope and Trump.

And that's kicked off another debate, about the potential of Midjourney and other generative AI models to contribute to misinformation.

That pretty much brings us up to the present day.

But there's so much more about Midjourney, both as a product and a business, that makes it such a fascinating case study.

The hardest thing about building an AI company today is the intense public scrutiny.

You've got Sam Altman in front of Congress, and lots of people who literally believe that programs like ChatGPT should be illegal.

But despite that pressure, David's built Midjourney into the best AI image generator around, and he's done it by implementing 4 distinct strategies.

Number 1, harnessing the power of Discord.

You can measure the growth of most companies by looking at their revenues, but the best way to measure the growth of Midjourney is by looking at their Discord.

If you go on sites like Reddit, you'll see the same question pop up again and again.

Why did the Midjourney team decide to wrap their product inside a Discord server?

Frankly, lots of tech CEOs would be too skittish to ever do something like that.

But David immediately understood that Discord could be an amazing feedback loop.

of the key drivers to Midjourney's massive growth would be virality, and that 1 of the best ways to create virality is volume.

Today, Midjourney is the world's biggest Discord server, by far.

It hit 2 million subscribers in mid-September 2022.

4 million by the second week of November.

And as I'm recording this, there are more than 18 million members.

The more people in the Discord, the more people creating amazing images.

And the more amazing images you see, then the more likely you are to want to join the Discord.

It has a great mobile app and it's collaborative.

1 of the biggest threats to the growth of a generative AI model is that it's actually really hard to come up with a good prompt, especially by yourself.

People aren't normally very creative by themselves.

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Apple Rejected Him Twice, So He Created Midjourney