Part 3 of our four-part discussion with three frontier founders: Guillermo Rauch (Vercel), Blake Scholl (Boom Supersonic), and Max Hodak (Science Corp).
Also see Part 1: Waste Tokens, Save Time, Part 2: Vibe Coding Hardware, and Part 4: The Autonomous Company (coming soon).
Blake: One of the things we’ve seen related to regulatory — it massively reduces change aversion and improves iteration. Example: let’s say you’re going to certify an airplane. One of the zillions of things you have to do is prove it can withstand a lightning strike. The regulatory documentation for the test plan stretches on for, say, 200 pages. What you would classically do is hire a — let’s be honest — not super-bright engineer who’s willing to be there, monkey at keyboard, writing 200 pages of regulatory compliance documentation. It takes a couple of months. And by the way, if you change the airplane, now you want to cry, because there’s another two months of rework of this rote compliance documentation.
What we’ve found is we can build a RAG that will enable us to basically prompt our way through all of that work in — let’s call it minutes. The first-order effect is you save a lot of time. The second-order effect is, if you change the specification of the airplane, it now takes minutes, not months. So you can actually be willing to change. And the third-order effect is you can get rid of the not-very-great engineers and have a small number of really creative ones who can iterate rapidly, because the cost of change goes down. In a certain sense, the entire regulatory burden — which really hurts the ability to iterate — drops away.
Max: This is a really undersold story in AI right now. The consensus in Silicon Valley is that regulation sucks — we want to go faster, we want to realize this amazing future, we want abundance, prosperity, and stuff that slows down that future is to be avoided. Certainly we’ve over-regulated. We’ve made it impossible to build stuff. It’s totally crazy what goes into building any physical thing in a lot of places.
But a lot of the regulations themselves are not the problem. If you’ve actually read a lot of these things — having non-smog-choked cities is great. Being able to swim in many rivers is great. A lot of these things were progress. The problem is that it’s really difficult for humans to deal with understanding and complying with this, and every time you have to exchange a letter with the government, you wait months. If you could take a lot of the things we’ve learned and make them totally frictionless, that would be pretty cool. I think that’s an under-sold story.
Naval: Until the regulator starts spewing tokens back at us. Then you start getting huge amounts of documents from the regulators that you have to comply with, and it’s agent-on-agent wars. But at least it’s a fair fight.
Max: That’s basically what we have now.
Blake: I’d actually argue that would be an improvement from where we are now. One of the terrible things right now is, if you’re going to build anything physical, you have to get a building permit. You’re guilty until proven innocent. The worst thing we’ve run into is the fire department, because they have the moral imprimatur of people pulling people out of burning buildings — and yet what they actually do is just screw with your design for buildings for months. If we could replace the fire marshal with an agent that would critique your building plan quickly — even if its feedback were overdone — it would be massively better than the delays that exist today.
Guillermo: When Max was talking about this potentially being a good thing — that we have all this regulation — my head went to: the thing that makes agents successful is humans or other agents setting up the right testing guardrails. People are really excited about slash goal, or Ralph loops, where you tell the model, “Go do this, and this is your exit criteria.” I’m telling Blake, “Go make us all supersonic. Your exit criteria is that you’ve complied with all of these regulations.” There’s totally a world where we say the regulations are great — they’re like our test suite. As long as passing them doesn’t incur contradictions, and the regulations are actually reasonable, they’re an awesome guardrail. Otherwise we’d be shipping slop directly into the air.
Naval: This is going to turn into a Red Queen’s race. They’re going to have agents, we’re going to have agents. I think we might have better agents — that’s good, as opposed to human-versus-human. But their cycle time, their response time, may get longer. The App Store is drowning in spam right now. I’m sure the patent office is drowning in spam. These agencies are going to be slow adopters of AI. They’re going to get DDoSed by clever entrepreneurs just overloading them with documents. It’s possible the approval time for this stuff may extend out as it suddenly gets flooded.
Blake: It creates an opportunity to really shift the regulatory model. Imagine if we drove around a city the way we build things today. Before you could go anywhere, you’d have to write a plan, ship it to some regulator, and wait. Your plan would have to specify, “We’re going to take such-and-such a route, drive this speed limit, use our blinker, stop at every stop sign, never run a red light,” blah blah blah. Three months later you get a critique back: “We think you should drive on this other street.” Eventually you get approval and you go drive somewhere. It’s insane — you can never go anywhere. And yet that is absolutely the way we build physical infrastructure in this country. We should actually make more of these things enforcement-based, rather than pre-approval-based.
Max: I don’t want to be under too much — if I ship a medical device to a lot of people, there needs to be — there are unknowns. We were responsible, we did clinical trials, we reported all the data, but —
Naval: Max, this is why there’s so little innovation in medical right now. The FDA approval process is a nightmare. In fact, the two biggest advancements in tech in Silicon Valley in the last decade — AI and, before that, crypto — they’re both in the math domain, because that’s the last unregulated domain. When they start regulating frontier models and start regulating GPUs, that stops as well. Peter Thiel laments that there’s no innovation in the physical domain. Well, it’s been held back by huge regulatory barriers.
You can always find a scary case — a vaccine, or a famous medical disaster — but the regulations spread everywhere, the tentacles are everywhere, and there are all these contradictory regulatory bodies. SpaceX got sued for not having enough — I forget what — migrants or refugees or whatever, but they’re not allowed to hire them, by government regulation on the other side, because they’re not citizens. This is not like logical code that has to compile in one place. These are made-up random regulations all over the place. You might comply with one state and violate another, violate federal over here, annoy this guy over here, that guy chooses to prosecute one out of fifty people who are his friend. It’s arbitrary. It’s capricious.
Blake: And the idea that this makes things safer is a complete mythology. Watch Boeing. They certified the 737 MAX, which had a single sensor that had complete authority over the nose-up, nose-down attitude of that airplane. No intern is dumb enough to think that’s a good idea. Yet it got all the way through the certification system. This stuff doesn’t actually make us safer, it just makes us slower.
Max: Well, there’s definitely dysfunction here. I think some of this makes us safer in the sense that the NRC makes us safer — which is that their job was to make sure nuclear energy was safe, and they did this by permitting zero plants from the seventies until I think a year ago. It will be perfectly safe if we never build any of it.
I want to be really clear — I’m on the side of deregulation on a lot of this. I agree with Blake that a lot of this can be done more efficiently. But I also think it’s a little too dismissive to say, “This is just the FDA, the agencies.” The problem is deeper. If the FDA approves ten really important drugs, they don’t get any credit. One patient dies, and they get hauled before Congress and yelled at. They have very negatively-biased incentives. The reality is that this is reflective of the beliefs of the American people. There’s a trade-off between the perception of risk taken in human-subjects research, and the rate at which we get new medicines.
Blake: It’s totally asymmetric. If you approve a bad thing, your career is over. If you block a good thing, nobody notices. It creates an asymmetric slowdown. I think that is the most important problem to solve in the regulatory state.
Max: This is a very deep problem because it is where the voters are. We poll some of the stuff we’re working on in the future to understand where the American people are on it. If you push too hard, you can work around it — go to Próspera, all kinds of ways to try to go faster. But if you’re seen as being a bad actor, you’re rejected from the society we live in. That’s the thing you need an answer for. That’s deeper than just saying, “We need regulatory reform.”
Naval: You have a deep point there, Max — it’s where the voters, the citizens, are. We like to blame politicians. You’ll see this on X all the time — people are like, “This politician, that politician, the other politician.” They’re elected, by majority vote. This is where the people literally are. That’s the package, that’s the bundle they’ve chosen. You may not like this instantiation, but if you removed this one, something very similar would take its place, because the voters would just vote them right back in.
Culturally it’s very hard for most people to understand what we lost, what we missed. France — there’s a French entrepreneur on X lamenting that 57% of GDP gets sucked up by the government, so you can’t create companies. But to the average French citizen, that’s not visible. They don’t notice what they’re missing. They just know they’re slightly poorer than the US. The Economist just did a little piece — economists are finally coming back around to being capitalists after thirty years — on how the US is outstripping everybody, growing faster, getting bigger. But they immediately turn around and say, “It’s because of the oceans, because of natural resources” — everything but capitalism. They don’t want to say the dirty C-word, because for some reason all these magazines became Marxists at some point. They can’t envision or imagine what could have been if we had just been a little more laissez-faire, a little more open.
I would love to see a true experiment among the fifty states. Different regulations, different tax structures. Right now federal tax structure and federal regulations dominate everything. But imagine you could go to some small state if you had cancer, and you could try every drug everyone was cooking up. Caveat emptor — you’ve got to do your research. This is known as the experimental zone. Same for drones. Same for aircraft — a little harder, because you’ve got to cross a lot of areas — but yeah.
Blake: There’s something magical in there — the notion of innovation zones. We have a huge NIMBY problem. But if you create opt-in YIMBY zones, they create that experimentation framework. By definition, it happens where people are consenting. You can try different rules, or no rules, or different ways of enforcing — innocent until proven guilty — and see what actually happens. What are the innovation consequences? What are the safety consequences? Then the successes can spread.
Max: To Naval’s point, an innovation zone would not solve the problem in drug discovery. The Right to Try Act passed a little while ago. We’ve had this pathway called Single Patient IND for a lot longer than that. If your doctor calls the FDA and says, “I want to give my patient an unapproved drug,” they approve over 99% of those. They can even grant them over the phone.
The problem is that to dose a patient you still need clinical-grade drug. The only entity with that is typically the IP owner who’s in the middle of running a clinical trial — they’re investing hundreds of millions of dollars into making this thing. The FDA will draw an adverse inference if something bad happens to your patient who’s probably really sick to begin with, and that’s seen as a property of the drug, which is global — not related to your innovation zone. So there are two problems. One, you need to get the IP owner to give you some of their drug — they’re not going to do that. Two, you need to prevent the global regulator from casting doubt on what might happen with their clinical trial if they give you some.
Blake: How would you address that in medicine?
Max: This is inside baseball. The FDA has to be prohibited from drawing adverse inferences across different users of a capsid, for example. There are specific ways you could really accelerate innovation with a relatively light regulatory touch by just preventing this paranoia from driving our decisions.
Guillermo: Is there anything better than the FDA out there? What are we benchmarking these regulators against?
Naval: Everyone follows the FDA. Everyone copies the FDA.
Max: Two expansions. First, Europe — not really better than the FDA, but they have a different system. They’ve got these notified bodies — basically private businesses blessed by their host governments to certify things. Trains, planes, medical devices. The notified-body system creates slightly better incentives at the review layer because they can hire people, they can grow, there’s competition. They themselves have to be compliant with conditions placed by host governments, but it means there can be many thousands more reviewers than in the US.
Second — there actually is one approved, getting-paid implantable BCI today, which is in China. The CFDA is thinking for itself. They have a system that I think is going to give us a run for our money if we’re not careful. The costs to bring a drug or device to market are just much lower. You can try things in humans and try things on market.
Here’s the thing I’ve been spending a lot of time thinking about. Twenty years ago we were buying far fewer laptops and phones; each one was much more expensive. Now they’re cheaper, there are far more of them, we buy more of them, total spending has gone up. This is great. Stock prices of Qualcomm and Samsung and Apple are way up. Everybody’s happy. They’re using the excess wealth generated by phones and laptops to buy more phones and laptops.
This doesn’t happen in healthcare. Because of the reimbursement mechanism — there’s this enterprise sale happening — the bucket of money we use to buy healthcare is basically fixed. It is not increasing as there’s more stuff producing better healthcare outcomes, the way we see in technological growth industries. The rate of spending on healthcare grows at roughly the rate of growth of tax receipts. If AI is booming and there are major advances, and two years from now we’re spending ten times as much on AI, this could be great. But if in two years we’re spending ten times as much on healthcare, this would be a catastrophe. This is fundamentally at odds with being a technological growth industry.
There’s this omni-problem in healthcare, all related to the same thing: it’s just too expensive to bring these things to market. That’s what China is getting at. The way out of this is not single-payer or some revision to health insurance. It’s to bring down the costs so that someone can buy this with a credit card, finance it, maybe like a car, worst case — and then you charge them in the transaction. To do that, we have to make it cheaper to bring these things to market. China is doing that. That will allow them to sell these things for $10,000 instead of $100,000. That is deregulation.
Naval: Fundamentally, there’s no private market in healthcare. The analogy people make sometimes — imagine that instead of going to restaurants and paying, you’d go to all the restaurants, and at the end of the month you’d send all the receipts and bills to your insurer or to the government, and they would reimburse you. There’d be a line outside every good restaurant. Every bad restaurant would be available. The waits would be terrible. The product wouldn’t improve. You’re basically running a small communist society inside a larger capitalist society. That’s what we’re doing in healthcare.
Blake: It’s also what we’re doing on roads, which is why we have traffic. There’s no variable pricing for getting on the highway, which is why it’s always clogged.
Naval: If you want to step on the third rail of healthcare for a moment, think about this plan. Tell me what’s wrong with it. Imagine that the first 20% of your annual income was your healthcare deductible. If you’re broke and homeless, it’s zero. If you’re rich, it’s millions of dollars. Whatever your annual income is, the first 20% is your healthcare deductible. The rest is paid by the government and the insurance system, up to the usual caps they have today.
You’d create a private market pretty quickly. In dental, plastic surgery, a lot of optional medical procedures, you’d get a competitive situation. You get improvement. Look at optometry with LASIK. Look at dental with veneers and braces and dental surgery. Look at plastic surgery. Those fields do seem to be advancing because they’re private payers — people voting with their money. We need to do some equivalent of that in the normal healthcare system. But people lose their minds. They don’t even want to think one step ahead. “No, no, no, what about the broke person?” The broke person has no income. “Twenty percent is too much for some people.” Okay, you can put some deductible in there. But generally, if you don’t have some private market where people are paying out of pocket for what are medical procedures, you’re just not going to get this feedback loop. You’re not going to get this ability to spend more money into the system.
Right now, very wealthy people can spend voluntarily into the system. But the prices aren’t anywhere. The rate cards aren’t anywhere. The system’s not designed for it. If you go shopping for medical care and you want to pay out of pocket, sometimes they’ll quote you a price that’s 10x what they charge the insurance company.
Max: Have you heard Sid’s story from GitLab? He had a massively successful IPO, then was diagnosed with a rare cancer. He has lived way past the prognosis. He really took it into his own hands. He did frontline chemo, then there was one alternative available, he exhausted it, and the doctors were like, “We’ve got nothing for you.” Since then, six or seven companies have come out of it. There are now twenty or thirty drugs in his escalation ladder. He’s still alive.
Guillermo: He’s doing great. I saw him the other day. He basically created his own personalized medicine and treatment plan.
Max: There are a handful of these anecdotes I’ve heard now. It is really clear to me that at the high end — if you’re not dealing with insurance, you have the resources, you’re like, “I want the full toolbox of modern science” — outcomes are possible that are crazy. If you go ask your doctor, “What will happen if I do this?” they will start shouting and throwing things. But crazy things are possible at the high end. This type of N-of-1 medicine is going to end up being a really rich source of research for understanding how to build more translatable things.
Guillermo: It requires a ton of agency from the patient in a moment where they’re at their weakest, which is pretty ironic. My friend passed away from cancer, and the last thing he wanted to do was research N-of-1 medicine — he was dying by the week. This is where AI should really shine, and democratize what you can actually do when you find yourself in that situation. It’s kind of crazy how few people get access to this, just from a knowledge perspective, not just monetarily.