00:00:01
do I care I'm coming in hot my quick time I told you seven times you Nick you don't work for me work first you're on
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your own good luck working for chal do not attack my employees Jason you guys are going to billionaire
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me and that's going to be the greatest revenge of all you want to run the show in year four go ahead chairman you guys
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won the vote guess what jal's goingon to do I'm gonna ski and you're going to make my 25% worth 500 million get to
00:00:25
work deal let's go deal Chamas title has been upgraded from dictator a chairman chairman dictator that is very
00:00:32
funny chairman dictator chairman dictator he's got the super voting I have no say anything I built this entire
00:00:40
Empire and I have nothing I built the Empire I came up with the name of the show I came up with the format I invited
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you miserable Pricks make me rich let's go distribution checks Daddy needs new skis three two all right everybody
00:00:55
welcome back to the all-in podcast if you can believe it we're almost at 4 years of this muga episode 158
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today and we've got a full docket I'm at half speed I got a little bit of uh the
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sniffles but we're going to power through the docket with me again today you got the sniffles I got a little bit
00:01:15
can I get you a tissue give me a little tissue and some uh some juicy a juice box and I'll some cough drops I'll be
00:01:22
fine I'll be fine you'll tough it out you'll tough it out well listen I just want say you can make it through this
00:01:28
pod of course of course I'm professional with me again today the king of beep can't say what he's working on it's a I
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don't think people understand that like what the beep there were so many beeps last time that people couldn't even
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understand beep out of the show it was crazy it's some C he's genetically engineering right but he's it's top
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secret which one is gonna they already figured it out in the comments by the way all the Fig I don't know what's so
00:01:55
secret they they already figured it out so can we say what it is the horse out of the bar bar freeberg can we fit get
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through introductions go ahead keep going and chairman dictator chamath p haaa is with us welcome back to the
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program thank you by the way I um I was feeling pretty bad about your sore throat so I was I went on
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Google and I found something that may be the cause of it Nick can you just throw up this AR
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pre strike let him land the joke come on Jesus this isn't a Cru movie you can't pre- strike go
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ahead I found an arle that made the Epic source of your god oh no I'm going to get
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cancelled let your winners ride Rainman David and instead we open source it to the fans and they just gone
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[Music] crazy I am your bip chairman and I'm here to do the best job I caning what do
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you mean bip chairman explain to the audience what these two words mean person of color bro billionaire person
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of color oh is that what it is yeah soing to we checked the Dei Manifesto and it said we needed to make a chairman
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of the organization so uh saak is leading the all-in Dei group and uh they vote Ved chamath to be the first
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chairman of Allin as we get our CEO ready to come on board and so you did A diversity token candidate saak explain
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the process well it's it's more like um you know tath was getting a little bit touchy about being called dictator all
00:03:44
the time and you were kind of playing the Biden role of needlessly offending him he's kind of playing the Shen King
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role so we've elected him chairman so that you can stop calling him dictator right because you want to more
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diplomatic more sensitive more yeah I think it's great I'm all about the Diplomatic listen and he there was there
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was a polit buau there was a process it was meritocratic chimney and now for year
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one there's a PA buau consisting of me freeberg and chamath and the PA buau has selected
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shth as chairman get to work get to work let's make my 25% worth a billion dollarss please uh and of course with us
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hot off his hosting of the absolute best party of the Season well top two here at
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too man it was a top meat protein party shth and I went to sa I hope you got enough food I did it was good yeah I
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mean the dessert table was crazy the dessert table I had to I was like I found myself beside it and I was like
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why am I near this dessert Table after the Fiasco at free birds so I had to go I had to go to the other side well
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here's what jamaath and I did we got in there and we sniffed out the caviar and this was Top Shelf caviar on potato
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chips fresh and also on bis we parked it there and then that actually is a great
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way to you know that those B are too like Brey I don't think it's a good combination with caviar but caviar
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chip high and low they call it high and low in the business should always be served on Pringles the most important
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thing Nick I'm sure you have it queued up is our annual awkward hug this is a tradition amongst the all-in every year
00:05:26
to celebrate the holiday seasons we engage in the awkward Allin hug let me explain how
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the hug went down we're at the caviar and chamath is on his eighth Pringle I'm I'm about 15 in I've eaten
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half the 10 of caviar at this point I'm getting my money's worth uh for coming all the way up uh to the city and
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risking my life and then here it is we got to break this down first chamath is in a loving Embrace with Sachs what you
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see there from Sachs is not a cry of Joy fear it's it's Fe absolute fear abject fear going a little bit too long that
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was M shth refus they went on for a while that's what you guys don't AR because if you look at the you look at
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the studies and freedberg can attested this when men hug for two minutes there's a release of oxytocin and it's
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an incredible anti-inflammatory anti-anxiety so I was I was giving you therapy that's like a therapeutic H it's
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a gift that that was your Christmas gift SX tell us what you're feeling here we see this blood curdling scream Endor Cry
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Of Joy what what were you what was going through your mind when you got to minute
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two of the hug take us to the moment I'll show you what I was I was thinking of here hold on okay because you can see
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here also if we break this down freeberg comes in with an asperg or side hug I don't know if you can see that there in
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the photo but let's see the because you know he yeah you got to zoom over to the
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left freeberg looking at his shoes is like I'm going to express joy and love with my three besties through a man hug
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and he he gets enough of the shoulder in there that he doesn't have to have technically part of the hug but he's not
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really cannot make eye contact and he says I have to it now me I'm like this is hilarious so I just jump and I grab
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all three guys and I just said that's just me pure joy hilarious friendship is great good to have good friends in
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Friendship is great I love you guys I love you guys too yeah back at you this is what I was thinking this is what it
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reminded me of this is Sax's personal Vietnam this is oh yeah it's a great scene great scene great scene love that
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that's a great scene from fight from Fight Club that's meatloaf right that a great scene that's a great movie he on
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he's on estrogen therapy in the scene and he grows man boobs and then he stuffs Edward Norton into his man boobs
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it's a great scene we're men men is what we are let's get to work we got a full docket here and uh the world continues
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to spin into chaos apparently members of the houti movement have been attacking commercial ships in the Red Sea with
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drones and with missiles this is largely underreported in the mainstream press so
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we thought we would tackle it here they are calling this revenge for Israel's uh
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military campaign in Gaza the houis say they will only stop once Israel begins allowing food and medicine to freely
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enter Gaza think something we would all like to see CRI suggests this is a power
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play for more legitimacy in the reason us allies including the UK Canada France are reportedly preparing to
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deploy Naval vessels to the region to deter more strikes obviously there's a lot of geopolitics
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here and this is a business story we can link this back because the attacks have
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interrupted one of the world's busiest trade routes as you know all five of the world's largest shipping conglomerates
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have paused transfers through the Red Sea and that that means they've got to go around Cape Horn they got to go
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around South Africa to get things to Europe uh from Asia thousands of extra miles from what I understand and this
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has caused oil and gas prices to rise and if this becomes acute it could be really really impactful to the
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economy on a global basis so in order to understand what's happening of course we
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go to our foreign war correspondent yes he's got his military cap on he's now a total of zero tours of Duty SX can you
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please with your infinite wisdom and experience in the field tell us what is happening in this well you know um
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Matchbox situation yeah what's happening is um gee yeah what's happening um come
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on you're an expert yeah I'm really I'm really struggling with this one jcal um can I use a
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[Music] Lifeline I'd like to phone a friend phone a friend tance for this one for
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the first time Sax is unable to give us a confident answer he's chosen to phone a friend which we allow here on the
00:10:03
all-in podcast who would you like to phone have you thought about that who are you going to phone since this is uh
00:10:09
involving impact on global trade Zuckerberg no I'm I'd like to phone Ryan Peterson the founder of flexport all
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right here we go we're going to the AT&T phone call phone a friend zoom we're going to click through on zoom and can
00:10:24
we get Ryan Peterson from flexport Brian Peterson you're [Music] here it's Jason calanis from the Allin
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podcast it's your boy jcal let's go skiing soon welcome back we're live we're live you're on the Allin podcast
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live we've got an official phone a friend moment here you uh you understand what's going on there better than
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anybody uh Ryan obviously runs flexport and he is in the business of shipping containers so Sach you want to ask him
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for some help what is the impact on global trade here from what's Happening in the Red
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Sea well it's it's massive about 30% of all ocean container traffic flows through the flows through the Suz and
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through the Red Sea most of that is going Asia to Europe so like the biggest impact here is going
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to be felt on those two areas it's going to make Chinese manufacturing that much
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more challenging you have to go around the southern tip of Africa it's adding about
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20% 20 to 25% longer journey and now in a network business a longer Journey means less capacity uh so you're talking
00:11:33
about a 20 25% cut in shipping capacity on the 30% of all containers so that's containers I also understand that about
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12% of global oil goes through and about 8% of liquefied natural gas and just to
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explain what we're talking about there can we zoom in there's a very narrow straight there called the Babel mandb
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straight I hope I didn't Massacre that pronunciation so you go around the Gulf of aen through that bob L MB straight
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into the red sea and then from there you can go through the sus Canal into the Mediterranean yeah and so it's it's a
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maritime choke point by the way this is going back it always has been um you know there's there's documentation
00:12:08
Caesar Augustus invaded Yemen in like 63 BC I forget 63 ad no I forgot the dates
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but it was during the reign of Caesar Augustus so it would have been right around
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the the birth of Jesus Christ and you're talking about thousands of years of this
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being a really important choke point even the Egyptians actually built a canal the ancient Egyptians had a canal
00:12:29
that connected the Nile River so this has always been the place to connect East and West uh an incredibly important
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Maritime choke point and uh the Reel forces in Yemen have been firing missiles at ships um and that what that
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does is Spike the insurance cost obviously it puts uh the crew lives in danger which they can't tolerate but it
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also uh really spikes the insurance cost if you sail a ship into a region that's
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got missiles being fired the insurers just won't cover it and so you can't you can't operate a ship without insurance
00:12:58
cuz if it sinks you go out you go bankrupt um and so they're just taking the long way around which as I said is a
00:13:06
20% reduction in capacity what we've seen remember with covid you had all the ships off the port you guys brought me
00:13:12
on to the show the last time I think was when that happened that was about a 20%
00:13:17
reduction in capacity but at the same what happened during covid was there was also a 20% increase in demand so this
00:13:25
time there's not an increase in demand so I don't think it's as impactful as what we saw to shipping prices during
00:13:30
covid where you had like a 10x run up in price but you're already seeing prices are coming out now for January Freight
00:13:36
for ocean Freight Asia to Europe you're seeing about a 3X increase in the price of ocean Freight uh versus where we were
00:13:42
a month or two ago which was very very cheap a month or two ago so I wouldn't read too much into this and frankly the
00:13:49
Suez Canal is too valuable in my opinion too valuable to civilization to the modern world to believe that you know
00:13:58
group of rebels no matter how well-funded they may be is going to be able to disrupt that for any long period
00:14:04
of time I think there's too many interests aligned here to say to keep this thing flowing well okay two points
00:14:10
on that so we call them a rebel group and I guess they are it's a Shia group in Yemen that rose up in 2014 and
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deposed the Monarch there and they basically control large swwa of the country but they're not internationally
00:14:25
recognized so that's why they're called Rebels but make no mistake they basically control the vast majority of
00:14:30
of Yemen it's a Shia group they're you could say sponsored by Iran but I'm not sure they're controlled by Iran people
00:14:37
call them proxies and that's true to some degree but they also have agency like you said uh jcal they are doing
00:14:44
this they say in solidarity with the Palestinians when the invasion of Gaza first began they were firing rockets at
00:14:53
Israel but they had to go all the way over Saudi Arabia they didn't make it so now they've started firing on ships that
00:14:58
are going through the straight they started mining the straight and so like Ryan's saying this is basically put a
00:15:04
damper on on Commerce unless you're a country that the hoodies like apparently Russia's been able to move its ships
00:15:12
through still they claim they're only targeting ships that are transacting with Israel but that's not true I mean a
00:15:19
lot of ships have been targeted that don't have a relationship with Israel so let's just say broadly speaking for
00:15:25
Western ships they can't get through now what the US is done in response to Ryan's point if is that we've announced
00:15:31
this operation Prosperity Guardian which is to restore the flow of trade through
00:15:37
you know the Red Sea but the question is what that's going to involve and I think
00:15:41
we are bracing now for the us to start taking military action against the houes the problem is I think Ryan when you're
00:15:50
saying this is going to be resolved maybe quickly is that the US was already backing the Saudis in a war against the
00:15:58
houes that started in 2015 it only got sort of resolved with a ceasefire that's still pretty fragile last year and so
00:16:07
the hooes have already survived almost a decade of Western sponsored attacks on them it's not clear what we have to do
00:16:14
to basically stop them from taking these actions and I think if the US starts a war basically against the houes in Yemen
00:16:23
we're talking about an expansion of this conflict in the Middle East from you know beyond what's happening in Gaza to
00:16:28
now another front uh that directly involves the US moreover uh this is I think very underreported but there have
00:16:36
been almost 80 attacks on us bases in Syria and Iraq by Shia militias again sponsored by Iran over the last couple
00:16:45
of months so this whole region is a powder keg and it's not clear to me that if the
00:16:50
US attacks the hooes that this is going to lead to a quick resolution so I guess
00:16:56
my question back to Ryan is let's say there is a war here let's say the hooes don't stop I don't think they will um
00:17:01
and let's say the US gets in a war there but isn't really able to bring it to decisive
00:17:07
conclusion um and let's say that this blockade of the Red Sea continues for all of
00:17:15
2024 what does that do to Global prices because I think right now the market is pricing in rate Cuts next year on the
00:17:24
theory that inflation is coming down and is a solved problem it's the right question it'll be a big impact um and if
00:17:30
you listen to like retailer earning call earnings calls they're all talking about
00:17:34
hey we've had six 12 months of deflationary environment prices are coming down a lot of what they site is
00:17:38
the lower ocean Freight prices and if and if that goes back and it if it goes back anywhere near I mean we're already
00:17:46
seeing a 3X but even that 3x is sort of well is this going to last do I need to price it all in do I need to uh and it
00:17:53
hasn't really uh taken hold of like that's not a true market Dynamic of what is the supply and what is the demand and
00:17:58
Freight is very inelastic like you're going to ship the product regardless of the price of freight you know unless
00:18:04
your business model has the tiniest of margins the price of freight goes up it doesn't impact how many products you
00:18:10
ship you're going to go sell as many products as you can does it impact America as much as it impacts Europe
00:18:16
absolutely not um now this is the the fastest route for many parts of Asia to the east coast of the United States and
00:18:24
especially with the Panama canals also congested at the same moment right now because of they say it's because of a
00:18:30
drought but actually they built a bigger canal and it's just draining the lake faster and that's my hypothesis but I'd
00:18:36
like to look into it a little further but uh the the Panama Canal is only going at about two-thirds capacity so if
00:18:42
you're going Asia to the east coast those are your options but it to go around the southern tip of Africa around
00:18:48
the Cape of Good Hope to get to the East Coast it's like an 8% increase in transit time versus 20 to Europe and
00:18:55
there's Alternatives so definitely impacts Europe much more it impacts China like the reason I
00:19:01
think that this there there's so many people lined up here like this is not good for China China wants to be able to
00:19:08
ship stuff quickly to Europe and get it to Market um so to the extent that they have any impact I think they're going to
00:19:13
be clearly on the same side as the United States here Europe obviously has a thing and the other thing I haven't
00:19:17
heard anyone talk about is like you look at that map they're blockading not just
00:19:20
the Suez but they're blockading Saudi Arabia the saudi's biggest Port is in Jedi right up there well I think they're
00:19:28
going to tolerate being cut off from the world taking on Saudi seems like an unwise idea well they've been at war in
00:19:34
the past as as David pointed out so um and I'm not I'm certainly no expert by the way I find this ship to be amazing
00:19:40
it's since it's since transited but this is one of the ships that was there yesterday just going for it uh and if
00:19:45
you look at the destination it says armed guard on board as they set that in the AIS G GPS transponder so that if
00:19:53
anyone comes after him you know what you're going to get I have two comments when I look looked at this in the last
00:19:59
couple of days that was sort of my takeaway which is that the the really significant impacts are Downstream to
00:20:06
Europe consumer prices so I think like European inflation has more chance of up ticking again than America
00:20:15
does because I think the Practical reality is what you said Ryan you'll just this the need to ship is in elastic
00:20:22
and so they'll just pay 8% more and they'll just go to the east coast in a more in a longer way through the Cape of
00:20:28
hope or whatever the second comment I think to me is a little bit more macro in nature
00:20:35
which is if you look at what's happening now there's a hot war in Israel and Gaza
00:20:43
and theoretically now there's a hot war in Yemen I think the positive take on this is that it actually puts the Middle
00:20:51
East in a position to resolve all of these things and what I mean is the following if you're Saudi Arabia or if
00:20:58
you're the UAE or if you're Qatar what you really want to do is build for the next 30 to 40 years
00:21:04
they've said it as much they want to pull trillions of dollars of oil and that gas out of the ground they want to
00:21:10
monetize it and then they want to invest in their people the last thing they need
00:21:14
is to be bookended by two hot Wars largely propagated by a third party actor in Iran and so I think if there
00:21:21
was not resolve for them to get aligned I think that the resolve now really amps
00:21:26
up Saudi Arabia doesn't want to be in the middle of this nonsense Qatar doesn't want to be in the
00:21:32
middle of this nonsense UAE does not and then the fact that Canada America Britain France are now all of a sudden
00:21:39
pulled in and China as you said Ryan I didn't even think about the implications to China as a supplier of record for
00:21:44
most of these Goods all roads I think lead in my opinion to a coming together of folks to
00:21:52
say okay let's use this as a definitive moment to just clean the Dex here and I I think that that'll put a lot of
00:21:59
pressure on Iran a lot of pressure on the money flows I suspect that both of these two hot Wars get resolved quickly
00:22:06
because the larger multi-decade implications for the Middle East are too big to Let It Be subsumed by the houti
00:22:11
rebels or Hamas it's interesting here um how you see like Israel is a relatively
00:22:16
small economy in the world and the and and you know you start to see in the same way that Ukraine is not a big
00:22:23
economy Russia is not that big but it has a massive the war there has just a massive impact via the Commodities
00:22:28
markets because Russia is such an important supplier of Commodities and now you see what you know Israel and
00:22:34
Gaza are relatively small potentially a small regional conflict big Global implications because of everything that
00:22:40
goes behind it but now you see this spread to something that really could impact if this is an extension of that
00:22:46
conflict now you're seeing wow this actually has the ability to extend to Global markets in a way that's similar
00:22:51
to what happened in Russia and Ukraine where all of a sudden commodity markets are impacted and you're seeing that
00:22:56
inflation but I I I don't know chamant if your your view is hey we're going to have progress because progress is good
00:23:03
or something I don't know that that's necessarily the direction that the world follows like you could have sitting in
00:23:08
Dubai or Saudi or Qatar you're thinking this is the last thing we need for sure well I think that's definitely true
00:23:14
multi-decade multi-trillion dollar investment plans and we're going to let the hotti rebels derail that and
00:23:20
literally on ports like saudi's trying to build a big Port as part of the neon project there in the in the northwest of
00:23:24
the country on the Red Sea which would be cut off I mean it's not going to fly yeah look Saudi Arabia is in a really
00:23:31
tough spot here because what happened is after the houes deposed the Monarch there in 2014 Saudi Arabia started
00:23:39
fighting a war to restore the the leader in 2015 and that war went on for almost
00:23:43
a decade created a huge humanitarian crisis really underreported compared to other crises
00:23:50
there were hundreds of thousands of civilians who were killed millions of people displaced went hungry finally
00:23:55
that war again got paused by a fragile ceasefire that was negotiated I guess in the last year or so and then
00:24:04
simultaneous to that there was a reproach M between Saudi Arabia and Iran that was brokered by China and so the
00:24:12
last thing Saudi Arabia wants to do is get involved in restarting this war or restarting hostile relations with Iran I
00:24:21
mean they would like to move beyond that which is why they're not participating in this operation Prosperity Guardian
00:24:27
the problem they have is that the htis aren't going to stop doing what they're doing until Israel's war in Gaza stops
00:24:35
and Netanyahu just in the last 24 hours made it clear that Israel won't stop fighting they will not agree to another
00:24:42
ceasefire until Hamas is eliminated so chath I think you're right that if there were a ceasefire that this situation
00:24:49
would go away very very quickly and shipping normal shipping would be restored however I'm not sure you're
00:24:55
going to get the parties to agree to a SE fire anytime soon I mean the Israelis seem pretty determined not to agree to a
00:25:01
ceasefire I think the Biden Administration clearly would like that I think they would like this problem to be
00:25:06
over but with the continuation of hostilities in Gaza you continue to have the potential for the second order
00:25:13
effects these kind of knock on effects and like I mentioned one is the is the houes and other are all these American
00:25:19
bases that are under attack right now by these GM militias so I think this has the potential to be a Black Swan in 2024
00:25:26
meaning that some how the Israel Hamas War spirals into a larger Regional war that pulls the US in I'm not saying
00:25:34
that's going to happen but I think the potential is there the longer this goes on and I think that if that does happen
00:25:41
there could be the potential for an oil Shock by the way the hotis have said that if the US attacks Yemen they will
00:25:48
light the Saudi oil fields on fire now I'm not sure they have the potential to do that I mean presumably if they had
00:25:52
the potential to do it they would have done it during their long War so that probably is just you know hyperbolic
00:25:58
rhetoric but there's so many ways for this to somehow turn into a larger Middle Eastern War to your point shth I
00:26:05
think you know I've been meeting with folks in DOA and Riad and Abu Dhabi and Dubai for the last six months and I was
00:26:13
talking to people this past weekend you're absolutely right there are a group of people with an agenda uh which
00:26:19
is to modernize the economies there to move off Pro and to move into technology and to move into Hospitality with the
00:26:26
neon project uh as you're pointed out Ryan and that's not going to get derailed and those are the most powerful
00:26:32
you know deep pocketed uh influential forces there and so yeah they're working with the United States and any of these
00:26:40
Rebels Etc I think they're going to be dealt with because people want prosperity and they want to keep
00:26:46
evolving these societies and moving them and normalization normalization yeah I mean have you ever have you guys who's
00:26:54
been to Riad here I have yeah I think freeberg or sax have have you been to Riyad ever freeberg ever I mean no it's
00:27:03
beautiful and it's changing rapidly massively and and obviously Dubai's already been changing then do and I'm
00:27:12
not arguing that yeah Saudi Arabia isn't a great place and and they want to do the right thing
00:27:17
here but you're acting like the hotis can just be dealt with what what does that mean to you well I I think that the
00:27:23
larger forces are united in wanting to have prosperity for their people education for their people uh and to
00:27:30
build deep ties with the west and the East to do Commerce and so I think those forces are greater than maybe some of
00:27:37
the traditional forces that are at work and and these longer term conflicts maybe are not as important to the
00:27:44
leaders and the citizens of these countries as Prosperity is and so when I say dealt with I think they're going to
00:27:51
just focus on developing their economies over you know these skirmishes but are you saying there's going to be a
00:27:56
diplomatic solution here because I don't see it I mean here's the problem Israel's not stopping its war in Gaza
00:28:02
the htis aren't going to stop until Israel stops so how do you make him stop that's a great question I containing
00:28:09
these conflicts is probably the likely scenario when I I've asked that same question to the people who are in those
00:28:14
regions and when I spoke to them they they're all about containment they don't think there's a
00:28:20
resolution like we might think about it here in the west that you know there's not going to be a conflict between
00:28:25
Palestinians and and Israelis they just think containing it and having it not be
00:28:29
an allout war is Success what do you think is gonna happen I mean at some point us we have two sides who are
00:28:36
implacably resolved the Israelis to continuing their fight against Hamas and the htis to continuing to lash out at
00:28:45
Israel or the West in general until that stops the likely scenario is that Netanyahu is losing support that's what
00:28:52
every Israeli and every person in the region says is that Netanyahu is not going to last long term
00:28:58
so and what have you heard sex what do you think the resolution well I think it's interesting if you look at Israeli
00:29:04
domestic politics it's true that Netanyahu is unpopular but something like 90% of the Israeli public favors
00:29:12
the continuation of this war until Hamas is eliminated I mean the Israeli people
00:29:16
are really I think hardened on this question those tapes of Hamas atrocities on October 7th were compiled into a film
00:29:27
they were recorded by the Hamas Fighters own GoPros and the Israeli people have watched all of those things and they are
00:29:34
resolved to destroy Hamas now you can argue with their tactics and I'm just stating the fact okay I'm not judging it
00:29:42
and the point is just whether Netanyahu survives or not I think the Israeli public wants to eliminate Hamas so I
00:29:48
think they are resolved I think the hoodis are resolved and the hooes control this choke point so they can
00:29:54
stop or interfere with global trade and I think look there could be a ceasefire I mean I think Biden clearly would like
00:30:00
there to be a ceasefire certainly before the election and that would bring all this
00:30:05
to a rapid end but if there's not a ceasefire I don't understand how you just stop the hoodies I mean the only
00:30:11
way to stop them is if you want to go to war with them that's what we're talking
00:30:15
about so we're talking about the US using its Naval assets to go get the the regions chth mentioned could use
00:30:23
diplomacy Andor Financial measures and so those are other options that's not going to work with the hoodies well uh
00:30:29
no easy solutions here Ryan thanks for jumping on the Pod with us once again one question how how much more resilient
00:30:37
postco if at all are Supply chains because you talked about wanting to make them more resilient and that was a major
00:30:43
Focus for flexport H is it better now postco have we done any I think at the physical infrastructure layer nothing's
00:30:49
really changed uh I don't think you know the the bottlenecks have gone away just
00:30:53
because demand went back down us had like a 20% increase in container volume it created all these bottlenecks we
00:30:59
couldn't process that many containers in our ports uh and then the containers now
00:31:03
are back at 2019 levels and everything's flowing normally but I wouldn't say that
00:31:06
makes us more resilient it's the same as before um and situations like this you learn just how amazing and resilient the
00:31:14
global trading network is the global logistics infrastructure but also it's pretty fragile if a small group of
00:31:20
rebels can fire missiles and you go well even the US Navy what are we going to do
00:31:24
I mean it's kind of an asymmetric Warfare type thing they they shoot they shoot a $20,000
00:31:29
drone and we we need a $2 million missile to shoot it down like it's not a it's not a great setup uh and it's not
00:31:35
clear that firing missiles back is going to open it back up um and so yeah I think I think it's much more fragile
00:31:41
than we realize as civilization always has been you know it takes takes a hundred years to develop a civilization
00:31:47
and and an afternoon to go back to barbarisms and uh Air Freight you had talked about previously that's still
00:31:53
four or five times more expensive than SE Freight is that about right that multiple uh in general that's a yeah
00:31:59
reasonable assumption is about four five times more the airf freight networks are
00:32:03
very small in proportion to give you a sense like one of these container ships that flows through that ever given is
00:32:08
the world's most famous containership that got stuck in the soos canal a few years ago that one holds about 10,000 40
00:32:13
foot containers uh 747 which is basically the biggest cargo plane out there can hold 7 40 foot containers uh
00:32:21
and so if you have a diversion of global ocean Freight will rapidly flow over to
00:32:26
it doesn't take a lot of freight going hey I'm going to ship this by Air instead to suddenly have the air freight
00:32:30
markets get impacted so um it hasn't yet the air the airlines are a little bit less connected to this market and
00:32:38
haven't instantly said hey we're raising prices in January but I suspect if this
00:32:41
lasts another week or two you're going to see big run-ups in Air Freight prices and these are Global markets the price
00:32:47
of freight from Asia to the US gets impacted because they're pulling ships off the supply gets redirected the
00:32:52
planes get rerouted um it is a global market so an impact here will affect price prices of shipping Asia to us as
00:32:58
well thanks so much for coming back on the program Ryan Peterson great to have you here and oh congratulations on being
00:33:05
CEO of the company you found at flexport again we didn't get a chance to talk about all the craziness with the CEO and
00:33:11
turnover but you're back you're back in the home and running back it's amazing it's amazing having the time of my life
00:33:16
back here and uh work at the flexport office every day all right we'll see you soon and thanks for coming on uh as
00:33:22
Sax's Lifeline well done all right guys take care Ryan did bring up really interesting point there that you don't
00:33:28
hear enough which was the asymmetry of the Warfare that the hoodies can launch a drone or a cheap missile that costs
00:33:35
thousands of dollars and it costs us millions of dollars to shoot it down yep that is just not sustainable for the us
00:33:42
we see this happening in Ukraine as well all these you know multi-million dollar
00:33:46
expensive tanks get taken out by a land mine or by a cheap you know RPG or something like that that cost a few
00:33:54
thousand dollars it's also the fact that if you send a drone and it blows up on a
00:33:59
ship and it cost you a couple thousand bucks to do that the lack of risk tolerance the fact that the insurance
00:34:06
companies won't insure the ship anymore means that now that ship can't travel and that's tens of millions of dollars
00:34:12
of you know Commerce that get shut down off of a few thousand investment so there's there's a deep asymmetry in the
00:34:18
sensitivity we also have to loss we you know we won't take hey well maybe one in
00:34:23
10 ships can blow up let's keep going it's the fact that there's no margin for loss there's no allowance for loss as a
00:34:30
result any sort of threat of loss means that the whole system shuts down I'm not
00:34:34
advocating that we should but it's just the condition we're in I also think the other point I didn't make I would
00:34:38
imagine that this Behavior with the houthis is driven in part by the embolden that arises following October
00:34:46
7th and the the praise um that Hamas has received globally and if you believe that to be true there are many other
00:34:55
groups uh like this that may get emboldened and you start to see more activity in other regions as well that
00:35:02
you can have these kind of outsized impacts and uh folks suddenly you know start to take action but I think that's
00:35:09
why we're between a rock and a hard place here is that on the one hand if we don't do anything then you're
00:35:15
emboldening that behavior and if you do do something you're escalating the war yeah and to your point you know saying
00:35:21
like hey the us is going to enter the war I I think that there may be this moment where it's not even an option
00:35:26
that the US is being provoked in a way that you can't say no you have to you know maybe they end up having to act the
00:35:32
Guerilla Warfare aspect of this is super fascinating because you can really do incredible damage to very expensive
00:35:39
airplanes with hypersonic missiles that go incredibly fast or like mach five or something insane and they're cheap so
00:35:45
a100 million or $20 million fighterjet can just be annihilated by a couple of hundred
00:35:51
thousand in you know Hypersonic missiles all right there's been a ton of m&a activity and m&a deals that have been
00:36:00
cancelled Adobe figma has been called off and alumina and growl has been Unwound as well the big headline is that
00:36:10
after a 15-month review process adobi and figma called off their merger we talked about it here multiple times it
00:36:16
was a$ 20 billion cash and stock merger that was agreed to back in September of 2022 um and there's tons to unpack here
00:36:25
shareholders employes the startup uh ecosystem and of course uh limited partners who were expecting
00:36:33
huge paydays from figma being sold uh to Adobe are now back to a waiting game of
00:36:40
figuring out if this company can go public Etc chamath you had tons of thoughts on this and maybe you could
00:36:46
educate everybody on the alumina growl deal since I don't think people understand that I think there are three
00:36:53
Deals or almost deals that got essentially called off or cancelled or never consummated in the last few weeks
00:37:03
which show a pretty interesting Trend so the first as you said Jason was Adobe figma the second was siga and
00:37:11
human they were proposing a multi- decillion dollar merger and it was very clear that the FDC was going to have a
00:37:20
huge fit around it so they said that we're not even going to do it and then Signa just said they'll do a$1 billion
00:37:26
buyback instead and then in the craziest example alumina and Grail so alumina makes these Gene sequencing machines and
00:37:34
Grail makes one of the leading tests for free DNA cancer detection and at the time alumina owned
00:37:44
almost half the company they bought the other half they merged it in even though
00:37:48
the Regulators said hey hold on we have an issue with this and now they're being
00:37:52
forced to unwind the merger so to to pull this company back out out and divested I think the point of this is
00:38:01
two things one is that there is no viable m&a path for early stage Venture Capital businesses so if you can't have
00:38:11
a$ 20 billion merger or a $40 billion merger or a 15 or 20 billion m&a with a high degree of confidence then the path
00:38:19
to liquidity through m&a is less than 20% of the outcomes which means that the overwhelming path to get liquid is what
00:38:26
you said Jason which is IPO but the problem is the second part which is that the capital markets in the United States
00:38:32
are not ready or not in a position to support all this IPO liquidity why the banks won't
00:38:39
underwrite there aren't enough researchers research analysts that'll cover these
00:38:45
stocks the ways in which the banks make money have become so constrained and so I'm kind of left pondering to myself how
00:38:52
do you go back to a world of like the 9s where startups four and 5 years old would go public to raise Capital um I
00:39:01
don't think that that's going to happen so I don't know exactly what happens to us except that we'll have companies just
00:39:06
shading for 15 and 20 years and I think that just has a chilling effect because it's like what investor wants to put
00:39:12
money away locked up in highly liquid stuff for 20 years what rate of return do you need to give them that makes them
00:39:18
want to do that so something has to change because if the m&a market can't exist then we need to change the rules
00:39:24
of the Capital Market so that there's incentives for these Banks to underwrite these companies to go public well I
00:39:29
guess there's two things saxs that could change this dramatically one is if we put in more um Conservative Republican
00:39:37
libertarian Etc uh less regulatory regime in Washington that could open up m&a you know as soon as 2025 perhaps uh
00:39:46
and then the second is direct listings um D I say spaxs and alternative ways to get companies public it may not be um
00:39:56
the gold standard as a traditional IPO but at least it we get those liquidity started and I guess third sax and I'll
00:40:04
get your your thoughts on this for private investors and their LPS everybody seems to be focused on
00:40:10
building strong stable cash flowing businesses and we've seen all the companies that went public whether it's
00:40:16
Airbnb or Uber are now focused on ringing the cash register and being profitable so ultimately maybe this Log
00:40:23
Jam and m&a blockage makes everybody focused on sustainable profitable companies and that's a good thing long
00:40:28
term what do you think sex look like I said last week in relation to the figma Adobe deal the fact that Regulators took
00:40:34
15 months to analyze the deal only to come to the conclusion that they basically weren't going to allow it and
00:40:40
then Adobe finally killed it is going to have a chilling effect on m&a and Silicon Valley I mean if acquirers and
00:40:46
targets can't have confidence that the deal will be approved and in fact they're going to be left in limbo for
00:40:51
over a year waiting for speculative approval they're going to be less likely to do deals in the first place and I'm
00:40:57
sure adobe's not happy about the fact they got to pay a billion dollar breakup fee which by the way was a really smart
00:41:02
thing for figment to negotiate I mean if you're if you're a company the startup that's going to get acquired you need a
00:41:07
pretty big breakup fee now as insurance on the deal because there's a very good chance that Regulators aren't going to
00:41:13
allow it so yeah absolutely the fact that Regulators got in the way of the Adobe deal and moreover the way that
00:41:20
they did it with this protracted delay is absolutely going to have a chilling effect on m&a in Silicon Valley and look
00:41:26
there are only two good outcomes for a startup you can either IPO or you can get acquired that's it the third is
00:41:34
basically you go out of business that's the third outcome so when you take half the potential exits off the table you're
00:41:41
absolutely making it tougher for VCS and Founders to get a good return it's that
00:41:46
simple and that is going to have a depressing effect on you know the investing of risk capital in Silicon
00:41:52
Valley I don't think it's a good thing for anyone and by the way even if the US sort of fixes this even if we get a
00:41:58
regime that's more friendly towards m&a you still have the EU to worry about and
00:42:03
you also have the UK to worry about because they're not part of the EU thinks to brexit the UK like I said last
00:42:09
week they're like the Chihuahua who's leading the pack they're the smallest Market but they're the most aggressive
00:42:14
on antitrust enforcement tax they may just be the beard for the US and the Europeans it's possible but in any event
00:42:20
now you got three Regulators to worry about not just one and you know like I said last week I think if you're a St up
00:42:26
and you're trying to consider where to put your Europe office I would not choose the UK anymore I used to think
00:42:32
that the UK was number one because it was so easy but you don't want to create that Nexus if you can help it it might
00:42:38
subject you to a competition Authority you don't want to deal with later when you get acquired yeah I would have just
00:42:43
opted out of the UK I would have called their Bluff as I said last week freeberg
00:42:47
any solutions here you think to solving this problem in VC land or do we just have to build stronger more profitable
00:42:53
companies and be more patient about taking them public since m&a is not on the table I don't know if I'd take the
00:42:59
anti-rust regime as being the core driver of m&a not being on the table I mean there there's a couple of these
00:43:05
examples but I don't think there's a predominance of this going on I think that there's a lot
00:43:12
of smaller deals that still end up being good outcomes I mean we've we've also talked a lot about the lower cost of
00:43:18
capital in starting software businesses and the era of AI type tools and that leads to you know being
00:43:26
able to hit 100x if you put you know small enough amount of capital in and have a decent outcome where you're not
00:43:34
building the market Monopoly in some particular Market it doesn't feel to me like that's the biggest driver of
00:43:42
concern here the biggest driver of concern is just all the return on Capital metrics that the big buyers are
00:43:48
having to face you know return on invested capital is becoming more important than it's ever been because
00:43:53
we're talking about trillion dollar market cap buyers and so that's how they're measured and so they have to be
00:43:58
really thoughtful about how they're deploying capital in a high interest rate environment that's there's a
00:44:02
greater sensitivity to a faster path to cash returns than there has been historically
00:44:09
so it feels to me like that's and I would imagine if I'm Adobe and I'm looking at this figma deal do I keep
00:44:13
fighting it or at this point paying a billion dollars is probably net accretive to them I think the stock
00:44:18
price went up when they called the deal off which highlights that it was probably a better investment for them to
00:44:23
say I'm going to pay a billion dollars to actually get out of this deal at this point and I think we see more of that
00:44:28
happening which is this rationalization of you know timelines to roic and a high
00:44:33
interest rate environment Cham deals do get done there's a lot more tolerance for smaller deals obviously yeah I mean
00:44:38
Salesforce was able to acquire slack that was 2020 Amazon was able to acquire Whole Foods Walt Disney 21st Century Fox
00:44:46
with the X-Men so those are a different era I I I really think are all 2016 to 2020 you're right those are all those
00:44:52
are very different era I don't think that that's what you can expect anymore I don't think you can underwrite to get
00:44:57
a billion deal done in any industry yeah remember met Facebook buying what's up for what was it 17 billion I mean that
00:45:06
was one of the biggest Venture returns ever yeah today that could never happen today that could never happen that figma
00:45:12
adobe deal it was a 20 billion deal but with the rise in Adobe stock it's really
00:45:19
a 30 billion dollar deal if it would have been consummated because half the consideration was an adobe stock and
00:45:24
that has basically doubled so all of those investors and employees were looking at a $30 billion exit and look
00:45:31
figma's going to do great I think the numbers that came out about figma where they're going to do about 700 million of
00:45:37
ARR growing 40% so I don't know they'll be able to IPO anytime based on that but what's the
00:45:45
multiple they're going to get probably 12 to 15 times so 8 to 10 maybe it's like A10 billion do company in the
00:45:52
public markets I mean growing nicely but it's just not as good an exit I mean it's a big big haircut the positive to
00:45:59
this is consumers or retail investors haven't been able to buy IPOs and get in on companies earlier so if people build
00:46:06
stronger companies that aren't that are more Capital efficient then companies can go public earlier as you alluded to
00:46:12
chth where Microsoft Apple a lot of these companies back in the PC era they used to go public in under a decade and
00:46:18
now it's always over a decade so maybe this will make stronger companies that go public and then if there's a regime
00:46:23
change and maybe people feel more they still have to get through Europe but you know biotech is the only Market
00:46:29
that's always viewed going public as a transitory Capital raising moment right every biotech company that goes public
00:46:37
in America at least are startups they're pure startups it's pure risk Capital but the the technology side has
00:46:47
viewed it very differently it used to be the same right but and then it went to like Oh we must be mature and then it
00:46:55
has to be growing really fast and it has to be profitable there were so many ANS
00:46:58
ands ANS that the that at the end of all of that there were just very few companies that qualified and then by the
00:47:04
time they did go public they're 12 13 14 15 years in they're so long in the tooth
00:47:08
that their best growth periods are Beyond them now a couple of companies have bucked that Trend but by and large
00:47:14
that's that's the case and I don't think that's to to support what David what sack said it's that's just
00:47:20
unsustainable you cannot you will not have risk Capital flow into the United States if if this is going to
00:47:28
continue yeah this is going to be super challenging for Founders you got to build companies that are sustainable and
00:47:34
can go public because that's really the only path right now and it's exacerbated
00:47:38
by what freedberg said which is then that that family office or that endowment who can rip in a check as an
00:47:43
LP to a fund can still get five six s% can get corporate bond at corporate yields at like 8 9
00:47:52
10% why take on 15year illiquidity for often times funds that return less than the
00:48:01
S&P which is the Dirty Little Secret of Silicon Valley it makes no sense it is going to be a challenged environment for
00:48:09
some time to come I think as we work this out I mean the thing that I find super interesting with the spaxs was
00:48:15
like you got to invest in some companies that were very early and speculative like Joby now how could a consumer ever
00:48:22
make that kind of bet your mouth to bet on and that wasn't one of yours I know but it it was one of these like
00:48:27
incredible moments where you could bet on flying cars literally as a consumer and I think they're actually going to
00:48:32
figure it out I was tempted to buy it and I've been tracking the stock and I'm like wow if they actually make air taxes
00:48:39
work and it's kind of cool that the public can participate in that and that's what they were saying when there
00:48:43
weren't enough IPOs and we had half the number of public companies so I don't know if you have thoughts on
00:48:49
it the number of public companies I think has haved in the last 20 years so are more public companies better than
00:48:59
less I don't know I think that's kind of like a random statement I think what is
00:49:03
true is that the public markets used to be used for raising risk Capital but the
00:49:10
public markets at the time also had a ton of research analysts there would be a lot more coverage of these companies
00:49:17
there would be a lot more visibility a lot more checks and balances because people would be meeting with Management
00:49:22
on a regular basis writing thoughtful research reports all of that is constrained as the as the
00:49:28
business of being on Wall Street has changed so it's not enough to just all of a sudden have a bunch of companies go
00:49:34
public if all of that supporting infrastructure isn't there so this is what I mean by it's a catch22 on the one
00:49:40
hand there's not there's there's no m&a so you need to have more IPOs but the banks will need to hire more
00:49:47
people that comes at a cost which means that they're going to have to generate more Revenue somehow that comes at a
00:49:53
cost to somebody else and until that's figured out you're not going to solve this problem and instead what's going to
00:50:00
happen is folks will be less motivated to invest in The Innovation economy because there'll be no path to liquidity
00:50:08
and when you do invest you'll invest much smaller amounts of money and you'll make it as part of your risk allocation
00:50:14
a smaller piece of the overall pie what it also means is that if you're an entrepreneur and you haven't started a
00:50:22
company yet you may want to seriously consider raising a friends and family round using these AI tools and trying to
00:50:31
build a very different kind of business slow and steady profitable from day one and that's never been rewarded by
00:50:39
Silicon Valley VCS but if the reward for VCS don't exist then the VCS themselves
00:50:44
won't exist and so you may want to start thinking about different ways to capitalize your
00:50:50
business and it's interesting point you make that is very subtle so I just want to restate it here
00:50:56
the analysts who are covering companies like say Joby I'm just picking this air taxi company because I'm obsessed with
00:51:02
it if there's not an infrastructure those analysts act in a way as a back stop or a bit of pressure on management
00:51:11
I think is what you're saying to hey perform and we're checking on you and we're meeting with you so without that
00:51:17
there's just a company sitting out there and nobody is asking them hard questions
00:51:21
and then making decisions to put a buy or a sell rating on it is that correct maybe you could B on that missing piece
00:51:27
there was an evolution in the public market so look the public markets back in the90s was a bit of a rigged game
00:51:33
where you could call a CEO if you had his or her number and they could tell you things that they didn't tell
00:51:40
everybody else and when you look at the folks in their 60s and 70s and 80s who really tund it I'm sorry folks but they
00:51:48
profited massively from that information Arbitrage and that changed when there was a regulation called reg FD that got
00:51:56
passed In America which said regulation full disclosure what you tell one you have to tell everybody right and that
00:52:02
was an attempt by the SEC to level the playing field it was a very smart piece of legislation but what that did was it
00:52:09
constrained the touch points that a company would have with the public markets to a few organized
00:52:15
events right analyst conferences research days actually banks are allowed to organize formal company
00:52:23
dinners and you'll get all these people together analysts across the entire Spectrum from Fidelity to Goldman Sachs
00:52:30
to Morgan Stanley and the company has to perform to them and those folks will write both internal and external reports
00:52:36
that say buy neutral or sell right that became the only check in Balance to make
00:52:42
sure that management was held accountable to the large swwa of public shareholders because otherwise it's not
00:52:48
Jason you as a shareholder of Joby quite honestly have any say right you you exert your pressure through through the
00:52:55
analyst who then represents the ability to influence your buying and selling decision but if those
00:53:01
analysts don't even exist there is no feedback loop between management and the people that own the stock and that's the
00:53:08
problem we have today there's not enough research coverage there's not enough analysts there's no organized way to
00:53:14
keep companies held accountable and so if you have a bunch more companies that go public without that infrastructure
00:53:20
it's very difficult seems like there's an opportunity somewhere in there you know the big opportunity that that I
00:53:26
that I think should happen is that a bunch of these Banks should actually use these AI tools Jason to be crawling all
00:53:32
these 8ks and 10ks and all these filings and generate statistical measurements of all of these public
00:53:40
companies that they make free and available to everybody these things should be a bunch of dashboards and
00:53:45
charts that are just out there for anybody to subscribe to so that you can just do the initial work of having to
00:53:54
parse through all of these filings have it done by an AI by an agent from a bank who can train it
00:54:01
properly I think that would be an immense value to all shareholders and I don't think it costs that much money and
00:54:07
I think it would be Goodwill Robin Hood could do this it would be great Goodwill
00:54:11
to build a lot of trust and and credibility with investors so now that you're CEO of a company how do you look
00:54:18
longterm at potential exits going public what what is the the thoughts you have on this as you architect the company
00:54:25
freedberg as the CEO do not care about exits don't care about expand on that yeah explain I just want to build a
00:54:32
great business that makes great products for our customers that's it so if you do
00:54:36
that all these discussions around you know giving shareholders liquidity I'm the I'm the main shareholder so I don't
00:54:44
need liquidity I just want to build the business so you think about profitability then because if you have
00:54:51
to fund it or funding might be harder to come by how do you think about funding over the next decade this Vision you
00:54:58
have it freaks me out you got to keep businesses capitalized so there's definitely across businesses
00:55:09
I'm on the board of or involved in universally a bias towards profitability I've seen a couple of
00:55:17
decisions we've made at some companies to shift from making longer time Investments that may not pay
00:55:27
off for many years where you had the luxury of doing that in a Zer environment and you could always get
00:55:32
Capital to fund anything that's multiple years away from realizing any sort of return to shifting towards a bias
00:55:39
towards making things that can generate real revenue and real profitability in the near term keeping costs low and
00:55:46
building from there so it it's definitely I'd say been a flip-flop in the environment it's why the biotech
00:55:50
landscape has largely kind of dried up the funding landscape has dried up sign significantly because most of the
00:55:57
investment opportunities are those multi-year out before you know if you have a return on your investment kind of
00:56:01
investment cycles and so the ones that do get funded are those that have a nearer path
00:56:06
to profitability and where you can build some sort of cash generative service in
00:56:11
the near term on the path to building a bigger product down the road so as you're strategizing you're thinking how
00:56:17
can we get to cash flow positive Break Even whatever quicker you're not strategizing how do I get a huge
00:56:23
multiple and get some dumb tiger money whatever no no dick to Tiger but they paid the highest prices at the end of
00:56:29
the cycle I've got enough wisdom at this point to tell you that if you don't have
00:56:32
to raise Venture Capital you're better off so yeah shath you also became a CEO you have the I think it's hustle is your
00:56:38
company and that's profitable and you're running it I I'm assuming for growth but
00:56:44
maybe profit first then growth how how do you think about those two dials how much growth how much profits we have the
00:56:51
same belief that freeberg has which is our job is just to make really great products for for our
00:56:55
customers when I took over the business we had to go through a difficult layoff and a rebasing of the business but it's
00:57:03
it's a business that's growing kind of 45% a year and it's profitable and and what I talked to the team is that you
00:57:11
know we will reinvest our profits and so we have an ambitious plan and as long as
00:57:16
we meet that we'll take some percentage of that profit and reinvest it but I like freeberg also have no plans for
00:57:23
liquidity I just want to build this thing to be as big as possible and I don't want one single shred of pressure
00:57:32
that isn't defined by our customers and so by being profitable we have complete control of the cap table we can do
00:57:37
whatever we want and the people that benefit frankly are the employees because they can get paid and our
00:57:43
ability to hire people without being subject to like pressure to raise a new round and set a new random valuation so
00:57:49
no unnatural acts just customer profits and so by the way if I can grow for 10 years years if we can grow for 10 years
00:57:55
at 40% a year this will be a ginormous business so trying to 3x and do it on naturally yeah Jason just just to chim
00:58:03
back on the the question you asked a couple minutes ago I number one if you can avoid raising Capital you're better
00:58:08
off because then you don't have any shareholder pressure to get liquid and that can create contortions in what you
00:58:17
do and how you operate the business and second is if you're going to raise Capital if you set too high value if
00:58:25
that becomes the bogey you set yourself up for challenges because now you've got
00:58:28
to have a multiple on that valuation to satisfy investor return hurdles and the higher the the valuation the and you
00:58:37
apply a multiple to that the higher the exit has to be and suddenly all the options start to fade away you can no
00:58:42
longer have a modest exit that can do really well for employees and the founders and early investors and it
00:58:49
becomes a necessity that you have a massive outcome and by the way we see this now in this post Zer environment
00:58:56
that a lot of businesses that raised a lot of capital at a very high valuation and then you have this multiple
00:59:01
compression that's just happened in the last two years their valuation effectively if they were to go public
00:59:06
today or get sold is less than the capital they've raised and that's the most extreme scenario where you know
00:59:11
suddenly all the common shareholders get wiped out in terms of their return it's
00:59:15
such a great Point like the thing that people used to say was oh it's a tech company so we need to give it a premium
00:59:21
the problem is now everything's a tech company to say you're a tech company is a meaningless statement that means
00:59:26
nothing you're a company so that you're a company so then there's no premium for
00:59:30
being a company no there a premium for profits well there's a premium based on quality of Revenue which has to do with
00:59:37
gross margins I mean obviously ecomics and un economics obviously a company that has 80% gross margins is different
00:59:44
than a company has 20% gross margins not if it's unprofitable no no I I totally get that I'm just saying that you can
00:59:50
normalize based on gross margin as opposed to the type type of company it is sometimes we'll see a company that
00:59:57
markets itself as a tech company and only has 20% gross margins that's an indication that something is wrong
01:00:02
usually or it's not truly a software company it's just a company that's just a company yeah I think that's the way to
01:00:07
look at it high gross margin versus lower gross margin margin just to go back and answer your question jcal about
01:00:13
how do you decide how much money to put into growth versus being profitable I think the right answer to that is not to
01:00:20
say there's some absolute amount of money you should burn given your round it's to look at growth on an Roi basis
01:00:26
or Union economics basis what is the return on the growth dollars you're spending and probably the best way to do
01:00:32
that is to look at the payback on customer acquisition how long does it take you to payback your customer
01:00:39
acquisition costs and I think a lot of people don't do that analysis correctly because they just look at the revenue
01:00:45
they make from that customer but you actually have to look at the marginal profit so this is how the gross margin
01:00:50
ties in Easy example is something like Spotify Spotify it cost $100 a year and they were to acquire somebody for $100 a
01:00:56
year hey they get to year two it looks like you made $100 except Spotify has to pay a massive amount to the record label
01:01:02
so their margin isn't as high as maybe a SAS company and that's where the devil's
01:01:06
in the details yes and overhead and overhead you got to look at churn as well so if that customer only lasts two
01:01:13
years and half the margin goes to the record companies well you can't count 100% of Revenue now you're looking at I
01:01:21
don't know what's that's like you're dividing by two twice so it's effectively you know a quarter 50 bucks
01:01:27
of the 200 let's say what are you seeing in your in the companies you're funding
01:01:31
you're seeing profitable companies or Revenue generating companies what like are you telling folks you got to grow
01:01:36
and raise a big series a or are you telling folks hey take your time and yeah great question we invested in 100
01:01:42
companies this year it's more than I've ever done that's the same amount I did in first seven years of my career and
01:01:47
100% of the time they are not expecting to raise like some giant seed or series a they're raising just the amount of
01:01:54
money they need need and they're keeping their expenses absurdly low the biggest
01:01:59
Trend I'm seeing is outsourcing of talent and so Americans and I'm not going to make this like a huge
01:02:05
anti-American thing but the level of entitlement and the effort Americans are putting into jobs expecting 150k let's
01:02:12
say and then offshoring a developer Latin America Portugal keeps coming up Canada they're all looking for what's
01:02:20
the most efficient way for me to build a 10 person team and then I'll see a burn
01:02:23
rate of 30 ,000 with 10 people I'm like how's that possible like oh our developers cost 22,000 our you know sdrs
01:02:29
are 10 I'm like how is that possible oh we have two people in Manila Etc long way of saying efficiency efficiency
01:02:34
efficiency we have to get to break even with the money we just got we're not expecting a second round of funding and
01:02:39
a lot of them are raising but 500k to 1.5 million and if this was 2020 it would be 3 to 10 we talk about like AI
01:02:49
is like a big disruptor to like the big companies and this and that but AI may be the biggest disruptor to VC in the
01:02:54
end explain what you mean I know what you mean but I want the audience to understand let's just say you raise a $2
01:02:58
million seed round in in the past what you would do to your point Jason is you would
01:03:03
hire seven people at $200,000 each right so now you have a $1.4 million burn so you basically have and let's just say
01:03:13
you co-work someplace you have a year and a half and so you're pedal to the metal right you're basically trying to
01:03:20
throw as much spaghetti against the wall as possible see what buy as many ads do whatever it takes the
01:03:27
money basically goes to AWS and Facebook and a couple of other companies to Google and then you hope that there's
01:03:34
enough traction where somebody then writes you a 10 or 15 million series a check now if you take that same $2
01:03:41
million you could have a threers team four-person team half of them offshore where they also use things like
01:03:50
co-pilot which is like a 2 to 3x lever now all of a sudden they have the same 10 person team and it costs
01:03:58
$40,000 exactly and so now all of a sudden they have four years so why wouldn't they do that where
01:04:05
they would still own 80% of that company and all of a sudden there is a potential
01:04:10
to exited for 50 million or 100 million and they've made more money than in a traditional outcome if you sold it for
01:04:16
two billion precisely the case this is literally what Founders are modeling right now they previously wanted to beat
01:04:23
the record of the person in their cohort Who had who raised the most money at the highest
01:04:27
valuation now they're just like how do I get to profitability and and how do I own as much of my companies possible so
01:04:33
Sachs you've got under over a billion dollars under management you've been one of the most successful new Venture firms
01:04:39
in Silicon Valley in the last decade you got a lot of cash you could deploy and how do you deploy it intelligently
01:04:45
intelligently given the circumstance of people maybe raising less or being more efficient and what do you think of the
01:04:52
ai's impact on Venture well the most important thing is to have opportunities to invest in and
01:04:59
the fact is that before this AI wave the whole Cloud Social Mobile wave had kind
01:05:05
of petered out I mean the pond of opportunities had kind of been fished out and AI is great because it restocks
01:05:13
the pond I mean there is a lot of new ways for Founders to use these advancements to solve problems that they
01:05:21
weren't addressing before so I think you guys are being a little too gloomy I mean I think that the impact on Capital
01:05:28
efficiency will take some time to play out but I think that for the first time in a number of years it feels
01:05:35
everything's feeling fresh again and there's just I think a lot more opportunities for Founders to go after
01:05:40
now it's the begin it's like this at the beginning of any big new tech wave right
01:05:45
is this is a new platform opportunity same thing was true with the App Store when the iPhone launched same thing was
01:05:51
true when the internet launched now I understand a lot these opportunities are going to be taken by big companies that
01:05:56
already exist but there's always going to be an opportunity for Founders when you have a big disruption David I agree
01:06:02
with you my comment is less about the the pond I agree with you that the pond is getting restocked my comment is that
01:06:09
the economic impact of AI is so massively deflationary it may be an order or two orders of magnitude more
01:06:18
deflationary than AWS was and that was massively accretive to the startup economy so if this is a a 10 Xing or 100
01:06:27
Xing of that economic impact my only point is that the break even threshold for a Founder will have gone way down
01:06:35
and then as a result it's only a matter of time until they can put two and two together in a Excel spreadsheet to
01:06:41
figure out that owning 50% of aund million company is greater than owning 18% of you know some other company when
01:06:50
you're massively diluted or 8% or whatever it's just like that's all I'm saying is is like the the effective
01:06:55
Break Even goes way down in a world where Ai proliferates and I think that's positive
01:07:01
what do you think yeah sex it's just positive for Founders if you look at what Founders do with the money when we
01:07:08
invest in a series A or B the number one thing is go to market right so they want
01:07:12
to basically triple their sales let's say they want to grow from 5 million of AR to 15 million of AR they have to
01:07:18
staff up the quota capacity to hit that number and you know for every AE you're going to need some number of FDR some
01:07:26
sort of management you're going to need some sort of operations overhead so you've got to hire all of that and then
01:07:33
there they want there to be a cushion in case they miss their numbers right because there's no guarantee you're
01:07:37
going to hit that so you know Founders still need to raise the money to staff up to go after that opportunity now does
01:07:44
sales become more efficient over time because of AI or does lead genen yeah I think that's possible but in order for
01:07:52
that to happen you're going to need to see a rise in Quota capacity right I mean that's what we're talking about is
01:07:57
that that same AE can now hit you know a greater level of sales because they have
01:08:03
better tooling we're just not there yet maybe that happens over time but I think
01:08:08
you know your typal inevitable maybe it's inevitable but I just think your typical SAS start right now is spending
01:08:14
the money on more prosaic things I mean yeah yeah no I think you're right I all all I'm saying is I think what it means
01:08:19
is that the $200 million fund today becomes 50 the $500 million fund needs to be 100 and the billion doll fund
01:08:28
needs to be 200 it's basically Back to the Future it's like back to the 1990 style 2012 by the way I'll I'll show you
01:08:35
a table here Nick I need you to blur out the names okay I just think it's super interesting I watched freedberg through
01:08:41
this but this was like a list of all these funds that I've invested in these are Venture funds you've invested in
01:08:46
these are all the Venture funds I've invested it if you look at this what do you notice about like the mega funds
01:08:52
that just clock out DPI look this is a100 million fund right look at look at clocked it this was a $220 million
01:09:03
fund my point in all of this is like if I look at my returns as an LP I've never had success when I've
01:09:10
invested in big funds I've only had success in small funds it's true that smaller funds do perform better and
01:09:16
larger funds become more of an index and achieve more average returns when you got a multi-billion dollar fund it's way
01:09:22
harder to achieve a you know outsize return so yeah I agree with you I think this Dynamic would be healthy I mean our
01:09:29
funds actually are not that big in the grand scheme of things it's definitely the game is changing dynamically and
01:09:34
this podcast is going to be great in 2024 because we went from four Capital allocators to two Capital allocators
01:09:38
myself and Sachs to two in the arena CEOs so we're going to be having this discussion I think in a very granular
01:09:45
way now that we got two players on the field sacks that we can watch what they're doing well I've got a new
01:09:50
incubation that's going to be launching soon ooh but I'm not going to be CEO of it but
01:09:56
you know I'm kind of executive chairman oh oh yeah SAS company what kind of company
01:10:03
is SAS it's it's basically Yammer you have attention 2.0 yeah I thought that was
01:10:11
slack so this 3.0 yeah yeah Yammer 3.0 okay let's go let's get a we'll get a little uh
01:10:19
yeah we I think we had a push on call-in so now we need to get our 50x on uh yeah
01:10:24
3.0 give us a little tasty poo for your best you're right we sold Colin so now you know we've cleared the decks and um
01:10:31
I can't work on multiple incubations I can only work on one at a time can you have your person that runs that sasd
01:10:37
thing email me because I want to onboard my company into sasd so I it's so good well by the way that was the last one so
01:10:43
I've done I guess three of these now there's Colin sasd so sasd is now spun out completely of craft and the the
01:10:52
founder of sasd was our VP of analytics at craft and now he's going full-time to
01:10:58
SAS grid so I think be very successful great but can I get on board it and can I get a family discount let's explain
01:11:05
this concept to the audience since it's Unique in the world and we should maybe double click on the economics not on a
01:11:12
specific company saxs but just generally of why VCS are doing this you're incubating a company you're a former
01:11:18
founder you have that itch you have ideas so instead of investing in a company you say hey let's all get to the
01:11:23
office I have an idea let's make this ourselves as craft and then we'll put some of Craft's LP's money into it and
01:11:31
then there's some slug of capital saved for the new team that comes so how does the economics on something like this
01:11:38
work and why do LPS love it or do they love it and then why is it good for your internal team or for you to incubate a
01:11:45
company as opposed to just find them set up craft we actually wrote into our LPA that we had the ability to
01:11:52
incubate companies and we had a pre-arranged economic deal with our LPS on those incubations cuz I didn't want
01:11:57
it to come up later and then there's some conflict of interest between the management company and the lp so it's a
01:12:04
predetermined deal and we don't do a lot of these like I said I guess there's been three there's been SAS grid Callin
01:12:10
and out this Yammer 3.0 we're talking about but really I got to give the credit for SAS grid to our vpm analytics
01:12:17
who really I think pushed this idea and it started with a simple way for us to analyze deals and dashboard deals it
01:12:23
started as a spreadsheet that we would give Founders that would crank out their charts and then we turned it into a
01:12:29
website that was free and then you needed as an investor right you needed as an inv an investor and then what
01:12:36
happened is that we saw Founders started using SAS grid as their dashboard to manage their companies
01:12:44
between funding rounds and we're like oh okay that's a big aha moment so basically there was no dedicated
01:12:50
verticalized business intelligence tool or dashboarding tool just for SAS companies and the advantages of
01:13:01
verticalization boo out of the box and the all the formul is going to be calculated exactly the right way is
01:13:07
going to be less room for error they don't have to reinvent the wheel use or looker or whatever you're Reinventing
01:13:13
the wheel you're writing all the formulas yourself it doesn't make sense back to the deal yeah you prid the deal
01:13:19
so LPS wouldn't be surprised that's awesome so the management there's a determined valuation I guess at that
01:13:24
seed stage a certain amount of money goes in and your holding company gets some equity which is like a nice little
01:13:30
extra icing on the cake for incubating it and then the LPS get a sweetheart deal or a better deal is that why they
01:13:36
would be in favor of it yeah the LPS get like basically a vig in the startup got
01:13:41
it we kind of modeled it after YC's original deal right where YC got was it 7% for $100,000 yeah and then on top of
01:13:49
that the fund can invest in the seed round at the market valuation whatever the market ah okay so
01:13:55
they get basically 7% for free or something in% for 100,000 then plus whatever the seed round's going to be
01:14:02
brilliant yeah yeah I think it's a good deal for them and and also it's good for
01:14:05
you because you have to want to come to work every day and this keeps you mentally engaged like shamat said he
01:14:10
felt like he was becoming a talking head and just not I don't know how you phrase
01:14:14
it exactly in your newsletter but well like you said scratches an itch it's nice to be able to if you have an idea
01:14:20
for a product you can work creatively on it yeah I don't want to run companies anymore I
01:14:25
don't have any desire to be CEO but it is fun to work on products if you have an idea Jamal how's it been for the
01:14:31
first couple of uh months now are you really feeling more intellectually curious and challenged is it annoying to
01:14:39
deal with employees and you know customers and and all that kind of stuff what's it what's it been like I think
01:14:45
you've been at six months I think it's been really challenging the first part of it was
01:14:50
quite honestly we had to rebase the the cost basis of the company and get costs under control that's hard
01:15:00
and you had to we had to lay some good people off and then we had to kind of like reset the strategy write goals get
01:15:07
our values kind of in a good place reorient the organizational design like who will do what right all of these
01:15:16
things require just enormous amounts of time that where you don't see necessarily the obvious impact in a
01:15:23
metric or a dashboard right away and so you just have to commit to this process and really follow through in it you have
01:15:29
to find the people that have this real potential Elevate them make decisions quickly find out you made some wrong
01:15:36
undo them find out you made some Right double down on them so it's been a real learning process the the thing and then
01:15:42
on top of all that I've tried to start coding again Sunny helped me a lot I built you
01:15:50
were PA programming yeah and then but then I did that to go back into our All Hands which we do every week and I
01:15:56
wanted to demo some stuff mostly just to set the values that we're all grinding here you know and I'm here grinding and
01:16:03
learning this stuff like anybody else and it's embarrassing because like it's janky code it doesn't work and blah blah
01:16:10
blah it was but it's been really I think in the long run it's I think the company
01:16:15
is a lovely business and I and I want them to be successful because I think they deserve to be successful and for me
01:16:22
it's been a great Outlet to just get back to the basics of like what really matters in running a company in 2023 I
01:16:29
don't think I really knew the details that's good and I'm finding a little humbling perhaps a little
01:16:34
humbling to get in there and be in the cockpit really really humbling yeah it's good yesterday we were sitting there in
01:16:40
E team which is our executive team and we're in the middle of a big deal and the seven of us were redlining a
01:16:45
contract back and I know that may sound like really tactical stuff but it was for me
01:16:50
it was amazing I'm like this is great work and I felt like I accomplished something when it was done and maybe the
01:16:55
deal gets closed today the team is on the call and I just think it's wonderful I I get it real awesome yeah all right
01:17:01
listen there's another story that is under reported we try to find these underreported stories things people are
01:17:07
talking about in their group chats but maybe not reading about or hearing about in the mainstream Media or even on
01:17:14
social media there are a couple of unbelievable bombshell class action lawsuits that are dropping in the United
01:17:22
States regarding our real estate industry in October a federal jury in Missouri found the N that's the National
01:17:29
Association of Realtors and several of the brokerages that have those Brokers working for them guilty of conspiring to
01:17:36
artificially inflate commissions for home sales they now have to pay at least $1.8 billion in Damages to sellers of
01:17:44
more than 260,000 homes between 2015 and 2022 this could bankrupt the n and if you don't know what a racket this is
01:17:53
people selling homes in the United States pay 6% commissions on average 3% for the seller that's if you own the
01:18:00
home and you're selling it you give them 3% of the sale and then the buyer you also give them
01:18:05
3% and there have been a number of companies like redin who have tried to change this I actually used RFID on a
01:18:12
transaction and tried to use them on a sale and I was faced with brokers who I kid you not literally said I'm not going
01:18:19
to show your home because it's a lower Mission rate and they have been working in unison to try to stop this
01:18:27
kind of innovation but the 6% is a tradition it's not a rule you can actually negotiate it and now uh since
01:18:33
this case got one another couple of cases have been dropped and these new class action lawsuits all put together
01:18:41
could be $13 billion in Damages I don't know who's been following this in the group but I have a
01:18:48
lot to say about it but yeah freeberg I spent a bunch of time looking at this because I've done several no broker real
01:18:57
estate transactions oh so lawyers yeah just lawyers and then in the in California I don't know if you
01:19:05
guys know this thing called MLS the multiple listing service yes which feeds the data into redin and Zillow and in
01:19:13
order to list a property on MLS you have to have one of these real estate licenses and be a member of of National
01:19:18
Association of Realtors part of the monopolistic racket that goes on is that you have to be a licensed broker
01:19:25
in order to list your home on the service that is the Monopoly in the listing of homes which everyone looks at
01:19:31
so there's a bunch of folks who have set up a a listing service where you can list your home directly on MLS and
01:19:37
basically it's a guy who has a brokerage license and you pay him a 100 bucks and
01:19:41
he just has a website set up and then you list it and so uh you can kind of just list your own home post the photos
01:19:46
and all the docks and then when the agent asks for disclosures every disclosure they want to see on a
01:19:53
National Association of Realtors form and the N forms are only available if you're a member so there's a whole bunch
01:20:00
of ways that they've tied up the market and made it impossible for the system to
01:20:05
operate without the N members being a key principle in the transaction process when at the end of the day having gone
01:20:12
through this a number of times myself there's just all these templates and data that flows into this there's no
01:20:17
reason why you necessarily need to have an individual that that to be involved here but if you did it's
01:20:26
actually a data entry service the process of entering this data could probably reduce down to a fixed fee of
01:20:32
call it a couple thousand bucks per home rather than a percentage of the home value and by the way think about the
01:20:37
craziness around this if you buy a home and you sell it in most parts of the United States you actually have a tax
01:20:43
that you have to pay that's a percentage of the gross and most people have most of their net worth tied up in the real
01:20:47
estate so it's one of the few places where you will actually see a large chunk of your net worth actually taxed
01:20:52
on a gross basis and taken away from you if you end up selling it rather than on
01:20:56
a net basis meaning net of the profit you make and then the Brokers want to get paid a percentage of the gross as
01:21:01
well these are the commissions they get paid from a first principal's perspective it doesn't make sense that
01:21:05
we're paying a percentage of the gross to agencies to to transact this volume the total volume in the US is an
01:21:11
incredible number it's a hundred billion dollar a year in residential real estate
01:21:14
commissions and there's 1.6 million folks who are real estate agents that are licensed making their living doing
01:21:20
this so it's not an inconsequential industry and it's not an inconsequential verdict Nick if you could pull up that
01:21:26
chart of the different countries here's a good comparison so in the US we pay about five and a half% brokerage
01:21:33
commission split between the buyer and the seller's broker and again legally you don't need a buyer's broker you
01:21:39
don't need a seller's broker you're allowed to sell your home without a broker there's nothing in the law that
01:21:44
prevents you from doing that so this is just an industry that's popped up to service this need and their pricing
01:21:50
model is to take a percentage of the gross and that's just the way the Market's developed but in a competitive
01:21:55
market that should be competed away and it hasn't been because of this this Behavior that's gone on with
01:22:01
institutions like the n and you can see across different countries different pricing systems as a percentage of grow
01:22:08
in the UK you only pay about 1.3% total brokerage Commission on buy side and sell side in China 2 and a
01:22:15
half% in Russia three and a half% some countries like Japan and Argentina are comparable to the US at 6% France is at
01:22:22
5 % Germany's at 4 and a half can I ask a question freeberg yeah I only own one house so I don't I've never gone through
01:22:29
this experience really that I can remember because that was more than a decade ago but today if I wanted to sell
01:22:34
a home okay I could sell it to you right but if you have a broker do I have to pay you 3% as well no you could sell
01:22:44
your home to me and then if I have sign who pays your broker's 3% I seller pays the buyer's broker but they don't have
01:22:52
to yeah no here it's really important to understand this if you're going to go buy a home yeah you're typically not
01:22:59
signing a contract with an agent when you go home hunting the seller has an agent and in the agent listing they say
01:23:08
hey if you're a buyer's agent you show up we'll give you 3% commission and so the buyer agents who don't actually have
01:23:15
a contract with the buyer are like well let me show you R homes let me show you R homes and then they get to a home and
01:23:20
they're like okay this home's let's buy it and they're going to make a 3% commission which by the way I just want
01:23:26
to point out the disincentive there they're not looking out for my best interest as a buyer they're looking out
01:23:31
for their commission and the higher the price they get you to pay the more they make the more money they make what I
01:23:36
want to understand though is if I'm going to sell my house to you guys and you guys have a buyer agent and I just
01:23:40
ref can I just refuse to pay the 3% no one gets paid because there's no the buyer agent has no contract with anyone
01:23:46
yeah you can just refuse and you don't have a contract with anyone the place where you end up paying a commission as
01:23:50
a seller is if you sign a seller agent listing and where you sign a contract that s to the seller's agent I'll pay
01:23:57
you 3% and I'm also going to pay a buyer 3% if they show up with an AG how do I list my house on MLS without a seller's
01:24:03
agent you cannot in California I mentioned I just I recently went through this I paid $99 I did it all myself and
01:24:09
I listed on MLS without an agent I've done a bunch of person-to person sales of real estate where I haven't had any
01:24:15
agents involved but I knew the people on both sides and we just did a transaction
01:24:18
so what was your legal cost per transaction oh like like 15 Grand you know to do that that was my exact number
01:24:24
it was 15,000 so just to give you a comparison here chth if you were to have a million dooll house that would be 6%
01:24:32
it' be $60,000 so that's 15,000 in legal cost for you to sell it right if I wanted to
01:24:38
sell it to you directly and that's what happened my friend owned a really nice house we did it off market and now all
01:24:43
the brokers in my neighborhood hate me like they are really upset about it imagine it was a $5 million house or a
01:24:50
10 million or $20 million house is it true for commercial real estate as well this is this how it works I don't know
01:24:55
commercial commercial real estate is the same situation so there's an agent that
01:24:59
represents the building the landlord it's actually going to talk about this then the buy side agent so Buffet
01:25:06
Buffett owns Berkshire realy what is that that's just basically it's a residential broker just like Coldwell
01:25:11
Banker 24 just like all these other so it's sweeping up this 6% Vig yep they were part of the the lawsuit they were
01:25:18
named yeah they were named and if you look at listen to Buffett's earnings reports often talks about how many sides
01:25:24
of a transaction they were on and that's kind of the key measure of Revenue in the in that piece of the business and he
01:25:31
was super ecstatic I think in 2020 or 21 when Real Estate boomed and he's like we
01:25:36
got this many sides of the business it's a great business you know it's cash generative such a great business but
01:25:41
that's the business you want to be on both you want to get as many sides as you can you want to get on a sell side
01:25:44
and buy side uh in the market and you just get 3% depending on which side you're on but now the courts basically
01:25:50
said hey this is illegal here's how you'll know that the Monopoly has ended is when the buy side commission goes
01:25:56
away yeah yeah I mean the sell side 3% may be excessive but I do think that the sell side Brokers do work in terms of
01:26:04
having to market the property whereas on the buy side the vast majority of the value is created by MLS like you're
01:26:10
saying freeberg I think it's flipped but in terms of where the value is but anyway go ahead no you have to Stage the
01:26:16
house take pictures yeah as a buyer I just want someone to look out for me and make sure I'm not like all the diligence
01:26:21
that goes into res searching a home and reading all the disclosures and going through them I don't know if you guys
01:26:25
have gone through this hundreds of gone through it but I he's a lawyer for that stuff who I pay by the hour right that's
01:26:31
what I do I'm not saying that the buy side broker does nothing but I'm saying that most of what they do is just
01:26:38
schedule appointments for tours for you after you've gone through MLS yourself and picked out what you want to see you
01:26:44
give them the list and then they give the list put on your calendar you know what I would analogize it to is travel
01:26:49
agents I don't know if you remember like I mean most people watch the tri probably don't remember but in order to
01:26:54
book an airline ticket a long time ago before the internet you call up a travel agent because they have bring it to your
01:27:01
house they have proprietary access to saber which is the online ticketing system totally totally what happened is
01:27:06
with the internet you had sites like Expedia just give you direct access to saber and so you can book the ticket
01:27:11
yourself there's no reason to have a travel agent same thing has happened with MLS it used to be proprietary
01:27:17
access by the Brokers to MLS you couldn't even see it then had sites like Zillow basically give you direct access
01:27:25
to MLS so you can just go on there and find what you're looking for and again the main thing that the the buy side
01:27:31
Brokers do is to schedule the appointments because you can't get a tour typically unless you're represented
01:27:37
and if you're not represented and you reach out then the sellers agent will try to basically enlist you have you
01:27:42
done a direct transaction sex I'm curious you can I don't think you can residentially I mean it's very hard I've
01:27:48
done it yeah I mean if you know if you happen to already have pre-identified the buyer then yeah I guess you could do
01:27:55
it but basically happened in our case in free I'm curious how yours went down I had told the person or my wife had told
01:28:01
the person we love your home if you ever sell it let us know and then they let us
01:28:04
know and then we bought it with them off market and they said we don't want to use Brokers we don't want to pay this
01:28:08
huge commission which would have been hundreds of thousands of dollars and uh would you agree to this price and we're
01:28:14
like yes and then done how did yours come about freeberg how did you find a buyer
01:28:20
if you were on the sell side this is all like relationship driven people that I know and that kind of stuff so it's like
01:28:26
hey I think this is the future if two of the four people here have done it I think this is the future I don't know if
01:28:30
that's I don't know if that's the common model I don't I don't think that's true
01:28:33
I do think Market you need a Marketplace and the Brokers control the marketplace it's a one-off it's a fluke
01:28:39
when you actually buyer the the MLS is the deao market because I mean ask anyone in the country who's bought a
01:28:45
home in the last year five years almost everyone I'm sure went on Zillow or red or truly unlooked at homes and the the
01:28:54
place that those you know marketplaces get their data is from MLS they sweep the MLS so the real kind of you know
01:29:03
monopolistic breaking is can you break that Marketplace can you break MLS and can you get some other alternative
01:29:09
listing services going that you know enable this to this this brokerage commission to get competed away because
01:29:17
it's currently locked up in the Monopoly they have on the MLS what's so perverse
01:29:21
here's where the Monopoly comes from is that if the buyer had to pay the 3% directly to the buyer's agent and that
01:29:28
was a choice you could make nobody would pay that much of course I'm not saying that the buyer's agent doesn't provide
01:29:34
some value but there's no way you pay 3% but the reason they get it is because the Brokers tell you well you're not
01:29:40
paying that the seller's paying that but of course you're indirectly paying that
01:29:44
because the transaction fees are so much higher and when the seller goes to list
01:29:48
their house if you tell your seller's agent hey I don't want to pay the buyer's agent 3% make it half a percent
01:29:54
they won't do it you know they they will always make it equal so this is the game
01:29:58
this is where the Locking comes from is the buyer doesn't have a choice and the seller doesn't really have a choice
01:30:03
either as we wrap here just real quick pull up that uh link Nick and go to number five so that is the key issue I
01:30:09
don't have a horse in this race I don't own redin stock or anything but here's red fin explaining exactly what you
01:30:13
talked about it's fsbo for sale by owner and there's now these third party sites
01:30:17
and they kind of allude to it there but you know what those are those FS sites are actual real estate agents that are
01:30:25
registered in the state and are members of N and so they have a right to list on
01:30:29
MLS so what they're doing is they've basically set up a super simple website and then they're posting your listing on
01:30:35
MLS for you for a FL without you for a flat fee rather than getting a commission on the sale awesome yeah and
01:30:42
and that's that you know that's kind of interesting but for most PE most people they're like well I don't know now I
01:30:47
don't want to disparage the value of folks that are in this industry there's obviously a lot of value for agents and
01:30:52
brokers in this industry but the real point is that if the Monopoly breaks on the marketplace then the business model
01:30:58
will get competed away and there will start to be a change here and I think that this lawsuit and the settlement
01:31:03
ultimately leads to a change a shift in the industry that would certainly benefit consumers but could have a
01:31:09
negative economic impact because of the number of people that depend on brokerage fees as their as their job the
01:31:15
likely to be that when you hire a broker they will give you a form and you'll pick what percentage you want to pay
01:31:22
I'll pay you 2% and I'll pay the the buyer's agent 1.5 I'll pay you 1.5 I'll pay the buyer's agent two or there
01:31:30
should be caps on it right or you should have because of the incentives it doesn't matter if I sell my home if it's
01:31:35
a $5 million home it may matter to me 5 million 5.5 or six it doesn't matter to the broker their commission they just
01:31:42
want to sell it as quick as possible if it sells for 4.5 5.5 It's relatively the
01:31:46
same commission so it really should be based upon a flat rate up to a number and then a percentage above that number
01:31:53
to Align interests anyway keep an eye on this one folks because it's going to have a massive impact all right Colorado
01:31:59
Supreme Court has removed Trump from the state's presidential primary ballot this
01:32:04
was decided in a split 4 to3 decision by the court it's worth noting that all of
01:32:09
the justices were appointed by Democratic governance it's a democratic State the court based its decision on
01:32:14
section three of the 14th Amendment this bars anyone from joining Congress the military or any federal state off off is
01:32:22
if they have previously taken an oath to support the Constitution then engaged in
01:32:28
Insurrection against the US this is the first time in US history that the 14th amendment has been used to legally
01:32:35
disqualify a presidential candidate the 14th amendment was originally passed after the Civil War and was aimed at
01:32:41
former Confederates I'll say a couple things the first is that I thought that the Democrats were going out of their
01:32:47
way to give Trump the election with the documents case but now I think that they've
01:32:55
basically made his winning the Republican nomination of foregone conclusion and he is the overwhelming
01:33:04
favorite to win the presidency after this and the reason is pretty simple which is if you take Donald Trump out of
01:33:10
this the idea that you haven't been convicted of a crime but now a government agency or
01:33:22
government Court in this case can deprive you of what really is like a pretty momentous sign of Liberty and
01:33:29
freedom which is to run for president of the United States to deprive an American
01:33:34
citizen unconvicted of that crime of that right I think is really a bad step in the wrong
01:33:41
direction and so there there just needed to be a lot more prudence and thought about this and I think that it will do
01:33:50
nothing except embolden the base it'll get Republicans out to vote I think it creates a deep wave of
01:34:01
momentum in the direction of of Donald Trump and so this to me was just an absolute complete head scratcher that
01:34:09
makes no sense and I think will is surely to get overturned in the Supreme Court freeberg your
01:34:17
thoughts okay for those of you not watching freeberg put both hands up in the gave a shrug like a shrug Emoji so
01:34:24
if you want to understand freer's position on trump it is shrug Emoji coming around the horn Sachs red
01:34:30
meat what are your thoughts on the Colorado Supreme Court Banning Trump from the ballot I
01:34:38
agree with what jamas said democracy now means the right of the people to vote for candidates approved by liberal
01:34:43
judges uh and yes jcal all these judges were Democratic appointments I think this case makes clear that the point of
01:34:50
all of this lawfare against Trump is to keep him off the ballot until now they've been pretending
01:34:55
it's about something else and I think this decision rips the mask off all the legalistic that we've heard
01:35:02
throughout 2023 I mean Democrats don't really give a damn whether he paid off a porn star
01:35:08
or kept classified documents or supposedly led a a racketeering conspiracy they just don't want him
01:35:14
standing for a vote that he might win and I feel like all the time we spent on this pod earnestly debating the details
01:35:21
and legalities of the documents case it was a total suckers game that's the narrative they want us engaging in it
01:35:28
never had anything to do with documents they just want to keep them off the ballot and I think that by being so
01:35:35
naked about this by ripping the mask off what they're trying to do the Colorado Supreme Court has really done us all a
01:35:42
favor I mean the Supreme Court of the United States is surely going to reject this decision but the lasting impact is
01:35:49
going to be in revealing liberalism's true fath they are the real authoritarians and
01:35:54
while restricting the right of the people to vote for the candidate who is leading the polls right now they
01:35:59
Proclaim that they're saving democracy I mean they they self- glorify and engage in this
01:36:06
self-righteous rhetoric that they're saving democracy I mean the rest of the country any normal person is looking at
01:36:12
this and saying these people have completely lost touch with with reality completely lost touch the other
01:36:18
unfortunate outcome of this is that there will be a wave where people will talk about the big steel as this and
01:36:26
what people will say is that there was an attempt by the Democrats to really roadblock Trump's ability to be voted up
01:36:32
and down by the American people and that's disenfranchising the the ability for people to vote and and I think that
01:36:40
that's really unfortunate and I and I wish that the Democrats would have thought about that in their calculus
01:36:44
before engaging in what is really a a deeply partisan thing to do that that this will will this will get
01:36:53
overturned but their damage will be longlasting unfortunately that's a shame totally and I mat mat Tai
01:37:01
had a good line he said that only people who live in a bubble within a bubble within a bubble could ever think a
01:37:07
decision like this is a good idea here are the three bubbles number one all of these judges were Democratic
01:37:14
appointments because so living within the Democratic part is the first bubble the second bubble was the fact that they
01:37:20
all went to Ivy Le schools this was actually a 4-3 decision the four justices who went to the IB leagues all
01:37:25
voted for it they thought this was a good idea the three that went to Denver law school The non- Ivy Le School were
01:37:31
all against it and wrote scathing descents against it so that tells you the second bubble is the IV League the
01:37:38
third bubble is people who've been totally marinating in the mainstream media and their coverage of this because
01:37:43
they think that they can just conclude that Trump is guilty of an Insurrection because it's just a fact according to
01:37:50
the media they listen to Trump has never been convicted of that crime he's never
01:37:54
even been charged with it right so I think that's a an important distinction that you know the the the 14th Amendment
01:38:00
which my understanding came about to keep members of the Confederate Army out of Congress because they had rebelled
01:38:09
against the government and so the whole point was this amendment was passed to keep um anyone who' no that's right who
01:38:16
engaged in Insurrection or Rebellion or given Aid or Comfort to the enemies there of it may not be elected a
01:38:22
member of Senate Congress or president or vice president so sax if that's the case that that is still the 14th
01:38:28
Amendment that's the claim being made here it doesn't define whether or not there needs to have been a conviction of
01:38:35
a charge of insurrection is that what will ultimately be the Supreme Court decision
01:38:41
do you think is that he was or wasn't actually found in a court of law to have been guilty of insurrection no it's that
01:38:49
the actual article three of the 14th Amendment doesn't doesn't even Define the presidency as applying in terms of
01:38:58
where this applies so even before you get to that legal threshold of the fact that he's never been tried for this
01:39:03
thing there is a simpler threshold which is most legal Scholars say it doesn't even point to the fact that you can
01:39:09
actually hold the president to that standard so there's like all all these layers what do you mean it says no
01:39:15
person shall be well it's unclear it's unclear if officers of the United States includes the presidency I think that's
01:39:21
one way you could overturn this another way is to point out that there was no due process the desense really harped on
01:39:28
this issue of due process you had a District Court decide after a 5-day Hearing in which Trump was not allowed
01:39:36
to subpoena no subpoena power no calling of witnesses no cross-examination they basically just looked at tape of the
01:39:42
January 6 hearing which was itself bias because the Republicans didn't even get a chance to cross-examine so basically
01:39:48
they just looked at MSNBC coverage and this District Court concluded on that basis that Trump was guilty of an
01:39:53
Insurrection again that is a crime for which he's never been convicted and he's never even been charged with and he's
01:39:59
never even had the chance to answer those charges in court and there was a special counsel at the federal level
01:40:04
that declined to prosecute that's right that's exactly right so sack if a prosecutor had taken up the case and he
01:40:10
had been convicted would you support him being disqualified from the state ballots for being the nominee of for
01:40:17
party for president well there was a very simple way to disqualify Trump from running again which was to impeach him
01:40:23
was to convict him in the impeachment trial remember the second impeachment was all about January 6 and he was
01:40:29
courts I'm talking about the he was exonerated that was the time to do it now I don't know if you know if a
01:40:36
conviction for inment to Insurrection would hold up in that way freeberg I don't know but the point is they didn't
01:40:41
even try and the reason is because when merri Garland first came in they actually did an analysis of January 6
01:40:48
and there was a memo written and it said that if we the doj try to prosecute Trump for either incitement or for
01:40:55
Insurrection we will lose that case and so mer Garland didn't bring those charges then there was a story in the
01:41:00
New York Times saying that Biden reacted really negatively to that and he told his inner circle that Garland needed to
01:41:07
stop acting like a ponderous judge this is the New York Times words and that he needed to take decisive action and Biden
01:41:15
made clear to his inner circle I'm going to provide the receipt on this that he thought Trump should be prosecuted so
01:41:21
all of this lawfare ultimately flows from that it flows from the top Biden is the most vindictive president we've ever
01:41:27
had I cannot think of another time in American history where a president incited his own AIDS and advisers to
01:41:35
basically go prosecute the leading alternative for the presidency that he's likely to face in four years that is
01:41:43
what happened by the way we've seen this behavior before remember this is also the president who said we need to go
01:41:48
look at this guy meaning Elon I mean I can't believe that this behavior is just accepted by so many Americans This is
01:41:56
petty vindictive unamerican behavior and it's anti-democratic and the people who
01:42:00
are engaging in it the most again are are glorifying themselves as somehow standing up for democracy this is a joke
01:42:08
and I think the average American is going to rebel against this and I said I think it was like last year that all
01:42:13
this lawfare all these tactics and shenanigans that the Democrats were trying it's either going to put Trump in
01:42:18
the big house or the White House and I think said it for the White House on this basis right now I agree you would
01:42:24
say that it's reasonable that if he got convicted in a court of law for charge of insurrection that he should not be
01:42:30
allowed on the ballot if the Supreme Court then decided that that's what the 14th Amendment meant sure but that's not
01:42:36
what happened here there's zero due process I get it I'm just trying to understand where your threshold is so
01:42:41
you think he'll certainly this will certainly go to the Supreme Court and they'll adjudicate what the the 14th
01:42:46
Amendment really means because it's never been tried the 14th Amendment at the cour was written think about why
01:42:51
that statute came about chath is right it was written for the Confederacy right the only other time it was used was in
01:42:57
1919 against one person that was about to enter Congress who was who had given Comfort to the Germans in World War I
01:43:04
that's the only time we've actually invoked article three section three of the 14th Amendment were they allowed to
01:43:09
run no person they were not allow they were not allowed to take the seat now that's at the federal level and at and
01:43:15
and at the state level it's been used a couple of times the the the point of this is for me again take Trump out of
01:43:22
it you do not I think I'm pretty sure we do not want to find ourselves in a country no of course where you can all
01:43:32
of a sudden be deprived your Liberty and your rights for Random Acts where somebody
01:43:40
believes that you are a threat to them and that person in a is in a position of power to affect your Liberty that can't
01:43:49
happen vote the men up or down yeah and I agree with that and I would say that I
01:43:54
mean what you're speaking to is due process these judges basically believe that because the mainstream media says
01:44:00
something is the case that we don't need to go through a legitimate Court procedure to determine that as a legal
01:44:07
finding they just declare that okay he's guilty of insurrection that was never proven people don't realize you can this
01:44:14
thing can go the opposite direction so quickly imagine that there's a Democratic candidate that is running
01:44:19
against a Republican incumbent is this the standard we want to create where there's this political Warfare that
01:44:26
happens where each party is trying to essentially prevent the leading candidate of the other party from
01:44:33
running in every election from here on out because that's the precedent that is being created that's why that's why I
01:44:40
have such an allergic reaction to this that's totally true why wouldn't every president from here try to do this I
01:44:48
mean it's already the case that every president that loses Congress is probably going to face an impeachment
01:44:53
hearing I mean that's happening too and now we're going to have a situation where every presidential candidate can
01:45:00
be potentially excluded from the ballot based on you know a local Court's findings from the Democrats point of
01:45:07
view this was deeply shortsighted and I think it has a very high chance of blowing up in their face we haven't
01:45:12
heard from jcal I get my information from two really good sources the first one I recommend for our listeners is
01:45:17
cafe.com it's a podcast by pre verar fantastic he does really deep Dives on these yeah cafe.com is his podcast.com
01:45:27
it's it's a paid podcast but it's really detailed and then there's actually speaking of law fair there's a lawfare
01:45:32
podcast and so I listen to those and it's they're they're covering this but and also the two other cases that are of
01:45:38
note the federal election interference case and the Georgia case highly recommend that our listeners go to those
01:45:44
experts and get a really well balanced view of the cases against the 45th president all right for chairman
01:45:51
Jam poap the new chairman of the all I like chairman dictator I don't want to lose chairman dictator authoritarian no
01:45:59
no J bipac chairman bipac chairman of the poit bureau dictator of the all-in Pod you have my proxy vote too all hell
01:46:08
the chairman dictator and for the king of be and Rainman himself I am the world's
01:46:17
greatest moderator love you boys we'll see you next time let your winners ride Rainman
01:46:28
David and instead we open source it to the fans and they've just gone crazy with it love you queen
01:46:35
[Music] of Besties that's my dog taking a your driveway ta oh man my meet me we should all just
01:46:53
get a room and just have one big huge orgy cuz they're all this useless it's like this like sexual tension that we
01:46:58
just need to release [Music] Som we need to get [Music] merch