00:00:00
you want to run a marathon at 57 years old 52 50 1 2 52. I'll be honest I miss you can you come back to the United
00:00:09
States please I miss you I will I miss you too I mean the poker game can't by definition be as much fun if I'm not
00:00:15
there it plays at bigger States and it's more challenging but it's not as much fun there's not as much laughing what's
00:00:21
on the menu tonight for austerity 2023 the amuse bush is a madeleine with like a terrina foie gras fantastic an honor
00:00:29
of Freeburg and then rutabaga rutabaga salad and then some duck thing duck breast you know I loved her and then and
00:00:36
then butterscotch panna cotta wow that is great lineup and it you know what I like the idea we're doing some poultry
00:00:42
Chef Sean is firing on all cylinders these days if he feels very like uh engaged he was very engaged yeah he's
00:00:49
kind of going for it he's been on yeah that was quite nice the other day Brad because it's austerity measures we had
00:00:56
this incredible dish and we're eating it and then he said yours on the bottom bottom and I was like oh
00:01:02
so we just we don't put the caviar in time the Market's down let's check my style austerity
00:01:13
I'm not lying oh my God no he did say guys the caviar is on the bottom not the top this week
00:01:19
[Music] let your winner [Music] of Rain Man Davidson we open source it to the fans and
00:01:30
they've just gone crazy with them [Music] all right sax is here everybody so that
00:01:37
means we have a quorum hopefully the Sultan of science who is on Wall Street today uh taking a company
00:01:46
public so congrats to our bestie Friedberg he couldn't make it he's at a dinner so
00:01:52
with us the fifth Beetle as it were Brad gerstner is here to talk all things macro welcome back to the Pod how's life
00:01:59
been good to be back a little domar agato to you Jason as you eat your way through Japan yes I am on my culinary
00:02:08
tour I'll be back Sunday but I am having the time of my life here are you running AdWords on
00:02:14
your food blog that's what it's come back to back to the weblogs Inc days I'm just trying to
00:02:18
make twenty six hundred dollars a day I noticed your Tick Tock got 22 likes yeah
00:02:23
you know I'm trying to figure out Tick Tock I'm gonna but you know but right as they shut it down that's when I'll
00:02:29
figure it out well that rev sure buy you another Japanese pancake or no those pancakes man our next level the fluffy
00:02:35
pancakes here everything actually with the exchange rate coming to Japan is so affordable it's nuts and this is a crazy
00:02:43
week because it's a Tokyo Marathon but everything is so affordable the people are amazing it's the best country to
00:02:49
visit in the world I think for me it's Italy but I would say Japan is like it's definitely top two or three what do you
00:02:57
love about it best food you know I went there I took the I took because like five years ago uh the older three at the
00:03:04
time but they were younger and you know there's there's a negative birth rate in
00:03:09
Japan and so number one when you have any kid but frankly multiple kids the the Japanese embrace you with so much
00:03:17
love because they love seeing these big families yeah they're unbelievably kind we went to Kyoto did the professors walk
00:03:24
saw the Cherry Blossom Festival basically ate our way through Japan that was my that was my only vacation
00:03:31
trip I've done like 10 or 12 trips for work once we I went with Reed Hoffman and
00:03:37
Reid set up this thing where we went through all these different parts of Tokyo and ate at this incredible sushi
00:03:44
place you have to go with somebody who can dial it in yes and have all the hookups Brad you spend much time in
00:03:49
Tokyo and Japan um I haven't I've uh been there only twice and that was when I was poor and I
00:03:56
stayed in a really small room and ate really shitty food oh all right so uh you're saying in 20
00:04:01
in 2022 when you became Oregon all right and with us of course the next Department uh what what cabinet position
00:04:16
you're going for sacks which should we start floating here oh my God here you are with the
00:04:21
disinformation starting already it's a compliment Secretary of sash is with us DeSantis had a pretty great article on
00:04:28
the Wall Street Journal oh really I missed I wanted it uh when they revoked the special administrative status for
00:04:34
Disney he wrote an article I think it was Wednesday Tuesday or Wednesday in the in the Wall Street op-ed what was
00:04:40
his uh premise that they was it corporate or is it culture that wokism is basically modern Marxism and we have
00:04:46
to defeat it this is his language not mine at every turn and Disney needs to just be business people
00:04:55
and not feed the vocal minorities inside of their company like every other company should they should be subject to
00:05:01
shareholder concerns that apply to the majority of shareholders well I think this is why I think DeSantis is doing
00:05:08
well with the Republican base and you know if you see polling if the Republican primary is he understands
00:05:14
that it's not good enough just to have this sort of reagan-ass totally hands-off government approach because
00:05:20
the radical left is advancing its agenda not just legislatively but through corporations through ESG
00:05:27
really through taking over key private sector institutions and so he's willing to use government to push back on that
00:05:35
agenda on behalf of parents or on behalf of you know what he sees as the majority of the
00:05:42
country and so it's a very different approach than you know the Republican Party would have been 30 or 40 years ago
00:05:47
this is why you know in the parlance of the base he understands what time it is and what's required here is not again
00:05:55
this totally laser Fair approach but rather a much more energetic aggressive approach towards checking
00:06:03
these bad ideas wherever they come from yeah it's not the only one I don't know if you saw this week Bill Maher went on
00:06:08
a bit of a press tour and he was on with Jake Tapper and uh he made a very interesting I think point about
00:06:15
liberalism versus wokism and it was quite articulate you know he's a pretty good Observer of culture he said they're
00:06:22
kind of casting out the Liberals in the party for this wokism and the intolerant
00:06:26
nature of the woke movement versus the liberal movement specifically under the lens of trans rights
00:06:33
but let's put that aside for now we got a full docket before we get into the culture wars and the presidential
00:06:38
elections let's start with uh we'll go private markets to public markets because they obviously dovetail so
00:06:46
nicely item one on the DACA today there is just a massive AI fomo frenzy going on
00:06:52
economists publish a piece this week about the insane fundraising in the generative AI space this is stuff like
00:07:00
Chachi BT stable diffusion you've heard these names and there are now 500 generative AI startups according to this
00:07:08
report that tracks with what I'm seeing in the early stage and not counting the open AI 10 Billy from Microsoft
00:07:14
investment donation rev share round trip whatever that is they have so far collectively raised
00:07:21
more than 11 billion dollars the article included this chart uh which you can see
00:07:26
if you're on our YouTube channel and just tons of folks working in audio image and
00:07:33
text so we're basically looking at the multimedia basically revolution of PCS in the 90s occurring again
00:07:41
and a complete platform platform shift Doug Leone from Sequoia one of the greatest investors in history of Silicon
00:07:48
Valley had this to say and we will comment on the other side of this 50 second clip from Doug I actually think
00:07:55
that AI is the next platform shift in the same way that mobile was the one before internet was the one before so I
00:08:03
think AI is real but I said earlier we're going to overestimate it in a short term we're going to invest in
00:08:09
everything in the same way that in 1999 we invested in everything but then Google came out of that or Facebook came
00:08:17
out of that so I think you have to have a good head on your shoulder where you don't practice fomo where you don't
00:08:24
chase every company AI is real AI is the next platform but how do we not invest in everything that walks how do we make
00:08:33
certain Investments based on Market Maps based on thought processes that are more
00:08:40
rational and not do every investment just because every other Venture firm is doing
00:08:44
everything best all right shamath what do you think of this massive influx I think it's important to think about what
00:08:51
the incentives are as Charlie Munger says show me the incentive and I'll show you the outcome I posted it into our
00:08:57
group chat Credit Suisse sent all their private banking customers an offer they are now offering 6.5 for a three-month
00:09:05
t-bill 6.5 percent and if you go back to what we talked about before when the risk-free rate is somewhere
00:09:18
north of five or five and a half percent and banks are willing to give you six and a half percent in the short term
00:09:26
you have to generate more than three times that to make an investment make sense when you're investing in the long
00:09:31
term so if three month money is going to pay you six and a half or seven if you're going to invest for 10 15 years
00:09:37
which is what you need to do typically for a startup you need to get 20 to 25 percent
00:09:45
so there's going to be a lot of pressure for Venture investors to put the money to work
00:09:51
because otherwise they're LPS they're limited partners the people that give them the money
00:09:56
will have this attitude that goes somewhere along the following lines okay I've committed to you why aren't you
00:10:03
investing because otherwise I can get paid six and a half percent on the front end and so this is becoming very
00:10:08
problematic what am I paying you for what am I paying you two percent a year in management fee for so I think what
00:10:16
happens unfortunately is the opposite of what Doug says I think good investors will
00:10:21
try to follow Doug's feedback and advice and the ones that have a track record of
00:10:26
distributions of DPI can do more of it than not but I think most people will be under
00:10:32
pressure to deploy the capital and so the 500 odd companies Jason you mentioned we'll get a lot of it and it'll get
00:10:38
torched because most of them probably won't amount to much of anything in the short term you will create
00:10:44
way too much correlation and you will have zero time diversity which as we've learned is a recipe for terrible returns
00:10:51
time diversity being hey you deployed all this web 2 Capital web 3 Capital sorry crypto whatever in this very short
00:10:57
period of time you overpaid Brad uh when you hear chamoth talk about the 6.5 and then you look at private
00:11:05
markets you uh invest across the life cycle of companies obviously you're in some private companies we all know very
00:11:11
well famously snowflake I think your biggest win ever correct me if I'm wrong uh in terms of a private how do you look
00:11:18
at this when you're a steward of capital public markets private markets and then just YOLO just
00:11:27
put it into you know some T bells or yeah bonds or whatever I mean first let's just frame right the
00:11:34
chart that you showed I think you should it said you know X open AI I don't know
00:11:38
something like 10 or 11 billion dollars have has been invested into some 500 AI companies I mean I happen to agree with
00:11:45
Doug that this is a platform shift on the same magnitude as the internet or mobile itself in fact it may be bigger
00:11:52
than both of those but you know when I look at 10 or 11 billion dollars you know let's put it in context meta is
00:12:02
going to spend 20 billion in one year alone on AR VR and this is on an entire platform
00:12:10
so I I don't know I I I I think whenever you have something as tectonic as mobile
00:12:16
or Internet it deserves a lot of investment and yes it's going to be messy and yes chamat's right the cost of
00:12:23
capital frankly is limiting the amount of money going into these businesses already so we see a lot of dry powder
00:12:31
sitting on the sideline that's chasing new ideas I think one way one way to frame it as
00:12:37
well is to think about in 2000 we all knew that the internet was going to be big we may have been lucky enough
00:12:43
to conclude that search was going to be big but if you invest in in Yahoo or info
00:12:48
seat or AOL or excitement you tore all that money went to zero right so now think about just these
00:12:57
large language models right the foundation models which are driving and enabling all of it open AI you've got
00:13:03
open AI you gotta drop it you got cohere you've got character you got stability you've got Lambda
00:13:11
it is almost impossible to know within the certainty much like it was with the search engines in 99 2000 who's going to
00:13:18
emerge where the value capture is going to be it may all end up with Microsoft and Google I mean this may end up
00:13:23
looking like IOS and Android at the foundation model level and so you know I think as investors for example on the
00:13:31
foundation model side I think it's very difficult to choose just one particularly with the largest one is
00:13:37
frankly captive and a proxy to Microsoft and they're capping your upside return so like those are difficult investment
00:13:44
decisions that doesn't detract from the fact that I think it is as big as Doug suggests
00:13:51
and I do think they're going to be applications and tooling layer to come out of this that's going to produce
00:13:56
really big Winners I would say that we are spending an extraordinary amount of time
00:14:02
in the space we haven't made a lot of Investments I think you have to study you have to get deep I mean
00:14:08
certainly and I have been investing in this space for at least a decade maybe 15 years
00:14:13
but don't underestimate that the Transformer model really did change the game here and we're now
00:14:22
producing impacts much larger sax uh last week you said we'll have three and crypto didn't kind of stick with you you
00:14:30
didn't see the use cases and you in the first inning here or first at bat you rattled off three or
00:14:38
four really compelling use cases from summaries to you know the the assistant uh guide on your side concept
00:14:44
is this Akin in your mind because Brad just said it could be bigger than mobile internet mobile
00:14:51
AI Revolution if you were to look at those three do you think it's bigger than actually mobile and then we'll get
00:14:57
into return profiles of 6.5 on cash versus whatever VC is going to be able to do in this kind of Market yeah I mean
00:15:04
so I agree with Brad and and Doug that this is the next big platform shift whether it's as big as mobile or it's
00:15:10
more like social or Cloud I mean those have been the big platform shifts over the last decade or two and I think this
00:15:16
is definitely on par with those I think Brad's right we don't know where the value capture is going to be maybe it
00:15:22
just all ends up accreting to the big companies who can make massive investments in this space you know one
00:15:28
difference between the internet ecosystem today and 20 years ago is you do have these giant companies who are
00:15:35
not totally incompetent right I mean they are they do have lots of talents and engineers and you know like 20 years
00:15:41
ago you'd have company you know the big companies would just sit on their hands in the face of a platform shift and then
00:15:46
just be seeing Ducks who get disrupted that's not going to happen today that being said I do think that any new
00:15:52
platform shifts creates opportunities for startups and it may not be efficient the way that these opportunities get
00:15:59
pursued in the sense that yeah Doug's right that this will be a lot of spray and pray but I think that it is kind of
00:16:07
efficient for the ecosystem as a whole right because like any smart engineer with a half decent idea ends up getting
00:16:14
funded and out of all of that you get kind of a pre-cambrian explosion where you know
00:16:20
the ecosystem evolves a lot of different types of businesses most of them don't work they get wiped out they go extinct
00:16:26
but there'll be some good things that get funded so we're more like I think Doug and how we see it we don't want to
00:16:31
spray and pray one be very selective we want to put more money behind fewer opportunities that we think are are
00:16:38
better and Doug Leone you know I think he generally gives good advice of the tough love variety and this is of a
00:16:44
piece with that and so I I agree with him that being said there is a certain value
00:16:49
to the ecosystem and having all these seed funds to spray and pray right because this gets a lot it plants a lot
00:16:55
of flowers and then you see what blooms I would say yeah to build on that sax this is a perfect inefficiency
00:17:02
you know when you see it from the outside you're like well this is super inefficient why so many companies if you
00:17:07
free your mind and just say their experiments two or three person experiments 500k to a million and a half
00:17:12
in that first stage when I invest right before you do when you do your series a is at five or ten million
00:17:17
Milestone based funding is back in the tech industry and that was something chemath that we lost for a little while
00:17:24
there people would just come out and they would raise a series B out of the gate no product Market fit et cetera now
00:17:30
what we're seeing is people are raising that 12 to 18 months they got their backs up against the wall speaking of
00:17:35
tough love which you reference acts that tough love of hey you have to hit the next Milestone what did you accomplish
00:17:42
with the 1.5 million in order to get the 10 million in order to get the 30 million that 500 is going to go 10x
00:17:49
they'll be 5 000 of these startups but it'll quickly Whittle down winner chamata's people go through this
00:17:53
Milestone based funding system in Silicon Valley we haven't given enough time for a logical framework of
00:18:00
investing to develop which also is tied to a logical framework for entrepreneurship to emerge we're just
00:18:07
way way way too early so the thing with all of these language models is that they are Grist for the mill
00:18:14
and we talked about this before if it was a highly proprietary asset you would have never sold 49 of it to
00:18:22
Microsoft for 10 billion dollars because you would assume that it was worth a trillion dollars so it's a huge tell
00:18:29
on the part of open AI their deep understanding and they understand it better than anybody else
00:18:34
that it's a bit of a capped upside so what is uncapped I guess is maybe the better question well if you look at the
00:18:42
1849 Gold Rush as an example the people panning for gold in my opinion are the people building language
00:18:48
models today they're going to come and they're going to go but who's going to win well the
00:18:53
pick and shovel providers won Levi Strauss one so what is the equivalent of that today
00:18:59
I think it's at the Silicon layer because you need to really re-architect how compute will actually work in a
00:19:06
world of all of these models those folks will get paid if you look at AMD and Nvidia they've been getting paid for
00:19:11
years they continue to get paid they probably will continue to get paid even more and
00:19:17
so folks that actually take a step into doing something hard and difficult in AI like custom silicon
00:19:24
could get rewarded and then there's what I call the white truffles what are these unique Alba
00:19:31
white truffles these singular sources of data that when used in reinforcement learning
00:19:39
make your output just zing and that's where I think Facebook is an obvious white truffle
00:19:48
Cora is a white truffle but there are a lot of startups that could become white truffles if they gather enough data and
00:19:55
that's like a pretty reasonable framework and so in that framework if you apply to today there's
00:20:02
way few silicon startups and there's way few white truffles instead it's everything is the bologna in the middle
00:20:07
which is random people talking about some random model that's just gonna again become highly commoditized you
00:20:12
have to remember all these models are open source and none of them mean anything in the absence of the data you
00:20:18
give it to train on 100 Brad hey okay well I want to add one other piece of news that we saw this week which is open
00:20:26
AI announced that it's developer AI they were cutting the tax on that or basically the metered rate they charge
00:20:32
to use it by 90 percent so I think this is going to be a game changer I think this is based on the
00:20:40
chat GPT 3.5 API and of course they're coming out with 4.0 later this year I've already had explained to the audience
00:20:47
what an API is and why this is important for those people who don't know just application programming interface it
00:20:53
allows a developer of some other application to build on top of you so in other words like a developer wouldn't
00:20:59
have to use this chat interface to get access to the large language model you could just submit your request through
00:21:06
the API and so give an example of what of like a popular app and how they might use it yeah API so I think
00:21:14
like notion actually had a demo that they published where incredible it was a pretty incredible demo maybe we can find
00:21:19
it and it would do things they added actions in the demo like generate a task list so you could take like a document
00:21:29
or a meeting summary and would spit out recommendations for next steps or tasks it could you know spit out a table
00:21:37
basically it's the autocomplete for everything that we talked about right so now notion doesn't need to build their
00:21:42
own llm expertise they just don't use the API and then the notion app you say hey I'm building a marketing plan and
00:21:49
you say well okay give me a list of things that should be on my marketing plan for my new app it sends a signal to
00:21:56
the chat GPT API which will be on Azure Microsoft's platform and then it gives you the data back you don't have to
00:22:00
build the language model yeah incredibly powerful notion has all the content that
00:22:05
they need but they don't have the AI expertise so now they don't have to generate your or create AI expertise
00:22:11
in-house they just use the API it's really powerful and but just to finish the thought here I think that one of the
00:22:17
things that's probably misleading about these stats around funding and the there's like almost 600 startups already
00:22:23
there are AI startups is that you know what happens when there's a new wave is that Founders are smart right and they
00:22:29
know how to Market themselves in the way that is most compelling to VCS and they
00:22:34
know that like VCS frankly are a little bit limiting in terms of their migration
00:22:38
to the next wave and wanting to glom on to the next big wave so VCS are now looking for AI if you're a founder and
00:22:46
you're you build one feature on top of the you know open AI API now all of a sudden you're going to Market yourself
00:22:53
as a AI company you're not going to Market yourself as just a SAS company and so that's valid yeah I mean it could
00:23:00
be named or it could be like a great pivot you know yeah and it's not it's not totally one or the other I mean it's
00:23:05
just that if you have a plausible connection to AI as a Founder you're going to start marketing yourself as an
00:23:11
AI company and so that's how all of a sudden you can have 600 of these companies
00:23:18
you know that are all of a sudden out there in the wake of of this sort of uh chat GPT is I think a lot of companies
00:23:24
are recategorizing themselves I literally had this experience not three weeks ago right before I went to Japan
00:23:29
serial founder and team that we've backed for that had an exit said can I show you something I said yep got on the
00:23:36
zoom showed me a little proof of concept using chat apt and he said this is my idea this is the vertical and I just
00:23:45
said okay what do you want he said 500k for 10 I said okay done great let's learn and it's easy bet for
00:23:51
us to make because we know it's a Serial team for open AI the way that it could become a trillion dollar company is
00:23:57
actually by cutting the cost to such a low degree that nobody else can effectively compete with it and then
00:24:02
at that point they can become a small small tax you'd rather just pay it than try to compete with it and I think for
00:24:08
open AI that's actually a very brilliant strategy so that's how they they could get to become very very large in
00:24:15
valuation would be to become so pervasively relied upon and where they take such a minuscule take rate of their
00:24:22
participation in you building a company that could be really effective for them like cloud computing right like we're
00:24:27
going to just take such a small tax yeah well that's not a small tax that's a large tax that's the picks and shovels
00:24:32
play in a way to create the developer ecosystem for AI and it's about to your point I mean I think you raise a good
00:24:39
point that you know what was their motivation to take such a dilutive round you know the 10 billion that was
00:24:44
evaluation at 30 30. yeah and does that imply that they're not confident I mean the flip side of it could be maybe they
00:24:51
know they want to compete on the basis of rapidly you know becoming the developer platform and so they're going
00:24:57
to subsidize that developer platform you know with negative gross margins for some period of time and maybe that's why
00:25:04
they need a lot of capital and they were in kind of a reflexive Loop of just cost
00:25:08
of getting better versus the amount of money they had to get better and so maybe they were forced to do it and then
00:25:13
in that point how would you justify you would say well the other 50 is still hugely valuable so
00:25:18
that's enough for us and I think that that's that's very logical as well Brad you have your finger on the pulse of LPS
00:25:24
uh limited partners who back funds like Jamal's sax is mine and yours we heard 6.5 on your money for no risk
00:25:34
well you in tremont's position is hey you have to Triple that if you want to be a private Market investor
00:25:40
that's about 20 20 Rule of 72 that means every three and a half years you got to
00:25:45
double if you're doing that for a 10-year fund you're looking at a 5x fund because kind of table Stakes then I
00:25:52
think just back in the envelope math what are LPS thinking right now are they looking at this world and saying I
00:25:57
should just be all in cash or are they saying yeah everybody thinks we should be all being cash therefore there's not
00:26:03
going to be enough money in private therefore there's an opportunity there we know the 6.5 rate
00:26:09
you know that's not going to be here forever it may be here for a little while but we need to we need to keep
00:26:13
investing in Venture uh or are they just Cutthroat about it like let's pause Venture investing private Market
00:26:18
investing uh it's a it's a great question first when I look at the three-year treasury bill it's like 4.7
00:26:23
not to quibble here so I think Chamas getting a little goozy Goosey on the 6.5 but the the fact of the matter is what
00:26:32
does that means you're super special your VIP maybe there's like some sort of like uh
00:26:42
bond rate that included corporates or something maybe it was I'm getting my 5.2 from Robin Hood on my Robinhood
00:26:46
account for Jay training so it's right what is in that what is in that Jason they probably got some junk bonds and
00:26:52
they're ripping you off whatever whatever it is I'm getting Five Points until you're not you are until you're
00:26:58
not it's a 100 t-built parentheses and junk bond funds look at the fine print Jacob uh LPS have
00:27:08
a 10-year View they understand like most people I mean listen if you look out at the tenure the
00:27:15
reason the tenure is you know that we have real interest rates at about one and a half percent so that's the 10-year
00:27:23
less expected inflation when you look out is because it people expect inflation to come down and they
00:27:30
expect rates to come down so if you were an LP and you said I'm not going to invest in Venture and the next two
00:27:35
vintages which may be the best two vintages we've seen in a long time because prices
00:27:39
are adjusting Etc and I'm going to move it all into some rate bet first it's just very difficult to do
00:27:46
they don't move their allocations around that quickly now a wealthy family as an
00:27:51
LP could move their allocations around really quickly but if you're Texas or you're Ohio or you're a sovereign wealth
00:27:57
fund you're betting on the Arc of value creation I would say this the consequence is they're narrowing their
00:28:04
aperture as to the Venture funds they want to allocate capital okay explain that unpack who they are narrowing the
00:28:10
aperture term two we've talked a lot on this pod about uh the power law and the truth of the matter is whether we're
00:28:17
talking about AI or software or anything else that you know people are are going to be funding it's 10 of
00:28:25
the Investments that are going to yield 90 percent of the returns and so they're looking at that and saying who
00:28:32
are the top 10 firms in Silicon Valley I either want to get allocation to those firms who are seeing the best deals
00:28:38
converting the best deals and are selective like Saks talked about or we just don't want to allocate and so I
00:28:43
think you know what we saw over the last two years Jason was an explosion of new
00:28:47
funds an explosion of new uh you know first time second time funds I think subscale small funds with no DPI
00:28:57
uh they're going to find a really really tough time to Chamas point about DPI raising
00:29:03
capital and you're going to see the scale player scale so part of that uh is clearing out the inventory from the last
00:29:10
cycle two new stories this week about companies you know maybe struggling Sequoia got
00:29:17
off the board of Citizen if you don't know citizen that's that app that tells you where crimes are happening in your
00:29:22
city very popular in San Francisco uh it's literally goes off every 90 seconds it's pretty dystopian that company
00:29:29
citizen which is a pretty cool app uh has raised 130 million today Sequoia led the series a in 2017. uh they did a pay
00:29:37
to play around if you don't know what that is um basically if you don't invest you get
00:29:41
crammed down how does the cram down work well your shares in the company went down ten to one
00:29:47
and you probably got moved to uh common shares as opposed to as opposed to Preferred which has a series of
00:29:53
protections they get their money out first yada yada but Sequoia refused to participate
00:29:58
according to this ft story again Sequoia did not comment on this it's it's kind of
00:30:05
something you don't do as a VEC when something goes bad at a company and you leave the board you generally don't want
00:30:11
to say uh bad things or taint the company uh any more than leaving the board does
00:30:16
so a bunch of cram Downs happening and then dovetailing with that instacart according to the Wall Street Journal had
00:30:22
a big Q4 As It prepares to go public instacart if you remember we talked about it on the show cut its internal
00:30:29
evaluation 75 percent last year from 39 billion to 10 billion according to sources
00:30:37
instacart's Q4 results uh according to the Wall Street Journal up more than 50 even though order volume grew only 16
00:30:44
percent why they turned advertising on the app just like uber and Amazon a lot of these Commerce folks folks are
00:30:51
building add business inside of theirs so what do you think about what's happening as we
00:30:59
clear out this private anybody have thoughts on instacart or the cram down rounds go either way with this and then
00:31:05
we'll go to I wouldn't Focus too much on those two companies I think we're going
00:31:08
to see in the second half of 23 and all of 24 is a lot of medicine being taken a
00:31:13
lot of down rounds a lot of structure is going to be A Tale of Two Cities the hot
00:31:17
area you know AI is going to continue to receive new investment and all these companies that you know that receive
00:31:25
peak valuations in 2021 are gonna have a Day of Reckoning either you know if they're lucky maybe they have a flat
00:31:32
round or modestly up round but a lot of them are going to have down rounds or restructurings and this is going to be
00:31:38
going on for the next year and a half what's your philosophy Saxon leaving a board this is a really dicey issue when
00:31:43
you give up on a company what's the best practice there how do you do it without
00:31:47
damaging the company obviously the founder relationship is going to be hard what have you learned about this as a
00:31:53
private Market investor well I think I think that sometimes we like flip uh board members internally at craft just
00:32:00
because people have different amounts of capacity that's not a statement at all about the way craft feels about the
00:32:04
company it's just a reflection of our individual bandwidth or whose expertise are needed at that time but when the
00:32:11
firm itself quits a board I think there's no way to read that of and you know a statement of protest and I don't
00:32:18
know what happened with that company but it seems to me that you know again it could be a sign that the Venture firm
00:32:26
isn't happy with the way that they're being treated the cram down uh Chama that's that's a
00:32:31
bitter pill to swallow why would Founders do this cram down instead of just adding a little more to the top and
00:32:38
is there a way to do this without you know going scorched Earth or poisoning the well as it were
00:32:45
we I mean again putting this app and Sequoia aside this is happening all over the ecosystem so is there a way to do
00:32:52
this gracefully or is it just going to be messy I think it's going to be really messy I
00:32:57
mean to State the obvious no no Venture Capital investor ever quits the board voluntarily of a great company
00:33:05
that's doing well that would be dumb so as David said sort of like the proof is in the pudding there
00:33:14
and at the same time there are a lot of in companies who don't want to see the writing on the wall
00:33:23
and we'll do all kinds of gymnastics to try to stick a landing on a contorted financing
00:33:31
and sometimes those things have real consequences to other investors who just don't think it's the right thing to
00:33:37
do I wouldn't read too much into this except that good Founders have a responsibility to
00:33:45
do what's right for themselves and their employees nobody else and the thing to keep in
00:33:50
mind not the investors really no and I think you I think you absolutely have to prioritize the people doing the actual
00:33:56
work and if and if you actually did prioritize them what you would probably say to yourself is oh my gosh there are
00:34:03
people who I work with who I look in the eye every day because investors you'll see once a quarter but I have my fellow
00:34:08
employees as a Founder that I look in the eyes every day who've been toiling with me
00:34:14
for umpteen hours a day every day for years and they are now totally underwater what
00:34:22
is the right thing to do for them and I think if you just answer that question you wouldn't do all these contorted
00:34:28
things you would just reset the valuation you would refresh the equity pool you would issue options back out to
00:34:35
those employees and you would move on it's all these other things that get in the way of answering that simple simple
00:34:42
question where people it up I've and I've done that before you sex if you don't have a team and you don't have a
00:34:49
motivated team you have nothing I've done that before I don't want to rehash one of my more miserable experiences but
00:34:54
I was dealing with a company that had a grossly inflated evaluation it was a total problem case we voluntarily
00:35:01
slashed the valuation in half and reissued options to the employees to keep him motivated no big deal yeah yeah
00:35:06
exactly and it's not that it's no big deal but it requires some amount of fortitude and like
00:35:13
you know understanding your priorities I guess what do you think you know like first I think it's revealing that we
00:35:22
think what happened here is so out of the ordinary I mean you flash back to 2001 to 2004.
00:35:28
Sequoia I don't think funded a single loser in their portfolio right like that's a time where you
00:35:35
walked away from the ones that weren't winning and you fed the ones that were because you have limited capital and you
00:35:42
don't know when you're going to raise your next Capital this idea that you have unlimited Capital you can give
00:35:46
money to anybody no matter what they're doing with respect to their plan I think is a function of the last 10
00:35:52
years but to jamas points the idea of tough talk you know either out of CEOs or out of board members has been in
00:36:01
short supply in Silicon Valley this idea that saying the truth just speaking the
00:36:06
words about needing to get fit or needing to lower the valuation that somehow that is found or unfriendly is
00:36:12
nonsensical the truth is founder friendly by definition and I think to Chamas point the less complicated you make this
00:36:22
right you reset the valuation you re-up the option pool and then everybody has a
00:36:27
choice to make and if the people who are on the board and backing the company choose not to re-up for whatever reason
00:36:33
they no longer believe in the path forward for the company that's incumbent upon the founder to go find people who
00:36:37
will that's not abandonment as it's Being Framed in this story it is a trade and I think maybe if you look at Public
00:36:44
Market investors Brad nobody gets upset by a trade trades a trade but in the private markets there's a lot more
00:36:51
emotion involved a lot more relationship material and this founder friendly concept of like you're abandoning me
00:36:58
it's like no the the trade here it makes no sense for this firm and for this fund
00:37:02
and for these LPS right well sometimes sometimes the founder needs to have the courage to look in the mirror and say
00:37:10
what I'm doing is not working I had a plan I missed the plan by 70 I'm lighting capital on fire this is a
00:37:17
charity not a business it's best to say it didn't work shut it down and move on and do something else okay so of course
00:37:24
you're referencing Salesforce so we'll pivot to that I'm joking uh it's not that bad uh but I think this is a good
00:37:29
time to maybe talk about the public markets and inflation and what we're seeing in macro so can I set up a
00:37:36
question for Brad actually sure go ahead yes yes so so on a previous podcast I laid out my theory of how you could just
00:37:43
use the two-year bond rate relative to the FED funds rate to understand where the bond markets sort of
00:37:51
prediction Market about inflation is going and a month ago the the two-year bond rate was at 4.1 percent relative to
00:37:59
4.5 percent fed funds rates in other words the bond market was betting that interest rates would go down between now
00:38:07
and two years from now relative to where the FED had it so therefore it believed
00:38:11
that inflation had been conquered now fast forward just one month later and the two-year bond rate said about 4.9
00:38:19
percent you know the FED funds rates about four and a half percent that is a massive swing basically 80 basis points
00:38:26
swing in the I guess the tier bond rate and so the market seemed to be saying all of a sudden not just that they
00:38:35
expect rates to be higher longer but also that the FED needs to keep raising and that is a big change so Brad what is
00:38:43
the basis for that and what do we now believe about inflation I think just a few weeks ago
00:38:49
we were thinking that this problem was licked and the market took off like a rocket it ripped now all of a sudden it
00:38:56
seems like investors are really worried that inflation is not over so where does
00:39:01
this stand right now well I think when we started the year you know the the tenure was close to 3-2 we're now we're
00:39:08
closer to four percent the 10 minus 2 is is negative as it's been in the last uh probably 10 years
00:39:16
so the market is clearly saying you know we saw some inflation prints that came in hotter I think it's now consensus
00:39:22
which you guys have been saying on the Pod that you know although the second derivative is slowing that we're it's
00:39:28
sticky right we're going to get stock at this four or four and a half three and a
00:39:32
half and it's the slope of the curve down where it is going to be slower um we've
00:39:37
gone from thinking we're going to have 225s to now thinking we'll have three or four
00:39:42
you know and so I think everybody is now bracing for more inflation but remember
00:39:47
when we started here on January 1st the consensus wisdom was we were going to retest the s p at 3200 we're going to
00:39:54
have an earnings recession and that inflation was going to continue to run hotter the only surprise in my mind so
00:40:00
far this year is how well the equity markets have held up in the face of a tenure that's gone parabolic right and a
00:40:08
natural earnings recession right and you you know you you posted you know in our
00:40:12
Thread shamath about just quality of earnings you know even the earning speeds are pretty low quality and so I
00:40:18
think you know we now are going to have a couple inflation prints coming up over
00:40:23
the course of the next couple weeks that are going to be important my hunch is you know everybody has
00:40:30
tilted again on you know what we saw in the last couple prints my suspicion if you look at Morgan Stanley and Goldman
00:40:36
Sachs the consensus view is that we're still heading in the direction of four percent faster than I think people
00:40:43
emotionally think so I would say there's maximum uncertainty in the world the fear that inflation is uncapped the way
00:40:52
Larry Summers was articulate in November and December is less today than it was but what's emerged is this idea that
00:40:59
we're going to have higher rates for longer and we're going to have higher inflation for longer now the the
00:41:04
question I'd throw back at you is the market abhors uncertainty the Market's done totally fine during
00:41:13
periods where we had three percent inflation and five and a half percent rates right when when the internet boom
00:41:19
that was you know 2000 to 2005 rates were a hell of a lot higher than the rates are today so I don't think that
00:41:28
higher rates and higher inflation means that we can't you know invest in venture-backed companies that have huge
00:41:34
secular growth the world doesn't end but what I do think it means is like if there's massive uncertainty in the world
00:41:41
if allocators of capital don't know whether rates are going to double again whether inflation is going to double
00:41:48
again then everything just shuts down and that's really bad for the economy I don't see that happening right now but I
00:41:54
do think that the prince over the course of the next eight weeks are going to be
00:41:57
important Tremonti have any macro that's here at the same time this is happening we saw
00:42:02
rents broke in the last month so rents got cheaper yeah a governing principle I think I probably said it too many times
00:42:09
but I'll say it again rates are going to be higher than we like and they'll stay
00:42:14
here longer than we want so if you use that as a principal whenever the consensus thinks we're done
00:42:22
it's been pretty profitable to be on the other side of consensus and so I still kind of maintain that
00:42:29
we're probably going to have a five and a half percent fed funds rate which means that I don't know maybe
00:42:35
Credit Suisse will offer me seven and a half percent soon on three month T bills
00:42:38
but we're going to have higher rates and I do think Brad's right though in the sense that as long as we know that then
00:42:44
that's it and we can forecast it into the future without it changing too much it'll be okay
00:42:52
but right now what you're seeing is a lot of Make-Believe going on in in the stock market so Nick if you want to just
00:43:00
throw up that image so this is a really this is the chart of uh Cash Flow versus earnings yeah
00:43:08
so this is something that I saw in Bloomberg which I thought was really interesting and if you focus on the
00:43:12
period of 2020 to 2024 what you see is the white line which is net income adjusted for depreciation and
00:43:19
amortization and the blue line is cash flows from operation so what does that mean
00:43:24
and this is for uh S P 500 firms this is the best 500 companies in the world yeah
00:43:30
and the white line is what you tell Wall Street in terms of what you make on paper
00:43:37
the blue line is what actually appears in the bank account so why could there be a gap between what you tell somebody
00:43:45
you made I made a dollar versus what's in the bank 50 cents well the reason is that there's all kinds of accounting
00:43:52
tricks that you can use accruals inventories and all of these things allow you to
00:43:59
present a healthier earnings report than is actually true and so right now we have the worst earning situation so the
00:44:08
worst Gap between what we are telling people versus what is actually in the bank
00:44:14
account that we've had for 30 years since 1990. and so it just brings into Focus the fact that we may be in the
00:44:22
last few innings of trying to make sure this all looks okay in which case one faction of the
00:44:31
investing world who thinks that this earnings recession is actually at hand would be kind of right and then
00:44:38
what they would say is that once we all realize that these earnings are fake and
00:44:43
you reset down 15 that's where you get to the mid 3000 in in the S P 500 right now it's around four thousand
00:44:51
I don't know if that's true or not but there's more and more evidence that would support
00:44:58
that the way that they see the world could be credible the other side says Hey listen this is a
00:45:04
bump in the road we're getting a handle on things and it's stabilizing so even though it's higher than we'd like it's
00:45:10
not going to change that much so now just think about 10 15 years from now and let's go and those are the folks
00:45:16
that want to rip the money into growth stocks and tech stocks again how does the consumer play into all this record
00:45:21
low unemployment like it's one percent in Utah three and a half percent for the country two and a half jobs for every
00:45:26
American who's unemployed and then these rents coming down but consumers have seemed to have burned
00:45:33
off all that extra money they had so Brad when you look at the consumer-driven economy that the world
00:45:39
lives in that's not true because you have to understand stimulus is still entering the economy it's just harder to
00:45:44
measure so for example take Social Security you have cost of living adjustments in Social Security that's
00:45:50
lifting payments by 10 and 15 percent because it's backdated for what was going on last year and remember last
00:45:56
year we had two three four five percent inflation rates so there is more and more money
00:46:01
coming into people's pockets that we don't realize and we're all on the hook for that as U.S taxpayers so I think
00:46:08
it's very dangerous to kind of look at one data point and try to pick off what's happening in consumer land
00:46:14
because there's all kinds of hidden ways in which money gets back to people Brad you have thoughts on the consumer
00:46:20
because you know I test it does seem like consumers are still spending money but the cost of goods in some cases is
00:46:29
coming down I mean how do you look at the consumer and try to make sense of what's going on here because it does
00:46:33
seem the United States is in its own little bubble here world of just over employment
00:46:39
still even though we're seeing these layoffs in town well I would say number one uh that the pop we've seen in rates
00:46:46
which impacts consumers by way of higher mortgages higher variable expenses on their credit cards was offset over the
00:46:52
last few months by lower energy costs so their cost of gasoline went down add in
00:46:57
the things that chamat's talking about and I'm not sure you took a lot of money out of people's pockets I would say this
00:47:03
that again what we're talking about here retail sales have continued to do really
00:47:07
well e-commerce sales in January were quite strong that would all be consistent with this
00:47:14
off Landing but here we are you know again talking about macro I think when you spend this much time talking about
00:47:20
macro doing what we do you know like last year I'll be the first to raise my hand and say you know like our friend
00:47:27
Bill Gurley would say it leads you in the wrong direction the fact that the matter is it's totally unknown and
00:47:32
unknowable where we're going to go over the course of the next three or four months I think there's a better ability
00:47:37
to predict maybe over the course of the next couple years um but the fact is if you would have
00:47:42
told any I was just with a bunch of uh investors you probably represent a trillion dollars of public market demand
00:47:48
10 uh or so long only investors if you would have told any of them that the tenure was going to be at 396 they would
00:47:54
have told you that the NASDAQ would be down 10 to start the year and it did just the opposite so I think you got it
00:48:01
you know you're you have a much better chance particularly if you're playing at home right than trying to to guess the
00:48:07
direction of that find five companies that you think are going to grow uh and earn more money irrespective of the
00:48:13
direction of rates and inflation own those and enjoy your life I'm looking at the world and going sax
00:48:20
my Lord I'm seeing great Founders great companies and five to ten million dollar
00:48:24
valuations and I can buy five ten fifteen percent of these companies uh this feels like the best uh it's been
00:48:31
for me as an angel investor seed investor or seed fund for a long time this is fantastic uh great deal flow the
00:48:39
deals are taking six weeks to close we're having very thoughtful discussions people are taking a real focused
00:48:45
approach to how they deploy the capital it is not YOLO people are building models again people are showing their
00:48:51
CAC they're being thoughtful about how they spend the money they're being thoughtful about salaries and hiring so
00:48:58
what what's your you seem to think that you know what we're seeing here is challenging or a problem
00:49:05
what are your thoughts on how it's affecting your day-to-day business as somebody who's a company Builder well
00:49:12
let's separate two things so there's the tech ecosystem and then there's the economy as a whole the fact of the
00:49:17
matter is that Tech already had its bubble in 2021 it had its crash in 2022 and now we're largely on the other side
00:49:25
of that there's still a lot of companies like we talked about that are going to need to restructure who raised during
00:49:30
the bubble and may not have come to grips with that but if you're talking about new investment new rounds new
00:49:35
companies are starting with a clean sheet of paper and a blank slate you're right things seem good and normal right
00:49:41
people are making intelligent Investments and obviously the Innovation cycle doesn't have anything to do with
00:49:47
the macro picture I mean technology wants to evolve and it's great engineers and product people who drive those ideas
00:49:56
forward and they're not thinking about interest rates I never thought about the FED funds rate at all when I was a
00:50:02
Founder Running Company so let's just put that aside and acknowledge that great Innovation is going to keep
00:50:08
happening no matter what the macroeconomic picture looks like that being said I mean just for the you know
00:50:15
listeners of the show who aren't startup Founders I tend to be a little bit gloomy about the macro picture right now
00:50:22
because yeah it's true that what Brad said that we've had good economies with five percent rates before but I think
00:50:28
you also have to look at the pace of change or the rate at which the the FED funds rate has been going up and if you
00:50:35
look at the chart of rate increases it is a very steep chart of rate increases and I just think that for the
00:50:44
last decade or so we've been operating in this like zero interest rate or Reserve environment with loss of
00:50:49
monetary stimulus and I think a lot of companies a lot of parts of the economy got addicted to that stimulus they got
00:50:59
hooked on drugs now all of a sudden you're putting them through withdrawal very very quickly and obviously the
00:51:06
withdrawal pangs are going to be worse if you can't taper off slowly so it looked like just a few weeks ago that
00:51:13
the Fed was done raising rates now we know that they're not we don't really know when they're going to stop so I
00:51:19
tend to be a little bit gloomy with respect to the the big macro picture because I just don't see how you can
00:51:28
change rates this fast and I mean you look at like real estate for example we just saw the first year over year
00:51:33
decrease in the housing market in a while and again that's all driven by rates the cost of mortgages going up and
00:51:41
two big defaults in the first two big defaults yeah so I I think that there's going to be
00:51:47
some pain ahead now you know ironically from the standpoint of the tech ecosystem we may have already taken our
00:51:53
medicine and we may already be on the other side actually that is a good way to to look at as we took the medicine
00:51:58
it's painful and here Jason maybe maybe that's the segue to uh talking about benioff I would say
00:52:06
we haven't took it we're taking it we're starting to take our medicine well that
00:52:10
makes sense that Benny off with his you know very loving family kind of approach to
00:52:18
running the company might actually it might take them a little while to become a bit Cutthroat so
00:52:25
as everybody knows Benny off and Salesforce have had a lot of turnover a lot of senior Executives have left
00:52:32
voluntary or involuntary but shares were up 11 on Thursday after reporting their Q4 earnings they're up
00:52:41
14 year over year small net loss but the company bought back 2.3 billion dollars worth of its
00:52:48
stock we're going to see more of that for sure and they're going to be increasing its share buyback program to
00:52:54
20 billion dollars going forward and like meta which suddenly got fit and got religion
00:53:01
benioff is now basically with all these activists I guess on on his ass he says uh and this is the
00:53:11
quote from the earnings call we're more closely scrutinizing every dollar of investment in resource and very focused
00:53:17
on driving operational excellence and automation across our business focusing on 4K eras stronger moves expense for
00:53:23
structuring employee productivity uh there it is product Innovation and building
00:53:28
relationships with shareholders profitability is are truly our number one strategy and that's my number one
00:53:35
strategy that's the number one thing we talked about at the start of every meeting we have in this company quite a
00:53:41
turnaround your thoughts Brad I don't think the story is that you know that benioff
00:53:47
you know made these cuts and that activists are around the rim what was significant was his comments uh that he
00:53:54
made and I tweeted about it today you know he said every CEO in Silicon Valley has
00:53:59
looked at what Elon Musk has done and asked themselves do they need to unleash their own Elon within them and you know
00:54:08
listen we've been talking about this for nine months the reality is if you look at the
00:54:13
employee count at Salesforce in 2015 they had 19 000 employees as of last year they had 80 000.
00:54:22
in seven years they 4X the number of employees they were a mature Company by 2015 their employees catered at 23
00:54:31
percent you know we don't talk about it in this way but these large companies these employee bases they're not unions
00:54:38
but they may as well be there is during this Age of Excess where it was just easy for people to hire more people
00:54:51
and build more things not to make tough choices Etc right we just had an explosion like we've never seen in
00:54:58
Silicon Valley in the number of employees in these businesses Meadow went from 10 000 to 80 85 000 Google
00:55:06
went to 185 000 and at those levels it's very difficult to govern them and when the CEOs went to make decisions into
00:55:16
businesses there would be protests revolts within the business 30 or 40 000 people with scientific
00:55:24
back to the office no we're not going to work three days a week no you can't name
00:55:29
our AI bot uh what you want to name it because it offends us and so to me what's more significant
00:55:37
is over the last six months we've seen courage gain momentum in Silicon Valley right what's deeply under-appreciated
00:55:46
about meta and the changes they made it would be one thing if it was just window
00:55:50
dressing we cut 10 percent of the workforce kind of tighten our belt a little bit but Zuckerberg got on his
00:55:57
call and he said we only have two priorities in 2023. one is efficiency and he went into depth about once they
00:56:05
started cutting people how the company got faster the product release cycle sped up the employees got happier and
00:56:12
now it's an end in itself to delayer the business that's what we're hearing out of benioff as well and I think
00:56:20
it's you know people can quibble with how Elon went about the change which you and you and uh David are very familiar
00:56:29
with at Twitter but the reality is he lit a fuse in Silicon Valley that is giving courage whether it's private
00:56:36
companies series B companies pre-ipo companies public companies I've had that conversation more times uh than you can
00:56:45
imagine over the course of the last six months and I think it's a really important change because I think it
00:56:50
breathes new productivity into all these businesses and importantly it unleashes
00:56:55
these Engineers back into the ecosystem to start the next wave of companies yeah
00:57:00
so Jason I mean you and I got to tag along with Elon during that transition phase at Twitter and
00:57:06
the thing that I took away from it was just how much agency you know CEOs have that they're not using I mean Elon went
00:57:15
in there and he basically changed whatever he saw that he didn't like I mean unsentimentally and quickly and you
00:57:24
know and so you look at all these other companies you talk to CEOs sometimes and
00:57:29
they act like they're prisoners of their companies like I can't change this I can't change Stockholm syndrome yeah
00:57:35
yeah it's like you know I've got all these employees and all these layers and but I can't you know there's always some
00:57:40
reason I'm afraid of the bad PR or you know whatever it is and I you know the thing I came away realizing is just how
00:57:48
much agency particularly founder CEOs have that they just don't use you know they're always like hemming and hawing
00:57:55
and ringing their hands and acting like they're tied down by this or that and the reality is they can do whatever they
00:58:00
want just about um you know within the bounds of what's what's legal and and I think they're starting to realize
00:58:08
oh wait a second like I actually can do that you know I can walk into my company
00:58:11
one day and if there's a team that's not performing that's giving me answers that
00:58:15
don't make any sense I could start over wait I'm just going to start over yeah I
00:58:20
mean if you can't get it done then we need to have somebody who can do it and it's it's incredible like we were doing
00:58:27
an analysis on this week in startups of the you know employees per company and the revenue per employee per head count
00:58:35
and I got roasted for having this com even having this conversation and now here we are chamoth people are looking
00:58:42
at efficiency we're looking at you know really uh how efficient can these companies uh be run is there a limit to
00:58:51
where this is going and and if we were to look at this as a process where are the Fangs the Amazons the Googles
00:58:57
Facebooks where are they at in terms of percentage to being at Elon if you if you were to put
00:59:06
Twitter and Elon as the the goal where are these companies and I don't know that that is the goal maybe maybe he's
00:59:11
cut too much who knows we'll find out I think it's a it's a it's a pretty radical experiment he's doing there yeah
00:59:16
yeah I don't think that's a reasonable or an achievable goal for a public company okay I mean I think the
00:59:24
thing we have to keep in mind is elon's also capable of doing that because he paid 44 billion dollars of his own money
00:59:30
to buy something that he owns alt right that no longer has Revenue pressure to outside stakeholders different
00:59:37
circumstance Revenue went down 70 at Twitter well that only affects him and and his ability to pay
00:59:43
whatever he borrowed in order to buy that company and as long as he's willing to fund that somehow he's literally
00:59:49
allowed to do whatever he wants that's no longer the case when you're borrowing money from other people to build your
00:59:55
business which is what every other Capital Market participant does public market
00:59:59
participant does and private Market participants so I think that that distinction is just a little bit
01:00:04
important because it probably means that there is a shadow of what Elon is doing
01:00:10
that's probably the threshold of what's possible and it's probably you know sort of 50
01:00:16
percent head count reduction that's probably the the Bound in which things break because I think the thing
01:00:24
to keep in mind is that over time this stuff is like collagen in the body it's just like it creates these
01:00:32
interconnected webs of just very difficult stuff that you send you that you cannot tease apart
01:00:38
so even if you try to go in and cut 50 of a company like Facebook or Google or Microsoft or apple or Amazon
01:00:48
it would be so difficult because all of a sudden the coordination that happens at that scale I think would get lost
01:00:55
so I'm not sure if it's possible you kind of have to do what they're doing which is cut five percent then cut ten
01:01:01
percent then cut five percent then cut five percent and I know it frustrates people on the outside looking in but I
01:01:06
think it's the it's probably the only way it can be done without torpedoing the company what does that do on a
01:01:13
culture basis then because that is the big critique hey you're creating now this culture of fear I guess the
01:01:18
opposite of that is your grand and culture of performance and expectation so how do you think about it on a
01:01:22
culture basis because that keeps coming up from Founders to David's point it depends because I think companies when
01:01:27
they're smaller I mean I can tell you when I was a part of the Facebook senior management team we would rank all the
01:01:36
employees so we had a very good sense of who was the best and the most performant all the
01:01:41
way down to who was not and we were able to do that probably up to two or three thousand
01:01:46
employees that's not possible at fifty thousand and nor is it fair so because you don't know who these
01:01:52
folks are the real contributors are you have to do what Elon did which is literally go person to person and say
01:01:58
who is unbelievably performant or critical yeah in the absence of doing that you just
01:02:06
don't know who to let go and so you have no choice except to bleed down the question that I have and Brad maybe
01:02:11
there's a smart analyst on your team that can do it is right and it's more of a statement as well can you imagine the
01:02:19
totality of stock based comp that's been given out by all these companies since 2015 when they were catering their
01:02:26
employee bases by 25 a year I bet you it's a trillion and a half dollars at least
01:02:33
you think it's that you think it's in that order magnitude 100 this has been the greatest grift in the history of
01:02:40
Silicon Valley for sure let's pause for a second can you explain what we're talking about here stock based
01:02:45
compensation obviously is the stock given to employees it's generally not counted well let's do it right let's do
01:02:52
it this way let's just say that you believe in capitalism okay yep so if you if you
01:02:57
believe in capitalism let's say the the four of us start a company and there's a dollar of profit and we
01:03:04
each own 25 of the company got it normally what you would say is each of us get 25 cents
01:03:13
right reasonable we own 25 each there's a dollar profit we each have 20. so that
01:03:18
means that in four years right we each will have made a dollar because so let's just say it cost a dollar to get off the
01:03:23
ground or four dollars to get off the ground all in Summit budget We believe We all would have been made whole we all
01:03:28
would feel great and then now every year afterwards that 25 cents we get is profit now let's say that Jason you add
01:03:36
a fifth person and Brad and David and I can't say anything about it okay and that fifth person now gets a fifth of it
01:03:43
right and so now all of a sudden our 25 cents goes down to 20 cents then let's say you add five more people
01:03:51
now all of a sudden our 25 cents went to 20. and then it went to 10 10. yeah and at
01:03:59
some point Brad and David and I raise our hand and say hey this is not the deal we signed up for and you say well
01:04:05
too bad because Revenue would not be what it is and profits would not be what it is without these extra six people
01:04:14
and that's effectively what everybody debates when they own a stock the shareholders
01:04:19
want that number to be as small as possible and I think what Brad is observing is
01:04:26
that in Silicon Valley what has happened is there's been poor accountability for
01:04:31
what all of those extra people do and profits haven't written risen fast enough to make the existing three people on the
01:04:38
cap table feel okay about it and that instead of talking about three people and six and a dollar you're talking
01:04:46
about trillions of dollars and hundreds of thousands of extra shareholders I know we have some charts here so we
01:04:54
can do some fun with numbers I think taking a step back I think it's very important to realize
01:05:00
that stock as a form of compensation to create alignment excitement in the early
01:05:05
stage of venture capital is part of the true magic of Silicon Valley you know you're starting a company you
01:05:12
ask somebody to go on this adventure take a bunch of risk they often have to cut their pay they could get at Google
01:05:18
by half to join your adventure it's only fair that you give them stock in the company
01:05:22
and they share in the ups and if the company smokes it uh they get rich for taking that incremental risk on their
01:05:29
behalf and on their family's behalf what's happened over the last 15 years is something totally different
01:05:37
which is this stock as a form of early stage compensation right continued and there's a feature in Silicon Valley
01:05:47
as companies came public one way to kind of hide an expense in a business is to bury it in SBC so let's say Google
01:05:57
wanted to hire somebody for four million dollars which they're doing today in AI
01:06:02
but instead of paying them 4 million in cash which would all count against their
01:06:06
operating profit they give them 500 000 in cash and three and a half million dollars in stock and let's say they make
01:06:13
all that stock vegetable immediately Jason in this year it's obvious to you and I that's just cash the person turns
01:06:20
around and sells it it's a real expense of the business real expense to the shareholders but when they report their
01:06:25
earnings and they report adjusted ebitda they adjust out the three and a half million dollars that they gave by way of
01:06:33
SBC why did stock based comp SBC get excluded from accounting what is the history of that and is that going to
01:06:41
change now are people going to say and shareholders demand in this new economy in this new you know sort of reality hey
01:06:48
you know what you can't play fun with numbers here stock base comp has to come out what would you like to see Brad it's
01:06:55
fairly esoteric but they're back in the mid 2000s 2004 2005 there was a and a county there's a big debate about this
01:07:02
Warren Buffett was famously saying listen it doesn't matter whether you pay in stock whether you're paying cash
01:07:09
whether you're paying cans of beers like it all costs the same he's right and so
01:07:14
there was a debate we had a statement an accounting statement fasbi 123 and in that statement it said Gap ebitda
01:07:24
must include the cost a stock uh based compensation so all of a sudden if I'm reporting Gap ebitda I got to include
01:07:31
the cost of stock comp which it does today but what but but but what did everybody do
01:07:39
but what happened they started adjusting it out right because they said hey this
01:07:45
is a real expense right because we're not it's not cash we're giving out what are they solid do they come up with a
01:07:50
term for this adjustments the crime here is that when rates fell to zero and everybody was making money on tech
01:08:05
stocks nobody wanted to rock this boat and everybody just said you know like adjustedy but uh kind of ignored I can I
01:08:12
can model it into my future dilution so we Model A Share account uh over the course of the next three years but this
01:08:19
literally over the last five years went parabolic because I just shared with you the
01:08:25
number of employees exploded the amount of share-based compensation exploded because of competition for
01:08:32
those employees coinbase I think just reported SBC which hold your hat sax was 70 of Revenue
01:08:42
not 70 of their earnings 70 of their revenue just for coinbase we're talking about here that's for coinbase and so
01:08:51
you know last week there was something that I thought was pretty brave booking.com on their earnings call
01:08:59
really called this out and what they said is listen we've been playing by the rules we understand that stock based
01:09:09
comp is cash and they say every every metric we report includes the impact of stock
01:09:15
based compensation and if you look over the last 15 years if I'm an owner of booking.com I was only deluded by about
01:09:23
five percent if I was an owner of Salesforce or Expedia I was deluded by about 25
01:09:30
percent that's 25 of percent of my ups were given away right but yet those things were adjusted
01:09:39
out when they reported earnings and so you know what's become in Vogue today is CFOs get on their calls and they say no
01:09:46
no no don't worry we're gonna buy back a lot of shares so we won't have much dilution okay but if you take my two
01:09:54
billion of profits that jamacha's talked about and it goes right out the door just to buy back the shares you just
01:10:01
issued you're effectively round tripping that money then it just proves the point
01:10:05
it's cash it's an expense to shareholders and my biggest problem with it is it's led to the bloat because if
01:10:15
companies actually had to account for this as cash they wouldn't hire as many people they
01:10:25
wouldn't pay as much in stock comp and I'll end with this because I want to end with a solution
01:10:32
every comp committee on every board frankly their heads spin when you start talking about this subject they bring in
01:10:39
a comp consultant and the comp consultant they is really the cya for the comp committee because they want to
01:10:47
approve a comp plan that's been recommended by the management team and they just want to know is this what
01:10:52
everybody else is doing okay so everybody's doing it so the comp consultant looks around and says yeah
01:10:58
all your peers are doing this this is why Charlie Munger said I'd rather throw a pit viper down the front of my shirt
01:11:04
than hire a comp consultant right what is going on on these comp committees if you give bonuses to anybody in your
01:11:12
business that are that is based on an adjusted ebitometric rather than free cash flow
01:11:20
per share per share is the key here it's negligence it's negligence so if comp committees
01:11:27
just walk in and they say the gold standard as a public company is 50 basis points annual dilution that's Apple
01:11:34
that's booking.com Visa Mastercard or even below that that's the gold standard once you're in the public market and we
01:11:41
will never instead of is our employ our employees on the basis of anything that excludes
01:11:48
.com and it has to be on a per share basis that would be a massive Leap Forward for public company account seems
01:11:55
reasonable anybody have any other thoughts on that stock base comp no all right sax where do you want to go you
01:12:00
want to go Fox I'm willing to do foxes I mean Fox is kind of crazy uh okay so Rupert Murdoch had been uh deposed here
01:12:08
with this Dominion voting system lawsuit they're suing Fox for 1.6 billion in Damages over claims made on air that we
01:12:17
all know around technology-enabled election fraud we remember this wild period at the end of
01:12:24
the last election cycle with this incredibly false claim that the election was stolen
01:12:29
something you know both sides of the aisle said did not happen however it seems that the hosts on Fox knew it
01:12:39
wasn't happening it knew it wasn't true but were engaging uh in entertainment of
01:12:44
allowing these people to come on air and say the election was stolen so Murdoch said
01:12:49
I would have liked us to be stronger in denouncing it in hindsight and when asked if he could have stopped
01:12:57
the host from highlighting these allegations these false allegations on air that were obvious to everybody he
01:13:02
said I could have but it didn't he said the truth he's not allowed to lie in court yeah just on air I mean uh sax to
01:13:09
be fair like um you uh really care about freedom of speech you really care about
01:13:14
the libel laws you really care about the GOP obviously you bring it up every week
01:13:19
here so when you looked at and but you were very clear you were not happy about the election denial all that like false
01:13:27
claims that Trump made and these insane people he put around himself so how do you look at
01:13:33
these foxhoes and listen you've been on Tucker and other things knowingly spreading lies about
01:13:40
something as important as the election and then doing it in the most cynical ways we we sit here and every week we
01:13:47
roast the media the mainstream media you particularly go after the Dems and the left and the media Elites how do you
01:13:52
feel about these media Elites who are part of the GOP machine lying incessantly about something as important
01:14:00
as the election Integrity of the United States of America first of all you're trying to tee this up as some giant dunk
01:14:07
on me Jay Cal I am not no I'm not you said from the beginning you didn't believe in this exactly let's
01:14:14
go back to December of 2020 on this show because there may be a lot of parts of the audience that weren't
01:14:19
watching back then I was really clear that I said Sydney Powell and 100 and Rudy Giuliani I thought they were wackos
01:14:28
and this whole idea that the Dominion voting machines have somehow been rigged and somehow it involved Hugo Chavez was
01:14:35
a wild conspiracy theory so I said at the time 100 and I also said that I thought that once the Supreme Court
01:14:43
denied certiorio Trump yeah I said that he had his right to have his day in court and to challenge the election in
01:14:50
court but once that the court threw out his claims and the Supreme Court denied sir shiori that that whole thing needs
01:14:57
to stop and it didn't stop and that's why the Republicans lost that uh Purdue runoff seat in Georgia on January 5th
01:15:03
and you had January 6th so you know I've been warning against this for a long time Jake owl now with respect to to Fox
01:15:10
I think you need to basically get a little bit more nuanced in what you're saying there because I think within Fox
01:15:15
there were actually two groups of hosts so there is one group of hosts that I think you could say were Trump Loyalists
01:15:22
and they basically not only platformed the Sydney Powell lies but also endorsed them and Rupert Murdoch admitted that
01:15:30
they went too far and actually endorsed and so you had Hannity and a couple other hosts do that even though Hannity
01:15:36
had some text messages that indicated he didn't believe it so I think he came across the worst however there were
01:15:42
within Fox Skeptics of the Sydney pal Theory and so I put Tucker Carlson in that camp I put Laurie Ingram in that
01:15:49
camp and Tucker had Sydney Powell on his show on I think it was November 19th I think this was 16 days after the
01:15:57
election it was a 20-minute interview in which he grilled her and he kept coming
01:16:01
back to what is your evidence what is your proof and if you were paying attention he demolished her I mean I
01:16:07
remember that notable yeah exactly so I mean honestly no one looks great when all of your text messages come out and
01:16:13
you can nitpick about this or that text but the bottom line is I think Tucker did his job you know yes he platforms
01:16:19
Sydney Powell but he platformed her in order to dismantle her and you kind of have to be pretty Dopey not just to see
01:16:25
that she was dismantled after the appearance be liable for knowingly platforming these people and endorsing
01:16:34
them in some way or is it their freedom of speech in your mind as an attorney here uh or
01:16:42
somebody with that uh you know legal degree where does it stand like put aside if
01:16:46
this was if this was CNN doing it MSNBC we'll switch what publication if this was the New York Times and they
01:16:52
knowingly lied knowingly platformed some Kooks with a conspiracy theory what should the price they pay for and then
01:16:59
how does that affect the freedom of speech that we all think I think universally on this podcast especially
01:17:05
and in Silicon Valley or at least we used to that freedom of speech is really important do you have the freedom to lie
01:17:11
and platform Kooks like this let me answer you directly Jason I think this would be a better world if Fox reliable
01:17:16
but I don't think they're going to be because that's not the legal standard I believe that if a television network
01:17:21
knowingly spreads and endorses baseless accusations against somebody which they know or should know is basically untrue
01:17:31
I think they should absolutely be liable for libel or defamation but that is not
01:17:35
what the law requires under New York Times versus Sullivan you're required to show that that they knowingly spread
01:17:41
misinformation but in addition you have to show that they had actual malice which is that their intent was malicious
01:17:48
and I think you know Rupert Murdoch is a Wily old dog because he admitted on the
01:17:53
stand everything but the thing that was most important for the plaintiffs to prove which is actual malice he admitted
01:18:00
that they platform things that they you know knew or should have known were false he admitted that he should have
01:18:06
put a lid on it sooner he admitted that he knew it wasn't true but he said the reason they did it is because they're
01:18:12
afraid of Their audience or a portion of Their audience going to some rival Network so basically what he said is in
01:18:18
not so many words is that his motivation was greed and in our system of law that
01:18:23
is a complete offense against claims of deformation now I think what we need here is to rewrite the defamation laws I
01:18:29
think the Supreme Court needs to overturn New York versus Sullivan Clarence Thomas is basically uh
01:18:34
intubated that he would support that I think that would be a great thing to do I think actual malice should not be the
01:18:40
requirement if reliable I think of a television network or a publication puts out information they know is false they
01:18:47
should absolutely be liable for it and that is enough to show and if we did that by the way it wouldn't just be fox
01:18:53
in this particular case it'd be CNN and MSNBC we have to completely revise their
01:18:58
coverage and all of these Tech reporters who do nothing but to fame the tech industry the entire Tech press just
01:19:04
about is a slow moving defamation lawsuit Elon Musk would probably be the richest man in the world just based on
01:19:11
all the defamation lawsuits he could bring if we were to overturn New York Times versus the richest richier guy
01:19:17
yeah because all they do is to fame Elon Musk every week which claims that are ridiculous
01:19:26
there you go folks very very intellectually honest I like it David so what you're saying is you expect the
01:19:33
Dominion lawsuit to fail can it be appealed all the way to the Supreme Court can this be the case that
01:19:40
rewrites New York versus Sullivan good question that's a good question I'm not sure I mean I think that'd be great if
01:19:45
it did just be clear listen I think that if Fox Were Somehow found guilty I think
01:19:49
one and a half billion is a kind of a ridiculous amount of Damages I don't think Dominion was damaged to one half
01:19:54
billion but do I think that it would be a good thing if this lawsuit were challenged all the way Supreme Court and
01:20:00
they overruled New York Times versus Sullivan let's fund the lawsuit I would fund that lawsuit
01:20:06
is not is is Sue MSNBC and CNN for all the nonsense they spread every night yeah just to be clear I have a couple
01:20:14
things that I would want to go and um get correct clean up I just want to be clear here though Brad David's guy
01:20:20
Tucker he did the right thing that's the most important part of the story isn't it David that you're still listening
01:20:27
you're not being Nuance you want to throw a Tucker under the bus I think Tucker did his job I think Tucker did
01:20:33
his paradoxical job yes yeah I think the guy who looks a little worse is Hannity because the
01:20:39
Hannity in the text admitted he didn't believe the story but as a trump loyalist he endorsed the Theory
01:20:45
that's really good Brad you we uh you know you you come on the show every couple of episodes and pitch in here as
01:20:51
our fifth Beatle would you like to touch the third rail what are your thoughts and uh would you like to get some
01:20:56
incoming email from all your LPS about your position on Fox News and I mean we just I just feel like I sat through a
01:21:07
University of Chicago Law School class it was awesome and great I think we have some good
01:21:13
issues here that we still got to tick off on jaycal yes okay well we gotta talk just for a second about China as it
01:21:20
relates to tick tock because because all right here we go this Holly hearing that's coming up so we've got a hearing
01:21:26
in Congress let's start with you are a shareholder a significant shareholder in bike dance the parent company of tick
01:21:33
tock we have to say that correct correct correct you started that position and my
01:21:39
kids use reels and everybody you and I have had a spirited debate on yes you're a shareholder okay about this so I so I
01:21:46
haven't you want me to Tee It Up you want to see it but hold on a second here like because just like sax had to defend
01:21:50
himself before he even got started otherwise I have to do the same okay here we go shareholder of meta who
01:21:59
stand s to do incredibly well if Tick Tock in the US is banned so you have a spread wait you win either way
01:22:07
I've got a hedge on good okay you know if Tick Tock in the U.S gets banned but you know the con the context here is the
01:22:16
tick tock band debate is heating up right and it's all in a March up to the Holly hearing I think it's on March 23rd
01:22:25
and there's real like we we spent a lot of time at the start of this pod on inflation I think a much bigger issue
01:22:31
right now I was just with all these investors the main issue on their mind was Global decoupling between China and
01:22:38
the United States we're going to see a level of Chinese hate leveled out of out of Congress both
01:22:46
sides I mean we heard it chamoth at dinner at your place not so long ago that this hearing is drawing more demand
01:22:53
for speakers from both sides of the aisle than any such conference uh in a long time but there's a lot of there's a
01:22:59
lot of heat now around tick tock should it be banned and when I when I look at the situation if
01:23:07
you frame it for bike dance because Shema talked about this a couple weeks ago it's been reported
01:23:12
bite dances revenue is about 120 billion dollars it's been reported their profits are
01:23:19
about 25 billion dollars that is almost identical in size to meta meta's worth about 450 billion so 120 billion Top
01:23:26
Line it's also been leaked that in that Tick Tock is about 14 billion of that and that U.S Tick Tock is three to four
01:23:35
billion U.S Tick Tock three to four billion of a hundred and twenty and it loses money
01:23:42
so there's a lot of debate should we ban it should we not ban it is it going to go public and what should happen what do
01:23:48
you think what do you want to ask and as a shareholder listen I think it's about
01:23:51
an American I think this is a puppet debate over a much bigger conversation that's going on one of the things I've
01:23:58
urged the company to do over the course of the last several years is parental controls my kids use tick tock they use
01:24:05
reels and what I want is to be able to set effective time limits and I also want Tick Tock has incredible uh video
01:24:12
content in math in science and history I want to be able to set a slider and say
01:24:17
20 of the videos that get shown over this one hour period have to include some of these math and science videos
01:24:24
for my 12 year old then he can elect and not watch at all or watch it they announced those product changes
01:24:31
yesterday um so they're teeing up those product changes I don't happen to think there's
01:24:35
a nefarious plot but I also understand that people might not want this and so like listen I think we should have a
01:24:42
debate I think that the CEO of tick tock should show up he should speak the the truth at the Holly hearing and if the
01:24:49
U.S Congress wants to ban Tick-Tock in the U.S or force a spin or a sale I think we should do it and stop debating
01:24:55
it but the much larger conversation is whether we have a hard or a soft decoupling with China and I think this
01:25:02
is just Canary in the coal line all right so let me just tee up also uh and chamoth I'll get your reaction on Monday
01:25:09
the White House gave government agencies 30 days to remove tick tock from all federal devices all federal agencies
01:25:14
must lead Tick Tock from phones and systems and prohibit internet traffic from reaching the company this is
01:25:19
following moves by Canada in the EU and Taiwan and uh obviously there is a bigger house
01:25:27
committee focused on China that held its first meeting this week so there is the
01:25:31
bigger picture but let's start with the smaller picture number one do you think it's a security risk to have a Chinese
01:25:37
company have this kind of access and influence with Tick Tock specifically and what do you think the remedy should
01:25:43
be for that and then we'll get big picture and we'll get snacks involved in this as well should it be banned should
01:25:48
they have this kind of access to Americans and influence should it be banned no because I believe in a free market
01:25:57
will it be banned yes because it's the most obvious cultural way to pick a fight with China without actually
01:26:12
picking a fight with China so yeah I think it's going to be the most obvious victim of all of this and so I don't
01:26:19
know my advice to my friends who are shareholders not just Brad but others is sell sell it
01:26:25
move on it's in the Warren Buffett what Warren Buffett calls the two hard bucket
01:26:31
sax uh do you think that this is a national security issue do you personally believe Tick Tock should be
01:26:38
banned or do you like me believe that we should just do a reciprocation test in order
01:26:44
for tick tock to be allowed here in the United States then Twitter Facebook meta
01:26:48
Instagram LinkedIn Etc need to be allowed in China and you have this many days to reciprocate or else
01:26:56
it's banned I don't think Jamal is right that tick tock's going to be GPC roadkill and GPC stands for great power
01:27:02
competition you're going to start hearing that term more and more it's going to become the organizing principle
01:27:06
of American foreign policy and I just think that Tick Tock is Tick Tock is all caught up in that and you know
01:27:13
personally I'd like to understand what it is exactly that they're doing with Tick Tock and instead of just having
01:27:17
these vague accusations I actually really like to understand yeah I'd like to know a lot more about
01:27:26
that but in any event I just think you're going to get caught up in this this again GPC that's going to be the
01:27:32
the dominant organizing principle of our foreign policy I think that people are coming around to
01:27:38
realizing that it's China not Russia that is the central Global competitor and adversary of the
01:27:45
United States it's the only country in the world that's a potential pure competitor to the U.S this economy is
01:27:51
roughly the same size as the U.S it's got four times the population it's the one that we really need to watch out for
01:27:57
I think there's growing realization in Washington that the Ukraine war is a little bit of
01:28:04
a misdirect and that we need to basically get back to doing what we were doing before the war which is pivoting
01:28:11
to Asia and by the way thinking about that just for a second in I think David you're
01:28:17
totally right because the game theory now to me makes a lot more sense in the frame in the framing of GPC so for
01:28:23
example if you think about what the chips act does right the chips Act basically says we are going to near
01:28:31
shore or onshore every capability we need so that we can make and manufacture all the critical
01:28:39
semiconductors for all of our interests technological business military Etc but what is that really what that is is
01:28:48
an option to not have to defend Taiwan and why is that important it's because today if Taiwan were invaded by China we
01:28:56
get pulled into a conflagration that we don't know how it ends we don't know what the beginning middle of end of it
01:29:01
looks like it's extremely dangerous and precarious so spend a couple trillion dollars create Financial incentives
01:29:09
build a bridge to Korea and to Japan so that they bring onshore into Mexico all the capabilities we need with Western
01:29:17
Europe who are already our allies already along with Japan and Korea and now all of a sudden we have complete
01:29:23
optionality and now we can deal with the greater Chinese hegemony in a much more
01:29:28
balanced way so I think the GPC framing is shared by the way between the Democrats and the Republicans so this is
01:29:37
why it's so much bigger than one single company that's why I think I think tick tock's roadkill Brad if you frame it as
01:29:43
a competition we're not framing it as a war we're in competition and part of that is going to be this decoupling is
01:29:49
this decoupling helpful to America is it helpful to humanity is it better that we
01:29:56
decouple a bit this interdependency maybe got a little too deep as we saw during covid with uh Supply chains well
01:30:03
I mean it's a great in a great power struggle it is what the words imply right so I don't you know part of the reason
01:30:10
you want to have trade uh with China and part of the reason we don't want to have a hard
01:30:16
decoupling is uh you know a long-standing theory that company countries that trade together are less
01:30:21
likely to go to war so you know I think if you listen to what's coming out of this
01:30:27
you know these uh Select Committee this week that held its first hearing is on the on the extremes you hear people
01:30:35
saying hard to coupling right and in the middle you have people saying listen we
01:30:39
need to define a circumference around National Security and we need to decouple as to all things that are
01:30:46
within that circumference now I will tell you that the debate is about how large is that Circle so it starts off as
01:30:53
for example sophisticated computer chips out of Nvidia so China you know can't compete with us in the AI arms race but
01:31:01
it's quickly emerged into you know batteries energy food supply chains the circumference has now become almost as
01:31:10
large as the economy itself I would argue that it's not just the chips act it's also Ira which is another trillion
01:31:17
dollars of funding for uh basically onshore and Supply chains vital materials to build batteries Etc
01:31:28
you know so I think it's a very reasonable policy by both parties to pursue it's clear that we're going to
01:31:34
have some decoupling I think it's a it's a it's going to lead to an interesting question on the part
01:31:41
of China you know she was out last week saying you know I'm going to make a speech about peace with Russia
01:31:48
you know this is more David's territory but my hunch is that there may be you know if China China thinks it's going to
01:31:56
be a hard decoupling from an economic perspective this is bad for global economic growth this is bad for China's
01:32:03
growth I don't think it's bad for growth I think it's bad for inflation explain well because I think that we'll
01:32:10
have many versions of everything everywhere so we will some more redundancy yeah more redundancy we're
01:32:16
going to rely on Central and South America in a meaningfully bigger way and what that'll mean is that there'll be
01:32:22
more jobs in economic prosperity for those countries they'll feed the United States China will feed it less and as a
01:32:28
result there'll be more inflation because you won't have the cost advantages by the
01:32:32
way China is not just going to sit there and take this line down they've already
01:32:36
punched back a few times so for example on the middle of the summer China introduced a tariff and slowing the
01:32:43
export of certain materials and Technology to make solar Wafers now why is that critical well again talked about
01:32:50
this before but we are going to take the marginal cost of energy to zero in this
01:32:54
country and the levelized cost of energy particularly via solar is the cheapest it's ever been and so
01:33:02
what China sees is oh my gosh if the United States has abundant free energy now all of a sudden a huge component of
01:33:10
what drives costs is gone yep so now the United States could partner with El Salvador Mexico Honduras you know
01:33:18
Argentina Brazil it's happening here too yeah no but I'm just saying it's close by yes right and if you can deliver zero
01:33:25
cost energy to those places now the manufacturing capability could exist there my point is it's such a
01:33:30
complicated chess piece so China is not taking any of this line down but I think
01:33:34
that what David's framing is totally accurate this is the beginning of a GPC and it's an economic Tit for Tat that
01:33:41
we're going to play out we tax chips they tax solar panels we go after tick tock just as a
01:33:48
confusion maker right yeah I can tell you the the there's a very easy test for if China sees Tick Tock as
01:34:00
a strategic asset and that's it's going to create more shareholder value Brad if they were
01:34:06
to spin it out and make it a publicly traded American company with American sharehold it would create more
01:34:10
shareholder value for bike dance therefore if they don't spit it out that means they're not acting in the interest
01:34:16
of shareholders and shareholder value they're acting the interest of their National Security
01:34:21
pretty clear reciprocation and collaboration would be a much better model I think for for
01:34:27
working with the Chinese and hopefully we can find some things and we can collaborate on Brad raised the the
01:34:34
Chinese peace proposal in Ukraine which I think said an interesting topic can we
01:34:38
do you guys want to go there for a minute sure uh yeah all right can I take a shot
01:34:43
explain what the Chinese were doing I think it was a clever diplomatic maneuver by the Chinese to try and grab
01:34:48
the moral High Ground here they're basically saying listen we're interested in peace we're going to put forward a
01:34:53
proposal the Americans fell into the Trap of basically dismissing it right away throwing cold water on it the U.S
01:34:58
state department has done this twice before remember back in March of last year enough tolly Bennett from Israel
01:35:04
tried to negotiate a peace deal and he himself said that it was the West the Americans who rejected it he thought it
01:35:11
had a 50 50 chance of succeeding you then had the peace process in Istanbul Turkey with erdogan presiding over it
01:35:17
you had the the Istanbul communique which again they were very close to having a peace deal and blinking in the
01:35:24
U.S threw cold water on it so what's happening here is that the U.S is not playing its traditional role as
01:35:31
Peacemaker where we try to go in and mediate these conflicts we're doing the opposite of that we're throwing cold
01:35:37
water in the peace process now why are we not acting as the mediator I'll tell you why but because we are a
01:35:42
co-belligerent this is an American proxy war that we're fighting against Russia so we have no interest in mediating a
01:35:47
peace process and moreover we're not trusted to mediate a peace process because we're one of the effectively
01:35:54
strategy by Xi Jinping yes to take the global moral High Ground I I agree with that no no I said it on Twitter a couple
01:36:01
weeks ago like this this is amazing that he's starting the peace process we want
01:36:05
regime change we want to deplete and we want to ankle Putin they want to keep him in the game the more despots there
01:36:11
are the the worse the better it is for them they would like to keep the Legion of Doom uh going they don't want to see
01:36:17
regime change in democracy in Russia eventually I don't think that's how they view it but listen Jake how is very
01:36:23
close to getting it but here's where I would disagree with you a little bit let me explain okay go ahead so from the
01:36:32
Chinese point of view the war in Ukraine is like Mana from Heaven okay they love
01:36:37
this war number one okay because it's interfering with the US's pivot to Asia we were basically in the process of
01:36:46
redeploying all of our force all of our military to containing them in East Asia
01:36:52
and now we're bogged down in Europe okay so that's number one number two we are massively depleting our stockpiles of of
01:36:58
weapons we've used something like nine years of stingers and five years of javelins and we're running out of
01:37:05
ammunition I can't believe we're running out of artillery the Russians actually have a six to one artillery Advantage
01:37:10
which is why they're actually doing much better in this war than people are acknowledging we should come back to
01:37:15
that the last thing is that the Chinese now are benefiting from the economic sanctions on Russia because Russia is
01:37:22
now selling them oil and gas and all their minerals so it's been this has been a wonderful
01:37:30
thing from the Chinese standpoint so this is the problem with us thinking in this Marvel movie Way of the World in
01:37:36
which we're the Super Friends and we're against the Legion of Doom okay is because there is no natural Alliance in
01:37:43
the real world between China Russia and Iran these are three very different regimes with different types of
01:37:50
governments who naturally would not get along they would be adversaries naturally
01:37:55
they'd be suspicious of each other as China and Russia were during the Cold War but we have pushed them closer
01:38:02
together this is the problem with having this overly moralistic view of foreign policy over to you Jason what do you
01:38:08
think is there a question is there a question what's the question yeah I mean you
01:38:13
frame it as the Legion of Doom so just explain well it's the axis of Evil the the the
01:38:19
50 uh Brainiac would not be working together if it weren't for us declaring a war on
01:38:28
both of them actually Pakistan Iran and and China work together on nuclear technology so they do when it's
01:38:38
convenient for them work on things like nuclear bombs so uh there is an affiliation but you're correct they're
01:38:45
they're the 50 of the planet of humans on this planet who live under authoritarians and so they they're
01:38:52
authoritarians they're always going to think in their own interests they're always going to think in their own
01:38:56
interests above their own peoples let alone the people of another country they don't care they don't care about human
01:39:01
rights if they don't care about the rights of humans and they certainly don't care about the rights of humans in
01:39:05
another country and the West is uh on a noble mission to spread democracy in the
01:39:11
world and that is a noble Thing Worth Fighting For and is worth defending free countries from despots I know that
01:39:18
you are a fan of these folks sacks apparently and you think they should be able to run amok I will take the other
01:39:23
side of it I think the West should act in unison the only criticism I have is that we are not acting in unison I would
01:39:29
like to see the West instead of sending Biden to Ukraine hold on we've talked enough you just accuse me
01:39:36
of somehow being fans of these people where did I ever say that I was a fan of XI and China or Putin or the ayatollahs
01:39:43
in Iran hold on you said we provoked Putin Putin invaded another country hold on we caused it
01:39:51
hold on a second I am arguing for a geopolitical strategy that benefits the United States I'm on
01:39:57
Team America and your policy of driving these people into an axis of Evil is foolish for the reason I said which is
01:40:04
we are going to power up the Chinese economy so they are a much more formidable enemy to the United States
01:40:10
that is the last thing we need to do now with respected hold on a second let me finished you had a chance
01:40:16
with respect to Ukraine and Putin there there's no question that Putin invaded okay he is the aggressor however the
01:40:24
question you have to ask is why and the fact of the matter is that first of all we fermented a coup in Ukraine in 2014
01:40:32
this is your democracy spreading that you like is all of a sudden we got these ngos and we got Victoria Newland from
01:40:38
the state department in there basically fermenting these coups it doesn't work out quite the way you think Jay Cal
01:40:43
that's problem number one okay then we try to run NATO right up to Russia's border okay and you expect them just to
01:40:50
accept that because we're a benevolent superpower that's not the way the real world Works Putin was tremendously
01:40:56
threatened by that and it wasn't just him it was all Russian Elites read the bill Byrd's member from 2008 yeah it
01:41:02
means that he explains that even the liberal elements within Russia were tremendously threatened by NATO
01:41:08
expansion that is what basically poisoned diplomatic relations between the United States and Russia and it was
01:41:14
a major cause of this war now listen just because you don't think it's provocative doesn't mean that the
01:41:21
Russians don't think it's provocative you have to be able to put yourself in the other guy's shoes for just one
01:41:26
second and the fact that matter is is there are diplomatic steps that we could have taken to defuse this crisis in this
01:41:32
war and we didn't do it and now look what's happened hundreds of thousands of people have been killed and Ukraine's
01:41:37
been destroyed it's been absolutely destroyed and let me tell you right now it looks like they're losing this war so
01:41:42
I don't see where your superhero policy has gotten us except to make China richer and more powerful and to destroy
01:41:49
Ukraine that is where your naive idealism has gotten us yeah and I would say if you if if left to your devices
01:41:57
and you are not engaging and not presenting a united front against Putin he will invade country after country the
01:42:04
West must fight for democracy we must fight for human rights even if it's uncomfortable and you seem to think we
01:42:11
provoked him to invade this country he's a murdering dictator authoritarian who has been murdering his own people I'm
01:42:18
saying other people for his entire career and he will continue to do so let me clarify because you're putting words
01:42:24
in my mouth okay when you say that I think that we believe believe what I believe is that we took
01:42:30
actions that in Russian eyes were provocative I'm saying that from their subjective
01:42:37
point of view they saw these actions as provocative they said so listen the Russian which is what I said we provoked
01:42:43
it is your position no yes I just explained that's not the words hold on his position is that in their eyes they
01:42:50
were pretty much Jason we're talking about and no why oh oh boy you're like what you're doing
01:42:57
right now is like dishonest I just explained the language that I would use yes yes we provoke them we took actions
01:43:05
that in Russian eyes were provocative there's a difference provocative provoked yes the act of provoking stop
01:43:11
lying okay it's getting too much okay let's move on we're gonna we're never gonna agree on the sax okay and I mean
01:43:18
in the audience that nobody on this podcast is an expert on foreign policy sax is not Henry Kissinger you know I'm
01:43:24
not Obama show you had come around to my point of view you said this war was a mistake on
01:43:32
the very last show you said it was a disaster and now no I believe the West should present a
01:43:43
united front and we should hold the line with Russia invading other countries that's my belief I do not think we
01:43:49
should be doing this solo I think we should not be sending Biden we should be sending 15 liters of countries to
01:43:56
Ukraine we should be sending people in and we should be doing a peace process and I think the military industrial
01:44:00
complex largely driven by the GOP is what's at fault here they want to use these
01:44:07
weapons they want to replenish the supply and they want to regime change I don't think we should be going for
01:44:11
regime change I think we should be building bridges so my point is a little more subtle you're doing it
01:44:16
right there you're basically engaging in this ridiculous rhetoric that we've seen
01:44:20
in the media which is that if you simply want a more realistic American strategy
01:44:25
because you believe it benefits America that you're automatically accused of not
01:44:29
being a Putin sympathizer no you're doing what the mainstream media has done I just said to you it should be the
01:44:35
entire West as a group as a block negotiating with Putin what do you think what do you think
01:44:42
to be part of that I I welcome Xi Jinping Germany and the United States and France and the UK all getting
01:44:47
together and trying to get these two parties to settle what do you think what do you think we're doing right or wrong
01:44:53
with China right now yeah what do you think we're doing right and wrong or right wrong or I think we
01:45:00
should be in discussions with them consistently I don't believe we should be isolating them I think we should be
01:45:06
looking for areas we can collaborate on the environment technology you agree you agree with the
01:45:13
chips act you agree with basically onshoring and you're showing all the critical infrastructure we need is that
01:45:18
I think we should not be dependent on any foreign we should have energy security
01:45:23
we should have uh methodology security technology of course yes but I think every country should I think China
01:45:29
should have that we should have it every country should aspire to be resilient and not be dependent on another country
01:45:35
and being dependent on a dictator like Germany was on Putin or we were with China for medicines or for you know
01:45:42
medical equipment or chips we do not want to be in that position ever that's one question just on Ukraine just for a
01:45:48
second Jay Cal would you be willing in order to achieve a peace deal for Ukraine would you be willing to
01:45:54
agree to two things number one that Ukraine would be a neutral country instead of part of NATO and number two
01:45:59
that we would recognize for Mia being part of Russia would you be willing to give those two things I think that's up
01:46:05
not up to me I think it's up to the people of Ukraine and Russia to sort this out and it's up for the West to set
01:46:11
the table for them to do it and part of setting the table for them to do it is to make it more painful for them to stay
01:46:17
at this war so if they are told if you keep fighting over these things and you don't come to a resolution between those
01:46:22
two parties who have to live with that resolution that is the uncomfortable thing that will force them and that
01:46:28
could be China us and India all working together all of us working together to force those two parties into a solution
01:46:34
that works for them we have Brad for 10 minutes I want to move on I want to show
01:46:37
you guys a tweet about Harvard students and I want you guys to react to draymond's comments because they're just
01:46:43
incredible I don't know if you guys saw this but isn't that unbelievable it says there was a study at Harvard
01:46:49
that found that 43 percent of white students there are Legacy athletes or related to donors or staff
01:46:59
that's unbelievable is that public knowledge or is that like kind of leaked information I wonder this
01:47:04
is from Dolores handy I don't know who that is maybe we could click on who the source of that is legacy's gotta go
01:47:11
right that that concept should I just go away yeah is there a valid reason to have a
01:47:19
legacy is there a valid reason to have Legacy it feels unfair it feels Un-American
01:47:25
that these important institutions give preference to people who are stupider and Achieve less if this is an
01:47:31
achievement based uh system it just feels unfair yeah I mean well we know we know that
01:47:37
the first class had zero percent the trend line looks like so at some point we're approaching 100 I think
01:47:44
we're just debated one question right one of the things I would like to see chamath is what's the relative
01:47:49
performance 10-years after graduation between the legacies and the kids who had to scratch and fight to get
01:47:56
into the place oh my God yeah I mean I think we know the answer well you would think they would be
01:48:03
higher performers the latter group but you would also think that if Legacy got you into Harvard then the Legacy your
01:48:11
group is going to get you into other things right you'll have the end in other places they're the ones who are
01:48:15
miserable and walking around you know rich and haven't achieved anything yeah well some sacks didn't get into
01:48:23
Stanford uh based on his stats buying a building right well that's for sure okay so uh here is a video from Draymond
01:48:33
Green what I do want to go back to is uh uh Black History Month this is actually
01:48:39
the first time you've seen me in a Black History Month uh shirt all black history
01:48:43
month and it's very intentional and I really just threw this shirt on because I didn't have another shirt to throw on
01:48:49
but black history month at some point can we get rid of it like at some point why why we got to keep getting the
01:49:02
shortest month to celebrate our history you got Governors want to take our history out of schools
01:49:09
and I'm not going to be the fool to go say yeah we get celebrated for 28 days so at some point I'd like to get rid of
01:49:16
it it's you know we're making all these changes in the world can't talk about these
01:49:22
people can't talk about those people can't say this can't say that at some point it's time to get rid of
01:49:27
Black History Month I get rid of black history like they're trying to do but Black History Month
01:49:35
nah teach my history from January 1st to December 31st and then do it again and then again and then again and then
01:49:45
again that's what I like to see strong so good he's the best you need to clip the last 10 seconds of
01:49:57
that that we all need to tweet that there was a a correction we needed to make about the stripe chart last week go
01:50:05
ahead yeah so you have the floor we talked about some stripe stuff last week and my
01:50:11
analyst came to me after the show was published and there was a couple of Miss calcs in the spreadsheet that generated
01:50:16
the graphic which big up to him for calling it out very quickly anyways I just wanted to show you the updated one
01:50:21
just so that we could make sure we get that on the record I guess this would be a purple color is that purple yeah
01:50:26
that's actually when you calculate net revenue and I think what did was calculated gross revenue which
01:50:32
is in the red so we showed this but it actually should be purple so that's the updated accurate version of the analysis
01:50:40
so there you have it what does that mean for stripe versus ad gen in terms of just which is a better business just to
01:50:47
summarize it no I mean I mean to be honest with you it doesn't it it's it says what we said before which is that
01:50:52
the the previous valuation was very expectation heavy and the new valuation is definitely more in line but still
01:51:01
very rich relative to other companies who have large profitability and large growth rates and I think that's the key
01:51:10
takeaway which is it's very hard to both have huge margins and grow it mediumly High double digit rates and the
01:51:19
few that can Visa Mastercard and adjen tend to trade it a very different valuation set than
01:51:26
everything else and so I think that's the challenge for stripe if they can do it they'll be in that class okay for the
01:51:32
Sultan of science doing his spack in New York having an incredible dinner in at Carbon right now can I say it can I say
01:51:39
Enjoy the vegetarian I pre-tilted him he texts he texts into our group oh don't do it don't do that and he said uh let
01:51:47
me know if you want me to dial in and save the episode my insta reply gerstner is on fire we're also
01:52:04
he's Irreplaceable except you know this episode is pretty good pretty good pretty good
01:52:13
we love you we love you oh my God it wasn't a bad episode until Jay Cal started words in English that you can't strike a
01:52:28
single word you struck my single word last week when I called under pressure in a debate he falls back on all the
01:52:35
usual virtue signaling and oh yeah yeah okay who did you vote for in 2016-2020 be honest see like you're doing right
01:52:42
now look at this oh God did you vote for Hillary and Biden Legion of Doom they're
01:52:46
the Legion of Doom [Laughter] you know there's actually a meme there's a meme on Twitter that anyone who
01:52:54
disagrees with me is Russian disinformation or Pro Putin I haven't seen that one yet that's pretty funny
01:52:59
that's basically you I don't think here I don't think you're probably knife during this entire year of Ukraine UK
01:53:06
Ukraine I say every time to be clear you're not saying Putin is right for invading Ukraine and you're like no of
01:53:13
course the dogs it just stop no no thank you for saying that no thank you for saying that I appreciate that I always
01:53:18
try to say that's making it correct so it's a very nuanced discussion it's a very nuanced discussion like we could
01:53:23
nobody's in favor of this war nobody nobody's in favor of it everybody's trying to resolve it I think we just
01:53:29
have different views of what resolution looks like did you guys read this crazy article in Bloomberg businessweek about
01:53:36
proz Michelle the founder of the co-founder of the Fugees and his entanglement with the one MDB Scandal
01:53:42
did you read this article no I have no idea article Stars I like the culture at the end let's put the tinfoil hats on
01:53:48
and do culture his phone rings and it's a Chinese woman that says something like
01:53:54
you know your cousin wants to meet you he goes to the Four Seasons where he gets a note that says walk around the
01:54:00
building twice to make sure you're not followed goes back into the Four Seasons gets a key card goes upstairs into a
01:54:07
room where they then escort him to a different room in a penthouse take all of his phones and he meets with the vice
01:54:13
chairman of security for China where that guy is asking for an introduction to trump it is that's how
01:54:20
the article starts it is incredible reading the incredible incredible reading I encourage all of you to read
01:54:27
it it's so uh what is it called juicy it's so juicy spicy if you want to read some crazy story there is a company
01:54:36
called wirecard in Germany and there's a New Yorker article about the biggest fraud in German history I highly
01:54:43
recommend reading this one we didn't get to it today but oh my God if we had like
01:54:47
a long reads post show it'd be incredible I personally don't think we should promote any stories by the
01:54:53
mainstream media we have no idea whether it's true or not I mean seriously we'll
01:54:57
see you soon thank you so much for filling in love you bro thanks bro yeah pretty pretty good love you guys for the
01:55:05
Rain Man David sacks the pacifist of Peace the Sultan of science Brad gershner the dictator chamoth I'm the
01:55:12
world's greatest moderator and speaker at your corporate event for 50 75 dimes Jake out talk to my speaker Bureau let's
01:55:19
get this grip done people we'll see you next week bye-bye we'll let your winners ride
01:55:29
Kim [Music] besties [Music] it's like it's like sexual tension that they just need to release somehow
01:56:08
[Music] we need to get Mercies [Music]