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Sach how are you doing with your Tucker Afterglow was an amazing episode the feedback has been great it's the number
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one episode of the year after vake I think and trending to be maybe a million views on YouTube so how's the Afterglow
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yeah I did notice there's one particular clip that's going viral where he calls you stupid yes there's that one do you
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see that one I thought Tucker was incredible I found him so intellectually interesting and it's not always the case
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that great moderators and interviewers make great guests but he is so intellectually
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curious and has unique points of view that you want to hear them out and his style of talking I find also like very
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easy to listen to I thought he was really impressive really really impressive you don't have to agree with
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everything he says quite honestly and some people probably won't but I found him really compelling I don't agree with
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half of stuff he said or maybe a third but I too enjoyed it very much I thought he was great saxs I got you
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know as the person people believe has Trump derangement syndrome thank you for your Tweet you know or the person people
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consider like the farle they're like why aren't you pushing back why aren't you pushing back and this has become a Maga
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takeover you had Jared kusher he didn't get pushed back you didn't get push back
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to Tucker you know one of the things we're trying to do here I'm speaking for myself is to let people talk let them
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put out their position and if you do that and we did that with the presidential candidates exceptionally I
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think then you can decide for yourself and yes we'll ask a hard question here or there or maybe you know push them a
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little bit but we don't want to make it uncomfortable to come here and make it like they come here and we take the 10
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worst things about the person or the 10 criticisms and run through them you can get that on cable news you can get that
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on either side of the aisle what I want to do is let them talk and then actually
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interesting things come up why do you always get this feedback because people perceive me because you say I have Trump
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derangement syndrome as the token left guy that's all and I'm a moderate and I try to keep saying that but people keep
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wanting to say I'm like far left I just want folks to realize that we're going to go and have more guests especially if
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we can learn from those folks and especially if hearing them out can expand how we think about what's going
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on in the world so get over it and it's about learning and being curious hard conversations will be the norm here on
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the Pod we're going to have any guests we damn well please and some people will choose to not ask hard questions I will
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choose to ask hard questions but I won't hijack the show and so please don't email me and tell me I didn't do my job
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fighting for the left or whatever that's not my job I'm going to ask a hard question when I want to on the show but
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I'm not going to hijack the show with 20 of them Bravo to you I suspect you're getting a lot of pressure from the
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private Equity wives yes I mean what a great moment what a great moment people on ssris Jason are
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blowing up your inbox let your winners ride Rainman David S and instead we open sources to the
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fans and they've just gone crazy with [Music] it well the conversation that everybody's going wild with so let's
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just get into it is these college anti-Semitism hearings on Tuesday the house education committee spoke with the
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presidents of Harvard pen MIT uh and they faced a lot of tough questions many of the videos went viral
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and and I guess the the part that specifically went most viral was the presidents of these organizations
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refusing to specify whether or not the cause for mass murder of a particular group
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genocide of students were or were not against the codes of conduct against bullying and harassment at places like
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Harvard Claud and gay specifically was asked over and over again whether chance of inata were violations of Harvard's
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code of conduct she didn't give a great answer I'm just curious Sachs obviously you're Jewish you went to the IV League
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passionate about free speech and you've talked about Surplus politics he is what's your take here
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should students be allowed to March around campus chanting from The River To The
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Sea into F Etc because of free speech or you know did these code of conducts come
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into play and what was your reaction when you saw their answers because obviously this a nuanced issue well look
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I mean I have a very high bar for free speech so I would allow you know almost everything the problem that these
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University presidents have is that's not their position they're trying to wrap themselves in the cloak of freedom of
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speech and academic freedom but that has not been their practice on campus for many years on a previous program we
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talked about that fire survey which pulled students about how free they feel to express opinions on campus the
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results were dismal for the IV League the Ivy League scored way worse wor than State schools and in fact remember that
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Harvard got the blue tari a 0.0 yes they were last place students there reported that speakers were
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shouted down they weren't even invited they weren't allowed to to continue and finish their speeches so Harvard has an
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abysmal record on freedom of speech so it's hard to believe the president of Harvard when she claims that she's to
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standing up for freedom of speech and in fact if you were to apply that same standard to other groups do you really
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believe I mean imagine if the representatives at that hearing had said to the president of
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Harvard you know are you allowed to advocate for genocide of black people or trans people I mean would the answer
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have been the same I don't think so I agree I think absolutely not so the question is why are Jews being treated
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differently than these other groups and I think this all goes back to kind of woke identity politics where in the woke
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ideology there are certain groups that are victim groups and there are certain groups that are oppressor groups and if
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you're in a victim group then you get special protections and if you're in an oppressor group then it's just assumed
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that you can't really suffer discrimination or you know Injustice in that same way and I think
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that Jews have basically been put in an oppressor group they basically are being
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put in the same group as as as all white people and I think this has come as a great surprise to a lot of donors to
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these University campuses who I think were okay with woke identity politics to some degree when they
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believed that Jewish people were a potential victim group and that anti-Semitism was being treated as real
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and lo and behold they have found out that no they're an oppressor group and they're not protected and even very
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explicit cases of anti-Semitism are not being recognized by these universities because again it doesn't match up with
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this woke ideology I think it would have been a lot better for a lot of these donors to realize that woke identity
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politics was a culde saac it was something that they should not have wanted to participate in but I think
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they're now waking up to the realization that that in this again oppressor oppressed dichotomy they're on the wrong
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side of that I think you're exactly and they don't like that realization exactly
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correct identity politics rad to Nowhere freeberg you gave a passionate speech here about being forced to pick a side
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when we're talking about the conflict in the Middle East and I guess there's underpinnings here of your
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discussion anti-zionism anti-Semitism and where's the line between he just caring about humans and
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children being killed versus maybe harassment Etc I'm curious when you saw these answers what was your reaction and
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yeah how do you feel about it I was surprised that the Congress people didn't ask the
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university presidents what would your reaction be if they started to burn crosses and
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say something about white supremacy black people don't belong in the US immigrants don't belong in the US
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if you picked another ethnic group and made statements that have traditionally been deemed threatening
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and harassing would they have made a difference of judgment and if so what's the difference between what's gone on
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this week or in recent weeks weeks and what's gone on in other civil rights actions that
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have taken place in educational institutions and I think that would have been like a really kind of telling
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understanding of the discernment that's that's being made on campus today versus
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in the past it is interesting to see that there's clearly a sense of being torn with respect to allowing the
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freedom of expression about groups that feel oppressed to be allowed to happen on
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campus because that is probably a majority opinion and that's why I think this is particularly difficult for these
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presidents to handle the situation and I'm not excusing their behavior or their actions or their comments yesterday but
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there's clearly something underlying this that I think we need to just acknowledge which is that there is a
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large number number of people perhaps the majority of people that feel that there is some oppression going on and
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that that oppression has a right to be spoken for and that this behavior is the only way the Boston Tea Party did not
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follow convention the Boston Tea Party was a rebellion against an institution that was oppressive and the Boston Tea
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Party was the only action that was going to make a change that could have driven
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a change and Rebellion against an institution or an establish M that causes oppression isn't supposed to have rules
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it isn't supposed to follow convention it isn't supposed to be a discourse and so I think that that sentiment is where
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a lot of this conflict is coming from for the presidents in making these decisions
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that they see that the majority of people truly believe that there's oppression that this is the course to
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speak up for that oppression and that they can't step on that because if they did they would be causing more
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disruption to more people than allowing it then it's a very difficult situation that they find themselves in so I'm not
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excusing it but I'm trying to frame up why I think yeah otherwise smart people might
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be acting this way frankly I think it's worth asking what would be the case if this were
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other ethnic groups or other people that were being kind of you know told hey we're going to have an inata against X
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or Y or Z would the actions have been the same chabat if they were asked that same question is calling for the
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genocide of black Americans asian-americans indian-americans trans Americans harassment or
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bullying what do you think their answers would have been and then where do you think this is going I don't know what
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their answers would have been but obviously it's morally unacceptable as best as I can tell they were coached by
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lawyers before they appeared in front of Congress and they found some verbal gymnastics maybe to try to defend their
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point of view and in it they lost all moral Clarity because to your point Jason if
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and to freedberg point if you just replaced the Jewish people with any other cohort of people maybe in this
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moment it was harder to see but it's like the these should not be debatable difficult moral questions
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so how did we get here I think that over the last 40 years and to be honest it started when the US
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News and World Report started to rank universities they gamified the desire for these
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universities to get at the top of a list which allowed them to theoretically get
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better recruits but really what it did was allowed them to build massive asset management
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businesses that ultimately consumed these schools and now what you find is that the learning process has gotten totally
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perverted because it became a second order priority to being able to raise money and to manage assets I think
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Harvard management company at one point was one of the largest owners of Forestry in America you know the other
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large owner was John Malone a rapacious capitalist so what this shows you is that the mission of these universities
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which is to actually celebrate free speech and to teach kids to think critically has been lost and I think
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that this was a very simple way of seeing it and it should be disturbing to people that this
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happened that the places where you send our 18 and 19 and 20 year old kids cannot at a very simple level teach
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the moral Clarity to say teaching or supporting even the concept of genocide should is wrong
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can you teach it in a historical context obviously but that's not what they even
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said there right so they got into a level of verbal gymnastics which I think is really it should be viewed by
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everybody as pretty morally unacceptable I think it's well said and it's clearly
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bullying or harassment if you're going to chase Jewish students around campus and I think that's what we saw now if
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you were to chamath or saxs or maybe Sachs best since you're super have a super high Benchmark for freedom of
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speech if these were students in a debate club or in a lecture hall giving their position taking hard questions
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people opting into it wouldn't feel like bullying harassment yet the hypocrisy is so thick that they
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you know they chase people like Ben Shapiro off- campus Etc when they had something controversial to say at many
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of these schools but I think we can all agree chanting about genocide and chasing
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students around campus and disrupting the campus that feels like bullying or harassment I don't know that and I agree
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with you chamat this mental gymnastics that they went through with these statements it's just very easy to say
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yes that's harassment yes that's bullying now if you did it in a lecture hall and you or you wrote a paper Sachs
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maybe doesn't feel like bullying or harassment feels like freedom of speech yeah yeah look I mean we can you can
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always debate the the hard cases and in free speech and where the lines should be and again I would draw the lines in a
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way that make makes most speech permissible but when you're talking about chasing students around campus to
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yell in their face that clearly is bullying and harassment and there's no reason to ever allow something like that
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but again the point I would make is that what you're going to see in the wake of
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this is that a lot of Jewish people are realizing that they don't have a home on
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the left anymore and I expect that many Jews are going to start shifting right and enter the Republican party to a
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place where I've been for a while and and I think this goes back a long way so if you go all the way back to the
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original civil rights movement in the 1960s I think that many Jews were an integral part of that movement and they
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felt a great solidarity with the original Civil Rights Movement civil rights leaders because they felt like
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they had a shared history of persecution that blacks in America had suffered from
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racism Jews around the world felt like they had suffer from anti-Semitism and they basically believe that all peals
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should be treated equally that we should have individual rights and and basically
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they were advocating for a colorblind standard right a colorblind treatment of all people and so I think that Jews
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historically have wanted to be on the left for that reason but I think what's happened over the last few decades is
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that the civil rights movement in particular and the left have moved to this woke ideology where it's no longer
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about colorblindness it's more about identity groups and instead of trying to get past racial differences it's been
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about accentuating them and so we've had this whole Equity agenda which is really
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defined as redistribution from one racial group to another racial group I think that for whatever reason a lot of
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Jews just hadn't confronted the reality that the left had really changed in this
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way and again I think it goes back to the fact that they thought that oh well if we're going to be defining identity
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groups in this you know woke way you know Jews obviously should be one of these victim groups but they're waking
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up to the fact that Jews are not you know Jews are just in the in the minds of kind of woke ideology Jews are just
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white people okay successful white people with too much powerful white people with a Jewish background and as a
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result they're part of an oppressor class and I think that for a lot of Jewish people who are waking up to this
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they're realizing way to Second this is actually a very destructive ideology and it makes us the bad guys
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and so I would expect that again a lot of Jewish people are waking up to the ways in which the left has changed and
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they're realizing that that is not a hospitable place in the political Spectrum for them to be and I would
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expect there to be kind of a a pilgrimage now of more Jews in America towards the right as opposed to
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remaining on the left where they've always been yeah the left needs to remember people should be judged not by
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the color of their skin or their ethnicity but the content of their character uh it's like quoting MLK could
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get you cancelled right now I think to actually say that people should be judged by their character color
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blindness is considered you know a lot of people call that racism now that's like that by the
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way that that is the mainstream conservative view on civil rights related issues is that color blindness
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should be the standard right you want to treat everyone individuals yes exactly but that it was the liberal point of
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view this was the Civil Rights movement's basic tenant yeah we've lost it all by the way I think there is just
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one other caveat we have to say about this whole issue which is that it should be possible to criticize the state of
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Israel or netanyahu's government or the bombing campaign they're conducting in Gaza or the actions that led up to this
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event there should be room to criticize Israel without being called an anti-semite I want to be like really
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clear about that and there needs to be a pretty wide latitude to have that conversation and I do think that one of
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the mistakes that's happened for a while now is that Jewish groups have been a little too quick on
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the trigger to call people anti-semites for criticizing the policies of the Israeli
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government and again I think there needs to be wide latitude to do that however I
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don't think that's the type of speech that we're talking about here Jason I think you framed it up pretty well this
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is people who have veered off of legitimate criticism whether you agree with it or not the legitimate criticism
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about the Israeli government's action into this sort of genocidal rhetoric and that's what we're talking about here
00:20:13
absolutely any final thoughts from the rest of the panelists before we move on to business topic you guys think that
00:20:18
they're going to get fired or what do you think is the right consequence for this I think they're getting fired I
00:20:23
think the money as you pointed out in your Tweet storm is going to cause that they're going to a lot of donations what
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do you think free I'm not tied into these like donor groups it's the donor groups that are going to drive the
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decision because they're going to call the boards and so I think it's really board dependent obviously Amman is a big
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donor at Harvard and he's been very vocal about what he wants to see Harvard's board
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do I think this is going to drive a big change whether individuals get fired I really don't know I think of the four if
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I were to just have to make a bet I'd say probably at least one of them's getting fired I don't know it's like but
00:21:01
it's certainly going to change a lot Jam you think they're G to get fired what do
00:21:04
you think as you WP final word Jam yeah I think I think freeberg was right you have to follow the money and I think the
00:21:09
money has been very clear that this can't stand and I think that that's good because I think the people who've been
00:21:15
donating have enough moral Clarity on these kinds of topics to say this is unacceptable so how long will it take to
00:21:21
filter through the decision- making I don't know because I I also don't know how this Machinery works but I think
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what people have to decide immediately right now is all the kids that are applying for
00:21:32
Early Access and early decision do you really want to go to these schools and the parents do you want your
00:21:40
kids to be going to these schools so I think that's that's a kind of a a decision that can probably happen right
00:21:46
now or needs to happen right now while all of this other kind of like donation driven asset manager driven
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decision- making takes shape all right let's get into the state of the economy there a really interesting story I sent
00:22:00
to the group chat from the financial times about tribalism now impacting how people view the economy it's called
00:22:08
expressive responding basically how you feel about the economy is based on which
00:22:12
tribe you're in here's a a quick snapshot of what's going on if you're a Republican and you were doing really
00:22:20
well under Biden you're going to say things are terrible in the economy during Trump Dems were doing awesome
00:22:25
like everybody else but because they hated Trump they said economy was trash here's the chart that explains that and
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then I'll give you a couple quick bullet points of where the economy is but you see the Divergent there in the charts
00:22:38
and based on the different administrations being in power and if you look at the second chart it's pretty
00:22:44
telling this isn't happening this tribalism is not happening in other countries you can see France Germany UK
00:22:50
people feel about the economy how the economy is actually doing pretty wild data and I'll let you respond to that in
00:22:58
just a second I'm just going to give you eight quick hits on what's going on in the economy credit card debt it's
00:23:03
reaching all-time highs we surpassed one trillion back in July keeps Rising people are taking money out of their
00:23:10
401ks hardship distributions increased 13% between Q2 and Q3 super spending just claped in October growing only. 2%
00:23:18
last month versus 7% in September but November year-over-year increases in Black Friday and Cyber Monday spending
00:23:25
so maybe that's a head fake I don't know maybe people bargain hunting hunting consumer Prices rose just 3.2% year-over
00:23:32
year in October versus 99.1% in June of 20122 Home sell 13year low in October most folks are betting interest rate
00:23:42
increases are over and summer betting interest rate Cuts will start as early as q1 ki's forecast say we should expect
00:23:49
to see and that's a prediction Market two quarter point cuts by July Sachs you've been bearish on consumers and all
00:23:57
this crazy debt is this the beginning of the end is this the end where are we at in the consumer
00:24:03
spending cycle it's hard to know because there's so many mixed signals kobay letter had a great tweet
00:24:11
on this there's a lot of mixed economic data right now but I mean the economy seems to be doing fairly well but the
00:24:18
electorate doesn't feel it and you're seeing in recent weeks you're seeing a lot of commentary by pundits trying to
00:24:27
convince the American people that the economy is better than people evidently feel that it is and I think that one of
00:24:35
the big reasons for this Gap is that over the last few years we've had a lot of inflation
00:24:45
and the rise in price levels has not been matched by the rise in people's incomes so people simply feel worse off
00:24:52
because their spending Powers diminish now it's true that the current inflation rate is going down but all that means is
00:25:01
that the price level now is growing at call it 3% is a year it's still growing it's not like prices have come down
00:25:08
they're just rising at a slower rate so you know last year we had a 9% in inflation and inflation's been high the
00:25:17
last couple of years the rate of increase is slowing down but people's wages if you're workingclass have simply
00:25:24
not kept up with the price of goods and services is and so I think people feel worse off than they did a few years ago
00:25:33
and you can try to convince them till you're blue in the face that actually the economic data is great but if you're
00:25:40
somebody whose wages have not kept pace with price levels you're not going to feel better off chamach on your first
00:25:47
point I think that there is this thing that we've grown accustomed to which is how you feel about what's happening
00:25:58
versus what the data may say and I think that the press and journalists in a pretty untrustworthy
00:26:08
way amplify this separation so we hear about the economy doing well maybe it's not doing well we hear how the economy
00:26:17
is not doing well and it actually is doing well nobody wants to write about the data people want to write about
00:26:23
their feelings and their feelings largely are more defined by the people around them and what they feel so simple
00:26:29
example Nick if you just want to throw this up but there was a this is the Federal Reserve data this is not anybody
00:26:34
else's data but you would think that the wealth Gap is being exacerbated and you
00:26:39
would think that wealth gains are going to a few and again without having an opinion the data shows something truly
00:26:46
incredible which is that the American dream is not hanging on by a Lifeline but more and more American families are
00:26:54
achieving it you know 12% of American families are now considered millionaire households 8% are considered
00:27:01
multi-millionaire households that's incredible but what's even more impressive is that even as they do well
00:27:08
the cohort underneath them the folks that make 150 to 250k a year are the ones that are absolutely
00:27:15
crushing and they're making more than the top 10% of all families so I think Jason the the broader economic
00:27:24
takeaway I have is unless you're willing to look at the raw data the risk is high that you will be fed an
00:27:34
emotional perspective that amplifies your bias or causes you to reject that view
00:27:40
because it just seems so untrustworthy and it doesn't map to what you're seeing it's very very hard to tell the truth
00:27:45
that is Federal Reserve data that tells the truth about the US economy and it turns out that you know the economy is
00:27:51
pretty good and doing a lot for a lot of people freeberg where you said you've brought up
00:27:58
the issue of credit card debt as a leading indicator it's continues to Surge but there is some inkling that
00:28:05
consumers may be tapped Out I.E tapping their 401ks so what's your take on the consumer and this tribalism that we're
00:28:14
seeing in the interpretation of data and how people feel about the economy no I mean I think if people don't feel like
00:28:20
they're progressing on the order of 10% a year in terms of income adjusted for purchasing
00:28:29
power they're generally going to be unhappy and they're going to project that as a general statement about quote
00:28:34
the economy and so the more people that that's the case the more you see that happening and so while there may be you
00:28:41
know a minority of people that are seeing great economic Mobility if a large enough percentage of
00:28:48
people I don't see it roughly call it 10% increase in lifestyle ability year toe that's going to you know catch up to
00:28:58
these overall scores of consumer sentiment I think the way that economists measure the economy is a lot
00:29:02
different than the average person measures the economy which is really their own you know purchasing power and
00:29:07
income sa sure that's look at the end of the day the question that people ask themselves which is the question that
00:29:13
Ronald Reagan asked voters in 1980 is are you better off than you were four years ago and I think that a lot of
00:29:19
people particularly workingclass people don't feel better off because mainly their wages have not kept pace with the
00:29:26
overall inflation level not just measured on a one-year basis but Over a four-year
00:29:32
basis and I do think this could explain some of the tribalism Jason is that we've talked about this before that the
00:29:38
biggest Gap in the electorate is between professional class and working class if
00:29:43
you're a professional class meaning you have a at least one college degree by more than 30 points you're
00:29:49
likely to be a Democrat and if you're a working class which just means you know no college degree let's say High School
00:29:55
educated you're much more likely to be a Republican the parties have sort of flipped the Republican party is now a
00:29:59
working-class party I think a lot of people find that very surprising it's not the party of you know fatat Bankers
00:30:05
anymore and and you know the Fortune 500 it's so the parties have really flipped
00:30:10
and I do think that workingclass people are most impacted by inflation if you're kind of in lower to
00:30:18
Mid income and your wages the wages of Labor have not gone up and prices have then you're going to be worse off I do
00:30:26
think that is a big part of it and I think the media is sort of working on overdrive right now to convince
00:30:31
people that they should think that their circumstances are better than they actually are and um and may look maybe
00:30:38
the overall economic data right now is mixed to positive I'll certainly concede that but I think for the average person
00:30:47
what they care about is their pocketbook and it's far from clear that they're better off now than they were four years
00:30:51
ago Jason what do you think I think it's a very important segment because your correct sack in a very nuanced Point
00:30:58
multiple things through it once here there is still sticker shock from inflation I went to buy birthday cake it
00:31:04
was $47 for a cake I was shocked how does birthday cake go $47 is it made of cocaine well no no I just put the
00:31:11
cocaine all over the top but yeah that's you know I think I got truffle shaved on
00:31:15
it I literally felt like it was a white truffle cake and this was a small cake it was nuts anyway there is sticker
00:31:21
shock the truth is though wages are very strong right now and wages are slightly
00:31:26
out pacing inflation but that is a new phenomenon correct Sachs that is a new phenomenon so people are still feeling
00:31:33
the sticker shock but at the same time unemployment and wages Drive how people feel and people are feeling obviously
00:31:40
very confident as you see in the credit card debt when you're confident to chat's point about just follow the money
00:31:46
and look at the actual numbers people would not be taking out credit card debt they wouldn't tap the 401K if they felt
00:31:51
they've got great job prospects they have options for jobs it's a 50-year low in unemployment which is is unbelievable
00:31:58
that that's continued and wages are increasing Uber drivers are now making $34 $36 and listen I've been tracking
00:32:05
how much they make from the beginning it was $15 then $20 and $25 so wages are increasing massively
00:32:12
the GDP is 5% or something like that and unemployment is low so the economy is actually doing extraordinary that's just
00:32:19
the fact but the sticker shock is very very real so I think we can wrap it there unless anybody wants to add
00:32:25
anything by the way just over the last month there's been a huge rally in stocks especially gross stocks
00:32:31
Bitcoin has now rallied to 44,000 what yeah that's nuts a firm is up like 20% today that's you know the
00:32:39
buy now pay later companyc on strong Christmas spending like you're saying all the stocks sacks that bottomed
00:32:47
because of interest rates have now just started to massively rally massively so all the secular this is all based on
00:32:55
expectations of rate Cuts coming sooner than people thought and I think Bill Amman has really LED this trade and he
00:33:01
timed it perfectly apparently by basically going long the bomb market like a month ago 10 years at 417 411
00:33:10
sorry I mean we're we're off like you know 80 basis points in like a couple months it's nuts right but all all this
00:33:17
Euphoria we've gone from Fear to Greed and you know really in one or two months it's all driven by rate expectations
00:33:24
that people are expecting a rate cut in q1 and so far that's not really justified by the fed's hawkish rhetoric
00:33:33
but people nevertheless seem to think it's coming I think that this could be oh do you want to put on my tinfoil e
00:33:40
conspiracy conspiracy a sound I I think I think there will be a ray cut in q1 and I think this is the
00:33:50
Biden bailout let's go I think this is I think this is a Biden bailout by the FED
00:33:56
because if they cut rates in q1 that's going to make everyone feel really flush it takes about six months to work its
00:34:01
way into the system but that's going to give a big boost to the Biden campaign if you see a quartero rate cut in
00:34:07
q1 a trillion of the 5.7 trillion in money market accounts will rip into the market oh wow that'll be nuts just
00:34:17
people knowing that they're on the way down that they peaked and on the way down is going to unlock a lot of capital
00:34:22
it's going to unlock a lot of capital and to be clear it's a small group of people who believe it's coming in the
00:34:27
first quarter Bill Amman and David Sachs the majority according to prediction markets think we'll have two of them you
00:34:33
know by the summer without debating whether it happens in first quarter or second quarter the more fundamental
00:34:40
thing is if you look two years out you probably see rates around 2 and a half% and
00:34:47
that's 160 basis points from here that's the big big change that I think helps all of us quite honestly yeah and let's
00:34:56
segue here here great segment by the way gentlemen because in our backyard what we do every day in terms of capital
00:35:03
allocation and building companies the cleanup work continues it was a rager folks people partied well into the next
00:35:11
day and we're still seeing seeing the cleanup carda uh has some great data and this is data amongst Carta users which
00:35:18
is a subset of users willing to pay an expensive price to manage their cap tables the number of companies that shut
00:35:25
down after raising 10 million which is a very high Benchmark that's up 238% in 2023 from 47 companies last year
00:35:34
to 112 this year also VC firms and I'm seeing this very quietly happening this isn't reported on VC firms are very
00:35:42
opaque about laying people off or reshuffling the deck but a firm called open view out of Boston just abruptly
00:35:49
shut down they had 70 plus employees they just raised about 600 million of an $800 million Target for their fund
00:35:57
there were reports about grof not hitting their target and reshuffling a bit that might have been overstated to
00:36:02
be honest but on the bright side we're seeing some rebounding in ARR of the public SAS companies that started to
00:36:10
Rebound in Q3 here's the chart from altimer looks like we hit bottom in q1 of 2023 another bright spot public firms
00:36:19
that are continuing to downsize are getting rewarded by the public market Spotify just did a third layoff 177%
00:36:26
it's around 1,500 employees so I guess Sachs everybody was thinking SAS was over it was the end of days we talked
00:36:34
about not a a a recession in SAS but a depression and I think that was accurate how are you feeling about the private
00:36:41
company market and maybe stabilization or the return of growth in in SAS companies well what I've been saying for
00:36:49
the past year year and a half is that we've been in a software recession the overall economy may not have been in a
00:36:56
recession because the consumer has stayed strong as you said consumer spending has stayed strong so the B to C
00:37:02
part has held up the economy but I think in B2B and particularly in software there has absolutely been a recession it
00:37:09
started in the first half of 2022 with rate hikes there was a huge revaluation of grow stocks and you saw multiples
00:37:20
come down on SAS valuations from in the public markets as high as 35 down to seven or eight something like that in
00:37:29
private VC world we saw valuations go from call it 100 times AR to something more like 30 times AR so the first half
00:37:37
of 2022 we saw valuation correction but then around mid 2022 what I started seeing in all my board meetings was
00:37:44
every startup started missing its sales forecast and they started reforecasting down and that process really continued
00:37:51
for a year and we saw the exact same thing in the public markets and public SAS companies as well and it's really
00:37:58
remarkable how the data from the public stocks that our friend jam and ball from
00:38:05
altimer has been publishing you know regularly how that has matched up with what I've seen kind
00:38:12
of anecdotally in board meetings and you know in conversations that's super cor that the the CEOs and the boards
00:38:22
understand hey these private Market valuations have to in some way be informed by public this is a very sure
00:38:28
because the public stocks are the exit comps right so you know if the public stocks are worth I don't know a third of
00:38:35
what they used to be then private valuations have to reflect that but in any event I want to go beyond just
00:38:40
talking about valuations here I want to talk about the business results and again for this time period from call it
00:38:47
mid 2022 to Mid 2023 there was a software recession software companies were cutting jobs
00:38:55
they were reforecasting DT down they were growing slower in many cases they were actually shrinking I mean some
00:39:00
companies lost ARR because of churn you know a lot of their customers were shutting down or
00:39:08
sharpening their pencils they were consolidating vendors the last year has been a really really tough time in the
00:39:14
software space but I think now we've turned a corner I started seeing in the last couple of months I started seeing
00:39:20
green shoots in some of my board meetings and now here we have this chart from jam and can you just put this on
00:39:26
the screen again where we saw that finally in Q3 we went from four quarters of negative growth in net new AR to finally
00:39:36
a quarter of Positive Growth now 2% is not a great number but at least we are finally positive as opposed to negative
00:39:44
which means that n new AR was shrinking I think again the the software assession
00:39:48
I'm calling an end to the software recession and officially is it an official breaking breaking news saxs has
00:39:55
called an end so let let the party begin I think software revenues are going to rebound I think the open question that's
00:40:03
remaining then is Will valuations rebound or will you have to grow into the last valuation or some truncated
00:40:11
valuation and this is where you know even if rates go to 2% are people going to be as excited
00:40:18
again to bring the public markets back to 15 and 20 times for ARR and that's an open question I think the market says no
00:40:27
which means that even as growth comes back you still have a valuation reset that may actually explain why startups
00:40:35
are shutting down why Venture firms that you know if you looked at that firm in in Boston that shut down they had some
00:40:42
seemingly very good companies in their portfolio so there should be nothing stopping them from continuing to raise
00:40:47
capital and invest but I just suspect the the End Market that they operate in is going to be value constrainted if
00:40:54
they pay top dollar for things that are now just worth a lot less even if they double Revenue I'll give you an
00:41:01
example we talk to the private Equity guys a lot just because we try to understand where they are buyers right
00:41:07
why is that important shath explain why private Equity versus public markets and
00:41:10
how they think about businesses because I think it's a very important point that
00:41:13
you've made to me privately I think that when you look at the ecosystem the ecosystem doesn't work if you never get
00:41:22
liquidity to your employees and to your shareholders ERS so liquidity happens in
00:41:28
one of two ways it can go in the public markets or you can transact to private Equity why
00:41:34
because they have almost as much money and frankly more in many cases to pay than a public market can give you via a
00:41:43
traditional IPO so I think that they are a pretty rational buyer and they do a very good job because they are a
00:41:50
concentrated buyer of finding a very fair price what is the real honest market clearing price and so if you
00:41:57
don't want to look at the market through rose-colored glasses and you want sobriety ask a private Equity investor
00:42:04
what they would buy your position for that's why I spend a lot of time talking to them because I want to know what this
00:42:09
stuff is really worth and what I would tell you is that even for companies that are in the hundreds of millions of
00:42:16
ARR the premiums that they're willing to pay are between three and five times ARR
00:42:22
at the highend and that a lot of deals get transacted between one and three times AR that may not be what people
00:42:28
want to hear but that's because when you look at the underlying ability to generate cash flow many of these
00:42:34
businesses haven't proved it yet and so they want to buy things in a margin of safety where they can come in
00:42:41
and cut certain expenses while still helping to grow in certain markets all of that used to be a 10x multiple in the
00:42:51
public markets so if private Equity is buying for three to five times and really one to three times
00:42:57
it's going to be hard for the public market buyer to be paying a lot more than that got it can I build on that
00:43:02
this is a chart that was published on December 1st by Jamon at altimeter and I do think it speaks to the valuation
00:43:11
question quite well you can see here that there's this line at 7.8 times which I think refers to 7.8 times next
00:43:21
12 months Revenue uh that is the long-term pre-co average so that is where the average SAS stock has traded
00:43:30
over a long period of time we're currently as of December 1st we're at 5.8 I think it's probably a little
00:43:36
higher now because the Market's pretty much rallied over the last five days but you can see that we're still trading
00:43:43
below the long-term average in terms of multiples and part of that is because interest the 10- year is still at 4.3%
00:43:52
although it's come down quite a bit you can see a peak there around 5% now it's at 4.3 if you believe that the
00:44:01
10 years is going to go back down to I don't know this 2 and a half 3% range and if you believe that growth is
00:44:08
reaccelerating then I think there is room you know for this number the 5.8 number to at least grow into the
00:44:19
long-term average which is 7.8 so there there is room there I think that as the St are priced today it
00:44:28
doesn't feel like they're overpriced let's put it that way and I never want to tell anyone what to buy but you can
00:44:35
see here that we are still trending below the long-term average he should pull this number back to 2010 uh
00:44:40
interesting so at the start of the super cycle yeah after the Great Recession yeah yeah it's not a bad point and
00:44:46
probably pull it back frankly all the way to 2005 2006 because you had enough companies there that were public that
00:44:52
were sassy software companies including Salesforce might be a six and set 7.8 and we might be at the 20-y year average
00:44:58
that's a really good point I'll ask BR to do that freeberg switching to you you have been a capital allocator and
00:45:04
Company formation executive for the last well close getting close to a decade and you
00:45:10
made big news this week instead of doing more funds which I know you had a lot of
00:45:15
people interested in backing your funds you decided you're going all in and that
00:45:20
you are choosing to take the highest performer most promising company in your portfolio and become CEO of that company
00:45:27
explain your decision because I think it does relate exactly because you're got skin in the game here the most skin
00:45:33
possible which is your time you've decided to go the CEO out put all your eggs in one basket explain your thinking
00:45:38
we started a business at the production board which is my firm four years ago with Jud Ward who's
00:45:46
the CTO and co-founder of this business who came up with some pretty novel ideas
00:45:51
on how we could use Gene editing to make incredible transfer an agriculture reality the conversation originally
00:45:59
started from a paper I read in January of 2019 I reached out to Jud and said hey we should talk about this paper and
00:46:06
we started brainstorming and Jud came up with this concept for this business and
00:46:10
it was really a you know call it a moonshot that they undertook and we've put tens of millions of dollars of
00:46:19
capital into this project over the last four years and been operating it in stealth and the team had some pretty
00:46:24
significant breakthroughs this year that make the whole thing a reality now the potential of the business is so
00:46:30
significant that I really don't have a choice but to go all in on this it's a no-brainer as I said in the tweet I put
00:46:38
out I could spend a bunch of my time as you said like starting other businesses or making Investments but at the end of
00:46:44
the day you know investing a cruise to a a power law where if you have something
00:46:52
that's going to be transformative it could be many multiple on all the other St you do and so it
00:46:59
only made sense for me to say look I've got toate my time attention and energy to making sure that this business
00:47:05
realizes its potential I'm going to go in full-time as CEO so it's pretty exciting you know Gene editing I'll talk
00:47:11
a little bit about it but I can't share too many details Gene editing as you guys know was discovered it's
00:47:17
controversial whether it was discovered first by George church and the group at the at the broad in Harvard or Jennifer
00:47:23
dowon and her group at Berkeley but crisper cast 9 is the system that allowed us for the first time ever to go
00:47:32
in and make specific edits to DNA uh historically any work we've done in the genome has been you know
00:47:40
very ad hoc halfhazard throwing large amounts of DNA into a cell to try and get that cell to do something but
00:47:47
crisper really unlocked this call it search and replace function in DNA and that capability has allowed researchers
00:47:56
to make novel Therapeutics to create have new discoveries in biology and it's really unlocked an entirely new era in
00:48:04
Biology one application of Gene editing is in agriculture where we can look specifically at the genes in plants and
00:48:10
what they do to the plant and if we can make specific changes that you would otherwise see in nature through
00:48:18
traditional plant breeding and mutations happen over time through plant breeding
00:48:22
can you accelerate those changes and can you make a set of changes rather than spend Millennia breeding plantss can you
00:48:28
make a specific set of changes that will cause the plant to do something very novel and as a result get the plant to
00:48:34
be more successful and by editing the DNA of the plant to make it more successful its yield goes up it can
00:48:40
generate more food with less water more food with less land more food with less labor etc etc that's the general premise
00:48:47
on how we can use Gene editing to drive productivity in agriculture amazing and you could I assume make the straw
00:48:55
berries taste more delicious like those ones from haido in Japan as opposed to just making them giant flavorless
00:49:02
softballs the weight Gene editing has been thought about in agriculture over the last decade has been exactly what
00:49:08
you're saying which is to make a specific trait edit which is one edit in one gene that does one specific thing to
00:49:14
the plan and what Jud and the team came up with was starting with the problem rather than starting with this you know
00:49:21
kind of very specific thing that we could do and they said how do we get yield to go up significantly in plants
00:49:27
and they came up with this creative idea which is doing a series of edits which is called Multiplex editing multiple
00:49:33
edits across multiple genes that would actually change the biology of a plant in a fundamentally understandable way
00:49:41
but that would ultimately Drive such a transformative increase in yield it would open up entirely new opportunities
00:49:47
in agriculture and so that was the moonshot was the series of edits that could you know change how
00:49:53
plants you know do a specific set of things that makes their yield go up significantly and we weren't sure if it
00:49:59
would work first of all we weren't sure if it was possible to do the edits editing plants is very hard the
00:50:04
cell wall of plants has to be dissolved then you have to get the editing Machinery into the plant into the cell
00:50:10
and then you have to get that cell to edit the right Gene and not have other edits and then you have to get the cell
00:50:15
to grow back into a plant there's so many complicated difficult steps you have to get all of them to work and then
00:50:21
we weren't even sure if making all those edits would cause the outcome that we expected and it turns out
00:50:25
that it does and that happened as of a few weeks ago this company and that's why I decided to step in because
00:50:31
Suddenly It's like oh my gosh the moonshot is working we put in a lot of capital we spent years funding the
00:50:36
exercise it's real and now we're going to take off um and that's why I'm going all on on this I so I'm being a little
00:50:42
Cy with respect to the details as I understand it's top secret stuff that's fine I definitely want to talk more
00:50:48
specifically about what the team's done and what we're going to do with the business which I will happily do in a
00:50:53
few months when some some things become public but in the meantime I'm excited to do it
00:50:57
I got to tell you the last SE it's been seven years since I've been an operating
00:51:02
CEO and you know to some degree there's always been a piece missing for me in what I do every day that I haven't felt
00:51:10
like I've had the ability to have the influence and make the decisions that I think need to be made you're advising
00:51:15
the CEO you're sitting in a board seat kind of encouraging them to do certain things but then sometimes they listen
00:51:21
and sometimes they don't so to actually be in the seat feels to me the right place it's the right place where I can
00:51:27
have the influence and drive the change that I want to see and I haven't done that in a very long time and so it's
00:51:33
also personally I think the right decision for me to find you know satisfaction in the work I'm doing not
00:51:38
to mention the excitement I get out of the business and you and I have talked about this privately you know the the
00:51:43
world has too much Capital there's just tons of money there's too many problems to be solved the real issue especially
00:51:50
when you're running an incubator or uh a stu you know a startup Studio like some
00:51:55
of the startup Studios is who is going to Pilot this very fast jet fighter and the number of people who are ambitious
00:52:05
and technically know how to fly one of these planes and do it at high speed and you know want to take on that dangerous
00:52:12
cockpit is very low and so I think it's very courageous of you to jump on and do
00:52:16
this so congratulations the point you're making is a really good one worth talking about just for a second there's
00:52:21
been this criticism in Silicon Valley and I'd love your guys's point of view on this too jamath and saaks but like
00:52:28
and Jal but like there's been this criticism in Silicon Valley which is that you know we do too much of the easy
00:52:34
stuff and to all the capital goes into the apps and stuff the things that are the path of least resistance to making
00:52:40
money not into the hard things that are low probability require a lot of capital
00:52:44
it's not universally true but it's generally true with respect to how capital is allocated and you know I was
00:52:50
kind of talking with a bunch of people last week about this and I I kind of realize that like
00:52:56
there's only if you're going to do a difficult project that requires a lot of capital you're going to want to entrust
00:53:02
that Capital to someone that has proven themselves someone who's proven themselves is generally going to have
00:53:10
the choice of things they're going to want to do with their life and if they've proven themselves it usually
00:53:14
means they've had some exit event or some liquidity event that discourages them from doing a very difficult thing
00:53:20
and taking on a lot of risk and burning themselves to death again when they've already made it and the people that have
00:53:25
made it usually make it in software the first time around because software creates a path of least resistance to
00:53:31
generating returns and then the challenging question for them is do you do it again and you make easy money you
00:53:38
know how to do it or do you take a five% shot or 2% shot of success 98% chance of
00:53:44
failure going after a very hard project that takes a very long period of time so
00:53:48
I think that the challenge with difficult technology being developed in Silicon Valley is less
00:53:54
about a dir of capital or a dir of ideas or a dir of opportunities it's more about a
00:54:00
dir of talent that finding the right folks who have the capabilities and have done this before to want to step back
00:54:08
into the saddle and take on a very large low probability problem is really the challenge that I
00:54:14
see a lot of in getting a lot of these things kind of going and funded hard to get people to be in the arena yes Jam
00:54:20
you've seen this in your portfolio on a hard problem is what I'm saying like a 2% chance of suc kind of problem like
00:54:26
why would I do that when I can go do something that's I'm 60% likely to succeed at and do really well doing
00:54:31
it I find that most companies are very undermanaged and undere experienced and it's surprising for me it it lacks a
00:54:41
level of sophistication that I just assumed existed and I guess that's because my last experience was when I
00:54:48
was helping to build a company that frankly coming out of the great financial crisis we were recruiting
00:54:54
people at Facebook from Google for the most part and then building an entire core of young people and grooming from
00:55:01
within it was we had a pretty good go of it fast forward to 2023 and I must admit
00:55:09
that the companies that I interact with when I get into the weeds I think the real talent at freed
00:55:16
br's point is spread too thin across too many businesses and so there are pockets
00:55:21
of greatness in every company but there's no real gravitational pull for any of them as a result of that this is
00:55:27
an excellent point as well when we had a zurp environment so many companies got funded that an amazing CMO CTO VP of Ops
00:55:37
started their own company and they were just their natural position was the sixth man on the bench you know on the
00:55:43
Knicks or The Warriors not the primary scorer they weren't Steph Curry they shouldn't be in that position they
00:55:48
should be coming off the bench and being an amazing contributor this is I've concluded the best time in the world to
00:55:53
start a new company I I am uh absolutely Amazed by the companies coming and applying for funding for us I
00:56:01
understand because that's your business model but what about encouraging people to actually join a good company and
00:56:05
learn how to be a good manager absolutely these are two the two best options I think if you have two of three
00:56:11
really great Builders you actually know how to build in the two of three you have a great idea and you want to do it
00:56:18
I encourage to start a startup if you don't have a great idea you don't have two or three co-founders you don't want
00:56:22
to lead the thing find somebody who's just getting onto the Launchpad or just getting a little escape velocity in
00:56:28
their rocket which would be defined as 10 to 30 employees maybe having raised two to20 million that's an ideal time to
00:56:37
get on the rocket and just any seat you can get as Cheryl Samberg said famously any seat on the rocket ship is a seat on
00:56:45
the rocket ship you just want to get on board yeah jaman I just agree with the first part of what you said oh okay
00:56:51
explain why I run into two and three person teams every day that I think are exceptionally talented who should be
00:56:59
inside of a company and instead they found somebody to give them money and so instead they're starting something and
00:57:04
they're just Meandering and the problem with these two and three person teams is
00:57:08
that even now if you stick the right label on it like AI you'll find five or six or seven million doar of money it
00:57:17
won't be led by any single investor so it's all done in a safe none of these folks have boards and so they come in
00:57:24
check in with me time to time and I ask them about their progress and it's a mess and I'm shocked and I'm like why
00:57:31
are you guys wasting your time like you should be at a startup that's winning and part of it is that they think it's
00:57:36
the right thing to do and I don't think there's any Valor in being a a Founder I
00:57:41
think there's a lot of Valor in building something that's really valuable for people and if that means being a
00:57:46
director of marketing go do that instead it's a valid point I think your most valid point in that is that there is not
00:57:54
governance and mentorship for during the peak Zer era we created something called
00:57:59
founder University to kind of it's a 12we course where we teach people how to do this stuff and then we wind up
00:58:04
investing in about 10% of those companies and it's nuts how many people are applying and we tell people when you
00:58:11
hit $2,500,000 in Revenue we'll start doing quarterly board meetings with you and they don't even have to be
00:58:19
officially board meetings they just mentoring sessions for one hour where you present as if it's a board and so I
00:58:25
largely the passing of the hat and doing a party round and having no mentorship is a weakness in the system in our firm
00:58:33
we fixed it with founder University yeah but isn't Jam make a slightly different
00:58:36
point Jason with respect well I think that when you have bubbly funding conditions it leads to an over
00:58:44
fragmentation of talent sure I mean isn't that the point yes I mean it takes a certain concentration of outstanding
00:58:53
people not just Founders but also like early employees to create a great company and you know with PayPal right I
00:58:58
mean that was the greatest concentration of talent in history stacked with Talent
00:59:02
right you have that and Google would be the two best examples yeah yeah so one of the reasons why you can end up with
00:59:09
again an over fragmentation is if there is too much funding in the system and everybody's getting funded for really
00:59:16
you know mid ideas and it prevents a congealing of great talent to come together at
00:59:24
companies where have a really big idea if you believe that the startup ecosystem was overfunded during the Zer
00:59:30
bubble which it clearly was I mean you don't just get bubbly valuations you also get bubbly funding conditions then
00:59:38
by definition there are companies at the margins are getting funded that shouldn't get funded and that leads to
00:59:44
an over fragmentation of talent here's what's happening on the ground we used to see a lot of solo
00:59:50
Founders Outsourcing their Tech what we're seeing now is usually two three four Founders get getting together to do
00:59:55
a company and one of the counter prevailing forces here is what we saw with Spotify just laying off 1,700
01:00:03
people Google laying off 20,000 Facebook laying off I think 25 or 30,000 Microsoft Uber all these companies have
01:00:10
laid off so massively they're all on hiring freezes so then what happens is there's massive amounts of talent at
01:00:16
reasonable prices joining together after having worked at those companies and so
01:00:21
I would say the companies we're funding at this early stage we're never doing solo Founders I mean unless it's a
01:00:27
Serial entrepreneur and we're seeing two or three people who worked at Uber or Google or
01:00:31
Airbnb you know who have like this really great uh product velocity coming together and they have to be Builders so
01:00:38
I think it's two things are true at once that the number of companies being funded has plummeted I think about 75%
01:00:43
sacks but the quality and the amount of concentration of talent even in those startup cohorts is really high and they
01:00:50
don't have four job offers from Big Tech they're not having like a sales for for
01:00:54
$300,000 offer coming in or a Google $400,000 offer coming in so I I think this is going to be the best vintage
01:01:00
Adventure in our lifetimes that's my personal belief I invested in 100 companies this
01:01:05
year but I could be wrong we should talk about the Google Gemini launch Google just dropped their chat GPT killer and
01:01:14
uh from my perspective it's a awesome just two quick videos here it does have very strong multimodal mode if you don't
01:01:21
know what that is just means you can use images video text input and output in this demo that you're seeing on the
01:01:28
screen if you're watching the show they take a picture of a physics test that somebody took in handwriting they find
01:01:35
which answers are wrong they explain it lots of reasoning going on in here and obviously the moti modal means you're
01:01:41
seeing an image and you're getting text back second video they showed and they and they they launched a lot of stuff
01:01:47
today with this Gemini brand they're using the classic example of doing a party uh planning a party
01:01:55
they Ed my likeness in the Google video wait what's and here it is there's there's chubby chamama oh sorry I can't
01:02:00
body sh people sorry about that folks there's chubby chth I please strike that oh my God I shouldn't have said that I
01:02:06
thought Vinnie lingam was fat chth Vinnie Lingham has claimed fat sh I was that's why I went for chubby I didn't
01:02:12
want to infringe on his IP but any oh no I'm gonna get cancelled so in this video the person asks to do a
01:02:20
kids party what's very unique here is that it does the follow-up questions which is you know really interesting it
01:02:25
understands reasoning and context but it built a dynamic interface for this use case and it did like a pin board and a
01:02:32
kind of um Google esque task list and kpis and all this other nonsense but behind all of this in the Gemini
01:02:41
exceptionalism I think is that they did all these benchmarks against a bunch of there's a bunch of tests and batteries
01:02:47
of tests that language models use to prove how strong they are and Google says Gemini beat gp4 the latest from
01:02:54
open AI in 30 out of 32 benchmarks this is going to come in three flavors ultr Pro and Nano that's basically cost and
01:03:02
strength and there's a lot more behind this but based on what I'm seeing in my opinion I've been looking at this stuff
01:03:08
every week with snd d and looking at all of the latest and greatest this feels like it is a Lea Frog by about 20 or 30%
01:03:19
if this is true but freeberg you looked at the original papers what are your thoughts on the underpinnings I talked
01:03:24
about the ux and some of the reasoning what are you seeing and and we'll consider this a a flash on thefly
01:03:30
science corner for all those freedberg stands out there I haven't read the whole 60 pages but I looked at the
01:03:39
performance charts and it's pretty damn impressive I feel I use the the demo a bit I feel like you're interacting with
01:03:46
data from Star Trek you guys ever watched Star Trek next smile on your face you are so happy your dream has
01:03:52
come true from your child was like this lifelong dream I can finally have a chat
01:03:56
with data it's like conversational it's um predictable in the sense that it kind
01:04:02
of predicts the the details that I might ask or might otherwise forget to ask fills them in there's some I think
01:04:09
really smart features of it and I think it says a lot that Google truly does have the muscle to
01:04:18
compete and now is showing the wos to do so that they're actually putting this out there that they're willing to
01:04:26
disrupt themselves cannibalize their own search business potentially in a way that everyone's
01:04:32
been worried they wouldn't be willing or able to do they'll figure out a way to monetize it later but they really are
01:04:38
showing that they're willing to try and make the best product for users which has always been a core mantra for Google
01:04:45
from you know the origins of the business focus on the user and all else will follow and they everyone's been
01:04:51
saying the last couple years they're too focused on profit they're squeezing every nickel and dime out of every click
01:04:57
and showing that they're willing to put this out there says a lot about the Strategic imperative of the board and
01:05:01
the leadership there so that that makes a big difference the product seems really good the scoring data seems
01:05:06
incredible uh against GPT 4 which is I think the key Benchmark as we know open AI has some new models that are coming
01:05:13
to Market um here let's pull up the table of results but this shows Gemini's performance against gp4 using a number
01:05:20
of well-known metrics I'll say that there there is no business on Earth that has more data than Google YouTube is the
01:05:29
richest data repository Digital Data repository on Earth the YouTube data set gives Google an extraordinary advantage
01:05:37
in training and clearly we're seeing that in the results are getting on Imaging and video here so you know big
01:05:43
big big announcement for Google I think it's definitely worth saying that they're in the game and it's going to be
01:05:48
pretty powerful to watch Pretty I think pretty important to watch saxis freeberg
01:05:52
said the are on the table now sindar has dropped the wos what's your take I think it's pretty clear that
01:05:59
Google's be a major player in AI but the question is are they going to be dominant in Ai and I think one of the
01:06:05
points that our friend Brad gersner makes that's well taken about Google's market position is that if you look at
01:06:11
their position in search which is gradually being replaced by AI they're absolutely dominant in search so even if
01:06:19
they turn out to be good or great in AI their AI franchises is never going to be
01:06:25
as dominant as their search Franchise was in that market and so to the extent that AI is replacing search and I think
01:06:34
we're seeing that more and more right if you can get the AI just to give you the
01:06:37
answer instead of a list of 10 Blue Links that's a better user experience so I think as more and more searches get
01:06:44
replaced with AI it's just impossible that they're going to maintain that same dominant
01:06:49
share moreover it's really unclear how you monetize those let's call them AI searches where it just gives you the
01:06:56
answer because nobody wants to get three ad links up at the top of their answer no one's going to click on those so I
01:07:03
think look Google is going to be a player in AI but as AI displaces search it's going to be a real challenge for
01:07:10
them as a company I think I have the opposite position I'll explain sax while I do think you're right their dominance
01:07:17
won't be the same having used the Google flights AI integration Google shopping AI integration that's in bar right now
01:07:26
which is very like 1.0 or even 0.1 I think the number of searches or the number of interactions the number of
01:07:32
queries let's call them questions asked is going to go like 10 20 50 100x I think people are going to be talking to
01:07:39
their AIS all day long and where I think you might be wrong is I think actually the clicks are going to fit in certain
01:07:45
categories perfectly into the response so in this birthday one if you had a bunch of ideas of what you could click
01:07:52
on to purchase if it said hey great idea for the birthday did you think about these hats did you think about these
01:07:57
piñatas did you think about these places to get cake and those were all paid and
01:08:01
AI informed them because you wanted to do an animal based jungle party and it showed you those it's going to make
01:08:08
unbelievable ad targeting that is right into your planning hey get these hats here get this get this flight here book
01:08:15
this restaurant I think it could be a gold mine and I think the the the clickstream and and the ad network is
01:08:22
going to fit perfectly into to it same thing with those questions being asked you know hey do you want to get a math
01:08:29
tutor do you want to buy this book Etc so I'm going to take the other side of it shath where do you land are you short
01:08:35
long or neutral Google based on this I think that there's two important things to notice about this the first is who is
01:08:45
in charge of this project and this is I think after they did that reorg the most important person
01:08:52
in all of this is Jeff Dean who if you look back is the one of the most preeminent technical lights frankly of
01:09:00
the internet but within Google is just a giant right so tensorflow map ruce big table spanner
01:09:08
the guy is just an absolute animal he's proven an ability to not just conceptualize big ideas but then get
01:09:15
them to Market in a way that can work at scale right that's the first thing the second thing is that this Gemini is a
01:09:21
collaboration between Deep Mind for the first time and Google research and a bunch of other people at Google so I
01:09:27
think freeberg mentioned this before the test for Google is not their technical capacity but their ability to organize
01:09:34
everybody and get them to row in the same direction so I think that that's that's really important my
01:09:42
takeaway is what I kind of put out on Twitter which is that I think all of this is one more
01:09:51
brick in the wall on this theme of commoditization so we have all of these really interesting foundational models
01:09:59
if you just look back a little bit lat 2's advances have been pretty amazing out of the UAE Abu
01:10:07
Dhabi the government there showed some Falcon which showed some really interesting
01:10:13
promise obviously open AI is doing some great work with gp4 and GPT 5 now you see Gemini and and the results that
01:10:22
they're generating there's going to be a proliferation of foundational models the cost of those
01:10:29
models will go to zero and so why is why is that an important thing well one it's good for
01:10:36
the ecosystem two it's really good for developers and three it allows us to then figure out where the real value is
01:10:44
going to be made and I think the value is in taking these models and wrapping them with cheap abstracted Hardware
01:10:51
right you can't have an economy get built in AI when you have year-long waiting lists for h100s and A1 100s from
01:10:59
Nvidia that's not possible so that entire layer as well will get commoditized so the folks that are the
01:11:05
aws's the azures and the gcps of the world or these next Generation entrance who are building AI clouds those folks I
01:11:15
think will make money and then the apps will make money so I think it's a very good thing I think that you don't want a
01:11:21
lot of the lock in that Nvidia was trying to create they were trying to create essentially a wall Garden where
01:11:26
you had to use Cuda in order to basically compile to these these miles to their chips it's going to break all
01:11:32
of that so I'm generally quite constructive I think that this is a really good step in democratizing this
01:11:39
whole thing and letting the value accrete To The Ends it's a barbell infrastructure providers and app
01:11:47
Builders that's my best guess of where money gets made here all right adobe's $20 billion acquisition of figma is
01:11:53
installed right now UK's CMA stands for competition and markets Authority has effectively blocked this
01:12:01
acquisition for uh couple of obvious reasons one reduces Innovation two it eliminates competition between two top
01:12:09
competitors in product design and three removes figma as a threat to adobe's photoshop in illustrator products cmia
01:12:19
mentioned some potential remedies divesting of overlapping operations in Market where the deal could cause less
01:12:26
competition or just prohibiting the merger entirely feels like that's what's going to
01:12:33
happen and also a peak Zer right that was a peak Zer deal I have to take issue with you said that they are doing this
01:12:41
for obvious reasons I don't think these reasons are obvious in the sense that I don't think I don't think they speak for
01:12:47
themselves I think they have to be defended and I I don't think these are good reasons oh yeah no I the when I say
01:12:55
obvious reasons I'm not endorsing them I'm just saying the the standard reasons of lack of competition and consolidation
01:13:03
of competitors so but yeah expand on your point and you think it should not be stopped this merger well first of all
01:13:13
this merger was originally announced I think back on September 15th of 2022 over a year ago what is that that's uh
01:13:22
almost 15 months ago yeah so this is a ridiculous amount of time for Regulators to take to figure
01:13:28
out whether they're going to improve the deal that's no good for anybody I think
01:13:32
businesses whether you're Adobe whether you're figma have a right to have these questions answered much more quickly so
01:13:38
what are The Regulators is doing so that's Point number one point number two is that it's mostly the UK regulator
01:13:45
which is called the CMA or competition of markets Authority they're the ones who are dragging their feet and holding
01:13:52
this up so figman Adobe have to get the approval of three different regulatory bodies they have to get approval in the
01:13:59
United States from I think the doj they have to get approval from the EU with Brussels and now because of thanks to
01:14:07
brexit they also have to get approved by the UK and to me it's a little crazy that one country's you know competition
01:14:17
Authority the UK which is not in the grand scheme of things that big a market can hold up this entire deal you know it
01:14:24
should be faster of course right they should I question whether like one country the UK should be able to hold up
01:14:31
a deal if the US and the EU approve it and one thing I would say to startups is if the CMA is going to start holding up
01:14:39
deals for a bunch of Novel reasons meaning you know reasons that haven't previously been articulated before in an
01:14:46
antitrust law why in the world would you want to create Nexus with the UK I think
01:14:51
this pertains to all the startup ecosystem because look I remember when I was doing Amber we decided to open an
01:14:56
office in Europe and we decided to settle in London and we created a pretty big office in London we thought that was
01:15:02
the best place for a starup to locate if you had told me at the time that that would subject our acquisition by
01:15:10
Microsoft to the CMA over there and that they would take some novel interpretation and go hold up my deal
01:15:16
there's no way I would have wanted to open an office in the UK so let's be clear about that now I want to move on
01:15:23
just quickly to the argument that the CMA is making and I do think it's a novel argument they're not saying that
01:15:30
adobi and figma are competitive today and actually I think they are operating in different markets figma is a product
01:15:38
for web designers and web developers and the end state of a figma design is code
01:15:45
if you look at adobe's products like Photoshop the end state is marketing collateral it's it's a marketing design
01:15:52
product nobody uses figma to create marketing collateral they use Photoshop and nobody who's using Photoshop is
01:16:02
using that to uh build websites okay these are in practice pretty distinct markets and I think the CMA has conceded
01:16:11
that they're distinct and separate markets but what the CMA is trying to say is that at some point in the future
01:16:18
if we block this deal figma might compete um might compete with Adobe they might create a competitor to photoshop
01:16:28
and that is a bogus rationale for blocking a deal because first of all I think we all know that figma has no
01:16:34
interest in competing with Photoshop they're not going to compete they they're much more interested in AI
01:16:40
they're much more interested in doing things like prompt to design to code they're not interested in building you
01:16:46
know a Photoshop competitor and there's no reason to believe that they would do that moreover that is not an objective
01:16:52
standard think about it if you can block a deal on the grounds that these two companies don't compete today but might
01:16:59
one day compete in the future it gives The Regulators a veto over any deal and that is not the way antitrust is
01:17:05
supposed to work the way that antitrust is historically worked is you define what Market these companies are in and
01:17:13
you add their market share together if they're both in the same Market to see if it would create an undue Monopoly or
01:17:21
oligopoly something some dynamic like that it was a market share test which is an objective test this is not an
01:17:27
objective test this is a regulator saying hm you know we know you don't compete today but like one day in the
01:17:33
future you might that is bogus so if you allow the CMA to block this deal on that
01:17:38
ground they can block any deal for any reason and then on top of it they've taken 15 months to come down with this
01:17:44
opinion I think this is going to have a very chilling effect on m&a activity for
01:17:49
for not a good reason for not a good reason and that is the last thing the star ecosystem needs right
01:17:55
now I'm going to agree about the time I'm going to agree that we should let a little more
01:18:03
m&a happen I'll disagree Adobe has a product XD competes directly with figma and then I've gotten multiple designers
01:18:10
who have included me in figma designs for things that are other than interfaces they're using it for decks
01:18:16
they're using it for marketing collateral and if you go look at figma's templates offering they are all
01:18:23
Photoshop illustrator key function so in the market even though the products were
01:18:27
not designed as competitors designers are starting with figma for many design projects in my direct experience and by
01:18:33
looking at the templates so I'll disagree on that third Point jamaath your take well hold on I got to do a
01:18:38
fact check on one thing you're right that adobe had a competitive product to figma called XD they shut it down they
01:18:45
shut it down yeah is it was a failure so they are out of the market for a web design tool they're out so that argument
01:18:53
no longer exists and I don't know if they shut it down because of this deal or because it was failing anyway but
01:18:58
they solved that problem now with respect to these use cases where okay yeah you're you're talking anecdotally
01:19:05
Jason about you've seen some web designer no I'm talking go look at the templates I just put the link in
01:19:12
there it's still anecdotal it's not based on a market share test if you want to make this argument that figma and
01:19:19
Photoshop are competitive products break it down in terms of market share that's
01:19:23
my point add up figma's market share in the market for marketing collateral and see if that would create undue
01:19:29
concentration fair enough my objection is that they're not basing this decision if it can even be called a decision I
01:19:36
think it's more like just concerns and dragging their feet but they are basing their concerns on something that's
01:19:44
unquantifiable and I do think that anti trust decisions should be quantifiable the concerning thing here is that this
01:19:52
is on the heels of Activision in Microsoft which was equally protracted and drawn out I don't I think it's bad
01:19:58
for Capital markets when deals that are offered up just linger for 15 18 months I don't think that that's healthy it
01:20:08
causes a lot of pause amongst investors and it probably freezes both Adobe and figma from
01:20:16
investing the way that they would if they knew that this thing was voted up or down in three months or whatever so I
01:20:21
I think that I totally agree with you that there needs to be an SLA around these things and you can't take this
01:20:29
much time I breezed through the CMA report my gosh it's 400 Pages which is like that's insane a 400 page document
01:20:39
is like it's a little outlandish but I wanted to call out two parts of that document one is in support saxs of what
01:20:47
you said Nick you can just throw it up here what they said was that in assessing the competitive effects of the
01:20:52
merger we must decide whether there is an expectation I.E more than 50% chance that the merger will result in
01:20:59
diminished competition now that's like a little nuts because David as you said it's like we're going to take an
01:21:05
expected probability and a guess into the future about what we think will happen and I think that that's not a
01:21:12
fair way of doing business I think that you have to look at what will happen when this happens and judge on its face
01:21:19
you can't say well also by the way I expect that you guys will be in intelligent and really execute so
01:21:24
that'll just increase the odds that's not right that's that's what business is so if I had to steal man the pro figma
01:21:30
side I would say that that's unreasonable the second side on the pro figma side is there's this Long Point
01:21:36
here I think it's like number 27 or 28 in this document and this is what's crazy it's it basically says like hey we
01:21:43
went through document Discovery we found some emails that basically said by Adobe
01:21:49
that said we did Market analyses we didn't think we were doing very well and I think it's important to note for the
01:21:56
CMA that this is what a hundred years of MBA classes have taught people to do I mean you teach Executives that go work
01:22:04
at companies to do what's called the SWAT analysis to figure out what are the risks and opportunities for your
01:22:10
business and then to go and invest to fix them that's capitalism and that's business Theory and we've taught
01:22:18
Executives at every single company to do this that can't be legal meaning to use
01:22:24
your brain inside of a business to realize that what you did isn't working so that would that's also I would say
01:22:29
sacks in support of what you're saying which is it's taking too long it's speculative and you're punishing people
01:22:36
for actually being good business people and I don't think that makes sense what's the number six months just to add
01:22:41
to that you know again you like an important overlay here is that the CMA is the UK's regulator and they're the
01:22:50
smallest Market the GDP of the UK is 3 trillion the GDP of the EU is 16 trillion the GDP of the US is I forget
01:22:58
it's in the 2025 trillion range so you've got the toughest regulator who is coming up with the most novel legal
01:23:06
Theory I think it's worth exploring that these Regulators I think are working in
01:23:12
conjunction and those fingerprints looked a little bit more obvious I'm not playing conspiracy theorists but it
01:23:18
looks like the EU the FTC and the CMA did work together I don't know how officially or not in Microsoft
01:23:27
Activision it looked relatively coordinated I suspect that it stands to reason that they're in touch and they
01:23:33
talk about these deals and their combined perspectives I don't know how else you just generate a 400 page Report
01:23:39
with this kind of specificity unless there's some amount of collaboration and and sharing which by the way I think
01:23:44
does make sense I think it does make sense to coordinate your point of view but I think I agree with you David
01:23:51
the but we don't know that for sure sure I mean like all I know is that in the Press reports it's been about the CMA
01:23:57
it's possible that the EU or I don't think us will do this because that would just be like inventing holy new
01:24:03
antitrust law right where no I I understand I I'm I'm just saying that my my point of view is that as a business
01:24:09
owner my response to this would be to gatekeep the app in these geographies so that I don't create an Nexus if I ever
01:24:16
get bought Bingo that's my point that's exactly my point is that the smallest Market is creating the most problem for
01:24:22
this merger so assuming they're kind of on their own in this and the EU doesn't just copy it if if you're right if they
01:24:30
copy it then figman Adobe have a bigger problem but I think that's what's going to happen right then maybe the EU does
01:24:36
copy it but right now the CMA is way ahead of any other regulator in terms of a novel Theory so so what I'm saying is
01:24:43
if you're a company why would you subject yourself to that when it's so easy to avoid their Market no I think I
01:24:47
think it fundamentally hurts UK productivity over the long run because I don't see how companies if they can't a
01:24:55
get a reasonable SLA for a response and then B get a reasonable document that's not going to require $50 million of of
01:25:04
lawyers and Consultants to read to do business in a country just goes down the incentives to do a business so now if
01:25:11
you Steelman the other side I actually think it's very difficult to Steelman why this is bad for competition I think
01:25:19
the only Steelman is more from the economic shareholder perspective of adobe which is could they had paid a
01:25:24
different price what does that because I think it's a mixture of cash and stock so that's changed because adobe's
01:25:29
rallied a lot and is that price worth it but that's again not a reason to use a regulator to run a deal to the ground
01:25:38
right Adobe should just man up and talk to Dylan and say Here's the new price otherwise here's a billion dollars I
01:25:44
don't think adobe's driving it in that way I mean by all accounts figma as a business is still doing very well even
01:25:49
if they paid too high a price 15 months ago they've grown they've partially grown into that valuation already I
01:25:56
don't think Adobe is driving this I really think that the CMA is driving this I think there's a regulator who
01:26:01
wants to Pioneer a novel legal Theory and in a weird way I mean it's not have you ever seen like a pack of dogs where
01:26:08
you've got like a Great Dane and a doberman and then a Chihuahua and the Chihuahua is trying to lead the pack the
01:26:14
CMA is like and it's like barking the loudest and trying to shepher all the other
01:26:20
dogs you got a yappy the issue that you bring up is a Great Dane and the EU is a is a is a big dog
01:26:29
and yeah yeah but it is if the EU and the United States follow suit it will it's just Death By A Thousand Cuts
01:26:37
meaning it will require a Brad Smith like character inside of this company who can
01:26:43
go and work with Regulators to really get it done and this is the Brilliance of of him at Microsoft is if when you
01:26:52
look at the track record of his ability post this consent decree to get deals done inside of Microsoft it's truly
01:27:00
incredible there is nothing that they've really tried to buy whether it's Nuance
01:27:05
or whether it's Mojang or whether it's GitHub Activision they've Linked In they've got they ran the table do we
01:27:15
really want to create an economic system where whether a deal gets through is completely arbitrary because there's no
01:27:21
longer a quantitative test and The Regulators can just pause it that at some point in the future these companies
01:27:25
may be competitive the and it takes and furthermore in order to get past the Regulators who have a completely
01:27:33
subjective standard you need like a political Genius Like A Brad Smith I mean that is like the definition of
01:27:40
crony capitalism right is that you get your deal done if you got a Brad Smith and you don't get it done if you're a
01:27:46
startup like figma that's not the system we want to be in absolutely not three important things one future competition
01:27:53
is a stupid test number two just put six months on this it's not it's not even future it's their assessment of the
01:27:59
probability of future competition which is just dumb it's it's this is precogs in Minority Report figma could sign an
01:28:06
affidavit today saying that we're not illustrator we're not building it yeah it's not our it's not our road map it's
01:28:14
not even an affidavit it's you could go through you could conduct discovery on the question of whether figma has ever
01:28:21
even and discuss internally whether they should compete with Photoshop right because you don't just launch a
01:28:26
Photoshop competitor out of the blue you probably discuss it for a while so they
01:28:30
could conduct discovery on that question I guarantee you figma does not have robust conversations in Discovery about
01:28:38
competing with Photoshop that's not where their interest is and then also they should be just have a six they
01:28:44
should have a six-month clock to do this and then if I'm Adobe and figma I would
01:28:49
say I would pull a Zuck when they came at Zuck and said you have to pay for news in Australia you have to pay for
01:28:55
news in Canada remember these two government overreaches that you could even put a link to a news story he's
01:29:01
like okay fine we're just going to not include links to the New York Times and feeds that's not allowed they should
01:29:06
just say anybody who's in the UK you can no longer we're going to look at your IP
01:29:10
addresses we're going to look at your address you can't buy figma you can't buy Adobe we're going through with this
01:29:15
so if you don't want consumers to have this product you don't have to have it and then people have to get a VPN to use
01:29:20
these products like I would call their BL on it it's kind of overreaching I agree okay freeberg any last thoughts as
01:29:27
we wrap up here Jal in order to have a healthy starup ecosystem we need exits that's the bot line we do that's the big
01:29:33
picture yes when you put this kind of chilling effect on m&a because think about it if you're either an acquirer or
01:29:39
you're a Target you're thinking about doing a deal and you know that it will take you at least or it could take you
01:29:45
15 months to get you're not going to do it's not worth it you chilled it and the
01:29:49
standard for whether it gets approved is completely arbitrary that's going to have a dampening or
01:29:54
chilling effect on m&a activity which means fewer good exits for the ecosystem which means that less risk Capital will
01:30:00
want to go into the ecosystem to begin with and a fairer thing I I'll run this up to flag pull see what you think Sach
01:30:06
why don't they say if they're really concerned about the top 10 companies hey the top 10 companies the trillion dollar
01:30:11
crowd right the Microsoft the Google Etc Apple they have a different standard than the mid-market so if you really
01:30:18
were concerned about consolidation in the in the top 10 companies just say they're not allowed to buy these
01:30:24
companies without going through the scrutiny but anybody under $250 billion they can merge they can buy each other
01:30:30
they can do whatever they want they're exempt from this kind of review and just let the free market decide because then
01:30:35
that would build up the midm market right SX I'm concerned about the power of big tech companies okay but I would
01:30:42
deal with that by targeting anti-competitive tactics interoperability yeah require
01:30:47
interoperability don't let them bundle things like that don't invent some wholly new arbitrary subjective tests
01:30:55
for whether a company can be acquired we have a good standard around that which has to do with market share hey shout
01:31:01
out Lena Khan come on the podt anytime all right everybody this has been an and sincerely Lena Khan come on the Pod
01:31:07
let's talk about it this has been another amazing episode of the all-in podcast for the dictator trath potia the
01:31:13
Rainman David Sachs and El Capitan the pilot consultant of Science and CEO David fre
01:31:22
I am the world's greatest moderator love you besties we'll see you next time back
01:31:27
at you at bye we let your winners ride Rainman David said we open source it to the fans
01:31:39
and they've just gone crazy with it love queen [Music] of Besties are that's my dog taking your driveway wait
01:31:57
man oh man myit meet we should all just get a room and just have one big huge orgy cuz they're all this useless it's
01:32:04
like this like sexual tension that they just need to release [Music] somehow we need to get
01:32:20
mer I'm going all [Music] in