00:00:00
happy new year happy new year happy new year guys listen it's now it's candle season
00:00:08
oh god look at the equanimity this look at his equanimity this candle costs 24 000 it is an extremely rare
00:00:17
brazilian sandalwood you literally have to go into the amazon and like you know you you basically have to like
00:00:25
i mean try to extinct trees no bro you gotta you gotta tear out like two acres of rain forest and then you find this
00:00:31
one tree completely you know sacred uh and then you chop it down you make this thing reduce it and it
00:00:40
lasts for a full 45 minutes how do you like that sweater karen candle carrots are going to be karen
00:00:46
candle carrots are calling it right now the dms are coming you guys want to hear
00:00:50
about poker last night oh did you go so i go down i take my eight hour drive down south to jamaat's house and i pull
00:00:58
in and uh you know the security guard greets me nicely as always i walk in and i walk towards the poker room and
00:01:06
everyone's in there with the door open like someone just got shot masks on freaking out and champ is
00:01:12
inside the house and i wave and he's like get in here and then i go in he's like oh who is
00:01:18
positive max the dealer tested positive and everyone's been hanging out in the poker room with no
00:01:24
masks oh the only two people that were exposed to max we sent home yeah so everyone starts
00:01:32
freaking out he shuts the uh shuts the poker game down chamf kicks everyone out sends everyone home
00:01:38
and then he's like all right let's go have dinner inside you know we're not we're going to we open up all the doors
00:01:43
we're going to kind of lysol the room tomorrow we all go in have dinner or you know chamath and i go in and have dinner
00:01:48
with matt and the kids and then chemoth starts thinking you know what it's okay they were only exposed for a few seconds
00:01:54
let's call phil back okay let's call shuffle back let's call keating back and then they all come back for dinner and
00:02:00
at this point it's become like a dinner party and then a couple of glasses of wine in and then it's like you know what
00:02:05
the room's probably safe we should go i mean the whole poker night went through the entire cycle of psychology
00:02:12
of covid the whole pandemic it's like oh my god get everyone out lock up and then
00:02:17
by the end of the night it was like you know what let's go in the room and just play poker and give each other coven
00:02:21
they got to acceptance they got to accept this they went through the whole emotional cycle of the pandemic in one
00:02:25
hour does anyone know anyone who's a serious case of macron no i mean i know dozens of people at this point and they
00:02:31
all say it was a cold yeah dozens of people and that's just except for jake i was on
00:02:38
was on social media giving everyone the update like oh i sneezed today oh i still test the positive he's like
00:02:45
showing his positive tests we're concerned it's the only good test result jkl's ever had yeah exactly
00:02:56
it's the only positive that's true [Music] [Music] elizabeth holmes has been found guilty
00:03:16
on four counts of fraud faces 20 years in prison for each guilty account they would be i understand
00:03:23
served concurrently most people are here speculating four to 10 years and then i think you can get 15 off for
00:03:30
good behavior again i'm no expert on that but that's what i read uh guilty counts were two counts of wire
00:03:36
fraud and two counts of conspiracy to commit fraud she was originally charged with a total of 11 counts of fraud
00:03:40
uh four were guilty four were not guilty three were a split verdict the jury said
00:03:45
they were unable to come to a unanimous anonymous verdict on three of the counts after
00:03:50
more than 45 hours of deliberation quote from the wall street journal article juries were persuaded that ms holmes
00:03:55
conspired to defraud investors this outcome could be significant because it means hundreds of millions of dollars of
00:04:00
thera knows investors that there are the most investors lost could be taken into consideration during
00:04:05
her sentencing his big numbers the jury was split however on which of the six investors who testified were defrauded
00:04:12
the jurors convicted his homes on three counts these included a hundred million dollars
00:04:16
from the family office of former educator ed education we know the details jake saw he was like doing it
00:04:22
for the audience so anyway um thoughts on uh the legal uh technicalities of the case counselor
00:04:32
sex well we've talked about this before i mean i think so at the end of the day she was convicted on the counts related
00:04:37
to deceiving investors she was not on the accounts related to patients i think that makes sense in that her obligations
00:04:45
to investors are very clear whereas i think that the patient related duties are i
00:04:50
mean she had them but it's a little bit less clear so i mean look it's it's what
00:04:54
we've always said here as a founder you can be as messianic as you want to be you can
00:05:01
promise you know anything about your vision and what you intend into the future but what
00:05:06
you must do is be accurate about the current state of your business you cannot lie
00:05:13
about the deals that you've made about the current capabilities of your product and she was putting you know logos of
00:05:21
customers she didn't have in her deck she was lying about the military being a customer so she simply exactly
00:05:28
misrepresented where she was at that time at the at when these investors invested and that was
00:05:35
the red line she should not have crossed and i think in that sense it's a pretty
00:05:39
simple case i think you know the the the part of this again you know the the the
00:05:44
piece of this that's interesting is not the case itself but really the media coverage because the media wants
00:05:50
to portray this case as an indictment of silicon valley and the thing you keep hearing over and over again none of us
00:05:58
were involved well it just factually yes exactly we weren't involved but like there's not a single person in
00:06:05
silicon valley i think who put in a single shekel into this thing who actually does this as a real job tim
00:06:11
draper well she he doesn't know put in a little bit of money as an angel and then he he didn't put a single
00:06:16
dollar in after that i'm saying you know you didn't come to social capital or craft ventures or to sequoia or to tpb
00:06:22
or to google to raise money for this thing none of that happened you know saks is right like the the
00:06:27
summary of uh the wall street journal nick you can post it because i put it in the group chat basically summarized the
00:06:34
fraud and is exactly what sack says she had fixed the logo of specifically i think it was pfizer that had not
00:06:39
validated theranos's technology in materials she presented to investors so she's basically like pfizer said this is
00:06:45
a go and apparently that wasn't true she gave the false impression that the devices
00:06:49
were used by the us military that's what got all these military folks to sign on
00:06:53
board and support it that wasn't true and then uh and then she the biggest coup was that
00:06:58
she signed a deal with walgreens and safeway to include its devices in hundreds of stores
00:07:03
and then many investors saw these contracts as an endorsement of the technology and growth potential
00:07:09
but basically those folks did no diligence and bought the hype and so it was just a whole cycle of this thing
00:07:14
that basically fell apart because the tests didn't work freeberg what are your thoughts as our life
00:07:20
science guru what's most interesting to me is how does this get to this point if you're elizabeth holmes you're 19
00:07:28
years old and you start telling your story and the more grandiose the story you tell is the
00:07:35
better the reaction you get is it becomes reinforcing and the behavior extends a little bit further and a
00:07:41
little bit further every time she told a story about how incredible this tech was
00:07:45
it's just one drop you take one drop it can measure everything when she simplified it and reduced it to that and
00:07:51
it was such an incredible statement and she saw the reaction from people she's like wow that works let me repeat it
00:07:56
it's like any good sales person they figure out what sells and then they sell it and then they repeat
00:08:01
and what's interesting to me that you know you talk about the media but when she went out and told her story
00:08:09
and got incredible press coverage because she was a young female doing something that
00:08:15
was going to save lives there was this altruistic steve jobs-esque kind of combination here
00:08:22
the media wrote a glowing review of her and then she said wow look they said something great let me go do that again
00:08:27
and she got a bigger media piece written and a bigger media piece and the more she said the bigger she said it the more
00:08:32
she claimed she could do the bigger the story got the more coverage she got and the whole thing became this kind of
00:08:37
reinforcing cycle and i do think that the press coverage that she got as she was building this business which helped
00:08:44
her raise capital helped her attract employees helped her get walgreens and safeway to the table
00:08:49
allowed to fall it allowed her to build the business but it's exactly what created the narrative
00:08:55
that wasn't true and so the coverage that the press gave her and we see this every day you guys
00:09:02
all see these top 50 companies and we all know having met a lot of these companies as you go down that list this
00:09:08
this 20 companies are total scam companies they're fraud they're not going to work they're grifters all the
00:09:13
stuff that you guys might say about the quality of those businesses but the press reporter isn't doing diligence
00:09:18
they're not a no you know it turns out all the diligence was done after the fact and then it's like well
00:09:23
maybe we should go do some diligence oh wait a second because this the press coverage has now created this hyped
00:09:28
story about who and what she is the the diligence actually pays off because you have something to take apart
00:09:35
if she was just a nobody startup that raised 30 million dollars and they're still trying to figure out their way
00:09:39
there would be no value in any reporter doing diligence on her and trying to figure out what was actually there it
00:09:44
was because the story got big that it gave everyone including john kerry who an incentive he's the wall street
00:09:49
journal reporter who broke all this an incentive to go in and take this thing apart
00:09:53
and so i mean it's really unfortunate and it's really self-reinforcing that the press coverage that created the
00:09:59
circumstance here ultimately also enabled them the press to take the thing apart and you know
00:10:05
land this woman in jail and i'm not saying she did nothing wrong but i'm just saying that there's a system here
00:10:11
and the system is set up but she manipulated the press yeah let me ask one question
00:10:16
then i got a question for saxon champ her basic premise that one drop of blood could get you
00:10:22
hundreds of results let me just ask you a question free break at what point would one drop of blood
00:10:27
or so a nano tube uh be able to at our current technological you know ramp be able to give us a hundred different
00:10:35
data points on a person every time you're generating a data point you're running what's called an assay which is
00:10:41
a measurement of something the question is how much of a molecule are you measuring against what volume is
00:10:48
there enough of that molecule in that volume to give you a statistically good reading and that is a function of how
00:10:54
precisely you can measure that thing so there are there are great advances happening right now in a domain and life
00:11:01
sciences of hardware technology called microfluidics this is the manipulation of pico leader you know very very small
00:11:09
volumes of liquid and then being able to run chemical assays using biochemical techniques which we now have all these
00:11:15
amazing new kind of tools like crispr and other things that would allow us to get a much
00:11:20
more precise measurement with a much smaller volume than has ever been possible so we can manipulate small
00:11:25
fluids we can measure them so there's nothing today that would physically say we cannot do many of the things that she
00:11:32
claims to have been able to do but there are there's a stacking of technology assets that need to be done to make that
00:11:38
happen in reality and each of those assets are very different so look you could do it with
00:11:43
cholesterol right now you could do it with blood sugar right now but you couldn't do both you could theoretically
00:11:48
you could put them into a device and do that no the reason the reason why lipids
00:11:52
work can you do four hundred things you cannot i've actually funded three of these businesses and i've poured almost
00:11:57
100 million dollars of money into it and they've all failed and the reason is exactly what he said you can do
00:12:03
cholesterol because lipids are big enough you know and so you can basically build an assay that can pick that off
00:12:08
with a drop of blood you can do a reasonably good job with pretty large error bars on sugar but all of this
00:12:14
other stuff where you're going to replace like a you know a cbc or these broad you know profile panels that we
00:12:20
all get once a year to assess our health today i don't think that that's necessarily within reach it's not within
00:12:26
technological region it's not because people aren't you know smart enough it's just that not enough of this investment
00:12:32
is happening because then you go back to this whole idea where the funding cycle
00:12:36
needs to see a big payoff for the capitalists to want to get involved in this thing and there really isn't you
00:12:42
know it's not as if like quest and labcorp are printing 400 billion dollars of revenue and profits and so it's not like
00:12:50
there's a massive economic incentive to run in and so even when you know we have tried
00:12:55
in multiple occasions with completely different teams of incredible people every single time we have failed so
00:13:02
there's a physics law here that's just not physically possible she made this claim uh
00:13:07
saxophone remember and don't don't make it broad there are things there are molecules there are pathogens there are
00:13:13
things you can absolutely detect small molecules you can you can detect with a drop of
00:13:18
blood you know measure counting how many blood cells you have in your whole body you
00:13:24
know using an estimate from a single droplet of blood because you know we have these machines called flow
00:13:29
cytometry machines where we sort blood cells and then it'll tell you how many red blood cells you have and how many
00:13:33
different kinds of white blood cells that's a big part of your annual checkup that you'll typically get you know you
00:13:38
need a good amount of blood to get an accurate reading on how many blood cells there are using even just using lasers
00:13:43
and and you know these sophisticated machines can you reduce that down to a droplet physically probably not right
00:13:49
and so there's some it's not universal to say this is possible it's not possible there are elements that are
00:13:53
absolutely possible some of which are being done today and there are some things that are going to be very hard to
00:13:57
pull off got it and she was making these claims as early as 2003 when it was founded so we're talking about 19 years
00:14:04
ago and we're saying here it's not going to be possible to do hundreds of these things maybe in our lifetime we're
00:14:09
talking about decades from there we need to be some significant breakthrough sacks let me ask you a legal question
00:14:15
i was on a podcast and i said to them why haven't the prosecutors had bill maris who is a friend of
00:14:23
freeburgs who helped me get him on the podcast he was great thank you for that uh david um this week in startups very
00:14:28
smart guy very smart guy and he came out publicly when he was running google ventures and he said we looked at it a
00:14:35
couple of times he's referring to their nose but there was so much hand waving like look over here that we couldn't
00:14:41
figure it out so we just had someone from our life science investment team go into
00:14:46
walgreens and take the test and it wasn't that difficult for anyone to determine that things may not have been
00:14:51
not be what they seem here now saks i was on this podcast to drop out which i think is an abc news one and i said why
00:14:58
didn't the prosecution bring up you know gv let's assume sequoia andreessen and you know the 20 top firms
00:15:05
in the valley uh who said no and they all said no because she wouldn't show them due diligence and i asked them why
00:15:11
didn't the prosecutors bring up those 20 firms and compel them to testify about why they didn't invest to give the
00:15:17
counter example and she said i don't know wouldn't that have been a much better strategy to say
00:15:23
here are the credible people who didn't invest i'm not sure i see the relevance of that because
00:15:29
elizabeth holmes crime was not promising something that she couldn't ultimately deliver on
00:15:35
it's okay to fail in silicon valley one of the best things about silicon valley is that we don't punish failure
00:15:42
her mistake wasn't making misrepresentations to the people who did invest right if and what i'm saying is if anything
00:15:49
actually what elizabeth holmes maybe should have done was call up some of those firms and they could have said how
00:15:55
easy it was for them to figure out that they shouldn't have invested maybe that would have been a way to kind of
00:15:59
muddy the waters on her side so i was thinking that they would have said hey she wouldn't show us the technology and
00:16:06
when we did our independent diligence she wouldn't let us diligence we did outside backdoor diligence
00:16:11
it failed there were red flags all over this thing we we had talked about in our
00:16:16
poker games way before this thing went off the rails um the fact that there were no major vc firms involved who
00:16:22
could who had expertise in biotech who could do the diligence it was all sort of
00:16:28
it was basically family office money of people who weren't in silicon valley you know
00:16:33
writing big checks whether it was rupert murdoch or the devos family or what have
00:16:37
you there were there were just red flags coming off this thing which is why silicon valley was not
00:16:43
by and large due by it the people who were duped by it were the people that elizabeth holmes was able to sell
00:16:50
the patina of silicon valley to and the media because the media what we've seen over and over again is
00:16:58
they don't fact-check stories when they fit their priors the prior here is that you know what the
00:17:04
media want to believe is that the next steve jobs was going to be a woman and so when elizabeth holmes served that
00:17:11
up to them wearing the black turtleneck it was too good a story for them to fact
00:17:15
check too heavily and so they ran with it in the same way in the same way that you know the ivermectin hoax that
00:17:22
rolling stone ran with was too good a story to be fact checked because they want to believe that the maga people in
00:17:27
oklahoma were eating horse paste i mean no there's a hundred better examples of just i mean just to be generic sacks of
00:17:34
other startups that we all know are total nonsense and total nonsense and the report
00:17:41
there's a he there's a fraud in biotech going on right now that hey david and i david and i saw upfront i
00:17:48
mean it's like this stuff is crazy it's really really crazy look i mean i think the moral of the story for
00:17:53
entrepreneurs i mean i think there's a couple of takeaways here number one you got to be really clear with the present
00:17:58
state of your business it's okay to talk about your grand vision and what you're going to do in the future but you
00:18:04
cannot be inaccurate in any way with respect to your current numbers and partnerships and deals and current
00:18:11
capabilities i think number two i think when you start working with the media in
00:18:16
this way to promote your company you're playing with fire because the media really has two kinds of stories they
00:18:21
build up and they tear down and when they're done building you up they're gonna tear you down because that's the
00:18:26
only story left to right so if you're gonna go court the media in that way to try and get publicity you
00:18:32
better be really careful how you do it you better be really accurate and you better not give them cause to later
00:18:39
regret pumping you up because they will tear you down even harder if you do that
00:18:43
i think i think the more important danger that i just like to speak generally to for a second is to not let
00:18:48
other people do your thinking for you the investors that came into this business came in under the assumption
00:18:53
that this was a real business because the press had written about it and the press wrote about it because the general
00:18:58
had joined the board and the general joined the board because his buddy george schultz said hey you should meet
00:19:04
this lady and the whole thing ended up becoming this roundabout where no one actually did any original thinking and
00:19:11
no one did any actual diligence stop and the whole thing ended up being this i'm
00:19:14
sorry yeah now you're talking about actually how silicon valley works so that's [ __ ] [ __ ] yeah okay you
00:19:19
don't think these dopes run around thinking of sequoia benchmark social capital craft
00:19:24
invest i'm just plowing the money in of course they do they don't even think social proof they assume that we've done
00:19:30
our jealousy you think they're doing principal diligence these like the silicon by the
00:19:34
way this is also how the bernie madoff scandal you know um got so far ahead of itself no one actually went in and did
00:19:41
the audits of those financials everyone assumed that because someone else has is
00:19:45
in this thing and because someone else is involved or someone else something nice has been written about it or said
00:19:50
about it it's worth backing and like the lack of original thinking in business and life in general i think is you know
00:19:56
one of the biggest you know risks that each of us takes and it's why it's really important to learn how to take
00:20:00
your for yourself i i have a deep respect for early stage investors because they
00:20:05
have to get in and make some critical decisions some people make those decisions about
00:20:10
the team right the psychology of the co-founders sometimes it's about the end market and
00:20:16
sometimes it's about a deep analysis of the traction but you have to honestly let's be honest
00:20:23
there is a valley of funding between the series a and maybe the d or the e where
00:20:30
i really think a lot of folks just look for signaling value based on who the series investors were they're saying
00:20:36
i'm not sure they're making black i'm not sure that those family offices were any worse or any better like maybe the
00:20:41
devos family looked at rupert murdoch and said he's smart so i'm in yeah that's exactly what happened that's so
00:20:46
different than all these series b and c firms that say uh benchmarks in i'm in totally it's the exact same thing
00:20:52
totally i literally had a situation and i think i brought it up in a previous episode where i was working on a deal it
00:20:57
wasn't like a major check for us it was you know a six-figure check and they said uh none of the other firms
00:21:03
are asking for diligence uh why should we give it to you and i was like how much are they crazy and they were
00:21:08
putting in more money than i was they were putting seven figures in crazy and i said because i have no idea diligence
00:21:13
when you ask for diligence now some of these founders look at you like how dare you yeah exactly they no in this case
00:21:18
they were insulted and they said we're not giving you diligence and they and we walked away
00:21:24
without visiting the house yeah they're like buy it without this company that dave and i call called
00:21:29
you know well david was calling it theron was 2.0 but this company couldn't even explain gross
00:21:35
revenue they couldn't they didn't it was like gross revenue asterix and it's like
00:21:40
if there's one metric on a pdl that can never have an asterisk ever the top line
00:21:45
the top gross revenue the money that came into your right customers i get it okay
00:21:56
but gross revenue asterisks how much money is in the right open the register count the money and so
00:22:03
i just remember asking the simple question like um can you just take the asterisks away and
00:22:09
just tell me this is a company the two of you were looking at together you and i have talked about many times
00:22:15
oh really you're a theradose 2.0 sir that's what this guy is and i and i've learned a lot about delaware law i don't
00:22:22
know if you guys have i've talked about this company yeah yeah well bro you in the text you
00:22:26
were like i'm shorting again i'll tell you in a minute oh right um yeah you know what it is but anyway i've been
00:22:31
getting a big um a lesson here about delaware law there's something called a section 220. have any of you ever had to
00:22:38
file one of these by the way it worked out really well sorry go ahead do any are any of you aware of whatever
00:22:44
oh you're sure any of you aware of what a section 220 is or heard of this before
00:22:50
basically in a delaware corporation if you're a shareholder of any size not just like a board member with 10 or
00:22:55
whatever if you feel there's malfeasance going on you can file this 220 in delaware and uh
00:23:01
according to there's a great scandanarps uh article on this the the delaware courts are taking very
00:23:06
seriously that if there's any accusation of any kind of malfeasance especially financial
00:23:11
any shareholder even tiny can get all of the books and in detail not board minutes not top
00:23:18
level p l like detailed financials uh and so for people who are running companies
00:23:24
this is private companies too or this is in private companies look up section 220
00:23:28
of the delaware general corporate law i remember at facebook is because we had these vagaries of having to control
00:23:34
shareholder account or stuff like that and information rights yes we actually kept the financials on a physical
00:23:41
computer that was not connected to the internet so the people that wanted it to come to our office and then we
00:23:46
remember them in like a windowless room without their phone or something is that
00:23:50
i think that's that's that's how they avoided people filing 220 requests and so just something for people to be
00:23:56
aware aware of on both sides of the table that if they're shenanigans going on a company founders think well i don't
00:24:02
have to give any information to my shareholders that's not true and it's not true whatever you have in
00:24:06
information rights whatever your lawyers wrote is not above section 220 in delaware so just
00:24:13
keep that in mind i got a case like that right now going on where our founder won't give you
00:24:18
information well it's not the founder but there's a company that just sold and they won't
00:24:25
tell the shareholders like the terms of the deal what yeah even possible good question but
00:24:34
it's it just reeks of a fraud i'm not going to say the name yet because i'm hoping that they're going to start
00:24:40
acting in a more kosher way but it's the most egregious thing i've ever seen all
00:24:44
you have to do is talk to your attorney at wilson fenwick or whatever one of the
00:24:49
cohort of silicon you literally have the management of the company they've engaged in a sale the sale has
00:24:54
been publicly announced we have reason to believe it's in the hundreds of millions and they won't tell anybody the
00:24:59
terms yeah file a 220 follow 220 and you know what they're public so then the crazy
00:25:05
thing about these 220s is it used to be that all of the information had to be private yet to sign like non-disclosures
00:25:10
whatever and now in certain circumstances i think it's in the best interest of all shareholders the 220
00:25:14
information can be public and so that is just like a sniper shot to anybody who is
00:25:21
doing any kind of shenanigans we had a company in the same situation who wouldn't tell us about a sale
00:25:27
and then i have a call with the board because i own seven percent of the company this is years ago and i said can
00:25:31
you explain to me what happened here and they're they're like yeah well we're doing the sale and blah blah and it
00:25:36
turned out the bankers were taking 40 of the sale whatever and i was like okay well i'm not going to approve this and
00:25:40
it you need my approval let's talk about how we can make this work because we have outside funding
00:25:46
that the company's turning down to do a sale that everybody's losing their money
00:25:49
on doesn't make any sense and um they said well we can't really do that because we've already sent the
00:25:53
eight employees over to the new company that's buying it i was like what do you mean like we ran out of money to pay
00:25:58
them so they all moved over to the payroll of the new company i'm like you haven't
00:26:02
closed the transaction yet wow it was crazy like there's some weird stuff that happens to private companies
00:26:08
yeah this stuff is always at the peak of when there's a correction right i mean this
00:26:12
may be a good way to talk about what's going on it's a great segue but it's like that level of grift happens right
00:26:18
before you know basically we have to re-rate valuations you know people because entrepreneurs entrepreneurs just take so
00:26:26
much well there's just a small small percentage of them but they just take so much leeway in pushing the boundary
00:26:33
and and sometimes it's other board members who are acting their own interests but i solved this problem
00:26:36
really easy i called the ceo of the public company that was buying them and explained the situation he's like talk
00:26:42
to my cfo a friend of the pod whatever and i they said how do we solve this with you i said well this is how much
00:26:46
money i have in this is the value of your company how would you like me to be an advisor to your company for the same
00:26:51
amount of that value in shares also you grifted so no that's great so basically you got bamboozled and so you bamboozled
00:26:59
everybody else by the way and then they said okay we'll make you an advisor then i took the advisor
00:27:04
shares and i wrote a letter and pledged them to my investors and my investors are now 3x their
00:27:11
original investment and i said i'm not letting it go i'm not signing the paper until i get the 250k
00:27:16
that my investors put in period and then they didn't now i'm up all right let's segue
00:27:22
crazy market pullback the great write down has occurred charts from altimeter uh our friend brad gerson i assume uh
00:27:28
show a major regression to the mean for tech stock sas index median enterprise value next 12 months expected revenue
00:27:34
yadda yadda this includes people like adobe datadog shopify twilio workday and as you can
00:27:40
see here on the chart which will pull up saks explain to us what's happening here
00:27:44
well it's a major regression to the mean on value on public company valuations in
00:27:49
both sas but also more generally the the high growth stocks have corrected more than the
00:27:55
indices so that would imply that there might be more correction to come against the indexes i think the growth
00:28:02
stock's already taken the bulk of the hit but what triggered it this week is you know i predicted and you guys had
00:28:08
similar predictions on the just a few weeks ago that this would be the 2022 be the year
00:28:13
of the correction it really began in november you had the the fed you had fed governors make some hawkish
00:28:19
statements about the about inflation not being transitory about the need to raise
00:28:23
rates then we had the um the fed open market committee meeting this is in i think
00:28:28
around december 15th and they announced what they were going to do on rates and now this week the minutes of that
00:28:34
meeting were released and it basically it said something that was completely different than what they announced to us
00:28:41
just three weeks ago and so the market basically just seized up and went into convulsions and
00:28:48
specifically what they said you know in in mid-december was that they were going to taper faster they
00:28:55
were going to end q1 sorry they're end qe at the end of q1 instead of q2 and then
00:29:00
we're gonna have quarter point rate hikes in q2 q3 q4 that was the plan for 2022 and then there was additional
00:29:07
guidance that they were expecting three more quarter point rate hikes in 2023 and two in 2024 so that was sort of the
00:29:14
three-year plan that was laid out then we find out from these minutes and i guess these minutes weren't leaked or
00:29:20
anything they they published them after a like a three week revise and extend remarks type period but what we find out
00:29:27
is there what they were talking about was having a rate hike as soon as q1 and not just ending qe but actually shedding
00:29:34
assets which is like the opposite of qe so instead of basically going out there and creating money shrinking the balance
00:29:41
yeah yeah shrinking their balance sheet so instead of going out and buying bonds
00:29:45
they're going to sell their bonds which will reduce the money supply so look if that was their view three
00:29:50
weeks ago why didn't they announce it i mean my problem with this is it makes the fed look like they don't know what
00:29:57
they're doing because they announced something just three three and a half weeks ago that's completely at odds with
00:30:02
the statement they just put out so either something changed in the last three weeks and there's been no data or
00:30:08
they don't know what they're doing just so you know they they they have a little
00:30:11
bit of a track record of this so in 2018 it looked like there was going to be inflation
00:30:17
and powell tried to get ahead of it and he raised rates and the the market completely collapsed and they were
00:30:24
looking i think a chinese data at the time and it looked like you know china was turning you know going crazy then
00:30:30
china completely turned over it was a complete head fake the economy wasn't rip roaring inflation didn't exist
00:30:36
and they basically just curtailed a lot of investment and destroyed a bunch of value
00:30:43
so this time around i think they're very sensitive to not correcting too quickly
00:30:47
but then the opposite thing happened which is they probably waited a little too long and now you know we're
00:30:52
correcting too slowly too late into the cycle and we're just sort of digesting that
00:30:58
reality and so i think that you know we're probably to be honest with you like actually like we've puked it all
00:31:05
out for the most part in my opinion you have to remember right like the big difference between now and even 10 and
00:31:12
frankly more importantly 20 30 40 50 years ago is how many computers are involved that trade
00:31:18
how much passive money is involved that owns assets and how much of this stuff is sitting on the sidelines still in
00:31:26
money market accounts and munis so if you look at those markets there is a ton trillions of dollars
00:31:34
waiting to find a home and what we've now done and brad's charts show this is we've basically
00:31:41
chopped the head off of all of these fast growing growth multiple the underlying companies have not changed
00:31:47
once until it right these companies are still growing by crazy amounts like snowflake is still an incredible
00:31:52
business unbelievable but the multiple that one was willing to pay has been has been very much re-rated as is a
00:31:58
bunch of other so let me ask you a question if we've gone from these 50 60 70 multiples time sales and now it goes
00:32:05
back down to 20. is that dare i say a buy signal well those trillions of dollars start
00:32:11
moving back in because who wants to be in a money market i don't i don't know and i i can't really call these things
00:32:16
but one a really smart person that i talked to this week you know he actually liquidated
00:32:22
everything in october and november [Music] and you know and i i don't know we talked about this on the pod but you
00:32:31
know i was feeling so much tension at the end of last year i actually had when i look
00:32:36
back on q4 it was probably the most difficult quarter of my professional life and just trying to manage risk and i
00:32:44
exited a ton of positions all my pipes you know my third party pipes i basically sold off except for one you
00:32:51
know i generated some liquidity in other places as well and i was glad that i did that
00:32:59
in part because i saw you know what he was doing and in part because you know jeff and elon were selling and i thought
00:33:04
i mean this is just this is crazy to sit on the sidelines and you know be the bag
00:33:08
holder here going into q1 i talked to the same guys and what he said to me which i think is very smart
00:33:16
is you have to really look at the first and second derivative of the 10-year bond
00:33:22
because when that stops moving like the 10-year bond is this beautiful barometer
00:33:27
of the collective wisdom of every single investor in the world about what they think about long-term
00:33:33
growth and inflation and it's a really important market you know we've talked many times look at the 10-year break
00:33:39
even if you want to understand where inflation is going we started to talk about that seven months ago
00:33:43
and if you look at that the rate of change so the volatility in the 10-year yield is slowing way down
00:33:51
and if that continues to hold that means that people are really saying there's a small amount of real inflation
00:33:59
a reasonable amount of transitory inflation and we're about to kind of wash most of it through the system with
00:34:05
you know 100 basis points of rate hikes and if that's the case then you may see a quick pullback you know in
00:34:12
q1 and we're back to the races again because of all this other money that's going to say i got to get back in and if
00:34:17
you look at all these corrections in the world of computer traded algorithms and
00:34:22
etfs and passive money and it's all the snapbacks are so fast you correct 20 and then whoop
00:34:29
you whip it back and you go so i don't know i mean that's one view based on the past but when you have
00:34:36
these big swings remember it's not that every issue moves perfectly in sync with every
00:34:44
other issue so there are these call it over adjustments that happen within a cohort so within a group of
00:34:51
companies some of them will trade down much farther than others the multiple will compress much further than others
00:34:57
and there's certainly opportunities within as there is in any market that's moving quickly
00:35:02
uh to find businesses that now are prices mature non-growth value businesses and they're
00:35:08
profitable and growing and there's a bunch of those out there now and that wasn't the case a month ago i
00:35:13
don't think a single thing in the last quarter has changed in the underlying fundamentals of the majority of
00:35:19
businesses that are public and i actually think for the most part nothing has really materially changed
00:35:25
for the majority of private companies all that's changed is what you're willing to pay in the future for it
00:35:31
and the one thing that hasn't changed is what you're willing to pay in the future
00:35:35
for the private businesses so the real question you know for saxon you know for the active investors in the private
00:35:40
markets which i don't know what to think about is will the haircut that we've all taken in
00:35:47
the public markets spill into the privates and it's starting it's starting but it feels to
00:35:52
me it's not just about what's going to happen with new emerging growth companies but i mean you guys correct me
00:35:58
if i'm wrong but there are hundreds of companies that have raised billions of dollars at
00:36:05
valuations that if they look in the public markets now they are never actually going to achieve if they were
00:36:10
to go public in the next three four or five years based on their projections so to your point so what are nine yeah
00:36:17
there are 900 unicorns right now 900 and so once you get to look it's one thing to
00:36:23
be a 200 million dollar company and sell to microsoft or whatever but when you're
00:36:26
a billion dollar company there are very few buyers i just want to point out there's a huge disincentive
00:36:33
for an investor or a shareholder of vc or a private equity firm to take a big write down on a company like that
00:36:40
and so there there is always this push to what do we do next and it creates this certain certainly i can tell you
00:36:46
i'd love your point of view but you're this really like unhealthy tension because to take a write down
00:36:52
on 900 unicorns is gonna cause a write-down of hundreds of billions of dollars and not
00:36:59
gonna cross all vc portfolios in aggregate because they're not going to end up going public well i'm sorry just
00:37:05
to finish your thought because the end market is only to go public there are very few kinds of exits
00:37:10
yeah there are no and not in the billions of dollars because you have to think one or two people
00:37:14
yeah big tech is off the sidelines okay you know even if you look at like visa members
00:37:20
nobody's but my point is when you have 900 companies with a billion dollars in plus
00:37:28
they have to go public they have to go public and so correct you can't go public into a valuation framework that
00:37:34
values you at 30 to 40 percent less of your last private mark right yeah it said as well you did have do use
00:37:41
tomorrow so this is an important question because isn't that going to be the case that all
00:37:45
these vc's with the 2015 2016 2017 2018 2019 vintage are gonna end up having they've all got
00:37:54
these great marked books right now you know the books are all marked to 3x uh you know multiple on invested capital
00:38:00
and now they're going to end up having these liquidity events that are going to come in at shockingly low valuations and
00:38:05
there's going to be this great re write down and retrenchment i can tell you there's a couple of
00:38:10
examples one is the athletic yesterday which had raised money at 500 million just two years ago just sold for about
00:38:16
500 million to the new york times and those investors basically put money in and they got their money back it's a
00:38:22
push so i think you're going to see a lot of these questions no i agree with you yes i'm going to give you the
00:38:26
examples and there's also your acquisition by a mid-tier comp acquirer and so there'll be plenty of those that
00:38:32
occur so there'll be a lot of pushes i think is my prediction of those 900 unicorns and then for a lot of these sas
00:38:37
companies so you're saying you think that a bunch of them are going to sell for under a billion dollars and the vcs
00:38:42
because they have preference they're going to get their money correct correct i think it's going to be a lot of these
00:38:46
pushes where i don't know what is it in blackjack david when you're playing those three hands and you get a push
00:38:50
like and it's like okay i'm going to live to to fight another hand now which we've seen sax do a number of times and
00:38:55
then for the sas is where sax i'm interested in your position because we saw in sas all of a sudden the private
00:39:01
market 30 40 50 60 70 times top line and now it's gone back down to 20 30 40. so those companies now basically have
00:39:10
three the public markets have but i don't think that the private market has happened already everybody's pausing and
00:39:15
so for the people who raised that 50x congratulations you did the right thing if you have enough money to fill in that
00:39:20
valuation is it a congratulations though i mean it seems like there are people say it is pretty tough position now
00:39:26
hey you just raise money at a billion dollar valuation with 10 million of revenue
00:39:31
you're like 20. let's say let's say yeah okay i mean like what are you gonna do what are you gonna do in your next round
00:39:36
because you're burning 100 million a year now or 40 million or whatever it is you're burning almost all the companies
00:39:41
i've seen in this exact situation you're talking about have that 20 million they
00:39:44
got a billion they raised 100 million or 200 million and they're basically now saying okay we got to make this last
00:39:51
until we can catch up to that valuation and get to 50 to 75 million so i think you would i would take that deal as a
00:39:56
founder and as an investor because it takes out the downside and now you just have to worry about catching up to the
00:40:02
valuation and you have four years of runway if they're not gonna they're gonna right
00:40:06
now no no no no no no those companies do not those those companies absolutely do
00:40:10
not have four years of runway i will bet dollars to donuts they have two years or
00:40:14
less and most of these companies have 18 months which means they got to be raising in six to nine no correct
00:40:19
they're changing they're changing their spend and they're changing their spend they're not firing
00:40:24
anybody you're not hearing about layoffs at startups okay all right you're not hearing about it but maybe
00:40:30
they're changing their forward-looking growth plans what are you seeing sex i'm telling you what i'm seeing what are
00:40:35
you seeing i think that the trickle-down effect is inevitable but i'm not sure it's fully kicked in
00:40:42
yet um it's going to take a few high-profile deals to land at say 50 times arr instead of 100 times ar in
00:40:52
order for everybody to know that there's a new valuation level so if you look at the altimeter chart on
00:41:00
set public sas multiples let's see i mean they can pull it up it basically it's the sas index that shows median
00:41:06
median expected value to next 12 months revenue and during this sort of late 2020 early 21 period it got as high
00:41:17
as about 15 times the historical average yeah for well for next 12 months or uh revenue
00:41:26
the which is sort of that kind of makes sense um so so historically it's around eight right so so basically all the
00:41:34
valuation levels doubled and now they've come down to about ten times so you could say that if it fully
00:41:41
reverts to the mean we still got like another negative twenty percent to go i don't know if that's going to happen i
00:41:48
mean i think there has been a greater recognition that sas businesses are some of the best businesses to own right it's
00:41:55
they are subscriptions software businesses great gross margins they just keep compounding
00:42:00
so maybe it will stabilize it 10 times but i think what we can say with 2020 hindsight is that the record price
00:42:07
levels we got to in the public markets in 20 and 21 were sort of unusual and unique and probably
00:42:14
the result of this incredibly expansionary fiscal and monetary policy that was coming out of washington
00:42:22
now has it trickled down to the again vc markets yet i mean the way that that has
00:42:26
to happen is that the latest stage investors the crossover investors who invest in both public markets and
00:42:32
private markets they have to to pay they have to start paying less for the latest
00:42:37
stage growth companies and then you know all the downstream vcs are going to start paying less as well because you
00:42:43
know if you know the markups are lower you have to take that into account so look all of this is underway right now i
00:42:49
mean i gave a bloomberg interview in december and um i think i went on maria barromo show
00:42:57
around that time as well and i kind of warned that all this was coming and um yeah we were in the midst of it
00:43:03
of a giant re-rating because we're realizing that so much of the peak values we were seeing
00:43:10
in 2020 and 21 were the result of artificial liquidity and as what you guys predicted you know
00:43:17
it's one of our big you know i guess my big prediction for uh business losers this year were asset classes that were
00:43:24
highly dependent on liquidity you guys predicted crypto would be one of those clearly it's taken a massive hit
00:43:30
um have you seen how much the crypto markets are off just in the last week so it's um
00:43:36
so much for them being uh uncorrelated no it's because look the customer says bitcoin is going
00:43:42
to be uncorrelated so the market the crypto markets are like a sponge for liquidity and the more liquidity there
00:43:46
is out there the more money can flow into a more speculative asset class but look my my objection to this i mean
00:43:54
is that if you look at the fed's actions i mean i think chamath is right that they waited way too long to react and
00:44:01
during the crisis they overreacted i mean they pumped i mean we on a previous pod we showed the assets
00:44:09
between under reaction and overreach yes exactly and and now they're i think they're in they're going into
00:44:14
overreacting again i actually think they nailed it in in mid-december they nailed it by giving us
00:44:19
business certainty around what the new raid environment was going to be and just three weeks later in the minutes to
00:44:25
that very meeting they completely undermined the certainty or the the greater level of certainty and
00:44:31
predict the predictability that they had provided markets they've now introduced
00:44:35
massive uncertainty so it's just it's unbelievable it's like they're pilots and like they
00:44:42
stalled the plane and then they're like oh let's pull back well no it's more they're kind of pulling out the manual
00:44:47
and learning in real time yeah and it's like you need to just point the nose down a bit and add a little bit of speed
00:44:53
so you get some lift like it really is tragic the performance of our government at every level over since covet at the
00:44:59
last you know since 2020 i mean it's been abysmal i mean first you have the self-inflicted wound of lockdowns i mean
00:45:07
the economy is going to take a hit no matter what because highly at-risk people would have stayed home and
00:45:12
reduced their economic activity but instead of just protecting the at-risk people we had to lock down the entire
00:45:17
economy we padlocked elon's factories and on and on so we basically shut down the whole economy for no reason and
00:45:24
states like california kept it going way longer than they had to so then the government just prints
00:45:30
like five six trillion and the fed doubles the size of its balance sheet and then now they're abruptly getting
00:45:37
off drugs i mean look they put us on drugs and now they're going cold turkey and so i think there's actually like a
00:45:43
much greater risk now of the economy going to recession this year because of the fed's overreaction this week
00:45:49
i mean they had they had the goldilocks scenario down about three weeks ago and i think they're going to tank the thing
00:45:53
now or there's a much greater risk of that best advice for founders private companies
00:45:59
in this turmoil what's your best advice fam you're a founder you got i don't know 18
00:46:05
months of runway right now you're going into this you know slush and you want to know what
00:46:10
should i do what should i do i think paul graham's advice it makes the most sense here you
00:46:15
need to focus on being default alive um define what that is just for people yeah
00:46:20
so you know paul graham wrote this great essay uh as part where he's the founder
00:46:24
of y combinator and you know he has this very simple you know framework of looking at companies which is your
00:46:29
default debt or your default alive and when you're losing money as a company and you're burning enormous
00:46:35
amounts of cash your default debt now if you're growing fast enough default debt is a great strategy for
00:46:41
value creation but at some point everybody around you will expect you to be default alive and what that means is
00:46:49
that the cost of what you do are less than the revenues you bring in when the result or profits
00:46:55
and even then that's not good enough i don't know if you guys saw but you know if you look inside of big tech
00:47:01
i was shocked to find out that you know for example you know companies like microsoft specifically and apple you
00:47:07
know these guys trade at huge forward multiples right for enormous profitability but companies like
00:47:13
facebook and google for the same level of profitability you know trade almost a third less in terms of multiple
00:47:20
so even when you're that good it's not good enough to be default alive that's how hard this game is over very long
00:47:27
periods of time and so when you have a moment to really understand how to be default alive
00:47:33
and you don't take it i think it's a huge disservice because we don't do enough of that kind of coaching that
00:47:40
really inflicts that kind of discipline and expectation setting i remember i have a
00:47:46
large climate investment it's actually the single largest investment i've ever done
00:47:50
[Music] and so i sweat the details pretty significantly and you know i was with the team
00:47:56
in uh uh in november december for board meeting and setting up 2022 and my whole thing was guys you have to
00:48:05
get default alive you have to get contribution margins to be in a certain band you were we are going to target
00:48:10
this level of free cash flow generation this year and there's no if ands or buts
00:48:14
about it and what's great is the entire team embraced it and we're marching towards that but if they didn't and
00:48:21
they're like no we're just going to grow at all costs again oh my god i would be freaking out right
00:48:26
now freeberry what do you have to add to that as advice to founders who have not
00:48:29
been through this before i built my business my climate corp uh we raised a round in
00:48:35
november of 2007 we raised 12 and a half million dollars and then the financial crisis hit in 2008.
00:48:41
and um i'd say two things were really important uh number one was just keep building so if you're building a
00:48:50
great business it doesn't matter what the market perturbations are uh you know the the
00:48:57
market will value you what they're going to value you add and if you're a good business there's going to be money
00:49:01
available to you the second piece of advice is one that i know has been said over and over again
00:49:08
but you know never raise an evaluation beyond you know what you're reasonably going to be able to kind of deliver
00:49:13
returns on at some point in the future because otherwise those nasty dynamics emerge
00:49:18
you know you could raise money at some crazy high valuation that's not always the best thing to do because then the
00:49:23
expectation of the investors coming in at that valuation or they want to make three times that money or four times
00:49:29
that money and it pushes you to do something unhealthy like spend more than you otherwise would
00:49:34
stretch for a bigger outcome and put your entire company at risk so you know two things to me have always been just
00:49:40
stay focused on building your business don't let you know kind of market conditions drive your decision-making
00:49:46
and second define what for you is the best practice of staying focused on your business because that is a very general
00:49:52
term what is freeberg if you're going to say the top three things of focused on your business tactically means i have a
00:49:58
simple rubric for value creation in a business you know number one is can you make a product number two is do people
00:50:04
want to buy your product number three is can you make a positive gross margin selling that product to those people
00:50:10
number four is can you make a return on the marketing dollars you have to spend to generate that gross profit meaning
00:50:16
you know can ltv exceed cac and number five is can you scale the amount of money you deploy to grow your business
00:50:23
such that as you grow the return goes up not down if those are the five kind of things you can accomplish in that order
00:50:30
you can build the next google and so and then the sixth thing is can you be a platform which is meaning can you
00:50:35
transition to being a multi-product company that gets leverage out of the the user base or the technology that
00:50:40
you've built got it and so you know if you think about revenue streams more multiple revenue streams using the same
00:50:45
customer base or multiple products or you know whatever um and so if you can achieve those six
00:50:50
things um in that order every step of the way every increment you can make across that spectrum drives
00:50:56
significant value as a business ultimately what the multiple on your business will be is purely going to be a
00:51:03
function of what else is going on in the world things that you cannot control and so if you're driving your decisions
00:51:09
about building your business using that first rubric good for you you're going to succeed you're going to have money
00:51:13
available to you awesome if you're driving your decisions based on what the market is telling you to do and what the
00:51:18
market is saying is available to you and money and all that sort of stuff you know you're setting yourself up to
00:51:23
basically be you know blowing up are you also saying to be independent of valuation
00:51:29
yeah i i'm always of the opinion that you shouldn't raise money beyond your um into evaluation that you're not
00:51:35
comfortable saying in different market conditions or what have you i can return multiple ways i don't think any founder
00:51:41
has ever you know most of these founders were not around in 2000 and they were 2008 or two but
00:51:47
even 2008 was less important in my mind because it was it was it was fast and again we had government stimulus so you
00:51:54
know like i think 2008 was an aberrational moment i was i was in the middle you know inside of facebook and i
00:52:00
was like what the hell is going on here the government's going to step in and you know with tarp printing a trillion
00:52:06
dollars whatever it was it didn't affect you guys it didn't affect us at all yeah but you
00:52:11
were the most powerful company or not at that time 2008 wow here's the thing that people don't
00:52:22
realize with facebook google was profitable from day one too yep we we were always default alive i want every
00:52:28
single person listening to this to understand this okay we sold poker ads for party poker in big banner ads on
00:52:35
facebook and we made money you got the bag you got yourself independent we're profitable okay so i don't buy this
00:52:41
argument that argument of unprofitable growth is a vestige of fund dynamics and vcs who want to raise larger and larger
00:52:49
funds to blind their pockets with fees it's a function of what i mentioned before which is if you can
00:52:56
think about the context of a portfolio of those bets it makes sense but if you think about your business it doesn't
00:53:01
make sense in 2000 that didn't make sense you could not run an unprofitable growth business the money would not have
00:53:06
been there right and the real reason is that was a a market check meaning you had people reallocating capital because
00:53:14
risk rates were different you know you could put money at six percent in the in u.s 10-year bonds now obviously you
00:53:20
can't do that today so maybe this cycle is just the new normal and so you know maybe you can always be default debt and
00:53:26
be able to raise money because the incentives exist but i wonder when that stops and so i don't know google
00:53:33
was an incredibly cash efficient business i think they raised under 50 million as a private company they never
00:53:38
used any of it because google the first the first thing google did is they did a
00:53:41
massive search syndication deal with aol that paid them hundreds of millions of dollars and that funded the business if
00:53:46
you can sell ahead of your customers in terms of delivering the service or the product to them you've got the most
00:53:52
beautiful business in the world that's the definition of bootstrapping google even though they raise venture capital
00:53:56
effectively bootstrap the business by getting customers to pre-pay like elon getting people to prepay for cars i
00:54:02
wrote this in my annual letter like two years ago but facebook google apple microsoft and amazon raised collectively
00:54:07
less than 250 million dollars yeah i mean what yeah so i mean i i agree with what a a lot of what you guys have said
00:54:15
um i mean so i agree with freeburg that recessions or downturns are actually great times to build startups because
00:54:21
innovation doesn't stop and you know so paypal was predominantly built after the
00:54:24
dotcom crash uh yammer was probably built after the 2008 sort of great recession so it's
00:54:30
absolutely doable and some things actually get easier in a downturn there's like way fewer startups getting
00:54:35
funded and so like talent gets easier to recruit so you know things loosen up in you know in
00:54:41
terms of the company building side the only thing that really gets harder in a downturn is fundraising right this is
00:54:47
and by the way i think it's a good practice for founders not to care what happens
00:54:52
in the public markets than as to early stage founders right because the only time that really touches you is
00:54:58
when you need to access the capital markets right and then you will be subject to the downstream impact on vcs
00:55:04
of what's happening in the market so so the only thing that really gets harder is fundraising and this is where
00:55:10
i think chamas advice comes in i i personally think that trying to achieve default alive
00:55:16
status is too high a bar i mean it's a wonderful thing if you can do it i mean facebook did it google did it the very
00:55:22
best companies did it but i know very few sas companies that could continue to grow if they had to be castral positive
00:55:29
i mean at an early stage so the metric i use is bird multiple i wrote a blog about this once um
00:55:35
it's basically just how much are you burning for every dollar of net new arr you're adding so in other words like if
00:55:43
you're burning a million dollars you know over whatever period of time a month quarter year to add a million
00:55:49
dollars of net uar that's actually pretty good so a bundle of like one or less is amazing i'd say
00:55:55
even up to two is good so in other words like if a sas company can say add 10 million of net new arr in a
00:56:03
year and burn 20. i think vcs will fund that all day long even in a recession two year payback yes but when you start
00:56:10
getting to burn multiples of three four five six and up that's when like vc's are going to go wait a second yeah
00:56:16
you're that gross that's efficient right you're not efficient it's not just efficient but it starts to raise
00:56:20
questions about your product market fit because you're effectively spending too much money to grow so like why is a
00:56:25
growth that hard right no market yeah no market yeah exactly no marketable i think it's
00:56:30
a good way of putting it so i do think you have to start like in a downturn or in choppy waters you have to sharpen the
00:56:35
pencil get more efficient about your burn look at your burn multiple and then i think you know if you have
00:56:40
the opportunity to top off your war chest like that's smart you know and don't wait too long and be frugal i mean
00:56:46
god the amount of like crazy spending i'm seeing in some startups and unnecessary spending if
00:56:52
you're spending something it's not going into product it's not going into marketing
00:56:56
you know it's not going into sales and it's not you know just you really have to ask yourself why am i spending money
00:57:01
on going to this conference going to that conference on this office space like really be frugal i know that it's
00:57:06
when you have all this money sloshing around you're looking for things to spend it on but stay focused
00:57:12
yeah i mean yeah don't don't spend 7 500 on that unless you've got tons of cash laying around
00:57:18
and we will be getting back to the people who applied we're going to go through and
00:57:22
somebody's going to approve you let's add one other thing to this which is you're right that like most founders
00:57:28
have never even seen a downturn because the last big one was a great recession of 2008 2009. so many founders were even
00:57:33
around back then the most the most the real one was 2 000. that's right that was the big crash it froze i would say
00:57:40
it froze to that 2008 was what like 12 to 18 months of choppiness and i would say a lot of
00:57:46
companies couldn't raise money had to do down rounds had to do multiple liquidation preferences it was gnarly on
00:57:51
some cap tables during that period and if you don't know what multiple liquidation preferences are ask your
00:57:56
attorney i understand but there was no real market check the market check was really in 2000. and you saw it was a
00:58:02
multi-year slog it was a bloodbath you had to be deep well it's not vaporized yes people or
00:58:07
you had to be default alive absolutely absolutely yeah but i would say a third of the startups went away in 2008. i
00:58:13
don't think we're running into that again so you know let's not create a sequoia graveyard
00:58:19
but you could nobody knows just a point look it's a pr it's a probability of getting your
00:58:23
business funded right and and that's kind of lower it's it's not like but here's the
00:58:28
thing what i but what's shocking to me it's like i don't understand why people think you
00:58:33
can grow infinitely forever it's just not true even the best businesses in the world
00:58:39
after 15 or 20 years are barely growing at 20 percent people forecast facebook and google
00:58:45
those are the two best businesses in the world but isn't the question what kind of
00:58:49
growth vcs are willing to finance no what i'm saying is if you know that your terminal growth rate if you are one of
00:58:56
the best companies ever created ever is 20 in 20 years it doesn't take a genius to do a line of best fit between now
00:59:03
where you're at 100 and 20 and realize that at some point if you don't figure out how to make money by selling what
00:59:10
you're selling there's a lot of people who will be smart enough after enough historical data has come through the
00:59:15
transom or come over the past to realize that these things are not that fundable
00:59:20
and this is what's shocking to me it's like that data is hiding in plain sight for anybody to look at
00:59:24
it doesn't make sense unless you believe that those those growth rates of 40 50 60 are sustainable for 30 years or 40
00:59:33
years we've seen zero examples and you have to look at these canaries in the coal mine because if if the best
00:59:38
companies in the world can't do it you're you have to really scratch your head here or ignore it
00:59:44
whatever that's fine just wing it yeah it'll work out don't worry about it don't worry about it
00:59:51
don't worry just add like teachers around it's fine one of those features will work and save the day there's some
00:59:57
magical future though did you see andreessen announced that they raised nine billion dollars or something today
01:00:02
across the united states congratulations they're building a colossus yeah i mean
01:00:09
silicon valley in terms of capital is um you know seeing kind of power returns itself right there's going to be a few
01:00:16
firms that are going to you know control eighty percent of the and reason should
01:00:19
go public and drinking tiger global you know whatever happens i don't know if something is i mean there's
01:00:29
if you look at the aggregate capital that's being deployed into private markets right now
01:00:33
in in probably two years eighty percent of it's going to come from three firms or four firms the problem is if you're
01:00:38
running that much money you're insane to not take your gp public because it's the only way like you're
01:00:44
not really generating carry at that point because you're generating a market beta return so you'll do okay but when
01:00:51
you're sitting on 20 30 40 billion of imputed wealth by being the owner of the gp of tiger or andreessen you'd be
01:00:58
insane to not go public i think the odds are going to be pretty high that andreessen will go public right i mean
01:01:03
they're certainly setting themselves up to be a lot more than just a capital allocation though right it's never
01:01:07
happened well no but i mean like venture's never scaled up to the point that private
01:01:17
equity has until now and now that they have it's very likely it's very likely that you'll see andreessen be the first
01:01:23
i don't know them you know very well but sacks you were gonna say something yeah
01:01:26
well i think it's a super interesting point because if you talk to the previous generation of vcs what they
01:01:30
will tell you is who retired right is when you ask them well did you get anything for your
01:01:36
partnership share in the firm not just in a fund but in the firm they'll tell you no they basically just gave it away
01:01:42
to the next generation of partners even though they they built the firm and it's
01:01:45
because historically the belief on the part of vcs was that there was there was no value to vc firms other than just
01:01:53
their interest in each particular fund but you're right like if they do achieve a much greater level of scale and they
01:01:59
can go public then there is actually value in the firm itself and if you look at the terminal
01:02:06
valuation of blackstone as indexed to aum you know uh once you pass a couple hundred billion of aum you can trade
01:02:13
point two towards 0.1.2 times and so you know if you have 50 billion of aum there's 10 billion dollar market cap
01:02:20
there and if you you know if you're calling jason or andreessen or horowitz i mean
01:02:25
that's five billion dollars that just appeared out of nowhere why would you not do it right right it's a little bit
01:02:30
like goldman sachs they always said that we're a partnership we're never going to
01:02:33
ipo because and then they did and then they did and the and same thing did caa do it too no i guess there are no what
01:02:40
happened with cna was ovitz uh sold this position to go to disney so there wouldn't be a conflict but he
01:02:45
could have kept it and the like residuals they were getting from projects they packaged were incredible
01:02:50
didn't the aria emanuel one it did endeavor did endeavor how are they trading i haven't even
01:02:56
looked at endeavor i'm not sure but let me tell you like it's actually but think about
01:03:01
if you're not like the current like partner owners of the firm but you're like on a partnership track there
01:03:06
and you're working your way up to partner like by time you get to partner it's gonna be a very different economic
01:03:12
equation because instead of getting your one over n share of the pie when you eventually become
01:03:17
partner with n being the number of partners or some version of that now the company is owned by the public
01:03:23
and the public or the board of directors is determining your salary and maybe you
01:03:28
get a salary and bonus and some you know essentially options or equity participation but
01:03:33
you're not going to be a true owner anymore because you the firm is going to be owned by the public wait a second
01:03:38
what if we take each of our businesses put them together and then take them public as all in capital
01:03:45
and then we get the best i'm good i'm good i'm good we got the startup studio on a conference so i don't know
01:03:54
we can't agree on the decor and food for our one day event in miami that's because the amount of work you guys want
01:04:00
to do is slagging me in a slat in a chat no what we want is someone to do the work we want to hire a professional
01:04:06
i have been doing conferences for 25 years stop starting my no and you know what's going on for tuning it you know
01:04:12
what's gonna happen you launched yammer at my conference and i put the fix in for you to win
01:04:17
thank you tech crunch was a beautiful conference but for all in summit is it just the
01:04:22
case we want people to show up and there's gonna be a stage and people talking on stage in this whole
01:04:26
conference or we want to create a more magical experience a davos or a sun valley or something
01:04:32
like we're in an agreement all right everybody thanks for tuning in to episode 62 of the all-in podcast we'll
01:04:38
see at the all-in summit and if you want to do us a favor please go ahead and subscribe and rate us on
01:04:44
apple we could really use that uh and uh thanks to spotify for including uh daniel shout out to thanks
01:04:52
dad he included us in their video so now if you're on spotify and you're listening
01:04:56
to the pod you can click a button as of this week and watch the video or you can
01:04:59
watch the video on youtube yeah it was nice he emailed us and uh his team and then i cc'ed him on the email he's the
01:05:05
best yes i think would he be good for uh what do you think about having him and mr beast he's super super super here's
01:05:11
my idea for a trio him mr beast and then one other person to do a media trio future of media what is your what
01:05:19
is your own what is your idea you don't even know the third person i mean well i'm putting
01:05:23
it out there asking for a suggestion for their relationship you just throw this [ __ ] this is our
01:05:27
conference in presario oh my gosh well those are two great guests on the stage at the same time let's figure out who
01:05:33
besides j kell's gonna produce the conference david it said we open sacks it to the fans and
01:05:51
they've just gone crazy [Music] it's like this like sexual tension that they just need to release
01:06:23
your feet oh [Music]