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Captain calacanus is here reporting for Duty with us Spirit Airlines cup absolutely Spirit Airlines I just want
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to say all in podcast now sponsored by Montclair and Spirit Airlines or now sponsored by the Village People
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[Music] wow are you a pilot or a flight attendant Jayco he's a flight attendant I don't
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think he's thin enough to be a flight attendant are you fat shaming me are you body shaking you can't do that nowadays
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that'll get you canceled get exact canceled at this point like fat shaming would be number 72 on the list he can't
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get canceled because all the libs have left Twitter there's nobody to there's no Home monitors left they all pretend
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no they quit every week yeah it's like all the Lives who said they moved to Canada when Trump got elected yeah
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Canada immigration go ahead [Music] let your winners ride [Music] [Music] a hacker figured out a way to take all
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this data and track you know people's Yachts people's planes obviously one of those people was Elon Elon had a
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security issue this is all public information so the larger issue at stake here is
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the fact that the law allows for people to do this persistent tracking of planes
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which then becomes persistent tracking of a person and what really is at stake here is how we Define the term doxing
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for people who don't know the term doxing it means giving a person's location that could be your home that
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could also be you're at a location for some period of time you're at a hotel you know for a basketball game
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uh and it's pretty clear you can take a picture of a celebrity say there's a celebrity here oh Lady Gaga's at the
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farmer's market what I object to here uh we all understand doxing is dangerous and it in fact is against the law to
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just get people's addresses and stuff like that um the issue here is a new type of doxing
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which I'll call you know persistent coordinated doxing where dozens of times a month you're giving a person's
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location it may not be against the the First Amendment sacs I think you would agree but we have to ask ourselves do we
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want to live in a world where whether a person's on an electric bicycle or an airplane or any device in between
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somebody should be releasing dozens of times a month a specific dedicated feed of their location it is terrorizing as a
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parent when this happens I've had doxing people on the call here have had various
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security concerns we don't want to live in a world with de facto doxing what these sites were doing was de facto doxy
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I think it was a bad decision and I think that it um uh represented on the least generous statement would be
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that it represents deep hypocrisy in that not just a few weeks ago did he say he would never delete that account but
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he also said he was buying Twitter to enable freedom of speech and freedom of expression and that he wouldn't come in
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and do the same sort of content moderation that was done by the old regime and then he came in and did
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exactly what the old regime did which is that he took the rules and he took the quote moderation policies and he found a
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way to use them to make some editorialized decisions that he thought was appropriate now the more generous
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thing is what you guys are saying which I don't think is necessarily wrong which
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is that he's trying to protect people where there's some loophole or some law that doesn't seem right morally but it
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is the law and it is what it is in those cases I think you run into the exact same issue that the Old Guard at
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Twitter had that the moderators and the executives at YouTube have dealt with and that the executives at Google have
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dealt with and that we sit here and we criticize until you're on that side of the table and you're forced to make
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these moderation decisions you're forced to make these policy decisions and you're forced to implement these policy
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decisions because of some moral framework that you now think is appropriate and guess what some people
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will say that's not freedom of expression that's not freedom of speech you're taking that away from some people
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you're taking this particular case away from a 15 or 16 year old kid who's built
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a a Twitter feed and so I think what it shows is just how hard it is to moderate
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these sites these platforms and that there is no simple easy idealistic ideologue of hey all these things are
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open all these things can be used by anyone all the time because as soon as one of these edge cases start to happen
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you want to come in and do something about it what do you think what should happen going forward so I I have had
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these issues happen to me multiple times times I'm not nearly as important as Elon is
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but it feels the same when you're in the middle of it it feels pretty terrorizing
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that being said I think the real decision for somebody like me is that if if it's too much is frankly just to get
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rid of it and you know to find a different mode of transportation that's a little bit more Anonymous and your
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practice about it and the reason I say that is that I just think that you you would have to go and get the government
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to basically change the law which they're not going to do and so then as a result your reaction will seem somewhat
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contrived and deeply personal and in that I think you lose credibility let me just summarize this and be the first one
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to just State this I think that if there's any person in the world that can figure out Twitter
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it's probably Elon but man has he taken on just a gargantuan battle and increasingly I am not a fan of this
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battle and I'll tell you why this is a man who is essentially proven that he can bend the laws of physics on
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behalf of humanity he's done it twice once in electric cars and once in rocketry
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the problem is that the realm of decision making at Twitter has nothing to do with the laws of physics and is
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governed by emotions and psychology in which there is no canonically right answer and so he's quickly finding out
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that half the population will always find fault with him no matter what he does and now the implication of that becomes
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very important we saw yesterday that he had to sell another 3.8 billion dollars of Tesla
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stock why is that it's because this transaction which was you know very tight to get done probably required lots
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of margin you know there I look I have a margin loan at credit Suite so I know how these things work and you can very
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quickly get Margin Call you have to sell down things that you own in order to maintain your collateral limits we've
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talked about this before he's had to do this twice now in the last few weeks and
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that's because again not because of the demand that Tesla as far as we can tell but because people believe he's
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distracted and so people are anticipating weakness at Tesla people are now shorting the stock anyways it's
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causing this downward spiral and can he fix it I think so can he pull it all out sure is it just putting
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himself under an enormous amount of pressure that he could have avoided somewhat yes and I think that this is
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sort of where we're at um six weeks in my gosh I mean I was saying this guy learned in six weeks
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What it Took YouTube seven years to learn how hard it is to moderate content and you know I think the thing is that's
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what I disagree is okay you're attributing so much good faith to these content moderators at YouTube
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and Twitter when the Twitter files reveal that they made no effort to suppress their bias in fact they were
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like pretty much dancing in the streets every time they booted off someone they didn't like fair
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enough before you react to What Friedberg just said at the end that Coda can you respond to what I just said
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isn't it true like it's like well look I mean if you define what Elon is you know
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doing there as you know acting as a judge arbitrating on every little content moderation decision is that a
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great use of his time relative to what he could be building at Tesla SpaceX and doing on behalf of humanity then no
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clearly not but if you define what he's doing in the larger sense as restoring free speech to the most important Town
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Square social network hopefully thereby inspiring other tech companies to move in the direction of opening things up
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then I actually think it's a pretty good use for his time so look I think we can
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quibble about this or that decision that he makes or this or that tweet but I think the overall thrust of what he's
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doing is very important for the country and for Humanity so I get where you're coming from hopefully he'll find some
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people at Twitter who he can Empower and Trust to make these content moderation decisions so he's not drawn into every
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single little battle right we do want him focused on the highest priority problems my point is just that I get
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that I just think that what he's learning and what we're living and seeing in real time
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is that there is no canonically right decision ever in this space there's only a decision where some percentage will
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support and some percentage will always be against because that's my point correct he did say when he took over he
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knew that would be the case he said you will know I'm doing the good job when both sides are equally upset
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just to to put a pin in it I think it's important for people to understand what the new policy is so I'm just going to
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quickly read it just hang on sorry hang on one sec before you get to because I think the the philosophical Point rather
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than the specific one is it's an important one and I just want to respond to what your mom said and and have sax
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respond to this in the case of the the points you make around the Twitter files and by the way I don't agree with any of
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the moderation decisions personally so I don't think that someone should be suspended for posting public information
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I don't think someone should be suspended for saying controversial things that's my personal opinion just
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so I'm clear on that because I know that you know describe yourself as a strong Free Speech yeah libertariance okay sure
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and um and so in this particular case I think what really irked me I was trying to identify why it made me so angry
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yesterday it triggered me it really did and I think the reason was that in the case of the Twitter file points um it
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was a minority it was a minority that was affected it was one person that was affected did because the majority wanted
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to do that thing to that person and I think in this case it's that the minority wants to affect the majority in
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the sense that Elon has aggregated this control and this power over moderation and he's benefiting himself and a few
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people that have private planes and he's shutting down hundreds of twit feeds Twitter feeds that are using publicly
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available information and so it feels even more onerous of a um a use of power and influence because
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he's taking um he's doing something that benefits a small number and affecting a
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large larger number whereas the alt where's the other one was affecting a small number that benefited a large
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number because that's what a lot of people wanted to see happen a lot of people wanted to see Trump suspended and
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it wasn't right either okay I don't know if that if that makes sense yeah we understand your position completely I
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just want to add to that in this policy I think it's very important to understand what he is
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saying about this accounts dedicated to sharing someone else's live location are
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going to be suspended going forward you can still share your own location obviously content required uh you know
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content for public engagements you know the president is speaking somewhere whatever you just really can't be
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persistently consistently tracking an individual Otherwise Known and you know stalking but Jason if NPR is live
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tweeting sure Jerome Powell's speech perfect XYZ location not a problem if they do Jerome Powell's location for
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the next year for the next year 10 times a week on his off duty on duty that's the same
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thing we're talking about I'm just saying like let's just say he gives a speech every week
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is that illegal no if you totally fine if you're giving a speech at a public place where you've announced that you're
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going to be appearing at a certain time and place you've already made the public
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where you're getting a problem what we're talking about is and what what Elon jet was showing was a live stream
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of precision GPS coordinates over a sustained period of time yes and not to be too dramatic about it but if you look
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at like the weapons that are so successfully being used in Ukraine right now they're all Precision GPS guided now
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right now you have to be a state actor to get a hold of those weapons but you could imagine over the next decade that
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having someone's precise GPS coordinates over a sustained period of time it would
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be pretty easy to Target them for and not to be dramatic here but for assassination yo that is a security risk
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there's no way around that I brought this up with Palmer lucky man I'm scared that dude could come at me anytime when
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I get my jet I don't want farmer lucky taking me out yo Palmer I'm sorry dude do not take me
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out I'm gonna get my jet I'll be on my first flight and he's just gonna to send a drone in but look let's talk about
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hypocrisy for a second okay because here we go let's let's talk about CNN's hypocrisy and the media's hypocrisy
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because earlier in the week they were saying that any criticism of yoel Roth who is Twitter's former head of trust
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and safety amounted to a threat to his safety and they had this like theatrical tweet where they claimed you as having
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to flee his house which a lot of people found uh pretty Preposterous they were basically saying that public criticism
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of someone who has put themselves out there to engage in a public debate who's writing op-ed's New York Times that is a
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threat to safety however publishing someone's real-time location on a continuous basis so they could be taught
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not intellectually consistent it's not intellectual consensus safety that is not sorry if if one of those two things
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is a threat to safety it's the real-time doxing of somebody yes I think we Now understand why Elon did what he did he
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basically had an incident in LA in which the safety of his kid was threatened because he's got stalkers coming after
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him so his safety is a real issue it's not like a made-up issue yeah why should his personal
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experience affect the usage of the service that hundreds of millions of people use and that's the big issue the
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decision should not be based on what affects him personally there needs to be a possible basis there needs to be a
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principal basis for any decision moderation or censorship maybe in the first few hours of that decision it
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wasn't handled perfectly because there wasn't a principal basis but since then one has been put in place the principal
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basis is what jaycal showed and this applies to everybody and so you know now it's a debate about whether that policy
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makes sense now is Elon just as arbitrary and capricious as the former uh Executives who are running trust and
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safety at Twitter I don't think so for two reasons number one he's promised transparency he said that when we ban or
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Shadow ban an account there has to be a reason for it and you have to be alerted
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to it in other words none of the Shadow stuff no should be informed you've got your speeding ticket you get your ticket
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it's there right no more shadow that is different and then the second thing is that and again I think you could say
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they didn't do this perfectly in the first few hours but there needs to be a principal basis for a censorship
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decision and it needs to be applied to everyone equally and so far we haven't seen any basis for
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believing that he's not applying this principle equally I mean still very early whereas the former rulers at
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Twitter were indulging their personal bias and personal preferences and who were they were Banning there were two
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standards of Justice if you were someone who has allied with them it was almost impossible to get censored no matter how
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hateful your tweets were but if you were somebody on the other side of the political debate they were eager to
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suppress you and I think that at least so far Elon has not shown that type of selectivity he's selected against
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someone that put him at personal risk he I think yes if that's where the decision had stayed
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yeah then I would agree with you but I think that since then they've put in place they've undergirded that decision
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with a personal policy I think those sites are I think those tweet um streams are cool I think there's some cool
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tweets streams that some of these people run and there are hundreds of them and they're actually kind of cool you can
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see where these different you're in favor of people tracking people's planes like where Air Force One is they show
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all these different planes it look and whether or not the FAA should be publishing this data as a separate
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question but it's on the open internet it is already there it's like turning off the RSS feed from the open internet
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to protect himself okay that's why it feels owner so here's the part I agree with which is I think this policy with
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regard to playing specifically is going to be futile yeah it's going to be at best harm reduction because as long as
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there's many ways to publish this information on Facebook so listen I think this whole
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I think this whole policy on Twitter is a little bit of a red herring I think the real issue issue the real underlying
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issue is that the FAA is publishing these iCal numbers thereby making every plane personally identifiable I don't
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think there's I haven't I have a counter to explain why if that's necessary I have a counter to it actually sex if I
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may what we saw whether you agree with it or not with the mass Banning of certain
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individuals did actually silence them and take them out of the Public Square one of the reasons in fact Elon wanted
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to buy Twitter so if you look at certain individuals whether it's Milo Alex Jones
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Trump himself right on down the line when they got banned across all systems it was dramatic in terms of the reach of
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the that information so because of the size and scale of YouTube Facebook Twitter
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Etc when they act in coordination they can have a dramatic impact not a perfect impact but a dramatic which is
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why we have this issue of hey should 230 be rethought because when they act on mass it is extraordinary what they can
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do to an individual they took Alex Joe who how do you consume Alex Jones you have to seek that out in a
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major way it's distinctly different last word and then we're moving on to what could be the greatest science Corner
00:17:55
ever in the history of all in pod final words I think this is this is a great transition we're about to talk about
00:18:01
nuclear fusion and my point is I don't care about any of this stuff like I said yeah like
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this is my point is like the if you if you take like an average person okay you know we are let's say awake 16 hours
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a day and you know if you take out the time with our family David the family is people that are
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related to you um can we DM sax those people one more time we'll send you their names
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um but if you take that out and you take out you know exercising and you know can we also
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explain that to sax that's when you uh crease your heart rate and sweat sex the point is that you have let's just call
00:18:40
it 12 hours you know a functional executive time that you can apply to a problem and you can break that down into
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these blocks right I would really love what is basically the smartest human and the most
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productive human of Our Generation to be feeling those blocks with things that sort of like really transcend and
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increasingly and I agree that freedom of speech is important increasingly those buckets are
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being filled with things that are very low level and Hyper tactical and are distractions
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at best to the to the path of free speech and so I think that hopefully he gets all this [ __ ] under control over
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there he finds a good executive team I would like to see him get back to Landing rockets on barges getting to
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Mars finish self-driving we're almost there moth definitely has a point but I just
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say one of the reasons why we don't care that much about this issue is because I
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think something to understand that's important is there are different kinds of speech and different kinds of speech
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deserve different levels of protection the fact of the matter is like business advertising is not as protected as
00:19:55
political speech porn is not as protected as political speech political speech speech criticizing the people on
00:20:01
power is the most protected category of speech because the founders of the country understood that the people in
00:20:06
power will always try to insulate themselves from accountability by limiting that kind of speech but that is
00:20:12
precisely the kind of speech that the former rulers of Twitter suppress the most and showed the least sensitivity to
00:20:18
so listen I mean is Elon going to be the perfect content moderator no I mean nobody is nobody is but I do not believe
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that puts him in the same category as you know vijayagati or yoel Roth who showed no sensitivity for political
00:20:34
speech he has indicated a desire to restore freedom of speech and I think they ultimately ended up in a place I
00:20:40
want him to get us let's move on to Twitter best science Corner ever so according to sources scientists work
00:20:50
for the U.S government have achieved a net energy gain in a fusion reaction no for the first time not net energy gain
00:20:56
get it right we had ignition energy which is very different from that energy gain okay
00:21:01
hold on I know that you're in the anti-camp please let the science nerd have you you have to you have to say it
00:21:06
correctly so that people understand what you're talking about let me just make it
00:21:09
even simpler then explain to us what Fusion is Dr Friedberg and explain to us why this could potentially change
00:21:17
everything we did this on a on a show once before but I'll kind of do a quick kind of summary again basically if you
00:21:25
take Atomic nuclei which are made of protons and neutrons and uh they repel one another right
00:21:30
because protons are positively charged so they want to push apart from each other so with enough energy and enough
00:21:36
density meaning that they're moving fast enough and they're close enough they'll
00:21:40
overcome their repulsion and and jam into each other when that happens some energy is released because the total
00:21:46
mass of the fusion of those those nuclei is actually less than those nuclei when
00:21:53
they're on their own and so some energy is released and that energy drives a a chain reaction
00:22:00
and so Fusion is this concept that is fundamental to physics and fundamental to the energy driver of our
00:22:07
universe so the star in our uh in our sky uh the sun is driven by fusion and only
00:22:15
about 15 of the mass of the Sun at the center is dense enough to actually drive Fusion so the big challenge with Fusion
00:22:22
is how do you get these these Atomic nuclei close enough together and moving fast enough that they'll actually fuse
00:22:30
and release energy and that's super hard the reason it happens in the sun is because the sun has so much mass that
00:22:36
the gravity pulls all those particles together they get close enough they get hot enough they move fast enough and
00:22:42
fusion happens boom all this energy comes out and every day we're warm now to do it on Earth is very difficult but
00:22:49
if we can do it what happens when you fuse nuclei together is you don't release any this isn't like a
00:22:54
radioactive fission reaction you release energy that can be harnessed to drive our systems our technology how
00:23:02
is it done yeah so in the 1950s you know this was theorized hey we could do Fusion on Earth we got to get a really
00:23:08
really dense plasma meaning the atomic nuclei and the electrons have kind of gone off the atoms and it's just the
00:23:14
nuclei spinning apart you got to get them to move super fast like tens of millions of degrees Celsius and you got
00:23:19
to get them really close together so how the heck can you do this so there's a couple of um Concepts to do this one of
00:23:25
which is called inertial confinement which is where you basically create a little pellet of the uh the material
00:23:33
you're going to try and get diffused and you put a ton of energy on the outside you can press it really hard really fast
00:23:39
and when you compress it really hard really fast and you can get it to be done in a perfect sphere and you can get
00:23:44
it to collapse on itself very quickly without you know kind of shooting all over the place enough of those particles
00:23:50
will come close enough together fast enough hot enough and they will start to fuse another way is through magnetic
00:23:56
confinement where you use magnet genetic fields to create a really hot plasma get
00:24:01
it to spin around or to move and then the magnet brings that super hot plasma closer and closer and closer together
00:24:06
until all those particles are moving fast and they're dense enough that they start to fuse so you know one is called
00:24:12
magnetic confinement the other one's a neutral confinement and so what we saw happen this week is at the national
00:24:18
ignition facility which is a facility that was built starting in 1997 and they've spent about three and a half
00:24:24
billion dollars to date they demonstrated a net energy output from the fusion reaction Governor neutral
00:24:30
confinement system and what that means is they took a little pellet and that pellet was made up of deuterium and
00:24:37
tritium the atomic nuclei that they use the particles that they use are deuterium which is a proton and a
00:24:43
neutron stuck together and then tritium which is a proton and two neutrons stuck
00:24:47
together and the reason they use those two combinations is of all the different ways you could fuse nuclei together
00:24:54
this has the best energy output of any kind of reaction Freebird yeah what actually happened this time that made
00:25:01
this work for what apparently only three billion dollars you said you didn't say
00:25:05
three trillion said three billion three yeah about a third of what Sam bankman fraud stole we have done something here
00:25:12
yeah allegedly so what actually happened that is so dramatic that we have a press
00:25:18
conference everybody's losing their mind so yeah I just want to highlight one more thing about why this is so hard you
00:25:23
have to get such an incredible density you have to get an incredible energy so high temperature and high density that
00:25:31
confining those atoms and not letting them escape and and you know um basically dissolve before they fuse is
00:25:39
super difficult it requires so much energy in such a controlled way in such a perfect and precise way that all of
00:25:46
the digital technology the magnets all the measurement systems all the software it's taken us decades to get everything
00:25:53
that allows us to to do this today and now we're at the point that we may be able to start to realize production
00:25:59
scale Opera kind of versions of this so what they did is they had a small deuterium and tritium pellet and they've
00:26:07
shown 192 lasers onto this container that held that little fuel those 192 lasers the whole thing happened in a
00:26:14
billionth of a second the laser is pulsed boom here's an image of it and as they did that they you know basically
00:26:21
x-rays kind of Hit the sphere this little BB if you will uh BB kind of thing and compressed it and it
00:26:28
compressed so quickly and with such heat and it didn't dissipate because it was done so precisely all the lasers hit at
00:26:35
the exact Right Time Boom this thing compressed and then energy came out and the energy that came out that was
00:26:40
measured was one and a half times the energy that kind of went into that reaction and here's a chart that that
00:26:45
I'll show you from the national ignition facility which shows just how inefficient the system still is
00:26:51
and this isn't even speaking to um to chemov's point but basically these guys um lose 90 percent of the energy that
00:27:00
they put into the the center of the system only 10 is actually used to drive the compression the rest of it is lost
00:27:06
and there's a lot of ways to improve the efficiency of the system from here but basically they put two megajoules in
00:27:13
they got three Mega joules out and so it was the first proof Point production proof point in the 70 years that we've
00:27:20
been theorizing about nuclear fusion here on planet Earth that this is possible and it's real now this is these
00:27:27
kind of inertial confinement systems there are 33 private technology companies today that have raised about
00:27:34
three to four billion dollars so far this year to pursue several other Technologies
00:27:40
besides what the national ignition facility is showing to try and build production-ready versions of nuclear
00:27:46
fusion and so these 33 companies are using a bunch of different types of tools one of which is the Tokamak if you
00:27:52
show the image I'll show you this one there it is yeah tokamac this is what we talked about that is the magnetic
00:27:57
spinning thing that looks like Iron Man's uh Arc Reactor which I think this one based it on yeah yeah you create a
00:28:04
plasma you basically speed up the hydrogen nuclei super super fast these deuterium and tritium nuclei super super
00:28:11
fast and then you use magnets and the magnetic field has to precisely squeeze the plasma squeezing it squeezing it
00:28:18
squeezing it and if it's slightly off and even the tiniest way think about a balloon right if you put a pinhole in a
00:28:24
balloon everything escapes from the balloon yeah you gotta do it that's how technically hard this is you're
00:28:29
basically trying to create a balloon with a magnetic field and you're trying to keep the gas and you're trying to
00:28:34
make it smaller and smaller and smaller and if any tiny hole emerges the entire plasma is that what happens in Uranus
00:28:42
like when you're trying to hold in the wagyu anyway uh let me ask this question then
00:28:49
um about the consistency of this and then we'll go to YouTube off can they do it consistently or do you
00:28:56
think this is like they got lucky once uh or are we going to be sitting here a year from now and they're like we put in
00:29:01
two when we got out six so and we did it five times yeah so so now we've proven that humans can do this okay which is
00:29:08
look I mean I want to give you guys some uh and I know kind of some of chemov's concerns which is how much can recreate
00:29:14
the sun is what we this comes down to no yeah but no because no I I want to just
00:29:19
say one like if not even close I want to say one important thing from a historical context
00:29:25
all breakthrough technology starts out seeming impossibly large impossibly expensive and impossibly slow the Human
00:29:35
Genome Project 20 years ago cost a hundred million dollars to sequence the human genome today we can do it in a
00:29:41
couple of minutes for a hundred dollars okay incredible the first computer the Antioch computer had 500 flops of
00:29:48
compute capacity it filled a room it cost eight million dollars to build 20 years later we had a Mainframe
00:29:55
no this is all this emotional [ __ ] you're using the wrong examples okay let them finish then you got your mom good
00:30:01
finish your sentence Freeburg and then we go and today we have an iPhone that can do 2 trillion flops of compute in
00:30:08
your pocket I think that what we're seeing with Fusion today is similar to what we saw with the eniac computer in
00:30:13
the 1950s which is the demonstration that compute is possible and now we're seeing a demonstration that Fusion is
00:30:19
possible okay and a lot of folks have anticipated this moment and they've invested ahead of this now I don't know
00:30:25
if any of these companies that are currently kind of being built are going to be production ready anytime soon my
00:30:30
estimate is that we will see production demonstration confusion here we go 23rd in the 2030s so call it eight years from
00:30:39
now plus and then you'll see grid scale scale up in the 2040s so this isn't something that's going to happen next
00:30:45
year or two years it's already happening what are you talking about okay now tremath your rebuttal oh my God knowing
00:30:51
you're a huge fan of solar this is the most Naval gazing hit up your ass scientific [ __ ] okay couple points
00:30:57
let's start with the basics the first is that there was no previous technical change
00:31:04
like why are you angry at me I'm not angry I find this so tiring hearing this it's all seriously he's right yeah it's
00:31:12
not like I don't get it because I don't find this intellectually honest okay let me finish let me finish
00:31:23
okay when you talk about sequencing the genome there was no alternative so you're right it was an enormous
00:31:30
technical Leap Forward when we built a computer there was no analog it was an enormous technical leap and so you're
00:31:38
right we have a cost curve we don't understand and then we iterate as rapidly as possible and all these
00:31:44
Innovations where we've built an entire infrastructure to ride down the cost curve the thing is Fusion Energy exists
00:31:52
today it's called the sun we actually know how to capture it had virtually no cost
00:31:58
right now so according to the iaea today you can capture grid level solar energy
00:32:04
for about three cents a kilowatt hour that's as close to zero as we've ever been and over the next 10 years their
00:32:11
forecast is it's going to get to one and a half cents if you then want to store it and you layer in storage costs we'll
00:32:18
be at a whopping three cents a kilowatt hour that's where we are today and so I think that Fusion does exist
00:32:28
I do think that this is an incredible technical leap to replicate something that exists and I think that's where the
00:32:35
intellectual dishonesty is it it does exist it has been captured it can be harnessed and there is a positive energy
00:32:43
equation just in a different modality that doesn't speak to these technically minded individuals a couple of other
00:32:49
points about what I saw I think it's incredible what happened okay but just to make sure we're clear
00:32:55
this is 192 lasers the size of three football fields that consumed 322 megajoules of energy
00:33:05
which then ultimately delivered two megajoules to a Target which then released three so this is why I'm saying
00:33:10
we had positive what's called Ignition energy we did not have positive electrical energy captured so yeah could
00:33:16
we figure this out absolutely can we then shrink the three football fields down to something that looks the size of
00:33:23
a laptop we possibly could will it take 20 or 30 years possibly but in the meanwhile if the goal is unlimited
00:33:30
Costless energy you're on that cost curve already yeah but why can't it be both so you said I
00:33:37
was being intellectually dishonest dishonest yeah you're comparing what you're saying is right yes you can get
00:33:44
which seem to be in agreement like yeah I I just think that I think that you're trying to say that this is an entirely
00:33:50
new thing no it's a different approach to a thing we've already beaten and and basically captured let me bring what I
00:33:58
would argue to mop and I think this is important future on say a football field sized
00:34:04
facility from solar is you know a tiny fraction of the energy you could generate from a football field size
00:34:11
Fusion reactor and that's why the argument would be like hey you know when we were developing computers hey we have
00:34:17
abacuses we shouldn't be developing computers and I think that's that's the analogy I would use here this is why the
00:34:22
cost per kilowatt hour is what the uh the levelized cost of energy tries to do it tries to to normalize that argument
00:34:30
away because everybody would say that hey hold on a second you're going to need plain fulls of this or boatloads of
00:34:37
that and people said no what's the levelized cost of energy how what is the cost per kilowatt hour to generate
00:34:43
energy and what I'm saying is that is an absolute scale and free is zero and we're at 1.5 cents here's what I would
00:34:52
say once check out one sec okay the opportunity here is not necessarily about cost reduction it is about
00:34:58
scalability and if hydrogen is abundant which it is on this planet it is nearly infinitely abundant we can take that
00:35:06
hydrogen and we can scale up energy and electricity production in a way that is unimaginable compared to solar and I
00:35:12
don't think that solar should be excluded solar is key today and should be scaled up and I'm 100 agreement with
00:35:18
you but the scalability to go 100x if we want to make a hundred times more electricity I think we need fusion and I
00:35:25
think that it's feasible so I think we have uh reached a good settlement here chamath you're saying Hey listen we're
00:35:32
getting solar down so cheap we can solve this problem all forms of energy okay great we are solving that so for our
00:35:38
needs today and then what Friedberg is saying but what if you had unlimited a thing that we can't even imagine
00:35:44
beautiful now watch as I get sacks involved in a science conversation he has zero interest in
00:35:52
Mr David sacks if in fact there was one hundred percent more free electricity available in this
00:36:00
time frame the next 10 days 100x the available energy in other words supply of energy just becomes flooded
00:36:08
and it's free essentially what would be the geopolitical reaction on planet Earth in terms of uh this incredible
00:36:17
rivalry rivalry we have with China and for Humanity on a political basis such a good question Jacob go ahead that's a
00:36:25
good question here we go thank you world's greatest moderate ATM while we let Freeburg answer it no no but you're
00:36:29
the politics guy get in there what um I already has thought about this let's I want to hear his answer I actually want
00:36:36
to hear your answer unless you know in in a world where you know energy becomes more abundant hasn't been paying
00:36:43
attention guys this is what he's trying to say I'll call your intellectual dishonesty
00:36:53
and raise you a steel man good go ahead I love you I love you you know I do have a great night out Monday night
00:37:02
a Sunday night let's talk later I just wanted to go together last week he called me Petty too here's what I
00:37:10
want to be clear I think that I'm just glad you guys are fighting not mean sex guys please let me finish okay I think
00:37:16
Memphis breakthrough is really valuable I think it's interesting to see that these kinds of scientific breakthroughs
00:37:21
continue to happen in government-sponsored facilities and not private companies um and I think that that's probably
00:37:27
where a lot of these Innovations will continue to come from because look at the scale of what had to be built three
00:37:33
football fields and 322 megajoules of energy and 192 lasers this is really complicated expensive stuff I'm an
00:37:40
enormous fan of these kinds of scientific breakthroughs I want to be clear I think that where I struggle is
00:37:47
translating this into actually an investable area and I worry that this is going to consume lots of money by folks
00:37:56
that could otherwise put money to work in things that will actually pull forward our energy Independence and
00:38:02
energy abundance sooner and faster so for example you know there are all kinds of things that we could do to secondary
00:38:09
ternary third and fourth and fifth generation batteries that aren't happening today there are a bunch of
00:38:15
things that we could do to actually create an infrastructure of green hydrogen and the the simplistic answer
00:38:20
is we could do it all but the reality is money is finite and we can't and all I'm observing is I do think that
00:38:27
more practical things that do have geopolitical ramifications sooner are not going to get funded because
00:38:34
people do get enraptured by this and my skepticism is that this is still in the realm of government-sponsored research
00:38:43
and is not really an area that for-profit private companies can tackle and so I would rather those for-profit
00:38:49
companies for example why combinator just today put out something where they were you
00:38:54
know call to action a request for startups in climate and when you look at that list those are really practical
00:38:59
investable areas and I just want to make sure that the capital allocators that listen to this weigh those equally
00:39:06
I am glad I'm glad that the U.S government did this I hope they do more of this but if you're asking me quite
00:39:12
honestly I would rather the next 10 billion dollars go into Energy Efficiency HVAC then Fusion because a
00:39:19
fusion exists and B I think it's going to happen at an Innovative bench scale level by the government and not by a
00:39:28
particle let me let me just respond to that real quick I think that the idea of allocating our
00:39:34
resources as a society should be done on kind of you know on a portfolio basis eighty percent on the pragmatic near
00:39:41
term 15 on the kind of next gen and five percent on the moonshot and this maybe starts to shift from the five percent to
00:39:49
the 15 maybe it's still in the five percent but I don't see kind of overfunding happening so I'll tell you
00:39:55
guys there was a survey done there's 33 private companies in Fusion that are kind of fusion companies today uh VC
00:40:01
back eight new this year so the numbers kind of increased by 33 this year and um
00:40:07
so far this year those companies have raised around three to four billion dollars which by the way is a fraction
00:40:13
of what was done by 15 minute delivery companies exactly my point and and by the way the biggest funding is happening
00:40:20
in iCare which is the largest construction project in Europe and this is a 30 billion dollar production scale
00:40:27
Fusion demonstration system that should be online by the end of the 2020s government sponsored government
00:40:31
sponsored yeah and so this is my point I'm a huge fan of government-sponsored research how we get finally the first
00:40:38
science Corner Everybody Breaks themselves it's the first science corner where David sacks has it about the
00:40:44
Cherry sacks here we go come on you're coming in you can do it again your question was a little bit was was
00:40:51
not a let me rephrase okay what's the geopolitical impact if this does happen 100x energy is fantastic for the United
00:40:59
States if it actually happens and the reason is if you look across the world there's this thing in politics known as
00:41:05
resource curse where the worst governments the most despotic governments tend to be in the countries
00:41:12
that have the biggest natural resources ironically so the countries that have huge amounts of petroleum or other kinds
00:41:20
of minerals they tend to have pretty corrupt governments and the reason for that is that if you're sitting on a
00:41:29
giant oil Reserve you don't need to make anything else work you just fight over who gets to control that oil reserve and
00:41:34
that's what politics ends up being you don't need to create policies that Foster Innovation or attract knowledge
00:41:41
workers right you just basically mine that oil so if all of a sudden you're talking about turning energy into a
00:41:50
software problem or an innovation problem that looks a lot more like the software industry that's an area where
00:41:55
the United States has a huge advantage and yeah I think it would pull the rug out from under many countries all over
00:42:01
the world in favor of the United States I mean it's a big if because where I agree with chamoth is this stuff still
00:42:08
seems pretty far off and it's still pretty unproven from a commercial standpoint but I agree with Freeburg why
00:42:15
not try investing in it and cultivating it and see where it goes okay fantastic this was a fantastic science corner
00:42:22
where we actually engaged David Sachs which country uh did you have anything to disagree with there Jacob
00:42:29
all right take it easy this I just want to let people know that I think you you like that answer right well I I love all
00:42:35
of your intellectual enough for you or was it I love your intellectually I love Turtles
00:42:41
I was a steel person it felt so fresh it felt silver so romantic but I love when
00:42:47
you're intellectually honest silver personing yeah it's just over vaying you're super thing was that platinum
00:42:53
gold or silver you're you're in Platinum with some diamond dust um can I just say spent a
00:43:00
couple nights together this past week has really really does the mood of the show I mean when you guys go out and
00:43:04
drink together and have fun hilarious you guys are sax and I laughed our asses off Sunday night can I just say we Saks
00:43:11
and I had the best 48 hours together in a decade this is Sunday night it turns out Chris Rock and Chappelle
00:43:18
are playing at the chase Center where um Shabbat used to own a piece of the Warriors right
00:43:23
and this incredible Arena has this incredible show and you know me and sax and some friends we'll leave it at that
00:43:30
go to the show our bestie Draymond is at the show so I text Dre and I'm like hey
00:43:35
you going to see Chris Rock by chance tonight with uh Chappelle you say yes sir I said hey I'm gonna go with a
00:43:41
couple friends maybe we roll together hang out after the show we go and after the game after the show which
00:43:49
was incredible we go backstage and I'm sorry to the to the practice court and we're hanging out with Draymond in
00:43:56
the practice court with Dave Chappelle Dave Chappelle and I start shooting hoops
00:44:02
David sacks is talking to Chris Rock about free speech Steph Curry comes out and starts giving
00:44:08
Dave Chappelle and Jay cow uh shooting lessons where Chappelle and I are bricking like
00:44:15
old men you know you know uh on a concrete court all of a sudden Steph says hey Jacob you got it and by the way
00:44:22
he's a fan of the show he says you're short every time and uh just you know hit the backboard you got to go long
00:44:28
then he tells Chappelle you got to change this all of a sudden we start hitting shots like you know we're on
00:44:33
rainy threes you're reigning threes it was literally like cut into here over these mid-range jumpers or threes I was
00:44:39
a free throw line extended free throw line extended cut into here Rain Man and rain dance from Along Came Polly rain
00:44:47
dance Raymond let it ride Rain Dance Let It Ride Let It Rain I was hitting brick after brick rest in
00:45:01
peace Philip Sumer Hoffman so then we're chilling and uh sax and I are talking to Dave
00:45:07
Chappelle Joe lakum owner of the Warriors are there the majority owner uh you know as
00:45:13
opposed to you being a minority owner the only person who draws more names is Phil Hellmuth I mean absolutely I'm
00:45:22
trying to catch up anymore so we I kid you not Chappelle comes over and says chica sex you guys want to go to uh
00:45:45
after to do it go go see me do a show at like 1am at this like local comedy club
00:45:49
with 70 seats I said word yes we go at 1am Chappelle sits on stage smoking cigarettes
00:45:59
and doing 90 second pauses and then having a beer and interacting with the audience
00:46:07
and does a two hour set after doing this set with Chris Rock at the chase Center
00:46:12
me and sax and Draymond hilariously laughing the the stuff Chappelle is a genius
00:46:20
and when you see his show and Chris Rock by the way he puts a tight set together
00:46:24
I mean Chappelle's got this storytelling thing where he kind of meanders a little
00:46:28
bit and then he hits you with it but Chris Rock is just bang bang bang bang bang
00:46:33
extraordinary just two Incredible Minds at the top of their game artists artists
00:46:39
at the top of their game doing what Society needs but more importantly doing what David
00:46:45
Saxon I needed which was to laugh our asses off together and remember our friendship so it was a great night out I
00:46:52
want to say to bestie Draymond Dave Chappelle and Chris Rock thank you the David sacks Jake house bestie friendship
00:46:59
has never been stronger I don't know about Freeburg and Tremont that seems to be on the Rocks yeah it's weird we'll be
00:47:05
in there we'll be vacationing together next week so we'll I love it I love feedback yeah well well we are going to
00:47:12
be whatever whatever's going on we'll take a walk and figure it out well I just want to say the alliances amongst
00:47:17
the besties I'll be honest I got mad at Friedberg when he edited that Google bit
00:47:22
to say the exact opposite of what he actually said yeah just beep that but yes that is the
00:47:29
thing that bothered me I have to be honest that's you playing to the crowd versus you being honest and telling what
00:47:34
you think if put that in the form of question Freeburg has your Fame as the Sultan of
00:47:41
science because listen you nobody knew who you were outside of Silicon Valley before this look has it impacted your
00:47:46
ability to speak no no not my standard look I I'll be I'll be honest and I'll speak openly about this I had
00:47:54
said that there could probably be a significant head count reduction of like 75 at Google and the business could keep
00:48:00
operating and I took it out and I took it out because I have a lot of friends that
00:48:06
work at Google Google's a close partner of mine they're an investor of mine and um frankly I just want to be careful
00:48:12
about that it's not something I commonly do you know as you guys know I usually speak my mind pretty clearly but I was
00:48:17
just trying to be respectful and that's the reason I did it you know I think that that was fine what I'm saying is
00:48:22
not that it's just that the part that you edited in actually made it seem like you were not saying
00:48:28
that at all but the opposite I think if you would cut the whole thing it would have been more honest so to keep that
00:48:34
other thing in actually led the perception of the opposite so you were triggered by that no no I don't have
00:48:40
triggered I'm saying but I think you should have a principle very often like yeah I know I think that we should just
00:48:46
have a principle to not play to what the perception of what we say should be especially if it
00:48:52
means we could be saying the opposite of what we actually mean that's all intellectual honesty is it bestie tenant
00:48:58
it's a bestie tenant I think so absolutely bestie always and the other bestie besties always come back together
00:49:03
if we have a fight we always come back together sax can I I'm still mad at you a little
00:49:09
bit I'm just kidding okay we're just talking about hypocrisy I mean so how great was Sunday night gets up there and
00:49:17
he gets like right out of the gate he's attacking woke right out of the gate swinging Came Out Swinging like Will
00:49:23
Smith Shooks Matthew Smith he took down Will Smith I mean the Will Smith takedown which you will see
00:49:32
in this special is so complete it is just chef's kiss but how great was his scent let's say just give Chris Rock
00:49:42
his flowers did he fillet and fricassee he he did but I thought the more important part of the set was the he
00:49:50
came right out like calling out all this you know you know older than thou woke stuff yeah
00:49:56
and and there was that undercurrent to Chappelle's set as well and also he said listen words can't hurt you unless you
00:50:04
write them on a piece of paper from time to a brick we these uh a bigger point right now and
00:50:10
this does tie into our first story is I think comedians look at Twitter as a place to get canceled not a place to be
00:50:17
part of the discourse and that's a huge loss that's indicative of our society being broken and it's
00:50:23
incredibly important that these comedians be allowed to Mock and to speak and to step over
00:50:32
the line and challenge us as Citizens in a free Society and we should cherish them and we should
00:50:39
not even try to cancel them let them cross the line let them say things that make us uncomfortable so that we can
00:50:45
understand ourselves and our society better and I just want to say why can't you include Elizabeth's Tick Tock in
00:50:51
that oh do we want to have a discussion about it I can't watch the next conversation
00:50:55
about it what's the next time okay with mocking I just don't start you guys you did so well come on let's go here we go
00:51:03
cut it out all right well we have two more science Corners to get all right well if you don't I mean I
00:51:10
just want to talk about the Koopa deal and sex this is right up your alley have you ever had this attention to it to be
00:51:16
honest oh really the thing you guys asked is like you know what signal will Elon moves at Twitter uh be for the rest
00:51:25
of uh the tech industry I think the biggest wake-up call is to actually PE companies so if you played this out and
00:51:33
you think that Koopa is you know explain please Koopa is a is a software as a service company that does revenue
00:51:43
management I guess or expense forecasting or some something in the financial realm I don't particularly
00:51:49
know to be honest but anyways this is a company that you know was off 70 or 80 from the high like a lot of SAS
00:51:56
companies were when rates started to go up and they got this offer from from Toma Bravo but here's what's so
00:52:03
interesting about this deal if you think that you know these guys bought a company I'm just going to make up a
00:52:09
number at 20 times ebitda right and and you see Elon at Twitter and you think well wait maybe we can't cut 75
00:52:18
but maybe we can cut 50 a headcount and the company can still do well and you know you take half of the
00:52:25
expenses out of the business all of a sudden you know if you keep it to doubles you're actually buying it at
00:52:30
10 times so I think the thing that is the that is the real insight here is twofold private Equity can still
00:52:40
put out a lot of private credit to fund these deals and SAS companies are perfect because they have huge free cash
00:52:45
flow right so instead of funding it based on earnings they can fund it based on ACV and ARR so private Equity will be
00:52:52
super active and two all these Rifts basically show what the efficient Frontier is for the
00:52:58
number of employees you need to run a company and if you can cut 50 of the headcount private Equity folks will do
00:53:04
that and so I think Koopa is like the canary in the coal mine it is the beginning
00:53:10
of what I suspect is a tidal wave of PE sponsor deals in tech companies largely SAS but may go
00:53:19
into other Realms yeah recurring Revenue that can take advantage of these two things top private credit markets and
00:53:25
finance it based on ARR and then fire 50 of the team and double earnings capacity
00:53:30
Saks are those so on on Koopa I thought the most interesting thing was just the we got a public comp well we got a comp
00:53:38
on what private Equity is paying for public companies right now so the deal happened at an eight billion dollar
00:53:45
valuation that was a 31 premium to the public price it was 8.4 times next 12 months uh revenue and on a trailing
00:53:54
basis it was about uh 10.4 times the last 12 months revenue and by the way all the comments were around how what a
00:54:03
rich price Tomar Bravo was paying people generally thought they were paying a premium to the valuation
00:54:09
it was 77 premium uh before the rumors came out that this was happening so it's a pretty good premium yeah and there was
00:54:16
and there was a there was a bidding war with Vista and so it was uh it was a really rich
00:54:22
kind of deal that got done here right so so my my point is that people thought this was a really rich deal and yet the
00:54:29
valuation of multiples are so much lower than what private company Founders expect
00:54:34
so remember last year at you know the peak Founders were thinking a hundred times the AR was normal a hundred times
00:54:42
and you know you could roughly say you know ARR is is roughly equivalent to the next 12 months Revenue it's not perfect
00:54:48
but it's roughly the case so these Founders were expecting evaluation uh multiple 10 times what the public
00:54:56
markets are paying and the public more and and actually the public markets are are half of where tomorrow Bravo was in
00:55:03
this particular deal so the public markets right now are valuing uh the median SAS company at about five
00:55:10
and a half times and a high growth that'd be for like a 20 year rear growing company and they're valuing the
00:55:16
high growth companies that maybe eight times you know until Bravo did this at 10 times so that gives you a sense of
00:55:22
what the ballpark is and these are companies that are already public they're at scale they're doing roughly a
00:55:28
billion dollars of ARR they have already kind of won their category to some degree whereas private companies are
00:55:35
subscale they're you know typically you're talking about companies with 1 5 10 usually under 20 million dollars of
00:55:42
ARR they are they're not de-risk they're still a ton of risk we've seen many many
00:55:47
SAS companies fizzle out and Plateau at 20 million of ARR never get to 100 million never mind a billion and yet
00:55:54
these Founders think that they're entitled to you know even in this market 30 to 40
00:55:59
times ARR no way I mean like it's getting to the point now where you know maybe it should be
00:56:05
10 times 20 times like Max for and that would be for a company that's growing two and a half three x year over year so
00:56:13
I still think that like so I think basically what we're seeing here is even a good scenario like a coupe acquisition
00:56:18
that was done at a premium like it's still a wake-up call to the private markets that the valuations are still
00:56:24
completely and utterly out of whack yeah let me ask you a question Zach so this company was growing 45 last year they're
00:56:31
growing 35 this year and they got this multiple why is it not worth a significantly higher multiple if a
00:56:39
company's growing two and a half to three x which is 250 300 percent and these guys are only growing 35 sure I
00:56:46
mean it it is um and that's what you're paying a premium for but so the so the the here's
00:56:52
the theory of it is that if you can invest in a private company that's say tripling year over year and they can do
00:56:56
that for another five years or whatever then you're paying for that you're paying for that outcome in a couple
00:57:01
years right yeah basically well think about it you're getting a discount to the outcome in a couple years well if
00:57:05
you're paying 30 times today and it triples next year you're only paying 10 times next year you're only paying three
00:57:11
times so if that keeps going that's where your Arbitrage is but here's the thing you have to weigh against that is
00:57:17
that these early stage private companies many things go wrong and they hit a plateau they fizzle out or their growth
00:57:25
rate starts to the bigger they get the harder it is so they should be priced at a discount not a premium because there's
00:57:30
risk there's more risk they're growing faster but there's more risk but also it's very hard once you get to a bigger
00:57:37
number of ARR 50 100 million of ARR it's extremely difficult to be doubling or tripling over a year let me just point
00:57:44
one thing out so I looked at the numbers on Koopa I think they had about 170 million of stock based comp expense in
00:57:50
the last nine months so those are employees that are getting 170 million dollars in compensation
00:57:58
in the form of shares so they get those shares they can then sell those shares and get cash for them on the public
00:58:04
market and then on the public markets and pay their bills so when a company like this goes private for those
00:58:10
employees to just remain at their Baseline comp that stock based comp needs to be replaced with something else
00:58:17
or else they're seeing their salaries reduced so you know there's this balancing game when these companies go
00:58:24
private in terms of how do you give them the comp that they're earning to keep them engaged in the business the answer
00:58:31
is you don't versus no but that's quick because you want to do a riff anyway right so I mean do you but for the
00:58:37
people that stay right so so there's a balance because it's not just hey cut the Opex you have
00:58:43
to cut the Opex including stock base comp and this company generated about a hundred million dollars sorry
00:58:51
210 million dollars of free cash flow or operating cash flow in the last 12 months so if you if you take out the
00:58:57
stock based comp these guys are actually Break Even or losing money roughly um yeah right so yeah yeah Break Even
00:59:04
roughly so there's a real question mark on this business and businesses like this that go private where if you
00:59:10
actually cut the op-x and you cut the salaries and you cut the head count but you have to find new ways to pay people
00:59:15
because you've been paying them with stock in the past how do you kind of bridge that Gap and I think that's
00:59:19
probably a little bit of the balance and the Art of what these guys do well chamoth if I may can you explain to the
00:59:24
audience uh what a private Equity firm's expectation is in terms of return when they buy a company like this and then
00:59:31
sax I saw your tweet that you want to feature and you'll go next month well I think it's changed over time and
00:59:37
this is what's so powerful about the private Equity industry um look you have to think about what
00:59:43
their incentive is because it kind of guides the outs um early on they were very much like
00:59:49
Venture capitalists they were out in the you know edges of risk taking um doing all kinds of very difficult
00:59:57
gnarly deals so if you look back in the history of private Equity you know these
01:00:01
huge crazy deals like RJR Nabisco or TWA Airlines were the first of the industry
01:00:07
and they reaped enormous returns but there was a lot of risk and it required very heavy-handed management oftentimes
01:00:15
what that meant was firing a lot of people over time private Equity has gotten institutionalized and they don't
01:00:23
generally feature themselves as a place to get the best necessarily returns but they are
01:00:31
places where you can put enormous amounts of money where the the likelihood of loss is
01:00:37
extremely zero and you generate very good rates of return now again this depends on whether you
01:00:45
want to look at irr or DPI right so a lot of people will Market irr which you know I think is kind of like a
01:00:54
gameable metric but you know those irrs can be 20 25 if you look at DPI which is
01:01:00
really how much cash you get back you know private Equity firms can generate one and a half to two x of the money you
01:01:06
give them um but they do it consistently and they very rarely lose money so all of that is important into
01:01:13
understanding what's going to happen in this cycle these folks are going to buy a ton of these private software
01:01:20
companies I think that they are going to fire lots of people I think they are going to make
01:01:26
these companies run hyper efficiently and they will make sure that they generate that 1.2 to 1.7 x that has been
01:01:34
historical very rarely will they lose money in these things by the way that's going to mean that a lot of these other
01:01:41
companies will have to reset valuation so you saw yesterday checkout.com went from a 40 billion dollar valuation down
01:01:48
to 11. you're seeing some companies only go down 10 or 15 percent but it's a process isn't it your mouth
01:01:55
isn't this just like what happens in real estate where beginning of this process yes because in in real estate my
01:02:00
understanding having lifted these boob muscle Cycles is the person living in the home still believes they're always
01:02:06
worth you know this incredible evaluation and then the people who want to buy it are like that doesn't match
01:02:11
reality and then the real estate brokers go back and forth trying to get people to you know go through this messy middle
01:02:17
and come to True price Discovery a private company it's hard to get true price Discovery until they're on the
01:02:22
brink of insolvency they don't have the money right well we just got some data on that actually can we bring this
01:02:27
Coulee data let's do it yeah so Cooley looked at a law firm in Silicon Valley yeah there are prominent Silicon Valley
01:02:35
Law Firm they looked at a thousand deals over the last three quarters of this year and what they saw is that your the
01:02:42
later the stage the bigger the valuation Corrections the series D rounds went from three and a half billion to 527
01:02:48
million that's an easy one seven percent oh yeah that's an 85 drop series C went
01:02:53
from 502 million to 130 million 274 drop series B went from 164 to 90. that's a 45 drop and then series a went from 58
01:03:03
to 45 that's only a 22 drop there's just less room to compress there but the point is that series B roughly a 50 drop
01:03:12
series C roughly a three-quarters drop and series D roughly a um 85 yeah one seventh drop so I think Founders right
01:03:23
now are they're just like a little bit delusional about this money they raised last year they're
01:03:29
still way too anchored on last year's valuation and if only they would think in terms of this Capital they raised
01:03:35
last year in terms of of its real dilution in terms of what the company is worth now I think they'd be treating it
01:03:43
more more precious so for example for example hold on it's like they won the lottery and they don't want to they
01:03:49
don't realize they won the lottery I had this conversation with the founder this
01:03:52
is the only money they're ever going to see is the bottom line and they're spending it like they're going to win
01:03:56
the lottery every year so for example we're a company yeah let's say you take a company that raised 200 million last
01:04:03
year at 2 billion so it was 10 dilution so in their heads they're thinking oh well this isn't that expensive like 10
01:04:09
dilution surrounding era but really probably the company is worth maybe 400 million now right because it's gone down
01:04:16
80 percent this 200 million of your 400 million is half the value of the company
01:04:21
yes and you're squandering it you're squandering it at a rate of 100 million a year so you're basically burning up 25
01:04:27
of the value your company this year and then next year and then by the way you're going to be in crisis after that
01:04:33
because you're probably like a lottery winner buying like a giant super yacht I had an observation that a lot of the
01:04:38
investors that sit on the boards of these companies they have an incentive to not see those
01:04:45
valuations come down too quickly do they not and so there is this sort of like interest in hey I don't want you to have
01:04:53
to go reprice the company or do a Down Round because then my portfolio gets written down and then I'm in the middle
01:04:58
everyone's always in the middle of a fundraising cycle with LPS and then I'm going to have a tough conversation with
01:05:02
melp it's about my my value so do you not see vces and investors playing an active role in trying to keep the
01:05:10
valuations propped up to some extent particularly where they have big markups hundreds either by extending Bridge
01:05:16
rounds or doing other sorts of you know uh look nobody nobody likes to go through a Down Round and that includes
01:05:23
Founders and existing investors in the company that being said we're not talking here about new financing
01:05:29
conversations what we're talking about is advice that is happening in board meetings and you know maybe other VCS
01:05:37
aren't pushing as hard as we are but the advice I'm giving in board meetings is what I'm telling you probably quickly
01:05:42
today which is this is the last money you'll be able to raise on attractive terms if at all you need to treat it
01:05:48
much more preciously the world has fundamentally changed and by the way we haven't even gotten into what's coming
01:05:54
the demand contraction that's coming next year explain what demand contract construction is for the audience please
01:06:00
thank you okay look there's going to be three major sources of slowdown for software companies next year number one
01:06:06
new business is going to dry up companies are just going to be spending a lot less money next year because
01:06:12
they're all cutting costs so you should expect your new business to be roughly 50 of what it was next year it'll be 50
01:06:20
of what it was last year that's my rule of thumb for most companies new business
01:06:24
down 50 number two churn is going to be higher we haven't seen that much logo churn yet but next year a lot of
01:06:31
companies are going to start going out of business and it's going to happen over the next two years so you're simply
01:06:36
going to see logo churn rates say among small businesses go from like a historical enormous fifteen percent to
01:06:43
maybe 25 or 30. in other words your customer the logo yes that's what a logo means yes yes
01:06:53
logo churn means the entity doesn't exist then you've got seat contraction which is these
01:06:59
companies are not hiring as fast in fact they're doing layoffs so they're simply
01:07:03
not going to buy as many seats of your software as you need to in the past for the last decade we've had a Tailwind an
01:07:10
enormous Tailwind for software companies of seed expansion which is every year your existing customers would buy more
01:07:15
seats of your product for their new employees now they're actually going to have fewer employees or maybe headcount
01:07:21
freezes so they're actually buying by the way if you if you take all those three things the deal of the century was
01:07:29
figma selling to Adobe for 20 billion because if you take those three things I mean oh my God they just absolutely top
01:07:37
ticked before any of this stuff was no totally so today Adobe could probably buy this thing for like seven billion
01:07:43
instead of 20 billion so does that mean they try to do a breakup fee and get out
01:07:48
of the deal I don't know if I was figma I'd try to close this thing ASAP and get that money
01:07:54
yeah yeah yeah you're right about that and by the way what I'm seeing from Founders is that they still want to grow
01:08:01
100 plus over the next year the problem is that the headwinds are going to be intense so if if you're applying a plane
01:08:08
and the headwinds are extremely intense and you try to maintain your speed you're going to burn an enormous amount
01:08:14
of fuel you're going to be incredibly head efficient it's better to basically just moderate your speed let the
01:08:21
headwinds basically pass we're going to have major economic headwinds for the next four to six quarters call a year
01:08:26
and a half it's okay to have a slower growth rate preserve your cash don't burn up your
01:08:32
fuel bunker down so what we're trying to do down the hatches we're trying to give
01:08:36
permission to our Founders to grow at a slower rate because they feel this enormous pressure from their VCS to grow
01:08:42
at at insane rates can I build on this I think Friedberg said it very well the scan in venture capital is demonstrated
01:08:49
in the following chart this is using Cambridge and our friend Brad gerstner helped put this together so what is this
01:08:55
this goes back all the way to 1997 and the gray bar is what Venture capitalists share with their
01:09:05
limited partners as to how well they are doing what's the top quartile of interest and this is the
01:09:11
top 25 okay so this is this is a venture capitalist and you know our our returns
01:09:17
have been consistently top quartile so instead of cherry picking anybody else I'll just use us but it could be Sequoia
01:09:22
Benchmark you name it we will go back we're in there launch you would go back to folkscraft we'll go back to folks and
01:09:28
say hey guys the total value of our portfolio is three times your money in 1997's vintage okay it it was uh four
01:09:37
times your money in the 2010 vintage feels really good but again the job of the venture capitalist
01:09:44
is to convert the gray bar into the purple bar and historically there's been a Decay so for every dollar
01:09:54
of gray bar that you show you typically only get 73 cents actually returned to people okay
01:10:02
the valuations that you get when you sell your company or goes public end up being 73 of what you've marked at the
01:10:10
peak what you said they were exactly right exactly right and the actual value of this purple bar going back you know
01:10:18
30 years is 1.7 x so just to put numerical numbers on this if you were a venture capitalist you would raise a
01:10:27
hundred dollar fund at the peak you would actually show that that hundred dollars became 200 and about 28
01:10:35
dollars but when when push came to shove and when it was all said and done you would
01:10:40
return 170 dollars back to your investors that's the rough equation so what's the problem well the problem
01:10:47
as you can see in this church is right around 2015. which is all of a sudden you know what
01:10:55
we've started to see are these continually elevated gray bars yes this stuff is worth seven
01:11:03
times six times five times but we have not seen the purple bars catch up now some people will say well
01:11:10
yeah but you have to give it time and you know this is and all you need to do is do what's
01:11:18
called a regression and you need to regress these things to the mean and make the following assumption
01:11:24
assume for a second that this time is not different assume that these historical averages
01:11:31
2.2 x 1.7 x holds well that's what the the black line here shows you can calculate the area above
01:11:40
the curve as the value at risk right the amount of money we will destroy because
01:11:46
of all these shenanigans that Friedberg just talked about propping up marks not willing to look at actual market
01:11:52
clearing prices well if you do the math the sum of the area above this black line is almost a
01:11:59
trillion dollars around the world and it is about 600 billion dollars for U.S Venture capitalists
01:12:06
this is the dynamic that the private Equity industry is going to prey on so if you saw Tomo Bravo just close to 32
01:12:12
billion round you know Vista is raising a 20 billion dollar round everybody's stepping into Tech they are going to
01:12:19
destroy those gray bars would you describe that as bottom feeding no no they are they are the rational actor
01:12:25
yeah okay who is finding the true market cleaner and I will say this I think the
01:12:30
private Equity industry is unbelievably precise and talented in being dispassionate and telling us what these
01:12:37
things are they're Cut Throat they're logical no no it's not hot they're just opportunity for the private Equity
01:12:43
industry is going to be created by profligate Founders and look you could blame VCS for the high marks last year
01:12:49
as well they were profligated too but look if you're a Founder if you don't start acting in a more Capital efficient
01:12:56
way and preserve your cash your company is ultimately going to be owned by a private Equity Firm and they're going to
01:13:01
make all the money well here's another because because when you sell to them at a low price price all you're going to
01:13:07
end up doing is paying back the liquidation preference and then that private Equity Firm that was willing to
01:13:12
do or less but that private Equity Firm will be willing to do what you were not willing to do which was simply act cut
01:13:19
your burn cut your costs and act in a more Capital efficient way and they will end up making all the upside for your
01:13:25
decade of hard work because you got basically addicted to venture capital and the high evaluations and refused to
01:13:31
again adjust to the regime I'll give you an alternative I'll give you an alternative the alternative is that the
01:13:38
majority of Acquisitions made by private Equity firms are not actually peer Acquisitions they're bolt-on
01:13:44
Acquisitions meaning that these are companies that are added to existing platforms that they own so this
01:13:49
acquisition they're doing of Koopa I think it's very likely over the next couple of years you will see like the
01:13:54
Playbook and private Equity includes not just cost cutting but also Synergy building and they typically do bolt-ons
01:14:00
and add-ons and this happens across all private Equity platform deals of new products and services that can be be
01:14:06
sold through the existing sales channel the existing customer base and as an add-on to the existing service or
01:14:12
product that's already offered so one of the fee one of the things that I think you may see in Silicon Valley over the
01:14:18
next couple of years is a rationalization away from funding feature companies and thinking much more
01:14:23
carefully about what can be true Standalone product companies sure and many of these companies that have raised
01:14:28
a ton of capital and have gotten crazy valuations at the end of the day they're more likely better equipped to be a
01:14:34
feature of another platform than they are to be a standalone platform company of their own and that's where the
01:14:40
majority of these Acquisitions will likely end up going in in the private Equity landscape and they will be
01:14:45
vacuumed up and attached to existing platforms that these private Equity guys are building out and by the way just
01:14:51
look as an example at what Oracle did over the years what Salesforce did over the years what Google did so many of
01:14:56
these companies sold on acquisitions by bolt-on acquisitions by building a second Channel building a platform and
01:15:02
then um adding on top of that and I think that's a lot of these guys are going to try and mimic two critical
01:15:06
points number one what about the bottom 75 percent of VCS oh wait if you show that chart just for one more second I
01:15:13
just want to remind everybody that is the absolute cream of the crop VCS are the best these are folks I mean again
01:15:20
I'll just say uh Sequoia Benchmark we've consistently thank you launchcraft these
01:15:25
are these are top returns thank the Lord what about the bottom 75 they're not gonna be able to raise funds man it's
01:15:31
over a lot of these people who raise first time funds in the last three or four years also it's also the companies
01:15:36
because like like it's like the the today is the most now is the moment for the sober founder and the sober venture
01:15:44
capitalist to sit and say what is the real valuation what do we need to do to make sure that this company has a chance
01:15:50
because what Zach said is so true otherwise all these profit dollars will be made by the private Equity Fleet in
01:15:57
order to win today you're gonna have to grind you're gonna have to work 50 60 hours a week you're gonna have to be
01:16:04
absolutely embrace the age of austerity and you're gonna have to focus on your customer your product and your bottom
01:16:10
line the Age of Excess is over if you're not working 50 60 70 hours a week you're
01:16:15
not going to cut it in Silicon Valley also key second Point profligate extravagant or wasteful in the use of
01:16:21
resources just so we get the word of the day from David sacks that's David Sax's
01:16:25
word of the day after a very powerful bull that went Craig did you see the Tremont
01:16:31
Boulevard well we've all went uh we went viral this is I think elon's biggest uh
01:16:39
non-obvious impact In This Moment Jay towel here's your uh one answer to your question about what happens to the the
01:16:44
bottom 75 percent of venture firms it's equivalent to what happens with the you know kind of this is the bottom of the
01:16:53
top the slide that I just shared it's the one we looked at a few weeks ago and I keep referring to it because it's just
01:16:58
such a staggering like demonstration of what people call the power law which is how you know kind of excess returns
01:17:05
accumulate to minority of Investments so just a few Investments make up the bulk
01:17:10
of value that the you know market cap of 43 percent of companies that have gone public since
01:17:18
2020 is 750 billion dollars the market cap of 300 the other 300 is only 26 billion dollars and the cash that went
01:17:28
in to the 750 billion dollars is 136 and the cash yet went into the 26 is 107. and so the cash that went in to generate
01:17:37
that 26 billion that 107 that's your bottom 50 percent and the top 50 percent put in 136 to make 750 and I think it
01:17:46
gets even narrower As you move further up to that top quartile so you know it's just I can tell you what LPS are saying
01:17:52
because it's a hard business this is this is the companies that went public so this is also of the top company of
01:17:59
the top funds and the top companies that were actually able to IPO and so it highlights how much of a power law
01:18:05
actually plays through and so the majority of these companies as in chamac even in your chart you show the top
01:18:11
quartile the bottom uh 75 percent or the bottom 50 I've looked at this data as well of those various vintages or below
01:18:18
1.0 they lose money for their LPS consistently and it's just it's a cycle and so what ends up happening is the
01:18:24
next Generation comes through nlps they make a portfolio of bets and they hope that they make enough bets in the right
01:18:30
VCS that their portfolio generates greater than you know market returns greater than College fifteen twenty
01:18:36
percent Target fifteen percent Target um but they're gonna expect that the majority units I have an LP of report
01:18:42
I'm I'm out there raising launch fund four right now and I moved from like the accrediteds the individual investors say
01:18:47
that oh yeah because you're yeah yeah so I'm I'm publicly erasing it and I've moved on from Individual investors
01:18:54
45 million dollars in commits after five webinars amazing now I'm talking to you
01:18:58
no it was amazing it's just 506c is going to change the entire industry letting the the you know the masses have
01:19:05
some access to this capital and this opportunity accredited cubis is going to change the world I believe do you have
01:19:11
to do deal with everyone one of them or is it easy to administer it's incredibly
01:19:15
complex because you have a large number of people and they all want to talk to me so I did webinars five webinars and
01:19:21
it resulted in 100 commits hundreds of commits for 45 million dollars you'll be able to get all those Capital
01:19:26
commitments drawn down when you need to like you have to go ping a couple hundred people and get them all the wire
01:19:31
money you'd have more operations people and we only do four we we let them one thing one thing you may want to do is
01:19:37
like for for these smaller slugs is you can pre-wire you can set up an escrow account where you pre-wire 100 of the
01:19:43
capital yes and then you also don't have to you take it down when you're going to
01:19:47
deploy it so you keep your irr correct so we're actually looking into those Solutions I'll talk to you offline but I
01:19:51
just did my first two meetings with endowment since cetera fund of funds the entire discussions right now are around
01:19:58
what is your secondary strategy how are you getting in earlier not later and how are you building a larger
01:20:06
position it is and even like some of the QPS who are sophisticated and are you know are in over 10 Venture funds the
01:20:13
entire discussion governance of these companies are you taking board seats or not how
01:20:18
early are you getting in and building a larger position over 10 percent and what is your secondary strategy when are
01:20:24
you going to start taking some chips off the table so the and and I gotta say if
01:20:27
you're an LP who didn't sell into the up Market at all uh and you're on your first fund you know and you had all
01:20:34
these great marks and they're getting they're coming crashing down they're not going to deal with you they just have
01:20:38
too many options of top phones in the course I don't think they've they've started to come down yet I don't think
01:20:43
we know what the top quartile is really going to look like over these last few years I think that's going to take four
01:20:49
or five years to really sort out yeah of course yeah um so I think explain why chamoth just so people understand yeah
01:20:54
well I think I think that there are lots of valuations um that have supported huge tvpis
01:21:04
these you know paper gains that have allowed Venture funds to raise enormous amounts of incremental capital
01:21:11
and new funds and so they are going to try to wait as long as possible before they're held
01:21:18
accountable for that and the best way to do that is to not change the valuation and so it will happen slowly it'll be a
01:21:25
trickle of these things um and I think that takes probably four or five years for it to really sort
01:21:31
itself out but in the meantime companies will still need to get financed companies will still need to get built
01:21:37
that's why I think like the public markets I think what Sac says is true giving us a signal of what these true
01:21:44
market clearing prices are will eventually slip into these you know series D or E companies because the
01:21:50
Venture capitalists who has now taken some big write Downs in one part of their portfolio I suspect will now be
01:21:57
very open to selling to private equity for another part of their portfolio so that they can return Capital totally
01:22:02
totally agree yeah it's going to be rough out there you guys uh watched White Lotus yeah it's just started
01:22:09
season one I'm uh it's a third episode in okay what a treat we wouldn't say anything but how great was a season two
01:22:15
uh oh the rap was awesome it's just incredible the last the last two episodes are extraordinary yeah
01:22:22
just finished watching all of handmaid's still which is that is a [ __ ] stressful show uh it's like it's like
01:22:31
you're putting in work when you're done those episodes you're like oh emotional labor you know when they said this
01:22:36
emotional labor watching that show is like oh my God it could could it could not be more sadistic and insane uh it is
01:22:43
brutal uh but you can't look away incredibly well done uh all right listen this has been an amazing episode and
01:22:52
this is news for the other besties Friedberg and I have been secretly collaborating no we have come to a plan
01:23:01
we're working on a joint plan for all in Summit 2023 because we are both helping
01:23:06
each other out on secret projects I'm ready to tip guys I love it the tip we don't need you I'm a permanent no
01:23:16
perfect that's all that's fine we know that I love that I have sex as my anchor on this one I can always float back that
01:23:22
way this thing could flip but Friedberg and I I'm like octopus in this case but power and influence
01:23:35
Friedberg had so much of a good time at all in Summit 2022 that his hatred of my
01:23:42
producer fate is less than his Joy from the event and we are collaborating on yeah super gut yeah I have made up for
01:23:51
my producer's faith by using super gut and becoming a big problem I've used the promo codes
01:23:57
he paid you for that that's the quid pro club oh yes yes no conflict no interest
01:24:09
the only the only person that you've been taking money from is SPF I mean pretty much anybody else oh by the way
01:24:17
can I point out on the most loathsome person in Tech [Music] I only want the bracket do not mention
01:24:44
the pockets we're not giving them any just black out that uh in post I want you to black out I don't want to give
01:24:51
these guys any credit so here we go the worst person in techs we wouldn't say it's a b podcast
01:24:58
that's run by literal socialists oh well look Jamal's got a very tough draw I mean of course to SPF yeah
01:25:07
versus in the most hated person inside by one percent that's [ __ ] who Andy Jesse
01:25:24
is he is a complete gentleman Andy jassy is delightful human compared to Andrew Jackson just
01:25:33
inspires that is I want a recount I want to recap this is election interference union busting this is
01:25:41
election interference something you're a specialist in I guess is worse to be a union busting Amazon CEO than a
01:25:48
reactionary conservative investor yeah I don't get it this is ridiculous I just want to point out that the biggest
01:25:56
travesty here is that I did not make the list there are things you know what these guys are
01:26:02
trolling me these guys shout out to producer Nick who just retreated this but basically you basically picked the
01:26:10
what is it the 30 most relatively well-known people in Tech that's what tilts Jake Cal the most this is terrible
01:26:16
worst person in Tech I don't make the list I'm gonna double down this year I'm constantly kowtowing to the media you're
01:26:22
you're right you're right I need to be horrible I need to be a worse human like you sex
01:26:29
I'm gonna try my best this year to work against humanity and society and be more
01:26:34
loathsome than you I'm really going to redouble my efforts obviously I can't catch up with Jamal you buy into all
01:26:39
their phones you're too kind I got a big heart I care I have empathy I know my empathy but here's the problem these
01:26:46
guys left me off on purpose between Andreessen and Bill Gates oh wait driesen that's a lock that's
01:26:55
interesting of course oh interesting questions a16 co-founder and man of terrible teams
01:27:01
Market treason is a world-class [ __ ] poster Bill Gates is hiding somewhere nobody Bill Gates is doesn't tweet
01:27:09
Marcus recent blocks unblocks he [ __ ] posts with the best of them he's up there I mean that guy's a dark meme Lord
01:27:18
any other I mean I really I really sympathize with each month that you got your ass handed to you there that's just
01:27:24
that's like going up against the Dream Team hold on hold on slow down bro you're not even letting us read these
01:27:28
things all right okay Twitter former idiot CEO versus Airbnb CEO making oh my God that's so well written Ryan
01:27:42
hold on this weekend he's a great guy guy who really tried to make us believe web3 was going to happen versus World
01:27:49
coin and open of course Chris Dixon wins much more loathsome than Sam Altman right okay
01:27:55
guys listen Freeburg you didn't even come I want to just congratulate freeberg on an amazing the best science Corner
01:28:03
ever an amazing product in super gut that has helped me lose weight I feel great and four uh you know recovering
01:28:11
from whatever illness you had all right everybody I love you Besties shout out to uh David sacks love you
01:28:18
guys and we'll see you all next time on the all in podcast love you besties love
01:28:23
you guys bye [Music] we open source it to the fans and they've just gone crazy [Music]
01:28:45
besties [Music] it's like this like sexual tension that they just need to release somehow
01:29:08
where did you get Mercies [Music]