SPAC talk with Chamath Palihapitiya, David Friedberg, David Sacks & Jason Calacanis | from Episode 7

i think jamaat's point is right though there is uh so so much more liquidity available through access to retail and international market um participants um in in a public setting than there is in a private setting and it is because of this liquidity premium and the easy access to putting capital in um it's just extraordinary how much as i've watched close friends and companies and companies i've invested in i'm sure you guys have done the same transition from private to public uh the valuation jump is extraordinary like uh on

on a metrics basis right so whatever the metric might be you get public there is this flurry of of market participation as a result it drives up there's a multiplex when i thought you're be sorry can i just say something that's such a such an important smart thing that friedberg said so jason for example like all of us ha we're all still in the private markets and i'm not trying to take away from the private markets but what david said is so important if you used to look at a sas deal you'd price that sas deal 10 times arr right then there's a little bit of inflation you know uh

the rates go up um the prices that people pay go up now all of a sudden we're paying 12 times 15 times now it's 20 times if you're growing 100 rate over year so what's happened the market has become more efficient and the excess return is getting eaten up and so you're like okay well that's still really good and you wait four five six years and you think you're going to get paid the crazy thing is like once that company transitions to the public markets i mean all of a sudden if you actually turn the investor base over and you actually create a float so that public market guys can buy it they'll pay 30 times that's right 35 times 40 times so there's

a massive multiple expansion so companies should be going public sooner if you think about this like if i'm trying to raise money for one of my companies i'm gonna call on my 10 20 30 friends that i know that are investors in private markets and say hey guys do you want to look at this company and maybe i'll get two or three interested parties and maybe we'll kind of agree on what a fair valuation would be if i could take that same company and instantly make it available to a million investors and all i need to do by the way is raise 10 million dollars all i need is some

small number of them to write a couple hundred dollar check and i'm able to fill that that round out the valuation as a result of the liquidity available in that market is so much higher because there everyone's gonna there's gonna be much more participation in bidding and so you know what i think chamoth has tapped into with the spat vehicle and um what robinhood is realizing and and i don't think that we all talk about this enough but there's this massive massive massive market of international investors of small of international retail investors who are now rushing into u.s

equities freeburg didn't we see that in the ico craze as well where you you i think if we took anything from the ico craze it was and the global appetite for risk and the dot-com boom before that and i think we have to give bestdc a lot of credit here for leading the smack movement i mean what's your take on everybody copying you down this backpack champ at this point i had desktop metal as an early angel investment that just spacked um i thank you yeah and they told me that thank you for the markup um and i've been hearing like i i'm get if i'm getting inbound as an angel investor

from i literally got a cold email from some high profile people they're like hey can you do you have anything for us to spack i mean this is like the third or fourth time people are coming down to my [ __ ] level of angel investing saying can you introduce us to the calm guys can you introduce them to robin and i'm like i think you can go direct to them but what is your take on how many specs have been created to juice like literally single-handedly restarted the smack movement i think i don't think you've ever got a record about this uh i'm really proud of what we did when we

created this thing two years ago i said i want to basically create a new way of doing ipos i called it ipo 2.0 i reserved ipo a through z on the nyse i i hope um uh to fulfill that and i think i will um but taking a step back for a second in the year 2000 there were 8 000 public companies in america on the american stock exchanges and in the year 2020 there are 4 000 so we've shrunk in half the number of public companies while at the same time we've you know 10x the amount of comp uh the amount of capital and the number of people so we don't have a large enough surface area in the

public markets that's why companies are better off going public because they're going to have a much more receptive audience of people that are dying to own growth of any kind what's the earliest and the media and that people should go public well so so here's the thing so like if you're like one of 30 companies in a venture portfolio that's growing at 50 plus percent you're one of 30. but when you go public you're one of one you know when you're growing 50 60 you you become very unique all of a sudden you're a sort of a one percent kind of a

company you're an outlier and so you get treated you know incredibly well so that's the backdrop i think a company should be going public around year five year six um what revenue footprint uh about 50 million you know at 50 million and when they're doubling i think that they should be going up and you know it allows them to build capital slowly it allows them to basically contain control it minimizes dilution um i think it's a really powerful model and then on the number of spax what i would say is i think it's really good that the market is getting diversified i think what's going

to happen is like the the thing with spax is it's going to be no different than in some ways the banks that preceded us which is that there's going to be a distribution you can go to goldman sachs and that will mean some one thing you can go to merrill lynch or b of a or ubs or jeffries it'll mean other things you can go to allen and company it'll mean yet another different set of things and i'm sure there's going to be a you know an organization that uh is all about cost some is going to be all about relationships um so i just think that's going to be the distribution

my personal perspective it's probably us and maybe one or two other people who really dominate the space and i'll and i'll tell you the only reason why i say that i think it's going to be really important when these people try to get these facts done what they're going to realize is it's really hard and it's hard for a couple reasons number one is you have to marry operational insight and public market sophistication and the founder will get really smart about being able to figure out whether this person is just a financial arbitrager or if the person has enough operational experience

to deeply understand the business why you have to translate it to the public markets well that's one huge thing that i think that people will um will start to will start to hone in on anyways there's a bunch of other things but um are you now competing with it with the 50 million yeah yeah sure um i'm i'm cool with that you know i invest well before that so i'd be i'd be happy for you probably have a bigger portfolio 50 million dollar investment yeah it is it's great for for for me and jason and i you know i i think chamoth deserves a ton of credit on on this whole spac thing it is i don't know if all the listeners um are aware of this but this

back thing's become a huge wave um there's a ton of people creating them kevin hartz is a new one reed hoffman has a new one they're you know the east coast hedge fund guys pincus and um and then the east coast hedge funds like bill ackman whatever they're all creating them so chamath has really started a wave here and i think the appeal of a spac to a founder i'll put in a plug of why i think it's a good idea for a founder to consider this is because you essentially what founders are used to is doing you know private rounds right you

agree on a on an amount raise an evaluation and it's a percent dilution and you're done that's it and it's simple right and and when you ipo and need to raise money it's not like that you have to then work with an investment bank they'll put together a book you do like a road show you do this whole dog and pony thing you don't know how much money you're going to get at the end of that process or what the valuation is going to be and then on top of that we know statistically bill gurley's published all the stats the investment banks are going to rip you off so you know so that

what a spac does is it prices like a late stage private round you just agree with a spec promoter on a valuation an amount raised and then on top of it you get kind of a direct listing along with it and all of a sudden you start trading as a public company and so a spac is like a combination direct listing plus private round and i think that's going to be appealing to a lot of founders as they start to discover this more and more saks in a way you're saying it's going to feel more like doing a series d then it does a road show and yeah i think that comfort level

for somebody like robin hood or com or data stacks or thumbtack or any of these companies that you and i are every company in your portfolio this is i think this is going to be the new thing for early stage investors is we're not going to count unicorns anymore we're going to count specs we're going to count public listings right and and i think that's the other thing by the way the other the other thing that i'll say to founders is one is i think you need to you need to think about do these people have the combination of operational and financial acumen in the public markets um and investing experience in the public

markets and the uh operational credibility to describe the business and i think you can trade off one for the other if one is so deep meaning if warren buffett was doing us back you'd say well he has no operational experience but he's so credible in the public markets then you know that's all that matters but you need to be super super deep in one or have a really brilliant and thoughtful level of credibility in the publics meaning an early stage investor who isn't married to somebody who can basically say i know how hedge funds work i've made them money and i'm gonna make them more

money and mutual funds etc is troublesome the second thing is for founders you have to really make sure you understand what is in it for the person that's doing this back i mean in every deal i write a minimum of a hundred million dollars personally and that's a lot and so i skip in the game i feel very much at risk and so i take a lot of time to make sure these things go well and then the third is that for the spa person what i'll tell them is they're gonna find that there's a bunch of landmines um and i'm not gonna you know say it up front because i think

it'll be fun for them to find out themselves along the way but these things are hard the first one took me two and a half years uh they're hard yeah they're hard they're hard