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welcome everybody to episode 101 deutsax is on vacation sitting in Brad gershner
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from altimeter group welcome back to the Pod Brad how you doing it's good to be back good to be back I
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mean first you first you guys uh you know tilted Friedberg and now a little bit on uh sax is getting attacked on
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Twitter and so you roll me back in when yeah when you got a little problem whenever the brigad dunes come out Brad gerstner comes I think sax will be okay
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but shout out to sacks you know who probably hates the term brigadunes the nitwits that are in the brigadunes
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Cricket Tunes oh the Brigadoon it's all gonna end at some point because I think the Brigadoon new ownership at Twitter
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is Gonna Change like the whole spam the Rogers and Hammerstein musical right yeah yeah yeah but now I think brigad
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Dunes could stick I don't I've never heard anybody use that for the Braves rolling calling the Twitter mob the brigad dunes is a good new thing I like
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yeah it's pejorative it's funny it Seasons everything a little bit tones it down I like it it feels goofy it
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completely disempowers them they really want to be taken seriously but they're just a Brigadoon
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I mean to be a pretty dude though you have to have four or more accounts and you have to reply to each of those
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accounts as if it's another conversation yeah when you retweet something as a
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social justice Warrior as an example you're trying to join the Brigadoon ah got it it's just a different Brigadoon
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it's a brigade Jacob are you sometimes a Brigadoon right you're part of brigad Dunes Jacob no I'm not part of anybody
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[Laughter] nice for my brother
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[Music]
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[Music] well anyway uh Kanye West
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can't leave an amazing career alone and he is going to buy
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parlor which apparently Candace Owen's husband George farmer had created so he's gonna buy his own social network if
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you don't remember parlor is like a really shitty version of Twitter that never seems to have worked or been
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stable it crashed the first 10 times I used it miraculously this steaming pile of
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garbage had raised 56 million in funding and Kanye is on a social media media tour
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saying horrific anti-semitic stuff he seems to be having
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a mental breakdown again uh there's a big discussion now I guess should people be platforming them to the point uh that
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he's doing three four five hour interviews with people and it does seem like it's acute mental illness slash
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breakdown I don't want to like diagnose anybody from afar here and I'm not qualified you just did well I mean he
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has been in public about his struggles with mental illness it's not a huge leap for any of us that have had family
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members have manic episodes I mean this is clearly America it's pretty much right
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out of the textbook so my question for you guys is what you
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have somebody with great wealth great creativity he's obviously a savant in so many different categories
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with a huge social media following plus money plus Fame and then you add social media to the mix
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which is an accelerant and then all of these you know Tucker Carlson and every other publication every podcast using
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this moment I think in a way to kind of I don't know get ratings off of this
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train wreck I find it abhorrent to interview somebody when they're in a manic episode like this I'll be totally honest I wouldn't do it what is your
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take on this I have a family member a blood relative
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that is in severe mental health crisis
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if the emails and the text messages that this person sent
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were public you you I read these things and they've
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severely severely impacted me to the point now where I have like a
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rule that when they're in a manic episode I just kind of harvest them and archive them just in case something bad
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happens but I can't even take the effort to read it and because it takes such a
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toll and then I feel really guilty because I think maybe there's a something in there where I could be
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missing something so this is what when you're in the middle of a of of of a
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severe episode this is what the family and the loved ones of that person is also dealing with so I have I have no
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idea what's happening with Kanye but what I would tell you is when you're in a manic episode the more the the thing that you need is for the
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people around you to try to step in to help you and it's really freaking hard and I can tell you that in I've seen
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this person in my family say and say things and do things that are just so beyond the pale yeah and it's part of
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when they're in that moment and the whole goal is to try to get them out get them back on their meds get them
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rebalanced it's a really really complicated thing to deal with
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well look I mean the guy the guy's buying a social media platform I think it continues to support the
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point that I've made a few times which is I don't think that anyone has a monopoly in social media networks we've
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seen every couple of years uh competitors emerge people Proclaim Monopoly those monopolies get uh
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destroyed by the next thing you know from Friendster to Myspace to Facebook to Instagram to Snapchat
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to tick tock and I think that the the reality is the users of those platforms
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ultimately coalesce around a set of standards they want to see happen on that platform and those standards become
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kind of the editorialized or produced model for how that platform should operate because that's what the users say they don't want anti-Semitism they
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don't want what they would call kind of challenging an institution they don't want fake news whatever the the
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classification is there's an editor or an editorial board that editorializes what is and isn't allowed to be set on
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that platform and ultimately there is a fringe Voice or a voice that feels unheard or feels like it cannot speak on
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that platform and what we're seeing now with I think Elon acquiring Twitter and Kanye
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acquiring parlor um and generally a number of kind of emerging networks uh like uh what's it
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called rumbler as an alternative to YouTube communication maybe what's it called
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Rumble I think yeah I think it's it's a really clear supporting fact that there are going to
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be Alternatives and that these what we thought were monopolies and what kind of became digital Town squares and almost
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infrastructure are really just application layers they're editorialized and there are going to be competitors
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and I think there are folks that want to have a voice that feel like they've been editorialized out of the existing networks like Kanye like Trump like Elon
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to some degree and they're um you know those that have resources they're changing that and I think that speaks to
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a really healthy competitive market so having folks like Kanye step in and try and create a new platform that has
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alternative voices long term I believe in freedom of speech I believe that we should have alternative voices but I
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also believe that consumers and customers should be able to choose what platform they want to be on based on the
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editorialization that happens on those platforms and I do believe that the owners of those platforms should have their own rules because it creates a
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different differentiated product Jason is that why you we're hoping to get comment on or this idea of the media
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Feeding Frenzy feeding on Kanye's mental breakdown yeah I was talking about the media
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frenzy that's the thing that I think is pretty abhorrent here in fact YouTube just pulled a bunch of the interviews he did recently because there's so much
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anti-semitic stuff in it and you know when somebody's in a mental breakdown like this which I think it's pretty
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clear he's in you know they do this behavior and of course it's hurting them it's to your
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point you know I'm sure it's hurting his uh kids or or Ex-Wives or ex-wife and
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you know can I ask what's that can I ask who do you think is to decide that because he's done
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interviews where he said I have episodes and those episodes actually provide me with creativity yeah yeah I think it's
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up to the post the person who is the host of that show who has to make an editorial decision and so Tucker
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Carlson's going for Ratings or if somebody else does it and they want the ratings because Kanye's a big name
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that's you know I get it he's he's a great Gat right and if you are somebody who likes to interview people that's
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like a lifetime get that could be the get that you know makes people learn about your podcast I just think it's
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unethical to do that when somebody is suffering like that to then feature them and to platform them in order to get
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your own ratings that's a personal decision let me ask you a different question though so I wouldn't do it would you hold him accountable for what
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he said well this and this is the Nuance you know and I think we do have to think about that
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because anti-Semitism uh exists in the world he's got a big fan base that means if
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he's got people in his fan base who are also having a manic episode they could then be inspired by what he's saying to
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do something horrific and cause real world harm and and this is where you know the accelerant of social media
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I think is particularly dangerous you know in the old days if somebody said this stuff on a talk show maybe they
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don't air it where they say it it's in the newspapers but when he could have a continuing dialogue across many podcasts
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a week he's done like 10 podcasts in the last week he'll he'll go on air with anybody and then he has whatever tens of
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millions of followers he's reaching hundreds of millions of people all you need is one person who's mentally ill to
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then go do some horrible thing in the world that we've seen happen many times and that's what I'm concerned about
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you have to understand your the it's the law of big numbers basically Tomorrow there's a large number of people yeah
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just to give you a sense of it you know when this family member of mine um you know we've had we've had to have
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interventions we've had police we've had um
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the government get involved in Canada we had had their driver's license taken
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away then I mean it is an unbelievably complicated set of interventions
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and I am so thankful that she doesn't have
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massive social media awareness because it would just be chaos
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and I would hate that you know because of their Association to me that this person
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gets more attention than they should in a moment where what they really need is help
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and I think that that it should be the governing principle in moments like this where if a bunch of your family members
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or your health care providers or whatever can raise their hand and say hey hold on a second this is completely
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off the rails you know Freeburg to your I don't think that editorial Freedom matters in that point
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I think there's just a more Humane idea around get this person off the airwaves and
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like allow themselves to add it get out of that Loop settle down yeah yeah
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and and typically what happens is that you know these folks at Lee again and just in my experience
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will have titrated a medicine well and then when that titration fails their
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ability to regulate their emotions fail and this is the loop that they enter and
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you know you really have to find a way of like taking all of these mechanisms off the table so that they can
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re-regulate themselves and I think that as a society we have to sort of move towards that so that if you know family
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members can call Twitter or Facebook or Instagram or whatever and say listen or the doctor you know here's the doctor's
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note like you have to be able to shut this stuff down because you have to mute all of these other things so that this
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person can then get back into a mode where they re-regulate that should be the priority yeah compassion for the
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person yeah it's and it's not forgiving what they say but it is having maybe a little bit more
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compassion in that moment to get them back to their to their children this one's a little easy to say hey Kanye's
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having a mental breakdown because he's talked about mental illness in the past it's a lot harder to make these you know supposed determinations as a reporter or
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a podcast host if someone says something crazy and then it's easy to raise your hand and say hey they're crazy cut it out or there's some
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mental health issue going on here but Freeburg if he's not if he's not having a mental issue right now then he is a
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horrible human being who is an anti-semite who is spreading just the most vitriolic horrible things you and
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tropes you could ever imagine at a time when you know uh there's enough division in the country and somebody could get
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hurt you know uh so either in either case his accounts have to get paused if
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he's going to say anti-semitic stuff on them that's that I mean there's really clear guidelines
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across all these platforms on what's inappropriate and certainly I think folks will start to adhere to them I
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guess if I had anything to contribute I mean I think Chima said this well about a mental health angle but what I
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would say is I actually think that the social platforms have done a reasonably
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good job the fact that he's buying parlor I think is evidence of the fact that there actually is an editorial layer yeah
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that's doing a reasonable job it's a tough decision ever there's always going to be a long
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tail of podcasts somebody will you know somebody will go grift off of uh you
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know an episode or whatever but I think you know a few years ago we were talking about no editorial
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standards and I think today you know across these platforms obviously there's
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attention there's a tension that's existed for a hundred years plus around free speech
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on these platforms I get that tension but I think uh a little credit where credits do we're seeing we're not seeing
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these memes spread like wildfire uh in part because the platforms with the most
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reach are doing their job snaps down 30 percent today you guys see this I think it's it's related in the
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sense that everyone historically talked about social networks as being these uh you know the network effect where you
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know multiple people get on and they link up with you with each other it's harder and harder to break the network and it gets bigger and more valuable and
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can generate more Revenue clearly not happened over the years with Twitter to the degree that people
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thought it should have and now clearly it's not happening with SNAP I think it also speaks to this idea of
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fragmentation I don't know if you guys want to talk about snap but pretty significant decline from well here's the
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here's the 60 they were 160 billion market cap and today they're trading at 12. they're down 91 from Peak to track
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91 yeah here's the important thing to note which is that if you look at the Mau growth of snap it's actually been
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extremely steady and they've had an incredible March forward and I think that they're roughly around 350 million
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Nick I'll send you the dis right I'll send you the link yeah I think it's like the Dow you count is incredible it's
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incredible so it's like yeah it's a service that is incrementally every day
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more relied upon than the day before and it's a service that's providing a set of features that is incrementally
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more important to a larger and larger group of people so how do you then
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square that with its stock performance and in my opinion I'll just be really honest with you and I don't know Evan
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Spiegel and I've never trafficked in Snapchat at all okay but it is the most glaring example of
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corporate misgovernance that has ever happened on the internet and the reason is when you look at what
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happened in the IPO it basically created a governance structure where the common shareholder
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had all voting power taken away so a hundred percent effectively the de
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facto voting power stayed with the class that was held by the founders and so you you do not have a normal
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check and balance and it was egregious other companies would have voting programs where it was
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20 to 1 and you would sometimes say oh it only should be ten to one or it
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should be 50 to 1. this was like a hundred to zero and what you have now is no real
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feedback loop because there is no person who can own enough equity with enough
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say to sit across the table from that CEO and say Here's what you're not seeing
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and here's what you're getting wrong and I think you're always better off by having those kinds of people
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be able to get a meeting with you in the first place and have a vested interest where you
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take them seriously but how would you receive a meeting when you're sitting across the table
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from somebody in the back of mine you're like wow this person has literally no say in what I do after this meeting ends
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literally none you can't vote even to even it's different than alphabet and
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meta at ten to one because they I think they both have dual class right that yeah I think zero is in my opinion a deep
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sign of disrespect I think you can I think you can agree
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you know that um there is a separation between you
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know the voice of the common shareholder in these companies and and the direction of the companies but I think it obscures
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what's going on chamoth I totally agree with you if you look at usage the number of customers walking into the store
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um snaps gone from 265 to 360 million dau's Twitter 190 to 240 meta from 1.8
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to 2 over the course of the last three years they're all growing more people are walking into the store and using the
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service the story here is all about pricing how much is each of those users
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worth I mean apple is the apex predator of this entire Market we wouldn't be
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having this conversation but for the fact that Apple's changes with idfa
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literally pickpocketed the industry two billion dollars this year under the
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auspices of privacy and so if you look at these companies usage up
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pricing or arpu down okay recently Apple's come under a bunch of pressure
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so now they're out with scad 4 which is their update to uh the the the ad policy
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post idfa that allows you to Target advertisers or individuals with 10 000
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attributes instead of a hundred attributes so we're gonna see some realignment I expect that the real
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question is what happens to arpu next year but to me the story here is that
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the usage in the health of these core platforms is remarkably sticky yeah for
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all the things we say about Instagram I mean Tick Tock has had explosive growth 30 growth each of the last three years
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but even the incumbent platforms a really sticky usage this is about how
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they're monetizing those users and the real story is Apple yeah and if you for people who don't know idfa is the
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identifier for advertisers some people refer to it as made mobile ID ad ID I'm
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sorry um and so what that does is it lets you track a user anonymously across
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have you ever have you ever owned and have you ever owned any clicks to a sound have you ever owned Snapchat stock
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no why not um certainly governance is a key
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component of it but the second thing is like do you have do you have any belief that
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you could even get a meeting with the CEO and management where they would listen to you appropriately
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we've certainly got meetings with management before so yes I believe we could whether or not that impacts you
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know how they build product how they how they run the business you know the influence Etc but again I I think
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that's not really the problem here but the point I would totally agree with you on Shima
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we've had 10 years of where the cost of capital was Zero
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10 years of hyper growth for these social networks right in each of the last five years
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Facebook has hired more people in each of the last five years than they had 10 years after the company was founded
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okay so as we've seen this growth begin to turn over I have seen the companies
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really slow to react to right-size their behavior that they
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had over the course of the last decade to put themselves in a position to
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compete for the next decade so it's one thing just to throw your hands in the air and say well this is all Apple we
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couldn't do anything about it but we we really haven't seen leadership in terms of cost control we really have
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we all know these companies yeah of the of the major companies Brad snapped into a 20 riff that had 6 000 employees or so
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and they cut 20 percent Facebook is the one that's perplexing because they seem to be massively oversap staffed as you
00:21:29
talked about and they have been massively um they've had a massive decline in their uh stock price and they are the
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one who is affected most by what Apple did in terms of app tracking
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transparency is I think that there's a perception though I mean I'm still stuck on this issue I really think that stock
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prices tend to ebb and flow based on
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sort of like friction or momentum and when there's momentum more and more
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people can easily underwrite it and when there's friction fewer and fewer people can underwrite it and so I think that if
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you are a CEO of a public company you have to think about how many headwinds do I have and how many Tailwinds do I
00:22:10
have all the time and some of them are in your control and some of them are not at least in the case of
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meta as with Apple and Google they meta is
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forced to copy the best decisions of these bigger companies why because they were
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one of those biggest now they had may have been the smallest of the biggest but it's going to be very hard for meta
00:22:35
eventually to not Converge on those same set of decisions and the most important one is what Brad just alluded to
00:22:42
which is that there was a point in 2016 and 2017 where you literally could not give away Apple stock
00:22:48
and the big turn of the dial and you know some say it was Carl Icahn who knows was this theoretically this famous
00:22:55
dinner that Carl Icahn had with Tim Cook where he laid out a plan and it's like listen you need to start managing costs
00:23:02
better managing Opex better return a ton of cash buy back the stock and you'll be a
00:23:09
darling and Tim Cook was rewarded and he's he's been rewarded with an incredibly performant company and so you
00:23:17
know Google is slowly inching towards that plan Microsoft is in that plan and
00:23:22
so the only Big Four Horsemen that hasn't really gotten the script yet is meta but they will it's just we're just
00:23:28
debating when and so there's a perception that you know
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meta will copy what the rest of these big guys do but these other long tail
00:23:40
companies the headwinds are just greater and so when you you know don't have a
00:23:46
company that can be broadly owned by intelligent thoughtful investors that's a headwind right when you give
00:23:52
nobody votes that's a headwind and so that's why you see a company that's continuing to grow impact not being able
00:24:01
to translate that into economics and if I were the board of that company that should be a wake-up call because
00:24:06
eventually that'll flow into the morale of the employees and the ability to retain and then the ability to invest in
00:24:12
the future and I think the simple answer is enough with all these you know gymnastics around control
00:24:19
you know if you looked at Elon the most incredible thing from day one was there's common stock
00:24:25
you know and his whole thing was like I'm just gonna do the best and you know what if I'm not the best I'm going to be
00:24:31
out he literally said vote me out vote me out he's never ever
00:24:36
played these games so in this funny way control is a symbol of a lack of ability
00:24:41
to run the business masterful Mastery of a business you can translate that to being I'm just going
00:24:47
to have common stock
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um tracking back to the high voting class for Founders was that they would
00:24:58
be challenged by the investors in the market and you can see the things that Carl I can and others ask for they say
00:25:03
we want to see you cut Opex we want to see you pay dividends we want to see you buy back stock
00:25:09
and we want to see you grow and so the trade-off then in the mind of a Founder uh that that that started this business
00:25:16
and scaled it to billions in revenue is well that means I've got to make short-term decisions over long-term
00:25:21
decisions I've got to make the I got to give up some of my long-term opportunities to trade for my short-term opportunities that's that was the
00:25:27
argument I think originally for the voting class and you can read this in Google's Founders letter as well does that not apply any Founders at
00:25:35
Google don't even show up at the company why do they have to have super voting
00:25:40
control they don't probably even know what's going on inside the company
00:25:46
I just want to hit on zuck's point because Zuck has said look you know this this VR AR metaverse stuff in the future
00:25:53
it's everything this is where I want to invest our resources so look what happened but look what happened they
00:25:59
they made a missive they said we're going in this direction investors really smart thoughtful supportive investors
00:26:05
including Brad were like uh hold on check your role and they capitulated now
00:26:11
to your point did Super voting control come into play there no of course he could have said you know what guys pound
00:26:16
sand I'm gonna do what I want instead he's like I'm a smart guy these guys are smart guys so I'm going to make the
00:26:22
smart decision so in my opinion all of these things are red herrings these are in directions right so this idea of I'm
00:26:28
just going to take my toys out of the sandbox like a crying baby is what super voting control means to me as a
00:26:34
shareholder Brad okay I think the era of super voting control for Founders uh taking companies public is over
00:26:40
nope should it be you know I I think it's again
00:26:46
when Facebook was doing really great and Snapchat was doing great nobody complained about super voting stock okay
00:26:53
so I I think that you know my preference would be that I partner with a company where I
00:27:00
know the founder whether irrespective of their votes right listens cares and has the mental
00:27:07
flexibility to make course Corrections right and and the reality what I'm trying to point to we have lived through
00:27:14
a decade of excess everybody knows all these companies could do exactly the
00:27:20
same Revenue David this is the push back to your point unlike what the Google argument was exactly the same Revenue
00:27:27
with vastly less investment in terms of people Etc right a 20 riff
00:27:35
that meta would literally only take them back to where their personnel expense
00:27:40
was in 2021 yeah nobody argued in 2021 and they said they were going to do this
00:27:47
too Brad right and just hasn't happened yet this is this is part of the problem Jay Cal
00:27:52
everybody so why 10 percent why 10 you've doubled this the number of people working in the business over the
00:27:58
last few years right there's nothing magical about 10 the real question is what is the optimal number of employees
00:28:05
to produce the best outcome for our customers and our advertisers and what Bill Gurley has pounded on and we've all
00:28:12
talked a lot about there has been in a zero cost of capital world
00:28:18
a unilateral March two more more of everything invest in everything hire
00:28:23
more people Silicon Valley would do itself a favor these big companies
00:28:28
vacuumed up every single engineer in Silicon Valley they ought to return that pool to the startups that are actually
00:28:34
inventing the future they don't need this money in place I mean last night I read a report came across Bloomberg the
00:28:40
the elon's talking about 75 reduction at Twitter yeah so that would leave Twitter
00:28:46
just to give people some context here that wasn't that that originated in the Washington Post that would take them from around 7 500 workers to maybe two
00:28:53
thousand eighteen hundred and so he's starting from first principles how many people do I need
00:29:00
to build the next generation of Twitter that's the question start with a blank sheet of paper and ask that question
00:29:07
you'll come up with very different answers I think that you you can correlate
00:29:14
these kinds of uh governance overreaches with zero interest rates
00:29:20
that dog doesn't hunt when rates are at four or five percent I don't care who you think you are but when you try to go
00:29:26
public in uh over the next four or five years if rates are sustained you know three four five percent that will be the
00:29:33
check on all of these people's overreach because you will have you know liquid Alternatives that on a risk-adjusted
00:29:41
basis seem better and when rates are zero and everybody was forced to own
00:29:46
Tech we all gave up our standards we all stopped saying you know oh you know the
00:29:51
things that we used to think were important before like one person one vote you know uh a check between the
00:29:58
board and the CEO a check between the executives and the shareholders it all
00:30:04
went out the window no discipline no hygiene right because when interest rates are at zero percent you have to
00:30:10
remember right how does how does the the structural basics of of the financial markets work it is meant to make money
00:30:19
on half of every single entity and person and thing in the world from a pension fund to a university to a
00:30:26
research lab to a government to an individual but in that ability to make
00:30:31
money when we took interest rates to zero forty percent of what we all used to own
00:30:37
bonds yielded nothing and so we just completely whipsawed to
00:30:43
the other side and said we need to own anything that grows so Tech got a disproportionate amount of
00:30:48
attention but in that we lost our standards and we are now going to go through the
00:30:54
hangover of dealing with it and so you know snap will be an example of where investors are going to abandon that
00:31:00
company because because it's just there's no point there's no governance there's no
00:31:06
ability to have a conversation it's in the too hard bucket so people will just leave it it'll be uh stranded and it'll
00:31:14
be a refugee in the public markets I think meta will be fine eventually because I think that they will revert to
00:31:20
the mean and the mean is Microsoft Google and apple and we already know what that Playbook looks like so I think
00:31:25
what Brad predicts is more likely than unlikely and I think in the future to David friedberg's point
00:31:32
I think it'll be very hard to justify these things you know Bankers will be able to push back because the buy side
00:31:38
ultimately guys like us who have to buy the stock when these things go public will say nope
00:31:43
you want to have these you want to have these dumb governance games no not for me I'll just go buy something else I'll
00:31:48
go buy more Tesla where it's one person one vote why you know so it's hard when the best
00:31:55
CEO in the world is like judge me keep me fire me on an equal basis and
00:32:02
everybody else is like I'm smarter than this guy and so you know what let me make sure that whenever I feel like it I
00:32:08
can throw a temper tantrum and take my toys out of the sandbox and let's use it there's analogy here it doesn't work look at look at um Steve Jobs ousted
00:32:15
from his own company company company made a huge mistake asking him some people argue it was a learning experience for Steve to get better at
00:32:21
his job he comes back and he absolutely turns the company around so there's an example thus far you've proven that the
00:32:28
two most impactful and important CEOs of the last 50 years had the courage to basically say let my performance do the
00:32:35
talking not my protective Nanny control correct and Steve's performance was
00:32:40
light in that first period he had some problems and uh and he learned and he still won but this is what the greats do
00:32:46
the greats know how to perform not you know use some no trade clause to make sure that you can just sit there and
00:32:53
underperform forever do we think Brad when we get to the sort of macro look at this let's assume we're in this 405 or
00:33:00
three four five percent interest rate for some extended period of time let's call it a decade what does the tech
00:33:07
industry look like because it does seem if Elon does with Twitter what seems to
00:33:12
have been leaked here correctly uh according to all reports and there's a 20 rifat uh Facebook and
00:33:19
we start to see people take the medicine is that the ultimate setup for now hey these companies are being run to throw
00:33:25
off cash and we have some way out of this uh what people think is going to be a very hard
00:33:31
Landing well I mean you know first just let's talk about you know where rates are
00:33:37
three you know today you know we're at 4-3 on the on the 10 year I mean Technology's performed incredibly well
00:33:44
for a long period of time with rates in this in this range so the adjustment
00:33:49
period is very difficult right and so when when you look at the
00:33:54
convexity in going from zero percent interest rates to four and a half like that has been a shock to the system it
00:34:01
has been destabilizing to multiples multiples were basically infinite last year and now multiples have come back to
00:34:08
reality and so I don't question in fact I actually think
00:34:13
free Capital was a weapon of economic destruction right free Capital hurt good companies
00:34:20
from being great companies they hired too many people their margins were too low you know SoftBank funding all of
00:34:27
these Rideshare companies around the world to compete with Uber meant that Uber even though they're a market leader did not have Market leadership economics
00:34:34
and so the ringing out of the system of that excess that grift that stupidity
00:34:41
that's going to be good for the fundamentals of these business but the transition from you know that low rate
00:34:47
environment to the high rate of iron is dislocating for investors it's dislocating for management at these
00:34:53
companies and it's going to be this this is not you know a a six-month phenomenon we're going to have two years of ringing
00:35:00
out right because there's no bailout here by the vet there's no v-shape recovery for these companies this is now
00:35:07
going to be I heard somebody say this week if the last 10 years was about beta
00:35:12
the next 10 years is about Alpha not all companies are going to do well not all
00:35:17
companies are going to bounce back this is going to be about what companies have the courage
00:35:23
to build great products and to drive a great business model that allows them to
00:35:28
compete and continue to invest at high rates in the next wave of innovation whether it's AI Etc and so
00:35:36
um you know to me the markets jcal have largely put in a box at this point
00:35:42
inflation and rates right rates have come up 65 percent in the you know from
00:35:47
2.7 to 4 3 in the last 60 days and the Market's basically sideways it's down
00:35:53
five to ten percent rates are up another 10 percent in the last two weeks and Google and apple are up that tells me
00:35:59
that the Market's gotten you know gotten its arms around rates and inflation what the market really is worried about now
00:36:06
are two things number one is earnings and number two is the long tail of risks on earnings there's kind of a
00:36:14
conventional wisdom emerging from a from from many folks that 3200 is
00:36:19
the bottom or maybe 2700 at the bottom that we're going to go from 225 and in s
00:36:25
p earnings back to 200. that seems to me to be you know again a
00:36:31
lot of people making that bet I don't see any evidence in Q3 earnings United Healthcare United Airlines Schlumberger
00:36:39
Tesla Etc their earnings are up on a year-over-year basis they've guided now
00:36:44
to Q4 their earnings are going to be up on a year-over-year basis and the consensus expectations in q1 are the
00:36:51
earnings are going to be up on a year-over-year basis to go from 225 bound down to 200. we it can't just be a
00:36:58
slowing of the rate of growth of earnings you have to reverse course entirely so we have to see something
00:37:04
we're not seeing yet so on an earnings growth that's where the mark there's some tension in the market then finally
00:37:09
what I would say is there are a lot of big brains in the world who look at this level of dislocation rates going on the
00:37:15
two-year or on the front end of the curve from zero to four and a half and drucken Miller or Soros would say
00:37:21
negative reflexivity [Â __Â ] breaks when you have this much volatility in the world the world is not
00:37:28
equipped to deal with these exponential moves and so there's a lot of concern in the world whether it's about Ukraine
00:37:34
Taiwan UK bonds the Japanese Yen nobody knows what it will be but they're just
00:37:42
saying demand a higher margin of safety because the propensity the likelihood that ship breaks when you have this much
00:37:48
dislocation is higher so I don't know Black Swan could come any minute and
00:37:54
could cause another downdraft but last year we were all sitting here and said asymmetry to the downside
00:38:00
multiples at all-time high interest rates at all-time low we saw that starting to roll over we saw smart
00:38:06
people Elon bases Etc start to sell into it as I sit here today yes we're going to
00:38:13
have harder times ahead economically but it feels to me like a lot of it is priced in I don't think we have huge
00:38:19
asymmetry and skewed to the downside I think that's like fighting the last battle it's not to say in this
00:38:25
distribution of probabilities one of those events can't occur but from my vantage when stocks the average stock
00:38:31
down 20 percent stocks like meta down 50 to 60 percent a lot of stocks down 70 80
00:38:36
90. that doesn't seem like the time to call The Big Short that seems like a time to be like new
00:38:43
channel to positive should we go to tvpi DPI and talk about the privates I just
00:38:49
want to say one thing about a favor question uh which kind of ties into some of what Brad said
00:38:56
but you you asked the question about does this mean that these companies are now going to kind of cut costs and start
00:39:02
spitting out cash I think there is certainly a market incentive to do that to keep share prices up and the
00:39:08
companies that can do that are certainly taking action with the head count reduction across some of the big guys
00:39:14
what I think is going to be interesting and what a lot of people are watching is
00:39:19
how many of the small and mid cap guys can actually do that and those that can't will it will become pretty evident
00:39:26
pretty fast and they're going to end up in the [Â __Â ] um you're talking to a Peloton or
00:39:32
something like that it doesn't matter across SAS across consumer across D to C across Hardware everyone is now saying
00:39:39
can you actually earn and at this point you should have enough scale that you should be able to earn and if you cannot
00:39:45
the market will punish you for it and that's certainly what seems to be the incentive and the pressure in the on the
00:39:51
buy side to the the executives across all these organizations today so I think that's a big trend of what's happening
00:39:57
right now is everyone's going through their portfolio spending time with management and asking can you earn can
00:40:03
you actually get this business to generate cash what is the path show it to me prove it to me in the quarterly
00:40:08
results and if you can't then you're not fitting in a bucket that I can own you the only irony there Friedberg is that
00:40:16
that comes as a surprise God forbid we should actually expect companies to prove unit economics and and to make
00:40:23
profits yeah but when you when your interest rate zero you divide by zero you get infinity so you know you were able to kind of explain everything away
00:40:29
into the future now you actually have an interest rate at five percent I Gotta Be
00:40:34
You Know making uh I'm not gonna pay a lot more than 20 times earnings and I want to see that that's really my
00:40:39
earnings you know I want to see that you can actually earn there is a person at Brad's investor date who Brad interviewed and I won't say his
00:40:47
name but he's a star of stars he's a bit of a goat and he had I'll just say the generalized
00:40:53
version and said the following which is so true
00:40:59
it's like we've gone through an entire decade of under training an entire
00:41:04
generation of people in Silicon Valley you know we have under under trained and under-mentored the product managers the
00:41:12
engineers the senior executive management the CEOs many of these people unfortunately are not
00:41:19
um they don't have the skill set to execute at a high level at any point in the cycle except when rates were zero
00:41:25
like many business models and now that rates are not at zero these people are turning out to be extremely
00:41:31
underdeveloped and unable to run these businesses and when he said that it really struck a
00:41:37
chord because he's right and you know he was also saying it just got even more exacerbated in this era of
00:41:44
remote work because now there is even less opportunity to mentor and to coach and to talk one-on-one
00:41:50
and people think you know that this is a boon and it's not so you know we we're
00:41:56
going to deal with also the aftermath of an entire generation of Highly underskilled companies because the
00:42:02
executive and Senior leadership and CEO ranks of many of these companies are not in a position to win if I may there was
00:42:09
an interesting moment this week when we talk about this discipline that has been lacking the last couple years a hundred
00:42:14
and one million dollar funding led by kotu uh Lightspeed Venture partners
00:42:19
at a one billion dollar valuation for stability AI uh this is a for-profit
00:42:27
company built off the backs of the open source project stable diffusion they
00:42:33
have no Revenue they have no product they've been around for you know a millisecond any thoughts on this type of funding
00:42:40
happening pre-product pre-revenue on an open source project I mean there's still there's always
00:42:48
going to be these these asymmetric bets that people think if it works it's worth 100x and they'll price it as they price
00:42:55
it I think I think what we were just talking about is a little different which is how do public markets
00:43:01
rationalize evaluation uh these businesses need to start earning for the public investors to be able to represent
00:43:07
to their investors that they're doing their job and making sure that they're holding management accountable to
00:43:12
demonstrating earnings potential but these early stage bets you can see valuations range depending on the
00:43:18
asymmetric outcome potential of the and you know what the upper and you know what the upper bound is the upper bound
00:43:23
is that when rates were zero and governments were printing money more than they could get their hands on
00:43:28
the top five tech companies represented a quarter of the S P 500 but there was a
00:43:34
pretty steep fall off and everybody else represented the next you know about 10 percent of the market cap so the point
00:43:40
is that we had bounded outcomes when rates were zero the average market cap
00:43:46
of a successful company was around three or four billion dollars so
00:43:51
I'm not going to judge this company at all and those investors are very smart investors Lightspeed and CO2 what I will
00:43:57
say is at the end of the day there's a terminal buyer of these companies and we had a period of time that we can look
00:44:02
back on to understand that when the party is absolutely rip roaring the alcohol is free you know everything
00:44:09
everything is going well yeah we know what the upper bound is which is the average company if you were able to get
00:44:16
out would be worth about three to four billion and then there was a very very steep dispersion where then there was
00:44:22
four companies that were you know a quarter of the market cap and a few in between so if you do a deal at a billion
00:44:28
the overwhelming odds is that the terminal exit multiple is going to be somewhere between a 3X and a 4X x of
00:44:34
dilution and X of all of the other Capital that comes in and all of those features that may be attached so I think
00:44:41
everybody should be allowed to make different kinds of bets and you'll see over time
00:44:46
um which kind of deal can generate which kind of return
00:44:52
this will be a really interesting data point the the common thinking was these
00:44:58
kind of deals were not going to happen in this kind of a market so when you saw this kind of deal happen or some other
00:45:04
that we've talked about privately what do you think is happening in terms of discipline
00:45:09
in the private markets I think I think I think maybe you should tee this up with Brad because I think that what I have to
00:45:15
say follows on okay with him but there's a there's a there's a macro view of the Venture industry that again it's like
00:45:21
everybody wants to never look at the past everybody wants to assume that this time is different
00:45:27
and there's some work that he did which is really instructive jcal to help answer this question I think so yeah
00:45:33
maybe you should ask him and then I'll jump in afterwards this is the TV tvpi uh study yeah so I mean Brad in relation
00:45:40
to my stable diffusion and and yeah DPI maybe you could well you know we we
00:45:45
shared this with our investors at our investor today that that you guys are at this week this is a modern industry it's
00:45:50
only been around since the mid 90s right so the history Adventure you know is uh you got to look at when
00:45:59
you look at returns it's to say by the way what an incredible chart you guys
00:46:04
put this is so good yeah let's describe the charts for people the truth hurts so
00:46:11
break down let's go ahead Jake Al do you want I mean just so if just for people who know we on Spotify and on YouTube
00:46:17
you can search for all in episode uh 101 and you could uh see this chart if
00:46:22
you're watching the video if you're listening um the video describes 1997 to 2020
00:46:27
there's an orange line across it with the DPI average uh so why don't you define DPS you know what we did is we
00:46:33
took the top quartile of data from Cambridge Associates who invest in all across the entire Venture industry is
00:46:40
widely used as kind of industry data and we just asked a simple question of the
00:46:45
top quartile top 25 of venture capital firms right what were in those vintage
00:46:52
years of the fund so funds raised in 97 98 99 fine what were the average
00:47:00
cash on cash returns right tvpi is what your mark is that's where you're
00:47:05
carrying the marks total value to paid in capital so this could be just so we're clear because it's a little
00:47:11
confusing to people you have a company on your books that on paper is worth 10 billion you had put in at a billion and
00:47:17
on paper you've got this 10x return right correct right cash distributed to your investor so
00:47:24
that's cash on the barrel head so the reason if you look on this charge and just just to build just to be very clear
00:47:30
for everybody the whole goal is to be able to convert your tvpi so what your
00:47:36
theoretical book is worth into DPI which is here's money back to my investors and
00:47:43
what you want on this chart is the blue line to catch up to the gray line so you
00:47:49
want the Gray Line to be as high as possible and eventually over time you want the blue line um to come up correct right so the blue
00:47:57
line here we're looking at 2010 just for one example you have a 4X for the tvpi
00:48:03
you 4X everybody's money but the Blue Line only got up to it looks like 3.5 x maybe or something in that right but let
00:48:09
me just point out because that's an interesting Year Jason yeah we were coming out of the 2008-2009 period everybody was
00:48:17
despondent they said I'm sure they said what you just said about stable diffusion don't invest in anything
00:48:22
everybody's stupid but they were incredible companies that were invested out of that vintage right Snowflake and
00:48:28
[Â __Â ] out of our vintage shortly thereafter so maintaining this Duality
00:48:33
that yes the world sucks but the the secular curve of innovation continues so that is a vintage where people actually
00:48:40
got things sold got them public distributed the cash back to investors the real question is this
00:48:47
on the vintages between 2011 2012 and now
00:48:54
how how much of those gray lines how much of those marks look those are historical marks marks have never been
00:49:02
this high how much of those marks will actually return turn into cash on the barrelhead
00:49:07
and how much of those will actually just be mean reversion it'll all get marked down and the returns at the top quartile
00:49:14
will look much like the returns did in the period between 2000 and 2007. my
00:49:20
hunch is that by the time the cash is actually distributed the returns are going to revert to that orange line mean
00:49:28
which means there are hundreds of billions of dollars in markdown sitting
00:49:34
in LPS and GPS portfolios that are likely to come because nobody really
00:49:40
thinks that the deal is done in 15 16 17 18 are going to be that far above the
00:49:46
mean return and so people also understand this these are vintage ears so these are funds formed in that year
00:49:52
and so this Trails a venture fund takes about 10 years they're formed without Concept in mind to become realized so if
00:49:59
you're looking at you know the year 2016 and 17 these are but five-year-old funds
00:50:04
at this point right correct yeah so they they do need time for these companies to grow how much of
00:50:11
this tremoth and Freiburg do you think is attributable to entry price because
00:50:16
entry price during 2017-18 1920 is going to be extraordinarily High entry price
00:50:21
I.E the value of the company when investors invested in 28 2008 to 2011
00:50:28
when I had a lot of my hits was pretty low I invested in Uber Thumbtack and
00:50:35
um you invested in Uber com those three were 15 million dollars combined almost
00:50:40
three evaluations did you you invested an Uber uh yeah maybe third or fourth semester I can't remember
00:50:57
let's talk about entry price because entry price does matter Brad uh or maybe Trump you want to take an entry price
00:51:02
for Freeburg well look there's this I think I think what that setup is that's
00:51:08
probably a chart that most VC organizations don't even look at because if you looked at that chart
00:51:16
um you would have to take a real investing approach to things so if you were looking at that chart as
00:51:22
a GP there are two takeaways the first takeaway is oh my gosh what is the sum of the
00:51:31
invested dollars Above This Orange Line since 2012.
00:51:36
2011. right because all of that stuff could just basically get whacked if we
00:51:42
mean revert and the answer is about five or six hundred billion dollars of paid in capital
00:51:48
so then you would say oh my gosh well if there's five or six hundred billion dollars of impairment coming down the
00:51:55
pipe maybe more maybe it's going to be 750 million because the other thing to keep in mind is
00:52:00
over time the the orange line has a tendency to go down not up right because as you add
00:52:07
more and more of these things and some slight performers you have a general Decay function in every asset class as
00:52:12
it scales in size so this this Orange Line theoretically goes down which means more of those gray bars get destroyed
00:52:19
okay so there's let's just call it 600 billion or 700 billion the most important thing you would want
00:52:25
to do is now look inside your portfolio and try to answer the question uh oh um How likely am I
00:52:32
to see that impairment and Jason this is a proxy of answering your question the important question for a venture fund
00:52:38
which then has a downstream implication to the to the entrepreneur is now what do I do knowing that all of these gray
00:52:44
bars could get destroyed Nick go to the next chart while I calculated it for you guys so I'll give you the answer
00:52:51
here's a simple thing and you know this is publicly available data now why did I
00:52:56
do this because when Brad showed me that chart my immediate mind went to how do I
00:53:02
make sure I'm not susceptible to losing a ton of money well what happens in
00:53:07
markets is that when things go down the things that are highly correlated go down the most
00:53:12
because they are the things that are the most highly trafficked which means that they're the things that have the most investors which means that in an up
00:53:19
Market they have the propensity to have the highest prices so we put we you know pulled all this
00:53:25
data from pitchbook and we just started I just took a smattering of firms here and recent index Greylock Benchmark
00:53:31
Sequoia GC Founders fund tiger Excel Kleiner coastla and us you could pick
00:53:36
anybody because this data is publicly available and I started to calculate the overlap coefficient so how how
00:53:43
correlated are you with other people's portfolios trying to estimate at the upper bound
00:53:49
and at the lower bound what will happen so Jason this is a a proxy of answering
00:53:54
your question what about entry price well if you have a very low correlation which touch would we have
00:54:02
you're less you're less exposed to bad entry price because it wouldn't have been a bidding
00:54:08
war to get into these companies exactly you picked your right spot you you went into areas that were earlier so you were
00:54:14
able to risk manage a little bit better but if you have a highly correlated portfolio now your marks become very
00:54:20
susceptible so my guess is if you take the 700 billion dollars and you calculate it for all the VCS and you
00:54:27
look at their correlations and their overlaps you can probably guesstimate where that 700 billion dollars of
00:54:33
impairment will come to and you can you can lay it out across any organization that you're interested in trying to find
00:54:40
a solution for by just stack ranking them and by looking at the at the at these correlations and this is by the
00:54:45
way to be clear nothing about the quality of the organization or the people but this is just simple portfolio mathematics and
00:54:52
how portfolios tend to play itself out in moments like this well and there's some interesting data in here as well a
00:54:58
freeberg you probably are aware of where some fund like let's say Founders fund
00:55:03
and coleslaw have a close relationship because Keith were boy was at kosa and then he moved to Founders fund so you
00:55:08
see that nice dark purple there where they have a high correlation Investments interestingly index seems to just follow
00:55:14
Benchmark and Bill gurley's Investments and plow into them that seems like the highest correlation see here's the thing if you had to steal man the defense of
00:55:21
that strategy Jason I would say in an up Market Benchmark is a 500 million dollar fund where I get no allocation if I was
00:55:28
a smart LP and I did this work I'd be immediately knocking on index's door saying can I put money in you because in
00:55:34
the back of my mind it's basically getting leverage on benchmarks portfolio yeah you figured out how to follow them
00:55:40
yeah yeah but when the cycle reverts and you know you're not the only one
00:55:46
that wants to copy benchmarks portfolio everybody does and if these correlations are too high and the overlaps are too high then you
00:55:53
start to get into a cycle where you put yourself in a position to actually suffer from the market beta much more
00:56:00
even when you can benefit from the market beta in an upcycle free break you want to analyze this chart and chamat's
00:56:07
uh thinking here his theory I don't know I mean I just think this
00:56:13
has become a pretty competitive market and a lot of the values been competed away
00:56:20
well I mean I think for a lay person please yeah the long-term value creation of Technology of new
00:56:28
technology is going to remain high the Market's going to pay for that and
00:56:34
so you know new market value creation new market cap is going to continue to
00:56:39
be built every year what's happening when venture has a low
00:56:44
multiple is that number one the good companies end up the founders
00:56:51
end up owning more of the company and they end up you know having a higher percentage ownership when the company
00:56:57
ultimately gets sold or goes public because they were able to get VCS to compete against one another
00:57:03
and as a result pay a higher valuation and as a result buy less of the company
00:57:09
and then number two is that because the VCS that couldn't get into that company still had a bunch of money to manage
00:57:14
they wouldn't put money into crappy companies so you know it's a lucrative business you guys everyone's in that business
00:57:21
because it's a lucrative business and that certainly it takes a decade to realize whether or not you're good at
00:57:28
it so you know you have this period of time as Brad shows that maybe a decade before the lp Market learns who is and
00:57:35
who isn't bad and meanwhile those folks who got competed out of the good deals
00:57:40
you know they don't look very good and the folks that are left in the good deals own less of a company and their
00:57:45
returns get diminished and you know I think ultimately this Market is I'm probably going to end up being a
00:57:51
multi-decade cycle of capital in and capital out we're probably at Peak Capital being managed in Venture funds
00:57:56
right now and it'll likely decline for the next decade Brad Howard yeah Brad how would LPS look at chamat's analysis
00:58:04
there and how do they look at the Clubby nature and overlap you know writ large in our industry and then whatever other
00:58:10
insights you have yeah no I I mean I think uh very much disagree with with David that all the returns are getting
00:58:17
competed away the the huge difference between the Venture market and the private Equity Market or the public
00:58:23
market is it the Venture Market is unquestionably a power law Market okay
00:58:29
90 of the gross profits and the returns go to 10 of the deals and 10 of the
00:58:34
investors right so we just showed the average of the top quartile but if we show Benchmark one or two or Benchmark
00:58:41
six or seven it's ridiculous right the cash on cash returns over 20 years on
00:58:48
those funds let's just go ahead and explain that to folks most Venture firms here are getting 2x
00:58:54
on average that's the average and is that average for the top quartile or all VC firms it's the top quartile of VC
00:59:01
firms their average is 2x yeah this is at the upper 20 to 25 percent would
00:59:06
include the 75 bottom what would the trash Brad let me ask you a question What If instead of looking at the top
00:59:12
quartile you just looked at the top 10 Venture firms yeah because the number of venture firms has exploded over the last
00:59:19
decade and a half let's see and so I think the point that you're not getting is the top 10 changes every vintage and
00:59:26
and the problem is if you are aping the wrong portfolio in that vintage you'll get run over right and so the real goal
00:59:33
of this and I I also tend to disagree freebrook with what you say I don't think the returns are getting competed
00:59:39
away I actually think it's more Alpha than ever correct and you got to be a good picker and if you're a momentum
00:59:46
investor you just need to be aware on the way in that you are going to put your portfolio under tremendous pressure
00:59:53
in drawdowns I think the other thing the other thing it does this idea of the industrialization of
01:00:00
venture the softbanks the Tigers like like it's a myth you can't industrialize that you can indust you can build an
01:00:07
index fund to the public market because you can buy every company you might even be able to build an index like Fund in
01:00:13
private Equity because everybody can go bid for every company but Venture the founder chooses you
01:00:19
that early GP chooses you and so if you try to build an index fund that misses
01:00:27
the best deals and I think there's adverse selection the bigger you get the less likely you're to convert the best
01:00:33
deals now you're really in trouble Brad do you think an index of first time
01:00:39
VCS outperforms kind of that you know top quartile index
01:00:45
so you know there's some LPS that select in to just solo GP first time fund
01:00:50
manager first time fund or you know maybe second time but solo GP but it's kind of like you know first into the
01:00:56
market before you really scale up that's where so many of the returns are found it's a lot of funds like MIT
01:01:02
they look for emerging managers because you tend to be younger hungrier you have
01:01:07
experience you've got a lot on the line but certainly if you look at the hundreds of startups in VC land over the
01:01:15
course of of the last several years uh 99 of them are probably garbage and will
01:01:21
fail and and won't work so the All-Stars will be All-Stars and and the rest won't
01:01:26
somebody asked me I use this analog they said hundreds of new people have come into Venture and I said yeah it's like
01:01:32
it's kind of like a marathon you're right we had 500 Runners and now we have a thousand runners
01:01:38
but from my vantage it's the same five to ten Runners competing for the podium
01:01:43
week in and week out in that top ten in that power law it doesn't change a lot
01:01:49
yes there have been people break in we know how hard it is
01:01:54
to break in to Silicon Valley nobody invited altimeter to the dance nobody
01:01:59
invited Social Capital to the dance nobody invited Jason and Candace to the dance it was the opposite they locked my
01:02:06
doors because it's a highly lucrative business
01:02:12
dominated by some incumbents that had huge Brands they didn't want to share the fruits of that we showed up we
01:02:19
worked hard we build incredible teams we had conviction right and we were we also
01:02:25
had good fortune right yes we were smart we were we placed some good bets but you
01:02:30
also have to get lucky in this business we were lucky to be born at this point in time lucky to start when we did in
01:02:36
Silicon Valley I'm going to finish just with this one point this whole experiment of venture capital is less
01:02:41
than 30 years old the Modern Age of venture capital is 30 less than 30 years old we're going through this period
01:02:47
where everybody wants to [Â __Â ] all over the industry you know tvpi is going to come down all this other stuff I think
01:02:53
that Venture my dad when he went to start a business had to borrow money mortgage the house think about the
01:02:58
friction for somebody with a young family if the cost of failure was losing your
01:03:04
house putting your family In Harm's Way versus some young startup in Silicon
01:03:09
Valley today where the consequence of failure particularly if you if you conduct yourself with Integrity is that
01:03:15
you learn a lot right there's no losing a house there's no cataclysmic outcome for your family
01:03:23
so to me when you look at the economic unlock that we have in this country by
01:03:28
reducing friction to invention by reducing friction to experimentation I
01:03:34
am incredibly bullish on the future of venture I think Founders are the engine
01:03:39
that drives the world forward right that's where we get electric cars that's where we get rockets that land
01:03:45
themselves that's where we get mRNA vaccines and so there will be cyclicality there will be
01:03:53
industrialization there will be big funds in small funds but the reality is that this ecosystem is a massive
01:04:00
competitive Advantage for this country I think when we look forward at the information age over the next 30 Years
01:04:05
the power of this ecosystem is more strategic advantage to this country even
01:04:10
than natural resources I'll say I'll say something orthogonal to this which is in order for that to happen
01:04:17
just to build on the point Brad of of your guests that you think we have an entire generation of uh financially
01:04:26
enumerate General Partners at Venture firms and Venture needs to be a pillar
01:04:31
of growth in society and I think people need to have more
01:04:36
financial tools and underpinnings to do their job why because over these next 10 years when maybe you have 500 to three
01:04:43
quarters of a trillion dollars of value destruction and it's because you didn't think about portfolio construction properly that
01:04:51
entrepreneur that needs your money you will have to say no to them or renege on a deal or let them down
01:04:57
and the reason is that you didn't think about that on the way in and so these
01:05:03
are practical skills that every other part of the financial asset
01:05:08
infrastructure has to learn we are taught the hard way you know we are taught in the public markets how to
01:05:14
think about dispersion correlation Alpha Beta you're taught in private Equity how to do it you're taught in every other
01:05:21
asset class and we romanticize venture to think that none of that matters but
01:05:26
in a moment like this you will see how much or how much it doesn't matter and if you're going to live up to the to the
01:05:33
actual commitment you make to an entrepreneur you better get financially smarter is what I would say all right let's uh move on do you want
01:05:41
to go to uh stock picking or Lyft versus Newsom on this prop 30. I want to hear that Friedberg dive tribal stockpicking
01:05:47
you do okay I want to hear it on here well anyway there's a bunch of people talking about uh index funds versus
01:05:55
um buying individual shares and being a stock picker Elon and Kathy Wood uh got into this on Twitter and we all know the
01:06:03
arguments for passive versus active and there's large active funds out there uh
01:06:09
that are just programmatically buying and Elon and many think that active
01:06:15
would be better for society or a bit more active free bird what's your take a business is a over time
01:06:22
it's supposed to be a machine that takes money in and puts money out and then there's money
01:06:29
left in the machine it's like a box money comes in money goes out and over time the objective the money coming in
01:06:34
which is sales or Revenue exceeds the money going out and the Box Grows Right the assets grow
01:06:40
and the best way to look at that is in the financial statements of that business you know the income statement
01:06:46
the balance sheet the cash flow statement but we and then there's this narrative that can
01:06:53
be layered on top of those metrics that measurement of how well that business is performing over time and that narrative
01:07:00
is what drives a lot of investment decisions uh today right I see whether it's an analyst writing an analyst
01:07:06
report or a portfolio manager or an individual picking a stock everyone's got a reason why they're buying the
01:07:12
stock and they say here's my thesis and what happens is everyone looks at
01:07:17
that box looks at that business looks at that thesis from a different angle and there's always something you're
01:07:23
missing so there you know there's some element that is
01:07:29
driven by imperfect information and in some cases it's just heavy bias you know you look at a stock you're like hey I
01:07:35
really like Disney plus I really like the subscriber growth but the question fundamentally is over time what is the
01:07:43
revenue generation and the profit generation potential of that one thing you're looking at and what are the
01:07:48
hundred other things that are going to contribute to that business that box taking in more money or spending more
01:07:54
money is that box going to run into a regulatory problem is it going to run into a customer problem is it going to
01:08:00
run into a Content problem is it going to run into competition the number of issues and opportunities
01:08:06
that any one of these businesses can and will face is infinite and every participant in a market is looking at
01:08:12
some different set of those opportunities or threats and every participant in that market is making a
01:08:17
difference value judgment and so very often people will buy a stock because they see their sliver they
01:08:24
convince themselves that based on the sliver of the perspective that they have that this is something I want to own
01:08:29
they don't do the work on what's the income statement balance sheet cash flow gonna tell me over time about the
01:08:36
quality of that business and they don't do the work on what the valuation of the business is relative to comparables
01:08:42
relative to Future earning potential and I just wanted to have this diatribe because I see so many individuals doing
01:08:50
stock picking and over time because of this Myriad of things that could go wrong and will go wrong or may go right
01:08:57
or won't go right or the regulatory thing or the market thing or whatever interest rate thing hits that stock and
01:09:03
the stock price goes down eventually everyone gets hit on the head and everyone reverts to mean or below mean
01:09:09
meaning the average of the index over time or underperforms that index over time
01:09:14
and so I mean for me I spent two years I I know we all went through some sort of investment banking training I spent two
01:09:21
years out of college without a I had no Finance econ or business background I worked in Investment Banking learned how
01:09:29
to read an income statement balance sheet cash flow learn to understand how business performance ultimately
01:09:34
translates into Financial outcomes and spent a lot of time on valuation and figuring out just because you like the
01:09:40
story of a stock you like the story that the CEO is telling you it doesn't necessarily mean that you're paying a fair price so if you if everything they
01:09:47
do goes right this price can still drop and I think that this is a really important set of lessons for people that
01:09:54
are individuals that are doing stock picking which is to number one message and this diatribe is specifically
01:10:00
targeted towards day Traders retail correct I don't know if it's just them I think it's just generally like make sure
01:10:06
you understand how to read and
01:10:13
ink buying a stock you know what the total value of the company is based on the price you're paying and how do you
01:10:19
justify that that total value makes sense relative to your model of the future outcomes for that business
01:10:24
and then number three recognize and be cognizant of the fact that whatever one thing you're seeing that you think
01:10:30
you've got some Edge or some advantage on because no one else is seeing it there's 99 other things that you're not seeing and this is where everyone learns
01:10:37
this lesson over time and everyone gets bonked on the head at some point and making these decisions and it's why every stock picker or nearly every we
01:10:44
can talk about the greats at some point here and where Alpha can be generated and so on but generally most stock
01:10:51
Pickers over time underperform the index um and it's just particularly with the
01:10:57
retail movement of the last couple of years I I see a lot of thesis here's my reason for buying this talk that
01:11:03
excludes understanding the financials understanding the valuation metrics and also excludes the whole Litany of things
01:11:10
and all the diligence that goes into thinking about all the other angles you might be missing a bottle
01:11:16
it turns out that it's hard to be good at anything insert
01:11:22
the blank takes tens of thousands of years of practice in investing I think what I have learned
01:11:29
is that it's very easy to get caught up in the Mania
01:11:36
I have also learned in the last decade that you know we really benefited from zero interest rates it was a tie that
01:11:43
lifted all boats and I have learned how to think about correlation and the
01:11:52
difference between Alpha and beta and how to construct portfolios that I think can be all weather portfolios to
01:11:59
friedberg's point those are nuanced long tail skills that you'll only take up if you're really
01:12:04
passionate about the craft it's not dissimilar to a person I'm just going to use golf as an example who learns how to
01:12:11
hit a fade versus a draw and who learns how to really manipulate you know their wedges in very specific ways and these
01:12:18
are all long tail skills that come in when you decide you want to master something
01:12:23
and it's just important to note that that Mastery is required to be really good
01:12:29
because otherwise there'll be times where you'll go out on the golf course and you'll crush it but then you know there'll be other
01:12:35
times and most other times where you can go and get run over because it's hard so that's my only comment is that this is
01:12:40
like everything else it's not nearly as easy as it looks like Brad you pick stocks for a living should retell
01:12:47
how involved should retail investors basically they just buy an index I don't think it's fair to say retail what I
01:12:52
think my point was really about no his point is everybody okay sure everybody my point is saying a thesis and
01:12:59
excluding all these other factors that are critical in making a decision about what you're buying and whether you're paying the right price
01:13:05
means that you have to make sure that you're expanding your point of view on whether or not a stock is worth buying
01:13:11
at the market price today and I think having that broader perspective is what I see missing in 99
01:13:17
of the chatter on Twitter 99 of you know folks talking about what thing to buy maybe they're buying it and I think it's
01:13:23
critically important you're saying that most investing that you see is very narrative driven
01:13:30
and that narrative can sometimes be so powerful that it overpowers all the
01:13:35
other elements that one should be doing to get a full picture of why you should be buying something is that I think
01:13:41
that's a fair summary tomorrow yeah yeah and I think it's um you know it's and it's it's it's just
01:13:47
about how so much of what goes on on CNBC
01:13:52
on uh a lot of Reddit boards not all of them there's very sophisticated folks there doing very sophisticated financial
01:13:57
analysis and looking at all the angles of a stock setting the valuation but so much of these conversations exclude what
01:14:05
you're paying and what you're getting and exclude the broader context of all the things that could and may not happen
01:14:11
with a particular business and as a result at some point one of those things blocks you on the head you lose 50 and
01:14:17
you're like oh my gosh and sometimes and sometimes if you try to inject that logic into those channels you'll get
01:14:24
brigadooned bring it it'll be absolutely brigadooned Brad what do you what do you
01:14:29
think uh in terms of people's access to markets I guess would be another way to look at this and people's
01:14:34
propensity to just you know gamble let's call it or maybe not make thoughtful decisions I kind of think if our friend
01:14:41
Bill Gurley was here he'd be like this is a five-minute conversation about the statement of the [Â __Â ] obvious
01:14:49
um you know this is stock picking's hard really is that the theme of this section
01:14:55
yeah stock cooking's hard very little Alpha has ever been generated in a
01:15:01
sustainable way even by the greatest people of all time I think you know maybe something that is
01:15:06
a little bit useful to add two things not all good companies are good Investments
01:15:12
price of Entry matters okay so I hear a lot of people saying well I'm gonna buy that because it's a
01:15:18
good company that I don't even know what that means exactly right good good relative to the price of Entry
01:15:25
but the second thing is the single greatest power we have as investors the
01:15:31
Green Greatest single source of alpha right other than stock selection so
01:15:37
choosing the right company time Arbitrage okay so do you have the ability to own
01:15:44
something that is a growing asset over a long period of time so that if you got number one wrong you bought it at the
01:15:50
wrong time [Â __Â ] happened in the world they miss a quarter Etc that you're not forced to lock in those losses because
01:15:56
you over allocated to that so this idea around portfolio management is a principle component of overall stock
01:16:02
picking is it's just absolutely critical so I think it you know I don't really I
01:16:10
love the fact what I put myself through college I put myself through law school through business school day trading
01:16:17
stocks out of the back of the classroom I'm grateful I live in a country that let me feel like I had some Alpha and
01:16:24
that I could do that and I could go read the newspaper and sort it out and I wasn't building sophisticated Financial models
01:16:30
so like you know I think there are ways that folks can do this there are a lot
01:16:35
more ways to lose money than there are to make money in a sustainable and durable way right and so
01:16:42
as investor what we try to do you know we've got 90 percent of our portfolio
01:16:47
and our top five or ten companies okay I'm not an index and the deal I
01:16:54
have with rlps is I'm very transparent with them they know that we're going to
01:16:59
own companies in size and it's that portfolio concentration and our time
01:17:04
Arbitrage holding companies for three years or longer that is a strategy they
01:17:10
choose to believe in and sign up to but I know a lot of greats who would
01:17:15
never subscribe to that strategy so know your strategy execute it allocate a reasonable amount
01:17:22
of capital so when all of these unknowns that day Friedberg talks about come along you can react accordingly and you
01:17:30
know the final thing is if it's not fun for you right like if you're actually not
01:17:35
passionate and curious about like studying this stuff and learning about it not everybody is then don't do it
01:17:41
right then don't do it then just put your money in it you're not going to be good at it the analytical depth and rigor that the
01:17:49
greats employ to be successful at picking stocks at picking businesses and investing in them
01:17:56
and selling them at the right time over time it does not make for good Tick Tock
01:18:01
content it does not make for Good short form content and I think that's why we've seen this dumbing down and this
01:18:08
kind of short form thesis-driven Narrative Approach to content creation around markets and stocks that ends up
01:18:15
causing a lot of people a lot of harm uh you know you watch the Jim cramers of the world I don't mean to disparage any
01:18:21
one individual but that sort of content that's like this is a great company we should buy it like let's go and uh the
01:18:28
the depth and rigor takes a lot of time and a lot of effort to really do right and then you get hit in the head you
01:18:35
know when we um and that's that's what I've observed lately and in a really kind of flurry way particularly across
01:18:41
social media and so on that's uh that's why I just wanted to talk about this topic today just to build on top of what you're saying Warren Buffett made this
01:18:47
very famous bet in 2000 it was him versus a bunch of hedge fund managers and they were able to pick a basket of
01:18:53
hedge funds and he said I'm not even going to pick myself I'm going to pick the s p 500. and the low-cost ETF the
01:18:59
Vanguard ETF and he said we'll check in like 20 years later anyways you know the punchline of the story Buffett won he
01:19:05
won like a million bucks that he donated to charity and these hedge fund folks lost and so to build on your point Jason time
01:19:12
and time again the smartest investors in the world I.E guys like him have shown us
01:19:18
that the most predictable way to make money if that is your goal is to own the S P 500 which is you know a dynamic
01:19:24
index of the 500 best companies in the world so there are these people doing all the hard work for you and they have
01:19:30
very strict criteria of who's in S P 500 company or not now yes if you cherry pick other companies that are not or you
01:19:36
concentrate in some will you generate better returns absolutely but systematically over time that thing has
01:19:42
lurched forward at eight percent a year you know nine percent a year if you invest dividends you can approach 10 a
01:19:48
year um and so if if you really want to just grow your wealth that's a very simple
01:19:54
Steady Eddy way to do it and to take a small amount and then go and you know experiment with it to learn make sense
01:20:01
but I think it's important to make sure you're going Their Eyes Wide Open to try to actually learn Buffett of course says
01:20:06
the index works really well but then he's got 50 percent of his public portfolio in apple over the last few years so he clearly believes in Alpha as
01:20:14
well but you know back to friedberg's point since we brought up Buffett you know somebody asked Monger why can't why
01:20:20
can't people just copy what Buffett does and he said because nobody likes to get
01:20:25
rich slow nobody likes to get rich though if you wanna what did a zero percent rate
01:20:32
environment remind us all over the course the last few years everybody had a grift everybody had a get rich quick
01:20:39
scheme I don't care whether it was crypto flipping or whether it was house
01:20:44
flipping or whatever it was everybody thought you know this was easy and frankly looked at guys like us
01:20:50
oftentimes and said you're the dumb ones you're playing the game that's really hard why don't you just you know uh flip
01:20:57
some crypto and I think we're back to a world that if you really want to you
01:21:02
know by the way yourself how dumb did you feel I felt so stupid all these
01:21:07
tokens minting minting billionaire billionaire billionaire billionaire billionaire billionaire and I just I
01:21:13
just sat on the sideline to your place it just made you it made me feel so stupid I felt super nice just like I I
01:21:20
what who's the customer and how much do you charge them and when you can't get that basic answer of who the customer is
01:21:25
and how much it costs for them to buy the product or service the Brad's point I think the punch line is and then you
01:21:31
know at the 11th hour it's like there's a tendency to just capitulate and say okay forget it I'm in and that's when
01:21:37
all the money gets torched real quick there's a proposition here in California where we vote on specific uh ballot
01:21:42
measures not every state has this but we have prop 30 coming out this is a 1.75 tax on income earned incomes earned over
01:21:49
2 million for the next 20 years in California which by the way had 100 billion dollar Surplus that would go
01:21:56
towards clean energy this was proposed originally by environmental groups but uh Newsome has come out to battle
01:22:03
against this which would seem counter-intuitive because he's so Pro environment what this would do is spend
01:22:10
about 80 percent of this hundred billion in new tax revenue over the next 20 years 80 would go towards charging
01:22:16
stations for EVS and motivating customers to buy EVS 20 would go toward
01:22:21
to combat the uh crazy amount of wildfires we're having here he uh gavinusum that is called this um a
01:22:30
cynical scheme devised by a single Corporation Lyft to funnel state income tax revenue to their company Lyft has
01:22:37
provided almost all of the 40 almost 48 million in funding for this prop 30 and
01:22:43
the reason is because California is going to require 90 of ride sharing
01:22:48
miles to be traveled by zero emission vehicles in 2030. you know on top of that that California is going to not let
01:22:54
you sell anything other than EVS in 2035 if this continues now you've got a bunch of people on the other side of this
01:23:00
doing anti-prop 30 including the California Teachers Association because they want the money
01:23:06
read Hastings over at Netflix Moritz over at Sequoia Sam Altman over at open AI
01:23:12
what do you think of this um Freeburg I'm curious sorry what side are they on
01:23:18
Jacob no they're they're saying don't do this
01:23:23
because they are trying to control taxes and they're on Newsome side Newsome side hey this is a grift by Lyft because Lyft
01:23:31
is concerned that they're gonna have to you know bear the brunt of 90 of miles so I guess
01:23:38
the I don't know if it's original sin but the the one of the levers here is
01:23:44
Lyft is got the majority of their rides are in California Uber has stayed out of this because they don't have as much
01:23:50
exposure because the number of rides in California is a smaller percentage of their overall Revenue Brad you have some
01:23:56
thoughts too here I think so Freeburg or Brad I'm just looking at the board of directors and Lyft and thinking to
01:24:01
myself good God what are these people thinking spending 40 to 50 million dollars on
01:24:07
this it just seems that they've totally lost the script the company has way bigger problems way bigger problems to
01:24:15
focus on right than you know this measure have a little faith in the
01:24:21
system that if we don't get to a place where this is reasonably practical over the next 10 years then I'm sure we will
01:24:28
evolve right uh the legislation around this you know kudos to DAR and the team
01:24:34
at Uber for not Running Scared on this right for not trying to push this through these corporate governance
01:24:40
initiatives guised as referendums in this state I mean this is just bad politics bad policy I mean we got
01:24:46
Valerie Jarrett on the board of this company you've got political sophistication on the board of this company I want to be you know I wish I
01:24:52
was a fly on the wall I want to know the conversation that went down and who raised their hand and said this is the highest and best use of 40 million
01:24:59
dollars of our money crazy yeah right makes no sense Freiburg you have thoughts on if I mean you've talked
01:25:05
before about how you think the free market should solve this what is the what is the governance structure of lift guys
01:25:10
I knew that was coming I knew it was coming did they have security shares here
01:25:15
anybody look I don't know the answer to that so I think that the tax rate in California
01:25:21
is high enough now that we all have friends friends in our poker group who have left for the State of Texas or the
01:25:26
State of Florida where there are lower tax rates and where they feel like they're getting more value uh for their
01:25:32
tax dollars there's certainly a calculus going on with Newsom I believe in you know the
01:25:38
impact that having higher tax rates would have on what is clearly not just a theoretical but an actual evidenced
01:25:45
um you know Exodus from the state of wealthy and high-income earners this could be like you know at some point
01:25:51
there's a Tipping Point that looks a lot like France where you raise the rates high enough enough wealthy people leave and the net tax dollars actually go down
01:25:58
like what happened in France when they introduced their wealth tax then they reversed it and everyone came back
01:26:05
I will say I don't more important long-term point I don't see a world
01:26:10
where we don't have over 60 tax rates on the wealthiest people in this country at a federal level if you look at um if you
01:26:17
assume a five percent long range call it 15 20 year
01:26:22
uh Horizon for uh for interest rates even four percent on 30 trillion dollars of outstanding
01:26:29
debt and you assume that the voter base will never vote to reduce Social Security or
01:26:35
Medicare uh entitlement programs and obviously the defense budget won't get cut we are not going to see a situation
01:26:42
in this country on a federal basis where we can actually meet all of our fiscal obligations without incremental tax
01:26:49
revenue and I think it is much more likely that you know look whatever happens with the state initiative happens but I think it's very likely
01:26:55
that over time the only way for the United States to uh to bridge its fiscal
01:27:00
Gap is going to be to raise income to increase the tax rates I don't see another solution because I don't think
01:27:05
that the federal government or in our kind of democratically elected Congress we're going to see a system that's going
01:27:11
to say hey let's go for austerity measures let's reduce entitlement programs both sides will say that it's
01:27:17
just not going to happen so tax rates higher tax rates I think are coming well you know maybe California will skip over
01:27:23
this particular generation but I don't see how the United States continues to thrive over the next 15 to 20 years
01:27:30
without tax iterate that will today seem exorbitant well in the last 20 years we blew through a debt to GDP that was I
01:27:37
think 57 percent and it basically doubled and so David to your point when we
01:27:43
wanted to feel prosperous what we did was we financed it we went out and we you know put out a ton of debt in order
01:27:50
to make sure that our entitlement spending or our defense spending or whatever the things were that we need it
01:27:56
as a population to feel like we were growing and moving forward as a society we had so that is the Practical nature
01:28:02
of what happens and look a lot of people think that there is some upper bound to debt to GDP and I'm
01:28:10
actually of the opposite view which is I think that you know the quote unquote invisible hand justifies us moving debt
01:28:16
to GDP to higher and higher rates so the first time the United States went past 100 percent
01:28:22
we thought it was the end of the world it turned out it wasn't we'll eventually go past 200 somebody will clamor and you
01:28:29
know be anxiety riddled but they'll take some ssris they'll be okay we'll keep moving forward then we'll get to 300
01:28:35
percent we'll keep moving forward so we are in a debt spiral that is a feature
01:28:40
not a bug of how Democratic societies work as a companion to that
01:28:46
I do agree with you that taxation kind of is a pendulum it it Ebbs and flows and you know we're in the part where
01:28:52
it's going to go higher before it goes lower but I want to tell you a story which is
01:28:57
that in the beginning of this summer or sorry this fall I was in the Middle East and then I was
01:29:03
in Asia and they have very different taxation schemes right and many of them have
01:29:08
zero corporate gains tax and you know sometimes zero income tax
01:29:14
but then the opportunities for them to be able to invest and drive returns is also commensurately lower meaning
01:29:20
there's not as much Alpha in most of the opportunities that they see whereas if you go to California you have to pay 60
01:29:26
tax but then you know you could be an angel investor in Uber you know and all of a sudden take 25 000 and turn it into
01:29:33
a hundred million which is UN ungodly it's incredible so I think that in my opinion actually
01:29:41
like there's actually this beautiful symmetry where even if taxes are high your earnings potential is
01:29:46
commensurately higher such that the net that you're left with is the same as if
01:29:51
you were in another place where taxes may be zero but you're just not going to get exposed to the same ways to make money
01:29:57
and I think obviously there's Corner cases where that's not true but I don't think sweating taxes is a really
01:30:04
important waste it's important way to spend somebody's time I just think it doesn't matter Brad funnel word I would
01:30:11
just say the beautiful thing about Federalism is we get to a B test in real
01:30:16
time uh different points of view and so we're seeing it the biggest a B test
01:30:22
maybe in the history of federalism between the state of California the state of Texas and the State of Florida
01:30:28
and it's not just tax rates right when when Elon leaves to go to Texas we have
01:30:34
the head of the California General Assembly right changing her Twitter profile to say Good Riddance and
01:30:40
flipping the flipping the bird to Elon right there is a hostility toward
01:30:46
business that has emerged in California that I think is commensurate and related to the tax rate but also separate at the
01:30:54
same time we have the mayor of Miami texting us asking us to come down for a visit we
01:30:59
have friends uh in Texas who are literally politicians who are marketing their state to people in in California
01:31:05
and we're going to be able to political scientists will look back in five or ten years and they'll be able to answer
01:31:10
those questions for you but I suspect that that makes us a much stronger place for experimentation than countries like
01:31:17
France where it's all or none and just to give people an idea to Jamal support about point about debt
01:31:24
to GDP here's the chart early part of our lifetimes 50 percent
01:31:30
1990s 60 70 percent uh after the Great Recession the pandemic 120 Japan's at
01:31:38
200 I think so there's obviously it doesn't it doesn't mean anything I know that your payments at some point yeah I
01:31:45
really don't think so because I think what will happen is you'll just move the yield you know the yield to maturity will move out and you know we'll issue
01:31:52
again you know this is the funny thing we talked about this last night at poker like you know Trump's ideas some of them
01:31:58
were actually very brilliant they were just packaged through this lens of being a total goofball so you could take it
01:32:04
seriously but 100 Year bonds when rates were zero now looks like oh my God what
01:32:10
a brilliant move well I mean if you could take a 50-year worldview about climate about nuclear energy about semis
01:32:16
we didn't get to semiconductors again this week we got so much good stuff but you know we do need to take very long
01:32:21
multi-deca looks at investment and why not make a 25 or 50 year bond for
01:32:26
semiconductors can I actually just do a small PSA sure quickly public service announcement from
01:32:33
Tremont the more you know go I went to Blue Bottle Coffee today and I asked for a latte and uh they gave me a latte with
01:32:40
oat milk that's their default which is disgusting and I find out I find out
01:32:45
that is now their default and brutal and I said there's a lot of normal people
01:32:50
that don't want to ingest that chemical spew into their body and so this is just a shout out like
01:32:57
just a comment to Blue Bottle like can you please realize that a lot of us are normal we want to come to your store and
01:33:03
then you know not have to ask for the long tail alternative can you just serve the things first you're signaling
01:33:09
coffee shop yeah most of the people still drink milk okay
01:33:15
um I'm not trying to Brigadoon you blue bottle but I'm not going to go to you anymore as a customer because I find
01:33:21
this stuff really dumb like can you just have milk so that I can ask for the oat milk if I want to versus giving me
01:33:27
chemical stuff that I don't want I don't want that yeah that's and and complaining about
01:33:33
oat milk is that what's going on no it's this is this is where we are moment it's just like I just want milk I want a
01:33:40
latte I mean I want to go and support you guys I want to maybe you know maybe the cow doesn't want to make that milk for you after its baby was ripped away
01:33:47
from it oh boy here we go you know here we go it's day we and we we survived 90 minutes and here it comes is the point
01:33:54
you know did the cow agree to be in service to you to make your milk you think I need to have a verbal contract
01:33:59
with cows I mean well yeah I mean are we going to do the olive fed beef next week or not
01:34:05
the best translator of the cow human protocol who who is it you is it one of
01:34:11
your friends like what I don't know actually I am working on a neural link I'm not sure I'm not sure that the default assumption that the cow should
01:34:18
be there to do whatever you want it to do is a fair assumption I think that'll change over time but it'll take some time
01:34:24
I I think that that's completely fair and reasonable but what I'm saying is right now while there's an entire you
01:34:30
can't believe you said that economy is made my will well there's an entire entire economy of people that shouldn't
01:34:36
get rolled over because you want to impute the emotions of cows I'm allowing you your freedom to want to impute those
01:34:42
emotions of cows while I would like to support the dairy industry and buy milk so can I please do that no I want to
01:34:48
impute the freedom and rights of the cows but that's going to take some time but sure go ahead have your milk for now and you're allowed but I right now will
01:34:55
take the side of the Dairy Farmer I just want milk did anybody get your chicarin
01:35:01
outrage your trim off Karen outrage shut your Karen on tape is this trending on
01:35:06
Tick Tock yet when you admonished the
01:35:11
barista's fault I just think it's I didn't make a scene or anything I just got it I taste it because I just said
01:35:18
can I please have a latte assuming that it would come with milk like most normal places yes and now I have to actually
01:35:24
ask for milk because they think that this chemical composite stuff that's called oatmeal have you looked at the
01:35:30
ingredients we had this conversation yes we didn't even get to MailChimp CEO Ben
01:35:36
Chestnut who is you know like one of the kind great CEOs of Our Generation getting
01:35:41
yeah his memo is his last name really Chestnut I believe it is yeah his sister
01:35:47
is a great guy I've met him so many times incredible human and he's been ousted should we do outros because you
01:35:53
didn't do intro did you happen all right so here's the outro yeah four uh for the Sultan of science the queen of quinoa
01:36:00
himself climbing the Stray Cat leaderboard as we speak
01:36:05
David Friedberg follow him on his Twitter handle where you can get all kinds of hot takes from science
01:36:11
to Ukraine at Friedberg is talking about I never tweet I know that's the joke
01:36:16
okay so with with us again the anchor he'll be doing a Twitch streaming where
01:36:22
he translates the emotions I'm actually doing my cooking show which has a base of oat
01:36:29
milk it's my oat milk top 10 beverages tonight on Twitch just follow stray
01:36:34
Friedberg get it I don't want to get brigadooned by the oat milk Lovers by the way they're coming they have milk
01:36:39
stands are coming for you man you listen I don't want that chemical stuff in my body but I'm not going to stop you from
01:36:45
doing it I'll do a diatribe on chemicals in oat milk next week what should we drink if you did have a choice Freeburg
01:36:51
if you didn't want to drink the chemicals in a Oatley what would you drink what would you advise what do you drink I don't know I'm gonna drink soy
01:36:57
milk oat milk whatever okay all right but you okay but you're okay and uh um
01:37:02
bringing tasted milk I drink the beautiful glass jar no I'm
01:37:09
asking free burgers three dollar returns for each glass
01:37:14
bottle I returned them and get them from goodies have you tried have you tried look I'll tell you what
01:37:19
is going to happen in the next he's never had milk in the next 10 to 15 years most of the milk you buy at the store
01:37:26
will be identical to cow's milk same protein
01:37:31
composition it will be built in a slurry I mean you can make fun of it but you do
01:37:37
work in the tech industry but yeah I mean Precision fermentation is the future of making animal proteins
01:37:47
I'm telling you there is an economic model that will work that's great you know but I'm saying by the way between
01:37:54
now and then can I just do things number one is there's a taste in a flavor profile I've grown up with that I would
01:37:59
like and I don't think I'm a bad person so I'd just like to have that okay not be made to feel guilty about it okay and
01:38:06
and and number two I don't want to put chemicals in my body okay so if I can find a natural thing that I like can I
01:38:12
please just drink that can I just please blue bottle have that in my and coffee without having to explicitly ask for it
01:38:18
yes you you will get that and number two they're short it's still owned by Nestle and they're the largest Gary but has
01:38:25
still has a short on Oatley so let's just keep this going for just two more weeks okay let me ask you an ethical
01:38:30
moral questions no I'm joking he does not have a short I don't even know if oatley's public I'd rather you ask me an ethical moral question than a political
01:38:36
one so I'm going to yeah I mean we got a break from Ukraine this week would you have a if the synthetic version of milk
01:38:44
or steak was made like and is a protein
01:38:49
that is exactly the same to a cow would you have a problem morally with eating and or drinking it no so the objective
01:38:56
of what's called Precision fermentation or some people call it biomanufacturing you take the DNA from the cow or from
01:39:03
the chicken you put it in a yeast cell or a bacterial cell and you put in a fermenter tank you put sugar water in
01:39:09
the tank and the yeast Cellar bacterial cell eats that sugar water and it spits out that protein
01:39:15
you've programmed that organism to make that protein and instead of growing a whole cow or growing a whole freaking
01:39:21
chicken you're growing the protein no because no animal died in the making
01:39:26
of the process you know you're not taking can I quote Dave Chappelle here go ahead yuck
01:39:32
all right it's identical to the protein you're eating otherwise tastes the same
01:39:38
it's the exact same compound oh like there's nothing about it that's different and thanks to the dictator thanks to the southern science and for
01:39:44
the fifth bestie coming in and and doing a great job today on behalf of
01:39:50
our friend this [Â __Â ] David sacks who is busy in a secret clandestine peace uh
01:39:56
making junket to Ukraine I am the world's greatest moderator Jason Kyle
01:40:01
Kennis we'll see you next time on all in love you boys we'll let your winners
01:40:09
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and they've just gone crazy [Music]
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besties [Music]
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release [Music]
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