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kotou is one of the most successful
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hedge funds of the last two
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decades the largest startup Fund in the
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world right
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now they are very
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discreet started with $50 million and
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now you're managing roughly 50 billion
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from C to Thomas
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leant what separates the truly
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exceptional companies is to realize that
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actually sales and product are different
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sides of the same coin there was a
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Confluence of trends that made us feel
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like we needed to be president the
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valley the reason we decided to kind of
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get into this business is to find great
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entrepreneurs and find great
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[Music]
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companies all right thank you everybody
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um so my name is Thomas I work at CO2
00:00:50
I've been a day one listener of the
00:00:51
all-in podcast so when they called me
00:00:54
and they said would you be willing to
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present I said you know absolutely tell
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me
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when then they told me well you're going
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to have the graveyard shift the absolute
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last slot I said I can handle it no
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problem then they said by the way we are
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going to put Mark Benny off the goat of
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enterprise software right before
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you the return of TK and some guy who
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figured out how to fix
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aging I still got
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it and the reason is because what I know
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is that to me the besties are a
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band and they have what all great bands
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have which is number one is they have
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talent but number two they have
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chemistry and you can't teach either but
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you need both to be great and they're
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great but also like all bands we know
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they like to have new albums and
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experiment with new producers in a new
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sound so I think we've heard a lot about
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the new sound it could be geopolitics or
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free speech and look I know those are
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important
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issues but being a day one listener I
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love the old album the first tracks we
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ever
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heard to me those are the ones that Will
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Go On The Greatest Hit album and so I
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knew that if I came I would bring you
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back to the old days and to me
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um I love the new stuff too don't get me
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wrong but it's fun to play some of the
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classics and what I love so much is
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listening to each bestie give their
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point of view about Venture Capital
00:02:38
about IPOs about technology and
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so what I aim to do here is a bit kind
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of level set on the conversation and
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they'll join me afterwards and lucky me
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I get to jam with the band for a bit so
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um all right so let's dive in I hope
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that this presentation kind of informs a
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little bit about what we see in the
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Unicorn economy so let's start at the
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top let's just look kind of at funding
00:03:07
and what we can see in this slide is
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that funding is still actually pretty
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healthy now it's normalized post a covid
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bubble but it's still if you compare it
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to historical averages it's still quite
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healthy but if we look at exits which is
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Define of the cash that's returned we
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see a bit of a different story where
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actually we're at pre
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levels Without Really any substantial
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increases since all of the capital that
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went into during
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Co and one of the main reasons for that
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is that the three kind of traditional
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exits for companies are blocked
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today so if you look at private equity
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for example very um sensitive to
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interest rates and so there's been kind
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of fewer buyouts despite record amounts
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of dry powder for that asset
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class if we look at IPOs well we're
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going to dig deeper into that peel the
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onion a little bit so I'll talk about
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IPOs in a minute and since um your know
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political issues have been so present
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here we know that regulator has had a
00:04:14
major impact on company's ability to buy
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other
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companies ironically and I think
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somewhat perversely one of the
00:04:24
byproducts of constraining big companies
00:04:26
from buying small companies is it hurts
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small companies
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first of all it makes them less valuable
00:04:33
because if an investor you think that
00:04:34
big companies can't buy small companies
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anymore you may adjust what you think
00:04:38
that company's
00:04:39
worth but to me even more importantly
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small companies can create a true sense
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of urgency in big companies if you're
00:04:47
sitting at Amazon or Google and you're
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meeting these small companies now you
00:04:52
don't have to worry about your
00:04:53
competitor buying that company because
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you know that the government will make
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it really hard that gives you time
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and we think that urgency is really
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important so we certainly hope that
00:05:05
whoever wins uh the election they will
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rethink this strategy because we think
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it's really important to have a healthy
00:05:12
ecosystem and m&a is a really big part
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of
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that so if you put all of that together
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you see that in fact you wouldn't be
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surprised by this chart which shows that
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the distributions from VCS back to their
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investors are essentially at alltime
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lows
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almost back to um Financial kind of
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Crisis
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levels so if you think about our
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industry is a business now and we looked
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at the cash flow statement of the
00:05:41
Venture Capital industry it probably
00:05:43
wouldn't look too
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good we've raised a lot of
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money and we've given very little back
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we are bleeding cash as an industry and
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it's ironic because many of us as
00:05:54
investors have told on companies they
00:05:56
need to get fit they need to generate
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cash
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but we as an industry haven't done that
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yet so what's left well what's left
00:06:08
actually is still a very substantial
00:06:11
economy what we call kind of the Unicorn
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economy there's about 1,500
00:06:17
companies by our count that are private
00:06:21
companies with a last round of greater
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than a
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billion Gavin Baker who's another great
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investor who I follow actually came out
00:06:30
with a statistic that said there's more
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private companies in
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Tech that are worth more than a billion
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than public
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ones which is kind of an incredible
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statement to kind of think
00:06:44
about on top of that if we just kind of
00:06:47
look at um employee growth which I kind
00:06:51
of think is a decent proxy for how this
00:06:53
ecosystem is doing we can see that there
00:06:56
has been a significant slowdown post
00:07:00
the digital uh transformation of Co and
00:07:04
you can see that employee growth and by
00:07:06
the way this is
00:07:07
xai um which is an important statement
00:07:10
and we'll get to AI in a bit but you can
00:07:12
see that basically the lowest levels of
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employee growth for this cohort um you
00:07:17
know in almost 15
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years that obviously also impacts their
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financing so if you look at the average
00:07:27
company in kind of a um preco era they
00:07:31
would tend to raise around generally
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less than 600 days and Bridge rounds and
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down rounds were about 30% of the total
00:07:41
rounds well in today's market you can
00:07:43
see something very different you can see
00:07:45
that it's now greater than 100 days and
00:07:49
you can see that the mix of down rounds
00:07:51
and Bridge rounds as a percent of total
00:07:52
rounds is up to almost
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63% so even when they do get a financing
00:07:58
the financing
00:08:00
look very
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different and so if you look at what
00:08:05
that means on a cohort basis and this is
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one of my favorite charts because I
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think it kind of tells the story of this
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era in one slide you can see that the
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2016 cohort the way to interpret this is
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the 2016 cohort which is the top slide
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the green line after about 13 quarters
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80% had either raised the new round or
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exited
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so
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80% you can see that in the 2021 cohort
00:08:34
that number is down almost in
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half so significantly below and if you
00:08:40
see at the 22 cohort which is the most
00:08:43
recent cohort that we track because
00:08:44
obviously you need to give companies at
00:08:46
least a year to make the analysis useful
00:08:49
you can see that those companies are
00:08:50
tracking even below the 21
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cohort now we can't BL blame the public
00:09:00
markets you know the NASDAQ is at almost
00:09:02
an all-time
00:09:04
high the NASDAQ has had a
00:09:07
massive uh
00:09:11
performance but the index doesn't tell
00:09:14
the whole story and I think we need to
00:09:16
kind of go one layer below to really
00:09:18
kind of understand what's going
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on so if you look at the recovery which
00:09:23
is the piece that I kind of focus on
00:09:25
since Co you can see that the index
00:09:26
actually had very strong performance
00:09:29
right up almost
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122% right since
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2019 but if you look at the two buckets
00:09:37
that I've
00:09:38
highlighted which I've kind of created
00:09:40
two unprofitable Tech is one and SAS is
00:09:43
the other the reason that I chose those
00:09:45
two is I think that they best mirror
00:09:47
potentially the Unicorn economy in the
00:09:49
private markets you can see actually
00:09:52
that those are down the most from the co
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high and have recovered the least since
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20
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2019 significantly kind of trailing the
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index now you might say look this is a
00:10:06
bunch of really bad companies so it
00:10:08
makes sense my argument to you was be
00:10:10
there's incredible companies in this
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cohort and I've just picked
00:10:14
three but let's look at these three door
00:10:16
Dash block and Shopify three incredible
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entrepreneurs Tony from door Dash Jack
00:10:22
from block and Toby from Shopify you can
00:10:25
see that these companies have incredible
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scale if you just look at the um the gmv
00:10:32
and the
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revenues you can see that over this
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period of time they got significantly
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more
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profitable but you can see that on a PE
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basis the multiple shrank
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significantly and the growth just wasn't
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fast
00:10:47
enough to kind of offset the lower
00:10:53
multiple now if we look at IPOs this
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chart basically one way to look at it is
00:10:59
of all of the IPOs since
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2020 if you look at the value created or
00:11:05
destroyed from their IPO price you can
00:11:07
see it as as a
00:11:09
cohort we've destroyed almost 225
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billion in market cap offset by the
00:11:15
value creation of 84 so net negative as
00:11:19
a
00:11:22
cohort this slide every time I look at
00:11:25
it I still quite can't believe what it
00:11:27
says so we had to quadruple
00:11:30
the facts but it is the fact is that
00:11:32
since
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2022 both in 22 23 and 24 we had fewer
00:11:39
IPOs than in 2008 and 2009 the depths of
00:11:43
the financial crisis in 2001 and 2002
00:11:46
post the
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greatest bubble in history in
00:11:51
Tech I mean I remember in 2008 you know
00:11:55
sitting at my desk and we would get
00:11:57
reports that Morgan Stanley and Goldman
00:11:58
Sachs were going out of business that's
00:12:00
how dire those times were there were
00:12:02
still more IPOs in that environment than
00:12:04
in today's
00:12:11
environment so I was talking yesterday
00:12:13
to um a late stage uh
00:12:17
founder very large valuation a very kind
00:12:20
of well-known company and he was asking
00:12:22
for the difference between private
00:12:24
investors and public investors and what
00:12:27
I told them is I said by and large your
00:12:29
private investors only compare you to
00:12:32
companies that are very similar to Yours
00:12:34
by which I mean if you're a venture
00:12:35
investor you look at a Silicon Valley um
00:12:39
uh named fund back company and you
00:12:41
compare it probably to another company
00:12:44
backed by another Silicon Valley fund
00:12:46
Etc and you try and pick the best as you
00:12:49
see fit from those types of
00:12:51
companies very similar to
00:12:54
yours but the public markets work really
00:12:57
differently and it's really important to
00:12:59
understand for CEOs that public markets
00:13:01
have
00:13:04
options those investors may look at the
00:13:06
risk-free rate 5% to be able to earn
00:13:09
with literally no risk
00:13:12
whatsoever they may look at depending on
00:13:15
how you want to bucket it the
00:13:17
Magnificent 6 or seven these are the
00:13:19
largest companies in the world
00:13:21
incredible businesses with cosos like
00:13:24
Mark Zuckerberg and you get to own that
00:13:26
cohort at a pretty cheap earnings
00:13:29
multiple for companies that even at the
00:13:32
trillion dollar scale are growing in
00:13:35
excess of
00:13:36
15% pretty
00:13:38
amazing oh and on top of that there's a
00:13:40
new type of company the AI
00:13:44
company and those companies are growing
00:13:46
at incredible scale and they're growing
00:13:48
sometimes at 50 60 or
00:13:51
100% And you get to back a Founder like
00:13:54
Jensen at Nvidia who many people don't
00:13:56
know but is the longest tenear founder
00:13:58
CEO in Silicon
00:14:01
Valley and I can also buy those
00:14:03
companies at pretty reasonable earnings
00:14:07
multiples and finally just in case you
00:14:09
think oh I'm only talking about big
00:14:11
companies you actually get to buy also
00:14:14
an incredible set of smaller companies
00:14:17
we just had Travis on from Uber but
00:14:19
whether it's door Das or instacart or
00:14:21
block you can see that even great new
00:14:23
companies like those are available at
00:14:26
pretty reasonable multiples
00:14:30
so it's really important for CEOs to
00:14:32
understand who is the competition for
00:14:34
the capital that you're trying to
00:14:39
raise and the public market can be tough
00:14:42
and this is one of those moments where
00:14:44
the public market is tough because what
00:14:45
essentially the public market is telling
00:14:48
you is that we want it
00:14:51
all we want you to be profitable we
00:14:53
talked about that
00:14:55
already we want you to grow so you have
00:14:58
to be in a big market and have a big
00:15:00
Trend but by the way we also want you to
00:15:02
have
00:15:05
scale that's a lot to ask
00:15:09
for but the good news is within this
00:15:12
cohort of unicorns we've already
00:15:14
identified a good list of companies
00:15:16
we're lucky to be investors I think in
00:15:18
about eight or nine of them that match
00:15:21
that
00:15:22
criteria and I think all of these
00:15:25
companies on this slide will one day
00:15:27
make for incredible public
00:15:36
companies so what it make of all this
00:15:39
well I kind of wanted to end uh I only
00:15:42
have two charts left but I wanted to
00:15:43
kind of end on this chart um this chart
00:15:47
is from Andrew McAfee who has an
00:15:49
incredible substack which I encourage
00:15:51
all of you to
00:15:54
follow what this chart looks at is it
00:15:57
looks at the average
00:16:00
age of the top 50 US public
00:16:04
companies weighted by market
00:16:07
cap okay so average age of the top 50 US
00:16:12
companies by market cap so what do we
00:16:14
see in this chart and by the way he goes
00:16:17
back to 1926 it's hard to get data that
00:16:19
goes back to 1926 believe me we
00:16:22
tried so what this shows actually is you
00:16:25
can look from 1926 through to almost the
00:16:27
late 80s
00:16:29
the biggest companies are the oldest
00:16:32
companies and they keep getting older
00:16:34
which means that the biggest chance of
00:16:36
you becoming a big company was to have
00:16:38
been a big company in the
00:16:40
past so you can see that that kind of
00:16:43
can
00:16:44
atrophy but it doesn't take a
00:16:47
mathematician which I'm not to see that
00:16:49
something kind of happens in the let's
00:16:51
call it mid
00:16:53
90s the average age starts to reverse
00:16:57
what happened
00:16:59
technology
00:17:01
happened technology is the great
00:17:04
resetter of the business World it can
00:17:07
take an incredible company and turn it
00:17:09
into dust just ask Blackberry or Nokia
00:17:13
or other companies that have been on the
00:17:14
wrong side of a
00:17:16
trend and what you see in this chart is
00:17:19
you can see that actually the past 25
00:17:20
years have been really good for young
00:17:23
companies which is why another inverse
00:17:26
way of looking at it is what is the
00:17:28
average founder year of that cohort of
00:17:30
companies and you can see that that
00:17:31
cohort of companies is getting
00:17:33
younger so the reason why I'm still an
00:17:35
incredible optimist about our industry
00:17:38
and about technology is because
00:17:40
technology is still the most disruptive
00:17:43
force and we haven't even talked about
00:17:45
Ai and robots and all of the incredible
00:17:48
things that are kind of
00:17:51
happening so I kind of wanted to put it
00:17:53
all together and kind of use the
00:17:55
concrete examples um this is one of my
00:17:58
favorite charts what this shows is the
00:18:00
valuation of two companies that are kind
00:18:02
of competing with each
00:18:04
other um their Enterprise data companies
00:18:07
they make essentially a way to store
00:18:08
data in the
00:18:10
cloud so you can see the blue line is
00:18:12
snowflake it's a public company today
00:18:14
and you can see that the red line is
00:18:16
data
00:18:17
bricks and it's kind of interesting to
00:18:19
see what do we take from this chart
00:18:22
while we can see okay a lot of
00:18:23
volatility in the public markets
00:18:25
valuation going up then down kind of a
00:18:29
rise in the private
00:18:31
Market but there's other ways to kind of
00:18:33
look at this you can see that data
00:18:34
bricks there's been a lot of talk of
00:18:36
founder mode right the the besties
00:18:37
talked about it on the podcast last week
00:18:40
data bricks is a founder-led company
00:18:42
snowflake was more of a managerial Le
00:18:45
company maybe that's one way to kind of
00:18:47
interpret what happened maybe another is
00:18:49
to say if you're a public company and
00:18:51
you need to be profitable for your
00:18:53
shareholders and your biggest competitor
00:18:55
is private and can incinerate and burn a
00:18:57
lot of money maybe makes a difference
00:19:00
though when I mentioned to Ali the co of
00:19:02
data breaks that I was um using this
00:19:05
chart he told me please remind the
00:19:07
audience that I'm growing in excess of
00:19:09
60% so I put
00:19:11
that that while I'm burning money I'm
00:19:14
actually getting much more efficient so
00:19:16
I said that I would obviously say that
00:19:18
and he also gave me a a non-public data
00:19:20
point around his Cloud business which is
00:19:22
now 500 million of a RR which was almost
00:19:25
zero a few years
00:19:27
ago so I kind of Lent to in on that
00:19:30
because I think that um what I love the
00:19:32
most about technology and markets is you
00:19:35
can't be
00:19:37
complacent you always have to stay on
00:19:40
the um on your toes and part of why I
00:19:43
love the podcast so much is it always
00:19:44
makes me rethink my assumptions and I'm
00:19:46
really grateful um to the besties for
00:19:49
that so with that I think they'll come
00:19:51
on and we'll chat about this and I think
00:19:54
all the other topics that you guys want
00:19:56
to talk
00:19:57
about wow
00:19:59
thank you so much for that that was
00:20:00
amazing than con gra you thanks brother
00:20:03
that was great thank you J moth uh sent
00:20:06
someone to Sax's house to steal
00:20:09
Wine Not Ste did you go to which seller
00:20:12
did you go to the secret seller or the
00:20:14
the seller the main seller the main
00:20:17
seller or the house seller which one
00:20:18
they they know not to go to any other
00:20:20
seller but the the Reser the real seller
00:20:22
the real seller I think probably the
00:20:24
best moment that you and sax had around
00:20:27
wine was
00:20:28
he poured a wine at a poker game that
00:20:31
you did not like and I kid you not Troth
00:20:34
took his
00:20:36
glass it and went like this and poured
00:20:41
it on the floor in David Sax's house
00:20:44
when was that really we weren't outside
00:20:47
on the lawn this was in Sax's living
00:20:50
room honestly stop stop the that
00:20:52
happen or not I'm going to get from Nat
00:20:54
for that story it was in my basement
00:20:57
poker basement and it was not we're it
00:20:59
was not an in is not a typical basement
00:21:02
you shouldn't use that term but there
00:21:03
was no rug this was a marble floor to be
00:21:05
clear not true wherever m is it could be
00:21:08
clean it was more like okay Thomas let
00:21:10
me ask you a question
00:21:12
um actually after that oh my God stop
00:21:15
thas what happened after guys we got we
00:21:17
got on Jam raided my wine seller and
00:21:20
found all the latash oh he did that's
00:21:22
right oh my God that is true and then I
00:21:24
yeah CU you hit it I think they went
00:21:26
through uh a case lash yeah start to
00:21:29
come out don't stop on my behalf sit
00:21:31
here all day let's talk let's talk to
00:21:34
Tom just so if you invested in the cues
00:21:37
in the NASDAQ and held it for 10 years
00:21:40
you make
00:21:41
7.5x um this is a couple months old if
00:21:44
you invest in the top 10 by market cap
00:21:46
companies in the queue you make 8.7 so
00:21:49
9x if you invest in the S&P over 10
00:21:51
years you make
00:21:53
3.2x um and sorry sorry if you invested
00:21:57
in the um yeah I'm sorry that was
00:21:59
incorrect if you invest in the top 10 of
00:22:00
the cues you make 8.7x and if you invest
00:22:02
in the cues you make 5.2 so 5x 9x why
00:22:06
would I invest in Venture at all as an
00:22:08
Institutional Investor is and is that
00:22:11
going to shift because you have to be in
00:22:13
basically the
00:22:14
top two funds five funds to beat the
00:22:18
returns you make just by buying an index
00:22:20
of the NASDAQ and how how do
00:22:23
institutional investors rationalize
00:22:25
investing in Venture funds at all given
00:22:28
how much much value is acing to public
00:22:30
companies in technology versus the
00:22:32
private companies have you tried the
00:22:33
mtet
00:22:35
Thomas just te up a softy for me right
00:22:37
to to te me off
00:22:39
um first I ask myself that question all
00:22:42
the time right and because we sit in
00:22:45
both public and private markets we bit
00:22:46
have this unique ability to kind of look
00:22:48
at both and try and use one to make
00:22:51
better decisions than the other I think
00:22:53
what's implicit in your question is is
00:22:55
what happen has happened over the next
00:22:57
decade going to happen over the next one
00:22:59
yes right because I also remember a time
00:23:02
where um and I think this was roughly
00:23:05
call it the 2010 period where Google was
00:23:08
like flat for seven or eight years right
00:23:10
um from like 07 to I think the next
00:23:13
seven or eight years right and that's
00:23:15
how the market was digesting Facebook
00:23:17
and kind of things like that so I think
00:23:19
the question you have to ask yourself is
00:23:21
we have now multiple multi-trillion doll
00:23:24
companies right um three trillion doll
00:23:27
companies with app and Nvidia are those
00:23:30
companies going to 10
00:23:32
trillion um and so you know to me it's
00:23:35
not necess as obvious maybe it was
00:23:37
obvious you know 10 years ago and we all
00:23:40
should not have invested in Venture 10
00:23:42
years ago because we should have just
00:23:43
owned Apple and Google and meta and
00:23:47
others you know the question is as
00:23:49
investors we get paid to think about the
00:23:50
next decade right and so I think the
00:23:53
question for you know all of us and is
00:23:56
well what do we think's going to happen
00:23:57
in the next decade
00:23:58
and to me it's not as clear just because
00:24:01
those big companies are so big now right
00:24:05
um is are we going to see the same
00:24:06
pattern occur I mean sometimes law of
00:24:08
large numbers and other things like that
00:24:10
would say no there's another I think
00:24:12
part of this which is when you
00:24:15
invest you have to get some risk premium
00:24:18
for where you're investing and you know
00:24:21
the the complicated thing with Ventures
00:24:23
when I started my business I think when
00:24:25
David and Jason started his actually
00:24:27
also when you started
00:24:29
um your investment
00:24:32
business we typically thought 7 to 10
00:24:34
years were going to get out of these
00:24:35
businesses and return Capital to
00:24:37
shareholders and then all of a sudden
00:24:38
it's doubled and now to your point you
00:24:42
have wars in Europe you have wars in the
00:24:45
Middle East you have this potential
00:24:47
thing sort of Damocles hanging over us
00:24:49
in China and Taiwan there's risk
00:24:52
everywhere and theoretically what is
00:24:55
supposed to happen is you're supposed to
00:24:57
get paid a risk premium to be IL liquid
00:24:59
and not be able to get out over periods
00:25:02
of time where any of that stuff could
00:25:03
happen right so how does that start to
00:25:06
play into the mindset of the investor
00:25:07
that was giving all this money in the
00:25:09
first place how does that change you
00:25:11
know it's a great question I was talking
00:25:13
to one of the partners of a leading
00:25:15
seriesa firm a brand name that that all
00:25:17
of you would know and what was
00:25:19
interesting about their business is that
00:25:21
buying large their average funds were
00:25:23
were doing the same but the problem is
00:25:25
at the time liquidity had doubled and so
00:25:28
if if you just think about it on an irr
00:25:29
basis all of a sudden I'm down half half
00:25:32
right yeah so that's a huge problem and
00:25:36
I think part of the reason I kind of
00:25:39
wanted to to to bring this up is I do
00:25:41
think it's a problem that we need to
00:25:44
kind of address as an industry and I
00:25:45
think it starts with boards and it
00:25:46
starts with Founders right and investors
00:25:50
I was chatting with Bill Gurley um you
00:25:52
know in the green room before and he he
00:25:55
told me he said well look Thomas you
00:25:56
know you're you guys are part of the
00:25:57
problem kind of doing this and I said
00:26:00
you're right you're absolutely right we
00:26:02
contributed to it interrupt what what
00:26:03
did he mean by that that we were giving
00:26:05
liquidity to uh secondaries and Founders
00:26:09
and you know companies that should be
00:26:12
public by giving them private Capital we
00:26:14
were essentially enabling them to stay
00:26:16
private longer making the problem worse
00:26:18
correct is that true yes but if that
00:26:21
were true wouldn't wouldn't value
00:26:23
creation acre to those private companies
00:26:25
and the performance of can I just go
00:26:27
back and just add a Nuance to that but I
00:26:30
said Bill realize that also you guys are
00:26:32
also part of the problem because you're
00:26:34
on the boards that are also letting this
00:26:35
kind of happen right so we have as an
00:26:39
ecosystem right I don't think like to me
00:26:42
the IPO chart is kind of an existential
00:26:45
one for our industry right I mean if we
00:26:47
don't get these companies to go
00:26:49
public um in my
00:26:52
opinion we are um as an industry going
00:26:55
to have to face really hard questions
00:26:56
with the ultimate funders of of our
00:26:58
industry who by the way are not our
00:27:00
funds but are the investors in our funds
00:27:03
right and eventually they are going to
00:27:05
demand from us right um Capital back
00:27:08
well sorry Tom and Thomas just to build
00:27:10
on your point it's actually not even
00:27:12
those nameless faceless people because
00:27:13
so much of that money for example in
00:27:15
Sovereign wealth funds and Pension funds
00:27:17
theoretically come from these citizens
00:27:19
who will at some point need the money
00:27:21
because all of these other existential
00:27:23
issues that they're dealing with and so
00:27:25
these these pension systems and others
00:27:27
will really have to just
00:27:28
justify um while you know they say I'm
00:27:31
going to swing for the fences here to
00:27:32
make up for my deficits but with those
00:27:34
deficits aren't actually made up and
00:27:36
you've paid 2% a year for 13 years and
00:27:39
you burned through a quarter of your
00:27:41
capital in fees and you have nothing to
00:27:42
show for it the jig is going to be up I
00:27:45
think I mean that's totally right and
00:27:48
look I think it's going to be um my
00:27:51
biggest other fear you guys can tell I
00:27:53
have a lot of fears so um but my other
00:27:56
one good investor yes
00:27:58
is that we're creating a worst cohort of
00:28:00
companies because of this right because
00:28:02
at the end of the day I do believe that
00:28:05
you guys all sit on a tons of boards
00:28:07
right I do think that it can be I think
00:28:10
part of why the all-in podcast got so
00:28:12
popular is there was a sense that you
00:28:14
guys were saying to uh the public what
00:28:17
people were afraid to say in public or
00:28:20
what actually you were saying Behind
00:28:22
Closed do right and I think it can be
00:28:24
very difficult in boards to go against a
00:28:27
founder or a CEO even just propose
00:28:31
something a different path right you
00:28:33
know the high school I went to San high
00:28:35
school in Brooklyn had a a sign above
00:28:37
the the door when we walked in every
00:28:39
morning the truth shall make you free
00:28:42
and I think a big part of what we have
00:28:44
to realize in an industry is staying
00:28:46
private and giving the founders massive
00:28:49
amounts of secondary not modest modest
00:28:51
we all agree um and keeping these P
00:28:54
companies public too long um and then
00:28:56
private too long uh
00:28:58
you know it's just bad hygiene and bad
00:29:00
discipline allowing Founders or telling
00:29:03
Founders the VCS are the enemies like
00:29:06
Paul Graham essentially does um saying
00:29:09
governance isn't cool um you know most
00:29:12
of the companies I've invested when they
00:29:13
fail and they don't have governance say
00:29:15
to me if only somebody cared enough to
00:29:18
help us solve our problems and I say
00:29:20
well remember I said would you like to
00:29:22
start board meetings quarterly for one
00:29:24
hour and I'll come to it and they said
00:29:26
yeah and we got advice from people don't
00:29:27
have board Mee me ings you know at some
00:29:29
point we have to have discipline and we
00:29:32
have to accept the truth and the truth
00:29:34
is you know on a on a societal level 40%
00:29:38
of the country does not own equities and
00:29:40
they believe that everybody's getting
00:29:42
rich but them and they're voting for
00:29:44
socialism and they're voting to not let
00:29:46
these companies merge and grow which is
00:29:48
now going to freeze the system and if
00:29:50
the system freezes because of Lina KH
00:29:52
who was picked on a strictly political
00:29:55
basis because she's anti-tech and
00:29:57
because that gets votes from a bunch of
00:29:59
socialist voters uh who feel
00:30:01
disenfranchised now we got to solve the
00:30:03
disenfranchised problem um but we also
00:30:06
have to create jobs and we have to
00:30:08
create the next companies and I I
00:30:10
encourage people who maybe who are
00:30:13
anti-tech who are anti- capitalism to
00:30:14
imagine a world in which we didn't have
00:30:17
Google Apple Tesla Facebook Microsoft
00:30:21
Uber door Dash as our companies in our
00:30:25
country and you know what that looks
00:30:26
like that looks like Europe and that
00:30:28
looks incredibly slow growth and and it
00:30:30
looks like all the growth comes from
00:30:31
government ask question yeah and I know
00:30:34
but I mean we have to be adults in the
00:30:35
room here and tell the truth age I'd
00:30:37
like to ask Thomas a question
00:30:39
before I'm sorry it's the montet talking
00:30:43
clearly I mean it's amazing I think you
00:30:46
bring up something that again is
00:30:47
something that it's the quiet part said
00:30:49
out loud which is maybe we have this
00:30:50
cultural issue and I actually have a lot
00:30:53
of empathy for where this cultural issue
00:30:55
came from your seoa and you've done it a
00:30:59
certain way but then now you're andreon
00:31:01
or your Social Capital your craft you
00:31:03
have to decide how you're going to
00:31:04
disrupt and you say the thing that the
00:31:06
other person is not
00:31:08
saying but then it the it just gets out
00:31:10
of
00:31:11
control what do we do to fix the problem
00:31:15
um how do we collectively identify a set
00:31:19
of solutions what do we do I I think to
00:31:22
me the the most obvious is we have to
00:31:24
take our companies public because to
00:31:26
your point Jason the public market is
00:31:29
the great
00:31:30
disinfectant the public market doesn't
00:31:33
care that you're a CEO and you're going
00:31:34
to give a referral to the other investor
00:31:36
and so you have to become friends and
00:31:38
you know that whole thing or the brand
00:31:40
of your investor is X or your prior
00:31:42
company did y you know at the end of the
00:31:44
day the public market will look at your
00:31:46
business and so I think encouraging
00:31:50
entrepreneurs to go public is really
00:31:52
important right let me ask you a
00:31:54
question the traditional go model is an
00:31:56
IPO you raise capital and you list your
00:32:00
shares at the same time those are two
00:32:02
separate activities people don't realize
00:32:04
they're actually separate your Shares
00:32:05
are available for sale on a public
00:32:07
market and you're raising capital in the
00:32:09
process and you create demand through
00:32:11
the capital raising process such that
00:32:12
your shares will go up as they start to
00:32:14
trade the model of the direct listing is
00:32:16
you just list your shares they start
00:32:18
trading they're going to go up they're
00:32:20
going to go down we've seen a couple of
00:32:21
these in the past few years they're like
00:32:23
as soon as it hits the market it goes
00:32:24
down it goes up and but the market
00:32:26
values the company once the company's
00:32:28
been valued and the market stable maybe
00:32:30
then you raise Capital at whatever the
00:32:32
market tells you the valuation is
00:32:33
however there is a very big aversion to
00:32:36
direct listings in Silicon Valley and it
00:32:39
seems like there's either a failure of
00:32:40
the business or it's one of these
00:32:41
businesses that are such an outlier of
00:32:43
success that it doesn't matter they're
00:32:44
like I don't care I'll just direct list
00:32:46
should direct listings become the kind
00:32:48
of deao model because otherwise everyone
00:32:50
talks about the IPO window being closed
00:32:52
the big institutional investors that
00:32:53
build the IPO book are all sitting on
00:32:55
the sidelines right now they're like I'm
00:32:56
not investing in any new stuff for a
00:32:58
quarter or two quarters so the IPO
00:32:59
windows closed and you can't go public
00:33:01
should we not kind of push all up
00:33:03
Silicon Valley that like this direct
00:33:05
listing might be a better model and I
00:33:07
know some have tried to motivate this
00:33:10
this transition but it's why isn't it
00:33:11
gotten legs and is it a better way so
00:33:15
what I would say to that and trath you
00:33:16
you kind of hit on this with some of the
00:33:19
work that you've done here but I do
00:33:21
think that the recipy to go public is
00:33:22
different first of all I can tell you is
00:33:24
i' you know we've looked at buying IPOs
00:33:26
over 20 years I mean probably thousands
00:33:29
of them we couldn't care less whether
00:33:30
it's a traditional IPO or whether it's
00:33:34
um a direct listing like we care about
00:33:36
the business and the price and the
00:33:38
mechanics are completely irrelevant to
00:33:39
us right um so that's kind of number one
00:33:42
but I do think Founders have to
00:33:44
understand that the public market itself
00:33:45
has changed okay being an active
00:33:48
investor in the public market over 20
00:33:50
years has been a really bad business we
00:33:53
are fighting the machines first of all
00:33:56
right so uh Ken Griff Citadel
00:33:59
Renaissance you know all of these you
00:34:01
know quants and algorithms and that's
00:34:03
number one we're fighting the indices
00:34:06
right massive move away from active
00:34:08
investing to passive so being in the
00:34:11
quote money management business I mean
00:34:13
just look at the chart of tro price and
00:34:15
others it's not been a great business so
00:34:18
the public business has changed and I
00:34:21
think why is this relevant to Founders
00:34:23
because I think there's another big
00:34:24
constituency that's really important as
00:34:26
an example retail
00:34:28
right and so if you can tap into a
00:34:30
retail investor base and convince a
00:34:32
retail base that your business is
00:34:34
worthwhile that's maybe something that
00:34:36
20 years ago you might have said I don't
00:34:37
think that's a good use of time I think
00:34:39
this year is a really good use of time
00:34:42
so going on podcasts right going on CNBC
00:34:45
going out and educating the public about
00:34:47
your business so that you're not just
00:34:49
relying on a frankly shrinking pool of
00:34:52
investors in the public market I
00:34:54
remember when I started in the late '
00:34:57
90s early 2000s you had small cap mutual
00:34:59
funds in Kansas City and other places
00:35:02
their whole business you may remember
00:35:04
was taking small companies and bringing
00:35:06
them to the public market those they're
00:35:08
gone today they're gone today there
00:35:10
there's none left right so we need to
00:35:14
adapt and I think those are the
00:35:15
conversations that we need to be having
00:35:17
I hope that some of the companies that
00:35:18
we listed right you guys know these
00:35:20
companies you're investors in a bunch of
00:35:22
them they're generational opportunities
00:35:24
I hope some of those kind of go public
00:35:27
right and that we kind of get the do
00:35:29
think I just want to build on this um it
00:35:32
is one of the most systematically broken
00:35:34
things and just even be more specific
00:35:36
what happens in Silicon Valley
00:35:38
boardrooms is you have folks that are
00:35:42
playing a very establishment Insider
00:35:44
game and whenever I see that I I just
00:35:47
get offended just at at a core level and
00:35:50
it's about a certain set of Banks and
00:35:53
it's about a certain set of Privileges
00:35:55
and conferences and it's a cabal of
00:35:57
and this is what convinces
00:36:00
these very impressionable people all
00:36:03
kinds of spirous data to say what it is
00:36:07
that they want which is not that the
00:36:09
company goes public or not public but
00:36:12
that they have ball control to help them
00:36:15
influence that decision and that's the
00:36:17
game and you can look at all the major
00:36:19
investment Banks and that's how the game
00:36:20
was played and every time there's been
00:36:23
an attempt at an innovation people push
00:36:26
back severely the the most impressive
00:36:28
one that I remember I mean I was part of
00:36:30
one version of that just a few years ago
00:36:33
with these backs they had a very
00:36:34
checkered obviously set of outcomes um
00:36:38
but it was courageous to try and the and
00:36:40
when I remember I worked with credit s
00:36:43
when I was launching this first one the
00:36:45
reason I picked credit s you know why
00:36:47
because they were the ones that were
00:36:48
totally blackballed in 2004 for doing
00:36:51
the Google listing and do you know why
00:36:52
what Google did they completely pushed
00:36:54
back on the IPO they completely restruct
00:36:57
red it from first principles they
00:36:59
decided how to do it and when I looked
00:37:01
at it and I read the filing documents I
00:37:03
was like this is courageous and
00:37:05
incredible because if other people
00:37:07
follow this it'll unlock money but what
00:37:10
happened to that whole model people put
00:37:12
it on the side and they were like if you
00:37:14
go to credit s this will happen that
00:37:16
will happen so the infrastructure pushes
00:37:19
back on you so I think part of what we
00:37:21
need to do is make people open to
00:37:24
realize direct listings work now for
00:37:26
example I went through a direct listing
00:37:28
with
00:37:28
slack what we did not learn is that the
00:37:32
best price is the day one price so if
00:37:34
you have investor pressure the thing
00:37:36
that I should have done it was a
00:37:37
probably a$ 1.2 billion $1.24 billion
00:37:41
mistake I know it because I distributed
00:37:43
too late I should have sold every
00:37:46
share I didn't know that it was very
00:37:48
hard to know that so I think the point
00:37:51
is that there is this system of weird
00:37:53
incentives that have everything to do
00:37:55
with what Barry Weiss yesterday called
00:37:57
prestige
00:37:58
and nothing to do with what you said
00:37:59
which is disinfecting a business and
00:38:01
just let it win or lose yeah
00:38:08
so very well said and then I I know you
00:38:11
um we'll move on after this but to me
00:38:14
Jason there's one other big thing which
00:38:16
is cosos need to understand that it's
00:38:18
okay for their valuation to go down
00:38:21
right there you know it's like this bet
00:38:24
Noir in the valley that my God if for
00:38:26
some reason your valuation goes down 10
00:38:27
or 15% it's the end of the world guess
00:38:31
what it isn't it's the craziest concept
00:38:33
I I public stock only goes up right it
00:38:36
doesn't like it's like so in Silicon
00:38:38
Valley if your Stock's not always going
00:38:40
up it's like it's a imature yeah it's so
00:38:42
immature yeah and there's these people
00:38:45
that perpetuate that because then they
00:38:47
have ball control and it's just
00:38:50
not who's in a relation who's married
00:38:52
okay we'll give it the final question
00:38:53
just okay how many have you been in a in
00:38:55
a marriage where at some point the
00:38:57
marriage was not always the best you
00:38:59
can't ask that and then ask people to
00:39:00
raise their
00:39:01
hands my point is relationships go up
00:39:04
and down correct friendships go up and
00:39:06
down businesses go up and down I mean
00:39:08
like this is real life well so just this
00:39:12
will be our last question yeah just just
00:39:13
to wrap things up so I really wanted
00:39:15
Thomas to give this speech because I
00:39:16
thought this is the nitty-gritty of what
00:39:18
we deal with in the Venture your slides
00:39:20
are incredible by the way we'll make
00:39:22
them available by the way to everyone so
00:39:24
so
00:39:28
this is really the Straight Dope on what
00:39:31
the Venture Capital industry is dealing
00:39:33
with because we had this massive bubble
00:39:35
in 2020 and 2021 especially the second
00:39:39
half of 2021 where you know we all know
00:39:42
that the FED cut interest rates to zero
00:39:44
and the federal government air dropped
00:39:46
trillions of dollars on the economy and
00:39:48
the way that affected the tech ecosystem
00:39:51
is we had a bubble like probably the
00:39:53
biggest bubble in 2021 that we had since
00:39:55
the do bubble and and since then 2022 23
00:39:59
24 we've been dealing with the Fallout
00:40:02
and The Hangover from that and I think
00:40:05
that's what your if I was to kind of TDR
00:40:07
your slides it's basically we had this
00:40:09
incredible bubble now we're in this sort
00:40:12
of workout period there's a lot of
00:40:14
facets that we double the payback period
00:40:16
that's a real problem yeah so that's so
00:40:20
and so there's more to work out at the
00:40:22
same time I think that we've heard at
00:40:24
this conference that some of these
00:40:26
emerging Tech Trends are are going to be
00:40:27
the biggest we've ever seen Benny off
00:40:29
talked about agents of the Enterprise
00:40:31
Elon talked about robots so at the same
00:40:34
time that I think the tech industry is
00:40:36
feeling this huge hangover and it's you
00:40:39
know frankly if you're like doing all
00:40:40
these workouts with the companies it's
00:40:42
pretty miserable but we're seeing these
00:40:43
upward trends that could be the biggest
00:40:46
yet D David and I said something
00:40:48
backstage I just curious what you think
00:40:49
of this we were looking at your slides
00:40:51
the one that said the 2022 cohort was
00:40:53
below the and uh the comment was and you
00:40:57
can just say yes or no but um that's
00:41:01
probably where the best companies are
00:41:03
going to emerge because they will have
00:41:05
the most darwinian risk of demise yeah
00:41:09
does that kind of counterintuitively
00:41:10
make sense to you or it's not and look
00:41:12
it fits within a framework that I really
00:41:14
believe which someone kind of told me in
00:41:16
the context of China but I think it's
00:41:17
appropriate which is you know um
00:41:20
dictatorships double down and democrac
00:41:22
is self-correct you know markets
00:41:25
self-correct right so I'm a big believer
00:41:27
in our ability as a market to kind of
00:41:29
self-correct it's kind of why I wanted
00:41:31
to show the the slide about the age of
00:41:33
companies right because it kind of
00:41:34
crystalized what we all believe which is
00:41:36
that technology is fundamentally
00:41:37
changing the world of of business and
00:41:39
markets and kind of I still really
00:41:41
believe that so David I 100% agree I
00:41:46
just hope like take the AI um Trend as
00:41:49
an example right part of also why like
00:41:51
talking about this stuff is so we don't
00:41:53
just repeat some of the same mistakes
00:41:54
right because I always you my role as an
00:41:58
investor first and foremost is a version
00:42:00
of the hypocritic oath just Do no harm
00:42:02
don't make things worse right um maybe
00:42:06
you can't help but at the very least
00:42:08
don't like make things worse right and
00:42:11
my one worry I kind of said it a little
00:42:13
bit before is that some of this stuff is
00:42:15
actually making things worse so let's
00:42:17
kind of stop doing what we think makes
00:42:18
things worse and let's try to focus on
00:42:21
again the incredible value creation that
00:42:24
will come we have the chart that shows
00:42:26
it over 30 years we know that technology
00:42:29
creates incredible new companies let's
00:42:31
just kind of let that process play out
00:42:33
ladies and gentlemen very much thank you
00:42:35
Thomas F thank you that awesome thank
00:42:39
you thank you
