Happy New Year. Happy New Year. Happy New Year. Guys, listen,
look at this. It’s now it’s candle season. Oh god. Look at
the equanimity. This is equanimity. This candle costs
$24, 000. It is an extremely rare Brazilian sandalwood. You
literally have to go into the Amazon and like, you know, you
you basically have to like, I mean, find extinct trees. No,
bro, you gotta you gotta tear out like two acres of
rainforest and then you find this one tree completely, you
know, sacred and then you chop it down. You make this and it
lasts for a full 45 minutes. How do you like that sweater
Karen? Happy New Year. Candle Karen’s are going to be
Karen. Candle Karen’s are calling it right now. The DMs
are coming. You guys wanna hear about poker last night? Oh,
did you go? So, I go down. I take my eight-hour drive down
south to and I pull in and you know, the security guard
greets me nicely as always. I walk in and I walk towards the
poker room and everyone’s in there with the door open like
someone just got shot. Masks on freaking out and Chamath is
inside the house and I wave and he’s like, get in here and then
I go in. He’s like, oh, who is positive? Max, the dealer
tested positive and everyone been hanging out in the poker
room with no masks on. Uh oh. And so, you know, they’re super
spread out. The only the only two people that were exposed to
Max we sent home. Yeah. So, everyone starts freaking out.
It shuts the shuts the poker game down. Chamath kicks
everyone out, sends everyone home, and then he’s like,
alright, let’s go have dinner inside. You know, we’re we’re
not, we’re gonna, we open up all the doors. We’re gonna kind
of Lysol the room tomorrow. We all go in and have dinner or
you know, Chamath and I go in and have dinner with Matt and
the kids and then Chamath starts thinking, you know what?
It’s okay. They were only exposed for a few seconds. Let’s
call Phil back. Okay, let’s call back. Let’s call Keating
back and then they all come back for dinner and at this
point, it’s become like a dinner party and then a couple
of glasses of wine in and then it’s like, you know what? The
room’s probably safe. I mean, the whole poker night went
through the entire cycle of psychology of COVID. The the
whole pandemic is like, oh my god. Get everyone out. Lock up
and then by the end of the night, it was like, you know
what? Let’s go in the room and just play poker and give each
other COVID. They got to acceptance. They got to
acceptance. They went through the whole emotional cycle of
the pandemic in one hour. Does anyone know anyone who’s a
serious case of Omicron? No. I mean, I know dozens of people
at this point and they all say it was a cold. Yeah. Dozens of
people and that’s just for Jake. I was on social media.
Jake, I was on social media giving everyone the update
like, oh, I sneezed today. I’m oh, I still tested positive.
He’s like showing his positive test.
But I was doing that as a service. My superfans, my
stans were concerned. It’s the only good test result J Cal’s
ever had. Yeah, exactly. It’s the only positive. That’s true.
Don’t let your winners ride.
Rain man, David Sachs.
And it said, we open sourced it to the fans and they’ve just
gone crazy with it. Love you guys. Nice queen of quinoa.
Elizabeth Holmes has been found guilty on four counts of fraud
faces 20 years in prison for each guilty count they would be
I understand served concurrently. Most people I hear
speculating four to 10 years and then I think you can get 15%
off for good behavior. Again, I’m no expert on that. But
that’s what I read. Guilty counts were two counts of wire
fraud and two counts of conspiracy to commit fraud. She
was originally charged with a total of 11 counts of fraud.
Four were guilty for we’re not guilty. Three were a split
verdict. The jury said they were unable to come to a unanimous
unanimous verdict on three of the counts after more than 45
hours of deliberation quote from the Wall Street Journal article
juries were persuaded that Miss Holmes conspired to defraud
investors. This outcome could be significant because it means
hundreds of millions of dollars of there are no investors that
there are those investors lost could be taken into consideration
during her sentencing is big numbers. The jury was split
however, on which of the six investors who testified were
defrauded the jurors convicted Miss Holmes on three counts.
These included $100 million from the family office of former
educator, ed education details J. Cal’s doing it for the
audience. So anyway, thoughts on the legal technicalities of
the case, counselor sex? Well, we’ve talked about this before.
I mean, I think so at the end of the day, she was convicted on
the counts related to deceiving investors. She was not on the
counts related to patients. I think that makes sense in that
her obligations to investors are very clear. Whereas I think
the the patient related duties are I mean, she had them, but
it’s a little bit less clear. So I mean, look, it’s what we’ve
always said here. As a founder, you can be as messianic as you
want to be, you can promise, you know, anything about your
vision and what you intended to the future. But what you must
do is be accurate about the current state of your business,
you cannot lie about the deals that you’ve made about the
current capabilities of your product. And she was putting,
you know, logos of customers she didn’t have in her deck, she
was lying about the military being a customer. So she simply
exactly misrepresented where she was at that time at the at
when these investors invested, and that was the red line she
should not have crossed. And I think in that sense, it’s a
pretty simple case. I think, you know, the part of this, again,
you know, the piece of this that’s interesting, is not the
case itself, but really the media coverage, because the
media wants to portray this case as an indictment of Silicon
Valley. And the thing you keep hearing over and over again,
none of us were involved.
Well, it just factually, yes, exactly. We weren’t involved.
But what you like, so there’s not a single person in Silicon
Valley, I think, who put in a single shekel into this thing,
who actually does this as a real job, Tim Draper. Well, he
doesn’t put in a little bit money as an angel. And then he
didn’t put a single dollar in after that, I’m saying, you
know, you didn’t come to social capital or graph ventures, or
to Sequoia, or to TPB, or to Google, to raise money for this
thing. None of that happened. You know, Saks is right, like
the the summary of the Wall Street Journal, Nick, you can
post it, because I put it in the group chat, basically
summarize the fraud. And it’s exactly what Saks says she
affixed the logo of specifically, I think it was
Pfizer, that had not validated their own assist technology in
materials she presented to investors. So she’s basically
like Pfizer said, this is a go. And apparently, that wasn’t
true. She gave the false impression that the devices were
used by the US military. That’s what got all these military
folks to sign on board and support it. That wasn’t true.
And then and then she, the biggest coup was that she
signed a deal with Walgreens and Safeway to include its
devices in hundreds of stores. And then many investors saw
these contracts as an endorsement of the technology
and growth potential. But basically, those folks did no
diligence and bought the hype. And so it was just a whole
cycle of this thing that basically fell apart because
the test didn’t work. Freeberg. What are your thoughts as our
life science guru? What’s most interesting to me is how does
this get to this point? If you’re Elizabeth Holmes, you’re
19 years old, and you start telling your story, and the
more grandiose the story you tell is the better the reaction
you get is, it becomes reinforcing, and the behavior
extends a little bit further and a little bit further. Every
time she told a story about how incredible this tech was, it’s
just one drop, you take one drop, it can measure everything.
When she simplified it and reduced it to that, and it was
such an incredible statement, and she saw the reaction from
people, she’s like, wow, that works. Let me repeat it. It’s
like any good salesperson, they figure out what sells, and then
they sell it, and then they repeat. And what’s interesting
to me that, you know, you talk about the media, but when she
went out and told her story, and got incredible press coverage,
because she was a young female doing something that was going
to save lives. There was this altruistic Steve Jobs esque
kind of combination here. The media wrote a glowing review of
her. And then she said, wow, look, they said something great.
Let me go do that again. And she got a bigger media piece
written a bigger media piece. And the more she said, the
bigger she said it, the more she claimed she could do, the
bigger the story got, the more coverage she got. And the whole
thing became this kind of reinforcing cycle. And I do
think that the press coverage that she got, as she was
building this business, which helped her raise capital helped
her attract employees helped her get Walgreens and Safeway to
the table, allow her downfall, it allowed her to build the
business. But it’s exactly what created the narrative that
wasn’t true. And so the coverage that the press gave her and we
see this every day, you guys all see these top 50 companies.
And we all know, having met a lot of these companies, as you
go down that list, this, this 20 companies are total scam
companies, or fraud, they’re not going to work, they’re grifters,
all the stuff that you guys might say about the quality of
those businesses. But the press reporter isn’t doing diligence,
they’re not a no, you know, it turns out all the diligence was
done after the fact. And then it’s like, well, maybe we should
go do some diligence. Oh, wait a second. Because the press
coverage has now created this hype story about who and what
she is. The diligence actually pays off, because you have
something to take apart. If she was just a nobody startup that
raised $30 million, and they’re still trying to figure out their
way, there would be no value in any reporter doing diligence on
her and trying to figure out what was actually there. It was
because the story got big, that it gave everyone including John
carry you an incentive. He’s the Wall Street Journal reporter
who broke all this and incentive to go in and take this thing
apart. And so it’s really unfortunate, and it’s really
self reinforcing that the press coverage that created the
circumstance here, ultimately also enabled them the press to
take the thing apart, and you know, land land this woman in
jail. And I’m not saying she did nothing wrong. But I’m just
saying that there’s a system here. And the system is set up
in such a way that she manipulated the press. Yeah,
she’s
let me ask you a question, you freeberg. And then I got a
question for Saxon Shema, her basic premise, that one drop of
blood could get you hundreds of results. Let me just ask you a
question freeberg. At what point would one drop of blood or so a
nanotube be able to at our current technological, you know,
ramp, be able to give us 100 different data points on a
person,
every time you’re generating a data point, you’re running
what’s called an assay, which is a measurement of something.
The question is, how much of a molecule are you measuring
against what volume? Is there enough of that molecule in that
volume to give you a statistically good reading. And
that is a function of how precisely you can measure that
thing. So there are there are great advances happening right
now in a domain in life sciences of hardware technology
called microfluidics. This is the manipulation of Pico leader,
you know, very, very small volumes of liquid, and then
being able to run chemical assays using biochemical
techniques, which we now have all these amazing new kind of
tools like CRISPR and other things that would allow us to
get a much more precise measurement with a much smaller
volume than has ever been possible. So we can manipulate
small fluids, we can measure them. So there’s nothing today
that would physically say, we cannot do many of the things
that she claimed to have been able to do. But there are
there’s a stacking of technology assets that need to be done to
make that happen in reality,
take a guess, each of those assets are very different. So
look, you could do it with cholesterol right now, you could
do it with blood sugar right now. But you couldn’t do both.
You could, theoretically, you could put them into a device
and do that. No, the reason the reason why lipids work, can you
do 400 things we cannot, we cannot, I’ve actually funded
three of these businesses, and I’ve poured almost 100 million
dollars of money into it, and they’ve all failed. And the
reason is exactly what he said, you can do cholesterol because
lipids are big enough, you know, and so you can basically
build an assay that can pick that off with a drop of blood,
you can do a reasonably good job with pretty large error bars on
sugar. But all of this other stuff where you’re going to
replace like a, you know, a CBC, or these broad, you know,
profile panels that we all get once a year to assess our
health. Today, I don’t think that that’s necessarily within
reach, it’s not within technological reach. And it’s
not because people aren’t, you know, smart enough, it’s just
that not enough of this investment is happening. Because
then you go back to this whole idea where the funding cycle
needs to see a big payoff for the capitalists to want to get
involved in this thing. And there really isn’t, you know,
it’s not as if, like quest and lab core are printing $400
billion of revenue and profits. And so it’s not like there’s a
massive economic incentive to run in. And so even when you
know, we have tried and multiple occasions with completely
different teams of incredible people, every single time we
have failed. So there’s a physics law here, that’s just
not physically possible. She made this claim.
And don’t don’t make it broad. There are things there are
molecules, there are pathogens, there are things you can
absolutely detect small molecules, molecules, you can
you can detect with a drop of blood, you know, magic counting
how many blood cells you have in your whole body, you know,
using an estimate from a single droplet of blood, because you
know, we have these machines called flow cytometry machines
where we sort blood cells. And then it’ll tell you how many
red blood cells you have, and how many different kinds of
white blood cells, that’s a big part of your annual checkup
that you’ll typically get, you know, you need a good amount of
blood to get an accurate reading on how many blood cells there
are using even just using lasers, and you know, these
sophisticated machines, can you reduce that down to a droplet
physically, probably not right. And so there’s some, it’s not
universal to say this is possible, it’s not possible,
there are elements that are absolutely possible, some of
which are being done today. And there are some things that are
going to be very hard to pull off.
Got it. And she was making these claims as early as 2003
when it was founded. So we’re talking about 19 years ago. And
we’re saying here, it’s not going to be possible to do
hundreds of these things, maybe in our lifetime, we’re talking
about decades from there may need to be some significant
breakthrough. Saks, let me ask you a legal question. I was on a
podcast, and I said to them, why haven’t the prosecutors had
Bill Maris, who is a friend of freebergs who helped me get him
on the podcast. He was great. Thank you for that. David, on
this week and startups, very smart guy, very smart guy. And
he came out publicly when he was running Google Ventures. And he
said, we looked at it a couple of times, he’s referring to
their nose. But there was so much hand waving, like, look
over here, that we couldn’t figure it out. So we just had
someone from our life science investment team go into
Walgreens and take the test. And it wasn’t that difficult for
anyone to determine that things may not have been not be what
they seem here. Now, Saks, I was on this podcast, the dropout
which I think is an ABC News one. And I said, why didn’t the
prosecution bring up, you know, GV, let’s assume Sequoia and
recent and, you know, the 20 top firms in the valley, who said
no, and they all said no, because she wouldn’t show them
due diligence. And I asked them, why didn’t the prosecutors
bring up those 20 firms and compel them to testify about why
they didn’t invest to give the counter example. And she said,
I don’t know. Wouldn’t that have been a much better strategy to
say, here are the credible people who didn’t invest?
I’m not sure I see the relevance of that, because Elizabeth
Holmes crime was not promising something that she couldn’t
ultimately deliver on. It’s okay to fail in Silicon Valley.
One of the best things about Silicon Valley is that we don’t
punish failure. Her mistake was making misrepresentations to
the people who did invest.
Right.
If anything, actually, what Elizabeth Holmes maybe should
have done was call up some of those firms. And they could
have said how easy it was for them to figure out that they
shouldn’t have invested. Maybe that would have been a way to
kind of muddy the waters on her side.
I was thinking that they would have said, hey, she wouldn’t
show us the technology. And when we did our independent
diligence, she wouldn’t let us diligence we did outside back
door diligence. It failed.
There were red flags all over this thing we had talked about
in our poker games way before this thing went off the rails.
The fact that there were no major VC firms involved who
had expertise in biotech who could do the diligence.
It was all sort of, it was basically family office money
of people who weren’t in Silicon Valley, writing big
checks, whether it was Rupert Murdoch or the DeVos family or
what have you. There were just red flags coming off this
thing, which is why Silicon Valley was not by and large
duped by it. The people who were duped by it were the people
that Elizabeth Holmes was able to sell the patina of Silicon
Valley to, and the media, because the media, what we’ve
seen over and over again is they don’t fact check stories
when they fit their priors. The prior here is that, you know,
what the media want to believe is that the next Steve Jobs is
going to be a woman. And so when Elizabeth Holmes served that
up to them wearing the black turtleneck, it was too good a
story for them to fact check too heavily. And so they ran with
it in the same way, in the same way that, you know, the
ivermectin hoax that Rolling Stone ran with was too good a
story to be fact checked, because they want to believe
that the MAGA people in Oklahoma were eating horse paste.
I mean, no, there’s, there’s 100 better examples of just I
mean, just to be generic sacks of other startups that we all
know are total nonsense, and total nonsense. There’s like up
about them. There’s a there’s a fraud in biotech going on right
now that a David and I, David and I saw up front. I mean, it’s
like, this stuff is crazy. It’s really, really great.
So look, I mean, I think the moral of the story for
entrepreneurs, I mean, I think there’s a couple of takeaways
here. Number one, you got to be really clear with the present
state of your business. It’s okay to talk about your grand
vision of what you’re going to do in the future. But you cannot
be inaccurate in any way with respect to your current numbers
and partnerships, and deals and current capabilities. I think
number two, I think, when you start working with the media in
this way to promote your company, you’re playing with
fire. Because the media really has two kinds of stories, they
build up and they tear down. And when they’re done building you
up, they’re going to tear you down, because that’s the only
story left to write. So if you’re gonna go court the media
in that way to try and get publicity, you better be really
careful how you do it. And you better be really accurate. And
you better not give them cause to later regret pumping you up
because they will tear you down even harder if you do that.
I think I think the more important danger that I just
like to speak generally to for a second is to not let other
people do your thinking for you. The investors that came
into this business came in under the assumption that this
was a real business, because the press had written about it.
And the press wrote about it because the general had joined
the board. And the general joined the board because his
buddy, George Schultz said, Hey, you should meet this lady.
And the whole thing ended up becoming this roundabout, where
no one actually did any original thinking and no one
did any actual diligence. And the whole thing ended up being
I’m sorry, you know, now you’re talking about actually how
Silicon Valley works. So that’s fucking bullshit. Yeah. Okay.
You don’t think these dopes run around thinking of Sequoia
benchmark, social capital, craft, invest, I’m just plowing
the money. And of course, they do. They don’t even think
social proof, they assume that we’ve done our job.
You think they’re doing principal diligence, these guys
like the Silicon Valley ecosystem.
This is also how the Bernie Madoff scandal, you know, got
so far ahead of itself. No one actually went in and did the
of those. Everyone assumed that because someone else has is in
this thing, and because someone else is involved, or someone
else, something nice has been written about it or said about
it, it’s worth backing and like the lack of original thinking
and business and life in general, I think is, you know,
one of the biggest, you know, risks that each of us takes.
And it’s why it’s really important to learn how to think
for yourself. I have deep respect for early stage
investors, because they have to get in and make some critical
decisions. Some people make those decisions about the team,
right, the psychology of the co founders. Sometimes it’s about
the end market. And sometimes it’s about a deep analysis of
the traction. But you have to honestly, let’s be honest, there
is a valley of funding between the Series A and maybe the D or
the E, where I really think a lot of folks just look for
signaling value based on who the Series A investors were.
I’m not sure they making but I’m not sure that those family
offices were any worse or any better. Like, maybe the DeVos
family looked at Rupert Murdoch and said, he’s smart. So I’m in.
Yeah, that’s exactly what happened. That’s so different
than all the Series B and C firms and say, Oh, benchmarks in
admin. Totally. It’s the exact same thing. Totally. I literally
had a situation and I think I brought it up in a previous
episode where I was working on a deal. It wasn’t like a major
check for us. It was, you know, a six figure check. And they
said, none of the other firms are asking for diligence. Why
should we give it to you? And I was like, how much are they
crazy? And they were putting in more money than I they were
putting seven figures in crazy. And I said, when you ask for
diligence, now that some of these founders look at you,
like, how dare you? Yeah, exactly. They will know in this
case, they were insulted. And they said, we’re not giving you
diligence. And they and we walked away. It’s like visiting
the house. Yeah, like buy it without this company that Dave
and I called called, you know, well, David was calling it
Theranos 2.0. But this couldn’t even explain gross revenue. They
couldn’t, they didn’t, it was like gross revenue, asterisks.
And it’s like, if there’s one metric on a P&L that can never
have an asterisk ever, the top line, the top line, gross
revenue, the money that came into your bank account, how many
checks came in, I get EBITDA, I get gap, I get it. Okay. But
gross revenue, asterisks. What are we talking about? Open the
register and count the money. And so I just remember asking
the simple question, like, um, can you just take the asterisks
away and just this is a company that two of you were looking at
together. You and I have talked about many times. Oh, really?
You’re Theranos 2.0. Sir, that’s what this guy and I and I
learned a lot about Delaware law. I don’t know if you guys
have talked about this company. Yeah, well, you in the text,
you’re like, I’m shorting. Yeah, we’ll tell you in a minute.
We’ll tell you. All right. Yeah, you know what it is. But
anyway, I’ve been getting a big lesson here about Delaware law.
There’s something called a section 220. Have any of you
ever had to file one of these? It worked out really well. Sorry,
go ahead.
Any of you aware of what a section 220 is or heard of this
before? Basically, in a Delaware corporation, if you’re a
shareholder of any size, not just like a board member with 10%,
or whatever, if you feel there’s malfeasance going on, you can
file this 220 in Delaware. And according to this, a great
Scandinavians article on this, the the Delaware courts are
taking it very seriously that if there’s any accusation of any
kind of malfeasance, especially financial, any shareholder, even
tiny can get all of the books. And in detail, not board minutes
not top level P&L, like detailed financials. And so for people
who are running companies, and if you’re involved in private
companies, too, or this is in private companies, look up
section 220 of the Delaware general corporate law, I
remember at Facebook is because we had these vagaries of having
to control shareholder count, or stuff like that. And
information rights. Yes, we actually kept the financials on
a physical computer that was not connected to the internet. So
the people that wanted it, had to come to our office. And then
we remember them in like a windowless room without their
phone or something. Is that I think that’s, that’s, that’s how
they avoided people filing 220 requests. And so just something
for people to be aware of on both sides of the table, that if
they’re shenanigans going on a company founders think, well, I
don’t have to give any information to my shareholders.
It’s not true. And it’s not true. Whatever you have an
information rights, whatever your lawyers wrote, is not above
section 220 in Delaware. So just keep that in mind. I got a case
like that right now going on, where founder won’t give you
information. Well, it’s not the founder, but there’s a company
that just sold and they won’t tell the shareholders like the
terms of the deal. What? Yeah. How’s that possible? Good
question. But it’s it just reeks of fraud. I’m not going to say
the name yet, because I’m hoping that they’re going to start
acting in a more kosher way. But it’s the most egregious thing
I’ve ever seen. All you have to do is talk to your attorney at
Wilson Fenwick, or whatever one of the cohort of
management of the company. They’ve engaged in a sale, the
salesman publicly announced we have reason to believe it’s in
the hundreds of millions, and they won’t tell anybody the
terms. Yeah, file a 220 file 220. And you know what, they’re
public. So then the crazy thing about these 220 is is it used to
be that all of the information had to be private yet to sign
like non disclosures, whatever. And now, in certain
circumstances, I think it’s in the best interest of all
shareholders, the 220 information can be public. And
so that is just like a sniper shot to anybody who is doing
any kind of shenanigans. We had a company in the same situation
who wouldn’t tell us about a sale. And then I have a call
with the board because I own 7% of the company. This is years
ago. And I said, Can you explain to me what happened here?
And they’re, they’re like, yeah, well, we’re doing the sale and
blah, blah, blah. And it turned out the bankers were taking 40%
of the sale, whatever. And I was like, Okay, well, I’m not
going to approve this. And you need my approval. Let’s talk
about how we can make this work, because we have outside funding
that the company’s turning down to do a sale that everybody’s
losing their money on doesn’t make any sense. And they said,
Well, we can’t really do that, because we’ve already sent the
eight employees over to the new company that’s buying it. I was
like, What do you mean, like, we ran out of money to pay them.
So they all moved over to the payroll of the new company. I’m
like, you haven’t closed the transaction yet. Well, it was
crazy. Like, there’s some weird stuff that happens to private
companies. Yeah, this stuff is always at the peak of when
there’s a correction, right? I mean, this may be a good segue
to talk about what’s going on. It’s a great segue. But it’s
like that level of grift happens right before. You know,
basically, we have to rewrite valuations, you know, because
of entrepreneurs, entrepreneurs just take so much. Well,
there’s just a small, small percentage of them, but they
just take so much leeway in pushing the boundary. And, and
sometimes it’s other board members who are acting their own
interest. But I solved this problem really easy. I called
the CEO of the public company that was buying them and
explained the situation. He’s like, talk to my CFO, a friend
of the pod, whatever. And they said, How do we solve this with
you? I said, Well, this is how much money I have in this, the
value of your company, how would you like me to be an advisor to
your company for the same amount of that value in shares?
Oh, so you grifted? So no, that’s great. So basically, you
got bamboozled. And so you bamboozled everybody else by
letting them use my leverage. And then they said, Okay, we’ll
make you an advisor. Then I took the advisor shares. And I wrote
a letter and pledged them to my investors. And my investors are
now three x their original investment. And I said, I’m not
letting it go. I’m not signing the paper until I get the 250k
that my investors put in period. And then they did it. And now
I’m up. But let’s segue. crazy market pullback, the great
write down has occurred charts from altimeter. Our friend
Brett Gerson, and I assume show a major regression to the mean
for tech stocks as index median enterprise value next 12 months
expected revenue, yada, yada. This includes people like Adobe
data dog, Shopify, Twilio workday. And as you can see
here on the chart, which will pull up, sacks, explain to us
what’s happening here. Well, it’s a major regression to the
mean on value on public company valuations in both sass, but
also more generally, the high growth stocks have corrected
more than the indices. So that would imply that there might be
more correction to come against the indexes. I think the growth
stocks have already taken the bulk of the hit. But what
triggered it this week is I predicted and you guys had
similar predictions on just a few weeks ago, that this would
be the 2022 be the year of the correction. And it really began
in November, you had the Fed, you had Fed governors make some
hawkish statements about the about inflation, not being
transitory about the need to raise rates. Then we had the, the
Fed Open Market Committee meeting, this was in, I think,
around December 15. And they announced what they were going
to do on rates. And now this week, the minutes of that
meeting were released. And it basically, it said something
that was completely different than what they announced to us
three weeks ago. And so the market basically just seized up
and went into convulsions. And specifically, what they said,
you know, in mid December was that they were going to taper
faster, they were going to end Q1, sorry, they’re going to end
QE at the end of Q1 instead of Q2. And then we’re going to have
quarter point rate hikes in Q2, Q3, Q4. That was the plan for
- And then there was additional guidance that they
were expecting three more quarter point rate hikes in
- And two in 2024. So that was sort of the three year plan
that was laid out. Then we find out from these minutes, and I
guess these minutes weren’t leaked or anything, they
published them after like a three week revise and extend
remarks type period. But what we find out is that they’re what
they were talking about was having a rate hike as soon as
Q1. And not just ending QE, but actually shedding assets, which
is like the opposite of QE. So instead of basically going out
there and creating money, shrinking the balance, yeah,
shrinking their balance sheet. So instead of going out and
buying bonds, they’re going to sell their bonds, which will
reduce the money supply. So look, if that was their view
three weeks ago, why didn’t they announce it? I mean, my
problem with this is it makes the Fed look like they don’t
know what they’re doing. Because they announced something just
three, three and a half weeks ago, that’s completely at odds
with the statement they just put out. So either something
changed in the last three weeks, and there’s been no data, or
they don’t know what they’re doing.
Just so you know, they have a little bit of a track record of
this. So in 2018, it looked like there was going to be
inflation. And Powell tried to get ahead of it. And he raised
rates and the the market completely collapsed. And they
were looking, I think, at Chinese data at the time. And
it looked like you know, China was turning, you know, going
crazy, then China completely turned over. It was a complete
head fake, the economy wasn’t rip roaring, inflation didn’t
exist. And they basically just curtailed a lot of investment
and destroyed a bunch of value. So this time around, I think
they’re very sensitive to not correcting too quickly. But then
the opposite thing happened, which is they probably waited a
little too long. And now, you know, we’re correcting too
slowly too late into the cycle. And we’re just sort of
digesting that reality. And so I think that, you know, we’re
probably to be honest with you, like, actually, like, we’ve
puked it all out, for the most part, in my opinion, you have
to remember, right? Like, the big difference between now and
even 10, and frankly, more importantly, 2030 4050 years
ago, is how many computers are involved that trade, how much
passive money is involved that owns assets, and how much of
this stuff is sitting on the sidelines still in money market
accounts and munis. So if you look at those markets, there is
a ton trillions of dollars waiting to find a home. And
what we’ve now done, and Brad’s charts show this is, we’ve
basically chopped the head off of all of these fast growing
growth multiple, the underlying companies have not changed once
until, right, these companies are still growing by crazy
amounts, like snowflake is still an incredible business.
Unbelievable. But the multiple that one was willing to pay has
been there is has been very much rerated, as is a bunch of
other companies. So let me ask you a question. If we’ve gone
from these 5060 70 multiples time sales, and now it goes back
down to 20. Is that dare I say a buy signal? Well, all those
trillions of dollars start moving back in because who wants
to be in a money market? I don’t I don’t know. And I can’t
really call these things. But one really smart person that I
talked to this week, you know, he actually liquidated
everything in October, and November.
And, you know, and I don’t know, we talked about this on the
pod. But you know, I was feeling so much tension at the end of
last year, I actually, when I look back on q4, it was probably
the most difficult quarter of my professional life. And just
trying to manage risk. And I exited a ton of positions, all
my pipes, you know, my third party pipes, I basically sold
off except for one, you know, I generated some liquidity and
other places as well. And I was glad that I did that. In part,
because I saw, you know, what he was doing, and in part, because
you know, Jeff and Ilan were selling. And I thought, I mean,
this is just this is crazy to sit on the sidelines and, you
know, be the bag holder here. Going into q1, I talked to the
same guys. And what he said to me, which I think is very smart
is, you have to really look at the first and second derivative
of the 10 year bond. Because when that stops moving, like the
10 year bond is this beautiful barometer of the collective
wisdom of every single investor in the world, about what they
think about long term growth and inflation. And it’s a really
important market. You know, we’ve talked many times look at
the 10 year break, even if you want to understand where
inflation is going, we started to talk about that seven months
ago. And if you look at that, the rate of change, so the
volatility in the 10 year yield is slowing way down. And if that
continues to hold, that means that people are really saying
there’s a small amount of real inflation, a reasonable amount
of transitory inflation, and we’re about to kind of wash most
of it through the system with, you know, 100 basis points of
rate hikes. And if that’s the case, then you may see a quick
pullback, you know, in q1, and we’re back to the races again,
because of all this other money that’s going to say, I got to
get back in. And if you look at all these corrections, in the
world of computer traded algorithms, and ETFs and passive
money, and it’s all the snapbacks are so fast, you
correct 20%. And then you whip it back and you go. So I don’t
know. I mean, that’s one view based on the past. But when you
have these big swings, remember, it’s not that every
issue moves perfectly in sync with every other issue. So there
are these call it over adjustments that happen within a
cohort. So within a group of companies, some of them will
trade down much farther than others, the multiple will
compress much further than others. And there’s certainly
opportunities within as there is in any market that’s moving
quickly to find businesses that now are prices mature, non
growth value businesses, and they’re profitable and growing.
And there’s a bunch of those out there now. And that wasn’t
the case a month ago.
I don’t think a single thing in the last quarter has changed in
the underlying fundamentals of the majority of businesses that
are public. And I actually think for the most part, nothing has
really materially changed for the majority of private
companies. All that’s changed is what you’re willing to pay in
the future for it. And the one thing that hasn’t changed is
what you’re willing to pay in the future for the private
businesses. So the real question, you know, for sacks,
and, you know, for the active investors in the private
markets, which I don’t know what to think about is, will the
haircut that we’ve all taken in the public markets, spill into
the privates, and it’s starting, it’s starting, it feels to me,
it’s not just about what’s going to happen with new emerging
growth companies. But I mean, you guys correct me if I’m
wrong. But there are hundreds of companies that have raised
billions of dollars at valuations that if they look in
the public markets, now, they are never actually going to
achieve if they were to go public in the next three, four
or five years based on their projections.
So to your point, so what I’m saying, yeah, there are 900
unicorns right now, 900. And so once you get to look, it’s one
thing to be a $200 million company and sell to Microsoft or
whatever. But when you’re a billion dollar company, there
are very few buyers.
I just want to point out, there’s a huge disincentive for
an investor or a shareholder of VC or private equity firm to
take a big write down on a company like that. And so there
is always this push to what do we do next? And it creates this
certain certainly I can tell you, yeah, I’d love your point
of view, but you’re this really like unhealthy tension. Because
to take a write down on 900 unicorns is going to cause a
write down of hundreds of billions of dollars across all
VC portfolios in aggregate, because they’re not going to end
up going public.
Well, sorry, just to finish your thought, because the end
market is only to go public. There are very few exits. Yeah,
there are no and not billions of dollars, because you have to
think one or two sidelines. Okay. You know, even if you look
at like visa, nobody’s allowed to buy these companies. I have
an example that I can tell you, I don’t know, mid tier, maybe.
But my point is, when you have 900 companies with a billion
dollars in plus, they have to go public, they have to go
public. And so you can’t go public into a valuation
framework that values you at 30 to 40% less of your last
private mark, right? Yeah, it doesn’t work. You did have to
use tomorrow. So this is an important question, because
isn’t that going to be the case that all these VCs with the
2015 2016 2017 2018 2019 vintage are going to end up
having their day log up these great marked books right now,
you know, the books are all marked to three x, you know,
multiple on invested capital, and now they’re going to end up
having these liquidity events that are going to come in at
shockingly low valuations. And there’s going to be this great
rewrite down and retrenchment. I can tell you, there’s a couple
of examples. One is the athletic yesterday, which had raised
money at 500 million just two years ago, just sold for about
500 million to the New York Times. And those investors
basically put money in, and they got their money back. It’s
a push. So I think you’re gonna see a lot of these. No, I’m
agreeing with you. Yes, I’m going to give you the examples.
And there’s also your acquisition by a tier comp
acquirer. And so there’ll be plenty of those that occur. So
there’ll be a lot of pushes, I think is my prediction of those
900 unicorns. And then for a lot of these SAS companies, you’re
saying you’re you think that a bunch of them are going to sell
for under a billion dollars, and the VCs because they have
preference, they’re going to get their money, correct, correct.
I think it’s going to be a lot of these pushes where I don’t
know what is it in blackjack, David, when you’re playing those
three hands, and you get a push, like, and it’s like, okay, I’m
gonna live to fight another hand. Now, which we’ve seen
sacks do a number of times. And then for the SAS is where sacks
I’m interested in your position, because we saw in SAS, all of a
sudden, the private market 30 4050 6070 times top line. And
now it’s gone back down to 2030 40. So those companies now
basically have three the public markets have but I don’t think
the private market has happened already. Everybody’s pausing
and so for the people who raised that 50 x, congratulations, you
did the right thing. If you have enough money to fill in that
valuation, congratulations, though, I mean, it seems like
they’re saying it is pretty tough position now. Yeah, you
know, you just raised money at a billion dollar valuation with
10 million of revenue. You’re like, let’s say let’s say, I
mean, like, what are you gonna do? What are you gonna do in
your next round? Because you’re burning 100 million a year now,
or 40 million or whatever it is you’re burning.
Almost all the companies I’ve seen in this exact situation
you’re talking about have that 20 million, they got a billion,
they raised 100 million or 200 million. And they’re basically
now saying, Okay, we got to make this last until we can catch up
to that valuation and get to 50 to 75 million. So I think you I
would take that deal as a founder and as an investor,
because it takes out the downside. And now you just have
to worry about catching up to the valuation and you have four
years of runway. They’re not gonna
know. Those companies do not those those companies absolutely
do not have four years of runway, I will bet dollars to
doughnuts, they have two years or less. And most of these
companies have 18 months, which means they got to be raising in
six to nine. No, correct. They’re changing. They’re
changing their spend. And they’re changing their spend.
They’re not firing anybody. You’re not hearing about layoffs
at startups. Okay. All right. You’re not hearing about it. But
maybe they’re changing their forward looking growth plans.
What are you seeing, sex? I’m telling you what I’m seeing.
What do you think? I think that the trickle down effect is
inevitable, but I’m not sure it’s fully kicked in yet. It’s
going to take a few high profile deals to land at, say, 50 times
ARR instead of 100 times ARR in order for everybody to know that
there’s a new valuation level. So if you look at the
altimeter chart on set public SAS multiples, let’s see, I mean,
Nick can pull it up. It basically it’s the SAS index, it
shows median expected value to next 12 months revenue. And
during this sort of late 2020, early 21 period, it got as high
as about 15 times the historical average. Yeah. Well, for next
12 months or revenue, which is sort of that kind of makes
sense. So historically, it’s around eight, right? So
basically, all the valuation levels doubled. And now they’ve
come down to about 10 times. So you could say that if it fully
reverts to the mean, we still got like another negative 20% to
go. I don’t know if that’s going to happen. I mean, I think there
has been a greater recognition that SAS businesses are some of
the best businesses to own, right? It’s they are subscription
software businesses, great gross margins, they just keep
compounding. So maybe it will stabilize at 10 times. But I
think what we can say with 2020 hindsight is that the record
price levels we got to the public markets in 2021 were sort
of unusual and unique, and probably the result of this
incredibly expansionary fiscal and monetary policy was coming
out of Washington. Now, has it trickled down to the again, VC
markets yet? I mean, the way that that has to happen is that
the latest stage investors, the crossover investors who invest
in both public markets and private markets, they have to
to pay, they have to start paying less for the latest stage
growth companies. And then, you know, all the downstream VCs are
going to start paying less as well. Because, you know, if you
know, the markups are lower, you have to take that into account.
So, look, all of this is underway right now. I mean, I
gave a Bloomberg interview in December, and I think I went on
Maria Baromo show around that time as well. And I kind of
warned that all this was coming. And yeah, we’re in the
midst of a giant rewriting, because we’re realizing that so
much of the peak values we are seeing in 2020 and 21 were the
result of artificial liquidity. And it’s what you guys
predicted, you know, it’s one of our big, you know, I guess my
big prediction for business losers this year were asset
classes that were highly dependent on liquidity, you
guys predicted crypto would be one of those clearly, it’s
taken a massive hit. I mean, have you seen how much the
crypto markets are off just in the last week? So it’s so much
for them being uncorrelated. No, it’s highly correlated. Look,
the coin is going to be uncorrelated. So the markets are
like a sponge for liquidity. And the more liquidity there is
out there, the more money can flow into a more speculative
asset class. But look, my objection to this, I mean, is
that if you look at the Fed’s actions, I mean, I think
Chamath is right that they waited way too long to react.
And during the crisis, they overreacted. I mean, they
pumped what I mean, we on a previous pod, we showed the
assets between underreaction and overreact. Yes, exactly. And
now they’re I think they’re in overreacting again. I actually
think they nailed it in mid December, they nailed it by
giving us business certainty around what the new rate
environment was going to be. And just three weeks later, in
the minutes to that very meeting, they completely
undermine the certainty or the, the greater level of certainty
and predict the predictability that they had provided markets,
they’ve now introduced massive uncertainty. So it’s just it’s
unbelievable. It’s like they’re pilots and like, they stalled
the plane. And then they’re like, Oh, let’s pull back. Well,
no, there’s more, they’re kind of pulling out the manual and
learning in real time. Yeah. And it’s like, you need to just
point the nose down a bit and add a little bit of speed. So
you get some lift, like it’s really as tragic that the
performance of our government at every level over since COVID
at the last, you know, since 2020. I mean, it’s been
abysmal. I mean, first, you have the self inflicted wound of
lockdowns. I mean, the economy is going to take a hit no
matter what, because highly at risk people would have stayed
home and reduce their economic activity. But instead of just
protecting the at risk people, we had to lock down the entire
economy, we padlocked Elon’s factories, and on and on. So we
basically shut down the whole economy for no reason. And
states like California kept it going way longer than they had
to. So then the government just prints, like 5-6 trillion and
the Fed doubles the size of its balance sheet. And then now
they’re abruptly getting off drugs. I mean, look, they put us
on drugs, and now they’re going cold turkey. And so I think
there’s actually like a much greater risk now of the economy
going to recession this year, because of the Fed’s over
reaction this week. I mean, they had they had the Goldilocks
scenario down about three weeks ago, and I think they’re going
to take the thing now, or there’s a much greater risk of
that.
Best advice for founders, private companies in this
turmoil. What’s your best advice, fam? You’re a founder,
you got, I don’t know, 18 months of runway right now, you’re
going into this, you know, slush, and you want to know what
should I do? What should I do?
I think Paul Graham’s advice makes the most sense here, you
need to focus on being default alive.
Define what that is, just for people.
Yeah. So, you know, Paul Graham wrote this great essay, as part
of what he’s a founder of Y Combinator. And, you know, he
has this very simple, you know, framework of looking at
companies, which is your default debt or your default
alive. And when you’re losing money, as a company, and you’re
burning enormous amounts of cash, your default debt. Now,
if you’re growing fast enough, default debt is a great
strategy for value creation. But at some point, everybody
around you will expect you to be default alive. And what that
means is that the cost of what you do, are less than the
revenues you bring in when the result or profits. And even
then, that’s not good enough. I don’t know if you guys saw, but
you know, if you look inside of big tech, I was shocked to find
out that, you know, for example, you know, companies like
Microsoft, specifically, and Apple, you know, these guys
traded huge forward multiples, right, for enormous
profitability. But companies like Facebook and Google for
the same level of profitability, you know, trade almost a third
less in terms of multiple. So even when you’re that good,
it’s not good enough to be default alive. That’s how hard
this game is over very long periods of time. And so when you
have a moment to really understand how to be default
alive, and you don’t take it, I think it’s a huge disservice
because we don’t do enough of that kind of coaching that
really inflicts that kind of discipline and expectation
setting. I remember I have a large climate investment, it’s
actually the single largest investment I’ve ever done. And
so I sweat the details pretty significantly. And you know, I
was with the team in in November, December, for board
meeting and setting up 2022. And my whole thing was, guys,
you have to get default alive, you have to get contribution
margins to be in a certain band, you were we are going to
target this level of free cash flow generation this year. And
there’s no ifs, ands or buts about it. And what’s great is
the entire team embraced it more marching towards that. But
if they didn’t, and they’re like, No, we’re just going to
grow at all costs again. Oh, my God, I would be freaking out
right now. free bird. What do you have to add to that as
advice to founders who have not been through this before I
built my business, my Climate Corp. We raised around in
November of 2007, we raised 12 and a half million dollars, and
then the financial crisis hit in 2008. And I’d say 2 things
were really important. Number one was just keep building. So
if you’re building a great business, it doesn’t matter what
the market perturbations are, you know, the market will value
you at what they’re going to value you at. And if you’re a
good business, there’s going to be money available to you. The
second piece of advice is one that I know has been said over
and over again. But you know, never raise it a valuation
beyond, you know, what you’re reasonably going to be able to
kind of deliver returns on at some point in the future,
because otherwise, those nasty dynamics emerge. You know, you
could raise money at some crazy high valuation, that’s not
always the best thing to do, because then the expectation of
the investors coming in at that valuation, or they want to make
three times that money, or four times that money, and it pushes
you to do something unhealthy, like bend more than you
otherwise would stretch for a bigger outcome, and put your
entire company at risk. So you know, two things to me have
always been just stay focused on building your business, don’t
let you know, kind of market conditions drive your decision
making. And second,
define what, for you is the best practice of staying focused on
your business, because that is a very general term. What is
Freeberg, if you’re going to say the top three things of
focused on your business, tactically means,
I have a simple rubric for value creation in a business,
you know, number one is, can you make a product? Number two is,
do people want to buy your product? Number three is, can
you make a positive gross margin selling that product to those
people? Number four is, can you make a return on the marketing
dollars you have to spend to generate that growth profit?
Meaning, you know, can LTV exceed CAC? And number five is,
can you scale the amount of money you deploy to grow your
business, such that as you grow, the return goes up, not
down? If those are the five kind of things you can accomplish in
that order, you can build the next Google. And so and then the
sixth thing is, can you be a platform, which is meaning,
meaning, can you transition to being a multi product company
that gets leverage out of the user base or the technology that
you’ve built? And so you know, if you can think of revenue
streams, multiple revenue streams using the same customer
base or multiple products, or you know, whatever. And so if
you can achieve those six things, in that order, every
step of the way, every increment you can make across that
spectrum drives significant value as a business. Ultimately,
what the multiple on your business will be is purely going
to be a function of what else is going on in the world, things
that you cannot control. And so if you’re driving your decisions
about building your business using that first rubric, good
for you, you’re going to succeed, you’re going to have
money available to you. Awesome. If you’re driving your
decisions based on what the market is telling you to do and
what the market is saying is available to you and money and
all that sort of stuff. You know, you’re setting yourself
up to basically be, you know, are you also saying to be
independent of valuation? Yeah, I’m always of the opinion that
you shouldn’t raise money beyond your into evaluation that
you’re not comfortable saying in different market conditions,
or what have you, I can return multiple. I don’t think any
founder has ever, you know, most of these founders were not
around in 2000. And they were 2008 or two, but even 2008 was
less important in my mind, because it was it was it was
fast. And again, we had government stimulus. So you
know, like, I think 2008 was an aberrational moment. I was I was
in the middle, you know, inside of Facebook when and I was like,
what the hell is going on here, the government’s going to step
in. And, you know, with tarp printing a trillion dollars,
whatever it was, it didn’t affect you guys. It didn’t
affect us at all. Yeah, but you were the most powerful company
or not at that time in 2008. Well, you’re not a lot of cash,
right? No, no, but we were here’s the thing with that
people don’t realize with Facebook, Google was profitable
from day one to Yep, we were always default alive. I want
every single person listening to this to understand this. Okay,
we sold poker ads for party poker in big banner ads on
Facebook, and we made money. You got the bag, you got your
independent were profitable. Okay, so I don’t buy this
argument. That argument of unprofitable growth is a
vestige of fund dynamics and VCs who want to raise larger and
larger funds to blind their pockets with fees. It’s a
function of what I mentioned before, which is if you can
think about the context of a portfolio of those bets, it
makes sense. But if you think about your business, it doesn’t
make sense. In 2000. That didn’t make sense. You could not run
an unprofitable growth business, the money would not have been
there, right. And the real reason is that was a market
check, meaning you had people reallocating capital, because
risk rates were different, you know, you could put money at 6%
in us 10 year bonds. Now, obviously, you can’t do that
today. So maybe this cycle is just the new normal. And so,
you know, maybe you can always be default debt and be able to
raise money because the incentives exist. But I wonder
when that stops. And so I don’t know,
Google was an incredibly cash efficient business. I think
they’ve raised under 50 million as a private company that
never used any of it. Because Google, the first the first
thing Google did is they did a massive search syndication deal
with AOL that paid them hundreds of millions of dollars.
And that funded the business. If you can sell ahead of your
customers in terms of delivering the service or the product to
them, you’ve got the most beautiful business in the world.
That’s the definition of bootstrapping Google, even
though they raise venture capital, effectively bootstrap
the business by getting customers to prepay getting
people to prepay for cars. I wrote this in my annual letter
like two years ago, but Facebook, Google, Apple,
Microsoft, and Amazon raised collectively less than $250
million. Yeah, I mean, what? Yeah, so I mean, I agree with
what a lot of what you guys have said. I mean, so I agree with
Freeberg that recessions or downturns are actually great
times to build startups, because innovation doesn’t stop. And
you know, so PayPal was predominantly built after the
dot com crash. Yammer was prominently built after the
2008 sort of great recession. So it’s absolutely doable. And
some things actually get easier in a downturn. There’s like way
fewer startups getting funded. And so like talent gets easier
to recruit. So, you know, things loosen up in, you know, in
terms of the company building side. The only thing that
really gets harder in a downturn is fundraising, right? This is
and by the way, I think it’s a good practice for founders not
to care what happens in the public markets, the NASDAQ
early stage founders, right? Because the only time that
really touches you is when you need to access the capital
markets, right? And then you will be subject to the
downstream impact on VCs of what’s happening in the market.
So, so the only thing that really gets harder is
fundraising. And this is where I think Tomas advice comes in. I,
I personally think that trying to achieve default alive status
is too high a bar. I mean, it’s a wonderful thing if you can do
it. I mean, Facebook did it, Google did it, the very best
companies did it. But I know very few SaaS companies that
could continue to grow if they had to be cash flow positive, I
mean, at an early stage. So the metric I use is burden
multiple. I wrote a blog about this once. It’s basically just
how much are you burning for every dollar of net new AR you’re
adding. So in other words, like if you’re burning a million
dollars, you know, over whatever period of time, a month,
quarter, year to add a million dollars of net new AR, that’s
actually pretty good. So a bundle of like one or less is
amazing. I’d say even up to two is good. So in other words,
like if a SaaS company can say add 10 million of net new AR in
a year and burn 20, I think VCs will fund that all day long,
even in a recession to your payback. Yes. But when you start
getting to burn multiples of three, four, five, six and up,
that’s when like VCs are going to wait a second. Yeah, you’re
that growth is right. You’re not efficient, just efficient, but
it starts to raise questions about your product market fit
because you’re effectively spending too much money to grow.
So like, why is a growth that hard, right? Like market pull?
Yeah, no more. Yeah, exactly. No market pull. I think it’s a
good way of putting it. So I do think you have to show like in
a downturn or in choppy waters, you have to sharpen the pencil,
get more efficient about your burn, look at your burn
multiple. And then I think, you know, if you have the
opportunity to top off your war chest, like that’s smart, you
know, and don’t wait too long. And be frugal. I mean, God, the
amount of like, crazy spending I’m seeing in some startups and
unnecessary spending if you’re spending something and it’s not
going into product, it’s not going into marketing. You know,
it’s not going into sales. And it’s not, you know, just you
really have to ask yourself, why am I spending money on going to
this conference going to that conference on this office space,
like really be frugal. I know that it’s when you have all this
money sloshing around, you’re looking for things to spend it
on, but stay focused. Yeah, I mean, don’t spend 7500 on that
unless you’ve got tons of cash laying around. And we will be
getting back to the people who applied, we’re going to go
through and somebody is going to approve you.
Let’s add one other thing to this, which is you’re right that
like most founders have never even seen a downturn, because
the last big one was a great recession of 2008 2009. So many
founders were even around back then the most the most read the
real one was 2000. That’s right.
It froze, I would say it froze to that 2008 was what, like 12
to 18 months of choppiness. And I would say a lot of companies
couldn’t raise money had to do down rounds had to do multiple
liquidation preferences. It was gnarly on some cap tables during
that period. And if you don’t know what multiple liquidation
preferences are, as I understand, but there was no
real market check. The market check was really in 2000. And
you saw it was a multi year slog. It was a bloodbath. You
had to be vaporized. Yes, people you had to be default alive.
Absolutely, absolutely. Yeah. But I would say a third of the
startups went away in 2008. I don’t think we’re running into
that again. So you know, let’s not create a sequoia graveyard
kind of story. But you could. Nobody knows the point.
Look, it’s a it’s a probability of getting your business funded,
right. And that’s kind of lower. It’s not like, but here’s the
thing what I what’s shocking to me. It’s like, I don’t
understand why people think you can grow infinitely forever.
It’s just not true. Even the best businesses in the world
after 15 or 20 years are barely growing at 20%. People forecast
Facebook and Google. Those are the two best businesses in the
world. But it isn’t a question of what kind of growth feces
are willing to finance. No, what I’m saying is, if you know
that your terminal growth rate, if you are one of the best
companies ever created ever is 20% in 20 years, it doesn’t take
a genius to do a line of best fit between now where you’re at
100% in 20. And realize that at some point, if you don’t figure
out how to make money by selling what you’re selling,
there’s a lot of people who will be smart enough after enough
historical data has come through the transom, or come
over the past to realize that these things are not that
fundable. And this is what’s shocking to me. It’s like that
data is hiding in plain sight for anybody to look at. It
doesn’t make sense unless you believe that those those growth
rates of 40 5060% are sustainable for 30 years or 40
years, we’ve seen zero examples. And you have to look
at these canaries in the coal mine. Because if if the best
companies in the world can’t do it, you’re you have to really
scratch your head here or ignore it, whatever.
That’s fine. Just wing it. Yeah, it’ll work out. Don’t worry
about it. Don’t worry. Just add like around it’s fine. One of
those features will work and save the day. There’s some
magical feature. Did you see Andreessen announced that they
raised $9 billion or something today across incredible
congratulations. They’re building a Colossus. Yeah, I
mean, there’s gonna Silicon Valley in terms of capital is
um, you know, seeing kind of power returns itself, right?
There’s going to be a few firms that are going to, you know,
control 80% of the capital should go public. Andresen
Tiger, Tiger Global, you know, whatever happens. I don’t know
if Tiger should I mean, there’s a few that’s a market. But I’m
just saying like, if you look at the aggregate capital that’s
being deployed into private markets right now, in probably
two years, 80% of it’s going to come from three firms or four
firms. The problem is if you’re running that much money, you’re
insane to not take your GP public because it’s the only
way like no, you’re not really generating carry at that point
because you’re generating a market beta return. So you’ll
do okay. But when you’re sitting on 2030 40 billion of imputed
wealth by being the owner of the GP of Tiger or Andreessen,
you’d be insane to not go public, I think the odds are
going to be pretty high that Andreessen will go public,
right? I mean, they’re certainly setting themselves up to be a
lot more than just a capital allocator, right? It’s never
happened. Well,
TPG just thought to go public, they’re going out, KKR’s public,
Apollo’s public, I’m talking about Venture though.
No, but I mean, like Venture’s never scaled up to the point
that private equity has until now. And now that they have,
it’s very likely, it’s very likely that you’ll see Andreessen
be the first, I don’t know them, you know, very well, but
Sachs, you were gonna say something?
Yeah. Well, I think it’s a super interesting point, because
if you talk to the previous generation of VCs, what they
will tell you who retired, right, is when you ask them,
well, did you get anything for your partnership share in the
firm, not just in a fund, but in the firm, they’ll tell you,
no, they basically just gave it away to the next generation
of partners, even though they built the firm. And it’s
because of what, historically, the belief on the part of VCs
was that there was no value to VC firms, other than just
their interest in each particular fund. But you’re
right, like if they do achieve a much greater level of scale,
and they can go public, then there is actually value in the
firm itself.
If you look at the terminal valuation of Blackstone as
indexed to AUM, you know, once you pass a couple hundred
billion of AUM, you can trade toward 0.1, 0.2 times. And so,
you know, if you have 50 billion of AUM, there’s $10 billion
market cap there. And if you, you know, if you’re Andreessen
or Horowitz, I mean, that’s $5 billion that just appeared out
of nowhere, why would you not do it?
Right. It’s a little bit like Goldman Sachs, they always said
that we’re a partnership, we’re never going to IPO because
And then they did.
And then they did. And same thing with did CAA do it too?
No, I guess.
No, what happened with CAA was Ovitz sold his position to go to
Disney, so there would be a conflict, but he could have kept
it and the like residuals they were getting from projects
they packaged were incredible.
Didn’t the RE manual one?
It did, Endeavor did.
Endeavor.
How are they trading? I haven’t even looked at Endeavor.
I’m not sure.
But let me tell you, like, it’s actually, but think about if
you’re not like the current, like partner owners of the firm,
but you’re like on a partnership track there and you’re working
your way up to partner.
Like by the time you get to partner, it’s going to be a very
different economic equation, because instead of getting your
one over n share of the pie, when you eventually become
partner with n being the number of partners or some version of
that, now the company is owned by the public and the public or
the board of directors is determining your salary.
And maybe you get a salary and bonus and some, you know,
essentially options or equity participation, but you’re not
going to be a true owner anymore because the firm is gonna be
owned by the public.
Wait a second.
What if we take each of our businesses, put them together
and then take them public as all in capital?
Then we get the bank.
I’m good, I’m good.
I’m good.
Yeah.
We got the startup studio.
We got the accelerator.
We can’t even agree on a conference.
So I don’t think we’re recombining.
We can’t even agree on the flowers at a conference.
We can’t agree on the decor and food for our one day event in
Miami.
That’s because the amount of work you guys want to do is
slagging me in a slot and a chat.
No, what we want is someone to do the work.
We want to hire a professional.
I have been doing conferences for 25 years.
Stop saying my people.
I know.
And you know what’s gonna…
Thank you for tuning in.
You know what’s gonna happen?
You launch Yammer at my conference and I put the fix in
for you to win.
Thank you.
TechCrunch was a beautiful conference, but for all in
summit, is it just the case that we want people to show up and
there’s gonna be a stage and people talking on stage in this
whole conference, or do we want to create a more magical
experience, a la Davos or a Sun Valley or something like that?
All right, everybody.
Thanks for tuning in to episode 62 of the All In Podcast.
We’ll see you at the All In Summit.
And if you want to do us a favor, please go ahead and
subscribe and rate us on Apple.
We could really use that.
And thanks to Spotify for including Daniel.
Shout out to Daniel.
Thanks, Daniel.
He included us in their video.
So now if you’re on Spotify and you’re listening to the pod,
you can click a button as of this week and watch the video
or you can watch the video on YouTube.
It’s nice.
He emailed us and his team and then I cc’d him on the email.
He’s the best.
Yeah, I think it would he be good for what do you think about
having him in Mr. Beast?
He’s super, super, super.
Here’s my idea for a trio him, Mr. Beast.
And then one other person to do a media trio.
Future of media.
What is your what is your assignment?
What is your idea?
You don’t even know the third person.
I mean, I’m putting it out there asking for a suggestion for
Mr. Beast.
This is our conference impresario.
Oh, my God.
Well, those are two great guests on the stage at the same time.
Let’s figure out who besides Jekyll is going to produce the conference.
OK, you guys are unbelievably.
Bye bye.
Insufferable.
Bye bye.
We’ll let your winners ride.
Rain Man, David Satterthwaite.
And instead, we open source it to the fans and they’ve just gone crazy with it.
Love you, West.
Ice Queen of Kinwan.
I’m going all in.
Let your winners ride.
Let your winners ride.
Besties are gone.
That’s my dog taking a notice in your driveway.
Oh, man.
My avatars will meet me.
We should all just get a room and just have one big huge orgy because they’re all just
useless.
It’s like this like sexual tension that they just need to release somehow.
Wet your feet.
Wet your feet.
We need to get merch.
Besties are gone.
I’m going all in.
I’m going all in.