You want to run a marathon at 57 years old. 52 51 to 52. I’ll be
honest, I miss you. Can you come back to the United States,
please? I miss you. I will. I miss you too. I mean, the poker
game can’t by definition be as much fun if I’m not there. It
plays at bigger states, and it’s more challenging, but it’s
not as much fun. There’s not as much laughing. What’s on the
menu tonight for austerity 2023. The amuse bouche is a
Madeline with like a terrain of foie gras. Fantastic. In honor
of Friberg, and then rutabaga rutabaga salad, and then some
duck thing, duck breast, you know, I love duck. And then
and then butterscotch panna cotta. Wow, that is great lineup.
And you know what, I like the idea. We’re doing some poultry
chef Sean is firing on all cylinders these days. If he
feels very like engaged. He was very engaged. Yeah, he’s kind
of going for it. He’s been on Yeah, that was quite nice. The
other day, Brad, because it’s austerity measures. We had this
incredible dish, and we’re eating it. And then he said,
the caviar is on the bottom. And I was like, Oh, so we just we
don’t put the caviar on top. They just put it on the markets
down. That’s chipmunk style austerity. I’m not lying. Am I
lying? Oh my god. No, he did say guys, the caviar is on the
bottom, not the top this week.
All right, Sax is here, everybody. So that means we
have a quorum. Hopefully, the sultan of science, who is on
Wall Street today, taking a company public. So congrats to
our bestie Friedberg. Ding, ding. He couldn’t make it. He’s
at a dinner. So with us, the fifth beetle, as it were, Brad
Gerstner is here to talk all things macro. Welcome back to
the pod. How’s life been? Good to be back a little domo
arigato to Jason as you eat your way through Japan. Yes, I
am on my culinary tour. I’ll be back Sunday. But I am having the
time of my life here. Are you running AdWords on your food
blog? That’s what it’s come back to. I’m back to the web
locks Inc. days. I’m just trying to make $2,600 a day. I
noticed your Tick Tock got 22 likes. Yeah, you know, I’m
trying to figure out Tick Tock. I’m gonna but you know, but
right as they shut it down. That’s when I’ll figure it out.
Will that rev sure buy you another Japanese pancake or no
those pancakes man are next level. The fluffy pancakes here
roof. Everything actually with the exchange rate coming to
Japan is so affordable. It’s nuts. And this is a crazy week
because it’s the it’s the Tokyo Marathon, but everything is so
affordable. The people are amazing. It’s the best country
to visit in the world. I think, for me, it’s Italy, Spain, I
mean, Italy’s right up there, too. But I would say Japan is
like, it’s definitely top two or three. What do you love about
it? Best food. You know, I went there I took the I took because
like five years ago, the older three at the time. But they were
younger. And you know, there’s there’s a negative birth rate
in Japan. And so number one, when you have any kid, but
frankly, multiple kids, the the Japanese embrace you with so
much love because they love seeing these big families. Yeah.
They’re unbelievably kind. We went to Kyoto did the
professor’s walk saw the cherry blossom festival, basically ate
our way through Japan. That was my that was my only vacation
trip I did. I’ve done like 10 or 12 trips for work. Once we I
went with Reid Hoffman. And Reid set up this thing where we went
through all these different parts of Tokyo and ate at the
incredible sushi place. You have to go with somebody who can dial
it in. Yes. And have all the hookups. Brad, you spend much
time in Tokyo and Japan. I haven’t. I’ve been there only
twice. And that was when I was poor. And I stayed in a really
small room and ate really shitty food. All right. So you’re
saying in 20 in 2022, when you became Oregon hotel, we have
rooms. He’s like, is there a hostel? Yeah. All right. And
with us, of course, the next department, what cabinet
position you’re going for sacks, which we should we start
floating here? Oh, my god. Here you are with the
disinformation starting already. It’s a compliment. Secretary of
SAS is with us. to Santa’s had a pretty great article in the
Wall Street Journal. Really? I’m so when they revoked the
special administrative status for Disney, he wrote an article,
I think it was Wednesday, Tuesday or Wednesday in the in
the Wall Street op ed. What was his premise that they was a
corporate or as a culture that woke ism is basically modern
Marxism, and we have to defeat it. This is his language, not
mine, at every turn. And Disney needs to just be business
people and not feed the vocal minorities inside of their
company, like every other company should they should be
subject to shareholder concerns that apply to the majority of
shareholders? Well, I think this is why I think DeSantis is
doing well with the Republican base. And you know, if you see
polling of the Republican primary is he understands that
it’s not good enough just to have this sort of Reagan s
totally hands off government approach, because the radical
left is advancing its agenda, not just legislatively, but
through corporations through ESG, really through taking over
key private sector institutions. And so he’s willing
to use government to push back on that agenda on behalf of
parents or on behalf of, you know, what he sees as the
majority of the country. And so it’s a very different approach
than you know, the Republican Party would have been 30 or 40
years ago. This is why, you know, in the parlance of the
base, he understands what time it is. And what’s required here
is not again, this totally laser fair approach, but rather, a
much more energetic, aggressive approach towards checking these
bad ideas wherever they come from.
It’s not the only one. I don’t know if you saw this week, Bill
Maher went on a bit of a press tour, and he was on with Jake
Tapper. And he made a very interesting, I think, point
about liberalism versus woke ism. And it was quite articulate,
you know, he’s a pretty good observer of culture, he said,
they’re kind of casting out the liberals in the party for this
woke ism and the intolerant nature of the woke movement
versus the liberal movement, specifically, under the lens of
trans rights. But let’s put that aside for now, we got a
full docket before we get into the culture wars and the
presidential elections. Let’s start with, we’ll go private
markets to public markets, because they obviously dovetail
so nicely. Item one on the docket today, there is just a
massive AI FOMO frenzy going on. economists published a piece
this week about the insane fundraising in the generative AI
space. This is stuff like chat GPT, stable diffusion, you’ve
heard these names. And there are now 500 generative AI
startups, according to this report that tracks with what
I’m seeing in the early stage and not counting the open AI 10
Billy from Microsoft investment donation, rev share roundtrip,
whatever that is, they have so far collectively raised more
than $11 billion. The article included this chart, which you
can see if you’re on our YouTube channel, and just tons
of folks working in audio image, and text. So we’re basically
looking at the multimedia, basically revolution of PCs in
the 90s, occurring again, and complete platform platform
shift. Doug Leone from Sequoia, one of the greatest investors in
history of Silicon Valley had this to say, and we will comment
on the other side of this 52nd clip from Doug.
I actually think that AI is the next platform shift, in the
same way that mobile was the one before internet was the one
before. So I think AI is real. But I said earlier, we’re going
to overestimate it in the short term, we’re going to invest in
everything in the same way that in 1999, we invested in
everything. But then Google came out of that, or Facebook came
out of that. So I think you have to have a good head on your
shoulder, where you don’t practice FOMO, where you don’t
chase every company, AI is real, AI is the next platform. But how
do we not invest in everything that walks? How do we make
certain investments based on market maps based on thought
processes that are more rational, and not do every
investment just because every other venture firm is doing
everything best. All right, Chamath, what do you think of
this massive influx? I think it’s important to think about
what the incentives are, as Charlie Munger says, show me the
incentive, and I’ll show you the outcome. I posted it into our
group chat credits, we sent all their private banking customers
an offer, they are now offering 6.5% for a three month T bill
6.5%. And if you go back to what we talked about before, when
the risk free rate is somewhere north of five or five and a half
percent, and banks are willing to give you six and a half
percent in the short term, you have to generate more than three
times that to make an investment makes sense when you’re
investing in the long term. So if three month money is going to
pay you six and a half or seven, if you’re going to invest for
1015 years, which is what you need to do typically for a
startup, you need to get 20 to 25%. So there’s going to be a
lot of pressure for venture investors to put the money to
work. Because otherwise, their LPS, their limited partners, the
people that give them the money will have this attitude that goes
somewhere along the following lines, okay, I’ve committed to
you. Why aren’t you investing? Because otherwise, I can get
paid six and a half percent on the front end. And so this is
becoming very problematic. What am I paying you for? What am I
paying you 2% a year in management fee for? So I think
what happens, unfortunately, is the opposite of what Doug says,
I think good investors will try to follow Doug’s feedback and
advice. And the ones that have a track record of distributions
of DPI can do more of it than not. But I think most people
will be under pressure to deploy the capital. And so the
500 odd companies, Jason, you mentioned, we’ll get a lot of
it, and it’ll get torched, because most of them probably
won’t amount to much of anything in the short term, you
will create way too much correlation, and you will have
zero time diversity, which, as we’ve learned, is a recipe for
Time diversity being Hey, you deployed all this web to capital
web three capital, sorry, crypto, whatever, in this very
short period of time, you overpaid.
Let it on fire, Brad, when you hear Chamath talk about this 6.5%,
and then you look at private markets, you invest across the
lifecycle of companies, obviously, you’re in some
private companies, we all know very well, famously, snowflake,
I think your biggest win ever, correct me if I’m wrong. And in
terms of a private, how do you look at this? When you’re a
steward of capital, public markets, private markets, and
then just YOLO, just put it into, you know, some charity
bills, or, you know, bonds or whatever.
I mean, first, let’s just frame, right, the chart that you
showed, I think you should, it said, you know, x open AI, I
don’t know, something like 10 or $11 billion has been invested
into some 500 AI companies. I mean, I happen to agree with Doug
that this is a platform shift on the same magnitude as the
internet or mobile itself. In fact, it may be bigger than both
of those. But, you know, when I look at 10 or $11 billion, you
know, let’s put it in context, meta is going to spend 20 billion
in one year alone on AR via. And this is on an entire
platform. So I don’t know, I, I think whenever you have
something as tectonic as mobile or internet, it deserves a lot
of investment. And yes, it’s going to be messy. And yes,
Chamath’s right, the cost of capital, frankly, is limiting
the amount of money going into these businesses already. So we
see a lot of dry powder sitting on the sideline, this chasing
new ideas. I think one way one way to frame it as well is like,
think about in 2000. We all knew that the internet was going to
be big, we may have been lucky enough to conclude that search
was going to be big. But if you invest in in Yahoo, or Infoseek,
or AOL, or Excite, you know, you torque all that money went to
zero. Right. So now think about just these large language
models, right, the foundation models, which are driving and
enabling all of it, OpenAI. You’ve got OpenAI, you got
Anthropic, you got Cohere, you got Character, you got
Stability, you’ve got Lambda. It is almost impossible to know
with any certainty, much like it was with the search engines in
99, 2000, who’s going to emerge where the value capture is going
to be, it may all end up with Microsoft and Google. I mean,
this may end up looking like iOS and Android at the foundation
model level. And so, you know, I think as investors, for example,
on the foundation model side, I think it’s very difficult to
choose just one, particularly when the largest one is,
frankly, captive and a proxy to Microsoft, and they’re capping
your upside return. So like, those are difficult investment
decisions. That doesn’t detract from the fact that I think it is
as big as Doug suggests. And I do think there are going to be
applications and tooling layer to come out of this that’s going
to produce really big winners. I would say that we are spending
an extraordinary amount of time in the space, we haven’t made a
lot of investments, I think you have to study, you have to get
deep. I mean, Chamath, certainly, and I have been
investing in this space for at least a decade, maybe 15 years.
But don’t underestimate that the transformer model really did
change the game here. And we’re now producing impacts much
Saks, last week, you said, lab three and crypto didn’t kind of
stick with you, you didn’t see the use cases. And you in the
first inning here, or first at bat, you rattled off three or
four really compelling use cases from summaries to you know, the
assistant guide on your side concept. Is this akin in your
mind, because Brad just said it could be bigger than mobile,
internet, mobile, AI revolution, if you were to look at those
three, do you think it’s bigger than actually mobile, and then
we’ll get into return profiles of 6.5% on cash versus what our
VC is going to be able to do in this kind of market?
Yeah, I mean, so I agree with Brad and Doug, that this is the
next big platform shift, whether it’s as big as mobile, or it’s
more like social or cloud. I mean, those have been the big
platform shifts over the last decade or two. And I think this
is definitely on par with those, I think Brad’s right, we don’t
know where the value capture is going to be, maybe it just all
ends up accreting to the big companies who can make massive
investments in the space. You know, one difference between the
internet ecosystem today and 20 years ago is you do have these
giant companies who are not totally incompetent, right? I
mean, they are, they do have lots of talented engineers. And,
you know, like 20 years ago, you’d have company, you know,
the big companies would just sit on their hands in the face of a
platform shift, and they’d just be sitting ducks who get
disrupted, they’re not, that’s not going to happen today. That
being said, I do think that any new platform shifts creates
opportunities for startups. And it may not be efficient the way
that these opportunities get pursued in the sense that yeah,
Doug’s right that there’s me a lot of spray and pray. But I
think that it is kind of efficient for the ecosystem as a
whole, right? Because like any smart engineer with a half
decent idea ends up getting funded. And out of all of that,
you get kind of a pre Cambrian explosion where, you know, the
ecosystem evolves a lot of different types of businesses,
most of them don’t work, they get wiped out, they go extinct,
but there’ll be some good things that get funded. So we’re more
like I think, Doug, and how we see it, we don’t want to spray
and pray want to be very selective, we want to put more
money behind fewer opportunities that we think are better. And
Doug Leoni, you know, I think he generally gives good advice of
the tough love variety. And this is of a piece with that. And so
I agree with him. That being said, there is a certain value
to the ecosystem and having all these seed funds to spray and
pray, right? Because this gets a lot of plants, a lot of flowers,
and then you see what blooms,
I would say, yeah, to build on that sax, this is a perfect
inefficiency. You know, you when you see it from the outside,
you’re like, well, this is super inefficient. Why so many
companies, if you free your mind, and just say their
experiments, two or three person experiments, 500k to a million
and a half in that first stage, when I invest right before you
do when you do your series is at five or 10 million. Milestone
based funding is back in the tech industry. And that was
something chamath that we lost for a little while there, people
would just come out and they would raise a series B out of
the gate, no product market fit, etc. Now what we’re seeing is
people are raising that 12 to 18 months, they got their backs up
against the wall. Speaking of tough love, which you reference
sacks, that tough love of Hey, you have to hit the next
milestone. What did you accomplish with the 1.5 million
in order to get the 10 million in order to get the 30 million
that 500 is going to go 10x, there’ll be 5000 of these
startups, but it’ll quickly whittle down when a chamath as
people go through this milestone based funding system in Silicon
we haven’t given enough time for a logical framework of
investing to develop, which also is tied to a logical framework
for entrepreneurship to emerge. We’re just way, way, way too
early. So the thing with all of these language models is that
they are grist for the mill. And we talked about this before,
if it was a highly proprietary asset, you would have never sold
49% of it to Microsoft for $10 billion, because you would
assume that it was worth a trillion dollars. So it’s a huge
tell on the part of open AI, their deep understanding, and
they understand it better than anybody else, that it’s a bit of
a capped upside. So what is uncapped, I guess, is maybe the
better question. Well, if you look at the 1849 gold rush, as
an example, the people panning for gold, in my opinion, are the
people building language models today, they’re going to come and
they’re going to go, but who’s going to win? Well, the pick and
shovel providers one, Levi Strauss one. So what is the
equivalent of that today? I think it’s at the silicon layer,
because you need to really re architect how compute will
actually work in a world of all of these models, those folks
will get paid. If you look at AMD and Nvidia, they’ve been
getting paid for years, they continue to get paid, they
probably will continue to get paid even more. And so folks
that actually take a step into doing something hard and
difficult in AI, like custom silicon could get rewarded. And
then there’s what I call the white truffles. What are these
unique Alba white truffles, these singular sources of data
that when used in reinforcement learning, make your output
just zinc. And that’s where I think Facebook is an obvious
white truffle core as a white truffle, but there are a lot of
startups that could become white truffles, if they gather
enough data. And that’s like a pretty reasonable framework. And
so in that framework, if you apply to today, there’s way few
silicon startups, and there’s way few white truffles. Instead,
it’s everything is the baloney in the middle, which is random
people talking about some random model that’s just going
to again become highly commoditized. You have to
remember, all these models are open source, then none of them
mean anything in the absence of the data you give it to train
on. 100% Brad, hey, okay.
Well, I want to add one other piece of news that we saw this
week, which is open AI announced that its developer AI, they were
cutting the tax on that are basically the metered rate, they
charge to use it by 90%. So I think this is gonna be a game
changer. I think this is based on the chat GPT 3.5 API. And of
course, you’re coming out with 4.0. Later this year, I’ve
already had explained to the audience what an API is and why
this is important. And for those people who don’t know, this
application programming interface, it allows a developer
of some other application to build on top of you. So in other
words, like a developer wouldn’t have to use this chat interface
to get access to the large language model, you could just
submit your request through the API. And so give an example of
what of like a popular app and how they might use it. Yeah. So
so I think like notion actually had a demo that they published
where it was a pretty incredible demo, maybe we can find it and
it would do things they added actions in the demo, like
generate a task list. So you could take like a document or a
meeting summary, and would spit out recommendations for next
steps or tasks, it could, you know, spit out a table. Basically,
it’s the autocomplete for everything that we talked about,
right. So now notion doesn’t need to build their own LLM
expertise, they just built use the API.
So when the notion app, you say, Hey, I’m building a marketing
plan. And you say, Well, okay, give me a list of things that
should be on my marketing plan for my new app. It sends a
signal to the chat GPT API, which will be on Azure
Microsoft’s platform. And then it gives you the data back, you
don’t have to build the language model. Yeah, incredibly
powerful notion has all the content that they need, but
they don’t have the AI expertise. So now they don’t
have to generate your or create AI expertise in house, they just
use the API. I was really powerful. And but just to finish
the thought here, I think that one of the things that’s
probably misleading about these stats around funding and the
data, there’s like almost 600 startups already, there are AI
startups, is that, you know, what happens when there’s a new
wave is that founders are smart, right? And they know how to
market themselves in the way that is most compelling to VCs.
And they know that like VCs, frankly, are a little bit
lemming, like in terms of their migration to the next wave and
wanting to glom on to the next big wave. So VCs are now looking
for AI. If you’re a founder, and you’re you build one feature on
top of the, you know, open AI, API, now, all of a sudden,
you’re going to market yourself as a company, you’re not gonna
market yourself as just a SaaS company. And so that’s valid.
Yeah, I mean, it could be aimed, or it could be like a
great pivot, you know?
Yeah. And it’s not, it’s not totally one or the other. I
mean, it’s just that if you have a plausible connection to AI,
as a founder, you’re going to start marketing yourself as an
AI company. And so that’s how all of a sudden, you can have
600 of these companies, you know, that are all of a sudden
out there in the wake of this sort of chat GPT is I think a
lot of companies are recategorizing themselves.
I literally had this experience not three weeks ago, right
before I went to Japan, serial founder and team that we’ve
backed for that had an exit, said, Can I show you something?
I said, Yeah, got on the zoom showed me a little proof of
concept using chat GPT. And he said, This is my idea. This is
the vertical. And I just said, Okay, what do you want? He said
500k for 10%. I said, Okay, done. Great, let’s learn. And
it’s an easy bet for us to make because we know it’s a serial
For open AI, the way that it could become a trillion dollar
company is actually by cutting the cost to such a low degree
that nobody else can effectively compete with it. And then at
that point, they can become a small, small, small tax, you’d
rather just pay it than try to compete with it. And I think for
open AI, that’s actually a very brilliant strategy. So that’s
how they, they could get to become very, very large
evaluation would be to become so pervasively relied upon, and
where they take such a minuscule take rate of their
participation in you building a company that could be really
effective for them like cloud computing, right? Like we’re
going to just take such a small tax. Yeah, that’s not a small
tax. That’s a large tax.
That’s the picks and shovels play in a way to create the
developer ecosystem for AI. And to your point, I mean, I think
you raise a good point that you know, what was their motivation
to take such a dilutive round, you know, the 10 billion that
was evaluation at 3030. Yeah. And does that imply that they’re
not confident? I mean, that the flip side of it could be maybe
they know, they want to compete on the basis of rapidly, you
know, becoming the developer platform. And so they’re going
to subsidize that developer platform, you know, with
negative gross margins for some period of time. And maybe
that’s why they need a lot of capital.
And they were in kind of a reflexive loop of just cost of
getting better versus the amount of money they had to get
better. And so maybe they were forced to do it. And then in
that point, how would you justify you would say, well, the
other 50% is still hugely valuable. So that’s enough for
us. And I think that that’s, that’s very logical as well.
Brad, you have your finger on the pulse of LPS, limited
partners who back funds like Chamath sacks is mine and yours.
We heard 6.5% on your money for no risk. Well, you in Chamath
position is hey, you have to triple that if you want to be a
private market investor. That’s about 20% 20% rule of 72. That
means every three and a half years, you got to double. If
you’re doing that for a 10 year fund, you’re looking at a five
x fund is kind of table stakes, then I think just back of the
envelope math. What are LPS thinking right now? Are they
looking at this world and saying I should just be all in cash?
Are they saying, yeah, everybody thinks we should be all be in
cash. Therefore, there’s not going to be enough money in
private. Therefore, there’s an opportunity there. We know the
6.5% rate. You know, that’s not going to be here forever. It may
be here for a little while, but we need to we need to keep
investing in venture. Or are they just cutthroat about it?
Like, let’s pause venture investing private market
investing? It’s a great question. First, when I look at
the three year Treasury bill, it’s like 4.7. Not to quibble
here. So I think Chamath’s getting a little goosy, goosy on
this 6.5. But the fact of the matter is these goosy, goosy
you’re super special. You’re VIP JP.
Maybe there’s like some sort of like bond rate that included
corporates or something. Maybe it was 5.2 from Robin Hood on my
Robin Hood account for J trading. So it’s what is in
that what is in that Jason, they probably got some junk bonds
and they’re ripping you off. Whatever it is, I’m getting five
points. It’s so you are until you’re not you are until you’re
not. It’s 100% T bill, parentheses and jump on funds.
Look at the fine print, Jacob. LPS have a 10 year view. They
understand like most people. I mean, listen, if you look out at
the 10 year, the reason the 10 year is, you know that we have
real interest rates at about one and a half percent. So that’s
the 10 year less expect expected inflation. When you look out is
because people expect inflation to come down and they expect
rates to come down. So if you were an LP and you said I’m not
going to invest in venture and the next two vintages, which may
be the best two vintages we’ve seen in a long time because
prices are adjusting, etc. And I’m going to move it all into
some rate bet. First, it’s just very difficult to do they don’t
move their allocations around that quickly. Now a wealthy
family as an LP could move their allocations around really
quickly. But if you’re Texas or your Ohio, or you’re a sovereign
wealth fund, you’re betting on the arc of value creation. I
would say this, the consequence is they’re narrowing their
aperture as to the venture funds they want to allocate capital
Okay, explain that unpack who they are narrowing the aperture
to. We’ve talked a lot on this pod about the power law. And the
truth of the matter is whether we’re talking about AI or
software, or anything else that you know, people are going to be
funding, it’s 10% of the investments that are going to
yield 90% of the returns. And so they’re looking at that and
saying who are the top 10 firms in Silicon Valley, I either want
to get allocation to those firms who are seeing the best
deals converting the best deals and are selective, like sacks
talked about, or we just don’t want to allocate. So I think,
you know, what we saw over the last two years, Jason was an
explosion of new funds, an explosion of new, you know,
first time second time funds, I think subscale small funds with
no DPI, they’re going to find a really, really tough time to
point about DPI raising capital, okay to see the scale player
scale. So part of that is clearing out the inventory from
the last cycle, two news stories this week about companies, you
know, maybe struggling, Sequoia got off the board of citizen, if
you don’t know citizen, that’s that app that tells you where
crimes are happening in your city, very popular in San
Francisco, it’s literally goes off every 90 seconds, it’s
pretty dystopian. That company citizen, which is a pretty cool
app, has raised 130 million to date, Sequoia led the series a
in 2017. They did a pay to play round, if you don’t know what
that is. Basically, if you don’t invest, you get crammed down,
how does the cram down work? Well, your shares in the company
went down 10 to one, and you probably got moved to common
shares as opposed to as opposed to preferred, which has a series
of protections, they get their money out first, yada, yada. But
Sequoia refused to participate. According to this FT story,
again, Sequoia did not comment on this, it’s, it’s kind of
something you don’t do as a VC, when something goes bad at a
company, and you leave the board, you generally don’t want
to say bad things or taint the company any more than leaving
the board does. So a bunch of cram downs happening. And then
dovetailing with that Instacart, according to the Wall Street
Journal had a big q4 as it prepares to go public. Instacart,
if you remember, we talked about it on the show cut its internal
valuation 75% last year from 39 billion to 10 billion. According
to sources, Instacart q4 results, according to the Wall
Street Journal, up more than 50%, even though order volume
grew only 16%. Why they turned advertising on the app, just like
Uber and Amazon, a lot of these commerce folks, folks are
building ad business inside of theirs. So what do you think
about what’s happening as we clear out this private? Anybody
have thoughts on Instacart or the cram down rounds? Go either
way with this, and then we’ll go to
I wouldn’t focus too much on those two companies, I think
we’re going to see in the second half of 23. And all of 24 is a
lot of medicine being taken a lot of down rounds, a lot of
structure is going to be a tale of two cities, the hot area, you
know, AI is going to continue to receive new investment. And all
these companies that, you know, that receive peak valuations in
2021, are going to have a day of reckoning, either, you know,
if they’re lucky, maybe they have a flat round or model
modestly up around, but a lot of them are going to have down
rounds or restructurings. And this is going to be going on for
the next year and a half.
What’s your philosophy sax on leaving a board? This is a
really dicey issue when you give up on a company. What’s the best
practice there? How do you do it without damaging the company?
Obviously, the founder relationships can be hard. What
have you learned about this as a private market investor?
Well, I think, I think that sometimes we like flip board
members internally at craft is because people have different
amounts of capacity. That’s not a statement at all about the way
craft feels about the company. It’s just a reflection of our
individual bandwidths, or whose expertise are needed at a time.
But when the firm itself quits a board, I think there’s no way
to read that other than, you know, a statement of protest.
And I don’t know what happened with that company. But it seems
to me that, you know, again, it could be a sign that the venture
firm isn’t happy with the way that they’re being treated.
The cram down, Chama. That’s, that’s a bitter pill to swallow.
Why would founders do this cram down instead of just adding a
little more to the top? And is there a way to do this without,
you know, going scorched earth or poisoning the well as it
were, we, I mean, again, putting this app and Sequoia aside,
this is happening all over the ecosystem. So is there a way to
do this gracefully? Or is it just going to be messy?
I think it’s going to be really messy. I mean, to state the
obvious, no, no venture capital investor ever quits the board
voluntarily of a great company that’s doing well, that would be
dumb. So as David said, sort of like the proof is in the
pudding there. And at the same time, there are a lot of
companies who don’t want to see the writing on the wall. And
we’ll do all kinds of gymnastics to try to stick a landing on a
contorted financing. And sometimes those things have real
consequences to other investors who just don’t think it’s the
right thing to do. I wouldn’t read too much into this except
that good founders have a responsibility to do what’s
right for themselves and their employees, nobody else. And the
thing to keep in mind investors really, no, I think you I think
you absolutely have to prioritize the people doing the
actual work. And if and if you actually did prioritize them,
what you would probably say to yourself is, Oh, my gosh, there
are people who I work with, who I look in the eye every day,
because investors, you’ll see once a quarter. But I have my
fellow employees that as a founder that I look in the eyes
every day, who’ve been toiling with me for umpteen hours a day
every day for years. And they are now totally underwater. What
is the right thing to do for them? And I think if you just
answer that question, you wouldn’t do all these contorted
things, you would just reset the valuation, you would refresh
the equity pool, you would issue options back out to those
employees, and you would move on. It’s all these other things
that get in the way of answering that simple, simple
question, where people fuck it up.
And I’ve done that before.
Exactly. If you don’t have a team, and you don’t have a
motivated team, you have nothing.
I’ve done that before. I don’t want to rehash one of my more
miserable experiences. But I was dealing with a company that had
a grossly inflated valuation, it was a total problem case. We
voluntarily slashed the valuation in half and reissued
options to the employees to keep them motivated. No big deal.
Yeah, yeah, exactly.
It’s not that it’s no big deal, but it requires some amount of
fortitude. And like, you know, understanding your priorities, I
But you’re about to what do you think, you know, like, first, I
think it’s revealing that we think what happened here is so
out of the ordinary. I mean, you flashback to 2001 to 2004.
Sequoia, I don’t think funded a single loser in their portfolio.
Right? Like, that’s a time where you walked away from the ones
that weren’t winning. And you fed the ones that were, because
you have limited capital, and you don’t know when you’re going
to raise your next capital, this idea that you have unlimited
capital, you can give money to anybody, no matter what they’re
doing with respect to their plan, I think is a function of
the last 10 years. But to Tomas points, the idea of tough talk,
you know, either out of CEOs or out of board members has been in
short supply in Silicon Valley, this idea that saying the truth
just speaking the words about needing to get fit or needing to
lower the valuation, that somehow that is founder unfriendly
is nonsensical. The truth is founder friendly, by definition,
and I think to Tomas point, the less complicated you make this,
right, you reset the valuation, you re up the option pool, and
then everybody has a choice to make. And if the people who are
on the board and backing the company choose not to re up for
whatever reason, they no longer believe in the path forward for
the company that’s incumbent upon the founder to go find
people who will.
That’s not abandonment as it’s being framed in this story. It
is a trade. And I think maybe if you look at public market
investors, Brad, nobody gets upset by a trade trade to trade.
But in the private markets, there’s a lot more emotion
involved a lot more relationship material. And this founder
friendly concept of like, you’re abandoning me. It’s like, no,
the the trade here, it makes no sense for this firm and for this
fund. And for these LPS, right, you
know, sometimes, sometimes the founder needs to have the
courage to look in the mirror and say, what I’m doing is not
working. I had a plan, I missed the plan by 70%. I’m lighting
capital on fire. This is a charity, not a business. It’s
best to say it didn’t work, shut it down and move on and do
Okay, so of course, you’re referencing Salesforce. So we’ll
pivot to that. It’s not that bad. But I think this is a good
time to maybe talk about the public markets and inflation and
what we’re seeing in macro. So
can I set up a question for Brad, actually?
Sure, go ahead. Yes.
Yeah. So so on a previous podcast, I laid out my theory of
how you could just use the two year bond rate relative to the
Fed funds rate to understand where the bond markets sort of
prediction market about inflation is going. And a month
ago, the two year bond rate was at 4.1%, relative to
4.5% Fed funds rates. In other words, the bond market was
betting that interest rates will go down between now and two
years from now, relative to where the Fed had it. So
therefore, it believed that inflation had been conquered.
Now, fast forward just one month later, and the two year bond
rates at about 4.9%. You know, the Fed funds rates about four
and a half percent. That is a massive swing, basically 80
basis point swing in the I guess the two year bond rate.
And so the market seemed to be saying all of a sudden, not just
that they expect rates to be higher longer, but also that the
Fed needs to keep raising. And that is a big change. So Brad,
what is the basis for that? And what do we now believe about
inflation? I think just a few weeks ago, we were thinking that
this problem was licked and the market took off like a rocket,
it ripped. Now all of a sudden, it seems like investors are
really worried that inflation is not over. So where does this
stand right now? Well, I think when we started the year, you
know, the the 10 year was close to three to an hour closer to
4%. The 10 minus two is as negative as it’s been in the
last, probably 10 years. So the market is clearly saying, you
know, we saw some inflation prints that came in hotter. I
think it’s now consensus, which you guys have been saying on the
pod, that, you know, although the second derivative is slowing
that it’s sticky, right, we’re going to get stuck at this four,
four and a half, three and a half. And it’s the slope of the
curve downward is going to be slower. We’ve gone from thinking
we’re going to have 225 to now thinking we’ll have three or
four. You know, and so I think everybody is now bracing for
more inflation. But remember, when we started the year on
January 1, the consensus wisdom was we were going to retest the
S&P at 3200, we’re going to have an earnings recession, and
that inflation was going to continue to run hotter. The only
surprise in my mind so far this year, is how well the equity
markets have held up in the face of a 10 year that’s gone
parabolic, right? And an actual earnings recession, right? And
you you know, you you posted, you know, in our thread, Chamath
about just quality of earnings, you know, even the earnings
beats are pretty low quality. And so I think, you know, we now
are going to have a couple inflation prints coming up over
the course of the next couple weeks that are going to be
important. My hunch is, you know, everybody has tilted again
on, you know, what we saw in the last couple prints, my
suspicion, if you look at Morgan Stanley and Goldman Sachs, the
consensus view is that we’re still heading in the direction
of 4% faster than I think people emotionally think. So I would
say there’s maximum uncertainty in the world. The fear that in
inflation is uncapped the way Larry Summers was articulate in
November and December is less today than it was. But what’s
emerged is this idea that we’re going to have higher rates for
longer, and we’re going to have higher inflation for longer. Now,
the question I throw back at you is, the market abhors
uncertainty. The market’s done totally fine during periods
where we had 3% inflation and five and a half percent rates,
right? When with the internet boom, that was, you know, 2000
to 2005 rates were a hell of a lot higher than the rates are
today. So I don’t think that higher rates and higher
inflation means that we can’t, you know, invest in venture
backed companies that have huge secular growth, the world
doesn’t end. But what I do think it means is like, if
there’s massive uncertainty in the world, if allocators of
capital don’t know whether rates are going to double again,
whether inflation is going to double again, then everything
just shuts down. And that’s really bad for the economy. I
don’t see that happening right now. But I do think that the
prints over the course of the next eight weeks are going to
Chamath, you have any macro thoughts here? At the same time
this is happening, we saw rents broke in the last month. So
rents got cheaper. Yeah. A governing principle, I think I
probably said it too many times, but I’ll say it again, rates
are going to be higher than we like, and they’ll stay here
longer than we want. So if you use that as a principle,
whenever the consensus thinks we’re done, it’s been pretty
profitable to be on the other side of consensus. And so I
still kind of maintain that we’re probably going to have a
five and a half percent fed funds rate. Which means that I
don’t know, maybe credit suites will offer me seven and a half
percent soon on three month T-bills, but we’re going to have
higher rates. And I do think Brad’s right, though, in the
sense that as long as we know that then that’s it, and we can
forecast it into the future without it changing too much,
it’ll be okay. But right now, what you’re seeing is a lot of
make believe going on in in the stock market. So Nick, if you
want to just throw up that image. So this is a really
this is the chart of cash flow versus earnings. Yeah. So this
is something that I saw in Bloomberg, which I thought was
really interesting. And if you focus on the period of 2020 to
2024, what you see is the white line, which is net income
adjusted for depreciation amortization. And the blue line
is cash flows from operations. So what does that mean?
And this is for S&P 500 firms,
this is the best 500 companies in the world. Yeah. And the
white line is what you tell Wall Street in terms of what you
make on paper. The blue line is what actually appears in the
bank account. So why could there be a gap between what you
tell somebody you made, I made $1 versus what’s in the bank,
50 cents? Well, the reason is that there’s all kinds of
accounting tricks that you can use accruals, inventories, and
all of these things allow you to present a healthier earnings
report than is actually true. And so right now, we have the
worst earning situation. So the worst gap between what we are
telling people versus what is actually in the bank account
that we’ve had for 30 years since 1990. And so it just
brings into focus the fact that we may be in the last few
innings of trying to make sure this all looks okay. In which
case, one faction of the investing world who thinks that
this earnings recession is actually at hand would be kind
of right. And then what they would say is that once we all
realize that these earnings are fake, and you reset down 15%,
that’s where you get to the mid 3000. In the S&P 500. Right now,
it’s around 4000. I don’t know if that’s true or not. But
there’s more and more evidence that would support that the way
that they see the world could be credible. The other side
says, Hey, listen, this is a bump in the road. We’re getting
a handle on things. And it’s stabilizing. So even though
it’s higher than we’d like, it’s not going to change that
much. So now just think about 1015 years from now. And let’s
go. And those are the folks that want to rip the money into
growth stocks and tech stocks again.
How does the consumer play into all this record low
unemployment, like it’s 1% in Utah, three and a half percent
for the country, two and a half jobs for every American who’s
unemployed. And then these rents coming down. But
consumers have seemed to have burned off all that extra money
they had. So Brad, when you look at the consumer driven economy
that the world lives in,
that’s not true. Because you have to understand, stimulus is
still entering the economy, it’s just harder to measure. So for
example, take Social Security, you have cost of living
adjustments in Social Security, that’s lifting payments by 10
and 15%. Because it’s backdated for what was going on last year.
And remember, last year, we had two, three, four, 5% inflation
rates. So there is more and more money coming into people’s
pockets that we don’t realize. And we’re all on the hook for
that as US taxpayers. So I think it’s very dangerous to kind of
look at one data point and try to pick off what’s happening in
consumer land. Because there’s all kinds of hidden ways in
which money gets back to people.
Brad, you have thoughts on the consumer because, you know, I
test, it does seem like consumers are still spending
money. But the cost of goods in some cases is coming down. I
mean, how do you look at the consumer and try to make sense
of what’s going on here? Because it does seem the United States
is in its own little bubble here world of just over employment.
Still, even though we’re seeing these layoffs in 10.
I would say number one, that the pop we’ve seen in rates,
which impacts consumers by way of higher mortgages, higher
variable expenses on their credit cards was offset over the
last few months by lower energy costs. So their cost of
gasoline went down. Add in the things that Chamath is talking
about, and I’m not sure you took a lot of money out of people’s
pockets. I would say this that again, what we’re talking about
here, retail sales have continued to do really well.
ecommerce sales in January were quite strong. That would all be
consistent with this off landing. But here we are, you
know, again, talking about macro, I think when you spend
this much time talking about macro doing what we do, you
know, like last year, I’ll be the first to raise my hand and
say, you know, like our friend Bill Gurley would say it leads
you in the wrong direction. The fact of the matter is, it’s
totally unknown and unknowable where we’re going to go over the
course of the next three or four months. I think there’s a
better ability to predict maybe over the course of the next
couple years. But the fact is, if you would have told any I was
just with a bunch of investors, you probably represent a trillion
dollars of public market demand 10 or so long only investors,
if you would have told any of them that the 10 year was going
to be at 396, they would have told you that the NASDAQ would
be down 10% to start the year, and it did just the opposite. So
I think you got it, you know, you’re, you have a bunch better
chance, particularly if you’re playing at home, right, than
trying to guess the direction of that find five companies that
you think are going to grow and earn more money, irrespective
of the direction of rates and inflation, own those and enjoy
I’m looking at the world and going sacks, my Lord, I’m seeing
great founders, great companies, and five to $10 million valuations
and I can buy 510 15% of these companies. This feels like the
best it’s been for me as an angel investor, seed investor
seed fund for a long time. This is fantastic. Great deal flow.
The deals are taking six weeks to close. We’re having very
thoughtful discussions. People are taking a real focused
approach to how they deploy the capital. It is not YOLO, people
are building models, again, people are showing their CAC,
they’re being thoughtful about how they spend the money. They’re
being thoughtful about salaries and hiring. So what what’s your
you seem to think that, you know, what we’re seeing here is
challenging or a problem? What are your thoughts on how it’s
affecting your day to day business as somebody who is a
Well, let’s separate two things. So there’s the tech ecosystem,
then there’s the economy as a whole. The fact of the matter is
that tech already had its bubble in 2021. It had its crash in
- And now we’re largely on the other side of that. There’s
still a lot of companies like we talked about, they’re going to
need to restructure, who raised during the bubble and may not
have come to grips with that. But if you’re talking about new
investment, new rounds, new companies are starting with a
clean sheet of paper and a blank slate, you’re right, things
seem good and normal, right? People are making intelligent
investments. And obviously, the innovation cycle doesn’t have
anything to do with the macro picture. I mean, technology
wants to evolve, and it’s great engineers and product people who
drive those ideas forward. And they’re not thinking about
interest rates. I never thought about the Fed funds rate at all
when I was a founder running companies. So let’s just put
that aside and acknowledge that great, this great innovation is
going to keep happening, no matter what the macroeconomic
picture looks like. That being said, I mean, just for the
listeners of the show aren’t startup founders, I tend to be a
little bit gloomy about the macro picture right now. Because
yeah, it’s true that what Brad said that we’ve had good
economies with 5% rates before. But I think you also have to
look at the pace of change or the rate at which the the Fed
funds rate has been going up. And if you look at the chart of
rate increases, it is a very steep chart of rate increases.
And I just think that for the last decade or so, we’ve been
operating in this like zero interest rate or ZURP
environment with loss of monetary stimulus. And I think
a lot of companies, a lot of parts of the economy got
addicted to that stimulus, they got hooked on drugs. Now, all
of a sudden, you’re putting them through withdrawal very, very
quickly. And obviously, the withdrawal pangs are going to
be worse, if you can’t taper off slowly. So, it looked like
just a few weeks ago that the Fed was done raising rates. Now
we know that they’re not, we don’t really know when they’re
going to stop. So, I tend to be a little bit gloomy with
respect to the big macro picture, because I just don’t
see how you can change rates this fast. And I mean, you look
at like real estate, for example, we just saw the first
year over year decrease in the housing market in a while. And
again, that’s all driven by rates, the cost of mortgages
going up, and two big defaults in the first two big defaults.
Yeah. So, I think that there’s going to be some pain ahead.
Now, you know, ironically, from the standpoint of the tech
ecosystem, we may have already taken our medicine. And we may
already be on the other side.
Actually, that is a good way to to look at as we took the
medicine, it’s painful.
And Jason, maybe maybe that’s the segue to talking about
Benioff, I would say we haven’t took it, we’re taking it, we’re
starting to take our medicine.
Well, it makes sense that Benioff, with his, you know,
very loving family kind of approach to running the company
might actually, it might take him a little while to become a
big cutthroat. So as everybody knows, Benioff, and Salesforce
have had a lot of turnover, a lot of senior executives have
left voluntary or involuntary. But shares were up 11%. On
Thursday, after reporting their Q4 earnings, they’re up 14% year
over year, small net loss, but the company bought back $2.3
billion worth of its stock, we’re going to see more of that
for sure. And they’re going to be increasing its share buy back
program to $20 billion going forward. And like meta, which
suddenly got fit and got religion. Benioff is now
basically with all these activists, I guess on on his ass,
he says, in this is the quote from the earnings call, we’re
more closely scrutinizing every dollar of investment and
resource and very focused on driving operational excellence
and automation across our business focusing on four key
errors, short, long term expense, restructuring employee
productivity, there it is. product innovation and building
relationships with shareholders. profitability is our truly our
number one strategy. And that’s my number one strategy. That’s
the number one thing we talked about at the start of every
meeting we have in this company, quite a turnaround your
I don’t think the story is that, you know, that Benioff, you
know, made these cuts, and that activists are around the rim,
what was significant was his comments that he made, and I
tweeted about it today, you know, he said, every CEO in
Silicon Valley has looked at what Elon Musk has done, and
asked themselves, do they need to unleash their own Elon within
them? And, you know, listen, we’ve been talking about this
for nine months. The reality is, if you look at the employee
count at Salesforce, in 2015, they had 19,000 employees. As of
last year, they had 80,000. In seven years, they four x, the
number of employees, they were a mature company. By 2015, their
employees cagored at 23%. You know, we don’t talk about it in
this way. But these large companies, these employee bases,
they’re not unions, but they may as well be.
Right? Why would that be?
I just think there’s, there is, during this age of excess, where
it was just easy for people to hire more people and build more
things not to make tough choices, etc. Right? We just had
an explosion like we’ve never seen in Silicon Valley, in the
number of employees in these businesses, meta went from 10,000
to 80,000 85,000, Google went to 185,000. And at those levels,
it’s very difficult to govern them. And when the CEOs went to
make decisions in the businesses, there would be
protests, revolts, within the business, 30 or 40,000 people
would sign a petition even say, No, we’re not going back to the
office. No, we’re not going to work three days a week. No, you
can’t name our AI bot, what you want to name it because it
offends us. And so to me, what’s more significant is over the
last six months, we’ve seen courage, gain momentum in
Silicon Valley. Right? What’s deeply underappreciated about
meta, and the changes they made, it would be one thing if it was
just window dressing, we cut 10% of the workforce kind of
tighten our belt a little bit. But Zuckerberg got on his call,
and he said, we only have two priorities in 2023. One is
efficiency, and he went into depth about once they started
cutting people, how the company got faster, the product release
cycle sped up, the employees got happier. And now it’s an end in
itself to delay or the business. That’s what we’re hearing out
of Benioff as well. And I think it’s, you know, people can
quibble with how Elon went about the change, which you and you
and David are very familiar with at Twitter. But the reality is,
he lit a fuse in Silicon Valley that is giving courage, whether
it’s private companies, series B companies, pre IPO companies,
public companies, I’ve had that conversation more times than you
can imagine over the course of the last six months. And I think
it’s a really important change, because I think it breathes new
productivity into all these businesses. And importantly, it
unleashes these engineers back into the ecosystem to start the
next wave of companies.
Yeah. So Jason, I mean, you and I got to tag along with Elon
during that transition phase at Twitter. And the thing that I
took away from it was just how much agency, you know, CEOs have
that they’re not using. I mean, Elon went in there, and he
basically changed whatever he saw that he didn’t like, I mean,
unsentimentally and quickly. And, you know, and so you look
at all these other companies, you talk to CEO sometimes, and
they act like they’re prisoners of their companies, like, I can’t
change this, I can’t change syndrome. Yeah, yeah, it’s like,
you know, I’ve got all these employees and all these layers.
And but I can’t, you know, there’s always some reason I’m
afraid of the bad PR, or, you know, whatever it is. And I, you
know, the thing I came away, realizing is just how much
agency, particularly founder CEOs have, that they just don’t
use, you know, they’re always like hemming and hawing and
wringing their hands, and acting like they’re tied down
by this or that. And the reality is, they can do whatever they
want, just about, you know, within the bounds of what’s
what’s legal. And, and I think they’re starting to realize, oh,
wait a second, like, I actually can do that. You know, I can
walk into my company one day. And if there’s a team that’s not
performing, that’s giving me answers that don’t make any
sense, I can start over. I’m just gonna start over. Yeah,
reboot. I mean, if you can’t get it done, then we need to have
somebody who can do it. And it’s, it’s incredible. Like we
were doing an analysis on this week in startups of the, you
know, employees per company and the revenue per employee per
headcount. And I got roasted for having this calm even having
this conversation. And now here we are Chamath, people are
looking at efficiency, we’re looking at, you know, really,
how efficient can these companies be run? Is there a
limit to where this is going? And if we were to look at this
as a process, where are the fangs, the Amazons, the
Googles, Facebook’s, where are they at in terms of percentage
to being at Elon, if you if you were to put Twitter and Elon as
the goal, where are these companies? And I don’t know that
that is the goal. Maybe maybe he’s cut too much. Who knows?
We’ll find out. I think it’s a it’s a it’s a pretty radical
experiment experiment he’s doing there. Yeah,
I don’t think that’s a reasonable or an achievable goal
for a public company. Okay. I mean, I think the thing we have
to keep in mind is Elon is also capable of doing that because he
paid $44 billion of his own money to buy something that he
owns outright, that no longer has revenue pressure to outside
stakeholders, different circumstance revenue went down
70% at Twitter. Well, that only affects him and his ability to
pay whatever he borrowed in order to buy that company. And
as long as he’s willing to fund that somehow, he’s literally
allowed to do whatever he wants. That’s no longer the case
when you’re borrowing money from other people to build your
business, which is what every other capital market
participant does, public market participant does and private
market participants. So I think that that distinction is just a
little bit important, because it probably means that there is a
shadow of what Elon is doing, that’s probably the threshold of
what’s possible. And it’s probably, you know, sort of 50%
headcount reduction, that’s probably the, the bound in which
things break. Because I think the thing to keep in mind is that
over time, this stuff is like collagen in the body, it just
like, it creates these interconnected webs of just very
difficult stuff that you sin you that you cannot tease apart
blockages. So even if you try to go in and cut 50% of a company
like Facebook or Google or Microsoft or Apple or Amazon, it
would be so difficult, because all of a sudden, the
coordination that happens at that scale, I think would get
lost. So I’m not sure if it’s possible, you kind of have to do
what they’re doing, which is cut 5%, then cut 10%, then cut 5%,
then cut 5%. And I know it frustrates people on the outside
looking in, but I think it’s the, it’s probably the only way
it can be done without torpedoing the company.
What does that do on a culture basis, then, because that is the
big critique, hey, you’re creating now this culture of
fear, I guess the opposite of that is you’re creating a
culture of performance and expectation. So how do you think
about it on a culture basis, because that keeps coming up
from founders to David’s point,
it depends, because I think companies when they’re smaller,
I mean, I can tell you, when I was a part of the Facebook
senior management team, we would rank all the employees.
So we had a very good sense of who was the best and the most
performant all the way down to who was not. And we were able to
do that, probably up to two or 3000 employees. That’s not
possible at 50,000. And nor is it fair. So because you don’t
know who these folks are, the real contributors are, you have
to do what Elon did, which is literally go person to person
and say, who is unbelievably performant, or critical? Yeah.
In the absence of doing that, you just don’t know who to let
go. And so you have no choice except to bleed down. The
question that I have, and Brad, maybe there’s a smart analyst on
your team that can do it is right. And it’s more of a
statement as well. Can you imagine the totality of stock
based comp that’s been given out by all these companies since
2015? When they were catering their employee bases by 25% a
year? I bet you it’s a trillion and a half dollars at least. You
think it’s that you think it’s in that order of magnitude?
100% This has been the greatest grift in the history of Silicon
Valley for sure.
Let’s pause for a second. Can you explain what we’re talking
about here? Stock based compensation obviously is the
stock given to employees. It’s generally not counted. Well,
let’s do the accounting, right? Let’s do it this way.
Let’s just say that you believe in capitalism. Okay. Yep. So if
you if you believe in capitalism, let’s say the, the
four of us start a company, and there’s $1 of profit, and we
each own 25% of the company. Got it. Normally, what you would
say is each of us get 25 cents. Right, reasonable, we own 25%
each, there’s $1 profit, we each have 20. So that means that in
four years, right, we each will have made $1 because so let’s
just say it costs $1 to get off the ground or $4 to get off the
ground, all in summit budget, we believe we all would have been
made whole, we all would feel great. And then now every year
afterwards, that 25 cents we get as profit. Now, let’s say that,
Jason, you add a fifth person, and Brad and David and I can’t
say anything about it. Okay. And that fifth person now gets a
fifth of it. Right. And so now all of a sudden, our 25 cents
goes down to 20 cents. Then let’s say you add five more
people now all of a sudden, our 25 cents went to 20. And then
it went to 10 cents. Yeah. And at some point, Brad and David
and I raise our hand and say, Hey, this is not the deal we
signed up for. And you say, well, too bad, because revenue
would not be what it is. And profits would not be what it is
without these extra six people. And that’s effectively what
everybody debates when they own a stock, the shareholders want
that number to be as small as possible. And I think what Brad
is observing is that in Silicon Valley, what has happened is
there’s been poor accountability for what all of those extra
people do. And profits haven’t written risen fast enough to
make the existing three people on the cap table feel okay about
it. And that instead of talking about three people and six, and
$1, you’re talking about trillions of dollars, and
hundreds of 1000s of extra shareholders, Brad, millions of
extra share. And now we have some charts here. So we can do
some fun with numbers. I think taking a step back, I think
it’s very important to realize that stock as a form of
compensation to create alignment, excitement in the
early stage of venture capital, is part of the true magic of
Silicon Valley. You know, you’re starting a company, you
ask somebody to go on this adventure, take a bunch of risk,
they often have to cut their pay, they could get at Google
by half to join your adventure, it’s only fair that you give
them stock in the company, and they share the ups. And if the
company smokes it, they get rich for taking that incremental
risk on their behalf and on their families behalf. What’s
happened over the last 15 years is something totally
different, which is this stock as a form of early stage
compensation, right, continued. And there’s a feature in
Silicon Valley, as companies came public, one way to kind of
hide an expense in a business is to bury it in SBC. So let’s
say Google wanted to hire somebody for $4 million, which
they’re doing today in AI. But instead of paying them 4 million
in cash, which would all count against their operating profit,
they give them 500,000 in cash, and three and a half million
dollars in stock. And let’s say they make all that stock
vestibule immediately, Jason, in this year, it’s obvious to you
and I, that’s just cash, the person turns around and sells it
to real expense of the business, real expense to the
shareholders. But when they report their earnings, and they
report adjusted EBITDA, they adjust out the three and a half
million dollars that they gave by way of SBC.
Why did stock based comp SBC get excluded from accounting? What
is the history of that? And is that going to change now? Are
people going to say and shareholders demand in this new
economy in this new, you know, sort of reality? Hey, you know
what, you can’t play fun with numbers here. Stock based comp
has to come out. What would you like to see Brad?
It’s fairly esoteric, but they’re back in the mid 2000s
2004 2005. There was a, an accountant, there was a big
debate about this. Warren Buffett was famously saying,
listen, it doesn’t matter whether you pay in stock,
whether you pay in cash, whether you pay in cans of beers, like
it all costs the same. He’s right. And so there was a
debate. We had a statement and accounting statement FASB 123.
And in that statement, it said gap EBITDA must include the cost
of stock based compensation. So all of a sudden, if I’m
reporting gap EBITDA, I got to include the cost of stock, which
it does today. But what but what did everybody do? But what
happened? They started adjusting it out. Right? Because
they said, Hey, this is a real expense, right? Because we’re
not it’s not cash. We’re giving out the door solid. Do they
come up with a term for this?
They just call it adjusted EBITDA. And the crime, the crime
here is that when rates fell to zero, and everybody was making
money on tech stocks, nobody wanted to rock this boat. And
everybody just said, you know, like adjusted EBITDA kind of
ignored, I can, I can model it into my future dilution. So we
model up share count over the course of the next three years.
But this literally over the last five years, went parabolic.
Because I just shared with you the number of employees
exploded. The amount of share based compensation exploded. I
think there’s a competition for those employees, we would have
one base, I think just reported SBC, which hold your hat sacks,
was 70% of revenue, not 70% of their earnings, 70% of their
revenue. Just for Coinbase, we’re talking about here. That’s
for Coinbase. And so you know, last week, there was something
that I thought was pretty brave. Booking.com on their
earnings call, really called this out. And what they said is,
listen, we’ve been playing by the rules. We understand that
stock based comp is cash. And they say every every metric we
report includes the impact of stock based compensation. And if
you look over the last 15 years, if I’m an owner of
booking.com, I was only diluted by about 5%. If I was an owner
of Salesforce, or Expedia, I was diluted by about 25%. That’s
25% of my ups were given away. Right. But yet, those things
were adjusted out when they reported earnings. And so, you
know, what’s become in vogue today is CFOs get on their
calls. And they said, No, no, no, no, don’t worry, we’re
going to buy back a lot of shares. So we won’t have much
dilution. Okay. But if you take my 2 billion of profits that
Chamath just talked about, and it goes right out the door, just
to buy back the shares you just issued, you’re effectively
round tripping that money, then it just proves the point. It’s
cash. It’s an expense to shareholders. And my biggest
problem with it is it’s led to the bloat. Because if companies
actually had to account for this as cash, right, as opposed to
being able to do it, they wouldn’t hire as many people,
they wouldn’t pay as much in stock comp. And I’ll end with
this because I want to end with the solution. Every comp
committee on every board, frankly, their heads spin when
you start talking about this subject, they bring in a comp
consultant. And the comp consultant, they is really the
CYA for the comp committee, because they want to approve a
comp plan that’s been recommended by the management
team. And they just want to know, is this what everybody
else is doing? Okay, so everybody’s doing it. So the
comp consultant looks around and says, Yeah, all your peers
are doing this. This is why Charlie Munger said, I’d rather
throw a pit viper down the front of my shirt than hire a
comp consultant. Right? What is going on on these comp
committees? If you give bonuses to anybody in your business,
that are that is based on an adjusted EBITDA metric, rather
than free cash flow per share, per share is the key here. It’s
negligence. It’s negligence. So if comp committees just walk in
and they say the gold standard as a public company is 50 basis
points, annual dilution, that’s Apple, that’s booking.com visa
mastercard, or even below that, that’s the gold standard once
you’re in the public markets, and we will never incentivize
our employees, our employees on the basis of anything that
excludes stock comp, and it has to be on a per share basis, that
would be a massive leap forward for public company accounts.
It seems reasonable. Anybody have any other thoughts on that
stock based comp? No. All right, Zach, where do you want to go?
You want to go Fox?
I’m going to do Fox.
Yes, let’s do Fox. I mean, Fox is kind of crazy. Okay, so
Rupert Murdoch had been deposed here with this Dominion voting
system lawsuit, they’re suing Fox for 1.6 billion in damages
over claims made on air that we all know, around technology
enabled election fraud. We remember this wild period at the
end of the last election cycle with this incredibly false claim
that the election was stolen, something, you know, both sides
of the aisle said did not happen. However, it seems that
the hosts on Fox knew it wasn’t happening, knew it wasn’t true,
but we’re engaging in entertainment of allowing these
people to come on air and say the election was stolen. So
Murdoch said, I would have liked us to be stronger in denouncing
it in hindsight. And when asked if he could have stopped the
host from highlighting these allegations, these false
allegations on air that were obvious to everybody. He said I
could have but I didn’t. He said the truth. He’s not allowed to
lie in court. Yeah, just on air. But I mean, just I mean,
sacks, to be fair, like, you really care about freedom of
speech. You really care about the libel laws. You really care
about the GOP. Obviously, you bring it up every week here. So
when you looked at and but you were very clear, you were not
happy about the election denial, all that like false claims that
Trump made and these insane people he put around himself. So
how do you look at these Fox hosts and listen, you’ve been on
Tucker and other things, knowingly spreading lies about
something as important as the election, and then doing it in
the most cynical ways we we sit here and every week we roast the
media, the mainstream media, you particularly go after the Dems
and the left and the media elites. How do you feel about
these media elites, who are part of the GOP machine, lying
incessantly about something as important as the election
integrity of the United States of America?
First of all, you’re trying to tee this up as some giant dunk
on me, J. Cal.
No, I’m not. No, I’m not. You said from the beginning, I need
to remind you didn’t believe in this.
Exactly. Let’s go back to November of 2020 on the show,
because there may be a lot of parts of the audience that
weren’t watching back then. I was really clear that I said
Sidney Powell and 100% and Rudy Giuliani, I thought they were
wackos. And this whole idea that the Dominion voting machines
had somehow been rigged, and somehow it involved Hugo Chavez
was a wild conspiracy theory. So I said at the time 100% that I
also said that I thought that once the Supreme Court denied
certiorari to Trump, I said that he had his right to have his day
in court, and to challenge the election in court, but once that
the court threw out his claims, and the Supreme Court denied
certiorari, that that whole thing needed to stop. And it
didn’t stop. And that’s why the Republicans lost that Purdue
runoff seat in Georgia on January 5, and you had January 6.
So, you know, I’ve been warning against this for a long time,
J. Cal. Now with respect to Fox, I think you need to basically
get a little bit more nuanced in what you’re saying there.
Because I think within Fox, there were actually two groups
of hosts. So there is one group of hosts that I think you could
say were Trump loyalists. And they basically not only
platformed the Sidney Powell lies, but also endorsed them and
Rupert Murdoch admitted that they went too far and actually
endorsed. And so you had Hannity and a couple other hosts do
that, even though Hannity had some text messages that
indicated he didn’t believe it. So I think he came across the
worst. However, there were within Fox skeptics of the
Sidney Powell theory. And so I’d put Tucker Carlson in that
camp. I put Laurie Ingram in that camp. And Tucker had
Sidney Powell on his show on I think it was November 19. I
think this was 16 days after the election. It was a 20 minute
interview in which he grilled her and he kept coming back to
what is your evidence? What is your proof? And if you were
paying attention, he demolished her. I mean, I remember that
notable. Yeah, exactly. So I mean, honestly, no one looks
great when all of your text messages come out. And you can
nitpick about this or that text. But the bottom line is I think
Tucker did his job. You know, yes, he platform Sidney Powell,
but he platformed her in order to dismantle her. And you kind
of have to be pretty dopey not to see that she was dismantled
after the appearance of Tucker
Fox be liable for knowingly platforming these people and
endorsing them in some way? Or is it their freedom of speech in
your mind, as an attorney here, or somebody with that, you know,
legal degree? Where does it stand? Like, put aside if this
was if this was CNN doing it, MSNBC will switch what
publication if this was the New York Times, and they knowingly
lied, knowingly platformed some coops with a conspiracy theory,
what should the price they pay for? And then how does that
affect the freedom of speech that we all think I think
universally on this podcast, especially and in Silicon
Valley, or at least we used to, that freedom of speech is
really important. Do you have the freedom to lie and platform
coops like this?
Let me answer you directly, Jason, I think this would be a
better world if Fox were liable. But I don’t think they’re going
to be because that’s not the legal standard. I believe that
if a television network knowingly spreads and endorses
baseless accusations against somebody, which they know, or
should know is basically untrue, I think they should
absolutely be liable for libel or defamation. But that is not
what the law requires under New York Times versus Sullivan,
you’re required to show that that they knowingly spread
misinformation. But in addition, you have to show that they had
actual malice, which is that their intent was malicious. And
I think, you know, Rupert Murdoch is a wily old dog,
because he admitted on the stand everything but the thing that
was most important for the plaintiffs to prove, which is
actual malice. He admitted that they platform things that they,
you know, knew or should have known were false. He admitted
that he should have put a lid on it sooner. He admitted that he
knew it wasn’t true. But he said the reason they did it is
because they’re afraid of their audience or a portion of their
audience going to some rival network. So basically, what he
said is, in not so many words is that his motivation was greed.
And in our system of law, that is a complete defense against
claims of defamation. Now, I think what we need here is to
rewrite the defamation laws, I think the Supreme Court needs to
overturn New York versus Sullivan. Clarence Thomas is
basically intimated that he would support that. I think
that would be a great thing to do. I think actual malice should
not be the requirement for libel. I think if a television
network or a publication puts out information they know is
false, they should absolutely be liable for it. And that is
enough to show. And if we did that, by the way, it wouldn’t
just be Fox in this particular case, it’d be CNN, and MSNBC,
we have to completely revise their coverage. And all of these
tech reporters who do nothing but defame the tech industry,
the entire tech press just about is a slow moving
defamation lawsuit. Elon Musk would probably be the richest
man in the world just based on all the defamation lawsuits he
could bring. If we were to overturn New York Times versus
the richest richer guy. Yeah, because all they do is defame
Elon Musk every week. Yes, for claims that are ridiculous. So
David, let’s revise the whole thing.
Yeah, but hold on. There you go, folks. Very, very intellectually
honest. I like it.
David, so what you’re saying is you expect the Dominion lawsuit
to fail? Can it be appealed all the way to the Supreme Court?
Can this be the case that rewrites New York versus
Sullivan? Good question.
That’s a good question. I’m not sure. I mean, I think that’d be
great if it did. Just to be clear. Listen, I think that if
Fox were somehow found guilty, I think one and a half billion
is a kind of a ridiculous amount of damages. I don’t think
Dominion was damaged to one and a half billion. But do I think
that it would be a good thing if this lawsuit were challenged
all the way to Supreme Court and they overruled New York
Times versus Sullivan?
Let’s fund the lawsuit. Let’s fund the lawsuit. I would fund
The next thing I want to do is sue MSNBC and CNN for all the
nonsense they spread every night.
Yeah, just to be clear, I have a couple of things that I would
want to go and get correct.
Clean up. I just want to be clear here, though, Brad. David’s
guy, Tucker, he did the right thing. That’s the most important
part of the story, isn’t it, David? You’re still a sucker for
you’re not being nuanced. You want to throw Tucker under the
bus. I think Tucker did his job. I think the guy who looks a
little worse is Hannity because Hannity in the text admitted he
didn’t believe the story. But as a Trump loyalist, he endorsed
the bullshit theory. That’s no good.
Brad, you know, you come on the show every couple of episodes
and pitch in here as our fifth Beatle. Would you like to touch
the third rail? What are your thoughts? And would you like to
get some incoming email from all your LPs about your position
on Fox News and
just feel like I sat through a University of Chicago law school
class. It was awesome. And I think we have some good issues
here that we still got to tick off on J Cal. Yes. Okay, well,
we got to talk just for a second about China, as it relates to
tick tock, because, because this right, here we go. This Hawley
hearing that’s coming up. So we’ve got a hearing in Congress.
Let’s start with you are a shareholder, a significant
shareholder in ByteDance, the parent company of tick tock. We
have to say that I’m correct. Correct. Correct. And you
you started that I can’t use tick tock. And my kids use reels
and everybody you and I’ve had a spirited debate on. Yes, you’re
a shareholder. Okay, so we’re about this. So I so I haven’t
interested up you want to hold on a second here, like because
just like sacks had to defend himself before he even got
started. Otherwise, my credibility, like the way I have
to do the same thing. I’m a shareholder of meta, who stands
to do incredibly well, if tick tock in the US is banned. So
you have a spreadsheet where you win either way. I’ve got a
hedge on good. Okay. You know, if tick tock in the US gets
banned, but you know, the con the context here is the tick
tock ban debate is heating up. Right. And it’s all in a
march up to the Holly hearing. I think it’s on March 23. And
there’s real like we spent a lot of time at the start of this
pod on inflation. I think a much bigger issue right now. I was
just with all these investors. The main issue on their mind was
global decoupling between China and the United States. We’re
going to see a level of Chinese hate leveled out of out of
Congress both sides. I mean, we heard it come off at dinner at
your place not so long ago, that this hearing is drawing
more demand for speakers from both sides of the aisle than
any such conference in a long time. But there’s a lot of
there’s a lot of heat now around tick tock, should it be
banned. And when I when I look at the situation, if you frame
it for ByteDance, because Chamath talked about this a
couple weeks ago, it’s been reported. ByteDance is revenues
about $120 billion. It’s been reported their profits are
about $25 billion. That is almost identical in size to
meta meta is worth about 450 billion. So 120 billion top
line. It’s also been leaked that in that tick tock is about
14 billion of that. And that us tick tock is three to 4 billion
us tick tock three to 4 billion of 120. And it loses money. So
there’s a lot of debate, should we ban it? Should we not ban it?
Is it going to go public? And what should happen? What do you
think? What do you want to happen as a shareholder?
Listen, I think it’s an American. I think this is a
puppet debate over a much bigger conversation that’s going on.
One of the things I’ve urged the company to do over the course
of the last several years is parental controls. My kids use
tick tock, they use reels. And what I want is to be able to set
effective time limits. And I also want tick tock has
incredible video content in math in science and history, I want
to be able to set a slider and say 20% of the videos that get
shown over this one hour period have to include some of these
math and science videos for my 12 year old, then he can elect
to not watch it all or watch it. They announced those product
changes yesterday. So they’re teeing up those product changes.
I don’t happen to think there’s a nefarious plot. But I also
understand that people might not want this. And so like,
listen, I think we should have a debate. I think that the CEO
tick tock should show up, he should speak the truth at the
Hawley hearing. And if the US Congress wants to ban tick tock
in the US or force a spin or a sale, I think we should do it
and stop debating it. But the much larger conversation is
whether we have a hard or a soft decoupling with China. And I
think this is just canary in the coal mine.
All right. So let me just tee up also, and Chamath, I’ll get
your reaction. On Monday, the White House gave government
agencies 30 days to remove tick tock from all federal devices,
all federal agencies must delete tick tock from phones and
systems and prohibit internet traffic from reaching the
company. This is following moves by Canada and the EU and Taiwan.
And obviously, there is a bigger house committee focused
on China that held its first meeting this week. So there is
the bigger picture. But let’s start with the smaller picture.
Number one, Chamath, do you think it’s a security risk to
have a Chinese company have this kind of access and influence
with tick tock specifically? And what do you think the remedy
should be for that? And then we’ll get big picture. I want to
get sacks involved in this as well. Should it be banned?
Should they have this kind of access to Americans and
Should it be banned? No, because I believe in a free market.
Will it be banned? Yes. Because it’s
the most obvious cultural way to pick a fight with China without
actually picking a fight with China. So yeah, I think it’s
going to be the most obvious victim of all of this. And so I
don’t know my advice to my friends who are shareholders.
Not just Brad, but others is sell, sell it, move on. It’s in
the Warren Buffett, what Warren Buffett calls the too hard
sacks. Do you think that this is a national security issue? Do
you personally believe tick tock should be banned? Or do you like
me believe that we should just do a reciprocation test in order
for tick tock to be allowed here in the United States, then
Twitter, Facebook, Meta, Instagram, LinkedIn, etc. need to
be allowed in China, and you have this many days to
reciprocate or else it’s bad.
I don’t think your mouth is right that tick tock is going to
be GPC roadkill. And GPC stands for great power competition,
you’re going to start hearing that term more and more, it’s
going to become the organizing principle of American foreign
policy. And I just think that tick tock is tick tock is all
caught up in that. And you know, personally, I’d like to
understand what it is exactly that they’re doing with tick
tock. And so there’s having these vague accusations, I’d
actually really like to understand the surveillance
that they might be doing. Yeah, I’d like to know a lot more
about that. But in any event, I just think you’re gonna get
caught up in this this, again, GPC, that’s going to be the
dominant organizing principle of our foreign policy. I think
that people are coming around to realizing that it’s
China, not Russia, that is the central global competitor and
adversary, the United States, it’s the only country in the
world that’s a potential peer competitor to us, this economy
is roughly the same size, the US has got four times the
population, it’s the one that we really need to watch out for.
I think there’s growing realization in Washington, that
the Ukraine war is a little bit of a misdirect. And that we
need to basically get back to doing what we were doing before
the war, which is pivoting to Asia.
And by the way, thinking about that, just for a second. In I
think, David, you’re totally right, because the game theory
now, to me, makes a lot more sense in the frame in the
framing of GPC. So for example, if you think about what the
CHIPS Act does, right? The CHIPS Act basically says we are
going to near shore, or onshore, every capability we need, so
that we can make and manufacture all the critical
semiconductors for all of our interests, technological,
business, military, etc. But what is that really what that
is, is an option to not have to defend Taiwan. And why is that
important? It’s because today, if Taiwan were invaded by China,
we get pulled into a conflagration that we don’t know
how it ends. We don’t know what the beginning, middle of end of
it looks like it’s extremely dangerous and precarious. So
spend a couple trillion dollars create financial incentives,
build a bridge to Korea and to Japan so that they bring onshore
and into Mexico all the capabilities we need with
Western Europe, who are already our allies already, along with
Japan and Korea. And now all of a sudden, we have complete
optionality. And now we can deal with the greater Chinese
hegemony in a much more balanced way. So I think the GPC
framing is shared, by the way, between the Democrats and the
Republicans. So this is why it’s so much bigger than one
single company. That’s why I think I think it talks roadkill
Brad, if we frame it as a competition, we’re not framing
it as a war. We’re in competition. And part of that is
going to be this decoupling is this decoupling helpful to
America? Is it helpful to humanity? Is it better that we
decouple a bit this interdependency maybe got a
little too deep as we saw during COVID with supply chains?
Well, I mean, in a great in a great power struggle, it is what
the words imply. Right. So I don’t, you know, part of the
reason you want to have trade with China, and part of the
reason we don’t want to have a hard hard decoupling is, you
know, a long standing theory that company countries that
trade together are less likely to go to war. So, you know, I
think if you listen to what’s coming out of this, you know,
these select committee this week that held his first hearing
is on the, on the extremes, you hear people saying hard
decoupling, right. And in the middle, you have people saying,
listen, we need to define a circumference around national
security. And we need to decouple as to all things that
are within that circumference. Now, I will tell you that the
debate is about how large is that circle. So it starts off
as, for example, sophisticated computer chips out of Nvidia.
So China, you know, can’t compete with us in the AI arms
race. But it’s quickly emerged into, you know, batteries,
energy, food, supply chains, it, the circumference has now
become almost as large as the economy itself, I would argue
that it’s not just the chips act, it’s also IRA, which is
another trillion dollars of funding for basically onshore
and supply chains, vital materials to build batteries,
etc. You know, so I think it’s a very reasonable policy by
both parties to pursue, it’s clear that we’re going to have
some decoupling. I think it’s a it’s a it’s going to lead to an
interesting question on the part of China, you know, she was
out last week saying, you know, I’m going to make a speech
about peace with Russia. You know, this is more David’s
territory. But my hunch is that there may be, you know, if
China, China thinks there’s going to be a hard decoupling
from an economic perspective. This is bad for global economic
growth. This is bad for China’s growth. I don’t think it’s bad
for growth. I think it’s bad for inflation. Explain? Well,
because I think that we’ll have many versions of everything
everywhere. So we will more redundancy. Yeah, more
redundancy. We’re gonna we’re gonna rely on Central and South
America in a meaningfully bigger way. And what that’ll mean is
that there’ll be more jobs and economic prosperity for those
countries, they’ll feed the United States, China will feed
it less. And as a result, there’ll be more inflation,
because you won’t have the cost advantages. By the way, China is
not just going to sit there and take this lying down. They’ve
already punched back a few times. So for example, in the
middle of the summer, China introduced a tariff and slowing
the export of certain materials and technology to make solar
wafers. Now, why is that critical? Well, again, talked
about this before, but we are going to take the marginal cost
of energy to zero in this country. And the levelized cost
of energy, particularly via solar is the cheapest it’s ever
been. And so what China sees is, oh, my gosh, if the United
States has abundant free energy, now, all of a sudden, a huge
component of what drives costs is gone. Yep. So now the United
States could partner with El Salvador, Mexico, Honduras, you
know, Argentina, Brazil, Vietnam is happening here, too. Yeah.
No, but I’m just saying it’s close by. Yes. Right. And if you
can deliver zero cost energy to those places, now the
manufacturing capability could exist there. My point is, it’s
such a complicated Chesapeake. So China is not taking any of
this line down. But I think that what David’s framing is totally
accurate. This is the beginning of a GPC. And it’s an economic
tit for tat that we’re going to play out. We tax chips, they
tax solar panels, we go after tick tock just as a confusion
maker, right? Yeah, there’s gonna be a lot of
follies back and forth here. I can tell you the the there’s a
very easy test for if China sees tick tock as a strategic asset.
And that’s, it’s going to create more shareholder value, Brad, if
they were to spin it out and make it a publicly traded
American company with American shareholders, it would create
more shareholder value for bite dense. Therefore, if they don’t
spin it out, that means they’re not acting in the interest of
shareholders and shareholder value. They’re acting in the
interest of their national security. Pretty clear
reciprocation and collaboration would be a much better model, I
think for for working with the Chinese and hopefully we can
find some things to collaborate on
Brad raised the the Chinese peace proposal on Ukraine, which
I think is an interesting topic. Can we you guys want to go there
for a minute? Sure. Yeah. All right. Can I take a shot
explaining what the Chinese were doing? I think it was a clever
diplomatic maneuver by the Chinese to try and grab the
moral high ground here. They’re basically saying, Listen, we’re
interested in peace, we’re going to put forward a proposal, the
Americans fell into the trap of basically dismissing it right
away, throwing cold water on it. The US State Department has
done this twice before. Remember, back in March of last
year, enough Tali Bennett from Israel tried to negotiate a
peace deal. And he himself said that it was the West, the
Americans who rejected it, he thought it had a 5050 chance of
succeeding, you then had the peace process in Istanbul,
Turkey, with Erdogan presiding over it, you had the, the
Istanbul communique, which again, they were very close to
having a peace deal, and Blinken in the US through cold water on
it. So what’s happening here is that the US is not playing its
traditional role as peacemaker, where we try to go in and
mediate these conflicts. We’re doing the opposite that we’re
throwing cold water than peace process. Now, why are we not
acting as the mediator? I’ll tell you why. Because we are a
co belligerent. This is an American proxy war that we’re
fighting against Russia. So we have no interest in mediating a
peace process. And moreover, we’re not trusted to mediate a
peace process because we’re one of the effectively one of the
strategy by Xi Jinping is to take the global moral high
ground. I agree with now and I said it on Twitter a couple
weeks ago like this. This is amazing that he’s starting the
peace process. We want regime change. We want to deplete and
we want to ankle Putin. They want to keep him in the game.
The more despots there are, the worse, the better it is for
them. They would like to keep the Legion of Doom going. They
don’t want to change in democracy in Russia. Eventually,
I don’t think that’s how they do it. But listen, Jake, Jake, I
was very close to getting it. But here’s where I would
disagree with you a little bit. Let me explain. Okay, go ahead.
So from the Chinese point of view, the war in Ukraine is like
mana from heaven. Okay, they love this war. Number one, okay,
because it’s interfering with the US’s pivot to Asia. We were
basically in the process of redeploying all of our force,
all of our military to containing them in East Asia.
And now we’re bogged down in Europe. Okay, so that’s number
one. Number two, we are massively depleting our
stockpiles of weapons. We’ve used something like nine years
of stingers and five years of javelins. And we’re running out
of ammunition. I can’t believe we’re running out of artillery.
The Russians actually have a six to one artillery advantage,
which is why they’re actually doing much better in this war
than people are acknowledging, we should come back to that.
The last thing is that the Chinese now are benefiting from
the economic sanctions on Russia, because Russia is now
selling them oil and gas and all their minerals at a big
discount subsidy. So it’s been this has been a wonderful thing
from the Chinese standpoint. So this is the problem with us
thinking in this Marvel movie way of the world in which we’re
the super friends, and we’re against the Legion of Doom,
okay, is because there is no natural alliance in the real
world between China, Russia and Iran. These are three very
different regimes with different types of governments who
naturally would not get along. They would be adversaries,
naturally, they’d be suspicious of each other, as China and
Russia were during the Cold War, but we have pushed them closer
together. This is the problem with having this overly
moralistic view of foreign policy.
Over to you, Jason, what do you think? Tell us your question.
Their question. What’s the question?
Yeah, I mean, you frame it as the Legion of Doom. So just
Well, it’s the axis of evil, the the 50% of
Let me tell you, hold on, I’ll finish my sentence.
Listen, Lex Luthor and Brainiac would not be working together
if it weren’t for us declaring a war on both of them at the
same time. Actually, Pakistan, Iran, and, and China work
together on nuclear technology. So they do when it’s convenient
for them work on things like nuclear bombs. So there is an
affiliation, but you’re correct, they’re, they’re the 50% of the
planet of humans on this planet who live under authoritarians.
And so they, they’re authoritarians, they’re always
going to think in their own interest, they’re always going
to think in their own interest, above their own peoples, let
alone the people of another country, they don’t care, they
don’t care about human rights, they don’t care about the rights
of humans. And they certainly don’t care about the rights of
humans in another country. And the West is on a noble mission
to spread democracy in the world. And that is a noble thing
worth fighting for, and is worth defending free countries from
despots. I know that you are a fan of these folks, sacks,
apparently, and you think they should be able to run amok, I
will take the other side of it. I think the West should act in
unison. The only criticism I have is that we’re not acting
unison. I would like to see the West instead of sending Biden
to Ukraine. Hold on.
I’ve talked enough, you just accused me of somehow being
fans of these people. Where did I ever say that I was a fan of
Xi and China or Putin, or the ayatollahs in Iran? Hold on.
You said we provoked Putin. Putin invaded another country.
Hold on. You said we caused it.
I said, hold on a second. Hold on a second. I am arguing for a
geopolitical strategy that benefits the United States. I’m
on Team America, and your policy of driving these people
into an axis of evil is foolish for the reason I said, which is
we are going to power up the Chinese economy, so they are a
much more formidable enemy to the United States. That is the
last thing we need to do. Now, with respect to, hold on a
second, let me finish. You had a chance. With respect to Ukraine
and Putin there, there’s no question that Putin invaded,
okay? He is the aggressor. However, the question you have
to ask is why? The fact of the matter is that, first of all, we
fomented a coup in Ukraine in 2014. This is your democracy
spreading that you like. It’s all of a sudden we got these
NGOs, and we got Victoria Nuland from the State Department in
there basically fomenting these coups. It doesn’t work out quite
the way you think, Jay Kal. That’s problem number one, okay?
Then we try to run NATO right up to Russia’s border, okay? You
expect them just to accept that because we’re a benevolent
superpower. That’s not the way the real world works. Putin was
tremendously threatened by that, and it wasn’t just him. It was
all Russian elites. Read the Bill Burns Memo from 2008,
he explains that even the liberal elements within Russia
were tremendously threatened by NATO expansion. That is what
basically poisoned diplomatic relations between the United
States and Russia, and it was a major cause of this war. Now,
listen, just because you don’t think it’s provocative doesn’t
mean that the Russians don’t think it’s provocative. You have
to be able to put yourself in the other guy’s shoes for just
one second. The fact of the matter is there were diplomatic
steps that we could have taken to defuse this crisis in this
war, and we didn’t do it. Now, look what’s happened. Hundreds
of thousands of people have been killed, and Ukraine’s been
destroyed. It’s been absolutely destroyed. Let me tell you right
now, it looks like they’re losing this war. I don’t see
where your superhero policy has gotten us except to make China
more powerful and to destroy Ukraine. That is where your
naive idealism has gotten us. Yeah. And I would say, if you if
left to your devices, and you’re not engaging and not presenting
a united front against Putin, he will invade country after
country, the West must fight for democracy, we must fight for
human rights, even if it’s uncomfortable. And you seem to
think we provoked him to invade this country. He’s a murdering
dictator, authoritarian, who has been murdering his own people,
I’m saying other people for his entire career, and he will
continue to clarify, let me clarify, because you’re putting
words in my mouth. Okay. When you say that, I think that we
provoked what I believe, what I believe is that we took actions
that in Russian eyes were provocative. Yeah. I’m saying
that from their subjective point of view, they saw these actions
as provocative. They said, so listen, the Russian, which is
what I said, we provoked it is your position. No, I just
explained this. Hold on his position is that in their eyes,
they were proven. Jason, we’re talking about we’re talking
about and know what you’re like, what you’re doing right now is
like dishonest. I just explained the language that I would use.
Yes. Yes, we provoke them. We took actions that in Russian
eyes were provocative. There’s a difference. provocative,
provoked. Yes, the act of provoking line. Okay, it’s
getting too much. Okay, let’s move on. We’re not we’re never
going to agree on this sacks. Okay. And I mean, I like to
remind the audience that nobody on this podcast is an expert on
foreign policy. sacks is not Henry Kissinger. You know, I’m
not Obama. So last week, show you had come around to my point
of view, you said this war was a mistake. On the show, you said
it was a disaster. And now you’re you’re basically now
you’re backsliding. Hold on. You’re backsliding right back
to your leisure. No, no. I believe the West should present
a united front. And we should hold the line with Russia
invading other countries. That’s my belief. I do not think we
should be doing this solo. I think we should not be sending
Biden, we should be sending 15 leaders of countries to Ukraine,
we should be sending people in and we should be doing a peace
process. And I think the military industrial complex,
largely driven by the GOP is what’s at fault here. They want
to use his weapons, they want to replenish the supply. And
they want to regime change. I don’t think we should be going
for regime change. I think we should be building bridges. So
do you my point is a little more subtle, you’re doing it right
there. You’re basically engaging in this ridiculous rhetoric that
we’ve seen in the media, which is that if you simply want a
more realistic American strategy, because you believe it
benefits America, that you’re automatically accused of somehow
being a Putin sympathizer. You’re doing what the mainstream
media has done. No, I’m not. I just said to you, it should be
the entire West, as a group as a block, negotiating with Putin,
what do you think? It’s fine for Xi Jinping to be part of that. I
welcome Xi Jinping, Germany and the United States and France and
the UK all getting together and trying to get these two parties
to settle. What do you think we’re doing? What do you think
we’re doing right or wrong with China right now? Right or wrong?
What do you think we’re doing right and wrong or right wrong
or I think we should be in discussions with them
consistently. I don’t believe we should be isolating them. I
think we should be looking for areas we can collaborate on the
environment, tech, technology, you agree with the CHIPS Act,
you agree with basically onshoring and nearshoring all
the critical infrastructure we need is I think we should not be
dependent on any foreign we should we should have energy
security. We should have medical technology. Of course, yes. But
I think every country should I think China should have that we
should have it every country should aspire to be resilient
and not be dependent on another country. And being dependent on
a dictator like Germany was on Putin, or we were with China for
medicines or for, you know, medical equipment or chips. We
do not want to be in that position ever.
Let me ask one question just just on Ukraine, just for a
second, Jake out, would you be willing in order to achieve a
peace deal for Ukraine? Would you be willing to agree to two
things? Number one, that Ukraine would be a neutral country
instead of part of NATO? And number two, that we would
recognize for me being part of Russia, would you be willing to
give those two things?
I think that’s up not up to me. I think it’s up to the people of
Ukraine and Russia to sort this out. And it’s up for the West to
set the table for them to do it. And part of setting the table
for them to do it is to make it more painful for them to stay at
this war. So if they are told if you keep fighting over these
things, and you don’t come to a resolution between those two
parties who have to live with that resolution, that is the
uncomfortable thing that will force them. And China, us and
India, all working together, all of us working together to force
those two parties into a solution that works for them.
We have Brad for 10 minutes. I want to move on. I want to show
you guys a tweet about Harvard students. And I want you guys to
react to Draymond’s comments because they’re just fucking
incredible. I don’t know if you guys saw this, but isn’t that
unbelievable? It says there was a study at Harvard that found
that 43% of white students there are legacy athletes, or
related to donors or staff. That’s unbelievable.
Is that public knowledge? Or is that like kind of leaked
information? I wonder this is from Dolores handy. I don’t know
who that is. Maybe we could click on who the source of that
is. legacies gotta go, right? That concept? Should I just go
away? Yeah, is there a valid reason to have legacy? Is there
a valid reason to have legacy? It feels unfair. It feels
un-American that these important institutions give preference to
people who are stupider and achieve less if this is an
achievement based system. It just feels unfair.
Yeah, I mean, well, we know we know that the first class had
zero percent. So we know what the trend line looks like. Yeah.
So at some point, we’re approaching 100%. I think we’re
debating question, right? One of the things I would like to see
Chamath is what’s the relative performance 10 years after
graduation between the legacies and the kids who had to fucking
scratch and fight to get into the place?
Oh, my God. Yeah. I mean, I think we know the answer.
Well, you would think there would be higher performers, the
latter group, but you would also think that if legacy got you
into Harvard, then the legacy is going to get you into other
things, right? You’ll have the end in other places.
They’re the ones who are miserable and walking around,
you know, rich and haven’t achieved anything.
Yeah. Listen, Saks didn’t get into Stanford based on his dad’s
buying a building, right?
That’s for sure.
Okay. So here is a video from Dream Hungry.
What I do want to go back to is Black History Month. This is
actually the first time you’ve seen me in a Black History Month
shirt, all Black History Month. And it’s very intentional.
And I really just threw this shirt on because I didn’t have
another shirt to throw on. But Black History Month, at some
point, can we get rid of it?
Like, at some point, why we got to keep getting the shortest
month to celebrate our history?
You got governors want to take our history out of schools.
And I’m not going to be the fool to go say, yeah, we get
celebrated for 28 days.
So at some point, I’d like to get rid of it.
It’s, you know, we’re making all these changes in the world.
Can’t talk about these people.
Can’t talk about those people.
Can’t say this.
Can’t say that.
At some point, it’s time to get rid of Black History Month.
I get rid of Black History, like they’re trying to do.
But Black History Month?
No, teach my history from January 1st to December 31st.
And then do it again.
And then again.
And then again.
And then again.
That’s what I like to see.
Love that guy.
He’s the best.
He’s the fucking best.
That was strong.
He’s the best.
You need to clip the last 10 seconds of that.
We all need to tweet that.
Yeah, be relentless.
Chamath, there was a correction we needed to make.
Correction we needed to make about the Stripe chart last week.
You have the floor.
We talked about some Stripe stuff last week.
And my analyst came to me after the show was published.
And there was a couple of miscalcs in the spreadsheet that generated the graphic,
which big up to him for calling it out very quickly.
Anyways, I just wanted to show you the updated one,
just so that we could make sure we get that on the record.
I guess this would be a purple color.
Is that purple?
That’s actually when you calculate net revenue.
And I think what he did was calculated gross revenue, which is in the red.
So we showed this, but it actually should be purple.
So that’s the updated, accurate version of the analysis.
So there you have it, folks.
What does that mean for Stripe versus Adyen in terms of just…
Which is a better business, just to summarize it?
No, I mean, to be honest with you, it doesn’t…
It says what we said before, which is that the previous valuation was very expectation heavy.
And the new valuation is definitely more in line,
but still very rich relative to other companies who have large profitability
and large growth rates.
And I think that’s the key takeaway, which is it’s very hard to both
have huge margins and grow at mediumly high double-digit rates.
And the few that can, Visa, MasterCard, and Adyen,
tend to trade at a very different valuation set than everything else.
And so I think that’s the challenge for Stripe.
If they can do it, they’ll be in that class.
For the sultan of science, doing his SPAC in New York,
having an incredible dinner at Carbone right now.
Can I say, can I say…
Enjoy the vegetarian…
I pre-tilted him.
He texts into our group chat.
Oh, don’t do it. Don’t do that.
And he said, let me know if you want me to dial in and save the episode.
My Insta reply, Gerstner’s on fire, we’re all set.
Why would you do that to him?
It ruined his dinner.
He has to go find a safe place.
Except, you know, this episode’s pretty good.
Pretty good episode.
Pretty, pretty, pretty, pretty good.
We love you.
We love you, Sultan.
Oh my God.
It wasn’t a bad episode until J. Cal started ****ing again.
The least you can do him, are you kidding me?
Just like you strike January 6th.
You can’t strike words in English.
That’s, you can’t strike a single word.
You struck my single word last week when I called you out as a Trump voter.
When J. Cal gets under pressure in a debate, he falls back on all the usual virtue-signaling and ****.
Oh yeah. Yeah.
Okay. Who did you vote for in 2016, 2020?
See, like you’re doing right now.
Look at this.
Did you vote for Hillary and Biden?
Legion of Doom.
They’re the Legion of Doom.
You know, there’s actually a meme.
There’s a meme on Twitter that anyone who disagrees with me is Russian disinformation
I haven’t seen that one yet.
That’s pretty funny.
That’s basically you.
I don’t think you’re, I don’t think you’re pro-Putin.
I always try to make sure people understand.
During this entire year of Ukraine, Ukraine, Ukraine, I say every time,
to be clear, you’re not saying Putin is right for invading Ukraine.
And you’re like, no, of course not.
You just stopped.
Thank you for saying that.
No, thank you for saying that.
I appreciate that.
I always try to say that.
He’s making a correction.
It’s a very nuanced discussion.
It’s a very nuanced discussion.
Like we could, nobody’s in favor of this war.
Nobody’s in favor of it.
Everybody’s trying to resolve it.
I think we just have different views of what resolution looks like.
Did you guys read this crazy article in Bloomberg Businessweek about Praz Michelle,
the founder of, the co-founder of the Fugees and his entanglement with the one MDB scandal?
Did you read this article?
No, I have no idea.
Here’s how the article starts.
I like the culture at the end.
Let’s put the tinfoil hats on and do culture at the end.
His phone rings.
It’s a Chinese woman that says something like,
you know, your cousin wants to meet you.
He goes to the Four Seasons where he gets a note that says,
walk around the building twice to make sure you’re not followed.
Goes back into the Four Seasons, gets a key card,
goes upstairs into a room where they then escort him to a different room in a penthouse,
take all of his phones, and he meets with the vice chairman of security for China
where that guy is asking for an introduction to Trump.
That’s how the article starts.
It is incredible reading.
Incredible, incredible reading.
I encourage all of you to read it.
It’s so spicy.
What is it called?
It’s so juicy.
If you want to read some crazy story, there is a company called Wirecard in Germany,
and there’s a New Yorker article about the biggest fraud in German history.
I highly recommend reading this one.
We didn’t get to it today.
Oh, my God.
If we had a long reads post show, it would be incredible.
I personally don’t think we should promote any stories by the mainstream media.
We have no idea whether they’re true or not.
We’ll see you soon, Brad.
Thank you so much for filling in.
Love you, Brad.
Love you guys.
For the Rain Man, David Sacks, the pacifist of peace, the sultan of science, Brad Gershner,
the dictator Chamath, I’m the world’s greatest moderator and speaker at your
corporate event for 50 to 75 times.
Talk to my speaker bureau.
Let’s get this gripped on, people.
We’ll see you next week.
Love you, guys.
Besties are gone.
That’s my dog taking a piss in your driveway.
We should all just get a room and just have one big huge orgy because they’re all just useless.
It’s like this sexual tension that they just need to release somehow.
Wet your feet.
Wet your feet.
We need to get merch.
Besties are gone.
Besties are gone.
Besties are gone.
Besties are gone.
I’m going all in.