E73: Late-stage VC markdowns and mistakes, market strategy, Ukraine/Russia update with Brad Gerstner

00:00:00.000 | Hey, everybody. Hey, everybody. Welcome to another episode of

00:00:01.960 | the all in podcast. We have a new bestie yesti filling in for

00:00:07.200 | the Prince of panic attacks. The Queen of quinoa, the Sultan of

00:00:12.960 | science can't make it this week. I think after his incredible

00:00:15.960 | performance last week, and him trending on Tiktok with his

00:00:19.400 | incredible insights over sadly, the the potential famine that

00:00:24.200 | could come after this Ukraine war, he decided he would take a

00:00:29.240 | week off. I think it's just a little too much attention for

00:00:31.240 | him. So we have a bestie yesti today. Yes, the shaman of stocks

00:00:34.000 | is with us. He brings the equanimity to equities, you

00:00:37.060 | know him, he'll bring that namaste to your payday.

00:00:40.640 | predictions are the anti Galloway. Brad Gerstner. Welcome

00:00:44.600 | back to the program. Thanks for having me. Namaste. And also

00:00:49.480 | with us, of course, the rain man, man himself. He's bitter

00:00:53.320 | on Twitter. He's brawling on calling. He's the Bill of Rights

00:00:57.240 | from Pack Heights.

00:00:58.480 | David Sachs. Boy, you've really outdone yourself today. And the

00:01:04.480 | Prince of Palo Alto, the overlord of the Overton window.

00:01:07.660 | Polly hop it to you.

00:01:10.000 | J.K.L. Are you the stinker of stonks? Oh, God, relax. You

00:01:15.280 | don't leave the comedy to me. All right.

00:01:17.180 | Let your winners ride. Rain man, David Sachs.

00:01:23.480 | And instead, we open source it to the fans.

00:01:27.720 | set to the fans and they've just gone crazy love you queen of king it's been a pretty pretty crazy

00:01:35.640 | couple of weeks here uh we are not a political show here but obviously when world affairs become

00:01:41.000 | acute as they have we cannot ignore uh the war uh that is occurring in ukraine uh we're going

00:01:49.800 | to talk a little bit about markets i think we'll start with those uh with brad gerson here uh the

00:01:54.600 | sas market and the index uh why don't you walk us through this chart here because everybody's

00:02:01.720 | wondering what's happening with the markets given the war given interest rate hikes and the repricing

00:02:08.680 | of stocks i don't know how you would look at what happened in november december january brad how do

00:02:13.400 | you contextualize well certainly a repricing there's certainly a repricing but i i think of

00:02:17.880 | it more as normalization okay right chamath was saying it november i was i was on cnbc talking

00:02:23.320 | about the fact that when you're doing a lot of things in the market you're doing a lot of things

00:02:24.580 | in the market you're doing a lot of things in the market you're doing a lot of things in the market

00:02:24.900 | when we got to a post-covered world rates were going to normalize go back to where they were

00:02:28.580 | in january 2020 that was around two percent and the growth multiples would have to come off of

00:02:33.860 | this historic red bull high that we were on during most of 2020 and 2021 so we were 30 to 50 percent

00:02:41.540 | depending upon the index above the five-year average growth multiple pre-covet so that just

00:02:47.620 | needed to happen like we should be celebrating in one sense that that happened because that means

00:02:52.980 | that we overcame a global problem and we're going to have to do something about it and we're going to

00:02:54.500 | have to do something about it and we're going to have to do something about it and we're going to

00:02:54.520 | pandemic the downside is we couldn't play with artificial money zero percent rates trillions of

00:03:00.340 | dollars you know of of of congressional and fed injection in order to prop up valuations

00:03:06.740 | and when it happened in and of itself that was going to be extraordinarily painful

00:03:11.460 | what i didn't anticipate and what most people didn't anticipate is that on top of that we're

00:03:17.140 | going to have increasing fears of hyperinflation not just getting back to normal rates and that we

00:03:24.180 | were

00:03:24.420 | going to have increasing fears of hyperinflation not just getting back to normal rates and that we

00:03:24.440 | were going to have increasing fears of hyperinflation not just getting back to normal rates and that we

00:03:24.440 | going to find ourselves in the middle of an incredibly devastating war in ukraine

00:03:29.940 | going to find ourselves in the middle of an incredibly devastating war in ukraine

00:03:29.960 | those two things added to the uncertainty the risk premiums

00:03:34.340 | those two things added to the uncertainty the risk premiums

00:03:34.360 | those two things added to the uncertainty the risk premiums um added to uncertainty around future

00:03:36.260 | um added to uncertainty around future

00:03:36.280 | um added to uncertainty around future inflation the dot plot exploded higher and

00:03:39.940 | inflation the dot plot exploded higher and

00:03:39.960 | inflation the dot plot exploded higher and expectations of forward rates went higher

00:03:42.260 | expectations of forward rates went higher

00:03:42.280 | expectations of forward rates went higher now why the hell does this matter it

00:03:44.260 | now why the hell does this matter it

00:03:44.280 | now why the hell does this matter it matters because when you take you know if

00:03:47.240 | matters because when you take you know if

00:03:47.240 | matters because when you take you know if you're looking at that chart

00:03:48.920 | you're looking at that chart

00:03:48.920 | you're looking at that chart the five-year average the 10-year was

00:03:51.000 | the five-year average the 10-year was

00:03:51.000 | the five-year average the 10-year was two and a half percent like we all got

00:03:52.680 | two and a half percent like we all got

00:03:52.680 | two and a half percent like we all got comfortable

00:03:54.040 | comfortable

00:03:54.040 | comfortable investing in this period of time the

00:03:56.440 | investing in this period of time the

00:03:56.440 | investing in this period of time the markets hate uncertainty we had a

00:03:59.000 | markets hate uncertainty we had a

00:03:59.000 | markets hate uncertainty we had a predictable way for us to estimate where

00:04:01.880 | predictable way for us to estimate where

00:04:01.880 | predictable way for us to estimate where we thought our wax should be in our

00:04:03.480 | we thought our wax should be in our

00:04:03.500 | we thought our wax should be in our discounted cash flow models

00:04:05.560 | discounted cash flow models

00:04:05.580 | discounted cash flow models all of a sudden that was thrown into uh

00:04:08.520 | all of a sudden that was thrown into uh

00:04:08.540 | all of a sudden that was thrown into uh thrown into the air oh my god look what

00:04:10.120 | thrown into the air oh my god look what

00:04:10.140 | thrown into the air oh my god look what we got going on i can't do that

00:04:12.200 | we got going on i can't do that

00:04:12.220 | we got going on i can't do that look at this oh yeah i never compete

00:04:14.200 | look at this oh yeah i never compete

00:04:14.220 | look at this oh yeah i never compete with babies or animals yeah no chance

00:04:16.920 | with babies or animals yeah no chance

00:04:16.940 | with babies or animals yeah no chance no chance hey this is talita talita

00:04:20.280 | no chance hey this is talita talita

00:04:20.300 | look at this little look at this little

00:04:21.580 | look at this little look at this little

00:04:21.580 | look at this little look at this little butterball oh my goodness lord look at

00:04:23.740 | butterball oh my goodness lord look at

00:04:23.740 | butterball oh my goodness lord look at that so so good sax that's called a

00:04:26.060 | that so so good sax that's called a

00:04:26.060 | that so so good sax that's called a child it's uh you have three of them

00:04:28.140 | child it's uh you have three of them

00:04:28.140 | child it's uh you have three of them those are babies and what you're seeing

00:04:29.980 | those are babies and what you're seeing

00:04:29.980 | those are babies and what you're seeing there is affection from a father and a

00:04:31.820 | there is affection from a father and a

00:04:31.820 | there is affection from a father and a child look at how cute this little baby

00:04:35.820 | child look at how cute this little baby

00:04:35.820 | child look at how cute this little baby is like well this is taking from my time

00:04:38.940 | is like well this is taking from my time

00:04:38.960 | is like well this is taking from my time get that baby out of here

00:04:40.860 | get that baby out of here

00:04:40.880 | get that baby out of here ah so cute so brad i guess what

00:04:43.340 | ah so cute so brad i guess what

00:04:43.360 | ah so cute so brad i guess what everybody wants to know now that we see

00:04:45.180 | everybody wants to know now that we see

00:04:45.200 | everybody wants to know now that we see this repricing occur

00:04:47.260 | this repricing occur

00:04:47.280 | this repricing occur is what do you think is going to happen

00:04:48.700 | is what do you think is going to happen

00:04:48.720 | is what do you think is going to happen in 2022

00:04:51.020 | in 2022

00:04:51.040 | in 2022 uh and then into 2023 so

00:04:54.860 | uh and then into 2023 so

00:04:54.880 | uh and then into 2023 so we're now multiples are now below the

00:04:56.940 | we're now multiples are now below the

00:04:56.960 | five-year average for for software we're about at the five-year average for internet we're well

00:05:02.320 | below the five-year average i said on twitter that the rate path last week became a lot more

00:05:09.200 | certain the fed said something last week that i think is still not well reported well understood

00:05:14.240 | the fed said at the end of the year we're going to have two percent negative real rates

00:05:22.160 | they said we expect inflation exiting the year to be 4.3 and we expect the tenure to be around 2.3

00:05:29.040 | the reason the market exploded higher is because under the fed's prior protocol a four percent

00:05:37.840 | uh a four percent inflationary rate would mean that rates would have to go to four and a half

00:05:42.480 | and if you take rates to four and a half then growth multiples need to be about 30

00:05:48.400 | below the five-year average okay so

00:05:51.840 | as

00:05:52.080 | investors whether we're investing in mid-stage venture late stage venture whether we're investing

00:05:56.640 | in the public markets like we need to know what exit multiples are and it was bad enough that we

00:06:02.960 | had to bear the drawdown coming off of you know this this red bull high of 2020 and 21

00:06:09.440 | but if you think we're durably going to an inflation rate of three percent or four percent

00:06:15.760 | and an interest rate environment of three percent or four percent then you simply have to adjust

00:06:21.760 | what you're willing to pay for growth assets and so as i look ahead right we don't we don't know

00:06:27.840 | with certainty the question is what's the distribution of probabilities and you know

00:06:33.760 | just this morning city goldman sachs raised their exit year their their exit tenure for 2022

00:06:41.120 | to 2.7 percent and took it as high as three and a half percent for 2023 i think it's gonna this

00:06:47.760 | period is going to be marked by a lot of uncertainty around inflation and rates and the way that we're

00:06:51.440 | going to be dealing with inflation and rates until we have more clarity and what that means is

00:06:53.680 | allocators of capital are going to allocate less to risk assets and they're going to pay less for

00:06:58.640 | risk assets but you know listen if i look out over the five ten year horizon i don't believe in

00:07:04.320 | global stagflation i don't believe that we're in this new hyperinflation environment um but we're

00:07:09.440 | going to have to get through this next uh 6 12 18 months and it's going to be filled with a lot of

00:07:13.760 | volatility and a lot of uncertainty jamath what rings most true about what brad just said and

00:07:18.400 | then what can you add to the prediction for this coming year um well i think it's going to be a lot

00:07:21.360 | of uncertainty this year i mean i don't know what the prediction for this year is um i i think the

00:07:27.200 | markets are mostly moving upwards for the short term and then i think volatility is going to come

00:07:34.240 | back i'm just trying to find good long-term businesses and just kind of close my eyes and

00:07:41.760 | not have to look at these stock prices every day and as long as i can manage my own psychology i

00:07:48.000 | think i'll be fine and i think that's probably the thing that most of us need to be doing

00:07:51.280 | the interesting thing about brad said is that um the implication of that is that it means that

00:07:56.400 | late stage venture is pretty badly mispriced and i think you're going to have to knock these things

00:08:04.080 | back by 50 60 percent i think you saw the first real big movement there um yesterday which was

00:08:12.160 | the instacart print right we went from a 40 billion dollar valuation uh to i think it was 24. if you look

00:08:21.200 | at from february of last year which was really the high for all of us right that's when we all thought

00:08:25.760 | we could do no wrong you know the comps to uh instacart are off anywhere between 50 and 70

00:08:31.760 | percent you know takeaway is off 70 percent uber's down 60 percent doordash was down 55

00:08:36.640 | so these are some big moves and so you know uh it made sense that instacart had to get kind of

00:08:43.120 | like reset the problem that it has is that it's now the nth player trying to get public

00:08:51.120 | into a space with many players who've guzzled up a lot of capital in a low rate environment and so

00:08:57.680 | if you think about company building this is why entrepreneurs have to pay attention to this stuff

00:09:01.360 | you want to get money when money is cheap but the problem is you can't control that timing and so if

00:09:08.000 | you can't control your operating margins and your profitability then you're gonna have to go and

00:09:14.240 | basically pay somebody an enormously high price to get their money and i think that's what setting

00:09:19.520 | itself up to have

00:09:21.040 | happened in a bunch of these markets i think enterprise sas has always claimed long-term

00:09:26.240 | profitability um the thing is when you look at sort of like the real long-term companies

00:09:32.880 | they've built some enormous moats right like if you look at a service now or a sales force

00:09:37.200 | at the high end and then there's a crop of a couple of companies like palo alto networks

00:09:43.040 | who are the next ones coming after who seemed like behemoths in the making

00:09:46.720 | but everybody else i think people have to really question like where the long-term

00:09:50.960 | profitability going to come from and so if that's true then the late stage private

00:09:54.400 | sas companies are in trouble similarly in places like delivery where again you've had a bunch of

00:09:59.200 | comps come out they've been curing in the public markets for years you know uber doordash there's

00:10:04.560 | a couple of these behemoths getting built doordash being the most obvious and then there's a bunch of

00:10:08.960 | more kind of question mark business models including uber which is not really hanging

00:10:13.520 | together in the public markets so i think the real question for entrepreneurs is if you have

00:10:18.240 | the nth business and the business business is not going to be the same business as the nth business

00:10:20.880 | and so i think the real question is if you have the nth business and the business business is not going to be the same business as the nth business

00:10:21.440 | being not the first not the second but you're the seventh or eighth or tenth trying to go public

00:10:26.560 | and all the seven or eight before you are gas guzzling machines you're going to pay a very heavy

00:10:33.840 | price to get public um and i think that that's the reckoning that we're starting to see so i'm really

00:10:38.800 | interested to see how that plays out you know the instacart valuation could easily be cheap at 24

00:10:45.440 | but it could just as easily be overpriced by another 10 billion dollars depending on how people think about it

00:10:50.800 | about who the last buyer of resort is in the public markets sax did uh instacart missed their

00:10:55.600 | window to go public and then what does this say about the backlog of hundreds of unicorns

00:11:00.000 | that the venture community is investing heavily in some of them are probably gonna have to ipo at

00:11:06.400 | down rounds um i think that's sort of the takeaway explain what that is to uh to neophytes well it

00:11:11.200 | just means that they're gonna have to go public at a valuation lower than what the last private

00:11:15.360 | round was so all these late-stage private investors who assumed that they would always make money in

00:11:20.720 | investing in a company in the last private round before went public they they thought that was sort

00:11:24.960 | of an automatic gain an arbitrage and it's not and there's going to be some disappointment there

00:11:31.760 | brad's been sharing these charts with me since i guess what december brad um where then the charts

00:11:38.400 | basically show uh public sas valuations as a multiple of arr and then he's got a similar chart

00:11:44.960 | for it sort of the internet companies that sort of non-sas internet companies as a function of

00:11:50.640 | revenue and we've been looking at these charts you know once brad showed these to me again four

00:11:55.280 | months ago it became so obvious what was going on which is that valuations were reverting back to

00:12:01.840 | the historical mean if you look at you know during the two-year period during covet the they the

00:12:07.520 | multiples had risen to some insane level right and because of all the liquidity that had been

00:12:12.960 | pumped into the system so as soon as you saw the the charts that way

00:12:16.640 | you could just see where things were headed which is back to historical average

00:12:20.560 | is now we're below those averages um partly because no no no no not really the multiples are

00:12:27.120 | can i summarize brad's chart because it is extremely elegant and simple for the layman

00:12:32.400 | to understand so here's the layman's understanding of of brad's uh uh analysis

00:12:39.280 | technical analysis and and and balance sheet and p l analysis which is accurate

00:12:43.760 | when rates are zero typically people are willing to pay eight times revenue

00:12:50.480 | for a company okay so if you're generating 100 million revenue top line revenue you're generating

00:12:56.080 | 100 million dollars revenue in your reasonably high margin reasonably high growth software

00:12:59.920 | business that's worth 800 million dollars in the public markets for every 100 basis point increase

00:13:06.720 | in rates you decrease the valuation between 15 and 20 percent so if you think rates are 2.75

00:13:15.760 | the price is somewhere between 30 to 40 percent cheaper

00:13:21.040 | than what it was when rates were at zero so if you go back and you look at every tech crunch article

00:13:26.320 | and every bloomberg article and every information article

00:13:30.480 | and you look at all those headline valuations when rates were at zero we all just said rates are

00:13:36.800 | going to be somewhere between you know 2.5 to 3 percent at the end of this year at a minimum you

00:13:43.040 | have to haircut those things by 30 to 40 percent steady state meaning the company is continuing to

00:13:49.040 | execute on all of the values that are in the stock market and that's what we're going to do in the next couple of years

00:13:50.320 | on all cylinders if they have a downtick in their performance then it it increases that discount if

00:13:57.440 | rates go higher it increases the discount but the basic way to think about this is for every hundred

00:14:02.320 | basis point increase in rates you got to down take that valuation by 15 to 20 percent and i think

00:14:08.800 | you know just to be fair i think i don't think there's any daylight between you and sax on this

00:14:13.040 | what what's actually saying is the 40 percent just giving the numerical rule that that's right i think

00:14:17.760 | you're right that is the that is the the the correlation and so this idea listen we all get

00:14:24.400 | paid to find good companies and avoid bad companies that's generally what we get paid to do we're

00:14:29.120 | decent at it all of a sudden in fact most fundamental investors say hey i'm not a macro

00:14:34.080 | expert i don't know where inflation's going i don't know where interest rates going i just find

00:14:37.360 | good companies we've had a decade or longer where that was okay to do that was easy to do because

00:14:44.480 | guess what inflation was at two and we had two and a half percent tenure when all of a sudden you

00:14:51.040 | have massive volatility in that it's not acceptable as an investor just to say well none of this

00:14:56.320 | matters because it does matter right price matters because what you can exit for is essential to the

00:15:03.520 | game and there are a lot of people invest in 2013 14 and 15 when when the cost of entry was low and

00:15:11.760 | exited when the cost of entry was high

00:15:14.560 | multiple expansion hides many sins right and now just the opposite is happening in a dramatic and

00:15:21.520 | historic way in that multiples were higher than they've ever been caused by a global pandemic

00:15:27.120 | and the exit rate for a lot of those companies right is going to be very painful i think that

00:15:33.040 | saxe's point about down round ipos i don't think this is the exception david no reddit right i

00:15:37.920 | think the vast majority of companies that come public in the next 12 months are going out

00:15:42.560 | below their last rounds

00:15:43.760 | valuation yes the reddit rumor was that goldman put a 10 billion dollar price on the cover

00:15:50.480 | and that you know it effectively been cut in half again these are all rumors so these could

00:15:55.760 | completely not be true i don't i don't have any knowledge one way or the other uh to five billion

00:16:00.560 | and that may actually end up being too expensive it just depends on where the market is

00:16:05.920 | well just so people are clear when investors sophisticated investors make these late stage

00:16:10.080 | valuations at very high multiples like they have they do have some

00:16:13.520 | downside protections in other words they cannot lose more than the money that was put in when this

00:16:18.720 | thing ipos or they may get kickers of additional shares so maybe now these ipo no no in fairness

00:16:24.160 | you're talking about something very important but they're very rarely in these high price

00:16:27.920 | rounds because most of these high price rounds are in go-go companies where all of those rights

00:16:32.640 | get stripped away this is why i do think jason what you're actually bringing up is in in the last

00:16:38.080 | innings of a bull market you have incredibly irresponsible behavior by a bunch of these investors

00:16:43.280 | and that's also going to get exposed as well so jason what you're talking about is what's called an

00:16:46.720 | ipo ratchet yeah which means i'm giving you this money at this price but if you can't ipo at this

00:16:52.880 | price then you're going to give me an equivalent number of shares that makes me whole right right

00:16:57.840 | so it's as if i am i am indifferent to what price you ipo at that's extremely dilutive to really one

00:17:04.400 | really important class of individual which is the employees of the company it's also really

00:17:09.040 | dilutive to other investors who've come in before them and so

00:17:13.280 | but jason you're probably right to the extent that there were ipo ratchets they'll get triggered

00:17:16.800 | but i think in many of these go-go companies and you know brad and sax can confirm but i see it

00:17:21.520 | all those rights get stripped away it's like come in at this crazy price yeah we're not negotiating

00:17:25.920 | it this is your chance no governance get our get our logo on your fundraising deck for the next

00:17:31.840 | round and so this is the price of the capital it's been a little bit of sloppy behavior just

00:17:36.640 | so people understand this if the reddit valuation was 10 billion somebody put in you know 100 million

00:17:42.160 | in this late stage round if it came out at 5 billion they would get twice as many shares to

00:17:46.240 | make up for that difference that doesn't exist in the case of reddit jcal you know it was fidelity

00:17:52.320 | who led that last round so they're going to be price takers at whatever price the company comes

00:17:57.200 | public what does that mean explain that price takers so you know if they come public at five

00:18:01.680 | billion dollars and you put in a hundred million dollars your stake is now worth 50 million right

00:18:06.160 | right so you lost 50 million didn't they have the discipline to put in these protective provisions

00:18:11.920 | and you know they're going to be a little bit more expensive than they were before but you know

00:18:14.960 | they're going to be a little bit more expensive than they were before but you know they're going

00:18:17.680 | to be a little bit more expensive than they were before but you know they're going to be a little

00:18:20.240 | bit more expensive than they were before but you know they're going to be a little bit more expensive

00:18:22.800 | than they were before but you know they're going to be a little bit more expensive than they were

00:18:25.200 | before but you know they're going to be a little bit more expensive than they were before but you

00:18:27.840 | know they're going to be a little bit more expensive than they were before but you know

00:18:30.480 | they're going to be a little bit more expensive than they were before but you know they're going

00:18:33.040 | to be a little bit more expensive than they were before but you know they're going to be a little

00:18:35.600 | bit more expensive than they were before but you know they're going to be a little bit more expensive

00:18:38.080 | know that groupon raised it 20 billion dollars went public and a year later is worth 2 billion

00:18:42.960 | i mean it's not as though this hasn't happened before uh but yes uh people people got a little

00:18:48.160 | lackadaisical i just wanted to i just want to say one other thing though because multiples

00:18:52.080 | coming down is a problem what this really reveals is the importance of stock and company selection

00:18:59.040 | right because if you were a shitty company with an unproven business model way out on the risk

00:19:05.680 | curve okay and you had a super high valuation last year and you don't you know there's a good

00:19:11.360 | chance you never grow in it grow into it you never get back to that valuation example your example

00:19:16.880 | your growth will de-sell well give us an example company okay discord ripple

00:19:22.000 | in the 15-minute delivery space in europe go puff you know i i i would say gopuff is one of the best

00:19:31.760 | of them there are a lot of startups that got funded with billions of dollars in europe

00:19:35.520 | unfortunately they're not going to be able to get back to the market in the next 15 years

00:19:35.600 | i'm not saying that's the case but i'm saying that's the case because you know

00:19:35.660 | unproven business models burning tremendous amount of cash right like i don't know why they

00:19:40.860 | need to exist i don't think they're going to get funded right maybe one or two of them do but when

00:19:46.300 | you have doordash and uber that are free cash flow positive that have strong brands and that can

00:19:51.420 | redeploy those profits back in to compete in those markets i think it's very tough neobanks are

00:19:55.980 | another example neobanks you know the number of neobanks that have been funded at exorbitant

00:20:01.900 | valuations where um you know the profit margin is going to be higher than the net profit margin

00:20:05.640 | and so you know the number of neobanks that have been funded at exorbitant valuations are going to

00:20:05.660 | be higher than the net profit margin and so you know the number of neobanks that have been funded

00:20:05.660 | at exorbitant valuations are going to be higher than the net profit margin and so the problem is all of

00:20:06.260 | and so you know the number of neobanks that have been funded at exorbitant valuations are going to

00:20:06.260 | these financial services companies are essentially an arbitrage on rates right when rates are zero

00:20:11.020 | they take that money at zero percent and then they can go and execute a business model you know and

00:20:16.420 | sell that money at one percent and take the difference but when their cost of capital is two

00:20:20.940 | or two and a half or three percent the whole business implodes on them so you're going to see

00:20:24.140 | a bunch of these financial services companies get under pressure another example jason is like all

00:20:29.740 | the low-end you know bottoms-up sas companies and the reason is because they spend their time inside

00:20:35.820 | of google and facebook doing customer acquisition and managing this very intricate dance of ltv to

00:20:41.420 | cac and when all of those input costs go up their business implodes because you can't raise rates

00:20:48.220 | faster or you can't raise prices i would say faster than the input costs are and then all of a sudden

00:20:52.940 | your unit economics blow up and in all of this what is the salvation in a moment like this it's

00:20:59.260 | being

00:20:59.720 | healthy gross margins healthy contribution margins and a and a realistic path to profitability which

00:21:07.620 | means being ebit deposited this year or within the next two years said another way if you're

00:21:12.980 | profitable you're not going to go away if you can't if you can't show that you're you know to

00:21:17.300 | use the famous paul graham adage default alive in a moment like this then you are a price taker

00:21:24.220 | which means that you will have to pay probably a very high cost of capital to raise

00:21:29.700 | incremental capital to support a fundamentally fragile and non-resilient business model here's

00:21:35.320 | the issue here sax that when you see the getter gorillas zap all these instant delivery companies

00:21:41.720 | get funded at exorbitant prices and they're the seventh eighth ninth as chamath is pointing out

00:21:47.920 | no no instacart was the seventh those are like the 10th 11th okay so now here we are this to me

00:21:53.560 | seems like the fault of poor judgment by capital allocator sacks are there two

00:21:59.680 | many venture funds chasing too few deals and not thinking through what investing in the 10th 11th or

00:22:06.960 | 12th player in a market is going to be able to do is it too much i think part i think part of what's

00:22:13.040 | going on with the companies you mentioned is that they're physical world companies they are very

00:22:17.120 | capital intensive they burn a lot of money they're operationally intensive

00:22:20.480 | i have sort of sour i soured on those businesses years ago

00:22:24.960 | and that's why i just focus on sas because they're basically perfect gross margin businesses um they

00:22:29.660 | are very they can be very capital efficient if the founders want to run them that way

00:22:34.780 | so what we're doing now is telling founders lengthen your runway be more capital efficient

00:22:41.020 | you need to understand that you know multiples if you raise last year at 100 times arr

00:22:46.220 | you need to understand that the next time you raise it maybe at 20 times arr so

00:22:49.580 | now you can grow into that right if you're tripling and then triple again the next year

00:22:55.180 | you'll be able to grow into that valuation but you know make your money last two three

00:22:59.640 | four years instead of you know burning it in 12 to 18 months unless you want a down round

00:23:04.220 | i think this is this is the point that now

00:23:07.420 | allocators venture capitalists are going to spend the next six months thinking about

00:23:12.900 | what's in bucket one low quality companies burning a lot of cash that may very well not

00:23:20.100 | make it across the chasm no path to profitability what are the high quality companies that yeah

00:23:25.580 | the multiples down because public market multiples are down risk premiums have changed inflation

00:23:29.620 | change but they have plenty of cash on the balance sheet and think about it this way snowflake became

00:23:35.640 | a poster child in the public markets of a high-priced uh sas business snowflake this year

00:23:41.480 | will grow its free cash flow at over a hundred percent a year next year probably you know 80 or

00:23:46.680 | 90 percent free cash flow not just revenue free cash flow in q4 i think they booked 1.4 billion

00:23:53.040 | of revenue q4 on a business that entirely in last year did 1.2 billion in revenue right it's

00:23:59.600 | a lot of money to think about that the incremental was more than what they had generated in the prior

00:24:04.100 | many years that business so let's say we reduce the multiple by 50 percent but the company's

00:24:10.660 | growing top line and free cash flow by a hundred percent doesn't take you very long to grow through

00:24:15.780 | the multiple compression so snowflake's multiple is plummeting for two reasons one because the stock

00:24:21.980 | price came down number two because right their growth rate and free cash flow growth is so high

00:24:28.940 | and so now i'm going to go ahead and talk about the increase in cash flow and the increase in

00:24:29.580 | cash flow and the increase in cash flow and the increase in cash flow and the increase in cash flow

00:24:30.080 | if you look at the multiple it's similar to what we would expect of a regression of the five-year

00:24:34.480 | analysis unless these companies unless these private companies want to go dark for the next

00:24:39.320 | three to five years meaning nine you know no sophisticated late stage investor doing around

00:24:45.840 | or going public they'll be okay but otherwise they're going to have to reckon with a version

00:24:50.680 | of what brad just said which is the high the flight to quality problem you know when in

00:24:55.760 | moments of uncertainty and high volatility it's just more and more and more and more and more and

00:24:59.560 | more straightforward to go to the things that are reliable and so you know when you think in the

00:25:06.060 | public tech markets what is a reliable must-own company well i would put snowflake in the list

00:25:12.140 | of these must-own high growth software businesses right you know the fangs tend to be in the must-own

00:25:19.660 | category but then there are all these other businesses that then get orphaned because

00:25:23.460 | they're kind of nice to own would love to own would be great in any other circumstance and that

00:25:29.540 | gets even more exacerbated in the in the private markets you have to remember right now like the

00:25:35.220 | private markets cannot really exist without an incremental buyer of equity right aka bag holder

00:25:43.220 | somebody has somebody needs to be the bag somebody needs to be the bag holder after you and the

00:25:49.700 | problem right now is that those folks have a lot more credible safe durable assets that they can own

00:25:59.520 | and they're not going to have to deal with all the crazy anxiety that comes with owning something

00:26:03.840 | that's that's high volatility like or chamath correct me if i'm wrong or brad if they don't

00:26:08.160 | want to even be involved in this mashogana they could just be in cash and the interest rates are

00:26:12.560 | going up so maybe they could say you know what i'll just sit this out for a year is that also

00:26:16.480 | happening with those folks well is that too hard to do because of inflation knows a bunch of these

00:26:21.040 | folks but like take for example d1 you know it's uh dan sunheim's great investor i mean my understanding is that

00:26:29.500 | they are sort of off privates completely because why invest in a private company at x times ar when

00:26:36.520 | you can invest in a public sas company for six times so they've substituted i think tiger is

00:26:41.960 | still in market with a gigantic fund for privates but the valuations have come down so they're

00:26:46.720 | essentially re pricing everything i think those are probably the two broad reactions you could

00:26:51.520 | have right brad certainly i i would say this broadly speaking the late stage private financing

00:26:58.080 | market in venture is clearly a big part of the market and i think that's a big part of the market

00:26:59.480 | right and so i think that's a big part of the market and i think that's a big part of the market

00:26:59.500 | right and so i think that's a big part of the market and i think that's a big part of the market

00:26:59.500 | closed um because there hasn't been closed um because there hasn't been

00:27:02.780 | right we're in this this buyer seller standoff right we're in this this buyer seller standoff

00:27:06.540 | sellers aren't to the point where they're sellers aren't to the point where they're

00:27:08.340 | willing to accept that a new rate a new willing to accept that a new rate a new

00:27:10.420 | regime of multiples exist right it's regime of multiples exist right it's

00:27:13.140 | painful we saw you know the instacart painful we saw you know the instacart

00:27:15.780 | news here recently but i think you know news here recently but i think you know

00:27:19.140 | like listen we're not even 10 or 20 percent like listen we're not even 10 or 20 percent

00:27:21.380 | of the way into the psychic reset that of the way into the psychic reset that

00:27:23.380 | needs to occur in order for us to see real needs to occur in order for us to see

00:27:26.420 | price discovery that's not going to price discovery that's not going to

00:27:29.140 | occur until these companies need money or that's not going to occur until these companies need money or want to go public that's right this

00:27:32.740 | fall is when we'll start to see real price need money or want to go public that's right this

00:27:32.740 | fall is when we'll start to see real price

00:27:34.980 | discovery you couldn't pry a late stage discovery you couldn't pry a late stage

00:27:37.540 | dollar out of my hand right now because i dollar out of my hand right now because i

00:27:39.940 | don't think we have real price discovery don't think we have real price

00:27:41.380 | discovery going on early stage venture if we're discovery going on early stage

00:27:43.220 | venture if we're investing in an incredible you know investing in an incredible you know

00:27:46.180 | software business at 300 million 400 software business at 300 million 400

00:27:48.100 | million 500 billion we think can be worth million 500 billion we think can be worth

00:27:49.780 | tens of billions you can withstand a tens of billions you can withstand a

00:27:51.620 | little inflation but the later you get in little inflation but the later you get

00:27:53.940 | in the life cycle of a business it's about the life cycle of a business it's about

00:27:56.020 | irrs and irrs in late stage at last year's irrs and irrs in late stage at last year's

00:27:59.620 | valuations relative to today's public market valuations that is a negative

00:28:03.860 | arbitrage explain irr why that matters yeah

00:28:07.060 | just for the language you know we expect just for the language you know we expect

00:28:09.540 | our herder rate in the public markets is our herder rate in the public markets is

00:28:11.380 | a 20 risk-adjusted rate of return so if a 20 risk-adjusted rate of return so if

00:28:14.580 | i'm you know like i'm you know like

00:28:16.100 | you know you look at these late stage you know you look at these late stage

00:28:18.180 | private valuations from last year i mean private valuations from last year i mean

00:28:21.780 | you know sachs just talked about companies you know sachs just talked about

00:28:23.140 | repricing down 40 or 50 or 60 percent so repricing down 40 or 50 or 60 percent so

00:28:26.260 | if they haven't done that if they haven't done that

00:28:27.940 | now you can't even have a conversation now you can't even have a conversation

00:28:30.180 | just to uplevel this what brad is saying just to uplevel this what brad is saying

00:28:31.700 | is the following jason is the following jason

00:28:33.300 | any person can wake up tomorrow and by any person can wake up tomorrow and by

00:28:35.780 | the s p index right what buffett would the s p index right what buffett would

00:28:37.860 | tell you to do just by the s p 500 index tell you to do just by the s p 500 index

00:28:41.300 | that historically that historically has compounded at around eight percent a

00:28:45.140 | year if you reinvest the dividends so year if you reinvest the dividends so

00:28:47.620 | you can do nothing you can do nothing

00:28:49.620 | right get a basket of the 500 best right get a basket of the 500 best

00:28:51.540 | companies in the world that are companies in the world that are

00:28:52.980 | automatically selected for you based on automatically selected for you based on

00:28:54.980 | revenue and profitability you don't have revenue and profitability you don't have

00:28:56.500 | to do anything to do anything

00:28:57.700 | and that'll compound at eight percent and that'll compound at eight percent

00:28:59.060 | that is effectively the risk-free rate that is effectively the risk-free rate

00:29:00.820 | if you want to own an equity if you want to own an equity

00:29:02.580 | so if you're going to step into the late so if you're going to step into the late

00:29:03.860 | stage private markets and you know stage private markets and you know

00:29:06.100 | buy some shares and you know dingdong buy some shares and you know dingdong.com

00:29:09.460 | you got to be you got to be rewarded for that which

00:29:12.180 | typically means that there is a premium above the eight percent and what brad is

00:29:15.460 | saying like you know it's it's actually more than double in

00:29:18.420 | his case what he's saying is it's two and a half times

00:29:20.740 | you know you've got to clear 20 to you otherwise you're better off on a risk

00:29:24.500 | adjusted basis is what's likely to happen i'm looking here at a list

00:29:27.860 | gopuff at 40 billion canva at 40 billion gopuff at 40 billion canva at 40 billion

00:29:31.380 | clarna at 45 billion discord at 15 billion ripple at 15 billion these

00:29:35.620 | grammarly at 13 billion these don't make sense given that if they were public

00:29:39.940 | they would be trading at well here's what you would be trading at well here's what

00:29:42.020 | you can say 50 of that here's what you can say

00:29:45.300 | if if everything is held equal if everything is held equal

00:29:48.020 | just with the rise of rates you have to reset those valuations between probably

00:29:52.500 | 15 and 40 percent okay at a minimum minimum but what brad said is also true

00:29:58.340 | which is if they then keep growing at a superior rate

00:30:01.940 | they can get back to even so meaning 18 months they could also show up again at

00:30:06.500 | 40 and be net net awash they could get unstuck but a lot of hard work will

00:30:11.860 | need to happen underneath the covers of these businesses in the next two years

00:30:15.700 | okay for that to happen and that's what's going to happen with a lot of

00:30:18.500 | these early stage private companies right is let's say the error multiple

00:30:22.500 | has gone from 100 times to 20 or 30 times they have to grow their ar 5x to get the same valuation

00:30:30.740 | so the question is can they grow their ar 5x before having to return to market that's just

00:30:35.940 | to get a flat round now if they are tripling this year and then doubling next year then that's six

00:30:41.700 | x growth in arr so even if you know the multiple has gone down 5x they could still get a slight up

00:30:47.860 | round so that's the game i think all these companies are going to be playing is lengthen

00:30:52.100 | your runway so that you can grow into your valuation and not take a down round because

00:30:57.300 | the problem is if you're ever in a situation where you take a down round it's way worse than just the

00:31:03.140 | dilution because now the psychology of everyone in the company changes everyone has to worry that

00:31:07.940 | you're gone sideways it's hard to recruit but here's the thing

00:31:11.540 | this is difficulty of what sax is saying though in order to grow revenue you have to invest right

00:31:16.420 | you have to invest in sales people and account management functions in engineers and product

00:31:21.140 | managers right and all of those people uh need to exist which actually increases opex right it

00:31:27.220 | increases burn it doesn't maintain burn and so this is the death spiral jason you're talking

00:31:32.020 | about which is in order to actually grow by those multiples you actually don't have more fuel you

00:31:36.660 | got to increase your speed burn more fuel you don't actually have the money to to withstand two

00:31:40.900 | or three years

00:31:41.380 | the altitude you're now so it's going to be a very precarious balancing act of trying to figure out

00:31:45.780 | how these companies actually get to the other side because again i think the the buyers in this case

00:31:50.980 | will be will drive a hard bargain you know i mean like look organizations like you know durable d1

00:31:58.180 | tiger altimeter these guys are the smartest of the smart they're not dumb

00:32:01.780 | and so you know the price of capital is going up in that case and so you know they're going

00:32:06.420 | to strike really good opportunities for their investors right for their lps

00:32:11.220 | i don't know if you're in the same boat as i am but i think it's going to be a big deal for them

00:32:14.100 | and they're going to be a big deal for the next generation of companies because they're going to

00:32:16.900 | be a big deal for the next generation of companies and they're going to be a big deal for the next

00:32:19.460 | generation of companies right and so you know the price of capital is going to be a big deal for them

00:32:22.100 | and so you know that's what i'm saying it's not a big deal for them it's a big deal for the next generation

00:32:24.900 | of companies but i think it's going to be a big deal for the next generation of companies and so i

00:32:27.940 | think that's a big deal for the next generation of companies and i think that's a big deal for the next

00:32:31.060 | generation of companies and i think that's a big deal for the next generation of companies and i think

00:32:33.220 | that's a big deal for the next generation of companies and i think that's a big deal for the

00:32:36.020 | next generation of companies and i think that's a big deal for the next generation of companies and

00:32:39.620 | i think that's a big deal for the next generation of companies and i think that's a big deal for the

00:32:41.620 | next generation of companies and i think that's a big deal for the next generation of companies and

00:32:43.860 | i think that's a big deal for the next generation of companies and i think that's a big deal for the

00:32:45.940 | next generation of companies and i think that's a big deal for the next generation of companies and

00:32:48.100 | i think that's a big deal for the next generation of companies and i think that's a big deal for the

00:32:50.100 | next generation of companies and i think that's a big deal for the next generation of companies and

00:32:52.260 | i think that's a big deal for the next generation of companies and i think that's a big deal for the

00:32:55.060 | Up markets- Layoffs.

00:32:56.380 | Well, in an up market or a boom market, the three things that matter are growth,

00:33:00.180 | growth, and growth. In a down market, the three things that matter are growth,

00:33:04.420 | burn, and margins. It's not that growth stops mattering, it's just that burn and margins also

00:33:09.540 | matter. And now there's going to have to be real trade-offs. Before, it was just how much

00:33:13.380 | money can we spend how quickly to get growth. Now it's, wait a second, is this growth efficient?

00:33:17.940 | And will we have enough runway to get to the next round without having to take a down round?

00:33:23.620 | Brad, when we saw at the peak of the pandemic, some leadership, I'd say, you know,

00:33:28.820 | seasoned or well informed leadership, Airbnb and Uber come to mind, cut their staffs massively.

00:33:34.900 | They use that crisis to reset their cost structure and get to profitability quicker. Those were money

00:33:40.100 | losing businesses for a long time, maybe, you know, taking advantage of these hot markets.

00:33:45.300 | Is that what needs to happen here? Are we going to see a cascade of companies

00:33:48.900 | lowering their valuation, lowering their costs, sharpening their pencils, cutting staff,

00:33:52.580 | and then becoming more and more?

00:33:53.540 | Yeah, I think that's a great question. I think that's a great question.

00:33:53.540 | I think that's a great question. I think that's a great question.

00:33:54.260 | And more ruthless at, you know, the sixth, seventh, eighth product,

00:33:57.300 | they're launching saying, Hey, let's go to the core product and make it sing, make it profitable.

00:34:01.620 | You know, Frank Slootman has said that Silicon Valley is full of

00:34:06.500 | companies that are walking dead, and they don't even know it.

00:34:08.980 | Right? You know, Frank is, you know, he says in tape socks, he says, Listen, I'm a wartime CEO,

00:34:16.580 | not a peacetime CEO. Right? He came into he came into snowflake when it was growing over 300%.

00:34:23.460 | And he, you know, he reconstituted what what that culture was about to prepare for wartime.

00:34:30.580 | Right? Because he says, when wartime comes, right, and it gets challenging,

00:34:34.820 | I want to run the field. Right? I don't want to be laying off employees, I want to be

00:34:38.980 | that's the time to hire. That's the time to press the advantage. That's the time to invest

00:34:43.860 | in product. That's the time to win the new customers. Unfortunately,

00:34:47.860 | over the course of the last 12 to 18 months, a lot of people without that experience, right took a

00:34:53.220 | negative signal. And the signal was money will always be available. And it will be available

00:34:58.820 | at ever increasing valuations. And of course, anybody who's been at this for 20 years, like

00:35:04.180 | the four of us, we know that isn't true. But it's amazing. I mean, the behavioral psychology,

00:35:10.260 | our ability to gaslight ourselves totally in these moments and move out on the risk curve

00:35:16.020 | and ignore these lessons. Right. And so I really actually hurt and I've spent a lot of time on

00:35:23.140 | Zooms lately, with founders and with their teams, talking them through this, because like, we talk

00:35:29.860 | about it in the abstract and in through the lens of a spreadsheet. But there are a lot of people's

00:35:34.980 | lives at stake. If you're an employee, and you went to this company, you took everything in stock

00:35:40.020 | at 15 billion, that's now worth 5 billion, you're totally underwater. At the same time, the cost of

00:35:46.580 | buying a home and mortgage rates and everything else is going up against you. This is a massive

00:35:52.100 | morale problem.

00:35:53.060 | Right. You know, for companies that frankly, we want to invest in these are the innovators. But

00:35:59.620 | this is what happens when you have government intrusion, right, that we can all debate whether

00:36:05.060 | or not it's worthwhile, but it was hugely distortive. What we know to be true is that we

00:36:10.340 | had more distortion in markets the last two years than probably any time since post World War Two.

00:36:16.020 | And the consequence of that is dramatic. And you know, we all kind of saw it, but we all kind of

00:36:22.260 | gaslighted ourselves.

00:36:22.980 | As well, because you were like, well, maybe there is a new normal, maybe we have accelerated

00:36:27.940 | digitization. The truth of the matter is the law of economic gravity is interest rates and inflation,

00:36:33.700 | and it remains.

00:36:34.980 | Yeah, and, and this time turns out is not really that much different.

00:36:38.740 | I think Jason, if you take your list of these high price startups,

00:36:43.300 | yep, I think it would be a good useful exercise for somebody to do somebody in the press should

00:36:47.860 | probably do it. But if you take that list and just rank companies based on valuation, the last

00:36:52.900 | announced date, yep. And then if they are not announcing layoffs of any kind,

00:36:58.660 | you can probably forecast when they're going to burn through the money,

00:37:05.060 | especially if they're hiring. And the reason that you can probably forecast that accurately is you

00:37:09.940 | can pretty much predict what OpEx will be, especially knowing the fact that their input

00:37:14.660 | costs are actually going up. So for example, most of these businesses that rely on Facebook

00:37:18.500 | and Google and Instagram for customer acquisition, those input costs are going up. And the reason you

00:37:22.820 | know that is that's $2 trillion of market cap that doesn't give a flying fuck what's happening in

00:37:28.100 | startup land. They're going to make their numbers, right? Okay, those are the most important companies

00:37:33.860 | in the world, they will ratchet up the prices. And so your input costs are going up. It's not just

00:37:40.020 | the physical supply of materials that I think is going up. It's just the cost of customer acquisition

00:37:44.820 | is going to probably go up by 2030 40%. Right. And you know this because Facebook and Google guide

00:37:50.820 | to where they need to perform.

00:37:52.740 | And so if you pass that through the venture ecosystem, that all of a sudden now upticks

00:37:57.460 | your burn. Yeah, if you're adding more people, it upticks your burn. Yeah. And now back to David's

00:38:02.020 | math, you then also have to grow five or six x that it none of this hangs together. So we are

00:38:06.580 | at the beginning of probably a very complicated process of unwinding the distortion that we've

00:38:12.180 | lived through in the last couple years. At this point, I mean, you have to blame the capital

00:38:15.860 | allocators in this instance, they bought these logos, they suspended disbelief. We've had this

00:38:21.780 | ridiculous culture of, you know, we're going to make this money, we're going to make this money,

00:38:22.660 | we're going to make this money. And so we're going to have to do this. And so we're going to have to

00:38:23.220 | do this. And so we're going to have to do this. And so we're going to have to do this. And so we're

00:38:23.940 | going to have to do this. And so we're going to have to do this. And so we're going to have to do this.

00:38:24.340 | Uncapped notes, just pushing I see it on the boards I'm on you guys probably see to some people just

00:38:29.860 | pushing top line growth, never discussing unique economics, never discussing the bottom line.

00:38:34.820 | And they created these crazy fugazi markups. They raised bigger funds based on it.

00:38:39.300 | And they just were never the adults in the room, the stewards of capital. It's infuriating.

00:38:42.980 | I'll tell you an incredible conversation I had yesterday with one of my partners. So he's been,

00:38:46.580 | you know, with me for 10 years. He was really the one that pushed us very early on to go into deep,

00:38:52.740 | deep, deep tech when nobody else is doing 3d printing of rockets, satellites, all that stuff.

00:38:57.220 | And it's been so I really trust and respect his perspective. And he was telling me a story.

00:39:02.340 | He called a recruiter, you know, because we've been toying with, you know, helping get some folks to

00:39:11.380 | help us manage some of our early stage deal flow. And he asked her essentially something to the

00:39:16.100 | point of like,

00:39:16.500 | who are the types of GPS that are getting hired today in early stage.

00:39:20.500 | And he said, you know, this is how we approach our business, right? We have a permanent capital

00:39:25.300 | balance sheet, you know, we do, you know, at most one deal a year per partner. And she said,

00:39:29.620 | well, you're never going to get anybody. Because a mid level executive at one of these high flying

00:39:34.180 | startups that then goes and joins a venture firm. She said the consistent single thing that they

00:39:41.060 | make their decision on, are you ready for this is how many deals will I be allowed to do per year?

00:39:46.420 | What?

00:39:47.380 | And so you know, these people are make work construction workers,

00:39:53.140 | right? That's dig a ditch, fill a ditch, that is not what investing is.

00:39:57.620 | That's not about having a discerning philosophy on what a business should be or a market.

00:40:02.580 | So if you have a bunch of capital allocators, Jason, to your point, who are

00:40:06.020 | unsophisticated about investing, probably very sophisticated operationally, but fundamentally

00:40:11.220 | don't know what they're doing. And they're coming and transforming an organization that should be an

00:40:16.340 | organization that should be a disciplined, discerning allocator of capital and turning

00:40:22.420 | them into a velocity deal machine. This is what you're going to get.

00:40:25.940 | I mean, sometimes the best money sacks is money you put into a bet you've already made

00:40:30.820 | continuing to build the pot with a startup that's already proven themselves, correct. So I think

00:40:35.300 | we're gonna see we have a fall on fund. Yeah, I mean, I gotta say the things you guys are saying

00:40:39.620 | are making me feel great about our portfolio. Explain. Not not because we won't get hit with the

00:40:46.260 | money. I mean, we're not gonna get hit with the money. We're not gonna get hit with the money.

00:40:46.900 | But because, you know, a few years ago, we decided we were going to invest in a certain kind of

00:40:52.180 | company. I mean, high margin, SaaS and marketplace businesses that were not capital intensive,

00:40:57.780 | we defined a new metric that didn't exist called burn multiple, which is the amount of money you

00:41:03.060 | burn for every dollar of incremental ARR that you generate incremental subscription revenue. And,

00:41:10.260 | you know, we turned down investments that were growing fast, but they had a horrible burn

00:41:13.780 | multiple. And so we're going to see how we can do that. And I think that's what we're going to

00:41:16.180 | do. So and I do think most of our companies raised last year when, you know, they made Hey,

00:41:21.700 | while the sun shine, so there's gonna be, they need to manage their cash flow, so they don't

00:41:27.780 | have to raise too quickly. But as long as they do that, and they keep growing, they're gonna

00:41:32.740 | weather the storm. What's the right number, spend $3 to make one spend $2 to add one,

00:41:37.540 | what's what's your ratio. So what I've said is that if you can spend a dollar or less to generate

00:41:43.300 | an incremental dollar of ARR, you're doing amazing.

00:41:46.100 | And between one and two is good. So in other words, if you're burning

00:41:50.260 | 20 million in a year to add an incremental 10 million of ARR, you're doing quite well

00:41:55.700 | and start a plan. And then when you start getting into two and a half, three,

00:41:59.700 | that's a problem. And then above three is just bad.

00:42:02.500 | Horrible. Spending 30 million to add 10 million in ARR. It means it takes three

00:42:07.300 | years or probably four or five because you'll have turn to get that money back.

00:42:10.900 | Yeah. And that's just a lack of discipline. And how many VCs are we on the boards? Or you know,

00:42:16.020 | other investors? Are we on the board and having that nuanced of a discussion? It's always just

00:42:20.020 | top line, top line, top line, who's gonna be the next stakeholder?

00:42:22.500 | I think it's very difficult, because I think the number of qualified investors have gone way down

00:42:26.980 | as the surface area of investing has gone way up. So again, just going back to this conversation,

00:42:32.180 | this woman is staffing most of these venture firms with their junior and mid level partners.

00:42:36.580 | And again, the qualification to become a venture capitalist at this point is not that you

00:42:41.300 | have an ability to pick or, you know, in David's case have operated

00:42:45.940 | it and actually run a business and then actually have developed a methodical framework or Brad's

00:42:51.140 | business, which is Brad had to start from literally zero in the public markets and work

00:42:54.420 | his way backwards to end up with 15 or 20 billion assets. It's none of that. It's are you a VP at an

00:43:00.580 | XYZ unicorn that may also be poorly run. And all of a sudden, that, you know, gives you the

00:43:05.860 | qualification to go into a job where and it's not their fault, where what they are told is,

00:43:11.940 | what you want is what we're going to give you, which is the ability to write

00:43:15.860 | you know, X number of checks per year. That is insanity. That's not what makes a good investor.

00:43:21.620 | And then your ability to then give advice, I don't know, it's probably zero, or less than zero,

00:43:27.380 | your ability to give advice is, I think we have to qualify bad advice is being given. So

00:43:32.180 | the ability to give quality advice as that was what's missing in this formula.

00:43:36.420 | I just think these people are really naive, like, you know, it's not their fault. But, you know,

00:43:40.740 | they're given way too much rope to hang themselves with. And they're and the the unfortunate byproduct

00:43:45.780 | is going to be the the companies who gets bad advice or the bad businesses that get funded.

00:43:51.220 | And that's not what you know, an efficient capital market should do.

00:43:55.060 | So one of the things I'm seeing our portfolio companies do is use burn multiple as a governor

00:44:01.780 | for how fast they're going to grow. So for example, they will say that the burn multiple

00:44:07.940 | should not exceed two in the next quarter. So you know, we want to so the old way of doing it would

00:44:14.980 | be that the company is going to be the one that gets the most bad advice. And then the company

00:44:15.700 | would just have a forecast and say, we're going to grow three x's here, we're going to grow

00:44:18.980 | ARR from 10 million to 30 million. And whatever that costs, it costs,

00:44:23.620 | right? That was basically how companies did it. Now, what I'm seeing from some of our portfolio

00:44:28.420 | companies is they are saying, yeah, our goal is to grow from 10 to 30. But we will not spend

00:44:33.700 | so much money that our burn multiple exceeds two. So you know, if it turns out that there's

00:44:40.980 | a trade off here between growth and burn, burn is going to win, we're not going to exceed

00:44:45.620 | that level of that ratio of spending. And that's actually a good I mean, I've seen a few companies

00:44:52.260 | implement that already. And it's probably something they should all be doing.

00:44:55.380 | I mean, if these are pilots, they basically created a rule to not stall the plane.

00:44:59.300 | Right? You got to keep a certain altitude a certain speed. So what is the opportunity here,

00:45:04.980 | then if we're going to have too many companies, too high valuations,

00:45:08.740 | if we're going to hang around the rim and try to get some rebounds here and try to

00:45:11.620 | find opportunities, what are the opportunities? What are the layups here for capital?

00:45:15.540 | capital allocators and for founders, if we have there are no great advice for them, there's not

00:45:19.300 | there, there've never been layups. And the problem is, you know, in up markets,

00:45:26.100 | whenever we think that there are, it ends up being what causes our downfall later,

00:45:31.780 | because we just take the wrong signal away. I don't think that there are,

00:45:36.020 | I don't want to be investing incremental capital into a late stage startup that's poorly run that

00:45:41.460 | doesn't have their margins in line, and then having to work it out. Why do that? Again,

00:45:45.460 | I can just go in the S&P 500 and get 8%. And yeah, it's not 30%. But it's 8%. And I don't have to deal

00:45:51.540 | with all this nonsense, like, well, a bunch of people, because you're a crossover investor,

00:45:55.700 | right? I mean, you have the ability to choose between public privates or wherever you want to

00:45:59.380 | play. I actually think what I am is an investor, right? You don't have LPS for a VC fund like

00:46:05.380 | Saxon I do. But but this but this is my point, like, I think investing irrespective of whatever

00:46:10.740 | stage you do, it still fundamentally comes down to the following, which is do you have

00:46:15.380 | the judgment to understand whether these decisions are marginally good, marginally average,

00:46:21.460 | or marginally destructive for the short, medium and long term of a business. And I just don't

00:46:26.420 | think that enough people steep themselves in the practice that it takes to get good at that

00:46:31.860 | kind of a game. And I think what these moments expose is that the status games that come around

00:46:39.700 | investing, because it just seems like it's easy, it just seems like you don't do much work. That's

00:46:44.820 | what ruins it.

00:46:45.300 | These periods and the implications I think, as Brad said, is really right. It affects

00:46:50.500 | the employees, it affects the entrepreneurs, it affects the startup culture, it affects the

00:46:53.860 | incremental desire for people to take a shot at things. You can overcome all of it we have and we

00:46:58.740 | will again. But I really think like to the entrepreneur, the messages if you're, you know,

00:47:04.820 | taking a term sheet, I think you have to have better judgment to really look at that on that

00:47:09.380 | investor and say, Is this person really qualified to help me? Because in these moments, in the app

00:47:15.220 | sense of help, you're probably going to basically have a valuation reset at the minimum case and the

00:47:20.820 | worst cases you go out of business.

00:47:22.180 | What's insightful about what you said, Shamath, and I'll hand it to you, Brad,

00:47:24.900 | is that a lot of the founders picked based on the highest valuation who their next investor should

00:47:30.820 | be. And now we see what a trap that is, Brad. You know, the takeaway for me is we return to a

00:47:36.020 | place we've always been, which is about selection. Look at the mean returns for ventures for 20 years.

00:47:44.420 | They're lousy.

00:47:45.140 | Lousy.

00:47:46.260 | Right. 90% of the of the spoils.

00:47:49.700 | They barely barely map to the public market.

00:47:52.660 | 5 to 10% of the investments. And that's the way it's always been. Look at look at Buffett,

00:47:57.540 | right? By superior companies at good prices. What are the two technology companies Buffett

00:48:02.820 | bought in the public markets?

00:48:04.100 | Apple.

00:48:04.820 | Right. Apple and Snowflake.

00:48:06.500 | Snowflake.

00:48:07.220 | Apple and Snowflake. He doesn't own a broad basket of long tail internet or long tail software. And

00:48:14.180 | so I think what

00:48:15.060 | you're going to see, and to Sax's point, I think even running a recipe on software as though all

00:48:21.620 | ARR is created equal. I mean, I can show you five companies each with 100 million of ARR,

00:48:26.980 | each growing at 30%. And there's massive dispersion in future outcomes.

00:48:31.460 | Yeah.

00:48:32.020 | Right. And so like, I just think that this at the end of the day is a craft business. It's an

00:48:38.180 | essentialist business. It's about finding and identifying those very, very, very few companies

00:48:44.500 | that ever

00:48:44.980 | are durably are worth more than $10 billion. You know, on my screen today, Chamath was just

00:48:50.020 | talking. There are four internet companies that are green today. Amazon, Google, Apple and

00:48:55.860 | Facebook. Everything else on my screen is bleeding.

00:48:59.300 | Must own. Must own versus?

00:49:00.980 | Everything else is red and my growth internet stocks are down 400 basis points. Right? The

00:49:08.580 | market is voting with its wallet where it wants to sit on the risk curve. Right? And I think we're

00:49:13.940 | just going to go there's

00:49:14.900 | no new normal here. This is just back to the future, right? This is what we've always done.

00:49:19.060 | And you know, the reset is always painful. The only surprising thing is how often we have to go

00:49:24.260 | through it.

00:49:24.660 | If opportunities do arise, where will they where will they be bred? I mean, I was watching Peloton,

00:49:29.700 | I always loved that company. I see the change in management, I see the management, you know,

00:49:34.020 | thinking about profitability, thinking about creating it into a marketplace, maybe having

00:49:38.660 | more hardware available, disconnected from the software, etc. Do you think there's opportunities

00:49:44.740 | there? Or there will be opportunities over the next year to buy some of the names that aren't the

00:49:48.980 | fangs?

00:49:49.380 | What we do in the first instance, Jason, and listen, we outperformed last year,

00:49:57.220 | because we owned quality and we're short, lower quality stuff. Unfortunately, this year,

00:50:03.300 | the market said, Guess what, it's all overvalued quality, low quality doesn't matter.

00:50:07.700 | We're taking it all lower. And so for us in moments like this, and I've lived probably through

00:50:14.180 | five of a million years, I've lived probably five of a million years, I've lived probably five of a

00:50:14.660 | million years, I've lived probably five of a million years, I've lived probably five of a million years,

00:50:14.740 | in the public markets, we always do the same thing. D gross, take risk down. First thing is,

00:50:22.260 | like have less chits on the board. Number two, reduce the number of outliers pull in the risk

00:50:29.700 | curve. Right? For me, I want to own five or six things. Because remember, I'm the biggest LP in

00:50:35.060 | the fund. This is my money, I want to sleep well at night, and I want to protect the foundations,

00:50:40.660 | the endowments, the good causes we represent, I can't do that. I can't do that. I can't do that. I

00:50:44.580 | can't do that with a company that has an unproven business model. I may think that it's going to be

00:50:49.380 | great in the future, but I don't know. So the problem with for the pelotons of the world,

00:50:54.580 | right, they may be incredible returners. But what every portfolio manager on the planet is

00:51:01.220 | doing today is compressing the number of names in their portfolio, saying what are the companies I

00:51:06.580 | know with absolute certainty, whether rates are two and a half, three and a half, four and a half,

00:51:10.980 | five and a half is going to be worth more over the course of the next two to three

00:51:14.500 | years. That's what I want to own. Right. And so wait, what I was just gonna say,

00:51:19.540 | not to interrupt, Brad, but Jason, what you're talking about is what a lot of people do.

00:51:23.380 | You see a lot on Twitter, and I call it clapping as a strategy. What about this? And what about

00:51:29.700 | that? And what about if they do this? And what about clapping is not a strategy.

00:51:32.820 | clapping is something people do with the blackjack table. It turns out it doesn't

00:51:37.380 | actually influence the cards. Sure. And so I think you have to stop with the clapping strategy.

00:51:44.420 | That's not my strategy. I was asking that as the moderator. Is there?

00:51:47.620 | Just to be clear, I'm not advising that as a strategy.

00:51:50.820 | I'm saying I think you're representing a psychological reaction that a lot of people have.

00:51:54.580 | And I think what Brad is trying to tell you is clapping is not a strategy.

00:51:57.940 | I'm asking that on behalf of the audience is not my belief, just to be clear.

00:52:01.940 | My commentary to the audience is clapping is not a strategy.

00:52:04.660 | Yes, correct. Yes. If enough people though, do what you're saying, Brad,

00:52:09.140 | and they just retreat to quality at some point that quality those quality companies with

00:52:14.340 | then become fully valued, maybe even overvalued. And thus the cycle begins again or not. So how

00:52:20.100 | long does that take? No, you nailed it. What happened last year 2021 dispersion collapsed.

00:52:25.940 | Go check out jam and ball who does incredible software analysis on our team. dispersion

00:52:31.940 | collapse between the best cohort and the worst cohort of software companies last year. The first

00:52:37.060 | thing that happened is dispersion returns, we pay a higher price for the best shit, we pay a lower

00:52:43.060 | price for the local.

00:52:44.260 | Quality stuff, right? Then when we start to recover, when there's more predictability in

00:52:49.940 | the world, when we resolve the war, when we understand the path of inflation,

00:52:54.340 | right, the stuff close in on the risk curve, that'll start being fully valued.

00:52:59.060 | So then we will be brave enough to walk a little further out on the ice on the lake,

00:53:03.540 | testing it, is it safe to walk here, and then you walk out a little further and sadly,

00:53:09.700 | right, eventually, we're in the exact same patterns we've been before, which is,

00:53:14.180 | we'll know we're at a market top five or six or seven years from now, when we repeat the same

00:53:19.780 | asinine behavior that we just went through when everybody becomes complacent again, and overbidding

00:53:24.820 | this stuff way out on the risk curve. I'm just suggesting to you the number one question I get

00:53:29.700 | from GPS venture capitalists and others right now is when are we going to bounce back? Let me be

00:53:34.580 | absolutely clear. There is no bouncing back to where we were the last 18 months. That was the

00:53:40.260 | outlier. That was the make believe. What I hope and expect is that we're going to bounce back.

00:53:44.100 | expect is that we can back bounce back to the five year average. But even to durably trade at

00:53:49.940 | the five year average, we have to have a lot more clarity on the war in Ukraine on inflation and

00:53:55.220 | rates. So that's a perfect place to pivot sacks. We are now here and I think this is the fourth or

00:54:00.900 | fifth episode where we've been discussing the war and we flipped it today just to do markets first

00:54:05.620 | for a little change of pace. And since we had Brad here, where are we at with the war?

00:54:09.860 | And what are your what is your expectation of it right

00:54:14.020 | now? Is it wrapping up or it escalating? Well, actually, there's a tweet storm this morning

00:54:17.300 | that Matthew sent to the group that from a Russian official and it seemed to indicate well indicate

00:54:26.500 | what we've kind of known for a few weeks now, which is what the broad contours of what a peace

00:54:31.620 | deal would look like, which is there's three main pieces. neutrality for Ukraine, the Russians

00:54:37.700 | insist that it not be part of NATO. They get to keep Crimea which they annexed in 2014. That's been

00:54:43.300 | a fait accompli.

00:54:44.820 | And then some version of independence for these sort of breakaway territories

00:54:50.180 | in eastern Ukraine, the in the Donbas region, everyone kind of knows that's the

00:54:56.020 | the broad strokes of the deal, then there's, you know, a lot of details are going to matter

00:54:59.620 | a lot to the people who live there, like is there this land bridge from Crimea to Donbas,

00:55:05.060 | but frankly, don't matter as much to all of us the United States of America. So

00:55:09.220 | the question is, you know, what is the administration going to do about it? Biden just

00:55:12.740 | went to Europe. He's going to go to the United States. He's going to go to the United States.

00:55:13.860 | And, you know, my concern is that no one in Washington, I talked about this last week seems

00:55:20.500 | to be pushing for a ceasefire. It seems like their preferred position is for Russia to bleed out as

00:55:27.940 | long as possible in Ukraine for the US to fund an insurgency Allah Afghanistan, where you know,

00:55:36.900 | these fighters in eastern Ukraine are sort of like the muzhar.

00:55:39.780 | Insurgency? Is that the right word?

00:55:40.980 | Well, sure. Because, you know, if they're defending Ukraine, they're defending Ukraine.

00:55:43.780 | They're defending their own land.

00:55:44.500 | And so we're the mujahideen. I mean,

00:55:47.540 | I know, but why would you call it an insurgency?

00:55:49.460 | Well, because if the government of Ukraine falls, then it becomes an insurgency. So the point is

00:55:55.380 | that the administration, the question is, what's the administration's endgame here?

00:56:00.020 | Do they want to lead the world to a ceasefire? Or do they want to protract the conflict

00:56:04.740 | to impose on the Russian state, a Afghan style, you know, debilitating defeat to destabilize the Russian

00:56:13.700 | regime? Neil Ferguson had a column this week in his Bloomberg column.

00:56:18.900 | He's from the Brookings Institute at Stanford?

00:56:20.340 | No, he's from he's from Hoover.

00:56:21.540 | Hoover, rather. Sorry.

00:56:22.900 | Yeah. So I'll read I'll read this part.

00:56:24.740 | Hoover is at it. Can you just explain to people what the Hoover Institute is and how that leans?

00:56:28.900 | Hoover Institution for War and Peace, I would say it sort of leans idealistic and foreign policy.

00:56:36.980 | I would describe Neil as sort of the most realistic idealist.

00:56:39.620 | Got it. Okay.

00:56:40.660 | So context, but he's quite well sourced, I think. And I think that's a good point.

00:56:43.620 | With, you know, and with, you know, various people in Washington and Europe,

00:56:48.660 | and what he wrote is, the US intends to keep this war going, the administration will continue to

00:56:55.220 | supply the Ukrainians with anti aircraft stingers, anti tank javelins, explosive switchblade drones,

00:57:01.380 | it will keep trying to persuade other NATO governments supply heavier defensive weaponry,

00:57:06.740 | and so on. He says Washington will revert to the Afghanistan after 1979 playbook of supplying

00:57:13.540 | an insurgency, only if the Ukrainian government loses the conventional war. So the concern here

00:57:18.740 | is that the US government has an incentive, actually, that they don't want a quick end to

00:57:25.620 | this war is basically the theory is they want the Russian state to bleed out and be destabilized.

00:57:30.740 | In a way, it's the one chance we have for like regime change there without us actually starting

00:57:36.100 | a war is that they have this self inflicted wound. That is the theory.

00:57:39.540 | Yeah. And I think a lot of people are saying that that is what a lot of people want in

00:57:43.460 | Washington. I don't you know, this is not like conspiracy theory, people are saying this is our

00:57:47.300 | chance to topple the Russian state destabilize it. There was a Rand Corporation. How do you

00:57:53.060 | survey years ago, hold on, there's a rent corporation study done a few years ago,

00:57:57.300 | that was commissioned by somebody probably in our State Department, or someone like that,

00:58:01.220 | where they talked about this, that if we want to destabilize the Russian regime,

00:58:05.300 | Ukraine is the way to do it. Right, they would fall for it, right, they would actually fight

00:58:09.380 | that fight, that is an unwinnable fight, we would basically be putting an F, we'd be surprised

00:58:13.380 | if we were supporting an Afghanistan like path for them to go down like we did. And they did

00:58:18.420 | previously to that. Right. And the problem, the problem that I see is just this, which is

00:58:22.740 | we've discussed on on this program, the downsides of this war. First, it's a humanitarian disaster.

00:58:28.100 | Second, we've talked about the risks of recession later in the year. Third,

00:58:32.580 | Freeberg talked about famine, the risk of famine later this year, if the spring planning doesn't

00:58:37.220 | happen. And then fourth, we have this always we have this risk that the war spins out of control,

00:58:43.300 | right, and leads into war three, those are some vital American interests to avoid all of those

00:58:48.500 | scenarios. I don't see an equivalent vital American interest in determining the exact

00:58:53.860 | nuances of who rules the Donbass. In other words, the broad strokes of this agreement are there.

00:58:58.740 | You know, what the US should be doing is leading, they should be pushing for lead not bleed lead

00:59:05.060 | the way to a ceasefire, not to inflict maximum damage on the Russian regime,

00:59:09.460 | which we don't know exactly what their intent is, because they're doing

00:59:13.220 | this behind closed doors. Brad, what's your take on this?

00:59:15.380 | I think there Dave and I talked about this at dinner the other night, I think there's

00:59:18.180 | something bigger playing out here. I mean, clearly, he's the expert on real politic and,

00:59:22.500 | you know, but it seems to me that we have had decades of military diplomacy. Right. And and

00:59:32.260 | most recently, the PAL doctrine of overwhelming force, we don't want to make the same mistake we

00:59:36.500 | made in Vietnam. So like, we're gonna go in with full force. And, you know, basically, the public

00:59:43.140 | support, you know, military adventure ism anymore. Right. And so now we have maybe we'll call it the

00:59:49.300 | Blinken doctrine, which is the PAL doctrine equivalent, but for economic force. It's the

00:59:55.060 | nuclear economic weapon that is on full display by the West right now that I think has really

01:00:01.140 | significant implications. Right. It's reunited the West. And I don't think this is just about Putin.

01:00:08.740 | And I think the reason that the US and Western Europe is slow playing

01:00:13.060 | this a bit is they're sending a message to the Chinese as well, which is that we are unified,

01:00:19.780 | and we will use an economic weapon of mass destruction. If, right, you don't play by

01:00:26.820 | global norms. And so the box I think we're in from a negotiating perspective, right,

01:00:32.020 | in Ukraine right now is not a box around neutrality. I mean, neutrality is already clear.

01:00:37.300 | I mean, we had Zelensky didn't even ask for a no fly zone. He's not even asking for NATO membership.

01:00:42.980 | They've already seeded neutrality. I think the real question is sanctions. I don't think the

01:00:48.420 | West wants to roll back sanctions. And I think Putin saying I can't hightail it out of here,

01:00:53.620 | unless you roll back all the sanctions and give me a little bit of the Donbass.

01:00:57.060 | And so watch the next week or two like in any good negotiation.

01:01:00.900 | Unfortunately, I think both sides are going to amp up their current strategies,

01:01:05.860 | we may see missiles coming out of Russia, and we may see European, complete European embargo of

01:01:12.900 | Russian oil 3 million barrels a day. Those will be the final straws right before we enter

01:01:18.740 | negotiations, because then they can see the last things that they took as part of the negotiation.

01:01:24.420 | But this I think is going to be all about economic sanctions. And, and I think the West is playing a

01:01:32.420 | really strong game. What I worry about, and Sachs has talked about this at length,

01:01:36.580 | is that we overreach, we overplay our hand here in an effort to send a signal to

01:01:42.820 | other parties around the world. Right. And that has fat tail risk associated with it.

01:01:48.420 | You're referencing China and Taiwan?

01:01:50.500 | Let me ask a question. How many of us woke up or this at the beginning of this year,

01:01:55.380 | or in making our New Year's resolutions and said that we need to risk recession,

01:02:02.980 | famine and war in order to destabilize and topple the Russian regime?

01:02:07.780 | When did this become a vital American interest? No one at the beginning of year thought this was an

01:02:12.740 | important goal of America. What's more important is is basically getting our economy back on track

01:02:18.580 | and back on track after this long, this long, this this plague we've had. I mean, nobody needed this

01:02:25.780 | problem. And what the administration should have done was use diplomacy and all the resources to

01:02:31.780 | try and prevent the conflict. And now the conflict has occurred, we should be pushing for a negotiated

01:02:36.820 | peace and ceasefire. We do not have a vital national interest in the details of who

01:02:42.660 | rules rules the Donbass. Yeah, the problem with your setting up of that question is that we did

01:02:48.260 | not start the war Putin did. Shamath, you've been silent so far. What are your thoughts on this war

01:02:53.380 | that Jason, I'm not saying we started the war? Well, you're saying did we wake up and say that

01:02:57.460 | we should do this? We did not listen. The people in the media woke up on February 24. And you

01:03:03.220 | think Putin went mad and there's no pre history to this conflict. Now here's the deal. Hold on

01:03:07.780 | a second. This is a war of Russian aggression. It's true that Putin started it. He's the

01:03:12.580 | invader. However, there were things we could have done to prevent or to avoid this war,

01:03:18.820 | and American diplomacy completely failed. And we even discussed it the month before this war

01:03:24.420 | started. We talked about how the US could have given a written guarantee to Russia that Ukraine

01:03:30.580 | would not be part of NATO. Just this week, Zelenskyy in an interview with Fried Zakaria

01:03:34.900 | admitted he was told by Blinken, you will not be part of NATO, but we don't want to admit that

01:03:39.460 | publicly. What games were they playing? What is the point of

01:03:42.500 | playing that kind of game with the grave issue of war and peace? Why didn't Blinken say publicly

01:03:48.100 | what he said to Zelenskyy? This administration did not do everything it could do to prevent war.

01:03:54.180 | And now we are faced with all of these existential risks. Why? For what reason?

01:03:58.740 | The reason is that it gave the United States an opportunity to topple Russia.

01:04:03.700 | I mean, exactly. Who of us thought we needed that at the beginning of this year?

01:04:08.580 | Well, I think that, you know, the thing to keep in mind, and again,

01:04:12.420 | I don't I don't, I'm not saying that this is right, but I'm just game theorizing that these

01:04:18.340 | are like, you know, grudges that these guys have held for a very long time. And I think it started

01:04:25.620 | when they were in the Obama White House, and it carried over to now. And I think they saw an

01:04:31.460 | opportunity to basically execute a strategy that essentially now I think we're moving into the

01:04:36.740 | second phase of this war, which is effectively trying to bait Russia into doing something really

01:04:41.220 | egregiously bad. And I think that's the point. And I think that's the point. And I think that's

01:04:42.340 | the point. And I think that's the point. And I think that's the point. And that is terrible,

01:04:44.260 | David, to your point, I think we're willing to, you know, sacrifice a lot. I think we've decided that

01:04:50.100 | implicitly by based on the actions of the American government. And and it's weird. It's like we're

01:04:56.580 | trying to get Russia to react. And so the rhetoric, in fact, the rhetoric since that, do you guys

01:05:03.540 | remember, I think it was only 10 days ago that both Russia and Ukraine said the surface area of

01:05:08.660 | a deal is pretty much in sight. David Elikwu:

01:05:12.260 | Oh, Friedberg from the top rope coming in. Look at you, Friedberg. I mean, like you,

01:05:17.140 | you look like an everyman. I mean, I'm so proud of you. Are you actually driving your own car?

01:05:21.620 | Friedberg:

01:05:22.100 | Gas guzzling car SUV in the mountains.

01:05:24.980 | David Elikwu:

01:05:25.300 | You should be you should be

01:05:26.500 | Friedberg:

01:05:26.820 | In that tank. Is that gas?

01:05:29.940 | David Elikwu:

01:05:30.260 | I only use it. I only use ethanol I make in vats in my backyard.

01:05:33.860 | Friedberg:

01:05:34.340 | When I use solar panels that are handcrafted in my backyard.

01:05:37.940 | David Elikwu:

01:05:38.100 | I went out of my way to find find a Luke oil gas station filled up.

01:05:41.700 | Friedberg:

01:05:42.180 | What I was saying, guys, was that, you know, from the 10 days from when, you know, both sides,

01:05:46.660 | Russia and Ukraine were like, hey, you know, we think we're basically there, we have a deal.

01:05:50.340 | The rhetoric has gotten really insane. You know, yesterday, I think it was like, the United States

01:05:55.940 | said, you know, we, we think that Russia should be kicked out of the G20. Then Russia responded

01:06:00.740 | and said, I'm only going to sell that gas and settle it in rubles. You know, all of a sudden,

01:06:06.100 | other actors, China and Saudi Arabia are in the game. Now, you know, China and Saudi Arabia are

01:06:12.100 | negotiating settling a huge oil trade in Yuan. Why in the last 10 days of all these things

01:06:17.140 | happened when we were so close to getting something done? I think the best explanation is

01:06:21.780 | that we are willing to, I guess we've decided I mean, we, none of us have decided but American

01:06:29.300 | government decided that some amount of sacrifice is okay. If it could trigger a Russian escalation,

01:06:35.140 | which could then further destabilize that country, and I think they believe that that's more

01:06:38.740 | important than anything else. Friedberg:

01:06:40.020 | And I think we, you know, we're in a situation where we're in a situation where we're in a situation

01:06:42.020 | know, from where I sit, I think we can take Putin as word that

01:06:44.540 | he actually cares about reunification. And that's not to

01:06:46.880 | say he's crazy, David. And I don't think we can control his

01:06:49.820 | behavior. I think your

01:06:51.080 | reason we're reunification.

01:06:52.940 | Jason and also just today, the Russian military, the tweet that

01:06:58.200 | I sent you guys was from the Russian military. And that was

01:07:00.580 | an official statement. And I don't think he they would be

01:07:03.140 | allowed without Putin's explicit sign off. They no longer talked

01:07:07.260 | about denazificating, Ukraine or demilitarizing Ukraine,

01:07:11.760 | they simply focused it on the Donbas. And to use your Sun Tzu

01:07:16.920 | argument, it's almost like they're trying to construct

01:07:19.020 | their own golden bridge to exit in a way where they can claim

01:07:22.140 | victory to the Russian people to explain the 10s of 1000s of, you

01:07:25.860 | know, Russian military people that have been killed in this

01:07:28.740 | whole conflict, right, because they have an explanation that

01:07:30.660 | they have to give. But in all of this, I think that we're, we're

01:07:34.800 | probably exposing a very high risk game of poker that we're

01:07:38.640 | playing, which is it seems that the US government is still

01:07:41.700 | focused more on the destabilization of, of Russia

01:07:44.760 | than they are and getting this conflict behind us.

01:07:46.620 | I mean, he did, he did say in his speech, since time

01:07:49.260 | immemorial, the people living in the southwest of what has

01:07:51.820 | historically been Russian land have called themselves Russians

01:07:54.320 | and Orthodox Christians. That's Donbas. Yeah, I know. But he

01:07:57.420 | there's been a Jason, there's been a civil war going on since

01:07:59.820 | 2014. In this Donbas region between Ukrainians and these

01:08:03.420 | sort of these Russian speakers. And now that civil wars as this

01:08:07.460 | a Balkan style civil war that is now escalated with, you know,

01:08:11.640 | Ukraine and Russia getting in and now the whole West

01:08:15.300 | potentially could get in. This is a very dangerous situation.

01:08:17.860 | We should not let spin out of control.

01:08:19.200 | I'm agreeing with that. You guys asked me, did he ever talk about

01:08:21.600 | reunification? He did. He did in his speech.

01:08:23.700 | That was not one of his stated war objectives. Now you could

01:08:26.560 | keep accusing him of being a liar. But look what his

01:08:29.100 | objective is just taking about his word that he believes these

01:08:31.600 | areas are Russian and they should be considered Donbass

01:08:34.080 | area where they are predominantly Russian speakers.

01:08:36.840 | Look, and that I'm not taking aside, I'm not taking aside in who should

01:08:41.580 | rule the Donbass. Okay, yeah, I think it's a complicated, ethnic

01:08:45.360 | strife sort of issue like we saw in the Balkans all the time

01:08:49.140 | between the Russians who live there and the Ukrainians who live

01:08:51.720 | there. What I do know is it's not worth risking war three over

01:08:55.560 | an agreement on that issue. 100% agreement. 100% agreement.

01:08:58.440 | Sacks, let me Can I ask you a question? So how is Putin going

01:09:06.060 | to withdraw without 100% lifting of the sanctions? And how is the

01:09:11.520 | government possibly going to trust him to withdraw? Right?

01:09:15.780 | Well, while taking all the sanctions off, that seems to me

01:09:19.260 | like, when I try to construct the Golden Bridge, in my mind,

01:09:22.920 | it comes down to, you know, like, how do we how do we whack

01:09:27.960 | up the sanctions? Do we take some of them off, say, prove to

01:09:31.140 | us be out for x period of time, and then we'll roll the other

01:09:33.600 | ones off. Because these sanctions are not going to be

01:09:35.940 | rolled back in the next three months based on some ceasefire.

01:09:38.940 | I agree with that. I don't

01:09:41.460 | know that Putin can expect the sanctions to be lifted or that he

01:09:46.320 | can effectively negotiate for that. I think, again, where I

01:09:49.320 | think the the peace deal is, is that we've known all along what

01:09:53.760 | it's going to be Ukraine will agree to neutrality in exchange

01:09:57.780 | for some security guarantees from the West. Russia will get

01:10:02.400 | to keep Crimea because that's been a fait accompli since the

01:10:06.000 | annexation 2014. And there will be some sort of regional

01:10:10.860 | autonomy.

01:10:11.400 | For these sort of Russian speaking areas in the Donbass,

01:10:16.020 | which by the way, we could have had that too, there was a deal

01:10:18.960 | called mints to since 2015, that simply hasn't been implemented.

01:10:22.800 | So, you know, I think that those are the broad strokes of the

01:10:26.460 | deal. And then there's questions about, well, is there a land

01:10:29.160 | bridge from Crimea to the Donbass? And, you know, what

01:10:32.460 | weapons exactly does Ukraine get to get from the United States or

01:10:36.660 | get to keep? I mean, so look, those details matter a lot to

01:10:39.540 | the people who live there. But the broad

01:10:41.340 | strokes of this, I think are pretty well understood.

01:10:43.200 | I'm not betting this way with with our book. But if I had to

01:10:47.400 | guess, we are going to have a period of significant escalation

01:10:52.200 | on both sides, before they both get to the table. Macron said

01:10:56.700 | this week, that we still have the Europeans have not made a

01:10:59.820 | decision about the embargo of Russian oil that will collapse

01:11:03.960 | the Russian economy and oil will go to 180 or $200 a barrel. I

01:11:08.520 | think that's a real likelihood. And the second

01:11:11.280 | one is I think the Russians will amp up military aggression

01:11:14.760 | in some face saving measure and to have more to negotiate with.

01:11:19.260 | So maybe to answer my own question is if there is an oil

01:11:23.640 | embargo, then you take the oil embargo off, right as part of

01:11:27.600 | the economic sanction, whacking up of the sanctions, because

01:11:31.260 | that's really the nuclear option against the Russians economically.

01:11:35.940 | But it's a you know, unfortunately, I think we have to

01:11:41.220 | be prepared for this to get worse before it gets better.

01:11:43.680 | Because it makes sense from just a game theory for both sides

01:11:47.640 | to grab as much as they can right before they sit down at

01:11:51.120 | the table. So they have more shit to give to each other.

01:11:53.340 | Right. But the problem is, if both sides keep asking, I agree

01:11:56.760 | with that fundamental analysis is that neither Putin nor

01:11:59.820 | Zelensky can be trusted on their own, to basically make peace

01:12:03.540 | because they want to push their advantage. If either one believes

01:12:06.600 | that they're winning on the battlefield, they're going to

01:12:08.160 | push their advantage to grab as much as they can to then

01:12:11.160 | negotiate from a position of greater strength. The problem is

01:12:13.680 | that they're in an escalatory spiral, where if you know, one

01:12:16.860 | or both of them miscalculate, we never get that deal. And I think

01:12:19.620 | the longer the war drags on, the harder it is to make a deal not

01:12:23.100 | easier. One of the I'd say one of the disturbing things that

01:12:27.780 | came out over the past week was in that interview that I

01:12:30.960 | mentioned, where three Zakaria interviewed Zelensky. Zelensky

01:12:35.160 | said, he said that it's either going to get a peace deal or

01:12:39.120 | World War Three.

01:12:41.100 | I'm listening to this thinking, wait a second. You know, that,

01:12:45.660 | that is a pretty scary posture for him to be taking. And

01:12:50.640 | furthermore, who appointed him leader of the free world, you

01:12:53.640 | know, the decision to have war three is not his decision. He is

01:12:58.680 | not the President United States, we did not vote for him. We may

01:13:01.980 | think he's heroic, we may think he deserves our support, but he

01:13:06.600 | does not get to turn this into war three for us. The American

01:13:10.020 | people did not.

01:13:11.040 | choose that. And this is where I go back to Biden and the

01:13:14.880 | administration and their leadership, what are they

01:13:16.440 | pushing for? Are they pushing for a protracted, never ending

01:13:19.860 | Afghan style war in Ukraine? Or are they going to lead the

01:13:24.480 | situation to some sort of negotiation or ceasefire? And I

01:13:28.320 | just think if we're considering the interest of the United

01:13:30.360 | States, we would not let this decision purely be Zelensky.

01:13:34.860 | This guy's willing to entertain war three.

01:13:36.900 | That can't be acceptable to us.

01:13:38.580 | But what what what what is his worst alternative?

01:13:40.980 | I mean, like he's losing his country. So of course, he wants

01:13:43.680 | to say the thing that would scare us into action

01:13:47.820 | potentially, right? So he has nothing to lose. So right.

01:13:50.220 | That's what that's the right to defend him to cite for us.

01:13:53.640 | He's not just using he's he's using rhetoric to get us to talk

01:13:57.600 | about it, which he just won. Like he you can see that what

01:14:00.540 | he's saying is working. Yeah, because you're talking about it.

01:14:03.360 | So I think the I think the bigger question in all of this

01:14:07.720 | is, when is the United States?

01:14:10.920 | When is the United States going to be able to do that? Because

01:14:14.640 | they're going to be able to do that? I don't know. I don't know.

01:14:16.980 | I think the answer is, I think the answer is that the United

01:14:19.320 | States is just willing to draw a really hard line. So there was a

01:14:22.080 | another thing that happened, which is that, you know, Biden

01:14:24.420 | essentially said, like, you know, if they use chemical

01:14:27.420 | weapons, we will react sort of in kind, right? There was some,

01:14:31.360 | some version of that. It's a red line, basically, he said, yes.

01:14:33.960 | And, and then he also said, you know, depending on, you know,

01:14:37.740 | how they use nuclear weapons, we could theoretically respond. So

01:14:40.860 | if you had a deal in sight, just get it done. Be pregnant.

01:14:43.680 | Right.

01:14:44.180 | But you're assuming, David, you're, you're assuming that we

01:14:47.820 | have the influence, you assume, David, that we have the

01:14:50.220 | influence to actually cut a deal. You were saying yourself

01:14:52.980 | for the last couple of months, that the US power has waned and

01:14:56.580 | that we don't have influence. So which is it? I think you're

01:14:59.100 | just blaming Biden.

01:14:59.820 | I believe we have the influence to get facilitate a deal.

01:15:02.700 | You were saying, like, last couple of weeks that we lost our

01:15:05.040 | influence.

01:15:05.520 | Listen, let me give you an example. We are giving

01:15:08.400 | Zelensky and the Ukrainians all these incredible weapons.

01:15:10.800 | What are the conditions on that? If Zelensky is unwilling to make

01:15:15.360 | a reasonable peace deal, do we, do we have any conditions and

01:15:20.040 | are giving him these weapons? Why wouldn't we insist Zelensky,

01:15:23.280 | listen, we support you. We basically are against this

01:15:26.280 | Russian aggression. You should have the right to defend your

01:15:28.980 | homeland and drive them out. But we also want you to take a

01:15:32.100 | reasonable peace deal if one is available and we need you to

01:15:35.220 | specify what that is. Are we exercising that kind of

01:15:38.580 | discretion? I don't think so.

01:15:39.660 | I think you're

01:15:40.740 | assuming that Biden is blocking this when in fact, it might be

01:15:44.040 | that Putin is and I believe you're taking Putin's sort of

01:15:47.400 | position here over our own presidents. I think you need to

01:15:50.520 | think for a second that we don't want to have this continual

01:15:53.640 | escalate. You actually think there's a world in which Biden

01:15:55.740 | wants to see this escalate? I don't think that that's the

01:15:57.960 | case. I think that we don't have influence. David, we do not have

01:16:02.580 | the influence today that we did. It is no longer the United

01:16:05.880 | States, you know, gets to dictate to the world what's going on

01:16:08.580 | here. We no longer have that.

01:16:09.960 | Okay, this is not about this.

01:16:10.680 | Putin wants to talk to Israel. Putin wants to talk to Macron in

01:16:13.620 | France, not us.

01:16:14.280 | Because we're not seen as an honest broker. But look,

01:16:16.920 | Chamath just-

01:16:18.060 | We don't have the influence we once had.

01:16:19.380 | Okay, let me explain. I'm not saying we can dictate the

01:16:22.440 | outcome, okay? But we can push for a negotiated settlement

01:16:26.280 | instead of a protracted, we can lead not bleed, okay? Chamath

01:16:30.960 | laid it out. Neil Ferguson laid it out. The Rand Corporation laid

01:16:33.840 | it out. There is a significant chance that there are definitely

01:16:38.220 | actors in the State Department who,

01:16:40.620 | who want to see an Afghan style situation insurgency play out in

01:16:44.880 | Eastern Europe. That's their goal. Okay? Now, I don't know

01:16:48.600 | what Biden is thinking, but he has made no statement. To the

01:16:51.840 | contrary, what have we done to help lead the situation to a

01:16:55.020 | negotiated settlement? Name one thing.

01:16:57.060 | Well, I don't think we're in the room, David. But Biden is in

01:17:01.860 | Europe, right?

01:17:02.460 | Why do I need to be in the room? I read all their public

01:17:04.140 | statements. I don't see anything.

01:17:05.400 | I don't think they want to negotiate through the press

01:17:07.200 | with Putin. I think-

01:17:08.760 | I don't think they want to negotiate at all.

01:17:09.840 | Biden is in Europe right now.

01:17:10.560 | I think that says enough about what his intent is. He's in

01:17:14.520 | Poland, right? He's going to Poland?

01:17:16.020 | He's in Poland where we're scaling up our military

01:17:17.940 | presence. Listen, I mean, I don't, all I'm saying is, look,

01:17:21.720 | I don't know exactly what Biden is saying or doing behind closed

01:17:24.360 | doors. What I'm saying is that the US should be playing a

01:17:27.720 | constructive role to get to a negotiated ceasefire, not

01:17:30.840 | indulging this sort of fantastical thinking that we can

01:17:35.340 | basically perpetrate a regime change operation in Russia.

01:17:38.160 | I agree with you on that. I agree with you on that.

01:17:39.780 | I,

01:17:40.500 | I'm worried that there may be a small strain of that probability

01:17:44.160 | in the range of outcomes here. And I didn't think that before.

01:17:47.580 | I really thought that, okay, maybe we were a little bit on

01:17:50.460 | the outside looking in, but it looks like, you know, we're

01:17:53.520 | pretty close to a deal. These guys will get in a room,

01:17:55.680 | they'll, you know, chop it up and it'll be done. And instead,

01:18:01.200 | honestly, if you just look at the headlines and the rhetoric

01:18:03.360 | and the words from all these three leaders in the last 10

01:18:07.080 | days, it's been, it's been in the other direction. And so you

01:18:10.140 | have to wonder,

01:18:10.440 | what is the point of all of this right now, other than

01:18:12.720 | it could be crescendoing like Brad said,

01:18:14.220 | it's a, you know, I, I, I listened to Blinken over the

01:18:18.900 | weekend and he talked about what I think he defined. What is this

01:18:22.740 | new doctrine of economic statecraft? He said, our

01:18:25.200 | objective is we have the power to impose overwhelming costs on

01:18:30.300 | our target. Okay. Economic costs. And he said our cause Putin's

01:18:35.460 | actions are remembered as a strategic failure, not regime

01:18:39.480 | change.

01:18:40.380 | That's what's within our control. That is very different.

01:18:44.040 | Bush wanted regime change in Iraq, and we executed it through the PAL doctrine of

01:18:51.600 | overwhelming military force. I think that this is a doctrine of overwhelming economic force that is

01:18:57.480 | meant to not only signal to the Russians, but every other rogue dictator in the world. If you

01:19:02.160 | go rolling into your neighbor uninvited, you can count on the fact that there's going to

01:19:07.260 | be massive economic sanctions because our our military deterrence is no longer a deterrent.

01:19:12.840 | Everybody knows we're not going to go defend Taiwan. Everybody knows we're not going to send

01:19:17.820 | our military into Ukraine. So we have to demonstrate that we actually have economic resolve, not these

01:19:24.240 | poo poo sanctions we've been having around the world for the last 20 years. And if that is the

01:19:29.100 | lasting impact on this, I think you're right. You know that we turn this into an economic nuclear weapon. Yeah.

01:19:37.200 | It's better than sending our kids, you know, running around the world to get killed.

01:19:41.100 | I think you're absolutely right. And I think Tony is very smart to say what he said.

01:19:45.240 | The one thing that I would want, though, on top of that, tell me if you agree, is just to ratchet

01:19:52.260 | down our rhetoric, which we can control. And maybe to, I mean, why not say that,

01:19:58.200 | listen, we're willing to put these sanctions on the table. We're willing to basically

01:20:02.700 | reinstitute economic ties with Russia if we can get to a satisfactory outcome.

01:20:07.140 | Well, you don't want to reward them.

01:20:08.280 | I mean, David, the only thing I would say is we're making a big assumption to say that there's not

01:20:12.480 | back channel diplomacy going on from the Israelis, the Turks, the French, you know,

01:20:18.060 | having those conversations on our behalf. Right. Like, I don't I honestly, I don't know that

01:20:24.000 | that's a high probability that we're not sending those signals. But to your point, I just don't

01:20:28.620 | know. I don't know. I hope that it is. I don't know either. But I don't know either. But

01:20:33.000 | here's what I would say is, look, I can only judge from the public statements. And I think there is signal

01:20:37.080 | in these public statements. And the statements are all one way. There is no olive branch. It's

01:20:43.620 | all it's all basically about escalation. Just like in January before the war, what were the

01:20:50.160 | State Department's statements about the situation? They said that NATO's door is open and will remain

01:20:55.140 | open, even though they told Zelensky in private that he would not be joining NATO. Okay, that was

01:21:00.540 | an astounding revelation that came out this week on the Freed Zakaria show. Number two, Blinken was

01:21:07.020 | saying that there was no change in the American position and there would be no change. They said

01:21:12.060 | these are all public statements that the US would never recognize the Russian annexation of Crimea

01:21:17.040 | never. You know, he said that we went into these peace talks represent our core values. There's no

01:21:23.160 | change on that. So in other words, it's been the position of the United States to be hardline with

01:21:28.200 | Russia to basically engage in no compromise whatsoever. And it's basically to double down.

01:21:34.500 | It's a double down. You assume you assume David, you don't know, those

01:21:36.960 | are the public statements. I know, but you're assuming that there's no back channels going on.

01:21:40.080 | And just to just to wrap this up, I wanted to make one quick point, Chamath, which was, you know,

01:21:44.700 | what if we offer to take the sanctions off, and then we are training Putin that these kind of

01:21:50.280 | misadventures get him something, Don Bass, etc. And that the sanctions roll off. So isn't there

01:21:56.760 | a possibility Chamath that if we don't keep the sanctions up, we're actually rewarding his behavior?

01:22:02.100 | I'm a huge guys. Look, I've been the first person in the front of the line on sanctions. I thought

01:22:06.900 | it was the most brilliant approach to this whole thing. And I still believe that sanctions work. And

01:22:13.740 | I think that this will cripple that country. What I'm saying, though, is that there are these moments

01:22:18.720 | where instead of then sticking to the rhetoric that Tony talked about, what he said, I don't know,

01:22:24.000 | Brad, where Tony said this, this weekend, but like, sticking to that, there are these added

01:22:28.800 | flourishes that I think are unnecessary. So what I mean by that is the talk about, you know, us

01:22:33.600 | reacting, or retaliating for the use of chemical

01:22:36.840 | weapons. Biden made a campaign vow, I don't know if you guys remember this about nuclear weapons,

01:22:41.580 | where, you know, he was very clear that, you know, it is a mechanism to demonstrate that

01:22:46.980 | this deterrence exists. And instead, he actually caved. And instead, he put out this carefully

01:22:53.820 | worded statement, which kind of walked back the campaign vow earlier this week, and I'll just read

01:22:57.540 | it to you. I'll just read what the Wall Street Journal said. It said by President Biden stepping

01:23:01.740 | back from a campaign vow has embraced the long standing US approach of using the threat of a

01:23:06.780 | potential nuclear response to deter conventional and other nuclear dangers in addition to nuclear

01:23:12.360 | ones. During the 2020 campaign, Biden promised to work towards a policy in which the sole purpose

01:23:17.220 | of US nuclear, the nuclear arsenal would be deter or respond to an enemy nuclear attack instead.

01:23:23.520 | Now it holds that the fundamental role of the nuclear arsenal will be to deter, but that it

01:23:30.120 | leaves the opening to respond and use it in extreme circumstances. So these are big changes. And if

01:23:36.720 | our whole goal is to just focus the service area to an economic set of sanctions. These are somewhat

01:23:42.420 | unnecessary. Would we all agree we don't need to talk about changing our nuclear policy? Yeah,

01:23:46.620 | Biden was right on the campaign trail, the United States of America should never use nukes,

01:23:51.480 | except if nukes are used on us. Come on, we know that. Yeah. And we're talking about changing that

01:23:57.120 | now. That's insane. No, we changed it. We changed it. Look, it shows that there there's an influence

01:24:01.980 | in our government, our State Department of certain hardline elements who want

01:24:06.660 | to have this very tough policy that includes destabilizing the Russian regime and maybe

01:24:11.520 | toppling Putin. I'm just saying that objective is not worth all the existential risks that we're now

01:24:17.460 | facing. All right, do we want to touch on the CCP tax cuts? We want to wrap we're at 80 minutes.

01:24:22.800 | I mean, the the CCP tax cuts harkens me back, Brad, you can react to this because you lived

01:24:27.720 | it with me. 2018 19. I'll say it again, we were in this unique moment where,

01:24:32.820 | you know, we were not sure whether there was runaway rampant inflation,

01:24:36.600 | and in q4 of 2018, the Fed basically said, Okay, you got us, you know, the boogeyman exists,

01:24:43.500 | we're gonna go tame inflation, and they ran forward and raised rates.

01:24:46.860 | And lo and behold, the Chinese economy turned over in q1 of 2019. We had like a, you know,

01:24:54.360 | a kind of a blippy little recession. And we had to overcome it because China became stimulative.

01:24:59.760 | Now, here we are, again, we're worried about this inflationary boogeyman. And the Chinese government,

01:25:06.540 | basically extended these tax cuts, increase the tax cuts, and essentially said, we're going to be

01:25:11.640 | very stimulative in the economy, especially through the back half of the year. Now, China,

01:25:17.700 | again, is a massively export driven economy, right? So the reality is that as goes China,

01:25:24.120 | so goes the rest of our economies. And so I think that it's a setup where how can the United States

01:25:29.940 | be under so much inflationary pressure, where China is effectively telling you that we are in a

01:25:36.480 | contraction and a recessionary period. And so if that's where China is, there's a risk that we may

01:25:42.660 | already be there or entering that. And so I think it's a little, you know,

01:25:47.760 | can you hit two really important points, Juma number one, which we didn't get to earlier. I

01:25:54.480 | tweeted a few weeks ago, the feds probably behind the curve on recession, not inflation. Right? We

01:26:00.300 | have massive demand destruction going on right now in the US economy, massive producer define

01:26:05.460 | what that means, Brad,

01:26:06.420 | I mean, if you just think about what a $6 gas mean, what does no stimmy checks mean? What is

01:26:12.180 | the fact that you actually have to go and get a job again mean, you know, we're, we're rolling

01:26:16.440 | back trillions of dollars off the Fed balance sheet, I'll tell you what it means is that people

01:26:20.580 | can't spend as much money. Just the increase in the 30 year mortgage means you're buying power

01:26:26.520 | in December four months ago, to buy a house and you if you could afford 1200 bucks a month,

01:26:31.860 | that buying power budget $350,000 house today, it buys you a $290,000 house.

01:26:36.360 | $35,000 house, people's ability, right to have money to spend money is getting crushed. So I

01:26:43.620 | think we are going to face an economic slowdown. If you look at the PMI. So this was the inflation

01:26:49.920 | read in January, little people didn't really notice it. PMI in January came in at point two

01:26:57.300 | versus the consensus estimate estimate of point six. That means the producer level of inflation

01:27:04.740 | was meaningfully less than the inflation rate. So that's a big difference. And then the second point

01:27:06.300 | is that the market is going to be less than we expected. If you look at consumer confidence,

01:27:10.560 | it's plummeted one of the four biggest drawdowns over the last 20 years, retail sales in UK this

01:27:16.680 | morning crashing consumer confidence in the UK crashing. The Chinese government sees this we're

01:27:21.780 | we're not surprised to look at the what's going on in the world with energy prices. We've never

01:27:27.000 | had oil over 120 bucks and not gone into a recession. We're facing a global slowdown.

01:27:32.640 | That will have big implications for inflation, big

01:27:36.240 | implications for rates. But China sees this coming and says we're going to get ahead of

01:27:41.160 | this. We've got a People's Congress in November, we promised him five and a half percent GDP growth,

01:27:46.800 | 3 trillion of that is export driven. That means if Europe in the United States catches a cold,

01:27:52.020 | they catch the flu. Okay, so they have to do everything in their power. This is why they're

01:27:57.840 | not going to supply the Russians with weapons, right? Because it's economically assassinating

01:28:03.780 | themselves. Right? So we have

01:28:06.180 | this interconnected world, this idea that we're de globalizing, what we do doesn't impact anybody

01:28:11.640 | else like that ship is sailed a long time ago. And the Chinese see this. That's why I think there's

01:28:17.580 | also a probability by the Middle East this summer, the Fed in the United States is saying we now see

01:28:23.460 | a balanced risk between growth and inflation. Sachs, let's get you in on this. Just as we wrap

01:28:29.040 | here. The Chinese Communist Party premier talked about tax costs. And this is a quote fertilizer applied directly

01:28:36.120 | to the roots of the economy tax rebates look like reductions, but actually are in addition,

01:28:39.960 | today give back tomorrow you get more in returns. Does this mean the United States, people will go

01:28:46.260 | back and get jobs because they need to have more money and that maybe we should be looking at,

01:28:50.160 | you know, tax cuts at some point. Listen, Jake, I think we got big problems here at home in the

01:28:56.040 | United States, Brad and Chamath, they've laid out these gigantic economic risks that are facing the

01:29:00.960 | country. You know, I tweeted at the beginning of the year, January 24, the President's main job is

01:29:06.060 | to ensure peace and prosperity. And Biden's popularity was already plummeting. I think this

01:29:10.860 | is when his poll numbers were at 38%. But if he gets us into war and recession, he ain't seen

01:29:15.900 | nothing yet. This war, the longer it drags on, the longer it basically can spin out of control

01:29:22.980 | and become something worse that sucks us in, the longer it creates the risk of basically causing a

01:29:30.000 | recession in the United States. We need the American we need the Biden administration to help try and

01:29:36.000 | lead to a better outcome here instead of ratcheting up the rhetoric.

01:29:39.540 | All right, folks, there you have it. That's your all in podcast for this week.

01:29:43.860 | Thanks so much to Brad Gerstner for joining us and filling in for the Sultan of Science.

01:29:49.200 | BG. Thanks, bro.

01:29:50.460 | And a lot of great announcements here. Brad will also be joining us for the all in summit.

01:29:55.680 | We're about to wrap up tickets. We've announced a bunch of great speakers for the event May 15,

01:30:01.740 | 16 and 17 in Miami. You can just do a search for the all in summit.

01:30:05.940 | We have given out. We've sent 200 emails to people who asked for scholarships and 100 of them have

01:30:11.400 | taken the tickets. 500 of the 650 tickets or so are accounted for. We'll be wrapping up registration in

01:30:17.460 | the next week or two. And we look forward to seeing you all at the New World Symphony in South Beach.

01:30:22.860 | You got any announcements of people who else is appearing?

01:30:25.500 | Oh, my Lord, we have great announcements. Keith, her boy is coming. Joe Lonsdale is coming. Nate

01:30:29.820 | Silver is coming. Nate Silver. I love Nate Silver. We decided Chamath we would have people do 15 to

01:30:36.960 | 20 minute TED style talks like position papers. And so who else do we have doing that? Tim Urban

01:30:46.560 | of Wait But Why who is a brilliant TED speaker and writer. Nate Silver is going to do that. And then

01:30:51.000 | Antonio is coming. He was just on and he was just on Rogan show. And so we're going to have these

01:30:58.680 | like 20 minute TED talks. And then we're going to have a lot of great announcements. And then we're

01:30:59.800 | kind of hits, then the besties will sit with them, we'll do

01:31:02.580 | those back to back. Kimball musk is going to come and talk about

01:31:06.100 | his dow that he's doing for nonprofits, Brad, we're going to

01:31:08.920 | talk about what topics so we're collecting all this talent and

01:31:11.840 | then we'll figure out what positions are going to play in

01:31:13.660 | the show, and what the themes will be but the themes will

01:31:16.300 | match what we've been talking about here, and we don't want to

01:31:18.800 | pre set the themes six or seven weeks seven weeks out from the

01:31:22.540 | event because we don't know what the world will look like then.

01:31:24.340 | And then Freeberg said he wanted to do a position paper and

01:31:26.860 | actually give a 20 minute talk. So besties will have that

01:31:28.760 | ability. And besties will start the event and end the event.

01:31:32.180 | Tons of different speakers rotating in and out talking about

01:31:34.660 | the most important topics of our time, but I would like to have

01:31:37.340 | Peter there. Can you get Peter Thiel to come? He was maybe the

01:31:40.540 | most iconoclastic please. I'm just not I'm just not I have to

01:31:44.360 | get over my uncertainty that this whole conference thing is

01:31:47.480 | really a grift. It's great. We're putting all the money is

01:31:51.580 | going back into the event. And we gave 200 scholarships, there

01:31:54.880 | will be no profit from the other needs to be a really nice swag

01:31:57.560 | bag. And I think it was

01:31:58.640 | already at $600 a person I just spent three or 400. What is the

01:32:03.140 | material of the hoodie? All right. If it's got a cashmere

01:32:07.340 | hoodie, if to be on brand, off brand for people need to be able

01:32:11.240 | to buy up to the to the special hoodie,

01:32:13.580 | Brad, I just spent $600,000 per gift bag for 600 gift bags.

01:32:17.760 | Okay, it's like 400 grand in gift bags. And Chamath wants to put a

01:32:20.980 | $6,000 sweater in there. I just wanted to know what the material

01:32:24.820 | was of the hoodie in the bag. That's all I'm just asking a

01:32:27.300 | question.

01:32:27.680 | This is my life, Brad.

01:32:28.480 | I am busting my ass to put this event on and then Chamath

01:32:31.860 | complaining about the gift bag. Sax is complaining on me making a

01:32:35.200 | dollar from it. And freebergs having a panic attack that we

01:32:38.200 | don't have enough great speakers and I'm doing all the work. It's

01:32:41.100 | my whole fucking life. I appreciate you Jay Kell.

01:32:43.360 | I'm going to say some nice stuff to me. You did say some nice

01:32:45.920 | stuff. I want to get on board with you getting a fee for your

01:32:49.360 | hard work. You know, I don't need to give you like an hourly wage,

01:32:52.540 | you know, $15. I know I'm not your wage slave David Sachs. I'm

01:32:56.480 | working hard here.

01:32:58.320 | I'm working hard. But I just want to be appreciated.

01:33:01.620 | I don't think you should have like a cotton blend is my I think

01:33:06.140 | it's

01:33:06.260 | by the way, Brad, do you have any thoughts on the sushi? Is

01:33:11.220 | there? Should we be using brown rice and not the two line caught

01:33:14.440 | tuna?

01:33:15.000 | No, just make sure there's gold gold leaf on the sushi.

01:33:18.120 | No, literally, we're spending, I think for 300 or 14,000 per

01:33:23.700 | party. It's over a million dollars in parties. And I'm

01:33:27.120 | talking to talent.

01:33:28.160 | Bookers about serious talent coming to perform. Drake, can you

01:33:31.460 | get drink? How about that's $3 million. Dua Lipa $2 million.

01:33:35.540 | I'm deep in $2 million. That's what I got. How much is don't you

01:33:40.380 | catch? She's great. I think those are all seven figures. I

01:33:43.160 | would like to anyway, what I'm trying to find while use of

01:33:46.340 | running while the use of that mean that would make it an

01:33:48.260 | incredible part. Oh, God. I mean, I really would like to get

01:33:51.240 | by saying how much is Drake again? $2 million. I heard

01:33:53.520 | two to three million for training bags and get Drake. Yeah. Yeah.

01:33:58.000 | Cancel the bag. Give it all the drink.

01:34:00.760 | So you guys are saying and all the work I do, I should take $2

01:34:06.460 | million and hand it to fucking Drake. Yes, yes.

01:34:10.040 | Drake is more valuable than you drink. Five years of working on

01:34:15.700 | events and media Brad. And these these are my friends were like,

01:34:19.420 | take the two million put in your pocket and finally make a profit

01:34:23.400 | on your work. And just hand 2 million in a bag.

01:34:27.840 | I need the bag. I get a plane. I'm trying to get a jet card.

01:34:32.340 | Do we get to work with Drake on which songs he's he would sing?

01:34:35.460 | I think he does like a medley of like three. What I would like to

01:34:38.700 | do is have three songs for two. Come on. I think it's basically

01:34:42.060 | like 100,000 a minute. I think that's what you're in for 100,000

01:34:45.960 | per minute. 20 minutes.

01:34:47.040 | seems egregious. No, I mean, these guys get paid bank when I

01:34:52.320 | hired Snoop. He did like 20 songs for me. It was

01:34:55.080 | unbelievable. And what was that two or three hours show?

01:34:57.680 | 100? 250?

01:34:58.680 | That's because he forgot he was there.

01:35:01.040 | Yeah, he had a great time.

01:35:02.840 | Oh my god, man. He was blowing this joint that was so powerful

01:35:07.160 | that I was 10 feet away and I got stoned. I mean, it was like,

01:35:10.880 | he walked in. It was like, I remember cloud.

01:35:13.280 | It was like 20 Super Bowl shows.

01:35:15.080 | Good stuff.

01:35:17.180 | All right, everybody. Love you besties. Love you, Brad.

01:35:19.520 | Peace.

01:35:19.940 | Let your winners ride.

01:35:22.580 | Rain Man David Sachs.

01:35:25.520 | I'm going home.

01:35:27.520 | And it said we open source it to the fans and they've just gone

01:35:31.480 | crazy with it.

01:35:32.280 | Love you, West.

01:35:33.080 | I'm going home.

01:35:36.280 | Let your winners ride. Let your winners ride. Let your winners ride.

01:35:41.360 | Besties are gone.

01:35:42.520 | That's my dog taking a drive away.

01:35:46.120 | Wait, no, no.

01:35:47.320 | Oh, man.

01:35:49.880 | The Badger will meet me at .

01:35:51.820 | We should all just get a room and just have one big huge orgy

01:35:54.460 | because they're all just useless.

01:35:55.660 | It's like this like sexual tension, but they just have to be like,

01:35:57.360 | we just need to release that out.

01:35:59.800 | What? You're the B. What? You're a B. You're a B.

01:36:03.400 | B? What? We need to get merch.

01:36:06.120 | Besties are back.

01:36:07.960 | I'm going all in. I'm going all in.

01:36:16.360 | you

E73: Late-stage VC markdowns and mistakes, market strategy, Ukraine/Russia update with Brad Gerstner

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