E101: Ye acquires Parler, Snap drops 30%, macro outlook, VC metrics, valuing stocks & more

00:00:00.000 | Welcome everybody to episode 101. David Sacks is on vacation sitting in Brad Gershner from Altimeter

00:00:06.880 | Group. Welcome back to the pod. Brad, how you doing? Good to be back. Good to be back. I mean,

00:00:12.000 | first you first you guys, you know, tilted Friedberg and now a little bit on Sacks is

00:00:17.440 | getting attacked on Twitter. And so you roll me back in when you got a little problem. Whenever

00:00:21.760 | the Brigadoons come out, Brad Gershner comes. I think Sacks will be okay. But shout out to Sacks.

00:00:27.760 | You know who probably hates the term Brigadoons? The nitwits that are in the Brigadoons.

00:00:31.920 | Oh, the Brigadoons. It's all going to end at some point because I think the Brigadoons. New

00:00:39.120 | ownership at Twitter is going to change like the whole spam thing. That's a Rodgers and Hammerstein

00:00:43.840 | musical, right? Brigadoon? Brigadoon, yeah. Yeah. But now I think Brigadoons could stick. I don't,

00:00:49.040 | I've never heard anybody use that for the Burbators. Yeah, calling the Twitter mob

00:00:52.480 | the Brigadoons is a good new thing. I like that. Yeah, it's pejorative. It's funny. It'll,

00:00:57.280 | everything a little bit tones it down. I like it. It feels

00:00:59.780 | goofy. It completely disempowers them. They really

00:01:02.500 | want to be taken seriously but they're just a brigadoon. BRIG

00:01:06.680 | a dune. I mean, to be a brigadoon though, you have to

00:01:09.880 | have four or more accounts and you have to reply to each of

00:01:13.040 | those accounts as if it's an actual conversation. JJ, can

00:01:16.060 | you a solo brigadoon? Yeah, when you re-tweet something as a

00:01:19.480 | social justice warrior as an example, you're trying to join

00:01:22.160 | the brigadoon. Ah, got it. It's just a different brigadoon.

00:01:25.640 | It's a brigadoon. Jekyll, are you sometimes a brigadoon,

00:01:29.060 | right? You're part of brigadoons, Jekyll. No, I'm not

00:01:32.000 | part of any brigadoon. You're totally brigadoon, come on. I do

00:01:34.640 | not, no. Brigadoon. I never, I've never brigadone. I've never

00:01:38.620 | brigadone. I mean, I may have brigadone once or twice for my

00:01:43.100 | burner account but that's it. I mean,

00:01:46.780 | Rain Man David Sack

00:01:53.780 | and it said we open source it to the fans and they've just

00:01:56.900 | gone crazy with it. Love you, Wes. Nice queen of quinoa.

00:02:02.260 | Well, anyway, Kanye West can't leave an amazing career alone

00:02:07.340 | and he is going to buy Parler which apparently Candace Owens

00:02:13.180 | husband, George Farmer, had created. So, he's gonna buy his

00:02:16.060 | own social network. If you don't remember Parler is like a

00:02:19.260 | really shitty version of Twitter that never seems to have worked

00:02:24.060 | or been stable. It crashed the first 10 times I used it.

00:02:26.700 | Miraculously, this steaming pile of garbage had raised 56

00:02:31.980 | million in funding and Kanye is on a social media slash media

00:02:38.220 | tour saying horrific anti-Semitic stuff. He seems to

00:02:42.860 | be having a mental breakdown again. Uh there's a big

00:02:46.460 | discussion now I guess. Should people be platforming them to

00:02:49.820 | the point that he's doing three, four, 5 hour interviews

00:02:53.420 | with people and it does seem like it's acute mental illness

00:02:58.220 | slash breakdown. I don't wanna like diagnose anybody from afar

00:03:01.980 | here and I'm not qualified. But you just did. Well, I mean, he

00:03:05.100 | has been public about his struggles with mental illness.

00:03:08.060 | It's not a huge leap for any of us that have had family

00:03:10.700 | members. Yes. Manic episodes. I mean, this is clearly a manic.

00:03:15.420 | It's pretty much right out of the textbook. So, my question

00:03:20.060 | for you guys is what you have somebody with great wealth,

00:03:23.820 | great creativity. He's obviously a savant in so many

00:03:26.700 | different categories with a huge social media following plus

00:03:30.700 | money, plus fame, and then you add social media to the mix

00:03:34.460 | which is an accelerant and then all of these, you know, Tucker

00:03:37.740 | Coulson and every other publication, every podcast

00:03:40.380 | using this moment. I think in a way to kind of, I don't know,

00:03:45.500 | get ratings off of this train wreck. I find it abhorrent to

00:03:48.540 | interview somebody when they're in a manic episode like this.

00:03:50.700 | I'll be totally honest. I wouldn't do it. What is your

00:03:53.340 | take on this? I have a family member, a blood relative that

00:04:00.220 | is in severe mental health crisis. If the emails and the

00:04:05.900 | text messages that this person sent were public, you you I

00:04:15.420 | read these things and they've severely severely impacted me

00:04:20.700 | to the point now where I have like a rule that when they're

00:04:23.500 | in a manic episode, I just kind of harvest them and archive

00:04:26.780 | them just in case something bad happens but I can't even take

00:04:31.100 | the effort to read it and because it takes such a toll and

00:04:34.220 | then I feel really guilty because I think maybe there's a

00:04:37.660 | something in there where I could be missing something. So,

00:04:41.660 | this is what when you're in the middle of a of of a severe

00:04:45.580 | episode, this is what the family and the loved ones of

00:04:48.220 | that person is also dealing with. So, I have I have no idea

00:04:51.740 | what's happening with Kanye but what I would tell you is when

00:04:54.780 | you're in a manic episode, the more the the thing that you

00:04:57.420 | need is for the people around you to try to step in to help

00:04:59.660 | you and it's really freaking hard and I can tell you that in

00:05:03.260 | in I've seen this person in my family say and say things and

00:05:06.860 | do things that are just so beyond the pale. Yeah. And it's

00:05:11.020 | part of when they're in that moment and the whole goal is to

00:05:14.940 | try to get them out. Get them back on their meds. Get them

00:05:17.580 | rebalanced. It's a really really complicated thing to deal

00:05:22.700 | with. Well, look, I mean, the guy, the guy's buying a social

00:05:26.140 | media platform. I think it continues to support the point

00:05:32.380 | that I've made a few times which is I don't think that

00:05:34.380 | anyone has a monopoly in social media networks. We've seen

00:05:38.700 | every couple of years, competitors emerge, people

00:05:42.220 | proclaim monopoly, those monopolies get destroyed by the

00:05:46.860 | next thing, you know, from Friendster to Myspace to

00:05:50.460 | Facebook to Instagram to Snapchat to TikTok and I think

00:05:56.060 | that the the reality is the users of those platforms

00:05:59.420 | ultimately coalesce around a set of standards they want to

00:06:02.780 | see happen on that platform and those standards become kind of

00:06:05.980 | the editorialized or produced model for how that platform

00:06:08.620 | should operate because that's what the users say. They don't

00:06:11.180 | want antisemitism. They don't want what they would call kind

00:06:14.060 | of challenging an institution. They don't want fake news,

00:06:16.700 | whatever the the classification is. There's an

00:06:19.340 | editor or an editorial board that editorializes what is and

00:06:22.860 | isn't allowed to be said on that platform and ultimately

00:06:25.420 | there is a fringe voice or a voice that feels unheard or

00:06:28.940 | feels like it cannot speak on that platform and what we're

00:06:31.980 | seeing now with I think Elon acquiring Twitter and Kanye

00:06:35.420 | acquiring Parler and generally a number of kind of emerging

00:06:39.340 | networks like what's it called Rumbler as an alternative to

00:06:43.260 | YouTube. It's a really clear indication. What's it called?

00:06:46.940 | Rumble, I think. Rumble. Yeah. No, I think it's a really clear

00:06:51.500 | supporting fact that there are going to be alternatives and

00:06:55.100 | that these what we thought were monopolies and what kind of

00:06:57.580 | became digital town squares and almost infrastructure are

00:07:01.500 | really just application layers. They're editorialized and

00:07:04.140 | there are going to be competitors and I think there

00:07:06.220 | are folks that want to have a voice that feel like they've

00:07:08.140 | been editorialized out of the existing networks like Kanye,

00:07:11.900 | like Trump, like Elon to some degree and they're you know

00:07:17.100 | those that have resources are changing that and I think that

00:07:19.500 | speaks to a really healthy competitive market. So having

00:07:22.780 | folks like Kanye step in and try and create a new platform

00:07:25.900 | that has alternative voices long term. I believe in freedom

00:07:29.500 | of speech. I believe that we should have alternative voices,

00:07:31.740 | but I also believe that consumers and customers should

00:07:34.380 | be able to choose what platform they want to be on based on the

00:07:37.500 | editorialization that happens on those platforms and I do

00:07:39.740 | believe that the owners of those platforms should have their

00:07:42.380 | own rules because it creates a different differentiated

00:07:44.380 | product. Jason is that what you were hoping to get comment on

00:07:47.420 | or this idea of the media outing frenzy feeding on Kanye's

00:07:51.660 | mental breakdown. Yeah, I was talking about the media frenzy.

00:07:54.860 | That's the thing that I think is pretty apparent here. In

00:07:57.180 | fact, YouTube just pulled a bunch of the interviews he did

00:07:59.580 | recently because there's so much anti semitic stuff in it

00:08:01.740 | and you know when somebody's in a mental breakdown like this,

00:08:05.420 | which I think it's pretty clear he's in you know they do this

00:08:09.820 | behavior and of course it's hurting them. It's to your

00:08:12.220 | point. You know I'm sure it's hurting his kids or or ex

00:08:15.820 | wives or ex wife and you know can I ask that it's going to

00:08:20.780 | blow back. What's that can I ask who do you think is to

00:08:23.740 | decide that because he's done interviews where he said I have

00:08:26.780 | episodes and those episodes actually provide me with

00:08:29.180 | creativity and brilliance. Yeah. Yeah. I think it's up to

00:08:31.340 | the person the person who is the host of that show who has

00:08:34.700 | to make an editorial decision and so Tucker Carlson's going

00:08:37.500 | for ratings or if somebody else does it and they want the

00:08:39.820 | ratings because Kanye's a big name. That's you know I get it.

00:08:43.500 | He's a he's a great get right and if you're somebody who

00:08:45.900 | likes to interview people, that's like a lifetime get that

00:08:48.380 | could be the get that you know makes people learn about your

00:08:50.780 | podcast. I just think it's unethical to do that when

00:08:54.860 | somebody is suffering like that to then feature them and to

00:08:57.180 | platform them in order to get your own ratings. That's a

00:09:00.300 | personal decision. I mean, I would never do it. Let me ask

00:09:01.740 | you a different question though. So I wouldn't do it.

00:09:04.300 | Would you hold him accountable for what he said? Well, this

00:09:08.540 | and this is the nuance you know and I think we do have to think

00:09:12.380 | about that because anti semitism exists in the world. He's got a

00:09:18.620 | big fan base. That means if he's got people in his fan base who

00:09:21.900 | are also having a manic episode, they could then be

00:09:24.940 | inspired by what he's saying to do something horrific and

00:09:27.660 | cause real world harm and and this is where you know the

00:09:31.740 | accelerant of social media I think is particularly dangerous

00:09:34.220 | to him off you know in the old days if somebody said this

00:09:37.020 | stuff on a talk show, maybe they don't air it where they say

00:09:39.660 | it. It's in the newspapers, but when he can have a continuing

00:09:42.300 | dialogue across many podcasts a week, he's done like 10

00:09:44.860 | podcasts in the last week. He'll go on air with anybody

00:09:47.740 | and then he has whatever 10s of millions of followers. He's

00:09:50.620 | reaching hundreds of millions of people. All you need is one

00:09:53.260 | person who's mentally ill to then go do some horrible thing

00:09:56.620 | in the world that we've seen happen many times and that's

00:09:58.860 | what I'm concerned about. You have to understand your it's the

00:10:02.700 | law of big numbers. Basically tomorrow, there's a large number

00:10:05.100 | of people. Yeah, just to give you a sense of it. You know when

00:10:07.420 | this family member of mine, you know we've had we've had to have

00:10:12.380 | interventions. We've had police. We've had the government

00:10:18.380 | get involved in Canada. We had had their driver's license

00:10:23.260 | taken away then. I mean it is an unbelievably complicated set

00:10:28.140 | of interventions and I am so thankful that she doesn't have

00:10:37.100 | massive social media awareness because it would just be chaos

00:10:44.940 | and I would hate that you know because of their association to

00:10:49.180 | me that this person gets more attention than they should in a

00:10:51.740 | moment where what they really need is help and I think that

00:10:55.820 | that it should be the governing principle in moments like this

00:10:58.620 | where if a bunch of your family members or your healthcare

00:11:01.100 | providers or whatever can raise their hand and say, hey, hold on

00:11:04.220 | a second. This is completely off the rails. You know, free

00:11:07.420 | Burke to your point. I don't think that editorial freedom

00:11:10.860 | matters in that point. I think there's just a more humane idea

00:11:13.500 | around get this person off the airwaves and like allow

00:11:17.980 | themselves to get out of that loop settle down. Yeah. Yeah.

00:11:22.060 | And and typically what happens is that you know these folks at

00:11:25.980 | Lee again and just in my experience will have titrated a

00:11:30.300 | medicine well and then when that titration fails their

00:11:34.060 | ability to regulate their emotions fail and this is the

00:11:37.740 | loop that they enter and you know you really have to find a

00:11:41.020 | way of like taking all of these mechanisms off the table so

00:11:44.700 | that they can re regulate themselves and I think that as a

00:11:48.540 | society we have to sort of move towards that so that if you

00:11:52.060 | know family members can call Twitter or Facebook or

00:11:55.180 | Instagram or whatever and say listen you're the doctor you

00:11:58.220 | know here's a here's the doctor's note like you have to

00:12:00.860 | be able to shut this stuff down because you have to mute all of

00:12:04.300 | these other things so that this person can then get back into a

00:12:08.060 | mode where they re regulate that should be the priority. Yeah.

00:12:12.380 | Compassion for the person. Yeah. It's and it's not

00:12:15.260 | forgiving what they say but it is having maybe a little bit

00:12:19.180 | more compassion in that moment to get them back to their to

00:12:22.060 | their true self. I think this one's a little easy to say,

00:12:24.700 | hey, Kanye's having a mental breakdown because he's talked

00:12:26.860 | about mental illness in the past. It's a lot harder to make

00:12:29.100 | these you know, supposed determinations as a reporter or

00:12:32.940 | a podcast host. If someone says something crazy and then it's

00:12:36.300 | easy to raise your hand and say, hey, they're crazy. Cut it

00:12:38.380 | out or there's some mental health issue going on here. But

00:12:41.340 | Freeberg, if he's not, if he's not having a mental issue right

00:12:43.900 | now, then he is a horrible human being who is an anti-Semite

00:12:48.540 | who is spreading just the most vitriolic, horrible things you

00:12:52.460 | and tropes you could ever imagine at a time when you know

00:12:56.540 | there's enough division in the country and somebody could get

00:12:58.540 | hurt, you know. Uh so, either in either case, his accounts have

00:13:03.420 | to get paused if he's going to say anti-Semitic stuff on them.

00:13:07.100 | I mean, that's that I mean, there's there's really clear

00:13:09.340 | guidelines across all these platforms on what's

00:13:11.740 | inappropriate and certainly, I think folks will start to adhere

00:13:14.620 | to it. I guess if I had anything to contribute, I mean, I

00:13:17.180 | think Chumas said this well about a mental health angle but

00:13:21.980 | what I would say is I actually think that the social platforms

00:13:26.300 | have done a reasonably good job. The fact that he's buying

00:13:29.660 | Parler, I think is evidence of the fact that there actually is

00:13:32.460 | an editorial layer. Yeah. That's doing a reasonable job.

00:13:36.060 | It's a tough decision. There's always going to be a long tail

00:13:40.380 | of podcast. Somebody will, you know, somebody will go grift

00:13:43.740 | off of uh you know, an episode or whatever but I think, you

00:13:48.300 | know, a few years ago, we were talking about no editorial

00:13:50.780 | standards and I think today, you know, across these

00:13:54.300 | platforms, obviously, there's a tension. There's a tension

00:13:57.500 | that's existed for 100 years plus around free speech on

00:14:01.980 | these platforms. I get that tension but I think uh a little

00:14:05.580 | credit where credits do. We're seeing, we're not seeing these

00:14:09.260 | memes spread like wildfire uh in part because the platforms

00:14:13.740 | with the most reach are doing their job. Snaps down 30% today.

00:14:18.460 | Do you guys see this? I think it's it's related in the sense

00:14:21.340 | that everyone historically talked about social networks as

00:14:24.700 | being these uh you know, the network effect where you know,

00:14:27.820 | multiple people get on and they link up with you with each

00:14:29.900 | other. It's harder and harder to break the network and it

00:14:31.580 | gets bigger and more valuable and can generate more revenue.

00:14:35.260 | Clearly not happened over the years with Twitter uh to the

00:14:38.060 | degree that people thought it should have and now clearly it's

00:14:40.620 | not happening with Snap. I think it also speaks to this

00:14:43.420 | idea of fragmentation. I don't know if you guys want to talk

00:14:45.340 | about Snap but pretty significant decline from well

00:14:49.100 | here's the here's the sixty. There were 160 billion market

00:14:51.900 | cap and today they're trading at twelve. They're down 91%

00:14:55.740 | from peak to track. 91%. Yeah. Here's the important thing to

00:14:59.340 | note which is that if you look at the MAU growth of Snap, it's

00:15:03.660 | actually been extremely steady and they've had an incredible

00:15:07.740 | march forward and I think that they're roughly around 350

00:15:11.260 | million. Um Nick, I'll send you the. Yeah, you. Right. I'll send

00:15:14.860 | you the link. Yeah, I think it's like the Dow is. You count is

00:15:17.740 | is incredible. It's incredible. It's amazing. So, it's like

00:15:20.460 | yeah, it's a service that is incrementally everyday more

00:15:25.020 | relied upon than the day before and it's a service that's

00:15:28.300 | providing a set of features that is incrementally more

00:15:30.620 | important to a larger and larger group of people. So, how

00:15:34.300 | do you then square that with its stock performance and in my

00:15:38.540 | opinion, I'll just be really honest with you and I don't

00:15:40.860 | know Evan Spiegel and I've never trafficked in Snapchat at

00:15:44.300 | all, okay? But it is the most glaring example of corporate

00:15:52.380 | misgovernance that has ever happened on the internet and

00:15:56.060 | the reason is when you look at what happened in the IPO, it

00:16:00.940 | basically created a governance structure where the common

00:16:05.180 | shareholder had all voting power taken away. So, 100%

00:16:10.540 | effectively, the de facto voting power stayed with the

00:16:13.740 | class that was held by the founders and so you you do not

00:16:17.980 | have a normal check and balance and it was egregious. Other

00:16:23.180 | companies would have voting programs where it was twenty to

00:16:26.620 | one and you would sometimes say, oh, it should only should

00:16:29.340 | be ten to one or it should be fifty to one. This was like 100

00:16:33.420 | to zero and what you have now is no real feedback loop

00:16:39.500 | because there is no person who can own enough equity with

00:16:44.140 | enough say to sit across the table from that CEO and say,

00:16:48.860 | here's what you're not seeing and here's what you're getting

00:16:52.620 | wrong and I think you're always better off by having those

00:16:56.620 | kinds of people be able to get a meeting with you in the first

00:17:00.860 | place and have a vested interest where you take them

00:17:04.300 | seriously but how would you receive a meeting when you're

00:17:09.020 | sitting across the table from somebody in the back of mind,

00:17:11.180 | you're like, wow, this person has literally no say in what I

00:17:15.820 | do after this meeting ends. Literally none. You can't vote

00:17:19.500 | even. Do you think it's different than alphabet and

00:17:22.460 | meta at ten to one? Cuz they I think they both have dual

00:17:24.780 | class, right? At ten to one voting. You actually. I think

00:17:28.140 | zero is in my opinion, a deep sign of disrespect. I think you

00:17:34.300 | can, I think you can agree, you know, that there is a

00:17:40.620 | separation between, you know, the voice of the common

00:17:43.660 | shareholder in these companies and and the direction of the

00:17:46.140 | companies but I think it obscures what's going on. I

00:17:49.660 | totally agree with you. If you look at usage, the number of

00:17:52.380 | customers walking into the store, snaps gone from 265 to

00:17:56.940 | 360 million DAUs. Twitter, 190 to 240. Meta from 1.8 to two

00:18:04.220 | over the course of the last 3 years. They're all growing.

00:18:06.380 | More people are walking into the store and using the

00:18:08.540 | service. The story here is all about pricing. How much is each

00:18:13.980 | of those users worth? I mean, Apple is the apex predator of

00:18:18.860 | this entire market. We wouldn't be having this conversation

00:18:22.300 | but for the fact that Apple's changes with IDFA literally

00:18:26.860 | pickpocketed the industry 2 billion dollars this year under

00:18:31.180 | the auspices of privacy and so if you look at these companies

00:18:36.540 | usage up, pricing or ARPU down. Okay. Recently, Apple's come

00:18:42.780 | under a bunch of pressure. So now they're out with SCAD 4

00:18:45.580 | which is their update to the the the ad policy post IDFA.

00:18:51.900 | That allows you to target advertisers or individuals with

00:18:55.900 | 10,000 attributes instead of 100 attributes. So we're going

00:18:59.580 | to see some realignment. I expect that the real question

00:19:02.940 | is what happens to ARPU next year but to me, the story here

00:19:07.180 | is that the usage and the health of these core platforms

00:19:10.860 | is remarkably sticky. Yeah. For all the things we say about

00:19:15.100 | Instagram, I mean, TikTok has had explosive growth, 30%

00:19:18.540 | growth each of the last 3 years but even the incumbent

00:19:21.900 | platforms, really sticky usage. This is about how they're

00:19:25.500 | monetizing those users and the real story is Apple. Yeah and

00:19:29.340 | if you for people who don't know IDFA is the identifier for

00:19:32.620 | advertisers. Some people refer to it as made mobile ID, ad ID.

00:19:37.580 | I'm sorry and so what that does is it lets you track a user

00:19:41.660 | anonymously across. Have you ever have you ever owned and

00:19:45.100 | have you ever owned any clicks to a sale? Right. Have you ever

00:19:48.380 | owned Snapchat stock? No. Why not? Certainly, governance is a

00:19:54.220 | key component of it but the second thing is like do you

00:19:57.580 | have do you have any belief that you could even get a

00:20:01.020 | meeting with the CEO and management where they would

00:20:03.100 | listen to you appropriately? We've certainly got meetings

00:20:08.140 | with management before so yes, I believe we could whether or

00:20:11.580 | not that impacts you know how they build product, how they

00:20:14.700 | how they run the business, you know the influence, etcetera

00:20:18.060 | but again, I I think that's not really the problem here but the

00:20:22.700 | point I would totally agree with you on Chema. We've had 10

00:20:27.260 | years of where the cost of capital was zero. 10 years of

00:20:33.180 | hyper growth for these social networks, right? In each of the

00:20:37.260 | last five years, Facebook has hired more people in each of

00:20:40.700 | the last five years than they had 10 years after the company

00:20:44.140 | was founded, okay? So, as we've seen this growth begin to turn

00:20:49.180 | over, I have seen the companies really slow to react to

00:20:54.780 | right size their behavior that they had over the course of the

00:20:57.980 | last decade to put themselves in a position to compete for the

00:21:02.940 | next decade. So, it's one thing just to throw your hands in the

00:21:05.980 | air and say, well, this is all Apple. We couldn't do anything

00:21:08.380 | about it but we we really haven't seen leadership in

00:21:12.540 | terms of cost control. We really have. We all know these

00:21:15.900 | companies could run with you. Yeah. Of the of the major

00:21:18.460 | companies, Brad, Snap did do a 20% riff. They had 6000

00:21:21.260 | employees or so and they cut 20%. Facebook is the one that's

00:21:24.700 | perplexing because they seem to be massively over staffed as

00:21:28.940 | you talked about and they have been massively they've had a

00:21:32.380 | massive decline in their stock price and they are the one who

00:21:35.580 | is affected most by what Apple did in terms of app tracking

00:21:41.180 | transparency is I think that there's a perception though. I

00:21:44.940 | mean, I'm still stuck on this issue. I really think that

00:21:47.420 | stock prices tend to ebb and flow based on sort of like

00:21:54.140 | friction or momentum and when there's momentum, more and more

00:21:59.020 | people can easily underwrite it and when there's friction,

00:22:01.660 | fewer and fewer people can underwrite it and so, I think

00:22:04.700 | that if you are a CEO of a public company, you have to

00:22:07.340 | think about how many headwinds do I have and how many tailwinds

00:22:10.300 | do I have all the time and some of them are in your control and

00:22:13.180 | some of them are not at least in the case of meta as with

00:22:19.420 | Apple and Google, they meta is forced to copy the best

00:22:25.500 | decisions of these bigger companies. Why? Because they

00:22:28.700 | were one of those biggest. Now, they may have been the

00:22:31.100 | smallest of the biggest but it's going to be very hard for

00:22:34.620 | meta eventually to not converge on those same set of decisions

00:22:38.780 | and the most important one is what Brad just alluded to which

00:22:42.540 | is that there was a point in 2016 and 2017 where you

00:22:45.900 | literally could not give away Apple stock and the big turn of

00:22:49.900 | the dial and you know, some say it was Carl Icahn. Who knows

00:22:53.660 | was this theoretically this famous dinner that Carl Icahn

00:22:56.940 | had with Tim Cook where he laid out a plan and it's like

00:23:00.140 | listen, you need to start managing costs better managing

00:23:04.060 | OPEX better return a ton of cash buy back the stock and

00:23:08.940 | you'll be a darling and Tim Cook was rewarded and he's

00:23:13.340 | been rewarded with an incredibly performant company

00:23:16.540 | and so you know, Google is slowly inching towards that

00:23:19.660 | plan. Microsoft is in that plan and so the only big four

00:23:24.140 | horsemen that hasn't really gotten the script yet is meta

00:23:27.340 | but they will. It's just we're just debating when and so

00:23:31.500 | there's a perception that you know, meta will copy what the

00:23:36.620 | rest of these big guys do but these other long tail

00:23:40.380 | companies, the headwinds are just greater and so when you

00:23:44.540 | you know, don't have a company that can be broadly owned by

00:23:47.980 | intelligent, thoughtful investors. That's a headwind

00:23:51.660 | right when you give nobody votes, that's a headwind and so

00:23:55.660 | that's why you see a company that's continuing to grow

00:23:59.020 | impact not being able to translate that into economics

00:24:03.260 | and if I were the board of that company, that should be a

00:24:05.820 | wake up call because eventually that'll flow into the morale of

00:24:08.620 | the employees and the ability to retain and then the ability

00:24:11.660 | to invest in the future and I think the simple answer is

00:24:15.500 | enough with all these, you know, gymnastics around control.

00:24:19.660 | You know, if you looked at Elon, the most incredible thing

00:24:22.620 | from day one was there's common stock, you know, and his whole

00:24:27.180 | thing was like, I'm just going to do the best and you know

00:24:29.740 | what? If I'm not the best, I'm going to be out. He's literally

00:24:32.540 | said, he has never ever vote me out. He's never ever played

00:24:36.860 | these games. So in this funny way, control is a symbol of a

00:24:41.180 | lack of ability to run the business. Masterful mastery of

00:24:45.420 | a business. You can translate that to being I'm just going to

00:24:47.740 | have common stock. Well, I mean, if you think about historical

00:24:51.020 | argument, by the way, I'm tracking back to the high

00:24:54.700 | voting class for founders was that they would be challenged by

00:24:58.860 | the investors in the market and you can see the things that

00:25:01.180 | Carl Icahn and others asked for. They say, we want to see

00:25:04.220 | you cut opex. We want to see you pay dividends. We want to

00:25:07.180 | see you buy back stock and we want to see you grow. And so

00:25:11.260 | the trade off then in the mind of a founder that that that

00:25:15.180 | started this business and scaled it to billions in revenue is

00:25:17.980 | well, that means I've got to make short term decisions over

00:25:21.020 | long term decisions. I've got to make the I got to give up

00:25:23.420 | some of my long term opportunities to trade for my

00:25:25.740 | short term opportunity. That's the that was the argument I

00:25:27.740 | think originally for the voting class and you can read this in

00:25:30.460 | Google's founders letter as well. Does that not apply

00:25:33.740 | anymore? Founders at Google don't even show up at the

00:25:36.940 | company. Why do they have to have super voting control? They

00:25:40.620 | don't probably even know what's going on inside the company. It

00:25:43.820 | might have been argument like so. No, no, I just I just want

00:25:47.420 | to hit on Zuck's point because Zuck has said, look, you know,

00:25:50.540 | this this VR AR metaverse stuff in the future is everything.

00:25:54.940 | This is where I want to invest our resources. It's a little

00:25:57.260 | bit of time. But look what happened. They they made a

00:26:00.220 | missive. They said, we're going in this direction. Investors,

00:26:03.340 | really smart, thoughtful, supportive investors, including

00:26:05.660 | Brad were like, uh, hold on. We're check your check your

00:26:08.700 | role and they capitulated. Now, to your point, did super voting

00:26:12.860 | control come into play there? No, of course, he could have

00:26:15.740 | said, you know what guys, pound sand, I'm going to do what I

00:26:18.060 | want. Instead, he's like, I'm a smart guy. These guys are smart

00:26:21.340 | guys. So I'm going to make the smart decision. So in my

00:26:23.820 | opinion, all of these things are red herrings. These are

00:26:26.060 | indirections, right? So this idea of I'm just going to take

00:26:29.020 | my toys out of the sandbox like a crying baby is what super

00:26:32.540 | voting control means to me as a shareholder. Brad, I think the

00:26:35.980 | era of super voting control for founders taking companies

00:26:39.020 | public is over. Nope. Should it be? You know, I think it's

00:26:44.540 | again, when Facebook was doing really great and Snapchat was

00:26:49.020 | doing great, nobody complained about super voting stock. Okay.

00:26:53.260 | So I think that, you know, my preference would be that I

00:26:58.300 | partner with a company where I know the founder, whether

00:27:01.660 | irrespective of their votes, right, listens, cares, and has

00:27:06.620 | the mental flexibility to make course corrections. Right. And

00:27:11.020 | the reality what I'm trying to point to, we have lived through

00:27:14.300 | a decade of excess. Everybody knows all these companies could

00:27:19.020 | do exactly the same revenue. David, this is the pushback to

00:27:22.860 | your point, unlike what the Google argument was exactly the

00:27:26.220 | same revenue with vastly less investment in terms of people,

00:27:31.180 | etc. Right. A 20% riff at meta would literally only take them

00:27:38.060 | back to where their personnel expense was in 2021. Yeah,

00:27:42.780 | nobody argued in 2021. And they said they were going to do this

00:27:47.020 | too, Brad, right and just hasn't happened yet. This is this is

00:27:50.060 | part of the problem, Jay Cal. Everybody. So why 10%? Why 10%?

00:27:55.900 | You've doubled the number of people working in the business

00:27:58.460 | over the last few years. Right? There's nothing magical about

00:28:01.660 | 10%. The real question is, what is the optimal number of

00:28:05.100 | employees to produce the best outcome for our customers and

00:28:08.380 | our advertisers? And what Bill Gurley has pounded on, and

00:28:11.740 | we've all talked a lot about, there has been in a zero cost of

00:28:16.460 | capital world, a unilateral march to more, more of

00:28:21.100 | everything, invest in everything, hire more people,

00:28:23.900 | Silicon Valley would do itself a favor. These big companies

00:28:28.300 | vacuumed up every single engineer in Silicon Valley, they

00:28:31.420 | ought to return that pool to the startups that are actually

00:28:34.140 | inventing the future. They don't need this money employees. I

00:28:37.260 | mean, last night, I read a report came across Bloomberg

00:28:40.380 | that the Elon's talking about 75% reduction at Twitter. Yeah,

00:28:45.580 | so that would leave Twitter just to give people some context

00:28:47.660 | here that was that originated in the Washington Post that would

00:28:50.460 | take them from around 7500 workers to maybe 2000 1800. So

00:28:55.340 | he's starting from first principles, how many people do I

00:28:59.100 | need to build the next generation of Twitter? That's

00:29:03.340 | the question. Start with a blank sheet of paper and ask that

00:29:06.620 | question, you'll come up with very different answers.

00:29:08.460 | Back to the governance question, I think that you can correlate

00:29:14.460 | these kinds of governance overreaches with zero interest

00:29:19.100 | rates. That dog doesn't hunt when rates are at four or 5%. I

00:29:22.940 | don't care who you think you are. But when you try to go

00:29:25.980 | public in over the next four or five years, if rates are

00:29:29.020 | sustained, you know, three, four or 5%, that will be the check

00:29:34.140 | on all of these people's overreach because you will have,

00:29:37.420 | you know, liquid alternatives that on a risk adjusted basis

00:29:41.180 | seem better. And when rates are zero, and everybody was forced

00:29:45.740 | to own tech, we all gave up our standards, we all stopped

00:29:49.900 | saying, you know, oh, you know, the things that we used to think

00:29:52.460 | were important before, like one person, one vote, you know, a

00:29:57.100 | check between the board and the CEO, a check between the

00:30:01.660 | executives and the shareholders, they'd all went out the window,

00:30:05.580 | no discipline, no hygiene, right? Because when interest

00:30:08.220 | rates are at 0%, you have to remember, right? How does how

00:30:11.900 | does the the structural basics of of the financial markets work?

00:30:16.380 | It is meant to make money on behalf of every single entity

00:30:22.220 | and person and thing in the world from a pension fund to a

00:30:24.780 | university to a research lab to a government to an individual.

00:30:28.140 | But in that ability to make money, when we took interest

00:30:32.860 | rates to zero, 40% of what we all used to own bonds yielded

00:30:39.180 | nothing. And so we just completely whipsaw to the other

00:30:43.500 | side and said, we need to own anything that grows. So tech got

00:30:47.260 | a disproportionate amount of attention. But in that we lost

00:30:50.700 | our standards. And we are now going to go through the hangover

00:30:54.300 | of dealing with it. And so, you know, snap will be an example of

00:30:57.500 | where investors are going to abandon that company. Because

00:31:02.620 | because it's just there's no point. There's no governance,

00:31:06.300 | there's no ability to have a conversation. It's in the too

00:31:09.500 | hard bucket. So people will just leave it, it'll be stranded,

00:31:13.740 | and it'll be a refugee in the public markets. I think meta

00:31:17.260 | will be fine eventually, because I think that they will revert to

00:31:19.820 | the mean. And the mean is Microsoft, Google and Apple. And

00:31:22.540 | we already know what that playbook looks like. So I think

00:31:25.580 | what Brad predicts is more likely than unlikely. And I

00:31:29.100 | think in the future, to David Friedberg's point, I think it

00:31:32.460 | will be very hard to justify these things. You know, bankers

00:31:35.500 | will be able to push back, because the buy side, ultimately

00:31:38.780 | guys like us who have to buy the stock when these things go

00:31:41.100 | public will say, Nope, you want to have these, you want to have

00:31:45.100 | these dumb governance games? Nope, not for me. I'll just go

00:31:47.660 | buy something else. I'll go buy more Tesla, where it's one

00:31:50.540 | person, one vote. Why, you know, so it's hard when the best CEO

00:31:56.220 | in the world is like, judge me, keep me fire me on an equal

00:32:02.060 | basis. And everybody else is like, I'm smarter than this guy.

00:32:05.020 | And so you know what, let me make sure that whenever I feel

00:32:07.660 | like it, I can throw a temper tantrum and take my toys out of

00:32:09.980 | the sandbox. And let's use there's an analogy here doesn't

00:32:12.620 | work. Look at look at Steve Jobs ousted from his own company.

00:32:16.620 | Company made a huge mistake asking him. Some people argue

00:32:18.940 | it was a learning experience for Steve to get better at his

00:32:21.820 | job, he comes back, and he absolutely turns the company

00:32:24.460 | around. So there's an example. Thus far, you've proven that the

00:32:27.980 | two most impactful and important CEOs of the last 50 years had

00:32:31.820 | the courage to basically say, let my performance do the

00:32:34.940 | talking, not my protective nanny control.

00:32:38.700 | Correct. And Steve's performance was light in that

00:32:41.260 | first period, he had some problems, and he learned, and he

00:32:44.540 | still won. But this is what the greats do the greats know how to

00:32:47.820 | perform not, you know, use some no trade clause to make sure

00:32:51.820 | that you can just sit there and underperform forever.

00:32:54.620 | Do we think Brad, when we get to the sort of macro look at

00:32:57.740 | this, let's assume we're in this four or five or three, four or

00:33:00.860 | 5% interest rate for some extended period of time, let's

00:33:04.940 | call it a decade. What does the tech industry look like?

00:33:07.820 | Because it does seem if Elon does with Twitter, what seems to

00:33:12.300 | have been leaked here correctly, according to our reports. And

00:33:16.860 | there's a 20% riff at Facebook, and we start to see people take

00:33:20.940 | the medicine. Is that the ultimate setup for now? Hey,

00:33:24.220 | these companies are being run to throw off cash. And we have

00:33:28.460 | some way out of this, what people think is going to be a

00:33:31.500 | very hard landing?

00:33:32.220 | Well, I mean, you know, first, just let's talk about, you know,

00:33:36.300 | where rates are, you know, today, you know, we're at four,

00:33:39.900 | three on the on the 10 year, I mean, technology's performed

00:33:43.660 | incredibly well for a long period of time with rates in

00:33:45.980 | this, in this range. So the adjustment period is very

00:33:51.420 | difficult. Right. And so when you when you look at the

00:33:54.540 | convexity, and going from zero percent interest rates to four

00:33:57.980 | and a half, like that has been a shock to the system, it has

00:34:01.500 | been destabilizing to multiples, multiples were basically

00:34:05.260 | infinite last year. And now multiples have come back to

00:34:08.540 | reality. And so I don't question in fact, I actually think free

00:34:14.300 | capital was a weapon of economic destruction. Right free

00:34:18.460 | capital hurt good companies from being great companies. They

00:34:22.140 | hired too many people, their margins were too low, you know,

00:34:25.580 | SoftBank funding, all of these rideshare companies around the

00:34:28.380 | world to compete with Uber meant that Uber, even though they're a

00:34:31.100 | market leader, did not have market leadership economics. And

00:34:35.180 | so the ringing out of the system of that excess that grift, that

00:34:40.540 | stupidity, that's going to be good for the fundamentals of

00:34:43.900 | these business, but the transition from, you know, that

00:34:47.180 | low rate environment to the high rate of our it's dislocating

00:34:49.900 | for investors, it's dislocating for management at these

00:34:53.260 | companies, and it's going to be dislocated. This is not, you

00:34:55.980 | know, a six month phenomenon, we're going to have two years of

00:34:59.820 | ringing out, right? Because there's no bailout here by the

00:35:03.100 | Fed, there's no v shape recovery for these companies, this is now

00:35:06.940 | going to be I heard somebody say this week, if the last 10

00:35:09.900 | years was about beta, the next 10 years is about alpha, not all

00:35:15.340 | companies are going to do well, not all companies are going to

00:35:18.220 | bounce back. This is going to be about what companies have the

00:35:21.820 | courage to build great products and to drive a great business

00:35:26.300 | model that allows them to compete and continue to invest

00:35:30.300 | at high rates in the next wave of innovation, whether it's AI,

00:35:33.660 | etc. And so, you know, to me, the markets J Cal have largely

00:35:40.300 | put in a box at this point, inflation and rates, right rates

00:35:45.100 | have come up 65%. And, you know, from 2.7 to four, three in the

00:35:49.500 | last 60 days, and the markets basically sideways, it's down

00:35:52.860 | five to 10%. Rates are up another 10% in the last two

00:35:56.300 | weeks, and Google and Apple are up. That tells me that the

00:36:00.140 | market's gotten, you know, gotten its arms around rates and

00:36:03.980 | inflation, what the market really is worried about now are

00:36:06.620 | two things. Number one is earnings. And number two is the

00:36:10.220 | long tail of risk. On earnings, there's kind of a conventional

00:36:14.460 | wisdom emerging from from many folks that 3200 is the bottom or

00:36:20.140 | maybe 2700 the bottom that we're going to go from 225 and in S&P

00:36:25.420 | earnings back to 200. That seems to me to be, you know, again, a

00:36:31.100 | lot of people making that bet. I don't see any evidence in Q3

00:36:34.620 | earnings, United Healthcare, United Airlines, Schlumberger,

00:36:39.580 | Tesla, etc. Their earnings are up on a year over year basis.

00:36:43.740 | They've guided now to Q4, their earnings are going to be up on

00:36:46.620 | a year over year basis. And the consensus expectations in Q1

00:36:50.860 | are that earnings are going to be up on a year over year basis

00:36:53.500 | to go from 225 down to 200. It can't just be a slowing of the

00:36:59.100 | rate of growth of earnings, you have to reverse course entirely.

00:37:02.460 | So we have to see something we're not seeing yet. So on an

00:37:05.180 | earnings growth, that's where the market, there's some tension

00:37:07.580 | in the market. Then finally, what I would say is there are a

00:37:10.300 | lot of big brains in the world who look at this level of

00:37:13.100 | dislocation, rates going on the two year or on the front end of

00:37:16.860 | the curve from zero to four and a half. And Druckenmiller or

00:37:20.700 | Soros would say negative reflexivity. Shit breaks when

00:37:24.940 | you have this much volatility in the world. The world is not

00:37:28.060 | equipped to deal with these exponential moves. And so

00:37:31.100 | there's a lot of concern in the world, whether it's about

00:37:33.420 | Ukraine, Taiwan, UK bonds, the Japanese yen, nobody knows what

00:37:39.820 | it will be. But they're just saying demand a higher margin

00:37:43.420 | of safety because the propensity, the likelihood that

00:37:46.780 | shit breaks when you have this much dislocation is higher. So

00:37:49.900 | the proverbial black swan could come any minute and could cause

00:37:54.460 | another downdraft. But last year, we were all sitting here

00:37:58.140 | and said asymmetry to the downside, multiples at all time

00:38:01.900 | high interest rates at all time low, we saw that starting to

00:38:05.420 | roll over, we saw smart people, Elon, Bezos, etc, start to sell

00:38:09.260 | into it. As I sit here today, yes, we're going to have harder

00:38:14.060 | times ahead economically, but it feels to me like a lot of it

00:38:16.940 | is priced in. I don't think we have huge asymmetry and skew to

00:38:20.860 | the downside. I think that's like fighting the last battle.

00:38:23.580 | It's not to say in this distribution of probabilities,

00:38:26.540 | one of those events can't occur. But from my vantage, when

00:38:29.820 | stocks, the average stock down 20%, stocks like Meta down 50

00:38:34.140 | to 60%, a lot of stocks down 70, 80, 90, that doesn't seem

00:38:38.620 | like the time to call the big short. That seems like a time to

00:38:42.540 | be like neutral to positive.

00:38:44.460 | Should we go to TV, PID, PII, and talk about the privates?

00:38:49.100 | Well, I just want to say one thing about your prior question,

00:38:51.500 | which kind of ties into some of what Brad said, but you you ask

00:38:58.140 | the question about does this mean that these companies are

00:39:00.140 | now going to kind of cut costs and start spitting out cash? I

00:39:02.860 | think there is certainly a market incentive to do that to

00:39:05.500 | keep share prices up. And the companies that can do that are

00:39:09.340 | certainly taking action with the headcount reduction across

00:39:13.580 | some of the big guys. What I think is going to be interesting

00:39:17.340 | and what a lot of people are watching is how many of the

00:39:19.980 | small and mid cap guys can actually do that. And those that

00:39:23.660 | can't, will it will become pretty evident pretty fast. And

00:39:27.660 | they're going to end up in the shitter.

00:39:29.420 | You're talking to a palatine or something like that?

00:39:33.020 | Doesn't matter across SAS, across consumer across DTC,

00:39:36.380 | across hardware, everyone is now saying, can you actually earn?

00:39:40.700 | And at this point, you should have enough scale that you

00:39:43.260 | should be able to earn. And if you cannot, the market will

00:39:45.980 | punish you for it. And that's certainly what seems to be the

00:39:48.860 | incentive and the pressure in the on the buy side to the

00:39:53.100 | executives across all these organizations today. So I think

00:39:55.740 | that's a big trend of what's happening right now, is

00:39:58.300 | everyone's going through their portfolio, spending time with

00:40:00.300 | management and asking, can you earn? Can you actually get this

00:40:04.060 | business to generate cash? What is the path? Show it to me,

00:40:07.420 | prove it to me in the quarterly results. And if you can't, then

00:40:10.380 | you're not fitting in a bucket that I can own you.

00:40:12.060 | The only irony there, Friedberg, is that that comes as a

00:40:16.700 | surprise. God forbid, we should actually expect companies to

00:40:20.860 | prove unit economics and to make profits.

00:40:23.980 | Yeah, but when you when your interest rate zero, you divide

00:40:26.140 | by zero, you get infinity. So you know, you were able to kind

00:40:28.380 | of explain everything away into the future. Now you actually

00:40:31.420 | have an interest rate at 5%. I got to be, you know, making a

00:40:35.500 | I'm not going to pay a lot more than 20 times earnings. And I

00:40:38.460 | want to see that that's really my earnings. You know, I want to

00:40:40.300 | see that you can actually earn

00:40:41.420 | there was a person at Brad's investor day, who Brad

00:40:45.020 | interviewed, and I won't say his name, but he's a star of

00:40:48.300 | stars. He's a bit of a goat. And he had, I'll just say the

00:40:52.300 | generalized version of what he said.

00:40:56.540 | And said the following, which is so true, it's like we've gone

00:40:59.900 | through an entire decade of under training an entire

00:41:04.620 | generation of people in Silicon Valley. You know, we have under

00:41:08.540 | under trained and under mentored the product managers, the

00:41:11.980 | engineers, the senior executive management, the CEOs, many of

00:41:16.060 | these people, unfortunately, are not. They don't have the

00:41:20.060 | skill set to execute at a high level at any point in the cycle,

00:41:24.060 | except when rates were zero, like many business models. And

00:41:27.740 | now that rates are not at zero, these people are turning out to

00:41:30.300 | be extremely underdeveloped and unable to run these businesses.

00:41:33.980 | And when he said that it really struck a chord because he's

00:41:38.380 | right. And you know, he was also saying it just got even more

00:41:42.140 | exacerbated in this era of remote work. Because now there

00:41:46.140 | is even less opportunity to mentor and to coach and to talk

00:41:49.100 | one on one. And people think, you know that this is a boon,

00:41:53.020 | and it's not. So, you know, we're going to deal with also

00:41:57.180 | the aftermath of an entire generation of highly underskilled

00:42:00.940 | companies. Because the executive and senior leadership and CEO

00:42:04.540 | ranks of many of these companies are not in a position to win.

00:42:07.500 | If I may, there was an interesting moment this week,

00:42:10.140 | when we talk about this discipline that has been lacking

00:42:12.460 | the last couple years, 101 million dollar funding led by

00:42:16.060 | KOTU, Lightspeed Venture Partners. At a $1 billion

00:42:21.500 | valuation for Stability AI. This is a for profit company

00:42:27.500 | built off the backs of the open source project, stable

00:42:31.500 | diffusion. They have no revenue, they have no product,

00:42:34.300 | they've been around for, you know, a millisecond. Any

00:42:38.300 | thoughts on this type of funding happening pre product

00:42:42.220 | pre revenue on an open source project?

00:42:44.460 | And there's still there's always gonna be, yeah, not my

00:42:48.940 | mind is going to be these, these asymmetric bets that

00:42:51.580 | people think if it works, it's worth 100x. And they'll price

00:42:54.780 | it as they price it. I think that I think what we were just

00:42:57.820 | talking about is a little different, which is how do

00:42:59.900 | public markets rationalize evaluation, these businesses

00:43:03.820 | need to start earning for the public investors to be able to

00:43:06.940 | represent to their investors, that they're doing their job and

00:43:10.460 | making sure that they're holding management accountable

00:43:12.300 | to demonstrating earnings potential. But these early stage

00:43:15.180 | bets, you can see valuations range depending on the

00:43:18.140 | asymmetric outcome potential of the and you know what the

00:43:20.780 | upper and you know what the upper bound is the upper bound

00:43:23.340 | is that when rates were zero, and governments were printing

00:43:26.460 | money more than they could get their hands on. The top five

00:43:29.740 | tech companies represented a quarter of the S&P 500. But

00:43:33.100 | there was a pretty steep fall off. And everybody else

00:43:36.380 | represented the next, you know, about 10% of the market cap. So

00:43:40.140 | the point is that we had bounded outcomes, when rates

00:43:43.740 | were zero, the average market cap of a successful company was

00:43:47.580 | around three or $4 billion. So I'm not going to judge this

00:43:52.140 | company at all. And those investors are very smart

00:43:54.460 | investors, Lightspeed and KOTU. What I will say is at the end

00:43:57.740 | of the day, there's a terminal buyer of these companies. And

00:44:00.780 | we had a period of time that we can look back on to understand

00:44:04.380 | that when the party is absolutely rip roaring, the

00:44:07.340 | alcohol is free, you know, everything, everything is going

00:44:10.940 | well. Yeah, we know what the upper bound is, which is the

00:44:14.220 | average company, if you were able to get out would be worth

00:44:16.940 | about three to $4 billion. And then there was a very, very

00:44:19.820 | steep dispersion, where then there was four companies that

00:44:22.540 | were, you know, a quarter of the market cap and a few in

00:44:24.940 | between. So if you do a deal at a billion, the overwhelming

00:44:29.580 | odds is that the terminal exit multiple is going to be

00:44:31.980 | somewhere between a 3x and a 4x x of dilution, and x of all of

00:44:36.300 | the other capital that comes in and all of those features that

00:44:39.340 | may be attached. So I think everybody should be allowed to

00:44:42.220 | make different kinds of bets. And you'll see over time, which

00:44:48.620 | kind of deal can generate which kind of return. And this will

00:44:53.740 | be a really interesting data point. The common thinking was

00:44:57.260 | these kind of deals were not going to happen in this kind of

00:45:01.820 | a market. So when you saw this kind of deal happen, or some

00:45:04.300 | other that we've talked about privately, what do you think is

00:45:07.100 | happening in terms of discipline? Private markets?

00:45:11.740 | I think I think I think maybe you should tee this up with

00:45:13.580 | Brad, because I think that what I have to say follows on, okay,

00:45:16.780 | with him, but there's a there's a there's a macro view of the

00:45:19.340 | venture industry, that again, it's like everybody wants to

00:45:22.860 | never look at the past. Everybody wants to assume that

00:45:25.900 | this time is different. And there's some work that he did,

00:45:29.500 | which is really instructive, J. Cal, to help answer this

00:45:32.460 | question, I think so. Yeah, maybe you should ask him and

00:45:34.140 | then I'll jump in afterwards. This is the TV, TV, pi study.

00:45:38.700 | Yeah. So I mean, Brad, in relation to my stable diffusion

00:45:41.660 | and DPI, maybe you can, you know, we shared this with our

00:45:46.140 | investors at our investor day that you guys are at this week,

00:45:49.260 | and there's a modern industry, it's only been around since the

00:45:51.500 | mid 90s. Right. So the history of venture, you know, is, you

00:45:57.740 | got to look at when you look at returns, it's to say, by the

00:46:02.060 | way, what an incredible chart you guys put, this is so good.

00:46:06.380 | Let's describe the chart for people who the truth hurts.

00:46:09.580 | So break down. Go ahead, J. Cal, do you want to just so if

00:46:14.300 | just for people who know we on Spotify, and on YouTube, you can

00:46:17.340 | search for all in episode 101. And you could see this chart if

00:46:22.300 | you're watching the video, if you're listening, the video

00:46:25.420 | describes 1997 to 2020. There's an orange line across it with

00:46:29.100 | the DPI average. So why don't you define DPI?

00:46:32.060 | So you know, what we did is we took the top quartile data from

00:46:35.020 | Cambridge Associates who invest in all across the entire

00:46:38.380 | venture industry is widely used as kind of industry data. And we

00:46:43.580 | just asked a simple question of the top quartile top 25% of

00:46:47.660 | venture capital firms, right? What were in those vintage years

00:46:52.460 | of the funds, so funds raised in 97 9899? What were the average

00:47:00.140 | cash on cash returns, right? TV pi is what your mark is, that's

00:47:04.780 | where you're carrying the marks total value to paid in capital.

00:47:08.860 | So this could be just so we're clear, because it's a little

00:47:11.420 | confusing to people, you have a company on your books that on

00:47:14.460 | paper is worth 10 billion, you had put in at a billion. And on

00:47:17.980 | paper, you've got this 10x return, right? Correct. Right.

00:47:21.020 | It's actually cash distributed to your investors. So that's

00:47:24.380 | cash on the barrel head. So the reason if you look on this

00:47:28.060 | chart, sorry, just just to build just to be very clear for

00:47:30.860 | everybody, the whole goal is to be able to convert your TV pi.

00:47:35.980 | So what your theoretical book is worth into DPI, which is here's

00:47:40.380 | money back to my investors. And what you want on this chart is

00:47:45.420 | the blue line to catch up to the gray line. So you want the gray

00:47:49.580 | line to be as high as possible. And eventually over time, you

00:47:52.140 | want the blue line to come up. Correct, right. So the blue line

00:47:57.500 | here, we're looking at 2010. Just for one example, you have a

00:48:01.100 | four x for the TV pi, you four x everybody's money, but the blue

00:48:05.660 | line only got up to it looks like 3.5 x maybe or something in

00:48:08.860 | that right. Let me just point out because that's an

00:48:10.780 | interesting year, Jason. Yeah, we were coming out of the 2008

00:48:14.380 | 2009 period, everybody was despondent. They said, I'm sure

00:48:19.260 | they said what you just said about stable diffusion, don't

00:48:21.820 | invest in anything, everybody's stupid, but they were incredible

00:48:24.860 | companies that were invested out of that vintage, right snowflake

00:48:28.460 | and Mongo out of our vintage shortly thereafter. So maintaining

00:48:32.860 | this duality that yes, the world sucks, but the secular curve of

00:48:37.260 | innovation continues. So that is a vintage where people actually

00:48:40.860 | got things sold, got them public distributed the cash back to

00:48:43.820 | investors. The real question is this, on the vintages between

00:48:49.580 | 2011 2012. And now how how much of those gray lines how much of

00:48:57.260 | those marks look, those are historical marks, marks have

00:49:01.340 | never been this high. How much of those marks will actually

00:49:05.660 | return turn into cash on the barrelhead? And how much of

00:49:09.100 | those will actually just be mean reversion, it'll all get marked

00:49:12.380 | down. And the returns at the top quartile will look much like the

00:49:15.900 | returns did in the period between 2000 and 2007. My hunch

00:49:20.780 | is that by the time the cash is actually distributed, the

00:49:24.620 | returns are going to revert to that orange line mean, which

00:49:29.500 | means there are hundreds of billions of dollars in markdown

00:49:33.420 | sitting in LPS and GPS portfolios that are likely to

00:49:38.460 | come because nobody really thinks that the deals done in

00:49:42.140 | 1516 1718 are going to be that far above the mean return. And

00:49:47.020 | so people also understand this, these are vintage years. So

00:49:49.980 | these are funds formed in that year. And so this trails a

00:49:53.740 | venture fund takes about 10 years, they're formed without

00:49:56.860 | concept in mind to become realized. So if you're looking

00:49:59.500 | at you know, the year 2016 and 17. These are but five year old

00:50:04.220 | funds at this point, right? Correct. Yeah. So they do need

00:50:08.620 | time for these companies to grow. How much of this trim off

00:50:12.220 | and free bird do you think is attributable to entry price?

00:50:16.140 | Because entry price during 2017 18 1920 is going to be

00:50:20.140 | extraordinarily high entry price, ie the value of the

00:50:23.980 | company when investors invested in 28 2008 to 2011. When I had a

00:50:29.020 | lot of my heads was pretty low. I invested in Uber, thumbtack.

00:50:33.900 | And you invest in Uber calm. Those three were $15 million

00:50:38.940 | combined. three valuations. Yeah, you you invest in Uber?

00:50:42.540 | I yeah, maybe third or fourth investor. I can't remember.

00:50:44.620 | I did get in there. I got in there slightly before you did

00:50:49.740 | like maybe you should you should write a book on angel

00:50:52.540 | invest. I should translate. You should call it angel. You

00:50:55.660 | should call it a very good. But let's talk about entry price

00:50:59.100 | because entry price does matter Brad, or maybe Chamath you want

00:51:01.740 | to take entry price or free bird. Well, look, there's this.

00:51:04.940 | I think I think what that set up is that's probably a chart

00:51:09.020 | that most VC organizations don't even look at because if you

00:51:13.100 | looked at that chart, you'd have to take a real investing

00:51:17.660 | approach to things. So if you were looking at that chart as a

00:51:21.820 | GP, there are two takeaways. The first takeaway is, oh my

00:51:27.580 | gosh. What is the sum of the invested dollars above this

00:51:32.780 | orange line since 2012 2011 right because all of that stuff

00:51:39.740 | could just basically get whacked if we mean revert and the

00:51:43.740 | answer is about five or $600 billion of paid in capital. So

00:51:49.020 | then you would say, oh my gosh. Well, if there's five or $600

00:51:51.980 | billion of impairment coming down the pipe, maybe more maybe

00:51:56.300 | it's going to be $750 million because the other thing to keep

00:51:59.020 | in mind is over time. The the orange line has a tendency to

00:52:04.780 | go down, not up right because as you add more and more of

00:52:07.420 | these things and some slight performers, you have a general

00:52:10.220 | decay function in every asset class as it scales in size. So

00:52:13.980 | this this orange line theoretically goes down, which

00:52:16.380 | means more of those great bars get destroyed. Okay. So there's

00:52:20.060 | let's just call it $600 billion or $700 billion. The most

00:52:24.300 | important thing you would want to do is now look inside your

00:52:26.540 | portfolio and try to answer the question. Oh, how likely am I

00:52:32.620 | to see that impairment and Jason, this is a proxy of

00:52:35.260 | answering your question. The important question for a

00:52:37.740 | venture fund, which then has a downstream implication to the

00:52:40.620 | to the entrepreneur is now what do I do knowing that all of

00:52:43.820 | these gray bars could get destroyed and Nick go to the

00:52:46.300 | next chart. Well, I calculated it for you guys. So I'll give

00:52:49.420 | you the answer. Here's a simple thing and you know this is

00:52:53.340 | publicly available data. Now, why did I do this? Because when

00:52:57.100 | Brad showed me that chart, my immediate mind went to how do I

00:53:01.980 | make sure I'm not susceptible to losing a ton of money? Well,

00:53:06.460 | what happens in markets is that when things go down, the things

00:53:09.900 | that are highly correlated go down the most because they are

00:53:13.100 | the things that are the most highly trafficked, which means

00:53:15.820 | that they are the things that have the most investors, which

00:53:18.540 | means that in an up market, they have the propensity to have

00:53:21.020 | the highest prices. So we put we you know pulled all this data

00:53:25.820 | from pitch book and we just started to I just took a

00:53:27.900 | smattering of firms here and recent index, Greylock

00:53:30.940 | Benchmark, Sequoia, GC, Founders Fund, Tiger, Excel,

00:53:34.220 | Kleiner, Kostler, and us. You could pick anybody because this

00:53:37.180 | data is publicly available and I started to calculate the

00:53:41.420 | overlap coefficient. So how how correlated are you with other

00:53:45.100 | people's portfolios trying to estimate at the upper bound and

00:53:49.340 | at the lower bound, what will happen? So Jason, this is a a

00:53:53.420 | proxy of answering your question. What about entry

00:53:56.060 | price? Well, if you have a very low correlation, which touch

00:53:59.500 | would we have, you're less you're less exposed to bad

00:54:06.220 | entry price because it wouldn't have been a bidding war to get

00:54:08.860 | into these companies. Exactly. You picked your right spot. You

00:54:11.660 | you went into areas that were earlier so you were able to risk

00:54:14.860 | manage a little bit better but if you have a highly correlated

00:54:17.740 | portfolio, now your marks become very susceptible. So, my guess

00:54:22.380 | is if you take the $700 billion and you calculate it for all the

00:54:26.460 | VCs and you look at their correlations and their overlaps,

00:54:30.300 | you can probably guesstimate where that $700 billion of

00:54:33.820 | impairment will come to and you can you can lay it out across

00:54:37.740 | any organization that you're interested in trying to find a

00:54:39.980 | solution for by just stack ranking them and by looking at

00:54:43.260 | the at the at these correlations and this is by the way to be

00:54:45.980 | clear. Nothing about the quality of the organization or the

00:54:49.420 | people but this is just simple portfolio mathematics and how

00:54:52.220 | portfolios tend to play itself out in moments like this. Well,

00:54:55.500 | and there's some interesting data in here as well. I I

00:54:58.220 | Freiburg, you probably are aware of where some fund like let's

00:55:02.300 | say Founders Fund and Kosla have a close relationship because

00:55:05.660 | Keith Ruboy was at Kosa and then he moved to Founders Fund. So,

00:55:08.220 | you see that nice dark purple there where they have a high

00:55:10.700 | correlation investments. Interestingly, index seems to

00:55:13.980 | just follow benchmark and Bill Gurley's investments and plow

00:55:16.860 | into the that seems to be the highest correlation. But see,

00:55:18.940 | here's the thing. If you had to steel man the defense of that

00:55:21.820 | strategy, Jason, I would say in an upmarket, benchmark is a

00:55:25.500 | $500 million fund where I get no allocation. If I was a smart

00:55:28.860 | LP and I did this work, I'd be immediately knocking on index's

00:55:32.460 | door saying, can I put money in you? Because in the back of my

00:55:34.780 | mind, it's basically getting leverage on benchmark's

00:55:37.580 | portfolio. Yeah, you figured out how to follow them. Yeah.

00:55:40.300 | Yeah. But when the cycle reverts, you know, you're not

00:55:45.580 | the only one that wants to copy benchmarks portfolio. Everybody

00:55:48.300 | does. And if these correlations are too high and the overlaps

00:55:51.980 | are too high, then you start to get into a cycle where you put

00:55:55.820 | yourself in a position to actually suffer from the market

00:55:59.020 | beta much more. Yeah. Even when you can benefit from the market

00:56:02.220 | beta and up cycle. Freiburg, you want to analyze this chart

00:56:05.660 | and Chamath's thinking here his theory? I don't know. I mean, I

00:56:12.300 | just think this has become a pretty competitive market and a

00:56:16.460 | lot of the value has been competed away. Well, I mean, I

00:56:21.660 | think for a layperson, please. Yeah, the long term value

00:56:26.060 | creation of technology of new technology is going to remain

00:56:31.020 | high. The market's going to pay for that. So you know, new

00:56:34.940 | market value creation, new market cap is going to continue

00:56:38.620 | to be built every year. What's happening when venture has a low

00:56:44.300 | multiple is that number one, the good companies end up the

00:56:50.700 | founders end up owning more of the company. And they end up,

00:56:54.940 | you know, having a higher percentage ownership when the

00:56:57.020 | company ultimately gets sold or goes public, because they were

00:57:00.380 | able to get VCs to compete against one another. And as a

00:57:03.900 | result, pay a higher valuation and as a result, buy less of the

00:57:07.500 | company. And then number two is that because the VCs that

00:57:11.740 | couldn't get into that company still had a bunch of money to

00:57:14.140 | manage, they went and put money into crappy companies. So you

00:57:17.500 | know, it's a lucrative business. You guys, everyone's in that

00:57:21.260 | business because it's a lucrative business. And that

00:57:23.500 | certainly it takes a decade to realize whether or not you're

00:57:27.580 | good at it. So you know, you have this period of time as Brad

00:57:31.180 | shows that maybe a decade before the LP market learns who is and

00:57:35.100 | who isn't bad. And meanwhile, those folks who got competed out

00:57:39.100 | of the good deals, you know, they don't look very good. And

00:57:41.820 | the folks that are left in the good deals own less of the

00:57:43.900 | company, and their returns get diminished. And, you know, I

00:57:47.660 | think ultimately, this market is probably going to end up being

00:57:50.620 | a multi decade cycle of capital in and capital out, we're

00:57:53.900 | probably at peak capital being managed in venture funds right

00:57:56.860 | now, and will likely decline for the next decade.

00:57:59.740 | Brad, how would you Brad, how would LPS look at Chamath

00:58:03.340 | analysis there? And how do they look at the clubby nature and

00:58:06.380 | overlap, you know, writ large in our industry, and then whatever

00:58:10.300 | other insights you have?

00:58:11.420 | Yeah, no, I mean, I think I very much disagree with David,

00:58:15.900 | that all the returns are getting competed away. The huge

00:58:19.500 | difference between the venture market and the private equity

00:58:22.380 | market or the public market is that the venture market is

00:58:26.140 | unquestionably a power law market. Okay, 90% of the gross

00:58:30.700 | profits and the returns go to 10% of the deals and 10% of the

00:58:34.460 | investors, right. So we just show the average of the top

00:58:37.740 | quartile. But if we show benchmark one or two or

00:58:41.020 | benchmark six or seven, it's ridiculous, right? The cash on

00:58:44.860 | cash returns over 20x on those funds.

00:58:49.180 | Let's just pause and explain that to folks. Most venture

00:58:52.780 | firms here are getting two x on average, that's the average. And

00:58:55.500 | is that average for the top quartile or all VC firms?

00:58:58.540 | It's the top quartile of VC firms, their average is two x.

00:59:02.780 | Yeah, this is an upper 20 to 25%. So if you were to include

00:59:06.940 | the 75 bottom, what would the trash?

00:59:09.740 | Brad, let me ask you a question. What if instead of looking at

00:59:12.060 | the top quartile, you just looked at the top 10 venture

00:59:15.580 | firms? Yeah, because the number of venture firms has exploded

00:59:18.940 | over the last decade and a half. But so but I think the point

00:59:22.460 | that you're not getting is the top 10 changes every vintage.

00:59:25.500 | And the problem is, if you are aping the wrong portfolio in

00:59:29.500 | that vintage, you'll get run over. Right. And so the real

00:59:32.540 | goal of this, and I also tend to disagree, freebrook with what

00:59:37.100 | you say, I don't think the returns are getting competed

00:59:39.500 | away. I actually think it's more alpha than ever. Correct. And

00:59:43.100 | you got to be a good picker. And if you're a momentum

00:59:45.980 | investor, you just need to be aware on the way in that you are

00:59:49.980 | going to put your portfolio under tremendous pressure in

00:59:54.060 | drawdowns. I think the other thing, the other thing it does.

00:59:56.940 | This idea of the industrialization of venture, the

01:00:01.100 | soft banks, the tigers, like, like, it's a myth. You can't

01:00:04.780 | industrialize that you can industry, you can build an

01:00:07.100 | index fund to the public market, because you can buy every

01:00:09.740 | company, you might even be able to build an index like fund in

01:00:13.340 | private equity, because everybody can go bid for every

01:00:15.580 | company. But in venture, the founder chooses you. That early

01:00:20.780 | GP chooses you. And so if you try to build an index fund, that

01:00:26.460 | misses the best deals, and I think there's adverse selection,

01:00:29.980 | the bigger you get, the less likely you're to convert the

01:00:32.860 | best deals. Now you're really in trouble. Brad, do you think an

01:00:36.380 | index of first time VCs outperforms kind of that, you

01:00:42.700 | know, top quartile index? So you know, there's some LPs that

01:00:46.780 | select into just solo GP, first time fund manager, first time

01:00:51.420 | fund, or, you know, maybe second time, but solo GP, but it's kind

01:00:54.540 | of like, you know, first into the market before you really

01:00:56.860 | scale up. That's where so many of the returns are found. A lot

01:01:00.220 | of funds like MIT, they look for emerging managers, because

01:01:04.940 | you're, you tend to be younger, hungrier, you have experience,

01:01:08.780 | you've got a lot on the line. But certainly, if you look at

01:01:12.140 | the hundreds of startups in VC land over the course of the

01:01:16.780 | last several years, 99% of them are probably garbage and will

01:01:21.180 | fail and won't work. So the all stars will be all stars and the

01:01:25.820 | rest won't. Somebody asked me, I use this analog. They said

01:01:29.580 | hundreds of new people have come into venture. And I said,

01:01:31.660 | yeah, it's like, it's kind of like a marathon. You're right.

01:01:33.900 | We had 500 runners, and now we have 1000 runners. But from my

01:01:39.180 | vantage, it's the same five to 10 runners competing for the

01:01:43.020 | podium week in and week out. In that top 10 in that power law,

01:01:48.220 | it doesn't change a lot. Yes, there have been people break in.

01:01:52.540 | We know how hard it is to break in to Silicon Valley. Nobody

01:01:57.340 | invited altimeter to the dance. Nobody invited social capital to

01:02:01.260 | the dance. Nobody invited Jason Calacanis to the dance. It was

01:02:04.940 | the opposite. They lock the doors that they were like,

01:02:08.860 | trust me, because it's a highly lucrative business, dominated by

01:02:13.980 | some incumbents that had huge brands, they didn't want to

01:02:16.780 | share the fruits of that we showed up, we worked hard, we

01:02:20.460 | build incredible teams. We had conviction, right? And we were

01:02:24.860 | we also had good fortune, right? Yes, we were smart. We were we

01:02:28.940 | play some good bets. But you also have to get lucky in this

01:02:31.820 | business. We were lucky to be born at this point in time

01:02:34.860 | lucky to start when we did in Silicon Valley. I'm going to

01:02:37.580 | finish just with this one point. This whole experiment of

01:02:40.540 | venture capital is less than 30 years old. The modern age of

01:02:43.180 | venture capital is 30 less than 30 years old. We're going

01:02:46.300 | through this period where everybody wants to shit all

01:02:48.460 | over the industry, you know, TVP is going to come down all

01:02:51.260 | this other stuff. I think that venture my dad when he went to

01:02:54.780 | start a business had to borrow money mortgage the house. Think

01:02:58.060 | about the friction for somebody with a young family. If the

01:03:02.700 | cost of failure was losing your house, putting your family in

01:03:06.060 | harm's way, versus some young startup in Silicon Valley today,

01:03:10.620 | where the consequence of failure, particularly if you if

01:03:13.260 | you conduct yourself with integrity is that you learn a

01:03:16.060 | lot. Right? There's no losing a house. There's no cataclysmic

01:03:21.020 | outcome for your family. So to me, when you look at the

01:03:24.780 | economic unlock that we have in this country, by reducing

01:03:28.940 | friction to invention by reducing friction to

01:03:31.980 | experimentation, I am incredibly bullish on the future of

01:03:36.380 | venture. I think founders are the engine that drives the

01:03:40.620 | world forward. Right? That's where we get electric cars.

01:03:44.060 | That's where we get rockets that land themselves. That's

01:03:46.380 | where we get mRNA vaccines. And so there will be cyclicality.

01:03:51.500 | There will be industrialization, there will be big

01:03:54.940 | funds and small funds. But the reality is that this ecosystem

01:03:59.260 | is a massive competitive advantage for this country. I

01:04:02.380 | think when we look forward at the information age over the

01:04:04.700 | next 30 years, the power of this ecosystem is more strategic

01:04:08.940 | advantage to this country, even the natural resources.

01:04:12.220 | I'll say I'll say something orthogonal to this, which is in

01:04:15.020 | order for that to happen. Just to build on the point, Brad, of

01:04:19.100 | your guests that you're saying, we have an entire generation of

01:04:23.180 | financially, innumerate general partners, adventure firms,

01:04:29.340 | and venture needs to be a pillar of growth in society. And I

01:04:34.620 | think people need to have more financial tools and

01:04:37.500 | underpinnings to do their job. Why? Because over these next 10

01:04:40.940 | years, when maybe you have 500 to three quarters of a trillion

01:04:44.300 | dollars of value destruction, and it's because you didn't

01:04:47.740 | think about portfolio construction properly, that

01:04:50.620 | entrepreneur that needs your money, you will have to say no

01:04:53.180 | to them, or renege on a deal, or let them down. And the reason

01:04:58.860 | is that you didn't think about that on the way in. And so these

01:05:02.940 | are practical skills that every other part of the financial

01:05:08.140 | asset infrastructure has to learn, we are taught the hard

01:05:11.980 | way. You know, we are taught in the public markets how to think

01:05:14.940 | about dispersion, correlation, alpha, beta, you're taught in

01:05:18.540 | private equity, how to do it, you're taught in every other

01:05:21.100 | asset class, and we romanticize venture to think that none of

01:05:25.260 | that matters. But in a moment like this, you will see how much

01:05:29.020 | or how much it doesn't matter. And if you're going to live up

01:05:31.660 | to the to the actual commitment you make to an entrepreneur, you

01:05:35.180 | better get financially smarter is what I would say.

01:05:37.260 | All right, let's move on. Do you want to go to stock picking

01:05:42.460 | or lift versus Newsom on this prop 30?

01:05:45.180 | I want to hear that free bird diatribe on stock picking.

01:05:47.740 | You do? Okay, I want to hear it. Well, anyway, there's a

01:05:50.620 | bunch of people talking about index funds versus buying

01:05:55.980 | individual shares and being a stock picker. Elon and Kathy

01:05:59.260 | would got into this on Twitter. And we all know the arguments

01:06:03.500 | for passive versus active. And there's large active funds out

01:06:08.300 | there that are just programmatically buying and Elon

01:06:12.380 | and many think that active would be better for society or a bit

01:06:16.620 | more active. freebird. What's your take?

01:06:18.620 | A business is a over time, supposed to be a machine that

01:06:24.940 | takes money in and puts money out. And then there's money left

01:06:29.260 | in the machine. It's like a box money comes in money goes out.

01:06:31.660 | And over time, the objective of the money coming in, which is

01:06:34.540 | sales or revenue exceeds the money going out and the box

01:06:38.540 | grows, right, the assets grow. And the best way to look at that

01:06:42.220 | is in the financial statements of that business, you know, the

01:06:45.260 | income statement, the balance sheet, the cash flow statement.

01:06:48.780 | But we and then there's this narrative that can be layered

01:06:53.740 | on top of those metrics, that measurement of how well that

01:06:57.180 | business is performing over time. And that narrative is what

01:07:00.380 | drives a lot of investment decisions. Today, right, I see

01:07:04.140 | whether it's an analyst, writing an analyst report, or portfolio

01:07:08.140 | manager or an individual picking a stock, everyone's got a reason

01:07:11.660 | why they're buying the stock. And they say, here's my thesis.

01:07:15.740 | And what happens is everyone looks at that box, looks at that

01:07:19.260 | business looks at that thesis from a different angle. And

01:07:22.460 | there's always something you're missing. So there, you know,

01:07:25.660 | there's some element that is driven by imperfect information.

01:07:31.500 | And in some cases, it's just heavy bias. You know, you look

01:07:34.540 | at a stock, you're like, hey, I really like Disney Plus, I

01:07:37.180 | really like the subscriber growth. But the question

01:07:40.220 | fundamentally is over time, what is the revenue generation and

01:07:44.300 | the profit generation potential of that one thing you're looking

01:07:47.340 | at? And what are the 100 other things that are going to

01:07:49.900 | contribute to that business that box, taking in more money or

01:07:53.420 | spending more money? Is that box going to run into a regulatory

01:07:56.460 | problem? Is it going to run into a customer problem? Is it going

01:07:59.740 | to run into a content problem? Is it going to run into

01:08:01.580 | competition? The number of issues and opportunities that

01:08:06.380 | any one of these businesses can and will face is infinite. And

01:08:09.420 | every participant in a market is looking at some different set

01:08:13.260 | of those opportunities or threats. And every participant

01:08:16.700 | in that market is making a different value judgment. And

01:08:19.900 | so very often people will buy a stock because they see their

01:08:23.260 | sliver, they convince themselves that based on the sliver of the

01:08:26.140 | perspective that they have, that this is something I want to own.

01:08:29.260 | They don't do the work on what's the income statement,

01:08:33.260 | balance sheet cash flow going to tell me over time about the

01:08:36.380 | quality of that business. And they don't do the work on what

01:08:39.100 | the valuation of the business is relative to comparables relative

01:08:42.940 | to future earning potential. And I just wanted to have this

01:08:45.740 | diatribe because I see so many individuals doing stock picking.

01:08:51.020 | And over time, because of this myriad of things that could go

01:08:54.700 | wrong and will go wrong, or may go right or won't go right, or

01:08:58.540 | the regulatory thing or the market thing or whatever

01:09:01.260 | interest rate thing hits that stock and the stock price goes

01:09:04.220 | down. Eventually everyone gets hit on the head. And everyone

01:09:07.580 | reverts to mean or below mean meaning the average of the index

01:09:11.100 | over time, or underperforms that index over time. And so I mean,

01:09:16.060 | for me, I spent two years I know we all went through some sort of

01:09:19.820 | investment banking training, I spent two years out of college

01:09:22.300 | without a I had no finance econ or business background. I worked

01:09:26.780 | in investment banking, learn how to read an income statement

01:09:30.140 | balance sheet cash flow, learn to understand how business

01:09:33.180 | performance ultimately translates into financial

01:09:35.260 | outcomes, and spent a lot of time on valuation. And figuring

01:09:38.780 | out just because you like the story of a stock, you like the

01:09:41.260 | story that the CEO is telling you doesn't necessarily mean

01:09:43.980 | that you're paying a fair price. So if you if everything

01:09:46.940 | they do goes right, this price could still drop. And I think

01:09:50.540 | that this is a really important set of lessons for people that

01:09:53.740 | are individuals that are doing stock picking, which is the

01:09:56.700 | number one message and this diatribe is specifically

01:10:00.220 | targeted towards day traders retail, correct? I don't know if

01:10:03.980 | it's just them. I think it's just generally like make sure

01:10:06.060 | you understand how to read an income statement balance sheet

01:10:08.380 | and cash flow statement. Number two, make sure you know how to

01:10:11.020 | assess valuation. Make sure you know that when you're buying a

01:10:13.740 | stock, you know what the total value of the company is based on

01:10:17.020 | the price you're paying. And how do you justify that that total

01:10:19.980 | value makes sense relative to your model of the future

01:10:22.860 | outcomes for that business. And then number three, recognize

01:10:26.540 | and be cognizant of the fact that whatever one thing you're

01:10:29.340 | seeing that you think you've got some edge or some advantage on

01:10:32.220 | because no one else is seeing it. There's 99 other things

01:10:34.780 | that you're not seeing. And this is where everyone learns this

01:10:37.420 | lesson over time, and everyone gets bonked on the head at some

01:10:40.060 | point in making these decisions. And it's why every

01:10:42.860 | stock picker or nearly every we can talk about the greats at

01:10:46.060 | some point here, and where alpha can be generated and so on. But

01:10:49.500 | generally, most stock pickers over time, underperform the

01:10:53.660 | index. And it's just particularly with the retail

01:10:57.260 | movement over the last couple of years, I see a lot of thesis,

01:11:01.260 | here's my reason for buying the stock that excludes understanding

01:11:04.940 | the financials got understanding the valuation metrics, and also

01:11:08.300 | excludes the whole litany of things and all the diligence

01:11:10.940 | that goes into thinking about all the other angles you might

01:11:12.540 | be missing. So that was my model. Or feedback, generally,

01:11:17.180 | it turns out that it's hard to be good at anything. Insert the

01:11:22.380 | blank takes 10s of 1000s of years of practice. In investing,

01:11:28.140 | I think what I have learned is that it's very easy to get caught

01:11:33.820 | up in the mania. I have also learned in the last decade that

01:11:38.620 | you know, we really benefited from zero interest rates, it was

01:11:42.700 | a tide that lifted all boats. And I have learned how to think

01:11:49.260 | about correlation, and the difference between alpha and

01:11:53.100 | beta, and how to construct portfolios that I think can be

01:11:57.100 | all weather portfolios. To Friedberg's point, those are

01:12:01.020 | nuanced, long tail skills that you'll only take up if you're

01:12:04.460 | really passionate about the craft. It's not dissimilar to a

01:12:07.580 | person, I'm just going to use golf as an example, who learns

01:12:10.620 | how to hit a fade versus a draw, and who learns how to really

01:12:13.820 | manipulate, you know, their wedges in very specific ways.

01:12:16.700 | And these are all long tail skills that come in when you

01:12:20.380 | decide you want to master something. And it's just

01:12:25.180 | important to note that that mastery is required to be really

01:12:27.820 | good. Because otherwise, there'll be times where you'll

01:12:30.780 | go out on the golf course, and you'll crush it. But then, you

01:12:34.300 | know, there'll be other times and most other times where you

01:12:36.380 | can go and get run over because it's hard. So that's my only

01:12:39.660 | comment is that this is like everything else. It's not nearly

01:12:42.540 | as easy as it looks like Brad, you pick stocks for a living

01:12:45.340 | should retail, how involved should retail investors be? So

01:12:48.860 | they just buy an index? I don't think it's fair to say retail

01:12:51.660 | what I think my point was really about. No, his point is

01:12:54.780 | everybody. Okay, sure, everybody. My point is saying a

01:12:58.220 | thesis, and excluding all these other factors that are critical

01:13:02.220 | in making a decision about what you're buying, and whether

01:13:04.140 | you're paying the right price means that you have to make sure

01:13:07.100 | that you're expanding your point of view on whether or not a

01:13:10.060 | stock is worth buying at the market price today. And I think

01:13:13.900 | having that broader perspective is what I see missing in 99% of

01:13:17.500 | the chatter on Twitter 99% of, you know, folks talking about

01:13:21.020 | what thing to buy, and why they're buying it. And I think

01:13:22.780 | it's critically important. You're saying that most

01:13:25.660 | investing that you see, is very narrative driven. And that

01:13:30.620 | narrative can sometimes be so powerful, that it overpowers all

01:13:35.180 | the other elements that one should be doing to get a full

01:13:37.980 | picture of why you should be buying something is that I think

01:13:41.180 | that's a fair summary to math. Yeah, yeah. And I think it's,

01:13:43.820 | you know, it's, it's, it's just about how so much of what goes

01:13:49.020 | on on CNBC, on a lot of Reddit boards, not all of them, there's

01:13:55.020 | very sophisticated folks, they're doing very sophisticated

01:13:57.500 | financial analysis and looking at all the angles of a stock

01:13:59.980 | assessing the valuation. But so much of these conversations

01:14:03.580 | exclude what you're paying and what you're getting and exclude

01:14:07.420 | the broader context of all the things that could and may not

01:14:11.020 | happen with a particular business. And as a result, at

01:14:14.620 | some point, one of those things bonks you on the head, you lose

01:14:16.700 | 50%. And you're like, Oh, my gosh, my sometimes, and

01:14:19.980 | sometimes if you try to inject that logic into those channels,

01:14:23.740 | you'll get Brigadoon.

01:14:24.780 | We absolutely Brigadoon. Brad, what do you what do you think,

01:14:29.420 | in terms of people's access to markets, I guess would be

01:14:33.340 | another way to look at this and people's propensity to just,

01:14:35.980 | you know, gamble, let's call it or maybe not make thoughtful

01:14:39.100 | decisions. I kind of think of our friend Bill Gurley was here,

01:14:42.380 | he'd be like, this is a five minute conversation about the

01:14:46.220 | statement of the fucking obvious.

01:14:47.660 | You know, this is stock picking is hard. Really? Is that the

01:14:53.900 | theme of this section? Yeah. Stock picking is hard. Very

01:14:58.460 | little alpha has ever been generated in a sustainable way,

01:15:01.500 | even by the greatest people of all time. I think, you know,

01:15:05.100 | maybe something that is a little bit useful to add two things.

01:15:08.860 | Not all good companies are good investments. Price of entry

01:15:13.660 | matters. Okay, so I hear a lot of people saying, well, I'm

01:15:16.860 | gonna buy that because it's a good company that I don't even

01:15:19.340 | know what that means. Right? Exactly right. Good relative to

01:15:24.460 | the price of entry. But the second thing is the single

01:15:27.820 | greatest power we have as investors, the green greatest

01:15:31.660 | single source of alpha, right other than stock selection. So

01:15:37.180 | choosing the right company, time arbitrage. Okay, so do you

01:15:42.700 | have the ability to own something that is a growing

01:15:45.420 | asset over a long period of time, so that if you got number

01:15:48.380 | one wrong, you bought it at the wrong time, shit happened in

01:15:51.420 | the world, they miss a quarter, etc. That you're not forced to

01:15:55.020 | lock in those losses because you over allocated to that. So

01:15:58.380 | this idea around portfolio management is a principal

01:16:01.340 | component of overall stock picking is just absolutely

01:16:04.060 | critical. So I think, you know, I don't really, I love the fact

01:16:11.420 | where I put myself through college, I put myself through

01:16:14.540 | law school through business school, day trading stocks out

01:16:18.220 | of the back of the classroom, I'm grateful I live in a

01:16:20.540 | country that let me feel like I had some alpha and that I could

01:16:24.460 | do that. And I could go read the newspaper and sort it out. And

01:16:27.100 | I wasn't building sophisticated financial models. So like, you

01:16:31.660 | know, I think there are ways that folks can do this, there

01:16:34.940 | are a lot more ways to lose money than there are to make

01:16:38.300 | money in a sustainable and durable way. Right. And so as

01:16:43.100 | investor, what we try to do, you know, we've got 90% of our

01:16:47.020 | portfolio in our top five or 10 companies. Okay, I'm not an

01:16:51.580 | index. And the deal I have with our LPs is I'm very transparent

01:16:57.180 | with them, they know that we're going to own companies in size.

01:17:01.820 | And it's that portfolio concentration and our time

01:17:04.860 | arbitrage holding companies for three years or longer, that is

01:17:08.700 | a strategy they choose to believe in and sign up to. But I

01:17:13.420 | know a lot of greats who would never subscribe to that

01:17:16.300 | strategy. So know your strategy, execute it, allocate a

01:17:21.980 | reasonable amount of capital. So when all of these unknowns

01:17:25.660 | that day, Friedberg talks about come along, you can react

01:17:29.020 | accordingly. And you know, the final thing is if it's not fun

01:17:32.540 | for you, right, like, if you're actually not passionate and

01:17:36.540 | curious about like studying this stuff and learning about it,

01:17:39.100 | not everybody is, then don't do it. Right, then don't do it,

01:17:42.700 | then just put your money in it. I'm gonna be good at it.

01:17:44.700 | The analytical depth and rigor that the greats employ to be

01:17:51.740 | successful at picking stocks and picking businesses and

01:17:54.620 | investing in them, and selling them at the right time over

01:17:58.060 | time. It does not make for good Tick Tock content. It does not

01:18:02.300 | make for good short form content. And I think that's why

01:18:05.740 | we've seen this dumbing down and this kind of short form

01:18:09.900 | thesis driven narrative approach to content creation around

01:18:13.020 | markets and stocks that ends up causing a lot of people a lot

01:18:16.940 | of harm. You know, you watch the Jim Cramers of the world, I

01:18:20.380 | don't mean to disparage any one individual, but that sort of

01:18:23.660 | content that's like this is a great company, we should buy it

01:18:25.580 | like let's go. And the depth and rigor takes a lot of time

01:18:30.780 | and a lot of effort to really do right. And then you get hit in

01:18:34.620 | the head. You know, when we and that's that's what I've

01:18:37.180 | observed lately, and in a really kind of flurried way,

01:18:40.220 | particularly across social media, and so on. That's, that's

01:18:43.340 | why I just wanted to talk about this topic today. Just to build

01:18:45.500 | on top of what you're saying, Warren Buffett made this very

01:18:47.580 | famous bet in 2000. It was him versus a bunch of hedge fund

01:18:51.340 | managers, and they were able to pick a basket of hedge funds.

01:18:53.660 | And he said, I'm not even gonna pick myself, I'm going to pick

01:18:55.740 | the S&P 500. And the low cost ETF, the Vanguard ETF, and he

01:19:00.140 | said, we'll check in like 20 years later. Anyways, you know,

01:19:03.100 | the punchline of the story Buffett one, he won like a

01:19:05.340 | million bucks that he donated to charity and these hedge fund

01:19:08.060 | folks lost. And so to build on your point, Jason, time and time

01:19:12.700 | again, the smartest investors in the world, ie guys like him

01:19:16.460 | have shown us that the most predictable way to make money,

01:19:19.900 | if that is your goal is to own the S&P 500, which is, you know,

01:19:23.340 | a dynamic index of the 500 best companies in the world. So there

01:19:26.940 | are these people doing all the hard work for you. And they have

01:19:30.140 | very strict criteria of who's an S&P 500 company or not. Now,

01:19:33.260 | yes, if you cherry pick other companies that are not, or you

01:19:36.540 | concentrate in some, will you generate better returns?

01:19:38.860 | Absolutely. But systematically over time, that thing has

01:19:42.460 | lurched forward at 8% a year, you know, 9% a year, if you

01:19:46.700 | invest dividends, you can approach 10% a year. And so if

01:19:50.940 | if you really want to just grow your wealth, that's a very

01:19:53.580 | simple, steady, eddy way to do it. And to take a small amount

01:19:57.100 | and then go and, you know, experiment with it to learn,

01:20:00.300 | makes sense. But I think it's important to make sure you're

01:20:02.460 | going there eyes wide open to try to actually learn.

01:20:04.940 | Buffett, of course, says the index works really well. But

01:20:07.180 | then he's got 50% of his public portfolio in Apple over the last

01:20:10.540 | few years. So he clearly believes in alpha as well. But

01:20:14.700 | you know, back to Friedberg's point, since we brought up

01:20:17.340 | Buffett, you know, somebody asked Munger, why can't why

01:20:20.620 | can't people just copy what Buffett does? And he said,

01:20:24.140 | because nobody likes to get rich slow. Nobody likes to get

01:20:29.340 | rich slow if you want to what it is 0% rate environment

01:20:33.020 | remind us all over the course of last few years. Everybody had

01:20:36.540 | a grift, everybody had to get rich quick scheme. I don't care

01:20:40.380 | whether it was NFT crypto flipping, or whether it was

01:20:43.660 | house flipping or whatever it was, everybody thought, you

01:20:47.180 | know, this was easy. And frankly, looked at guys like us

01:20:50.460 | oftentimes and said, you're the dumb ones. You're playing the

01:20:53.580 | game that's really hard. Why don't you just, you know, flip

01:20:56.860 | some crypto and I think we're back to a world that if you

01:21:00.460 | really want to, you know, by the way yourself, how dumb did

01:21:05.180 | you feel? I felt so stupid all these tokens minting minting

01:21:08.860 | billionaire billionaire billionaire billionaire,

01:21:11.020 | billionaire, and I just I just sat on the sideline to your

01:21:14.700 | point, right? It just made you it made me feel so stupid. I

01:21:18.540 | felt super nice. It's like I what who's the customer and how

01:21:21.660 | much do you charge him and when you can't get that basic answer

01:21:24.380 | of who the customer is and how much it costs for them to buy

01:21:27.020 | the product or service. It was like Brad's the Brad's point. I

01:21:29.420 | think the punchline is and then you know, at the 11th hour,

01:21:32.220 | it's like there's a tendency to just capitulate and say, okay,

01:21:34.540 | forget it. I'm in and that's when all the money gets

01:21:37.340 | torched real quick. There's a proposition here in California

01:21:40.140 | where we vote on specific ballot measures. Not every state has

01:21:43.740 | this, but we have prop 30 coming out. This is a 1.75% tax on

01:21:47.580 | income earned incomes earned over 2 million for the next 20

01:21:52.300 | years in California, which by the way, had $100 billion

01:21:54.620 | surplus that would go towards clean energy. This was proposed

01:21:57.660 | originally by environmental groups, but Newsom has come out

01:22:02.300 | to battle against this, which would seem counter intuitive

01:22:06.780 | because he's so pro environment. What this would do is spend

01:22:10.300 | about 80% of this 100 billion in new tax revenue over the next

01:22:13.580 | 20 years, 80% would go towards charging stations for EVs and

01:22:17.420 | motivating customers to buy EVs. 20% would go toward to

01:22:21.980 | combat the crazy amount of wildfires we're having here. He

01:22:26.700 | Gavin Newsom that is called this a cynical scheme devised by a

01:22:31.900 | single corporation lift to funnel state income tax revenue

01:22:35.500 | to their company. Lift has provided almost all of the 40

01:22:39.340 | almost 48 million in funding for this prop 30. And the reason is

01:22:43.820 | because California is going to require 90% of ride sharing

01:22:48.140 | miles to be traveled by zero emission vehicles in 2030. You

01:22:51.500 | know, on top of that, that California is going to not let

01:22:54.060 | you sell anything other than EVs in 2035. If this continues,

01:22:58.140 | now you've got a bunch of people on the other side of this doing

01:23:00.540 | anti prop 30, including the California Teachers Association

01:23:03.820 | because they want the money. Read Hastings over at Netflix

01:23:08.060 | Moritz over at Sequoia Sam Altman over at Open AI. Well,

01:23:12.540 | what do you think of this? freeberg? I'm curious. Sorry,

01:23:17.500 | what side are they on Jacob? The side of lift Altman? No,

01:23:22.060 | they're they're saying don't do this because they are trying to

01:23:24.460 | control taxes in Carolina. They're on Newsom side, Newsom

01:23:27.900 | side. Hey, this is a grift by lift, because lift is concerned

01:23:31.900 | that they're going to have to, you know, bear the brunt of 90%

01:23:37.500 | of miles. So I guess the I don't know if it's original sin, but

01:23:40.140 | the the one of the levers here is lift is got the majority of

01:23:46.220 | their rides are in California. Uber has stayed out of this

01:23:49.100 | because they don't have as much exposure because the number of

01:23:52.220 | rides in California is a smaller percentage of their

01:23:54.220 | overall revenue. Brad, Brad, you have some thoughts to hear. I

01:23:56.460 | think it's a freeberg or Brad, I'm just looking at the board

01:23:59.820 | of directors and left and thinking to myself, good God,

01:24:02.700 | what are these people thinking? Spending 40 to $50 million on

01:24:07.740 | this, it just seems that they've totally lost the script. The

01:24:10.860 | company has way bigger problems, way bigger problems to focus on.

01:24:15.740 | Right, then, you know, this measure, have a little faith in

01:24:21.260 | the system that if we don't get to a place where this is

01:24:24.780 | reasonably practical over the next 10 years, then I'm sure we

01:24:28.300 | will evolve, right? The legislation around this, you

01:24:32.300 | know, kudos to Dara and the team at Uber for not running scared

01:24:36.060 | on this, right for not trying to push this through these

01:24:38.940 | corporate governance initiatives, guys does

01:24:41.740 | referendums in this state. I mean, this is just bad politics,

01:24:45.020 | bad policy. I mean, we got Valerie Jarrett on the board of

01:24:47.820 | this company, you got political sophistication on the board of

01:24:50.300 | this company. I want to be I wish I was a fly on the wild and

01:24:53.580 | know the conversation that went down and who raised their hand

01:24:56.620 | and said this is the highest and best use of $40 million of our

01:25:00.060 | money. Crazy. Yeah, right. It makes no sense. freeberg. You

01:25:03.100 | have thoughts on if I mean, you've talked before about how

01:25:05.580 | you think the free market should solve. What is the what is the

01:25:08.060 | governance structure at lift guys? I knew that was coming. I

01:25:12.620 | knew it was coming. Did they have super voting shares?

01:25:15.420 | Anybody look, I don't know the answer to that. So I think that

01:25:18.540 | the tax rate in California is high enough now that we all have

01:25:23.020 | friends, friends in our poker group who have left for the

01:25:25.580 | state of Texas or the state of Florida, where there are lower

01:25:28.300 | tax rates and where they feel like they're getting more value

01:25:30.380 | for their tax dollars. There's certainly a calculus going on

01:25:34.940 | with Newsom, I believe in, you know, the impact that having

01:25:38.540 | higher tax rates would have on what is clearly not just a

01:25:42.140 | theoretical, but an actual evidence. You know, exodus from

01:25:47.180 | the state of wealthy and high income earners. This could be

01:25:50.380 | like, you know, at some point, there's a tipping point that

01:25:52.460 | looks a lot like France, where you raise the rates high enough

01:25:55.340 | enough wealthy people leave and the net tax dollars actually go

01:25:58.380 | down, like what happened in France when they introduced

01:26:00.540 | their wealth tax, then they reversed it and everyone came

01:26:03.500 | back. I will say I don't more important long term point, I

01:26:09.500 | don't see a world where we don't have over 60% tax rates on the

01:26:12.860 | wealthiest people in this country at a federal level. If

01:26:15.660 | you look at if you assume a 5% long range, call it 1520 year

01:26:21.740 | horizon for for interest rates, even 4% on $30 trillion of

01:26:28.780 | outstanding debt. And you assume that the voter base will never

01:26:32.940 | vote to reduce Social Security or Medicare entitlement

01:26:37.500 | programs. And obviously, the defense budget won't get cut,

01:26:40.540 | we are not going to see a situation in this country on a

01:26:43.820 | federal basis, where we can actually meet all of our fiscal

01:26:46.780 | obligations without incremental tax revenue. And I think it is

01:26:50.380 | much more likely that you know, look, whatever happens with the

01:26:52.700 | state initiative happens, but I think it's very likely that over

01:26:55.260 | time, the only way for the United States to bridge its

01:26:59.660 | fiscal gap is going to be to raise income to increase the

01:27:02.540 | tax rates. I don't see another solution because I don't think

01:27:05.100 | that the federal government or in our kind of democratically

01:27:08.460 | elected Congress, we're going to see a system that's going to

01:27:11.180 | say, hey, let's go for austerity measures, let's reduce

01:27:14.140 | entitlement programs. Both sides will say that it's just not

01:27:17.340 | going to happen. So tax rates, higher tax rates, I think are

01:27:20.220 | coming. Well, you know, maybe California will skip over this

01:27:23.500 | particular generation. But I don't see how the United States

01:27:27.020 | continues to thrive over the next 15 to 20 years without tax

01:27:30.620 | rates that will today seem exorbitant. Well, in the last

01:27:33.740 | 20 years, we blew through a debt to GDP that was I think 57%

01:27:38.700 | and it basically doubled. And so David, to your point, when we

01:27:42.780 | wanted to feel prosperous, what we did was we financed it, we

01:27:46.780 | went out and we, you know, put out a ton of debt in order to

01:27:50.140 | make sure that our entitlement spending or defense spending or

01:27:53.260 | whatever the things were that we needed as a population to feel

01:27:56.860 | like we were growing and moving forward as a society we had. So

01:28:00.380 | that is the practical nature of what happens. And look, a lot

01:28:03.660 | of people think that there is some upper bound to debt to GDP

01:28:09.020 | and I'm actually of the opposite view, which is I think

01:28:11.580 | that, you know, the quote unquote invisible hand

01:28:14.220 | justifies us moving debt to GDP to higher and higher rates. So

01:28:18.620 | the first time the United States went past 100%, we thought it

01:28:22.620 | was the end of the world. It turned out it wasn't. We'll

01:28:25.100 | eventually go past 200. Somebody will clamor and, you

01:28:28.700 | know, be anxiety riddled, but they'll take some SSRIs,

01:28:31.500 | they'll be okay, we'll keep moving forward. Then we'll get

01:28:34.300 | to 300%, we'll keep moving forward. So we are in a debt

01:28:38.540 | spiral that is a feature, not a bug of how democratic societies

01:28:42.380 | work. As a companion to that, I do agree with you that taxation

01:28:48.060 | kind of is a pendulum. It ebbs and flows. And, you know, we're

01:28:51.580 | in the part where it's going to go higher before it goes lower.

01:28:54.540 | But I want to tell you a story, which is that in the beginning

01:28:58.380 | of this summer, or sorry, this fall, I was in the Middle East

01:29:02.700 | and then I was in Asia, and they have very different taxation

01:29:05.980 | schemes, right? And many of them have zero corporate gains tax

01:29:10.700 | and, you know, sometimes zero income tax. But then the

01:29:15.020 | opportunities for them to be able to invest in driver turns

01:29:17.820 | is also commensurately lower, meaning there's not as much

01:29:21.180 | alpha in most of the opportunities that they see.

01:29:23.500 | Whereas if you go to California, you have to pay 60% tax, but

01:29:27.660 | then, you know, you could be an angel investor in Uber, you

01:29:30.620 | know, and all of a sudden take 25,000 and turn it into 100

01:29:33.820 | million, which is ungodly. It's incredible. So I think that in

01:29:39.900 | my opinion, actually, like there's actually this beautiful

01:29:42.540 | symmetry where even if taxes are high, your earnings potential

01:29:46.300 | is commensurately higher, such that the net that you're left

01:29:49.500 | with is the same as if you were in another place where taxes

01:29:53.420 | may be zero, but you're just not going to get exposed to the

01:29:55.660 | same ways to make money. And I think obviously, there's corner

01:29:58.860 | cases where that's not true. But I don't think sweating taxes

01:30:03.740 | is a really important waste. It's important way to spend

01:30:06.620 | somebody's time. I just think it doesn't matter.

01:30:08.780 | Rad funnel work, I would just say, the beautiful thing about

01:30:13.260 | federalism is we get to a B test in real time, different points

01:30:18.700 | of view. And so we're seeing the biggest a B test, maybe in the

01:30:23.420 | history of federalism between the state of California, the

01:30:26.300 | state of Texas and the state of Florida. And it's not just tax

01:30:29.500 | rates, right? When when Elon leaves to go to Texas, we have

01:30:34.460 | the head of the California General Assembly, right,

01:30:37.420 | changing her Twitter profile to say good riddance and flipping

01:30:40.380 | the book flipping the bird to Elon, right? There is a

01:30:44.700 | hostility toward business that has emerged in California that I

01:30:49.100 | think is commensurate and related to the tax rate, but

01:30:52.220 | also separate. At the same time, we have the mayor of Miami

01:30:55.660 | texting us, asking us to come down for a visit. We have

01:30:59.420 | friends in Texas who are literally politicians who are

01:31:02.780 | marketing their state to people in California. And we're going

01:31:05.980 | to be able to political scientists will look back in

01:31:08.220 | five or 10 years. And they'll be able to answer those questions

01:31:11.340 | for you. But I suspect that that makes us a much stronger place

01:31:14.940 | for experimentation than countries like France, where

01:31:18.460 | it's all or none.

01:31:20.220 | And just to give people an idea to transport about point about

01:31:24.140 | debt to GDP. Here's the chart early part of our lifetimes 50%

01:31:28.860 | 1990s 6070% after the Great Recession, the pandemic 120%

01:31:36.460 | Japan's at 200%, I think. So there's obviously doesn't it

01:31:41.260 | doesn't mean anything. I know that your payments might at

01:31:43.900 | some point. Yeah, I really don't think so. Because I think what

01:31:46.700 | will happen is you'll just move the yield, you know, the yield

01:31:49.500 | to maturity will move out. And, you know, we'll issue again,

01:31:52.940 | you know, this is the funny thing we talked about this last

01:31:54.940 | night at poker, like, you know, Trump's ideas, some of them were

01:31:58.300 | actually very brilliant. They were just packaged through this

01:32:01.660 | lens of being a total goofball. So you could take it seriously.

01:32:04.460 | But 100 year bonds, when rates were zero, now looks like, oh,

01:32:09.740 | my God, what a brilliant move. Well, I mean, if you could take

01:32:12.140 | a 50 year worldview about climate about nuclear energy

01:32:15.100 | about semis, we didn't get to semiconductors again this week,

01:32:17.980 | we got so much good stuff. But, you know, we do need to take

01:32:20.540 | very long multi decade looks at investment and why not make a

01:32:23.980 | 25 or 50 year bond for semiconductors? Can I actually

01:32:28.780 | just do a small PSA? Sure, quickly. Public Service

01:32:32.300 | announcement from trauma, the more you know, go, I went to

01:32:34.540 | blue bottle coffee today, and I asked for a latte. And they gave

01:32:39.420 | me a latte with oat milk. That's their default, which is

01:32:42.380 | disgusting. And I find out, I find out that is now their

01:32:46.780 | default. And brutal. And I said, there's a lot of normal

01:32:50.380 | people that don't want to ingest that chemical spew into

01:32:53.980 | their body. And so this is just a shout out, like just a comment

01:32:57.900 | to blue bottle, like, can you please realize that a lot of us

01:33:00.620 | are normal, we want to come to your store, and then you know,

01:33:03.740 | not have to ask for the long tail alternative. Can you just

01:33:07.100 | serve the thing such for signaling it's most of the

01:33:09.500 | people drink coffee shop. Yeah, most of the people still drink

01:33:12.380 | milk. Okay, I'm not trying to bring a doing you blue bottle,

01:33:17.820 | but I'm not going to go to you anymore as a customer because I

01:33:20.540 | find this stuff really dumb. Like, can you just have milk so

01:33:23.420 | that I can ask for the milk if I want to versus giving me

01:33:26.620 | chemical stuff that I don't want. I don't want that. Yeah,

01:33:31.820 | that's and and complaining about oat milk. Is that what's

01:33:34.540 | going on? No, it's this is where we are moment. It's just

01:33:38.620 | like, I just want milk. I want a latte. I mean, I want to go

01:33:41.900 | and support you guys. I want to maybe maybe the cow doesn't

01:33:44.620 | want to make that milk for you after its baby was ripped away

01:33:46.940 | from it. Oh, boy, here we go. You know, here we go. It's day

01:33:50.060 | we we survive 90 minutes. And here it comes. Point. You know,

01:33:55.020 | did the cow agree to be in service to you to make your

01:33:57.580 | milk? You think I need to have a verbal contract with cows? I

01:34:01.420 | mean, well, yeah, I mean, are we going to do the olive fed beef

01:34:04.060 | next week or not? Who is the translator of the cow human

01:34:08.140 | protocol? Who is it? You be boop is one of your friends like

01:34:11.980 | what I don't actually I am working on a neural link. I'm

01:34:14.380 | not sure. I'm not sure that the default assumption that the cow

01:34:17.740 | should be there to do whatever you want it to do is a fair

01:34:20.380 | assumption. I think that'll change over time, but it'll take

01:34:22.620 | some time. I think that that's completely fair and reasonable.

01:34:27.020 | But what I'm saying is right now while there's an entire

01:34:29.660 | community said that economy and maybe well, there's an entire

01:34:34.700 | economy of people that shouldn't get rolled over because you want

01:34:37.340 | to impute the emotions of cows. I'm allowing you your freedom to

01:34:41.660 | want to impute those emotions of cows. Well, I would like to

01:34:44.700 | support the dairy industry and buy milk. So can I please do

01:34:47.420 | that? No, I want to impute the freedom and rights of the cows.

01:34:49.820 | But that's going to take some time. But sure, go ahead. Have

01:34:52.060 | your milk for now. And you're allowed but I right now will

01:34:55.020 | take the side of the dairy farmer. I just want to know.

01:34:58.300 | Anybody get your chick Karen outrage your trim off Karen

01:35:03.180 | outrage or Karen on tape? Is this trending on TikTok yet?

01:35:07.340 | When you admonished the barista?

01:35:09.900 | It's not the fault. I just think it's I didn't make a scene or

01:35:14.620 | anything. I just got I tasted because I just said, Can I please

01:35:18.460 | have a latte, assuming that it would come with milk like most

01:35:21.580 | most normal places? Yes. And now I have to actually ask for

01:35:25.020 | milk because they think that this chemical composite stuff

01:35:29.100 | that's called Oh, have you looked at the ingredients? And

01:35:31.100 | don't we have this conversation? Yes, we we got we as anybody

01:35:33.500 | listen, we didn't even get to MailChimp CEO, Ben chestnut,

01:35:36.940 | who is, you know, like one of the kind great CEOs of our

01:35:39.500 | generation. Getting Yeah, his memo. His last name really

01:35:44.620 | chestnut. I believe it is. Yeah, it's just there's a nice

01:35:47.340 | chestnut is a great guy. I've met him so many times.

01:35:49.980 | Incredibly human. And he's been ousted. Should we do outros

01:35:53.100 | because you didn't do intros? Jekyll? Did you have? All right.

01:35:55.340 | So here's the actual Yeah, for for the Sultan of science, the

01:35:59.340 | queen of quinoa himself. Climbing the stray cat leader

01:36:04.060 | board as we speak. David Friedberg follow him on his

01:36:07.500 | Twitter handle where you can get all kinds of hot takes from

01:36:10.220 | science to Ukraine at Friedberg is the hand talking about I

01:36:14.940 | never tweet. I know that's the joke. Also with with us again,

01:36:19.340 | the anchor he'll be doing a twitch streaming where he

01:36:22.220 | translates the emotions. I'm actually doing various animals,

01:36:25.980 | my cooking show, which has a base of oat milk. It's my oat

01:36:29.980 | milk top 10 beverages tonight on Twitch. Just follow stray

01:36:34.220 | Friedberg get it. I don't want to get Brigadoon by the oat

01:36:36.860 | milk lovers, but they're coming. Milk stands are coming for you,

01:36:40.380 | man. You listen, I don't want that chemical stuff in my body,

01:36:43.980 | but I'm not going to stop you from doing it. I'll do a

01:36:45.820 | diatribe on chemicals in oat milk next week. What should we

01:36:49.820 | drink if you did have a choice? Friedberg if you didn't want to

01:36:51.900 | drink the chemicals in a holy, what would you drink? What would

01:36:54.140 | you what do you drink? Soy milk, oat milk, whatever. Okay,

01:36:58.700 | but you okay, but you're okay. And bringing that namaste

01:37:04.380 | tasted milk. I drink the beautiful glass jar. No, I'm

01:37:09.020 | asking Friedberg. I'm strong milk. Yes. $3 returns for each

01:37:14.220 | glass bottle. I return them. I get them good. Have you tried

01:37:18.220 | Have you tried? I'll tell you what is going to happen in the

01:37:20.300 | next he's never had milk in the next 10 to 15 years. Most of

01:37:25.100 | the milk you buy at the store will be identical to cow's milk.

01:37:30.700 | Same protein composition. It will be built in a slurry. I

01:37:34.780 | mean, you can make fun of it being a thing, J Cal, but you

01:37:37.100 | do work in the tech industry. But yeah, I mean, precision

01:37:39.980 | fermentation is the future of making animal proteins. And it

01:37:43.500 | is how we're going to hide you Friedberg. I like it. It's a

01:37:46.380 | but I'm telling you there is an economic model that will

01:37:50.220 | work where we're going to that's great. You know, but I'm

01:37:52.460 | saying between but wait between now and then can I just two

01:37:55.580 | things. Number one is there's a taste and a flavor profile I've

01:37:58.620 | grown up with that I would like and I don't think I'm a bad

01:38:01.180 | person. So I just like to have that and not be made to feel

01:38:04.140 | guilty about it. Okay. And and and number two, I don't want to

01:38:07.580 | put chemicals in my body. Okay. So if I can find a natural

01:38:10.940 | thing that I like, can I please just drink that? Can I just

01:38:13.820 | please blue bottle have that in my coffee without having to

01:38:16.700 | explicitly asked for it? Yes, you will get that. And number

01:38:20.460 | two bottles are shortest owned by Nestle and they're the

01:38:23.420 | largest dairy but Chamath has still has a short on Oatly. So

01:38:26.620 | let's just keep this going for just two more weeks. Okay, let

01:38:29.660 | me ask you an ethical moral questions. I'm joking. He does

01:38:32.220 | not have a short I don't even know if at least public. I'd

01:38:34.140 | rather you ask me an ethical moral question than a political

01:38:36.220 | one. So I'm all I'm going to Yeah, I mean, we got a break

01:38:38.140 | from Ukraine this week. Would you have a if the synthetic

01:38:43.180 | version of milk or steak was made? Like an is a protein that

01:38:49.820 | is exactly the same to a cow? Would you have a problem morally

01:38:53.100 | with eating and or drinking it? No. So the objective of what's

01:38:56.860 | called precision fermentation, or some people call it

01:38:59.180 | biomanufacturing, you take the DNA from the cow, or from the

01:39:03.820 | chicken, you put it in a yeast cell, or a bacterial cell and

01:39:07.340 | you put in a fermenter tank, you put sugar water in the tank,

01:39:10.380 | and the yeast cell or bacterial cell eats that sugar water and

01:39:13.100 | it spits out that protein. Yeah, you've programmed that

01:39:16.780 | organism to make that protein. And instead of growing a whole

01:39:19.580 | cow or growing a whole friggin chicken, you're growing the

01:39:22.460 | protein. No moral issue. No moral issue. I got it. Because

01:39:24.940 | no animal died in the making of the process. You know, you're

01:39:27.020 | not thinking can I quote Dave Chappelle here? Go ahead. Yuck.

01:39:32.700 | Alright, it's gonna it's it's identical to the protein you'd

01:39:35.660 | be eating. Otherwise, it's the same. It's the exact same

01:39:39.100 | compound. Oh, there's nothing about it that's different. And

01:39:41.740 | thanks to the dictator. Thanks to the Southern science and for

01:39:44.140 | the fifth bestie coming in and doing a great job today on

01:39:48.220 | behalf of our friend, the sass hole David Sachs, who is busy

01:39:53.980 | in a secret clandestine peace making junket to Ukraine. I am

01:39:59.580 | the world's greatest moderator Jason Calacanis. We'll see you

01:40:02.140 | next time on all in. Love you boys.

01:40:05.260 | Let your winners ride. Rain Man David Sachs.

01:40:12.300 | And it said we open source it to the fans and they've just

01:40:15.960 | gone crazy with it. Love you. I'm the queen of

01:40:20.680 | what your winners are.

01:40:25.560 | Besties are gone. That's my dog taking a notice in your

01:40:30.440 | driveway. Oh, man. We should all just get a room and just

01:40:37.880 | have one big huge orgy because they're all just useless. It's

01:40:40.520 | like this like sexual tension that they just need to release

01:40:42.920 | somehow.

01:40:45.320 | Your feet.

01:40:51.000 | I'm going all in.

01:40:56.040 | I'm going all in.

01:41:02.540 | [BLANK_AUDIO]

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