E141: State of Series A's, VC dry powder, IPO window opens + more with Bill Gurley & Brad Gerstner

00:00:00.000 | I'm recording. Yeah. How's my

00:00:01.400 | hair, Nick? Do I look

00:00:02.280 | ridiculous? I should have

00:00:02.960 | wear a hat. Oh my God. I went

00:00:04.160 | to the

00:00:04.360 | teaching salon in for a

00:00:08.520 | haircut a few days ago.

00:00:09.800 | The teaching salon.

00:00:11.120 | $10. You got $10 worth of

00:00:13.160 | value. My neck was literally

00:00:15.440 | bleeding. The guy cut my neck

00:00:17.040 | like

00:00:17.320 | diagonal on the back.

00:00:20.480 | He was stoned the whole time I

00:00:25.000 | walk in. He's like, What do you

00:00:26.680 | want? I'm like, I booked this

00:00:27.960 | thing. He's like, shit. Okay,

00:00:29.600 | sit down. I thought I was like

00:00:31.600 | in a barber shop.

00:00:32.480 | Why would you possibly do that?

00:00:35.120 | There was nothing available. I

00:00:36.280 | told my wife, I'm like, get me

00:00:37.440 | any hair appointment, anything.

00:00:38.440 | I just gotta get my haircut.

00:00:39.160 | It was so long. And then she's

00:00:40.440 | like, Oh, I got you an

00:00:41.000 | appointment at the

00:00:41.680 | teaching school. Oh, I'm like,

00:00:43.560 | that's high end. All the hair

00:00:45.360 | salon stylists go there must be

00:00:46.840 | awesome. This guy fucking

00:00:48.720 | butchered me guys worth over

00:00:50.280 | 100 million. He got a $10

00:00:51.720 | haircut, fucking $10. And then

00:00:53.680 | he's like, What would you like

00:00:54.440 | to tip?

00:00:54.800 | You should be a fucking barber.

00:00:58.080 | Get a new career.

00:00:58.920 | All right, everybody, welcome

00:01:18.800 | back to the all in podcast

00:01:20.600 | episode 141 Chamath Pali

00:01:23.640 | Hapitiya has gone missing

00:01:24.960 | somewhere in the

00:01:25.800 | Mediterranean. We've sent some

00:01:27.120 | search crews out. We got some

00:01:29.160 | beacons. We're trying to find

00:01:30.320 | him but he is not here today.

00:01:32.560 | There will be no conspicuous

00:01:34.880 | consumption or discussion of

00:01:36.200 | truffle season wine. But

00:01:38.480 | instead, we went to the BG

00:01:40.240 | squared if you got to come to

00:01:41.280 | all in summit 2022. One of the

00:01:44.440 | highlights of the event was

00:01:46.440 | having two BGs Brad Gerstner,

00:01:49.080 | and Bill Gurley on the pod. So

00:01:51.000 | we thought for all star summer,

00:01:52.680 | we would bring in some all

00:01:54.080 | stars here. Welcome back to the

00:01:56.200 | pod fifth bestie Brad Gerstner

00:01:57.840 | and Bill Gurley. How are you,

00:01:59.760 | sir? I'm doing great. Thanks

00:02:01.240 | for having me on. Bill, you

00:02:03.160 | don't do a lot of press. You

00:02:05.040 | don't do a lot of pods. And I

00:02:08.320 | know you're on a lot of boards,

00:02:09.440 | but you're not part of

00:02:10.480 | benchmarks next fund. So people

00:02:12.720 | are wondering, are you retiring?

00:02:14.320 | What are you up to? I know

00:02:15.600 | you're still got all these

00:02:16.640 | boards you're on. But what's

00:02:17.800 | Bill Gurley up to these days?

00:02:18.920 | Yeah, appreciate that. Um, as

00:02:21.080 | you mentioned, I'm on nine

00:02:22.240 | benchmark boards still. So I'm

00:02:23.840 | working with those and doing

00:02:26.120 | the classic work that I've been

00:02:27.720 | doing my whole career. Second

00:02:30.480 | thing is I've started, I've

00:02:33.040 | done a handful of angel deals

00:02:34.800 | about one 100th the, um, the

00:02:37.520 | frequency of J Cal here, but a

00:02:39.960 | few, so dipping my toe in the

00:02:42.560 | water. And then third, I've

00:02:44.400 | been working hard on a book.

00:02:46.080 | We've got a co-writer. We've

00:02:47.600 | been doing a ton of research.

00:02:48.840 | We've got a proposal ready to

00:02:50.760 | go on an agent. We're going to

00:02:51.960 | go out to publisher soon. Oh,

00:02:54.120 | well, you should just do Harper

00:02:54.960 | business. I'll put you in touch

00:02:55.880 | with Hollis. That's the winning

00:02:57.560 | publisher. That's the best

00:02:58.600 | business publisher in the world.

00:02:59.840 | Perfect.

00:03:01.400 | Harper Harper Collins business

00:03:03.920 | number one publisher, publisher.

00:03:06.320 | And you don't need what the

00:03:09.920 | thesis is.

00:03:10.640 | Yeah, it's a further

00:03:12.560 | development of a speech I gave

00:03:14.720 | at the university of Texas

00:03:16.440 | business school about how to

00:03:18.720 | chase and succeed in your dream

00:03:21.040 | job. Oh, nice. Oh, so like

00:03:23.640 | career advice, letter to a

00:03:24.840 | younger girly. Is that what this

00:03:26.280 | is? A letter to a younger

00:03:27.280 | builder? I didn't want to do

00:03:28.840 | like, Oh, here's my thoughts on

00:03:31.240 | venture capital. That didn't

00:03:32.360 | feel right. This is something

00:03:33.440 | I'm more passionate about. And

00:03:34.840 | I, some might, I hope will be

00:03:36.600 | impactful to a lot of people.

00:03:37.880 | I've already gotten quite a bit

00:03:39.360 | of feedback from people that

00:03:40.560 | have been moved by the, the,

00:03:42.400 | the shorter version on the, uh,

00:03:44.040 | on the presentation.

00:03:45.400 | What would you, when you look

00:03:46.880 | back on your career, unpack it

00:03:48.280 | for a minute, um, what, what do

00:03:50.160 | you think the things you got

00:03:51.640 | right were or the things, you

00:03:53.560 | know, you might change in terms

00:03:55.480 | of your career and being happy

00:03:57.760 | and finding your passion.

00:03:58.600 | Yeah, I do feel super fortunate

00:04:01.160 | that I was able to do, you know,

00:04:02.880 | my, my dream job for over two

00:04:05.840 | decades. And I love innovation.

00:04:09.040 | I love betting and gambling.

00:04:11.320 | And I love the combination of

00:04:12.960 | being able to think through

00:04:14.360 | markets and disruptions and to

00:04:17.000 | be able to place bets and all

00:04:18.640 | those things are super exciting.

00:04:20.000 | Things I got right, um, studying

00:04:24.240 | history, which is something I

00:04:25.680 | talk a lot about, and we'll be

00:04:27.360 | talking about in the, in the

00:04:28.640 | book, like knowing who the, the

00:04:30.520 | patriarchs were of your industry

00:04:32.480 | and knowing what they thought I

00:04:34.040 | think is super powerful in any

00:04:35.520 | endeavor. And then networking,

00:04:37.720 | you know, just like crazy, which

00:04:40.240 | I think is actually easier today.

00:04:41.760 | So those are a couple of the

00:04:43.000 | themes that we developed.

00:04:44.400 | Networking and studying history

00:04:46.480 | specifically, you and I have had

00:04:48.000 | many conversations about

00:04:49.080 | biographies. We both share a

00:04:50.800 | passion for those top biographies,

00:04:53.200 | not of business people, but that

00:04:55.840 | had an impact on you. And then

00:04:57.000 | I'll go around the horn top

00:04:58.040 | biographies that had an impact on

00:04:59.600 | you, preferably ones that are in

00:05:01.080 | business, but if it is business, I

00:05:02.120 | guess it's okay.

00:05:02.720 | One that actually led to me

00:05:05.440 | developing this theme was, was

00:05:09.080 | learning more about Danny Meyer's

00:05:10.520 | journey, who is the renowned

00:05:13.440 | restaurant owner in New York City

00:05:15.080 | and the founder of Shake Shack.

00:05:16.600 | But he had a career where he was

00:05:18.680 | in sales, he was about to go to

00:05:20.440 | law school. And as I think his

00:05:22.920 | uncle told him, what are you

00:05:24.000 | doing? You know, you want to be a

00:05:25.680 | restaurant owner. And he stopped

00:05:27.920 | that day, took a job at 10k a

00:05:31.240 | month, or 10k a year, he took

00:05:33.280 | like a 90% pay cut and started

00:05:36.680 | studying. And that gets into the

00:05:38.400 | history part, but he just started

00:05:39.760 | studying and obviously the rest

00:05:41.720 | of this history. For those of you

00:05:43.400 | that know about Danny Meyer.

00:05:44.440 | Setting the table is the book.

00:05:47.040 | Yeah.

00:05:47.440 | And that is the book Union Square

00:05:50.400 | Cafe, Gramercy Tavern amongst some

00:05:52.200 | of his great restaurants going

00:05:53.400 | around the horn here, Friedberg.

00:05:54.680 | You have a favorite biography you

00:05:57.520 | read or something that impacted

00:05:58.800 | you young in your career? And then

00:06:01.200 | do you feel like you figured it

00:06:04.080 | out? And what did you what would

00:06:05.800 | you change about the early part of

00:06:06.960 | your career? So the same two

00:06:07.920 | questions?

00:06:08.280 | That's a three very loaded

00:06:09.800 | questions. I don't know how to

00:06:11.040 | pick which one you want to answer

00:06:13.000 | that one. I will tell you when I

00:06:14.160 | was running my company in 2011.

00:06:17.720 | Climate. Yeah, the climate

00:06:20.440 | corporation. I read the Walter

00:06:21.360 | Isaacson biography of Steve jobs.

00:06:24.080 | Yeah. And he actually profiled a

00:06:26.240 | number of jobs as management

00:06:27.720 | techniques. My only operating

00:06:29.480 | role prior to that was working at

00:06:30.880 | Google. So that was the only

00:06:32.440 | management experience or exposure

00:06:34.040 | I had had. And then reading about

00:06:36.880 | how jobs ran his management team,

00:06:39.520 | it actually changed my behavior

00:06:41.280 | going into the office. I

00:06:43.720 | took a very different approach

00:06:45.080 | and I saw the results almost

00:06:46.920 | immediately.

00:06:47.680 | What was the primary thing that

00:06:49.720 | impacted you?

00:06:50.320 | Well, first of all, like having

00:06:52.720 | the cadence and the and the

00:06:54.400 | directness with the team,

00:06:56.760 | engaging the team fully in

00:06:58.160 | discourse, immediately making

00:06:59.480 | decisions, getting everyone to

00:07:01.440 | commit moving forward very

00:07:02.600 | quickly. I was the first time CEO

00:07:05.040 | so I never had a good mentor. And

00:07:08.120 | reading those segments of jobs as

00:07:09.840 | management style in his biography

00:07:11.960 | was just a really great tool to

00:07:13.720 | add to my emerging toolkit on how

00:07:15.960 | to be a manager and how to be a

00:07:17.000 | CEO and how to run a company.

00:07:18.440 | That was big for me. I could

00:07:22.040 | rehash everything about early on

00:07:23.280 | in my life. I don't think that's

00:07:24.320 | a good use of

00:07:25.040 | Walter Isaacson's book on Elon

00:07:27.520 | coming out in a couple of weeks,

00:07:29.200 | which should be interesting. I

00:07:31.480 | sat for an interview with Walter

00:07:33.480 | for that one. So I'm interested

00:07:34.640 | to see how that turns out.

00:07:35.680 | Yeah, I did too.

00:07:37.040 | I was asked to I didn't. Yeah,

00:07:39.360 | we were asked to

00:07:39.920 | didn't do it.

00:07:41.080 | No, I did it. I did it. I you

00:07:42.440 | know, I don't. I didn't ask to

00:07:44.480 | do it. I got asked, you know, if

00:07:45.760 | I would write give some anecdotes.

00:07:47.200 | I think sacks also got asked if

00:07:48.360 | he would do some anecdotes. So I

00:07:50.400 | think it's gonna be pretty good.

00:07:51.360 | And Walter was hanging around

00:07:52.880 | putting passages out on Twitter,

00:07:54.520 | right? Yeah, I mean, he's such a

00:07:55.720 | good writer. And just watching

00:07:57.320 | him, you know, David, and I were

00:07:58.760 | at Twitter for a little bit. And

00:07:59.880 | you know, just being

00:08:00.920 | he was hanging out. He was like,

00:08:02.760 | you know, in the corner of the

00:08:04.360 | room, like participating in a lot

00:08:06.200 | of these meetings. Yeah. So he

00:08:08.360 | was there basically during the

00:08:09.280 | whole transition. And I think

00:08:11.200 | that was going to be the ending

00:08:12.360 | of the book is, you know, he had

00:08:14.040 | to cut it off at some point, but

00:08:15.240 | he was there for the first month

00:08:16.400 | of the transition. Yeah, the

00:08:18.160 | Twitter takeover,

00:08:18.960 | and for rocket launches and

00:08:20.480 | everything in between. So he I

00:08:22.120 | mean, watching his biography

00:08:23.360 | technique is, it's pretty

00:08:25.160 | intense. And he spends a long

00:08:26.680 | time with the subjects. And, you

00:08:29.680 | know, just taking notes and

00:08:31.200 | talking to everybody around him.

00:08:32.240 | So he would, you know, peel off

00:08:33.960 | sacks or peel me off. Hey, could

00:08:35.840 | I ask you a question about this

00:08:36.680 | or ask a question? What do you

00:08:38.280 | think of this? What do you think

00:08:39.280 | of this? J. Cal speaking of

00:08:40.480 | books, I'm in the rare position

00:08:42.680 | of needing your advice. Oh,

00:08:44.560 | okay.

00:08:45.000 | I think that's a compliment.

00:08:48.360 | Sort of a compliment. Okay. So

00:08:51.560 | Harper Collins. I'm going to do

00:08:53.600 | a book about how to create run

00:08:56.200 | scale operate software companies,

00:08:58.440 | which will be an extension of

00:09:00.240 | the blog I've been writing for a

00:09:01.160 | couple of years, which I haven't

00:09:02.640 | been active on, mainly because

00:09:04.760 | I've been using that time for

00:09:05.800 | this pod. But I was writing at a

00:09:07.920 | giga clip until we started doing

00:09:09.040 | all in pod. Yeah, I want to get

00:09:10.720 | back to putting that together.

00:09:12.200 | Yes. And I could go chapter by

00:09:14.480 | chapter, you know, here's how

00:09:15.840 | you should think about marketing.

00:09:16.680 | Here's how you should think about

00:09:17.680 | sales. Here's how you should

00:09:18.640 | think about finance metrics, and

00:09:20.360 | so on. But I'm not sure that's

00:09:23.520 | the best way to present the

00:09:24.400 | material. So yeah, do I just

00:09:26.320 | write the book that I think it

00:09:27.760 | should be? Or do I work with a

00:09:30.720 | publisher on what the business

00:09:32.280 | book should be? And they kind of

00:09:33.760 | give me the guidance? So it's a

00:09:35.800 | great question.

00:09:37.440 | You are in a unique position

00:09:39.200 | where, you know, you're

00:09:40.640 | successful, you have an audience

00:09:42.080 | for the book and success for you

00:09:43.440 | is for you know, great founders

00:09:45.240 | to read the book and for it to

00:09:46.240 | have impact, as opposed to

00:09:47.720 | somebody who's an author who

00:09:48.600 | just wants to be published,

00:09:49.600 | right. So you have a different

00:09:50.520 | reason to do this. I think you

00:09:53.160 | should write the book, you

00:09:55.160 | should decide who you want the

00:09:56.200 | audience to be and what you want

00:09:57.520 | to get out of the book. And you

00:09:58.920 | should forget about publishers

00:10:00.160 | in the whole grand scheme of

00:10:01.360 | things. Then when you write the

00:10:03.040 | treatment, you write the first

00:10:04.160 | five chapters or so, then you

00:10:06.040 | can bring it to a select group

00:10:08.080 | of publishers, you can get an

00:10:09.560 | agent, I can introduce it to

00:10:10.600 | three agents, there's, you know,

00:10:12.240 | top two or three in this field.

00:10:13.600 | And I think what you should do

00:10:16.040 | is, the business advice is out

00:10:18.760 | there, right? And the techniques

00:10:20.400 | are out there. But what you have

00:10:22.120 | is you have war stories. So the

00:10:23.800 | technique I used in my book

00:10:25.000 | angel was to, you know, talk

00:10:27.600 | about techniques and investing

00:10:29.000 | that I had learned from other

00:10:29.960 | folks, including Bill Gurley,

00:10:31.400 | Michael Moritz, or whatever. But

00:10:33.040 | then I would give my anecdotes,

00:10:34.400 | things I had experienced before

00:10:35.840 | and it's personally. And what

00:10:37.280 | that does is it makes the

00:10:39.080 | examples let people really get

00:10:41.760 | some narrative out of the book.

00:10:42.920 | And so the lesson combined with

00:10:45.040 | the actual practical experience,

00:10:46.800 | that's kind of the magic of

00:10:48.200 | these business books, I think.

00:10:49.360 | Do you have a favorite biography

00:10:52.640 | yourself, Saks either business or

00:10:54.360 | non business?

00:10:55.000 | I don't think I read a lot of

00:10:57.320 | business biographies. Really, I

00:10:59.240 | read one business how to book

00:11:02.280 | back in the PayPal days, you

00:11:05.280 | know, I didn't have any real

00:11:06.640 | business education.

00:11:07.680 | Good to great. Do you remember

00:11:09.240 | what it was? It was good to

00:11:10.240 | great. Yeah. I mean, that was

00:11:11.520 | the seminal book at the time.

00:11:12.800 | So I read this book, and

00:11:15.600 | literally, one chapter was on

00:11:18.240 | how you should stick to your

00:11:19.240 | core idea. And then the next

00:11:21.600 | chapter was about how you should

00:11:22.440 | be flexible. Like, well, both of

00:11:25.080 | these ideas are right

00:11:26.360 | situationally. Yes. But so how

00:11:28.400 | do you decide? So I came away

00:11:30.520 | from the book thinking this

00:11:31.600 | isn't really going to help me

00:11:32.560 | because it doesn't give you what

00:11:34.440 | you really need, which is what

00:11:36.000 | are the specific situations in

00:11:38.040 | which you should apply a given

00:11:38.960 | principle?

00:11:39.520 | Yes. And I kind of came away

00:11:42.480 | from like thinking that business

00:11:44.120 | self help books just weren't

00:11:46.000 | that they're too theoretical and

00:11:47.640 | weren't that helpful.

00:11:48.560 | But then this is where biography

00:11:50.120 | is really become helpful because

00:11:51.240 | you actually get to see why that

00:11:53.480 | you know, technique was

00:11:54.200 | deployed. Brad, do you have any

00:11:55.440 | business bios that you

00:11:57.000 | know, related to that about

00:11:58.240 | Saks, Saks do not write a how to

00:11:59.880 | book? Yeah, right. Write a book

00:12:02.520 | about your visceral experiences.

00:12:04.840 | Right? That just you happen to

00:12:07.560 | teach people how to along the

00:12:08.920 | way, right? You have a lot of,

00:12:10.480 | you know, I just think the story

00:12:13.000 | is powerful.

00:12:14.280 | Is it calling zoom bombing when

00:12:22.720 | you just

00:12:31.920 | guys? Thank you to the Starlink

00:12:36.200 | team yet again coming to the

00:12:37.680 | rescue.

00:12:38.280 | What is this?

00:12:39.480 | No, no, I just wanted to come

00:12:43.840 | and say hi.

00:12:44.240 | You have to hang.

00:12:46.080 | This is the black mirror version

00:12:47.960 | of the Brady Bunch.

00:12:48.720 | What happened? Are you lost at

00:12:51.920 | sea? We tried to get you find

00:12:53.920 | you on the yacht was missing the

00:12:55.240 | dinghies missing. We sent out

00:12:57.120 | search crews.

00:12:58.120 | Hold on your camera and go you

00:12:59.840 | look like Tiger Woods in this

00:13:01.240 | shot. A guy a guy that I work

00:13:03.560 | with such much you're the

00:13:04.320 | Michael Bridges of the online

00:13:05.720 | podcast and that you haven't

00:13:07.000 | missed a podcast since the

00:13:08.560 | beginning. So then that's the

00:13:09.760 | only reason why I'm coming into

00:13:12.160 | this in your head. Yeah, it's in

00:13:13.280 | my head. I just want to say

00:13:15.800 | love you guys. Enjoy the pod.

00:13:17.600 | I'll talk to you later. I'll

00:13:18.320 | watch.

00:13:18.800 | Bye bye. The Iron Man Street

00:13:21.280 | continues. I want to get my

00:13:23.040 | remodeling. He's drunk. He

00:13:26.080 | thought he was a drunk zoomed

00:13:27.240 | on.

00:13:27.560 | Yeah, remember he's nine hours

00:13:29.120 | ahead. J Cal to answer your

00:13:30.280 | question. Yes, please. Teddy

00:13:33.560 | Roosevelt man in the arena Phil

00:13:35.000 | Knight, Alexander Hamilton,

00:13:37.600 | those three for me that like to

00:13:39.640 | take away the the red thread

00:13:41.440 | that connects them is do shit

00:13:43.440 | that matters. Do stuff that

00:13:44.920 | matters. Your life is short. Get

00:13:46.920 | in the arena major in the majors

00:13:49.240 | but do stuff that matters. So

00:13:50.560 | they all were inspirations for

00:13:52.720 | me both in terms of how I

00:13:53.840 | organized my own life, but also

00:13:55.720 | how I think about investing.

00:13:57.080 | Fantastic. And I'll give you a

00:13:58.560 | couple of ones that you may not

00:14:00.120 | have thought of something like

00:14:01.200 | an autobiography. The biography

00:14:03.160 | of Akira Kurosawa, the famous

00:14:05.200 | film director. Absolutely

00:14:07.040 | outstanding.

00:14:07.840 | Great recommendation. I'm gonna

00:14:09.320 | I actually want to read that.

00:14:10.520 | That's a great

00:14:10.960 | recommendation. I'll read that

00:14:12.520 | who wrote it. Akira Kurosawa.

00:14:13.960 | It's an autobiography.

00:14:14.800 | It's his autobiography.

00:14:15.680 | Autobiography. Oh,

00:14:16.680 | born standing up. Steve Martin,

00:14:19.000 | Bill Gurley and talked about

00:14:20.640 | this one. And it really is

00:14:22.560 | fantastic. I've actually listened

00:14:26.120 | to it twice. And that's one of

00:14:27.760 | the great things about these

00:14:28.440 | biographies. You listen to him

00:14:29.440 | a second time. Here's another

00:14:30.880 | one. sax. This is critical for

00:14:32.440 | you on writing. Oh,

00:14:34.840 | you've listened to it.

00:14:37.400 | Who's by

00:14:37.800 | a frequent cast.

00:14:38.720 | Stephen King.

00:14:39.720 | Oh, Stephen King.

00:14:40.760 | On writing might be top five for

00:14:43.080 | me of all time. And he really

00:14:44.960 | goes into, like the story of

00:14:47.400 | Harry. He wrote like a small

00:14:49.960 | treatment of Harry. He was a

00:14:51.240 | math teacher, he threw it in the

00:14:52.280 | garbage, because he was so

00:14:53.320 | frustrated with his wife sees it

00:14:54.720 | in the garbage. She reads it.

00:14:55.640 | She says, this is incredible.

00:14:56.840 | You should keep writing it. He

00:14:58.560 | writes it. He sells the book for

00:15:00.720 | $10,000. He's getting paid like

00:15:02.240 | $9,000. As a teacher, he can't

00:15:04.360 | quit his job. And back in the

00:15:06.560 | day, they used to sell your

00:15:07.680 | hardcover rights and your

00:15:08.600 | paperback rights separately. If

00:15:10.400 | your hardcover went well, then

00:15:12.040 | you would do a paperback and go

00:15:13.680 | mass market. He gets a call,

00:15:16.280 | they sold the rights to the mass

00:15:18.160 | market book $400,000, the

00:15:20.480 | paperback, that his agent gets

00:15:22.480 | on the phone and says it's

00:15:23.160 | $40,000. And he thinks he hears

00:15:25.600 | 40,000. He says, well, $40,000.

00:15:27.560 | That's incredible. That's four

00:15:28.400 | years, I might be able to quit

00:15:29.760 | my job as a teacher, because

00:15:30.840 | then it's 400,000 says, Okay, so

00:15:32.880 | $40,000 divided by nine, it's

00:15:35.040 | maybe it's even closer to five

00:15:36.640 | years. He says, No, you're

00:15:38.040 | getting 400,000. You can't

00:15:39.560 | believe it. And that was

00:15:41.040 | basically the story about

00:15:42.160 | Stephen King.

00:15:42.840 | But it'd be great, great to

00:15:44.040 | listen to prior to writing a

00:15:45.240 | book. He's absolutely it's

00:15:47.960 | super amazing. Most people don't

00:15:50.200 | know this fact, but King wrote

00:15:52.200 | the novella that became

00:15:53.440 | Shawshank.

00:15:54.080 | Absolutely. Yes. Right. He's

00:15:57.520 | got a lot of those you didn't

00:15:59.040 | know it. And then the Malcolm X

00:16:00.040 | biography is amazing, too, if

00:16:01.520 | you haven't read it. So those

00:16:02.760 | are just non traditional ones of

00:16:04.800 | people following their passion.

00:16:06.400 | One of the things about it is

00:16:07.680 | the extreme effort in the

00:16:08.960 | decades of perfecting craft that

00:16:10.760 | I found super appealing about

00:16:12.240 | these. Nothing happens easily.

00:16:14.560 | In your honor, J. Cal the rest

00:16:16.160 | of the episode, seven seven

00:16:18.120 | summers to share seven samurai

00:16:19.720 | by the way, if you're a startup

00:16:20.720 | founder, entrepreneur, CEO, best

00:16:23.600 | film to watch, because

00:16:25.840 | team well, yeah, I mean, there

00:16:28.520 | is no, there is no giving up.

00:16:30.560 | You do what it takes. And you

00:16:34.040 | persist. I think persistence is

00:16:35.680 | one of the biggest I've talked

00:16:36.680 | about is one of the biggest

00:16:37.400 | predictors for success. And

00:16:39.800 | there's a character that emerges.

00:16:42.560 | Once you're facing challenge,

00:16:45.280 | this film does such an

00:16:46.880 | incredible job of demonstrating

00:16:48.520 | the essence of that character.

00:16:49.560 | Yeah, I think it's also a

00:16:51.320 | similar character that's needed

00:16:52.480 | in

00:16:52.720 | but if you read for a

00:16:53.840 | summer's biography, you'll see

00:16:55.120 | that a number of the actors in

00:16:56.680 | that film occur in other films

00:17:00.200 | by

00:17:00.800 | Kurosawa,

00:17:03.400 | who that stars

00:17:05.480 | the

00:17:05.760 | to share a muffooning. Yeah.

00:17:06.880 | Yeah. Who is all of he's just

00:17:09.080 | about an all

00:17:09.640 | was his muse. He was he was

00:17:11.400 | score to De Niro to score

00:17:13.400 | Shazam. Yes, or Shazam sort of

00:17:15.400 | modeled his relationship with

00:17:17.040 | De Niro after Kurosawa and

00:17:19.080 | George Lucas, Kurosawa,

00:17:20.560 | Francis Ford Coppola were all

00:17:22.000 | disciples of Kurosawa was, you

00:17:24.600 | know, credible.

00:17:25.440 | Well, the seven samurai was

00:17:28.280 | remade as a Western. The

00:17:29.920 | Renaissance seven with I think

00:17:31.560 | Steve McQueen and Yul Brynner.

00:17:33.040 | Yep. A lot of Kurosawa movies

00:17:36.000 | were remade as Westerns. Yeah,

00:17:37.520 | it just works pretty well.

00:17:38.760 | And they were they were all

00:17:39.560 | scored by any Amore Connie. A

00:17:42.280 | lot of them by you know, Mark

00:17:43.480 | Carney, which I was listening

00:17:44.320 | to in the cold plunge. I

00:17:45.560 | started in the cold. Oh my

00:17:46.800 | god, I just like to say just a

00:17:48.920 | hearty fuck you. This is such a

00:17:50.400 | random show. We have not.

00:17:51.520 | Well, we'll get there. But I

00:17:52.920 | mean, I just want to start the

00:17:53.960 | podcast by saying fuck you to

00:17:55.120 | go. Is there anything else

00:17:56.240 | that's gonna be talking about

00:17:56.960 | on the show? I'm like, I don't

00:17:57.720 | think so. Joe Rogan and all

00:17:59.400 | these assholes who said in

00:18:01.520 | order to be like, successful,

00:18:03.320 | you have to jump in a cold

00:18:04.360 | plunge. Because now I've done

00:18:06.120 | it four times out of the last

00:18:07.480 | like, I'm doing it every other

00:18:08.760 | day. And they're right. I feel

00:18:10.560 | like a superhero after I do

00:18:12.040 | this. Anybody doing cold plunge

00:18:13.280 | here besides me and Shama?

00:18:14.560 | Nobody.

00:18:16.600 | Okay, well, I mean, I was in

00:18:18.840 | Mexico bills occasionally. And

00:18:20.680 | they had this this this cold

00:18:21.960 | plunge thing. And I we did it

00:18:23.160 | every day that we were there at

00:18:24.120 | the hotel. But then we came

00:18:26.440 | back. Well, it's you get this

00:18:28.600 | endorphin run chat rush

00:18:30.000 | afterwards. It's incredible.

00:18:31.120 | And then afterwards, now when I

00:18:33.160 | go to the gym, I only do like a

00:18:34.440 | 10 minute ice cold shower

00:18:35.640 | afterwards. Like it's critical

00:18:37.000 | to like, and it feels amazing.

00:18:38.280 | You feel like so relaxed after

00:18:39.760 | you did six, I did five or six

00:18:42.600 | minutes at 58 degrees. I've been

00:18:44.120 | lowering it two degrees a day.

00:18:45.240 | But the first day I did it at

00:18:46.280 | 43 or 44. For like 45 seconds,

00:18:49.840 | and my body started shaking. I

00:18:51.120 | got hypothermia instantly Bill

00:18:52.520 | you've done it. You've done this

00:18:53.720 | nonsense.

00:18:54.160 | Occasionally, occasionally. I'm

00:18:55.440 | still not convinced there's any

00:18:56.720 | medical benefit to it. But you

00:19:01.480 | guys, you've sent around. It's

00:19:03.560 | very trendy.

00:19:04.240 | It's very

00:19:05.560 | I haven't inference on pickleball.

00:19:09.520 | So I'm doing inference on

00:19:11.040 | motorcycle bikes, right?

00:19:13.520 | And motorcycle bikes.

00:19:15.160 | cold.

00:19:17.480 | My last week has been failure.

00:19:21.920 | You just take your take your

00:19:23.800 | bike into the cold plunge.

00:19:25.080 | Ride it into the arena. And then

00:19:28.160 | you go play pickleball. Yeah.

00:19:29.760 | Okay. And you're wondering why

00:19:31.360 | everybody hates us. Lifestyles

00:19:34.520 | of the abhorrent. 1% All right,

00:19:38.680 | listen,

00:19:39.080 | speaking of a couple other

00:19:40.440 | rentals that are Kurosawa films

00:19:42.440 | are worth watching. Actually, he

00:19:43.720 | did. He did versions of

00:19:45.320 | Shakespeare, which I think is

00:19:46.400 | really interesting. Absolutely.

00:19:48.080 | So Kurosawa took on Shakespeare

00:19:49.840 | and then Hollywood kind of

00:19:51.000 | adapted Kurosawa. But a couple

00:19:52.760 | of really good ones thrown a

00:19:54.160 | blood was Kurosawa was

00:19:56.000 | adaptation of Macbeth. And then

00:19:58.160 | ran was his adaptation of King

00:20:00.080 | Lear, two of my favorites worth

00:20:01.440 | checking out

00:20:01.960 | Hidden Fortress. Also great.

00:20:04.160 | In fortress became the basis for

00:20:06.080 | Star Wars. It was a big

00:20:07.240 | influence.

00:20:07.840 | Yeah, the R2D2 and c3p characters

00:20:10.600 | c3po characters who are like sort

00:20:12.680 | of telling the story are in the

00:20:15.000 | hidden fortress. You can see the

00:20:15.920 | direct descendants here. But for

00:20:17.160 | me, the genre I love for

00:20:18.760 | Kurosawa is his film the wa era

00:20:22.000 | stray dog. I allow I mean, these

00:20:24.640 | are exceptional films and high

00:20:27.080 | and low I wanted to remake when I

00:20:28.480 | was thinking about being a film

00:20:29.760 | director and it turns out

00:20:30.640 | Spielberg owns the rights. High

00:20:33.200 | and low. Incredible story. But

00:20:35.040 | we digress here.

00:20:36.520 | Let's get to the guy you just

00:20:38.280 | want one last anecdote. Okay,

00:20:39.760 | the TV show Breaking Bad. Yes,

00:20:41.880 | inspired by a cure. The Kurosawa

00:20:44.040 | film. Yeah, that a guy who finds

00:20:45.760 | out he's gonna die. And when he

00:20:46.880 | finds out he's gonna die,

00:20:47.720 | suddenly he becomes one of my

00:20:49.520 | favorite self like was this true

00:20:51.320 | like nature comes out. So

00:20:53.080 | incredibly poignant film that

00:20:55.600 | obviously inspired the

00:20:57.360 | extraordinary TV show Breaking

00:20:59.520 | Bad. Yeah,

00:21:00.080 | Akira is means to live in

00:21:03.120 | Japanese. And this is a story of

00:21:04.760 | somebody who's basically lived a

00:21:06.880 | modest amid is somebody who

00:21:08.320 | lived a mid life. But then at

00:21:09.880 | the end decides he wants to do

00:21:11.160 | something meaningful with his

00:21:12.560 | little pittance of money and to

00:21:15.000 | make an impact on the world. And

00:21:16.080 | so he decides he's going to take

00:21:17.080 | a parking lot that's disgusting

00:21:19.960 | and filled with garbage and make

00:21:20.960 | it into a kid's playground. So

00:21:24.600 | people can enjoy their life. It

00:21:25.960 | is. And it's also it's to share

00:21:29.760 | a mufune as an old man. So in a

00:21:31.880 | way this parallels their careers

00:21:34.440 | and trying to do something

00:21:35.760 | important. There's another one I

00:21:38.760 | live in fear. So those two to

00:21:40.440 | live and I live in fear about

00:21:41.680 | aging and getting old at the

00:21:43.040 | genre. If you don't know,

00:21:43.960 | Akira Kurosawa, you know, just

00:21:46.600 | you're going to need to be a

00:21:47.400 | little patient because it

00:21:48.280 | doesn't have 1000 cuts per

00:21:49.880 | minute. Like modern films. It's

00:21:51.560 | not the Transformers or a Marvel

00:21:53.560 | film, but it's well worth it if

00:21:54.840 | you can get your ADHD under

00:21:56.880 | control. I would start with my

00:21:58.200 | movies.

00:21:58.720 | Yeah, seven samurai thrown to

00:22:03.000 | blood and ran.

00:22:04.040 | Here you go there. And then

00:22:05.320 | there's I mean, if you want to

00:22:06.360 | go super intellectual Rashomon

00:22:08.400 | Yeah, which is about truth

00:22:11.760 | every people's different

00:22:12.640 | perspective. Every film theory

00:22:14.360 | class starts with Ross and more.

00:22:15.560 | Yeah, so there's your USC film

00:22:19.280 | school divergence.

00:22:21.480 | Save 100 grand. Okay,

00:22:23.160 | we'll see you all at UCLA. Okay,

00:22:26.880 | VC market update. Carta has

00:22:29.360 | released a series a funding map

00:22:31.720 | covering the first half of 2023.

00:22:33.760 | But the data is what's

00:22:34.520 | interesting. They covered and

00:22:36.760 | Carta basically manages

00:22:37.880 | capitables and stuff like that

00:22:39.480 | for folks. Original company was

00:22:41.160 | he shares I think is a funding

00:22:43.360 | map which shows like how much

00:22:44.760 | money was raised. Nothing really

00:22:47.240 | too consequential in there. But

00:22:49.080 | what's really interesting is the

00:22:50.280 | data on series a rounds series a

00:22:53.280 | rounds are typically the rounds

00:22:55.400 | when a benchmark or Sequoia a

00:22:57.280 | craft come in, and you know,

00:22:58.920 | join the board and put in a

00:23:00.440 | significant check. Before that

00:23:03.120 | you have angels and seed

00:23:04.880 | investors and after that you

00:23:06.280 | have growth funds. But the

00:23:07.080 | series A is considered like a

00:23:08.200 | seminal moment in the history of

00:23:09.360 | a startup. median round is now

00:23:12.720 | 7 million raised that's down 26%

00:23:15.720 | year over year. And this is all

00:23:17.960 | data from the first half of the

00:23:19.640 | year. So first half of 2023

00:23:21.880 | versus 2022, which was a really

00:23:23.560 | crummy year. We're down from the

00:23:25.680 | crummy year 26% on the dollars

00:23:27.680 | raised 7 million. And the the

00:23:30.240 | pre money valuation 40 million

00:23:32.200 | down 17%. So last year, it was

00:23:34.600 | 11 million raised on 48. I don't

00:23:36.720 | have the 2021 data here, but it

00:23:39.280 | would be even more. So just

00:23:41.360 | right off the bat, reactions,

00:23:44.600 | I'm sorry, you build early to

00:23:46.160 | what we're seeing in the series.

00:23:47.600 | A space is a return to normalcy.

00:23:50.000 | I mean, the series is back in

00:23:52.280 | the you know, Uber days and

00:23:54.040 | Airbnb days were what 510 million

00:23:56.800 | bucks on a 30 million. So this

00:23:59.240 | is a return to normalcy.

00:24:00.640 | Yeah, I don't I don't think

00:24:01.840 | you've gone quite back to that

00:24:03.520 | line. Right. And so I think

00:24:05.720 | there's still a significant

00:24:07.000 | amount of competition at that

00:24:08.960 | level. And the fact that it's

00:24:12.080 | off a little bit is is noteworthy.

00:24:14.120 | But it's not like off 50%. Right.

00:24:17.080 | I think that market remains

00:24:18.600 | competitive. I think there's a

00:24:20.400 | number of great people out

00:24:21.760 | there investing at that level.

00:24:23.200 | And I and of course, the AI

00:24:25.640 | deals, like one thing that might

00:24:27.920 | be interesting is if you pull the

00:24:29.280 | ideals out, I bet those numbers

00:24:31.040 | would be more akin to what they

00:24:33.360 | were two or three years ago,

00:24:34.720 | because those are being done at

00:24:36.320 | 200.

00:24:36.960 | Is the reason you went to angel

00:24:38.640 | investing or seed investing,

00:24:39.760 | let's call it because it's so

00:24:41.920 | crowded and competitive at the

00:24:43.800 | series a level and what seed

00:24:46.840 | investing is now is what series a

00:24:49.600 | investing was for the 20 years of

00:24:51.120 | your career.

00:24:51.600 | Now,

00:24:53.040 | okay.

00:24:55.080 | I think if I were practicing,

00:24:58.160 | institutionally, I would I would

00:25:00.600 | stay at the series a level and

00:25:02.200 | take board seats and try and get

00:25:03.960 | as much ownership as possible,

00:25:05.440 | which is the been the benchmark

00:25:07.240 | strategy I I am. This is more of

00:25:10.000 | a hobby thing for me. Got it. And

00:25:12.080 | I don't want more seats anymore.

00:25:14.200 | But it's super, super crowded at

00:25:17.480 | series a still to this day. Yeah,

00:25:19.080 | I said it was competitive. I

00:25:21.280 | don't know that it's super

00:25:22.520 | crowded. I think a lot of people

00:25:24.400 | realize that if you can get two

00:25:27.080 | and a half or 3% management fee

00:25:29.240 | investing $300 million at a pop,

00:25:31.960 | that's an easier lifestyle than

00:25:34.440 | actually taking board seats and

00:25:35.960 | doing work. And so I think a lot

00:25:37.640 | of money and activity got pulled

00:25:40.000 | into the late stage market.

00:25:41.600 | Nearly every firm started doing

00:25:43.960 | that. And once the once the

00:25:45.800 | center of gravity goes there in a

00:25:47.480 | firm, you know, in your investing

00:25:51.040 | 200 million a clip, can you

00:25:52.960 | imagine the Monday meetings like

00:25:54.520 | who's paying attention to the

00:25:55.640 | person that's putting 5 million

00:25:57.320 | out at a time? Like it'd be hard

00:25:59.920 | it's like going to playing high

00:26:01.360 | stakes cards, and then you get

00:26:02.720 | invited to you're playing

00:26:03.920 | exactly 100 200. And you go to

00:26:06.480 | 510 game. It's like it's if

00:26:08.120 | there's a team and who's paying

00:26:09.360 | attention to the person playing

00:26:10.640 | in the little game. And so I

00:26:12.520 | actually think the number of

00:26:13.720 | people that practice at that

00:26:15.360 | level has actually gone down.

00:26:17.320 | Huh? But that doesn't mean you

00:26:19.680 | know, the business since I got

00:26:21.720 | in, only got more competitive.

00:26:23.880 | And so there's still enough. And

00:26:27.400 | the other thing is the founders

00:26:28.880 | have learned how to play. However,

00:26:31.640 | if there's 10 people doing it,

00:26:33.040 | they know how to play them off

00:26:34.160 | of one another. They're very

00:26:35.320 | skilled at it.

00:26:36.040 | Yeah, that's, that's a weird

00:26:38.680 | thing that happened is like the

00:26:39.760 | playbook, because of podcasts,

00:26:42.200 | because of blog posts, I mean,

00:26:43.880 | just how to how to run a company.

00:26:47.080 | And then, you know, how to, you

00:26:49.440 | know, negotiate with VCs is it's

00:26:51.280 | all been unpacked. Saks, what are

00:26:52.920 | you seeing? You're a series a

00:26:54.600 | investor, you compete with the

00:26:56.520 | sequoias, the benchmarks, heads

00:26:59.120 | up for the series A's, what are

00:27:00.400 | you seeing in the series A? And

00:27:01.520 | what do you take from this data

00:27:02.560 | being down 26% year over year,

00:27:04.320 | which probably actually means

00:27:05.440 | probably 50% down from the peak?

00:27:07.160 | What are the thoughts?

00:27:08.880 | Well, yeah, the the venture

00:27:10.520 | capital market peaked in q4 of

00:27:13.440 | 2021, in terms of both

00:27:15.520 | valuations and the amount of

00:27:17.000 | money that was being deployed,

00:27:18.280 | and it kept going down throughout

00:27:20.920 | all of 2022. And I think it

00:27:23.520 | bottomed out in q1 of 2023,

00:27:27.440 | basically in the last several

00:27:28.760 | months. And I think now, the pace

00:27:31.240 | of deployment has sort of

00:27:32.520 | stabilized. And it's kind of

00:27:36.120 | stabilized at a pre pandemic

00:27:37.840 | level. So you know, maybe a

00:27:39.760 | 2019 level. Now, I think that

00:27:42.280 | probably mass and big

00:27:43.360 | differences by round. So like

00:27:45.640 | you're saying, series A rounds

00:27:47.920 | are more competitive, there's

00:27:49.400 | relatively more action there, I

00:27:50.840 | think the late stage rounds,

00:27:52.120 | Brad can speak to this, the

00:27:53.720 | capital there is dried up, I

00:27:55.200 | think, considerably more. And

00:27:57.120 | those rounds are much harder to

00:27:58.440 | get. And the reason I think is

00:28:00.560 | because that when you have more

00:28:02.240 | operating history, then it's

00:28:04.520 | harder to raise around based on

00:28:06.160 | narrative. Whereas when you're

00:28:08.600 | at a very early stage, you can

00:28:09.840 | basically just raise money based

00:28:11.400 | on a dream.

00:28:12.040 | And the way I frame it to people

00:28:14.440 | is when I'm part of this is my

00:28:16.480 | fault, because I'm training

00:28:17.160 | people in our accelerators and

00:28:18.680 | pre accelerators, I tell them

00:28:19.800 | you're either selling promise or

00:28:20.840 | performance. And you know, once

00:28:22.720 | you start having customers and

00:28:24.200 | numbers and retention, you know,

00:28:26.440 | someone like sacks is gonna be

00:28:27.520 | like, give me the data. And

00:28:28.480 | they're gonna look at churn and

00:28:29.320 | say, yeah, this business is too

00:28:30.240 | much churn, it's leaky bucket,

00:28:31.320 | whatever. But when you're selling

00:28:32.480 | promise, it's a lot easier than

00:28:34.320 | selling performance.

00:28:35.240 | I'll tell you guys a CEO that is

00:28:37.400 | a well known CEO, public company

00:28:40.120 | now. He told me, and I think

00:28:42.840 | girly, I think you guys were

00:28:43.680 | investors. He said, as soon as we

00:28:46.880 | started having revenue, our

00:28:48.680 | valuation felt like it went down

00:28:50.360 | as soon as we started making

00:28:51.240 | profit, our valuation went down.

00:28:52.720 | Because at that point, you're,

00:28:54.080 | you know, you're judged on the

00:28:56.400 | quality of that stage of the

00:28:59.040 | business. Whereas before, you

00:29:00.720 | could paint a picture with 1000

00:29:02.320 | words about the different paths

00:29:04.120 | you might walk and everyone

00:29:05.280 | wants to believe the optimistic

00:29:06.720 | path will be walked. And so you

00:29:08.200 | can boost your valuation boost

00:29:09.840 | investor interest. But once

00:29:11.400 | those numbers start to come

00:29:12.200 | through, it really changes the

00:29:13.600 | investor criteria for how they

00:29:14.880 | assess the value of the

00:29:15.560 | business.

00:29:16.040 | To a lot of people will state if

00:29:18.480 | they have a product launch

00:29:19.840 | coming, though, those tell you

00:29:21.440 | to raise money before you want

00:29:24.080 | to sell the promise of that

00:29:25.680 | launch. Yes,

00:29:26.440 | old saying it's better to raise

00:29:27.720 | on the sizzle than on the steak.

00:29:29.200 | Hmm. Yeah. Unless the steak is

00:29:31.920 | pretty high grade. Obviously,

00:29:33.560 | if the steak is great, then

00:29:34.960 | yes, that's the best time to

00:29:36.440 | take that risk off the table.

00:29:37.880 | Yeah. But but just to recap, I

00:29:39.760 | think where we are. I think the

00:29:42.480 | venture capital markets have

00:29:43.680 | stabilized for funding new

00:29:45.520 | companies. I think there's a

00:29:46.640 | mania going on with AI both in

00:29:48.520 | terms of the size of these

00:29:49.560 | rounds and the valuations. It's

00:29:50.880 | like 2021 for a lot of AI

00:29:53.080 | companies. We're not

00:29:54.480 | participating in that craziness.

00:29:56.320 | We are doing some seed checks.

00:29:57.640 | I would say and early stage AI

00:29:59.360 | companies were kind of

00:30:00.320 | calibrating the size of the

00:30:02.440 | check with the stage and amount

00:30:04.640 | of risk. And I think that's

00:30:05.560 | appropriate.

00:30:06.160 | So you are going pre series a

00:30:08.560 | seed putting in that's a 500 k

00:30:10.760 | $1 million check.

00:30:11.720 | Seed is what makes the most

00:30:13.120 | sense I think for AI startups

00:30:16.000 | because if you wait for a later

00:30:19.160 | round, then they're not being

00:30:20.840 | priced based on fundamentals.

00:30:22.440 | Yeah, yeah. So what check size

00:30:24.640 | is that 500 k million?

00:30:25.960 | We just did one of

00:30:27.520 | a $4 million check where he led

00:30:29.560 | kind of a bigger seed round.

00:30:30.760 | Got it. Fantastic. I love that

00:30:32.880 | those are called seed rounds

00:30:34.120 | today.

00:30:34.520 | I mean, it used to be three to

00:30:36.280 | 5 million was your series a but

00:30:37.760 | yeah, sure. seed round three to

00:30:39.080 | five. I still don't understand

00:30:40.520 | the term pre seed.

00:30:41.440 | So just to finish the thought I

00:30:42.560 | think where we're at and you

00:30:43.720 | know, Brad can can chime in on

00:30:45.320 | this is I think the venture

00:30:46.680 | capital market has stabilized

00:30:48.000 | for new companies new

00:30:49.640 | fundraising. However, I think

00:30:51.400 | there's going to be a one to

00:30:52.320 | two year period of distress for

00:30:54.280 | all these companies that raised

00:30:55.440 | in the peak. Yep. 2020 2021 and

00:30:58.360 | are now running out of money and

00:31:00.720 | they don't have enough revenue.

00:31:01.680 | They're not growing fast enough.

00:31:02.720 | And or their burn is too high.

00:31:04.720 | And all those companies are

00:31:06.160 | gonna be facing down rounds or

00:31:08.720 | restructurings or they're not

00:31:10.120 | gonna be able to raise.

00:31:10.960 | Well, people are also marking

00:31:12.600 | their books. Now we're starting

00:31:13.640 | to see the marking

00:31:14.600 | markdown. And we're gonna have

00:31:16.960 | probably a one to two year

00:31:18.040 | period of distress for all those

00:31:20.120 | bubble companies while we have a

00:31:22.800 | little bit of a resurgence for

00:31:25.080 | new companies.

00:31:25.800 | I got another topic I'm going to

00:31:27.920 | go to here related but Brad I

00:31:29.680 | just wanted to let you chime in

00:31:30.800 | on the late stage there because

00:31:31.760 | you operate in the BC Sarah.

00:31:33.200 | I think and this is related to

00:31:35.560 | the topic I suspect we're going

00:31:36.800 | to transition to but listen,

00:31:39.960 | there is a lot of activity in

00:31:41.600 | venture today. Right. And we're

00:31:44.160 | very reflective to the stock

00:31:45.560 | market. People were really

00:31:46.640 | scared in q3 and q4 of 2022

00:31:49.720 | started in 2021. But cute. 2022

00:31:53.360 | was scary to people because

00:31:55.040 | public market valuations for

00:31:56.480 | growth companies were down over

00:31:57.760 | 50%. So we really saw, you know,

00:32:00.400 | IPO markets venture all start to

00:32:03.440 | slow down. Coming out of that

00:32:05.520 | we've seen you know, stock

00:32:06.640 | market within, you know, 10% of

00:32:08.640 | all time highs. We see you know,

00:32:11.520 | this wave of AI occurring, what I

00:32:13.320 | would tell you is under 500

00:32:16.360 | million, maybe under 600 million,

00:32:18.760 | right series B and C rounds are

00:32:21.560 | as hot as I've ever seen them.

00:32:23.280 | And data infrastructure and AI

00:32:25.520 | and software, etc. So there is a

00:32:28.360 | lot of competition there. The

00:32:30.160 | later stage stuff, which as you

00:32:31.640 | know, I call quasi public. So if

00:32:33.440 | a company is over a billion

00:32:34.840 | dollars, right now you're, you're

00:32:37.280 | very reflective relative to

00:32:38.920 | what's happening in the public

00:32:39.920 | markets. We're starting to see

00:32:41.680 | activity I just read whiz raise

00:32:43.440 | more money. It's got $200

00:32:44.760 | million ARR raised at 10 billion.

00:32:47.320 | So those markets are definitely

00:32:49.040 | times revenue. Yeah, we did not

00:32:51.640 | participate. But 50 times

00:32:54.400 | revenue, you know, so there is

00:32:56.560 | definitely activity. I know a

00:32:58.000 | deal we got called on yesterday

00:32:59.600 | raising two and a half billion

00:33:01.000 | at 100 billion. There is a lot

00:33:02.920 | of activity. However, Saks is

00:33:05.360 | right. There is, you know,

00:33:07.800 | remember, we had 1000 unicorns

00:33:09.600 | at the end of 2021. And I've

00:33:11.720 | said 100% of those are going to

00:33:13.320 | do a down round. And we're still

00:33:15.320 | in the early stages of that

00:33:17.400 | reset to occur. There was some,

00:33:19.640 | you know, there's a report out

00:33:20.920 | this week that lots of people

00:33:21.960 | comment on Twitter where public

00:33:23.240 | markets were down 50% and

00:33:25.000 | private marks were down, I don't

00:33:26.560 | know, five to 10%. Like that

00:33:28.640 | will all normalize, it's all

00:33:30.480 | going to be down, you know, the

00:33:31.960 | same. So that's the only place I

00:33:33.720 | don't see activity under

00:33:34.920 | performant companies that were

00:33:36.360 | valued over a billion dollars.

00:33:38.000 | Those are dead on arrival until

00:33:40.000 | you get to a market clearing

00:33:41.280 | price. And we're not there yet.

00:33:43.000 | Okay, so the other big issue here

00:33:45.560 | is a lot of money was raised by

00:33:47.800 | VCs. Oh, you know, commonly known

00:33:50.840 | as dry powder in the industry.

00:33:52.600 | But there are some

00:33:53.760 | misconceptions about this dry

00:33:55.160 | powder, people are saying, Oh my

00:33:56.240 | god, all this money is going to

00:33:57.160 | come flowing into the ecosystem

00:34:00.040 | kumbaya, it's going to be the

00:34:01.920 | roaring 20s. Again. However, Bill,

00:34:05.080 | you did a little tweet storm,

00:34:06.320 | what people don't realize is when

00:34:08.560 | we refer to dry powder at VC

00:34:10.960 | firms, the VCs do not have that

00:34:14.080 | $250 billion, or whatever it is

00:34:16.760 | quarter trillion dollars sitting

00:34:17.960 | in their bank accounts. That

00:34:19.440 | money is sitting in another

00:34:20.640 | person's bank account, LPS,

00:34:22.560 | Harvard's endowment, CalPERS,

00:34:24.720 | sovereign wealth funds, etc. It

00:34:26.680 | has not been drawn down by the

00:34:28.640 | VCs yet. So, Bill, why is this an

00:34:32.720 | important fact for people to

00:34:34.080 | understand? And what are the

00:34:35.080 | dynamics that LPS are dealing

00:34:38.240 | with?

00:34:38.440 | Yeah, and there's a ton of

00:34:39.960 | dynamics between the GPS at the

00:34:42.600 | venture capitalist and the LPS at

00:34:44.480 | those endowments that Brad Brad

00:34:46.560 | started to hit on one of those,

00:34:48.520 | which is the marks aren't in the

00:34:49.960 | right place. And, and so so the

00:34:52.840 | thing you just explained,

00:34:54.040 | critical Jason, which is you

00:34:55.680 | don't actually have the money.

00:34:56.920 | There's no, there's no venture

00:34:58.760 | firm sitting around with, you

00:35:01.360 | know, all the money that they've

00:35:03.360 | got committed to their fund in a

00:35:04.800 | bank account. This just take

00:35:06.280 | why not? Why does that not

00:35:08.080 | actually occur? Because people

00:35:09.160 | would say, Oh, you raised a

00:35:10.160 | billion from these folks, they

00:35:11.320 | gave you the billion, right? Why

00:35:12.520 | do you want to take it down?

00:35:13.600 | One of the the brilliant

00:35:15.200 | realities of the way that a LP

00:35:18.880 | agreement works with a venture

00:35:20.240 | fund is they're not on the IRR

00:35:22.080 | clock until they actually pull

00:35:23.560 | the money down. So they explain

00:35:25.320 | what that means. They charge

00:35:26.680 | fees based on the total

00:35:28.200 | committed amount, but they don't

00:35:29.640 | actually draw the money down and

00:35:31.600 | get gauged on the performance of

00:35:33.600 | their investment until they need

00:35:34.880 | it. And so a classic venture

00:35:36.760 | firm will do five, six drawdowns

00:35:39.200 | over a 10 year period of a fund.

00:35:41.200 | And so they don't act, they

00:35:43.720 | literally don't have the money.

00:35:44.960 | A couple of other things worth

00:35:47.000 | noting. So, and some of that I

00:35:48.600 | didn't put in the tweet, but the

00:35:50.400 | marks aren't right. And everyone

00:35:52.960 | kind of quietly knows that the

00:35:54.520 | marks aren't right. But there's

00:35:56.160 | actually no incentive to get the

00:35:57.720 | marks right.

00:35:58.360 | Explain what a mark is to folks.

00:36:00.800 | So private companies have a

00:36:02.600 | valuation that's assessed either

00:36:05.280 | by the GP themselves, in most

00:36:07.280 | cases, which is a bit of a

00:36:08.800 | conflict of interest, sometimes

00:36:10.960 | by your auditor, he and wire

00:36:12.800 | whoever's auditing your venture

00:36:14.040 | fund. But of course, the

00:36:15.440 | techniques they have for

00:36:16.520 | assessing valuation are

00:36:18.240 | extremely crude. Because they're

00:36:20.840 | not market based. They're just

00:36:22.360 | not public companies. Yeah. So

00:36:24.960 | there's actually not a way to

00:36:26.400 | know they have extremely

00:36:27.520 | complicated cap tables. The other

00:36:30.400 | thing is, many LPS are actually

00:36:35.000 | bonus on the paper mark. And this

00:36:38.760 | is something that a lot of people

00:36:40.560 | don't realize. And so they don't

00:36:42.280 | have an incentive to dial around

00:36:44.960 | to the GPS and say, get your

00:36:46.440 | marks, right, because it's

00:36:47.560 | actually gonna reflect poorly on

00:36:49.320 | them. If they were to roll those

00:36:51.280 | up,

00:36:51.520 | are both of the LP and the GP are

00:36:53.960 | in a dance there. Hey, we know

00:36:55.720 | that stripe is not worth 100

00:36:57.280 | billion right now it's worth 50

00:36:58.400 | billion. But if you mark it down,

00:37:00.440 | I don't get my bonus. I'm the

00:37:01.920 | person who's giving you money for

00:37:03.280 | your next fund. And so when we're

00:37:05.680 | assessing, hey, how much are we

00:37:06.960 | going to give you for your next

00:37:07.840 | fund, we're gonna look at the

00:37:08.560 | performance of previous funds. As

00:37:11.040 | an indicator,

00:37:11.720 | push back on what you just said, I

00:37:13.320 | agree with what you just said,

00:37:14.520 | except that no one has the

00:37:16.720 | explicit conversation. It's an

00:37:19.920 | emergent behavior. It's a

00:37:21.400 | merge.

00:37:21.720 | The dynamic system. Yeah,

00:37:23.880 | show me an incentive. I'll show

00:37:24.880 | you an outcome kind of situation.

00:37:26.280 | But there's no I've never heard

00:37:28.120 | of an LP like brow beating GPS to

00:37:30.280 | get their marks, right? Like

00:37:31.720 | especially on the downside. Never

00:37:33.360 | heard of that.

00:37:34.000 | Ever. Those marks can be done by

00:37:36.480 | an audit. Like you said, they

00:37:37.560 | could be done by around a

00:37:39.000 | financing. And so then there's a

00:37:41.200 | secondary market, weird

00:37:43.000 | secondary market,

00:37:44.000 | secondary market can do it. And

00:37:45.600 | sometimes LPS have this weird

00:37:47.400 | situation where different

00:37:48.520 | venture firms are marketing

00:37:50.080 | companies at radically different

00:37:51.560 | prices. Oh, which creates some

00:37:54.000 | interesting dynamics.

00:37:55.320 | Okay, so I did this series, I did

00:37:57.200 | the seed round of stripe where I'm

00:37:58.600 | why combinator. And I say, you

00:38:00.200 | know what, 50 billions fine, we're

00:38:01.840 | going to market at 50 billion

00:38:02.880 | because we, we invested at 2

00:38:04.520 | million in stripe. But then

00:38:06.400 | whoever did the, you know, series

00:38:08.560 | G or whatever it's up to, we did

00:38:10.640 | the $100 billion mark is like,

00:38:11.920 | well, market down to 90. But, you

00:38:14.240 | know, somebody CalPERS or Harvard

00:38:15.840 | has to has the same share class

00:38:18.960 | different funds at two different

00:38:21.000 | prices. So then you could really

00:38:22.800 | triangulate on reality, huh?

00:38:24.160 | Another dynamic that that makes

00:38:27.000 | the powder less less dry, that I

00:38:30.000 | didn't mention in the tweet storm,

00:38:31.440 | imagine you're on your first or

00:38:33.400 | second venture fund, or imagine

00:38:35.960 | you're a fund that used to just

00:38:37.600 | have a one fund, but they've

00:38:39.360 | expanded to four funds. Okay, now,

00:38:43.040 | imagine you don't have a lot of

00:38:44.760 | liquidity proof points on those

00:38:46.440 | funds. Do you really want to run

00:38:48.680 | out of money and go test whether

00:38:51.600 | or not you can raise your third

00:38:53.160 | fund or your second fund? Or do

00:38:55.200 | you kind of want to wait and see

00:38:57.080 | if you can develop some track

00:38:59.440 | records so that because you may

00:39:00.960 | be facing the imminent death of

00:39:03.240 | your firm, if you run out too

00:39:05.480 | quickly and and go back to market

00:39:07.480 | and there is no market.

00:39:08.600 | So I have 100 I have $100 million

00:39:10.640 | fund, it's my third fund. Okay,

00:39:13.120 | what pace Am I going to do this,

00:39:14.520 | I'm going to do it in 24 months

00:39:16.080 | or 18 months like maniacs were

00:39:17.400 | doing during the peak, or am I

00:39:18.960 | going to take a 36 month approach

00:39:20.440 | or more traditional three year

00:39:21.560 | deployment, if I even have to

00:39:22.720 | take a 40 month deployment, hey,

00:39:24.520 | I got time to work out all these

00:39:26.120 | issues in the previous portfolio.

00:39:27.600 | Saks, you've heard this sort of

00:39:28.920 | dynamic, what are your thoughts

00:39:30.760 | on the dry powder issue? You

00:39:32.640 | yourself have a lot of dry

00:39:33.720 | powder, I understand. So how do

00:39:35.400 | you think about it?

00:39:35.960 | We do have a lot of dry powder,

00:39:37.120 | and we're going really slow. I

00:39:38.280 | mean, there's no feeling that we

00:39:39.600 | have to rush out and deploy this

00:39:41.520 | capital. And one of the things

00:39:44.320 | that's interesting about the

00:39:45.480 | period we've been in, that's been

00:39:47.160 | surprising to me is that our

00:39:49.000 | metrics actually haven't changed.

00:39:50.440 | I mean, the the things that we're

00:39:51.640 | looking for in a software company

00:39:52.960 | haven't really changed, we look

00:39:54.320 | for a certain amount of ARR,

00:39:56.040 | certain growth rates, or amount of

00:39:57.400 | net dollar retention, certain

00:39:59.040 | CAC, a certain capital

00:40:00.640 | efficiency, that bar hasn't

00:40:02.520 | changed for us. But the number of

00:40:03.680 | companies meeting that bar has

00:40:05.040 | gone down considerably,

00:40:06.320 | because they have headwinds

00:40:07.800 | because customers are in

00:40:09.040 | austerity measures, or companies

00:40:10.480 | are going out of business and

00:40:11.440 | saying, Hey, let me consolidate

00:40:12.480 | my SAS tools,

00:40:13.200 | enterprise buyers are sharpening

00:40:14.400 | their pencils. They are trying to

00:40:16.320 | consolidate vendors. There's a

00:40:17.600 | lot of headwinds in the buying

00:40:19.520 | cycle right now. Yeah. And it's a

00:40:22.240 | little bit like I don't know if

00:40:23.400 | you remember in the.com crash 20

00:40:25.440 | something years ago.

00:40:26.440 | Oh, I remember it.

00:40:27.680 | Yeah. So back in 99 2000, the

00:40:31.200 | conventional wisdom was that the

00:40:33.320 | company you wanted to be in was

00:40:34.840 | Yahoo, because Yahoo was

00:40:36.840 | profitable. And when all these

00:40:38.560 | startups went out of business,

00:40:40.120 | Yahoo would be the way that you

00:40:41.880 | could own a piece of the future

00:40:43.720 | of the internet, but you wouldn't

00:40:44.760 | have to take all the startup

00:40:45.560 | risk. And then it turned out that

00:40:47.800 | all of Yahoo's revenues went away,

00:40:49.640 | because their revenues were

00:40:51.240 | coming from banner advertisements

00:40:52.760 | bought by startups, which were

00:40:55.160 | funded by VC dollars. So when you

00:40:56.560 | had the whole.com crash, Yahoo's

00:40:58.680 | business dried up. Yep. So then

00:41:01.040 | Yahoo lost

00:41:01.760 | whatever it was. It turned out, a

00:41:03.720 | lot of people weren't wearing

00:41:04.680 | swim trunks.

00:41:05.360 | It was so Yahoo's business was

00:41:07.360 | actually highly correlated with

00:41:09.080 | startup funding. And I think

00:41:11.880 | there's been an aspect of that

00:41:13.440 | with a lot of these companies

00:41:14.840 | where you would think that

00:41:17.560 | they're pretty insulated from the

00:41:20.320 | business cycle. Even like

00:41:22.360 | especially the enterprise

00:41:23.200 | software companies, there's a lot

00:41:24.680 | of software companies that were

00:41:26.720 | selling to other startups, that

00:41:27.720 | was pretty obvious, they're going

00:41:28.640 | to be impacted. But even the ones

00:41:30.560 | selling to enterprise companies

00:41:31.760 | have been affected in subtle ways.

00:41:33.200 | And there just aren't that many

00:41:35.600 | startups right now hitting that

00:41:38.360 | same bar that they were hitting

00:41:39.640 | just a couple of years ago.

00:41:40.680 | Freeberg, your thoughts on this

00:41:43.280 | LP, GP dynamics and dry pattern?

00:41:46.440 | I mean, I think, I mean, one

00:41:51.560 | aspect on the same front of VCs

00:41:56.800 | being somewhat reticent to deploy

00:41:59.680 | more capital, it's flowing

00:42:02.840 | through to the LP space and

00:42:04.600 | Gurley can probably pint on this

00:42:06.040 | or Sac can probably pint on this

00:42:07.200 | too. But and all of you guys

00:42:08.960 | obviously could, but it's been

00:42:10.640 | apparent in the last year that

00:42:14.920 | LPs are wondering what do they

00:42:16.320 | have? What are these portfolios

00:42:19.000 | ultimately really going to be

00:42:19.880 | worth? What's the actual cash

00:42:21.000 | distributions? And I think

00:42:22.040 | there's these new rules, right

00:42:23.360 | Gurley, where you got to

00:42:23.960 | distribute 5% of your assets each

00:42:26.600 | year to the institution that

00:42:28.320 | you're meant to represent.

00:42:28.800 | Yeah, Bill, expand this, you're

00:42:29.680 | an endowment, you're obligated to

00:42:32.960 | not just grow your endowment

00:42:34.720 | both either from the board of

00:42:36.720 | the, like the endowment of the

00:42:38.080 | board of trustees of the

00:42:39.080 | university, or I think there was

00:42:40.720 | a tax provision put in that if

00:42:43.560 | you're not distributing 5%,

00:42:45.680 | then you're exposed to tax on

00:42:48.000 | the returns. And so there's a,

00:42:50.600 | there's a unquestionable

00:42:52.600 | potential issue with LPs around

00:42:55.840 | their own liquidity. So they've

00:42:57.880 | all followed the Dave Swenson

00:42:59.480 | model where they've all got 50%

00:43:02.440 | or even more in illiquid assets,

00:43:05.120 | you move into a cyclical decline,

00:43:07.880 | where the number of IPOs and

00:43:09.800 | liquidity events both for VCs

00:43:11.600 | and PE, remember, PE is way

00:43:13.680 | bigger than VCs.

00:43:14.800 | Private equity.

00:43:16.080 | Aren't coming. And then the

00:43:18.200 | drawdowns keep coming. And so

00:43:20.560 | you have to meet the drawdowns.

00:43:22.200 | You're not getting any

00:43:23.360 | liquidity, your constituent

00:43:26.080 | needs 5% liquidity.

00:43:28.480 | And now you got a cash crunch.

00:43:29.760 | Now you you have cash crunches

00:43:31.960 | and LP. And I think GPs are

00:43:34.000 | aware of this issue. So, you

00:43:35.680 | know, do you want to provoke

00:43:37.800 | that or not?

00:43:38.400 | Right. So I'll just

00:43:39.920 | Maybe you run quick, you run

00:43:41.360 | early, or you run late. You

00:43:43.400 | don't want to be in the middle.

00:43:44.080 | So I'll just say like

00:43:45.160 | anecdotally, it seems LPs are

00:43:50.120 | more reticent. I've heard

00:43:51.680 | several folks talk about how

00:43:54.160 | they're reducing commitments by

00:43:55.680 | 50%, two thirds, or in some

00:43:57.360 | cases, 100%. Particularly after

00:44:00.560 | the mad rush for capital over

00:44:02.320 | the last couple of years or

00:44:03.200 | capital commitments, I would

00:44:04.280 | say for the last couple of

00:44:05.040 | years. And so the downstream

00:44:08.120 | effect of that ultimately, as

00:44:10.320 | the current funds get deployed,

00:44:12.160 | there are fewer new funds and

00:44:14.040 | less new capital being

00:44:15.560 | committed from these LPs into

00:44:17.040 | new funds and, you know, fast

00:44:19.360 | forward two or three years, and

00:44:21.480 | there's going to be less

00:44:22.080 | capital available. And so it

00:44:23.200 | keeps the bar high. So while

00:44:25.840 | this is, you know, and so the

00:44:27.080 | bar, I think is only going to

00:44:28.360 | get higher over the next couple

00:44:29.720 | of years, as that capital cycle

00:44:32.600 | moves its way through the

00:44:33.400 | system.

00:44:33.960 | It's probably worth explaining

00:44:36.280 | what Freeberg was talking about

00:44:38.160 | in terms of a commitment. So you

00:44:39.640 | may have a, let's just say

00:44:41.800 | University X has committed 25

00:44:45.120 | million to funds three through

00:44:47.320 | five for venture fund Z. And now

00:44:52.320 | they're saying in the next fund,

00:44:54.400 | we're going to be at 10 instead

00:44:56.280 | of 25.

00:44:57.000 | When they say they're making

00:44:58.160 | that commitment, that capital

00:44:59.760 | gets deployed by the venture

00:45:01.200 | investor over the next, on

00:45:03.680 | average, call it five years. So

00:45:06.120 | the reduction in a commitment

00:45:07.960 | this year means that there's

00:45:09.560 | less capital to invest over the

00:45:11.520 | next three to five years. And so

00:45:13.560 | that gets played out as we fast

00:45:15.080 | forward, we're, you know, we're

00:45:16.080 | still sitting on funds from the

00:45:17.680 | last couple of years, as those

00:45:19.360 | funds get invested, the new

00:45:21.280 | funds are going to be smaller,

00:45:22.480 | there's going to be fewer of

00:45:23.280 | them, which and that's when the

00:45:24.400 | market gets much tighter is in

00:45:25.680 | the next couple of years, you

00:45:26.680 | know, Brad, this seems like the

00:45:28.600 | greatest setup ever. Feels like

00:45:31.040 | the setup last year buying

00:45:32.280 | equities when everybody was

00:45:33.440 | scared. If everybody is

00:45:35.200 | tightening their belts, if VC

00:45:36.640 | funds are not going to deploy,

00:45:38.280 | this feels like the time to be

00:45:39.800 | deploying. So maybe you could

00:45:41.280 | talk a little bit about this

00:45:42.360 | austerity measures coming or

00:45:45.080 | just belt tightening or some

00:45:46.600 | people may be getting out of the

00:45:47.720 | venture business who shouldn't

00:45:49.320 | have been in it to begin with.

00:45:50.400 | All of this seems like a great

00:45:52.520 | setup for more discipline and

00:45:54.120 | more disciplined founders. If

00:45:55.240 | the VCs have to be disciplined,

00:45:56.760 | doesn't that trickle down to the

00:45:59.280 | portfolio companies?

00:46:00.200 | 100% but while this might

00:46:03.320 | happen, while this might happen,

00:46:05.440 | I'm gonna take the other side. I

00:46:06.560 | don't think that's what the

00:46:07.680 | lived experiences of most VCs in

00:46:10.520 | Silicon Valley today on series A

00:46:12.680 | series B series C is certainly

00:46:14.440 | not in the area we're competing.

00:46:15.920 | We're seeing four or five $600

00:46:18.200 | million deals get done on zero

00:46:20.400 | revenue to $3 million in

00:46:22.480 | revenue. And so let me just

00:46:24.160 | throw out perhaps an alternative

00:46:25.760 | view as to why this might look a

00:46:27.400 | little different than the world

00:46:30.040 | of austerity that we saw in 2002

00:46:32.800 | 2003 2009 1011. The first is

00:46:35.840 | right, the stock market is near

00:46:37.320 | an all time high. And we know

00:46:38.920 | that, you know, the venture

00:46:40.280 | markets are reflexive to the

00:46:41.440 | stock market. We talked about

00:46:42.720 | that. The second reason which I

00:46:44.720 | think is interesting is most

00:46:46.160 | firms on average are a lot

00:46:47.520 | bigger. Okay, that creates two

00:46:49.800 | issues. We have a situation where

00:46:52.040 | younger partners and principals

00:46:54.000 | who all did deals that were

00:46:55.320 | overvalued over the last few

00:46:56.680 | years, they want to put some

00:46:58.520 | points on the board in a

00:46:59.800 | repriced deal because they have

00:47:01.360 | to have some winners. So you

00:47:02.600 | have this principal agent

00:47:03.760 | problem. The people who used to

00:47:06.160 | check them were the senior

00:47:07.520 | partners, right, the the

00:47:09.160 | investment committee, but now

00:47:11.280 | they have a lot of mouths to

00:47:12.680 | feed. So when you put money to

00:47:14.600 | work, you pull down more fee.

00:47:16.280 | And so you know, these funds now

00:47:19.280 | I mean, if you're tiger or some

00:47:21.080 | of these big funds, you have

00:47:22.640 | giant cost bases that you've

00:47:24.800 | created because of the size of

00:47:26.760 | the firm that you created. The

00:47:28.520 | third is the nature of LPS and

00:47:30.600 | Bill mentioned, you know, Dave

00:47:32.520 | Swenson, in 2002, MIT, Yale,

00:47:36.840 | Harvard, they would call you

00:47:38.320 | know, who were the early backers

00:47:39.880 | of venture firms, they would

00:47:40.920 | call these venture guys up and

00:47:42.200 | say, Listen, we're hurting,

00:47:43.800 | there were a lot of markdowns,

00:47:45.280 | we need to slow down the pace of

00:47:46.960 | deployment, right. And so they

00:47:49.960 | were a factor LP said, slow it

00:47:52.400 | down. I'm not hearing that out

00:47:55.640 | of LPS today. Okay. And I think

00:47:58.840 | one of these chains, I certainly

00:48:00.320 | am hearing it out of traditional

00:48:01.960 | LPS, some family offices, some

00:48:04.280 | endowments, but pensions,

00:48:06.640 | sovereign wealth funds, etc, who

00:48:08.680 | now represent a much bigger

00:48:10.400 | percentage of the total capital

00:48:12.360 | base of venture, they have money

00:48:14.520 | coming out of the ground every

00:48:16.200 | day that they need to deploy

00:48:17.680 | like they did in private equity.

00:48:19.200 | And so again, I'm not saying

00:48:20.840 | this for certain. And certainly,

00:48:22.600 | there are more discerning

00:48:24.120 | sovereign wealth funds than

00:48:25.600 | others who are saying don't

00:48:27.560 | speed up the pace of deployment.

00:48:29.200 | But I'm wondering if that nature

00:48:31.720 | that change in the nature of the

00:48:33.280 | LP base is also contributing to

00:48:35.720 | this, you know, as a sax called

00:48:37.800 | AI mania.

00:48:38.800 | Yeah, I mean, we see it in

00:48:40.200 | Hollywood, some new actors come

00:48:42.160 | in, they want to build a brand.

00:48:44.960 | We saw the Russians do it, we

00:48:46.840 | saw the Japanese do it. You see

00:48:48.760 | China do it, people come in new

00:48:50.200 | entrants at the table, they get

00:48:51.480 | splashy cashy, they want to place

00:48:52.920 | a lot of bets, they want to make

00:48:53.880 | a name for subpoena brand. So

00:48:55.360 | that's an interesting

00:48:55.960 | counterpoint. Our entire business,

00:48:57.880 | of course, is based on exits, the

00:48:59.360 | highest form of exit, I guess, is

00:49:00.800 | an IPO, an overpriced acquisition

00:49:03.360 | would be the second. And it was a

00:49:06.560 | secondary market for shares as a

00:49:08.120 | distant third.

00:49:09.080 | Looks like the IPO window might be

00:49:13.600 | cracking open a bit. And some

00:49:16.360 | people are being forced the guns

00:49:18.320 | to the head arm owned by SoftBank

00:49:21.440 | Masayoshi son, looking to raise 10

00:49:23.560 | billion had a 50 60 $70 billion

00:49:25.720 | valuation could be the largest IPO

00:49:27.360 | of the year. instacart looking at

00:49:29.280 | a $12 billion valuation, Reddit

00:49:31.720 | kind of went dark, they had a

00:49:33.000 | couple of problems with their

00:49:34.560 | community. But they were in line

00:49:36.800 | stripe obviously in line. clavio

00:49:39.880 | has got a $5 billion valuation.

00:49:41.960 | And then we saw a couple of what

00:49:44.160 | I'll say are non traditional

00:49:46.120 | companies going public something

00:49:47.760 | called shark ninja. I saw in

00:49:49.680 | public we had a little

00:49:50.440 | conversation about this Brad

00:49:51.720 | Kirsner, they have a market cap

00:49:53.520 | of 4.3 billion, they had a pop of

00:49:55.600 | 40% of a Greek food chain. They

00:49:59.360 | went public and have a market cap

00:50:01.040 | of $5 billion. surfair a company

00:50:03.680 | I'd passed on investing in but was

00:50:05.920 | intrigued by they do Pilatus

00:50:07.800 | shuttles between places on the West

00:50:10.200 | Coast here little short runs, they

00:50:11.880 | did a direct listing in July.

00:50:13.520 | market cap of 85 million didn't go

00:50:16.320 | well. Bill Gurley is the IPO

00:50:20.680 | window opening for our people kind

00:50:23.840 | of on the ledge who have no choice

00:50:25.880 | but to jump and hope for the best

00:50:27.440 | one thing we didn't probably spend

00:50:29.760 | enough time on in the last topic,

00:50:31.360 | which I'll just hit on briefly is

00:50:33.120 | the complexity of those unicorns.

00:50:35.360 | So Brad mentioned I saw a deck that

00:50:37.640 | said there were more private

00:50:39.720 | unicorns than public tech companies

00:50:41.960 | over a billion dollars at one point

00:50:43.880 | in time, which is shocking, but

00:50:46.280 | the dose, because those companies

00:50:48.680 | grew up in the 9920 to 21 timeframe

00:50:52.560 | where you could raise money at

00:50:53.720 | excessive valuation, their cap

00:50:55.840 | charts are very complex and rigid.

00:50:57.840 | They have different lick preferences

00:50:59.680 | at different places. And, and, and

00:51:02.360 | they've got board members who all

00:51:04.080 | have different marks, and are all

00:51:05.840 | very worried about whether this

00:51:07.320 | thing can get to a certain place or

00:51:09.040 | not. And so it's very difficult to

00:51:11.480 | come in and do another private round

00:51:13.440 | in those situations, you might have

00:51:15.120 | to, you might have to put the return

00:51:17.560 | in a guaranteed pick dividend IPO or

00:51:21.080 | some complex derivative. And a lot

00:51:24.080 | of people I think Brad would agree

00:51:25.680 | with this, a lot of people just say,

00:51:27.200 | they opt out and say, no, this is

00:51:28.880 | too hard, I'm not going to go in

00:51:30.280 | there and negotiate with five

00:51:32.080 | different constituencies on how to

00:51:33.960 | do this, you can't just do a simple

00:51:36.400 | investment because of that.

00:51:37.720 | Okay, so it's gotten too complex,

00:51:39.800 | which then if the buyers of those

00:51:42.680 | shares do not want to be involved in

00:51:44.520 | that crazy, okay, is Stripe worth

00:51:47.040 | we'll just pick Stripe as an example

00:51:48.280 | 50 billion or 100 billion and the last

00:51:50.280 | investors are at 100. Why see in a 2

00:51:53.080 | million?

00:51:53.640 | Yeah, sure.

00:51:54.240 | Maybe a bad example, just because

00:51:56.040 | their total lick press stack may

00:51:57.720 | still be a fraction of their market

00:51:59.600 | cap for a lot of these unicorns, the

00:52:01.800 | lick press stack can be very close to

00:52:04.160 | their market cap, or their today's

00:52:06.320 | valuation. And that's what

00:52:07.600 | creates a real structural problem.

00:52:09.920 | You got a billion dollars in

00:52:11.920 | investment in the company and

00:52:13.120 | liquidation money that has to come

00:52:14.960 | out to pay those investors, but the

00:52:16.120 | company is only worth 2 billion or a

00:52:17.320 | billion. And now it's

00:52:19.040 | Yeah, when you get to that place,

00:52:20.720 | sometimes going public is just the

00:52:22.520 | easiest way to clean it all up.

00:52:24.360 | Because everybody converts to

00:52:26.040 | common. And we just the company

00:52:28.600 | starts trading and reality is

00:52:30.680 | reality. It's like kind of like

00:52:31.640 | taking the medicine.

00:52:32.360 | Yeah. And I think that happened. One

00:52:34.800 | good example was square at one point

00:52:36.840 | had done a derivative financing on

00:52:38.800 | top that was somewhat problematic.

00:52:41.200 | And they just felt like they had to

00:52:42.760 | get out. And they did and it cleaned

00:52:45.280 | up the cap chart. And one thing I've

00:52:47.480 | been waiting on, we'll see if it

00:52:48.920 | happens. But because of hyper

00:52:50.800 | competition and investing in 99 2020

00:52:54.200 | 2021. There was a term removed from

00:52:57.360 | most term sheets that gave

00:52:58.840 | investors the right to protect their

00:53:01.920 | lick prep on IPO that's gone in most

00:53:04.920 | of these cases. So you could convert

00:53:07.400 | lick prep under which for a founder

00:53:11.080 | or an early stage angel investor would

00:53:13.360 | be a huge win. Got it. Whereas if you

00:53:16.480 | sold a company in M&A, the lick prep

00:53:18.520 | would play. Does that make sense?

00:53:20.280 | Yes. So the last investor comes in,

00:53:23.080 | they're getting a multiple of their

00:53:24.640 | money back, except in an IPO. Right.

00:53:27.320 | And the IPO happens, you know, yeah.

00:53:29.840 | And I suspect most of those late stage

00:53:32.040 | investors keep assume that their

00:53:35.120 | investment has a debt like floor on

00:53:38.200 | lick prep. And if this were to start

00:53:40.000 | to happen, or recaps, which can also be

00:53:42.600 | done, self self inflicted recaps, I

00:53:45.680 | have seen many times, just to get past

00:53:48.600 | the structural complexity, either one

00:53:50.320 | of those things could wipe out that

00:53:52.560 | lick prep.

00:53:53.120 | So net net, girly, more IPOs are going

00:53:56.800 | to happen.

00:53:57.240 | I think you will see there's two things

00:53:59.520 | that I think that complex cleaning up

00:54:01.280 | complexity is a great reason for the

00:54:04.400 | public market. And Brad already said,

00:54:06.080 | we've seen a massive recovery in in

00:54:09.760 | software stocks, like the marks are

00:54:12.480 | better than they were. Two years ago,

00:54:15.440 | so Brad or sacks, just M&A wise, we've

00:54:19.040 | seen Lena Khan, we've discussed it many

00:54:20.480 | times, seems to be saying all business

00:54:24.440 | equals bad, any merger equals bad. She's

00:54:27.560 | gonna, you know, attempt to throw cold

00:54:30.080 | water on any merger that's happening. So

00:54:33.760 | M&A seems to be being taken off the

00:54:37.720 | plate by not just Lena Khan, but also

00:54:39.880 | the EU is seems to be turning the

00:54:41.880 | screws. So if we don't have an M&A

00:54:43.880 | market, then that means there's only an

00:54:45.480 | IPO market.

00:54:46.080 | Correct. I mean, that's just another one

00:54:49.000 | of the reasons that is pressuring these

00:54:51.200 | companies, these companies need to raise

00:54:52.760 | capital. So just to double click on what

00:54:54.560 | Bill said, and put some numbers around

00:54:56.680 | it, right, because we read a lot of

00:54:58.360 | stats about how many IPOs there were. So

00:55:00.440 | I had the team pull some figures 480

00:55:03.440 | IPOs, US IPOs in 2020 1035. So a huge

00:55:09.280 | bubble and 21 181 in 22 and 123. Okay,

00:55:15.760 | but I think that overstates, right,

00:55:18.200 | because we had a lot of SPACs and crappy

00:55:20.120 | IPOs. So it really overstates the quality

00:55:22.920 | IPOs. So you know, we're one of the major

00:55:25.160 | buyers in tech IPOs. So I just went to

00:55:27.640 | the team and said, how many IPOs were we

00:55:30.120 | tracking? And did we consider

00:55:32.000 | participating in during these years? So

00:55:34.320 | that was 46 in 2020 100 in 2021 3 in

00:55:41.400 | 2022 and zero year to date in 2023. Okay,

00:55:45.800 | don't want to be in the Greek food.

00:55:47.040 | So what I would say is I just returned

00:55:50.160 | from Deer Valley this week where Morgan

00:55:51.880 | Stanley is putting on a conference,

00:55:53.280 | talking to their big potential IPO buyers.

00:55:55.880 | We are now queued up as you and I we had

00:55:59.600 | this tweet exchange Jason this week. And

00:56:02.320 | I said, you know, in that exchange, the

00:56:04.080 | world's normalized fear of COVID past

00:56:06.560 | hyperinflation past etc. First class IPOs

00:56:10.360 | are coming and a bunch of down round

00:56:12.120 | IPOs are coming. So let me just explain

00:56:13.760 | really quickly on that. Right? You

00:56:15.840 | mentioned Instacart, right? Super high

00:56:18.400 | quality company, I think its last private

00:56:20.320 | round was 50 or 60 billion in the bubble.

00:56:23.040 | And now it's rumored to be going public

00:56:24.920 | at somewhere around $10 billion. Okay, so

00:56:28.160 | that represents the reset that will have

00:56:30.760 | to happen. And as Bill said, if you were a

00:56:34.520 | investor in that last round of Instacart,

00:56:37.000 | and you were buying preferred shares and

00:56:38.680 | thought you were protected, that

00:56:40.600 | preference is washed, right? So you're

00:56:43.040 | going to be down 50 60 70% on those

00:56:45.920 | preferred shares, because you're going to

00:56:47.560 | be converted into common in that IPO.

00:56:49.720 | It's the right thing for the company to

00:56:51.560 | do. It's the right thing for the

00:56:52.920 | investors to do it cleans up the cap

00:56:54.920 | table. So that is an example of you know,

00:56:58.560 | the down round IPOs of high quality

00:57:00.800 | companies that you're going to see come

00:57:02.240 | public, then you're going to have folks

00:57:04.080 | like arm like ByteDance, Databricks

00:57:07.040 | would be another one of these I think

00:57:08.520 | that you know, sneak that would be more

00:57:10.600 | in that Instacart camp, you know, like,

00:57:12.640 | there will be some discount relative

00:57:14.800 | perhaps to their fully diluted last

00:57:17.200 | rounds valuation, but these make no

00:57:18.880 | mistake about our high quality companies

00:57:20.680 | that will lubricate and Altimeter will

00:57:22.880 | compete for those IPOs because these

00:57:25.280 | bankers are hell bent on pricing these

00:57:27.400 | IPOs at a discount to fair value, they

00:57:30.120 | need them to work, they need to bring

00:57:31.840 | buyers back into the IPO market because

00:57:34.280 | these companies need liquidity.

00:57:35.720 | So suddenly the banks need to get wins

00:57:40.360 | for the people buying the shares as

00:57:41.840 | opposed to in the past, they were like,

00:57:44.240 | yeah, we're just selling a security at

00:57:46.160 | the market rate, whatever that famous

00:57:49.640 | the famous monologue from what was the

00:57:53.080 | movie with was that Jeremy Irons who

00:57:54.600 | gives that monologue we're selling

00:57:55.760 | securities to informed buyers and that's

00:57:58.440 | it is a pretty dark scene.

00:58:01.280 | So it won't be a light switch, Jason,

00:58:03.240 | but I do think margin call margin call.

00:58:05.320 | Thank you. It was Jeremy Irons.

00:58:06.760 | I don't think it'll look like a light

00:58:08.400 | switch, but it will be I think we're

00:58:10.080 | going to see 567 IPOs good size IPOs in

00:58:13.680 | q4 will probably see closer to 10 in q1

00:58:16.800 | and then it will start opening up in the

00:58:18.480 | back half of next year in part because

00:58:20.160 | boards of directors will begin to

00:58:21.720 | realize you know what, we have to go

00:58:24.720 | public if it's down round who cares,

00:58:27.120 | it's acceptable. And this is really

00:58:29.840 | healthy. We need these companies and by

00:58:31.960 | the way, I'm in the Bill Gurley camp,

00:58:34.040 | you should not stay private forever, you

00:58:36.080 | should get your company if you have 100

00:58:37.640 | or 200 million in revenue, get your

00:58:39.680 | company public innovate and grow in the

00:58:41.680 | public markets with the discipline and

00:58:43.280 | cadence of the public markets. And if

00:58:45.240 | it's if it's a you should expect the

00:58:47.200 | prices lower because the world was out

00:58:49.880 | of their mind in 2021 and multiples of

00:58:52.440 | reset.

00:58:52.960 | Saks you shared a news story with me

00:58:57.400 | just about some of the incredible

00:58:59.840 | returns in the golden hour of venture

00:59:01.600 | capital, Washington University, Duke

00:59:04.760 | University, some of these endowments

00:59:06.400 | just exploded in value.

00:59:08.920 | Yeah, I remember when this article came

00:59:10.520 | out, it was September 29 2021. Less than

00:59:13.360 | two years ago. Yeah, we were all feeling

00:59:15.360 | really good about our industry. Yeah. But

00:59:18.320 | as it turns out, the whole thing was

00:59:20.720 | inflated by all the free money that the

00:59:23.760 | Fed had airdropped. So you know, the

00:59:26.640 | public markets were really frothy. That

00:59:29.840 | was basically very bubbly, especially for

00:59:31.560 | gross stocks. You had all these new IPOs

00:59:34.880 | and SPACs and so forth, and they were

00:59:36.880 | super bubbly. And the result was that the

00:59:41.400 | returns both realized returns and on

00:59:44.560 | paper for these endowments were massive.

00:59:46.480 | So if you think about the LP, the LP

00:59:49.800 | community, if they're making commitments

00:59:51.640 | in 2021, the way they do that is they

00:59:54.600 | look at the total value of their

00:59:56.040 | endowments, and then they allocate a

00:59:58.040 | certain percentage by asset class. So

01:00:00.800 | they'll allocate a certain percentage to

01:00:02.440 | public markets, certain percentage to

01:00:04.320 | real estate, private equity, and then VC.

01:00:06.960 | So if the overall value of the

01:00:08.480 | endowment is really big, then that

01:00:11.520 | percentage that goes to VC is gonna be

01:00:12.800 | really big too. And then what happened is

01:00:15.080 | you had this huge correction over the

01:00:16.800 | next couple of years. And so one of the

01:00:18.840 | things we heard from the LP community

01:00:20.320 | last year is a problem they called the

01:00:23.160 | denominator effect.

01:00:24.800 | Explain.

01:00:25.800 | Well, the value of their portfolios had

01:00:29.080 | gone down a lot because the public

01:00:30.560 | markets were down, what was it, something

01:00:32.520 | like 50% in some cases, yeah, for gross

01:00:35.440 | stocks and like 15, 20% for the entire

01:00:37.560 | market. So the value of the portfolio was

01:00:39.880 | down, but the venture capital part of

01:00:41.840 | that was not down both because of the

01:00:44.640 | lag in getting fresh marks. And then

01:00:47.720 | also because they had already made

01:00:49.840 | commitments to new VC funds at the peak

01:00:52.640 | of the market. So all of a sudden, the

01:00:54.880 | percentage of their portfolio that was

01:00:57.080 | VC related, roughly doubled. And so

01:01:00.320 | that's why all of a sudden, the LP

01:01:02.240 | commitments have dried up is because

01:01:04.200 | they're over allocated to VC. Yeah. Now,

01:01:07.800 | as the public markets have come back

01:01:09.800 | this year, then that problem mitigates

01:01:12.400 | to some degree. But yes, I think it's

01:01:14.160 | still out there. And I think this is why

01:01:16.040 | you're seeing certainly domestic LPs

01:01:19.800 | really slow their allocations to venture

01:01:22.640 | capitals, they still have the denominator

01:01:24.080 | problem. Now, I think that's less of an

01:01:25.880 | issue overseas. I think Jake, how you

01:01:28.200 | observe that the the four seasons of the

01:01:31.400 | bar at the Dubai

01:01:32.920 | Abu Dhabi bar looks like a rosewood to

01:01:35.080 | Braddock. We were there. I literally got

01:01:37.600 | stopped four times from the elevator to

01:01:40.600 | the front door. I am not kidding. Four

01:01:42.960 | people stopped me. That's two more than

01:01:45.600 | would stop me at the rosewood going to

01:01:47.080 | the front door. It was

01:01:48.360 | bonkers. You should recognize that as a

01:01:50.200 | hyper attractor for where available money

01:01:53.400 | was, yes, relative to the US dollars and

01:01:58.080 | whether they were available. Yeah, I

01:02:00.520 | think we're in for a period here of just

01:02:02.160 | continued distress and pain, even though

01:02:06.120 | the market is sort of normalized or

01:02:07.640 | stabilized. Now, again, I just think we've

01:02:09.960 | been in a huge software recession for the

01:02:12.160 | last year. Yeah, I think that it's been

01:02:14.800 | masked by the fact that the rest of the

01:02:16.280 | economy seems to be okay. But this is the

01:02:18.640 | worst software recession we've been in, I

01:02:21.560 | think, since the dot com crash. I mean,

01:02:23.200 | the buyers have been laying off employees

01:02:25.280 | by the thousands. And since software is

01:02:27.440 | bought on a per seat basis, yeah, the

01:02:30.400 | market has really condensed. We had one

01:02:32.800 | startup that was selling to Twitter, and

01:02:35.840 | they got a renewal. And I think their

01:02:38.640 | contract was 80% off because he was laid

01:02:41.680 | off 80% of the employees. Yeah. And I

01:02:43.640 | told him that before negotiating the last

01:02:45.360 | 20%, which you could negotiate 50% off

01:02:47.600 | that. I told him they did a great job is

01:02:49.680 | getting that 20% because he wants to

01:02:51.440 | everything. Yeah, I was really impressed.

01:02:54.440 | They were able to renew at 20% of last

01:02:56.360 | year's value. You know what we had a

01:02:58.760 | vendor, we had a vendor, and this vendor

01:03:00.960 | went on for far too long. And you know

01:03:03.320 | what, if you go out, you know, two, three

01:03:05.800 | nights in a row until four or five in the

01:03:07.480 | morning, that next week is going to be

01:03:09.440 | painful and suffering. That's what the

01:03:10.880 | industry is going through. It's just

01:03:12.200 | going to take a lot of cold plunges and

01:03:14.120 | infrared and pickleball and to feel good

01:03:18.760 | again,

01:03:19.080 | this thing I would like in written

01:03:21.640 | retrospect that I think super interesting

01:03:23.600 | about the venture capital cycle. One, I

01:03:26.360 | think it's inherently cyclical. And it's

01:03:28.400 | always going to be that way, unless we

01:03:30.560 | fundamentally change the structure of the

01:03:32.280 | industry. Because it just invites

01:03:34.680 | competition, and there's no barriers to

01:03:36.600 | entry. But I went and talked to some LPs

01:03:39.880 | that have been in the business for a

01:03:41.120 | very long period of time. And a vast

01:03:44.360 | majority of the reason venture outperforms

01:03:47.080 | other asset classes has to do with these

01:03:49.720 | tiny windows when you have a super

01:03:51.640 | prodding market. And if you don't, if you

01:03:54.920 | aren't around for that part, you know, if

01:03:57.640 | you strip those years out of a 40 year

01:04:00.560 | assessment, it's actually not that

01:04:02.440 | interesting an asset class, which

01:04:04.400 | highlights the need for venture funds to

01:04:08.200 | get liquidity at the peak. Yes, right when

01:04:12.200 | we are at the peak is when people get the

01:04:14.240 | most brazen, the most confident and they

01:04:16.400 | start talking about how we're going to

01:04:17.880 | hold forever. And so you had venture

01:04:20.880 | firms with the biggest positions they've

01:04:23.320 | ever had in their entire life, go over

01:04:25.760 | the waterfall, and, and basically

01:04:28.520 | evaporate what could have been returned.

01:04:31.160 | Yeah, I mean, diamond diamond hands can

01:04:33.160 | come back and bite you. And you've said

01:04:35.200 | famously, you can't what was the line

01:04:37.040 | you had? You can't eat IRR? Well, you

01:04:38.840 | can't. I don't think I said it, but it's

01:04:41.000 | been said. Yeah. Since we're on our movie

01:04:44.240 | bender here. For those of you haven't

01:04:46.160 | seen margin call. Just one of the great

01:04:48.480 | scenes.

01:04:48.800 | This is the best scene. The whole scene,

01:04:51.360 | by the way, it's like the best scene. I

01:04:53.880 | think of modern finance films. So look at

01:04:56.000 | this murderous.

01:04:57.000 | Who are we selling this to?

01:04:58.040 | Same people we've been selling it to

01:05:00.160 | for the last two years and whoever else

01:05:02.200 | will buy it.

01:05:02.720 | But john, if you do this, you will kill

01:05:06.640 | the market for years. It's over. And

01:05:10.600 | you're selling something that you know

01:05:12.400 | has no value.

01:05:13.320 | We are selling to willing buyers of the

01:05:16.040 | current fair market price so that we may

01:05:20.880 | survive.

01:05:22.040 | You can rationalize a lot on Wall Street,

01:05:28.280 | man.

01:05:28.840 | But yeah, but what Bill's saying is that

01:05:32.000 | the opposite took place, which is VCs

01:05:34.640 | drink the Kool Aid and didn't sell when

01:05:37.280 | that we're at the peak of the market.

01:05:38.880 | They also got caught up in a competition

01:05:41.280 | of trying to, to appeal to the founder

01:05:44.840 | community is saying, Hey, we're in it

01:05:46.520 | forever. We're going to hold forever.

01:05:48.120 | We're your best friend forever.

01:05:49.640 | But Bill, there was also this element

01:05:53.040 | that drove that strategic rationale,

01:05:56.680 | this data set, which is the best

01:05:59.680 | performers in tech generated most of

01:06:03.440 | the value after they went public.

01:06:05.120 | I mean, you know, there's a trillion

01:06:06.960 | dollars of market value generated in

01:06:08.960 | NVIDIA, in Apple, in Google, in Amazon,

01:06:12.120 | all over the many years post going

01:06:15.440 | public. And you know, if you read

01:06:16.960 | Sequoia's notes when they kind of made

01:06:19.200 | the transition that they made, they

01:06:21.080 | said, we don't want to, you know, walk

01:06:23.360 | away from the power law that the power

01:06:25.720 | law continues to accumulate and accrue

01:06:27.880 | even in the public markets. And we

01:06:29.600 | want to continue to participate in

01:06:30.880 | that because there's another 100 X

01:06:32.440 | upside coming from here in the ones

01:06:34.520 | that we select, we want to stay with

01:06:35.880 | not necessarily we're going to stay

01:06:37.040 | in all of them. You have to be

01:06:38.360 | determined. There are some that we

01:06:39.720 | believe are still 100 X upside from

01:06:42.040 | here. And just because there's an IPO

01:06:44.120 | doesn't mean that we want to exit the

01:06:45.280 | position that there's now more capital

01:06:47.520 | available to them more public currency

01:06:49.560 | they can use to do transactions to

01:06:51.400 | hire etc. And we want to participate

01:06:53.440 | in that value creation.

01:06:54.720 | The last double could be the biggest

01:06:56.120 | right bill.

01:06:56.440 | I think the total number of companies

01:06:58.320 | that meet that criteria in the history

01:07:00.640 | of the venture industry is like 10 or

01:07:02.560 | 15. And yes, and you named many of

01:07:05.560 | them. And the problem is that the

01:07:08.160 | rhetoric becomes common narrative and

01:07:10.640 | becomes part of the ethos of the firm.

01:07:13.080 | And people want to apply it to every

01:07:15.160 | single company, everything. That's

01:07:16.600 | right, right. Totally. And that's not

01:07:18.440 | true.

01:07:18.720 | I don't want to get too specific here.

01:07:22.200 | But you had a company you had, you

01:07:24.520 | might do have some, let's say, seasoned

01:07:27.800 | vets, yourself included bill who when

01:07:30.600 | given the opportunity to get liquidity

01:07:32.520 | on an incredible investment will do so

01:07:34.960 | Fred Wilson sold I think all of coin

01:07:37.520 | base when it goes public, he just

01:07:39.560 | clears the position when things go

01:07:40.960 | public. That's been his philosophy,

01:07:42.960 | kind of the antithesis of what's a

01:07:44.840 | coin rule offer are doing with some of

01:07:47.000 | their holdings. And then we've seen, we

01:07:50.040 | work has an existential crisis, they

01:07:52.200 | don't think this might be a viable

01:07:53.520 | investment concern anymore. But

01:07:56.320 | famously benchmark was able to sell

01:07:58.760 | shares at a very high valuation at some

01:08:00.840 | point and lock in an incredible return.

01:08:02.360 | Yeah.

01:08:02.640 | Yeah.

01:08:05.640 | Okay, there it is. Yes. Okay. So let me

01:08:12.560 | ask you a question, Bill about getting

01:08:13.680 | older.

01:08:14.120 | Well, let me ask the question.

01:08:16.240 | Let me ask you a question about getting

01:08:18.760 | older and wiser.

01:08:19.440 | Well, Sax, go ahead.

01:08:20.600 | Sax, like, Freebird wants to be the

01:08:22.560 | 17th best moderator go

01:08:23.760 | sex, you have an investment in SpaceX,

01:08:25.640 | right? I mean, there's been a lot of

01:08:26.960 | secondary action in SpaceX. Why would

01:08:28.600 | you not sell SpaceX at this valuation

01:08:30.720 | today? Or maybe did he? As you kind of

01:08:33.040 | think about this? Yeah,

01:08:33.800 | I think we're gonna wait till the

01:08:35.120 | company IPOs. I think that would be our

01:08:37.680 | default

01:08:38.160 | when it goes public sex. Do you then

01:08:40.040 | think what's the upside from here? Or

01:08:42.520 | do you think my job is done?

01:08:44.600 | I think my job is done. Yeah, I think

01:08:46.720 | my job is done. I think what we do is

01:08:48.400 | just distribute the shares and then

01:08:49.720 | each LP can make their own decision

01:08:51.560 | about whether they want to hold it or

01:08:52.840 | not. And you have one of the nice

01:08:54.680 | things you want to do with your share.

01:08:55.840 | Yeah, yeah. One of the nice things

01:08:57.360 | about distributions is that nobody has

01:09:00.440 | to sell. So everyone can make their own

01:09:02.840 | decision about whether to hold or not.

01:09:04.480 | Yeah, once the company is public, and

01:09:06.440 | the public has all the information

01:09:07.920 | through disclosures, the odds that I

01:09:10.960 | know something special that a seasoned

01:09:14.000 | public market investor doesn't, is

01:09:17.360 | probably pretty low.

01:09:18.760 | I mean, the great paradox of what we

01:09:22.400 | all do. And Brad, you have both a public

01:09:26.080 | and a private portfolio. I started

01:09:28.160 | trading public market equities to get

01:09:30.160 | better at my private behavior, Bill,

01:09:31.680 | you've done that forever, is public

01:09:34.080 | markets, you can't trade on inside

01:09:35.280 | information, private companies, that's

01:09:37.360 | all you're trading on. Maybe you could

01:09:39.080 | speak to a little bit about being what

01:09:41.760 | do they call it when you do both

01:09:42.840 | crossover investors that make you a

01:09:44.320 | crossover investors at the proper term?

01:09:46.320 | Well, Bill Gurley is the original

01:09:48.640 | crossover investor. He's been trading

01:09:50.440 | public stocks since you know, and he'd

01:09:52.600 | been doing that research. Yeah,

01:09:54.000 | researching him, you know, but you know,

01:09:55.960 | the fact of the matter as has Warren

01:09:57.400 | Buffett, and you know, who would laugh

01:10:00.000 | at the idea of a crossover fund, he's

01:10:01.560 | been running one of the world's largest

01:10:02.960 | public portfolios and private portfolios

01:10:05.040 | forever, he would say I invest in great

01:10:06.880 | companies that are mispriced. There are

01:10:08.960 | moments in the market cycle, where late

01:10:11.880 | stage venture is mispriced to the

01:10:14.000 | downside. And there are moments in the

01:10:15.920 | cycle where the public markets are

01:10:18.080 | mispriced to the downside. What we saw

01:10:20.200 | in 2021 is the private markets were

01:10:23.960 | crazily overvalued. In 2022, we had this

01:10:27.400 | massive correction in the public

01:10:29.000 | markets. We believed that they overshot

01:10:32.040 | in part, we believe that because we

01:10:33.680 | didn't think we're going to have

01:10:34.840 | hyperinflation forever, etc. And so you

01:10:38.600 | and I invested in, you know, meta and a

01:10:41.600 | lot of other things that were on their

01:10:43.160 | ass. You've got to buy in the public

01:10:45.280 | market when there's blood in the

01:10:46.440 | streets, right? As as war as Buffett says,

01:10:49.440 | buy when there's blood in the streets

01:10:50.800 | and sell when there's trumpets in the

01:10:52.200 | air. And you know, there are definitely

01:10:54.520 | blood in the streets when you saw things

01:10:56.320 | down 60 7080 90%

01:10:58.440 | is it Trumpets now does it feel like

01:11:00.240 | trumpets to you now or does it feel like

01:11:01.920 | trumpets next quarter or the quarter

01:11:03.320 | after? If you feel like people are

01:11:05.560 | polishing those trumpets right now?

01:11:07.080 | Yeah, I mean, a lot of it obviously

01:11:09.320 | depends on your view on what's going to

01:11:11.960 | happen in the economy fundamentally, and

01:11:13.840 | I'm happy to shift to that. But what I

01:11:15.240 | would say is this, remember the chart

01:11:17.920 | that I've showed many times about

01:11:19.120 | software internet valuations, we were,

01:11:21.320 | you know, 70% above normal, and then we

01:11:24.040 | were 30% below normal. And now we're

01:11:26.080 | closer to the trailing 10 year average

01:11:29.160 | of internet and software valuations.

01:11:31.080 | There are always outliers on both sides

01:11:33.080 | of this. But I would say a lot of the

01:11:34.960 | positive arbitrage that we saw in 22

01:11:37.480 | has been squeezed out of the public

01:11:38.920 | markets, and we're close to fair value.

01:11:41.040 | So now if you want to generate alpha,

01:11:43.560 | this is going to be about picking

01:11:45.080 | individual winners versus individual

01:11:47.040 | losers. This is going to you know, like

01:11:49.520 | the beta trade on on global macro, I

01:11:52.840 | think has largely played out, you know,

01:11:54.800 | the catch up back to kind of fair value.

01:11:57.600 | And now I think there's a debate between

01:11:59.640 | kind of hard landing soft landing, are

01:12:01.800 | we going to have a reacceleration

01:12:03.040 | inflation or not have a reacceleration

01:12:04.720 | where you come down on these major

01:12:06.520 | issues, I think dictates whether or not,

01:12:08.520 | you know, now's a good time for us now.

01:12:12.560 | Can I correct something you said, J.

01:12:13.840 | Kell? Yeah, please. All right. So you

01:12:16.000 | said that public markets inside

01:12:18.520 | information isn't allowed, whereas

01:12:20.000 | private markets, it's all inside

01:12:22.200 | information. I think that could give

01:12:24.120 | viewers a misleading impression of what

01:12:25.920 | we do as VCs. Okay, the way that around

01:12:29.760 | typically comes together, it's not like

01:12:31.560 | we get tipped off by some insider at the

01:12:33.920 | company, in some nefarious way. What

01:12:37.560 | happens is that the company chooses to

01:12:39.680 | engage with us, or a select number of

01:12:42.440 | firms in a process, and then gives us

01:12:45.720 | their metrics. And you know, it gives us

01:12:48.200 | the business plan, it gives us the

01:12:49.400 | forecast. And it's all done in a very

01:12:51.840 | above board way. It's not like we're

01:12:53.320 | being tipped. However, the part of it

01:12:56.280 | that I guess, is true is that a private

01:13:00.520 | company does not necessarily engage

01:13:02.120 | with everyone in the world.

01:13:03.560 | Yeah, they don't put on a website, a

01:13:05.920 | quarterly report and say, here's what

01:13:07.520 | our revenue and our costs were. And

01:13:08.880 | here's our earnings, although some

01:13:10.200 | private companies do start that process.

01:13:13.120 | Like by and large, by and large, they

01:13:15.720 | buy in large, they're selective about

01:13:17.400 | who they want to be on their cap table.

01:13:19.640 | And that's the big difference and who

01:13:21.160 | they want to share in private, a public

01:13:23.160 | company doesn't care who's on his cap

01:13:25.880 | table, it doesn't really know who's got,

01:13:28.320 | you know, Apple doesn't know every

01:13:30.480 | shareholder and who's got an account set

01:13:32.600 | E trade or whatever, Charles Schwab, I

01:13:35.000 | mean, they may care who their biggest

01:13:36.120 | shareholders are, but they don't care

01:13:37.640 | who the average shareholder is. Whereas

01:13:39.560 | a private company really does care. And

01:13:41.240 | part of the reason why they care is

01:13:42.600 | because these startups are highly risky.

01:13:45.720 | And they want to have investors who have

01:13:50.120 | a track record of behavior where they

01:13:51.600 | don't have to worry about being lose

01:13:53.880 | every time something doesn't work out,

01:13:55.480 | which is most of the time. So I think

01:13:58.160 | there's good reasons why startups want

01:14:02.720 | to control who their investors are. By

01:14:04.120 | the way, there's also the issue of value

01:14:05.520 | ad, right? I mean, other things being

01:14:06.840 | equal, founders and startups would

01:14:09.280 | rather have investors who can help them,

01:14:11.160 | as opposed to simply, you know, john Q

01:14:13.960 | public.

01:14:14.400 | Yeah, I mean, you mentioned Boltoners,

01:14:16.080 | you don't want somebody who's a neophyte

01:14:17.920 | who's going to cause chaos and be upset

01:14:20.280 | when revenue goes down, or things are

01:14:21.960 | swinging up and down. And yeah, if

01:14:24.600 | you're public, yeah, buy the share if

01:14:26.160 | you want or sell the share if you want

01:14:27.360 | it's a marketplace.

01:14:28.240 | Sorry, just pull up this this image I

01:14:30.280 | just posted. This is from you know, you

01:14:32.160 | guys know go cool Roger on

01:14:35.880 | Google is a great human. We used to

01:14:38.520 | work together at Google. Then he worked

01:14:40.800 | with jack at square. He's a door dash

01:14:43.480 | today. And he was a leader at Facebook

01:14:46.120 | after Google. But he did this tweet last

01:14:49.920 | month, any tech venture investor who

01:14:52.400 | compares their funds return to the SMP

01:14:54.480 | is being naive or disingenuous. The

01:14:57.360 | correct index to compare to is the QQ

01:15:00.200 | Q, you know, the NASDAQ composite and

01:15:02.280 | its performance has been mind boggling.

01:15:04.280 | And as you can see here, over a 20 year

01:15:07.480 | investment period, if you basically just

01:15:10.880 | buy the top 10 public tech stocks, and

01:15:14.800 | at the end of each year rebalance to the

01:15:17.280 | top 10 at the end of the year, your

01:15:20.560 | multiple over that period of time is 24

01:15:23.200 | x over 10 years. Yeah, and over a 10

01:15:26.880 | year period,

01:15:27.480 | there's quite a bit of hindsight bias

01:15:28.840 | here and saying, well, you look at the

01:15:30.120 | top 10, right? It's like,

01:15:31.720 | or how the hell do you determine? You

01:15:33.880 | know,

01:15:34.240 | why not top 100? I mean, are you

01:15:37.160 | willing to say that for the next 10

01:15:38.760 | years, that you should only buy the top

01:15:40.760 | 10? What if over the next 10 years, it's

01:15:43.320 | more of the field versus the top 10?

01:15:45.680 | You know, the next five? Yeah, I think

01:15:48.120 | comparing VC as an asset class to the

01:15:50.520 | NASDAQ makes a lot of sense. Yes, I

01:15:52.720 | think that's fair.

01:15:53.600 | Yeah. And that's that's the second

01:15:55.520 | column from the right, which is

01:15:58.760 | basically, you would be a 5.2 x over 10

01:16:02.800 | years. So if you're not beating 5.2 x,

01:16:05.840 | which is a totally liquid investment,

01:16:07.440 | if you just bought the QQQ index,

01:16:09.200 | what this shows is Apple, Google,

01:16:12.640 | Facebook, and Amazon have had an

01:16:16.120 | immense

01:16:16.640 | run up. Well, that's not that's not

01:16:18.280 | true. That's, that's actually not true,

01:16:20.080 | J. Cal, because if you look at just the

01:16:22.480 | static, it doesn't, you know,

01:16:24.640 | outperform, it's the rebalance that

01:16:26.720 | outperforms, which is whoever's winning

01:16:28.920 | in the market, meaning whoever's gaining

01:16:30.320 | market value each year, is he then

01:16:33.040 | you know, double down your dollars into

01:16:34.560 | for next year. And that's changed over a

01:16:36.640 | 20 year cycle over 10 year cycle. And it

01:16:39.160 | really starts to play out over time. But

01:16:40.960 | I mean, yeah, if you just look at the

01:16:42.080 | QQQ, that's the benchmark as an

01:16:44.400 | investor, as a private investor, and you

01:16:47.440 | know, go calls comment in his, in his

01:16:49.920 | tweet, is that, you know, if they can

01:16:52.320 | return, call it seven to eight x over 10

01:16:54.120 | years, or in this case, five x over 10

01:16:55.520 | years, you could argue that a venture

01:16:57.160 | fund needs to return a significant

01:16:59.320 | premium, probably a 25 30% premium due

01:17:01.280 | to the liquidity and the riskiness of

01:17:03.320 | the investment cycle there, whereas the

01:17:05.000 | QQQ, you can just sell anytime you want.

01:17:06.880 | So you know, call it a you know, you

01:17:08.840 | need to kind of be demonstrating a 30%

01:17:10.440 | premium to the 5.2 x 10 year, which is

01:17:14.360 | six and a half seven x called seven x

01:17:16.760 | cash on cash.

01:17:17.480 | I mean, according to this, the venture

01:17:19.120 | asset class is super overfunded. So why

01:17:21.640 | why is that then?

01:17:22.560 | Gurley, do you have a point of view?

01:17:25.400 | Yeah, I mean, it would be completely

01:17:28.280 | speculative. But I do think if you look

01:17:31.520 | at the structure of endowments, you know,

01:17:33.720 | you've you've had a few people really

01:17:36.600 | leading the way in terms of a playbook

01:17:39.040 | with Swenson, you know, Dave Swenson,

01:17:41.320 | who passed away recently, but but

01:17:43.760 | Dave Swenson, he was a Yale guy. He ran

01:17:47.240 | Yale's endowment and is considered

01:17:48.880 | and I think, you know, the vast majority

01:17:52.160 | of people decided they were going to

01:17:53.800 | follow that playbook, which had a, you

01:17:56.640 | know, oversized investment in illiquid

01:17:59.200 | assets, PV, venture, real estate,

01:18:02.880 | commodities, those kind of things. And I

01:18:05.400 | think it led to just a massive, like, and

01:18:09.760 | these things take forever to figure out

01:18:12.400 | if they're right or not. If your

01:18:14.280 | portfolio is over 50% illiquid, like who

01:18:17.520 | knows what's right and what's wrong. You

01:18:20.160 | could do a re you know, you could, there

01:18:22.520 | were years where Yale was printing like

01:18:24.520 | 27% a year. And then in one reset, no

01:18:29.200 | nine, wiped out, you know, a ton of that.

01:18:32.480 | So it's super hard to know. But But I

01:18:35.440 | do think that philosophy became broadly

01:18:38.520 | adopted.

01:18:39.080 | Yeah, well, look at, can you pull up

01:18:41.920 | this chart real quick. This chart from

01:18:43.880 | statistics that is value of venture

01:18:45.920 | capital investment in the US from 2006

01:18:48.640 | to 2022. And what you see is there's

01:18:52.320 | there's basically a few different levels

01:18:54.720 | before 2014. Call it the industry was

01:18:59.400 | basically a $50 billion a year industry

01:19:01.800 | in terms of deployments. Then you had a

01:19:04.440 | run up where for several years, it was

01:19:06.840 | around 100 billion. And then in the

01:19:10.360 | pre pandemic years 2018 1920 was around

01:19:13.200 | 150 billion a year of deployment. And

01:19:15.640 | then it went totally nuts. In 2021, it

01:19:18.040 | was 350 billion started to come down in

01:19:21.200 | 2022 to about 250 billion. I think where

01:19:24.880 | we are right now is kind of at that

01:19:27.040 | 2019 level of about 150 billion a year.

01:19:30.320 | The question is like what it should be. I

01:19:32.400 | mean, should this be 150 billion a year

01:19:34.600 | industry? Should this be 100 billion a

01:19:36.920 | year industry? Should this be a $50

01:19:38.680 | billion a year industry?

01:19:40.040 | So yeah, it sounds like 100 to 150 would

01:19:43.200 | would have been the steady state and

01:19:44.960 | Bill some portion of this is stay private

01:19:47.960 | longer having an impact where those last

01:19:50.400 | couple of rounds were the big, huge juicy

01:19:53.480 | rounds. And if people had gone public in

01:19:56.320 | year 789, like Microsoft, Google, not

01:20:00.200 | Google, but Microsoft, and I mean, Google

01:20:01.800 | went, what year was Google when it went

01:20:03.440 | out eight? You know, going out a little

01:20:06.000 | bit earlier, would have chopped off some

01:20:08.680 | percentage of this growing.

01:20:09.640 | Yeah, and I do think one of the most

01:20:12.480 | interesting things to watch is going to

01:20:14.240 | be how these 1000 unicorns private

01:20:16.960 | unicorns play out because not only do

01:20:19.000 | they have the cap structure problem, but

01:20:22.080 | they lived and grew up in a day and age

01:20:24.400 | where they were told growth at all costs.

01:20:26.440 | And it's super hard culturally, to go

01:20:30.840 | from that type of execution to the

01:20:33.440 | principal type execution you guys have

01:20:35.480 | been promoting over the past several

01:20:37.640 | months. It's just hard. It's not

01:20:39.680 | impossible, but it's very, very

01:20:41.280 | Google went public in year six.

01:20:43.000 | Yeah, that's 23 million of total venture

01:20:46.240 | raised, I think prior to IPO.

01:20:48.560 | Think about what that means if a lot of

01:20:50.440 | those unicorns are fake, what does that

01:20:53.120 | say about innovation in the American

01:20:55.680 | economy, we had this narrative over the

01:20:57.280 | last decade that the pace of innovation

01:20:59.080 | had fundamentally increased because of

01:21:01.040 | the availability of tools and technology.

01:21:03.160 | And so you had a lot more unicorns being

01:21:05.960 | created. I mean, I remember back in, I

01:21:09.040 | don't know, like, a decade ago, or 2010

01:21:12.120 | era, let's say, you know, there were

01:21:15.480 | maybe was like 20 to 50 unicorns a year,

01:21:19.640 | maybe 20 unicorns a year,

01:21:21.360 | there were arguably 10 to 20 girly, great

01:21:25.520 | companies formed a year in Silicon Valley

01:21:27.240 | or in the tech industry in the West.

01:21:29.560 | I remember when Andreessen kind of gave

01:21:33.960 | this this talk about it, maybe a dozen

01:21:36.680 | years ago, he said the number was 17.

01:21:38.240 | There's like 17 important companies

01:21:40.440 | created every year in Silicon Valley,

01:21:41.800 | and your goal is VC is to be in one of

01:21:44.320 | those 17, then all of a sudden we had,

01:21:46.720 | was it like 100 200 300 unicorns a year?

01:21:49.800 | Yeah, I mean, if you answer the

01:21:52.080 | question, how many of them are real?

01:21:53.320 | Well, I mean, Brad was just talking

01:21:54.920 | about that you're giving a 50 x

01:21:56.840 | multiple 50 times top line, I'm not

01:22:00.360 | talking about earnings, folks, I'm

01:22:01.360 | talking about top line, if you give 50 x

01:22:02.880 | to every company, then you only need

01:22:04.720 | $20 million in revenue to be a unicorn.

01:22:06.880 | And that's unrealistic when compared to

01:22:08.760 | the public markets where things are

01:22:09.840 | trading at five times top line and 20

01:22:12.400 | times earnings of its high growth,

01:22:13.880 | right? So it's just a different market.

01:22:16.120 | All right. There's a major slowdown in

01:22:18.440 | China. Or we could talk about Port

01:22:20.600 | Noye and

01:22:21.520 | buy. Let's do markets. Just real

01:22:25.040 | quick. I've spent a lot of time on the

01:22:28.120 | island of Maui. I think it's really sad.

01:22:30.480 | I don't know if you guys ever been to

01:22:31.160 | Lahaina the whole town.

01:22:32.440 | Beautiful town. So sad. Yeah,

01:22:34.880 | it's gone. I just wanted to make sure

01:22:37.520 | that we mentioned it because it's

01:22:39.240 | hard to depressing what happened. I

01:22:42.320 | don't know if you guys have seen the

01:22:43.120 | wildfires.

01:22:43.720 | But I mean, sacks in our families, we

01:22:45.640 | all went to that area from vacation.

01:22:48.520 | My favorite. Remember that sacks?

01:22:49.600 | Yeah, now he's my favorite code 13.

01:22:51.640 | Yeah, yeah. I mean, now he's my favorite

01:22:53.600 | place on earth. Then a line of so many

01:22:56.000 | times. It's super sad what happened. I

01:22:57.280 | just want to

01:22:57.760 | hope it's a beautiful town on the water

01:22:59.960 | with those old buildings and porches

01:23:01.960 | gorgeous. And it's just all gone right

01:23:03.840 | now. So yeah, this global warming thing

01:23:05.920 | and these fires and wind, man, what a

01:23:08.520 | hot summer. I mean, we could do a whole

01:23:10.320 | southern Iran. Check this out. The

01:23:12.480 | temperature hit 155 degrees. It is nine

01:23:16.000 | degrees warmer than it's ever been off

01:23:18.680 | the west coast of the United States

01:23:21.040 | right now. There was 90 degree ocean

01:23:24.600 | temperatures off of the Florida coast.

01:23:26.440 | The sea surface temperature in the

01:23:28.160 | North Atlantic is the highest it's ever

01:23:29.600 | been by I think seven

01:23:31.920 | warming or is it all a hoax?

01:23:34.760 | Look, the people want to debate all day

01:23:39.360 | long about anthropogenic

01:23:40.880 | I'm asking you, I'm telling you with

01:23:43.960 | like absolute certainty that data right

01:23:46.000 | now is on fucking believable. How hot

01:23:50.760 | and how dangerous the earth is becoming.

01:23:53.280 | And we're seeing not just the fire in

01:23:56.160 | Maui, the sea surface temperature, which

01:23:58.400 | increases the probability of severe

01:24:00.360 | tropical storms and hurricanes in the

01:24:02.120 | coming season. It's on on on level. You

01:24:05.360 | know, I got in Saudi Arabia in Dubai,

01:24:08.960 | 130 degree temperature 95 degree

01:24:12.120 | overnight lows. There is you don't have

01:24:15.440 | air conditioning, you will die in a lot

01:24:17.840 | of these places. So there are parts of

01:24:19.880 | the earth where people cannot afford the

01:24:21.880 | amenities and the luxuries that we have.

01:24:23.880 | So is it a world that we all just just

01:24:26.200 | say there is no hoax. There is no hope.

01:24:28.720 | I'm trying to be a softball right in

01:24:30.560 | front of you. The earth is warming. The

01:24:33.160 | amount of extreme weather is increasing.

01:24:36.080 | The significant effect of that is

01:24:38.720 | becoming apparent. And, you know, it's

01:24:42.040 | we could debate for hours about what

01:24:44.120 | quote, can you do about it. But there's

01:24:46.040 | just a series of really awful things

01:24:47.960 | happening right now. And it's becoming

01:24:50.120 | more frequent and more apparent that

01:24:51.560 | this is a pretty serious thing that

01:24:52.840 | we're all in the midst of.

01:24:54.240 | All you have to do girlies follow what

01:24:56.000 | you're doing down there in Texas, which

01:24:57.680 | has is it the highest renewable energy

01:25:00.920 | percentage of any state now is Texas

01:25:03.280 | greater than California. So one of the

01:25:05.320 | biggest success stories I saw some

01:25:08.720 | politician from Texas saying we got we

01:25:10.360 | got to get off all these

01:25:11.160 | renewables. There's no silver bullet. If

01:25:13.280 | you want to talk about the you know, the

01:25:15.640 | fundamental challenge that we all face

01:25:17.640 | in terms of whether atmospheric carbon

01:25:20.080 | is driving heating or not, if you if you

01:25:21.680 | follow that track, there is no silver

01:25:24.400 | bullet, there is a lot of things that

01:25:25.960 | have to go right in a coordinated way.

01:25:27.560 | And there are market incentives that

01:25:28.920 | make it very difficult for any of those

01:25:30.920 | things to actually get done all the way

01:25:32.080 | through.

01:25:32.440 | But renewable energy and nuclear

01:25:35.160 | you would say are important to have the

01:25:36.920 | most important. Yeah, there's still

01:25:39.000 | industrial production. I mean, it's just

01:25:40.800 | like you the list goes on. You know,

01:25:43.880 | systems and agriculture. There's a lot

01:25:46.520 | of players. What's the clearest path? I

01:25:48.520 | mean, if you had to, if you said, hey,

01:25:49.960 | put 90% of your effort on these three

01:25:52.440 | things, it would be nuclear renewables,

01:25:54.960 | painting people's roofs with white paint

01:25:58.840 | like this new paint that's reflect stuff.

01:26:01.120 | I mean, what would be in your shortlist?

01:26:02.800 | That's not going to change much. No,

01:26:04.080 | let's see this conversation. Other time.

01:26:05.560 | We've got Brad and Bill here. I think

01:26:06.920 | let's honestly, I'd love to have this

01:26:07.960 | conversation. We should do it on the

01:26:09.360 | dock. Yeah, next week, we'll do a big

01:26:10.800 | thing here. Yeah. So just wrapping up

01:26:12.360 | here on sort of macro, we'll give you a

01:26:15.640 | little macro. Brad, CPI seems like it's

01:26:20.640 | measured and consumers seem like they're

01:26:24.160 | running out of money and starting to

01:26:25.840 | tighten their belts. Unemployment, still

01:26:28.600 | all time low, still 9 million job

01:26:30.440 | openings. Feels like this is the steady

01:26:34.240 | state for the next year. Or do you think

01:26:35.840 | hard landing, no landing, soft landing?

01:26:38.360 | Well, maybe they can bring up the first

01:26:41.360 | chart. This morning we had CPI reported

01:26:43.320 | we had the smallest back to back monthly

01:26:45.760 | gains in core CPI in over two years, back

01:26:48.720 | to point 2% annualizing just over over 2%

01:26:52.160 | now. So on a year over year basis, it was

01:26:54.480 | 3.2%. Now remember, it was only six months

01:26:57.520 | ago that people were still hyper

01:26:58.920 | ventilating about, you know, this 9.1% we

01:27:02.320 | saw last year that everybody on this pod,

01:27:04.280 | I think, was largely an agreement that

01:27:06.400 | was COVID stimulated. But you know, the

01:27:08.880 | blue line here represents the consensus

01:27:12.200 | estimates of folks like Goldman Sachs,

01:27:13.960 | right, which is pretty similar to what

01:27:15.640 | the Fed's own estimates are. If you go to

01:27:17.960 | the next slide here, Nick, this is what

01:27:21.440 | people, the current market is betting

01:27:23.800 | will happen to the Fed funds rate. So the

01:27:26.480 | market is saying, like, you know, you've

01:27:28.480 | heard Chamath say many times higher for

01:27:30.280 | longer, I happen to think we'll have

01:27:31.920 | higher rates for longer too. But the

01:27:33.880 | market is saying we're worried about an

01:27:35.680 | economic slowdown that's going to force

01:27:37.600 | the Fed's hand. So the market is betting

01:27:39.640 | that the Fed funds rate will come down,

01:27:41.480 | either because inflation continues to

01:27:44.080 | roll, or because the economy continues to

01:27:46.680 | slow. And so this third slide, which I

01:27:49.360 | think is a really interesting one, which

01:27:51.000 | which nobody really talks about, but this

01:27:52.880 | is the reason I think Druckenmiller and

01:27:54.480 | other are worried about recession.

01:27:58.320 | There's a measure by the San Francisco

01:28:00.880 | Fed, which is called the effective funds

01:28:03.320 | proxy rate. Okay, so this is not the Fed

01:28:06.240 | funds rate. This is what they say the

01:28:09.320 | total impact of quantitative tightening

01:28:13.840 | plus rate hikes are. And we're now back

01:28:17.200 | to the highest level on that proxy rate,

01:28:19.560 | since we've been since May of 2000. It's

01:28:22.960 | up over 7%. I think that's the reason

01:28:25.760 | people are looking at this blue line up

01:28:27.360 | over 7%. That's the highest effective

01:28:30.840 | rate calculated by the San Francisco Fed

01:28:33.600 | since all the way back to May 2000. And

01:28:35.320 | this is the concern.

01:28:36.360 | Brett, could you just explain that? Why

01:28:39.000 | is the effective rate 3% higher than the

01:28:42.120 | official rate?

01:28:42.960 | Because of quantitative tightening,

01:28:44.800 | because there's a lot of other things

01:28:46.680 | going on in the economy, the impacts

01:28:50.000 | interest rates, the rate at which you can

01:28:51.880 | borrow part of it is there's just less

01:28:53.800 | money in the system.

01:28:54.920 | It's a credit crunch, basically,

01:28:56.760 | exactly. Just because the rates 4%

01:28:58.800 | doesn't mean you can get out. You can't

01:29:00.080 | borrow, nobody can borrow at the 10 year

01:29:01.960 | rate. Okay, so if you're a company or an

01:29:03.920 | individual, and you want to go borrow,

01:29:05.280 | you have to buy it at a much higher rate.

01:29:07.440 | So that is where the rubber meets the

01:29:09.800 | road. If you're trying to borrow to buy a

01:29:11.280 | house, borrow to buy a car borrow to

01:29:13.080 | expand your business, that the blue line

01:29:15.600 | represents a much better, you know,

01:29:17.120 | calibration for the level of tightening

01:29:19.520 | in the economy. So there is a very strong

01:29:22.480 | debate. And I would say the markets

01:29:24.400 | actually betting here that the Fed is

01:29:26.720 | overdoing it, because of what you see in

01:29:29.360 | that blue line, and that the economy is

01:29:31.400 | going to slow the lag effects of this

01:29:33.720 | tightening have not yet been felt. And so

01:29:36.040 | this gets back to the question we had

01:29:37.640 | before, which is where are we in the

01:29:40.120 | cycle, whether or not we're going to

01:29:41.400 | continue to have growth now really

01:29:42.880 | interesting, Jason, Bloomberg's headline

01:29:45.560 | today was the summer of disinflation. And

01:29:49.240 | we said on this pod six months ago, we

01:29:51.400 | said it's more likely by the end of 2023,

01:29:54.040 | we're going to be talking about

01:29:55.160 | disinflation than inflation. And lo and

01:29:57.880 | behold, not only are not only are we

01:30:00.200 | seeing signs of disinflation air tickets

01:30:02.480 | down 18% year over year, but China just

01:30:05.600 | posted actual disinflation. Yeah, right.

01:30:08.560 | So prices are coming down. People are

01:30:11.560 | going to be surprised that there's more

01:30:14.920 | products or services available at lower

01:30:16.520 | prices, which then could affect the

01:30:18.040 | salaries, because hey, we're not making

01:30:19.920 | as much money at this company, we got to

01:30:21.120 | cut salaries. I mean, we know that the Fed

01:30:23.600 | at the start of COVID was more like the

01:30:26.360 | the curses of disinflation are almost

01:30:29.280 | bigger than the curses of inflation. And

01:30:31.920 | China just saw CPI down three tenths of

01:30:35.320 | 1% in the month this week annualized

01:30:38.600 | that's over three and a half percent.

01:30:40.160 | That is a major problem for China. So I

01:30:43.480 | think you have some some yellow flags

01:30:45.760 | here, right? Let's say, do we have too

01:30:48.400 | much tightening if one of the global

01:30:50.240 | engines of growth is experiencing this

01:30:52.720 | level of disinflation, that's going to

01:30:54.960 | impact the global economy, global demand,

01:30:57.120 | etc. So yeah, I think in the pattern of

01:30:59.960 | the Fed, right, they they seem to react

01:31:02.040 | late, and then the overseer, this has

01:31:03.920 | been the theme. And so there's also just

01:31:07.720 | to add one other cloud to the silver

01:31:11.240 | lining, it's the amount of debt that's

01:31:13.080 | out there. Correct. So both private debt

01:31:16.320 | and government debt, yeah, consumer debt

01:31:18.800 | is high, this real estate commercial

01:31:21.280 | real estate's high, got debt everywhere,

01:31:23.840 | and people are gonna have to belt tighten

01:31:25.600 | and maybe austerity and stop spending on

01:31:28.360 | some YOLO trips. But if salaries keep

01:31:32.040 | going up,

01:31:32.640 | let's let's

01:31:34.400 | bring up this Kona Kowa, who is this?

01:31:36.760 | Who are you sharing? It's not a Kona Kowa

01:31:38.960 | link. Is it another great Kona Kiyoma?

01:31:41.400 | Kobayashi letter.

01:31:42.520 | Oh, Kobayashi letter. Oh, Kobayashi here?

01:31:44.920 | Kobayashi. Yeah, Kobayashi.

01:31:46.960 | That's got 300,000 followers.

01:31:49.400 | So we have we have record household debt,

01:31:52.000 | 17.1 trillion record mortgage debt, 12

01:31:55.080 | trillion record auto loans, 1.6 trillion

01:31:57.600 | record student loans, 1.6 trillion, which

01:32:00.320 | as Dracula Miller points out, have to

01:32:02.240 | start being repaid, I think, as of

01:32:03.440 | September, because Supreme Court

01:32:05.120 | overturned binds and constitutional debt

01:32:07.960 | forgiveness. Yep. Record 1 trillion in

01:32:10.680 | credit card debt that I think should be

01:32:12.240 | pretty worrying because credit card rates

01:32:13.800 | are now around 25%. So credit card debt

01:32:17.880 | gets the interest on that is it is

01:32:21.440 | obviously floating. And so when rates go

01:32:24.280 | up to, you know, where they are now, then

01:32:27.000 | it gets it gets very punitive. So

01:32:28.920 | David precisely, and this is remember,

01:32:31.440 | we're seeing inflation rollover huge, and

01:32:34.320 | we have a chips act in an infrastructure,

01:32:36.560 | we have massive government spending going

01:32:38.480 | on, and we still see inflation rolling

01:32:41.040 | over. So I just find it interesting that

01:32:43.120 | within six months, we've gone from

01:32:44.600 | worrying about hyperinflation to

01:32:46.600 | Bloomberg running a headline summer of

01:32:48.240 | disinflation.

01:32:49.080 | The last piece of it is government debt.

01:32:51.040 | So at the rate that the government is

01:32:53.840 | racking up deficits, the Treasury is

01:32:56.520 | gonna have to float something like 3

01:32:59.360 | trillion of new T bills by the end of

01:33:03.320 | the year. And we're rolling something

01:33:04.960 | like 9 trillion of old government debt

01:33:08.400 | over the next 18 months at new higher

01:33:10.240 | interest rates.

01:33:11.000 | So there's a lot of debt and we'll

01:33:13.040 | continue that discussion next week as

01:33:14.600 | well as the global warming one hearts

01:33:16.760 | and prayers out to the fine people of

01:33:20.080 | Maui, who invite us to come to their

01:33:22.200 | incredible paradise. We hope you all

01:33:24.120 | stay safe and have a great recovery.

01:33:25.760 | Your thoughts and prayers for Brad

01:33:28.400 | Gerstner, the fifth bestie for the

01:33:31.280 | architect, David Sachs, and the Sultan

01:33:34.080 | of science. I am the world's greatest

01:33:35.880 | moderator and officiant if you're

01:33:37.120 | getting married. And for Bill Gurley,

01:33:40.920 | Bill Gurley, you have some anecdotes

01:33:42.080 | about the all in pond you were talking

01:33:43.640 | about. BG squared.

01:33:44.640 | Close on closing on an anecdote.

01:33:46.640 | Close this out.

01:33:48.880 | Obviously, huge success you guys have

01:33:52.080 | had it when you first mentioned you

01:33:54.400 | were going to do this. I don't think

01:33:55.600 | anyone had any idea that you would

01:33:57.280 | reach this level. And I know the hard

01:33:59.720 | work it takes to for you guys to do

01:34:01.880 | this weekly. It's amazing. But I was

01:34:04.240 | walking down this you guys share

01:34:05.880 | anecdotes about people mentioning all

01:34:08.200 | in I was walking down the street in

01:34:10.320 | Austin a few months ago and a guy came

01:34:13.160 | to me goes, Are you Bill Gurley? I go

01:34:15.920 | yeah. And he says, You're that guy they

01:34:18.880 | sometimes talk about on all in right?

01:34:20.920 | Yes.

01:34:24.080 | There's your subtitle of your memoir.

01:34:29.360 | They talk about sometimes.

01:34:32.120 | Tombstone.

01:34:33.400 | There's your tombstone.

01:34:34.320 | To your point, Bill, it took 10 years

01:34:36.480 | of hard work by J Cal for the rest of

01:34:37.920 | us. We just walked in off the street.

01:34:39.240 | Exactly. Thanks. I got you all on my

01:34:41.560 | shoulders.

01:34:42.520 | That's why he thinks he deserves more

01:34:43.960 | than 25% holding you all on my

01:34:46.160 | shoulders, but he don't get more than

01:34:47.840 | 25% check out where you're running off

01:34:50.240 | to why do we got to shut this down?

01:34:51.600 | Saks Saxon girly and I may stay and

01:34:53.600 | just keep talking down the world's

01:34:54.680 | greatest moderator and we'll see you

01:34:56.480 | all next time on the all in podcast.

01:34:58.560 | Bye bye.

01:34:59.400 | Let your winners ride.

01:35:02.240 | Rain Man David

01:35:04.760 | we open sources to the fans and they've

01:35:10.720 | just gone crazy with it. I love you.

01:35:12.520 | West. I squeen of

01:35:13.520 | besties are

01:35:21.760 | dog taking a notice your driveway

01:35:25.720 | should all just get a room and just

01:35:32.840 | have one big huge orgy because they're

01:35:34.400 | all just like this like sexual tension

01:35:36.880 | that they just need to release somehow.

01:35:39.240 | What you're about to be your fee.

01:35:43.840 | We need to get my keys are

01:35:46.320 | going all in.

01:35:47.880 | I'm going all in.

01:35:57.440 | [BLANK_AUDIO]

E141: State of Series A's, VC dry powder, IPO window opens + more with Bill Gurley & Brad Gerstner

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