E65: VC markup dynamics, Russia/US tensions over Ukraine, Altos Labs raises $3B, Stripe mafia & more

00:00:00.000 | We don't want to talk about Andrew.

00:00:01.120 | I think that guy, Palmer Lucky, is super fascinating, the Oculus guy.

00:00:03.940 | Why do you want to talk about that company?

00:00:05.200 | Because I think an American company...

00:00:06.820 | He's launching a syndicate soon.

00:00:08.000 | No, I...

00:00:09.120 | Are you an investor?

00:00:09.560 | Palmer Lucky hates me.

00:00:10.920 | He won't come on this week in startups.

00:00:12.360 | He literally hates me.

00:00:12.900 | What did you call him?

00:00:13.540 | Palmer Lucky?

00:00:14.340 | Palmer Lucky.

00:00:16.240 | Cosplay Palmer.

00:00:17.640 | He's a cosplayer.

00:00:18.820 | I like the fact that he does cosplay.

00:00:20.240 | What is that?

00:00:20.780 | That's when you dress up as comic book or like superhero characters and go to conventions

00:00:24.480 | without any ears.

00:00:24.660 | You know how you dress up in the clothes of old Italian women?

00:00:27.160 | Yes.

00:00:27.740 | He dresses up like a superhero.

00:00:30.520 | These are cold open, folks.

00:00:32.220 | I do dress like a Matrona sometimes.

00:00:36.800 | Yeah, right.

00:00:37.460 | I'm a Chimada.

00:00:39.340 | I'm making you a rigatoni.

00:00:41.100 | You are a rigatoni with the vodka sauce.

00:00:43.480 | I'm making it for you.

00:00:44.540 | In Italy, there's a culture in the olden days.

00:00:49.340 | It's like you used to have these things called salotti, which basically meant all the decisions

00:00:53.680 | of the country were made by these people in the living rooms after dinner.

00:00:56.660 | And the most powerful people in the salotti.

00:00:59.620 | Were these women who were married to these men and they would be the architects of all

00:01:04.620 | these decisions.

00:01:05.620 | Oh, the Mussolini, I don't like him.

00:01:06.620 | He never finished the pasta.

00:01:07.620 | He always leave us so much on the plate.

00:01:10.220 | And people would call them Matronas.

00:01:12.940 | So I'd probably be a Matrona.

00:01:14.660 | I've always felt you were like the old Italian lady in our group.

00:01:18.500 | Let your winners ride.

00:01:20.500 | Rain Man, David Sacks.

00:01:21.500 | And it's sad.

00:01:22.500 | We open sourced it to the fans and they've just gone, "Oh, my God.

00:01:27.500 | I'm so sorry.

00:01:28.500 | I'm so sorry.

00:01:29.500 | Hey everybody, welcome to another episode of the All In

00:01:38.080 | podcast. Yes, we're still publishing Yes, we haven't been

00:01:41.560 | cancelled. But it's early in the show, so you never know. With me

00:01:45.740 | again, the dictator himself. The Sultan of Science, David

00:01:51.820 | Friedberg, whatever beverage you like I'll make it for you right

00:01:54.400 | now and his replicator. And of course, yeah, the Rain man

00:01:58.960 | himself. Yeah, definitely gonna win the midterms. Yeah, David

00:02:02.440 | Sachs. Everybody have a great week getting their asses kicked

00:02:06.020 | in the market.

00:02:06.700 | I'm pretty good.

00:02:08.780 | You're okay. Everybody. Okay, nobody.

00:02:11.400 | I can't look at my portfolio anymore. I just stopped

00:02:15.240 | checking.

00:02:15.580 | Not a fan of the color red.

00:02:19.020 | I actually I've been using this period to kind of desensitize

00:02:24.360 | myself. I went back and I started to think about like all

00:02:27.700 | of the

00:02:28.200 | sort of errors of commission that I've done in like the last

00:02:34.140 | decade. And I, I was able to look at like four or five

00:02:39.040 | specific trading moments where I was like, wow, what did I do that

00:02:41.640 | for? And I came away with two things. One was, if I confuse an

00:02:47.920 | investment with a trade, I'm done for meaning like there are

00:02:51.600 | things that you invest in that you just want to own forever.

00:02:53.680 | And then there are things that are trades that are just

00:02:55.600 | speculative. And, you know, at the end of the day, you have a

00:02:58.180 | sense that it could be up in the short term. If I confuse those

00:03:01.840 | two, I've made huge mistakes. And then the other one is I would

00:03:04.840 | always get really emotional and panic at the lows. And so I was

00:03:08.600 | like, you know, in early December or November, when I

00:03:11.680 | wrote that letter on Twitter, and we talked about it, and I

00:03:13.820 | sold a bunch of stuff after Jeff and, and Elon were selling,

00:03:17.180 | raise some cash. And I was like, Okay, now, I have enough buffer

00:03:22.600 | here. The whole point from here on out is to basically like,

00:03:26.320 | insulate myself.

00:03:28.020 | From my own emotional turmoil. Stocks go down. And so far so

00:03:32.460 | good. And my litmus test if when I go home, at the end of every

00:03:36.240 | day, you know, I check in with Nat and I'm like, Am I an asshole?

00:03:39.060 | Yes, what does that have to do with it?

00:03:42.100 | When I get crushed in the market, I tend to I tend to take

00:03:45.360 | it out on my friends and my loved ones. Honestly, because I

00:03:47.760 | were your friends. We come to your poker game, when your socks

00:03:51.360 | are down. And you're just like, Oh, my God, it once that's it.

00:03:55.000 | I'm popping the blinds up. I can't take it anymore. You

00:03:57.860 | remember last year to mop during the the market collapse. When

00:04:02.540 | at the start of COVID, and you decided you didn't care about

00:04:05.180 | having nice jeans anymore. And then you fast forward to

00:04:07.640 | December, and you're proclaiming the virtue of a $5,000 fresh

00:04:12.620 | alpaca sweater or whatever. I think another another indicator

00:04:16.940 | of sentiment in the market for you is your clothing. Oh my God.

00:04:20.360 | choice. But this is a really nice cashmere ribbed sweater from

00:04:25.740 | the Loro Piano.

00:04:26.420 | Okay,

00:04:27.200 | we're back in the game. It's good to see we're back to normal

00:04:29.240 | now. Yeah, let me ask you then I'm going to put a couple of

00:04:32.060 | items out there is Bitcoin a trade for you or an investment

00:04:35.840 | for you? Or was it and is it now?

00:04:38.420 | Well, I invested in 2011 at $80.

00:04:41.840 | Yeah, yum yum.

00:04:42.800 | I wrote an op ed in that same year in Bloomberg, which I hope

00:04:48.180 | at some point they take off the paywall. And the whole thing

00:04:52.040 | was you should have 1% of your net worth in this thing. Yeah.

00:04:54.920 | It's remained an investment.

00:04:57.040 | Since so still an investment.

00:04:58.600 | Yeah, I've structured it so that I don't hold any Bitcoin

00:05:01.040 | personally myself because I don't want to have the pressure

00:05:03.700 | and the risk of keys and coins and wallets and this and that.

00:05:06.880 | But I still really believe in Bitcoin in the long term.

00:05:11.080 | Sacks, how do you how do you deal with the emotional turmoil

00:05:15.340 | of opening up your stocks, crypto, whatever wallet and

00:05:18.760 | seeing red and then going to work every day or he's just

00:05:21.800 | curled up in a ball playing chess with Peter Thiel?

00:05:23.720 | Yeah, I mean, you just gotta try and ignore it.

00:05:26.880 | Okay. Try try was a key word in that sentence.

00:05:30.160 | It doesn't really affect me that much. I mean, so

00:05:32.100 | I run the avoidance acceptance function.

00:05:34.440 | I have removed my emotions.

00:05:37.140 | No, look, there are there are countervailing benefits. So when

00:05:40.720 | exit prices are great, entry prices are lousy. And when when

00:05:46.760 | entry prices are great, exit prices are lousy. So there's an

00:05:49.800 | inverse relationship. So in other words, all the the

00:05:52.060 | companies that I mean, the public markets have massively corrected

00:05:56.320 | and

00:05:56.720 | though and now finally, you know, we talked about this few

00:05:59.360 | few months ago, those new price levels have trickled their way

00:06:02.420 | down into venture markets. And so finally, you know, venture

00:06:05.960 | deals are starting to price at more reasonable prices. So in

00:06:10.600 | terms of harvesting gains from old investments, obviously, it's

00:06:16.340 | not as attractive as it was three months ago. But in terms

00:06:19.540 | of making new investments is much more attractive. And for a

00:06:23.700 | relatively young venture firm, which is what we are, we're going to have to do a lot of things.

00:06:26.560 | We are, you know, we Yes, we do have some investments that are

00:06:29.380 | kind of in the harvesting stage. But you know, we're only a four or

00:06:32.560 | five year old firm. We're still the bulk of our activity is

00:06:35.860 | making new investments. So you know, it's not, it's, it's all

00:06:40.600 | just kind of part of the game. And I'm not really that worried

00:06:42.800 | about it.

00:06:43.060 | Said another way, fortunes are made in the down market, they're

00:06:46.060 | collected in the upmarket is the way I always phrase it. But it's

00:06:49.360 | true, things are going to be on sale right now. And we saw Bill

00:06:52.540 | Ackman, I think, who I think is a friend of the pod.

00:06:56.400 | listens. Yeah, super, super, super smart. Brilliant.

00:06:59.580 | Yeah. And I just I just want to emphasize because I don't want

00:07:01.680 | founders to get the wrong idea. It's not like we're trying to

00:07:05.620 | pull one over on founders and get some sort of sweetheart deal

00:07:08.520 | or something like that. My view of like our role as VCs is just

00:07:12.920 | to be a price taker of whatever prices the market sets, we don't

00:07:17.100 | try and negotiate something better than market really, we

00:07:19.680 | just take the market price. And we pick the companies we want to

00:07:23.500 | be in. So that's our job is really just to pick not

00:07:26.240 | really to negotiate that much.

00:07:27.860 | You're not you're not able to haggle. It's not like you can go

00:07:30.180 | Yeah, exactly. The market supermarket like, oh, bananas are

00:07:32.860 | $1 a pound, I'll take them for 50 cents. They're like, Sir, this

00:07:35.420 | is a Whole Foods, we don't negotiate. Right. So we're a

00:07:38.660 | price taker in good markets or bad markets. And it's just that

00:07:42.920 | I think that the prices now are coming down. Because what I've

00:07:46.280 | heard is that the crossover investors like tiger like KOTU

00:07:49.820 | who are deploying all this money, they've really slowed

00:07:53.620 | down. Now, I think they're all kind of licking their wounds.

00:07:56.080 | And so like all this money that was flooding into the venture

00:07:59.860 | space is kind of on pause right now. And that's caused the price

00:08:05.020 | levels to drop

00:08:06.160 | the end of last year in q4. My public portfolio really started

00:08:11.380 | to turn over, took a huge amount of losses going into the end of

00:08:15.100 | the year. And then I took an accounting obviously of like the

00:08:19.040 | entire book and the public portfolio, every single thing

00:08:23.560 | that I owned, ultimately basically broke even last

00:08:25.920 | year. Somewhere up, I made some early sales somewhere way down by

00:08:30.240 | the end of the year net net, I kind of broke even. But my

00:08:34.440 | private book was up a billion dollars. And I told the team,

00:08:37.500 | I'm like, No, this is not real. So we have to take those marks

00:08:41.420 | because, you know, you have other venture firms that are

00:08:44.420 | pricing these deals, and we get audited k ones. And so we have

00:08:47.420 | to take the up billion, but I told them, you should consider

00:08:51.060 | this that we had basically a down, you know, so net net, our

00:08:53.880 | returns were like, you know, we were up like 50% of the year,

00:08:55.760 | like 15%. And I said, This is not real. We were at best break

00:08:59.480 | even and probably lost money. But you can't you can't not take

00:09:02.880 | these marks because like, you know, you have an entire fund

00:09:05.720 | complex that lives on these marks. Yeah, and by the way,

00:09:09.260 | by the way, compensation at all, but I have to take it.

00:09:11.360 | Freeberg, then sex good for you.

00:09:13.000 | That's a it's a really important point, because I think we talked

00:09:15.260 | about this one or two episodes ago. But there's a significant

00:09:19.260 | disincentive for venture firms to take markdowns to raise

00:09:23.240 | capital into a private business at a

00:09:25.600 | price that's lower than the prior round. Because when they

00:09:28.340 | do that, the marked value of their portfolio goes down. And

00:09:32.860 | then it makes it harder for that venture firm to go out and raise

00:09:35.600 | the next fund that they're going to try and raise from their LPS,

00:09:38.980 | because it looks like they're not good investors. And the

00:09:41.380 | reality is, and so in every round, as everyone on this pod

00:09:45.100 | knows, there's always an incentive and a push to see can

00:09:47.960 | you get the valuation higher, even if the business performance

00:09:51.120 | didn't meet the objectives of the prior round, and things have

00:09:53.840 | gone sideways a bit doesn't

00:09:55.440 | necessarily mean that it's a bad business. But it doesn't

00:09:58.080 | necessarily mean that it should always be getting an up round

00:10:00.480 | just because it's being kept alive. And there's this

00:10:02.820 | artificial pressure in private equity, in venture to always

00:10:09.680 | drive the value up or to run away from the company, because

00:10:12.540 | otherwise, you're going to have this markdown and you don't want

00:10:14.580 | to be putting money in a markdown that looks like a

00:10:16.200 | loser, and so on. And if you look at the public markets,

00:10:19.320 | every successful company has had significant downturns in their

00:10:23.120 | stock for significant periods of

00:10:25.280 | time, from Facebook, Amazon, to Facebook, to Amazon to Netflix.

00:10:30.200 | And all of those businesses were sound businesses. It's just that

00:10:33.620 | for whatever reason, there were perturbations and markets

00:10:35.880 | perturbations in the business, but the long term value creation

00:10:38.760 | was still there. And so I think we need to kind of, you know, be

00:10:41.800 | really thoughtful. You know, and entrepreneurs should be very

00:10:46.180 | thoughtful not to give in to the venture mandate to always drive

00:10:50.120 | value up but to be really thoughtful about getting the

00:10:52.020 | right valuation for your business and getting the capital

00:10:53.960 | you need with the right partners.

00:10:55.120 | Can I say something about this? It's so important what you said

00:10:58.420 | one of the tactics that I started three years ago was I run

00:11:01.120 | my own shadow portfolio, where I don't take the marks and I just

00:11:05.740 | keep them at my cost basis. And I'm not allowed to use that for

00:11:09.900 | anything. I don't you know, I can't use that. Obviously, I

00:11:12.180 | would never use that for compensation with my team or

00:11:14.260 | anything else. But I use it in my own head to say, Okay, if I

00:11:17.500 | invested $1, let's not think about what somebody else may

00:11:21.520 | think about what that dollars worth, let's just keep it at $1

00:11:24.960 | and let's just keep it at $2. And I'm not allowed to use that

00:11:27.300 | money. I'm not allowed to use that money. I'm not allowed to

00:11:28.260 | use that money. I'm not allowed to use that money. I'm not

00:11:29.340 | allowed to use that money. I'm not allowed to use that money.

00:11:30.420 | But it's a very difficult thing to do. And the reason I do that

00:11:33.420 | is because I don't have the pressure to raise incremental

00:11:35.240 | funds. But if I did, I wouldn't be able to play that game. And

00:11:38.280 | I'd be very focused on making sure other VCs marked up my

00:11:42.580 | deals. Because to your point, it takes 1012 years to drive

00:11:46.320 | liquidity, literally, that's the key here. And so what are you

00:11:50.040 | supposed to do if you're a venture business in year three

00:11:52.080 | or four, except raise money on markups, paper money, you know,

00:11:54.800 | paper markups are the they're the they're the lifeblood of

00:11:59.320 | what this industry going? Yeah, totally.

00:12:01.560 | Well, I mean, the interesting thing for me is I LP to a couple

00:12:04.920 | of these small, like emerging fund managers, you know,

00:12:07.080 | micro funds 10 million or so 3 million. And they were sending

00:12:10.940 | like a lot of updates. And so I'm in some top tier venture

00:12:13.820 | firms that some of you are in. And they send you an audit every

00:12:16.840 | year. And they send you a distribution cash on cash,

00:12:19.260 | here's where you're at. And then I was getting like quarterly

00:12:22.600 | emails, as everything was going up, these

00:12:24.640 | new fund managers are like, we're at 100 IRR, we're at 200%

00:12:28.000 | IRR, because this crypto investment we did, got marked

00:12:31.060 | up. And I was just thinking about what Bill Gurley would

00:12:33.080 | always say, which I think is a Howard Marks quote, you can't

00:12:35.600 | eat IRR. Like, what are we doing here? Like, why is there

00:12:38.880 | such a focus on this is because you want to raise your next

00:12:40.900 | fund. And then the other game people were playing was, and I

00:12:45.160 | got into this, because people were like, oh, you know, you're

00:12:48.940 | grossly undervaluing your funds, because Robin Hood is trading

00:12:54.480 | at $30 a share on the private markets comm is trading at this

00:12:57.840 | and the private markets. And the second people were using

00:12:59.820 | secondary market transactions as their mark. So I'm curious,

00:13:02.880 | Sax, how do you think about if you invested in a company, the

00:13:06.840 | series B was $100 a share, but then somebody bought it at 150 a

00:13:09.960 | share in the private markets? Where do you like to mark that

00:13:12.840 | in your funds? Or how do you think about that? And getting

00:13:15.240 | ahead of your skis in terms of valuing your private funds?

00:13:18.480 | Well, to Jermas points, we have accounting rules around this. So

00:13:22.620 | we can't like subjectively

00:13:24.320 | decide like what mark to set for each company for, you know,

00:13:29.000 | obvious reasons, our LP was one, like, a predictable accounting.

00:13:32.960 | So the way it generally works is that you the mark is set by the

00:13:38.240 | most recent private, you know, financing. This is the way it

00:13:43.400 | works. And if people want to discount it from there, they

00:13:45.620 | certainly can, you know,

00:13:46.940 | what about a secondary transaction? Is there any

00:13:49.460 | more complicated rules around that, because it's a different

00:13:52.080 | class of stock. So it's

00:13:54.160 | it's some combination of sometimes we use a foreign I know

00:13:57.340 | sometimes it's the latest preferred round, it's, you know,

00:14:01.180 | it just, there's like complicated rules around it.

00:14:03.420 | By the way, I'll just rehash what was already said. And just

00:14:08.140 | to say it one more time to mark pointed out that it typically

00:14:10.480 | takes 12 years to liquidity from the time a startup is initially

00:14:13.160 | funded to the time that you sell it or go public. Show me one

00:14:17.540 | public company that has had 12 years of consistent gain in its

00:14:21.880 | stock price. It doesn't exist.

00:14:24.000 | And so again, like this, this notion that you know, every

00:14:27.360 | startup is seeing some perpetual persistent increase in value is

00:14:31.560 | an artifice that

00:14:32.640 | well, it doesn't really represent it doesn't it doesn't

00:14:35.400 | exist in tech. And that's that that's a feature not a bug.

00:14:37.740 | Right? Meaning the things that can go up predictably for 10 to

00:14:40.940 | 12 years are not necessarily businesses. They don't take

00:14:44.220 | risk. They're not dynamic. No, they don't take risk. Yeah.

00:14:47.220 | Sacks, can you define perturbation for the audience? I

00:14:50.460 | heard freeberg say that a couple of times, perturbation would

00:14:53.840 | be hurt her patient changes. What like volatility basically?

00:14:57.140 | Yeah, rapid change,

00:14:57.980 | anxiety, mental uneasiness. Okay, a cause of anxiety or

00:15:02.720 | uneasiness. Okay, I got it. I thought you were saying another

00:15:05.480 | word. You don't use the word perturbation. I thought you said

00:15:09.380 | another word. What word was in your brain? I thought I heard

00:15:13.160 | masturbation. I was like, Master. What exactly did he say

00:15:17.240 | about the markets? Speaking of markets, we were on a text on our

00:15:23.680 | text thread talking about if we're about to have the start of

00:15:28.000 | World War Three. And then maybe this is not in the news now. How

00:15:35.980 | do we look at the UK Russia situation in the Ukraine?

00:15:39.820 | Obviously, 100,000 troops are amassing on a border. And what

00:15:44.860 | is the goal here? Because Biden is saying, Hey, listen, if

00:15:50.080 | anything happens, we're going to go to war.

00:15:53.520 | And there's a lot of saber rattling here. I don't exactly

00:15:57.000 | understand what Putin's goal or motivation is. And that's, I

00:16:00.600 | think, what I'm not hearing in the news is exactly what is his

00:16:03.720 | goal? What are your thoughts on what's happening in the Ukraine

00:16:08.400 | and Russia? sex?

00:16:10.260 | Okay, well, I think first of all, we have to kind of level

00:16:14.200 | set in historical terms about how unusual and unprecedented it

00:16:17.760 | would be for us to send troops to fight, you know, potentially

00:16:22.640 | Russia in a border.

00:16:23.360 | I mean, we've seen the border conflict with Ukraine with and

00:16:26.600 | by the way, the Biden put 8500 troops on alert for deployment

00:16:30.680 | this week. It's really without historical precedent during the

00:16:36.020 | Cold War. You know, in 1956, Soviet tanks rolled into Hungary

00:16:41.120 | to crush rebels there. Eisenhower did nothing 1968.

00:16:44.660 | Soviet tanks rolled into Czechoslovakia to crush the Prague

00:16:47.240 | Spring. LBJ did nothing 1981. The Soviets crushed the Solidarity Movement

00:16:53.200 | in Poland. Ronald Reagan did nothing even though he had

00:16:56.980 | campaigned on getting tough with the Soviets. And then more

00:16:59.860 | recently in 2008. When Russia invaded Georgia, George W. Bush

00:17:06.580 | did not intervene militarily. And then 2014, when Putin occupied

00:17:12.220 | Crimea, Obama did nothing. And so this idea and the reason for

00:17:17.080 | that in all those cases is because America has a vital

00:17:21.160 | national interest in avoiding war.

00:17:23.040 | With the nuclear armed Russia, and we did not have a vital

00:17:27.180 | national interest in defending the territorial sovereignty of

00:17:31.080 | those nations. That's the bottom line. And so for us to be now

00:17:36.240 | beating the drums of war and talking about sending troops

00:17:39.960 | into a war zone with Russia is just it's unbelievably

00:17:44.400 | irresponsible.

00:17:45.480 | Friedberg, one might speculate if they were cynical, some sort

00:17:51.000 | of wag the dog situation here.

00:17:52.880 | I mean, Biden's not doing well, he's lowest popularity ever. Midterms

00:17:57.440 | are coming up. Is there any political motivation here? Do you

00:18:01.160 | think in what Biden's actions are, you know, given the context

00:18:03.920 | of what Sachs just outlined?

00:18:05.480 | I think that there's, this is like showing up to the, you

00:18:09.860 | know, the last 20 minutes of a two hour movie, and then saying,

00:18:12.920 | Oh, my gosh, what's this guy doing? He's so crazy. There's a

00:18:15.680 | long narrative that precedes the current news cycle on what's

00:18:19.460 | happening with Putin and the Ukraine. You know, in large,

00:18:22.720 | part, the United States helped to start the fuel, the expansion

00:18:27.040 | of NATO in the 90s. And the intention was to make NATO as a

00:18:32.080 | Western allied kind of organization contain Russia step

00:18:37.300 | up right to their borders get very close and, and ultimately

00:18:41.860 | make these kind of, you know, areas, free liberal democracies

00:18:47.020 | that are aligned with the West, and put them right on Russia's

00:18:50.260 | border. And that is obviously,

00:18:52.560 | antagonistic. If anyone tried to do that to the United States,

00:18:57.120 | like Russia did with the Cuban Missile Crisis, we would view

00:19:01.620 | that as a hostile act, and we would react accordingly. And for

00:19:05.100 | years, the pressure has been built in and has been mounting,

00:19:08.340 | as Putin has started to kind of solidify his political power at

00:19:12.960 | home and his allies abroad, in trying to figure out ways to

00:19:17.020 | push back on this wall that has been built around him and his

00:19:20.680 | nation. And, you know,

00:19:22.400 | to some degree, I think we look at this as like, his aggressive

00:19:25.820 | behavior, but to some extent, it is a defensive behavior over a

00:19:30.140 | very longer cycle when when viewed that way. And again, like

00:19:34.620 | remember, the US had this Monroe Doctrine, which President Monroe

00:19:37.880 | put in place, and I don't know, 18, something 1800 something

00:19:40.520 | that said, you know, anyone that comes into our territory, and

00:19:44.520 | tries to influence nations around us to be hostile towards

00:19:47.360 | us is a hostile act in and of itself. Anytime someone tries to

00:19:50.480 | influence our politics, it's hostile.

00:19:52.240 | And I think Russia views our behavior and NATO's behavior

00:19:55.540 | this way. And so his primary demand is and has always been

00:19:59.060 | that the Ukraine cannot and will not and should not join NATO. And

00:20:02.680 | the US response has and continues to be and and the EU

00:20:05.980 | and the EU. And we're saying, look, we we believe in the

00:20:09.940 | sovereignty of the Ukraine. And we want the Ukraine to make

00:20:12.760 | their own decision about where they go and what they do. But

00:20:15.000 | the reality is, for us, this is a key part of a very long term

00:20:18.340 | strategy to keep Russia contained. Now, meanwhile,

00:20:21.200 | there's this beautiful

00:20:22.080 | backdrop of what's going on with China. And if I'm China, I

00:20:26.320 | would love to see the US and Russia in conflict, because it

00:20:29.080 | will weaken the US. And if I'm Russia, I would love to see the

00:20:31.960 | US and China in conflict, because it will weaken the US.

00:20:34.840 | The US is in a very precarious situation right now. And for us

00:20:37.740 | to actually end up in conflict is going to weaken our position

00:20:40.180 | with one of these other two emerging, you know, challenging,

00:20:42.660 | you know, superpowers. And this is a really precarious time, I

00:20:47.700 | think, to Sax's point, it's highly unlikely we're gonna end

00:20:50.160 | up sending military. But the

00:20:51.920 | cost sharing is such that we need to kind of hold our line

00:20:54.800 | until the very last minute, we'll see what happens. I did

00:20:57.380 | say, you know, at the end of the year, I do think that we're in

00:21:00.020 | this kind of economic status right now that if there were an

00:21:04.480 | opportunity for conflict, we're probably more likely to want to

00:21:06.920 | engage in conflict than not, because it does create something

00:21:10.040 | that we all get behind it create, you know, kind of

00:21:12.260 | political unity, it creates economic unity, it creates

00:21:15.080 | driving forces that maybe might help us through what is clearly

00:21:18.920 | a very volatile and difficult time at home.

00:21:21.760 | So let's see what happens.

00:21:23.580 | I think Obama has already given us the endgame. I just think we

00:21:26.480 | have to go through the machinations to get there. He

00:21:28.640 | said to the Atlantic, I think it was in 2016 or 17. He said, the

00:21:32.220 | fact is that Ukraine, which is a non NATO country is going to be

00:21:35.220 | vulnerable to military domination by Russia, no matter

00:21:37.960 | what we do. And you know, every time there was this brinksmanship,

00:21:41.080 | we effectively blinked and rightfully so because it didn't

00:21:44.380 | necessarily make sense to, to all of a sudden engage the war

00:21:48.100 | machine to go to war in Eastern Europe.

00:21:50.560 | The thing that's interesting about what happened here, though,

00:21:54.280 | was that this was a slow moving train wreck that was really

00:21:57.040 | visible years and years ago. Why is that? Well, if you look at

00:22:01.540 | what was really happening, this is really a European issue. And

00:22:05.140 | you got to think, well, why is America being the leading actor

00:22:08.920 | here? When you know, where's Europe in all of this? Well, it

00:22:11.920 | turns out that, you know, the strongest power in Europe,

00:22:15.940 | Germany, is in a really difficult situation, because they rely

00:22:20.400 | on Russian energy. 50% of the nat gas that comes in, or 50% of

00:22:27.000 | the energy, I think that comes into Germany is from Russia. And

00:22:30.720 | they've, in fact, been building an entire pipeline system from

00:22:35.660 | Russia that bypasses the Ukraine and go straight to Germany. And

00:22:39.180 | so when all of the saber rattling was happening, Germany

00:22:41.660 | basically had to blink because they need Russia's energy. And

00:22:45.400 | why did they need Russia's energy? Well, they needed

00:22:47.820 | Russia's energy, because 20 years ago, the environmentalist

00:22:50.240 | in Germany won, and they started decommissioning all their nuclear

00:22:52.940 | reactors. So ridiculous. So at somewhere along the way, nobody

00:22:57.380 | took a science class in Germany and figured out that nuclear was

00:23:00.920 | both safer and cleaner. Instead, burning fossil fuels is the answer.

00:23:04.460 | And geopolitically wiser to not have a dependency. And after the

00:23:07.460 | Fukushima, they went, turned them all off, they accelerated

00:23:10.520 | it.

00:23:10.720 | Yeah, it made more sense to burn fossil fuels, number one, and

00:23:13.940 | then to get those fossil fuels from Russia. So unfortunately,

00:23:18.200 | we are in the state of affairs where

00:23:20.080 | Germany has said, at least it's been reported, that they would

00:23:24.960 | shut down this pipeline Nord Stream two if if Russia did

00:23:28.220 | something. But the reality is, I think Obama basically told us

00:23:31.700 | that, you know, it's going to be very difficult for us to justify

00:23:34.720 | an act like this, especially against somebody who is

00:23:37.840 | fortified and clever and smart. This is not like invading the

00:23:40.760 | Middle East. And so this is a massive, if this happens, the

00:23:44.080 | the stock markets will just go absolutely to zero. I mean, if

00:23:48.220 | you could have negative stock prices,

00:23:49.680 | this may be a good catalyst to take these Netflix shares,

00:23:52.740 | please.

00:23:53.280 | It's unbelievable. It's really, really crazy.

00:23:57.180 | This is it seems like a situation where we're assured not

00:24:00.920 | to get into to mix it up with him. Like I don't understand

00:24:05.000 | Putin. I don't understand Biden saying that he's absolutely

00:24:08.640 | going to react to this. Because we're not we can't afford to

00:24:12.960 | get into a war right now.

00:24:14.260 | And if that is true, then, you know, US dominance, the US ability

00:24:19.520 | to hold the line starts to decline. And

00:24:22.880 | I don't know if I agree with that. Because I think we could

00:24:26.760 | defuse this crisis very easily. Yeah, which is the exit ramp.

00:24:30.640 | Yeah, tell us. Well, the the exit ramp here is what is Putin

00:24:34.340 | demanding? Putin is demanding that we affirm that Ukraine will

00:24:38.840 | not be part of NATO. In my view, that in my view, that's giving

00:24:42.980 | him the sleeves off our vest because we should not want to

00:24:46.300 | add Ukraine or Georgia to NATO.

00:24:48.380 | That would do nothing to enhance the security of the United

00:24:52.320 | States, we wouldn't get anything out of it. But we would be

00:24:54.320 | obligated under Article five of exactly to defend them. So

00:24:59.120 | admitting Ukraine or Georgia or Moldova could ultimately bring us

00:25:05.000 | into a war with Russia too. Exactly. So to free to

00:25:09.200 | freeburgs point earlier, we have been poking the bear for two

00:25:12.980 | decades with our expansion of NATO right up to Russia's front

00:25:17.100 | porch.

00:25:17.840 | And if you go all the way back to 1990, when George Herbert

00:25:20.960 | Walker Bush was President and James Baker was Secretary of

00:25:22.980 | State, there was an assurance made by James Baker that that,

00:25:27.100 | you know, basically, they had gone to Gorbachev and said, we

00:25:31.460 | want to, you know, we for help in reunifying Germany. And the

00:25:34.640 | promise made that famously that James Baker said is that what

00:25:38.120 | Gorbachev said is we don't want NATO expansion. And Baker

00:25:41.580 | apparently said not one inch eastward was the line. And, and

00:25:47.060 | we think back to the time when we were in the war with Russia,

00:25:47.300 | we think back to how well Herbert Walker Bush and James

00:25:50.960 | Baker managed the end of the Cold War. How did they do that?

00:25:53.180 | They, they did that by making assurances to Russia that we

00:25:56.900 | would not bring NATO up to their front porch as well, which is

00:25:59.720 | what we did. In 2000. We've now added something like 14

00:26:02.660 | countries in Eastern Europe to, you know, to NATO, including in

00:26:08.360 | 2004, the the Baltic countries and that decision by George W.

00:26:12.380 | Bush really is the thing that pretty much severed our

00:26:15.140 | relationship with with Putin.

00:26:16.760 | You have to remember that Putin is, he is fairly popular in

00:26:21.320 | Russia because he stokes Russian nationalism. And what is the

00:26:25.040 | source of that nationalism? It is because a single tree

00:26:28.340 | organization NATO now has this huge contiguous border with

00:26:32.600 | Russia, they now feel encircled. And if we were to add Ukraine

00:26:37.760 | to that organization, there'd be a 1200 mile, again, border,

00:26:42.140 | which that Russia would have with with just this one,

00:26:46.100 | this one alliance, it would be akin to imagine if we were still

00:26:50.600 | in the Cold War, and Canada were added to the Warsaw Pact, right?

00:26:54.740 | I mean, we would be incredibly threatened by that. So and so

00:26:58.940 | but but you know, you never hear it, Jake, you never hear any of

00:27:01.700 | this on the news. All you hear is the beating of the war drums.

00:27:04.880 | And Putin is portrayed as this mad dictator. He has no

00:27:08.060 | legitimate concerns. Now look, Putin is an authoritarian. And

00:27:11.900 | you could describe him as a bully and a thug and he has

00:27:14.600 | provoked a dictator.

00:27:15.560 | He has provoked the situation, certainly. Okay. But, you know,

00:27:20.600 | we treat him as if he has no valid concerns whatsoever. And I

00:27:25.040 | think the simplest thing to do to defuse this crisis would

00:27:27.800 | simply be to say, yes, we have no intention of adding Ukraine

00:27:31.040 | to NATO. And then we will find out if Putin is a liar or not.

00:27:34.400 | Well, that would be a great move. Like it's a that would be

00:27:36.500 | like, hey, let's take a five year pause. Okay, you know what,

00:27:38.540 | we'll negotiate with you. We'll take five years, we won't put

00:27:40.580 | him in NATO, give give a little bit of a concession, because

00:27:43.820 | their country is not doing well.

00:27:45.020 | Their GDP trails China and the United States, their GDP per,

00:27:48.800 | you know, each citizen is incredibly low compared to the

00:27:53.180 | West, like, and then we could just work with Germany to get

00:27:56.060 | on sustainables, which is what their goal is. And we could

00:27:59.540 | economically continue to trounce them because as you point out

00:28:03.020 | every week, Chamath, they're not an important economy.

00:28:05.840 | Here's what Obama said about Putin. Obama said,

00:28:09.320 | the truth is actually Putin in all of our meetings is

00:28:11.960 | scrupulously polite, very frank. Our meetings are very

00:28:14.480 | businesslike. He never keeps me waiting two hours like he does a

00:28:17.420 | bunch of these other folks. He's constantly interested in being

00:28:20.780 | seen as our peer. And as working with us because he's not

00:28:24.740 | completely stupid. He understands that Russia's

00:28:27.560 | overall position in the world is significantly diminished.

00:28:30.200 | Yeah, he's not crazy. He's not dumb. And by the way,

00:28:33.740 | nationalism, as Sachs points out, which is a primary, you

00:28:38.960 | know, drum call for Putin, is not a novel sense. We we are a

00:28:43.940 | nationalist country. Nationalism is, you know, pride and wanting

00:28:49.520 | to make sure that your country is treated with respect and have

00:28:52.640 | sovereignty. And so I don't think that Putin is an

00:28:55.220 | irrational actor. His behavior is very rational in response to

00:28:58.160 | what's gone on for 30 years. And his requests are that he is

00:29:01.160 | feeling threatened and he's trying to avoid military

00:29:03.680 | conflict as much as he can. And we portray him as being an

00:29:06.920 | aggressor that's demanding military conflict. And at the

00:29:09.440 | end of the day, our behavior over a long period of time as a

00:29:12.200 | country has driven us to the brink here.

00:29:13.400 | And I think Sachs is right, you know, the right decision may

00:29:17.960 | very well be to kind of, you know, leave the region alone and

00:29:21.620 | focus on issues that matter more deeply to us and are a higher

00:29:24.980 | priority rather than drawing us into this. But a better

00:29:27.380 | investment would be in sustainable energy. I think the

00:29:29.780 | economic seed is planted for us to be in some sort of conflict

00:29:32.240 | this year. So, you know, we're going to end up

00:29:34.280 | Explain what you mean by that, Freiberg, economic seed to be in

00:29:37.220 | some sort of conflict.

00:29:37.760 | I think that, you know, generally, if you're not going

00:29:40.580 | to see homegrown, you know, economic growth, you know,

00:29:42.860 | economic productivity gains, and you're suffering trade

00:29:46.040 | issues, like we're going to suffer this year, given the

00:29:47.840 | supply chain problems globally, we're going to look for some

00:29:50.720 | place to manufacture growth. And there's no better way to

00:29:54.740 | manufacture growth than through

00:29:56.180 | wag the dog

00:29:57.140 | through conflict.

00:29:57.800 | The foreign policy establishment in Washington, you know, the

00:30:00.680 | neocons, the you know, the so called Washington blob, I mean,

00:30:03.620 | here they are beating the drums for war. We haven't been in a

00:30:06.080 | war for what six months, we just got out of Afghanistan. And now

00:30:08.840 | they want us back in another war. And the media just keeps

00:30:12.080 | No bueno.

00:30:12.320 | fueling and fomenting this. And they don't, you know, their

00:30:16.520 | coverage of it is, well, it's exactly what we talked about

00:30:19.080 | last week, Jake out when I pointed out that your, your

00:30:22.140 | rhetoric, your humanitarian rhetoric as noble as the

00:30:24.980 | sentiments are, when it gets whipped up into a lather and a

00:30:28.640 | frenzy by the media, it blunders us into a bunch of stupid

00:30:32.420 | foreign interventions.

00:30:33.140 | I would not call it rhetoric, let's call it beliefs. My

00:30:35.480 | beliefs are not rhetoric, but I get your point.

00:30:37.740 | Is there any

00:30:38.600 | We are one week later, and exactly what I said, the risk of

00:30:41.300 | this is,

00:30:41.860 | has now materialized.

00:30:42.820 | Clearly, you're blaming my position on human rights.

00:30:45.360 | What I'm saying is that this type of rhetoric is used by the

00:30:50.100 | military industrial complex and the Washington blob and the

00:30:52.720 | neocons to stampede us into wars that don't make any sense.

00:30:56.740 | That's what I predicted a week ago. That's where that was my

00:30:59.300 | concern death that later and we're in exactly that

00:31:02.560 | situation.

00:31:03.100 | It is our most successful export. It is our most

00:31:06.100 | successful export.

00:31:07.120 | Jake, how really important is the difference between there's a

00:31:09.520 | difference between belief

00:31:11.620 | and how do you act on that belief and what are your actions

00:31:13.960 | based on that belief?

00:31:14.860 | Yeah.

00:31:15.120 | And I think that a big part of what's gone on and this harkens

00:31:17.620 | back to a few episodes ago when we all got in trouble. There was

00:31:21.620 | an attempt at canceling us after we spoke about this. But when

00:31:24.980 | those beliefs are, as Sachs pointed out, harnessed in a way

00:31:28.600 | that is ultimately co opted in a way to fuel and to drive, you

00:31:35.120 | know, conflict, it, it obviously goes beyond belief and it

00:31:39.120 | starts to move into an area where there is a very wide range of beliefs.

00:31:41.180 | It's a very wide spectrum of action. Yeah. And it's very easy

00:31:44.720 | to tip yourself onto the one side of the spectrum. And as a

00:31:47.880 | result, cause a lot of harm and a lot of damage like we've done

00:31:50.180 | in Afghanistan, like we've done in Iraq.

00:31:51.900 | Here's a great lens. What is the cost of going to war in the

00:31:55.300 | Ukraine versus whatever human rights or sovereignty issues

00:31:58.460 | they have? Hundreds of 1000s of troops going to war is going to

00:32:02.480 | result in more human suffering than what's currently happening

00:32:05.540 | for Ukraine. It's sort of exactly they're going to they're

00:32:08.340 | going to be in the middle of the war is going to happen on their

00:32:11.180 | turf. The humanitarian interest is in diffusing the situation.

00:32:14.720 | Exactly. 100%. And the way to do it in a way is to, is to, you know,

00:32:20.660 | exceed to see one demand that Putin has about not admitting Ukraine

00:32:25.340 | to NATO, which just to say something more about why we shouldn't want

00:32:28.820 | that. The problem in Ukraine and Georgia and Moldova, first of all,

00:32:35.160 | these are not North Atlantic countries, right? This is mission creep

00:32:38.740 | by NATO. They're in the caucuses.

00:32:40.260 | And the problem they have is they're sort of these breakaway, you

00:32:43.680 | know, Russian republics, but inside of these countries, there's

00:32:46.620 | breakaway provinces, you know, they're ethnically Russian areas

00:32:52.980 | within these countries that want to break away from them. So you

00:32:56.980 | have a breakaway within the breakaway. And so you've got

00:33:00.240 | these powerful forces. It's complicated. It's very

00:33:02.220 | complicated. So for example, in Georgia in 2008, when there was a

00:33:06.260 | war there, and Russia did invade Georgia, but it was on behalf of

00:33:09.880 | these breakaway.

00:33:10.080 | provinces of South Ossetia and Abkhazia. And then in, in Ukraine,

00:33:17.100 | they've got the Donbass and Crimea, which has now been annexed by

00:33:22.700 | Russia, which are these majority ethnically Russian areas. You know,

00:33:28.140 | and same problem in Moldova. So the problem is, you've got these like

00:33:33.900 | incredibly complicated border disputes within these countries, based on

00:33:38.820 | ethno nationalist

00:33:39.900 | tribalism. And, you know, sounds familiar, right? The US does not

00:33:44.400 | have a vital national interest in getting involved in those

00:33:47.460 | disputes. And by admitting these countries into NATO, they could

00:33:50.400 | pull us into those disputes, because the key provision article

00:33:53.760 | five of NATO says an attack on one is an attack on all were

00:33:57.060 | obligated to go to the defense of those nations. How is the

00:34:00.760 | security of the United States enhanced by that requirement?

00:34:04.060 | They get a lot out of it, we don't get anything out of it.

00:34:06.540 | This is slightly this is a distinctly different than say,

00:34:09.600 | Taiwan as an issue. But let's put that aside. And we'll get to

00:34:12.180 | that in a second. If China and Russia and the United States are

00:34:17.880 | in this very complicated chessboard, is there a way not

00:34:20.560 | only to defuse the situation? But is there a way and I know

00:34:24.060 | this sounds like a crazy Hail Mary, to deepen the relationship

00:34:27.860 | with Putin and make Russia and the United States in some way

00:34:31.560 | allies against this relationship with China, because the Russia

00:34:35.360 | China relationship is also very complex. Is there some path to

00:34:39.300 | us having a better relationship?

00:34:41.100 | He's holding a summit. The last person he saw in real life was

00:34:46.440 | the leader of Pakistan in 2020. Before the pandemic started, you

00:34:51.600 | know who he's meeting within two weeks before the Olympics start

00:34:53.860 | or in a week, it's put in person. And then the there's

00:34:59.920 | going to be a tripartite alliance conference between

00:35:03.360 | China, Russia and Iran. Great. So I think this idea that

00:35:09.120 | that all of a sudden, somebody is going to found some holier than

00:35:15.360 | thou perspective on what the right thing to do is for other

00:35:17.940 | people is going to be challenged. So those guys are going to think

00:35:21.880 | about themselves. And they're creating alliances to basically

00:35:26.100 | further advance their own objectives. And so I think we

00:35:28.840 | have to as well. The thing here, I think what de escalates all of

00:35:33.400 | this is economic sanctions and monetary impact. Because if

00:35:37.920 | Nord Stream two

00:35:38.820 | doesn't get turned on, which is in Germany's control, that has a

00:35:42.700 | huge economic impact to Russia, explain what it is. Nord Stream

00:35:45.820 | two is that pipeline that I just talked about the nat gas

00:35:48.000 | pipeline that that basically doubles the amount of nat gas

00:35:51.060 | flowing from Russia into Germany and essentially into all of

00:35:54.840 | Europe.

00:35:55.340 | But hasn't Germany said if they invade the Ukraine,

00:35:58.560 | they haven't said it, they haven't said it on the record

00:36:00.660 | they it is it is thought that Chancellor Schultz that that it's

00:36:05.940 | theoretically on the table, but it hasn't been officially

00:36:08.220 | declared.

00:36:08.700 | Biden today said that he's talked or somebody in the White House, has talked to all the major

00:36:15.640 | banks in the US about crippling economic sanctions. So I do think the way this gets

00:36:20.300 | de escalated is through money. And if you, you know, if you severely impinge Russia's ability

00:36:26.000 | to sort of grow their economy, that foments a lot of, you know, anger at home. And I don't think

00:36:32.440 | that, you know, that'll probably weaken and destabilize Putin more than, you know,

00:36:38.380 | trying to sort of have a, I don't know, some kind of like, get together and hug it out session with

00:36:45.280 | him. Yeah, I mean, so Jason, you raise a good point with, you know, can we improve our relation

00:36:50.600 | with Putin? Obama tried, right? We had the whole reset. And ultimately, it wasn't tremendously

00:36:55.840 | successful. But I think a lot of it has to do with the way that the foreign policy established

00:37:02.400 | from Washington sort of reacts. And Obama had some really good quotes about this.

00:37:07.580 | I think it was in that Atlantic article where, you know, first, he described that,

00:37:11.900 | you know, that Russia has a vital interest in Ukraine in a way we don't, because it's right

00:37:18.320 | there, it's on their border, they've been attacked, Russia has through the Ukraine,

00:37:22.560 | you know, throughout history. So, again, it's just a primary interest of theirs. And so after

00:37:29.260 | saying that, Obama, then, you know, he basically got attacked.

00:37:35.680 | You know, by, you know, in a, but it was some of it was partisan, but and then he responded to

00:37:42.520 | the attacks by saying, if there's someone in this town, Washington, DC, that would claim that we

00:37:47.500 | would consider going to war with Russia over Crimea and Eastern Ukraine, they should speak up and be

00:37:52.060 | very clear about it, that he challenged. And then he said, so the issue and no one did, right? No one

00:37:58.300 | was willing to just come right out and say that we should go to war over this. And that's how he

00:38:03.160 | refused the attacks on himself. And then Obama continued, he said, there's a playbook in Washington

00:38:07.300 | that presidents are supposed to follow. And the playbook prescribes responses to different events.

00:38:11.740 | And these responses tend to be militarized responses, you're judged harshly, if you don't

00:38:16.540 | follow the playbook, even if there are good reasons. So what Obama is saying is that no one

00:38:20.740 | would defend a more militarized posture and going to war against Russia over the Crimea. And yet,

00:38:29.380 | he was somehow portrayed as suspect, you know,

00:38:32.860 | by

00:38:33.100 | not being tough enough on Russia. And so, you know, if you're Putin, and you see constantly,

00:38:40.300 | the foreign policy establishment, you know, reacting in this way, it's not a problem that

00:38:46.000 | even one president can just fix overnight, you know, what would change this is if when we send

00:38:50.440 | 100,000 troops over there, it's a draft. And, you know, it's not an all paid military, the fact that

00:38:56.920 | these people in Washington who got their kids in Georgetown, or Harvard, or wherever they are,

00:39:00.340 | Stanford, don't have to send their kids over there to fight this

00:39:03.040 | war, is one of the reasons they can write these documents and have these doctrines that hey, you

00:39:06.580 | got to send all these troops into harm way harm's way, like if they had to send their sons and

00:39:10.720 | daughters, it would be a much different discussion of like, where we're going to start a war,

00:39:14.620 | whether it's Afghanistan or the Ukraine.

00:39:16.240 | But let's go to markets. Bill Ackman came over the top, he's buying a ton of Netflix. And Tesla

00:39:25.000 | just absolutely flipped to becoming a money printing machine, and had a ridiculous quarter,

00:39:32.980 | revenues up 53 to 53 billion up 71% year over year, q4 revenue 17,000,065% year over year. And

00:39:42.940 | they increased their deliveries by 71%. And now you're all of a sudden to start see some,

00:39:49.360 | you know, income coming into the company. So flipping from money losing to break even to now

00:39:55.540 | printing a ton of money. Microsoft had an absurd quarter, their revenue hit 51.7 billion, up 20%.

00:40:02.920 | In the quarter, 20% year over year pays for $200 billion in revenue in 2022. And their net income

00:40:11.080 | was also up 20 plus percent at 18.8 billion. So the money printing machine in these companies

00:40:17.860 | is just extraordinary. Chamath, what are your thoughts?

00:40:19.900 | I think you're you're you forgot a couple of key things, which is that the FOMC meeting happened

00:40:25.000 | this week. And Powell basically said, Look, we're going to start tightening in March. I

00:40:28.780 | think the way that he said it, you know, all of these words tend to be so scrutinized and overanalyzed.

00:40:32.860 | But the instead of figuring out what people thought, I think their actions post the FOMC

00:40:39.640 | are important, which is that, you know, we effectively now started to price in

00:40:43.540 | about five rate hikes this year. So probably 525 point rate hikes effectively, that's what that's

00:40:50.020 | what the that's what the yield curve tells us. If you take a big step back, I just want to remind

00:40:56.860 | people like, it's really hard to live through volatility, right? And we're in the phase of it now.

00:41:02.800 | But typically, these big drawdowns are like, you know, when stocks go down, it actually precedes so

00:41:09.940 | it comes before the actual starting of a rate hike cycle. And so if you go back to the, you know,

00:41:16.420 | from 1950 onwards today, every time the government has started to raise rates,

00:41:23.140 | or the Federal Reserve has started to raise rates, the stock markets have actually rallied.

00:41:26.800 | Now, why is that? It's typically that they see through the end of the rate hike cycle. And they

00:41:32.740 | start to price the business as if these rate hikes are done and to rebase things. And on average,

00:41:37.900 | I think the stock markets go up between seven and 8%. So call it seven and a half, eight and a half

00:41:41.800 | percent. And so what's interesting to me is now, we're finally starting the process of these hikes.

00:41:48.400 | And the real question is going to be how data dependent do these guys get? And what I mean

00:41:54.040 | by that is, so you know, we talked about this before, but you know, China cut rates.

00:41:58.120 | This past weekend, actually, Germany decreased their GDP forecast.

00:42:02.680 | And so you're starting to see two huge countries already say, Hey, wait a minute, we need to be,

00:42:07.480 | you know, we need to be more realistic about what long term growth looks like here.

00:42:12.340 | It's inconceivable in my mind that those countries are slowing down, and we won't.

00:42:16.900 | And so I think what happens in these other huge GDP drivers of world GDP will affect us.

00:42:22.600 | And so you know, Saxon, I have said this before, but the marginal risk will be

00:42:27.040 | that we overcorrect and actually create a recession that doesn't need to be one. So we

00:42:32.620 | have to be more realistic about what's going to happen. And so I think that's the real question.

00:42:35.920 | And I think that's the real question. And I think that's the real question.

00:42:36.820 | And I think that's the real question. And I think that's the real question.

00:42:37.420 | The market is a leading indicator of what's going to happen post the rate hikes.

00:42:41.440 | We had a nice relief rally going until I think some of the words that Powell used was that there

00:42:45.100 | was plenty of room for rate hikes. Yeah, meaning that because unemployment's at three and a half

00:42:50.440 | percent that you know, we're at full employment. And that means that the Fed can you know, has this

00:42:56.020 | dual mission of keeping inflation low and you know, keeping employment high. So if employment is high,

00:43:02.560 | then they've got more room to raise rate. Anyway, it was that language around the plenty of room

00:43:07.420 | that freaked markets out and they triggered a huge sell off. I think to Jamal's point, I don't see how

00:43:13.720 | you can have this much wealth destroyed so quickly and have it not impact the real economy. There's

00:43:20.740 | a lot of people out there who feel a lot poorer, because their portfolios have gotten slashed in

00:43:26.380 | value. I mean, anybody with- So they'll tightening,

00:43:28.000 | they'll clench, not spend as much money on a vacation, not buy a TV or a car.

00:43:32.500 | So these wait lists for cars might get, you know, become sales.

00:43:35.980 | The luxury markets of the economy, the optional purchases start to really slow down. And so I

00:43:43.420 | think that the risk of recession now is much higher than it was even a month ago. Now, you know, it's

00:43:49.660 | going to be hard to know. So basically, I think what we're saying is, it's gonna be very hard for

00:43:53.980 | the Fed to engineer a soft landing here, where we don't trigger a recession in the process of

00:44:01.240 | stopping inflation.

00:44:02.440 | And look, well, Judge Powell's performance, you know, at the end of this, you know, we're not

00:44:08.380 | going to know. I think it's, but I think that he's turned out to be much more hawkish in his

00:44:14.560 | statements than markets were expecting. That's pretty clear.

00:44:16.600 | Again, and in 2018, you know, he was probably overly hawkish, and he actually created,

00:44:21.580 | effectively, a little mini recession. We didn't pay attention enough to it because, you know,

00:44:26.860 | Trump made it impossible to see the signal from the noise. But it did happen, and it was

00:44:32.380 | Powell being a little too trigger happy. And so, you know, we have to remember that, you know,

00:44:37.420 | the Fed has $9 trillion of assets on their balance sheet. And so, you know, if they start to take $9

00:44:43.720 | trillion of cash out of the system, by selling these assets into the market, right, you're

00:44:49.060 | taking the money out, right, because you're getting money back. That's going to have an

00:44:52.240 | enormous huge impact as well. So if you think about-

00:44:54.520 | Stupid question, Chamath. What happens when that money comes out?

00:44:56.020 | One second, let me just finish. One second. One second. Let me finish, please.

00:44:58.240 | So, you know, so when you have these two things happening at the same time, you

00:45:02.320 | have a potential rate hike cycle, which makes the cost of a used car more expensive, the cost of your

00:45:08.260 | credit card balance is more expensive, the obligations you have to pay just become naturally

00:45:12.760 | more expensive, you feel poorer, so you spend less. And then separately, in the financial markets,

00:45:17.140 | you actually take liquidity out of the system. And so people value, you know, liquidity more,

00:45:23.320 | it becomes worth more, you value current cash more. I mean, we're putting ourselves in a really

00:45:31.180 | delicate position. So he's-

00:45:32.260 | He's got a delicate balancing act here. He is definitely on a tightrope, I think.

00:45:36.340 | So if we pull 9 trillion out, we've been talking about this deficit, if he starts selling all of

00:45:41.020 | those assets, does that mean on the United States balance sheet that will reduce our national debt?

00:45:46.900 | No. I mean, we're getting 9 trillion of cash, right? You sell an asset, you get cash for it.

00:45:52.840 | Right. And so-

00:45:53.980 | So it pulls money out of the economy in the same way that-

00:45:56.080 | Pulls money out of the economy.

00:45:57.160 | Yeah.

00:45:57.640 | It created liquidity when they were buying assets, right? When they were buying

00:46:02.200 | this debt, it would push money out. If they're selling the debt, it pulls money back in.

00:46:06.640 | What happens to those dollars is my point. Like, what is the impact of those dollars sitting around

00:46:12.160 | in the United States bank account?

00:46:13.480 | The dollar stays in the USA's bank account, but the obligation, the note,

00:46:17.920 | exists in some financial intermediary that holds it.

00:46:20.680 | Clearly, Powell does not want to be remembered as the Fed chief that let

00:46:25.780 | inflation slip the leash, right? I mean, he's gotten religion now around the

00:46:32.140 | idea that this inflation is not transitory, which was his position for months. I think

00:46:36.580 | that now bit him, and the risk is potentially an overcorrection, but he's not going to let inflation-

00:46:41.680 | Then he'll be the first Fed governor to have caused two recessions.

00:46:44.500 | I think it's like a serious risk. And by the way, these market levels that we're

00:46:50.200 | at right now, I mean, look, 60% correction in growth stocks, okay? But this is with,

00:46:55.540 | that's still in a good economy in peacetime conditions. And now we have a risk of recession

00:47:01.360 | and war. Yeah.

00:47:02.080 | So, you know, there's still room for, you know, a lot more negative news here,

00:47:08.260 | is kind of my point. But look, sentiment's also very negative. So, when sentiment is this negative,

00:47:14.500 | there's also the potential for markets to quickly recover if there's positive news.

00:47:19.540 | But the sentiment is there for the wrong reasons, I think. I don't think people are thinking

00:47:23.020 | recession. I think people are thinking, my gosh, these rate increases, my gosh, I can't own these

00:47:27.520 | high growth stocks anymore. And none of those things are true. Those are just perceptions that

00:47:32.020 | are amplified by one's emotions when you're getting punched in the face,

00:47:34.960 | which is what happens when you wake up every day and your portfolio is down 5 or 6%.

00:47:38.920 | It generates incredible opportunity.

00:47:41.620 | The, you know, the idea that markets bucket, quote unquote, growth stocks together, I think,

00:47:50.860 | kind of obfuscates an important point, which is that some of the businesses in that category are

00:47:57.160 | real businesses that are going to succeed over the long run. And some of them are speculative and are,

00:48:01.960 | you know, likely to fail over the short run. And, you know, as you saw Netflix sell off,

00:48:07.660 | Bill Ackman, very smart, came in and bought a bunch of the stock. I don't know if you guys

00:48:11.380 | remember this, but in 2011, TCV, which is traditionally a private equity investor at

00:48:16.660 | the time, and there wasn't a lot of crossover and public market stuff happening. They were a private

00:48:21.520 | investor in Netflix. Netflix stock tanked from, I think it was around $220 a share down to $70 a share

00:48:31.000 | in a couple of months. And then, you know, they went into a lot of trouble. And then, you know,

00:48:31.900 | they went into a lot of trouble. And then, you know, they went into a lot of trouble. And then,

00:48:32.380 | TCV did a $200 million pipe into Netflix. And everyone was like, Oh, my God, what are they

00:48:36.820 | doing? It's incredible. And by the way, that was on an adjusted basis, that's $10 a share in today's

00:48:42.280 | share price. So that that that $200 million investment that they made went up 60x. You know,

00:48:49.420 | at the peak of Netflix a few weeks ago. And so, you know, seeing Bill Ackman come in and underwrite

00:48:54.760 | Netflix again, and make a big investment at its current market price. So Jay Hogue, I think it

00:49:00.460 | is really highlights that there are

00:49:01.840 | just because the market prices down doesn't mean that a business isn't fundamentally valuable and

00:49:07.240 | going to grow and going to generate significant returns over time as a as an operating business.

00:49:11.860 | And that distinction starts to present significant opportunities in a market condition like this.

00:49:17.080 | And the businesses we all talk about generally growth stocks are down 60%. But maybe most of

00:49:21.760 | them shouldn't have even been public companies in the first place. Maybe they should have been

00:49:24.820 | speculative, private investments, where more than two thirds of them were likely to fail,

00:49:28.780 | and they shouldn't be failing as public companies. And the few that are

00:49:31.780 | getting damaged and hit with this market sentiment shift can be picked up cheap. And there's a lot of

00:49:37.480 | opportunity. And so I wouldn't view the market condition to be necessarily reflective again,

00:49:41.200 | of the economy, or the condition of businesses in general,

00:49:43.900 | Jay Hogue was a partner at TCV. He's the founder of TCV that did that deal. And he's also the one

00:49:48.580 | that participated and led the billion dollar round into Peloton before they whiffed earnings.

00:49:55.960 | And got and got decapitated, but he's an incredible investor, that trade is probably one of the best trades of all times.

00:50:01.720 | So let's look in the good news column.

00:50:04.240 | wages way up. earnings way up. 10 million job openings in the United States, pretty close to

00:50:13.600 | record low unemployment, and the pandemic ending ending and people having record savings in their

00:50:19.300 | bank accounts and personal balance sheets. So how does all that good news the pandemic hasn't ended,

00:50:24.340 | it's ending for people, I think it's over for people. I'll tell you the thing I'm most concerned

00:50:28.660 | about there's a reverberation. That that.

00:50:31.660 | persists in supply chains. I don't know how much hardware, lab biotech, consumer goods businesses

00:50:38.740 | you guys are involved in. I'm involved in a number of them. Every single one of them are crippled in

00:50:43.420 | some way right now by supply chain issues. I mean, I'm talking about like, businesses that have been

00:50:47.740 | operating at steady state for many, many years. Can't get those get worked out. We don't know.

00:50:52.540 | And everyone's getting surprised and hit upside the head every week with some new supply chain

00:50:56.860 | shortage, whether it's some chemical you need for some lab equipment, or you know, the delivery

00:51:01.600 | of some big piece of equipment, or even plastic bottles that we use to kind of fill up our

00:51:07.120 | beverages that we ship. That's a pretty sizable business. We've never had supply chain disruption

00:51:11.800 | like we're seeing right now. I'd like to bleep out the name of that company. Yeah, beep. But it but

00:51:15.760 | it's it's like it's bleep this out. But it's a significantly sized business that has never had

00:51:21.520 | supply chain issues. It's all us based. But some of the suppliers of the suppliers have had complete

00:51:27.520 | failure and delivery. And all of a sudden, it's now reverberating through the supply chain. You guys

00:51:31.540 | know that GM didn't deliver a single friggin electric vehicle last quarter, because they

00:51:35.800 | couldn't actually get the chips that they needed to make cars. So the real risk to the economy,

00:51:40.480 | in my opinion, right now, is when and how we're going to work our way through the supply chain

00:51:44.560 | issues. And it is so complex. And there's a myriad of problems. And it is a global problem,

00:51:48.760 | that it's really unclear how this is going to play out over the next six months. And what will happen

00:51:53.200 | is this quarter next quarter, businesses that you didn't realize and didn't expect are going

00:51:57.760 | to get hit with supply chain problems are suddenly going to say, guess what, our revenues

00:52:01.480 | are going to go off by 2030%. Because we couldn't sell this product because and half our shelves are

00:52:06.220 | empty, because product didn't show up or whatever the narrative might be. All right.

00:52:09.940 | So I think it's a really, I think it's a great point, because you don't solve the supply chain

00:52:16.300 | issues with rate hikes. Right? It's like nothing to do with that. Nothing to do with it. So the

00:52:21.220 | rate hikes slow the economy down. I'm way more worried about this than rate hikes.

00:52:24.640 | Right? What does clean it up is capitalism, the end of the pandemic time, unless

00:52:31.420 | you're interested in and the reason I'm less worried is when you actually talk to the companies

00:52:35.680 | that that are spending enormous amounts of money on capex, they've actually guided to the fact that

00:52:40.540 | by the end of this year, in the beginning of next year, most of these things will be worked out.

00:52:43.900 | It's indigestion. I think I think we're I think we're dealing with a,

00:52:46.840 | you know, six to nine month issue of having turned things off. And now we're now rapidly

00:52:52.060 | trying to turn things back on. And we can't necessarily get that timing, right. But I do

00:52:57.160 | think it'll work itself out faster than people expect. Personally, that's what I think because the

00:53:01.360 | Apple and Tesla specifically guiding to that is too enormous. You're talking about, you know,

00:53:06.280 | collectively almost 4 trillion of market cap, so they're not going to get something like this wrong.

00:53:10.000 | And they were pretty clear in the last few days that that this will be done by 2023. Early 2023.

00:53:16.180 | So, Saxe Orchamoth, I just listed all the good news to counter,

00:53:19.900 | you know, the the slog and the bad news. How do you account for record low unemployment,

00:53:26.680 | record number of jobs, record wages going up, massive cash on people's personal

00:53:31.300 | balance sheet, massive amounts of sideline cash, massive amounts of venture funds being raised that

00:53:37.300 | have to be deployed in the next five years. All that good news, where does that on this balance

00:53:42.280 | sheet of good versus bad, you know, work out for you, Saxe?

00:53:45.100 | Well, the the negatives are that yes, the unemployment rate is very low, but a lot of

00:53:49.960 | people have dropped out of the labor force. So the labor participation rate is still quite low.

00:53:55.240 | So because of?

00:53:56.440 | Well, because I think a lot of people dropped out because of COVID, you know, everyone went

00:54:01.240 | to vote. And I think, you know, they got these STEMI checks. And I think a lot of people got used

00:54:07.000 | to not working. You know, maybe maybe you had a household with two people used to work. And now

00:54:12.400 | only one of them is working, you know, maybe they moved to a cheaper part of the country.

00:54:15.700 | So I mean, maybe it's a good thing, right? But a lot of people dropped out of the labor force,

00:54:22.000 | and they haven't come back. And so that's the negative. And then you know, the fact that wages

00:54:26.740 | are going up is good, but we don't know how much that's inflation. Right? So, you know,

00:54:31.180 | those would be the negatives. But there was a report that inventory levels did rise

00:54:37.120 | in q4. And so the supply chain issues do seem to be ameliorating to some totally, I was looking at

00:54:45.640 | cars. And now a lot of the people who had, you know, there's no way to get this car. Now they're

00:54:51.160 | like, Hey, we got a couple of these cars available if you want them. And then if you look at the

00:54:55.480 | housing inventory, it does seem that maybe that's taking a plus two and people couldn't find houses.

00:55:00.220 | And now maybe,

00:55:01.120 | even though it's still a housing crisis, maybe there's more available, or they're staying on

00:55:04.420 | the market a little bit longer. Yeah, I mean, it's I think it's pretty clear that economic activity

00:55:07.780 | is slowing. And again, things like rate increases, they, it increases the cost of a mortgage, right?

00:55:14.680 | So that could affect house prices. I think there's an interesting startup story.

00:55:20.380 | There's a private company that's doing essentially life extension that a bunch

00:55:26.620 | of rich people put $3 billion into you want to tell us Friedberg and your science,

00:55:31.060 | segment, what is this going to make us live longer or not?

00:55:34.240 | Well, I think I mentioned this company a few episodes ago. But I think they just announced

00:55:43.180 | their $3 billion investment. And again, this goes back to the the point I made on the prediction

00:55:52.660 | show. So last week, Altos Labs announced that they've landed $3 billion in funding. And this has

00:55:57.940 | been an ongoing funding that's been going on for

00:56:00.580 | quite a while into this business. But this business was set up to commercialize Yamanaka

00:56:08.080 | factor based cellular reprogramming for age reversal. And there was a paper published just

00:56:14.800 | yesterday. I'll put a link in the show notes that if people are interested in reading a scientific

00:56:19.540 | paper, they can take a look. Incredible results. Scientists took mice, gave those mice short bursts

00:56:26.500 | of these Yamanaka factors, and then measured all the biomarkers, all of the chemical,

00:56:30.520 | signatures in the blood of those mice to determine their age, because there are known ways that we can

00:56:35.560 | measure the age of an organism by looking in their blood at measuring certain biomarkers.

00:56:39.220 | And with just a few short bursts for about a week of these drugs, these,

00:56:43.000 | these Yamanaka factors, the mice, all of their age signals reversed to making it look like they were

00:56:49.720 | very young again. And it did not do what the challenge has been with Yamanaka factors in

00:56:54.460 | the past is if you put too much of it in a body in an organism, the cells rejuvenate to becoming stem

00:57:00.460 | cells, which is kind of like what a fetus might have, and starts to grow a lot of tumors, they

00:57:05.620 | were able to avoid having tumors show up in the mice. And the mice, in fact, all looked extremely

00:57:10.660 | young from a biomarker basis. So an incredible result and incredible paper, whether or not it

00:57:15.940 | gets repeated and shown by others. But I think this speaks to the quality of the science that's

00:57:21.040 | underlying the $3 billion investment that was just made in Altos Labs, which is probably one of the

00:57:25.300 | biggest seed investments ever. No, it clearly is the biggest seed investment ever in a startup.

00:57:29.920 | I think it speaks to what I highlighted as what I what will be the new frontier in biotech,

00:57:34.060 | and we'll completely rewrite like, you know, the course of humanity is if we can take drugs and

00:57:39.040 | for a short period of time completely reverse the age of ourselves, and it sounds so crazy,

00:57:42.820 | and so wacky. But it's being now proven in a single week, we've now had an amazing paper

00:57:47.500 | published. And we've seen the startup announced their $3 billion of funding to pursue commercialization

00:57:51.940 | of this technology. And this is going to be the year I think this will be the front cover of a

00:57:55.240 | lot of magazines this year, as people realize that this is real, and that it's getting commercialized.

00:58:00.700 | Why? Why do you think they have to start with $3 billion? And I'll tell you why I asked the

00:58:07.780 | question. Yeah. Whenever I see these grandiose prognostications of future progress, and then

00:58:13.540 | see these companies raise exorbitant amounts of money. I have never found a single example where

00:58:19.540 | it's ever worked ever. In fact, every time I see a company raise an exorbitant amount of money in a

00:58:25.180 | day, I write them off in my head. Yeah, sure. Yeah. So why should I not in this case? So,

00:58:30.820 | or it's more actually actually better question, why would somebody listening to this pod go work

00:58:35.440 | there? And by the way, by the way, the same has been done and can be said about calico,

00:58:40.780 | which is alphabet subsidiary that's that's pursuing similar research, where billions of

00:58:45.100 | dollars have gone into that business. And there's a similar sort of research track underway. And I

00:58:50.500 | think the general principle Chamath is they don't know what the product is, they don't know the way

00:58:54.520 | to market. And they don't know what the product is. And they don't know what the product is. And

00:58:55.120 | they don't know, you know, what area they need to explore. But the underlying principle is proven,

00:59:00.820 | the underlying principle is something that people believe in. This science is proven,

00:59:04.540 | this science is real, we don't know the commercial path. And we have to try lots

00:59:08.140 | of different things and run lots of different research programs in parallel to figure it out.

00:59:12.040 | And each of those research programs is like $100 million biotech startup. And so I think

00:59:16.660 | that the principle is, let's put a lot of shots on goal, all at once in parallel and make sure

00:59:22.420 | because if any of these shots on goal work, this is going to be

00:59:25.060 | worth many, many billions of dollars. So I think that's generally the idea. It's almost like having

00:59:28.840 | a $3 billion venture fund. But the venture fund is targeted at one core area of interest that we

00:59:34.540 | believe is real. And I think that's the way a lot of these things are being set up.

00:59:37.960 | But I'm asking this question, have you ever seen a company try to do 30 different things and it works?

00:59:42.520 | No, no.

00:59:44.200 | Yeah, I mean, it's not the typical capital allocation milestone based funding scheme. I

00:59:49.600 | have a product market fit thing, right? It's, it's a it's a research program. And it's a series of

00:59:55.000 | research programs. But I mean, look, let me reframe it for you to have you ever seen a $3

01:00:00.340 | billion venture fund that makes 100 bets with smart people at the helm with smart people working

01:00:05.680 | at the individual businesses fail, right? Like, yes. And in fact, I've never seen a $3 billion

01:00:10.360 | venture fund do much more than return to X of money. Yeah, well, look, let's see. I mean,

01:00:15.160 | it's a it's a big bet. And obviously, there's some people making nice management fees and nice carry

01:00:19.180 | on this thing. I'm not trying to be a wet blanket. I'm just curious. You know, why do it that way?

01:00:23.260 | Meaning, you know, every startup,

01:00:24.940 | let's get Bob Nelson on, he'll talk about it. Yeah, so I set it up. Yeah,

01:00:29.080 | every startup, I think, is forced in some ways by the market to make an educated guess about

01:00:35.860 | where product market fit lies and to try to build some minimum viable product that that tends to be

01:00:40.840 | how value is created. I mean, you could have said that, you know, Google could have had 90 different

01:00:45.700 | algorithms. But you know, Larry Page started with background. That's how it started. He had to make

01:00:49.720 | an educated guess that he had to make decisions. And that's what startups about, you have to

01:00:54.880 | make decisions and choices. Well, you have to make a bet on your on your own. Why don't you put all

01:01:00.100 | your capital into one company? Oh, because mostly the companies will let me but I would if I could.

01:01:04.300 | Oh, interesting. So I think that what's happening here to I mean, you're right,

01:01:08.740 | if I could, I would but they don't let me you could buy you can put all your money back into

01:01:12.700 | Facebook or back into forget Facebook. I know you got issues. But what about alphabet or Amazon,

01:01:16.000 | just put all your capital in one bed and just, you know, write it out. Right. But then it comes

01:01:20.380 | to what I think where I can generate the best return. Meaning, you know, I think that I could

01:01:24.820 | generate much higher returns and what I think Google will give me. Yeah, that's why I do it.

01:01:29.380 | Well, here's what I think is happening here. There are a lot of rich people who are going to die soon

01:01:35.260 | and they're counting down like Bezos. And they're saying if why not, if I'm worth 100 billion, put

01:01:41.920 | 123 billion into this and have them go for it. Because I've got nothing to lose because I'm dying

01:01:47.860 | in 20 years. This is a fear of death by billionaire bet, which is exactly what I think happened with

01:01:53.800 | the Google guys. They were just

01:01:54.760 | like,

01:01:55.260 | the team involved in these projects are not first time founders or people that are great pitch men.

01:02:01.000 | It's people that are repeated tried and true entrepreneurs success stories that have done

01:02:05.320 | this over and over in biotech. And they're the ones that are being drawn into working on these

01:02:08.440 | projects. And they're saying, Look, because we've got the people that have done it over and over,

01:02:11.920 | give them the capital. I mean, no, I believe argument,

01:02:14.260 | you must know, I believe in Yamanaka factors. And I believe that there will be innovation.

01:02:18.820 | My only question is, is the innovation going to come through a small team that raises

01:02:24.700 | a small quantum of capital with one very focused idea that gets it right? Or this sort of, you know,

01:02:30.640 | Monte Carlo simulation approach to product innovation. And all I'm saying is just an

01:02:35.560 | observation that historically, it's been very difficult for these Monte Carlo simulations to

01:02:40.840 | ever work either to generate product market fit and an innovation and to make money. Now,

01:02:46.420 | hopefully, these guys are the exception that proves the rule, because I think we'd all want

01:02:49.900 | this to work. No, it's a great point. And I hope you're right. And I hope to start that small project

01:02:54.640 | and wipe. But now you're saying the key thing, because despite the $3 billion, you're still going

01:03:00.700 | to go after it, which implicitly is saying, I'm short that company, and I'm long my own company.

01:03:05.680 | And this is this is the point I was trying to get to, which is when when it's really,

01:03:10.120 | really smart people see these things. They tend to look at it with a grain of salt thinking it's

01:03:15.280 | very difficult to build a startup as it is. Yeah. Sometimes it's kind of like growing great wine,

01:03:20.200 | you need to have a little pain and suffering along the way.

01:03:24.580 | And when you have $3 billion, it's the opposite of pain and suffering.

01:03:27.940 | Totally true. And I'll also say, let me just support your point, which is the people I see

01:03:32.860 | get hired to big projects like this. And there are a number of them that get funded, not just also in

01:03:37.060 | in other kind of deep tech stuff. They hire the tried and true experienced executives who generally

01:03:42.880 | have older kids and live in a nice house and have made a bunch of money. And the earnestness,

01:03:48.100 | the motivation, the hunger, the fuel, the creativity, because they know what they know, and

01:03:54.100 | they're not willing to give up. And they're willing to give up. And they're willing to give up. And

01:03:54.520 | they're willing to accept that they don't know what they don't know. Those folks generally are

01:03:58.540 | less likely to succeed than the folks who are doing this maybe for the first time. For that

01:04:03.520 | very reason when you're doing something innovative, so I totally support your point. And, and I really

01:04:08.140 | do hope you're right. But I thought Jason, when you were talking about talking about startups,

01:04:11.500 | I thought we were gonna talk about bolt and the stripe mafia fiasco this well, that's a good story.

01:04:15.820 | It's a pretty crazy story. Where does everyone follow? What side does everyone fall out on that?

01:04:21.640 | I'll go on the record. Does anybody have any equity positions in either company?

01:04:24.460 | Let's start there. No, no.

01:04:25.780 | Stripe holders. No.

01:04:27.100 | Sacks. No.

01:04:27.820 | Sacks. Are you an LP in any firms that have a exposure?

01:04:31.540 | I am an LP. I am an LP in funds that have exposure to it. Absolutely.

01:04:34.900 | Yeah, for sure.

01:04:35.440 | I am an LP in a fund that has exposure.

01:04:37.120 | I am as well. I am as well. But it doesn't.

01:04:38.800 | It's minuscule. That doesn't affect.

01:04:40.300 | Minuscule. Doesn't matter.

01:04:41.260 | Minuscule for me too. Okay, here we go. So for people who don't know, Bolt is like one

01:04:45.700 | click checkout software. They compete in some ways with Stripe's payment API.

01:04:49.420 | The CEO, Ryan Breslow, did a tweet thread,

01:04:54.400 | basically saying that YC and Stripe are the mob bosses of Silicon Valley. It was pretty charged.

01:04:59.860 | Obviously, Stripe and YC work together. Stripe is the biggest company to come out of YC ever,

01:05:07.060 | I guess, along with Airbnb. He claims that a lot of the top VCs were blocked as a strategy

01:05:13.840 | by Stripe. And I think there is some truth to this. When you invest in one company, you don't

01:05:18.460 | invest in the competitor. I don't know if that happened here as a strategy, but it is a viable

01:05:24.340 | strategy. I think that's what other people have used where Bolt claims Stripe got all the top

01:05:29.320 | investors, therefore they couldn't raise money. He also was saying they were voting things up and

01:05:33.940 | down on Y Combinator's Hacker News, as if that matters, yada, yada, yada. It was kind of a weak

01:05:41.680 | argument, in my view. I'll give you my hot take.

01:05:43.840 | It then resulted in a bunch of VCs dunking on him.

01:05:46.300 | Hold on. I'll give you my hot take. So first of all, Bolt is now a $14 billion company or

01:05:50.320 | something. Okay? So these guys… I think this was a very, very…

01:05:54.280 | Very brilliant PR strategy, and it worked. What do I mean by this? This was a company that most

01:06:01.240 | people didn't know about until this past week. They went and they punched up, which is a pretty

01:06:05.980 | tried and true PR strategy. Always fight up.

01:06:07.960 | Always fight up. You pick the big guy who's an incredibly pristine, extremely well-run company

01:06:13.960 | that is sucking up most of the talented people in Silicon Valley to work for, is a centicorn,

01:06:20.620 | could be a trillion-dollar company over some lifetime. So

01:06:24.220 | they went and they punched up, and what happened? Everybody fell for it. They baited all of these

01:06:30.820 | folks, and then all of these folks had to come out on Twitter and lambast them. And basically,

01:06:35.620 | the net result of it is, if one person knew about Bolt before, now hundreds and thousands of people

01:06:40.720 | know about Bolt afterwards. So not only do they not know them, now they're contemporary.

01:06:45.340 | Just in terms of the practical reality, they are now part of a discussion

01:06:49.360 | and in a framework of companies in this space that they were never a part of,

01:06:54.160 | before. This is Steve Jobs' move with the 1984 commercial. He said, "IBM and then Microsoft,

01:07:00.460 | our big brother, we're going to attack them. Join the Rebel Alliance, be part of Apple." And of

01:07:04.660 | course, Apple and IBM responded, and that was the big mistake. And Marc Andreessen, Sequoia,

01:07:10.000 | a bunch of different venture firms responded. Sax, what's your take on this? I see you're

01:07:15.100 | chomping at the bit, or maybe you're biting your tongue, which is-

01:07:17.680 | No. So I agree with Jamath that it was kind of a brilliant PR move, if that's what it was. I do

01:07:24.100 | think startups punching up, and he took a punch at Stripe, which is the big company in the space.

01:07:28.720 | So, and then, yeah, Stripe didn't respond directly. The Coulsons didn't respond,

01:07:33.820 | but their surrogates did. And then that looks like punching down, and it draws more attention to it.

01:07:38.260 | So I get the PR strategy. I would say that as to the merits of the allegation,

01:07:42.520 | I do, it's interesting that, you know, he didn't get into YC,

01:07:47.200 | because I think that he is a very talented founder. And, you know, we looked at this company

01:07:54.040 | pretty, yeah, pretty early on. It was for like sort of a mid-stage growth round. And it was like

01:07:59.980 | one of the toughest decisions we, we, I'd say the toughest decisions as a VC are when you actually

01:08:05.920 | want to invest in the company, but the valuation is like 2X what you think it should be. And that

01:08:12.820 | was kind of the situation at the time when we looked at it is, I think we actually would have

01:08:17.320 | invested, it's just the valuation was too high. So-

01:08:19.960 | And it would have been a great bet for you.

01:08:21.220 | Yeah, he grew into it. And so it would have been a great bet.

01:08:23.980 | So it was a bad decision on your part.

01:08:26.020 | Yeah, yeah, clearly we should have invested. It's just that, you know, at the time you invest,

01:08:30.940 | you have to have some basis for valuation. And that's the sense in which I think, you know,

01:08:36.820 | maybe Ryan's accusations don't totally make sense is that he's been able to raise a lot of rounds at

01:08:44.200 | really high valuations. And so he hasn't had a problem, you know, raising a lot of money at,

01:08:51.280 | you know, great prices. And, you know,

01:08:53.920 | it almost feels like a slap in the face to his investors where, like, what's the complaint? I

01:08:58.060 | didn't get any tier one investors.

01:08:59.500 | Or that it was just hard to meet with investors and that Stripe called the investors and told

01:09:04.420 | them not to invest. That was the allegation.

01:09:06.460 | Yeah, no, I mean, yeah, I can't really speak to that. But I mean, he was clearly able to raise

01:09:13.360 | great rounds. So-

01:09:14.800 | Can I read to you an email exchange between me and Ryan Breslow?

01:09:18.580 | Oh, dramatic reading?

01:09:20.380 | From 2015.

01:09:21.460 | Uh-oh, here we go.

01:09:22.660 | Hitch Moth hopes.

01:09:23.860 | All's well. FYI, things felt too rushed on our end, so we're toning down our series A discussions

01:09:29.560 | for a couple months. And this was in July of 2015. I'm reading you my answer because it's so fabulous.

01:09:37.480 | Hi, Ryan. After a wholly unsuccessful few weeks of attempting to win a World Series

01:09:42.940 | of Poker bracelet, I'm back at home licking my moons. How about we talk in a week or two?

01:09:49.000 | So not only did I have a chance to win a World Series of Poker bracelet, according to this

01:09:53.800 | page, which I didn't win, obviously.

01:09:55.300 | Duh.

01:09:55.780 | I had a chance to do the Series A in a $14 billion company and screwed that one up too.

01:10:00.940 | Big dummies. I mean, the things we miss are, there's like 20 things you miss as an investor

01:10:06.760 | for everything you hit.

01:10:07.720 | So I've interacted with Ryan back in the day, and I just remember him being super,

01:10:12.100 | super smart. And I do think that there's a lot of very smart people now around the table at Bolt,

01:10:17.980 | including Joanne Bradford. So I don't think that this was something that wasn't planned, and I just

01:10:23.140 | think that they executed it. And I think that they executed it. And I think that they executed it.

01:10:23.740 | Executed it well, and it worked. And I think a lot of people know this company that didn't know

01:10:27.280 | before. Now they still have to execute and build a product and scale it and do all of these things.

01:10:32.020 | But yeah, and I think that the response he provoked, I mean, since I was a little bit

01:10:36.940 | critical of what he said, let me just say that one of the VCs who responded said that the reason

01:10:43.180 | they didn't invest was because the numbers weren't good. That was not my experience. When we looked

01:10:47.320 | at this company, they had great numbers. It's just the valuation was ahead of those numbers,

01:10:51.160 | but the numbers were always great.

01:10:52.600 | I actually responded

01:10:53.680 | to that. And that was Sequoia partner Sean McGuire who said that. And I responded to him like,

01:10:58.420 | "Hey, dude, VC code is you don't reveal the numbers on things you learn confidentially.

01:11:04.840 | What are you doing?" And he's like, "Well, they said some BS about Stripe." I was like,

01:11:09.700 | "Yeah, it still doesn't change VC code that if you learn something under NDA for NDA essentially

01:11:14.920 | in a meeting, you're not supposed to weaponize that against-"

01:11:19.180 | Unless you have a $30 billion position.

01:11:21.640 | I still think, well, whatever. I still

01:11:23.620 | think it's like I've never seen a VC do that. Honestly, it's the first time I've ever seen a VC

01:11:27.820 | do that.

01:11:28.120 | Jason, come on. I think we all knew where he was coming from. He's defending an enormous position

01:11:33.760 | of his in Sequoias.

01:11:34.480 | You do that, Jason. You've always been-

01:11:36.100 | Air Cal.

01:11:36.820 | Air Cal.

01:11:37.660 | Air Cal's fine, but I never released inside information is my point.

01:11:41.560 | You didn't say any inside information.

01:11:42.580 | I didn't have any inside information.

01:11:43.840 | He made a general statement.

01:11:45.880 | He made a general statement.

01:11:46.900 | They met with them.

01:11:47.740 | But he was conflicted out. So why would he meet with them?

01:11:50.080 | Hey, guys, Nick just texted that had I found a way to get off my lazy ass,

01:11:55.420 | not be playing poker and do that deal, I would have generated a 222X on my investment.

01:11:59.920 | Which would have been 15 million times 222X.

01:12:02.980 | Well, we screwed it up too. I think the round we looked at went at like a $400 million valuation

01:12:07.420 | or something like that or something in that range.

01:12:09.400 | Oh my gosh. What would the Series A have been? I mean, the Series A would have been at like 20

01:12:13.060 | or something.

01:12:13.540 | 63 million according to PitchBook.

01:12:15.040 | Oh, 63 million.

01:12:16.720 | You know, it was one of those meetings we came out of where it's like,

01:12:19.960 | that's the best I've ever seen. That's the best I've ever seen. That's the best I've ever seen.

01:12:20.020 | That's a super interesting founder.

01:12:21.280 | Yeah, me too. That's what I remember too from Ryan.

01:12:24.160 | Yeah.

01:12:24.880 | Super, super, super.

01:12:25.840 | That is the lesson. Super interesting founder, write the check.

01:12:27.460 | I said it earlier in the program that like our philosophy now is just to be price takers and

01:12:31.720 | just to pick the companies that we want to be in and then the market sets the price.

01:12:35.080 | That's the biggest mistakes I've made as an investor. I got too focused on price.

01:12:38.440 | We should have done that with Bolt. The decision we faced was like a few years ago. And so we just

01:12:43.780 | shouldn't have worried about valuation.

01:12:44.860 | By the way, sorry, J. Cal, as soon as you said it was 63 million, you know what my reptilian brain

01:12:49.300 | said? Oh, that feels good.

01:12:49.960 | It feels so expensive. Even now, knowing that the outcome is 14 billion.

01:12:53.860 | And so to your point, David, it's a really good lesson for investors to learn is just

01:12:59.320 | you're a price taker. Get behind these really interesting people that are world beaters and

01:13:04.120 | just let them do the work.

01:13:05.020 | Just place the bet. All right. So there you have it. This has been another amazing episode

01:13:09.820 | of the All In Podcast.

01:13:11.260 | Bye-bye.

01:13:11.920 | Bye-bye.

01:13:13.120 | Love you, besties.

01:13:14.200 | We'll let your winners ride.

01:13:16.960 | Rain Man, David Sack.

01:13:19.900 | I'm going all in.

01:13:20.900 | And instead we open sourced it to the fans and they've just gone crazy with it. Love you, Westby.

01:13:27.580 | I'm the queen of kid law.

01:13:28.840 | I'm going all in.

01:13:30.180 | You're winners lie. You're winners lie. You're winners lie. You're winners lie.

01:13:35.740 | Besties are gone.

01:13:36.820 | That's my dog taking a drive away. Oh, man.

01:13:44.200 | My half a dash will meet me at .

01:13:46.300 | We should all just get a room and just have one big huge orgy because they're all just useless.

01:13:49.840 | It's like this sexual tension that they just need to release somehow.

01:13:52.840 | Wet your feet.

01:13:53.840 | Wet your feet.

01:13:54.840 | Wet your feet.

01:13:55.840 | Wet your feet.

01:13:56.840 | Wet your feet.

01:13:57.840 | We need to get merch.

01:13:58.840 | Besties are back.

01:13:59.840 | I'm going all in.

01:14:00.840 | I'm going all in.

01:14:01.840 | I'm going all in.

01:14:02.840 | I'm going all in.

01:14:03.840 | I'm going all in.

01:14:04.840 | I'm going all in.

01:14:07.840 | I'm going all in.

01:14:10.840 | you

E65: VC markup dynamics, Russia/US tensions over Ukraine, Altos Labs raises $3B, Stripe mafia & more

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