SPAC talk with Chamath Palihapitiya, David Friedberg, David Sacks & Jason Calacanis | from Episode 7
00:00:00.000 | I think Chamath's point is right, though. There is so much more liquidity available through access
00:00:07.360 | to retail and international market participants in a public setting than there is in a private
00:00:13.840 | setting. And it is because of this liquidity premium and the easy access to putting capital in.
00:00:18.240 | It's just extraordinary how much, as I've watched close friends and companies and companies I've
00:00:23.760 | invested in, and I'm sure you guys have done the same, transition from private to public,
00:00:28.320 | the valuation jump is extraordinary on a metrics basis. So whatever the metric might be,
00:00:34.240 | you get public, there is this flurry of market participation. And as a result,
00:00:38.960 | it drives up. There's a multiple expansion. Wait, wait. I thought...
00:00:41.200 | Your BSPR, sorry, can I just say something? That's such an important,
00:00:44.960 | smart thing that Friedberg said. So Jason, for example, all of us,
00:00:48.720 | we're all still in the private markets. And I'm not trying to take away from the private markets,
00:00:53.040 | but what David said is so important. If you used to look at a SaaS deal,
00:00:56.640 | you'd price that SaaS deal 10 times ARR. Then there's a little bit of inflation,
00:01:01.360 | the rates go up, the prices that people pay go up. Now all of a sudden we're paying 12 times,
00:01:07.840 | 15 times. Now it's 20 times if you're growing 100% rate over year. So what's happened?
00:01:11.840 | The market has become more efficient and the excess return is getting eaten up.
00:01:16.240 | And so you're like, "Okay, well, that's still really good." And you wait four, five,
00:01:20.560 | six years and you think you're going to get paid. The crazy thing is once that company transitions to
00:01:26.160 | the public markets, I mean, all of a sudden, if you actually turn the investor base over and you
00:01:31.200 | actually create a float so that public market guys can buy it, they'll pay 30 times.
00:01:36.160 | That's right.
00:01:37.040 | 35 times, 40 times. So there's a massive multiple expansion. So
00:01:40.960 | companies should be going public sooner.
00:01:43.280 | If you think about this, if I'm trying to raise money for one of my companies,
00:01:46.720 | I'm going to call on my 10, 20, 30 friends that I know that are investors in private markets and
00:01:52.000 | say, "Hey guys, do you want to look at this company?" And maybe I'll get two or three
00:01:55.280 | interested parties and maybe we'll kind of agree on what a fair valuation would be.
00:01:58.960 | If I could take that same company and instantly make it available to a million investors,
00:02:03.200 | and all I need to do, by the way, is raise $10 million. All I need is some small number of them
00:02:07.920 | to write a couple of hundred dollar check. And I'm able to fill that round out. The valuation
00:02:13.200 | as a result of the liquidity available in that market is so much higher because everyone's going
00:02:17.680 | to... There's going to be much more participation in bidding. And so, you know, what I think Chamath
00:02:21.520 | has tapped into with the SPAC vehicle and what Robinhood is realizing, and I don't think that we
00:02:28.160 | all talk about this enough, but there's this massive, massive, massive market of international
00:02:33.360 | investors, of small, of international retail investors who are now rushing into US equities.
00:02:38.960 | Freeberg, didn't we see that in the ICO craze as well? I think if we took anything from the ICO
00:02:45.520 | craze, it was the global appetite for risk and the dot-com boom before that. And I think we have to
00:02:51.040 | see that in the market. And I think that's the thing that's really important. And I think that's
00:02:53.600 | the thing that's really important. And I think that's the thing that's really important.
00:02:54.560 | Everybody's copying you down the SPAC path, Chamath. At this point,
00:02:58.000 | I had Desktop Metal as an early angel investment that just SPACed.
00:03:00.720 | I did the pipe too. I co-led the pipe.
00:03:04.000 | Thank you. Yeah. And then they told me that. Thank you for the markup. And I've been hearing,
00:03:07.920 | if I'm getting inbound as an angel investor from... I literally got a cold email from some
00:03:13.360 | high-profile people and they're like, "Hey, do you have anything for us to SPAC?" I mean,
00:03:17.520 | this is like the third or fourth time people are coming down to my dipshit level of, "Hey,
00:03:20.560 | do you have anything for us to SPAC?" I'm like, "No, we don't." And they're like, "No, we don't."
00:03:21.200 | And I'm like, "No, we don't." And they're like, "No, we don't." And I'm like, "No, we don't." And
00:03:21.680 | they're like, "No, we don't." And I'm like, "No, we don't." And I'm like, "No, we don't." And I'm like,
00:03:21.760 | "Can you introduce us to the calm guys? Can you introduce them to Robinhood?" And I'm like,
00:03:24.560 | "I think you can go direct to them." But what is your take on how many SPACs have been created since
00:03:30.640 | you literally single-handedly restarted the SPAC movement, Chamath? I don't think you've ever gone
00:03:35.680 | on record about this. I'm really proud of what we did. When we created this thing two years ago,
00:03:41.200 | I said I want to basically create a new way of doing IPOs. I called it IPO 2.0. I reserved IPO A
00:03:47.200 | through Z on the NYSE. I hope to fulfill that, and I think I will. But taking a step back for a
00:03:56.480 | second, in the year 2000, there were 8,000 public companies in America on the American stock
00:04:03.040 | exchanges. And in the year 2020, there are 4,000. So we've shrunk in half the number of public
00:04:10.560 | companies while we're still doing IPOs. And that's a huge step forward. And I think that's
00:04:10.720 | a huge step forward. And I think that's a huge step forward. And I think that's a huge step forward.
00:04:10.960 | Well, at the same time, we've 10x the amount of capital and the number of people. So we don't
00:04:19.440 | have a large enough surface area in the public markets. That's why companies are better off going
00:04:24.560 | public because they're going to have a much more receptive audience of people that are dying to own
00:04:30.480 | growth of any kind. What's the earliest and the median that people should go public?
00:04:34.480 | So here's the thing. So if you're one of 30 companies in a venture portfolio that's
00:04:40.240 | growing at 50 plus percent, you're one of 30. But when you go public, you're one of one.
00:04:47.040 | When you're growing 50, 60%, you become very unique all of a sudden. You're a 1% kind of a
00:04:53.920 | company. You're an outlier. And so you get treated incredibly well. So that's the backdrop. I think a
00:05:01.040 | company should be going public around year five, year six.
00:05:04.240 | What revenue footprint?
00:05:06.080 | About 50 million. At 50 million, when they're doubling, I think that's a huge step forward.
00:05:09.760 | And then when they're doubling, I think that they should be going up. And it allows them to build
00:05:13.520 | capital slowly. It allows them to basically contain control. It minimizes dilution. I think
00:05:19.600 | it's a really powerful model. And then on the number of SPACs, what I would say is I think it's
00:05:24.000 | really good that the market is getting diversified. I think what's going to happen is the thing with
00:05:29.520 | SPACs is it's going to be no different than in some ways the banks that preceded us,
00:05:35.200 | which is that there's going to be a distribution. You can go to Goldman Sachs, and that'll
00:05:39.280 | mean one thing. You can go to Merrill Lynch or B of A or UBS or Jefferies. It'll mean other things.
00:05:45.920 | You can go to Allen and Company. It'll mean yet another different set of things. And I'm sure
00:05:50.000 | there's going to be an organization that is all about cost. Some is going to be all about
00:05:56.400 | relationships. So I just think that's going to be the distribution. My personal perspective, it's
00:06:02.080 | probably us and maybe one or two other people who really dominate the space. And I'll tell you the
00:06:07.760 | only reason why I say that. I think it's going to be a distribution. I think it's going to be a
00:06:08.800 | distribution. I think it's going to be a distribution. I think it's going to be a
00:06:10.640 | really important when these people try to get these SPACs done, what they're going to realize
00:06:14.240 | is it's really hard. And it's hard for a couple of reasons. Number one is you have to marry
00:06:18.640 | operational insight and public market sophistication. And the founder will get
00:06:25.200 | really smart about being able to figure out whether this person is just a financial arbitrage
00:06:29.680 | or if the person has enough operational experience to deeply understand the business. Why?
00:06:34.320 | You have to translate it to the public markets well. That's one huge, huge, huge, huge, huge,
00:06:38.320 | I think that's one huge thing that I think that people will
00:06:41.500 | will start, we'll start to hone in on. Anyways, there's a bunch
00:06:46.300 | of other things. But are you now competing with the sacks the
00:06:50.940 | sacks agree with the 50 million? Yeah, sure. Um, I'm cool with
00:06:54.700 | that. You know, I invest well before that. So I'd be I'd be
00:06:57.140 | happy for you probably have a bigger portfolio $50 million
00:07:01.060 | investments. Yeah, it is. It's great for for for me and Jason,
00:07:04.460 | and I you know, I think Jumauf deserves a ton of credit one on
00:07:07.440 | one. It is I don't know if all the listeners are aware of this,
00:07:10.500 | but the SPAC things become a huge wave. There's a ton of
00:07:13.920 | people creating them. Kevin Hart says a new one Reid Hoffman
00:07:17.100 | has a new one. There you're the East Coast hedge fund guys,
00:07:20.100 | pink us and and then the East Coast hedge funds like Bill
00:07:23.580 | Ackman, wherever they're all creating them. So Jumauf has
00:07:26.080 | really started a wave here. And I think the appeal of a SPAC to
00:07:30.000 | a founder, I'll put in a plug of why I think it's a good idea for
00:07:32.760 | a founder consider this is because you essentially what
00:07:36.560 | founders are used to is doing, you know, private rounds, right?
00:07:40.340 | You agree on a on an amount raised and evaluation, and it's a
00:07:44.300 | percent dilution and you're done. That's it. And that's
00:07:47.840 | simple, right? And when you IPO and need to raise money, it's
00:07:51.140 | not like that you have to then work with an investment bank,
00:07:53.600 | they'll put together a book you do like a roadshow, you do this
00:07:56.880 | whole dog and pony thing, you don't know how much money you're
00:07:59.600 | gonna get at the end of that process or what the valuations
00:08:01.760 | gonna be. And then on top of that, we know statistically Bill
00:08:05.260 | Gurley's published all the stats. And then you have a lot of people
00:08:05.620 | who are going to be like, Oh, Bill Gurley's published all the
00:08:07.360 | stats, the investment banks are going to rip you off. So you
00:08:10.780 | know, so that what a SPAC does is it prices like a late stage
00:08:14.800 | private round, you disagree with a SPAC promoter on evaluation and
00:08:19.420 | amount raised. And then on top of it, you get kind of a direct
00:08:22.840 | listing along with it. Now all of a sudden, you start trading
00:08:26.200 | as a public company. And so a SPAC is like a combination
00:08:29.800 | direct listing plus private round. And I think that's going
00:08:32.980 | to be appealing to a lot of founders, as they start to
00:08:34.680 | discover the SPAC.
00:08:35.180 | It's going to feel more like doing a Series D than it does a
00:08:40.060 | roadshow. And I think that comfort level for somebody like
00:08:44.300 | Robinhood or Calm or DataStax or Thumbtack or any of these
00:08:48.580 | companies that you and I are investors in.
00:08:50.180 | Every company in your portfolio.
00:08:51.380 | I'm just, listen, I got two IPOs in two years. This is I think
00:08:57.140 | this is going to be the new thing for early stage investors
00:08:59.780 | is we're not going to count unicorns anymore. We're going to
00:09:01.500 | count SPACs. We're going to count public listings, right? And, and
00:09:05.020 | I think that's probably better.
00:09:06.020 | By the way, the other the other thing that I'll say to founders
00:09:08.560 | is one is I think you need to you need to think about do these
00:09:12.780 | people have the combination of operational and financial acumen
00:09:17.900 | in the public markets and investing experience in the
00:09:22.460 | public markets and the operational credibility to
00:09:26.460 | describe the business and I think you can trade off one for
00:09:29.140 | the other if one is so deep, meaning if Warren Buffett was
00:09:32.720 | doing his back, you'd say, well, he has no operational
00:09:34.820 | experience, but he's so credible in the public markets, then, you
00:09:38.540 | know, that's all that matters. But you need to be super, super
00:09:41.700 | deep in one or have a really brilliant and thoughtful level
00:09:44.780 | of credibility in the public's meaning an early stage investor
00:09:48.020 | who isn't married to somebody who can basically say, I know
00:09:51.260 | how hedge funds work, I've made them money, and I'm going to
00:09:53.620 | make them more money, and mutual funds, etc, is troublesome. The
00:09:57.580 | second thing is for founders, you have to really make sure you
00:10:00.680 | understand what is in it for the person that's doing this back. I
00:10:04.500 | mean,
00:10:04.780 | in every deal i write a minimum of 100 million dollars personally and that's a lot and so i
00:10:11.660 | get in the game i feel very much at risk and so i take a lot of time to make sure these things go
00:10:16.380 | well and then the third is that for the spac person what i'll tell them is they are going to find
00:10:22.060 | that there's a bunch of landmines and i'm not going to you know say it up front because i
00:10:27.340 | think it'll be fun for them to find out themselves along the way but these things are hard the first
00:10:33.260 | The first one took me two and a half years.
00:10:35.420 | They're hard.