He implied, do you tell me if I got this wrong? He implied that in the modern era, you need to be $10 billion to go public. - Yeah. - Market cap. - Yes. - Which, if it's 10 billion or bust, that's a bitch, man. (both laugh) (upbeat music) - Hey, man.

- What's going on, bruh? - It's good to be here. It's like a destination podcast here in Santa Barbara. - This is our first destination podcast. We're coming to you live from CO2's East Meets West 2024 conference. - Indeed. Were you up or down last night? - I did okay.

- Okay, okay. - Hey, you. - Ah, it was a good night. - Yeah. - It was a good night. - Hopefully they don't think we were the ringers, you know, at the time. - Well, tell the audience a little bit about what is East Meets West. It's a really gracious invitation.

- Yeah. - You know, we've been doing this for years with CO2 down here. - Yeah. - Why don't you tell us a little bit about it? - Yeah, so Philippe and Thomas Lafont, who run CO2, started a conference, I'm gonna guess about eight or nine years ago, titled East Meets West, and at the time, it was really about bringing together entrepreneurs from Silicon Valley and the West with entrepreneurs from China.

And some of my best relationships with some of the smartest, coolest, hippest Chinese entrepreneurs came here, and the access was just unbelievable. - Yeah. - It's literally a once-in-a-lifetime opportunity, and they've kept the conference up. It's on my list of must-attends. - Yeah. - You get a combination of incredible founders, some great CEOs, Satya Nadella's here, Dara's here, Andrew from EA is here, and it's one of those conferences, like when I entered the industry years ago at Agenda, the Agenda Conference, which Stuart Alsop ran, you know, Larry Ellison and Bill Gates and Scott McNeely would stay through the conference, so they're around.

- Incredible. - Today, most conferences, the keynotes come in and go out. Here, everyone stays, and so it's more intimate, you learn more, you get to talk to more people, they do a lot of these one-on-ones, where they set it up so that you can maximize an individual connection, it's just incredible.

Anyway, I'm super thankful to them for having us down and for letting us do this here. - It's a big investment, it's a big investment by them, and I think one of the things that's underappreciated outside of Silicon Valley is there's this view that this is all zero-sum, right?

That I win, you lose, you know, we're all very competitive, we all like to win, whether we're playing poker, whether we're playing hoops, whether we're doing this, but really, I think this is a demonstration of positive sum. The fact of the matter is we're all analysts, we're trying to figure out the future, and what I deeply appreciate, you know, with you, with the guys at All In, when you come to an event like this, it's a lot of conversation about this future, about the consequence on the economy.

We're gonna be talking to Larry Summers tonight about, you know, about that question, about the consequence on society from AI, which we're gonna be talking about a little bit today. You know, but when you really telescope out over the last 20 years that you and I have been doing this, technology's gone from 5% to 15% of global GDP, right?

And we're gonna talk about public markets and venture markets, but the reality is there's a very big pie, you know, and we can all participate in that together. And so, you know, to me, this is a reflection. I see a lot of old friends, you know, this place is full of GPs, it's full of venture capitalists.

You know, a lot of people would think of Altimeter as a competitor to Kotu, but the fact of the matter is you and I collaborate with them on a ton of stuff. Some of it works, some of it doesn't work, but we trust each other. We have a shorthand with one another.

So it's great to be back down here. And like I said, thanks to, you know, Philippe and Thomas for encouraging us to do the pod down here. I think it's a perfect setting. But, you know, I thought one of the things we could do is set up for people, like what goes on here, and just kind of take them through it a little bit, right?

Sounds great. So as you said, there's a couple hundred founders, CEOs, and GPs. You know, the first morning, which was this morning, we always telescope out, and Philippe kind of takes us through, you know, the view of the public markets, if you will. And then Thomas takes us through this view of the venture markets.

And so maybe we could just start- And just to give you in a sense, like, I mean, it's a presentation I look forward to every year. And I think they said they threw out a hundred slides. So they put, they didn't, it's not falling off a log. They're putting in an immense amount of work to put this together.

And by the time this podcast is released, I believe their PowerPoints will be released. Perhaps people can follow along as we talk about what happened. You know, they captured a little of that zeitgeist. Remember the old Meeker slides? Yes. You know, that everybody, you know, waited to see Mary's slides.

And I think they do a lot of really great content. And Daniel also, you know, they gave thanks to him and his team for putting these things together. So a lot of great content, but they started, you know, I always like to get a read on where they are, both as, you know, we're co-conspirators in the public markets and the public markets really set the stage for the venture markets.

And he said, you know, his first slide, you know, he put up this slide. He said, two big questions in 2024. Number one, are we in an AI bubble in the public markets? And then number two, we talked about last week, is software dead, okay? And what was interesting is we do these live polls.

So I don't know, there may be 100, 150 seats out here. We do these live polls. They flashed up the poll we did this time last year. And this time last year, 56% of people here said we're in an AI bubble in the public markets. Remember, Nvidia had gone from $120 a share, maybe at that time to $250 a share.

And people were already saying we're in a bubble. Now since then, Nvidia is up 200%, okay? And I was watching CNBC this morning. So far this year, Nvidia is responsible for 5% of the S&P 500 returns. The other mag six are responsible for 5%. And then the other 493 companies in the S&P 500 are responsible for 4% of the 14% year to date returns.

If you looked at the S&P equal weighted, okay? So you just, everybody's in at the same amount. It's only up 4% this year. So that all led, I think, Philippe to say, you know, we've got three $3 trillion companies now. Is this sustainable? Are we in a bubble? What was surprising to me was knowing Philippe the way we do is he showed a slide of the earnings growth of Nvidia, right?

Comparing it to Cisco from the '99, 2000 period. In the case of Cisco, the earnings multiple more than tripled during that period of time. But in this case, because of the earnings growth of Nvidia, the earnings multiple has been flat, despite the fact that the stock is up nearly 10X.

So he seemed to suggest, Bill, that we're not in an AI bubble. In fact, he showed an S curve saying KOTU's view is that it's going to be even bigger than people currently think. Was that convincing to you? Because I know you've been a voice of pragmatism. - Certainly at the end of his presentation, it was hard not to believe.

I felt a little bit like I was at church. And he went on to say, I believe that, and I think they were somewhat liberal in tagging AI companies, but they said AI companies were responsible for 90% of the gains in the public markets. I think they're including some energy stocks that have traded up as a result of this.

But yeah, he pointed out that if you go to the past and start to notice one to three companies just materially blowing out numbers above everyone's estimates over several quarters, there may be something happening that you should pay attention to, which is a valid argument, right? - And listen, I love the self-deprecating nature.

He says in 2022, it was all about macro. What's happening with inflation? What's happening with interest rates, right? Macro dominated 2022. We get chad GPT at the end of '22, okay? And we enter 2023. And so you have this post-traumatic stress. And he's saying that post-traumatic stress kept a lot of people out of the market despite all of our suspicion that this was an important phase shift.

2023, you have this liftoff. And what has happened is as more cards got turned over, by the end of the presentation, he said macro is shifted to the backseat, right? That now he's kind of in the camp. - Which I found a huge relief 'cause you know I don't like to talk about it.

- So macro shifted to the backseat from his perspective that we're kind of headed toward this no landing, soft landing, that maybe inflation really was an anomaly of the COVID period. And if that's the case, then this new super cycle, which again, they described as transforming all these different parts of society is allowed to shine.

And so that to me was a significant change, I think by CO2 in terms of the positioning of those two. - I'd add one thing to it, just from dinner last night. I get to see people that I may only see once or twice a year. They might be executives at some of the Mag 7 or other VCs at other firms.

And one thing that was congruent across them all is they all feel a bit like a kid in a candy store with AI. It's like there's a new toy to go play with. And I think from an intellectual curiosity standpoint, like I see smiles and excitement. And like, so it's clear to me that the vast majority of people here, not just the team at CO2 believes this is a mega wave that everyone's gotta be all in on.

- Yeah, that is, I mean, I think if there's one surprise, one answer on that, I'd love to get your reaction to. So on the question of how much would it, and I hear this 200 billion of CapEx going into the ground this year, how much return do companies need to see?

So we had Satya present to us one answer. We had Philippe give us another answer today. Philippe, what he called his monkey math was that it was gonna take $1.8 trillion in order to provide a 25% return on investing capital, okay? And of that 1.8 trillion, he went and said, if we got a 5% improvement in the labor force, right?

So I think what he was saying is we effectively take 5% out of the labor force, that that would be enough cost savings to justify the $200 billion investment. Satya tackled it from a slightly different way, just here talking at lunch. He said, if we currently have a global GDP growing at 1% to 2%, he said, if we could get that up to 3% to 4%, the incremental gain coming from that would be enough to compensate again for this, because it would more than double the amount of money spent on technology.

Convincing or not convincing? Seems like it answers the question for- The Satya, I buy more than the first one. The problem I have with the first one is simply that my entire time in technology, like these tools are competitive weapons, but if I get armed with them and my competitor gets armed with them, it doesn't necessarily increase, it doesn't create like free net income.

You might die if you don't do it, but you gotta keep, it's the Red Queen effect. You gotta keep running just to keep up. Yes, so capitalism ultimately competes away margin. Yeah, down at the level of- Benefits humans. Yeah, yeah, yeah, that's why I buy the GDP argument better.

Right, right. But anyway, look, the other thing that I would say that reinforces the super cycle is now that all the VCs are convinced and all the big tech companies are convinced, they're all plowing money into LLM research. Now, LLM might not be the best tool for every problem, but we're gonna find out, we're sure gonna find out all edge cases possible, 'cause they're gonna stack stuff on top of it, they're gonna prop it up, we're gonna go try.

I should include the CIOs. I think all the CIOs are doing this. One thing he did mention was software stocks are down, and I do think that this wave is being promoted at such a level that it sucks air from other things. Yeah, for sure. At the CIO level, at the purchasing level, even at just the attention of the buy side level.

Yes, I think it's important to point out that I think both Philippe and Satya believe, Satya even talked about it, he said, we have to prepare the company that there's gonna be a mismatch in timing here between investment and return. These are nonlinear events, and just like we saw on the internet, you may go like this, draw down 30% on your way to a higher high, but I think from an investment perspective, whether you're a venture capitalist or whether you're a public market investor, or whether you're a founder, one of the founders in the audience, you have to assume that there is going to be an AI winter at some point in time, that zone of disillusionment you and I have talked about before, that doesn't mean that it's not going to be bigger than we all think, but it does mean that resilience through that period is gonna be really important.

If you run out of money during that period, it's all over. Yeah, and Satya made me think of something that I hadn't really considered before, but because all AI tools are being delivered as a service in the cloud, there's just a massive amount of CapEx happening. And if you go back to the internet wave, people were buying Cisco products, maybe WorldCom was putting CapEx into the ground, Equinix was putting CapEx into the ground, but it wasn't like Microsoft or Netscape or whoever, the Yahoo, they weren't really plowing this into the ground.

And I think the risk of the type of things that could happen with a reset are higher when you're putting all this into the ground. And Satya very quickly said, this is a supply-driven wave. And I think up to date, that is true. We're building ahead of demand. A lot of the startups and CIOs qualify the current AI work as experimental.

Not all of it, I mean, the coding stuff, we've been through this. There's a lot of it that's real, but some of it's still experimental. So if there were any hesitancy or whatever, or if we get this, if we build too much CapEx or whatever, it could be, there could be costs.

Back to the GDP thing, I thought it was really interesting. Satya said, think about how a global company had to do, simply had to do their annual planning, pre-personal computer, pre-spreadsheet, pre-internet, and it's no wonder that massive productivity was unleashed in the '80s and '90s. I mean, the productivity gains in the '90s were so great that the US government ran a surplus, if you remember, at the end of the '90s.

- I don't remember that. - You don't remember it because it lasted about 10 seconds? - Well, also because Clinton cut taxes in front of her, and the market was up 30% a year. - Sure, sure, but the productivity gains to come out of that are undeniable. And I think there's reason to believe that the productivity gains we're gonna see here are at least as big.

I think that's what these folks who are making these investments believe. But it was interesting that Satya said, here we are, I'm a software business, and I'm investing more in CapEx than industrial companies. And he spent a lot of time talking about what it meant to be a lean operator when you're investing at that level of CapEx.

- 50 billion a year, I think. - Right. - Yeah, that's a lot. - One other thing that Philippe said that really caught my eye, and maybe he was trying to be provocative, but he implied, you tell me if I got this wrong, he implied that in the modern era, you need to be $10 billion to go public.

- Yeah. - Market cap. - Yes. - Which, if it's 10 billion or bust, that's a big man. - Well, so let's dig into that. I mean, we went through the public market stuff. I think the punchline at the end of it was the market's up a lot in '23 and '24.

You know, we haven't, multiples have not expanded that much, but it does assume that revenue continues to grow. - Right, he said NVIDIA is not expensive on an earnings basis. So if it's gonna miss, it's because either revenue growth's gonna stop or margins collapse in price. - And the second, you know, it seemed to be that they were, we suggested last week that smart money was beginning to nibble on software, that software is not dead.

You know, he seemed to suggest it's just the last thing to benefit from AI. And so I've talked to a bunch of folks here, and I would say the number one thing that I hear people buying are not the semis stocks that have worked so well over the course of last year, but everybody's interested in buying software at five and a half times revenue, forward revenue, which is, as we've said, 20% below the 10-year average.

They may be early, but I think people are really interested. They don't think software's dead, and they think that, you know, software starts to look interesting. - I think there's a, we'd have to dig in it later, but I think there are certain types of software companies that people think are more under threat from LLM's more workflow than who's the data repository.

There's questions about, you know, whether LLM's replace queries and who sits in the stack where. So, and there are some people that still take, you know, I view the width of what people are willing to believe about AI is really wide. And the skeptics are like LLM's are topping out, but the people on the opposite end are like, oh, this is just gonna replace all the software I have.

- Right, and the truth is probably in the middle. - I think it's probably. - And like, as analysts, our job is to figure out, you know, exactly where that is. So you started to reference, you know, after we did the deep dive this morning on public markets, then we talked about venture markets.

You know, Thomas took us through that. And, you know, I'll lead up to the conversation on IPOs, which I think is really interesting. We've talked a lot, but he basically started by saying VC is normalizing. You know, if you look at 2021, he showed a slide, we had 715 billion of venture that went into the ground in 2021.

We've talked a fair bit about that. This year, they're forecasting about 250 billion into the ground into venture. So that's about one third of the levels we were in 2024. However. - I think venture as they measure it has become to mean non-PE private investment. - Correct, correct. I think it's all technology investing that's not public and that's not private equity.

And then they looked at the cul-de-sac of AI. Year to date, I think 200 deals, 22 billion of investment. Average valuation, wait for it, $1 billion, right? Average round size, 120 million. - Yeah, the round size and the valuation were five to six X, the non-AI company. - Correct.

- Five to six X. - And that was, I thought what was so interesting about the way they teed up the presentation on venture, right, was he then took us through almost a bit of admonishment for some, or at least encouragement, strong encouragement for the founders in the crowd that may have raised money between 2020 and 2022.

He took, here's a slide where he said, outside of the AI unicorns, the other 1,400 unicorns are not raising any money, right? And he said, there's too many competing opportunities in the public market, risk-free rate of 5%. - Bitcoin. - Yeah, Bitcoin said we still have too many unicorns at 1,400.

Here, he showed a slide of the LinkedIn employee growth within those 1,400 unicorns has gone from 75% to 10%. And that the revenue growth has also decelerated dramatically. Now you and I have been talking about this. - No left axis on that one, but down and to the right.

- And shockingly, IPOs in 2024, 2021 through 2024 are fewer than during the great financial crisis in 2008. - No IPOs, 1,400 private unicorns, most of which have not had a funding round since, the majority of which, and he has a slide on that, have not had a funding round since this quote reset in 2023.

And so maybe haven't faced the, taken their medicine as to what their reevaluation is. And then he showed a slide that where they, I don't know how they, maybe it was in their own portfolio, but where secondaries are happening and they're happening at the exact same multiple as the public companies.

And so- - So just to put it, the secondary sales in the venture market are 50 to 75% off the highs, just like the public markets retrace 50 to 70. - The non-MAX 7 companies that are public, correct. And so I do think, I often hear people on a board say something like, well, good thing we didn't go public or good thing we aren't public.

- Exactly. - But they're sitting on the board of a private company that's at 150 million in revenue and growing 10%. - Right, right. - Like you just have your head in a hole in the ground, like an ostrich, you're not better off. The only one reason you might be better off, you might be able to persuade your employees that things aren't as bad.

Whereas if you were public, you're looking at a $4 stock. - I could actually say, Bill, that you're worse off. And here's the argument for why you're worse off. I mean, when the public markets gives you a sign, right? Like it did Meta or Facebook in the fall of 2022 when the stock goes to $90 a share, right?

There's nowhere to hide. You confront the brutal truth. You confront the reality. Public market investors, it's the collective wisdom of that crowd. And I think it motivates the company to do the things they should do. And they do them faster than they would otherwise do. And Zuckerberg led the charge on this and his stock has quintupled since that moment.

- I could not agree more. And so I just, I see, you know, the irony there is you have a company that went from 86,000 employees to 69,000 employees at a faster rate than I've watched most of these private unicorns move. You know, the private unicorns hid in the cocoon of the fact that they didn't have to get marked daily.

And that's why I would, you know, I really don't like the stay private forever idea. It works for some companies where you have an Elon Musk running SpaceX and you know the intrinsic motivation and the experience will lead to a good outcome. It doesn't work well for 1,350, bless you, of the other unicorns that are out there.

- Yeah, and to play devil's advocate, I think some people are gonna make the argument that you don't wanna be a micro-cap public company and that no one will pay attention to you and no one will cover you. I still say, like, if you're liquid, you know, that's better off.

You've converted away your LikPref stack, that's better off. - You want me to tell you why I don't believe that? - Yeah. - Okay? - Yeah. - Because investors are greedy. - Right. - Greedy investors will find you if your company is growing really fast and has great margins.

Look at Samsara, okay? Samsara went public and everybody said too small, not enough coverage, stock's not working. That company has been a grand slam home run in the public markets, okay? The fact of the matter is if you're only growing 10% and you're marginally profitable or not profitable, I don't care if you're in the venture markets or you're in the public markets, you gotta fix your business model 'cause that's never going to fetch a big multiple.

But let's get to the question on the table, IPOs, okay? So what to do about it, what to do about it, you know? And I think there's this question that we've debated amongst ourselves, with our friends, with Thomas and Philippe about how big you need to be. I think he was speaking at a conference in New York and he reiterated it here.

He thought you needed to be $10 billion, okay, in total market cap in order to go public, okay? You've been at this for 25 years. Tell me, tell us your response to this question of whether or not, because that implies if you're a software company, you need to have like a billion in revenue to go public.

Do you think that's true? Well, I don't, but let me take a quick aside and let's say that is true. If you have to be at a billion in revenue and growing, like if you want a 10X multiple, you gotta be growing 30. Yes, 30%. And if every company is gonna raise 500 million to a billion dollars, and if that's the only way they succeed, if they get to that level, this game just got a lot harder.

Like this is massive risk on, and I even wonder if part of the reason that you have this 1,400 sitting there is we forced so much capital on these companies that they had to grow up so fast and they had to do things that weren't kind of the normal way that you would grow a company, right?

Where you stay close to the unit economics and you learn as you go. Like if you have to just be all, and we talked about it last week, there's four companies in the coding AI space that have raised over 400 million each. You think there'll be another round behind that?

Like they're all gonna pull out the huge guns and point them at one another, and you're gonna execute in a way that's more risk on. And so if that's the new world order, it's a form of capital competition and gamesmanship that is much different from classic venture capital. I hope it's not true, but if it is, this is a different game.

Yeah, I mean, listen. It's like heavyweight fighting. I think it's a good provocation. Thomas presented other paths to liquidity, M&A, PE partnerships, he put up on the screen. But here's what I see, okay? We've recently sold two companies in our portfolio. One was reported by the Wall Street Journal for a billion to $2 billion to Databricks called Tabular.

We have companies that have gotten fit and that are reaccelerating their growth rates. And then we have two companies in the IPO pipeline, right? Like, I just think this has taken longer than any of us think. Out of that 1,400, I suspect that 60 to 70% of those companies are never going to go public, okay?

So these are companies that are either gonna have to get sold off, they pass the peak in terms of their growth rates. They don't have enough revenue scale in order to get public. But I think that there are gonna be 30 to 40% of those that certainly could get public.

They may have to accept, like Instacart did. By the way, look at Instacart. They accepted a big down round from their last private round. They went public. The stock traded down, didn't trade that well. And I think the stock is up well over 50% now because they've executed in the public markets.

And so I can't reinforce enough. Amazon, since they went public, I think they've had four periods where they were down over 60%. I understand. And so- And a company I mentioned from the previous wave, Equinix, went from 200 down to two. And today is at 778 and an $80 billion market cap.

So it can happen. I thought we would see way more IPOs. I thought people would come public to two kind of clues to their cap chart and wipe out the LICPRA. Maybe we still will. I would encourage the regulators to do anything they can to make sure we don't have a systematic problem that's causing being public to be too expensive.

And I know that the reality we talked about on the last podcast, if that comes to be true, where just way fewer companies go public and all the growth is in the private markets, that the Gensler types are gonna come out and say, "That's bad for the retail investor and they're gonna wanna fix it." I hope the way they try and fix it is to look through the cost of being public, all the cost of being public and say, "What can we do as regulators to improve that situation?" That's what I hope.

The second thing I would like to do on this podcast, assuming that we have a really good set of listeners out there, if there is a banker out there that thinks like the four horsemen did, who says, "I don't need you to be 10 billion to go public. I would love to take you public at 100 million in revenue.

Come see me, call me. I will connect you to companies. I will promote you." We need someone willing to do that. I get the sense that the three big guys, JP Morgan Morgan and Goldman, just aren't that interested, you know? And so I do think some percentage of the 1,400 should go public.

And I don't think that waiting is helping them at all. And so I'd love to help find the people that can be their stewards. Let me crystallize a question for you, okay? So it was rumored last week that OpenAI is run rating three and a half, $4 billion in revenue, which is, you and I, it's extraordinary, right?

And I think it's pretty evenly split between a consumer business and an enterprise business. I think that's even more extraordinary. I have some potential data on that. And on top of that, I think that that team, right through the teeth of so much noise in the market, right? Like has withstood incredible turbulence.

They have. To execute the way they have, okay? Faster than any other company I've ever seen, delivering great products in the market, right? They have Greg Brockman in the basement, churning out product no matter what happens in that business. They have the big announcement at WWDC at Apple last week, which I think was, you know, another master class in deal making and brand building by Sam and team, okay?

So you got $4 billion in revenue. You're growing well over 100% a year. You just marked it up a little bit, but. Three and a half billion, whatever you want. Whatever you want to call it. Would you go public if you were, if you could do a conversion to a for-profit company, would you take OpenAI public?

There's a lot in that second part. By the way, just to fill in some of this, and I could be wrong on my math, but I went into one of these credit card survey things and I looked at OpenAI and assuming that people don't pay for the API with a credit card, so the credit card pool just represents, and I compared it to a company where I knew the revenue, it would imply that there are about 2.1 of the three, four is the consumer business at $20 a pop.

So two thirds, the consumer business. Put me in it and I love it. Well, there's one other thing that I could look at in the credit card data, at least for the cohorts that are old enough, the churn's about 65% annually. So they're only 35% retaining, which Sachs had hinted at on all in, and maybe the reason that I think Sam at one point said he didn't really see the $20 thing as his future.

Right, right. But would I encourage them to go public? Well, they just hired a very reputable CFO, so maybe they're thinking about it. The reason I think they would do it is if they, first of all, they're very good at self-promotion and they're very good at promoting the company.

They're very good at enterprise sales. They've convinced Apple, but many, many others. And so if they thought they'd get a premium multiple and could get out there and have access to capital at a much cheaper price and liquidity for the employees, which are now having to arrange, I could see it.

I fear that the kind of current wisdom of the entrepreneurs to not do it. Right, well, this is my, we have an opportunity to make a case to Sam and to Sacha. And here's a bit of the case that I would make for him. Number one, I think this is, you know, when you build AI, I think it's gonna be about trust and safety.

And I think being a public company, right, being exposed to public disclosures, the scrutiny of the SEC, all the things that come with that from public market investors, you know, I think is a good thing for that business. I think it would force them to tighten everything up. No, I'm not talking today, but if I were on that board, you know, and maybe we'll tell this to Larry tonight, I would say, you know, let's start moving the company in a direction as though we were public, right?

Let's do the conversion to a for-profit business. Enough of this funky-- By the way, I don't think that's trivial. I agree, I'm just telling you, like, it's doable. And the second thing I would say-- I think it's only doable by putting a significant chunk of the company in the non.

Yes. Like a share base in the nonprofit, not this thing where they get it at the end. And by the way, you can't take public that structure. So here's what I don't like. I don't like the idea that you could have a company that could theoretically go to a trillion dollars in enterprise value, could theoretically develop AGI, and a retail investor never has a shot to invest in that company.

I just don't think that's good for the structure of our markets. I think it's better for the company. I think it's better for the markets. And frankly, I think it solves one of Microsoft's problems as well. And we've seen all of the corporate, you know, some of the chaos around this business.

I actually think it would be good for Sam and Greg and Brad and team, right, to do that. Now, of course, you got to put it on a path. This probably takes a couple of years to get there. But I mean, to me, that is the iconic question. If 4 billion isn't enough, Bill, you know, with a $90 billion private market valuation, then what is?

And I just don't think it's gonna be looked on that well. If all of a sudden, all the best companies in the world, right, are only available to the folks at this conference and not available to Wall Street. - And they may wanna do acquisitions and getting the cap chart in a more traditional state would make that easier, public or private.

So maybe we'll see that happen. I do think that the thing that may help us unlock this IPO problem, if you will, is a couple of AI companies going out. - Yeah. - And maybe that will even make it easier on the others just so that we start to prime the pump a little bit.

So I think you'll start to hear chatter on who are gonna be the first, you know, AI first companies to go public. There's rumors out there about Corweave. There's articles about Cerebris. So it would be interesting to see. I think it would be very helpful for the ecosystem to get a couple of those under our belt.

- Well, there's talk that, oh, Mr. Lafon himself, would you like to join us? I mean, just come on up here and join us for a minute. We're live right now. Philippe, we're just, first, thank you. - Yeah. - This is, you know, one of our favorite, if not our favorite, you know, conference in the investing business.

And what I said to start is you are a positive sum. You have all your, the folks that most people would think of as your competitors, you know, you invite 'em here. You collaborate, you build partnership. - I'm thinking about changing my mind. - So we were just talking about the $10 billion to IPO, right, which implies something around a billion dollars in revenue to go public, right?

And I was saying, I would encourage OpenAI to go public today, right? We think more, I think, and Bill agrees, more of these companies should go public. We think they can go public smaller. We understand if you're a micro-cap and you don't have great margins and you're not growing fast, you can't go public.

But aren't there a lot of companies that could be public today? - Yeah, I mean, if you look at some of the big unicorns, they could definitely go public. But I think there's two criterias. One is, can you get to a billion of revenue? OpenAI would be, check, check, check the box.

But the second one is, do you have a sort of a break-even or a path to break-even? And the only thing, I don't know the specifics of OpenAI, but what if you had a billion in revenue, but like an enormous cash burn? And Barry, that cash burn is really smart.

It helps them consolidate as a clear number one. But will the public markets be scared if the cash burn is disproportionate? But the private markets, the investors, they know that there's a bit of a winner-take-all and they might be more patient. Now that's just on OpenAI. SpaceX, amazing company.

It's sort of quasi-public, but why don't you give retail investors a chance to invest in SpaceX? They should have that right. - It's been proven that it might happen. If you're right about the billion, though, like if you have to have a billion in revenue and be growing, right?

You gotta be at, what, 30% growth, 25? Like, if that's the hurdle rate, then how many VC companies are ever gonna make it to that level? Like, that'd be my question. - Listen, I was speaking to your former colleague, Eric, at Benchmark, and he's like, this is a problem for the venture business.

This is a problem for our portfolio. There's gonna be less exits and bigger exits, so it's gonna make the business that much more risky, and do we need to adapt in ways that maybe you have to reinvest behind your best companies because there's not gonna be as many of them?

Do you need to provide companies the ability to win in other ways? What's weird to me is that the government, by trying to protect small companies and not allowing big companies to buy small companies so big companies get bigger, I think it's got the reverse effect, where now small companies have one less chance of winning, and thus the public market is even less willing to hold a small company because it's less willing that it gets bought.

And so why bother with small companies when you can just own big? Guys, I love you, and I hope you reinvent me, re-invite me on this amazing podcast, but I'm going to deal with some other people. - Thank you, thank you, thank you, brother. That's great. - That was good timing.

- I mean, by the way, he's also just one-of-a-kind human. - I agree with you. - And so it's fun to see him, I'm glad he jumped in here. You know, Bill, I think it's a, you know, one of the things he was talking about got me thinking about something.

You know, boards of directors, you know, they have influence over whether these companies go public. Okay? And it starts early, you know, in the boardroom about setting the conditions and building the company in a way it's built to go public. And I think one of the problems, you know, here we talk about it reflexively.

I think we're going to look back at this. I happen to be more optimistic on this. I think we're going to look at this period. It's going to be a by-product of the age of excess. This is going to be like all these companies raise too much money at too high a valuation during the ZERP period, and therefore they couldn't go public.

And frankly, too many boards bought into this stay private forever business. I think there is a whole new category of company coming that I hope that you lead the charge, I lead the charge, and they lead the charge. There is no reason these companies, if we set the conditions early in the business, stay fit, get profitable, you know, you don't have to grow at all costs, don't raise too much capital, don't set the valuations too high, you know, they can get public.

But, you know, it's going to be an interesting- By the way, before we transition to our last topic, I would point out one irony from all that we heard today and what you just said, which is, if the 1,400 number of private unicorns that are the result of the age of access is a problem, it's not clear to me that we're doing anything different in AI.

Aren't we doing the exact same thing? So couldn't we end up with the exact same result? We just said 5X and 6X higher valuation. You said something to me a few weeks ago that I think is spot on, right? I think 15 years ago, not a lot of people talked about the power law, right?

Maybe there was a small cadre, a small membership, you know, on Sand Hill Road that talked about power law. But today, everybody knows about power law distributions and venture returns, right? And so if there is any sniff that a company in AI land- I agree. Is going to be the winner- They get $400 million.

The amount of capital that chases it. So, you know, I think that's an interesting question. I think it's very difficult for founders to resist the urge to take the money. I think it's very difficult for founders to resist the urge to take the highest valuation. I encourage them to reverse engineer from the outcome, the liquidity outcome they hope to achieve.

If you take a lot of money at a valuation well over a billion dollars, the probability of you getting sold or you getting public is just a lot harder. That's just the truth. Before we move off in the venture section, one of the things I love is there are a bunch of founders running around here.

You and I, you know, met with one or two of them earlier. And just a few of the anecdotes that I'm seeing and I'm hearing. You know, I spent some time with Scott Wu. I'm an angel investor in Cognition. And, you know, Scott is building, you know, Satya referenced him while on stage.

Says, you know, co-pilot is building effectively auto-complete, allowing engineers to become more productive. You know, Cognition is building engineers. And I asked Scott, I said, "How many employees do you have?" Because I think he has tens of thousands of enterprise customers already. And he said, "18." I said, "How do you do all this work with only 18 people?" He said, "We have a hundred Devons.

We have a hundred agentic engineers that are helping us write code." That's a theme I've heard from Glean. I heard from Distill. I heard from Cognition. This idea that we're going to have, and Satya referenced it, a workforce of people, right? In the not so distant future that are going to be able to take these multi-step functions.

Go build me a website, right? No longer just complete a line of code, but complete an entire task. You know, we were just with, you know, our friend from Glean, and who's building a great enterprise search product. But, you know, you don't have to squint that hard to think that that could be your enterprise assistant, right?

That could go perform tasks on your behalf. So, put me in the camp. Again, I don't know the time series, but I do think that we're on a path toward human replacement, not just augmentation. Now, I think those folks in this period of dislocation will get consumed in other tasks.

So, I don't think this is a net negative for society, but I do think you'll have dislocation before you necessarily have that growth on the other side. I'll just say one thing real quick, which is I gave a speech 20 years ago or so about how we evolve with our tools.

Yeah. And you wouldn't try and, you know, run a high production farm without a tractor. You wouldn't do it with a plow and an oxen. And that just always has been true in our society. And so, if you are a programmer who's worried about this, the best thing you can do is run at it.

Yeah. Like, go hang out. Yes. Play with cognition. Get into GitHub Copilot. Like, that and learn. You know, Satya said that the ordering of the workflow of writing code is changing as a result of this. You won't know that unless you're in it. 100%. 100%. And a lot of the talk here is not just about who the winners are.

It's who the losers are, right? The losers in the public market. You know, companies that are slow. Think about if you were a company slow to adopt the internet in 2000. If you were a retail enterprise, you said, "I don't need any commerce capability." Right? Right? That was a very bad decision.

I think in 2024, if you're any company and you say, "I'm going to be, you know, "I don't need to do all this AI stuff. "I don't need." You need to be there even if you choose not to adopt it, because I think failure to learn how to reinvent your business is a problem.

I don't think you have to worry about this. I think most of them are there. They're on it. They're on it. Well, another topic I think that, you know, we've talked about on this pod. We had some developments on this week, you know, and I wanted to dig deeper in, and this is to the shareholder vote as it pertains to Tesla.

So we know now that Elon has won the vote for a second time. Retail investors, I think, voted 90/10 in favor. Institutional investors, something like 70/30 in favor. I mean, even the passive ETF Vanguard voted in favor of the package. Okay? But there was a big reveal here this week.

I think some tectonic plates started moving on something that you and I have identified as an issue for a long time, and it relates to ISS, Institutional Shareholder Services, and Glass-Lewis. So both of those organizations recommended a no vote or a vote against the shareholder package. Okay? Now, that in and of itself is not that unusual, although I don't think it made sense because it was clearly in the best interest of shareholders, right?

Stock would go up. It did go up after the vote. And, you know, so I started looking in again, and I know you and I started talking about the background of ISS. And just as a reminder, you know, ISS was founded in 1985, and the mission of the company was to provide advisory services to institutional investors, supposedly to do research and governance on their performance, and to help shareholders make informed decisions as to what would maximize their own value in the business.

And while all this sounds benign enough, many of us have argued over the years that ISS veered off course, right? And this started becoming kind of this cudgel to, you know, to coerce board behavior into ways that they deemed, right, in maybe societal best interest or in their perceived best interest, as opposed to the corporate best interest.

You and I have both served on boards where board members have said, "Well, I can't do this or I can't do that because of ISS." We know some of the best boards in the world, like Netflix, takes it on the chin from ISS all the time because they don't do the things that ISS sanctions as worthy.

In fact, this got so bad that at the end of -- or at the beginning of 2023, 21 state attorney generals, right, wrote a letter to ISS demanding that they explain -- and Glass-Lewis -- to explain their advocacy objectives, right? So, in this instance, I think the fact that Vanguard, right, which is passive -- these are not active investors -- that they came out and they voted in the opposite direction of Glass-Lewis and ISS, I think it just laid bare some of the nonsense associated with these recommendations.

And I really wonder whether this is going to cause a ripple effect, right, where people start pushing back now on ISS and Glass-Lewis. Right, because if a passive investor can do it, certainly -- and the active investors, from retail, institutional, they rejected ISS and Glass-Lewis straight out. So, what do you -- any thoughts?

-Yeah, well, a couple things. So, one, I actually spoke to some people at ISS in their research group prior to our SBC conversation, and it became clear to me from talking to them that they're mostly backward-looking. They talk to investors after the fact and say, "Do they appreciate this particular thing or not?" And they're not doing first principles thinking around shareholder alignment.

-Yeah. -And, you know, and you said it lost their way. I mean, it became a network effect, right? They charge both the company and the shareholder. And, like, it certainly -- -I mean, if there's a duopoly we should worry about in this country, it's probably ISS and Glass-Lewis. But we're seeing every board to follow their marching orders.

-And the number one reason I hear, a very valid reason for companies to have super-voting is so they don't get held up by these companies in their attempt to do the right thing and implement a compensation package that is aligned with shareholders. -Correct. -And as I said to you back then and I believe even more today, and I've seen more copycats of it, the Elon package is the most shareholder-aligned CEO compensation package I've ever seen.

I would be thrilled if all of my hired CEOs had a very similar package. -Right. -I'd be thrilled. -Yeah. -I think most of them wouldn't take it. -Yes. -Because it requires outsized performance. I think it's excellent. I think that it's ridiculous that Netflix would ever get a no vote on anything because they've had incredible stock performance and industry-leading low dilution.

-Yes. -With their very innovative approach to compensation. -It would be fun to look at a distribution. -I actually had a chance to talk with the co-CEOs recently and they were still getting pushed back because I was applauding them on their structure and one of their board members says, "Well, they are even considering change because ISF won't leave them alone." And it's just horrific.

But anyway, there's one other thing that I would highlight about this that relates more to the Delaware situation. So it's my belief that many of the attorneys and lawyers that live in the Delaware ecosystem were very eager for Tesla to appeal this thing and push it to the Delaware Supreme Court.

And it has been wildly discussed here and in other places. The reason that people chose Delaware is 100 years -- I went back and looked up today -- over 100 years of practice of being business-friendly. Obviously, all these companies aren't located in Delaware. -Yeah. -They're just choosing this. And they're choosing this place because of its history of precedent and its history of how they adjudicate different things.

-Right. -And people felt that it was in the company's best interest. Here today, with the Tesla situation, we have a company whose stock performed incredibly well and was brought to heel by a lawyer and a law firm with a contingent derivative lawsuit. Their one customer had nine shares of stock.

-Nine shares. -It went up. -Yes. -So if you consider the fact that, "Oh, I could be a public company in Delaware. My stock could go up. I can be --" And then they asked for $5 billion in compensation to the lawyer. -They're still asking for it. -And they had one customer with nine shares.

Like, how do you ask for $5 billion? If -- I will say this. First of all, I think that these people that live in Delaware are very fearful that there won't actually be an appeal because then this thing just stands out there. -Yes. -And I think it's horrible for the entire Delaware.

If I were the governor of Delaware, I would be scared shitless, scared shitless about what might happen. If this judge hands out any penalty anywhere close that has over $100 million even, I think companies need to consider leaving Delaware as fast as possible. -First, it's such a bad case law, right, in the state of Delaware.

I mean, to your point, the various states are -- -Vigilante lawyers chasing any company with high performance or a big market cap and just trying to get them on a gotcha. -For sure. -And see if they can get a judge to give them this type. -The corporate code that exists in various states around this country is very similar.

There's a model corporate code, and most of them adopt it, that's predicated on Delaware's corporate code. What makes Delaware so different is 100 years of precedent of case law, which is very supportive of a lot of issues which were important to companies. That predictability led companies to incorporate there.

Now we've thrown predictability out the window, right, and now we're talking about despite two shareholder votes that both voted in favor of giving Elon this package, both before and contemporaneous, and now that they're going to go back. If they award -- I'm not $100 million, Bill. If they award $1, right, I think you're going to see companies in the state of Delaware that leave the state of Delaware.

And by the way, I think we should be encouraging them to leave the state of Delaware if that's the case, because I would like to see a lot more jurisdictions develop a lot more friendly corporate codes, friendly precedent, you know, for these companies. The reality is if we can't support a performance-based compensation package for a company, then what are we doing?

Look at the garbage packages that people get paid tens of millions of dollars on. Stock goes down, companies are terrible, ISS is cheering that that's a good compensation package, and it's no problem in the state of Delaware. -Not to pick on one person, but people have highlighted that the CEO of GM has made tens and tens of millions of dollars.

Stock hasn't gone anywhere. That's who, if they want to chase somebody, it's me chasing that situation. But I couldn't agree with you more. I think this is a very serious topic. I think that the, you know, even, I think, like the "Wall Street Journal" and "The New York Times," they missed this point.

And as you said, if it's not about shareholder alignment, what's the point? -Right. -And then the last thing I would say is we started by talking about the dearth of IPOs and why aren't companies going public. If this is the type of thing you expose yourself to by being public, then I understand why there are less public companies.

And I actually think, in addition to the fact that everyone in Delaware should be afraid of this, I think the SEC should be afraid of it. Like, you shouldn't want this type of activity, this type of derivative suit, to come to the table. 'Cause with nine shareholders and an ask for $4 billion, it's clearly a shakedown.

-Yeah. -You wouldn't want that in your public market ecosystem. -Right. How do we give assurances to other companies that are reincorporating to Nevada, reincorporating in Texas? You know, Tesla's move to, you know, was approved to move to Texas. How do we give them comfort, you know, that they're going to be protected there against these type of cases?

-I have work to do. I need to go learn more. -Yeah. -And, you know, as much as I would say that the governor of Delaware should be afraid, the governor of Nevada and the governor of Texas should be putting together a task force to take advantage of this and to answer the question that you posed.

Like, what needs to be in place? Can you borrow some of the precedent case law? I don't know how that works. -Right. -But, like, it's a -- I'm shocked, based on everything I've been told my whole life about why -- You know, you say, "Why are all these companies incorporating Delaware?" Oh, it's the most business-friendly state from a judicial standpoint.

This blows that up. -Well, I mean, one of the things I -- Again, I'll go, you know, call my corporate law buddies up, as well. Why can't the state of Texas say -- You know, because you can't just make precedent up. Precedent has to be the byproduct of somebody bringing a lawsuit.

That just takes time. But you can draft it into your corporate code provision. Like, you could simply say that, you know, we're not going to allow these type of derivative lawsuits with, you know, that are totally, you know, a farce with nine shares to be brought in $5 billion of, you know, of awards given.

-I suspect you could take a industry-leading LLM and scan through the case precedent and help codify the law that you need. -You know, for sure. -So, tonight, you and I and Philippe have -- You know, we're going to do a panel with Larry Summers, and we're going to talk a little bit about, you know, what the world looks like in 10 to 15 years as a byproduct of AI and some of the consequences, you know, that we may see.

And when you abstract away the next five years, you know, because who knows how long this is going to take and whether we bump up against scaling laws and all these other things. When you look out 10 to 15, you know, any thoughts about, you know, what you want to hear, maybe from Larry or, you know, big-picture thoughts that you have, do you think the world is over its skis again, Bill?

Or do you think this is -- Is this 2000, where we're going to go through perhaps a little bit of a rough patch here, but when we look back 10 or 15 years, it's going to be way bigger and way more consequential than we thought? -I didn't know you were going to ask me this question, but I'll tell you the one thing that's on my mind, and then I'll ask you the same question.

But I really don't believe in the deglobalization push that's coming from either of these presidential -- I just don't believe in it. I believe in Ricardo's comparative advantage. I believe in lifting all people out of poverty, not just people that happen to be born in the same country as you are.

And that happens through globalization. And I just think more people are -- Like, the most people that have ever been made better off by one person was in China when Deng Xiaoping brought half a billion people out of poverty, and that happened by introducing capitalism. And I just hope we can find a way to stop vilifying China and to stop thinking that you're going to re-onshore a whole bunch of -- I don't think we'll be competitive globally.

-Yeah, yeah. -Anyway, that's what's on my mind. -I mean, it's an interesting question. If you flipped it back around, I'm really interested in the productivity gains, you know, that I think we can achieve, like, the big unlock here. I'm interested in if he sees those same level of productivity gains that perhaps we saw in the '80s and '90s.

I'm really interested in how he thinks about our national competitive advantage, right? Like, the United States, if you just look at the performance over the last -- right, the last 10 years, has been a byproduct of a lot of this globalization. But I also see the flywheel spinning. Like, you just look around here.

We have a system of risk capital that's better than anywhere in the world. We have a system of risk-taking and entrepreneurship that's better than anywhere in the world. The rate of innovation, better than anywhere in the world. And so, to me, it also seems like -- -Well, let's open up that skilled immigration gap.

-Yeah, no, I mean, like, that's, you know, absolutely one. And I was -- not to go, you know, off-piste here, but I was talking with, you know, the president of a major, you know, fintech company last night, public company, who was at the business roundtable, you know, with Trump, and he said, you know, they were all shocked.

Their jaws were on the ground. Trump walks into the room, starts talking about immigration. You know, and while he says, "We got an illegal immigrant problem. We got to -- you know, we got to tighten the borders," they said it was the first time they ever heard him say, "And I got to solve the problem for everybody in this room, how I get you more talented workers." And he proposed something, apparently, at the roundtable.

He said, "Anybody who comes here for a four-year education, completes their degree in the United States, we're going to give them a green card." -I like that. -Okay? Like, if that's true, this is one of our huge issues, right? This is the best place on the planet to start these businesses, you know, because of ecosystems like this, but ultimately, you look at, you know, Elon came here, right?

Larry and Sergey, you know, so great to be with you. -Yep, good to see you. -I look forward to chatting more tonight, and thanks for having us. -Yep. ♪♪ -As a reminder to everybody, just our opinions, not investment advice.