SPEAKER_00: i'm recording yeah how's my hair nick do i look ridiculous i shouldn't wear a hat oh my god i went to the teaching salon in for a haircut a few days ago the teaching salon ten dollars you got ten

SPEAKER_01: dollars worth of value my neck was literally bleeding the guy cut my neck like six places

SPEAKER_05: it's diagonal on the back and he was stoned the whole time i walk in he's like what do you want i'm like i booked this thing he's like shit okay sit down i thought i was like in a barber shop candid camera thing why would you possibly do that there was nothing available i told my wife i'm

SPEAKER_00: like get me any hair appointment anything i just gotta get my haircut it was so long and then she's

SPEAKER_05: like oh i got you an appointment at the teaching school oh i'm like that's high end all the hair salon stylists go there must be awesome this guy fucking butchered me guys worth over 100 million you

SPEAKER_01: got a ten dollar haircut fucking ten dollars and then he's like what would you like to tip i'm like you should be a fucking barber get a new career all right everybody welcome back to the all

SPEAKER_26: in podcast episode 141 chamath palihapitiya has gone missing somewhere in the mediterranean we've sent some search crews out we got some beacons we're trying to find him but he is not here today there will be no conspicuous consumption or discussion of truffle season or wine but instead we went to the bg squared if you got to come to all in summit 2022 one of the highlights of the event was having two bgs brad gerstner and bill gurley on the pod so we thought for all-star summer we would bring in some all-stars here welcome back to the pod fifth bestie brad gerstner and bill gurley how are you sir i'm doing great thanks for having me on bill you you don't do a lot of press you don't do a lot of pods and i know you're on a lot of boards but you're not part of benchmarks next fund so people

SPEAKER_31: are wondering are you retiring what are you up to i know you're still got all these boards you're on

SPEAKER_33: but what's bill gurley up to these days yeah i appreciate that i'm i as you mentioned i'm on nine

SPEAKER_34: benchmark boards still so i'm working with those and and doing the classic work that i've been doing my whole career second thing is i i've started i've done a handful of angel deals about one one hundredth the um the frequency of jcal here but but a few so dipping my toe in the water and then third i've been working hard on on a book i've got a co-writer we've been doing a ton of research we've got a

SPEAKER_36: proposal ready to go on an agent we're going to go out to publisher soon oh well you should just do

SPEAKER_38: harper business i'll put you in touch with hollis that's okay the winning publisher that's the best

SPEAKER_41: business publisher in the world and uh perfect no harper harper collins business world's greatest publisher world's greatest publisher um and uh you don't need what the thesis is yeah it's it's it's a

SPEAKER_34: further development of a of a speech i gave at university of texas business school about um how to

SPEAKER_51: chase and succeed in your dream job oh nice oh so like career advice letter

SPEAKER_53: to a younger girlie is that what this is a letter to a younger builder yeah i didn't want to do like

SPEAKER_36: oh here's my you know thoughts on venture capital that didn't feel right this is something i'm more passionate about and i some i hope will be impactful to a lot of people i've already gotten quite a bit of feedback from people that have been moved by the the the shorter version on the uh on the

SPEAKER_59: presentation well when you when you look back on your career unpack it for a minute um what what do you think the things you got right were or the things you know you might change in terms of your career

SPEAKER_65: and and being happy and finding your passion yeah i do feel super fortunate that i was able to do

SPEAKER_36: you know my my dream job for over two decades and i love innovation i love betting and gambling and i love the combination of being able to think through markets and disruptions and and to be able to place bets and all those things are super exciting things i got right um studying history which is something i talk a lot about and we'll be talking about in the in the book like knowing who the the patriarchs were of your industry and knowing what they thought i think is super powerful in any endeavor and then networking you know just like crazy which i think is actually easier today so those are a couple

SPEAKER_26: of the themes that we develop networking and studying history specifically you and i have had many conversations about biographies we both share a passion for those top biographies not of business people but that had an impact on you and then i'll go around the horn top biographies that had an impact

SPEAKER_62: on you preferably ones that are in business but if it is business i guess it's okay one that that actually

SPEAKER_36: led to me developing this theme was was learning more about danny myers journey who is the renowned restaurant owner in new york city and the founder of shake shack but he had a career where he was in sales he was about to go to law school and his i think his uncle told him what are you doing you know you want to be a restaurant owner and he stopped that day took a job at 10k a month or 10k a year he took like a wow 90 pay cut and started studying and that gets into the history part but he just started studying and obviously the rest is history for those of you

SPEAKER_76: that know about danny myer set it setting the table is the book yeah and uh that is the book

SPEAKER_79: union square cafe grammar sheet tavern amongst some of his great restaurants going around the horn here friedberg you have a favorite biography you read or something that impacted you young in your career and then do you feel like you you figured it out and what did you what would you change about the early part of your career so the same two questions that's a three very loaded

SPEAKER_81: questions i don't know how to pick which one you want to answer that one i will tell you when i was running my company in 2011 climate yeah the climate corporation i read the walter isaacson uh biography

SPEAKER_82: of steve jobs yeah and he actually profiled a number of jobs as management techniques my only operating role prior to that was working at google so that was the only management experience or exposure i had had and then reading about how jobs ran his management team it actually changed my behavior going into the office i i took a very different approach and i saw the results almost

SPEAKER_00: immediately what was the primary thing that impacted you well first of all like having the cadence and

SPEAKER_82: the and the directness with the team engaging the team fully in discourse immediately making decisions getting everyone to commit moving forward very quickly i was the first time ceo so i never had a good mentor and reading those segments of jobs as management style in his biography was just a really great tool to add to my emerging toolkit on how to be a manager and how to be a ceo and how to run a

SPEAKER_81: company uh that was big for me i could rehash everything about early on in my life i don't

SPEAKER_79: think that's a good use of walter isaacson's book on elon coming out in a couple of weeks which should be interesting i i sat for an interview with walter for that one so i'm interested to see how that turns

SPEAKER_59: out yeah i did too i i was asked to i didn't uh yeah you were asked to you didn't do it no i did it i did it i you know i don't i didn't ask to do it i got asked you know if i would give some anecdotes i think sax also got asked if he would do some anecdotes so i think it's going to be pretty good and walter was hanging around he's been putting passages out on twitter right yeah i mean

SPEAKER_79: he's such a good writer and just watching him you know david and i were at twitter for a little bit

SPEAKER_99: and you know just being he was hanging out he was like you know in the corner of the room

SPEAKER_103: like participating in a lot of these meetings yeah so he was there basically during the whole transition i think that was going to be the ending of the book is you know he had to cut it off at some point but he was there for the first month of the transition the twitter takeover and for rocket

SPEAKER_79: launches and everything in between so he i mean watching his biography technique is uh it's pretty

SPEAKER_26: intense i mean he spends a long time with the subjects and you know just taking notes and talking

SPEAKER_59: to everybody around him so he would you know peel off sacks or peel me off hey uh could i ask you a question about this or ask you a question about that what do you think of this jacal speaking of

SPEAKER_109: books i'm in the rare position of needing your advice oh okay here we go wow i think that's a

SPEAKER_113: compliment maybe sort of a compliment okay so harper collins i'm going to do a book about how to

SPEAKER_103: create run scale operate software companies which will be an extension of the blog i've been writing for a couple of years which i haven't been that active on mainly because i've been using that time for this pod but i was writing at a pretty good clip until we started doing all in pod so i want to get back to putting that together yes and i could go chapter by chapter you know here's how you should think about marketing here's how you should think about sales here's how you should think about finance metrics and so on but i'm not sure that's the best way to present the material so yeah do i just write the book that i think it should be or do i work with a publisher on what the business book should be and they kind of give me the guidance so it's a great question you are in a unique position where

SPEAKER_26: you know you're successful you have an audience for the book and success for you is for you know great founders to read the book and for it have impact as opposed to somebody who's an author who just wants to be published right so you have a different reason to do this i think you should write the book you should decide who you want the audience to be and what you want to get out of the book and you should forget about publishers in the whole grand scheme of things then when you write the treatment you write the first five chapters or so then you can bring it to a select group of publishers you can get an agent i can introduce it to two or three agents there's you know top two or three in this field and um i think what you should do is the business advice is out there right and the techniques are out there but what you have is you have war stories so the technique i used in my book angel was to you know talk about techniques and investing that i had learned from other folks including bill gurley

SPEAKER_31: and michael moritz or whatever but then i would give my anecdotes things i had experienced personally and what that does is it makes the examples let people really get some narrative out of the book and so the lesson combined with the actual practical experience that's kind of the magic of these

SPEAKER_124: business books i think do you have a favorite biography yourself sax either business or non-business

SPEAKER_103: i don't think i read a lot of business biographies really you know i read i read one business how to book back in the paypal days you know i didn't have any real business education good to great do

SPEAKER_129: you remember what it was it was good to great yeah i mean that was the seminal book at the time so

SPEAKER_103: i read this book and literally one chapter was on how you should stick to your core idea and then the next chapter was about how you should be flexible so i'm like well both of these ideas are right situationally yes but so how do you decide so right i came away from the book thinking this isn't really going to help me because it doesn't give you what you really need which is what are the specific situations in which you should apply a given principle yes and i kind of came away from like thinking that business self-help books just weren't that they're too theoretical and weren't that helpful well then this is where biographies really become

SPEAKER_86: helpful because you actually get to see why that you know technique was deployed brad do you have any

SPEAKER_141: business bios that you uh you know related to that about sex sex do not write a how-to book

SPEAKER_143: right write a book about your visceral experiences right that just you happen to teach people how to do along the way right you have a lot of you know i i just think the story is is powerful holy

SPEAKER_145: shit what what unbelievable

SPEAKER_148: is it calling zoom bombing when you just wait a second

SPEAKER_157: second thank you to the starlink team we're yet again coming to the rescue what is this now we

SPEAKER_159: got six people it's like the all-star game no no no i just wanted to come and say hi

SPEAKER_161: you have to hang this is the black mirror version of the brady bunch right here what happened are you

SPEAKER_113: lost at sea we tried to get you we couldn't find you the yacht was missing the dinghy's missing we sent out search crews hold on your camera and go you look like tiger woods in this shot

SPEAKER_159: a guy a guy that i work with said you're the michael bridges of the online podcast and that you haven't missed a podcast since the beginning so then that's the only reason why i'm coming into

Chamath Palihapitiya: this in your head yeah yeah it's in my head i just wanted to put this in your head anyways i just want to say love you guys uh enjoy the pod i'll talk to you later i'll watch

SPEAKER_168: bye bye look at that the iron man street continues he didn't want to give up

SPEAKER_172: i love you he's drunk that was a drunk zoomed on yeah remember he's nine hours ahead jacal to answer

SPEAKER_141: your question yes please teddy roosevelt man in the arena phil knight alexander hamilton those three for me that like the takeaway the the red thread that connects them is do that matters do stuff that matters your life is short get in the arena major in the majors but do stuff that matters so they all were inspirations for me both in terms of how i organize my own life but also how i think

SPEAKER_59: about investing fantastic and i'll give you a couple of ones that you may not have thought of something

SPEAKER_35: like an autobiography the biography of akira kurosawa the famous film director absolutely outstanding

SPEAKER_00: great recommendation i'm gonna i actually want to read that that's a great incredible

SPEAKER_176: incredible i'll read that who wrote it akira kurosawa it's an autobiography oh it's his

SPEAKER_178: autobiography autobiography oh wow born standing up steve martin bill gerlian talked about this one

SPEAKER_26: and it really is fantastic i i've actually listened to it twice um and that's one of the great things about these biographies you listen to them a second time here's another one sax this is critical for

SPEAKER_186: you on writing oh stephen king's biography you've listened to it whose biography fantastic stephen king

SPEAKER_55: oh stephen king huh on writing might be top five for me of all time and he really goes into like the story of parry he wrote like a small treatment of parry he was a math teacher he threw it in the garbage because he was so frustrated with his wife sees it in the garbage she reads it she says this is incredible you should keep writing it he writes it he sells the book for ten thousand dollars she's getting paid like nine thousand dollars as a teacher he can't quit his job and back in the day they used to sell your hardcover rights and your paperback rights separately

SPEAKER_26: if your hardcover went well then you would do a paperback and go mass market he gets a call they sold the rights to the mass market book four hundred thousand dollars the

SPEAKER_55: paperback his agent gets on the phone and says it's forty thousand dollars and he thinks he hears forty thousand he says well forty thousand dollars that's incredible that's four years i might be able to quit my job as a teacher because no it's four hundred thousand says okay so forty thousand dollars divided

SPEAKER_31: by nine it's like maybe it's even closer to five years he says no you're getting four hundred thousand you can't believe it and that was basically the story about stephen king but it'd be great great to

SPEAKER_65: listen to prior to writing a book he's uh absolutely it's it's it's super amazing though most people don't

SPEAKER_190: know this fact but king wrote the novella that became shawshane absolutely yes oh yeah that's right

SPEAKER_38: he's got a lot of those you didn't know it and then the malcolm x biography is amazing too if you

SPEAKER_79: haven't read it so those are just non-traditional ones of people following their passion one of the things about it is the extreme effort in the decades of perfecting craft that i found super appealing

SPEAKER_82: about these nothing happens uh easily in your honor jacal the rest of the episode seven seven samurai by the way if you're a startup founder entrepreneur ceo best film to watch because well yeah i mean there

SPEAKER_00: is no there is no giving up there is you do what it takes and you persist i think persistence is one

SPEAKER_82: of the biggest i've talked about it's one of the biggest predictors for success and there's a character that emerges once you're facing challenge this film does such an incredible job of demonstrating the essence of that character yeah um i think it's also a similar character that's needed in but if you

SPEAKER_26: read kurosawa's biography you'll see that a number of the actors in that film occur in other films by

SPEAKER_202: kurosawa uh do you know who who that star is the tshira mufune yeah yeah exactly well he's in all of

SPEAKER_203: he's just about in all he was his muse he was he was score to de niro to scorsese yes

SPEAKER_26: sargezi sort of modeled his relationship with de niro after kurosawa and george lucas kurosawa francis

SPEAKER_187: for coppola were all disciples of kurosawa's you know incredible well the um seven samurai was remade

SPEAKER_103: as a western the magnificent seven with i think steve mcqueen and yule brenner yep a lot of kurosawa's movies were remade as westerns yep it just works pretty well and they were they were all scored by

SPEAKER_176: ennio morricone a lot of them by inna marconi which i was listening to in the cold plunge i started

SPEAKER_26: doing the cold plan oh my god i it's i would just like to say just a hearty you this is such a random show we have not well we'll get there but i mean i just want to start the podcast by saying you to tell me is there anything else that's going to be talking about on the show i'm like joe rogan and all these assholes who said in order to be like successful you have to jump in a cold plunge because now i've done it four times out of the last like i'm doing it every other day and they're right i feel like a superhero after i do this anybody doing cold plunge here besides me

SPEAKER_82: and shaman nobody occasionally well i mean i was in mexico a few weeks ago and they had this this this cold plunge thing and i we did it every day that we were there at the the hotel but then we came back well it's it's you get this endorphin rush uh rush afterwards it's incredible and then afterwards now when i go to the gym i only do like a 10 minute ice cold shower afterwards like it's critical to like and it feels amazing you feel like so relaxed after you i did i did six i did

SPEAKER_224: five or six minutes at 58 degrees i've been lowering it two degrees a day but the first day

SPEAKER_180: i did it at 43 or 44 for like 45 seconds and my body started shaking i got hypothermia instantly

SPEAKER_33: bill you've done it you've done this nonsense occasionally occasionally i'm still not convinced there's any medical uh benefit to it but you guys you've sent around you it's very trendy

SPEAKER_233: i have an inference on it too so i'm doing inference on it i haven't started pickleball

SPEAKER_239: and motorcycle bikes right and motorcycle bikes i'm conversing like e-bike at cold plunge it's literally

SPEAKER_241: what my last week has been failure you just take your bike into the cold plunge and then you ride it into the infrared sauna and then you go play pickleball yeah uh okay and you're wondering why

SPEAKER_59: everybody hates us um lifestyles of the abhorrent one percent all right listen by the way a couple

SPEAKER_103: other rentals that are kurosawa films are worth watching actually he did he did versions of shakespeare which i think is really interesting absolutely so kurosawa took on shakespeare and then hollywood kind of adapted kurosawa but a couple of really good ones thrown of blood was kurosawa's adaptation of mcbeth and then rand was his adaptation of kingly are two of my favorites worth checking out hidden fortress also great in fortress became the basis for star wars or was a big influence yeah the r2d2 and

SPEAKER_124: c3p characters c-3po characters who are like sort of telling the story are in the hidden fortress you

SPEAKER_31: can see the direct descendants here but for me the genre i love for kurosawa is his film noir era stray dog high and low i mean these are exceptional films and high and low i wanted to remake when i was thinking about being a film director and it turns out spielberg owns the rights high and low an incredible

SPEAKER_256: story but we digress here let's get to the just one one last anecdote okay the tv show breaking bad

SPEAKER_82: was inspired by ikiru the kurosawa film yeah about a guy who finds out he's gonna die and when he finds out he's gonna die suddenly he becomes one of my true self like was this true like nature comes out so an incredibly poignant film that obviously inspired the extraordinary uh tv show breaking bad yeah

SPEAKER_26: akira is um means to live in japanese and this is a story of uh somebody who has basically lived a modest amid it's somebody who lived a midlife but then at the end decides he wants to do something

SPEAKER_31: meaningful with his little pittance of money and to make an impact on the world and so he decides he's

SPEAKER_26: going to take a a parking lot that's disgusting and filled with garbage and make it into a a kid's playground so people can enjoy their life it is and it's also it's um tishiro mifune as an old man so in a way this parallels their careers and trying to do something important there's another one i live in fear so those two to live and i live in fear are about aging and getting old the genre if

SPEAKER_31: you don't know akira kurosawa you know just you're going to need to be a little patient because it doesn't have a thousand cuts per minute like modern films it's not the transformers or a marvel film

SPEAKER_35: but it's well worth it if you can get your adhd under control i would start with the samurai movies

SPEAKER_170: yeah seven samurai thrown the blood and ran yeah you go there and then there's i mean if you want

SPEAKER_269: to go super intellectual rashomon yeah which is about truth every people's different perspective

SPEAKER_59: every film theory every film theory class starts with rossomore yeah so there's your uh usc uh film

SPEAKER_203: school divergence save 100 grand okay we just saved 100 grand we'll see you all at ucla yeah okay vc

SPEAKER_26: market update carta has released a series a funding map covering the first half of 2023 but the data is

SPEAKER_273: what's interesting they covered and carta basically manages cap tables and stuff like that for folks

SPEAKER_26: original company was e shares i think this is a funding map which shows like how much money was raised nothing really too consequential in there but what's really interesting is the data on

SPEAKER_31: series a rounds series a rounds are typically the rounds when a benchmark or sequoia a craft come in and you know join the board and put in a significant check before that you have angels and seed investors and after that you have growth funds but the series a is considered like a seminal

SPEAKER_277: moment in the history of a startup median round is now seven million raised that's down 26 percent year

SPEAKER_31: over year and this is all data from the first half of the year so first half of 2023 versus 2022 which was a really crummy year we're down from the crummy year 26 on the dollars raise seven million and the the pre-money valuation 40 million down 17 so last year it was 11 million raised on 48 i don't have the

SPEAKER_26: 2021 data here but it would be even more so just right off the bat reactions i'll start you bill gurley to what we're seeing in this series a space this is a return to normalcy i mean the series a's back in the you know uber days and airbnb days were what five ten million bucks on a 30 million so this is

SPEAKER_34: return to normalcy yeah i don't i don't think you've gone quite back to that line right and so i think there's still a significant amount of competition at that level and um the fact that it's off a little bit is is noteworthy but it's not like off 50 right i think that market remains competitive i think

SPEAKER_36: there's a number of great people out there investing at that level and and of course the ai deals like one thing that might be interesting is if you pulled the ai deals out i bet those numbers would be more

SPEAKER_280: akin to what they were two or three years ago because those are being done at 200. is the reason

SPEAKER_26: you went to angel investing or seed investing let's call it because it's so crowded and competitive at the series a level and what seed investing is now is what series a investing was for the 20 years of your

SPEAKER_34: career no i i did okay i think if i were practicing institutionally i would i would stay at the series

SPEAKER_36: a level and take board seats and try and get as much ownership as possible which is the been the benchmark strategy i i um this is more of a hobby thing for me got it and i don't want board seats

SPEAKER_276: anymore but it's super super crowded at series a still to this day yeah i said it was competitive

SPEAKER_34: i don't know that it's super crowded i think a lot of people realize that if you can get two and a half or three percent management fee investing 300 million dollars at a pop that's an easier lifestyle

SPEAKER_36: than actually taking board seats and doing work and so i think a lot of money and activity got pulled

SPEAKER_34: into the late stage market nearly every firm started doing that and and once the once the center of gravity goes there in a firm you know and you're investing 200 million a clip can you imagine the monday meetings like who's paying attention to the person that's putting 5 million out of the time

SPEAKER_290: like it'd be hard it's like going to playing high stakes cards and then you get invited to you're playing you know 200 400 200 and you go to 5 10 games like it's it's if there's a team and who's

SPEAKER_34: paying attention to the person playing in the little game and so i actually think the number of people that practice at that level has actually gone down huh but that doesn't mean you know the business since i got in only got more competitive and so there's still enough and and and and the other thing

SPEAKER_33: is the founders have learned how to play however if there's 10 people doing it they know how to play them off of one another they're very skilled at it yeah that's a that's a weird thing that

SPEAKER_26: happened is like the playbook because of podcasts because of blog posts i mean just how to how to run a company and then you know how to you know negotiate with vcs has it's all been unpacked sacks what are you seeing uh you're a series a investor you compete with the sequoias the benchmarks uh heads up for these series a's what are you seeing in the series a and what do you take from this data being down 26 year over year which probably actually means probably 50 down from the peak

SPEAKER_103: uh what are your thoughts well yeah the the venture capital market peaked in q4 of 2021 in terms of both valuations and the amount of money that was being deployed and it kept going down throughout all of 2022 and i think it bottomed out in q1 of 2023 basically in the last several months and i think now the pace of deployment has sort of stabilized and it's kind of stabilized at a pre-pandemic level so you know maybe at 2019 level now i think that probably masks some big differences by round so like you're saying series a rounds are more competitive there's relatively more action there i think the late stage rounds brad can speak to this the capital there has dried up i think considerably more and those rounds are much harder to get and the reason i think is because that when you have more operating history then it's harder to raise a round based on narrative whereas when you're at a very early stage you can basically just raise money based on a dream and the way i frame it to people is when

SPEAKER_224: i'm part of this is my fault because i'm training people in our accelerators and pre-accelerators i tell

SPEAKER_26: them you're either selling promise or performance and you know once you start having customers and numbers in retention you know someone like sax is going to be like give me the data and they're going to look at churn and say yeah this business has too much churn it's a leaky bucket whatever but when you're selling promise it's a lot easier than selling performance i'll tell you guys a ceo that is a

SPEAKER_82: well-known ceo public company now he told me and i think girly i think you guys were investors he said as soon as we started having revenue our valuation felt like it went down as soon as we started making profit our valuation went down because at that point you're you know you're judged on the quality of that stage of the business whereas before you could paint a picture with a thousand words about the different paths you might walk and everyone wants to believe the optimistic path will be walked and so you can boost your valuation boost investor interest but once those numbers start to come through it it really changes the investor criteria for how they assess the value of the

SPEAKER_36: business to a lot of people will state if if they have a product launch coming they'll they'll tell you to raise money before you want yeah sell the promise of that launch yes old saying it's better

SPEAKER_308: to raise on the sizzle than on the steak yeah unless the steak is pretty high grade obviously if the steak

SPEAKER_103: is great then yes that's the best time to take that risk off the table yeah but but just to recap i think where we are i think the venture capital markets have stabilized for funding new companies i think there's a mania going on with ai both in terms of the size of these rounds and the valuations it's like 2021 for a lot of ai companies we're not participating in that craziness we are doing some c checks i would say in early stage ai companies we're kind of calibrating the size of the check with the stage and amount of risk and i think that's appropriate so you are going pre-series ac putting in that's a 500k one million dollar check seed is what makes the most sense i think for ai startups because if you wait for a later round then they're not being priced based on fundamentals

SPEAKER_49: at all yeah yeah what check size is that 500k a million we just did we did one of a four million

SPEAKER_103: dollar check where he led kind of a bigger seed round got it fantastic i love that those are called

SPEAKER_203: seed rounds today i mean it used to be three to five million was your series a but yeah sure seed round

SPEAKER_103: three to five i still don't understand the term pre-seed so just to finish the thought i think where we're at and you know brad can can chime in on this is i think the venture capital market is stabilized for new companies new fundraising however i think there's going to be a one to two year period of distress for all these companies that raised in the peak yep 2020 2021 and are now running out of money and they don't have enough revenue they're not growing fast enough and or their burn is too high and all those companies are going to be facing down rounds or restructurings or they're not going to be able to raise well people are also marking their books now

SPEAKER_317: we're starting to see the marking they're going to get marked down so we're going to have probably

David Sacks: a one to two year period of distress for all those bubble companies while we have a little bit of a resurgence for new companies i got another topic i'm going to go to here uh related but brad i

SPEAKER_224: just wanted to let you chime in on the late stage there because you operate in the bc storage i think

SPEAKER_141: and this is related to the topic i suspect we're going to transition to but listen there is a lot of activity in venture today right and we're very reflective to the stock market people were really

SPEAKER_143: scared in q3 and q4 of 2022 started in 2021 but q 2022 was scary to people because public market valuations for growth companies were down over 50 so we really saw you know ipo markets venture all all start to slow down coming out of that we've seen you know stock market within you know 10 of all-time highs we see you know this wave of ai occurring what i would tell you is under 500 million maybe under 600 million right series b and c rounds are as hot as i've ever seen them in data infrastructure and ai and software etc um so there is a lot of competition there the later stage stuff which as you know i call quasi public so if a company is over a billion dollars right now you're you're very reflexive relative to what's happening in the public markets we're starting to see activity i just read whiz raised more money it's got 200 million dollar arr raised at 10 billion so those markets are definitely

SPEAKER_324: 50 times revenue yeah we did not participate um 50 times revenue you know so there is definitely

SPEAKER_143: activity i know a deal we got called on yesterday raising two and a half billion at a hundred billion there is a lot of activity however sax is right there is you know remember we had a thousand unicorns at the end of 2021 and i've said a hundred percent of those are going to do a down round and we're still in the early stages of that reset to occur there was some you know there's a report out this week that lots of people commented on twitter where public markets were down 50 and private marks were down i don't know five to ten percent like that will all normalize it's all going to be down you know the same so that's the only place i don't see activity underperformant companies that were

SPEAKER_327: valued over a billion dollars those are dead on arrival until you get to a market clearing price

SPEAKER_26: and we're not there yet okay so the other big issue here is a lot of money was raised by vcs all you know commonly known as dry powder in the industry but there are some misconceptions about this dry powder people are saying oh my god all this money is going to come flowing into the ecosystem kumbaya it's going to be the roaring 20s again however bill you did a little tweet storm what people don't realize is when we refer to dry powder at vc firms the vcs do not have that 250 billion dollars or whatever it is quarter trillion dollars sitting

SPEAKER_31: in their bank accounts that money is sitting in another person's bank account lps harvard's endowment calper sovereign wealth funds etc it has not been drawn down by the vcs yet so bill why is this an important fact for people to understand and what are the dynamics that lps are dealing with yeah and

SPEAKER_34: there's a ton of dynamics between the gps at the venture capitalists and the lps at those endowments that brad brad started to hit on one of those which is the marks aren't in the right place and and so so the thing you just explained critical jason which is you don't actually have the money there's no there's no venture firm sitting around with you know all the money that they've got committed to

SPEAKER_26: their fund in a bank account that's just why not why does that not actually occur because people would say oh you raised a billion from these folks they gave you the billion right why one of the the

SPEAKER_34: brilliant realities of the way that a lp agreement works with a venture fund is they're not on the irr clock until they actually pull the money down so they explain what that means yeah they charge fees based on the total committed amount but they don't actually draw the money down and get gauged on the performance of their investment until they need it and so a classic venture firm will do five six drawdowns over a 10-year period of a fund and so they don't act they literally don't have the money a couple of other things worth noting so and some of that i didn't put in the tweet but the marks aren't

SPEAKER_283: right and everyone kind of quietly knows that the marks aren't right but there's actually no incentive

SPEAKER_34: to get the marks right explain what a mark is to folks so private companies have a evaluation that's assessed either by the gp themselves in most cases which is a bit of a conflict of interest sometimes by your auditor emy or whoever's auditing your venture fund but of course the techniques they have

SPEAKER_36: for assessing valuation are extremely crude because they're not market-based they're just you know they're not public companies yeah so there's actually not a way to know they have extremely

SPEAKER_34: complicated cap tables the other thing is many lps are actually bonus on the paper mark and this is something that a lot of people don't realize and so they don't have an incentive to dial around to the gps and say get your marks right because it's actually going to reflect poorly on them if they were to

SPEAKER_341: roll both of them are both of the lp and the gp are in a dance there hey we know that stripe is not

SPEAKER_26: worth 100 billion right now it's worth 50 billion but if you mark it down i don't get my bonus i'm the person who's giving you money for your next fund and so when we're assessing hey how much are we going to give you for your next fund we're going to look at the performance of previous funds

SPEAKER_283: as an indicator push back on what you just said i agree with what you just said except there no one has the explicit conversation no it's an emergent it's an emergent behavior it's

SPEAKER_347: emergent the dynamic system yeah show me an incentive i'll show you an outcome kind of situation but

SPEAKER_36: there's no i've never heard of an lp like brow beating gps to get their marks right like especially

SPEAKER_59: on the downside never heard of that ever those marks can be done by an audit like you said they could

SPEAKER_26: be done by around the financing and then there's the secondary market weird secondary market

SPEAKER_283: secondary market can do it and sometimes lps have this weird situation where different venture firms

SPEAKER_34: are marketing companies at radically different prices oh which creates some interesting dynamics

SPEAKER_26: okay so i did this series i did the seed round of stripe where i'm y combinator and i say you know what 50 billion is fine we're going to market at 50 billion because we we invested at 2 million in stripe but then whoever did the you know series g or whatever it's up to we did the 100 billion dollar mark is like yeah we'll mark it down to 90 but you know somebody calpers or harvard has two has the same

SPEAKER_62: share class two different funds at two different prices so then you could really triangulate on

SPEAKER_34: reality huh another dynamic that uh that makes the powder less less dry that that i didn't mention in the tweet storm imagine you're on your first or second venture fund or imagine you're a fund that used to just have a one fund but they've expanded to four funds okay now imagine you don't have a lot of liquidity proof points on those funds do you really want to run out of money and go test whether or not you can raise your third fund or your second fund or do you kind of want to wait and see if you can develop some track records so that because you may be facing the imminent death of your firm if you run out

SPEAKER_36: too quickly and then go back to market and there is no market so i have a hundred i have a hundred

SPEAKER_314: million dollar fund it's my third fund okay what pace am i going to do this i'm going to do it in 24

SPEAKER_26: months or 18 months like maniacs were doing during the peak or am i going to take a 36 month approach a more traditional three-year deployment if i even if i take a 40 month deployment hey i got time to work out all these issues in the previous portfolio sacks you've heard this sort of dynamic what are your thoughts on the dry powder issue you yourself have a lot of dry powder i understand so how do you think

SPEAKER_103: about it we do have a lot of dry powder and we're going really slow i mean there's no feeling that we have to rush out and deploy this capital and one of the things that's interesting about the period we've been in that's been surprising to me is that our metrics actually haven't changed i mean the the things that we're looking for in a software company haven't really changed we look for a certain amount of arr certain growth rates certain amount of net dollar retention a certain cac a certain capital efficiency that bar hasn't changed for us but the number of companies meeting that bar has

SPEAKER_26: gone down considerably because they have headwinds because customers are in austerity measures or companies are going out of business and saying hey let me consolidate my sas tools enterprise buyers

SPEAKER_103: are sharpening their pencils they are trying to consolidate vendors there's a lot of headwinds in the buying cycle right now yeah and it's a little bit like i don't know if you remember in the dot-com crash 20 something years ago oh i remember it yeah so back in 99 2000 the conventional wisdom was that the company you wanted to be in was yahoo because yahoo was profitable and when all these startups went out of business yahoo would be the way that you could own a piece of the future of the internet but you wouldn't have to take all the startup risk and then it turned out that all of yahoo's revenues went away because their revenues were coming from banner advertisements bought startups which were funded by vc dollars so when you had the whole dot-com crash yahoo's business dried up yep so then yahoo lost whatever it went out it turned out a lot of people weren't wearing swim trunks it was yeah so so yahoo's business was actually highly correlated with startup funding and i think there's been an aspect of that with a lot of these companies where you would think that they're pretty insulated from the business cycle even like especially the enterprise software companies there's a lot of software companies that were selling to other startups that was pretty obvious they're going to be impacted but even the ones selling to enterprise companies have been affected in subtle ways and there just aren't that many startups right now hitting that same bar that they

SPEAKER_59: were hitting just a couple years ago freeberg your thoughts on this lp gp dynamics and dry powder

SPEAKER_82: i mean i think i mean one aspect on the same front of uh vcs being somewhat reticent to deploy more capital it's flowing through to the lp space and girly can probably pine on this sec can probably pine on this too but and all of you guys obviously could but it's been apparent in the last year that lps are wondering what do they have what are these portfolios ultimately really going to be worth what's the actual cash distributions and i think there's these new rules right girly where you got to distribute five percent of your assets each year to the institution that you're meant to

SPEAKER_369: represent you're an endowment you're obligated to not just grow your endowment both either from the board

SPEAKER_65: of the like the adam of the board of trustees of the university or i think there was a tax

SPEAKER_36: provision put in that if you're not distributing five percent then you're exposed to tax on the

SPEAKER_34: returns and so there's a there's a unquestionable potential issue with lps around their own liquidity so they've all followed the dave swenson model where they've all got 50 or even more in illiquid assets you move into a cyclical decline where the number of ipos and liquidity events both for vcs and pe remember pe's way bigger than vcs private equity aren't coming and then the drawdowns keep coming and so you have to meet the drawdowns you're not getting any liquidity your constituent needs five percent liquidity and now you got a cash crunch now you you have a cash crunch as an lp and i think gps are aware of this issue so you know do you want to provoke that or not right so i'll just maybe you're

SPEAKER_376: just quick you run early or you run late you don't want to be in the middle so i'll just say like

SPEAKER_82: anecdotally it it seems lps are more reticent i've heard several folks talk about how they're reducing commitments by 50 two-thirds or in some cases a hundred percent particularly after the the mad rush for capital over the last couple of years or capital commitments i would say for the last couple of years and so the downstream effect of that ultimately as the current funds get deployed there are fewer new funds and less new capital being committed from these lps into new funds and you know fast forward two or three years and there's going to be less capital available and so it keeps the bar high uh this is so while this is you know and so the bar i think is only going to get higher over the next couple of years as that capital cycle moves its way through the system it's

SPEAKER_34: probably worth explaining what freeberg was talking about in terms of a commitment so you may have a

SPEAKER_36: let's just say university x has committed 25 million to funds three through five for venture fund z and now they're saying in the next fund we're going to be at 10 instead of 25 when they say they're

SPEAKER_82: making that commitment that capital gets deployed by the venture investor over the next on average call it five years so the reduction in a commitment this year means that there's less capital to invest over the next three to five years and so that gets played out as we fast forward we're you know we're still sitting on funds from the last couple of years as those funds get invested the new funds are going to be smaller there's going to be fewer of them which and that's when the market gets much tighter

SPEAKER_26: is in the next couple years you know brad this seems like the greatest setup ever feels like the setup last year buying equities when everybody was scared if everybody is tightening their belts if vc funds are not going to deploy this feels like the time to be deploying so maybe you could talk a little bit about this austerity measures coming or just belt tightening or some people may be getting out of the venture business who shouldn't have been in it to begin with all of this seems like a great setup for more discipline and more disciplined founders if the vcs have to be disciplined doesn't that trickle down to the portfolio companies 100 but and while

SPEAKER_141: this might happen while this might happen i'm going to take the other side i don't think that's what

SPEAKER_320: the lived experience is of most vcs in silicon valley today on series a series b series c is certainly

SPEAKER_143: not in the area we're competing we're seeing four or five six hundred million dollar deals get done on zero revenue two three million dollars in revenue and so let me just throw out perhaps an alternative view as to why this might look a little different than the world of austerity that we saw in 2002 2003 2009 10 11. the first is right the stock market is near an all-time high and we know that you know the venture markets are reflexive to the stock market we talked about that the second reason which i think is interesting is most firms on average are a lot bigger okay that creates two issues we have a situation where younger partners and principals who all did deals that were overvalued over the last few years they want to put some points on the board in a repriced deal because they have to have some winners so you have this principal agent problem the people who used to check them were the senior partners right the the investment committee but now they have a lot of mouths to feed so when you put money to work you pull down more fee and so you know these funds now i mean if you're tiger or some of these big funds you have giant cost bases that you've created because of the the size of the firm that you created the third is the nature of lps and bill mentioned you know dave swenson in 2002 mit yale harvard they would call you know who were the early backers of venture firms they would call these venture guys up and say listen we're hurting there were a lot of markdowns we need to slow down the pace of deployment right and so they were a factor lp said slow it down i'm not hearing that out of lps today okay and i think one of these change i certainly am hearing it out of traditional lps some family offices some endowments but pensions sovereign wealth funds etc who now represent a much bigger percentage of the total capital base of venture they have money coming out of the ground every day that they need to deploy like they did in private equity and so again i'm not saying this for certain and certainly there are more discerning sovereign wealth funds than others who are saying don't speed up the pace of deployment but i'm wondering if that nature that change in the nature of the lp base is also contributing to this you know as sacks called ai mania yeah i mean we see it in hollywood some new

SPEAKER_224: actors come in they want to build a brand we saw the russians do it we saw the japanese do it you see

SPEAKER_26: china do it people come in new entrants at the table they get splashy cashy they want to place a lot of bets they want to make a name so i build a brand so that's an interesting counterpoint our entire business of course is based on exits the highest form of exit i guess is an ipo an overpriced acquisition would be the second and there's a secondary market for shares as a distant third

SPEAKER_401: looks like the ipo window might be cracking open a bit and uh some people are being forced the guns

SPEAKER_26: to the head arm owned by softbank masayoshi-san looking to raise 10 billion had a 50 60 70 billion dollar valuation could be the largest ipo of the year instacart looking at a 12 billion dollar uh valuation reddit kind of went dark they had a couple of problems with their community but they were in line stripe obviously in line klaviyo it's got a 5 billion dollar valuation and then we saw a couple of uh what i'll say are non-traditional companies going public something called shark ninja i saw in public we had a little conversation about this brad kursner they have a market cap of 4.3 billion they had a pop of 40 percent kava a greek food chain upa they went public and have a market cap of 5 billion dollars surfair a company i'd passed on investing in but was intrigued by they do pilates uh shuttles between places on the west coast here little short runs they did a direct listing in july market cap of 85 million didn't go well bill gurley is uh the ipo window opening or are people kind of on the ledge who have no choice but to jump and hope for the best one thing we didn't

SPEAKER_283: probably spend enough time on in the last topic which i'll just hit on briefly is the complexity of

SPEAKER_34: those unicorns so brad mentioned i i saw a deck that said there were more um private unicorns than public tech companies over a billion dollars at one point in time um which is shocking but those because those companies grew up in the 99-20-21 time frame where you could raise money at excessive valuation their cap charts are very complex and rigid they have different lick preferences at different places and and and they've got board members who all have different marks and are all very worried about whether this thing can get to a certain place or not and so it's very difficult to come in and do another private round in those situations you might have to you you might have to put the return in a guaranteed pick dividend ipo or some complex derivative and a lot of people i think brad would agree with this a lot of people just say they opt out and say no this is too hard i'm not going to go in there and negotiate with five different constituencies on how to do this you can't just do a simple

SPEAKER_59: investment because of that okay so it's gotten too complex which then if the buyers of those shares

SPEAKER_26: do not want to be involved in that crazy okay is stripe worth we'll just pick stripe as an example 50 billion or 100 billion and the last investors are at 100 yc in a 2 million yeah sure maybe a bad example

SPEAKER_283: just because their total lick press stack may still be a fraction of their market cap for a lot of

SPEAKER_34: these unicorns the lick press stack can be very close to their market cap or their today's valuation and that's what got it so you have a structural problem you got a billion dollars in investment in

SPEAKER_26: the company and liquidation money that has to come out to pay those investors but the company's only

SPEAKER_224: worth 2 billion or a billion and now it's yeah when you get to that place sometimes going public is just the easiest way to clean it all up because everybody converts to common and we just the company starts trading and reality is reality it's kind of like taking the medicine yeah and and i

SPEAKER_72: think that happened one good example was square at one point had done a derivative financing on top

SPEAKER_34: that was somewhat problematic and they just felt like they had to get out and they did and it cleaned

SPEAKER_283: up the cap chart and one thing i've been waiting on we'll see if it happens but because of hyper competition and investing in 99 2020 2021 there was a term removed from most term sheets that gave investors the right to protect their lick prep on ipo that's gone in most of these cases so you could convert lick prep under which for a founder or an early stage angel investor would be a huge win

SPEAKER_33: got it whereas if you sold a company in m a the lick prep would play does that make sense

SPEAKER_26: yes so the last investor comes in they're getting a multiple of their money back except in an ipo right and so if the ipo happens you know yeah and i suspect most of those late stage investors

SPEAKER_34: keep assume that their investment has a debt-like floor on lick prep and if this were to start to happen or recaps which can also be done self self-inflicted recaps i have seen many times just to get past the structural complexity either one of those things could wipe out that lick prep so net net

SPEAKER_417: girly more ipos are going to happen i think there's two things i think that complex cleaning up complexity

SPEAKER_34: is a great reason for the public market and brad already said we've seen a massive recovery in in

SPEAKER_283: software stocks like the marks are better than they were two years ago so brad or sax just m a wise

SPEAKER_26: we've seen lena khan we've discussed it many times seems to be saying all business equals bad any merger equals bad she's gonna you know attempt to throw cold water on any merger that's happening so m a seems to be being taken off the plate by not just lena khan but also the eu's is seems to be

SPEAKER_59: turning the screws so if we don't have an m a market then that means there's only an ipo mark

SPEAKER_141: correct i mean that's just another one of the reasons that is pressuring these companies these companies need to raise capital so just to double click on what bill said and put some numbers around

SPEAKER_143: it right because we read a lot of stats about how many ipos there were so i had the team pull some figures 480 ipos us ipos in 2020 1035 so a huge bubble in 21 181 in 22 and 123. okay but i think that overstates right because we had a lot of specs and crappy ipos so it really overstates the quality ipos so you know we're one of the major buyers in tech ipos so i just went to the team and said how many ipos were we tracking and did we consider participating in during these years so that was 46 in 2020 100 in 2021 three in 2022 and zero year to date in 2023 okay don't want to be in the greek food uh so but what i would say is i just returned from deer valley this week where morgan stanley's putting on a conference talking to their big potential ipo buyers we are now queued up as you and i we had this tweet exchange jason this week and i said you know in that exchange the world's normalized fear of cove it's past hyperinflation's past etc first class ipos are coming and a bunch of down round ipos are coming so let me just explain really quickly on that right you mentioned instacart right super high quality company i think its last private round was 50 or 60 billion in the bubble and now it's rumored to be going public at somewhere around 10 billion dollars okay so that represents the reset that will have to happen and as bill said if you were a investor in that last round of instacart and you were buying preferred shares and thought you were protected that preference is washed right so you're going to be down 50 60 70 on those preferred shares because you're going to be converted into common in that ipo it's the right thing for the company to do it's the right thing for the investors to do it cleans up the cap table so that is an example of you know the down round ipos of high quality companies that you're going to see come public then you're going to have folks like arm like bite dance databricks would be another one of these i think that you know sneak that would be more in that instacart camp you know like there will be some discount relative perhaps to their fully diluted last rounds valuation but these make no mistake about it are high quality companies that will lubricate and altimeter will compete for those ipos because these bankers are hell bent on pricing these ipos at a discount to fair value they need them to work they need to bring buyers back into the ipo market because these companies need

SPEAKER_269: liquidity so suddenly the banks need to get wins for the people buying these shares as opposed to in the

SPEAKER_26: past they were like yeah we're just selling a security at the market rate whatever that famous the famous monologue from what was the movie was that jeremy irons who gives that monologue we're selling securities to informed buyers and that's it it's a pretty dark scene so it won't be a light

SPEAKER_140: switch jason but i do think margin call margin call thank you it was jeremy irons i don't think it'll look like a light switch but it will be i think we're going to see five six seven ipos good

SPEAKER_143: size ipos in q4 we'll probably see closer to 10 in q1 and then it will start opening up in the back half of next year in part because boards of directors will begin to realize you know what we have to go public if it's down round who cares it's acceptable and this is really healthy we need these companies and by the way i'm in the bill gurley camp you should not stay private forever you should get your company if you have 100 or 200 million in revenue get your company public innovate and grow in the public markets with the discipline and cadence of the public markets and if it's if it's a you should expect the prices lower because the world was out of their mind in 20 and 21 and multiples have reset

SPEAKER_59: uh sacks you shared a news story with me just about some of the incredible returns in the golden hour venture capital washington university duke university some of these endowments just exploded

SPEAKER_103: in value yeah i remember when this article came out it was september 29th 2021 less than two years ago yeah and we were all feeling really good yeah about our industry yeah but as it turns out the whole thing was inflated by all the free money that the fed had airdropped so you know the public markets were really frothy it was basically very bubbly especially for growth stocks you had all these new ipos and spax and so forth and they were super bubbly and the result was that the returns both realized returns and on paper for these endowments were massive so if you think about the lp the lp community if they're making commitments in 2021 the way they do that is they look at the total value of their endowments and then they allocate a certain percentage to buy asset class so they'll allocate a certain percentage to public markets certain percentage to real estate private equity and then vc so if the overall value of the endowment is really big then that percentage that goes to vc is going to be really big too and then what happened is you had this huge correction over the next couple of years and so one of the things we heard from the lp community last year is a problem they called the denominator effect where explain yep well the value of their portfolios had gone down a lot because the public markets were down well is it something like 50 percent in some cases yeah for gross stocks and like 15 20 for the entire market right so the value of the portfolio was down but the venture capital part of that was not down both because of the the lag in getting fresh marks and then also because they had already made commitments to new vc funds at the peak of the market so all of a sudden the percentage of their portfolio that was vc related roughly doubled and so that's why all of a sudden the lp commitments have dried up is because they're over allocated to vc yeah now all right as the public markets have come back this year then that problem mitigates to some degree but yes i think it's still out there and i think this is why you're seeing certainly domestic lps really slow their allocations to venture capital as they still have the denominator problem now i think that's less of an issue overseas

SPEAKER_138: i think jake how you observe that the the four seasons of the the bar at the dubai bar look like

SPEAKER_443: a rosewood to brad and i literally got stopped four times from the elevator to the front door i am not

SPEAKER_243: kidding four people stopped me that's two more than would stop me at the rosewood going to the front

SPEAKER_34: door it was bonkers recognize that as a hyper attractor for where available money was yes relative

SPEAKER_448: to the u.s dollars and whether they were available or not yeah i think we're in for a period here of

SPEAKER_103: just continued distress and pain even though the market has sort of normalized or stabilized now again i just think we've been in a huge software recession for the last year yeah i think that it's been masked by the fact that the rest of the economy seems to be okay but this is the worst software recession we've been in i think since the dot-com crash i mean the buyers have been laying off employees by the thousands and since software is bought on a per seat basis yep the the market has really condensed we had one startup that was selling to twitter and they got a renewal and i think their contract 80 off 80 off because elon's laid off 80 of the employees yeah and i told them that's before negotiating the last

David Friedberg: 20 which you could negotiate 50 off that i told them they did a great job is getting that 20 because

SPEAKER_103: elon's canceling everything yeah i was like really impressed they were able to renew at 20 of last year's

SPEAKER_26: value you know what we had a bender we had a bender and this bender went on for far too long and you know what if you go out you know two or three nights in a row until four or five in the morning that next week is going to be painful and suffering that's what the industry is going through it's just going to take a lot of cold plunges and infrared and pickleball and you know salads to

SPEAKER_283: feel good again in this industry one thing i would like in in retrospect that i think super

SPEAKER_34: interesting about the venture capital cycle one i think it's inherently cyclical and it's always going to be that way unless we fundamentally change the structure of the industry because it just invites competition and there's no barriers to entry but i went and talked to some lps that have been in the business for a very long period of time and a vast majority of the reason venture outperforms other asset classes has to do with these tiny windows when you have a super probably market and if you don't if you aren't around for that part you know if you strip those years out of a 40-year assessment it's actually not that interesting an asset class which highlights the need for venture funds to get liquidity at the peak yes right when we are at the peak is when people get the most brazen the most confident and they start talking about how we're going to hold forever and so you had venture firms with the biggest positions they've ever had in their entire life go over the waterfall and and basically

SPEAKER_355: evaporate what could have been returned yeah i mean diamond diamond hens can come back and bite you and you've said famously you can't what was the line you had you can't eat irr well you can't yeah i

SPEAKER_224: don't think i said it but it's been said yeah since we're on our movie bender here for those of you who haven't seen margin call just one of the great scenes this is the best scene the whole scene by

SPEAKER_82: the way it's like the best scene i think of modern finance films so look at this murder will be selling

SPEAKER_465: this to same people we've been selling it to for the last two years and whoever else will buy it but

SPEAKER_466: john if you do this you will kill the market for years it's over and you're selling something that

SPEAKER_467: you know has no value we are selling to willing buyers at the current fair market price so that we

SPEAKER_469: may survive

SPEAKER_471: oh man you can rationalize a lot on wall street man but yeah to the point but what bill's saying is that

SPEAKER_103: the opposite took place which is vcs drank the kool-aid and didn't sell when they were at the peak of the

SPEAKER_34: market they also got caught up in a competition of trying to to uh appeal to the founder community is saying hey we're in it forever we're gonna hold forever we're your best friend forever but bill there

SPEAKER_82: there was also this element that drove that strategic rationale this data set which is the best performers in tech generated most of the value after they went public i mean you know there's a trillion dollars of market value generated in nvidia in apple in google in amazon all over the many years post going public and you know if you read sequoia's notes when they kind of made the transition that they made they said we don't want to you know walk away from the power law that the power law continues to accumulate and accrue even in the public markets and we want to continue to participate in that because there's another 100x upside coming from here in the ones that we select we want to stay with not necessarily we're going to stay in all of them you have to be there are there are some that we believe are still 100x upside from here and just because there's an ipo doesn't mean that we want to exit the position that there's now more capital available to them more public currency they can use to do transactions to hire etc and we want to participate in that value creation and the last

SPEAKER_36: double could be the biggest right bill i think the total number of companies that meet that criteria in the history of the venture industry is like 10 or 15. yes and you named many of them and the problem is that the rhetoric becomes common narrative and it becomes part of the ethos of the firm and people want to apply it to every single company to everything that's right right totally and that's not true

SPEAKER_26: and it doesn't apply i mean i i don't want to get too specific here but you had a comp you had you do have some let's say uh seasoned vets yourself included bill who when given the opportunity to get liquidity on an incredible investment will do so fred wilson sold i think all of coinbase when it goes public he just clears the position when things go public that's been his philosophy kind of the antithesis of what sequoia and ruloff are doing with some of their holdings and then we've seen uh we work has an existential crisis they don't think this might be a viable concern anymore but famously benchmark was able to sell shares at a very high valuation at some point and lock in an incredible

SPEAKER_482: return yeah yeah okay there it is folks that's a yes okay uh so let me ask a question though about

SPEAKER_486: getting older well let me ask the question let me ask you a question about getting older and watching

SPEAKER_421: well sax like freebron wants to be the world's 17th best moderator go sex you have an investment in

SPEAKER_82: spacex right i mean there's been a lot of secondary action in spacex why would you not sell spacex at this valuation today or would you maybe did he as you kind of think about this yeah i think we're going

David Sacks: to wait till the company ipos i think that would be our default when it goes public sex do you then

SPEAKER_82: think what's the upside from here or do you think my job is done i think my job is done yeah i think

SPEAKER_103: my job is done i think what we do is just distribute the shares and then each lp can make their own decision that's about whether they want to hold it or not and you have one of the nice things you want to do with your share yeah yeah one of the nice things about distributions is that nobody has to sell so everyone can make their own decision about whether to hold or not yeah once the company is public and the public has all the information through disclosures the odds that i know something special that a seasoned public market investor doesn't that's probably pretty low i mean the great

SPEAKER_59: paradox of what we all do and brad you have both a public and a private portfolio i started trading

SPEAKER_124: public market equities to get better at my private behavior bill you've done that forever

SPEAKER_26: is public markets you can't trade on inside information private companies that's all you're trading on maybe you could speak to a little bit about being what do they call it when you do both

SPEAKER_59: crossover investors does that make you a crossover investor is that the proper term

SPEAKER_501: well bill gurley's the original crossover investor he's been trading public stocks since

SPEAKER_141: you know and he'd been doing that research yeah researching him you know but you know the fact of the matter as has warren buffett and you know who would laugh at the idea of a crossover fund he's been running one of the world's largest public portfolios and private portfolios forever he would say i invest in great companies that are mispriced there are moments in the market cycle where late stage venture is

SPEAKER_143: mispriced to the downside and there are moments in the cycle where the public markets are mispriced to the downside what we saw in 2021 is the private private markets were crazily overvalued in 2022 we had this massive correction in the public markets we believed that they overshot in part we believed that because we didn't think we were going to have hyperinflation forever etc and so you and i invested in you know meta and a lot of other things that were on their ass you've got to buy in the public market when there's blood in the streets right as as war as buffett says buy when there's blood in the streets and sell when there's trumpets in the air and you know there are definitely blood in the streets when you saw things down 60 70 80 90 percent is it now does it feel like trumpets to you

SPEAKER_59: right now or does it feel like trumpets next quarter or the quarter after if you look like

SPEAKER_143: people are polishing those trumpets right now yeah i mean a lot of it obviously depends on your view on what's going to happen in the economy fundamentally and i'm happy to shift to that but what i would say is this remember the chart that i've showed many times about software internet valuations we were you know 70 above normal and then we were 30 below normal and now we're closer uh to the trailing 10-year average of internet and software valuations there are always outliers on both sides of this but i would say a lot of the positive arbitrage that we saw in 22 has been squeezed out of the public markets and we're close to fair value so now if you want to generate alpha this is going to be about picking individual winners versus individual losers this is going to you know like the beta trade on ma on global macro i think has largely played out you know the catch up back to kind of fair value and now i think there's a debate between kind of hard landing soft landing

SPEAKER_141: are we going to have a re-acceleration inflation or not have a re-acceleration where you come down on these major issues i think dictates whether or not you know now is a good time for us now

SPEAKER_103: wait can i correct something you said jaco yeah please all right all right so you said that public markets inside information isn't allowed whereas private markets it's all inside information i think that could give viewers a misleading impression of what we do as vcs okay the way that around typically comes together it's not like we get tipped off by some insider at the company in some you know nefarious way what happens is that the company chooses to engage with us or a select number of firms in a process and then gives us their metrics and you know it gives us the business plan it gives us the forecast and it's all done in a very above board way it's not like we're being tipped however the part of it that i guess is true is that a private company does not necessarily engage with everyone in the world

SPEAKER_509: yes they don't put on a website a quarterly report and say here's what our revenue and our costs were

SPEAKER_26: and here's our earnings although some private companies do start that process like by and large

SPEAKER_511: by and large they're selective about who they want to be on their cap table and that's the big

SPEAKER_103: difference and who they want to share public and private a public company doesn't care who's on its cap table it doesn't really know who's got you know apple doesn't know every shareholder and who's got accounts at e-trade or whatever charles schwab i mean they may care who their biggest shareholders are but they don't care who the average shareholder is whereas a private company really does care and part of the reason why they care is because these startups are highly risky and they want to have investors who have a track record of behavior where they don't have to worry about being yeah they're going to lose every time something doesn't work out which is most of the time so i think there's good reasons why startups want to control who their investors are by the way there's also the issue of value add right i mean other things being equal founders and startups would rather have investors who can help them as opposed to simply you know john q public yeah i mean you

SPEAKER_59: mentioned both scenarios you don't want somebody who's a neophyte who's going to cause chaos and be

SPEAKER_26: upset when revenue goes down or things are swinging up and down and yeah if you're public yeah buy the

SPEAKER_79: share if you want or sell the share if you want it's a marketplace sorry just pull up this this image

SPEAKER_379: i i just posted this is from you know you guys know gokul rajoram gokul is a great human we used to work together at google then he worked with jack at square he's at doordash today and he was a leader

SPEAKER_82: at facebook after google but he did this tweet last month any tech venture investor who compares their funds return to the s p is being naive or disingenuous the correct index to compare to is the qqq you know the nasdaq composite and its performance has been mind-boggling and as you can see here over a 20-year investment period if you basically just buy the top 10 public tech stocks and at the end of each year rebalance to the top 10 at the end of the year your multiple over that period of time is 24x over 20 years yeah and over a 10-year period there's quite a bit of hindsight bias here in saying

SPEAKER_517: we're only gonna look at the top 10 right it's like or how the hell do you determine you know why not top

SPEAKER_103: hundred i mean are you willing to say that for the next 10 years that you should only buy the top 10 what if over the next 10 years it's more of the field versus the top 10 you know the next or top five

SPEAKER_119: yeah i think comparing vc as an asset class to the nasdaq makes a lot of sense yes i think that's fair

SPEAKER_82: yeah and that's that's the second column from the right which is basically you would yeah 5.2x over 10 years so if you're not beating 5.2x which is a totally liquid investment if you just bought the qqq index

SPEAKER_373: what this really shows is apple google facebook and amazon have had a massive run-up well that's not

SPEAKER_82: that's not that's not that's actually not true jacal because if you look at just the static it doesn't you know outperform it's the rebalance that outperforms which is whoever's winning in the market meaning whoever's gaining market value each year is who you then you know double down your dollars into for next year and that's changed over a 20-year cycle over a 10-year cycle uh and it really starts to play out over time but i mean yeah if you just look at the qqq that's the benchmark as an investor as a private investor and you know gokul's comment in his uh in his tweet is that uh you know if they can return call it seven to eight x over 10 years or in this case 5x over 10 years you could argue that a venture fund needs to return a significant premium probably a 25 30 premium due to the illiquidity and the the riskiness of the investment cycle there whereas the qqq you can just sell anytime you want so you know call it a you know you need to kind of be demonstrating a 30 premium to the uh 5.2x tenure which is um about six and a half seven x called seven x cash on cash

David Sacks: i mean according to this the venture asset class is super overfunded so why why is that then

SPEAKER_34: girly do you have a point of view yeah i mean it would be completely speculative but i i do think if you look at the structure of endowments you know you've you've had a few people really leading the way in terms of a playbook with swenson you know dave swenson uh who passed away recently but

SPEAKER_509: but dave swenson he was a yale guy he ran yale's endowment and he's considering and i think you know

SPEAKER_34: the vast majority of people decided they were going to follow that playbook which had a you know

SPEAKER_36: oversized investment in illiquid assets pe venture real estate uh commodities those kind of things and i think it led to just a a massive like and and these things take forever to figure out if they're right

SPEAKER_34: or not um if your portfolio is over 50 illiquid like who knows what's right and what's wrong you could do a re you know you could there were years where yale was printing like 27 a year and then in in one reset no nine wiped out you know a ton of that so it's super hard to know but but i do think that

SPEAKER_103: philosophy became broadly adopted yeah well look at um can you pull up this chart real quick this is a chart from statista that is value of venture capital investment in the us from 2006 to 2022 and what you see is there's there's basically a few different levels before 2014 call it the industry was basically a 50 billion dollar a year industry in terms of deployments then you had a run up where for several years it was around 100 billion and then in the pre-pandemic years 2018 1920 it was around 150 billion a year of deployment and then it went totally nuts in 2021 it was 350 billion started to come down in 2022 to about 250 billion i think where we are right now is kind of at that 2019 level of about 150 billion a year the question is like what it should be i mean should this be a 150 billion a year industry should this be a 100 billion a year industry should this be a 50 billion dollar a year

SPEAKER_347: industry so yeah it sounds like 100 to 150 would would have been the steady state and bill some portion

SPEAKER_26: of this is stay private longer having an impact where those last couple of rounds were the big huge juicy rounds and if people had gone public in year seven eight nine like microsoft google not google but microsoft and i mean google went what year was google when it went out eight you know going

SPEAKER_124: out a little bit earlier would have chopped off some percentage of this growing yeah and i i i do think one

SPEAKER_34: of the most interesting things to watch is going to be how these a thousand unicorns private unicorns

SPEAKER_36: play out because not only do they have the cap structure problem but they lived and grew up in a day and age where they were told growth at all costs and it it's super hard culturally to go from that type of execution to the principle type execution you guys have been promoting over the past several months

SPEAKER_34: it's just hard it's not impossible but it's very very google went public in year six yeah that's

SPEAKER_309: 23 million of total venture raised i think prior to ipo but think about what that means if a lot of

SPEAKER_103: those unicorns are fake what does that say about innovation in the american economy we had this narrative over the last decade that the pace of innovation had fundamentally increased because of the availability of tools and technology and so you had a lot more unicorns being created i mean i remember back in i don't know like a decade ago or 2010 era let's say you know there were maybe was it like

SPEAKER_547: 20 to 50 unicorns a year maybe 20 unicorns a year there were arguably 10 to 20 girly great companies

SPEAKER_56: formed a year in silicon valley or in the tech industry in the west i'm not an expert on that but that's

SPEAKER_103: i remember when andreessen kind of gave this this talk about it maybe a dozen years ago he said the number was 17 there's like 17 important companies created every year in silicon valley and your goals vc is to be in one of those 17 then all of a sudden we had was it like 100 200 300 unicorns a year

SPEAKER_26: yeah i mean if you and so the question is how many of them are real well i mean brad was just talking

SPEAKER_31: about that you're giving a 50 x multiple 50 times top line i'm not talking about earnings folks i'm talking about top line if you give 50 x to every company then you only need 20 million dollars in revenue to be a unicorn and that's unrealistic when compared to the public markets where things

SPEAKER_56: are trading at five times top line and 20 times earnings of its high growth right so is it just a

SPEAKER_100: different market all right there's a major slowdown in china or we could talk about portnoy and

SPEAKER_379: let's do markets just real quick i think i've spent a lot of time on the island of maui i think it's really sad i don't know if you guys ever been to lahaina the whole town burnt down beautiful

SPEAKER_82: town it's so sad yeah it's gone i just wanted to make sure that we mentioned it because uh yes pretty depressing what happened i don't know if you guys have seen the wildfires

SPEAKER_564: no i mean sax and our families we we all went to that area from vacation my favorite remember that

SPEAKER_82: sax yeah maui's my favorite code 13 yeah yeah i mean maui's my favorite place on earth um been in

SPEAKER_84: lahaina so many times it's super sad what happened i just want to hopefully it's a beautiful town on the

SPEAKER_565: water with those old buildings and porches gorgeous and it's just all gone right now so yeah this global

SPEAKER_79: warming thing and these fires and wind man what a hot summer i mean we could do it in southern iran

SPEAKER_82: check this out the temperature hit 155 degrees it is nine degrees warmer than it's ever been off the west coast of the united states right now there was 90 degree ocean temperatures off of the florida coast the sea surface temperature in the north atlantic's the highest it's ever been

SPEAKER_569: by uh i think seven is this global warming or is it all a hoax

SPEAKER_82: look the the people want to debate all day long about anthropogenic i'm asking you i'm telling you with like absolute certainty the data right now is un-fucking-believable how hot and how dangerous the earth is becoming and we're seeing not just the fire in maui the sea surface temperature which increases the probability of severe tropical storms and hurricanes in the coming season it's on on unlivable you know i got

SPEAKER_00: watching in saudi arabia in dubai 130 degree temperature 95 degree overnight lows there if you don't have air conditioning you will die in a lot of these places so there are parts of the

SPEAKER_82: earth where people cannot afford the amenities and the luxuries that we have so is it a world

SPEAKER_00: that we all just just say it there is no hopes there is no hope i'm trying to put the softball right in front of you yeah the earth is warming the amount of extreme weather is increasing the significant effect of that is is becoming apparent and you know it's we could debate for hours about what quote can you do about it but there's just a series of really awful things happening right now

SPEAKER_82: yeah um and it's becoming more frequent and more apparent that this is a pretty serious thing that

SPEAKER_26: we're all in the midst of all you have to do girly is follow what you're doing down there in texas which has is it the highest renewable energy percentage of any state now is texas greater than california so one of the biggest success stories i saw

SPEAKER_290: uh some politician from texas saying we got we got to get off all these renewables there's no there's

SPEAKER_82: no silver bullet if you want to talk about the you know the fundamental challenge that we all face in terms of whether atmospheric carbon is driving heating or not if you if you follow that track there is no silver bullet there is a lot of things that have to go right in a coordinated way and there are market incentives that make it very difficult for any of those things to actually get done all the

SPEAKER_269: way through but renewable energy and nuclear you would say are important two of the most important

SPEAKER_82: yeah there's still industrial production i mean there's just like you the the list goes on

SPEAKER_124: you know systems and agriculture there's a lot of what's the clearest path i mean if you had to

SPEAKER_26: if you said hey put 90 of your effort on these three things it would be nuclear renewables painting people's roofs with white paint like this new uh paint that's reflect stuff i mean what would be

SPEAKER_82: in your short list that's not going to change much no let's see this conversation all the time we've got brad and bill here i think honestly i'd love to have this conversation we should do it put on the

SPEAKER_26: doc next week we'll do a big thing here yeah so just wrapping up here on sort of uh macro we'll give you a little macro brad cpi seems like it's measured and consumers seem like they're running out of money and starting to tighten their belts unemployment still all-time low still nine million job openings feels like um this is the steady state for the next year or do you think hard landing no landing

SPEAKER_141: soft landing well maybe they can bring up the first chart this morning we had cpi reported we had the smallest back-to-back monthly gains in core cpi in over two years back to 0.2 percent annualizing just

SPEAKER_143: over over two percent now so on a year-over-year basis it was 3.2 percent now remember it was only six

SPEAKER_141: months ago that people were still hyperventilating about you know this 9.1 percent we saw last year that everybody on this pod i think was largely an agreement that was coveted stimulated but you know

SPEAKER_143: the blue line here represents the consensus estimates of folks like goldman sachs right which is pretty similar to what the fed's own estimates are if you go to the next uh slide here nick this is what people the current market is betting will happen to the fed funds rate so the market is saying like you know you've heard chamasa many times higher for longer i happen to think we'll have higher rates for longer too but the market is saying we're worried about an economic slowdown that's going to force the fed's hand so the market is betting that the fed funds rate will come down either because inflation continues to roll or because the economy continues to slow and so this third slide which i think is a really interesting one which which nobody really talks about but this is the reason i think druck and mill and other are worried about recession there's a measure by the san francisco fed which is called the effective funds proxy rate okay so this is not the fed funds rate this is what they say the total impact of quantitative tightening plus rate hikes are and we're now back to the highest level on that proxy rate since we've been since may of 2000 it's up over seven percent i think that's the reason people are looking at this is blue line up over seven percent that's the highest effective rate calculated by the san francisco fed since all the way back to may of 2000 and this is the concern a lot of people

SPEAKER_586: breck could you just explain that why is the effective rate three percent higher than the

SPEAKER_143: official rate because of quantitative tightening because there's a lot of other things going on in the economy the impacts interest rates the rate at which you can borrow part of it is there's just less

SPEAKER_103: money in the system it's a credit crunch basically exactly just because the rate's four percent doesn't

SPEAKER_143: mean you can get you can't borrow nobody can borrow at the 10-year rate okay so if you're a company or an individual and you want to go borrow you have to buy her at a much higher rate so that is where the rubber meets the road if you're trying to borrow to buy a house borrow to buy a car borrow to expand your business the the blue line represents a much better you know calibration for the level of tightening in the economy so there is a a very strong debate and i would say the market's actually betting here that the fed is overdoing it because of what you see in that blue line and that the economy is going to slow the lag effects of this tightening have not yet been felt and so this gets back to the question we had before which is where are we in the cycle whether or not we're going to continue to have growth now really interesting jason bloomberg's headline today was the summer of disinflation and we said on this pod six months ago we said it's more likely by the end of 2023 we're going to be talking about disinflation than inflation and lo and behold not not only are we seeing signs of disinflation air tickets down 18 year over year but china just posted actual disinflation yeah right so prices are coming down people are going to uh be surprised that

SPEAKER_224: there's more products or services available at lower prices which then could affect the salaries

SPEAKER_276: because hey we're not making as much money at this company we got to cut salaries i mean we know that

SPEAKER_143: the fed at the start of covid was more like the the curses of disinflation are almost bigger than the curses of inflation and china just saw cpi down three tenths of one percent in the month this week annualized that's over three and a half percent that is a major problem for china so i think you have some some yellow flags here right that say do we have too much tightening if one of the global engines of

SPEAKER_593: growth is experiencing this level of disinflation that's going to impact the global economy global demand etc so yeah um but that's been the pattern of the fed right they they seem to react late and

SPEAKER_26: then they oversteer this has been the theme and so there's also just to add one other

SPEAKER_103: cloud to the silver lining it's the amount of debt that's out there correct so both private debt and

SPEAKER_100: government debt yeah consumer debt is high this real estate commercial real estate's high you got debt everywhere and people are going to have to belt tighten and maybe austerity and stop spending on some yolo trips but if salaries keep going up hmm let's let's bring up this

SPEAKER_487: this isn't a kona koa who is this who are you sharing here it's not a kona koa link is it

SPEAKER_597: and the great kona kyoa koba ec letter oh koba issue letter oh koby ashi here koby ashi yeah koby ashi

SPEAKER_103: let's got 300 000 followers so we have we have record household debt 17.1 trillion record mortgage debt 12 trillion record auto loans 1.6 trillion record student loans 1.6 trillion which as drunken miller points out have to start being repaid i think as of september yeah because supreme court overturned uh binds unconstitutional debt forgiveness yep record 1 trillion in credit card debt that i think should be pretty worrying because credit card rates are now around 25 percent it's not credit card debt it gets the interest on that is it is obviously floating and so when rates go up to you know where

SPEAKER_141: they are now then it gets it gets very punitive so david precisely and this is remember we're seeing

SPEAKER_143: inflation rollover huge and we have a chips act and an infrastructure we have massive government spending going on and we still see inflation rolling over so i just find it interesting that within six months we've gone from worrying about hyperinflation to bloomberg running a headline

SPEAKER_103: summer of disinflation the last piece of it is government debt so at the rate that the government is racking up deficits the treasury is going to have to float something like 3 trillion of new t-bills by the end of the year and we're rolling something like 9 trillion of old government debt over the next 18 months at new higher interest rates so there's a lot of debt and we'll continue that

SPEAKER_341: discussion next week as well as the global warming one hearts and prayers out to the fine people of maui

SPEAKER_89: who invite us to come to their incredible paradise we hope you all stay safe and have a great recovery

SPEAKER_59: you're in our thoughts and prayers for brad gerstner the fifth bestie for the architect david sachs and the sultan of science i am the world's greatest moderator and officiant if you're getting

SPEAKER_336: married uh and for bill gurley bill girl you have some anecdotes about the all in pond you were

SPEAKER_607: we were talking bg squared close on closing on an anecdote here for girly and close this out

SPEAKER_34: obviously huge success you guys have had it when you first mentioned you were going to do this i

SPEAKER_36: don't think anyone had any idea that you would reach this level and i know the hard work it takes to

SPEAKER_34: for you guys to do this weekly it's amazing um but i was walking down this you guys share anecdotes about people mentioning all in i was walking down the street in austin a few months ago and a guy came up to me goes are you bill gurley i go yeah and he says you're that guy they sometimes talk about on

SPEAKER_612: all in right yes so the guy they sometimes talk about it all is your that's your uh there's your

SPEAKER_614: subtitle of your memoir the guy they talk about uh sometimes tombstone there's your tombstone to your

SPEAKER_103: point bill it it took 10 years of hard work by jcal for the rest of us we just walked in off the street

SPEAKER_619: exactly thanks i got you all on my shoulders that's why he thinks he deserves more than 25

SPEAKER_138: percent holding you all on my shoulders but he don't get more than 25 percent check out where are

SPEAKER_593: you running off to why do we got to shut this down sacks sacks and girly and i may stay and just keep

SPEAKER_401: talking the world's greatest moderate and we'll see you all next time on the all in podcast bye bye

SPEAKER_20: we'll let your winners

SPEAKER_18: david sacks

SPEAKER_624: you can source it to the feet

SPEAKER_635: we need to get merch