SPEAKER_00: hey everybody hey everybody welcome to another episode of the all in podcast we have a new bestie yesti filling in for the prince of panic attacks the queen of quinoa the sultan of science can't make it this week i think after his incredible performance last week and him SPEAKER_03: trending on tick tock with his incredible uh insights over uh sadly the the potential famine that could come after this ukraine war uh he decided he would take a week off i think it's just SPEAKER_00: a little too much attention for him so we have a bestie guestie today yes the shaman of stocks is with us he brings the equanimity to equities you know him he'll bring that namaste to your payday his predictions are the anti-galloway brad gerstner welcome back to the program thanks for having me namaste uh and also with us of course the rain man man himself he's bitter on twitter he's brawling on calling he's the bill of rights from pack heights david sacks boy you've really outdone yourself today and the prince of palo alto the overlord of the overton window shema SPEAKER_13: jakel are you the stinker of stonks oh god relax you know leave the comedy to me all right SPEAKER_00: it's been a pretty pretty crazy couple of weeks here uh we are not a political show here but SPEAKER_03: obviously when world affairs become acute as they have we cannot ignore uh the war uh that is occurring SPEAKER_25: in ukraine uh we're gonna talk a little bit about markets i think we'll start with those uh with brad gerstner here uh the sas market and the index uh why don't you walk us through this chart here because everybody's wondering what's happening with the markets given the war SPEAKER_03: given interest rate hikes uh and the repricing of stocks i don't know how you would look at what happened in november december january brad how do you contextualize well certainly a repricing SPEAKER_29: there's certainly a repricing but i i think of it more as normalization okay right chamath was saying it november i was i was on cbc talking about the fact that when when we got to a post-covid world rates were going to normalize go back to where they were in january 2020 that was around two percent and then growth multiples would have to come off of this historic red bull high that we were on during most of 2020 and 2021. so we were 30 to 50 percent depending upon the index above the five-year SPEAKER_31: average growth multiple pre-covid so that just needed to happen like we should be celebrating in one sense that that happened because that means that we overcame a global pandemic the downside is we couldn't play with artificial money zero percent rates trillions of dollars you know of of of congressional and fed injection in order to prop up valuations and when it happened in and of itself that was going to be extraordinarily painful what i didn't anticipate and what most people didn't SPEAKER_32: anticipate is that on top of that we're going to have increasing fears of hyperinflation not just SPEAKER_31: getting back to normal rates and that we were going to find ourselves in the middle of an incredibly devastating war in ukraine those two things added to the uncertainty the risk premiums added to uncertainty around future inflation the dot plot exploded higher and expectations of forward SPEAKER_32: rates went higher now why the hell does this matter it matters because when you take you know if you're looking at that chart the five-year average the 10-year was two and a half percent like we all got comfortable investing in this period of time the markets hate uncertainty we had a predictable way for us to estimate where we thought our wax should be in our discounted cash flow models all of a sudden SPEAKER_33: that was thrown into uh thrown into the air oh my god look what we got going on look at this oh yeah SPEAKER_41: never compete with babies or animals no chance no chance hey this is talita talita look at this SPEAKER_42: little look at this little butterball oh my goodness lord look at that so so good sax that's called a SPEAKER_43: child it's uh you have three of them those are babies and what you're seeing there is affection SPEAKER_50: from a father and a child look at how cute this little baby is this is taking from my time get that baby SPEAKER_03: out of here ah so cute so brad i guess what everybody wants to know now that we see this repricing occur is what do you think is going to happen in 2022 uh and then into 2023 so we're now SPEAKER_55: multiples are now below the five-year average for for software we're about at the five-year average SPEAKER_31: for internet we're well below the five-year average i said on twitter that the rate path last week became a lot more certain the fed said something last week that i think is still not well reported well understood the fed said at the end of the year we're going to have two percent negative real rates they said we expect inflation exiting the year to be 4.3 and we expect the tenure to be around 2.3 the reason the market exploded higher is because under the fed's prior protocol a four percent uh a four percent inflationary rate would mean that rates would have to go to four and a half and if you take rates to four and a half then growth multiples need to be about 30 below the five-year SPEAKER_32: average okay so as investors whether we're investing in mid-stage venture late stage venture whether we're investing the public markets like we need to know what exit multiples are and it was bad enough that SPEAKER_29: we had to bear the drawdown coming off of you know this this red bull high of 2020 and 21 but if you think we're durably going to an inflation rate of three percent or four percent and an interest rate environment of three percent or four percent then you simply have to adjust what you're willing to pay SPEAKER_32: for growth assets and so as i look ahead right we don't we don't know with certainty the question SPEAKER_31: is what's the distribution of probabilities and you know just this morning city goldman sachs raised SPEAKER_29: their exit year their their exit tenure for 2022 to 2.7 percent and took it as high as three and a half percent for 2023 i think it's gonna this period is going to be marked by a lot of uncertainty around inflation and rates till we have more clarity and what that means is allocators of capital are going to allocate less to risk assets and they're going to pay less for risk assets um but you know listen if i look out over the the five ten year horizon i don't believe in global stagflation i don't believe that we're in this new hyperinflation environment um but we're going to have to get through this next SPEAKER_65: 6 12 18 months and it's going to be filled with a lot of volatility and a lot of uncertainty SPEAKER_67: jamath what rings most true about what brad just said and then what can you add to SPEAKER_70: the prediction for this coming year i mean i don't know what the prediction for this year is um i i SPEAKER_72: think the markets are mostly moving upwards for the short term and then i think volatility is going to come back i'm just trying to find good long-term businesses and just kind of close my eyes and uh not have to look at these stock prices every day and as long as i can manage my own psychology i think i'll be fine and i think that's probably the thing that most of us need to be doing the interesting thing about brad said is that um the implication of that is that it means that late stage venture is pretty badly mispriced and i think you're going to have to knock these things back by 50 60 percent i think you saw the first real big movement there um yesterday which was the instacart print right we went from a 40 billion dollar valuation uh to i think it was 24 if you look at from february of last year which was really the high for all of us right that's when we all thought we could do no wrong you know the comps to uh instacart are off anywhere between 50 and 70 percent you know takeaway is off 70 percent uber is down 60 percent doordash was down 55 so these are some big moves and so you know uh it made sense that instacart had to get kind of like reset the problem that it has is that it's now the nth player trying to get public into a space with many players who've guzzled up a lot of capital in a low-rate environment and so if you think about company building this is why entrepreneurs have to pay attention to this stuff you want to get money when money is cheap but the problem is you can't control that timing and so if you can't control your operating margins and your profitability then you're going to have to go and basically pay somebody an enormously high price to get their money and i think that's what's setting itself up to happen in a bunch of these markets i think enterprise sass has always claimed long-term profitability um the thing is when you look at sort of like the real long-term companies they've built some enormous moats right like if you look at a service now or a sales force at the high end and then there's a crop of a couple of companies like palo alto networks who are the next ones coming after who seemed like behemoths in the making but everybody else i think people have to really question like where the long-term profitability going to come from and so if that's true then the late stage private sass companies are in trouble similarly in places like delivery where again you've had a bunch of comps come out they've been curing in the public markets for years you know uber doordash there's a couple of these behemoths getting built doordash being the most obvious and then there's a bunch of more kind of question mark business models including uber which is not really hanging together in the public markets so i think the real question for entrepreneurs is if you have the nth business nth being not the first not the second but you're the seventh or eighth or tenth trying to go public and all the seven or eight before you are gas guzzling machines you're going to pay a very heavy price to get public um and i think that that's the reckoning that we're starting to see so i'm really interested to see how that plays out you know the instacart valuation could easily be cheap at 24 but it could just as easily be overpriced by another 10 billion dollars depending on how people think about who the last buyer of resort is in the public markets sax did uh instacart missed their window SPEAKER_25: to go public and then what does this say about the backlog of hundreds of unicorns that the venture SPEAKER_89: community is investing heavily in some of them are probably gonna have to ipo at down rounds um i SPEAKER_90: think that's sort of the takeaway explain what that is to uh to neophytes well it just means that SPEAKER_89: they're gonna have to go public at evaluation lower than what the last private round was so all these late-stage private investors who assumed that they would always make money investing in a company in the last private round before it went public they they thought that was sort of an automatic gain and arbitrage and it's not and there's going to be some disappointment there brad's been sharing these charts with me since i guess what december brad um where then the charts basically show uh public sas valuations as a multiple of arr and then he's got a similar chart for it sort of the internet companies that sort of nonsense internet companies as a function of revenue we've been looking at these charts you know once brad showed these to me again four months ago it became so obvious what was going on which is that valuations were reverting back to the historical mean if you look at you know during the two-year period during covet the they the multiples had risen to some insane level right and because of all the liquidity that been pumped into the system so as soon as you saw the the charts that way you could just see where things were headed which is back to historical averages now we're below those averages um partly because no no no surprise the war not really the multiples are can i summarize brad's SPEAKER_93: chart because it is extremely elegant and simple for the layman to understand so here's the layman's SPEAKER_72: understanding of brad's uh uh analysis technical analysis and and and balance sheet and pnl analysis SPEAKER_93: which is accurate when rates are zero typically people are willing to pay eight times revenue for a company okay so if you're generating a hundred million revenue top line revenue generating a hundred million dollars revenue in your reasonably high margin reasonably high growth software business that's worth eight hundred million dollars in the public markets for every 100 basis point increase in rates you decrease the valuation between 15 and 20 percent so if you think rates are 2.75 the price is somewhere between 30 to 40 percent cheaper than what it was when rates were at zero so if you go back and you look at every tech crunch article and every bloomberg article and every information article and you look at all those headline valuations when rates were at zero we all just said rates are going to be somewhere between you know 2.5 to 3 percent at the end of this year at a minimum you have to haircut those things by 30 to 40 percent steady state meaning the company is continuing to execute on all on all cylinders if they have a downtick in their performance then it it increases that discount if rates go higher it increases the discount but the basic way to think about this is for every 100 basis point increase in rates you got to down take that valuation by 15 to 20 SPEAKER_29: and i think you know just to be fair i think i don't think there's any daylight between you and sachs on this what what's actually saying is the 40 percent i'm just giving the numerical rule that i think you're right that is the that is the the the correlation and so this idea listen we all get paid to find good companies and avoid bad companies that's generally what we get paid to do we're decent at it all of a sudden in fact most fundamental investors say hey i'm not a macro expert i don't know where inflation's going i don't know where interest rates going i just find good companies SPEAKER_31: we've had a decade or longer where that was okay to do that was easy to do because guess what inflation was at two and we had two and a half percent tenure when all of a sudden you have massive volatility in that it's not acceptable as an investor just to say well none of this matters because it does matter SPEAKER_32: right price matters because what you can exit for is essential to the game and there are a lot of people invest in 2013 14 and 15 when when the cost of entry was low and exited when the cost of entry was high multiple expansion hides many sins right and now just the opposite is happening in a dramatic and historic way in that multiples were higher than they've ever been caused by a global pandemic and the exit rate for a lot of those companies right is going to be very painful i think that sax's point about down round ipos i don't think this is the exception david no reddit right i think SPEAKER_65: i think the vast majority of companies that come public in the next 12 months are going out below their last round valuation yes the reddit the reddit rumor was that goldman put a 10 billion SPEAKER_72: dollar price on the cover and that you know it effectively been cut in half again these are all rumors so these could completely not be true i don't i don't have any knowledge one way or the other to 5 billion and that may actually end up being too expensive it just depends on where the market is SPEAKER_110: well just so people are clear when investors sophisticated investors make these late stage valuations at very high multiples like they have they do have some downside protections in other words they cannot lose more than the money that was put in when this thing ipos or they may get kickers of SPEAKER_93: additional shares so maybe now these ipo no no in fairness you're talking about something very SPEAKER_72: important but they're very rarely in these high price rounds because most of these high price rounds are in gogo companies where all of those rights get stripped away this is why i do think jason what you're actually bringing up is in in the last innings of a bull market you have incredibly irresponsible behavior by a bunch of these investors and that's also going to get exposed as well so jason what you're talking about is what's called an ipo ratchet yeah which means i'm giving you this money at this price but if you can't ipo at this price then you're going to give me an equivalent number of shares that makes me whole right right so it's as if i am i am indifferent to what price you ipo at that's extremely dilutive to really one really important class of individual which is the employees of the company it's also really dilutive to other investors who've come in before them but jason you're probably right to the extent that there were ipo ratchets they'll get triggered but i think in many of these go-go companies and you know brad and sax can confirm but i see it all those rights get SPEAKER_93: stripped away it's like come in at this crazy price yeah we're not negotiating it this is your chance to SPEAKER_72: get no governance get our get get our logo on your fundraising deck for the next round and so this is SPEAKER_121: the price of the capital it's been a little bit of sloppy behavior just so people understand this if the reddit valuation was 10 billion somebody put in you know 100 million in this late stage round if SPEAKER_110: it came out at 5 billion they would get twice as many shares to make up for that difference that SPEAKER_29: doesn't exist in the case of reddit jcal you know it was fidelity who led that last round so they're going to be price takers at whatever price the company comes public what does that mean explain that price takers so you know if they come public at five billion dollars and you put in a hundred million dollars your stake is now worth 50 million right right so you lost why didn't they have the SPEAKER_110: discipline to put in these protective provisions ratchets etc what happened in the market to chamat's SPEAKER_29: point they haven't really existed in most deals for the last five years right uh i go back to 2000 and i think 2007 2008 kayak raised money with a ratchet in their last pre-ipo round it prevented them SPEAKER_31: from getting public for three or four years that dilution overhang um was a significant impediment to getting public so you know listen we all know that groupon raised at 20 billion dollars went public and a year later is worth 2 billion i mean it's not as though this hasn't happened before uh but yes uh people people got a little lackadaisical i just wanted to i just want to say one other thing though because multiples coming down is a problem what this really reveals is the importance of stock and company selection right because if you were a shitty company with an unproven business model right way out on the risk curve okay and you had a super high valuation last year and you don't you SPEAKER_29: you know there's a good chance you never grow in it grow into it you never get back to that valuation SPEAKER_131: example example your growth will de-sell well give us an example company okay discord ripple SPEAKER_134: in the 15 minute delivery space in europe go puff you know i i i would say go puff is one of the best SPEAKER_29: of them there are a lot of startups that got funded with billions of dollars in europe unproven business SPEAKER_31: models burning tremendous amount of cash right like i don't know why they need to exist i don't think they're going to get funded right maybe one or two of them do but when you have doordash and uber SPEAKER_29: that are free cash flow positive that have strong brands and that can redeploy those profits back into SPEAKER_93: compete in those markets i think it's very tough neobanks are another example neobanks you know the number of neobanks that have been funded at exorbitant valuations where um you know the SPEAKER_72: problem is all of these financial services companies are essentially an arbitrage on rates right when rates are zero they take that money at zero percent and then they can go and execute a business model you know and sell that money at one percent and take the difference but when their cost of capital is two or two and a half or three percent the whole business implodes on them so you're going to see a bunch of these financial services companies get under pressure another example jason is like all the low-end you know bottoms-up sas companies and the reason is because they spend their time inside of google and facebook doing customer acquisition and managing this very intricate dance of ltv to cac and when all of those input costs go up their business implodes because you can't raise rates faster or you can't raise prices i would say faster than the input costs are and then all of a sudden your unit economics blow up and in all of this what is the salvation in a moment like this it's being healthy gross margins healthy contribution margins and a and a realistic path to profitability which means being ebit deposited this year or within the next two years said another way if you're profitable SPEAKER_113: you're not going to go away if you can't if you can't show that you're you know to use the famous SPEAKER_72: paul graham added default alive yep in a moment like this then you are a price taker which means that you will have to pay probably a very high cost of capital to raise incremental capital SPEAKER_93: to support a fundamentally fragile and non-resilient business model is the issue here sax that when you SPEAKER_129: see the getter gorilla zap all these instant delivery companies get funded at exorbitant prices SPEAKER_143: and they're the seventh eighth ninth as chamath is pointing out no no instacart was the seventh those are like the 10th 11th okay so now here we are this to me seems like the fault of poor judgment by capital allocator sacks are there too many venture funds chasing too few deals and not thinking through what investing in the 10th 11th or 12th player in a market is going to be able to do SPEAKER_89: is it too much venture i think part i think part of what's going on with the companies you mentioned is that they're physical world companies they are very capital intensive they burn a lot of money they're operationally intensive i have sort of sour i soured on those businesses years ago and that's why i just focus on sas because they're basically perfect gross margin businesses um they're very they can be very capital efficient if the founders want to run them that way um so what we're doing now is telling founders lengthen your runway be more capital efficient you need to understand that you know multiples if you raise last year at 100 times arr you need to understand that the next time you raise it may be at 20 times arr so now you can grow into that right if you're tripling and then triple again the next year you'll be able to grow into that valuation but you know make your money last two three four years instead of you know burning it in 12 to 18 months unless you want a down round SPEAKER_29: i think this is this is the point that now allocators venture capitalists are going to spend the next six months thinking about what's in bucket one low quality companies burning a lot of cash that may very well not make it across the chasm no path to profitability what are the high quality companies that yeah the multiples down because public market multiples are down risk premiums have changed inflation change but they have plenty of cash on the balance sheet and think about it this SPEAKER_31: way snowflake became a poster child in the public markets of a high priced uh sas business snowflake this year will grow its free cash flow at over a hundred percent a year next year probably you know 80 or 90 free cash flow not just revenue free cash flow in q4 i think they booked 1.4 billion of revenue q4 on a business that entirely in last year did 1.2 billion in revenue right you think about that SPEAKER_32: the incremental was more than what they had generated in the prior many years that business so let's say SPEAKER_29: we reduce the multiple by 50 but the company's growing top line and free cash flow by a hundred percent doesn't take you very long to grow through the multiple compression so snowflakes multiple is plummeting for two reasons one because the stock price came down number two because right their growth rate and free cash flow growth is so high and so now if you look at the multiple it's similar to what we'd expect of a regression of the five-year analysis unless these companies unless these private SPEAKER_72: companies are want to go dark for the next three to five years meaning not you know no sophisticated late stage investor doing around or going public they'll be okay but otherwise they're going to have to reckon with a version of what brad just said which is the high the flight to quality problem you know when in moments of uncertainty and high volatility it's just more straightforward to um go to the things that are reliable and so you know when you think in the public tech markets what is a reliable must own company well i would put snowflake in the list of these must own um high growth software businesses right you know the fangs tend to be in the must own category but then there are all these other businesses that then get orphaned because they're kind of nice to own would love to own would be great in any other circumstance and that gets even more exacerbated in the in the private markets you have to remember right now like the private markets cannot really exist SPEAKER_158: without an incremental buyer of equity right aka bag holder somebody has somebody needs to be the bag SPEAKER_72: holder after you and the problem right now is that those folks have a lot more credible safe durable assets that they can own and not have to deal with all the crazy anxiety that comes with owning something that's that's high volatility like or chamath correct me if i'm wrong or brad if they don't want SPEAKER_110: to even be involved in this mishogana they could just be in cash and the interest rates are going up so maybe they could say you know what i'll just sit this out for a year is that also happening with those folks well is that too hard to do because of she knows a bunch of these folks but like take SPEAKER_89: for example d1 you know it's uh dan sunheim's great investor i mean my understanding is that they are sort of off privates completely because why invest in a private company at x times arr when you can invest in a public sas company for six times so they've substituted i think tiger is still in market with a gigantic fund for privates but the valuations have come down so they're essentially re pricing everything i think those are probably the two broad reactions you could have right brad SPEAKER_166: certainly i i would say this broadly speaking the late stage private financing market in venture is SPEAKER_29: closed um because there hasn't been right we're in this this buyer seller standoff sellers aren't to the point where they're willing to accept that a new rate a new regime of multiples exists right it's painful we saw you know the instacart news here recently but i think you know like listen we're not even 10 or 20 of the way into the psychic reset that needs to occur in order for us to see real price discovery that's not going to occur until these companies need money or want to go public that's right this fall is when we'll start to see real price discovery you couldn't pry a late stage dollar out of my hand right now because i don't think we have real price discovery going on early stage venture if we're investing in an incredible you know software business at 300 million 400 million 500 billion we think could be worth tens of billions you can withstand a little inflation but the later you get in the life cycle of a business it's about irrs and irrs in late stage at last year's valuations SPEAKER_155: relative to today's public market valuations that is a negative arbitrage explain irr why that matters SPEAKER_29: yeah just for the lady we're just you know we expect uh our herder rate in the public markets is a 20 risk adjusted rate of return so if i'm you know like you know you look at these late stage private valuations from last year i mean uh you know sax just talked about companies repricing down SPEAKER_32: 40 or 50 or 60 percent so if they haven't done that now just you can't even have a conversation SPEAKER_72: just up level this what brad is saying is the following jason any person can wake up tomorrow and buy the s p index right what buffett would tell you to do just buy the s p 500 index that historically has compounded at around eight percent a year if you reinvest the dividends so you can do nothing right get a basket of the 500 best companies in the world that are automatically selected for you based on revenue and profitability you don't have to do anything and that'll compound at eight percent that is effectively the risk-free rate if you want to own an equity so if you're going to step into the late stage private markets and you know buy some shares and you know dingdong.com you got to be rewarded for that which typically means that there is a premium above the eight percent and what brad is saying like you know it's it's actually more than double in his case what he's Chamath Palihapitiya: saying is it's two and a half times you know you got to clear 20 to you otherwise you're better off on SPEAKER_110: a risk-adjusted basis is what's likely to happen i'm looking here at a list go puff at 40 billion canva at 40 billion clarna at 45 billion discord at 15 billion ripple at 15 billion these grammarly at 13 billion these don't make sense given that if they were public they would be trading at well here's Chamath Palihapitiya: here's what you can say 50 percent of that here's what you can say if if everything is held equal SPEAKER_72: just with the rise of rates you have to reset those valuations between probably 15 and 40 percent okay at a minimum minimum but what brad said is also true which is if they then keep growing at a superior rate they can get back to even so meaning 18 months they could also show up again at 40 and be net net awash they could get unstuck but a lot of hard work will need to happen underneath the covers of these businesses in the next two years okay for that to happen and that's what's going to SPEAKER_89: happen with a lot of these early stage private companies right is let's say the error multiple has gone from 100 times to 20 or 30 times they have to grow their arr 5x to get the same valuation so the question is can they grow their arr 5x before having to return to market that's just to get a flat round now if they are tripling this year and then doubling next year then that's 6x growth in arr so even if you know the multiples gone down 5x they could still get a slight up round so that's the game i think all these companies are going to be playing is lengthen your runway so that you can grow into your valuation and not take a down round because the problem is if you're ever in a situation where you take a down round it's way worse than just the dilution because now the psychology of everyone in the company changes everyone has to worry that you're gone sideways it's hard to accrue SPEAKER_72: but here's the difficulty of what sax is saying though in order to grow revenue you have to invest right you have to invest in sales people and account management functions in engineers and product managers right and all of those people uh need to exist which actually increases opx right it increases burn it doesn't maintain burn and so this is the death spiral jason you're talking about which is in order to actually grow by those multiples you actually don't have more fuel you gotta increase your speed burn more fuel you don't actually have the money to to withstand two or three years or the altitude you're now so it's going to be a very precarious balancing act of trying to figure out how these companies actually get to the other side because again i think the the buyers in this case will be will drive a hard bargain you know i mean like look organizations like you know durable d1 tiger altimeter these guys are the smartest of the smart they're not dumb and so you know the price of capital is going up in that case and so you know they're going to strike really good opportunities for SPEAKER_110: their investors right for their lps if we were going to do an analogy here 20 the analogy here is SPEAKER_178: these founders were on autopilot they were asleep at the wheel and now all of a sudden they're in the SPEAKER_72: soup and they got to really perform no that's not fair i don't think they were asleep at the wheel at all i just think that they you know building says this when the when the music is on you gotta dance SPEAKER_82: they did it they raised money at the highest valuation possible god bless them now you're gonna see David Friedberg: who uh is really good at what they do um and who is benefiting from a lot of just natural uh you know SPEAKER_193: know right but people were only when i say when i say they were on autopilot let me just sharpen the SPEAKER_181: pencils for the first time exactly that's what i'm talking about they're gonna have to make real SPEAKER_89: trade analogy look in an in an up market in a well in an up market or a boom market the three things that matter are growth growth and growth in a down market the three things that matter are growth burn and margins it's not that gross stops mattering it's just that burn and margins also matter and now there's gonna have to be real trade-offs before it was just how much money can we spend how quickly SPEAKER_201: to get growth now it's wait a second is this growth efficient you know and will we have enough runway SPEAKER_202: to get to the next round without having to take it down round brad when we saw at the peak of the SPEAKER_110: pandemic some leadership i'd say you know seasoned or well-informed leadership airbnb and uber come to SPEAKER_121: mind cut their staffs massively they use that crisis to reset their cost structure and get to profitability quicker those were money losing businesses for a long time maybe you know taking advantage of these hot SPEAKER_110: markets is that what needs to happen here are we going to see a cascade of companies lowering their valuation lowering their costs sharpening their pencils cutting staff and then becoming more SPEAKER_121: efficient and more ruthless at you know the sixth seventh eighth product they're launching saying hey SPEAKER_207: let's go to the core product and make it sing make it profitable you know frank sleutman has said SPEAKER_208: that silicon valley is full of what companies that are walking dead and they don't even know it SPEAKER_29: right zombie startups you know frank is you know he says in tape socks he says listen i'm a wartime ceo not a peacetime ceo right he came into he came into snowflake when it was growing over 300 percent and he he you know he he reconstituted what what that culture was about to prepare for wartime right SPEAKER_32: because he says when wartime comes right and it gets challenging i want to run the field right i don't want to be laying off employees i want to be that's the time to hire that's the time to press the advantage that's the time to invest in product that's the time to win the new customers unfortunately SPEAKER_29: over the course of last 12 to 18 months a lot of people without that experience right took a negative signal and the signal was money will always be available and it will be available at ever increasing valuations and of course anybody who's been at this for 20 years like the four of us we know that isn't true but it's amazing i mean the the behavioral psychology our SPEAKER_31: ability to gaslight ourselves totally in these moments and move out on the risk curve and ignore SPEAKER_32: these lessons right and so i really actually hurt and i've spent a lot of time on zooms lately with founders and with their teams talking them through this because like we talk about it in the abstract and SPEAKER_31: in in through the lens of a spreadsheet but there are a lot of people's lives at stake if you're an SPEAKER_29: employee and you went to this company and you took everything in stock at 15 billion that's now worth 5 billion you're totally underwater at the same time the cost of buying a home and mortgage rates and SPEAKER_32: everything else is going up against you i mean this is a massive morale problem right uh you know for for companies that frankly we want to invest in these are the innovators but this is what happens when SPEAKER_31: you have government intrusion right that we can all debate whether or not is worthwhile but it was hugely distortive what we know to be true is that we had more distortion in markets the last two years than probably any time since post-world war ii and the consequence of that is dramatic SPEAKER_32: and you know we all kind of saw it but we all kind of gaslighted ourselves as well because you were SPEAKER_29: like well maybe there is a new normal maybe we have accelerated digitization the truth of the matter is the law of economic gravity is interest rates and inflation and it remains yeah and and this time SPEAKER_82: turns out is not really that much different i think jason if you take your list of these high price SPEAKER_93: startups yep i think it would be a good useful exercise for somebody to do somebody in the press SPEAKER_72: should probably do it but if you take that list and just rank companies based on valuation the last announced date yep and then if they are not announcing layoffs of any kind um you can probably forecast when they're going to burn through the money especially if they're hiring and the reason that you can probably forecast that accurately is you can pretty much predict what opax will be especially knowing the fact that their input costs are actually going up so for example most of these businesses that rely on facebook and google and instagram for customer acquisition those input costs are going up and the reason you know that is that's two trillion dollars of market cap that doesn't give a flying what's happening in startup land they're going to make their numbers right okay those are the most important companies in the world they will ratchet up the prices and so your input costs are going up it's not just the physical supply of materials that i think is going up it's just the cost of customer acquisition is going to probably go up by 20 30 40 percent right and you know this because facebook and google guide to where they need to perform and so if you pass that through the venture ecosystem that all of a sudden now upticks your burn yeah if you're Chamath Palihapitiya: adding more people it upticks your burn yeah and now back to david's math you then also have to grow SPEAKER_72: five or six x that it none of this hangs together so we are at the beginning of probably a very complicated process of unwinding yeah the distortion that we've lived through in the last couple years at SPEAKER_136: this point i mean you have to blame the capital allocators in this instance they bought these SPEAKER_121: logos they suspended disbelief we've had this ridiculous culture of no governance uncapped notes SPEAKER_110: just pushing i see it on the boards i'm on you guys probably see too some people just pushing top line growth never discussing unique economics never discussing the bottom line and they created these crazy fugazi markups they raised bigger funds based on it and they just were never the adults in the SPEAKER_93: room the stewards of capital it's infuriating i'll tell you an incredible conversation i had yesterday SPEAKER_72: with one of my partners so he's been you know with me for 10 years he was really the one that pushed us very early on to go into deep deep deep tech when nobody else is doing it 3d printing of rockets satellites all that stuff and it's been uh so i really trust and respect his perspective and he was telling me a story he uh called um a recruiter um you know because we've been toying with you know helping get some folks to help us manage some of our early stage deal flow and he asked her essentially something to the point of like uh who are the types of gps that are getting hired today in early stage and he said you know this is how we approach our business right we have a permanent capital balance sheet you know we do you know at most one deal a year per partner and she said well you're never going to get anybody because a mid-level executive at one of these high-flying startups that then goes and joins a venture firm she said the consistent single thing that they make their decision on are you ready for this is how many deals will i be allowed to do per year what and so you know these people are make work construction workers right that's dig a ditch fill a ditch that is not what investing is that's not about having a discerning philosophy on what a business should be or a market so if you have a bunch of capital allocators jason to your point who are unsophisticated about investing probably very sophisticated operationally but fundamentally don't know what they're doing and they're coming and transforming in an organization Chamath Palihapitiya: that should be a disciplined discerning allocator of capital and turning them into a velocity deal SPEAKER_110: machine this is what you're going to get i mean sometimes the best money sacks is money you put SPEAKER_121: into a bet you've already made continuing to build the pot with a startup that's already proven themselves SPEAKER_89: correct so i think we're going to see we have a follow-on fund yeah i mean i gotta say the the things you guys are saying are making me feel great about our portfolio explain um not not because we won't get hit with the same valuation corrections that everybody else is going to suffer but because you know a few years ago we decided we were going to invest in a certain kind of company i mean high margin sas and marketplace businesses that were not capital intensive we defined a new metric that didn't exist called burn multiple which is the amount of money you burn for every dollar of incremental ar that you generate incremental uh subscription revenue and you know we turned down investments that were growing fast but they had a horrible burn multiple and um so and i do think most of our companies raised last year when you know they made hay while the sun shined so there's gonna be they need to manage their cash flow so they don't have to raise too quickly but um as long as they do that and they SPEAKER_109: keep growing they're gonna weather the storm what's the right number spend three dollars to make one SPEAKER_89: spend two dollars to add one what's what's your ratio so what i've said is that if you can spend a dollar or less to generate an incremental dollar of arr you're doing amazing and uh between one and two is good so in other words if you're burning 20 million in a year to add an incremental 10 million of arr you're doing quite well in startup land and then when you start getting into two and a half three that's a problem and then above three is just bad spending 30 million to add 10 million in arr SPEAKER_110: it means it takes three years or probably four or five because you'll have churn to get that money back yeah and that's just a lack of discipline and how many vcs are we on the boards uh or you know other investors are we on the board and having that nuanced of a discussion it's always SPEAKER_72: just top line top line top line who's gonna be the next holder i think it's very difficult because i think the number of qualified investors have gone way down as the surface area of investing has gone way up so again just going back to this conversation this woman is staffing most of these venture firms with their junior and mid-level partners and again the qualification to become a venture capitalist at this point is not that you have a an ability to pick or you know in david's case have operated and actually run a business and then actually have developed a methodical framework or brad's business which is brad had to start from literally zero in the public markets and work his way backwards to end up with 15 or 20 billion of assets it's none of that it's are you a vp at an xyz unicorn that may also be poorly run and all of a sudden that you know gives you the qualification to go into a job where and it's not their fault where what they are told is uh what you want is what we're going to give you which is the ability to write you know x number of checks per year that is insanity that's SPEAKER_82: not what makes a good investor and then your ability to then give advice i don't know it's probably zero SPEAKER_207: or less than zero your ability to give advice is uh i think we have to qualify bad advice is being given so the ability to give quality advice is what's missing in this formula i just think these SPEAKER_191: people are really naive like you know and it's not their fault but you know they're given way too SPEAKER_72: much rope to hang themselves with and they're and and the the the unfortunate byproduct is going to be the uh the companies who gets bad advice or the bad businesses that get funded um and that's not what you know an efficient capital market should do so one of the things i'm seeing our portfolio SPEAKER_89: companies do is use burn multiple as a governor for how fast they're going to grow so for example they will say that the burn multiple should not exceed two in the next quarter so you know we want to so the old way of doing it would be that the company would just have a forecast and say we're going to grow 3x this year we're going to grow ar from 10 million to 30 million and whatever that costs it costs right that was basically how companies did it now what i'm seeing from some of our portfolio companies is they are saying yeah our goal is to grow from 10 to 30 but we will not spend um so much money that our burn multiple exceeds two so you know if if it turns out that there's a trade-off here between growth and burn burn is going to win we're not going to exceed that level of that ratio of spending and that's actually a good i mean i've seen a few companies implement that already and it's SPEAKER_110: probably something they should all be doing i mean if these are pilots they basically created a rule to not stall the plane right you got to keep a certain altitude a certain speed uh so what is the SPEAKER_121: opportunity here then if we're going to have too many companies too high evaluations if we're going to hang around the rim and try to get some rebounds here and try to find opportunities what are the SPEAKER_127: opportunities what are the layups here for capital allocators and for founders if we have there are no SPEAKER_72: great advice for them there's nothing there there they've never been layups and the problem is um you know in in up markets whenever we think that there are um it ends up being what causes our downfall later because we we just take the wrong signal away i i i don't think that there are i don't want to be investing incremental capital into a late stage startup that's poorly run that doesn't have their margins in line and then having to work it out why do that again i can just go in the s p 500 and get eight percent and yeah it's not 30 but it's eight percent and i don't have to deal with all this nonsense like well a bunch of people because you're a crossover investor right i mean you SPEAKER_89: have the ability to choose between public privates or wherever you want to play i actually think what SPEAKER_127: i am is an investor right you you don't have lps for a vc fund like sax and i do but but this but SPEAKER_72: this is my point like i think investing irrespective of whatever stage you do it still fundamentally comes down to the following which is do you have the judgment to understand whether these decisions are marginally good marginally average or marginally destructive for the short medium and long term of a business and i just don't think that enough people steep themselves in the practice that it takes to get good at that kind of a game and i think what these moments expose is that the status games that come around investing because it just seems like it's easy it just seems like you don't do much work that's what ruins these periods and the implications i think as brad said is really right it affects the employees it affects the entrepreneurs it affects the startup culture it affects the incremental desire for people to take a shot at things you can overcome all of it we have and we will again but i really think like to the entrepreneur the message is if you're you know taking a term sheet i think you have to have better judgment to really look at that on that investor and say is this person really qualified to help me because in these moments in the absence of help you're probably going to basically have a valuation reset at the minimum case and the worst case is you go out of business what's SPEAKER_110: insightful about you said shaman then i'll hand it to you brad is that a lot of the founders picked based on the highest valuation who their next investor should be and now we see what a trap that is brad SPEAKER_99: you know the takeaway for me is we return to a place we've always been which is about selection SPEAKER_29: right look at the mean returns for ventures for 20 years they're lousy SPEAKER_31: lousy right 90 of the of the spoils they barely barely map to the public five to ten percent of the investments and that's the way it's always been look at look at buffett right SPEAKER_29: by superior companies at good prices what are the two technology companies buffett bought in the public SPEAKER_32: markets top right apple and snowflake snowflake apple and snowflake he doesn't own a broad basket of SPEAKER_29: law a long tail internet or long tail software and so i think what you're going to see and and to sax's point i think even running a recipe on software as though all arr is created equal i mean i can show you five companies each with 100 million of arr each growing at 30 percent and there's massive dispersion SPEAKER_31: in future outcomes yeah right and so like i i just think that this at the end of the day is a craft business it's an essentialist business it's about finding and identifying those very very very few SPEAKER_29: companies that ever durably are worth more than 10 billion dollars you know on my screen today chamath was just talking there are four internet companies that are green today amazon google apple and facebook SPEAKER_31: everything else on my screen is bleeding must own must own versus everything else is red and my growth internet stocks are down 400 basis points SPEAKER_29: right the market is voting with its wallet where it wants to sit on the risk curve right and i think we're just going to go there's no new normal here this is just back to the future right is what we've always done and you know the reset is always painful uh the only surprising thing is how SPEAKER_121: often we have to go through it if if opportunities do arise where will they where will they be bred i mean i was watching peloton i always love that company i see the change in management i see the management you know thinking about profitability thinking about creating it into a marketplace maybe having uh more hardware available disconnected from the software etc do you think there's SPEAKER_110: opportunities there or there will be opportunities over the next year to buy some of the names that SPEAKER_29: aren't the fangs um what we do in the first instance jason and listen we we outperformed last year because we owned quality and we were short lower quality stuff unfortunately this year the market said guess what it's all overvalued quality low quality doesn't matter we're taking it all lower and so for us in moments like this and i've lived probably through five of them in the public markets SPEAKER_31: we always do the same thing degross take risk down first thing is like have less chits on the board SPEAKER_32: number two reduce the number of outliers pull in the risk curve right for me i want to own five or six things because remember i'm the biggest lp in the fund this is my money i want to sleep well at night and i want to protect the foundations the the endowments the good causes we represent i can't do that with a company that has an unproven business model i may think that it's going to be great in the future but i don't know so the problem with for the pelotons of the world right they may be SPEAKER_29: incredible returners but what every portfolio manager on the planet is doing today is compressing the number of names in their portfolio saying what are the companies i know with absolute certainty SPEAKER_61: whether rates are two and a half three and a half four and a half five and a half is going to be worth more over the course of the next two to three years that's what i want to own right and so wait SPEAKER_269: what i was just going to start not to interrupt brad but jason what you're talking about is what a lot SPEAKER_72: of people do you see a lot on twitter and i call it clapping as a strategy what about this and what about that and what about if they do this and what about clapping is not a strategy clapping is something people do at the blackjack table it turns out it doesn't actually influence the cards sure um and SPEAKER_113: so i think you have to stop with the clapping as a strategy because to be clear that's not my strategy i was asking that as the moderator is there just to be clear i'm not advising that as a strategy i'm SPEAKER_72: saying i think you're representing a psychological reaction that a lot of people have and i think what SPEAKER_113: brad is trying to tell you is clapping is not a strategy yeah no i'm asking that on behalf of the David Friedberg: audience it is not my belief just to be clear my commentary to the audience is clapping is not a SPEAKER_110: strategy yes correct yes if enough people though do what you're saying brad and they just retreat to quality at some point that quality those quality companies would then become fully valued maybe SPEAKER_126: even overvalued and thus the cycle begins again or not so how long does that take no you nailed it SPEAKER_29: what happened last year 2021 dispersion collapsed go check out jam and ball who does incredible software SPEAKER_32: analysis on our team dispersion collapse between the best cohort and the worst cohort of software companies last year the first thing that happened is dispersion returns we pay a higher price for the best shit and we pay a lower price for the low quality stuff right then when we start to recover when there's more predictability in the world when we resolve the war when we understand the path of SPEAKER_31: inflation right the stuff close in on the risk curve that'll start being fully valued so then we will be brave enough to walk a little further out on the ice on the lake testing it is it safe to walk here and then you walk out a little further and sadly right eventually we're in the exact same pattern we've been before which is we'll know we're at a market top five or six or seven years from now when we repeat the same asinine behavior that we just went through when everybody becomes SPEAKER_29: complacent again and overbidding this stuff way out on the risk curve i'm just suggesting to you SPEAKER_32: the number one question i get from gps venture capitalists and others right now is when are we SPEAKER_31: going to bounce back let me be absolutely clear there is no bouncing back to where we were the last 18 months that was the outlier that was the make-believe what i hope and expect is that we can SPEAKER_32: bounce back to the five-year average but even to durably trade at the five-year average we have SPEAKER_29: to have a lot more clarity on the war in ukraine on inflation and rates so that's a perfect place SPEAKER_25: to pivot sacks uh we are now here and i think this is the fourth or fifth episode where we've been discussing the war and we flipped it today just to do markets first uh for a little change of pace SPEAKER_121: and since we had brad here where are we at with the war and what are your what is your expectation SPEAKER_238: of it wrapping up or it escalating well actually there's a tweet storm this morning um that chamath SPEAKER_89: you sent to the group that um from a russian official and it seemed to indicate well it indicated what we've kind of known for a few weeks now which is what the broad contours of what a peace deal would look like which is there's three main pieces uh neutrality for ukraine the russians insist that it not be part of nato they get to keep karmia which they annexed in 2014 that's been a fait accompli and then some version of independence for these um sort of breakaway territories in eastern ukraine the in the donbass region everyone kind of knows that's the the the broad strokes of the deal then there's you know a lot of details are going to matter a lot to the people who live there like is there this land bridge from karmia to donbass but frankly don't matter as much to all of us the united states of america so the question is you know what what is the administration going to do about it biden just went to europe and you know my concern is that no one in washington and i talked about this last week seems to be pushing for a ceasefire it seems like their preferred position is for russia to bleed out as as long as possible in ukraine for the us to fund an insurgency a la afghanistan where you know these fighters in eastern ukraine are sort of like the mujahideen SPEAKER_288: is that the right word well sure because you know if they're defending their own land and so are the mujahideen i mean i know but why would you call it an insurgency SPEAKER_89: defending their land if if the government of ukraine falls then it becomes an insurgency so the point is that the administration the question is what's the administration's end game here do they want to lead the world to a ceasefire or do they want to protract the conflict to impose on the russian SPEAKER_201: state a afghan style uh you know debilitating defeat to destabilize the russian regime neil SPEAKER_89: ferguson had a column this week in um it says bloomberg called from the brooking institute at SPEAKER_199: stanford no he's from he's from hoover um hoover rather sorry yeah so i'll read i'll read this part SPEAKER_25: hoover is that could you just explain to people what the hoover institute is and how that leans SPEAKER_89: i would say it sort of leans um idealistic in foreign policy i would describe neil as sort of the most realistic idealist got it um so but he's quite well sourced i think uh with you know and with you know various people in washington and europe and what he wrote is the u.s intends to keep this war going the administration will continue to supply the ukrainians with anti-aircraft stingers anti-tank javelins explosive switchblade drones it will keep trying to persuade other nato governments supply heavier defensive weaponry and so on he says washington will revert to the afghanistan after 1979 playbook of supplying an insurgency only if the ukrainian government loses the conventional war so the concern here is that the u.s government has an incentive actually that they don't want a quick SPEAKER_202: end to this war is basically the theory is they want the russian state to bleed out and be destabilized SPEAKER_110: in a way it's the one chance we have for like regime change there without us actually starting a war is that they have this self-inflicted wound that is the theory yeah and i think a lot of people are SPEAKER_89: saying that that is what a lot of people want in washington i don't you know this is not like conspiracy theory people are saying this is our chance to topple the russian state to destabilize it there was a rand corporation how do you survey a few years ago hold on there's a rand corporation study done a few years ago that was commissioned by somebody probably in our state department or someone like that where they talked about this that if we wanted to destabilize the russian SPEAKER_110: regime ukraine is the way to do it right they would fall for it right they would actually fight that fight that is an unwinnable fight we would basically be putting enough we'd be supporting SPEAKER_127: an afghanistan-like path for them to go down like we did and they did previously to that right and SPEAKER_89: the problem the problem that i see is just this which is we've discussed on on this program the downsides of this war first it's a humanitarian disaster second we've talked about the risk of recession later in the year third freeberg talked about famine the risk of famine later this year if the spring planning doesn't happen and then fourth we have this always we have this risk that the war SPEAKER_201: spins out of control and goes nuclear right and leads into war three those are some vital american interests to avoid all of those scenarios i don't see an equivalent vital american interest in determining SPEAKER_89: the exact nuances of who rules the donbass in other words the broad strokes of this agreement are there SPEAKER_201: you know what the u.s should be doing is leading they should be pushing for lead not bleed lead the way SPEAKER_199: to a ceasefire not to inflict maximum damage on the russian regime which we don't know exactly what SPEAKER_67: their intent is because they're doing this behind closed doors brad what's your take on this i think SPEAKER_303: there david and i talked about this identity and i think there's something bigger playing out here i mean SPEAKER_305: clearly he's the expert on real politic and you know but it seems to me that we have had decades of SPEAKER_29: military diplomacy right and and most recently the powell doctrine of overwhelming force we don't want to make the same mistake we made in vietnam so like we're going to go in with full force and you know basically the public doesn't support you know military adventure ism anymore right and so now we have maybe we'll call it the blinken doctrine which is the powell doctrine equivalent but for economic force it's the nuclear economic weapon that is on full display by the west right now that i think has really significant implications right it's reunited the west um and i don't think this is just about putin and i think the reason that the us and western europe is slow playing this a bit is they're sending a message to the chinese as well which is that we we are unified and we will use an economic weapon of mass destruction if right you don't play by global norms and so the box i think we're in from a negotiating perspective right uh in ukraine right now is not a box around neutrality i mean neutrality is already clear i mean we had zelinski didn't even ask for a no-fly zone he's not even asking for nato membership they've already ceded neutrality i think the real question is sanctions i don't think the west wants to roll back sanctions and i think putin's saying i can't hightail it out of here unless you roll back all the sanctions and give me a little bit of the donbass and so watch the next week or two like in any good negotiation unfortunately i think both sides are going to amp up their current strategies we may see missiles coming out of russia and we may see european uh complete european embargo of russian oil three million barrels a day those will be the final straws right before we enter negotiations because then they can see the last things that they took as part of the negotiation but this i think is going to be all about economic sanctions um and uh and and and i think the west is playing a a really strong game what i worry about and sax has talked about this at SPEAKER_31: link is that we overreach we overplay our hand here in an effort to send a signal to other parties around SPEAKER_166: the world right and that has fat tail risk associated with it that you're referencing china and taiwan SPEAKER_89: let me let me ask a question how many of us woke up or this at the beginning of this year or in making our new year's resolutions and said that we need to risk recession famine and war in order to SPEAKER_201: destabilize and topple the russian regime when did this become a vital american interest no one at the beginning of the year thought this was an important goal of america what's more important is is basically getting our economy back on track getting back on track after this long game after this long um this this plague we've had i mean nobody needed this problem and what the administration should have done was use diplomacy and all the resources to try and prevent SPEAKER_313: the conflict and now the conflict has occurred we should be pushing for a negotiated peace and cease fire we do not have a vital national interest in the details of who rolls rules the donbass yeah SPEAKER_121: the problem with your setting up of that question is that we did not start the war putin did chamath you've been silent so far what are your thoughts on this war that jason i'm not saying we started the SPEAKER_318: war well you're saying did we wake up and say that we should do this we did not listen you and a lot of SPEAKER_313: other people in the media woke up on february 24th and you think putin went mad and there's no prehistory SPEAKER_201: to this conflict now here's the deal hold on a second this is a war of russian aggression it's true that putin started it he's the invader however there were things we could have done to prevent or SPEAKER_313: to avoid this war and american diplomacy completely failed and we even discussed it the month before this war started we talked about how the us could have given a written guarantee to russia that ukraine would not be part of nato just this week zelinski in an interview with fried zakaria admitted he was told by blinken you will not be part of nato but we don't want to admit that publicly what games were they playing what is the point of playing that kind of game with the grave issue of war and peace why didn't blinken say publicly what he said to zelinski this administration did not do everything it could do to prevent war and now we are faced with all of these existential risks why for what reason SPEAKER_320: the reason is that it gave the united states an opportunity to topple russia i mean exactly and who SPEAKER_322: who of us thought we needed that at the beginning of this year well i think that you know the thing to SPEAKER_320: keep in mind and again i don't i don't i'm not saying that this is right but i'm just game theorizing SPEAKER_72: uh that these are like you know um grudges that these guys have held for a very long time and i think it started when they were in the obama white house and it carried over to now and i think they saw an opportunity to basically execute a strategy that essentially now i think we're moving into the second phase of this war which is effectively trying to bait russia into doing something really egregiously bad uh and that is terrible david to your point i think we're willing to you know sacrifice a lot i think we've decided that uh implicitly by based on the actions of of the american government and and it's weird it's like we're trying to get russia to react and so the rhetoric in fact the rhetoric since that do you guys remember i think it was only 10 days ago that both russia and ukraine said the surface area of a deal is pretty much in sight um oh friedberg from the top SPEAKER_187: rope coming in look at you friedberg i mean like you you look like an everyman i mean i'm so proud of SPEAKER_329: you are you actually driving your own car gas guzzling car suv in the mountains you you should be SPEAKER_113: in that tank is that putin's gas i only use it i only use ethanol i make in vats in my backyard i went out of my way solar panels that are handcrafted in my backyard i went out of my way to SPEAKER_338: found find a luke oil gas station filled up um what i was saying guys was that uh you know from SPEAKER_72: the 10 days from when you know both sides russia and ukraine were like hey you know we think we're basically there we have a deal the rhetoric has gotten really insane uh you know yesterday i think it was like the united states said you know we we think that russia should be kicked out of the g20 then russia responded and said i'm only going to sell that gas and settle it in rubles you know all of a sudden uh other actors uh china and saudi arabia are in the game now you know china and saudi arabia are negotiating settling a huge oil trade in yuan why in the last 10 days have all these things happened when we were so close to getting something done i think the best explanation is that um we are willing to i guess we've decided i mean we you none of us have decided but american government decided that some amount of sacrifice is okay uh if it could trigger a russian escalation which could then further destabilize that country and i think they believe SPEAKER_03: that that's more important than anything else and i think we you know from where i said i think we can SPEAKER_121: take putin out his word that he actually cares about reunification and that's not to say he's crazy david um and i don't think we can control his behavior i think you're wouldn't use word reunification SPEAKER_72: uh never said that jason and also just today the russian military the tweet that i sent you guys was from the russian military and that was an official statement and i don't think he they would be allowed without putin's explicit sign off they no longer talked about denazificating ukraine or demilitarizing ukraine they simply focused it on the donbass and to use your sun tzu argument it's almost like they're trying to construct their own golden bridge to exit in a way where they can claim victory to the russian people to explain the tens of thousands of you know russian military SPEAKER_187: people that have been killed in this whole conflict right because they have an explanation that they SPEAKER_72: have to give but in in all of this i think that we're we're uh probably exposing a very high risk game of poker that we're playing which is it seems that the u.s government is focused more on the destabilization of of russia than they are and getting this conflict behind us i mean he did he did SPEAKER_25: say in his speech since time immemorial the people living in the southwest of what has historically been russian land have called themselves russians and orthodox christians that's donbass yeah i know but he SPEAKER_89: is there's been a jason there's been a civil war going on since 2014 in this donbass region between ukrainians and these sort of these russian speakers and now that civil wars as this is a balkan style civil war that has now escalated with you know ukraine and russia getting in and now the whole west potentially could get in this is a very dangerous situation that we should not let spin out of SPEAKER_110: control i'm agreeing with that you guys asked me did he ever talk about reunification he did he did in SPEAKER_89: his speech that was not that was not one of his stated war objectives now you could keep accusing him of being a liar but look what his objective i'm just taking him at his word that he believes SPEAKER_02: these areas are russian and they should be considered the donbass area where they are predominantly SPEAKER_315: russian speakers look and that i'm not taking a side i'm not taking a side in who should rule the donbass okay yeah i think it's a complicated ethnic strife sort of issue like we saw in the balkans SPEAKER_89: all the time between the russians who live there and the ukrainians who live there what i do know is SPEAKER_126: it's not worth risking war three over that kind of issue 100 agreement 100 agreement 100 agreement SPEAKER_32: sex let me can i ask you a question um so how is putin going to withdraw without a hundred percent lifting of the sanctions and how is the west possibly going to trust him to withdraw right while while taking all the sanctions off that seems to me like when when i try to construct the golden bridge in my mind it comes down to you know like how do how do we whack up the sanctions do SPEAKER_31: we take some of them off say prove to us be out for x period of time and then we'll roll the other ones off because these sanctions are not going to be rolled back in the next three months based on some SPEAKER_89: ceasefire i i agree with that i i don't know that putin can expect the sanctions to be lifted or that he can effectively negotiate for that i think again where i think the the peace deal is is that we've known all along what it's going to be ukraine will agree to neutrality in exchange for some security guarantees from the west uh russia will get to keep crimea because that's been a fait accompli since the annexation 2014 and there will be some sort of regional autonomy for these sort of russian-speaking areas in the donbass uh which by the way we could have had that too there was a a deal called mints SPEAKER_201: 2 since 2015 that simply hasn't been implemented so you know i think that those are the broad strokes of the deal and then there's questions about well is there a land bridge from crimea to the donbass and you know what weapons exactly does ukraine get to get from the united states or get to keep SPEAKER_89: i mean so look those details matter a lot to the people who live there but the broad strokes of this SPEAKER_303: i think are pretty well understood i'm not betting this way with with our book but if i had to guess we are going to have a period of significant escalation on both sides before they both get to SPEAKER_29: the table macron said this week that we still have the europeans have not made a decision about the embargo of russian oil that will collapse the russian economy and oil will go to 180 or 200 a barrel i think that's a real likelihood and the second one is i think the russians will amp up military aggression in some face-saving measure and to have more to negotiate with um so maybe to answer that my own question is if there is an oil embargo then you take the oil embargo off right as part of the economic sanction whacking up of the sanctions um because that's really the nuclear option uh against the russians economically but it's a you know unfortunately i think we have to be prepared for this to get worse before it gets better because it makes sense from SPEAKER_31: just a game theory for both sides to grab as much as they can right before yep they sit down at the SPEAKER_89: table so they have more to give to each other right but the problem is if both sides keep asking i agree with that fundamental analysis is that neither putin nor zalinsky can be trusted on their own uh to basically make peace because they want to push their advantage if either one believes that they're winning on the battlefield they're going to push their advantage to grab as much they can to then negotiate from a position of greater strength the problem is that they're in an escalatory spiral where if you know one or both of them miscalculate we never get that deal and i think the longer the war drags on the harder it is to make a deal not easier one of the i'd say one of the disturbing things that came out over the past week was in that interview that i mentioned uh where SPEAKER_201: freed zakaria interviewed zielinski zielinski said he said that it's either going to get a peace deal or world war three and i'm listening to this thinking wait a second um you know that that is a pretty scary posture for him to be taking and furthermore who appointed him leader of the free world you know the decision to have war three is not his decision he is not the president united states we did not vote SPEAKER_89: for him we may think he's heroic we may think he deserves our support but he does not get to turn this into world war three for us the american people did not choose that and this is where i go back SPEAKER_201: to biden and the administration and their leadership what are they pushing for are they pushing for a protracted never-ending afghan-style war in ukraine or are they going to lead the situation to some sort of negotiation or ceasefire and i just think if we're considering the interest of the united states SPEAKER_313: we would not let this decision purely be zielinski's this guy's willing to entertain war three SPEAKER_320: that can't be acceptable to us but what what what what is his worst alternative i mean like he's SPEAKER_72: losing his country so of course he wants to say the thing that would scare us into action potentially SPEAKER_362: right so he has nothing to lose so right but that's why we can't let him decide for us SPEAKER_72: he's he's using rhetoric to get us to talk about it which he just won like he you can see that what he's saying is working yeah uh because you're talking about it so uh i think the i think the bigger question in all of this is when uh is the united states willing to draw a really hard line so there was a another thing that happened which is that you know biden essentially said like you know if they use chemical weapons we will react sort of in kind right there was some some version of that it's a red line basically he said yes and and then he also said you know depending on uh you know how they use nuclear weapons we could theoretically respond so just the the rhetoric is ratcheting way way up and that is surprising to me because i would have thought we had a deal in sight just get it done SPEAKER_110: be pregnant you're assuming that we have the influence you assume david that we have the influence SPEAKER_178: to actually cut a deal you were saying yourself for the last couple of months that the us power has waned and that we don't have influence so which is it i think you're just blaming i believe we have the SPEAKER_89: influence to to facilitate you were saying like no i never said we lost our influence listen let me give an example we are giving zelinski and the ukrainians all these incredible weapons what are the conditions on that if zelinski is unwilling to make a reasonable peace deal do we do we have any conditions and are SPEAKER_201: giving him these weapons why wouldn't we insist zelinski listen we support you we basically are against this russian aggression you should have the right to defend your homeland and drive them out but we SPEAKER_313: also want you to take a reasonable peace deal if one is available and we need you to specify what that is you're assuming are we exercising that kind of discretion i don't think so i think you're assuming SPEAKER_121: that biden is blocking this when in fact it might be that putin is and i believe you're taking putin's SPEAKER_25: sort of position here over our own presidents i think you need to think for a second that we don't want to have this continue or escalate you actually think there's a world in which biden wants to see this escalate i don't think that that's the case i think that we don't have influence we don't have the inf david we do not have the influence today that we did it is no longer neil ferguson united states you know gets to dictate to the world what's going on here we no longer have that about this is not who wants to talk to israel putin wants to talk to macron in france not us because SPEAKER_89: we're not seen as an honest broker but but look we don't have the influence we once had okay let me SPEAKER_201: explain i'm not saying we can dictate the outcome okay but we can push for a negotiated settlement instead of a protracted we can lead not bleed okay chamath laid it out neil ferguson laid it out the rand corporation laid it out these there is a significant chance that there are definitely SPEAKER_313: actors in the state department who want to see an afghan style situation insurgency play out in eastern europe that's their goal okay now i don't know what biden is thinking but he has made no statement to the contrary what have we done to help lead the situation to a negotiated settlement SPEAKER_25: name one thing well i don't think we're in the room david but biden is in europe right in the room SPEAKER_199: i read all their public statements i don't see anything i don't think they want to negotiate SPEAKER_110: through the press with putin i don't think they want to negotiate in europe right now i think that SPEAKER_121: says enough about him what his intent is he's in poland right he's going to poland he's in poland SPEAKER_89: where we're scaling up our military presence listen yeah i mean i don't all i'm saying is look i don't know exactly what biden is saying or doing behind closed doors what i'm saying is that the u.s should SPEAKER_201: be playing a constructive role to get to a negotiated ceasefire not indulging this sort of fantastical SPEAKER_313: thinking that we can basically perpetrate a regime change operation in russia with you on that i agree SPEAKER_72: with you on that i i'm worried that there may be a small strain of that probability in the range of outcomes here and i didn't think that before i really thought that okay maybe we were a little bit on the outside looking in but it looks like you know we're pretty close to a deal these guys will get in a room they'll you know chop it up and uh it'll be done and uh instead honestly if you just look at the headlines and the rhetoric and the words from all these three leaders in the last uh 10 days it's been it's been in the other direction and so you have to wonder what is the point of all of this SPEAKER_29: right now other than crescendoing like brad said it's a you know i i i listened to blinken over the weekend and he talked about what i think he defined what is this new doctrine of economic statecraft he said our objective is we have the power to impose overwhelming costs on our target okay economic costs and he said our cause putin's actions are remembered as a strategic failure not regime change that's SPEAKER_31: what's within our control that is very different bush wanted regime change in iraq and we executed it through the pal doctrine of overwhelming military force i think that this is a doctrine of overwhelming SPEAKER_29: economic force that is meant to not only signal to the russians but every other rogue dictator in the world if you go rolling into your neighbor uninvited you can count on the fact that there's SPEAKER_31: going to be massive economic sanctions because our our military deterrence is no longer a deterrent everybody knows we're not going to go defend taiwan everybody knows we're not going to send our military to ukraine so we have to demonstrate that we actually have economic resolve not these poo-poo sanctions we've been having around the world for the last 20 years and if that is the lasting impact on this i think you're right you know that we turn this into an economic nuclear weapon yeah better than sending our kids you know running around the world to get killed i think you're absolutely right and i SPEAKER_72: think tony is very smart to say what he said the um the one thing that i would want though on top of SPEAKER_156: that tell me if you agree is just to ratchet down our rhetoric which we can control and maybe to to SPEAKER_89: to i mean why not say that listen we're willing to put these sanctions on the table we're willing to basically reinstitute economic ties with russia if we can get to a satisfactory outcome well you don't SPEAKER_29: want to reward them i would say is we're making a big assumption to say that there's not back channel diplomacy going on from the israelis the turks the the french you know having those conversations on our behalf right like i i don't i honestly i i don't know that there that's a high probability that we're SPEAKER_208: not sending those signals but to your point i i just don't know i don't know i don't know either but SPEAKER_201: i don't know either but but but here's what i would say is look i can only judge from the public statements and i think there is signal in these public statements and this the statements are all one way there is no olive branch it's all it's all basically about escalation just like in january before the war what were the state department's statements about the situation they said that SPEAKER_89: nato's door is open and will remain open even though they told zelinski in private that he would not be joining nato okay that was an astounding revelation that came out this week on the freed SPEAKER_201: zikaria show number two blinken was saying that there there was no change in the american position and there would be no change they said these are all public statements that the us would never recognize the russian annexation of crimea never you know he said that we went into these peace talks to represent our core values there's no change of that so in other words it's been the position the united states to be hard line with russia to basically engage in no compromise whatsoever and um it's basically double down it's a double you assume you assume david you don't know those SPEAKER_110: are the public statements i know but you're assuming that there's no back channels going on and just to just to wrap this up i wanted to make one quick point chamath which was you know what if we offer SPEAKER_121: to take the sanctions off and then we are training putin that these kind of misadventures get him something donbass etc and that the sanctions roll off so isn't there a possibility chamath that if we David Friedberg: don't keep the sanctions up we're actually rewarding his behavior i'm a huge guys look i've been the first SPEAKER_72: person in the front of the line on sanctions i thought this was the most brilliant approach to this whole thing and i still believe that sanctions work and i think that this will cripple that country what i'm saying though is that there are these moments where instead of then sticking to the rhetoric that tony talked about what he said i don't know brad where tony said this this weekend but like sticking to that there are these added flourishes that i think are unnecessary so what i mean by that is the talk about you know us reacting uh or retaliating for the use of chemical weapons biden made a campaign vow i don't know if you guys remember this about nuclear weapons where you know he was very clear that you know it is a mechanism to demonstrate that this deterrence exists and instead he actually caved and instead he put out this carefully worded statement which kind of walked back the campaign vow earlier this week and i'll just read it to you i'll just read what the wall street journal said it said by president biden stepping back from a campaign vow has embraced the long-standing u.s approach of using the threat of a potential nuclear response to deter conventional and other nuclear dangers in addition to nuclear ones during the 2020 campaign biden promised to work towards a policy in which the sole purpose of u.s nuclear uh the nuclear arsenal would be to deter or respond to an enemy nuclear attack instead uh now it holds that the fundamental role of the nuclear arsenal will be to deter but that it leaves the opening to respond and use it in extreme circumstances so these are big changes and if if our whole goal is to just focus the surface area to an economic set David Friedberg: of sanctions these are somewhat unnecessary wouldn't we all agree we don't need to talk about changing our nuclear policy yeah and biden was right on the campaign trail the united states of america should SPEAKER_201: never use nukes except if nukes are used on us come on we know that yeah and we're talking about changing that now that's insane no no we changed it we changed look it shows that there there's an SPEAKER_89: influence in our government in our state department of certain hardline elements who want this very SPEAKER_201: tough policy that includes destabilizing the russian regime and maybe toppling putin i'm just saying that objective is not worth all the existential risks that we're now facing SPEAKER_252: all right do we want to touch on the ccp tax cuts we want to wrap we're at 80 minutes SPEAKER_93: i mean the ccp tax cuts harkens me back brad you can react to this because you lived it with me SPEAKER_72: 2018-19 i'll say it again we we were in this unique moment where you know we were not sure whether there was runaway rampant inflation and in q4 of 2018 the fed basically said okay you got us you know the boogeyman exists we're gonna go tame inflation and they ran forward and raised rates and lo and behold the chinese economy turned over in q1 of 2019 we had like a you know kind of a blippy little recession um and we had to overcome it because china became stimulative now here we are again we're worried about this inflationary boogeyman and the chinese government basically extended these tax cuts increased the tax cuts and essentially said we're going to be very stimulative in the economy especially through the back half of the year now china again is a massively export driven economy right so the reality is that as goes china so goes the rest of our economies and so i think that it's a setup where how can the united states be under so much inflationary pressure where china is effectively telling you that we are in a um in a contraction and a recessionary period and so if that's where china is there's a risk that we may David Friedberg: already be there or entering that and so i think it's a little um you know uh you hit two really SPEAKER_55: important points jamah number one which we didn't get to earlier i tweeted a few weeks ago the feds SPEAKER_208: probably behind the curve on recession not inflation right we have massive demand destruction going on right now in the u.s economy massive the producer define what that means brad define what that means so SPEAKER_29: i mean if you just think about what does six dollar gas mean what does no stimmy checks mean what is the fact that you actually have to go and get a job again mean you know we're we're rolling back trillions of dollars off the fed balance sheet i'll tell you what it means is that people can't spend SPEAKER_32: as much money just the increase in the 30-year mortgage means you're buying power in december four months ago to buy a house and you if you could afford 1200 bucks a month that buying power bought you a 350 000 house today it buys you a 295 000 house people's ability right to have money to spend money is getting crushed so i think we are going to face an economic slowdown if you look at the pmi so this was the inflation read in january little people didn't really notice it pmi in january came in at 0.2 versus the consensus estimate estimate of 0.6 that means the producer level of inflation was meaningfully less than we expected if you look at consumer confidence it's plummeted one SPEAKER_31: of the four biggest drawdowns over the last 20 years retail sales in uk this morning crashing consumer confidence in the uk crashing the chinese government sees this we're we're not surprising look at the what's going on in the world with energy prices we've never had oil over 120 bucks and not SPEAKER_29: gone into a recession we're facing a global slowdown that will have big implications for inflation big implications for rates but china sees this coming and says we're going to get ahead of this SPEAKER_32: we've got a people's congress in november we promised them five and a half percent gdp growth three trillion of that is export driven that means if europe and the united states catches a cold they catch the flu okay so they have to do everything in their power this is why they're not going to supply the russians with weapons right because it's economically assassinating themselves SPEAKER_31: right so we have this interconnected world this idea that we're de-globalizing what what we do SPEAKER_32: doesn't impact anybody else like that ship has sailed a long time ago and the chinese see this that's why i think there's also a probability by the middle list this summer the fed in the united states is saying we now see a balanced risk between growth and inflation uh sacks let's get you in on SPEAKER_03: this just as we wrap here the chinese communist party premier talked about tax costs and this is a quote fertilizer applied directly to the roots of the economy tax rebates look like reductions but SPEAKER_121: actually are an addition today you give back tomorrow you get more in returns does this mean the united states uh people will go back and get jobs because they need to have more money and that maybe we should be looking at you know tax cuts at some point listen jacal i think we got big problems here David Sacks: at home in the united states brad and chamath they've laid out these gigantic economic risks that are SPEAKER_89: facing the country you know i tweeted at the beginning of the year january 24th the president's main job is to ensure peace and prosperity and biden's popularity was already plummeting i think this is when his poll numbers were at 38 but if he gets us into war and recession he ain't seen nothing yet this war the longer it drags on the longer it basically can spin out of control and become something worse that sucks us in the longer it creates the risk of basically causing a recession in the united states we need the american we need the the the biden administration to help try and lead to a better outcome here instead of ratcheting up the rhetoric all right folks there you have it SPEAKER_121: that's your all-in podcast for this week thanks so much to brad gerstner for joining us and filling in for the sultan of science bg thanks bro and a lot of great announcements here brad will also be joining us for the all-in summit we're about to wrap up tickets uh we've announced a bunch of great speakers uh for the event may 15 16 and 17 in miami uh you can just do a search for the all-in summit SPEAKER_25: we have uh given out uh we've sent 200 emails to people who asked for scholarships and a hundred of them have taken the tickets 500 of the 650 tickets or so are accounted for we'll be wrapping up SPEAKER_121: registration in the next week or two and we look forward to seeing you all at the new world symphony SPEAKER_416: in south beach you got any announcements of people who else is appearing oh my lord we have SPEAKER_121: great announcements keys for boy is coming joe lonsdale is coming nate silver is coming nate silver SPEAKER_25: i love nate silver well we decided chamath we would have people do 15 uh to 20 minute ted style SPEAKER_121: talks like position papers and so who else do we have doing that uh tim urban of wait but why who is a brilliant speaker and writer nate silver is going to do that and then uh antonio is coming he was just on uh uh and uh he was just on a rogan show and so we're going to have these like 20 minute uh kind SPEAKER_110: of hits then the besties will sit with them we'll do those back to back kimball musk is going to come SPEAKER_25: and talk about his uh dow that he's doing for non-profits brad we're going to talk about what topics so we're collecting all this talent and then we'll figure out what positions they're going to play in the show and what the themes will be but the themes will match what we've been talking about here and we don't want to pre uh set the themes six or seven seven weeks out from the event because we don't know what the world will look like then uh and then freeberg said he wanted to do a position paper and actually give a 20-minute talk so besties will have that ability and besties will start the event and end the event tons of different speakers rotating in and out talking about the most important topics of our time but i would like to have peter there can you get peter teal to come he's a maybe SPEAKER_89: the most iconoclastic please i'm just not i'm just not i have to get over my uncertainty that this whole conference thing is really a grift it's not a grift we're putting all the money is going SPEAKER_425: back into the event and we gave 200 scholarships there would be no profit from the event there needs to be a really nice swag bag and i i think it's already at 600 a person i just spent three or SPEAKER_428: four hundred thousand on the material what is the material of the hoodie all right if it's gotta be a SPEAKER_430: cashmere hoodie if to be on brand six hundred dollars off-brand people need to be able to buy up to SPEAKER_52: the to the special hoodie brad i just spent six hundred thousand dollars per gift bag for 600 gift bags okay it's like 400 grand in gift bags and chamath wants to put a six thousand dollar sweater SPEAKER_272: in there i just wanted to know what the material was of the hoodie in the bag that's all i'm just SPEAKER_52: asking a question this is my life brad i am busting my ass to put this event on and then chamath's complaining about the gift bag sax is complaining on me making a dollar from it and freeberg's having a panic attack that we don't have enough great speakers and i'm doing all the work it's my whole SPEAKER_439: life i appreciate you jakel i know you did say some nice stuff to me you did say some nice stuff SPEAKER_424: i appreciate that i've actually been on board with you getting a fee for your hard work you know i don't need to give you like an hourly wage you know 15 an hour no i'm not your wage slave david socks SPEAKER_441: i'm working hard here i'm working hard but i i just want to be appreciated i don't think you should have like a cotton blend is my i think it's safe oh by the way brad do you have any thoughts on the SPEAKER_52: sushi is there should we be using brown rice and not the line claw tuna no just make sure there's SPEAKER_110: gold leaf on the sushi no literally we're spending i think for 300 or 400 000 per party it's over a million dollars in parties and i'm talking to talent bookers about serious talent coming to perform SPEAKER_446: drake can you get drink how about that's three million dollars dual lipo two million dollars i'm i'm deep in two million dollars that's what i got what about how much is doja cat she's great SPEAKER_347: i think those are all seven figures i would like to anyway that would be a worthwhile use of the SPEAKER_269: money while the use of that i mean that would make it an incredible part of god i mean i really SPEAKER_447: would like to get how much is drake again two million dollars i heard two to three million for SPEAKER_453: great bags and get drake yeah yeah yeah yeah cancel the bags give it all to drake so you guys are SPEAKER_143: saying my ass and all the work i do i should take two million dollars and hand it to drake yes yes SPEAKER_50: drake is more valuable than you 25 years of working on events and media brad and these these are my friends who are like take the two million you can put in your pocket and finally make a profit on SPEAKER_09: your work and just hand two million in a bag to drake we don't need the bags i need a plane guys can SPEAKER_460: i get a plane i'm trying to get a jet card do we get to work with drake on which songs he's he would sing i think he does like a medley of like three what i would like to do is have three songs for two SPEAKER_52: mil come on i think it's basically like a hundred thousand a minute i think that's what you're in SPEAKER_89: for a hundred thousand per minute just 20 minutes that seems egregious no i mean these guys get paid bank when when i hired snoop he did like 20 songs for me i mean it was unbelievable he did like a two SPEAKER_468: or three hour show 300 250 because he forgot he was there yeah he had a great time oh my god man he SPEAKER_470: was blowing this joint that was so powerful that i was 10 feet away and i got stoned i mean it was like SPEAKER_52: a cloud he walked in it was like i remember it was like 20 super bowl shows good stuff all right SPEAKER_473: everybody love you besties love you brad