SPEAKER_00: he's optimizing the view now i'm optimizing for shade actually SPEAKER_01: trying to get out of the oh christ you look like a moron i mean this dips showed up SPEAKER_03: he showed up to my beach club yesterday and it was basically like someone had taken a mummy and then wrapped a mummy inside of a white sheet and then presented him at this plot at this place SPEAKER_06: oh he lathered in his like spf 500 and so i laughed at one point i said at one point let's go for a walk SPEAKER_03: and this had the nerve to grab his cell phone and a battery pack for the cell phone i forced him to leave the phone he felt naked then i made him take off his shoes and socks and then i tried to get him SPEAKER_09: to take a shirt off we got almost all the way there yeah that's that makes sense all right everybody SPEAKER_21: here we go three two hey everybody hey everybody welcome to everybody's favorite game show guess who's not in italy do do do do with us today david sachs wearing sunglasses with the view of an ocean clearly on a nautical vessel and i am in an old apartment in the center of florence and chamath is at his hideaway somewhere in the countryside and friedberg is in front of a abstract piece of art SPEAKER_26: two people high on crystal meth trying to break into his car in san francisco SPEAKER_29: i'm no longer a san francisco resident i'm proud and sad to say after 20 years of living in the city SPEAKER_31: i have relocated still in a not to a nondescript location still in california but uh you're in the SPEAKER_36: bay area enough said in the bay area so with us again obviously rain man the dictator and back from a week off the queen of quinoa what tell us uh queen you had a big week you had uh some nice ink come out some press about the production board raising some monster round and you took the week off give us the feedback what what was it like taking a week off from the pod and uh now you're getting press and you're becoming a public figure uh what's it been like for you the past week and tell everybody SPEAKER_39: what went down with this new fund you know my strategy was to take a week off from the pod and then have the ratings go up and then i could quietly and nicely exit um as the as a member of the cast but uh unfortunately i've been drawn as al pacino said just when i thought i was out i am back in in so uh it's i missed you guys i actually listened to the all-in pod for the first time ever last week SPEAKER_40: you guys did a great job you've been complaining these other last 41 times without even listening SPEAKER_29: to it you know um i will say i listened to it while we're on it but this was um actually really SPEAKER_44: interesting because i've never that's big of you you're actually listening while we're taping we we do SPEAKER_29: it ourselves i hear the whole freaking thing in real life so listening to it i found it really entertaining and i uh i think i have a better appreciation it's less about some of the points SPEAKER_39: and facts we make which i've been pitching and complaining about the topics and you know where we go with the conversation and stuff but it's just generally just nice to just hear everyone you SPEAKER_00: know kind of shoot the shit anyway good job so you're saying you're a fan of of the all-in pod i might get a wet your beak mug from one of our fans i have one i haven't i actually had three i used SPEAKER_49: a whole gift basket from the kid who's paying for college based on our ip that's all good SPEAKER_29: um no so we yeah we announced our tbb funding last week too which i i have been running the production board for four years now a little over four years it's been my primary vehicle where i've SPEAKER_39: been um primarily incubating new businesses and making some investments from the balance sheet uh you know we've raised um several rounds of capital over the last few years we've never talked about it publicly we've never done press around it but um as you guys know the primary reason for going public with it was really just to um gain recruit interest in the work that we're doing so we really want to see great people um be made aware of the work we're doing at the production board and at each of our individual businesses so we could start to um you know at least get get get folks knowledgeable and aware of us so when we reach out and and folks are interested in thinking about what else they might want to do with their careers and their lives you know we're hopefully there for that so that you know it was great i mean it's nice to kind of SPEAKER_56: share what we're doing we also shared five of our businesses that we've incubated several of which have been stealth up until now um you know one of which jason i think you've kind of referenced in the past our molecular beverage printing company canna so that one's kind of starting to emerge a little bit more now after several years of r d and work so we're kind of making progress now um and i'll uh SPEAKER_39: hopefully have more to share over time in terms of what we're doing but we're excited and SPEAKER_57: it's great to have great investors yeah it's a great piece in cnbc by ari levy uh i guess you SPEAKER_38: gave him he's a great journalist by the way um like old school legit journalist yeah and i think SPEAKER_36: fan of the pod how did you pick ari to be the the vehicle for this did you use a pr firm where you SPEAKER_37: just decided i'm going to share it with this one person we had a mutual person who's in pr who SPEAKER_29: introduced us i didn't want to go to a broad pr thing so i was just kind of like um let's get you know i was going to do my medium post which i wrote it was like a blog post and that was the primary content and then it was like let's just find someone good who can kind of at least you know push people to that content that that can speak well to our business and you know he was SPEAKER_56: recommended i've never met him before a great guy so you know we just wanted to kind of get that one piece done anyway he did a great job he said he i think he's been on your show right SPEAKER_62: what's your show my show he's been on this week in startups yeah and i and i see it when i used SPEAKER_36: to go to cnbc i would you you walk down uh at one market you used to go to the chamath too and you walk down like a row of journalists and as you go to get on set i don't know if this happened to you chamath one or two of the journals will intercept you and try to get a story so he would always stop me hey i heard that travis at uber was this or whatever uh but great job on the inc it's great to see you uh you know raise 300 million there was a lot of references to larry and sergey and google maybe you could tell us what how much uh who who led the round this 300 million SPEAKER_29: all around and what's google's involvement when i first started the production board it was my i had made personal investments with my own money and started some businesses with my own money and i had a series of dinners and conversations larry page about like doing something together with SPEAKER_39: alphabet i knew larry from my google days obviously um and uh you know we ended up kind of after a bunch of conversations with folks at the level below kind of saying let's i didn't want to manage a fund and i didn't want to go work at alphabet so the idea was i would set up a holding company kind of a permanent company uh that like any business has a balance sheet with cash on it and can do stuff with that money and alphabet invested in the holding company they put some cash in this was four years ago and they became a minority shareholder and had a board seat and i set up a board and so that's the work and then we've raised another round since then and then we just raised this round we announced last week and so our you know the round was i think uh i don't know if we announced but it was kind of co-led by blackrock we had um you know morgan stanley coke industries bailey gifford allen and company um foxhaven aero mark just a bunch of really high quality long-term institutional investors alphabet put more money in um the gates family office called cascade has been an investor with us for a while so they all put money in uh into the round and um you know it's it's great because we can use that capital to build new businesses and support some of our existing SPEAKER_29: businesses so some of our businesses are really hard deep tech companies we don't want to have to go rush out and raise venture money or and we don't want to have an incentive to try and mark the asset SPEAKER_56: up and you know get a good mark on it so really we can use some of our money now to support some of our businesses until they're ready to go commercial or until they're ready to raise outside capital if that makes sense for them not always gonna make sense um and so we have so you own and you own a SPEAKER_36: hundred percent of every business that comes out of here then you find a management team as we SPEAKER_57: discussed and then spin them out from off what do you think of this venture studio approach which has only SPEAKER_36: been maybe john borthwick with beta works in new york and i guess science maybe worked as well with dollar shave club but here you have you know i think friedberg a great um entrepreneur as well SPEAKER_25: uh doing this what are your thoughts on this studio model going long uh in in building companies SPEAKER_71: in a studio system well i think it means a lot of different things to different people so i'm not SPEAKER_72: sure honestly what a venture studio is that's different in somebody else's view than what SPEAKER_73: friedberg is doing but what i will say is that the different thing that he's doing which i believe in is you have to become uh extremely hyper focused um you know i think that there was a moment where if you look at when idea lab was really successful or when beta works was really successful in the case of idea labs at a very specific prototypical web 1.0 business beta works had a very prototypical web 2.0 kind of social business they all work because these guys were experts in those things and so um i'm pretty bullish on what friedberg's doing just because he's not trying to boil the ocean he's being very specific around you know synthetic biology and i think that that is probably what got other people excited because then not only from friedberg's execution capability which i really believe in but then now think about it if you're an investor i don't want to put my money into something that all of a sudden looks like nine other things where all of a sudden it creates a lot of correlation SPEAKER_72: that i didn't really know existed especially when i'm investing hundreds of millions of dollars it's a very big deal that a lot of investors have and so when freeberg can very legitimately say look i'm SPEAKER_73: you know explicitly focused in this thing and then he also said and freeberg you may want to talk about this and this is the only thing i'm going to focus on it gives an investor a lot of confidence SPEAKER_72: because it's like here's a really smart guy who's done this before he's going to stay in this swim SPEAKER_73: lane and do something really specific here and now i can understand how it fits into the rest of my portfolio so i think that there is a lot of value for um investors in a bunch of different ways so i SPEAKER_80: don't know i'm i'm super excited i appreciate that i mean i think like one of the things that mattered SPEAKER_29: to me jason and the way i kind of frame it like a lot of people think oh venture studio it's about SPEAKER_56: how many things you crank out that's like y combinators model for me it's not about how many businesses you start it's about absolute value creation so you know you have to do the the things that you have the resourcing to do with the objective being to drive business value as a whole so that means doing one thing doing three things doing five things it's not about how many SPEAKER_29: things you know whatever the right balance is it's not about just cranking out businesses because each SPEAKER_56: one of these things we have to continue to be active and we need to continue to build and when we start a business we reserve a good chunk of the business as equity for the team that works on it so it's not like we're 100 owners right we've got to get the right people they've got to feel like SPEAKER_57: and act like owners in that business with us you wind up owning 50 or ballpark 40 what do you think SPEAKER_29: it actually varies quite a bit so you know without getting into too many details i mean you know when we start the business we're the majority owner and in many cases when we've brought in other investors over time we get diluted down to become a minority owner so 30 or something like that like as if you did the series a or something but but in many cases we end up being um you know we want to continuously fund some of these businesses um because it may not make sense to bring in outside SPEAKER_56: investors and and we'll continue to be the majority owner and but we create an independent board we make sure that the the team feels like it's an independent business and we give them a lot of SPEAKER_39: infrastructure and tooling finance hr legal facilities uh support recruiting support etc and obviously templates for how to succeed and and playbooks and so on so that's a lot of what i would call our SPEAKER_83: platform value amazing another bestie housekeeping by the way david sachs is an investor in tpb i don't SPEAKER_39: know if you guys need that very nice around ago so good job sax good job sax is that another unicorn SPEAKER_25: for me technically yes look at you uh well in other news uh sax this is like the victory lap uh SPEAKER_36: episode sax you announced you're closing 1.1 billion dollars with a b in craft's third fund and explicitly talking about focus to chamat's point explicit focus on marketplaces and sass uh maybe you could explain uh how long it took you to raise the 1.1 billion i think the first one was 300 million the second was 600 million so you're basically doubling each time almost i mean the first one was 350 second David Sacks: fund was 510 this one is 1.12 billion um it's going to be 612 million for venture which is c series a series b and 510 for growth and yeah we are focused on sass and marketplaces i kind of run the sass practice and my thesis is really the same as it was when i was doing yammer which is apply consumer growth tactics to enterprise software make it go viral inside companies uh sort of sell it bottom up through the average employee as opposed to top down through the cio uh and then uh the other gp in the fund uh jeff floor is uh focused on marketplaces he was the founder ceo of stubhub which was one of the original e-commerce marketplaces on the web and uh so he leads the marketplace practice and those are also you know i would say along with sass marketplaces are the best kind of internet businesses to to create and so we've just decided to focus on those two areas and that's kind of enough SPEAKER_35: for the world for us and in related news your project call-in which is a podcasting plus casual SPEAKER_36: audio application has been doing great in beta yeah and uh i am proud to announce that uh we had a small allocation for our syndicate the syndicate.com which is my syndicate and then the all-in syndicate which we created as a lark uh between those two syndicates my syndicate had 900 requests to invest over i think seven million dollars we had a small one million dollar allocation and we basically did SPEAKER_95: a lottery uh so something like one in i don't know seven or six got in and then the all-in syndicate also filled up and then the all-in syndicate no carry no fees everybody gets a free ride thanks to david sachs and uh that's our first all-in syndicate chipping away at my core business and eating SPEAKER_98: my lunch thank you and that the all-in the all-in syndicate is is going to be 250 000 uh it says 250 David Sacks: 1 000 checks with no fee no carry and um where the company is paying the administrative expense of that we just want to let you know 250 of our listeners wet their beaks yep so and uh is it open yet sex SPEAKER_101: like can anyone download the app and use it yet no it's still in private beta we're going to open up SPEAKER_62: soon you know we'll certainly it's getting better i was looking at it the other day it's getting really tight i mean can i talk a little bit about it or do you not want to keep it yeah go for it SPEAKER_36: yeah well i mean here's here's the genius of it um and i mean that sincerely uh not just because you gave me an allocation but um clubhouse when you go to clubhouse if you miss the great conversation it's gone and clubhouse has really bad audio quality and the rooms are and there's really you know there's SPEAKER_104: clubs as a concept but in call-in uh everybody creates a show then the show is syndicated to an rss feed like a podcast so you can basically start your own podcast with no staff no post production you just talk and then it goes out to an rss feed so we're thinking david and i of doing like a post SPEAKER_38: uh show after all in like two days after just to talk to the fans and do like a little private group thing but it's kind of like a really nice overlap of podcasting and um yeah well i was SPEAKER_92: going to say it's it's it's basically long tail podcasting using social audio as the gateway drug to SPEAKER_108: you know to long tail podcasting uh the cut is a company worth four billion yet have we have we SPEAKER_36: internally marked up the round four times like in jason harwood's david clubhouse let me ask let me get your mouth in the conversation what do you think of a venture firm making a seed investment at a hundred million then a billion then at four billion for a product that you know is largely sideways this is like internal three bets and marking it up 10x and then 4x so 40x lift over three rounds SPEAKER_72: what do we think of this i think the best venture firms shouldn't give a shit about any company and i don't think that they really do because if they're very savvy they should be doing exactly what andreessen SPEAKER_73: you've seen the articles about tiger you've seen all these other folks the real question is maybe if you want can you please explain what they're doing and uh what they're doing is to me if you understand the investing landscape makes a ton of sense which is technology used to be the small niche and so we used to only get you know when i started social capital there was probably 25 to 30 billion dollars SPEAKER_75: a year flowing into venture just in 2011 fast forward a decade we have like 120 billion dollars a year going into tech and it's going up like crazy and if you're the best brands you're going to get SPEAKER_72: the overwhelming amount of interest from people who want to get into the asset class as the asset class SPEAKER_73: expands right so if all of a sudden you know you decided to invest in private equity when private equity was going bonkers you're not going to take as much of a shot on an emerging manager you're going to want to take a shot on blackstone or kkr right and that's what's allowed those folks carlisle to scale a um just unbelievably blackstone under management exactly half a trillion dollars now at blackstone similarly there are these indelible brands in venture and when everybody realizes they need to be long tech they jump in now when they do that you have to understand who these people are SPEAKER_121: there are two things that matter one they are people like pension funds and their hurdle rate meaning SPEAKER_73: you know what are they trying to do better than in terms of a rate of return is in the low to mid single digits that's really important to know nine percent ten percent not even not even five percent SPEAKER_121: six percent okay and then the second thing you need to know is that these guys have so much money that they would rather when they spend an hour meeting with you they'd rather give you a 50 million dollar check than a five million dollar check a five million dollar check just compounds their problems so if you put these two things together it makes a ton of sense for companies like andreessen to now focus on the velocity of money raise a fund put the money to work raise a new fund in a very systematic way that everybody can understand and can predict so that andreessen can tell their lps on a calendar guys i'm going to be back to you in 18 months guys i'm going to be back to you in a year and be able to scale the capital and i think if you if you look at it in that framework it explains andreessen it explains excel it explains sequoia and by the way it's a brilliant strategy because these guys still make two and a half percent on the money they end up returning the market beta meaning what the average market would do anyways plus a little bit of alpha right so they'll still do a little bit better than the market which means they'll be able to raise money infinitely so if i'm SPEAKER_125: in the public market or the venture market so venture market no but that'll decay right so that'll decay SPEAKER_73: down to the to to 10 or 12 but my point is it's still better than the five or six percent these pension funds and other folks need to earn so today the goal of every fund that's successful that has a SPEAKER_121: brand david's included should be do good deals make sure you're in things that that can work and the thing that david has which other folks don't is david can help make things work when they're not necessarily obvious but then pound the money in and then raise more money as fast as you can because then you know it helps the investor that's what they want and they're happy to pay you and then for you the gp you start to make enormous fees and the whole cycle works um so for andreessen i SPEAKER_73: think that's the calculus it's like if i can put a hundred million in that's a hundred million less i have in my fund now i can go i'm a hundred million closer to raising the new fund okay now SPEAKER_35: the criticism has been friedberg i'll go to you it's bad hygiene for the same firm to mark up the same product three times in this case you know um clubhouse what's in it clubhouse so is that a warning SPEAKER_36: sign for you that it's a bubble or it's kind of the the worst case i've heard is like marking up your SPEAKER_95: own book self-dealing whatever how do you look at that issue freeberg and then i'll go to you sex SPEAKER_39: well if it were spacex you would look like a genius so you know i think we can criticize it until what's that or what's that and sequoia has done this many times where they've been the lead in multiple rounds in the company and they have high conviction in the quality of a business and they don't want to bring other investors in and when you have high conviction and you can continuously buy more of the stock and buy more of the company and be a bigger owner and then it works out you look like a freaking genius and so i don't want to criticize the investing style of these guys i mean time will tell if they made good bets or not as a whole you can kind of make the case maybe that SPEAKER_58: they're trying to be asset managers and drive assets under management up and gain more fees but SPEAKER_39: i think lps are a little shrewder than that they'll kind of take a smarter look at that at the end of the day the guys that are known for doing this like sequoia and founders fund and others have had incredible returns by doing exactly this so the strategy does work and um you know you just have to have to do it with the right businesses and that i think that will you know demonstrate SPEAKER_38: the quality of your investing acumen all right sax any further thoughts on that the marking up your own book is that something you plan on doing with this new fund and having the growth and how would SPEAKER_36: you look at hey calling starts getting some traction does that mean your growth fund is going to go market up and take that those shares or do you think that it's better hygiene to have the market price it David Sacks: well i guess it just depends i mean the growth fund does give us the ability to double down at a later stage on our own early stage companies but you do have to be really sure when you do that because it does you know it certainly raises questions if you're wrong right that you wouldn't have with any other investment so it just it definitely raises the stakes you have to be really certain i guess but you know if colin's a big hit do we go raise you know a growth round yeah and now i think what we might do in that case because we incubated it is we'd let somebody else lead the round and then we would participate so you have some third party setting the price because we incubated the company and frankly that's what we did with the round that you just participated in is craft participated but we did not set the terms it was actually uh goldcrest and SPEAKER_70: sequoia co-led the round with craft when you incubate a company like that let me ask another technical SPEAKER_36: question uh because the audience last week or in the week before really responded well to us talking SPEAKER_95: about this as opposed to covet and delta variant which we'll talk about at the end of the show for those people you can basically turn off the show at 50 minutes or 75 minutes when we talk about the SPEAKER_36: impact of the pandemic but uh and i'm hoping you're thinking right now about who's not in italy i hope we'll get back to that at the end when you incubate a company like that who owns the original founder shares craft the organization david sachs the individual came up with it what's the inside baseball SPEAKER_92: there so it's sort of all the above and uh we meaning craft uh have a deal with our lps that's David Sacks: called an lpa limited partner agreement and one of the things that was negotiated when i founded craft four years ago was the terms on which craft would incubate deals and um and so it's all predetermined what i get as a founder what what our funds get what the lps get so there can be no argument about it SPEAKER_92: later and uh this is this i call it it well we've actually done now we have a few incubations in development you know for me it's really important to scratch that product itch you know i'm originally a product guy and um and i you know i love investing in helping companies but occasionally about i'd say maybe once a year i get a product idea that i think is worth developing and so this gives us the ability to incubate it so we did it a few years ago with a crypto company called harbor we ended up selling that company to bitgo which just announced the largest uh acquisition of a crypto company uh galaxy is acquiring it for something like 1.2 billion so anyway so harbor i think um will work out uh you know once that deal closes and colin's the second one there's a couple other things that are still you know they're too early to talk about but um but i think colin will be the SPEAKER_36: the second one to to launch chamath as an lp and a lot of funds what do you think when somebody comes to you and says i want to in my lpa my limited partner agreement have the ability to incubate SPEAKER_95: these companies is that a good trend bad trend how do you think about it i think it's great i mean SPEAKER_73: i don't really you know push back on a single term in any lpa because i'm only doing it mostly to SPEAKER_141: support people and so whatever terms they want they get from me and uh you know kind of just like SPEAKER_73: let them go and hope they get lucky you know i have a very different approach to to these kinds of things because i'm not necessarily trying to compound my capital i'm just there to sort of enable folks and you know take one percent of the fund or sometimes a little bit more if i really SPEAKER_141: have an asymmetric view on a specific thing that they're doing but otherwise i just take one percent sign the thing and you know wish them wish them the best and then try to support them SPEAKER_73: and that's all i'm trying to do if i believe in what how they're investing and the deals they've done uh you know however they do it is up it's fine with me i want to go back to something which is i actually think it's not a question of hygiene it's really a question of governance because when you do these things and you mark these companies up the real question if a company stops working is they tend to have too much money and then they tend to not have enough governance and the reason is because governance typically comes with board diversity and board diversity comes with more and different investors who have different you know puts and takes at any given point in time that diversity is very helpful to keep everybody on the same page and to actually get a decent outcome when things aren't working as much now when things are working obviously nobody cares you know because like you can just have jim gets on the board of whatsapp with jan and it's all kind of said and done it's up to the SPEAKER_62: right so as we're saying when things are when things are good nobody complains yeah no and you know this SPEAKER_73: may be a good jumping off point for uh you know we wanted to talk about zymergen today can i say one SPEAKER_92: thing before we get to zymergen which is just look i think there's all sorts of new models now with with this sort of tech and the money going into tech the venture capital exploding there's all these innovative new models and i think it's all for the good a studio that i think is great is uh what um jack abraham's done with atomic you know they've produced multiple unicorns out of there because jack is just a phenomenal idea guy he's like a 10x idea guy so he then as part of atomic comes up with the idea and then brings on a operating partner and that model works for them and then you know he just partnered with keith raboi on open store and keith decided to become the ceo and keith is still a gp at founders fund so we're seeing like the blending of these models you know it used to be that you made the decision to become a vc and your career as a founder was just over it was like this line that could never be crossed again and now you're seeing the blurring of these lines and look i think it's good for everybody because frankly when you know keith or you know what i'm doing with colin we remind people that we're still founders and product people and you know not just sort of semi-retired guys SPEAKER_144: and frankly it's like it's good for what we do as investors i mean we saw it with mike spicer who is SPEAKER_39: a partner at sutter hill he incubated it started and was the original uh head of snowflake uh which was SPEAKER_05: a massive before that he's this is his third so you know right he did pure storage he did snowflake i think he did laceworks incredible he's incredible he's just incredible money and just just just folks SPEAKER_39: that don't know snowflake you know it's an enterprise software company they make software so he's a venture capitalist he started this company while working as a venture capitalist SPEAKER_58: they brought on a great ceo this incredible guy later who's frank slugman who's who's a legend and the company just went public last year i think or the year before and they're worth 82 billion dollars today um and so it really highlights it while this guy is still operating as a venture capitalist and a gp he's been able to generate incredible returns for his fund um and and build amazing businesses at the same time so i mean spicer spicer is a perfect example SPEAKER_73: because i i've known him since like the early 2000s and at one point spicer started this um consumer company called bix and i was like a we were like an investor i was a small investor in bix and uh and it got i think it acquired by yahoo and it was always curious because like spicer was clearly the smartest one in the room and it's like he was kind of grinding this consumer thing and then he left yahoo went to sutter hill and he basically said you know what this i'm going back to my roots because before that he was a pretty traditional enterprise guy and he just crushed it Chamath Palihapitiya: it's kind of like michael jordan was finally like ah baseball i'm going back to basketball SPEAKER_37: and it's like it's like reed hoffman and neil boosery at graylock right i mean these guys are SPEAKER_39: incredible operators business builders and they continue to do that work while uh while being SPEAKER_59: partners in the bedroom we have three directions we can go moving on zymergen zymergen is so SPEAKER_36: interesting i think we should do it okay let's do zymergen i agree all right so for people who don't know zymergen went public uh 31 a share in april uh traded size 48 shortly after that um i had the uh ceo on my podcast and uh i was confounded trying to understand the business you had told me SPEAKER_158: uh i had asked you for some questions freeberg and you gave me some choice statements of what to ask which i can i say no i don't think so but anyway you gave me some choice questions i didn't ask them SPEAKER_36: exactly the way you said them uh but here is the quote of what happened on tuesday uh zymogen stated the following zymogen recently became aware of issues with its commercial product pipeline that will impact the company's delivery timeline and revenue projections accordingly the company no longer expects product revenue in 2021 and expects proven product revenue to be immaterial in 2022 they also announced that the founding ceo josh hoffman who was on this week in startups to maybe a month ago stepping down as ceo will be replaced and zymogen stock then dropped 70 on the news i don't know if this was a spac or not softbank hype them it was a straight ipo and the SPEAKER_39: stock started 80 yesterday 80 a day after going public three months ago yeah so i think freeberg a SPEAKER_35: good way to start would be what did they say they were going to do and then why has this happened SPEAKER_56: so zymogen and a couple companies like them started around the same time which is around 2014 uh 2013 2012 that era 2015 even and um the the promise of these companies is truly to be everyone wants SPEAKER_39: to be this platform for synthetic biology and what that means is they can take cells and in a smart way edit the cells and get those cells to make things that humans need uh and so you can kind of think about making materials like silk and leather and plastics and you can think about making food SPEAKER_56: like egg proteins and milk proteins and so on and you can think about making industrial products uh you know enzymes and things that might be used in in laundry detergent other applications and so for SPEAKER_39: years you know we've gotten dna sequencing cheaper we now have dna writing and editing cheaper we've now got other tools to basically screen cells so we have these the set of tools where these synthetic biology platform companies popped up and said you know we're going to put all these tools together SPEAKER_29: and build a platform for editing cells and doing a better job of making things and we're going to get into all these markets and zymogen when they first started were like several other companies like them a services business so they would go to big partners like dupont and say hey let us make a new SPEAKER_39: enzyme for you pay us 25 million dollars up front and then we'll get a royalty on the back end when that product eventually goes to market and they did that for years they went after insecticidal products they SPEAKER_56: went after plastics and materials and all sorts of stuff and as is the case with a lot of deep SPEAKER_39: tech it turns out it's really freaking hard you know these tools might be there but like we saw with the clean tech era where everyone thought they could make oil from sugarcane you know 20 years ago using the same sort of approach to get the unit economics meaning can you make the product cheap enough it's really really hard that means you got to get these cells to be just perfect and you got to get the systems to be perfect and so at the end of the day they went through a lot of customers at zymogen that paid them tens of millions of dollars and zymogen didn't have anything at the end of the SPEAKER_29: projects to say here's something that works that you guys are willing to pay for that you're going to go take to market because it really wasn't that compelling the unit economics weren't good enough and it didn't really have big breakthroughs for any big industry and so zymogen like other companies in the space pivoted and said you know what we're going to now be a products company so we're going to make our own products instead of just being a services company and as they started to get into that they decided that their first big product would be this kind of you know plastic for for um for cell phones SPEAKER_56: or what have you protective film and in the meantime what happened is it takes so much money to do all this r d to run all these labs to have all these robotic arms that they have that are moving test tubes around hundreds of people building and running these labs and um and so they've had to raise money SPEAKER_29: and in order to raise money as you guys know you have to kind of hype the story you have to say look we're going to change the world we're reinventing everything we're using synthetic biology to rebuild everything yada yada and the story resonates with me because i truly do believe that the potential is there but the timing and the sequencing of these things is hard as is the case with a lot of deep tech companies when you get too far ahead of the curve and you start saying i'm going to do x y and z but you can really only do a b and c today you raise money saying i'm worth billions of dollars you raise hundreds of millions of dollars and the hype has to keep stepping up and they eventually got into the trap that a lot of companies got into which is taking money from softbank and softbank said here's 400 million dollars at a 3 billion dollar valuation a few years ago and they said great let's run at it let's be a products company and they burnt through a lot of that money and suddenly they didn't have any products to show because deep tech is hard it took a lot longer than anyone thought SPEAKER_39: and what will you know we better try and craft a narrative and get public and so they did that SPEAKER_29: they got public and um you know a lot of what they had been telling people was coming was coming it's going to be here soon didn't really work so they had to pivot the business they had to become a products company they kept telling folks they were going to be x y and z months away uh and they were going to be able to hit these targets on the product and it turns out it was always a little bit a little bit further away a little bit further away and then boom they have a big board review recently and they look at the product pipeline and they look at where they are and they're like oh this really isn't going to work and the whole thing you know um falls apart because everyone was banking on this massive return and everyone missed the story which is that they've been doing this for many years and had to eventually abandon and pivot away from their business because no one was willing to pay them for it so truly they never found product market fit in their first generation of their business and they never found product market fit in the second generation of the business um and it's really worth taking a watchful eye based on this this learning which is just a fundamental basic premise for starting a company do you have product market fit and can you make money from your product and if you can't answer those two things there isn't a business and then the third thing is how valuable the company is a function of how much you can grow and so you know um they really hadn't even gotten past phase one and everyone kind of wanted to believe the hype so it's a bit disappointing to SPEAKER_39: see but it's really going to impact the industry broadly because now people are going to say a lot of synthetic biology companies are smoking mirrors and they're really not there yet so a lot SPEAKER_36: of folks in the industry are really concerned right now so to dovetail this with the previous discussion sacks funding your own company over funding of companies we talked about hey if it goes well like whatsapp did uh well you're a genius but if it doesn't go well and you get ahead of your skis you don't have product market fit and you've raised a bunch of money then somebody becomes the SPEAKER_72: bag holder no jason it's it's even it's even bigger than that it's it's not just that it happened just in the private markets and we then you had jp morgan and goldman sachs take them public and then they SPEAKER_73: raised you know another half a billion dollars in the public markets and then they shat the bed SPEAKER_104: right and we've seen the same thing this is the same week that nicola's founder who went out by SPEAKER_36: spac and was going to compete with tesla and ford there he's now under indictment for lying and selling shares also known as security fraud probably going to go to jail i had him on the podcast that was SPEAKER_104: underwhelming so sax and we look at these which is it should we on a hygiene basis be throttling these companies and have milestone based financing or are is this the sign of a top in the market that people SPEAKER_36: are able to go public people are being given large amounts of money by softbank and these things SPEAKER_92: probably people should pump the brakes yeah look softbank is engaged in a style of investing that we would never engage in it's absolutely antithetical to the way that we invest right they're making 500 million seed investments in massively overvalued companies you know we we are one of the reasons why we like sas and marketplace that craft is they're very milestone based i mean we you know if we invest before you have a functional product it's going to be at a seed valuation you know like a 10 cap 10 million dollar valuation not in the billions uh like you know like zymergen uh and you know we're going to in order to do a series a by and large we need to see some revenue you know um and then you know if we're going to do a growth round we need to see more revenue and more customers and so you know you you you show incremental progress you know we're engaged in milestone based investing where the amount of money you raise and the valuation you're able to get scales with the amount of proof that you have delivered you know to investors about the company and the crazy thing about these like spectacular implosions and they're usually around deep tech is because these entrepreneurs can tell a story and people just seem to suspend belief and don't demand any proof for years and years so it was SPEAKER_186: theranos it was nicola and alzheimergen and i think by by the way deep deep tech is it's it's not that we SPEAKER_37: should dismiss technically difficult problems we should engage and fund and build great businesses SPEAKER_188: that are technically difficult how much are we funded for how many months or quarters yeah but or i mean SPEAKER_37: what's important is you know what is the representation that's being made and i think there's only one hype SPEAKER_29: man on planet earth that is good enough to pull this off uh and actually deliver the goods at the end of the day it's probably elon like because you know he funded these businesses that were deep tech businesses tesla and spacex for many many years he was able to get investors excited he funded them himself he funded himself but remember most of the capital i mean he put in some capital but SPEAKER_125: the vast majority billion no no with tesla he put in 50 million and went bankrupt he went bankrupt he was SPEAKER_36: living off a 200 000 loan from a billionaire friend of ours yeah yeah no no no no sorry beep that part SPEAKER_196: out you're not allowed to say sorry sorry sorry sorry it's not public elon only self-funded the first SPEAKER_197: couple hundred million in these companies he delivered revenue very early on you remember at tesla he first SPEAKER_36: developed the sports car the roadster and that was real 150 000 he sold 100 in advance not dissimilar to uh virgin galactic's playbook right and maybe that's an important lesson right like in deep tech SPEAKER_29: uh you can't just say i'm going from zero to one with billions of dollars over decades you know that SPEAKER_149: that's a government-funded program well or you can if it's your own and that's what say that's what SPEAKER_73: branson did at bezos when i showed up richard had spent 1.1 or 1.2 billion of his own money and i thought i mean at that's something in the game that's that's that's skin of the game bezos SPEAKER_208: has been funding blue origin for 20 years right i think they take necker and mosquito island if he if that doesn't work out i mean there was also quibi that's another story yeah quibi it didn't even SPEAKER_197: involve deep tech it didn't require any scientific breakthrough it just required some marketing proof that people were interested in that format and they just blew a million dollars just describe well they they basically katzenberg along with meg whitman with who was kind of a weird choice to be a co-founder because she's more of like the like the late stage ceo you bring on to take the company SPEAKER_92: public once it's already working she's not really like a she's not a product innovator no she's yeah SPEAKER_217: exactly but katzenberg katzenberg is though right katzenberg is obviously very creative and so SPEAKER_197: he knows talent so they came with this idea to build a studio they put a billion dollars into creating SPEAKER_92: short 10 minute videos the problem was there was no proof that the market was wanted that format they should have spent five or ten million proving that the format made sense and then spent a billion dollars if it worked and um you know i just i i don't understand why why um founders or really investors kind of put up with these types of stories look at we work same thing yeah there is not a SPEAKER_75: a shred of evidence that there was an economically viable model there and yet billions and billions of SPEAKER_190: dollars went into that company before the bottom well it actually in fairness i disagree i disagree on that one because the first couple years was economic viable it just wasn't a software business they had SPEAKER_29: great gross margins it just wasn't scalable like software exactly there's no leverage in the model it was just purely like go lease something for x dollars and then sublet it for x plus y you know x plus y dollars and and it worked it's just like how do you scale that and then they got ahead of their SPEAKER_39: skis and did all sorts of crazy stuff to get the tech valuation oh hold on a second but it's not SPEAKER_73: like you can just go to the store and buy it off the shelf like there's a tech valuation thing you can buy other people had to believe it as well and those other people were also pretty credible smart people SPEAKER_234: were they the later stage people did you read the we work book the later stage ones i think we're SPEAKER_73: like we're like evading the thing that that we're not saying which is that as much as we all want to Chamath Palihapitiya: believe that we're all doing incredibly incredibly diligent work there are a lot of examples where SPEAKER_73: belief trumps logic and even the smartest people just look past the obvious and we just talked about four pretty obvious examples in no world should a credible tech investor not be able to do a simple valuation or see a business model and brazenly believe a real estate business is a tech business at the same time there should be no world where you know your pitch something that is just so incredibly grandiose from a technical perspective and be and the reason you invest is actually because you don't SPEAKER_236: understand it because if you did you'd be more critical that's fucking insane well this is the thing people are suspending these examples that you just brought up are exactly that yes they're suspending SPEAKER_193: disbelief out of greed and they're not doing the basic tenets of investing which is milestones SPEAKER_242: talking to the customer these are blocking and tackling i think it's more than great jason SPEAKER_243: it's greed there's fraud too it's criminal it's incompetence fraud let's be honest it's fraud some of SPEAKER_197: it's fraud so read the quote read the quote from the u.s attorney of manhattan who said milton with respect to nicola lied about nearly every aspect of the business people like that need to go to jail okay yeah this is big time jail big time the startup world the investing world only works if investors can trust the information and the financial statements are being given by operators because we have to make decisions quickly and if they give us bogus numbers how are we supposed to make educated decisions well somebody don't want to do diligence sacks people don't want to do diligence we look at metrics we always look at metrics okay we look at um look we can get we can do the metrics in one day churn we look we look at arr we look at net revenue retention we look at churn we look at cac and we look at your financials we can do it in one day okay it's not an invasive process SPEAKER_251: we can decide very very quickly because we know what numbers we're looking for and how to read the SPEAKER_104: statements but question for you when the founders say i have a competitive process we don't want to do all that has that been happening in today's crazy market where people say the train's leaving the station and we can't do diligence we don't have time for this are you yeah has that happened to you SPEAKER_217: has that happened to you in the last six months in in a sense but we say to them listen here's what SPEAKER_197: we need and if you give us these numbers today we can make a decision within 24 hours so and there's no reason we can't and by the way they have those numbers and if they say they don't have those numbers they're too incompetent to be funded because these are all the core sass metrics that you SPEAKER_257: should have to be tracking your business so we would never make an investment without seeing the SPEAKER_259: sass metrics for a sass business yeah let me just step in for a second because i think there's two SPEAKER_39: camps one is businesses companies that are operate a business and what you're talking about it makes a lot of sense you could have looked at the business metrics of we work and made an assessment of the SPEAKER_261: quality of that business or nicola or nicola well on the other hand or you have this on the other SPEAKER_29: hand you have companies i'm saying not their notes and not nicola because those are not businesses yet those are still in technology development they're deep tech so what happens is the founder the ceo the management team they put together their own representation of the metrics that they believe should matter and then they try and show how those metrics translate into value over time so there's no revenue there's no customers there's no profits what they're saying is we can in the case of zymogen we've got x number of experiments we can run per day and as a result those experiments should translate into y discoveries per year and those discoveries should translate into z dollars of revenue per year and that's where the pyramid gets built and the same was true of nicola the same was true of a lot of these companies where they say we can do x therefore we're worth y and it's that sort of narrative that investors then say my god the story is so compelling if you're right i want to believe it i want to put the money in and i want this thing to work and therefore i'll fund this thing um and i think and i think that's what we've seen continuously it started with the cleantech industry and now we're seeing it increasingly with all these companies very nice and in a lot of these cases by the way i will also say it's you know it's easy to do that but it shouldn't be a representation that the entire set of opportunities is a false narrative absolutely there are many great businesses in biotech that actually do deliver the goods and they turn into incredible companies there's a synthetic SPEAKER_73: biology competitor to zymergen who i spent a bunch of time with i'm not going to say the name of the SPEAKER_265: company and they and and i and i asked them uh what gross revenue simple question what's your gross SPEAKER_73: margin what's your revenue what are your cogs what's gross margin and i got an asterisk laden answer SPEAKER_236: what does it mean asterisk laden answer it's kind of like adjusted ebitda adjusted for what speak english that's what you got to tell them speak english this is like when i would come home SPEAKER_271: my dad say where's your report card i say you know it's interesting my report card yeah i don't have David Friedberg: it so where is it i passed and then i you know again it's still shocking to see the number of people SPEAKER_73: that will still do these deals and look maybe it all works out in the end but i tend to think like if you can't present things simply and you can't explain things simply that's on you however Chamath Palihapitiya: if then you still do that and you still have good intentions maybe you don't but then investors toe the line the problem is there's this momentum thing that happens among investors as friedberg SPEAKER_73: said where the fomo kicks in and some of the smartest people become some of the dumbest SPEAKER_236: fucking people it no they are suspending disbelief like you would not believe in the industry right Chamath Palihapitiya: well because it's not their money i mean look at the end of the day why does it happen meaning how can a zymogen ipo happen like this or nicola like meaning if you look under the hood in the s1 i was trying to find it in the s1 was there somebody that actually did like some due diligence into high line clearly not was there was there a synthetic chemist or a synthetic biologist that basically helped clearly not um did everybody say that that was okay clearly yes you know um did i don't know anybody get under the hood of nicola uh and actually like look at the engine make sure the thing worked SPEAKER_29: i don't know by the way people did there just were enough people that didn't that they were able to get SPEAKER_259: a financing done right and i think that that's the important point is there's enough people in the Chamath Palihapitiya: private markets i'm talking about two public market examples you're not allowed to have sequester diligence when you're going through an ipo yeah that's not how it works by the way i i like SPEAKER_29: do you guys know the difference between humans and animals there's one there's one distinguishing characteristic that that that that i think um making tools making narratives narratives stories all comes down to narratives like there are dolphins that can communicate with one another there are monkeys that sit in a tree and they can warn each other about approaching predators meaning that there are other species that can communicate what humans can do that no other species can do is create a narrative to create an ethereal belief in something that does not exist and get others to believe in SPEAKER_186: that story religion democracy the financial institutions the monetary system a business like this SPEAKER_283: they're all the same it's all about someone saying highlight nicola yeah exactly and i think in all these SPEAKER_208: cases by the way this is the cliff notes version of sapiens everybody yes yes no it's version of SPEAKER_291: sapiens i have a funny theranos story um if you guys want to hear it let me just finish this one point SPEAKER_29: like there's a fundamental premise which is humans want to believe and so when you have a barnum type SPEAKER_39: person show up when you have a you know a compelling narrative and a compelling deliverer of that SPEAKER_29: narrative whether it's a religious leader uh or a or a presidential or a government leader or a business leader and you want to see what they're selling come to reality you want to write a check you want SPEAKER_169: to put your time or your money into seeing that thing come reality no no i i fundamentally look at Chamath Palihapitiya: you're you're missing a key point it's not their money so stop saying that go ahead they would not put their children's education account into these companies they're putting other people's money they're putting other people's money this is the key thing not enough skin in the game employees put their time into these companies for the same reason people join their money people trade off money SPEAKER_186: and time all the time my point is people will take their time they're giving up the opportunity cost SPEAKER_73: of working somewhere else to go work at these companies david david i honestly i really disagree with you here the reason why somebody goes and works at this company because they believe there's positive signaling from a soft bank okay so these people are smart they think this money must mean it's real they think i'm now going to commit my reputation and my time to get options because Chamath Palihapitiya: obviously these folks must have done their work how i'm not making the mistake and that's the lie because those folks are not doing the work you're both making sense there's a group of people no SPEAKER_301: no there's a group of people placing bets who are placing bets of other people's money it's Chamath Palihapitiya: other people's money i agree you would do different diligence let's be honest the zymergen ipo the traditional ipo would have been entirely different if they had to write if the underwriters were at risk for their own net worth it would be and if their stock was locked up of the management SPEAKER_104: teams for five years or ten years i do agree with that point i do agree with the point you're making SPEAKER_306: for sure okay sax go sax go sax from a boat go yeah i'm not i'm not disagreeing with tramath but the SPEAKER_92: the point the point that resonates with me that freeberg said is actually the book sapiens really did impact my thinking as a vc which is you know uval harari makes this point that it's narratives that kind of define you know humans and that's what binds us together in societies and frankly the vast majority of narratives throughout human history have just been wrong but they still worked as good SPEAKER_197: stories binding people together and i kind of and i kind of applied that to vc which is the vc process revolves around a pitch it's a narrative session where the entrepreneur goes up there yeah and presents a narrative and then everyone debates the narrative and decides where they buy into it and you know after reading sapiens i'm like this whole process like is stupid how do i get out of a narrative driven investing philosophy and that's where i went back to look i understand sas i know what the metrics are supposed to be um i'll still listen to the pitch i want to hear it but just show me the numbers first and at least i can get to a decision that's somewhat grounded in reality because i think most of what the vc process does is just measure a founder's ability to tell narratives and that may be correlated with their ability to do marketing but it's not correlated with whether their idea is fundamentally correct or not it's fine in the seed state it's fine in the seed Chamath Palihapitiya: stage i think yeah i think there will be the least amount of fraud when you either have um irrefutable SPEAKER_73: metrics or the investor has to invest their own money yep that's the gold standard everything else David Friedberg: is just you know catches catch can and you're just gonna have a bunch of trash yeah here's how i'm SPEAKER_36: handling at the early stage sax you because you get to meet my companies uh i have told them to craft their narratives around their traction now because i know that all this performative stuff is nonsense so when you meet those companies they do a three-minute pitch it's the majority of it is here's the product here's the traction and i accept people based on traction and then i give them more money as the SPEAKER_104: traction goes up and we bet four or five times on the same company based on metrics and i tell them all you're coming to the accelerator here's 100k if you want more money from us we'll keep giving you money if you can grow 10 or more per month on real metrics period and we will keep giving you money SPEAKER_197: forever right and i like these launch um like demo sessions that you do with us because now you force them to base their presentation around a chart so at least i can see some metrics and the other thing we do similar to you is i always start with a product demo our motto is show me the product not a powerpoint because the same powerpoint can describe 10 or 100 different products it can describe a product that might be great it can describe a product that sucks totally so show me the product and now at least SPEAKER_322: i'm grounded in what you're doing and i'm not just listening to some story by the way i i go back Chamath Palihapitiya: to this i still think that funding narratives makes a ton of sense in the early stage seed a i rip i rip SPEAKER_73: in 50k to 5 million dollar checks all the time i could care less if it sounds reasonable i take a punt at it right but the minute that i'm writing a hundred or two hundred or five hundred million dollar Chamath Palihapitiya: check i pay attention yes because it's my money it's my money and i go back to this when it's not their SPEAKER_73: money you're going to see this thing riddled with fraud you're going to see cases like this stuff constantly and the person that pays the price where i do agree with freeberg is the employee because they mistakenly think that these folks must know what they're doing but the reality is it's not it's somebody else's money they don't really care they're just doing a job they want to get paid themselves SPEAKER_64: and so this is how these things do you guys you guys let me just give you some specifics on the SPEAKER_29: zymergen scenario so they're going to go public right leading up to their ipo the stocks at 31 bucks in the ipo so if you're an employee and you have stock options in zymergen you have the option to exercise your stock options anytime which means you buy the stock at your strike price and then you can sell the stock later when the ipo is over so a lot of employees you know exercise their stock options meaning they put their own money up to buy the stock at 10 5 bucks 4 bucks whatever it is and they actually owe taxes on the difference between their exercise price and the fair market value at the time that they exercised so if the stock goes public at 30 bucks and they exercise they got to pay taxes as if the stock was at 30 bucks and then they end up in the situation where um they can't actually get liquid and so there was a lot of employees that got really screwed on this transaction um when uh when SPEAKER_39: zymergen went public because they thought the company was going to be worth you know 10 20 30 40 50 and now the stock's at 8 bucks and they're gonna actually owe money to the irs and they paid for their stock options so it's a it's a it's a brutal scenario when it plays out for employees and i just feel really bad for a lot of really really great you know um smart people that work there uh that take SPEAKER_35: a massive hit on this thing i i hired two more researchers on my team just to do diligence at the SPEAKER_36: syndicate and i would say between 20 and 30 of deals that look great when we get under the covers SPEAKER_104: and look at the diligence we look at the cap table we look at the revenue we look at the accounting we ask them who's doing their accounting we ask them for bank statements we ask them for incorporation docs we ask them for ip assignments this is like the basic blocking tackling 20 to 30 percent do not pass diligence and we find stuff that is crazy i had one founder give themselves a loan and then we didn't know about it and then we find out about it later they they did a loan the company owes them hundreds SPEAKER_36: of thousands of dollars had another one where they were presented their uh revenue as reoccurring and it was a it was accrual-based it wasn't accrual-based accounting it was a cash-based accounting and i'm SPEAKER_21: like yeah what is going on here you you're basically lying and you're misrepresenting your company don't SPEAKER_104: do that it's called securities fraud when you make a representation don't ever bend it or exaggerate it just tell the truth period what's the theranos story chamath i need the theranos story and then SPEAKER_05: i'll give you a follow-up story the uh theranos story is so i had i had a couple i had a very famous SPEAKER_73: investor tell me this is like 2015 2016 uh and i said guys you know we were just talking i said but what do you like what do you like like you know we all kind of talk like that uh at some point whenever we interact you know um and he said this company theranos you have to maybe it was 2014 anyways 2015 theranos theranos theranos and uh i i said are you an investor and he said no but i wish i was it's incredible and i tried to get an introduction i thought okay this is um uh this is going to be great story really interesting i couldn't get an introduction but then i find out who the board is and instantly i get turned off so in my mind i had a very negative impression because the board was literally not all 90 year olds and i thought what do 90 year olds know about you know uh blood testing and you know basically building a tricorder and at that time you know i think i told the story before but i had burned about maybe 50 75 million bucks on six different startups trying to do this like you know in situ kind of like you know finger prick blood testing blah blah blah so i was really fascinated with the space a year and a half later a guy that i worked with at facebook a very senior guy says to me i'm thinking and i was trying to recruit him to come work at one of my companies as ceo i'm thinking of going to theranos and i said just go to the interview and tell me what happens uh before i you know try to convince you to not go he goes into the to the interview to be coo of this Chamath Palihapitiya: fucking company they don't let him pass reception they interview him in a makeshift room outside of the meeting and he said well can i you know go inside and you know when do we have a follow-up interview SPEAKER_73: you know i'd like to meet some of the team i want to see what it is and uh they said no no we're good here's your offer letter do you want to join well can i see the device can i try it i don't know no SPEAKER_337: we're good let's go and i said to this guy i said how can you fucking join this company i mean it's Chamath Palihapitiya: not like you're you're coming in as a junior flunky you know you're coming in as the second or third most important person in this business you haven't been past reception you don't even know what's past reception you don't even know what your office will look like you don't even know if you like the office furniture at that basic level think about everything else that comes after that SPEAKER_35: and then you know what happened happened so what a disaster william perry former head of secretary SPEAKER_197: advance henry kissinger i mean it's just it was like it was a bunch of grand poobah types that's how SPEAKER_92: you knew it was a red flag if you got one of those guys you got one guy like kissinger on your board SPEAKER_114: it's okay if they're all like that it's a problem problem huge so i i go on cnbc i just had uh john carrie rue from the wall street journal who broke this thing wide open on my podcast and i start getting SPEAKER_36: all these inside tips about theranos and one of them was that elizabeth holmes and balwani who was the SPEAKER_104: coo were in a relationship together they lived at the same address all this nonsense and i check with carrie rue and i'm like hey is this true and he's like yeah that's true yeah i was like why didn't you report it's like i'm just chasing it down whatever it'll be in the next story so i go on cnbc and i was like listen when they're smoked there's fire if they had the device my game theory is if you have the device you show it if you don't have the goods you don't show it period end of story i think my gut tells me this is a total fraud it'll be zero and they're like oh and i was like yeah and you know when the coo and the ceo are in a relationship that's bad and they're like what and they didn't know this and i like they're like are you sure and i'm like yeah that's what people are telling me i don't know if it's true or not i don't know firsthand knowledge but that's what i think is going on so this whole thing blows up calacana says this blah blah cnbc that night SPEAKER_242: i got invited to beep's house in the valley for movie night we've all been to that yeah yeah yeah yeah yeah yeah i walk in there's zuck there's this famous person there's this googler that person it's you know it's 50 people and the celebrities who are in the blockbuster movie are there i think SPEAKER_104: it was the movie arrival but i'm not going to make any i don't want to give away whose house it was i go to this secret movie night i walk in i get greeted and i kid you not 15 feet in front of me looking directly at me is elizabeth holmes and i get with like 10 feet and she just looks at me SPEAKER_95: snarls and walks away it's like the most uncomfortable moment of my life clearly a giant scam and fraud and she's gonna go to jail too by the way she's going on trial this month august i believe she'll be on trial it's taking way too long i hope she goes yeah i mean the justice system's SPEAKER_197: a little bit screwed okay we got to wrap up i gotta say you have a pretty good you have a pretty good track record of calling out these frauds i think it's a service to the community yeah i SPEAKER_221: agree you're one of the few who actually does it you got any other budding frauds well ripple you SPEAKER_354: called out ripple right oh let's not go let's go easy on the ripple to some people who are friends SPEAKER_358: well i think right now you're backing off i'm not backing off i just don't want to lose a member of SPEAKER_104: our little quartet here but i will say uh that my my fraud of the moment the one that's making my SPEAKER_361: spidey sense go crazy is tether usdt these these guys are i mean this feels like it is going to be a 60 billion oh the crypto thing stable coin there's a crypto stable coin the idea is they said it's one SPEAKER_104: dollar in u.s currency one dollar per tether always and then over time we find out maybe they don't have a dollar in their bank account for each one the new york attorney general finds them 18 million dollars says you can't work with anybody in new york they say we're not a fraud and i'm like well what about the attorney general who said you were a fraud and they're like yeah yeah no no that was a SPEAKER_365: misunderstanding yada yada i'm like there's no misunderstanding you know what we should do you SPEAKER_197: know we should do we should get all the fans the all in pod we're going to declare a certain time and SPEAKER_367: date where and we encourage everyone who's in tether to pull out a tether to stress the system and see SPEAKER_361: what yeah let's press test well the problem is you don't actually own your tethers that's the other SPEAKER_104: scam it's like eight or nine of these offshore unregulated crypto exchanges not the ones in the united states that are highly regulated like coinbase this is offshore and there are white what i've been told is you can create an exchange yourself with white label software and pop up your own you're like a you're like a bloodhound i mean like you just gotta sniff this SPEAKER_358: i mean i got nothing else in my life when i find this out i kind of i like it i love it it's like SPEAKER_372: one of my he's a bronx brawler he's roaming the streets looking brooklyn brooklyn i mean exactly SPEAKER_376: i love a good fight i love nothing going on right now yeah there's some other people i want to call SPEAKER_217: out there's some other people i want to call out so let's let's move on to it oh scott galloway dipshit oh no no for he's small potatoes but he's small potato irrelevant doesn't sex look like SPEAKER_361: thurston howell the third on his uh he does he does on a yacht yeah all right so jace is in florence SPEAKER_217: chamath uh chamath is at his estate i'll tell you where i am actually jaco you'll appreciate this SPEAKER_197: i'm on a boat uh outside elba which um is the piece of elba he's a little bit yeah it's where SPEAKER_367: uh napoleon was in prison i'll actually i'll show you the the prison where he was where he was kept i think you can see it me if i get to the right spot you know what we put the SPEAKER_390: nicola founder in there and we'll put uh elizabeth homes in there same place let's go can you see SPEAKER_392: the the uh just see your ugly face yeah whatever and your beautiful yacht SPEAKER_394: how much are people gonna hate us three of us are in italy in august it is like the stereotypical SPEAKER_400: work hard and you'll be of course of course i'm staying in an airbnb it's costing me 350 euros a night for four bedrooms i feel pretty good about myself i'm the center of florence i think it's you you're spending about the same amount on your boat right 350 400 euros a night per room yeah i got SPEAKER_403: i got the airbnb deal talk talk to us about afterpay sacks okay so well first i mean if we're SPEAKER_92: going to call somebody out first i want to call out paypal okay what's going on there i actually wrote a blog post about it um called the no buy list basically paypal is creating the equivalent of SPEAKER_197: a no-fly list with respect to their services terrorists well for anybody who they put does they deem as deplorable or undesirable basically they're working with the adl the anti-defamation league and the southern poverty law center splc to create lists of people and groups who they are going to ban their accounts now let me i got to say this the adl and the splc are storied institutions that did great work combating both anti-semitism and racism but they are now under new management and new leadership and they have greatly expanded their missions the adl was originally about SPEAKER_92: stopping anti-semitism now it's about um basically opposing extremism or white supremacy SPEAKER_197: and you know in any of the places they find it and so for example they've taken positions on u.s stream court nominations um i mean it's like they've gone very very far afield um of their SPEAKER_104: original mission the splc has gotten sued a number of times for putting people on these lists they put sam harris at some point on the list they put another human rights person on this anybody who challenges any or has any guest on their podcast that they the southern poverty law center doesn't SPEAKER_197: like they right they basically blacklist them right right and the list has become very expansive they've become very expansive so so here here's the problem is you now have look before this was just some ivory tower you know uh non-501 type thing where they would basically it was hyperbolic rhetoric they would basically call these people and groups names but now paypal is operationalizing these ban lists they're turning it into a no-buy list or saying we're gonna cut off your account and that's very dangerous because we've already seen the precedent with speech online that we had a bunch of social media companies banning people from participating in online speech now what paypal is potentially doing is banning people from from financial access and losing your right to speech is bad but losing your right to make a livelihood is even worse and i think republicans in congress need to say to dan shulman first of all it'd be great for them to haul him up there in front of congress to a hearing like they did with jack and zuck and sundar haul him up there and say to him in no uncertain terms we see what you're doing we don't like it we oppose it we're going to get on our hind legs and fight this uh if you try to deny americans their right to access the new economy we see no reason for your company to get any bigger we're going to oppose every acquisition you ever do and we may not be in power today but one day the tide will turn we will get control of congress and at that point you know um you know elephants have long memories so you know we're watching you and you know it's been a long time since republicans thought of their role this way that for the last few decades they've been very lazy or fair with respect to the economy but there's a very successful republican president on mount rushmore teddy roosevelt and he's on mount rushmore because he busted up the cartels and the oligarchs of his era and he fought for the rights of the of the common american SPEAKER_319: to make a living that is the playbook that republicans need to follow right now okay henry bellcaster you SPEAKER_412: got that clip right here let's get some animations on top of it let's go all right square has bought SPEAKER_95: afterpay for 30 billion which represents a large portion of their outstanding equity it's an equity SPEAKER_39: based deal what do we think freeberg they issued a third of their stock um to buy this company so basically square is a public company they you issued shares to afterpay shareholders um and afterpay only represents about four percent of square's revenue so they gave away a third of their company to increase their revenue by four percent that that's the pessimist view of the business now if you kind of think about square they've got two businesses that are equally sized one is like a consumer business uh this cash app yep yeah and they do a bunch of stuff including crypto in there and then they have another app uh another set of tools for merchants which is businesses on the other side so it's a mark it's becoming more of a marketplace business and the idea is that this afterpay deal can solidify their ability to basically be a lender to their consumers and provide a tool to merchants to increase sales because the way afterpay works it's a buy now pay later product these have been around for a long time and you could basically make a purchase uh online without having to put down a credit card or to pay for it and they instantly run a credit check on you and instantly offer you credit to buy that thing and then you pay in installments over time and so it allows people it allows websites and businesses to get more consumers to buy stuff because it's really easy for them to buy stuff if they don't have the money today right and by the way this this yeah this business this business concept been around for a long time there's a company called bill me later that was bought by paypal in 2008 for a billion dollars and it was a similar thesis right so the thesis you know what's old is new again the thesis is if you can provide these tools to merchants they will get more sales and paypal on the other side would make more money because consumers would spend more through the system um and and i think that's the same model with square but most important so we're seeing square consolidate the marketplace dynamics of their business they're also effectively stepping up and competing and making sure they're locking in the competitive advantage they have with having this two-sided marketplace against emerging competitors like a firm uh and so far SPEAKER_05: i know was the original yeah the public capital markets will always reward great growth strategies the minute that they announced this deal the market cap of square went up by almost 25 the deal is free Chamath Palihapitiya: free i repeat they just acquired a 30 billion dollar company for free which is what happened with whole foods and amazon here is the secret hiding in plain sight that not enough ceos understand about SPEAKER_73: the public markets and so for the ceos out there listening there are two ways for you to get constantly rewarded by the public markets number one is what square did which is to incrementally acquire feature after feature after feature the thing with buy now pay later is that it is not a company it has always been a feature and it's a feature of a much larger financial services platform and i think square is proving that and everybody else over time will realize it goldman sachs and apple are about to do something there with buy now pay later as well for themselves they already apple SPEAKER_121: already does it for the phones so the idea is that this is just a credit feature that should be on every single major network i wouldn't be surprised if whatsapp and facebook had a buy now Chamath Palihapitiya: pay later feature amazon over time everybody needs to have this feature you can't build a company around SPEAKER_73: it and so if if square can basically continue to acquire or build adjacent features that consolidates the financial services stack for their consumers the stock market will reward these guys they'll be able to grow and buy things for free for the next five or ten years the second way that corporate uh that companies can get rewarded in the public markets is if you look at your costs and you flip them from a cost or an expense into revenue and the gold standard is amazon so if you guys look back i'll just give you a very quick example because it's incredible in 2005 year-end 2005 amazon they had eight and a half billion of sales two billion of net profit their two biggest costs there was product and shipping so what did they do they started amazon kindle they started amazon basics they started amazon fire they started amazon echo and all of a sudden that whole thing shrank their gross margins went up then on the operating expense side amazon was spending six percent of revenue on fulfillment they started a fulfillment business they were spending five percent of revenue on technology they started aws they were spending two percent of revenue on marketing they started amazon prime they started they were spending two percent on payment processing they started amazon payments so if you look at any company like this square i think stripe is another uh part of me uh shopify is another great example where you can see the path to growth if you can see folks acquiring adjacent features or if you can see folks taking expense lines and turning them into revenue lines Chamath Palihapitiya: these are in my opinion sure bet companies that compound forever in the public there's great network SPEAKER_39: effects if you think about financial services for consumers i would argue there's five general categories there's banking lending trading crypto and insurance and i think in order of retention meaning how long a customer is likely to stick with a service provider it's banking then lending then trading then crypto then insurance and in terms of profit generation per customer per year it's trading then crypto then lending then insurance and then banking and so what we're seeing is a lot of these financial services providers to consumers in the digital world replacing the old school world by starting to consolidate these categories in a smarter way than the old school offline companies have been able to do banks need to make money through overdraft fees they make 30 billion dollars a year in overdraft fees so if you make banking entirely online and make it free you retain a customer and then you can make money by offering them lending trading crypto some of these other services and that's certainly the trend i have a big thesis and a big belief that over the next decade we're going to see those five categories start to merge and you're going to have three to five superpowers that are going to offer a consolidated stack of services and the unit economics are going to change because they're going to focus on getting the high retention products to be cheap and free and then they're going to make money on the high margin products the canary i completely agree with SPEAKER_73: you and the canary in the coal mine is who will be given a federal banking license because that is the only gate that the authorities have to king make who those consolidators will be and that's an Chamath Palihapitiya: easy thing that can be unemotionally assessed or amazon just buy one you have to apply no you have SPEAKER_72: to this is an incredibly arduous process to get a federal banking license to be cleared by the federal SPEAKER_431: reserve what if amazon bought a bank you have to get it approved jason you're not listening to me these are regulatory i'm asking a question for the audience you cannot acquisition versus applying okay so even if SPEAKER_433: you want to you can't just buy a company like you bought whole foods so for example uh i think square SPEAKER_73: now is a federally licensed bank uh and i believe that at that the federal reserve recognizes these guys they can borrow when they can borrow money at the discount window at the discount rate um as startups get more successful and can get there those will be the ones that will do what david said because it doesn't matter how many users or how much momentum you have if you cannot get a federal license to operate you can't consolidate so you can be a vertically specific great business but eventually you have to sell e-trade morgan stanley is a great example where you know in the absence and an inability to expand you have to sell yourself because the cost of capital um eats you up the the the the the comment on this by the way the most obvious one here which i think is interesting is the shopify stripe debate because if you look inside the pnl of shopify an enormous line item now about 350 million bucks a year is what they're paying to stripe and you know there's going to be a lot of pressure over time to figure out what these big businesses want to do with respect to their payment strategies and and do it themselves because they may be able to save a lot of money unclear SPEAKER_197: can i be like the lone voice of dissent on this afterpay thing SPEAKER_92: oh go ahead yeah well look it's clear the market loved it jamath is right about that it's sending a signal to everybody in the in the industry in the finance industry that consolidation is going to be rewarded it seems like finance is going to go the same way that media did where you start to see studios in hollywood all get gobbled up by big tech players sort of the final convergence of digital analog you're clearly going to see that in banking now too so as a as a business person and as an entrepreneur i respect and admire what jack dorsey has done with square but as an american i'm definitely concerned about this accumulation of power and we now see jack is the first person i don't think it's there's ever been anyone in american history who holds in his hands the right to deny people's speech on SPEAKER_197: a on a major speech platform and the ability to deny them access to a major consumer payments platform now he doesn't have dominant market share in either one of those either no he's got less than 10 in each but but he's an influencer and we saw that twitter was the first site to kick off trump and SPEAKER_92: then in the wake of that every other tech platform did it and square after january 6 cut off the accounts of everybody who was involved or connected to whatever that means and a bunch of other players in the fintech stack did it so we now have this issue of financial de-platforming paypal is already well down that road what will jack dorsey do i don't know i mean on the one thing why don't you start up SPEAKER_444: why don't you buy or start or incubate your own that's protection freeze for you you're not going to ban people from calling so you win just start your own square competitors sacks and stop complaining SPEAKER_367: jason look these companies have gigantic network effects paypal is over a 300 billion dollar mark SPEAKER_104: cap company if all of them if they back those 10 if they knock 10 of people off you get them now you SPEAKER_184: got your now you got your beachhead stop complaining it is not it it is it is a non-argument to claim SPEAKER_197: that a cartel of gigantic fintech companies that have monopoly scale monopoly network effects acting together that is not a threat to people's rights to have a livelihood it's not i'm talking about how SPEAKER_108: you can make money from it i'm just talking your book like this is not about making money for me SPEAKER_104: it's not about making money for me this is no i know but it is an opportunity like who's to stop SPEAKER_36: somebody from crea isn't parlor back and isn't there some other like um right wing or more conservative twitter that's booming right now i heard there's another one kara swisher was talking about i'm SPEAKER_197: predicting right now that financial de-platforming is going to be the big hot potato political hot potato over the next year this is the next wave of censorship and what i agree with what the republicans on the ftc on that board need to ask jack dorsey right now is will you import the twitter SPEAKER_200: block list over to square or will you keep these things separate bestie guestie jack can i just say SPEAKER_336: something sexy people i think you're right but if you just want to make a lot of money um and you SPEAKER_73: have to have some financial stock ownership over the next few years i think the the way to do it is just to kind of like figure out which of these emerging companies have or are about to get or have disclosed in their earnings that they're filing for um licensure and um i think you want to own those things because the the key thing is like when you get these licenses you just get a cheaper cost of capital it just allows you to out compete and out maneuver and then all of a sudden you're competing with these big lumbering incumbents who just don't have the access to the same flexible technology and they're running code that's you know 40 50 years old then the policy decision becomes much more complicated because i do agree with you that there's going to be platforming or de-platforming issues that happen the good thing about this that it is highly fragmented and that there is no clear path at least that i see for two or three folks to have 25 to 30 to 35 ownership that already happened sort of in credit cards and i think we've learned our lesson from that it hasn't happened since SPEAKER_145: i hope it remains that decentralized but what what i think the the reaction of the stock market to square SPEAKER_92: buying afterpay is now everyone's gonna be looking at that and going wait a second i can spend you know SPEAKER_73: a quarter of the mark cap my company and have no no my point no but david my point that's not what they're saying what they're saying is hold on a second these companies are features and we want to have folks who are licensed and capable to consolidate what friedbrook said these five categories and if you look inside a square they have an incredible lending business they have incredible merchant services business they have a you know a pretty decent and emerging crypto and SPEAKER_121: trading business right so they're putting all the pieces together that's what they saw SPEAKER_145: and they're licensed right but who are the big winners in this wave of consolidation going to be at the end of the day it's going to be square it's going to be stripe it might be it's going to be SPEAKER_92: paypal it's going to be the big online companies not the offline legacy banks it's the same same thing that happened in hollywood the only studio that didn't get gobbled up by a tech company is disney SPEAKER_455: right so it's gone 80 percent and they became a tech company and they become a tech they became a tech SPEAKER_245: company so i their whole business they they're gonna they're gonna catch up to netflix and then they're gonna roll netflix they're gonna roll right over netflix the reality is that there is SPEAKER_197: something about big tech that wants to de-platform people the legacy analog offline companies were never this moralistic uh towards their customer base they never de-platformed and banned people SPEAKER_433: the way that these companies are doing they limited their moralizations and their high horse to the oscar awards and the emmys you're correct jay cal jay cal i'm gonna do a i'm gonna do a a Chamath Palihapitiya: crazy wine dinner tomorrow night uh and it's about 45 minutes from you you should take a car um have them wait eat dinner and then drive back all right i'll try i got i i'm i'm doing i'm going SPEAKER_104: to see david which you know for me is a lifelong dream because you are every time i i'm gonna go see david because not david sachs david you know the the statue of david which to me is like looking in a SPEAKER_465: mirror my whole life i looked at that you know that body small stubby schlong i get it uh but SPEAKER_361: why don't you why don't i have so many tours i'm doing in florence maybe i'll zip out let's see maybe i'll zip out but i'm gonna see you next week it's 45 the question is friedberg SPEAKER_104: what are you doing get on a plane and come see your besties you're the only person not in italy you come for three or four days i know you got a pregnant wife i know you got a lot you're moving all this stuff you gave up on san francisco let me go talk to her just come for three days three days get her some present and uh maybe get some extra help at the house what are all your pilots doing SPEAKER_29: they're all just sitting there in italy hanging out might are literally having the best time but SPEAKER_05: they're living their best lives right now they're like oh we're going to take a tour of venice want SPEAKER_29: to get some do you want to get some hours in i mean no okay i'll send my plane it's united i'll SPEAKER_196: send united for you jacau why don't you come visit me tomorrow you don't need to see a museum you know you don't want to spend time museum hey sax why are you having a great time with my girls in florida SPEAKER_478: i'll see you all next week relax it's gonna be no i'm only jacal i'm only going for a day i'm SPEAKER_265: i'm coming to drop uh yeah yeah yeah i'm i i'm my mom's here you know like i have a lot of people SPEAKER_10: come for two days and hang out for two days with us what are you doing 48 hours it's not a big SPEAKER_361: deal bring everybody all right love you guys i love you besties all right yeah oh congratulations jacal on raw congratulations on robin hood okay yeah thanks guys oh yeah how much did you make on SPEAKER_36: robin hood jacal all i'm going to say is is my first fund my little 11 million dollar fund right now you know we'll see what happens a long way to go once again i'll have a top five percent one percent fund the first fund i did with sequoia with the scouts was like 150 cash on cash who knows this first fund SPEAKER_95: i did with you guys backing me uh thank you for supporting me that 11 million dollar fund could SPEAKER_488: be jacal six jacal six seven x could be who knows we'll see go big cash on cash yeah you know it's SPEAKER_95: a good feeling it's a good feeling yeah thank you for the proud of you free bird proud of you sexy poop proud of you guys for every everybody wait did you have any wins this week aside from spending a lot of money on wine chamop is there any spectacular news that we need to know well i think david can SPEAKER_478: confirm but i think uh i probably made a billion dollars this week all right there you go SPEAKER_492: oh something's going oh there must be a spec coming brace no no no no no no no no no something's SPEAKER_494: getting sold all right we'll find out next week we'll see you all next week all right bye bye SPEAKER_342: love you guys love you guys love you besties love you italy of course everybody's favorite the queen of quinoa the science conductor himself david freeborn all the data all the science says go SPEAKER_497: do whatever you want to do go into a nightclub sweaty robbing beef go into it nothing else matters go SPEAKER_502: into a robbing rave but i think understanding what the other counterpoints and counter arguments might be SPEAKER_505: is critical to get people to actually get to that opinion themselves as opposed to just telling them this is a single point that you should believe go into it nothing else matters so much about this point go into it everybody's favorite the queen of quinoa the science conductor SPEAKER_342: himself david freeberg the quality of the show he calls it the friedberg index great episode SPEAKER_532: go into it all the data all the science says do whatever you want to do go into it SPEAKER_500: robbing rave go into a nightclub go into it robbing rave sweaty necks