Elizabeth Holmes verdict, fraud origins & takeaways, navigating "The Great Markdown" & more
Full transcript · Read the full conversation in order, with its original context.
§01Segment 1
Happy New Year. Happy New Year. Guys, listen. Look at look
at this here.
It's now it's candle season.
Oh, god. Look at the equanimity. This is -- Look at this equanimity.
This candle costs $24,000. It is an extremely rare Brazilian sandalwood. You literally have to go into the Amazon. And, like, you know, you you basically have to, like
I mean,
find the extinct trees.
No, bro. You gotta you gotta tear out, like, 2 acres of rainforest, and then you find this one tree completely you know, sacred, and then you chop it down? You make this delicious
-- --
it and it lasts for a full 45 minutes.
How do you like that sweater, Karen? Oh my god.
Candal Carins are gonna Candal Carins. Candal Carins are clawing in right now. The DMs are coming You guys wanna hear about poker last night?
Oh, did you go?
So I go down I take my 8 hour drive down south to Chomazos. And I pull in and, you know, the security guard greets me nicely as always. I walk in, and I walk towards the poker room And everyone's in there with the door open like someone just got shot, masks on, freaking out. And Chamath is inside the house, and I wave, and he's like, get in here. And then I go and he's like
--
Oh, who was positive? Max, the
dealer tested positive, and then everyone been hanging out in the poker room with no mats doing. Uh-oh. And so, you know, they're
super spreader. The only the only two people that were exposed to Max we sent home.
Yeah. So everyone starts freaking out. He shuts the the shuts the poker game down. Shamov kicks everyone out, sends everyone home, and then he's like, alright. Let's go have dinner inside.
know, we're we're not we're gonna we open up all the doors. We're gonna kind of lice all the room tomorrow. We all go in, have dinner. We're you know, Chamath and I go in and have dinner with Matt and the kids, And then Shamoff starts thinking, you know what? It's okay.
They they were only exposed for a few seconds. Let's call fill back. Okay. Let's call Shekel back. Let's call Keating back.
And then they all come back for dinner. And at this point, it's become, like, a dinner party, and then a couple of glasses that wind in. And then it's like, you know what? The room's probably safe. We should go for dinner.
I mean, the whole poker night went through the entire cycle of psychology of COVID. The the whole pandemic is like, oh my god. get everyone out, lock up. And then by the end of the night, it was like, you know what? Let's go in the room and just play poker and give each other COVID.
They got to acceptance.
They got to acceptance. They went through the whole emotional cycle of the pandemic. In 1 hour.
Does anyone know anyone who's a serious case of Macron? No. I mean, I know dozens of people at this point, and they all say it was a cold.
--
dozens of people, and that's just
for your holiday party.
--
was on social media. Jake was on
social -- -- party.
Jake was on social media giving everyone the update. like, oh, I sneez today. I'm oh, I still tested positive. He's, like, showing you his positive test.
And then he's doing this in his ski slope.
my super fans, my stands were concerned.
It's the only good test result Jake has ever had.
Yeah. Exactly.
It's the only is it. That's true.
I'll let your winter ride. Rainman, David Saffens. and it said We open source it to the fans and make discoveries.
Elizabeth Holmes has been found guilty on 4 counts of fraud, faces 20 years in prison for each guilty account. They would be I understand served currently. Most people I hear speculating 4 to 10 years, and then I think you can get 15% off for good behavior. Again, I'm no expert on that, but that's what I read. Guilty counts were 2 counts of wire for and 2 counts of conspiracy to commit fraud.
She was originally in charge with a total of 11 counts of fraud.
4
were guilty. 4 were not guilty.
3
were a split verdict. The jury said they were unable to come to a unanimous unanimous Verdict on 3 of the counts after more than 45 hours of deliberation quote from the Wall Street Journal article, jewelries were persuaded that miss Holmes conspired to defraud investors. This outcome could be significant because it means 100 of
1,000,000
of dollars if there are no investors. That there are no investors. Loss could be taken into consideration during her sentencing. It's big numbers. The jury was split, however, on which of the 6 investors who testified were defrauded the jurors' convicted of his homes on three counts, These included a
$100,000,000
from the family office of former ed educated secretary -- We know the
details, Jay Cal, so I believe
it was, like, doing it for the audience. So anyway, thoughts on the legal technicalities of the case. counselor at sex?
Well, we've talked about this before. I mean, I think so at the end of the day, she was convicted on the counts related to deceiving investors. She was not on the counts related to pay I think that makes sense in that her obligations to investors are very clear, whereas I think the the patient related duties or I mean, she had them, but it's a little bit less clear. So, I mean, look. It's it's what we've always said here.
As a founder, you can be as messianic as you wanna be. You can promise, you know, anything about your vision and what you intended to the future. But what you must do is be accurate about the current state of your business. You cannot lie about the deals that you've made, about the current capabilities of your product. And she was putting, you know, logos of customer she didn't have in her deck.
She was lying about the military being a customer. So she simply -- Exactly.
--
misrepresented where she was at that time at the at when these investors invested, and that was the red line she should not have crossed. And I think in that sense, it's a pretty simple case. I think you know, the the the part of this again, you know, the the the the piece of this that's interesting is not the case itself, but really the media coverage because the media wants to portray this case as an indictment of Silicon Valley, and the thing you keep hearing over and over again.
None of us were involved. Yeah.
Well, just factually, yes. Exactly. We weren't involved. But what what what
you there's not a single person in Silicon Valley, I think, who put in a single shekel into this thing who actually does this as a real job.
Tim Draper.
Well, she he doesn't
see investment.
--
put in a little bit money as an angel, and then he he didn't put a single dollar in after that. I'm saying, you know, you didn't come to social capital or graph ventures or to Sequoia or to TPB or to Google to raise money for this thing. None of that happened. You know, Saks is right. Like, the the summary of The Wall Street Journal, Nick, you can post it because I I put it in the group Chamath.
Basically summarize the fraud and is exactly what Saks says. She affixed the logo of specifically, I think it was Pfizer. that had not validated Theronosis technology. In materials, she presented to investors. So she's basically like Pfizer said this is a go.
And apparently, that wasn't true. She gave the false impression that the devices were used by the US military. That's what got all these military folks to sign on board and support it. That wasn't true. And then and then she the biggest coup was that she signed a deal with Walgreens in Safeway to include its devices in hundreds of stores And then many investors saw these contracts as an endorsement of the technology and growth potential.
But basically, those folks did no diligence and bought the hype, and so it was just whole cycle of this thing that basically fell apart because the tests didn't work. Friedberg?
What are your thoughts as our science guru.
What what's most interesting to me is how does this get to this point? If you're Elizabeth Holmes, you're nineteen years old, and you start telling your story, and the more grandiose, the story you tell is, the better the reaction you get is, it becomes reinforcing. And the behavior extends a little bit further and a little bit further. Every time she told a story about how incredible this tech was, it's just one drop You take one drop. It can measure everything.
When she simplified it and reduced it to that, and it was such an incredible statement. And she saw the reaction from people, she's like, wow. That works. Let me repeat it. like any good salesperson, they figure out what sells and then they sell it and then they repeat.
And what's interesting to me that, you know, you talk about the media But when she went out and told her story and got incredible press coverage because she was a young female doing something that was gonna save lives. There was this altruistic, the jobs esque kind of combination here. the media wrote a glowing review of her. And then she said, wow. Look.
They said something great. Let me go do that again. And she got a bigger media piece written or a bigger media piece. And the more she said, the bigger she said it, the more she claimed she could do, the bigger the story got, the more coverage she got. And the whole thing became this kind of reinforcing cycle.
And I do think that the press coverage that she got as she was building this business, which helped her raise capital, helped her attract employees, helped her get Walgreens and Safeway to the table allows -- Those
are downfall.
It it
allowed her to build the business, but it's exactly what created the narrative that wasn't true. And so the coverage that the press gave her and we see this every day. You guys all see these top 50 companies And we all know having met a lot of these companies as you go down that list, this this 20 companies are total scammed companies. They're fraud. They're not gonna work.
They're gristers. all the stuff that you guys might say about the quality of those businesses. But the press reporter isn't doing diligence. They're not a
--
No. You know? It turns out all the diligence was done after the fact. And then it's like, well, maybe we should go do some diligence. Oh, wait a second.
Because the the press coverage has now created this hype story of that boo and what she is, the the diligence actually pays off because you have something to take apart. If she was just a nobody startup that raised $30,000,000 and they're still trying to figure out their there would be no value in any reporter doing diligence on her and trying to figure out what was actually there. It was because the story got big that it gave everyone, including John Kerry, an incentive. He's the Wall Street Journal reporter who broke all this, an incentive to go in and take this thing apart. And so it's really unfortunate, and it's really self reinforcing.
that the press coverage that created the circumstance here ultimately also enabled them the press to take the thing apart, and, you know, land this woman in jail. And I'm not saying she did nothing wrong, but I'm just saying that there's a system here. And the system is set up -- Yeah. It's a manipulator press.
§02Segment 2
Yeah. She let me ask let me ask one question. You're a free break, and then I I got a question for Saxon Chamath. Her basic premise that one drop of blood could get you 100 of results. Let me just ask you a question for a break.
At what point would one drop of blood or so, a nanotube be able to at our current technological, you know, ramp, be able to give us a 100 different data points on a person.
every time you're generating a data point, you're running what's called an assay, which is a measurement of something. The question is how much of a moly cool are you measuring against what volume? Is there enough of that molecule in that volume to give you a statistically good reading? And that is a function of how precisely you can measure that thing. So there are there are great advances happening right now in a in a domain in life sciences of of hardware technology called microfluidics.
This is the manipulation of picoliter, you know, very, very small volumes of liquid. and then being able to run chemical assays using biochemical techniques, which we now have all these amazing new kind of tools like CRISPR and other things, that would allow us to get a much more precise measurement with a much smaller volume than has ever been possible. So we can manipulate small fluids. We can measure them. So there's nothing today that would physically say we cannot do many of the things that she claimed to have been able to do.
But there are there's a stacking of technology assets that need to be done to make that happen in reality.
Take a guess.
And each of those assets are very different. So, look, you could do it with cholesterol right now. You could do it with blood sugar right now.
But you couldn't do both.
You could. Theoretically, you could put them into a device and do that.
No. The reason the reason why lipids work -- Can
you do four hundred things with camera?
You cannot I've I've actually funded 3 of these businesses, and I poured almost a
$100,000,000
of money into it. And they've all failed. And the reason is exactly what he said. You can do cholesterol because lipids are big enough. You know?
And so you can basically build an assay that can pick that off with a drop of blood. you can do a reasonably good job with pretty large error bars on sugar. But all of this other stuff where you're gonna replace like a, you know, a CBC or these broad, you know, profile panels that we all get once a year to assess our health. Today, I don't think that that's necessarily within reach. It's not within technological reach, and it's not because people aren't, you know, smart enough.
It's just that not enough of this investment is happening because then you go back to this whole idea where the funding cycle needs to see a big payoff for the capitalists to wanna get involved in this thing, and there really isn't. You know, it's not as if, like, Quest And Labcor are printing $400,000,000,000 of revenue and profits. And so that's not like there's a massive economic incentive to run-in. And so even one, you know, we have tried in multiple occasions with completely different teams of incredible people every single time we have failed.
So there's a physics law here that's just not physically possible. She made this claim, Saks -- Remember.
And don't don't make it broad. There are things. There are molecules. There are pathogens. There are things you can absolutely detect, small molecules.
Small molecules. You can you can detect with a drop of blood. you know, magic counting how many blood cells you have in your whole body, you know, using an estimate from a single droplet of blood because, you know, we have these machines called flow side geometry machines where we sort blood cells. And then it it'll tell you how many red blood cells you have and how many different kinds of white blood cell. That's a big part of your annual checkup that you'll typically get.
know, you need a good amount of blood to get an accurate reading on how many blood cells there are using even just using lasers and and, you know, these sophisticated machines, can you reduce that down to a droplet? physically, probably not. Right? And so there's some it's not universal to say, this is possible. It's not possible.
There are elements that are absolutely possible, some of which are being done today. there are some things that are gonna be very hard to pull off.
Got it. And she was making these claims as early as 2003 when it was founded. So we're talking about 19 years ago, and we're saying here it's not gonna be possible to do hundreds of these things maybe in our lifetime. We're talking about decades from them. We need to be some significant breakthrough.
Saks, let me ask you a legal question. I was on a podcast and I said to them, why haven't the prosecutors? How add Bill Maris, who is a friend of Friedberg, who helped me get him on the podcast. He was great. Thank you for that, David.
I'm the speaking of startups.
Very smart guy.
Very smart guy. And he came out publicly when he was running Google Ventures. And he said, we looked at it a couple of times. He's referring to their but there was so much hand waving like, look over here that we couldn't figure it out. So we just had someone from our life science investment team go into Walgreens and take the test.
And it wasn't that difficult for anyone to determine that things may not have been not be what they seem here. Now, Saks, I was on this podcast to dropout, which I think is an ABC News
1.
And I said, why didn't the prosecution bring up you know, GV, let's assume Sequoia, Andreessen, and, you know, the 20 top firms in the Valley who said no. And they all said no because she wouldn't show them due diligence. And I asked them, why didn't the prosecutors bring up those 20 firms and compel them to testify about why they didn't invest to give the counterexample? And she said, I don't know. Wouldn't that have been a much better strategy to say, here are the credible people who didn't invest.
I'm not sure I see the relevance of that because Elizabeth Holmes' crime was not promising something that she couldn't ultimately deliver on. It's okay to fail in Silicon Valley. One of the best things about Silicon Valley is that we don't punish failure. Her mistake wasn't making misrepresentation the people who did invest.
Right.
If anything if anything, actually, what what Elizabeth Holmes maybe should have done was call up some of those firms. And they could have said how easy it was for them to figure out that they shouldn't have invested. Maybe that would have been a way to kinda muddy the waters on her side
to say
--
I was thinking that they would have said, hey. She wouldn't show us the technology. And when we did our independent diligence, she wouldn't let us diligence. We did outside backdoor diligence. It failed.
There were red flags all over this thing. We we had talked about it in our poker games way for this thing went off the rails. The fact that there were no major VC firms involved who could who had expertise in biotech, who could do the diligence, it was all sort of it was basically family office money of people who weren't in Silicon Valley, you know, writing big checks, whether it was Rupert Murdoch or the Devoss family or what have you. There were there were just red flags coming off this thing, which is why Silicon Valley was not by and large, Duke by it. The people who were duped by it were the people that Elizabeth Holmes was able to sell the Patina of Silicon Valley to.
and the media because the media won't won't what we've seen over and over again is they don't fact check stories when they fit their priors. The prior here is that, you know, what the media want to believe is that the Next Steve Jobs is gonna be a woman. And so when Elizabeth Holmes served that up to them wearing the black turtleneck, it was too good a story for them to fact check too heavily. And so they ran with it.
It fit the narrative.
--
same way in the same way that, you know, the ivermectin hoax that Rolling Stone ran with was too good a story to be fact checked because they want to believe that the MAGA people in Oklahoma were eating horse paste. I mean
--
No. There's there's a 100 better examples of just, I mean, just to be generic Saks of other startups that we all know are total nonsense. And
--
So total nonsense, there's -- -- write
up about them.
There's a there's a fraud in biotech going on right now that, hey. David and I David and I saw upfront. I mean, it's like This stuff is crazy. It's really, really crazy.
So look, I mean, I think the moral of the story for entrepreneurs I mean, I think there's a couple of takeaways here. Number 1, you gotta be really clear with the press state of your business. It's okay to talk about your grand vision of what you're gonna do in the future, but you cannot be inaccurate in any way with respect to your current numbers and partnerships and deals and current capabilities. I think number 2, I think when you start working with the media in this way to promote your company, you're playing with Fire. Because the media really has 2 kinds of stories.
They build up and they tear down. And when they're done building you up, they're gonna tear you down because that's the only story left to right. So if you're gonna go court the media in that way to try and get publicity, you better be really careful how you do it, and you better be really accurate And you better not give them cause to later regret pumping you up because they will tear you down even harder if you do that.
I think I think the more important danger that I just like speak generally to for a second is to not let other people do your thinking for you. The investors that came into this business came in under the assumption that this was a real business because the press had written about it. And the press wrote about it because the general had joined the board. And the general joined the board because his buddy, George Schultz, said, hey. You should meet this lady.
And the whole thing ended up becoming this roundabout where no one actually did any original thinking, and no one did any actual
diligence stop.
And the whole thing ended up being this
--
I'm sorry. Yeah. Now you're talking about Chuy, how Silicon Valley works. So that's fucking bullshit. Yeah.
Okay. You don't think these dopes run around thinking, oh, Sequoia, benchmark, social capital, craft, invest. I'm just plowing the money in. Of course, they do. They don't even think
social proof.
They assume that we've done our diligence.
No. Come on. I'm not sure. You think
they're doing principal diligence these like, the the Silicon by the way, also
the this is also how the birdie madoff scandal, you know, got so far ahead of itself. No one actually went in and did the audits of those financials. Everyone assumed that because someone else has is in this thing, because someone else is involved or someone else something nice has been written about it or said about it, it's worth backing. And, like, the lack of original thinking in business, in life, in general, I think is one of the biggest, you know, risks that each of us takes, and that's why it's really important to learn how to thank
§03Segment 3
you for yourself. I I have deep respect for early stage investors because they have to get in and make some critical decisions. Some people make those decisions about the team, Right? The psychology of the cofounders, sometimes it's about the end market, and sometimes it's about a deep analysis of the traction. But you have to let's be honest.
There is a valley of funding between the series a and maybe the d or the e where I really think a lot of folks just look for signaling value based on who the series a investors were. It
may blind
I'm not sure. They're making I'm not sure that those family offices were any worse or any better. Like, maybe the Devos family looked at Rupert Murdoch and said, he's smart, so I'm in.
Yeah. That's exactly what happened.
That's so different than all these series B And C Firms that say, oh, benchmarks in Ahmed.
Totally. It's the exact same
thing. Totally.
I literally had a situation, and I think I brought it up in a previous episode where I was working on a deal. It wasn't like a major check for us. It was, you know, a 6 figure check. And they said that none of the other firms are asking for diligence, why should we give it to you? And I was like, how much are they putting in?
were putting in more money than I they were putting 7 figures in. Crazy. And I said, because
I have no fees. When you ask for diligence now, some of these founders look at you like, how dare you?
Yeah. Exactly. they no. In this case, they
were insulted, and they said we're not giving you diligence, and they and we walked away. It's like something healthy.
--
without visiting the house.
Yeah. They're, like, buy it without a
this company that David and I called called, you know well, David was calling it Theranos 2.0. But This company couldn't even explain gross revenue. They couldn't they didn't it was like gross revenue asterisk, and it's like, If there's one metric on a p and l that can never have an asterisk ever
--
The top line. The top line grows revenue. -- that came
into your bank account.
--
tough I get I
get I get adjusted EBITDA. I get EBITDA. I get GAAP. I I get it. Okay?
But gross revenue, asterisk?
How are you seeing what the register is about? Open the register and count the money. And so I would just remember asking a simple question. Like,
Can we just take the asterisk away and just tell me
what -- This
is this is a company that
2
of you were looking at together?
Oh, god. You and me and
I have talked about many times.
Oh, really?
You're Theranos 2.0, sir. That's what this company
And I and I learned a lot about Delaware law. I don't know if you guys have had -- Wait.
I've I've talked about this company? Yeah. Yeah. Well, you in
the text, you were like, I'm shorting. I will
tell you in
a minute.
We'll tell you. Oh, right. Yeah. You know what shit is. But, anyway, I've been getting a big a lesson here about Delaware law, there's something called the section 220.
Have any of you ever had to file one of these?
Oh, by the way,
in short, it
it worked out really well. Sorry. Go ahead. Do any any of you aware of whatever?
Oh, you try it.
Any of
you aware of what a section
220
is or heard of this before? Basically, in a Delaware corporation, if you're a shareholder of any size, not just like a board member with 10% or whatever, if you've feel there's malfeasance going on, you can file this 220 in Delaware. And according to this, a great Scadden ARPS article on this, the the Delaware courts are taking you very seriously that if there's any accusation of any kind of malfeasance, especially financial, any shareholder even tiny can get all of the books. And in detail, not board minutes, not top level p and l. Like, detailed financials.
And so for people who are running companies
So this is
private companies too? Or This is in private companies. Look up section 220 of the Delaware general corporate law.
I remember at Facebook is because we had these vagaries of having to control shareholder count or stuff like that and information rights. Yes. We actually kept the financials on a physical computer that was not connected to the Internet. So the people that wanted it would actually come to our office, and then we would put them in, like, a windowless room without their phone or Is that I think that's how
That's that's how they avoided people filing 220 requests. And so it's just something for people to be aware aware of on both sides of the table that if their shenanigans going on at a company, founders think, well, I don't have to give any information to my shareholders. That is not true. And it's not true. Whatever you have in information rights, whatever your lawyers wrote, is not above section 2 20 in Delaware.
So just keep that in mind.
I got a case like that right now going on.
where -- A
founder won't give you information?
Well, it's not the founder, but there's a company that just sold and they won't tell the shareholders like the terms of the deal?
What? Yeah. How's that? He can tell you when it's possible.
Good question. but it's it just wreaks of of fraud. I'm not gonna say the name yet because I'm hoping that they're gonna start acting in a more kosher way, but it's the most egregious thing I've ever seen.
All you have to do is talk to your attorney at Wilson, Fenwick, or whatever one of the cohort of So -- You literally
have the management of the company. They've engaged in a sale. The sale's been publicly announced. We have reason to believe it's in the hundreds of millions, and they won't tell anybody the terms.
Yeah. Follow a 220. Follow a 220. And you know what? They're public.
So then the crazy thing about these 220 is is it used to be that all of the information had to be private yet to sign, like, nondisclosures, whatever. And now in certain circumstances, I think it's in the best interest of all shareholders that 220 information can be public. And so that is just like a sniper shot to anybody who is doing any kind of shenanigans. we had a company in the same situation who wouldn't tell us about a sale. And then I have a call with the board because I own 7% of the company.
This is years ago. I said, can you explain to me what happened here? And they're they're like, yeah. What are we doing in the sale and blah blah blah? And it turned out the bankers were taking 40% of the sale, whatever.
And I was like, okay. Well, I'm not gonna approve this and it you you need my approval. Let let's talk about how we could make this work because we have outside funding that the company's turning down to do a sale that everybody's losing their money on. Doesn't make any sense. And they said, well, we can't really do that because we've already sent the 8 employees over to the new company.
That's buying it. I was like, What do you mean? Like, when we ran out of money to pay them, so they all moved over to the payroll of the new company. I'm like, you haven't closed the transaction yet. Wow.
It was crazy. Like, there's some weird stuff that happens in private companies.
Yeah.
This stuff is always at the peak of when there's a correct Right? I mean, this may be a good segue to talk about what's going on.
It's a great segue.
But it's like that level of grift happens right before you know, basically, we have to rerate valuations.
You know,
because all the problem about entrepreneurs.
Entrepreneurs just takes so much Well, there's just a small small percentage of them, but they just take so much leeway in pushing the boundary.
And And sometimes it's other board members who are acting their own interest. But I I this problem really easy. I called the CEO of the public company that was buying them and explained the situation. He's like, talk to my CFO. I'm a fan of the pod, whatever.
And I they said, how do we solve this with you? I said, well, this is how much money I have in. This is the value of your company. How would you like me to be an adviser to your company for the same amount of that value and shares?
Also, you grifted.
So no. That's great.
So basically, you got bamboozled, and so you bamboozled everybody else by the way.
I used by leverage. And then they said, okay. We'll make you an adviser. Then I took the adviser shares, and I wrote a letter and pledged them to my investors. And my investors are now 3x your original investment.
And I said, I'm not letting it go. I'm not signing the paper until I get the 250 k that my investors put in, period. And then they They didn't. Now I'm I'm up. Alright.
Let's segue. Crazy market pullback. The great write down has occurred. Charts from Al Timeter, our friend, Brett Gertznan, I assume show a major regression to the mean for tech stocks, SaaS index, median enterprise value, next 12 months, expected revenue, yadayadayada. This includes people like Adobe, Datadog, Shopify Twilio Workday.
And as you can see here on the chart, which will pull up, Sachs, explain to us what's happening here.
Well, it's a major regression to the being on value on public company evaluations in both SaaS, but also more generally. The the high growth stocks have corrected more than the indices. So that would imply that there might be more correction to come against the indexes. I think the growth stocks already taken the bulk of the hit. But what triggered it this week, you know, I predicted, and you guys had similar predictions on just a few weeks ago that this would be 2022 would be the year of the correction.
And it really began in November. You had the the Fed You had fed governors make some hawkish statements about the about inflation, not being transitory about the need to raise rates, Then we had the the Fed open market committee meeting. This is in, I think, around December 15th, and they announced what they were gonna do on rates. And now this week, the minutes of that meeting were released. And it basically it said something that was completely different than what they announced to us just 3 weeks ago.
And so the market basically just seized up and went to convulsions. And specifically, what they said, you know, in in mid December was that they were gonna taper faster. They were gonna n q 1 sorry. They were gonna n q e at the end of q 1 instead of q 2, and then we're gonna have quarter point rate hikes in q2, q3, q4. That was the plan for 2022.
And then there was additional guidance that they were expecting 3 more quarter per point rate hikes in 2023 and 2 in 2024. So that was sort of the 3 year plan that was laid out. then we find out from these minutes. And I guess these minutes weren't leaked or anything. They they published them after, like, a 3 week revised and extended remarks type period.
But what we find out is that they're what they were talking about was having a rate hike as soon as q 1 and not just ending q e, but actually shedding assets, which is like the it, f q e. So instead of basically going out there and creating money
--
Shrinking the balance sheet.
Yeah. Yeah. Shrinking their balance sheets. So instead of going out and buying bonds, they're gonna sell their bonds which will reduce the money supply. So look, if that was their view 3 weeks ago, why didn't they announce it?
I mean, my problem with this is it makes the Fed look like they don't know what they're doing. Because they announced something just three, three and a half weeks ago. That's completely at odds with the statement they just put out. So either something changed in the last 3 weeks, and there's been no data, or they don't know what they're doing.
§04Segment 4
Just so you know, they they they have a little bit of a track record this. So in 2018, it looked like there was going to be inflation. And Powell tried to get ahead of and he raised rates, and the the market completely collapsed. And they were looking, I think, a Chinese data at the time. And it looked like, you know, China was turning, you know, going crazy.
Then China completely turned over. It was a complete head fake. The economy wasn't reporing. Inflation didn't exist. and they basically just curtailed a lot of investment and destroyed a bunch of value.
So this time around, I think they're very sensitive to not correcting too quickly, but then the opposite thing happened, which is they probably waited a little too long. And now, you know, we're correcting too slowly too late. into the cycle. And we're just sort of digesting that reality. And so I think that, you know, we're probably, to be honest with you, like, actually, like, we've puked it all out for the most part, in my opinion.
You have to remember. Right? Like, The big difference between now and even 10 and, frankly, more importantly, 20, 30, 40, 50 years ago is how many computers are involved that trade how much passive money is involved that owns assets, and how much of this stuff is sitting on the sidelines still in money market accounts and munis So if you look at those markets, there is a ton 1,000,000,000,000 of dollars waiting to find a home And what we've now done and Brad's charts show this is we've basically chopped the head off of all of these fast growing growth The underlying companies have not changed once until it. Right? These companies are still growing by crazy amounts like Snowflake is still an incredible business.
Unbelievable. But the multiple that one was willing to pay has been has has been very much rerated as is a bunch of other
companies like it. -- ask you a question, Shamal. if we've gone from these 50, 60, 70 multiples time sales, and now it goes back down to 20, is that, dare I say, a buy signal?
Well, my -- Those
trillions of dollars start moving back in because who wants to be in a money market? I I
don't I don't know, and I I can't really call these things. But one a a really smart person that I talked to this week you know, he actually liquidated everything in October November. And, you know, then I'm I I I don't know. We talked about this on the pod, but, you know, I was feeling so much tension at the end of last year. I actually when I look back on q Four, it was probably the most difficult quarter of my professional life.
and just trying to manage risk. And I exited a ton of positions. All my pipes, you know, my third party pipes, I basically sold off except for 1. you know, I generated some liquidity in other places as well. And I was glad that I did that In part because I saw, you know, what he was doing and in part because, you know, Jeff and Elon were selling.
And I thought, I mean, this is just this is crazy to sit on the sidelines and you know, be the bag holder here. Going into q 1, I talked to the same guys. And what he said to me, which I think is very smart, is you have to really look at the 1st and second derivative of the 10 year bond because when that stops moving, like, the 10 year bond is this beautiful barometer of the collective wisdom of every single investor in the world about what they think about long term growth and inflation. And it's a really important market. You know, we've talked many times.
Look at the 10 year breakeven if you wanna understand where inflation is going. We started to talk about that 7 months ago. And if you look at that, the rate of change so the volatility in the 10 year yield is slowing way down. And if that continues to hold, that means that people are really saying there's a small amount of real inflation a reasonable amount of transitory inflation, and we're about to kind of wash most of it through the system with, you know, a 100 basis points of rate hikes. And if that's the case, then you may see a quick pullback, you know, in q 1, and we're back to the races again.
because of all this other money that's gonna say, I gotta get back in. And if you look at all these corrections in the world of computer trading algorithms and ETFs and passive money and It's all the snapbacks are so fast. You correct 20% and then whoop. You whip it back and you go. So I don't know.
I mean, that's one view based on the past. But
--
When you have these big swings, remember, it's not that every issue moves perfectly in sync with every other issue. So there are these call it over adjustments that happen within a cohort. So within a group of companies, some of them will trade down much further than others, the multiple will compress much further than others. And there's certainly opportunities within as there is in any market that's moving quickly to find businesses that now are prices mature non growth value businesses and they're profitable and growing. And there's a bunch of those out there now, and that wasn't the case a month ago.
I don't think a single thing in the last quarter has changed in the underlying fundamental of the majority of businesses that are public. And I actually think for the most part, nothing has really materially changed for the majority of private companies. All that's changed is what you're willing to pay in the future for it. And the one thing that hasn't changed is what you're willing to pay in the future for the private businesses. So the real question, you know, for Saks and, you know, for the active investors in the private markets, which I don't know what to think about is Will the haircut that we've all taken in the public markets spill into the privates?
And if so,
It's starting.
But I
it feels to me it's not just about what's gonna happen with new emerging growth companies, but, I mean, you guys correct me if I'm wrong. But there are hundreds of companies that have raised 1,000,000,000 of dollars at valuations that if they look in the public markets now, they are never actually gonna achieve if they were to go public in the next 3, 4, 5 years based on their projections.
So to your point, so we're in 9? Yeah. They're 900 unicorns right now. 900. And so once you get to look.
It's one thing to be a $200,000,000 company in sell to Microsoft or whatever. But when you're a $1,000,000,000 company, there are very few buyers.
And I just wanna point out there's a huge disincentive for an investor or a shareholder of VC or a private equity firm to take a big write down on a company like that. And so there there is always this push to what do we do next, and it creates this certain certainly -- I can
tell you. Yeah.
I'd love your point of view, but you're this really, like, unhealthy tension because to take a write down on 900 unicorns is gonna cause a write down of 100 of 1,000,000,000 of dollars across all VC portfolios in aggregate because they're not gonna end up going public at
you know? Sorry. Just to finish your thought. because the end market is only to go public. There are very -- There
are no exits. Yeah. There are
no and not in the 1,000,000,000 of dollars because you have
to think -- 1 or 2. 1 or 2. -- big
Big Tex off the sidelines. Okay? You know, even if you look at, like, these in Mastercard,
there nobody's allowed to buy these big
companies here. I'm
gonna I have an example that I could tell you. I don't know.
Mid to your maybe, but my point is when you have 900 companies worth a $1,000,000,000 and plus
--
They have to go public.
They have to go public. And so -- Correct. you can't go public into a valuation framework that values you at 30 to 40% less of your last private mark.
Right. Yeah.
It's that doesn't work. You did have -- Or do you use
tobacco. You she do. So this is a an important question because
isn't that gonna be the case
that all these VCs with the the
2015 20 16, 2017, 2018, 2019
vintage are gonna end up having they've all got these great marked books right now. You know, the books are all marked to 3x. you know, multiple and invested capital. And now they're gonna end up having these liquidity events that are gonna come in at shockingly low valuations And there's gonna be this great re write down and retrenchment.
I I
could tell you there's a couple of examples. One is the athletic yesterday, which had raised money at 500,000,000 just 2 years ago. just sold for about 500,000,000 to the New York Times. And those investors basically put money in and they got their money back. It's a push.
So I
think you're gonna see a
lot of these pushies.
I'm agree with you. Yes.
I'm gonna give you the examples. Then there's also
-- --
acquisition by mid tier comp acquirer.
And so there'll be plenty of those that occur. So there'll be a lot pushes, I think, is my prediction of those 900 unicorns. And then for a lot of these SaaS companies
--
You're saying you're you think that a bunch of them are gonna sell for under a $1,000,000,000, and the VCs because they have preference, they're gonna get their money
back. Correct.
I think it's gonna be a lot of these pushes where I don't know. What is it in blackjack, David, when you're playing those three hands and you get a push, like, it's like, okay. I'm gonna live to to fight another hand. Now which we've seen Saxon a number of times. And then for the SaaS is where SaaS, I'm interested in your position because we saw on SaaS all of a sudden, the private market
30, 40, 50, 60, 70
times top line, and now it's gone back down to 20, 30, 40. So those companies now basically
-- --
have they?
-- 3 --
The the public markets have, but I don't think the
private market
has happened already. Everybody's pausing. so for the people who raised that 50 x, congratulations. You did the right thing. If you have enough money to fill in that valuation Is it the
congratulations, though? I mean, it seems like they're in a pretty pretty tough position now. You know, you
just raised
money you just raised money in a $1,000,000,000 valuation with $10,000,000,000 of revenue. you're like
-- 420.
Let's say let's say
20
would be more like -- I mean, like, what are you gonna do with it? What are you gonna do in your next round? because you're burning a 100,000,000 a year now or 40,000,000 or whatever it is you're burning.
almost all the companies I've seen in this exact situation you're talking about have that
20,000,000.
They got a 1,000,000,000. They raised a 100,000,000 or
200,000,000.
And they're basically now saying, okay. We gotta make this last until we can catch up to that valuation and get to 50 to 75,000,000. So I think you I would take that deal as founder and as an investor because it takes out the downside, and now you just have to worry about catching up to the valuation, and you have 4 years of runway. They're not gonna do their
§05Segment 5
rightsize this money.
No. No. No. No. No.
No. No.
Those companies do not those those companies absolutely do not have 4 years of runway. I will bet dollars to doughnuts. They have 2 years. or less, and most of these companies have 18 months. Which means
they gotta be raising in 6 to 9. No. They're changing they're changing their
spend and they're changing the target assuming.
spend. They're not firing anybody. You're not hearing about layoffs at start ups.
Okay. Alright.
You're not hearing about it, but maybe they're changing their forward looking growth plans. What are you seeing, Saks? I'm telling you what I'm seeing. What are you seeing, Saks?
I think that the trickle down effect is inevitable, but I'm not sure it's fully kicked in yet. It's gonna take a few high profile deals to land at, say, 50 times ARR instead of a 100 times ARR in order for everybody to know that there's a new valuation level. So if you
look at the altimeter chart on set public SaaS multiples let's
see. I mean, Nick can pull it up. It basically it's the SaaS index. It shows median median expected value to next 12 months revenue. And during this sort of late 2020 or early 2021 period, it got as high as about fifteen times the historical average yeah.
For well, for next 12 months or revenue. The which is sort of that that kinda makes sense. So so historically, it's around 8. Right? So so basically all the valuation levels doubled And now they've come down to about 10 times.
So you could say that if it fully reverts to the mean, we stood out like another negative
20%
to go I don't know if that's gonna happen. I mean, I think there has been a greater recognition that SaaS Businesses are some of the best businesses to own. Right? It's They are subscription, software businesses, great gross margins. They just keep compounding.
So maybe it will stabilize at ten times. But I think what we can say with 2020 hindsight is that the record price levels we got to in the public markets in 20202021 were sort of unusual and unique, and probably the result of this incredibly expansionary fiscal and monetary policy was coming out of Washington. Now has it trickled down to the again, VC markets yet? I mean, the way that that has to happen is at the latest stage investors, the crossover investors, who invest in both public markets and private markets, they have to to pay they have to start paying less for the latest stage growth companies And then, you know, all the downstream VCs are gonna start paying less as well because, you know, if you know the markups are lower, you have to take that into account. So look, all of this is underway right now.
I mean, I gave a Bloomberg interview in December and I think I went on Maria Bart Romo show around that time as well, and I kinda warned that all of this was coming. And yeah, we're in the midst of a of a giant rerating because we're realizing that so much of the peak values we were seeing in
2020 2021
were the result of artificial liquidity. And as what you guys predicted, you know, as one of our big, you know, I guess my big prediction for business losers this year were asset classes that were highly dependent on liquidity. You guys predicted crypto would be one of those. Clearly, it's taken a massive hit. Have you seen how much the crypto markets are off just in the last week?
So it's
so much for them being uncorrelated.
No. It's highly correlated. Look. The crypto
markets -- Bitcoin's gonna be uncorrelated. So the market's gonna
sponge for liquidity, and the more liquidity there is out there, or the more money can flow into a more speculative asset class. But look, my my my my objection to this, I mean, is that if you look at the Fed's actions, I mean, I think Chamath is right that they waited way too long to react. And during the crisis, they overreacted. I mean, they pumped I mean, we we on a previous pod, we showed the access -- They
vacillate between underreaction and overreaction.
Yes. Exact And and now they're I think they're in
--
Now
they're overreacting again.
Yep.
I actually think they nailed it. In in mid December, they nailed it by giving us business certainty around what the new rate environment was gonna be. And just 3 weeks later, in the minutes to that very meeting, they completely undermine the certainty or the the greater level of certainty and predict predictability that they had provided markets, they've now introduced massive uncertainty. So it's just it's unbelievable.
It's like there are pilots and, like, they stalled the plane and then they're like, oh, let's pull back.
Well, no. They're they're they're kind
of pulling out the manual and learning in real time.
Yeah. And it's like, you need to just point the nose down a bit and add a little bit of speed so you get some lift. Like, it's It really is tragic.
The the performance of our government at every level over since COVID at the last, you know, since 2020 I mean, it's been abysmal. I mean, first, you have the self inflicted wound of lockdowns. I mean, the economy is gonna take a hit no matter what because highly at risk people would have stayed home and reduced their economic activity. But instead of just protecting the at risk people, we had to lock down the entire economy. We padlocked Elan's factories.
and on and on. So we basically shut down the whole economy for no reason, and states like California kept it going way longer than they had to. So then the government just prints like, 5, 6,000,000,000,000, and the Fed doubles the size of his balance sheet. And then now they're abruptly getting off drugs. I mean, look.
they put us on drugs, and now they're going cold turkey. And so I think there's actually, like, a much greater risk now of the economy going to recession this year. because of the Fed's overreaction this week. I mean, they had they had the goldilocks scenario down about
3
weeks ago, and I think they're gonna tank the thing now, or there's a much greater risk of that.
best advice for founders, private companies in this turmoil, which are best advice, fam. You're a founder. You got, I don't know, 18 months of runway right now. You're going into this, you know, slush, and you wanna know what should I do? What should I do?
I think Paul Graham's advice makes the most sense here. You need to focus on being defaulted live.
define what that is just for people who don't know.
So, you know, Paul Graham wrote this great essay as part of what he's a founder of Y Combinator. And, you know, he has this very simple you know, framework of looking at companies, which is your default dead or your default alive. And when you're losing money, as a company and you're burning enormous amount cashier default dead. Now if you're growing fast enough, default dead is a great strategy for value creation. But at some point, everybody around you will expect you to be default alive.
And what that means is that the cost of what you do are less than the revenues you bring in when the result are profits. And even then, that's not good enough. I don't know if you guys saw, but, you know, if you look inside a big tech, I was shocked to find out that, you know, for example, you know, companies like Microsoft, specifically, and Apple. You know, these guys trade at huge forward multiples. Right?
for enormous profitability. But companies like Facebook and Google, for the same level of profitability, you know, trade almost a third less in terms of multiple. So even when you're that good, it's not good enough to be defaulted alive. That's how hard this game is over very long periods of time. And so when you have a moment to really understand how to be defaulted live and you don't take it, I think it's a huge disservice because We don't do enough of that kind of coaching that really in inflicts that kind of discipline and expectation setting.
I remember I I have a large climate investment. It's actually the single largest investment I've ever done. And so I swept the details pretty significantly. And you know, I was with the team in in November, December, for board meeting and setting up 2022. And my whole thing was, guys, you have to get defaulted live.
You have to get contribution margins to be in a certain band You were we are gonna target this level of free cash flow generation this year, and there is no ifs ands or buts about it. And what's great is the entire team embraced it and were marching towards that. But if they didn't and they're like, no. We're just gonna grow at all costs again. Oh my god.
I would be freaking out right now.
FreeBird, what do you get to add to that as advice defense? founders who have not been through this before.
I built my business, my a a climate corp. We're we raised around in November of 2007 raised 12 and a half $1,000,000 and then the financial crisis hit in 2008. And I'd say two things were really important. Number 1 was just keep building. So if you're building a great business, It doesn't matter what the market perturbations are.
You know, the market will value you, what they're going to value you at. And if you're a good business, there's going to be money available to you. The second piece of advice is one that I know it's been said over and over again, but never raise an evaluation beyond what you're reasonably gonna be able to kind of deliver returns on at some point in the future because otherwise those nasty dynamics emerge. you know, you could raise money at some crazy high valuation. That's not always the best thing to do because then the expectation of the investors coming in at that valuation are they want to make three times that money or four times that money?
And it pushes you to do something unhealthy, like, spend more than you otherwise would, stretch for a bigger outcome and put your entire company at risk. So, you know, two things to me have always been just stay focused on building your business. Don't let you know, kind of market conditions drive your decision making and secondaries.
--
what for you is the best practice of staying focused on your business because that is a very general term What is Friedberg, if you're gonna say the 3 top 3 things of focus on your business, tactically means?
I have a simple rubric for value creation in a business. Number 1 is can you make a product? Number 2 is do people wanna buy your product? Number 3 is can you make a positive gross margin selling that product to those people? Number 4 is can you make a return on the marketing dollars you have to spend to generate that gross profit?
§06Segment 6
Meaning, you know, can LTV exceed CAC? And number 5 is can you scale the amount of money you deploy to grow your business such that as you grow, the return goes up not down. if those are the 5 kind of things you can accomplish in that order, you can build the next Google. And so and then the 6th thing is can you be platform, which is mean meaning can you transition to being a multiproduct company that gets leverage out of the the user base or the technology that you've built? Got it.
And so, you know, if you can -- Multiple revenue streams more or less. -- revenue streams using the same customer base or multiple products or, you know, whatever. And so if you can achieve those 6 things in that order, every step of the way, every increment you can make that spectrum drives significant value as a business. Ultimately, what the multiple on your business will be is purely gonna be a function of what else is going on in the world, things that you cannot control. And so if you're driving your decisions about building your business using that first rubric, good for you.
You're gonna succeed. You're gonna have money available to you. Awesome. If you're driving your decisions based on what the market is telling you to do and what the market is saying is available to you and money and all that sort of stuff, You know, you're setting yourself up to basically be, you know,
blown away.
Are you also saying to be independent of of valuation?
Yeah. I'm always of the opinion that you shouldn't raise money beyond your into evaluation that you're not comfortable saying in different market conditions or what have you, I can return multiple -- I don't
think any founder has ever you know, most of these founders were not around in 2000, and they -- Or did Or 2 but even 2008 was less important in my mind because it was it was it was fast. And, again, we had government stimulus. So, you know, like, I think 2008 was an aberrational moment. I was I was in the middle, you know, inside of Facebook when and I was like, what the hell is going on here? The government's gonna step in and, you know, with tarp printing a $1,000,000,000,000, whatever it was.
It didn't affect you guys.
It didn't affect us at all.
Yeah. But you were the most power company
or -- No. Not a lot of that kind of time. 2008. Wow. You're gonna be doing it for
a certain amount of cash. Right? No. No. But you have no passion for this.
Here's the thing that people don't realize with Facebook.
Google was profitable from day 1 too.
Yep. We we were always default to live. I wanna every single person listening to this to understand this. Okay? We sold poker ads for party poker in big banner ads on Facebook, and we made money.
You got the bag.
You got yourself independent.
We're profitable. Okay. So I don't buy this argument. That argument of unprofitable growth is a vestige of fund dynamics and VCs who wanna raise larger and larger funds to blind their pockets with fees
It's a function of what I mentioned before, which is if you can think about the context of a portfolio of those bets, it makes sense. But if you think about your business, it doesn't make sense.
In 2000, that didn't make sense. You could not run an unprofitable growth business. The money would not have been there.
Right.
And the real reason is that was a a market check, meaning you had people reallocating capital because risk rates were different. You know, you could put money at 6% in the in the US 10 year bonds. Now, obviously, you can't do that today. So maybe this cycle is just the new normal. And so, you know, maybe you can always be default dead and be able to raise money because the incentives exist, but I wonder when that just stops.
And so I don't know.
Google was an incredibly cash business. I think they raised under 50,000,000 as a private company.
Well, they they never used any of it because Google the first the first thing Google did is they did a massive search syndication deal with AOL that paid them 100 of
1,000,000
of dollars. and that funded the business. If you can sell ahead of your customers in terms of delivering the service or the product to them, you've got the most beautiful business in the world. That's the definition of bootstrapping. Google, even though they raised Venture Capital, effectively bootstrap the business by getting customers to prepay.
Like Elon getting people to prepay for cars.
I wrote this in my annual letter, like,
2
years ago, but Facebook, Google, Apple, Microsoft, and Amazon raised collectively less than $250,000,000. Yeah. I mean, what?
Yeah. So, I mean, I I agree with what a a a a lot of what you guys have said. I mean so I agree with Friedberg that recessions or downshoots are actually great times to build. startups because innovation doesn't stop. And, you know, so Paypal was predominantly built after the dotcom crash.
Yammer was probably built after the 2008 sort of great recession. So it's absolutely doable, and something's actually getting easier in a downturn. There's, like, way fewer starts getting funded. And so, like, talent gets easier to recruit. So you know, things loosen up in, you know, in terms of the company building side.
The only thing that really gets harder in a downturn is fundraising. Right? This is And and by the way, I think it's a good practice for founders not to care what happens in the public markets than NAS to early stage founders. Right? Because The only time that really touches you is when you need to access the capital markets.
Right? And then you will be subject to the downstream impact on VCs of what's happening in the market. So so the only thing that really gets harder is fundraising. And this is where I think Chamath advice comes in. I I personally think that trying to achieve default a live status is too high a bar.
I mean, it's a wonderful thing if you can do it. I mean, Facebook did it. Google did it. The very best companies did it. But I know very few SaaS companies that could continue to grow if they had to be cash flow positive.
I mean, at an early stage, So the metric I use is burn multiple or wrote a blog about this once. It's basically just how much are you burning for every dollar of net new air are you're adding. So in other words, like, if you're burning a $1,000,000, you know, over whatever period of time, a month, quarter, a year add a $1,000,000 of net new AR, that's actually pretty good. So a broken pull of, like, 1 or less is amazing. I'd say even up to 2 is good.
So in other words, like, if a SaaS company can say add 10,000,000 of net new ARR at a year and burn
20,
I think VCs will fund that all day long even in a
recession. -- 2 year payback.
Yes. But when you start getting to burn multiples of 3, 4, 5, 6 and up, that's when, like, VCs are gonna go away in a second. Yeah. You're that growth is
cost efficient. Right? You're not efficient.
It's not just efficient, but it starts to raise questions about your product market fit because You're effectively spending too much money to grow. So, like, why is the growth that hard. Right?
Like -- -- market pull. Yeah. No market.
Yeah. Exactly. No I think is the way of putting it. So I do think you have to like, in a downturn or in choppy waters, you have to sharpen the pencil, get more efficient about your burn, look at your burn multiple. And then I think, you know, if you have the opportunity to top off your war chest, like, that's smart, you know, and don't wait too long.
And be frugal. I mean, god, the amount of, like, crazy spending I'm seeing in some startups and unnecessary spending. If you're spending something and it's not going into product, it's not going into marketing, you know, it's not going into sales, and it's not, you know, just you really have to ask yourself, why am I spending money on going to this conference, going to that conference, on this office space, like, really be frugal. I know that it's when you have all this money sloshing around, you're looking for things to spend it on, but stay focused on
it. -- summit?
Yeah. I mean yeah. I mean, don't don't spend 75100 on that unless you've got tons of cash lying around. And we will be getting back to the people who apply we're gonna go through and somebody's gonna approve you.
Let me
just add let's add one other thing to this, which is you you're right that, like, most founders have never even seen a turn because the last big one was a great recession of
2008, 2009.
So how many founders were even around back
then?
The most the most re the real one was 2000. That's right.
That was the big cosmic crash.
It it froze. I would say it froze. 22008 was what? Like,
12
to 18 months of choppiness. And I would say a lot of companies couldn't raise money, had to do down rounds, had to do multiple liquidation preferences. It was gnarly on some cap tables during that period. And if you don't know what multiple liquidation preferences are, ask your return.
I understand, but there was no real market check. The market check was really in 2000, and you saw it. It was a multi year slog.
Wait. Wait. It was a bloodbath.
You had to be defaulted alive.
--
stopped vaporized. Yes. People are -- You
had to be defaulted alive.
Absolutely. Absolutely. Yeah. But I would say a third of the startups went away in 2008. I
don't think we're running into that again. So, you know, let's not create a Sequoia graveyard kind of story here.
But
--
But you could. Nobody knows this point.
Look. It's a it's a probability of getting your business funded. Right? And and that's kind of lower. It's it's not like
But here's the thing what I'd what's shocking to me. It's like, I don't understand why people think you can grow infinitely forever. It's just not true. Even the best businesses in the world after 15 or 20 years are barely growing at
20%.
People forecast Facebook and Google Those are the 2 best businesses in the world.
But isn't the question what kind of growth fees these are willing to to finance?
No. What I'm saying is If you know that your terminal growth rate, if you are one of the best companies ever created ever, is 20% in 20 years, It doesn't take a genius to do a line of best fit between now where you're at a 100% in 20 and realize that at some point you don't figure out how to make money by selling what you're selling, there's a lot of people who will be smart enough after enough historical data has come through the transom or come over the past. to realize that these things are not that fundable, and this is what's shocking to me. It's like that data is hiding in plain sight for anybody to look at. It doesn't make sense unless you believe that those those growth rates of 40, 50, 60 percent are sustainable for 30 years or 40 years.
We've seen zero examples. And you have to look at these canaries in the coal mine because if if the best companies in the world can't do it, you're you have to really scratch your head here. or ignore it. Whatever.
Or ignore it. That's fine.
Just wing it. Yeah. It'll work out. Don't don't worry about it.
Don't worry about it. Don't worry about it.
Don't worry about it.
Don't worry.
Just add crazy features.
--
around. It's fine.
One of those features will work and save the day. There's some magical feature that
--
Did you see Andreessen announce that they raised $9,000,000,000 or something today across the country.
§07Segment 7
Congratulation of those guys. They're they're building a colossus.
Yeah. I mean, there's gonna Silicon Valley in terms of capital is, you know, seeing kind of power returns itself. Right? There's gonna be a few firms that are gonna, you know, control 80% of the capital. And recent Tiger Global you know, whatever happens.
I don't know if SoftBank region
2.
I mean,
there's a few of these
--
That's a market problem.
--
about the going public, but I'm just saying, like, if you look at the aggregate capital that's being deployed into private markets right now, in probably 2 years, 80% of it's gonna come from 3 firms or 4 firms.
The problem is if you're running that much money, you're insane to not take your GP public because it's the only way like, no. You're not really generating carry at that point because you're generating a market beta return. So you'll do okay, but when you're sitting on
20, 30, 40,000,000,000
of imputed wealth by being the owner of the GP of Tiger or Andreessen, you'd be insane to not go public.
I think the odds are gonna be pretty high that Andreessen will go public. Right? I mean, they're certainly setting themselves up to be a lot more than just a capital allocator. -- though.
Right? It's never happened? Well, TPG
just thought it'd be public. They're going out of KKRs, public, Apollo's public. Okay.
Well, I'm
talking about Venture though. I'm talking
about -- No. I mean, like, venture's never scaled up to the point the private equity has until now, and now that they have
--
Until now.
--
it's very likely it's very likely that you'll see Andreessen be the first I don't know them, you know, very well, but,
Saks, you were gonna say something. Yeah.
Well, no.
I think it's a super interesting point because if you talk to the previous generation of VCs, they will tell you who retired, right, is when you ask them, well, did you get anything for your partnership share in the firm? Not just in a fun, but in the firm. They'll tell you no. They basically just gave it weight to the next generation of partners even though they they built the firm. And it's because of what historically, the belief on the part of VCs was that there were there was no value to VC firms other than just their interest in each particular fund.
But you're right. Like, if they do achieve a much greater level of scale, and they can go public, then there is actually value in the firm itself. And
--
If you look at the terminal valuation of Blackstone as Index to AUM. You know? When once you pass a couple
100,000,000,000
of AUM, you can trade
--
Point 2. -- towards point 1.2 times. And so You know, if you have 50,000,000,000 of AUM, there's $10,000,000,000 market cap there. And if you, you
know, if you're -- Or call it 1. Yeah. And recent or Horowitz,
I mean -- Yeah.
Right. -- that's
$5,000,000,000
that just appeared out of nowhere. Why would you not do it?
Right. It's a little bit like Goldman Sachs. They always said that we're a ownership. We're never gonna IPO because
--
And then they did.
And then they did. And and the the and same thing. Would CAA do it too? No. I guess
they're -- No.
What happened with CAA was Ovid's sold his position to go to Disney, so there wouldn't be a conflict. But he could have kept it, and the, like, residuals they were getting from projects
they packaged Where are you? Didn't the Ari Emmanuel 1? It did. Endeavor did. Endeavor did.
Endeavor did.
How are
they trading? I haven't even looked at Endeavor. I'm not I'm not sure.
But but let me tell you, like, it it's actually but but think about if you're not, like, the current, like, partner owners of the firm, but you're, like, on a partnership track there and you're working your way up to partner. Like, by the time you get to partners, it's gonna be a very different economic equation because instead of getting your one over n share of the pie when you eventually become partner with ending the number of partners or some version of that. Now the company is owned by the public -- Mhmm.
--
and the public or the board of directors is determining your salary And maybe you get a salary and bonus and some, you know, essentially options or equity participation, but you're not gonna be a true owner anymore because you the firm is gonna be owned by the public.
Wait a second. What if we take each of our businesses, put them together, and then take them public as all in capital?
and then we get the pump.
I'm good. I'm good. I'm
good. Yeah.
We got
the startup studio. We got the accelerator in
the studio.
--
on a conference. So I don't think we can find any
is that a conference?
--
agree on the decor and food for a one day event in Miami.
That's because the amount of work you guys wanna do is slagging me in a slot and a No.
What we want is someone to do the work.
We wanna hire professional.
I have been doing conferences for 25 years. Stop saying it
might be -- -- know. And you know what's gonna happen?
--
for tuning.
You know what's gonna happen?
You launched Yammer at my conference, and I put the fix in for you to win.
Thank you. TechCrunch was a beautiful conference. But for all in Summit, is it just the case that we want people to show up, and there's gonna be a stage and people talking on stage in that whole conference? or we wanna create a more magical experience a lot
--
So do we manage ourselves or a Sun Valley
--
We're in agreement. We're in agreement.
Alright, everybody. Thanks for tuning in. To episode 62 of the all in podcast, we'll see you at the all in summit. And if you wanna do us a favor, please go ahead and subscribe and rate us. on Apple.
We could really use that. And thanks to Spotify for including Daniel Shoutoutiao. Thanks, Dan. He included us in their video. So now if you're on Spotify and you're listening to the pod, you can click a button as of this week and watch the video.
Or you can watch a video
on YouTube.
Yeah. It was nice. He emailed us and his team, and then I cc ed him on the email.
Dion, he's the best.
Yeah. I think it would he be good for what do you
think about having him and Mister Beast?
He's super, super, super, legit.
Here's my idea for him, Mister Beast, and then one other person to do a media, a trio, future
of media. What is your
what is your assessment?
is your idea? You don't even know the 3rd person.
I mean -- Well, I
well, I'm putting it out there and asking for a suggestion for there really
a mister big station. You just throw the shit out there.
--
conference in Presario.
Oh my gosh. Well, those are 2 great guests on the stage at the same time.
Let's figure out who beside Jake. I'm gonna produce the conference. Okay.
You guys are
Bloody guy, hopefully. Bye bye.
It's suckable. Bye bye.
The Ledger winner's ride. Rainman David Sachs. And it said -- We open source it to the fans, and they've just gone crazy with it. AWS.
13.
That is my dog taking it. I wish you a driveway.
We should all just get a room and just have one big huge ordeal because they're all just useless. It's like it's like sexual tension, but they just need to release them out.
What? You're the beep beep. What?
You're a beep.
Beep beep. What?
I couldn't beep.
Where did you get merchants on that?
Oh,