a16z Podcast - a16z Podcast: The Rise of the Quasi-IPO

Episode Date: June 17, 2015

"This time is different." But it's always different! So what's going on now in the public markets? Why does this even matter? For one thing, tech markets have grown significantly. And one big reason is internet and mobile. It's like a multiplier for the market size and opportunity. In this episode of the a16z Podcast, Andreessen Horowitz managing partner Scott Kupor, mobile analyst Benedict Evans, and corp dev research partner Morgan Bender break down a slide deck we recently shared, including answers to what all these so-called “unicorns” are, how it affects venture capital and the funding landscape, and how we define a "quasi-IPO." The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

The content here is for informational purposes only, should not be taken as legal business, tax, or investment advice, or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Hi there. This is Scott Cooper, and I'm here with Morgan Bender and Benedict Evans, and we want to talk to you a little bit about the bubble, the environment that's happening in technology. And maybe we'll kick it off in Benedict. You can start with, you know, we put out this slide deck on Monday, I think, and we'd love to kind of just hear from you to, I guess, to start off, like, what was your thinking behind why this was important information? Why did it make sense to actually spend the time to go pull this together? Well, I felt like I'd seen a lot of people cherry picking numbers almost at random and making assertions about where we were right now, again, without actually sitting and running the data.

and I felt like, you know, we're in this progression, particularly of a growth of seed funds and a growth of late stage investing. And I wanted to just sort of sit and see, okay, what looks, what does a venture investing in tech look like? What does investing in tech look like since 1950 or 1960 or 1970 with venture funding and IPO funding stacked on top of each other and adjusted for inflation and actually done properly? And let's go and see what's happened.

and then let's go in and dig into all of these different trends and actually see what the numbers are because it's only when you actually know what the numbers look like over time that you can then work out what you think about them. Yeah, it's easy, right, it's easy to read the $50 billion Uber headlines right and conclude that we've all gone mad, right? Well, exactly, and I wanted to just, you know, I mean, I think you and I both kind of lived through the last bubble

and I, you know, I remember floating a company for which a Middle Eastern sovereign wealth fund put in an order for the whole of the free float with us and each of the two other banks on the deal. So they ordered three times the entire number of shares on offer. And now I remember thinking that was, that's not what's happening now. Right. So let's actually sit and lay down what was happening then and what's happening now. And, you know, the sort of the tagline of the presentation is, well, this time it's different, but it's always different. Yeah. You know, it's kind of easy to say this is not the bubble again. We kind of know that. But what is going on? Because it's never, you know, it was

different in 99 as well. Yeah. Yeah. I know, I think that's right. Morgan, you know, as you were, you You certainly pull those together a lot of this data here. I mean, if you look back, like, what are some of the limitations around what was hard about this? So why was this not just a fairly straightforward process of, you know, going to whatever universal database there is out there and kind of pull this together? Yeah. So, I mean, the initial problems were just trying to figure out what actually do we have to use.

So there are a lot of different databases out there. There are a lot of different sources for this information. So the first real question that we had to answer was, you know, what type of structured data do we have access to that is reliable? So that involved really just scouring public databases, private databases, federal government information, anything we could really get our hands on, academic information, academic databases, and really just trying to say, okay, what questions can we answer this data? So once we had that, you know, we kind of had something to work with, and we were able to sit back and put things together and draw different thresholds and see how the story can come together. Yeah, and probably be, you know, not shocking for people to realize that actually trying to figure out the number of tech IPOs that happened, you know, 10 years ago is actually not straightforward, and you can get three. different data sources that probably will give you, you know, five different numbers.

Exactly. Recent data is somewhat accurate, but as you go further back into historical numbers, things start to change. Different databases are omitting certain results that are important to include. So it really involved just understanding, you're kind of coming up with a master data set that we think is most accurate and then kind of comparing each source to that. Yeah. Interesting.

And we put a slide in the back of the presentation that just sort of outlines, well, you know, these are the assumptions you've made if you think that. wrong task and we can kind of run the data again or Morgan can run the data again. I think there's another point in here as well and it kind of comes back to the growth around which is you know you try and analyze this stuff it's quite easy to analyze public companies

but because all the data is public by definition and so you want to know what PE ratios have done you want to know what revenues were you don't know you know average profitability ad IPO or any of that kind of analysis if you want to do that it's there if you want to analyze private companies like that including of course venture back companies that data isn't there

and so you have to start thinking creatively about well how do we do we look by round size do we look at the age of the company what can we look at um i mean i think there's a sort of there's a broader point in there which is you know if a company does an IPO at a billion dollars then you can go and look at the financials and see well it had to 300 million dollars of revenue and that was up 50 percent and the profit was this and so you can take a view as to whether it was really worth a billion dollars or not but if a company does a private round at a valuation of a billion dollars you don't know what any of the financials look like and so it's too easy sitting on the outside to say well that's a good run but that's a

bad number. You're actually, to be correct, you don't know whether it's a good valuation or not, because you don't know what the valuation is. You don't know what the multiple is. You don't know what the profits are. Yeah. So part of this exercise, I think, was to, you know, what proxies are there out out there from which we can, you know, at least make some reasonable interpretations as to what's happening in the environment, right? So maybe why don't we jump right in, which is so, you know, kind of the way the deck is laid out is it's kind of, you know, we tackle the bubble question first. And, you know, Benedict, maybe you can, you know, lead us off. But so give us kind of your view as to what's the summary? And I've heard you say this before, which is it's kind of easy

to win the argument that it's not a bubble. So what is it that's so dispositive to you when you look at the data that says, you know, that's kind of, that's not really the real question here and why that's a fairly dismissive question. Yeah. So, you know, there were 400 million people online in 2000. And there are 3 billion people online now. In fact, there were, I think, 40 million online in 95 when the Nescape, or 38 million when the ESCAPO happened. And revenue in the US from online advertising and from e-commerce has gone from, I think, something like 50 billion adjusted for inflation in 99 to 350 billion now, so up 15 times or thereabouts. And so the market size has just completely transformed on the one hand. And on the other hand,

you haven't had any sort of spike in the P multiples that people pay in the proportion that tech makes up of the S&P. in the amount of money that's being raised by venture capitalists. So any of the kind of high-level numbers, so on the one hand, the market size is way bigger. On the other hand, the high-level numbers as to how much is going into tech, how much is being invested, how much are the IPOs, you know,

what are the PE ratios? None of those numbers have gone up at all, never mind, you know, relative to where we were in the past. So you look at all of these charts and what you basically see is an EKG. You know, you see this kind of flat, you kind of this straight line going very, very gently upwards over the last 30 years,

and you see this enormous spike in 1990 and 2000, And then it kind of went back to trend, went down a bit, and it came back on to trend. And we're basically back on the trend line. And you see that really in all public companies. So the whole public market side of things just hasn't happened. There is no bubble. There's no valuation. There's no inflated valuations in public companies.

And so you just kind of have to put that there and say, okay, fine, that's it. We're done. You know, there is no repeat of what happened in 1999-2000 with these crazy IPOs and crazy retail demand and crazy multiples and companies going out seven times on the other IPO. None of that's happening now. Okay, fine. That's easy to win. Right.

The question is, Fine, okay, so it's different now, but yeah, it's always different. It was different in 99, too. So what is it that is actually going on now, and are there areas to be concerned about? What are the dynamics going on within funding of companies? And I think we kind of pulled out two things within there. One is this trend of very large late-stage grace rounds, and then the other one is the development of sort of the seed rate, the kind of emergence of this enormous seed-stage sector.

Right. So in some respects, at least maybe one way to think about it is technology in terms of kind of its overall contribution to the economy and, you know, things like, you know, you cite, for example, you know, e-commerce revenue growing significantly, you know, market size is growing from a mobile perspective. Technology has, you know, increased its importance and certainly increased its market share in the economy. Yet when you look at kind of, you know, to your point, public market valuations, when you look at everything else, you know, we haven't seen, you know, the trend lines actually kind of respect that increase without actually showing that, you know, things

are out of whack relative to the overall contribution. Yeah, exactly. I mean, technology is, you know, the internet economy is now much bigger than it was in 2009. But in effect, the valuations today sort of reflect how big it is in the economy, whereas the valuations in 99 reflected were as though the next 30 years of growth had all happened today. So it was all about all of this stuff is going to happen. And it's going to happen right now. And it's going to be amazing. Whereas today, it's much more, you know, these companies, you know,

if you look at Apple or Cisco or Google, any of those companies, they're kind of valued like real companies. I mean, there's Amazon off to one side, which we had a conversation about last year. But otherwise, these companies are, you know, valued on kind of moderate expectations of what they're going to do. Indeed, you know, for a company like Apple, you could argue that a P.E. 15 or whatever it is, it's kind of too low. So you can kind of take that whole section and just kind of put it off to one side. You know, there's a lot of people online. There's a huge amount of real business there.

These companies are working. Okay, fine. Now what? Now let's talk about what else is going on. Right. Because clearly, yeah, there is something else going on here, right? which is, to your point, that doesn't really tell the whole story. So, Scott, I think having kind of laid the public market bubble sort of myth to rest,

it is, I think, really interesting to dig into what's happening in late stage and in grace rounds where you have these new kinds of investors coming in and you have what appear to be very large rounds relative to what we've seen in the past for private capital going into tech companies. Can you talk a little bit about how you see that environment changing and what you think might be causing it? Yeah, I think there's a couple things going on there. And, you know, first is kind of the question, which is why are we seeing a lot of this money coming into this end of the market?

Because, you know, historically, as you know, we would have seen a lot of these companies going public. And, you know, we've looked at a bunch of the data around, you know, time to IPO and kind of, you know, maturity of companies at IPO. And it's certainly the case that by anybody's, you know, data, companies are staying private longer. And I think the real interesting piece of that, though, is what's causing then public investors to think about why private deals are interesting. And I think it's a combination of a couple things. Number one, as we talked about, is time to IPO is longer. So, therefore, if you just do the math and you say, hey, I'm a growth investor and I'm looking for appreciation, by definition, you have to go earlier into the private markets to even be able to take advantage of that appreciation

because by the time these companies go public... The growth is all gone. The growth is all gone. It's certainly moderate. You've got a company that's growing on a curve. That's right. And it used to be that they go public early on the curve, and there's way more growth to come. And now they're going public when they're almost at the end of the curve. And so if you buy it in the IPO, well, you've kind of got...

all it's ever going to be. Yeah. Yeah. Now, hopefully it's not all that it's ever going to be, but certainly if you think about relative appreciation between public markets and private markets, it certainly feels like, you know, things have tipped in the favor of private markets. But I think the other more interesting thing that, you know, we didn't actually cover in this deck, but that's also, you know, kind of part of this is when you think about a public investor, they obviously have alternatives, right? So they could invest in these public companies, or they could invest certainly in the universe they're used to investing, which is in the public universe. And the biggest thing that we've seen, and we've published about this a little bit

at other times, is when you look at kind of the growth opportunities as a public investor in the public markets, those are fairly limited because you've got this tremendous amount of what we've been calling incumbent market cap, you know, whether it's Microsoft or IBM or EMC or Cisco, you know, very large companies, but that basically are, you know, kind of not growing in any significant rate, certainly not on their top line businesses. So, you know, companies like IBM, for example, that have had nearly three years worth of effectively flat to down revenues in their business. And so you've got a lot of market cap that's tied up in very large incumbent companies that are not growing. And we have not had that much new company creation in the form

of IPOs, despite kind of all the excitement around IPOs. And indeed, you know, they've been better in the last couple of years and they have been over the last 14 years. But you're still talking about, you know, kind of relatively small number of, you know, new market cap creation from IPOs. So you've got this problem, which is I'm Fidelity or I'm Wellington or I'm, you know, TRO price, I've got to be able to beat my S&P 500 benchmark. I can't do that by buying kind of large cap incumbents in the public market. And so an option for me to actually buy growth is go deeper into the private markets to actually look for that growth. And I think that at least is one significant reason why we see kind of both the increase in the size of rounds

in the private side, but also the increase in kind of what would be considered non-traditional investors otherwise in these late stage private rounds. So to follow on on Scott's point about late-stage private financing, we're really kind of defining these late-stage rounds as quasi-IPOs. And the reason we're doing that and kind of marking the $40 million mark as that transition or that cut-off point is because historically the lower bound of what technology companies have IPOed at with regarding to transaction size is roughly, you know, $35 to $40 million. So we really think that that's the cut-off point where these companies would have historically IPO in the past, now they are raising private dollars. And the rounds

obviously range much higher than $40 million, but we just think that that's the best cutoff point for our analysis. So one of the issues with this kind of analysis, and it's always kind of, you know, there's always kind of the tyranny of data, is you kind of get a threshold issue. So you can say, well, you know, somebody who would have raised 35 million five years ago is now raising 50 million, and that isn't necessarily a different deal. It's just price inflation. So how do you think we can that, we capture that? I think that's a tough one because obviously there's always going to be, you know, this arbitrary threshold, because like you could say the same thing about 50, $50 million raises or $60 million raises, there's always going to be some threshold where some

companies that, you know, would have raised a small round are going to bump over that. So that's always going to be a problem. You know, we personally think that $40 million, the $40 million mark is the most kind of telling, I guess, threshold. We think that's the best mark that we pegged at because, you know, we looked at $50 million, we looked at $60 million. And we just saw, you know, when we use $30 million, for instance, that did change the numbers a lot. Like, for instance, If we set the threshold at $30 million, the numbers changed significantly, but that was not such when we went from 40 to 50 to 60, et cetera. So $40 million is really kind of the lower bound of what we thought as the threshold. I think the other way to think about this is, and the reason we did it this way in the deck is it kind of somewhat doesn't matter in the sense that you've got to look at all these things.

So we've got a chart here that shows how public and private tech funding have merged, right? And we've got where we show kind of zero to $40 million, we show 40 plus in the private side, and then we show IPOs. stacked on top of that. And to me, I think that's probably, that's more telling and kind of it strips out a little bit of these definitional issues, which is to say it's almost irrelevant where you cut the line. The point is when you look at this sort of relative historical basis, you're at relatively healthy numbers. So I would be more worried, for example, if we arbitrarily cut the line at 40 and then we also had this massive IPO spike that we weren't figuring out. But the fact of the matter is we're looking at funding holistically, which is I think

the way to do it. And, you know, in some respects, it's an arbitrary line as to whether these are public companies or not. Yeah, I think that's right. I mean, the other strand that we did, of course, is to look at company age. And I think that's where you see something that's really very telling. There's a great chart in the presentation that just looks at funding by age cohort. So how much money did one to two-year-old companies get in 98, 99, 2000, 2001? And what you see, which I frankly wasn't really aware of the time, is this enormous surge in funding in naught one, two-year-old companies in the bubble that just hasn't been repeated at all. And so, in fact, when you run the numbers, 55% of all the money in the bubble was going to companies that

were less than two years old. And today it is, what, 10, 15%. It's about 20%. And so you had this really, a huge part of the bubble was just his money being funneled into very young companies. Now, of course, you can say quite rightly, well, there were no 10-year-old internet companies in 99, just as there are nobody with 15 years experience in coding Swift right now. But this is... But in fairness, right, we looked at all BC funding anyway, so it would encompass communications, it would encompass software. But the point I was going to make is, yes, they were one to two-year-old companies, and that was where all the funding was. But in a sense, that's actually the point in that now the companies that are getting all of the investment are the

companies that have been able to mature, that have actually, you know, that have been around three, four, five years have actually, you know, by implication, built much more sustained, much more, you know, built out a lot more, I've got a lot more numbers to show people. And whereas in the past, you know, because you could only invest in people who hadn't built anything yet, that was where all the money went. Right. Today, you can invest in people who haven't built much yet, and you can invest in people who've got a lot. And the investment is kind of evenly spread around all of those in a much more rational way. Whereas, as I said, kind of in the bubble, well, you know, companies that hadn't done anything yet were all there was. So that was where the money went. Right. And well, so I would add two things to that. I think that's, I agree with that thing you said. And we've got the data in here, which is number one is huge proliferation of seed financings, right? It's a number of deals happening, which is the good news is relatively small amounts of capital going to a large number of companies. that at least in the context of overall VC funding still is something like 3, 4, 5% of venture capital financing.

So not catastrophic if it turns out that there's some overfinancing there, but a good way to actually get experimentation going. And then the second piece to me that's interesting, which you've said, but we should be explicit about, is effectively we're using age as a proxy for risk here. And one of the hard things that we talked about this before, certainly, as we were putting this data together, it's very hard for us to get actual financial information about any of these companies with any degree of confidence and be able to say, great, okay, is this billion dollar company on a revenue multiple basis properly valued or not? So the best thing we can do is think about age as a proxy for ultimate risk and maturity of these businesses. And I think to me that's the other thing that gives us a lot more confidence is you had bubble, you know, 55% of funding going to less than two-year-old companies coupled with four-and-a-half-year time to IPO for a company. So you've got kind of

massive risk both on the public markets and the private markets, whereas now at least we have kind of much better distribution of funding, as you talked about kind of only 20% of the funding going to fewer than two-year-old companies, coupled with the fact that time to IPO has elongated so much so that at IPO, these companies are now 150 plus million dollars in revenue, not, you know, $12 million revenue businesses. So all those at least give you some confidence about kind of the proxy around risk. Yeah, exactly. I mean, turning the, you know, sort of reshaping that to look again at this sort of seed issue.

So one of the numbers we came out with is that the number of $1 to $2 million rounds has gone up by over seven times in the last decade. But actually the amount of money has gone up market. much less. So it's still only about a billion dollars in 2014 went into one to two euro one, sorry, one to two million dollars rounds, which is only about five percent of all of the money raised under 40 million. So you have this surge in, you know, three guys getting a hundred grand to build something in an apartment somewhere in Soma. But when you actually, and it feels, oh my God, Soma is full of kids talking about their startups, or kids

talking about, talking about pitching Andreessen. But when you actually add it all up, it turns out the plural of anecdote is actually 5% of the market. Right, right. Whereas certainly, you know, as we know, in the prior bubble period, you know, those companies, the kind of the shrapnel from fallout from those companies, you know, spread a lot wider, given obviously that we're also in public market. Exactly. I was actually on, I was on talking to somebody about this this morning.

We kind of, the phrase, we was talking about this with Jason Calacanus. And the analogy he used was that the craters are a lot smaller now. Right. So, you know, you know, pick X, Y, Z product. in 2000, if that failed, that was 50 to 100 people and 20, 30, 40 million dollars gone. Today, exactly the same product is 100 grand, 500 grand, a million dollars, 3, 4, 5 people who are out trying to get a good job at Google and Facebook. Right.

Yeah, that makes sense. One of the things I wanted to come back to because we started talking about kind of this concept of public dollars shifting into the private markets. And we've got a couple of these graphs here about, you know, what happens in terms of price appreciation between public investors and private. private investors. So we have kind of a series of graphs where we talked about, you know, if you look at the total market cap of a company, how much of that market cap, what percentage was created in the public markets versus the private markets. We looked at it also on a multiples basis and said,

okay, you know, what is the multiple return, the cash on cash return for a public versus a private investor? And it's striking when you look at the data, although not surprising when you talk about, you know, some of the things we've talked about, that effectively you've had value accretion shifting from public market investors to private market investors, meaning that companies are going private public longer. Therefore, they are obviously more mature. To your point, they're not growing as much. And so the opportunity for public market investors to, you know, achieve and gain in that appreciation is more muted relative to what the kind of private guys were able to get. And, you know, what we tried to tease apart was how much of that is a

function of time, right, which is just, gee, these public companies like Facebook and others haven't been out for that long. And so therefore, if you just wait over time, it'll catch up. And one of the striking piece of data, I think, that we have in here is if you actually took Facebook and said, could it grow at the same pace in the public markets as Microsoft did, just as kind of an example, you know, Facebook would be something like close to, you know, a $50 trillion company in the next 29 years, which, you know, personally as Facebook investors probably would be a wonderful thing. But, you know, from a comparative perspective would basically mean that Facebook is, you know, more than the entire, like, forecast US GDP. Yeah, that is your favorite slide, isn't it? I know, I know. I know I couldn't resist. I couldn't resist talking about it. But it's a, you know, it's a, in fairness, you know, look, it's an extreme point. But it does illustrate, I think, a longer term structural change, which is that the returns to many of these companies, you know, to the extent there are returns that are to be much more likely concentrated among the private investor class versus the public investor class. Do you have a different view on that? No, I think that that's absolutely right. And it is a consequence of it is that you get people hunting for those returns in private markets.

Right. So there's another strand that's worth pulling in. as a sidebar maybe when we talk about the valuations of some of these growth rounds, which is this is not quite the same as a valuation that you get on the stock market. Because when you go to the stock market with a few exceptions, the price is the price, the share is a share and they're traded by anybody. When you put money into a private company, on the other hand, particularly with these late-stage deals, you have a bunch of what tends euphemistically

to be called structure around it, which means you have things like liquidity preferences and liquidation preferences and so on. And that means that you can't quite take the number that's in the press release, so to speak, as the real price that that company might trade for on exactly the same numbers in a public market. Yeah, I think that's right. And I agree with you. These things never get, it never gets reported with kind of these structural changes. But I think it's, I agree, it's a very important point. And it does really, it really does kind of, you know, there's probably an implied valuation that's probably a different than the headline number that you're seeing when you actually account for some of these structural changes in these term sheets. Yeah, exactly. I mean, there's several parts of that. One is somebody puts in a hundred million dollars at one percent. It doesn't. And so you theoretically, you can do the mass and say, well, that's what it's worth. But actually, that's not what they'd have paid if they bought 10 percent or 50 percent. But the other thing is they put that money in, but they have a contract that says, well, before anybody else gets their money out, we get three times our money. And so as far as they're concerned, that, you know, fundamentally changes the valuation that they're willing to pay and the real meaning of the percentage that they've got. Yeah, I think that's right. I think the other thing also that, you know, is important is we have to remember, right, private markets are discontinuous, right, which is there are, you know, unlike a public trading market where there is a price, obviously, that's published on a, you know, entirely throughout the day and overnight. Part of what people are doing when they invest in these private companies is they're saying, okay, I'm forecasting what I believe the value of this company is going to be over a three to five year period. But I'm also trying to understand when is the next opportunity to invest in this company. And what do I think is the progress that they may accomplish in that time period, relative to the risk I'm taking by coming in today versus 18 months or two years from now. And if you had that debt discontinuity in the market also does, to your point, also sometimes

tend to exacerbate or change kind of what the real market price would be other than if you were trading in a purely kind of discrete ongoing market. So I think there's another strand point here, which we kind of talked earlier about market size and how the kind of environment has expanded and how you've got real customers and real revenue now. There's another thing going on in tech at the moment, which is we're going through a kind of generational shift from the PC being the dominant computing platform to mobile being the dominant computing platform.

And that comes with it a shift from there being about 1.5 billion PCs on Earth to four or five billion smartphones on earth, perhaps, depending on what estimates you make. And therefore, the internet goes from being in a box on a table in somewhere, some room somewhere, to being in every single person's pocket all the time with all of the sensors and the camera and the payment and the APIs and all the capabilities that make mobile actually a much more sophisticated internet platform than the PC ever was because the PC was basically just a web browser and a mouse and a keyboard.

Sorry, Mark. So you have this kind of generational change in what the platform is and that comes with a generate, well comes with that as a generational change in the scale of the opportunity and in the addressable market. And you see that in kind of sort of radical things like, you know, WhatsApp going to 7 or 800 million users with a team of 30 or 40 people and WhatsApp doing 50% more SMSes in the entire global telecom system, sort of 50% more messages than the entire global SMS system with 30 or 40 people. And so you have this fundamental change in scale, which repeats kind of the fundamental

generational change that we went through in 99 with the internet, and then the generational change that we went through a decade or two earlier with the arrival of the PC. And so that means that, you know, people are looking at that market size and say, well, that's not, we're not finished yet. We're going to have another fundamental change. And that's just not just the internet, but it's also things like Airbnb or Lyft or all sorts of other companies that are using mobile and software to transform other industries. So when you look at a company like Uber or Lyft, which are not really competing with the taxi market is fundamentally changing what it means to own a car or Airbnb, which is fundamentally changing what it means to be a hotel,

again, you have this change in opportunity. And I think that's driving a lot of people's willingness to invest in these companies because, you know, they're not just another technology company. They're sort of fundamental transformation of how people do part of their life. Right. Yeah. So the market, I think that's fascinating. And so in many respects, you know, which is what you state here, the market size is tremendously bigger. The winners can be tremendously bigger than they have been in prior generations. And I don't know about this, but I think it also, I think that's part of why also you see companies having a desire to stay private longer because it gives them the kind of flexibility and willingness to actually

invest from an R&D perspective to take advantage of the opportunity. Yeah, I mean, coming back to the analogy we gave earlier of the curve, you know, I think a lot of companies now feel like, you know, the opportunity that would have topped out at a half-billion dollar company 15 years ago is now topping out at a 50 billion-dollar company. You know, the scale of the business that it's possible to raise is so much much bigger. And therefore, the hyper-growth period is much, much, much bigger. the period at which you are still going up 30, 40, 50 percent a year every year doesn't stop when you get to $100 million of revenue or a billion dollars of revenue.

It stops when you get five or ten or twenty times bigger than that. And so that again shifts people's attitude to going public, shifts people's attitude to what kind of investors they want. Right. Yeah, I think that's right. The growth period is much longer and more extended period than it has been in the past. Exactly. Yeah.

Why don't we talk a little about kind of, you know, real quickly, limitations as well as kind of what we really didn't cover here. And, you know, Benedict, we've talked a little bit about and people have raised the question about, great, there's this phenomenal opportunity, the market's fantastic. We have all these companies staying private longer, lots of dollars going into the private market. But, you know, what gives from a liquidity perspective, you know, where does the money actually come out ultimately on the other end? Yeah, this is a bit like the Amazon argument that says, well, it's getting bigger and bigger and bigger and bigger, but you never actually get any money.

Except in 2010, right? There was a small profit. Yeah, but accidentally. Accidentally. Right, yes. Someone in the controller's office got fired for making a profit. I think, so there is this question. Okay, it's fine to say that now you've expanded the investor base. But at some point, you've got to get to the point that this is a liquid investment and you can sell as a venture capitalist. Our purpose is not to own an asset that depreciates in value indefinitely our asset is to produce cash that we give back to our LPs. And so there is that question, if you can't do an IPO or if IPOs are much, much rarer and the funnel gets smaller, Well, where do we get our cash returns from?

Yeah. Yeah. So I think, you know, it's one of the areas that I know we weren't going to spend some more time from a data perspective. You know, the quick thoughts I have on that are number one is, you know, I would have expected at this stage of the cycle to have a more robust M&A environment, which, you know, we've talked about in prior post and others about, you know, whether it's activist shareholders or other things that potentially are making it more difficult for some of these large incumbents despite their cash balances to be able to do this stuff. I think the other thing that, you know, is potentially likely to happen over the next several years is potentially the establishment of a more, you know, fundamental secondary trading market for not just employees, which we see today, but potentially also early investors. So it could be that you just literally have a new intermediary market that comes in and really becomes kind of the primary liquidity market, you know, and you have new investors who have lower costs of capital in different time horizons potentially at this side. It's attractive for them to provide that liquidity at that point in time. So it's possible that this change in the liquidity environment may actually drive a whole new trading market as well.

And what you could then do is you could have some sort of standardized exchange system whereby you could buy and sell stock at like a standard quoted price. That would be remarkable innovation. All right. Well, I think we should probably wrap. But hopefully this was helpful in terms of covering some of the areas we talked about. We are definitely going to continue to dig into this data further and look. for a few more things coming out the other end.