All-In with Chamath, Jason, Sacks & Friedberg - E158: Global trade disrupted, Adobe/Figma canceled, realtors sued, Trump blocked

Starting point is 00:00:00 Do I care? I'm coming in hot. My foot time I told you seven times. You didn't work for me. You're working for on your own. Good luck working for Shamah. You're not a talk by employees Jason. You guys are going to billionaire me and that's going to be the greatest revenge of all. You want to run the show in year four? Go fucking ahead chairman. You guys won the vote. Guess what Jake how's going to do? I'm going to f**k ski and you're going to make my 25% worth 500 million. Get to work bitches. Deal. Let's go. Deal. Guys, one of the vote, guess what Jake Al is gonna do. I'm gonna f***ing ski, and you're gonna make my 25% worth 500 million. Get to work, bitches.

Starting point is 00:00:26 Deal. Let's go. Deal. Chamos title has been upgraded from dictator to chairman. Chairman, dictator. That is very funny, Chairman, dictator. Chairman, dictator. He's got the super voting.

Starting point is 00:00:36 I have no shame. Anything. I built this entire empire, and I have nothing in it. I built the empire. I came up with the name of the show. I came up with the format. I invited you, Ms. Wilprix. Make me rich bitch. Let's go distribution checks. Daddy needs new skis. Three, two, all right, everybody. Welcome back to the all in podcast. If you can believe it, we're almost at four years of this. Michugana episode 158 today.

Starting point is 00:01:04 And we've got a full docket. I'm at half speed. I got a little bit of the sniffles, but we're going to power through the docket with me again today. I got the sniffles. I got a little bit. Can I get you a tissue? Give me a little tissue and some some juicy juice box. Some some cofrops. I'll be fine. I'll be fine. You'll tough it out. You'll tough it out. Well, listen, I just want to say you can make it through this pod. Of course. Of course. I'm a professional with me again today. The king of beep. I can't say what he's working on. It's like a pop. I don't know. Understand that like what the beef. There were so many beeps last time that people can

Starting point is 00:01:41 even understand that. Be the beat. Bad other show. was a little crazy. It's a little bit fast. He's genetically engineering, right? But he's top secret. Which one is going to be? I already figured it out in the comments, by the way. Oh, the Congress figure everything out. I don't know what's so secret. They already figured it out.

Starting point is 00:01:58 So can we say what it is? No horse out of the barn, free bird. Can we get through introductions? Go ahead, keep going. And Chairman Dictator, Tremauld Polyhapatia is with us. Welcome back to the program. free bird. Can we get through introductions? Go ahead, keep going. And chairman dictator, Tremauhtpolleyhapatia is with us. Welcome back to the program. Thank you. By the way, I was feeling pretty bad about your sore throat. So I was, I went on Google and I found something that may be the cause of it. Nick, can you just throw up this strike? I'm pretty sure I can.

Starting point is 00:02:22 that may be the cause of it. Nick, can you just throw up this strike? Pretty strike. You can't. You can't. You can't. You can't. You can't. You can't. You can't.

Starting point is 00:02:30 You can't. You can't. You can't. You can't. You can't. You can't. You can't. You can't.

Starting point is 00:02:38 You can't. You can't. You can't. You can't. You can't. You can't. You can't. You can't. You can't. You can't. Oh no, I'm here to do the best job I can. What do you mean BIPOC chairman? Explain to the audience what these two words mean.

Starting point is 00:03:12 Person of color, bro. Billionaire person of color. Oh, is that what it is? Yeah. So, we checked the DEI manifesto and it said we needed to make a chairman of the organization So sacks is leading the all-in DEI group and they voted Chimoff to be the first chairman of all in as we get our CEO Ready to come on board and so you did a diversity token candidate sacks explain the process

Starting point is 00:03:38 Well, it's it's more like you know Chimoff is getting a little bit touchy about being called dictator all the time And you were kind of playing the Biden role of needlessly offending him It's more like, you know, Chimoff is getting a little bit touchy about being called dictator all the time. And you were kind of playing the Biden role of needlessly offending him. He's kind of playing the Xi Jinping role. So we've elected him chairman so that you can stop calling him dictator. Right. Because you want to start from a bit more dramatic, more sensitive. Yeah, I think it's great.

Starting point is 00:03:58 I'm all about the diplomatic listen. There was a polypuro. There was a process. It was my retocratic. And the chairman was a little chimney., there was a process, it was made with a trocratic, and it was well-chimney, and now for year one, there's a polypuro consisting of me, free, Bergen Schamaff, and the polypuro has selected Schamaff as chairman. Get to work, get to work, make my 25% worth a billion dollars, please. And of course, with us, Hadoff is hosting of the absolute best party of the season.

Starting point is 00:04:27 Well, on top two. Here at Distant Two, man. It was a top meat protein party. Jamath and I went to Saks's. I hope you got enough food. I did. He was good. Yeah, I mean, the dessert table was crazy.

Starting point is 00:04:40 No, the dessert table I had to, I felt myself beside it and I was like, why am I near this dessert table after the fiasco at freebirds? So I had to go to, I had to go to the other side. Well, here's what you're mothin' I did. We got in there and we sniffed out the caviar. And this was top shelf caviar on potatoes chips. That was fresh and also on bellinis. On bellinis. We parked it there.

Starting point is 00:05:03 And then- No, friddles, that actually is a great way to, you know, those Belenis are too like bread-y. I don't think it's a good combination with caviar, but- Same word, but- You're a little chip? Oh, that's a lot.

Starting point is 00:05:15 That's a lot of, a lot of business. Yeah, you're a high love. The most important thing, Nick, I'm sure you have a cute up, is our annual awkward hug. This is a tradition amongst the all-in every year to celebrate the holiday seasons. We engage in the awkward all-in hug.

Starting point is 00:05:32 Let me explain how the hug went down. We're at the caviar, and Shamath is on his eighth pringle. I'm about 15 in. I've eaten half the tin of caviar at this point. I'm getting my money's worth for coming all the way up to the city. And we're just getting my life. And then here it is.

Starting point is 00:05:48 We got to break this down. First, Shamath is an aloeving in brace with sacks. What you see there from sacks is not a cry of joy. It's absolute fear, abject fear. There's a lot of ghosts. It was just a little bit too long. That was mainly. Yeah, Shemoff refused to.

Starting point is 00:06:07 It went off for a while. That's what you guys don't. I'm a sick. Because if you look at the studies and free Birken to test of this, when men hug for two minutes, there's a release of oxytocin and it's an incredible anti-inflammatory and anxiety. So I was I was giving you therapy. That's like the

Starting point is 00:06:26 therapeutic comes. That was your Christmas gift. Zach, tell us what you're feeling here. We see this blood-curdling scream and or cry of joy. What was going through your mind when you got to minute two of the hug? Take us to the moment. I'll show you what else I was thinking of here. Hold on. Okay. You can see here also if we break this down, freeberg comes in with an Asperger side hug. I don't know if you can see that there in the photo. Let's see the, because you know, he, he got his zoom over to the left. Freeberg looking at his shoes is like,

Starting point is 00:06:57 I'm going to express joy and love with my three besties through a man hug. And he, he gets enough of the shoulder in there that he doesn't have to have to. He's technically part of the hug, but he's not really. Cannot make eye contact. And he says, I have to. Now me, I'm like, this is hilarious.

Starting point is 00:07:16 So I just jump and I grab all three guys. And I just said, that's just me pure joy. Hello, Larry, his friendship is great. Good to have good friends. And friendship is great. I love you guys. I love you guys too. Yeah. Back at you. This is what I was thinking. This is what I'm running for you. This is a saxist personal Vietnam. This is a great scene. That's a great scene. That's a great, that's a great, that's a great, that's a great, that's a great, that's a great, that's a great

Starting point is 00:07:40 scene. That's a great, that's a great, that's a great scene. That's a great, great scene. That's a great, great, great scene. great movie. Because he's on estrogen therapy in the scene and he grows man boobs and then he stuff said we're not into his man boobs. It's a great scene. Where men, men is what we are. Let's get to work. We got a full docket here.

Starting point is 00:07:56 And the world continues to spin into chaos apparently. Members of the HUTI movement have been attacking commercial ships in the Red Sea with drones and with missiles. This is largely under reported in the mainstream press. So we thought we would tackle it here. They are calling this revenge for Israel's military campaign in Gaza, the Houthis, say they will only stop once Israel begins allowing food and medicine to freely

Starting point is 00:08:26 enter Gaza, like something we would all like to see. Critics suggest this is a power play for more legitimacy in the reason. US allies, including the UK, Canada, France are reportedly preparing to deploy naval vessels to the region to deter more strikes. Obviously, there's a lot of geopolitics here. And this is a business story. We can link this back because the attacks have interrupted one of the world's busiest trade routes. As you know, all five of the world's largest shipping conglomerates have paused, transfers through the Red Sea. And that means they've got to go around Cape Horn. They've got to go around South Africa to get things to Europe, from Asia,

Starting point is 00:09:06 thousands of extra miles from what I understand. And this has caused oil and gas prices to rise. And if this becomes acute, it could be really, really impactful to the economy on a global basis. So, in order to understand what's happening, of course, we go to our foreign War correspondent. Yes. He's got his military cap on. He's now at a total of zero tours of duty Sax, can you please? With your infinite wisdom and experience in the field Tell us what is happening

Starting point is 00:09:39 Well, you know, um matchbox situation. Yeah, what's happening is Gia, what's happening? Come on. You're an expert., I'm really I'm really struggling with this one. J. Cal I use a lifeline I'd like to phone a friend phone a friend to answer this one for the first time sacks is unable to give us a Competent answer he's chosen to phone a friend which we allow here on the all-in-pockets Who would you chosen to phone a friend which we allow here on the all-in-pockets who would you like to phone have you thought about that we can phone since this is uh... involving impact on the mobile trade

Starting point is 00:10:12 no i'd like to find ryan peterson the founder of flex port alright here we go we're going to the a t and t phone call phone friend zoom we're gonna click through on zoom and can we get Ryan Peterson from Flexport? Rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr We're live we're live you're on the only podcast live. We've got an official phone a friend moment here You you understand what's going on there better than anybody Ryan obviously runs flex port and he is in the business of shipping container So sacks you want to ask him for some help? What is the impact on global trade here from what's happening in the red sea? Well, it's massive about 30% of all ocean container traffic flows through the

Starting point is 00:11:07 to flow through the Suez and through the Red Sea. Most of that is going Asia to Europe. So like the biggest impact here is going to be felt on those two areas. It's going to make Chinese manufacturing that much more challenging. You have to go around the southern tip of Africa. It's adding about 20% and tip of Africa, it's adding about 20%, 20% to 25% longer journey. Now in a network business, a longer journey means less capacity. So you're talking about 20%, 25% cut and shipping capacity on the 30% of all containers. So that's containers. I also understand that about 12% of global oil goes through and about 8% of liquefied natural gas. And just to explain what we're talking about there, we zoom in. There's a very narrow

Starting point is 00:11:49 straight there called the Bob L. Mandep Street. I hope I didn't massacre that pronunciation. So you go around the Gulf of Aden through that Bob L. Mandep straight into the Red Sea. And then from there, you can go through the Suez Canal and the Mediterranean. Yeah, and so it's a maritime choke point. By the way, this is going back, it always has been. There's documentation, Caesar Augustus invaded Yemen in like 63 BC, forget, 63 AD, no, I forgot the dates, but it was during the reign of Caesar Augustus, so it would have been right around the birth of Jesus Christ.

Starting point is 00:12:21 And you're talking about thousands of years of this being and it's really important choke point. Even the Egyptians actually built a canal. The ancient Egyptians had a canal that connected the Nile River. So this has always been the place to connect East and West. An incredibly important maritime choke point. And the rebel forces in Yemen have been firing missiles

Starting point is 00:12:40 at ships. And what that does is spike the insurance costs. Obviously puts the cruise lives in danger, which they can't tolerate, but it also really spikes the insurance cost. If you sail a ship into a region that's got missiles being fired, the insurers just won't cover it. And so you can't operate a ship without insurance, because if it sinks you go out of you a bankrupt. And so they're just taking the long way around, which as I said, it's 20% reduction in capacity. What we've seen, remember with COVID, you had all the ships off the port,

Starting point is 00:13:12 you guys brought me on to the show. The last time I think was when that happened, that was about a 20% reduction in capacity. But at the same, what happened during COVID was there was also a 20% increase in demand. So, this time there's not an increase of demand. So, I don't think the as-impact fall is what we saw to shipping prices during COVID, where you had like a 10X run up in price. But you're already seeing prices are coming out now for January, for Ocean Freight, Asia to Europe. You're seeing about a 3X increase in the price of Ocean Freight, versus where we were

Starting point is 00:13:42 a month or two ago, which was very, very cheap a month or two ago So I wouldn't read too much into this and frankly the Suez Canal is too valuable in my opinion Too valuable to civilization To the modern world to believe that you know a group of rebels no matter how well-funded they may be Is going to be able to disrupt that for any long period of time. I think there's too many interests aligned here to keep this thing flowing. Well, okay, two points on that. So we call them a rebel group.

Starting point is 00:14:14 And I guess they are. It's a Shia group in Yemen that rose up in 2014 and deposed the monarch there. And they basically control large swaths of the country, but they're not internationally recognized. So that's why they're called rebels. But make no mistake, they basically control the vast majority of Yemen. It's a Shia group. You can say sponsored by Iran, but I'm not sure they're controlled by Iran.

Starting point is 00:14:37 People call them proxies, and that's true to some degree, but they also have agency. Like you said, Jek, how they are doing this, they say in solidarity with the Palestinians, when the invasion of Gaza first began, they were firing rockets at Israel, but they had to go all the way over Saudi Arabia, they didn't make it. So now they started firing on ships that are going through this straight, they started mining the straight. And so like Ryan's saying, this basically put a damper on On commerce unless you're a country that the hoodies like apparently Russia's been able to move it ships through who still They claim they're only targeting ships that are transacting with Israel, but that's not true

Starting point is 00:15:19 I mean a lot of ships have been targeted that don't have a relationship with Israel So let's just say broadly speaking for Western ships they can't get through. Now what the US has done in response to Ryan's point is that we've announced this operation prosperity guardian, which is to restore the flow of trade through the Red Sea. But the question is what that's going to involve. And I think we are bracing now for the US to start taking military action against the Houthis. The problem is, I think Ryan, when you're saying this is going to

Starting point is 00:15:51 be resolved maybe quickly, is that the US was already backing the Saudis in a war against the Houthis that started in 2015. It only got sort of resolved with a ceasefire that's still pretty fragile last year. So the Houthis have already survived almost a decade of Western sponsored attacks on them. It's not clear what we have to do to basically stop them from taking these actions. And I think if the U.S. starts a war basically against the Houthis in Yemen, we're talking about an expansion of this conflict in the Middle East from beyond what's happening in Gaza

Starting point is 00:16:28 to now, another front that directly involves the US moreover. This is, I think, very under-reported, but there've been almost 80 attacks on US bases in Syria and Iraq by Shia militias against sponsored by Iran over the last couple of months. So this whole region is a powder keg, and it's not clear to me that if the U.S. attacks the Houthis, that this is going to lead to a quick resolution.

Starting point is 00:16:56 So I guess my question back to Ryan is, let's say there is a war here. Let's say the Houthis don't stop. I don't think they will. And let's say the U.S. gets an award there, but isn't really able to bring it to a decisive conclusion. And let's say that this blockade of the Red Sea continues for all of 2024, what does that do to global prices? Because I think right now the market is pricing in rate cuts next year on the theory that inflation is coming

Starting point is 00:17:26 down and is a solve problem. It's the right question. It'll be a big impact. And if you listen to like retailer earnings calls, earnings calls, they're all talking about, hey, we've had six, 12 months of deflationary environment prices are coming down. A lot of what they cite is the lower ocean freight prices. And if that goes back, and if it goes back anywhere near, I mean, we're already seeing a 3X, but even that 3X is sort of, well, it's just going to last, so I need to price it all in, do I need to, and it hasn't really taken hold of, like, that's not a true market dynamic of what is the supply and what is the demand. Freight is very inelastic.

Starting point is 00:18:00 Like you're going to ship the product regardless of the price of freight. You know, unless your business model has the tiniest of margins, the price of freight goes up. It doesn't impact how many products you ship. You're going to go sell as many products as you can. Does it impact America as much as it impacts Europe? Absolutely not. Now, this is the fastest route for many parts of Asia to the east coast of the United

Starting point is 00:18:23 States, and especially with the Panama Canal, it's also congested at the same moment right now. Because of, they say it's because of a drought, but actually they built the bigger canal and it's just draining the lake faster. And that's my hypothesis, but I'd like to look into it a little further. But the Panama Canal is only going

Starting point is 00:18:40 at about two-thirds capacity. So if you're going Asia to the East Coast, those are your options. But to go around the southern tip of Africa, around the Cape of Good Hope, to get to the East Coast, it's like an 8% increase in transit time versus 20 to Europe, and there's alternatives. So definitely impacts Europe, much more at impacts China. Like the reason I think that there's so many people

Starting point is 00:19:05 lined up here, like, this is not good for China. China wants to be able to shift stuff quickly to Europe and get it to market. So, to the extent that they have any impact, I think they're going to be clearly on the same side as the United States here. Europe obviously has it. And the other thing that I haven't even talked about is, like, you look at that map. They're blockading, not just the Suez, but they're blockading Saudi Arabia. The Saudi's biggest port is in Jeddah right up there.

Starting point is 00:19:27 Well, I don't think they're going to tolerate being cut off from the world. Yeah, I mean, taking on Saudi seems like an unwise idea. Well, they've been a war in the past as David pointed out. And I'm not. I'm certainly no expert. By the way, I find this ship to be amazing. It's since translated, but this is one of the ships that was there yesterday. I'm just going for it. And if you look at the destination, it says armed guard on board.

Starting point is 00:19:49 As they set that in the AIS GPS transponder so that if anyone comes after me, know what you're going to get. I have two comments. When I looked at this in the last couple of days, that was sort of my takeaway, which is that the the really significant impacts are downstream to Europe consumer prices. So I think like European inflation has more chance of upticking again than America does. Because I think the practical reality is what you said Ryan, they'll just, the need to ship is in elastic and so they'll just pay 8% more and they'll just go to the East Coast and a more in a longer way through the Cape of Good Hope or whatever. The second comment, I think to me is a little bit more macro in nature which is if you look at what's happening now, there's a hot war

Starting point is 00:20:40 in Israel and Gaza and theoretically now there's a hot war in Yemen. I think the positive take on this is that it actually puts the Middle East in a position to resolve all of these things. And what I mean is the following, if you're Saudi Arabia or if you're the UAE or if you're Qatar, what you really want to do is build for the next 30 to 40 years. They've set it as much. They want to pull trillions of dollars of oil and that gas out of the ground. They want to monetize it and then they want to invest in their people. The last thing they need is to be bookended by two hot wars, largely propagated by a third

Starting point is 00:21:18 party actor in Iran. And so I think if there was not resolve for them to get aligned, I think that the resolve now really apps up Saudi Arabia doesn't want to be in the middle of this nonsense Qatar doesn't want to be in the middle of this nonsense UAE does not and then the fact that Canada America, Britain, France are now a sudden pulled in and China as you said Ryan I didn't even think about the implications of China as a supplier of record for most of these goods. All roads, I think, lead, in my opinion, to a coming together of folks to say, okay, let's use this as a definitive moment to just clean the decks here. And I think that that'll put a lot of pressure on Iran, a lot of pressure on the money flows.

Starting point is 00:22:02 I suspect that both of these two hot wars get resolved quickly because the larger multi-decade implications for the Middle East are too big to let it be subsumed by the Houthi rebels or Hamas. It's interesting here how you see like Israel's a relatively small economy in the world and you start to see in the same way that Ukraine is not a big economy, Russia is not that big, but it has a massive, the war there has just a massive impact via the commodities markets, because Russia is such an important supplier of commodities. And now you see what Israel and Gaza are relatively small, potentially a small regional

Starting point is 00:22:37 conflict, big global implications because of everything that goes behind it. But now you see this spread to something that really could impact, if this is an extension of that conflict, now you're seeing, wow, this actually has the ability to extend to global markets in a way that's similar to what happened in Russia and Ukraine where all of a sudden commodity markets are impacted and you're seeing that inflation. But I don't know, Chimante, your view is, hey, we're going to have progress because progress is good or something. I don't know that that's necessarily the direction that the world follows like you can have

Starting point is 00:23:06 I think you're beginning to buy or Saudi or Qatar you're thinking this is the last thing we need for sure Well, I think that's definitely true multi-decade multi-trillion dollar investment plans and we're going to let the Hootie rebels to real that And literally on ports like Saudi is trying to build a big port as part of the neon project there in the in of the country on the Red Sea, which would be cut off. I mean, it's not going to fly. Yeah, look, Saudi Arabia is in a really tough spot here because what happened is after the Houthis deposed the monarch there in 2014 Saudi Arabia started fighting a war to restore the leader in 2015 and that war went on for almost a decade. Created a huge humanitarian crisis really under reported compared to other crises. There were hundreds of thousands of civilians who were killed, millions of people displaced, went hungry.

Starting point is 00:23:54 Finally, that war again got paused by a fragile ceasefire that was negotiated, I guess, in the last year or so. And then, simultaneous to that, there was a reproach mob between Saudi Arabia and Iran that was brokered by China. And so the last thing Saudi Arabia wants to do is get involved in restarting this war or restarting hostile relations with Iran. I mean, they would like to move beyond that, which is why they're not participating in this Operation Prosperity Guardian. The problem they have is that the Houthis aren't going to stop doing what they're doing until the Israel's war in Gaza stops. Netanyahu, just the last 24

Starting point is 00:24:37 hours, made it clear that the Israel won't stop fighting. They will not agree to another cease fire until Hamas is eliminated. So, Tramath, I think you're right that if there were a cease the israel won't stop fighting they will not agree to another ceasefire until homoses eliminated so tomat i think you're right that if there are ceasefire that this situation would go away very very quickly and shipping normal shipping would be restored however i'm not sure you're gonna get the parties to agree to a ceasefire anytime soon i mean the israeli seem pretty determined

Starting point is 00:25:00 not to agree to a ceasefire i think the binaural station clearly would like that i think they would like this problem to be over. But with the continuation of hostilities in Gaza, you continue to have the potential for the second order of effects, these kind of knock on effects. And like I mentioned, one is the, is the Houthis and other are all these American bases that are under attack right now by these Shia militias.

Starting point is 00:25:23 So I think this has the potential to be at Black Swan in 2024, meaning that somehow the Israel-Hamas war spirals into a larger regional war that pulls the US in. I'm not saying that's gonna happen, but I think the potential is there the longer this goes on. And I think that if that does happen, there could be the potential for an oil shock.

Starting point is 00:25:42 By the way, the Houtis have said that if the US attacks Yemen, they will light the Saudi oil fields on fire. Now, I'm not sure they have the potential to do that. I mean, presumably if they had the potential to do it, they would have done it during their long war. So that probably is just hyperbolic rhetoric. But there's so many ways for this to somehow turn into a larger Middle Eastern war. To your point, Shema, I think I've been meeting with folks in Doha and Riyadh and Abu Dhabi and Dubai for the last six months, and I was talking to people this past weekend. You're absolutely right. There are a group of people within Agenda, which is to modernize the economies there, to move

Starting point is 00:26:22 off Petro and to move into technology, and to move into hospitality with the Neon project, as you pointed out, Ryan. And that's not going to get derailed. And those are the most powerful, you know, depocketed influential forces there. And so, yeah, they're working with the United States. And any of these rebels, etc., I think they're going to be dealt with because people want prosperity and they want to keep evolving these societies and moving them. Normalization. Normalization.

Starting point is 00:26:51 Yeah. I mean, have you ever, have you guys, who's been to Riyadh here? I have. Yeah. I think Freeberg or Sax have you been to Riyadh? Never. Freeberg. I mean, no.

Starting point is 00:27:03 It's beautiful. And it's changing rapidly, massively, and obviously Dubai's already been changing and then, Doha, and I was arguing that. Yeah. Sorry, Ruby isn't a great place and they want to do the right thing here, but you're acting like the Houthis can just be dealt with. What does that mean to you? Well, I think that the larger forces are united in wanting to have prosperity for their people, education for their people, and to build deep ties with the West and the East to do commerce. And so I think those forces are greater than maybe some of the traditional forces that

Starting point is 00:27:39 are at work and these longer term conflicts may be are not as important to the leaders and the citizens of these countries as prosperity is. And so when I say dealt with, I think they're going to just focus on developing their economies over these skirmishes. Are you saying there's going to be a diplomatic solution here because I don't see it. I mean, here's the problem. Israel's not stopping its war in Gaza. The Houthis aren't going to stop until Israel stops. So how

Starting point is 00:28:05 do you make them stop? That's a great question. Containing these conflicts is probably the likely scenario when I've asked that same question to the people who are in those regions. And when I spoke to them, they're all about containment. They don't think there's a resolution like we might think about it here on the west that, you know, there's not gonna be a conflict between Palestinians and Israelis. They just think containing it and having it not be and all out is success.

Starting point is 00:28:32 What do you think's gonna happen? I mean, I'm sorry, the US is in good support. We have two sides who are implacably resolved. Israelis to continuing their fight against Hamas and the Houthis to continuing to lash out at Israel or the West in general until that stops. The likely scenario is that Netanyahu is losing support. That's what every Israeli and every person in the region says is that Netanyahu is not going to last long term. So what have you heard, sex? What do you think the resolution?

Starting point is 00:29:01 Well, I think it's interesting if you look at israeli domestic politics it's true that netanyahu is unpopular but something like ninety percent of the israeli public favors the continuation of this war until homostas eliminated i mean the israeli people are really i think harden on this question those tapes

Starting point is 00:29:22 of homostas trusses on October 7th were compiled into a film, they were recorded by the Hamas fighters' own GoPro's. And the Israeli people have watched all those things and they are resolved to destroy Hamas. Now you can argue with their tactics and I'm just stating the fact, okay, I'm not judging it. And the point is just whether Netanyahu survives or not, I think the Israeli public wants to

Starting point is 00:29:46 eliminate Hamas. So I think they are resolved, I think the hoodies are resolved, and the hoodies control this choke point so they can stop or interfere with global trade. And I think, look, there could be a ceasefire. I mean, I think Biden clearly would like there to be a ceasefire, certainly before the election. And that would bring all of this to a rapid end. But if there's not a ceasefire,

Starting point is 00:30:07 I don't understand how you just stop the hoodies. I mean, the only way to stop them is if you want to go to war with them. That's what we're talking about. So we're talking about the US using its naval assets to go get the hoodies. Well, or the regions Shemoth mentioned could use diplomacy and or financial measures. And so there's other options on the table. That's not gonna work with the hoodies. Or the regions Shemoth mentioned could use diplomacy and or financial measures.

Starting point is 00:30:26 And so those other options on the table. That's not gonna work with hoodies. Well, Noesi Solutions here, Ryan, thanks for jumping on the pod with us once again. One question, how much more resilient post COVID, if at all, are supply chains? Because you talked about wanting to make the more resilient and that was a major focus for Flexport.

Starting point is 00:30:44 Is it better now post COVID? Have we done it now? I think at the physical infrastructure layer, nothing's really changed. I don't think, you know, the bottlenecks have gone away just because demand went back down. The US had like a 20% increase in container volume. It created all these bottlenecks. We couldn't process that many containers in our ports. And then the containers now are back at 2019 levels and everything's flowing normally. But I wouldn't say that makes us more resilient. It's the same as before. And situations like this, you learn just how amazing

Starting point is 00:31:13 and resilient the global trading network is, the global logistics infrastructure, but also it's pretty fragile. If a small group of rebels can fire missiles and you go, well, even the US Navy, what are we gonna do? I mean, this kind of an asymmetric warfare type thing they shoot a $20,000 drone We need a two million dollar missile to shoot it down like it's not a it's not a great setup And it's not clear that firing missiles back is gonna open it back up

Starting point is 00:31:39 And so yeah, I think I think it's much more fragile than we realize as civilization always has been you know it takes So yeah, I think it's much more fragile than we realize as civilization always has been, you know, it takes, takes 100 years to develop a civilization and an afternoon to go back to barbarisms. And air freight you had talked about previously, that's still four or five times more expensive than sea freight. Is that about right? That multiple? In general, that's a, yeah, reasonable assumption is about four-type times more.

Starting point is 00:32:02 The air freight networks are very small and proportioned to give you a sense, like one of these containerships that flows through they're ever given is the world's most famous container ship that got stuck in the Suez Canal a few years ago. That one holds about 10,040-foot containers. 747, which is basically the biggest cargo plane out there, can hold 740-foot containers.

Starting point is 00:32:21 And so if you have a diversion of global ocean freight, we'll rapidly flow over to, it doesn't have a diversion of global ocean freight, we'll rapidly flow over to it. It doesn't take a lot of freight going, hey, I'm going to ship this by air instead to suddenly have the air freight markets get impacted. So it hasn't yet. The airlines are a little bit less connected to this market and haven't instantly said, hey, we're raising prices in January, but I suspect if this lasts another week or two, you're going to see big run-ups and air freight prices. And these are global markets.

Starting point is 00:32:46 The price of freight from Asia to the US gets impacted because they're pulling ships off. The supply gets redirected. The planes get rerouted. It is a global market. So an impact here will affect prices of shipping Asia to US as well. Thanks so much for coming back on the program, Ryan Peterson. Great to have you here.

Starting point is 00:33:03 And oh, congratulations on being CEO of the company. You found it flexboard again. We didn't get a chance to talk about all the craziness with this CEO and turnover, but you're back in the home. And Ryan, it's amazing. It's amazing having the time of my life back here and work at the flexboard office every day. All right. We'll see you soon.

Starting point is 00:33:20 And thanks for coming on as SACS' lifeline. Well done. All right, guys, sit here. Ryan did bring up a really interesting point there that you don't hear enough, which was the asymmetry of the warfare that the hoodies can launch a drone or a cheap missile that costs thousands of dollars

Starting point is 00:33:36 and it costs us millions of dollars to shoot it down. Yep. That is just not sustainable for the US. We see this happening in Ukraine as well, all these multi-million dollar expensive tanks get taken out by a land mine or by a cheap RPG or something like that that costs a few thousand dollars. It's also the fact that if you send a drone

Starting point is 00:33:58 and it blows up on a ship and it costs you a couple thousand bucks to do that, the lack of risk tolerance, the fact that the insurance companies won't ensure the ship anymore, means that now that ship can't travel and that's tens of millions of dollars of commerce that gets shut down off of a few thousand dollar investment. So there's a deep asymmetry in the sensitivity we also have to loss. We won't take, hey, maybe one in ten ships can blow up. Let's keep going. It's the fact that there's no margin for loss. We won't take, well, maybe one in 10 ships can blow up. Let's keep going. It's

Starting point is 00:34:25 the fact that there's no margin for loss. There's no allowance for loss as a result. Any sort of threat of loss means that the whole system shuts down. I'm not advocating that we should, but it's just the condition we're in. I also think the other point I didn't make, I would imagine that this behavior with the Houthi is driven in part by the emboldenment that arises following October 7th and the praise that Hamas has received globally. And if you believe that to be true, there are many other groups like this that may get emboldened and you start to see more activity in other regions as well, that you can have these kind of outsized impacts and folks suddenly,

Starting point is 00:35:07 you know, start to take action. But I think that's why we're between a rock and a hard place here is that on the one hand, if we don't do anything, then you're emboldening that behavior. And if you do do something, you're escalating the war. Yeah. And to your point, you know, saying like, hey, the US is going to enter the war, I think that there may be this moment where it's not even an option, that the US is being provoked in a way that you can't say no. You have to maybe end up having that. The guerrilla warfare aspect of this is super fascinating because you can really do incredible damage to very expensive airplanes with hypersonic missiles that go incredibly fast, or like mock

Starting point is 00:35:43 five or something insane, and they're cheap. So $100 million or $20 million, fighter jet can just be annihilated by a couple of $100,000 and hypersonic missiles. All right, there's been a ton of M&A activity and M&A deals that have been canceled. Adobe Figma has been called off. And Illumina and Grail has been unwound as well.

Starting point is 00:36:09 The big headline is that after a 15-month review process, Adobe and Figma called off their merger. We talked about it here multiple times. It was a $20 billion cash and stock merger that was agreed to back in September of 2022. And there's tons to unpack here, shareholders, employees, a startup ecosystem, and of course, limited partners who were expecting huge paydays from Figma being sold to Adobe

Starting point is 00:36:38 are now back to a waiting game of figuring out if this company can go public, et cetera. At Shamauth, you had tons of thoughts on this. And maybe you could educate everybody on the Illumina Gral deal. So they don't make people understand that. Yeah. I think there are three deals or almost deals that got essentially called off or canceled or never consummated in the last few weeks, which show a interesting trend so the first as you said Jason was Adobe Figma

Starting point is 00:37:08 The second was Signe and Humana They were proposing a multi-decadekabillion dollar merger and it was very clear that the FDC was going to have a huge fit around it So they said that we're not even going to do it and And then Signe just said they'll do a $10 billion buyback instead. And then in the craziest example, Illumina and Grail, so Illumina makes these gene sequencing machines and Grail makes one of the leading tests

Starting point is 00:37:37 for free DNA cancer detection. And at the time Illumina owned almost half the company, they bought the other other half. They merged it in even though the regulators said, hey, hold on, we have an issue with this. And now they're being forced to unwind the merger. So to pull this company back out and divest it. of this is two things. One is that there is no viable M&A path for early stage venture capital businesses. So if you can't have a $20 billion merger or a $40 billion merger or a $15 or $20 billion M&A with a high degree of confidence, then the path to liquidity through M&A is less than 20% of the outcomes, which means that the overwhelming path to get liquid is what you said, Jason, which is IPO. But the problem is the second part, which is that the capital markets in the United States

Starting point is 00:38:32 are not ready or not in a position to support all this IPO liquidity. Why? The banks won't underwrite. There aren't enough researchers, research analysts that will cover these stocks The ways in which the banks make money have become so constrained and so I'm kind of left pondering to myself How do you go back to a world of like the 90s where startups four and five years old would go public to raise capital? I don't think that that's gonna happen. So I don't know exactly what happens to us, except that we'll have companies just shading for 15 and 20 years. And I think that just has a chilling effect because it's like, what investor wants to

Starting point is 00:39:12 put money away locked up in highly liquid stuff for 20 years? What rate of return do you need to give them that makes them want to do that? So something has to change because if the M&A market can't exist, then we need to change the rules of the capital market so that there's incentives for these banks to underwrite these companies to go public. Well, I guess there's two things, sex that could change this dramatically. One is if we put in more conservative, Republican, libertarian, et cetera, less regulatory regime in Washington, that could open up M&A, you know, as soon as 2025 perhaps. And then the second is direct listings, dare I say SPACs and alternative ways to get companies public and may not be the gold standard as a traditional IPO. But at least if we get those liquidity started, and I guess third, saxom, I'll get your thoughts on this

Starting point is 00:40:06 for private investors and their LPs. Everybody seems to be focused on building strong, stable, hash flowing businesses. And we've seen all the companies that went public, whether it's Airbnb or Uber, are now focused on ringing the cash register and being profitable. So ultimately, maybe this log jam and M&A blockage

Starting point is 00:40:25 makes everybody focused on sustainable profitable companies. And that's a good thing, long-term, what do you think, sex? Look, like I said last week in relation to the Figma Adobe deal, the fact that regulators took 15 months to analyze the deal only to come to the conclusion that they basically weren't going to allow it, and then Adobe finally killed it, is going to have a chilling effect on M&A

Starting point is 00:40:43 and Silicon Valley. I mean, if acquires and targets can't have confidence that the deal will be approved, and in fact, they're going to be left in limbo for over a year waiting for speculative approval, they're going to be less likely to do deals in the first place. And I'm sure Adobe is not happy about the fact they got to pay a billion dollar break-up fee, which by the way, was a really smart thing for Figma to negotiate. I mean, if you're a company that's started that's going to get acquired, you'd need a pretty big breakup fee now as insurance on the deal because there's a very good chance that regulators

Starting point is 00:41:13 aren't going to allow it. So yeah, absolutely. The fact that regulators got in the way the Adobe deal and moreover, the way that they did it with this protracted delay, is absolutely gonna have a chilling effect on M&A and Silicon Valley. And look, there are only two good outcomes for a startup. You can either IPO or you can get acquired. That's it. The third is basically you go out of business. That's the third outcome.

Starting point is 00:41:37 So when you take half the potential exits off the table, you're absolutely making it tougher for VCs and founders to get a good return. It's that simple. And that is going to have a depressing effect on, you know, the investing of risk capital and Silicon Valley. I don't think it's a good thing for anyone. And by the way, even if the U.S. sort of fixes this, even if we get a regime that's more friendly towards M&A, you still have the EU to worry about.

Starting point is 00:42:03 And you also have the UK to worry about because they're not part of the EU thinks to Brexit. The UK, like I said last week, they're like the Chihuahua who's leading the pack. They're the smallest market, but they're the most aggressive on antitrust enforcement. Tax, they may be the beard for the US and the Europeans. It's possible, but in any event, now you've got three regulators to worry about, not just one. And, you know, like I said last week, I think if you're a startup and you're trying to consider

Starting point is 00:42:27 where to put your Europe office, I would not choose the UK anymore. I used to think that the UK was number one, because it was so easy, but you don't want to create that nexus if you can help it. It might subject you to a competition authority, you don't want to deal with later when you get acquired. Yeah, I would have just opted out of the UK.

Starting point is 00:42:44 I would have called their bluff, as I said last week. Freeberg, any solutions here, you think, to solving this problem in VC land, or do we just have to build stronger, more profitable companies and be more patient about taking them public since M&A is not on the table? I don't know if I take the anti-trust regime as being the core driver of M&A not being on the table. I mean, there's a couple of these examples, but I don't think there's a predominance of this going on.

Starting point is 00:43:10 I think that there's a lot of smaller deals that still end up being good outcomes. I mean, we've also talked a lot about the lower cost of capital and starting software businesses and the era of AI type tools. And that leads to being able to hit a hundred X. If you put small enough amount of capital in and have a decent outcome where you're not building the market monopoly in some particular market, it doesn't feel to me like that's

Starting point is 00:43:40 the biggest driver of concern here. The biggest driver of concern is just all the return on capital metrics that the big buyers are having to face. Return on invested capital is becoming more important than it's ever been because we're talking about trillion dollar market cap buyers. That's how they're measured. They have to be really thoughtful about how they're deploying capital. In a high interest rate environment, there's a greater sensitivity to a faster path to cash returns than there has

Starting point is 00:44:07 been historically. So it feels to me like that's, and I would imagine if I'm a doby and I'm looking at this Figma deal, do I keep fighting it? Or at this point paying a billion dollars is probably net accretive to them. I think the stock price went up when they called the deal off, which highlights that it was probably a better investment for them to say, I'm going to pay a billion dollars to actually get out of this deal at this point. And I think we see more of that happening, which is this rationalization of timelines to ROIC and high interest rate environment.

Starting point is 00:44:34 Shrhmath deals do get down. There's a lot more tolerance for smaller deals, obviously. Yeah, I mean sales force was able to acquire a slack. That was 2020. Amazon was able to acquire whole foods. Walt Disney 21st Century Fox with the X-Men. So those are a different era. I really think that's a lot. 2016 to 2020. You're right. Those are all very different. I don't think that that's what you

Starting point is 00:44:55 can expect anymore. I don't think you can underwrite to get a $20 billion deal done in any industry. Yeah. Remember, Matt, our Facebook buying WhatsApp WhatsApp for was it 17 billion? I mean, that was one of the biggest venture returns ever. Yeah. Today that could never happen. Never happen. Today that could never happen. And that that Figma Adobe deal, it was a $20 billion deal. But with the rise in Adobe stock, it's really a $30 billion deal if it would have been consummated because half the consideration was in Adobe stock and that has debasely doubled. So all of those investors and employees were looking at a $30 billion exit and look, Figma is going to do great.

Starting point is 00:45:33 I think the numbers that came out about Figma, where they're going to do about 700 million of ARR growing 40%. So I don't know, they'll be able to IPO anytime based on that, but what's the multiple they're going to get? Probably 12 to 15 times. So maybe it's like a $10 billion company in the public markets. I mean, growing nicely, but it's just not as good an exit. I mean, that's a big haircut.

Starting point is 00:45:58 The positive to this is consumers or retail investors haven't been able to buy IPO's and get it in on companies earlier. So if people build stronger companies that aren't that are more capital efficient, then companies can go public earlier as you alluded to, Chimath, where Microsoft, Apple, a lot of these companies back in the PC era, they used to go public in under a decade. And now it's always over a decade. So maybe this will make stronger companies that go public. And then if there's a regime change and maybe people feel more frisky,

Starting point is 00:46:26 they still have to get through Europe that, you know, biotech is the only market that's always viewed going public as a transitory capital raising moment, right? Every biotech company that goes public in America, at least, are startups. They're pure startups. It's pure risk capital. But the technology side hasn has viewed it very differently. It used to be the same, right? And then it went to like, oh, we must be mature and then it has to be growing really fast and it has to be profitable.

Starting point is 00:46:57 There was so many ends and ends that the end of all of that, there were just very few companies that qualified. And then by the time they did go public, they're fall, 13, 14, 15 years in, they're so long in the tooth that their best growth periods are beyond them. Now, a couple of companies had bucked that trend, but by and large, that's the case. And I don't think that's to support what David put sacks at. That's just unsustainable. You cannot, you will not have risk capital flow into the United States if this is going to continue.

Starting point is 00:47:28 Yeah, this is going to be super challenging for founders. The out of bill companies that are sustainable and can go public because that's really the only pathway. And it's exacerbated by what Friedberg said, which is then that that family office or that endowment who can ripen a check as an LP to a fund can still get 5, 6, 7% can get corporate bond at corporate yields at like 8, 9, 10% why take on 15 year illiquidity for oftentimes funds that return less than the S&P which is the dirty little secret of Silicon Valley. It makes no sense.

Starting point is 00:48:07 It is going to be a challenged environment for some time to come. I think as we work this out, I mean, the thing that I find super interesting with the SPACs was like, you got to invest in some companies that were very early in speculative, like Joby. Now how could a consumer ever make that kind of betcha mouth to bet on? And that wasn't one of yours, I know. But it was one of these like incredible moments where you could bet on flying cars literally as a consumer. And I think they're actually going to figure it out. I was tempted to buy it and I've been tracking the stock. And I'm like, wow, they actually make

Starting point is 00:48:38 air taxis work. And it's kind of cool that the public can participate in that. And that's what they were saying when there weren't enough IPOs, and we had half the number of public companies. So I don't know if you have thoughts on it. The number of public companies I think has have in the last 20 years. So are more public companies better than less? I don't know.

Starting point is 00:49:00 I think that's kind of like a random statement. I think what is true is that the public markets used to be used for raising risk capital. But the public markets at the time also had a ton of research analysts. There would be a lot more coverage of these companies. There would be a lot more visibility, a lot more checks and balances because people would be meeting with management on a regular basis, writing thoughtful research reports. All of that is constrained as the business of being on Wall Street has changed. So it's not enough to just all of a sudden have a bunch of companies go public if all of that supporting infrastructure isn't there. So this is what I mean by it's a catch

Starting point is 00:49:39 22. On the one hand, there's no MNA, so you need to have more IPOs, but the banks will need to hire more people. That comes at a cost, which means that they're going to have to generate more revenues somehow. That comes at a cost to somebody else. And until that's figured out, you're not going to solve this problem, and instead what's going to happen is folks will be less motivated to invest in the innovation economy because there will be no path to liquidity. And when you do invest, you'll invest much smaller amounts of money and you'll make it as part of your risk allocation, a smaller piece of the overall pie.

Starting point is 00:50:17 What it also means is that if you're an entrepreneur and you haven't started a company yet, you may want to seriously consider raising a friends and family around using these AI tools and trying to build a very different kind of business, slow and steady, profitable from day one, and that's never been rewarded by Silicon Valley VCs, but if the reward for VCs don't exist, then the VCs themselves won't exist. And so you may want to start thinking about different ways to capitalize your business. And it's interesting point you make that is very subtle. So I just want to restate it here. The analysts who are covering companies like, say, Joe B, I'm just picking this air taxi

Starting point is 00:51:01 company because I'm obsessed with it. If there's not an infrastructure, those analysts act in a way as a backstop or a bit of pressure on management, I think is what you're saying, to hey, perform. We're checking on you and we're meeting with you. Without that, there's just a company sitting out there and nobody is asking them hard questions and then making decisions to put a buy or a sell rating on it. Is that correct? Maybe you could expand on that. Yeah.

Starting point is 00:51:27 Missing peace. There is an evolution in the public market. So look, the public markets back in the 90s was a bit of a rigged game where you could call a CEO if you had his or her number and they could tell you things that they didn't tell everybody else. And when you look at the folks in their 60s and 70s and 80s who really tundered, I'm sorry folks, but they profited massively from that information arbitrage. And that changed when there was a regulation called Reg FD that got passed in America,

Starting point is 00:51:57 which said regulation full disclosure, what you tell one, you have to tell everybody, right? And that was an attempt by the SEC to level the playing field. It was a very smart piece of legislation. But what that did was it constrained the touch points that a company would have with the public markets to a few organized events, right? Analyst conferences, research days, actually banks are allowed to organize

Starting point is 00:52:22 formal company dinners. And you'll get all these people together analysts across the entire spectrum from fidelity to Goldman Sachs to Morgan Stanley. And the company has to perform to them and those folks will write both internal and external reports that say buy, neutral or sell, right? That became the only check and balance to make sure that management was held accountable to the large swap the public shareholders. Because otherwise, it's not Jason you as a shareholder of Joe B. Quite honestly have

Starting point is 00:52:51 any say, right? You exert your pressure through the analyst who then represents the ability to influence your buying and selling decision. But if those analysts don't even exist, there is no feedback loop between management and the people that own the stock. And that's the problem we have today. There's not enough research coverage, there's not enough analysts, there's no organized way to keep companies held accountable. And so if you have a bunch of more companies that go public without that infrastructure, it's very difficult. It seems like there's an opportunity somewhere in there. You know the big opportunity that I think should happen is that a bunch of these banks should

Starting point is 00:53:29 actually use these AI tools, Jason, to be crawling all these 8Ks and 10Ks and all these filings and generate statistical measurements of all of these public companies that they make free and available to everybody. These things should be a bunch of dashboards and charts that are just out there for anybody to subscribe to so that you can just do the initial work of having to parse through all of these filings, have it done by an AI, by an agent from a bank who can train it properly. I think that would be an immense value to all shareholders. And I don't think it costs that much money. And I think it would be goodwill, Robin Hood could do this. It would be great goodwill to build a lot of trust and credibility with

Starting point is 00:54:14 investors. So now that you're CEO of a company, how do you look long term at potential exits going public? What is the, the thoughts you have on this as you architect the company freeberg as the CEO? Do not care about exits. Don't care about expand on that. Yeah, explain. I just want to build a great business that makes great products for our customers. That's it. So if you do that, all these discussions around, you know, giving shareholders liquidity, I'm the I'm the main shareholder, so I don't need liquidity. I just want to build the business. So how do you think about profitability then? Because if you have to fund it or funding might be harder to come by. Yeah. How do you think about funding over the next decade, this vision, you know? It freaks me out. You got to keep businesses capitalized so

Starting point is 00:55:06 There's definitely a cross business as I'm on the board of or involved in universally a bias towards profitability. I've seen a couple of decisions. We've made it that some companies to shift from making longer to shift from making longer time cycle investments that may not pay off for many years where you had the luxury of doing that in a zirp environment and you could always get capital to fund anything that's multiple years away from realizing any sort of return. To shifting towards a bias, towards making things that can generate real revenue and real profitability in the near term, keeping costs low and building from there. So it's definitely, I'd say, been a flip-flop in the environment.

Starting point is 00:55:50 It's why the biotech landscape has largely kind of dried up, a funding landscape has dried up significantly because most of the investment opportunities are those multi-year-out before you know if you have a return on your investment kind of investment cycles. And so the ones that do get funded are those that have a near path to profitability and where you can build some sort of cash-generative service in the near term on the path to building a bigger product down the road. So as you're strategizing, you're thinking, how can we get to cashful positive, break even whatever quicker?

Starting point is 00:56:20 You're not strategizing, how do I get a huge multiple and get some dumb tiger money, whatever, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, I'm assuming for growth, but maybe profit first then growth. How do you think about those two dials? How much growth, how much profits? We have the same belief that FreeBerCas, which is our job is just to make really great products for our customers. When I took over the business, we had to go through a difficult layoff

Starting point is 00:57:01 and a rebasing of the business, but it's a business that's growing kind of 45% a year and it's profitable. And what I talk to the team is that we will reinvest our profits. And so we have an ambitious plan. And as long as we meet that, we'll take some percentage of that profit and reinvest it. But I, like Freeberg, also have no plans for liquidity. I just want to build this thing to be as big as possible. I don't want one single shred of pressure that isn't defined by our customers. By being profitable, we have complete control of the cap table. We can do whatever we want.

Starting point is 00:57:39 The people that benefit, frankly, are the employees because they can get paid and our ability to hire people without being subject to like pressure to raise a new round and set a new random valuation. So no unnatural acts, just no unnatural acts. And so by the way, if I can grow for 10 years, if we can grow for 10 years at 40% a year, this will be a ginormous business. So they're trying to react and do it unnatural.

Starting point is 00:58:01 Jason, just to chime back on the question you asked a couple of minutes ago, number one, if you can avoid raising capital, you're better off because then you don't have any shareholder pressure to get liquid. And that can create contortions in what you do and how you operate the business. And second is if you're going to raise capital, if you set too high evaluation, if that becomes the bogey, you set yourself up for challenges, because now you've got to have a multiple on that valuation

Starting point is 00:58:30 to satisfy investor return hurdles. And the higher the valuation, and you apply multiple to that, the higher the exit has to be. And suddenly, all the options start to fade away. You can no longer have a modest exit that can do really well for employees and the founders and early investors and it becomes a necessity that you have a massive outcome. And by the way, we see this now in this post-Zerp environment that a lot of businesses that raised a lot of capital at a very high valuation.

Starting point is 00:59:00 And then you have this multiple compression that's just happened in the last two years. Their valuation effectively, if they were to go public today, gets sold, is less than the capital they've raised. And that's the most extreme scenario where suddenly all the common shareholders get wiped out in terms of their return. It's such a great point. Like the thing that people use to say was, oh, it's a tech company. So we need to give it a premium.

Starting point is 00:59:21 The problem is now everything's a tech company. To say your a tech company is a meaningless statement that means nothing. You're a company. So that you're a company. So then there's no premium for being a company. No, there's a premium for profits. Well, there's a premium based on quality of revenue, which has to do with gross margins. I mean, obviously, and you can, and you can, and it's obviously a company that has 80% gross margins is different than a company that's 20% gross margins. So I'm if it's unprofitable. No, no, I totally get that.

Starting point is 00:59:49 I'm just saying that you can normalize based on gross margin as opposed to the type of company it is. Sometimes we'll see a company that markets itself as a tech company and only has 20% gross margins. That's an indication that something is wrong usually or it's not truly a software company. It's just a company. That's just indication that something is wrong, usually, or it's not truly a software company. It's just a company. That's just a company. Yeah, I think that's the way to look at it. High gross margin versus lower gross margin. Just to go back and answer your question, Jay Kalabat, how do you decide how much money

Starting point is 01:00:14 to put into growth versus being profitable? I think the right answer to that is not to say there's some absolute amount of money you should burn given your round. It's to look at growth on an ROI basis or a union economic basis. What is the return on the growth dollars you're spending? And probably the best way to do that is to look at the payback on customer acquisition. How long does it take you to pay back your customer acquisition costs? And I think a lot of people don't do that analysis correctly because they just look at the revenue they make

Starting point is 01:00:45 From that customer, but you actually have to look at the marginal profit So this is how the gross margin ties in easy example is something like Spotify Spotify it cost a hundred dollars a year and they were required somebody for a hundred dollars a year Hey, they get to year two it looks like you made a hundred dollars except Spotify has to pay a massive amount to the record label so their margin isn't as high as maybe a SaaS company And that's where the devil's in the details. Yes, overhead and overhead you'll got to look at churn as well so if that customer only lasts two years and Half the margin goes to the record companies well you can't count

Starting point is 01:01:20 100% of revenue now you're looking at I don't know what's that it's like you're dividing by two twice so effectively, you know a quarter 50 bucks of the 200 let's say take out what are you seeing in your in the companies? You're funding you're seeing Propitable companies or revenue generating companies what like are you telling folks? You got to grow and raise a big series Are you telling folks hey take your time and yeah, it's a great question. We invested in 100 companies this year It's more than I've ever done. That's the same amount I didn't first set in here so my career. And 100% of the time, they are not expecting to raise

Starting point is 01:01:51 like some giant seed or a series A. They're raising just the amount of money they need. And they're keeping their expenses absurdly low. The biggest trend I'm seeing is outsourcing of talent. And so Americans, and I'm not gonna make this this a huge anti-American thing, but the level of entitlement and the effort Americans are putting into jobs, expecting 150K, let's say, and then offshoring a developer, Latin America, Portugal keeps coming up Canada. They're all looking for what's the most efficient way for me to build a 10-person team, and

Starting point is 01:02:22 then I'll see a burn rate of $30,000 with 10 people. How is that possible? Like, oh, our developers cost $22,000, or SDRs or 10. And with how is that possible? Oh, we have two people in the middle, et cetera. Long way of saying efficiency, efficiency, efficiency,

Starting point is 01:02:34 though, we have to get to break even with the money we just got. We're not expecting a second round of funding. And a lot of them are raising but 500K to 1.5 million. And if this was 2020, it would be three to 10. We talk about like AI as like a big disruptor to like the big companies and this and that, but AI may be the biggest disruptor to VC. Big term in the end. Explain what you mean. I know what you mean, but I want the audience

Starting point is 01:02:57 to understand. Let's say you raise a $2 million seed round. In the past, what you would do to your point Jason is you would hire seven people at $200,000 each. Right? So now you have a $1.4 million burn. So you basically have, unless you say, you co-work someplace, you have a year and a half. And so you're a pedal to the metal, right? You're basically trying to throw as much spaghetti against the wall as possible. See what sticks, buy as many ads, do whatever it takes.

Starting point is 01:03:27 The money basically goes to AWS and Facebook and a couple of other companies to Google. And then you hope that there's enough traction where somebody then writes you a 10 or 15 million dollar series, H now, if you take that same $2 million, you could have a three-person team, four-person team, half of them offshore, where they also use things like co-pilot, which is like a two to three-X lever. Now all of a sudden, they have the same 10-person team, and it costs $40,000. Exactly. And so now all of a sudden, they have four years.

Starting point is 01:04:03 So why wouldn't they do that where they would still own 80% of that company and all of a sudden there is a potential to exit it for 50 million or 100 million and they've made more money than in a traditional outcome if you sold it for two billion. Precisely the case. This is literally what founders are modeling right now.

Starting point is 01:04:21 They previously wanted to beat the record of the person in their cohort who raised the most money at the highest valuation. Now they're just like, how do I get to profitability and how do I own as much of my company's possible, so sax, you've got under over a billion dollars under management. You've been one of the most successful new venture firms in Silicon Valley in the last decade. You've got a lot of cash you could deploy. How do you deploy it intelligently, given the circumstance

Starting point is 01:04:48 of people maybe raising less or being more efficient? And what do you think of the AI's impact on venture? Well, the most important thing is to have opportunities to invest in. And the fact is that before this AI wave, the whole cloud social mobile wave had kind of peered out. I mean, the pond of opportunities had kind of been fished out. And AI is great because it restocks the pond.

Starting point is 01:05:14 I mean, there is a lot of new ways for founders to use these advancements to solve problems that they weren't addressing before. So I think you guys are being a little too gloomy. I mean, I think that the impact on capital efficiency will take some time to play out. But I think that for the first time in a number of years, it feels, everything's feeling fresh again.

Starting point is 01:05:36 And there's just, I think, a lot more opportunities for founders to go after now. It's the beginning, it's like this at the beginning of any big new tech wave, right? Is this a new platform opportunity. Same thing was true with the App Store, when the iPhone launched. Same thing was true when the internet launched.

Starting point is 01:05:52 Now, I understand a lot of these opportunities are going to be taken by big companies that already exist, but there's always going to be an opportunity for founders when you have a big disruption. David, I agree with you. My comment is less about the pond. I agree with you. My comment is less about the pond. I agree with you that the pond is getting restocked. My comment is that the economic impact of AI

Starting point is 01:06:11 is so massively deflationary. It may be an order or two orders of magnitude more deflationary than AWS was. And that was massively accretive to the startup economy. So if this is a 10Xing or a 100Xing of that economic impact, my only point is that the break even threshold for a founder will have gone way down. And then as a result, it's only a matter of time until they can put two and two together in a Excel spreadsheet to figure out that owning 50%

Starting point is 01:06:43 of a hundred million dollar company is greater than owning 18% of You know some other company when you're massively deluded or 8% or whatever. It's just like that's all I'm saying is like the the effective break even Goes way down in a world where AI proliferates and I think that's Yeah, sex it's just positive for founders If you look at what founders do with the money when we invest in a series A or B, the number one thing is go to market, right? So they want to basically triple their sales. Let's say they want to grow from 5 million of AR to 15 million of ARR.

Starting point is 01:07:18 They have to staff up the quota capacity to hit that number. And for every AE, you're going to need some number of FCRs, some sort of management. You're going to need some sort of operations overhead. So you've got to hire all of that. And then they want there to be a cushion in case they miss their numbers, right? Because there's no guarantee you're going to hit that.

Starting point is 01:07:38 So founders still need to raise the money to staff up to go after that opportunity. Now, does sales become more efficient over time because of AI or does lead gen? Yeah, I think that's possible. But in order for that to happen, you're going to need to see a rise in quota capacity. Right? I mean, that's what we're talking about is that same AE can now hit a greater level of sales because they have better tooling.

Starting point is 01:08:04 We're just not there yet. Maybe that happens over time. But I think you're just a nice inevitable. It is inevitable, but I think your typical SaaS start right now is spending the money on more prosaic things. Yeah, yeah, yeah. No, I think you're right.

Starting point is 01:08:18 All I'm saying is I think what it means is that the $200 million fund today becomes 50, the $500 million fund needs to be 100 and the $1 billion fund needs to be 200. It's basically back to the future. It's like back to the 1990s style 2012. By the way, I'll show you a table here. Nick, I need you to blur out the names, okay?

Starting point is 01:08:39 I just think it's super interesting. I walked free, broke through this, but this was like a list of all these funds that I've invested in. These are venture funds you've invested. These are all the venture funds I've invested. If you look at this, what do you notice about like the mega funds that just clock out DPI? Look, this is a hundred million dollar fund, right? Look at, look at, clocked it. This was a 220 million dollar fund. My point in all of this is like, if I look at my returns as an LP, I've never had success when I've invested in big funds. I've only had success

Starting point is 01:09:12 in small funds. It's true that smaller funds do perform better and larger funds become more of an index and achieve more average returns. When you got a multi-billion dollar fund, it's way harder to achieve a, you know, outsize return. So, yeah, I agree with you. I think this dynamic would be healthy. I mean, our funds actually are not that big in the grand scheme of things. It's definitely the game is changing dynamically. And this podcast is going to be great in 2024 because we went from four capital allocators to two capital allocators, myself and SACS, to two in the arena CEO. So we're going to be having this discussion, I think in a very granular way.

Starting point is 01:09:45 Now that we got two players on the field, SACS, that we can watch what they're doing. Well, I've got a new incubation that's going to be launching soon. But I'm not going to be CEO of it, but I'm kind of the executive chairman. Is it a SaaS company? Yes, SaaS company. Well, company is SaaS.

Starting point is 01:10:04 It's basically Yammer. You have a attention. Is it a SaaS company? Yes, SaaS company. Well, common company is SaaS. It's basically Yammer 2.0. You have a attention. Wait, so you say Yammer 2.0? Yeah. I thought that was Slack. So this, but you guys say Yammer 3.0? Yeah, Yammer 3.0.

Starting point is 01:10:15 Yeah, yeah, yeah, yeah. Yammer 3.0. Okay, let's go. We're going to, yeah, I think we had a push on call-ins. So now we need to get our 50X on the, yeah, I'm a three-point. Give us a little tasty poo for your best friend. You know, you're right, we sold call-ins, so now we've cleared the decks, and I can't work on multiple incubations.

Starting point is 01:10:32 I can only work on one at a time. Can you have your person that runs that saskrid thing, email me because I want to onboard my company into saskrid so that I can... Yeah, do it. ...so good. Well, by the way, that was the last one, So I've done, I guess, three of these now. There's Colin, Saskrid. So Saskrid has now spun out completely of craft.

Starting point is 01:10:51 And the founder of Saskrid was our VP of Analytics at craft, and now he's going full time to Saskrid. So I think it's very successful. But can I get on board it and can I get a family discount? Yeah, you can, of course. successful. But can I get on board it and can I get a family discount? Let's explain this concept to the audience since it's unique in the world and we should maybe double click on the economics, not on a specific company, but just generally of YVCs are doing this. You're incubating a company, you're a former founder, you have that itch, you have ideas. So instead of investing in a company,

Starting point is 01:11:22 you say, hey, let's all get to the office. I have an idea. Let's make this ourselves as craft. And then we'll put some of craft's LPs money into it. And then there's some slug of capital saved for the new team that comes. So how does the economics on something like this work? And why do LPs love it or do they love it? And then why is it good for your internal team or for you to incubate a company? I suppose you're just finding them. Well, I first set up craft. We actually wrote it into our LPA that we had the ability to incubate companies and we had a pre-arranged economic deal

Starting point is 01:11:55 with our LPs on those incubations because I didn't want it to come up later. And then there's some conflict of interest between the management company and the LPs. So it's a pre-determined deal. And we don't do a lot of these. Like I said, I guess there's been three. There's been SAS Grid calling and now this Yammer 3.0 we're talking about. But really, I got to give the credit for SAS Grid to our VP of Analytics, who really I think pushed this idea. And it started with a simple way for us to analyze deals and dashboard deals.

Starting point is 01:12:24 It started as a spreadsheet that we would give founders that would crank out their charts. And then we turned it into a website that was free. And then you needed an investor, right? You needed us to invest in the investor. And then what happened is that we saw founders started using Saskrid as their dashboard to manage their companies between funding rounds. And we're like, oh, OK, that's a big aha moment. So basically, there was no dedicated verticalized business

Starting point is 01:12:51 intelligence tool or dashboarding tool just for SAS companies. And the advantage is a verticalizing or massive, because when you know what kind of company it is, you can just give them all the dashboards out of the box. And all the formulas can be calculated exactly the right way. This is going to be less room for error. They don't have to reinvent the wheel every time you use a like a low or looker or whatever. You're reinventing the wheel, you're writing all the formulas yourself.

Starting point is 01:13:15 It doesn't make sense. So back to the DL. Yeah. You pre-did the DL, so LPs wouldn't be surprised. That's awesome. So the management, there's a predetermined valuation, I guess, at that seed stage, a certain amount of money goes in and you are holding company, get some equity, which is like a nice little extra icing on the cake for incubating it. And then the LPs get a sweetheart deal or a better deal. Is that why they would be in favor of it?

Starting point is 01:13:37 Yeah, the LPs get like basically a vague in the startup. Got it. We kind of modeled it after YC's original deal, right? Where YC got was a 7% for $100,000. Yeah. And then on top of that, the fund can invest in the seed round at the market valuation, whatever the market. Ah, okay. So they get basically 7% for free or something. 100,000, then plus whatever the seed round is going to be brilliant. Yeah. I think it's a good deal for them. And also, it's good for you, because you have to want to come to work every day

Starting point is 01:14:07 and this keeps you mentally engaged. Like Shemat said, he felt like he was becoming a talking head and just not, I don't know how you phrased it exactly in your newsletter, but. Well, like you said, scratches and itch. It's nice to be able to, if you have an idea for a product, you can work creatively on it. Yeah.

Starting point is 01:14:24 I don't want to run companies anymore. I don't have any desire to BCEO, but it is fun to work on products if you have an idea. Tremont, how has it been for the first couple of months now? Are you really feeling more intellectually curious and challenged? Is it annoying to deal with employees and customers and all that kind of stuff? What's it been like? I think you've been at six months. I think it's been really challenging The first part of it was quite honestly we had to Rebase the the cost basis of the company and get cost under control

Starting point is 01:14:59 That's hard and you had to we had to lay some good people off and Then we had to kind of like reset the strategy, right, goals, get our values kind of in a good place. Reorient the organizational design, like who will do what, right? All of these things require just enormous amounts of time that where you don't see necessarily the obvious impact in a metric or a dashboard right away. And so you just have to commit to this process and really follow through. And it you have to find the people that have this real potential, elevate them, make decisions

Starting point is 01:15:33 quickly, find out you made some wrong, undo them, find out you made some right, double down on them. So it's been a real learning process. The thing. And then on top of all that, I've tried to start coding again. Sunny helped me a lot. I built a couple of models. I repair programming. Yeah, and then, but then I did that to go back into our all hands, which we do every week.

Starting point is 01:15:56 And I wanted to demo some stuff mostly just to set the values that we're all grinding here. And I'm here grinding and learning this stuff like anybody else. And it's embarrassing because it's a janky code. It doesn't work. And blah, blah, blah. But it's been really, I think in the long run, I think the company is a lovely business. And I want them to be successful because I think they deserve to be successful.

Starting point is 01:16:21 And for me, it's been a great outlet to just get back to the basics of like, what really matters in running a company in 2023? I don't think I really knew the details. Mm, that's good. And I'm finding a little humbling perhaps, a little humbling to get in there and be in the cockpit. Really, really humbling. Yeah, that's good.

Starting point is 01:16:39 Yesterday we were sitting there in E-Team, which is our executive team, and we're in the middle of a big deal. And the seven of us were redlining a contract back. And I know that may sound like really tactical stuff, but it was, for me, it was amazing. I'm like, this is great work. And I felt like I accomplished something when it was done.

Starting point is 01:16:55 And maybe the deal gets closed today. The team is on a call. And I just think it's wonderful. I get a real... That's awesome. Yeah, all right, listen, there's another story that is under reported. We try to find these under reported stories.

Starting point is 01:17:07 Things people are talking about in their group chats, but maybe not reading about or hearing about in the mainstream media or even on social media. There are a couple of unbelievable bombshell class action lawsuits that are dropping in the United States regarding our real estate industry. In October, a federal jury in Missouri found the NAR. That's the National Association of Real Tours and several of the brokerages that have those brokers working for them guilty of conspiring to artificially inflate commissions for home sales.

Starting point is 01:17:39 They now have to pay at least $1.8 billion in damages to sellers of more than 260,000 homes between 2015 and 2022. Let's get a bag wrap of the NAR. And if you don't know what a racket this is, people selling homes in the United States pay 6% commissions on average, 3% for the seller. That's if you own the home and you're selling it, you give them 3% of the sale. And then the buyer, you also give them 3%. And there have been a number of companies like Redfin who have tried to change this.

Starting point is 01:18:11 I actually use Redfin on a transaction and try to use them on sale. And I was faced with brokers who I kid you not, literally said, I'm not going to show your home because it's a lower commission rate. And they have been working in unison to try to stop this kind of innovation. But the 6% is a tradition. It's not a rule. You can actually negotiate it.

Starting point is 01:18:32 And now since this case got won, another couple of cases have been dropped. And these new class action lawsuits all put together. It could be $13 billion in damages. I don't know who's been following this in the group, but I have a lot to say about it. But yeah, I mean, I spent I spent a bunch of time looking at this because I've done several no broker real estate transactions. Oh, so just lawyers. Yeah, just lawyers. And then in the in California, I don't know if you guys know this thing called MLS, the Multiple

Starting point is 01:19:07 Listing Service, which feeds the data into Redfin and Zillow. And in order to list a property on MLS, you have to have one of these real estate licenses and be a member of National Association of Realtors. Part of the monopolistic racket that goes on is that you have to be a licensed broker in order to lift your home on the service that is the monopoly in the listing of homes, which everyone looks at. So there's a bunch of folks who have set up a listing service where you can list your home directly on MLS. And basically it's a guy who has a brokerage license and you pay him a hundred bucks and he just has a website set up and then you'll list it. So you can kind of just list your own home, post the photos and all the docs.

Starting point is 01:19:47 And then when the agent asks for disclosures, every disclosure they want to see on a national association of realtors form and the NAR forms are only available if you're a member. So there's a whole bunch of ways that they've tied up the market and made it impossible bunch of ways that they've tied up the market and made it impossible for the system to operate without the NAR members being a key principle in the transaction process. When at the end of the day, having gone through this a number of times myself, there's just all these templates and data that flows into this. There's no reason why you necessarily need to have an individual that needs to be involved here. But if you did, it's actually a data entry service.

Starting point is 01:20:28 The process of entering this data could probably reduce down to a fixed fee of call in a couple thousand bucks per home rather than a percentage of the home value. And by the way, think about the craziness around this. If you buy a home and you sell it in most parts of the United States, you actually have a tax that you have to pay that's a percentage of the gross. And most people have most of their network tied parts of the United States. You actually have a tax that you have to pay. That's a percentage of the gross. And most people have most of their net worth tied up in the real estate. So it's one of the few places where you will actually see a large chunk

Starting point is 01:20:50 of your net worth actually taxed on a gross basis and taken away from you if you end up selling it rather than on a net basis meaning net of the profit you make. And then the brokers want to get paid a percentage of the gross as well. These are the commissions they get paid. From a first principles perspective, it doesn't make sense that we're paying a percentage of the gross as well. These are the commissions they get paid. From a first principle's perspective, it doesn't make sense that we're paying a percentage

Starting point is 01:21:06 of the gross to agencies to transact this volume. The total volume in the US is an incredible number. It's $100 billion a year in residential real estate commissions. And there's 1.6 million folks who are real estate agents that are licensed making their living doing this. So it's not an inconsequential industry and it's not an inconsequential verdict.

Starting point is 01:21:25 Nick, if you could pull up that chart of the different countries, here's a good comparison. So in the US, we pay about five and a half percent brokerage commission split between the buyer and the seller's broker. And again, legally, you don't need a buyer's broker. You don't need a seller's broker. You're allowed to sell your home without a broker. There's nothing in the law that prevents you from doing that. This is just an industry that's popped up to service this need. Their pricing model is to take a percentage of the growth. That's just the way the market's developed.

Starting point is 01:21:55 In a competitive market, that should be competed away. It hasn't been because of this behavior that's gone on with institutions like the NAR. You can see across different countries, different pricing systems, as a percentage of gross. In the UK, you only pay about 1.3 percent total brokerage commission on biceye and cell side in China, 2.5 percent in Russia, 3.5 percent. Some countries like Japan and Argentina are comparable to the US at 6 percent. France is at 5 percent.

Starting point is 01:22:23 Germany is at 4.5. Can I say question, Freeper? Yeah, I only own one house, so I've never gone through this experience really, that I can remember because that was more than a decade ago. But today, if I wanted to sell a home, okay, I could sell it to you, right? But if you have a broker, do I have to pay you 3% as well? No, you could sell your home to me. And then if I have signed, who pays your brokers 3%, I have to pay you 3% as well? No, you could sell your home to me and then if I have signed who pays your brokers 3% I sell your pay the buyers broker but they don't have to.

Starting point is 01:22:53 Yeah, no, here, it's really important to understand this. If you're going to go buy a home, you're typically not signing a contract with an agent when you go home hunting. The seller has an agent and in the agent listing, they say, hey, if you're buyer's agent, you show up. We'll give you 3% commission. And so the buyers agents who don't actually have a contract with the buyer are like, well, let me show you around homes. Let me show you around homes. And then they get to a home. And they're like, okay, this home's listed. Let's buy it. And they're going to make a 3% commission, which by the way, I just want to point out the disincentive there. They're not looking out for my best interest as a buyer. They're looking out for their commission.

Starting point is 01:23:32 And the higher the price, they get you to pay the more they make more money than me. But I want to understand those. If I'm going to sell my house to you guys and you guys have a buyer's agent and I just refute, can I just refuse the price? Yeah. No one gets paid because there's no because the buyer's agent has no contract with anyone. Yeah, you can just refuse. And you don't have a contract with anyone. The place where you end up paying a commission as a seller is if you sign a seller agent listing

Starting point is 01:23:54 and where you sign a contract itself to the seller's agent, I'll pay you 3% and I'm also gonna pay a buyer 3% if they show up with an agent. How do I list my house on MLS without a seller's agent? You cannot, in California I mentioned, I just, I recently went through this. I paid $99. I did it all myself, and I listed it on MLS without an agent. I've done a bunch of person-to-person sales of real estate

Starting point is 01:24:13 where I haven't had any agents involved, but I knew the people on both sides, and we just did a transaction. So what was your legal cost per transaction? Oh, like 15 grand, you know, to do that? That was my exact number. It was 15,000. So just to give you a comparison, here, like 15 grand, you know, to do that. That was my exact number. It was 15,000. So just to give you a comparison, here at Trimoff,

Starting point is 01:24:28 if you were to have a million dollar house, that would be 60,000 dollars. So that's 15,000 in legal cost for you to sell it, right? If I wanted to sell it to you directly, and that's what happened. My friend don't a really nice house. We did it off market, and now all the brokers on my neighborhood hate

Starting point is 01:24:45 me. Like they are really upset about it. Imagine it was a $5 million house or a $10 million or a $20 million house. Is it true for commercial real estate as well? This is this how it works? I don't know. Commercial real estate is the same situation. So there's an agent that represents the building, the landlord, it's actually going to talk about this, then the buy side agent. So what is that? Buffett owns Berkshire Realty. What is that? That's just basically...

Starting point is 01:25:09 It's a residential broker, just like Cold Wall Banker, 24, just like all these other brokers. So it's a 6% big. Yep. They were part of the lawsuit. They were named. Yeah. They were named.

Starting point is 01:25:20 And if you look at, listen to Buffett's earnings reports, he often talks about how many sides of a transaction they were on and that's kind of the key measure of Revenue in the in that piece of the business and he was super ecstatic I think in 2020 or 21 when real estate boomed and he's like we got this many sides of the business It's a great business. You know, it's cash generative such a great business But that's the business you want to be on but you want to get as many sides as you can. You want to get on a sell side and buy side in the market and you just get 3%, depending on which side you're on. But now the courts basically said, hey, this is legal.

Starting point is 01:25:52 Here's how you'll know that the monopoly is ended is when the buy side commission goes away. Yeah. Yeah. I mean, the sell side 3%, maybe excessive, but I do think that the sell side brokers do work in terms of having to market the property. Whereas on the buy side, the vast majority of the value is created by MLS, like you're saying freeberg. I think it's flipped, but in terms of where the value is. But I mean, you have to stage the house, take pictures. Yeah, as a buyer, I just want someone to look out for me and make sure I'm not like all the diligence that goes into researching a home and reading all the disclosures and going through them I don't know if you guys have gone through this

Starting point is 01:26:26 I have gone through it, but I was a lawyer for that stuff who I paid by the hour Right what I do. I'm not saying that the buy side broker does not say yeah, but I'm saying that most of what they do Is this schedule appointments for tours for you? After you've gone through MLS yourself and picked out what you want to see. You give them a list and then they just put it on your account. You know what I'm going to do is travel agents. I don't have your member like I mean most people watch this show probably to remember but in order to book an airline ticket a long time ago before the internet you call up a travel

Starting point is 01:26:58 agent because they have they have access. They bring it to your house. They have proprietary access to Sabre which is the online ticketing system. Totally. Totally. That's what happened is with the internet, you had sites like Expedia, just give you direct access to Saber, and so you can book the ticket yourself.

Starting point is 01:27:12 There's no reason to have a travel agent. Same thing has happened with MLS. It used to be proprietary access by the brokers to MLS. You couldn't even see it. Then you had sites like Zillow, basically give you direct access to MLS. So you can just go on there and find what you're looking for. And again, the main thing that the Bicide brokers do

Starting point is 01:27:32 is to schedule the appointments because you can't get a tour typically unless you represent it. And if you're not represented and you reach out then the seller's agent will try to basically enlist you. Have you done a direct transaction sac? I'm curious. You can, I don't think. You can, I don't think. You can, I mean, it'slist you. Have you done a direct transaction, Zach? I'm curious. You can, I don't think you can,

Starting point is 01:27:46 I mean, it's very hard. I've done it. Yeah, so if you know if you happen to already have pre-identified the buyer, then yeah, I guess you could do it. But basically it happened in our case in your free program, curious how yours went down. I had told the person, or my wife had told the person,

Starting point is 01:28:01 we love your home if you ever sell it, let us know. And then they let us know. And then we bought it with them off market. And they said, we don't want to use brokers. We don't want to pay this huge commission, which we've been hundreds of thousands of dollars. And would you agree to this price and we're like, yes. And then done. How did yours come about, Freiburg?

Starting point is 01:28:18 How did you find a buyer if you were on the self-send? This is all like relationship driven people that I know and that kind of stuff. So it's like, hey, I think this is the future. If two of the four people here have done it, I think this is the future. I don't know if that's the common model. I don't think that's true. I didn't know. You need a marketplace.

Starting point is 01:28:35 You need a marketplace. And the broker's control the marketplace. It's a one off. It's a fluke when you actually have a buyer. But the MLS is the de facto market, because I mean, ask anyone in the country who's bought a home in the last year or five years, almost everyone I'm sure went on Zillow or Redfin or Trulia and looked at homes.

Starting point is 01:28:54 And the place that those marketplaces get their data is from MLS, they sweep the MLS. So the real kind of monopolytic breaking is can you break that marketplace? Can you break MLS? And can you get some other alternative listing services going that enable this brokerage commission to get competed away? Because it's currently locked up in the monopoly they have on the MLS.

Starting point is 01:29:20 What's so perverse, here's where the monopoly comes from, is that if the buyer had to pay the 3% directly to the buyer's agent, and that was a choice you could make, nobody would pay that much. Of course. I'm not saying that the buyer's agent doesn't provide some value, but there's no way you pay 3%. But the reason they get it is because the brokers tell you, well, you're not paying that, the seller's paying that. But of course, you're indirectly paying that because it's transaction fees are so much higher. And when the seller goes to list their house, if you tell your seller's agent, hey, I don't want to pay the buyer's agent 3%, make it half a percent, they won't do it. You know, they will always make it equal.

Starting point is 01:29:58 So this is the game. This is where the locking comes from. Is the buyer doesn't have a choice, and the seller doesn't really have a choice either. As we wrap it up, just real quick, pull up that link, Nick and go to number five. So that is the key issue. I don't have a horse in the series, I don't own Redfin's stock or anything, but here's Redfin explaining exactly what you talked about.

Starting point is 01:30:14 It's FSBO for sale by owner, and there's now these third party sites and they kind of allude to it there. But you know what those are? Those FSBO sites are actual real estate agents that are registered in the state and are members of NAR. And so they have a right to list on MLS. So what they're doing is they've basically set up a super simple website and then they're posting your listing on MLS for you

Starting point is 01:30:36 for flat fee rather than getting a commission on the sale. Awesome. Yeah. And that's kind of interesting, but for most people, they're like, well, I don't know. I don't want to disparage the value of folks that are in this industry. There's obviously a lot of value for agents and brokers in this industry, but the real point is that if the monopoly breaks on the marketplace, then the business model will get competed away, and there will start to be a change here. I think that this lawsuit and the settlement ultimately leads to a change, a shift in the industry that could certainly benefit consumers, but could have a

Starting point is 01:31:09 negative economic impact because of the number of people that depend on brokerage fees as their, as their job. The settlement is likely to be that when you hire a broker, they will give you a form and you'll pick what percentage you want to pay. I'll pay you 2% and I'll pay the buyer's agent 1.5. I'll pay you 1.5, I'll pay the buyer's agent too. Or they should be caps on it, right? Or you should have, because of the incentives, it doesn't matter if I sell my home, if it's a $5 million home, it may matter to me,

Starting point is 01:31:38 $5 million, $5.5 or $6. It doesn't matter to the broker, their commission, they just want to sell it as quick as possible. If it sells for $4.5, $5.5, it's relatively the same commission. So it really should be based upon a flat rate up to a number and then a percentage above that number to align interests. Anyway, keep an eye on this one folks, it's going to have a massive impact. All right, Colorado Supreme Court has removed Trump from the state's presidential primary ballot. This was decided in a split four to three decision by the court. It's worth noting that all of the justices were appointed by

Starting point is 01:32:10 Democratic governance as a Democratic state. The court based its decision on section three of the 14th amendment. This bars anyone from joining Congress, the military, or any federal state offices. If they have previously taken an oath to support the Constitution, then engaged in insurrection against the US. This is the first time in US history that the 14th Amendment has been used to legally disqualify a presidential candidate. The 14th Amendment was originally passed after the Civil War and was aimed at former Confederates. I'll say a couple things. The first is that I thought that the Democrats were going out of their way to give Trump the election with the documents case.

Starting point is 01:32:51 But now I think that they've basically made his winning the Republican nomination of Morgan conclusion and he is the overwhelming favorite to end the presidency after this. And the reason is pretty simple, which is if you take Donald Trump out of this, the idea that you haven't been convicted of a crime, but now a government agency or a government court in this case can deprive you of what really is like a pretty momentous sign of liberty and freedom, which is to run for President of the United States, to deprive an American citizen, unconvicted of that crime of that right, I think is really a bad

Starting point is 01:33:40 step in the wrong direction. And so there there just needed to be a lot more prudence and Thought about this and I think that it will do nothing except in bold and the base It'll get Republicans out to vote. I think it creates a deep wave of momentum in the direction of of Donald Trump and wave of momentum in the direction of Donald Trump. And so this to me was just an absolute complete head scratcher that makes no sense. And I think we'll surely to get overturned in the Supreme Court. Freeberg your thoughts. Okay, for those of you not watching, Freeberg

Starting point is 01:34:20 put both hands up in the air gave a shrug like a shrug emoji so if you want to understand freeberg's position on Trump it is shrug emoji coming around the horn sacks red meat what are your thoughts on the Colorado Supreme Court banning Trump from the ballot I agree with what you're most a democracy now means the right of the people to vote for candidates approved by liberal judges and yes jcal all these judges were democratic appointments. I think this case makes clear that the point of all of this law fair against Trump is to keep him off the ballot until now they've been pretending it's about something else. And I think this decision rips the mask of all the legalistic bulls**t that we've heard

Starting point is 01:35:02 throughout 2023. I mean, Democrats don't really give a damn whether he paid off a porn star or kept classified documents or supposedly let a racketeering conspiracy. They just don't want him standing for a vote that he might win. And I feel like all the time we spend on this pod

Starting point is 01:35:19 earnestly debating the details and the galleries of the documents case, it was a total suckers game. That's the narrative they want us engaging in. It never had anything to do with documents. They just want to keep them off the ballot. And I think that by being so naked about this, by ripping the mask off, what they're trying to do, the Colorado Supreme Court has really done us all a favor. I mean, the Supreme Court of the United States is surely going to reject this decision. But the lasting impact is going to be in revealing liberalism's true face. They are the real authoritarians.

Starting point is 01:35:53 And while restricting the right of the people to vote for the candidate who is leading the polls right now, they proclaim that they're saving democracy. I mean, they they self glorify and engage in the self righteous rhetoric that they're saving democracy. I mean, they they self-lorify and engage in the self-righteous rhetoric that they're saving democracy. I mean, the rest of the country, any normal person, is looking at this and saying these people have completely lost touch with reality, completely lost touch. The other unfortunate outcome of this is that there will be a way where people will talk about the big steel as this. And what people will say is that there was an attempt by the Democrats to really roadblock Trump's ability to be voted up and down by the American people. And that's disenfranchising the the ability for people to vote.

Starting point is 01:36:39 And I think that that's really unfortunate. And I and I wished that the Democrats would have thought about that in their calculus before engaging in what is really a deeply partisan thing to do that that this will this will get overturned but the damage will be long lasting unfortunately. That's a shame. Totally. Matt, Matt, maybe you had a good line. He said that only people who live in a bubble,

Starting point is 01:37:05 within a bubble, within a bubble, could ever think a decision like this is a good idea. Here are the three bubbles. Number one, all of these judges were democratic appointments, because that's living within the Democratic Party's the first bubble. The second bubble was the fact that they all went to Ivy League schools.

Starting point is 01:37:21 This was actually a four three decision. The four justices who went to the Ivy League's all voted for it. They thought this was a good idea. The 3 that went to Denver Law School, the non-Ivlee school were all against it, and wrote scathing descents against it. So that tells you the second bubble is the Ivy League. The third bubble is people who've been totally marinating in the mainstream media, and they're coverage of this because they think that they can just conclude that Trump is guilty of an insurrection because it's just a fact according to the media they listen to.

Starting point is 01:37:52 Trump has never been convicted of that crime. He's never even been charged with it. Right. So I think that's an important distinction that, you know, the 14th Amendment, which my understanding came about to keep members of the Confederate Army out of Congress because they had rebelled against the government. And so the whole point was this amendment was passed to keep anyone who'd— No, that's right.

Starting point is 01:38:16 —who engaged in insurrection or rebellion or given aid or comfort to the enemies thereof. And it may not be elected a member of Senate, Congress, or President, or Vice President. So, SAC, if that's the case, that is still the 14th Amendment, that's the claim being made here. It doesn't define whether or not there needs to have been a conviction of a charge of insurrection. Is that what will ultimately be the Supreme Court decision, do you think, is that he was or wasn't actually found in a court of law to have been guilty of insurrection? No, it's that the actual article three of the 14th amendment

Starting point is 01:38:53 doesn't, doesn't even define the presidency as applying in terms of where this applies. So even before you get to that legal threshold of the fact that he's never been tried for this thing, there is a simpler threshold, which is most legal scholars say it doesn't even point to the fact that you can actually hold the president to that standard. So there's like all these layers and what do you mean? It says no person shall be. Well, it's unclear. It's unclear if officers of the United States includes the presidency.

Starting point is 01:39:21 I think that's one way you could overturn this. Another way is to point out that there was no due process. The descents really harped on this issue of due process. You had a district court decide after a five-day hearing in which Trump was not allowed to subpoena, no subpoena power, no calling of witnesses, no cross-examination, they basically just looked at tape of the January 6th hearing, which was itself biased because Republicans didn't even get a chance to cross-examination. So basically, they just looked at MSNBC coverage, and this district court concluded on that basis that Trump was guilty of an insurrection.

Starting point is 01:39:54 Again, that is a crime for which he's never been convicted, and he's never even been charged with, and he's never even had the chance to answer those charges in court. And there was a special counsel at the federal level that declined to prosecute. That's right. That's exactly right. So, Sack, if a prosecutor had taken up the case and he had been convicted, would you support him being disqualified from the state ballots for being the nominee of for party for president? Well, there was a very simple way to disqualify Trump from running again, which was to impeach him,

Starting point is 01:40:22 was to convict him in the impeachment trial. Remember, the second impeachment was all about January 6th. And he was exonerated. I'm talking about the court. He was exonerated. That was the time to do it. Now I don't know if a conviction for incimation to insurrection would hold up in that way freeberg. I don't know, but the point is they didn't even try.

Starting point is 01:40:43 And the reason is, because when Merrick Garland first came in, they actually did an analysis of January 6th, and there was a memo written, and it said that if we, the DOJ, tried to prosecute Trump for either incitement or for insurrection, we will lose that case. And so Marik Garland didn't bring those charges. Then there was a story in the New York Times saying that Biden reacted really negatively to that, and he told his inner circle that Garland needed to stop acting like a ponderous judge. This is the New York Times words, and that he needed to take decisive action.

Starting point is 01:41:15 And Biden made clear to his inner circle, I'm going to provide the receipt on this, that he thought Trump should be prosecuted. So all of this law fair ultimately flows from that, it flows from the top. Biden is the most vindictive president we've ever had. I cannot think of another time in American history where a president incited his own aides and advisors to basically go prosecute the leading alternative for the presidency that he's likely to face in four years. That is what happened. By the way, we've seen this behavior before. Remember, this is also the president who said we need to go

Starting point is 01:41:48 look at this guy, meaning Elon. I mean, I can't believe that this behavior is just accepted by so many Americans. This is petty, vindictive, un-American behavior, and it's anti-democratic, and the people who are engaging in it the most, again again are glorifying themselves as somehow standing up for democracy. This is a joke.

Starting point is 01:42:08 And I think the average American is going to rebel against this. And I said, I think it was like last year that all of this law fair, all these tactics and shenanigans that the Democrats were trying is either going to put Trump in the big house or the White House. And I think he said it for the White House on this basis right now. I agree. You would say that it's reasonable that if you got convicted in the court of law for a charge of insurrection that he should not be allowed on the ballot.

Starting point is 01:42:31 If the stream court then decided that that's what the 14th Amendment meant, sure, but that's not what happened here. There's zero due process. I get it. I'm just trying to understand where your threshold is. So you think he'll certainly, this will certainly go to the Supreme Court and they'll adjudicate what the 14th Amendment really needs because it's never been tried the 14th Amendment. Well, again, it was written, think about why that's techicare about, Timothy is right. It was written for the Confederacy.

Starting point is 01:42:54 Right. The only other time it was used is it was a 1919 against one person that was about to enter Congress who was, who had given comfort to the Germans in World War I. Does the only time we've actually invoked Article Three, Section Three of the Fourteenth Amendment? Were they allowed to run? No, they were not allowed to take the seat. Now that's at the federal level and at the state level it's been used a couple of times. The point of this is for me, again, take Trump out of it.

Starting point is 01:43:23 You do not, I think, I'm pretty sure. We do not want to find ourselves in a country. Oh, of course. Where you can, all of a sudden, be deprived your liberty and your rights for random acts where somebody believes that you are a threat to them. And that person is in a position of power to affect your liberty.

Starting point is 01:43:47 That can't happen. Vote the man up or down. Yeah, and I agree with that. And I would say that, what you're speaking to is, do you process? These judges basically believe that because the mainstream media says something is the case, that we don't need to go through a legitimate court procedure to determine that as a legal finding. They just declare that, okay, he's guilty of insurrection. That was never proven. People don't realize, you can, this thing can go the opposite direction

Starting point is 01:44:15 so quickly. Imagine that there's a democratic candidate that is running against a Republican incumbent. Is this the standard we want to create? where there's this political warfare that happens, where each party is trying to essentially prevent the leading candidate of the other party from running in every election from here on out, because that's the precedent that is being created. That's why I have such an allergic reaction to this. That's totally true. Why wouldn't every president from here try to do this?

Starting point is 01:44:47 I mean, it's already the case that every president that loses Congress is probably going to face an impeachment hearing. I mean, that's happening too. And now we're going to have a situation where every presidential candidate can be potentially excluded from the ballot based on, you know, a local court's findings. From the Democrats' point of view, this was deeply shortsighted, and I think it has a very high chance

Starting point is 01:45:10 of blowing up in their face. We haven't heard from J. Cal. I get my information from two really good sources. The first one I recommend for our listeners is cafe.com. It's a podcast by Prit Bharara. Fantastic. He does really deep dives on these.

Starting point is 01:45:24 Cafe.com? Yeah, Cafe. Cafe.com. Cafe.com. Yeah, Cafe.com is his podcast. Cafe.com. It's a paid podcast, but it's really detailed. And then there's actually speaking of law fair, there's a law fair postcast. And so I listen to those and it's, they're covering this, but and also the two other cases that are of note,

Starting point is 01:45:38 the federal election interference case and the Georgia case. I highly recommend that our listeners go to those experts and get a really well balanced view of the cases against the 45th president. All right, for Chairman, which is a mouth polyhapity, the new chairman of the all. I don't know. I don't know. I don't know. I don't know. I don't know. I don't know All-in pod. You have my proxy vote too. All-how of the chairman dictator. And for the king of BOOOOO! And Rayman himself. Hi, I'm the world's greatest moderator. Love you boys. I'm gonna see you next time! Besties are gone, go thrift. That's my dog, take it out.

Starting point is 01:46:46 Wish you drive away. Sit next. Wait it up. Oh man, my hamster will meet me at the place. We should all just get a room and just have one big hug, George, because they're all just like this sexual tension that we just need to release that out. What, your, beat, beat. What, your, beat, beat.

Starting point is 01:47:04 Beat, beat, beat, beat. What, You're B. You're B. B. What? We need to get merch. I'm doing all this. I'm doing all this. you

All-In with Chamath, Jason, Sacks & Friedberg - E158: Global trade disrupted, Adobe/Figma canceled, realtors sued, Trump blocked

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