All-In with Chamath, Jason, Sacks & Friedberg - E62: Elizabeth Holmes verdict, fraud origins & takeaways, navigating "The Great Markdown" & more

Episode Date: January 8, 2022

0:00 Bestie intro and poker recap 3:14 Elizabeth Holmes verdict, origins of the fraud, breakdown of the Theranos promise 17:51 Lessons for founders and investors from the Theranos debacle, bad behavior a sign of the top 26:09 Implications of "The Great Markdown" on public and private markets, confusing FED decisions 45:56 Advice for founders on navigating a downturn 1:00:01 a16z's new mega funds; should they go public? How does that change partner dynamics? Follow the besties: https://twitter.com/chamath https://linktr.ee/calacanis https://twitter.com/DavidSacks https://twitter.com/friedberg Follow the pod: https://twitter.com/theallinpod https://linktr.ee/allinpodcast Intro Music Credit: https://rb.gy/tppkzl https://twitter.com/yung_spielburg Intro Video Credit: https://twitter.com/TheZachEffect Referenced in the show: https://www.wsj.com/articles/the-elizabeth-holmes-verdict-theranos-founder-is-guilty-on-four-of-11-charges-in-fraud-trial-11641255705 https://www.bbc.com/news/technology-58469882 https://www.nytimes.com/2022/01/04/technology/elizabeth-holmes-verdict.html https://www.wsj.com/articles/the-theranos-fraud-elizabeth-holmes-convicted-trial-blood-testing-start-up-11641330471 https://www.businessinsider.com/bill-maris-explains-why-gv-didnt-invest-in-theranos-2015-10 https://www.skadden.com/insights/publications/2021/06/insights-the-delaware-edition/delaware-courts-expand-plaintiffs-rights https://www.cnbc.com/2022/01/05/fed-minutes-december-2021.html https://fred.stlouisfed.org/series/T10YIE http://www.paulgraham.com/aord.html https://www.socialcapital.com/annual-letters/2019 https://medium.com/craft-ventures/the-burn-multiple-51a7e43cb200 https://www.statista.com/statistics/266206/googles-annual-global-revenue https://techcrunch.com/2022/01/07/andreessen-horowitz-raises-9b-in-new-capital-for-venture-growth-bio-funds

Happy New Year. Happy New Year. Guys, listen, look at this. It's now, it's candle season. Oh, God. Look at the equanimity. This is equanimity. This candle costs $24,000.

It is a extremely rare Brazilian sandalwood. You literally have to go into the Amazon and like, you know, you basically have to like, I mean, find extinct trees. No, bro, you got to, you got to tear out like two acres of rainforest. And then you find this one tree completely, you know, sacred. And then you chop it down. You make this. You do sit and it lasts for a full 45 minutes.

How do you like that, sweater Karen? Candle Karen's are cabs look like Karen. Candle Karen, candle Karen's are calling it right now. The DMs are coming. You guys wanna hear about poker last night? Oh, did you go? So I go down, I take my eight hour drive down south to Chimacaz, and I pull in,

and the security guard greets me nicely as always. I walk in, and I walk towards the poker room and everyone's in there with the door open like someone just got shot, masks on, freaking out. And Chamotte is inside the house and I wave and he's like, get in here. And then I go, who was positive? Max the dealer, tested positive.

And everyone been hanging out in the poker room with no masks on. Uh oh, uh oh. And so, you in the poker room with no mask. Uh oh, uh oh. And so, you know, they're way over spread around the only the only two people that were exposed to Matt's. We sent home. Yeah, so everyone starts freaking out. Shots the, uh, shuts the poker game down. Chimoff kicks everyone out, sends everyone home. And then he's like, all right, let's go have dinner inside. You know, we're not going to, we open up all the doors, we're going to kind of lice all the room tomorrow, we all go in and have dinner, or you know, Chimoff and I go in and have dinner with Matt and

the kids. And then Chimoff starts thinking, you know what, it's okay, they were only exposed for a few seconds, let's call Phil back. Okay, let's call Chimoff back, let's call Keating back. And then they all come back for dinner. And at this point, it's become like a dinner party, and then a couple of glasses of wine in. And it's like, you know what the rooms probably say? I mean, the whole poker night went through the entire cycle of psychology of COVID. The whole pandemic is like, oh my god, get everyone out, lock up, and then by the end of the night, it was like, you know what, let's go in the room and just play poker and give each other COVID. They got to accept this.

They got to accept this. They went through the whole emotional cycle of the pandemic in one hour. Does anyone know anyone who's a serious case of a micron? No. I mean, I know dozens of people at this point and they'll say it was a cold. Yeah. Dozens of people and that's just for your party. Except for Jake, I was on social media. Jake, I was on social media giving everyone the update.

Like, oh, I see you today. I mean, oh, I still test a positive. He's like showing his positive test. And then he's doing this in the ski slopes. That's my super fans, my stands, we're concerned. It's the only good test result Jake has ever had. Yeah, exactly.

It's the only positive. That's true. You know what, your winner's ride. Rainman, David, Simon, Simon, Simon, Simon, Simon, Simon, Simon, Simon, Simon, Simon, Simon, We open sources to the fans and they just go crazy. We'll be best ice queen of the world. Elizabeth Holmes has been found guilty on four counts of fraud. Faces 20 years in prison for each guilty count, they would be, I understand, served concurrently. Most people I hear speculating for it to 10 years. And then I think you can get 15% off for good behavior. Again, I'm no expert

on that, but that's what I read. Guilty counts were two counts of wire for our two counts of conspiracy to commit for it. She was originally in charge of the total of 11 counts of fraud. Forward guilty, for we're not guilty, Three were a split verdict. The jury said they were unable to come to a unanimous, unanimous verdict on three of the counts after more than 45 hours of deliberation. Quote from the Wall Street Journal article, juries were persuaded that Miss Holmes conspired to defraud investors. This outcome could be significant because it means hundreds of millions of dollars of there are no investors. That there are no investors lost could be taken into consideration during her sentencing. It's big numbers.

The jury was split, however, on which of the six investors who testified were defrauded, the jurors convicted Miss Holmes on three counts. These included $100 million from the family office of former educator education. We know the details, Jake. I was like doing it for the audience. We know the details, Jay Cal, some... I was like doing it for the audience. So anyway, thoughts on the legal technicalities of the case, counselor sex. Well, we've talked about this before. I mean, I think so at the end of the day,

she was convicted on the council related to deceiving investors. She was not on the council related to patients. I think that makes sense in that her obligations to investors are very clear, whereas I think the patient related duties are, I mean, she had them, but it's a little bit less clear. So I mean, look, it's what we've always said here. As a founder, you can be as Messianic as you want to be.

You can promise, you can promise anything about your vision and what you intend into the future, but what you must do is be accurate about the current state of your business. You cannot lie about the deals that you've made about the current capabilities of your product. And she was putting logos of customer she didn't have in her deck.

She was lying about the military being a customer. So she simply misrepresented where she was at that time, when these investors invested. And that was the red line she should not have crossed. And I think in that sense, it's a pretty simple case. I think, you know, the part of this, again, you know, the piece of this that's interesting is not the case itself, but really the media coverage, because the media wants to portray this case as an indictment of Silicon Valley, and the thing you keep hearing over and over again.

None of us were involved. Well, it just factually, yes, exactly. We weren't involved, but what you- Like, there's not a single person in Silicon Valley, I think who put in a single shuckle into this thing who actually does this as a real job. Tim Draper. Well, he doesn't seem very good.

He put in a little bit of money as an angel and then he didn't put a single dollar in after that. I'm saying, you know, you didn't come to social capital or to craft ventures or to Sequoia or to TPP or to Google to raise money for this thing. None of that happened. You know, Sachs is right. Like the summary of the Wall Street Journal, Nick, you can post it because I put it in

the group chat, basically summarize the fraud and it's exactly what Sachs says. She affixed the logo of specifically, I think it was Pfizer that had not validated their Rhinosis technology in materials she presented to investors. So she's basically like Pfizer said, this is a go. And apparently that wasn't true. She gave the false impression that the devices were used by the US military. That's what got all these military folks to sign on board and support it. That wasn't true. And then the biggest coup was that she signed a deal with Walgreens and Safeway to include its devices in hundreds of stores, and then many investors saw these contracts as an endorsement of the technology and growth potential.

But basically those folks did no diligence in bought the hype, and so it was just a whole cycle of this thing that basically fell apart because the tests didn't work. Freiburg? What are your thoughts as our life science guru? What's most interesting to me is how does this get to this point? If you're Elizabeth Holmes, you're 19 years old and you start telling your story and the more grandiose the story you tell is, the better the reaction you get is, it becomes reinforcing and the

behavior extends a little bit further and a little bit further. Every time she told a story about how incredible this tech was, it's just one drop. You take one drop, it can measure everything. When she simplified it and reduced it to that, and it was such an incredible statement, and she saw the reaction from people, she's like, wow, that works. Let me repeat it. It's like any good salesperson, they figure out what sells, and then they sell it, and then they repeat. And what's interesting to me that, you know, you talk about the media, but when she went out and told her story and got incredible press coverage because she was a young female doing something

that was gonna save lives, there was this altruistic, jobs-esque kind of combination here. The media wrote a glowing review of her. And then she said, wow, look, they said something great. Let me go do that again. And she got a bigger media piece written. And a bigger media piece.

And the more she said, the bigger she said it, the more she claimed she could do, the bigger the story got, the more coverage she got. And the whole thing became this kind of reinforcing cycle. And I do think that the press coverage that she got, as she was building this business, which helped her raise capital, helped her attract employees, helped her get Walgreens and Safeway to the table, allowed her to build the business, but it's exactly what created the narrative

that wasn't true. And so the coverage that the press gave her, and we see this every day, you guys all see these top 50 companies, and we all know having met a lot of these companies as you go down that list. This 20 companies are total scam companies, they're fraud, they're not gonna work, they're gristers, all the stuff that you guys might say about the quality of those businesses.

But the press reporter isn't doing diligence, they're not a, you know, it turns out all the diligence was done after the fact. And then it's like, well, maybe we should go to do some diligence. Oh, wait a second, because the press coverage has now created this hype story about who and what she is, the diligence actually pays off because you have something to take apart. If she was just a nobody startup that raised $30 million and is still trying to figure out their way, there would be no value in any reporter doing diligence on her and

trying to figure out what was actually there. It was because the story got big that it gave everyone, including John Kerry, and incentive, he's the Wall Street Journal reporter who broke all this, and incentive to go in and take this thing apart. And so I think it's really unfortunate and it's really self-reinforcing that the press coverage that created the circumstance here ultimately also enabled them, the press, to take the thing apart and land this woman in jail. And I'm not saying she did nothing wrong, but I'm just saying that there's a system here

and the system is set up essentially. Yeah, but she manipulated the press. Yeah, she manipulated the press. Yeah, so the next one question you, Friedberg, and then I got a question for Saxon, Chimoff. Her basic premise that one drop of blood could get you hundreds of results. Let me just ask you a question, Friedberg.

At what point would one drop of blood could get you hundreds of results. Let me just ask you a question, free break, at what point would one drop of blood, or so, a nanotube, be able to, at our current technological ramp, be able to give us a hundred different data points on a person. Every time you're generating a data point, you're running what's called an assay, which is a measurement of something.

The question is, how much of a molecule are you measuring against what volume? Is there enough of that molecule in that volume to give you a statistically good reading? And that is a function of how precisely you can measure that thing. So there are great advances happening right now in a domain in life sciences of hardware technology

called microfluidics. This is the manipulation of pico-leader, very, very small volumes of liquid. And then being able to run chemical assays using biochemical techniques, which we now have all these amazing new kind of tools, like CRISPR and other things, that would allow us to get a much more precise measurement with a much smaller volume than has ever been possible.

So we can manipulate small fluids, we can measure them. So there's nothing today that would physically say we cannot do many of the things that she claimed to have been able to do. But there's a stacking of technology assets that need to be done to make that happen in reality. Take a guess. And each of those assets are very different. So look, you could do it with cholesterol right now.

You could do it with blood sugar right now, but you couldn't do both. You could, theoretically, you could put them into a device and do that. Now, the reason why lipids work, can you do 400 things with? They cannot, right. You cannot.

I've actually funded three of these businesses and I've poured almost a hundred million dollars of money into it and they've all failed. And the reason is exactly what he said. You can do cholesterol because lipids are big enough. And so you can basically build an assay that can pick that off with a drop of blood. You can do a reasonably good job with pretty large air bars on sugar. But all of this other stuff where you're going to replace like a CBC or these broad profile panels that we all get once a year to assess our health, today, I don't think that that's necessarily within reach.

It's not within technological reach, and it's not because people aren't smart enough. It's just that not enough of this investment is happening because then you go back to this whole idea where the funding cycle needs to see a big payoff for the capitalists to want to get involved in this thing, and there really isn't. It's not as if, like, Quest and Lab Corps are printing $400 billion of revenue and profits. And so, it's not like there's a massive economic incentive to run in. And so, even when we have tried multiple occasions with completely different teams of incredible people, every single time we have failed.

So, there's a physics law here that's just not physically possible. She made this claim, sacch. Remember to, and don't make it broad. There are things, there are molecules, there are pathogens, there are things you can absolutely detect. Small molecules. Small molecules. You can detect with a drop of blood. You know, counting how many blood cells you have in your whole body,

you know, using an estimate from a single droplet of blood, because we have these machines called flow cytometry machines where we sort blood cells, and then it'll tell you how many red blood cells you have and how many different kinds of white blood cells. That's a big part of your annual checkup that you'll typically get. You need a good amount of blood to get an accurate reading on how many blood cells there are, even just using lasers and these sophisticated machines, can you reduce that down to a droplet?

Physically probably not, right? And so it's not universal to say this is possible, it's not possible, there are elements that are absolutely possible, some of which are being done today, and there are some things that are going to be very hard to pull off. Got it. And she was making these claims as early as 2003 when it was founded. So we're talking about 19 years ago, and we're saying here it's not going to be possible to do hundreds of these things. Maybe in our lifetime, we're talking about decades from there, we need to be some significant breakthrough.

Sax, let me ask you a legal question. I was on a podcast and I said to them, why haven't the prosecutors had Bill Maris, who is a friend of Freebergs, who helped me get him on the podcast. He was great. Thank you for that, David. This week in startups. Very smart guy. Very smart guy. And he came out publicly when he was running Google Ventures, and he said, we looked at it

a couple of times, he's referring to their nose. But there was so much hand waving, like, look over here, that we couldn't figure it out. So we just had someone from our life science investment team go into Walgreens and take the test. And it wasn't that difficult for anyone to determine that things may not have been, not be what they seem here.

Now, SACS, I was on this podcast to drop out which I think is an ABC news one. And I said, why didn't the prosecution bring up, you know, GV, let's assume Sequoia, and Dresan, and you know, the 20 top firms in the Valley who said no. And they all said no because she wouldn't show them due diligence. And I asked them, why didn't the prosecutors bring up those 20 firms and compel them to testify about why they didn't invest, to give the counter example? And she said, I don't know. Wouldn't that have been a

much better strategy to say, here are the credible people who didn't invest. I'm not sure I see the relevance of that because Elizabeth Holmes' crime was not promising something that she couldn't ultimately deliver on. It's okay to fail in Silicon Valley. One of the best things about Silicon Valley is that we don't punish failure. Her mistake was of making misrepresentations to the people who did invest. If anything, is anything actually what Elizabeth Holmes maybe should have done was call up some of those firms and they could have said how easy it was for them to figure out that they should have invested.

Maybe that would have been a way to kind of muddy the waters on her side. I was thinking that they would have said, hey, she wouldn't show us the technology. And when we did our independent diligence, she wouldn't let us diligence. We did outside, back to our diligence. It failed. There were red flags all over this thing. We had talked about it in our poker games way before this thing went off the rails. The fact that there were no major VC firms involved who had expertise in biotech, who could

do the diligence. It was all sort of, it was basically a family office money of people who weren't into looking value, you know, writing big checks, whether it was a super mordor or the divorce family or what have you. There were, there were discred flags coming off this thing, which is why Silicon Valley was not by and large doop by it. The people who were doop by it were the people that Elizabeth Holmes was able to sell the patina of Silicon Valley to. And the media, because the media, what we've seen over and over again is they don't fact check stories when they fit their priors. The prior here is that, you know, what the media want to believe is

that the next Steve Jobs is gonna be a woman. And so when Elizabeth Holmes served that up to them wearing the black turtle neck, it was too good a story for them to fact check to heavily. And so they ran with it. They fit the same way. In the same way that, you know, the Ivermectin hoax that Rolling Stone ran with

was too good a story to be fact checked because they want to believe that the Magvermectin hoax that Rolling Stone ran with was too good a story to be fact-checked because they want to believe that the Maga people in Oklahoma were eating horse-paste. I mean, there's a hundred better examples of just, I mean, just to be generic sacks of other startups that we all know are total nonsense. And total nonsense. There's a fraud in biotech going on right now that David and I saw up front. I mean, it's like this stuff is crazy. It's really, really crazy. So look, I mean, I think the moral of the story for entrepreneurs, I mean, I think there's

a couple of takeaways here. Number one, you got to be really clear with the present state of your business. It's okay to talk about your grand vision of what you're going to do in the future, but you cannot be inaccurate in any way with respect to your current numbers and partnerships and deals and current capabilities. I think number two, I think when you start working with the media in this way to promote your company, you're playing with fire because the media really has two kinds of stories. They build up and they tear down.

When they're done building you up, they're gonna tear you down because that's the only story left to write. So if you're gonna go court the media in that way to try and get publicity, you better be really careful how you do it and you better be really accurate and you better not give them cause

to later regret pumping you up because they will tear you down even harder if you do that. I think the more important danger that I just like to speak generally to for a second is to not let other people do your thinking for you. The investors that came into this business came in under the assumption that this was a real business because the press had written about it and the press wrote about it because the general had joined the board and the general joined the board because his buddy George Schultz said, hey hey you should meet this lady and the whole thing ended up becoming this round about

where no one actually did any original thinking and no one did any actual diligence stop and the whole thing ended up being this. I'm sorry, you know now you're talking about how Silicon Valley works so that's bullshit. You don't think these dopes run around thinking of Sequoia, Benchmark, social capital, craft invest, I'm just plowing the money in. Of course they do. They don't even think. Social proof. They assume that we've done our gel gel gel.

No, Shaman, I'm not sure. You think they're doing principal diligence, like the Silicon Valley ecosystem. And by the way, I'll also say, this is also how the birdie mad off scandal got so far ahead of itself. No one actually went in and did the audits of those financials.

Everyone assumed that because someone else is in this thing, and because someone else is involved or something nice has been written about it or said about it, it's worth backing. And the lack of original thinking and business and life in general, I think is one of the biggest risks that each of us takes, and it's really important to learn how to take care of yourself. I have deep respect for early stage investors because they have to get in and make some critical decisions.

Some people make those decisions about the team, right? The psychology of the co-founders, sometimes it's about the end market, and sometimes it's about a deep analysis of the traction. But you have to, let's be honest, there is a valley of funding between the series A and maybe the D or the E where I really think a lot of folks just look for signaling value based on who the series A investors were. They make blind bets. I'm not sure, they making, but I'm not sure that those family offices were any worse or any better. Like maybe the divorce family looked at Rupert Murch and said he's smart, so I'm in.

That's exactly what happened. That's so different than all these series B and C firms that say, oh, benchmarks in I'm in. Totally. It's the exact same thing. I literally had a situation, and I think I brought it up in a previous episode where I was working on it, DL. It wasn't like a major check for us.

It was a six figure check. And they said, none of the other firms are asking for diligence. Why should we give it to you? And I was like, how much are they putting in? That's crazy. And they were putting more money than I, they were putting seven figures in. Crazy.

And I said, because I have no ask for diligence, when you ask for diligence now, some of these founders looking at you like, how dare you? Yeah. No, in this case, they were insulted and they said, we're not giving you diligence. And we walked away.

It's like, a house without visiting the house. Yeah, they're not giving you diligence, and we walked away. It's like, this company had a house for that visiting the house. Yeah, they're like, buy it without, this company that Dave and I called, call, you know, well, David was calling it, there are no two point, oh, but. This company couldn't even explain gross revenue. They couldn't, they didn't, they was like gross revenue,

asterix, and it's like, if there's one metric on a P.M.L. that can never have an asterix, ever. The top line. The top line gross revenue. Adale that can never have an asterisk ever the top line I get it okay, but Astrix Open the register account the money and so I just remember asking this simple question, like, can I just take the asterisk away and just tell me?

This is a company, the two of you were looking at together. Oh God. You and I have talked about many times. Oh really? Your Theranos 2.0, sir. That's what this company is. And I learned a lot about Delaware law. I don't know if you guys have heard.

I've talked about this company. Yeah, yeah. Well, in the text, you were like, I'm shorting this company. Yeah, I'll tell you in a law. I don't know if you guys have a lot of talk about this company. Yeah, yeah. Well, in the text, you were like, I'm shorting this company. I'll tell you in a minute. We'll tell you in a minute. Yeah, you know what it is. But anyway, I've been getting a big lesson here

about Delaware law. There's something called a section 220. Have any of you ever had to file one of these? By the way, I didn't shorten it. It worked out really well. Sorry, go ahead. Do any of you aware of whatever? Oh, you sure? Any of you aware of what? Oh, you sure?

Any of you aware of what a section 220 is or heard of this before? Basically, in a Delaware corporation, if you're a shareholder of any size, not just like a board member with 10% or whatever, if you feel there's malfeasance going on, you can file this 220 in Delaware. And according to this, a great Scad and Orps article on this,

the Delaware courts are taking you very seriously that if there's any accusation of any kind of malfeasance, especially financial, any shareholder, even tiny can get all of the books. And in detail, not board minutes, not top level P&L, like detailed financials. And so for people who are running companies, and if you're involved in...

So this is private companies, too, and if you're involved in it. So this is private companies too, or? This is in private companies. Look up section 220 of the Delaware General Corporate Law. I remember at Facebook is because we had these vagaries of having to control shareholder count or stuff like that and information, right? Yes.

We actually kept the financials on a physical computer that was not connected to the internet. So the people that wanted it would actually come to our office and then we would put them in like a windowless room without their phone or something. Is that, I think that's how they avoided people filing to 20 requests. And so it's just something for people to be aware of

on both sides of the table that if their shenanigans going on a company, founders think, well, I don't have to give any information to my shareholders. That's not true. And it's not true. Whatever you have think, well, I don't have to give any information to my shareholders. That's not true. And it's not true. Whatever you have in information rights,

whatever your lawyers wrote, is not above section 220 in Delaware. So just keep that in mind. I've got a case like that right now going on, where I found it won't give you information. Well, it's not the founder, but there's a company that just sold and they won't tell the shareholders like the terms of the deal.

What? Yeah. How's that even possible? Yeah, good question, but it's, it is reeks of fraud. I'm not going to say the name yet because I'm hoping that they're going to start acting in a more kosher way, but it's the most egregious thing I've ever seen. All you have to do is talk to your attorney at Wilson, Fenwick, or whatever one of the cohort of so-called.

You literally have the management of the company. They've engaged in a sale. The sale has been publicly announced. We have reason to believe it's in the hundreds of millions, and they won't tell anybody the terms. Yeah, follow 220. Follow 220. And you know what, they're public.

So then the crazy thing about these 220s is it used to be that all of the information had to be private, to sign like non-disclosures, whatever. And now, in certain circumstances, I think it's in the best interest of all shareholders, the 220 information can be public. And so that is just like a sniper shot to anybody who is doing any kind of shenanigans. We had a company in the same situation who wouldn't tell us about a sale. And then I have a call with the board

because I own 7% of the company, this is years ago. And I said, can you explain to me what happened here? And they're like, yeah, what we're doing the sale and blah, blah, and it turned out the bankers were taking 40% of the sale whatever. And I was like, okay, well, I'm not gonna approve this and you need my approval. Let's talk about how we can make this work

because we have outside funding that the company's turning down to do a sale that everybody's losing their money on. Does it make any sense? And they said, well, we can't really do that because we've already sent the eight employees over to the new company. That's buying it. I was like, what do you mean? Like, we ran out of money to pay them.

So they all moved over to the payroll of the new company. I'm like, you haven't closed the transaction yet. Well, it was crazy. Like, there's some weird stuff that happens to private companies. Yeah. This stuff is always at the peak of when there's a correction, right? I mean, this may be a good segue to talk a little bit going on.

It's a great segue. But it's like that level of grift happens right before, you know, basically we have to re-rate valuations. You know, because entrepreneurs just take so much, well, there's just a small percentage of them, but they just take so much leeway in pushing the boundary. And sometimes it's other board members who are acting there on interest, but I saw this problem really easy. I called the CEO of the public company that was buying them and explained the situation.

He's like, talk to my CFL, a friend of the pod, whatever. And they said, how do we solve this with you? I said, well, this is how much money I have in. This is the value of your company. How would you like me to be an advisor to your company for the same amount of that value in shares? Also, you grifted. So, no.

That's great. So basically, you got Ben Boussel. And so you Ben Boussel, everybody else, but I used my leverage. I used my leverage holder. And then they said, okay, we'll make you an advisor. Then I took the advisor shares and I wrote a letter and pledged them to my leverage. And then they said, okay, we'll make you an advisor. Then I took the advisor shares and I wrote a letter and pledged them to my investors.

And my investors are now three actual original investment. And I said, I'm not letting it go. I'm not signing the paper until I get the 250K that my investors put in, period. And then they didn't, now I'm up. But let's segue. Crazy market pullback, the great write down has occurred. Trots from Al Timider, our friend Brad Gerson, and I assume, show a major

regression to the mean for tech stocks, SaaS index, median enterprise value, next 12 months, expected revenue, yada yada. This includes people like Adobe, DataDog, Shopify Twilio Workday. And as you can see here in the chart, which we'll pull up, Saks, explain to us what's happening here. Well, it's a major regression to the being on value, on public committee evaluations in both SACs, but also more generally. The high growth stocks have corrected more than the indices.

So that would imply that there might be more correction to come against the indexes. I think the growth stocks have already taken the bulk of the hit. But what triggered it this week, I predicted, and you guys had some predictions on the, just a few weeks ago, that this would be the 2022, be the year of the correction. And it really began in November,

or you had the Fed, you had Fed governors make some hawkish statements about inflation, not being transitory about the need to raise rates. Then we had the Fed Open Market Committee meeting. This is in, I think around summer 15th, and they announced what they were gonna do on rates. And now this week, the minutes of that meeting were released

and it basically, it said something that was completely different than what they announced to us just three weeks ago. And so the market basically diseased up and went into convulsions. And specifically, what they said in mid-December was that they were going to taper faster. They were going to end Q1, sorry, they were going to end QE

at the end of Q1 instead of Q2. And then we're going to have quarter point rate hikes in Q2, Q3, Q4. That was the plan for 2022. And then there was additional guidance that they were expecting three more quarter point rate hikes in 2023 and two in 2024. So that was sort of the three-year plan that was laid out. Then we find out from these minutes, and I guess these minutes weren't leaked or anything. They published them after like a three week revise and extend remarks type period. But what we find out is that they're what they were talking about

was having a rate hike as soon as Q1 and not just ending QE but actually shedding assets, which is like the opposite of QE. So instead of basically going out there and creating money, shrinking the balance sheet. Yeah, shrinking their balance sheet. So instead of going out and buying bonds, they're going to sell their bonds, which will reduce the balance sheet. Yeah, yeah, shrinking their balance sheet. So instead of going out and buying bonds, they're gonna sell their bonds, which will reduce the money supply. So look, if that was their view three weeks ago, why didn't they announce it?

I mean, my problem with this is it makes the Fed look like they don't know what they're doing because they announced something just three, three and a half weeks ago, that's completely at odds with the statement they just put out. So either something changed in the last three weeks, and there's been no data,

or they don't know what they're doing. Just so you know, they have a little bit of a track record of this. So in 2018, it looked like there was going to be inflation and Powell tried to get ahead of it, and he raised rates, and the market completely collapsed, and they were looking, I think, at Chinese data at the time.

And it looked like China was turning, you know, going crazy, then China completely turned over. It was a complete head fake. The economy wasn't reburing. Inflation didn't exist. And they basically just curtailed a lot of investment and destroyed a bunch of value. So this time around, I think they're very sensitive to not correcting too quickly, but then the opposite thing happened, which

is they probably waited a little too long. And now, you know, we're correcting too slowly too late into the cycle. And we're just sort of digesting that reality. And so I think that, you know, we're probably, to be honest you, like, actually, we've pukeed it all out for the most part, in my opinion. You have to remember, right? Like, the big difference between now and even 10, and frankly, more importantly, 20, 30, 40, 50 years ago, is how many computers are involved that trade, how much passive money is involved that owns assets, and how much of this stuff is sitting on the sideline still

in money market accounts and munis. So if you look at those markets, there is a ton, trillions of dollars waiting to find a home. And what we've now done and Brad's charts show this is we've basically chopped the head off of all of these fast growing growth multiple. The underlying companies have not changed once in tiller. These companies are still growing by crazy amounts.

Snowflake is still an incredible business. Unbelievable. But the multiple that one was willing to pay has been very much re-rated, as is a bunch of other companies like it. So let me ask you a question, Shema. If we've gone from these 50, 60, 70 multiples time sales and now it goes back down to 20, is that dare I say a buy signal? Well, my $1 trillion start moving back in because who wants to be in a money market?

I don't know and I can't really call these things, but one a really smart person that I talked to this week, you know, he actually liquidated everything in October and November. And you know and I'm I don't we talked about this on the pod but you know I was feeling so much tension at the end of last year I actually when I look back on q4. It was probably the most difficult quarter of my professional life. quarter of my professional life in just trying to manage risk. And I exited a ton of positions. All my pipes, my third party pipes, I basically sold off except for one. I generated some liquidity in other places as well.

And I was glad that I did that in part because I saw what he was doing. And in part because Jeff and Elon were selling. And I thought, I mean, this is crazy to sit on the sidelines and, you know, be the bag holder here. Going into Q1, I talked to the same guys. And what he said to me, which I think is very smart, is you have to really look at the first and second derivative of the 10-year bond.

Because when that stops moving, like the 10-year bond is this beautiful barometer of the 10-year bond, because when that stops moving, like the 10-year bond is this beautiful barometer of the collective wisdom of every single investor in the world about what they think about long-term growth and inflation. And it's a really important market. You know, we've talked many times. Look at the 10-year break even if you want to understand where inflation is going. We started to talk about that seven months ago. And if you look at that, the rate of change,

so the volatility in the 10-year yield is slowing way down. And if that continues to hold, that means that people are really saying there's a small amount of real inflation, a reasonable amount of transitory inflation, and we're about to kind of wash most of it through the system with, you know, 100 basis points of rate hikes. And if that's the case, then you may see a quick pullback, you know, in Q1 and we're back to the races again because of all this other money that's

going to say, I got to get back in. And if you look at all these corrections in the world of computer-traded algorithms and ETFs and passive money and it's all the snapbacks are so fast, you correct 20% and then you whip it back and you go. So I don't know. I mean, that's one view based on the past. When you have these big swings, remember, it's not that every issue moves perfectly

in sync with every other issue. So there are these call it over adjustments that happen within a cohort, so within a group of companies, some of them will trade down much farther than others. The multiple will compress much further than others. And there's certainly opportunities within, as there is in any market that's moving quickly to find businesses that now are prices, mature, non-growth value businesses and they're profitable and growing.

And there's a bunch of those out there now. And that wasn't the case a month ago. I don't think a single thing in the last quarter has changed in the underlying fundamentals of the majority of businesses that are public. And I actually think for the most part, nothing has really materially changed for the majority of private companies. All that's changed is what you're willing to pay in the

future for it. And the one thing that hasn't changed is what you're willing to pay in the future for the private businesses. So the real question, you know, for SACS and, you know, for the active investors in the private markets, which I don't know what to think about is, will the haircut that we've all taken in the public markets spill into the private? It's starting. It's starting. It feels to me, it's not just about what's going to happen with new emerging growth companies, but I mean, you guys correct me if I'm wrong, but there are hundreds of companies

that have raised billions of dollars at valuations that if they look in the public markets now, they are never actually going to achieve if they were to go public in the next three four or five years based on their projections. So to your point So to your point, so where I'm saying, yeah, they're 900 unicorns right now 900 and so Once you get to look, it's one thing to be a $200 million company in Salt and Microsoft or whatever, but when you're a billion dollar company There are very few buyers. I just want to point out there's a huge Disincentive for an investor or a shareholder of VC or private equity firm to take a big write down on a company like that And so there there is always this push to what do we do next and it creates the certain certainly I can tell you I'd love your point of view

But you're this really like unhealthy tension because to take a write down on 900 unicorns is gonna cause a write down of Hundreds of billions of dollars and not across all VC portfolios in aggregate because they're not gonna end up going public It well, sorry just to finish your thought because the end market is only to go public. That's right. There are no many exits. Yeah. And not in the billions of dollars because you have to think.

One or two. Big tech is the sidelines, okay? Yeah. You know, even if you look at like these in Manchester, there, there, there, nobody's allowed to buy these big companies. There, we make sure I have an example that I can tell you. I admit to you or maybe, but my point is, when you have 900 companies with a billion dollars in plus,

they have to go public. They have to go public. And so, you can't go public into evaluation framework that values you at 30 to 40% less if your last private mark. Right, yeah. That doesn't work. You did have to use, you actually do.

So this is an important question, because isn't that gonna be the case that all these DCs with the 2015, 2016, 2017, 2018, 2019 vintage are gonna end up having, they've all got these great mark books right now. You know, the books are all marked to 3X, you know, multiple uninvested capital. And now they're gonna end up having these liquidity events

that are gonna come in a shockingly low valuations. And there's going to be this great right down in retransment. I can tell you, there's a couple of examples. One is the athletic yesterday, which had raised money at 500 million just two years ago, just sold about 500 million to the New York Times. And those investors basically put money in and they got their money back. It's a push. So I think you're going to see a lot of these push.

No, I'm agreeing with you. Yes, I'm going to give you the examples. There's also your acquisition by a big tier acquirer. And so there'll be plenty of those that occur. So there'll be a lot of pushes, I think, is my prediction of those 900 unicorns. And then for a lot of these SaaS companies, you think that a bunch of them are going to sell for under a billion dollars and the VCs because they have preference, they're going to get their money back.

Correct. Correct. I think it's gonna be a lot of these pushes where, what is it in blackjack, David, when you're playing those three hands and you get a push? And it's like, okay, I'm gonna live to fight another hand, now which we've seen saxophone numbers times. And then for the SASS is where SASS,

I'm interested in your position, because we saw in SASS, all of a sudden the private market, 30, 40, 50, 60, 70 times top line, and now it's gone back down to 20, 30, 40, 50, 60, 70 times top line. And now it's gone back down to 20, 30, 40. So those companies now basically have three. The public markets have, but I don't think the private market has happened already. Everybody's pausing.

And so for the people who raised that 50X, congratulations, you did the right thing. If you have enough money to fill in that valuation. Is it a congratulations though? I mean, it seems like they're a pretty, I would say it is. Pretty tough position now. You know, you just raised money, you just raised money in a billion dollar valuation with 10 million of revenue.

You're like, let's say let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say,

let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, let's say, burning. Almost all the companies I've seen in this exact situation you're talking about have that 20 million, they got a billion, they raised a hundred million or 200 million, and they're basically now saying, okay, we got to make this last until we can catch up to that valuation and get to 50 to 75 million. So I think you, I would take that deal as a founder and as an investor because it takes

out the downside and now you just have to worry about catching up to the valuation and you have four years of runway. They're not going to figure out right size. No, no, no, no, no, no, no. Those companies do not have four years of runway. I will bet dollars to donuts, they have two years or less. And most of these companies have 18 months. Which means they got to be raising in six to nine. No, they're changing, they're changing their spend. And they're changing their target assuming.

They're not firing anybody. You're not hearing about layoffs at startups. Okay. All right. You're not hearing about it, but maybe they're changing their for looking growth plans. What are you seeing, Saks? I'm telling you what I'm seeing. What are you seeing, Saks?

I think that the trickle down effect is inevitable, but I'm not sure it's fully kicked in yet. It's gonna take a few high-profile deals to land at say 50 times AR, instead of 100 times AR, in order for everybody to know that there's a new valuation level. So if you look at the Alterometer chart on public SaaS multiples, let's see,

I mean, they can pull it up. It basically, it's the SaaS index, let's see, I mean, Nick can pull it up. It's the SaaS index that shows median expected value to next 12 months revenue. And during this sort of late 2020, early 21 period, it got as high as about 15 times the historical average, yeah, well for next 12 months or revenue the Which is sort of that that kind of makes sense So so historically it's around eight right so so basically all the valuation levels doubled and Now they've come down to about ten times

So you could say that if it fully reverts to the mean we still got like another negative 20% to go. I don't know if that's going to happen. I mean, I think there has been a greater recognition that SaaS businesses are some of the best businesses to own, right? They are subscription, software businesses, great gross margins. They just keep compounding. So maybe it will stabilize at 10 times. But I think what we can say with 2020 hindsight is that the record price levels we got to in the public markets in 2021 were sort of unusual and unique and probably the result of this incredibly expansionary

fiscal and monetary policy was coming out of Washington Now has it trickled down to the again markets yet? I mean, the way that that has to happen is that the latest-stage investors, the crossover investors, who invest in both public markets and private markets, they have to start paying less for the latest-stage growth companies, and then all the downstream VCs are going to start paying less as well, because if you know the markets are lower, you have to take that into account. So look, all of this is underway right now. I mean, I gave a Bloomberg interview in December and I think I went on Maria Barromo show

around that time as well and I kind of warned that all of this was coming. And yeah, we're in the midst of a giant rewriting because we're realizing that so much of the peak values we are seeing in 2020 and 21 were the result of artificial liquidity. And it's what you guys predicted. You know, it's one of our big, you know, I guess my big prediction for business losers this year were asset classes that were highly dependent on liquidity. You guys predicted crypto would be one of those. Clearly it's taken big prediction for business losers this year were asset classes that were highly dependent on liquidity. You guys predicted crypto would be one of those. Clearly, it's taken a massive hit. Have you seen how much the crypto markets are off just in the last week? So it's so much for them

being uncoordinated. No, it's not like I did it. Look, the crypto markets. Yeah, everything Bitcoin's going to be uncoordinated. So the market's going to be a bit more. No, the crypto markets are like a sponge for liquidity. And the more liquidity there is out there, the more money can flow into a more speculative asset class. But look, my objection to this, I mean, is that if you look at the Fed's actions, I mean, I think Jamalath is right that they waited way too long to react. And during the crisis, they overreacted. I mean, they pumped. We on a previous

pod, we showed the assets. That's the way between under reaction and overreact. Yes, exactly. And now they're, I think they're in the overreacting again. I actually think they nailed it. In mid-December, they nailed it by giving us business certainty around what the new rate of armor was going to be. And just three weeks later, in the minutes to that very meeting, they completely undermine the certainty or the greater level of certainty and predictability that they had provided markets. They've now introduced massive uncertainty. So it's just unbelievable.

It's like their pilots and like they stalled the plane and then they're like, oh, let's pull back. Well, no, there's more. They're kind of pulling out the manual and learning in real time. Yeah, and it's like, you need to just point the nose down a bit and add a little bit of speed so you get some lift. Like, it really is tragic.

The performance of our government at every level over since COVID, at the last, you know, since 2020, I mean, it's been abysmal. I mean, first you have the self-inflicted wound of lockdowns. I mean, the economy is going to take a hit no matter what, because highly at risk people would have stayed home and reduced their economic activity.

But instead of just protecting the at risk people, we had to lock down the entire economy. We padlocked Elon's factories and on and on. So we basically shut down the whole economy for no reason and states like California kept it going way longer than they had to. So then the government just prints like 5, 6 trillion, and the Fed doubles the size of its balance sheet. And then now they're abruptly getting off drugs.

I mean, look, they put us on drugs, and now they're going cold turkey. And so I think there's actually like a much greater risk now of the economy going to recession this year because of the feds over reaction this week. I mean, they have the Goldiox scenario down about three weeks ago, and I think they're going to tank the thing now, or there's a much greater risk of that. Best advice for founders, private companies in this turmoil, which are best advice, fam. You're a founder, you got, I don't know, 18 months of runway right now. You're going into this, you know, slush and you want to know what should I do?

What should I do? I think Paul Graham's advice makes the most sense here. You need to focus on being default alive. To find what that is, just for people don't have to. So, you know, Paul Graham wrote this great essay, I spoke what he's a founder by a commentator and, you know, he has this very simple, you know, Paul Graham wrote this great essay, I support what he's a founder of Black Combinator. And, you know, he has this very simple, you know, framework of looking at companies, which is your default dead or your default alive. And when you're losing money, as a company and you're burning enormous amounts

of cash, you're default dead. Now, if you're growing fast enough, default dead is a great strategy for value creation. But at some point, everybody around you will expect you to be default alive and what that means is that the cost of what you do are less than the revenues you bring in when the result are profits. And even then, that's not good enough. I don't know if you guys saw, but if you look inside a big tech,

I was shocked to find out that, for example, companies like Microsoft specifically and Apple, these guys trade at huge forward multiples for enormous profitability. But companies like Facebook and Google for the same level of profitability trade almost a third less in terms of multiple. So even when you're that good, it's not good enough to be default alive. That's how hard this game is over very long periods of time. And so when you have a moment to really understand how to be default alive and you don't take it, I think it's a huge disservice because

we don't do enough of that kind of coaching that really inflicts that kind of discipline and expectation setting. I remember I have a large climate investment. It's actually the single largest investment I've ever done. And so I sweat the details pretty significantly. And I was with the team in November, December, for board meeting and setting up 2022. And my whole thing was guys, you have to get default alive. You have to get contribution margins

to be in a certain band. You were, we are going to target this level of free cash flow generation this year. And there's no ifans or butts about it. And what's great is the entire team embraced it and we're marching towards that. But if they didn't and they're like, no, we're just going to grow at all costs again.

Oh my God, I would be freaking out right now. Free bird. What are you up to? To that as advice to founders who have not been through this before. I built my business, my climate corp. We raised around in November of 2007. We raised $12.5 million and then the financial crisis hit in 2008. And I'd say two things were really important. Number one was just keep building. So if you're building a great business, it doesn't matter what the market perturbations are. You know, the

market will value you what they're going to value at. And if you're a good business, there's going to be money available to you. The second piece of advice is one that I know has been said over and over again, but never raise it evaluation beyond what you're reasonably going to be able to deliver returns on at some point in the future, because otherwise those nasty dynamics emerge. You could raise money at some crazy high valuation, that's not always the best thing to do, because then the expectation of the investors coming in at that valuation are they want to make three times that money or four times that money. And it pushes you to do something unhealthy like then more than you otherwise would stretch for a bigger outcome and put your entire company at risk. So, you know, two things to me

have always been just stay focused on building your business. Don't let, you know, kind of market conditions drive your decision making. And second, to find what for you is the best practice of staying focused on your business. Because that is a very general term. What is freeberg? If you're going to say the three top three things of focused on your business, tactically means I have a simple rubric for value creation and a business. You know, number one is can you make a product? Number two is do people want to buy your product? Number three, is can you make a positive gross margin selling that product to those people? Number four, is can you make a return on the marketing dollars you have to spend to generate that gross profit? Meaning, you know, can LTV exceed

CAC? And number five, is can you scale the amount of money you deploy to grow your business, such that as you grow, the return goes up, not down. If those are the five kind of money you deploy to grow your business, such that as you grow, the return goes up, not down. If those are the five kind of things you can accomplish in that order, you can build the next Google. And so, and then the sixth thing is, can you be a platform, which is meaning can you transition to being a multi-product company that gets leveraged out of the user base or the technology that you've built?

And so, you know, if you can have a revenue stream, it's more revenue streams using the same customer base or multiple products so, you know, if you can multiple revenue streams, more and multiple revenue streams using the same customer base or multiple products or, you know, whatever. And so if you can achieve those six things in that order, every step of the way, every increment you can make across that spectrum drive significant value as a business. Ultimately, what the multiple on your business will be is purely gonna be a function of what else

is going on in the world, things that you cannot control. And so if you're driving your decisions about building your business using that first rubric, good for you, you're going to succeed, you're going to have money available to you. Awesome. If you're driving your decisions based on what the market is telling you to do and what the market is saying is available to you and money and all that sort of stuff, you're setting yourself up to basically be blown up. But are you also saying to be independent of valuation? to you and money and all that sort of stuff, you're setting yourself up to basically be blown up.

But are you also saying to be independent of valuation? I'm always of the opinion that you shouldn't raise money beyond your into evaluation, that you're not comfortable saying in different market conditions or what have you, I can return multiple times. I think any founder has ever, most of these founders were not around in 2000 and they or two, but even 2008 was less important in my mind because it was it was it was fast and again, we had government stimulus. So, you know, like I think 2008 was an aboriginal moment. I was I was in the middle, you know, inside of Facebook and I was like, what the hell is going on here? The

government's going to step in and, you know, with tarp printing a trillion dollars or whatever it was. It didn't affect you guys. It didn't affect us at all. Yeah, but you were the most powerful company or starved out of that time, in 2008. Wow. I mean, you guys were surging and I don't know how to cash, right? No, no, but you had a cash award chance.

Here's the thing with that people don't realize with Facebook. Google was profitable from day one too. Yep. We were always default to live. I want every single person listening to this to understand this. We sold poker ads for party poker in big banner ads on Facebook and we made money. You got the bag.

You got yourself independent. We were profitable. Okay. So I don't buy this argument. That argument of unprofitable growth is a vestige of fund dynamics and VCs who want to raise larger and larger funds to blind their pockets with fees. It's a function of what I mentioned before, which is if you can think about the context of a portfolio of those bets, it makes sense. But if you think about your business, it doesn't make sense.

In 2000, that did make sense. You could not run an unprofitable growth business. The money would not have been there. The real reason is that was a market check, meaning you had people reallocating capital because risk rates were different. You could put money at 6% in the US 10-year bonds. Obviously, you can't do that today. Maybe this cycle is just a new normal. And so maybe you can always be default dead and be able to raise money because the incentives exist,

but I wonder when that stops. And so I don't know. Google was an incredibly cash efficient business. I think they raised under 50 million as a protocol. That's where you never used any of it. Because Google, the first thing Google did is they did a massive search syndication deal with AOL that paid them hundreds of millions of dollars.

And that funded the business. If you can sell ahead of your customers in terms of delivering the service or the product to them, you've got the most beautiful business in the world. That's the definition of bootstrapping. Google, even though they raised venture capital, effectively bootstrapped the business by getting customers to prepay. Like Elon, getting people to prepay for cars. I wrote this in my annual letter like two years ago, but Facebook, Google, Apple, Microsoft, and Amazon

raised collectively less than $250 million. Yeah, I mean, what? Yeah, so I mean, I agree with a lot of what you guys have said. I mean, so I agree with Freeberg that recessions or downturns are actually great times to build startups because innovation doesn't stop. And so PayPal was predominantly built after the .com crash. Yammer was probably built after the 2008 great recession. So it's absolutely doable. And something is actually getting easier in a downturn. There's way fewer startups

getting funded. And so talent gets easier to recruit. So things loosen up in terms of the company building side. The only thing that really gets harder in a downturn is fundraising. And by the way, I think it's a good practice for founders not to care what happens in the public markets, the NASDA, early-stage founders, because the only time that really touches you is when you need to access the capital markets. And then you will be subject to the downstream impact on VCs of what's happening in the market. So the only thing that really gets harder is fundraising. And this is where I think Tomas advice comes in. I personally think that trying to achieve default a live status is too high a bar. I mean, it's a wonderful thing if you can do it. I mean,

Facebook did it, Google did it, the very best companies did it. But I know very few SaaS companies that could continue to grow if they had to be cashful positive. I mean, at an early stage. So the metric I use is Bernmultiple. I wrote a blog about this once. It's basically just how much are you burning for every dollar of net new ARR you're adding? So in other words, like if you're burning a million dollars, you know, over whatever period of time, a month quarter a year to add a million dollars of NetUAR, that's actually pretty good. So a bundle call of like one or less is amazing. I'd say even up to two is good. So in other words, like if a SaaS company can say add 10 million of NetU ARR to year and burn 20, I think VCs will fund that all day long, even in a recession.

You can get a two year payback. Yes, but when you start getting to burn multiples of three, four, five, six, and up, that's when like VCs are going to go, wait a second. Yeah, you're, that growth is cost. Not a fish, right? You're not efficient. It's not just efficient, but it starts to raise questions about your product market fit, because you're effectively spending too much money to grow.

So like, why is a growth that hard, right? No market pull. Yeah, no market pull. Yeah, exactly. No market pull. I think it's a good way of putting it. So I do think you have to, like in a downturn or in choppy waters, you have to sharpen the pencil, get more efficient about your burn. Look at your burn multiple.

And then I think, you know, if you have the opportunity to top off your war chest, like that's smart, you know, and don't wait too long. And beef frugal, I mean, God, the amount of like crazy spending I'm seeing in some startups and unnecessary spending. If you're spending something and it's not going into product, it's not going into marketing, you know, it's not going into sales and it's not, you know,

just, you really have to ask yourself, why am I spending money on going to this conference, going to that conference on this office space, like really beef frugal. I know that it's when you have all this money sloshier around, you're looking for things to spend it on, but stay focused. But the old summit. Yeah, I mean, don't spend 7500 on that

unless you've got tons of cash laying around. And we will be getting back to the people who applied, we're gonna go through and somebody's gonna approve you. I mean, let's add one other thing to this, which is you're right that like most founders have never even seen a downturn because the last big one was a great recession of 2008, 2009. So many founders were even around back then. No, the most the most real one was 2000. That's right. That was the big, that was big. It froze. I would say it froze to that 2008 was what like 12 to 18 months of choppinus. And I would say

a lot of companies couldn't raise money, had to do down rounds, had to do multiple liquidation preferences. It was gnarly on some cap tables during that period. And if you don't know what multiple liquidation preferences are, answer your turn. I understand, but there was no real market check. The market check was really in 2000. And you saw it. It was a multi-year slog. It was a bloodbath. You had to be defalthe lives. It was a vaporized people. You had to be defalthe lives. Absolutely.

Yeah. But I would say a third of the startups went away in 2008. I don't think we're running into that again. So, you know, let's not create a Sequoia graveyard kind of story. But you could. No, but you know it's just a point. Look, it's a probability of getting your business fungared, right? And that's kind of lower. It's it's not like, but here's the thing what I what shocking to me It's like I don't understand why people think you can grow infinitely forever

It's just not true even the best businesses in the world after 15 or 20 years are barely growing at 20 percent people's Forecast Facebook and Google Those are the two best businesses in the world. But it isn't the question of what kind of growth fees are willing to finance. No, what I'm saying is, if you know that your terminal growth rate, if you are one of the best companies ever created, ever is 20% in 20 years, it doesn't take a genius to do a line of best fit between now where you're at 100% in 20 and Realize that at some point if you don't figure out how to make money by selling what you're selling There's a lot of people who will be smart enough after enough historical data has come through the transom or come over the past To realize that these things are not that fundable and this is what's shocking to me

It's like that data is hiding in plain sight for anybody to look at And this is what's shocking to me. It's like that data is hiding in plain sight for anybody to look at. It doesn't make sense unless you believe that those growth rates of 40, 50, 60% are sustainable for 30 years or 40 years. We've seen zero examples. And you have to look at these canaries in the coal mine

because if the best companies in the world can't do it, you have to really scratch your head here or ignore it, whatever. Of course it is. That's fine. Just head here. Or ignore it, whatever. Or I can't do it. That's right. Just wing it. Yeah, it'll work out. Don't worry about it.

Don't worry about it. Don't worry about it. Don't worry. Just add like, brain features around, it's fine. One of those features will work and save the day. There's some magical feature that. Meanwhile, did you see Andreessen announced that they raised $9 billion or something today across the bunch of animals.

Yeah, I do. I do. I of all those guys. They're building a colossus. Yeah, I mean, there's going to be a Silicon Valley in terms of capital is, you know, seeing kind of power returns itself, right? There's going to be a few firms that are going to, you know, control 80% of the capital. And recent should go public. And recent, I think they're going to go global, you know, whatever happens.

I don't know if something's region too. I mean, that's a mark. I don't know about the current public, but I'm just saying, like, if you look at the aggregate capital that's being deployed into private markets right now, in probably two years, 80% of it's going to come from three firms or four firms. The problem is if you're running that much money, you're insane to not take your GP public

because it's the only way, like, you're not really generating carry at that point because you're generating a market beta return. So you'll do okay but when you're sitting on 20 30 40 billion of imputed wealth by being the owner of the GP of tiger or and reason you'd be insane to not go public. I think b odds are going to be pretty high that and recent will go public right I mean they're certainly setting themselves up to be a lot more than well, but Saks, you're going to say something. Yeah. Well, I think it's a super interesting point because if you talk to the previous generation of VCs, what they will tell you, who retired, right, is when you ask them, well, did you get anything for your partnership share in the firm, not just in a fund, but in the firm? That's all you know.

They basically just gave it away to the next generation of partners, even though they built the firm. And it's because of what, historically, the way to the next generation of partners even though they built the firm. And it's because of what the historically the belief on the part of VCs was that there was no value to VC firms other than just their interest in each particular fund, but you're right, like if they do achieve a much greater level of scale and they can go public, then there is actually value in the firm itself. If you look at the terminal valuation of Blackstone as index to AUM, you know, once you pass a couple hundred billion of AUM, you can trade toward 0.1.2 times.

And so, you know, if you have 50 billion of AUM, there's $10 billion mark a cap there. And if you, you know, if you're, or call it joint war and recent war, Horowitz, I mean, that's $5 billion that just appeared out of nowhere. Why would you not do it? Right. It's a little bit like Goldman Sachs. They always said that we're a partnership. We're never going to IPO because. And then they did. And then they did. And the same thing with did CAA do it too. No, I guess. No, what happened with CNA was OVET's sold his position to go to Disney. so there wouldn't be a conflict, but he could have kept it and the residuals, they were getting from projects that they packaged.

What are you? Didn't the RE manual one? It did, endeavor did. Endeavor did. Endeavor did. Endeavor did. Endeavor did. Endeavor, I'm not sure.

But let me tell you, it's actually, the thing about if you're not like the current partner owners of the firm, but you're like on a partnership track there and you're working your way up to partner. By the time you get to partner, it's going to be a very different economic equation, because instead of getting your one over end share of the pie, when you eventually become partner with the end being the number of partners or some version of that, now the company is owned by the public.

The public or the board of directors is determining your salary and maybe you get a salary and bonus and some, you know, essentially options or equity participation, but you're not going to be a true owner anymore because the firm is going to be owned by the public. Wait a second. What if we take each of our businesses, put them together and then take them public as all in capital. And then we get the book. I'm good. I'm good. We got the startup studio.

We got the selling. We got the delivery on a conference. So I don't think we can buy me. We can't get the flowers. We can't get the flowers. We can't get the flowers. We can't get the flowers. We can't get the flowers.

We can't get the flowers. We can't get the flowers. We can't get the flowers. We can't get the flowers. We can't get the flowers. We can't get the flowers. We can't get the flowers. We can't get the flowers. We can't get No, we wanted someone to do the work. We want to hire professional. I have been doing conferences for 25 years.

I know. And you know what's going to happen. You know what's going to happen. You launch Yammer at my conference. And I put the fix in for you to win. Thank you. TechCrunch was a beautiful conference. But for all in some it, is it just the case that we want people to show up and there's

going to be a stage and people talking on stage in that old conference? Or we want to create a more magical experience, a lot, a doubtful, a doubtful, a dose or a sun Valley or something like that. We're in agreement. All right, everybody. Thanks for tuning in to episode 62 of the All in podcast. We'll see you at the All in Summit. And if you want to do us a favor, please go ahead and subscribe and write us on Apple. We could really use that.

And thanks to Spotify for including Daniel Shado, thanks Dan. He included us in their video. So now if you're on Spotify and you're listening to the pod, you can click a button as of this week and watch the video where you can watch the video on YouTube. Yeah, it's nice. He emailed us and his team and then I ccd him on the email. He's the best. Yeah, I think it would be good for, what do you think about having him and Mr. Beast? He's super, super, super. Here's my idea for a trio. Him, Mr. Beast, and then one other person to do a mediocre trio, future media. What is your, what is your idea?

You don't even know the third person. I mean, I'm putting it out there, asking for a suggestion for the third person to do a misdemeanor. You just throw this shit out there. This is our conference in Prasaria. Oh my God. I'm going to be a good guy. I'm going to be a good guy. I'm going to be a? I mean I'm putting it out there asking for a suggestion for the Really a mr. Beast YouTube you just throw this shit out there conference in Prasario. Oh my god

Well, those are two great guests. I'm the same time. Let's figure out who besides Jake I'm gonna produce the conference. Okay, you guys are I love you guys. See you bye bye. It's soft for bye bye Well, let your winners ride Bring man David We'll let your winners ride. Rainman David Sackett. I'm going on a win. And it said we open source it to the fans and they've just got crazy with it. Love you, Sackett.

I squeen up, you know. I'm going on a win. I'm going on a win. What, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what, what Besties are gone, don't drink it. That's my dog taking a wish and you're driving. Sit down. Sit down. Oh, man, my amputation will meet me at what extent. We should all just get a room and just have one big hug or two, because they're all good. It's like this sexual tension that we just need to release some time.

What, you're the beef. What, you're a beer of beef. Beef, what? We need to get my besties aren't there. I'm going all the way. What you're the B What you're the B B We need to get merch these aren't that bad I'm going all in I'm going all in