Big Technology Podcast - Big Tech's Comeback And The Spillover to VCs and Startups — With Eliot Brown

Episode Date: July 5, 2023

Eliot Brown is a reporter at the Wall Street Journal and co-author of The Cult of We: WeWork, Adam Neumann, and the Great Startup Delusion. He joins Big Technology Podcast this week to talk about Big Tech's remarkable stock market comeback and how that's spilling over to VCs, startups, and IPOs. Stay tuned for the second half where we discuss the risks in the commercial real estate market, looking into examples Brown has reported on. We end discussing Evan Gershkovich, a friend and colleague of Brown who is currently imprisoned in Russia. --- Enjoying Big Technology Podcast? Please rate us five stars ⭐⭐⭐⭐⭐ in your podcast app of choice. For weekly updates on the show, sign up for the pod newsletter on LinkedIn: https://www.linkedin.com/newsletters/6901970121829801984/ Questions? Feedback? Write to: [e-mail]

Welcome to Big Technology Podcast, a show for cool-headed, nuanced conversation of the tech world and beyond. We are joined today by Elliot Brown. He is a reporter at the Wall Street Journal and the co-author of The Cult of We, WeWork, Adam Newman and The Great Startup Delusion. He's a terrific reporter. We have so much to cover today. We're going to talk about public market valuations of big tech companies and then get deep into Elliot's reporting about how that's spilling over into the private investment world. including SoftBink. Elliot, so glad to have you here.

Welcome to the show. Happy to be here. Great to have you. We had you around New Year's, and one of the things I said I love speaking with you about is froth, because you have this internal radar. When you see something not really makes sense in the numbers, you're very good at saying, hey, wait, let's double check here.

That being said, let me read you some statistics. Okay, year-to-date, right? So since we spoke last, here's what big tech is doing. Apple is up 53%. Meta's up 129%. Amazon is up 51%. Microsoft is up 41%. Alphabet is up 34%. And NVIDia is up, this is unbelievable, a whopping 196% and valued at $1.05 trillion. Wait a second. You know, this was supposed to be a moment where there's higher interest rates. Tech has a pullback on its valuations. and then, of course, there were drawbacks last year. But what's happening this year is somewhat mind-boggling.

Are we seeing another sort of case of market hysteria or these numbers actually legitimate? Did the market unnecessarily pull back? Yeah, what were all these people doing? Do they not realize we've got a high interest rate environment? Yeah, what's going on? Yeah, that's the answer. Yeah, I don't have the answer. I mean, basically, if you look at, yeah, like the next.

NASDAQ overall is up like 30% year to date and is now only like 10 to 15% below its 2021 highs when we had like zero interest rate environment. So what's actually happened? As you sort of pointed out, it's actually really just a few stocks. It is these giant incumbents and the market is betting that they are like, you know, essentially AI is going to power these companies to sort of at a new profitable level. So is it irrational? I think in the broad sense, AI is actually, as a concept of generative AI makes a lot more sense

as something that would be transformative than basically anything else we've heard out of the venture capital sector in the past 15 years. you can sort of see how it actually would be, you know, could lead to just extraordinary new efficiencies and profit, you know, centers within businesses by eliminating jobs and replacing it with, you know, code robots. That said, you know, you look at Nvidia's valuation and, you know, I'm not actually here to really enlighten with any numbers and more just broad tweet these statements. But, you know, it's trading at something like 30 times revenue, which is, means like, you know, the value of the whole company is 30 times a year's revenue,

let's say. You know, that means profits are sort of minuscule. So it would just take years upon years that sort of a normal company valuation of profit or growth for Invidia to sort of pay that back. So that's a long way of saying, like, you know, even if NVIDIA just gobbles the entire AI chip market, you know, how do you justify a $1 billion chip company? That's probably harder, but who knows? Right.

So here's some concrete numbers. I mean, NVIDIA had doubled the sales of AMD, right? AMD is the comp. Not exactly the same company, but double the sales. AMD's market cap is in the $190 billion range. And that's a frothy market cap, right? Like AMV, yeah, yeah, that's a good one. And so basically, NVIDIA doubled the sales of its most comparable competitor five times, more than five times the market cap.

How do you explain that? I mean, you know, Nvidia is a mean stock in the same way that Tesla is a meme stock. Like that's, so what's, and it's actually, Nvidia has sort of always been. in that way. It's gotten, like the gamers got really behind it, and then the crypto people really liked it because of their chips were used for crypto. So it's got a lot of retail sort of pushing up this cult view about the thing. So, look, my job isn't to sort of like rate the stock as buy or sell, but it's like, if you're wondering what is up with NVIDIA's valuation, it does it completely reflect like everything as normal environment? It's like, no,

That's the result of sort of market hysteria and a frenzy. But in terms of Facebook or meta, Google, in general, this sort of like big, you know, surge in the past six months, I think that is reflective of something that's, at least has a lot more potential to be real than, you know, like crypto or any of the other like 12 waves we've seen in the past, in the venture capital world in the past, you know, decades. like scooters and fake meat and, and, um, what, what a grilled cheese as a service. Yeah, they grilled cheese, yeah, gas. G. Chas. Grilled, grilled cheese as a service. Yeah. G. Chas. Yeah, definitely. It's the hot new category. You actually do have an example in your book that talks about basically grilled cheese companies becoming tech company evaluations. So, or commanding tech company value valuation. So we're not just spitballing here. This did happen. So let's talk a little bit, though, about like how.

this now impacts the startup market and private capital. Because, you know, there was a moment where, you know, it seemed like, okay, startup investors didn't really see exits. M&A was down. The public market was unwelcoming for IPOs. And you looked at where tech company valuations were plummeting. So it's not like you were like pushing towards this exit and you realize that you might need more runway than you did previously. But now, holy crap, there's a real opportunity here, right, where like companies are getting started on AI programs and you can see the public market is really rewarding the faith. So I'm not as deep into it as you are, but I would imagine that this is going to lead or is leading right now to reinvigoration of venture capital and the private

investment space. Oh, totally. I mean, it's really happened. And it's kind of, it's almost frustrating in that it's impossible to talk to these venture capitalists a lot of the time because, you know, you actually had a moment for one year out of the past 10 where essentially the bubble had been pierced and maybe they could be introspective about, you know, sort of just why the sector as a whole just is so prone to being frothy and sort of running like a herd and kind of all these crazy things because it's like overall and through 2022. I mean, you know, the sector did pretty terrible, even if, like, venture funds were able to produce good returns here, you know, at isolated times. So, you know, that's a long way of saying, yeah, I mean,

things have gotten completely off to the racism. People are sort of like forgetting, like, you know, all that, that crap that we invested in and put hundreds of billions of dollars into, you know, forget about that. It is an AI frenzy. And again, like, that as a concept, is probably more rational than getting really excited about mattresses or scooters as some sort of huge new category, which is what VCs were doing. But because like the thing that really does unlock, you know, venture capital and venture capital returns is when you have like an iPhone or the internet and you open up what they call a platform change. Like, you get this whole new category that you can do. So that is, you could

see how AI has the potential to do that. The VCs all really see that. And so valuations have been surging. You know, you have these startups with nothing that are just starting. Like, there was a French startup that raised $118 million last month. And it had been around for like five or six weeks. A week. Yeah, exactly. Overnight. Right. I mean, it essentially was just like a dude. three dudes and, you know, they get $118 million to go build a company. So, you know, that is the sort of peak level of froth. And so then suddenly, like, you know, people are rebranding to be all about AI when, but if you ask them how Web3 is going, they probably would not appreciate the question. Right. And so, you know, it's interesting because I said this on CNBC last week and I got

a little gruff from it from the commenters, but I'm willing to repeat it here, where I said that there's you know, an iPhone moment, it feels like an iPhone moment for generative AI, there just hasn't been an iPhone product yet. Like actually, when you think about concrete products that we've seen with this stuff, you have chat GPT, which actually the interest in chat chipt is declining if you look at Google search trends, which is, you know, it's not, it's not a perfect predictor, but it's roughly interesting. It's an interesting data point. And then, you know, I'm certainly not using it for as many Limericks anymore. I've got done with that. Exactly. It's almost like, it seems like there is a chance that the novelty has worn off and now we're really waiting for

what's going to happen i mean character i you know there's another startup that raised at a billion dollar valuation that you could like to speak with thomas jefferson or like historical figures and i i really haven't seen anybody using their their product at all and it's not charting as far as i can tell spanish jefferson is not that popular these days in case you haven't been paying attention right No, we have to obviously cancel him. But seriously, so do you think I'm off base here saying like it's kind of this iPhone moment without the iPhone product or am I being impatient? Yeah, I mean, I don't, you know, I'm bad at sort of predicting the future for sure.

Yeah, I think that like the jury kind of, you know, what smart people seem to say is like the jury's out on whether or not this, let's even assume that generative AI does become a huge thing. and put aside the question of whether we're all just getting too excited by a chatbot. That's a good question, though. Oh, yeah, it's definitely a good question. Like, I mean, it's, you know, it can't be used for very much specifically. Like, it gives you, you ask, like, how many CEOs of credit or UBS have there been in the past 10 years? It gives you the wrong answer, which is a real life example I did. And it made up some quotes from Masa when I was trying to get it to help me on a story.

But so put that aside, and I think then there's a question, like, well, does it actually, as venture capitalists would say, does it have, do you have a moat? Is there any difference between all these companies that are doing it? And I really don't know enough about the technology. There's a lot of people who would be able to answer that pretty quickly. But like, is there anything that distinctive in terms of, if we fast forward a year, will essentially everyone have a pretty similar product to Open AI. And, you know, if the answer is yes, then, or if there's three companies with the same product, then, you know, it's a lot harder

to see how you sort of make money off that. And then it's complicated because it really does open up a whole bunch of new potential verticals or sort of areas that you can go into. And it's hard to sort of play that chess out. Now, it's interesting because there does seem like there's a bit of a bifurcation among VCs, and I wonder if this is the case that you hear from the ones that you speak with. But some are like all in on AI, and we're going to talk about soft bank in a minute. That's one of them. But others are like, I'm not even touching this stuff. So Heath Rabeau, who is a VC, one of the big Miami crowd, was popping off on the fact that he doesn't care that AI companies aren't starting in Miami because he doesn't want to invest in them anyway. And he said

this on Twitter and I said to him, do you think there's no major business opportunity there or just too competitive. And what he says is there's no venture capital returns there in generative AI. Very interesting. I'm kind of curious what you think, you know, what you think in the VCs that you hear about that don't want in on this. Like, what's their rationale? Yeah, no, that's a pretty interesting thought. I have not explored that in reporting, but, but like I, I guess the general thing that's happening is, you know, and maybe another way of saying what are you saying is like the valuations have gone from like zero to a zillion overnight. And that that means that that, that, yeah, Even if you pick a winner, like, you know, say you invest in Open AI right now, and Open

AI does win, they're worth what, like $25 billion? Like, what's the expectation that, you know, in 15 years, do they, or 20 years, do they go to be a $100 billion company? That would sort of be at normal risk level. Like, are they, there's a pretty high risk that won't happen. Is it likely to be a $250 billion company? Because they came up with the first chat bot? Like, oh, maybe.

But there's not too many $250 billion companies. And so for VCs at sort of that level, they often are looking for like, yeah, a 10x return, maybe at 5x for that sort of stage of a company because there's only so many companies that are going to emerge and like you hope that one's going to win and sort of pay off the other bets of similar risk. That's sort of how that game works.

So, yeah, so that's the way of saying, when you don't, when every company that has dot AI after it is suddenly worth over a billion dollars, then it becomes really hard to play the sort of the VC game, which involves spreading 10 bets around and hoping that one does really well up from basically nothing. So it's hard to do that when you start at, as sort of a mature valuation for a mature company.

Right. And I think the crucial thing that it's done for venture capital and startups right now is it's giving them all a story. A story to go to LPs and say even in a time of higher interest rates, please trust us with your money. A story to go to venture capitalists and say you might be sitting on a lot of dry powder and being very careful about where you're going to make your bets because you need to justify to your Vs to your LPs.

But because we're an AI company, that's where you make the bet. And maybe that's sort of the shot on the arm because it did. seem all throughout at least 2022 that like we were about to head to a really bad place in terms of like startup investing in venture capital where it was like going to dry up it seems like this has been the story that's reinvigorated it or given it reason to continue or at least something to talk about on Twitter like I mean you know remember that there's you know X thousand you know very valuable or companies that raise very large amounts of money out there that that would struggle to suddenly convince anyone with a straight

face that they're a generative AI company. So, I mean, you have something like, you know, a trillion or so of value companies that are not AI companies that were funded by sort of the Ancian regime and they're still in trouble. That's not changing. But in terms of, yeah, venture capitalists are like, you know, don't ask about that that I just spent, you know, know, the world, the largest fund they've ever raised on, they're all, be like, because now over here, things are just going to be dandy, which could be true. Are you talking about Andreessen Horowitz? No. You know, Andresen certainly seems to be talking a lot about AI and less about crypto these days. Almost zero about crypto. Yeah, there's not as much coming on the A16Z

podcast about Web 3 or MFT. I mean, they were like, you know, new. numerous episodes of that thing last year about NFTs or two years ago, I guess. And now it's sort of like crickets on that thing where that had completely, you know, the fund was trying to convince the world that the entire internet was going to change to this weird tokenized energy intensive thing. So putting a bow on this, do you think we're going to see some IPOs? Because now the valuations in the public markets are better. Maybe for big tech, but I don't know, maybe not the Uber's.

It really depends. Like the overall, like the tech market isn't good. And if you, you know, compared to six months ago. And so if you strip out Google, you know, the big stocks, it still sucks. So if you were making, you know, a random, you know, shoe that you sold online to venture capitalists and think, and they gave you lots of money in 2021. Like, I don't think you can IPO tomorrow and get anything close to what you want.

But what we are seeing, maybe this sort of segues to another thing you wanted to talk about, is if you do have an AI tie-in, then it's probably a good time. And so SoftBank, for instance, is planning to, or appears to be planning a, fall IPO of arm which is the chip maker that it bought for 32 billion back in 2016 right and it's almost doubled in in value since then so let's let's jump into the soft bank well you we'll talk about it but let's jump into the soft bank topic so you have a great story out in the journal

recently about how masyoshi son who runs soft banks vision fund uh mentioned AI more than 500 times and quarterly and annual results presentations between 2017 and mid-22. Yet, out of the 26th generative AI startups valued at more than one billion, softbanks only invested in one. I mean, how do you miss that? Yeah, it even gets a little worse. Like, they don't have, they basically missed, you know, there's this huge public market frenzy for AI. And then, And they basically don't have any exposure to that either. So they have like 35 companies that are public and basically none of them are sort of caught in that wave largely because it is just these top few big ones.

A sort of funny twist of history is that they had, like at one point they owned like 4.8% of invidia back in 2017 and they spent like 4 billion on it. And then they sold it in 2019. And it is up 10 times since then. Unbelievable. Yeah, so talk us through. Like, is it, is this just like, I mean, they knew where it was going. They just didn't, they, I guess they didn't have the conviction to hold NVIDIA.

Oh, it's painful. Maybe NVIDIA wasn't talking about AI or the, no, the original, how do you miss this bad if you think of this is so important? It's painful. Like, if you go back to their slide deck, they showed investors, uh, in the, public back in 2017 when they were buying it, NVIDIA, it's like, why are we doing this? And it's like, NVIDIA makes the chips that power the AI revolution or something like that. It's like they actually got it right. Yeah. And then they sold. So, Nvidia, you know, that was a miss.

Now, in general, I think what this shows is sort of two things. It's, it kind of shows the the craziness about timing in venture capital. So basically, SoftBank has been, you know, more or less investing, you know, approximately gobs of money per quarter since 2017, gobs of billions. And then in mid, you know, early 2022, they just shut the spigot off. They're like, oh, well, now the valuations are down 70%. or maybe 50% by that point, it's like we realize it's a bare market, so it's a bad time to invest.

Now, what sort of any academic will tell you or even a lot of venture capital firms is you do really you want to be consistent. I mean, you can go up and down a little, but like a lot of the best ideas because they're so cheap, a lot of the best venture capital wins come at bad times because prices are are so cheap. And then also there's changes that you don't really see. So like Airbnb, Uber, Facebook, all of those were sort of borne out of venture capital winters.

So anyway, they shut the spigot off. At the very time they shut it off, that's when a lot of these AI companies got funding rounds, because VCs were trying to find something new to get excited about. And then Open AI app, released ChatGPT. And so then the lemming like frenzy goes crazy and everything jumps up.

And so SoftBank's competitors have spent the past five months just showering all these companies with or six months with money. And SoftBank has still been sitting there biding its time. And so they missed sort of a chance to get a big quick return and then also have missed the chance to get in these companies

as valuations have sort of been going up day by day. So that's one answer, and then the other sort of, you know, chunk of it is, you know, they said they were investing in AI, but they weren't. You know, the money was going to companies that convinced SoftBank that they had AI, like WeWork and Compass and GreenSill, which was essentially an alleged fraudulent lender. You know, I don't think the alleged fraud has much to do with AI, if I recall the court docks. And what are some other oil hotels? I mean, you know, basically any company.

They said it was every company was about, you know, leveraging AI. And then you look today and maybe they're using AI, but it isn't really reflected in sort of the share price. Right. There was a line that they had about like a large chunk of their companies were using AI in their operations. And it's like, hold on a second. You can use AI in your operations, but it doesn't mean you're an AI company. For instance, if I use ChachyPT to help me formulate story ideas, I could call big technology an AI powered company or a company that uses AI in its operations.

But I'm not an AI company. Well, I would like to write you a check. Exactly. I mean, there's a huge difference. You can sort of lie to yourself when you have this thesis and you're a lot of money and you're trying to jump in and jump out and try to deploy it. And that kind of seems like what happened with SoftBank. Yeah, I mean, there is a company that is just, they can't really catch a break.

And, but like, I mean, they are a, you know, sort of since 2007 or so, which was the last time they made a really good investment, which was really good. They have, which was, that was, 2006, it was the, the buyout of the Japanese arm of Vodafone, which has given billions of dollars to play with. probably tens of billions. You know, they really haven't been, like, made many great investments since then. And a lot of what they've done is taken the winnings from their past successes and lost them, making peak of the market investments or, you know, many peak of, they made many peaks of their own, with like we work and just flushing it down the toilet. it. So, yeah, it's, I think, you know, the numbers we use is they basically, they spent

$140 billion on at least two funds that were rhetorically fully devoted to AI, and they basically have nothing to show for it. Now, the big caveat there is that arm, the chip maker I was talking about a minute ago, that's, you know, if you asked analysts six months of ago, they would have said Arm would probably IPO for like, who knows, $40 billion. Now they're thinking like 60, 70. So it's actually a pretty bad return over seven years. Like that's not a good return. It's a bad return.

We're certainly below the market and below other chip makers. But, you know, I didn't make $30 billion in six weeks. There were six months. Like that's pretty hard. So that's pretty good. Like that's really helps soft bank stock. It's a huge amount of extra money that they can play with. So, you know, in that sense, they did, they have a big win, but it just wasn't, you know,

sort of the part of the startup investment frenzy that they were doing. How much does SoftBank matter, like, in terms, are they that still the biggest VC firm? Like, do they set the agenda for others? It depends how much they're going to invest. And right now they're investing nothing, so they don't matter in that sense. or virtually nothing. If they start opening the tap again, then they can really, you know, sort of move the market, which we've seen a few times before since 2017 when they launched the first Vision Fund. And so, I mean, just the flood of money that really does change the

dynamic, especially depending if they, you know, target at a specific area or not. I know you're not going to predict stuff, but just to wrap this section off, it seems like, in a way, private investment has been saved in this moment by the AI narrative and by the stocks that have gone up in the public sector. And perhaps the reports of this era's demise of frothy evaluations, of big checks before you have a product, maybe that was premature. Maybe they're still going to keep kicking as long as they can. Yeah, venture is this, it's like, it is the hurdiest industry. I can ever think of.

And so you have a lot of money sitting around there. And so then when I think they saw some green grass like spread out of the snow, people just like rush to it. And so that's what explains a lot of the hyperbolic enthusiasm for AI, beyond just the reality that it is really cool to create a limerick. out of your email. And this is where I'm going to take Masa side on this, because maybe he does have it right.

Like who cares about all these generative AI companies? The man says he's been investing in AI since 2017. Maybe it is the stuff that, I mean, I know I just gave him crap for this, but maybe it is these companies that put AI into play in health care or in construction or even in the restaurant industry and do it in a way that can even help them inch past,

their competitors. Maybe that's where the real opportunity is. Yeah, I mean, it is legitimately early, you know, as to the question of whether the Vision Fund won is going to make money on that. I mean, they've been selling down a lot of their old holdings. So, like, they don't own Uber anymore. They're, you know, a lot of them have gone bankrupt for some of them. So, but, but yeah, like, it is very legitimately early. And, and, you know, there could be a transformation that sort of unlocks one of these older, mid-sized money-losing companies, but, you know, I would sort of bet, like, history is more on the, it's either the incumbents or sort of like the, the upstarts that win, as opposed to the sort of like adolescent or middle-age companies.

Elliot Brown is here with us. He's a reporter at the Wall Street Journal and the co-author of The Cult of We WeWork Adam Newman and the Great Startup Delusion. In the second half, we're going to come back when you're going to talk about something that's been big and brewing under the surface, which is the risks in commercial real estate. Very interesting story that Elliot has written recently. And we also have some more stuff to talk about in the second half. So please stay with us. We'll be back right after this.

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15 minutes or less, and explain why you should care about them. So, search for the Hustled Daily show and your favorite podcast app, like the one you're using right now. And we're back here with Elliot Brown. He is reporter at the Wall Street Journal and the co-author of the cult of we. One of my favorite books about tech. People might say, oh, WeWorks not a tech company. It's a tech book. One of my favorite books that I've ever read about tech. Go pick it up if you haven't read it before. Elliot also wanted to say thank you. You pinch hitting here in the last second, July fourth podcast episode. So this is the second time you've done it this year. And I just want to say I'm grateful for it. Thanks for my undying patriotism. Yes, exactly. You are, you're in England. So you're

kind of, you're in the place that we broke off from. Yes. But anyway, it's in the past. It's in the past. Let bygones be bygones. Too soon, Alex. Too soon. Did you see that Joe Biden said at the end of this one of his speeches, he goes, God save the queen. Anyway. Let's talk about commercial real estate. Okay, so one of the other things, one of the other big vulnerabilities in the economy and something that you've looked into is the fact that commercial real estate might be in trouble. Now, one of the things that people have been talking about is, okay, post-pandemic, people are going to be working from home, and they're not going to come back to the office, they're going to break their leases, commercial real estate holders are going to be left holding the bag.

They're going to go to banks. They're going to default. Economy falls apart. And maybe that's going to happen. But there's also like another side to this, which is the debt that they hold to build their buildings. And in an age of rising interest rates, it's less safe for them than it's been in the past. They've been operating with no constraints and now there are real constraints that are being placed upon them, which might shake up their business, which is something I didn't fully appreciate until I read one of your most recent stories about this. But do you want to just take us through exactly what's happening in the commercial real estate world right now and how concerned we should be about the potential for that space?

to collapse or at least, you know, maybe implode a little bit? Yeah, it's actually pretty interesting. So I'd covered property before I covered venture capital. And so, you know, I haven't been in New York, then to San Francisco, and now I'm here in London in this sort of broad finance role. So it's easy to sort of at least pick up on some of the commercial real estate stuff. And, yeah, I mean, that is becoming the sort of. deflating bubble, popping bubble of the moment, I'd say it's, you know, there's two very

separate, but, you know, when their powers combined, dangerous forces going on. So one is pretty familiar for folks for the past few years, which is that, you know, work from home has lingered and is changing the desire to be in the office. And so that means, like, offices are a huge part of the commercial real estate sector and the biggest. And they, when you have lower occupancy, that means lower rents. And when you have lower rents, that means that landlords don't get as much money. And then when landlords don't get as much money, that means that they might not be able to pay their loans, which means foreclosures and sort of, you know, a lot of bad things.

So that's, you know, point number one. And then point number two is just completely related to interest rates. So a lot of landlords borrowed gobs of money when interest rates were really low. And if you had a good, you know, office building in Manhattan, you could get, you know, a 3.5, 4% mortgage. and now mortgage rates are higher and it's probably six or seven percent and that costs you a lot more money and usually when you do it you you would pay for that with the rents coming in you'd pay your mortgage off with the rents coming in and so what's happened now is the rents are going down

and the amount you owe the bank will go up and so it either goes up just on a monthly basis because it was a floating rate loan or, you know, more likely when the mortgage comes due, you need a new mortgage to replace that and rates are higher and the bank's much more skittish and sort of everyone loses. So, yeah, there's a worry that because these things happen slowly, it's commercial real estate is, takes a, as I learned last time when I started covering this, it's an iceberg or a Titanic, you know, slowly sink, or aircraft carrier, it takes a while to turn. But there is a worry that it'll sort of cascade. It hurt a lot of landlords, then hurt a lot of banks. And then our banking sector is really dependent on sort of the strength

of the commercial real estate market, especially the regional and local banks. So why don't you tell the story of one firm that you profiled SBB out of Sweden and what's happened to them in this moment. Yeah. So, because I'm in London, you know, looking more toward Europe, and my editor actually had the idea of this sort of profiling this guy in Sweden who became known as the, was declared the real estate king of Sweden. And he built out of nothing in a really short amount of time, a very, very large commercial real estate company. And it wasn't interested in skyscrapers or offices. It did this weird thing where it was essentially

buying town halls and police stations and preschools from, and regulated apartments from the public sector and other buyers and then leasing it back to them. And so it became, I think it was like eight, in the stock market, it was worth like 16, 18 billion at its peak. And they had borrowed. this whole thing was financed by debt.

And there was this really, really kind of frothy bond market in Sweden, where, you know, seemingly it would give anybody money at really cheap levels. And the whole overall annual interest rate that the company was paying at the end of 2021 was 1.5% which is just wild. I mean, Alex, like I would not. you know, I would demand higher rate for you if I gave you $10. Like, it's, like, that's no friend's rate. It's just really low.

It's basically nothing. And so, you know, now you'd probably need, one would probably need, like I was saying, like five, six, seven percent. So, lo and behold, the real estate built on very cheap debt suddenly had a problem when the price of debt went up. You know, since then, the empire, when we last wrote about it, it was wobbling. They were trying to sell things and, you know, not get a debt downgrade. And then they did get a ratings agency downgrade of their debt to junk.

And everything basically fell apart. Wow. So that the CEO, the real estate king, Ilya Batlan, is out of the company he founded, as CEO at least. and, you know, there's sort of like lawsuits flying, and they've been trying to, you know, fire sale their properties, and the stock has gone sort of a lot closer to zero. So that one sort of fell apart very quickly. I think the worry is that there's going to be, there could be a few of those or lots of those in the U.S.

And one of the things that happen in commercial real estate is it's sort of all interrelated. It's like there's a lot of similar buyers. and sellers. And so, you know, if one guy can't sell his building and the building's value plunges, then everyone's like, oh, I guess my building is not worth much either. So it can, it can cascade. Yeah, it's a little scary. I mean, if you think about where, like, the real shock can happen. We've already had banks go down without any of this stuff falling apart. Right. So, thinking about where the next shock can come from. Sorry? Yeah, like a bunch of tweets can cause a bank to fail. Imagine what happens if a real estate collapse happens. Well, okay.

caps, well caps, it's the problem. Hey, what do you think? So this, I think, you know, tomorrow the next day, the new Facebook competitor to Twitter is coming out. Are you excited to use that? We'll see. Yeah, no, I at least want to give it a whirl. Again, bad at bad at predicting the future. But I do remember I got very excited when Google launched Google Plus, was that what it was called? It's on social network, because it seemed, what whatever reason I'd like to is like, oh, they'd like this more than Facebook. Tech companies aren't evil. And yeah, that bombed pretty quickly. So who knows? Yeah. And I think the thing is that with Google and Google Plus, what they did is they wanted to design like, like basically

imagine it from the beginning. And actually one of the things that we've seen in social media is sometimes the best product is somebody else's product. Right. So Facebook is the master of this. Yeah. Sorry? They copy it to a T. To a T. Facebook, I mean, Facebook's done this successfully with Snapchat stories with TikTok on reels. Not, I think people who are underestimating what's going to happen with this new product threads are failing to comprehend the long history that Facebook has of doing a very good job of copying and then implanting into their products. And there's an added level right now because of the Zuck, Elon Musk, animosity.

and I think that if he was thinking if Zuckerberg was thinking about how much should I actually push this in the product now after Elon Musk has you know said that he would you know beat him in a steel cage I think that this is going to be front and center in the product that's just my my speculation we'll see what happens it's going to be fun yeah I'm I'm looking forward we will we can tweet at each other or whatever yeah I'll throw it at you I'll thread in you. Is that the way that they... No, I get it now. Actually, really, if that's the case, it really is a one-to-one copy of Twitter. Okay, so we work. One last thing about commercial real estate, $553 million market cap. What do you think about that?

Yeah, it's, what's their stock at, like, 22 cents? And how much do they raise? How many billions? They, you know, SoftBank alone has lost 12 billion plus on it today. Its peak valuation was $47 billion. So, well, that's not a good look, is it? No. I don't know what's going to happen there.

It's, they've sort of been, you know, they were hit by the tech bust, essentially. They were hit by the, they were a creature and victim of the tech bubble. and now sort of unwittingly have been, you know, hurt by the real estate bubble or bust or whatever you want to call it. So, like, they're kind of chasing rents down, basically. Like, rents keep going down, but they keep having these fixed costs. And so there's not much demand for any office space. And so you're like, well, why wouldn't I just rent this random office from this tech company that left it? Why should I pay you for your kombucha? And, um, and, um, um, and, um, um, I don't even know if they serve Kambuch anymore.

Last time I was there, they did. Yeah. Vibes were good. Salesforce, we work. The vibes are good. Yeah, I mean, it's, look, it continues to be nice office space. It's like, the problem now is sort of the basic business model of like, well, they're, they signed leases with landlords at one rent, and then they charge you a higher rent,

but, you know, it turns out rents are falling, and they're still stuck paying the higher rent. So they have to renegotiate that. that's hard. It's time consuming. Meanwhile, rents keep going down. So not a great place to be right now. So buy the dip is what you're saying. By the book. By the book. Okay. I'll take the book and the day. Last thing I want to talk about, I want to bring attention to a very important issue that's personally impacting you. Evan Gershevik is your colleague. He's currently imprisoned in Russia. I wanted to see if you could you know, to share with our listeners both a little bit of the details of your friendship

and what's happened to Evan, if you could. For sure. Yeah, an colleague and friend. So I met Evan when I, well, I guess to start out, for those tuning in, it's, yeah, Evan is one of our Russia correspondence reporters and he was captured in March by the Russian FSB, you know, the KGB or whatever, their security services and, you know, detained on charge of espionage, which, you know, for the record, are completely untrue. And so he's basically being held hostage by Vladimir Putin

to, you know, presumably as a bargaining chip, you know, with the U.S. or the West in the war. So it's extremely surreal. He, we became, we became friends pretty quickly. He and I moved here to London at a similar time. So basically I moved here because I was moving here for work in March 2022. Evan had just gotten here a few weeks earlier because at the time he needed media accreditation to work in Russia. And meanwhile, while he's waiting here at our big office here, and he had just been hired

by the journal, he, you know, war breaks out. And so, you know, then he sort of stuck here. So, you know, we'd get pints together, we'd get cheap Indian food. He, you know, sort of quickly, he struck out, it struck me as somebody who just like really quickly just slid right into the newsroom. And this journal is like a really hard place to figure out. It's, you know, there's a zillion different bureaucracies you have to navigate and, you know, some sharp elbows.

And Evan just was this smiley presence who I just saw him sort of like bounding around the newsroom in his new balance and like the one sweater he'd wear every single day. and I was like, who is this guy? And so, I don't know, we just became friends, and he's super inquisitive, he's super funny. He loves to gossip. He's a real chatty Kathy. And so, yeah, I mean, he's just a really magnetic presence.

Anyone sort of love him. And then, you know, he, starting in the summer of 2022, started tiptoeing back into Russia. I mean, in part, I think he missed it, but like he, I think he knew it was a high risk thing to do, but, but is, yeah, he's a very committed journalist and like to the sort of the reasons that any good journalist is, I mean, he thinks the people need to know things and, and that his job is to inform it. And there were very few people willing, few Westerners willing to go into Russia, willing or able to go into Russia to do all. on the ground reporting and and so he he was doing that for you know two three weeks out of five um in until he was uh until you know he was detained and and imprisoned where he sits now and so i guess it's hard to say hopeful or not but just talk a little bit about you know it seems like there's been some progress and and you know what do you think people i mean of course

we have to in these situations it's very easy for people to sort of disappear and so it's important to bring attention to this and that's what we're trying to do here but curious like if you could give like a sort of where you where you think his case stands right now and if it is is just awareness the thing that people can do or shows a support what we're like if people are interested in helping him i i mean so what do i know it's limited yeah sure like i you know i mean with with the disclaimer that there's a very small crumb of news literally today. We basically haven't heard anything from the Russian side with that asterisk since his capture. Other than that, they're charging him as a spy. He's going to go through a long trial. And so our sort of approach has been here

of the journal here in sort of, you know, the press in the West to, to, yeah, keep him front and center in the public eye because at least the thought is that, you know, it needs to be on the tops of minds of Biden, the West, you know, EU, NATO countries, when, whenever the time comes to negotiate with Vladimir Putin. So, you know, because we think it's the most important thing ever. And, you know, I would, yeah, like, say we should trade the whole treasury if need be for Evan. But they don't put me in charge of making those decisions. So that's sort of the approach.

and sort of, you know, we wear like free Evan pins and t-shirts and put free Evan signs in our windows and sort of hope that people know who he is because, yeah, it is. Like you said, it's really easy to just, you know, forget about it because there's not really much news. Though that said, there was, you know, there's basically no information, but it's something. You know, today there were reports out of Russia that, you know, Vladimir, Putin's spokesman, I believe, said that there are certain contacts between the Russian state and the U.S. over Evan. I have no inside info on what that means, but, you know, that's

something. And up until now, they've basically been saying, you know, there won't be any negotiating. We're signaling. There won't be any negotiating until he's convicted and sent you know prison or labor camp um penal colony um and which can be a very lengthy process there especially on espionage charges yeah well i'll say this our hearts are with him and uh we hope he gets freed soon it's not uh should not be imprisoned for doing journalism no matter where you are in the world no matter what the situation so appreciate you sharing a little bit about him and I think like you're you're coming on here and talking about who Evan is as a person right is sort of like gives a little depth to like the people the person that we see in the news

so I appreciate that yeah and if I'm more than happy to and if anyone like he likes getting mail and so you can you can go to just Google sort of like free Evan Gerskovich I think it's free gerskovich.com but Google will correct the spelling for you. And, you know, his friends who were running that made it make it super easy to send him a letter and they work on the translation and sort of because it has to be in Russian when it arrives there. And, you know, he just, he likes getting mail, likes sort of hearing about if stories he wrote

touched anyone, because he wrote some really good stories, then that's a nice thing to mention too. Elliot Brown, thanks so much for joining. Thanks for having me. Okay, thank you. Please come back. Thanks, everybody, for listening. Thank you again, LinkedIn for having me as part of your podcast network.

And we'll be back on Friday with another show. Breaking down the week's news, we'll probably have a recap on what happened with threads. Plenty more to come. We have a bunch of really amazing interviews coming up the next few weeks, flagship interviews as well as our Friday breakdown. So please stay tuned for that. If this is your first time listening and you want to hit subscribe, that would be awesome. if you're a long-time listener and want to hit the five-star rating on Apple Podcasts or Spotify,

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