Big Technology Podcast - Optimism In A Tech Downturn — With Packy McCormick and Austin Rief

Episode Date: May 18, 2022

Austin Rief is the CEO of Morning Brew. Packy McCormick is the author of Not Boring on Substack and founder of Not Boring Capital. The two join Big Technology Podcast for a discussion of why the economic downturn has hit tech disproportionately hard and how bad it's going to get. They also look for places of optimism, and areas of opportunity. Stay tuned for the second half where we discuss whether their own investing has changed, how their media businesses will get through this moment, and the latest on Elon Musk's plan to buy Twitter.

LinkedIn Presents Hello and welcome to the big technology podcast, a show for cool-headed, nuance conversation, of the tech world and beyond. We are in the middle of or the beginning of, of what might be a very long downturn. And it's been amazing to hear people go from any side of the spectrum to, we're about to bounce back up, to be prepared for five years of depression. Of course, the takes on Twitter and elsewhere online are totally devoid of nuance.

And so why don't we spend the next little bit breaking this stuff down with the appropriate nuance and to do what we have, I think, one of the most dynamic duos in tech, two guys who used to do Twitter space together. I don't know if they still do it, but anyway, I enjoyed it so much. I thought, why don't we get it back together and we do it here on the podcast? Joining us today is Pachy McCormick, the author of Not Boring on Substack and founder of Not Boring Capital and Austin Reef, CEO of Morning Brew, which you all know very well. Guys, welcome to the show. Great to have you.

Thanks for having me. It's great to be here. This is great. So nice to bring the band back together. I'll kick it off with this. Okay, so I was just checking today. You know, put the downturn in context. The NASDAQ is down 25% year to date.

Bitcoin is down 37%. Ethereum is down 46.5%. Zoom, Spotify, are all down 50% to 70%. And of course, we all know what just happened with Luna and Terra, the cryptocurrency that went from around $18 billion in market cap to effectively nothing. What's happening here and how bad is this going to get? Paki, do you want to kick it off? Tough, tough way to start it off and tough early question.

I mean, the obvious kind of what's happened here is a couple of things, right? One, after a decade, but particularly after a couple of years of cheap, easy money, low interest rates, all of that. We got inflation, the Fed got scared, and rightfully, as they probably should have done a little bit ago, started tightening. And so any growth asset that threw a new discounted and cash flow model, with a low interest rate, discounted of those future cast flows in a pretty favorable and aggressive way are now worth a hell of a lot less. And so all these valuations that have been bumping over the past couple of years are coming back to Earth and progressing the mean and then crashing kind of through the floor of that mean. Things that were super attractive

to people a few weeks ago. I remember people saying like, you know, even here, even this expense, if you got to buy Shopify and then Shopify crashes and then all of a sudden, everyone's like, yeah, obviously you can't buy Shopify at these levels. There's still a lot of pain to come. That sentiment shift to me is the kind of weirdest and most interesting thing going on. And then on top of all of that,

the bearer sentiment, people getting a little bit scared and discouraged and wondering when the rate hikes are going to stop and all of that. US, which is the terror US dollar, a stable coin, undercollarized algorithmic stable coin, launched by Terra, the L1 blockchain out of Korea and Duquan.

So a cryptocurrency pegged to the U.S. dollar. Cryptocurrency algorithmically pegged to the U.S. dollar, theoretically pegged to the U.S. dollar, gets attacked, and absolutely shits the bed, falls apart, goes, you know, breaks to the peg, goes to 90, 80, 60, bounces around. But if you break the peg at all, it's bad news for something whose whole job is to be pegged to a dollar. Luna, this thriving blockchain ecosystem goes to pretty much, as you pointed out, zero and kind of just confidence in this whole thing gets even further shaken. I guess one last point here. I know I'm rambling on this whole thing, but one last point here is I just my favorite

part of all of this is that for two years, for a while, for a decade, really, people have been like, you know, the crash is coming. Watch out. The crash is coming. Of course it's coming. I can't wait to buy stuff. And then it comes, and you can never predict the exact kind of reasons it's going to come and, like, the things that happen inside of the crash. And so then you see UST and people get really, really, really scared. And people don't want to buy when they said, like, all along, I can't wait to buy into cheaper prices. So I don't know. I mean, I get it, but I think it's just a very funny stance that people are now taking. Right. There have been some tweets that like pointing out that VCs have correctly predicted like nine of the past two recessions or something

like that. Yeah, I think that was about Bill Gurley, who obviously is great investor, but I think someone tweeted like Gurley's predicted five of the last two recessions or something like that, which was, which is great. I think one more thing here also is, is I think there's a reevaluation of, of the reevaluation of consumer preferences, right? COVID hits and we see that chart where it was like, you know, direct to consumer preferences have changed 40 years and 40 days. And, you know, there's all the quotes like in decades, you know, in decades, nothing happens, but then in days, decades happen, you know, there was all of that sentiment. And Peloton's through the roof, shopifies through the roof.

Everyone's living on their phones, their computer, the Metaverse, you know, clubhouse is worth $4 billion. And I think in reality, over the last two years, maybe consumer preferences change, you know, three, four, five years into the future, but it's not 40 or 50 years. It's, you know, people are going back and they're shopping at the grocery store, and they're not just instigarting. And so preferences have changed, but to what extent, right, is it Peloton up? 1020x? Like, probably not. But these companies invested as if consumer preferences had changed

forever. And I think a lot of these companies got excited off of the combination of cheap capital expectation of consumer preferences changing. But then also, they were told to do so, right? Investors, they were like, you know, just grow at all costs, grow at all costs. And now you hear every investor, well, like, you need three years of runway. Well, it's like, well, two months ago, you were telling us to grow at all costs. And so I think there's a lot of uncertainty. There's a lot of confusion and a lot of uncertainty right now. Yeah, the investor threads and belt tightening and all of that kind of stuff is very funny to watch. And I get it.

You can't now in this market be yelling to keep spending and keep growing. The market has changed, but it's just a very weird thing, the same people a couple of months ago who were yelling for growth are now yelling for profitability or like, how do you even expect a company to adapt in an environment like this where the whole thing has been top line? maybe you haven't even turned on your monetization engine, and then all of a sudden you're expected to definitely be generating revenue if you want any chance at raising right now and maybe be profitable or at least have like a very, very clear path to profitability. It's a tough pivot for companies to make. No, I don't think a lot of companies are going to be successful doing it.

I think a lot of companies are really going to struggle. Payrolls through the roof, you know, they're spending so much on marketing. And a lot of companies got funded that just shouldn't have gotten funded, or at least not in the current business model. they had. And I mean, the system actually, like, you know, you can talk about like people acting irrationally. But I think what's so interesting is every actor in the system actually acts very rationally, right? LPs of all this capital. So they have to deploy it, right? So now you're raising bigger and bigger funds. What are you not going to raise a bigger fund? But then

you need to invest in more companies, which bids up prices, right? And then companies have bigger balance sheets. They're going to, you know, you're not going to sit with, you know, capital needs to grow at 20 to 30 percent IRA against your balance sheet. And so every actor, acting rationally, but the whole system in itself, I think acted pretty irrationally the last couple of years. And now it's like, how quickly can the company of the founder of a company that was burning $5 million a month? How quickly can they get to cashlow positivity? And I think the answer for most of them is going to be they can't. Austin, as a founder and CEO, how are you, like, how do you think about a market like this? Obviously, you're in a very different

situation, but imagine that you had not gotten acquired. Like, do you stick to your guns? Do you actually try to switch everything on a dime? Like, what do you do in a market like this? And just for context, Morning Brew got acquired by Insider for $75 million, if I'm not mistaken, a couple of years ago. So good timing. Go ahead. Yeah, a lot of people for the last 18 months are call me an idiot. No one's come back recently. I've been like, oh, maybe you had decent timing, right? You can never time the top. But, you know, I like to say, oh, I would never have been in that situation. But I probably would have been, right? It's so easy to get caught up in the hype. I think, though, a lot of the companies, and this is terrible, right? And obviously,

anyone losing their job sucks. Like, I just want to put that up front. Like, it is awful. But if you're burning a bunch of capital, I actually think some of these companies that are doing early layoffs are the ones that are actually starting to act discipline, right? And I think they're the ones that may be okay. Right. If your company can't support 500 people, you can't have 500 people. And so I think some of these people are actually getting ahead of things. they're actually doing the right thing, even though it really sucks. And maybe they've done the wrong things the last two years. So I think you have to, if you're going to act,

I think you have to act pretty swiftly and move with conviction. I hear a lot of, again, there's uncertainty out there. And I think, you know, you want to be as default alive as possible. You'd extend your runway. And so I think it's going to take, like, fairly drastic measures for some of these companies. But then you look at some of these public companies. And Robin Hood, if you look at their enterprise value, right, you subtract the cash on their balance sheet, they're only worth like three or four billion

dollars, right? I think it's like what, $10, $12 billion mark cap, they have $6 billion. So I don't know. I could totally see things balancing back. But yeah, I think you have to act pretty swiftly and make sure you're going to be okay for the next three to five years. You have to assume it's going to be a longer time horizon than maybe even anyone's talking about.

I want to get to how bad it's going to get, but I actually found something interesting in both your answers. And maybe this is why you guys play off each other so well. So, Austin, it seems like for you from your, Your point, like people, you're pointing out how people were overly optimistic about the shifts we saw during COVID. Paki, your point, you're saying people are being overly pessimistic now in terms of like, hey, you're going to buy Shopify on the way down. Why aren't you buying it? Now it's cheaper than you ever imagined. So let's talk a little bit about like why some of that, why that is. So Austin, like I'm curious from your perspective, why do you think, and then Packy, we'll get tea, but why do you think people were so, it seems like a, like a, their brain locked on something that it shouldn't have, which is like, we were never going to be Netflix nation where all we did was Netflix or we were never going to be Amazon Prime was never going to continue to grow the way that it was when everybody was locked at home. So why do you

think people in the market in particular got locked on this idea that, you know, we had changed 40 years in four days or whatever it was where like all rational evidence would say, there's a shift happening here, but it's not going to be, you know, this, you know, light switch flip like a lot of people imagined yeah i think it's a couple things it's tough because i i would consider myself being optimist but sitting here i guess not physically but in this in this uh zengaster next up happy i look i probably look like the biggest pessimist in the world um it's really easy to get caught up in the hype and and there i mean yeah like there probably was a chance i think a lot of people believed that people were going to spend hours on clubhouse a day

or people like you know people were going to spend their days on their peloton and cancel their gym membership I think people actually believe that. And you have to look for, you know, yield somewhere. You have to look to return somewhere. And with interest rates at zero and, you know, increasing inflation, like, where do you put your money? And you put your money at companies that you believe in five years can be spitting off enormous amounts of cash flow, right? And people did believe it was Amazon. There was just so much money out there, I think.

I know the government was in such a tough position, right? Because we didn't really know it was going to be the impact of COVID. It's so easy in hindsight to be like, oh, you know, like judge, you know, and there was a lot of stimulus at the beginning. Then there was some questionable, you know, later rounds of stimulus by the Biden administration. I think a lot of people are starting to question, like, did we need that last whatever, $2 trillion? But you have to put money somewhere because you don't want your money to shrink 8% a year with inflation. Now, of course, in hindsight, you were better off letting your money shrink 8% a year as opposed to putting it in Peloton or in Shopify. But a lot of optimism and a lot of just like, you know, looking to give.

yet to make short-term money and FOMO. Austin, you've been doing like this series of tweets, which it's like, you want to learn how to make a million dollars, put $10 million in stocks, and then just wait. And you're like, you want to learn how to make $100,000, put $10 million in crypto and wait. So anyway, so good segue to you, Paci. So what do you think is going on? Do you think we're being overly pessimistic now? Also, like, when I had tweeted that you guys were coming on the show, someone like got in my DMs

and was like, you know, Packy is the biggest techno-optimist. he's got to answer for it. So how do you, what do you think that you were too optimist? What do I have to answer for here? So, yes, I mean, I think I'm, I mean, today in the middle of this bear market, I wrote another optimistic piece. And my point has never been. And we can look back at some of my pieces.

Maybe I wrote about how Stripe was undervalued relative to comps and stand by that in the market at the time. But my points have like rarely, rarely, rarely, rarely been on the prices of the assets. There was this great. I think it was a Morgan Housel tweet. about the fact that a lot of the arguments on Fintwit and Twitter in general are people with different time horizons yelling past each other. And for me, I think bubbles are a really fucking useful thing.

And if some LPs lose money and some VCs lose money, like, oh, well, that's kind of part of the process. But I think that the past decade has been really, really good for funding innovation in a lot of important areas. I read about this today. But the fact that there's five real contenders in the EV race and then they've spurred the big car manufacturers to get into electric vehicles, that's a really good thing. The fact that we're now on the cusp of being able to manufacture things in space and there's satellites kind of everywhere out there and there's a real path to be kind of on Mars within like a decade, that's really cool. The fact that there's been a bunch of experiments run in Web 3, some useful, some not, I think it's a really, really great thing.

So I don't know. I'm still a techno optimist here, and this is just kind of how the whole thing works. It feels very, very, very much like we're riding the Gartner hype cycle where we were at the peak of inflated expectations, and now we're crashing into the trough of disillusionment. And then some things will die and some things will kind of continue to go, but we're continuing to make progress. I don't know. I think, like, I'm still a techno optimist in a market like this. Does that mean that we couldn't crash another 50%? I don't know. I don't really particularly care. I mean, like the most important thing to be, I think is like stay. Don't get too levered. Don't get in a position where you're going to wreck yourself by expressing your views. But otherwise, I don't know, I believe that people are out there building a ton of unbelievable things. And the fact that 13 years ago when I came out of school, all the smart people were going into finance and now all the smart people are going to tech is like just a good shift generally. And so like the more of that that can happen, the better. And I think this next wave is going to be even cooler as people kind of like move more into kind of the harder atom side of things. I did like how you wrote that. The tech bubble is very different from a banking bubble.

A banking bubble, you get nothing out of it. And in fact, it ruins people's and people's livelihoods. And with a tech bubble, you can actually get some innovation out of that. I was reading your story this week. And there's one interesting part that I wanted to bring up and kind of talk to you about. So you said the weirdest part of a bear market is that the people who are, rooting for something other than the people to succeed and humanity to progress are the ones winning. So let me ask you this because, you know, is it also, I mean, you know, that's one

way to look at it. Another way to look at it is that the people that are rooting for rationality in the market are the ones that are successful. And, you know, we're definitely going to get tech innovation out of whatever, whatever happened in the past 10 years of bull market. But we also had stuff like tariff, which brought, you know, built this 18 billion dollar, you know, valuation based off of essentially vapor and is going to end up housing a lot of investors who, due to this lower interest rate policy or zero interest rate policy, we're just scrambling to find places to put their money. So isn't a rational market better for everyone, especially like the little guy who's like trying to find a way to take whatever money they have and invest in an asset that

will, you know, beat inflation? Totally. I mean, I think a rational market at this point is kind of a myth, right? I do think that we're going to get over excited and then we're going to get over sad and pessimistic and then we get over excited again. And the idea of just a market like where it makes, if the average retail investor knows exactly what to put their money into for the best risk adjusted return, like either we have built the best fintech products in the history of the world or like something has changed really, really dramatically. I think that's always going to be hard. Certainly I think it's, I wrote this too, that in a market like this, even the chance that there's something like a Terra that comes out is much,

much, much, much lower. And that's a good thing. Like, you don't want the BS projects. I'm particularly personally excited to not get nearly as many DMs from scam NFT projects asking me to promote their thing. Like, there's a bunch of shit in the market that, like, just will go away, which I think is a really, really good thing. I think I probably just spend too much time on Fintuit, frankly, and like all just like the super negative, shitty pseudonymous accounts. Like, those are the ones that I'm kind of talking about here where it's not just like, cool, I'm like super happy that we're returning to a place of rationality. It's like, this fucking idiot company and it's just like really negative. And I just like don't like the sentiment that happens in an

environment like this. And so that's, I think, what I was referring to. I think, you know, the more kind of, the more we can get the scans out of the market, the better. But there's also a little bit of you have to take the bad with the good, I think. Yeah, for sure. Austin, you have been sharing some thoughts about, you know, where we are now and how bad it can get. So recently you wrote that we haven't even seen the start of the layoffs, downruns, and capital conservation efforts. And, you know, you also said it might feel like carnage, but the NASDAQ is still up 42% from January 2020. That was a couple of days ago, so it might not be as high. And there's a lot of potential free fall left.

So, Austin, how bad do you think this could get? because it seems to be that, you know, from the thoughts that you're expressing that, we have plenty far to go. Yeah. So I'm not an expert, right? I'm not a market expert by any means. But I just think if you look at the way some of these companies are trading, right? Like, yes, you know, some of the SaaS businesses, right?

Like the, what is like the Bessemer index is down, I think, but like below its average, right? Like it's getting pretty low in terms of multiples. But you look at some of these, like the mega caps, right? You look at some of these bigger companies. they're only down like 20, 25%. They're still up a ton from February 2020. So if you look at it based off of that, there still is room to dip.

And I think we're in such a bubble right now, right? Like, you know, the three of us and just people on Twitter, you go talk to, I go talk to like my family. No one's talking about like a recession, right? At least no one I know, right? Like I bring it up and people like, what are you talking about? Like people think I'm like crazy. People think on like a conspiracy theory.

And, like, yes, people's 401K is starting to get hit a little bit, but it really hasn't even, like, hit the mainstream. And I think if the domino effect really hasn't started to fall, a couple of the really, really high-tech growth companies have laid off a few people. But if these stocks remain down, 50, 60, 70, 80 percent, I just don't see how there aren't ramifications beyond what we're, what we see now in terms of layoffs, in terms of cost cutting. I think it's going to continue. We're saying that, of course, in the venture private markets, but we'll continue to see what happens in the public markets. And then it's like, okay, well, but if those people, you know, get laid off or leave their job,

but then what happens in terms of, like, consumer spending. And, you know, what I haven't seen, I've seen a lot of people who work at really high-tech, fast growth companies whose shares have had been value or even more. They're lucky, yeah. I haven't seen those people, though, spend less money. I haven't seen those people move into the new apartments, start selling their apartments.

So, like, is, you know, is consumer spending going to change and what is going on with the consumer credit markets, right? Are banks lending less money to consumers? Now, their shares are down 50, 60, 70 percent. I don't know, but I think that could be a real concern if people don't actually change their spending habits when their incomes or their net worth is dipped 70, 80 percent. So when it comes to how far it could go, your perspective is like, you know, we, well, it's interesting because you're like, basically like, well, we haven't really seen anything yet. So it seems like, yes, there's, this could get bad.

I think it could get much worse. And I think what's bad is like right now we are in this, this, we're in uncertain times, right? Like I think typically like once you're like in the in the, okay, we're in a recession, right? Things could be better. But right now like especially, you know, like as a media company, we're an ad based business. Right. So I'm really speaking more to our, to the way media companies work and ad based business work is what slows down the flow of funds into marketing, right? Whether you're Facebook or Twitter or morning.

Brew? Uncertainty, right? It's not it's not down markets. It's uncertainty because, you know, you, oh, let's just pull our marketing for two weeks to see what happens, right? Like, let's wait and see. And I think that that flow and that uncertainty can cause issues in the entire media market. Again, like not just smaller publishers like Morning Brew, Facebook and Twitter and Snap, they're all, you know, their ad businesses are in the New York Times said too. I mean, all these big companies or ad businesses are not growing nearly as fast as they work. Yeah. Packy, what do you think? I mean, is there a chance that this doesn't go according to some of, like, what the conventional wisdom is and, you know, bounces back quickly? Basically, is it going to, can we get a

V recovery here? I think of your recovery stuff. I mean, I think it's almost certain that things will not go exactly according to conventional wisdom. But to Austin's point, they could get a lot worse, right? They could get a lot worse. They could get better more quickly. That, you know, it's hard to see a path to kind of either one of those. But, you know, it has been kind of shocking how quickly everybody has kind of come to agree with each other on everything. And so, you know, that might work itself out of the system more quickly. If everyone's on the same page about exactly what's happening and what's going to happen, it's a pretty good chance. It's not going to happen that way. But I have no idea how it could get very, very bad. Like, do you leverage

and this is how like bankrupted start or like kind of crashes continue is that people like have to go risk off because they don't want to lose everything in case it does get a lot worse. But again, I would just say like not financial advice, just get yourself out of a position where if Facebook goes down another 25%, like you're going to be in huge financial trouble. Right. And I also think there is a bit of a self-filling prophecy there, right? So if, you know, I'm sure you guys saw the report that crafted, right? They're encouraging everyone to extend their runway and be, you know, it's just

we're in this for two to three years and so it's like okay well what if we're not but we're actually putting like what if we're not headed for that but we're actually putting ourselves into right conventional wisdom in venture now is extend runway extend runway that's going to naturally change things right so there is a little bit of okay maybe we're not even headed there but our actions right now will cause us to get there and a hundred percent it is it is and it's wild how everybody like there is i think some and this is like all colored by my own perspective like being on the opposite. But like some responsibility theater going on right now, I think, where like GPs are signaling to their LPs that like they're the responsible ones and they're telling everybody to

tighten their belt. And like in times of crisis, you better give money to craft and founders better work with us because like we know what we're doing in the situation. But they are very smart and have a great track record and are respected. And so at Austin's point, people are going to listen to that. And so like, yes, there will be layoffs. People will be spending less on advertising. Any kind of like side experimentation they're doing away from the core product will get cut, like all these things that will inevitably lead to some sort of slowdown or some sort of pain come from people who are respected kind of giving this, this kind of advice. I think the other interesting opportunity, and this is not for the faint of heart, but is for

some companies to say, like, cool, we're in a pretty good spot, actually, we're going to lean into growth, we're going to steal customers, we're going to steal market share. So the fun part about markets to me is that they're so dynamic and that every action has a reaction. And so some people are going to take advantage of what's going on right now and come out of this a lot stronger, too. And so we're going to get crashed in all of that. And by the way, that is my, that's my, my hope and my, my goal with Morning Brew, right, is, is to, you know, we run a really, really healthy 25% even a margin business, right? We have a lot of room if things, and we haven't seen it yet, but if things do slow down, there's a lot of room there.

A lot of other media companies are, you know, 2% even a margins or break even, right? And so I totally am, you know, I am keeping a keen eye on the competition and seeing what's out there. And there is absolutely opportunity to whether it's, for its talent or M&A, like I think there are absolutely, you know, if we can see this downturn, there is going to be serious consolidation, not just in media, but everywhere. But yeah, I mean, we're totally looking at that for sure. Right. And just to clarify some of the things we're talking about. So having a longer runway means burning less money and being able to be a sustainable business. business if you don't raise again. So in the previous markets, businesses would burn money

and, you know, be sure that they were going to raise at a higher valuation, you know, 18 months down the road. And now that's not the case. So there's long, they're planning to have longer runways. And when you talk about having a 25% EBITA margin, basically, you're profitable enough that you can suffer. You can, you can survive through a downturn. Is that what you're saying, Austin? Yeah, absolutely. I mean, yes. The businesses that Packy and I are talking about before either like the one's pack investor right it's very very different uh uh business stage of the business right we're you know we're like that we're fast growing we're going like 80% year over year right venture you know again in craft deck great companies grow 3x year over year right

we're not growing uh 3x and we're also not paying for that growth right um but yeah very different business uh not burning capital uh but again also not growing 2 to 4x year over year okay yeah and not not burning capital that could be the um your firm your venture firm I'm a not borrowing capital can be the balance out. Okay, look, we've talked about a lot of stuff. There's still so much I want to hit. What's going to happen to crypto? What are the opportunities in this market?

We've touched on that. And then a little bit about publishing and Twitter. Let's take a break now and come back right after this with Pachy McCormick and Austin Reef. We'll be back in a moment. Hey, everyone. Let me tell you about The Hustle Daily Show, a podcast filled with business, tech news, and original stories to keep you in the loop on what's trending. More than 2 million professionals read The Hustle's daily email for its irreverent and

informative takes on business and tech news. Now they have a daily podcast called The Hustle Daily Show where their team of writers break down the biggest business headlines in 15 minutes or less and explain why you should care about them. So search for the Hustle Daily Show and your favorite podcast app like the one you're using right now. And we're back here on Big Technology podcast with Paki McCormick, the author of Not Boring on Substack, founder of Not Boring, Capital and Austin Reef, CEO of Morning Brew. Quickly touching on crypto-pack year, you know, pretty pro-crypto stuff. It seems like some people were asking whether this Tara, which is, again, a cryptocurrency,

Terra Luna, which is, you know, a cryptocurrency, two sister currencies, is that the right way to put it, that basically had a collapse last year, whether that was going to be the Lehman brothers of crypto. It doesn't seem like that's the case, like Tether, which is another stable coin, has basically kept its dollar peg, and Bitcoin has been down, but it's not down to zero, although it's really down a lot. How bad is this, it seems like there's, you know, a lot of the irrational exuberance in the past market, you know, people looking for returns outside of traditional places went to

crypto and they're pulling back in a real way. So how is, how, assuming this downturn continues on its current path, how does that impact crypto? This is a, another tough one because I have no crystal ball here. I'm not going to say like buy and hold and, you know, this is all going to bounce back quickly and there's going to be no contagious. I actually have, I'm not qualified to speak on what the impact of kind of U.S.T. Terraluna is going to be on the broader ecosystem. What is connected to? I think people are still kind of working that out. Although to your point, it does seem relatively contained. Bitcoin gotten crushed Ethereum and Salon. Like kind of the stalwarts have also gotten crushed in this. And they could also continue to experience a whole lot of pan. I mean, I think one of the, you know, the interesting things about Bitcoin to, to Warren Buffett's point, is that there's no cash flows, right?

Like, there's no thing to value this on other than a bunch of people's collective belief. And as that gets broken, that can be damaging. To me, I'm back to the, I feel like a broken record almost. But like regardless of what the prices are, I think washing a bunch of the hypey, scammy projects out of the space in this downturn, which will undoubtedly happen. There's a lot of people who've just kind of come in because it seemed like a really easy way to make money. I think a lot of that gets washed out and I think we come back in a stronger position. I have no idea

when that is, but I do think that we'll be in the spot in 2024 or whenever it may be where people are just using NFTs as tickets and an identity that they can carry with them across the internet and where certain of the kind of more stable pieces

of defy are just kind of naturally being used in a bunch of products and there's regulation in the space, frankly, which is almost undoubtedly going to happen as a result of what we just saw happen with with Tara and UST. And so I really, I think we're on that hype cycle where we're going to come out after this crash and it won't be as hypey or as exciting or it won't be as easy to make money super, super quickly. But I think the overall market will be much, much, much, much bigger in 2024, 2025 than it was in this past cycle.

And so, yeah, that gets me to another question, which is what are the opportunities here? Where do you guys think? We've talked, we've danced around it a little bit, but where do you guys think the opportunities are going to be? This is a kind of horizontal point as opposed to a vertical one, but I think in snatching up as much great talent as possible right now for the strongest companies, I wrote a piece in the beginning of the pandemic about how this was actually going to be good for a lot of people who got laid off because they were inside of these bloated companies and doing something that at the end of the day, like, not probably particularly important if you're like, if your job is the first to go and you are like sitting inside of an over,

an overemployed Uber or something and your job is to optimize this one little thing, but you're really, really smart and you're smart enough to get a job at Uber, go start something or go work at a company where you have a bigger impact or all that. So I think we're going to see something similar play out here in the course of all of these layoffs. People have been so star for talent and companies have been so star for talent and founders are smart and know that this is going to be an opportunity to hire a lot of really great talent. So a horizontal point, I think, is that talent is going to flock to the kind of stronger

companies in this market. Austin, what do you think? I think, and this is not, you know, this is not earth-shattering, but there will always be an opportunity to build great companies, right? They have true unit economics that provide a service, product or service for consumers, whether those are, you know, purse people or businesses that people actually want to buy and they can be sustainable businesses. Maybe your time horizon to success is extended by two or three years.

Maybe you have to do it with a smaller team. Maybe you have to burn less money or spend less money or actually bootstrap. But at the end of the day, there is always a need in the market for products and services that people actually want to buy. And so to packies, and then add value to the world. And to the Packy's point, like, yeah, who knows what's going to happen? to these profile picture products, you know, these NFTs, right? I don't know.

Just like I couldn't tell you, right? If you said, hey, like, what's the, what's the market an economic down firm term for like a Mona Lisa? Like, I don't know. But to the crypto projects that are actually leveraging this technology in a way that adds value, Paki gave a couple of good examples. I think they're going to be totally fine. What I don't know about what I'm interested in. I'm sure Pachy knows way more is what's going to happen with these crypto funds that have a billion, $2 billion. dollars of capital whose i mean books are now down you know who knows what right some of these

funds are even putting putting the money into ethereum the money into bitcoin right and that was such a great strategy in 2017 18 19 like what so so i guess packey i'll ask you this question like what's going to happen to these huge crypto funds are they going to be on hold are they going to raise less capital i think this is another one of those kind of like game theory, market dynamic kind of situations where some funds are, they're all kind of holding off right now. That's pretty clear. A lot of funds are holding up right now. Maybe they're going to be piling money into the companies that they work with that they really like the most and they think have the best chance of surviving out of this and taking advantage of the situation,

not even in a nefarious way, but just like building up a stake in their best position. So I would imagine that maybe a higher percentage of capital goes into their best performing portfolio companies and the one that they're most confident in. I also think that some funds, and maybe it'll be the big multi-multi-billion dollar ones, it'll probably be somewhere that's trying to build a reputation for themselves, are going to come in and start paying. I saw a tweet the other day, I think, I'm going to blank on who it was from, but about just giving checks to kind of like everybody who's coming out of Coinbase and Robin Hood, just giving them like 500K at a $500 million evaluation. I think some funds are going to try to make their reputation and kind of

like break through to the tier one level by starting to invest aggressively at some point here in this market and then maybe the whole thing starts again or maybe they get wiped out. I don't know, but I don't think it's going to be as simple as like everybody just waits on the sideline and people raised billions of dollars and they're just going to sit there and kind of wait for the market to come back. I think investors will invest ahead of the market coming back for sure. And this is the interesting dynamic adventure, which is so different than every other asset class, which is you need one winner.

Right, unless you have a billion dollar fund, you know, if your fund is like 100 million to a billion, and you're leading rounds, you need like one, maybe two winners. And so that's the interesting dynamic is the whole market can go to zero, basically. And you can hit the winner and you're good if you own 20% of that company. You know, when you get liquidity, 15%, right, and that company's worth five, 10 billion, like you return the fund a couple times over. And that's the interesting dynamic of this whole game is you can do everything wrong, but you get one thing right. and you're a top decile fund. And it's so, it's such, I mean, I think back to the person who said that I need to answer for being a techno optimist, I think like certainly the way that my brain works is like much

more of a venture style. Like there's two levels I think that my brain works at, which is the venture level, the venture level of thinking about all of this, which is Austin's point on you need one or two winners. And then the kind of just like humanity scale level of like, you know, think about what websites look like a decade ago or like what the mobile app experience was a decade ago or, you know, name your industry, what a car looked like or look back at a picture of yourself from 10 years ago. And it all looks like super old. And so like there's that humanity

level progress thing that gets me excited as well. But like, am I going to be the growth investor looking for, you know, the company that that's multiple is compressed to a level that I feel comfortable and that. Like, that's just not going to be me at all. But there are going to be some massive winners undoubtedly, either to come out of this or that are born during this crash. And so the job is to look for those. As we get into the home stretch, I do want to talk a little bit about your guys, both your businesses. So you both invest. It's not your core, the core thing you do, but it is something you do.

Are you changing the way that you invest based off of how the market's looking right now? Is there anything that you're doing differently? Or is it business as usual? I can start. For me, I've always been a founder, a founder-driven investor. right when you're investing at the precedency stage i think uh like quality of founder is so incredibly important uh and so i'm just doubling down on that like you know over the next couple years will be really really tough and you have to find someone you really can trust

to take this capital and you know run a great company and it's really really it's hard it's always hard it's probably even harder now right it's incredibly challenging to raise a couple million and from scratch build something. Like, it is so hard. It's really, really hard. And so just finding people who are domain experts or you really, really trust is important. And then, yeah, I mean, everyone's getting more price sensitive, right? There's no really way not to because the whole market is doing it, right?

And so if you're not getting more price sensitive, you have to believe that this company is going to take this capital and never raise capital again. Because even if you're not price sensitive, the next investor is probably going to be. And so there's no choice but to be more price-sensitive. Yeah, I think that's very well said. The good thing about the kind of investing that Austin and I do where we're not leading rounds is that we end up being, you know, as price-sensitive as the market, right? Like we end up being takers of whatever terms are set between the founder

and the lead investor. And so I'm still kind of doing the same thing that I was doing before looking for great companies, X, Y, Z. I think I'll do a little bit more. And I'm sure Austin will see some of this too, already starting to see it where companies are doing these like these bridge rounds at a lower evaluation than they wanted to go out and raise their say series a at and for the best companies in the portfolio will certainly want to participate in those and actually build an ownership

stake whereas before it was kind of like a fight to get whatever you possibly could in the company now I think is the time to survey the portfolio and say like all right what are the 10 companies that I wish I owned a whole lot more of how do I get in those in one of these bridge rounds or like do I reach out and offer them you know just a check to kind of keep them going here. So those are not to keep them going because if a company needs my small check to keep going, like probably not the best investment. But like just to add to the word chest, I think that'll be an interesting opportunity right now

is to build up some of those, some of those positions. Yeah, Packy does actually, I said that your newsletter is bigger than your investment firm. But is it, which one's bigger, the newsletter or your capital? It depends how you define bigger. But I guess like management fees versus revenue, the newsletter is. is slightly ahead, but I would imagine the fund will overtake at some point. Right. Oh, wow. So let's talk about then the newsletter revenue. That's the one ahead, or you don't have to give numbers and stuff, but it is interesting that both of you run media

businesses. Media obviously is impacted in downturns. I mean, I run one as well. So these are, this is selfish questions for me, but what's going to happen to media companies right now? And are you guys experiencing anything on your end that's worth talking about? Yeah. So I think the definition of media company, right, is it's tough to really even define now, right? Because what Pachey does is so different than what Moring Brew does, right? The quantity of advertising. So I think every business is unique. But if you want to look at like the big digital publishers, I believe they are in big trouble. These are companies that have been over overcapitalized for years, right? And they thought the SPAC was their way out, their ticket to success. One made it out and we know how that is doing.

Yeah, that's my former employer, BuzzFeed. I wasn't going to say that. That's okay. No, hey, look, I mean, I left. I'm pretty happy. I made that decision to leave. I mean, I love the people there, but I'm from strictly like business sense. It was the right decision to go. Yeah, I mean, we're hearing rumors of, you know, Vice was going to do M&A, and now they're thinking maybe I hear, I think there's an article and maybe the information or somewhere. I'm probably getting that wrong, but splitting up the company. And so, yeah, I mean, like, again, if you were an ad business, that was, there's no access to capital for these businesses, right? None. And so they have to survive with the money they've left or sell themselves. And so I think a lot of

these, a lot of these businesses are in big trouble if you're a fully an ad-based business. Again, it depends who. It depends what. But yeah, if you have, if you've raised your margins before, the uncertainty in the market now is going to make it very, very difficult. And they're going to have to figure out a way. And I think there's a massive consolidation. We start to see some of the last couple years. Vox bought a, you know, Vox did some M&A in the BuzzFeed IPO. They bought Complex. So that was really interesting. I think we're going to see more consolidation. And there might only be a couple players in the space if this thing lasts two to three years. Do you think there's going to be a big advertising pullback?

there is always an advertising pullback when times are not as good right because if you just right cost of capital is more expensive right companies need to see a shorter payback period if money is more expensive and so these companies are going to pull the you know if if the range of LTA of payback period was zero 12 months and now they need their investors come to them or their CEO says hey we need eight months of payback everyone. for eight months to 12 months. And yeah, every acquisition source, they're all going to go away. So there absolutely has to be a pullback. I just don't see how there's not going to be. And maybe it's not for everyone. Again, someone like Packy, and I'll speak to this more,

he needs to sell way fewer ad placements a year to sustain his business. So it's almost like venture, right? He only needs a couple great advertisers to sustain a really great business. But I don't speak for Packy. So I'm curious, what's what you're seeing, Pachie? It's been surprising me. I was a little bit worried about this. I mean, one, I think this goes back to the Ben Thompson kind of smiling point about how you either need to control the demand or like be really, really small. And I'm butchering that

a little bit, but just as kind of like barbelling that happens in any market, but it is like very, very clear in media where it's like, be one person and be low cost and be niche or be really, really big. And I'm happy to be in that kind of like, you know, super small niche kind

of area. And to Austin's point, to have to get fewer advertisers to keep the business going. My business is interesting because there's a couple of different kind of channels. There's just like the regular kind of sponsorship. There's the podcast sponsorship and then there's the sponsor deep dives. And somehow the demand for those has not fallen off. And as long as I can do like one of those a month, the business is in great shape. That said, it's a super, like I'm highly levered to tech, right? Like all of the advertisers that use not

boring and talk to customers. They're not boring. I write about tech. If you People get bored of tech and it's not as exciting anymore. People will stop reading now boring. So I'm definitely like not unimpacted by everything that's going on here. That has not made its way to kind of the advertising conversations that I've been having yet. And I do wonder if there's that, you know, that dynamic of because I only need a very few of them, those few companies that are feeling really strong are like, actually now it's the best time to do a sponsor deep dive and not boring because we want to signal to the market that we're hiring and to investors that we're actually a solid business. And so since I only need to do one or so of those a month, it's actually probably fairly as long as we can find 12 companies that are doing well and want to talk about it, then we're in pretty good shape.

And the last thing I'll say I'll add to that is you have to remember there is a similarity between not boring and morning brew is that our ads actually perform, right? Newsletter ads are a great, great form of advertising. Like for morning brew, you kind of you kind of get the best of both worlds, right? You can add out to four, four and a half million people, but also people click on it, right? And so what's your first advertising spend that's going to go? It's through that billboard in Times Square because people aren't going to Times Square because they're not spending $400 on a Broadway ticket. But engagement actually in poor economic times what we've seen, there are times there's a lot

of news in poor economic times there are, as engagement goes up, right? Our engagement during COVID was through the roof. It was really, really crazy. Our open rates, I've never seen anything like it. Like overnight, open rates spike 10%, which, you know, which, you know, is pretty crazy at that scale. And so we have businesses that actually perform. And there are some types of advertising, lead gen in particular, right?

Or affiliate advertising, it actually spikes a lot in downturns because you're, yeah, you're paying for customers. So I think we're lucky or, you know, maybe a little bit of strategy went into the product itself, such that we have ad units that actually perform, right? Maybe the deep dyes will continue to sell, but maybe podcast advertising, which is a little bit less attributable will be a little bit more difficult to sell and we both have exposure there. So it'll be interesting to see, but I think we're both a little biased, but also in pretty good positions. Okay, this makes me definitely feel a little bit relieved as someone with

the newsletter. So this is good news. Okay, we have just a few more minutes. How can we end the podcast without touching on Elon Musk? Because, you know, if we're talking all things downturn, you know, he has gone back. By the way, we're recording this on a Monday. by Wednesday when this airs, who knows what the heck happened because it's moving that fast. But he did go back to Twitter and say, well, you know, now you have bots and maybe I don't want to do the deal. It's now on hold. Do you think he's just trying to renegotiate the price because Twitter at $43 billion in the current market is a massive overpay? Wouldn't you agree? So what's going on there, guys?

Yes. I mean, I think he's having fun and trying to negotiate and just like just the methodology of like we're going to pick people and they're going to look at 100 accounts and and like the whole thing. Tell people what happened there. He someone pushed him on like what the methodology would be and how many bots there are on how on how and how to count the more than more less than 5% bots that is his now threshold. And he said yeah, we're going to have like people on the team go out and randomly survey a hundred of their followers or something. And if more than 5% of them are bots, then we're out. Like science. Yeah.

So, okay, so it's a ploy to renegotiate. Do you think, Austin, what do you think? I mean, how can it not be, right? Like, how can he goes out and he buys, he says, hey, I'm going to spend, you think for yourself, right? Like, imagine if you went and you were going to go buy, I mean, anything, right, a computer. And then two weeks later, that computer's, you know, selling for 40% less. You'd be pretty pissed if you locked yourself into that. And also, like, yeah, I mean, he's, this is like what he does, right?

he this is part of the whole boy is it makes the people who love him love him more and it makes the people who hate him hate him more but he's must watch must watch twitter must watch tv he is an entrepreneur and he's a top 10 account followed on twitter that is crazy like if you really think he builds businesses and don't get me wrong he's sending people space it's amazing he's building electric cars i think he's incredible i think you know you can have a nuance of view on on some the things he does. But it's a spectacle. This is what he does. And this is why Tesla can survive because he is a one person marketing machine. It is crazy. And people are like, oh, my God, he's acting so irrationally. Like, no, this is exactly what he wants. This is his plan. And you're

feeding into it. You're retweease donkey on him is only growing him more. You're only making him stronger. My favorite meme, I think, of all of the memes on Twitter is the nerd diving in front of the bullet to protect Elon Musk thing that happens anytime he says something and people come into his replies. It's incredible the passion that he has among his followers. Because as I also said, he's an entrepreneur and a nerd and awkward and like all of those things. And people absolutely love him. Yeah. And it's interesting what's happening inside Twitter right now where you have the, you know, acting CEO clearing out the top ranks, which I think is a, you know, a way to consolidate power around him just in case the deal doesn't go through. But.

The morale in that place must be in the toilet right now. Oh, yeah. Yeah. Well, I talked to somebody who was talking to Twitter about an acquisition a while back. And pretty much their take was, like, hated the whole process. The only saving grace was Kavana. And now he's out. He's out.

He's out. He's out. And it'll be interesting. I mean, so if Elon does come in to see what type of company he's got, what type of employee base he's got left. Maybe that's the point. Okay. So before we leave, does the tote? Twitter deal close. What's the price? We're not going to hold you to do this. Just have some fun.

I'll go first. I'm going to say it does close, but I think it's going to close much, much less than 44. I mean, what's the, what's the market cap now? There with no quick Google search. And it's artificially inflated to buy the bid, probably. Right. Yeah. Well, it dipped a lot today on some of the news, but yeah, the marcap's at 30. I mean, does this happen at 20? Like, that's not. I don't think it's that crazy to think that Twitter dips another 30, 40, 50%. Like, I don't think it's that crazy at all. It's not a good business right now. It's not.

And Pac and I have talked about this ad nauseum about the product we would change, but they've tried some of this and it hasn't worked. Like, they've tried some stuff and it doesn't seem to have been working that well. So, I mean, talk about an ad business that is brand aware. I mean, Ben Thompson's written about this a lot, the difference between a Twitter ad unit and a Facebook ad unit. Yeah, like if there's an ad-based company that's going to shrink. in the next two years, it could very well

be Twitter. And there's no way the Twitter drops to $20 billion just because it's so strategically important to so many buyers, I think, that even in a market where, you know, Microsoft, Facebook, all of the, like, can't go out and buy Twitter, like the regulators would never

let it happen. It's the town square, and it's where the most important people hang out. And all of the, the arguments that kind of people make are all true to a great extent. And so the bidding frenzy that would happen at 20 and push it right back up to 30 or 40, I think would be outlandish.

So I don't know. I think probably it won't end up at 44, but will it end up at like 35 or something? That would be kind of my guess, somewhere in that range. Okay. Well, we'll see it play out. It's definitely been an exciting story. And as it made me wake up every morning with being like, he did what? I moved east coast time.

I thought I got a head start on the West Coast. Behan's tweeting at like 4 a.m. Dude, come on. give it a couple hours. Okay, anyway, we'll see how it goes. Guys, thanks so much for joining. Let's just take a moment to shout out where people can find you online, et cetera, et cetera. Pack, you want to go first?

Sure. So I'm at at P-A-C-K-Y-M, Packy-M on Twitter, and not-boring.com is where the newsletter lives. Okay, great. And you're about to build a new website, too. Hopefully about to build a new website as well. Probably under NotBoring. We might spring for the dot com in this market. Maybe it's cheaper.

Yeah, I almost tried to buy big.tech, but that was like $50,000 a year. So I'm going to pass on that. Austin, how about you? Was that breaking news? Do you just break news in the pod that you're doing at your billing on a new website? I hadn't heard that. No, we've tweeted it because I'm trying to find someone to build it. But that is in flight right now, at least the planning stages.

Yeah. Got it. Yeah, you can find me at Austin underscore Reef, R-I-E-F on Twitter. And, of course, Morning Brew is morningbrew.com. two of my favorite follows on Twitter, two of my favorite newsletters. Guys, thank you so much for joining an awesome discussion. This was fun. Thanks for having us.

Thanks for being here. Thank you, Nate Gwotny, for doing the edits. Thank you, LinkedIn, for having me as part of your podcast network. It's been super fun. Let's keep it going. And thanks to all you, the listeners. Programming Update. I am flying to Switzerland this week.

You're going to be in Davos right outside the World Economic Forum for four episodes. Well, I think we'll do three next week and then one the week after. but there's going to be a lot of activity on the feed. So stay tuned for that. If you're new to the podcast, please subscribe. We do this every week on Wednesdays with Tech Insiders and Outside Agitators, except for next week where we're going to do it three times so you can really get an introduction. If you've been listening for a long time or if this is your first time and you feel inspired,

a rating would go a long way. Thanks again to Pack, Ian Austin. Thanks to all of you, the listeners. We will see you for a bunch of shows next week. Thank you.