The Pomp Podcast - #969 David Sacks The Return Of Capitalism & Critical Thinking

Episode Date: May 19, 2022

David Sacks is a world-renowned entrepreneur & investor and host of the All-In Podcast. He is a member of the Paypal Mafia, sold Yammer to Microsoft for a billion dollars, and currently operates one of the most successful VC firms at Craft Ventures. In this conversation, we discuss everything from the success of the All-In Podcast & the All-In Summit in Miami, the lost of trust in traditional media outlets, why people being red-pilled over the past few years, The Fed's mishandling of the market, the current bear market, and if Bitcoin can become a global reserve currency. David then closes the episode by giving world-class advice to Founders during these turbulent times. ======================= Since 2018 Copper has been at the forefront of institutional digital asset development.   From award winning custody solutions, to creating the first truly off-exchange settlement function, Copper pioneers technology, products, and services, in lock-step with a rapidly changing world.    No other infrastructure provider covers as many assets, across as many exchanges, with the speed and security that Copper can offer. To learn how Copper helps the world’s largest institutional investors secure their digital assets, head over to copper.co   Copper - the unfair advantage. ======================= Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Compass was founded with the goal of making it easy for everyone to mine bitcoin.  Visit http://compassmining.io to start mining bitcoin today!  ======================= Bullish is a powerful new digital asset exchange built for institutions that delivers the innovations of DeFi in a regulated environment. The Bullish Hybrid Order Book pairs the high-performance of a traditional Central Limit Order Book with automated market making. Powered by deep Bullish Liquidity Pools, backed by the multi-billion dollar Bullish Treasury. So, you can trade with certainty and at scale across variable market conditions.   Learn more at Bullish.com or follow @Bullish on Twitter. Because the future belongs to the bullish.   *Not investment advice. Digital assets and cryptocurrencies are high risk products. Consult your professional advisor before dealing in them. Bullish’s services are available in select locations only and not to U.S persons.    Visit https://bullish.com/legal for important information and risk warnings =======================

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now, let's kick this thing off. David Sachs is a world-renowned entrepreneur and investor. He's part of the PayPal mafia. He started and sold Yammer for over a billion dollars, and he also is now one of the co-founders of Kraft Ventures. In this conversation, we talk about everything going on in the world, from the macroeconomic landscape to the Federal Reserve, interest rates, inflation, free speech, the importance of technology industry, Bitcoin, and much more. I really enjoyed this conversation with David, and I hope you guys enjoy it as well. Before we get into this episode, though,

I first want to talk about our sponsors. Today's episode is brought to you by Copper. Since 2018, Copper has been at the forefront of institutional digital asset development, From award-winning custody solutions to creating the first truly off-exchange settlement function, Copper pioneers technology, products, and services in lockstep with a rapidly changing world. No other infrastructure provider covers as many assets across as many exchanges with the speed and security that Copper can offer. To learn how Copper helps the world's largest institutional investors secure their digital assets, head over to copper.co. Again, Copper, the unfair advantage. Check them out at copper.co today.

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order book with the automated market making. Powered by deep Bullish liquidity pools backed by the multi-billion dollar Bullish treasury. So you can trade with certainty and at scale across variable market conditions. You can learn more at bullish.com or follow Bullish on Twitter because the future belongs to the bullish. Now, this is not investment advice. Digital assets and cryptocurrencies are high-risk products. Consult your professional advisor before dealing in them. Bullish's services are available in select locations only

and not to U.S. persons. Visit bullish.com slash legal for important information and risk warnings. Go check them out at bullish.com or follow at bullish on Twitter. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions

and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. All right, guys, welcome back to the Best Business Show.

I'm super excited. Today's special episode, we have David Sachs, world-renowned entrepreneur, investor, everything from founding CEO of PayPal founder of Yammer. We're CEO of Zenefits for a while, founded Craft Ventures, where I think is what you spend most of your time doing today. And just, you've got a bucket load of experience, both as an investor and a founder, and very excited to have you here. So thanks so much for joining us. You're here in Miami because of the All In Summit. I guess my first question is,

you've got your three, maybe knucklehead friends who, you guys started a podcast, and now it's one of the most popular podcasts in the world. Did you expect the all-in podcast to be what it became? No, definitely not. I mean, it's been a huge surprise to all of us. And I mean, I didn't even set out consciously to create the pod. What happened is Jamath and J-Cal started doing the pod and then Freeberg and I were the first two guests.

And then I think by the third or fourth show we did, so with the four of us and the chemistry felt good, so we ended up kind of that became the foursome. And yeah, it turned out to be this sort of sensation. I didn't even realize how much people were into it until we did this event. It was pretty incredible. We had 700 people come from all over the world to be with us. Wow.

And at the event, it seemed like there was both what you would expect at a tech conference of kind of, hey, technology optimism and kind of this stuff can help improve the world. But also at times there was like contentious debate and respectful debate. But talk a little bit about like why is that so important, I guess, at an event like the All In Summit. And even on the podcast sometimes, you know, you guys go back and forth and definitely have different viewpoints on some of these topics. Yeah, I think one of the things, I think one of the reasons for the success of the pod is that we're friends. The conversation is civil, but we're able to disagree with each other. And frequently we do disagree and we have political debates. And they don't necessarily break down into easy categories.

I mean, J-Cal and I are usually on opposite sides, but where Free Burger Chamath will come out will vary quite a bit depending on the issue. So it's unpredictable, but it's a debate, but it's civil. We're all friends. And that's a model you just don't see anymore. I mean, if you turn on cable news, there are no debate shows anymore. I mean, 20 years ago, all the political shows were debates. But you just don't see that anymore. It's basically people talking to their echo chamber.

And I think seeing the return of that kind of civil discourse is important. Why did the cable news all become non-debate or kind of echo chamber based? And I think a key piece of this is you've been talking about the same stuff for 30 years. If people go back and you can read books, you can go look at some of the things that you and many of the people in the PayPal mafia wrote, even talks that you gave early on in your career. Why has the world changed so much, but many of you have stayed just so steadfast and like, this is our message? It's a good question. It may be some of it has to do with the economic model of this news media where they've kind of moved to this subscriber model. And so the goal seems to be to give subscribers more of what they want, more of what sort of flatters their prejudices or their preconceptions, their biases, not to challenge the worldview that the subscribers already have.

And I think you saw this, for example, with the New York Times. And a lot of these traditional publications were really struggling until Donald Trump came along. And then they kind of rebranded themselves as the resistance. And whether you're for or against Trump is sort of beside the point. The point is that the media chose this sort of activist model that was designed around trying to appeal to a certain kind of subscriber base. And in the process, I think they sort of gave up their objectivity or at least their pretense of neutrality. But certainly, yeah, you just don't see the type of debate anymore that you used to see. you know, when I grew up. I mean, Gore Vidal versus William F. Buckley was sort of before my

time. But you had shows like Firing Line with Pat Buchanan versus Michael Kinsley. You had McLaughlin Group. You had like all these shows where people would debate each other, and it was relatively civil. Now you don't have the debate, and it's certainly not civil. Yeah. When you think about something like the All In podcast, I don't think any of you would position yourself as a journalist. But obviously, there's a lot of people who consume that content because they want to learn. They want to actually get information as to what's happening in the current events. How different is that actually, then some of these media companies where people are, you know, hiding behind or kind of positioning themselves as journalists? Like,

is it now everyone on the internet's a content creator? Or is there still a big difference in your opinion? Well, I think we have this epidemic of fake experts, you know, people who claim some sort of expert status, but really, as a way to shut down the debate, like, oh, you don't know what you're talking about. I'm an expert. So just listen to me. I think if you're an entrepreneurial type of person that sort of appeal to authority has never worked you know founders always start from having an idea that's either contrarian or no one's really thought of before and this idea that oh i need to listen to what somebody else says automatically um without consulting you know my own um my my own ideas uh my own worldview because there's some sort of expert i think

that's never been compelling to people in our world and but that's kind of what you get a lot of in the traditional media now i don't purport to be an expert i'm just a consumer of information but what i try to do is go out and research the topics that we're going to talk about on the pod and formulate my own view and synthesize material from people who i find compelling or convincing and then I repackage it in my own way and then sort of talk about that. And then people either like it or they don't. But yeah, that's what I try to do.

And how important is it that you actually have skin in the game? I think another piece of this is like a journalist or a blogger or whoever on the internet opinion, whether it's right or wrong, there's no feedback loop, there's no accountability, just move on to the next hot take or prediction versus the market participant, whether it's an entrepreneur or an investor, if you're wrong and you put money behind it, you lose money, right? And then there is that kind of feedback loop. And so

is that play an important role as well in terms of the way that you think about the content that you guys are producing? Yeah, certainly when it comes to all the business topics, we do actually have skin in the game. We're participants in the ecosystem. We're discussing business strategies that we ourselves are implementing. And so there is, you know, market feedback on that. And if we're wrong, then we will pay a penalty. You just don't see that, you know, in general in the news media. And there seems to be no penalty for being wrong. It just seems like we just move on to the next topic and there's never a comeuppance for the people who are so tragically wrong about what the last issue was.

You know, where was the comeuppance, for example, for the foreign policy establishment that got us into the Iraq war and got us into a losing effort in Afghanistan for 20 years? I mean, these people are still in the government. There's just no heads have rolled. Even the Bosch withdrawal from Afghanistan, no heads rolled for that. There's no accountability. So there's so many issues like that. The lockdowns that we pursued during COVID, now everybody, I think, has sort of admitted that they're wrong. There was a video going around of Bill Gates basically saying they didn't work.

So even the people who were advocating for them at the time now admit they were just tragically wrong. Basically cratered our economy, didn't stop the virus. where's the comeuppance for the people who promoted those policies i think there will eventually will be hopefully at the ballot box but certainly in the media they're not holding anybody accountable yeah well and i would even argue that many of the people in the media don't believe that they didn't work right they still would advocate that they were important and uh in some ways that we should still have some form of uh of these things um when you talk about this like fake expertise or this appeal to expertise uh it just makes me think of the time when fauci

was doing an interview and he basically said, like, I represent science, right? And that's one example of many, I think, in society. But like, it is important, I think, to have people who are not market participants, commentating, etc. But it does feel like podcasts, Twitter, and many of these other forms have let the market participants now have a voice. And in some cases, you know, if you look at Elon, and some of these folks who have 10s of millions of followers on these platforms, they have a bigger voice than even some of the media companies. I think I saw when Elon went to go buy Twitter, I went and I looked and Elon has double the number of followers on Twitter that the New York Times has. And Twitter does, you know, much more revenue than the New York

Times does. And so like, in some way, do you get the New York Times is now a competitor with Twitter. And if Elon owns Twitter, like, are you just a billionaire? You know, are you employing people at the New York Times as a billionaire to attack other billionaires? And like, vice versa? Like, how do you think about that? Well, I think that the traditional media has had a huge animus towards social networking for years because social networking has not only stolen all these page views and all this attention and engagement away from them

and thereby turned their analog dollars into digital pennies, remember that old saying? So dramatically impacted their business model for the worst, but also it's disintermediated them. I mean, the only time I ever go to the New York Times is if somebody who I like tweets something that's interesting that links to a New York Times article. So the power and influence of these publications has been dramatically reduced by social networking, and that's why you've seen basically this war on social networking.

And the form it takes is basically these claims that, you know, it was primarily Facebook last year, you know, creates all these harms on society, and therefore we need to regulate and restrict and censor them. and um you know it's pretty striking that you see publications who were are supposed to be champions of the first amendment because that's the principle on which their whole business is built now advocating for censoring and restricting these platforms yeah um talk to me about uh the members of the all-in podcast maybe the last thing we'll talk about uh do you and jason like each other are you guys actually friends all right all right uh i think a lot of people think you're friends but then they listen to the podcast like man they're always at each other's throat to some degree um yeah we also agree on a lot of issues and um you know the way i i kind of see it so

whenever there's an issue that jason can see with his own eyes and hear with his own ears so for example uh san francisco we agree about like everything that's gone wrong in san francisco we probably vote the exact same way you know in elections and so on but when it comes to things that are far away. Jason relies, I think, to a great extent on the traditional news media for his views. And so on the pod, he's going to represent, you know, like the Brian Steltzer opinion or something. And so this is why we end up getting in disputes is I'm like, dude, you're repeating the same bullshit narrative that, you know, we get in all these other places. I have to correct you on that. And then that starts a debate. So we do agree on a lot, but that's where

things go off the rails. And obviously you're incredibly kind to him the entire time as well. When you think about so many of the people that you grew up in your career, right, as an entrepreneur and now as an investor, they've gone on to do amazing things. And some of them are still very publicly known and even participate in the podcast, all that. But many of them also just are busy building companies and people know about them, but they don't necessarily go in the media all the time. What's your relationship like with them? I think a lot of people say like, hey, There's this group of folks from the PayPal mafia that are all super, super successful. Do you guys have a secret chat where you're all constantly talking to each other?

Is it just as normal friends as anybody else would have? What does that relationship look like? Well, there were pre-existing friendships before the PayPal mafia that brought the team together. One misconception about the PayPal mafia is people think it was some sort of very exclusive club. And the reality is we recruited our friends because nobody else would work at the company. go back to 1999 it was much harder and then 2000 after the dot-com crash

it was much harder to convince somebody to leave a safe, well-paying job at an investment bank or management consulting firm or a law firm to come work at a startup that was still seen as an incredibly risky thing to do when I joined PayPal everyone tried to talk me out of it from my parents on down

if I hadn't known Peter Thiel and been friends with him I never would have taken that risk and so on down the line. So Peter recruited the people he knew from Stanford. Max recruited the people he knew from U of I. So, yeah, I mean, so there were a lot of preexisting friendships. And then the experience of going through these PayPal wars together,

you know, I'd say generally developed those friendships even more. Now, it's not like we hang out with each other all the time. And it's not like one monolithic group. but we do tend to see each other from time to time in various contexts and catch up. And why is it that you all were friends before? Like, is it just you happened to all end up at Stanford or U of I, or was there some common thread? Like, what brought you all together?

Because I think a lot of people look around at their friend circle, let's say in college, and they're like, man, I don't think Elon Musk is hanging out here, right? I don't think whatever, like, what brought you all together? What was like the selection mechanism that you kind of would attribute how you all ended up together? Well, so Max recruited his engineering friends at U of I, so I think that was pretty straightforward. And then Peter recruited a number of the people he was friends with.

And, you know, Peter had started, had founded the Stanford Review, which is sort of the conservative libertarian student newspaper on campus. And I had gone on to become an editor of that paper several years later, so that's how we met. So there was this libertarian strand to the founding team. And so we were all – and that was sort of like this contrarian – libertarians tend to be not just contrarian but also sort of free market. And so there was a certain sense in which everybody was cut from this sort of entrepreneurial cloth. Now, it's not universally true. Like Reid Hoffman was not part of the Stanford Review. In fact, he was sort of on the other extreme, more liberal, and he still is to this day.

But he and Peter used to have political debates or discussions in college, and then that's how Reed, you know, ended up being recruited by Peter. So it's not universally true, but there was something to that, that the founding team were, you know, like, given the sort of the prevailing college, the prevailing culture on college campuses at that time, which was sort of this whole political correctness thing. we were rebels against that. And I think that rebel mentality translated well into becoming founders and entrepreneurs once we graduated. Yeah. My last question, before we talk about some current events, is let's say that libertarian, conservative viewpoint in the 90s, would you consider yourself a libertarian, a republican? How do you kind of label yourself if you had to put yourself in a box today? And like, did that change over time? Or has it always been kind of the same box you would put yourself in throughout your life? Yeah, I guess when I was

in college, uh, you sort of figure out where your political views are and how you would categorize them. And, and yeah, I would say I was more on the libertarian end of the spectrum, you know, during like, let's say the Reagan era, the, um, the, the conservative movement was sort of an uneasy, uh, alliance of a few different groups. You had sort of free market types a la like Milton Friedman, you had social conservatives, and then you had sort of anti-communist, you know, Cold Warrior types. And I guess the group that I identified with the most would have been more on the free market economic side, but I also agree with kind of the Reaganite approach to peace through strength. But in any event, and then, you know, after the Cold War ended, I think

the political categories got reshuffled a little bit and um and so i would say you know my views today have have evolved and they're probably a little bit more in a in a populist direction um and we can delve more more into that explain a little bit more well so um if you look at what the big political divide is in america if you actually poll people about their political views the number one predictor of where someone's going to fall in the political spectrum is whether they have a college degree or not. Interesting. And so if you actually look at the views of people who are in the professional class, i.e. people who have a college degree, is radically different than the views, by and large, of the working class, which is people with just, say, a high school

education. And that is the fundamental division in this country. Now, it's not universally true. There are plenty of people with a college degree like me who have more, let's say, working class views and then vice versa. But by and large, that's the division. And there's a whole host of issues where the professional class is very much out of touch with what the working class thinks. And the political scientist who actually, I think, has developed this the most is a guy named Roy Teixeira, who everyone should really check out his sub stack if you're interested in this. But he's been doing work over the last couple of years sort of documenting this and showing the polling and so forth. Remember, he is the author back in the early – like 2002 of a book called The Coming or Democratic Majority, maybe Emerging Democratic Majority, in which he predicted that demographic trends would result in the election of Democratic presidents as far as the eye could see. And he was then pretty much considered a prophet because Obama then got elected in 2008, building the type of coalition that Tushara describes in his book.

Interesting. So it's interesting. But lately, over the last couple of years, and Tushara is a Democrat and wants Democrats to win, he's been warning the party, you have gotten way too far left on sociocultural issues, like, for example, censorship as one of many. And the reason is because you stopped being a working class party. You are now a professional class party. You cater to the views of professional elites, but you're speaking to yourselves. You're speaking increasingly to an echo chamber because you are out of touch with the rest of the country. And so, for example, he very much predicted something like the election of Glenn Youngkin in Virginia.

Remember, this is a state that is pretty much a blue state now, Virginia. Biden won the state by 10 points in 2020, and one year later, Youngkin wins by two or three points, so 12, 13-point swing. Why? On issues like schools, you know, CRT, you know, wanting to provide, putting the parents back in charge and providing kids with a high-quality, non-ideological education. You know, this is the type of issue that really sets off most Americans. But, you know, the elites, the professional class is deeply invested in this idea of CRT. Just to take like one example where there's like a very big class divide on that issue. So Tushara has been warning about the way in which the Democratic Party, he calls it professional class hegemony, has been co-opted by this professional class. Now, what's happening in the Republican Party is really interesting.

The Republican Party is in the process of transforming itself into a working class party, very different than what it has historically been. Historically, the Republican Party was more like a chamber of commerce type of party. Now what you see with this more populist edge to it is it's trying to appeal to the working class. Now a lot of people would say it's fake, it's not real, but that's kind of what's in the process of happening. Now, you know, my theory about why there is so much contention and divisiveness in the country, what we all feel the strife is because if you look at just numbers, 30, something like 37 percent of the country has a college degree as professional class. Sixty three percent is working class. OK, so the working class has the numbers in a democracy. Their views should prevail.

And yet, the elites run every institution from the prestige media to Hollywood to Wall Street to the Fortune 500 to the foundations, the nonprofits, the think tanks, even the big funds. Obviously, those are all run by people with college degrees. And so the professional class hegemony that Tushara talks about in the Democratic Party also exists across the board in all these institutions. And so by and large, you have this phenomenon of institutions in this country being out of step with what most people believe and trying to push an agenda on them that the rest of the country doesn't support. That is fundamentally the divide and the friction in this country. Now, I think what I've described is just objectively the case of what's going on. You could still be a member of the professional class and still think it's a good thing that the Fortune 500 is pushing woke capitalism or Twitter is pushing for censorship of ideas they don't like and so on, and they do. But I think fundamentally this is the tension, is that the leadership of the country, not just the political leadership in Washington, but really much more deeply across the board of all of our institutions, they have views that are out of step with most of the country.

And I think how we resolve that tension is the – that's the political issue of our time. Yeah. One of the things that, as you're talking, immediately jumps to mind is you've probably seen the phrase, the meme of good times create weak men, weak men create bad times, right? Bad times create strong men. And when I think about this, there is this, like, bifurcation, I think economically as well, where we have a country with 45 percent of Americans have no investable assets. Inflation, obviously, right now is at a 40-year. uh high um and if you were to talk to that professional class i think most of the people would say hey the last 10-15 years have been amazing right pretty much since the global financial crisis like everyone's gotten richer and richer uh but at the same time what we've

actually seen is that that working class hasn't kind of been along for that ride in the same way and really they've actually gone the opposite direction so you kind of get this widening divide how much of the economic situation plays into some of these thought processes and the transitions between the way that the political parties are actually transitioning. Is that a fair way to put it? Yeah, I think it plays into it hugely. And I think one of the big issues

over the last 20 years is the way that our trade policy basically hollowed out the industrial base of the country. This is the phenomenon of, we brought China into the WTO and we gave them permanent, basically MFN status.

And as a result, we exported millions and millions of sort of middle class, working class jobs where people made things with their hands as opposed to knowledge worker type jobs overseas to China and so forth. That created an enormous discontent in the country. And that basically is one of the main reasons why Trump got elected in 2016. Remember, the Democrats thought they had this, what they called the blue wall in the Midwest, the industrial Midwest, the Rust Belt.

It fell apart. It fell apart. Trump absolutely shattered that wall. And one of the main ways he did it was appealing to the fact that really bipartisan trade policy of the last 20 years destroyed these factory towns all over the Midwest. Now, I think that when you lose an election to a total political novice and outsider who has so many characteristics that you would think would be disqualifying, that the elite would basically start having second thoughts and asking itself tougher questions about the way they've been ruling the country. And yet they haven't. I mean, the reaction to 2016 basically was this hysteria, this TDS. And again, I'm not like in saying this trying to advocate for Trump or something.

I'm just advocating for when you lose an election, you need to have some sense of introspection and asking why that happened and how your policies might have contributed to it. I mean, the other big issue that Trump ran on were all these stupid wars that America has gotten itself into over the last 20 years. And remember, this was a critique as much of the Republican Party as the Democratic Party. remember when Trump said no more Bushes, what he meant was no more stupid wars in the Middle East. We got ourselves into Iraq, Afghanistan, Syria, Libya. We spent over $6 trillion on nation building in the Middle East. And what do we have to show for it? Nothing. They just hate us even more. The problem is worse in all these countries. You know, Afghanistan is back in the hands of the Taliban. Iraq is basically now an Iranian proxy state. Libya is in chaos and civil war. Syria,

Assad's still running it. So all these efforts were for naught. But I think they, along with our trade policy, created tremendous discontent in the country. Imagine if we had spent that $6 trillion back here at home fixing some of the problems you're talking about. Maybe we wouldn't be at each other's throats quite so much as we are today. So you had these huge issues in the country over which discontent was bubbling over. And instead of basically holding itself accountable, the elites of the country, and it's really, again, bipartisan elites who set these policies for two decades, rather than having any introspection, they blamed the election on Russian disinformation, that somehow the Russians caused Trump to be elected, or somehow the country

was shot through with white supremacy. That was the reason Trump got elected. They never were willing to look in the mirror and understand the real causes. And what's happened since 2016 is that these mythologies have really only grown. And so this is now what basically somehow has morphed into this censorship crusade where, you know, it started with this, again, this idea that somehow the Russians were responsible for Trump's election rather than these deep-seated issues in the country. And that has now blossomed and grown into this full-fledged, this sort of content moderation movement in which we're going to take down and censor anything we consider to be disinformation, which is basically anything that the people, the elites running Twitter think

is an idea they disagree with. You probably didn't see it yet because it happened right before we got started this conversation. But there's now a report out that says the disinformation board is being paused and may actually be permanently disbanded. And this is in the Homeland Security Department. Correct. And so I think a huge piece of this, To me, and I'd love to get your reaction to this, is it feels like there's a sentiment shift underway. And part of the sentiment shift is free speech, capitalism, and kind of the building movement is coming back. And I think you see this with Jeff Bezos. All of a sudden, now he's tweeting, and he's going pretty hard at the president of the United States.

And he kind of, to me, was like a Michael Jordan. Hey, Republicans and Democrats both buy goods. And my political views aren't nearly as important. Republicans buy sneakers, too. Yeah, right? Right. And so when you kind of think about this, it does feel like, you know, one of the worst nightmares for politicians is to have the best entrepreneurs of our generation armed with Twitter accounts willing to speak their mind. And to your point earlier about kind of the media, it used to

be you had to go through the media to get your voice heard. Now, if you can go directly to the people, it feels like sentiment will shift. It's almost like a pendulum. It swung too far to the kind of woke capital and a lot of those things. And now it's coming back. And again, I don't think many people would advocate like let's swing to the other extreme right but more of the centrist view of hey businesses are put on you know in existence to solve problems right like that's actually probably a pretty important part of the united states right i look i absolutely agree that the whole country is red pilling right now because i think that the the censorship has gone way too far the um the way that the the far left sort of progressive left has hijacked the biden

administration people thought they were voting for some sort of centrism instead we've gotten this like very um far left agenda and then you have again you have this um this this sort of cancel culture that people are really reacting to that they're sick of but you're right so many people are red pilling you've got jeff bezos basically attacking the administration elon's become so much more political on twitter he basically said it at the all-in summit the other day that he's going to vote republican he's never voted republican before but he's doing it And he's only voted Democratic because he said the Democratic Party has been hijacked by a bunch of radicals. You've got, you know, like guys like Rogan, who was a Bernie Sanders supporter.

But, you know, he's been read out of the Democratic Party because he is willing to interview people who have a differing view on vaccines, for example. That's why they read him out and all of a sudden he was being accused of racism and so forth. So you have this very intolerant movement on the far left that keeps basically kicking people out. I don't know how they're going to win many elections with this philosophy they have, but they're absolutely red-pilling huge numbers of people. Now, the Republicans could still blow this. Like you said, they could go too far. But, yeah, absolutely, there's a huge backlash underway. Yeah.

The last thing I want to talk about from a political standpoint is also there's this, like, label now. As long as you say something is right-wing, you basically get to excuse the attack, right? Oh, we have to fear the right-wing attack. And I don't think anyone thinks that right-wing extremism is any better than left-wing extremism, right? It's kind of, again, this kind of centrist view. How do you think about what I would almost argue as either propaganda or marketing coming from these labels? Like is this something that's always existed in public discourse and in the United States? or is this definitely social media kind of exasperating it

and it's becoming more obvious? Well, so we had a panel at the All In Summit that I moderated with Glenn Greenwald and Matt Taibbi and it was about this very topic where it grew out of a remark that Jason had made on our pod that he was actually having trouble recruiting left-wing people to speak because they saw all these right-wingers on the program,

right-wingers like Glenn Greenwald and Matt Taibbi. And I was kind of laughing at this saying, you don't know who these guys are. Glenn Greenwald broke the Snowden story. He's been a consistent critic of the surveillance state and the way it infringes on our civil liberties. Historically, that was always a liberal position. Matt Taibbi was the political writer at Rolling Stone, who was basically a left-wing firebrand who, back in 2009, was writing, why has no one gone to jail for the global financial crisis that was caused by all these mortgage scams? He basically laid some of the intellectual groundwork for the Bernie Sanders movement,

the Occupy Wall Street movement, and somehow he is now this far-right winger. Why? Because he doesn't agree with the narrative orthodoxy. If you're willing to dissent in any way with whatever the current thing is today, then you get branded as being a far-right person. Dave Rubin, I think, is another one like this, right? He was a Democrat who eventually just transitioned over and said, I don't agree with this anymore. If you disagree with whatever the current orthodoxy is,

you get labeled as being this far-right lunatic. Rogan's in that camp too. Rogan is just an independent, curious guy. But again, if you dare to have a thought that's unconventional or just interview the wrong person, then you're branded this way. And look, the common denominator is that these people on this sort of far-left fringe, and it is a fringe, but they hold tremendous institutional power

because of the dynamic we were talking about, they want to end the debate. They do not want to have a debate. I think their views are very unpopular in the country, and that's why. So they would rather censor the debate. They want to have the right to declare that the other side is engaged in disinformation. They don't want to just have a debate where they say, no, listen, I think you're wrong. I think you're an idiot.

Here's why. Here are the receipts. Here's a bunch of facts. They don't want to have that kind of debate. They basically want the power to say, oh, that other side is disinformation. We know the truth from on high, and so we are basically going to shut down the debate and say we can't have this discussion anymore. And these labels are another way of doing it.

It's a coercive tactic to basically try and punish people by ostracizing them in order to shut down the debate. And I think you always have to ask yourself the question, when someone is trying to use tactics to end a debate, why are they doing that? If they can win the debate, if they have intellectual confidence, why don't they just have the debate? How much of this falls back on this idea of there's a critical thinking crisis in America? Like people literally don't know how to do critical thinking. They don't know how to do the introspection. Is it rooted in our education system is just a factory and just, hey, go through, get the stamp, and move on? Or is it, no, people actually have these skill sets.

They could be a first principles thinker. They could be a critical thinker, but they're choosing not to because they've already done the exercise and realized that they don't have the kind of intellectual accuracy to stand on. I think the critical thinking problem is real, and I think it stems from the education system. And the reality is we've indulged too much of this nonsense that if you are required to encounter a view you don't like, that's somehow a threat to your safety,

to your psychological safety. If you have your mind expanded by a view that you initially were surprised by or disagreed with, that is now forbidden. And we've seen professors all over the country basically get punished suspended and so forth or they have their podium taken away

because they've got a few students in the class who don't like some view they heard and then they complain to the administration about it and they say that their safety is being threatened. Look, we hear the same thing on social media with the Rogan debate. Spotify said that, well, fortunately they didn't kick Rogan off,

but they said that we were very concerned about user safety. As if Joe Rogan was somehow, you know, somehow breaking into people's living rooms or something and turning on their sound system to his podcast and making them listen. And even the act of listening would somehow endanger them. You know, the whole idea is silly. But this is a type of language that is used, again, to silence the debate. They want to end the debate. That's the point of it. Joe Rogan is a guy who smokes weed and ask people questions, which makes him the most dangerous man in America. Let's talk about the market economics and some of what's going on in venture capital. 40 year high inflation. I think

right now the Federal Reserve is probably the most important institution when it comes to markets and they've kind of in control. It seems like over the last decade or so, it's just whatever the Fed tells you to do, do. They tell you to go long and they're going to pump asset prices, like do it and shut up. If they say, hey, we're going to tighten, just basically get out of the market or go short and let them do their thing. Is that healthy for markets to have the Federal Reserve basically being the driver of good times and bad times? If the Federal Reserve did a better job, maybe it'd be okay.

But I think they've done a horrible job in recent years. And so first of all, you had the, I mean, does anyone at this point doubt that the reaction to COVID was more damaging to the country than COVID itself? Both economically and also in terms of the restrictions that were imposed, I think there's abundant evidence now, for example, we talked about on the lockdown front, that they just didn't work, they didn't stop the virus,

they didn't do anything except plunge us into a very deep recession. And then what did the government do in reaction to that? They printed $10 trillion. And so they flooded the zone with money over the past few years, and then that eventually led to an inflation spike last summer. The Fed, in reaction to that, I remember the 5.1% inflation print last summer, Everyone was stunned by it because we've gone for years and years with very low inflation,

and the talk was always about whether we were in a deflationary spiral and that kind of stuff. But the Fed said that it was transitory. They didn't react to it. Instead, they kept interest rates low, and they kept QE going. QE didn't stop until the end of Q1. We were still, the Fed was intervening in capital markets to buy bonds to artificially keep the price down. As soon as we got that 5.1% print, they should have stopped the QE right away. Maybe take a little bit of time to assess whether you're going to raise rates.

But the QE, why would you do that? We clearly didn't need QE at that point. I think it got to the point, if I remember the data correctly, at one point, the Federal Reserve, via all of these actions, owned like one in four residential mortgages in America. I mean, just like crazy, crazy stats, right? And if that's not the exact stat, it's directionally just such a ridiculous thing that you had a persistent buyer in the market, and they weren't going to stop until eventually we got over 8%, and then it was like, well, maybe we should stop now.

Right, exactly. So because the Fed waited so long to react to inflation, it got worse. We're now at, what, like 8.3% or whatever. It'll come down just by virtue of lapping last year's comps on a year-over-year basis, but it's still going to be there. But they reacted way too slowly, and now the fear, I think, is, you know, Powell just said a couple weeks ago that he doesn't see a risk of recession on the horizon. I'm like, what are you smoking, you know, Powell?

Do they actually believe what they're saying? I don't know, but from where I'm sitting in Silicon Valley, we're already in a recession, and people are starting to act like that. And so I think we're headed for now for a pretty serious recession by virtue of the fact that, again, the Fed left the punch bowl out way too long and then yanked it back so violently that it's causing the real economy now to convulse and contract. So yeah, I think that the problem is that the Fed just has gotten

all these decisions wrong. And look, the federal government hasn't been much better. I mean, it was about this time a year ago when the Biden administration on straight party line vote passed that last $2 trillion of COVID relief slash stimulus,

the American Rescue Plan. And it was totally unnecessary. I mean, the economy was already coming back strongly from COVID. You had famed investors like Stanley Druckenmiller saying, look, retail is already 15% above trend, meaning the consumer is fully back and spending their money.

You don't need to pump. And you had Democratic economists like Larry Summers warning them, don't do it, this poses a huge risk of inflation. And they said, Larry Summers, you're crazy, they didn't listen. And that was basically the final straw that broke the camel's back. And this is what Bezos has been basically talking about. Yeah, exactly, and Bezos is right. so it's ridiculous to somehow now blame um this inflation on putin you know like the this is the

putin price hike i don't think anyone's buying it but it's not because of something putin's doing over in eastern europe it's because the fed and congress and the administration pumped 10 trillion dollars now this problem started before biden to be sure it's a bipartisan problem but that last $2 trillion and the Fed's actions last year magnified this problem, made it much worse. And as a result, you're going to get a much more severe correction to what's happened in the form of a deeper recession. It brings a good question of how independent is the Federal Reserve? And I think if you look backwards, we had Trump tweeting at them about devaluing the

currency. We obviously saw last summer they continued this and how much of that was politically motivated versus economic analysis. And then also going into the midterm elections, are the political class going to be applying pressure to increase interest rates, cut interest rates? What can they do to kind of get a soft landing going into this midterm election? How independent do you think that organization is at this point? It's hard for me to know. I don't really have insight on how the inner workings work.

The thing that just strikes me is that they seem very out of touch. And it's like, I don't have access to the data they have access to, but I have access to sentiment. And I feel like the sentiment that I come in contact with and form my opinions based on, somehow it seems more reliable than whatever they're looking at. Well, this begs a really important question. So we've, ad nauseum over the last year, looked at all of the CPI data and things like take a rent index, right? There's CPI rent index, and it was showing that it was up 2%, 3%, 4% year over year. But Zillow was at 9% or 10%. Apartment.com was up 13%, 14%.

And so we started looking. We're like, well, Zillow's indexing methodology, they have access to 100 million data points or whatever in real time. And they're watching around the country as this stuff is moving versus the methodology for the CPI is like they basically call 8,000 people a month and say, hey, what's your rent? right uh and then we saw the tweet from jack dorsey a couple months ago where he basically said you know hey high inflation is here or hyperinflation will happen or whatever language he used people got very worked up about but if you think of a company like square like there's a strong argument that square has better data than the u.s government when measuring things like inflation because he not only has the consumer purchasing behavior but he also has

payroll data he's got point of sale system data etc like is there an argument for us to take the data methodology and the analysis out of the hands of the government and have these private companies either open source their data or somehow put a helping hand in? Or are we okay still having Bureau of Labor Statistics have people go to the grocery store with a pad and paper or a tablet and manually input the prices? I mean, it's a good point. You're right that Jack, as the leader of Square, must have excellent data based on consumer purchases. But I would assume, though, that the Fed has access to very similar data. So I think the issue was that they saw inflation as transitory. And that was the official party line that we heard starting last

summer. And it wasn't just the Fed. It was also Yellen and the administration basically saying they were all out there with this line. I never heard the word transitory used so much until last year. And then it took them, they never got religion about the nature of the problem until the end of the year. So I don't, the question is like, what was their basis for believing it would be transitory as a, because that delayed their, that was their excuse for delaying the reaction. And so we needed this medicine that they're doing now, but if the medicine could have been delivered more gradually sooner than you, it would have been the, the asset bubble that we had wouldn't have grown so much. So remember the frothiest time that I can remember

in venture capital since basically 1999 was the second half of last year, of 2021. And that's when we saw, for example, all the SaaS valuations go up to 100 times ARR and so forth. And everybody will basically tell you that, is that second half of last year was incredibly frothy. Pace of deployment went really high for all venture funds. Valuations were really high.

Round sizes were really high. Look, if you're a founder, it was a fantastic time to raise. But imagine if the Fed had simply taken the position in the summer of last year that not immediately dismissing this inflation report and saying, okay, wait a second, this is something to be concerned about. We're going to wait and see what happens on interest rates, but we're going to pause QE. I don't think we would have had this huge asset bubble in the second half of last year. and therefore we wouldn't have the stock market crash that we've now had over the last few months. Again, I think this is the beginning of basically a recession

because there are going to be more shoes to drop. This is the way it works, is these things cascade out. Chamath had a stat, which he read on the pod. 14% of global wealth has been wiped out already this year from the stock market crash. 14%. And the GFC, the global financial crisis in 2008, was only 18%. And that was massive, right?

So that gives you some idea of how much wealth has been vaporized. And my view on it is that when that much wealth gets vaporized so quickly, that must have downstream consequences in the economy. Yeah. I'm going to read you a stat. I didn't know this. This is a Wall Street Journal article that came out May 10th. And there's a woman, Rachel Wolf, who went and she looked. She said, how do they calculate the inflation?

And so your comment about I would assume they have the same data, I assume that as well. There's 477 government workers that literally every morning get a printout that says go to X grocery store and go get the, you know, tomato soup with low sodium. And there's in some cases, eight, nine, 10, 11 page documents to make sure that the soup that you pick up and make sure it's the right low sodium soup, the right brand, all this stuff. And then you put it into a tablet and they literally go all around the country and do this. Well, I can save them a lot of time. We have a portfolio company called Data Assembly. And literally, it does this in an automated way where if you want to know the prices of milk or bread, grocery prices in any grocery store in the country, you just go online and you can see it. So I don't know why they're not using Data Assembly.

We can save them a lot of time. We can get them more than 400 data points, too. But beyond that, I mean, why not look at like credit card, like card associations, go talk to Visa and MasterCard, get some sort of data feed from them. And there are definitely data services that provide that. That's nutty that they're still doing that in the pencil and paper way. When I read the article twice, because I was like, this literally can't be true, but pretty incredible.

Let's talk about Bitcoin. Bitcoin is a very interesting asset, I think, in that there's people who make the argument it's the most macro asset out there. It's kind of the free market. there's people who would argue that it's an inflation hedge and it served as a great inflation hedge because it's up hundreds of percent since the start of the pandemic

but it's down 50 plus percent over the last couple of months what are your views on Bitcoin and how do you think of that asset given the macro backdrop well the thing that's interesting about Bitcoin I've been interested in Bitcoin since I think I first bought it

in 2012 maybe and we invested we're not a crypto investor But we did express a thesis back in 2017, 2018, that we thought that crypto would graduate into being an institutional asset class from being really more of a consumer retail phenomenon. And so we ended up investing in institutional custody through a company called BitGo. And we also invested in, we're the seed investor in Multicoin Capital, which was a crypto-focused hedge fund. And we basically believe that as crypto matured into an asset class, you would need specialized fund managers, of which we were not really. I'm a SaaS investor, but I'm like, but let's invest in these guys because they're focused on the problem.

So we expressed a number of these views, and it generally has worked out very well for us. But in any event, so I've been interested in Bitcoin for a while, and I think the transformational part of Bitcoin is this idea that we could have non-fiat money. As we're talking about with the Fed, there is a huge risk of currency debasement when the government is in control. And particularly when you have the world's reserve currency, there's just such an enormous temptation to print money to finance your budget and to rack up loans that become unpayable. We're at, what, like 130% of GDP now we owe. So we owe an amount of money greater than the size of our entire economy or our economic output. that sounds very hard to repay to me so the temptation will eventually be to monetize the debt away basically to debase the currency to pay for this debt that's always been a risk

throughout history and um now what bitcoin offers is a different kind of currency where it's not backed by a government it's backed by math it's backed by encryption and so you don't have to trust the government uh that there will only be 21 million bitcoin it's in the it's in the code and so you just have to trust that that the um that that bitcoin effectively won't be cracked you know you just have to believe that the system is secure and i think a lot of people might over time gradually think that's a better form of money yeah and paypal did you guys start out trying to build kind of a separate currency, like a new currency,

or did you always want to go after kind of more of the payment system? Yeah, so we, it's funny, back in 1999, we had this T-shirt that had the PayPal logo on it and it said PayPal, the new world currency. But what we really meant, we were very much bootstrapped on top of dollars. And there were, at that time, rival currencies.

There was one called Beans, one called Flues or whatever, like Whoopi Goldberg was the spokesman. Anyway, these companies have all died. No one remembers them anymore, but we competed against them in the late 90s. The way that we won is we were like, look, we don't need another currency. We have the dollar. The dollar is the world's reserve currency. We just need to make it more accessible.

What we meant by the new world currency is creating a dollar-based system that was accessible anywhere in the world online. One of the things we did very early on was open the site up to other, we internationalized. And so people could basically start moving their net worth into USD, kind of the way that they move their net worth into Bitcoin today. But there were some similarities to the Bitcoin vision. Elon always called PayPal the database of money

that we're trying to create. Because if you could get all the money into one database, then me transferring your money would just be moving electrons around. It'd just be ledger entries in a database. and you could do it instantly and basically costlessly. That basically describes the blockchain. That's basically what the blockchain is, right? Except it's not a centralized database of money,

it's a decentralized database of money. So it's interesting the way that some of these ideas have played out, but in a different way than we could have anticipated. Yeah, Peter Thiel has told a story where I guess some of the folks from PayPal went to Antigua, I believe it is, and there was some sort of encryption and money conference.

and his thought process is that Satoshi must have been there. One, did you go to the conference? And two, any thoughts in terms of that theory? Yeah, so I wasn't at that one. I think at that conference, the state of the art in this crypto world was sort of e-gold. And the idea, I guess, was that you would get certificates that were redeemable for gold and you could move them around online.

And PayPal was sort of a reaction against that, saying, no, these systems are too complicated. They don't really make sense. Again, dollars work just fine. We weren't trying to upend the currency itself. We were just trying to make it more convenient. But yeah, it's interesting how there were these predecessors to Bitcoin. I think it's one of the key pieces, right?

There's 40 years of R&D that went into the creation of Bitcoin, so people always, oh, the first one never works, and they always jump to the AOLs or the MySpaces, but it's probably, I don't know, the 15th or 20th version, and it seems to be working. Two other questions around Bitcoin. I guess one is like, do you think it could rise to become the global reserve currency? And whether that's, you know, 50, 100, even 500 years from now, like, is the expectation that there would be decentralized money as the core unit of account and kind of store value globally?

Or do you think that we'll just get more and more fragmentation and there'll be fiat currencies, there'll be decentralized, you know, currency like Bitcoin. Maybe there's even these private currencies that some of these companies have tried to create. Like, how do you think this plays out? It's hard to know. So, I mean, Balaji's got this framework where there's basically only three currencies that have scale. One is the USD sort of, the USD American empire. Then there's China, the renminbi. And then there's Bitcoin and the sort of crypto world.

And he thinks those are the only three currencies that can get to sufficient scale to be some sort of world reserve currency. I don't know what happens. I think the question is, can you get to something where Bitcoin is widely used without there being basically a U.S. dollar collapse or something catastrophic happening? I don't know the answer to that. I think there are middle scenarios where if you're in a country with a totalitarian government or something like that, or had export controls or was extremely repressive or was being invaded and going through a war, you'd want to move as much of your net worth into Bitcoin as you could,

despite the price volatility. Because it's portable, you can take it with you. It's the new diamonds, it's the new gold bars, whatever. There's sort of that store of value argument, even short of it being a fiat currency. But I think it's interesting. What we're talking about, I didn't coin this phrase, but the separation of money and state.

If that happens, that would be as big an event as the separation of church and state. The church and state used to be intrinsically linked and combined. You couldn't really think about the two without them being together. Now we think about them being separate. I think money and state is kind of like that. We can't really think of money without the state, but Bitcoin, it's sort of this sci-fi future

where you could maybe have these two things decoupled. So I don't know how long that takes. And it's also very hard to know what price you should put on that, which is why I don't actively speculate on it because I just don't know what the price level should be. Do you still buy Bitcoin over time just as like, hey, I'm just dollar cost averaging? Or is this something where, hey, I bought some early on,

that's what I got, and I'm going to go focus on SaaS investing? How do you think about it? Yeah, so I have a position in it and my view is kind of to set it and forget it. I've seen so many ups and downs at this point that I'm just like, look, I'm going to put this amount of money in Bitcoin and it's some percentage of my net worth,

I'm just going to leave it alone. And maybe it'll be worth nothing, but maybe this will become new money over the next 20 years, in which case I'll feel really stupid if I didn't buy in at a much earlier stage. So I've kind of got a little piece there and I just leave it alone and don't try to figure out

like these price moves last thing on bitcoin is um there's a very large portion of people in the bitcoin crypto world that are bitcoin maximalists and so they believe hey bitcoin is the only thing everything else is a shit coin it's all going to zero uh i don't think you're in that category given some of the investments i know that you've made uh what is your argument for or against kind of that maximalistic view when it comes to something like money is it something that you understand but you're like hey i'm an investor and i want to go also find productive assets is Is it something where you're like, I don't understand that view of the world? Just talk to me about that.

Yeah, I mean, I wouldn't say I'm a maximalist. I think that the case for Bitcoin is probably the strongest of all the cryptos, and the price and relative stability reflects that. But look, in the process of creating Bitcoin, you have these other new technologies arise, like the blockchain itself, and why couldn't you use that to support other innovations? and so the most obvious one being the idea of a smart contract platform

and so now you have kind of these other cryptos that function as gas to basically buy computing power on a smart contract platform like Ethereum, like Solana that's a space and then there's all the various applications that potentially could be run on a blockchain which mainly you've seen in terms of ones that have scale it's mostly just DeFi

it's mostly financial contracts of various kinds and financial speculation I think what remains to be seen is what is the breadth of the applications that can ultimately be built on top of blockchains but I think in the exuberance over these types of platforms I think there's too many things that actually don't really make a lot of sense

where no, you're just better off using a centralized database so the breadth still remains to be seen but I think what's interesting is just the financial contracts, the settlement system the way that you could do derivatives, things like that it's so much more transparent than what you could get on Wall Street where they're giving you these OTC derivatives where you don't really understand what they are

at least with the blockchain, with DeFi, you can inspect the code so it does seem like a better way to do trading and we'll see where it evolves to from here. But I guess the thing I'm not totally sure about is the range of applications that are ultimately going to emerge. Yeah, it feels like, obviously, a blockchain in terms of what Bitcoin is built on top of, it's all about decentralization and security, right?

And one big question that seems to be unanswered is, okay, if there is a separation of money and state, it's probably pretty important to have decentralization and security against nation-state level attack. what other applications do you need that level of security and maybe there are some maybe there aren't uh but there's a trade-off right performance versus the security to some degree and uh one of the things that i i see young founders especially just over and over and over again uh learning is like hey i want high performance if you want high performance like there's a reason why amazon is a

centralized hierarchical company right is they are incredibly efficient and centralization isn't good or bad it's just what are you optimizing for and i think that's kind of what you're talking about here of like, sure, maybe there's some transparency stuff or whatever, but if you want a high performance thing, like centralization has been the key to building, you know, products pretty much for the last, you know, couple centuries. Right. Yeah. I agree with that. That's, that's a big question that people talk about, well, we need to run social networks on the blockchain. It's kind of like, why? Although, you know, censorship does provide an argument for it, but yeah, I, I'm not sure exactly how wide the number of applications is. The, the issue

with Bitcoin maximalists is they believe there's precisely one application to be run on top of blockchains, which is just, you know, Bitcoin, which is money. Although I guess I do believe in layer, we've made a number of layer two investments. You've made other Bitcoin, I'm instantly serious. Yeah, so Lightning Labs, for example. So yeah, I guess the, just to give

the maximalist argument it's due, it would just be that everything will be built on top of Bitcoin. And so it's not to say there won't be other things, but they've got the Lightning Labs, just layer two. We were a C investor in Lightning Labs, by the way. Lightning Labs, I think you guys did Voltage as well, right, in terms of Lightning nodes. Um, and you know, one of the things that I talked to a lot of folks in Bitcoin community

about is like, look, uh, lightning labs just recently put out a new, um, uh, proposal for, uh, this tarot protocol, which is kind of like a layer three, which would allow for multi-asset issuance on top of the lightning network. And so in some way to your point, right, it's not so much like, Hey, none of these use cases are available. It's just, they're not being built on top of a decentralized, you know, thing like Bitcoin. Right. And so we'll, we'll see how it plays out.

Yeah. I want to talk about market conditions right now. You recently put out about an hour-long presentation, which I think kudos to you guys for just, one, calling all your founders together and kind of state of the union, hey, here's how these market things play out, here's what you need to do, but then going ahead and publishing it. It seems like things are bad already. Do you feel like they can get worse in terms of public markets going down,

founders starting to feel the pain over the next 6, 12 months in the private market? What's kind of your general sentiment right now in terms of how bad this could get from a reaction to the Fed's actions, et cetera? Well, I think there's still potentially more shoes to drop. So I think the most important thing to realize about the stock market crash that has already occurred is that it's been primarily because of multiple contraction. And so if you look at multiples, like, for example, in SaaS companies, which is where we invest, the current multiple is about 5.6 times ARR, or next 12 months. If you go back about five years, that's what it was. But during this sort of hyperinflationary, bubbly period during COVID, where the Fed and Congress printed a lot of money, that multiple got all the way up to 15 times. And if you were a high-growth SaaS company, which meant basically 40% growth as opposed to 20% for the average, you got up to 35 times.

And that 35 number has gone all the way down to eight. So the high growth has gone down from 35 times to eight times, and the mean has gone down from 15 to 5.6. So that's mostly been multiple contraction, and the reason is it's been essentially mean reversion. It's just going back to the way things used to be before we had $10 trillion pumped into the system. And this is the thing that I think a lot of founders may not understand is that you'll hear them say things like, well, we just need to get through this period

and then things will go back to normal. So no, you don't understand. This may be the normal period. The last two years were the abnormality. Basically, we all got gaslit by the Fed into thinking we'd have these conditions of zero interest rates and tons of liquidity sloshing around the system. And that caused prices to go through the roof of all financial assets,

but especially growth stocks. And now things have returned to earth a little bit. So there's a number of different groups that are affected by this. Let's take maybe investors first. So if you're a venture capitalist, you were investing in companies at 15 to 35 times multiples, and now the multiples contract. Do you just hold? Do you have any other thing that you can do?

Do you dollar cost average down if there's down rounds? How do you guys think about, in the investor seat, as this is occurring, do you change anything about the strategy? Well, I think prices in the public markets are actually getting cheap enough for a number of good companies that it is a buying opportunity. It's just that most people don't have liquidity to buy because they've just seen their portfolio get slashed 50%.

This is always the tough part, by the way, of the Buffett aphorism about be greedy when others are fearful and be fearful when others are greedy. The problem is no one has any money by the time that by the time except for him he's got 130 billion dollars yeah at the moments where you should be greedy your portfolio is down 50 so it's hard to you know double down uh but look i think there are some buying opportunities now in the public markets not to say that it can't keep going down for reasons we can discuss in a second but some of these companies are starting

to look pretty attractive and is there like a framework so one of the companies that uh i know because we were an investor in it and still have a little bit of public stock is coinbase and at At one point, I think it was trading at like one times basically revenue plus their cash, right? So you look at something like that and you're like, man, maybe it could go down more, but that sounds like a pretty good multiple based on historical comps. Do you have some framework where you're like, okay, if a company that has a certain growth rate hits X, it's basically like a screaming buy opportunity and we look to deploy capital? Well, the thing that's tricky about, I agree that by historical standards, certainly Coinbase now seems cheap. The hard thing about valuing a company like Coinbase is obviously it's totally derivative

of what's happening in the crypto world. If there's a crypto crash, it's like, well then what's Coinbase? Like SaaS companies, for example, these are strong companies where you look at their amount of ARR. These are B2B subscription businesses. You want to look at their net dollar retention.

Good for a public company usually starts around 120%. On January 1st, they're typically starting with 120% of last year's revenue just from their existing customers. And then they're going to be stacking new cohorts on top of that due to new sales. We think those are very attractive businesses. They also tend to be more insulated in a recession

because they're B2B, not B2C, and it's usually the consumer who gets impacted first in a recession. There's a number of very fast-growing public SaaS companies that are doing a billion-ish in revenue, growing 40% year over year. at 70-80% gross margins, really high gross margin businesses.

These are with very strong franchises, big moats at this point. Those are, I think, attractive companies to own for the long term. Now, if you were in one of those stocks and it's gone down 80%, the hard part is it's going to take a long time for them to grow into their old valuations.

If you can buy now, obviously the entry price is much more attractive. For founders, same exact problem, right? So, hey, if you went out and you raised money at a 35 times multiple or 15 times. Or try 100 times. Or 100 times. Yeah, whatever the numbers were. A lot of it's just undisciplined investing.

Some of it was just, hey, I felt FOMO. I have a big fund. I have to deploy the capital. What do you do there if you're the founder who basically has this huge thing? I guess there's kind of two components. One is, like, how do you ensure that your investors end up coming out on top, right? And do you just try to grow into the valuation as quickly as you can? And then two is how do you take care of the employees who now maybe their options are underwater or whatever on that?

How do you kind of mentor founders in that situation? Yeah, so here's the good news if you're an early stage startup. If you're a public company, for example, and you're growing 20% year over year, and your value's gone down 80% because of this correction, you have to basically now grow 5x, what's that, like 500% to get back to where you were. Growing 20% a year, that's going to take you forever. However, let's say that you are a startup that's tripling year over year. And there's quite a few of those, right? You raised 100 times last year.

Well, in just one year, it's going to be about 30 times, 33 times, because you've now tripled your ARR. And the year after that, if you triple again, you're going to be at roughly 10 times ARR. And now you're starting to look pretty cheap. so you so it's much easier to grow into what was perhaps an inflated valuation last year as an early stage company that's roughly tripling or even say growing two and a half times year over year what you want to make sure of is that you give yourself the time because where you don't want to be is needing to fundraise every 12 to 18 months like people are doing during the frothy times you want to be in a position where you don't have to raise for two two and a half three years

And now you actually have the time to go into your evaluation. You won't get as big an up round as you thought you were going to, but you have the chance if you grow six to ten times over to your period to now get an up round. I want to ask you a couple of scenario-based kind of just tactical things that I've heard founders ask me or talk about when I've been at dinners or kind of gatherings. The first is if you want to cut your burn, how do you evaluate cost? and if you center on, okay, I'm going to have to cut staff, who do you cut?

Do you cut your high salaries? Do you cut the people who you think are the least productive? Do you cut the people you don't like? What is the tactical way to actually evaluate, hey, I have to cut my headcount by 30%. Who do I cut? Yeah, so I think first of all, you have to figure out how much you need to cut.

And one thing you need to do is ask the question, am I capable of fundraising in the current environment? because fundraising right now is very tough but not impossible if you have great metrics. In the presentation that you mentioned that we just published, we have a slide that defines what great looks like, what good looks like,

and then what bad, or we call it danger zone, looks like. What we've said is, look, if you have all great metrics, there's five main ones. It's your ARR growth rate, net dollar retention, capital efficiency, stuff like that. If it's all great, you're going to be able to raise. I would still be cautious how you spend, but it's not like you're not going to be able to raise. If you're merely in the good column, you might have trouble.

If you're great on three variables and good on two, you'll probably be able to raise. If you have any danger zone variables, you probably will not be able to raise. So the first thing you have to do is assess, do you have any danger zones do you really think you're going to be able to raise? And then the question, so let's say that most startups have some problem they need to fix. It could be a gross margin problem. It could be an excess burn problem. could be a growth problem. But if they're in the danger zone,

you now know that I'm not going to be able to raise. When I run out of money, I'm dead. So I need to be able to make this money last long enough to fix my problems, to get out of the danger zone and into good to great metrics. So then the question is, well, how long do you need to do that? And in my experience, it takes two years minimum really to fix big problems in a business.

It's hard, right? Doing startups is hard. And you need to give yourself the luxury of time to fix those problems. The other thing you have to remember is when you think about how much time you need, if you give yourself two years of runway, you haven't. Because you've got to go out and fundraise six months, nine months before you run out of money. So if you say, I have two years of runway, you've really only given yourself five, maybe six quarters to make effective changes in the business.

And people want to see, VCs want to see that after you've made the changes that they're working, So this is why we say, give yourself two and a half years. So you have two years to work on the business, then you can go fundraise. And if you can give yourself three, so much the better. You just don't know what market conditions are going to be like, and you don't want your company to go out of business because of something that's happening

in the macroeconomic environment. When you think about the founder who could raise, maybe they're good, maybe they're great, how much of this is just go get the money and the economic kind of structure of the deal is less important than actually getting the money versus you guys advise founders to still hold on to do good fundraising deals, don't take down rounds.

And kind of what is the weight of importance between money maybe versus terms of the deal at this point? I think you want to get the money. You don't mess around is my view on this. Look, I've always believed that the market sets the price. and it's better not to monkey around with that. Don't try to do tricks or whatever. It's like, look, just run an efficient process,

get all of your materials together, go out to enough firms, and then whatever the price is, that's the price. I mean, we're all price takers in this market. I mean, VCs are price takers too. People always think that somehow when I give this bad news and I'm talking my books and trying to drive down prices, I don't set the prices.

What happens is a bunch of different firms proffer term sheets or not, and then it shakes out where it shakes out. And then founders hear from other founders who've gone through a process recently, and they hear, oh, prices aren't 100 times anymore. Like last year, they're 20 times. So word gets out.

The price levels adjust. And so VCs, our philosophy is, we just choose the deals we want to be in, and then we try to pay the prevailing prices. And last year, prices were high. This year, they're lower. but we just pay the prevailing prices. I would urge founders to have that mentality as well

which is, look, you're just out there raising this money because you need this money to survive and to grow your business. Making deals with VCs is not the point of your business. It's just something you do because you want to fund it. Go out there, raise the money you need, run a tight process, run a good process and where the valuation shakes out, it shakes out.

By the way, if that means a down round, then so be it. I mean, look, I don't think there's a public company on earth, no matter how good, Amazon, Tesla, Microsoft, so forth, that hasn't had huge down days in the stock market. It hasn't all been one way up. But yet founders always think that, well, I've got to get a huge up round. It's like, sometimes the world doesn't work that way. A founder calls you and says, David, how do I run an efficient fundraising process in this environment? Is it get the materials in a data room, go out to 50 firms, just set up Zooms back to back to back? and see where term sheets come in,

or is it something more complicated? No, I think that's basically it. I mean, maybe not 50, maybe start with 10. But yeah, get all of your materials together. You know what questions you're going to get asked. You know what materials you're going to need. I don't understand why founders have fundraising conversations without getting all their materials together first.

Sometimes I think, oh, it's not, well, I'm just having coffee with a VC or whatever. No, it's like, look, any conversation with a VC is a fundraising conversation. Sorry, that's the way it is. So get all your shit together. We're not getting to know each other? Well, that matters too,

but it's still a fundraising conversation. There's no point going out and having those conversations if you don't have your materials together. So get them together, create your data room, have all the metrics ready. Again, in the SaaS world, it's very obvious what you're going to be asked.

And so if we start stumping you with questions, that it just shows you're disorganized. It's an easy way to put your best foot forward as a founder is just get all your stuff together. Then you probably are going to need to create a longer list than usual of firms to go talk to. You can do it in waves.

Sometimes you'll get some feedback on the first set of pitches you did and then you can adjust your deck. Sometimes you'll hear the same concern over and over again. You might want to add a slide to address it. Do you tell founders to go to the best firms first or maybe the firms that they're not as excited about getting so they get the feedback and then go to the best firms?

Yeah, I think you just want to go to the list of firms that you think are the best fit for your business. And some of them are more prestigious names than others, but I wouldn't stress too much about that. Don't play too many games. Yeah. Yeah. And, you know, just go to the VCs who've expressed the most interest in your type of business. Another topic that has become way more popular than I ever thought it would is

founder secondaries. And one, I guess, just like what's your perspective from the investor seat, but also having built businesses, when founders should take secondaries or when it's a red flag that they're taking secondaries and kind of how to structure them. And then two is founders now who have taken secondaries have a pot of money and most founders didn't have a pot of money before. or now they do, and they're asking themselves, am I a VC now? Should I just go angel invest in all my friends' companies? Should I just stick it in the S&P 500

and forget about it and go work at my company? How do you advise founders there? Yeah, so on founders taking secondaries, I think that it's, so the way secondary started way back when is that you would have a company that was doing well that maybe got an acquisition offer. And there was a feeling on the board,

especially on the part of VCs, that this company could be much bigger if they just kept going. But the founder had all their eggs in one basket and would be very tempted to take this offer. And so creating partial liquidity for a founder was a great way to align everyone to go for the big long-term win. And so I'm very supportive of that idea. And I've been a founder, I've had all my eggs in one basket.

It's nice if you've earned the right to take some secondary because you've created a great business and you want to take a few chips off the table and then go for a bigger win. Is that like 5% of your position or like 50%? No, 50% would be way too much. I think what I've seen is founders taking a few percent off the table, that kind of idea.

If you see 50%, it's like, we'll just sell the whole company. But I think what happened is that in the boom times, you started seeing secondaries become almost a matter of course because there was so much funding that was trying to get into companies. And look, I think it became acceptable as well in an environment in which companies

were potentially overfunded and investors were trying to get to a certain ownership level that they're like, hey, can we buy some secondary from the founders? And I don't really have a problem with that either. But where I would caution is in a much more difficult fundraising environment, it's irresponsible for founders

to be seeking to take chips off the table when that money could be going into the corporate treasury. In other words, into primary in the company. And if there's any concern about the company not being adequately funded enough and the founder's seeking to put money in their own pocket, that's a conflict of interest. And it's not in keeping with their duty of loyalty

to the company, put the company first. So I think in the current environment, a founder seeking to take chips off the table would be an incredibly negative signal and would probably sabotage your funding round. So I would not do that. If somehow you're one of the few companies in this environment in which people are literally throwing more money at you

than you could possibly need, and you and the board decide together, look, this is more money than we need, then maybe the founder could take chips off the table. But I wouldn't go seeking to do that in this environment. Yeah, I think it makes complete sense. And then for those who either already have or are in the fortunate position

where they've built such a great business that people are throwing money at them, what's been your advice to people in terms of, hey, you're a founder, you now have a pot of money, whether it's a million dollars or more, you know, bigger sums, put an S&P, angel invest, sit it in cash, give it to a fund manager, like, what do you say? Yeah, what I would say, so I think typically what makes sense for a lot of people like

founders is to have a kind of a barbell strategy. So you've already got most of your net worth is tied up in the form of equity in this highly risky startup, you know, let's say over here on the distribution. So the question is, what do you do with the rest of the money? And I think what probably makes sense is to the barbell is you put that money in the safest thing possible, basically, because you already have so much exposure to market uncertainty and risk through the bulk of your net worth, which is in your company. And you want to avoid like excessive correlation to like, let's say, like a depression or recession or something like that. I mean, think about what would have happened. let's say that you were a founder

who did a big secondary last year and you took all that money and you put it in crypto or you put it in the NASDAQ well now you're down 50% and you already had enough exposure to startup risk and sort of macroeconomic risk

through your company so I would advocate for a barbell strategy Yeah, makes sense One of the things I'm most fascinated by is you've been very successful both entrepreneur and investor we actually have a tweet You tweeted this a while ago, and I saw it and mentally said to myself,

if I ever have him on the podcast, I have to ask him about this tweet. And it was Jeff Lewis talking about the Midas list. And he said, talking about Keith Roboy, while he's likely to be on the Midas list this year, that hasn't been on it for the past two to three years, speaks volumes about their methodology. And you followed up and said, I had a pretty good year too. Eight exits, you name the companies,

but none of them count because it was my own money. So I kept 100% instead of 20, which they don't like, whatever. and forget the minus list stuff in kind of the debate there for a second uh those eight companies exiting you're the individual investor it's your money uh whatever the math is they started small they ended up being big how do you manage your own money like are you just all in startups and that's like pretty much what you're doing do you have stocks do you do real estate do you buy you know local businesses and david sax is funding you know the the gas station down the street like what do you do or what's your approach so um i mean i generally do it myself and i mean there's

an old saying which is uh concentrate to get rich diversify to stay rich so we are all if you're doing a startup you're highly concentrated like i'm saying in this venture and i think what you want to do is if you're lucky enough to be successful you want to diversify so that you know you can go down with the market but you're not in a position to lose everything you know and so I don't do anything exotic the short answer is I'm pretty diversified and that's like diversification it's just like you're buying low cost index type stuff

I'm not like a huge public market stock picker I generally just buy indices for the most like Vanguard funds type stuff I do some commercial real estate investing probably because I like it, it's fun but remember most of the investing I do is actually through craft and I also write large GP checks to craft

so I'm getting that exposure already and so I'm not trying to do anything overly aggressive in my own portfolio because I'm really just focused on investing in the right startups. It's always fascinating to me, the amount of risk it takes to build companies and then basically have to turn that off

in terms of managing the rest goes counter to the DNA of many of these people. Imagining you buying low-cost indexes and then the famous story of Elon being like, well, I had $180 million and I basically spent it all. It is very interesting. Part of it is time and attention as well as risk. I want my time and attention to be where

hopefully I have an advantage as an investor, which is in the startup ecosystem. And it's very time consuming to work with these companies, to be picking, all that kind of stuff. I don't want to be spending my time trying to figure out an active strategy. You know what I'm saying? I don't want to read the quarterly reports of all these companies. I mean, I'm not saying there's anything wrong with doing that. It's just I personally don't want to spend the time to do it.

So I want to implement easy strategies. I'm imagining you sitting there day trading from your desk. Not what I expected. I've never been a day trader. So yeah, I mean, yeah. Got it. My last question is one of our sponsors is Eight Sleep and they've got the thermoregulated bed.

Walk us just through like a day in your life slash like diet, sleep, like just how do you try to optimize your life to be able to do all the things that you're doing? Yeah, I'm an investor in Eight Sleep. It's a great product. I really like it. So am I.

So you sleep on one then? Yeah, yeah, yeah. Just make a show. Yeah. No, no, I think it's great. I love the data it gives me on whether I had a good night's sleep or whatever and then you can program the temperature and get very precise with that.

So no, I like it. So the question is kind of around routines. Yeah, just like how do you try to optimize your day? You've got a ton of stuff going on, but you're obviously very focused on investing. You also have one of the top podcasts in the world, so that obviously is a huge drain on your time. Just what do you do to optimize to be happy and get it all done? Yeah, I mean, so my schedule gets kind of filled up with meetings and a lot of it is responsive in a way.

It's basically a portfolio company is having a board meeting or needs advice or someone on the team wants me to take a look at a potential portfolio company. And so the calendar kind of gets filled up with that stuff. And, you know, when I was a CEO and I was actually running companies, I had a little bit more control over my own schedule. I would decide what I want to focus on that day. When you're a VC, it's a little bit more reactive because it's other people, whether it's prospective new companies or portfolio companies, are kind of coming to you and want to meet. And that's fine.

And so there's a lot of that stuff. And then I'll do media, podcasts, and so on. We only do the all-in pod once a week. So it's not a huge amount of time for me. I was joking. but yeah um uh but yeah so um you know and then i tend to be a little bit of a night owl and i'll stay up late and like read stuff and catch up on do you have any weird diets or anything like that um no you know i did i did lose a bunch well i i gained a lot of weight during covid like

everybody else like the quarantine 15 or whatever and then i managed to lose it and so i did like a modified it wasn't keto diet but more like mediterranean diet for a while and um now it's just more normal but i try to stay low carb and then another product that i actually use uh is one of dave freeberg's products called munique okay what is that m-u-n-i-q okay it's basically a powder that you just pour into water and it becomes like a shake you can get different flavors like chocolate shake and it's it's uh like a prebiotic fiber and it keeps your blood sugar more stable throughout the day and it reduces your appetite oh interesting so i found that to be helpful yeah um awesome this has been fantastic where uh where can we send people to

find you on the internet or if there's founders who want to uh to talk to craft where's yeah so yeah contact us at craft ventures um i'm afraid to give my my email don't give your email but Well, let's put it this way. It should be easy to get to us. Use your skills to find someone in our network. It shouldn't be that hard. And you can reach out to Craft Ventures. Awesome.

We had somebody come on. They gave their email, and they said, I'll mail you a free book. And I suppose there were 6,000 people that emailed them, and they spent the next week trying to get rid of the email, so please don't do that. I hope that you guys all joined. You can follow David on Twitter, at David Sachs.

But this was fantastic. I really enjoyed it, and we'll definitely do it again. Yeah, thanks for having me. That's great. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you're subscribed on Apple, Spotify, or your favorite podcast player.

And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to palmscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events

packed into that three-week time period. Go to palmscryptocourse.com to learn more and I'll meet you guys for the next episode.