The Prof G Pod with Scott Galloway - Office Hours: Meta Vs. the Metaverse, Private Equity Dominance, and Professional Coaches

Episode Date: February 14, 2022

Scott answers a question about why he’s semi-bullish on the metaverse, but bearish on Zuckerberg’s version of it. He then takes a question from a listener who wonders if private equity firms are becoming monopolies, and shares why mentoring is so important. Music: https://www.davidcuttermusic.com / @dcuttermusic Learn more about your ad choices. Visit podcastchoices.com/adchoices

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NMLS 1617539. Welcome to the Prof G Pod's Office Hours. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question, please visit officehours.profgmedia.com. Again, that's officehours.profgmedia.com. Again, that's officehours.profgmedia.com. First question. Hey, Prof G. This is Austin from Denver. First time, long time.

You've pulled no punches in your assault on meta and have been opening your skepticism on the prospects of society leaning into the metaverse, VR, and wearing visible fornication prophylactics. By the same token, pardon the pun, you've been quite optimistic about NFTs and their prospects for a store and exchange of value in virtual worlds

that the population will increasingly be a part of. Could you resolve that discrepancy for your listeners between your bearishness on the metaverse while being simultaneously bullish on NFTs? Appreciate your work. Your newsletter is appointment Sunday morning reading. Thanks for the thoughtful question. Austin from Denver. Well, I'm Georgia from New York. I love that. A city from a city.

Austin from Denver. That's kind of cool. Austin, that's an awesome name. That's like a superhero name or a detective. Detective Austin. Denver has a nice brand too. I've spent almost no time in Denver, but I get this feeling it's about to boom

because it sort of feels like beautiful, kind of the benefits of a city, but not as crazy as expensive. I have a close friend who's thinking about moving to Denver just because on brand, he barely knows. I'm like, I'm going to move to Denver. Not what you were asking about. So let's be clear. I'm sort of semi-bullish on the metaverse because I think the metaverse is already working. Specifically, when I see my kids playing Fortnite or Warcraft or FIFA, and it's attached to them like a freaking morphine drip, and their ability to socialize on it, their want or their desire to spend money and microtransactions on it, just the incredible programming. I occasionally play with them. I'm not a video games person, but just to learn about it, And I'm consistently impressed with just how much effort and creativity go into these incredible pieces of art or technology, whatever you want to call them.

So I think that I'm bullish, if you will, or acknowledge the metaverse. What I'm bearish on is the Zuckerverse or specifically the portal that is the Oculus. I think the portal that wins here is AirPods or your TV screen. I just don't think it's going to be the Oculus. And I think it's a huge strategic error to be doubling down on a metaverse, if you will, that is compliant or the front end of it is this headset. I think that's an enormous strategic error for them. I do think it'll have B2B applications, whether it's performing surgery

or going to a specific, doing something very, that is so esoteric and there's so much value add to being in an operating room in Delhi when you can't be there that you're willing to put on this device and endure that discomfort.

But if you're looking to relax, I just don't think it's relaxing to put that thing on your head. Anyways, I don't think we're going to see what we saw happen to crypto in 2020 play out as viciously and as violently. I think it'll be more self-sustaining, but I don't see why the metaverse wouldn't have kind of the same arc of crypto where it has a lot of capital, a lot of smart people very into it. We're talking about it, which is half the point. I'm actually thinking about putting some money into real estate in the metaverse. And with crypto, the underlying technology is a bit of a mythology. You can't use it for practical transactions. I still can't get anyone to

answer me how the blockchain or NFTs have changed their life or even their consumer world. What are they doing? What are they buying? What service are they using that's dependent upon these technologies? With real estate, you can monetize potentially these NFTs by selling billboard ads or renting your space. Plus you can use it to signal your wealth. CNBC reported virtual real estate sales top 500 million in 2021. And according to New York Magazine, people are already taking out mortgages on land in the metaverse. Jesus, that's crazy, isn't it? So to summarize, I am sort of bullish on the metaverse. I think it's already here. I think it's just being rebranded. I think there'll be a lot of interesting new technologies and opportunities and games and ways to make money. What I'm bearish on is the Zuckerverse.

Thanks for the question. Question number two. Hello, Prof G. I'm a big fan of the show. Just had a quick question. With all these companies being acquired by private equity, do you think that private equity companies are unregulated monopolies?

Thank you. That's an interesting question, Joe. So when I think of monopoly, mono means one. I think that there's one or duopoly two or oligopoly. I think that means several firms are highly concentrated. There are a lot of pretty substantial, I mean, KKR, Apollo, Vista, and there's some pretty big private equity firms, you know, raising a shit ton of capital. I would bet there's 10 private equity firms that can do really big acquisitions and that it's pretty competitive in the sense that, you know, if you're trying to build an

online ed tech firm, section four, and you're trying to acquire customers online, there's kind of two games in town. There's Facebook and there's Google. Whereas if you're an entrepreneur that has a great business, you're going to get calls from a lot of different private equity firms. So I don't know. I don't think it's fair to call that industry concentrated. I mean, I guess I wonder what percentage of total capital is raised by the top 10 private equity firms versus all of it. But I have a lot of friends who work in middle market private equity, and they raise big funds. And most people have never even heard of them. So it feels like there's a healthy amount of competition there. According to The Wall Street Journal, private equity firms announced a record $900 billion in deals in the U.S. for 2021.

So almost a trillion dollars in deals. That was two and a half times the volume of deals in 2020. Basically, low interest rates mean that you can borrow stuff and just hold onto it for a long time at a very low cost because you're not paying. It's just so, and it's free money.

You know, what do you want? Okay, as long as we think the firm is growing and we have the right person, at some point we'll be able to sell it for more than we bought it for. And here's the bottom line. I don't think it's a monopoly. I think it's a fairly healthy ecosystem. A lot of people have problems with the way private equity operates. They come in, cut costs. A lot of money accretes think this is kind of a success story in capitalism. They get good returns to their shareholders, a lot of whom are probably public pension funds. Do the people in private equity make a shit ton of money? Yeah, I know a lot of private equity people.

They're very smart. They work very hard. And I'm always amazed when any deal closes, given how many moving parts there are. I don't kind of resent or begrudge the incredible money they make. I think they sort of deserve it, given someone who sold companies to get a deal close just takes so much creativity and energy and skill. And it also raises the boats and valuations of private companies run by entrepreneurs. So I think their ecosystem is quite healthy. There's a lot of private equity firms. The barriers to setting up a private equity firm aren't that great.

If you work at Bain Capital and spin off and start your own private equity firm, you can raise a lot of capital and start going to companies. And it's not like you have network effects and you've sequestered the entire marketplace from your consumer set. Basically, entrepreneurs will listen to anyone who can write a bigger check. So entrepreneurs have a variety of buyers. They have really a strong ecosystem to sell into. So who does this market really favor right now? It really favors entrepreneurs and owners who are sitting on top of great private assets. And when we're in this part of the cycle, a lot of times you end up in a flurry of hysteria where the competition gets so heated for the best assets that it's private equity firms that overpay and it's the shareholders and private companies that do really well. So I would argue that the private equity ecosystem, like any other capitalist ecosystem, has some externalities we should be mindful of. But I think it's actually a pretty healthy ecosystem with a lot of competition and it's functioning as you would hope that a market does in a capitalist society.

Thank you for the question. We have one quick break. Before our final question, stay with us. The Capital Ideas Podcast now features a series hosted by Capital Group CEO, Mike Gitlin. Through the words and experiences of investment professionals, you'll discover what differentiates their investment approach, what learnings have shifted their career trajectories, and how do they find their next great idea? Invest 30 minutes in an episode today. Subscribe wherever you get your podcasts.

Published by Capital Client Group, Inc. Hey, it's Scott Galloway, and on our podcast, Pivot, we are bringing you a special series about the basics of artificial intelligence. We're answering all your questions. What should you use it for? What tools are right for you? And what privacy issues should you ultimately watch out for? And to help us out, we are joined by Kylie Robeson, the senior AI reporter for The Verge, to give you a primer on how to integrate AI into your life. So, tune into AI Basics, How and When to Use AI, a special series from Pivot sponsored by AWS, wherever you get your podcasts. Welcome back. Question number three. Hi, Scott. This is Ben from Utah. I wanted to get your take on professional coaches. I jumped into self-employment about a year ago when I bought a company.

It's a seven-person team, and I'm still trying to get my systems in order and for everybody to buy into my vision of where the company can go. My question is, you mentioned professional coaching in the past, and I wanted you to elaborate on your experience and how they fit into the ecosystem of advisors and mentors and everybody else at our disposal. I don't hear a lot about professional coaches. Are they the unspoken superpower of corporate America? Are they worth it? Are they just unlicensed therapists for CEOs who can't admit that they need therapy? And if I do decide to get one, when and how do you know when you're ready to retire them? Would love to hear your feedback.

Thanks. Ben from Utah. An interesting question. I don't know that much about, quote unquote, the coaching business. I do a lot of coaching of young men because again, I rail a lot about the shortcomings or the failure, the existential crisis of failing young men. And I want to be part of the solution, even if it means just meeting with a, you know, I met with a 15-year-old boy a couple of weeks ago, the son of a friend who was struggling, who just got kicked out of school and is a really good kid. And sometimes, you know, I'm going to say the same thing their parents are, for whatever reason, they listen to me and not their parents.

And so that's the only thing. I immediately turned this into me. That's the kind of thing. And my virtue signaling. But I think coaching and mentoring is just super important. And every CEO or not even your CEO, every executive, Christ, everybody needs coaching and mentoring. I have some friends, a friend of mine is the CEO of LivePerson, a great CRM company, chat software. And he always had a professional coach and he was pretty open

about it. So I don't think I'm speaking out of school. And the idea, I think of a coach versus a mentor is that you can lean on them more heavily because you're paying them. But what I find is there's a lot of people who've registered some success who are open to coaching younger people. And it is such a gift

that I didn't discover until later in life. And the mistake I made as a younger man is I thought reaching out for help or for mentors was a little bit a sign of weakness, and I didn't invest in much of those relationships as I should have, but I was blessed with these coaches. When I lived on the West Coast, Warren Hellman, Paul Stevens, Hamid Moghadam, Tully Friedman, all these dudes that were a little bit older than me who took an interest in my professional life and personal well-being

and coached and mentored me. Pat Connolly from Williams-Sonoma. Now, these are incredibly successful men who I could call and would give me advice. I do that a lot, and it's not altruism. I enjoy it. People enjoy using their experience and their expertise and their judgment to counsel other people. It's rewarding. So on professional coaching, I don't know. Good or bad, I'm somewhat neutral on it. What I'm a huge bull on and think it's incredibly important for every person from the beginning of their career is to find people in your life and say, is it cool if I reach out to you for help? Greatness is in the agency of others. And whether it's a full-time coach, if that works for you,

because you don't want to lean on somebody and you want them to be a little bit more dispassionate and you want to be able to call them and have an hour a week, yeah, think of it as professional therapy, whatever you want to call it. Maybe that works for you. But at a minimum, have a group of people that you can lean on because you're going to face dozens, if not hundreds of decisions every week that you may just not have the right answer for. Maybe you have the right answer, but you need someone to validate or craft a better solution. So held to the yes on coaches and mentors, I think it's just sort of up to you, the format, the cadence, and the relationship. But yeah, it's a great idea and it's something I was blessed with growing up professionally,

and every person should devote energy to developing. Thanks for the question. That's all for this episode. Again, if you'd like to submit a question, please submit a voice recording by visiting officehours.propgmedia.com. Our producers are Caroline Chagrin and Drew Burrows. Claire Miller is our assistant producer. If you like what you heard, please follow, download, and subscribe.

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