The Prof G Pod with Scott Galloway - Responsible Innovation and Venture Capital

Episode Date: February 25, 2021

Hemant Taneja, a managing director at General Catalyst and the founder of the firm’s Silicon Valley operations, joins Scott to discuss the venture capital space, why he’s bullish on the healthcare sector, and why responsible innovation is more important than ever. Hemant also shares his thoughts on the energy space and why Tesla is a key player. Follow Hemant on Twitter, @htaneja. (16:44) Scott opens with his thoughts on LVMH buying 50 percent of Jay-Z’s champagne brand as well as his thoughts on the luxury brand market.  This Week’s Office Hours: Australia vs. Facebook (49:18) and buying shares on the secondary market (56:40). Algebra of Happiness: Love & Empathy (60:51). Learn more about your ad choices. Visit podcastchoices.com/adchoices

Episode 50, the atomic number of 10. There are 50 states in the United States of America. When I turned 50, I started no joke lying about my age. I'd ask that you love me, don't judge me. Go, go, go! Welcome to the 50th episode of The Prabh G Show. In today's episode, we speak with Hemant Taneja, a managing director at General Catalyst and the founder of the firm Silicon Valley Operations. We discuss with Hemant the venture capital space, his thesis around economies of unscale, and the innovations he wants to see

in the healthcare sector. All right, what's happening? What's happening? What's the dealio? Let's take a look at the luxury brand market and start off with the big news luxury brand giant, LVMH, which stands for Moet Hennessy Louis Vuitton, has purchased a 50% stake in Jay-Z's champagne brand, Armand de Brignac. I'm not sure if I'm saying that correctly. By the way, something about getting older, the part of my brain where I can have some sort of accent or pronounce something,

it's just literally going away. Anyways, or better known as the Ace of Spades for an undisclosed amount, the Wall Street Journal reported that the investment is aimed at growing Jay-Z's champagne brand through LVMH's global distribution network. Per the Financial Times, Ace of Spades sold a half a million bottles in 2019 and are typically priced between $300 to $950. Oh my gosh. Okay, okay. So why is this a good deal? It's both inclusive and maintains the exclusive and aspirational attributes of the brand. LVMH, the world's largest luxury goods company, has a third of a trillion dollar market cap, almost big tech-like. And although annual revenue dropped by a third in 2020 to just under 6 billion, shares have jumped roughly 20% since

January 2020. The company also recently acquired Tiffany & Co for 16 billion. Bernard Arnault, the wealthiest man in Europe who has been leading the 75 brand conglomerate for the past 32 years, is a visionary CEO and is considered the Sun Tzu of luxury. Unless you want to annihilate your competition, you must give them an escape. I love that book. It's just so like, I don't know, just a fucking macho. Just like, okay, the art of war.

So what are we going to have here? Think about what's about to happen. Think about why LVMH is about to be a champagne and cocaine party. By the way, huge news this week. This professor for Columbia dropped that as a part of his lifestyle, a very responsible guy with what appears to be a very functioning family, he rolls out and crushes up some heroin and snorts a few rails of heroin on a regular basis to maintain work-life balance. Huh. Huh. And on this show, I've talked about the fact that occasionally I partake in Zacapa a lot. Love the Z. Love the Z.

Anyways, occasionally I like to think that I'm sophisticated and I get Diplomatico, which is initially a Venezuelan rum. I know a little too much about rum. And I love the packaging. I love the bottle. It's a little sweet for me, but I still absolutely love it. I love the ceremony. Champagne for me, I love champagne. Absolutely love champagne. Although it maxes out at about 30 or 40 bucks a bottle, but the rest for me, I just don't have the palate to discern between. I can discern between a $5 bottle of champagne and a 30 bottle, but then that's it. Anything above that, it just all tastes pretty good for the dog. Pretty good for the dog. Lap that shit up. And when I say shit, I mean champagne. Anyways, I'll go to 80 or 90 bucks and I'll buy Ruinart for

signaling. I want to signal to my friends and people that I'm successful. I realize how insecure that sounds. By the way, that insecurity drives the majority of our consumer economy. But what's going to happen? Why is LVMH probably still a buy? Why are they buying champagne? Oh my gosh, let's talk about the nitro. The nitro is the amount of money consumers have right now. We pumped a trillion dollars into the economy, into consumers' hands, 50 billion net destruction and compensation, meaning they've got about a trillion dollars more in their pockets than they had. And consumers have saved $500 billion in incremental cash because they're not going to the Olive Garden or to Disney. So we have a trillion and a half dollars waiting on the

sideline. And if you're like me, and I know you are, and I know there's 355 million of you out there like me, minus the anger, the erectile dysfunction, and the predisposition for Zacapa and edibles. Anyways, anyways, you're going to see the fucking roaring 20s. It is going to be crazy. From September of 2021 to the end of 2022, you are going to see a consumer orgy the likes of which we haven't seen since the roaring 20s. And I think Bernard Arnault, who is the Jeff Bezos of the consumer sector and his ability to see around corners, sees that it's just going to be nuts.

And when he can take a high-end champagne with awareness and then flush it out across his distribution and network, people are going to need something to wash down that cocaine with, and it's going to be Armand de Brignac. I think this is a great acquisition, and you're going to see LVMH, in my opinion, is going to continue to outperform. What happens after that? I don't know.

I don't know. The Roaring Twenties didn't end well, and I get the sense that we're due for the mother of all corrections. But let's enjoy it. Let's enjoy it while we can. All right. All right. All right. When we're talking about luxury brands, we typically refer to companies such as Apple or Tesla because of their ability to capture our attention and drive home a narrative. When it comes to Western luxury, they have historically been late to the game when it

comes to innovation in the digital commerce space. However, however, they are making progress here and have plenty of opportunities to innovate. A report by McKinsey expects luxury e-commerce sales to reach around $90 billion in 2025, meaning one-fifth of luxury sales will be done online. Think about that. 20% of luxury sales will be online. And those who over-index, those who get to 30% or 40%, will trade at a higher multiple, which will give them access to cheap capital, which will give them the ability to build more robust innovation, wash, rinse, repeat. That's what I call the jump to light

speed. A narrative backed up by performance resulting in cheaper capital and you use the cheaper capital to build that narrative or further pull away. And Vogue Business has pointed out an interesting intersection between luxury fashion brands and gaming, specifically with WeChat minigames and its 500 million Chinese consumers. Think about that. A half a billion consumers on WeChat minigames? Doesn't sound too mini to me. Doesn't sound... They should call it WeChat monster fucking games. 500 million Chinese consumers. Oh my God. Vogue Business reported that transaction volume through WeChat mini programs for the apparel industry tripled in 2020 compared to 2019. And luxury fashion brands, including Burberry, Dior, and Fendi,

have begun testing ways to integrate their products within the games. Wow, talk about gamification. That's going to be crazy. We already know that China outpaces the U.S. when it comes to adopting retail innovation. And Fast Company reported that the country is set to become the first country in history that will have more than half its retail sales take place online. Think about that, 50%. I think we're at somewhere like

28, and it depends if you exclude grocery or gasoline, but China, 50% online. On top of that, on top of that, a global personal luxury goods market report by Bain & Company anticipates that Chinese consumers will account for nearly half of all luxury purchases worldwide by 2025. So basically, in the world of luxury, there's China and the seven doors, the seven doors being the rest of the world. Okay, let's go to the root, though. Let's do a little bit. Let's go to school. What is luxury?

We talk a lot about innovation as it relates to technology, but the real innovators, the gangster innovators here of the modern business era are artisans, specifically in luxury. Whether it was Louis Vuitton hiking tens of miles barefoot into the city because he understood that luggage should be flat-topped so it could be more easily stacked on the back of a horse and carriage, or that the rubber inside, the leather inside the bag should be flat-topped so it could be more easily stacked on the back of a horse and carriage, or that the rubber inside, the leather inside the bag should be treated with a special chemical such that it didn't mildew, or whether it was L'Oreal that collided chemistry with agriculture and figured out a way to take the poppies in the southern France region and capture that smell

and then distribute it beyond Southern France. These guys were always the original innovators. In addition to innovation, they collapsed it with artisanship. And that is a pure love of beautiful things, a willingness to take time and materials and bring art to something. Now, what is the core? At the end of the day, any big consumer brand, any company you want to grow to tens of billions of dollars at some point has to foot to a specific instinct. Google is God, right? What is prayer? You put a query into the universe, some sort of divine intervention spits back an answer you trust more than any advice you get from a rabbi, priest, mentor, boss, coach, et cetera. And as we become less reliant on a super being,

Google fills that void. Google has got our brain, our instincts need to have questions answered, that curiosity, right? Facebook is love, right? Choosing moms, choose Jeff. Most CPG programs play on your maternal instincts. Well, you're not a good mom if you don't use this detergent, right? That really hits to your relationships and your heart. Amazon, more for less, that's the gut. Survival, my God, I have two dogs. They are so food-driven. Why? Because it makes sense. Because a lot of wild dogs, millions of years, dogs were in real risk every day of dying if they didn't get enough food and becoming weak and getting eaten by some other animal predator or just starving. So dogs are very food-driven. Survival, more for less, is always the gangster business strategy. It's the strategy of Dell. It's the strategy of Walmart. It's the strategy of China as an economy. More for less, the gut survival instinct.

And then where does luxury go? Luxury goes two places. It does go to God. We are used to for hundreds of years, if not thousands, we're used to seeing the most beautiful things from artisans in places of worships, the frescoes and mosques, the beautiful music in churches, right? The incredible sounds and costumery in temples. We were used to seeing the most beautiful things. And to a certain extent, religious organizations have manipulated us into believing this is probably where God hangs out. If you go into St. Peter's Cathedral, you think, wow, there's a good chance that God rolls in here every once in a while. It is just so beautiful and so breathtaking. So our desire to be closer

to God has been captured by luxury institutions. And that is we are trained to believe that the slope on the back of a 911 or the mesh on a Bottega Veneta bag makes us feel more holy, makes us feel closer to God. In addition, in addition, it goes after the second most powerful instinct right behind survival. And what is it? It's propagation. A lot of people say propagation is number one. No, it's not. You can be ready to get down with Tom Brady or whoever Tom Brady's hot equivalent is. And if you smell fire, you're pretty soon not interested. You're leaving that house or that hotel room. Doesn't matter how hot the person is with you. If your life is under threat, you are out of there. Survival is a distinct number one. But in a modern society, 99.99% of us get up every morning and we're not worried about our survival, which takes us to a modern day kind of number one, and that is propagation. And that is our need to spread our genes to the four corners of the earth.

That's primarily what men think about. And then women have a much finer filter and want to attract the most inbound opportunities for genetics such that they can use their much finer filter. And let's be honest, it's much finer than most men to pick the smartest, strongest, and fastest seed. If that sounds wildly sexist, it is. And generally speaking, generally speaking, the sexes are different when it comes to their approach towards procreation and their criteria. Women want men for three reasons, typically. Typically, one, they want resources. I know that sounds so bad, but the bottom line is if you partner with someone who has resources, your children are more likely to survive. Two, they want someone who's intelligent. Someone

who's intelligent is if you partner with someone who's intelligent, you again are more likely to survive. And they want someone who is kind, someone who has resources and is intelligent. It really doesn't matter if they're an abusive, difficult person. So those three things, those three things, this chocolate and peanut butter combination around propagation and the way we demonstrate resources, one of the ways we signal artisanship and closer to God, the way we signal power is through material items. So when you buy that 911, okay, maybe you're into cars, maybe you're into cars, but you're really just signaling. You're really just signaling. I would argue the next signal or the new signal, the new ultimate

luxury brand is Tesla. It used to be Apple that said, I think different. I'm groovy. Have sex with me. Tesla basically says, I care about the planet, but I can also afford $120,000 car. Luxury taps into our need for a super bang, our desire to be closer to God and our desire, and I need to be more attractive to mates. Even if you're in a monogamous relationship, even if you have no desire to meet random strangers or to propagate, if you will, at this point in your life, those instincts don't die. You want to be closer to God. You want to be attractive to strangers. Luxury, God, and sex. Stay with us. We'll be right back for our conversation with Hemant Taneja.

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wherever you get your podcasts. Welcome back. Here's our conversation with Hemant Taneja, a managing director at General Catalyst and author of Unhealthcare, a manifesto for health assurance and Unscaled, how AI and a new generation of upstarts are creating the economy of the future. Hemant, where does this podcast find you? I'm staying at my home in Los Altos Hills. Nice. So let's, Ground Zero Venture Capital, let's talk about, give us the state of play in the venture capital ecosystem, valuations, trends. What is your cliff notes on the industry, if you will? Yeah, this is an incredibly active time. It feels like this is the golden age of venture capital right now.

And I say that because lots of companies are getting started. We're busier than ever. And when you think about the kinds of businesses that have been built over the last decade, they're all scaling to be much bigger than we ever thought. So the idea that you can actually have $50,000 billion companies and so many of them all at the same time, I mean, it's, it's unprecedented, you know, markets are rewarding that and more capital is flying into space. It's, it's it's exploding everywhere I look.

Yeah. I think of in the late nineties I started a company called red envelope that was backed by amongst others,, Weston Presidio, Sequoia. I mean, just a ton of... Ron Conway, the angel fund. I remember a guy was on my board, Mike Moritz. And I remember everyone congratulating him because they had sold PayPal for like $900 million. And we were just all blown away that a private company could grow to be worth a billion dollars. That just seemed staggering to us. And that was such an enormous kind of watershed moment. And now I'm an investor in a company called Public. They just raised money at a billion dollar valuation. I mean, it just seems as if the numbers, the scale of the numbers

has gone parabolic. And I don't know, it strikes me that we've, well, let me put it this way. I feel as if I've been here before. And every time I'm here, I think I'll be smarter this time and diversify and recognize this can't go on forever. Where do you think we are in the cycle? I mean, no one knows, but it just feels, it does feel kind of frothy right now. What are your thoughts? Look, it's frothy and the ideas are bigger. I think both of these things are true. Like when I got into the venture business 20 years ago, the math was you had a $300, $400 million fund.

And if you got lucky and sold something for a billion bucks and you returned the fund, you were a legend, right? Now you can invest that $1 billion and have a thesis of why something can be $10 billion or $100 billion kind of a company. I mean, like, you know, there's so many data points in that zone that you can actually have venture return in terms of the performance, even at that price. Why is that? It's because the sheer size of the market is much bigger. When you're building a healthcare delivery system system you're not selling software to healthcare you're building a new you know neobank uh you're not

selling financial software to these companies so like the paradigm has changed and so that uh is flowing capital into this industry in unprecedented ways the whole but if you think about all the major firms they're all changing uh to adapt to this market dynamic. Our job is different, right? I mean, our job is not to go sell at a billion dollars, as you said. Our job is to say, can you go help create a company that's going to endure and be worth $100 billion and actually invest along the way? Because, you know, you have the most insight into those businesses. Yeah, it strikes me whenever you speak to a quote-unquote tier one venture capital firm,

one of their criteria is how much capital they can put to work because they've been able to raise such extraordinary funds in terms of size. So one of their criteria is how much capital they can put to work over the course of the lifetime of the company. If you think about the life cycle of a company and you think about the life cycle of a company and you think about the different investment stages, you have seed, seed slash angel, then venture, then growth, then pre-IPO, then public markets, then mature company, then distressed. And every point of the value chain seeds and accretes power. I'll put forward a thesis and you respond. My

sense is seed is difficult right now because there's a lot of companies that get started that it's just a very risky part of the ecosystem. The infant mortality rate is really high still with startups. And then venture is amazing. Growth little bit, is being replaced by SPACs, which seem to be reaching into growth turf and saying, no, you can skip your series D and E and just go public. It's great to be a public growth company. It's awful to be a mature public company. always offers, in my opinion, opportunities because people don't like the, just as if people, you know, the same reason that we discriminate against old people, people have a tendency to avoid troubled companies. And I always thought that that's an underinvested asset class. Tell me where you think in each of those stages,

you can have a high multiple investment opportunity in a plethora of companies. And so the change that's happening in the industry is our job is to catch these companies as early as possible, preferably as to seed. In some cases, we actually incubate like we did 20 years ago with Kayak or 20 years ago with Livongo. And continue to invest across those inflection points. Because, I mean, look at some of the companies that have gone public in the last few years. They've got a 10, 20x return even from public market, leave aside from C. So our perspective is we need to learn to invest across all these stages

with great regard for finding teams, market dynamics, and business models that actually can keep inflecting. So you've got this interesting dynamic where folks like us are saying, hey, let's bring our builder's mindset to differentiate and be part of these enduring companies. And then you've got the public market investors that are coming and saying, hey, let's commoditize earlier and earlier investing, essentially flood the market with

the capital. And the ones that catch on will continue to concentrate in the public markets. And where do you see, when we talk, I've always thought the market dynamics or sector dynamics will trump individual performance. That it's better to be good in a growing great sector than great in a sector that doesn't, you know, I'd rather be good in AI right now than great in wearables as an example. What sectors do you, do you as an investor want to put the most wood behind right now?

You know, I'm focusing a lot on healthcare. Obviously, it's going through a major transformation. And I know you've spoken and written about that a bunch as well. I think fintech still has a lot on a global basis that's going to continue to happen. That thing's quite interesting. One sector where I know you talk a lot about it, which is education. I haven't quite figured out how to capture large amounts of value in there in terms of the transformation, but theoretically, there should be. And I got to tell you, the intersection of software and biology is very interesting to me. It transforms the pharmaceutical industry in massive ways, which then changes how we think about healthcare and healthcare services.

And I also think some of the cryptocurrency stuff with its premise around decentralization is, is really quite interesting. And I think the quality of founders that are getting into that space now, you know, seems to be very promising. So we're, we're, I mean, as I said in the beginning, we're busier than ever because these are all massive transformations. And as a multi-stage, multi-sector firm, we obviously can't afford to miss these.

And so, you know, we're all working very hard to get our arms around so much change all at the same time. So talk about why you're excited about FinTech. We use the term decentralization, but what is it about decentralization of finance or printing money or central banks? What is it that makes fintech such an interesting space right now? Well, fintech in general is an interesting space because the consumer experience around banking and access to capital across the different segments and then also you know small business and enterprise experience has a lot that's going to change

i think there are two separate elements one is just how does the stack get modernized you know you're seeing that with uh you know whether it's in banking or lending a lot of companies scaling. My decentralization comment is about then how do we get money to move on the internet just like packets do and transform the business models in that regard. I mean, every country, there are interesting new banks emerging. We're sort of tracking that on a global basis. If you look at companies like Stripe, which were investors from about a decade ago, what they're trying to do

in sort of rethinking the entire commerce stack, treasury solutions, payments, lending, Shopify, Square, and those are massive trends. And these companies have a long headroom ahead of them on that transformation. You talk a lot about, or the term uses, economies of unscale. What do you mean? Yeah.

So, look, in the 20th century, scale was the word we were obsessed with. You know, we scaled health systems, we scaled schools, we scaled banks, we scaled corporations, and all those systems started collapsing under their own weight, right? If you think about the last 20 years, banks failed, you know, school system we know is quite broken. You know, health system, we just saw what a colossal failure we just dealt with. It was on its way to bankrupting us, and we just saw what happened with the pandemic. So all these systems started collapsing. And I think it's because it was all about mass production to provide these core services in society that were good enough. And as we have gone to this platformization of

the vertically integrated stack, distribution, manufacturing, customer access, computing. And you can start renting all these core services. The ability to build businesses that would have been sub-scale by servicing small niches of customers, mass personalization just wasn't there before. Now it is. And so any idea, you can actually rent all aspects of scale and service that segment of consumers, doesn't matter how big or small. So it just transforms.

And I think economies of one scale is that power of mass personalization that is taking share from the inertia of mass production of the 20th century. So apply that. You said you weren't entirely sure how you capture value in the coming disruption in education, but it sounds like you're more, or you have more visibility into how to capture value in healthcare. Try and break down for us,

and I know 70% of the US economy, a big industry, but what are your major themes around investing in healthcare and And why do you think it presents such an opportunity? Yeah. So look, the biggest thing that's happening in healthcare is we're reorienting from a geographic health system to the internet. Just like we organized content community commerce on the internet over the last 20 years, we're now doing that with care. And the core premise is we're trying to reorient care in the context of consumer personas. So over the last seven years, we built this company called Livongo, which basically focused on the

32 million consumers with chronic conditions like diabetes and said, how do we give them a phenomenal consumer experience that is focused first and foremost on keeping them healthy, on getting them to disengage from their diseases as opposed to engaging, which is just a design principle. And sort of doing that in a way that actually bends the cost curve. I think healthcare is one of those areas, as we said, is 17% of GDP. We want to reduce them so that there's more resources available for better living. And then in order to accomplish that vision, which I think will take us the better part of the next decade, we need a whole new software stack. We need distribution models that bring these services to market. And then finally, we also need to figure out how to align the various stakeholders.

One of the big issues there, as you know, is who pays, who decides, who benefits different stakeholders. How do we actually bring rational economic behavior? And the last thing I would say is the workforce needs to be heavily transformed in this space. We have too many people in these hospitals that are working on billing codes so they can get paid and not enough people taking care of people that have mental health issues in the field. There's some places where software should go play a role, a much deeper role. It's actually going to create a dislocation in the workforce, but then there's other places the workforce needs to be created,

like mental health or elderly care and so on. You founded or co-founded the Advanced Energy Economy, an organization focused on transforming energy policy in America. Why does our energy policy need transformation? So if you and I were staring at the very first internal combustion engine 150 years ago, and somebody said that this is going to transform society, but it's also going to create climate change. How would we have used that technology differently? Just ponder that for a second. We did not do that.

And we ended up creating a whole uh inertia in in our energy and power systems over the last hundred years didn't know this unintended consequence was going to happen and then before you know it you've got this this deep amount of inertia in sort of energy and power consumption sources that are you know powering society what we're trying to do now is figure out a way to unwind all that and move towards what we call advanced to us is clean, affordable, secure power. And how do we actually create an interesting market opportunity to move the industry towards, again advanced energy and uh you know it's it's a complicated task because um you know nobody wants to pay more for power we need new sources of demand ironically i would say

you know elon and tesla have had the most impact in chipping away at this problem because they've actually made the transportation system or at least demonstrated that in the auto, in the cars part of it, an application on the power system. Because we had two different energy systems in the country, transportation and power. By making one an app on the other, on the grid, we created all this demand that now we can service

with these advanced sources of energy. And innovation is the only answer here. We got to get us with these advanced sources of energy. And innovation is the only answer here. We got to get us onto these modern sources of energy that are, you know, low carbon, affordable and secure. Yeah. So you talk about Tesla. What else do you think is, I mean, I have a difficult time. I have a difficult time wrapping my head around Bitcoin. I also have a difficult time wrapping my head around the valuation of Tesla. And a lot of bulls will say it's an energy company.

Explain to our listeners and the host here, how is Tesla an energy company and not an automobile company? Yeah, look, I have a hard time wrapping my head around the valuation as well. Because at the end of the day, you've got a certain amount of manufacturing capacity and you can only sell so many cars and you know tesla today's valued at multiple of all the auto industry combined but the thing they have done and this is an important point that is perhaps across sector is they have transformed the experience that the consumers have expected to embrace. People love that car. And so what that has done is it has forced every other automaker off their ass to essentially acknowledge that they need to move in this industry. Yeah. Real-money policy was going to

do that. The consumer demand and the consumer expectation is doing that. So the fact that the whole industry is moving towards transportation and application on the grid reduces the task at hand of transforming the overall energy mix. It's not like if you're burning coal on the other side and doing electric cars, that's maybe not necessarily as good for the environment as marketed. But what it does is it does trade this new demand and we can change the energy mix. So that's why I find Tesla very interesting. It's like all the hype and the stock price, that to me is, it's tremendously overvalued in my opinion.

But, you know, everybody has been proven wrong. Don't short it. Yeah, I know. I said that when it was at 50 bucks a share. By the way, be careful when you say that Tesla is undervalued. I've got my eyebrows and my face blown off or ripped off there. So I want to shift to the venture capital community, the gestalt, if you will, the complexion or the character of the community and region.

And I'm about to make some stereotypes here, so forgive me. I find that the tech community and specifically the tech community in the Bay Area is infected with what I would call a third base virus. And that is they conflate luck with talent. And that there is a general expectance and a general viewpoint amongst people in tech. And I think I'm somewhat infected by this too, that we're the innovators. We should play by a different set of rules. We should pay lower taxes. We're doing God's work and tend to forget just how fortunate they are. And that there is a, I don't know, an ugliness to the viewpoint in Silicon Valley. Feel free to push back on that.

What is your response to that thesis? Yeah, look, first thing is they're bad apples in venture, just like they're bad apples in every other. I mean, that's just, you know, humanity specific comments. So there's definitely some of that. And you see that in the companies that blow up that were just, you know, humanity specific comments. So there's definitely some of that. And you see that in the companies that blow up that were just, you know, fundamentally fraudulent. I have a view that what happens to these companies where you go from being lucky and humble to invincible, you know, these folks weren't bad people then you get atrophied in this like business model and scale and success and you see your your your decisioning uh starts to be compromised i mean if you remember you know

in the case of facebook exactly want to go public and and now you're on the advertising juice and you know you're going to monetize everything and so i i think this this happens along the way. And the reason this happens is we don't have a framework for building these companies with regard for unintended consequences. And once we're faced with those unintended consequences, then these companies find themselves at odds between, you know, are we building for profitability and return or societal good. And one of our core focuses as we think about the digital transformation of society over the next decade is figure out a way for the company building process, both from the investor perspective and the entrepreneur perspective, so that there's a clear alignment between having financial return and societal return. I'm not going to disagree with your blanket statement. I'm just trying to understand why we get there and how we actually have a better set of company building processes to avoid those scenarios. Do you think that some

of it is that government isn't doing its job, that we haven't elected people who will hold tech companies and innovators to the same standards they hold other industries and our tax policy, whether it's 1202 or capital gains, that everything has just been sort of tilted. I don't want to say rigged, but tilted towards the innovation class that the innovators and Facebook, whether it's Section 230, whether it's tax policy, just get to play by a different set of standards. And any industry that's allowed to play by better rules or more favorable rules would take advantage of that, that it's really a failure. When I hear you talk about externalities, isn't that government's role? Yeah.

So there's a massive lack of impedance match between government and technology today, right? When Microsoft got hit by its antitrust, they sent regulators on campus to actually watch what business practices were being done. Today, if you think about doing that to Facebook or Google, what are you going to do? Are you going to send people to these servers where this stuff is actually algorithmically

being done? The idea of regulating business practices should also be a software-enabled idea. So I think there's a major overall, the Commerce Department, that needs to happen where you start to create these software watchdogs that are actually understanding what is happening. They can be measuring for the unintended consequences that are emerging out of these things as well. Policy used to get created in a retrospective way, and it was okay because these businesses weren't scaling that fast

and you had the benefit of years and sort of problems emerging and you got to solve them along the way with policy. Now that's not what happens. We organize all of society online in like a decade. The next thing you know, you're blowing up democracy because you don't even have a chance to understand what was going to go wrong, let alone intervene and mitigate it. So how does a government become more software adept

in understanding how these companies, these digital businesses operate, how they use machine learning and data, how their decisions are being made. The answer is yes, Scott, like in terms of the government needs to play a better role, but boy, they are so far away from being able to play that role. Isn't a lot of it too, though, that it feels like Washington has been overrun. And then until there's a perp walk, you know, people are angry that we keep setting up systemic financial risk as there was never a perp walk. No one was sent to jail for the financial crisis. I mean, at some point when these tech companies just their fines are just kind of a function of doing business And the numbers, as you referenced, are just so enormous. I mean, don't at some point, at some point, don't these investigations

or these penalties have to be criminal or this regulation, lobbyists, it just becomes a price of doing business? Yeah, look, first of all, this idea that they're tech companies doesn't make any sense. And they're banks and they're healthcare institutions and they're schools. You know, I mean, I really think getting this next crop of entrepreneurs to take this responsibility very seriously needs to be done. I don't think that necessarily has to be just, you know, laws and, you know, sticks. It's also carrots. It's also like, how do we reach in governance? How are we asking the right kinds of questions in diligence and in board meetings and sort

of pushing for this level of intentionality in terms of, is this business that is doing really well in the short term also fundamentally aligned with long-term interest in society? That question is always asked. It's always, well, if you get big enough and something is broken, that's a good position to be in, right? That's the traditional mindset that we take in terms of company building. So I think all stakeholders have to think differently if we're going to continue to work on this digital transformation successfully and not have these unintended

consequences like we just had in media. Like, can you imagine what that could be in healthcare if we make the wrong set of decisions and how we bring these services and therapies to populations this fast with Moore's law behind it? Right? I mean, like so much could go wrong. And so in every one of these sectors, we just have to be careful in if we let the same things happen that we've allowed to happen in media with algorithms of amplification that divide us and enrage us? What if those same negative outcomes or externalities infiltrated our healthcare system? I mean, that is, I have never thought about that before. And simply put, that is fucking terrifying, that to think that we might foster a new generation of entrepreneurs that some people would say blitz scale, or I would argue that it's

sociopaths and it's what happens when you replace civics courses with computer science. But what if some of the negative attributes that become nitro meets glycerin with processing power were to permeate or infiltrate our healthcare system. I think that is terrifying. I'd never really thought of it that way. Do you think we can prevent that just with... I always feel as if we're imposing or hoping that the next generation is going to be more noble, that we're going to instill in them a set of qualities or a code that is better than previous generations. Granted, this is cynical, but it doesn't mean I'm wrong.

I've always thought that in a capitalist society, when it's raining money, your vision gets blurred. There's a core group of people that will always be principled, but for the most part, people make incremental decisions to get wealthier that might lead them down the path to hell. The people at Altria were good people. The people running Exxon are good people. Let's talk about that. Does there need to be an oversight body? Does there need to be more regulatory scrutiny? How do we get to the starting gate and ensure that healthcare, that we don't have the Mark Zuckerberg of healthcare that can't be removed from office, dual-class shareholder, creates hundreds of billions of dollars, has a PR department that's bigger than the newsroom at the Washington Post, and basically overruns Washington and continues to kind of,

and I apologize I'm being very aggressive here, levy damage. What can we do at the outset around the flood of venture that is going to healthcare? Yeah. So, look, first of all, every stakeholder has to treat the sector with a sense of responsibility. The capital providers, the entrepreneurs, the policymakers, the FDA, everybody. Because it is scary as to what we could be creating on the other side. You know, I can tell you a way to formulate the nirvana in terms of what should come out on the other side of this. You know, I always use this example, whether it was a diabetes coach at Livongo

or a primary care physician that Teladoc or Anvil had, or a specialist at Mayo in person, they should have all the data and the intelligence required to serve that consumer in the safest, most cost-effective way. Now, think about that and the business practices required to actually enable that kind of a world, as opposed to what happens and what happened in health tech 1.0 siloed data with EHRs and you know it's our property and you're not going to understand this particular thing about this consumer even though that might have saved their life

right I mean that's the way this industry was structured and we have to somehow get this next generation of entrepreneurs to understand that the responsibility of keeping people healthy on the other side requires a set of collaboration and business partnership mindset and orientations that are it wouldn't be natural to you if you were trying to be just purely capitalist and to create your own mode and so you know as as an ecosystem builder in this industry ourselves, what we're trying to do is we're trying to get our founders together to try to realize that vision, try to make sure that they can reinforce their understanding of the consumers across each other and service them better, service them more cost-effectively, reduce the GDP of healthcare,

as I said, and keep people healthy versus spending money on sick care. So I do think there's a huge amount of focus that has to go into rethinking the design principles of doing business in this sector to set this up in the right way. Hemant Taneja is a managing director at General Catalyst and the founder of the firm Silicon Valley Operations. She's also the author of Unhealthcare, a manifesto for health assurance, and Unscaled, how AI and a new generation of upstarts are creating the economy of the future. He joins us from his home in Los Altos.

Hemant, stay well. We'll be right back. Support for this show comes from Indeed. We'll be right back. find quality candidates fast. Listeners of this show can get a $75 sponsored job credit to get your jobs more visibility at Indeed.com slash podcast. Just go to Indeed.com slash podcast right now and say you heard about Indeed on this podcast. Indeed.com slash podcast. Terms and conditions apply. Need to hire? You need Indeed. complicated things happening that have to go right in order for that sale to go through. Stripe handles the complexity of financial infrastructure, offering a seamless experience for business owners and their customers. For example, Stripe can make sure that your customers see their currency and preferred payment method when they shop, so checking out never feels like

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Okay, it's time for Office Hours. My favorite part of the show, based on the show, Frasier, which I used to watch with my mother in one of my favorite shows, the part of the show where we answer your questions about the business world, big tech, higher education, and whatever else is on your mind. If you'd like to submit a question, please email a voice recording to officehours at section4.com. Question number one. Hi, Scott. Troy from Melbourne, Australia. As I'm sure you're aware, Facebook just blocked all news media from appearing on its platform in Australia without any warning as a response to the new media bargaining code that's coming into effect soon. There's a bunch of background as to how this came to be in the Murdoch Empire's squirrel group on the Australian political landscape. But at the end of the day, it forces Google and Facebook to pay up for news media appearing on their platforms. Google's responded with

what they call the News Showcase, which is paying publishers for their content in that feature. And Facebook just really threw the toys out of the pram. Question for you is do you see this as a watershed moments for other governments around the world to get their revenge and force wrestle back some control from Facebook? Will the removal of news from Facebook spread globally and if so will it be appropriately relegated back to just cute baby videos and motivational quotes, therefore dramatically reducing its engagement liquidity for advertising? And will that, in a parallel with Apple's punch to the throat to their advertising model, start to actually spell the end for Facebook long term? I'd love to hear your thoughts and love the show. Thanks. A really thoughtful question, Troy, from Melbourne. I think Sydney is the most beautiful city in the

world, but I think that Melbourne is the most soulful city in the world. I think if I moved to Australia and I've actually thought about it and I'm considering, I'm considering, I'm just so glad we get to talk about me. I'm thinking about, I don't like, I live in Florida and I don't like the idea of raising my sons as teenagers in Florida. I just think there's something in the water here that creates a certain element of batshit crazy. When you read about some guy who, you know, killed his entire family and his neighbors and then took his dog for a long walk, it's usually, you usually go, okay, that guy's from Florida. And there's something about teenage boys in Florida that kind of scares me. So I am contemplating, I said, if the world is our

oyster and time's going fast, and I think a lot about how fast time is going and the fact that I'm going to be sitting on my deathbed before I know it or lying in my deathbed. Well, that's cheery, isn't it? Anyways, it's motivating for me. And one of the things I want to do is I want to move. And it's kind of come down to London for me or Australia. And I think if we did move to Australia, I'd want to live in Melbourne. Anyways, we soon may be neighbors, but that's not why you called in. Okay, the whole Facebook Australia. First off, first lesson, don't fuck with Australia.

Don't fuck with Australia. Australia is America with backbone when it comes to big tech. And think about it. Australia gets all the weaponization of their elections, gets all the tax avoidance, gets all the monopoly abuse, gets all the division, gets all the rage, but gets a fraction of the upside. You could argue that in the US, or I think you would argue that we're net gainers from big tech. The problem is with the word net, and that is we get a lot of prosperity. We get a lot of stock market value. We get a lot of hiring. Amazon is the largest recruit out of my class at NYU. I would argue that Facebook is actually among all of them, the only net negative. I think the world would probably be a better place

if the earth opened up and swallowed Facebook. By the way, I wouldn't want anyone to be hurt in the tremor-like earth opening end of days kind of activity I'm envisioning here. I would just want the company and the corporation to disappear. So what happens? I actually believe that the internet should be open and you should be able to circulate links to a media property, and then it's up to the media property if they want to put a gate on it. I think that Facebook's concerns have real legitimacy here. And also, let's be clear, the individual, the wizard behind the curtain here, and the curtain being this legislative action, is Rupert Murdoch, who is Uncle Satan to Zuckerberg Satan. So if there's a war between Mr. Zuckerberg and Mr. Murdoch, which this Uncle Satan to Zuckerberg Satan. So if there's a war between Mr. Zuckerberg and

Mr. Murdoch, which this is, I'm rooting for the bullets. And so let's be clear, this is not a clean issue. Having said that, having said that, when you're Facebook and you continue to lie and you continue to do damage, when you show up, it's like when Jeffrey Dahmer shows up to a picnic with egg salad. And who doesn't love egg salad? Maybe he just wants to bring, maybe he just wants to make the picnic a brighter place with that buttery yet sublime picnic treat known as egg salad. But no one wants Jeffrey Dahmer at their fucking picnic because they don't trust the God. Because guess what? His activities and his history speak louder than any intentions or any arguments. So I would argue Facebook has a very strong argument here, but it just doesn't

matter. Everyone is fed up. It indicates something larger too, Troy. And that is the immunities are starting to kick in against Facebook. I predicted two years ago that Facebook would be banned by a Northern European or Latin American country. And I got it wrong. I think it's going to happen in Australia. And this is sort of the first incremental step towards banning Facebook. Supposedly they've come to some sort of agreement and Facebook's VP of communications, Campbell Brown, who I think is a interesting, thoughtful and competent person. Everyone should be allowed an opportunity to sell out and go make bank. I don't resent her for that, but I'm disappointed because I thought she was a great journalist. But she said that, she put out this bullshit quote that we support journalism in Australia as we always have for

journalists globally. Oh my God. Yeah, right. Anyway, I like what's going on here. I like the pushback. Even if the pushback, quite frankly, is sponsored by the original Satan, Rupert Murdoch, I think it indicates that the world is fed up with Facebook. I think this is slowly but surely going to result in a country effectively banning Facebook. So I think this is going to be interesting. I think there's some larger trends at play here. Another feature to be thought about here, another thing that we can think about or learn from is what Google's done.

Google's backed off and said, no, we're going to solve this problem. We're going to reach into our pockets and we're going to solve it with cash. Why? Why? Google's trying to pull an apple. They're trying to disarticulate from Facebook. As we often do, it's easier to stereotype companies or group people and companies into one general assumption. And I do it all the time. We call them big tech. The bottom line is Apple is not Facebook. Google is not Facebook. And I think Google saw an opportunity. A, they wanted to solve the problem. It's going to cost them a couple hundred million dollars. Fine. They can't starch their hat white here, but they can make it a lot less black, if you will. However, what they really want to do is they want to separate from Facebook. I think Facebook did not handle this well, did not handle this well.

I think that they have a legitimate argument. They want to be indignant. They want to play power. They want to pull a power move, take their advertising ball and go home. And then what do you know? A bunch of public service information and health information goes dark. Oh, I wonder if that was an accident. I felt a lot like Chris Christie deciding for political reasons to increase traffic in residential neighborhoods in New Jersey.

How'd that work out? Former Governor Christie, who's on the road pitching opportunity zones, I think. Anyway, I don't think Facebook's handled this well. And Google saw an opportunity to pull an apple and disarticulate away from the nephew Satan to Murdoch Satan, and that is Mark Zuckerberg on Facebook. Next question. Hey, Scott. Michael here from Phoenix. One company I haven't heard you talk too much about is Stripe, and I wanted to get your

thoughts and reaction on reports this week that Stripe was raising their next round at $100 billion valuation, and that shares were being sold on the secondary market for $115 billion. Most recent reports from 2019 suggest that Stripe was processing transactions in the area of $250 to $350 billion. Do you feel like the company's overvalued? And what tips and tricks would you have for a person like me interested in buying shares of privately held companies on the secondary market? Look forward to your insight and thoughts. Thanks very much. Thanks for the thoughtful question, Michael from Phoenix.

My dad lived in Paradise Valley in Phoenix. When my mom and dad split up when I was eight, he moved to Ohio with his third wife to take a job with a promotion with O.M. Scott, the fertilizer division. My dad literally sold shit, literally sold shit, metaphorically and actually physically. I remember people coming over to our house in Laguna Niguel and bringing like a crock pot or bringing like, I don't know, cutlery or pans and barter. And my dad would give them bags of fertilizer. Anyway, moved to Columbus, Ohio, Worthington, Ohio. Essentially abandoned me, but that's an entirely different issue to go to work for O.M. Scott. And then began a slow wind down of his career as he was part of what I'll call the re-engineering generation. Remember re-engineering,

which was basically Latin for fire everybody back in the 80s? And slowly but surely worked his way down the corporate ladder and ended up in Arizona and Paradise Valley. But I used to, the thing I remember about it is how beautiful the sunsets were. And that's where my dad got me into running. One of the wonderful things my dad got me into at a very young age was physical fitness. Anyway, that's not what you asked. That's not what you asked. Okay, so Stripe. The payment space in Bitcoin is just, or loosely speaking, the payment space is one of the many spaces I just can't wrap my head around. I will say I think Stripe is a juggernaut. Whether it's undervalued or overvalued, I don't know. What I will tell you, what I would tell you is about investing through these

secondary markets, things like Forge, Second Market. I think there's another one called MicroVentures. Anyways, there's a few of them. A couple of things. One, they are typically fee laden. You have to spend between 4% and 10% on fees. And I would argue if you were going to do that, I mean, a couple of things. I think the algorithm or the algebra of wealth is find sectors that you think are growth sectors. Payments qualifies, right? Bring discipline and focus. And that is focus on making more money than you spend. Stoicism, live below your means. Live below your means such that you can start putting money into investments. It sounds like you've done both those things. Then it's time. Don't buy stocks you don't

want to hold for years. And then it's diversification. Make sure you're not more than 30% or 40% if you can help it, or 50% if you're younger in any one sector. And try not to be more than 10% or 15% in any one stock or more than 5% when you get to my age. So anyways, payments, you sound like a responsible guy. It sounds like you're doing all of this. What I would suggest is if you're going to do this, do your homework, find out where shares are available and try and see where you can get the lowest fees, if you will, fees or eat up returns. And two, diversify. If you're going to do this, if you're going to buy shares in the secondary market as a retail investor, know you're playing at a disadvantage versus the institutional guys. You have to pay higher fees. And two, create a basket. Don't just do Stripe, do others, whether it's, I know SpaceX has an active secondary market. If you like payments, try and find a few others. Again, the key, the key, the algebra of wealth, algebra of wealth, focus, focus on something you're great at so that you can make money.

Stoicism, always spend less than you make, live below your means, times diversification, times time in the market. Thanks for the question. Good luck. Okay, algebra of happiness. The biggest story, the biggest story of the year so far is that reportedly data out of Israel shows that your transmissibility post-vaccine is reduced by 89%. This is enormous. This is so exciting, so exciting because there was real doubt around, okay, I get a vaccine and I'm protected, but I can still transmit it, or that was the fear, right? So, there's less of a reason to get a vaccine. If you're 30 years old and healthy and of a certain demographic, specifically you're thin and white and have O type blood. Your odds of having your odds of mortality from this thing are probably no greater than pneumonia or flu. So that led to a narrative I kept hearing among a cohort that I know that I'm

going to wait. And that is, I'm not in a high-risk group, I'm in a low-risk group, and I'm going to wait. And my view was, well, okay, boss, it's not about you. It's about not being a node of transmission. It's about not being a web of fiber and the web of death that's snaring people across our nation. We can't figure out the exact attribution of who's a node of transmission. There's a, by some estimates, somewhere between a third and two thirds of people who have this thing and transmitted may not have even known they'd had it when they transmitted it. Anyway, we now know, we now know that it appears, it appears your transmissibility goes way down. So the question we need to ask ourselves

when it comes to the vaccine is not, are you afraid of getting COVID? It's, are you afraid of someone you love getting COVID? And let's talk about that. Do you love other Americans? Do you love seniors? We all want to love our brothers and sisters across the nation. So this is a way to express empathy. This isn't just about you. This isn't about you. This is about others. And now there's proof that you don't need to be a fiber in this web of death.

We need more empathy. And I say this a lot, and I'm trying to practice it. And it's important to say it out loud. But Twitter, Facebook treat you to be more terse and more of an asshole. They treat you to dunk on other people. Dispersion, regressing or reverting or retreating to our homes and distancing, less interaction, less empathy. We don't see the homeless vet. We don't see the single mother.

We don't see people of different income groups at the mall or at the restaurant or at the movie theater. We have to practice empathy. We have to say out loud, how do I love other Americans? How do I express that sort of, what is love? No, I don't think anyone really knows love until they have kids. And I define love as something you care more about their well-being than your own. I never felt that in the remotest sense in the world until I had kids. And then thought, Jesus Christ, it's no when I sit with my kids, I sit with my boys and I eat with them and we talk about their homework. And, you know, you have those moments as a father and as a parent where your heart just wells up. I was thinking the other day that my 13 year old, he's two thirds gone. I got him for another third. His first 13 years have gone so fast. I got another third, I got another six years with him and time keeps going faster and he's gone. He's out. And I was so, my heart was so heavy. And, and I remember thinking, you know, I wanted to express to him,

you know, you know how much we're going to miss you when, when, when you leave for college and it's going so fast. And, you know, I just sort of gave up. There's no way anyone can understand it. There's no way anyone can understand it until you love something for the first time. And for me, that was when I had kids. And as I've gotten older, I've realized, okay, love is not just something that happens naturally. Love is something you need to practice. And it just strikes me that to say out loud, to think out loud, I'm going to love other Americans. I am going to make sacrifice. I'm going to insert a function into this equation, into this algebra of concern for other people, regardless of the inconvenience

or regardless of the calculus I've done around my life. Get vaccinated. Express love to our brothers and sisters across the nation. Our producers are Caroline Shagrin and Drew Burrows. If you like what you heard, please follow, download, and subscribe. Thank you for listening. We'll catch you next week with another episode of The Prop G Show from Section 4 and the Westwood One Podcast Network. Support for this podcast comes from Klaviyo. You know that feeling when your favorite brand really gets you. Every moment count. Over 100,000 brands trust Klaviyo's unified data and marketing platform to build smarter digital relationships with their customers during Black Friday, Cyber Monday, and beyond.

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