This Week in Startups - Banking crisis impact, more Meta cuts, and GPT-4 with Sunny Madra and Vinny Lingham | E1700

Episode Date: March 16, 2023

Vinny and Sunny are BACK with Jason for another roundtable! First, they cover the aftermath of the bank shutdowns (2:54) before breaking down the impact on startups and the overall economy. (14:14) They also cover Zuckerberg announcing more cuts at Meta (1:05:49) and OpenAI launching GPT-4! (1:10:55) (0:00) Jason tees up today's topics! (2:54) Reflecting on the aftermath of the SVB collapse (12:50) Cast.ai - Get a free cloud cost audit with a personal consultation at https://cast.ai/twist  (14:14) Understanding the origins of the banking issues and the Fed's response (27:10) Vanta - Get $1000 off your SOC 2 at https://vanta.com/twist  (28:09) Signature and Silvergate troubles, overall lessons from the past week (39:33) Orgspace - Get $2000 in credits at http://orgspace.io/twist  (41:04) Understanding CBDC (56:11) Things to consider going forward, payroll crisis (1:05:49) Zuckerberg's "Year of Efficiency" and OpenAI launches GPT-4 Subscribe to our YouTube to watch all full episodes: https://www.youtube.com/channel/UCkkhmBWfS7pILYIk0izkc3A?sub_confirmation=1 FOUNDERS! Subscribe to the Founder University podcast: https://podcasts.apple.com/au/podcast/founder-university/id1648407190

Hey, everybody, hey everybody. I'm joined by Sunny and Vinny for another great addition of our crypto roundtable. But I don't want to limit this to the crypto roundtable. Sunny and Vinny are like just so great in terms of entrepreneurs and thinking about the industry that I may change this from the crypto roundtable just to my founder roundtable or something, because they're so insightful. We talk about the banking contagion and how it kneecap the crypto industry because what's happening in the banking industry, Silicon Valley Bank, and what's happening with stable coins,

and what's happening with crypto banks, it's all related. And we also talk about the U.S. potentially adopting a CBDC, having their own digital currency, and how to do risk management, and how social media is accelerating everything, including bank runs, and how people just absolutely ignored the seeking alpha story that months ago predicted what would happen in Silicon Valley Bank and how you can protect your startup and your treasury in these changing, times the startup ecosystem is going to be changed forever because of what happened in the past week. And Sunny and Vinny have been, you know, just incredible players in that same ecosystem. And so what they're thinking about and what they're doing with their own companies is critically

important. And then we touch on Darth Zuckerberg. That's right. Zuckerberg's Euro of Efficiency is well underway. He laid off 10,000 people. He was so enamored with how much more efficient his company got that he decided, I'm getting rid of those 5,000 open positions. And you know what? I'm going to cut another 10,000 people. And we're going to talk about playing the game, the startup game, as the rules and the game is being played today. You've got to play the game on the field, not the game that we were playing three or four years ago. And we break down exactly how you need to change your behavior as a founder and a capital allocator. This is a critical show for you to listen to. Stick with us. This week in Startups is brought to you by Cast AI. If you run cloud. native software in the cloud and it's been a significant cost driver listen up cast AI automates cloud cost reduction with clients saving an average of over 60 percent twist listeners can get a cloud cost audit with a personal consultation free of

charge visit cast dot AI slash twist to get started Vanta compliance and security shouldn't be a deal-breaker for startups to win new business Vanta makes it easy for companies to get a SOC2 report fast Twist listeners can get $1,000 off for a limited time at vanta.com slash twist and orgspace. If you're a startup and you aren't building a performance culture, your competitors will eat your lunch. Get $2,000 of credits on pro plans with a 30-day free trial atorgspace.io slash twist. Okay, everybody, welcome to this week in startups. It's time for our crypto roundtable with two of the smartest people.

people I know in Silicon Valley, we're going to widen the aperture here to talk about all of the things going on with banks right now and what is happening in Silicon Valley because of that. Sunny Madra, Vinnie Lingham, welcome back to the program. Good to be here. Good to be here. Yeah, likewise. So just generally speaking, both of you are entrepreneurs, both of you invested startup companies. Sunny, your general take and were you impacted by the Silicon Valley Bank shutdown? What was last, you know, week or so like for you going into this? Yeah. Well, look, um, fortunately in definitive, uh, we didn't bank with SVB. Uh, but, you know, my last two companies, they were a big

partner of ours and we used them and they were great. We just didn't use them this time for kind of various logistical reasons that, um, and nothing to do with the bank and what happened. I think, I'd say, you know, since last Thursday, it's been really hectic for entrepreneurs and friends that were banking with not only Silicon Valley Bank, but other local banks like First Republic. And it's been a pretty stressful environment. And to be honest, what made Silicon Valley Bank and First Republic really helpful is that you felt a kind of direct connection with the folks that you work with there and they made the process

easier for startups. Now that, you know, in general, I think every startup is having to go through and work with like, I guess what they call like a GSI, right, like a globally, systematically important bank. And, you know, that puts you in the category of like a J.P. Morgan, Morgan Stanley, Bank of America. You know, you kind of now feel the pain of what Silicon Valley Bank made easier for you in terms of getting set up. And they understood that we were small businesses. You know, you work with J.P. Morgan. Everything has to be a wet signature.

So you have to kind of print everything out, sign it, scan it, send it back in. So we're going through like an interesting transition here. And it's really unfortunate. I think there's going to be a pretty severe impact on the startup banking ecosystem that is going to be felt at all different levels, you know, from borrowing to, you know, my first mortgage was through First Republic. I know people have done similar with Silicon Valley Bank. So I think this is a real negative for the overall sector.

What's happened? Yeah. And Vinny, your thoughts? and what has your past week been like even crypto people have to use fiat from time to time or maybe even most of the time? So what has

have you been impacted? What have you seen in your circles? And then what do you think the ongoing situation will be as we go into week two of this at some point? So two companies, I have one company where I'm a investor in and they had an age figure

some of money stuck in Silvergate on Monday. They managed to get it out to put it in Silicon Valley Bank on Wednesday. And then they had to run for the hills on Thursday and move eight figures again. So they moved a lot of money

over the course of four days and trying to get bank accounts and whatever else set up. It was kind of frightening. And then the other company moved the money out of Silicon Bank on Thursday into First Republic on Friday. And then we were having emergency calls

being scheduled for Sunday morning because we thought the whole bank falling apart. And, you know, I'm a board of this company. And I was like, okay, well, let's just wait until the evening because I don't think this is going to even go. Like, we're going to just waste time trying to like plan our scenarios that may not even happen. Let's let the regulars come back. And that's what happened. They came back and they back stopped it and we were thankful. But I did buy gold. I think I told you on Friday. My first time in my life that I actually bought physical gold, I said, you know what? Now's the time to go buy some physical gold.

Don't have a lot of it. Just have enough that you, you know, you never know. Well, and then here's the interesting thing. What we saw, and this is, I think, one of the things people maybe from the outside didn't see if you were an insider. And this just happened to be that we were insiders on this bank run, this banking collapse, this banking seizure. You know, other times this happened in other regions or other sectors. But that one company you had, I wasn't aware Silvergate was having problems. But I was aware Silicon Valley Bank acutely. I was aware that First Republic and some other ones, people were asking questions about. And so now you're in this prisoner's dilemma. You're seeing three specific banks having either a full run, quasi run, or maybe rumors. And what is a person to do when that's happening? And then you see people lining up, you know, outside of a bank. And people are saying like, oh, that's nothing. And I gave that some thought. And when I saw pictures and it was from multiple people. So somebody said, oh, I, I

I saw the bank, the famous now bank in San Vicente in Brentwood, a First Republic and they said, hey, First Republic's got people lined up outside of it. I was like, well, that was my bank and I used to live there. I walked past that bank, no less than a thousand times over a decade, going to the beautiful Italian restaurants and cafes on San Vicente there in Brentwood. And I'd never seen a line there and quite the opposite. I used to park there sometimes knowing that nobody, you know, like on a Saturday or whatever, like their parking lot was, you know, had enough spots that you could jump in there. And, you know, if you're a banking customer, maybe go get a Starbucks or a bagel.

So it really did look like, hey, this is going to tip over. Thank the Lord, the Yellen and the Fed backstop this. So let's talk about like maybe, does it feel like it's gotten much calmer or calmer? People seem to be feeling like, okay, I'm going to be able to get my deposits. But what's the general tenor out there? And I'll go Sunny to Vinny this time. What is your take on the temperature, sunny? And then I'll go to you, Vinny.

Yeah, I think definitely the Fed stepping in and people being able to get access to their money because that, you know, the folks I was speaking to on Friday, you know, I wasn't in that situation. I'm sure maybe some of your companies were, people were panicked, right? Because the payroll was about to run. Because you got to, you know, today's March 15th, right? So the money's got to go in for the payroll last Friday or on Monday. So everyone was in a really dire state. So I think the level of anxiety is reduced from what it was. I do think that we are in a scenario. right now. And because of there's so much information available, there's all these Twitter threads out there that there's not enough transfer. Like the Fed has stepped in and created a backstop, but there's a lot of information that doesn't make things clear to folks. And so let me kind of lay it out from the perspective that I'm hearing. There's the new CEO of Silicon Valley Bank and Silicon Valley Bank themselves emailing

people saying, hey, come bank with us. Everything's okay. But it's not very clear. Why is everything okay? because the bank went bankrupt, so it's a new bank, but it's run by the government and how does all that work? And I think, you know, some more transparency is required there and explanations to folks. You know, similarly, First Republic sent a bunch of emails out saying, hey, don't worry. We have this liquidity line backstop by J.P. Morgan.

So please continue to bank with us. And then you have all the noise from, you know, what happened at the end of last week from your investors, you know, very sophisticated folks saying, make sure you go to us, you know, kind of like a GSI and have your money there. So I think the clarity is not there right now. And then the ups and downs of the public market, which gets amplified in the news cycle. So like, you know, today, it's Wednesday, right? When we will air this afterwards, you know, CS is way down. First Republic is down again, right?

And so all these kind of factors aren't leading to any clarity for anyone. And then I'll add one last thing. we also saw a bunch of VCs kind of say, oh, we support money going back into Silicon Valley Bank, but no one's giving the reason why. So I think that's the, there's still a huge amount of anxiety and a huge amount of uncertainty that exists because we don't have clarity as to, you know, where we should put our money, who we should bank with, where it will be the safest. You know, we have, and I'll add actually one last thing. And I tweeted this earlier today. You know, the Fed, which caused all this and say, hey, there's $620 billion.

of unrealized losses out there because of the rise in interest rates. That's not like a small number, $620 billion. Exactly, right? And here's the chart for people who aren't watching and you see the, you know. Yeah. And so. In the chart, maybe, sent any since we're going to pull it up here. Yeah.

So basically, you know, all banks, not just the ones that we're talking about, hold, you these two types of assets. And I'm not an expert here. So maybe I'll let Vinie or yourself chime in, Jacob, but hold to maturity, H-TM securities and available for sale. Available for sale is stuff that they generally can sell pretty quickly. HTM is the long-term stuff, 10 years out, mortgage-backed securities or even treasuries. And so what we can see here is that as interest rates went up, those long-term assets became,

you know, their immediate value, time value of money became lower. And so those have not been marked to market. And this is what triggered the Silicon Valley, a bank problem, is that when they came out and said, hey, we need to sell some of these. And then they had to mark to market, I think like a $1.8 billion loss, people started tripping out because, you know, that created. holes in their balance sheet. And I think this 620 billion is much bigger than Silicon Valley Bank or, or, you know,

First Republic or anyone else, exactly. And this clarity is still not given to any one of us. So I'll kind of throw it back there. Like maybe even to you, J-Calphers, like, what do you think? Because you've got startups. And when you see this, like, how is this going to be absorbed and how is this going to impact us? Past AI audits and optimizes your cloud cost and performance. for you, which the cloud companies don't do automatically, right? You have to do it. You have to

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dot a.i slash TWIST for a free cloud cost audit today. And we met with the founders last week, and they are really excited to help founders and listeners to this week and startup save on their cloud bills. So give them a call. Go visit cast.a.i slash twist. It's a great question. And to people are like really concerned about my disclosures. I have accounts at Silicon Valley Bank, First Republic, and probably four other bank accounts. I think we probably have six, and we've always had it that way. I was trained early on in my career by one of my operations mentors, Elliot Cook, that like bank failures do happen or like just money can become unavailable for whatever reason. A bank account could get locked for some reason, who knows.

He always just kept our money, whether it was the magazine Silicon Airport in the day, weblogs, Inc, just on and on. We just always kept it in four banks, three banks, some amount of, redundancy, literally in case an employee went rogue, on either side, it could be a bank employee, it could be us, could be a mistake, right? So if you have things in three places, that's always been my best practice. And I do that personally.

I do it professionally. And then I did do two mortgages with Silicon Valley Bank, which is the most wonderful experience ever. They come to your house, white glove, in my case, because I have a podcast, maybe perhaps, or Twitter followers. You know, five, ten years ago, they used to

sponsor our events. And, you know, they set like six people to the house, eight people to the house. And we had wine and congratulations at the new house. It's all very charming and like, I think kind of how banking should work when you buy a house and you're, you know, like this white glove service. And it was quite charming and wonderful. I still have on this office I'm sitting in here, which we're in the process of selling, a tiny de minimis mortgage from Silicon Valley Bank. But what made it nice was at some point, somebody told me in Silicon Valley, you know, like instead of going through like going to the offices and having to wait in some big bank's office, Silicon Valley Bank, Comerica,

First Republic, they'll just come to you, you'll have a nice conversation, have coffee, you have a banker, and it was like, wow, that's like, wow, you could email them. You could text them, you had their phone number. And this kind of relationship was like, wow, this is wonderful. And so that being lost, I'm really, but, and I don't have any short or long positions, but I am thinking about J trading and buying some of these bank stocks this week because wow, okay. I do think that like some of these banks, buying them, by the equity. That's $620 billion of losses there. Well, I do think, like, you have to do this selectively, right?

But I do think some of those, you know, the, I think the ultimate thing that has to happen here. Very simple. The government is just saying, instead of saying we have this like $25 billion loan facility, they should just say, because of the raise in these interest rates and because these are our devices, right? These are government-backed devices, treasuries. And so they could just say, you know what? we are going to create this facility. It is covered no matter what.

All $620 billion is covered. And it's covered and it will be a recourse back to anybody who uses a facility. So it's not a cost of taxpayers anything. If you choose to do this, we're going to bill you back over time. We've set up a 20-year window here and we'll have this facility. So if people do need to trade out of them, they're going to have to do it. They're going to apply. It'll be public that they're applying to do it.

We'll backstop it in the government. But that bank or that entity will owe us. It'll be senior debt to them and whatever. So there's some recourse to it. And so I think they did a great first step. Hey, all your deposits will be safe. That stopped the bank run. And people are like, oh, Silicon Valley is trying to cause a bank run.

That was the allegation. It's like, we're actually reporting on one that happened and is now over Silicon Valley Bank. And we're the Silvergate one, which I was not aware of. Like, oh my God, that one is actually happening. And I didn't even know about it. And then First Republic, whether that was a bank run or not or just people concerned, rightfully, wrongfully. whatever it is.

You know, today we have two ratings firms that cut First Republic's credit rating to junk on the risk that depositors could pull their funds from the bank. So cause and effect, you know, I think when this is the thing about social media today and these bank runs, you have no choice but to say what you're seeing, right? What do you hide the fact that people are lining up outside a bank? Yeah. And I think what everyone is, everything is being lost is like, you know, it's very clear from those charts, right? The quick rise in interest rates has created a problem in the banking system.

And the banks, you know, obviously they should hedge and they should do all the appropriate things and follow regulation. There's some stories around some regulation was reduced. But at the end of the day, they just weren't able to kind of keep up with sort of what's happened because the rise has been faster than, you know, we've ever seen before. And at the end of the day, Jaycault, like what you're proposing is sort of, and I again, I'm not an expert here. I'll let you guys chime in. But like that's quantitative easy, right? And that's what the, you know, government has been doing. And that's inflationary, Jekal.

So the problem with $600, you know, backstopping $600 billion is you're going to create inflation, which the Fed is trying to prevent right now. So even if it adds a couple of basis points or half a point or even a point to the inflation numbers, it's not good. And then they're going to have to be forced to raise rates. It's a vicious cycle, right? You create this inflationary loop. Now they have to raise rates, which impairs the balance sheets even further, which means

you can't get out of it. It's a debt trap. And so this is the problem. with their face it right now. This is why they can't backstop the $600 billion. But what they have to do is, I mean, yesterday you asked me, I would be like 100% chance

they're doing a 25 basis point hike. Now I'm down to 50-50 on zero versus 25. And I think that they basically have to probably stop raising rates. And the market and the bottom market today, everything's collapsing because they're busy pricing cuts down to 3.something percent later this year. So the market's worrying.

And by the way, oil is the biggest indicator of whether there'll be a recession or not. And the oil price is down sharply today. And, and, you know, I'd say oil is probably more indicative of what deflation looks like than inflation. Because demand will go down. Yes, exactly. If people are predicting demand is going to go down. And so all of this is like very complex systems.

And, you know, for startups, you know, the best practice has always been to have, you know, if you have large treasuries to manage them with redundancy in mind. and to have the supply chain be stable, right, and redundant and strong. And I think that's what we're learning, whether it was COVID when we had single points of failure. Now we're seeing single points of failure in banking. You just have to consider this thing.

So talk to me about Silvergate, because I was not of any aware of this firm in a major way, but you guys were. And so how does this all play into crypto? So Silvergate created this thing called the Silvergate Exchange Network where they had all these crypto exchanges able to move money between each other instantly on the back of their rails. And it was very successful. So, you know, Cracking could move money to Coinbase. They can move money to Binance.

I don't know who the participants in the network were, but, you know, call it 100 or so exchanges. The problem here is back to the KYC problem in crypto. And the KYC problem, and I don't know what I've said before on the show, but I'll make it clear. The KYC problem in crypto is that crypto crypto exchanges and banks don't operate on the same risk profile. With a bank, Jason, if you onboarded a bank and you write a bad check and it bounces and you run away, the bank's liable on that check if it's been paid.

So they take principal risk on instruments like checks, for example. On a crypto exchange, if I go sign up on an exchange and I'm a criminal and I deposit, you know, a Bitcoin. And after one, like, after six blocks, it's over and the exchange can't lose that Bitcoin. Now they'll make it available for me to trade or withdraw or whatever else, right? So in these two circumstances, in the banking side, they really care who you are because they have risk. They can lose money. On the crypto exchange side, they don't give a who you are because they have no risk because

crypto settles instantly virtually. And KYC is know your customer. There's a very specific banking loss around this because of money laundering taxes and charitism. And for background, like, I mean, I built Civic, which is a KYC, AML, identity platform. We tried selling the product into exchanges quite heavily, especially in the earlier years, a couple of years ago, five years ago, four years ago, couldn't get any traction. And the reason is that our decline rates were too high. So in other words, we would find our products were so high fidelity that we couldn't offer them the product that they wanted. So the product that exchanges want is they want the lowest decline rate. So they

say, oh, they don't care if Sunny's a criminal, they don't care. They just want to tell the government that they use the service and it worked and the service failed because then the liability shifts to some extent. As long as they can show the exercise due diligence, it's frauds part of the game. But they don't have, they don't play by the same rules of the banking system. The crypto exchanges don't have to, they don't have principal loss on transactions. So they will take what, And so you have this whole like ecosystem of really shitty KYC AML providers that supply services to crypto exchanges around the world for many countries that just do the bare minimum. And so it may be Jason. Okay, we'll let it pass.

And it's okay. Because the exchange doesn't care. Once you through the door, they'll wait for the transaction to clear and they don't lose. So the problem here is now you're layering that on to something like the Silvergate Exchange Network where you have some exchanges with very weak KYC AMR requirements. They're offshore. They're in weird places in the world, islands, et cetera. And then you have Coinbase, which is a pretty good, solid, secure exchange. And they do the right job, I think, to probably better than most people.

And, but now they're removing funds between each other. So now you have the ability for people to mix and co-mingle funds from bad KYC exchanges to good KYC. Now, that's my take and why I think the government probably stepped in, just from someone who's been in the industry on compliance for a while. I think that this opaqueness of the SEM network, silver age, it was just too much. And I think regulators said, we just can't handle this and this is not. So regulators shut it down. Or they were, they

file like a lawsuit or they? No, I think it was just a orderly shutdown. Was it sunny? Is it a regular shut down? I think it was. You know, I'm not as familiar with the Silvergate one. I, like, I know signature is the one. So just to make some clarity here, signature is the one that they looped in

with Silicon Valley Bank, right? Yes. And signature was, also a key banking partner to the crypto ecosystem. Yes. Interestingly, just a quick note, you know, a key piece of legislation, Dodd-Frank, which, you know, gets referred to as created in 2009 post the great financial crisis. Barney Frank, who's, you know, part of the named person on that, that legislation who led that.

God Frank, legislation. Exactly. He was on the board of signature. And what he came out and said on Sunday, which was really interesting, was that he felt as though signature was targeted because it was a crypto-friendly bank because it did not have a, I guess, insolvency problem. And he was quoted saying that. And so I thought that was really interesting as well. And, you know, there's a layer to this conversation. Maybe it's worth a quick aside.

it's a little bit kind of speculative, but like, you know, about Silicon Valley Bank and the name Silicon Valley and then these crypto banks, right? In that, you know, the current administration, we know their feelings towards Silicon Valley, right? And you guys have talked about it. And technology, probably speaking.

And technology, exactly. And how would you describe it? I would describe it as a, you know, I think there's a lot of angst towards that group, right? and and hostility it would be some people might look at it as openly hostile some people might look at it and say they are challenging

or concerned about the power that these and the impact that these companies are having so the charitable one would be yeah they're just concerned about the power they have and then the uncharable one was maybe they're just openly hostile and the right thing is probably some combination of both of those things right and so

you know what's really fascinating about this past weekend in signature being pulled into this, especially with, you know, Barney Frank involved with it and his comments is, you know, I think as the investigations go further here to understand what's, you know, what are the real motivations of the government. And I think this creates also just some uncertainty

for startups as well. And just so I'm clear with everybody, Silvergate, they wound themselves down. Yeah. They are this back end for all of the crypto exchanges to do those sort of settlements. Signature is another bank. This is the one regional bank. Regional bank. And they were shut down on Sunday the government announced. And that was kind of shocking. If you're a SaaS or services company that stores customer data in the cloud,

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That's Vanta.com slash twist for $1,000 off your sock two. Vinny, your thoughts? I think the Silvergate debacle was a fallout from FTCS, by the way. I mean, they lost a lot of money through FDX, and then the deposit started pulling money. And so they just wound down because they realized they couldn't sustain it. So it was a lot more orderly than obviously Silicon Valley Bank. But it was collateral damage from it.

FTX. Interesting. Yes. And Signature Bank was taken over. Silvergate elected to unwind. By the way, by the way, let's just go, let's be clear on this. FDX was the biggest show ever in crypto. And that actually proves my point I was making about the exchange network because

they were moving funds back and forth through this stuff. FDX is a, it was a clown show. I mean, I was never a Sam Bankman-Fried fan, never a FtX fan. I passed on every investment opportunity into that company. Like, I did not like them at all. and Silvergate obviously was facilitating a lot of crime through the network with FTX. Is the overall lesson that we can take from this is unregulated, even regulated, even highly regulated. No, no, no, but hold on, SCN wasn't regulated.

So the exchange network was not approved by regulators. Oh, no, I was talking about Silicon Valley Bank. Even the most, the Silicon Valley Bank isn't as regulated as the larger banks, but significantly regulated. maybe they were let loose a little bit and they had removed some regulation and then this happens. And then you have no regulation or little regulation in some of the crypto exchanges or FTCs just, you know, yoloing it and committing outright fraud according to. The biggest issue, Jason, is that in my opinion is that the regulator, this is a regulatory failure. The regular has failed. They failed in two counts, in my opinion, with Silicon Valley Bank.

The first one was reducing the liquidity. requirements back in 2018 because they argued they were not a systemic bank, it's such a critical bank. The second massive failure was, and this is for the entire banking system, is allowing people to say, oh, if I hold this treasury or the security to maturity, I don't have to mark it down, mark to market. Yeah. That is the single biggest hole in the whole banking system right now.

Because basically what you're saying to these bond traders at the bank, you can take an inordinate amount of risk. You don't have to hedge out the credit risk over a long time frame like 10 years. And for kids who basically were in high school with the financial crisis, if that, maybe even elementary school, they've never seen down markets,

they've never seen downturns. They don't know how the shit plays out. And we have. And when we look at this, we go, oh, there's no way you can expect interest rates not to rise within a 10-year cycle. You know, like it just doesn't work that way and not to have like black swan events

and everything else. And so the incentive for these bond traders is to, you know, a lever up, which we saw in the UK, a lot of the banks were very highly leveraged with bonds in the last year. And probably some of it happens in the banking sector in Silicon Bank. I don't know the exact numbers, but you're using leverage, you're buying bonds and you're putting on your books and you're saying, ah, we'll hold to maturity. And, you know, and no one's going to come to us and try and withdraw all their cash. So you're layering on fractional reserve banking with long-term bonds that are illiqued.

and hold to maturity, and then you put accounting standards on top of that that says, it's okay. And then adding to that, Sonny, you have, I think it's well said, Vinny, and Sonny, adding to that, you have the Fed losing credibility. Oh, inflation is transitory, and then, oh, you know what, it's not, and it's acute, and we need to have the fastest rate hikes in the history. It's just a little bit crazy. Actually, that's a really good point.

And to sort of, just double take on that for a second. reason these guys took these huge trades on bonds. Like, I've never owned bonds before. I'm not a bond fan. I think the risk reward ratio, not my style of investing. So never touched it. But 2021, everyone is piling into bonds. Everyone's piling on the simple premise that the Fed had no credibility and they would not

be able to raise rates. Right. Surprise. Surprise. Yeah. Surprise. And it's like they're supposed to be the ones who are the insightful adults at the table, the referees and the referees,

Sonny, seem to maybe don't know how to call the balls and strikes in this situation, huh, Sunny? Yeah, I mean, it's two things, right? It's like we were kind of saying over the weekend, like Silicon Valley caused the run on Silicon Valley Bank, you know, and so, but

maybe it was for the right reasons, like having more transparency and having all the information out there is good. It's like the Fed is now causing the problem with the banks, right? Because of everything they've done. And so like who can you trust that that kind of goes back to your very first question you asked me it's it's a very difficult spot to be in because you know I don't think we're through everything we don't

have enough transparency we don't have you know we don't have anybody that comes out that we can say oh like you know here's a trusted standard person that's been through it before you know like a lot of us wait for Larry Summers or something else to come out and say a few things but it's a really scary time from from that you need to have leadership at a time like this and there seems to be a leadership void, or you have institutions that have lost credibility like the Fed, for a lot of people, the people are like, what's going on with the Fed? Like, what are they doing? Like, this doesn't make much sense.

But which brings us to a technology in crypto, which I've always believed was one of the two or three smartest things I had seen come out of crypto. And Web3, which was stablecoins. Stablecoins to me sounded like one of the great products that technology could provide in the world. Now, they also seemed like one that should be highly regulated. We've talked about Tether for five or six years now. But USC circles stablecoin where you pegged a dollar of assets to a dollar value.

And then the question became paradoxically, given what we're talking about here in terms of the value of treasuries, what is in the treasury of TEPA? What is in the treasury of USDA? USDC very briefly. I'm not sure if it was 24 hours or 12 hours. but very briefly. It was like three, about three hours. Three hours,

okay. Explain what happened in terms of it, depegging and what depegging is. So to your point, like startups, like everyone else, right, part of Circle's treasury,

so the money that backs USDA was sitting in a number of banks. It became quite transparent into Circles credit. They published it themselves saying, hey, they had $3.3 billion of their,

you know, total assets, which, you know, I think was north of like $20 billion. So, but, you know, a significant amount

with Silicon Valley Bank. I think it was a third of their cash. Oh, okay. I thought it was, I thought it was one six, but we can put it. Okay,

yeah, it might be, right. Yeah. But, but so what it happened is once they announced that, and before we had sort of

the measures from the Fed and the FDIC around, insuring depositors, you know, the speculators started to speculate that that, that amount would be lost because, you know, maybe it wasn't insured or we wouldn't get it back. And so that led to the depegging. And the speculators basically driving, you know, the price, I think all the way down to about 92 cents at one point, right? I know someone who picked it up at 80 cents, by the 80. Okay, so down to even 80. I'm sure there was a few trades there. And by the way, the $3.3 billion was 8.2% of their total reserves.

So it wasn't that crazy, but it was significant. But that 8.2 sort of J-Cal lines up to, you know, at least the drop from, you know, one to one to 92 cents. And the speculators probably pushed it a little bit lower down to 80 cents. Like a few people probably picked it up there. And that's exactly how much it dropped because, you know, the community, the speculators are saying, okay, well, that 3.3 is lost. They're never going to get it back.

You know, the government's not going to step in. everyone's going to lose their money. But then as soon as we started seeing the recovery measures, that really shot back up right away. And it's back to like 99.5 or something like that. And so in a couple of different ways, why is this interesting? It did what it was supposed to do, right? It said, hey, those dollars were lost. So its backing wasn't one for one at that point, down by 8%. And it depeged by 8%. And as soon as we saw that come back, we saw it go back, you know, back to one for one. So I sort of believe it showed what having a true stable coin with a transparent company behind it can do. It can act the way a market should act. Now, that was

terrible for a moment what happened there. And it wasn't their fault because obviously they were just distributing their assets across a bunch of different banks. So in my view, it acted the way we should see a stable coin act if part of the treasury of a stable coin was lost. which is, I guess, Vinny, what you, we didn't have in Silicon Valley Bank, which was the mark to market. You just brought up, like, why aren't things marked to market? Here you have Circles, USC, if you put in dollar sign, USDC into Google or Twitter, you'll get to see people talking about this specific asset, a stable coin. The stable coin assets are published on Circle's website and tethered to a lesser extent, kind of got dragged, kicking and screaming

to disclosing what's in there. Remember that whole Chinese paper thing? Oh my God, do they own a Chinese paper that would maybe be less transparent or manipulated or untrustworthy in an authoritarian country? So that actually speaks to maybe a better road forward, which is all these assets should be published on a page somewhere, and they should have real-time data,

and then there should be more transparency, and then that would drive people to make better decisions as to where do they want to put their money. If you want it secure, you would want more, you know, cash and less long duration bonds or, you know, less Chinese paper as but one example. And maybe that would drive better behavior, huh, Vinny? So let me just like divert that question for a second to tell you the point here. Like, don't you think it's interesting if we get to a central bank digital currency, whether it's the U.S. other parts of the world, where in which banks is just basically wiped out.

Like, why do you need a bank? This is going historically because it's a physical point of presence where you go to, you deposit money, you get a certificate of deposit or you get a bank account, you earn some interest, whatever. If it's all digital, why does any central bank need to have this army of smaller banks underneath it, just intimidating it from the citizens of the country? Now, I'm not in favor of CBDCs, I can tell you why. But I'm saying if you're a politician and you're looking at a central bank,

I'm not saying the U.S. I see other countries. It's way better just to just disdemeanied and say, we'll give you money. It's in your wallet. You can move it around. You can put it back. It's par value one to one.

It never drops in value because we're the issuer of that currency. So we can always print more, whatever the case is. And it's transparent how much is out there? What's going on? And the banking sector wouldn't exist. I mean, even mortgage loans, like maybe you have mortgage loans and other credit facilities, but the banks wouldn't be taking deposits. Okay.

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to hire great people, they're going to appreciate that you've done this. Try orgspace.io slash twist today and get $2,000 in credits. Explain for folks what, is it CBDC, Central Bank Digital Currency? That's the acronym. Yes, Central Bank Digital Currency. And this exists already in China. Yeah, exactly. So there's two schools of thought here.

One school of thought is central banks should stay out of digital currency assurances and leave it up to people like Circle. And I think there's a lot of pros and cons to that. The second trend of thought is that you should just eliminate all the banks, middleman. you know, you have to worry about insurance and deposits. It takes a lot of costs out of the economy. Everyone's banking, their phone is their bank, et cetera. And you may still have a form of banking, but the whole put money in, earn interest,

to let the banks go out and sort of arm the market sort of thing. In smaller economies or even communist economies, it may not make sense. So the government would have their own version of Bitcoin, of USDC, of Tether, whatever analogy you want to use here, Sunny, and they would control it. You would have an account with your government, and then you would open up your app with the U.S. Fed or whatever treasury, and it would show you you have a million dollars. Good luck, and it's always going to be there. Which means they can control inflation a lot faster. They can control the interest rate. There's a lot more control. Now, you give up a lot because you're giving up a lot of freedoms

in this point. And this is not something I think Americans would ever go for, but I can see in other parts of the world where freedom is like, yeah, a little bit more fungible. You know, people go, they don't exist. They're not taking anything away because you didn't have any. It might be a better system. So now you want to go borrow money for a mortgage. The government just gives you a loan. And it's government backed and, you know, you can cut, like, CBDCs can cut up middle

means quite, now would a CBC, CBC for a particular country become a global reserve? Probably not. Right. Because you would basically be saying China, here's our money. And then China could say at any point. Sonny, your dollars now below, all your dollars now belong to us. You know, us. So explain the absolute horrific Black Mirror authoritarian, stasi, you know, outcome that is

happening in China with this right now. Well, I mean, it's exactly what you said, right? I think they have, you know, full and total control of, you know, deposits and kind of the flow of the capital. and they understand, they have an understanding of where every single person is spending the money. You know, systematically, it's much more than just the money there, J-KEL, right? Like, they have, you know, kind of cameras everywhere. They have a social ranking system, right?

They have, you know, everything is taken into account. I think the minute you go down that path, like you're, you're kind of, you're all in on that and not just from a banking perspective, from all privacies, all freedoms, right? And, you know, we're living that experiment, you know, in society right now, right? And I don't know. I think I still, despite all this stuff that's happening, I still want to be the U.S. and I enjoy the freedoms that we have. And I don't want, I don't want to be ranked in a social ranking system decided by some government algorithm.

Well, yeah, to explain how absolutely authoritarian this could be, you know, WhatsApp is now supporting this digital one, which is the dollar basically in China. They're driving this adoption and they're doing these tests of the CBDC inside of WeChat in China. And so imagine, you know, if you were to buy something that you weren't supposed to buy or you were accused of buying something you weren't supposed to buy and you bought a VPN, a virtual private network, you know, something to protect your privacy. I think it just go in and say, oh, this person was selling VPNs. People were saying they were buying bagels and whatever, you know, dumplings. And in China, and they, all of a sudden, so it says, no, actually, they weren't selling, you know, this type of food. They were just selling VPNs. They just characterize it wrong.

Okay, who bought that from them? Who's ever transacted with that store? Okay, that dumpling store in the back was selling VPNs? Great. Bring me those 12,000 people. We're going to turn off all their access to money. Tell them to come to the bank. And now they're all in jail, you know, and being reeducated.

So you could literally have the government turn your money off. So now you have no money in the United States case to hire a lawyer. But the reason I brought this up is because this is where the government wants to go with CBDCs, right? They're looking at it, they're investigating it. They're not giving a circle. I mean, circles getting a little bit of pushback, right, from the government. And so do we want to live in that world? And this is where Bitcoin ultimately is the arbiter of truth, the cost everything, because no one controls it, right?

So even if governments issued a CBC, if they didn't manage it properly or took away freedoms, you're just going to Bitcoin. So I think it's a very interesting, a very interesting intellectual conversation where you can at least like debate the merits of whether or not a CBDC is a good thing. And I think in almost all cases, if the world all moved to CBDCs across every country, I think Bitcoin wins ultimately because at some point

someone's going to screw up and people are just not going to trust the government digital currencies. Yeah. And this is where I think crypto at its best when crypto is not people doing ICOs for projects that never get launched, or NFTs that, you know, are being front run or, you know, people are painting the tape and manipulating the price, all those kind of shenanigans. Where crypto shines is when there is a truly decentralized Bitcoin type product or a centralized

and accountable, fully centralized, fully accountable circle that has serious ramifications if they do something wrong. And then you have multiple options as a consumer. And when people are competing to make the best product, then you see people saying, okay, what are the edge cases? What are the pros and cons? And now we're going to position this product.

Okay, you're buying a Volvo. It's ugly looking, but it's safe. Okay, you're buying a Corvette. It's like a Ferrari, but a third of the price, and it goes really fast, but a little bit dangerous. And people can then, the public markets and consumers can pick what they want. And probably the right answer is you might want to have a little bit of Bitcoin. You might want to have a little bit of USDC.

You might want to have three banking relationships. So if you do need a mortgage, they can come over and crack some wine bottles and make it easier for you. And that kind of competition for the best products is what results in the best outcomes. But also, there needs to be some regulation on the field. And clearly, there hasn't been enough. And, man, you know, convincing people to reduce the regulations after what we saw in 2008, just 10 years later in 2018, and then unravel this stuff was clearly the original sin here in my mind. Yeah. Can I throw something to you?

Because I want to hear your take on it. Seeking Alpha called this out for Silicon Valley Bank in a December post. Yes. If Nick pulls it up, it's like the second bullet point even and they have a post about Silicon Valley Bank and they call out this

this issue with the HTM in the mark to market, right? And then there was like a hedge fund that called it out in a tweet in January as well. What happens like kind of with our society or, you know, the news, the press or like we can, or even investors, that no one listens to this. And yeah, there you go.

Unrealized losses in HTM portfolio already equal to book equity, right? This is December 19th. So this is, you know, like three months ago. I mean, literally, the title of this story on seeking out is SVB financial blowup risk. Like they literally, if they went in a time machine and they said, hey, let's write this article in a time machine. So everybody listens to us. Yes. And they really take this seriously.

The subhead of the summary, potential losses in loan portfolio could severely impact, impair book equity. Below point two. Unrealized losses in hold to maturity portfolio already equal to book value. Number three, funding environment for startups were pressure deposit base, any even more pressure to the balance sheet. They literally went in a time machine and rewrote this to give a warning. like this is coming.

Do not make the nuclear bombs because you're going to use them and it'll be Armageddon. Like don't make the AI. And this is. Yeah. And the byline is cash flow hunter. For people don't know, seeking alpha is a community type blog, I believe, where people under pseudonyms can put the stuff out there. Yeah.

And so my question back to you is because you've been in and around this for a while, right? This goes all the way back to your. web blogs, even Silicon Ellie reporter, like, when this happens and someone says that, and obviously, you know, the cash flow hunter has done the work to call it out. And really, bullet by bullet, why, what happens to us that doesn't allow us to react to this and do something? Well, it's a great question. I think part of finding the truth, right, because what we're talking about here is the search for truth at its core. And the search for truth is a messy process because journalists and investigators, they typically have a small amount of information. They pursue it, and then they try to build

what we would say in investing a mental model, right? They try to paint a picture. And it's kind of like puzzle pieces. Okay, I got a couple puzzle pieces. Oh, these three snap together. Okay, let me find a couple more puzzle pieces. Where could I find more of these? And then all of a sudden, you know, you get to that point where you're making a puzzle and it's the puzzle pieces start to snap in easier. Because you're like, Okay, well, this one has to go here. This puzzle piece has to go here. That's the process of the truth. Just like in poker, you're trying to unpack a hand of what's going on.

You have partial information. That's what happens in the messy journalism process. Now, you have the messy social media process where citizen journalists are saying, wait a second, I'm going to take a picture of this bank. Is that a line for a taco stand next to Silicon Valley First Republic Bank in San Vicente? Or is that the line for First Republic? Literally somebody said that. like, wait a second, I think there's a taco truck there.

Are they online for the taco truck in the background? Somebody said that. And then somebody says like, I'm going down there. I live around the corner. And some citizens of journalists that I'm going down there and taking picture. And this is the messy thing that we are now living through. So I think everybody has to become part of the process and understand that when you're on social media, you're in the thick of that process.

What journalists were doing quietly knocking on doors, trying to figure out is the Catholic church abusing children and are the priests being moved from, you know, different churches in being covered up. That's what the Boston Globe did in that incredible Pulitzer Prize winning series. They literally went door to door to try to find the priests and to try to find the victims. A slow, messy process that's now been accelerated. Then you add a layer to that. Sunday, I think you nailed really what's at stake here, is then you have, well, do you trust

the people who are on the other side who are denying something is happening. Like the Catholic Church famously denied there was any issue with child molestation in the Catholic Church. So I know it's a really hard thing for people to talk about that, but there was a massive cover up there and then eventually the truth came out.

It took a decade or two, maybe two decades. And so here we have an accelerant. So do we appreciate the fact that social media is an accelerant that people can go take this picture? Well, we're going to have to get used to the fact that when there is something wrong, instead of it being covered up, instead of it taking a while,

you're going to get all these kind of false information, but the process has now been accelerated. Same thing happened with COVID. People were denying COVID existed, right? Remember those months? Jay, you could argue that Silicon Valley Bank was a microcosm of what's going to happen elsewhere, and because like Silicon Valley people are early, early adopters,

they kind of ran for the heels before everyone else does. And when it hits the fan, that's what's going to happen to other banks. But it wasn't even running for the hills, right? Like, those three bullets are very salient, right? I think it's like, and the third one, which we didn't like spend a lot of time on is like, hey, business has gotten shi. We're all experiencing that in everything we're doing, right? The funding environment is drying up.

So people are drawing more on those deposits, right? Where there was a time where it was easy to raise money. You can go raise your seed, then you're A and then your B and you really hadn't done a lot. And then, you know, you went from having $0 in your bank account to $5 million to $5 million to $50. million to 75 million, right? Jay-Cal, because, you know, you had $1 million in ARR and all of a sudden your company's worth like a billion dollars, right? And so, and as that shifted, you know, everyone's calling Silicon Valley Bank saying, hey,

I didn't raise my next round, so I've got to pay my employees. I've got all these costs. I've got rent, all these things going on. Like, and it's just, it's called out very plain and simply there. And what I've been trying to reconcile is like, why didn't we, you know, just see that? Because it's, it just calls it out as plain and simple as is happening. have seen it. And then there is a tendency to blame the messengers. And I think this is another thing that people are going to have to pause and reflect on. When somebody has a claim,

instead of blindly following it or denying it, I would say the best thing to do is get curious. Just get curious for a second. Pause and ask a couple of questions. Before you say Fauci is a criminal and he has to be prosecuted before you say, blindly follow Fauci, say, okay, you don't think we need masks. I don't know. It would seem like if you sneezed and it was transferred with a sneeze, then a mask would stop that.

And I just looked at a couple videos online and they show how masks do that. So maybe that would be, you know, something we should be curious about and have a discussion about. And this one that you're pointing out, that third bullet point was so obvious because Silicon Valley Banks' deposits tripled

between 2019 and 2022 in a low interest rate environment. And so the thing I'm curious about, you know, speaking of getting curious, is should, and then obviously they went flat and then obviously the deposits then

quickly go down because startups typically have 18 months of runway. I would say that's the average, 12, 18, 24, somewhere in there, depending on how quickly the founders and boards are responding to correcting the cost structures. What that means is Silicon Valley's banks'

deposits, if there was a hundred billion in these startups, let's say, of the 200 billion they had in assets, those 100 billion were going away within 18 months. They were being drawn down at a rate of 5 billion, 6 billion per month. So they're being drawn down while the bond portfolio is going down, and that is seriously, seriously scary, I think, for them, 180 billion at the peak,

but I don't know how much of that was startup funding, right? we'll see, ultimately, you know, versus say Roku or something bigger, you know, companies. So things to be curious right now are, hey, what should the FDIC limit be? Hey, how should we think about what the deposits are, the ratios are, transparency? There's a lot of things we should be pretty curious about in double-clicking. And that's really the point of podcast is to take deeper dives in this. And if you do have a process for trying to figure out what's going on in reality, I think podcasts, and I'm talking my own book here, with intelligent people who are on the inside, are a great starting point because at least you get the insider's perspective.

Now, you have journalists, some of them, which are extraordinary. A lot of them are just content studios, getting clicks to make money. So you have a small percentage that are not just trying to get clicks to get money. They're trying to tell the truth and build credibility with an audience. and then 80% it's just an advertising business so they say sensational stuff they're dunking on people

they're taking hot takes just to get money from advertisers the other 10, 20% are trying to be thoughtful that's why I think subscription content is so important I don't know,

what's your take Vinnie as we get close to wrapping here? Yeah, like ARR businesses are fantastic you know, it really is the real question of valuations right? Because one of the biggest problems

I think that, like, if you look at what people said over the weekend with everything collapsing, it was like, why can't the VCs just bail out the companies? You know, why can't they put more money in? Well, the problem we had is in 2021, the valuations were through the roof. Okay, so let's assume a company's got its cash tied up in Silicon Valley Bank and now it's got no cash. Now you have to do a down round, a massive down round. Yes. The company was planning to have this runway.

It doesn't have it anymore. You're going to wipe out all the other stockholders, including people who are not related to Silicon Valley Bank made no decision of where the money was. I mean, it's, so those inflated valuations basically put all these companies in jeopardy of all shutting down because no one's going to do the down runs, as you know. And so if Silicon Valley went under, all those companies, everyone had raised money in 2021 and put it in the bank. I mean, I don't know about you guys.

How many companies do you know I had a valuation higher today than there were two years ago in 2021? Most. Yeah. The majority. And this is such an important point, Vinnie. if when we were this weekend working on three to six companies, I think,

were having this like, wait a second, we may need money for payroll moment. And it really depended on that $250,000 FDIC, if that was going to come through or not, that became like a, well, if that gets released, we can make the payroll. If it doesn't get released, we can't.

Anyway, long story short, we had to avoid the valuation issue. So I just said, and one of my founding, said, hey, we just want a loan, we're going to pay it back to you when the funds are released. It's just a loan. The second the funds release, we give it back to it. And then we said, well, what happens if the funds are never released?

And it's like, okay, well, then I guess those creditors are the first in line, okay? So it's senior debt, but not convertible. Then I had some people say, oh, you know what? We'll just do an uncapped note. And with a 20% discount, I was like, wait a second, what? And then I had some people say, well, just do it at the last. valuation. And I'm like, wait, and so literally the laughing that you're having, literally somebody who was involved in this was literally laughed out loud as well,

where I was like, wait a second, this is a crisis and you're using it to raise an uncapped note that, you know, you're, I'm just going to make a number up here. You've got a million dollars in the bank. You've got $200,000 in payroll every month, whatever it is, $100,000 of payroll period. So you've got 20 payroll period, 10 months of runway. You not want to raise, and just pick a number here, a million dollars. to get another 10 payrolls at an uncapped note against the next round.

So it was almost like taking advantage of the situation, I think. But trying to make it clean, but like clean in a way that doesn't make any sense. This is where that Vivek, Ramos sweaty guy who, like sex is going on.

I don't even know who this guy is, but I guess he's running for president. He's running president of that guy. I'm like, this guy, he shows his naivity. He's so, like, unsophisticated in a company. His unsophisticated position. If you can, if you can paraphrase.

I don't want to straw. but I'll try to give a bit what my understanding. His view is... Still man it. Still man it. I'll steal man it. Okay. His view is that if a company has got money, let's say they got 10 million bucks stuck in Silicon Valley Bank and it's probably going to go down to zero or 0.5 or 0.3,

that the VCs who invested in that company in the first place who put the money in, need to bail it up by putting another 10 in to that company and the common stockholders and the founders should take the hit on that. The problem with that is his naivety means that he doesn't appreciate that, first of all, these rounds are not done by one investor. And when you wipe out shareholders, you wipe out everyone else who came in the previous round

as well. And then the down rounds put so much pressure on the cap table, you can't get good excess later on. There's too much, the preferences don't go away, even if there's a down round. So now you increase in the preference stack. It would just basically destroy the entire industry. Like my view was that there was absolutely no way the Fed couldn't bail out so they can value Bank for all the you know for those reasons but vivick just didn't have a practical and uh you know

experience view on on how this plays out this is where i think sunny having strong opinions with a lack of knowledge is very dangerous because no i'm not saying this to dunk on him because it's just too easy to dunk on his position because it's so uninformed yeah you if you don't understand how you know the startup funding cycle works and you take a populist opinion screw silicon valley screw rich people. You don't actually take into account sunny that the average startup is employing 10 to 50 people.

They have 18 months of runway and the practicality of revaluing the company and doing this kind of gymnastics with a cap table would essentially be a death spiral. These are like airplanes. They're flying at a certain speed. They're flying at a certain altitude

and they have to have a certain, you know, balance in order to stay afloat and stay in the air and be airworthy. You start flipping the plane around at weird speeds, you're going to stall the plane. And it just, it was a lack of,

it just spoke of a populist position with a lack of knowledge. He's also very young. He's naive. He's like 37 years old. Like, he shouldn't be,

he shouldn't be running for president. I think he's running to raise his follower count. That's exactly what he's doing. I think it just points back to, you know, maybe one thing we can close out on here, which is, you know,

you've got to run here, which is, look, I think the warning note that I'm giving everyone after what happened last week and having missed that seeking out article myself as well is, look, the interest rates have impacted everything. That is the event, like to your point, JCal, like everything is a very fine equilibrium and interest rates, even though it may not be in your direct business because, like, you don't deal with that. I think it's impacting everything around you.

And so what I've asked everyone to do is like really take a step back and think think about how interest rates are affecting your customers, your partners, all these things that are going on. And so that is something that, you know, I think if we could leave here with everyone, it has deeper ramifications that any of us could think and they've gone up faster than they've ever gone up in history.

So just really be aware. Ask your customers, your employees. They maybe be impacted at home. All around, I think this is something to be really, really mindful of. Yeah,

and you got to be thoughtful, you've got to be curious and you've got to think this stuff through. and you got to play a bit of defense here, right? When the market is hot and you, you know, you just want to hire indiscriminately, you're raising money like crazy, and, you know, you're being rewarded for it. That's the rules of the game in 2018, 19, 20, 21.

Now the rules have changed in 22, 23. You have to play the game as it's being officiated today. Correct. And I think this, you know, leads to, I think, some new financial products. I had Andy Ratcliffe, the co-founder of Benchmark and doing Wealthfront on the program. And he has a product where they will take your money. And this is for personal.

And they will take millions of dollars. I think it's two or three million dollars. It's two going to three. He said. And they will put it in eight different accounts automatically. And then your FDIC insured across eight, 12, whatever, Mercury Bank announced something yesterday. So the financial innovation that's going to come from this is going to be awesome.

A startup, I believe, will be able to go to. Silicon Valley Bank 2.0, First Republic, Mercury, individuals be able to go to Wellfront, Robin Hood, whatever, put their money somewhere and have it be load balanced for some type of redundancy and diversification that could save these kind of acute problems. So everybody could do a little bit better. Hey, you know, I wanted to close on this and Vinny, whatever your next meeting is, you know, it's no problem. Pushing it back 15 minutes, you can tell them. It's 20 minutes now That's all right They understand it's important Doroth Zuckerberg What are your thoughts on Oh there he is

This is it By the way I told my producers Like Check out I really have to go Oh you do actually Okay

Yeah yeah I'll let you go Vinnie Any plugs for Vinnie Where people follow you And then I'll do this last bit With Sunny I'll just add Vinnie

Lingam on Twitter Perfect Follow Vinny He's smart He's outspoken He's intelligent He's thoughtful All those great things

And we'll talk soon soon. Zuck is not done with the belt tightening. I asked, I did a joke in our like producer chat where I just said, AI, create an image of Darth Vader plus Zuckerberg as a dark Sith Lord. And this, like, it came up with this instantly. Yeah. And you're like, my lord, I would have normally hired an artist.

And that would, if you hired an illustrated to do that, talking about $500 to $5,000. If you don't use it, if you don't use Mid Journey because it works in Discord, that's what you should do. I do it all the time. is I just have it in my Discord, right? So it's like in chat. So anytime I have an idea, I just basically, yeah. So just sign up for Mid Journey.

It's like a Discord bot. And so there you go. Yeah. And boy, I've been playing with chat, Chief Petit 4. I've been playing with Chief Petit 4. It is unbelievable. But let's pause that for a second. Yeah.

He says, Med is going to cut up 10,000 more jobs. They're withdrawing 5,000 job openings. This is after 10,000. They're cancering every low prior project. Sadly, the NFTs on Instagram. Yep. He says, since we reduced our workforce, a quote, last year, one surprising result is that many things have gone faster. In retrospect, I underestimated the indirect cost of lower priority projects.

It's tempting to think that a project is net positive as long as it generates more value than its direct cost. But that project needs a leader. So maybe we take someone great from another team or maybe we take a great engineering and put them into a management role, which both diffuses talent and creates more management layers. Indirect costs compound and it's easy to underestimate them. just, man, I think Zuckerberg went from being asleep at the wheel and like carrying a U.S. flag while using a foil on Lake Tao who all of a sudden being reengaged in business. What's your take on this insane level of focus? I think we just said it a second ago, or at least it popped up in the chat here.

He's playing the game on the field. He has adjusted to the reality of, you know, the physics of our new reality. And he is playing that game, right? And he understands that's about, you know, his world is different than the startups, but it's about the expectation of profits, you know, revenue or profit per employee, doing less, focusing, doubling down on where they have a core business. And so he's read sort of all the signals. And I think hopefully others can look at that and say, hey, am I focused in the right areas?

Am I doing it with the right number of people? Am I really doubling down on the areas what I'm actually good at versus trying to do the next thing? And so he's being wise with his capital. I think the other thing that's a good lesson here is some very smart people, some of which we know really well, called it out to him. And so sometimes, exactly, right? And so reading what people are saying, spending time with those folks is also an important thing right now with your mentors, with the folks that are out there and understanding what they're putting out.

Bill Gurley and other, he was putting out a lot of wisdom these days on his Twitter, right? And so just read that stuff and follow it as a startup employee or startup founder and run with it. But I think this hits right to what we were just talking about. He has read the signals and changed to adapt to what's happening in the market today. And it's just amazing to see. When I saw him losing so badly, I did also think about competitive nature of individuals. And the competitive nature of great founders is, you can just never underestimate it. Losing for certain people is death.

They would rather die than lose. And I put Zuckerberg obviously in that position. And when he was getting humbled and getting his butt kicked and the stock goes down to 90 and nobody believes him, I just said, you know what? There is absolutely no way this kid, now an adult, because I've known him since, you know, literally met him when Facebook was. still on just campuses. He's just so competitive. He will do whatever it takes to win, including cutting 20,000 people, changing the entire vision.

And he does not care about egg on his face, that, like, projects he did, he's cutthroat. And you need to be cutthroat in this environment. So for founders listening, you know, you're going to have to look deeply at your seven projects in your underfunded, suddenly underfunded and suddenly unfundable startup and say, of those seven projects, which six or five can you instantly put on the not right now list and which two should you focus on? Yep. And just go directly to that.

Yeah. And companies, like, you know, at the end of the day, Facebook or, you know, meta, prior to all this is still a wildly profitable company. And they decided to do that. Right. And so, you know, your startup for most people is not wildly profitable. And so your scrutiny has to be even more strict. And I think that's a lesson for everyone here.

All right, listen, well, well said. We'll see you all next time. Sunny, get a plug in here. Where can people reach you? And what are you working on? At Sundeepe on Twitter and definitive.io, we're doing data intelligence. Come check it out. They'll reach out to us.

We'll show you some interesting things. Are the AI natural language models good at analyzing data sets? There's a need to be more work done to be good at data sets. It's a great question. It lines up with this release. to chat GPT4. So prior to, say like the last 24, 48 hours,

it was an okay thing to do. And I'll kind of tell you where the limitations rose. Obviously, the LLMs are trained on public data sets. So they don't have your proprietary information. You feed your proprietary information to an LLM through a fine-tuning process, right? The challenge with the fine-tuning process prior to yesterday was it was limited to 4,000 tokens, right?

So let's just say like 4,000. unique elements that you can feed into an LLM to help, you know, refine it to what you're doing. That is okay, but, you know, in most enterprises and even in large data sets, you can have thousands and thousands of columns in a database, right? And so it's not sufficient to basically provide all the context. So a couple of things happened yesterday. One, they've increased the fine-tuning limit to 80,000 tokens. So you can fine-tune a lot more information. And that's why what you're seeing in the last 24 hours of like, hey, it's really crushing the LLL sat is crushing all these things because you can feed it a lot more information into the fine

tuning. And so it allows us to provide much more, you know, just relevant answers back to you. What's an example that people could understand of what you would upload in terms of token? So what's an example for a business that would say, hey, here's our sales data. Yeah. Here's our customer database. Your documents, right? So if you have a bunch of documents that exist in your, you know, your SharePoint or your Google Drive, right? You have a bunch of bunch of customer, let's say, you know, you have a Zen desk or something like that where you have all your tickets logged of customer problems, right? You're going to have more than 4,000 of those elements, right? And so now you can shove a lot more into the model so that it can, it can kind of,

you know, take all that into account when giving the answer because it's not going to know, you know, if you've got a startup that's working on some particular area, it's not going to know how to answer that. And so now you have the ability to do that. And what, you know, a lot of folks have done is they were working around the 4,000 token limit by basically sticking almost another data element, whether it's an LLM or NeurlNet or Vector Database in front of it. So say, hey, your question's coming in. Let me kind of find out where this is and then jam all those tokens in. So folks are already working around that, but this has really expanded the capability because now it has a lot more context that you can give it. And so what you're going to see in the next

month from this is a huge leap forward in sort of the efficacy of it providing information. that's relevant to you because you can feed it a lot more information that's that's you know kind of comes from your proprietary data it's amazing i was playing with uh chat gpt four and i was looking at just some of the functions we have internally at our companies and was inputting like hey if you're doing and i did this one uh

if you were hosting an event because we're doing our angel summit again in june uh the launch angel summit where we bring together a hundred angel investors and lps and uh We just go to Napa and have a little bit of a boondogling. My lord, we just emailed the alumni and already 35 people are coming back. Yeah, just in the first couple of days. I'm like, oh, my God, this is going to fill up quick. And we might have an all in, a live all in there. So the besties said, oh, yeah, we'll do it.

Okay. So pending, you know, people's schedules, it looks like we could have all four besties there for a live episode, which would be incredible. But I just said, who would you get to sponsor the dinners, you know, to sponsor an event? if you were doing an event for angel investors in venture capitalists and LPs, who would be the potential sponsors of the dinners or whatever. And it literally came back and it was like, number one, banks, number two, cloud computing, number three, service providers like lawyers, number four, insurance brokers.

And I was like, oh my God, and broker, Wilson Sincini. And it started naming them. And I was like, those are the actual sponsors of the previous events. I was like, did it go to our website or just to just understand? No, it does. but like you so try that one more time if you want and and in the prompt feed it who your previous folks were as well yeah say given my previous sponsors were you know blah blah blah blah blah blah you know and this is happening and you know and you'll see its efficacy goes to the next level

it's really i mean i this uh 20 dollars a month for chat chpt four feels like it's like missing a zero i think it's a two hundred dollar a month product yeah well it's extraordinary yeah it's It's like a, it's a superpowered assistant. You know, I was reading a tweet from someone yesterday, you know, a respected coder that was saying, hey, you know, I was working on a problem with someone, like a consultant, and they wanted 5K to solve this. He took three hours and 16 cents. So three hours of time and 16 cents worth of tokens back and forth with CET4 to solve and write five microservices. It's nuts. I mean, it is going to change the world.

and there's going to be 10 of these. So go ahead, Nick, and show us feeding in the previous sponsors were Silicon Valley Bank and broker and Amazon Web Services, or AWS, see if it even knows what AWS is. And this could have been a dataset where you actually uploaded. A lot more. Now you can give up to 80,000 tokens. So you can private a level. When you do that, do you just paste it into the box or do you link to a CSV file?

You can't link, but most of this is happening. happening via APIs, but, you know, and there is some kind of limit in this text box, right? Yeah, so here it says, based on your previous sponsors, it seems like you're targeting companies related to technology, finance, and insurance, for your angel investor event in Napa, California, creates into targeting the following companies. Financial institutions like Pegg of America, J.B. Morgan, West Fargo's, Fresh Republic, Square, venture capital firm, Sycoy, and Jason Hart, Clydeburg, and Excel. Bessamer. It's fascinating. Yeah. I mean, it is crazy.

Technology and cloud service providers, see, it, it pulled. that out from there. And the DigitalOcean actually was one of our earliest sponsors. Yeah. And I didn't even think of them. Startup Accelerators, Incurators, uh, legal. Startups. Cooley.

Fenwick, like Cooley Fenwick, Wilson, Gunnerson. That's like the real superpower now, Jekal, for folks that are playing with this, is that, you know, obviously they've made lots of improvements. Uh, but one of the biggest ones in my opinion is that it can take a lot more tokens in. Mm. And so the more you give it, the, you know, the more remarkable this stuff is.

Amazing. Amazing. This is, it's getting there. Thank you so much, Sunny, for being a great friend, letting me invest in your company. I got a little bit into that. I've got a little bit of intelligence. I slid in the two-fitty. Don't worry. Which is the FDIC limit. I put the FDIC limit. I sent you an FDIC. Yeah, and your money's safe. Don't worry. It's my money. Stanley. Morgan Stanley is safe. Well, the last time I invested with you, you were like, here's how much you can invest. You're oversubscribed. Yeah. A time before that, you're oversubscribed. You said, here's what you could invest. You included your friends. It was like, So gracious. Yeah.

And by the way, you're invited to launch fund for. You always have a spot. And I'm raising that fund right now. I'm like literally rewriting my deal memo based on, you know, I did a deck and instantly had $52 million in commits doing webinars of which we could collect probably a maximum of 30 million. I think we've actually got signatures and everything on wires for like 26, 27. There are some limits on accredited investors.

We fill it up too fast. Yeah. And I'm like literally faced with raising a fund in the worst market of my. career. And I had this great epiphany. Like, this is fantastic. This is the true test of entrepreneurship. And I looked at my deck that I, you know, created a couple of months ago. And I was like, okay, the field has changed. And I realized, wow, you know, those, how powerful it is when I put that 25K check in for a startup and then back it up with 100K and then back it up with 500 and get to 10 to 20% ownership. And I was just thinking about your startups and how you, you know,

very quickly fundraise and get those quick, whatever, 50,000. I think I was allowed to do 50 or 100 in the 150 in the first one, 250 in this one. And I was like, wow, you know, that's something I'm really good at. And the market needs right now. Yeah. The market needs somebody to put the first 25K in to start this process. Oh, yeah. And I literally have done 20, 25K checks from Founder University of people who built mockups

and weren't incorporated yet. And I was like, here's 25K incorporate. I'll take that risk. Yeah. At a $1 million valuation, I'll be your friends and family around. Yeah. Your friends and family are too scared to put the 25K in. and I made my career doing 25.50K checks.

I mean, I think it's that. And I'll also tell you, J. Kell, you're so into all the tools that are there, like in the example that we just ran. I think don't forget that. Like, that's the other piece that you can bring a lot of these folks. Because, you know, the nature of your business, your day-to-day business, like in this side also allows you to kind of see the latest and greatest, whether it's tools that are doing mock-offs or this kind of chat, GPT stuff,

or whatever it is. That's being lost. You know, there's so much stuff coming out there. It's hard to filter through it. I meet so many entrepreneurs now that don't even see the latest of things because they can, you know, so narrow my, which they should be. Sometimes bubbling up and letting them know these new things that popped up are really valuable too. Yeah. Well, thank you.

I mean, it is when you have the number one startup podcast in the world and then the number one business technology podcast in the world. Yeah. You know, you have a really great, and I don't say that to, you know, show off. like it's, I'm only 25% of the value of one of those podcasts and this week it serves as a function of doing a thousand episodes over 10 plus years and not quitting. That's why it's number one. But it really does let you see maybe in the job we have, you get to see maybe six months ahead of other people in business and maybe just three weeks or three months ahead of people in our

business. Yep. And then, or maybe equally, but then in terms of the general public, you're kind of seeing two or three years. Yeah. And so it really is a wonderful thing. And it's just one of the great things about our friendship is we get to talk about these things and, you know, pivot, et cetera.

So for those of you listening who are startup founders, this is the best time to start a company. I can guarantee you that because everybody else is giving up. You're having a lot of people who were playing the role of founder and they're gone. And then you have 10,000 people who've exited Facebook, another 10,000 who are exiting and the 5,000 will not be hired. Those 25,000 positions, I mean, those two, three, four hundred thousand dollars jobs is probably the average salary or something over there. Like, very bloated.

Those people are now on the market. And they're not on the market for 300,000. They're on the market for 150 or 75 or whatever the right prices. And they're probably willing to take a chance at a startup and be part of something fun as opposed to going to corporate America, not being part of the tech industry. Because that's what's going to happen, I think, for a lot of those executives is they're going to have to take a job at JP Morgan. Not that there's anything wrong with that, but the technology person at Walmart or JPMorgan or whatever is second fiddle to the, you know, whoever the core business is, right? So it's just a wonderful time to start a company.

This is really the best time. I want to encourage everybody to do that. I, 100% back, you know, kind of resonates with me. And I say the same thing. If there was ever a time, it's now. And the technologies that are there are better than ever. Like what we just did, the ability for you to do things quicker. and your ability to innovate very quickly is just,

it's, it's off the charts. It's off the charts, yeah. Okay. Hey, Nick, I just needed an all-hands meeting with you on chat GPT4 and us brainstorming this and getting everybody on a pro account immediately. We just have to get a level up our whole team. All right, everybody, see you next time on this week in startups. Bye-bye.