This Week in Startups - Stripe to raise $6B, $SIVB drops 60%, generative AI funding | E1695

Episode Date: March 10, 2023

Eric Newcomer joins to break down all the trending tech topics, including Stripe raising $6B (16:31), major generative ai fundraises (35:55), Silicon Valley Bank dropping 60% (50:35), and more! (0:00) Jason kicks off the show (1:55) Eric’s move to independent journalism (10:07) First Republic Bank - Discover what a long-term financial relationship can do for you. Visit https://firstrepublic.com today to learn more. (10:57) Take rates and more on Substack (16:31) Eric’s Scoop on Stripe (20:43) Embroker - Use code TWIST to get an extra 10% off insurance at https://Embroker.com/twist (21:46) The narrative around the tech layoffs + Generative AI (34:24) Lemon.io - Get 15% off your first 4 weeks of developer time at https://Lemon.io/twist (35:55) The deluge of Funding into AI (43:39) The state of VC investing (50:35) Silicon Valley Bank drops 60% FOLLOW Eric: https://twitter.com/EricNewcomer FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood

to, hey, everybody, welcome to Friday. We have an awesome news show for you today. Eric Newcomber is filling in for Molly. First, we briefly talk about Eric's transition to an individual, independent indie journalist on Substack. And what that means for his incredible business, which is in the Two Comic Club right now. I can say that.

He breaks some news here. And we break down Eric's amazing scoop on Stripe, which is raising $6 billion at a $50 billion evaluation, down from $96 billion. And he's got the inside detail. then we talk about all the generative AI funding, how crazy that is. And breaking, breaking, breaking, breaking news. Silicon Valley Bank has dropped 60% their stock price.

And there is the, I hate to say this, there's a bit of a talk of people taking their deposits out of Silicon Valley Bank, buy some venture firms, and that could create a potential bank run, maybe, maybe, not. We'll unpack all of that. And it's going to be a great show. So stick with us. This weekend startups is brought to you by First Republic Bank, whose bankers understand the fast-paced nature of your business and are ready to quickly and efficiently meet your firm's unique needs through all kinds of market cycles. Visit first republic.com, member fdic and equal housing lender. And Broker's Startup Insurance Program helps startup secure the most important types of insurance at a lower cost and with less hassle. Save up to 20% off traditional insurance today

atambroker.com slash twist while you're there. Get an extra 10% off using offer code you guessed it, twist. And lemon.io. Need to speed up your product development without draining your budget. hire vetted engineers from Europe at lemon.io. Go to lemon.com slash twist to get 15% off for the first four weeks. All right, everybody, happy Friday. Eric Newcomer is here. He's joining us to go through the news. You know Eric from his stint at the amazing publication known as the information Bloomberg and his own substack now. You are part of the independent journalism movement. Newcomer, N-E-W-C-O-M-E-R.co. Newcomer.comer.combe-R. Newcomer.comer.com is his substack. What do you charge? A hundred bucks a year, 10 bucks a month? It is now $19.99 a year. $19 a month. I have a discount. You can get it for $150 a year, I think, if you go to newcomer.combe. Oh, there you go.

Get it for $150. And what is that? Exactly. You do two a week, three a week? How many drops is it? Yeah. So it's a, I've got like a weekly like podcast out that I just relaunch. That comes out once a week.

And then I tend to publish once a week myself. And now I have like, like I just literally while we were preparing for this published a data post that we're starting to put out once a month. Right. So it's sort of, it's a mix. You know, it's not like sort of a morning brew thing where you're getting like an aggregation. Like I'm doing reporting. And so then when I've got a scoop, I publish it.

When I have an interview, I publish it. But the podcast comes out Tuesday mornings. It's fascinating. I think it's a good place to start here in our discussions. A lot of news going on and we'll get to your latest scoop. But it is really interesting how independent journalists are becoming sustainable. Let me just ask it outright. without saying your salary, but the compensation you had at the information, Bloomberg,

as you were working up as a journalist versus running your own company, similar, more, less, plus or minus 10%, where does it wind up? I mean, it was more, you know, I'm at two years, six months. Definitely, you know, a year out, I was making more than I was at Bloomberg. Now it's becoming a business to the level I think some people in media discount. You know, I've hired a chief of staff. I mean, if you think about my business, right now, I have like three revenue lines, basically, right? I have subscription, which for the first two years was all my revenue.

And so that's some people pay, you know, 150 a year and then a small, I raised the price recently. So you can sort of do the math. I have like 2,300. So that's like 400, you know, top line, basically from subscription revenue. know. And now I'm doing sponsorships. I just had Vanta, sponsor my podcast. Fantastic. He sponsored seven episodes. Excellent.

I won't say how much they paid, but you can sort of do math on that. And then I'm doing this. A couple of G's probably. Yeah, that's good. Yeah. Doing this more than that. Cerebral Valley AI conference, um, March 30th. And that's, that's going to be huge. I mean, that's going to be, I said in the general that's like more than a third of my revenue for this year probably.

Oh, fantastic. So you could hit a million dollars. in year three or so of doing this possibly. I think that'll happen. Fantastic. Congratulations. Thank you. Feels good.

The big question is... It's very busy. You know, it's, I'm like ready to... Yeah. Well, it does change your mindset, right? From being an employee and being like, blah, blah, blah, you know, union leader, employee we need to fight management.

Not that you were that, but you did see that with your compatriots. It's like anti-management. And now you're the owner. Right. And now you're like, oh, my God, running a business is hard. How does that change, if it does at all, how you look at the people you're covering who are business creators, because now you're a business creator. And does it change how you look at businesses in some way and business leaders?

Yeah. I mean, I think there's a lot on just sort of, I don't know, how a company operates and like focus. I mean, I think one thing that's funny to me is just, you know, I think as a reporter, I would look at all this sort of, I don't know. I don't know, self-help, leadership type advice and sort of laugh at it. Yeah. Especially for like business leaders because it was like, you know, shouldn't you be worried about like, you know, I don't know, complex financial advice rather than just like how

to maximize your schedule. But now that I'm like running a business on my own and just like very busy, it's like, oh, actually like the optimization of like my time and my own ability like output work is actually like probably the most important lever in my business overall. And so then I have much more appreciated. for a while. Why you just sort of go back to the fundamentals of like, oh, how do I, how do I make sure I'm as productive as I, as I need to be and all that? The other thing, I have more empathy for that. You have more empathy too? Yeah. That's good.

I think this is going to, I think the substack podcast revolution, it's called it independent journalist because some of them are using other platforms, Patreon. This existed before a substack, and they're competing nicely, I think. And then there's people who are now creating a SaaS-based solutions that are maybe not the 10% that substack takes. Substac takes 10% plus the 3% credit card or the 3% is blended into the 10. No, substack takes 10% and then, yeah, Stripe facilitates the actual payments and takes like... Yeah, so, yeah, so when you start getting to big numbers right now,

40K or whatever, 50K, you know, $4 or $5,000 for your hosting company's not outrageous, but you hit a million, you start thinking 100K, maybe you're, start look at other options. But a lot of my, like I'm saying, a lot of the revenue is conference and then sponsorships. I would say, I mean, right now I think sub-sac is super worth the money. I mean, they draw, I mean, you, you set up a sub-sac, right? I mean, I think the recommendation feature is driving a lot of growth for me still. Oh, the recommendations are working. Yeah. And that's why the free list is, you know, I have more than 50,000 free subscribers. And that's, that's the crazy thing is I think they figured out the referral system. And so I,

been getting all these free, which, you know, if you just use a generic mail provider, you're not getting that. And then I looked at it and I was like, I have a bunch of lists that are infrequent. Founder University has a list. The accelerator has a list. The fund has a list. The podcast has a list. I have a personal list. And we really don't use them that often, maybe once every couple of months. So we're paying some SaaS fee to manage those, which is fine, but they're in frequent use. It's not like we're some retail or I don't want to say spamming, but blasting all the time about discount

codes. So I was like, wait, it's free to use substack if you're not charging. And I'm getting free subscribers, so it was just a no-brainer, just parked them over there. I had them parked at review too on Twitter, and that was great, but I guess they're deprecating it.

So, you know, I like the idea of like the Twitter bio having the one-click. That was a really cool innovation, but that went away. I just like the idea that you can get some free subs. But yeah, if they keep it to 10%, it's a low enough take rate that I think they're going to balance like, oh, I'm getting free subscribers and some convert the referral system. You might just be like, you know what? That's a, that's a fine big to pay. All right. It's definitely, good. Well, just the last thing I'll say. I mean, you know,

the Ancler and then also Barry Weiss have started to build publications on them. I'd be interested to know what the, if the take rates the same on those because. Oh, if they negotiated a different rate? if you start building an actual business, you know, I feel like the dynamics must be different, but I'm not sure. I mean, it's pretty portable. So I think the point at which you're going to have to think about this. And maybe Casey has to think about this, Newton, right, Casey Newton. Some of those folks, when they hit a million, if they have 5,000, 10,000 subs, which you'll hit at some point. I think when you hit a million dollars and you're paying $100,000, 10,000 a month, you just start thinking, I could hire somebody full time and use some of these other platforms

and maybe that makes more sense. And I think that's why Sam Harris was on Patreon for a while. He moved off of it and he didn't have to pay the Vig and he didn't have to worry about having somebody turn him off. Although Substack seems pretty committed to freedom of speech. In fact, they might be a little, yeah. This week in startups is supported by First Republic Bank. Tomorrow's innovators need funding today, and no one knows that better than private equity and venture capital firms.

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Oh. After going off, I mean, you know, ease is something people under value. Sometimes it's just like, this works, like worry about the other parts of your business. And that's certainly valuable. That's where take rate as a general concept, you have to provide more value than you're taking. That's why I think Apple is in crosshairs for people. Hey, 30% is too big of a take rate. People are like, this isn't fair.

We're not going to offer Spotify or some epic games Fortnite. You can't buy stuff, right? You've got to go direct to the website to buy it. It's just too large of a take rate now. If it was 10%, those people would be like, okay. Right. Whereas a small person might be like, you know, com.com or fiction. thought some other apps we've invested in.

They're like, you're happy to pay it. Thanks for featuring us once in a while. I do also like Substack has an app. I know it's a little controversial because people can experience your newsletter without the email, I guess. I don't know if that's, I think Casey was the one who pointed that out. Like, I don't want to be bundled. It doesn't worry me as much.

I mean, I think anything to make the reader experience better. And right now we're all very dependent on. like Gmail, right? You know, like Gmail filtering. I don't know. I'm happy for, you know, my readers to be able to find the newsletter however they want. I thought the chat was interesting. Did you use the chat feature yet? I haven't. You know, with Casey, I am actually in a Discord group.

Yes. I joined that as well. I forgot the name of it, but I just didn't like having a channel. My community isn't very active. I would not call it. I think Casey's has been more of a success. Mine, I don't know. I haven't really invested in building the community. But then I didn't want to play around with the chat feature. You know, the pro, I turned the chat feature on. And it was kind of interesting that

dozens of people showed up to say hi. Right. I thought it was interesting. I think it's got potential, like to turn a mailing list into a community is kind of a clever idea. Right. And I think that over time,

people will like that if there's a purpose. But I think what's going to happen with SubSack over time is you have the fear of people unsubscribing because the newsletter is not intelligent enough or not insightful enough. That is a fear that I think drives performance, right? Every time you hit that Sanky.

Right. And I was just reading this like business insider, you know, super link baity, obviously. And I was just admonishing a rider over there. I was like, they were dunking on Sequoia's fun performance. And I was like, have you not heard of the J curve? Like, and I told him, I was like, you look dumb. Like, and he's like, well, I did put in here that these are young funds. I was like, yeah, but look at the headline.

Look at the tenor of the. story. You're obviously dunking on them and saying like, oh, mighty Sequoia is like doing poorly. I was like, you kind of look dumb. I'll be totally honest. You look uninformed and you look link baiting. That's not a good look. And it's like, but I guess it gets clicked. So it works. But if you were to do that in email newsletter, you might have three people on subscribe. Paid subscribers like, oh, this person is dumb. Speak to that. Like you are. And I'm not speaking to that story specifically. I haven't dug into it. I mean, it seemed what I'm describing. is challenged with their public holdings.

I don't know enough about the new funds. Well, everybody else. Yeah. Yeah. But yeah, I mean, I feel like the value of the newsletter is that every piece is delivered to your reader's inboxes as equal to the prior pieces, right? At Bloomberg, it really felt like even though we had a big audience, stories were sort of fighting for a spot on the homepage or on social to be valuable.

Whereas for the newsletter, every piece matters. and therefore I'm much more apprehensive about sending a piece that feels unusually weak because everybody's going to see it. It's going to be embarrassing. Yeah. I think that's a very healthy dynamic. I think this is like, you know, we had a talk on dead cat bounce, which is the previous name of your podcast. Just dead cat, the old name.

Yeah, exactly. The old name, the dark, dead cat bounce podcast. I mean, that's what you're talking about. The dead cat bounces is a finance term. That is part of what it references, but it actually references a conversation between Mark Andresen and Mark Zuckerberg. Oh. Where Mark. Mark Anderson texted.

Mark Andreessen texted. Yeah. No, no, no. It's spy craft. Mark Andreessen texted Zuck and said, the cat's in the bag, the bags in the river, which is some really, like, obscure spy reference. And then Zuck replies back, does that mean the cat's dead? And so we just thought it was funny. It came out in a lawsuit.

It has to do with Andresen helping Zuck get more founder control over Facebook. And so, that was dead cat. I felt like that was either like Mark and Dresen's finest moment or worse. I couldn't figure it out. I was like, wow, this dude is really on the side of founders. He's negotiating against the other board members to covertly coach Mark on how to manipulate the comp committee to let him go become a senator or something and still maintain control. of the company.

I just love it. You know, I'm all about insiders and like the house Silicon Valley works based on actual human beings. Like I just talk to Reed Hoffman for my new podcast and like that's like a theme. And so I feel like that that whole Mark Andrews and Mark Zuckerberg saga is just funny to me. It's just like, oh, the people, you know, their machinations are really deciding, you know, who controls like one of the, you know, 10 biggest companies in the world. Yeah, exactly.

I love it. All right. Well, there's a little preamble for you, folks. Now, you just published on newcomer.com.co, go subscribe everybody, $150. You published a scoop. Scoop. On Stripe. So tell us what's the latest on Stripe.

Yeah, you know, so Stripe has been raising this round, and I got a source and then another source that said Stripe was raising actually $6 billion. Big number. Yeah, big, like huge. Open AI maybe has numbers. us a little bit because their deal with Microsoft is 10, but I mean, six billion for a startup to raise is humongous, basically Uber is the only one that I can think of this. Right, certainly. Uber was the only one. Yeah. Top three at least. Um, for sure. Yeah. So, uh, so yeah, amazing. And what's, and it's at a 50 billion dollar valuation down from 96, which had been the peak

cut in half. But this is not money for Stripe to use to run its business. All the money is, is basically going to be used to help resolve this expiring restricted stock unit problem that Stripe has had, right? It granted these options, and since Stripe hasn't gone public, some of the options are going to expire for early employees. So they need to help those employees deal with the options, pay the tax bill. The tax bill might be about like $3.5 billion. And then the remainder of the $6 billion will mostly be used as an actual tender offer,

basically to buy the shares and let some employees and X employees. Oh, nice. You know, see some money. So the tender offer means that Thrive Capital General Catalyst, A16Z, Founders Fund, who are reportedly participating around, they'll buy some shares from those employees, so they'll own some common shares. This is exactly what Masayoshi-san did with Uber, put in some shares at a very high valuation for preferred.

This doesn't seem to be happening here, but, or maybe it will. And then also did the secondary. So I'm guessing some percentage of this is at a preferred price and some of it's buying that secondary or the company's buying back to secondary. I think, I mean, yeah, some of the details is not clear. You know, not yet. It probably could even be negotiated right now, yeah. I mean, Goldman Sachs and JP Morgan have been sort of steering stripe through this and

some of the Goldman private wealth alliance are also in this. Well, their revenue has slowed a bit over there. but they're still growing. 85% year over year for their net revenue. Well, that was 21 to 22 net revenue grew 85%. But yeah. Are they growing fast or are they growing slow? Well, I think it's the combination.

The information reported that they lost some $500 million last year, which for a company that I think had bragged about sort of, you know, how profitable it was was sort of worrying. It's the gross revenue grew 27% less year to 14.3 billion. And yeah, I think the year before it had grown sort of much more than that. So it was sort of a shocking slowdown because obviously, you know, if you're investing at 50 billion for a company that you don't know when it's going to go public and you're a venture firm, so you want to see big returns, you're hoping for a hundred, 150 billion dollar company

to come out of this, in which case, you know, you need to see continued growth and sort of profitability. And, you know, I think in particular, you know, Adyen is this public company that Stripe gets compared to a lot. And Stripe had just let its headcount balloon. And so then if you looked at, you know, revenue to headcount, I think in particular, Stripe looked more challenged. And so they cut 14% of the employees in November. 4,000 to 8,000 employees from 2021 to 2022. Right. I mean, that's a lot of headcount to add.

And they did the RIF. Right. And cut up 1,100 employees. I've been dealing with business insurance for three decades. I am on the board of a bunch of companies. I watch people who don't have insurance get themselves into trouble all the time. Switching providers has always been a nightmare. It's too expensive.

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It's meaningful. Every dollar counts right now. We love you in Broker. Thank you so much for supporting this podcast for so many years. What do you think generally? What's the back channel? I mean, we talk about it a lot on this week's startups and all in about the layoffs. What's the, you know, and you kind of, I think, straddle, as we talked about at the top of the show,

say the maybe antagonistic anti-tech press, the sub-sac insider kind of new state of journalism. What is the actual truth to how these layoffs are being perceived by the rank and file in Silicon Valley? Do they understand it? Are they upset about it? Are people in a culture of fear now and scared for their... jobs? I mean, I feel like, you know, obviously, everybody has a different opinion. I think there are some people that I've seen almost like lampooned for, they get laid off and then they still write some, you know, tribute to their years there and sort of totally understand it, sort of the capitalists. And then I think you see sort of people who work at Google and come to see it as sort of like

a birthright. And then as soon as they have, you know, people leave there, it's like, how could they do this, you know. So there's clearly a range of opinions. I mean, personally, yeah, I do think layoffs are part of, are part of business. And, you know, some of these companies just hired so much that the companies need to be able to lay people off. It's not. And there, there's certainly, there was an amount of, you know, entitlement among some of these tech employees that they should be able to earn, you know, hundreds of thousands of dollars a year forever. Yeah. And I think the Facebook case in particular, which I'm sure I think you guys have talked about on all in. I mean, it's just, you know, managers, managing managers, managers or whatever.

That was Zuckerberg's great quote. Right, right. And he's like, yeah, this has got to stop. And we're going to consolidate down. And if you want to be a manager, maybe leave. Right. And I mean, yeah, I don't think anybody wants to work for a company where managers are managing.

You know, it's just like at some point, productive people want to work at companies where they're surrounded by people who feel like they're doing the work. I've come to the conclusion that it takes two to tango. I think Google created this culture of entitlement because they had the money printing machine. I think Silicon Valley copied it because they had no choice because it was an arms race and there was a talent, uh, you know, war going on. And Google explicitly led that talent war by saying, you know what?

We'll hire people to let them hang out on the roof and drink the cladas. I know. Like in Silicon Valley in Huli. Right. Well, we'll hire you for you to give up on your dreams. So you won't compete with us, you know? Exactly. that was the explicit strategy, Eric, as vocalized to me from the top of the company.

And, you know, other people copied it, but they didn't have the money printing machine. So then that gets you into a bit of a trap. People basically are going really fast and they just went flying off the cliff. Right. And I mean, you can see why people are upset. If they do give up on their dreams, they think they're going to get this money year after year, you sort of set a norm and then people expect it. And it's a hassle you're pretty far along on your career to go find another job.

So there's, you know, I wonder what happens to this group of people, let's say, who didn't have jobs that were essential, who now find themselves having maybe gotten paid three times what they were getting paid maybe five years earlier, right? So they were working in marketing or sales or PR. let's PM design, let's call it a non highly technical AI developer or top sales executive position where they're super valuable and coveted even to this day. And they got to 400,000, 500,000 in blended comp between stock and base. And they started their career just five, six years ago at 100. Have they, did they hit peak salary compensation for their careers? They're getting laid off at 35,

40 years old. Right. I mean, that's a possibility. Yeah. I mean, hard to know, right?

I just think that's, and then I think there's two things that are headwinds now for talent. One is everybody insisted on continuing remote work. You know what happens when you insist on remote work and you're highly paid? Your managers learn what your output is. Right. Because they have to figure out your output because they can't actually see you

work. They don't see you at a desk. They can't manage by like policing the prison yard, you know, like walking around the open workspace and making sure you're there early and you stay late, which is how managers kind of manage managers. They would just look at literally the number of cars in the, uh, in the parking lot and the badge is coming in out. Well, now your managers got to evolve. They got to look at your commits, your code commits. They got to look at your sales. They got to look at what you wrote in your end of day report and Slack, what you said in the standup you were going to get done and what you actually got done. And then they put it again. something in Canada or San Paulo or Singapore.

And they're like, wait a second. We have offices around the world and we're paying people different amounts of money around the world. And I could hire five people for the cost of this person. I don't know. Remote can be helpful to the employee. And then AI. Yeah. AI, but remote can be helpful to the employee too.

I mean, there's so much wasted time at the office. I agree. I mean, I love Bloomberg, but you just, you just feel. productive talking to your colleague, you know, like hearing their problems, whatever. But it didn't necessarily get you anywhere towards work. They would actually like increase Bloomberg's revenues. You know what I mean? So if you cut out some of that, your employees are, I don't know, happier, maybe more

productive. I feel like. Nobody likes to commute and everybody likes to live in low-cost places. I think it just, I think what's happening is we're going through a great reset of salaries and compensation. So this great reset in tech and business and media is, you know, going to be impacted by two major forces, remote work, global remote workforces. So I think if you were highly paid in the United States and lowly paid in Manila, I'm just thinking of like the biggest Delta, right? A writer in New York, a writer in Manila, a sales development rep in Manila, a sales development rep in, you know, Los Angeles or New York or San Francisco.

So there's a huge delta in your salary. I think one person's salary goes up massively once comes down modestly or moderately. Right. And so that global price, yeah, you want to work at home. We don't care if you're in Hawaii or you're in Manila. But this is what we pay for work. And then when AI starts doing the work, I think that's the other thing. I don't know what your thoughts are now of how much this is applicable, but you and I are

writers. Right. And like you ask chat GPT in this nascent version to make you a punch list of what should be on a marketing program like you can do in notion now it's built in. And you're like, make me a checklist of what I should do in a marketing plan. And it's like, okay, that's a pretty good starting point. Right. Well, you know, I was preparing for my interview with Reed Hoffman, you know, the LinkedIn co-founder who just stepped off the opening high board. And so I was talking to chat, GBT, and like asking it for question advice. I thought on the one hand, it was a very useful tool to sort of think through things, right? It knew generally, like, this is somebody who thinks about blitzscaling.

He was in Microsoft. Like, it's smart enough. Like, you could ask the questions and not look like an idiot. On the other hand, you know, I was talking to it. I was like, I was trying to tell chat, GBT, like, have you ever watched Joe Rogan? Or I could have you seen all in? Like, people don't just like ask like straight questions. You know what I mean?

Yes. You like, sometimes you give a rant. And then you ask a question. Sometimes you ask orange sweet. Sometimes you're like annoying. You know, you ask a range of different types of questions. And at least I wasn't able to evoke from it, you know, the questions that I wanted. Now, I do think, you know, some of that is just like question, you know, there's going to be all this sort of human language engineering of the machines to get out the output you want.

You know what I mean? Right. But, but yeah, I, I think it's going to be very hard to predict. which jobs actually get replaced. Because people want to say, you know, other people's jobs get replaced, not mine. You know, everybody sees, I don't know. It's hard to predict. Like, this is hilarious.

While we're talking, just to show you the power of like this technology in its most early state, I decided to type in doing an interview with, the prompt I gave was, what question should I ask Reid Hoffman on a podcast. Ask questions in the voice of Joe Rogan. He wrote. All right, folks, we got a legendary Silicon Valley entrepreneur investor in the house today. Correct. He's both. Read Hoffman, explanation point. Reed, great to have you on the show. Pretty nice. Let's start with your journey. You had an incredible career as an entrepreneur investor. Can you walk us through your journey, how you got started and some of the biggest challenges you face along the way? I mean, that's a generic. It's not a college. There's no spice, yeah. No spice,

but if you were a college kid learning how to do a podcast, they would be like, yeah, asking about their career. You co-founded LinkedIn, okay, getting more specific is now the world's professional. What is the original inspiration behind LinkedIn? Pretty good question, original inspiration question. But they're very old. Yeah, yeah. They're generic.

It could. Yeah, they're very generic. The generic today. But if you said, you know, if I think the interesting thing is, you're going to be able to say, those questions are pretty generic. can we get something a little more spicy? And it's going to be like, okay, spice them up. I mean, I'm extremely bullish, to be clear.

I think this is huge. I mean, it's regular people on the street. I feel like I go to the gym locker room. People are talking about it. You know, like there are lots of things, crypto or whatever, that Silicon Valley gets itself hyped up about that nobody else cares about. This is something, I mean, my fiancee uses it just like as not, you know, to think about what emails she should send.

You know, it's, I think it's already. very useful. I'm trying to figure out what's more shocking, that she does it for email or that you have a fiance. Hey, oh, welcome to the all-in pod. I feel like I could do a pod where I break my chops a little bit. Yeah, my favorite is we've gotten to the point in which, and look at these, like, this gave me like more questions than it kept going. I didn't ask it to keep going, but it just kept going. Yeah. What advice would you give aspiring entrepreneurs who are just starting out? That's a good one. You're involved in a number of philanthropic endeavors, including Black Lives matter movement and the fight against climate change. Tell us more about your philanthropic work.

It's not bad. I think it's very safe. Like I, I'm almost where with the, you know, Elon's of the world or whatever. Like, I feel like, I worry that it's just like, I don't, I don't hate bland corporate speak with humans. Like, I don't want this AI machine to just like, like, like, there's no spice in that. Like, what? Yeah, I just feel like it's very boring. Right. I mean, if chat GPT and if Microsoft is making, chatting TPT safe for that use case, totally understandable. Right. But then again, like, search engines have like filled with porn and hate speech and every possible corner. So if it is being compared to search, there should be a safe

search filter at some point where you say, hey, let this thing rip. I want to ask it. I don't care about safe words, racism, sex, whatever isms. I don't care about filtering this. I don't care if it's off color. Let it make jokes in the style of whoever's the most offensive, right? Like, tell me some offensive jokes. Yeah. On the one hand, I'm supportive of, you know, more unrestrained. On the other hand, I do just worry and I don't know what the solution is to this.

They're very psychologically persuasive. You know, like the whole episode with like Sydney and Bing that, you know, Kevin Rusin, New York Times and Ben Thompson wrote about, like, those are smart people. Like, I feel like there's a lot of pull to it. know, I think we're very close to a situation where people take these chat bots seriously. I mean, that was the whole Lambda encounter with that Google engineer. And so then if you, you know, have people interacting with super dark bots, they can, you know, be led into dangerous places.

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I think what we have to understand is we've passed the Turing test in many cases. And we've crossed the uncanny valley. So the Turing test by Alan Turing in 1950, like if you were to ask, you know, the computer or a human to give you an answer to a question, would you be able to tell the difference? Like, you can't tell the difference here.

Just that one I did about the questions. If I asked an intern or a producer to come up with questions and they came back with that, I'd be like, okay, good start. Good start. You could totally fool me or anybody unless you had like, unless it makes mistakes,

which it seems to do pretty frequently. And the tone, passes the Uncanny Valley because it did feel like a little bit like Joe Rogan-esque without the spice. So a lot of this leads to massive funding. Let's talk a little bit about this delugee funding. Yeah.

And what you're seeing out there. Right. I mean, open AI is obviously the elephant in the room. And it's all, open AI has an extremely complex structure. You know, it's sort of a nonprofit. It's sort of for profit. Yeah. You know, Microsoft has a deal with them that we don't totally know.

So I just say that to say, okay, it's possible, you know, Open AI is the Facebook of social, but all these venture capitalists know that they didn't get the Facebook of social analysis. They're off looking for the social trend. So there's a question of which other companies will be able to really make a ton of money off this or be as valuable as Open AI. I think some of the key contenders right now are, you know, other people building large language models. So Anthropic, you know, the information has story that they're raising $700 million in a round, led by a spark.

I think they said the valuation was like 4.1. So that Anthropic is X, you know, Open AI people. So they would be more of a direct competitor. Similarly, I've reported on this company Character AI, which is sort of a mix of, building its own large language models and then also, you know, building these kooky sort of character things, you know, but there's tons.

So that's really interesting. If you were to look at those first two, these are going to have overlap or ready. They're massively funded. There's a limited amount of talent in the space. I hear AI developers go for low single digit millions a year. That's, you know, the good ones, one, two, three, four million a year? That's what you're hearing? Total comp. Cash and stock?

I don't know. That's a good, I should do a story on sort of the individual comp. And I also want to do a story on just like, I feel like there are certain key researchers that make so many of these companies, you know, these companies are relevant if they have of them and not if they don't. So it's definitely, it's like basketball. I mean, it's like a star driven industry at the moment. It is today. Brad Gersner said on the All-Lumpel last week when he sat in for Freeburg that, yeah, Google was paying somebody for a million in stock. niche. So that makes sense if you got a whatever trillion dollar company, you give a couple million dollars in equity. And this is the future of the company where you have to protect it

from potential, you know, competitors. You got to protect the kingdom. So that's two. And that's both of them are at, once at four billion, one's at a billion, both of them hundreds of millions of dollars. What else has been invested in? Are you, stability is out there raising around right now? I think it might have been Fortune said they were looking for $4 billion. Preplexity? That was another one? Yeah, that was I scooped on. EniA.

Oh, you did? Okay. I scooped that NIA was doing it. And then I think Insider followed up with some of the details. I mean, there are a ton. You know, I just published like a market map. So it depends, you know, there are a lot that battery ventures have put together. I mean, basically it depends.

You know, they're the big players who are doing the models. And then they're company, you know, you've probably heard. of Jasper, which is sort of sitting on top of some of the models and saying, how can we use the language prompts to really make it useful in particular cases? I think there's their rivals like this company writer. You know, I'm interviewing the Replit CEO and Hugging Face CEO. They're at my conference on March 30th. You know, there's just, there's so many. The runway, is this company that was used in everything everywhere all once. Are you following that? Have you seen that movie?

I have seen it, yeah. Yeah. So, like, you know, it was this tiny design team, and they used runways like video production tools, which you generally AI to build some of this stuff. Extraordinary. That's wild. Yeah. It does seem to me we are now going to have 25 well-funded competitors in each of these spaces. Right.

Their products are going to be non-differentiated. And it's going to be a race to the bottom in terms of the cost. per API use. So I think this is like the Uber versus Lyft versus DoorDash versus Postmates

kind of battle where VCs are now going to be funding these services at below cost because these things do take a lot of servers. And ChatGPT

seems to have made their API. I read that they made the cost like 10x cheaper. So they are just undercutting the entire market. Somebody's going to make this API just free as part of like some, you know, long-term play to build maybe the language model. But how do you think this all shapes out if there are 2550 people making, you know, AI startups for copywriting and 2550 for images, 2550 for making, you know, characters and films? Right. I mean, there's just wind up.

So many successful companies. And that was my original point with Open AI that sometimes we see only one big company come out. But, but I mean, I do think it's like a huge technological transformation, like we're saying. I mean, it's a case where you could see why generative AI large language models could be applied to a bunch of software as service businesses. You know, it's like, okay, maybe you do make Figma plus AI. You know, it doesn't seem as crazy to say, okay, we're going to try and compete with all these really valuable incumbent businesses. At the same time, I think there's sort of this challenge, like Notion or Quora, I think are both sort of unicorns that are pretty far along. I would put them in sort of almost like last era that are now trying to race into the

generative AI space so they don't get disrupted. So their venture firms are going to have all these sort of old portfolio companies that are trying to dive in. And so I think there's a really big question of just whether, you know, whether sort of incumbents or sort of middle ground incumbents can implement this technology or whether sort of... It reminds me of when cloud and mobile came out. There were some folks who could make the jump from cloud and mobile. If you look at Yammer, Saxis company, they didn't make the jump when they were at Microsoft to mobile. Neither did hip chat. And then Slack was mobile first, and they won the day.

And then you look at, you know, mobile operating systems, you know, and the impact that had on productivity software or cloud. And, you know, you have people running away with it. And then can other people catch up in time? And Microsoft Office is a fine mobile cloud operating system. But Google Docs, you know, has taken significant market share as well. I'm curious what you think about this as an investor if I'm allowed to ask a question. Yeah, you can ask me questions any time on.

I mean, so, you know, obviously, software multiples have collapsed, right? Yep. But meanwhile, we're seeing these AI companies raise insane valuations, and it's hard to even know what the fundamentals underpinning them are. Yeah. I mean, I don't know. How do we reconcile that?

And also, like, do you think, I guess one theory of the world, independent of the technology is just there are all these funds with all this money, and they're eager for any story to be able to deploy capital. They're paid to deploy capital. We just saw, was it Founders Fund? I think they returned some money to investors, right? Not even returned because it hadn't drawn the money down. Sure.

They just said, we'll push it to the next fund or whatever. Or yeah, we'll just, we'll make the size of this fund smaller because the companies are not asking for more money. They're not asking for giant valuations. Therefore, we can be more efficient. So if I'm an investor. Maybe some of their top LPs said, you know what? We're doing so poorly.

Do you think you might want to make this a little smaller so we don't have to make as many commitments because our public portfolios and some of our other portfolios with your so down. So that could have been a back and forth discussion. My sense was they do well. They have an all-in strategy for whatever their top investment is. So it is super binary. I'm an LP in a couple of founder funds.

And so without speaking about insider information, Brian Singerman has always said, you know, we just want to figure out what is our high conviction bet that we have in that fund and put like a large percentage of the fund into that like they did with SpaceX. So I think they've been rewarded for, hey, make some bets, which everyone's the biggest, just plow a large percentage of the fund into that and then move on to the next fund. And they exit some of the positions at the peak, whereas others like, hold on. They did sell some positions. That's right. Yeah. So. But my question was just this idea that investors are paid to deploy capital. They want an excuse to deploy capital. And this is a good one. Like,

Do you see that as a persuasive? Like, do you think there's, like, if you have a fund? Yeah. So it's, you're getting close. You're close. And as a person who's outside, as a journalist, you're actually keying into something. It's not that they're paid to deploy and they need to put the money out there. They know they're going to find an investment.

What they need is high quality investments that they think will return and allow them to raise their next fund. That's really what goes through everybody's, uh, minds and I'm raising my fourth fund right now and I'm doing it publicly and I'm taking a year to do it because I want to kind of democratize venture capital a bit. And it has made me go back to launch fund one, launch fund two, which were like on paper 5x funds and I got to turn that paper returns into realized returns. So I'm like in that mode as an investor. Now 5X is extraordinary. That puts you in like very elite standings and but it's down from my Sequoia Scout performance. But I think now it's like really highlighted it for me, you know, I've got to be really cutthroat about how I deploy capital.

Every bet matters, every follow-on investment matters, because things don't always go up into the right, right? And I think that's what's going through people's minds as, oh, man, if I deploy capital in 2021 and 2020, will I even get that money back? Will I be able to return one X? Maybe 2x, right? And stay in the game and get my next fund. Now, I think LPs are reasonable. they know there could be a vintage that performs better or worse by definition. So they'll stick with people who have multiple funds. But yeah, people are looking for things to invest in. That doesn't mean they're going to make stupid bets, though.

I think it's top of mind for people that entry price matters, right? Right. And so even though you're seeing all this like crazy stuff on the margins, the last like three, four, five investments we made and were a seed fund, were all at five to $15 million evaluations. I think in 2021, they would have commanded two to five X that in terms of valuation.

Were they generative AI companies? Well, one of them was, but it was a previous founder who were just seating, you know, with a kind of prototype, you know, hey, here's what we're thinking and it's, you know, first money in. Okay, figure it out.

Go try and find product market fit. So those are high risk bets, but at lower amounts. And so I think that's the, the strategy. people are going to deploy. And you'll see something that one thing I point out is like 2021 was an environment where you could be a talented investor by seeing where the momentum was.

Right. People were momentum investors. And so you could get, you could play this valuation game. It's like this is a company that's going to raise at a higher valuation. And with generative AI, there is a sense like you can get into the hot deal. You can be pretty confident that there will be more money afterwards to mark. But remember what Bill Gurley always says. And I think he quoted it from somewhere now.

she can't eat IRR. You can't eat the statistic that we use, the rate of return. So you have to actually get that return. So I think a lot of neophyte investors were excited to do momentum investing in private markets, but never realized, wait, I have to exit. And there's no person to mark this up or sell my shares to in secondary. So therefore, what is this actually worth? And I think 20, 23, 2024, these companies go out to market to raise and they raise that lower

evaluations and then those vintages, they thought they were, I had people who I invested in their funds and they're like, oh, we're at 3x. And I'm like, wait, I just signed up. They're like, yeah, we made four investments and they're all up in six months. And I'm like, so your fund is up, your 3x on paper in one year. Okay, that's what a fund does overall. So let's see the exits, right? Right. I mean, literally, if you were 3x after a year on your first fund, the intelligent thing to do would be to sell everything immediately and lock in a 300% IRA for your career

and have a 3x fund as your first fund. That would be the logical thing to do. Did anybody do that? Some people, I think they're like, homebrew, right? Did they sell out a son? You know, there are really funds that I think that most people held on.

I did try to in 2021, you know, I didn't go out looking for secondary opportunities, but when secondary opportunities came in, I did take advantage of them because I was like, why not lock in some wins here when we're up massively? And that was smart because the first fund already returned, its principal, it's, you know, already past that hurdle. And the second fund is halfway there or 60% of the way there. And that's fantastic too.

So that's really the big lesson that's going to happen is what's life like in a normal circumstance without the three years of craziness we saw. Speaking of three years of craziness, the big news on Thursday, shares of Silicon Valley Bank have plummeted more than 60%. Bank went from trading at a $16 billion market cap yesterday to a $6 billion market cap today. Ouch. For context, SVB claims that nearly half of all U.S. venture-backed tech and life science companies bank with them.

I believe that to be true, actually. Anecdotally, I see that. And on Wednesday, their CEO, Greg Becker wrote a letter to shareholders saying, quote, while VC deployment has tracked our expectations, client cash burn has remained elevated and increased further in February, resulting in lower deposits than forecast. Okay, this is a bellwether quote. So what this means is VC deployment is tracking nicely. Okay, they expected that, but the client means startups. Cash burn remained elevated and increased in February, which results in lower deposits.

So they have people's bank accounts. What they're saying is startups are still spending too much money. Right. That anecdotally, I also think is correct. VCs are going slow. Founders are still burning cash too fast. Your thoughts? I mean, it's the SVB stock price is crazy.

I mean, it really, like the debates about whether we went through a dot-com type experience, Obviously, there are lots of differences, but yes, we be stock price is definitely one that makes you, uh, like, do the max version though. Yeah. You hit max. The, uh, yeah, looks like Bitcoin. That's it. Yeah. Exactly. I mean, it's, I mean, I don't know. The, the market seems to know more than I do because that is a very sharp fall. I mean, there, yeah, um, I think there questions about sort of the value of their holdings.

Well, Reuters notes, just to that point, that SVB sold 21 billion of its securities portfolio. CNBC noted that mostly consisted of U.S. Treasury bonds, and the company estimated that the fire sale would result in a post-tax loss of $1.8 billion. Essentially, the bank is reworking its balance sheet and incurring a large loss from doing so to offset that loss. SVB announced a plan to raise a $2.25 billion round in a share sale of which $500 million was already committed by General Atlantic, a venture firm, private equity firm, a full stage fund. And right before I came on the call, I saw TechCrunch had published a story saying some,

you know, investors are advising their startups like pull money from SUV. That obviously would, you know, any sort of bank run would be the nightmare situation. So even if nothing is really fundamentally wrong, I don't know either way, but, you know, people can get scared and then that creates its own problems. So if people were to remove their cash from Silicon Valley Bank, that could be a problem. Or if they were, if they have a Silicon Valley Bank debt facility, a wise thing to do would be to pull that down. So you have it maybe if you had the option. And, you know, this is something that I have had a problem with in early stage startups, which is early stage. startups would raise $3 million, $5 million, and then add a million and a half in venture debt.

And then they would just tack it on to their spend. And they would be like, okay, well, I raise $5 million. Right. Now, 30% of that is venture debt. So $5 million, I'm going to burn, you know, $400,000 a month. So that means I have a year of runway. And it's like, nope, you have like eight or nine months of runway. And now you're in debt for that last million and a half.

those last three or four, those last four months, you're actually on the hook for. And people started using venture debt not for like building a factory or equipment and paying it back over some reasonable amount of time. They were using it to fund runway. Normal operations. Yeah. That's not a good idea, especially if you don't have product, market fit or a stable revenue stream coming in. And I think that's also a potential problem here for people who gave venture debt to, and it's still like a value bank wasn't the only one. giving venture debt. And I think the broader issue beyond Silicon Valley Bank is just that there are a lot of

startups that raised hundreds of millions of dollars that haven't really felt the pain yet. Like, we've seen lots of layoffs, but I still think the fallout for private companies is pretty slow. Like, you know, the public market reacts. You see it. The valuations fall. But the actual, we haven't seen, sort of. of the bankruptcies that you might, right?

And so I still think that there's a lot of potential pain ahead of us. And just, and some of these companies, we just won't hear much about it anymore. You know, I think there will be companies that raise hundreds of millions of dollars that just sort of fade from the headlines. I don't know, is that too doom and gloom or? You know, if you, um, so to your point, Eric, um, is it too much doom and gloom? there are some companies that raise that large amount of money without product market fit. That is a challenge.

That is a serious challenge. If they did have product market fit and there's a there, in other words, they have $50 million in revenue, $30 million in revenue, well, they could just lay people off until they get to break even or, you know, have infinite runway and they'll figure it out over time. And that will lead to some hand-wringing amongst VCs on the board, but not the risk of a zero. And so that is the question for a lot of these companies is, okay, if you invested in the company at a billion dollars and they had, I don't know, 15 million in revenue and you overpaid, or let's just say 10 million in revenue. So you paid 100x. You really should have paid 10x or 20x. It would be 100, 200 million, $200 million company, 20x, let's say, it's high growth.

You know, okay, then the company and the company's not growing. Now you got a problem because can it grow into the valuation or not? And how does it grow into the valuation? It just might be, three, four, five years of what I'll call indigestion to use a term. You know, like, just how do we get through this? Like, it's slogging, you know? Like, you've got to march through a swamp. And so hopefully the people who are on those boards and who made those bets are willing to march through a swamp for a year or two.

Some of them might not even be there yet. I think some of the folks who were at some of these farms, you know, the TPG Tigers of the world, I think some of them, you know, left some of those. firms. So then you have to retire. If you made all your money in 2021, it's like, or if you think that fund can never return and get you carry, you might be like, okay, start a new firm.

So I think some people did that. Some more quotes came in from the Silicon Valley Bank CEO, New York-based venture firm USV this week, Unis Square Ventures Fred Wilson, sent an email to founders advising them. This is from the information who always likes to get credit or they dunk on me on internal. This is hard work. I know. I always give them credit and then they just try to dunk on me in public.

I'm just going to, like, quote the insider, business insider rehash of stolen reaggregation of this. New York-based venture firm, according to a business insider, New York based venture fund, the information. USV this week sent an email to founders advise them to only keep minimal funds in cash accounts at SVB. That is funds up to 250K. SBB is in a severe cash crisis. The email read, do not accept any offers from SVB to keep your money. money there, even if they dangle 5% interest rates in front of you, it said, whoa. USV noted had reached out to many of its portfolio companies earlier this year saying it had

expected such a situation represented for the firm to find a comment. Whoa. That's pretty intense. Some VCs, yeah. So thoughts on Fred Wilson's position there? Yeah, I mean, obviously I take anything that he says extremely seriously. So if he's warning people about this, you know, it's like, yeah, that's risky. I mean, you know, SVB clearly has, like I said earlier,

has the strong incentive to tell everybody everything's okay. I don't want to be the one to, you know, I honestly, I have no idea. I mean, it's very hard to model out, you know, these banks are so complicated. Wasn't this what we went through? I'm getting shades of the great financial crisis where people didn't have enough reserves or they're levered up and this concept of a bank run and everybody trying to clear out their money. And we saw this with crypto as well. this is starting to give me flashbacks of that and maybe black swanish kind of event.

Do we expect, you know, well-known, well-run banks to be insolvent or have bank runs? That's something I don't think we expected. And then that could result in the United States government having to come in like they did in the great financial crisis and bail out. Silicon Valley Bank. I mean, is it really that acute? Well, here it is. Do you think they would really bail us out? I don't know.

I feel like. After the last time, there's a lot of bad feelings. because nobody on Wall Street went to jail, right? Right. And that was the kind of Bernie Sanders position. I'm very skeptical Silicon Valley would get a bailout. Yeah, I don't think so. Okay, on the call, Becker told venture capitalists in Silicon Valley to stay calm.

Call started coming in. Call started coming and started panic. He added that the bank has ample liquidity to support our clients with one exception. If everyone is telling each other SVB is in trouble, that would be a challenge. I would ask everyone to stay calm and support us, just like we supported you during the challenging times. Okay, great. So he's saying, don't take all your money out en masse. And then just the fact that we're even having this conversation on this podcast and Fred Wilson sent that email and the information is breaking this story.

And he's saying, please don't do this. That then creates self-fulfilling prophecy, I'm afraid. As a bank, what you want is everybody to think you are the most reliable force in the world. I mean, you know, SVB has always been a little older than other banks where, you know, it's, it's, it's, deeply in bed with the technology industry and sort of helps with some of the risk taking. Okay. All right, everybody. This has been a great hour with our friend, Eric Newcomer. He has a newsletter, newcomer.com. Go sign up for it. Highly recommend it. Let's get him to 3,000 subs. Well done, Eric. Yeah. Let's get him to 3,000 subs. And congratulations on your chief of

staff. I remember you were looking for that. It's made life a little bit easier. Congratulations on Thank you. Not having to write link-fate articles. Thank you, you, you know, for all your early support. I remember when I was just like Harvard Eric and I was a young employee at the information. Yes. You had Katie Benner and I on at one point. I was on a couple episodes.

Yeah, you did great on the news roundtable. So I want to bring the news roundtable back a bit so we can have, you know, I just like, the problem with the news roundtable, if I'm being candid, was the tenor in a lot of the publications became so link baiting and so anti-tech or, you know, holding truth to power kind of, it became repetitively anti-tech

as opposed to like what I want to do on the show, which is be insider, sophisticated, explained to founders and capital allocators, what's happening in the world, talk about startups, talk about positive things happening, but not like being deranged in our,

you know, effusive, you know, love of tech. but just more intelligent than this person has too much money, they're too rich. This person, you know, this company behaves badly. You know, it's like, okay, yes, that's part of the story. Yes, wealth creation and wealth disparity is a fine topic. It just can't be that. It can't be injected into every conversation about a new generative AI company.

I agree that the media got too negative in crusade and that there were a lot of founder takedowns. But now I'm at the phase where like, I'm, over media criticism. Like, that's sort of why I transitioned from Deadcat to Newcom. It's like media criticism. Like, okay, it's good every once in a while to like talk about the media, but it gets exhausting. Let's talk about like, completely exhausting. And just like, I feel like working the ref. There's a reason. My position is there's a reason basketball players get fined if they talk about the refs. Like it's sometimes the refs fault that people lose games

and it sucks more than when the players make mistakes. That's the media. It's like, it's really frustrating when the refs are bad. But if you, you let people, if people just like get to blame everything on the refs all the time, it's just like a distraction from the conversation. I think that's a good analysis. And you can't have refs who are in the bag and who are correct, which we've seen too. It's not, doesn't happen too often. But I think this is where I think we're, and I talked about this on the sort of uncomfortable

rehash of dead cat when we try to make sense of all this with journalists like I'm criticizing them. We're criticizing each other. And it's like, it was just a mess of. episode, but it's fine. It is messy. I think it's all collapsing to then be reformed. And part of it collapsing is new publications like the information coming out and saying, we're going subscription, you going subscription and being independent, Casey going independent. This new breed, I think it's part of the rebuild process. So there'll be entertainment. And sadly,

the New York Times and business insider are not that far off from each other in terms of they're going for clicks and they're going for like a position. I don't always agree with your click prescription, but I don't want to fight that whole thing now. Well, whatever. I mean, you would agree that there's advocacy journalism at the New York Times. Sure. Yeah, but the motivations for advocacy are totally different than clicks to me. But I want the creator world and the journalism world to have to just sort of accept to merge.

You know what I mean? I think right now it's like, yeah, we have journalists. We're held to high standards. And then we have creators who, you know, are held to different standards. I feel like it all needs to come together. Everybody is judged based on their reputation. And, yeah, I'm excited about that period. Fantastic.

All right, listen, speaking of reputations, go back to work and get more scoops and bring them here on this week and service. Let's chop them up. Eric, you are a gentleman and a scholar looking good. Congratulations on the success. And we'll see you again soon. All right. Sounds good.

See you. Bye.