This Week in Startups - VC market overview, Vision Fund impact, Amazon's core businesses & more with Acquired | E1530

Episode Date: August 10, 2022

Acquired's Ben Gilbert and David Rosenthal join the show to discuss how they think about public market investments (1:43), VC token sales (27:25), a VC market overview (45:40), the Vision Fund's impact on Silicon Valley (1:00:33), and Amazon's core pillars! (1:13:21) (0:00) Jason intros today's guests and topics: Crossover Pod with Acquired! (1:43) Private markets overview, Jay Trading, Ben's investment thesis for TSMC and Shopify (13:44) Embroker - Use code TWIST to get an extra 10% off insurance at https://Embroker.com/twist  (14:52) Jason makes two live Jay Trades, better solutions for employee stock options (26:14) Dell - Apply for Dell for Startups and get an additional 10% off Dell Latitude products at https://dell.com/twist  (27:25) Crypto regulation, VC token sales (39:33) Zapier - Try for free today at https://zapier.com/TWIST (41:02) The burden of going public, final ideas on digital asset regulation (45:40) Major takeaways from PitchBook's Q2 US VC Monitor: exit value collapse, deal volume down, seed not impacted as much, signs of life in the early-stage (1:00:33) Reflecting on Masa's precarious position and the impact that SoftBank's Vision Fund has had on the VC industry (1:13:21) Ranking the most impressive pillars of Amazon's business: AWS, Prime, marketplace, advertising

Okay, everybody, we've got an awesome show for you today. Acquired, it's Ben Gilbert and David Rosenthal are on the program. We go super deep on what we're seeing in the venture capital market. We cover a bunch of the crypto VC stuff and how token investments should happen. We also break down some crazy stats from PitchBooks, Q2 U.S. Venture Monitor. We dive into Amazon and they're incredible businesses. And it turns out Ben has been doing some j-trading himself. And he tells me about two really interesting companies and that I make a snap decision. Do I J. Trade live on the air with Ben Gilbert? Find out today on the show. This week in Startups is brought to you by Embroker's startup insurance program helps startups

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dropbox, HubSpot, Zendesk and thousands of other companies use Zapier every day to automate their businesses. Try Zapier for free today at Zapier.com slash twist. All right, so here we go. I love having the boys on to Talk Shop. And as you know, they have a great podcast called DeQuire. Go ahead and search for that. David is running kindergarten ventures.

And I am an LP. That's right. David, where am I at? What's my moik? What's my, what's the IR? Am I 5x my cash on cash? I'm my 10x cash on cash? Daddy needs a new Tesla.

What do you got for me? Well, we raised the fund in Q1, 2022. So, markups are not as, as forthcoming as they were last year. But a second, I was getting reports from my funds in 2021 to 2022 that they were up 4X.

Of course, none of them liquidated any of it. So it's sort of, David's telling you it's early days. It's only a quarter and a half in, you know. But you probably got the email. We've got three SPVs open right now. So deals are happening. All right.

Now, wait a second. SPVs are open, but you're not saying which one, so you're good. You didn't 506C it. You're 506B right now. I too have four or five SPVs open right now. These are special purpose vehicles. Well, no, because then it would be 506C, right? We'd be publicly racing for those companies.

and they would have to then certify that everybody was accredited. But if you do it privately, so we can say that we do SPVs on a regular basis. You just don't want to uncloke which ones they are. What has the reaction been to your first couple of SPVs there, given it's the summer, so people are busy, and given the market is a little scary right now. We had a little up and down and Ukraine and $6 gas and scary inflation prints and Biden is asleep at the wheel, all this kind of stuff, making people pretty scared, Taiwan. But how has the reaction been to SPVs with angels and LPs?

Shockingly good. Yes. Now, part of that might be we launched them last week. And I feel like you guys been talking about this on all in. I feel like we've been bouncing around the bottom. I'm starting to see signs of life. People are like, hey, wait a minute, I got to put money somewhere. I made my first public market buys this week.

You made public market bonds this week. You're J-training. Yeah. Yeah. I like that coining that phrase, by the way. That's all Nick. That's all producer Nick. So what is... I want to go back to David, but let's define that term first.

What is J-trading? So J-trading is the act of learning public market trading from your audience. So this is not investment advice. My goal with J-trading is to learn... I have a couple of goals, but number one is to become a top quartile, top 10% public market investor, to really understand how to identify, lasting companies with great products, great talent, the same way we do in the private markets.

Now, why do I want to do that? I believe that one informs the other and that to be, that this is kind of like learning PLO if you're a Texas Holden player. You learn a new poker game. It's different, but some things are the same. The ranking of the hands is the same, right? Okay, this is, you know, a full house. This is a flush. This is a straight. Okay, they have different values. But the frequency of them is different and there's a lot of nuance. So that's what I'm trying to do is, and if you look at Bill Gurley, he started as a public market analyst and then did private. If you look at Masayoshi Son, and we'll talk about SoftBank today, he does publics, he does privates. So I believe, and now you look at Sequoia, our boy Ruloff, is now got the Sequoia fund,

and they're going to be managing public market equities. I think this is the future. And I have struggled, candidly, with when do I distribute these public shares that are coming in? I'm lucky enough to have Uber go public, desktop metal, Robin Hood, a bunch of different things. And should I be selling before they go public in that mezzanine kind of round? Should I be selling when they hit a billion dollars, $10 billion? When should I be selling? When should I be liquidating? When should I be holding?

And, you know, I have to, you know, do that. And so as a goal, the other goal was to learn from the public, maybe, come up with some theories as to what might work and to just publicly do those and learn from the audience in public. As a goal, I'm going to put a million or $2 million into this and I'd like to 5x in 10 years. So I said a very aggressive goal, which is what I have done for, well, listen, without making any future statements, past statements. Let's just say I've had funds that have been in the top, top, top, top. That's what you expect from your private market investing. I would say my private market investing, you know, net, net, net, I'm hoping I'm a 5x cash on cash fund manager.

That's my aspiration. And, you know, I have hit that. So, um, those are all my goals come on. Are you keeping a like publicly public portfolio anyway? Yes. If you go to jatrading.com, uh, you can see the four trades. Produce it. You're the best.

J-A-Y trading or J-A-L-L-A-J-A. J-A-Y. Oh, getting the domain name was, uh, was my chief of staff. Looks like a maybe here on a Looks like a notion page. So there are my four trades. I've made them in the last month. I'm putting the dates.

I'm putting the amounts. I share them, but I did stitch fix. All right. I am going to write a scraper after this to make sure that nothing ever gets removed from this table. I talk about it on the pot.

I've been making the trades live on the pod using Robin Hood. So while I'm doing it, I'll be like, hey, Molly, hold on a second. And then the big tip off is I put my grandpa glasses on. Because Robin Hood uses like a negative seven font size. They're like, oh, yeah, we know that you're 23 years old. So we're going to make the font size so small that you can't read. You could be buying Amazon or you could be buying American.

You know, some. They're like, what do you mean you don't want leverage? Exactly. That's always the funny part. I'm like, I'm putting like hundreds of thousands of dollars into this account. And they're like, would you like leverage? I'm like, no, no. Let's pump the brakes there.

But so I'm making the trades live on the air. based on us talking about earnings reports, et cetera. And, you know, I'm trying to find some, some theories here, but you made some trades, public trades.

Are you doing them publicly or not? I'm not, but I, maybe I should. Maybe we should turn this into like an acquired community thing, David, where everyone posts there and we,

they're, you know. Yeah, we should get Bentrading.com, David trading. com. Go for it. I mean, follow a little.

We're live. We can't say domains on the air. We've got to go rushing by those now. Oh, yeah. It's such an idiot. You just, now you cost you, it's going to cost you five grand

for that domain. I know. It's brutal. All right. But anyway, so you're making some trades. Tell me what your recent trades were. Super boring stuff. I'm like back in on big tech.

Okay, me too. Can I, I think, we can say things we're buying on air. There's no reason. Yeah, I mean, this is not investment advice. This is what you're buying. It's not investment advice, but you can say why you bought it after you bought it. Yeah, you're not manipulating the market. You're saying your thesis of why you bought it.

I mean, unless you have inside information. Which you should. In which case, I shouldn't be buying anyway. Unless it's private companies when everything is based on information, private information. So there you go. I bought more TSM. I think it's the most important company in the world. I think the geopolitical volatility is creating price suppression on a business that is only doing better and more important than it's ever done.

And you can accuse me after our episode of being a TSM permable, but I think like it takes government scale effort to try to rival TSM. And even if the government were to plow 50 to 100 billion over a 15 to 20 year period, you have a chance of being able to rival them. So I think it's like one of the most unbelievably protected moats like literal, you know, ocean moat around the company of all time. All right. So five years ago trading at like 45 bucks and 30, 40 bucks in 20, peaking in 2021, about $136. I think that's when Pelosi sold her position. And then we got and talked all the way down to $77,

and now we're at $85. Market cap, $421 billion. This obviously is in Taiwan. It's Taiwan semiconductor manufacturing corporation. So the geopolitical risk is making people nervous. It totally should. It is totally a possibility that large kinetic military moves get made to that could wipe this company off the face of the earth. I mean, there's terrible things that could happen as collateral damage. I do think it is too important to everyone. It's almost like a Cold War situation for anyone to want to make a move. But I am not a geopolitical strategist. I am just comfortable with that risk in making this investment. So mutually assured destruction is like part of your thesis here is like for the world, we can. can't have TSM get annihilated. Yeah, I mean, that's part of the thesis. I also am like a 10 to 20 year

hold. Are they TSM is the ticker? Yeah. TSM? Yes. On all this stuff. Like I, I didn't, from all the stuff that I bought in 2019 to 2021, I sold a de minimis amount of it. And so I kind of look at everything as forever holds. And so to me, this is like a, I'm not sure what it will do in the next year, but do I think it will stay very important in the next decade? Totally. Which makes me that was boring trader of all time. well i too am trading with a 10 year fine great companies hold them but i want them to outperform the market and i do like some downside protection right like this is not going anywhere kind of company and that's why i've been buying amazon disney took a little flyer with uh water brothers

uh discovery because i like zazlov and i have some pieces there but tsm uh seems like a very good bet i like your bet on TSM. Anything else you're buying now? Well, so I've been looking at anything that was up north of like a 7080x price to sales. And if it's come back to earth, then it becomes interesting to me. So like for the first time, which is just very funny considering how bullish so many people were for so long, Shopify was a really interesting buying opportunity right now or in the last couple weeks. And so I'm for the first time a Shopify shareholder because I was kicking myself for the longest time that I wasn't. I think massive secular tailwind with empowering people to be their own e-commerce merchants. There will totally be an Amazon that eats an enormous amount of e-commerce, and then there will

be the Shopify merchants that have a gigantic amount of the rest, and I think that will continue for a long time. Do I think it will continue at the rate that it was during the pandemic? Probably not, but again, 10-year-bett. Just to give you a number on that, their peak price to sales was 72x, and I think this week they're trading some more around an 8x. I mean, it's just a very interesting time to be looking at anything that was unbelievably speculative and now is trading at or near fundamentals.

I like both of these bets a lot. I had not even considered, if I'm being totally honest, even though we talk about it all the time, TSM. But do you know what the price to sales ratio there is? And for people who don't know, price to sales is the price, the valuation of the company versus their sales. So the company had a billion in sales. They're only 7X. Wow.

Yeah, they never got too crazy. I mean, their highest was maybe 12 or 13X in the madness. Got it. Look at Shopify. They were at $176 was their high, and they're now trading at 3650, and the low is 2972. I like that trade too.

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imbroker.com slash twist. That's E-M-B-R-E-R-com slash twist. and when you're there, you're going to get an extra 10% off by using my code. Twist. Ben, I'm curious, did you consider ASML versus TSMC or doing a blended bit on both of them, as lots of folks in the chat have been asking. It's cool having this chat here as we go. I know it is.

I am also a longtime ASML holder, but I did not buy more this week. Interesting. And ASML for folks who don't know is the like they make the photolithography like $200 million plus per machine. Oh, wow. One of the very, very core components that go into modern semiconductor manufacturing. And they're actually based in the Netherlands spin out of Phillips Dutch company back in the day. And so people talk about ASML and TSM like very, they're very jointly tied at the hip. and Intel actually, you know,

it was probably a decade ago, made a strategic bet not to go with ASML technology, and it was 100% the wrong bet. And it was a big part of TSM surpassing Intel. Inside the chip industry, this is like a very interesting rabbit hole, but everyone was really bullish on ultra, what is it, UV, ultraviolet photolithography,

the extreme ultraviolet lithography. And so a bunch of companies, including Intel, funded ASML. They bought like a third of it or something as a consortium of chip companies to kind of like further the development of this technology. And after four or five years, it wasn't bearing fruit. So Intel got out and sold its shares in ASML. And then itself strategically moved away to use a different fapping process. And it ended up being that it just took five, six, seven years for it to become the, just a lot of R&D to become the future, basically. I've been looking to make some

trades. Trade number one, we just did a J-trade. J-trade is in. J-trade alert. Oh, wow. We're doing live J-trades now, folks. Wait, this wasn't investment advice. This was not investment advice, but I took it at such. Jason did his own research.

I did my own research, and my research was, you're smart. So I just dropped 59 dimes. 700 shares of TSM are in, thanks to our friends at Robin Hood. Not sponsoring this yet. Vlad, I don't know. Maybe you want to sponsor. I was one of your early angels. I don't know.

Maybe sponsor the show. And then a second trade just came in Jay Trade Alert Oh We bought a little shop A little shoppy poo Thousand What happened?

Who bought these? I did No, anytime anybody mentions the ticker symbol on the show and they're smiling We just put a bio It's a computer vision based AutoBart

You just do it on Robin Hood on your phone I just did it on Robin Hood on your phone And yeah It settles a trade immediately I don't care if somebody paid for my payment for order flow. I like getting a free trade. Wow. Wow.

I don't put this on me. I'm putting a million dollars, maybe two million into this little public. Do we get some carry on that? No. But if it goes down, you'll be hearing for me. If it goes up, I'll buy you guys some omel-casa. Can I share it? So here's a, here's sort of a fun way for our friends, thanks to our friends at Bessemer,

who put this together. If you go to cloudindex.bvp.com, for anybody wondering, like, where can I get investment ideas in the, you know. reasonably large SaaS world. So they create this pretty interesting thing called the Cloud Index, and it's very interesting to look at the like, you can very clearly see the run-up and just getting absolutely smashed

from emerging cloud companies recently, notably still above a bunch of benchmarks from 2013 when it started. But if you click the Companies tab and you sort by EV to annualized revenue, this gives you effectively a price-to-sales thing. And so you can look and see, okay, what companies are still trading in an incredible premium, your snowflakes, your cloud

flares, your Git Labs, your Alassians, crowd strikes, and then you can see companies completely on the opposite side of the spectrum. And so if you're looking to do the thing that I did with Shopify, you can basically look and see, okay, who's trading at a pretty low multiple right now? And then you look over at their growth rate. And if someone is still growing quickly and has high gross margins, that's an interesting place to then start your research and dig deeper on the company, read their financials, and try to understand what's going on in this company that, why is the market pricing it so low when, at least at a very high level, and, you know, blunt instrument fundamentals seem solid.

We're looking at Twilio as a perfect example. They're trading at 3.4 times. Wow. Is that the right number there? Yes, this is actually one that I was curious about that I have on my list to investigate. Like God, they've got crushed. Destroyed. And their growth has meaningfully slowed.

So there's part of it. I mean, so much of this is about what's going to happen over the next 30 years with this company, which is why people massively overindex on what happened to growth in the last quarter or two, because if that trend of slowing growth continues, obviously your cash flows in the future don't look great for many, many years. But if it's a blip, then, you know, this is a, or I should say a blip in slow growth, then it could be an underpriced asset. Does the value of these companies take out their debt? Good question.

I'm not sure how they compile this. So that's another thing I'm learning is like the amount of debt some of these companies have versus how much cash they have. So I was like, oh, snap looks interesting right now. I really think Evan Spiegel. So when I'm a private market investor, I think about the team, you know, the founder essentially, the team around them. I think about the product.

I think about the customers, right? If I'm really confident in the founders, I think it's a beautiful product and solves a real need in the world and delights people. and the customers, if they're really happy and they're spending money, great. That seems like a good bet to make in private markets. But when it's public, now you got the growth rate, you got debt, you got competition.

I mean, you got a lot of other things that can be super acute. And it turns out, I was like, oh, they're sitting off $5 billion in cash or something. And then somebody was like, hey, dip shit. Where do you think they got the cash from? They got $5 billion in debt. I was like, so they drew down the cash.

They've got cash in a bank account. They're accruing interest on the debt. I'm assuming very low interest. So that's good in an inflationary market, I guess. So I was like, oh, because I was like, what's the value of the company minus the cash and doing my little, you know, game there of like, hey, if you bought back all your shares at this price and used your treasury to buy your shares, then what's the actual value of the company? So that's what I would look at with these two is like, what's the debt load they're carrying versus their cash position? This is why I think Robin Hood's in a great position. They're sitting on so much cash.

It's bonkers, like tons and tons of cash. But yeah, that is a good way to look at it. I do think there's like a, I heard somebody say, it was. somebody famous was on CNBC. It might have been Howard Marks. And he was talking about, you know, you have to look in places other people aren't looking if you want to find that out.

Which is not this. This is where everyone's looking. Well, is everybody looking at the dogs list or are they looking at the winners list? I would argue maybe people are looking at the winners list and saying just, what's the safest bet here? Yeah. And I've been looking at SPACs.

So I've been thinking, okay, wait a second. The whole, all SPACs are now being painted with one brush. No product market fit. They've thrown the baby out with the bathwater. They're totally good companies in there. There must be great companies in there. I know. We have desktop metals in there.

It's a great company. Even BuzzFeed, I was looking at. I was like trading at like $250 million or $300 million valuation with $300 million in revenue. Now they were, had the risk of ruin with, you know, not a lot of cash in the bank. So I was like, oh, this is a really scary company. I don't know if I want to catch the knife here. But I was like, you know, I always liked Open Door. Keith Rabeoy's company.

I always like that model. And people have been telling me open is an interesting one to look at. I always like Joby. I think flying cars are going to be a thing. Yep. I think somebody's going to figure that out. I think Joby's getting murdered.

And now, since I started J-trading, the interesting thing is, boys, I am getting a lot of inbound. It turns out people have positions and now they see me as a proxy. I wasn't sure about this dynamic, but I realize this is like a... And you're like, no, I just pump Robin Hood for myself.

I'm not pumping anything for you. But this is like a pump kind of thing where now people are telling me, hey, you should get in on this. Here's the story. And I'm like, ah, this is exactly what happens in private markets. We incubate a company. We angel invest in it. You know, kindergarten puts a little chippy poo in.

Yep. You know, Ben maybe makes a little bit of a bigger bet. And then we're like, hey, Sequoia. Hey, benchmark, do you ever hear of this company? Really great founder. We send that email. I'm getting those for public. markets now. And so this is my little parallel. You know, how do these markets work in parallel? What are

the themes that happen in both of them? And so looking in a pile. Who's pitching you? Is it hedge funds? Randos. Randos. I had a CEO of a publicly traded company email me today. Oh, that's not good. Not good. I don't know if this is a real email or not, but I'll read it on the air. Hey, Jason, I'm CEO of a public traded company. And I've put together a presentation for you to consider my company, as a J-trade. I'm a long-time twist supporter all the way to an all-in listener.

Beep, class of beep. I took my company public last year in Beep, foreign location, and we are listing in the U.S. in beep. Here's the pitch video, YouTube link. Hope this helps with the education process and becoming a public market investor. Thanks, beep. Huh.

That's actually... She or he did his research on you. And that's a, that's a, you know, usually you get these pitches and they're just like, No, this was, there's some of that stake here. So this is what I, and yeah, he didn't, he didn't put a discount code in there. So I'm not getting the shares at a discount. I don't know. Use the promo code, beep, to get 20.

Can you get a lot of money? Actually, that's what long-term stock exchanges do, right? That's Eric Reese's company. Yeah, that's right. For a year, you get a little discounty-pooh. Which actually, by the way, we did, um, we just did this huge episode all Walmart. That was a key part of their strategy was associates had it could buy stock at like a 15% discount. What? And Home Depot adopted the same strategy too. And it was huge. It became the

model for like all employee ESPP programs. In Silicon Valley, we think about like, oh, employees, you know, get options. You just get gifted. At those companies, they're like, you can buy the stock. You buy it with your own money. You get a discount, though, for buying it with your own money. and you can do it with pre-tax dollars. And then you're like, you know, you've got skin in the game. Like, I, uh, did you ever read, I love capitalism by Ken Langone? No, but it sounds right up my alley. Co-founder of the Home Depot, really good book.

Oh, yeah. I like it. Yeah. We got to do Home Depot at some point. Home Depot is fascinating to me. I wanted Uber to do this. Travis was going to do this with Uber, Airbnb wanted to do it. It just becomes incredibly complicated because you, you can't have that many shareholders on a

cap table, you know, and you essentially become a public company. that like Facebook was having that happen and then those people can come to your offices and review your books under Delaware law yeah yeah so that's a these companies were public when they did it yeah so when you're public it's one thing when you're private it's another I just got a new Dell laptop and it is awesome this thing is a monster it's high powered I can play Windows video games that people have been telling me about because I'm into real-time strategy I've got a giant monitor and it is so snappy. I'm looking at all Dell monitors here. I got my new Dell laptop. If you're a founder, you need Dell, and you need to apply for Dell for startups. Here's why you're going to get

access to a team of expert IT advisors, and these experts are going to give you custom solutions to make your tech stack world class. And they're going to give you access to capital for building out your tech stack. They're going to give you great discounts. And we love Dell. I give every employee who joins me here, the beautiful 39-inch ultra-sharp curved monitor. And here at the ski house, I bought a monitor. So when Nick and Press come up here to work, they can plug their Dell laptop in. Boom. Easy, breezy, lemon squeasy.

They're up and running with a giant monitor. Here's your call to action. Apply for Dell for startups today and get an additional 10% off. All Dell Latitude laptops, those are the award-winning ones that everybody loves. There's also the Alienware ones that I love. Just head to Dell.com slash twist. D-E-L-L-L-com slash twist. That's Dell.com slash twist.

Thank you to Dell and the team over there for making great products and supporting startups. I think this is the thing, when we look at securities law and we look at what's happening in crypto, I'm very happy about the SEC finally engaging with the crypto. I want to know your opinions and saying, hey, we think these are securities and you need to clean this up. I too believe they're securities, but I do believe they could have, they need to give specific guidance on this, maybe a little more upfront as opposed to in the review mirror with enforcement, but also maybe we can think about this as a group and say, well, maybe employees should be a carve-out to be able to buy shares in company and shouldn't count against a limit. They should be able to buy

a certain class of shares that don't give them like complete information rights, like a major investor. And if as long as they buy under $5,000 a year or 10% of their salary, it's totally fine. So they can do up to 10% of their salary based or whatever their taxes were for the average of the last two years, they can do 10% of that, 20% of that. So you don't have the risk of ruin there as much. But then Uber drivers, Airbnb drivers, I don't know, whatever company you and I invest in, we all invest in, they could offer that to people. So I'm doing this on inside.com. We did an equity crowdfunding on Republic and we did one on seat invest. I have all those emails. There are a lot of our readers. Putting in $100, $200, $500 on average. We're going to put a top hat next to their names at

inside.com on their profile pages. And when you hover over the top hat, it's going to say investor in, inside.com. And I think that's kind of like the fun of it, is that you could have, you know, public, you could be, have investors. What is your take, David, on all this crypto stuff going down? I know you were crypto curious. I don't know if you ever consummated. What is your? We actually just did, I think this is our most recent episode in the main acquired feed.

With Anthony. With this awesome interview with this guy, Anthony Gonzalez. He was my business school class fan at Stanford. he's a congressman, so he's in the house. He just has the most amazing, incredible story. He played in the NFL, played at Ohio State, played in the NFL, caught touchdowns from Peyton Manning, got hurt and went to business school with me, started, was C.O. of a startup and then ran for Congress and has been in Congress for the past few years as a

Republican. And the punchline is he's on the House Financial Services Committee regulating crypto. What? And Robin Hood and like all of this. Yeah. Wow. So we spent this whole episode talking with him about this. And what is his thought on it?

Does he feel their securities? Does he feel the rules need to change rapidly from the 1920s? We intentionally didn't get into the like, is it a security? Is it not discussion? Because there's so much gray area there and so many different cryptocurrencies are for different purposes. And there's a lot of nuance. But the thing that we did get super explicit on is Congress wants to start with stable coin regulation and basically say, okay, we understand stable coins. We don't understand everything else yet, but we understand

stable coins. We understand there's asset-backed stable coins, and then there's algorithmically stabilized stable coins. And at least for the asset-backed ones, which is effectively like reserve banking, like, hey, we've got a bunch of dollars in a big warehouse somewhere. And so, you know, you can trust that this stable coin, this USDC or something like it is actually backed by US dollars. They want to create the first clear set of regulation. around stable coins first. And the idea is, and he sort of quoted Bill Clinton here from the early Internet days, first do no harm.

So we know that there's innovation happening. We don't want to squash it. We want to understand it. And then we want to figure out where there's grift. So we need to stop the grift. And then where people are not innovating fast enough because they're afraid they're going to go to jail and create a clear set of guidelines just around that. And they're starting with stable coins and going to move from there.

Interesting. At the pace they're going. going, that's not going to be fast enough because they seem to take 10 years to make any decision for 20. And they really need to get to more like a 10 month, 20 month cycle here. It can't be 10, 20 years because the industry is decided they're just going to yolo and go for it. And this puts them in a dangerous position. Does it not, David? It does. But I agree with his philosophy of first new, do no harm. Like his point is that like the, even though obviously there's grip going on and like obviously stuff is happening like it would be more of a cost to the country

and to innovation in the long run if congress were to take a heavy hand now wow then to take a light hand which like was not what i expected to hear a i didn't know yeah i gotta listen to this because they also have a lot of commissioners right like people have different uh like we had hester on this pod like people have different positions and they have different amounts of influence but yeah he made that point too that like in congress that's that's that's his view as one of the leading members of the House Financial Services Committee in Congress. But the executive branch in the White House has their own view. And then the commissioners have their own view as well. It's fascinating. I'm really interested to see where they wind up with all this. Now,

do you think their securities, Ben? A lot of these feel like securities to me. I have no opinion on this because I don't actually know enough about what is a security, what's not. And they is a dumb question here too. Not to say your question's done, but like, yeah. To call all cryptocurrencies the same thing. is such a like, sure instrument approach. Like, should a stable coin

that's goal is not to appreciate and value be considered a security if Bitcoin, which I hold purely as a store of value or perhaps an investment hoping it does appreciate, should those be treated the same way? Probably not,

just because they happen to run on the same rails. They're like totally different asset types. So I... And Ethan Sol or a whole other different class. Yeah. But the cost of no regulation or slow regulation,

as you're pointing out, Jason, is that like, the most innovative companies will get built elsewhere, which is bad for America. I mean, you get Sam Bankman-Free building in Hong Kong and the Bahamas. And as Anthony points out, he was basically born on Stanford's campus. And somehow that happened outside of Silicon Valley. So it's about finding that meeting. This Howie test is very interesting to me. That's the one, I guess, the Supreme Court established four-part test, an investment of money. Okay, check, that's all of it. In a common enterprise, okay, great. There's a bunch of people doing something with these coins with the expectation of

profit. You said right there, like, maybe it's a store of value for you, not a profit. I mean, you're happy to have Bitcoin make a profit, but maybe it's a store of value. And certainly stable coins are not with the expectation of profits. So you take out number three. And to be derived from the work, the efforts of others, well, that's pretty clear. You know, unless you're a developer in the ecosystem we're building with the actual tokens, you're probably riding on the backs of somebody else's effort, hopefully. That's where I think this is going to be a super problem. Now, venture capitalists clearing their positions early, this is another controversial point. go ahead, Ben, and then alienate

20% of our colleagues. Well, I mean, maybe 5%. I don't know. Maybe I'm already saying. So what you're referring to is the fact that when venture investor, the common way to invest in crypto startups is to participate

in something that looks like a safe and then have something that looks like a side letter give you the opportunity to have a pro rata proportion of tokens when they happen. And the sort of handshaping agreement is we believe, we the company believe that this company over time becomes worthless and that the value is in the ecosystem. So all the value that created by this company ecosystem

accrues to token holders and not to equity shareholders. And maybe it's also to equity shareholders, but the real appreciation we believe will be in these tokens. And of course, that deal is cut before the tokens are even created. And so there's sort of a token pre-sale that then happens for those with the option to get tokens at a very low price, who are the equity investors. Again, this is like not all of them, but this is fairly typical right now and was typical in the run-up.

And so what you have is venture investors having the opportunity to invest at a very low price with a very low lockup period, call it one year, two-year, if that. Crazy. And then the ability to get liquid trading these tokens to the public for, you know, the very first time that the public has the ability to offer them.

So you can get kind of very rapid profits from participating in a, you know, early note or warrant or token presale and then cashing out when public has the ability to get in. As Ben describes it, David, how is this different than having Uber, Airbnb, go public in year three as a private company and the VCs and the Angels liquidate their position? How is it different than that? Well, I think a fundamental difference is if you are going public, there is, as a equity, there is regulation. about how you can do that, what information you have to disclose, how trading can happen, all of all of that. So there's regulations involved in going public? Yeah. You know, I mean, at a minimum, like, information reporting, you know, auditing, all of these things. Those are pretty important if you, I think, if you're going to have a publicly traded security. Now, like, is there a middle

ground here? Probably, I think we have gotten, you know, to Bill Gurley's point for many years now, like, it's gotten so onerous to, go public in the traditional markets that companies have, you know, delayed and delayed and delayed or just said, like, I'm not going to do it. And that's not good. So I think there's probably a middle ground here between, you know, the crypto world where like, there's nothing. And then the traditional equity markets where there's like so much, you know, it's millions of dollars to prepare to go public in years. And what is the middle ground? If you, if you could make, wave a magic wand. If I think so, allow consumers.

to do what they want with their money, but have some reasonable protections and disclosures, what would it be? I think what I would want, the thing that feels wrong is early investors cashing out and generating a huge return before, A, users of the service have generated value from using the service, and B, the company or Dow or entity or token holders

have managed to capture some of that value created for users by using the service. and so I don't quite know how you would like legislate, hey, it can't be pre-product and pre-monetization. So that's why you set some time-based cliff. But that to me feels like spiritually what you're trying to do is reward people who got in pre-product and pre-revenue and, you know, pre-profits. But then once those things are happening, allow them to cash out. And unfortunately, anything that's going well is always going to be trading at some ludicrously high multiple of value created or value captured. So, you know, you can always circumvent, if we were to put this into law, you could always circumvent it and be like, well, they got their first dollar out and

people are valuing this thing at $20 billion now. So great time to get out. So I don't know. I think that's why there's not regulation around this. I think one thing that to me at least is important, like is just the sunlight aspect of this. Like, whether a company needs to be profitable. I do think that should be on individual people to make their own decisions about, like, do I want to invest in something highly speculative versus not? But I think one thing that functions very well about the public markets is the reporting and access requirements. Like quarterly audited financials are a requirement and quarterly earnings calls.

Like anybody can listen in and hear the management team talk about the past quarter and get access to hearing from the horse's mouth. every quarter. So if they had to do that and a lawyer had to be present, an accountant had to be present, and the management team had to be present, they had to talk about their results, now there's a lot more skin in the game, isn't there? Then there's a board of directors, they've got skin in the game, they have to get insurance. There's like two or three apps that myself and my team cannot live without. One of those apps is the app to rule them all, the glue between all apps. It's called Zapier, and it will make you happier. This is the simplest

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Just go to ZAPI-E-R.com slash twist and tell me about the recipes and all the different connections you make. And maybe I'll talk about it here on the ad read live on this weekend startups. Which of course, that's a lot of burden. I mean, that's why going public sucks. I was just thinking about,

I put a link in the chat here and maybe producer Nick can put it up. I found in doing the research for our 1972 for our Walmart episode, their 1972 annual report. And this thing is like, I don't know, 10, 12 pages. And you look at an annual report right now and it's like 180 pages

and it's mostly disclosures and saying the same thing over again. And it was such a delight to like read this report, which is like, here's what we think is important about the company. Here's what you should understand if you're investing. Here's what went well. Here's what didn't. The paragraphs are clearly written by Sam Walton, the CEO. It gives a five-year financial summary

like you're showing right now, and no more information. Like it gives the important stuff and nothing else. And by the way, four of the pages are pictures and their contact information. So it's actually net net seven pages. Yeah, I don't think you need much more than that, though.

Yeah, I have the easiest solution here. You drive a car, you get a license. You buy a gun in a lot of states. You get a license. You drive a taxi. You get a taxi license. You want to be a real estate broker. you get a real estate license. You want to buy speculative assets, private market assets,

you get a license. It's four hours for the course. It's a 50 question test. And then you put a cap on how much you can invest in private companies per year based on a percentage of your income. If the company doesn't check that information or maybe the company doesn't check that you're certified, then it's on them. If the company does it, does check your life. Just like if you, you know, rent a car to somebody, you don't get their driver's license. Like, okay, I'm renting you a car and I didn't get your driver's license? That's on me if you crash the car. Then this crypto company could say, you know, hey, hey, a non-accredited investor, can you show me your, you know, it's putting your license number. I'll check that you have a license. Great. This is you,

boom. And that's, I think, going to solve the entire problem. And this is a problem you've thought about for some time, not just in the crypto front, but, you know, in helping to pioneer a lot of the crowdfunding stuff. So I, like, this is one thing when you throw out an idea, I take it very seriously because I think you just analyzed this from a lot of angles. I have 10,000 people in The Syndicate.com. I've done 265 deals, I think, now, SPVs. I've done more than any individual angel, clearly. And like, I've been doing it for 10 years, a couple of unicorns in there.

Like, I know what I'm doing in this regard. And really, it's people don't mind losing money. We've never had anybody upset about losing money. What people get upset about is, like, I guess if they didn't get updates from the investors. So to your point, David, like, I didn't even know what happened to my money. Like, that's kind of a bummer. That's why we put in our contracts with our founders, hey, we'll give monthly updates, we'll give quarterly updates, whatever, you know, the stage of the company, we might ask for quarterly if it's year five of the company. We might ask for monthly updates in

the first two years and be happy if we get six, you know, get in every other month. You know, the average investment is, I think, six or seven K to this day. So the fallout is very small. And so that's another great thing. You know, if people are making small bets and they are diversify, but of course we can only allow accredited investors. So I think test would be great, because then if you think about the SEC's high ground, they'd be like, okay, you took the test, you answered the questions about diversification, and then you put every single dollar you have into a monkey ape, NFT. Okay, were you diversified?

No, okay. And then we, in there, we talk about intrinsic value, earnings, revenue, and debt and these basic things. What were the earnings of the NFT you bought? Oh, zero. Okay. What was the top line revenue? Okay, it's a zero. Okay. Okay, but art has never been an income producing asset. Like, what are the earnings of the Mona Lisa? Picasso and Masterworks would disagree. Like, these things have produced massive wealth for people, right? Art is a great asset class, in fact. Oh, sure, but not for the income producing. Not for the dividends that they spit off every year. No, no, no. But okay, so then, but you would have, okay, when of these things traded before, right? So if it's a, so great, there's your punch up.

Okay, this is a non-revenue generating asset great point, actually. I misunderstood your point. And so based on that, how long have these traded hands? How long have they been existence? How many other Picasso's are there in the world? You know, and you could have a whole series on how often have they traded per year, you know? And you have a whole history of Picasso's trading since he was alive. Speaking of trading, Pitchbook released its U.S. Venture Monitor for Q2 last month.

Here are some of the interesting stats and takeaways are producers found and some charts to back them up. The biggest takeaway, obviously, VC exit value has completely collapsed from the major peak in 2021.

Q2VC exit value, people selling out. Dear God. Look at that falloff. So here it is. A crazy falloff. Q2, VC exit value was 13.1 billion.

down 63% quarter of a quarter, 35 billion or so in Q1, but this is down 95% year over year from 267 billion in Q2 of 2021. When tons of companies were going public and companies are getting bought, there's a lowest exit value since Q4 of 2016, almost six years ago. Makes sense where 2016 to 2021 would be the top of the market. Those are companies that were invested in 2008 to 2015, let's say. So, but it is a messy chart. And really, if you just muted-

Q2 2019 was so high. It must be based on a single transaction. I'm guessing there was some huge I bet. That's when all those IPOs happened. Was that the summer of IPOs? Uber. That's Uber. Lyft.

Pinterest. Slack. Lyft Pinterest. Postmates. It was that first wave in that Q2 2019. You can witness acquired's growth right there in that quarter too. Yeah.

Well, I mean, when you look at these, what you're really looking at, I think, is the IPO window, right? And IPO window being closed, IPO window being open. open and now the IPO window is closed again since that is the largest way that VC still to the state get liquidity. Eminet is like fine, but like you're, your big winners are you're never going to make your money in M&A. They're going to be in public companies.

Yeah, exactly. But they went, Slack went public first, right? So there were two opportunities. One was forced and the other one you had the option to sell. Total deal volume, aka total dollars invested was 62 billion, down 24% quarter over quarter. That's quarter over quarter, not year over year, has down 23% year over year, $81 billion a year ago in Q2. So things are coming down significantly. If you take out 2020, the COVID quarter, total dollars invested was actually up 73% from Q2 of 2019.

That's actually pretty interesting. That actually makes sense to me because funds raised so much money during 2020 and 2021. Yeah, you cut me off with the past there. It's so obvious what's happening here is that you just had a lot of fund formation, right? And so, So still being deployed. Total number of deals closed, also down 24% quarter over quarter, makes sense. Down 21% year over year. 3,374 deals were known to have closed. Take out the COVID outlier again.

Total deals were up 7% from Q2 2019. So if you take out these crazy peaks, you know, you get a decent, you know, you would normalize that curve, I guess. Any other takeaways from those? I'm curious, what are you, we talked about this a little bit at the top of the show, but what are you, what are you seeing in the private markets, Jason?

Because I'm seeing like signs of light. Like last quarter was just flatlined from my perspective. There is one more chart in this pitch book as it relates to this. Oh, see. Let me just get that out. Yeah. Q2C deals down, but not as impacted as later stage.

Q2 seed volume. Yeah. Was $3.9 billion down 35% quarter of a quarter from $6 billion. And Q1 was actually a big, which is weird. So why would, when the market was crashing, seed deals go way up? I don't understand. Here's my take on this. And David, you asked the question, what are you seeing in the market? At Seed? So at PSL Ventures and at Pioneer Square Labs, our studio, what we do is we create companies and we invest in pre-seed and seed companies.

And so, like, this is what I'm seeing all day. This chart matches exactly my experience, which is deal count and pace of, like, pace of making new investments is basically identical. but obviously the dollars per deal are lower and the valuations are lower. Not that much lower. I mean, they're like, call it 30% lower and you're losing the crazy outlier ones that were raising it, these ridiculous valuations. But that's only the top, you know, 5% anyway. So in the sort of meat of the curve, you're getting basically the same number of companies raising rounds at slightly smaller valuations and they're slightly smaller round sizes,

but nothing like what was happening in growth. Yeah, I would say that's directionally correct. The days of the $25 million pre-product market fit or pre-product launch valuations are gone, unless it's a seasoned entrepreneur. We're back down to $6 to $15 million for an MVP or a product that's been in market for under a year. Those are the prices I'm seeing. I'm seeing a ton of people who came to me in Q1 and they were raising, and we keep a database of all this now.

We're doing about 70 meetings a week, my team. 60-70 first round meetings a week, so we're on quite a pace there. And yeah, we're just seeing a lot of companies that couldn't raise in Q1 come back to us with new valuation expectations. And I would say they are considerably different, maybe 50% different. Which is a great sign for that entrepreneur and for that company. I have a number of companies that have grown significantly from their last round, but are opening up their last round. And to me, that is a really positive sign of either one of those cases where your intrinsic value has grown, but you're keeping the valuation the same or where you're coming back at a lower valuation. What that means to me is

I actually want to build this thing. This is actually my life's work and is important to me. And I wasn't doing this just because there was free money everywhere. Like, I kind of love when someone does that. It shows a certain maturity, David, that the founder can say, I recognize the world has changed, to Ben's point. And I am fine with a flat round or if I thought, you know, I saw my contemporaries get $25 million rounds and I wanted to try for 30. I don't care. I just need to get a million dollars in. If it's for 10% of my company or 5% or 3%, I just need to get that money into build. This is going to be a legendary company. Is that directionally what you're seeing as well, David? Yeah. I think the other thing that I'm starting to see

now was the best performing companies that were invested in or that I knew kind of all of last year, they were just raising, raising, raising, constantly. And then the Q1 and definitely in Q2, all of those companies that otherwise would have gone out and been like raising opportunistic ground or I want to top up, I want to get some extra cash going into this market.

They all kind of market checked and just like, the answers they got were like, yeah, you may be a great company, but we're just closed for business right now. Like, we're just not deploying capital, period. And this is kind of like midstage growth that I'm talking about. Now a lot of those companies are coming. back to market and getting different answers. And I think some of those investors are like, well, I can't just sit here and do nothing. And for these companies that are actually, you know, performing really

well. And now we've got some, you know, a quarter, quarter and a half of data of performing through this different market environment. Maybe I actually do want to own some of this company. And if it's at a price that is not gone up since the last time, or maybe I want to own some more, I'm starting to see that happening again, which I think that's like a really encouraging sign of life to me in the markets where things were just flat before. If that keeps up, that says, okay, 2001, 2002, 2003 is not happening. That this is like a, the recovery happened much faster than the four-year protracted, you know, dot-com rubble. I have a theory on this, Ben. My theory is since we now have a group of people in the tech and internet industry that have been through two down cycles, it's kind of

like we are war-hardened and we know what this is about. It's almost like if you've been in an emergency situation before, I used to work on an ambulance, like the first time you come to a car crash, holy cow, it is like your adrenaline goes crazy and you start sweating and your heart starts going crazy and you rush up there and you see what the condition of the individuals are. and then the next time your heart goes up but you're not like debilitated in your fear or anxiety and then I would work with these

folks and we would pull up to the car crash they would look at it before we even knew the condition of the patients they knew what bags to grab okay this is going to be trauma this is going to be stabilization like it would the I don't want to say robotic

but you would get into business mode and my first call on the ambulance. I'll never forget it. It was Wednesday night before Thanksgiving, 1990 or 1991.

I was 19 or 20 years old. It's literally around my birthday, so I was 20, 21. We get to T.J. Bentley's Irish Bar Club stabbing. It's 1 a.m. Guy stabbed. We go.

I kid you not. He's covered in blood on the ground. The guy says to me, the guy on the ambulance, that it was running the bus. You call it the bus. He said, get the mask pants. I said, I'm sorry, the mask pants?

He said, get the mask pants. Okay, I run, I'm digging under the ambulance into the things to pull out what's called the masked pants, M-A-S-T. These are pants that are like a blood pressure cuff. They said, when we trained in them, they said, don't worry, you'll never use these. We're in Brooklyn. You're five minutes away from a hospital. But these are for in wartime. First call.

They said, these are for when you're losing so much blood that we put these on your legs, pump them up to push the blood out of your legs into your, you know, organs so you stay alive. Because we need that blood, because we have no blood. I'm like, oh my God. And then the guy says, you know, help me cut this jacket off and we got to, you know, find the wound and everything.

So I take my shears. I go up the side of the guy's jacket. He goes, oh, my member's only jacket. I remember like it was yesterday. The guy running the ambulance, leans down, puts his hand on the guy's shoulder, he said, hey fella, you got bigger problems. than your member's only jacket right now.

Because he's an Italian guy. Guy's got the hairiest chest you've ever seen. He's wearing a sweater under his sweater. And I look, and when I say I almost fainted, I see the hair bubble up. Oh, no. The blood is pumping out of his chest through his chest hair.

This is big hairy gorilla of an Italian guy who is concerned about his members only jacket, which, by the way, is covered in blood. That was my first call. And the level, what I remember from this is just how calm everybody was, except for me. That's what I'm seeing now. All the venture folks are like, yep, we've been here. This is how it's going to happen.

Here's your Sequoia deck. RIP good times. Here's what you have to do. Here's David Sachs. Let me go over the Sequoia deck. It's my punchups. Everyone's playing their part in a play that they know, sort of they've rehearsed. It's just like, hey, we're all pros at this.

And we just literally, I went through everybody in my. portfolio, I said, okay, what's your burn? You're not going to raise your next round at an up round. Your burn's too high. Your revenue's too low. You're doing four different business models. What's your one business model? If you could only do Frank Slutman one thing for the next year, which would it be? Let's do that. Cut everybody else. And they're like, okay, I'll do a RIF 10%. I'm like, RIF 30, 40, 50% is what you need to be doing. Because if you're cutting these three other projects, you don't need those people. Focus on one project. Get this burn from 150 down to 50.

Now it's not two million to fund this company for a year. You know, if you're only burning 50 a month, it's 600. You can just go to your existing investors and they'll give you the money and you'll look more mature. And my God, so many people in the portfolio just did it because they were hearing it from all angles. They were hearing it on your pod, my pod, all in, this weekend startups from Sequoia, from their venture companies. That's my theory of why this is, we're processing this so fast. Interestingly, so that's different than last time too. Oh, totally.

You know, there was no all, I mean, there was a this weekend startup last time, but you weren't nearly as big as you are now. There wasn't, you know. I wasn't an investor. Yeah, there wasn't the all. Sequoia, you remember the RIP Good Times? That was a secret meeting. They were so pissed that it got out. And now they just release it on medium.

Like, yeah. You're like, here you go. There's so much more public knowledge. I will say there's a baby bathwater situation here too, though, where the everyone so quickly jumped to like cut burn, layoffs that like a lot of companies that were not. negatively impacted at all in this environment and had lots capital or at or near profitability or had a long runway. Like, as a board member and investor with PSL, I had to go talk to some of our companies and be like, hey, this doesn't apply to you.

Like, you're still in go mode. I mean, you're not, like, don't do any, like, assuming the environment hasn't changed because it has changed, but like, do not do layoffs. Do not slow down and keep leaning in. Yeah. That is hard to do when everybody around you has made the riff. And you're like, wait, why am I different? It's like, because you're profitable?

I don't know. But you know what? Even those riffs, if they're just 10%, if you just look at them as a reorg, hey, we just got rid of the weakest people in the company, we got rid of the redundancies, you know, and we're making different investments now. I don't worry about that as much as the person who's just like, yeah, you know, we're going a hundred miles an hour towards a brick wall. But, you know, somebody's going to take those bricks down for us.

It's like, yeah, there's nobody. You're just going right into that wall. I talked to so many founders and executives during COVID after. the like April, May 2020 riffs that were like, yeah, we needed to do that and our VCs sold us to do that. But also like, God, there were 5% of the company that shouldn't have been here anyway. So, you know, always. Always. That is a steady state. And once you cut those 5%, then you're looking. Okay, so let's say you had 100 people and you get rid of five. Everybody's like, yeah, thank God. Now you're down to 95 people. You know what happens? People are like,

what about those four? You know? When you're the CEO, people are like, you know, we got rid of those five. But frankly, you know, the 96th person compared to this person that you like for whatever reason, they're a good culture person,

they're not doing anything and they're overpaid. We could hire two people for the sales team for what that person's getting in business development who doesn't even show up for work. And he's in Italy the whole time. No offense. You know, to anybody in Italy. That sounds like Chamath.

He's not in business development. I mean, that's right. Yeah. But that's when they, like, Amazon caught so much flag for this for so long. Remember that New York Times article about the workplace culture there and whatnot? But like... 2015.

That was ridiculous, that story. That was ridiculous. But they do the stack ranking and then like the target is, you know, 10% attrition in a year. I don't know if what... I'm sure that's not the official policy anymore, but like... Jack Welch. It's originally a Jack Welch thing, yeah. Kind of college thing.

Competitive colleges did that with stack rank or grades. I think that's where it came from. I don't know if you guys watch Masayoshi Sons's presentation. I covered it yesterday in the show. Did you actually watch the video? No, I haven't yet. I read all like the transcript and a bunch of quotes and stuff.

The video, I watched the whole video on double speed and then I went back and I've watched another half of it again just some great spots. It is chef's kiss in terms of like one of the greatest investors of all time reflecting after like losing a battle

and he literally, you know, evokes like Shogun era battles to describe what he's going through having to retreat twice and all this craziness. He literally said when we were turning out big profits, I became somewhat delirious and looking back at myself now, I am quite embarrassed and remorseful. Of course, translated, but. Yes. I don't buy it. I think it's ridiculous. I think he only, I think there was only one leak in the game. You know, when you look up this chart, I'll pull up the chart here for people who are not watching, we had a chart of their net income quarterly.

And I think this is like the value of all their investments, right? And this is in, Japanese yen. And you see the last two quarters, like it just got crushed. But, uh, oh, no, they had the, the better chart of this is the, there was a line chart, Nick, if you were it out, which, where it crashes down to zero, where it crashes down to like basically zero. It's a total accumulated returns. You know, when you look at those returns, what would have happened if his philosophy, David was, I'm going to sell when our winners are up 30, 40 percent, I'm going to sell 10 percent. And then when we go up another 30, 40 percent, I'm going to sell another 10 percent. This is the chart. It's incredible. Ah, easier said than done. You see the massive gains. Did you do

this with Robin Hood at that IPO? I didn't. This is a regret for me. I held Robin Hood. And if I had paired, I would have, you know, greatly increased the returns for my first fund. I did do this. I did pair Uber. I did pair some other names that I can't talk about. And so my philosophy has always been when I hit that like 25, 50, 100x, if an opportunity for secondary emerges, sure, I'll trim our position. And here's the thing. If you sell 10 or 20 percent, you're not going to have regret. There was a famous early investor in Uber. I don't know if it ever became public. If you guys heard of it, you can feel heard of her to say it. I'm not going to say the name.

When Uber was hitting a $4 billion valuation, they were an early investor. They started clearing their position. They cleared, I think, more than half of their position at $4 billion. Now, we were in at $4 million, remember $5 million. So this seemed like a genius thing to do. And Travis told everybody, don't sell. I don't want anybody selling. He was very clear with us.

And he... He had a thousand X. How could you not want to clear it? Well, there was a little dilution that occurred, so maybe it was more like $500. But anyway, it's a very tough thing. Now, I didn't sell at that point. I think I sold my first shares at 30 or 40 billion. But Travis, I talked to Travis.

He said, don't sell. Do not sell. We're friends. Don't sell. And I said, you know, I got this thing. You know, and she said, Jake out, don't sell. I said, okay, I won't sell. Went home to the way.

No summer house. We'll wait on the summer house. We're going to wait. We'll wait. Maybe get a bigger summer house. You know, maybe instead of a time share, we get the whole thing. Anyway. You got that nice wood behind you there.

Exactly. You guys ski. You got to come out. We'll do a live episode. three months later, there was a $10 million round. And man, that person's LPs was like, what? Are you not in communication with the founder? Like, I mean, people were happy to get a huge return, but this is like one of the great mistakes.

I mean, this is up there with, is it true that Sequoia sold their Apple steak at the IPO? Yeah, yeah, that was the greatest ever mistake. Right. Well, I think that, you know, the thing is, though, with Masa and, like, like, he is, I genuinely do believe people can change. but people only change when they want to change. And like, we've seen this behavior so many times. And it's what works for him.

Like, because he's lived this exact same thing 20 years ago. And he came out of it with Alibaba and like, and not selling in that. And now is, you know, like that washed away everything else. So like,

I got to imagine he's thinking the same thing here. Did you see the second quote that, uh, Prit put in the acquired slack this morning, David? Oh, no. It's the second one is,

now this, from Masa. Now seems like the perfect time to invest when the stock market is down so much, and I have the urge to do so. But if I act on it, we could suffer a blow that would be irreversible, and that is unacceptable. And you can feel... Wow. Does he actually believe that, or does he feel like he has to say that? I don't know. I feel like you can feel the wistfulness. Like, he wants to be in go mode, but he also doesn't want to run soft bank into the ground. And so that is, that's like the classic, that's the reason this is so much harder than it sounds to buy the dip or, you know, the exact opposite to not go nuts on the way up when it seems to be working.

This is a great observation, Ben. You need to have dry powder for these moments in time. And if you went all in, you got no chips. You can't play the next tournament. You got to sit it out. And he's so wounded right now that he doesn't want to have to retreat a third or fourth time. And then people like us are like, hmm, equity seem low. Maybe I'll start placing some bets.

And here we are. And there was another really great quote. where he was like, listen, it was very bubbly times that we were investing in. And I was like, not exactly accurate. We created a bubble based on our investments. You created a bubble. Literally, so in terms of awareness, like I think Masta has to understand,

like when you take, we work, I think, from 10 to 44 billion, was that the jump that he made? Like, you created that bubble. He created the bubble with Uber, which wasn't that bad, but, you know, he gave them the extra $10 billion at the end there. It wasn't a we work situation by any answer. It was, I mean, that would have, he would have to have valued it at like 200 billion for that to happen, which there were people who were pushing him telling him he wasn't giving us a big enough premium. Wow.

Yeah, there were. People were like, this is undervalued. They're public about it. Wow. You know, and that's a price that is, I think, the $60 billion prices. Maybe Uber's right at around $60 billion right now. Any other notes from his presentation that you gleaned from it or any thoughts on his impact on the industry? I mean, it's interesting that they're fully out of.

of Uber now. They fully liquidated that position. Yeah. That's what caused the downward pressure, by the way. Somebody had whispered that to me like, hey, what's going on with Uber? Why does, why does it not go up when everybody says, like all the analysts are saying it's a $40, a $45 stock, again, a $60 stock. They're putting all these great price targets on it. And it was down at 22. 19, I think is where it bounced to. Wow. Not that I was looking four times a day, but I think that was all because he was clearing his position and it had to get absorbed, a large position. That's been one of the big lessons for me of the past, both on the up and down in the past few years, is that, like, these things are markets, you know, like, you can do all the fundamental analysis you want,

but selling pressure and buying pressure is what moves stock prices. It really does. And then having dry powder gives you the ability to take advantage of those discrepancies, right? So, you know, when I fully deploy the J-Cal port, the J-trading portfolio, I might be not, I might be like, oh, Spotify's on sale. at three-time sales, right? Let's say it crashes 50% from here. You know, Ben and I would be like,

oh, we should buy a little more. Dollar cost average it to a 4.5 sales, right? But if there's some big hedge fund that's liquidating their position over the next few weeks after you buy it, it's certainly not going up, even if intrinsic value is going up and earnings call is good and all that stuff,

that at the end of the day, the intrinsic value of the company and your own analysis informs what you believe this company is worth in the long run. And it will do crazy shit In the meantime, I mean, it's the Warren Buffett quote. It is the, in the long run, the stock market is a weighing machine and in the short term,

it is a voting machine. And right now, Masa has been voting Uber down, down, down, down. And then you have to make your own decision on what the weight of it is. That I've kind of like come to in the last couple of years. It's not so much that it's a voting machine. It's, well, votes get cast, but that doesn't necessarily reflect people's thoughts or opinions. Like SoftBank, like Maza had to be liquidating. He knew this quarter was coming.

He had no choice. He did no choice, I think. Right. And like a lot of hedge funds get, find themselves in similar positions. Like, they actually believe in the position, but for whatever reason, they're facing redemptions or, you know,

something's happening. End of the year, tax issues, upset LPs, which is always. That's why Sequo liquidated Apple at IPO. It was a tax-related thing where they needed to distribute. Yep. Oh, God.

So brutal. Well, I mean, we're famous on the All-in podcast for saying, ride your winners. And somebody was, like, oh, so you should ride your winners into the ground. And I was like, well, you know, my position has always been sell some idiot insurance and then ride, if it's truly a winning company, ride it from there. So you have, you've locked in some level of returns and then you're playing with the house's money, hopefully. And that's, I'm sticking with that as my guiding

principle. And then in terms of public markets, you know, it is something I'm learning, which is a lot of times these prices, because people can vote every day, every second of every day, crypto, you can vote every second of every day, you know, public markets, you can vote most seconds of most days. Because you have that vibrancy in the market, that liquidity in the market, it could get disconnected from reality and a motion can take over

in a way that it does it in private companies. And private companies are locked up. You know, the CEO may not let you sell. You might not have a buyer. You're not sitting there looking at the price every day. And that's a feature, not a bug. I like that feature, and I'm trying to have that feature discipline. Like right after I bought this Warner Brothers Disney,

Zazlov had his big meeting about what his plans were and I thought this is like Water Bros Discovery, sorry, not Disney that would happen in 10 years. That would be a deal. That's an emergency deal. I don't know if Lena Khan's going to do that. I think Lena Khan right now is filing

so they can't buy the X-Men. She's put in an action against them having Spider-Man back in the Avengers. That's how cynical and bitter she is. That would be great if she blocked a superhero character for coming back to Marvel. Oh, it's so great. I feel Spider-Man is bringing too much value to the end question.

You asked a few minutes ago and it was in the outline for today, what do we think about the impact of SoftBank and Masa over the past few years? I think I think it's good. I think I'm glad it happened because I think Masa instigated all of this. Like, if Masa hadn't raised the vision fund and started doing all this, I don't think the, you know, Tigers and Kotus would exist, but it wouldn't be the same. And perhaps more importantly, though, like, I don't think the Sequoia fund would exist. I don't think Sequoia would have their, you know, $12 billion fund. And like, yeah, like, the counter side of this argument is like, wow, now there's just way too much capital in the ecosystem.

But I do think entrepreneurs will use this capital in good ways. And there's a whole, there's not, you know, benchmark is the one firm that that didn't change. through all this. But all the other firms... Sorry, you can square ventures. You need square ventures. Yeah. Stuck their getting.

USB benchmark. They didn't change. And they may be right in the long run. But I think it's probably a good thing for the ecosystem that Sequoia has a $12 billion fund now. I think so too. You know, that is one of the things that kept happening. Up front ventures.

I think Mark Suster's trying to keep his funds at a reasonable size. One of the things that happened was Bill Gurley, Sequoia, to a lesser extent, started getting, I don't want to say bullied, but, you know, they would put all this time into a company and then they get to year seven and Masayosh Hashan comes in. Thank you for all this work. Yep. Yeah, thank you. Now I'm going to cause, you know, a big upheaval on the board. I'm going to put tons of money in here.

In some cases, it's great. In some cases, it's a problem. You know, an Uber, it was great and we work. It was problematic. And, um, DoorDash was great. Dordash was great. I mean, the same thing happened with, um, Yuri Milner, before. or in between Masa.

So Yuri Milner took Mossa's book, you know, and kind of innovated on that with also with his bet on Facebook, right? And still with DSTs. So I do agree that net net is a great thing. I think I got to reach out to Mossa because I'm doing so much early stage.

I think he can get his, he can wet his beak and get his itch scratched if he would give me like, that's right. He says he wants to pay. He says he wants to pay. He says $300 million to deploy an early stage. You guys should have Masa

as a besty guesty. Ah, it'd be incredible. He's the best. I had lunch with Mosca twice, one-on-one. I've had two one-on-one lunches with Moss. I've got to reach out to him when I go to Japan for skiing at Hokkaido. Would he need an interpreter to, uh,

probably? I spoke to him without an interpreter. But to come on a pod. Good question. I don't know. I think when he gives the soft, no, I don't think so. I think he would just talk, yeah.

But maybe, hmm, quickly. Amazon is searching for a fourth pillar. I've been buying some Amazon because my lord, uh, I think they're having a heck of a heck of year. I love the one medical acquisition. I love the I robot acquisition. I love what they're doing with Amazon video. You love them being enormously free cash flow negative for the first time in history.

Have you looked at their free cash flow chart? It is like, all right, I'm not, while you're talking, I've got to pull this up and producer Nick can put it in. $23 billion less free cash flow year over a year. You do too. For the record, I love it too, and it's for all the right reasons. But it's very interesting to talk about like Amazon's doing so well. And then, look at this free cash flow chart and be like, holy God. So where did all that money go? Distribution centers, data centers. Yep. Got it. So they're investing in hardcore infrastructure that creates a massive moat. Yep. I'm here for it. I'm definitely here for it. Yeah. Yeah. Or you could have paid taxes. Right. I like it. Yeah. I mean,

there was a lot of commentators saying like Amazon is the only company in the world that investors trust enough to have to be $23 billion. less cash flow than last year and have like a positive earnings report. Yeah, the stock goes up. Totally. AWS is a juggernaut. Prime is a juggernaut. What else? And the advertising business is now a juggernaut.

Oh, the advertising business is like, it's like a close to $50 billion revenue run rate. Oh, man, this stuff, I can't wait. We're hopefully within a week. Spoil it. Just do it. Okay, I'll just spoil it. I'll just spoil it.

The, uh, so we're dropping a huge episode. It's going to be multiple episodes on Amazon with the first one's coming out very soon. we recorded for six and a half hours episode won't be that one six and a half hours my lord you geeked out crazy so if you were what are you most impressed with today today as of today

what is the most impressive for you and then what do you think will be the most important 10 years from now so prime advertising cloud retail or the commerce business I guess those are four different I guess you could say prime

and the retail business are the same The things I'm most impressed with equally today are the back-end... One-A. Got it. Back-end infrastructure and all of the moats around it for both the retail business and AWS. Like, Amazon owns 96 airplanes. Name me another company.

Crazy. That owns 96-747s. And now they're doing their first. They didn't buy FedEx. They didn't buy FedEx. They didn't buy UPS. They didn't want to deal with Lena. and antitrust.

So they're like, yeah, we'll just buy our own planes and we'll buy our own trucks and cars. Not to mention, it's nice to outsource. Like, it's a genius move not owning UPS because it basically means that they don't have to carry that truck load the whole year when they don't need it. But then at the holidays, when they do need a little bit more capacity, they can ramp them up without it being on their balance sheet.

Yep. They have 200,000 trucks. It's crazy. Like, that's unreal. Just starting. So which is your 1, which is your 1A then? Which infrastructure are you more impressed by? Today and then tomorrow.

We don't yet have the, this is going to be our next episode on Amazon, but I think I will end up being more impressed with the infrastructure for AWS. Just simply because it is the internet. And like a few months ago, I think it was such maybe the past quarter earnings, people were like, ooh, AWS growth. You know, it's very impressive, but it's slower than Azure and Google. And I was like, yeah, because it's like six times the size of Azure. It's not a bigger number. Like, you know, it's huge numbers and it's still growing almost as fast. Like, and that's like the CAPEX, the infrastructure that goes into that, into literally

powering the internet, like is crazy. Here's what happened. So in 2014, Jeff Bezos published in the letter, this quote where he said, I believe that AWS is market size unconstrained. I think AWS was doing like. five-ish billion in revenue at that point. David, do you know what it is today? 76 billion today?

76 billion today. The entire cloud as a market, if you look at Amazon, Google, and Microsoft is a $120 billion market that didn't exist 10 years ago, 15 years ago, growing over 30% just between those three companies. So Amazon, because they were before,

Microsoft and Google in this, really pioneering it by three, four, five years, they basically discovered a new public utility and were able to have it inside of their for-profit corporation and have unbelievably good margins on it. Oh, there's this amazing quote from Eric Schmidt in the Everything Store. This is so good. Eric Schmidt, of course, the former CEO of Google.

He's like, the book guys figured out technology. And then ran circles. He didn't say it, but ran circles around Google for years. It is pretty crazy that Microsoft and Google didn't win this. If I told you 20 years ago, who would own cloud computing rank Amazon, the bookstore, Microsoft, you know, and Google, you'd be like, well, yeah, Microsoft's the incumbent, but Google's, I'd probably say Google, then Microsoft, then Amazon, right? Like, that would be your running order. Of the pillars, Ben, what, what are your one and two for the pillars today and

tomorrow? Advertising is a juggernaut at this point. It's a $40 billion business on its own. That's a hundred percent margin. But I think it's hard for me to, like have adoration for it because I feel like any business of sufficient scale with consumer traffic can eventually bolt on a 100% margin for free advertising business. And so it's like great that they discovered it and found a way to work it in. But you sort of should have expected them to be able to figure that out. To me, AWS was a market that they invented. And so was the Amazon.com retail business. I'm most impressed by AWS because very few companies invent a second multi-hundred billion dollar market ever. Like, companies don't do that. They have their initial insight,

and most companies die with that initial insight, but very few turn that initial insight into a multi-billion dollar opportunity for customers and shareholders. Amazon did that twice. And like the goat list for that is like Apple with the iPhone, Microsoft figuring out office after Windows, or Windows after DOS, these are the companies that have managed to do it just a few times. It's a very short list.

So to me, AWS is the really impressive thing that they were able to figure out that next thing, that late in the company's life. I mean, this started over 10 years after the company was founded. Yeah, I'm going to go,

AWS, then the ad business. I think they could take the retail business, and I don't know if you saw they are reportedly deprecating Amazon basics and the house brands. This seems very wise to me because of antitrust. Because of antitrust, okay?

So Lena Kahn's like, oh, you know, there's one vector here. You're making your own cables and you're reportedly studying everybody. So like, okay, yeah, no more Amazon basics then. Anchor, you got the business. It's yours. Oh, and by the way, there's 10 other people

competing with you. And now to win, you've got to give us your advertising coach. Like, we're going to win one way or another. Heads I win, tails you lose. Exactly. And I have seen so. Could I tell one quick little thing that like almost nobody knows about Amazon, the advertising

business? Oh, yeah. So Bezos was a seed investor in Google. And there's a whole crazy story behind it. But this is, well, like, he got what was going on and why Google eviscerated eBay and everything, like before anybody. And that among a bunch of things led to building the advertising business. It's extremely likely that Jeff Bezos made a billion dollars of financial return on his Google

investment or potentially a lot more, depending on when he sold. But like, Jeff would have been a billionaire if Amazon went to zero just from the Google investment. That takes the edge off, doesn't it, boys? All right, listen. So I'm going with the ad business as my number two. But I do like one medical, and I do like the robotics business. They're just firing on all cylinders. That's why I j-traded it. All right, listen. What a great episode. We've got the image. So, Nick, if you want to put that up, This is just how much Amazon has been investing the last few quarters. I mean, you can call this a misforecast on demand. You could be like, wow, they really screwed up and they're overbuilding and they were assuming

COVID would run forever. But I don't know. This to me looks like moat. It's moat, yeah. I mean, it's not like they can't stop buying the stuff because I did see that they started selling. They stopped work on six different tower buildings where they're like, build the outside, don't do the inside.

We'll figure it out later. And then I had some companies that were looking for warehouse space. They're like Amazon bought everything. They're like, oh, now Amazon's selling a bunch of stuff. So there is something going on where they might have pumped the brakes. They're keeping the ownership, but I think they're leasing it. And I wouldn't be surprised three, four years from now if they're like, yeah, we're taking that back. Well, yeah, very good, right?

So I think even if you buy too much infrastructure, when you've got a business like this, it allows you because you have the dry powder to make a couple of mistakes on the margin, but, you know, hold a lot of real estate or hold a lot of optionality. Everybody follow Ben. he's Gilbert G-I-L-B-E-R-T on the Twitter everybody follow David D-J-R-O-S-E-N-T Do a search for acquired

subscribe to do a great job over there a lot of good like deep features about companies I love listening to them if you want to start a company

or be CEO of one of the great Pioneer Square Labs companies go just DM Gilbert he's looking for CEOs and management teams and if you got a startup

kindergarten ventures maybe they put in 25-50 100 K and you get David and his big brain working on your startup. Thanks, boys. Jason, that's true. David and I are looking at a deal together right now. Kindergarten Ventures and PSL Ventures may make your invest here. Loop me in.

Let's do it. I don't want to say a three-way. I don't want anybody in the audience to get sick, but. And Jason, what's your call to action? What's interesting for folks to reach out to you? I know if they listen to the show, they know. Oh, right. Oh, you got, yeah.

So my call to action, Jason at calicanus.com for life. I'm looking for companies with 10K in revenue a month and that have great CEOs and have a couple of customers. Then put a 500K to $3 million into the company, help you grow it. That's it. You can listen to This Week in startups at the end. I'm Jason on Twitter. I'm Jason on Instagram and Jatrading.com. That is some valuable real estate on Instagram.

Yeah, sorry to Jason Statham. Yeah. What's the highest dollar amount you've ever gotten offered for one of your handles? You know, it's usually like some influencer kids and they'll offer 50K or 100K or something

and I'm like, you obviously have not done any research. Like, I understand like how impressive it is to somebody in the tech industry when you tell them your Instagram and your Twitter is Jason. Like it doesn't really get much better than that. Sorry.

I can't help you. All right, everybody. We'll see you next time. Bye bye.