E141: State of Series A's, VC dry powder, IPO window opens + more with Bill Gurley & Brad Gerstner
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I'm recording, yeah, how's my hair, nick? But I like ridiculous and where I have oh my god, I went to the. Teaching salon and for haircut, a few days ago.

the teaching salon.

ten dollars.

you ve got ten doors for the .

my neck was literally bleeding. The guy cut my neck like six places. It's diagonal of the back.

He was on the whole, I walk in. He's what like this thing. He's like, shit. Okay, the child. But I thought I was like a barber shop can camera?

Why would you possible do that?

There was nothing available. I told my wife, like, get me any hair pointless and and then she's like, I got appointed at the teaching school on like that high end all the hair a lot. Stylists go there must be awesome. This guy fucking .

butchered me guys, a hundred million car.

good fucking ten dollars. And it's like, what would you like to take? You shall be a fucking barger get 耶。

We open sources to the fans .

and just got. Or everybody, welcome back to the all in podcast episode one for one trip, poy hopital has gone missing somewhere in the meditation. Ian, we've sent some search crews out.

We ve got some beacons, were trying to find him, but he is not here today. There will be no inspects, ous consumption or discussion of truffle season or wine. But instead we went to the bg square.

If you got to come to all in summit twenty twenty two, one of the highlights of the event was having two bes, brad garner and bill girly on the pod so we thought for all star summer, we would bring in some all stars here. Welcome back to the pod. Fifty best t brag garson's.

Bill girly, how are you, sir?

You you don't do a lot of press. You don't do a lot of pods. And I knew you're on a lot of boards, but you're not part of benchMarks next fund. So people are wondering, are you retiring what you up to? I know you're still got always bored on, but what's build greely up to these days?

Yeah, appreciate that. I as you mentioned, i'm on nine benchmark boards still. So i'm working with those and and doing that classic work that i've been doing my whole career.

Second thing is i've started done a handful of Angel l deals, about one one hundred the the frequency of jaw here, but but before my toe in the water. And in third, i've been working hard on on a book. I've got a co writer.

We've been doing a toner research, who we got proposal ready to go in an agent. We're onna go out to publish your soon. Oh well.

you should just do harper business in touch with holes. That's all the winning publisher. That's the best business publisher in the world.

perfect. Harper harper Collins.

business publisher.

publisher. Can you tell .

us what the what the thesis is?

A further development of a speech I gave at university of texas business school about um how to chase and succeeded in your dream .

job oh nice. What should .

like career advice letter to a Younger girl is out of the things a .

letter to a Younger building I didn't want to do oh, here's my people that didn't feel right. This is some one more passion about that. Some might, I hope, will be impacted to a lot of people. I've ready got quite a bit of feedback from people that have been moved by the the the shorter version on the on the presentation.

What you when you look on your career on packet for a minute, um what what do you think the things you got right where or the things you know you might change in terms of your career and being happy and finding .

your passionate. But I do feel super fortunate that I was able to do you, my my dreams job for over two dates. And I love innovation. I love bedding and gambling, and I love the combination of being able to think through markets and disruptions and and to be able to place bets. And all those things are super exciting things.

I got right studying history, which you want to talk a lot about, and we will be talking about in in the book, like knowing who that the patriots were of your industry, and knowing what they thought, I think is super powerful in any endeavor. And then networking, you just like crazy, which I think is actually easier today. So those are a couple of the themes that we develop.

networking and study history. Specifically, you and I have had many conversations about biography, and we both share a passion for those top biography, not of business people, but that had an impact on you. And then i'll go around the horn, top biography that had an impact on you.

preferably ones that but OK actually let to me. Developing this theme was, was learning more about deny mires journey, who is the renowned restaurant owner in new york city, and check. But he had a career where he was in sales.

He was school and is, I think his uncle told him, what do you do and, you know, you want to be a restaurant owner. And he stop that day, took a job at ten K A month or year a year. He took like a big and started studying. And I gets into the history part, but I just started studying. And obviously the rest this history know about anything.

Setting the table is the book.

Yeah, yeah. The book.

that is the book, union square cafe, gram macht, and among some of his great restaurants going around the horn here, freedoms d, you have a favourite biography you read, or something that impacted you Young in your career. And then do you feel like you you figured that out? And what did you what? What would you change about the early party, your career? So the same two question.

that's three very little questions. I don't know how to pick which one you want. Answer that one I will tell you when I was running my company in twenty eleven cm, yeah the climate corporation and I read the multi zick in a biography of Steve job, yeah.

And he actually profiled a number of jobs as management techniques. My only Operating role prior to that was working at google. So that was the only management experience for exposure I had had. And then reading about how jobs ran his management team and actually changed my behavior going into the office, I I took a very different approach, and I saw the results almost immediately.

What was the primary thing that impacted you?

Well, first of all, like having the cadence and the and the directness with the team, engaging the team fully and discourse immediately, making decisions, getting everyone to commit moving forward very quickly. I was the first time C. E.

O. So I never had a good mentor. And reading those segments of jobs as management style in his biography was just a really great tool to, at my emerging tall kid, on how to be an energy and how to be A C E.

O, and how to run a company. Uh, that was dg for me. I could rehash everything about early on in my life. I don't think that the use of water.

but you buy six sense book on you on coming out in a couple of weeks, which should be interesting by said for an interview with walter for that one. So interesting. See how that turns out.

Yeah, I did to.

I was asked to. I didn't. Ah you were asked, I didn't do IT no, I did IT.

I did IT no, I don't. I didn't ask to do that. I got asked, you know if I would give semantic dotes. I think sax also got as if you would do semantic dotes. So I think it's going to be pretty good and and walter was hanging around putting passage is out on twitter, right? Yeah I mean, he's such a good writer and just watching him you know, David, I were a twitter for bad and I just he .

was hanging and out. He was like, you know, in the corner of the room, like participating a lot of these meetings. Yeah so he was there basic during the transition. I think that is going to be the ending of the book is he had to cut off at some point, but he was there for the first month, the transition of the twitter takeover and .

for a rocket launches and everything in between. So he I mean, watching his biography technique and it's pretty intense. He spends a long time with the subjects and you know just taking notes and talking to everybody around him. So he would, you know, peel off sacks or pill jack out.

Speaking of books, i've been the rare position of needing .

your advice. 好 OK。 I think that a woman, sort of a compliment. Okay, you would. Harper, Colin.

today i'm going to do a good about how to create, run, scale, Operate software companies. We tion of the blog of been right for a couple years, which I had not active on, mainly because i've been using that time for this pot. But I was writing in a pretty good clip until we started doing all in pod.

So I want to get back to putting that together. Yes, and I could go chapter by chapter. You know, here's how you should think about marketing here, how you should think about sales. Here's how you should think about finance matrix and so on. But i'm not sure that's the best way to present the material. So I do I just write the book, then I think I should be or do I work with a publisher on what the business book should be and they can give me the guidance.

So it's a great question. You are in a unique position where you know your successful and you have an audience for the book. And successful you is for, you know great founders to read the book and for IT have impact.

I supposed to somebody who's an offer, we just wants to be published, right? So you have a different reason to do this. I think you should write the book.

You should decide who you want the audience to be and what you want to get out of the book. And you should forget about publishers in the whole grand scheme m of things. Then when you write the treatment, you write the first five chapters or so, then you can bring IT to a select route of publishers.

You can get an agent. I can introduce the two, three agents. There is you know top two or three in this field. And um I think what you should do is the business advices out there, right? And the techniques are out there, but what you have is you have war stories.

So the technique used that my book Angel was who you know talk about techniques in investing that I had learned from other folks, including go girl, so whatever. But then I would give my aneta's things. I had experiences personally.

And what that does is IT makes the examples, let people really get some narrative out of the book. And so the lesson, combined with the actual practical experience, that kind of the magic of these business books, I think, do you have a favorite biography yourself? Sex, either business or a non business?

I know there. I read a lot of business biography. No, I read, I read one business how .

to book back in .

the papal days. You know, I didn't have any real business education.

Good to great.

Remember what I was? I was good to great. yeah. I mean.

that was seminal book at the time.

So I read this book. And literally one chapter was on how you should stick your core idea. And then the next chapter was about how you should be flexible. So like, well, both these ideas are right situations.

Ally, yes, but so how do you decide? So, right? I came away from the book thinking, this isn't really going to help me because IT doesn't give you what you really need, which is what are the specific situations of what you should apply given principle? yes. And I kind of came away from like thinking that business self help books just weren't that they're too theoretical and warned .

helpful is where biography is really become helpful. You actually. See why that you know technique was deploy. Brad, you have any business files that you are going .

related to that about sex, sex do not write how to book, right? Write a book about your visceral experiences, right? That just you happen to teach people how to along the way, right? You have a lot of you know, I just think the story is is powerful. What about .

this? Is that going zoom body when you just zoom? 未来 三年 多了 oh。 both.

Thank you to the starling team. Read again coming to the rescue.

What is.

This .

the.

this is the version of the brady bunch here.

What happened? Are you lost and see we trying to get you can find you the was missing the thing he is missing. We sent out .

search crews, tiger woods in the shot.

a guy.

a guy that I work with each month for the Michael bridges of the all in podcast, and that you have in a pod beginning. So then the only reason why love guys enjoy the later I .

watch the armantine continues. He's drunk, he thought .

was a drunk.

Zoom my jack, to answer your question. Yes, please. Tedder s felt man in the rena full night.

Alexander hamilton, those for me that like to take away the the red thread that connects them is, do shit that matters. Do stuff that matters. Your life is short. Get in the arena, major in the majors, but do stuff that matters. So they all were inspirations for me, both in terms of how I recognized my own life, but also how I think about .

investing fantastic. And i'll give you a couple of ones that you may not have thought of, something like an a autobiography, the biography of a cura corsa, the famous film director. Absolutely outstanding.

Great recommendation. And I actually want to read that. That's a great. And i'll read that who .

wrote IT to occur. So to tobias PH, it's autobiography, biography, born standing up. Steve marn, bill gurley talked about this one, and this is fantastic.

I I actually listen to IT twice, and that's one of the great things about this biographies. Al, lest, to my second time. Here's another one.

sex. This is critical for you on writing study. Hs, you have listen to IT, Stephen king.

Steven king on writing.

might be top five for me of all. And he really goes into like the story of Carry. He wrote like a small treatment of Carry.

He was a math teacher. Throw in the garbage because he was so frustrate with his wife seized in the garbage. He really says, this is incredible.

You should keep writing IT. He writes IT. He sells the book for ten thousand dollars. She's getting paid like nine thousand dollars as a teacher. He can quit job.

And back in the day they used to sell your hard cover rights and your paper book rights separately. If your hard cover went well, then you would do a, uh a paper back and go mass market. He gets a call. They sold the rides to the mass market book for four hundred thousand dollars. The paper about the this agent gets on the phone says is forty thousand dollars and he thinks he here is forty thousand he says, well, forty thousand dollars that's incredible that's four years I might be able to quit my job is a teacher because not is four hundred thousand says, okay, so forty thousand dollars divided by nine, maybe even closer to five years no, you you're getting four hundred people believe in and that was basically the .

story of our Stephen king would be great to listen to private in a book is absurdly supermarket. Most people don't know this fact, but king worked in novel that became shushing.

absolutely. yes. So he's got a lot of those what you need to know IT. And then the become photography is amazing to if you haven't read IT. So those are just non traditional ones of people following their passion. One of the things about IT is the extreme effort in the decades of perfecting craft that I found super appealing about this. Nothing happens a easily in your.

on our J, K, L, the rest of the episode summary. E, by the way, if you will start up founder, entrepreneur, C, E O, best stone to watch.

Because people.

yeah, I mean, there is no, there is no giving up. There is you do what IT takes and you persist. I think persistence is one of the biggest i've talked about this, one of the biggest predit for success. And there's A A character that emerges once your facing chAllenge film that such an incredible job of demonstrated the essence of that character yeah um I think is also a similar character .

that's needed in ogc. You'll see that a number of the actors in that film occur in other file by cursor.

Do you know who that story to share? And yeah, he he, he to .

chasing sort of model his relationship with the ero africa a and George lucas curassow france for coupla. We're all the cycles, of course, is incredible.

Well, the seven, seven, I was remade as a western, the minutes and seven worth, I think, Steve mcqueen in your brand.

Yes.

a lot of Chris, as movies were remade as western IT is works pretty well.

And they were all scored by any maconi.

lot of them by international carney, which I was listening to in the cold plunge. I started in the cold plunge. Oh my god. I I would just like to say, just a Hardy, fuckyou, your random, we've wow, we will get there.

But I mean, I just want to start the pockets .

by saying fuck you to souls who said, in order to be like successful, you have to jump in a cold plunge. Because now i've done IT four times out of the last, like i'm doing IT every other day. And they're right.

I feel like a superhero after I do this. Anybody doing cold plants here? Besides to me in a moth, no but oh.

well, I mean, I was in mexico and and they this this cold punch thing and I we did IT every day that we were there the hotel, but back, well, you get the same torpid running. Running after afterwards is incredible. And then afterwards, now when I go to the gym, I only do like a ten minute ice cold shower afterwards, like, it's critical to like, and IT feels amazing.

you feel like, so relax after. And I did five or six minutes, fifty eight degrees. I'm lowing two degrees a day.

I did IT at forty three or forty four for like forty five seconds. And my body started chicken. I got a hypothermia stall. Believe you've done IT you've done .

this nonsense occasionally ocasio. I'm still not convinced there's any medical. 对 对。 You can you? Thank you. It's very Candy. It's first I.

I have an inference on two, i'm .

doing .

inference on .

haven't like.

and with little while my last week has been in failure.

You just take your take your fight to the cold light, then you ride IT into the sa and then you go to play pick ball. yeah. okay. And you're wondering why everybody hates us and lifestyles of the aborn one percent. Alright, listen, by way to couple other renters.

that cura films are worth watching. Actually he did. He did versions of shakespeare, which I thinks really interesting.

absolutely. So kosova took on shake point and hollywood kind of adapted cursi. But a couple of really good ones thrown a blood was for so as adaptation to make best. And then ran was his adaptation of finger. Two of my favorite was checking .

out in fortress, also great.

And forces became the basis for star wars, or was a big influence.

Yeah, the arch d to and c three p characters see three peal characters who are like, sort of telling the story are in the hidden forces. You to the direct, the sense are bit for me. They join, or I love, of course, is is film war era trade dog.

I allow, I mean, these are exceptional films, and I allow. I wanted to remake when I was think about being a phone director. And he turns out spiller g owns the rights high and low. Incredible story. But we die. Grass here.

Lets get just one one last day OK. Breaking bad, inspired by a co. The current solar film.

Yeah, about a guy who finds that is gonna die. And when he finds that he's onna die, suddenly he becomes one of the true self. Like was this true? Like nature comes out. So an incredibly point in film, the auto inquire, the the extraordinary uh, T V show .

breaking that is a means to live in japanese. In this, the story of a somebody who is basic, lived a modest amid is something who lived a mid life, but then at the end decides he wants to do something meaningful with his little pitons of money in to make an impact on the world. And so he decided is going to take a parking lot that's disgusting and fill the garbage and make IT into a kids playground so people can enjoy their life.

IT is. And it's also, it's to share a muna as an old man. So in a way, this parallels there are careers and trying to do something important.

There's another one, I live in fear, so those two to live and I live in fear about aging and getting old at the genre. If you don't know, if you know, you're gonna need to be a little patient because IT doesn't have a thousand cuts per minute like modern films. It's not the transformers or marvel film, but it's well worth that if you can get your .

A D H D under control.

throw .

the .

blood and you.

and if you a supernature rush, which is about truth, every people's different.

every film, every film theory class .

starts of something yeah. So there's A U S, A film school divergence.

Save a hundred grand. okay?

See which gram? What's you are? okay? VC market update, carta has released a series, a funding map covering the first step of twenty twenty three.

But the date is what's interesting. They covered. And in kind of basically managers cap tables and stuff like that for folks.

Origin inal company was e shares, I think is a funding map, which is shows I how much money was raised. Nothing really too consequently in there. But what's really interesting is the data on series rounds.

Series rounds are typically the rounds when a benchmark skua a craft come in and you join the board and put in a significant check. Before that, you have Angels and seen investors, and after that, you have growth funds. But the series is considered a seminal moment in the history of a median round is now seven million rays that's down twenty six percent year over year.

And this is all data from the first half of the year, the first half of twenty twenty three. Reverse is twenty twenty two, which is a really crummy here. We're down from the chrome year, twenty six percent on the dollars raise seven million and the the pre money evaluation, forty thousand and seventeen percent.

So last year there was eleven million race on forty eight. I don't have the twenty twenty one day here, but I would be even more so. Just write off the .

bad reactions.

Author, you build girly to what we're seeing in the series. A space is a return to Normalcy. I mean, the series is back in the, you know uber days and R B N B days where what five ten million box on a thirty million so this is returned to Normalcy.

Yeah, I I don't think you've gone quite back to that line, right? And so I think they're still a significant petition at that level. And the fact that it's off a little bit is is no worthy, but it's not like all fifty percent, right. I think that market remains competitive and think there's a number of great people after investing at that level. And and of course, the a ideals like one thing you might be interesting is if you pull the ideas out, I bet those numbers would be more kin to what they were two or three years ago because those are being done at two hundred.

Is the reason you went to Angel investing or seen investing, let's call IT, because it's so crowded and competitive at the series a level. And what see investing is now is what series a investing was for the twenty years of your cream.

No.

I do okay.

I think if I were practicing institutionally, I I would state the series a level and dig board seats and trying get as much ownership as possible, which is the in the benchmark strategy. I I am this is more of A A hobby thing for me. good. And I don't want more seats anymore.

but it's super, super crowded at series is still to this day yeah.

I said I was competitive. I don't know that it's super crowded. And I think a lot of people realize that if you can get to a half or three percent management fee, investing three hundred million dollars at a pop, that's an easier lifestyle, then actually taking board seats and doing work.

And so a lot of money and activity got pull into the late stage market. Nearly every firm started doing that. And and once the once the center gravity goes there in a firm, you know in you're investing two hundred million a clip. Can you imagine the monday meetings like who's paying attention to the person is putting five million out of the time like IT would be hard.

It's like going to playing high stakes cards and then you get invited to you're playing in two hundred, four, one hundred, two hundred, and you go to five.

ten games team and who's paying attention in the person playing in the little game and actually think the number of people that practice at that level has actually gone down ah but that doesn't mean you know the business since I got in only got more competitive and so there are still enough in. The other thing is the founders have learned how to play. However, if there's ten people doing that, they know how to play them off one another. They're very good at IT.

Yeah that's that's a weird thing that happens like the playbook because of power gas, because of blog post. I mean, just how to how to run a company and then you know how do you know negotiate with VC is all been on act sex. What are you seeing? Uh, your a serious investor, you compete with this, acquires the benchMarks.

Uh, heads up for the series. What are you seeing in the series and what are you take from the data being down twenty six percent year over year, which probably actually means probably fifty percent down from the peak? And you well, yeah.

the venture capital market peaked in q four of twenty twenty one in terms of both valuations and the amount of money that was being deployed and a kept going down throughout all of twenty twenty two. And I think i've bottom out out in two one of twenty twenty three basic in the last several months. And I think now the test appointment has sort of stabilized and it's kind of stabilized at a prepare delic level.

So now maybe a two thousand nineteen level. Now I think that probably mass some big differences by round. So like you're saying, series a rounds are more competitive.

There's relatively more action there. I think the late stage rounds, brock can speak to this. The couple there is dried up, I think can cerbere more. And those rounds are much hard to get. And the reason, I think, is because that when you have more Operating history than it's harder to raise around based on narrative where as when you're at a very early stage, you can based just raise money based on a dream.

And the way I frame into people is when i'm part of this is my focus on training people in our accelerators and free accelerators. I tell them you either selling promise or performance. And you know once you start having customers and numbers and retention, you know someone like socks is going to be like give me the data and they're onna look a churn and say this business too much n and leave when you're selling promise flood es are than selling performance.

I'll tell you guys, A C E O, that is a well known C E O public company now he told me and I think girly, I think you guys were industry um he said as soon as we started having revenue evaluation, felt like IT went down as soon as we started making profit evaluation went down because at that point you judged on the quality of that stage of the business.

Where is before you could paint a picture with a thousand words about the different pads you might walk and everyone wants to believe the optimistic path will be walked. And so you can boost your valuation, boost investor interest. But once those numbers start to come through IT, IT really changes the investor criteria for how they .

just to value the business to a lot of people will state if if they have a product once coming to tell you .

to raise money before old saying .

is Better to raise on the other than on the stake 嗯。

yeah, unless the stake is pretty high.

obviously, the stake is great. Yes, the time. But yes, but .

just .

a recap. I think where we are, I think the veta capital markets have stabilize for funding new companies. I think there's armenia going on with A I, both in terms of the size these rounds and the valuation is like twenty twenty one for a lot of AI companies.

We're not participating in that craziness. We are doing some sea checks. I would say in early stage, AI companies were kind of calibrating the size of the check with the stage and amount of risk, and I think that's appropriate.

So you are going pressure is a seed putting in that's a five hundred k one million .

dot check see is what makes most sense, I think, for A I startups because if you wait for a later around, then they're not being Price based on far male 们 的 爱情。

yeah so five hundred million.

we just one of a four million old check where we let have a bigger seat round.

And I love that .

those are called seed rounds today.

I mean, used to be three to five million with your series a but yeah sure see a very fine.

I still don't understand the term proceed.

So just first, I thought I think we were add and you know bad can try me on this is I think the venture capital market is stabilized for new companies, new fund raising. However, I think this going to be a one two year period of distress for all these companies are raising the peak, be up twenty, twenty, twenty, twenty one and are now running on a and they are have enough revenue that not going fast enough and or their burnings too high. And all those companies are gonna be facing downward ds or restructuring or the doctorate.

Well, people are all so marking their books. Now we're .

starting to see the marking market down. I want to two year period of distress, all those bubbles companies, while we have a little bit of a resurgence of new companies.

I got another top going to go to here related, but braddish want to let you try me on the late day there because you Operate in the B. C. Search.

I think. And this is related to the topic I spect we're going transition to. But listen, there is a lot of activity in venture today, right? And we're very reflective to the stock market.

People are really scared in q three. And q four of twenty twenty two started in twenty twenty one, but cute. Twenty twenty two was scary to people because public market valuations for growth companies were down over fifty percent.

So we really saw you know IPO markets venture all all, all start to slow down coming out of that. We've seen you know a stock market within a you know ten percent of all time highs. We see you know this wave of A I agreed.

What I would tell you is under five hundred million, maybe under six hundred million, right? Series b and c rounds are as hot as i've ever seen them in data infrastructure and A I and software eeta. Um so there is a lot of competition there, the later stage stuff, which as you know, I call causey public.

So if a company is over a billion dollars right now, you're you're very reflective relative to what's happening in the public markets. We're starting to see activity I just read with raise more money. It's got two hundred million dollar, err, raised at ten billion. So those markets are definitely times revenue. Yeah, we did not participate .

fifty times revenue.

you know. So there is definitely activity. I know a deal we got called on yesterday raising two and a half billion and one hundred billion. There is a lot of activity. However, sax is right there. You know, remember, we had a thousand unicorns at the end of twenty twenty one, and i've said one hundred percent of those are gona do a downtown. And we're still in the early stages of that reset to occur. There was some you know there's a report out this week that lots of people coming on twitter where public market were down fifty percent and private march were down, I don't know, five to ten percent like that will all Normalize. It's all gonna be down, you know the same so that the only place I don't see activity under performing companies that were valued over a billion dollars, those are dead on arrival until you get to a market clearing Price, and we're not there yet.

okay. So the other big issue here is a lot of money was raised by vcs, oh, you know, commonly known as dry pattern in the industry. But there are some misconceptions about the dry pattern. People are saying, oh my god, all this money is going to come flowing into the ecosystem kumba. It's going to be the roaring twenty years again.

However, uh, bill, you did a little tweet storm where people don't realize is when we refer to dry powder at VC firms, the VC do not have that two hundred and fifty billion dollars or whatever this quarter, trillion dollars sitting in their back against that money is sitting in another person's bank account. L P S, harvard in downing coper sovereign alth funds exeter a IT has not been drawn down by the VC yet. So bill, why is this an important fact for people to understand? And one of the dynamics that L P S are dealing with.

yeah and there's a tuna dynamics between the GPS at the venture capitalist and the L P S at those and dominance. The brad started to hit on one of those, which is the Marks are not in the right place. And and so so the thing you just explains, critical, Jason, you don't actually have the money.

There's no there's no venture firms sitting around. We know all of the money that they've got committed to their fund in a bank account. This just why why not .

why does that not actually occur? Because people would say, oh, you raise the billion from these folks. They gave you the billion, right? Why not .

take the brilliant realities of the way that A L P. Agreement works with the venture fund .

is they're .

not on the committed amount, but they don't actually draw the money down and get gage done the performance of their investment until they needed. And so a classic venture formal do five six drawdowns over a ten year period of a fund. And so they don't they literally don't have the money.

A couple of other things were known. So and some of that I didn't put in the tweet, but the mark aren't right. And everyone kindly quietly knows that the mark aren't right, but there's actually no incentive to get to mark right.

Explain what are markets to focus.

So private companies heavy evaluation that's assessed either by the G P. Themselves in most cases, which a bit of a conflict eventers sometimes buy your auditor e and wire whoever auditing your venture fund. But of course, the techniques they have for assessing valuation or extremely crude because there are not market based. They're just there .

are not public companies.

Yeah so there's actually not a way to know. They have extremely the cap tables. The other thing is many L P S are actually bonus on the paper mark. And this is something that a lot of people don't realize and so they don't have an incident of to die around to the GPS and say, get your Marks right. Because the text you going reference poorly on them, if they were to roll of them.

are both of the L, P, and the G, P, R. In a dance there. Hey, we know that stripe is not worth a hundred billion right now.

That's worth fifty seven. But if you mark down, I don't get my bonus. I'm the person who's giving you money for your next fund. And so when we are assessing, hey, how much we onna give you for your next fund, we're going to look at the performance of previous funds .

as an indicator. Is back on what you just said. I agree with what you just said, except no one has the explicit conversation an behavior and show .

me an in of australia .

come situation but i've never ard that those Marks can be .

done by an order. Like I said, they could be done by around the financing. And then there's a secondary market, weird secondary market.

Secondary market can do. And sometimes L P, have this wife situation where different venture firms are marking country music, radical different Prices. Oh, which creates some interesting.

okay, so I did the theory, I did the sea round of stripe, or i'm y combined. And I say, you know what? Fifty billions? fine. We got a market of fifty billion because we we invested at two million in stripe.

But then whoever did the you know a series g or what's it's up to, we did a hundred billion dollar market like a will market down to ninety. But know somebody culpas or harvard has two has the same share class in two different funds at two different Prices. So then you could really regulate on reality.

huh another dynamic that uh that makes the powder less, less dry that that I didn't mention on the tweet storm. Imagine you on your first or second venture fund where imagine you're a fund that used to just have a one fund, but theyve expanded to four funds. okay.

Now imagine you don't have a lot of liquidity proof points on those funds. Do you really want to run out of money and go test whether not you can raise your third fund or your second fund, but you can want to wait and see if you can develop some track records. So because you may be facing the minute death of your firm, if you run out too quickly and then go back to market and there is no market.

So I have A, I have a hundred million dollar fun, is my third fund. Okay, what pace am I going to do this? Am I going to do IT in twenty four months or eighteen months, like many x were doing during the p where am I going to take a thirty six month approach, a more traditional three year deployment, if I even forty month deployment? Hey, I got time to work out all these issues in the previous portfolio.

Sax, you heard this sort of dynamic. What are your thoughts on the dry powder issue? You yourself have a lot of dry powder, understand. So how do you think about IT?

We do have a lot of dry powder and we're going really slow. I mean, there's no feeling that we have to rush out and deploy this capital. And one of the things that's interesting about the period we've been in that's been surprising to me is that our metrics actually haven't changed.

To mean the things that we're looking for in a software company haven't really changed. We look for a certain number of A R R, certain growth, certain about a dollar attention, a certain cake, a certain capable efficiency. That bar hasn't changed for us, but the number of companies, the meeting that bar has gone down considerably because .

they have headwinds because customers are in austerity measures or companies are going out of business and saying, hey, let me consolidate my sisters and .

sharpening their pencils. They are trying to consolidate vendors. There's a lot of headwinds in the buying cycle right now. Yeah and it's a little bit like I have remember in the doc m crash twenty seven years ago.

I remember IT yeah .

so back in nine, nine, two thousand, the conventional wisdom was that the company you wanted to be in was yahoo because yahoo is profitable. And when all these started up from out of business, yahoo would be the way that you could own a piece of the future of the internet, but you will have take all the start up risk.

And then IT turned out that all of yahoo s revenues went away because the revenues were coming from brain or advertisements, bot I start ups, which were funded by VC dollars. So when you had the whole dog com crash, yet his business dyed up, yes. So then yahoo lost what's .

out IT turned out a lot of people when truck. yes.

So yahoo business was actually highly correlated with start up funding. And I think there's been an aspect of that with a lot of these companies where you would think that they're pretty insulated from the business cycle, even like especially the enterprise software companies. There's a lot of software companies that we're selling to the startups that was pretty obvious that can be impacted, but even the ones selling to enterprise companies have been affected in subways, and there just aren't that many starves right now. Hitting that same bar that they were hitting just .

a couple years ago. Free work, your results on this L P G P dynamics and and drive patter.

I mean, I think I mean one aspect on the same front of uh VC being somewhat reticent to deploy more capital is flowing through to the L P. space. And girly can probably pine on this recipe, can probably pine on this year. And all of you guys obvious ly good, but it's been a parent in the last year that L P. Are wondering what .

do they have?

What are these portfolios ultimately really going to be worth? What's the actual cash distributions? And I think there's these new rules right currently where you got to distribute five percent of your asset each year to the .

institution that you're meant are and you're obligated to not just grow your endowment.

both either from the board of the like the adowa, the order trustees of university or I think there was a tax provision put in that if you're not distributed ing five percent and you exposed attacks on the returns. And so there is a there is a unquestionable potential issue without peas around their own liquidity. So theyve all followed the day swinging in moral where they've all got fifty percent or even more. Any liquid assets. You move into a second decline where the number VIP s in the good events, both for vcs and P E, remember p wave than private .

equity aren't .

coming and then the draw dance keep coming. And so you have to meet the drawdowns. You're not getting any liquidity.

Your constituent needs five percent liquidity. Now you have cash ranches. P and I think GPS aware of this issue.

So you do you want to provoke that night, right? Are you run late? You don't .

want to be in. I just say, like any dota IT IT seems L P S are more redis than i've heard several folks talk about how they're reducing commitments by fifty percent, two thirds, in some cases one hundred percent, particularly after the the mad rush for capital over the last couple of years. For capital commitments I would save with the last couple years.

And so the downstream effect of that ultimately, as the current funds get deployed, there are fewer new funds and less new capital being committed from these L P, S. Into new funds. And that is forward two or three years, and there's going to be be less capital available.

And so he keeps the bar high. This is a world. And so the power, I think, is only going to get higher over the next couple of years as that capital cycle moves its way through the system.

Probable explaining what freebody was talking about terms of. And so you may have, let's just say university x has committed twenty five million to funds, three through five for a venture fund z and now there saying in the next fun, we're gonna a ten instead five when they say they're .

making that commitment, that capital deployed by the venture investor over the next, on average polling five years. So the reduction in the commitment this year means that there's less capital to invest over the next three to five years. And so that gets played out as we fast forward. You know, we're still sitting on funds from the last couple of years. As those funds get invested, the new funds are going to be smaller or there's going to be fear of them, which and that where in the market gets .

much fires in the next? This seems like the great to set up ever feels like the set up last year buying equities when everybody was scared, if everybody y's tightening rebels, if VC funds are not going to deploy, this feels like the time to be deploying. So maybe you can talk a little bit about this austerity measures coming or just bet tightening or some people maybe getting out of the venture business who shouted been in IT to begin with. All of this seems like a great set up for more discipline and more discipline founder. If the VC have to be disciplined, doesn't that trickle down to the portfolio companies?

One hundred percent. But and all of this might happen. While this might happen, I never take the other side. I don't think that's what the lived experiences of most vcs and silicon valley today on series a, series b, serious c is certainly not the area we're competing.

We're seeing four, five, six hundred million dollar deals get done on zero revenue to three million dollars in revenue. And so let me just throw out perhaps an alternative of view as to why this might look a little different than the world of austerity that we saw in two thousand, two, two thousand and three, two thousand and nine and eleven. The first is right.

The stock market is near in all time high. And we know that, you know, the venture markets are reflective to the stock market. We talked about that. The second reason, which I think is interesting, as most firms on average are a lot bigger, okay, that creates two issues.

We have a situation where Young, the partners and principles, who all did deals that were overvalued over the last few years, they want to put some points on the board in a free Price deal because they have to have some winners. So you have this principal agent problem. The people who used to check them were the senior partners, right? The the investment committee, but now they have a lot of mouse to feed.

So when you put money to work, you pulled down more fee. And so you know these funds now I mean, if you're tiger, some of these big funds, you have giant cost spaces that you've created because of the the size of the firm that you created. The third is the nature of L, P, S.

And build. Mention, you know, dave swanson and two thousand and and two myal harvard. They would call, you know, who were the early backer ers of venture firms.

They would call these venture guys up and say, listen, we're hurting. There were a lot of markdowns. We need to slow down th Epace o f d eployment, right? And so they were a factor. Lp said slow IT down.

I'm not .

hearing that out of lp today. okay. And I think one of these change, I certainly i'm hearing IT out of traditional l pace, some family offices, some endpoints, but pensions, sobbing wild phones at sea who now represent a much bigger of the total capital base adventure.

They have money coming out of the ground every day that they need to deploy like they did in private equity. And so again, i'm not saying this for certainly, certainly there are more diverting sorer gn well funds than others who are saying don't speed up th Epace o f d eployment. But i'm wondering if that nature that change in the nature, the L P basis also contributing to this you know as a sax called A I mania.

yeah I mean, we see in hollywood some new uh, actors come in. They want to build the brand. When we saw the russians do IT, we saw the japanese do IT, we seen china do IT.

People commit new entrance at the table. They get splashy cash. They want to place a lot of bets.

They want to make a name for support to brand. So that's an interesting counterpoint. Our entire business, of course, is based on exits.

The highest form of exit, I guess, is an ipl and over Price acquisition will be the second, and IT is a secondary market for shares as a distant third. Uh, looks like the IPO window might be cracking open a bit. And, uh, some people are being forced the guns to the head.

ARM, owned by soft bank museo Susan, looking to raise ten billion, had a fifty, sixty, seventy billion dollar valuation, could be the largest type of the year. Instagram, look at twill billion dollar evaluation. Redit kind of went dark.

They had a couple of problems with their community, but they were in line strike, obviously online clavo s got a five billion dollar valuation. And then we've saw a couple of ah what i'll say are non traditional companies going public, something called shark ninja I saw in public we had a little conversation about this bread personal. They have a market cap of four point three billion.

They had a pop of forty percent poa, a greek food chain uba. They went and have a market cap of five billion dollars. Surfer, a company I D passed on investing in, but was intrigued.

They do politics shuttle between places on the west coast here, little short runs. They did reckless sting. Enjoy market cap of eighty five million didn't go well though, girly. Is the IPO window opening or are people kind of on the ledge who have no choice but to jump and hope for the best? One thing .

probably spent enough time on in the last topic, which I just hit on briefly, is the complexity of those unicorn. So brad and I I saw a deck that said there were more um private union than public tech company. So heard billion dollars at one point um which is shocking because those companies grew up in the ninety nine, twenty two, twenty one time frame where you could raise money at excessive valuation.

Their cat charts are very complex and rigid. They have different link preferences, different places and and and you've got board members who all have different Marks and are all very worried about whether this thing can get to a certain place or not. And so it's very difficult to come in and do another private round in those situations.

You might have to you might have to put the return in a guarantee pick, divide the IPO or some complex rivaw. And a lot of people, I think brad would the ruth is, a lot of people just say they opt down and say, no, this is too hard. I'm gonna go in there and negotiating with five different constituencies on how to do is you can just do a simple investment because of.

okay, so it's gotten too complex, which then if the buyers of those shares do not want to be involved in that crazy, okay. Is stripe worth? Or just pick type as an example, fifty billion or one hundred billion in the last, investors are at one hundred y see in a two million, a bad example.

this book, their total look press stack may still be a fraction of their market for a lot of these uniforms. The likely h stack can be very close to the market cap for the today's valuation.

You got a billion dollars in investment in the company in liquidation, money that has to come out to pay those investors. But the companies only were two billion. Or a 表演。 And we know it's yeah.

when you get to that place, sometimes go in public is just the easiest way to clean IT all up because .

everybody converts to common and we just the company start trading. And reality is reality is that kind of like taking the medication?

And I think that happened. One good example was square one point had done a derivation financing on top that was somewhat problems. And they just felt like they had to get out and they did.

And I cleaned up to capture. And one thing i've been waiting on, we'll see if that happens. But because of hyper competition and investing in nineteen nine thousand twenty, twenty, twenty.

There was a term remove for most term sheet that gave investors the right to protect their likely f on IPO. That's gone in most of these cases. So you could convert likely f under which for a founder or an early stage jangle investor would be a huge win. Got IT, whether if you sold become the ema the like p would play. Does that make?

yes. So the last investor comes in, they're getting a multiple of their money back except in an IPO. And the IPO happens, you know yeah. And I .

suspect most of those late stage investors keep assume that their investment has a debt like floor on lick pref. And if this were to start to happen or recapped, which can also be done, self, self inflicted recaps I have seen many times just to get past the structural complexity, either one of those things could wipe out that like that.

So net, net, girly, more IP s are going to happen. I think. Second.

happy ation. There's two things think that the cleaning up complexity is a great reasonable for the public market in bradford said, we've seen a massive recovery in in software stocks like the Marks are Better than they were two years ago.

So bread or sacks or just M A wise we've seen in a on we ve discussed many times seems to be saying all business equals bad, any merger equals bad. She's gonna, you know attempt to throw cold water on any merger that's happening. So M A seems to be being taken off the plate by numerous lacon, but also the E U is seems to be turning the crews. So if we don't have an M A market, then that means there's only an I P M market.

correct? And I mean, that's just another one of the reasons that is pressure in these companies. These companies need to raise capital.

So just to double t like on what bills said and put some numbers around IT, right? Because we read a lot of stats about how many IPO they were. So I had the team pulled some figures, four hundred eighty IP S U S ias in twenty twenty a thousand thirty five.

So a huge bubble in twenty one, one hundred and eighty one and twenty two and one hundred and twenty three. Okay, but I think that over states, right, because we had a lot of spaces and crappy as so really over states the quality ideas. So you know, we're one of the major buyers in tech IPO.

So I just want to the team said, how many ibs were we tracking and did we consider participating in during these years? So that was forty six in twenty twenty one hundred and twenty twenty one, three in twenty twenty two and zero year to day and twenty twenty three. Okay.

I don't want to be in the greek food.

So what I would say is I just returned from deer valley this week where Morgan Stanley putting on a conference talking to their big potential IPO buyers. We are now cued up as you and I we have this exchange, Jason, this week. And I said, you know, in that exchange, the world's Normalized fear of covets, past hyperinflation, past etra, first class ipos are coming and a bunch of downwind IPO are coming.

So let me just explain really quickly on that. right? You mentioned installed right, super high quality company.

I think its last private round was fifty or sixty billion in the bubble, and now it's rumor to be going public at somewhere around ten billion dollars. okay. So that represents the reset that will have to happen.

As as bill said, if you were an investor in that last round of instincts and you were buying preferred chairs and thought you were protected, that preference is washed, right? So you're going to be done fifty, sixty, seventy percent on those preferred chairs because you're going to be converted into comment in that IPO. It's the right thing for the company to do.

It's the right thing for the investors to do. IT made up the captain. So that is an example of you know the downward IPO of high quality companies that you're going to see come public. Then you're gonna folks like ARM like bite dance data bricks would be enough of one of these I think that you know sneak that would be more in that instant ard camp. You know like there will be some discount relative perhaps to their fully deluded last rounds evaluation.

But these make no mistake about our high quality companies that will lubricate and ultimately will compete for those ibs because these bankers are held bent on pricing these IPO s at a discount fair value. They need them to work. They need to bring buyers back into the IPO market because these companies .

need liquidity. So suddenly the banks need to get wins for the people buying the shares. I suppose to in the past, they were like, yeah, we're just selling a security at the market rate, whatever that famous the famous monologue from with the movie, which was a jerrem, aren't who gives that monologue? We're selling securities to informed buyers and that's yit is pretty dark in so won't .

be a light switch, Jason. But I do think marg margin.

I don't think I look .

like a light switch, but IT will be I think we're going to see five, six, seven IP s goosies. Ipos in q four will probably see closer attending q one. And then I will start opening up in the back hf next year, in part because boards of directors will begin to realize, you know what, we have to go public.

If it's downwind, who cares? It's acceptable. And this is really healthy.

We need these companies. And by the way, i'm in the bill early camp. You should not stay private forever. You should get your company if you have one hundred or two hundred million of revenue, get your company public, innovate and grow in the public markets with the discipline and get side the public markets. And if it's, if it's, you should expect the Prices lower because the world was out of their mind in twenty and twenty one and multiple story set.

As actually shared a news story with me just about some of the incredible returns in the golden adventure capital washington university, due university. Something in exploded in value.

yeah. Remember when this article came out? I was september train nine, two thousand twenty one, less than two years ago. Yeah and we were all feeling really good. Yes, about our industry, yes.

But as IT turns out, the whole thing was inflated by all the free money that the fed had air drop. So you know, the public markets were really frothy. That was basically very bubble, especially for growth cks. You had all these new ipos and backs and so forth, and they were super bubble. And the result was that the returns, both realized returns in on paper for these endowment data, massive.

So if you think about the L P, the L P community, if they're making commitments in twenty twenty one, the way they do that is they look at the total value of their endings and then they allocated percentage by asset class, the allocated sm percentage to public marketing, percentage to real estate, private equity and then VC. So if the overall value of the endowment is really big, then that percent that goes to B, C, to be really big too. And then what happened is you had a huge correction over the next couple of years.

And so one of the things we heard from the L. P. Community last year is a problem. They called the domaines or effect.

which will the .

value of their portfolios has gone down a lot because the public markets were down was IT me like fifty percent for .

growing cks and .

like fifteen, twenty percent for the entire market. So the value the portfolio was down, but the venture capable part of that was not down, both because of the the lag in getting fresh Marks yeah then also because they already make commitments to new V C funds at the peak of the market. So all of a sudden, the percent of the a portfolio that was VC related roughly doubled.

And so that's why all of a sudden the other commitments of dried up is because the overallocation to V, C. Now as a public markets have come back this year than that prom mitigates to some degree. But yes, I think it's still out there. And I think this is why you're seeing certainly domestic lps really slow their allocations to venture capitals and solve the denominate problem. I think the us in issue overseas, I think, Jacob, you observe that the the four seasons of the bar.

the OPPO by bar, look like a rosewood to brad and who were there and little ally got stopped four times from the elevator to the front door. I am mckey. Four people showed me that two more than would stop me at the rose wood going to the front door.

IT was you should recognize that as a hyper attractor for where available money was, yes, relative to the U. S. Dollars and whether they were yeah.

I think we're in for a period year of continued to stress them and pain even though the market is sort of Normalize or stabilize. Now again, I just think we've been in a huge software recession for the last year. I think that it's been masked by the fact that the rest economy should be OK.

But this is the worst software recession we've been in. I think it's the doctor crash. I mean, the buyers have been laying off employees by the thousands and the software has bought on a pursued basis.

Yes, the market has really condenser. We had one start up that was selling to twitter and they got a renewal. And I think there are contract eighty percent off because he also set off eight percent of employees. And I next, before negotiating .

the last one percent, which you could negotiate fifty percent of that.

I told him they did a great job, is getting that twenty percent because you cancer everything? Yeah, I was like, really impressed. They were able to renewed twenty percent of last years value.

You know what? Had a pender, we had a bar, and this bender went on for far too long. And you know what, if you go out, you know, two, three nights in a row until four or five in the morning, that next week is going to be painful and suffering.

That's what the industry is going through. It's just going to take a lot of all plunges, info ahead and pickle to to feel good again. And I would like in .

in retrospect that I think super interesting about the venture capital cycle. One, I think it's inherently cynically and it's always going to be that way unless we fundamental change the structure, the industry cause IT just invites competition and there's no barriers century. But I went to talk to smell peace that have been in the business for a very long period time.

And a vast majority of the reason venture up performs other asset classes has to do with these tiny windows when you have a super product market. And if you don't if you aren't around for that part, you know if you strip those years out of forty year assessment is actually not that interesting in asset class, which highlights the need for venture funds to get liquidity at the peak. Yes, right when we are the peak is when people get the most brave and the most confident and they start talking about how we're gona hold forever. And so you had venture firms with the biggest positions i've ever had their entire life go over the waterfall and and basically evaporates what could have been returned yeah I mean.

diamant diamond hands can go back and bite you. And you've said famously, you can. What was the the line you had? You can need A R.

but you can. I, yeah, this is .

on our movie .

banner here. For those who you haven't seen margin call.

just one of the great scene, the best scene, the whole scene, by the way, like the best scene, I think of bottom financials.

So good, look at this mural.

We selling this, saying people we been at the last two years and whoever else bit.

But john, if you do this, you will kill the market for years is over and you're selling something that you know has no value.

We are selling to willing buyers of the current fair market Price so that we may survive.

H mad, you can realize a lot of more street .

and you point to the opposite took place, which is VC drink the cool ID and didn't sell when that we're at the peak of the market.

The so got caught up in a competition of trying to to uh appeal to the founder community saying, hey, we're in IT for we're best but .

bill there there was also this element that drove the strategic aggression of this data set, which is the best formers in tech generated most of the value after they went public. I mean, you know there's a trillion dollars of market value generated in in video, in apple, in google and amazon all over the many years post going public. And you know you read the code as notes.

When they kind of made the transition that they made, they said we don't want to, you know, walk away from the power law that the power law continues to accumulate and a crew, even in the public markets. And we want to be to participate in that because there's another hundred x upside coming from here in the ones that we select. We want to stay with IT, not necessarily.

We're in staying all of them. You have to be decided something that we believe are still one hundred x upside from here. And just because there is an IPO doesn't mean that we want to exit the position that there is now more capital available to them, more public currency they can use to do transactions to hire sea and we want to participate.

Valuation double could be the biggest.

right? I think the total number of companies meet that criteria in the history. The venture industry, like ten or fifteen and and you name many of them.

And the problem is that the rhetoric becomes common, narrative becomes part of the ethos of the farm. And people want to apply to every single company everything that's not true. I mean.

I don't want to get too specific here, but you have to do have some, let's say, uh, season vets yourself included bill, who when given the opportunity to get liquidity on an incredible investment, will do so fed Wilson. So I think all of coin base, when that goes public, he he just clears the position when things go public. That's been his physical hy kind of the antithesis of what to go and rule off are doing with some of their holdings.

And then we've seen um we work as h an existent al crisis. They don't think this might be a available a concern anymore. But famously, benchmark was able to cell shares at a very high valuation at some point and locked an incredible returning.

Yeah.

okay, there are this one. Yes, yes. O K, so let me see question about about getting older.

Well, let me ask ask a question. Me, well, x the world seventeen, the best, most ago sex. You you have an investment in space sex, right? I mean, there's been a lot of secondary action in space sex. Why would you not sell space sex of the valuation today? Maybe diddy, as you think about this?

Yeah I think we are gonna IT till the company ibs. I think that would be R, D.

falling when he goes public act. Do you then think what's the upside from here? Or do you think my job is done .

and my job is done? Yeah, I think my job is done. I think what we, the shares, and then H, L, P, can make own decision whether they want .

to hold them or not. One of the yeah yeah.

one of the things about distributions is that nobody has to sell, so everyone can make their own decision about whether to hold or not. Yeah, he wants the company is public and the public as all the information through disclosures, the odds that I know something special, that a season public market investor dozen as party, pretty low.

I mean.

they create paradox .

of what we all do. And brad, you have both a public and a private polio. I started trading public market equities to get Better at my private behavior.

Bill, you've done that forever. Is public market can trade on inside information private companies? That's all you're trading on. Maybe you could speak to a little bit about being what do they call when you do both cross over investors that make you a cross over investors at the proper term?

Well built girl is the original crossed over investor and he's been trading public stocks since and rearch yeah researching them you know but you know the fact of the matter has has warned buffer t and you know who would laugh at the idea of across over fd has been running one of the world's largest public portfolios and private portfolios forever, he would say, investing great companies that are there are moments in the market cycle where late stage venture is this Price to the downside.

And there are moments in the cycle where the public markets are misprint to the downtown side. What we saw in twenty twenty one is the private markets were crazily overvalued. In twenty and twenty two, we have this massive correction in the public markets.

We believed they overshot. In part, we believe that because we didn't think we are gonna have hyper inflation forever at seta. And so you and I invested in you know meta and a lot of other things that we're on their ass. You've got ta buy in the public market when there's blood in the streets, right? As as warm as buffet says, by when they're blood in the streets and sell when there's trumpets in the air and you know, there are definitely blood in the streets when you saw things down sixty, seventy, eighty, ninety percent.

Is that for this now feel like trumpets to you now? Or do you feel like trumpets next quarter or the quarter .

after feel like .

people are polishing those trumpets right now?

Yeah, I mean, a lot of IT obviously depends on your view on what's gonna happen in the economy fundamentally and am happy to shift to that. But what I would say is this, remember the chart that i've showed many times about software internet valuations. We were you know seventy percent above Normal and then we were thirty percent below Normal.

And now we're closer uh, to the trAiling ten year average of internet software valuations. There are always outliers on both sides of this, but I would say a lot of the positive arbitrage that we saw in twenty two has been squeeze out of the public markets and we're close to fair value. So now if you want to generate alpha, this is going to be about picking individual winners versus individual losers.

This is going, you know, like like the bated trade on on global macro, I think is largely played out. You know, the catch up back to kind of fair value. And now I think there's a debate between kind of heart landing soft land, how are gonna a reacclimatise flake or not? Every acceleration where you come down on these major issues, I think, dictate tes whether not now it's time.

Can I corde something you said, jack, right? So you said that public markets inside information is not allowed where as private markets, it's all inside information. I think that could give yours a misleading impression of what we do is VC.

okay. The way that .

around typically comes together, it's not like we get tipped off by some insider of the company in some nefer ious way. What happens is that the company chooses to engage with us or a select number firms in a process and then gives us their metrics and you gives us the business plan and gives us the forecast. And it's all done in a very above board way.

It's not like we're being tipped. However, the part of IT that I guess, is true is that a private company does not necessary engage with everyone in the world. You might to put on a website a quarterly report and say.

here's what our revenue in our cost warn. Here's our earnings, although some private companies do start that process is like large.

large and large.

They're selective .

about who they want to be on their capable, and that's the big difference. And they buy a public and private a public company doesn't here who's on its captain? IT doesn't really know who's got you know apple doesn't know every shareholder and who's got account at e trade or with a charcoal.

I mean, they may care who their bigger shareholders are, but they don't care who the average holder is, whether a private company really does care. And part of the reason why they care is because these startups are highly risky and they want to have investors who have a track record of behavior where they don't have to worry about being 是 every time something was to work out， which is most of the time. So I think there's good reasons why startups want to control who their investors are. By the way, there's also the issue of value at right. I mean, other things being equal, founders and start up would rather have investors who can help them as supposed to simply, you know, junk you public.

I mean, you mention bolton's, you don't want somebody who's a neo fight who's going to cause chaos and be upset when revenue goes down or things are swinging up and down. And yeah if you're public yeah by the share if you want or sell the share if you want, it's a marketplace.

Sorry, I just pull up this this im I just posted. This is from, you know, you guys know goco Roger. Goal is a great human waste together.

Google, then he worked with jack at square, his a dosh today, and he was a leader at facebook after google. But he did this tweet last month, and he tech venture investor who compares their funds return to the S M. P is being neither did january. The correct index to compare to is the Q Q Q. You know the news that composition and it's a performance of the mind boggling. And as you can see here, over a twenty year investment period, if you basically just buy the top ten public tech stocks and at the end of the gear rebaLance to the top ten at the end of the year, your multiple over that period of time is twenty four x over ten years yeah and over a ten years.

there is quite a bit of hindsight bias here and saying where when you look at the top ten, right.

how how do you determine .

yeah why why not top hundred? I mean, are you willing to say that for the next ten years that usually buy the top ten? What if over the next ten years, it's more of the field versus the top near the next time? Yeah, I think appearing VC as an asset class to the nasdaq makes less. I think that's fair.

yeah. And that's that's the second column from the right, which is basically you would a five point two x over ten years. So if you're not beating five point two x which is a totally liquid investment if you just pop the Q Q Q index.

What this really shows is apple, google, facebook and amazon have had an a massive runup .

that that's actually not true, jack, because if you look at just the static IT doesn't you know outperform, it's the rebaLance that out performs, which is whoever is winning in the market, whoever is gaining market value each year, is you then you know double down your dollars into for next year. And that's change over a twenty years cycle, over ten years cycle. Uh and I really starts to play out over time. But I mean, yes, you just look at the Q Q Q. That's the benchmark as an investor is a private investor and you know goal als comment in his uh in his tweet is that uh you know if they can return call IT seventy eight x over ten years in this case five x over ten years, you could argue that a venture fund needs to return H A significant Price um probably twenty five thirty percent premium due to the illiquidity and the the risk ess of the investment cycle there, whether the Q Q Q can just sell anytime you want. So you know call IT you need to kind of be demonstrated a thirty percent premium to the um five point two x ten year which is by six and .

a half 7XT7 x cash on cash a class super funded。 Why why is that .

the garden? The other point of .

you yeah I mean, I would be completely specular, but I do think if you look at the structure and dominance, you know you you've had a few people really leading the way in terms of a playbook with swinton near day, who passed away recently.

But but he went, he cleared the yellow now he ran, yells and downing and .

is considered. And I think of the vast majority of people decided they were gonna follow that playbook, which had a oversize investment and illiquid assets, P E venture, real state commodities, those kind of things and I think IT LED to just A A massive like and these things take forever to figure out of their right or not.

Um is your portfolio over fifty percent a liquid? Like who knows what's right and what's wrong? You could do a really, you know, you could.

There were years where yale was printing like twenty seven percent a year. And then in in one reset, no nine wiped out in a tone of them. So it's super hard.

No but I do think that philosophy became broadly adopted. yes. Well look at um .

can you pulled this chart require this is a chart from statistic that is value of venture capital us in the us from two thousand and six year, two thousand and twenty two. And what you see is there's basically a few different levels. Before two thousand fourteen, call IT, the industry was basically a fifty billion dollar.

Your industry was deployments. Then you had to run up where for several years IT was around a hundred billion, and then in the prepaid mic year two thousand eight hundred and one thousand nine hundred and twenty was around one hundred and fifty billion a year of deployment. And then I went told not in twenty twenty one, he was three.

And fifty billion started to come down in twenty twenty two, about two hundred and fifty billion. I think where we are right now is kind of at that two thousand nineteen level of about one hundred and fifty billion a year. The question is, like what you should be, I mean, should this be a hundred and fifty billion a year industry? Should this be a hundred billion a year industry? Should this be up fifty billion dollar year industry said.

yeah, that sounds like one hundred to one hundred fifty would would have been a steady state. And build some portion of this is stay private longer, having an impact where those last couple rounds were the big, huge jc rounds. And if people had gone public in year seven, eight, nine, like microsoft, google, not google, but microsoft. Now my google went, but here was google when I was out eight, you know, going out a little bit earlier would have chopped off some percentage of this growing.

Yeah, I do think one of the most interesting things to watch is gonna how these a thousand private unicorn play out. Because not only do they have the cap structure problem, but they lived and grew up in a DNA where they were told growth at all cost. And it's super hard culturally to go from that type of execution to the principle type execution you guys have been promoting over the past several months is just hard, not impossible. But it's very.

very google went public in near six .

yeah twenty three billion of total venture raised, I think, prior idea.

But think about what that means if a lot of those unicorns are fake. What does that say about innovation in the american economy? We had this narrative over the last decade that th Epace o f i nnovation h ad f undamental i ncreased b ecause o f t he w orld b elief, tools and technology. And so you had a lot more uniform being created. I mean, I remember back in internal, like a decade ago or two thousand ten era, lets say, you know, there were maybe was like twenty to fifty unicorns a year, maybe twenty unique.

There were praries ably ten to twenty girly great companies from a year in silicon value in the tech industry, the twenty years I am.

Remember when in jesson kind .

of gave this this talk about IT maybe a thousand years ago, he said the number of seventeen, there's like seventeen important companies created every year in silken value in your goals. VC is to be in one of those seventeen. Then all the sudden we had was IT like one hundred, two hundred, three hundred uncorded a year.

Yeah I mean, if you answer .

the question in real.

what I mean brave ish are talking about that you're giving a fifty acts multiple fifty times top line. I'm not talking about earnings spokes. I'm talk about top line.

If you give fifty ex to every company, then you only need twenty million dollars in revenue to be a unicorn. And that's unrealistic when compared to the public market where things are trading at five times top line and twenty times earnings of its high growth in IT. So is, is this just a different market or IT? There's a major slowdown in china. More we can talk about product and buy down the market.

Market is real. I've spent a lot of time on the island of mari. I think it's really sad. And if you ys, you're going to lahn the whole town.

her down, beautiful town.

It's gone. I just wanted to make sure that we mention that because is party depressing. What happened? I know if you guys have seen the .

wild fires parts in our families. We all went to that area from vacation. My favorite.

But that sex yeah, mary is my favor. Code thirteen in yeah ah I mean, now is my favor place on earth a high and so many times it's super sad what happened? I just .

borders and it's it's just all gone. I know. So yeah, this global warming thing and these fires in wind and what a hot summer, I mean.

we can do southern iran. Check this out. The temperature hit one hundred and fifty five degrees IT is nine degrees warmer than it's ever been off the the west coast of, uh, the united states right now there was ninety degree ocean temperatures is off the florida coast. The sea surface temperature in the north at linux the highest it's ever been. But I think that .

this is warming or is IT all the hooks?

Look, the the people wanted debate all day long about ana pei. I M telling you with like absolute certainty, the data right now is unfun king believable how hot and how dangerous the earth is becoming. And we're seeing not just the fire in mari, the sea surface temperature, which increases the probability of tropical storms and hurricanes in the coming season.

It's unlevel watching in india ababa, in dubai, hundred and thirty degree temperature, ninety five degree overnight lows. If you don't have air conditioning, you will die. A lot of these places.

So there are parts of the earth where people cannot afford the amenities and the luxuries that we have. So is the world. There is no hope.

There is no how the earth is from, yeah, the earth is warming. The amount of extreme weather is increasing. The significant effect of that is is, is, uh, becoming a parent. And you know it's we can debate for hours about what code can you do about IT, but there's just A A series of really awful things happening right now, and it's becoming more frequent and more apparent that this is a pretty serious thing that we're in the mister.

all you have to do, girl, is follow what you're doing down there in texas, which has is IT the highest renewable energy percentage of any state now? Is texas greater than california? Is one of the biggest successories? I am some politicians from texas saying we've got to get off all these.

There's no silver bullet. If you want to talk about the, you know, the fundamental chAllenge that we all face in terms of whether atmosphere carbon is driving heating or not IT, if you if you follow that track, there is no silver bullet. There is a lot of things that have to go right in the ordinary way. And there are market incentives that make IT very difficult for any of those things to actually get done all the way through.

But renewable energy and nuclear, you would be two of the most important.

Yeah, there's still industrial production. I mean, it's just you the list goes on. You know systems in agriculture. What's clear? What's the .

clearest path? I mean, if you, if you said, hey, put ninety percent of your effort on these three things, that would be nuclear, renewables, painting people's roofs with White paint like this new. And that's reflect stuff. I mean.

what would be in much? No, let's see this conversation the time I .

got a and I think, yeah, so just wrapping up here on sort of mro will give you a little mro bread. CPI seems like it's measured and consumers seem like they're running out of money and starting to tighten their belts. Unemployment still all time low, still nine million job openings, feels like this is the steady state for the next year. Or do you think hard landing, no landing, soft landing.

Maybe they can break up the the first chart this morning, we had CPI reported we had the smallest back to back monthly gains and core CPI in over two years, back to point two percent, analyzing just over over two percent now. So on a year over year basis, that was three point two percent.

I remember I was only six months ago that people were still hyperventilation about, you know, this nine point one percent we saw last year that everybody on this part, I think, was largely agreement that was covet stimulated. But you know, the blue line here represents the consensus estimates of folks like gold's acts, right, which is pretty similar to what the fed own estimates are. If you go to the next a slide here, nick, this is what people the current market is bedding will happen to the fed funds rate.

So the market is same like, you know, you've hurt, you say, many times higher for longer. I happen to think we'll have higher rates for longer too. But the market is saying we're worried about an economic slowdown that's gona force the fed hand.

So the market is betting that the fed funds rate will come down either because inflation continues to roll or because the economy continues to slow. And so this third slide, which I think is a really interest one, which which nobody really talks about, but this is the reason I think drug and million other are worried about recession. There's A A measure by the safran cisco fed, which is called the effective funds proxy rate.

okay. So this is not the fed funds rate. This is what they say the total impact of quantity tightening plus rate hikes are.

And we're now back to the highest level on that proxy rate since we've been since may of two thousand. It's up over seven percent. I think that's the reason people lucky is blue line up over seven percent. That's the highest effective rate calculated by the same Prices go fed since all the way back to me, two thousand. And this is the concern a lot of people.

Can you just explain that why is the effective rate three percent higher than the official .

rate because of quantity tightening? Because there's a lot of other things going on in the economy, the impacts, interest rates, the rate at which you can borrow part of this, there's just less money in the system.

So that brunch, basically exactly just because the rates four percent doesn't mean you can get out you to borrow.

Nobody can borrow at the ten year rate, okay? So if you are a company or an individual and you want to go borrow, you have to buy at a much I rate. So that is where the rubber meets the road.

If you're trying to borrow gh to buy a house borough, to buy a car barrel, to expand your business, that the blue line represents a much Better final calibration for the level of tighten in the economy. So there is A A, A, A very strong debate. And I would say the markets actually bedding here that the fed is overdoing IT because of what you see in the blue leg and that the economy going to slow.

The lag effects of this tightening have not yet been felt. And so this kids back to the question we had before, which is where are we in the cycle, whether or not we're going to continue to have growth, not really interest in Jason bloomberg s headline today was the summer of this inflation. And we said on this pot six months ago, we said is more likely by the end of twenty twenty three, we're gonna be talking about this inflation and inflation and low bohle. Not none only are are we seeing signs of disinflation air tickets down eighteen percent year of year, but china just posted actual disinflation.

Yeah right. So Prices are coming down. People are going to uh, be surprised that there's more products or services available at lower Prices, which then could infect salaries because, hey, we're not making as much money at this company.

We got a cut salaries. I mean, we'd know that the fed at the start covet was more like the the courses of disinflation are almost bigger than the courses of inflation. And china just saw CPI down three tens of one percent in the month this week, annualized.

That's over three and a hf percent. That is a major problem for china. So I think you have some some yellow flags here, right? Let's say, do we have too much tightening if one of the global engines of growth is experiencing this level of disinflation, that's gonna impact the global economy. Global demand is such a so yeah but has .

been the pattern of the federal. They seem to react late and then they oversee her. This has been the theme. And so there's .

also just to add one .

other cloud to .

the silver lining. Is the amount of death that's out there, correct? So both private dead and government debt.

Yeah, consumer dead. Is I this a real estate commercial real state? I A dead everywhere. And people are gonna to build time and maybe austerity and stop spending on some year low trips. But if salaries keep going up.

this is this .

isn't a corner. Coa, who is this what you said? Sharing is not .

a cola .

c letter .

letter.

please. Got three hundred thousand followers.

So we have we have record household debt seventeen point one trillion, record mortgage that twelve trillion, record auto loans, one point six trillion.

Record student loans, one point six trillion in which as drug, Miller points out, have to start being repaid I think as a step yeah because stream court overturned uh pines and construction deformed veness yep, record one trillion in credit card debt that I think she's pretty worrying because credit card rates are now around twenty five percent. No credit card that IT gets the interest on that is is, is obviously floating. And so when rates go up to you know where they are now and they gets get very putative so David.

precisely. And this is remember, worth an inflation roll over huge. And we have a chips act in an infrastructure. We have massive government spending going on, and we are still see inflation rolling over. So I just find IT interesting that within six months, we're gone from worrying about hyper inflation to blob of running a headline summer .

of disinflation. The last piece of IT is government debt. So at the rate that the government is racking up deficits, the treasury is going off to float something like three trillion of new tea bills by the end of the year and were rolling something like nine trillion of old government debt over the next eighteen months at new higher interest rates.

So there's a lot of debt and will continue that discussion next week. As well as the global warming. One hearts and prayers out to to find people of mali who invite us to come to their incredible paradise we hope you all say Steve and have a great recovery. You're an authority and prayers for rag gardener the fifty pity for the architect if IT sacks and the sultan of science I am the world's greatest moderator efficiently if you're getting married and for bill girly bill girly, you have semantic dotes about the olympie were .

taught bg square close out.

closing on an and here you close .

this out you when you first mentioned you are going to do this. I don't think anyone had any idea that you would reach this level. And I know the hard work IT takes to for you guys to do this weekly, it's amazing.

But I was walking down, you guys share, and IT goes about people mentioning all. And I was walking down the street and Austin a few month ago, and guy came up to me, go, so are you build early? So yeah and and he says, you're that guy they sometimes to talk about on all in, right?

是 yes。 So the kind of my room, there's your subtitle of your one guy, they talk about that only sometimes sometimes stone. There is your time to your point.

Belt IT took ten years of hard work by jake out, the rest of which has walked off the street.

exactly. thanks. I got you all on my shoulders.

That's why he think he deserves .

more than .

twenty five percent holding .

you all on my shoulder and more percent.

your.

Winter, man.

We open sources to the fans, and we just .

got crazy with.

You should all just get a room, just have one big, huge orgy because like like sexual attention.

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