E81: All-In Summit: Bill Gurley & Brad Gerstner on markets, downturns & investment cycles
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B, G square, this is our B G square panel. Uh, everybody knows. Friends of the fod brag, gardiner and bill burley give IT up for.

yes.

Rainman dev.

We open sources to .

the fans and.

Bill, you predicted five of the last three recessions.

A broken clock is still right twice a day.

But I mean, here we are again. You've sound to be alone belin, of course, your right. And you've seen this movie before for all of us Younger capital allocators, who are experience ing IT for the second or third time.

But you've experience IT a couple more times. How how I means pretty old. How does IT I had? Does this one measure up to great recession, dog bust, you know, eighty seven. And in the mini ones we've seen in between.

you know what that I think super important to put this in the context. Now i'll try and tell this quick. I had a meeting once with how remark, so i'd wanted to meet for a long period time is famous bond investor that does a lot of writing and for fifteen minutes asked me questions about the venture industry, a lot of structural questions, and I told him by answers best I could.

And he said, man, that's a really shitty industry and I said, well, why you fear what you mean? He says, he says, you know, class collapse s is built into the structure and so we have funds that you are taken, you committed to that have ten to fifteen in your lives, so low bear's century, but you are very high berries to exit and so he felt that is just systematically set up to to rising crash, rise and crash. Um and one thing that I realized coming out of that is that IT IT doesn't happen like a snack, which is what we all imagine when we think of a syncline business.

It's more like a sort to risk risk on is a very slow process and and it's it's reflective. So that grows and grows and grows and grows and then risk off tends to be very brought. And we've seen that here, right? This this cycle.

Risk gone was from o nine. That's also two, five months ago. That's really also and risk off is five months. And in the thing that is really tough about that is IT IT requires a minor adjustment very quickly like because you didn't gradually change IT rupil changed.

And so capp charge might have systematic issues that are stuck because too much like prof relative to the new reality, valuations have shifted cost capital radially different. You may have, you know, on the way up, as risk got, people took more risk. You try crazy things. You are willing to to take, take, make investments in businesses. You might not have to cost capital a lot.

You name a stadium .

for five years as a crypto might and all .

the gone and now commitment to naming the stadium is greater.

The market, I may not be true .

for export.

I mean, just as an example, that might be a disproportionate value of your yeah yes.

anyway, it's it's tough in and in this particular case, is that to what you ask? So in turns out, all nine wasn't that bad. If if we have an old line, that would be pretty good. Things got turned around pretty quickly. A one was very abba bed and we didn't you really start to see the liquidity again until, with a few exceptions, mention paper like o five, o six was a long walk .

in the desert. I mean, a lot of great companies were started, but a lot of founders gave .

up at that time, right? yeah. And look, I mean, I think to the if you're an early stage or if you're an early stage founder that's just getting go on or even an early stage company because if you have to scaled out yet, this probably has an affected you IT could be IT could be wonderful like you're access to talents gonna be a lot easier.

People are going to be more pragmatic and rational. But it's a it's usually a long window on the other side. The other the other chAllenge you have here is in twenty. You mean we basically had a many pull back in march of twenty, but then the fed hit so hard, things just backed IT off again. And now, and now you guys have talked about this with that tools, not in tools x sitting more.

right?

So one of the things I was talking to somebody last night and this audience, amazing, so good to me last night, they said, no, so how does that work? You just get together and talk and I said, you know what? I'm what I love about this group is there are hundreds of hours of like data and research that we're constantly chAllenged with.

We all know where we are. We know what just happened. And I think grounding ourselves in just a few facts to try to figure out what the next six months are going to be because we have founders to your trend on their businesses.

Can I raise capital? Are we balancing straight back from where we were so very quickly? This charge just tells us, you know, the iron law of investing is interest rates.

A one percent change in rates leads to a fifteen or twenty percent change in a multiple. And so the reason multiples have collapsed here for all these businesses is because expectations as the inflation and rates has changed dramatically. I hear a lot of talk about one thousand, nine hundred and ninety nine, two thousand.

So if it's all about rate, let's just look at those two things. We planted them here together. This is nineteen to twenty two on the bottom.

IT shows what rates did. We took him to zero. The fed is now saying our neutral rated two to three percent people are hyperventilation. Look at where we were in two thousand.

Look at what the cost of capital wasn't too close, right? And so this, by the way, the delta there, right, we went from just above five up to six and a half, right? So we're talking about going from two and a half back to two and a half or three.

But the big question is, are we going back to two and half three? Or are they behind the curve, the lost in the weeds, and we're going to have to go to four to five to kill inflation? Well, everybody was saying inflation.

Now, inflation is here to stay forever. Remember when we report on core CPI, it's what happened last month. IT is not a forward looking indicator, so we peak in core CPI consumer Price index.

Explain what IT is consumer Price.

This is the basket of goods and services that we all go on and spend money on. So the fed is focused on the domain inside of the equation. They know they hoped us up on a bunch of red bull and cocaine to survive the pandemic. And now I talking .

about last night for that.

But we one.

You show them set a word all day looking. Are so god.

You are so right. This chart, this short, we deconstructed twenty bank models to say, what are the components of CPI? How do they differ? The red lines where golden thinks we're going, the Green line is ubs.

I just told you the fed things will exit you at for we just decelerated significantly. And when they look at or when they look at may in june, it's going to be now yet further. And here's why it's going to be down.

When the fed stimulated the economy, all the Prices we pay for everything went haywire. Okay, the Price for a used car was twenty thousand box for ten years. And then just coincidentally, they give us a bunch of red ball.

The Price goes to twenty nine thousand dollars for two months in a row. We've had sequential decline, you tell me, is the Price of the used car this time next year higher than twenty nine or lower than twenty nine? It's going to be lower because we're destroying demand by raising interest rates.

Same for home Prices. So what's plotted here is the home affordability index. Somebody you can afford to pay twelve hundred dollars a month in december could afford to three hundred and fifty thousand dollar home today can afford to two hundred and forty thousand dollars.

You tell me, are the number of new homes searches on zero low going up or down? Go run your google trends that going down because people's ability to buy homes is going down and then finally, airline take its same deal, right? And so when you put that all together, you say OK, specially month over month for we're looking this stuff starting to tip over.

If you look at what consumer confidence is, is the lowest in ten years, right? Consumer confidence is a leading indicator of slowing down. So again, everybody on television is telling us about what just happened.

It's like the nightlife news, big red arrows, inflation going up. This is what's going to happen. And what we all care about is what's going to happen.

We destroyed fifteen trillion. You said this on pod eighty. We destroyed fifteen trillion of household network in the last five months.

So the expected path of household network would have taken us from one hundred and ten trillion to one hundred and twenty five trillion over the course of last two years. That was the trend we were on. Instead, we got all hopped up and went from one ten to one forty two.

But now we're all the way back to one twenty seven. That's what I call on path, on trend. So the fed is done exactly what I wanted to do.

IT ruined all the backs. IT ruined that you took all the duet side side. I don't want to, right? So I took the juice out of the system jet. And consumer confidence tells me forward looking inflation is rolling. Finally, berni says this morning over the weekend, he said, ignore what you everybody else saying, follow the tips.

Now we've been saying this last year.

so this is the break even. This is the bond market. When that goes positive, that means the bond market is saying that inflation is rolling over because this is the ten years less inflation.

And so now we have any total information about cars, about houses, about any. We have our common sense. We know that those Prices are not sustained when we have the bond market telling us the same thing. That's why I don't think you should believe the hyper inflation had got IT.

Any thoughts on nfs?

Here's what about my board day?

What will happen to that? I know when you're going .

through this and you are to understand the logic of IT, you realize what a my we were in that certain assets that had no underlying value. You they weren't. Cars, airline tickets or homes were also being exacerbated in all of this. And and I think that was probably one of the things that made this less fun in the cycle, built your fundamental investor, really think about consumers should think about the total address one market, give a lot of thoughts to that. What was the last couple years like when because you were saying three or four years ago here, this is kind of disconnecting from reality.

You know, back when, back when I had that conversation with how I started doing some more research, I went back and I talk to some of our fund of funds that have data over very long period time. And I mean, this sounds ridiculous, but what I realized was the, the, the I, R numbers and R, I numbers on the venture capital category were heavily dependent on performance in the in the hottest part of the cycle and in the tip of that sok tube.

And that's when we came up with this phrase, is the best way to protect yourself against the downside is to enjoy every last bit of the upside. So while you get anxious about the roll over, you actually can't afford as a venture capital firm, maybe this contributes to the to the collapse as fast as IT does. You can't afford not to play the game because it's too hard to predict when it's going to change.

There are two and fifty billion dollars of committed capital unallocated into companies. What happens in the cycle over the next five years if there is this expectation that were not going to be in a good part of the risk on part of the curve that capital needs to be deployed at this point, the cycle? And do we end up having these like crazy byre cations in the market where high quality companies get tenets, evaluation of the mean and all the money flows into a few companies .

that and I know and we were talking about this this morning, um first of all, I i've never ever felt as a as a venture investor that I have to invest money. If you remember, most of its committed but not drawn down. And so you're gonna to go ask for if if you if you know deployed two sergey, your fund and to uh, crypto assets with no board seat in the past twelve much, are you going to call harden pen? Say, hi, I need more right now. I don't think you're gna make that call.

You think they d let the capital city .

there never call IT. Well, you guys return about this. One of the recent pods, h one, a lot of people actually returned the commitment.

And IT was actually act, agreed, not, not an act. I was like they were being nice, but they were getting out. I called the burn waffle theory. They were killing the fun and getting out of the overhanging and starting fresh, just like I guess I was. Melvin attempted to do was.

but yes.

they started without the hang of the look back.

They deploy two hundred.

And I think one thing know that the the assumption of the question was will they be forced to deploy capital into a really bad advantage, right? I actually think the upcoming vintage is gone to start getting real. It's going to be a good vintage.

I think that, that was both point. I think we both feel that way. And the village of the last eighteen months will be loud. So the capital deployed over the last eighteen months won't have a lot of return.

All of our lp is know that right? I just just sitting with an lp, you know, one of my investors at lunch today, right? Imagine this. They have fifty investments like benchmark and altimeter, right? All of them are going down.

And now you're going to call them up and say, I want all this money right now to go invest in a bunch of stop that still may not yet have corrected enough. These are partnerships. Partnership means a partnership with me and my partners, all of the people who gave me the money.

We're not going to put our partners in a headlock and dragged their money into the market and put into things that we don't think um accurately reflect the new world order. If you go back to that first chart, you can underwrite to the five year average, the ten year average where we've been. I think we're going back to trend, but you cannot undertake to where we were last year this abuses of one of the build tweet this last week, it's spot on.

The biggest mistake we will all make is to anger ourselves to Prices that we saw in in the world over the last eighteen months, pretend you never saw them, not in venture, not in the stock market, because that is a delusional place to think we're getting back there. We're not unless we have another pandemic or a nuclear war and rates so to zero and then we have bigger problems. So we under right and under right to the five year average to ovo for all your businesses. That's how you survive through this and ultimately come out winning.

And the other other point I would make, David, the the new reality is apparent to all of us because of public come. So like you just have a new for the order. And so it's very T I don't think I think there might be so and so sloppy that they just keep investing headstrong. But I think most of them look at where things are in the type of business that you're investing and they feel like they want to make a return.

I think I think you're using the my word IT is border line. It's well, definitely unprofessional and its border line idiotic for anybody with organized capital right now to be ripping money in because you don't know what the terminal valuation of the businesses like. At the end of the day, investing is like a lion.

IT starts here with guys like Jason, and IT ends here with guys like me and brad say. And in the middle are these guys that are helping along the way. And it's all hot potato. But by the time the hot potato gets to us, there is a Price, and that Price has alternatives. Meaning if you come to me and say this thing is worth ten dollars and and I say, actually know it's worth two, because that other thing which is Better than you is actually worth five. And that's what's happened .

in the time you put on the .

scale there a terminal and point evaluation. right? At the end of the day, there is a buyer of last resort, and that is the public market investor.

And he and he has said, no, moss, that's what this church says no mass. You don't tell me that your thing is worth fifty times, eighty times, ninety times. It's worth five point six times.

I saw something this morning from Morgan stanly that said, if, however, you're a massive growing fifty percent plus growers, there are thirty companies in the sass index that global only thirty in the entire world that global fifty percent. You know what that multiple is? Just take a wild guess.

Eight point five. I me, we are not talking fifty times. We're talking five point six or eight point six.

So all of a sudden, the end, to be clear, this is so those games, to your point, are over. I mean, growing by fifty percent a year for those of you guys have that build businesses. I do IT that is still very hard. You know, that's massive compounding. So the game is over and the idea that there's a quarter trillion, I think that that's a fallacy.

What do you think ultimately deploy to the quarter, ilan, please.

over the next three years? Out of the corner trillion. I think you're probably counting fifty percent of that is private equity or more maybe seventy percent traditional primary ity leverage.

Buyout firms are gone to have a field day few day. I mean, so tomo brother, on all these guys, they will spend all of that. So you tell me what over over three .

hundred billion of V C.

I goes in five.

thirty years I I had the .

number of from one and you had similar things.

The that's great and tiny, right? I mean, if you're saying twenty five billion of a three years, that's like eight billion of total VC dollars deployed a year.

which tear train line went back six, where that number .

what number of people at these companies is necessary to run them? We're looking at a twitter, three thousand. You're looking at a google and even some of the stats that I think.

think and they .

had two salaries and .

we just talked to about a whole capex cycle and a need for hardware and need for capital equipment. There's a whole seat and space. There's biotech. I mean, huge segment of the adventure market chain is not software. It's it's very capital intensive business is which, by the way, are really critical in this economy.

have been living high on the hog on never .

like i'd like example, like our investing focus. We've moved in the last eighteen months to focus a lot on these things living in mind. I mean, the stuff that we're doing seems insane. If you had asked me, would you be sweating a mine in india, you know, in sending our C, F.

In a partner to go make sure the mind exists? I never would have thought that it's possible, but the reason is because of this chart, because those trade off on dollars makes so much more sense. To put money into an overgrowth like an over bloated software business comes with a lot of baggage valuation, baggage team, baggage technical craft. And all of these things have to get baLanced. So if you get a really cheap deal.

you do you like, I think you like the sort guru. I mean, like you feel the same way. I mean, you all comment .

on especially with this slide on SaaS multiple. So obviously, it's a Price to revenue multiple slide. And and Price Price to revenue is like this really crude valuation, too.

So I could create, if you could possible, have I publish a black post once where I took all the internet stacks and late in beginning the end on the Price revenue multiple and I was like just a massive diversion. There is no such thing. Um and so what really values companies, you know it's typically a this kind of casualties. And so now all the sun, the backsides asking SaaS companies about net dollar retention, about long term Operating margin, about whether their free cash low is greater or less than their net income, about S B C is a percentage of free cash, you know. So all the sun, you know, everyone's brought out the microscope on how they're situating these companies and and these crew tools that maybe the only like they are entrepreneurs parly think the only way measure.

by the way, know the companies that, in your example, where all of us sudden run away with IT and get all the money. Think about the problem they have. Their growth is going to show, yeah, nobody grows at five hundred percent when you're at a billion dollars, you're lucky to grow twenty five thirty percent, right? okay. So when you're growth is slowing um and your evaluation is outsides like you are going to get to five billion dollars, how do they attract more capital? This is why this whole game is very complicated right now.

There was also something that, that took cold over the course the last two years, specifically with respect of software that this was an easy business. You just send us your data. I pop out the term SHE. It's formulated as though all software companies are created equal.

And you guys asked a question last week on the pod, how many software companies are actually over a billion dollars in revenue? How many are over two billion? Well, we actually went encounter OK, right? Public software companies over two billion in revenue.

We got to twenty one. okay? There are only twenty one that are worth more than twenty five billion dollars in all the public markets of all the millions of software companies that have been started.

But what happened last year was you can be making dog walking software, okay? And somebody looked at your mode of one, slapped one hundred acts on IT and said you were worth that, as though that was the equivalent of building a data base that would disrupt the entire database market. So the thing that is returning to markets is something that we all do for a living called dispersion.

Some shits gonna really great. And the rest is going to be below the mean. And if you look at software, the history of software, right, is that there are very, very few companies that ever get to a billion dollars in revenue. So if you were slapped in a hundred X A R revenue or multiple on a company during fifty million in revenue, it's highly likely that they will never see that Price again, whatever you paid for that asset, because the delusion and the deceleration in their growth rate will absolutely a violate any return you have is an investor. And so when you're looking at this back to your point, you know, not only are we looking at revenue multiples, but we're also looking at something like snows lake and say now they're doing fifteen percent free cash low and expanding those.

Most of all, that stuff is critical. You think it's where the vic don't ced a underside. Lower valuation and like the incentive is always to up your valuation. And even if the company's performing plan, you don't generally do this like market driven value as I go, your worth five hundred million last ground will give you a billion dollars this around? And are we going to .

see more vcs do down around no VC club where they get together? Yeah, but I don't feel .

looking .

at .

the right.

Keep in mind as that as that risk gone goes slowly up and up and up, it's sort value have had a systematic shift of power from the investor to the founder over a very long, great time. People are friendly because they want. So nobody, nobody does IT. No.

let's talk about that. So you've been deals happen where we know one term sheet seems great for all shareholders and then this term sheet includes some secondary for the founders and no governance seems pretty great for the founders. And somehow this one magically wins. And then somebody wins the deal by not taking a board seat in the three decades i've been doing this. Now I think it's three or .

four going to be four might be .

going into the fourth mean. Well.

in fourth decade, yes.

in the fourth decay. When you look at governance, what is the mistake we've made over the last ball on what's again, what IT should he be?

And what I think IT, I mean.

right partnership.

I think what IT should be is the market gets to decide. So if you if someone want, if someone can raise, you know a hundred million with no board seat, no write and they want that, I think they should be able to do that.

right? But what's in the best interest of our industry, of all shareholders, the employees that i'm not .

that in the Price is just super complicated. We put money behind rich barton, and both of us did and he had super voting. And but he also, I think is very um honnor able about his duty to shareholder.

And so I was like.

yeah and IT wan IT never IT never was an issue in the entire a history of the company. So but you if there is a first time founder to do and that like you know who knows who knows what the motivation is and um but but once again, it's a market. It's a free market. And I think that there are certain people, our founders, that decide, hey, you bring something the table that I want and I understand as a government's requirement to IT and will often into that and you know willing by reme .

swilling sel clearly what do you guys bread um what is your attitude when you guys actually have a win? You do the job, company goes public and you have the chance to distribute to your alpes. Um there's been a movement in silicon valley where some firms have said, you know what guys, i'm going to hold this forever.

I'm going to create permanent capital structures ever Green funds you if you know you foundation want a distribution for me, just tell me and i'll give you money magically some out set of set. What do you guys think about that versus just distributing and walking away? Book the wind. And if you want to hold the stock, you just hold that .

in your own privately. Well, let me start by saying that investing is really fucking hard and there's there's a lot of ways you could not lose, you know. And when you guys started the podcast, this, I was listening to one the ephod today, and IT really hit me in in the song that you put together.

David is winners, right? And I remember that, remember that. So from the brief history of the park cast you gone from talking about that is a strategy. This question that imposed to me, 我知道 on the up city， my 加油 了 this way。 Is IT like people, all these great .

minds here. So I feel like give change, like some. The people on the pod who would like to hear themselves talk .

a little bit was resting his eyes. He was resting his eyes.

Right now, in fairness ness, we had that conversation as article. The context was that way back when, like for example, when I got when I had facebook and facebook and public, the urge was just assault at all. And so I think where we landed on that was don't sell one hundred percent keep, yes, twenty percent keep fifty percent snow insurance basically.

But that personally as an investment, what about you as a fun manager?

Yeah, I think for me as a fun manager. So I think we I think we did a pretty good job of the last six months distributing out some gains, some realizations. We actually paid back our whole first fund, but in our second fund, we had about one hundred and twenty million of a firm stock.

And we were sitting on IT because we believe in the company and still do, and we're still sitting on IT. And that was that was like a hundred million or mistake. So so I think, you know, I have to give me from now on, honest my age, you from now on is pregnant be to you.

So my first chance to actually return any real money to our L P. S was one slack in our directly sting. And I was like, you know, there are three or four us.

On the board, me, Andrew, project, excel, joon, feral from Andrea, two, independence and Stuart. And, uh, they had gone through a couple, dragged listings before bringing in our bankers. And they go through this whole region role.

And I remember being so embed up in the whole thing, and I thought, oh, I believe in this company. I believe in all of this. Ba, blah, blah.

Long story short, the point is, I held the stock. I didn't distribute IT, the pandemic hit. I then distributed in sheer panic, and, uh, we left a lot of money on the table that I could have just booked the win for the L.

P. S. And then from that point I said, never again, i'll hold this for myself.

But the minute that I get a distribution, if i'm in the business of managing money for other people, it's out the door when it's liquid and i'm not going to take out i'll be happy to take a point of view from my own shares. But can I felt so? I felt so stupid. I took a fifty percent loss .

trying to be in the issue of selling and everyone, those opportunities arrive. And we all just watched that we crashed documentary. Which one of your partners plays a role? And I don't know. Obviously, it's probably five percent reality, but benchmark did make a pretty amazing trade and selling we work shares early and booking and enormous win, correct? Well.

create.

okay. So so just an. alternative. But to me, the most important thing is tell your partners what you're going to do you and they do IT because you're making a deal up front of us.

The deal was if we invest in something, our venture fund and it's really and and its realized that goes public, if we see venture like returns, which we define and they with them as two to three acts over a three year time horizon, we will hold if we don't be distributed. Last year, we distributed over six billion dollars, which was more than all the venture. We raised our five funds.

Why not? Because I didn't like unity or I didn't like snowflake. Everybody knows how we feel about these businesses, but because we realized that according to the deal we had made with our partners, the framework was triggered. And the second thing I would argue is because people are talking about permanent funds now in all this that i'm not sure that's the deal people made yeah for me, if you're an investor or limited partner are fun and you want to hold onto IT, then also invest in my hedge fund because there we haven't saw the share us and a flag, but that is a different liquidity.

I was to be and just to put work on the side just in general, when the opportunities to do a secondary rises.

what's the idea that I mean, for an thing, it's very different. But it's rare for a venture firm to meet a secondary ary that has the the firepower tubes or the tight that was moser I an situation we typically distribute over three to six quarters following the .

lockup release there .

yeah yeah there there are many few exceptions. We took open table public o nine at a very low by knowingly at a low valuation. And I held that until we sold IT to booking. But because I felt the network effect was there and IT was going to keep compounding and that kind of thing. And look, if you I mean, look clearly, you know what BIOS is done or zark berg, like if you think you are sitting on one of those and you I mean, you have to ask, I know, I know, but if you think you are like, you know maybe maybe the cost and brothers are another one. Um if it's onna play out the way those you're gd, you're very rare.

You and your partner watched both. We crashed and the doctor.

I can speak for all. I watch both.

You watch.

I think that .

I don't know about action because I I only I know we super pump was not actually just because they made up a lot of scene like drama wasn't very active at all but he's in a lot of the scene so a lot more made up um I think leto did a Better job of showing you who that is really got into the is so good .

and accurate .

yeah to your mean having .

map .

yeah and equally .

on the .

other side I think that travis is you know and well is is way more nuance is one of the greatest, hardest working investors. I mean, founder I never worked with. He's super intelligent. He can be really charming. And those dimensions weren't explored in the characters.

Remember you telling me this is, I don't know, in the height of we work you a mouths, this is the single greatest i've ever .

met him here you ve told me the first time of human came in in your partners. He left the room and you guys look each other. You guys like, we just have to invest in .

this because he can. We should never invest in real estate. We have to do this deal. yeah.

Let let's .

ask rather question no.

I watch the first jay and I will watch you, we crash and watch the first two episodes. And the only thing I could think of bill was what's out of newman's next company and whether I send the check .

because I think you are he's got .

something growing. A question .

for brad. So I want to go back. I've been up here for like, eight hours today. J, I don't know how much more you want me to do. I'm like exhausted after an hour of these things I done.

How you do IT you ever run over? Is been every of people like ten hours i'm like done after an hour a half anyway, bad. So let's go back to the hundred times a are most most of people are paying last year because these investors know with the benefit of twenty twenty hand side, they may look kind of pish.

But we know these investors and th Epace c ar s etting, the valuations for the whole industry, you know these big giant hedge funds we all know i'm talking about, there are super sophisticated people. I mean, you know, they're been very successful investors for a long period time. You know what's is the word used when we talked about IT privately was gas light gasoline and that know the market was sort of gas lighting all of us into thinking that the public comes for these companies was were much higher than they were. Is that why is that behind the psychology of why these very sophisticate investors made these big mistakes? Or how do you explain that?

You I think there's a massive amount of research that's been done that buffet and Marks and many others have quoted that your ability to calculate risk goes down when you see a bunch of other people doing that thing, right? Because your body, your minds telling you, well, I won't die because i'm just doing what those other hundred people are. That's why there is heard mentality.

That's why the leming effect confirmation confirmation. And so it's not that I mean, you know you didn't name but tiger, right? We know the great investors as such, but you had to understand they were playing a different game, right? And so when people who were building portfolios of twenty names, we're trying to play the same game as a firm building a portfolio of four hundred names, right?

IT was like trying to follow, you know, soft bank in two thousand and seventeen. So i'm not, I mean, listen, we all thought masa saw bank was gonna a wipe out in vision one. IT wasn't right now.

I know he just had a huge recent mark. I'll see where IT ultimately settles out. So I mean, I think from my perspective, you like bill said, you get forced onto the field. There's a certain amount you have to do to stay in the game to have the conversation.

But listen, as far back, as you know, last day, April, we were sitting around the table on thursday, thursday, your place, saying this can't continue, right? And then in the fall, IT was bazoo is selling mosques, selling like all the signals were going off, right? And so I think you have to know the game that you're point.

If you're a seed investor, an early stage investor doesn't matter what everybody else is doing, you have an obligation to play a differentiated game. And what I would say today is if somebody calls me up tomorrow and says, hey, tigers doing this deal at seventy five times or do you want to do they would have to pride the dollar out of my fucking in hand with a crow bar. I'm not risking my money or my partner's money doing something that we're not underwriting, you know to.

No, i'm willing to underwrite that you would do that five year average. I think what you have in the market now is a huge opportunity because people are in a fatal position under their desk, scared that the world is forever change because the ceos is a big banks, go on C, N, B, C, and start hyperventilating about the globalization and hyper inflation and all the stuff. And not one of them is actually built a model and, you know, deconstructed the components of CPI.

I think that much more likely explanation is that the trends that existed for twenty years still exist. They were interrupted temporarily by us saving ourselves from a catastrophe with covet the transient thing that everybody has come to make fun of, right? Transient can be a year, two years, three years. We will look back at this graph and that inflation will roll over, and I suspect that those trends will continue. So i'm willing to underrate to that.

But if you told me you thought inflation was going to be five percent for the next decade and the ten year was going to seven percent, I would say short every tech company company in the market and short everything in the market and don't invest a dollar invention until you have lined a site and the market is replaced IT. That's what the market is restless with right now. We have some people who are saying, you know, it's markets of hore uncertainty and you have peak uncertainty.

We have a war. We this is the hardest forecasting job. My career, i'll shut up. You have fillibuster ing. But you know like that is I think that is that ultimately the question if if you're founder or your investor, what are you willing .

on the right to yeah I what are your thoughts in terms .

of early stage and exactly what I he said, don't take that. Like if if we d love to invest in two people on a powerpoint, like if if that investment can happen today and all I did I not matter the inflation pops or interest rates go you want affect you might help back yes.

because you're hiring people.

Yeah Price right? And and is less competition. I mean, my biggest problem of the past six years was hyper competition.

I no just .

not just tell i'm uber and lift in five hundred billions of dollars of money raised in the private markets under the playing field out of a canon that's brutal and that's that's not happening. If inflation to go on up IT doesn't .

IT doesn't allow the market to really start out the winners and losers properly because the the companies that should contract get propped up for a little bit longer. There's some talented people in those company don't then end up in the right home. You know, I said this last week the most transformational moment in our company history at facebook history was during the G.

F. C. Because of the fact that they weren't any other alternatives to go and work.

But by the way, I found and and I shared this with my part of the day I found to my career, which wasn't four decades, but OK over the window after the correction is the conquest where there's least xiety. For me at least, like everything slows down, people talk rationally. People aren't doing swell. There's a lot more is a lot more communication that seems rational and pragmatic.

And you can also maybe get to know a founder understand the business over three, four, five weeks to make a decision. I supposed to three for five hours and they tell you, hey, term sheet.

well, people think more unit, like think about unit economics in a more reasonable way. And you're not .

this is why I mean, the two of you invested in uber. I know because we've add .

this conversion.

Is your two humble to take credit?

I do getting twenty five.

but you know bills talked about benchMarks legendary for investing in ebay. And that was when or take all, winner take all yeah. And I suspect that when you invested in uber, you saw similar network effects. You said, oh my god, and even .

bigger market.

this this is gonna be a winner take all. Unfortunately, what you didn't plan on was masa radian saudi arabia getting a hundred billion dollars of free money and then blowing IT out of a can and into the market, so lifting everybody else could do this economic things. And literally.

I did not .

for for seven years.

we can.

So the entire profit margin of uber was completed away by stupidity. And you tweet last week, and I noticed that because Jason and I may have a little sump on the line here. You know, with respect to uber, for the first time you tweet after their quarterly earnings, maybe we're starting to see network effects show up a uber because if you listen to the lift call.

IT was a train decade. What that money did was IT made those businesses what we call the consumer surplus yeah meaning what is a consumer surplus business? It's when all you in, nobody else wins.

The employees don't win. The shareholders don't win, the investors don't win. Consumers win. You're suck getting subsidized rides. You're getting subsidized food delivery, you're getting some subsidized form of content. And there are these consumer surplus businesses that are bound right down that still exist, which are propped up by dollars that aren't being that they're not being allocated .

because are competitive, that just because they conomo.

I live set on their call that they were going to continue subsidies. In fact.

they're going .

to increase this. They are coupons.

So I bill, I just want to ask you, the negative unit economics and drive growth trend was a big one for the last eight years and IT certainly seemed to have played out at um uber, but a lot of of other delivery companies. Do you think that as a strategy, assuming capital availability, negative economics to drive growth and then once you have the network and once you grab the market, you make money is a .

reasonable strategy that depends on whether when IT back internet and um you know I think or as did an incredible job, I think jack basis did an incredible job back. And I want um I think if if if fifty entrepreneurs try that trick, forty nine are going to .

order .

with the best I think such a key take away there.

There's another part about IT. You can only pull IT off as well as if in that moment you have an effective monopoly which bases effectively did, and tony did in those markets where he was Operating. Nobody else is competing in polar alto.

california, and they on't aren't. Have a question .

for the two, you guys, what do you guys think about something like inter card in a moment like this? So forty eight billion dollar valuation maybe gets reset .

to twenty .

four to go public confidentially.

Are you guys in that?

I'm not i'm not. no. So what what's going on here?

I mean.

I think I think it's a provocative question because you have a business that raised a ton of capital that was born of the air that we're talking about that probably did things that were unnatural if they weren't negative unit. They were close and they talked about IT because they would say publicly, we're role in advertising and then that to bring us.

I got I got in trouble once I was IT is on bloomberg. So I think you can find this clip. But I was, I was talking Emily chain, and he said something to the effect.

What IT did you just see this latest coil around? And I said, I made this joke. He was a complete joke, is not true.

So yeah, I went to instagram. I bought one mango. How to delivered for free.

Then I bought a second mango. I sent an email to doug leoni, thanks for the second mango. What are you? I bought four grapes.

And I said, I consumer surplus.

I need to get four grapes, whatever you want IT tar.

to judge your company from the outside because you can't look at the financial boot from the product experiences evolved. There were a very long pretty time. It's actually pretty. I suspect there's an asset value there and whether that can match up with what someone can afford to pay.

I think we are around bill.

Just final a question here.

You know. Where the sincere with the right.

brad, where's the market going to be at this time next year?

We will be higher for growth stocks this time next year, but we may very well get there by way of lower and potentially meaningful ly lower because the counter factual to the hyper inflation argument is not you can't deliver the counter of actual for at least four to five months. The facts don't exist until we actually see the facts play out. But my suspicion is we returned to trend. Things become more predictable and investible again, and we bounce back up to .

the five year hour back. Now for you, bill, final question.

I don't get that one.

No too easy. You can answer if you like. But that a more point.

three, eight, five percent, ok.

I know you're not going to answer IT, so I got a Better one for you. You you're not in the next venture, mark fund. Essentially that means retirement of the spurs.

Now the markets down, you seem like you're a little bit bored. Are you gonna get back into early stage investing, yes or no? And are you missing .

in um I think that was um I I think I could I might get intrigued with doing Angel s stuff the way basis did. I don't think I want to practice the art taken board seats. I'm still on ten that i'm serving beautifully and and i've played that game you know maybe similar what David said about Operating .

a made a great founder. They're got a good idea. You vive.

you put in a five hundred kitchen yeah i'd be to you about public 的 here .

actually .

really continue like the valuations you want to do .

your bill girly invitation。

I've been investing for the Better part of three or four decades, close to the four and ten boards I dually served on. Every time I show that all kings, not success on me with the none and my look, but maybe I just .

look at the public .

market color.

I'll just have been liquid.

I'll be liquid.

That is a gentleman. Bg, square. Bg, square. Babies.

your winners.

right in man.

We open sources to the fans and they've .

just got crazy with IT.

You should all just get a room, just have one big, huge George, because I like this, like sexual attention, that we just need to release what your be, what .

your B, B, good.

we do get Marks are.