This Aggression Will Not Stand, Jeff...Richards
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Welcome to the Risk Reversal Podcast. I am Dan Nathan. I am joined by Jeff Richards. He's Managing Partner at Notable Capital. Jeff, welcome back to the pod. Great to be here. Great to see you. You look great. You look great too. All right. You know, I'm very fortunate two days in a row, I get to have conversations with people

what I think are two of the best venture people out there, not only because what you do and the companies you've invested in and your track record and the firms you're involved with, but also your ability to kind of look beyond the private markets and extrapolate some of the things that you see there into the public markets. Obviously a lot of our listeners are very focused on the public markets, by the way,

I'm just going to give a little plug here. Yesterday, I sat down with Josh Wolfe from Lux Capital, and we had a great conversation. So check that out. What are we going to talk about today, Jeff? You know, the markets, it's Wednesday afternoon. We're probably about an hour and a half into the close. The S&P 500 is down two and a quarter percent. The NASDAQ is down.

you know, almost three and a half percent. You know, we had this period Monday, Tuesday, where like the downward volatility that we've been exposed to over the last few weeks because of the trade policy and the like had really calmed down. And then a day like today, we have this movement back to the downside, largely because more incoherent messaging about the tariffs, specifically relative to China. This time around, it's about Nvidia chips.

There's also AMD and a bunch of others that are being hit by this export. So on a day like today, I'm just curious, like how you think about the split screen between what's going on in CNBC and you know what I mean, in the public markets and then how you're thinking about you probably had a board meeting today. You probably talking to a few of your founders in your portfolio company. So I'm just like, give us a sense how you think about this, like your job on a day like today. Yeah. Yeah, I think

The one thing I would say is the job of a private company CEO isn't that much different than a public company CEO in that they're trying to navigate a lot of uncertainty. And you saw the United Airlines CEO this morning come out and sort of give guidance with two tracks. One is if we have a recession and one is if we don't. And most of our portfolio companies, when they begin the year, have sort of an upside case and a mid case and what they usually would call a board plan.

So it's a little bit of the modus operandi of like, hey, we're prepared for uncertainty. And I'll tell you, the last five years, I mean, I, you know, I've been doing this. I've been in Silicon Valley since 1995. I would argue the last five years have been the choppiest and the most uncertain of any five year window that I've been a part of, maybe going back to the GFC, which was a crazy kind of 18 month window. But, you know, these founders have been through COVID, the COVID pandemic, when many of them lost jobs.

50%, some 100% of their revenue in a very short period of time. We had the market crash of 22, 23 and 24 were sort of quote unquote relative stability. And now here we are. So the good news is founders in Silicon Valley have sort of been conditioned for a lot of this uncertainty. And they're sort of like, hey, this is we got to play the, you know, play the ball in the field. Having said that, I think the uncertainty, it's hard to hire.

It's hard to raise capital. It's hard to do things that you need to do to run your business. The one thing I think is a little bit different in our business versus the public markets is our founders are building for a very long period of time and we're investing over a very long period of time. Right. When we write a memo,

we're sort of projecting out where we think that company could be in five, seven, 10 years. We don't know who's going to be president. We don't know what the economy is going to be like. We don't know what the policies are going to be like. So we're trying to bet on these mega trends. And obviously AI is one of those mega trends, robotics. You talked to Josh yesterday. They're, they're investing heavily in defense and robotics. So these,

mega trends that we've all seen. We saw it with the internet in 2000. We saw it with cloud and mobile in 08, 09, 10. We know this is a mega trend. We know it's a good trend to bet on and we're betting over a long period of time. So at some level you try to turn off the noise of what's happening day to day and just focus on, can we find the best founders that are building these transformational companies?

Yeah. And just going back to like post-GFC and again, no one knew that that period was going to end at that point, right? It seemed like a very volatile time, even into 2010, you know, when a lot of folks still thought there was going to be a double dip recession. Remember that term? We haven't heard that in a

in a little while and you talk about, and you've mentioned this on the pod in the past, the convergence of, you know, mobile and social and cloud. I mean, that was, you know, a trend that has really been something that hasn't let up. And a lot of the companies that you're investing in or have over the last 10 years or so have been built on that trend.

shift. Right. And so like when you think about it now, though, it's funny because, you know, artificial intelligence, you've been investing in companies that were doing machine learning. Right. And applications built on top of that. It was big data. Yeah. But and a lot of this is all converged. But some of the companies that didn't have like

Snowflake is a name that obviously you've known for a very long time. They didn't really catch the generative AI bug, or at least investors didn't catch it, until very late in the game, and it really hasn't participated a great deal in the public market.

In the private markets, though, if you think about megatrends and you're thinking about 10 years out or so, things have really changed over these last few years. There's been a lot of volatility in interest rates. And we know there was just an article in Information yesterday talking about you just mentioned raising capital. A lot of these companies raise capital at really high valuations going back to 2021 and the like. And now the cost of capital is a lot higher. The exit scenarios look

far less attractive if you think about it, right? There's a huge backlog for IPOs. Some of the thought around deregulation as a regard to M&A, people thought that was going to be a big thing under the new administration. Well, Zuckerberg's been sitting in front of the FTC for the last two days talking about some acquisitions that he made.

13 years ago. You know what I mean? That sort of thing. So like, has the, has the like backdrop for a lot of the themes really gotten a bit murky? Because I think a lot of it is really not what a lot of folks thought it was going to be coming into 2025. Yeah, I guess a couple of thoughts. I mean, we have to have, we have to zoom out a little bit. I mean, you mentioned Snowflake. It's up 30% from the fall.

So if you own Snowflake and you were buying at $110, $115, you're still in a pretty good position. It's come down during the last 90 days. I do think that what that shows you, though, is an underlying belief among investors that there is a huge amount of upside. Databricks, which is still private, did a raise last year where it was massively oversubscribed. So people see the long-term potential in these companies.

You mentioned how these things build on each other. One of my best examples of building on itself is going back to the cloud mobile wave, which in '08, '09, '10, if you knew what we know now, you would have put every dollar you have into every cloud mobile company you could because you would have made a fortune. The QQQ is up 10X in 15 years.

So great bet, great moment in time, very scary moment in time. And I think this looks similar. It's a scary moment, but these are the times we need to sort of look back and say, hey, where are the companies I think have the most upside over the next decade? And I'll give you one example of a category that I just don't think gets a lot of attention, which is small business in America. It's 42% of US GDP. It's 55% of employment. Prior to the mobile and cloud wave of 08, 09, 10, almost no businesses in America, no small business in America even had internet access.

Today they do because they adopted mobile, they've used products like Toast and Shopify and RingCentral and all these products that are built for small businesses. Now you're going to see AI slide in on top of that infrastructure that's already sitting there and small businesses are ready to adopt AI. So I'll give you a good example, a company like Service Titan, which went public in December, it's up 60%. So if you bought into that IPO at the IPO price, you've done very well with Service Titan. It's even been up in the last few weeks.

Clearly, there are folks out there who believe the small business economy is going to benefit from AI and companies like Service Titan are going to do well providing that technology.

So when you sort of think about a volatile market like where we are today and the Mag7 sort of under a lot of pressure, I would think a lot of fund managers and even individual investors are going to say, hey, I need to go find some individual stocks that I believe have a really exciting future over the next three to five years, probably going to be some volatility in the next few months. But, you know, Service Titan, SHOP, all those SMB tech companies,

And there's a bunch of them that are still private. We've got companies like Brightwheel and Slice and Homebase and others that are doing very well. They're still seeing strong growth. Now, could they see a slowdown if we have a recession or if tariffs put pressure on small business? I think that's probably the one risk factor you'd see. And you've seen that in some of the analyst commentary on some of those SMB tech, those public SMB tech names that I mentioned. But, you know, it's just amazing to me when people talk about the lack of an IPO market. And then you look at Service Titan, which has done well. You look at Reddit, which is still up.

over 100% from its IPO last spring. IPOs have done well. And then you shift into the M&A conversation. We just had one of the largest tech acquisitions in history with Google buying Wiz.

We just closed, IBM just bought HashiCorp for $7.7 billion. That deal just closed. So you are seeing things getting done. And I would say anecdotally, we're seeing more interest in our hottest private companies from public players, as well as even from some private players. Databricks has already done a billion dollar acquisition. They bought Tabular. So you're starting to see the Stripe bought a company for a billion dollars over this year. You're starting to see those mid cap private players

private companies and I would sort of put Stripe and Databricks in that mid cap territory since they're both valued between 50 and 100 billion, they're now starting to buy companies. So the market is starting to work. As you said, it's just hard when there's uncertainty, right? Capital locks up, debt markets lock up, the PE guys aren't as able to be as active when their interest costs are higher. So hopefully we can see some of this

shake out and get a little more clarity in the next few months. Yeah. And you said you've been in Silicon Valley since 95. So we've had some massive cycles, right? And we've had, you know, two really big bear markets, if you think about it. You know, obviously, Postcom, GFC, you know, what happened in COVID?

was really interesting because it was such a big snapback. And again, that was monetary, it was fiscal. And then there was just really unique dynamics as it relates to demand, right? And the sorts of things from a consumer standpoint, but also from what a lot of businesses were rushing to do to kind of meet that demand

new demand, you know, and a whole host of things like a company like Slice is a great example where it was probably one of the best things that happened to them. Right. You know, when you think about just kind of the changing dynamics about how consumers are getting goods, you know, throw Instacart and DoorDash into that as well. Right. I mean, their business spiked during COVID. It really never went back. It became a behavioral shift where people said, you know what, I'm willing to pay 10, 15, 20 percent more to have my products delivered to my door in an hour. I mean, I don't think people

the bear case on DoorDash and Instacart was people wouldn't pay for that. And turns out they will. The unit economics weren't particularly great. Right. And so I think that was one of the big bear cases. But when I'm looking at my main fact set screen, I have like 300 stocks here by different subsectors and the like. And, you know, I have a column that says up or down in the year, like the percentage and

Three stocks, okay, other than let's say Netflix and Spotify, which I think are also very interesting. It has very much a like 2021 feel to it, but the other ones that are up are Cart, DoorDash and Uber, which is really interesting. So, you know, I always like to find in periods like this, you know, what acts well on a relative basis, what acts much worse on a relative basis. And so let's focus there for a second because, you know,

the concentration and last time you were on, I think it was March 20th. We talked a little bit about this because, you know, leading to the downside was this mag seven. They also were leadership for two years. And if you think about just some of the disproportionate, um, you know, kind of, um, weight that they placed on, not just the performance, but also on earnings growth, you know, and we're still seeing that for expectations for 2025. I mean, I think

the mag seven is expected to have like 16% year over year earnings growth while the rest of the four 93 are like 5%. Right. And when you look at the stock performance of those largest names, you say to yourself, they're pricing in a material slowdown, right? So if they go into single digit growth year over year, or maybe, you know,

low single digits, the S&P has got a problem because it's way overvalued if that 274 number, you know, finds its way down to 250, like a 10% hit or so. If you have an S&P trading right here, you still have an S&P that's trading at 20 times, which is way above the historical of 17 times or something like that. And going back to the GFC and going back to, you know, dot com, you know, those premiums came out really hard and the bear markets were longer than people expected.

Yeah, and I think in our business, thinking about how that impacts venture capital and the tens of thousands of private companies that sell into the S&P 500, right? That's where I think about it is,

If you do see a revision to earnings forecast, there's less cash flow. That means budgets get cut. That's probably if you ask me, how does it impact our business? It's the downstream effect of lower earnings, lower cash flow. And let's not forget the most exciting topic of 2024 was how much money the Mag7 were spending on CapEx for AI.

we're talking about 180, 200 billion dollars. We're the only country in the world that has that kind of cash flow to fund that. I don't, you know, I personally don't want to see that slow down. I think that we are laying the groundwork for what is unquestionably the future of technology in America and all over the world. I don't want to see that slow down. So when you talk about the MAG7, the S&P 500, we're at the beginning of an investment cycle. Go back to '08, '09, '10.

huge pullback, right? Even more uncertainty than we have now, but we still saw that fueling that wave of investment in cloud and mobile. And so I'm hopeful and optimistic that we'll see the same kind of thing here, but in the near term, it's probably going to be a little rocky. I think when we get to, you know, the last week or so of April, so it's not far away or the first few days of May, we're going to have all the major hyperscalers, all of NVIDIA's largest customers, X, OpenAI, obviously, report earnings. And I'm just hard-pressed

to think that they are not going to, at least from a signaling standpoint, suggest that they're going to slow down a little bit. And Microsoft has already been one that it's very clear that they have. Right. And so, you know, are there folks signing new leases for data centers in this?

I think a lot of that capex is meant to come outside the US. When Microsoft kind of signaled $80 billion over the next fiscal year or whatever, they earmarked half of that for international. Now you throw the trade tensions in and a whole host of other things.

they have a mulligan here, man. Like, like, like if, if I'm, you know, and this goes back to a conversation you and I had in late 2022, like when, you know, Facebook was down 70%, they were talking about rationalizing things. It wasn't until they started firing people where that stock,

bottom that, you know, they become more rational as it relates to employees. But the spend on CapEx will be the thing that'll be the equivalent. Don't you believe that to cutting people? And, you know, at some point when they do that, you know, maybe that's how you start to put a floor in these things. Does that make some sense? Yeah. And I think that the people side of the equation is an interesting one. I've posted this a few times on Twitter. Just the data around hiring is slowed down so much in Silicon Valley over the last 24 months.

There was a great stat from one of the folks at Carta

where I believe he said startup private technology companies hired more people in January of 2022 than they did in all of 23 and 24. So we've sort of absorbed that. It hasn't really made the headlines, but there has been a very big shift in the way companies are being built in Silicon Valley, a lot more efficient. Ultimately, it will be better for these companies as public companies because they'll be more profitable.

But in the near term, it's definitely putting pressure. You're seeing less, you know, when everybody talks about things like cursor and dev tools that are making it easier to write code. You know, a year ago, people were saying, oh, 30% of our code's written with AI. Now it's 40%. It'll be 50% because the technology keeps getting better and better and better. Well, that puts pressure on headcount, right? You're not, you don't need to hire as many junior developers when more of your code is being written by AI. We've sort of absorbed that. We haven't really seen that outside of Silicon Valley.

What if that starts to happen in other parts of the economy? I do think that's a real challenge for us just as an economy. And maybe it plays into the hand of let's try to bring manufacturing back to the US. I'm a little skeptical that that's going to happen. But I do think AI in the near term is going to put pressure on hiring and labor. In the long term, I think it'll be a turbocharger for GDP, just like the internet was. If you look at, I tweeted out a chart from Goldman Sachs where they show the impact S&P earnings over the last 20 years, they've doubled.

Right. Since the Internet in 2000, S&P net income has doubled. Now, you could argue it's to a bunch of other factors. Maybe it was inflation and increased pricing, but there's no question the Internet, the efficiency of the Internet had that impact or had an impact. Will we see the same kind of an impact from AI? I think we will. And so you'll see more profitable companies. But how do we deal with that as an economy from a labor perspective? I think it's a big open question.

That's a big political question too. And when you think about it, wage growth has not kept up with inflation or some of the productivity gains that you just mentioned. And so if you think about relative to the internet and the productivity and what you just meant as far as growth for a lot of these companies, AI is going to be 10x that.

I mean, like if you think about it, right. And so you just used a great example, you know, 20 years ago, you know, I don't know if you were probably telling your kids this, but you were like, learn how to program and now like learn how to give prompts to a bot that will program, you know what I mean? So I get all that, you know, you said something that I think is really interesting. When you're thinking about your companies and your portfolio, what they sell into, right. All these major companies in the public markets and, you know,

And maybe this isn't the best segue, but you tell me if it is or not, and you can be brutal. There was an article in the FT. I want to say, yesterday, AI application startups become big business and new tech race companies. Building consumer products on top of LLMs are growing fast and attracting investor interest. And you just mentioned Cursor, but there's obviously Perplexity, Synthesia, Eleven Labs. I just want to mention this.

Perplexity in 11 labs, we create a podcast daily using both of those. We'll take, we'll curate like 10 of the top stories that we think are markets economy, that sort of thing. We put them into perplexity with a prompt. They give us a summary. Then we put the summary into 11 labs, which is a voice bot, right? And then Amanda who does so much here, Amanda, you listen, she does so much here. Then she ties them together. But like, that's the most onerous part.

Right. Like so. So think about that. It's pretty interesting. So I don't know if you read that article or not, but they were giving lots of examples of lots of different companies that are building on top of that. Not too different than dot com. Right. Like if you think about like Web 2.0.

So that was the thing that garnered all the value from the internet, right? So give me a sense of how you're thinking about this application layer on top of LLMs. Well, if you think about, if you wind back the clock to 2000, there were roughly 200, 250 million people in the world on the internet. You look at what ChatGPT, Sam Altman just came out and said they, I think he said they have 800 million people using ChatGPT. So you're seeing, and that's in three years,

So you're seeing just unprecedented uptake and adoption. A lot of those are paying users. So let's remember also you wind back the clock. I was at a company called VeriSign in 2005 after I sold my company to them. There were only like 60 million people with a credit card on the Internet.

You look at today, you just mentioned Spotify and Netflix are doing well. People don't think twice about spending $10, $15, $20, $30 a month on a product that adds value to their life. So I do think the adoption curve for the consumer startups in AI are going to be more rapid than anything we've ever seen. And the other thing that's happening is you look at consumers today, they're very native to the experience of downloading an app and immediately having it have access to their private information. Think about everybody uses the classic example for agents of travel.

that's not a big barrier for people to say, yeah, coordinate a flight for me. Here's my credit card information. Here's my kids' information. 15 years ago, that just wasn't part of the equation. You wind back the clock 15 years ago, we didn't have Stripe. We didn't have Square. We didn't have all the payment rails that are there today. So I think the monetization curve for these companies is going to blow people away. One thing that I talk a lot about is

Public investors aren't seeing this yet because all these companies are private. Now, we're going to have a few that Figma just announced yesterday. They're confidentially filed to go public. That's probably the first of the sort of last generation of mega unicorns that people are really excited about. But there's a whole bunch of great companies. But nobody in the public markets is seeing the data yet.

They're not seeing the data on how fast these companies are growing. They're not seeing the data on margins. They're not seeing the data even on enterprise adoption. They're just not seeing it yet because it's not showing up at SAP and Oracle and Adobe and Microsoft. And those companies are not at the front edge of what's happening with AI. But you've got hundreds of companies and many of them that we've been lucky to invest in and Josh has invested in and lots of other folks in our business have invested in.

that are going from zero to 100 million in revenue in under two or three years. That just wasn't even possible five, ten years ago. So I think part of this also needs to become we need to get these companies public so that public market investors can see the data of the growth that's happening and start to believe that it's real. Let's remember, 30 years ago, Amazon went public. It was a $50 million revenue business, $500 million market cap.

Netscape went public. All these companies went public when they were young, and so public analysts and investors could see the data and sort of triangulate around how quickly the market was taking shape. We just don't have that today because these companies are still private, and they're going to stay private for a while just given the way the markets are working. There's tons of private capital available. So to me, that's one of the biggest gaps right now. We need to get you guys more content, more charts, more data that you can talk about on CNBC because

The average retail investor and even hedge fund manager and mutual fund manager aren't seeing the data yet on the growth that's happening in AI. Yeah, and that's one of the reasons why we spend a lot of time with this. I mean, like on CNBC, you know, 15 years ago, they never had VCs on. I mean, you were honestly one of the first VCs that I see routinely on CNBC. Rick Heitzman, I met him on the set of Fast Money back in 2000.

like the week that Twitter went public. You know, we were saying, what's the next internet stock to go public? You know, and he was a very, very early investor in Pinterest. But Pinterest back, you know, didn't go public for seven years or six or seven years after that. I want to talk a little bit. You just alluded to this, like some of these mega cap tech companies. It is fascinating that, you know, a lot of,

the value in the public markets was accrued to them since GPT, right? So Microsoft was one of the early ones. People thought Google, working on BARD and then Gemini was going to be one of those two. Obviously, Nvidia, it went from $200 billion market cap to $3.5 trillion. We've never seen anything like that in less than two years.

The innovation, even at Meta, I mean, Meta AI is nowhere, right? Like, you know, so Google is nowhere. Microsoft has not been able to leverage that early relationship with open AI. You could say that, you know, and Amazon's been investing in Anthropic, you know, like, so the reason for that is like their cloud businesses, GCP, AWS, Azure, if they are not doing the things in and around the edge, at least they recognize the fact that they better have a foothold in this technology.

but there's no innovation there. And so to your point about all these smaller companies in the private markets, that's where the innovation is. Are you shocked? And Apple is exhibit A.

I mean, these companies for the most part are nowhere. And you think about their ability to invest in this stuff. So give me a sense of from where you sit, are you very disappointed? And there was tons of multiple expansion. I mean, that was the key to the performance for the better part of the last two years. So how are you thinking about that? Well, I think Apple is the one that's a little bit of a head scratcher. I mean, a year ago, I predicted that

Apple would sort of make consumer AI mainstream this summer. I figured it would take a year, but we would be there and everybody would be looking at their iPhone and having a GPT-like interface that would blow you away. It doesn't feel like that's coming anytime soon. That's probably the biggest one that I think people are just scratching their heads saying, how did you guys miss this wave? The iPhone really was a groundbreaking innovation and a technology, but what has Apple done since then that would

would lead you to believe that they're on the vanguard of innovation. I just don't think it's going to. I mean, this is the classic innovators dilemma. You look at Figma and Canva, which have taken a couple billion dollars of revenue in the creative market that was pretty much owned by Adobe.

You know, you look at the look at the HR tech space going to enterprise software, look at the payroll companies like ADP and all the all the public companies that play in that space. And you look at companies like Deal and Rippling that have gone in and taken a couple billion dollars of revenue out of that market. So again,

If these companies were public, you would be seeing people say, well, gosh, a lot of the innovation here is happening with these companies, but it's just a huge blind spot for public market investors. The innovation is happening. We're seeing it. We're seeing the products. We're seeing the infrastructure getting built. We're seeing the adoption rate among large enterprises. They're just not buying it from those companies. They're buying it from

the private companies that you're reading about and hearing about, but they don't share any of their financials publicly. And sometimes the ones that do aren't, you know, they're certainly not audited gap financials. But there's a lot happening. And I guess my hope is that we start to see some of these companies go public

this year and it'll become more real for investors to say, okay, this thing is real because I don't think you'll talk to anybody in my business, in venture capital or in the entrepreneurial community, certainly in Silicon Valley or New York, who doesn't believe this is very real and it is happening. You know, ride an Owemo. People ask, when are we going to have AGI? Ride an Owemo. I mean, that's as close to AGI as you're going to get. It's a car that is literally driving itself and gives you a better experience than a human driver.

But it's been slow. Waymo, I think, was started in 2015. So we're ten years later. It's just now starting to roll out in cities beyond the Bay Area. And so I think as people have that experience, they'll start to feel like it's more real. The GPT experience is real. And then I just think you're going to see embedded AI and a whole bunch of things where you're prompt to rent a home on Airbnb or you're

whatever it is you're doing as a consumer, you'll start to see these little prompts and say, okay, that was AI. I didn't even notice it, but my experience is getting better because of AI. Yeah, I mean, that's the whole agent example. And I'll take the over on when a lot of folks are willing to kind of, you know, kind of,

you know, offer up or lend that sort of capability, you know what I mean, outside their purview a little bit. But your example of Waymo, that is correct. I was there in September and, you know, after I took an Uber from the airport and obviously they're geofence, but, you know, in and around San Francisco, I didn't hit the Uber button twice.

at all you know what i mean i was doing waymo um it was absolutely amazing you know you mentioned wiz um and google and you know google's had plenty of issues as it relates to you know the launch of bard and gemini and really from a comparative standpoint um did the wiz deal which is not sexy but it really speaks to maybe how they're thinking about cloud usage right as as this technology is adopted there

Smart deal on your part. It looks smart to me. It's a security platform that lets users use it across different clouds, whether it's GCP or Azure or AWS, and there's a handful of others. What does that suggest to you about where they think they're going with Gemini relative to how they might be more of an infrastructure play? Well, I would say a couple of things. First one, I should offer a disclaimer. We're an investor and a competitor to Wiz called Orca.

So this deal has been very good for them because everybody not named Google now wants to work with Orca. But I think it also just speaks to how important cybersecurity, we all know cybersecurity is important. Palo Alto obviously has done well. Take your pick of companies that have come up in the last few years, CrowdStrike, been an amazing stock to own for the last five, six years. It's going to become even more important in an age of AI because think about

we all sort of take for granted that when you operate on the internet you have an identity you log in you have a credit card you do sort of a one-to-one relationship with a website when you have tons of agents working on your behalf going out all over the internet all over all over mobile apps trying to orchestrate transactions and content and um you know insights for you

That identity layer is going to become a very important question. Obviously, we have KYC in the banking system, which has been around for a while. We're starting to see some innovation there with companies like Footprint, but it's still nascent. And so I think what you see is Google saying, hey, this is going to be really important to the future of operating anything in AI, not to mention infrastructure.

But every part of the ecosystem is going to be, it's going to, you know, obviously I'm an optimist. It's going to be great, but it's also going to be under attack. The bad guys are going to see this and say, I can unleash AI all over this. And unless you've got the right security and cybersecurity protocols built in, I'm going to wreck havoc on your infrastructure. I'm going to wreck havoc on your credit card transactions. I'm going to wreck havoc on that consumer experience. So to me, the biggest flag that Google's planted there is just saying, hey,

cybersecurity is really important. And I can tell you, Google was not the only company in the mix looking at that opportunity, right? That space, you're going to see not just the traditional cybersecurity players, but folks like Microsoft and Amazon and others that have to do more around cybersecurity or they're going to be vulnerable. And one of the reasons those infrastructure platforms work, the Azure's, the GCP's, the AWS's, people trust them.

the minute you lose that trust, those folks can move those platforms very quickly. Most of our companies use multiple platforms. AWS in the private market is probably the default, probably a 70% market share. In Fortune 500, it's probably more balanced among those three. But if you lose that trust, you're going to lose a lot of that reliability with those customers. And by the way, these are customers who are spending

tens, if not hundreds of millions of dollars with you. So cybersecurity is not going away anytime soon. And in fact, AI just ramps up the importance of it. And to me, that's the biggest signal there from Google buying Wiz. Yeah. So you made a disclosure about Orca. A really good friend of mine is the COO of Wiz. So he was just brought in a few months ago and

played, I think, a really big part in getting that deal done. So good on them. In today's hyper-fast markets, it's never been more important to consider every option to raise capital, drive growth, and create value. Stay one step ahead with Strategic Alternatives, a podcast from RBC Capital Markets.

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You like to make predictions. Let me just kind of set the stage. If you think about the Mag 7, aside from Microsoft, which really had been a major underperformer over the last 18 months, it didn't, you know, when the market was making highs just a few months ago, you know, most of these major hyperscalers were trading at all time highs.

Microsoft was not. I think its high, you know, all-time high was made last summer, July of 2024. But if I look across there, let's just take Microsoft out. The NASDAQ is down 13% on the year right now. It's down 20% from its highs. When I think about all of those names individually,

X Microsoft, they're all down maybe two X of what the NASDAQ is down. What is that saying to you? And are there any of those names that you think if they get down 30, 40 percent? I know people think that sounds crazy, but NVIDIA, Netflix, you know, Tesla and Amazon.

Meta, we're all down 70% from their highs in 21. All of them could be cut in half. There's no doubt in my mind. Are there any that really interest you or starting to interest you right now? Well, I think Meta is the one that has the most irons. You mentioned earlier Meta with Lama has a very important role to play in the future of AI if they're successful with Lama.

The challenge is, look at the regulatory challenges that they're running into. Mark Zuckerberg was on Capitol Hill yesterday. Google's got regulatory issues. So everybody thought when we came into this year, we were going to move beyond the Lena Kahn administration of sort of like, hey, big tech can't do anything, but it doesn't appear that that wind has shifted. So I think that's the big question mark you have for those companies.

And then I wouldn't bet against Satya Nadella. I own Microsoft. I've owned it forever. I'm not selling it. What is the saying? History doesn't repeat, but it often rhymes. Remember that drawdown in 2022 where all of technology went down and it went down big. That was your buying opportunity, right? That was a moment in time where I don't think we'll see those. I mean, I could be wrong. I don't think we'll see those levels again, despite the current uncertainty.

If you believe AI is a generational shift, which we do, it comes down to are you long-term or short-term? If you're short-term, I would guess, like you said earlier, every major public company CEO is going to come out in the next month or two and guide down. Why wouldn't you? Why would you guide up when you have the level of uncertainty we have? But then could we see in six, nine, 12 months them beating those lower guidance numbers? Maybe. And so the question really becomes, are you a short-term or long-term investors? And do you want to wait for a lower entry point?

tough to time the market. Yeah. I take slight issue with that long-term, short-term investor because you could have made the same exact argument about the internet in 2000, 2001, and the NASDAQ lost 80-some percent of its value. Now, they're very different companies. The only difference there, though, is think about this. There were 100 public internet companies in 1999. The market cap of those 100 companies was $450 billion. You know what the combined revenue was?

Yeah, much less. 15 billion. But history rhyming is like apples to oranges as far as, you know what I mean? Like the math, you know? That's what makes it fun. But I guess like it's speculation, you know what I mean? And fear and greed. I mean, that same stuff, you know, is as old as the hills. You read Reminiscence of a Stock Operator, right? I mean, so the psychology is the same. It doesn't, you know, the names can be different. The size of the companies can be different. The moats can be different. I mean, the same thing.

You know, in 21 to 22, to your point, you could have made the same arguments about Netflix, about NVIDIA, about Tesla. You know what I mean? The difference there, though, was the multiples were insanely high because we were in a zero interest rate environment. Right now, we're in a much higher interest rate environments. The multiples, I mean, the software multiples today are at their historical average of call it five and a half.

But the mega caps were not. I mean, like Microsoft was trading at 30 times for like growth that was barely, you know, double digits, earnings and sales. And, you know, so that was all, you know, all of that, despite being a higher interest rate environment was just, you know, it was just multiple expansions.

mean that's what it was and the multiple expansion existed because this belief in this secular ship which that is the similarity i believe going back 25 years you know what i mean now the companies were different like these companies basically have monopolies that's why they're in front of the ftc that's why these suits are probably not going away that's why the ftc did not take the settlement proposal

from Facebook. And the other thing is, I think Trump and their ministry, they're going to screw every one of these guys. They are so pissed. I'm being serious. They're pissed about 16. They're pissed about 2020. They took their money from the inauguration. They let them have their meals down at Mar-a-Lago. They told them some things and they're just not going to kind of follow through on that. So that's my take. I think one by one, he's going to screw him. And I actually think he's going to screw Elon Musk too. And you know what? I don't even know who I'm rooting for in that one. Right.

Well, look, the optimist in me would say, I think you could see a relatively choppy and muted 2025. And then I think you'll see more data points like the chat GPT with 800 million users start to come out. People will gradually start to build some belief around the idea that we are seeing real traction. We're seeing real revenue. By the way, a lot of these private companies, when they go public, could be profitable.

which is very different from what we saw in 2000. We have a number of companies in our portfolio that are profitable, and the ones that aren't are just purely reinvesting excess cash flow and growth. They could be profitable if they wanted to snap their fingers overnight. So it's just a really interesting time in that we're in the sort of like you could argue in the classic Gartner cycle, when the trough of disillusionment in 2025, mixed with all the uncertainty from tariffs and political changes,

And then 26 becomes the year that everybody says, okay, this is real. We're seeing the impact, the tailwind. And I think that's why you're seeing those pockets of upside. You know, I mentioned Snowflake up 30% since the fall. I mentioned ServiceTitan up 60% since its IPO. Reddit's still up over 100%.

So people clearly have not given up on these names that still have a lot of growth ahead of them. And I think they're probably biding their time until they start to see the data show up. Jeff, they will give up if the S&P is down. Maybe they will. No, but if the S&P is down 25 percent the way it was in 2022, like Reddit's going to be back at his IPO price or lower, you know, service heightened the same thing. I mean, like so I don't mean to sound so negative to the optimist here.

I guess last question, because you and I could do this all day long. What is on your buy list? Let's say we have a very similar sort of bear market that we did in 2022. I think what's different about right now is that was just really a hangover, right? From a very- It was just a balloon getting popped around multiple times.

And that was a very orderly sell-off, by the way. You know what I mean? And so at some point, the pace of the sell-off was decelerating, right? And then so much was discounted. So right here, right now, it just doesn't feel like we're anywhere close to that. And I don't think there's any quick fixes for the reasons why we started to sell off so precipitously about a month ago. But what would be...

on your buy list. Let's just say as the market were to ground lower. OK, let's say we go through the lows from, you know, last week or so. Let's say some of the announcement that come out of the White House, they're just having less, you know, you know, effect to the markets and stuff like that. And so let's just say we continue to go lower. Let's say the S&P is down 30 percent at one point. Let's say the Nasdaq is down 40 percent. That is not outlandish. I like to think of that.

I'm hard pressed to see how they go back towards the highs anytime soon either when you think of all the volatility in around policy and the like. So I'm just curious, what is on your buy list? If you think about, let's just say October, November feels like that same period in 2022.

Well, I'd also point out, if you remember, I think it was the middle of 2023 when everybody thought we were going into recession. I would just tweet out a chart the other day. The Bloomberg index among economists was 60 percent chance of recession in 2023. Turned out to be a great buying opportunity. I'm not saying, you know, we're in a similar cycle. Goldman, obviously, a bunch of the banks just upped their recession forecast to 30, 40 percent.

But it does tend to be those moments when everybody's scared and you can create opportunity in front of you if you're, again, if you're a long-term investor. I'd give you two things, and I'm going to sound like a broken record. One is cybersecurity. So you look at CrowdStrike, it's held up very well. It's up over 50% since August of last summer. I just don't think those companies are going away. They may see pressure on spending from large corporate clients if they're cutting budgets, but you can't cut cyber deeply. You just can't.

I don't care what business you're in. If you're Ford, GM, JP Morgan, nobody is decreasing their budget on cyber. So you look at Palo Alto. Yeah, but all right. So I'm going to interrupt you. Multiple's high. I know you're going to hit me on the multiple. No, but it comes down to pricing. And that's the thing that would shrink the multiple. They might be able to take share, but they might take share on price, right? And so I'm looking at a CrowdStrike, which barely makes money on a gap basis. It's trading at 110 times earnings and 20 times sales this year.

Like that's insane. That will not stand. This aggression will not stand, man. I mean, to quote, I'm just telling you, like, yeah, they'll get to all of these. You know what I mean? You asked me for some ideas. So that's one. Oh, am I getting all up in your grill a little bit or no? The other is my, you know, my, my largest holding, which I talk about every time I chat with you, which is the PE, the alt managers. I mean,

I just think that these are names like TPG, KKR, Blackstone, Blue Owl, Aries, Brookfield Asset Management, Apollo. They've done very well if you've been a shareholder for the last five, six years. I think they've been doing well in a high-interest rate environment. High-interest rates are not their friend. They can't borrow money in an effective way to do leveraged buyouts.

I don't think the flow of capital around the world to private markets is going away anytime soon unless we suddenly go back to the days of companies going public at $500 million market caps like Amazon did. So that's one. Two is if rates come down, it benefits them. And three, they're very good opportunistic buyers when we have economic challenges. And so if we have dislocations in the market, if we have a recession, those folks do have capital, they do have capacity and they can buy more assets.

the risk there is they also have a lot of exposure to private credit and they all now have a lot of exposure to private wealth management. And so if

The balance sheets of American households that are invested in equities in the market come down. It doesn't help the private wealth management business. And if our small business economy or our mid-market business economy starts to struggle, that could put pressure on private credit. But I still like those names. I've been buying more. I'm sort of a reliable buyer of all of them. I get paid a dividend. I get growth and I get, you know, long term profits.

upside on the stock. So I still love those names. I like that call. I mean, the outperformance was amazing. I want to say six to nine months ago, they just kind of took off in a parabolic way. I think the expectations then were that interest rates were starting to come down, especially after the rate cuts.

in September. I actually wish there was like an ETF that basically had all of them in there so you could kind of get just, you know, a non concentrated view. You didn't have idiosyncratic risk because companies like, you know, Blackstone, Apollo, KKR, to your point, like when interest rates start coming down and there becomes a better deal environment. The one thing I'll mention

is that I was just talking to a good friend of mine who runs a private wealth management company that he started right after the financial crisis. And one of the things that he said, like his portfolios have held up really well, despite what's happened in the bond market and stuff like that, and relative to equity decline. But the one area,

where they haven't taken marks yet and he wants to like, you know, take down his exposure is private credit. And so, you know, and there is one there. They don't have the transparency. You know what I mean? Like right now on your books, those marks look good, but you know, they're going lower, you know, and there was such a

to get into them. And you know what the obvious thing to me was when, you know, Larry Fink, you know, who runs the largest asset management company in the world was pitching, you know, ETFs for everybody in private credit. You remember that like a couple months ago and that was kind of ringing the bell a little bit, I think. Yeah. And there was an article in the journal earlier this week about

I think it was Blackstone trying to make more private assets available to public retail investors. I don't love that idea personally. I mean, I think if you're in our business, if you're in venture capital or private equity, you get very comfortable with very long duration. So when I invest in our funds and we're a sizable investor in our own funds, I know that I'm putting that money away and I'm probably not going to see it for 10 years. I don't think the average retail investor is set up very well for that type of investment.

unless you've just got a ton of excess capital that you don't need, you have no liquidity when you're in these assets. And if you remember a few years ago, there was the B REIT issue, Blackstone's Real Estate Investment Trust, where they had a bunch of people who wanted to withdraw capital and they couldn't fund it all because they don't have any liquidity in the end assets, which are mostly apartment buildings, office buildings, things like that. So that's

I just I'm not sure how they're going to to manage that. And I just am not totally sure yet that the average retail investor with a ten thousand dollar account at Robin Hood is ready to own assets that they need to own for 10 years with no liquidity. Yeah, no doubt. Well, listen, Jeff, I really appreciate you being here. You make me smarter every time I'm here. I know our listeners really I mean that our listeners love to hear from you. And if you're watching this on YouTube, you see what a gorgeous man he is. So I just want me to get that.

I need to put on more sunscreen next time. I know. I know. It's fine. You look great. Listen, Jeff, I really appreciate it. Managing partner at Notable Capital. Thanks so much, Jeff. Thanks for having me.