E141: State of Series A's, VC dry powder, IPO window opens + more with Bill Gurley & Brad Gerstner

(0:00) Bestie intros: Friedberg's bad haircut (1:17) Welcome BG^2! Biography recommendations and film talk (22:27) VC market update: State of Series A's (33:43) Dry powder misconceptions, marking incentives (48:57) IPO window starting to open, IPO down rounds, incentives to go public (1:03:17) Cyclical venture cycles, managing distributions, benchmarking VC performance vs public market (1:22:26) Tragic Maui wildfires, extreme temperatures (1:26:11) Macro picture: inflation cools, deflation risk? Follow the besties: https://twitter.com/chamath https://linktr.ee/calacanis https://twitter.com/DavidSacks https://twitter.com/friedberg https://twitter.com/altcap https://twitter.com/bgurley Follow the pod: https://twitter.com/theallinpod https://linktr.ee/allinpodcast Intro Music Credit: https://rb.gy/tppkzl https://twitter.com/yung_spielburg Intro Video Credit: https://twitter.com/TheZachEffect Referenced in the show: https://youtu.be/xmYekD6-PZ8 https://www.amazon.com/Setting-Table-Transforming-Hospitality-Business/dp/0060742755 https://www.amazon.com/Steve-Jobs-Walter-Isaacson/dp/147770146X https://www.amazon.com/Elon-Musk-Spanish-Walter-Isaacson/dp/B0CBTHK86N https://www.amazon.com/Good-Great-Some-Companies-Others/dp/0066620996 https://www.amazon.com/Man-Arena-Selected-Writings-Roosevelt/dp/0765306700 https://www.amazon.com/Shoe-Dog-Memoir-Creator-Nike/dp/1501135910 https://www.amazon.com/Alexander-Hamilton-Ron-Chernow/dp/1594200092 https://www.amazon.com/Something-Autobiography-Vintage-Akira-Kurosawa/dp/B0C3D5NDJX https://www.amazon.com/Born-Standing-Up-Comics-Martin/dp/B017QUU3EO https://www.amazon.com/Writing-Memoir-Craft-Stephen-King/dp/1439193630 https://www.amazon.com/Autobiography-Malcolm-told-Alex-Haley/dp/0345379756 https://www.linkedin.com/posts/peterjameswalker_cartadata-seriesa-valuations-activity-7092542118803488768-vOcY https://www.theinformation.com/articles/venture-firms-still-writing-small-checks-despite-271-billion-in-dry-powder https://twitter.com/bgurley/status/1688605654188224512 https://finance.yahoo.com/chart/SN https://www.google.com/finance/quote/CAVA:NYSE https://finance.yahoo.com/quote/SRFM https://twitter.com/altcap/status/1686086247029055489 https://www.wsj.com/articles/university-endowments-mint-billions-in-golden-era-of-venture-capital-11632907802 https://www.youtube.com/watch?v=Hhy7JUinlu0 https://twitter.com/gokulr/status/1680006171149869056 https://www.statista.com/statistics/277501/venture-capital-amount-invested-in-the-united-states-since-1995 https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm https://www.bloomberg.com/news/newsletters/2023-08-10/disinflation-wave-the-bloomberg-open-americas-edition https://www.nytimes.com/2023/08/09/business/china-economy-inflation.html https://twitter.com/KobeissiLetter/status/1689010884062904320

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Friedberg?

  I'm recording, yeah. How's my hair, Nick? Do I look ridiculous? I should have worn a hat. Oh my God, I went to the

• 0:06David Friedberg?

  teaching salon in for a haircut a few days ago. The teaching salon? $10. You got $10 worth of value. My neck was literally bleeding. The guy cut my neck, like six places. It's diagonal on the back.

• 0:23David Friedberg?

  And, and he was stoned the whole time I walk in. He's like, what do you want? I'm like, I booked this thing. He's like, shit, okay, sit down. I thought I was like in a barber shop, candid camera thing. Why would you possibly do that? There was nothing available. I told my wife, I'm like, get me any hair appointment, anything. I just gotta get my haircut. It was so long. And then she's like, oh, I got you an appointment at the teaching school. Oh, I'm like, that's high end. All the hair salon stylists go there. It must be awesome. This guy fucking butchered me. Guy's worth over a hundred million. He got a $10 haircut. Fucking $10. And then he's like, what would you like to tip? I'm like, here's a tip. You shouldn't be a fucking barber. Get a new career.

• 1:18Jason Calacanis?

  All right, everybody. Welcome back to the All In Podcast, episode 141. Chamath Palihapitiya has gone missing somewhere in the Mediterranean. We've sent some search crews out. We got some beacons. We're trying to find him, but he is not here today. There will be no conspicuous consumption or discussion of truffle season or wine. But instead, we went to the BG squared, if you got to come to All In Summit 2022. One of the highlights of the event was having two BGs, Brad Gerstner and Bill Gurley on the pod. So we thought for All-Star Summer, we would bring in some all-stars here. Welcome back to the pod, fifth bestie Brad Gerstner and Bill Gurley. How are you, sir?

• 2:00Bill Gurley?

  I'm doing great. Thanks for having me on.

• 2:02Jason Calacanis?

  Bill, you, you don't do a lot of press. You don't do a lot of pods. And I know you're on a lot of boards, but you're not part of Benchmark's next fund. So people are wondering, are you retiring? What are you up to? I know you're still got all these boards you're on, but what's Bill Gurley up to these days?

• 2:19Bill Gurley?

  Yeah, I appreciate that. As you mentioned, I'm on nine benchmark boards still, so I'm working with those and doing the classic work that I've been doing my whole career. Second thing is I've started, I've done a handful of angel deals, about one one-hundredth the the frequency of J-Cow here, but a few, so dipping my toe in the water. And then third, I've been working hard on a book. I've got a co-writer, we've been doing a ton of research. We've got a proposal ready to go and an agent. We're going to go out to publisher soon.

• 2:54Jason Calacanis?

  Oh, well, you should just do Harper Business. I'll put you in touch with Hollis. That's the winning publisher. That's the best business publisher in the world.

• 3:01Bill Gurley?

  Perfect.

• 3:02Jason Calacanis?

  Harper Collins Business. World's greatest publisher. World's greatest publisher.

• 3:07Bill Gurley?

  Bill, can you tell us what the thesis is? Yeah, it's a further development of a speech I gave at University of Texas Business School about how to chase and succeed in your dream job. Oh, nice.

• 3:23Jason Calacanis?

  Oh, so like career advice, letter to a younger Gurley? Is that what this is? A letter to a younger Bill Gurley?

• 3:28Bill Gurley?

  Yeah, I didn't want to do like, oh, here's my, you know, thoughts on venture capital. That didn't feel right. This is something I'm more passionate about and something I hope will be impactful to a lot of people. I've already gotten quite a bit of feedback from people that have been moved by the the shorter version on the presentation.

• 3:46Jason Calacanis?

  Well, when you look back on your career, unpack it for a minute. What do you think the things you got right were or the things, you know, you might change? In terms of your career and being happy and finding your passion.

• 3:59Bill Gurley?

  Yeah, I do feel super fortunate that I was able to do, you know, my dream job for over two decades. And I love innovation. I love betting and gambling. And I love the combination of being able to think through markets and disruptions and to be able to place bets and all those things are super exciting.

• 4:22Bill Gurley?

  Things I got right. Studying history, which is something I talk a lot about and we'll be talking about in the, in the book, like knowing who the, the patriarchs were of your industry and knowing what they thought I think is super powerful in any endeavor. And then networking, you know, just like crazy, which I think is actually easier today. So those are a couple of the themes that, that we developed.

• 4:44Jason Calacanis?

  Networking and studying history, specifically you and I have had many conversations about biographies. We both share a passion for those. Top biographies, not of business people, but that had an impact on you. And then I'll go around the horn. Top biographies that had an impact on you, preferably ones that are in business, but if it is business, I guess it's okay.

• 5:02Bill Gurley?

  One that, that actually led to me developing this theme was, was learning more about Danny Meyer's journey, who is the renowned restaurant owner in New York City and the founder of Shake Shack. But he had a career where he was in sales, he was about to go to law school and his, I think his uncle told him, what are you doing? You know, you want to be a, a restaurant owner. And he stopped that day, took a job at 10K a month, or 10K a year. He took like a 90% pay cut and started studying. And that gets into the history part, but he just started studying and obviously the rest is history. For those of you that know about Danny Meyer.

• 5:44Jason Calacanis?

  Setting, Setting the Table is the book.

• 5:46Bill Gurley?

  Yeah.

• 5:47Jason Calacanis?

  And that is the book. Union Square Cafe, Gramercy Tavern amongst some of his great restaurants. Going around the horn here, Friedberg. You have a favorite biography you read or something that impacted you young in your career? And then do you feel like you, you figured it out? And what did you, what would you change about the early part of your career? So the same two questions.

• 6:08David Friedberg?

  That's a three very loaded questions. I don't know how to.

• 6:11Jason Calacanis?

  Pick which one you want to.

• 6:12David Friedberg?

  Answer that one. I will tell you, when I was running my company in 2011.

• 6:17Jason Calacanis?

  Climate.com.

• 6:18David Friedberg?

  Yeah, the Climate Corporation. I read the Walter Isaacson biography of, of Steve Jobs.

• 6:24Jason Calacanis?

  Yep.

• 6:24David Friedberg?

  And he actually profiled a number of Jobs' management techniques. My only operating role prior to that was working at Google. So that was the only management experience or exposure I had had. And then reading about how Jobs ran his management team, it actually changed my behavior going into the office. I.

• 6:44David Friedberg?

  I took a very different approach and I saw the results almost immediately.

• 6:48Jason Calacanis?

  What was the primary thing that impacted you?

• 6:50David Friedberg?

  Well, first of all, like having the cadence and the and the directness with the team, engaging the team fully in discourse, immediately making decisions, getting everyone to commit, moving forward very quickly. I was a first time CEO, so I never had a good mentor. And reading those segments of Jobs' management style in his biography was just a really great tool to add to my emerging toolkit on how to be a manager and how to be a CEO and how to run a company. That was big for me. I could rehash everything about early on in my life. I don't think that's a good use of time.

• 7:25Jason Calacanis?

  Walter Isaacson's book on Elon coming out in a couple of weeks, which should be interesting. I sat for an interview with Walter for that one, so I'm interested to see how that turns out.

• 7:36David Sacks?

  Yeah, I did too.

• 7:37Jason Calacanis?

  I was asked to. I didn't, you know, we were asked to.

• 7:40David Friedberg?

  You didn't do it?

• 7:41Jason Calacanis?

  No, I did it. I did it. You know, I don't, I didn't ask to do it. I got asked, you know, if I would give some anecdotes. I think Sacks also got asked if he would do some anecdotes. So I think it's going to be pretty good. And Walter was hanging around.

• 7:53David Friedberg?

  He's been putting passages out on Twitter, right?

• 7:55Jason Calacanis?

  Yeah, I mean, he's such a good writer and just watching him, you know, David and I were at Twitter for a little bit and, you know, just being.

• 8:01David Sacks?

  He was hanging out. He was like, you know, in the corner of the room, like participating in a lot of these meetings.

• 8:07Jason Calacanis?

  Yeah.

• 8:08David Sacks?

  So he was there basically during the whole transition. I think that was going to be the ending of the book is, you know, he had to cut it off at some point, but he was there for the first month of the transition of the Twitter takeover.

• 8:19Jason Calacanis?

  And for rocket launches and everything in between. So he, I mean, watching his biography technique is, it's pretty intense. And he spends a long time with the subjects and, you know, just taking notes and talking to everybody around him. So he would, you know, peel off Sacks or peel me off, hey, could I ask you a question about this or ask you a question about that? What do you think of this?

• 8:39David Sacks?

  J. Cal, speaking of books, I'm in the rare position of needing your advice.

• 8:44Jason Calacanis?

  Oh, okay. Here we go. Wow, I think that's a compliment, maybe. Sort of a compliment, okay. You would Harper Collins, Paulus.

• 8:52David Sacks?

  I'm gonna do a book about how to create, run, scale, operate software companies, which will be an extension of the blog I've been writing for a couple of years, which I haven't been that active on mainly because I've been using that time for this pod. But I was writing at a pretty good clip until we started doing All In Pod. So I want to get back to putting that together.

• 9:12Jason Calacanis?

  Yes.

• 9:13David Sacks?

  And I could go chapter by chapter, you know, here's how you should think about marketing. Here's how you should think about sales. Here's how you should think about finance metrics and so on. But I'm not sure that's the best way to present the material. So do I just write the book that I think it should be? Or do I work with a publisher on what the business book should be? And they kind of give me the guidance.

• 9:35Jason Calacanis?

  So it's a great question. You are in a unique position where, you know, you're successful and you have an audience for the book. And success for you is for, you know, great founders to read the book and for it to have impact. As opposed to somebody who's an author who just wants to be published, right? So you have a different reason to do this. I think you should write the book. You should decide who you want the audience to be and what you want to get out of the book. And you should forget about publishers in the whole grand scheme of things. Then when you write the treatment, you write the first five chapters or so. Then you can bring it to a select group of publishers. You can get an agent, I can introduce it to two or three agents. There's, you know, a top two or three in this field. And I think what you should do is the business advice is out there, right?

• 10:20Jason Calacanis?

  And the techniques are out there. But what you have is you have war stories. So the technique I used in my book, Angel, was to, you know, talk about techniques in investing that I had learned from other folks, including Bill Gurley and Michael Moritz or whatever. But then I would give my anecdotes, things I had experienced personally. And what that does is it makes the examples let people really get some narrative out of the book. And so the lesson combined with the actual practical experience, that's kind of the magic of these business books, I think. Do you have a favorite biography yourself, Sacks, either business or non-business?

• 10:55David Sacks?

  I don't think I read a lot of business biographies.

• 10:58Jason Calacanis?

  Really?

• 10:59David Sacks?

  You know, I read, I read one business how-to book. Back in the PayPal days, you know, I didn't have any real business education.

• 11:08Jason Calacanis?

  Good to Great, do you remember what it was?

• 11:09David Sacks?

  It was Good to Great.

• 11:10Jason Calacanis?

  Yeah, I mean, that was the seminal book at the time.

• 11:13David Sacks?

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

• 11:27Jason Calacanis?

  Yes.

• 11:27David Sacks?

  But so how do you decide? So I came away from the book thinking this isn't really going to help me because it doesn't give you what you really need, which is what are the specific situations in which you should apply a given principle?

• 11:41Jason Calacanis?

  Yes.

• 11:41David Sacks?

  And I kind of came away from like thinking that business self-help books just weren't that, they're too theoretical and weren't that helpful.

• 11:48Jason Calacanis?

  Well, and this is where biography has really become helpful because you actually get to see why the, you know, technique was deployed. Brad, do you have any business bios that you?

• 11:57Brad Gerstner?

  You know, related to that about Sacks, Sacks, do not write a how-to book.

• 12:01David Sacks?

  Yeah.

• 12:01Brad Gerstner?

  Right? Write a book about your visceral experiences, right? That just, you happen to teach people how to along the way, right? You have a lot of, you know, I, I, I just think the story is, is powerful. Holy shit, what?

• 12:17Brad Gerstner?

  Unbelievable.

• 12:21Speaker 05

  Is it calling Zoom bombing when you just?

• 12:23Jason Calacanis?

  Wait a second.

• 12:35Speaker 05

  Thank you to the Starlink team yet again coming to the rescue.

• 12:38Jason Calacanis?

  What is this? Now we got six people like it's like the All-Star game.

• 12:42Speaker 05

  No, no, I just wanted to come and say hi.

• 12:45Brad Gerstner?

  You have to hang.

• 12:46David Friedberg?

  This is the Black Mirror version of the Brady Bunch, right here.

• 12:50Jason Calacanis?

  What happened? Are you lost at sea? We tried to get you, we couldn't find you, the yacht was missing, the dinghy's missing. We sent out search crews.

• 12:58Brad Gerstner?

  Hold on, your camera angle, you look like Tiger Woods in this shot.

• 13:02Speaker 05

  A guy, a guy that I work with said, Chamath, you're the Michael Bridges of the All In Podcast in that you haven't missed a podcast since the beginning. So then that's the only reason why I'm.

• 13:11Jason Calacanis?

  Oh, it's in your head.

• 13:12Speaker 05

  Yeah, yeah, it's in my head. I just wanted to business. Anyways, I just wanted to say, love you guys, enjoy the pod, I'll talk to you later, I'll watch.

• 13:19David Friedberg?

  Bye bye.

• 13:20Jason Calacanis?

  The Iron Man streak continues. He didn't want to give up his streak. Bye bye. Love you, besties. He's drunk. He thought it was a drunk zoomed on.

• 13:28David Sacks?

  Yeah, remember he's nine hours ahead.

• 13:29Brad Gerstner?

  Jay Cal, to answer your question.

• 13:31Jason Calacanis?

  Yes, please.

• 13:33Brad Gerstner?

  Teddy Roosevelt, man in the arena, Phil Knight, Alexander Hamilton. Those three for me, that like the takeaway, the, the, the red thread that connects them is do shit that matters. Do stuff that matters. Your life is short. Get in the arena, major in the majors, but do stuff that matters. So they all were inspirations for me, both in terms of how I organize my own life, but also how I think about investing.

• 13:57Jason Calacanis?

  Fantastic. And I'll give you a couple of ones that you may not have thought of. Something like an autobiography. The biography of Akira Kurosawa, the famous film director. Absolutely outstanding.

• 14:07David Friedberg?

  Great recommendation. I'm gonna, I actually want to read that. That's a great recommendation. I'll read that. Who wrote it?

• 14:13Jason Calacanis?

  Akira Kurosawa. It's an autobiography.

• 14:14David Friedberg?

  Oh, it's his autobiography.

• 14:15Jason Calacanis?

  Autobiography.

• 14:16David Friedberg?

  Oh, wow.

• 14:16Jason Calacanis?

  Born Standing Up. Steve Martin. Bill Gurley talked about this one and it really is fantastic. I, I've actually listened to it twice. Um, and that's one of the great things about these biographies. You listen to them a second time. Here's another one, Sax. This is critical for you. On writing. Stephen King's biography. You've listened to it?

• 14:37David Sacks?

  Who's biography? Fantastic.

• 14:38Jason Calacanis?

  Stephen King.

• 14:40David Sacks?

  Oh, Stephen King, huh?

• 14:41Jason Calacanis?

  On writing might be top five for me of all time. And he really goes into like the story of Carrie. He wrote like a small treatment of Carrie. He was a math teacher. He threw it in the garbage because he was so frustrated with his wife sees it in the garbage. She reads it. She says, this is incredible. You should keep writing it. He writes it. He sells the book for $10,000. He's getting paid like $9,000 as a teacher. He can't quit his job. And back in the day, they used to sell your hardcover rights and your paperback rights separately. If your hardcover went well, then you would do a paperback and go mass market. He gets a call. They sold the rights to the mass market book for $400,000, the paperback.

• 15:21Jason Calacanis?

  His agent gets on the phone and says it's $40,000 and he thinks he hears 40,000. He says, well, $40,000, that's incredible. That's four years. I might be able to quit my job as a teacher. He goes, no, it's 400,000. Says, okay, so $40,000 divided by nine. It's like, maybe it's even closer to five years. He says, no, you're getting 400,000. He can't believe it. And that was basically the story about Stephen King.

• 15:42David Sacks?

  But it'd be great, great to listen to prior to writing a book. He's uh,

• 15:46Jason Calacanis?

  Absolutely.

• 15:47David Sacks?

  It's, it's, it's super amazing. Most people don't know this fact, but King wrote the novella that became Shawshank.

• 15:54Jason Calacanis?

  Absolutely. Yes.

• 15:55David Friedberg?

  Oh, yeah.

• 15:57Jason Calacanis?

  He's got a lot of those. You didn't know it. And then the Malcolm X biography is amazing too, if you haven't read it. So those are just non-traditional ones of people following their passion. One of the things about it is the extreme effort and the decades of perfecting craft that I found super appealing about these. Nothing happens easily.

• 16:14David Friedberg?

  In your honor, J. Cal, the rest of the episode.

• 16:17Jason Calacanis?

  Seven Samurai.

• 16:18David Friedberg?

  There's Tishara Mafune. Seven Samurai, by the way, if you're a startup founder, entrepreneur, CEO, best film to watch.

• 16:24Jason Calacanis?

  Because?

• 16:25David Friedberg?

  Well, yeah, I mean, there is no, there is no giving up. There is, you do what it takes and you persist. I think persistence is one of the biggest, I've talked about this, one of the biggest predictors for success. And there's a, a character that emerges once you're facing challenge. This film does such an incredible job of demonstrating the essence of that character.

• 16:49Jason Calacanis?

  Yeah.

• 16:50David Friedberg?

  Um, I think it's also a similar character that's needed in.

• 16:52Jason Calacanis?

  Well, if you read Kurosawa's biography, you'll see that a number of the actors in that film occur in other films by Kurosawa.

• 17:03David Sacks?

  Do you know who, who that star is?

• 17:05Jason Calacanis?

  Tishara Mafune.

• 17:06David Sacks?

  Yeah. Yeah, exactly. Well, he's an all of, he's just about an all.

• 17:09Jason Calacanis?

  He was his muse. He was, he was to De Niro to Scorsese. Scorsese sort of modeled his relationship with De Niro after Kurosawa and George Lucas, Kurosawa, Francis Ford Coppola were all disciples of Kurosawa's, you know, incredible.

• 17:26David Sacks?

  Well, the Seven Samurai was remade as a Western, the Venus and Seven with, I think Steve McQueen and Yul Brynner.

• 17:33Jason Calacanis?

  Yep.

• 17:34David Sacks?

  A lot of Kurosawa's movies were remade as Westerns.

• 17:37David Friedberg?

  Yep.

• 17:37David Sacks?

  It just works pretty well.

• 17:38David Friedberg?

  And they were, they were all scored by Ennio Morricone.

• 17:42Jason Calacanis?

  Lot of them by Ina Markarni, which I was listening to in the cold plunge. I started doing the cold plunge. Oh, my God. I it's I would just like to say just a hearty fuck you.

• 17:49David Friedberg?

  This is such a random show. We have not.

• 17:51Jason Calacanis?

  Well, we'll get there. But I mean, I just want to start the podcast by saying fuck you to.

• 17:55David Friedberg?

  Curly's like, is there anything else that's gonna be talking about on the show?

• 17:57Jason Calacanis?

  I'm like, I don't think so. Joe Rogan and all these assholes who said in order to be like, successful, you have to jump in a cold plunge. Because now I've done it four times out of the last like, I'm doing it every other day. And they're right. I feel like a superhero after I do this. Anybody doing cold plunge here besides me and Shama?

• 18:16Jason Calacanis?

  Nobody.

• 18:17Bill Gurley?

  Occasionally.

• 18:17David Friedberg?

  Well, I mean, we I was in Mexico a few weeks ago. And they had this this this cold plunge thing. And I we did it every day that we were there at the hotel. And then we came back. Well, it's it's you get this endorphin rush at rush afterwards. It's incredible. And then afterwards, now when I go to the gym, I only do like a 10 minute ice cold shower afterwards. Like, it's critical to like, and it feels amazing. You feel like so relaxed after.

• 18:39Jason Calacanis?

  I did I did six. I did five or six minutes at 58 degrees. I've been lowering it two degrees a day. But the first day I did it at 43 or 44. For like 45 seconds and my body started shaking. I got hypothermia instantly. Bill, you've done it? You've done this nonsense?

• 18:54Bill Gurley?

  Occasionally. Occasionally. I'm still not convinced there's any medical benefit to it. But you guys.

• 19:01Jason Calacanis?

  But yet we do it.

• 19:02Bill Gurley?

  You've sent around. It's very trendy.

• 19:05Jason Calacanis?

  It's very trendy. I have an infrared sauna too. So I'm doing infrared sauna. I haven't started pickleball.

• 19:12David Friedberg?

  Motorcycle bikes, right?

• 19:14Jason Calacanis?

  And motorcycle bikes.

• 19:15David Friedberg?

  E-bike cold plunge.

• 19:18Jason Calacanis?

  And we wonder why.

• 19:19David Friedberg?

  My last week has been failure.

• 19:22Jason Calacanis?

  You just take your you take your bike into the cold plunge and then you ride it into the infrared sauna. And then you go play pickleball. Yeah. Okay. And you're wondering why everybody hates us. Lifestyles of the abhorrent.

• 19:37Jason Calacanis?

  1%. All right, listen.

• 19:39David Sacks?

  By the way, a couple of other Reynolds that are Kurasawa films are worth watching. Actually, he did. He did versions of Shakespeare, which I think is really interesting.

• 19:47Jason Calacanis?

  Absolutely.

• 19:48David Sacks?

  So Kurasawa took on Shakespeare and then Hollywood kind of adapted Kurasawa. But a couple of really good ones. Throne of Blood was Kurasawa's adaptation of Macbeth. And then Rand was his adaptation of King Lear. Two of my favorites worth checking out.

• 20:02Jason Calacanis?

  Hidden Fortress, also great.

• 20:04David Sacks?

  Hidden Fortress became the basis for Star Wars or was a big influence.

• 20:08Jason Calacanis?

  Yeah, the R2-D2 and C3P characters, C3PO characters who are like sort of telling the story are in the Hidden Fortress. You can see the direct descendants here. But for me, the genre I love for Kurasawa is his film de wa era. Stray Dog, High and Low. I mean, these are exceptional films. And High and Low, I wanted to remake when I was thinking about being a film director. And it turns out Spielberg owns the rights. High and Low, incredible story, but we digress here. Let's get to the doc.

• 20:38David Friedberg?

  Just one, one last anecdote. You know, the TV show Breaking Bad was inspired by Ikiru, the Kurasawa film. About a guy who finds out he's going to die. And when he finds out he's going to die, suddenly he becomes his true self. Like with this true, like nature comes out.

• 20:52Jason Calacanis?

  So.

• 20:53David Friedberg?

  An incredibly poignant film that obviously inspired the extraordinary TV show Breaking Bad.

• 20:59Jason Calacanis?

  Yeah. Ikiru is, um, means to live in Japanese. And this is a story of somebody who has basically lived a modest, a mid, is somebody who lived a midlife. But then at the end decides he wants to do something meaningful with his little pittance of money and to make an impact on the world. And so he decides he's going to take a, a parking lot that's disgusting and filled with garbage and make it into a kid's playground. So people can enjoy their life. It is, and it's also, it's, um, Toshiro Mifune as an old man. So in a way this parallels their careers and trying to do something important.

• 21:38Jason Calacanis?

  There's another one, I live in fear. So those two, To Live and I Live in Fear are about aging and getting old. The genre, if you don't know Akira Kurosawa, you know, just you're gonna need to be a little patient because it doesn't have a thousand cuts per minute like modern films. It's not Transformers or a Marvel film, but it's well worth it if you can get your ADHD under control.

• 21:57David Sacks?

  I would start with the Samurai movies.

• 21:59David Friedberg?

  Samurai movies, super accessible.

• 22:01David Sacks?

  Yeah. Seven Samurai, thrown to blood and ran.

• 22:04Jason Calacanis?

  Yeah, you go there. And then there's, I mean, if you want to go super intellectual, Rashomon.

• 22:09David Sacks?

  Yeah.

• 22:09Jason Calacanis?

  Which is about truth and people's different perspective on truth.

• 22:13David Friedberg?

  Every film theory class starts with Rashomon.

• 22:15Jason Calacanis?

  Yeah, so there's your USC Film School divergence.

• 22:21David Friedberg?

  Save a hundred grand. Okay.

• 22:23Jason Calacanis?

  We'll see you all at UCLA.

• 22:26David Friedberg?

  Yeah.

• 22:26Jason Calacanis?

  Okay, VC market update. Carta has released a Series A funding map covering the first half of 2023, but the data is what's interesting. They covered, and Carta basically manages cap tables and stuff like that for folks. Original company was EShares, I think. This is a funding map which just shows like how much money was raised. Nothing really too consequential in there, but what's really interesting is the data on Series A rounds. Series A rounds are typically the rounds when a benchmark or Sequoia, a craft come in and, you know, join the board and put in a significant check. Before that, you have angels and seed investors, and after that you have growth funds. But the Series A is considered like a seminal moment in the history of a startup.

• 23:10Jason Calacanis?

  Median round is now seven million raised. That's down 26% year over year. And this is all data from the first half of the year. It's the first half of 2023 versus 2022, which was a really crummy year. We're down from the crummy year 26% on the dollars raised, seven million. And the the pre-money valuation, 40 million, down 17%. So last year, it was 11 million raised on 48. I don't have the 2021 data here, but it would be even more. So just right off the bat. Reactions, I'm sorry, you, Bill Gurley, to what we're seeing in the Series A space. This is a return to normalcy. I mean, the Series As back in the Uber days and Airbnb days

• 23:54Jason Calacanis?

  were, what, five, 10 million bucks on a 30 million? So this is a return to normalcy?

• 24:00Bill Gurley?

  Yeah, I don't, I don't think you've gone quite back to that line, right? And so I think there's still a significant amount of competition at that level. And the fact that it's off a little bit is noteworthy, but it's not like off 50%, right? I think that market remains competitive. I think there's a number of great people out there investing at that level. And of course, the AI deals, like, one thing that might be interesting is if you pulled the AI deals out, I bet those numbers would be more akin to what they were two or three years ago, because those are being done at 200.

• 24:37Jason Calacanis?

  Is the reason you went to angel investing or seed investing, let's call it, because it's so crowded and competitive at the Series A level? And what seed investing is now is what Series A investing was for the 20 years of your career?

• 24:52Bill Gurley?

  Nah. I do.

• 24:54Jason Calacanis?

  Okay.

• 24:56Bill Gurley?

  I think if I were practicing institutionally, I would, I would stay at the Series A level and dig board seats and try and get as much ownership as possible, which is the, been the benchmark strategy. I, I, um, this is more of a hobby thing for me.

• 25:11Jason Calacanis?

  Got it.

• 25:11Bill Gurley?

  And I don't want board seats anymore.

• 25:15Jason Calacanis?

  But it's super, super crowded at Series A still to this day, yeah?

• 25:19Bill Gurley?

  I said it was competitive. I don't know that it's super crowded. I think a lot of people realize that if you can get 2.5% or 3% management fee, investing $300 million at a pop, that's an easier lifestyle than actually taking board seats and doing work. And so I think a lot of money and activity got pulled into the late-stage market. Nearly every firm started doing that. And, and once the, once the center of gravity goes there in a firm, you know, and you're investing 200 million a clip, can you imagine? The Monday meetings like who's paying attention to the person that's putting five million out at a time? Like it'd be hard for that.

• 25:59Jason Calacanis?

  It's like going to playing high stakes cards and then you get invited to you're playing, you know, two hundred, four hundred, hundred, two hundred. And you go to five, ten game. It's like.

• 26:07Bill Gurley?

  It's it's if there's a team and who's paying attention to the person playing in the little game. And so I actually think the number of people that practice at that level has actually gone down.

• 26:17Jason Calacanis?

  Huh.

• 26:18Bill Gurley?

  But that doesn't mean, you know, the the business since I got in only got more competitive. And so there's still enough. And and and and the other thing is the founders have learned how to play. Yeah, however, if there's ten people doing it, they know how to play them off of one another. They're very skilled at it.

• 26:36Jason Calacanis?

  Yeah, that's a that's a weird thing that happened is like the playbook. Because of podcasts, because of blog posts, I mean, just how to how to run a company. And then, you know, how to, you know, negotiate with VCs is it's all been unpacked. Sax, what are you seeing? You're a series A investor. You compete with the Sequoias, the benchmarks. Heads up for these series As. What are you seeing in the series A? And what do you take from this data being down twenty six percent year over year? Which probably actually means probably fifty percent down from the peak. What are your thoughts?

• 27:09David Sacks?

  Well, yeah, the the venture capital market peaked in Q four of twenty twenty one. In terms of both valuations and the amount of money that was being deployed and it kept going down. Throughout all of twenty twenty two, and I think it bottomed out in Q one. Of twenty twenty three, basically in the last several months. And I think now. The pace of deployment has sort of stabilized. And it's kind of stabilized at a pre pandemic level. So, you know, maybe at two thousand nineteen level. Now, I think. That probably masked some big differences by round. So like you're saying. Series A rounds are more competitive. There's relatively more action there. I think the late stage rounds.

• 27:52David Sacks?

  Brad can speak to this. The capital there has dried up, I think considerably more. And those rounds are much harder to get. And the reason I think is because that when you have more operating history. Then it's harder to raise a round based on narrative. Whereas when you're at a very early stage, you can basically just raise money based on a dream and a story.

• 28:12Jason Calacanis?

  Yeah, the way I frame it to people is when I'm, part of this is my fault because I'm training people in our accelerators and pre-accelerators. I tell them you're either selling promise or performance. And you know, once you start having customers and numbers and retention, you know, someone like Saks is going to be like, give me the data. And they're going to look at churn and say, yeah, this business has too much churn. It's a leaky bucket, whatever. But when you're selling promise, it's a lot easier than selling performance.

• 28:35David Friedberg?

  I'll tell you guys, a CEO that is a well-known CEO, public company now, he told me, and I think Gurley, I think you guys were investors. He said, as soon as we started having revenue, our valuation felt like it went down. As soon as we started making profit, our valuation went down. Because at that point, you're, you know, you're judged on the quality of that stage of the business. Whereas before, you could paint a picture with a thousand words about the different paths you might walk. And everyone wants to believe the optimistic path will be walked. And so you can boost your valuation, boost investor interest. But once those numbers start to come through, it really changes the investor criteria for how they assess the value of the business.

• 29:16Bill Gurley?

  That's why a lot of people will state if they have a product launch coming, they'll tell you to raise money before you launch.

• 29:24Jason Calacanis?

  Yeah, sell the promise of that launch, yes.

• 29:26David Sacks?

  Old saying, it's better to raise on the sizzle than on the steak.

• 29:29Jason Calacanis?

  Hmm, yeah. Unless the steak is pretty high grade.

• 29:33David Sacks?

  Yeah, obviously, if the steak is great, then yes, that's the best time. To take that disc off the table. Yeah. But, but just to recap, I think where we are, I think the venture capital markets have stabilized for funding new companies. I think there's a mania going on with AI, both in terms of the size of these rounds and the valuations. It's like 2021 for a lot of AI companies. We're not participating in that craziness. We are doing some seed checks, I would say, and early-stage AI companies, we're kind of calibrating the size of the check with the stage and amount of risk. And I think that's appropriate.

• 30:06Jason Calacanis?

  So you are going pre-series A seed, putting in, that's a 500K, one million dollar check?

• 30:11David Sacks?

  Seed is what makes the most sense, I think, for AI startups because if you wait for a later round, then they're not being priced based on fundamentals at all.

• 30:23Jason Calacanis?

  Yeah.

• 30:23David Sacks?

  Yeah.

• 30:23Jason Calacanis?

  So what check size is that, 500K, million?

• 30:26David Sacks?

  We just did, we did one of a four million dollar check where he led kind of a bigger seed round.

• 30:31Jason Calacanis?

  Got it. Fantastic.

• 30:32Brad Gerstner?

  I love that those are called seed rounds today.

• 30:34Jason Calacanis?

  I mean, it used to be three to five million was your series A, but yeah, sure, seed round, three to five.

• 30:39David Sacks?

  I still don't understand the term pre-seed. So just to finish the thought, I think where we're at, and you know, Brad can can chime in on this, is I think the venture capital market has stabilized for new companies, new fundraising, however, I think there's going to be a one to two year period of distress for all of these companies that raised in the peak.

• 30:56Jason Calacanis?

  Yep.

• 30:56David Sacks?

  2020, 2021, and are now running out of money and they don't have enough revenue, they're not growing fast enough, and/or their burn is too high, and all of those companies are gonna be facing down rounds, or restructurings, or they're not gonna be able to raise.

• 31:11Jason Calacanis?

  Well, and people are also marking their books now, we're starting to see the marking of books.

• 31:15David Sacks?

  They're gonna get marked down.

• 31:16Jason Calacanis?

  Everyone's gonna be marked down.

• 31:16David Sacks?

  So we're gonna have probably a one to two year period of distress for all those bubble companies while we have a little bit of a resurgence for new companies.

• 31:25Jason Calacanis?

  I got another topic I'm gonna go to here, related, but Brad, I just wanted to let you chime in on the late stage there, because you operate in the B C stage.

• 31:33Brad Gerstner?

  I think, and this is related to the topic I suspect we're gonna transition to, but listen, there is a lot of activity in venture today, right? And we're very reflective to the stock market. People were really scared in Q3 and Q4 of 2022. Started in 2021, but Q2, 2022 was scary to people because public market valuations for growth companies were down over 50%. So we really saw, you know, IPO markets, venture, all, all, all start to slow down. Coming out of that, we've seen, you know, stock market within, you know, 10% of all time highs. We see, you know, this wave of AI occurring. What I would tell you is under 500 million,

• 32:17Brad Gerstner?

  maybe under 600 million, right? Series B and C rounds are as hot as I've ever seen them in data infrastructure and AI and software, et cetera. Um, so there is a lot of competition there. The later stage stuff, which as you know, I call quasi-public. So if a company is over a billion dollars, right? Now you're, you're very reflexive relative to what's happening in the public markets. We're starting to see activity. I just read Wiz raised more money. It's got $200 million ARR, raised at 10 billion. So those markets are definitely-

• 32:48Jason Calacanis?

  Fifty times revenue.

• 32:50Brad Gerstner?

  Yeah, we did not participate.

• 32:52Jason Calacanis?

  Fifty times revenue.

• 32:55Brad Gerstner?

  You know, so there is definitely activity. I know a deal we got called on yesterday raising two and a half billion at 100 billion. There is a lot of activity. However, Saks is right. There is, you know, remember we had 1,000 unicorns at the end of 2021. And I've said 100% of those are going to do a down round. And we're still in the early stages of that reset to occur. There was some, you know, there's a report out this week that lots of people commented on Twitter where public markets were down 50% and private marks were down, I don't know, five to 10%. Like, that will all normalize. It's all going to be down, you know, the same. So that's the only place I don't see activity. Underperformant companies that were valued over a billion dollars, those are dead on arrival until

• 33:40Brad Gerstner?

  you get to a market clearing price, and we're not there yet.

• 33:43Jason Calacanis?

  Okay, so the other big issue here is, a lot of money was raised by VCs, or, you know, commonly known as dry powder in the industry, but there are some misconceptions about this dry powder. People are saying, oh my God, all this money is going to come flowing into the ecosystem, kumbaya, it's going to be the roaring twenties again.

• 34:04Jason Calacanis?

  However, Bill, you did a little tweet storm. What people don't realize is when we refer to dry powder at VC firms, the VCs do not have that $250 billion or whatever it is, quarter trillion dollars, sitting in their bank accounts. That money is sitting in another person's bank account, LPs, Harvard's endowment, CalPERS, sovereign wealth funds, et cetera. It has not been drawn down by the VCs yet. So, Bill, why is this an important fact for people to understand? And what are the dynamics that LPs are dealing with?

• 34:38Bill Gurley?

  Yeah, and there's a ton of dynamics between the GPs at the venture capitalists and the LPs at those endowments that Brad started to hit on one of those, which is the marks aren't in the right place. And so the thing you just explained is critical, Jason, which is you don't actually have the money. There's no venture firm sitting around with, you know, all of the money that they've got committed to their fund in a bank account that's just ticking-

• 35:06Jason Calacanis?

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

• 35:12Bill Gurley?

  It's one of the brilliant realities of the way that a LP agreement works with a venture fund is they're not on the IRR clock until they actually pull the money down.

• 35:24Jason Calacanis?

  Explain what that means.

• 35:25Bill Gurley?

  So they charge fees based on the total committed amount, but they don't actually draw the money down and get gauged on the performance of their investment until they need it. And so a classic venture firm will do five, six drawdowns over a 10-year period of a fund. And so they don't act, they literally don't have the money. A couple of other things worth noting, and some of that I didn't put in the tweet, but the marks aren't right. And everyone kind of quietly knows that the marks aren't right, but there's actually no incentive to get the marks right.

• 35:58Jason Calacanis?

  Explain what a mark is to folks.

• 36:00Bill Gurley?

  So private companies have a valuation that's assessed either by the GP themselves in most cases, which is a bit of a conflict of interest, sometimes by your auditor, E&Y, or whoever's auditing your venture fund. But of course, the techniques they have for assessing valuation are extremely crude.

• 36:20Bill Gurley?

  Because they're not market based, they're just.

• 36:22Jason Calacanis?

  They're not public companies.

• 36:24Bill Gurley?

  Yeah, so there's actually not a way to know they have extremely complicated cap tables. The other thing is, many LPs are actually bonused on the paper mark. And this is something that a lot of people don't realize. And so they don't have an incentive to dial around to the GPs and say, get your marks right. Because it's actually going to reflect poorly on them if they were to roll those up.

• 36:51Jason Calacanis?

  Both of them are, both of the LP and the GP are in a dance there. Hey, we know that Stripe is not worth a hundred billion right now, it's worth 50 billion. But if you mark it down, I don't get my bonus. I'm the person who's giving you money for your next fund. And so when we're assessing, hey, how much are we going to give you for your next fund? We're going to look at the performance of previous funds as an indicator.

• 37:11Bill Gurley?

  Push back on what you just said. I agree with what you just said, except there, no one has the explicit conversation. It's an emergent, it's an emergent behavior.

• 37:21Jason Calacanis?

  It's emergent.

• 37:21Bill Gurley?

  The dynamic system.

• 37:23Jason Calacanis?

  Show me an incentive, I'll show you an outcome kind of situation.

• 37:26Bill Gurley?

  But there's no, I've never heard of an LP like browbeating GPs to get their marks right. Like especially on the downside, never heard of that ever.

• 37:34Jason Calacanis?

  Those marks can be done by an audit, like you said, they could be done by a round of financing. And then there's a secondary market, weird secondary market.

• 37:44Bill Gurley?

  Secondary market can do it. And sometimes LPs have this weird situation where different venture firms are marketing companies at radically different prices.

• 37:52Jason Calacanis?

  Oh.

• 37:53Bill Gurley?

  Which creates some interesting dynamics as well.

• 37:55Jason Calacanis?

  So I did the series, I did the seed round of Stripe where I'm Y Combinator. And I say, you know what? 50 billion is fine, we're going to market at 50 billion because we, we invested at 2 million in Stripe. But then whoever did the, you know, series G or whatever it's up to. We did the hundred billion dollar mark is like, eh, we'll mark it down to 90. But, you know, somebody CalPERS or Harvard has two, has the same share class in two different funds at two different prices. So then you could really triangulate on reality, huh?

• 38:24Bill Gurley?

  Another dynamic that makes the powder less dry that I didn't mention in the tweet storm. Imagine you're on your first or second venture fund. Or imagine you're a fund that used to just have a one fund, but they've expanded to four funds. Okay, now imagine you don't have a lot of liquidity proof points on those funds. Do you really want to run out of money and go test whether or not you can raise your third fund or your second fund? Or do you kind of want to wait and see if you can develop some track record? So, because you may be facing the imminent death of your firm if you run out too quickly and go back to market and there is no market.

• 39:08Jason Calacanis?

  So I have a hundred million dollar fund, it's my third fund. Okay, what pace am I going to do this? Am I going to do it in 24 months or 18 months like Maniacs were doing during the peak? Or am I going to take a 36 month approach, a more traditional three year deployment? If I even if I take a 40 month deployment, hey, I got time to work out all these issues in the previous portfolio. Sax, you've heard this sort of dynamic. What are your thoughts on the dry powder issue? You yourself have a lot of dry powder, I understand. So how do you think about it?

• 39:36David Sacks?

  We do have a lot of dry powder and we're going really slow. I mean, there's no feeling that we have to rush out and deploy this capital. And one of the things that's interesting about the period we've been in, that's been surprising to me, is that our metrics actually haven't changed. I mean, the things that we're looking for in a software company haven't really changed. We look for a certain amount of ARR, a certain growth rate, a certain amount of net dollar retention, a certain CAC, a certain capital efficiency. That bar hasn't changed for us, but the number of companies meeting that bar has gone down considerably.

• 40:06Jason Calacanis?

  Because they have headwinds because customers are in austerity measures or companies are going out of business and saying, hey, let me consolidate my SaaS tools?

• 40:13David Sacks?

  Enterprise buyers are sharpening their pencils. They are trying to consolidate vendors. There's a lot of headwinds in the buying cycle right now.

• 40:20Jason Calacanis?

  Yeah.

• 40:21David Sacks?

  And it's a little bit like, I don't know if you remember in the dot com crash 20 something years ago.

• 40:26Jason Calacanis?

  Oh, I remember it.

• 40:28David Sacks?

  Yeah, so back in 99, 2000. The conventional wisdom was that the company you wanted to be in was Yahoo because Yahoo was profitable. And when all these startups went out of business, Yahoo would be the way that you could own a piece of the future of the internet, but you wouldn't have to take all the startup risk. And then it turned out that all of Yahoo's revenues went away because their revenues were coming from banner advertisements bought by startups, which were funded by VC dollars. So when you had the whole dot com crash, Yahoo's business dried up.

• 40:59Jason Calacanis?

  Yep.

• 41:00David Sacks?

  So then Yahoo lost whatever it was.

• 41:02Jason Calacanis?

  It turned out a lot of people weren't wearing swim trunks.

• 41:05David Sacks?

  Yeah, so Yahoo's business was actually highly correlated with startup funding. And I think there's been an aspect of that with a lot of these companies where you would think that they're pretty insulated from the business cycle. Even like especially the enterprise software companies. There's a lot of software companies that were selling to other startups. That was pretty obvious they're going to be impacted. But even the ones selling to enterprise companies have been affected in subtle ways. And there just aren't that many startups right now hitting that same bar that they were hitting just a couple of years ago.

• 41:41Jason Calacanis?

  Friedberg, your thoughts on this LP-GP dynamics and dry powder?

• 41:49David Friedberg?

  I mean, I think, I mean, one aspect on the same front of VCs being somewhat reticent to deploy more capital. It's flowing through to the LP space and Gurley can probably pine on this, or Sack can probably pine on this too, but and all of you guys obviously could, but it's been

• 42:12David Friedberg?

  apparent in the last year that LPs are wondering, what do they have?

• 42:18David Friedberg?

  What are these portfolios ultimately really going to be worth? What's the actual cash distributions? And I think there's these new rules, right Gurley, where you got to distribute 5% of your assets each year to the institution that you're meant to represent.

• 42:29Jason Calacanis?

  They'll explain this, you're an endowment. You're obligated to not just grow your endowment.

• 42:34Bill Gurley?

  Both either from the board of the, like the Adama Board of Trustees of the university, or I think there was a tax provision put in that if you're not distributing 5%, then you're exposed to tax on the returns. And so there's a, there's a unquestionable.

• 42:53Bill Gurley?

  Potential issue with LPs around their own liquidity. So they've all followed the Dave Swinson model where they've all got 50% or even more in illiquid assets. You move into a cyclical decline where the number of IPOs and liquidity events, both for VCs and PE, remember PE is way bigger than VCs.

• 43:15Jason Calacanis?

  Private equity.

• 43:16Bill Gurley?

  Aren't coming. And then the drawdowns keep coming. And so you have to meet the drawdowns. You're not getting any liquidity. Your constituent needs 5% liquidity.

• 43:28Jason Calacanis?

  And now you got a cash crunch.

• 43:29Bill Gurley?

  Now you, you have a cash crunch as an LP. And I think GPs are aware of this issue. So, you know, do you want to provoke that or not?

• 43:39David Friedberg?

  Right. So I'll just.

• 43:39Bill Gurley?

  Maybe you run quick, you run early, or you run late. You don't want to be in the.

• 43:44David Friedberg?

  And so I'll just say like anecdotally, it, it seems

• 43:49David Friedberg?

  LPs are more reticent. I've heard several folks talk about how they're reducing commitments by 50%, two thirds, or in some cases 100%, particularly after the, the mad rush for capital over the last couple of years, or capital commitments, I would say for the last couple of years. And so the downstream effect of that ultimately, as the current funds get deployed, there are fewer new funds and less new capital being committed from these LPs into new funds. And, you know, fast forward two or three years, and there's going to be less capital available. And so it keeps the bar high. Uh, so while there's, you know, and so the bar, I think, is only going to get higher over the next couple of years as that capital cycle moves its way through the system.

• 44:34Bill Gurley?

  It's probably worth explaining what Friedberg was talking about in terms of a commitment. So you may have a, let's just say, University X has committed 25 million to funds three through five for a venture fund. Z and now they're saying in the next fund, we're going to be at 10 instead of 25.

• 44:57David Friedberg?

  When they say they're making that commitment, that capital gets deployed by the venture investor over the next, on average, call it five years. So the reduction in a commitment this year means that there's less capital to invest over the next three to five years. And so that gets played out as we fast forward. We're, you know, we're still sitting on funds from the last couple of years as those funds get invested. The new funds are going to be smaller. There's going to be fewer of them, which and that's when the market gets much tighter in the next couple of years.

• 45:26Jason Calacanis?

  You know, Brad, this seems like the greatest setup ever. Feels like the setup last year, buying equities when everybody was scared. If everybody is tightening their belts, if VC funds are not going to deploy, this feels like the time to be deploying. So maybe you could talk a little bit about this austerity measures coming or just belt tightening, or some people maybe getting out of the venture business who shouldn't have been in it to begin with. All of this seems like a great setup for more discipline and more disciplined founders. If the VCs have to be disciplined, doesn't that trickle down to the portfolio companies?

• 46:00Brad Gerstner?

  100%, but it, and while this might happen, while this might happen, I'm going to take the other side. I don't think that's what the lived experiences of most VCs in Silicon Valley today on series A, series B, series C is certainly not in the area. We're competing. We're seeing four, five, $600 million deals get done on zero revenue, two, $3 million in revenue. And so let me just throw out perhaps an alternative view as to why this might look a little different than the world of austerity that we saw in 2002, 2003, 2009, 10, 11. The first is right, the stock market is near an all time high and we know that, you know, the venture markets are reflexive to the stock market. We talked about that.

• 46:43Brad Gerstner?

  The second reason, which I think is interesting is most firms on average are a lot bigger. Okay. That creates two issues. We have a situation where younger partners and principals who all did deals that were overvalued over the last few years. They want to put some points on the board in a repriced deal because they have to have some winners. So you have this principal agent problem. The people who used to check them were the senior partners, right? The, the investment committee. But now they have a lot of mouths to feed. So when you put money to work, you pull down more fee. And so, you know, these funds now, I mean, if you're Tiger or some of these big funds, you have giant cost bases that you've created because of the, the size of the firm that you created.

• 47:28Brad Gerstner?

  The third is the nature of LPs and Bill mentioned, you know, Dave Swinson. In 2002, MIT, Yale, Harvard, they would call, you know, who were the early backers of venture firms. They would call these venture guys up and say, listen, we're hurting. There were a lot of markdowns. We need to slow down the pace of deployment. Right? And so they, they were a factor. LP said, slow it down. I'm not hearing that out of LPs today. Okay? And I think one of these changes, I certainly am hearing it out of traditional LPs. Some family offices, some endowments. But pensions, sovereign wealth funds, et cetera, who now represent a much bigger percentage of the total capital base of venture.

• 48:13Brad Gerstner?

  They have money coming out of the ground every day that they need to deploy like they did in private equity. And so again, I'm not saying this for certain. And certainly there are more discerning sovereign wealth funds than others who are saying, don't speed up the pace of deployment. But I'm wondering if that nature, that change in the nature of the LP base is also contributing to this, you know, as, as Saks called AI mania?

• 48:39Jason Calacanis?

  Yeah, I mean, we see it in Hollywood. Some new actors come in, they wanna build a brand. We saw the Russians do it. We saw the Japanese do it. You see China do it. People come in, new entrants at the table. They get splashy, cashy. They wanna place a lot of bets. They wanna make a name for themselves, build a brand. So that's an interesting counterpoint. Our entire business, of course, is based on exits. The highest form of exit, I guess, is an IPO. An overpriced acquisition would be the second. And there's a secondary market for shares as a distant third. It looks like the IPO window might be cracking open a bit and some people are being forced. The guns to the head.

• 49:19Jason Calacanis?

  Arm owned by SoftBank, Masayoshi Son, looking to raise 10 billion, had a 50, 60, 70 billion dollar valuation. Could be the largest IPO of the year. Instacart looking at a 12 billion dollar valuation. Reddit kind of went dark. They had a couple of problems with their community, but they were in line. Stripe, obviously in line. Klaviyo's got a $5 billion valuation. And then we saw a couple of what I'll say are non-traditional companies going public. Something called Shark Ninja I saw went public. We had a little conversation about this, Brad Kirchner. They have a market cap of 4.3 billion. They had a pop of 40%. Hava, a Greek food chain, Oopa. They went public and have a market cap of $5 billion.

• 50:02Jason Calacanis?

  Surfair, a company I'd passed on investing in but was intrigued by. They do Pilatus shuttles between places on the West Coast here, little short runs. They did a direct listing in July. Market cap of 85 million, didn't go well.

• 50:18Jason Calacanis?

  Bill Gurley, is the IPO window opening? Or are people kind of on the ledge who have no choice but to jump and hope for the best?

• 50:27Bill Gurley?

  One thing we didn't probably spend enough time on in the last topic, which I'll just hit on briefly, is the complexity of those unicorns. So Brad mentioned, I saw a deck that said there were more private unicorns than public tech companies over a billion dollars at one point in time, which is shocking. But because those companies grew up in the 99, 20, 21 timeframe where you could raise money at excessive valuation, their cap charts are very complex and rigid. They have different lick preferences at different places and they've got board members who all have different marks and are all very worried about whether this thing can get to a certain place or not.

• 51:09Bill Gurley?

  And so it's very difficult to come in and do another private round in those situations. You might Have to, you know, you might have to put the return in a guaranteed pick dividend to IPO or some complex derivative. And a lot of people, and I think Brad would agree with this, a lot of people just say they opt out and say, no, this is too hard. I'm not going to go in there and negotiate with five different constituencies on how to do this. You can't just do a simple investment because of that.

• 51:37Jason Calacanis?

  Okay, so it's gotten too complex, which then if the buyers of those shares do not want to be involved in that crazy, okay, is Stripe worth, or just pick Stripe as an example, 50 billion or 100 billion, and the last investors are at 100, why see in a 2 million?

• 51:53Bill Gurley?

  Yeah, Stripe may be a bad example, just because their total LIC pref stack may still be a fraction of their market cap. For a lot of these unicorns, the LIC pref stack can be very close to their market cap or their today's valuation. And that's what creates real structural problems.

• 52:10Jason Calacanis?

  You got a billion dollars in investment in the company and liquidation, money that has to come out to pay those investors, but the company's only worth 2 billion or a billion. And now it's, yeah.

• 52:19Bill Gurley?

  When you get to that place, sometimes going public is just the easiest way to clean it all up.

• 52:24Jason Calacanis?

  Because everybody converts to common, and we just, the company starts trading and reality is reality. It's kind of like taking the medicine.

• 52:32Bill Gurley?

  Yeah. And, and I think that happened, one, one good example was Square at one point had done a derivative financing on top that was somewhat problematic. And they just felt like they had to get out. And they did, and it cleaned up the cap chart. And one thing I've been waiting on, we'll see if it happens, but because of hyper competition and investing in 99, 2020, 2024, there was a term removed from most term sheets that gave investors the right to protect their LIC pref on IPO. That's gone in most of these cases. So you could convert LIC pref under, which for a founder or an early stage angel investor would be a huge win.

• 53:15Jason Calacanis?

  Got it.

• 53:15Bill Gurley?

  Whereas if you sold a company in M and A, the LIC pref would play. Does that make sense?

• 53:21Jason Calacanis?

  Yes, so the last investor comes in, they're getting a multiple of their money back, except in an IPO.

• 53:27Bill Gurley?

  Right.

• 53:27Jason Calacanis?

  And so the IPO happens, you know, yeah.

• 53:30Bill Gurley?

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

• 53:53Jason Calacanis?

  So, net-net, girly, more IPOs are gonna happen?

• 53:57Bill Gurley?

  I think you will see. There's two things. I think that cleaning up complexity is a great reason for the public market, and Brad already said, we've seen a massive recovery in, in software stocks, like, the marks are better than they were two years ago.

• 54:15Jason Calacanis?

  So, Brad, or Sax, just M&A-wise, we've seen Lina Khan, we've discussed it many times, seems to be saying, "All business equals bad, any merger equals bad", she's gonna, you know, attempt to throw cold water on any merger that's happening. So, M&A seems to be being taken off the plate by not just Lina Khan, but also the EU's is, seems to be turning the screws. So, if we don't have an M&A market, then that means there's only an IPO market.

• 54:46Brad Gerstner?

  Correct. And I mean, that's just another one of the reasons that is pressuring these companies. These companies need to raise capital. So, just to double-click on what Bill said and put some numbers around it, right? Because we read a lot of stats about how many IPOs there were, so I had the team pull some figures. 480 IPOs, US IPOs in 2020, 1,035, so a huge bubble in '21, 181 in '22, and 123, okay? But I think that overstates, right? Because we had a lot of Sacks and crappy IPOs, so it really overstates the quality IPOs. So, you know, we're one of the major buyers in tech IPOs, so I just went to the team and said, "How many IPOs were we tracking,

• 55:31Brad Gerstner?

  and did we consider participating in during these years?" So, that was 46 in 2020, 100 in 2021.

• 55:39Brad Gerstner?

  Three in 2022 and zero year to date in 2023. Okay.

• 55:45Jason Calacanis?

  Don't want to be in the Greek food.

• 55:47Brad Gerstner?

  So, but what I would say is I just returned from Deer Valley this week where Morgan Stanley is putting on a conference, talking to their big potential IPO buyers. We are now queued up. As you and I, we had this tweet exchange, Jason, this week. And I said, you know, in that exchange, the world's normalized, fear of COVID's past, hyperinflation's past, etc. First-class IPOs are coming and a bunch of down-round IPOs are coming. So let me just explain really quickly on that. Right? You mentioned Instacart. Right? Super high-quality company. I think its last private round was 50 or 60 billion in the bubble. And now it's rumored to be going public at somewhere around $10 billion. Okay? So that represents the reset that will have to happen. And as Bill said,

• 56:33Brad Gerstner?

  if you were a investor in that last round of Instacart and you were buying preferred shares and thought you were protected, that preference is washed, right? So you're going to be down 50, 60, 70% on those preferred shares because you're going to be converted into common in that IPO. It's the right thing for the company to do. It's the right thing for the investors to do. It cleans up the cap table. So that is an example of, you know, the down-round IPOs of high-quality companies that you're going to see come public. Then you're going to have folks like ARM, like ByteDance, Databricks would be another one of these. I think that, you know, SNEAK, that would be more in that Instacart camp, you know, like there will be some discount relative perhaps to their fully diluted

• 57:16Brad Gerstner?

  last round's valuation. But these make no mistake about it, are high-quality companies that will lubricate and Altimeter will compete for those IPOs because these bankers are hell-bent on pricing these IPOs at a discount to fair value. They need them to work. They need to bring buyers back into the IPO market because these companies need liquidity.

• 57:35Jason Calacanis?

  So suddenly the banks need to get wins for the people buying these shares as opposed to in the past. They were like, yeah, we're just selling a security at the market rate, whatever that famous. The famous monologue from, what was the movie? Was that Jeremy Irons who gives that monologue? We're selling securities to informed buyers and that's it. It was a pretty dark scene.

• 58:01Brad Gerstner?

  So it won't be a light switch, Jason, but I do think- Margin call.

• 58:04Jason Calacanis?

  Margin call, thank you.

• 58:05Brad Gerstner?

  It was Jeremy Irons. I don't think it'll look like a light switch, but it will be, I think we're going to see five, six, seven IPOs, good sized IPOs in Q4. We'll probably see closer to 10 in Q1. And then it will start opening up in the back half of next year, in part because boards of directors will begin to realize, you know what? We have to go public. If it's down around, who cares? It's acceptable and this is really healthy. We need these companies. And by the way, I'm in the Bill Gurley camp. You should not stay private forever. You should get your company, if you have a hundred or 200 million in revenue, get your company public, innovate and grow in the public markets with the discipline and cadence of the public markets.

• 58:44Brad Gerstner?

  And if it's, if it's, you should expect the prices lower because the world was out of their mind in 20 and 21 and multiples have reset.

• 58:54Jason Calacanis?

  Sacks, you shared a news story with me just about some of the incredible returns in the Golden Arrow Venture Capital, Washington University, Duke University, some of these endowments just exploded in value. Yeah.

• 59:09David Sacks?

  I remember when this article came out, it was September 29th, 2021, less than two years ago.

• 59:14Jason Calacanis?

  Yeah.

• 59:14David Sacks?

  And we were all feeling really good about our industry.

• 59:18Jason Calacanis?

  Yeah.

• 59:18David Sacks?

  But as it turns out, the whole thing was inflated by all the free money that the Fed had airdropped. So, you know, the public markets were really frothy. It was basically very bubbly, especially for growth stocks. You had all these new IPOs and Sacks and so forth, and they were super bubbly. And the result was that the returns both-

• 59:43David Sacks?

  Realized returns and on paper for these endowments were massive. So if you think about the LP, the LP community, if they're making commitments in 2021, the way they do that is they look at the total value of their endowments and then they allocate a certain percentage by asset class. So they'll allocate a certain percentage to public markets, certain percentage to real estate, private equity, and then VC. So if the overall value of the endowment is really big, then that percentage that goes to VC is going to be really big, too. And then what happened is you had this huge correction over the next couple of years. And so one of the things we heard from the LP community last year is a problem they called the denominator effect.

• 1:00:25Jason Calacanis?

  Explain, yep.

• 1:00:26David Sacks?

  Well, the value of their portfolios had gone down a lot because the public markets were down, what was it, something like?

• 1:00:33Jason Calacanis?

  Fifty percent in some cases, yeah.

• 1:00:35David Sacks?

  For growth stocks and like 15, 20% for the entire market.

• 1:00:38Jason Calacanis?

  Right.

• 1:00:38David Sacks?

  So the value of the portfolio was down, but the venture capital part of that was not down, both because of the lag in getting fresh marks.

• 1:00:47Jason Calacanis?

  Yep.

• 1:00:47David Sacks?

  And then also because they had already made commitments to new VC funds at the peak of the market. So all of a sudden, the percentage of their portfolio that was VC related roughly doubled.

• 1:00:59Jason Calacanis?

  Hmm.

• 1:01:00David Sacks?

  And so that's why all of a sudden the LP commitments have dried up is because they're over allocated to VC.

• 1:01:06Jason Calacanis?

  Yeah.

• 1:01:07David Sacks?

  Now, as the public markets have come back this year, then that problem mitigates to some degree.

• 1:01:13Jason Calacanis?

  Yes.

• 1:01:13David Sacks?

  But I think it's still out there, and I think this is why you're seeing certainly domestic LPs really slow their allocations to venture capitals. They still have the denominator problem. Now, I think that's less of an issue overseas. I think, Jake, how you observe that the, the Four Seasons of the, the bar at the Dubai.

• 1:01:32Jason Calacanis?

  Abu Dhabi bar looked like a Rosewood to Brad and I when we were there. I literally got stopped four times from the elevator to the front door. I am not kidding. Four people stopped me. That's two more that would stop me at the Rosewood going to the front door. It was bonkers.

• 1:01:49Bill Gurley?

  You should recognize that as a hyper attractor for where available money was.

• 1:01:54Jason Calacanis?

  Yes.

• 1:01:55Bill Gurley?

  Relative to the US dollars and whether they were available or not.

• 1:02:00David Sacks?

  Yeah. I think we're in for a period here of just continued distress and pain, even though. The market has sort of normalized or stabilized now. Again, I just think we've been in a huge software recession for the last year.

• 1:02:13Jason Calacanis?

  Yeah.

• 1:02:13David Sacks?

  I think that it's been masked by the fact that the rest of the economy seems to be okay. But this is the worst software recession we've been in, I think, since the dot com crash. I mean, the buyers have been laying off employees by the thousands. And since software is bought on a per seat basis.

• 1:02:29Jason Calacanis?

  Yep.

• 1:02:30David Sacks?

  The, the market has really condensed. We had one startup that was selling to Twitter. And they got a renewal and I think their contract was.

• 1:02:39Jason Calacanis?

  Eighty percent off.

• 1:02:40David Sacks?

  Eighty percent off because Elon's laid off eight percent of the employees.

• 1:02:42Jason Calacanis?

  Yeah.

• 1:02:43David Sacks?

  And I told them they did.

• 1:02:44Jason Calacanis?

  And that's before negotiating the last 20%, which you could negotiate 50% off that.

• 1:02:48David Sacks?

  I told them they did a great job just getting that 20% because Elon's canceling everything.

• 1:02:52Jason Calacanis?

  Yeah.

• 1:02:53David Sacks?

  I was like really impressed. They were able to renew at 20% of last year's value.

• 1:02:57Jason Calacanis?

  You know what? We, we had a bender. We had, we had a bender and this bender went on for far too long. And you know what? If you go out, you know, two, three nights in a row until four or five in the morning, that next week is going to be painful and suffering. That's what the industry is going through. It's just going to take a lot of cold plunges and infrared and pickleball and, you know, salads to, to feel good again.

• 1:03:19Bill Gurley?

  One thing I would like in, in retrospect that I think is super interesting about the venture capital cycle. One, I think it's inherently cyclical and it's always going to be that way unless we fundamentally change the structure of the industry. Cause it just invites competition and there's no barriers to entry. But I went and talked to some LPs that have been in the business for a very long period of time. And a vast majority of the reason venture outperforms other asset classes has to do with these tiny windows when you have a super prodding market. And if you don't, if you aren't around for that part, you know, if you strip those years out of a 40 year assessment,

• 1:04:01Bill Gurley?

  it's actually not that interesting an asset class, which highlights the need for venture funds to get liquidity at the peak. Yes. Right when we are at the peak is when people get the most brazen, the most confident. And they start talking about how we're going to hold forever. And so you had venture firms with the biggest positions they've ever had in their entire life, go over the waterfall and, and basically evaporate what could have been returned.

• 1:04:31Jason Calacanis?

  Yeah, I mean, diamond, diamond hands can come back and bite you. And you've said famously, you can't, what was the line you had? You can't eat IRR? Well, you can't.

• 1:04:39Speaker 06

  I don't think I said it, but it's been said.

• 1:04:41Jason Calacanis?

  Yeah. Since we're on our movie bender here, for those of you who haven't seen Margin Call, just one of the great scenes.

• 1:04:48David Friedberg?

  This is the best scene, the whole scene, by the way, is like the best scene, I think, of modern finance films. So.

• 1:04:55Jason Calacanis?

  Look at this murderous.

• 1:04:57Speaker 07

  Who are we selling this to?

• 1:04:58Speaker 06

  Same people we've been selling it to for the last two years and whoever else will buy it.

• 1:05:03Speaker 07

  But John, if you do this, you will kill the market for years. It's over.

• 1:05:10Speaker 07

  And you're selling something that you know has no value.

• 1:05:13Speaker 06

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

• 1:05:25Jason Calacanis?

  Oh, man, you can rationalize a lot on Wall Street, man.

• 1:05:29David Sacks?

  But to the point. What Bill's saying is that the opposite took place, which is VCs drank the Kool-Aid and didn't sell when we were at the peak of the market.

• 1:05:39Bill Gurley?

  They also got caught up in a competition of trying to, to appeal to the founder community of saying, hey, we're in it forever. We're going to hold forever. We're your best friend forever.

• 1:05:51David Friedberg?

  But Bill, there, there was also this element that drove that strategic rationale, this data set, which is the best performers in tech generated most of the value after they went public. I mean, you know, there's a trillion dollars of market value generated in Nvidia, in Apple, in Google, in Amazon, all over the many years post going public. And, you know, if you read Sequoia's notes when they kind of made the transition that they made, they said, we don't want to. You know, walk away from the power law that the power law continues to accumulate and accrue even in the public markets and we want to continue to participate in that because there's another 100x upside coming from here in the ones that we select, we want to stay with.

• 1:06:35David Friedberg?

  Not necessarily we're going to stay in all of them.

• 1:06:37Jason Calacanis?

  You have to be discerning.

• 1:06:38David Friedberg?

  There are some that we believe are still 100x upside from here. And just because there's an IPO doesn't mean that we want to exit the position that there's now more capital available to them, more public currency they can use to do transactions, to hire, et cetera. And we want to participate in that value creation.

• 1:06:54Bill Gurley?

  Totally.

• 1:06:54Jason Calacanis?

  And the last double could be the biggest, right, Bill?

• 1:06:56Bill Gurley?

  I think the total number of companies that meet that criteria in the history of the venture industry is like 10 or 15. And you named many of them. And the problem is that the rhetoric becomes common narrative and it becomes part of the ethos of the firm and people want to apply it to every single company.

• 1:07:16Jason Calacanis?

  To everything, that's right. Right, totally.

• 1:07:17Bill Gurley?

  And that's not true.

• 1:07:18Jason Calacanis?

  And it doesn't apply. I don't want to get too specific here, but you had a company, you had, you do have some, let's say, seasoned vets, yourself included, Bill, who, when given the opportunity to get liquidity on an incredible investment, will do so. Fred Wilson sold, I think, all of Coinbase when it goes public. He just clears the position when things go public. That's been his philosophy, kind of the antithesis of what Sukhoi and Ruloff are doing with some of their holdings. And then we've seen, WeWork has an existential crisis. They don't think this might be a viable concern anymore. But famously Benchmark was able to sell shares at a very high valuation at some point and lock in an incredible return, yeah?

• 1:08:04Bill Gurley?

  Yeah.

• 1:08:05Jason Calacanis?

  Okay, there it is, folks. That's, yes, okay. So, let me ask you a question, Bill, about getting older.

• 1:08:14David Friedberg?

  Well, let me ask Sacks a question.

• 1:08:16Jason Calacanis?

  Let me ask you a question about making all the rewinding.

• 1:08:19David Friedberg?

  Well, Sacks, Sacks, like, you're

• 1:08:21Jason Calacanis?

  Freeburn wants to be the world's 17th best moderator to go.

• 1:08:23David Friedberg?

  Sacks, you have an investment in SpaceX, right? I mean, there's been a lot of secondary action in SpaceX. Why would you not sell SpaceX at this valuation today?

• 1:08:31Jason Calacanis?

  Or maybe did he?

• 1:08:32David Friedberg?

  As you kind of think about this, yeah.

• 1:08:33David Sacks?

  I think we're going to wait till the company IPOs. I think that would be our default.

• 1:08:38David Friedberg?

  When it goes public, Sacks, do you then think what's the upside from here? Or do you think my job is done?

• 1:08:44David Sacks?

  I think my job is done. Yeah, I think my job is done. I think what we do is just distribute the shares and then each LP can make their own decision about whether they want to hold it or not.

• 1:08:53David Friedberg?

  And you as a chief, you can decide what you want to do with your share.

• 1:08:55David Sacks?

  Yeah, one of the nice things about distributions is that nobody has to sell. So everyone can make their own decision about whether to hold or not.

• 1:09:04Jason Calacanis?

  Yeah.

• 1:09:05David Sacks?

  Once the company is public and the public has all the information through disclosures, the odds that I know something special that a seasoned public market investor doesn't is probably pretty low.

• 1:09:18Jason Calacanis?

  I mean, the great paradox of what we all do, and Brad, you have both a public and a private portfolio. I started trading public market equities to get better at my private behavior. Bill, you've done that forever, is public markets, you can't trade on inside information. Private companies, that's all you're trading on. Maybe you could speak to a little bit about being, what do they call it when you do both? Crossover investor? Does that make you a crossover investor? Is that the proper term?

• 1:09:47Brad Gerstner?

  Well, Bill Gurley is the original crossover investor. He's been trading public stocks since, you know, and

• 1:09:52Jason Calacanis?

  But he'd been doing that personally.

• 1:09:53Brad Gerstner?

  Yeah, researching him, you know, but, you know, the fact of the matter, as has Warren Buffett and, you know, who would laugh at the idea of a crossover fund. He's been running one of the world's largest public portfolios and private portfolios forever. He would say, I invest in great companies that are mispriced. There are moments in the market cycle where late-stage venture is mispriced to the downside. And there are moments in the cycle where the public markets are mispriced to the downside. What we saw in 2021 is the private markets. We're crazily overvalued. In 2022, we had this massive correction in the public markets. We believed that they overshot. In part, we believed that because we didn't think we were going to have hyperinflation forever, et cetera.

• 1:10:37Brad Gerstner?

  And so you and I invested in, you know, Meta and a lot of other things that were on their ass. You've got to buy in the public market when there's blood in the streets, right? As Buffett says, buy when there's blood in the streets and sell when there's trumpets in the air. And, you know, there are definitely blood in the streets when you saw things down 60, 70, 80, 90%.

• 1:10:58Jason Calacanis?

  Is it trumpets now? Does it feel like trumpets to you now? Or does it feel like trumpets next quarter, the quarter after?

• 1:11:04Brad Gerstner?

  If you look at public-

• 1:11:04Jason Calacanis?

  I feel like people are polishing those trumpets right now.

• 1:11:07Brad Gerstner?

  Yeah, I mean, a lot of it obviously depends on your view on what's going to happen in the economy fundamentally, and I'm happy to shift to that. But what I would say is this. Remember the chart that I've showed many times about software internet valuations. We were, you know, 70% above normal and then we were 30% below normal. And now we're closer to the trailing 10-year average of internet and software valuations. There are always outliers on both sides of this. But I would say a lot of the positive arbitrage that we saw in 22 has been squeezed out of the public markets and we're close to fair value. So now if you want to generate alpha, this is going to be about picking individual winners versus individual losers.

• 1:11:47Brad Gerstner?

  This is going, you know, like the beta trade on global macro, I think has largely played out, you know, the catch up back to kind of fair value. And now I think there's a debate between kind of hard landing, soft landing. Are we going to have a re-acceleration inflation or not have a re-acceleration? Where you come down on these major issues, I think dictates whether or not. You know, now is a good time.

• 1:12:09Jason Calacanis?

  It's a good pivot point for us now.

• 1:12:11David Sacks?

  Well, can I correct something you said, J. Kell?

• 1:12:14Jason Calacanis?

  Yeah, please.

• 1:12:14David Sacks?

  All right. So you said that. Public markets inside information isn't allowed, whereas private markets, it's all inside information. I think that could give viewers a misleading impression of what we do as VCs.

• 1:12:27Jason Calacanis?

  Okay.

• 1:12:28David Sacks?

  The way that around typically comes together, it's not like we get tipped off by some insider at the company in some nefarious way. What happens is that the company chooses to engage with us or a select number of firms in a process and then gives us their metrics and gives us the business plan, it gives us the forecast, and it's all done in a very above board way. It's not like we're being tipped. However, the part of it that I guess is true is that a private company does not necessarily engage with everyone in the world.

• 1:13:04Jason Calacanis?

  Yes, they don't put on a website a quarterly report and say, here's what our revenue and our costs were, and here's our earnings. Although some private companies do start that process.

• 1:13:13David Sacks?

  By and large, by and large, they're selective about who they want to be on their cap table, and that's the big difference.

• 1:13:20Jason Calacanis?

  And who they want to share.

• 1:13:21David Sacks?

  Between public and private. A public company doesn't care who's on its cap table. It doesn't really know who's got, you know, Apple doesn't know every shareholder and who's got accounts at E-Trade or whatever, Charles Schwab. I mean, they may care who their biggest shareholders are, but they don't care who the average shareholder is. Whereas a private company really does care, and part of the reason why they care is because these startups are highly risky and they want to have investors who have a track record of behavior where they don't have to worry about being sued every time something doesn't work out, which is most of the time. So I think there's good reasons why startups want to control who their investors are. By the way, there's also the issue

• 1:14:05David Sacks?

  of value add, right? I mean, other things being equal, founders and startups would rather have investors who can help them as opposed to simply, you know, John Q. Public.

• 1:14:14Jason Calacanis?

  Yeah, I mean, you mentioned both in there. You don't want somebody who's a neophyte, who's going to cause chaos and be upset when revenue goes down or things are swinging up and down. And yeah, if you're public, yeah, buy the share if you want or sell the share if you want. It's a marketplace.

• 1:14:28David Friedberg?

  Sorry, just pull up this image I just posted. This is from, you know, you guys know Gokul Rajaram?

• 1:14:35David Friedberg?

  Gokul's a great human. We used to work together at Google. Then he worked with Jack at Square. He's at DoorDash today. And he was a leader at Facebook after Google. But he did this tweet last month. "Any tech venture investor who compares their funds return to the S and P is being naive or disingenuous. The correct index to compare to is the QQQ, you know, the NASDAQ composite, and its performance has been mind boggling." And as you can see here, over a 20-year investment period, if you basically just buy the top 10 public tech stocks, and at the end of each year, rebalance to the top 10 at the end of the year,

• 1:15:19David Friedberg?

  your multiple over that period of time is 24x.

• 1:15:24Jason Calacanis?

  Over 20 years.

• 1:15:25David Friedberg?

  Yeah, and over a 10-year period.

• 1:15:27David Sacks?

  There's quite a bit of hindsight bias here in saying, well, you look at the top 10, right? Or how the hell do you determine? Why not top 20? Why not top 100? I mean, are you willing to say that for the next 10 years, that you should only buy the top 10? What if over the next 10 years, it's more of the field versus the top 10, you know, the next 20? Or top 5. Yeah, I think comparing VC as an asset class to the NASDAQ makes a lot of sense. I think that's fair.

• 1:15:54David Friedberg?

  Yeah, and that's the second column from the right, which is basically, you know, 5.2x over 10 years. So if you're not beating 5.2x, which is a totally liquid investment if you just bought the QQQ index.

• 1:16:09Jason Calacanis?

  What this really shows is Apple, Google, Facebook, and Amazon have had a massive run-up.

• 1:16:17David Friedberg?

  Well, that's not, that's not true. That's actually not true, Jake, how, because if you look at just the static, it doesn't, you know, outperform. It's the rebalance that outperforms, which is whoever's winning in the market, meaning whoever's gaining market value each year, is who you then, you know, double down your dollars into for next year. And that's changed over a 20-year cycle, over a 10-year cycle. And it really starts to play out over time. But I mean, yeah, if you just look at the QQQ, that's the benchmark as an investor. As a private investor and you know Gokul's comment in his in his tweet is that you know if they can return call it seven to eight X over 10 years or in this case five X over 10 years you could argue that a venture fund needs to return a significant premium probably

• 1:16:59David Friedberg?

  a 25 30% premium due to the illiquidity and the the riskiness of the investment cycle there whereas the QQQ you could just sell anytime you want so you know call it you know you need to kind of be demonstrating a 30% premium to the 5.2X tenure which is about six and a half seven X call it seven X cash on cash.

• 1:17:17David Sacks?

  I mean according to this the venture asset class is super overfunded so why why is that then?

• 1:17:24David Friedberg?

  Gurley do you have a point of view?

• 1:17:26Bill Gurley?

  Yeah I mean it would be completely speculative but I I do think if you look at the structure of endowments you know you've you've had a few people really leading the way in terms of a playbook with Swenson you know Dave Swenson who has passed away recently but but.

• 1:17:44Jason Calacanis?

  Dave Swenson he created Yale guy he ran Yale's endowment and is considered.

• 1:17:49Bill Gurley?

  And I think you know the vast majority of people decided they were going to follow that playbook which had a you know oversized investment in illiquid assets PE venture real estate commodities those kind of things and I think it led to just a massive like and and these things take forever to figure out if they're right or not if your portfolio is over 50% illiquid like who knows what's right and what's wrong you could do a re you know you could there were years where Yale was printing like 27% a year and then in in one reset no nine wiped out you know a ton of that so it's super hard to know

• 1:18:34Bill Gurley?

  but but I do think that philosophy became broadly adopted.

• 1:18:39Jason Calacanis?

  Yeah.

• 1:18:40David Sacks?

  Well, look at, um, can you pull up this chart real quick? This is a chart from Statista that is value of venture capital investment in the U.S. From 2006 to 2022. And what you see is there's, there's basically a few different levels. Before 2014, call it, the industry was basically a $50 billion a year industry in terms of deployments. Then you had a run up where for several years it was around 100 billion. And then in the pre pandemic years, 2018, 1920, it was around 150 billion a year of deployment. And then it went totally nuts in 2021. It was 350 billion, started to come down in 2022 to about 250 billion.

• 1:19:24David Sacks?

  I think where we are right now is kind of at that 2019 level of about 150 billion a year. The question is like, what it should be? I mean, should this be a 150 billion a year industry? Should this be a 100 billion a year industry? Should this be a $50 billion a year industry?

• 1:19:40Jason Calacanis?

  Yeah, it sounds like 100 to 150 would, would have been the steady state. And Bill, some portion of this is stay private longer, having an impact where those last couple of rounds were the big, huge juicy rounds. And if people had gone public in year seven, eight, nine, like Microsoft, Google, not Google, but Microsoft. I mean, Google went, what year was Google when it went out? Eight, you know, going out a little bit earlier would have chopped off some percentage of this growth.

• 1:20:10Bill Gurley?

  Yeah, and I, I, I do think one of the most interesting things to watch is going to be how these 1,000 unicorns, private unicorns play out. Cause not only do they have the cap structure problem, but they lived and grew up in a day and age where they were told growth at all costs. And it, it's super hard culturally to go from that type of execution to the principal type execution you guys have been promoting over the past several months. It's just hard, not impossible, but it's very, very hard.

• 1:20:41Jason Calacanis?

  Google went public in year six.

• 1:20:43David Sacks?

  Yeah.

• 1:20:43Jason Calacanis?

  That's.

• 1:20:44David Sacks?

  23 million of total venture raised, I think, prior to IPO. But think about what that means. If a lot of those unicorns are fake, what does that say about innovation in the American economy? We had this narrative over the last decade that the pace of innovation had fundamentally increased because of the availability of tools and technology. And so you had a lot more unicorns being created. I mean, I remember. Back in, I don't know, like a decade ago or 2010 era, let's say,

• 1:21:15David Sacks?

  you know, there were maybe was it like 20 to 50 unicorns a year, maybe 20 unicorns a year?

• 1:21:21Jason Calacanis?

  There were arguably 10 to 20 girly, great companies formed a year in Silicon Valley or in the tech industry in the West.

• 1:21:30David Sacks?

  I remember when Andreessen kind of gave this, this talk about it, maybe a dozen years ago, he said the number was 17. There's like 17 important companies created every year in Silicon Valley and your goal as VC is to be in one of those 17. Then all of a sudden we had, was it like 100, 200, 300 unicorns a year?

• 1:21:50Jason Calacanis?

  Yeah, I mean, if you

• 1:21:51David Sacks?

  And so the question is how many of them are real?

• 1:21:53Jason Calacanis?

  Well, I mean, Brad was just talking about that you're giving a 50x

• 1:21:58Jason Calacanis?

  multiple 50 times top line. I'm not talking about earnings, folks. I'm talking about top line. If you give 50x to every company, then you only need $20 million in revenue to be a unicorn. And that's unrealistic when compared to the public markets where things are trading at five times top line and 20 times earnings of its high growth, right? So is it just a different market? All right. There's a major slowdown in China. Or we could talk about Portnoy and

• 1:22:22Brad Gerstner?

  Let's do markets.

• 1:22:24David Friedberg?

  Just real quick, I think I've spent a lot of time on the island of Maui. I think it's really sad. I don't know if you guys have ever been to Lahaina, the whole town burnt down.

• 1:22:33Jason Calacanis?

  Beautiful town. It's so sad. Yeah.

• 1:22:34David Friedberg?

  It's gone. I just wanted to make sure that we mentioned it because it's pretty depressing what happened. I don't know if you guys have seen the wildfires burnt the town down.

• 1:22:44Jason Calacanis?

  Sacks and our families, we all went to that area for vacation. Remember that, Sacks?

• 1:22:49David Friedberg?

  Yeah, Maui is my favorite.

• 1:22:51David Sacks?

  Code 13?

• 1:22:51Jason Calacanis?

  Yeah.

• 1:22:52David Friedberg?

  Yeah, I mean, Maui is my favorite place on earth. Been to Lahaina so many times. It's super sad what happened. I just want to

• 1:22:58Jason Calacanis?

  It's a beautiful town on the water with those old buildings and porches gorgeous and it's just all gone right now. So yeah, this global warming thing and these fires and wind, man, what a hot summer. I mean, we could do a whole

• 1:23:10David Friedberg?

  In southern Iran, check this out. The temperature hit 155 degrees. It is nine degrees warmer than it's ever been off the west coast of the United States right now. There was 90 degree ocean temperatures off of the Florida coast. The sea surface temperature in the North Atlantic is the highest it's ever been by, I think, seven standard deviations.

• 1:23:32Jason Calacanis?

  Is it global warming or is it all a hoax?

• 1:23:36David Friedberg?

  Look, the people want to debate all day long about anthropogenic

• 1:23:40Jason Calacanis?

  Yeah, I'm asking you, the great self of science here.

• 1:23:42David Friedberg?

  I'm telling you with like absolute certainty, the data right now is unfucking believable. How hot and how dangerous the earth is becoming. And we're seeing not just the fire in Maui, the sea surface temperature, which increases the probability of severe tropical storms and hurricanes in the coming season. It's unlivable.

• 1:24:05Jason Calacanis?

  You know, I got like watching.

• 1:24:06David Friedberg?

  In Saudi Arabia, in Dubai, 130 degree temperature, 95 degree overnight lows. If you don't have air conditioning, you will die in a lot of these places. So there are parts of the earth where people cannot afford the amenities and the luxuries that we have in the world that we all live in.

• 1:24:25Jason Calacanis?

  Just saying.

• 1:24:26David Friedberg?

  There is no hoax. There is no hoax.

• 1:24:28Jason Calacanis?

  I'm putting the softball right in front of you.

• 1:24:30David Friedberg?

  Yeah, the earth is warming. The amount of extreme weather is increasing. The significant effect of that is becoming apparent. And, you know, it's, we could debate for hours about what quote can you do about it? But there's just a series of really awful things happening right now. And it's becoming more frequent and more apparent that this is a pretty serious thing that we're in the midst of.

• 1:24:54Jason Calacanis?

  All you have to do, girly, is follow what you're doing down there in Texas, which has, is it the highest renewable energy percentage of any state now is Texas? Greater than California, so one of the biggest accessories. I saw some politician from Texas saying, we got, we got to get off all these renewables.

• 1:25:11David Friedberg?

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

• 1:25:32Jason Calacanis?

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

• 1:25:37David Friedberg?

  Yeah, there's still industrial production. I mean, it's just, the list goes on. You know, systems and agriculture. There's a lot of contributors.

• 1:25:47Jason Calacanis?

  What's the clearest path? I mean, if you had to, if you said, hey, put 90% of your effort on these three things, it would be nuclear renewables, painting people's roofs with white paint, like this new paint that's reflects stuff? I mean, what would be in your shortlist?

• 1:26:02David Friedberg?

  That's not going to change much. No, let's do this conversation another time. We've got Brad and Bill here. I think, honestly, I'd love to have this conversation. We should do it.

• 1:26:09Jason Calacanis?

  Let's put on the doc and next week we'll do a big thing here. So just wrapping up here on sort of macro, we'll give you a little macro. Brad, CPI seems like it's measured and consumers seem like they're running out of money and starting to tighten their belts. Unemployment still all time low, still nine million job openings. Feels like this is the steady state for the next year? Or do you think hard landing, no landing, soft landing?

• 1:26:39Brad Gerstner?

  Well, maybe Nick can bring up the first chart. This morning we had CPI reported. We had the smallest back to back monthly gains in core CPI in over two years. Back to 0.2%, annualizing just over, over 2% now. So on a year over year basis, it was 3.2%. Now, remember, it was only six months ago that people were still hyperventilating about, you know, this 9.1% we saw last year that everybody on this pod, I think, was largely an agreement that was COVID stimulated. But, you know, the blue line here represents the consensus estimates of folks like Goldman Sachs, right? Which is pretty similar to what the Fed's own estimates are. If you go to the next slide here, Nick, this is what people, the current market is betting

• 1:27:24Brad Gerstner?

  will happen to the Fed funds rate. So the market is saying like, you know, you've heard Chumase many times, higher for longer. I happen to think we'll have higher rates for longer too. But the market is saying, we're worried about an economic slowdown that's going to force the Fed's hand. So the market is betting that the Fed funds rate will come down either because inflation continues to roll or because the economy continues to slow. And so this third slide, which I think is a really interesting one, which, which nobody really talks about, but this is the reason I think Druckenmiller and other are worried about recession. There's a measure by the San Francisco Fed, which is called the effective funds proxy rate. Okay, so this is not the Fed funds rate.

• 1:28:07Brad Gerstner?

  This is what they say the total impact of.

• 1:28:12Brad Gerstner?

  Quantitative tightening plus rate hikes are. And we're now back to the highest level on that proxy rate since we've been since May of 2000. It's up over 7%. I think that's the reason people are looking at this blue line up over 7%. That's the highest effective rate calculated by the San Francisco Fed since all the way back to May of 2000. And this is the concern a lot of people.

• 1:28:37David Sacks?

  Breck, could you just explain that? Why is the effective rate 3% higher than the official rate?

• 1:28:43Brad Gerstner?

  Because of quantitative tightening, because there's a lot of other things going on in the economy. The impacts, interest rates, the rate at which you can borrow. Part of it is there's just less money in the system.

• 1:28:55David Sacks?

  It's like credit crunch, basically.

• 1:28:56Brad Gerstner?

  Exactly.

• 1:28:57David Sacks?

  Like just because the rate's 4% doesn't mean you can get access to it.

• 1:29:00Brad Gerstner?

  You can't borrow, nobody can borrow at the 10-year rate. Okay, so if you're a company or an individual and you want to go borrow, you have to borrow at a much higher rate. So that is where the rubber meets the road. If you're trying to borrow to buy a house, borrow to buy a car, borrow to expand your business. The, the blue line represents a much better, you know, calibration for the level of tightening in the economy. So there is a, a, a very strong debate. And I would say the market's actually betting here that the Fed is overdoing it. Because of what you see in that blue line and that the economy is going to slow. The lag effects of this tightening have not yet been felt. And so this gets back to the question we had before, which is where are we? In the cycle, whether or not we're going to continue to have growth.

• 1:29:42Brad Gerstner?

  Now, really interesting, Jason, Bloomberg's headline today was the summer of disinflation. And we said on this pod, six months ago, we said it's more likely by the end of 2023, we're going to be talking about disinflation than inflation. And lo and behold, not only, not only are, are we seeing signs of disinflation, air tickets down 18% year over year, but China just posted actual disinflation.

• 1:30:08Jason Calacanis?

  Yeah.

• 1:30:08Brad Gerstner?

  Right?

• 1:30:08Jason Calacanis?

  So prices are coming down. People are going to be surprised that there's more products or services available at lower prices, which then could infect the salaries because hey, we're not making as much money at this company. We've got to cut salaries.

• 1:30:21Brad Gerstner?

  I mean, we know that the Fed at the start of COVID was more like the curses of disinflation are almost bigger than the curses of inflation. And China just saw CPI down three tenths of one percent in the month this week, annualized, that's over three and a half percent. That is a major problem for China. So I think you have some, some yellow flags here, right? That say, do we have too much tightening? If one of the global engines of growth is experiencing this level of disinflation, that's going to impact the global economy, global demand, et cetera. So.

• 1:30:58Jason Calacanis?

  Yeah. Um, that's been the pattern of the Fed, right? They, they, they seem to react late and then they oversteer. This has been the theme. And so.

• 1:31:06David Sacks?

  There's also, just to add one other cloud to the silver lining, it's the amount of debt that's out there.

• 1:31:13Brad Gerstner?

  Correct.

• 1:31:14David Sacks?

  So both private debt and government debt.

• 1:31:18Jason Calacanis?

  Yeah. Consumer debt is high. This real estate, commercial real estate is high. Got debt everywhere and people are going to have to belt tighten and maybe austerity and stop spending on some YOLO trips. But if salaries keep going up, hmm.

• 1:31:33David Sacks?

  Let's, let's.

• 1:31:34Jason Calacanis?

  This isn't a Kona Koa. Who is this? Who are you sharing here? It's not a Kona Koa link, is it? Another great Kona Kio.

• 1:31:41David Sacks?

  Koby Easi Letter.

• 1:31:42Jason Calacanis?

  Oh, Koby Easi Letter. Oh, Koby Ashi here.

• 1:31:45David Sacks?

  Koby Ashi, yeah. Koby Ashi.

• 1:31:47Jason Calacanis?

  Well, it's got 300,000 followers.

• 1:31:49David Sacks?

  So we have, we have record household debt, 17.1 trillion, record mortgage debt, 12 trillion, record auto loans, 1.6 trillion, record student loans, 1.6 trillion, which as Druckenmiller points out, have to start being repaid, I think, as of September.

• 1:32:04Jason Calacanis?

  Yep.

• 1:32:04David Sacks?

  Because Supreme Court overturned Biden's unconstitutional debt forgiveness.

• 1:32:08Jason Calacanis?

  Yep.

• 1:32:09David Sacks?

  Record 1 trillion in credit card debt. That I think should be pretty worrying because credit card rates are now around 25%.

• 1:32:16Jason Calacanis?

  It's nuts.

• 1:32:16David Sacks?

  So credit card debt gets, the interest on that is, is obviously floating. And so when rates go up. To, you know, where they are now, then it gets, it gets very punitive. So.

• 1:32:29Brad Gerstner?

  David, precisely. And this is, remember, we're seeing inflation roll over huge and we have a CHIPS act and an infrastructure, we have massive government spending going on. And we still see inflation rolling over. So I just find it interesting that within six months, we've gone from worrying about hyperinflation to Bloomberg running a headline, summer of disinflation.

• 1:32:49David Sacks?

  The last piece of it is government debt. So at the rate that the government is racking up deficits, the treasury is going to have to float something like three trillion of new T bills by the end of the year. And we're rolling something like nine trillion of old government debt over the next 18 months at new higher interest rates.

• 1:33:11Jason Calacanis?

  So there's a lot of debt and we'll continue that discussion next week as well as the global warming one. Hearts and prayers out to the, the fine people of Maui who invite us to come to their incredible paradise. We hope you all stay safe and have a great recovery. Your and our thoughts and prayers for Brad Gerstner, the fifth bestie, for the architect, David Sacks, and the Sultan of Science. I am the world's greatest moderator and officiant, if you're getting married. And for Bill Gurley. Bill Gurley, you have some anecdotes about the All In Pod you were talking.

• 1:33:43David Sacks?

  BG squared.

• 1:33:44Jason Calacanis?

  Close on, closing on an anecdote here for Bill Gurley.

• 1:33:47Bill Gurley?

  And.

• 1:33:48Jason Calacanis?

  Close this out.

• 1:33:48Bill Gurley?

  Obviously huge hatchet to the success you guys have had. It, when you first mentioned you were going to do this, I don't think anyone had any idea that you would reach this level. And I know the hard work it takes to, for you guys to do this weekly. It's amazing. But I was walking down the, you guys share anecdotes about people mentioning All In. I was walking down the street in Austin a few months ago and a guy came up to me, goes, are you Bill Gurley? I go, yeah. And, and he says, you're that guy they sometimes talk about on All In, right?

• 1:34:23Jason Calacanis?

  Yes, so the guy they sometimes talk about it all is your, that's your, uh, there's your subtitle of your memoir. The guy they talk about, uh, all the time sometimes.

• 1:34:31Bill Gurley?

  Tombstone.

• 1:34:33Jason Calacanis?

  There's your tombstone.

• 1:34:34David Sacks?

  To your point, Bill, it, it, it took 10 years of hard work by J Cal for the rest of us, we just walked in off the street.

• 1:34:39Jason Calacanis?

  Exactly. Thanks. I got you all on my shoulders.

• 1:34:42David Sacks?

  That's why he thinks he deserves more than 25%.

• 1:34:45Jason Calacanis?

  Holding you all on my shoulders.

• 1:34:46David Sacks?

  But he don't get more than 25%.

• 1:34:48Brad Gerstner?

  J Cal, where are you running off to? Why do we gotta shut this down? Sax, Sax and Girlie and I may stay and just keep talking.

• 1:34:54Jason Calacanis?

  Because I'm the world's greatest moderator and we'll see you all next time on the All In Podcast. Bye bye.

• 1:35:31Speaker 08

  We should all just get a room and just have one big Q Georgie because they're all just, it's like this, like sexual tension that they just need to release somehow.

• 1:35:39Speaker 09

  What? You're the bee. What? You're a bee. What? We need to get merch.

• 1:35:54Speaker 09

  I'm going all in.