Tech’s Frothy Days Are Over. Now What? — With Eliot Brown

Eliot Brown is a reporter for the Wall Street Journal and co-author of The Cult of We. Brown joins us to check in on how the tech industry is adapting after years of zero-interest-rate-driven froth fades away. Tune in for a discussion of how real 'the end of froth' is, whether it was productive or not, and a company-by-company look at Softbank, Tiger Global, Andreessen Horowitz, Palantir, Tesla, and Twitter. If you like Big Technology Podcast, please rate it five stars ⭐⭐⭐⭐⭐ in your podcast app of choice. For weekly updates on the show, sign up for the pod newsletter on LinkedIn: https://www.linkedin.com/newsletters/6901970121829801984/ You can find The Cult of We here. Learn more about your ad choices. Visit megaphone.fm/adchoices

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

• 0:00Alex Kantrowitz?

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• 1:03Speaker 01

  LinkedIn Presents.

• 1:18Alex Kantrowitz?

  Welcome to the Big Technology Podcast, a show for cool-headed, nuanced conversation of the tech world and beyond. Eliot Brown is our guest today. He's a reporter at The Wall Street Journal. He's also the co-author of a great book about WeWork's downfall called The Cult of We, and he's also a friend of mine. And let me tell you, Eliot is the king of saying, "Excuse me, everyone, what exactly is going on here when it comes to really crazy stories in the tech and the investment world?" He said early on in the WeWork saga, where the math and plenty more about that company and its founder, Adam Neumann, just didn't add up. And he's also been there for many more similar stories, including the SPAC boom that really never materialized into what the dreamers imagined it was going to be. Now, an interesting thing has happened.

• 2:02Alex Kantrowitz?

  As the Fed has raised its rates, a lot of that froth has seemingly started to go away. We're not hearing as much about SPACs or about crazy investments in the crypto space, except for maybe their downfall. But it doesn't seem like they're being made as much as they were before. So Eliot is going to come on and talk to us about tech and crypto after the froth. How does that change? How does it change things that we've been seeing for so long? So as you listen, I'd say, keep an ear up for some of the questions we try to answer, including, was that froth good? Did it lead to innovation? And are we going to see some more productivity from people who start to turn to more productive uses of their human capital than the stuff they were doing when we were in the froth itself?

• 2:46Alex Kantrowitz?

  And of course, how does that change the tech world and our economy and our investment world for that matter? I think it's gonna be a really fun discussion. And with that, Eliot, welcome to the show.

• 2:57Speaker 02

  Hey, good to be back.

• 2:58Alex Kantrowitz?

  Great to have you back. So for years, you've talked about this kind of wild economy that we were living in. And I feel like you've been like the patron saint of calling it out. You obviously said WeWork was a bunch of froth. And you've talked a lot about in our conversations and on Twitter and in your stories about SPACs and crypto and investments in nothing like car companies that, electric car companies that don't make cars. I just want to hear your perspective on what the reality is like. Is the reality that a lot of this froth has gone away now that interest rates are rising? Or are we still seeing a lot of that persist?

• 3:35Speaker 02

  Yeah, I think that basically in 2022 and now into 2023, we like, we have seen a return to reality or a sort of nearer reality. Like if you, you sort of, you know, there's a lot of caveats to that. And I don't think it's broad. I still think there's a lot of sort of like, the world that doesn't quite realize how much the floor has fallen beneath them. But if you look at the, the, the stock market and a lot of these companies that were startups in the mid 2010s and, and were disrupting the world and, and, you know, industries left and right and all the venture firms were, were piling money on to

• 4:16Speaker 02

  them and Forbes was writing gauzy cover stories about them. They're, they're sort of like, you know, have gone from really, really high valuations to things that seem like they make a little more sense. So.

• 4:31Speaker 02

  You know, my favorite hobby, I guess, for work was talking about WeWork and how they were valued like a tech company when they were supposed to be a real estate company. And you could sort of apply that across the venture capital world. And if you look like scooter companies, oat milk companies, car dealer companies, those are now valued like scooter, oat milk and car companies, not, more or less, not like, you know, really profitable software companies.

• 5:04Alex Kantrowitz?

  And I want to ask the question underlying all this, which is, is this good? I mean, there's been, you know, obviously investors have been hurt by some of the wacky valuations out there. But overall, for our economy, there are some that argue that the fact that there was all this money flowing into quote unquote innovative spaces meant that we were getting more innovation, which was, which ultimately betters the world. What do you think? If that dries up, is that an issue?

• 5:31Speaker 02

  Yeah, I think it's a really complicated question. I think that that is like, what good does a bubble do? And I think it's at this point, you know, undeniable to use the word bubble, even though some in VC probably still would cringe. But like, I think you always do get some sort of things created in bubbles that you would not have otherwise that actually are useful. So, you know, like in England, in the 1840s or something like that, maybe 1860s, they built so many rail tracks that like, it was like 7% of GDP in the UK was going to like rail, railroads for a year, something like that.

• 6:16Speaker 02

  And, you know, the result was they built a lot of extra rail tracks that go places. And same with like in 1929 in New York, where everyone was just thinking a great idea was to invest in office skyscrapers that hadn't been built yet. And so they built some really cool architecture that in the end didn't really have many tenants at first, but is there for, you know, 100 years plus now, I guess 90 years plus now. And, you know, looks really nice on the skyline. So what is the corollary today? You know, we've gotten a huge amount of investment in electric vehicles that we wouldn't have gotten, and we probably got some, some.

• 6:59Speaker 02

  You know, drone technology and maybe even flying taxi technology, we'll see that that probably wouldn't have come otherwise and probably a bunch of other things, maybe even like sped up mRNA vaccine technology.

• 7:14Alex Kantrowitz?

  Artificial intelligence, I would throw in as well.

• 7:17Speaker 02

  Say that again.

• 7:18Alex Kantrowitz?

  AI.

• 7:19Speaker 02

  AI, yeah. Like, I mean, yeah, OpenAI got a ton of money out of this, this sort of hypey world. But, look, I mean, if you like, is the, the general idea of being ignorant to reality something that's good? No, in my humble opinion. I mean, like, you want to know what was actually real in this world and, and not just hype. And like, it's, it's, it's, it's sort of an important part of living in society. And, you know, add on to that, that you, you have a lot of pension funds and, and retirement funds and foundations that are, are going to get pretty subpar returns having invested

• 8:04Speaker 02

  in this stuff.

• 8:05Alex Kantrowitz?

  But you can't have perfect markets, right? There's never going to be a situation where only the stuff that's merited is funded and the stuff that's not merited is not funded. I wonder what's going to happen with, you know, when we think about what's going to happen after the froth, right? Startups, for instance, are going to really struggle to raise funding or, or some of them will, will shut down. And we're going to actually, we're going to go through like some more public companies, but we should talk about startups at the start here. Is, is that, what do you think happens there? I mean, is that a concern?

• 8:36Speaker 02

  I mean, historically, we're still seeing just extraordinary amounts of, of money that like are going into startup land. I mean, it's, it's a lot less than, than 2020, you know, one, 22 was a lot less, but it's, you know, in many, many, I forget the stat. It's, I think, like, well above historic norms for how much we're going into startups. I presume, to a certain extent, that'll continue into 2023. So, you know, I don't, you know, I don't see it as some sort of enormous market failure

• 9:14Speaker 02

  that we aren't going to have 2021 levels of frothy, you know, bubbly money being thrown at startup land.

• 9:24Alex Kantrowitz?

  Right. What do you think we got out of this? I mean, I guess you talked about some of the, these electric vehicles. But let me ask you specifically about this in regard to, like, because so much of the speculation and the froth was around financial stuff. It was around SPACs. It was around crypto.

• 9:42Alex Kantrowitz?

  Probably some others I'm not thinking of. Did any good come out of that?

• 9:46Speaker 02

  Yeah, I think that actually, if, you know, we need more time before you can really look back at this with a historic lens, especially to see what's come out of the past couple of years when funding levels were at their highest. And it takes a while for companies to really be created. But, you know, if you look at the past 15 years, and what was really created that's paradigm-changing out of the venture world.

• 10:13Speaker 02

  Yeah, I mean, there's some pretty obvious stuff. Again, like Moderna was venture-backed, so that seems like it did a lot of good and changed a lot of lives.

• 10:25Speaker 02

  You know, the way we get around with the apps essentially on our phone that aren't owned by Google and Facebook, some of those have changed our lives pretty dramatically. Like Uber did change the way we get around cities.

• 10:40Speaker 02

  But is there some extraordinary other breakthrough in the same way that, you know, like when the car was invented or the spinning Jenny or the cotton gin? Like, no, I don't, you know, I haven't given this an extraordinary amount of thought. But I think that there's just in each.

• 11:03Speaker 02

  Extraordinary amount of capital that went to basically like ads on Facebook, ads on Google, to restarting coal power plants to mine Bitcoin. And, you know, and other energy related to like crypto. And then, yeah, I mean, the whole crypto world is like, and it's just like an extraordinary amount of investment from venture capital when in and humans went into this world that, you know, was was very much just a speculation play. Same thing with SPACs.

• 11:36Alex Kantrowitz?

  Yeah, and I think that's the like, the positive is that the human capital side of it. Where like, you're gonna have people spending their precious brain power, you know, not on things like SPACs and not on things like, you know, crypto exchanges, but on actual products that that people can use. I I I hope that's the case. That would be good.

• 11:56Speaker 02

  Yeah, it's a good point. Like, I mean, you have speculation, right? Like, that doesn't, that's not too high calorie for society.

• 12:04Alex Kantrowitz?

  And the other thing that the thing that like, really is negative consequence of the froth is, it's kind of like a sentence you've written many times in your stories, where you end up having charismatic founders who sell vaporware, convince investors to spend record amounts of money with them

• 12:25Alex Kantrowitz?

  to support products that never really go anywhere. And that that's been an all too common feature, I think, of the froth. You look at the Adam Neumanns, you look at the SBFs. When a venture company can write, I'm talking about Sequoia here, not gonna even be coy about it, can write glowing profile of a founder, SBF, and laud the fact that he was playing League of Legends in the pitch meeting. And that's part of the reason why they have to give him all this money. Something has gone wrong there. And obviously, that has cost in terms of productivity in the economy. And, you know, investor money and all the people that follow these leaders, right?

• 13:06Alex Kantrowitz?

  That's the thing. It's like, well, you see Sequoia back desk, you know, FTX. Okay, maybe it's worth taking a job there. And that's sort of a negative consequence of the froth that we might be getting past.

• 13:17Speaker 02

  Yeah, no, I I I completely agree. And I had sort of the the same thought about that that Sequoia profile. Like, not only does it show like, kind of the craziness of of.

• 13:27Speaker 02

  The firm or, you know, the VC world at the time, but, but the, the fact that they thought that that was appropriate to, to, to publicize, it just shows how out of touch and that they, they, yeah, they gave a hundred plus million, um, kind of like with a snap of their fingers. It just shows how sort of out of touch, I think VC had become with, um, how crazy it is that they're, they're writing hundred million dollar checks with, with basically no due diligence. And, and, uh, but, but that was at the time, VCs would, would talk about that openly because within the industry, that's, that was the reality. Uh, and so, yeah, I think when you then tell that to somebody outside the industry, when you turn into a bust, their, their jaw drops. What are they doing with this money?

• 14:13Alex Kantrowitz?

  Right. And like, what was that Mark Andreessen text to Elon Musk? Like our firm is in for, what was it?

• 14:19Speaker 02

  It was like 250 million with, or, or whatever the number was with no additional work required.

• 14:28Speaker 02

  It was like this before Elon even said he was taking outside money. It's like, maybe his plan is to burn it to the ground. Like.

• 14:36Alex Kantrowitz?

  Yeah. No, it is, it is interesting. I mean, the one thing that we could say for sure is we're living in changed times and a lot of that stuff will go away. And, you know, hopefully it, it ends up going away and, and having a positive impact because of some of the reasons that we've listed. And I do note your point that we do need to live in reality.

• 14:53Speaker 02

  Yeah, but who knows? Maybe, maybe the, the cure for, for cancer and eternal happiness will have been founded in the past three years.

• 15:01Alex Kantrowitz?

  But they, they, they probably could have raised some money for all the time. You would hope if VC works the way that it should, and I'm not saying it does, but if he works at all, then the cure for cancer and the solve for eternal happiness should have been something that was funded.

• 15:16Speaker 02

  Here's one I think we should check back at on in 10 years. Um, I wrote about this once in one of the, the market is really hot stories, um, colossal, uh, which basically wants to recreate Jurassic Park, but with woolly mannequins. And so they're trying to genetically engineer a woolly man. Um, and we, we got a hold of one of their pitch decks and it had a slide that basically looked like Jurassic Park. So they were thinking like, we can monetize with amusement parks.

• 15:46Alex Kantrowitz?

  And you buying or selling?

• 15:47Speaker 02

  I'm merely merely here to say, let's check back.

• 15:53Alex Kantrowitz?

  Okay. Well, you know me, if Willie Mammoth Park opens, I'm first in line getting a ticket. I'm going to pet it. So I mean, that's loud, but I would, I would bet it.

• 16:04Speaker 02

  Yeah, I'm sure they can engineer them to enjoy being pet.

• 16:08Alex Kantrowitz?

  Yeah. So let's, let's spend the rest of the time we have together, continuing on this line, but actually like using some real examples of, I mean, we've used some examples, but you know what I mean? Let's actually look at some concrete reporting that you've done and spend time talking about some of the companies that were responsible, you know, big, big players in this froth. Where do they stand today? What's going to happen to them next? First one, the most obvious one is SoftBank. SoftBank has posted some unbelievable losses, 35 billion in the first half of last year.

• 16:45Alex Kantrowitz?

  I believe according to your reporting and they're trying to raise a third fund, but they were the ones that were, you know, they were big funders. And WeWork, you have some great reporting in your book, Cult of We, about their, their synergy with Adam Newman and how they out crazied each other to the point where things became unsustainable. But one interesting detail you have in a recent story is that Masayoshi's son, he doesn't, he's stepping back from their big earnings event where he would, you know, put wild memes up and really celebrate the earnings. And now he's going to basically turn it over to their CFO. So that to me is a sign that, you know, one of the big players in this, you know, frothy era is now taking a more measured approach.

• 17:31Alex Kantrowitz?

  What, what should we know about SoftBank? Give us like a quick little check in on what's going on there.

• 17:35Speaker 02

  Yeah. I mean, SoftBank is just this continually fascinating company. Cause this, you know, guy, it's really run by one guy and who has at various points been, but by his count, the richest man in the world. He says he was, had said he was that for about four days in the dot com boom. And then he lost more money than anyone else had ever lost in the world at the time. Cause SoftBank's stock went down by, I think, 99%. And then he rebuilt, made two really good investments that have basically carried the firm. And one of those was an early investment in Alibaba in 2000.

• 18:15Speaker 02

  And the other was the buyout of Vodafone's Japanese arm that has just given SoftBank billions on billions to play with. So what he's managed to do in the past seven years, six years since the launch of the Vision Fund is spend more than anyone had ever spent by many, many, many, many magnitudes on startups. And it has gone, I mean, it's just, it's hard to say how poorly it's gone. I mean, it's

• 18:50Alex Kantrowitz?

  How poorly has it gone?

• 18:51Speaker 02

  So, you know, the first Vision Fund at this point is marked at like a very slight gain. So it took like 90 billion and turned it into, yeah, you're going to catch me getting these numbers wrong. Anyway, the point is he's taken basically 140, 50 billion and turned it into over a six year period or so, five and a half year period, and turned it into less than that, which is very impressive if you look at

• 19:25Alex Kantrowitz?

  Well, given the way the economy has gone.

• 19:27Speaker 02

  Yeah, I mean, even with the recent drop, like go back to the NASDAQ in 2017 and put 100 billion in and see what happens. Like you'd be up. And so it's, the first Vision Fund, it kind of continues to impress with how crazily bad some of these investments went. I mean, a couple went pretty well, but in general, it was doing these really big bets on the companies that were losing the most money out there because who else would take a $2 billion check other than a company that is losing money? If you're profitable, you don't need $2 billion. So, you know, WeWork, Uber, DD, I think they may have made a slight amount of money on Uber. DD's down, you know, at one point it

• 20:12Speaker 02

  was down like $8 billion.

• 20:16Speaker 02

  Zoom, the pizza delivery robot company, I think that went to basically zero. View, they put a billion dollars into this smart window company that turns out like it was just actually a money-losing window company. And so that's down over 90% since they went public. Yeah, I could go on for a while, but Wag, the dog-walking app, the fun one.

• 20:46Alex Kantrowitz?

  What do you think we learned about their thesis? I mean, that is an interesting thesis. You know, sometimes you need stuff to grow fast and maybe there isn't another investor that will put that money in. Was that fundamentally wrong? Like where, or was it just the ones they picked?

• 21:02Speaker 02

  So, yeah, I think they did two things. The Vision Fund one was the one where they basically went after the companies losing the most money. Like, that wasn't the way they looked at it. They looked at it as the companies that could absorb the most money and had the biggest total addressable markets. And I mean, that was flawed because, I mean, I think of what I said, like, because they were losing the most money, that's pretty risky. And then, when you give a company that's losing $2 billion, even more money than...

• 21:32Alex Kantrowitz?

  They're gonna lose more.

• 21:32Speaker 02

  Yeah. What they did for the second Vision Fund was at least theoretically better if they had done it in 2017, which was basically been on the entire market. So, they sprayed money as opposed to surgically dropping $2 billion checks. And that, the problem with that was that that was when the market was, like, the time that they stepped on the gas the most was when the market was by far the most overvalued. And so, I mean, there's a strong school of thought that Masayoshi Son, from analysts and others that follow SoftBank, that the chief of SoftBank, Masayoshi Son, is just

• 22:17Speaker 02

  sort of like the classic momentum investor. And when times are good, and when essentially prices are overvalued is when he wants to invest the most, and when they're undervalued is when he wants to invest the least. And so, he's definitely been following that pattern. I guess we'll see what happens. He's kind of pulled back to near zero.

• 22:38Alex Kantrowitz?

  Where was all that money coming from?

• 22:40Speaker 02

  So I mean, a huge amount of it at first was the Arab, you know, the Gulf Saudi monarch or Sunni monarchies. So the Saudis and the UAE wealth funds. But then for the second Vision Fund, it really was just SoftBank's money. And that was coming from basically Alibaba and the Vodafone buyout that were just essentially spitting out billions to, instead of going to shareholders, went to VC-backed companies.

• 23:12Alex Kantrowitz?

  Interesting. So that's, that's going to dry up, you would imagine?

• 23:18Speaker 02

  Yeah, I mean, the Vision Fund 2 is not looking good. That one's way down from, from the amount that they invested. And, you know, they're taking a while to sort of mark down the private assets, which I think everyone's doing, like Tiger Global 2.

• 23:32Alex Kantrowitz?

  Yeah, yeah. So talk about Tiger Global. They're the other one that's been, basically, if you were a decent startup, you could effectively get a massive term sheet with them with, again, like very little diligence. I mean, I'm oversimplifying it a bit, but that was the sense. You could speak to VCs and they would go against Tiger Global and be like, all right, this is no competition. I tap out.

• 23:54Speaker 02

  Yeah, I, I found it amazing how open upon, you know, looking into it some and about how open the Tiger Global partners were with startups about how essentially lax they were. And so, you know, their, their line to founders was essentially like, we've done some research on you. We hired Bain, like we, we, we know lots about your company. So they, they would hire consultants or like learn about the company and do customer calls. And then they're like, we don't want to board the seat. Like, that's not our thing. We don't want to mess with the terms. We just want to give you money. And I like, it was, it was many conversations like that, that they would have. And they, they like, they were in this sort of money

• 24:39Speaker 02

  deploying business at the time. And so they too, like SoftBank, precisely like SoftBank, saw the, the, you know, frenzy and decided that was a good time to really step on the gas. And so they raised the essentially like, I think it was the second largest venture capital fund, maybe the third ever at the absolute peak. And, you know, it was something, it was many times the size of their funds a couple of years earlier. So, you know, bubbles are fascinating in that they do, they have this effect that the more overvalued things get,

• 25:20Speaker 02

  sort of, the more people want to bet on them. And, and, you know, these, this cycle, those are the two companies that, on startups, those are the two companies that really stand out.

• 25:33Alex Kantrowitz?

  Where was Tiger Global's money coming from? And are they going to still have that source of funding?

• 25:38Speaker 02

  Theirs was more broad-based. So they did have a lot from, you know, Scott Schleifer, Schleifer, who's the partner there and runs the private business. So he put in, I mean, he told others, he put in over a billion dollars into their last fund. So it's not a, it's not one of these funds where the partners of the investment fund just had 2% of the fund. He had a lot. That said, most of the money was from limited partners, and we know some, but not many, where like some retirement funds, some foundations, some sovereign wealth funds, sort of, yeah, and then some undetermined number of other

• 26:23Speaker 02

  rich people. Like, they were, they tapped the investment banks, this is kind of unusual at you see, they tapped the investment banks to go to their high net worth clients and be like, hey, try to get into Tiger Global. And so that they would get sort of like hundreds of people to put in.

• 26:37Alex Kantrowitz?

  It's a smart strategy.

• 26:38Speaker 02

  Yeah, I mean, these are rich people, but not super rich people. Whereas, a lot of times, the venture firms are usually just going for foundations, endowments, and the super rich.

• 26:50Alex Kantrowitz?

  Right.

• 26:50Speaker 02

  But so Tiger expanded that, democratized it to the merely rich.

• 26:56Alex Kantrowitz?

  And they had a lot of money to, you know, to boot. So where do the LPs now put their money? Like they, are they moving to bonds? Like where on the risk ladder are they going? Cause if they're not in startups, right?

• 27:08Speaker 02

  Well, they all have less money.

• 27:10Alex Kantrowitz?

  Oh, they have less? Yeah.

• 27:12Speaker 02

  Yeah, I mean, that's a bit of a complicated question, but, but yeah, I think like at a really broad level, like what's happening is that, uh, you know, for, for a decade plus, you, you were getting basically nothing if you put money in a US Treasury bond. And now you're, you're getting something. Um, and so some number of, of people out there are shifting their funds. Be like, oh, well, three percent is good enough or, you know, four percent or, or you go to a fix, another type of fixing and product and get 11%. And so, you know, you go with this thing that's like a little more, um, it does give you eight percent as opposed to zero. Uh, and then you have less money to spend on sort of risky things to try to get up to like a seven percent return,

• 27:54Speaker 02

  which is what a lot of these pension funds and, and money managers are trying to hit on average. So, um, yeah, the broad level, like, yeah, there, there's money being shifted out of these things into fixed income. I think on the sort of like more applied level, it's like, people are just not really allocating much, at least to alternative assets right now generally. And they're just sort of like, you know, like, let's see what happens with the, where the floor goes. At least that's my, my sense, but, but, um, I've been talking to some people in that world, but, uh, that's less scientific.

• 28:26Alex Kantrowitz?

  Okay. Now there's always an exception to the rule, right? When these companies pull back, there is maybe an opportunity for another to come in and sort of, make some smarter bets in the same echelon, but also, um, not make the mistakes.

• 28:44Alex Kantrowitz?

  Is Andreessen Horowitz that, that firm? You know, they are, they are sort of feeling the shoes in some ways. We talked about what they did with Twitter. Uh, it seems like they are going to be in on a big round, uh, from SpaceX, right? Which is, uh, let's see, uh, we were planning to talk about this in the second half, but we probably will. But you know, they're they're trying to raise a good a good amount of money. And then, you know, they mean, they they put 350 million in flow, which is Adam Newman's new company, which, you know, they I think they I feel like they subtweeted you in the announcement saying they don't care about the media. They're there for the founders.

• 29:28Alex Kantrowitz?

  What do you make of what they're doing?

• 29:30Speaker 02

  Um, yeah, I think it's a little hard to discern too many trends with them because there's not a huge amount of sample sizes of the sample size isn't huge for for the number of like high profile investments that cut against the broad trends. But yeah, between the like Adam Newman investment and and the Elon Twitter investment. I mean, those and there's one other that that people often mention. I mean, it seems like they're they're trying to particularly with the Adam thing.

• 30:04Speaker 02

  Say like, we're going to be different. We're going to keep spending money. We're going to back founders, even if they're controversial.

• 30:12Speaker 02

  Maybe it's a sort of, yeah, subtweet of the media. That that's kind of what it seemed like with with.

• 30:20Speaker 02

  There was certainly a popular read with with the Adam Newman investment.

• 30:23Alex Kantrowitz?

  I mean, it was their biggest investment ever, right? 350 million dollars.

• 30:26Speaker 02

  From their flagship funded, at least they said. That's what someone wrote.

• 30:33Speaker 02

  Yeah, I mean, that, you know, that surprised me. Like, I always expected him to raise again. I wouldn't have expected it to be such a big check at such a big valuation. I mean, that that new company is worth over a billion. It's basically the same valuation as WeWork. And it hasn't even launched yet.

• 30:53Speaker 02

  Right? So like, WeWork is is worth about a billion dollars right now. By the day and and flow is worth that exactly where we even know it, but it's over a billion. And you know, that has some real estate assets in it, but not billion dollars worth.

• 31:11Speaker 02

  So yeah, I don't Mark Andreessen has done a lot to make clear. He does not seem to like the the broad media, like mainstream media, which is funny, given how much he courted it earlier in his venture career. But, you know, to the extent that's actually what drove this, I don't, I don't know. Otherwise with them, I don't really know. I mean, they raised a huge crypto fund right after and like really just bet huge on this web three thing. And they're going to have more money to spend out of that because they didn't spend that much of the biggest fund. So they have more dollars to spend and you don't really.

• 31:56Alex Kantrowitz?

  They're going to spend on web three.

• 31:57Speaker 02

  Well, you're paid to when people give you this money over for 10 years, like your job is to spend it. And even if they have have buyer's remorse, I haven't heard of people getting their money back.

• 32:11Speaker 02

  So, yeah, and that's the way these things are written. So I expect we'll be hearing more from them. And then, you know, you can see like with with Tiger Global and maybe Andreessen, we'll see what happens. But these funds like to keep raising more funds, probably for a lot of reasons, but like Tiger is trying to raise a $6 billion fund right now.

• 32:34Alex Kantrowitz?

  Right. Okay, we could talk about Andreessen's approach to the media all day long. Maybe we'll get to it at the end, but for now, I'm just going to tease what we're going to talk about in the second half. There's a really interesting story that you have out in the journal. Co author on about Palantir invested in 20 startups. And they spat and what happened to those SPAC investments that Palantir made? It's an interesting question. We'll discuss it after the break. Elliot Brown is here. He's a reporter for the Wall Street Journal, co author of The Cult of We, Big Technologies, actually number one book for 2021. It was one of the best reads on tech and

• 33:18Alex Kantrowitz?

  investing that I've ever gotten my hands on. And I admit Elliot's a friend, but even then.

• 33:26Alex Kantrowitz?

  It's not really coming from a place of bias. I thought it was so good. Crushed it cover to cover. All right. We'll be back in the second half. We'll talk about Palantir's SPAC bets. We'll talk a little bit about SpaceX, Twitter and Tesla. And then we'll, we'll see if Elliot's optimistic about anything. It's always a question I like to ask him because he tends not to be. Back right after this. This episode is brought to you by App Point. Everyone's racing to roll out AI right now. Co-pilots, chatbots, agents doing real work. But here's the part nobody loves talking about. All that AI runs on your data and most teams have no single way to see it, secure it and prove it's under control. That's exactly what App Point does. For 25 years, they've been

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• 35:33Alex Kantrowitz?

  front door. That's ironwell.com/bigtechnology. Learn how to stop online threats before they become real world attacks. The link's in the show notes.

• 35:51Alex Kantrowitz?

  And we're back here on Big Technology Podcast with Elliot Brown. He is the co-author of Cult of We, great book about WeWork, also a reporter at The Wall Street Journal. So for the break, I promised we'd talk about Palantir SPACs. I think it's so interesting that a public company would actually also make its own investments in startups. It's definitely untraditional. It has made 20 startup investments, according to a story that you co-wrote recently in the Journal. They are down more than 80% on average. One's gone bankrupt, another is delisted from the New York Stock Exchange. And more than half are warning that they're going to go bust. Holy moly.

• 36:31Speaker 02

  Could go bust.

• 36:32Alex Kantrowitz?

  Could go bust. What's going on there?

• 36:37Speaker 02

  It's actually really complicated and fascinating. I mean, basically, what Palantir did at the beginning of sort of SPAC mania in 2021 was decide to really bet on the sector, which is very strange for a company that is very unprofitable. For one, to be plunging a bunch of money into speculative companies that were, by many counts, extremely overvalued. And then, you know, that's one part of it. And I think the way they were sort of the bullish way to look at it is that what they were doing is

• 37:18Speaker 02

  they were both betting on new companies, but as a way of also tying them into the Palantir world. And basically their software. So they were.

• 37:26Alex Kantrowitz?

  Sounds smart.

• 37:27Speaker 02

  For each of these companies, what they would do is agree to invest in the SPAC deal. And so give them a chunk of investment, which is what those companies were looking for at the time. And then they would turn around and also say like, hey, let's sign a contract where you buy our software. And these are not small contracts. I mean, you know, they were usually the same amount of size in the investments. It'd be like, we'll give you 20 million and then you commit to a $20 million software contract over, you know, three to five years.

• 38:00Alex Kantrowitz?

  It's a nice way to show revenue growth.

• 38:02Speaker 02

  Right, so the critique here from, you know, analysts, short sellers, probably some long sellers, a lot of observers, is that this was buying revenue. And you know, I mean, these things weren't, you actually look at the contracts, some of them were pretty explicit that they were very much tied together. So there wasn't an effort to really deny that they were untied. It's like they did 20 SPAC investments and they got 20 contracts. So the, I think what the part that that got a little concerning with

• 38:42Speaker 02

  was when they then would tell their, Palantir would tell its own investors, hey, look at all our revenue growth. And that's what was behind their really high valuation at the time. So investors were really excited about how fast this company was growing revenue. And so, but then if you really look under the hood, you're like, well, this commercials unit that seems to be showing all the growth, that a lot of that is coming from these, these companies that you're

• 39:11Speaker 02

  Paying to be your customer. Yeah. So what are the consequences of that? The consequences are the Palantir's lost a lot of money on that. So, I mean, they put in over 400 million. They got some back in the form of contracts, but you know, a lot, a lot of that could go away. That's sort of the worry from analysts that, that like a lot of, literally, like many of these companies could go bankrupt or otherwise assault them. And I mean, a lot of them don't even have a product, right? Like, what's the one? Lillian. It's a flying taxi company that's planning to use these jet-like engines

• 39:51Speaker 02

  that aren't really in existence anywhere, it's my knowledge. And, you know, they say they're going to be ready up and flying by 2024, I think. It's like, this product doesn't even exist. Like, maybe. But who knows? And, and there were a bunch of electric vehicle related companies that they put stuff into. Some direct-to-consumer e-commerce companies. And some of them, it was very strange. It was like, you'd commit $20 million to this company Boxed, and then on the same, you know, within days, usually within 30, they had to give back a huge amount of money as a prepayment for this contract. So Boxed, like, gave 15 million of the 20 million it got Palantir right back to them.

• 40:37Speaker 02

  Um.

• 40:38Alex Kantrowitz?

  Crazy.

• 40:39Speaker 02

  Why?

• 40:39Alex Kantrowitz?

  I mean, that's pretty blatant.

• 40:41Speaker 02

  Uh, anyway, Palantir says they regret it and um.

• 40:44Alex Kantrowitz?

  Yeah.

• 40:45Speaker 02

  Uh, and here we are and their stock is is is down. I mean, they're like many of these companies we were talking about earlier. I mean, like that was a company that was was valued at tw- twenty billion in something like twenty fifteen or fourteen and and is today worth like fifteen.

• 41:00Alex Kantrowitz?

  Yeah, their market cap is actually thirteen billion.

• 41:02Speaker 02

  Thirteen, wow.

• 41:03Alex Kantrowitz?

  And they're down about thirty percent from their IPO. Or from going public, right? They I think they spacked also or they did something weird.

• 41:11Speaker 02

  They did a direct listing.

• 41:12Alex Kantrowitz?

  Yeah, direct listing and uh from their peak where they were around thirty five dollars a share. They're now six dollars and forty or forty something cents, which is a decline of eighty percent.

• 41:23Speaker 02

  Square rooted.

• 41:24Alex Kantrowitz?

  Yeah, so it's not where you want to be. So I guess, you know, that's the that's the end of that.

• 41:33Alex Kantrowitz?

  I'm I'm kind of curious what you think, speaking of of financial games and stuff like that. What's going to happen with with Twitter and Elon Musk's investment? I mean, we're talking on Monday where Tesla is down like thirteen percent already on the day. Uh, and it's not anywhere close to over. And Elon has this like thirteen billion, so Twitter has a thirteen billion dollar debt that it needs to pay. And I guess there was always this belief that maybe Elon could continue putting his personal money into it.

• 42:00Alex Kantrowitz?

  Obviously, Morgan Stanley has a role in that thirteen billion. And, you know, it has to make about a one one billion dollar interest uh payment every year.

• 42:11Alex Kantrowitz?

  What are the likely scenarios here? Does Elon's decrease in net worth actually make it more difficult to sustain Twitter?

• 42:18Speaker 02

  It certainly does. I mean, you know, I I don't know, like, to be to be clear, I I haven't been covering this. I've been.

• 42:23Alex Kantrowitz?

  Right.

• 42:24Speaker 02

  You know, I I know how to read a couple of numbers, but not many.

• 42:30Speaker 02

  In the ten K, uh, which they no longer produce at Twitter. So um, this is all idle speculation, but um, yeah, I mean, like the way margin loans work. And sort of one of the things that was appealing, I think, to the other investors in Twitter is like, well, Elon's got all the money. Like, you know, he's put in some huge amount of the equity in in this investment. And so if things run into problems where he can't pay the debt, uh, he can just. Take more money out of his Tesla stake by borrowing against his shares. And then put that toward repaying the debt. So basically, like a mortgage, if you aren't generating enough money to pay the mortgage,

• 43:14Speaker 02

  and you have a bunch of cash somewhere else lying around, you can just pay off the mortgage, right? And then you don't have to worry about interest payments. If Tesla's stock goes down by 80%, Elon can't raise money from that by borrowing, which was a kind of easy way for him to raise money. He would either have to sell Tesla shares, which he's done some of, but you have to sell more of them when the price is down a lot. But also, at a certain point, that gives him a lot less ownership of Tesla, and that's something he clearly seems to want, he's to think. And then if they keep going down, then selling Tesla shares doesn't even bring it down much.

• 43:55Speaker 02

  So I think that, like, it will be a... If trends continue, the question of what happens with the debt at Twitter is a huge question. And like, that is an extraordinary fixed cost that they have for, you know, until the debt's...

• 44:15Alex Kantrowitz?

  You think Musk has a chance of being ousted at Tesla? I mean, I shared this on Twitter earlier, but it's down 71% over the past year, 51% in the past six months.

• 44:27Speaker 02

  Tesla is the world... Tesla produces, you know, I used to know this off the top of my head. They are basically 2X more valuable than Toyota. Toyota produces something like... No, VW produces like 9 million cars a year, and Tesla is...

• 44:50Speaker 02

  Five times more valuable than VW, four to five times. Tesla produced like 1.2 million cars last year. So, you know, this is a, that company is still by any normal measure of car companies, extremely valuable. It's valued like a tech company. And that is because Elon is the CEO. So getting rid of him as CEO, I don't know, maybe you could find someone else to convince the market to value it that high. But it seems, just, just, you're from the cheap seats. Like, it seems he is a big part of that valuation and you take him out and it's worth less. We actually always said the same thing about Adam Newman and WeWork.

• 45:34Speaker 02

  Like, the only reason that was a $47 billion company was because of him. And so if you changed him when it was worth, you know, when its valuation was falling or they weren't raising as much money, that would really make it hard for that company to be worth very much. They did oust him when they were near their own insolvency. But that was when they were near their own insolvency. And, and well, you know, then they put a real estate CEO in and now it's worth a billion dollars.

• 46:02Alex Kantrowitz?

  Uh huh. Okay. So he's probably safe at Tesla. What do you think the year ahead looks like for him at, you know, at Twitter?

• 46:10Speaker 02

  I am just bad at predicting anything with that man. I have no idea. I just hope we spend less time reading about it. But it really has this, it's this magnetic quality where like journalists, myself including, who's just like, I don't want to read about this, but I can't look away.

• 46:27Alex Kantrowitz?

  Right.

• 46:29Speaker 02

  So, uh, yeah, I don't know, is the short answer. And, and just praying we don't spend the entire year talking about it.

• 46:39Alex Kantrowitz?

  Oh, I think we will. I mean, you know, the thing about someone like Elon is he's done a lot of impressive stuff, you know, in his life. And I think the media has written pretty glowingly about all the impressive stuff that he's done. And just as, as a media story, you know, you're always looking for something new. And it seems like, you know, reporters are now like...

• 47:02Alex Kantrowitz?

  Going bananas trying to find problems and of course he's creating a lot of them as well and each little bit of his on the way down like it uh it becomes a big story and I I actually I think unfortunately this is sort of what society does is it builds people up and then it breaks them down uh and it happened with I mean it sort of reminds me a little bit of the like the Britney Spears story and Kanye story where like it just there's so much attention placed there's so much like because yeah there's so much buildup when it comes to a generational talent and then all the cameras flock and they wait for you to to mess up and then it becomes this thing where it's very tough for an individual to handle.

• 47:41Speaker 02

  Yeah, I mean, this is a much more both psychological and philosophical question that I'm that I'm good at analyzing, but like how much of of that is also a result of like how much does the the megaphone and magnifying lens change them? And certainly with with some of the CEOs that I've I've covered, like you can see that the the more magazine covers are on, uh, kind of like the more their ego goes crazy and kind of like you're really reinforcing, I think it's happened with SBF too, like you're you're really reinforced. How to put this coherently? If you're if you're selling a dream and and you haven't gotten there yet and then people give you a billion dollars or whatever and then you

• 48:25Speaker 02

  go get on all these magazine covers essentially because people gave you a billion dollars, not because you've actually achieved the dream and they say how you are achieving this dream like you you think you've done it and and then you think even bigger because selling that vision got you to it got you all this money and fame and and I I think that there is this tendency by that type of person, which a lot of startup entrepreneurs, to not not remember reality and and not remember that that they they're running a car company that's losing four billion dollars a year. They aren't running a successful Amazon of transportation.

• 48:59Alex Kantrowitz?

  Yeah, and I think that's ultimately what happened with Elon Musk and Twitter, where the market was telling him anything he did was working. Investors were telling him that. And the media was telling him that. And then he just became obsessed with Twitter and said, well, I could do this too. And I think it's just as simple as that with the Twitter story.

• 49:20Speaker 02

  Yeah, I mean, you know, I cannot possibly imagine to get into his head, but that seems plausible.

• 49:28Alex Kantrowitz?

  Yeah. Okay, let's let's round this out with with the ultimate question for you. Anything you're optimistic about or are you feeling optimistic, you know, in 23? I feel like the beginning of the year is always always a start to you always start with high hopes.

• 49:43Speaker 02

  I was really optimistic about how quickly I could do a mini home renovation, you know, project. And man was wrong about that. So that was a very recent flawed optimistic view. I, you know, I wouldn't say put it in the optimism camp, but I am I am super impressed by the chat GPT thing.

• 50:07Alex Kantrowitz?

  It's pretty cool.

• 50:08Speaker 02

  Like, yeah, I normally am like gizmos don't impress me that much. But like the the limericks that thing can spit back at you when you have a question and you want it to answer in limerick form are all day or ask it to give you like, you know, food recipes that it makes up and delivered in Shakespearean form. I mean, it's it's like.

• 50:30Alex Kantrowitz?

  It's pretty cool.

• 50:31Speaker 02

  It's it's super cool. You like, clearly, we we it's hard. There's a lot of people paid to do this, and I'm sure a lot of people are thinking hard and have ideas that are better than me. So but like, one can sort of imagine that that opens up some huge sort of demonstration of this technology opens up some huge array of of sort of other uses that are a lot more complicated than just like replacing journalists or cookbook authors.

• 50:56Alex Kantrowitz?

  Yeah.

• 50:56Speaker 02

  Which I'm sure it'll do some of at some point.

• 50:59Alex Kantrowitz?

  It's not a great writer.

• 51:01Speaker 02

  You know, yet.

• 51:02Alex Kantrowitz?

  Yeah, it's true.

• 51:04Speaker 02

  Neither am I.

• 51:05Alex Kantrowitz?

  Yeah, I mean, same here.

• 51:07Speaker 02

  And what else? I don't know. At some point, like driverless technology is going to happen. Like, it seems to be getting closer. I don't think it'll be the sort of like 2015 when everyone thought, oh, in three months, we'll have this. And the entire economy is going to change as a result. And everyone will be paying three cents to drive across the country. Like, that's obviously not going to happen. But, you know, transportation is a really big part of our lives, so.

• 51:38Alex Kantrowitz?

  Well, thank you, Eliot Brown, for appearing on the podcast. Your insights and expertise were greatly appreciated and added value to the discussion. We're grateful for your time and willingness to share your thoughts with our listeners. Thank you again for being part of the show.

• 51:49Speaker 02

  Best podcast in town. Happy to be here.

• 51:52Alex Kantrowitz?

  Yeah, ChatGPT wrote that, by the way. I'm not kidding.

• 51:56Speaker 02

  Really?

• 51:56Alex Kantrowitz?

  Just, I just had it right a notch. I said, I said, thank you. Thank Eliot Brown for appearing on the podcast.

• 52:02Speaker 02

  And next time in limerick.

• 52:04Alex Kantrowitz?

  Crushed.

• 52:06Alex Kantrowitz?

  Okay, should we do it? Let's just do it and then I'll let you go.

• 52:08Speaker 02

  Yeah, yeah, yeah.

• 52:10Alex Kantrowitz?

  Do it in limerick form.

• 52:17Alex Kantrowitz?

  Oh, my God, this is amazing. Eliot Brown, we must confess, your appearance on our podcast was a huge success. Your insights and expertise, they show them like a star. Thanks for being part of our show, you're afar. We're grateful for your time and your kind words, too. You really made the episode something brand new. So here's a limerick just to say to you for being on a guest on our podcast. It's true. All right, that's it. I'm outsourced. I'm outsourced. This thing is amazing.

• 52:46Speaker 02

  More of a poem than a limerick. I think, you know, they have specific rules about the standard. You know, it was a boy named Alex.

• 52:54Alex Kantrowitz?

  Yeah. All right.

• 52:56Speaker 02

  Next version. All right. It's been fun.

• 52:58Alex Kantrowitz?

  Eliot, thanks for joining. What a blast. Great having you. Appreciate, especially on a short notice. This was awesome.

• 53:03Speaker 02

  Sure.

• 53:05Alex Kantrowitz?

  And that will do it for us here on Big Technology Podcast. Thank you so much, Eliot Brown, for joining. What a great conversation, as always. Thank you, Nate Guattini, for handling the audio on a short notice. Really appreciate you, Nate. Thank you for doing this, as always. Thank you, LinkedIn, for having me as part of your podcast network. Holy moly, we're into year two of this partnership. That's awesome. And thanks to all of you, the listeners. So we're actually going to have a new show, a new episode, a week, starting Friday. I'm going to tell you more about it when we come on air next Friday, but Ranjan Roy is going to come on and be a permanent, permanent, perma guest, really, where we're going to have a show once a week with him. We're going to stream it live on LinkedIn and we're going to talk about all the news that happened

• 53:50Alex Kantrowitz?

  in the week prior. And I'm saying this because it was clear to me over time that there was so much news breaking in the tech world, we couldn't really get to it completely in our Wednesday show. And so now we're going to do it on a Friday show, Ron John every Friday, and our regular scheduled show as usual on Wednesdays. More on that to come on Friday. But for now, I just wanted to say thank you so much for listening. Thank you for being here with us year in, year out. We started in 2020, did 2020, 2021, 2022, and now we're in 2023, the fourth year of the show, or at least the fourth year that the show exists. That's pretty cool. And it wouldn't happen without you. Okay, thanks again for listening. We'll see you next time on Big Technology Podcast.

• 54:42Speaker 03

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