E43: Innovative venture strategies, Zymergen's implosion, Square acquires Afterpay, future of fintech & more

Show Notes: 0:00 Big week for the besties: Friedberg's new raise, Sacks' new fund & more 16:30 Innovative venture strategies: internal mark ups, venture studios, deployment strategies 30:44 Zymergen's implosion: role of diligence, how to make deep tech sustainable, finding frauds 43:26 How personal risk impacts decision making on a grand scale, narratives and fundraising 59:12 Chamath & Jason share Theranos stories, Jason calling out frauds 1:07:36 Financial deplatforming, Square acquires Afterpay, Square's savvy move, fintech's future, Jack Dorsey's unique position of power 1:28:05 New Yung Spielburg banger: "Friedberg Index" Follow the besties: https://twitter.com/chamath https://linktr.ee/calacanis https://twitter.com/DavidSacks https://twitter.com/friedberg 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: CNBC - Early Google exec got Larry Page's backing to build a start-up factory focused on saving the planet https://www.cnbc.com/2021/07/30/david-friedbergs-alphabet-backed-production-board-raised-300-million.html Medium - Announcing Craft III: $1.1 Billion for SaaS and Marketplaces https://medium.com/craft-ventures/announcing-craft-iii-1-1-billion-for-saas-and-marketplaces-c3c34448db17 CNBC - Synthetic biology company Zymergen plunges 68% after saying product revenue will be 'immaterial' in 2022, removing CEO https://www.cnbc.com/2021/08/03/zymergen-zy-plunges-68percent-on-forecast-for-immaterial-revenue-in-2022.html Zymergen - Zymergen Provides Business Update https://www.globenewswire.com/news-release/2021/08/03/2274125/0/en/Zymergen-Provides-Business-Update.html Reuters - U. S. charges Nikola founder Trevor Milton with lying to investors https://www.reuters.com/business/autos-transportation/us-charges-nikola-founder-trevor-milton-with-lying-investors-2021-07-29 CNBC - Square to buy Australia's Afterpay in $29 billion deal as 'buy now, pay later' trend takes off https://www.cnbc.com/2021/08/02/square-to-buy-australia-fintech-afterpay-amid-buy-now-pay-later-trend.html

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

• 0:00Chamath Palihapitiya?

  He's optimizing the view.

• 0:01David Sacks?

  No, I'm optimizing for shade, actually.

• 0:05David Sacks?

  Trying to get out of the...

• 0:07Jason Calacanis?

  Oh, fucking Christ, you look like a moron.

• 0:10Chamath Palihapitiya?

  I mean, this dipshit showed up. He showed up to my beach club yesterday and it was basically like someone had taken a mummy and then wrapped a mummy inside of a white sheet and then presented him at this place.

• 0:23Jason Calacanis?

  Oh, he lathered in his like SPF 500?

• 0:27Chamath Palihapitiya?

  And so I...

• 0:27Jason Calacanis?

  Lathered.

• 0:28Chamath Palihapitiya?

  At one point, I said at one point, "Let's go for a walk." And this asshole had the nerve to grab his cellphone and a battery pack for the cellphone. I forced him to leave the phone. He felt naked. Then I made him take off his shoes and socks. And then I tried to get him to take his shirt off. We got almost all the way there.

• 0:45Jason Calacanis?

  Yeah, that makes sense. Alright, everybody, here we go. Three, two...

• 1:05Jason Calacanis?

  Hey, everybody. Hey, everybody. Welcome to everybody's favorite game show, Guess Who's Not in Italy. Do, do, do, do. With us today, David Sacks, wearing sunglasses, with the view of an ocean, clearly on a nautical vessel. And I am in an old apartment in the center of Florence and Chamath is at his hideaway somewhere in the countryside. And Friedberg is in front of a abstract piece of art.

• 1:43Chamath Palihapitiya?

  Two people high on crystal meth trying to break into his car in San Francisco.

• 1:49David Friedberg?

  I'm no longer a San Francisco resident. I'm proud and sad to say, after 20 years of living in the city, I have relocated, still in a nondescript location, still in California, but...

• 2:02Jason Calacanis?

  You're in the Bay Area. Enough said.

• 2:04David Friedberg?

  I'm in the Bay Area.

• 2:05Jason Calacanis?

  So with us again, obviously, Rain Man, the dictator, and back from a week off, the queen of Kenwa. What, tell us, uh, queen, you had a big week. You had, uh, some nice ink come out, some press about the production board raising some Munster round, and you took the week off. Give us the feedback. What was it like taking a week off from the pod? And now you're getting press and you're becoming a public figure. What's it been like for you the past week? And tell everybody what went down with this new fund.

• 2:35David Friedberg?

  You know, my strategy was to take a week off from the pod and then have the ratings go up. And then I could quietly and nicely exit as a member of the cast. But unfortunately, I've been drawn, as Al Pacino said, just when I thought I was out, I am back in. So I missed you guys. I actually listened to the All In Pod for the first time ever last week. You guys did a great job.

• 2:57Chamath Palihapitiya?

  You mean, you've been complaining these other last 41 times without even listening to it?

• 3:02David Friedberg?

  You know, I will say I listened to it while we're on it. But this was actually really interesting.

• 3:07Jason Calacanis?

  What a bitchy little... That's big of you. You're actually listening while we're taping.

• 3:13David Friedberg?

  We do it ourselves. I hear the whole freaking thing in real life. So listening to it, I found it really entertaining. And I think I have a better appreciation. It's less about some of the points and facts we make, which I've been bitching and complaining about the topics. And, you know, where we go with the conversation and stuff. But it's just generally just nice to just hear everyone, you know, kind of shoot the shit. Anyway, good job.

• 3:35David Sacks?

  So you're saying you're a fan of the All In Pod?

• 3:38David Friedberg?

  I might get a wet your beat mug from one of our fans.

• 3:41Chamath Palihapitiya?

  I have one. I actually have three. I use it.

• 3:44Jason Calacanis?

  Sack sent me a whole gift basket from the kid who's paying for college, based on our IP.

• 3:49David Friedberg?

  That's all good. Good for him. No, so we, yeah, we announced our TBB funding last week too, which I have been running the production board for four years now, a little over four years. It's been my primary vehicle where I've been primarily incubating new businesses and making some investments from the balance sheet. You know, we've raised several rounds of capital over the last few years. We've never talked about it publicly. We've never done press around it. But as you guys know, the primary reason for going public with it was really just to gain recruit interest in the work that we're doing. So we really want to see great people be made aware of the work we're doing at the production board and at each of our individual businesses. So we could start to, you know, at least get...

• 4:33David Friedberg?

  Get folks knowledgeable and aware of us. So when we reach out and folks are interested in thinking about what else they might want to do with their careers and their lives, you know, we're hopefully there for them. So, you know, it was great. I mean, it's nice to kind of share what we're doing. We also shared five of our businesses that we've incubated, several of which have been stealth up until now. You know, one of which, Jason, I think you've kind of referenced in the past, our molecular beverage printing company, Kana. So that one's kind of starting to emerge a little bit more now after several years of R and D and work. So we're kind of making progress now and I'll hopefully have more to share over time in terms of what we're doing. But we're excited and it's great to have great investors come in. Yeah.

• 5:11Jason Calacanis?

  It's a great piece in CNBC by Ari Levy. I guess you gave him, he's a great journalist, by the way, like old school legit journalist.

• 5:19David Friedberg?

  Yeah.

• 5:19Jason Calacanis?

  And I think fan of the pod. How did you pick Ari to be the vehicle for this? Did you use a PR firm where you just decided I'm going to share it with this one person?

• 5:27David Friedberg?

  We had a mutual person who's in PR who introduced us. I didn't want to go do a broad PR thing. So I was just kind of like, um, let's get, you know, I was going to do my, my medium post, which I wrote as like a blog post and that was the primary content. And then it was like, let's just find someone good who can kind of at least, you know, push people to that content that can speak well to our business. And, you know, he was recommended. I've never met him before. Great guy. So, you know, we just wanted to kind of get that one piece done. Anyway, he did a great job. He said he, I think he's been on your show, right? If you're.

• 5:54Jason Calacanis?

  He's been on my show. He's been on This Week in Startups. Yeah. And I, and I see when I used to go to CNBC, I would, you, you walk down at one market, you used to go there, Chamath too, and you walk down like a row of journalists. And as you go to get on set, I don't know if this happened to you, Chamath, one or two of the journalists will intercept you and try to get a story. So he would always stop me, hey, I heard that Travis at Uber was this or whatever. Uh, but great job on the ink. It's great to see you, uh, you know, raise 300 million. There was a lot of references to Larry and Sergey and Google. Maybe you could tell us what, how much, uh, who, who led the round, this 300 million dollar round and what's Google's involvement?

• 6:31David Friedberg?

  When I first started the production board, it was my, I had made personal investments with my own money and started some businesses with my own money. And I had a series of dinners and conversations with Larry Page about like doing something together with Alphabet. I knew Larry from my Google days, obviously. Um, and, uh, you know, we, we ended up kind of after a bunch of conversations with folks at the level below, kind of saying, let's. I didn't want to manage a fund and I didn't want to go work at Alphabet. So the idea was I would set up a holding company, kind of a permanent company that like any business has a balance sheet with cash on it and can do stuff with that money. And Alphabet invested in the holding company. They put some cash in and this was four years ago. And they became a minority shareholder and had a board seat and I set up a board.

• 7:14David Friedberg?

  And so that's the work. And then we've raised another round since then and then we just raised this round we announced last week. And so our, you know, the round was, I think, I don't know if we announced, but it was kind of co-led by BlackRock. We had, you know, Morgan Stanley, Koch Industries, Bailey Gifford, Allen and Company, Foxhaven, Aromar, just a bunch of really high quality, long-term institutional investors. Alphabet put more money in. The Gates family office called Cascade has been an investor with us for a while. So they all put money in into the round and, you know, it's, it's great because we can use that capital to build new businesses and support some of our existing businesses. So some of our businesses are really hard, deep tech companies. We don't want to have to go rush out and raise venture money or, and we don't want to have an incentive to try and mark the asset up

• 7:59David Friedberg?

  and, you know, get a good mark on it. So really we can use some of our money now to support some of our businesses until they're ready to go commercial or until they're ready to raise outside capital, if that makes sense for them. Not always going to make sense. And so we have a lot of flexibility.

• 8:11Jason Calacanis?

  And you own 100% of every business that comes out of here, then you find a management team, as we discussed, and then spin them out. Chamath, what do you think of this venture studio approach? Which has only really worked for Bill Gross from Ideallab and maybe John Borthwick with BetaWorks in New York. And I guess science maybe worked as well with Dollar Shave Club. But here you have, you know, I think Friedberg, a great entrepreneur as well, doing this. What are your thoughts on this studio model going long in, in building companies in a studio system?

• 8:43Chamath Palihapitiya?

  Well, I think it means a lot of different things to different people. So I'm not sure honestly what a venture studio is.

• 8:50Chamath Palihapitiya?

  That's different in somebody else's view than what Friedberg is doing. But what I will say is that the difference thing that he's doing, which I believe in, is you have to become extremely hyper-focused. You know, I think that there was a moment where if you look at when Idea Lab was really successful, or when Beta Works was really successful, in the case of Idea Labs, they had a very specific prototypical web 1.0 business. Beta Works had a very prototypical web 2.0 kind of social business. They all worked because these guys were experts in those things. And so I'm pretty bullish on what Friedberg's doing, just because he's not trying to bowl the ocean. He's being very specific around, you know, synthetic biology. And I think that that is probably what got other people excited, because then, not only

• 9:34Chamath Palihapitiya?

  from Friedberg's execution capability, which I really believe in, but then now think about it if you're an investor. I don't want to put my money into something that all of a sudden looks like nine other things, where all of a sudden it creates a lot of correlation that I didn't really know existed, especially when I'm investing hundreds of millions of dollars. It's a very big deal that a lot of investors have. And so when Friedberg can very legitimately say, "Look, I'm explicitly focused in this thing," and then he also said, and Friedberg, you may want to talk about this, "And this is the only thing I'm going to focus on," it gives an investor a lot of confidence, because it's like, here's a really smart guy who's done this before, he's going to stay in this swim lane and do something really specific here, and now I can understand how it fits into the rest of my portfolio.

• 10:18Chamath Palihapitiya?

  So I think that there is a lot of value for investors in a bunch of different ways. So I don't know, I'm super excited.

• 10:26David Friedberg?

  I appreciate that, Cham. I mean, I think like, one of the things that mattered to me, Jason, and the way I kind of frame it, like, a lot of people think, "Oh, venture studio, it's about how many things you crank out." That's like Y Combinator's model. For me, it's not about how many businesses you start, it's about absolute value creation. So you know, you have to do the things that you have the resourcing to do with the objective being to drive business value as a whole. So that means doing one thing, doing three things, doing five things. It's not about how many things, you know, whatever the right balance is. It's not about just cranking out businesses because each one of these things, we have to continue to be active and we need to continue to build. And when we start a business, we reserve a good chunk of the business as equity for the team that works on it. So it's not like we're 100% owners, right? We've got to get

• 11:09David Friedberg?

  the right people. They've got to feel like and act like owners in that business with us.

• 11:12Jason Calacanis?

  You wind up owning 50% or ballpark 40%? What do you think?

• 11:16David Friedberg?

  It actually varies quite a bit. So, you know, without getting into too many details, I mean, you know, when we start the business, we're the majority owner. And in many cases, when we've brought in other investors, over time, we get diluted down and become a minority owner. So

• 11:27Jason Calacanis?

  So 30% or something like that, like if you did the series A or something?

• 11:31David Friedberg?

  But in, but in many cases, we end up being, um, you know, we want to continuously fund some of these businesses, um, because it may not make sense to bring in outside investors and, and we'll continue to be the majority owner. And, but we create an independent board. We make sure that the, the team feels like it's an independent business and we give them a lot of infrastructure and tooling, finance, HR, legal facilities, uh, support, recruiting support, et cetera. And obviously templates for how to succeed and, and playbooks and so on. So that's a lot of what I would call our platform value.

• 12:00Jason Calacanis?

  Amazing. In other bestie housekeeping.

• 12:03David Friedberg?

  By the way, David Sacks is an investor in TPB. I don't know if you guys knew that.

• 12:07Jason Calacanis?

  Very nice.

• 12:07David Friedberg?

  Invested around ago. So good job, Sacks.

• 12:10Jason Calacanis?

  Good job, Sacks.

• 12:11David Sacks?

  Is that another unicorn for me?

• 12:14David Friedberg?

  Technically, yes.

• 12:16Jason Calacanis?

  Look at you. Uh, well, in other news, uh, Sacks, this is like the victory lap, uh, episode. Sacks, you announced you're closing 1.1 billion dollars with a B in Kraft's third fund and explicitly talking about focus to Chamath's point, explicit focus on marketplaces and SaaS. Uh, maybe you could explain, uh, how long it took you to raise the 1.1 billion? I think the first one was 300 million. The second was 600 million. So you're basically doubling each time?

• 12:48David Sacks?

  Almost. I mean, the first one was 350, second fund was 510, this one is 1.12 billion. It's going to be 612 million for venture, which is C, Series A, Series B, and 510 for growth. And yeah, we are focused on SaaS and marketplaces. I kind of run the SaaS practice and my thesis is really the same as it was when I was doing Yammer, which is apply consumer growth tactics to enterprise software, make it go viral inside companies. Sort of sell it bottom up through the average employee as opposed to top down through the CIO. And then the other GP in the fund, Jeff Flor, is focused on marketplaces. He was the founder, CEO of StubHub,

• 13:31David Sacks?

  which was one of the original e-commerce marketplaces on the web. And so he leads the marketplace practice. And those are also, you know, I would say along with SaaS, marketplaces are the best kind of internet businesses to create. And so we just decided to focus on those two areas and that's kind of enough of the world for us.

• 13:53Jason Calacanis?

  And in related news, your project call-in, which is a podcasting plus casual audio application, has been doing great in beta. And I am proud to announce that we had a small allocation for our syndicate, thesyndicate.com, which is my syndicate, and then the all-in syndicate, which we created as a Lark. Between those two syndicates, my syndicate had 900 requests to invest over, I think, $7 million. We had a small $1 million allocation and we basically did a lottery. So something like one in, I don't know, seven or six got in. And then the all-in syndicate also filled up and then the all-in syndicate, no carry, no fees.

• 14:37Jason Calacanis?

  Everybody gets a free ride, thanks to David Sacks, and that's our first all-in syndicate. Chipping away at my core business and eating my lunch. Thank you.

• 14:47David Sacks?

  And that, the all-in syndicate is going to be 250,000, so it's 250 $1,000 checks with no fee, no carry, and where the company is paying the administrative expense of that. We just want to let, you know, 250 of our listeners wet their beaks.

• 15:04Jason Calacanis?

  Yep.

• 15:05David Sacks?

  So, and uh.

• 15:06David Friedberg?

  Is it open yet, Sax? Like, can anyone download the app and use it yet?

• 15:10David Sacks?

  No, it's still in private beta. We're gonna open up soon. You know, we'll certainly announce.

• 15:13Jason Calacanis?

  It's getting better. I was looking at it the other day. It's getting really tight. I mean, can I talk a little bit about it? Or do you not want to keep it?

• 15:19David Sacks?

  Yeah, go for it. Yeah.

• 15:20Jason Calacanis?

  Well, I mean, here's the genius of it. Um, and I mean that sincerely. Uh, not just because you gave me an allocation. But, um, Clubhouse, when you go to Clubhouse, if you miss the great conversation, it's gone. And Clubhouse has really bad audio quality and the rooms are eh. And there's really, you know, there's clubs as a concept, but in Call-In, uh, everybody creates a show. Then the show is syndicated to an RSS feed like a podcast. So you can basically start your own podcast with no staff, no post-production. You just talk and then it goes out to an RSS feed. So we're thinking, David and I, of doing like a post,

• 16:01Jason Calacanis?

  uh, show after All-In, like two days after, just to talk to the fans and do like a little private group thing. But it's kind of like a really nice overlap of podcasting and, um, yeah.

• 16:12David Sacks?

  Well, I was gonna say, it's, it's, it's basically long tail podcasting, using social audio as the gateway drug to, you know, to long tail podcasting.

• 16:21Jason Calacanis?

  Uh, is the company worth four billion yet? Have we, have we internally marked up the round four times? Like Andreessen Horowitz did with Clubhouse? Let me ask, let me get Chamath in the conversation. Chamath, what do you think of a venture firm? Making a seed investment at a hundred million, then a billion, then at four billion? For a product that, you know, is largely sideways. This is like internal three bets and marking it up 10x and then 4x. So 40x lift over three rounds. What do we think of this?

• 16:54Chamath Palihapitiya?

  I think the best venture firms shouldn't give a shit about any company. And I don't think that they really do. Because if they're very savvy, they should be doing exactly what Andreessen, you've seen the articles about Tiger, you've seen all these other folks. The real question is maybe if you want, can you please explain what they're doing? And what they're doing is, to me, if you understand,

• 17:25Chamath Palihapitiya?

  the investing landscape makes a ton of sense, which is, technology used to be the small niche. And so we used to only get, you know, when I started Social Capital, there was probably 25 to 30 billion dollars a year flowing into venture, just in 2011. Fast forward a decade, we have like 120 billion dollars a year going into tech and it's going up like crazy.

• 17:48Chamath Palihapitiya?

  And if you're the best brands, you're going to get the overwhelming amount of interest from people who want to get into the asset class as the asset class expands, right? So if all of a sudden, you know, you decided to invest in private equity when private equity was going bonkers, you're not going to take as much of a shot on an emerging manager. You're going to want to take a shot on Blackstone or KKR, right? And that's what's allowed those folks, Carlyle, to scale AUM just unbelievably. Assets under management. Exactly, half a trillion dollars now at Blackstone. Similarly, there are these indelible brands in venture. And when everybody realizes they need to be long tech, they jump in.

• 18:31Chamath Palihapitiya?

  Now, when they do that, you have to understand who these people are. There are two things that matter. One, they are people like pension funds and their hurdle rate, meaning, you know, what are they trying to do better than in terms of a rate of return is in the low to mid-single digits. That's really important to know. 8%, 9%, 10%. Not even, not even, not even. 5%, 6%, okay?

• 18:57Chamath Palihapitiya?

  And then the second thing you need to know is that these guys have so much money that they would rather, when they spend an hour meeting with you, they'd rather give you a $50 million check than a $5 million check. A $5 million check just compounds their problems. So if you put these two things together, it makes a ton of sense for companies like Andreessen to now focus on the velocity of money. Raise a fund, put the money to work, raise a new fund in a very systematic way that everybody can understand and can predict. So that Andreessen can tell their LPs on a calendar, "Guys, I'm going to be back to you in 18 months. Guys, I'm going to be back to you in a year," and be able to scale the capital. And I think if you, if you look at it in that framework, it explains Andreessen, it explains Excel, it explains Sequoia. And by the way, it's a brilliant

• 19:42Chamath Palihapitiya?

  strategy because these guys still make 2.5% on the money. They end up returning the market beta, meaning what the average market would do anyways, plus a little bit of alpha, right? So they'll still do a little bit better than the market, which means they'll be able to raise money infinitely. So if I'm Andreessen and I've had it-

• 20:00Jason Calacanis?

  You mean the public market or the venture market? So venture market typically does 20%?

• 20:05Chamath Palihapitiya?

  No, but that'll decay, right? So that'll decay down to the, to 10% or 12%. But my point is, it's still better than the 5% or 6% these pension funds and other folks need to earn. So today, the goal of every fund that's successful, that has a brand, David's included, should be, do good deals, make sure you're in things that, that can work. And the thing that David has, which other folks don't, is David can help make things work when they're not necessarily obvious, but then pound the money in and then raise more money as fast as you can. Because then, you know, it helps the investor, that's what they want, and they're happy to pay you. And then for you, the GP, you start to make

• 20:46Chamath Palihapitiya?

  enormous fees and the whole cycle works. So for Andreessen, I think that's the calculus. It's like, shit, if I can put 100 million in, that's 100 million less I have in my fund. Now I can go, I'm 100 million closer to raising the new fund.

• 20:59Jason Calacanis?

  Okay. Now, the criticism has been, Friedberg, I'll go to you.

• 21:05Jason Calacanis?

  It's bad hygiene for the same firm to mark up the same product three times. In this case, you know.

• 21:14David Sacks?

  Clubhouse.

• 21:14Jason Calacanis?

  What's in it? Clubhouse. So is that a warning sign for you that it's a bubble? Or it's kind of the worst case I've heard is like marking up your own book, self dealing, whatever. How do you look at that issue, Friedberg? And then I'll go to you, Sax.

• 21:28David Friedberg?

  Well, if it were SpaceX, you would look like a genius. So, you know, I think we can criticize it until.

• 21:37Jason Calacanis?

  Or WhatsApp.

• 21:38David Friedberg?

  Or WhatsApp. And Sequoia has done this many times where they've been the lead in multiple rounds in the company and they have high conviction in the quality of a business and they don't want to bring other investors in. And when you have high conviction and you can continuously buy more of the stock and buy more of the company and be a bigger owner. And then it works out, you look like a frigging genius. And so I don't want to criticize the investing style of these guys. I mean, time will tell if they made good bets or not as a whole. You can kind of make the case maybe that they're trying to be asset managers and drive assets under management up and gain more fees. But I think LPs are a little shrewder than that. They'll kind of take a smarter look at that. At the end of the day, the guys that are known for doing this, like Sequoia and Founders Fund and others, have had incredible returns by doing exactly this.

• 22:22David Friedberg?

  So the strategy does work and you know, you just have to have to do it with the right businesses and that I think that will, you know, demonstrate the quality of your investing acumen.

• 22:33Jason Calacanis?

  All right, Sax, any further thoughts on that? The marking up your own book, is that something you plan on doing with this new fund and having the growth? And how would you look at, hey, call in, starts getting some traction, does that mean your growth fund is going to go market up and take that, those shares? Or do you think that it's better hygiene to have the market price it?

• 22:53David Sacks?

  Well, I guess it just depends. I mean, the growth fund does give us the ability to double down at a later stage on our own early stage companies, but you do have to be really sure when you do that because it does, you know, it certainly raises questions if you're wrong, right? That you wouldn't have with any other investment. So it just, it definitely raises the stakes. You have to be really certain, I guess. But you know, if Colin's a big hit, do we go raise, you know, a growth round? Yeah. And now I think what we might do in that case, because we incubated it is we'd let somebody else lead the round and then we would participate. So you have some third party setting the price because we incubated the company. And frankly, that's what we did with the round that you just participated in is Kraft participated, but we did not set the

• 23:38David Sacks?

  terms. It was actually Goldcrest and Sequoia co-led the round with Kraft.

• 23:44Jason Calacanis?

  When you incubate a company like that, let me ask another technical question, because the audience last week or in the week before really responded well to us talking about this as opposed to COVID and Delta variant, which we'll talk about at the end of the show. For those people, you can basically turn off the show at 50 minutes or 75 minutes when we talk about the impact of the pandemic. But and I'm hoping you're thinking right now about who's not in Italy. I hope we'll get back to that at the end. When you incubate a company like that, who owns the original founder shares? Kraft, the organization? David Sacks, the individual came up with it? What's the inside baseball there?

• 24:21David Sacks?

  So it's sort of all of the above. And we, meaning Kraft, have a deal with our LPs. That's called an LPA, limited partner agreement. And one of the things that was negotiated when I founded Kraft four years ago was the terms on which Kraft would incubate deals. And, and so it's all predetermined what I get as a founder, what, what our funds get, what the LPs get. So there can be no argument about it later. And this is this, I call it, well, we've actually done now, we have a few incubations in development. You know, for me, it's really important to scratch that product itch. You know, I'm originally

• 25:04David Sacks?

  a product guy and, and I, you know, I love investing in helping companies, but occasionally about, I'd say maybe once a year, I get a product idea that I think is worth developing. And so this gives us the ability to incubate it. So we did it a few years ago with a crypto company called Harbor. We ended up selling that company to Bitco, which just announced the largest acquisition of a crypto company. Galaxy is acquiring it for something like 1.2 billion. So anyway, so Harbor, I think, will work out, you know, once that deal closes. And Colin's the second one. There's a couple of other things that are still, you know, they're too early to talk about, but, but I think Colin will be the, the second one to, to launch.

• 25:45Jason Calacanis?

  Chamath has an LP in a lot of funds. What do you think when somebody comes to you and says, I want to, in my LPA, my limited partner agreement, have the ability to incubate these companies? Is that a good trend, bad trend? How do you think about it?

• 25:58Chamath Palihapitiya?

  I think it's great. I mean, I don't really, you know, push back on a single term in any LPA because I'm only doing it mostly to support people. And so whatever terms they want, they get from me. And, you know, kind of just like let them go and hope they get lucky, you know? I have a very different approach to, to these kinds of things because I'm not necessarily trying to compound my capital. I'm just there to sort of enable folks and, you know, take 1% of the fund or sometimes a little bit more if I really have an asymmetric view on a specific thing that they're doing, but otherwise I just take 1% of the thing and, you know, wish them, wish them the best and then try to support them.

• 26:40Chamath Palihapitiya?

  And that's all I'm trying to do. If I believe in what, how they're investing and the deals they've done, you know, however they do it is up, is fine with me. I want to go back to something which is, I actually think it's not a question of hygiene. It's really a question of governance because when you do these things and you mark these companies up, the real question, if a company stops working, is they tend to have too much money and then they tend to not have enough governance. And the reason is because governance typically comes with board diversity and board diversity comes with more and different investors who have different, you know, puts and takes at any given point in time. That diversity is very helpful to keep everybody on the same page and...

• 27:21Chamath Palihapitiya?

  To actually get a decent outcome when things aren't working as much. Now, when things are working, obviously, nobody cares, you know, because like you can just have Jim Getz on the board of WhatsApp with Jan, and it's all kind of said and done.

• 27:33Jason Calacanis?

  It's up and to the right. So as we're saying, when things are, when things are good, nobody complains. Yeah.

• 27:38Chamath Palihapitiya?

  No, and you know, this may be a good jumping off point for, you know, we wanted to talk about Zymergen today.

• 27:44David Sacks?

  Can I say one thing before we get into Zymergen, which is just, look, I think there's all sorts of new models now with, with this sort of tech and the money going into tech, the venture capital exploding. There's all these innovative new models. I think it's all for the good. A studio that I think is great is what Jack Abraham's done with Atomic. You know, they produced multiple unicorns out of there because Jack is just a phenomenal idea guy. He's like a 10x idea guy. So he then, as part of Atomic, comes up with the idea and then brings on a operating partner and that model works for them. And then, you know, he just partnered with Keith Raboy on Open Store. And Keith decided to become the CEO, and Keith is still a GP at Founders Fund.

• 28:26David Sacks?

  So we're seeing like the blending of these models, you know, it used to be that you made the decision to become a VC and your career as a founder was just over. It was like this line that could never be crossed again. And now you're seeing the blurring of these lines. And, look, I think it's good for everybody because frankly, when, you know, Keith or, you know, what I'm doing with Colin, we remind people that we're still founders and product people and, you know, not just sort of semi-retired guys. And frankly, it's like, it's good for what we do as investors.

• 28:59David Friedberg?

  I mean, we saw it with Mike Spicer, who is a partner at Sutter Hill. He incubated, started and was the original head of Snowflake, which was a massive-

• 29:08Chamath Palihapitiya?

  And before that, he's, this is his third. So, you know, he did Pure Storage, he did Snowflake, I think he did Lace Works.

• 29:15David Friedberg?

  Incredible.

• 29:15Chamath Palihapitiya?

  He's incredible. He's just fucking money.

• 29:18David Friedberg?

  And just, just, just folks that don't know, Snowflake, you know, it's an enterprise software company. They make software. So he's a venture capitalist. He started this company while working as a venture capitalist. They brought on a great CEO, this incredible guy, later, who's Frank Flutman, who's, who's a legend. And the company just went public last year, I think, or the year before, and they're worth $82 billion today. And so it really highlights that while this guy is still operating as a venture capitalist and a GP, he's been able to generate incredible returns for his fund. And build amazing businesses at the same time. So

• 29:51Chamath Palihapitiya?

  I mean Spicer Spicer is a perfect example because I I've known him since like the early 2000s. And at one point Spicer started this consumer company called Bix. And I was like, we were like an investor. I was a small investor in Bix. And and it got, I think it got acquired by Yahoo. And it was always curious because Spicer was clearly the smartest one in the room. And it's like, he was kind of grinding this consumer thing. And then he left Yahoo, went to Sutter Hill, and he basically said, you know what? Fuck this. I'm going back to my roots because before that he was a pretty traditional enterprise guy. And he just crushed it. It's kind of like Michael Jordan was finally like, ah, fuck baseball. I'm going back to basketball.

• 30:30David Friedberg?

  And it's like Reid Hoffman and Neil Busery at Greylock, right? I mean, these guys are incredible operators, business builders, and they continue to do that work while while being partners in the venture.

• 30:41Jason Calacanis?

  We have three directions we can go moving on. Zymergen.

• 30:44David Friedberg?

  Zymergen is so interesting. I think we should do it.

• 30:46Jason Calacanis?

  Okay, let's do Zymergen. I agree. All right. So for people who don't know, Zymergen went public at $31 a share in April. Trade as high as $48 shortly after that. I had the CEO on my podcast. And I was confounded trying to understand the business. You had told me I had asked you for some questions, Friedberg, and you gave me some choice statements of what to ask. Which can I say?

• 31:12David Friedberg?

  No, I don't think so.

• 31:14Jason Calacanis?

  Okay, anyway, you gave me some choice questions. I didn't ask them exactly the way you said them. But here is the quote of what happened on Tuesday. Zymergen stated the following. Zymergen recently became aware of issues with its commercial product pipeline that will impact the company's delivery timeline and revenue projections. Accordingly, the company no longer expects product revenue in 2021 and expects product revenue to be immaterial in 2022. They also announced that the founding CEO, Josh Hoffman, who was on This Week in Startups two, maybe a month ago, stepping down as CEO and be replaced. And Zymergen stock then dropped 70% on the news. I don't know if this was a SPAC or not. SoftBank hyped them.

• 31:58David Friedberg?

  It was a straight IPO and the stock dropped 80% yesterday, 80% a day after going public like three months ago.

• 32:04Jason Calacanis?

  So I think Friedberg, a good way to start would be. What did they say they were gonna do? And then why has this happened?

• 32:12David Friedberg?

  So Zymergen and a couple of companies like them started around the same time, which is around 2014, 2013, 2012, that era, 2015 even. And the promise of these companies is truly to be, everyone wants to be this platform for synthetic biology. And what that means is they can take cells, and in a smart way, edit the cells and get those cells to make things that humans need. And so you can kind of think about making materials like silk and leather and plastics. And you can think about making food, like egg proteins and milk proteins and so on. And you can think about making industrial products, you know, enzymes and things that might be used in laundry detergent, other applications. And so for years, you know, we've gotten DNA sequencing cheaper.

• 32:56David Friedberg?

  We now have DNA writing and editing cheaper. We've now got other tools to basically screen cells. So we have these, the set of tools, where these synthetic biology platform companies popped up and said, you know what, we're gonna put all these tools together and build a platform for editing cells and doing a better job of making things. And we're gonna get into all these markets. And Zymergen, when they first started, were, like several other companies like them, a services business. So they would go to big partners like DuPont and say, hey, let us make a new enzyme for you. Pay us $25 million upfront, and then we'll get a royalty on the backend when that product eventually goes to market. And they did that for years. They went after insecticidal products. They went after plastics and materials and all sorts of stuff. And as is the case with a lot of deep tech,

• 33:40David Friedberg?

  it turns out it's really friggin' hard. You know, these tools might be there, but like we saw with the clean tech era, where everyone thought they could make oil from sugarcane, you know, 20 years ago, using the same sort of approach, to get the unit economics, meaning can you make the product cheap enough? It's really, really hard. That means you gotta get these cells to be just perfect. And you gotta get the systems to be perfect. And so at the end of the day, they went through a lot of customers at Zymergen that paid them tens of millions of dollars. And Zymergen didn't have anything at the end of the projects to say, here's something that works, that you guys are willing to pay for, that you're gonna go take to market. Because it really wasn't that compelling. The unit economics weren't good enough. And it didn't really have big breakthroughs for any big industry. And so Zymergen, like other companies in the space, pivoted and said, you know what? We're going to now be a products company.

• 34:24David Friedberg?

  So we're going to make our own products instead of just being a services company. And as they started to get into that, they decided that their first big product would be this kind of, you know, plastic for, for, um, for, for cell phones or what have you, protective film.

• 34:38David Friedberg?

  And in the meantime, what happened is it takes so much money to do all this R and D, to run all these labs, to have all these robotic arms that they have that are moving test tubes around hundreds of people building and running these labs. And, um, and so they've had to raise money. And in order to raise money, as you guys know, you have to kind of hype the story. You have to say, look, we're going to change the world. We're reinventing everything. We're using synthetic biology to rebuild everything, yada, yada. And the story resonates with me because I truly do believe that the potential is there. But the timing and the sequencing of these things is hard. As is the case with a lot of deep tech companies, when you get too far ahead of the curve and you start saying, I'm going to do X, Y, and Z, but you can really only do A, B, and C today. You raise money saying, I'm worth billions of dollars. You raise hundreds of millions of dollars and the hype has to keep stepping up.

• 35:21David Friedberg?

  And they eventually got into the trap that a lot of companies got into, which is taking money from SoftBank. And SoftBank said, here's $400 million at a $3 billion valuation a few years ago. And they said, great, let's run at it. Let's be a products company. And they burnt through a lot of that money and suddenly they didn't have any products to show because deep tech is hard and it took a lot longer than anyone thought. And what will, you know, we better try and craft a narrative and get public. And so they did that, they got public. And, um, you know, a lot of what they had been telling people was coming, was coming. It's going to be here soon. Didn't really work. So they had to pivot the business. They had to become a products company. They kept telling folks they were going to be X, Y, and Z months away. Uh, and they were going to be able to hit these targets on the product. And it turns out it was always a little bit, little bit further away, a little bit further away. And then boom, they have a big board review recently and they look at the product pipeline

• 36:06David Friedberg?

  and they look at where they are and they're like, oh, oh, this really isn't going to work. And the whole thing, you know, falls apart because everyone was banking on this massive return and everyone missed the story, which is that they'd been doing this for many years and had to eventually abandon and pivot away from their business because no one was willing to pay them for it. So truly, they never found product market fit in their first generation of their business and they never found product market fit in the second generation of the business. And it's really worth taking a watchful eye based on this, this learning, which is just a fundamental, basic premise for starting a company. Do you have product market fit and can you make money from your product? And if you can't answer those two things, there isn't a business. And then the third thing is how valuable is the company as a function of how much you can grow. And so, you know, they really hadn't even gotten

• 36:50David Friedberg?

  past phase one and everyone kind of wanted to believe the hype. So it's a bit disappointing to see, but it's really going to impact the industry broadly because now people are going to say a lot of synthetic biology companies are smoke and mirrors and they're really not there yet. So a lot of folks in the industry are really concerned right now.

• 37:05Jason Calacanis?

  So to dovetail this with the previous discussion, Saks, funding your own company, overfunding of companies, we talked about, hey, if it goes well, like WhatsApp did, well, you're a genius. But if it doesn't go well and you get ahead of your skis, you don't have product market fit and you've raised a bunch of money, then somebody becomes the bag holder.

• 37:24Chamath Palihapitiya?

  No, Jason, it's even, it's even bigger than that. It's, it's not just that it happened just in the private markets and then you had JP Morgan and Goldman Sachs take them public. And then they raised, you know, another half a billion dollars in the public markets and then they shut the bed.

• 37:40Jason Calacanis?

  Right. And we've seen the same thing. This is the same week that Nikola's founder, who went out by SPAC and was going to compete with Tesla and Ford, there, he's now under indictment for lying and selling shares, also known as security fraud, probably going to go to jail. I had him on the podcast. That was underwhelming. So Saks, when we look at these, which is it? Should we, on a hygiene basis, be throttling these companies and have milestone-based financing? Or is this the sign of a top in the market that people are able to go public? People are being given large amounts of money by SoftBank? And these things, probably, people should pump the brakes?

• 38:20David Sacks?

  Yeah, look, SoftBank is engaged in a style of investing that we would never engage in. It's absolutely antithetical to the way that we invest, right? They're making $500 million seed investments in massively overvalued companies. You know, we are, one of the reasons why we like SaaS and Marketplaces at Kraft is they're very milestone-based. I mean, you know, if we invest before you have a functional product, it's going to be at a seed valuation, you know, like a 10-cap, $10 million valuation, not in the billions, like, you know, like Zymergen. And, you know, we're gonna, in order to do a Series A, by and large, we need to see some revenue, you know? And then, you know, if we're gonna do a growth round, we need to see more revenue and more customers.

• 39:04David Sacks?

  And so, you know, you show incremental progress. You know, we're engaged in milestone-based investing where the amount of money you raise and the valuation you're able to get scales with the amount of proof that you have delivered, you know, to investors about the company. And the crazy thing about these, like, spectacular implosions, and they're usually around deep tech, is because these entrepreneurs can tell a story. And people just seem to suspend belief and don't demand any proof for years and years. So it was Theranos, it was Nicola, now it's Zymergen.

• 39:39David Friedberg?

  And I think, by the way, deep tech is, it's not that we should dismiss technically difficult problems. We should engage and fund and build great businesses that are technically difficult.

• 39:50Jason Calacanis?

  How much do we fund them for? How many months or quarters?

• 39:53David Friedberg?

  Yeah, but, or, I mean, really, what's important? Well, what's important is, you know, what is the representation that's being made? And I think there's only one hype man on planet Earth that is good enough to pull this off and actually deliver the goods at the end of the day. It's probably Elon, like, because, you know, he funded these businesses that were deep tech businesses, Tesla and SpaceX. For many, many years, he was able to get investors excited.

• 40:16Jason Calacanis?

  He funded them himself. He funded himself.

• 40:19David Friedberg?

  But remember, most of the capital, I mean, he put in some capital, but the vast majority, billions of dollars of capital.

• 40:24Jason Calacanis?

  No, no, with Tesla, he put in 50 million and went bankrupt. He went bankrupt. He was living off a $200,000 loan from a billionaire friend of ours.

• 40:33Chamath Palihapitiya?

  Yeah.

• 40:33Jason Calacanis?

  No, no, no, beep that out. Beep that part out. You're not allowed to say who.

• 40:37Chamath Palihapitiya?

  Sorry, sorry, sorry.

• 40:37Jason Calacanis?

  It's not public.

• 40:38David Sacks?

  Elon only self-funded the first couple hundred million of these companies. He delivered revenue very early on. You remember at Tesla, he first developed the sports car, the Roadster, and that was real revenue.

• 40:48Jason Calacanis?

  For $150,000, he sold 100 in advance, not dissimilar to Virgin Galactics Playbook.

• 40:56David Friedberg?

  Right. And maybe that's an important lesson, right? Like, in deep tech, you can't just say, "I'm going from zero to one with billions of dollars over decades." You know, that's a government-funded program.

• 41:06Chamath Palihapitiya?

  Well, or you can, if it's your own, and that's what Branson did.

• 41:11David Friedberg?

  At Bezos.

• 41:12Chamath Palihapitiya?

  When I showed up, Richard had spent 1.1 or 1.2 billion of his own money. And I thought, I mean, at some point...

• 41:19Jason Calacanis?

  Skin of the game.

• 41:21Chamath Palihapitiya?

  That's skin of the game.

• 41:23David Friedberg?

  I mean, Bezos has been funding Blue Origin for 20 years, right?

• 41:25Jason Calacanis?

  I think they take Necker and Mosquito Island if that doesn't work out. I mean, he's...

• 41:30David Sacks?

  There was also Quibi.

• 41:32David Friedberg?

  That's another story.

• 41:33David Sacks?

  Yeah, Quibi didn't even involve deep tech. It didn't require any scientific breakthrough. It just required some marketing proof that people were interested in that format. And they just blew a billion dollars.

• 41:43David Friedberg?

  Describe it, Jack. Just describe it.

• 41:44David Sacks?

  Well, basically Katzenberg, along with Meg Whitman, who was kind of a weird choice to be a co-founder, because she's more of like the late-stage CEO you bring on to take the company public once it's already working. She's not really like a founder person.

• 41:57Jason Calacanis?

  She's not a product innovator, no. She's not a product founder.

• 42:00David Sacks?

  But Katzenberg, Katzenberg is though, right? Katzenberg is obviously very creative.

• 42:04Jason Calacanis?

  Yeah, he knows talent.

• 42:05David Sacks?

  And so they came up with this idea. He knows talent. So they came with this idea to build a studio. They put a billion dollars into creating short 10 minute videos. The problem was there was no proof that the market was, wanted that format. They should have spent five or 10 million proving that the format made sense and then spent a billion dollars if it worked. And, um, you know, I just, I, I, I don't understand why, why, um, founders or really investors kind of put up with these types of stories.

• 42:34Chamath Palihapitiya?

  Look at WeWork, same thing.

• 42:36David Sacks?

  Yeah.

• 42:37Chamath Palihapitiya?

  There was not a shred of, there was not a shred of evidence that there was an economically viable model there. And yet billions and billions of dollars went into that company before the bottom dollar.

• 42:46Jason Calacanis?

  Well, it actually, in fairness.

• 42:48David Friedberg?

  I disagree, I disagree on that one.

• 42:49Jason Calacanis?

  The first couple of years was economic viable. It just wasn't a software business.

• 42:53David Friedberg?

  They had great gross margins. It just wasn't scalable like software. Exactly. There was no leverage in the model. It was just purely like, go lease something for X dollars and then sublet it for X plus Y, you know, X plus Y dollars. And, and it worked. It just like, how do you scale that? And then they got ahead of their skis and did all sorts of crazy stuff to get the tech valuation.

• 43:09Chamath Palihapitiya?

  Hold on a second, but it's not like you can just go to the store and buy it off the shelf. Like there's a tech valuation thing you can buy. Other people had to believe it as well. And those other people were also pretty credible, smart people.

• 43:22Jason Calacanis?

  Were they the later stage people?

• 43:24David Friedberg?

  Did you read the WeWork book?

• 43:25Chamath Palihapitiya?

  The later stage ones? I think we're like, we're like evading the thing that, that we're not saying, which is that as much as we all want to believe that we're all doing incredibly, incredibly diligent work, there are a lot of examples where belief trumps logic. And even the smartest people just look past the obvious. And we just talked about four pretty obvious examples. In no world should a credible tech investor not be able to do a simple valuation or see a business model and brazenly believe a real estate business is a tech business. At the same time, there should be no world where, you know, you're pitched something

• 44:08Chamath Palihapitiya?

  that is just so incredibly grandiose from a technical perspective and be, and the reason you invest is actually because you don't understand it. Because if you did, you'd be more critical. That's fucking insane.

• 44:21Jason Calacanis?

  Well, this is the thing, Chabak.

• 44:22Chamath Palihapitiya?

  People are suspending disbelief. These examples that you just brought up are exactly that.

• 44:27Jason Calacanis?

  Yes, they're suspending disbelief out of greed and they're not doing the basic tenants of investing, which is milestones, talking to the customer. These are blocking and tackling.

• 44:38Chamath Palihapitiya?

  I think it's more than greed, Jason. It's greed.

• 44:41David Sacks?

  There's fraud too.

• 44:42Jason Calacanis?

  It's criminal. It's fraud. Let's be honest, it's fraud.

• 44:45David Sacks?

  Some of it's fraud. So read, read the quote, read the quote from the US Attorney of Manhattan, who said Milton, with respect to Nikola, lied about nearly every aspect of the business. People like that need to go to jail, okay?

• 44:56Jason Calacanis?

  Jail, big time.

• 44:57David Sacks?

  Jail, big time. The startup world, the investing world only works if investors can trust the information and the financial statements that are being given by operators, because we have to make decisions quickly. And if they give us bogus numbers, how are we supposed to make educated decisions?

• 45:12Jason Calacanis?

  Well, people don't want to do diligence, Sax. People don't want to do diligence anymore.

• 45:16David Sacks?

  We look at metrics. We always look at metrics, okay? We look at, um, look, we can get, we can do the metrics in one day.

• 45:22Jason Calacanis?

  Churn.

• 45:23David Sacks?

  We, we, look, we look at ARR, we look at net revenue retention, we look at churn, we look at CAC, and we look at your financials. We can do it in one day, okay? It's not an invasive process. We can decide very, very quickly because we know what numbers we're looking for and how to read the statements we're given.

• 45:38Jason Calacanis?

  But question for you. When the founders say, I have a competitive process, we don't want to do all that, has that been happening in today's crazy market? Where people say the train's leaving the station and we can't do diligence? We don't have time for this. Are you in and you out? Has that happened to you? Has that happened to you in the last six months?

• 45:55David Sacks?

  In, in a sense, but we say to them, listen, here's what we need. And if you give us these numbers today, we can make a decision within 24 hours. So, and there's no reason we can't. And by the way, they have those numbers. And if they say they don't have those numbers, they're too incompetent to be funded, because these are all the core SaaS metrics that you should have to be tracking your business. So we would never make an investment without seeing the SaaS metrics for a SaaS business.

• 46:16David Friedberg?

  Yeah, let me just step in for a second, because I think there's two camps. One is businesses. Companies that operate a business and what you're talking about, it makes a lot of sense. You could have looked at the business metrics of WeWork and made an assessment of the quality of that business.

• 46:29Jason Calacanis?

  Or Nicola.

• 46:30David Friedberg?

  Or Nicola. Well, on the other hand.

• 46:32Jason Calacanis?

  Or Theranos.

• 46:33David Friedberg?

  On the other hand, you have companies, I'm saying not Theranos and not Nicola, because those are not businesses yet. Those are still in technology development. They're deep tech. So what happens is the founder, the CEO, the management team, they put together their own representation of the metrics that they believe should matter. And then they try and show how those metrics translate into value over time. So there's no revenue, there's no customers, there's no profits. What they're saying is we can, in the case of Zymergen, we've got X number of experiments we can run per day. And as a result, those experiments should translate into Y discoveries per year. And those discoveries should translate into Z dollars of revenue per year. And that's where the pyramid gets built. And the same was true of Nicola, the same was true of a lot of these companies where they say, we

• 47:18David Friedberg?

  can do X, therefore we're worth Y. And it's that sort of narrative that investors then say, my God, the story is so compelling. If you're right, I want to believe it. I want to put the money in and I want this thing to work and therefore I'll fund this thing. And I think, and I think that's what we've seen continuously. It started with the clean tech industry and now we're seeing it increasingly with all of these other deep tech companies.

• 47:41Jason Calacanis?

  Magic leap.

• 47:41David Friedberg?

  Magic leap. And in a lot of these cases, by the way, I will also say.

• 47:44Jason Calacanis?

  Nicola.

• 47:45David Friedberg?

  It's, you know, it's easy to do that, but it shouldn't be a representation that the entire set of opportunities is a false narrative.

• 47:52Jason Calacanis?

  Absolutely.

• 47:53David Friedberg?

  There are many great businesses in biotech that actually do deliver the goods and they turn into incredible companies.

• 47:58Chamath Palihapitiya?

  There's a synthetic biology competitor, Zymergen, who I spent a bunch of time with. I'm not going to say the name of the company. And they, and I, and I asked them, what gross revenue was.

• 48:10Jason Calacanis?

  Simple question.

• 48:11Chamath Palihapitiya?

  What's your gross margin? What's your revenue? What are your COGS? What's gross margin? And I got an asterisk laden answer.

• 48:19Jason Calacanis?

  What does it mean? Asterisk laden answer?

• 48:20Chamath Palihapitiya?

  It's kind of like adjusted EBITDA. Adjusted for what?

• 48:25Jason Calacanis?

  Speak English. That's what you gotta tell them. Speak fucking English. This is like when I would come home, my dad say, where's your report card? I say, you know, that's interesting. My report card? Yeah, I don't have it. So where is it?

• 48:38Chamath Palihapitiya?

  I passed. And then I, you know, again, it's still shocking to see the number of people that will still do these deals. And look, maybe it all works out in the end. But I tend to think like, if you can't present things simply, and you can't explain things simply, that's on you. However, if then you still do that, and you still have good intentions, maybe you don't. But then investors toe the line. The problem is there's this momentum thing that happens among investors, as Friedberg said, where the FOMO kicks in. And some of the smartest people become some of the dumbest fucking people.

• 49:13Jason Calacanis?

  It, no, they are suspending disbelief, like you would not believe in the industry, right?

• 49:17Chamath Palihapitiya?

  Well, because it's not their money. I mean, look, at the end of the day, why does it happen? Meaning, how can a Zymergen IPO happen like this?

• 49:25Jason Calacanis?

  Or Nikola?

• 49:25Chamath Palihapitiya?

  Like, meaning, if you look under the hood in the S1, I was trying to find it in the S1. Was there somebody that actually did like, some due diligence into Highline? Clearly not. Was there, was there a synthetic chemist or a synthetic biologist that basically helped? Clearly not. Um, did everybody say that that was okay? Clearly yes. You know, um, did, I don't know, anybody get under the hood of Nikola? Uh, and actually like, look at the engine, make sure the thing worked? I don't know.

• 49:57David Friedberg?

  By the way, people did. There just were enough people that didn't, that they were able to get a financing done. Right? I, I, and I think that, that's the important point is there's enough people that want to believe.

• 50:06Jason Calacanis?

  I'm talking about two public market examples. You're not allowed to have sequestered diligence when you're going through an IPO.

• 50:11David Friedberg?

  Yeah.

• 50:12Jason Calacanis?

  So how it works?

• 50:13David Friedberg?

  By the way, I, I, like, do you guys know the difference between humans and animals? There's one, there's one distinguishing characteristic that, that, that, that I think

• 50:22Jason Calacanis?

  Making tools? No narratives, narratives. Stories, yeah.

• 50:27David Friedberg?

  It all comes down to narratives. Like, there are dolphins that can communicate with one another. There are monkeys that sit in a tree and they can warn each other about approaching predators. Meaning that there are other species that can communicate. What humans can do, that no other species can do, is create a narrative. To create an ethereal belief in something that does not exist. And get others to believe in that story. Religion, democracy, the financial institutions, the monetary system, a business like this, they're all the same. It's all about someone saying-

• 50:56Chamath Palihapitiya?

  High life, high life, Nikola.

• 50:58David Friedberg?

  Yes, exactly. And I think in all these cases-

• 51:02Jason Calacanis?

  By the way, this is the Cliff Notes version of Sapiens, everybody.

• 51:05David Friedberg?

  Yes, yes.

• 51:06Jason Calacanis?

  Cliff Notes version of Sapiens.

• 51:08Chamath Palihapitiya?

  I have a funny Theranos story, if you guys want to hear it.

• 51:11David Friedberg?

  Let me just finish this one point. Like, there's a fundamental premise, which is humans want to believe. And so when you have a Barnum-type person show up, when you have a, you know, a compelling narrative, and a compelling deliverer of that narrative, whether it's a religious leader, or a presidential, or a government leader, or a business leader, and you want to see what they're selling come to reality, you want to write a check. You want to put your time or your money into seeing that thing come reality.

• 51:39Chamath Palihapitiya?

  No, no. I fundamentally, look, you're missing a key point. It's not their money, so stop saying that.

• 51:47David Friedberg?

  Go ahead.

• 51:47Chamath Palihapitiya?

  They would not put their children's fucking education account into these companies. They're putting other people's money. They're putting other people's money. This is the key thing.

• 51:56Jason Calacanis?

  Not enough skin in the game.

• 51:57David Friedberg?

  Employees put their time into these companies for the same reason. People join WeWork-

• 52:01Chamath Palihapitiya?

  It is not their money. People trade off money and time all the time.

• 52:05David Friedberg?

  My point is, people will take their time, they're giving up the opportunity cost of working somewhere else to go work at these companies.

• 52:12Chamath Palihapitiya?

  David, David, I honestly, I really fucking disagree with you here. The reason why somebody goes and works at this company, because they believe there's positive signaling from a soft bank. Okay? So, these people are smart, they think. This money must mean it's real. They think, "I'm now going to commit my reputation and my time to get options, because obviously these folks must have done their work. I'm not making the mistake." And that's the lie, because those folks are not doing the work.

• 52:37Jason Calacanis?

  You're both making sense. There's a group of people, no, there's a group of people placing bets, who are placing bets of other people's money, and they're doing it with our diligence. I agree.

• 52:46Chamath Palihapitiya?

  You would do different diligence, let's be honest. The Zymergen IPO, the traditional IPO, would have been entirely different if they had to write, if the underwriters were at risk for their own net worth. It would be.

• 53:01Jason Calacanis?

  And if their stock was locked up of the management teams for five years or 10 years.

• 53:05David Friedberg?

  I do agree with that point, Chamath. I do agree with the point you're making.

• 53:08Jason Calacanis?

  Okay, Sacks, go. Sacks, go. Sacks from a boat, go.

• 53:11David Sacks?

  Yeah, I'm not, I'm not disagreeing with Chamath, but the, the point, the point that resonates with me that Friedberg said is actually the book Sapiens really did impact my thinking as a VC, which is, you know, Yuval Harari makes this point that it's narratives that kind of define, you know, humans and that's what binds us together in societies. And frankly, the vast majority of narratives throughout human history have just been wrong, but they still worked as

• 53:37Jason Calacanis?

  Good stories.

• 53:37David Sacks?

  binding people together. And I kind of, and I kind of applied that to VC, which is the VC process revolves around a pitch. It's a narrative session where the entrepreneur goes up there. Yeah. And presents a narrative and then everyone debates the narrative and decides whether they buy into it. And, you know, after reading Sapiens, I'm like, this whole process like is stupid. How do I get out of a narrative driven investing philosophy? And that's where I'm back to, look, I understand SaaS. I know what the metrics are supposed to be. Um, I'll still listen to the pitch. I want to hear it, but to show me the numbers first, and at least I can get to a decision that's somewhat grounded in reality, because I think most of what the VC process does is just measure

• 54:19David Sacks?

  a founder's ability to tell narratives. And that may be correlated with their ability to do marketing, but it's not correlated with whether their idea is fundamentally correct or not.

• 54:28Jason Calacanis?

  It's fine in the seed sta- it's fine in the seed stage, I think, you know.

• 54:32Chamath Palihapitiya?

  I think there will be the least amount of fraud when you either have irrefutable metrics, or the investor has to invest their own money.

• 54:43Jason Calacanis?

  Yep.

• 54:44Chamath Palihapitiya?

  That's the gold standard. Everything else is just, you know, catch, just catch can, and you're just going to have a bunch of trash.

• 54:49Jason Calacanis?

  Yeah. Here's how I'm handling it at the early stage, Sacks, you, because you get to meet my companies. I have told them to craft their narratives around their traction now, because I know that all this performative stuff is nonsense. So when you meet those companies and they do a three minute pitch, it's the majority of it is, here's the product, here's the traction. And I accept people based on traction and then I give.

• 55:10Chamath Palihapitiya?

  them more money as the traction goes up and we bet four or five times on the same company based on metrics and I tell them all you're coming to the accelerator here's 100k if you want more money from us we'll keep giving you money if you can grow 10% or more per month on real metrics period and we will keep giving you money forever

• 55:29David Sacks?

  right and I like these launch like demo sessions that you do with us because now you force them to base their presentation around a chart so at least I can see some metrics and the other thing we do similar to you is I always start with a product demo our motto is show me the product not a PowerPoint because the same PowerPoint can describe 10 or 100 different products it can describe a product that might be great and it can describe a product that sucks

• 55:54Chamath Palihapitiya?

  totally

• 55:54David Sacks?

  so show me the product and now at least I'm grounded in what you're doing and I'm not just listening to some story

• 55:59Chamath Palihapitiya?

  by the way I go back to this I still think that funding narratives makes a ton of sense in the early stage seed a I rip I rip in 50k to $5 million checks all the time I could care less if it sounds reasonable I take a punt at it

• 56:12David Sacks?

  right

• 56:13Chamath Palihapitiya?

  but the minute that I'm writing 100 or 200 or $500 million check I pay fucking attention

• 56:18David Sacks?

  yes

• 56:19Chamath Palihapitiya?

  because it's my money it's my money and I go back to this when it's not their money you're gonna see this thing riddled with fraud you're gonna see cases like this stuff constantly and the person that pays the price where I do agree with Friedberg is the employee because they mistakenly think that these folks must know what they're doing but the reality is it's not it's somebody else's money they don't really care they're just doing a job they want to get paid themselves and so this is how these things happen

• 56:43David Friedberg?

  you guys let me just give you some specifics on the Zymergen scenario so they're gonna go public right leading up to their IPO the stock's at 31 bucks in the IPO so if you're an employee and you have stock options in Zymergen you have the option to exercise your stock options anytime which means you buy the stock at your strike price and then you can sell the stock later when the IPO is over so a lot of employees you know exercise their stock options meaning they put their own money up to buy the stock at 10 five bucks four bucks whatever it is and they actually owe taxes on the difference between their exercise price and the fair market value at the time that they exercised

• 57:24David Friedberg?

  so if the stock goes public at 30 bucks and they exercise they gotta pay taxes as if the stock was at 30 bucks and then they end up in a situation where they can't actually get liquid and so there was a lot of employees that got really screwed on this transaction When Zimerjin went public, because they thought the company was going to be worth, you know, 10, 20, 30, $40, $50, and now the stock's at $8. And they're going to actually owe money to the IRS and they paid for their stock option. So it's a brutal scenario when it plays out for employees. And I just feel really bad for a lot of really, really great, you know, smart people that worked there that take a massive hit on this thing.

• 58:02Jason Calacanis?

  I hired two more researchers on my team just to do diligence at the syndicate. And I would say between 20 and 30% of deals that look great. When we get under the covers and look at the diligence, we look at the cap table, we look at the revenue, we look at the accounting, we asked them who's doing their accounting, we asked them for bank statements, we asked them for incorporation docs, we asked them for IP assignments. This is like the basic blocking tackling. 20 to 30% do not pass diligence and we find stuff that is crazy. I had one founder give themselves a loan and then we didn't know about it. And then we find out about it later, they did a loan and the company owes them hundreds of thousands of dollars.

• 58:43Jason Calacanis?

  Had another one where they were presented their revenue as reoccurring and it was accrual based. It wasn't accrual based accounting, it was a cash based accounting. And I'm like, what is going on here? You're basically lying and you're misrepresenting your company. Don't do that. It's called securities fraud. When you make a representation, don't ever bend it or exaggerate it. Just tell the truth, period. What's the Theranos story, Chamath? I need the Theranos story and then I'll give you a follow-up story.

• 59:19Chamath Palihapitiya?

  The Theranos story is, so I had a very famous investor tell me, this is like 2015, 2016. And I said, guys, you know, we were just talking, I said, what do you like? What do you like? Like, you know, we all kind of talk like that at some point, whenever we interact, you know? And he said, this company Theranos, you have, maybe it was 2014. Anyways, 2015, Theranos, Theranos, Theranos. And I said, are you an investor? And he said, no, but I wish I was. It's incredible.

• 59:54Chamath Palihapitiya?

  And I tried to get an introduction. I thought, okay, this is

• 59:58Chamath Palihapitiya?

  uh, this is gonna be really interesting. I couldn't get an introduction. But then I find out who the board is and instantly I get turned off. So in my mind, I had a very negative impression because the board was literally not all 90 year olds. And I thought, what do 90 year olds know about, you know, uh, blood testing and, you know, basically building a tricorder? And at that time, you know, I think I told this story before, but I had burned about maybe 50, 75 million bucks on six different startups trying to do this like, you know, in situ, kind of like, you know, finger prick, blood testing, blah, blah, blah. So I was really fascinated with the space. A year and a half later, a guy that I worked with at Facebook, a very senior guy says to me, I'm thinking,

• 1:00:42Chamath Palihapitiya?

  and I was trying to recruit him to come work at one of my companies as CEO. I'm thinking of going to Theranos. And I said, just go to the interview and tell me what happens. Uh, before I, you know, try to convince you to not go.

• 1:00:56Chamath Palihapitiya?

  He goes into the, to the interview to be COO of this fucking company. They don't let him pass reception. They interview him in a makeshift room outside of the meeting. And he said, well, can I, you know, go inside and, you know, when do we have a follow-up interview? You know, I'd like to meet some of the team. I want to see what it is. And, uh, they said, no, no, we're good. Here's your offer letter. Do you want to join? Well, can I see the device? Can I try it? I don't know. No, we're good. Let's go. And I said to this guy, I said, how can you fucking join this company? I mean, it's not like you're, you're coming in as a good junior flunky. You know, you're coming in as the second or third most important person in this business.

• 1:01:39Chamath Palihapitiya?

  You haven't been past reception. You don't even know what's past reception. You don't even know what your office will look like. You don't even know if you like the office furniture. At that basic level, think about everything else that comes after that. And then, you know, what happened, happened. So what a disaster. William Perry, former head of Secret Events, Henry Kissinger.

• 1:01:58Jason Calacanis?

  It was just, it was like.

• 1:02:01David Sacks?

  It was a bunch of grand poobah types. That's how you knew it was a red flag. If you got one

• 1:02:05Jason Calacanis?

  Red flag.

• 1:02:06David Sacks?

  of those guys, you got one guy like Kissinger on your board, it's okay. If they're all like that, it's a problem. Problem. Huge red flag.

• 1:02:14Jason Calacanis?

  I go on CNBC. I just had, uh, John Kerry Rue from the Wall Street Journal who broke this thing wide open on my podcast. And I start getting all these inside tips about Theranos. And one of them was that Elizabeth Holmes and Balwani, who was the COO, were in a relationship together. They lived at the same address, all this nonsense. And I checked with Kerry Rue and I'm like, hey, is this true? And he's like, yeah, that's true. Yeah. I was like, why didn't you report? He's like, I'm just chasing it down, whatever. It'll be in the next story. So I go on CNBC and I was like, listen, when there's smoke, there's fire. If they had the device, my game theory is if you have the device, you show it. If you don't have the goods, you don't show it. Period. End of story. I think my gut tells me this is a total fraud. It'll be zero. And they're like, oh, and I was like, yeah. And you know, when the COO

• 1:02:59Jason Calacanis?

  and the CEO are in a relationship, that's bad. And they're like, what? And they didn't know this. And I like, they're like, are you sure? And I'm like, yeah, that's what people are telling me. I don't know if it's true or not. I don't have first hand knowledge, but that's what I think is going on. So this whole thing blows up. Calacanis says this, blah, blah, blah, CNBC. That night, I got invited to Beebs House in the valley for movie night. We've all been to that movie.

• 1:03:24David Sacks?

  Oh, yeah, yeah, yeah, yeah, yeah.

• 1:03:25Jason Calacanis?

  I walk in, there's Zuck, there's this famous person, there's this Googler, that person. It's, you know, it's 50 people and the celebrities who are in the blockbuster movie are there. I think it was the movie Arrival, but I'm not going to make any, I don't want to give away whose house it was. I go to this secret movie night. I walk in, I get greeted, and I kid you not, 15 feet in front of me, looking directly at me, is Elizabeth Holmes. And I get with like 10 feet her and she just looks at me, snarls and walks away. It's like the most uncomfortable moment of my life. Clearly a giant scam and fraud and she's going to go to jail too. By the way, she's going on

• 1:04:08Jason Calacanis?

  trial this month, August, I believe she'll be on trial.

• 1:04:12David Sacks?

  It's taking way too long.

• 1:04:13Jason Calacanis?

  I hope she goes. Yeah. I mean, the justice system's a little bit screwed. Okay. We got to wrap up.

• 1:04:17David Sacks?

  I gotta say, Jake, you have a pretty good, you have a pretty good track record of calling out these frauds. I think it's a service to the community.

• 1:04:24Jason Calacanis?

  Yeah, I agree.

• 1:04:25David Sacks?

  You're one of the few who actually does it.

• 1:04:26Jason Calacanis?

  You got any other budding frauds?

• 1:04:28David Sacks?

  Well, ripple, you called out ripple, right?

• 1:04:29Jason Calacanis?

  Oh, let's not go, let's go easy on the ripple to some people who are friends with.

• 1:04:34Jason Calacanis?

  Well, I think right now.

• 1:04:35David Sacks?

  You're backing off?

• 1:04:38Jason Calacanis?

  I'm not backing off. I just don't want to lose a member of our little quartet here, but I will say that my, my fraud of the moment, the one that's making my spidey sense go crazy is tether. USDT, these, these guys are, I mean, this feels like it is going to be a 60 billion. Oh, the crypto thing. The stablecoin, there's a crypto stablecoin. The idea is they said it's $1 in US currency, $1 per tether always. And then over time, we find out maybe they don't have a dollar in their bank account for each one. The New York attorney general fines them $18 million, says you can't work with anybody in New York. They say, we're not a fraud. And I'm like, well, what about the

• 1:05:21Jason Calacanis?

  attorney general who said you were a fucking fraud? And they're like, yeah, yeah, no, no, that was a misunderstanding, yada, yada. I'm like, there's no misunderstandings.

• 1:05:27David Sacks?

  You know what we should do? You know what we should do? We should get all the fans, the all in pod. We're going to declare a certain time and date where, and we encourage everyone who's in tether to pull out a tether to stress the system and see what happens.

• 1:05:40Jason Calacanis?

  Yeah, let's press test. Well, the problem is you don't actually own your tethers. That's the other scam. It's like eight or nine of these offshore, unregulated crypto exchanges, not the ones in the United States that are highly regulated like Coinbase. This is offshore and there are white, what I've been told is you can create an exchange yourself with white label software and pop up your own casino. You're like a, you're like a bloodhound. I mean, like you just got to sniff this shit out. I mean, I've got nothing else in my life. When I find this out, I kind of, I like it. I love it. It's like one of my favorite things. He's a Bronx brawler. He's roaming the streets looking for a fight. Brooklyn, Brooklyn. Exactly. I love a good fight. I love a good fight. He's got nothing going on right now. Yeah.

• 1:06:18David Sacks?

  There's some other people I want to call out. There's some other people I want to call out. So let's just move on to it.

• 1:06:23Jason Calacanis?

  Who? Scott Galloway? Dipshit?

• 1:06:26David Sacks?

  Uh, no, no, he's small potatoes, but.

• 1:06:28Jason Calacanis?

  He's a small potato, irrelevant.

• 1:06:30David Friedberg?

  Doesn't Sax look like Thurston Howell III on his, uh?

• 1:06:33Jason Calacanis?

  He does, he does on a yacht. Alright, so Jason's in Florence, Chamath is at his estate.

• 1:06:40David Sacks?

  I'll tell you where I am. Actually, J.K., you'll appreciate this. I'm on a boat, uh, outside Elba, which, um, is the.

• 1:06:48Jason Calacanis?

  He's in Elba, he's in Elba.

• 1:06:49David Sacks?

  It's where Napoleon was in prison. I'll actually, I'll show you the, the prison where he was, where he was kept. I think you can see it, me, if I get to the right spot.

• 1:06:58Jason Calacanis?

  You know what? We put the Nikola founder in there and we'll put Elizabeth Holmes in there. Same place. Let's go.

• 1:07:03David Sacks?

  Can you see the, the, uh?

• 1:07:04Jason Calacanis?

  Just see your fucking ugly face.

• 1:07:06David Sacks?

  Yeah, whatever.

• 1:07:07Jason Calacanis?

  And your beautiful yacht.

• 1:07:12Jason Calacanis?

  How much are people gonna hate us? Three of us are in Italy in August. It is like the stereotypical.

• 1:07:17Chamath Palihapitiya?

  Work hard and you'll be on easily.

• 1:07:19Jason Calacanis?

  Play hard, too. Of course, of course. I'm staying in an Airbnb. It's costing me 350 euros a night for four bedrooms. I feel pretty good about myself. I'm the center of Florence. I think it's you, you're spending about the same amount on your boat, right? 350, 400 euros a night per room?

• 1:07:34David Sacks?

  Yeah, I got, I got the Airbnb deal.

• 1:07:36Chamath Palihapitiya?

  Talk, talk to us about Afterpay, Sax. Tell us.

• 1:07:38David Sacks?

  So, well, first, I mean, if we're gonna call somebody out, first I want to call out PayPal. Okay, what's going on there? I actually wrote a blog post about it, um, called the No Buy List. Basically PayPal is creating the equivalent of a no-fly list with respect to their service. Well, for anybody who they put, they deem as deplorable or undesirable. Basically, they're working with the ADL, the Anti-Defamation League, and the Southern Poverty Law Center, SPLC, to create lists of people and groups who they are gonna ban their accounts. Now, I mean, I gotta say this. The ADL and the SPLC are storied institutions that did great work combating both antisemitism and racism, but they are now under new management

• 1:08:23David Sacks?

  and new leadership, and they have greatly expanded their missions. The ADL was originally about. About stopping antisemitism. Now it's about basically opposing extremism or white supremacy. And you know, in any of the places they find it. And so, for example, they've taken positions on US Supreme Court nominations. Um, I mean, it's like they've gone very, very far afield of their original mission.

• 1:08:48Jason Calacanis?

  The SPLC has gotten sued a number of times for putting people on these lists. They put Sam Harris at some point on the list. They put another human rights person on this. Anybody who challenges any or has any guest on their podcast. That they, the Southern Republican Law Center doesn't like, they, they basically blacklist them.

• 1:09:04David Sacks?

  Right, right. And the list has become very expansive. They've become very expansive. So, so here, here's the problem is you now have, look, before this was just some ivory tower. You know, uh, non 501 type thing where they would basically, it was hyperbolic rhetoric. They would basically call all these people and groups names. But now PayPal is operationalizing these ban lists. They're turning it into a no buy list. They're saying we're gonna cut off your account. And that's very dangerous because we've already seen the precedent with speech online that we had a bunch of social media companies banning people from participating in online speech. Now what PayPal is potentially doing is banning people from, from that, from financial access.

• 1:09:45David Sacks?

  And losing your right to speech is bad, but losing your right to make a livelihood is even worse. And I think Republicans in Congress need to say to Dan Schulman, first of all, it'd be great for them to haul him up there in front of Congress to a hearing. Like they did with Jack and Zuck and Sundar, haul him up there and say to him in no uncertain terms, we see what you're doing. We don't like it. We oppose it. We're gonna get on our high legs and fight this. Uh, if you try to deny Americans their right to access the new economy, we see no reason for your company to get any bigger. We're gonna oppose every acquisition you ever do. And we may not be in power today, but one day the tide will turn.

• 1:10:27David Sacks?

  We will get control of Congress. And at that point, you know, um, you know, elephants have long memories. So, you know, we're watching you. And you know, it's been a long time since Republicans. of their role this way that for the last few decades they've been very lazy or fair with respect to the economy but there's a very successful republican president on mount rushmore teddy roosevelt and he's on mount rushmore because he busted up the cartels and the oligarchs of his era and he fought for the rights of the of the common american to make a living that is the playbook that republicans need to follow right now

• 1:11:01Jason Calacanis?

  okay henry belcaster you got that clip right here let's get some animations on top of it let's go all right square has bought afterpay for 30 billion which represents a large portion of their outstanding equity it's an equity based deal what do we think free bird

• 1:11:14David Friedberg?

  they issued a third of their stock to buy this company so basically squares a public company they issued shares to afterpay shareholders and afterpay only represents about 4% of squares revenue so they gave away a third of their company to increase their revenue by 4% that's the pessimist view of the business now if you kind of think about square they've got two businesses that are equally sized one is like a consumer business this cash app yeah and they do a bunch of stuff including crypto in there and then they have another app another set of tools for merchants which is businesses on the other side so it's a mark it's becoming more of a marketplace business

• 1:11:54David Friedberg?

  and the idea is that this afterpay deal can solidify their ability to basically be a lender to their consumers and provide a tool to merchants to increase sales because the way afterpay works it's a buy now pay later product these have been around for a long time and you could basically make a purchase online without having to put down a credit card or to pay for it and they instantly run a credit check on you and instantly offer you credit to buy that thing and then you pay in installments over time and so it allows people it allows websites and businesses to get more consumers to buy stuff because it's really easy for them to buy stuff if they don't have the money to buy today and by the way this this yeah this business this business concept has been around for a long time there's a company called bill me later that was bought by paypal in 2008 for a

• 1:12:39David Friedberg?

  billion dollars and it was a similar thesis right so the thesis you know what's old is new again the thesis is if you can provide these tools to merchants they will get more sales and paypal on the other side would make more money because consumers would spend more through the system and and I think that's the same model with square but most important so we're seeing square consolidate the marketplace dynamics of their business they're also effectively stepping up and competing And making sure they're locking in the competitive advantage they have with having this two-sided marketplace against emerging competitors like a firm and so forth.

• 1:13:10Chamath Palihapitiya?

  Quarner was the original, yeah. The public capital markets will always reward great growth strategies. The minute that they announce this deal, the market cap of Square went up by almost 25%. The deal is free. Free. I repeat, they just acquired a $30 billion company for fucking free. Which is what happened with Whole Foods and Amazon. Here is the secret hiding in plain sight that not enough CEOs understand about the public markets. And so for the CEOs out there listening, there are two ways for you to get constantly rewarded by the public markets. Number one is what Square did, which is to

• 1:13:51Chamath Palihapitiya?

  incrementally acquire feature after feature after feature. The thing with buy now, pay later is that it is not a company. It has always been a feature. And it's a feature of a much larger financial services platform. And I think Square is proving that. And everybody else over time will realize it. Goldman Sachs and Apple are about to do something there with buy now, pay later as well for themselves. They already, Apple already does it for the phones. So the idea is that this is just a credit feature that should be on every single major network. I wouldn't be surprised if WhatsApp and Facebook had a buy now, pay later feature. Amazon. Over time. Everybody needs to have this feature. You can't build a company around

• 1:14:30Chamath Palihapitiya?

  it. And so if Square can basically continue to acquire or build adjacent features that consolidates the financial services stack for their consumers, the stock market will reward these guys. They'll be able to grow and buy things for free for the next five or 10 years. The second way that corporate, that companies can get rewarded in the public markets is if you look at your costs and you flip them from a cost or an expense into revenue. And the gold standard is Amazon. So if you guys look back, I'll just give you a very quick example because it's incredible. In 2005, year end 2005, Amazon.

• 1:15:12Chamath Palihapitiya?

  They had eight and a half billion of sales, two billion of net profit. Their two biggest costs there was product and shipping. So what did they do? They started Amazon Kindle, they started Amazon Basics, they started Amazon Fire, they started Amazon Echo. And all of a sudden, that whole thing shrank, their gross margins went up. Then, on the operating expense side, Amazon was spending 6% of revenue on fulfillment, they started a fulfillment business. They were spending 5% of revenue on technology, they started AWS. They were spending 2% of revenue on marketing, they started Amazon Prime. They started, they were spending 2% on payment processing, they started Amazon Payments.

• 1:15:51Chamath Palihapitiya?

  So, if you look at any company like this, Square, I think Stripe is another, pardon me, Shopify is another great example where you can see the path to growth. If you can see folks acquiring adjacent features, or if you can see folks taking expense lines and turning them into revenue lines, these are, in my opinion, sure bet companies that compound forever in the public market.

• 1:16:15David Friedberg?

  And there's, there's great network effects. If you think about financial services for consumers, I would argue there's five general categories. There's banking, lending, trading, crypto, and insurance. And I think in order of retention, meaning how long a customer is likely to stick with a service provider, it's banking, then lending, then trading, then crypto, then insurance. And in terms of profit generation per customer per year, it's trading, then crypto, then lending, then insurance, and then banking. And so what we're seeing is a lot of these financial services providers to consumers in the digital world, replacing the old school world by starting to consolidate these categories in a smarter way than the old school offline companies have been able to do.

• 1:17:00David Friedberg?

  Banks need to make money through overdraft fees. They make $30 billion a year in overdraft fees. So if you make banking entirely online and make it free, you retain a customer and then you can make money by offering them lending, trading, crypto, some of these other services. And that's certainly the trend. I have a big thesis and a big belief that over the next decade, we're going to see those five categories start to merge and you're going to have three to five superpowers that are going to offer a consolidated stack of services and the unit economics are going to change because they're going to focus on getting the high retention products to be cheap and free, and then they're going to make money on the high margin products.

• 1:17:34Chamath Palihapitiya?

  The Canary, I completely agree with you. And the Canary in the coal mine is who will be given a federal banking license? Because that is the only gate that the authorities have to king make who those consolidators will be. And that's an easy thing that can be unemotionally assessed.

• 1:17:49Jason Calacanis?

  Can't like Google or Amazon just buy one of the banks out there?

• 1:17:52Chamath Palihapitiya?

  You have to apply. No, you have to. This is an incredibly arduous process to get a federal banking license to be cleared by the Federal Reserve.

• 1:17:59Jason Calacanis?

  What if Amazon bought a bank?

• 1:18:02Chamath Palihapitiya?

  You have to get it approved, Jason. You're not listening to me. These are regulatory hoops.

• 1:18:05Jason Calacanis?

  Well, that's why I'm asking a question for the audience.

• 1:18:07Chamath Palihapitiya?

  You cannot just go and buy these things.

• 1:18:08Jason Calacanis?

  About acquisition versus applying. Okay, so even if you want to, you can't just buy a company like you bought Whole Foods.

• 1:18:14Chamath Palihapitiya?

  So, for example, I think Square now is a federally licensed bank. And I believe that the Federal Reserve recognizes these guys. They can borrow when they can borrow money at the discount window, at the discount rate. As startups get more successful and can get there, those will be the ones that will do what David said. Because it doesn't matter how many users or how much momentum you have. If you cannot get a federal license to operate, you can't consolidate. So you can be a vertically specific great business, but eventually you have to sell. E-Trade, Morgan Stanley is a great example. Where, you know, in the absence and an inability to expand, you have to sell yourself because the cost of capital eats you up.

• 1:18:56Chamath Palihapitiya?

  The, the, the, the comment on this, by the way, the most obvious one here, which I think is interesting, is the Shopify Stripe debate. Because if you look inside the P and L of Shopify, an enormous line item now, about 350 million bucks a year is what they're paying to Stripe. And, you know, there's going to be a lot of pressure over time to figure out what these big businesses want to do with respect to their payment strategies and, and do it themselves. Because they may be able to save a lot of money. Unclear.

• 1:19:24David Sacks?

  Could I be like the lone voice of dissent on this after pay thing?

• 1:19:28Jason Calacanis?

  Well, go ahead. Yeah.

• 1:19:29David Sacks?

  Well, look, it's clear the market loved it. Chamath is right about that. It's sending a signal to everybody in the, in the industry, in the finance industry, that consolidation is going to be rewarded. It seems like finance is going to go the same way that media did, where you start to see studios in Hollywood all get gobbled up by big tech players, sort of the final convergence of digital analog. You're clearly going to see that in banking now, too. So as a, as a business person, as an entrepreneur, I respect and admire what Jack Dorsey has done with Square. But as an American, I'm definitely concerned about this accumulation of power. And we now see Jack as the first person, I don't think it's, there's

• 1:20:11David Sacks?

  ever been anyone in American history who holds in his hands the right to deny people's speech on a, on a major speech platform, and the ability to deny them access to a major consumer payments platform. Now, he doesn't have dominant market share in either one of those things.

• 1:20:28Jason Calacanis?

  In either. No, he's got less than 10% in each.

• 1:20:31David Sacks?

  But, but he's an influencer, and we saw that Twitter was the first site to kick off Trump, and then in the wake of that, every other tech platform did it. And Square, after January 6, cut off the accounts of everybody who was involved or connected to it, whatever that means. And a bunch of other players in the fintech stack did it. So we now have this issue of financial deplatforming. PayPal is already well down that road. What will Jack Dorsey do? I don't know. I mean, on the one hand,

• 1:20:59Jason Calacanis?

  He'll do the same. Why don't you start up, why don't you buy or start or incubate your own? That's protection free. You're not going to ban people from calling, so you win. Just fucking start your own Square competitor, Saks, and stop complaining.

• 1:21:11David Sacks?

  Jason, look, these companies have gigantic network effects. PayPal is over a $300 billion mark cap company. If all of the-

• 1:21:18Jason Calacanis?

  Yeah, and if they back those 10%, if they knock 10% of people off, you get them. Now you got your, now you got your beachhead. Stop complaining and build it.

• 1:21:25David Sacks?

  It is not, it is, it is a non-argument to claim that a cartel of gigantic fintech companies that have monopoly scale, monopoly network effects, acting together, that is- Not a threat to people's rights to have a livelihood.

• 1:21:40Jason Calacanis?

  I'm not saying it's not. I'm talking about how you can make money from it. I'm just talking your book.

• 1:21:43David Sacks?

  This is not about making money for me. It's not about making money for me. This is.

• 1:21:47Jason Calacanis?

  No, I know, but it is an opportunity. Like, who's to stop somebody from creating? Isn't Parler back? And isn't there some other, like, um, right wing or more conservative Twitter that's booming right now? I heard there's another one Kara Swisher was talking about.

• 1:22:01David Sacks?

  I'm predicting right now that financial deplatforming is going to be the big hot potato, political hot potato over the next year. This is the next wave of censorship. And what Republicans on the FTC, what the Republicans on the FTC on that board need to ask Jack Dorsey right now is, will you import the Twitter blacklist over to Square?

• 1:22:24Jason Calacanis?

  Let's have Jack on the program. Bestie guestie Jack.

• 1:22:28Chamath Palihapitiya?

  Can I just say something sexy, Pooh? I think you're right, but if you just want to make a lot of money, um, and you have to have some financial stock ownership over the next few years, I think the, the way to do it is just to kind of like figure out which of these emerging companies have or are about to get or have disclosed in their earnings that they're filing for licensure. And, um, I think you want to own those things because the, the key thing is like, when you get these licenses, you just get a cheaper cost of capital. It just allows you to outcompete and outmaneuver. And then all of a sudden you're competing with these big lumbering incumbents who just don't have the access to the same flexible technology and they're running code that's, you know, 40, 50 years old.

• 1:23:10Chamath Palihapitiya?

  Then the policy decision becomes much more complicated because I do agree with you that there's going to be platforming or deplatforming issues that happen. The good thing about this, that it is highly fragmented and that there is in no clear path, at least that I see for two or three folks to have 25 to 30 to 35% ownership. That already happened sort of in credit cards. And I think we've learned our lesson from that. It hasn't happened since.

• 1:23:32David Sacks?

  I hope it remains that decentralized, but what what I think the the reaction of the stock market to Square buying Afterpay is now everyone's gonna be looking at that and going, wait a second, I can spend, you know, a quarter of the mark cap my company and have the acquisition

• 1:23:46Jason Calacanis?

  No, no, my point, no, but David, my point, that's not what they're saying. What they're saying is, hold on a second, these companies are features and we want to have folks who are licensed and capable to consolidate what Friedberg said, these five categories. And if you look inside a square, they have an incredible lending business, they have incredible merchant services business, they have a, you know, a pretty decent and emerging crypto and trading business.

• 1:24:09David Sacks?

  Right.

• 1:24:09Jason Calacanis?

  So they're putting all the pieces together. That's what they saw and they're licensed.

• 1:24:13David Sacks?

  Right. But who are the big winners in this wave of consolidation going to be at the end of the day? It's going to be Square, it's going to be Stripe, it might be, it's going to be PayPal, it's going to be the big online companies, not the offline legacy banks. It's the same, same thing that happened in Hollywood. The only studio that didn't get gobbled up by a tech company is Disney, right? So it's gone 80% big tech.

• 1:24:35Jason Calacanis?

  And they became a tech company and they become a tech company.

• 1:24:37David Sacks?

  They became a tech company. So I

• 1:24:39Jason Calacanis?

  Their whole business, they they're gonna, they're gonna catch up to Netflix and then they're gonna roll Netflix. They're gonna roll right over Netflix.

• 1:24:44David Sacks?

  The reality is that there is something about big tech that wants to deplatform people. The legacy analog offline companies were never this moralistic towards their customer base. They never deplatformed and banned people the way that these online companies are doing.

• 1:25:01Jason Calacanis?

  They limited their moralizations and their high horse to the Oscar awards and the Emmys. You're correct.

• 1:25:06Chamath Palihapitiya?

  J. Cal, J. Cal. I'm gonna do a, I'm gonna do a crazy wine dinner tomorrow night and it's about 45 minutes from you. You should take a car, have them wait, eat dinner and then drive back.

• 1:25:21Jason Calacanis?

  All right, I'll try. I got, I'm, I'm, I'm doing, I'm going to see David, which, you know, for me is a lifelong dream because it's every time I, I'm gonna go see David because not David Sacks, David, you know, the, the statue of David, which to me is like looking in a mirror. My whole life I looked at that, you know, that body.

• 1:25:38Chamath Palihapitiya?

  Small stubby schlong, I get it. But why don't you, why don't, why don't you?

• 1:25:44Jason Calacanis?

  I have so many tours I'm doing in Florence. Maybe I'll zip out. Let's see. Maybe I'll zip out, but I'm gonna see you next week.

• 1:25:50Chamath Palihapitiya?

  It's 45 minutes.

• 1:25:51Jason Calacanis?

  The question is Friedberg, what are you fucking doing? Get on a plane and come see your besties. You're the only person not in Italy. You come for three or four days. I know you got a pregnant wife. I know you gotta let your moving all this stuff. You gave up on San Francisco.

• 1:26:04David Friedberg?

  Let me go talk to her.

• 1:26:04Jason Calacanis?

  Just come for three days, three days. Get her some present and maybe get some extra help at the house.

• 1:26:10David Friedberg?

  What are all your pilots doing? They're all just sitting there in Italy, hanging out.

• 1:26:14Chamath Palihapitiya?

  Mine are literally having the best time, but they're living their best lives right now. They're like, oh, we're gonna take a tour of Venice.

• 1:26:18David Friedberg?

  Do they wanna get some hours in? I mean, no.

• 1:26:21Jason Calacanis?

  I'll send my plane. It's United. I'll send United for you.

• 1:26:25David Sacks?

  J Cal, why don't you come visit me tomorrow? You don't need to see a museum. You know, you don't wanna spend time museum.

• 1:26:30Jason Calacanis?

  Hey, Sacks, why I'm having a great time with my girls in Florence. I'll see you all next week, relax.

• 1:26:36Chamath Palihapitiya?

  No, I'm only, J Cal, I'm only going for a day. I'm coming to drop.

• 1:26:39Jason Calacanis?

  What?

• 1:26:41Chamath Palihapitiya?

  Yeah, yeah, yeah. I'm, I, I, my, my mom's here, you know, like, I have a lot of people here.

• 1:26:45Jason Calacanis?

  Come for two days and hang out for two days with us. What are you doing? 48 hours, it's not a big deal. Bring everybody.

• 1:26:50Chamath Palihapitiya?

  All right, anyway. Love you guys.

• 1:26:52Jason Calacanis?

  Love you besties. All right, yeah, congratulations, J Cal, on Rob. Congratulations on Robin Hood, J Cal. Okay, yeah, thanks, guys.

• 1:26:57David Friedberg?

  Oh, yeah.

• 1:26:59David Sacks?

  How much did you make on Robin Hood, J Cal?

• 1:27:02Jason Calacanis?

  All I'm gonna say is, is my first fund, my little 11 million dollar fund right now, you know, we'll see what happens, a long way to go. Once again, I'll have a top 5%, 1% fund. The first fund I did with Sequoia with the scouts was like 150 cash on cash. Who knows? This first fund I did with you guys backing me, uh, thank you for supporting me. That 11 million dollar fund could be 5, 6, 5, 6, 7X could be, who knows? We'll see.

• 1:27:29Chamath Palihapitiya?

  Go big boy.

• 1:27:30Jason Calacanis?

  Cash on cash, yeah. You know, it's a good feeling. It's a good feeling. Yeah, thank you for the support.

• 1:27:33Chamath Palihapitiya?

  Proud of you, Friedberg, proud of you, Sacksypoo, proud of you all, you guys.

• 1:27:36Jason Calacanis?

  Nice week for everybody. Wait, did you have any wins this week aside from spending a lot of money on wine chumop? Is there any spectacular news that we need to know?

• 1:27:42Chamath Palihapitiya?

  Well, I think David, David can confirm, but I think, uh, I probably made a billion dollars this week.

• 1:27:47Jason Calacanis?

  All right, there you go.

• 1:27:49Jason Calacanis?

  Oh, something's going to be... Oh, there must be a SPAC coming. Brace, brace IPO. No SPAC. No SPAC. No, oh, oh, something's getting sold. Alright, we'll find out next week. We'll see you all next week. Alright, bye bye. Love you guys. Love you guys, love you basties, love you Italy. Of course, everybody's favorite. The queen of Kenwa. The science conductor himself. David Freiber. All the data, all the science says, "Go do whatever you want to do." Go into a nightclub sweaty, throbbing, beefing up.

• 1:28:20Speaker 04

  Go into a throbbing rave. Go into a... Nothing else matters. Go into a throbbing rave. But I think understanding what the other counterpoints and counterarguments might be is critical to get people to actually get to that opinion themselves. As opposed to just telling them, "This is a single point that you should believe." Go into a throbbing rave.

• 1:28:46Speaker 04

  Nothing else matters. Go into a throbbing rave.

• 1:28:54Speaker 04

  Nothing else matters. Go into a throbbing rave. So much is all about like the good and the evil, them and us. And we don't recognize that in moments where there are shared values, we're just sitting on both sides of the same coin. Or recognizing that sometimes having different values doesn't necessarily make someone evil. Go into a throbbing rave.

• 1:29:16Speaker 04

  Nothing else matters. Go into a throbbing rave.

• 1:29:24Speaker 04

  Nothing else matters. Go into a throbbing rave. And at this point, I'm like seven tequila, watermelon, tequila, dance. So I'm playing... Oh my god. I've got some action. Freiber, though. Now, I'm on the dance floor, you know, jetting up the coolio. And I'm like, "What's up, coolio?" "Oh my god, this is like a dream."

• 1:29:41David Friedberg?

  I'm true. And he's like hugging me, his face is right next to my face, I didn't know what to say. And I like, I'm, I'm a little, I'm, I'm having a little bit of tequila. And I, and I whisper it coolly, I was here. I'm like, oh no, I appreciate, I appreciate you. I appreciate you. I appreciate you. I appreciate you. I appreciate you.

• 1:30:01Speaker 04

  And I try and kind of elevate the conversation a little bit, and why I care so much about this point. Go into a throbbing rave.

• 1:30:07Jason Calacanis?

  Of course, everybody's favorite. The queen of Kenwa. The science conductor himself. David Friedberg. The quality of the show, he calls it the Friedberg index. If Friedberg talks a lot, it's a great episode.

• 1:30:22Speaker 04

  Go into a throbbing rave. All the data, all the science, and do whatever you want to do. Go into a throbbing rave. Go into a nightclub. Go into a throbbing rave. Sweaty, next to people. Go into a Nothing else matters. Go into a throbbing rave.

• 1:30:41Speaker 04

  Nothing else matters. Go into a throbbing rave.

• 1:30:48Speaker 04

  Nothing else matters. Go into a throbbing rave.

• 1:30:56Speaker 04

  Nothing else matters. Go into a throbbing rave.

• 1:31:03Speaker 04

  Nothing else matters. Go into a throbbing rave.