#265: Ali Hamed on Seeking Value in Today’s Private Credit Market

Ali Hamed is the co-founder of Coventure, an asset management firm focused on deploying capital across venture capital and unique credit strategies. In this conversation, Anthony and Ali discuss the private credit market, how borrowers and lenders are treating each other, where the areas of opportunities will be, how founders can respond to the pandemic, and how source data in advertising and e-commerce has given Ali a better sense of the trends in those industries. =============================== BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. Visit try.blockfi.com/get-50/?ref=pomp50 to get started with BlockFi today and earn up to $50 in BTC when you create an interest account and make a deposit of $250 or more. =============================== Blockset by BRD is your hosted blockchain infrastructure. Blockset enables enterprises and developers around the globe to deliver high-quality blockchain-based applications in a fraction of the time, at a fraction of the cost. Using the services provided by Blockset, businesses can build professional custody solutions, accurate and near real-time portfolio management solutions, auditing platforms, commercial block explorers, and much more: blockset.com ===============================

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

• 0:00Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Ali Hamad is the co-founder of CoVenture, an asset management firm focused on deploying capital across venture capital and unique credit strategies. In this conversation, we discuss the private credit market, how borrowers and lenders are treating each other, where the areas of opportunities will be, how founders can respond to the pandemic, and how source data in advertising and e-commerce has given Ali a better sense of the trends in those industries. I really enjoyed this conversation and Ali didn't disappoint. Before we get into the episode, though, I want to quickly talk about the two sponsors.

• 0:42Anthony Pompliano?

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• 1:23Anthony Pompliano?

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• 2:00Anthony Pompliano?

  They've taken the architecture and knowledge they've gained over the past six years to create BlockSet, a robust, reliable, and strategic B2B offering for developers and enterprises. Thanks to BlockSet, we can all build with crypto assets at light speed using their unified API that is data from all the major chains. See just how simple it is by visiting blockset.com and sign up for a free account today. Blockset.com. All right, now let's get into this episode with Ali. I hope you guys enjoy it. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a

• 2:43Anthony Pompliano?

  particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

• 2:53Anthony Pompliano?

  All right, guys. Bang, bang. I have the one and only Mr. Ali here. Thanks for doing this.

• 2:59Speaker 01

  Thanks for having me, Anthony.

• 3:00Anthony Pompliano?

  I feel like we are so close in New York City, but yet so far away with you in Brooklyn and me in Manhattan and just the water separating us with the quarantine.

• 3:08Speaker 01

  I know. It's crazy. What, do you think it's better to be in Brooklyn or Manhattan right now?

• 3:14Anthony Pompliano?

  Well, according to the numbers, they're both bad.

• 3:17Speaker 01

  Yeah. Okay. So what's less bad? I think, I think Brooklyn might be winning, man. Like, there's a little bit more space.

• 3:24Anthony Pompliano?

  Yeah. I don't know. We'll see. All right, guys. Ali is one of my best friends. This is gonna be a lot of fun. You are the founder of CoVenture. Maybe give us a quick update. What is CoVenture? What are you guys doing right now?

• 3:38Speaker 01

  Yeah, so at CoVenture, we do both venture capital and we do asset-based credit. And when I say asset-based credit, what we do is we find sort of novel asset classes or asset classes that have never been financed before in an institutional way, and then we lend against those assets. So some of the types of things that we finance are perishable produce, YouTube libraries, you know, straight mean revenues, e-commerce ad spend, all kinds of sort of off-the-wall stuff. And in venture capital, we do early-stage investing, primarily in fintech, primarily in sort of newer economies. That might be the YouTube economy, or the Spotify economy, or the Thumbtack economy, et cetera.

• 4:17Speaker 01

  Or anything where there's sort of some new invention of an asset class. So that's what we do as a firm. We've been doing it for a handful of years.

• 4:25Speaker 01

  And yeah, that's a summary of us.

• 4:28Anthony Pompliano?

  Awesome. So I want to start first with the credit markets because I think a lot of people, one, don't understand it and two, don't realize the impact that COVID will have on it. They're usually focused on equities, either public or private equities. Maybe just give us a quick overview of like, what is the credit market? And what's the difference between the public credit market and the private credit market?

• 4:47Speaker 01

  Sure. So, so credit markets are pretty broad, right? There's broadly debt and equity. You know, equity, you sell a percentage of your company and the person gets a future profit, you know, profit interest in perpetuity. And credit, you borrow money and you owe some fixed rate of return in the future. And you credit markets right now, public credit markets are being hit more than private markets for now, and that'll change. And the reason is people can respond to speculation. So in private credit, you really only have issues when someone is supposed to make an interest payment and they don't, or they're supposed to have some sort of asset coverage or there's some sort of covenant in an agreement that gets breached. An example of a covenant might be, you know, indirect lending, right?

• 5:30Speaker 01

  So you always hear like private equity companies are levering up their businesses. What it might mean is a leveraged buyout occurred, a private equity firm put up $100 million of equity, they borrowed $200 million of equity to complete the transaction of $300 million in total. And one of the covenants of the lender is to say, we're expecting this private equity business to pay our $200 million back plus interest with some percentage of the profits. And so it'll be some sort of debt to income ratio that they're purchasing or levering up or lending against. And then there's covenants around what kind of EBITDA levels that company needs to maintain. And if they don't maintain those EBITDA levels, then the lender can say, okay, now we're going to go take over the business and default on the loan. So that's an example of a covenant.

• 6:14Speaker 01

  Or another example might be, hey, you have to pay us your, you know, interest every quarter, every month. That's private markets. In public markets, what people are, you know, are speculating. So for example, let's imagine there's something like a mortgage backed security. So there might be a public security that what it does is it owns a building. And there's some equity layer, right? Which is like the actual owners of that building. And they may say, I own a building, the building's worth $100 million and I'm going to put up $20 million of equity and the debt providers are going to put up $80 million of equity. Now, one of the covenants in that agreement might be that the $80 million always needs to be secured by $20 million of equity subordination.

• 6:59Speaker 01

  Well, you know, if the building is sort of sitting there and nothing's really changed in private markets, there's going to be all this sort of hemming and hawing of people saying, well, the building's still worth the same. And once this is all over, it's all going to be okay. In public markets, you can see a change on a daily basis. And so the public markets do is they speculate on whether or not the economy will come back. And then if the price of that equity goes down, then the lender says, aha, you know, I need to be secured by 20% of equity. I'm no longer secured by that and you need to either give me the building, which would be pretty shitty. Or you need to raise more equity so that I have more equity cushion.

• 7:37Speaker 01

  And the problem is when your share price is going down or when your security price is going down and you have to raise more equity, that's like the worst possible time to raise it. And so what you're seeing is credit markets in public markets are reacting more quickly because the reaction is either a lack of liquidity. Because maybe some of these mortgage-backed securities can't pay their interest. Some of it is speculation. In some cases, you're seeing, you know, pri- or corporate companies say, you know, I, or borrowers are saying, I don't believe that, you know, Carnival Cruises is going to be able to make its interest payments.

• 8:17Speaker 01

  And so you're seeing the bonds trade off because let's imagine I had, let's imagine I was Carnival. And I don't know what their bonds are trading at right now, but I said, hey, I'm going to issue $100 of debt and I'm going to pay 5% interest on that debt. Yesterday or two months ago, getting paid 5% might have been okay, but Carnival is now riskier. And so what someone might demand is I want to get paid 10%. Well, the way that that would happen is the bond price would go down. So Anthony, if you own a bond that was worth $100 that was paying 5%, I would buy it from you for something under $100. Because if I buy it from you for, say, you know, $99, then I'm getting 5% plus, you know, that spread of the discount that I bought it at. So you're starting to see the reaction in public markets happen a lot more.

• 9:02Speaker 01

  In private markets, it hasn't, there hasn't been as many defaults yet because it just hasn't been enough time, right? So there's like all this sort of news cycle around, well, people aren't making their rent payments this month. I think probably in private markets, people are gonna, they're not gonna be happy about it, but they'll say, okay, fine, if you miss an interest payment, we get it. Like a virus is going around destroying the world. Like, that's not so good. If it happens another month, I think it'll maybe be okay. If it happens a third month, that's when you'll start to see stuff break. And the last part is, in private markets, the borrower and lender relationship are maybe a little bit more sort of close knit, where, you know, like if you have, if you've securitized your assets, who do you argue with? All your shareholders of the securitization?

• 9:47Speaker 01

  I don't know. But if you have a private lender and you can call them and say, hey, look, you know, person, I know I owe you money. You can either foreclose on my assets and then maybe get some percentage of your money back, or you can let me work this out with you and I'll pay you later. Maybe, you know, I think those are the conversations that are starting to happen.

• 10:04Anthony Pompliano?

  Yeah, so what's interesting to me is, first of all, the relationship you're talking about here, in the public markets, there's, at times, thousands of people who hold this stuff. And this is, could be for companies, or even, the MTA was saying that, you know, ridership of the subway is down 90%, and they're worried that they don't have the revenue to pay their bonds and things like that. So that's a very different type of relationship, and also, kind of lender, than if you look in the private markets. In the private markets, is it safe to say that in almost all of these relationships, you're talking about one single borrower being a company or corporation? And then there's just one lender per relationship? And maybe a company has multiple lenders, but really, it's kind of a one-to-one? You're not seeing any sort of like, hey, I took money from an SPV, and then I've got

• 10:49Anthony Pompliano?

  to deal with all the shareholders on the other side of the SPV?

• 10:51Speaker 01

  It, it, it depends. And so it's a whole spectrum. I mean, in the simplest sense, there might be a borrower and there's a lender, and there's only one lender in the whole deal, and the borrower has a direct relationship. And if the borrower has a really good relationship with that lender, they may say, look, we've been working together for 10 to 15 years. You don't want to blow up. I don't want to blow up. If you force me to do all the things that are in the covenant packages of this loan, I'm gonna default. And, you know, if you're a fund, you don't want your borrowers to default. You kind of look dumb. Or, it might be a lender, who that's the whole reason they do this. They're hoping you default, because if you default, they get to own equity in your business. And so knowing who your lender is and what your lender's sort of goal was, is pretty important.

• 11:34Speaker 01

  You know, and then, and then next is also understand the, the situation your lender is in. So if your lender is exposed to a ton of shit, stuff that's like sort of hitting the fan. That's not so good because they might be acting reactionary, in a reactionary way. Or if stuff's hitting the fan, you may be the least of their problems and they just don't want one more to fall. It's really hard to kind of figure that out. The other thing is, is your lender levered, right? So if your lender gave you money and they gave you a hundred million dollars, but only 20 million of it was theirs. And they have a bank who gave them 80 million. You know, in many ways, leverage is not good because it magnifies losses. Another reason leverage isn't good is you're not the boss of yourself. Like, you know, usually when we do a deal, we're senior lenders.

• 12:19Speaker 01

  Um, part of the reason we do that is because, you know, we don't want to take more risk than we need to take. And the other part is, like, let's imagine I have a portfolio company that has an issue. I almost always know more about what's going on with that company than some bank who might be lending to me. Where they got like my investment committee memo and my data room and all this stuff. But they don't know the actual situation on the ground. They're not on the phone with the company every day. And, and not having leverage gives you like sort of the ability to sort of do what you need to do to make the right decision. Rather than doing what you need to do within the confines of rules that were set pre-COVID or previous circumstances you could have never expected before. There's another situation where you might have multiple lenders. And those lenders are all acting differently.

• 13:04Speaker 01

  And I'm trying to figure out how to navigate what makes sense for one lender versus another. You know, one of the things that's often in terms where if you have multiple lenders is all lenders need to be treated parapassu or get most favored nation. What you don't want to be is a lender to a company where the other lenders are getting treated more fairly. That might be a situation where you have one lender who's being a total jerk. Your other two lenders or four lenders or even five, 10, whatever are being great. And you have to figure out how to navigate all those relationships so that one lender doesn't blow up everything else. But then on the other hand, you might be totally thrilled that you diversified your capital base, which is something that you often hear. And so, a- a- and then the last part is understand, like if you're private equity owned, you know, Blackstone is sort of a big deal.

• 13:48Speaker 01

  If they go tell their lender, hey, I believe that if you give me a little bit of flexibility here, I'm going to work this out. One, they're a really important client to the lender and the lender doesn't want to screw that up. Two, they have a lot of credibility because they've been through this before. If you're like a rink-eating private equity firm that, you know, doesn't have that same sort of relationship with large banks, you can't have those same conversations. So it's really, really hard to say this is how a lender-borrow relationship works because there's so many other factors involved.

• 14:21Anthony Pompliano?

  What can people do right now to ruin their relationship, right, or reputation? So like, we hear all the time, "Hey, you could build your reputation over years and years and years, and you can be the greatest person in the world in the bull markets." When the bear market hits, it's really easy to kind of blow up that reputation that you've built by just doing kind of shitty things. From your perspective, like, what are the things that are most likely for somebody to do that then leads to kind of the hurt on the reputation side? Is it just not following through with what they're supposed to do, or something more complex?

• 14:53Speaker 01

  So, you know, so usually, when something goes wrong, it's the borrower's fault, right? They didn't do something they were supposed to do. In this case, like, a virus occurred, everyone got sick, so everyone had to stay home, and so people stopped spending money, and like, it's sort of not your fault anymore. And one reaction might be to go to all your lenders and say, "Everything's fine." Everything's not fine. Like, I've left my apartment four times this week. Like, fuck you if you think everything's fine. And, you know, one way to ruin your reputation or confidence from your lender is to be ignorant. Or, you know, one temptation that a lot of founders and entrepreneurs have is to show

• 15:36Speaker 01

  confidence, because if you don't show confidence in the market, people assume things are worse than they are. I don't think this is the time to do that. I think this is the time to say, "Here's our plan, and here's our base case. Here's how we think things are going to affect us. In a good scenario, it doesn't affect us, or affects us less than we thought. In a base case, it affects us, and here's what would happen. In a bear case, this is how bad it can get." I've found in the conversations I'm having with our portfolio, the more worried the founder is, less worried I am. The less worried the founder is, the more worried I am because it makes me think that someone has to worry and it's not them. The second thing is hiding information. You know, one temptation is to say, oh my God, you know, I'm lending money to because often we're working with companies that are lending money to other companies.

• 16:22Speaker 01

  And they may have a loan that's not performing. One thing they may want to do is refinance that loan and say, well, you know, this is a borrower that we've worked with for a long time. You know, they're struggling and they already were struggling and this is a moment that makes it even harder. Let's, let's, let's lend to them again. Let's put a little bit more money out because it'll help them get through this time.

• 16:43Speaker 01

  You know, in rare cases, that's the right thing to do. But I would say, look, like normally, if you're going to get yelled at for making a bad loan, this is the time that you're not going to get yelled at. Just like cut it off. And even if it was COVID related, people understand if it wasn't COVID related, people are going to still think it was COVID related and give you the benefit of the doubt. So it's a really good moment to kind of cut things out from the book. Or make, if you saw something trending in a bad way, make this the quarter that you write it off. But the way that you can really screw this up is lying, pretending like you're more optimistic than you are. Committing fraud or doing things that are going to put your lender or your investor in a bad position with their investors. Because those are things that are sort of unforgivable.

• 17:28Anthony Pompliano?

  Yeah. So it sounds like really a lot of the, maybe the don't do's are just do what you say you're going to do. Don't be an idiot and tell the truth, right? Like, those are like the big things. And if you do that, everyone kind of understands, hey, look, this is a really bad situation and we're all in this in various ways.

• 17:47Speaker 01

  And get ahead of it, right? I mean, it's pretty, think about this, it's a lot easier to have a conversation and say, there's a, there's a chance that X, Y, and Z thing is about to happen. We're working really hard for it not to happen. If you were us, how would you be handling it? And then you bring your investors into the problem and it becomes their problem too. And then they're brainstorming with you. If it goes wrong later, whether it's right or wrong, they'll have thought that they were part of the solution. And now it's everyone's fault, not the investees' fault. If you hide it and you want to just tell people it's going to be fine and you hope it is, and then later you're like, hey, this thing I didn't mention, it went wrong. You have, you have one of two options.

• 18:30Speaker 01

  Either I didn't tell you about it, even though I knew it might be an issue. Or two, I didn't think it was an issue and I'm an idiot and now it's an issue. Right? So it's just a lose, lose. And so get it. Your, your investors are seeing so much stuff right now that like they're a lot more tolerant of information. Yeah, I know for us with our LPs, you know, and, and we, we are excited and think this is a really good time to be investing, actually. But we said, hey, this is everything that could go wrong. And in the event that it goes wrong in the next few months, now you know, you end up having this sort of tricky issue where a lot of your LPs are going to want to talk, which is fine. You want to be over communicative. The hard part about that is they may have an idea.

• 19:16Speaker 01

  And you may disagree with that idea and not do it anyway. That's sort of hard. But a majority of them, and that's not because one person's wrong or one person's right. You know, it's just if we all knew what to do, we would all do it. A majority of them, we're going to have the conversation to say, wow, you're thinking about this the right way. No matter what happens, you've kind of been communicating. So I think, you know, just a lot of communication, a lot of realism and start crappy and then like get better from there. When an investor calls me, I'm telling them all the things that could go wrong, not all the things that are going right.

• 19:50Anthony Pompliano?

  Makes sense. You mentioned the covenants and like the idea that there's conversations that happen, especially in the private markets right now in credit, where folks basically say, hey, look, if you kind of call all of these covenants or enforce them, I'm going to default and cause problems for myself and for you, et cetera. Where's the balance there? And what I mean by that is like, why have the covenants if when things go wrong, people then don't follow them? Or they're kind of like enforced, you know, on an ad hoc basis almost to some degree?

• 20:20Speaker 01

  I mean, there's a spec, like all of my answers right now, there's a spectrum. So in some cases, you, so if I write a good loan document.

• 20:30Speaker 01

  A covenant will be broken in the best and the worst of times because if a covenant was never broken, it was probably too loose of a document. And what inevitably happens in normal times is a portfolio company will, you know, will be operating and something crappy will happen or something they never even expected will happen. And you say, hey, you breached the covenant, but I'm either I'm okay with it because it's not that material or I get what happened and I want to keep being a good lender. Two, it's material and I'm not going to foreclose on you, but what I do want is to increase the interest rate, right? So there might be a payment penalty, there might be, hey, you know, your assets are underperforming, so I need you to raise more equity to cure my, you know, my protection.

• 21:11Speaker 01

  You might say something like, hey, I'm going to like do something to be lenient on you now, but in exchange I want warrants in your business because the reason I'm helping you is really to help the equity of the business, not really to help the debt. And then the, the other is a lender who did it because the whole time they were hoping you'd break a covenant so they could take your business from you. You know, one of the, and so that's, that's always the case and, and this is no different, right? So the reason the covenants are in place are one, to bring people to the table. The most important covenants when we're right, when we're investing in a deal is the leading indicator covenants. So we'll often look at cohort analysis and try to do things where if something's going wrong now, it means that something really will go wrong in six months.

• 21:55Speaker 01

  And so what we want to do is have those covenants so that when it happens, our reaction is not we're defaulting, it's that you are in default, but here's a path towards a cure. That way we don't get into this sort of emergency situation later. You know, and then, and then in other cases, one of the perverse incentives is actually the better the asset, the more comfortable you're foreclosing. So, you know, in an ideal world, what you might say is if, if you're sort of the rational investor, you might look at all these investment opportunities. One investment opportunity is you are going to buy into the equity. Of a good asset.

• 22:37Speaker 01

  You know, let's imagine it's a really nice hotel and you say, well, it doesn't have a lot of leverage on it. Right. It's a hundred million dollar hotel. The debt is only 50 million of the hundred million, so it's not a lot of leverage. We know that when this is all going to come back, it's probably going to stay in business. And the equity is down because the market said it's down, but I want to go buy in. In a weird way, it's actually, that's a riskier asset in some cases because the lender may be more comfortable foreclosing on it. Cause they're pretty sure they're going to get all their money back or most of their money back. In another scenario, you might be looking at a deal where it's not a great hotel. And it's really levered, you know, maybe 90% leverage and the equity is down a lot.

• 23:19Speaker 01

  That lender is actually more unlikely to foreclose if they don't have to. Because if they have 90 of the hundred dollars out and the true value because of COVID went down, let's call it 6%, 8%. If they foreclose the transfer of the asset, the foreclosure, the litigation, um, the damaged goods. Are going to be less valuable than the 90 bucks back and they may be afraid of not getting par. And so they're more likely to work with you because it's no longer the equities problem. It's the equity and the debt's problem. So there's all these sort of interpersonal dynamics that might make it a little bit less obvious than you think.

• 23:55Anthony Pompliano?

  Yeah. Do you think that there will be changes in covenants moving forward after this? Like will we see a pandemic related covenants? Or do you feel like most of the covenants that are in there today tend to kind of cover a lot of the issues that are going to come up during this?

• 24:11Speaker 01

  No, I mean, this will, this will get written in legal docs forever now. You know, the question is how do you define pandemic? I don't know what if, if the president of the United States declares it a pandemic. Seems like a pretty crafty way to define it and you know, vague language is what litigation is made of. So there'll be, there'll be some version of it. Um, I can imagine there's going to be certain industries where getting pandemic insurance will be an obligation. You know, for the airline industry, for example, I can imagine on a go forward, there's gonna like, you know how banks have FDIC insurance, which basically says, well, if you're an FDIC insured bank, you can take deposits. I bet you there's gonna be some sort of like things similar to that to the airlines where they say, hey,

• 24:54Speaker 01

  you know, you have to take a percentage of your profits and like, it's going to be taxed into this, you know, government trust. And then in the event of a pandemic, you know, cash will be doled out. Inevitably, it won't be enough cash, but at least people won't have the same reaction like, oh, my God, American Airlines did all these like dividends and share buybacks, whatever they did, and how crappy of them to now need government support if the shareholders did okay. I bet you're gonna see stuff like that. I bet you there's gonna be pandemic insurance that's brokered to the government.

• 25:26Speaker 01

  And then I think one of the interesting things that's happening in insurance right now that people have started to see a lot of press on is like, if you're an auto insurer, life's pretty good. Most of your assets were, you know, because because an insurance company, they make money because you pay them premiums. And then they have a bunch of cash and they invest that cash. And insurance companies are regulated. They're not allowed to do risky things with their cash because, you know, if your house burns down, you want to make sure the company, the insurance company has the cash to pay you out. So their assets are primarily in pretty not risky stuff. At the same time, like, there's not a lot of car crashes. So auto insurance is doing great. The government, I can imagine, telling these insurance companies that in times of duress or in times of pandemic, we're going to increase your tax rate to go into this sort of pandemic insurance pool.

• 26:12Speaker 01

  And then the government will subsidize that pool. And, you know, hospitality companies and travel companies will also be required to take out that insurance, just like there's key man risk.

• 26:20Anthony Pompliano?

  Yeah, super interesting. There's a lot of people who have said that they are getting more bullish on going and buying assets now. So whether, you know, Chamath came on the podcast and talked about going to look for some good assets. Howard Marks recently wrote a memo talking about that they're they're buying things where they find value and kind of have switched to a more aggressive stance. What are the types of assets that you think people should be looking for? And I know that there's some debate as to like, do you go for the good assets or the bad assets and kind of how you think about that?

• 26:53Speaker 01

  Yeah, I mean, look, I so I don't, I think a lot of public securities are being traded on speculation, liquidity mismatches, uncertainty around what interest payments will be have to paid or not, and not really unlike going in like driving up to a building being like, I don't know, would anyone go in this building? Maybe it's on a nice road and the other buildings around it seem pretty nice. There's no graffiti. So, you know, I think in normal times, you look at an asset, you decide how valuable the asset is, and you lend against it. And now there's a lot of market dynamics. I don't really got to sort of expect that. I don't know enough about market dynamics to feel like I'm the person to go do that. In my little world of private credit, I don't think that there's a lot to do yet. For one, covenants are still breaking,

• 27:39Speaker 01

  and April and May will be a lot worse than March, and June will probably be bad. And, you know, it's super cool that like, you know, the government's trying to tell us that everything's okay, but it's not, you know, no one's going outside and the world's collapsing. And this is, this is really fucking bad. You know, people aren't going to have jobs. So I'll tell you one thing, right? So like, you're not going outside, so you're not spending money, and then we're all going to get a stimulus check. Consumer credit isn't going to be that bad in March because also people got laid off at the end of March. Consumer credit won't even be that bad at the end of April. May is going to be fucked. May is going to be so bad. And so a lot of people are going to look at this and think that there were weighing in, or that the market's been corrected, and it hasn't.

• 28:23Speaker 01

  You know, and then the other thing is a lot of entrepreneurs haven't really reacted to the new reality. I think there's still some sort of optimism. And it's good to have optimism, but, you know, I don't think like the bid ask has really kind of come to reality yet. So I'm sure, I'm sure in public markets, there's stuff to do because there's distress and like, I'm sure Apollo REITs and Blackstone REITs are probably good to buy because You know, if Goldman's letting you know a Blackstone REIT, I'm sure Blackstone's not gonna work with Goldman anymore if Goldman acts like a jerk. You know, by the way, I wouldn't want to buy like the REIT of like a rinky dinky sponsor where like Goldman doesn't care about them. So, but in my world of private credit, it's not a lot to do yet. I mean, I think what's happening is lenders are going to their borrowers and saying,

• 29:06Speaker 01

  "Hey, this seems pretty bad, huh?" And the borrower's like, "Yeah, this is pretty bad." What can you, you know, what can you do? And the borrowers who have been performing really well in good times are gonna have a lot of leverage with their lenders. The borrowers who weren't performing even before this are gonna have less leverage. And then they're working on a plan. You know, in some cases, one of the things that's interesting is, you know, right now, the world got riskier, so you'd expect spreads to go up. If you have a borrower who is already struggling, the worst thing you could do to them is make them pay more interest payments. So you have this super weird dynamic where sure, you know, the risk is going up, so you should be asking for a higher yield. But the company can't pay for it because people aren't buying their thing.

• 29:50Speaker 01

  You know, by the way, if you're an inventory lender and you've been lending to an e-commerce company or a physical retailer against a bunch of their, I don't know, surfboards, it's probably not great to collect those assets right now. I don't know if surfboard sales are gonna do. You know, and so there's a lot of stuff that people are trying to figure out where it's just not distressed yet. And I'd rather be too late than too early.

• 30:13Anthony Pompliano?

  Yeah, let's switch to the venture side. Cause you guys have made a bunch of venture investments as well. How are you seeing the good CEOs or good companies handle this situation? I know you and I have kind of talked about like this pandemic playbook where basically kind of being decisive and jumping into action early is probably better than waiting. What do you see those companies doing right now that they kind of walk away and say they're doing the right thing?

• 30:38Speaker 01

  So, I mean, so venture kind of went in this cycle of waves, right? So there's one, which is the pandemic occurred and venture capitalists sort of view themselves as contrarian thinkers, even though they're not. And they were like, "Oh, man, markets are down. It's a great time to buy. We're open for business." And any other venture capitalist who's scared right now, "What an amateur. I've been through cycles. This is gonna be great, and I'm gonna be here with you." And then, and that was bullshit, right? Because what happened is all of a sudden, all these, mostly bullshit, right? Because all of a sudden, all these VCs had a handful of companies in their portfolio. If you have a big enough portfolio, someone was hit really hard. You know, in some companies, you're gonna see a dip in sales of 20, 30%.

• 31:21Speaker 01

  Some companies are gonna have a hard time sort of doing, you know, making new sales and will hit their growth targets. Some companies lost 90% of their revenue. And okay, so for two to three weeks, that's what you're focused on. And it's not that you don't believe yourself when you say it's good to buy at the bottom of the market. It's just hard to spend your time giving capital to a new company when a company on the board of is in crisis mode. So then what you do, the next week, you know, people kept tweeting or whatever the hell they do. And then people were saying, okay, well, let's look at our fund. How much drive powder do we have left? What percent of our portfolio companies have a lot of cash? What percent of them don't have a lot of cash? Who are our most important fund drivers and how do we make sure they're okay? And then let's figure out how much cash is available for everyone else.

• 32:05Speaker 01

  You know, one of the things that happens in venture capital is usually VCs focus on one stage. It might be a seed stage firm, a series A firm, a series B firm, whatever. But when you do a round and you expect some other firm to come in and do the next round, it's usually on the back of hitting your plan or hitting close to your plan or growing. In a world where people are gonna struggle to grow, like if you're an enterprise software company and you're making sales, it's probably not gonna be a lot of sales to be made, right? A CFO is gonna be sitting there being like, I can lay off more of my friends or I can buy this cool thing. And if it's not a cost-saving thing, you're not gonna get it. So there's not gonna be a lot of growth, which means a lot of these VC funds had to take their fund

• 32:48Speaker 01

  and carve out a larger portion than normal for follow-on and insider rounds to lead insider rounds into their portfolio companies. That just means new names will be printed less, right? There's just less room for new deals. And so I think most VC firms have done that now. Then there's the stage of going to every single one of your portfolio companies and going through like the sort of generalized plan. Okay, let's go through every single one of your payables and figure out what you don't need to pay or what you can reduce. AWS bills, probably reduce those. Salesforce bills, probably reduce those. G Suite bills, probably reduce those. Landlord rent payments, probably reduce those. So you literally go into your state, your credit card, corporate credit card. You go into your bank account.

• 33:33Speaker 01

  You look at every outgoing wire, every outgoing amount and say, what do I not need to pay? And what do I need to pay later? And then you force rank your employees, which is sort of the hard part. And you decide, you know, one, if you had underperformers and companies are notorious for not being good at laying people off or firing people who aren't performing, often because they're founded by new entrepreneurs. You don't like having those conversations. You now have the best excuse ever, um, you know, to do that. It's how it sounds. And then you say, okay, so if I, if I'm not going to be able to raise money for 12 to 24 months, how much capital do I need? And you often need to extend your runway and that might mean even more layoffs. And then you say, let me go through my customer list. What percent of my customers are like in travel?

• 34:17Speaker 01

  I should assume that none of them are going to pay me. You know, what percent of my customers are streaming services? How do I lean into those customers? But I would be, you know, if I was an executive on the phone with all my key customers, trying to figure out how I can proactively work with them. So those are, you know, the, the basics. And then after that, every company is sort of its own, um, snowflake.

• 34:40Anthony Pompliano?

  Yeah. It, it's really interesting because I think there's, uh, the two components, right? You can grow revenue and you can cut costs. But what we actually will see here is some companies will suffer pretty drastically. And some companies will actually get aggressive and steal market share. Right? And, and, um, there's simple things like, uh, you know, travel and hospitality, obviously are going to suffer for the most part. But then the streaming companies will, uh, will, will do well. What I wonder is, um, you know, and I've thought through a lot, like you don't see every restaurant struggle, for example. Right? So, uh, things like Panera is selling groceries out of their, um, locations because it's a way to continue to drive revenue while they have their locations open and no one's coming in to actually dine in. Or you'll see like a local small business who says, hey, you know what?

• 35:24Anthony Pompliano?

  We can't actually have people come in, but we can really ramp up our, uh, delivery business. Right? And kind of go ghost kitchens, et cetera. Are you seeing kind of that ingenuity, um, you know, from entrepreneurs? Or are people still in the mode of like, let me get a lay of the land and understand what's happening before I make any rash decisions?

• 35:41Speaker 01

  I think, you know, it's, it sounds cool to say, wow, this is like my moment to play offense while everyone else is playing defense. I think that's right. I think the little, um, Look, if you're an entrepreneur and you think you're smarter than a virus, you're pretty fucking cocky. So I think having some humility going into this is important. And you can have a hypothesis that this is better for your business. Um, you know, we have a portfolio company that um is in the sports space. And one of their hypotheses is that because a lot of sports are down, they're actually going to see an increase in revenues and an increase in demand. But it's still a hypothesis and we're not taking action on it until we see the data to prove that we're right.

• 36:23Speaker 01

  Because there's so many things that I couldn't have predicted, like, you know, okay, I didn't know how, I didn't know that footwear would be hit harder than apparel generally. You know, that seems like a, or I didn't realize how much luxury was going to get hit. You know, I was talking to another lender and they were saying that their borrowers are struggling because they can't lower their prices. And because if they lower their prices, it takes away the brand quality. Right? And then that, you know, people kind of know that, but you, it gets hit harder than you expect. You know, you know, things like beauty and staples are doing well.

• 36:59Speaker 01

  I didn't expect podcast streaming to be as down as it is compared to music streaming. You know, and then you start thinking about things like, okay, well, 90% of Spotify's revenue is subscriptions, not ad spend. Like, there's all these things like you just didn't think about before all this occurred. I think in a month and a half, two months from now, you'll start to see data. As data starts to prove out your theses and hypotheses, yeah, lean into it. But until then, um, have the hypothesis and know what the data you would need to see is to go take action on it. But trying to convince yourself you're the smartest person in the room right now, especially if it's your first time going through a crisis, I don't know, doesn't, doesn't seem like, be prepared, but don't go too early.

• 37:42Anthony Pompliano?

  Well, and another piece of this, I think, is there's a big difference between what I'll call it, the traditional Main Street small business and a technology-enabled kind of venture-backed business. And if you really think about the technology-enabled venture-backed business, they almost have this expectation early on. The reason why they raise money is because they're going to operate at a loss. For some period of time, things like how much runway do I have? What's my burn? Like that's kind of built into the model. And the belief is over time you will become profitable and grow and you know, get more customers, et cetera. The small businesses don't operate like that, right? Most small businesses are kind of very thin margins. They're profitable or break even in that sense, and they don't have big cash. You know, in a bank account. And so it almost feels like venture backed businesses.

• 38:27Anthony Pompliano?

  Just in the mindset of how they grow, that they operate at losses for a while, et cetera. And then have raised money to have these runways are in a little bit better position. The small businesses that might only have two to three weeks of cash and if revenue goes to zero, they just can't, they just can't do it, right?

• 38:42Speaker 01

  Yeah, I mean, I think that's always been the case. You know, I think we're noticing that. You know, it might change how people choose what companies to join, right? You know, people might realize, oh my gosh, a small business doesn't really have a lot of cash. And do I really want that to be my employer? I, but I think the reaction is probably going to be the government's going to say, well, we sort of rely on small businesses to exist. That was really bad. We probably don't want that to happen again. And so let's come up with some sort of like program where we're able to move faster. You know, the S, the whole idea that the SBA was going to move fast and like be able to distribute cash quickly. Did feel like if you believed it, you should probably change your career.

• 39:25Speaker 01

  You know, like the SBA is like the DMV of finance and we're sort of seeing that happen now. And on top of that, you know, if you're a bank, you're, you're just a lose, lose, lose. Either you originate small business loans quickly, but it's really hard to do your KYC AML. So you get fined. You do it slowly and you get yelled at for doing it slowly. You decide not to because, and you get yelled at for not doing it or not having an SBA license. Or you do it quickly and you charge enough in origination and servicing fees. Where you can kind of withstand future fines so that you can lend quickly. And people get mad at you for having made a lot of money on it.

• 40:05Speaker 01

  There's just no win here, right? And so like, you gotta actually create aligned incentives for the originators of these loans to actually get them to go do it. But right now, if you're a bank, you have so much PTSD from the reputation you create yourself in 08 that you're like, is it really worth it? Do I need to be doing this? And then if you're a bank, you're definitely not going to make a new loan to somebody who hasn't already your client. Because, you know, the KYC and AML of that is so hard. Like, why would you take the risk? And there's so much fraud that occurs during a crisis.

• 40:40Speaker 01

  That is just not worth potentially getting taken advantage of. I also think it'll change how SMB is bank. Like, I think, is my bank SBA license is going to matter soon.

• 40:49Anthony Pompliano?

  Yeah. Is the fraud thing, um, like, explain that a little bit more. When you talk about there's a lot of fraud and kind of just nefarious activity in a crisis?

• 40:58Speaker 01

  If you were a terrorist organization and you knew that banks were going to be making loans at a faster rate than normal, and you're trying to figure out how to get cash, this might be a good time to try to get cash from a bank. Yeah, like, that's the thinking of it. Right? And during any fraud, one, people get desperate, right? So they need money. And fraud, you know, fraud occurs, there's two types of fraud. There's fraud where it's a good person who got desperate and does a bad thing. And there's fraud where it's a bad person who intentionally did a bad thing, even though they didn't need to do a bad thing. The first type starts to happen more in times like this. Um, look, if you got laid off and you don't have another job and you're kind of like worried because your kids are at home. I don't know. What do you, what do you care more about? Like, fraud or your kids' safety? Um, your kids' food?

• 41:41Speaker 01

  So, yeah, there's going to be more phishing attacks. There's going to be more hackers. There's going to be more fake news. There's going to be more people, you know, trying to, um, commit fraud in the system. If you knew that there was going to be $350 billion of SBA loans being doled out right now, and you were a bad actor, it seems like a pot of money that you might try to go after.

• 42:01Anthony Pompliano?

  Yeah, and it's probably going to end up being more than that. I saw that they're already talking about another 250 billion possibly to, uh, to try to backstop some of the small business stuff.

• 42:08Speaker 01

  Yeah, let's get the 350 billion out first, you know?

• 42:13Anthony Pompliano?

  What's crazy to me, I think, is how bad the information is. Like after even the first day, there was like conflicting reports of how many people had applied, how much, you know, those loan applications were worth, etc.

• 42:26Speaker 01

  I don't think the government really wants us to know. You know, like I think that they're kind of like, you know, there's, good data is best, hope is second best, and bad data is worse. We're in hope.

• 42:40Anthony Pompliano?

  Yeah, it's a good way to look at it. Two of the trends that I know that you spent a lot of time on, mainly because you guys have portfolio companies, is one, e-commerce, and then two, kind of ad spend or the advertising industry. Let's start with e-commerce. What are you guys seeing there on the e-commerce side that you think is either interesting or people should be paying attention to?

• 43:01Speaker 01

  I mean, look, I think this has been a great time for e-commerce generally to show the world that it really matters, like the variable costs of an e-commerce business are really important. You know, if you think about how an e-commerce business is built, you know, it's COGS, it's your sort of software services, your website, stuff like that, and it's marketing spend. And you have employees. If you're a big e-commerce company, you might have a warehouse and inventory. By the way, you have your inventory lender who, you know, God knows, they don't want your inventory because if you can't sell it, they can't sell it. And then you might have more employees than normal. But by the way, if you have a warehouse, you probably have more cash than the average small business, maybe. But you can toggle that up and down.

• 43:46Speaker 01

  If you have a physical retail location, you have your rent, you have a lot of fixed costs that you can't toggle up and down. And on top of that, people can still shop online. So e-commerce, our hypothesis right now is it's going to be hit a lot less badly than most. It's really hard to predict where consumer demand is going to go down. As more and more people are laid off, it's going to be bad. However, like, you know, I know I probably spent a third of what I normally spend last month because I'm just not going out and not doing stuff. So I have, you know, the average individual is probably generating more excess cash if they are employed. They may go online and shop. That's what I mean by, you know, in one hand, you could be an e-commerce company and say, oh, my God, now's a great time to play offense because I know where the world's going, all my competition's going down.

• 44:29Speaker 01

  But there's so many competing variables that like, okay, so people are spending less, maybe they have more time to shop online. People are getting laid off, maybe demand's going to go down. You know, it's just too hard, like, it's too hard to know.

• 44:42Speaker 01

  So, you know, I can't give too much confidential information on e-commerce other than those sort of general data points. On advertising, you know, we're seeing a handful of sort of factors. One is views are way up. People are at home, they're on screens and they're watching more. And CPMs are way down. Part of the reason CPMs are down is because if you were spending a million dollars a month and that was your budget, and now views have doubled, your CPMs will just come down in half.

• 45:14Speaker 01

  But, you know, you're seeing slight decreases in ad spend right now in the last two weeks of March. You're seeing way more views than normal. And different parts of the ad market are gonna get hit differently. You know, print, radio, TV, things that are hard to measure and are expensive are gonna get really hit. Social, video, just, you know, banner ads, less hit because they're easier to measure. And the CPMs are cheaper, and so you can get a better bang for your buck.

• 45:46Speaker 01

  You know, and then by the way, if you really are something, like if you're Peloton, or you're Hulu, or you're someone like that, you're gonna get a better ROI in your ad spend now than ever. And so you might start leaning in because there's less noise.

• 45:59Speaker 01

  So, we're basically seeing ads, CPMs coming way down, views going way up, and ad spend generally being down five to 20%, depending on the medium. And I can imagine ad spend going down 20 to 50%, but that some platforms are gonna perform way better than others. And I would be pretty bearish on media companies that sell premium, high CPMs. And more bullish on media companies that have exchanges and sell generally lower CPMs. Snap sells at a lower CPM than Instagram. That's a bullish comment. YouTube sells at a lower CPM than Instagram. That's a bullish comment, you know, thing. The other thing is, you know, Spotify.

• 46:43Speaker 01

  People aren't turning off their Spotify subscriptions. And the last thing that sort of is an interesting observation is companies are turn, people have traditionally looked at LTVs and E and enterprise sales revenue as stickier than consumer generated revenue, like a Netflix subscription feels less sticky than enterprise software. For enterprise software, I bet you see a bigger dip than you see in consumer apps because people are still at home watching Netflix and they don't have a CFO of their personal life negotiating with all their different vendors and Netflix doesn't care about any one subscriber. But if you're 2% of the revenue of a company, or if you're even 20 basis points of revenue of a company, that's huge. And so I bet you end up seeing more negotiation and decrease

• 47:27Speaker 01

  of prices of enterprise software than you see in consumer.

• 47:29Anthony Pompliano?

  Yeah, that that makes sense when you put it that way. Does this change, you think, people's view of kind of ad-supported businesses versus subscription businesses?

• 47:39Anthony Pompliano?

  Like, kind of what exactly what you're talking about, almost changing the way that people think about how they build their business in the future?

• 47:46Speaker 01

  I think that, you know, enterprise software will probably be thought of as cyclical going forward. I think one of the things that people, you know, we talk a lot about internally is what does the consumer cap stack look like? And historically, you know, you've always said, okay, well, you know, your home loan and your auto loan are probably the most senior. And then it's like, you know, utility bills, and then it's like credit card, and then it's like unsecured stuff, and then it's like your Nordstrom's card, and you look at default rates per consumer and you kind of like go up and down that stack, just like a corporate, you know, cap stack exists, you have your senior lender, your secured lenders, your unsecured lenders, whatever. And then what we've always thought is Spotify subscription, like, whatever your cheapest

• 48:27Speaker 01

  per utility subscriptions are probably more senior in your consumer cap stack than most people think. So I would probably want to finance someone's Spotify subscription before I'd want to be their credit card provider. Because I bet you you don't pay your credit card bill. But you still maybe find a way to pay your Spotify bill. The flip side of that argument is you pay your Spotify bill with your credit card. I don't know, maybe. But man, does it feel good to be providing us a nine dollar ninety nine cent per month service. That is probably being used a ton if you're out of work. Or your smartphone or Netflix compared to like a credit card. So it's just, it'll be interesting. I think we're going to have a bunch of new data. Around what default rates and what churn looks like after this that we never had before.

• 49:12Anthony Pompliano?

  Yeah, the the thing I think around the ad supported businesses too is that advertiser who had the million bucks and you know. Views have gone up two times. So now all of a sudden they're paying fifty percent less CPMs. At some point, if we stay in this quarantine, I wonder if there's an impact on sales that changes their. CAC and LTV calculations, right? So literally just because you have the million dollars to advertise. If no one's buying your product, at some point, do you literally just say, hey, we're not going to advertise? Right? So it almost like dries up because sales dry up.

• 49:44Speaker 01

  Yeah, I mean, I think people are definitely going to be start running variable and base case LTVs. You know, one of the things that people always say, like, LTV has become this sort of like. Initially, CAC to LTV was everyone's like holy grail metrics. And I think in the last couple of years, people have become a lot less enchanted by LTVs because what you do is you take your. Monthly revenue and you take six months of total churn data and assume that's what's going to last forever. And you come up with some number that looks very close to infinity. In terms of like what your LTV is. And I think people are going to start to say like, what is your LTV in different environments? So I do think that it's actually going to become a more useful metric again. Because people are going to know how to measure it instead of just looking at it's like, oh, don't worry, my churn in my first four months is zero. So it means that my LTV is like ninety three quadrillion, you know.

• 50:25Speaker 01

  So I I also think that we're going to, I think the the last crisis saw a shift towards digital ads. And I think that you're going to see another shift there away from print TV and traditional sources. Um, I don't think people are going to be really doing a lot of billboard ads right now. It doesn't seem like a very good idea. Um, you know, so I think you're going to see somewhat permanent shifts. But I also think that you're going to see, you know, companies like the New York Times and others who have relied on premium CPMs. They've already started going more and more towards subscription revenue, um, again, and paid revenue. And I think as things like COVID show us how much bad information there is out there, people are going to keep paying up.

• 51:06Speaker 01

  And I know that I've picked up probably two to four subscriptions while I've been home because I'm just reading more and watching more. I don't think I'm going to turn off of them. I think that's going to be a big deal. That's probably going to be a forever shift.

• 51:17Anthony Pompliano?

  Yeah. And I wonder also, like, uh, on the subscription side, there's some things, you know, we, we don't watch a Netflix show every single night. Right. But it's something that is cheap enough where I couldn't even actually tell you how much it is. Is it nine bucks, 10 bucks, 12 bucks, whatever it is.

• 51:31Speaker 01

  When you say not watching every night, you're not looking me into that, right? Cause I am on Netflix every night right now.

• 51:36Anthony Pompliano?

  Yeah, but, but it's like, let's say that you've got, I don't know, most people probably have somewhere between four to 10 subscriptions, right? That, that they're paying for across various services and some of those, uh, like a Spotify, you probably actually do use every day, right? If you go to the gym, you listen to podcasts, whatever, uh, but then other things you may use once or twice a week. And some of you actually may only use once or twice a month. Um, and what I think starts to happen is, um, the businesses themselves will actually change the way, uh, that they think about the product or service, right? The more that you can kind of, uh, become a daily habit, I think also changes. Um, and, and so it almost then brings you to something like a Quibi versus a Netflix, right? Where these, the Quibi thing is basically 10 minutes short form content. You're supposed to be able to consume it, you know, much quicker daily, et cetera.

• 52:21Anthony Pompliano?

  Versus let's sit down and watch an hour and a half documentary. Um, I don't know if it'll prove out, but, but I think that that has to enter the conversation at some point, uh, for people who are looking at the subscription based businesses as well.

• 52:33Speaker 01

  The, the Quibi thing will be interesting. I mean, I think a lot of like. I'm not, I don't know jack about storytelling, except that I always remember, and I actually, this guy I'm on a board with, kind of put the construct for, built the construct for me. He was like, you know, if you look at a John Grisham book, John Grisham does this awesome thing where he creates like, you know, very short chapters. And he always has three subplots running. And so at the end of every chapter, you have a subplot that gets extinguished. And you're really interested to know it's gonna, or sorry, on a cliff, like on a cliffhanger. And you get to the next chapter and you're sort of wondering. So you read that chapter to keep getting to the next chapter, we're gonna find out. And then there's another cliffhanger and then you read the third chapter, another cliffhanger. You finally get the answer to the first cliffhanger. And then he creates another, right?

• 53:17Speaker 01

  And so if Quibi can kind of create that dynamic with their audience, where there's always a cliffhanger where you come back the next day. I think that'd be interesting. I don't know if that'll be true or not.

• 53:30Speaker 01

  Who, who knows? But I do agree that this daily habit thing is important. And I do agree that cost per utility of use is going to be a really, really important metric. You know, what's the value? Like, I wonder if there's gonna be a KPI that starts coming out, which is how much do people spend for every minute they're on Netflix? And I bet you if you looked at like the nine ninety-nine you pay for Netflix and you look at, and then you divide that by how many minutes per month. That'd be super fascinating to know that metric compared to Hulu, compared to Disney plus.

• 54:04Speaker 01

  The other thing, by the way, that Quibi reminds me of is it's a short duration asset. So in lending, like, let's imagine you lend, you make five-year loans.

• 54:13Speaker 01

  You know, in one case, that's not so good because you have to take a five-year view on the economy, a five-year view on the company. And so people say, well, if you make a thirty-day loan, it's really easy to predict what's gonna happen in thirty days. The problem is some, every once in a while, it's not, right? Like, I don't know, maybe there's gonna be some virus that starts in a country and spreads to all the other countries and everyone stays home for a while. Right? And you didn't know that was gonna happen. All of a sudden, your book of thirty-day assets all gets correlated to one and goes to zero. Because we all stopped paying payables this month. And then on the five year loan, you know, you basically look at your default rate and you say, well, my annualized default rate for two to three months is super bad.

• 54:52Speaker 01

  But then over the duration of the whole asset base, you know, I had out of five years, six really bad months, the thing performed okay in general. But the short duration of the asset, you know, the more your whole thing can get wiped out. And if you look at the effect of default rates, often people say, oh, well, factoring, for example, is like fifteen, forty-five, ninety day receivables. And you'll see default rates in like the two to four percent range sometimes. You have to annualize that out. So if you see two percent defaults every month, it's really the twenty-four percent default rate. Quibi, I think, will in some ways be like in a similar thing where I am curious how many false positives you're going to get where people download Quibi. But they can't get hooked on these short stories and they just fall off.

• 55:34Speaker 01

  But I don't know, I'm not, I'm not a storyteller. I don't have good taste. I've never liked something before everyone else liked it and then like all of a sudden it became popular. So I'm not there. I got to ask.

• 55:42Anthony Pompliano?

  What, um, have you noticed any changes in the things that you're consuming on your phone? So obviously we're all spending more time in front of computers, TVs, phones, etc., just by nature of sitting home. But have you started to consume content from other platforms that maybe weren't before? Or you notice, hey, you know, I'm spending a lot more time on Instagram, whereas previously it was Twitter or something like that.

• 56:05Speaker 01

  I'm finally, I, I, I am finally reading my newsletters that I get because I've had a bit more time to do that.

• 56:16Speaker 01

  But I find myself spending a lot less time reading the Wall Street Journal. And hearing what somebody's interpretation of what an expert said. And instead just looking for data. Like I don't, I don't need. And by the way, I think reporters are doing a good job. This is not like a dig on anything like, but I'm, I'm less interested in seeing like a two page article. Analyzing something that an industry expert observed from talking to someone else. Instead, I'm like, all right, just send me the export. I want to see the CSV.

• 56:47Anthony Pompliano?

  Yeah, super interesting. Before we finish up, two minutes on Bitcoin and crypto. You've, you've previously described yourself as crypto curious. What, uh, what, what do you think in there or any kind of thoughts?

• 56:59Speaker 01

  I was super bummed to see Bitcoin get crushed when the market started to go into sort of panic mode because it was supposed to be a safe haven and you know, everything's correlated, everything's correlated was truly true that week. It started to rebound. I don't have any observations other than let's see where we land two months from now and how it ends up behaving relative to other markets, but I'm really in wait and see move mode. But I think it's hard for something to be a store value when it dropped that far, that fast. I mean, there was a night, and I think maybe we both remember that night, where like I was on my phone texting everyone,

• 57:42Speaker 01

  all my loved ones, being like, I don't know, maybe it's all gone. You know, like, and that's scary. It's not a position I want to be in.

• 57:50Anthony Pompliano?

  The Black Thursday, I told you this and I'll say it on here. I never thought the day would come where Paulina had to look at me and be like, it's gonna be okay. But seeing it drop 50% in a single day, it was just like, it almost took your breath away to actually watch it happen.

• 58:07Speaker 01

  Yeah, I mean, look, I think the whole Bitcoin thing is like, ah, don't trust the government. The government's shitty. Like, the government's trying to take all your information. Like, the government, if you act out, I just throw you in jail. And there's like a lot of negatives about having a government, you know? But, you know, they do, like, there's like an army, you know, that's pretty good. And, you know, people are giving shit to the postal service. Like, yeah, there probably should be those, like, government entity that, like, make sure letters, you know, if FedEx goes bankrupt, we'll still get to where it needs to go, even if it takes frickin' ever. You know, like, so I do think this is utility to a government. And I don't know, like, I didn't go into this thing knowing anything really about Steve Mnuchin. I probably think more

• 58:48Speaker 01

  positively of him, though, now than my sort of neutral view I had on him a few months ago. And I think he has the benefit of seeing Hank Paulson drag, drag, drag Congress, Senate, and, you know, pundits the mud to save our economy. Last time, at least we had the playbook. And then government showed that, like, It's really important and it's important because they can do great things like stimulate the economy and they can do shitty things like have some president who doesn't can't speak in full sentences confuse the nation, right? And like, I think if you're gonna sit there and say that the government is doing things wrong and be annoyed at the government,

• 59:30Speaker 01

  by definition, you're saying how important the government is. And Bitcoin doesn't have a government.

• 59:36Anthony Pompliano?

  Yeah, it is. It's one of these things where time will ultimately tell us the answer, but it is absolutely fascinating to be living through this right now and kind of watching it all unfold, because it feels like every day there's something new, whether good or bad. But it's just really, really interesting to kind of watch it all play out. So I appreciate you doing this. Where can you find you?

• 1:00:00Speaker 01

  The one thing I'm doing is I'm trying to sort of take notes every day. You know, I encourage anyone else to do the same thing, which is, you know, eight years from now, you don't want to look back and see what your daily notes were, because it's gonna be really easy to look at March and April as the same day. And, you know, for example, Friday, could not understand the market. Monday, what the hell happened to the equity markets? How are they up so much? And so I wrote in my little notepad, like, oh, man, markets are gonna get crushed tomorrow. They were flat. They were flat, you know, and like, I'm really glad I have that note. So that eight years from now, I can actually look at my daily playbook. And like, every day, I write a hypothesis, what'll happen tomorrow, and what'll happen 60 days from now. I talk about my observations, and it just shows

• 1:00:44Speaker 01

  you, you know, a lot of these predictions, I had a lot of conviction on, and they were wrong. So.

• 1:00:50Anthony Pompliano?

  Can we start a daily tweet from Ali on what the market will do tomorrow?

• 1:00:54Speaker 01

  No.

• 1:00:55Anthony Pompliano?

  And then we'll measure the accuracy?

• 1:00:57Speaker 01

  No way, because my compliance team would never let me. And I would never do that to people, because that's a way, following that is a way to lose money.

• 1:01:05Anthony Pompliano?

  I love it, man. All right, where can we go find you on Twitter and find CoVenture?

• 1:01:10Speaker 01

  Yeah, I mean, I'm at Ali B. Hamed on Twitter. You know, I respond to most DMs, unless it's like weird. Don't send me weird stuff. And then.

• 1:01:22Speaker 01

  Knowing her, knowing some of the people who follow you on Twitter. And then, um, yeah, I'm not going to give my email address out. I'm around.

• 1:01:30Anthony Pompliano?

  All right. What's Coventure's website?

• 1:01:32Speaker 01

  Coventure dot V C.

• 1:01:34Anthony Pompliano?

  All right. Sounds good, man. I appreciate you doing this. Uh, we will have to do it again. Stay safe.

• 1:01:40Speaker 01

  I'll look forward to seeing Lunch Money later today.

• 1:01:42Anthony Pompliano?

  Yeah, I appreciate it. I feel like, uh,

• 1:01:45Speaker 01

  You're the second best person on that show.

• 1:01:48Anthony Pompliano?

  Oh, yeah, of course. I mean, listen, I, I, I don't even like admitting it, but Plina literally, uh, scolds me for, uh, not, not participating or performing up to her standards. So it is what it is.

• 1:02:04Speaker 01

  She's really good. I think it's more about her being good than you being bad. I think you're both good. She's just gooder.

• 1:02:11Anthony Pompliano?

  I appreciate that. You're, you're, you're lifting my spirits in a time of, uh, dire stress.

• 1:02:16Speaker 01

  You, Anthony, you can't help it. She's so good that how are you supposed to ever live up to that? It's not.

• 1:02:23Anthony Pompliano?

  Ali is, uh, being very kind while, uh, his fiancee sits in the same room as him and my fiancee sits in the room with me. So we're, uh, we're both the, uh, the two intelligent folks, uh.

• 1:02:35Speaker 01

  Just try to dish out compliments. All right.

• 1:02:38Anthony Pompliano?

  All right. Talk soon, my friend.

• 1:02:39Speaker 01

  Thank you. Talk to you soon, dude.

• 1:02:41Speaker 02

  Hey, everyone. Pop here. If you liked this episode of Off the Chain and want to help us take crypto to the top of the apple, Spotify and other podcast charts, please do us a favor and rate, review and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off the Chain.