happy new year happy new year happy new year guys listen it's now it's candle season oh god look at the equanimity this look at his equanimity this candle costs 24 000 it is an extremely rare brazilian sandalwood you literally have to go into the amazon and like
you know you you basically have to like i mean try to extinct trees no bro you gotta you gotta tear out like two acres of rain forest and then you find this one tree completely you know sacred uh and then you chop it down you make this thing reduce it and it lasts for a full 45 minutes how do you
like that sweater karen candle carrots are going to be karen candle carrots are calling it right now the dms are coming you guys want to hear about poker last night oh did you go so i go down i take my eight hour drive down south to jamaat's house and i pull
in and uh you know the security guard greets me nicely as always i walk in and i walk towards the poker room and everyone's in there with the door open like someone just got shot masks on freaking out and champ is inside the house and i wave and he's like get in here
and then i go in he's like oh who is positive max the dealer tested positive and everyone's been hanging out in the poker room with no masks oh the only two people that were exposed to max we sent home yeah so everyone starts freaking out he shuts the uh shuts the
poker game down chamf kicks everyone out sends everyone home and then he's like all right let's go have dinner inside you know we're not we're going to we open up all the doors we're going to kind of lysol the room tomorrow we all go in have dinner or you know chamath and i go in and have dinner
with matt and the kids and then chemoth starts thinking you know what it's okay they were only exposed for a few seconds let's call phil back okay let's call shuffle back let's call keating back and then they all come back for dinner and at this point it's become like a dinner
party and then a couple of glasses of wine in and then it's like you know what the room's probably safe we should go i mean the whole poker night went through the entire cycle of psychology of covid the whole pandemic it's like oh my god get everyone out lock up and then
by the end of the night it was like you know what let's go in the room and just play poker and give each other coven they got to acceptance they got to accept this they went through the whole emotional cycle of the pandemic in one hour does anyone know anyone who's a
serious case of macron no i mean i know dozens of people at this point and they all say it was a cold yeah dozens of people and that's just except for jake i was on was on social media giving everyone the update like oh i sneezed today oh i still test the positive he's like
showing his positive tests we're concerned it's the only good test result jkl's ever had yeah exactly it's the only positive that's true [Music] [Music] elizabeth holmes has been found guilty on four counts of fraud faces 20 years in prison for each guilty
account they would be i understand served concurrently most people are here speculating four to 10 years and then i think you can get 15 off for good behavior again i'm no expert on that but that's what i read uh guilty counts were two counts of wire fraud and two counts of conspiracy to
commit fraud she was originally charged with a total of 11 counts of fraud uh four were guilty four were not guilty three were a split verdict the jury said they were unable to come to a unanimous anonymous verdict on three of the counts after more than 45 hours of deliberation quote
from the wall street journal article juries were persuaded that ms holmes conspired to defraud investors this outcome could be significant because it means hundreds of millions of dollars of thera knows investors that there are the most investors lost
could be taken into consideration during her sentencing his big numbers the jury was split however on which of the six investors who testified were defrauded the jurors convicted his homes on three counts these included a hundred million dollars from the family office of former
educator ed education we know the details jake saw he was like doing it for the audience so anyway um thoughts on uh the legal uh technicalities of the case counselor sex well we've talked about this before i mean i think so at the end of the day she was convicted on the counts related
to deceiving investors she was not on the accounts related to patients i think that makes sense in that her obligations to investors are very clear whereas i think that the patient related duties are i mean she had them but it's a little bit less clear so i mean look it's it's what
we've always said here as a founder you can be as messianic as you want to be you can promise you know anything about your vision and what you intend into the future but what you must do is be accurate about the current state of your business you cannot lie
about the deals that you've made about the current capabilities of your product and she was putting you know logos of customers she didn't have in her deck she was lying about the military being a customer so she simply exactly misrepresented where she was at that time at the at when
these investors invested and that was the red line she should not have crossed and i think in that sense it's a pretty simple case i think you know the the the part of this again you know the the the piece of this that's interesting is not the case itself but really the
media coverage because the media wants to portray this case as an indictment of silicon valley and the thing you keep hearing over and over again none of us were involved well it just factually yes exactly we weren't involved but like there's not a single person in
silicon valley i think who put in a single shekel into this thing who actually does this as a real job tim draper well she he doesn't know put in a little bit of money as an angel and then he he didn't put a single dollar in after that i'm saying you know you didn't come to social capital or
craft ventures or to sequoia or to tpb or to google to raise money for this thing none of that happened you know saks is right like the the summary of uh the wall street journal nick you can post it because i put it in the group chat basically summarized the
fraud and is exactly what sack says she had fixed the logo of specifically i think it was pfizer that had not validated theranos's technology in materials she presented to investors so she's basically like pfizer said this is a go and apparently that wasn't true she gave
the false impression that the devices were used by the us military that's what got all these military folks to sign on board and support it that wasn't true and then uh and then she the biggest coup was that she signed a deal with walgreens and safeway to include its devices in
hundreds of stores and then many investors saw these contracts as an endorsement of the technology and growth potential but basically those folks did no diligence and bought the hype and so it was just a whole cycle of this thing that basically fell apart because the
tests didn't work freeberg what are your thoughts as our life science guru what's most interesting to me is how does this get to this point if you're elizabeth holmes you're 19 years old and you start telling your story and the more grandiose the story you tell is the
better the reaction you get is it becomes reinforcing and the behavior extends a little bit further and a little bit further every time she told a story about how incredible this tech was it's just one drop you take one drop it can measure everything when she
simplified it and reduced it to that and it was such an incredible statement and she saw the reaction from people she's like wow that works let me repeat it it's like any good sales person they figure out what sells and then they sell it and then they repeat
and what's interesting to me that you know you talk about the media but when she went out and told her story and got incredible press coverage because she was a young female doing something that was going to save lives there was this altruistic steve jobs-esque kind of combination here
the media wrote a glowing review of her and then she said wow look they said something great let me go do that again and she got a bigger media piece written and a bigger media piece and the more she said the bigger she said it the more she claimed she could do the bigger the
story got the more coverage she got and the whole thing became this kind of reinforcing cycle and i do think that the press coverage that she got as she was building this business which helped her raise capital helped her attract employees helped her get walgreens and
safeway to the table allowed to fall it allowed her to build the business but it's exactly what created the narrative that wasn't true and so the coverage that the press gave her and we see this every day you guys all see these top 50 companies and we all know having met a lot of these
companies as you go down that list this this 20 companies are total scam companies they're fraud they're not going to work they're grifters all the stuff that you guys might say about the quality of those businesses but the press reporter isn't doing diligence
they're not a no you know it turns out all the diligence was done after the fact and then it's like well maybe we should go do some diligence oh wait a second because this the press coverage has now created this hyped story about who and what she is the the diligence actually pays off
because you have something to take apart if she was just a nobody startup that raised 30 million dollars and they're still trying to figure out their way there would be no value in any reporter doing diligence on her and trying to figure out what was actually there it
was because the story got big that it gave everyone including john kerry who an incentive he's the wall street journal reporter who broke all this an incentive to go in and take this thing apart and so i mean it's really unfortunate and it's really self-reinforcing that
the press coverage that created the circumstance here ultimately also enabled them the press to take the thing apart and you know land this woman in jail and i'm not saying she did nothing wrong but i'm just saying that there's a system here and the system is set up but she
manipulated the press yeah let me ask one question then i got a question for saxon champ her basic premise that one drop of blood could get you hundreds of results let me just ask you a question free break at what point would one drop of blood or so a nano tube uh be able to at our
current technological you know ramp be able to give us a hundred different data points on a person every time you're generating a data point you're running what's called an assay which is a measurement of something the question is how much of a molecule
are you measuring against what volume is there enough of that molecule in that volume to give you a statistically good reading and that is a function of how precisely you can measure that thing so there are there are great advances happening right now in a domain and life
sciences of hardware technology called microfluidics this is the manipulation of pico leader you know very very small volumes of liquid and then being able to run chemical assays using biochemical techniques which we now have all these amazing new
kind of tools like crispr and other things that would allow us to get a much more precise measurement with a much smaller volume than has ever been possible so we can manipulate small fluids we can measure them so there's nothing today that would physically say
we cannot do many of the things that she claims to have been able to do but there are there's a stacking of technology assets that need to be done to make that happen in reality and each of those assets are very different so look you could do it with cholesterol right now you could do it
with blood sugar right now but you couldn't do both you could theoretically you could put them into a device and do that no the reason the reason why lipids work can you do four hundred things you cannot i've actually funded three of these businesses and i've poured almost
100 million dollars of money into it and they've all failed and the reason is exactly what he said you can do cholesterol because lipids are big enough you know and so you can basically build an assay that can pick that off with a drop of blood you can do a reasonably good job with pretty large
error bars on sugar but all of this other stuff where you're going to replace like a you know a cbc or these broad you know profile panels that we all get once a year to assess our health today i don't think that that's necessarily within reach it's not within
technological region it's not because people aren't you know smart enough it's just that not enough of this investment is happening because then you go back to this whole idea where the funding cycle needs to see a big payoff for the capitalists to want to get involved in
this thing and there really isn't you know it's not as if like quest and labcorp are printing 400 billion dollars of revenue and profits and so it's not like there's a massive economic incentive to run in and so even when you know we have tried
in multiple occasions with completely different teams of incredible people every single time we have failed so there's a physics law here that's just not physically possible she made this claim uh saxophone remember and don't don't make it broad there are things there are
molecules there are pathogens there are things you can absolutely detect small molecules you can you can detect with a drop of blood you know measure counting how many blood cells you have in your whole body you know using an estimate from a single droplet of blood because you know we
have these machines called flow cytometry machines where we sort blood cells and then it'll tell you how many red blood cells you have and how many different kinds of white blood cells that's a big part of your annual checkup that you'll typically get you know you
need a good amount of blood to get an accurate reading on how many blood cells there are using even just using lasers and and you know these sophisticated machines can you reduce that down to a droplet physically probably not right and so there's some it's not universal
to say this is possible it's not possible there are elements that are absolutely possible some of which are being done today and there are some things that are going to be very hard to pull off got it and she was making these claims as early as 2003 when it was
founded so we're talking about 19 years ago and we're saying here it's not going to be possible to do hundreds of these things maybe in our lifetime we're talking about decades from there we need to be some significant breakthrough sacks let me ask you a legal question
i was on a podcast and i said to them why haven't the prosecutors had bill maris who is a friend of freeburgs who helped me get him on the podcast he was great thank you for that uh david um this week in startups very smart guy very smart guy and he came out publicly when he was running google
ventures and he said we looked at it a couple of times he's referring to their nose but there was so much hand waving like look over here that we couldn't figure it out so we just had someone from our life science investment team go into walgreens and take the test and it
wasn't that difficult for anyone to determine that things may not have been not be what they seem here now saks i was on this podcast to drop out which i think is an abc news one and i said why didn't the prosecution bring up you know gv let's assume sequoia
andreessen and you know the 20 top firms in the valley uh who said no and they all said no because she wouldn't show them due diligence and i asked them why didn't the prosecutors bring up those 20 firms and compel them to testify about why they didn't invest to give the
counter example and she said i don't know wouldn't that have been a much better strategy to say here are the credible people who didn't invest i'm not sure i see the relevance of that because elizabeth holmes crime was not promising something that she couldn't ultimately deliver on
it's okay to fail in silicon valley one of the best things about silicon valley is that we don't punish failure her mistake wasn't making misrepresentations to the people who did invest right if and what i'm saying is if anything actually what elizabeth holmes maybe should have done was call up some of
those firms and they could have said how easy it was for them to figure out that they shouldn't have invested maybe that would have been a way to kind of muddy the waters on her side so i was thinking that they would have said hey she wouldn't show us the technology and
when we did our independent diligence she wouldn't let us diligence we did outside backdoor diligence it failed there were red flags all over this thing we we had talked about in our poker games way before this thing went off the rails um the fact that there
were no major vc firms involved who could who had expertise in biotech who could do the diligence it was all sort of it was basically family office money of people who weren't in silicon valley you know writing big checks whether it was rupert murdoch or the devos family or what have
you there were there were just red flags coming off this thing which is why silicon valley was not by and large due by it the people who were duped by it were the people that elizabeth holmes was able to sell the patina of silicon valley to and the media because the media
what we've seen over and over again is they don't fact-check stories when they fit their priors the prior here is that you know what the media want to believe is that the next steve jobs was going to be a woman and so when elizabeth holmes served that up to them wearing the black turtleneck
it was too good a story for them to fact check too heavily and so they ran with it in the same way in the same way that you know the ivermectin hoax that rolling stone ran with was too good a story to be fact checked because they want to believe that the maga people in
oklahoma were eating horse paste i mean no there's a hundred better examples of just i mean just to be generic sacks of other startups that we all know are total nonsense and total nonsense and the report there's a he there's a fraud in biotech going on right now that hey
david and i david and i saw upfront i mean it's like this stuff is crazy it's really really crazy look i mean i think the moral of the story for entrepreneurs i mean i think there's a couple of takeaways here number one you got to be really clear with the present
state of your business it's okay to talk about your grand vision and what you're going to do in the future but you cannot be inaccurate in any way with respect to your current numbers and partnerships and deals and current capabilities i think number two i think
when you start working with the media in this way to promote your company you're playing with fire because the media really has two kinds of stories they build up and they tear down and when they're done building you up they're gonna tear you down because that's the only story left to right so
if you're gonna go court the media in that way to try and get publicity you better be really careful how you do it you better be really accurate and you better not give them cause to later regret pumping you up because they will tear you down even harder if you do that
i think i think the more important danger that i just like to speak generally to for a second is to not let other people do your thinking for you the investors that came into this business came in under the assumption that this was a real business because
the press had written about it and the press wrote about it because the general had joined the board and the general joined the board because his buddy george schultz said hey you should meet this lady and the whole thing ended up becoming this roundabout where no one
actually did any original thinking and no one did any actual diligence stop and the whole thing ended up being this i'm sorry yeah now you're talking about actually how silicon valley works so that's [ __ ] [ __ ] yeah okay you don't think these dopes run around thinking of
sequoia benchmark social capital craft invest i'm just plowing the money in of course they do they don't even think social proof they assume that we've done our jealousy you think they're doing principal diligence these like the silicon by the way this is also how the bernie madoff
scandal you know um got so far ahead of itself no one actually went in and did the audits of those financials everyone assumed that because someone else has is in this thing and because someone else is involved or someone else something nice has been written about it or said
about it it's worth backing and like the lack of original thinking in business and life in general i think is you know one of the biggest you know risks that each of us takes and it's why it's really important to learn how to take your for yourself i i have a deep
respect for early stage investors because they have to get in and make some critical decisions some people make those decisions about the team right the psychology of the co-founders sometimes it's about the end market and sometimes it's about a deep analysis of the traction
but you have to honestly let's be honest there is a valley of funding between the series a and maybe the d or the e where i really think a lot of folks just look for signaling value based on who the series investors were they're saying i'm not sure they're making black i'm
not sure that those family offices were any worse or any better like maybe the devos family looked at rupert murdoch and said he's smart so i'm in yeah that's exactly what happened that's so different than all these series b and c firms that say uh benchmarks in i'm in
totally it's the exact same thing totally i literally had a situation and i think i brought it up in a previous episode where i was working on a deal it wasn't like a major check for us it was you know a six-figure check and they said uh none of the other firms are asking for diligence uh why should
we give it to you and i was like how much are they crazy and they were putting in more money than i was they were putting seven figures in crazy and i said because i have no idea diligence when you ask for diligence now some of these founders look at you like how dare
you yeah exactly they no in this case they were insulted and they said we're not giving you diligence and they and we walked away without visiting the house yeah they're like buy it without this company that dave and i call called you know well david was calling it
theron was 2.0 but this company couldn't even explain gross revenue they couldn't they didn't it was like gross revenue asterix and it's like if there's one metric on a pdl that can never have an asterisk ever the top line the top gross revenue the money that came into your right
customers i get it okay but gross revenue asterisks how much money is in the right open the register count the money and so i just remember asking the simple question like um can you just take the asterisks away and just tell me this is a company the two of you were
looking at together you and i have talked about many times oh really you're a theradose 2.0 sir that's what this guy is and i and i've learned a lot about delaware law i don't know if you guys have i've talked about this company yeah yeah well bro you in the text you
were like i'm shorting again i'll tell you in a minute oh right um yeah you know what it is but anyway i've been getting a big um a lesson here about delaware law there's something called a section 220. have any of you ever had to file one of these by the way
it worked out really well sorry go ahead do any are any of you aware of whatever oh you're sure any of you aware of what a section 220 is or heard of this before basically in a delaware corporation if you're a shareholder of any size not just like a board member with 10 or
whatever if you feel there's malfeasance going on you can file this 220 in delaware and uh according to there's a great scandanarps uh article on this the the delaware courts are taking very seriously that if there's any accusation of any kind of malfeasance especially financial
any shareholder even tiny can get all of the books and in detail not board minutes not top level p l like detailed financials uh and so for people who are running companies this is private companies too or this is in private companies look up section 220 of the delaware general corporate law i
remember at facebook is because we had these vagaries of having to control shareholder account or stuff like that and information rights yes we actually kept the financials on a physical computer that was not connected to the internet so the people that wanted it
to come to our office and then we remember them in like a windowless room without their phone or something is that i think that's that's that's how they avoided people filing 220 requests and so just something for people to be aware aware of on both sides of the
table that if they're shenanigans going on a company founders think well i don't have to give any information to my shareholders that's not true and it's not true whatever you have in information rights whatever your lawyers wrote is not above section 220 in delaware so just
keep that in mind i got a case like that right now going on where our founder won't give you information well it's not the founder but there's a company that just sold and they won't tell the shareholders like the terms of the deal what yeah even possible good question but
it's it just reeks of a fraud i'm not going to say the name yet because i'm hoping that they're going to start acting in a more kosher way but it's the most egregious thing i've ever seen all you have to do is talk to your attorney at wilson fenwick or whatever one of the
cohort of silicon you literally have the management of the company they've engaged in a sale the sale has been publicly announced we have reason to believe it's in the hundreds of millions and they won't tell anybody the terms yeah file a 220 follow 220 and you know
what they're public so then the crazy thing about these 220s is it used to be that all of the information had to be private yet to sign like non-disclosures whatever and now in certain circumstances i think it's in the best interest of all shareholders the 220
information can be public and so that is just like a sniper shot to anybody who is doing any kind of shenanigans we had a company in the same situation who wouldn't tell us about a sale and then i have a call with the board because i own seven percent of the
company this is years ago and i said can you explain to me what happened here and they're they're like yeah well we're doing the sale and blah blah and it turned out the bankers were taking 40 of the sale whatever and i was like okay well i'm not going to approve this and it you need my approval
let's talk about how we can make this work because we have outside funding that the company's turning down to do a sale that everybody's losing their money on doesn't make any sense and um they said well we can't really do that because we've already sent the eight employees over to the new company
that's buying it i was like what do you mean like we ran out of money to pay them so they all moved over to the payroll of the new company i'm like you haven't closed the transaction yet wow it was crazy like there's some weird stuff that happens to private companies
yeah this stuff is always at the peak of when there's a correction right i mean this may be a good way to talk about what's going on it's a great segue but it's like that level of grift happens right before you know basically we have to re-rate valuations you know people because
entrepreneurs entrepreneurs just take so much well there's just a small small percentage of them but they just take so much leeway in pushing the boundary and and sometimes it's other board members who are acting their own interests but i solved this problem
really easy i called the ceo of the public company that was buying them and explained the situation he's like talk to my cfo a friend of the pod whatever and i they said how do we solve this with you i said well this is how much money i have in this is the value of
your company how would you like me to be an advisor to your company for the same amount of that value in shares also you grifted so no that's great so basically you got bamboozled and so you bamboozled everybody else by the way and then they said okay we'll make you
an advisor then i took the advisor shares and i wrote a letter and pledged them to my investors and my investors are now 3x their original investment and i said i'm not letting it go i'm not signing the paper until i get the 250k that my investors put in period and then
they didn't now i'm up all right let's segue crazy market pullback the great write down has occurred charts from altimeter uh our friend brad gerson i assume uh show a major regression to the mean for tech stock sas index median enterprise value next 12 months expected revenue
yadda yadda this includes people like adobe datadog shopify twilio workday and as you can see here on the chart which will pull up saks explain to us what's happening here well it's a major regression to the mean on value on public company valuations in
both sas but also more generally the the high growth stocks have corrected more than the indices so that would imply that there might be more correction to come against the indexes i think the growth stock's already taken the bulk of the hit but what triggered it this week is
you know i predicted and you guys had similar predictions on the just a few weeks ago that this would be the 2022 be the year of the correction it really began in november you had the the fed you had fed governors make some hawkish statements about the about inflation not
being transitory about the need to raise rates then we had the um the fed open market committee meeting this is in i think around december 15th and they announced what they were going to do on rates and now this week the minutes of that meeting were released and it basically
it said something that was completely different than what they announced to us just three weeks ago and so the market basically just seized up and went into convulsions and specifically what they said you know in in mid-december was that they were going to taper faster they
were going to end q1 sorry they're end qe at the end of q1 instead of q2 and then we're gonna have quarter point rate hikes in q2 q3 q4 that was the plan for 2022 and then there was additional guidance that they were expecting three more quarter point rate hikes in 2023
and two in 2024 so that was sort of the three-year plan that was laid out then we find out from these minutes and i guess these minutes weren't leaked or anything they they published them after a like a three week revise and extend remarks type period but what we find out
is there what they were talking about was having a rate hike as soon as q1 and not just ending qe but actually shedding assets which is like the opposite of qe so instead of basically going out there and creating money shrinking the balance yeah yeah shrinking their balance sheet
so instead of going out and buying bonds they're going to sell their bonds which will reduce the money supply so look if that was their view three weeks ago why didn't they announce it i mean my problem with this is it makes the fed look like they don't know what
they're doing because they announced something just three three and a half weeks ago that's completely at odds with the statement they just put out so either something changed in the last three weeks and there's been no data or they don't know what they're doing just
so you know they they they have a little bit of a track record of this so in 2018 it looked like there was going to be inflation and powell tried to get ahead of it and he raised rates and the the market completely collapsed and they were looking i think a chinese data at the
time and it looked like you know china was turning you know going crazy then china completely turned over it was a complete head fake the economy wasn't rip roaring inflation didn't exist and they basically just curtailed a lot of investment and destroyed a bunch of value
so this time around i think they're very sensitive to not correcting too quickly but then the opposite thing happened which is they probably waited a little too long and now you know we're correcting too slowly too late into the cycle and we're just sort of digesting that
reality and so i think that you know we're probably to be honest with you like actually like we've puked it all out for the most part in my opinion you have to remember right like the big difference between now and even 10 and frankly more importantly 20 30 40 50
years ago is how many computers are involved that trade how much passive money is involved that owns assets and how much of this stuff is sitting on the sidelines still in money market accounts and munis so if you look at those markets there is a ton trillions of dollars
waiting to find a home and what we've now done and brad's charts show this is we've basically chopped the head off of all of these fast growing growth multiple the underlying companies have not changed once until it right these companies are still growing by crazy amounts like
snowflake is still an incredible business unbelievable but the multiple that one was willing to pay has been has been very much re-rated as is a bunch of other so let me ask you a question if we've gone from these 50 60 70 multiples time sales and now it goes back down to 20.
is that dare i say a buy signal well those trillions of dollars start moving back in because who wants to be in a money market i don't i don't know and i i can't really call these things but one a really smart person that i talked to this week you know he actually liquidated
everything in october and november [Music] and you know and i i don't know we talked about this on the pod but you know i was feeling so much tension at the end of last year i actually had when i look back on q4 it was probably the most difficult quarter of my professional life
and just trying to manage risk and i exited a ton of positions all my pipes you know my third party pipes i basically sold off except for one you know i generated some liquidity in other places as well and i was glad that i did that in part because i saw you know what he
was doing and in part because you know jeff and elon were selling and i thought i mean this is just this is crazy to sit on the sidelines and you know be the bag holder here going into q1 i talked to the same guys and what he said to me which i think is very smart
is you have to really look at the first and second derivative of the 10-year bond because when that stops moving like the 10-year bond is this beautiful barometer of the collective wisdom of every single investor in the world about what they think about long-term
growth and inflation and it's a really important market you know we've talked many times look at the 10-year break even if you want to understand where inflation is going we started to talk about that seven months ago and if you look at that the rate of
change so the volatility in the 10-year yield is slowing way down and if that continues to hold that means that people are really saying there's a small amount of real inflation a reasonable amount of transitory inflation and we're about to kind of wash most of it through the system with
you know 100 basis points of rate hikes and if that's the case then you may see a quick pullback you know in q1 and we're back to the races again because of all this other money that's going to say i got to get back in and if you look at all these corrections in the
world of computer traded algorithms and etfs and passive money and it's all the snapbacks are so fast you correct 20 and then whoop you whip it back and you go so i don't know i mean that's one view based on the past but when you have these big swings remember it's not that every
issue moves perfectly in sync with every other issue so there are these call it over adjustments that happen within a cohort so within a group of companies some of them will trade down much farther than others the multiple will compress much further than others
and there's certainly opportunities within as there is in any market that's moving quickly uh to find businesses that now are prices mature non-growth value businesses and they're profitable and growing and there's a bunch of those out there now and that wasn't the case a month ago i
don't think a single thing in the last quarter has changed in the underlying fundamentals of the majority of businesses that are public and i actually think for the most part nothing has really materially changed for the majority of private companies
all that's changed is what you're willing to pay in the future for it and the one thing that hasn't changed is what you're willing to pay in the future for the private businesses so the real question you know for saxon you know for the active investors in the private markets which i
don't know what to think about is will the haircut that we've all taken in the public markets spill into the privates and it's starting it's starting but it feels to me it's not just about what's going to happen with new emerging growth companies but i mean you guys correct me
if i'm wrong but there are hundreds of companies that have raised billions of dollars at valuations that if they look in the public markets now they are never actually going to achieve if they were to go public in the next three four or five years based on their projections so
to your point so what are nine yeah there are 900 unicorns right now 900 and so once you get to look it's one thing to be a 200 million dollar company and sell to microsoft or whatever but when you're a billion dollar company there are very few buyers i just want to point out
there's a huge disincentive for an investor or a shareholder of vc or a private equity firm to take a big write down on a company like that and so there there is always this push to what do we do next and it creates this certain certainly i can tell you i'd love your point of view but you're
this really like unhealthy tension because to take a write down on 900 unicorns is gonna cause a write-down of hundreds of billions of dollars and not gonna cross all vc portfolios in aggregate because they're not going to end up going public well i'm sorry just
to finish your thought because the end market is only to go public there are very few kinds of exits yeah there are no and not in the billions of dollars because you have to think one or two people yeah big tech is off the sidelines okay you know even if you look at like visa
members nobody's but my point is when you have 900 companies with a billion dollars in plus they have to go public they have to go public and so correct you can't go public into a valuation framework that values you at 30 to 40 percent less of your last private mark right yeah it
said as well you did have do use tomorrow so this is an important question because isn't that going to be the case that all these vc's with the 2015 2016 2017 2018 2019 vintage are gonna end up having they've all got these great marked books right now you
know the books are all marked to 3x uh you know multiple on invested capital and now they're going to end up having these liquidity events that are going to come in at shockingly low valuations and there's going to be this great re write down and retrenchment i can tell you there's a couple of
examples one is the athletic yesterday which had raised money at 500 million just two years ago just sold for about 500 million to the new york times and those investors basically put money in and they got their money back it's a push so i think you're going to see a
lot of these questions no i agree with you yes i'm going to give you the examples and there's also your acquisition by a mid-tier comp acquirer and so there'll be plenty of those that occur so there'll be a lot of pushes i think is my prediction of those 900
unicorns and then for a lot of these sas companies so you're saying you think that a bunch of them are going to sell for under a billion dollars and the vcs because they have preference they're going to get their money correct correct i think it's going to be a lot of these
pushes where i don't know what is it in blackjack david when you're playing those three hands and you get a push like and it's like okay i'm going to live to to fight another hand now which we've seen sax do a number of times and then for the sas is where sax i'm
interested in your position because we saw in sas all of a sudden the private market 30 40 50 60 70 times top line and now it's gone back down to 20 30 40. so those companies now basically have three the public markets have but i don't think that the private market has
happened already everybody's pausing and so for the people who raised that 50x congratulations you did the right thing if you have enough money to fill in that valuation is it a congratulations though i mean it seems like there are people say it is pretty tough position now hey
you just raise money at a billion dollar valuation with 10 million of revenue you're like 20. let's say let's say yeah okay i mean like what are you gonna do what are you gonna do in your next round because you're burning 100 million a year now or 40 million or whatever it is
you're burning almost all the companies i've seen in this exact situation you're talking about have that 20 million they got a billion they raised 100 million or 200 million and they're basically now saying okay we got to make this last until we can catch up to that valuation
and get to 50 to 75 million so i think you would i would take that deal as a founder and as an investor because it takes out the downside and now you just have to worry about catching up to the valuation and you have four years of runway if they're not gonna they're gonna right
now no no no no no no those companies do not those those companies absolutely do not have four years of runway i will bet dollars to donuts they have two years or less and most of these companies have 18 months which means they got to be raising in six to nine no correct
they're changing they're changing their spend and they're changing their spend they're not firing anybody you're not hearing about layoffs at startups okay all right you're not hearing about it but maybe they're changing their forward-looking growth plans what are you seeing sex
i'm telling you what i'm seeing what are you seeing i think that the trickle-down effect is inevitable but i'm not sure it's fully kicked in yet um it's going to take a few high-profile deals to land at say 50 times arr instead of 100 times ar in
order for everybody to know that there's a new valuation level so if you look at the altimeter chart on set public sas multiples let's see i mean they can pull it up it basically it's the sas index that shows median median expected value to next 12 months revenue and during this sort of
late 2020 early 21 period it got as high as about 15 times the historical average yeah for well for next 12 months or uh revenue the which is sort of that kind of makes sense um so so historically it's around eight right so so basically all the valuation levels doubled
and now they've come down to about ten times so you could say that if it fully reverts to the mean we still got like another negative twenty percent to go i don't know if that's going to happen i mean i think there has been a greater recognition that sas businesses are some
of the best businesses to own right it's they are subscriptions software businesses great gross margins they just keep compounding so maybe it will stabilize it 10 times but i think what we can say with 2020 hindsight is that the record price levels we got to in the public markets
in 20 and 21 were sort of unusual and unique and probably the result of this incredibly expansionary fiscal and monetary policy that was coming out of washington now has it trickled down to the again vc markets yet i mean the way that that has to happen is that the latest stage
investors the crossover investors who invest in both public markets and private markets they have to to pay they have to start paying less for the latest stage growth companies and then you know all the downstream vcs are going to start paying less as well because you
know if you know the markups are lower you have to take that into account so look all of this is underway right now i mean i gave a bloomberg interview in december and um i think i went on maria barromo show around that time as well and i kind of warned that all this was coming
and um yeah we were in the midst of it of a giant re-rating because we're realizing that so much of the peak values we were seeing in 2020 and 21 were the result of artificial liquidity and as what you guys predicted you know it's one of our big you know
i guess my big prediction for uh business losers this year were asset classes that were highly dependent on liquidity you guys predicted crypto would be one of those clearly it's taken a massive hit um have you seen how much the crypto markets are off just in the last week
so it's um so much for them being uh uncorrelated no it's because look the customer says bitcoin is going to be uncorrelated so the market the crypto markets are like a sponge for liquidity and the more liquidity there is out there the more money can flow
into a more speculative asset class but look my my objection to this i mean is that if you look at the fed's actions i mean i think chamath is right that they waited way too long to react and during the crisis they overreacted i mean they pumped i mean we on a previous
pod we showed the assets between under reaction and overreach yes exactly and and now they're i think they're in they're going into overreacting again i actually think they nailed it in in mid-december they nailed it by giving us business certainty around what the new
raid environment was going to be and just three weeks later in the minutes to that very meeting they completely undermined the certainty or the the greater level of certainty and predict the predictability that they had provided markets they've now introduced massive uncertainty
so it's just it's unbelievable it's like they're pilots and like they stalled the plane and then they're like oh let's pull back well no it's more they're kind of pulling out the manual and learning in real time yeah and it's like you need to just point the nose
down a bit and add a little bit of speed so you get some lift like it really is tragic the performance of our government at every level over since covet at the last you know since 2020 i mean it's been abysmal i mean first you have the self-inflicted wound of lockdowns i mean
the economy is going to take a hit no matter what because highly at-risk people would have stayed home and reduced their economic activity but instead of just protecting the at-risk people we had to lock down the entire economy we padlocked elon's factories
and on and on so we basically shut down the whole economy for no reason and states like california kept it going way longer than they had to so then the government just prints like five six trillion and the fed doubles the size of its balance sheet and then now they're abruptly getting
off drugs i mean look they put us on drugs and now they're going cold turkey and so i think there's actually like a much greater risk now of the economy going to recession this year because of the fed's overreaction this week i mean they had they had the goldilocks
scenario down about three weeks ago and i think they're going to tank the thing now or there's a much greater risk of that best advice for founders private companies in this turmoil what's your best advice fam you're a founder you got i don't know 18 months of runway right now you're going
into this you know slush and you want to know what should i do what should i do i think paul graham's advice it makes the most sense here you need to focus on being default alive um define what that is just for people yeah so you know paul graham wrote this great
essay uh as part where he's the founder of y combinator and you know he has this very simple you know framework of looking at companies which is your default debt or your default alive and when you're losing money as a company and you're burning enormous
amounts of cash your default debt now if you're growing fast enough default debt is a great strategy for value creation but at some point everybody around you will expect you to be default alive and what that means is that the cost of what you do are less than the revenues you bring in
when the result or profits and even then that's not good enough i don't know if you guys saw but you know if you look inside of big tech i was shocked to find out that you know for example you know companies like microsoft specifically and apple you
know these guys trade at huge forward multiples right for enormous profitability but companies like facebook and google for the same level of profitability you know trade almost a third less in terms of multiple so even when you're that good it's not good enough to be default alive that's
how hard this game is over very long periods of time and so when you have a moment to really understand how to be default alive and you don't take it i think it's a huge disservice because we don't do enough of that kind of coaching that really inflicts that kind of discipline and
expectation setting i remember i have a large climate investment it's actually the single largest investment i've ever done [Music] and so i sweat the details pretty significantly and you know i was with the team in uh uh in november december for board meeting and setting up 2022
and my whole thing was guys you have to get default alive you have to get contribution margins to be in a certain band you were we are going to target this level of free cash flow generation this year and there's no if ands or buts about it and what's great is the entire
team embraced it and we're marching towards that but if they didn't and they're like no we're just going to grow at all costs again oh my god i would be freaking out right now freeberry what do you have to add to that as advice to founders who have not been through this before i built my
business my climate corp uh we raised a round in november of 2007 we raised 12 and a half million dollars and then the financial crisis hit in 2008. and um i'd say two things were really important uh number one was just keep building so if you're building a
great business it doesn't matter what the market perturbations are uh you know the the market will value you what they're going to value you add and if you're a good business there's going to be money available to you the second piece of advice is one that i
know has been said over and over again but you know never raise an evaluation beyond you know what you're reasonably going to be able to kind of deliver returns on at some point in the future because otherwise those nasty dynamics emerge you know you could raise money at some
crazy high valuation that's not always the best thing to do because then the expectation of the investors coming in at that valuation or they want to make three times that money or four times that money and it pushes you to do something unhealthy like spend more than
you otherwise would stretch for a bigger outcome and put your entire company at risk so you know two things to me have always been just stay focused on building your business don't let you know kind of market conditions drive your decision-making and second define what for you is the
best practice of staying focused on your business because that is a very general term what is freeberg if you're going to say the top three things of focused on your business tactically means i have a simple rubric for value creation in a business you know number one is can you
make a product number two is do people want to buy your product number three is can you make a positive gross margin selling that product to those people number four is can you make a return on the marketing dollars you have to spend to generate that gross profit meaning
you know can ltv exceed cac and number five is can you scale the amount of money you deploy to grow your business such that as you grow the return goes up not down if those are the five kind of things you can accomplish in that order you can build the next google and so and
then the sixth thing is can you be a platform which is meaning can you transition to being a multi-product company that gets leverage out of the the user base or the technology that you've built got it and so you know if you think about revenue streams more
multiple revenue streams using the same customer base or multiple products or you know whatever um and so if you can achieve those six things um in that order every step of the way every increment you can make across that spectrum drives significant value as a business
ultimately what the multiple on your business will be is purely going to be a function of what else is going on in the world things that you cannot control and so if you're driving your decisions about building your business using that first rubric good for you you're going
to succeed you're going to have money available to you awesome if you're driving your decisions based on what the market is telling you to do and what the market is saying is available to you and money and all that sort of stuff you know you're setting yourself up to
basically be you know blowing up are you also saying to be independent of valuation yeah i i'm always of the opinion that you shouldn't raise money beyond your um into evaluation that you're not comfortable saying in different market conditions or what have you i can return
multiple ways i don't think any founder has ever you know most of these founders were not around in 2000 and they were 2008 or two but even 2008 was less important in my mind because it was it was it was fast and again we had government stimulus so you
know like i think 2008 was an aberrational moment i was i was in the middle you know inside of facebook and i was like what the hell is going on here the government's going to step in and you know with tarp printing a trillion dollars whatever it was it didn't affect you guys
it didn't affect us at all yeah but you were the most powerful company or not at that time 2008 wow here's the thing that people don't realize with facebook google was profitable from day one too yep we we were always default alive i want every single person listening to this to
understand this okay we sold poker ads for party poker in big banner ads on facebook and we made money you got the bag you got yourself independent we're profitable okay so i don't buy this argument that argument of unprofitable growth is a vestige of fund dynamics and
vcs who want to raise larger and larger funds to blind their pockets with fees it's a function of what i mentioned before which is if you can think about the context of a portfolio of those bets it makes sense but if you think about your business it doesn't make sense in 2000 that didn't make
sense you could not run an unprofitable growth business the money would not have been there right and the real reason is that was a a market check meaning you had people reallocating capital because risk rates were different you know you could put money at six percent in the in
u.s 10-year bonds now obviously you can't do that today so maybe this cycle is just the new normal and so you know maybe you can always be default debt and be able to raise money because the incentives exist but i wonder when that stops and so i don't know google
was an incredibly cash efficient business i think they raised under 50 million as a private company they never used any of it because google the first the first thing google did is they did a massive search syndication deal with aol that paid them hundreds of millions of
dollars and that funded the business if you can sell ahead of your customers in terms of delivering the service or the product to them you've got the most beautiful business in the world that's the definition of bootstrapping google even though they raise venture capital
effectively bootstrap the business by getting customers to pre-pay like elon getting people to prepay for cars i wrote this in my annual letter like two years ago but facebook google apple microsoft and amazon raised collectively less than 250 million dollars yeah i
mean what yeah so i mean i i agree with what a a lot of what you guys have said um i mean so i agree with freeburg that recessions or downturns are actually great times to build startups because innovation doesn't stop and you know so paypal was predominantly built after the
dotcom crash uh yammer was probably built after the 2008 sort of great recession so it's absolutely doable and some things actually get easier in a downturn there's like way fewer startups getting funded and so like talent gets easier to recruit so you know things loosen up in you know in
terms of the company building side the only thing that really gets harder in a downturn is fundraising right this is and by the way i think it's a good practice for founders not to care what happens in the public markets than as to early stage founders right because
the only time that really touches you is when you need to access the capital markets right and then you will be subject to the downstream impact on vcs of what's happening in the market so so the only thing that really gets harder is fundraising and this is where
i think chamas advice comes in i i personally think that trying to achieve default alive status is too high a bar i mean it's a wonderful thing if you can do it i mean facebook did it google did it the very best companies did it but i know very few sas companies that could continue to
grow if they had to be castral positive i mean at an early stage so the metric i use is bird multiple i wrote a blog about this once um it's basically just how much are you burning for every dollar of net new arr you're adding so in other words like if
you're burning a million dollars you know over whatever period of time a month quarter year to add a million dollars of net uar that's actually pretty good so a bundle of like one or less is amazing i'd say even up to two is good so in other words like if a sas company can
say add 10 million of net new arr in a year and burn 20. i think vcs will fund that all day long even in a recession two year payback yes but when you start getting to burn multiples of three four five six and up that's when like vc's are going to go wait a second yeah
you're that gross that's efficient right you're not efficient it's not just efficient but it starts to raise questions about your product market fit because you're effectively spending too much money to grow so like why is a growth that hard right no market yeah no market
yeah exactly no marketable i think it's a good way of putting it so i do think you have to start like in a downturn or in choppy waters you have to sharpen the pencil get more efficient about your burn look at your burn multiple and then i think you know if you have
the opportunity to top off your war chest like that's smart you know and don't wait too long and be frugal i mean god the amount of like crazy spending i'm seeing in some startups and unnecessary spending if you're spending something it's not going into product it's not going into
marketing you know it's not going into sales and it's not you know just you really have to ask yourself why am i spending money on going to this conference going to that conference on this office space like really be frugal i know that it's when you have all this money sloshing
around you're looking for things to spend it on but stay focused yeah i mean yeah don't don't spend 7 500 on that unless you've got tons of cash laying around and we will be getting back to the people who applied we're going to go through and somebody's going to approve you
let's add one other thing to this which is you're right that like most founders have never even seen a downturn because the last big one was a great recession of 2008 2009. so many founders were even around back then the most the most the real one was 2 000. that's right that
was the big crash it froze i would say it froze to that 2008 was what like 12 to 18 months of choppiness and i would say a lot of companies couldn't raise money had to do down rounds had to do multiple liquidation preferences it was gnarly on some cap tables during that period
and if you don't know what multiple liquidation preferences are ask your attorney i understand but there was no real market check the market check was really in 2000. and you saw it was a multi-year slog it was a bloodbath you had to be deep well it's not vaporized yes people or
you had to be default alive absolutely absolutely yeah but i would say a third of the startups went away in 2008. i don't think we're running into that again so you know let's not create a sequoia graveyard but you could nobody knows just a point look it's a pr
it's a probability of getting your business funded right and and that's kind of lower it's it's not like but here's the thing what i but what's shocking to me it's like i don't understand why people think you can grow infinitely forever it's just not true even the best businesses in the world
after 15 or 20 years are barely growing at 20 percent people forecast facebook and google those are the two best businesses in the world but isn't the question what kind of growth vcs are willing to finance no what i'm saying is if you know that your
terminal growth rate if you are one of the best companies ever created ever is 20 in 20 years it doesn't take a genius to do a line of best fit between now where you're at 100 and 20 and realize that at some point if you don't figure out how to make money by selling what
you're selling there's a lot of people who will be smart enough after enough historical data has come through the transom or come over the past to realize that these things are not that fundable and this is what's shocking to me it's like that data is hiding in plain sight
for anybody to look at it doesn't make sense unless you believe that those those growth rates of 40 50 60 are sustainable for 30 years or 40 years we've seen zero examples and you have to look at these canaries in the coal mine because if if the best companies in the world can't do it
you're you have to really scratch your head here or ignore it whatever that's fine just wing it yeah it'll work out don't worry about it don't worry about it don't worry just add like teachers around it's fine one of those features will work and save the day there's some
magical future though did you see andreessen announced that they raised nine billion dollars or something today across the united states congratulations they're building a colossus yeah i mean silicon valley in terms of capital is um you know seeing kind of power returns
itself right there's going to be a few firms that are going to you know control eighty percent of the and reason should go public and drinking tiger global you know whatever happens i don't know if something is i mean there's if you look at the aggregate capital
that's being deployed into private markets right now in in probably two years eighty percent of it's going to come from three firms or four firms the problem is if you're running that much money you're insane to not take your gp public because it's the only way like you're
not really generating carry at that point because you're generating a market beta return so you'll do okay but when you're sitting on 20 30 40 billion of imputed wealth by being the owner of the gp of tiger or andreessen you'd be insane to not go public i think the odds
are going to be pretty high that andreessen will go public right i mean they're certainly setting themselves up to be a lot more than just a capital allocation though right it's never happened well no but i mean like venture's never scaled up to the point that private
equity has until now and now that they have it's very likely it's very likely that you'll see andreessen be the first i don't know them you know very well but sacks you were gonna say something yeah well i think it's a super interesting point because if you talk to the
previous generation of vcs what they will tell you is who retired right is when you ask them well did you get anything for your partnership share in the firm not just in a fund but in the firm they'll tell you no they basically just gave it away to the next generation of partners even
though they they built the firm and it's because historically the belief on the part of vcs was that there was there was no value to vc firms other than just their interest in each particular fund but you're right like if they do achieve a much greater level of scale and they
can go public then there is actually value in the firm itself and if you look at the terminal valuation of blackstone as indexed to aum you know uh once you pass a couple hundred billion of aum you can trade point two towards 0.1.2 times and so you know if you have 50 billion of aum
there's 10 billion dollar market cap there and if you you know if you're calling jason or andreessen or horowitz i mean that's five billion dollars that just appeared out of nowhere why would you not do it right right it's a little bit like goldman sachs they always said that
we're a partnership we're never going to ipo because and then they did and then they did and the and same thing did caa do it too no i guess there are no what happened with cna was ovitz uh sold this position to go to disney so there wouldn't be a conflict but he
could have kept it and the like residuals they were getting from projects they packaged were incredible didn't the aria emanuel one it did endeavor did endeavor how are they trading i haven't even looked at endeavor i'm not sure but let me tell you like it's actually but think about
if you're not like the current like partner owners of the firm but you're like on a partnership track there and you're working your way up to partner like by time you get to partner it's gonna be a very different economic equation because instead of getting your
one over n share of the pie when you eventually become partner with n being the number of partners or some version of that now the company is owned by the public and the public or the board of directors is determining your salary and maybe you get a salary and bonus and some you know
essentially options or equity participation but you're not going to be a true owner anymore because you the firm is going to be owned by the public wait a second what if we take each of our businesses put them together and then take them public as all in capital
and then we get the best i'm good i'm good i'm good we got the startup studio on a conference so i don't know we can't agree on the decor and food for our one day event in miami that's because the amount of work you guys want to do is slagging me in a slat in a chat
no what we want is someone to do the work we want to hire a professional i have been doing conferences for 25 years stop starting my no and you know what's going on for tuning it you know what's gonna happen you launched yammer at my conference and i put the fix in
for you to win thank you tech crunch was a beautiful conference but for all in summit is it just the case we want people to show up and there's gonna be a stage and people talking on stage in this whole conference or we want to create a more magical experience
a davos or a sun valley or something like we're in an agreement all right everybody thanks for tuning in to episode 62 of the all-in podcast we'll see at the all-in summit and if you want to do us a favor please go ahead and subscribe and rate us on apple we could really use that
uh and uh thanks to spotify for including uh daniel shout out to thanks dad he included us in their video so now if you're on spotify and you're listening to the pod you can click a button as of this week and watch the video or you can watch the video on youtube yeah it was
nice he emailed us and uh his team and then i cc'ed him on the email he's the best yes i think would he be good for uh what do you think about having him and mr beast he's super super super here's my idea for a trio him mr beast and then one other person to do a media
trio future of media what is your what is your own what is your idea you don't even know the third person i mean well i'm putting it out there asking for a suggestion for their relationship you just throw this [ __ ] this is our conference in presario oh my gosh well
those are two great guests on the stage at the same time let's figure out who besides j kell's gonna produce the conference david it said we open sacks it to the fans and they've just gone crazy [Music] it's like this like sexual tension that they just need to release your feet oh [Music]