pg square this is our bg squared panel uh everybody knows friends of the pod brad gerstner and bill gurley give it up for our yes [Music] [Music] bill you predicted five of the last three recessions a broken clock is still right twice a day i mean here we are again you you've sounded the alarm bell and of course you're right and you've seen this movie before for
all of us younger capital allocators um who uh are experiencing it for the second or third time but you've experienced it a couple more times um how i mean it's pretty old um how does it how does this one measure up to great recession dot com bust you know 87 and the mini ones we've seen in between you know one thing that i think's super important to put this into context
now i'll try and tell this quick i had a meeting once with howard marks who i'd wanted to meet for a long period of time he's a famous bond investor that does a lot of writing and for 15 minutes he asked me questions about the venture industry a lot of structural questions and i told him my answer as best i could and he said man that's a really shitty industry
and i said well why do you say that what do you mean he says he says you know cyclical collapse is built into the structure and so we have funds that you know are taken you know committed to that have 10 to 15-year life so you have low barriers to entry but yeah very high barriers to exit and so he felt that it was just systematically set up to to rise and crash rise and crash
um and one thing that that i realized coming out of that is that it it doesn't happen like a sine curve which is what we all imagine when we think of a cyclical business it's more like a sawtooth it risk risk on is a very slow process and it and it's it's reflexive so it grows and grows and grows and grows and then risk off tends to be very abrupt and we've seen that here right this this
cycle risk on was from 09 that's what i said two five months ago that's really well said and risk off is five months and and the thing that that's really tough about that is it it requires uh mental adjustment very quickly like because it it didn't gradually change to abruptly changed and so you know cap charts might have you know systematic issues that are stuck
because too much lick pref relative to the new reality valuations have shifted cost capital is radically different you may have you know on the way up as risk got people took more risk you tried crazier things you you're willing to to take take make investments in businesses you might not if the cost of capital is a lot lower you name a stadium for five years
as a crypto company you might do that and then but then all of a sudden it's it's gone and now the commitment to naming the stadium is greater than that than the market well i i assume you're fragile that may not be true for ftx but for well i mean just as an example it might be a disproportionate value of your yeah yeah so anyway it's tough and and in this particular case because that's
what you ask so it turns out 09 wasn't that bad if we if we have an 09 that'll be pretty good things got turned around pretty quickly 01 was very abrupt and we didn't you know really start to see liquidity again until with a few exceptions elon mentioned paypal but like 0.506 yeah it was a long walk in the desert i mean a lot of great companies were started but a lot of
founders gave up at that time right yeah and and and look i mean i think to the if you're an early stage investor or if you're an early stage founder that's just getting going or even an early stage company because if you haven't scaled out yet this probably hasn't affected you it could be it could be wonderful like your access to talent's gonna be a lot easier people are going
to be more pragmatic and rational but it's a lot it's usually a long window on the other side the other the other challenge you have here is in 20 you mean we basically had a mini pull back in march of 2020 but then the fed hit so hard that things just blasted off again and now and now you guys have talked about this but that tool is not in the toolbox anymore brad um
so one of the things i i was talking to somebody last night and this audience is amazing i was talking to somebody last night and they said you know so how does it work you just get together and talk and i said you know what i'm what i love about this group is there are hundreds of hours of like data and research that we're constantly challenged with we all know where we are
we know what just happened and i think grounding ourselves in just a few facts to try to figure out what the next six months are going to be because we have founders here trying to run their businesses can i raise capital are we bouncing straight back from where we were so very quickly this chart just tells us you know the iron law of investing is interest rates
a one percent change in rates leads to a 15 or 20 change uh in a multiple and so the reason multiples have collapsed here for all these businesses is because expectations as to inflation and rates has changed dramatically i hear a lot of talk about 1999-2000 so if it's all about rates let's just look at those two things we plotted them here together this is 19 to 22 on the bottom it shows
what rates did we took them to zero the fed is now saying our neutral rate is two to three percent people are hyperventilating look at where we were in 2000 look at what the cost of capital was in two credits right right and so this this by the way the delta there right we went from just above five up to six and a half right so we're talking about going
from two and a half back to two and a half or three but the big question is are we going back to two and a half or three or are they behind the curve lost in the weeds and we're gonna have to go to four to five to kill inflation well everybody was saying inflation you know inflation is here to stay forever remember when when we report on core cpi it's what happened last month it is not
a forward-looking indicator so we peaked in core cpi consumer price index explain what it is consumer price is the basket of goods and services that we all go out and spend money on so the fed is focused on the demand side of the equation they know they hopped us up on a bunch of red bull and cocaine to survive the pandemic and now we were talking about last night
for sacks you still haven't said a word all day look at so this chart this chart we deconstructed 20 bank models to say what are the components of cpi how do they differ the red line's where goldman thinks we're going the green line is ubs i just told you the fed thinks we'll exit the year at four we just decelerated significantly and when they look at eight or when they
look at may in june it's going to be down yet further and here's why it's going to be down when the fed stimulated the economy all the prices we pay for everything went haywire okay the price for a used car was 20 000 bucks for 10 years and then just coincidentally okay they give us a bunch of red bull and the price goes to 29 000 for two months in a row we've had
sequential declines you tell me is the price of the used car this time next year higher than 29 or lower than 29. it's going to be lower because we're destroying demand by raising interest rates same for home prices so what's plotted here is the home affordability index somebody who can afford to pay twelve hundred dollars a month in december could afford a three hundred and fifty
thousand dollar home today can afford a two hundred and forty thousand dollar home you tell me are the number of new home searches on zillow going up or down go run your google trends they're going down because people's ability to buy homes is going down and then finally airline tickets same deal right and so when you put that all together you say okay sequentially month
over month forward looking this stuff's starting to tip over if you look at what consumer confidence is it's the lowest in 10 years right consumer confidence is a leading indicator of slowing down so again everybody on television is telling us about what just happened it's like the nightly news big red arrows inflation going up this is what's going to happen
and what we all care about is what's going to happen we've destroyed 15 trillion you said this on pod 80 we destroyed 15 trillion of household net worth in the last five months so the expected path of household net worth would have taken us from 110 trillion to 125 trillion over the course of the last two years that was the trend we were on instead we got all hopped up and went
from 110 to 142 but now we're all the way back to 127. that's what i call on path on trend so the fed has done exactly what it wanted to do it ruined all the specs it ruined everything took all the juice sorry sorry i did one too all right so it took the juice out of the system that and consumer confidence tells me forward-looking inflation is rolling finally bernanke says this morning or
over the weekend he said ignore what you everybody else is saying follow the tips no we've been saying this since may of last year so this is the break even this is the bond market when that goes positive that means the bond market is saying that inflation is rolling over because this is the 10-year less inflation and so now we have anecdotal information
about cars about houses about we have our common sense we know that those prices are not sustainable and we have the bond market telling us the same thing that's why i don't think you should believe the hyperinflation narrative got it any thoughts on nfts i mean here's the thing what about my board ape what will happen to that when you're going through this and you
start to understand the logic of it you realize what a mirage we were in that certain assets that had no underlying value you know they weren't cars airline tickets or homes were also being exacerbated during all of this and i think that was probably one of the things that made this less fun in this cycle bill you're a fundamental investor you really think about consumers you think about
the total addressable market you give a lot of thoughts to that what was the last couple of years like when because you were saying three or four years ago hey this is kind of disconnecting from reality you know back when um back when i had that conversation with howard i started doing some more research i went back and i talked to some of our fund of funds that have data
over a very long period of time and i mean it sounds ridiculous but what i realized was that the the irr numbers and the ri numbers on the venture capital category were heavily dependent on performance in the in the hottest part of the cycle and so in the tip of that sawtooth and that's when we came up with this phrase that the best way to protect yourself
against the downside is to enjoy every last bit of the upside so while you get anxious about the rollover you actually can't afford as a venture capital firm and maybe this contributes to the to the collapse as fast as it does you can't afford not to play the game because it's too hard to predict when it's going to change 250 billion dollars of committed capital unallocated into companies
what happens in the cycle over the next five years if there is this expectation that we're not going to be in the good part of the the risk on part of the curve that capital needs to be deployed at this point in the cycle and do we end up having these like crazy bifurcations in the market where high quality companies get 10x evaluation of the mean and all the money plows into a
few companies that that are kind of available [Music] and i know brad has some too because we were talking about this this morning um first of all i i've never ever felt as a as a venture investor that i have to invest money like like and if you remember most of it's committed but not drawn down right and so you're gonna have to go ask for it if you're if you're if you you know
deployed two-thirds of your fund into uh crypto assets with no board seat in the past 12 months are you gonna call harvard and penn and say hey i need some more right now um i don't think you're gonna make that call i wouldn't know you're saying they let the capital sit there and never call it well here well you guys were talking about this on one
of the recent pods you know in one a lot of people actually returned the commitment and it was actually an act of greed not not an act it came across like they were being nice but they were getting out i caught the burnt waffle theory they were killing the fun and getting out of the overhang uh and starting fresh just like uh i guess it was melvin that attempted to do it was a
version it's like a recap in a way yeah well they just want to get started without the overhang of the look back they deployed 200 to 300 million i think one thing you know bill not to interrupt you know the the the the assumption of the question was will they be forced to deploy capital into a really bad vintage right i actually think the upcoming vintage is going to start getting real it's going
to be a good vintage i think that that that was bill's point i think we both feel that way i think the vintage of the last 18 months will be lousy so the capital deployed over the last 18 months won't have a lot of return all of our lps know it right i was just sitting with an lp you know one of my investors at lunch today right imagine this they have 50 investments
like benchmark and altimeter right all of them are going down and now you're going to call them up and say i want all this money right now to go invest in a bunch of stuff that still may not yet have corrected enough these are partnerships partnership means a partnership with me and my partners all the people who gave me the money we're not going to put our partners in a
headlock and drag their money into the market and put it into things that we don't think accurately reflect the new world order if you go back to that first chart you can underwrite to the five-year average the 10-year average where we've been i think we're going back to trend but you cannot underwrite to where we were last year disabuse yourself one of
the bill tweeted this last week it's spot on the biggest mistake we will all make is to anchor ourselves to prices that we saw in the world over the last 18 months pretend you never saw them not in venture not in the stock market because that is a delusional place to think we're getting back there we're not unless we have another pandemic or a nuclear war and rates go to zero and
then we have bigger problems so re-underwrite and underwrite to the five-year average de novo for all your businesses that's how you survive through this uh and ultimately come out winning and the other the other point i would make david is that the the the new reality is apparent to all of us because of public comps so like you just have a new world order and so it's very hard i
don't think i mean there might be someone so sloppy that they just keep investing headstrong but i think most of them look at where things are and the type of business that you're investing in and then they feel like they want to make a return i think i think you're using the right word it is borderline it's well it's definitely unprofessional and it's borderline idiotic
for anybody with organized capital right now to be ripping money in because you don't know what the terminal valuation of a business is like at the end of the day investing is like a line it starts here with guys like jason and it ends here with guys like me and brad say and in the middle are these guys that are helping along the way and it's all hot potato but by the time the hot
potato gets to us there is there is a price and that price has alternatives meaning if you come to me and say this thing is worth ten dollars and i and i say actually no it's worth two because that other thing which is better than you is actually worth five and that's what's happened in the stock market you get the potato you put it on the scale there is there is a terminal
endpoint to valuation right at the end of the day there's a buyer of last resort and that is the public market investor and he and she has said no mas that's what this chart says nomas you don't tell me that your thing is worth 50 times 80 times 90 times it's worth 5.6 times i saw something this morning from morgan stanley that said if however you're a massive grower
50 plus grower there's 30 companies in the sas index that grow but only 30 in the entire world that grow above 50 you know what that multiple is just take a wild guess 8.5 i mean we're not talking 50 times we're talking 5.6 or 8.6 so all of a sudden demand is this to be clear this is so those games to your point are over i mean growing by 50 a year for those of you guys have that built
businesses that do it that is still very hard you know that's massive compounding so the game is over and the idea that there's a quarter trillion i think that that's a fallacy what do you think ultimately gets deployed to the quarter trillion just pick a number what do you say over the next three years of the quarter trillion i think you're probably counting 50 percent of that is
private equity or more maybe 70 percent traditional private already leveraged buyout firms are going to have a field day field day i mean so tomah bravo and all these guys they will spend all of that so you tell me what percentage of these okay so let's see three years over three years 100 billion of vc how much 20 billion goes into the next three
years 25 or 30 percent depends on price adjusting i wish we had i wish we had the numbers from one and because because you had similar things where they're raising because that's freaking tiny right i mean if you're saying 25 billion over three years that's like eight billion of total vc dollars deployed a year which you know to your trend line thing that's tiny wonderful went back six
years where that number was let's be honest what number of people at these companies is necessary to run them we're looking at a twitter with a thousand you're looking at a google and even some of the startups they got fast i think i think and they had huge salaries and there's no way by the way there's like we just talked we just talked about a whole capex cycle
and a need for hardware and a need for capital equipment there's a whole semiconductor space there's biotech i mean a huge segment of that venture market jason is not software it's it's very capital intensive businesses which by the way are really critical in this but in this economics people have been living high on the hog let's be honest no but like i like for example like our
investing focus we've moved in the last 18 months to focus a lot on these things lithium mines i mean the stuff that we're doing seems insane if you had asked me would you be sweating a a mine in india you know and sending our cfo and a partner to go and make sure the mine exists i never would have thought that it's possible but the reason is because of this chart because those
trade-offs on dollars make so much more sense to put money into an overgrow like an overbloated software business comes with a lot of baggage valuation baggage team baggage technical craft all of these things have to get balanced and so if you get a really cheap deal you do it super interesting bill you i mean you're like the software guru i mean like do you feel the same way i
mean yeah we'll call it yeah actually i want to make a quick comment on especially with this slide on sas multiples so obviously it's a price to revenue multiple slide and and price to revenue is like this really crude evaluation tool it's like the crudest you could possibly have um i published a blog post once where i took all the internet stocks and laid them beginning
to end on their price to revenue multiple and it was like just a massive diversion there was no such thing um and so what really values companies you know it's typically a discounted cash flows and so now all of a sudden the buy side's asking sas companies about net dollar retention about long-term operating margin about whether their free cash flow is greater or less than
their net income about sbc as a percentage of free cash flow stock based comp yeah and all so all of a sudden the uh you know everyone's brought out the microscope on how they're evaluating these companies and and these crude tools that maybe the only like there are entrepreneurs who who probably think the only way you measure yourself sorry sure
you know the companies that you know in your example were all of a sudden run away with it and get all the money think about the problem they have their growth is going to right yeah nobody grows at 500 percent when you're at a billion dollars right you're lucky to grow at 25 30 right okay so when your growth is slowing uh and your valuation is outsized like you were gonna get to five
billion dollars how do they attract more capital this is this is why this whole game is very complicated right now there was also something that that took hold over the course the last two years specifically with respect to software that this was an easy business you just send us your data i pop out a term sheet it's formulaic as though all software companies are created equal and you guys
asked a question last week on the pod how many software companies are actually over a billion dollars in revenue how many are over two billion well we actually went and counted oh good right public software companies over 2 billion in revenue we got to 21. okay there are only 21 that are worth more than 25 billion dollars in all the public markets of all the millions of
software companies that have been started but what happened last year was you could be making dog walking software okay and somebody looked at your multiple and slapped 100x on it and said you were worth that as though that was the equivalent of building a database that would disrupt the entire database market so the thing that is returning to markets is something that
we all do for a living called dispersion some shit's going to be really great and the rest is going to be below the mean and if you look at software the history of software right is that there are very very few companies that ever get to a billion dollars in revenue and so if you were slapping a hundred xar revenue or multiple on a company doing 50 million in revenue
it's highly likely that they will never see that price again whatever you paid for that asset because the dilution and the deceleration and their growth rate will absolutely eviscerate any return you have as an investor and so when you're looking at this back to your point you know not only are we looking at revenue multiples but we're also looking at something like snowflake and saying
now they're doing 15 free cash flow and expanding those multiple all that stuff is critical girl girly do you think it's weird that vcs don't try to underwrite lower valuations like the incentive is always to up your valuation even if the company's performing plan you don't generally do these like market driven value it's like oh you're worth 500 million last round we'll give
you a billion dollars this round and are we going to see more vcs do down rounds i just think that the companies that they're in there's no there's no vc club where they get together and discuss how they're all going to behave yeah but um you're looking at it the price fixing but keep in mind as as that as that risk on goes slowly up and up and up and you know and and
especially in silicon valley we've had a systematic shift of power from the investor to the founder over a very long period of time people are friendly because they want deal flow so nobody nobody does it nobody let's talk about that so interesting you've seen deals happen where you know one term sheet seems great for all shareholders and then this term sheet
includes some secondary for the founders and no governance seems pretty great for the founders and somehow this one magically wins and then somebody wins the deal by not taking a board seat you know in the three decades you've been doing this now i think it's three or four going into he's in the fourth decade you know when you when you look at governance um what what is the mistake we've made
over this last bull run well once again what should it be i think well i think it i mean that's the right partnership i think what it should be is that the market gets to decide so if you know if someone wants if someone can raise you know 100 million with no board seat no rights and they want that i think they should be able to do that like right but what's in
the best interest of i mean our industry of all shareholders the employees the the i'm not dodging the question it's just super complicated we we put money behind rich barton and so both of us did um and he had super voting and but he also i think is very um honorable about his duty to shareholders and so there was a track record there yeah and and it
wasn't it never it never was an issue in the entire uh history of the company and so you know but you know if there's a first-time founder that's doing that like you know it who knows who knows what the motivation is and um but but once again it's a market it's a free market and i think that there are certain people or founders that decide hey you bring something to the table that i
want and i understand there's a government's requirement to it and we'll opt into that and you know willing buyer meets willing seller gurley what are you guys brett um what is your attitude when you guys actually have a win you do the job company goes public and you have the chance to distribute to your lps there's been a movement in silicon valley where some firms have said you
know what guys i'm going to hold this forever i'm gonna create permanent capital structures evergreen funds you know if you know you foundation want a distribution for me just tell me and i'll give you money magically somehow et cetera what do you guys think about that versus just distributing and walking away booking the win and if you want to hold the
stock you just hold it in your own private well let me just start by saying that investing is really [ __ ] hard and there's there's a lot of ways you can lose you know and when you guys started the podcast this i was listening to one of the episodes today and it really hit me um in the in the song that you put together david says let your renters ride and i remember that
i remember that so from the the brief history of the podcast you've gone from talking about that as a strategy to this question that you've posed to me on the opposite end [Applause] we have all these great minds here so i figured i'd give them a chance to talk like some of the people on the pod who like to hear themselves talk a little bit too much i was resting his eyes he
was resting his eyes all right now in fairness when we had that conversation as i recall the context was that way back when like for example when i got uh when i had facebook and facebook went public the urge was just to sell it all and so i think where we landed on that was don't sell 100 keep twenty percent keep fifty percent but that was you personally schmuck insurance basically yeah but that was
for you personally as an investment what about you as a fund manager yeah i think for me as a fund manager so i think we i think we did a pretty good job over the last six months distributing out um some gains some realizations we actually paid back our whole first fund but in our second fund we had about a 120 million of a firm stock and we were sitting on it because we
believe in the company and still do and we're still sitting on it and that was that was like a 100 million dollar mistake so right so i think you know what's not forgiving from now on honestly my energy from now on is probably going to be distributed so my first chance to actually return any real money to our lps was when slack did our direct listing and
it was like you know there are three or four of us on the board me andrew brochett excel john o'farrell from andreessen two independents in stuart and they had gone through a couple direct listings before bring in our bankers and they go through this whole rigmarole and i remember being so amped up in the whole thing and i thought oh i believe in this company i believe in all of this
blah blah blah long story short the point is i held the stock i didn't distribute it the pandemic hit i then distributed in sheer panic and uh we left a lot of money on the table that i could have just booked the win for the lps and then from that point i said never again i'll hold it for myself but the minute that i get a distribution if i'm in the business of
managing money for other people it's out the door when it's liquid and i'm not going to take i'll t i'll be happy to take a point of view from my own shares but god i felt so horrible i felt so stupid i took a 50 loss trying to be a hero i mean and then also we we have the issue of selling in secondary when those opportunities arise and we all just watched the we crashed documentary which
one of your partners um plays a role in i don't know obviously it's probably five percent reality but benchmark did make a pretty amazing um trade in selling wework shares early and booking an enormous win correct bill correct okay so so just an alternative wait let me just wait what's the answer to the question or not yes yes he's going to give you
it's going to actually be a secondary option so so the to me the most important thing is tell your partners what you're going to do yeah and then do it because you're making a deal up front so for us the deal was if we invest in something in our venture fund and it's real and it's realized it goes public if we see venture-like returns which we define and they with them as two to
three x over a three year time horizon we will hold if we don't we distributed last year we distributed over six billion dollars which was more than all the venture we raised in our first five funds why not because i didn't like unity or i didn't like snowflake everybody knows how we feel about these businesses but because we realized that according to
the deal we had made with our partners the framework was triggered and the second thing i would argue is because people are talking about permanent funds now and all this that i'm not sure that's the deal people made yeah for me if you're an investor or a limited partner in our fund and you want to hold on to it then also invest in my hedge fund because there we haven't sold a
share a snowflake but that is a different liquidity profile but what i was getting to bill and just let's put work on the side um just in general when the opportunities for a firm to do a secondary arises what's the right that's rare i mean that's rare for i mean for an angel i think it's very different but it's rare for a venture firm to meet a secondary that has the the um
fire power to absorb the type that was masa i mean that was very you need a unique situation we typically distribute over three to six quarters following the lock-up release unless there's something just systematically yeah yeah dollar cost averaging yeah there were been a few exceptions we took open table republican 09 at a very low value knowingly at a low valuation and i
held that until we sold it to booking but because i felt the network effect was there and it was going to keep compounding and that kind of thing and look if you i mean look clearly you know what bezos has done or zuckerberg like if you think you're sitting on one of those and you i mean you have to ask well those are two yeah well i know i know but if you think you are like you
know maybe maybe the collison brothers are another one um if it's going to play out the way those did you're going to want to hold it but they're very rare have you and your partners watched uh both we crashed and the drop-off i can't speak for all i've watched both of them you watch both of them um i think that well i don't know about accurate because i i only i don't know
we um super pump was not accurate just because they made up a lot of scenes like drummond wasn't very active at all but he's in a lot of the scenes so a lot of them were made up um i think lido did a better job of showing you who adam newman is um and really got into the character he was incredible as well he's so good as an actor yeah and accurate yeah to your mean having met yeah and
equally on the other side i think that travis and you know him well is is way more nuanced he is he's one of the grittiest hardest working investors i mean founders i've ever worked with he's super intelligent he can be really charming and those dimensions weren't explored in the characters right which i think is unfortunate i remember you telling me
this was i don't know in the height of wework you said chamath this is the single greatest salesman i've ever met him yeah you told me you said you told me also about adam newman you said the first time adam newman came in you and your partners he left the room and you guys looked at each other and you guys were like we just have to invest in this guy because he can just i said
we should never invest in real estate we have to do this deal yeah what what let's uh let's ask brad a question oh wow wow i watched it jade and i were watching we crashed i watched the first two episodes and the only thing i could think of bill was what's adam newman's next company and where do i send the check because i think he already well i don't know
he's got something brewing i have a question for brad so so let's go back you know i've been up here for like eight hours today jacob i don't know how much more you want me to do i'm exhausted an hour of these things i honestly don't know how you do it [Applause] he's been interviewing people for like 10 hours i'm like done after an hour and a half anyway brad so let's go back to
the hundred times arr multiple that people are paying last year because these investors you know with the benefit of 2020 hindsight they may look kind of sheepish but we know these investors and the pace car setting the valuations for the whole industry you know as these big giant hedge funds we all know i'm talking about they're super sophisticated people i mean you know they're been very
successful investors for a long period of time you know what's the ex the word used when we talked about it privately was was gaslight we gaslighted that you know the market was sort of gaslighting all of us into thinking that the public comps for these companies was were much higher than they were is that why is that behind the psychology of why these very sophisticated
investors made these big mistakes or how do you explain that yeah well i i think there's a massive amount of research that's been done that buffett and marx and many others have quoted that your ability to calculate risk goes down when you see a bunch of other people doing that thing right right because your body your mind's telling you well i won't die because i'm just doing what
those other 100 people are that's why there's herd mentality that's why the lemming effect confirmation bias confirmation and so it's not that i mean you know you didn't name them but tiger right we know them they're great investors etc but you had to understand they were playing a different game right and so when people who were building portfolios of 20 names
were trying to play the same game as a firm building a portfolio of 400 names right it was like trying to follow you know softbank in 2017. so i'm not i mean listen we all thought masa softbank was going to be a wipeout envision one it wasn't right now i know he just had a huge recent mark we'll see where it ultimately settles out so i mean i think from my perspective
you know like bill said you get forced onto the field there's a certain amount you have to do to stay in the game to have the conversation but listen as far back as you know last april we were sitting around the table on thursday thursday at your place saying this can't continue right and then in the fall it was bezos is selling musk is selling like all the signals were going off
right and so i think you have to know the game that you're playing if you're a seed investor an early stage investor it doesn't matter what everybody else is doing you you have an obligation to play a differentiated game and what i would say today is if somebody calls me up tomorrow and says hey tiger's doing this deal at 75 times arr do you want to do it they
would have to pry the dollar out of my [ __ ] hand with a crowbar i'm not risking my money or my partner's money doing something that we're not underwriting you know to no i'm willing to underwrite david to that five year average i think what you have in the market now is a huge opportunity because people are in a fetal position under their desk scared that the world is
forever changed because the ceos of big banks go on cnbc and start hyperventilating about deglobalization and hyperinflation and all this stuff and not one of them has actually built a model and you know deconstructed the components of cpi i think the much more likely explanation is that the trends that existed for 20 years still exist they were interrupted
temporarily by us saving ourselves from a catastrophe with covid the transient thing that everybody has come to make fun of right transient can be a year two years three years we will look back at this graph and that inflation will roll over and i suspect that those trends will continue so i'm willing to underwrite to that but if you told me you thought inflation was
going to be five percent for the next decade and the ten year was going to seven percent i would say sure every tech company every company in the market no no short everything short everything in the market and don't invest a dollar in venture until you have line of sight and the market has repriced it that's what the market is wrestling with right now we have some people who are saying
you know it's markets abhor uncertainty and you have peak uncertainty we have a war we have this is the hardest forecasting job of my career i'll shut up you have filibustering but you know like that is you know i think that is that ultimately the question if you're a founder your investor what are you willing to underwrite too yeah and bill uh what what are your thoughts in terms of
early stage and yeah that's exactly exactly what i was thinking like he said he said don't take it like if if we we we love to invest in two people in a powerpoint like if if that investment can happen today and all the it doesn't matter it doesn't matter if the for sure inflation pops or interest rates go up it won't affect does it even matter it
might work it might help actually yes because you're hiring people at town half price right and there's less competition i mean my biggest problem of the past six years was hyper competition finding a cfo no just not just challenging i'm talking about billions of dollars of money raising the private market and shot onto the playing field out of a cannon that's brutal
and that's that's not happening if inflation's going up it doesn't it doesn't allow the market to really sort out the winners and losers properly because the the companies that should contract get propped up for a little bit longer there's some talented people in those companies that don't then end up in the right home you know i said this last week the most transformational moment in
our company's history at facebook's history was during the gfc because of the fact that there weren't any other alternatives to go to work but by the way i found and i shared this with my partners the other day i found through my career which wasn't four decades but okay um overthrow the window after the correction is the calmest where there's least anxiety for me at
least like everything slows down people talk rationally people aren't doing silly it's like a walk on the beach there's a lot more there's a lot more communication that seems rational and pragmatic well and you can also maybe get to know a founder understand the business over three four five weeks and make a decision as opposed to three four five hours and they tell you hey term
sheets when people think more unit like think about unit economics in a more reasonable way and you're not you know this is this is why i mean the two of you invested in uber i know because we've had this conversation in buildings well he mentions it pretty you're you're too humble to take credit i did get it for 25 million but you know bills talked about you know the benchmarks legendary for
investing in ebay and it was winner take all oh winner take all yeah and i suspect that when you invested in uber you saw similar network effects you said oh my god an even bigger map this is going to be this is going to be winner take all unfortunately what you didn't plan on was masa raiding saudi arabia getting a hundred billion dollars of free money and then
blowing it out of a cannon into the market so lyft and everybody else could do dis-economic things and literally i did not foresee that for seven years the confetti count so the entire profit margin of uber was competed away by stupidity and you tweeted last week and i noticed it because jason and i may have a little something on the line here you know with
respect to uber for the first time you tweeted after their quarterly earnings maybe we're starting to see network effects show up at uber because if you listen to the lift call it was a train wreck a decade what what that money did was it made those businesses what we call the consumer surplus meaning what is a consumer surplus business it's when all you win nobody
else wins the employees don't win the shareholders don't win the investors don't win consumers win you're getting subsidized rides you're getting subsidized food delivery you're getting some subsidized form of content and there are these consumer surplus businesses that abound right now that still exist which are propped up by dollars that aren't being that
they're not being allocated because they're competitive that's just because they had negative negative unit economics to drive growth i mean lyft said on their call that they were going to continue subsidizing in fact they were going to increase their coupons while the plane is about to hit the mountain sorry bill i just want to ask you the negative unit economics and drive
growth trend was a big one for the last eight years and it certainly seemed to have played out at uber but a lot of other delivery companies do you think that as a strategy assuming capital availability negative unit economics to drive growth and then once you have the network and once you grab the market you make money is a reasonable strategy it all depends on whether you can rein it
back in or not and um you know i think doordash did an incredible job i think jeff bezos did an incredible job back in 01. um i think if if if 50 entrepreneurs try that trick 49 are going to algorithm by the way that's by the way that's the best that's i think that's such a key takeaway well there's another there's another part about it you can only pull it off as
well as if in that moment you have an effective monopoly which bezos effectively did and tony did in those markets where he was operating nobody else was competing in palo alto california and you know well they weren't competing the way he was they weren't yeah for sure i have a question for the two of you guys what do you guys think about something like instacart
in a moment like this so 40 odd billion dollar valuation maybe gets reset to 24. who knows they failed to go public confidentially are you guys investors i'm not i'm not no so candidly what do you what's going on here i mean i think it's a i think it's a provocative question because you have a you have a business that's raised a ton of capital that was born of the air
that we're talking about that probably did things that were unnatural it were if they weren't negative unit economics they were close and they talked about it because they would say publicly we're going to roll in advertising and then that's going to bring us i got i got in trouble once i was um this is on bloomberg so i think you can find this clip but i was i was talking emily chang and
she said something to the effect of um what did you just see this latest sequoia around and i said i made this joke it was a complete joke it's not true i was like yeah i went to instacart i bought one mango had it delivered for free then i bought a second mango i sent an email to doug leone thanks for the second mango what a douche i bought four grapes and i said
it's hard to it's hard to judge your company from the outside because you can't look at the financials but from the product experience has evolved over a very long period of time it's actually pretty good and i suspect there's an asset value there and whether that can match up with what someone can afford to pay it all right we got it but i think
we got we got a wrap okay uh bill just the final question here uh wait wait wait why do you get that question all right brad uh where's the market going to be uh at this time next year we will be higher for growth stocks this time next year but we may very well get there by way of lower and potentially meaningfully lower because the counter factual to the hyperinflation argument is not
you can't deliver the counter factual for at least four to five months the facts don't exist until we actually see the facts play out but my suspicion is we return to trend things become more predictable and investable again and we bounce back up to the five-year average all right back now for you bill final question i don't get that one no too easy you can answer it if you like but i got
a more 6.385 percent higher okay uh i know you're not gonna answer it so i got a better one for you you uh you're not in the next benchmark fund essentially that means retirement of the spurs now the market's down you seem like you're a little bit bored are you gonna get back into early stage investing yes or no and are you missing it um i think i don't know what that was um
i i think i could i might get intrigued with doing angel stuff the way bezos did i don't think i want to practice the art taking board seats i'm still on ten that i'm serving dutifully and and i've played that game you know maybe similar to what david said about operating a business meet a great founder they got a good idea you vibe you put in a 500k
chat yeah i'd be open to that do you want to you want to tell them i'm very excited about public stocks here actually really yeah continue excited about what public stock like the valuations are crazy super interesting such great deals super interesting yeah you want to do your bill gurley uh imitation oh yeah you guys got to hear that that's the poker at the poker table j cow takeout
that's a great question do i have to stay out here for this i've been investing for the better part of three or four decades group of the four and ten boards i doodily served on every time i shove it all in with kings sucks out on me with a 9 10 suited and that's just my luck right now so maybe i'll just look at the public market i'll just have be liquid i'll be liquid
all right ladies and gentlemen bg squared gg squared baby we'll let your winners ride rain man david sacks and it said we open source it to the fans and they've just gone crazy with them [Music] we should all just get a room and just have one big huge orgy because they're all just useless it's like this like sexual tension but they just need to release [Music] your feet we need to get murky [Music]