hey everybody welcome to another episode of the all in podcast it's been a crazy uh couple of weeks here we had the all in summit and boy was it amazing our bestie david freeburg couldn't make it today uh he had uh some personal things he had to attend to so joining us again is brad gerstner welcome back to the fifth bestie uh on his is this your fourth appearance now including the uh all in summit i think you've been on
four times now very good all right that's about five percent of the episodes a nice nice uh i think that's a nice little chip in your uh in your your belt there i mean unworthy replacement to freedberg but i do what i nobody can replace freeburg that is the truth [Music] [Music] just uh going around the horn here chamoth did you have a a favorite moment on stage a favorite moment off stage what is your general impressions of the
all-in summit 2022 i thought the people i met were really impressive i really enjoyed meeting people and learning what they did i also thought you and your team organized really an incredible event and i forgot how good you are at these things but um so i give you a lot of credit i really enjoyed participating the only thing that i was nervous about during that whole thing which probably limited a little bit of my fun
was my mom was coming she's 81 and so it's not i was not super psyched to really be in the throes of all the parties to be honest just because i was like i didn't i didn't necessarily want to get coveted and i didn't want to introduce it to her and got it yes you know nat ended up getting really really sick but more uh like a flu and a cold yeah um but you know i've been fine my mom's fine i know a bunch
of folks that came unfortunately tested positive so that was the only that's the only downside where i would i would have wanted to be a little bit more carefree but um that was the only thing that was but that's not in anybody's control so yeah i i recall that when i had a christmas party back in december like a week later he called my christmas party a super shredder even though i tested everybody at the door every
single person was negative at this summit so so my parents went to this conference they both got coveted my aunt who lives in miami who was in her 70s she got coveted are they okay by the way are they good yeah they're most important it's you know it's omicron it was like you know it's like bad for two days and then you get better so they're gonna be fine thank god or no yeah one did and one didn't so um my brothers got covered in so your
brother's got it which one josh josh and jamie both got it and then josh's wife got it so she um took the pax love and everybody's great now but yeah if you go to my a lot of people who came to the event it was their first time out like this was for a lot of people i think very emotional and exciting because it was their first venture out and if you go to miami to a conference like you're gonna get
getting a covet especially if the event organizer doesn't test anybody it's impractical to test 850 people nobody would come like no if you want to make a profit right nah it wouldn't have actually been that expensive you could put that on the people they could just you know share their results but i think at this point you know even on the planes going out there nobody's wearing masks i don't know if you know well you guys are flying
private but you know my flight out there it was all you know nobody's wearing masks anymore but anyway j cal i think everybody who went to the conference took the risk upon themselves of getting coveted and you know it's not the end of the world or anything they're all fine but i'm just pointing out the hypocrisy my hypocrisy yes exactly it's like you're like nancy pelosi or something where you're criticizing
every time a republican gets covet it's their fault but when you throw a super spreader and i think ais now stands for all in super spreader yeah it's not your fault it was well beyond your control it was the virus absolutely and in fact it
was probably just florida it was just yes but in mine i tested yeah it's not even proven that mine was a super spreader all right in all seriousness did you have a favorite moment on stage or some reflections on
the event uh i thought the elon thing was really good by the way and then the only thing i'll say is the the palmer lucky thing was pretty incredible um yeah which will be we will be releasing the podcast i think that that episode is uh eye-opening yeah we don't want to say too much but i think that you were uh really i think you handled yourself really well there oh thank you for that jamath what actually happened i wasn't
there for that portion i haven't heard anything about we give a mini summary here of it i guess i'll give you the outside inversion he gives what i can only describe as an incredibly motivating breakdown of american defense and what his company and you know you have to remember to put it in context this is a 29 year old young man who has now started two multi-billion dollar unicorns so you know this he's
going to be around for a long time doing amazing things but he talks about anderl which is his defense company really impressive and then the whole you know everybody's kind of like rousing and cheering and applauding and then he said you know i have something else that i want to get off my chest and i was standing beside jason backstage jason was looking at the monitor i was looking at the mirror at myself but uh
and check out your sweater uh and uh he said uh you know there's a person here that that has been you know really hard on me you know tried to ruin my life attacked my family and represents you know these really this strain of very influential people in silicon valley who have gotten it totally wrong basically and he called out cancer culture and then he called out jacob and to jake all's credit after he was done
jacob was the first one that walked out on stage shook palmer's hand and then we all sat down we talked to him and then the two ended up hugging it out at the end but there were moments that were very heated in the middle of it um the whole thing was incredible to watch i got to be honest with you super dramatic yeah incredible i the most shocking and surprising aspect of the whole thing was that a person as important as palmer
lucky felt the need to get revenge on a person as unimportant as jason calcanis that was the part i mentioned when he was like my career was when he said important people in silicon valley i initially thought oh my god he's talking about me what did i say i that was i was thrown by that tip if i'm being honest he's like my entire career was stopped in its tracks and i had to claw my way back because jason
calacana said this and i was like um no actually no i'm looking forward to when you're it's going to be a great episode it's going to be coming out next week thank you yeah and i i want to give a shout out to um glenn greenwald matt tybee and antonio garcia martinez for appearing and you know we did two different panels we did one on domestic politics with glenn and taibi and then the we did a debate on ukraine which has now been
published between glenn and antonio and particularly i want to thank antonio because it did end up being a little bit of a two one at the end which wasn't my intention but i have my own views on it too although i did try to be somewhat restrained and even-handed in the moderation but it's a really good debate we should have had longer we only had about 30 minutes but you can see that online right now it
actually is a great uh example of actually how to listen to somebody else having a completely diametrically opposed view and still be respectful i thought those guys were great to listen to i think it's a new format sax and i think you know somebody was like hey maybe you and j cow could do it i think you and i moderating like two people with different sides it could be like a really interesting format for us for
future events brad did you have a favorite moment on stage maybe outside of elon of course you can mention i would say you know maybe both on stage and off stage you know i think listen i think this podcast has taken some shots and probably appropriately so at times for being a bunch of men in a little bro culture and the effort made to build authentic community and diversity into that room i've been to a lot of
conferences whether it's claire thielke you know patty wexler extraordinary you know minds women all diverse cultures economic backgrounds when we walked around the floor p you know indiana kentucky west virginia everywhere right and who were starting companies having authentic conversations and frankly we're grateful for the community and the advice that they were being given these were from big startups to
very small startups and so for me that was a highlight the effort you made i don't know almost 40 women you know both economic i thought as well as you know geographic uh diversity and then you know listen i had a moment after bill and i after gurley and i got off stage um i was stopped by a group of founders and they said hey we need your help i said what and they said we are that company you and bill were just talking
about and said was screwed we raised 100 million dollars last november from from tiger at 100 times arr what do we do right and like like the fact that that you know that those conversations are going on of course they're not screwed and it's a very interesting company but it led to a real conversation that you don't often have um at conferences like that and so i thought it was much more than just a bunch of talking heads on stage i
thought it was a real give and take in the you know uh in the crowd afterwards the parties the in-betweens and so i really enjoyed that the other big um thing that we avoided um failing on was uh putting back the amas i think these amas are some of the most interesting parts of that conference and i think that we should make sure that we probably do an ama jason like both days we do a two-day conference
the amas are awesome yeah when the audience is asking us and just to explain to people how we were able to um you know curate the audience we ask people i think it's a good playbook for other people if they want to steal it to uh they could they could pick the price they wanted to pay based on their station in life and so people said i want to come i'll pay 500 i'll pay a thousand i'll pay 2500 instead of the 7
500 ticket price which was like 300 people in the audience and we just said hey what do you love about the show you know what would coming to the conference mean to you and we kind of just sorted that and we look for people who are passionate about the show and then you know the the thing that stuck out to me and i know freeburg uh had a great time as well was the passion of the audience and how much they appreciate what we do here
every week and so the love that we got people asking to take selfies people telling us what the show meant to us you know and people coming from all different uh stations in life really it made it not elitist but it felt like the people who were there were all builders and that was really an interesting part what i instructed the team to do was anybody who was like a real estate broker or a money manager a
sales executive a business development person i said let's not have them there no offense to those you know critical functions but a lot of people will come to these events to sell and get customers but i said anybody who's a builder an artist they're making something in the world let's give them the priority for these the scholarship tickets so you know when you met people they were all building something interesting in the
world and and no press i think also created a certain vibe there we didn't have the media there criticizing every panel and you know every speaker and so it i think it just yeah made it magical well i think it really couldn't do it without all you guys uh freeberg and the besties and brad you were helping behind the scenes so couldn't do without everybody and my team turned out surprisingly well i thought
i thought the whole thing was a j-cal grift and it actually turned out there's been there was there's some grifting going on for sure we still haven't seen an accounting of of exactly where all the money went so it's it's close we'll have that accounting any day now saks any day now what could you have done better what would you change for the next time um you know i it's a great question you know we we always do a document with lessons
learned right after the event so i went through my team and i had 26 people from my team uh 21 from launch and i think five from insight came and uh you know helped staff the event a little more time to to work on the speakers in the agenda um if we had a little more time i would have teased out of each bestie you know maybe five or ten speakers or topics they wanted and worked backwards so just a little more time to to to to
experiment with the format but i i took an experimental approach to it we did have people who did solo dolo like ted style talks we then had people come on stage uh with the besties and do discussions but having all besties on stage all the time is a little hard for for everybody i know david likes to focus on maybe a couple of things other people like chamoth and i like to be on stage for everything i think
um but the format was experimental and there was a couple of great moments i think when we overlapped folks so i think nate silver overlapped with keith roboy uh you and bill gurley together tim robert i'm sorry overlapped with keith roboy um those were magical moments i think and so i have something in my brain about weaving individual talks and data points with the besties and then having the next speaker on the stage the next speaker
and i would have liked to have more time to refine that format i think okay my only question is was the palmer lucky deal was that a plant did you plan that no did you put that in there i'll tell you the back story is i you know i i've had invited him on this weekend starts before all in came out many times he said [ __ ] you basically in so many words i hate jake out and then when all in came out he's a
fan of this show um i think he's particularly a fan of david sax's and i think david knows a lot of the investors the investor pools i think overlap in a lot of different circles of ours and um i said would you like to come to the summit and i and i basically said to him heartfelt like listen i think the work you're doing to protect the country most people in silicon valley don't believe in building weapon systems but i
kind of am with you on this so we probably have some common ground here i think the mission of what you're doing is more important than our disagreement from you know the hillary clinton versus trump days maybe we could just you know put that aside and have you speak and surprisingly these people were like yes i didn't know they were doing yes because he had a plot to dunk on me but who cares you know like i don't mind
being dunked on if i'm wrong about something or i'm right it's the whole spirit of this show is to you know to learn and grow and have great conversations so with that maybe we start the show now let's do it all right let's go let me am i am i still allowed to do intros or is it too triggering because i do have interest for this week do it say do it okay i got thumbs up only if they're nice
well you know that's the caveat that i cannot guarantee but anyway here we go getting ready to gallivant across the italian countryside he spent 40k at all in summit on food and wine he took 400 selfies in three hours those sweaters my lord the wreak of power the dictator himself is back shamath polly hoppity welcome back to the show thank you jason all right his body looks like he doesn't eat cake he's got a major steak in
snowflake you might have heard him earlier on the week with bill gurley he's the crossover fund manager with that bde our fifth bestie the audience hangs on every word he has to say the dark knight of namaste welcome back to the program brad gerstner i like it what's bde if you don't know then you don't know you can look that up urban dictionary he's about to turn 50 but he looks like he's 65. after 72 hours in miami we're
not sure he's still alive the [ __ ] keeper is jealous of the facts under his eyes his portfolio has been down for 35 straight days no surprise the rayman himself is back david sacks too rough on saks no it's okay is it okay i felt like i might have gone too rough on sax all right i guess we start with markets and um s p 500 down 15 year-to-date down down 11 two stocks of note uh that did particularly well during covet uh zoom
and snowflake reported their earnings this week and they beat expectations of course that uh gives them no reprieve uh market cap for uh zoom 31 billion they got almost six billion dollars in cash uh which was a prescient move to cash up i guess during the the boom times their stock jumped 18 after the earnings so great for them uh q1 revenue 2023 1 billion 12 year-over-year they got an 80 gross margin for that business
pretty impressive 500 million adjusted free cash flow 7 000 employees they're at almost 500 000 per employee uh at this point and stock is still down 43 year to date but a little bump here so i i guess we might be bumping along the bottom soon and just to quickly recap snowflake and get your comments after that snowflake reported their quarterly earnings yesterday 41 billion market cap they got almost 4 billion in cash
they were down slightly at the taping of this episode today and they're down 67 from the peak of 409 a share in november so they're not in the 85 plus club like coinbase and peloton but still they've lost two-thirds of their market cap 422 million in revenue 85 year-over-year beat their expectations uh and um gross margin 72 net retention 174 percent uh 70 on growth within within their existing customers to david sacks's point about
why sas is so great they got 4 000 employees uh 6 300 total customers so uh i guess maybe starting with you brad since you're in this in the vic of it thoughts on uh i know your major snowflake early supporter thoughts on what's happening in the market and maybe any indication uh from these two let's face it strong results uh in the bouncing along the bottom i think is how we'd all describe what's
happening right now well i think listen what makes investing hard is sometimes you have to hold simultaneous truths right and the reality is there's a lot of cognitive dissonance when you see something down 30 40 50 but it may be still fair value right we were talking about last october like make no mistake about it just take snowflake as an example the move from 400 to 200 was probably just what i would describe as
normalization in a world where rates were going back to two and a half or three percent right the market last october had gone too high we discussed it on this pod we discussed it on cnbc and so i expected a return to what we call the five year average as we discussed at the summit what's been surprising to me is the negative reflexivity that's kicked in as a result of the war in ukraine uncertainty about hyperinflation
uncertainty about hyper rates and so now we're seeing software generally all risk assets growth assets trading now 30 40 50 below the five-year average right so i don't think it's helpful to say well none of that should have happened no the reality is meant that all of this stuff was going to be down 20 to 50 percent because it was way overvalued last fall we gaslighted ourselves in many respects we didn't hedge it perfectly in many
respects but that's you know that's what happens in late market cycles so the question is where are we today and for example like why is the nasdaq up 300 basis points today right this it feels like whiplash i come in one day and you know you have market caps up 10 percent one day down to 10 the next and so i think it's really important to help the people listening understand you know like what happened this week and what's
going on it has been kind of a uh a a pretty mixed bag this week in fact of of things going down chamoth what are you gonna take on this of what we're seeing in the market this week specifically with precipitous drops and then you know the bouncing up again look we we still had some amount of rate uncertainty from the fed i think people weren't sure how aggressively they were going to hike but by early this week it was pretty
clear there's going to be two 50-point hikes one in june and one in july and then effectively a pause because then the fed funds rate will be at around two percent and everything from there will probably be path and data dependent okay that's effectively what they said now i think the the markets had actually already started to see that writing on the wall so if you go back to you know one of our
favorite measures which is the 10-year break even it's effectively rolled over which meant that you know which means that from the highs in sort of late april it started to come down which says that you know they were thinking that you know the inflation was not going to be as bad in the back half of the year and then the second is that corporate credit which is really what matters in some ways to the fed because
that's where they can intervene what is the spread above treasuries that a company can issue debt when it goes crazy and it goes up it means oh no the cost of capital is going up that's going to be hard for companies to raise money they may have to lay people off they may need to get into cost cutting mode right that's what goes through everybody's mind but that's also now about 35 and 40 days rolled over which means that
the gap has started to shrink you know between the us treasury price and what you know decent corporates can can issue debt at so it looks like we are set up for potentially a decent little rally here the problem is is it a rally that is sustainable or is it a rally that's basically what we call a dead cat bounce or a bear market rally where you know you just get some one or two weeks of relief before the
thing spears down again and we're not going to know although tomorrow on friday there's going to be a really important set of inflation data that gets released and i think everybody's going to be sweating these details so right now we're in a moment of pause and there is the potential if this data comes back as reasonably good which means prices are you know not escalating as much as we thought um inflation is not going to be as bad
growth is going to be moderate that that gives a lot of ammo for the fed to kind of take their foot off the um off the gas here and in that case markets will go boom sax um the interesting note i think is uh what we talked about here everything was correcting except housing and we were wondering when this uh you know the increasing rates would hit mortgage rates mortgage is way above five percent uh in the last two weeks i think it's
come down a little bit but the mortgage rate basically doubled and then we finally saw it earlier in this week um uh what day was it it was two days ago so we're taping this on thursday so i think on tuesday new home sales 591 thousand they expected 749 and i think the last month before that was 763 is that uh indicative of the uh raising the rates and slowing down inflation has finally occurred and
that maybe we the fed maybe uh steered too much into the turn how do you interpret that massive it was a pretty massive miss in terms of home sales in the estimate well the costs of buying a home are going way up because home loans are now more expensive so that's going to factor into all sorts of consumer purchases anything that's financed can be more expensive you're also seeing companies starting to
slow down spending uh really starting to slam on the brakes we see it in startup land startups are all slashing costs right now but that's eventually going to percolate up to big companies too you saw dara's memo basically when he got back from wall street remember he published that a couple weeks ago saying we need to sharpen our pencils cut everything uh what wall street is looking for now is free cash flow um so
it seems to me like we're headed into a pretty serious downturn or recession here i mean i've been saying we're in recession for months um the the the you know the tricky thing for the fed is that they don't have a lot of good options because we have a lot of recession indicators blinking red right now at the same time inflation is still high so they're kind of caught between a rock and a hard place i think what the fed
should have done is in 2020 hindsight is back last summer we first got that shock cpi print remember it was like 5.1 percent seemed to come out of the blue because for years and years we've been talking about deflation nobody thought inflation was a problem all of a sudden we got that 5.1 percent print they were in total denial about it they just dismissed it saying that inflation was transitory and you know yellen said
the same thing and so basically everyone just ignored the data for six months and what they should have done was stop qe right then and there they could have taken a little bit of time to think out you know a rate increase strategy but they were still basically engaging in qe for nine months after that you know first inflation warning and if they had stopped qe there then we wouldn't have had this asset bubble
in the second half of last year that's when it inflated the most and we could have had more of a soft landing unfortunately now they let the they kept inflating and really until the end of q1 and they've yanked away the punch bowl so violently that i think the real economy's gonna go into recession so that's where we are right now i mean i don't know what that what the right answer is now given that we're in this you know almost
stagflationary position let's try and answer that brad what is if if we didn't act soon enough if you agree with uh sax's point pretty hard to disagree with um and we didn't take the medicine a little bit at a time um and now maybe we've overreacted or maybe it's going to get worse what is the right thing for us to be doing now because all these companies doing hiring freezes layoffs at the same time that the housing market
tanks at the same time crypto tanks at the same time the stock market tanks this feels like a major shock to the system is it time to maybe reconsider some of these um no you know for the fed to reconsider or just slow and steady wins the race here what what's the best option first we should erect statues to senator manchin for saving the republic by vetoing stimmy too that would have been devastating that would have been
devastating so we'll revisit that listen the fed said two really important things this week they said number one our communications have been helpful in shifting market expectations what that means the fed is the air traffic control they said to the markets at the beginning of the year you're 90 degrees off runway heading get your ass back on runway heading it was a slap in the face to markets and it was a radical
adjustment now you hear the fed in these little statements this week they said hey we're well positioned this year to assess the effects of policy firming in the back half so they're saying we're going to hit it with 50 50 and then we're going to take a look so now think of it as air traffic control you're two degrees to the left you're two degrees to the right they're steering us on runway heading i don't
think the fed wants to do anything at this moment to lose credibility in the inflation fight we're going to get 50 we're going to get an another 50. but they're doing what they want to do which is keeping markets sufficiently tight right they wanted to take the crypto market down they wanted to take all the excessive risk in the stock market down right you're absolutely right the inventory of 350 000 homes spiked from four months to nine
months right used car prices are rolling over the last three months all the things they needed to do they're doing right they need to stay the course however the hyperventilation this week by bill ackman on twitter that the fed needs to be doing radically more that somehow we need to be raising rates to six seven eight percent in order to squash inflation to me seems highly misdirected and totally out of
touch with the fact that on layoffs.fyi they've already announced 750 companies that are announcing layoffs right the market is getting the drill i i totally agree with this i think we're in a we're we're in a pretty reasonable place here the real the real question is now what do you need to take the market lower and this is more of a nuance but you know when you look at companies that are now quote-unquote cheap right let's
take an example like you um you know well we hear a lot about google or facebook right people say my gosh this is cheap because if you run a screen on it it's like 10 11 12 times price to earnings well the price you know because you can look on the screen the real question is are the earnings right and the thing that can take the market lower is if you actually think earnings are modeled incorrectly
right so we saw this week as well snap i mean completely just blew themselves 46 down intraday yesterday i think i just want to say something about one day they have the most incredible propensity to self-immolate on earnings calls than any other company i've ever seen there's probably been three times no less than three times over the last four years where i don't know whether it's just poorly scripted or not well rehearsed or
the people that are helping evan get ready for these things but these are disastrous calls you know facebook's had a couple in this lifetime but snap consistently probably once every 18 months will do this anyways the thing just completely implodes the stock implodes by 48 or something and then it you know rolls over to companies like facebook and google who then are off eight or ten percent my point in telling you the story is
that if you think facebook and google just as an example again are cheap at 10 times well you better hope that the earnings are right because the earnings are actually wrong that's actually 27 times in 19 times you know i'm making these numbers up to give you the example because the earnings are fundamentally wrong so that's the risk now that's left in the market in my opinion that could take it much much lower is if that you know all
of this slowdown really contracts spend and the earnings are actually not accurate the forecasted earnings will need to be revised over the next two or three quarters and that's where we will probably see the low if however growth is muted and the fed can as brad said it's a really good analogy now just course correct by degrees you know a degree here degree there we've probably consolidated the lows
so said another way we look at a company like snap or google a lot of their expected value has to do with people's ad spend we now see less homes being sold so maybe people in real estate stop spending less on ads they're a major advertising category maybe direct to consumer uh people are not buying because the supply chain issues this stuff is too expensive and we're not going to spend on ads and so all of this ad revenue that's some of
the first to come out of people's budgets so you know even as great as snaps results actually look they were up 38 year-over-year uh they're generating over 100 million free cash flow the guide was terrible because what they said was our e right our earnings right are not modeled accurately right and so that's the risk that you now have to take to every company you cannot look at a screen at yahoo finance or bloomberg
look at a price to earnings ratio and say wow seven times that's so cheap it may not be seven you have to do your own work it could actually be much higher than that because earnings may be at risk the earnings being at risk is this contagion that we talked about i don't know six maybe it's like we're going on almost a year now saks we talked about a contagion happening because we've all experienced it in the last two
recessions to the dot com bust in the great recession so what are you seeing in terms of at companies this contagion risk are people canceling sas contracts on the margins obviously people are doing hiring freezes obviously people are laying people off are people gonna start renegotiating uh salaries you know what what's the next couple of shoes to draw pure sax and that would signal to you a true bottom here like
have you seen i thought maybe one would be if somebody offered somebody an investment with a two or three times liquidation preference have you seen one of those yet have you seen people say we're going to renegotiate salaries because that's when it was really dark right the last two times yeah it's going to take time to get to that point i mean where you start seeing structure and deal is in deals is when a founder
is trying to preserve a valuation they got last year and that can't really be justified but they don't want to just take the down round so you try to preserve the optics the last round by building all these preferential terms we don't like to do deals that way but you'll start to see them happen later this year when you know companies get more desperate that's not the first thing that happens though um i think that that to your
point about the talent market it's definitely going to happen has it happened yet no what has to happen is first all these open wrecks get cancelled companies freeze their hiring plans then eventually they do layoffs that's coming and then the talent market cools so those students are here both are here so what's the next in talent wars well yeah i mean look but within the next six months the talent market's not going to
be as hot and you know in the same way that startups aren't getting 10 term sheets now that maybe they get one or two if they're a good company same thing with talent right they're not going to have 10 job offers they might have one or two and that's going to create that's not going to create the same upward pressure continuing upward pressure for um for increases in comp um to your point about like will sas
contracts be cut i mean i think software is pretty sticky i mean if it's a good product um will deal cycles get longer yes will there be more mortality risk in the startup or smb customer bases of companies yes i think one concept that starts may want to wrap their heads around is what i would call deferred mortality risk meaning that during the last few years during the boom times the graduation rate from c to series a to
series b was very high perhaps artificially high so there's a lot of companies that got funded and advanced to the next round where in more normal times they wouldn't have made it so got it now if those companies haven't really fixed their issues they've just deferred the mortality so i think all of us probably in saselian need to be modeling out higher logo churn for uh for customer bases that are skewed
towards startups or smbs and we don't know what those numbers are going to be yet but that is likely to happen i think that that's right i think the other thing is that um there are there's a lot of companies that are going to have to get religion on free cash flow conversion asap and i just think that most ceos to be very blunt are poorly educated and enumerate so their level of numeracy to even understand this is pretty poor
and most uh board directors are equally can you unpack it right now what does it mean to to get the business uh to free cash flow what does it take why is it important and what what are the how do those businesses look differently to them to spend less than you make okay hold on i just want to make sure i got it correct you make money but the number of the money you make is higher than the number of the money you spend
got it okay and then there's a delta there there's some difference between those two numbers and that number is important to some people is what you're saying i think increasingly getting that number to be greater than zero is going to be really important it it allows you again everybody starts to throw out this whole thing which is oh my god you can never slow growth and the company will die and yeah maybe in a vacuum that that's
true but when every other company is fighting tooth and nail to survive the only thing that you need to do is actually survive by surviving you win and if you can basically make your cash last as long as possible even if you cut to the bone and stop growing if you come out the other end and you're the only company that's left you will win and run over the market you may have pushed to the right a few years your
plans of world dominance but they're still available to you it's the company that foolishly thinks that they can continue to spend money at the same rate or in the same ways that are going to learn this hard lesson because i think that investors are not going to tolerate being able to you know provide incremental capital to organizations funds who are then you know misallocating that capital to basically support a poorly
marked portfolio and i think that is going to be the real come to jesus that actually makes all of this thing come clean like pension funds family offices endowments all these organizations are smart enough to realize that they're giving good money after bad if what those folks are going to do is not demand portfolio rehabilitation and instead are just going to basically keep the marks of their old funds because
they're just in a in a game of waiting it out where the whole taking action greater than you know blind hope and just going you know steady doing what you've been doing you got to make some changes i mean look i love brad's reaction i think that most growth-oriented funds are looking at their portfolios and they're trying to balance two strategies strategy one is get into massive rehabilitation mode the problem
is most of these people have never built or run a company so they have no idea how to rehabilitate anything they're you know market momentum folks and in that they were excellent but in actually helping ceos build and rebuild a business i think that they're not as well suited doesn't mean they can't do it but they're not as well suited that's path a but i think that path is very painful and it requires you to take medicine the
bitter medicine which is to basically mark your portfolio down 50 or 60 just like the public market terminal valuations have gone down the other alternative is to basically raise enough money to do for example unpriced converts into those same companies so that you don't have to remark so that the auditors will be allowed to carry these fake valuations you can maybe mark it down 10 or 15 percent but you don't have to mark
it down 50 or 60 and hope the market returns to his previous state but as we've all talked about that previous state is probably unreliable because it was a moment where we had a global pandemic where we took rates to zero and we printed nine or ten trillion dollars of excess liquidity that inflated these things so i got to think that you know prices in 2019 were a little bit ticking up 2020 we're really ticking up 2021 was
egregious in 2022 is to come is you know where it all comes home to roost uh brad explain to us uh we we hear free cash flow we hear income net income ebitda we hear all these terms now free cash flow is what everybody is focused on i i believe that seems to be the predominant um rallying cry in a lot of public market companies now can you explain to people what the difference between these things
are because people kind of bundle them together why would somebody like dara at uber just say hey you know we've been talking about adjusted ebitda ebitda income net income all this stuff but free cash flow is what we want to focus on now or is that correct yeah you know and our friend bill gurley uh rails on this adjusted adjusted and you know look to your left look to your right adjust it one more time ebitda right like in
markets like this what people want to know or what's the green stuff i can take out of the business and put under my mattress free cash flow distributable free cash flow and not only that how much per share i think the single biggest issue growth investors are focused on today is the easy way out for all these companies they'll tap down a little bit on their hiring they'll tap down on their spend but out of the back door
they want to give a bunch of free stock to employees to help offset that pain this is really important to understand because stock is a real expense right when a company goes public the more shares you have the lower your price so it is a real expense to everybody the founders the employees the investors right and so what's what i think the single biggest conversation going on in boardrooms in silicon valley today
is hey can we have a little bit more stock this year whether it's options or whether it's outright rsus to give to employees because if we don't give it to employees they tell us they're going to leave this is a real hard truth i had a ceo of an incredible company call me and say listen we pay our engineers a million bucks ahead but we give them stock that over the last five years has been worth another
million dollars each year so they built their lives as though they had two million dollars a year in income they bought a house they bought cars they sent their kids to private based upon that two million dollars and now when we tell them that this upcoming year the mil we're not making whole on that million it can't be when when we win you win and when we when we lose you win so the tough conversation is we're not
re-upping you because the stock's been cut in half and so now that engineer's saying yeah but this year that means i'm only getting paid 1.2 million and the answer the tough answer is yes right shared sacrifice you should have never assumed that that was going to be worth an incremental million dollars a year but that takes leadership that takes courage that takes a board that knows what they're doing to explain that
over the full arc of that employment and the first thing the mercenary employee says is well i'll just go work somewhere else and the right answer for a good leader is okay if you've got your approach to this business then you need to go work somewhere else i mean you just did a great test right that's a great filter you you uh you're a mercenary and you know you were with us when we're up but you're not with us when we have to take
some austerity measures is this the end of entitlement across the board sacks i mean we had an entitlement class everybody thought they could raise a vc fund everybody thought they would have 100 irr because they would just buy nfts and flip crypto projects that had no released product and the same with employees they just thought i can just keep you know raising my salary x amount and now it looks like apple said everybody comes
back to work three days a week and we don't see a lot of people quitting apple because there may not be another option and maybe a lot of the firings that are occurring i'm thinking of cameo here had top three of their top like six or seven leaders leave i interpreted that as maybe they had really big comp packages and when they did the layoffs they said you know what the number twos in these positions can
get the job done for a third of the price maybe that's better for the business so is this the end of austerity the end of entitlement i think so or a lot of it there was a great article here uh in well that was that came out recently about netflix where netflix they're finally getting real about their kind of entitled and their woken title employee problem and this is in the new york post but there's many other
newspapers that covered it basically it says here netflix tells woke workers to quit if they're offended if you find it hard to support our content breath netflix may not be the best place for you said the memo so period full stop yeah they're just sick of it they're just not gonna put up with it anymore they're sick of being held hostage by their employees who think that they can kind of muscle the leaders of the company by starting a
petition or boycott campaign every time they want to drive the company in a certain direction and so i think companies are finally figuring out this is the only way to react to basically being held hostage if you don't like it quit if you don't have seven eight job offers you know and recruiters calling you constantly because everybody's on a hiring freeze well then maybe people will appreciate
the contract of i work for you you give me money and then everything else is superfluous on that note did anybody see the ricky's your vase netflix special yet netflix it's on netflix it's unbelievable i mean dave chappelle you know in terms of bravery ricky gervais was like i've already made my money i'm burning the whole building down i mean he went full equal opportunist and i mean i think the trans issue became
like 10 or 20 percent of the of his latest special so it does seem like the comedians are saying you know what we're gonna make jokes we're gonna make jokes about everybody we're not gonna buy into this you can't cancel us we're just gonna keep making jokes and we're gonna keep making money and and that whole concept that you know people are going to be held hostage i think is over independent of what you think of making jokes of you
know various marginalized or smaller groups of people can we chris go back to something brad said a while back about how mansion saved the democratic party because i think there's actually an interesting point there yeah yeah such notorious right-wingers as jeff bezos have said something very similar lately when uh do you see that where buy biden tried to blame billionaires for the inflation and bezos was having none
of it he said no listen it's not because of us or our companies because you printed too much money and joe biden or he said mansion saved you from yourself because it would have been another 4 trillion of spending on top of all the other trillions of spending that we had last year so it's absolutely the case that that if the administration was left just to own devices remember they were touting back
in december they were touting the idea that this 4 trillion of buildback better spending would somehow be the cure to inflation imagine if they had poured that gasoline onto the fire i mean we would go to 20 inflation we might have had a currency uh you know like a serious currency issue no yeah but let me just finish the points i don't want to just make a partisan point here i want to there's there's a serious economics point here
with or learning i hope our policymakers learn from this which is what happened over the last couple of years we had 10 trillion dollars of money printing right why they do that they thought that they could stimulate our way out of this covid recession that they had induced with lockdowns in any event the point is they thought they could stimulate economic activity by printing money and maybe cynically politically they thought
it'd be good for them in the midterms what actually happened that 10 trillion goes into the economy but there's no corresponding increase in the output of goods and services so two things happen first price levels rise and we get inflation and second we get an asset bubble in the stock market and then the way both those things sort of come crashing down to earth is the fed looks at this inflation and
suddenly has to jack up interest rates that pops the asset bubble it vaporizes something like 14 of global wealth and then simultaneously workers feel a lot poorer because their wages haven't kept up with inflation so this whole idea that you can just print money as a way to create wealth and prosperity i hope what we take away from this i think recession that we're going into is that is not a viable strategy the only thing
that creates wealth in a society is the output of goods and services that people want and you just can't try to sort of play games with that by creating phantom the sort of phantom money that doesn't represent a real increase in good services or productivity yeah it's hard for people not to take this all as partisan but if you just look at the objective facts the last two administrations have printed money like drunken sellers and
it's a mess right now so you you can divorce yourself from any conception that this is partisan trump spent a [ __ ] ton of money and so did uh biden and who's more qualified than trump and biden elon bezos the people who appear on this podcast we have much more of a pulse on what's happening in the actual real economy and in entrepreneurship and capital allocating than these people and i love the fact that now
you know bezos is a [ __ ] poster he just doesn't get he doesn't care uh and i think we're having like an honest discussion now right one of the one of the areas where i i don't think elon gets enough credit is when he explains macroeconomics i think he actually really understands the the what an economy is i mean an economy is basically a trading system for the production of goods and services if you were to go this point he's made if you
were to go to a desert island and somebody just gives you a billion dollars when you're sitting there on that island you can't buy anything it doesn't make you wealthier what makes you wealthier is the production of goods and services that people want and that's ultimately what an economy is money is just the accounting system the dollar's just the accounting system if you start printing lots of money all
you're doing is debasing the accounting system it doesn't make anyone richer and yet you know the way that conversations around economics really take place the only thing you ever hear about is stimulating demand you never really hear anything about production and i mean this is an old debate that goes back to the 1980s about you know supply side economics but regardless of what you call it wealth ultimately comes
from our capacity to produce goods and services that people want it's a great point chamath all this adds up to companies and the government's balance sheet becoming tighter and more efficient so the talent diffusion across the industry perhaps everybody being entitled and getting overpaid uh people not wanting to go to work people who have jobs not wanting to go to the office all of this seems to have
actually reversed in three months so this medicine we're taking we stopped eating the bad food we started working out we're getting better sleep this is going to turn around for the the companies that take the medicine the management teams the capital allocators who do the hard work and sharpen their pencils as we've talked about this will all result in a more efficient uh and vibrant economy yes i think for the most part i think
there's still going to continue to be examples of folks who basically run themselves into a brick wall because they don't want to make the hard decisions that is going to be more exaggerated in silicon valley because we have a culture of tolerance and we have an economic business model that supports kind of irresponsible decision making and supports poor governance you know look i i've said this many times
but a fund's job ultimately is to make a very important decision about whether they truly care about generating massive returns or whether the fee income becomes so meaningful so as to drown out every other incentive that they have and i think by and large in silicon valley if you track all of the increased frequency and fundraising you can also probably follow those dollars and they generally will be the most poorly run
uh they'll be held the least accountable and i think those will have the largest negative outcomes and then instead if you follow the dollars of the the real practitioners who have discipline they look kind of sheepish and silly for years in the middle of a rally but they're the ones that are able to really reset and help some of these few companies really win and i think that you're going to go through that cycle over the next
four or five years and so you know i think it's super well said smoth because i have felt at or i've been made to feel silly by some folks who said why are you asking to do diligence why do you want to have a board seat why do you want to talk to customers why are you asking for month-by-month revenue you made a sub-economic decision like the idea that over the last four or five years you optimized for anything except the market
beta was kind of dumb you know and it's and and the worst thing that you could have done in that period was confuse alpha and beta meaning alpha is what you are able to do because of your discrete skill versus anybody else beta is when just the market goes up said differently you could take any nba player and put them on uh a high school basketball team and they would be the you know college player of the year any single one
okay that's beta yeah if you then can be the mvp of the mba that's alpha yeah okay and i think that a lot of folks um were made to feel very silly or you know a downer or a wet blanket um in these last few years who will probably have the last laugh it's been unbelievable brad to watch the changing of attitudes and the entitlement in fundraising and private markets in the last 60 days and it's been even more
pronounced in the last 30. i literally have people we talked to last month who had really crazy expectations they've come down by 50 they wanted 50 now they're at 25. they didn't want board seats now they're okay with board seats information rights they were fighting against information rights i don't know why that's a hill to die on now they're like information rights yeah sure here's our cfo's email we need to
get money in the doors so um i guess what's the silver lining here it does seem to me as a great setup right now wait jason let me ask you a question hold on yeah michael ordered brad like and then you're forgetting one other key thing in in the in the race to raise all of this money what did these folks do they hired these mid-level kids as partners into their venture firms and gave them money to put into companies
what do these people know no mentoring i'm not saying it disparagingly i'm just like what do they know how do they know how to actually invest investing is just not you see it you just say okay well i think it sounds cool there are some of those uh younger folks who are going to turn out to be all-stars and they're just like in the nba and they're going to be some that you know prove to be writing the
beta but let me answer jason's question because you know maybe end on a on a note of optimism you know in some countries you know notably china right now they're doing a lot to prop up a bunch of companies that should be allowed to fail right one of the beautiful things about free market capitalism the creative destruction the cycle time on creative destruction in this country has never been faster right make no mistake about it if you
took money at a valuation over a billion dollars okay last year you're not that's not a venture capital bet i call it quasi public right you stepped into the bigs and you said i will deliver this plan and if you don't deliver the plan there's not going to be a lot of tolerance there's not going to be tolerance for just giving away a bunch of more stock there's not going to be tolerance for no course correction
right maybe in seed or series a right there's a lot of tolerance because you sign up to a lot of unpredictability but the level of tolerance that you'll see out of late stage growth investors is going to be akin to what they do with a public company that runs them off a cliff you know how that is you've been on those earning calls so i think this is going to shine a light on the bifurcation that we really have we call
all of this venture capital but the truth of the matter is series c and before is venture once you're stepping into the bigs and taking money at a billion to billions the expectations are different your access to capital will be different um the expected course correction will be different right but i take it as a um i take it as a sign of strength that we're going to work through this we're going to have you know the the
private markets are absolutely going to go through a reset but we'll get through it and the winners will win and those who fail to course correct and want to fly into the wall will do that and we'll get on with the next generation of incredible entrepreneurs solving big problems the secular curve of technology solving big problems has never been steeper right and the cycles that overlay that secular curve are not
suspended we have not suspended wars we have not suspended economic cycles and so we're going to have to get through this one it's happening in record pace exactly actually that's an interesting point i want to let me ask brad a question about that which is what's the potential here for more of like a v-shaped recession where to your point the market's correct more rapidly and violently than ever snap misses of you know issues a new
forecast down 40 percent um is there a possibility that this thing gets resolved in say six months that's not to say that uh valuation levels are ever back to where they were you know in the second half of 2021 but in six months could we have sort of done this big reset washed out a lot of the problems and um you know again valuations are not back but the market becomes the the capital markets become become unfrozen
and we're back to a more normal operating environment as opposed to say yeah as opposed to say like more of a u where we're kind of bouncing around the bottoms here in this volatile state for about 18 months um you know and then it's more like the dot-com crash we come out of it in two years i see smart people on both sides of this i hear jason lemkin's been saying i think this is kind of short deep sweet six month reset
fred wilson just wrote 18 months at least i think sequoia is saying two years i mean i think our instinct is 18 months to two years but what do you think the possibility is that we could be in a more normal environment in six months right so let's let's separate public markets and venture markets because venture markets as you know have a six to 12 month lag just in terms of the reset but i would say you know the future's a
distribution of probable outcomes there's a downside case an upside case in a base case i think the base cases by this fall will have very good evidence right of where inflation's rolling over i think it is rolling over what the fed is likely to do the upward bound on on interest rates and i think we'll be at a point where we can start underwriting to the five-year average again make no mistake about it the s p
and the nasdaq today are still 30 above where they were in january of 2020 30 above where they were in january 2020. how much better is the world today than where it was in january 2020. well i think what the market is saying is that we've grown the economy on a nominal basis about 15 during that time and earnings have about doubled right the earnings margins of those companies are about have about doubled so you would expect
normal course and trajectory maybe that those companies would be 30 percent more valuable the problem is as we look ahead to chamas point the earnings are likely to come down profit margins are being squeezed so i think there's a decent argument there's more pain to come in the public markets that we haven't seen the bottom however i do think that the fed is taking a good course here i don't think that we have
runaway inflation i think that um you know we're going to have an investable environment come this fall however i think for venture there's a six to a 12 month lag to that so i think you got to add it to those six months to really get to the market clearing prices for all these companies but i think it's incumbent upon all of us to give really good feedback today and i see a lot of it right to entrepreneurs about making that
course correction if they're only turning the plane 10 degrees when they see lightning dead ahead they're making a huge mistake the default action by every founder today should be a 90 degree course correction unless they have very good idiosyncratic reason in that business in terms of their outperformance to stay the course plan for the worst hope for the best yeah and yeah you could even bifurcate the companies in private markets to ones
that have strong product market fit and the ones that don't there's a lot of companies to david's point that we're getting series b's without product market fit you know it's it's one thing to get your series a when you have this like weak product market fit and a great story but when you start seeing series b's happening on momentum it's like that to me is is is going to be impossible to resolve that company has
to go to zero or has to reset or give even give money back to founders those are the really the three things i would see as a true bottom like the really dark moment where people have two or three liquidation preferences people reset reset comp and tell people listen we're going to cut comp 30 across the board for management if you don't like it leave and then finally people saying you know what we're going to give the 60 cents on
the dollar back to investors those are the three things i saw during the two downturns you're saying something that i think is also important that's not really talked about which is that there's going to be a lot of really good companies with really horrible capital structures really terrible cap tables really bad valuations really big overhangs of preference stock that are going to have to get worked out
and in getting that worked out going back to what brad said the person that course corrects 90 degrees will win and the reason they'll win may not even because they're being that courageous they're just being less stupid than everybody else quite honestly because you have to remember in most of these markets over the last four or five years we funded four or five versions of every imaginable company
right and there's going to be two winners 70 and 30 yeah and and there's really only going to be one winner and then there's going to be a marginal second kind of also rant that captures some value and everybody else is not that valuable and you know that's roughly been true but the reason we were able to support that was that every company looked kind of interesting anyone with traction could be you know competed against
because the only differentiator at the time was very cheap money that was effectively free and it was flowing in you know faster than you could count so all of that has to get sorted out so i just think that that those dynamics shouldn't be ignored and so you know again hard work too i mean to the thing we've been saying here the it's hard work for a board and founders to do this but what choice do you have well the
problem is the pro if you take much more sophisticated markets like the debt markets which i would say are much more sophisticated okay cutthroat liquid covenants when you see the people that make the money two things are true number one is their incredibly sharp elbow to number two is they make money in moments like this right if you look at apollo's great returns or blackstone's great returns or cerebrus you know these folks were the
you know they they really were the barbarians at the gates and they made all the money in moments of true dislocation if you apply that construct here you know we've never had to go through a period where there are some real terms and conditions attached to the incremental dollar and i think that if that does come to pass in silicon valley you're just going to have a reckoning and i think that that what it will really do is just sort
out the winners and the losers and it will sort out the folks that were able to get to default or close to default to live or at least default life support exactly default festival i like that one too i mean zach's made a great tweet he basically said it's not default alive or dead investible or not and that's an even finer filter default default alive is fantastic if you can get there basically just means
cash flow positive i mean all default alive means is that your cash flow positive or you're going to be cash flow positive based on the money you have you don't need money exactly you don't need money well of course that's the best place to be is you don't need money but i think you know for early stage companies that's almost an impossible standard you know it takes time to get to the point of encounter positive so
therefore i was trying to propose a standard that i thought was more actionable for founders because it was because it wasn't impossible and i call it default investible which is here are the metrics that you need at least i can tell you what they are in the sas world you know here's what great metrics look like here's what good metrics look like here's some danger zone metrics and you need you know out of the five key
metrics you really need three or four great ones and one or two good ones to raise in this environment and no dangerous metrics and if you don't have those you need to give yourself the time to fix the problems in your business to get to those metrics um on that note you know sequoia had a really good chart called survival the quickest that illustrates this concept of giving yourself time and i threw it in the chat um but
basically what it shows is there's a green line and an orange line that the green line is the company that realizes in may of 2022 that we've gone into a very different environment and they slash their burn in half and they basically double their runway and then there's the other company that just keeps going along the same path they were at until they realize oh wait a second you know and then that you know some
point in the future they realize there's been a change they make a small cut they make another small cut and they're always behind the eight ball and i've seen this so many times before that the company doesn't make cuts until they're forced to and so they never really lengthen their runway and then when they finally do make the cuts they go into a death spiral and die and now they're over the
atlantic and there's not enough fuel to get to a landing strip and you just plunge into the cold ocean and die founders really have to think about the the asymmetry of the risk that they face right which is let's say that you cut too much and the environment is better than you think it's going to be well you can always hire back i probably have a lower price in all likelihood i promise you'll be able to hire back okay but on
the other hand if you don't cut enough and the situation is worse than you think then you just die so you this is why andy gross said only the paranoid survive you've got to think about the downside risk and be more skewed towards the bad scenario than sort of the the sort of wishful thinking scenario okay survive just just one final point here you know because we have all these decks flying around now by venture capitalists
telling founders to go make these really tough decisions being a little self-reflective where were we all six months ago where were we in october when we were putting more money in and they were hiring like crazy where were we in november right i remember some of the conversations that we were having but i look i posted in in chat layoffs.fyi right the number one company on that list gets here sequoia company
okay are they making a course correction you bet your ass they are they're laying of 4 500 people 15 of the workforce the second company on that list lace work an altimeter software company that's doing terrific growing hundreds of percent laying off 300 people 20 right a 90 degrees turn of the plane right that company will never need cash again but it's not just flying toward the lightning they're making the tough
decisions because that's what leaders do in businesses that are even good businesses there are a lot of companies that are ship businesses that should be on this list but they're bumbling along and not making the tough decisions we need venture capitalists that instead of you know this being a popularity contest venture capitalists need to look inside as well and say what about our firm didn't didn't work right why weren't we
issuing these course corrections and telling people to tap the brakes a little bit when we knew markets were overheated last year right and so i think there's there's a lot of responsibility that sits on both sides of the table um but i'm you know there's 714 startups on this list by the time we're done there are going to be at least 3 000 startups out of zero that's another reason i say the fed is getting what it wants right
this labor market is you know was cooling down very quickly at least in silicon valley well i mean and the fact that people felt like they didn't need to take a job and they could live off credit and there would always be jobs for them i think people are going to have to rethink like can i be unployed forever and you know do i need to take my career seriously do i need to pay down my debt do i need to
have a a balanced uh balance sheet do i need to my personal balance sheet needs to be in order as well i think that's what individual workers need to think about yeah i mean brad's right that there's certainly enough blame to go around in the ecosystem and you know vcs bought into these frothy evaluation levels last year to some degree we're all gaslit by by the fed and these low interest rate policies i wrote my post about burn
multiple and how to measure capital efficiency two years ago um it's getting a lot more retweets now than it did back then but uh but look i do vcs have some self-reflecting to do definitely but you know i'm seeing a lot of tweets going around basically saying like people objecting to this advice on the grounds you'll hear something like if you vcs wanted us to operate more efficiently then you should have
invested more efficiently or if you wanted us to be disciplined you should have been more disciplined in your investing and to me that's kind of missing the point it's kind of cutting off your nose despite your face the reason we're giving this advice is because we just want our companies to survive and we don't want a zero we don't want a zero we've been through multiple down cycles and the truth of
matter is unless you've been in the business world for over 14 years you've never been through a down cycle i mean that means that you know no founder under the age of what like 36 has even seen a down cycle before they don't know what it can be like when you go into a two-year nuclear they probably they probably weren't the pilots at that time anyway so it's more like people who are 40 45 have the scar tissue because they
were in the pilot seat totally totally so the reason you're hearing all these vcs all of a sudden say get more discipline this is mainly because we've seen this movie before and we don't want to run out of money and die i think you can safely short if you could the stock of all of these rando peanut gallery ceos tweeting their disdain on twitter if you're a writer it would be a great index fixing stuff just write that company to
zero yeah just turn your [ __ ] twitter back and just sharpen your pencils um i i we we would be remiss if we didn't talk about uh at least for this last segment about the tragedy in uvalde uvalde texas uh 80 miles west of san antonio tuesday 19 elementary kids two adults were murdered um how are we gonna talk about this without losing our [ __ ] it's really hard i think maybe the roadmap tremendously i did give this a
lot of thought i was like why why is this first segment on the market trundling along on [ __ ] life support for an hour and ten minutes and i think part of it is because none of us can really talk about this without losing our cool it's really hard and but i do think we did good work chamath i was thinking about the good work we did in the episode of roe v wade and we actually came to a point where we said
you know here are the extreme positions and then you're like hey wait a second i found this data point i found this data point we actually figured out hey 80 percent of people want this definition of abortion in the united states so i i'll throw it to you tomorrow you know we're all outraged we're all frustrated but maybe we could start there is there a consensus of what could be accomplished here that you've come to i've started to
think about it a whole bunch but you know we're all outraged we could all yell and scream here but a path forward is where my mind goes i'll just tell you what i what i um have been thinking about okay this is just a random stream of consciousness let's do it i think that the democrats will not make any progress because they try to make this unfortunately a moral virtue signaling issue the republicans will not make any progress
because they become sort of very binary adamant absolutists about constitutional rights and the interpretation of that right in a very specific way the truth is in the middle you know if you go back before we talk about yuvaldi um peyton johndron who was the kid that shot up at tops supermarket in buffalo and killed umpteen you know black shoppers lived in a state where there was a red flag law for those that don't understand
what red flag laws are david you know tweeted some stuff about it as well but essentially it allows a community member or a family member or a school uh teacher or a police officer to essentially put a restraining order around an individual that they think could cause harm and use that as a way to confiscate their weapons people have talked about red flag laws as being possible while he lived in a state the
kid was you know put under a cycle you know a year ago and it it all just falls through the cracks now you know ted cruz or somebody else said let's spend 10 billion dollars and only have one door into a school and put an armed guard there well then you find out that yuvaldi you know doubled their security spend over the last two or three years they actually had a person that may or may not have just kind of like
stepped to the side or something to let them in the police according to the uh ap showed up and stood around for 40 minutes before they were able to actually breach the school you know so much so that the quote in the ap article was that there was a parent that tried to get other parents to for 40 minutes they were standing there you know in california you have you know very restrictive measures um but we've had you know in san
bernardino and other places we've had mass shootings here as well because the guns can just get transported across state lines and there's there's no real way to stop this the nra i find out just so if you guys are interested uh mitt romney took 13.6 million dollars from the nra this is the moral finger wagger of the republican side who you know last time i checked is a multi-sentient millionaire but somehow
still needs to take 13 million from these folks rich burr took 7 million roy blunt 4.5 million tom tillis 4.4 million cory gardner 4 million marco rubio 3.3 million there's no effective counter lobby that says how about we have a more moderate and restrained pro-gun set of rights and field candidates on the left and the right that could jason find this middle ground and so you know we're in this two or three
day period it seems like where folks will get extreme and then nothing will happen here's one thing that i think we can all agree as well if you look at the underlying family situation of all of these mass shooters there is a really disturbing theme that i think is worth putting out there these are all universally young men 18 19 odd years old they come from broken families this individual salvatore ramos father was absent
again according to the times in the wall street journal article i read mother intermittent drug use issues lived with the grandmother bullied they're unemployed barely graduated if graduated at all in high school they harbored these deep resentments towards women or minority groups um they then project a lot of their frustration they were bullied potentially in high school growing up and all of the they were posting all
kinds of very challenging content you know apparently this kid had a one tick talk of where he sat in a car with a dead cat in a paper bag you know he would post on instagram of assault rifles and nothing happens so i just think that we have to acknowledge that there's a complete failure of our politicians and at this point i think they should all be replaced writ large every single one nobody has added value to this solution
is nobody has really tried to figure this out but then also like parents have to do something incrementally more from the perspective of the community because these kids are going to school with our kids and the red flags are there the red flags are there so just one last thing and i said i said brad i said to my kids when you interact with your friends i just want you to understand when you're on social media and you encounter this
content i hope you're never like either scared or embarrassed or unsure enough to just show somebody when this stuff is happening so that you can let somebody with a little bit more maturity and judgment try to figure out what to do if anything at all but these communities are completely failing uh these kids as well brad you have some dead i would say that um every [ __ ] country on the planet has
kids with mental health disorders but not every country on the planet has kids getting shot up in schools and supermarkets and churches that is a unique feature of the system that we accept this the system we created right i'm not against guns you guys know i took my kids to a shooting range last weekend but the idea that we let you know assault weapons be sold in this country with no background checks
that we let assault wipe rifles be sold in this country with no limits on magazine sizes that you can just replace magazines it's total insanity right so i think this is a country that does a lot to self-help but we are not self-helping here after the assassination attempt of ronald reagan amazingly republicans found their voice and they said let's have an assault ban on assault weapons or let's have a ban on assault weapons that expired
and we as a i asked my analysts i said plot the number of shootings since the expiration of that ban and it's terrifying yeah it's obvious and it should be something that we just like don't accept like the middle ground jason i saw what you tweeted there is an obvious middle ground right there's about whether it's background checks that steve kerr i mean he's gone viral yeah feeling the same way we all feel but they're also
technical solutions why the hell do we let assault weapons why why not put a scrambling device on these weapons so that you can't fire them in schools and churches if somebody says that's a breach of their second amendment rights i'm sorry i'm also not going to allow you to drive into the school yard with nuclear material there are some rational limits we can agree to so i don't think this is a partisan thing
at this point in time nobody's saying you know ban all guns right in fact i i think there's a plurality among gun owners they too want reasonable limitations on these things which are killing machines not hunting machines sex any thoughts on this yeah i mean i i so i think we're looking for solutions i think these red flag laws and building on them is is the way to go um you know the the problem with
with background checks and and i'm not against them i mean you know i've i've gone through background checks to get you know my guns and i'm in favor of them but they wouldn't have done anything to stop the buffalo shooter they didn't i mean you know the buffalo shooter was in new york they've got the toughest gun control laws in the nation the background check didn't stop him from getting the gun because he bought it lawfully didn't
have a criminal record so you know it doesn't that by itself isn't going to do it so i think where these red flag laws are useful is that we've seen with these all these school shooters they have a similar kind of profile right they are disturbed young men like in their who are still school age 18 19 early 20s exactly now this shooter in uh uvalde i mean there are reports coming out now that he had been cutting his face
that he had aimed a bb gun at people so he was clearly idioting towards this idea of shooting people he had posted um violent fantasies basically of mass shootings on social media and he told his classmates he wanted to kill him i mean there's almost always a call for help here same with the buffalo shooting i mean the people who these like psychos go to school with are the least surprised they all know because these people have been warning
they've been saying that they're gonna do it so i think we have this problem of we've got these young psychotic people and i think the reason why it happens young is when somehow they get into adulthood whatever this mental illness they've got basically takes hold and they snap they become psychotic and it doesn't take long for them to act on those fairness those violent fantasies so the simple solution here i think is
to prevent those people from getting guns you know if you threaten mass violence uh you shouldn't be able to get a gun and i you know i personally don't think that's an abridgement of second amendment rights because look felons can't get guns either if you commit a felony you can't get a gun these people haven't committed a felony yet but i don't want to wait until they do if they're if they have these kinds
of red flags against them then there should be a way to file to basically get a protective order perfectly if we don't we don't let 12 year olds drive cars we don't let them drink beer because we don't want 12 year olds drunk driving right and then at some point there's a licensing that occurs i think a lot of this is framing i think it's just once again very analogous to this abortion issue where most people
are pro-choice and want restrictions on abortion where they don't occur after a certain number of weeks just like europe got to and i was just you know ideating on this and i think replacing the nra to your point your moth they have funded people they've become a key funding source for a lot of folks and they've they've been over funded themselves um what if we had americans for reasonable gun safety and we have this organization
raised a ton of money and they just outbid the nra for republicans uh and for people who are against background checks and we just a good question but look mike bloomberg started every town for gun control after newtown and it did it hasn't really had i think the impact that that we wanted i mean well i think part of it is cheap what you said so let me just give you my my little four bullet points here and have you
react it you you are right that people are absolutists no abortion you know no restrictions and no guns or no restrictions on guns background checks we all agree on make them more intense and make them proportional to the caliber of the weapon if you want one of these weapons why don't we have you go through a training course so for a pistol you've got a two-hour training quest for an ar-15 or something that's
more powerful how about an eight-hour course a four-hour course then you could actually see the red flags emerge and with somebody who has this red flag issue go through that the red flag laws should be national and they should be very strong and then finally what if we introduced insurance for certain classes of weapons not all if you want to get a rifle you know to go hunting or a pistol for self-defense
maybe you don't need to have insurance or maybe if you have one you don't need to have insurance but once you get to high caliber once you get to having clips that are a certain size what if we just had some basic insurance because that would force then somebody to underwrite the danger of that weapon jk i mean look the trick here is to figure out a system that has the least possible impact on law-abiding americans there's maybe a
few thousand of these um mentally highly mentally disturbed uh young men but like i said their schools know who they are yeah right and what we need is a process where you know that doesn't turn into the no-fly list where all of a sudden everybody's on it or uh training or insurance or content moderation or something like that this is the problem look this is what the nra is afraid of is that you create a red
flag process and all of a sudden thousands or millions of people could be on it right so you need a right but that's not true because you had you had this kid who could have been put on it in in new york he wasn't right no no no look i think we need to i think we need to figure out how do you create due process around this and i i think i think if a school they know i mean you get multiple affidavits from a teacher
they should be put on the list yeah school is a no-brainer the problem isn't that these these kids aren't identifiable because as you say david they're hiding in plain sight in these schools the problem is that there's no mechanism or incentive for any of these kids parents educators teachers community members to do something about it because they don't know what that something is and this is where these kids are left to
fester fester fester and then and it boils over and it's all of us that have to pay a collective price david can you it's even it's even worse than that chamoth because in the buffalo case the the buffalo shooter was referred to for psychiatric evaluation because they thought he did have mental illness and then they released him releasing after a weekend and then he got the gun he got the gun so he should have been put on a
red flag list and that should have been the end of it and it should be a database like a federal database which they're the nra fights too yeah i also want to say something about these technology companies there is an explicit decision that technology companies can make to be able to review content from certain kinds of accounts and start to build a cluster and a distribution of risk it is possible i helped build one for
one of these companies so don't tell me it's not and i i will not tolerate some non-technical person telling me it's not possible it is absolutely possible and these technology companies should have a mechanism to be able to say you know what here are these thousand accounts david in the united states of these thousand individuals that you know are sort of getting to a red line here yeah incline whatever but
it's it's also it's it's not it's not just gonna be what they post on social media it's although in both cases buffalo and uvalde they both posted that they were going to do what they did but in addition to that breadcrumbs early warning system is a great idea with uvaldi the the cops were called out multiple times for violent disturbances you know and you combine that with what he's telling people in the schools and what he's
posting on social media you it's there's an identifiable profile here it's not one red flag it's multiple red flags where this is where these corporate social media companies need to take off all of this for-profit focus that's extreme at this point be willing to degrade margins to hire the tens of thousands of people to manually review content okay there should be a mechanism that allows these folks to plug into some
system that law enforcement can use there is an early warning system that can be built yeah earlier great idea human review before this stuff gets out of control david to control people's individual civil liberties okay but that is a big step forward from where we are today which is nothing there is zero leadership in america can i just ask david one question david you you correctly pointed out i think it's astute that
um we can't penalize people who are legally getting guns or create too much friction for them i understand that would you consider training or insurance and just take each one individually for high capacity these deadly assault rifles would you consider what would you consider each of those in terms of realistic you know having some basic training a four hour training class i mean like like you do for uh like you do for
driving a car should we have that for assault rifles and then should insurance be required what training does is prevent accidental shootings okay that's right i'm not against training i love training i do training but but look should be mandatory what training prevents is is accidental shootings buffalo and uvaldi and all these school shootings they're not accidental shootings they're going out there and killing as many people as
possible and they know how to use these weapons i mean the problem is is what their objectives are so i don't think training solves it well let me ask you this if you were in training for four hours and you're an instructor and you were trained to look for red flags and it brought in some friction from this person going and buying it and doing the next day wouldn't that help and then going to have to buy insurance
the buffalo shooter cased this this grocery store for like four months i mean they are patient they are methodical in how they go about so they would have gone i think so that but we don't even necessarily need that filter jake out because i'm just telling you that the profiles of these psychos it's so dramatic when you go back and look i mean again multiple red flags they're killing animals i just
wanting bb guns they've been the cops have been called out on them they're posting on social media their classmates are all terrified of them their own families are terrified of them we just need to basically we need an incentive to jamaa's point for schools i think to create these profiles and file the right forms the affidavits in the database now do insurance for high capacity assault rifles would you be in
favor of and do you think it's a viable what does that do i don't understand what that does well it means you would have to apply and say hey i'm jason calacanis i'm 18 years old i'm in the school i would like to apply to own an ar-15 and then some insurance companies say okay you're 18 years old you're a male you live in texas your bill is going to be 600 a year for this gun oh okay you're a 45 year old
male in wyoming your bill is going to be 100 for this because we've done some actuary tables on the actual risk would you be in favor of insurance i think the key to solving this problem is to create the minimum disruption on law-abiding americans okay tens of millions of them who like insurance look i don't know what that would do exactly i want to stop the basically that i think what are a relatively small number of psychos young psychos maybe
there's only a few hundred or a few thousand sort of candidates in the entire country i i don't want i don't want to wait for them to become felons to to basically prevent them from getting jobs and by the way there's a there's there's a bunch of study about this there's been a lot of social science studies about the individuals that own guns legally and those individuals that sort of break and commit these crimes and
whether we want to admit it or not there is a definable archetype it starts with gender then there's socioeconomic conditions then there's you know home family conditions these are knowable things these can be built into a combination of software and human review and we need to create incentives so that these kids can get some kind of help or intervention and the worst case is we kind of you know
do something with them in a way that helps us protect everybody else because sorry to interrupt we do this every day we turn this country on its head after september 11th we started profiling everybody and to sax's like minimum standard of disrupting other people's lives the department of homeland security disrupted everybody's lives take off your shoes go through the security before you get on a plane we changed everything in months
because we said we're under attack but there we're under attack by a foreign presence a foreign terrorist presence here we're under attack by sick kids who need help okay but we need to disrupt our lives we need to change things right in order to save these innocent kids who are being shot up in schools where they're supposed to be safe and so i agree let's profile them let's get these companies doing their jobs helping
us identify these kids get these kids help but we need to raise the volume and raise the urgency in dc the way we did after september 11 2001 that this is a national crisis as opposed to going back to the normal right distribution here by the way after 2011 um i was on a no-fly list and i think i've told you guys a story before but i would have the triple s on my boarding pass for years until about 2007 or 2008. um
constantly profiled you know put in the back room the whole nine yards but in the end you know did did it make me feel kind of like less than a lot of other people yes but did i do it because uh i think it was the on the broad strokes the right thing to do yeah so you would take a little friction and so you know if i needed to basically turn over all my kids you know social media or there was a mechanism where you know
as much as we try to teach our kids you know all of these other things that that allow us to make a socially progressive society if the guidance counselor also sat around and asked these kids anonymously hey is there anybody in your class you think needs your help why don't you do that too um there's there is friction because that that i think we're all willing to take because the counter factual is too horrible to bear
and this is an example of one of those things would you be in favor of insurance and training chamath assault rifles i don't i think these are good ideas okay i don't think they will curb the issue i do think what david said is right there's a level of evil or mental illness in these people that caused them to be incredibly methodical and i think that we shouldn't underestimate so they would get to the insurance
screen and get through the training screening well i think i think you know look there's a lot of people that drive cars without insurance right it's you can drive enough and you can be insured and you know so i think that those are good ideas jason where it will falter is we have a political system where the primaries for both sides are dictated by the looniest 10 percent of the left and the right yeah we got a
vote in our primary it makes practical gun control just like abortion an impossible task unless we completely turn our political class upside down on both sides of the aisle okay so i think these are good ideas but in the meantime i think parents have to do something because nobody's coming to our aid and i think this the most important thing we can do is just say the truth out loud there is an identifiable archetype of these we
should profile these kids we should profile them there's no doubt there the politicians who are making this about lawful gun ownership they're not helping they're they're actually hurting because you're activating millions of americans who lawfully own guns and believe in the second amendment to oppose reasonable measures like like i'm saying hyper-targeted measures like these red flag laws right and so if we make the whole issue about gun
ownership in general you're not going to get any reasonable changes the opposite the sales go up the sales go up every time we have this happen my kids and i'm sure your kids as well have now uh gone through multiple active shooter drills in our school yep but at no point have my kids been sat down and taught some of the warning signs of their fellow classmates and a mechanism to raise their hand and say you know
what this is actually really worrisome here they don't have that training they do have training on how to lock the door how to flip a desk how to go into a closet which is a horrible thing to have to teach a child but if we're already there i just say take the extra step and teach the kids because they're living on instagram and tick tock every day they see their friends and their you know classmates every day
and we need to start figuring out an early warning system because what is happening continues to happen these politicians are ineffective they do nothing to help parents right it's true i i like i like the early warning system because you're right like they're so so first of all the the red flag laws are something that's done on a state-by-state basis something like 19 states have red flag laws including new
york but it didn't work in new york the buffalo shooter because got one federal no one used the system no i don't think it has to be federal i just think that people are actually interested i think people just have to use this system so you had in the buffalo shooter the kid was referred for psychiatric treatment and they still didn't read flag him that's just bonkers so people have to the school systems have to learn how to
use these laws and so to jamaa's point we need an early warning system we need that translating into red flags that go on someone's record and then they can't buy guns after that it's it's really simple at least till maybe they turn 30 or something um i mean it's it's um the the the problem is that about half the states don't have this mechanism and then the half that do aren't using it effectively enough i
just shared with you guys a chart it the the the most pernicious part of this debate and i think this is a pretty solid debate we had here so thank you to the gentleman for all participating in it um is every time we have one of these gun sales spike if you look at the chart in the new york times i just shared a nick you can you can share it on the youtube channel uh two million guns in the january after obama's re-election the sandy hook
shooting we hit peak guns obviously during coronavirus people got scared and bought a bunch of guns after september 11th they bought a lot of guns but these moments are sadly going to drive the ar 15 sec that is because all the conversation is about banning guns yeah and what we should be doing is preventing psychos from getting guns known psychos reasonable gun control increased by 50 in the last 10 years the
last 10 years have been the safest 10 years in our lifetime yet for some reason people feel the need to arm themselves more and more and more now i as an immigrant into this country accept the rules of the country that i come to there's a constitution there's a second amendment i respect people's rights to own gun i've held a gun twice once in my life i had a panic attack and i had to put it down i had to
so it's not for me okay but i respect your right to have them um i think that we need to teach people how to think about the precursors before they get the hold of these things really sadly uh what's killing our kids um it turns out i just put a i just put the tweet in the chat for you guys to take a look at new england journal of medicine massive uptick now guns deaths combined it's all gun deaths includes gangs includes suicide
and includes mass shootings but firearm related deaths and injuries now exceeds motor vehicle crashes and so does opioids so we have a crisis after at new england journal of medicine just to be very honest it's no it's not necessarily only about kids because they included 18 and 19 year olds in that chart sure so those are adults okay young adults and kids um and so drug overdoses and firearm related are spiking massively
this is my point about having this debate this is being armed by the by the left and then the right says well hold on it doesn't include 18 and then everybody gets caught in that hole absolutely the shooting these shootings are being done by people 1819 but putting all this aside i just want to make a bigger point about our children like in the last two years with this covet the spike occurred during covid of
drug overdoses and firearms so there's a lot of suicide in here as well so we should think holistically about you know how kids are dying oh yeah one other thing to that which is we have plenty of gun laws on the books that aren't enforced right now in san francisco you can't get chase abu deen to enforce a gun charge he uh a young kid named kelvin chu got killed because his his killer a guy named zion young he was arrested weeks before on
gun charges and jason boudin just let him go and in uh la with gascon he's dropped all gun enhancements to charges the whole the whole thing so you've got progressive prosecutors who aren't even prosecuting the gun laws we got on the books that's got to change and ted cruz thinks this is about the back door being unlocked i mean the the stupidity across the board left to right everybody in between the incompetence is
stunning and it has to stop yeah but jake out look i mean if you make this about people's lawful gun ownership they're going to oppose what you want to do we got to make it well there has to be some incremental controls don't you agree there has to be control the controls are basically preventing known psychos from getting weapons okay so you want to focus on that but to be clear no additional gun control for you
background checks or anything or not background checks right now i just want to be clear red flag laws and background checks are good i know we have to wrap i think the consensus was around red flag there's a known profile chamath articulated it well david i don't think we helped the cause to build the consensus by calling a sick 16 year old kid struggling with self-identity a psycho and because their their kids who live
all around us this isn't about lecture this is about building consensus i think we can profile those folks they clearly have psychotic uh uh challenges right but there is intervention to help these kids i know a lot of kids who frankly had challenges during high school who turned out to be great great human beings so these are kids at a very vulnerable age we should profile them within the community social
networks should help us identify these folks and we should get them help and i think you can build a reasonable consensus around that yeah i agree just to explain myself i'm by when i use the word psycho i'm referring to the the ones who actually became shooters you know i'm referring to those ones um you're right that if we're talking about people who haven't done anything yet who are mentally ill yes we should get
them help so mental illness you know this is and this goes to healthcare as well we should have national mental health services available freely to every american we are in a mental health crisis between covid and just modern life and suicide is becoming the number one cause of death sadly for many um demographics now including our kids and so while we do a great job making cars safer and creating life-saving drugs and and
emergency rooms and and medical attention has gotten unbelievable and we're making all these uh you know great advances mental health we're not making the advances we need i'm so so so sorry to all those families yeah this is just heartbreaking i guess you're emotional yeah but i'm just so sorry for all those people dealing with it it's heartbreaking yeah yeah heartbreaking let's take some action here enough with
the thoughts and prayers let's actually come up with a [ __ ] plan and just i've been profiled for years i put up with it sorry for the indignity it's okay i said uh my honest perspective is there's a clustering and a technology component to this that can meaningfully help and we need to start knowing that there are these patterns we need to say the words out loud they are patterns for these school shooters for these mass
shooters those patterns can be written down they have been written down and we need to do something about it they need to be codified in some form of algorithms and if we've already taught our kids how to duck and hide i think we can also teach our kids how to raise their hand well before they need to learn to duck and i identify who's being bullied into your point your mouth about being profiled if we profile somebody
and they're not a mass shooter candidate but they're just depressed or they're being bullied well that's ver that they deserve help as well so there's no downside to profiling somebody who's struggling you're profiling them with the intent of getting them help so let's just profile the kids who are struggling profile them for good and you you'll catch some you know who's struggling a priority my point is that
you actually well they're being bullied they're going to probably be struggling i mean you know the kids getting bored psychographic and demographic profiles of the 99 of the cases that we've seen over the last two decades and all i'm encouraging politicians and technology companies to do is come together create some standard you know what's the downside what's the downside none zero we have mechanisms
like this by the way where um you know these technology companies already do these kinds of profiles on other kinds of situations you know typically you need a physical request and other kinds of like legal interventions in order to unlock this data but it's not as if this is uh you know antithetical to what they do in other situations they certainly do it for fraud in advertising it's not as if the technological prowess of these companies
cannot be applied to a k-means clustering of this issue okay just to use a simple machine learning context like this is they put a lot of effort into finding click fraud right this is going to be a very similar problem we don't allow angry young men who've been emailing with the middle east who are citizens of this country who've been posting online that they want to run a plane into a building to go get
their pilot's license right we profiled them after september 11th and we said no moss and all chamath is saying is use your [ __ ] common sense identify these folks that we know are struggling to need help and put them on a list and say they can't buy an assault weapon period yeah all right everybody it's time to go uh thank you uh to uh brad kirschner for sitting in uh thanks again to the dictator tremofita and
uh thanks saks and thanks to everybody who uh spoke at the all in summit we've been um releasing all of the videos freyberg will be back next week as well the hammer lucky explosive episode so look for a great week of all in content next week we'll see you all next time rain man david sacks and it said we open source it to the fans and they've just gone crazy with it [Music] besties [Music] we need to get back [Music]