E158: Global trade disrupted, Adobe/Figma canceled, realtors sued, Trump blocked

26:51Yeah, I mean But have you ever have you guys who's been to re -odd here? I have yeah, I think freeberg or sax have you been to re -odd? never freeberg I mean No, it's beautiful And it's changing rapidly, massively, and obviously Dubai's already been changing and then Doha. I was arguing that. Yeah. Sorry, Ruby, isn't a great place and they want to do the right thing here, but you're acting like the Houthis can just be dealt with. What does that mean to you? Well, I think that the larger forces are united in wanting to have prosperity for their people, education for their people, and to build deep ties with the West and the East to do commerce.

27:34I think those forces are greater than maybe some of the traditional forces that are at work and these longer term conflicts may be are not as important to the leaders and the citizens of these countries as prosperity is. When I say dealt with, I think they're going to just focus on developing their economies over these skirmishes. Are you saying there's going to be a diplomatic solution here because I don't see it. I mean, here's the problem. Israel's not stopping its war in Gaza. The Houthis aren't going to stop until Israel stops. So how do you make them stop? That's a great question. Containing these conflicts is probably the likely scenario when I've asked that same question to the people who are in those regions.

28:15And when I spoke to them, they're all about containment. They don't think there's a resolution like we might think about it here on the West that There's not going to be a conflict between Palestinians and Israelis. They just think containing it and having it not be an all out. It is success. What do you think is going to happen? I mean, I'm saying the US is going to support. We have two sides who are implacably resolved. Israelis to continuing their fight against Hamas and the Houthis to continuing to lash out at Israel or the West in general until that stops. The likely scenario is that Netanyahu is losing support.

28:52That's what every Israeli and every person in the region says is that Netanyahu is not going to last long term So what have you heard sex? What do you think the resolution? Well, I think it's interesting if you look at Israeli domestic politics It's true that Netanyahu is unpopular, but something like 90 % of the Israeli public favors The continuation of this war until Hamas is eliminated. I mean the Israeli people are really I think hard on this question those tapes of Hamasatrosses on October 7th were compiled into a film. They were recorded by the Hamas fighters' own GoPro's. And the Israeli people have watched all those things and they are resolved to destroy Hamas.

29:36Now you can argue with their tactics and I'm just stating the fact, okay, I'm not judging it. And the point is just whether Netanyahu survives or not, I think the Israeli public wants to eliminate Hamas. So I think they are resolved. I think the hoodies are resolved and the hoodies Control this choke point so they can stop or interfere with global trade and I think look there could be a ceasefire I mean, I think Biden clearly would like there to be a ceasefire certainly before the election And that would bring all this to a rapid end, but if there's not a ceasefire I don't understand how you just stop the hoodies.

30:09I mean the only way to stop them is if you want to go to war with them That's what we're talking about So we're talking about the US using its naval assets to go get the hoodies. Or the regions Shemoth mentioned could use diplomacy and or financial measures. And so those are other options on the table. That's not going to work with the hoodies. Well, Noesi Solutions here, Ryan. Thanks for jumping on the pod with us once again. One question. How much more resilient post -COVID if at all are supply chains? Because you talked about wanting to make the more resilient and that was a major focus for Flexport.

30:45Is it better now post COVID? Have we done it now? I think at the physical infrastructure layer, nothing's really changed. I don't think, you know, the bottlenecks have gone away just because demand went back down. The US had like a 20 % increase in container volume. It created all these bottlenecks. We couldn't process that many containers in our ports and then the containers now are back at 2019 levels and everything's flowing normally. But I wouldn't say that makes us more resilient. It's the same as before. And situations like this, you learn just how amazing and resilient, the global trading network is, the global logistics infrastructure, but also it's pretty fragile.

31:19If a small group of rebels can fire missiles and you go, well, even the US Navy, what are we gonna do? I mean, this is kind of an asymmetric warfare type thing. They shoot a $20 ,000 drone, and we need a $2 million missile to shoot it down. Like, it's not a great setup, and it's not clear that fire missiles back is gonna open it back up. And so, yeah, I think it's much more fragile and we realize as civilization always has been, you know, it takes, takes 100 years to develop a civilization and an afternoon to go back to barbarisms. And air freight you had talked about previously, that's still four or five times more expensive than sea freight.

31:56Is that about right, that multiple? In general, that's a, yeah, reasonable assumption is about four type times. Where the air freight networks are very small and proportioned to give you a sense like one of these containerships that flows through the ever given is the world's most famous container ship they got stuck in the Suez Canal a few years ago. That one holds about 10 ,040 foot containers. 747, which is basically the biggest cargo plane out there, can hold 740 foot containers. And so if you have a diversion of global ocean freight, we'll rapidly flow over to, it doesn't take a lot of freight going, hey, I'm going to ship this by air instead to suddenly have the air freight markets get impacted.

32:32So it hasn't yet, the airlines are a little bit less connected to this market and have an instantly said, hey, we're raising prices in January, but I suspect if this lasts another week or two, you're going to see big runups and air freight prices. And these are global markets. The price of freight from Asia to the US gets impacted because they're pulling ships off. The supply gets redirected. The planes get rerouted. It is a global market. So an impact here will affect prices of shipping Asia to US as well. Thanks so much for coming back on the program, Ryan. Peterson, great to have you here. And oh, congratulations on being CEO of the company.

33:06you found it flexboard again, we didn't get a chance to talk about all the craziness with this CEO and turnover, but you're back in the home. And right back. It's amazing. It's amazing having the time of my life back here and work at the flexboard office every day. All right. We'll see you soon and thanks for coming on as SACS' lifeline. Well done. All right guys, sit here. Ryan did bring up a really interesting point there that you don't hear enough, which was the asymmetry of the warfare that the hoodies can launch a drone or a cheap missile that costs thousands of dollars and it costs us millions of dollars to shoot it down.

33:39That is just not sustainable for the US. We see this happening in Ukraine as well. All these multi -million dollar expensive tanks get taken out by a land mine or by a cheap RPG or something like that that costs a few thousand dollars. It's also the fact that if you send a drone and it blows up on a ship and it costs you a couple thousand bucks to do that, the lack of risk tolerance, the fact that the insurance companies won't ensure the ship anymore means that now that ship can't travel and that's tens of millions of dollars of commerce that gets shut down off of a $5 ,000 investment. So there's a deep asymmetry in the sensitivity we also have to loss.

34:21We won't take, hey, maybe one in ten ships can blow up. Let's keep going. It's the fact that there's no margin for loss. There's no allowance for loss as a result any sort of threat of loss means that the whole system shuts down I'm not advocating that we should but it's just the condition we're in I also think the other point I didn't make I would imagine that this behavior with the huti is driven in part by the emboldenment that arises following October 7th and the praise That Hamas has received globally and if you believe that to be true there are many other groups like this that may get emboldened and you start to see more activity in other regions as well that you can have these kind of outsized impacts and folks suddenly start to take action.

35:08I think that's why we're between a rock and a hard place here is that on the one hand if we don't do anything then you're emboldening that behavior and if you do do something you're escalating the war. Yeah and to your point you know saying like hey the US is going to enter the war I I think that there may be this moment where it's not even an option that the US is being provoked in a way that you can't say no, you have to maybe they end up having to act. The Gorilla warfare aspect of this is super fascinating because you can really do incredible damage to very expensive airplanes with hypersonic missiles that go incredibly fast or like mock five or something insane and they're cheap.

35:45So $100 million or $20 million fighter jet can just be annihilated by a couple of $100, $5 ,000 in, you know, hypersonic missiles. All right, there's been a ton of M &A activity and M &A deals that have been canceled. Adobe Figma has been called off. And Illumina and Grail has been unwound as well. The big headline is that after a 15 month review process, Adobe and Figma called off their merger. We talked about it here multiple times. It was a $20 billion cash and stock merger that was agreed to back in September of 2022. And there's tons to unpack here, shareholders employees, a startup ecosystem, and of course, limited partners who were expecting huge paydays from Figma being sold to Adobe are now back to a waiting game of figuring out if this company can go public, etc.

36:43at Shamauth, you had tons of thoughts on this, and maybe you could educate everybody on the Alumina growl deal. So they don't make people understand that. Yeah. I think there are three deals or almost deals that got essentially called off or canceled or never consummated in the last few weeks, which show a pretty interesting trend. So the first, as you said, Jason was Adobe Figma. The second was Signan Humana. They were proposing a multi -decadekabillion dollar merger and it was very clear that the FDC was going to have a huge fit around it. So they said that we're not even going to do it and then SIGNIT just said they'll do a $10 billion buy back instead.

37:28And then in the craziest example, Illumina and Grail, so Illumina makes G's gene sequencing machines and Grail makes one of the leading tests for 3DNA cancer detection. and at the time, Illumina owned almost half the company, they bought the other half, they merged it in, even though the regulators said, hey hold on, we have an issue with this. And now they're being forced to unwind the merger, so to pull this company back out and divest it. I think the point of this is two things. One is that there is no viable M &A path for early stage venture capital businesses. So if you can't have a $20 billion merger or a $40 billion merger or a $15 or $20 billion dollar M &A with a high degree of confidence, then the path to liquidity through M &A is less than 20 % of the outcomes, which means that the overwhelming path to get liquid is what you said Jason, which is IPO.

38:28But the problem is the second part, which is that the capital markets in the United States are not ready or not in a position to support all this IPO liquidity. Why? The banks won't underwrite. There aren't enough researchers, research analysts that will cover these stocks. The ways in which the banks make money have become so constrained. And so I'm kind of left pondering to myself, how do you go back to a world of like the 90s? Where startups four and five years old would go public to raise capital? I don't think that that's going to happen. So I don't know exactly what happens to us except that we'll have companies just chaining for 15 and 20 years.

39:09And I think that just has a chilling effect because it's like what investor wants to put money away locked up in highly liquid stuff for 20 years? What rate of return do you need to give them that makes them want to do that? So something has to change because if the M &A market can't exist, then we need to change the rules of the capital market so that there's incentives for these banks to underwrite these companies to go public. Well, I guess there's two things, Zach, that could change this dramatically. one is if we put in more conservative, Republican, libertarian, etc., less regulatory regime in Washington, that could open up M &A as soon as 2025, perhaps.

39:46And then the second is direct listings, dare I say SPACs, and alternative ways to get companies public, it may not be the gold standard as a traditional IPO, but at least we get those liquidity started. And I guess third, saxom, I'll get your thoughts on this for private investors and their LPs. Everybody seems to be focused on building strong, stable, hash flowing businesses. And we've seen all the companies that went public, whether it's Airbnb or Uber, are now focused on ringing the cash register and being profitable. So ultimately, maybe this log jam and M &A blockage makes everybody focused on sustainable profitable companies, and that's a good thing long -term.

40:29What do you think, Sex? Like I said, last week in relation to the Figma Adobe deal, the fact that regulators took 15 months to analyze the deal only to come to the conclusion that they basically weren't going to allow it, and then Adobe finally killed it, is going to have a chilling effect on M &A and Silicon Valley. I mean, if a choirs and targets can't have confidence that the deal will be approved, and in fact they're going to be left in limbo for over a year waiting for speculative approval. They're going to be less likely to do deals in the first place. And I'm sure Adobe is not happy about the fact they got to pay a billion dollar break up fee, which by the way was a really smart thing for Figma to negotiate.

41:04I mean, if you're a company that started this going to get acquired, you'd need a pretty big break up fee now as insurance on the deal because there's a very good chance that regulators aren't going to allow it. So yeah, absolutely. The fact that regulators got the way the Adobe deal and moreover the way that they did it with this protracted delay is absolutely going to have a chilling effect on M &A and Silicon Valley and look there are only two good outcomes for a startup. You can either IPO or you can get acquired that's it the third is basically you go out of business that's the third outcome.

41:37So when you take half the potential exits off the table you're absolutely making it tougher for VCs and founders to get a good return. It's that simple. And that is going to have a depressing effect on, you know, the investing of risk capital and Silicon Valley. I don't think it's a good thing for anyone. And by the way, even if the US sort of fixes this, even if we get a regime that's more friendly towards M &A, you still have the EU to worry about. And you also have the UK to worry about because they're not part of the EU thinks to Brexit. The UK, like I said last week, they're like that Chihuahua who's leading the pack.

42:12They're the smallest market, but they're the most aggressive on antitrust enforcement. Tax, they may be the beard for the US and the Europeans. It's possible, but in any event, now you've got three regulators to worry about, not just one. And like I said last week, I think if you're a startup and you're trying to consider where to put your Europe office, I would not choose the UK anymore. I used to think that the UK was number one, because it was so easy, but you don't want to create that nexus if you can help it. It might subject you to a competition authority you don't want to deal with later when you got acquired.

42:42Yeah, I would have just opted out of the UK. I would have called their bluff. As I said last week, freeberg any solutions here, you think, to solving this problem in VC land or do we just have to build stronger, more profitable companies and be more patient about taking them public since M &A is not on the table? I don't know if I'd take the anti -trust regime as being the core driver of M &A not being on the table. I mean, there's a couple of these examples, but I don't think there's a predominance of this going on. and I think that there's a lot of smaller deals that still end up being good outcomes.

43:15I mean, we've also talked a lot about the lower cost of capital and starting software businesses and the era of AI type tools. And that leads to being able to hit a 100x. If you put small enough amount of capital in and have a decent outcome where you're not building the market monopoly in some particular market, It doesn't feel to me like that's the biggest driver of concern here. The biggest driver of concern is just all the return on capital metrics that the big buyers are having to face. Return on invested capital is becoming more important than it's ever been because we're talking about trillion dollar market cap buyers.

43:56That's how they're measured. They have to be really thoughtful about how they're deploying capital. In a high interest rate environment, there's a greater sensitivity to a faster path to cash returns than there has been historically. So it feels to me like that's and I would imagine if I'm Adobe and I'm looking at this figment deal do I keep fighting it or at this point paying a billion dollars is probably net accretive to them. I think the stock price went up when they called the deal off which highlights that it was probably a better investment for them to say I'm going to pay a billion dollars to actually get out of this deal at this point.

44:27And I think we see more of that happening which is this rationalization of you know timelines to ROIC and high interest rate environment. Shema deals do get a lot more tolerance for smaller deals obviously. Yeah, I mean sales force was able to acquire a slack That was 2020 Amazon was able to acquire whole foods Walt Disney 21st century Fox with the X -Men so those are a different era. I really think these are all 2016 to 2020 You're right. Yeah, they're all very different era. I don't think that that's what you can expect anymore I don't think you can underwrite to get a 20 billion dollar deal done in any industry.

45:00Yeah, remember matter of Facebook buying WhatsApp for was it 17 billion? I mean that was one of the biggest venture returns ever. Yeah. Today that could never happen. Never happen. Today that could never happen. And that that Figma Adobe deal it was a $20 billion deal but with the rise in Adobe stock it's really a $30 billion deal if it would have been consummated because half the consideration was in Adobe stock and that has to basically doubled. So all of those investors and employees were looking at a $30 billion exit and look, Figma is going to do great. I think the numbers that came out about Figma, where they're going to do about 700 million of ARR growing 40%.

45:39So I don't know, they'll be able to IPO anytime based on that. But what's the multiple they're going to get? Probably 12 to 15 times. So maybe it's like a $10 billion company in the public markets. I mean, growing nicely, but it's just not as good an exit. I mean, that's a big haircut. The positive to this is consumers or retail investors haven't been able to buy IPOs and get in on companies earlier. So if people build stronger companies that aren't that are more capital efficient, then companies can go public earlier. As you alluded to, Chimoff, where Microsoft, Apple, a lot of these companies back in the PCR, they used to go public in under a decade and now it's always over a decade.

46:19So maybe this will make stronger companies that go public. And then if there's a regime change and maybe people feel more frisky, they still have to get through Europe that you know The biotech is the only market that's always viewed going public as a transitory Capital -raising moment right every biotech company that goes public In America at least our startups their pure startups. It's pure risk capital but the technology side Hasn't viewed it very differently. It used to be the same, right? But then it went to like, oh, we must be mature and then it has to be growing really fast and it has to be profitable.

46:57There was so many ends and ends that the end of all of that. There were just very few companies that qualified. And then by the time they did go public, they're fall 13, 14, 15, 50 years in. They're so long in the tooth that their best growth periods are beyond them. Now a couple of companies had bucked that trend, but by and large, that's the case. And I don't think that's to support what David what's actually said is that's just unsustainable. You cannot, you will not have risk capital flow into the United States if this is going to continue. Yeah, this is going to be super challenging for founders.

47:32The out of bill companies that are sustainable and can go public because that's really the only pattern. And it's exacerbated by what Friedberg said, which is then that family office or that endowment who can rip in a check as an LP to a fund can still get 5, 6, 7 percent can get corporate bond at corporate yields at like eight nine ten percent. Why take on 15 year illiquidity for oftentimes funds that return less than the S &P? Which is the dirty little secret of Silicon Valley. It makes no sense. It is going to be a challenged environment for some time to come. I think as we work this out. I mean the thing that I find super interesting with the SPACs was like you got to invest in some companies that that were very early and speculative like Joby.

48:20Now, how could a consumer ever make that kind of betcha mouth to bet on? And that wasn't one of yours, I know. But it was one of these like incredible moments where you could bet on flying cars, literally as a consumer. And I think they're actually gonna figure it out. I was tempted to buy it and I've been tracking this stock. And I'm like, wow, if they actually make air taxis work, and it's kind of cool that the public can participate in that. And that's what they were saying when there weren't enough IPOs, and we had half the number of public companies. So I don't know if you have thoughts on it.

48:50The number of public companies I think has have in the last 20 years. So are more public companies better than less? I don't know. I think that's kind of like a random statement. I think what is true is that the public markets used to be used for raising risk capital. But the public markets at the time also had a ton of research journalists. There would be a lot more coverage of these companies. There would be a lot more visibility, a lot more checks and balances because people would be meeting with management on a regular basis, writing thoughtful research reports. All of that is constrained as the business of being on Wall Street has changed.

49:30So it's not enough to just all of a sudden have a bunch of companies go public if all of that supporting infrastructure isn't there. So this is what I mean by it's a catch 22. On the one hand, there's no MNA, so you need to have more IPOs, but the banks will need to hire more people. That comes at a cost, which means that they're going to have to generate more revenues somehow. That comes at a cost to somebody else. And until that's figured out, you're not going to solve this problem. And instead, what's going to happen is folks will be less motivated to invest in the innovation economy because there there will be no path to liquidity.

50:08And when you do invest, you'll invest much smaller amounts of money and you'll make it as part of your risk allocation, a smaller piece of the overall pie. What it also means is that if you're an entrepreneur and you haven't started a company yet, you may want to seriously consider raising a friends and family around using these AI tools and trying to build a very different kind of business, slow and steady, profitable from day one, and that's never been rewarded by Silicon Valley VCs, but if the reward for VCs don't exist, then the VCs themselves won't exist. And so you may want to start thinking about different ways to capitalize your business.

50:50And it's interesting point you make that is very subtle, so I just want to restate it here. The analysts who are covering companies Just like, say, Joe B. I'm just picking this air taxi company because I'm obsessed with it. If there's not an infrastructure, those analysts act in a way as a backstop or a bit of pressure on management, I think is what you're saying, to, hey, perform. And we're checking on you. We're meeting with you. So without that, there's just a company sitting out there and nobody is asking them hard questions and then making decisions to put a buy or a sell rating on it. Is that correct?

51:25Maybe you could expand on that missing piece. There was an evolution in the public market. So look, the public markets back in the 90s was a bit of a rigged game where you could call a CEO if you had his or her number and they could tell you things that they didn't tell everybody else. And when you look at the folks in their 60s and 70s and 80s who really tundered, I'm sorry, folks, but they profited massively from that information arbitrage. And that changed when there was a regulation called Reg FD that got passed in America, which said regulation full disclosure, what you tell one, you have to tell everybody.

52:02Right? And that was an attempt by the SEC to level the playing field. It was a very smart piece of legislation. But what that did was it constrained the touch points that a company would have with the public markets to a few organized events, right? analyst conferences, research days, actually banks are allowed to organize formal company dinners. And you'll get all these people together, analysts across the entire spectrum from fidelity to Goldman Sachs to Morgan Stanley. And the company has to perform to them and those folks will write both internal and external reports that say buy, neutral or sell, right?

52:39That became the only check in balance to make sure that management was held accountable to the large swap with public shareholders. Because otherwise, it's not Jason you as a shareholder of Joe B. Quite honestly have any say, right? You exert your pressure through the analyst to then represent the ability to influence your buying and selling decision. But if those analysts don't even exist, there is no feedback loop between management and the people that own the stock. And that's the problem we have today. There's not enough research coverage, there's not enough analysts, there's no organized way to keep companies held accountable.

53:16And so if you have a bunch more companies that go public without that infrastructure, it's very difficult. It seems like there's an opportunity somewhere in there. You know the big opportunity that I think should happen? Is that a bunch of these banks should actually use these AI tools, Jason, to be crawling all these eight Ks and 10 Ks in all these filings and generate statistical measurements of all of these public companies that they make free and available to everybody. These things should be a bunch of dashboards and charts that are just out there for anybody to subscribe to so that you can just do the initial work of having to parse through all of these filings, have it done by an AI, by an agent.

53:59From a bank who can train it properly, I think that would be an immense value to all shareholders. And I don't think it costs that much money and I think it would be goodwill, Robinhood could do this. It would be great goodwill to build a lot of trust and credibility with investors. So now that you're CEO of a company, how do you look long -term at potential exits going public? What is the the votes you have on this as you architect the company freeberg as the CEO? Do not care about it. Don't care about it. Spend on that. Yeah, explain. I just want to build a great business that makes great products for our customers.

54:35That's it. So if you do that all these discussions around, you know, giving shareholders liquidity, I'm the main shareholder, so I don't need liquidity. I just want to build the business. So how do you think about profitability then? Because if you have to fund it or funding might be harder to come by. How do you think about funding over the next decade this vision, you have? It freaks me out. You got to keep businesses capitalized. So there's definitely across businesses I'm on the board of or involved in, universally a bias towards profitability. I've seen a couple of decisions we've made at some companies to shift from making longer time cycle investments that may not pay off for many years where you had the luxury of doing that in a dessert environment and you could always get capital to fund anything that's multiple years away from realizing any sort of return.

55:37To shifting towards a bias, towards making things that can generate real revenue and real profitability in the near term, keeping costs low and building from there. So it's definitely, I'd say, been a flip -flop in the environment. It's why the biotech landscape has largely kind of dried up. The funding landscape has dried up significantly because most of the investment opportunities are those multi -year out before you know if you have a return on your investment kind of investment cycles. And so the ones that do get funded are those that have a near -path to profitability and where you can build some sort of cash -generative service in the near term on the path to building a bigger product down the road.

56:15So as you're strategizing, you're thinking, how can we get to cashful, positive, break even whatever quicker? You're not strategizing, how do I get a huge multiple and get some dumb, tiger money, whatever. No, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, point to tell you that if you don't have to raise venture capital, you're better off. Yeah. Shemoth, you also became a CEO. You have the, I think it's Hussle as your company. And that's profitable. And you're running it. I'm assuming for growth, but maybe profit first then growth.

56:46How do you think about those two dials? How much growth? How much profits? We have the same belief that Freeberg has, which is our job is just to make really great products for our customers. When I took over the business, we had to go through a difficult layoff and a rebasing of the business, but it's a business that's growing kind of 45 % a year and it's profitable. And what I talk to the team is that, you know, we will reinvest our profits. And so we have an ambitious plan. And as long as we meet that, we'll take some percentage of that profit and reinvest it. But I, like Freeberg, also have no plans for liquidity.

57:24I just want to build this thing to be as big as possible and I don't want one single shred of pressure That isn't defined by our customers and so by being profitable we have complete control of the cap table We can do whatever we want and The people that benefit frankly are the employees because they can get paid and Our ability to hire people without being subject to like pressure to raise a new round and set a new random valuation So no unnatural acts just no one customer profits And so by the way, if I can grow for 10 years, if we can grow for 10 years at 40 % a year, this will be a ginormous business.

57:58So they're trying to react and do it unnaturally. Jason, just to chime back on the question, you asked a couple minutes ago, I number one, if you can avoid raising capital, you're better off, because then you don't have any shareholder pressure to get liquid. And that can create contortions in what you do and how you operate the business. and second is if you're going to raise capital, if you set too high evaluation, if that becomes the bogey, you set yourself up for challenges because now you've got to have a multiple on that valuation to satisfy investor return hurdles and the higher the valuation and you apply multiple to that, the higher the exit has to be.

58:39And suddenly all the options start to fade away. You can no longer have a modest exit that can do really well for employees and the founders and early investors and it becomes a necessity that you have a massive outcome. And by the way, we see this now in this post -Zurping environment that a lot of businesses that raised a lot of capital at a very high valuation. And then you have this multiple compression that's just happened in the last two years. Their valuation effectively, if they were to go public today or get sold, is less than the capital they've raised. And that's the most extreme scenario where suddenly all the common shareholders get wiped out in terms of their return.

59:14It's such a great point like the thing that people use to say was oh, it's a tech company So we need to give it a premium The problem is now everything's a tech company to say your attack company is a meaningless statement that means nothing You're a company so that you're a company so then there's no premium for being a company No, there's a premium for profits. Well, there's a premium based on quality of revenue Which has to with gross margins? I mean obviously a company and you can't make obviously a company that has 80 % Gross margins is different than a company that's 20 % gross margins. It's not profitable.

59:47No, no, no, I totally get that. I'm just saying that you can normalize based on gross margin as opposed to the type of company it is. Sometimes we'll see a company that markets itself as a tech company and only has 20 % gross margins. That's an indication that something is wrong usually or it's not truly a software company. It's just a company. That's just a company. Yeah. I think that's the way to look at it. High gross margin versus lower gross margin. Just to go back and answer your question, Jay Kalabat, how do you decide how much money to put into growth versus being profitable? I think the right answer to that is not to say there's some absolute amount of money you should burn given your round.

1:00:24It's to look at growth on an ROI basis or a union economic basis. What is the return on the growth dollars you're spending? Probably the best way to do that is to look at the payback on customer acquisition. How long does it take you to pay back your customer acquisition costs? and I think a lot of people don't do that analysis correctly because they just look at the revenue they make from that customer, but you actually have to look at the marginal profit. So this is how the gross margin ties in. Easy example is something like Spotify. Spotify is cost $100 a year and they were required somebody for $100 a year.

1:00:57Hey, they get to year two. It looks like you made $100. Except Spotify has to pay a massive amount to the record label. So their margin isn't as high as maybe a SaaS company and that's where the devil's in the details. and overhead and overhead. You've got to look at churn as well. So if that customer only lasts two years and half the margin goes to the record companies, well, you can't count 100 % of revenue. Now you're looking at, I don't know what's that. It's like you're dividing by two twice. So it's effectively a quarter. $50 of the 200 let's say. Take out one big number. What are you seeing in the companies you're funding?

1:01:31You're seeing profitable companies or revenue generating companies. What are you telling folks? You got to grow and raise a big series A. Are you telling folks hey take your time and yeah, it's a great question We invested in hundred companies this year. It's more than I've ever done. That's the same amount I didn't first seven here so my career and a hundred percent of the time they are not expecting to raise Like some giant seed or series A. They're raising just the amount of money they need and they're keeping Their expenses absurdly low the biggest trend I'm seeing is outsourcing of talent and so Americans and I'm gonna make this sort of huge anti -American thing, but the level of entitlement and the effort Americans are putting into jobs, expecting 150K, let's say, and then offshoring a developer, Latin America, Portugal keeps coming up Canada.

1:02:19They're all looking for what's the most efficient way for me to build a 10 person team, and then I'll see a burn rate of $30 ,000 with 10 people. I mean, how is that possible? Like, oh, our developer's cost $22 ,000, or SDRs or 10. How is that possible? Oh, we have two people in the middle, et cetera. a long way of saying efficiency efficiency efficiency, though, we have to get to break even with the money we just got. We're not expecting a second round of funding. And a lot of them are raising but 500K to 1 .5 million. And if this was 2020, it would be three to 10. We talk about like AI as like a big disruptor to like the big companies and this and that, but AI may be the biggest disruptor to VC.

1:02:54Big term in the end. Explain what you mean. I know what you mean, but I want the audience to understand. Let's just say you raise a $2 million seed round in the past what you would do to your point Jason is you would hire seven people at $200 ,000 each. Right? So now you have a $1 .4 million burn. So you basically have, unless you say you co -work someplace, you have a year and a half. And so you're a pedal to the metal, right? You're basically trying to throw as much spaghetti against the wall as possible. See what sticks, buy as many ads, do whatever it takes. The money basically goes to AWS and Facebook and a couple of other companies to Google.

1:03:32And then you hope that there's enough traction where somebody then writes you a 10 or 15 million dollar series H now, if you take that same $2 million, you could have a three person team, four person team, half of them offshore, where they also use things like co -pilot, which is like a two to three X lover. Now all of a sudden they have the same 10 % team and it costs $40 ,000. Exactly. And so now all of a sudden they have four years. So why wouldn't they do that where they would still own 80 % of that company and all of a sudden there is a potential to exit it for 50 million or 100 million and they've made more money than in a traditional outcome if you sold it for $2 billion.

1:04:17Precisely the case. This is literally what founders are modeling right now. They previously wanted to beat the record of the person in their cohort who raised the most money at the highest valuation. Now, they're just like, how do I get to profitability? And how do I own as much of my company's possible? So, Sachs, you've got under over a billion dollars under management. You've been one of the most successful new venture firms in Silicon Valley in the last decade. You've got a lot of cash you could deploy. How do you deploy it intelligently, given the circumstance of people maybe raising less or being more efficient, and what do you think of the AI's impact on venture?

1:04:55Well, the most important thing is to have opportunities to invest in. And the fact is that before this AI wave, the whole cloud social, mobile wave had kind of peered out. I mean, the pond of opportunities had kind of been fished out. And AI is great because it restocks the pond. I mean, there is a lot of new ways for founders to use these advancements to solve problems that they weren't addressing before. So I think you guys are being a little too gloomy. I mean, I think that the impact on capital efficiency will take some time to play out. But I think that for the first time in a number of years, it feels, everything's feeling fresh again.

1:05:36And there's just, I think, a lot more opportunities for founders to go after now. It's like this at the beginning of any big new tech wave, right? Is this a new platform opportunity? Same thing was true with the App Store when the iPhone launched. Same thing was true when the internet launched. Now, I understand a lot of these opportunities are going to be taken by big companies that already exist, but there's always going to be an opportunity for founders when you have a big disruption. David, I agree with you. My comment is less about the pond. I agree with you that the pond is getting restocked.

1:06:07My comment is that the economic impact of AI is so massively deflationary. It may be an order or two orders of magnitude more deflationary than AWS was. And that was massively accretive to the startup economy. So if this is a 10 Xing or 100 Xing of that economic impact, my only point is that the break even threshold for a founder will have gone way down. And then as a result, it's only a matter of time until they can put two and two together in a Excel spreadsheet to figure out that owning 50 % of a hundred million dollar company is greater than owning 18 % of some other company when you're massively deluded or 8 % or whatever.

1:06:53That's all I'm saying is the effective break even goes way down in a world where AI proliferates. And I think that's positive for founders. If you look at what founders do with the money when we invest in a series A or B, the number one thing is go to market, right? So they want to basically triple their sales. Let's say they want to grow from 5 million of AR to 15 million of AR. They have to staff up the quota capacity to hit that number. And you know, for every AE, you're going to need some number of FCR, some sort of management. You're going to need some sort of operations overhead. So you've got to hire all of that.

1:07:32And then they want there to be a cushion in case they miss their numbers, right? Because there's no guarantee you're going to hit that. So, you know, founders still need to raise the money to staff up to go after that opportunity. Now, does sales become more efficient over time because of AI or does lead gen? Yeah, I think that's possible. But in order for that to happen, you're going to need to see a rise in quota capacity. Right? I mean, that's what we're talking about is that that same AE can now hit, a greater level of sales because they have better tooling. We're just not there yet. Maybe that happens over time, but I think you're just gonna start.

1:08:10It's inevitable, but I think you're typical SaaS start right now is spending the money on more prosaic things. Yeah, yeah, yeah. No, I think you're right. All I'm saying is I think what it means is that the $200 million fund today becomes 50, the $500 million fund needs to be 100 and the $1 billion fund needs to be 200. It's basically back to the future. It's like back to the 1990s style 2012. By the way, I'll show you a table here Nick, I need you to blur out the names. Okay, I just think it's super interesting. I walked free broke through this But this was like a list of all these funds that I've invested in these are venture funds you've invested these are all the venture funds I've invested if you look at this What do you notice about like the mega funds that just clock out DPI look?

1:08:54This is a hundred million dollar fund, right? and look at, look at, clocked it. This was a $220 million fund. My point in all of this is like, if I look at my returns as an LP, I've never had success when I've invested in big funds. I've only had success in small funds. It's true that smaller funds do perform better and larger funds become more of an index and achieve more average returns. When you got a multi -billion dollar fund, it's way harder to achieve a, you know, outsize return. So yeah, I agree with you. I think this dynamic would be healthy. I mean our fun's actually are not that big in the grand scheme of things It's definitely the game is changing dynamically and this podcast is gonna be great in 2024 because we went from four capital Allocators to two capital allocators myself and sacks to two in the arena CEO So we're gonna be having this discussion.

1:09:43I think in a very granular way now that we got two players on the field sacks That we can watch what they're doing. Well, I've got a new incubation that's gonna be launching. Oh, Sue Oh, but I'm not going to be CEO of it, but you know, I'm kind of the executive chairman. Oh, oh, is it a SaaS company? Yes, SaaS company. Well, company is SaaS. It's basically Yammer. Top of attention. Wait, so you say Yammer 2 .0? Yeah. I thought that was Slack. So this, you guys say Yammer 3 .0? Yeah, Yammer 3 .0. Yeah, yeah, yeah. So, we're Yammer 3 .0. Okay, let's go. Let's get a little, yeah, we, I think we had a push on call -in.

1:10:21And so now we need to get our 50x on the, yeah, I'm a three point. Give us a little tasty poo for your best. You know, you're right. We sold call -ins, so now, you know, we've cleared the decks. And I can't work on multiple incubations. I can only work on one at a time. Can you have your person that runs that saskrid thing, email me because I want to onboard my company into saskrid so that I can... So good. Well, by the way, that was the last one. So I've done, I guess, three of these now. There's call -ins saskrid. So, Saskrid is now spun out completely of craft. And the founder of Saskrid was our VP of Analytics at craft.

1:10:56And now he's going full time to Saskrid. So, I think it's very successful. But can I get on board it and can I get a family discount? Yeah, you can, of course. Let's explain this concept to the audience. It's unique in the world. And we should maybe double click on the economics, not on a specific company's axe, but just generally of YVCs are doing this. You're incubating a company, you're a former founder, you have that itch, you have ideas. So instead of investing in a company, you say, hey, let's all get to the office. I have an idea. Let's make this ourselves as craft. And then we'll put some of craft's LPs money into it.

1:11:31And then there's some slug of capital saved for the new team that comes. So how does the economics on something like this work? And why do LPs love it or do they love it? And then why is it good for your internal team or for you to incubate a company? I suppose you just find them. Well, I first set up craft. We actually wrote it into our LPA that we had the ability to incubate companies and we had a pre -arranged economic deal with our LPs on those incubations because I didn't want it to come up later. And then there's some conflict of interest between the management company and the LPs. So it's a pre -determined deal.

1:12:05And we don't do a lot of these. Like I said, I guess there's been three. There's been Saskrid calling and now this Yammer 3 .0 we're talking about. But really, I got to give the credit for Saskrid to our VP of Analytics, who really, I think, pushed this idea. And it started with a simple way for us to analyze deals and dashboard deals. It started as a spreadsheet that we would give founders that would crank out their charts. And then we turned it into a website that was free and then we realized, you needed as an investor, right? You needed as an investor. Yeah, we just needed as an investor. This isn't investor.

1:12:36And then what happened is that we saw founders started using SAS grid as their dashboard to manage their companies between funding rounds. And we're like, oh, OK. That's a big aha moment. So basically, there was no dedicated, verticalized business intelligence tool or dashboarding tool, just for SAS companies. And the advantages of verticalizing are massive. Because when you know what kind of company it is, you can just give them all the dashboards out of the box and all the formulas can be calculated exactly the right way. This is gonna be less room for error. They don't have to reinvent the wheel.

1:13:10Every time you use some like a tableau or looker, whatever, you're reinventing the wheel, you're writing all the formulas yourself. It doesn't make sense. So back to the DL. Yeah. You pre -did the DL, so LPs wouldn't be surprised. That's awesome. So the management, there's a predetermined valuation, I guess at that seed stage, a certain amount of money goes in, and you are holding company, get some equity, which is like a nice little extra icing on the cake for incubating it and then the LPs get a sweetheart deal or a better deal is that why they would be in favor of it? Yeah, the LPs get like basically a big in the startup.

1:13:41We kind of modeled it after YC's original deal, right? Where YC got was a 7 % for a hundred thousand dollars. Yeah. And then on top of that, the fund can invest in the seed round at the market valuation, whatever the market. Ah, okay. So they get basically 7 % for free or something in that range. some 400 ,000 then plus whatever the seed round's going to be. Brilliant. Yeah. I think it's a good deal for them. And also it's good for you because you have to want to come to work every day. And this keeps you mentally engaged. Like Shemat said, he felt like he was becoming a talking head and just not, I don't know how you phrased it exactly in your newsletter.

1:14:16But like you said, scratches and itch. It's nice to be able to, if you have an idea for a product, you can work creatively on it. Yeah. I don't want to run companies anymore. or I don't have any desire to BCEO, but it is fun to work on products if you have an idea. How has it been for the first couple of months now? Are you really feeling more intellectually curious and challenged? Is it annoying to deal with employees and customers and all that kind of stuff? What's it been like? I think you've been at six months, I think. It's been really challenging. The first part of it was quite honestly.

1:14:51we had to re -base the cost basis of the company and get cost under control. That's hard. And we had to lay some good people off. And then we had to kind of like reset the strategy, write goals, get our values kind of in a good place, reorient the organizational design, like who will do what? Right? All of these things require just enormous amounts of time that But where you don't see necessarily the obvious impact in a metric or dashboard right away. And so you just have to commit to this process and really follow through in it. You have to find the people that have this real potential, elevate them, make decisions quickly, find out you made some wrong, undo them, find out you made some right, double down on them.

1:15:40So it's been a real learning process. The thing, and then on top of all that, I've tried to start coding again. and Sunny helped me a lot. I built a couple of models. I repair programming. Yeah, and then, but then I did that to go back into our all hands, which we do every week. And I wanted to demo some stuff, mostly just to set the values that we're all grinding here. You know, and I'm here grinding and learning this stuff like anybody else. And it's embarrassing because like it's janky code, it doesn't work and blah, blah, blah. It was, but it's been really, I think in the long run, It's I think the company is a lovely business and I and I want them to be successful because I think they deserve to be successful and for me It's been a great outlet to just get back to the basics of like What really matters in running a company in 2023?

1:16:29I don't think I really knew the details Hmm, that's good and I'm finding a little humbling perhaps a little humbling to get in there and be in the cockpit Really really humbling. Yeah, it's good yesterday We were sitting there in E team which is our executive team and we're in the middle of a big deal and the seven of us were redlining a contract back. And I know that may sound like really tactical stuff, but it was, for me, it was amazing. I'm like, this is great work. And I felt like I accomplished something when it was done. And maybe the deal gets closed today. The team is on the call. And I just think it's wonderful.

1:17:00I get a real awesome. Yeah, all right, listen, there's another story that is under reported. We try to find these under reported stories. Things people are talking about in their group chats, but maybe not reading about or hearing about in the mainstream media or even on social media. There are a couple of unbelievable bombshell class action lawsuits that are dropping in the United States regarding our real estate industry. In October, a federal jury in Missouri found the NAR, that's the National Association of Real Tours and several of the brokerages that have those brokers working for them guilty of conspiring to artificially inflate commissions for home sales.

1:17:39They now have to pay at least $1 .8 billion in damages to sellers of more than 260 ,000 homes between 2015 and 2022. Let's get a bag wrap of the NAR. If you don't know what a racket this is, people selling homes in the United States pay 6 % commissions on average, 3 % for the seller. That's if you own the home and you're selling it, You give them 3 % of the sale. And then the buyer, you also give them 3%. And there have been a number of companies like Redfin who have tried to change this. I actually use Redfin on a transaction and try to use them on sale. And I was faced with brokers who I kid you not, literally said, I'm not going to show your home because it's a lower commission rate.

1:18:23And they have been working in Unison to try to stop this kind of innovation. But the 6 % is a tradition. It's not a rule. You can actually negotiate it. And now since this case got won, another couple of cases have been dropped. And these new class action lawsuits all put together could be $13 billion in damages. I don't know who's been following this in the group, but I have a lot to say about it. But yeah, I mean, I spent a bunch of time looking at this because I've done several no broker real estate transactions. Oh, so I've been. Yeah, just lawyers. And then in California, I don't know if you guys know this thing called MLS, the Multiple Listing Service, which feeds the data into Redfin and Zillow.

1:19:13And in order to list a property on MLS, you have to have one of these real estate licenses and be a member of National Association of Realtors. Part of the monopolistic racket that goes on is that you have to be a licensed broker in order to lift your home on the service, that is the monopoly in the listing of homes, which everyone looks at. So there's a bunch of folks who have set up a listing service where you can list your home directly on MLS. And basically, it's a guy who has a brokerage license and you pay him a hundred bucks and he just has a website set up and then you'll list it. And so you can kind of just list your own home, post the photos and all the docs.

1:19:47And then when the agent asks for disclosures, every disclosure they want to see on a national association of realtors form. And the NAR forms are only available if you're a member. So there's a whole bunch of ways that they've tied up the market and made it impossible for the system to operate without the NAR members being a key principle in the transaction process. When at the end of the day, having gone through this a number of times myself, there's just all these templates and data that flows into this. There's no reason why you necessarily need to have an individual that needs to be involved here.

1:20:25But if you did, it's actually a data entry service. The process of entering this data could probably reduce down to a fixed fee of call in a couple thousand bucks per home rather than a percentage of the home value. And by the way, think about the craziness around this. If you buy a home and you sell it in most parts of the United States, you actually have attacks that you have to pay. That's a percentage of the gross. and most people have most of their net worth tied up in the real estate. So it's one of the few places where you will actually see a large chunk of your net worth actually taxed on a gross basis and taken away from you if you end up selling it rather than on a net basis, meaning net of the profit you make.

1:20:59And then the brokers want to get paid a percentage of the gross as well. These are the commissions they get paid. From a first principles perspective, it doesn't make sense that we're paying a percentage of the gross to agencies to this volume. The total volume in the US is an incredible number. It's $100 billion a year in residential real estate commissions. And there's 1 .6 million folks who are real estate agents that are licensed making their living doing this. So it's not an inconsequential industry and it's not an inconsequential verdict. Nick, if you could pull up that chart of the different countries, here's a good comparison.

1:21:29So in the US, we pay about 5 .5 % brokerage commissions split between the buyer and the seller's broker. And again, legally, you don't need a buyer's broker. You don't need a seller's broker. You're allowed to sell your home without a broker. There's nothing in the law that prevents you from doing that. So this is just an industry that's popped up to service this need. And their pricing model is to take a percentage of the growth. And that's just the way the market's developed. But in a competitive market, that should be competed away. And it hasn't been because of this behavior that's gone on with institutions like the NAR.

1:22:03And you can see across different countries, different pricing systems, as a percentage of gross. In the UK, you only pay about 1 .3 % total brokerage commission on Bicide and CellSide in China, 2 .5 % in Russia, 3 .5%. Some countries like Japan and Argentina are comparable to the US at 6%. France is at 5%, Germany is at 4 .5%. Can I say a question, Priber? Yeah, I only own one house, so I don't. I've never gone through this experience really that I can remember because that was more than a decade to go, but today, if I wanted to sell a home, okay, I could sell it to you, right? But if you have a broker, do I have to pay you 3 % as well?

1:22:43No, you could sell your home to me. And then if I have signed, who pays your broker's 3%, I sell your pay's the buyer's broker, but they don't have to. Yeah, no, here, it's really important to understand this. If you're going to go buy a home, you're typically not signing a contract with an agent when you go home hunting. The seller has an agent and in the agent listing, they say, hey, if you're a buyer's agent, you show up, we'll give you 3 % commission. And so the buyer's agents who don't actually have a contract with the buyer are like, well, let me show you rent homes. Let me show you rent homes.

1:23:19And then they get to a home and they're like, okay, this home's listed. Let's buy it. and they're gonna make a 3 % commission, which by the way, I just wanna point out the disincentive there. They're not looking out for my best interests as a buyer. They're looking out for their commission. And the higher the price, they get you to pay, the more they make. More money than they make. But I wanna understand those, if I'm gonna sell my house to you guys and you guys have a buyer's agent, and I just refuse, can I just refuse the best? Yeah, it's 3 %? No one gets paid, because the buyer's agent has no contract with anyone.

1:23:46Yeah, you can just refuse. And you don't have a contract with anyone. The place where you end up paying a commission as a seller is if you sign a seller agent listing and where you sign a contract that sells to the seller's agent, I'll pay you 3 % and I'm also going to pay a buyer 3 % if they show up with an agent. How do I list my house on MLS without a seller's agent? You cannot. In California, I mentioned, I just, I recently went through this. I paid $99. I did it all myself and I listed it on MLS without an agent. I've done a bunch of person -to -person sales of real estate where I haven't had any agents involved but I knew the people on both sides and we just did a transaction.

1:24:18So. What was your legal cost per transaction. Oh, like 15 grand. You know, to do that. That was my exact number. It was 15 ,000. So just to give you a comparison, here, Trimoff, if you were to have a million dollar house, that would be 6 % to be $60 ,000. So that's 15 ,000 in legal cost for you to sell it. Right? If I wanted to sell it to you directly, and that's what happened. My friend don't have a really nice house. We did it off market, and now all the brokers in my neighborhood hate me. Like they are really upset about it. Imagine it was a $5 million house or a $10 million or a $20 million house.

1:24:52Is it true for commercial real estate as well? This is how it works. I don't know. Commercial real estate is the same situation. So there's an agent that represents the building, the landlord, it's actually going to talk about this, then the buy side agent. So what is that? Buffett owns Berkshire Realty. What is that? That's just basically... It's a residential broker, just like Cold Wall Bank or 24, just like all these other brokers. So it's broken up this 6 % big. Yep, they were part of the lawsuit. They were named, yeah. They were named. If you look at Listen to Buffett's earnings reports, he often talks about how many sides of a transaction they were on, and that's kind of the key measure of revenue in that piece of the business.

1:25:31And he was super ecstatic, I think in 2020 or 21, when real estate boomed. And he's like, we got this many sides of the business. It's a great business. It's cash generative, such a great business. But that's the business. You want to get as many sides as you can. You want to get on a sell side and buy side in the market and you just get 3 % depending on which side you're on But now the courts basically said hey, this is legal. Here's how you'll know that the monopoly is ended is when the buy side commission goes away Yeah, I mean the sell side 3 % maybe excessive But I do think that the sell side brokers do work in terms of having to market the property Whereas on the buy side the vast majority of the value is created by MLS like you're saying freeberg I think it's flipped, but in terms of where the value is, but I mean, go ahead.

1:26:15No, you have to stage the house, take pictures. Yeah, as a buyer, I just want someone to look out for me and make sure I'm not like all the diligence that goes into researching a home and reading all the disclosures and going through them. I don't know if you guys have gone through this. Yeah, I have gone through it, but I'm a lawyer for that stuff who I pay by the hour. Right. Right. What I do. I'm not saying that the buy side broker does not say, but I'm saying that most of what they do is to schedule appointments for tours for you. And for you gone through MLS yourself and picked out what you want to see.

1:26:44You give them the list and then they just put it on your account. You know what I'm going to do is travel agents. I don't have your member like I mean most people watch this show probably to remember but in order to book an airline ticket a long time ago before the internet you call up a travel agent because they have they print it out. Bring it to your house. They have proprietary access to Sabre which is the online ticketing system. Totally. Totally. That's what happened is with the internet, you had sites like Expedia just give you direct access to Saber and so you can book the ticket yourself.

1:27:12There's no reason to have a travel agent. Yeah. Same thing has happened with MLS. It used to be proprietary access by the brokers to MLS. You couldn't even see it. Then you had sites like Zillow basically give you direct access to MLS. So you can just go on there and find what you're looking for. And again, the main thing that the Bicide brokers do is to schedule the appointments because because you can't get a tour typically unless you represent it. And if you're not represented and you reach out, then the seller's agent will try to basically enlist you. Have you done a direct transaction, Zach?

1:27:44I'm curious. You can, I don't think you can, residentially. I mean, it's very hard. I've done it. I mean, if you know if you happen to already have pre -identified the buyer, then yeah, I guess you could do it. But basically it happened in our case in your free program, curious how yours went down. I had told the person or my wife had told the person, you love your home if you ever sell it let us know and then they let us know and then we bought it with them off market and they said we don't want to use brokers we don't want to pay this huge commission which we've been hundreds of thousands of dollars and would you agree to this price and we're like yes and then done how did yours come about freeberg how did you find a buyer if you were on the self -send this is all like relationship driven people that I know and that kind of stuff so it's like hey I think this is the future if two of the four people here have done it I think this is the future it's just I don't know I don't I don't think that's true.

1:28:33I do. You need a marketplace. You need a marketplace. You need a marketplace. And the broker's control the marketplace. It's a one off. It's a fluke when you actually have a buyer. But here's the thing, the MLS is the de facto market. Because I mean, ask anyone in the country who's bought a home in the last year, five years, almost everyone I'm sure went on Zillow or Redfin or Trulia and looked at homes. And the place that those market places get their data is from MLS. They sweep the MLS. So the real kind of, you know, monopolistic breaking is can you break that marketplace? Can you break MLS and can you get some other alternative listing services going that, you know, enable this brokerage commission to get competed away because it's currently locked up in the monopoly they have on the MLS.

1:29:20But so perverse, here's where the monopoly comes from, is that if the buyer had to pay the 3 % directly to the buyer's agent and that was a choice you could make. Nobody would pay that much. Of course. I'm not saying that the buyer's agent doesn't provide some value, but there's no way you pay 3%. But the reason they get it is because the brokers tell you, well you're not paying that, the seller's paying that. But of course you're indirectly paying that because the transaction fees are so much higher. And when the seller goes to list their house, if you tell your seller's agent, and hey, I don't want to pay the buyer's agent 3%, make it half a percent, they won't do it.

1:29:55They will always make it equal. So this is the game, this is where the locking comes from. Is the buyer doesn't have a choice and the seller doesn't really have a choice either. As we wrap here, just real quick, pull up that link, Nick and go to number five. So that is the key issue. I don't have a horse in the series, I don't own Redfin's stock or anything, but here's Redfin explaining exactly what you talked about. It's FSBO for sale by owner and there's now these third party sites and they kind of allude to it there. But you know those are those FSBO sites are actual real estate agents that are registered in the state and are members of NAR And so they have a right to list on MLS So what they're doing is they've basically set up a super simple website and then they're posting your listing on MLS for you For a flat fee rather than getting a commission on the sale Awesome.

1:30:41Yeah, and and that's that you know that's kind of interesting but for most people, they're like, well, I don't know. Now, I don't want to disparage the value of folks that are in this industry. There's obviously a lot of value for agents and brokers in this industry, but the real point is that if the monopoly breaks on the marketplace, then the business model will get competed away and there will start to be a change here. And I think that this lawsuit and the settlement ultimately leads to a shift in the industry that could certainly benefit consumers but could have a negative economic impact because of the number of people that depend on brokerage fees as their job.

1:31:14This is likely to be that when you hire a broker, they will give you a form and you'll pick what percentage you want to pay. I'll pay you 2%, and I'll pay the buyer's agent 1 .5. I'll pay you 1 .5. I'll pay the buyer's agent too. Or they should be caps on it, right? Because of the incentives, it doesn't matter if I sell my home, if it's a $5 million home, it may matter to me, $5 million, $5 .5 or $6. It doesn't matter to the broker. their commission, they just want to sell it as quick as possible. If it sells for 4 .5, 5 .5, it's relatively the same commission. So it really should be based upon a flat rate, up to a number, and then a percentage above that number to align interests.

1:31:54Anyway, keep an eye on this one, folks, who's going to have a massive impact. All right, Colorado Supreme Court has removed Trump from the state's presidential primary ballot. This was decided in a split, or to three decision by the court is worth noting that all of the justices were appointed by Democratic Governors to the Democratic State. The court based its decision on Section 3 of the 14th Amendment. This bar is anyone from joining Congress, the military, or any federal state offices if they have previously taken an oath to support the Constitution, then engaged in insurrection against the U .S.

1:32:30This is the first time in U .S. history that the 14th Amendment has been used to legally disqualify a presidential candidate, the 14th Amendment was originally passed after the Civil War and was aimed at former Confederates. I'll say a couple things. The first is that I thought that the Democrats were going out of their way to give Trump the election with the documents case. But now I think that they've basically made his winning the Republican nomination of foregone conclusion and he is the overwhelming favorite to end the presidency after this. And the reason is pretty simple, which is if you take Donald Trump out of this, the idea that you haven't been convicted of a crime, but now a government agency or a government court in this case can deprive you of what really is like a pretty momentous sign of liberty in freedom, which is to run for president of the United States, to deprive an American citizen, unconvicted of that crime of that right, I think is really a bad step in the wrong direction.

1:33:43And so there, there just needed to be a lot more prudence and thought about this. And I think that it will do nothing except in bold and the base. It'll get Republicans out to vote, I think it creates a deep wave of momentum in the direction of Donald Trump. And so this to me was just an absolute complete head scratcher that makes no sense and I think will surely to get overturned in the Supreme Court. Freeberg your thoughts. Okay, for those of you not watching, Freeberg put both hands up in the air gave a shrug, like a shrug emoji. So if you want to understand freebearance position on Trump, it is shrug emoji.

1:34:28Come around the horn sacks, red meat. What are your thoughts? On the Colorado Supreme Court, banning Trump from the ballot. I agree with what Jamassah, democracy now means the right of the people to vote for Canada to be approved by liberal judges. And yes, Jake, how all these judges were democratic appointments. I think this case makes clear that the point of all of this law fair against Trump is to keep him off the ballot until now they've been pretending it's about something else And I think this decision rips the mask of all the legalistic bulls that we've heard throughout 2023 I mean Democrats don't really give a damn whether he paid off a porn star or kept classified documents or supposedly let a racketeering conspiracy they just don't want him standing for a vote that he might win And I feel like all the time we spent on this pod earnestly debating the details and the galleries of the documents case, it was a total suckers game.

1:35:25That's the narrative they want us engaging in. Never had anything to do with documents. They just want to keep them off the ballot. And I think that by being so naked about this, by ripping the mask off, what they're trying to do, the Colorado Supreme Court has really done us all a favor. I mean, the Supreme Court of the United States is surely going to reject this decision. But the lasting impact is going to be in revealing liberalism's true face. They are the real authoritarians. And while restricting the right of the people to vote for the candidate who is leading the polls right now, they proclaim that they're saving democracy.

1:36:02I mean, they self -lorify and engage in the self -righteous rhetoric that they're saving democracy. I mean, the rest of the country, any normal person, is looking at this and saying these people have completely lost touch with reality, completely lost touch. The other unfortunate outcome of this is that there will be a way where people will talk about the big steal as this. And what people will say is that there was an attempt by the Democrats to really roadblock Trump's ability to be voted up and down by the American people. and that's disenfranchising the the ability for people to vote. And I think that that's really unfortunate and I and I wish that the Democrats would have thought about that in their calculus before engaging in what is really a deeply partisan thing to do that that this will this will get overturned.

1:36:54But the damage will be long lasting unfortunately. That's a shame. Totally and I met my Taiyubi had a good line He said that only people who live in a bubble within a bubble within a bubble could ever think it decision like this is a good idea Here are the three bubbles number one all of these judges were democratic appointments because that so living within the Democratic parties the first bubble the second bubble Was the fact that they all went to Ivy League schools? This was actually a four three decision the four justices who went to the Ivy League's all voted for it They thought this was a good idea.

1:37:27The three that went to Denver Law School, the non -Ivelie school were all against it and wrote scathing to sense against it. So that tells you the second bubble is the Ivy League. The third bubble is people who've been totally marinating in the mainstream media and they're coverage of this because they think that they can just conclude that Trump is guilty of an insurrection because it's just a fact according to the media they listen to. Trump has never been convicted of that crime. He's never even been charged with it. Right. So I think that's an important distinction that, you know, the the 14th amendment, which my understanding came about to keep members of the Confederate Army out of Congress because they had rebelled against the government.

1:38:11And so the whole point was this amendment was passed to keep anyone who'd - No, that's right. It engaged in insurrection or rebellion or given aid or comfort to the enemies thereof. It may not be elected a member of Senate, Congress, or President or vice president. So, sacked, if that's the case, that is still the 14th amendment, that's the claim being made here. It doesn't define whether or not there needs to have been a conviction of a charge of insurrection. Is that what will ultimately be the Supreme Court decision, do you think, is that he was or wasn't actually found in a court of law to have been guilty of insurrection?

1:38:48No. It's that the actual article three of the 14th amendment. doesn't doesn't even define the presidency as applying in terms of where this applies. So even before you get to that legal threshold of the fact that he's never been tried for this thing, there is a simpler threshold which is most legal scholars say it doesn't even point to the fact that you can actually hold the president to that standard. So there's like all all these layers and what do you mean it says no person shall be well it's unclear it's unclear if officers of the you could overturn this. Another way is to point out that there was no due process.

1:39:26The dissents really harped on this issue of due process. You had a district court decide after a five -day hearing in which Trump was not allowed to subpoena, no subpoena power, no calling of witnesses, no cross -examination. They basically just looked at tape of the January 6th hearing, which was itself biased because Republicans didn't even got a chance to cross -examine. So basically, they This district court concluded on that basis that Trump was guilty of an insurrection. Again, that is a crime for which he's never been convicted, and he's never been charged with, and he's never even had the chance to answer those charges in court.

1:40:01And there was a special counsel at the federal level that declined to prosecute. That's right. That's exactly right. So, Zach, if a prosecutor had taken up the case and he had been convicted, would you support him being disqualified from the state ballots for being the nominee of for party for president? Well, there was a very simple way to disqualify Trump from running again, which was to impeach him was to convict him in the impeachment trial Remember the second impeachment was all about January 6 and he was exonerated. That was the time to do it Now I don't know if you know if a conviction for Insignment to insurrection would hold up in that way freeberg I don't know but the point is they didn't even try and the reason is because when Merrick Arlen first came in And they actually did an analysis of January 6th.

1:40:49And there was a memo written. And it said that if we, the DOJ, try to prosecute Trump for either incitement or for insurrection, we will lose that case. And so, America, Ireland didn't bring those charges. Then there was a story in the New York Times saying that Biden reacted really negatively to that. And he told his inner circle that Garland needed to stop acting like a ponderous judge. This is the New York Times words. And that he needed to take decisive action. and Biden made clear to his inner circle, I'm gonna provide the receipt on this, that he thought Trump should be prosecuted. So all of this law fair ultimately flows from that, it flows from the top.

1:41:25Biden is the most vindictive president we've ever had. I cannot think of another time in American history where a president incited his own aides and advisors to basically go prosecute the leading alternative for the presidency that he's likely to face in four years. That is what happened. By the way, we've seen this behavior before. Remember, this is also the president who said we need to go look at this guy, meaning Elon. I mean, I can't believe that this behavior is just accepted by so many Americans. This is petty, vindictive, un -American behavior and it's anti -democratic. And the people who are engaging in it the most, again, are glorifying themselves as somehow standing up for democracy.

1:42:07This is a joke. And I think the average American is going to rebel against this. And I said, I think it was like last year that all this law fair, all these tactics and shenanigans that the Democrats were trying is either going to put Trump in the big house or the White House. And I think he said it for the White House on this basis right now. I agree. You would say that it's reasonable that if you got convicted in the court of law for in charge of insurrection, that he should not be allowed on the ballot. If the stream court then decided that that's what the 14th Amendment meant, sure, but that's not what happened here.

1:42:37There's zero due process. I get it. I'm just trying to understand where your threshold is. So you think he'll certainly, this will certainly go to the Supreme Court and they'll adjudicate what the 14th Amendment really needs because it's never been tried the 14th Amendment. Well, again, it was written think about why that's techic here about. Timothy is right. It was written for the Confederacy. Right. The only other time it was used is it was a 1919 against one person that was about to enter Congress who was who had given comfort to the Germans in World War One. Does the only time we've actually invoked Article 3, Section 3 of the 14th Amendment.

1:43:09Were they allowed to run? No, they were not allowed to take the seat. Now, that's at the federal level, and at the state level, it's been used a couple of times. The point of this is, for me, again, take Trump out of it. You do not, I think, I'm pretty sure. We do not want to find ourselves in a country. Oh, of course. where you can, all of a sudden, be deprived your liberty and your rights for random acts, where somebody believes that you are a threat to them, and that person is in a position of power to affect your liberty. That can't happen. Vote the man up or down? Yeah, and I agree with that, and I would say that, what you're speaking to is, do you process?

1:43:55us. These judges basically believe that because the mainstream media says something is the case, that we don't need to go through a legitimate court procedure to determine that as a legal finding. They just declare that, okay, he's guilty of insurrection. That was never proven. People don't realize you can, this thing can go the opposite direction so quickly. Imagine that there's a democratic candidate that is running against a Republican incumbent.

1:44:24Is this political warfare that happens where each party is trying to essentially prevent the leading candidate of the other party from running in every election from here on out, because that's the precedent that is being created. That's why I have such an allergic reaction to this. That's totally true. Why wouldn't every president from here try to do this? I mean, it's already the case that every president that loses Congress is probably going to face and impeachment hearing. That's happening too. And now we're going to have a situation where every presidential candidate can be potentially excluded from the ballot based on, you know, a local court's findings.

1:45:06From the Democrats' point of view, this was deeply shortsighted and I think it has a very high chance of blowing up in their face. We haven't heard from J. Cal. I get my information from two really good sources. The first one I recommend for our listeners is cafe .com. It's a podcast by Prit Bharara. Fantastic. He does really deep dives on these cases. Cafe .com. Yeah, Cafe .com is his podcast. Cafe .com. It's paid podcast, but it's really detailed. And then there's actually speaking of law fair. There's a law fair postcast. And so I listen to those and they're covering this and also the two other cases that are of note, the federal election interference case and the Georgia case.

1:45:41Highly recommend that our listeners go to those experts and get a really well balanced view of the cases against the 45th president. All right, for Chairman, which is the new chairman of the all I'm sure dictator. I don't want to lose the chairman dictator authoritarian Nope, nope, take out the BIPOC, chairman BIPOC, chairman of the Politburo dictator of the Olin pod. You have my proxy vote too. All held the chairman, dictator and for the king of B and Rayman himself. I am the world's greatest moderator. Love you boys. And we'll see you next time. What? We'll let your winners ride. Bring man David Sack.

1:46:27I'm going to win. And it said we open source it to the fans. And they've just gone crazy with it. Love you. I see queen of king wild. I'm going to win. What? What? What are winners? I'm going to win. Besties are gone. I'm going through. That's my dog. I'm taking it out, I'm issued a driveway. I'm not at all. Oh man, my hamlet is actually a meaty ass place. We should all just get a room and just have one big huge orange because they're all just like this sexual tension but we just need to release that out. What, you're a B. What, you're a B. You're a B. We need to get merch. I'm going on a list.

1:47:14I'm going to Lina. Lina had the certificate.