DeSantis Drops Out, Stock Market Soars, and Guest Aileen Lee

24:00But for the co-chair of an anti-Semitism task force that is being paralleled with Islamophobia task force, it seems highly problematic. So I think he's trying to get rid of this one guy. And he does, he thinks he's far from the ideal chairman and he thinks they should have someone else. I don't know who he thinks that would be. You know, I think he's trying to make something happen by posting and putting pressure, sort of a Bill Ackman kind of thing, which, of course, has pretty much backfired quite a bit on Bill Ackman, I would say. In any case, we'll see what happens. But you're right. I do believe we, you know, the right, the extremes have gotten a hold of the conversation.

24:35OK, let's get to our first big story.

24:41The New Hampshire primary is about to get underway and the Republican field has narrowed down to two candidates. It's finally Donald Trump and Nikki Haley very different over the weekend. Ron DeSantis dropped out of the race. Bob Iger had a big party for him coming back to Florida. No, he didn't. Endorsing Trump, which is what Gavin Newsom said he would do within weeks, and also using a falsely attributed Winston Churchill quote. Well done, Ron. You had a shitty debut on Twitter, which didn't work, and now you misquoted Winston Churchill. Were you surprised by DeSantis' timing? And now that Nikki Haley gets a two-person race, how long, you know, she's not going to win in New Hampshire from what the polls are saying.

25:21Thoughts? I was surprised. I thought he was going to wait until New Hampshire. And what you just said is exactly right. The metaphor for his entire campaign was his launch event on X. It was awkward. It was operationally a total clusterfuck that came across as incompetent. And if you look back on it, I don't even remember Governor DeSantis being on it. And that perfectly, that's the perfect metaphor for his campaign. It was awkward. It was logistically, it was so poorly prosecuted despite a massive amount of money. And I don't remember anything that kind of Ron did other than stories about how awkward he was and how bad the campaign was going.

26:04Yeah. Yep. And how a lot of his cultural war stuff just didn't land with people. They wanted other things. You know, Trump is good at this. stuff. He's good at the insults. DeSantis isn't. And at the end, he was really insulting Trump a little bit more than he was, which he should have been doing from the start, like really calling it, which Haley is doing right now. She's talking about him being adult Trump. She's really leaning into Trump as old, which is interesting. I'm not sure it'll work at this point because everyone does think he's kind of crazy Uncle Don. That's sort of baked into it.

26:36What crazy shit is he going to come out of his mouth at any one time. But he got her mixed up with Nancy Pelosi. He's been doing a lot of cognitively questionable things, right? I just think people are used to it. But DeSantis is just someone people don't like. The more you saw of him, the less you liked of him. And I think that I'm sort of perplexed as to how well he did in Florida. Like, everybody loved him. People think he got COVID right. And he also deserves some credit for how we approach Yeah, but that's it. It didn't last very long. Because I'll tell you, on the national stage, he's deeply unappealing.

27:11And I hate to say that because he's not an unhandsome man. He's got a very handsome family. Like he's got all the pieces. But he just seems like someone, the best one I saw was when he was doing his speech. Someone was like, AI still has a long way to go. Because he looks like he does. He has like, I don't know what it is, but it's this weird affect that is just. It comes down to one word, likable. And he's not that word. Because if you look at him, he's out of central casting, served his nation in the military, Yale, Harvard. He was an athlete. He was captain of his baseball team. I mean, I know that sounds kind of trite, but if you're captain of a varsity athletic team, it means you know how to pull people together.

27:51He was in the Little League. He went to Little League championships or whatever. People respect you. A successful governor. and the thing, and what's interesting about, or one of the things I know that's sort of interesting is that in state and even Congress and Senate races, whoever has the most money wins like nine out of 10 times. That's no longer true in the presidential race. Jeb Bush had the most money. Totally. And this guy had a ton. Flat line. He spent, I think he's, what did he spend? $55 million? Some enormous amount of money. So Haley has really broken through in a way, but she still doesn't have enough in the modern Republican Party.

28:24In any other year, she'd be the winner, right? Because she's actually honing her message. People think she's a little cautious. But it looks like it's going to be Trump Haley, but she's really leaning into, you know, it was interesting because Newsom said, Ron, in three weeks, as you're insulting Trump right now, in three weeks, you're going to kiss his ass. You know, you're going to get on the knees for it. I think he said on your knees. But Haley, what do you think of her prospects at all in terms of, obviously, she's not going to win, but what can she do from a marketing perspective? I don't know.

28:56I'm so biased here. I really hope that she surprises. And I don't know if she's going to all the polls. But if you look at New Hampshire, they take pride in being independent. They take, I mean, they take pride in, if, they like to be contrarian. I'm, you know, New Hampshire never wants to, never wants to match the poll. So I'm hopeful that her message resonates. They have a lot in the most interesting or the X factor about the New Hampshire primary is that independents can vote in it. Actually, anyone can vote in it, but I, you know, it, there's just no getting around it. Every day we go on the Republican primary looks oranger and oranger.

29:36And I hope this is kind of the, this is kind of the last stand for the non-Trumpers and the GOP. And then it becomes a war between the justice system and Donald Trump in terms of what happens to the race. But what would you do? We're not experts in politics, but in marketing, what would she, to stay in long? Obviously, here's the one thing. She stays in and something happens to him, she's out front, right? That's the goal here is just stay in long enough so that something legally bad happens to him. Or he says something really nutty or something disqualifies him. That's, I would assume the bet here is that, is I'm going to stand until you fall, until you trip front runner, essentially.

30:19I would link him to Biden and the linkage I would use, the connective tissue I would use is age. Which she's doing. I would show, I would run clips of Biden falling and of Trump making stupid comments and Trump slipping and saying, isn't it time for vigor? Isn't it time for youth? Isn't it time from a fresh perspective? These people were born. These people were born as, you know, our GIs were returning home. These people, each of these individuals has between a 6 % and 10 % chance of dying every year, according to insurance actuarial tables. Isn't it time for something new? And I would absolutely clot him and clump him in with Biden around the notion of age.

31:00And I'd show pictures of her. She's very vigorous. She's very attractive. She's young. and just say, it is time. We are the most, America is the most innovative, aggressive, youthful culture in history. And so should, and your leader should be as well. She's, she's, she's leaning into this. What else could she do? He's legally, she's also leaning into, he could go to jail. You know, he could go to jail people and we're going to lose and then we're going to have Biden. That's her, that's her basic argument. Yeah, the secondary message is the only way we lose, the only way we lose is if you put up Trump.

31:30Put me up against Biden. This is a lock. And by the way, All those people on the left who play identity politics, the Republican Party, just as we're the party that freed the slaves, as we're the party that brought down the wall, we're going to be the party that says to the rest of the world, we're about merit. And the person who deserves to be president happens to be the person who's going to be the first woman in the White House. Well, here's the thing. A lot of voters have, there was some really interesting reporting on people worried about, I can't believe it, there's been women leaders all over the world, but there's still an issue in this country about a woman leader.

32:08But one thing that's clear is a Biden-Trump rematch is something nobody wants. It's just crazy. That's what we're going to end up with? That is really it's like, no, no, no, no. Oh, like that's where here we are. What's interesting, Biden is, I think, smartly first attacking Trump. He can't attack him on cognitive issues, but Haley's doing that. He's leaning into reproductive freedom, which I think is smart. rallies this week. He's rolling out new ads. He's trying to do all these executive orders around abortion as much as he can. I think Trump's big hand-wavy thing will be the vice presidential candidate choice.

32:45And that could be Elise Stefanik, who is speaking of unlikable, like completely unlikable. She had a big moment with the DEI thing, but she's really quite a, just a terrible person. I don't know what else to say. She's so unlikable. But there's also Tim Scott. There's Kristi Noem. There's a whole bunch of people. So that will be his big hit. He's got to have someone. Senator Scott would be a good choice. Stefanik, I don't know. That seems like mean and meaner. And she's the only, no one had heard of her before until she refused to certify the election. And she's saying she's refusing to certify it again if Trump doesn't win.

33:22He needs a solvent. He needs someone credible, thoughtful, likable. He should absolutely pick a non-white or a female. That would inoculate him from all the accusations that, you know, deep in his heart, he's a bigot or whatever. Senator Scott checks a lot of boxes. I mean, the one I'm scared of is that Nikki drops out and that's his VP. I think they would win. He's not going to—she's really—I can't imagine him picking her now. She's like—he old. What is she going to say? Oh, what I meant when he was old was that he was not that old. Oh, VPs have said worse and been selected as VPs. Yeah, that's true.

34:00That's true. Kamala did. She certainly did. Yeah. But this is, he takes this rather seriously. Kamala is vice president. No, but she insulted Biden, if you remember. Okay, but she, yeah, that's what you're saying. She was on the stage because she's got an incredibly impressive track record. I don't think there's a lot of affection between the two of them. I don't know what's happened there, but it hasn't worked. And it's all about winning. I don't think they, and I think that's a mistake. I think they need to pick someone that they get along with, but they don't. They pick someone who can help them win.

34:32Yeah, yeah. I will see what he does, but it'll be interesting. But nobody wants this election. Nobody wants it, which is really amazing. Everyone's like, ugh. It's like this show. And not only that, the whole world with everything going on right now. I had Ian Bremmer on my podcast and he said something that struck me. He said, no one wants this election this year. Everyone wishes they could put it off a year. It's like the wrong year to add this into the mix. Yeah, yeah, absolutely. Just FYI, the latest episode today of On With Kara Swisher, I talked to historian Heather Cox Richardson about how we got there, being in the age of Donald Trump and the rise of authoritarianism.

35:06That was elegant cross-promotion. I know. I was trying to do that. Please listen to Kara's podcast so she can afford a hotel when she's in Manhattan. No, no, no. Would you like me to stay in a hotel? I've already told you. I like it when you're there. Well, you just, okay, fine. I like it when you're there. No, no. Otherwise, the plants would die. Not that I have plants. I literally, you don't have plants. He has no plants. You have no plants. Oh, my God. Anyway, let's go on a quick break. When we come back, the economy and the stock market continue to defy expectations. And we'll speak with a friend of Pivot, Aileen Lee, about the world of unicorn startups.

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36:50Scott, we're back. The stock market is hitting record highs. Job numbers are good. Inflation is falling and the Federal Reserve might be cutting interest rates. Also, consumer happiness is rising, according to all those consumer happiness surveys. They're moving, it's ticking upward. It looks like the U.S. economy might be able to avoid a recession, according to a recent survey of economists. Not even a soft landing. What do you think we, what's going on? Treasury Secretary Janet Yellen was touting soft landing weeks ago and said, my hope is it will continue. I guess we're continuing to soft land, if at all.

37:21What is your take on all the good news? What strikes me is more so than all the good news, which is exceptional, is the consumer dissonance or the citizen dissonance. And that is Americans have a unique ability to credit their character and their grit for the raise they're getting and then blame the government for inflation. And so even though the wages are rising faster than inflation, now there's real wage increases, they still blame the government. Well, it's ticking up. It's ticking up. That Michigan survey just suddenly went the other direction. Yeah. But it's just very strange. The White House doesn't get any credit for it.

37:56Yeah. It's starting to. I hope you're right. And this goes to my win. We literally have, now granted, it's not distributed equally. we have no one could have predicted if someone had said america is going to pull off this economy or they're going to figure out a way to have the lowest inflation in the g7 uh by the way they're going to massively increase for all the shit posting and all the far right likes to say drill baby drill we're producing more energy than ever we're the largest energy producer in the world and if you look at if you look at our competitive advantage against china if china decides to get into a hot war with anyone, and at any number of choke points, their energy supply gets shut down.

38:41Yeah, they're going to have to invade Russia. They're going to have to invade Russia first. They would be in such a world of hurt, and we're energy independent. Not only energy independent, we produce more energy than we consume, which is remarkable given what gluttons we are. So it's just striking that consumers don't feel better. It's getting better, but - It's ticking up. I think people still feel they're paying too much for food or the kind of the daily. But although I went and got gas and I was like, oh, this is low. This is like, I mean, I guess I'm one of those people who doesn't think about it that much compared to people who have a really tighter budget.

39:16But I was like, wow, this is not expensive for the first time in a while. And I paid attention to like the four and five dollar gas. Employers added 216 ,000 jobs in December, which is a large than expected number. weekly jobless claims reported were the lowest since September of 2022. There's a lot of layoffs in a number of sectors, but I think that's people cleaning up like all this stuff in tech looks like it's around assistant, which AI, they're getting ready for AI and getting rid of stuff they don't need anymore. So that seems to be to be cleanup, right, of where things are going or getting ready for something else.

39:51Two things. If you were looking to invest right now, what advice would you give them? And then I want to ask you a quick question about the housing market? Where would I invest? Look, my feeling is it's dangerous to listen to people like me and talking heads on podcasts make stock recommendations. And I like it because it's fun. And I tell young people, take a third of your money and put it in stocks because A, you'll learn. You learn about the markets. And also it's kind of fun and you can feel good when it goes up and beat yourself up a little bit when it goes down. But for the most part, what you want to do, if this market has taught us anything, don't try and pick the needle in the haystack, pick the whole haystack and buy the whole market because - The haystack approach.

40:32Go ahead. It's true. Unless you were a genius, and maybe you didn't have to be a genius, but people talk about their wins and they don't talk about their losses. Seven stocks were responsible for 70 % of the gain last year. And you think you're smart enough to pick the seven of the 500? So instead, just buy the entire 500. And what do you know? What were you up in the teens last year? If you do that, if you compound going into your primary income earning years what the market has done since 2008 at 11 that means every seven every seven years you're doubling your money and just from an emotional and mental well-being this is what you want to do you want to focus all of your mental physical and emotional energy on your day job and you want to turn your investing over to an outstanding professional that is really good at what they do but at the same time is really inexpensive and that's called an index and an etf fund.

41:23So if you could get someone, you're not good at building your own home. What if you could find someone to build your home that was outstanding at building homes and was really cheap? That's called an index or an ETF fund. Don't buy a stock, buy the market. And the temptation to believe that you're smarter than everybody and all of these, the financial industrial complex, which will teach you that this old looking guy or all these Kwan people and PhDs have some sort of special inside or they're investing in ESG, whatever it might be, whatever the branding is, they are ripping you off. They are ripping you off.

41:58So anyways, my recommendation on where to invest is just start investing and invest in index or ETF funds. Yeah, that's in the stock market. The economy, the housing market is still kind of all over the place because of the interest rate and the 30-year interest rate is at 6.6%, higher than before the pandemic, obviously. how high prices are higher. But that's because I'm just talking to a friend of mine who's a very big realtor in D.C. And she was saying there just isn't stock. People, it's in the middle area. She goes in the top area and the lesser, the cheaper area, it's doing okay. But it's, there's no stock to sell.

42:33She said she didn't think people were as fixated on rates as they were. They don't want to move because of that, you know. And that's one of the issues is not having enough in the market to move it around. And she was thinking it was going to jump in the spring. She felt like people were just like, I feel I'm tired of waiting kind of thing or to move or to buy. But that's one area that's been sort of a laggard. Yeah. One of my predictions for my 2024 deck is that housing is going to boom, not price. What happened last year were sort of suspended that you had to spend the natural order because what we unintentionally did was created these unexploded devices inside a home called a mortgage at two and a half percent where no one wanted to leave that life is aggregating at the dam what i mean by that death divorce disability people having kids people needing to move for a job whatever it might be all of that demand is building and the moment i think interest rates get kind of below six ish uh the moment that people start dying and more housing stock comes available the moment that some of the supply that's being constructed comes on the line I think in Q4, you had the lowest transaction in like decades.

43:47That's what she was saying, yeah. She said it's right in the middle. She said it's not at the high, it's not at the low. You know what I mean? Like the apartments and things like that. But go ahead. I think you're going to see back half of this year, just a ton of people. I don't want to say throw in the towel, but go, okay, interest rates are below. Maybe I can pick up a mortgage with a five handle on it. We've been talking about moving home. We just had our third kid. oh, did you hear the house down the street? Mrs. Robinson just died. There's a house. I just think that all of that life doesn't stop marching on.

44:20And when you think about housing, the biggest component in housing are life events. And those have not stopped the last year. They're just building up. Which is why prices are higher. Are higher. Yeah, but you're seeing wages go up. You're seeing interest rates come down and life continues to march on. I think we're going to see an absolute boom in sales volume end of the year. Yeah, it'll be interesting to see if the economy helps Biden. I think people, it may be perfect timing for him. I'll tell you that. We'll see. We'll see. Anyway, very exciting times. And I think it is running down. But let's bring in our friend of Pivot to talk about where investing is going.

44:59Aileen Lee is the founder and managing partner of Cowboy Ventures, a seed-staged VC fund. Ten years ago, she famously coined the term unicorn, referring to VC-backed startups with billion-dollar valuations. She's now assessing what's happened since then and also looking at the newest unicorns in a TechCrunch piece titled Welcome Back to the Unicorn Club 10 Years Later. And also, I really like Aileen. She's in my book that's coming up where I have a chapter of People I Like. It's a very short chapter in Silicon Valley. You are mentioned in it very briefly. Oh, I'm honored. It's fine. So it's also you're one of the few women VCs, prominent ones.

45:37Too few. Too few. And you worked at Clownda Perkins. But a lot has happened since you first came up with the unicorn concept. I want to know what jumped out at you as the biggest change from 10 years ago. The number of unicorns has ballooned in the last decade, going from 39 to 532, as you note. But first say why you picked that again to remind people. And then what was the biggest change? Yeah. First of all, thanks for having me. I'm a frequent listener, so it's fun to be on. Okay. So 2013, I had a pretty new fund. I was just getting started, didn't have a lot of portfolio companies. And so I was trying to think and seed.

46:12There's not a lot. There's no these are unknown companies. They're off the radar. You know, more than half the time when we're investing, the people need the money to start the company. So no one's heard of them before. And so I basically said, let me just if I had started 10 years earlier, what are the best companies I could have invested in and start making that list and then figure out, like, how would I have met them? Where did they go to school? What did they do before? Where did they work? Did they pivot? You know, how much do they raise? How would I have found them? You're talking about sourcing, which is how VC, that's the key part of really good venture, right?

46:43And also, yeah, just what lessons learned, right? So basically came up with a list of 39 companies that were less than 10 years old and had basically grown to be worth over a billion dollars in public or private markets, which just U.S. because we just invest in the U.S. And so it's a different kind of definition than I think some of the unicorn lists you'll see out there where they basically track every company that's ever been started. And our definition is for companies that are less than 10 years old. So we found 39. And at the time, they were mostly consumer. They mostly had exited. They mostly had gone public or been bought.

47:18And, you know, Facebook, now Meta, was the big one at the time. And there's also a lot of commerce companies like Groupon and Gilt. And then basically, the term wound up taking off in a way that I didn't really expect. Why'd you pick Unicorn? You know, it's funny, in writing the piece, because there was a lot of analysis and using the definition over and over again, like, you know, a company that was less than 10 years old and had grown to be worth over a billion dollars, just a really annoying thing to have to write or read over and over again in a piece. So I tried to come up with a shortener, like Home Run, Monster Hit, and substituting in Unicorn made it so much more fun to read.

47:58But it also captured something that I wanted it to, which is that it's special. You know, it's rare. It's a little magical. Like you have to have timing and luck and a bunch of other things. All right. So now, fast forward. So 10 years later, we basically rebuilt the data set and we have grown from 39 to 532. So it's 14x more. The pendulum shifted massively from being basically 80 % of the value in the list was consumer 10 years ago. It's 80 % enterprise now. And enterprise companies basically, you know, the list grew 14x. Enterprise companies, I think, grew 26x in terms of the number of companies.

48:39But then when you kind of look under the hood, you realize that 93 versus 66 % having exited 10 years ago, 93 % of them are what we call paper corns, which is they are on paper only. They are still privately valued. And 60 % of them are what we are calling Zerpicorns, where they basically raised their last round during the time when interest rates were basically zero. So 2020-ish, 2021. And so we basically and also so then when you look at how many of them are paper corns, how many are zirpacorns over almost half of them are trading at below a billion dollar valuation in the secondary markets.

49:17So we basically did a lot of triangulation. We said, OK, this this data set of five hundred and thirty two is probably going to shrink, you know, because a lot of these companies are running out of runway. They raised in 2020, 2021, when valuations were and public market valuations were really high and they are burning through their cash and trying a lot of them. There are a lot of quality companies in this batch. So we think the shrink, the batch will probably shrink to about 350. And so this set will get smaller. And the other thing that we noticed is capital efficiency really tanked. So one of the positives of the 2013 batch was enterprise companies had 26x capital efficiency.

50:01So they were worth 26 times what they had raised. The capital efficiency got a lot worse. And they were two and a half times more capital efficient than consumer companies in 2013. This batch, across the board, whether you're a consumer or enterprise, the capital efficiency on average is 7x, which is a big decrease. And if you look at how much companies like Apple or Microsoft or Salesforce have grown in the past 10 years, you would have been better off investing in the public markets than a lot of these companies. But AI changed the unicorn game. You say there's also OpenAI looks to be the first super unicorn or super corn.

50:34Yes. So we, in the first analysis, we coined this term super unicorn, which is a company that becomes worth over$100 billion. Which would have been Facebook in that group. Yeah, Facebook was. And Facebook did it within 10 years, which is pretty unusual. But companies like Cisco or Intel, like other companies that basically kind of represent big, important new waves of innovation wind up becoming these mega unicorns. So it looks like OpenAI. And also in the first batch, we only had one meta, but then three more became super unicorns over time. So OpenAI looks like it's going to be the first one, but I think there will be many.

51:10So really nice to meet you. I have a snarky question that's more of a comment than a question. because just listening to you speak, it inspired three or four questions. But with respect to you, you were talking about your analysis around how to generate deal flow and target in on the right individuals and the right concepts. 1 ,700 freshmen at Stanford, 1 ,500 at Harvard, so 3 ,200. 40 % are male, so that's 1 ,280. 50 % are white, so that's 640. Wouldn't the smartest means of establishing deal flow would just be to maintain relationships with the 640 white men from Stanford and Harvard that graduate every year?

51:49Isn't that where about 80 % of all venture capital goes to those 640 people? No, not anymore. Actually, that was like, I would say, one of the positive things that came out of the new analysis was that, yes, in 2013, a high percentage of the people went to what we call like top 10 schools, and a high percentage of them were technical. So they studied computer science. That has changed a ton. So in the new analysis, I think basically no school like Stanford, Stanford had the most market share of the founder set, which also went from 100 people to 1 ,300 people, but it had 5 % market share. So there was kind of a, there has been, it looks like a democratization of where people went to school.

52:31Is this the number of concepts or actual capital allocated? Oh, no, this is in the number of where the founders went to school. So if you look across the 1 ,300 founders, they grew up in all different kinds of places. Actually, most of them were not technical in terms of what they studied. And also, they're in different geos. So in 2013, 70 % of the unicorn companies were in San Francisco. And San Francisco lost market share. It's down to 45%. New York is almost 20%. Wow. But also Boston, LA, Austin, Denver, San Diego. Which is what we thought would happen. But you did note that in terms of gender representation, you said there are more founders named Michael, David and Andrew than there are women unicorn CEOs.

53:13At this rate, we won't reach gender representation until 2063, when we'll all be dead, by the way. I'm hoping that the democratization of schools and backgrounds is the leading indicator and that gender will follow because that's definitely an area I would love to see more progress. I read that 80 % of all capital allocated from the venture community last year was into AI or AI-related startups. Do you think there's a bubble in AI in terms of valuations in the venture market? There is. I think there's going to be a lot of change in the next decade. I do think, what's that phrase? Like, you know how people talk about trends like short-term overhyped and long-term underhyped?

53:56I do think that might be the case in AI. Like, there's no question in my mind that AI is going to be kind of under the hood of all the software we buy in the coming decades. But kind of who is building that software and short-term winners versus long-term winners, I think is going to be very dynamic. In the analysis, one of the things that caused this huge run-up in unicorns was just how much more money went into venture capital. Funds got really big and they raised a lot faster than they ever have before. So they've got all this dry powder. And instead of chasing recaps, they are putting it into the new hotness.

54:32Into the new hotness. So what are some other sectors outside of AI where there's the most successful unicorns? What are you seeing? Obviously, enterprise is one. So consumer is not as represented? Not as represented. But the first set was pretty like one-size-fits-all products, like Meta or a Workday or ServiceNow. Now, the thing that we saw in the new set is we basically created 19 different sectors like climate or health care or mobility or logistics. And there are now unicorns in all these different sectors. So it's kind of like tech is spreading out across all these learning tech, ed tech, like all these different sectors of society that that didn't exist 10 years ago, which I think is pretty exciting.

55:19Is there one that sticks out for you? I mean, I was just kind of amazed. Like, I mean, some of it, I think, is a reflection of kind of free capital in this Zerp period. But, you know, you've got unicorns. Like, there's a unicorn that sells software to parking garages to, like, you know, manage whether they're spots and utilization and stuff like that. So it's like there's companies that are being built in all kinds of sectors. My understanding is that the majority of returns are not only aggregated to a small number of firms, but a small number of people at those firms. That is it. Am I overstating it when we talk about income inequality?

55:56I think it's changed a lot. I mean, there's so many more firms now that, you know, it's funny when I, Kara mentioned I used to work at Kleiner and one of the Kleiner founders talked about the first fund. He said basically they made a bunch of investments and it wound up being like two peaches and a bucket of piss. Like, you know, you basically put together a portfolio, you invest in, let's say, 20, 30 companies. and one or two of them winds up being an outlier that returns the fund or generates multiples of the fund. And I think there are so many funds, I don't think it's super concentrated anymore.

56:30It's really quite spread out where there's going to be a lot of funds that are pretty under the radar that wind up having, and a lot of it also is, you know, your fund size is your strategy. So depending on how big your fund is, it's going to have a big impact on returns. And the funds have gotten so enormous. it i mean it just strikes me that i think i've read that general catalyst is raising a six billion dollar fund i mean that i would imagine that the ideal scenario is they want companies that would at some point will be very capital hungry what is that do you think that's driven driven down returns the the the impetus to put together or put to work so much capital i mean isn't it?

57:14And my follow-on question is, one is the torrent of capital that's come into venture, it just seems logical it would push down returns. And two, and this is anecdotal, but it doesn't mean it's not true. I'm now getting more calls from people trying to raise money or sell their stakes in companies vis-a-vis secondary as opposed to finding fresh capital. So has capital pushdown returns and what are your thoughts on the secondary market on these venture-backed companies? Yeah, I think when you go beyond a billion dollars and you're managing billions of dollars, it's just a different business. And I think the return expectations are going to be different.

57:52It's a different LP, right? You've got big pensions, big sovereigns that want to have allocation across asset classes. They want to be in venture, but they have big checks to park, right? They want to park$100 million,$200 million. We're a seed fund. So we're focused on a more curated strategy, investing early and generating high returns. So our fund is $140 million. But if you've got a$2 billion fund, when you just do the math on what kind of return you can generate and how many$5 or$10 billion companies are going to be, I think it's a different return profile, but it's a different, LPs think about it differently.

58:31Yeah. So from your seed perspective as the head of a firm, because you went off on your own, when you look at your analysis, where do you think about putting your money? Where do you find, because you were in a lot of consumer, you were for a while and you've done a lot of different things. Where do you think the opportunities are from your perspective? Yeah. I mean, when you look at the companies that we've invested in that are doing the best, a lot of them are kind of what we call category creators. So its founders had an idea in a market that didn't really exist or people didn't think was a big market.

59:04Like, I don't know if you've spent time with Guild based in Denver. It's an upscaling company that partners with enterprises to help hourly workers get an education and get skills so that they can have career evolution to a higher paying job. Like, what they do didn't exist. There was no competition. And it was a wide open market. But there's a lot of questions about whether there was a big enough market and whether enterprise would adopt it. And it's going great. We're really proud and happy because it's also kind of a double bottom line company where it's actually good for society and it can be a great business.

59:38You know, we were investors in a company called Drada in San Diego. Two brothers who didn't work in traditional tech companies, didn't work in security, and they had an idea for a better mousetrap. and they were kind of like a third or fourth player in a space. And what they're doing at Drada is amazing and customers love the product. What does that do? What does it do? They basically built a security and compliance platform to help enterprises get SOC 2 compliance or GDPR compliant or HIPAA compliant, things like that. And it didn't really exist, like a real-time compliance platform. They had an idea for a new paradigm that people weren't doing it that way.

1:00:22And when you look at things, what are you most worried about? What is the ones you're like, oh, God, this is a problem? Actually, I just want to go back to that. When you think about some of the companies that are most valuable today, even the consumer space that a lot of people can relate to, like Airbnb and Uber, right? Like no one had a shopping list for I want to invest in a company where people are renting out their couches. You know, and so I think that's what's really exciting is that you being open for business, meeting founders who have these like what seem like crazy ideas and they want to be in huge businesses.

1:00:51Yeah, I remember when I was raising money in the 90s, and I think that's why some of my questions are probably a bit, I don't know, outdated, if you will. But I remember thinking it'd be so great to be a venture capitalist that there's just there's just more these these guys. And it was almost always guys always win or figure out a way to always win. And it's just so hard to start a company. I think it's entirely flipped. And I'm curious if you, the power dynamic and the leverage, like you weren't allowed to do secondary sales when I was an entrepreneur. Now, now they use it as a means of differentiating their offer.

1:01:24They're like, we'll give you 5 million bucks to take up the table. Anyway, I get the sense, and this is, I'm giving, I'm kind of giving you a softball here. I don't think there's ever been a better time to start a company. I totally agree. Capital. If you're in St. Louis, it doesn't matter where you are with the cloud, you can get to letter M for what it used to cost to get to letter B. If you get any traction, a VC will find you. Make the case or tell me, validate my thesis, there's never been a better time to be an entrepreneur in America. Yeah. I mean, also, if you look historically at the numbers, some of the biggest, most successful companies were started during downturns.

1:02:01Yeah, 100%. So I think just the, you know, it's just the scrappiness, the grit, people know it's not, it's going to be a long game. It's a marathon. on. Everything's cheaper. It's easier to build a company. Well, I mean, money is not as cheap as it was three years ago. No, what I mean is office space and people. Oh, yeah, totally. And people can be anywhere. So I totally agree. I think, and venture has changed a lot. You know, we, I'm part of a nonprofit called All Raise, where we're trying to change the composition and culture of the venture industry. And we've made some progress. How's that going?

1:02:31We have a long way to go. When we started, women were 8 % of the industry and 75 % of firms had not a single female partner. Now we've almost doubled it. So we're almost at 16 % women, but still that sucks. So we got a long way to go, but it's changed. I think just the, there's a lot more specialists now. So if you do dev tools or enterprise infrastructure or commerce, like there are funds that just focus on what, you know, crypto web three versus before you're right, Scott, When I worked at Kleiner, they said, hey, your job is to do great diligence and help with post-investment support. Sourcing is not part of your job because we see everything.

1:03:14You're not going to get promoted for sourcing something because we get it all. And that's not the case anymore. All right. So I have a last question for you, Aileen. If you were starting now, you've been through the big firms, the small firms. What would you do right now? I think a lot of people started companies because it seemed like a cool thing to do. Uh, and, uh, the people need to know, like, you know, things, economies go in cycles and, you know, it's funny, I used to work in the fashion business. There's a lot more in common with the fashion business and tech cycles and economic cycles than I think people realize, but, you know, in the past five years, there was so much software, especially in enterprise that we were in this best of breed zone where people could find an app that they thought was going to make their job more effective and then bring it in house.

1:04:00And so then before you knew it, you had 500 or 600 different software packages inside an enterprise. And given what's happened in the economy and public market valuations and multiples, everyone's more focused on margins and budgets and security. So CFOs and CIOs and heads of engineering and CTOs are saying, hey, we need to shrink the number of people that are inside our walls. We need to tighten up security. We need to tighten a budget. So they're cutting. Budgets are tight right now for enterprise software. And so selling something new is tough. There's a lot more headwinds than there were three or four years ago.

1:04:36And so founders, if they have an idea and they know that they can deliver quick value, whether it's to a consumer or to an enterprise, because I think the bar is higher now. But like Scott said, I think it's an amazing time in general. We also looked at this thing that we call the software power law, where even though we think this herd is going to shrink, I think given how much investment is going into chips and in compute and in storage, that's just going to grow. And as a result, people are going to be able to build more and more powerful, capable software. And we're going to have more exciting software companies in the future.

1:05:11Ah, perfect. All right, Aileen, thank you. We got to go. But you are the original unicorn. Thanks, Aileen. You have to get credit. It's been a huge term. It's been really important, even though some things can be reductive. I thought this one was enduring. Happy 10-year anniversary. Thank you. Thanks for having me on. Thanks, Aileen. Thanks so much. All right, Scott, don't you like her? She's so smart. Yeah, very impressive. All right, one more quick break. We'll be back for wins and fails.

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1:06:40Okay, Scott, let's hear some wins and fails. I'm going to start with my win. I saw, I'm interviewing Ava DuVernay, who I love, who's a great director. I've loved all her work. She has a movie called Origins Out that is about Isabel Wilkerson, who I interviewed at the New York Times, who wrote the book Cast, which is it removes racism from the discussions about why certain groups are pushed down by others. And she made this amazing connection between the caste system in India, the Nazis in Germany, and the American South that I thought was just brilliant. Because she removed race from it. And she's talking about the caste system and all the different pillars of it, including controlling marriage, including inherent superiority.

1:07:31And it really started, nobody thought she could do it. And she's as pure as her prize winner, a brilliant woman. And then Ava's done a movie about this very difficult and sometimes academic, you know, very thinky book that is wonderful because it's about Isabel and her life and her family and her mother and her husband and this journey of this book. And she uses a documentary style, very up close. She takes a very difficult issue and makes it into the most wonderful of movies. And, you know, at the end, which was one thing, speaking of women investors, all of a sudden on the screen, Anne Wojcicki's Foundation, Lorraine Powell Jobs, and Melinda Gates are producers, which means they funded some of it.

1:08:17And I was like, what? I had no idea they were in it. So I was like, wow, this is amazing. It is, I am so excited to interview Ava. And it is, I have to tell you, it is such a good movie. I loved Mean Girls. I loved American fiction also, as I said, all these great movies. But this one is, I couldn't believe, at the end I was turned to Amanda, I'm like, she pulled that off. I did not think she could pull it off. It's a heartfelt movie about a very difficult issue around why we discriminate. And it was, I thought it was, it moved toward, like you were talking about solutions with people. It moved toward, let's think about this differently.

1:08:56And I really appreciated that from, you know, let's think about this in a more complex way. Maybe it's not just racism. Maybe it's something else that is racism can be part of it in certain areas that explains how we how we bring push people down. And last thing I'll say is there's some very difficult scenes, especially around racism, that are this little kid in a pool in Georgia. I think it's Georgia is just so upsetting, as well as showing showing some the way she shows the middle passage was so devastating. And yet not there wasn't a lot of it, but there was it was it was it was an astonishing display of directorial skill.

1:09:37One of the things that it ends on, and this is not a new, fresh thing, is she somehow makes it into a metaphor about this house that's in the book, too. And she says, let's not talk about how the house got this way. That's what we do a lot. Like, you know, saying I didn't do slavery. I didn't do Nazism. I didn't do the caste system in India. Let's not talk about how the house got here, but what we're going to do with it now. Now it's your house. So what do we let's not talk about who did this. We have the cracks. What are we going to do about it? Amazing movie. Amazing movie. And the fail, of course, was Ron DeSantis.

1:10:11He just, what a fail. Starting from the Twitter thing, just a terrible, terrible candidate. Deserved fail. Deserved fail. And Donald Trump in the courtroom, the way he's behaving is just astonishing that he's not in jail right now for contempt. But go ahead. I'll draft off your win. I liked it. My fail is, and I'm trying to put a lesson in here, DeSantis' speech where he suspended or announced he was suspending his campaign. I think there's a lesson in there, and that is people remember how you leave. You can spend 10 years working at a company. You can do an outstanding job, and 51 % of your brand and how people remember you is how you behave after you've decided you're leaving.

1:10:54And you You should always absolutely resist the temptation to stick up the middle finger on the way out. You should be gracious. You should thank everybody. I mean, if they've treated you really poorly, you should lawyer up. But other than that, you need to err on the side of grace and generosity. People remember how you leave, how you end a relationship. It might not be working out. You may not feel like you were treated very well, but you err on the side of grace. And when he gave his speech, if he wants to endorse Trump, that's fine. where he really blew it and what he should have done. And I'll get to each of those.

1:11:24He said, I'm not, you know, and I don't, I'm worried about Nikki Haley's reheated corporate governance, governmentism. He can't stop. He shit posted another Republican governor and his brand has actually gone down. Most presidential runs enhance a person's brand just because of awareness. I mean, it was worth it for Vivek Varamaswani to run for president, similar to Andrew Yang. He's now kind of a public figure and he'll have influence. Where imagine, I mean, these people are just so poorly advised. Imagine if Governor DeSantis had said, you know what? First, I'm going to call out Vivek Ramaswani for injecting new ideas into the race.

1:12:04You know, what an impressive young man, but we haven't seen the last of him. Chris Christie says it how he is, you know, calls it as he sees it, injected an interesting voice into the campaign. And if he had said, and what a great race, the former governor and ambassador, Haley, has run, I wish her the best, and I look forward to working with her, he would have burnished his brand and potentially set himself up for more success in Florida. It wasn't his advisors, Scott. It was him. This is him. He has shitty advisors. Let me just say, his PR person is one of the most unpleasant. Well, supposedly his advisors is his wife.

1:12:41Yeah, I understand. But everyone around him is so unkind, ungenerous, unpleasant, and really shits. This is my lesson to young people. It is so easy to give into your instincts to take, now that you have nothing to lose, to speak your mind and go after people and jab them. Don't. Don't. Real grace is being magnanimous, generous. And if he had done that, it would have gone viral. It would have been everywhere. And everyone would have thought, you know what, maybe I'll give that guy another look. Instead, he cemented his brand as an asshole. And every president that's won, maybe with the exception of Nixon, has a certain charisma or likability to them.

1:13:25And this was an enormous opportunity to counter the image that people have of him on the negative side. I would say yes. Be likable. That's my fail. That's a good one. All right. I'm glad that you dropped my mind. Again, see origins. You should see it, Scott. You would love it. I'd love to know what you think, too. Anyway, thank you so much. What a very full and rich show. And again, we want to thank all our questioners from last week's, all our audience who came and did questions for us in our call-in. We love that. We got great reviews for it, and we're going to do it again. But what a smart group of people listening to this show, and we really appreciate that.

1:14:03We want to hear from you, as we said. Send us your questions about business, tech, or whatever's on your mind. go to nymag.com slash pivot to submit a question for the show or call 855-51-PIVOT. Scott, that's the show and a fantastic cuddly show it is. We'll be back on Friday for more. Read us out. Today's show was produced by Lara Neiman, Zoe Marcus, and Taylor Griffin. Ernie Entretot engineered this episode. Thanks also to Drew Burrows and Emil Saverio. Nishat Kirwa is Vox Media's executive producer of audio. Make sure you subscribe to the show wherever you listen to podcasts. Thanks for listening to Pivot from New York Magazine and Vox Media.

1:14:34You can subscribe to the magazine at nymag.com slash pod. We'll be back later this week for another breakdown of all things tech and business care. Have a great rest of the week.

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