Saas Crash! AI Collapse. Atlassian Hammered. Xero Obliterated. BTC Decimated. CTM Founder Lives Large. Will Canva Take Down Australian VCs.

23:23Yeah. It's plummeted. Yeah. It's now down to 35 times earnings. Which feels pretty decent. On a 15 % revenue growth, 25 % earnings growth. It's starting to get buyable in my view. Totally. And they've got a business like NetWealth, which is, I think, a great business. and this is a bit obviously we love Matt and it was well run but even without our sort of bias this is a business that gets 25 % inflows from super without doing anything so let alone in fact it's a great platform and it makes great returns like and that's down to 47 I think times or 45 times per which feels like so it feels like there's some good stuff that has actually been hit along with the overpriced stuff but car sales is also trading on a similar multiple to REA and it's growing much more slowly on both the top line and the earnings line and so I think But I think REA's got a bit of ACCC risk around it, whereas CarSouth has none.

24:11That's true. And people are worried about the resurgence of domain risk under CoStar as well. Well, CoStar's got some massive problems of its own. There's a real question of Andy Florent is going to survive. Oh, is that right? Because Dan Loeb, Third Point hedge funds, CoStar's been an absolute disaster. I see. The UK acquisition mean disaster. People think domain is a disaster. Yeah. I suspect he's gone at some point. And I think who knows what happens with domain, but this is a real problem. They've got some real problems. Do you think, so you could say, I think the plummeting of, because let's put Seek to the side.

24:45Let's talk about the two growth businesses in marketplace in Australia. Do you think this plummeting of the share price is justified based on the high valuations? Do you think it's happening because of that? Or do you think it's happening because people are worried that AI is going to cut the line? No, I think it's nothing to do with AI. I think that's just general panic. Right. Panic selling. Because I do hear still, I think car sales are high quality businesses. I don't think Seek is, but I think those two are. But you don't think any of those three marketplaces are getting displaced anytime soon by vibe coders.

25:17I totally agree. You know this argument, I read this article, I respect the fact that they wrote an article that probably got a lot of views, but this article was like, I saw my house using Insta with some AI, blah, blah, blah. And that's the end of REA. I don't think that is anywhere on the horizon I agree with you I think they're coming down off just very high multiples but fundamentally great businesses they got caught up in the everything bubble and just got over inflated but now like R &A at 30 times multiple that's an Adam Schropp buy and you know my feeling I'm buying public stocks but it's not 30 yet yeah but it's getting there like it's getting to a pretty juicy okay now let's argue about where a lesson is a buy I actually think ring the bell we're getting not far off being a buy oh my god I thought I was going to be able to argue with you about this.

26:05Sorry about that. Now that it's down 75 % or something. And I've had multiple arguments with the early Atlassians who still continue to claim that I'm attacking Sutton Mark. This is my thesis now on Atlassian. I think the moment has come for my plan, which is… Your fiendish plan. Yeah, which is, you know, like the problem that they had, it's kind of like the zero problem. They can't do what's right because it will destroy their valuation. And what's right is make money. Yeah. But now the valuation is destroyed. And so they're a business that is doing$6.5 billion USD of revenue. They're growing at like 22%, 23 % on the top line.

26:46Although customers are growing at like 10%. I saw that, but I'll take the pricing power. That's great. I read that they said - That lasts to a point. We know that doesn't last really long. No, but what they said is people are moving up to higher plans to get access to the AI, although they are paying the token tax if they're doing that as well on that revenue. But what I think is this, so if you've got a business at six and a half bill and it's going to grow at another 20%, it's like 6.3. You're going to get to seven and a half billion dollars in 12 months time. You agree it's very possible to make a billion dollars of earnings on seven and a half billion dollars of Atlassian software revenue.

27:18I could do it. You could do it. You agree, right? I think I'm just looking at the numbers. Look at the last six months. Let's look at GP, which is the more relevant metric. That's gone from two billion to 2.5. Pretty good growth. Yeah. Like we're talking about Seek, not growing. This business grows. So definitely, there's no question. It's R &D, so it's caught at people expense. It's gone from 1.3 to 1.6. So that's going to plummet soon. Well, let's get back to that in a second. I know it's gone up, but I think it's going to plummet. Let's get back to that. Marketing, this is the real worry. Marketing went from 5.24 to 7.12.

27:49So they seem to not be able to grow without really spending a lot. I don't think you can take back that marketing line is the problem. Why not? Because then your revenue drops. You're saying they're not growing really that fast. No, I'm talking about Alassian, 23%. Yeah, but they're not. You say they're growing 10 or 15 % on customer count, which I agree with. Yeah. So you don't need marketing to get expansion revenue. No, but the customer count could go down because they're churning. I'm not sure. You know what? I'm not sure they even need half of that marketing. Because you know what it's like in these organisations.

28:19It depends how tough they are with the marketing. Can they get out of their Formula One contract and stuff like that? That's what some of this marketing cost is, possibly. But where I think we can potentially deal with that. Hang on, I don't understand what's between their revenue line and their gross profit line. Like, how can their revenue be$6 billion and their gross profit is$2.5? That's for the half year. Oh, for the half year. Oh, okay. Well, that makes more sense. Yeah. Okay. That's plenty of money to make a billion dollars a year. Well, not when you're spending all this money. Okay, so let's go...

28:48Half a bill a year profit on two and a half bill gross profit. They're losing there. It's hard to work out they're losing because there's a few things in the lot. Their loss, their operating loss because they've got some non-operating stuff. Operating loss is about 300 million bucks a year. Yeah. So you've got to turn that around as well. By 1.3 billion. I'm super confident I could do that. Here's your problem. I know where you're going with this. They don't pay people in cash. They pay them in quasi-cash called quick vesting stock, right? That's going to be your pitch. And that's approximately equivalent to their free cash flow.

29:19I know this argument. I kind of agree with it, by the way. So they pay about 1.6 billion in stock-based comp. Which is approximately what their free cash flow is. So about half. So forget, I'm not even talking about that. What I'm talking about is, so let's say you're a lasting employee, you're earning a million dollars a year, well done idea, you're getting a product manager, you're getting a million bucks a year, which is probably what they get, what they pay. 500 grand cash, 500 grand stock. Yeah. RSUs, you get them in three months. Yeah, now that stock is worth 125 instead of 500 a year later.

29:45But the good news is they'll be selling it within three months anyway. So that's that. But they can't sell because they're getting taxed fully then. So I don't think you want to be selling that stock within it. Right. So they've lost that 75%, whatever. That's done. Now, so now it's May and I come to you, I'm your manager, you come to me, well, you gave me 500 or 500k last year but you have to give me a lot more stock this year because my stock last year went to share. I agree with you. You have to pay 4x. The dilution's going up. The dilution's 4x. Well, welcome to all business problems that are the same when you're paying people in stock, right?

30:14It's not unique to them. You're right. They had the benefit of the stock going up for all these years. So suddenly, their real cost of staff is going to massively increase because they can't give, and I haven't got the cheap stock. I've got expensive stock now, not cheap stock. Suddenly, you're trying to go from$300 million lost to a billion dollars profit, while your employee costs are 3Xing. But your employee costs are not going up in dollar terms. In dilution terms. In dilution terms. Your shareholders are paying more for your employees. I get it. In the days of pretending that stock-based comp doesn't exist, I would still move it to the side and say, we can't solve all problems in year one and two, but I'm pretty sure you can get this business to a million dollars of earnings.

30:52A billion. A billion, sorry, in year one. slash two. And let's say you did that. So let's say you had a business growing 20 % on the top line doing a billion dollars. I think you can get to a billion, but I think you're growing at 5%. And that's where we talk. You think you're growing at 5%. Because to get to the turnover 1.5. 15 % of its expansion revenue charging existing customers more money. I think that can't go on forever. I think that's going to go on for a long time. The dual Atlassian's crown is the fact that it's so cheap. And the fact that people don't switch as much as they should.

31:21because it's, and hence the whole vibe coding argument go, why would I buy the vibe coding do you want it so cheap? But 15 % is 30k to what? 30, 34 and a half k. Okay. That doesn't make a difference. No one's going to cancel it for that. I think you can get to a billion dollars in earnings. I think your, your, your revenue growth drops off. So I think you get, I think you can get to 2 billion. Would you buy this company at 20 times earnings? I think it's at 30. 20 times earnings. I think it's at 35 now. It dropped below$100. Yeah, it's not$100. So now it... I think it's on 30 or 35 times earnings.

31:55Well, it makes a loss now, so it doesn't... Oh, yeah. Well, but yes, that's true. It's capped at$25 billion US. Sorry, you're right. I wasn't thinking about PE. I was thinking about market cap and what PE would I pay on the$1 billion. And so now I think I'd be paying... It's capped at$25. I thought it was higher. $26,$25. Yeah, so now I'd be paying... It dropped 6 % overnight. Yeah, that's true. So now I'd be paying 25, 26 times earnings. On my notional$1 billion, which actually it's higher because mine would be pre-tax. But whatever, these guys are not paying tax for a long time, so that's fine.

32:28Well, they do pay some sort of tax, really. They're just losing money. Yeah. So do I think it's worth 25, Bill? No, because there's execution risk in what I'm saying. Do I think it's worth 15, Bill? Definitely. Like, I think$60. That's where we were. What did we say? A year ago. I think we said a year. I think we talked about market cap, and I think I said 10 to 20, which caught 15 mid-range. which is kind of where we're not, and at that point, I'm now not a seller, and you know what happened yesterday? The announcement yesterday? Mike and Scott stopped selling. First time in like nine years. They've stopped the selling.

33:01So now that's the sign is they finally realized. everything is cheap. They knew it was overpriced. They're not idiots. And now they're going, oh man, now it's getting to approaching fair. No, I agree. I think we exit our short position on Atlassian. Yeah. It's time to exit that. Yeah. We have a 75 % gain in a year. I think, yeah, I think now it's getting to buy because, but what you want, you wouldn't buy it till you see this change in attitude. You know, we wouldn't have shorted it like because of our overwhelming confidence, we would have just bought tons of put options at a much higher price.

33:34Cause can you imagine when it was like what, $400? Can you imagine how cheaply you could have bought$200 put options? So that means like the right to sell the shares for$200. You could have bought them for basically nothing. Nobody thought that 400 was going to 200, but now it's at 100 you basically make a hundred dollars profit on every one of those options speaking of uh successful wages uh your old mate maddie deldover who's obviously a friend of the pod uh me and him had a we never actually made the beneficial because we couldn't come to terms because he wanted a unlimited upside and i refused to give it to him but we had a bet on a business little business called strategy firmly known as micro strategy i claimed it was a ponzi scheme Matty was a true believer well poor old strategy is down a lazy 75 % as well since we pretty much had that bad almost everything is massively down 75 % is pretty exceptional that's why I don't really take credit for Iron because like I mean obviously I don't take credit the time is pretty special but like I think it's just was completely obvious and it just so happened that when people started panicking they realised the Emperor had no clothes on that business the full credit for Iron will come when it dies in six months so I think what you can take credit for is the fact that you dissected that business model so beautifully.

34:44That hasn't come out yet. This is just that everything gets thrown out in the trash, but it's really going to get thrown out in the trash when it dies in a year, which we think it will. If you look at micro... So micro strategies obviously basically levered to Bitcoin. We had this ridiculous situation a year ago. So this was basically a business that was doing what? Borrowing money to buy Bitcoin. It was issuing shares. Issuing shares to buy Bitcoin. I thought it created this perpetual money machine where it had this ridiculous valuation where it had this pot of Bitcoin worth, call it$100 billion and the business is worth$200 billion which made no sense at all.

35:16It was like two times NAV. Imagine having a fund manager that owns$100 million worth of companies and you're valuing it. It made no sense at all. Because almost all of these exchange traded funds or listed investment companies, they traded a discount to their asset value. Not a 2x premium. Even if it was a par, like whatever. And the excuse, and people would make all these, and this is what happened in bubble, you have smart people saying stupid things. People are saying, well that's absolutely true. That is the worst, like not the worst but like you know i say say these things like if you want to make a lot of money believe something that other people don't go in hard and be right it is hard to believe something other people don't when people you really respect and who are really smart are saying the complete opposite to you and basically that you're dumb yeah it is hard right it's harder for me than you i think because you that just motivates you but like i think that it's not easy i think you think more people are smart than i do like and absolutely true the people i think are smart like John Hempton are the ones who are getting killed out there and now obviously look like geniuses because John is but you know when people are criticising Buffett and Hempton then there's a bubble that's like the classic bubble when genuinely smart people but if you look at so strategy had two problems one it was levered to Bitcoin which has its own set of issues and Bitcoin's now down 50 % since the Trump bump and who knows it's now at 53 ,000 it's that point of resistance if it breaks through there God knows what happens and we think that there's essentially no inherent value it's basically been an environmental destruction machine, if we're honest about it, right?

36:43Because of the power usage. I think globally it uses more power than Poland. So mind Bitcoin. I'm serious. I think Bitcoin, as I've always thought, Bitcoin in principle makes, I think the notion of digital, as limited digital gold makes sense. When it trades in a narrow range of value. The problem is it's never traded in a narrow range. It did briefly, but it never really traded. But if you look at strategy, strategy was this perpetual money machine. It was listing, effectively selling shares at two times NAV. People thought this thing would go to the moon. I see. So it basically goes, sells$2 worth of shares.

37:13Buys Bitcoin. Buys a dollar of Bitcoin. Yeah, and then it goes up and up and up and up is what happened. And then I said, this thing was a Ponzi scheme and Matt had disagreed with me there and we tried to make this bet. We could never come to terms. It's not exactly a Ponzi scheme. It's just dumb. Like, it's not a Ponzi scheme. It's worse than a Ponzi scheme. No, because yeah, but it's more transparent than a Ponzi. Like a Ponzi scheme, I have to take money from you to pay Mike this promised return that doesn't exist. And the minute that someone doesn't give me the next lot of money, you're going to catch on the fact that it's a fraud.

37:44Well, there was, there's Ponzi elements in that it needed to keep raising money to feed this petrol money machine because there was no justification for this valuation. But all that would happen then is the share price would fall. It would fall to the level of the Bitcoin price. That's right. There shouldn't be Bitcoin price, but itself wasn't overvalued. But the thing about a Ponzi scheme is like it's always got negative equity effectively. And so it just collapses to zero, to negative when no one puts in more money. and then you start getting angry at Mike because you say to Mike, you took my money and Mike's like, no, I just got the return that was promised to me.

38:14It's just dumb. These things are so dumb, right? And so the thing is this though, smart people look at these things sometimes and see how dumb they are and what they say is, wow, I think I can make a lot of money before people realize how dumb this is and that is what happens a lot, right? Like we can be very smart and say, that's dumb, that's a bubble, that's dumb. And lots of other people see it too, but they get into it and get out of it. Whereas we just don't go near it. Pretty hard to get out of it. But yeah, some people do, but we're talking like 2 % of people get out of it and most people get smashed.

38:49Well, I feel differently about Bitcoin because if you bought Bitcoin at$10 ,000, there is no way you could have known it was going to$100 ,000. But if you bought into NVIDIA when you felt the momentum and saw where things were going and you've made, let's say, I don't know 20x on your money I think that's like you know that that's a bubble but you also know that there's enough momentum behind it that the bubble might run for another year or two the video is the same kind of weird case in that the multiple is quite low it's just that's based on this capex thing and it depends on the whole thesis on Nvidia is how genuine can this capex how much of the how much of the buying is not is being funded by something other than shareholders losing money on companies downstream Yeah.

39:36NVIDIA handing out its own money to get back in the form of revenue. And like hyperscalers funding it as well. Here's the similarity, interesting similarity. Hyperscalers using their balance sheets to fund like revenue growth effectively. Here's another interesting, to that point, interesting similarity between 99. So look at the poster boy of 99. It's probably AOL. It wasn't the most valuable. No, I totally agree. AOL was kind of the symbol, symbolized that crash. which obviously merged with Time Warner and became a disaster. But what was AOL? AOL was getting money from these startups. Like they were paying a bunch of money.

40:09AOL had this closed walled garden. And the reason why AOL collapsed after the merger is all these startups went out of business. So these startups being funded by venture capital money. So the venture capital money is flowing through these terrible startups. And it was essentially flowing through to AOL. This is kind of, and it was cool, it was revenue, but it was fraudulent revenue. AOL had real revenue, I think real profitability at the time. NVIDIA has real profitability and real revenue as well. but it's also coming from fraudulent revenue because the hyperscalers who aren't VCs but call unlimited pot of money as well who are spending this capex off balance sheet as we talk about repeatedly.

40:39So it's not impacting... Imagine what would happen to these hyperscalers' valuations if we had to put this capex back on the balance sheet. It gets smashed. Well, it's kind of... The dishonest part about that accounting is that they're spending money off their balance sheet and buying assets. And so that's not an expense on the income statement. But it eventually becomes an expense on the income statement as you depreciate it. But the thing that's going on here, as we all know, is they're going to depreciate this over five or six years, but it's going to become obsolete after two. And so really they should be doing accelerated depreciation of these assets, which would totally change the income statement.

41:14And that stopped the CapEx is the first thing. Well, and what's worse about this is, let's say, I'll just pick Microsoft. Microsoft goes and buys a ton of CapEx, and it doesn't put that on as an expense on the profit and loss, and then it just depreciates it down too slowly. but it is going to generate a mountain of revenue from that CapEx. Maybe. Well, it is, but the revenue is going to be generated possibly at a loss. But there's going to be a mountain, at a real loss, right? But there's going to be a mountain of revenue that comes in. Like there's some, like I think Microsoft is generating five or six billion dollars a year from co-pilot subscriptions.

41:51That's not much. Well, I know, but that is like just from straight co-pilot. That's still a mountain of revenue. For a terrible product, I guess. That has almost no operating expenditure against it today because it's capex and too slow depreciation. Who would pay for that thing? I know. It's just shocking. There's some, like there is a, maybe there's 15 million people paying for it. It's a lot of people paying for it. It's like the worst thing I've ever seen. Unusable. I totally agree with you. We're also seeing like a VC arbitrage, not good for VCs going on at the moment, where VCs are giving money to these startups and that money, if you follow it along the whole chain, what's actually happening to that money is that the average consumer is being subsidized to use AI processing at 50 cents in the dollar.

42:39If not less. If not less. Yeah, absolutely true. Let me say this last thought on AI that I was thinking through. I want to tell you about SaaS. Do we want to talk about SaaS? Yeah, let's talk about SaaS. The SaaS. The SaaS has been pummeled, right? Yeah. And everything has been pummeled. Like I look at the cross sass and like, it just depends how much you're pummeled. Like, like catapult is down to where it was a year ago. And like, I think you guys still well up on like 2020, well up. Yeah, that's right. There's a lot of these businesses down on 29. That's right. That's a big difference. And so we would see expect to 2014 pricing.

43:15Yeah. Well, that's, that's unbelievable. Right. But like, like, like life three, so life three 60. Yeah. They're kind of back to where we are. Like as in back to parody from a year ago, It's also another pretty good business. Yeah, I think it's a great business actually, Life360. And so everything's been smashed. And so this is how I've been trying to think through the effect of AI on SaaS businesses. So let me say these things. Number one, anybody who has ever written code will know that coding is not software engineering. Like there is a lot of architecture and strategy, et cetera, that goes into it.

43:51And so just getting a lay person to vibe code, let alone with co-work, but I'm even talking about coding is probably the least element of software engineering yeah it's not software engineering right and the other thing I'd say is that when you run a big SaaS company coding is the easy part like I'm not saying coding is easy but like the hard part is like strategy and compliance and getting sales and servicing customers like all of that is much harder than the code writing part if you're vibe coding something you don't need sales because you're vibe coding yourself but like take that aside well you'd still need people to buy it No, but if I'm vibe coding Jira for Luxury Escapes, I'm not selling to anyone.

44:29Okay, we'll get to that point in a second. But what I'm saying is that for big SaaS businesses, coding is the easy part. Yeah. And so making that easier, it'll have some advantages I'll talk about, but that is not this oh my God moment. For example, I want to code my own Jira, but I don't know if you care about SOC 2 compliance or you even know what it is. You probably do and do. We use Vanta, good friends at Vanta. Okay, Vanta. Okay. So SOC 2 compliance is like, I don't know, it's kind of like ISO 27001, right? Similar, not the same. Some compliancing around security and data safety and all of that.

45:05Now, it's important to businesses to be SOC 2 compliant, unless it obviously spends a lot of time making sure its stuff is SOC 2 compliant. Anyone vibe coding something, et cetera, I'm not saying they can't achieve it. What I'm saying is the coding is the easy part, right? There's lots of other parts. Then we say, how might it displace Sass? So there's two ways that I can think of. One is your example. As I tell you, you're the worst customer in the world. I will never service you. And so, you like that, Mike? I didn't get much of a laugh out of that. That was good. What have you done to him? You're running gags all afternoon.

45:37You're hilarious and he thinks, hard, that was fun. I laughed at that. I thought that was good. Come on. It was me to laugh. I know, I know. He's trying to suppress it. We made a deal before we came in today that we're going to pump up your tires. So you can do your little version, which is I'm going to get my own staff to code up these applications for my own use. And you might say, I only use 30 % of the features in Jira anyway. So we'll just do 30 % of those really, really well. And you might do that. But for the vast majority of companies, the idea of coding and maintaining that, because they say, I can maintain.

46:12I'll give you a tip. It can't maintain. so like coding and maintaining this software like it's just something that most companies are not going to want to do for their own like core functions as you said especially when it's cheap and then the other alternative is you so why will you want to so can I just take a step back yeah forget the vibe coding jira thing which is whatever people do but I think the reason these sass businesses have been smashed isn't because that necessarily I think vibe coding is the microsoft case yeah i think what's happened is people realize holding these valuations are ridiculous like why were i paying so much for it could be but whether it's last with salesforce were any of these businesses that we're just overpaying on this rule of 40 there is a there is a i'm telling you there is the predominant narrative that i hear at the moment that is around panic is ai is the death of sass that is a market narrative going around right now i think that's the microsoft case i think the real issue is that i don't know the valuations are too high and now they're coming to a point where I think they're still too high but there's now less high.

47:11Like Alassie is still a bit high but it's now like within striking distance of getting what I think will be fair about you. So I also think about it like this. So you could do your own stuff. That would be bad for SaaS or there could be lots of competitors because of vibe coding. People vibe coding. Competitors is another potential. And so let me explain this, which you would know. Every major SaaS business in the world already has a significant number of really high quality viable competitors. that they're fighting. And what you're saying now is we're just going to flood the market with a whole lot of worse competitors.

47:41Like that is not going to make much of a difference in my view. I agree with that. The biggest risk might be to seats. So I'll get to this. So I'll tell you the upside and the downside. And certainly growth. Yeah, so I think what people are missing to me. So why don't you explain what seats means? Yeah, so I'll say it in this way. The thing I think people are missing about software is we're in what I might call a retooling phase now where I might compare this at some point to the industrial revolution, but what's happening is people are spending lots of money on retooling their companies with AI tools, and that's expensive.

48:15But down the track, they're going to get the benefit of retooling, which is much more operating efficiency, is my guess. We're already seeing it with software developers. We're going to get lots of operating efficiency. Predominantly, that will accrue to software companies because 30 plus percent of their expense line is software developers, R &D, and maintenance and whatever. And so that's going to be great news for software businesses down the line, massively increase their margins, I think. But the flip side is that every company is going to be using AI, and that means when they go and buy a SaaS product, the number of human beings inside the company that are going to be there using that SaaS product will maybe diminish.

48:59and the way that they sell, not grow and the way they sell, the way a lot of SaaS companies like Salesforce sell their product is how many seats, how many human beings sit on it. How many licenses do you need? Yeah, per human being. And if you've got a diminished number of human beings because AI is doing a lot of stuff, then that pricing model is problematic and the question is, do you accept the shrinking of revenue and offset it with the efficiency gains in your own business of not having, your core expense is going to diminish or do you say we're still providing the same value to the company so we need to change our pricing model?

49:36That's tricky, right, to move to usage-based pricing. It's a big change for a big company, right? And so that's the hard part about what's going on. I think there is an element. If you look at Jermas 8090 business, I think there is an element that even if companies aren't vibe-coding their own, I think there are competitors that will emerge. Look at Salesforce, which is frankly a terrible product, but is a legacy product. Cheer up, terrible legacy. These very ordinary, and Braz has sort of done this with Salesforce without AI, but competitors will emerge with people who are able to vibe code where maybe it was impossible to take on Salesforce before.

50:08Salesforce had a few competitors, but none that really had the feature set. I think there is definitely a risk, and I don't know the level. I think the seat thing is a bigger, shorter term issue. I think that's it. The medium term issue is competitors are easier to come up. The moat rig is reduced. Around their smaller clients. Because Microsoft is not, I don't know if they're on Salesforce or not, but like SAP, like they've fallen 25 % they've got their own problems but it's a great, great, great business. Like, you know, like Vibe Coding's not going to do anything to them but they've got maybe a seats issue potentially, right?

50:36Yeah, potentially. So I think probably an overvalue. I think when you've got the, and you've got interest rates in the US potentially not dropping like people thought they would. But there's a few other things at play. I don't think there's never, crutches are like plane crashes, market crashes. You need like seven or eight things to all come together. No, you're absolutely right. But I definitely think people are not factoring in the long term that the single largest cost of software businesses is likely to diminish substantially, and that's R &D. And this is the thing that I'm shocked that no one is talking about.

51:01And, like, I know why people are not talking about it, but it baffles me. So, like, venture capital, that came into existence in, like, the 60s because tech was new and you needed lots and lots of expensive physical equipment to start building tech hardware and nobody could afford to pay for it. Venture capital didn't really get going properly until the 80s, I'd say, even in the 90s. But Kleiner in the 80s and Sequoia started. The way it started is like, I want to build this great product, tech product, mostly hardware. It's so expensive to buy all the stuff to build this. I don't have the money.

51:35And like a bank won't lend me the money. And then these specialised investors popped up that said, we'll lend you the money for this and take 80 % of your company and like that's how you can build this business. And then the rise of software happened and venture capital kind of transitioned across to funding software because building a piece of software from scratch is very expensive because you need to hire lots of developers. But now I don't need to hire lots of developers to launch a startup. I can do it myself with one other person and some AI that I'm buying for 25 cents in the dollar or less.

52:11And so why do I need venture capital anymore to launch software startups? Is this not a pivotal moment in the entire venture capital model? Could be. Like, why would anyone, why would any startup building software today not start by just building it themselves with AI and getting it to a point where maybe they're at series A or B before they need money for expansion? I think seed funding is over. That's interesting. So if you look at the Wall Street Journal had an article about a month ago, knowing that US venture capital firms dropped 25 % last year, the most anemic stretch in six years. Right.

52:46with money flying primarily to trusted investment firms. So the big, the Sequoias, the Cloners, et cetera, benchmarks. The$66 billion raised last year was a 70 % drop on 2022, according to PitchBook data. So that's kind of bearing that out. So look at some of the big investors. Lightspeed raised$9 billion. Peter Thiel raised$4.6 billion. But new funds basically can't be raised. So we are seeing that already. This is a year ago. But why would you take, so let's say pre-seed. So pre-seed means I've got an idea of no product. So that's held dilution because your stuff's worth nothing, right? and so why would you dilute at that level?

53:17You can go and build it out with AI yourself and then you get to see, oh, I've got a product now, I want to get it into the market. Okay, so why would you raise there? Like, why don't you just put it out there? You probably built it super quickly. Like, you can get it out there and so I think like, until, like let's say Series A where you say, I've got product market fear and now I need to scale, I need to scale up marketing. I do need money for that. I can't AI that, right? Basically, I think there's going to be lots of delayed fundraising to Series A. that means less things to fund and more expensive entry points for VC.

53:52So all these great returns that VCs got on Canva when they got in... I want to go back to Canva in a minute. When they got in seed, right? Yeah. Pre-seed maybe, I don't know. Well, because Canva's been rising through the journey. I know, but a lot of the mega returns that VCs make are in the really early rounds. Yeah. And I think when you can delay because you don't need the money, fundamentally that shifts the early stage VC model. I was chatting to a VC in Melbourne who I really like yesterday and seeing this like, because I'm an LP in three VCs and I think three very impressive VCs and they've had, and these funds will probably return in the end 15 % annually, I reckon for me, eventually when we get there.

54:31That's all right. But this is going to take 15 years to get this money back. So 15 % a year for 15 years, that's good. It's okay. But it's not what we saw VC in any year. every other general if you've got benchmarks first fund it was like 100x is it on is it what was written on the box when you signed up to those VCs well certainly it was I would be very sceptical to ever not that any VCs crying over my tiny little paycheck let's be clear but I would be assuming with VC investment I'll get the money back in 70-10 years that's not happening like it's 15 years best case and you get tubes and drabs 3 grand here 10 grand here whatever but if someone said to you I'll give you a VC investment 15 % for 15 years I'd take that what did they tell you you were going to get they don't promise right I don't blame them for that is there a hurdle return rate they have to get over before they can take performance fees I actually don't know you should look at that yeah I didn't even look by the way it'll be a lot less than 15 % but like but but think of Australia like take out the Canva's and the whatever it's now just Canva because if you look at culture I'm obviously struggled a lot like valuations drop right back safety culture like that's a who knows what that's valued at exactly who knows so really just got Canva left we'll talk about in a few minutes but think about in the last 10 years so after oh are we talking about Canva.

55:39Oh, that's exciting. Get to Canva in a minute. In the last 10 years, can you name a company coming out of Australia that's actually done anything? Done anything. Like being a great, well, name a great business in Australia the last 10 years. Like a new innovation. Like you're not giving me Cochlear or something because it's... No, that's 70 years ago. Yeah. In the last 10 years. So something that's popped up in the last 10 years. Post that first Blackbird fund. Oh, sorry. I just have to... You know, this is your version of a quiz that's not a quiz. Yeah. I just have to figure out what the question is.

56:05So name a VC-backed company that was founded in the last 10 years that's been a standout. Name one. Well, a lot of these space ones would say they are. Maybe Gilmore? Yeah. What about Dirac? You know that business? Who? Dirac, D-I-R-A-Q, named after a very famous physicist. I know it. It's a quantum computing business that just raised another$20 million from the future reconstruction or whatever, one of these. No, but... Right from taxpayers. Yeah, yeah. No, but they also... But I think... There's 20 million, forget about it. I'm not real in businesses. The people... That could be real. Yeah, but like...

56:45What about some other quantum... A billion dollar plus. Anything a billion dollar plus. Worth a billion dollars plus. Yeah, I think that would be... Nothing. Eucalyptus? That's worth a billion dollars. That's in the last 10 years. Or you might not love their model, but that's, I gave you one. If it is, it's purely on the genius of Tim, but it's not, there's nothing else. So like maybe. I don't mega revenue growth. But it's, let's see what that is. I'm not giving you that. But you have to give me that. I'm not giving you that. It ticks the box. I'm not giving you that. Well, it's not official. So your question is, name a business that blah, blah, blah, blah, and ticks Adam's box.

57:17Has it had an official billion dollar round? The box is a billion dollar, billion dollar genuine round, which it hasn't had yet. So no box tick. because it hasn't ticked the box. I was going to say wait two weeks but actually at the moment it's a bit tricky, right? I'm trying to think of more because I'm not the best person to know about this world, right? We would have heard about it. We've seen the financial review. We'd see it somewhere. There hasn't been a good company out of Australia in 10 years plus. Well, isn't Lorrakeet worth what's that, 700 million or something? Oh, Lorrakeet, guys.

57:40That's 100 million. Still early. It started a year ago, those guys. Yeah, yeah, yeah. That's AI. Yeah. That's the token tax as well that they have built into their business. Yeah, we'll see how they go. Steve's a great guy. I'm going to see how they go, but it's early days. I can't think of one. Because they don't exist. I can't think of one. Drone Shield. For a start, that's probably more than 10 years old. It was back down to New York with that semi-VC. I just tried to get you worked up. I don't know. There is. I don't know. Because there isn't. We would have heard. One of us would have heard about it.

58:11A VC should go and tell us. They should say, this is an investment that came out of a VC fund. in the last 10 years and it's worth it's done around and if there is one like we've missed one whatever like one let's see if there's five we might just not know you're in these funds like I don't really invest much in these VCs trust me I wouldn't know about it if there was any funds I've invested in and there hasn't been so it's let's go to a quick break because there's so much more to talk about I think you should buy software I think I don't know when the bottom is it's a bit catching a falling knife right now yeah I don't think but it's getting there we're getting there I think we are in a moment where it's been a long time since people underestimated the future growth of software as a global economic driver.

58:55I'm more excited by some marketplaces than some software. Like I'm more excited by an REA than Xero, for example. I'll get to Xero in a second as well. You know what? The next few weeks, I've got some great deep dives of interesting businesses for us to do that are like their valuations in many cases, in some cases, are single digit earnings multiples. Well, I think we're getting to the point where we're not far off. We're obviously being super bearish on the top for last year and a half and been proven... Like, I'm panting for this victory lap. So we've had a year, 18 months of us being the bears and we could be flicking to being bulls at some point, like, if this continues.

59:29Nothing makes you happier than the misery of people that you think were fools. Yeah, absolutely. True? That's every human being on earth. I'm not sure about that. I generally don't like people who think sad. They have a word for that, Schadenfreude. I know. Schadenfreude is even deeper than that, right? You've got to get into the German vibe. but no I think I generally am not happy about people being sad even if they were dumb no I am I know yeah let's go to a super quick break I want a bit more to talk about on this very point

1:00:01and we're back is now the Canva conversation or is it later? give us like one minute alright yeah I got some massive breaking news exclusive to the country people say we're not a news breaking podcast I'm going to blow that out of the water This is not about your leg or something, is it? No, this is real breaking news. Okay. But it does involve someone in hospital. There's been a little bit of rumours about this, but Bet Noir of the pod. Oh, no. Not another Daniel Andrews conversation. I've had two trusted sources, high-level trusted sources, tell me that he had an extremely, and this is actually serious, a life-threatening stroke.

1:00:34You're not happy about this? No. No, you can't be happy about this. I'm just breaking the news. I'm not commanding on whether it's good or bad. a life-threatening stroke. I know a lot of our listeners, some won't care, but some will be highly interested. He was in a very, almost near death is what I've been told from people who got it from doctors who were working on it. Multiple, two trusted sources who don't know each other told me this. So multiple source that he's now recovered somewhat. I don't think he's perfect. He's obviously a lifelong heavy smoker. It wouldn't have helped, but... He's not very old.

1:01:07Maybe 50? Yeah, maybe. He's 53 years old. Well, I'll say I think it's terrible. We're not going to comment whether it's good or bad, but it is far more serious than the media has portrayed. He was, I heard, close to death. Less close now. I think what I've been told is he will pull through and will at some point leave hospital. But this is a story that somehow was kept under wraps for like three months. Why do you think? Till now. I'm going to let you, I don't know, share your conspiracy theories. Why do you think it was kept under wraps? I think most people don't want to know this sort of stuff.

1:01:39Because it's private. The family probably don't want people to know. Because he is a private citizen now. Absolutely. I'm all right with that being kept under wraps. Yeah, I'm fine with getting under wraps. I'm also happy with you breaking news. Obviously, we are the news-breaking podcast of Australia. Your sources. But yeah, I'm all right with that being kept under wraps. It was pretty obvious that something bad had happened to him. I wasn't aware that it was that bad. But it was pretty obvious. I thought the reporting, if you read between the lines, it wasn't hard to work out that something pretty bad had happened to him.

1:02:06I think the Herald started a report in the last couple of weeks. He's had a bad run of health problems. Yeah. There was a fall, obviously. But this sounded significantly more serious than even the media had portrayed. I think the reason why it's come out in the last couple of weeks is he has recovered somewhat. So the news is now tempered. But it certainly was much worse. That's obviously some breaking news. And just one final thing. The Corporate Travel Management Affair. I've made a post on LinkedIn. I don't know if you saw my LinkedIn post. I saw your post. But there was... I thought it was...

1:02:34Well, let's argue about it. What do you think? so it seems a postal thing was a travel agent and this happens a bit so the thing with travel obviously we are a travel agent in some ways but travel agents get paid in advance from their customers so there is that ever temptation if you are a nefarious person that you take the money so you buy you buy your first class ticket to London you pay me 100 grand and I go thank you I'm taking 100 grand I'm going to gamble at Crank Casino and that happens sadly not uncommonly and the law justifiably so takes that very serious that's theft and people walk up to the airport there's no ticket that's not very good it's bad for the industry because you're on people Because what you're saying in that situation is they never bought the ticket with the money.

1:03:09Or they often refund it. They often refund it and keep the money. They cancel it and don't tell the customer it's cancelled. Yeah, totally is what happened. They keep the money, they spend it, and it creates their own little Ponzi scheme, and off they go. And eventually you get caught. That is a Ponzi scheme. There you go. That's a Ponzi scheme. I can't remember her name. Travel agent in Sydney was in six months jail for$77 ,000 in theft of doing this exact thing. Totally unlike corporate travel. Well, corporate travel took money from customers, got refunded and kept the money. What was the difference between what that travel agent did and what corporate travel did?

1:03:40There was no difference. I tell you the fundamental difference. One was a big company and one was a poor individual travel agent. One was a customer who said, cancel my ticket, that's corporate travel, and one was a customer who did not want to cancel their ticket. Well, they could have, but ultimately… So I think that is a fundamental difference. No, but the fact is both parties stole the money. Well, one of them was an orchestrated fraud to say, it's never my intention to provide you with a service full stop. It would have been at the time she made the booking and then she subsequently cancelled the ticket.

1:04:13Well, we don't know that. We don't know if that was the case. We don't know if the CTM intended to orchestrate fraud. No, I know. But I just think there's a fundamental difference between me setting up a business, I use that loosely, that says to Mike or Joel, come and book with me and then I know they're going to book and they're going to give me money and then I'm going to cancel it and keep the money versus I'm running this big business and there are cancellations as part of it. And I don't diminish this, by the way, but when people choose to cancel, I'm just not going to refund the money to their employer.

1:04:42They still obtained financial advantages by deception. Regardless of whether you went into that with intent or not, you can argue it's a slightly lesser degree of fraud. I think the intent makes a big difference. They're both fraudulent, I agree. If I put money in your account by mistake, if a bank put money in your bank account by mistake and then you spend it, you didn't intend to commit that fraud I just gave you the money by mistake you then spent it which is what CTM did by the way they spent the money on other stuff I think what CTM did is probably worse than that example I'm trying to find the middle but that's a crime to your point so the law considers that a crime so in your eyes you just admitted CTM committed a crime I get it and what happened to CTM nothing the CEO founder has quit last week we talked about nothing's like where is and I love David Christofillie and I think his government is an incredible government in Queensland where is the Queensland government perp walking these guys Why have they not been arrested?

1:05:29This is just staggering that these people can – this is$150 million in customer and taxpayer money, even worse, that has been taken and not given back, and they still haven't paid it back. Like, they knew this six months ago. Why has it been paid back in six months? So I don't think those two things are the same enough to be viewed the same, but it's obvious to me that if you go and shut down CTM, too many consumers, business, or yeah, it's all businesses. Like this is a bit of a too big to fail situation with CTM. I don't think any business is too big to fail. This one certainly isn't too big to fail.

1:06:07Yeah, you don't think so? Even worse, they're losing money. They were losing money for the last two years when you factor in these refunds. They should have paid that in book. Yeah. So the argument is getting worse, not better. Imagine every customer of CTM, every customer. So you're Catapult, you're a big business. Would you use CTM now? I don't think, well, I don't think we did use it here. No, obviously we're not going to use it here. If you were using, would you stay? No. So imagine every single business. Like your fiduciary is a business. The last thing you want to, and some people are like$10 million for these credits.

1:06:32Like this is significant money they pay. Up front, and they're putting the bank account, they're an unsecured creditor. So are you going to be doing that ongoing? No, you're going to be going to a flight centre. Do people pay it on like account, like bank transfer? Yep. Because if you pay it on credit card, you've got recourse, right? Some would use credit. But if you're a credit card, if you're a banker, are you going to be taking that risk when you know the positions? Well, I think that's another question, right? Yeah. If you're a banker, would you provide a merchant facility? I think most still pay by FT, by transfer.

1:07:04So if you're a business, and I've been speaking to businesses who use CTM. Obviously, we have a tiny corporate travel business that's growing really fast, but isn't a competitor at CTM. We target different businesses to them. But people we speak to who are enterprise level, I'll be running to flights into a corporate traveler, sounds like CTM. I'll be 100 % transferring to a business like Fighters you know you can trust so they're going to get worse not better so if anything the gap's getting worse so the too big to fail is getting even bigger yeah I can't argue with you so this is like how these people haven't been like you got this Ewan Crouch guy who's chairman who's an ex-senior lawyer like this is just this beggars belief that this is not a bigger story so you think your issue is why is ASIC not investigating?

1:07:48Why aren't the police, this is theft, why aren't the police not investigating? I don't know if it's ASIC or actual like a federal police type. Yeah. Like both should be investigating this thing. Yeah, I think that's a good point. Kind of argue with that. And if we're going to throw little like random travel agents, I'm not defending this$77 ,000 person who clearly did the wrong thing. But I think that the level, that malice is totally different. She went to jail for six months. Yeah. That's like, she had a family, she had kids, like this is serious. I think mostly. Whereas this guy's, Jamie Ferris taking $140 million out of this business.

1:08:15He lives in this$20 million mansion. and he's swanning around Brisbane like a billionaire. All the while, this poor person has done less bad stuff and is in jail for six months. What happened to the money, like the customer? Which customer, sorry? Of the woman that went to jail. So what got her back from the bank? So I think about half got her back from the banks with chargebacks and half she's been ordered to pay back. Who knows whether she can pay her back? Is there no like, because isn't IATA involved in that somehow? There used to be what's called like a travel agent scheme. Yeah, insurance or something.

1:08:43Insurance scheme. It's not IATA. Yeah. It was called ATAS. That got wound up 10 years ago because people just charged back the bank. So the banks now take the risk. But us as Luxury Escapes, we have to tell the bank that we're solvent. They check us and all that stuff. I think your point is legitimate. I think her jail term was largely to try to send a message to other travel agents. Sure, send that message. But you can't send a message to her and not this other guy. Well, anyway, you know what? That's the biggest message. I think your underlying point, which is why is this not being investigated by authorities, is a good question.

1:09:15It's possible that's why Jamie Ferris quit. Who knows? Because it was a really weird resignation last week. Agree. Apparently doing an announcement in the next few weeks, about three weeks, about their reports, which are now seven months late. So moving on, so I talked about Canva. I've got some somewhat breaking news. I had a great source of the pod, a friend of the pod, giving me this information. So we know Canva famously don't report their financials. So we've been desperate to talk about Canva's financials, trying to work out what the hell is Canva worth? Because this is the business. They don't report them more than they have to, you mean?

1:09:43They don't really report anything. Well, don't they have to report to ASIC? No, they don't report to... I think they're Delaware business. Oh, yeah, that's true. So we know nothing about Canberra. Yeah. Basically nothing. Well, tell us a few little bit of research. Except what they selectively disclose. And we love Mel and Cliff and Canberra. Unbelievable entrepreneurs. But what we've never known is how do we value this business? And I've got some... I wouldn't say I've got detailed financials. I've got some financials. Because as a friend of the pod told me, every Australian business still has to lodge tax information.

1:10:08Right. So this very resourceful friend of the pod went to the ATO or website and said, and I said to them, have you got like the last few years of tax info? He goes, well, I do. Can anyone get that info? Anyone can get it. I was unaware of it. Little did I know, I was unaware as well. So 2023, total income, 1.43 billion. This is called revenue, it must be, or maybe it's like gross profit or whatever. Taxable income, 69 million. Pretty good. Makes some money. Yeah, I think this is Australian dollars. So it makes money, didn't pay any tax, but good enough. 2024, so it was two years ago. 2024, so a year and a half ago.

1:10:39Total income, 2.2 billion. Fast growing. 54%. Yeah. Pretty good. Yeah, fast growing. Total income,$224 million. That sounds good. $124. Paid$49 million tax. So paid real tax. So good story. Great business. Almost maybe the only people on the tech council that pay tax in Australia. Probably. Yeah. So great result. My asterisk though is, what is this business worth based on this limited financial information? Given we had this SAS catastrophe last week and we've obviously got the Figma Comp, which I'll give you in a second, that's the last year you've got data for. So we're a year behind. So let's assume it grew again.

1:11:17So you probably say, assuming the same growth, it's probably incomes at$3 billion, $3.5 billion, as in total income, and taxable income probably up to$400 million. So I think, so what you're saying is in 24, is that the number you gave me last? I'm suggesting a 25. They had a 10 % profit margin, taxable income. Yes. And you assume they can push that up to 15%. right well I think they could so you think they might do three bill and maybe four 450 yeah I totally agree with that that seems reasonable this may or may not be reflective of their real numbers but we can just use it as a proxy because well this is tax I know but like is it all is all of I was going to say is all of their revenue being reported in Australia but this kind of lines up with what their ARR would be if this would be their revenue if their ARR was right yeah that's right no that kind of makes sense so let's say they made 400 million last year which is a great number like very good number And there is a question of what the hell you do with$1.8 billion in expenses.

1:12:16But compared to Atlassian, which has... I know, but I just never understand this crazy amount of expenditure. All these businesses... Yeah, a lot of people who work there. But let's just assume these numbers are roughly correct. So that would be 25, and then you could extrapolate forward for 26. Yeah. What are you going to give them, take them... It's just highly speculative, because we're making up 25, and now we're going to make up 26. Are you going to give them another 50 % growth? Yeah. Be generous, right? Should go to 600 million. But look, so their revenue would go to four and a half bill and you would let them keep, no, you've got to let them keep more than 600 of that.

1:12:50That's a pretty strong fund. Well, let's give them, be nice, let's give them 800. They're heading towards 20 % margins. I think you're making a bit too nice there. Maybe, but then if we can't be, we can't be nasty if we give them, you know what I mean, like we can't say, oh, well, they underestimate. Yeah. Okay, let's say 800. Yeah, fine. That'd be very strong. So when you say four and a half bill with 800 mil. I'm thinking almost as much as like a Woolworths, by the way. All right. So let's just say, okay? Yeah. So how would you value that business? What would you think about that? I mean, that's an easy business to value in earnings.

1:13:21Yeah. Because let's say 600 to 800 mil growing at 45 % top line. Yeah. And the bottom, the earnings will be growing faster than whatever their top line is growing at. 50 times earnings. Yeah, I think that would be fair. Yeah. So 50 times 800. 800 or 600, whatever you want. 30 to 40 billion AUD. AU. So the last valuation was above 60 AU, I think. So it feels like a lot of VCs could be a bit ahead of the skis, I think, especially in the last few. And so what earnings multiple is Figma running it after they're pummeling? Figma's really hard. I looked at Figma's numbers. It's like, it's a debauchery because there's numbers go, remember they had that whole breakup fee from Adobe and then they make money some months, they lose money.

1:14:02They're basically losing money at a bottom line level. They have free cash flow. They got a billion dollars in CapEx. Their growth is quite similar to Canva's growth. Their top-level growth. Their growth is 48%. Yeah, it's quite similar. But 40 % this year. So they're growing – but we don't know what Canva did this year. So we don't know how to value them. What revenue multiple are they being valued on? They're valued on a – well, their market cap's$11 billion US. So I think their revenue's about half of Canva – just under half of Canva's – a billion run rate. So half give or take half. So what does that mean, though?

1:14:33What number? A billion. Give or take a billion. Why do you think that's half of Canva? Because a bill is one and a half bill AUD approximately. I see. Okay. So a bill and trading on what? 11? 11 billion. So, I mean, 11. But loses money. It's still a pretty high revenue multiple. So Canva, if Canva really did get to four and a half bill, then they would trade on more than 11 because they're making money maybe. Although Figma will make more money as they scale. Figma's clearly behind Canva, a couple of years behind Canva. So even if you gave them, I don't know, like 12 or 13 on their 45. So 12 is what, 54 or something, 12 times earnings on 4.5 mil would be 54.

1:15:14So that would... Yeah, because I'm giving you them 4.5 bill in FY26. That's income, that's not earnings, that's revenue. Income, sorry, that's what I mean, revenue. You're giving 12 times revenue. Yeah, 12 times, because Figma is on 11. Yeah. So we give Canva 12, that's conservative relative to Figma. Yeah. And that would take 4.5 bill of revenue to 54 bill AUD. it's pretty close to the 60 I don't reckon they're much I think I think you think their valuation's fallen I agree which I still think is like ridiculously good so maybe you could say it's 40 yeah I'm not sure I don't know you know so Adobe's growing much slower Adobe yeah Adobe's more of a direct competitor with some of their products Adobe's much more legacy though Adobe makes money so I'm sure and their multiple's much lower yeah Figma doesn't have Microsoft in Adobe trying to go head-to-head with them.

1:16:05Canva has that problem. Yeah, definitely. Yeah, well, you know what? Adobe grew 11%. It's not as if Adobe isn't growing. I know, but it's much slower. Their revenue is much bigger than Canva's revenue. Yeah, it's$23 billion US, so it's many, many multiples. And so what multiple are they trading on, Adobe? Adobe's got a market cap of 110, so that's five times revenue. And what times earnings? 16. Okay. and has dropped in the last six months a lazy 20 % which actually isn't that bad it's dropped 38 % in the last year I don't think it's controversial to say Canva is going to suffer the same consequences as every other SaaS business in the current SaaS crash that's a good name for it, the SaaS crash and so yeah I think the question is whether it recovers I'll say something well maybe a bit aggressive or controversial you don't if you agree i think canva is one of the most susceptible businesses to the rise of ai and vibe coding etc their entire business is effectively a workflow business it is just you know how it was really hard to use i'm going back in time but you know how it's really hard to use photoshop too hard yep workflow too tricky yeah We're going to simplify workflow for you.

1:17:26And to this day, everything about what they do is workflow. I've used their AI. It's fine, right? But it's not just generational. I would not say right now they are at the frontier model quality AI. I think Notebook LM, which is Google's, is much better than Canva. Yeah, I agree with you. I love using Notebook. I agree. For my purpose, which is different to what a lot of people use Canva for. And so when we talk about who's susceptible, like we said at last, you know, susceptible because specifically… Pure case example. I used to use Canva last year. I now don't really use it. Right. So there's your case in point.

1:17:57So I think we said Alessia might be susceptible because they service software developers. Yeah. And that's going to have seat problems potentially. But Canva might be very susceptible because they're a workflow business. And there is nothing AI does better than enables the simplification of workflow. Yeah. And so even if Canva becomes a really good AI business on workflow, all of a sudden there's all these competitors with lots more money, hyperscaler competitors potentially. that were not direct competitors with Canva when it was very hard to build workflow software. So to me, Canva feels like a very susceptible business to AI disruption.

1:18:33I think Figma was worth, what, briefly$30 or$40 billion or whatever. I think, obviously, Canva - We all had our glory days. Yeah, Canva was always private, so it's hard. So I don't think Canva's been an incredible story, which it has been. I think people just got to head over their skis. And I don't think, I think it's like probably back to, like, even if you assume that some of what you're saying is correct, that means they're probably less than 30. But what do you think they're going to... To get above 30 you've got to assume really heavy growth for years to come to justify that multiple. Do you think their golden window moment has gone?

1:19:02They missed it or not? Well, you can say that but then they would have been dumped with this SaaS crash anyway. So has it really been? Or has it sold out completely? Do you not think they could have sold their business to Microsoft for$50 billion? Or the tennis when they were sitting next to each other? Microsoft can pay that in cash. Why would they want it? Why? Are you joking? They want to compete. They're trying to compete against it. Microsoft don't really buy much. They bought PowerPoint in 985. They've never bought anything since then, have they? They would love it. Who else could afford it?

1:19:30When was the last thing Microsoft bought? I don't know. But they're trying to compete with this. They would love to buy this, I think. But not for 50 billion. Why not? Because I think it's a waste of money. I think they're too disciplined to pay that kind of money. I'm not sure. I'm not sure it's a waste of money for them. And like Google, they could afford to buy it. Who else could afford to buy it? Amazon. But those type of cars don't buy that much. Apple don't buy anything. Google paid 23 bill for that Israeli cybersecurity business. Yeah, very specialised though. They only had 300 mil of revenue.

1:19:55Yeah, I think they probably regret that now. You know. Who else could buy it? The whiz business you're talking about? Adobe, I think, yeah, exactly whiz. Adobe, I think, is too small to pay$50 billion. Well, isn't it 20-something now? Oh, no, what did I say Adobe was? Oh, I already forgot. They had 20-something of revenue. Adobe 110, sorry, 110. Yeah, so that's 50 % of their size. Yeah. Who else is on the sales force? What are they worth now? They'd love to buy a Canva, wouldn't they? Nah, different business. Nah, because they're trying to pivot to enterprise Canva. Salesforce 178. They could buy it.

1:20:26Too dilutive though. Lazy 45 % this year. Yeah. Good riddance. So look, if all of these businesses are down like this, Canva obviously has to be down. I personally think they're one of the more susceptible businesses to AI disruption for the reasons that I said to you. I said for ages, if I was Canva, I would have sold out that business. The advantage Canva does have is the Giro advantage is it's low cost. So that's kind of the nice... Yeah, but the problem is you just said you found something better. Because we're already subscribed to Google. So I can think I'll Google for free carry. So is everyone.

1:20:56Yeah, I guess a lot of people do. So I mean, everyone's subscribed to Google and or Microsoft and or Amazon. It's not a great place to be competing against those guys. I don't know. You know what? From my own painful experience of like in past businesses thinking I should have sold that earlier. Like that's why I've said for ages, like there's a limit to how much money you need. There's a limit to how far things go. when well this guy's going to give it all away anyway so like I think they might just love running the business and they might rather die than sell the business right which I get you know I will say this in my part of my thesis about AI I think ultimately like I kind of was shaped in my view about this a bit by the CEO of Snowflake you know that big data platform business I think data platforms is where a lot of the AI value will accrue like very big pools of data especially specialized data, proprietary data even better, and layering AI on top of that will be massive value creation and I think there'll be monetization.

1:21:54I think there'll be value capture. The reason I feel so positive about Catapult is effectively it's a big data platform, like a very large data platform, and I think that it's hard for me to imagine. We've also got hardware as well. We've also got hardware, that's true, but I feel like a lot of the value in this AI boom is going to accrue to data platforms. That's my view on this, and that's why I'm much less bearish about, like I keep talking about SAP, like it's a massive heavy lock-in data platform. Very arcane, you know, and like I always think what, like this is the real switching cost. I tell you the highest bar of switching cost.

1:22:27This is the highest bar. The person that makes the decision that they want to switch is jeopardizing their employment when they make that decision. That's SAP, right? That was IBM once upon a time. Yeah, you don't get fired for buying IBM. Yeah. But I think if you look at Canva, I actually don't think, if Canberra drops to 20 billion, Mel Cliff and Cam still have more money they can ever spend. Oh, great. If it drops to 5 billion, they've got to have more money. You know who suffers if it drops to 20 billion? All these VCs have written up their stakes and have done continuation funds. Yeah. This entire Australian VC ecosystem is dependent on this one company that has probably dropped 50 % from its last mark.

1:23:03Yeah. And we talked about how, and if you don't have Canberra in your portfolio, it's really hard as a VC in Australia. If you do, like, even the thing of the Blackbird Fund one, the greatest fund in Australia. This is like equivalent to Benchmark Fund, Sequoia Fund, Sequoia No. 5. That's dependent on, so Culture Amps is in trouble. Yeah. So I think Culture Amps is in trouble. Culture Amps is in trouble, right? Did he have gone? And so all you've got left is really Canva as the big three. And that's still a great business, but not what we thought it would be. Wouldn't you think, I don't know very much about safety culture at all.

1:23:33Like I don't use it. I don't know it. All I hear about is a checklist business. That's what people tell me. Isn't a checklist business very susceptible to AI disruption? Well, it's kind of entrenched. So that's, again, it's a cheap entrenchment. Again, the Giro benefit. But that valuation has never made any sense. Like I've known people who've had similar businesses that I thought were a far better business sold for$100 million. So the safety culture has always been the most whacked valuation. Why they're sponsoring the tennis and all this stuff. Or we might just not know what's going on inside that business.

1:23:59I will happily admit, I know nothing about that business. Found are gone. Don't think it makes money. I know nothing about it. Yeah, like it's, this feels like a 2021 business. Yeah. So I think there's going to be some rude shocks for LPs and some of these funds who thought they were massively wealthy from these early funds based on Canberra and might not be as wealthy as I think they are. Well, do you know what a – so by the way, you know this collapse, Sass crash. Sass crash. It's got to rhyme. It's got to rhyme. You know, like stock markets around the world have really deviated in performance.

1:24:35That's one of the things that surprised me. So NASDAQ crunched. Yeah. But not as much as you actually would have thought because the hype scars have held up. That's true. S &P has been somewhat crunched. It's down 12 or 13 % or something. I know, but like... ASX not crunched at all. Yeah, ASX not crunched. Japan, fine. Korea's gone down a bit. Taiwan, fine. Israel, up. Like, it's really not a... UK's been great for last year. So it's not globalised, this problem. It is very discreet to anything that is heavy in, like, software. And they probably had this crazy run-up in the last five years. Yeah.

1:25:13Can I swap out once, speaking of crazy run-ups, let's talk about Xero. And embattled Xero boss, Skinda Singh Cassidy, made a desperate plea, I saw this in the financial review, to investors last week, claiming that the company's core products cannot be easily replicated by AI tools because its data gives it an edge over new arrivals. I saw that. I agree, but also making the focus of an entire presentation the most defensive argument I've ever heard might not be great, right? Sin Cassidy said that she used Anthropix clawed coding calls, which is weird that she said this, to attempt to clone zero, but the prototype lacked the troves of transaction data.

1:25:48She used it? She used it. Is she a software developer? No. So she used Cowork? Probably. Well, that is not what people are using to clone zero. Which I don't... You and I both agree. It's not an easy business to clone. No, I actually think they're quite defensible. Yeah, I agree. And they're cheap, and there's a lot of good things about that business. You don't mean the share price is cheap. No, I mean the product is cheap. And lots and lots of people know how to use it. And that should not be underestimated. Like when you need a bookkeeper, when you need a bookkeeper and you say, I'm using this platform and they don't know how to use it, you can't get a bookkeeper.

1:26:20Which is also a bear case for them in the US. But it's because they don't need more bear cases in the US. They've stacked that mile high, right? So AFR reported that, of course, Sir Kinn and Cassidy, Australia's, I think, highest paid CEO, told investors that you still need to process the data. Data is proprietary. Use it, train our models. Infrastructure makes us much stronger than just workflow software. There's no differentiation for investors between software that can be winners and which pieces of software can be disrupted, which is a lot of what we're talking about. I totally agree. Sadly for Cassidy, who of course receives more than 20 million bucks a year, investors haven't believed her spin and the zero stock has been dumped.

1:26:54Well, that's not their problem. AI is not zero's problem. I'm getting to it. What do you think is down in the last six months, zero? 30%. 54%. Is it? Just catastrophic. I thought our short thesis on that would take longer to play out. Didn't take long. The SaaS crash helped us along a bit. It's a bit unfair, right? Yeah. So since 2014, go back to that. So this is 12 years ago. This is a lifetime ago. What do you reckon as annualised growth has been? Oh, God. Share price. I don't think it pays to even end. So this is all you get from it. 3%. Oh, that's a bit harsh. I know. 3 % is like worse than bonds.

1:27:27Yeah, that's true. This is a risky stock. But you're asking me at the bottom end of a 55 % fall. I'm going 12 years back. Yeah, I've no idea. 6%. Oh, I'm not that far off. No, you're not. But like, I'd rather you anchor at a lower point. This has been an absolute disaster for zero shareholders. You should have said to me, their return over the last uh was this high. Anchor me up. Then I would have said 12 and you would have said, nah, six. That's a better pitch. I thought it was the position of Cassidy and Chairman David Thodey, obviously a mate of yours, who are now getting really questioned by investors.

1:27:58I've met him like twice. but I really like it. Best mates. And obviously, what's even looking more disastrous is the Melio acquisition. They bought this SaaS business in the US. It was a risky business. What do you mean it looks more disastrous? It looked completely disastrous at the time of the acquisition. Now SaaS has dropped 50 % since then. So could you have timed the worst acquisition at a worse time than these clowns did? And you can't blame Cassidy. So it's the board that approved this clearly. So it's the board as well as her. The board appointed her. So clearly the board's completely culpable here and the board needs to just go.

1:28:27Well, I don't, you know, I'm not harsh on that acquisition. I mean, I'm harsh on what they bought. No, no, no. Putting aside what they bought. Everything about it was about them. But it was very expensive using very expensive stock to raise money and buy it. Well, no, the stock was cheap at the time because they were overpriced. As in, zero was overpriced. I'm actually trying to say what you just said, which is they basically just leveraged overvalued stock for an overpriced acquisition. I think they used some cash as well. But I'm kind of right with that, to be honest. I just think they bought the wrong thing.

1:29:02Had they bought something in the UK? As we said at the time, much more. But buying the US where it was a quantified one. Maybe an accounting software business in the UK could have been good. Yeah, but this made no sense at the time. Yeah, I agree. It makes even less sense now. You know why? Because investors don't want a UK growth story. They want a US growth story. That's honestly the reason. You think of every box that you're on the ASX board, that a board should be doing is don't overpay the CEO. Don't do stupid acquisitions. Get your timing right. understand your business know where your growth is know where your understanding strategy these guys have stuffed every single thing up they've got one thing right these guys you know what number one rule for a chairman of an ASX company don't join a company that has an over valuation at the time that you come in as chairman yeah that is just it's not good yeah it's not a good plan yeah well there's that as well because you have to do crazy things to maintain the valuation yeah and approve crazy things and like David 30 is a smart level-headed good operator and like the fact that all of this had to be signed off to try to maintain this valuation and growth, it's not good, right?

1:30:02This is a not good decision. The brave thing would have been to say is we're overvalued. We understand that. We're not going to make it worse. You mean brave in the yes minister sense of brave, i.e. suicidal. That would be the end of him, right? But if he's suicidal anyway, I don't think these two can survive. At least there was a hope of this. There was a little hope, but that other one would have had no hope, right? They would have, look, I don't know. I don't think this was the right job for a chair of his calibre to take, personally. Obviously he had a pretty tough run given he's also chair of Sydney University or Chancellor of Sydney University to be the chair.

1:30:36He didn't appoint Mark Scott who's been the most disastrous PC. Well, he's been dreadful. He's allowed him to remain, I think you can say. So you certainly can't blame him for appointing Scott who's been by far the worst union administrator. You know, I think about this idea which is, you know, I always talk about the fragile versus anti-fragile. Yeah, you love that. I love it. And so I've thought about this. Is that Nassim Tlaib? Yes. And so I thought about this a lot recently. There's like truth, and people think the opposite to truth is a lie, but that's not the opposite to truth. The opposite to truth is anti-truth.

1:31:09Like people say, so, you know, like Israel gets attacked by Hamas, and like it's a genocidal attack. So the truth is that was a genocidal attack. The lie is that wasn't a genocidal attack. The anti-truth is Israel is engaged in a genocidal war. And I think so much of society has embraced this idea of anti-truth, which is totally flipping the truth to be. Because I say the Liberal Party and the Labor Party, they're not opposites. The opposites of both of them is totalitarianism. That's the opposite. That's the anti of those. And so I think that a lot of the arguments that we have about here is about is this right or is this wrong?

1:31:52But I do think that there is this movement that basically pushes anti-truth. Like Trump's fake news is false. He's arguing it's false. Sometimes he's right, sometimes he's wrong. But he's saying, you're saying this is true, it's not true, it's false. But I think, I don't know what triggered my thought about that, but I've thought a lot recently about how there's this idea of anti-truth that has been pervading the Western world, and it's one of the big problems of the Western world. I can't remember what that has to do with zero. Zero is not the anti-truth. Speaking of which, are you now supporting me to defund writers' festivals after the massive Hamas fans.

1:32:21Oh, I know, because I got worked up, because you got me worked up about Sydney University. I think what was going on at Sydney University was the advocacy of anti-truth. That was my issue with Sydney University. Not that they were saying we should be fair or we disagree with Israel's position. They totally flipped to lies. They presented something that wasn't anti-Semitism and the Jews were in the wrong. It's like the anti-truth. It's like going further than a lie. It's like two lies. It's not even a lie. I would have been fine with lies. If you want to lie about what is and isn't happening, but to flip it and to make the victim into the perpetrator, that's the anti-truth.

1:32:58It's like you get raped by somebody and then they accuse you a rape. That's right. That's the equivalent. That's right. Because exactly in that situation, you can say, yes, it did happen. You can say, no, it didn't happen. But that's a flipping to the anti-truth to say, no, that's the villain. The victim is the villain. And so that was my big issue with Sydney University. They were just advocating this horrible, dishonest, Western civilisation-destroying antitruth. And the CEO, the Vice-Chancellor, is still there. Still there. We say David Thoey's got a real issue with removing bad CEOs. So that's disgraceful.

1:33:29There you go. You got me worked up about the antitruth. How about worked up about Writers' Festival? So you said Newcastle Writers' Festival and this sort of weird-ass second Adelaide Writers' Festival. Well, I thought about going to that Writers' Festival. You'd be lynched. Going to the session. No, I thought about... I'm saying this seriously. I'm thinking about going to the session where Louise Asher is interviewing Randa. No, and I'm going to stand up and ask a question and say, like, I think that Israel should exist beside an independent Palestinian state, both of them in peace. That makes me a Zionist.

1:34:01What do you have to say about what you think should be done to me? Like, I just want to confront them about it, right? You'll be beaten up by their hired goons. I suspect paid by taxpayers. Well, I probably will look around at who else is there first. but like I think the way to fight the anti-truth is not to ban it because like then you push that talk underground the way to fight it is to tell the truth I have no issue with these festivals happening by the way I have an issue with taxpayers funding it and this is just great we just need to stop funding everything like this and start from zero-based budgeting if you want to hold a like I'm not saying we should never fund anything in the arts again but everything goes to zero and you have to apply for and if Louise Adler's involved you don't get any money I think it's point one but I think if if you can't be shown to be non-discriminatory non-hateful to anyone be it to Palestinians be it to Jews be it to everyone then you don't get taxpayer dollars so I think that should be the sort of fundamental building block everybody starts at zero though and we go back to zero and we probably save some money and maybe Jim Chalmers doesn't get us in more debt there's a lot I don't want to go into this because we have to finish this episode but like we'll be talking about the RBA again at some point in time I mean you called that to a T there's only so many victory laps you called it to a T we're getting over fatigued here I know but you'll come to that why don't we go to the Adelaide festival and do a podcast from there I think it would be fun to stand up and ask questions I think you cannot this is the view I've come to you can't fight the anti-truth by trying to silence it you can only fight the anti-truth by speaking truth to it and just make it a competition of ideas and show how dishonest the anti-truth is I think that movement doesn't care for truth I think we know that I know but that movement is small has anyone in that single movement said a word about Iran massacring 30 ,000 people a single one has so that movement the anti-truth movement but everybody else is watching and trying to make up their mind about what's going on and I think the way to fight it is to speak truth so that everyone else can hear what's real.

1:35:53That's my view on that. Hopefully you're right. On that note, thank you, Mark and Joel, for sitting in for your laughter at the opportunity. Well, I'm not so supportive of that, to be honest. I didn't get to say much on this episode. I was just laugh track. What did you want to say about it? We've ended on such a serious note as well. Usually I just get like having the quizzes I think I missed the quizzes this week Oh yeah that's true there was no quiz this week Yeah Yeah small mercies I haven't had a quiz I haven't seen a good quiz lately I'll look out for it Oh I don't think not seeing a good quiz stops you does it I had a few I had one I was thinking about doing but it wasn't quite up to my usual high standards so I passed Well we'll look forward to getting over that bar at some point Thank you for listening in everyone we'll see everybody on Saturday for our Ask Us Anything episode Thank you.