Venture returns, recovering startups, and VC conflicts | E1995

0:00To deal with the amount of chaos that you showed in these charts today, Alex, has been in some ways the toughest two years of my professional career. now i lead a charmed career i've had two rough patches this is the third those rough patches were the dot com era the great recession and now and those three each one of those has been tough on me but when you get to your third one it's like that meme where james frank goes in a noose and he looks over and he goes first time time yeah it's like i've been through this before it's literally like first time like it's i know it's going to be in the foxhole but i know we're going to win the war and then the question is like do i have a bum shoulder and knees that i can't fight the war anymore i'm 53 i feel great i love doing this job i love hanging out with founders yeah you had a great opportunity to bring uh six of our companies to sequoia last week super jazzed me up yeah and you know every time i spend time doing a podcast or doing founders my energy and my battery gets filled and I'm stoked again.

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1:53Sign up today at fundrise.com slash twist. Hey, everybody, welcome to This Week in Startups. I'm Jason Calacanis, an investor in about 100 startups per year. And my co-host, Alex Wilhelms here, you know him from his days at TechCrunch and CrunchBase. Welcome back to the program. What do we got on the docket, Alex? We got a big docket? We have a simply enormous docket. So we're going to kick off with a little bit of internal brouhaha because Jason made me change my Chrome home tab. And I have some questions. After that, we're going to get into falling venture capital results and critically how to interpret them.

2:31Is the data as bad as everyone thinks it is? Then startup shutdowns are up, but we're also seeing some improving data in the venture market. The latest investor beef and how that all ties together. And then how to sell your startup for 2000X ARR. And if we have time, a quick look at an IPO from India and what IPOs are coming up later on that we're very excited about but jason uh over the weekend you did your uh usual sunday download of ideas and thoughts thank you much um keeps me on my toes during dinner and you had everyone at the company change their new tab screen be it firefox be it chrome to be chat gpt for oh and i set this up today but before i tell you what i think tell me why we've all done this okay so i am paying for everybody in the company 21 seats to use chat gpt for oh and there is a massive difference between the previous versions and this versions i'm finding and what i'm finding is i am massively more productive when i use the technology however you have to when you're doing a new habit you know you your default settings matter and so in the startup world we have some saying that you'll hear me say all the time when i'm jamming i'm doing a jam session with founders which is defaults matter and so what you decide to set as your defaults will have a profound experience in a product for your users and what i found is you know because i have little dashboards i can see who's using chat gpt4o i can see who uses slack I can see who Notion is.

4:05When you have a remote company, not exactly spying on people, but it's just general awareness of who's using which SaaS products. And one of the disappointing things, it's like people are using Notion and Slack all the time. They're using Coda all the time. They're using Grammarly some of the time and they're not using ChatGPT4. I believe this technology is going to change everything, whether it's Claude or Gemini or ChatGPT4 or Grok, whichever flavor. But since we're paying for that one and it's incredible, i try to set my home page and my new tab page in my brave browser which is my default and my favorite browser as well as my firefox and my chrome and to my dismay it's really hard to do that now yeah because every single one of these browser companies covets the new tab so when you hit ctrl t or command t depending on what platform you're on and you open a new tab they get they make a lot of money from that.

4:57You'll see the news stories that come up have sponsored links in them. It's just a massive moneymaker. So they don't want you to be able to change it. However, there are Chrome, Firefox and Brave extensions and add ons that allow you when you hit control tab to set a default page. So for some people, this might be the New York Times for other people, it might be, you know, whatever slack or notion if they run it in a browser. But for me, I set it to chat GPT for and every time i open a new window i'm not going to google i'm going to chat gpt4 and i put my google search in there and this has had and i've been doing this for a year but i realized the team's not so i wanted to give them that gift of starting with chat gpt4 and just seeing where that takes them okay so uh mostly i love that but what i'm running into because i set up this chrome extension i put in the chat gpt4 oh yep um now admittedly i am using my i'm defaulted currently to my personal paid open ai account so you won't see this in my usage chart but what i quickly discovered is that my command t is usually me opening up a new space to put in a url that i'm already aware of and so what i do is i hit command t and then i go to do it and then it loads gpt 4o in chat gpt so i i may need to like i'm gonna give this a try for a week just you know let's Give it a try for a week, see what happens.

6:24Yeah, yeah, yeah. But right now, because I've been doing it for several hours now, it's made me want to punch my screen repeatedly because I've hit command T to do a thing 100 ,000 times? 150, like some obscene number. So it's going to take a little while to change my habits. But this underscores your point about defaults matter because if you don't change your behavior, inertia will carry you for 1 ,000 miles. So I'm willing to do the experiment. And if my productivity falls off a cliff because I'm screaming at my monitor, well i was told to do it so i think that what's your favorite browser what's your favorite browser i got i got a switch i'm on chrome right now um yeah i know chrome's great chrome's fine it's fine i i need to get to firefox um brave fantastic isn't brave based on chromium though i think it is um i actually don't know definitively because i'm finding i don't see much of a difference between the two and i just keep you know since i have a powerful machine my windows and my mac machines are super powerful i keep firefox brave and chrome open typically i don't use safari because i think it's garbage um but it is um yeah it takes a second to load chat gpt but then you just hit command l and you can change the url really quick um but the more you use the technology i think the better you get at prompting the better you get at prompting the better the results are and you start the flywheel because the software is also getting better and it's learning about you and so once you start hitting 20 or 30 searches questions a day it really starts to work um i'm finding so anyway so there's a bunch of chrome extensions called new tab you can also set your home page but you need to hack these browsers in order to control your new tab page yeah i also like the idea of i used to have my and i think i still have my chrome setup to do this that it loads like seven web pages when I launch the browser.

8:16So I keep my news tabs in Chrome when I launch it, or I hit the home key, it loads all seven. So that's another option for people. But it's a really great hack to get you going. And the data and the searching of the web is really the best part about ChatGPT 4.0 is that it is so fast in searching the web that I always append add citations to sources. And man, does that change everything? Because now every piece of information I get, it gives me the sources. And the number of hallucinations has gone way down if it checks the web. Can you automatically tell GPT-40 that I, Jason Keller Candidates, always want you to do citations and that it'll do that forever?

8:59Or do you have to repeat that on a per query basis? It's a good question. I know in settings, they did have it set up in order to have like um your instructions um and so if you go to customize um if you go to customize chat gpt let me yeah you can put into it what would you like checking to know about you to provide better responses how would you like chat gpt for it to respond and so i say please always give citations please always present data in a table please use concise simple language simple language fewer words is better than more boom so i you know it's interesting i had written that before but i switched from my personal to our corporate and I hadn't put them in there.

9:54So if you do that, and then you ask a question like, what's happening today in technology news, it should go out and search the web for technology news, August 19th, 2024, and go find news for you. So it's pretty great. All right. Yeah. All right. Well, if you didn't expect this on Twist today, welcome to how to make ChatGPT work better for you. Listen, are you spending too much time as a founder, all tabbing between your team chat, maybe a document editor, spreadsheets, database as well. It's time for you to consolidate all of that knowledge into one platform. And that one platform that I use every single day is Coda.

10:38If you don't know Coda, it's like a new category of software, best described as like a collaborative workspace. It pulls together all the stuff you got going on in documents, spreadsheets, maybe a database, maybe you built an app, and it's super easy to learn it's incredibly powerful in fact we use it and we run founder university on it then we had a new project twist 500.com we wanted to make a database for the listeners of this podcast that essentially profiled the top 500 private companies it was a no-brainer we said oh we should make a website so i got twist 500.com i was like what are we going to do this for everybody in the meeting was like coda coda can do that and that means i don't have to buy new software it means i don't have to hire a dev shop i can just do it myself coda empowers your startup to strategize plan and track all of your goals effectively take advantage of this limited time offer just for startups coda.io twist today to get six months free of their team plan you're going to save at least a couple hours a week per team member and you're going to feel like you're control that's coda.io twist to get started for free and get six free months of the team plan coda.io twist the story i wanted to talk to you about was you know i i kind of you know sometimes on the weekend you know i'm on the ranch now uh i was you know i i dusted off my ruger i haven't fired it in five years, cleaned it up.

12:08I did a little shooting on the ranch. I got a shooting range outside. I got a couple of stogies out. I was solo on the ranch, no kids, no wife, but I have my bulldogs. So it's kind of like one of those weekends. Maybe you pour a beverage, maybe you don't, but once in a while I might pour a beverage. And yeah, I might've been sipping on something and I just went full based. I went based and I went based for 48 hours on my Twitter. I saw some of your all caps tweets, one of which is going to be here later in the show to discuss a particular member of the government. But I have to say that I, I miss, I miss shooting guns because I grew up in, I grew up outside a small city in Oregon next to cows.

12:53The cows are now gone, but when I grew up, there were cows across the fence. And so we could just take guns and shoot them off the back porch. We took them up into the woods and just shot trees. and I got my first gun when I was 12. Good time to learn. Yeah, absolutely. 22, Winchester, lover action, learned to clean it, learned to carry it properly, never got rifle remare badge because I'm a terrible shot, a small fact. But I miss that a little bit because I love my walkable neighborhood. I love the restaurant density. I love being near institutions of higher learning and culture. Yeah. But you can't, if I shot guns on my back porch, I would hit people, you know?

13:30So I'm kind of jealous that you have an actual shooting range versus I have enough room for small dogs, which is just not enough to shoot guns. I miss it. Yeah, you need to have acreage to shoot. And I am for reasonable gun ownership and great training. I wish we didn't have any guns in the country. I would be absolutely in favor of us being like Australia and having none. But it's not going to happen here. We have a country that has a certain operating system. Freedom of speech won. and right to bear arms too yep it's a pretty interesting experiment um and it makes us into the rebel country we are and it's not going to change in our lifetime or our children so you know i've kind of learned to accept it and if you want to live in a society without the first amendment or less first amendment protections you can go to the uk you can go to australia and if you want to live in a society without guns those two locations also So get less emphasis on the First Amendment, less emphasis on gun ownership.

14:30So yeah, you can get sued for a lot more stuff in the UK for speech than you can in the US. And if you don't know what I'm talking about, J.K. Rowling has made an excellent example of how to use the UK's laws to defang critics, you might say. But enough about all that, Jason, we have hot venture capital data to get into. And I want to push back against the narrative that immediately formed from this CARTA data set. So we're looking at venture capital fund performance here, Jason. And what I want you to do is explain to people what median IRR per vintage year means in simple English. What is this chart showing us?

15:10Sure. So IRR is the internal rate of return. um and so what that means uh the internal rate of return is what percentage on average do you return uh for every dollar put in so if you put a let's make it easier let's say you put a hundred thousand dollars into a venture firm and uh you know 10 years later you got a million dollars um back right so you got 10 times the money you invested back so that's the multiple of invested capital now you have to figure out well what's the percentage of that well if you do uh and that would be your percentage return each year and of course that compounds etc so it is not as simple as 10x if you were growing um at seven per 7.2 percent a year you double your money every 10 years if you're in venture and you're going at 15 well you should be doubling your money every five years or so uh just over four between four and five so then that means you're going to double it again in by year you know nine and that's where you get to this most venture funds are going to return two to three times your money over 10 years so when you talk about a vintage a vintage is a period of time like a wine vintage so a wine vintage might be done by year in venture you would probably look at you know four years because that's the time period over which you would deploy the cap so you might have a vintage like when i started in 2009 to 2012 or 13 that was considered an extraordinary vintage that's where airbnb uber a lot of interesting companies came out of the great recession so when you look at vintages what would be the drivers alex in returns by vintage in wine it might be climate it might be soil it might be uh you know like i said the weather you know could be a cold front it could be a heat wave it could be like one or two days of extreme heat you know do something to the vines that's damaging it could be a flood right so and it's by region so we understand what could happen in wine that would define a great vintage.

17:32What do you think in venture, in your experience, would determine how good a vintage is? Well, where it sits in a technology wave is going to be very important. If you think about where Uber came to be, came along with Lyft, DoorDash, and a lot of other companies that took smartphones, applied them to new consumer services, and there was a period of time which those grew very quickly. So if you were a consumer investor in that era, those fun vintages, if you put them into the bright companies, could do very well. Macroeconomic conditions, of course, matter quite a lot. I think the reason why some of those funds back in that day were so strong were because everyone was just freaking out, if you will, about the 2008 financial crisis.

18:13Is the economy broken? Are the banks going to all fail? What will happen? Prices are cheap. If you buy a good company then, better returns. And then also the exit climate, which we'll talk about a lot today. And what you can get out of a fund. So you nailed it. the entry price matters. When I invested in Thumbtack, Uber, DataStax, you know, all unicorn companies, they were on average four or$5 million valuations for their seed rounds. Today, those same seed rounds would be probably 15 million. So that means you would pay three times as much or you would own three times, you know, a third of what, you know percentage ownership was so exactly very simple uh to understand that then if you were to exit a company in the last two years when the stock or let's say two years ago when silicon valley bank blew up in february of 2023 is that for 22 when did that oh man that's i have baby brain i'm gonna today's 2024 i think it's two years ago maybe it was 2022 but it could have been 2023 are we on yeah that actually makes sense that we are on i'm asking chat gpt 4.0 and it lets me know that silicon valley bank collapsed on march 10th 2023 right yeah so that happened in the spring uh so we are whatever 15 16 months wow it feels like a world ago and that's when i last used all caps when i use all caps i might be sipping on a beverage i might be alone no family around to ground me i might have been firing a revolver and smoking a el rey de mundo or a monte cristo you never know anything's possible but you describe perfectly um you know what matters in terms of driving returns you could have a technological wave today it's ai previously was mobile cloud sass client server broadband whatever it is so surfing a wave then you got entry price you got exit price well if uber and airbnb go public into a peak zurp and you know they didn't have insane valuations i'll be honest the stock market was kind of lukewarm on these money losing companies but you know when you get public could also matter and then when you decide to distribute matters right you could have sold your uber at a 10 billion valuation and some people did and then other people held it to a hundred billion dollar valuation and that's obviously a 10x swing so when you decide to exit how you decide to exit could also drive of that.

20:43The information from Carta was talking about DPI. And so, you know, when you distribute capital is critically important. We're going to pull up this DPI chart for you. What this chart shows, just to give people a little bit of grounding, is each line is a year or a vintage in our kind of parlance here. And this is showing how many funds from a particular vintage over quarters since inception, so time moves to the right, have returned actual cash. The technical term is presentive funds with dpi over zero by quarters since inception and jason mostly they go up the same direction but there are a couple of outliers here that have a theme to them or a trend yeah and so dpi is distributions divided by paid in capital so if you distribute a dollar and you put a dollar in it's a one if you distribute 50 cents you paid in a dollar it's uh 0.5 if you gave back three dollars and you invested a dollar it'd be a three so dpi that's actual cash and stock sent to the lps the limited partners of fund there's tvpi that's the total value to paid in so if on paper airbnb is or maybe a better example would be stripe you're sitting on a bunch of stripe it's valued at a hundred billion you've got you know a hundred dollars in tvpi to every dollar that's been paid in well you've got this you know 100 to one um with your fund even if all the other uh bets in the fund went to zero now you're sequoia you're sitting on it you say you know what we're going to start selling i don't know a third of that investment now your dpi would be 33 33 you sold a third of your shares you got 33 dpi distributions you send the cash to your lps and you got 67 or so um tvpi left to go and the whole name of the game inventor is your tvpi the total value the paper value to the paid in capital could be very high and then what you're trying to do is fill it in with actual real cash dollars distributed since the last couple of years with very few ipos with founders wanting to stay private longer and mna being taken off the table a lot of the early dpi has gone away it has been replaced in some cases with secondary sales of shares and you have uh weird acquisitions that were done by like character ai or um the company ai company bought by microsoft um inflection where inflection when they bought the shell company so anyway that tells you everything you look at this chart quarter since the vintage inception is the that's the x-axis on the bottom right yep so you have uh eight quarters for 2022 in other words two years because it's 2024 four quarters in a year um you know only x percent five percent have distributed capital then you get to 2021 vintage uh at and at three years you can see it's all over the place 2019 you had 24 percent and 2017 had distributed 19 for 2018 in those three years you know goose vintages excuse me were probably selling into peak zirp right yes he had three years to 2019 you get 2022 you had three years to 2018 you get 2021 three years to 2020 you get 2020 and then as the years go on, it's just very hard to have DPI when the M &A market is closed.

24:23That's what this chart shows us. So I looked at all these. I saw IRR trending down lower in 2022 compared to 2021 funds, worse than 2020, et cetera, et cetera, et cetera. I saw that TVPI is lesser. I saw that this chart showing that DPI is slower to form than it was in recent prior venture vintages. and then there came the counter argument from david clark now david clark has been on twist episode 1906 and liquidity 1930 so a regular around here he's the cio over at vin camp international and jason that is a fund of funds if i think correctly it's a fund of funds so he collects money from lps and then he picks i think he's got like a magnificent 11 or 12 funds so he's very very diligent at only investing in a small number of venture funds for his lps and so his lps say you know what i don't have time to pick venture funds there's too many of them there's low thousands of them i'll just pay 10 to david to go do that work and then i'll pay again the 20 carry to those people so i'll pay 30 or even 35 carry to these two parties to manage my venture portfolio because he'll do a better job than i will and he'll do 10 at least if he does 10 better than i do as a family office i don't need to hire somebody and you know it's competitive to hire these people so that's his business line he also happens to be doing this for multiple decades and has and is a data nerd so he's kind of money ball he's kind of like um who's the kid jonah hill in Moneyball?

26:00He's kind of the quant effective in that movie. Basically. You can think of Dave as like a Moneyball kind of guy for venture. And he had a couple of comments about this data that actually really helped me and I saw you shared them as well. So I'm going to run people through a couple of quick points here. First up, he says that the fact that median internal rates of return for the 21-22 vintages are lower is irrelevant because it means the market has just normalized and the days of easy money and instant write-ups are over okay totally valid and then he applies the same idea to tvpis saying that the j curve has returned and the market has normalized fair enough then dpis as we discussed takes 10 to 12 years for a company to go public yep so his point is dpis in the first five years are kind of irrelevant because you shouldn't really care about that much anyways valid and then his last tweet i think is the most critical one summary vc is the heart Average VC fund performance is disappointing.

26:58Most companies will fail. It takes a decade for winners to really develop. This report confirms that market reality has been restored. Now, this is the guy who puts money into venture capital funds, saying VC is hard and average VC fund performance is disappointing. explain to people why someone who runs a fund of funds and puts money into venture capital funds would back an asset class that they think is so difficult so illiquid and occasionally disappointing because to me that's the tension here if this is just back to normal is normal that good normal is 2x to stock markets average and that's basically all you need to know and for seed funds and the early stage funds which launch is part of you know it's typically 3x so in the same time you could get you know seven percent of your irr you should be able to get 12 14 20 25 ir from the venture funds the problem is because of the power law it is confounding and disturbing to bet this way it would be literally like betting on roulette numbers you know which might be i don't There's 40 different spots on a roulette wheel.

28:14I seem to remember like it goes up to 42 or something. I don't play roulette all that often. But you're asking chat GPT-4-0, you opened a new tab window. So in other words, each of those numbers, each of those numbers is like pays off 40 to one or 45 to one, something to that effect. Now, if you go in the stock market, some stocks lose half their value. I got crushed on Warner Brothers, other stocks when I did jtrading.com, like facebook paid off 5x 500 so there's your swing for me as a public market investor 50 loss for warner brothers and then all the way at the top 500 gain for facebook and overall my portfolio has just crushed it but it's a tighter band you know what you'd see in venture is 90 of your companies returning$0.

29:06And then 10 % and then one, you know, one of 5 % of your companies one in 20 returning 95 % of your dollars, and then the other 5 % contributing roughly 5 % of your dollars. And that's the confounding part of it. So it should be a small part of your overall portfolio is how most most capital allocators think about it, you have had people like yell or harvard or some endowments who get super aggressive go to 20 30 private markets venture capital and private equity some even go 35 because they really want that juice and they don't have a problem waiting 10 or 12 years because harvard will be here in 10 or 12 years they'll be here in all likelihood in 100 or 200 years so that's the answer of why people you know, will embrace this quixotic, peculiar, challenging market.

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30:38And Vanta does more than just SOC 2. They also automate up to 90 % compliance for GDPR, HIPAA, and more. So here's your call to action. Stop slowing your sales team down and use Vanta. Get$1 ,000 off at vanta.com slash twist. That's vanta.com slash twist for$1 ,000 off your SOC 2. A question about the LPs, because clearly David Clark and his company are going to keep investing in venture funds. But let's just say you showed up, you put some money into a couple of funds, maybe some emerging managers in the 2000 to 2022 bubble era. You got your face ripped off. It's your first time round. you're probably running for the hills.

31:12Does this set of charts that we're seeing that shows, I think, some of the pain that is the hangover from the last party we had in technology and startups, does that actually make any long-term impact on the viability of VC funds' ability to raise capital? Or is this just the standard, it went up, it went down, everyone laughed, everyone cried, and now we're just going to normalize like it never happened? What a great question. You're a great co-host. um it is literally the question you have to ask yourself which is what impact does this have on the market if everybody kind of expects boom busts well i can tell you what will happen is a small venture firm that just finished its first vintage or second vintage during that time period will have no dpi you know their tvpi might have gotten flipped and let's say their top company was a high flyer in crypto like what was the nft company that became worth some crazy amount of money it was like the marketplace it was like 11 or 12 billion because it was i mean at that point in time it was minting money like like a like a printing press then the market turned and now it's a bit of a dog but like at the moment i kind of actually i wrote at the time that it was it smelled like ipo fodder because its numbers were so impressive they hired a cfo to go public and then he left in like six months because yeah it's kind of like the tulip story all over again like man if tulips are the most coveted thing on the planet and you've got a tulip farm man you're going to print money but you got to make hay while the sun shines because what if people decide yeah they don't like tulips anymore or you can go find them in the forest so that company if that was your big winner if that was your you know equivalent to me of uber robin hood com grin whatever and all of a sudden it becomes worth zero and you invested in it at a billion you thought you had a 12x bagger and you put a million dollars in it from your seed fund and your seed fund was 5 million and now you know you were sitting on 12 times a million 12 million dollars you had a two and a half x fund it goes to zero you're underwater essentially you're not even going to return the million how are you going to raise your next fund you go into a meeting you're like we made 30 bets this was our number one bet two years ago we were two and a half tvpi and they say okay what is your did you mark that investment down yet what was the last round what is it trading at on secondary markets?

33:27Well, then what that does is it will trap some of these new venture firms and the founders of those firms just might not have the wherewithal to say, you know what, I'm out of investable capital, I'm just going to shepherd these companies, try to get some DPI, I'm going to ring every last dollar out just so I can return the$5 million I raised in that first fund. And at least I can give people one extra money say I've learned a bunch, please give me another shot and give me 10 million to deploy here's what i learned and the fact is you know lps uh might be feeling poor they might be going through the same cycle and then i think a lot of vcs um a lot of vcs will just give up because it's too hard and a lot of vcs shut down after the dot-com bust after the great financial recession and there was another piece of data on i don't know if was card or one of the other providers that like it used to like some some incredible number 80 of first and second time funds were not able to raise their next fund and it typically was like half so you'll see a lot of the smaller ones blow out you'll see a lot of people who let's say you were a vc and you had a hit in fund two or three they might just retire for fund four or five they might just call it a day because i made all my money do i want to go through this all again i was talking to one vc who's 10 years ahead of me And he was like, you know, I kind of did it.

34:51The chances of me hitting, you know, an X, Y, or Z again are low. I mean, it's possible, but it's not probable because I got lucky on these and I spent 30 years doing it. What's the point of the next 10 years? I got more money than I need. And I think that is what kills venture funds. The two things that kill them is not getting DPI and getting too much DPI. either of those scenarios will cause retirement or a career change yeah i think the too much dpi is funny because well i have a lot of thoughts about that because i'm always surprised when people who have multiple billions are still on the grind because if i had one billion um you would never hear from me again because i'm going to go read every science fiction novel ever written in the back of my cabin with a huge fence around it goodbye respect i think what you mean is you're going to have the authors of those books sit next to your bed and read them to you each night for an hour i would have those banging book club i would get i would just like tell my friends we're all going to read book x and i would just fly the author in you know put them up someplace nice don't have them come to our discussion and then tell us what they like no more guessing the author's interpretation here's jane she's going to tell us what she was thinking when she wrote this book you know i just had this vision of philip k dick like sitting at your bedside reading you you know dual androids dream of electric sheep no can you read it again adrian tchaikovsky i'm currently reading another one of his books i would pay i don't know what what could it cost to get an author like 15k if you're a billionaire who cares exactly i mean it's uh i knew a billionaire who loved the music and electric guitars and all this kind of stuff he was an okay player as well i didn't know him personally i knew him i knew people around him and he's deceased but um he would have a number of artists at his house and uh some people were you know in the band were paid and some people were just you know notable musicians who wanted to hang out with a billionaire and just play music and yeah you can you can have those experiences if you like or you can be microsoft one time i was at a microsoft event i forget this was probably like 2014 2015 they had um jordan the keyboard player from dream theater kind of like open up their main event and i was bopping around excited press pass and i was like i'm going to go shake his hand and i did and he was very annoyed with me for interrupting this conversation with someone else but i was still like that's a cool thing to do that's what i would do if i had that kind of money well actually i might as well say it since you said my first time was paul allen and i don't think there was any secret that he liked to play guitar with famous people also paul allen was beloved so i think it's okay to say yes a fun interesting things about about paul because people just liked him yeah so anyway uh the date is out you know for me this sent me on a little bit of a tizzy because if you can all of the early dpi that happens is not from uber or airbnb or coinbase going public it's from secondary shares in stripe and uber and masi yoshisana whoever or you know whoever is doing an angel list spv or whatever for spacex that's where it comes from and uh you know i just think lena khan is a communist who is reinterpreting these um you know laws in a socialist who like i think it's really like anti-competitive and i've talked about it here many times but i think like the reinterpretation of the you know antitrust laws is not a valid way and it's put a chilling effect on the entire market we've discussed it here before and i just think you know when you have reid hoffman the ultimate liberal and the all-in you know lunatic you know not that we're right but um uh but a couple of people on the right and libertarians saying like this is not the way to run antitrust you should be giving speeding tickets for breaking the law but you know let let there be some m a let let there be some light and then the uk and eu following suit uh on blocking all this mna you would have more money to deploy into the next generation startups if you could get those mna singles and doubles if i could be selling right now our startup portfolio you know let's call it the tweeners the ones that are never going to be public but they got to some level of 10 20 50 million in revenue they could be great sales at 10 20 times revenue 30 times revenue 40 times revenue to a microsoft google or you you know, the long tail, nobody will even try, Alex.

39:20They will not even try to buy companies. Venture capital is widely seen as one of the most lucrative asset classes in the world. Go look at the S &P 500. Nearly every major tech company on that list was once funded by venture capital firms, producing billions of dollars in profit in the process. The hard truth, however, is that the biggest venture funds were almost entirely funded by institutional investors like endowments and sovereign wealth funds. So unless you knew a guy who knew a guy, you and 99.9 % of individual investors did not get to participate in the pre IPO growth of any of these blue chip companies.

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40:44This is a paid sponsorship. Well, you and I have had this conversation and I want to take that and frame it in this moment because you and I talked about a tiered system. You know, like if you're above a trillion dollars, you can't buy anything. 500 to a trillion market cap, you have, you know, we're going to look at it under 500, go crazy. And just to be clear, like Adobe worth about a quarter trillion. So they could have bought Figma under this paradigm, but it'd be tough for Microsoft to go buy the new. Sure. Absolutely. So here's my question. Google's in trouble right now. They lost that antitrust case.

41:17The government is going to try to break them up. I will see. I recalled the Microsoft case in the nineties. And also I know how much influence that company has. So we'll see if it actually happens. But if you did take Alphabet and broke it up into like, I don't know, three or four pieces of 750 billion a piece, then not only would you have more companies you could sell, startups do you'd have a more competitive market in which google might have to be with a different part of its former corporate world to get that company so i wonder if there's a combination of okay everyone go crazy with acquisitions but we're going to break up a couple of the major players that's my dream world scenario lots of capitalism but fewer you know rockefeller style companies out there if that makes sense yeah i mean the history of breaking up companies is it's a very small cohort like the bells you know being broken up into many different companies there really aren't that many true monopolies out there if you were to look at search it is one of the true monopolies 90 but if you were to look at it as online advertising it would not be a monopoly because you have a long tail of meta tick tock the shopping cart companies amazon uber instacart you got upstarts like tiktok and reddit you have twitter you have many many different ways to spend your advertising dollars online you could say it's a duopoly and that would be true but it's not a monopoly so it's just rare that we have a monopoly even you know um apple is hard to look at apple iphone as a monopoly if there are a hundred other android phones and apple is still under 60 market share in every region in the world and android's got the other 40 or 50 so you know it it's hard to say that these are hardcore monopolies but they have got a lot of scale and since they have a lot of scale i do think you know if you did i think the breaking it up is saber rattling to get a settlement and almost all these things are a negotiation and a settlement and i think the settlement will be i believe google alphabet will offer up one or two spin outs um in exchange for not being broken up and i think the logical spin out is youtube because it's painful but it's not so painful that it's a death deal if you took youtube out you remove whatever it is 40 50 billion in revenue it becomes worth more as a standalone company and it competes with google for advertisers so then advertisers are saying yeah like i could spend it on search ads or i could spend it on youtube where do i want to put my budget and um i think for shareholders i think i might j trade more alphabet because i do think them being broken up unlocks value because it's hard to understand the value of things when they're all consolidated like this it would be very bad if chrome and android were spun out as its own companies because those are major contributors to search about a i gotta think like maybe half of all the searches on google come from mobile phones and default search engines that combination because to use android you have to have chrome it's defaulted to google they pay apple what 20 30 billion a year to be the default there which is what got them in trouble is doing those kind of deals so i mean if you did pull that out and chrome and android were its own company let's say you put those two together and you just called it you know whatever android and chrome uh corporation the android chrome corporation is terrible name but rolls off the tongue it's brilliant brandon the eminent the android you know android as a standalone company you can buy stock in that own chrome as well they would be able to go to bing they would be able to go to apple i think apple should buy duck duck go and brave search engine the brave's got a great search engine with an api i would buy both of them make your own apple product and then you've got apple and bing competing or maybe just buying 20 of the searches on android each and then google buy 60 of the searches so you know that could be what happens with apple as apple says you know what we're gonna to not do an exclusive we're going to give you know 40 of our search traffic to google default 40 to bing and we're going to give 20 to 10 other players two percent at a time and we'll do a rev share with the 20 so it's like easy for them to afford to do this and then we're going to give make bing and google pay a minimum but anyway that would be very damaging i think to the monopoly but at the same time i just had you i convinced you to set your new tab to chat gpt4 which has no advertising and you're getting tremendous value there without going to google and i'm gonna have to buy a new monitor after i shattered this one which is already on the list of things that i needed to do so totally fine there i want to get you more memory i think you need more memory on your computer i've got so i've got so much the wrong this tweet deck is just garbage all right um the venture conversation and and the returns and the market setup and so forth I have a different thesis about why we are seeing so many VCs squabble right now.

46:35And it relates back to what we're describing, which is an exit dearth, a lack of DPI concerns and so forth. I think that the VCs are getting frisky with one another on Twitter and complaints and shading and the beefs we've seen lately because they're all kind of stressed out at work and they're taking it off on one another. Back when there was endless returns to be had, quick markups, companies raising two times in a year, everyone felt like a genius. I think everyone was like, you know what? You're fine. I don't mind you, Mike Moritz. I don't mind you, Andreessen Horowitz. And now everyone's looking at like, we're having some tough times and that is leading to the beefs.

47:10And yes, Jason, I do want to talk about the Mike Moritz SF standard piece and the Andreessen thing because it struck me as more vitriolic than I expected. So I was hoping you could, I don't know, peel the curtain a little bit and talk about why... Ben and Mark from Andrews and Horwitz tried to front run a piece in the SF standard about Ben and his family and their changing political donations and why they were so incensed by what ended up being a relatively, in my view, innocuous, anodyne and fair story about a change in the wind for one important family. First off, I love your analysis that there's not a lot of exits and money to be made right now.

47:54And some people are distracted. You know, and it's also we're talking about the small number of VCs who become billionaires. Most VCs simply become millionaires. Sometimes they become decamillionaires and rarely do they become worth individually any VC over 50 or 100 million. It's actually very rare. it is one of these professions where you can make a million dollars a year and then you know hit a bingo and you know make a couple of million in distributions every 10 years and then you end your career with a net worth of 10 or 20 billion which is nothing nothing to complain about but you know we we kind of put vcs into the same bucket as entrepreneurs who win it's two different scales you know an entrepreneur you know if they do hit can do extraordinary and then the vc remember who invested if a vc owned 10 of google or air let's say airbnb 10 of airbnb they got 10 billion exit on you know some i don't know let's call it a hundred million dollar investment you know like they did a late stage investment turned 100 million into 10 billion 100x it's the dream 10 billion 20 of 10 billion or so is 2 billion 2 billion divided by five or six partners in a firm plus the employees you would basically divide that number by seven and you would get 300 million a person they would pay their capital gains they would make 200 so the most amazing vcs who make the most amazing bets could become worth 100 or 200 or 300 million and in very rare cases like michael moritz we have google youtube i mean you have like an incredible cohort whatsapp in there yes you could become a billionaire it does not happen often putting all and mark and and ben obviously made money as founders and made money as the heads of their firm this is michael moritz is retired he started a publication called san francisco standard i read the story if this was just about if this wasn't the technology industry if this was hollywood if this was you know new york media it wouldn't be that big of a deal i agree and if it wasn't trump and it wasn't a family um that is a biracial family uh with an african american wife and it didn't have the tenor of going after a spouse this would not be contentious a key part of this story is that you've gone after what most people would consider a civilian uh ben horowitz's wife is not a partner at andreason horowitz they really centered this story equally about ben who's making a decision to support trump because as he said in the like our plus podcast it was not the the biden and the biden kamala harris uh socialist ways are not good for our industry we talked about lena khan in the previous segment perfect example so that's how big tech feels the story is actually pretty fair um i read it i was the only thing i found weird about it was they're like nobody can figure out why they've had such a change in position from being hillary and kamala supporters in the past to being trump supporters it's like um except if you listen to the one hour podcast and then it explains it in excruciating detail they just believe it's simply a pragmatic one but here's where it got too personal okay you put maga hats on ben horowitz and his wife yes you never go after wives and spouses even if they donate and then they went to the wives friends and colleagues in addition to ben's professional context and this got very personal and when it gets personal like this and you start mocking somebody's spouse who's a civilian in most people's minds yeah now in other people's minds the journalist minds they say she's fair game because she hosted parties she did clubhouse rooms and she donated to people and she did fundraisers fair enough you could say that but you your original question i always think about the original question is why did this get so contentious it's a publication backed by a rival venture firm sequoia and andreason have a rivalry and it included somebody's wife and anything that has to do with trump and maga gets toxic real quick especially in a town like the bay area that's why it's so contentious okay i have lots of thoughts about this i do appreciate that perspective because i think it's a very good one to have laid out there the first thing is the streisand effect and if you're not familiar with this it's uh if you try to get something taken down or put a lid on it often you end up making it bigger i would probably not have read this if it hadn't been for the brouhaha and the what's called front running which is a media term in case let's say i'm gonna write a piece about you know here's in calacanis is a rogue raccoon farmer in austin and breaking all sorts of rules and so forth he might tweet out i'm not a rogue raccoon farmer i am in fact a very uh good pro raccoon pro raccoon i love every raccoon you know he might front run my story terrible idea i really should have picked a better idea than that one um but uh to me in this case it got so big because they were so unhappy with it now a couple of other important things one civilian it to me is a very particular term and it implies uh no not playing on the field at all i think it's perfectly fine to say that this piece was too focused on the spouses equally and it should be more focused on ben than her fair enough that's a it's an editorial question we can always criticize and that's perfectly fine but i think given the scale of her donations activities media profile and so forth i think she's in my view fair play and they also broke down her donations over time including the period of time and years in which it was mostly blue in the american political parlance i thought that was good inclusion to show the full picture and so forth the thing where i actually get a little peevish is the the maga hat thing because mark andreason by the way unblock me please so i don't have to keep loading your stupid tweets in incognito mode mark dear god what is this third grade anyways um there is a composite image at the top of the story which we had on the screen a second ago uh clearly a a Photoshop of Ben, his wife, and several other people, one of which is Connell Harris.

54:28And it says down below, photo illustration by Clark Miller for the standard. And when Mark complained about this, he tried to make it seem that they were trying to pull a fast one on people and being despicable. Photo comps are cheesy, but they are, I think, kind of standard game. And making an image that is clearly Photoshopped and clearly a comp and labeled as such is, you can say, in poor taste, but it's hardly an abrogation of ethics. And I think that's worth saying out loud. I thought this image, to me, was clearly a photo illustration. The reason is the hats don't fit perfectly at all. And there's two Smurfs, a Smurf version of Kamala and a Smurf version of London Reed.

55:11Like, they're blue. So I did not, at first glance, I said they photoshopped the hats on. Now, if you saw it going by in social media, might 10 % of people not see that and obviously not see the caption, perhaps. So in an editorial meeting, and this is how hard it is to be the editor in chief of a publication, which I was, and I think you were as well, is you have to think, what about the stupidest people? What about people who just glance at it? What about cynical people? how could it be weaponized against us by the subjects and if i was in an editorial meeting with the illustrations and they brought me this specific one i would have immediately said you know what if i scan that or i start on somebody else's phone you know sitting next to them on an airplane or i just went by my feet i might actually think they're wearing them um the hats because they did take the time to put the shade under their eyes and the brims of the hats and everything um make it look comical yeah um how the hats fit so it is very clearly an illustration instead what the editor-in-chief did here was they said well we technically have a caption to the illustration that says it's an illustration therefore we're covered that's actually a low benchmark as the editor-in-chief of publications your job is to not pander to the stupidest person but to be thoughtful about not ruining the story yes with an attack vector like this yes the attack vectors could be a anonymous quote an attack vector could be the title and the subhead and i always just thought that way but this is made to get clicks putting them in mega hats you know really is triggering and i think part of what's triggering here is i bet you for felicia horowitz and ben horowitz this was a hard decision i think it was a hard decision to flip parties for them i don't think anybody who flips from um a democrat yes a lifelong democrat to a republican after what we saw from trump at the black journalist conference and who is aware of black culture is african-american like this is a hard decision to say you know trump's race baiting you know weird behaviors on the margins yeah which he will try and defend and other people will try and weaponize truth probably is in the middle but you know you you don't have you know that safety of saying like gosh you know i support trump when he does all this like weird stuff about block jobs or s whole countries like that stuff is all in play here as well i'm sure it was a difficult decision i know for other people in my immediate circle who have made the decision to come out publicly in support of trump it was not an easy decision in some cases yeah um because you know trump's trump's no angel here no as much as you might hate socialism and price fixing of these weird proposals around the grocery thing was abysmal but i want to say jason you are making a very reasonable and i would say pro-human uh demand that we have a that we expect good intent from the people that are the subject here i agree and i think that should be applied to the publication as well.

58:47I'm just asking for equal good faith here across the thing. And I don't feel like that's actually what's going on. And I just want to raise a little ironic note that a venture capital firm that has put lots and lots of money into companies that have taken content and remixed it and set F you to people who didn't like what they were doing with it is now complaining about a composite image that was made. And I think that is slightly more. Another good point, right like if you're supporting regulations here about this sort of thing but mark andreason doesn't get paid from the sf standard so doesn't care now i want to ask you this what percentage of this brouhaha is simply andreason versus sequoia and what percentage of this complaints actually the story itself yeah i'd say less than one percent of this has anything to do with the venture game on the field this has nothing to do michael moritz has been retired for a while he is i think still on the board of companies but i don't think he's making new investments yeah ruloff and alfred are running the company according to sequoia's public comments i do when i'm at sequoia i was there last week actually um and um you know i see doug leone there almost every time i'm there so he's also supposed to be retired but i think these some of these guys still like billionaires and disappearing go to your cabin in the woods fly your helicopter upside down but i think michael moritz is i think michael moritz is largely i think he's largely retired i don't know exactly um but i i think this has nothing to do with the venture business i think this has to do with the fact that you know trump's first term was so chaotic and so toxic um the biden kamala situation is so triggering for a lot of people socialism is so triggering that people have lost their minds at this point on both sides and i had to tell somebody today like you know i actually at this point i don't care particularly all that much who wins because i'm my family and i are going to be fine i if kamala if kamala wins um i think we'll have less chaos i think she might be a little bit more you know hawkish and like neocon and maybe you know start a little more wars um as part of that like establishment and trump won't i think trump might take a third term i think trump could be chaotic you know the end of that last president you know january 6th trying to overturn the election all that kind of stuff that's pretty chaotic and um but it would be good for my taxes so you know looking at it as like a mixed bag i'm like we survived biden and we survived trump i think the country's going to survive these too i I don't think we can survive another three outrageously spending administrations.

1:01:37I think we got one more$8 trillion deficit left in us. And then I think we break the system. And I think whoever wins, if they, because Trump did seven and a half trillion. And I think Biden is on track to do eight or about the same. Yeah. It's basically the same. They both added a trillion to the deficit. it they both the two of them combined doubled it the next person comes in and then adds another 25 or 50 to it you know in a four or eight year term depending on which group wins it's going to be really really difficult for america because uh our debt load is going to be so crazy we're going to have to print more money well and then we're gonna have to start cutting services and it's just going to be this we'd have to start paying a lot of interest and it's going to happen to california 1st, California's losing taxpayers, they're going to have challenges, and their budget keeps growing, they're going to have the challenges first, and then the United States will have it second.