All-In with Chamath, Jason, Sacks & Friedberg

Industry veterans, degenerate gamblers & besties Chamath Palihapitiya, Jason Calacanis, David Sacks & David Friedberg cover all things economic, tech, political, social & poker.

E117: Did Stripe miss its window? Plus: VC market update, AI comes for SaaS, Trump's savvy move

E117: Did Stripe miss its window? Plus: VC market update, AI comes for SaaS, Trump's savvy move

Fri, 24 Feb 2023 20:41

(0:00) Bestie intro: Jason's Japan trip!

(1:04) Stripe's precarious situation: Did it miss its window? Breaking down its $4B tax bill, slowing growth curve, enterprise vs SMB customers, scalability issues, and more

(23:07) Lessons for founders: How ZIRP can skew CAC and LTV calculations, burn multiple

(29:40) VC market update: ZIRP mistakes, VC as a "must-have" asset class for LPs, how the 2021 vintage can be saved

(39:05) AI's outsized impact on SaaS and real-world businesses

(55:16) Advice from Steve Jobs on customer-first product development, Section 230 update

(1:00:29) Trump's savvy visit to East Palestine and 2024 strategy, Biden's visit to Ukraine, China's position

(1:14:24) Tinfoil hat corner

(1:23:25) Bestie wrap up!

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Check out what time is it in over there? Well, we started at 8 a.m. So now it's 8.28. It's 8.28. I'm going to be out on the slope side, 11. So I'll be out there skiing. I'm in Naseko, in Japan. Take a quick flight to Sapporo and then you drive two hours into the mountain. It's a yesterday, a cat's guide. There's an abandoned ski mountain. That's my two. By the way, in honor of you, I grabbed a Sapporo from the fridge today. Oh, very nice. This week's episode brought to you by. So they drive the cat's guide up and then you ski down and it's all fresh track. So it's literally an abandoned ski resort, you know, during the financial crisis here. I just asked you what time it was. That's all I asked you. It's cold, small talk. It's cold banter. I thought you might be interested in your bestie's life, but apparently not. You're like your winner's ride. Rainman David Sack. And it said we open source into the fans and they've just got crazy with it. Love you best. I'm queen of kilowatt. I'm going out. Let's get to the show. Everybody wants to hear the show. A lot of news going on. And you know, in our industry, there's been a big discussion about our issues and stock options, both the cost of these things. And then there's another issue of people staying private for too long. If you remember, for folks listening, Airbnb Uber famously took over 10 years to go public. People like Bill Gurley wrote about this. Hey, you should get public. When the window is open, obviously the window is closed right now or largely closed. Stripe. Now people are speculating they missed their window. They have a $4 billion tax bill due to cover expiring employee RSUs. Those are restricted stock units. And at the same time, four square, a company from the Web 2.0 area. This is 10, 15 years ago when they were very popular check-in software, mobile location app. They are going to let their previous employees stock option grants expire according to the information. They issued these options in 2016, seven-year window before expiration, more than 100 form employees will be impacted. And some of them are the very early team members. And this employee stock option problem is becoming acute because, hey, people waited to go public. Basically, what happens is you grant an RSU, which is effectively W2 income when it's realized with an expiration date. But that expiration date forces you to be public so that that RSU can be exchanged for value. And that's like a 10-year window. So then these guys have to go in and modify that date and push it out by another four, five, six years or whatever. That is a deemed event by the IRS that then creates withholding tax issues. So you then have to withhold tax on behalf of the employees. And so that collective number is the four billion that Stripe is trying to raise. According to a leaked pitch deck, Stripe implied they needed 2.3 billion in capital by the end of Q1 2023. They're working with Goldman Sachs to raise a few billion at a $55 billion valuation. That's down 42% from the peak of 95 billion in 2021. One wonders if they had gone public what their valuation would be right now. Can we just say real quick why this matters? Like yes. So anyway, why does it matter? Tama. Yeah, why does this all matter? Why do we care? Thank you. That's where we're getting to. I posted a link. This is a 2013 interview that Zach did with Michael Errington of TechCrunch. And if you go all the way back, the apprehension to go public was one thing that we really anchor to a lot at Facebook in the early days. And at the time, I don't know if you guys remember, but there is these arcane laws around the number of shareholders that you could have. And I think the issue specifically was that after 500 shareholders, you have to publicly release your financials. And so we did all kinds of things to make sure we never hit the 500 cap. And we tried to push the IPO data as far out as possible because we thought that it would keep people more focused. And then in 2010 or 11, I told this story a couple times, one of the things that I was advocating for pretty aggressively was trying to launch a mobile operating system to compete with iOS and Android. And we had put together all this work and brought in Intel and AT&T and all these people. And it came down to the fact that we needed a couple billion dollars to float this thing. And we didn't have that money. So the only solution to that would have been to go public, but it wasn't the right moment in time. And Zuck wasn't comfortable with it. A year after going public, one of the things that he said publicly in this tech branch thing was, wow, I should have just gone public sooner. It wasn't nearly the bad thing that I thought it was going to be. And when you look subsequently at how much money they spent in AR and VR, spending half a quarters of that cash could have given them the chance to disrupt Android and iOS in 2010 and 11, which in hindsight is obviously a no brainer bet, right? So even though I think we at Facebook were the ones to really put this in the water table about not going public, I think a lot of startups should have gone back to first principles to really question whether waiting as long as possible actually makes sense. So I was curious about the Stripe situation. So I asked my team to do a little bit of work on how would you value this thing if it were going public. And the interesting thing about Stripe is that it operates in a really transparent middleman business. So what's interesting about Stripe is that so many of the people in the ecosystem are public. And so what that means is you can build a pretty accurate mosaic of how well or not well that business is doing by interpolating all the other data from all of these other companies that are public and are forced to report. And so there's like a couple of really interesting things that jump off this page. And so the first thing that we did was we looked at what is the future profitability look like. Acts of growth. And what's interesting is that you look at companies like Visa and Mastercard that are doing quite well and have done really well for a long time. But you look at this outlier in Adyen. And Adyen is probably the most obvious competitor to Stripe. And the thing that is demonstrated here is how incredibly profitable this business is. And how much operating leverage they have, which means that their op-ex is relatively constrained. Because in terms of the X and Y axis here, just so people who are listening can understand the chart. Sure. So if you take the market cap on the X axis and divided by their sales estimate, you get a multiple of the enterprise value to their sales. Got it. And if you look at the 2024 estimated EBITDA margin that they're forecasting X of their long term sales cager, what you start to get a sense of is the operating leverage that this business has. And so all of this basically nets out to three interesting takeaways. When Stripe got underwritten at $96 billion, it's this data point right here where you see your Stripe previous round. 5X enterprise value to divided by 2024. Divide it over their long term EBITDA exactly by their sales estimate. And then if you look at the $55 billion valuation, it's down. So what it looks like it's happening is appropriately so people are doing the right thing, which is they're re-rating the stock by approximately 50-60%. But what's interesting is not where they are in terms of where they used to be, but the interesting thing is where they are relative to their most obvious competitor, Ajahn. So Nick, please bring up the next one. So this is where things get really interesting because we looked at what was Ajahn and what was Stripe's GMV per employee a couple of years ago before all hell broke loose in the private funding markets. And what you see is they were pretty equivalent businesses and they had roughly the same amount of employees. But this crazy thing happened, which is that if you look at the gray bar, this is the number of employees that Stripe has. It went crazy from a little over 2000 to almost 8,000. So a four X in 24 months, they had it's 6,000 people, just pause for a second on that. 6,000 people in 24 months and 700 days or so. Three people a day. And if you do the same calculation for Ajahn, it shows that they a little bit less than grew by about 75% and then if you look at the growth of GMV and you impute how productive is each employee, basically this is the story of what's happened to Stripe and Ajahn, which is that Ajahn has found operating leverage. Stripe, so they've found and maintained incredible profitability. And Stripe has added an enormous number of employees. Now the question is why, right? So it turns out that these guys at the top line are growing roughly the same except Audien actually takes meaningfully less on a per transaction basis than Stripe does. And the reason is that Audien services these large head customers think big, bulky folks that have huge amounts of transactions and so as a result have pricing power. And Stripe has some of those customers as well. In fact, they just announced that they're going to process a large portion of Amazon's payment volume. But what's happened at the same time is that those kinds of deals aren't necessarily that profitable. And so you have to hire a lot more people to build a lot more feature so that you can generate revenue from the long tail of customers, all of these SMBs. And this is the tail of these two companies, which is that Stripe has some head customers, but many, many, many tail customers. Audien has mostly head customers, fewer tail customers. And so the leverage in the business is that Audien has most of these employees in Europe where the cost of these folks is much, much cheaper and they have less than half the number. And so as both of these companies continue to grow, you have one that has maintained and frankly brazed their long-term profit projections because they see it in the business even at lower transaction costs and Stripe, which is having a little bit more trouble. So I thought it was a really interesting expose. The takeaway for me is that if you were sitting inside the company and obviously hindsight is 2020, the most profitable thing they could have done from an enterprise value perspective would probably have been to go public in 2018, 2019 because they could have raised max value at max valuation, cleaned out all these options issues and have a huge balance sheet of cash with which to do stuff, whether it's acquisitions or other things. Because the thing that I struggle with is, is there going to be long-term profitability in all of these tail products? Because if you look in the SaaS ecosystem and SaaS and the ball, do you? There's companies building all this other stuff and these point products are probably pretty good too. What do you think about Audien going after the fat part of the long tail and then Stripe going after the long tail, having many more customers? Well, I think they're both viable strategies. I've actually written about this. I wrote a blog some time ago called Enterprises versus SMBs, who's the better customer for B2B SaaS companies. I think the old school traditional view is that Enterprises were always the best customers because they have the biggest budgets that translates into the biggest annual contract values or ACVs. This provides the highest ROI on sales efforts. Now you can make a sales driven distribution strategy pencil in the first place. The prospects are easy to identify it. After all, if you're going after the Fortune 500, you can just make a list of the 500 companies. I think the traditional gold standard was the head, like you're saying Jason, the Enterprises. However, I think in recent years, it's become more popular to pursue the Stripe strategy of the more SMB. Why is that more popular? Well, because first of all, the SMBs are more early adopters. When you're a startup, it's way easier to satisfy their standards to satisfy their needs or less complicated. You don't have to have SOC2 compliance to everything else. If you saw... They're more risk-taking, right? Yeah. If you solve an immediate point for them, they'll just buy it. Whereas, I think Enterprises are more late adopters. They tend to be more skeptical of new software categories. Yeah, I think in addition to that, the SMB sales cycle is really quick. I'd say typically one to two months, you can close a deal. The sale itself is simpler. Like I said, the product requirements are simpler. The low end of the market tends to be the most underserved part. It's great to play where the incumbents are not. That's a traditional strategy. You go after the low end of the market that's been overlooked or ignored. That's what Stripe has done here too, as no one was really serving these developers. I don't think it's a good strategy too. The truth is it's not one or the other. I think you just have to pick what are your battles that you want to fight and some starts to go after Enterprises and some will go after SMBs. It really comes down, I think, to founder market fit. I think founders who are better at sales probably skew more towards an enterprise strategy. Whereas, if you're more of a product founder, you go after SMBs. Brian Summary. Over time, Sachs, for a company to thrive over long periods of time, do you have to service both or do you think you can stay in one of those things and grow indefinitely? What I've seen is that if you start the low end of the market with SMBs, over time, you can move up market because what happens is that as your product gets more and more sophisticated and your company and your ability to execute and deliver gets more sophisticated, you can start satisfying the needs of bigger and bigger companies. You start SMB, then you go mid-market, then you eventually get to Enterprises. I think if you start with Enterprises, it's very hard to go down market because it's a lot easier to add requirements to your product than to actually strip complexity of a product that's actually surprisingly difficult to do. So I think either strategy can work. Either you start the low end and move up market, that's the classic Clay Christensen Innovators Deloimit type thing, or you just start the top and you stay at the top. It makes sense. Adding 10 people a day over two years, that's a large number of people to add to a company. Well, in fairness to Stripe, they were very honest about this and they were like, we overestimated, got confident and we overhired. And they found that all the coordination cost to Saxus Point became too high. That's exactly what the callus said in their memo. So I think that they're trying to course correct and get back to this. I think the point that I'm making unemotionally, I don't own Stripe nor Adjun. I don't have a horse in this race is more that in this market, specifically in these middlemen, highly transparent middlemen markets, it's very difficult to hide the cheese. Meaning the ability to get to an extremely precise valuation model is pretty easy. You know, this was half a day's work that we did and the point is all this data is out there. And so it means that if you're going to go public as a company like this, you have to be quite thoughtful about how outside and folks will value you because the terminal buyer is very, very sophisticated and pretty smart about how to think about spaces like this. Freeberg, when you look at this, it kind of dovetails with the get fit, Brad Gersner, Elon, Twitter doing more with less employees. Zuckerberg again says he is getting rid of managers. He's asking managers to sacks his discussion about the layers of management that got added and added where high performers would have five people put under them, ten people put under them. Is it going to be, are you impressed with how quickly the industry is responding to this new environment or are they not responding fast enough in terms of headcount revenue? Because now we're looking at revenue per plane. This has never looked at that. It's been a decade since we looked at that. This is a little bit of a different situation where it's about the scalability of a business. Like when I look at like the value that a business has created, you start first with like, can you make a product? Can you sell the product? Do people want to buy the product? And then, can you make money selling it? And then there's this metric that a lot of people use, which is LTV to CAC, which is the lifetime value of acquiring a new customer, divided by the cost to acquire that customer. But I think you can generalize that ratio to talk about business performance more broadly, which is capital deployed, which is typically what CAC is used in terms of growth on the denominator. And then capital returned over time, which can be the numerator. And so, you know, you can kind of think about that LTV to CAC ratio being something more broadly defined as something like ROIC or what have you. The question for the scalability of any business is, does that ratio, whether it's LTV to CAC or ROIC return on invested capital, does it get bigger or smaller? Does it increase or decrease? Does that ratio increase or decrease as you get bigger, as you spend more money, as you deploy more money? If it's getting smaller, then mathematically, you can resolve pretty quickly to the asymptotic valuation that that business will achieve or the asymptotic revenue that that business will achieve. And that's a very scary kind of circumstance when a business that's tracking that metric starts to see that metric shrink. If that metric is growing, then you have a hyperbolic kind of moment and you can build platforms and add products and invest very heavily and take lots of risk and take lots of bets. When it's going the wrong way, you have two options. Number one is you have to make a change or pivot in the business to get it to go the other way. Or number two is you have to take advantage of that moment before the market finds out about that moment because as soon as the market realizes that that ratio is going the wrong way, your valuation multiple, what you're worth as a multiple of revenue or profit, shrinks dramatically because then the market can also see that asymptote now come. So I think it's very often the case that one should, as a board member as an investor, urge entrepreneurs, CEOs, founders, managers to think really clearly about that metric. What's the right way to define the denominator and define the numerator in our business and define that ratio over time. And as soon as it starts tracking the wrong way, you have a moment. You can either fix it or you got to go sell the business or go public and raise capital before the market catches on and your valuation shrinks. So I think what Jemoth's showing in this data and talking about the shrinking valuation issue for Stripe, it really highlights this important point, this broad point, which is did they miss the window? Did they miss the moment where suddenly the shrinkage is causing an asymptotic outcome for this business that it makes investors a little bit like, well, I'm not as excited about that because it's no longer as much upside. And it might be time to counter-divalute a company and did they miss the moment to go public raise a bunch of capital to go and try new things and hopefully pivot into a way. So I don't know enough about the business, but that's my broad kind of assessment of this. The interesting thing about that space, we talked to one of our friends at our poker game who runs a large consumer-facing business. And I don't know if you were there for that conversation, not freeberg, but you were there. Yeah. And one of the interesting things he said is we are at a level of scale where we just bit these guys against each other and these things tend to now be lost leaders for them, which is to say effectively that cost structure becomes really important. So your CAC becomes very important because your LTVs are capped, right? And the LTVs are capped because these companies have enough negotiating leverage to say, well, if you want my business, here's the cost of doing this business, which makes a ton of sense if you're any large pervader of services that require payment processing infrastructure. So one of the interesting dynamics, I think we're learning in this market is how it's really not a market, right? There are segments and there's embedded profitability in each segment. So to your point freeberg, this is the sum of at least three or four different LTV to CAC ratios, right? The tail looks very different, which is why you have to build a ton of features. And the head just wants pure play and it's all about cost first. Because all of these guys want to pick up every nickel and dime that's on the floor, because for them on billions of transactions is meaningful to them. It's an it's an EPS misor or beat, right? For them, which has huge implications to their stock. This is a market that I think is going to be really fascinating to uncover and peel back the layers of over the next years. By the way, we haven't even talked about what Stripe does as a business. I know we have a diverse audience that doesn't all come from tech. So Stripe is, we'll process your transactions, but they were the first people to make it as simple as putting a snippet of code into your app to process a payment. They can be with Visa, Mastercard and those other places. They charge you a percentage of each transaction. So to Trimots point, these larger, answer devs developers 5, 10 years ago, love this because they can instantly add payments, right? It's sort of abstracted the whole thing just the same way cloud computing does, right? Storage at S3, etc. So you can kind of think about it that way, but a large well in the system, Trimots, which you said, ad yen has a lot of wells, not a lot of long tail. Stripe because it's developer friendly and a snippet of code, they have this huge long tail. Anybody can do Stripe. In fact, people who are using things like sub stack or Patreon, I believe, they can just drop in their Stripe account. So people now, businesses of one have a Stripe account. They just drop it in there. So for me, that seems like huge potential in the future because some of those could become the wells in the system. And the long tail gives Stripe a lot of pricing power because there's no way for any one of those entities to have enough leverage to tell Stripe, hey, I don't want to pay 2.9 plus 20 or 30 cents of transaction. Whereas if you go to the head, I think ad yen is charging like 1.3 or 4%. So yeah, it's a wholly different market. And the pricing as a result is totally different. Yeah. It's interesting to me, Sachs, that we now are getting down to, you know, brass tax here. We're analyzing these money printing businesses and saying, what is the ultimate value of this 10, 20 years from now? Trimot and I got a front row seat to that because there's a natural audience to every single service for AOL. It was 30 million paid sub-zamon at I think the peak was 30 bucks a month. People were paying to them off. So at the time. 2499. So you know, you start looking at those numbers, you know, a billion dollars a month almost in just, and it was a fixed cost business. But then boom, you just hit a ceiling and competition emerged in the in the case of broadband. And then that business just slowly deprecated over time. So Sachs, what does this moment tell you for founders, a lot of the listeners here and capital allocators in terms of assessing businesses for the last and this will pivot into our next story? The last couple of years, you know, if you were first time fund manager, you were investing in 19 2019 to 2021. High valuations. Those funds are they ever going to be able to throw a profit. And then people were investing in those based on momentum, logo chasing. This is now back to, you know, sharpening your pencils, build girly style investing. Yeah. Yeah, I've been talking about it before. There's nothing new here. When you're in a boom, the only three things that matter are growth growth and growth. And when you're in a downturn, the three things that matter are growth burn and margins. It's not that growth stops mattering. It's just that people also care about burn and margins. And you know, the companies that fare the worst are the ones that have inefficient growth that basically have burned a lot of money to grow. They have, you know, lower negative growth margins. They are burning way too much money. The burn multiple doesn't make sense. Basically the ratio of money burnt to net new ARR that they're adding. Those companies get called out when all the Sun you have regime change like we're seeing now. CAC is one of the early signs of this. At Chimapu and I saw that member, AOL, sending DVDs everywhere and CAC became two or three hundred dollars for every AOL subscriber. And then they were playing this funny accounting event. I don't if you remember this, Chimapu, where they were saying, Hey, the LTV is like five years for an AOL. They were looking back at that number, not forward with broadband coming. And so like we can totally spend pretty hundred dollars on TV ads to get a dial up customer 24 a month and boy, did that whips on them. So I listening to everybody talk here. I'm just like, wow, keep your eye on the CAC folks. The customer acquisition cost. How much you get you spend to get a new AOL, Netflix, or SaaS product or a Stripe customer is critically important. We look really closely at CAC payback. How many months does it take to payback the cost of acquiring a customer? We don't look at that exclusively though because what expenses go into CAC is highly dependent on your accounting. Unpack that for a second because there's the money you spend on a Facebook ad or a LinkedIn ad or any other great platform for driving customers to sign up for it. Yeah. You spend money on an ad or you spend money on a salesperson obviously that goes into CAC but then what about sales operation headcount? Does that go in? Is that op-set counter? Is that sales headcount? Is that customer acquisition or something else? So there's a lot of subtle accounting decisions that have a big impact on that number. Well, this is why I've always recommended just looking at burn multiple. What I really want to know is how much money is this startup burning in relation to how much revenue is adding? Does it look the ratio of those two dollars? This is not a high-burned 100. This one we spend $300,000 and we burned $100,000 and then we added $100,000 in new customers ARR. So that's 1x so that you have on your chart here burn multiple of 1 to 1.5 or under one is amazing or great. But if you burn 200,000 and add 100,000 I weren't founders going into this year do not have a burn multiple greater than two because there's just so many headwinds right now that what happens is if you end up missing your revenue forecast your burn multiple is going to look terrible. It could shoot up to 3, 4, 5 and up. So it's better to have some cushion by going into the year being super efficient. On the converse side, Friedberg, if your lifetime value of a customer is incorrect, which we're seeing now with people cancelling SaaS products or reducing the number of seats or in cloud computing people are now saying, hey, maybe I should take myself out of the cloud and host my own servers or some of my own servers and reducing their cloud bill. Cloud growth is slowing at Azure across the board. Amazon Web Services, etc. It's still growing but it's slowing the growth. So that LTV if you get that wrong that can whip so you as well. Yeah. Yeah. I mean, LTV, which is like what do you make over time from a customer or however you want to assess it, a market deployment. It should be on kind of net cash, meaning like how much profit do I pull back into my bank accounts at the end of the day after paying third parties and internal people. And where a lot of people, I think in models I've seen on what's the lifetime value of a customer, they kind of take either revenue or just the simplified gross profit number. But the reality is if you're scaling the number of engineers you need because you have many more customers and you got customer service calls and you've got to do custom deployments with your customers, all of that kind of adds up to additional cost. And some of these businesses you see that, the SaaS companies for example, that all have gotten their multiples hammered. It's because the kind of microscope has come out at this point to some degree set aside general macroeconomic factors that are driving some of the multiple compression. But as the microscope has come out, it turns out that the efficiency of the business is not what everyone hoped and dreamed a SaaS business might be. That the efficiency of the business maybe looks a little bit more like either a services business or there's a big kind of scaling hardware component that the margin that you actually make for every dollar of revenue generate fundamentally is smaller than what you think it is. You have to add people to support and ops and new servers and all this stuff you're highlighting. And a lot of that's excluded and then it doesn't take, you don't realize all that when you're small or when you're medium and growing, you realize that when you're bigger. And when you're bigger, you're like, oh wow, how do we get these costs out? Well, if we cut these costs, customer quality would decline, customers would churn all this bad stuff would happen. So yeah, that LTV number is generally not right. And that's why I say it's much more about kind of a true ROIC calculation, which is how much capital am I deploying? And it's not just being deployed in marketing dollars, it's being deployed in other ways. And then how much capital am I making back net profit over time? And I think that's the right way to always analyze a business generally. But like, particularly in businesses where it's easy to obfuscate either of those numbers and they could see like it's an extraordinary business, you can get hurt when you get bigger or when you're scaling. And in a market like this where you're trying to go public, it's like, whoa, that really hurt. You know, so I think that's a lot of what we're seeing. Let's talk about the other side of the table, which we've been living through a zero interest rate hallucination. Basically, people were growth growth, logo, logo, logo, whatever. When they're making these bets, capital allocators now, we're back to breast tax. Okay, what's the margin? What's the lifetime value? And is this actually real? Is there a real business here or is this just a grand hallucination? That hallucination exists not only on the founder side, but on the capital allocator side. This week we had a interesting semi-viral thread on Twitter. Somebody named Tyler Tringas. He's an early stage investor. I don't know who that is, but he did a thread predicting a 16z just to pick out one firm. Was a zero interest rate phenomenon, an incredible machine to accumulate AUM assets under management. And so what were your thoughts just writ large on the capital allocator side of this grand hallucination of zero interest rates? I mean, I think it's a little unfair. I think this has written more just to try to generate views and clicks because you have to see the underlying return data to really have a sense of knowing. Is it, I think it's fair to say a couple of things that there was probably two and a half or three years of capital raised in the industry that's going to get really put under pressure. And the reason is that there is not a lot of time diversity in that money, meaning people got it and they put it into the ground right away. And one of the principles of having a more predictable return set of returns over time is that you leverage time, right? So if you had $100 and you wanted to have a diversified stream of returns, you're much better off spending a dollar a month for a hundred months versus $10 a month for 10 months. So just that thing will cause a lot of impact and headwinds for a lot of the capital in 2021 and 2022. Then the other thing you have to keep in mind is that over many cycles where we've had high rates and low rates and medium rates, our industry typically returns a dollar 60 for every dollar it raises. And that's over many cycles. And so if you believe that we're going to revert to the mean out of the trillion dollars we've raised, maybe we'll return 1.6 trillion. Now that sounds good except the problem is that 1.6 trillion is marked at five and a half trillion. So you're going to have to give back a lot of pain. You're going to have to give back a lot of paper profits in order to get back to that 1.6 and be okay with it. And the question is what has happened in decision making in the meantime, meaning how many people did you hire? How many deals did you do that you regret? And then how does it change your psychology and how you treat the next investment that comes over the desk? Can you separate yourself from these bad losses and not be on tilt and make a good decision? So you had a terrible two-day session like Phil Helm you did last week losing $350,000. Can you play the next week and not be on tilt and start to build back your stack and make 30,000 a night for 10 nights or 10 of the next 20 sessions or whatever it is? Sack you had a rebuttal or something you wanted to add to this? No, not really a rebuttal. I mean look I think if you're going to be intellectually honest about it, I think that 2021's canopy is going to likely be not a great vintage for VC. Why? Because the valuations were just yeah the valuations were just really high. They've come down by what at least 50% on average maybe more. More? 50% now but you still have more medicine to take I think when you look at some of the businesses. A lot of these companies are growing into their valuation. Look I think for any given set of companies for any portfolio the most important thing is what's in the portfolio? So if in 2021 you had the founding of the next Google or whatever that effect is going to swamp the effective price levels in that year because of the power law. Again the number one most important thing is just what's in that portfolio? What's in that basket? The second most important thing is the entry prices and obviously if the entry prices are twice as high in a given year then they are and every other year and twice as high as what the exit multiples are going to be in 10 years when that portfolio becomes liquid that's going to hurt the returns. But we won't know which of these effects predominates until five years from now and we see more. Yeah. I mean when I saw that tweet thread I thought maybe this is an issue for some venture firms but we're not going to see even the inklings of it for another five or seven years. Takes a while. That's a problem that may manifest itself in year 10 and between now and then any firm that it has a good track record of returning capital or frankly has a good brand and good marks will still raise an inordinate amount of money because this is an asset class that I still think on the margins is a more of a must-have asset allocation than a on the margins I just rather ignore it because it is the future of how GDP will get created and so everybody kind of has to pay attention. Imagine if in 2021 the the next great mega outcomes in AI were created right because those founders were just slightly ahead of the curves you know they were like a couple years ahead of the curve. If those create you know the next whatever trillion dollar companies. Google, Apple, then the fact that price levels were two X what they should have been won't matter. What will really matter is the distribution. There'll be a bunch of bad portfolios and there'll be some really incredible ones and that's the way it always is with venture. The thing to keep in mind is in 21 and 22 rates were still effectively too low and I think we did this analysis Nick you can throw up that thing but it's not correlated with big outcomes those vintage years. 2023 is the first vintage year where we're actually starting to see high enough rates that have historically generated that kind of return and so I do agree with you David I just think it's shifted out by a couple years. 23, 24, 25 those can be some real power law years I think because we're going to have just based on what the Fed is saying. 5.5% interest rates for the foreseeable future which is huge number. That's a huge thing. I'll tell you what that is. You know what it is though, Chimoff I think to build on your point and Frebraga bring you in on after this it creates an environment in which discipline on all sides of the table boards, management teams, investors, rank and file everybody has to be focused. Everybody has to have sharpen swords and that little bit of headwind is and the ability to raise capital being harder is building more reserve and more resilience and grit in this set of founders. It's kind of like parenting in a way like if you are too permissive you give too many options. Kids are in discipline and now this group of entrepreneurs I'm seeing who having given up my lord are they becoming animals in terms of like pure samurai in terms of how they're running these businesses. Anything that's not efficient projects that were the third or fourth most important project cut cut cut. Now it's taking a 18 months Frebraga to maybe get discipline but maybe you could speak to the next three years and the opportunity for investing in this cohort because man that last cohort is going to be really really challenged and they'll probably do 6% returns just like your money market account can do right now 5 or 6 or what bonds can do but this next group man we're seeing dog and entrepreneurs who are focused on reality and there is no hallucination now that this is going to be easy there is no grand illusion here. What are you seeing in the market? If the market average return in venture in early stage investing is going to be 6% remember it's not evenly distributed so you know 80% of funds could end up having net negative real returns and 20% make money and then those there'll be a very few that will make real money and you know that's the nature of having you know a very kind of low average return on the industry is there maybe a lot of wipe out on the investor class folks that have only had one or two funds and then just got blown up in the cycle. I think there's two groups of companies out there one is companies that obviously have been funded and are doing stuff and are active businesses and they've raised money in the past and that's where there's going to be really ugly times. I've mentioned this in the past but I do think that there's a significant number of these companies that if they were to be truly valued on first principles in private markets today they'll get valued as at a value that's less than their preferred equity which means that there's a difficult restructuring needed in the company and not everyone's going to be willing to embrace that so that's what's going to trigger a lot of the wipe outs in the market. It's not like the businesses are value lists it's that the capital structure makes it difficult to refund them to fund them and continue their operations. Now for all the new businesses as you highlight man there's so much extraordinary leverage out there you know left and right I think we talked about this maybe a year ago that there was a big bubble coming in AI but I mean left and right nearly every market every segment you won't see a pitch deck but doesn't have those two letters in it right I mean I'm sure you guys find new things. It does feel it is it is hard not to feel like you're a little bit of a lemming if you buy into the AI stuff but I will say that the use cases we're seeing are really pretty incredible totally. I didn't feel this way with the last couple of waves like the whole web three thing never totally made sense and crypto always felt a little bit speculative like kind of unsure but the AI thing seems like it's going to deliver real value and I'm seeing like already three major enterprise use cases number one is just auto summaries like being able to summarize very quickly a thousand articles or a meeting you know spinning out like a summary of what just happened in a meeting and it could break it down between a recap and action items it just does all the work for you. The second thing is like in app customer service kind of like a copilot but there's no reason contact customer sport anymore because you can just ask the AI inside the app and like why I want to get it right and they'll be faster right that's something a power user sacks yeah they'll get it right. It's like a power user who's sitting next to you is your copilot and is making you much more effective in the app and then the third thing we're already seeing is auto complete for everything I mean it is like bonkers how you know how you get like little type head suggestions in email yeah it's like two or three words the AI is going to do type ahead for any content type. To do lists to do lists tables it's so it's bonkers you see it in Google you see it in Google Sheets now like if you type you know equal sum it's like oh here's what the seven most likely things to happen next are in which case it's kind of like you use the app I don't know if you've used it with like the heads up display where it's showing you the different moves and this is a book move versus this is not a book move. Let me make a prediction all of the things that you guys said I think are incredible consumer surplus business opportunities which means that the ultimate winner is us and we're going to be a consumer for the VC consumer another consumer incredibly incredibly productive and more leveraged in how we spend our time which will allow us to do all kinds of other interesting things with all the time that we save that I think is almost now a certainty the problem with consumer surplus businesses is oftentimes there is no money made in the funding of them and really where the money is made isn't enabling it so for example so far what I would say is there's very little money that has been made in AI there's been an enormous amount of money that's been made by Nvidia and the reason is because they are the pick and shovel provider into the industry and so that's an example AMD I think can also benefit so the silicon players seem pretty obvious here maybe some of the cloud players the problem is the cloud players are trapped inside of other big companies with many other business models but I just want to put out there that I think David you're right that the consumer 100% wins but economically it's not clear to me that there is a winner that is venture fundable well hold on a second yeah the Levi Strausses of the world right in the gold rush the people that made the picks and shovels in the jeans are sure to make money yeah and the people that pan for gold is much more speculative and harder to see right now yeah I think you have a point that so I mentioned three use cases and I think are killer use cases that already seen demos of today and when you look at them you're like okay this has real applicability I mean the AI is going to be it's going to powerfully change our work lives I'm just focused on enterprise so now I don't know who benefits economically from that that functionality that I mentioned I think is likely to be pretty commoditized pretty soon but it's going to be incorporated into lots of different apps in ways that are hard to predict right now I think that this AI revolution is going to do for SAS what mobile did for you know a lot of the web 1.0 companies where like for a lot of these web one companies they were either disrupted by mobile or they are turbocharged by mobile so you think about Facebook it successfully made the transition and mobile made this business so much better because people are just using it a lot more on their mobile devices there are a lot of other businesses that just kind of fell by the wayside because they just couldn't make the adaptation from desktop to mobile computing I think AI is going to be like that for SAS where there's going to be a lot of SAS products or just absolutely 100% right yeah you're 100% if you can incorporate the AI into your SAS product put in a co-pilot put in auto complete and all sorts of other forms of value that we're just scratching the surface of you're going to be able to deliver so much more business value but if you're not able to do that and somebody else can then you get disrupted look at some of these enterprise spaces like take something like a pm right like application performance management that's an entire ecosystem of enterprise companies it's probably ten fifteen twenty billion dollars of collective market cap and I'm just going to say something not to not defend anybody but like that can mostly be automated by AI those are simple heuristics that can be embedded in a way that's completely novel where this code library just gets dropped in and all of this stuff happens relatively auto magically now so there are all kinds of other sectors to your point that get crushed then the question is who provides that layer now for free and there existing SAS toolkit or their product that now all of a sudden captures more value as a result and they can sell it for pennies because it's incremental to them in terms of their margin and revenue I think you're right hardware wins I think cloud wins big because if you keep adding to these you know models and once ten twenty percent better people are going to be willing to pay for that but then when you think about consumers whether they're enterprise or actual consumers I believe to stop is going to provide so much value that people are going to take their wallets out and be more than willing to spend for it it's more valuable than Netflix description right to say okay I'm going to take those side of it imagine you take your videos of you learning to ski and you put it into an AI coach and it's like here's how to and it just draws on it here's how to be a better steered this is going to blow people's most and you'll be more than willing to spend twenty five bucks a month on that disagree with that and the reason is because we've spent now two decades and that's a lot of muscle memory to unwind of people that have been consistently given more for less and I think that we shouldn't underestimate the expectations we've all collectively created by building software tools that have that inherent deflationary aspect to them and so I just think that it's going to it's a very high high bar I still think there are subscription services to be built I don't disagree with you there Jason I just think that in general though the de facto business model that we've created in tech is more for less and we've used technology to give us operating leverage to create margin structures that other companies couldn't copy and I still don't and I think that AI accelerates that not changes it I think it's going to be the opposite if you look at Netflix if you look at Disney they've been raising prices providing more value I think that this is going to provide so much value that the incremental ten bucks a month five bucks a month per employee is going to pay off so much that this could be a slack or like some presentations offer there are a lot of people who are making PowerPoint AI power points where it makes you a new death or a figma with AI these things are going to be so powerful people are like it's totally worth an extra hundred bucks a month because I can get rid of another employee this one employee can now do the work of three fuck it man I'll give you a thousand dollars inflation really good a model if you just added the LTV of that company company you're going to make more money I'm just saying it's deflationary that's deflationary okay it's deflationary on the entire economy but that's software company that figures out how you can fire two accountants and keep one and make them as good as you know three yeah you're you're going to be able to charge four percent software right you're selling consumer surplus okay I think we're in agreement freeberg sell them a sounds you want chime in on this you still with us sell them a sounds all technology drives prices down well technology is about doing more with less right it's about doing more with less and the AI helps you do so much more with the same amount of time or less time I think you're whole point about Disney and Netflix etc. is because they aren't you know innovating on either sides and so in order to drive earnings growth they're having to raise prices but that doesn't mean to the benefit of technology they're innovating massively they're adding massive features to their products and massive new shows I mean I think there's pricing power in this AI that's just my belief I could be thought about leverage yeah I mean like I think I think your point like so my general rule of thumb thumb on technology is the technology creator the technology company should generally be capturing about one third of the value that they deliver to the customer unpack that why but when do you come up with that so I mean it just kind of where I'm giving an example yeah yeah so like let's say that you as a food delivery company you have to pay a human ten bucks deliver food from you now let's say I run a robot my amortized cost of running that robot is two bucks so it's eight bucks cheaper or call it one dollar so it's nine dollars cheaper I should charge you four bucks you know because four bucks is super competitive with the existing market and it'll keep me competitive against the other automation companies that are going to start to emerge it's just kind of how market dynamics end up working out if you charge too much you're going to invite people to come in and compete with you if you're come on technology commoditizes remember all technology commoditizes over time and if you don't charge enough you're not going to make enough money to be able to reinvest in scaling your business and doing more kind of interesting things as a platform so you know generally AI provides more leverage to sax's point if I can build an application I don't know if you guys have seen these incredible UI apps that are built in AI now where I can say with a prompt hey make me yeah we talked about it two weeks ago yeah right make me a dog walking app interface and it builds like the three steps of the dog walking app and gives you a bunch of options and you can pick the one you want I would typically have to pay a design firm fifty thousand dollars to do that work for me so if it be AI is doing it automatically you know I should be paying let's say fifteen thousand dollars for that product for that capability the margin on that is a hundred percent try fifty dollars right whatever it is very low and the margin on that's a hundred percent whereas the margin on paying people to do design work as a design firm is very you know not not a great margin you're having to pay people that you know why we're having that we're working it out in our heads right now one group of us is talking about comparing AI software and AI services to the existing software stack and then on the other side of the discussion we're comparing it to the humans who are currently doing that work imagine the six percent that two brokers get you know doing a the sale of a million dollar home in that sixty thousand an AI could negotiate that and find you a better home and sell your home for the optimal price for less than that sixty thousand what would you be willing to pay for that right and the same thing with the designer of the logo I don't think this has kind of play out exactly jcal because to completely eliminate a job function you have to do you know a hundred percent of it and you have to it you know a hundred percent of the job function as but as well as we're better than the human whereas I think as opposed to a model where you solve the human in the loop but they're much more productive because they're working with an AI they're augmented they're all the iron man before the iron man like model so I think that's more effective yeah so I think if there's a job reduction it would be more the case where they've got a team of five accountants and they go to two or three because now they're just much more productive but I don't think they go to zero that's my sense anyway I look at outsourcing as a possible corollary to this remember when you move the accountants to Manila where the knowledge workers there and it knocked out half the price to their as the price whatever it was this just feels like that on steroids to me if you have a business model like you know infosys or tata or one of these things that's levered utilization rate this is the most obvious way to basically add many potentially percentage points if not tens of percentage points of utilization to your business that's all money free money for you right because now you'll have fewer people they'll be more utilized and they'll have more leverage because they'll be using a bot or some AI agent to help them write code write unit tests all that typical stuff that right now you outsource and even if you pay a marginal cost you add the labor arbitrage technology arbitrage now all of a sudden these businesses look really really interesting yeah I think that's why I support definitely yes revolutionized right because the initial you know the first line of defense is going to be the AI using you know text to voice and it can choose what language it wants to output to what accent so you'll never know that you're you'll think you're talking to someone locally literally you'll be in 50 languages with the right answer and you don't need to build up that entire group I mean this I think we're underestimating in some ways yeah but my point is I think that a lot of the customer support inquiries just go away because the help the assistant gets built into the tool directly so you know yeah it's the point of it as you go yeah like why don't you you know if you can just ask it people do that right now on YouTube if you just type the question into YouTube and you find the video that takes five minutes but you're saying this is going to take 15 seconds acts because it's going to be right there I think what sacks said before is hugely important when you think about how AI touches non technology businesses what he said is the boundary condition which I think is right I think he nailed this which is the boundary condition for AI to replace a human is where the threshold error rate of that AI is the same or less than the human right if you look at very complicated markets where does regulatory capture rear its ugly head it's in allowing humans to be error prone and you can't do anything about it take health care if you go into a hospital there's a certain error rate in every surgery right there's a certain error rate in the things that happen but there's probably a whole bunch of ways in which that entire infrastructure can be made much much better with AI right a robot that does laser guided precision surgery characterizing tumors 100 with 100% accuracy so you always get 100% of the cancer out when you go and get surgeries done all these things are possible now and all of a sudden you take these error rates that can be high as high as 20 or 30% so for example breast cancer surgeries the dirty secret of our health care industries that has a 30% error rate you know that can and should go to zero and now all of a sudden so these highly regulated markets I think can become much much more efficient and and leveraged and at past that consumer surplus on to people in that case it's healthfulness which I think is a is a big deal I did my interview I did my new vote scan yeah how incredible I mean it I got all the videos I got all the loops I went to the one down on El Camino Real it was like going to respond in and out no big deal but I got the results and it's like oh here here's a tiny of little bit things that are not worth cutting your body open to look at but just so you know your knee your shoulder your kidney there's a little polyp here there's a little polyp here whatever there's a little growth here but let's see in two or three years just monitor it and I'm like oh my god I'm so grateful if this thing gets down to like 500 bucks which it obviously well or a thousand bucks and everybody's doing it and that all that data's in there and then the AI is looking at it like you're saying I mean the the early detection was the AI able to tell the doctor how foolish it you were no you know you're not supposed to eat for four hours so they they didn't get an accurate reading on behalf of BS I don't know there's your call dove in everybody yeah I here's a really important clip for founders play the Steve Jobs clip this is super important when looking at web three versus AI to sacks this point you've got to start with the customer experience and work backwards to the technology you can't start with the technology and try to figure out where you're going to try to sell it and I've made this mistake probably more than anybody else in this room and I've got the scar tissue to prove it and I know that it's the case and as we have tried to come up with a strategy and a vision for Apple it started with what incredible benefits can we give to the customer where can we take the customer not not starting with let's sit down with the engineers and and figure out what awesome technology we have and then how are we going to market that um and I think that's the right path to take can I ask you guys a question I sometimes that go on these rabbit holes I'll watch hours and hours of Steve Jobs clips what do you think makes him so calm doesn't he just strike you as incredibly just like calm and like comfortable with himself and just aware I know what it is what is he was so much better and aesthetically building product than anybody else he when you think of that PC era of no taste beige boxes and everybody having no style and just no swagger he was studying you know German design Buddhism tripping on acid and like just understanding the universe at a level that gates and the other contemporaries weren't they just weren't as transcendent in understanding product design as he was so it was like when you were saying you were playing poker with a bunch of four year olds or something that's the analogy he's just on a such a different level that he's watching people make you know AS 400 and you know IBM PS whatever like just garbage computers garbage operating systems and it's just like the thing is like if you look at any era just the way that he communicates there's just a level of calm I don't know how to describe it so you understand what I'm trying to say like he he just seems like he just sees through all the noise like he's seen through the matrix like he's unplugged himself to access unimpressed okay there you have no I'm very impressed with Steve Jobs I think he understood product development better than anybody else yeah clearly that's it I mean my favorite Steve Jobs passage is the one where he describes the John Scully disease do you guys remember this yeah no oh here it is you know one of the things that really hurt Apple was after I left John Scully got a very serious disease it's the disease of thinking that a really great idea is 90% of the work and if you just tell all these other people here's this great idea then of course you can go off and make it happen and the problem with that is that there's just a tremendous amount of craftsmanship in between a great idea and a great product yeah so true yeah I mean I tell people it's like a rugby scrum you go you know you got to get a whole team to get the ball down the field it's not like one person put the ball down the field and you know they kind of maybe suggest it to play but once you're on the field everything changes and everyone's involved in getting it down the field that quotes where the name for craft ventures comes from oh really a little known fact yeah and I know that yeah section 230 we talked about last week the Gonzalez versus Google case the justice has heard oral arguments and plaintiffs seem to fair poorly quote from scotus blog justice Elena Kagan suggests that it even if section 230 is not well suited to address the current needs of today's internet such as such a task was best left as we predicted last week I think sax you did best left to congress rather than the supreme court quote these are not like the nine greatest experts on the internet Kagan observed sexual dots yeah I mean this is just uh I think really a quick update to what we talked about last week the justice heard oral arguments they seem to be very skeptical the plaintiffs arguments even justice Thomas who has written the most skeptically in recent years about the broad immunity that tech companies enjoy intersection 230 seem surprisingly sympathetic to the theory that the nine circuit court ruled on which is that section 230 protects recommendations as long as the provider's algorithm treats content on its website similarly so even the justice who I think was most likely to rain into 30 seem to be more comfortable with what the defendant which was Google was saying so it looks to me like Google and big tech are gonna win this one and he thoughts from uh no not really I think I want to know what you guys think about Trump showing up with big max and water in East Palestine I mean he's uh he's a media genius he beat booted judge to East Palestine yeah that was I'm literally pull up my tweet I think this is the power we aren't we because Trump has been out of the public discourse but he's a media he's a media to know he is a media safon literally Biden is in Ukraine saber rattling over air sirens that may or may not be true they were fake who cares well okay anyway well no it doesn't matter no it doesn't matter no we don't we do we do we do actually we address there okay because uh I don't need to be oh no second I don't need to be there because Jake Sullivan just paying their press conference and he was asked by a CBS news reporter if the US gave the Russians any kind of heads up the president was going to be in key and what Sullivan said and I quote is we did notify the Russians that president Biden would be traveling to key we did so some hours before his departure for deconfliction purposes you know what deep confliction is right it's when the US tries to avoid an accidental conflict and you know Putin's not crazy enough to try and assassinate Biden so the Russians were not attacking key that day in fact they haven't attacked key of as far as I know for weeks so these aerated sirens were basically just pure theater but the amazing thing is that if you don't know if you don't know that Biden orchestrated is my point people on your side it come on Jason don't be so go what does it mean Biden pressed the button so don't don't also take it to the other tree either who knows who went who who why the side went off but put it aside this was a joint event between the Biden administration and the Zelensky team they organized it the whole thing was choreographed how do you how did that red carpet get there Jason was that an accident too okay let's put that aside like this is accidental I mean let me give you your GOP let me give you your GOP when Donald Trump is a subant and he went to America to the place that we were reporting on the under reported story people in East Palestine are being ignored and he comes there to help the people of America I give you all credit your guys acts did the most amazing medium move in history he went to middle America where people are suffering as opposed to a war that nobody wants to be in and spend all that money on we won't spend money you want to be out of time but we will go spend billions in Ukraine go all right you don't know what this remind me of and you may think this is a weird connection but it reminds me of the ending to the movie boys in the hood do you remember what happens at the end of that movie now haven't seen it in years go okay well it's 30 years old but ice cube you know plays this character doboy and his brother gets killed yep and at the very end of the movie he gives this speech to cuba good in junior where he says you know I turn on the TV and there was all this shit about violence in a foreign land and there was nothing on my brother getting killed all this stuff about what's happening in foreign countries nothing about what's happening here and then I think the most memorable line was either they don't know don't show or they don't care what's going on in the hood right so what's going on here is the people of East Palestine oh hire being engulfed in a plume of carcidigens and toxins and Biden is off right pursuing this crusade in eastern Ukraine and it's not just him I'll dish out to Mitch McConnell as well Mitch McConnell was on TV those are the Neal cons of or Neal cons yeah McConnell was on TV saying that the number one priority of the United States right now is defeating Russia in Ukraine it's not helping the people of Ohio it is not securing the border it is not solving crime in our cities it is not making our schools better it's running off and basically supporting this war in Ukraine so both these oxygenarians Biden and McConnell both they either don't know don't show or they don't care what is happening the United States from America he's a genius but it's not even genius I mean it's so obvious that you go there it is so obvious nobody wants to be a bourgeois and go there and Biden didn't go there it's not it's not genius it's not obvious where's DeSantis he should be where's he hasn't declared make a trip make a trip I think the most senior democratic person that went over there was Josh Shapiro who's the governor Pennsylvania he got there before Buttigieg what is going on I mean and this it's a never ending war and so you know this nobody wants to fight a never ending war this is this is what got Bush in trouble right like this was the big critique is like we're spending all this money over in the Middle East on these conflicts and that's how you're talking about senior yeah so let's let's come back with Bush senior I think actually it's a good analogy so the with Bush senior Bush actually this is 1991 he won the Iraq war that was actually a stunning foreign policy success because he actually didn't go too far he didn't go all the way on the road to Baghdad the way that his son George O. Bush with creating an epic disaster so Bush 41 delivered a victory there and he still lost election why because he seemed out of touch he wasn't focused on domestic problems the American people want an American president to focus on American problems and even if Biden delivers some sort of victory in Ukraine if he ignores these festering problems at home then he is I think vulnerable for this reelection but I think the truth of the matter is that this war is going to turn out much worse than the Iraq war did in 1991 because in 91 we showed restraint and we knew what our vital interest was and we kept our objectives limited and we kept the timetable very short what is Biden doing here Biden won't tell us what the objective is just whatever the Ukrainians want he won't tell us what the timetable is it's basically effort as long as it takes and then meanwhile this week you had Kamala Harris go to the Munich summit declaring that the Russians are guilty of crimes against humanity which that's something that we could have assessed after the war think about the incentives you're now giving the Russian leadership before we said that we just wanted them to leave when you accuse them of war crimes and implies that we're going to go chasing them all the way to Moscow they're not going to want to end this war they can be put on trial at the hagg I mean this is highly inflammatory so you know this thing is not going in the right direction yeah that was the thing I didn't like about Biden's speech over there is just he's escalating escalating escalating hey that we have to stop Putin I mean which you do he didn't bid another country he didn't cause three or four hundred thousand Russians have died according to reports over a hundred thousand Ukrainians have died according to votes neither side is given the accurate number because they don't want to demoralize their constituents but the amount of suffering going on here is extraordinary and I think it should be the west who is going send Macron send somebody from Germany send some you know group of people to then go to Ukraine and work this out but you know it was too much saber for me it is it is not a no de escalation we need de escalation in these situations not saber I agree to you I agree to you Jason but but Biden has really painted himself into a corner here because before the war he refused to take NATO expansion off the table he refused to recognize the Russian interesting Crimea and we gave no support to the Minsk Accords which would have given some limited autonomy to the Russian speakers in the Donbass area if we just done those three things there would have been no war Biden refused to do that he refuses to take my hands and off the table even today so he has nothing to compromise with he is dug in and the problem we have now is that it's a loose loose scenario if the Ukrainians keep doing poorly because right now it looks like they're on the back foot what does the United States going to do we're going to let them lose this war or are we going to keep giving them more aid and step in it looks to me like Biden now he is invested his whole presidency in this and he can't just let them lose which means more escalation from us huge mistake and on the Russian side if the Russians lose then they have an incentive to use nuclear weapons to rescue the situation so it seems to me that both scenarios here are really bad and we don't really have a good way out of this we're looking for some sort of magical Goldilocks scenario where the Russians sort of lose but not enough to use nukes you know the administration has not given us a clear picture of what victory looks like here that's actually reasonably achievable in a reasonable time frame at a reasonable cost what do we think a Freberg of Xi Jinping making overtures and hey maybe we should work towards peace if you follow the money he wants cheap oil he wants this thing to end and he wants the West to be buying goods from China the West wants to sell a bunch of armaments the military industrial complex is absolutely in delight of replenishing all of these weapons and perhaps a little cynical the follow the money concept but what we should take on the chessboard of Xi Jinping is going to visit Putin before Biden does and he wants to build bridges and we want to save a rattle what are your thoughts if any getting like I mean China buys energy from Russia today they buy oil on sale at a pretty cheap price so if I'm China I want this to last longer don't I like why would I want to end this and then have Russia's markets open up because if their markets open up the markets normalize to market prices right now they're getting a discount so I think yeah rather they certainly don't want things to escalate the question is how quickly do they want them to de-escalate so if I'm China I'm kind of probably playing a little bit of them you know middle line here I just I obviously don't want to see a big hot war China's got its own domestic problems right now they seem pretty significant and existential and having access to cheap energy seems like a benefit obviously if there was significant conflict and escalation of conflict that would be very bad from an economic perspective for China so they're probably somewhere in the middle like a slow resolution let's say I don't know I mean this is pure speculation this is just me you're a sacks or schmoth at Europe isn't going to buy Putin's oil anytime soon right there now going to buy he's able to sell it to China he's able to sell to India and the rest of the world there was actually an article in today's New York Times about how the West maybe unified about Ukraine but the rest of the world is not the article was saying something that Chris the worst said for a while which is we actually don't have the whole world with us at all the bricks countries are not with us the emerging world the whole southern hemisphere bases not with us they would like the U.S. to play a more constructive role in finding a peace deal not like you said Jason Sabarattling or escalating so the rest of the world is not happy with us and this is why the Russian sanctions have not been effective I think the Russian economies had like a three to four percent hit it is not the collapse that was predicted because there are enough other countries willing to do business with them would this have happened to moth of Trump was president and how would Trump have handled it do you think just game theory here I'm just curious because Trump almost one right and if Trump had won what would this look like would put and have gone in there if Trump was president and how would Trump have handled it because Trump seems to think I would have just told him don't do this and they wouldn't have done it I mean this is the most obvious compliment I can give him I think that he is exceptionally pragmatic on being anti-war and I think that that is one of the most positive characteristics that he showed he was really the only president I think in modern history right sexy poo that hasn't gotten us in broled in a new war yeah it is the best part of him yeah he's been incredibly incredibly consistent so I suspect that there would have been some kind of a deal I know that sounds so ridiculous to say but there would have been a deal I agree he's a deal maker he's a Jason he went to North Korea he went to North Korea and met with he'll shake hands with anybody exactly he would have fired all of the the deep state blob that started to position anything towards a conflict so I think he would have shut the door so for Ociously on Ukraine and NATO and anybody that crossed that line he would have tart and feather publicly and I think the end result would have been that Putin could have found an off-ramp well before he invaded probably yes I agree and Trump lame Germany for all this right he called it well Trump very early asked the question why are we spending all this money to defend Germany when Germany has this big pipeline deal with Russia it doesn't seem like they need our protection they should have paid for it themselves but I think there's a separate point that Tremontus made that is a really good point which is Trump's instinctual resistance to what the deep state wants and he actually said it this week he gave a two-minute televised statement that was all over Twitter where he basically made the argument that listen the reason why we're in this war is because the military industrial complex and the foreign policy establishment they basically courted this conflict and they are working at odds with the interests of the American people it's actually a fairly radical critique I don't think a major presidential candidate has run against the military industrial complex the way that he is now positioning himself and let me tell you this you know I've said it before he's not my preferred candidate but if this war spirals out of control either you know it turns into a even bigger conflict that draws us in or it turns into a big recession because I don't think we've seen the last of the supply shocks from this war if we get a recession that Trump can I think lay at the feet of this war he's positioning himself to take advantage this could be a silver bullet for him I don't think he has any other way of winning but you know if this turns into a big mess Trump is positioning himself you have your tinfoil hat there put it on for a second I want to talk to tinfoil sacks tinfoil hat sacks let's put them the tinfoil hats on here do you think Putin is escalating this as a way to position Trump to where Putin says he could say this during the election like listen you know I would love to talk to Trump and what if Trump goes and talks to Putin or does a phone call with him so you're a theory is wait so your theory is that Putin is that sacks theory tinfoil so so your theory is that Putin is escalating this into potentially a nuclear war to get Trump reelected that's your theory and I'm the ten for a favorable to him I'm just tinfoil having it the reason why this is occurred no no now that this is occurred not that he did he did he did the one isn't in terms of what he wants to do my friends you're the one in tinfoil hat territory tinfoil hat corner at the end Putin the reason why not that he started the war for it that he would end the war to give Trump a win how's he gonna end the war for Trump what are you talking about during the election he's he does a call with Trump and he says you know I talk to Trump about this and I'd love to do some negotiations with Trump I always had appreciation for his ability to help negotiate things I would love I would feel better about negotiating with Trump who hasn't stable rattled and told everybody in the world that I have to be that there isn't regime change so you know I don't see how you come with these conspiracy theories and then it drew you them to me and called me the tinfoil hat guy but I know you just said this is silver bullet no it's a silver bullet yeah if this war was off the rails and the economy goes off the rails because of this war he Trump right now is positioning himself to take advantage of that fact and dissent is too far right into it's a past dissent is some critical things about the war skeptical I would say things about the war this week so it's not just Trump but look the thing you have to understand about this war is it's existential for Putin it's existential this yes he cannot back off and it's extra and it's extra curricular for us yeah yeah and that's why that's why Obama said back in 2014 that the Russians have escalatory dominance they will always climb the escalatory ladder all the way up to nukes if they have to and the sooner we recognize that fact that better off we're gonna be I think the good news is that we are speech that he did we kind of see the speech was it good we just talked about it it was two minutes it was fabulous sex just mentioned it the crazy thing is it sounded a lot like what we were talking on this podcast which is he talked about all these generals that retired victoria nulin he called a new one by name by name he he really did explain to the audience this because I didn't see this because I'm on a different time zone and it what it must have broken when I was asleep or squal it's a two minute video in which he like I said he attacked the military industrial complex and the foreign policy establishment for creating this war and he mentioned victoria nulin by name let me tell you something newland is gonna be it's gonna be a very popular message yes it is very popular newland is the Fauci of this situation okay the same way that Fauci was supposed to be protecting us go for viruses and then find a good comment function research victoria nulin that was a label let me tell you just a label cover 19 misinformation victoria nulin was supposed to be our chief diplomat with respect to russia and eastern europe and what did she do instead she ginned up this conflict how ginned up we backed in insurrection in ukraine in 2014 Jason if you didn't like the insurrection of jenery six let me tell you you aren't gonna like the insurrection that she staged in ukraine because they brought these ukraine and far right nationalist as the muscle and that is what bring all these problems did he bring big max did he bring big max with them did you say he brought big max to he's powerstein he worked fast with them yeah you showed up with you're ignoring what sacks said but no no I got it I am not disagree with him I think if you want to see the roots of this conflict never be possible nobody wants to be enough for ever war yeah but just me explain why he mentioned victoria nulin he mentioned her because she was the state department official who was responsible for backing this insurrection of a democratically elected leader in ukraine in 2014 named jenny kovic okay jenny kovic was trying it was doing a balancing act between ukraine and nationalists and russia and it was a very delicate balancing act and we basically toppled him and ever since then the relations with the russians over ukraine have been headed south if you're wondering why Putin sees krami it was in direct retaliation for the coup that we backed in ukraine in 2014 this is the origin of the conflict and you know if you want to understand where this comes from you have to go back to this and the fact that trump's willing to talk about is pretty incredible I think that the good news for us is I think that heading into june and the debt fiasco that's looming I think we're going to and I think this will help a lot get distracted with domestic issues in the sense that it'll take some heat off of escalating all of this foreign adventurism you know this it's such a seat like this is such a scene from wag the dog every time there's something inside the united states that we should really focus on we have this wag the dog moment where we get distracted by some adventurism abroad and we forget and we lose sight so we have this east palestine thing right now in june we're going to have to come back to terms with this debt ceiling issue which is a huge one how how we're going to resolve it it's not clear just this week the federal reserve basically said hey folks we're taking rates to five and a half plus and they're going to stay there that seems like no news people just seem to digest it and move on it's really incredible how we just find we're we are like uh what is it Jason the dog that chased the bumper and caught the car or whatever yeah you caught the bumper we got plenty of big problems here in the united states plenty of big problems and I don't know that wag the dog works anymore because I think the american people want like I said they wanted american president to focus first and foremost on american problems and even remember bush senior in 91 won that war and still lost reelection still lost so I don't think wag in the dog works anymore it works for some short period of time especially while the media are portraying this point later the air raid theater that's eventually the people smart enough you're so right so that issue think about bush bush came off of the Persian Gulf War with like a 90 one or two percent approval rating I mean we've never seen anything like it but he violated a simple tenant of his domestic policy which is read my lips no new taxes boom lost and it was not even close in the end so I think you're right I think people really care about the economy go niki hailey and do how much do how much debt do we want to go into over foreign wars the only thing I ever liked about Trump was his policy of not starting wars and not getting into them and americans want to focus on the balance I'm a balance sheet voter right now I'm voting based on who is going to be fiscally responsible me and free burger the same vote here I think we've got to be real careful in how we handle china because you had blink and on all the sunday shows basically denouncing them expressing outrage that they might support the Russians acting shocked shocked that they could do that we don't even have the ability anymore to understand that other countries do things in their own interest and we can't accept that and instead we act as if foreign policy should be conducted according to this morality play that we've created and if you don't do what we think is right then we're getting expressed all this outrage and condemnation at you and somehow that's going to get you to violate your own interests that's not the way the world works and what we're doing right now what we're doing right now is pushing china and russia together into a new axis block this is very foolish very foolish even during the cold war okay we work to keep russia and china apart and and the whatever you think of those regimes today they were much worse back then remember the Soviets you had a stall in this regime the Chinese had mal those were the two the three biggest mass murderers of the 20th century and nixon and kistan jure still went to china and shook mal's hand and toasted him because it was important to keep china and the so union divided and what are we doing today we are basically pushing them together with all of this condemnation and outrage it is not a smart strategy can't disagree we need to be building bridges with india that's a key key relationship and china i don't know why we're not figuring out what we have in india this is poisoning our relationship with india india is the biggest democracy in the world and our relations with them have gone south since this war because they have a friendship with russia that goes back around i mean with either c byden go to india and start building some bridges there yeah i agree i can't disagree jika how's your fundraising going for launch run four oh thanks rams that's a great question you know we're doing that public five oh six c public fundraising thing and so i did a bunch of webinars and without doing a single in person meeting fifty one million dollars in requests came in just you know to a type form basically a form online and now we're going to be starting in the next month after i get back from japan actually meeting with the you know big LPs in the world and i want to make a trip to the middle east and just go all around the world and meet all the big fun so thanks for asking yeah i think it's gonna change everything good for you there that's awesome you imagine fifty two million dollars in commitments before actually doing the actual tour that's awesome just out of the gate and my last one was forty four and so i think this five oh six c like i can be public about the fact that we're raising a fund and so it's just absolutely amazing well congrats and i have one question for you yes go ahead can you be replaced with an a i the world's greatest moderator i mean it's not going to make great jokes not for not for now and uh all you know what i had an interesting point about management fees and these funds just a circle back did you know this is what i heard that benchmark during that worst vintage you know after i think the great financial crisis where maybe it was the dot com was either of those they took their management fees because that fund was so you know challenged they deployed the management fees into primary investing well i'm sorry into follow on investing on their winners to regain the results can you imagine in this market a vc who deploy capital in 2020 2021 saying you know what we've got these management fees millions of dollars in the future to pay for managing these instead of taking that money i'm going to put that into your into the companies for my launch fund three schema i had a couple of opportunities and i was like you know what i'm going to take some of the management fees and invest in some of those existing companies to try to goose the returns for my lp's and so we're at 104% or 103% invested in the capital just by just taking a couple hundred grand off of the management fees and i'm like well this is a really interesting strategy like why am i playing for the management fees where i'm playing for the moik i'm paying for the moik right i mean you should be jason by the way it's not true that the a i can't tell jokes our friend uh billy tweeted how the a i told a joke in this the style of jerry sign fell then he asked it's a tele joke in the style of davis japel and it refused so the a i can tell a joke if it wants to it's racist but no only clean jokes oh i see it doesn't work blue i guess i don't think every i don't think davis japel has to be blue but it would not tell us joke about davis japel wow i mean we've got to get sam he's an icon of plastic like he would be it sam would be in the uh are all in 52 well by the way actually he's got a shot there after our last episode in which we were raising concerns about the a i bias they published a blog post saying that the day after if bias has occurred it is a bug not a feature and they are trying to be even handed so i'm glad they have that's smart and that's their standard and we're going to hold them to that standard but i'm glad well that has to be public about it like this yeah i mean i read the blog post it seemed reasonable it's great they're addressing it and i also think they're now doing embedded citation so somebody tweeted at me after we had the whole discussion about credit and when they were doing facts they're now saying and they haven't been announcement about this yet but they were saying according to this source the following according to this source so they're starting to source in the copy that's being written so that's a big step and then i was talking to Adam danjalo about poh which is an amazing app you should try i think it's the best one out there right now of all the chats poh is an app based on the core data set and i asked a questions about the trip to japan and aseko and this and that and it was extraordinary how well done the answer was with bullets and then i asked them online hey what about citations back to the original cora questions and he said yes we're going to be adding that so and then i was thinking wow if you add to the cora corpus and then they link back to your answer that's awesome for me as a person who's answered hundreds of questions on core to build my reputation so i think kora is for me i think kora is the could be the google i think kora's got a better data set and if they play that right i think they could be better than chat gbt and they said you have to keep your position based on the kora data set data set poh it will answer questions like the best answers on kora is that we're so you're we're saying yeah that's gonna be easy is using kora as the primary data set i'm sure it's using the rest of the web too and Wikipedia and everything i think i don't know why they're calling a poh i think they should just do kora chatbot or whatever yeah but just try it it's called poh download it you can use it today you you want to know why i'm excited about that because you got a little tasty pooh you got a little slice yeah i got a little slice of kora oh good for you well i mean kora was always like are they ever going to make money or are they just going to build this incredible data set and do nothing with it yeah what did i say i said i said a i is going to be to the to basically sass what mobile was to web 1.0 you'll either get disruptor you get turbocharged by it it's going to be i i think kora is the number one player in a i going for it i know that sounds crazy but the fact that and i think reddit also has this same potential if reddit had a chatbot because think about how many times people do a search and youtube is the other one where they say what's the best sci-fi movie of the year or which directors make the best screenplays or whatever and then they put the word reddit at the end or they put the word kora at the end where they put the word youtube at the end to just narrow down the corpus of where to find the answer go ahead you know i've worked with you i've known diangel for 17 years now smart cat he was the cto facebook when i worked there the single smartest and best single smartest person i work with and then separately one of the most absolute genuinely best human beings in the world can we get him out he doesn't he doesn't is he not a good public speaker or something because i never hear him talk i'd like to get him at all in summit me the angel is just so superb on every dimension we should get him on actually just because i didn't know he was working in a i he has a lot of interesting thoughts about you know social networking platforms and and he's on the board of opening okay that's interesting oh get him on the pot or maybe it won't summit 2023 all right everybody he'll definitely make the anti establishment list definitely anti establishment yeah okay so for the sultan of sneaking out he left and the dictator and what do you want to be referred to now pacifist the peace pacifist pacifist pacifist yeah you are and the saxophists i'm the world's undisputed greatest moderator on the number one podcast in the world for now until the AI replaces you yeah i trained the AI to replace you sax you crane you can you can bite and bite and bite and no niki hailey no stop making niki hailey happen dn the data set has been done okay all right everybody see you next time i love you guys let me bust this bye bye oh the jatcher will meet me at once we should all just get a room and just have one big hug George because they're all just like this like sexual tension but we just need to release