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.

E73: Late-stage VC markdowns and mistakes, market strategy, Ukraine/Russia update with Brad Gerstner

E73: Late-stage VC markdowns and mistakes, market strategy, Ukraine/Russia update with Brad Gerstner

Sat, 26 Mar 2022 05:49

0:00 Bestie Guestie Brad Gerstner is filling in for Friedberg

1:34 Understanding public SaaS and Internet multiples, Instacart's cuts its valuation by 40%, understanding reality of overvalued late-stage companies

21:52 Capital allocators at fault, how crossover funds are reacting, late-stage price discovery, investor and founder behavioral psychology

40:37 Sacks' burn multiple, managing growth spend, new VC qualifications, lessons from the COVID bubble

53:58 Russia/Ukraine: US potential non-ceasefire strategy, Zelenskyy's revelations in CNN interview, rhetoric getting more aggressive

1:08:58 How will Putin withdraw without redacting the sanctions? What is the offramp? Zelenskyy's posture on global war

1:24:18 Understanding China's recently announced tax cuts, All-In Summit talk

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Hey everybody, hey everybody, welcome to another episode of the All In podcast. We have a new bestie SD filling in for the Prince of panic attacks. Queen of Quinoa, the Sultan of Science can't make it this week I think after his incredible performance last week and him trending on Tik T.O.K with his incredible insights over, sadly the the potential famine that could come after this Ukraine war. He decided he would take a week off. I think it's just a little too much attention for him. So we have a bestie guestie today. Yes, the shaman of stocks is with us. He brings the equanimity to equities. You know him, he'll bring that Namaste to your payday. His predictions are the anti Galloway. Brad Gardner, welcome back to the program. Thanks for having me. Namaste. And also with us, of course. The Rain Man. Man himself. He's bitter on Twitter. He's brawling on calling. He's the Bill of Rights from PAC Heights. David sacks. Boy, you've really outdone yourself today. Wow. And the Prince of Palo Alto. The overlord of the Overton window. Shamah Polly Hypatia. Michael, are you the stinker of Stonks? Ohh God relax, you don't leave the comedy to me, alright? Let your winners ride. Man David. We open sources to the fans and they've just gone crazy. Queen. It's been a pretty, pretty crazy couple of weeks here. We are not a political show here, but obviously when world affairs become acute as they have, we cannot ignore the war that is occurring in Ukraine. We're going to talk a little bit about markets. I think we'll start with those with Brad Gerstner here, the Sass market and the index. Why don't you walk us through this chart here because everybody's wondering what's happening with the markets given the war, given interest rate hikes and the repricing of stocks. I don't know how you would look at what happened in November, December, January, Brad. How do you contextualize? Well, certainly a repricing. There's certainly a repricing, but I I think of it more as normalization, right? Chamath was saying it in November. I was. I was on CNBC talking about the fact that when when we got to a post COVID world, rates were going to normalize, go back to where they were in January. 2020 that was around 2% and that growth multiples would have to come off of this historic Red Bull high that we were on during most of 2020 and 2021. So we were 30 to 50% depending upon the index above the five year average growth multiple pre COVID. So that just needed to happen like we should be celebrating in one sense that that happened because that means that we overcame a global pandemic. The downside is we couldn't play with artificial money 0%. Rates trillions of dollars, you know of of of congressional and fed injection in order to prop up valuations. And when it happened in and of itself, that was going to be extraordinarily painful. What I didn't anticipate and what most people didn't anticipate is that on top of that, we're going to have increasing fears of hyperinflation, not just getting back to normal rates, and that we were going to find ourselves in the middle of an incredibly devastating war in Ukraine. Those two things added to the uncertainty, the risk premiums added to uncertainty around future inflation, the dot plot exploded higher and expectation to forward rates went higher. Now, why the hell does this matter? It matters because when you take, you know, if you're looking at that chart, the five year average, the 10 year was 2 1/2%. Like we all got comfortable investing in this period of time. The markets hate uncertainty. We had a predictable way for us to estimate where we thought our wax should be in our discounted cash flow models. All of a sudden that was thrown into, thrown into the air. Oh my God, look what we got going on. Look at this. Oh yeah. Never can be with babies or animals. Yeah, no chance. No chance. Hey, this is Talita Talita. Look at this little. Look at this little butterball ohg. Good Lord, look at that. So, so good sex. That's called a child. It's a you have three of them. Those are babies. And what you're seeing there is affection from a father and a child. Look at how cute this little baby. This is like, well, this is taken from my time. Get that baby out of here. Yeah. So cute. So, Brad, I guess what everybody wants to know now that we see this repricing occur is what do you think is going to happen in 2022 and then into 2023, so. We're now multiples are now below the five year average and for for for software we're about at the five year average. For Internet, we're well below the five year average. I said on Twitter that the rate path last week became a lot more certain. the Fed said something last week that I think is still not well reported. Well understood. The Fed said at the end of the year we're going to have 2% negative real rates. They said we expect inflation exiting the year to be 4.3 and we expect the 10 year to be around 2.3. The reason the market exploded higher is because under the Fed's prior protocol, a 4% a 4% inflationary rate would mean that rates would have to go to four and a half and if you take rates to 4 1/2. Then growth multiples need to be about 30% below the five year average, OK. So as investors whether we're investing in mid stage venture, late stage venture, whether we're investing in the public markets like we need to know what exit multiples are. And it was bad enough that we had to bear the drawdown coming off of you know this, this Red Bull high of 2020 and 21. But if you think we're durably going to an inflation rate of 3% or 4%. And an interest rate environment of 3% or 4%, then you simply have to adjust what you're willing to pay for growth assets. And so as I look ahead, right, we don't, we don't know with certainty. The question is what's the distribution of probabilities and you know just this morning city, Goldman Sachs raised their exit, earn their, their exit 10 year for 2022 to 2.7% and took it as high as 3 1/2% for 2023. I think it's going to this. Is going to be marked by a lot of uncertainty around inflation and rates till we have more clarity. And what that means is allocators of capital are going to allocate less to risk assets and they're going to pay less for risk assets. But you know, listen, if I look out over the the 510 year horizon, I don't believe in global stagflation, I don't believe that we're in this new hyperinflation environment, but we're going to have to get through this next six 1218 months and it's going to be filled with a lot of volatility and a lot of uncertainty jamath what rings most true about what Brad just said and then what can you add to the prediction for this coming year? I mean, I don't know what the prediction for this year is. I I think the markets are mostly moving upwards for the short term. And then I think volatility is going to come back. I'm just trying to find good long term businesses and just kind of close my eyes and not have to look at these stock prices every day. And as long as I can manage my own psychology, I think I'll be fine and I think that's probably the thing that most of us need to be doing. The interesting thing about Brad said is that the implication of that is that it means that late stage venture is pretty badly mispriced. And I think you're going to have to knock these things back by 5060%. I think you saw the 1st. Real big movement there yesterday, which was the Instacart print right, we went from a $40 billion valuation. Two, I think it was 24. If you look at from February of last year, which was really the high for all of us, right, that's when we all thought we could do no wrong. You know, the Coms to Instacart are off anywhere between 50 and 70%. You know, take away is off 70%, Uber is down 60%, DoorDash was down 55%. So these are some big moves and so. You know, it made sense that Instacart had to get kind of like reset. The problem that it has is that it's now the NTH player trying to get public into a space with many players who've guzzled up a lot of capital in a low rate environment. And so if you think about company building, This is why entrepreneurs have to pay attention to this stuff. You want to get money when money is cheap, but the problem is you can't control that timing. And so if you can't control your operating margins and your profitability. Then you're gonna have to go and basically pay somebody an enormously high price to get their money. And I think that's what's setting itself up to happen in a bunch of these markets. I think enterprise SAS has always claimed long term profitability. The thing is, when you look at sort of like the real long term companies, they've built some enormous moats, right, like if you look at a service now or a sales force at the high end. And then there's a crop of a couple of companies like Palo Alto Networks who are the next ones coming after who seemed like behemoths in the making. But everybody else, I think people have to really question like where the long term profitability going to come from. And so if that's true, then the late stage private SaaS companies are in trouble. Similarly in places like delivery where again you've had a bunch of comps come out, they've been curing in the public markets for years, you know, Uber, DoorDash, there's a couple of these behemoths getting built, DoorDash being the most obvious. And then there's a bunch of more kind of? Business models, including Uber, which is not really hanging together in the public markets. So I think the real question for entrepreneurs is if you have the enth business, enth being not the first, not the second, but you're the 7th or 8th or 10th trying to go public and all the seven or eight before you are gas guzzling machines. You're going to pay a very heavy price to get public and I think that that's the reckoning that we're starting to see. So I'm really interested to see how that plays out, you know the Instacart valuation. Could easily be cheap at 24, but it could just as easily be overpriced by another $10 billion, depending on how people think about who the last buyer of resort is in the public markets. Sachs did Instacart missed their window to go public? And then what does this say about the backlog of hundreds of unicorns? That the venture community is investing heavily in, some of them are probably gonna have to IPO at down rounds. I think that's sort of the take away. Explain what that is to to neophytes, well, it just means that they're going to go public at evaluation lower than what the last private round was. So all of these late stage private investors who assumed that they would always make money investing in a company in the last private round before it went public, they they thought that was sort of an automatic gain, an arbitrage and it's not and there's going to be. Some disappointment there, but it's been sharing these charts with me since I guess what December Brad where then the charts basically show public SAS valuations as a multiple of AR and then he's got a similar chart for it sort of the Internet companies that sort of nonsense Internet companies as a function of revenue and we've been looking at these charts. You know, once Brad showed these to me again four months ago, it became so obvious what was going on, which is that valuations were reverting. Back to the historical mean, if you look at you know during the two year. During COVID the they the multiples had risen to some insane level, right and because of all the liquidity that have been pumped into the system. So as soon as you saw the the charts that way you could just see where things were headed, which is back to historical averages. Now we're below those averages partly because of the war not really the multiples are. Can I summarize Brad's chart because it is extremely elegant and simple for. The layman to understand. So here's the layman's understanding of of bradd's. Analysis, technical analysis, and and and balance sheet and P&L analysis, which is accurate. When rates are zero, typically people are willing to pay 8 times revenue for a company, OK? So if you're generating 100 million revenue, top line revenue generating $100 million of revenue and you're reasonably high margin, reasonably high growth software business that's worth $800 million in the public markets. For every 100 basis point increase in rates. You decrease the valuation between 15 and 20%. So if you think rates are at 2.75%, the price is somewhere between 30 to 40% cheaper than what it was when rates were at 0. So if you go back and you look at every TechCrunch article and every Bloomberg article and every information article, and you look at all those headline valuations when rates were at 0. We all just said rates are going to be somewhere between, you know, 2.5 to 3% at the end of this year. At a minimum, you have to haircut those things by 30 to 40% steady state, meaning the company is continuing to execute on all on all cylinders. If they have a downtick in their performance, then it it increases that discount. If rates go higher, it increases the discount. But the basic way to think about this is for every hundred basis point increase in rates, you got a downtick that valuation by 15 to 20%. And I think you know just to be fair I think I don't think there's any daylight between you and sacks on this what what's actually saying is the 40% giving the numerical rule that that that summarize. I think you're right that is the that is the the the correlation and so this idea listen we all get paid to find good companies and avoid bad companies. That's generally what we get paid to do. We're we're decent at it. All the sudden, in fact, most fundamental investors say, hey, I'm not a macro expert. I don't know where inflation's going, I don't know where interest rates going. I just find good companies. We've had a decade or longer where that was OK to do. That was easy to do because guess what? Inflation was at 2 and we had 2 1/2% tenure, when all of a sudden you have massive volatility in that. It's not acceptable as an investor just to say, well, none of this matters because it does matter, right? Price matters because what you can exit for is essential to the game. And there are a lot of people invested in 2013, fourteen and 15, when? When the cost of entry was low and exited when the cost of entry was high. Multiple expansion hides many sins, right? And now just the opposite is happening in a dramatic and historic way in that multiples were higher than they've ever been caused by a global pandemic and the exit rate for a lot of those companies right, is going to be very painful. I think that Sachs's point about down round IPO's. I don't think this is the exception David. No Reddit, Reddit. Short of companies that come public in the next 12 months are going out below their last round valuation, yeah, the red at the Reddit rumor was that Goldman put a $10 billion price on the cover. And that, you know, it effectively been cut in half. Again, these are all rumours, so these could completely not be true. I don't, I don't have any knowledge one way or the other to 5 billion. And that may actually end up being too expensive. It just depends on where the market is. Well, just so people are clear, when investors, sophisticated investors make these late stage valuations at very high multiples like they have, they do have some downside protections. In other words, they cannot lose more than the money that was put in when this thing IPO's or they may get kickers of additional shares. So maybe they have these IPO, no, no, in fairness you're talking about something very important, but they're very rarely in these high-priced rounds because most of these high-priced rounds are in go go companies. Where all of those rights get stripped away. This is why I do think, Jason, what you're actually bringing up is in, in the last innings of a bull market, you have incredibly irresponsible behavior by a bunch of these investors, and that's also going to get exposed as well. So, Jason, what you're talking about is what's called an IPO ratchet. Yeah, which means I'm giving you this money at this price, but if you can't IPO at this price, then you're going to give me an equivalent number of shares. That makes me whole, right? So it's as if I am. I am indifferent to what price you IPO at. That's extremely dilutive to really one really important class of individual, which is the employees of the company. It's also really dilutive to other investors who've come in before them. But Jason, you're probably right to the extent that there were IPO ratchets, they'll get triggered. But I think in many of these go go companies and you know, Brad and Sachs can confirm, but I see it, all those rights get stripped away. It's like come in at this crazy price. This is your, this is your chance. No governance get, get get our logo on your fundraising deck for the next round. And so this is the price of the capital. It's been a little bit of sloppy behavior. Just so people understand this, if the Reddit valuation was 10 billion, somebody put in, you know, 100 million in this late stage round. That came out at 5 billion. They would get twice as many shares to make up for that difference. That doesn't exist in the case of Reddit jakal, you know, it was fidelity who led that last round. So they're going to be price takers at whatever price the company comes public. What does that mean? Explain that price takers would have, you know, if they come public at $5 billion and you put in $100 million, your stake is now worth 50 million, right? Right. So you lost 50 million. Didn't they have the discipline to put in these protective provisions, ratchets, etcetera? What happened in the market? To Tomas point, they haven't really existed in most deals for the last five years, right. I go back to 2000 and I think 2007, 2008 kayak raised money with a ratchet and their last pre IPO round, it prevented them from getting public for three or four years. That dilution overhang was a significant impediment to getting public. So you know, listen, we all know that Groupon raised it $20 billion, went public in a year later is worth 2 billion. I mean it's not as though this hasn't happened. Four, but yes, people, people got a little accident basical I just wanted to. I just want to say one other thing though, because multiples coming down is a problem. What this really reveals is the importance of stock and company selection. Right. Because if you were a ****** company with an unproven business model right way out on the risk curve, OK. And you had a super high valuation last year and you don't, you know there's a good chance you never grow in it, grow into it. You never get back to that valuation. Example, example, your growth will do you sell well, give us an example company, OK discord, ripple companies primarily in the 14 minute in the 15 minute delivery space in Europe. Go puff, you know I. Let's say go Puff is one of the best of them. There are a lot of startups that got funded with billions of dollars in Europe's unproven business models burning tremendous amount of cash, right? Like, I don't know why they need to exist. I don't think they're going to get funded, right? Maybe one or two of them do. But when you have DoorDash and Uber that are free cash flow positive, that have strong brands and that can redeploy those profits back into compete in those markets, think it's very tough. Neo Banks are another example. Neo Banks, you know the number of NEO banks that have been funded. And exorbitant valuations where, you know, the problem is all of these financial services companies are essentially an arbitrage on rates, right? When rates are zero, they take that money at 0% and then they can go and execute a business model, you know, and sell that money at 1% and take the difference. But when their cost of capital is 2 or 2 1/2 or 3%, the whole business implodes on them. So you're going to see a bunch of these financial services companies get under pressure. Another example, Jason, is like all the low end. You know, bottoms up SaaS companies. And the reason is because they spend their time inside of Google and Facebook doing customer acquisition and managing this very intricate dance of LTV to CAC. And when all of those input costs go up? Their business implodes because you can't raise rates faster, or you can't raise prices, I would say then faster than the input costs are, and then all of a sudden your unit economics blow up. And in all of this, what is the salvation? In a moment like this, it's being. Healthy gross margins, healthy contribution margins and A and a realistic path to profitability, which means being EBIT deposited this year or within the next two years. Said another way, if you're profitable you're not going to go away. If you can't. If you can't show that, you're, you know, to use the famous Paul Graham adage, default alive in a moment like this. Then you are a price taker, which means that you will have to pay probably a very high cost of capital to raise incremental capital to support a fundamentally fragile and non resilient business model. Is the issue here sacks that when you see the getter Gorilla ZAP, all these instant delivery companies get funded at exorbitant prices and they're the 7th, 8th, 9th. As Chromatis pointing out, no, Instacart was the 7th. Those are like the 10th, 11th, 12th and 13th. Here we are. This to me seems like the fault of poor judgment by capital allocator sacks. Are there too many venture funds chasing, chasing too few deals and not thinking through what investing in the 10th, 11th or 12th player in a market is going to be able to do? Is it too much venture part? I think part of what's going on with the companies you mentioned is that they're physical world companies. They are very capital intensive. They burn a lot of money. They're operationally intensive. I have sort of. Our I soured on those businesses years ago and that's why I just focus on SAS because they're basically perfect gross margin businesses they're very they can be very capital efficient if the Founders want to run them that way. So what we're doing now is telling founders, lengthen your runway, be more capital efficient. You need to understand that you know multiples if you raised last year at 100 times AR you need to understand that the next time you raise it maybe a 20 times AR. So now you can grow into that right if you're tripling. And then triple again the next year you'll be able to grow into that valuation but you know make your money last two 3-4 years instead of you know, burning it in 12 to 18 months unless you want a down round. I think this is this is the point that now. Allocators. Venture capitalists are going to spend the next six months thinking about what's in bucket one. Low quality companies burning a lot of cash that may very well not make it across the chasm. No path to profitability. What are the high quality companies that yeah, the multiples down because public market multiples are down. Risk premiums have changed, inflation change, but they have plenty of cash on the balance sheet. And think about it this way. Snowflake became a poster child in the public markets of a high-priced SAS. Business Snowflake this year will grow its free cash flow at over 100% a year next year probably you know 80 or 90% free cash flow, not just revenue, free cash flow in Q4, I think they booked 1.4 billion of revenue Q4 on a business that entirely in last year did 1.2 billion in revenue, right. You think about that the incremental was more than what they had generated in the prior many years that business. So let's say we reduced the multiple by 50%. But the company's growing top line and free cash flow by 100% doesn't take you very long to grow through the multiple compression. So snowflakes multiple is plummeting for two reasons. One, because the stock price came down #2 because right, their growth rate and free cash flow growth is so high. And so now if you look at the multiple it's similar to what we would expect of a regression of the five year analysis unless these companies, unless these private companies are want to go dark for the next three to five years. Meaning. Night, you know, no sophisticated late stage investor doing around or going public. They'll be OK, but otherwise they're going to have to reckon with a version of what Brad just said, which is the high the flight to quality problem. You know when in moments of uncertainty and high volatility, it's just more straightforward to go to the things that are reliable. And so you know, when you think in the public tech markets, what is a reliable must own company? Well, I would put Snowflake in the list of these must own high growth software businesses, right? You know, the fangs tend to be in the mustone category, but then there are all these other businesses that then get orphaned because they're kind of nice to own, would love to own, would be great in any other circumstance. And that gets even more exacerbated in the in the private markets. You have to remember right now, like the private markets cannot really exist without an incremental buyer of equity. Right, you bag Holder, somebody has somebody needs to be the bag you. Somebody needs to be the bag holder after you. And the problem right now is that those folks have a lot more. Credible, safe, durable assets that they can own and not have to deal with. All the crazy anxiety that comes with owning something that's that's high volatility like or chamath correct me if I'm wrong or Brad, if they don't want to even be involved in this, Michelle gonna they could just be in cash and the interest rates are going up. So maybe they say, you know what? I'll just sit this out for a year. Is that also happening with those folks? Well is that too hard to do because of inflation? Knows a bunch of these folks, but like take for example D1 you know, it's. Dense, sometimes great investor. I mean my understanding is that they are sort of off privates completely because why invest in a private company at X times AR where you can invest in a public SAS company for six times. So they've substituted, I think Tiger is still in market with a gigantic fund for privates, but the valuations have come down. So they're essentially repricing everything. I think those are probably the two broad reactions you could have, right, Brad? So they, I I would say this broadly speaking at the late stage private financing market inventure is closed because there hasn't been, right. We're in this with this buyer seller standoff. Sellers aren't to the point where they're willing to accept that a new, a new regime of multiples exist, right? It's painful. We saw, you know, the Instacart news here recently, but I think you know, like listen, we're not even 10 or 20% of the way into the psychic reset that needs to occur in order for us to see real price discovery. That's not going to occur until these companies need money or want to go public. That's right. This fall is when we'll start to see real price discovery. You couldn't. Try a late stage dollar out of my hand right now because I don't think that we have real price discovery going on early stage venture for investing in an incredible, you know, software business at 300 million, 400 million, 500 billion we think could be worth 10s of billions. You can withstand a little inflation but the later you get in the life cycle of a business, it's about IR's and IR's in late stage at last year's valuations relative today's public market valuations. That is a negative arbitrage. Explain IR why that matters. Yeah, just for the language, just you know we expect our herder right in the public markets is a 20% risk adjusted rate of return. So if I'm you know like you know you look at these late stage private valuations from last year, I mean you know Sachs just talked about companies repricing down 40 or 50 or 60%. So if they haven't done that. Have a conversation just to uplevel this. What Brad is saying is the following. Jason, any person can wake up tomorrow and buy the S&P index, right? What Buffett would tell you to do, just buy the S&P 500 index. That historically has compounded at around 8% a year if you reinvest the dividends so you can do nothing. Right. Get a basket of the 500 best companies in the world that are automatically selected for you based on revenue and profitability. You don't have to do anything and that'll compound at 8%. That is effectively the risk free rate if you want to own an equity. So if you're going to step into the late stage private markets and you know buy some shares and you know You got to be rewarded for that, which typically means that there is a premium above the 8%. And what Brad is saying like you know, it's it's actually more than double in his case, what he's saying is it's 2 1/2 times. You know you gotta clear 20% to you otherwise you're better off on a risk adjusted basis it is what's likely to happen. I'm looking here on the list go puff at 40 billion, Canva at 40 billion, klarna at 45 billion, discord at 15 billion, Ripple at 15 billion, these Grammarly at 13 billion. These don't make sense given that if they were public. They would be trading at well, here's what you can 50% of that. Here's what you can say. If if everything is held to equal, just with the rise of rates, you have to reset those valuations between probably 15 and 40%. OK, at a minimum, minimum. But what Brad said is also true, which is if they then keep growing at a superior rate, they can get back to Even so, meaning 18 months. They could also show up again at 40 and be net net awash. They could get unstuck, but a lot of hard work will need to happen underneath the covers of these businesses in the next two years. OK. For that to happen and and that's what's gonna happen with a lot of these early stage private companies, right is let's say the error multiple has gone from 100 times to 20 or 30 times. They have to grow their R5X to get the same valuation. So the question is can they grow their R5X before having to return to market? That's just to get a flat round. Now if they are tripling this year and then doubling next year, then that's 6X growth in AR. So even if you know the multiple has gone down 5. Tax, they could still get a slight up round. So that's the game I think all these companies are going to be playing is lengthen your runway so that you can grow into your valuation and not take it down round. Because the problem is if you're ever in a situation where you take it down round, it's way worse than just the dilution because now the psychology of everyone in the company changes. Everyone has to worry that you're gone sideways. It's hard to recruit. But here's the difficulty of what Sachs is saying though. In order to grow revenue, you have to invest. Right. You have to invest in salespeople and account management functions in engineers and product managers, right? And all of those people need to exist, which actually increases OpEx, right? It increases burn. It doesn't maintain burn. And so this is the death spiral, Jason, you're talking about, which is in order to actually grow by those multiples, you actually don't have more fuel. You got to increase your speed to burn more fuel. You don't actually have the money to, to withstand two or three years, the altitude you're now. So it's going to be a very precarious balancing act of trying to figure out how these companies. To get to the other side because again, I think the, the buyers in this case will be, will drive a hard bargain. I mean, I mean like look organizations like, you know, durable, D1, tiger, altimeter, these guys are the smartest of the smart, they're not dumb. And so, you know, the price of capital is going up in that case. And so, you know they're going to strike really good opportunities for their investors, right, for their LP's. If we were going to do an analogy here, 20%, the analogy here is these founders were on autopilot. They were asleep at the wheel and now all of a sudden they're in the soup and they gotta really performed. No, that's not fair. I I don't think they were asleep at the wheel at all. I just think that they, you know, build only says this when the when the music is on you gotta dance. They did it. They raised money at the highest valuation possible. God bless them. Now you're gonna see who is really good at what they do. And who was benefiting from a lot of just natural, uh, you know, you know. But people were only when I say, when I say they were on autopilot. For the first time, that's actually, that's what I'm talking about. You have to make real technology look in an in an upmarket, it's in a well in an upmarket or a boom market. The the three things that matter are growth, growth and growth. In a down market, the three things that matter are growth, burn and margins. It's not that gross stops mattering, it's just that burn and margins also matter. And now there's going to be a real trade-offs. Before it was just how much money can we spend, how quickly to get growth. Now let's wait a second. Is this growth efficient, you know, and what will we have? Enough runway? To get to the next round without having to take it down round Brad, when we saw at the peak of the pandemic some leadership, I'd say, you know, seasoned or well informed leadership, Airbnb and Uber come to mind. Cut their Staffs massively. They used that crisis to reset their cost structure and get to profitability quicker. Those were money losing businesses for a long time maybe, you know, taking advantage of these hot markets. Is that what needs to happen here? Are we going to see a cascade of companies lowering their valuation, lowering their cost, sharpening their pencils? Writing staff and then becoming more efficient and more ruthless at, you know, the 6th, 7th, 8th product they're launching saying, hey, let's go to the core product and make it sing, make it profitable. You know, Frank Slootman has said that Silicon Valley is full of what companies that are Walking Dead and they don't even know it. Don't be stupid, you know Frank is you know, he says in tape socks. He says. Listen, I'm a wartime CEO, not a peacetime CEO. Right. He came in to, he came into Snowflake when it was growing over 300% and he, you know, he he he reconstituted what what that culture was about to prepare for war time, right. Because he says when war time comes right and it gets challenging, I want to run the field, right. I don't want to be laying off employees. I want to be that's the time to hire. That's the time to press the advantage. That's the time to invest in product. That's the time to win the new customers. Unfortunately, over the course of the last 12 to 18 months, a lot of people. Without that experience, right, took a negative signal. And the signal was money will always be available and it will be available at ever increasing valuations. And of course, anybody who's been at this for 20 years, like the four of us, we know that isn't true. But it's amazing. I mean, the the behavioral psychology, our ability to gaslight ourselves in these moments and move out on the wrist curve and ignore these lessons, right. And so I really actually hurt. And I've spent a lot of time on zooms lately with founders and with their teams talking them through this because, like, we talk about it in the abstract and in a through the lens of a spreadsheet, but there are a lot of people's lives at stake. If you're an employee and you went to this company and you took everything in stock at 15 billion, that's now worth 5 billion, you're totally underwater at the same time, the cost of buying a home and mortgage rates and everything else is going up against you. I mean, this is a massive morale. The problem, right? You know, for for for companies that frankly we want to invest in, these are the innovators. But this is what happens when you have government intrusion, right? That we can all debate whether or not it is worthwhile, but it was hugely distortive. What we know to be true is that we had more distortion in markets the last two years than probably any time since post World War Two. And the consequence of that is dramatic and you know, we all kind of saw it, but we all kind of gaslighted ourselves as well because you were like, well, maybe there is a new normal, maybe we have accelerated digitization. The truth of the matter is the law of economic gravity is interest rates and inflation and it remains and and this time turns out is not really that much different. I think, Jason, if you take your list of these high-priced startups, Yep, I think it would be a good useful exercise for somebody to do. Somebody in the press should probably do it. But if you take that list and just rank companies based on valuation, the last announced date and then if they are not announcing layoffs of any kind. Umm. You can probably forecast when they're going to burn through the money, especially if they're hiring. And the reason that you can probably forecast that accurately is you can pretty much predict what OpEx will be, especially knowing the fact that their input costs are actually going up. So for example, most of these businesses that rely on Facebook and Google and Instagram for customer acquisition, those input costs are going up. And the reason you know that is that's $2 trillion of market cap that doesn't give a flying **** what's happening in startup land. They're going to make their numbers, right? OK. Those are the most important companies in the world. They will ratchet up the prices and so your input costs are going up. It's not just the physical supply of materials that I think is going up, it's just the cost of customer acquisition is going to probably go up by 20 thirty 40%, right. And you know this because Facebook and Google Guide to where they need to perform. And so if you pass that through the venture ecosystem that all of a sudden now opticks your burn, if you're adding more people, it upkicks your burn and now back to David's. You then also have to grow five or six that none of this hangs together. So we are at the beginning of probably a very complicated process of unwinding. Yep, the distortion that we've lived through in the last couple of years. At this point, I mean, you have to blame the capital allocators in this instance. They bought these logos, they suspended disbelief. We've had this ridiculous culture of no governance, uncapped notes, just pushing. I see it on the boards. I'm on you guys probably do too. Some people just pushing top line growth, never discussing you. Economics, never discussing the bottom line. And they created these crazy fugazi markups. They raised bigger funds based on it, and they just were never the adults in the room, the stories of capital. It's infuriating. I'll tell you an incredible conversation I had yesterday with one of my partners. So he's been, you know, with me for 10 years. He was really the one that pushed us very early on to go into deep, deep, deep tech when nobody else is doing it, 3D printing of rockets, satellites, all that stuff. And it's been so I really trust and respect his perspective. And he was telling me a story. He, uh, called a recruiter. You know, because we've been toying with, you know, helping get some folks to help us manage some of our early stage deal flow. And he asked her essentially something to the point of like, who are the types of GP's that are getting higher today in early stage? And he said, you know, this is how we approach our business, right? We have a permanent capital balance sheet. You know, we do, you know, at most one deal a year per partner. And she said, well, you're never gonna get anybody. Because a mid level executive at one of these high flying startups that then goes and joins a venture firm. She said the consistent single thing that they make their decision on, Are you ready for this is how many deals will I be allowed to do per year? What? And so, you know, these people are make work construction workers. Right. That's dig a ditch filled ditch. That is not what investing is. That's not about having a discerning philosophy on what a business should be or a market. So if you have a bunch of capital allocators, Jason, to your point, who are unsophisticated about investing, probably very sophisticated operationally, but fundamentally don't know what they're doing and they're coming and transforming in an organization. That should be a disciplined discerning allocator of capital and turning them into a velocity deal machine. This is what you're going to get. I mean sometimes the best money sacks is money you put into a bet you've already made, continuing to build the pot with a start-up that's already proven themselves correct. So I think what we're going to see, we have a follow on fund. Yeah, I mean to say the things you guys are saying are making me feel great about our portfolio, explain not, not because we won't get hit with the same valuation corrections that everybody else is going to suffer, but because you know a few years ago we decided we were only an investment certain kind of company, I mean high margin. Sassa, marketplace businesses that were not capital intensive, we defined a new metric that didn't exist called burn multiple, which is the amount of money you burn for every dollar of incremental R that you generate incremental subscription revenue. And you know, we turned down investments that were growing fast, but they had a horrible burn multiple. And so and and I do think most of our companies raised last year when, you know, they made hay while the sunshine. So there's going to be that they need to manage their cash flow so they don't have to raise too quickly. But as long as they do that and they keep growing, they're going to weather the storm. What's the right number? Spend $3 to make one, spend $2.00 to add 1. What's what's your ratio? So what I've said. Is that if you can spend a dollar or less to generate an incremental dollar of AR, you're doing amazing, and between one and two is good. So in other words, if you're burning 20 million in a year to add an incremental 10 million of AR, you're doing quite well in startup land. And then when you start getting into 2 1/2 three, that's a problem. And then above 3 is just bad. Spending 30 million to add 10 million AR, it means it takes three years or probably four or five because you'll have churn. To get that money back and that's just a lack of discipline and how many VC's are we on the boards or you know other investors are we on the board and having that nuanced of a discussion, it's always just top line, top line, top line who's going to be the next holder. I think it's very difficult because I think the number of qualified investors have gone way down as the surface area of investing has gone way up. So again just going back to this conversation, this woman is staffing most of these venture firms with their junior and mid level partners and again the qualification to become a venture capitalist at this point. It's not that you have an ability to pick or you know in David's case have operated and actually run a business and then actually have developed a A methodical framework or bad Brad's business which is Brad had to start from literally zero in the public markets and work his way backwards to end up with 15 or 20 billion of assets. It's none of that. It's are you a VP at an XYZ Unicorn that may also be poorly run and all of a sudden that you know gives you the qualification to go into a job where and it's not their fault where what they are told. Is what you want, is what we're going to give you, which is the ability to write, you know, X number of checks per year. That is insanity. That's not what makes a good investor. And then your ability to then give advice, I don't know, it's probably 0 or less than zero. Your ability to give advice is I think we have to qualify. Bad advice is being given. So the ability to give quality advice as that was what's missing in this formula. I just think these people are really naive, like, you know, and it's not their fault, but you know, they're giving way too much. Hope to hang themselves with and they're and and the the the the unfortunate byproduct is going to be the the companies who gets bad advice or the bad businesses that get funded. And that's not what, you know an efficient capital market should do. So one of the things I'm seeing are portfolio companies do is use burn multiple as a governor for how fast they're going to grow. So for example they will say that the burn multiple should not exceed 2 in the next quarter. So you know we want to so that the old way of doing it would be that the company would just have a forecast and say we're going to grow 3X this year, we're going to grow air are from 10 million to 30 million and whatever that cost, it costs, right. That was basically how companies. Now what I'm seeing from some of our portfolio companies is they are saying, yeah, our goal is to grow from 10 to 30, but we will not spend so much money that our burn multiple exceeds 2. So you know, if if it turns out that there's a trade off here between growth and burn, burn is going to win, we're not going to exceed that level of that ratio of spending. And that's actually a good, I mean I've, I've seen a few companies implement that already and it's probably something they should all be doing. I mean if these are. Pilots. They basically created a rule to not stall the plane. Right. You got to keep a certain altitude, a certain speed. So what is the opportunity here then, if we're going to have too many companies, too high evaluations, if we're going to hang around the rim and try to get some rebounds here and try to find opportunities, what are the opportunities, what are the layups here for capital allocators and for founders? If we have, there are no great advice for them. There's nothing there. They've never been layups. And the problem is, you know, in in up markets, whenever we think that there are, it ends up being. What causes our downfall later because we we just take the wrong signal away. I I don't I don't think that there are, I don't want to be investing incremental capital into a late stage startup that's poorly run, that doesn't have their margins in line and then having to work it out. Why do that again, I can just go in the S&P 500 and get 8% and yeah, it's not 30%, but it's 8% and I don't have to deal with all this nonsense like a bunch of people that are necessary for investor, right. I mean you have the ability to choose between public, private or wherever you want to play. I actually think what I am is an investor, right? But you you you don't have LP's for a VC fund like sacks that I do. But, but this? But this is my point. Like I think investing, irrespective of whatever stage you do, it still fundamentally comes down to the following, which is do you have the judgment to understand whether these decisions are marginally good, marginally average or marginally destructive for the short, medium and long term of a business? And I just don't think that enough people steep themselves in the practice. That it takes to get good at that kind of a game. And I think what these moments expose. Is that the status games that come around investing? Because it just seems like it's easy. It just seems like you don't do much work. That's what ruins these periods. And the implications, I think, as Brad said, is really right. It affects the employees, it affects the entrepreneurs, it affects the startup culture. It affects the incremental desire for people to take a shot at things. You can overcome all of it. We have and we will again. But I really think like to the entrepreneur, the message is if you're, you know, taking a term sheet, I think you have to have better judgment to really look at that that investor and say, is this person really qualified to help me? Because in these moments in the absence of help, you're probably going to basically have a valuation reset. Epub minimum case. And the worst case is you go out of business. That's insightful about you, said Chamath. Then I'll hand it to you, Brad, is that a lot of the founders picked based on the highest valuation who their next investor should be and now we see what a trap. That is Brad. You know, the take away from me is we return to a place we've always been, which is about selection. Right. Look at the mean returns for ventures for 20 years. They're lousy. Lousy, right? 90% of the of the spoils they finally barely mapped to the public markets. You 5 to 10% of the investments. And that's the way it's always been. Look at look at Buffett, right by superior companies at good prices. What are the two technology companies Buffett bought in the public markets? Top right, Apple and Snowflake. Snowflake, Apple and snowflake. He doesn't own a broad basket of. Law you long tail Internet or long tail software. And so I think what you're going to see and and to saxis point, I think even running a recipe on software as though all AR is created equal. I mean I can show you five companies each with 100 million of R each growing at 30% and there's massive dispersion in future outcomes, right. And so like I I just think that this at the end of the day is a craft business. It's an essentialist business. It's about finding and identifying. It was very, very, very few companies that ever durably are worth more than $10 billion. You know, on my screen today, Chamath was just talking. There are four Internet companies that are green today, Amazon, Google, Apple and Facebook. Everything else on my screen is bleeding stone mustone versus everything else is red. And my growth Internet stocks are down 400 basis points, right? The market is voting with its wallet where it wants to sit on the risk. Right. And I think we're just going to go, there's no new normal here. This is just back to the future, right. This is what we've always done and you know, the reset is always painful. The only surprising thing is how often we have to go through it. If if opportunities do arise, where will they, where will they be bred? I mean I was watching Peloton. I always love that company. I see the change in management. I see the management, you know, thinking about profitability, thinking about creating it into a marketplace, maybe having a more hardware available disconnected from the software. Etcetera. Do do you think there's opportunities there or there will be opportunities over the next year to buy some of the names that aren't the fangs? What we do in the first instance, Jason, and listen, we we outperformed last year because we owned quality and we were short, lower quality stuff. Unfortunately, this year the market said, guess what? It's all overvalued quality. Low quality doesn't matter. We're taking, we're taking it all lower. And so for us, in moments like this, and I've lived probably through five of them in the public markets, we always do the same thing. Degross take wrist down first, saying is like, have less chips on the board. #2 reduce the number of outliers, pull in the risk curve, right? For me, I want to own five or six things because remember, I'm the biggest LP in the fund. This is my money. I want to sleep well at night and I want to protect the foundations, the the endowments, the good causes we represent. I can't do that with a company that has an unproven business model. I may think that it's going to be great. The future, but I don't know. So the problem with for the pelotons of the world, right. They may be incredible returners, but what every portfolio manager on the planet is doing today is compressing the number of names of their portfolio, saying what are the companies. I know with absolute certainty whether rates are two and a half 3 1/2, four and a half, 5 1/2 is going to be worth more over the course of the next two to three years. That's what I want to own, right? And so to me, but what I was just going to say. Yeah, right. But, Jason, what you're talking about is what a lot of people do. You see a lot on Twitter, and I call it clapping as a strategy. What about this? And what about that? And what about if they do this? And what about clapping is not a strategy? Clapping is something people do at the blackjack table. It turns out it doesn't actually influence the cards. Sure. And so I think you have to stop with the clapping as a strategy because it doesn't work. It's not my strategy. I was asking that as the moderator is there. Just to be clear, I'm not advising that as a strategy. I'm saying I think you're representing a psychological reaction that a lot of people have. And I think what Brad is trying to tell you is clapping is not a strategy. You know, I'm asking that on behalf of the audience. It is not my belief. Just to be clear, my, my, my commentary to the audience is clapping. Lot of strategy, yes, correct, yes. If enough people though, do what you're saying, Brad, and they just retreat to quality at some point that those quality companies would then become fully valued, maybe even overvalued, and thus the cycle begins again or not so long does that take? No, you nailed it. What happened last year, 2021 dispersion collapsed. Go check out Jim and Ball, who who does incredible software analysis on our team. Dispersion collapse between the best cohort and the worst. Of where the software companies last year, the first thing that happened is dispersion returns. We pay a higher price for the best ship and we pay a lower price for the low quality stuff, right? Then when we start to recover, when there's more predictability in the world, when we resolve the war, when we understand the path of inflation, right, the stuff close in on the risk curve, that'll start being fully valued. So then we will be brave enough to walk a little further out on the ice on the lake, testing it, is it. Safe to walk here and then you walk out a little further and sadly, right, eventually we're in the exact same pattern we've been before, which is we'll know we're at a market top five or six or seven years from now when we repeat the same assani behavior that we just went through. When everybody becomes complacent again and overbidding this stuff way out on the risk curve. I'm just suggesting to you, the number one question I get from GP's, venture capitalists and others right now is when are we going to bounce back? Let me be absolutely clear. There is no bouncing back to where we were the last 18 months. That was the outlier. That was the make believe. What I hope and expect is that we can back bounce back to the five year average, but even to durably trade at the five year average, we have to have a lot more clarity on the war in Ukraine on inflation and rates. So that's a perfect place to pivot sacks. We are now here and I think this is the 4th or 5th episode where we've been discussing the war and we flipped it today just to do markets first for a little change of pace. And since we had Brad here, where are we at with the war and what are your, what is your expectation? Of it wrapping up or it escalating? Well, actually there's a tweet storm this morning that chamath you sent to the group that from a Russian official, and it seemed to indicate, well, it indicate what we've kind of known for a few weeks now, which is what the broad contours of what a peace deal would look like, which is there's three main pieces neutrality for Ukraine. The Russians insist that it not be part of NATO. They get to keep Crimea, which they annexed in 2014. That's been a fate. Complete and then some version of independence for these sort of breakaway territories. In eastern Ukraine, the in the Donbass region, everyone kind of knows that's the the, the broad strokes the deal. Then there's, you know, a lot of details are gonna matter a lot to the people who live there. Like is there this land bridge from Crimea to Donbass? But frankly don't matter as much to all of us, the United States of America. So the question is, you know, what? What is the administration going to do about it? Biden just went to Europe and, you know my concern is that no one in Washington and I talked about this last week, seems to be pushing. For a ceasefire, it seems like their preferred position is for Russia to bleed out as as long as possible in Ukraine, for the US to fund an insurgency, Allah Afghanistan, where, you know, these fighters in eastern Ukraine are sort of like the music surgency. Is that the right word? Well, sure, because, you know, if they're defending their own land. And so are the Mujahadeen. I mean, I know, but why would you call it an insurgency? Well, defending their land if if the government of Ukraine falls, then it becomes an insurgency. So the point is that the administration, the, the question is what's the administration's end game here? Do they want to lead the world to a ceasefire or do they want to protract the conflict to impose on the Russian state a Afghan style, you know, debilitating defeat to destabilize the Russian regime? Neil Ferguson had a column. This week in it says Bloomberg College from the Brooking Institute at Stanford. No, he's from he's from Hoover. Hoover. Rather sorry. Yeah. So I'll read. I'll read this part here is that could you just explain to people what the Hoover Institute is and how that leans position for war and peace. I would say it's sort of leans. Idealistic and foreign policy. I would describe Neil as sort of the most realistic idealist. So, but he's quite well sourced, I think, with, you know, and and with, you know, various people in Washington and Europe. And what he wrote is the US intends to keep this war going. The administration will continue to supply the Ukrainians with anti aircraft stingers, anti tank javelins, explosive switchblade drones. It will keep trying to persuade other NATO governments. Buy heavier defensive weaponry and so on. He says Washington will revert to the Afghanistan after 1979 playbook of supplying an insurgency only if the Ukrainian government loses the conventional war. So the concern here is that the US government has an incentive actually, that they they don't want a quick end to this war is basically the theory is they want the Russian state to bleed out and be destabilized in. In a way, it's the one chance we have for like regime. Change there without us actually starting a war is that they have this self-inflicted wound. That is the theory. Yeah. And I think a lot of people are saying that that is what a lot of people want in Washington. I don't, you know, this is not like conspiracy theory. People are saying this is our chance to topple the Russian state, to destabilize it. There was a Rand corporation, how do you survey doesn't few years ago? Hold on. There's a corporation study done a few years ago that was commissioned by somebody probably in our State Department or someone like that where they talked about this, that if we wanted to destabilize the Russian regime. Ukraine is the way to do it, right? They would fall for it, right? They would actually fight that fight. That is an unwinnable fight. We would basically be putting an if we'd be supporting an Afghanistan like path for them to go down like we did and they did previously to that, right. What's the problem? The problem that I see is just this, which is, we've discussed on on this program the downsides of this war. First, it's a humanitarian disaster. Second, we've talked about the risks of recession later in the year. Third, Freeberg talked about famine, the risk of famine later this year for the strength planning doesn't happen. And then 4th we have this always have this risk that the war spins out of control and goes nuclear right, and leads into war three. Those are some vital American interests to avoid all of those scenarios. I don't see an equivalent vital American interest in determining the exact nuances of who rules the Donbass. In other words, the broad strokes of this agreement are there. You know what the US should be doing is leading. They should be pushing for lead, not bleed. Lead the way to a ceasefire, not to inflict. Maximum damage on the Russian regime, which we don't know exactly what their intent is because they're doing this behind closed doors. Brad, what's your take on this? I think that David and I talked about this at dinner the other I think there's something bigger playing out here. I mean, clearly he's the expert on real politic and, you know, but it seems to me that we have had decades of military diplomacy. Right. And and most recently, the Powell doctrine of overwhelming force, we don't want to make the same mistake we made in Vietnam. So, like, we're going to go in and with full force and, you know, basically the public doesn't support, you know, military adventurism anymore, right. And so now we have maybe we'll call it the blinking doctrine, which is the PAL doctrine equivalent, but for economic force, it's the nuclear economic weapon that is on full display by the West right now that I think has really significant. Implications, right? It's reunited the West, and I don't think this is just about Putin. And I think the reason that the US and Western Europe is slow playing this a bit is they're sending a message to the Chinese as well, which is that we we we are unified and we will use an economic weapon of mass destruction. If right, you don't play by global norms. And so the box I think we're in from a negotiating perspective right in Ukraine right now is not a box around neutrality. I mean, neutrality is already clear. I mean, we had Solinsky didn't even ask for a no fly zone. He's not even asking for NATO membership. They've already seeded neutrality. I think the real question is sanctions. I don't think the West wants to rollback sanctions. And I think Putin saying I can't hightail it out of here unless you roll back all the sanctions and give me a little bit of the Donbass. And so watch the next week or two like in any good negotiation, unfortunately I think both sides are going to amp up their current strategies. We may see missiles coming out of Russia and we may see European, complete European embargo of Russian oil 3,000,000 barrels a day. Those will be the final straws right before we enter negotiations because then they can see the last things that they took as part of the negotiation. But this I think is going to be all about economic sanctions and and and and I think the West is playing a really strong game. What I worry about, and Sax has talked about this at length, is that we overreach, we overplay our hand here in an effort to send a signal to other parties around the world, right? And. That has fat tail risk associated with it that you're devastated in Taiwan. Let me, let me ask a question. How many of us woke up or this at the beginning of this year or in making our New Year's resolutions and said that we need to risk recession, famine and war in order to destabilize and topple the Russian regime? When did this become a vital American interest? No one at the beginning of your thought this was an important goal of America. What's more important? Is is basically getting our economy back on track, getting back on track after this long day of this long, this this plague we've had. I mean, nobody needed this problem and what the administration should have done was use diplomacy and all their resources to try and prevent the conflict. And now the conflict has occurred, we should be pushing for a negotiated peace and ceasefire. We do not have a vital national interest in the details of who roles rules the Donbass. Yeah, the problem with your setting up of that. Question is that we did not start the war, Putin did. Chamath you've been silenced so far. What are your thoughts on this war that we started? The war? Well, you're saying, did we wake up and say that we should do this? We did not. Listen, you put U.S. troops on. The lot of other people in the media woke up on February 24th, and you think Putin went mad and there's no prehistory to this conflict. Now, here's the deal. Hold on a second. This is a war of Russian aggression. It's true that Putin started it. He's the invader. However, there were things we could have done to prevent or to avoid. This war and American diplomacy completely failed, and we even discussed it the month before this war started. We talked about how the US could have given a written guarantee to Russia that Ukraine would not be part of NATO. Just this week, Zelinski, in an interview with freed Zakaria, admitted he was told by Blinken, you will not be part of NATO, but we don't want to admit that publicly. What games were they playing? What is the point of playing that kind of game with the grave issue of war and peace? Why didn't Lincoln say publicly? What he said to Zelinsky. This administration did not do everything it could do to prevent war, and now we are faced with all of these existential risks. Why? For what reason? The reason is that it gave the United States an opportunity to topple Russia. I mean, exactly who of us thought we needed that at the beginning of this year? Well, I think that you know the thing to keep in mind. And again, I don't. I don't. I'm not saying that this is right, but I'm just game theorizing. That these are like, you know? Grudges that these guys have held for a very long time, and I think it started when they were in the Obama White House and it carried over to now. And I think they saw an opportunity to basically execute a strategy that essentially now I think we're moving into the second phase of this war, which is effectively trying to bait Russia into doing something really egregiously bad. And that is terrible, David, to your point, I think we're willing to, you know, sacrifice a lot. I think we've decided that implicitly, but based on the actions of of the American Government. And and it's weird. It's like we're trying to get Russia to react, and so the rhetoric in fact. The rhetoric since that, do you guys remember, I think it was only 10 days ago that both Russia and Ukraine said the surface area of a deal is pretty much insight. Ohh Friedberg, from the top rope coming in. Look at you Friedberg. I mean like you, you look like an everyman. I mean, I'm so proud of you. Are you actually driving your own car? Gas guzzling car? SUV in the mountains? You you should be. You should. OK, it's in that tag. Is that Putin gas? I only use it. I only use ethanol I make in VATS in my backyard. Solar panels that are handcrafted in my back door found a Lukoil gas station filled up. What I was saying, guys, was that, you know, from the 10 days from when, you know, both sides, Russia and Ukraine, were like, hey, you know, we think we're basically there, we have a deal. The rhetoric has gotten really insane. You know, yesterday, I think it was like the United States said, you know, we, we think that Russia should be kicked out of the G20. Then Russia responded and said, I'm only going to sell that gas and settle it in rubles. You know, all of a sudden other actors, China and Saudi Arabia, are in the game now. You know, China and Saudi Arabia are negotiating, settling a huge oil trade in yuan. Why in the last 10 days have all these things happened when we were so close to getting something done? I think the best explanation is that. We are willing to. I guess we've decided, I mean, we none of us have decided, but American government decided that some amount of sacrifice is OK if it could trigger a Russian escalation, which could then further destabilize that country. And I think they believe that that's more important than anything else. And I think we, you know, from where I said, I think we can take Putin at his word that he actually cares about reunification. And that's not to say he's crazy, David. And I don't think we can control his behavior. I think your theories were reunification. I never said that, Jason. And also just today, the Russian military. The tweet that I sent you guys was from the Russian military, and that was an official statement. And I don't think he they would be allowed without Putin's explicit sign off. They no longer talked about denazification ING Ukraine or Demilitarizing Ukraine. They simply focused it on the Donbass. And to use your sunzu argument, it's almost like they're trying to construct their own golden Bridge to exit in a way where they can claim victory to the Russian people. To explain the 10s of thousands of, you know, Russian military people that have been killed in this whole conflict, right, because they have an explanation that they have to give. But in in all of this, I think that we're, we're probably exposing a very high risk game of poker that we're playing, which is it seems that the US government is focused more on the destabilization of of Russia than they are in getting this conflict behind us. I mean he did, he did say in his speech, since time immemorial the people living in the southwest of what has historically been Russian land have called themselves Russians and Orthodox. That's Don bass. Yeah, I know, but he is. There's been a Jason has been a civil war going on since 2014 in this Donbass region between Ukrainians and these sort of these Russian speakers. And now that civil war is as this is a Balkan style civil war that has now escalated with, you know, Ukraine and Russia getting in and now the whole W potentially could get in. This is a very dangerous situation. They should not let spin out of control. I'm agreeing with that. You guys asked me, did he ever talk about reunification? He did. He did in his speech about the Ukraine was not one of his. Did war objectives. Now you could keep accusing him of being a liar, but look what his objective is. Just take him at his word that he believes these areas are Russian and they should be considered Russians area where they are predominantly Russian speakers. Look, and that's not taking aside. I'm not taking a side in who should rule the Donbass. OK, yeah, I think it's a complicated ethnic strife sort of issue like we saw in the Balkans all the time between the Russians who live there and the Ukrainians who live there. What I do know is it's not worth risking war. Three over. We're in agreement of issue. 100% agreement, 100% agreement. Sex. Let me. Can I ask you a question? So. How is Putin going to withdraw without 100% lifting of the sanctions? And how is the West possibly going to trust him to withdraw? Right. While while taking all the sanctions off, that seems to me like when when I try to construct the Golden Bridge, in my mind it comes down to, you know, like, how do how how do we whack up the sanctions? Do we take some of them off, say, prove to us be out for X period of time and then we'll roll the other ones off because these sanctions are not going to be rolled back in the next three months based on some ceasefire. I I agree with that. I I don't know that Putin can expect the sanctions to be lifted. For that, he can effectively negotiate for that. I think again, where I think the the the peace deal is, is that we've known all along what it's going to be. Ukraine will agree to neutrality in exchange for some security guarantees from the West. Russia will get to keep Crimea because that's been a fait accompli since the annexation in 2014 and there will be some sort of regional autonomy for these sort of Russian speaking areas in the Donbass, which by the way, we could have had that too. There was a a deal called minced two since 2015 that simply hasn't been implemented so. You know, I think that those are the broad strokes of the deal. And then there's questions about, well, is there a land bridge from Crimea to the Donbass? And, you know, what weapons exactly does Ukraine get to get from the United States or get to keep? I mean, so look, those details matter a lot to the people who live there, but the broad strokes of this, I think, are pretty well understood. I'm not betting this way with, with with our book, but if I had to guess. We are going to have a period of significant escalation on both sides before they both get to the table. Macron said this week. That we still have the Europeans have not made a decision about the embargo of Russian oil that will collapse the Russian economy and oil will go to 180 or $200.00 a barrel. I think that's a real likelihood. And the second one is I think the Russians will amp up military aggression in some face saving measure and to have more to negotiate. So maybe to answer my own question is if there is an oil embargo, then you take the oil embargo off right as part of the economic sanction, whacking up of the sanctions because that's really the nuclear option against the Russians economically. But it's a you know, unfortunately, I think we have to be prepared for this to get worse before it gets better, because it makes sense from just a game theory for both sides to grab as much as they can right before they sit down at the table so they have more **** to give to each other, right? But the problem is, if both sides keep asking, I agree with that fundamental analysis, is that neither Putin nor Zelinsky can be trusted on their own to basically make peace because they want to push their advantage if either one believes that they're winning on the battlefield. Gonna push their advantage to grab as much as they can to then negotiate from position of greater strength. The problem is that they're in an escalatory spiral where if you know one or both of them miscalculate, we never get that deal. And I think the longer the war drags on, the harder it is to make a deal not easier. One of the I have to say one of the disturbing things that came out over the past week was in that interview that I mentioned where Fareed Zakaria interviewed Zelinsky, Zelinsky said. He said that it's either going to get a peace deal or World War three. And I'm listening to this thinking, wait a second. You know that that is a pretty scary posture for him to be taking. And furthermore, who appointed him leader of the free world? You know, the decision to have war three is not his decision. He is not the President of United States. We did not vote for him. We may think he's heroic. We may think he deserves our support, but he does not get to turn this into war three for us, the American people. Did not choose that. And this is where I go back to Biden and the administration and their leadership. What are they pushing for? Are they pushing for a protracted, never ending Afghan style war in Ukraine? Or are they going to lead the situation to some sort of negotiation or ceasefire? And I just think if we're considering the interests of the United States, we would not let this decision purely be zelinski this guy is willing to entertain war three that can be acceptable to us. But what, what, what it what is his worst? Alternative, I mean like he's losing his country, so of course he wants to say the thing that would scare us into action potentially, right. So he has nothing to lose. So he has the right to defend him, decide for us. He's not decide he's using, he's he's using rhetoric to get us to talk about it, which he just won. Like he you can see that what he's saying is working. Yeah, because you're talking about it. So I think the, I think the bigger question in all of this is when is the United States willing to draw a really hard line. So there was a another thing that happened which is that you know Biden essentially said like you know if they use chemical weapons we will react sort of in kind right there was some some version of that it's a red line basically. He said yes and and then he also said you know depending on you know how they use nuclear weapons we could theoretically respond. So just the the rhetoric is ratcheting way, way up and that. Is surprising to me because I would have thought. We had a deal, insight. Just get it done, be pregnant. But you were consuming David, your side. You're assuming that we have the influence. You assume, David, we have the influence to actually cut a deal. You were saying yourself for the last couple of months that the US power has waned and that we don't have influence. So which is it? I think you're just blaming Biden. Believe we have the influence to get facilitated, saying we lost our influence. Make you an example. We are giving Zelinsky and the Ukrainians all these incredible. Happens? What are the conditions on that if Zelinsky is unwilling to make a reasonable peace deal? Do we, do we have any conditions and are giving him these weapons? Why wouldn't we insist? Zelinski? Listen, we support you. We basically are against this Russian aggression. You should have the right to defend your homeland and drive them out. But we also want you to take a reasonable peace deal if one is available, and we need you to specify what that is. Exercising that kind of discretion? I don't think so. I think you're assuming that Biden is blocking this when in fact it might be that Putin is. And I believe you're taking putins sort of position here over our own presidents. I think you need to think for a second that we don't want to have this continue or escalate. You actually think there's a world in which Biden wants to see this escalate? I don't think that that's the case. I think that we don't have influence. We don't have the David. We do not have the influence today that we did. It is no longer Neil Ferguson states, you know, gets to dictate. The world. What's going on here? We no longer have, not about this food wants to talk to Israel, Putin wants to talk to Macron and France, not us, because we're not seen as an honest broker. But but look. We don't have the influence we once had. OK, let me explain. I'm not saying we can dictate the outcome, OK? But we can push for a negotiated settlement instead of a protracted. We can lead, not bleed, OK? Chamath laid it out, Neil Ferguson laid it out, the Rand Corporation laid it out. These there is a significant chance that there are definitely actors in the State Department who want to see an Afghan style situation insurgency play out in Eastern Europe. That's their goal. OK, now, I don't know what Biden is thinking, but he has made no statement. To the contrary, what have we done to help lead this situation to a negotiated settlement? Name one thing. Well, I don't think we're in the room, David, but Biden is in your in the room. I I've read all their public statements. I don't see any. I don't think they want to negotiate through the press with Putin. I don't think they want negotiations in Europe right now. I think that says enough about what his intent is. He's in Poland, right? He's going to. He's in Poland. We're scaling up our military presence. Listen, yeah, I mean, I don't, all I'm saying is, look, I don't know exactly what Biden is saying or doing behind closed doors. What I'm saying is that the US should be playing a constructive role. To get to a negotiated ceasefire, not indulging this sort of fantastical thinking that we can basically perpetrate a regime change operation in Russia. Agree with you on that. I agree with you on that. I I'm worried that there may be a small strain of that probability in the range of outcomes here. And I didn't think that before. I really thought that, OK, maybe we were a little bit on the outside looking in, but it looks like, you know, we're pretty close to a deal. These guys will get in a room, they'll, you know, chop it up and it'll be done. And instead, honestly, if you just look at the headlines and the rhetoric and the words from all these 3 leaders in the last 10 days, it's been, it's been in the other direction. And so you have to wonder what is the point of all of this right now other than be crescendoing like Brad said? It's, you know, I I listened to blink in over the weekend. And he talked about what I think he defined. What is this new doctrine of economic statecraft? He said our objective is we have the power to impose overwhelming costs on our target, OK? Economic costs. And he said our cause. Putin's actions are remembered as a strategic failure, not regime change. That's what's within our control. That is very different. Bush wanted regime change in Iraq, and we executed it through the Paul doctrine of overwhelming military force. I think that this is a doctrine of overwhelming economic force that is meant to not only signal to the Russians, but every other rogue dictator in the world. If you go rolling into your neighbor uninvited, you can count on the fact that there's going to be massive economic sanctions because our our military deterrence is no longer a deterrent. Everybody knows we're not going to go defend Taiwan. Everybody knows we're not going to send our military to Ukraine, so we have to demonstrate that we actually have economic resolve, not these poo poo sanctions we've been having around the world for the last 20 years. And if that is the lasting impact on this, I think you're right. You know that that we turn this into an economic nuclear weapon. And then sending our kids, you know, running around the world to get killed. I think you're absolutely right. And I think Tony is very smart to say what he said. The the one thing that I would want, though, on top of that, tell me if you agree, is just to ratchet down our rhetoric, which we can control and maybe to to, to. I mean, why not say that? Listen, we're willing to put these sanctions on the table. We're willing to basically reinstitute economic ties with Russia if we can get to a satisfactory outcome. Well, you don't want to. I mean I really like I would say is we're making a big assumption to say that there's not back channel diplomacy going on from the Israelis, the Turks, the the French, you know, having those conversations on our behalf, right. Like I I I don't I I honestly I don't know that there. That's a high probability that we're not sending those signals. But to your point, I just don't know. I don't know. I don't know either, but I don't know either. But, but but here's what I would say is, look, I can only judge from the public statements and I think there is signal in these public statements. And this, the statements are all one way. There is no olive branch. It's all it's all basically about escalation. Just like in January before the war. What were the State Department's statements about the situation? They said that NATO's door is open and will remain open even though they told Zielinski in private that he would not be joining NATO. OK, that was an astounding revelation that came out this week on the freed Zakaria show. #2 Lincoln was saying that there there was no change in the American position and there would be no change. They said these are all public statements that the US would never recognize. The Russian annexation of Crimea. Never. You know, you said that we went into these peace talks represent our core values. There's no change on that. So in other words, it's been the position of the United States to be hardline with Russia, to basically engage in no compromise whatsoever. And it's basically double down. It's a double. You, you assume, David, you don't know. Those are the public statements. I know, but you're assuming that there's no back channels going on. And just to just to another, I wanted to make one quick point, Jamath, which was, you know, what if we offered to take the sanctions off and then we are training. Putin that these kind of misadventures get him something, Don Bass, etcetera, and that the sanctions roll off. So isn't there a possibility chamath that if we don't keep the sanctions up, we're actually rewarding his behavior? I'm a huge guys. Look, I've been the first person in the front of the line on sanctions. I thought this was the most brilliant. Approach to this whole thing. And I still believe that sanctions work and I think that this will cripple that country. What I'm saying, though, is that there are these moments where instead of then sticking to the rhetoric that Tony talked about what he said, I don't know Brad where Tony said this this weekend, but like sticking to that, there are these added flourishes that I think are unnecessary. So what I mean by that is to talk about, you know, us reacting or retaliating for the use of chemical weapons. Biden made a campaign vow. I don't know if you guys remember this about nuclear weapons. There, you know, he was very clear that, you know, it is a mechanism to demonstrate that this deterrence exists. And instead, he actually caved. And instead, he put out this carefully worded statement, which kind of walked back the campaign vow earlier this week. And I'll just read it to you. I'll just read what the Wall Street Journal said is said by President Biden. Stepping back from a campaign vow has embraced the longstanding US approach of using the threat of a potential nuclear response to deter conventional and other nuclear dangers in addition to nuclear. Once, during the 2020 campaign, Biden promised to work towards a policy in which the sole purpose of US nuclear the nuclear arsenal would be to deter or respond to an enemy nuclear attack. Instead, now it holds that the fundamental role of the nuclear arsenal will be to deter, but that it leaves the opening to respond and use it in extreme circumstances. So these are big changes and if if our whole goal is to just focus the surface area to an economic set of sanctions. These are somewhat unnecessary. Wouldn't we all agree we don't need to talk about changing our nuclear policy? Yeah, and Biden was right on the campaign trail. the United States of America should never use nukes. Except if nukes are used on us. Come on, we know that, and we're talking about changing that now. That's insane. Look, it shows that there there's an influence in our government, our State department of certain hardline elements who want this very tough policy that includes destabilizing the Russian regime and maybe toppling Putin. I'm just saying that objective is not worth all the existential risks that we're now facing. All right. Do we want to touch on the CCP tax cuts we want to wrap we're at 80 minutes. I mean the the CCP tax cuts Harkins me back. Brad you can react to this because you lived it with me. 2018. Nineteen. I'll say it again. We we were in this unique moment where you know we were not sure whether there was runaway rampant inflation and in Q4 of 2018 the Fed basically said OK, you got us, you know the Boogeyman exists we're going to go tame inflation and they ran forward and raised rates. And lo and behold, the Chinese economy turned over in Q1 of 2019. We had like a, you know, a kind of a blippy little recession, and we had to overcome it because China became stimulative. Now here we are again. We're worried about this inflationary boogeyman. And the Chinese Government basically extended these tax cuts, increased the tax cuts and essentially said we're going to be very stimulative in the economy, especially through the back half of the year. Now, China again is a massively export driven economy, right. So the reality is that as goes China, so goes the rest of our economies. And so I think that it's a setup where how can the United States be under so much inflationary pressure where China is effectively telling you that we are in a in a contraction and in a recessionary period. And so if that's where China is, there's a risk that we may already be there or entering that. And so I think it's a little. You know that you hit two really important points. JAMA number one, which we didn't get to earlier. I tweeted a few weeks ago, the feds probably behind the curve on recession, not inflation, right. We have massive demand destruction going on right now in the US economy. Massive. The producer define what that means, Brad, define what that means. So I mean if you just think about what is $6 gas mean, what does no stemmy checks mean, what does the fact that you actually have to go and get a job again mean, you know, we're we're rolling back trillions of dollars. The Fed balance sheet, I'll tell you what it means is that people can't spend as much money. Just the increase in the 30 year mortgage means you're buying power in December 4 months ago. To buy a house and you if you could afford 1200 bucks a month, that buying power budget $350,000 house today, it buys you a $295,000 house. People's ability right, to have money to spend money is getting crushed. So I think we are going to face an economic slowdown. If you look at the PMI, so this was the inflation read in January, little people didn't really notice it. PMI in January came in at .2 versus the consensus. Estimate estimate of .6. That means the producer level of inflation was meaningfully less than we expected. If you look at consumer confidence, it's plummeted. One of the four biggest drawdowns over the last 20 years, retail sales in UK this morning crashing. Consumer confidence in the UK, crashing. The Chinese Government sees this we're we're not surprising. Look at the what's going on in the world with energy prices. We've never had oil over 120 bucks and not gone into a recession. We're facing a global slowdown that will have big implications for inflation, big implications for rates. But China sees this. I mean, it says we're going to get ahead of this. We've got a people's Congress in November. We've promised them 5 1/2% GDP growth, 3 trillion of that is export driven. That means if Europe and the United States catches a cold, they catch the flu. OK? So they have to do everything in their power. This is why they're not going to supply the Russians with weapons, right, because it's economically assassin, assassinating themselves, right? So we have this interconnected world, this idea that we're globalizing. What what we do doesn't impact anybody else like that ship is sailed a long time ago and the Chinese see this. That's why I think there's also a probability by the Middle East this summer the Fed in the United States is saying we now see a balanced risk between growth and inflation. Sacks, let's get you in on this. Just as we wrap here, the Chinese Communist Party premier talked about tax cuts and this is a quote fertilizer applied directly to the roots of the economy. Tax rebates look like reductions, but actually are in addition. Today you give back, tomorrow you get more in returns. Does this mean the United States people will go back and get jobs because they need to have more money? And that maybe we should be looking at, you know, tax cuts at some point? Listen, Jake Paul, I think we got big problems here at home in the United States. Brad and Chamath, they've laid out these gigantic economic risks that are facing the country. You know, I tweeted at the beginning of the year, January 24th, the president's main job is to ensure peace and prosperity. And Biden's popularity was already plummeting. I think this is when his poll numbers were at 38%. But if he gets us into war. And recession. He ain't seen nothing yet. This war, the longer it drags on, the longer it it basically can spin out of control and becomes something worse that sucks us in, the longer it creates the risk of basically causing a recession in the United States. We need the American, we need the the the administration to help try and lead. To a better outcome here instead of ratcheting up the rhetoric. Alright folks, there you have it. That's your all in podcast for this week. Thanks so much to Brad Gerstner for joining us and filling in for the Sultan of Science, BG. Thanks bro, and a lot of great announcements here. Brad will also be joining us for the all in summit. We're about to wrap up tickets. We've announced a bunch of great speakers for the event may 1516 and 17 in Miami. You can just do a search for the all in summit we have given out. We've sent 200 emails to people who ask for scholarships and 100 of them have taken the tickets. 500 of the 650 tickets or so are. Accounted for will be wrapping up registration in the next week or two and we look forward to seeing you all at the New World Symphony in South Beach. You get any announcements of people who else is appearing? Oh my Lord, we have great announcement. Keith Raboy is coming. Joe Lonsdale is coming. Nate Silver is coming. Nate Silver, I love Nate Silver. Well we we decided chamath we would have people do 15 to 20 minute Ted style talks like position papers and so. Who else do we have doing that? Tim Urban of weight, but why, who is a brilliant Ted speaker and writer. Nate Silver is going to do that and then Antonio is coming. He was just on A and he was just on Rogan show and so we're going to have these like 20 minute kind of hits, then the besties will sit with them, we'll do those back-to-back. Kimball Musk is going to come and talk about his Dow that he's doing for nonprofits, Brad. We're gonna talk about what topics, so we're collecting all this talent and then we'll figure out what positions they're gonna play in the show and what the themes will be. But the themes will match what we've been talking about here and we don't want to pre set the themes six or seven we seven weeks out from the event because we don't know what the world will look like then. And then Freeburg said he wanted to do a position paper and actually give a 20 minute talk. So Bessie will have that ability and Bessie will start the event and end the event. Tons of different speakers rotating in and out talking about the most. Important topics of our time. But I would like to have Peter there. Can you get Peter Thiel to come? He's maybe the most iconoclastic. Please, Peter, I'm just not. I I have to get over my uncertainty that this whole conference thing is really a grift, grift. We're putting all the money is going back into the event and we gave 200 scholarships. There will be no profit from the other. There needs to be a really nice swag bag. And I I think it was already at $600 a person. I just spent three or 400,000 on the what is the material of the hoodie? Alright. If it's gonna be a cashmere hoodie, if they're beyond brand, $100 off brand for you need to be able to buy up to the to the special hoodie. Brad, I just spent $600,000 per gift bag for 600 gift bags. OK, it's like 400 grand in gift bags and chamath wants to put a $6000 sweater in that. I just wanted to know what the material was of the hoodie in the bag. That's all I'm just asking a question is my life Brad. I am busting my *** to put this event on and that is motts complaining about the gift bag. Saks is complaining on me making a dollar. Permit and Freebirds having a panic attack that we don't have enough great speakers and I'm doing all the work. That's my whole ******* life. I appreciate you, Jacob. I really did say some nice stuff to me. You did say some nice stuff. I appreciate that. Maybe wanna be toward with you getting a fee for your hard work. You know, I don't need to give you like an hourly wage, you know, $15.00 an hour. I'm not your wage slave, David Sacks. I'm working hard here. I appreciate you, but I'm working hard. But I I just want to be appreciated. I don't think you should have like a cotton blend is my. I think it's, I think by the way Brad, do you have any thoughts on the sushi? Is there should we be using brown rice and not the line cloth tuna, just make sure there's gold leaf on the sushi. No, literally we're spending I think for 300 or 400,000 per party. It's over $1,000,000 in parties and I'm talking to talent bookers about serious talent coming to perform. Drake, can you get Drake, that's $3 million, dual depot, $2,000,000. How deep is $2,000,000? That's what I got. What is it? Don't you catch it? How much is doja cat? She's great. I think those are all seven figures. I would like to anyway, what I'm trying to find while you'll be worthwhile use of. I mean, that would make it an incredible party. God, I mean I really would like to get by. So how much is Drake again? $2,000,000. Two to three million for drink bags and get Drake. Yeah, good idea. Yeah, yeah. Cancel the bags. Give it all the drink. You guys are saying my dress and all the work I do, I should take $2,000,000 and hand it to ******* Drake? Yes. Yes. Drake has more valuable than you. 25 years of working on events and media, Brad and these these are my friends were like take the 2,000,000 you could put in your pocket and finally make a profit on your work and just hand 2,000,000 in a bag. We don't need the bags. Forget about the plane. I'm trying to get a jet card. Do we get to work with Drake on which songs he he would sing, I performed. He does like a medley of like 3. What I would like to do is have a reason. Songs for two minutes. Come on. I think it's basically like 100,000 a minute. I think that's what you're in for. 100,000 per minute, just 20 minutes, 16. That seems egregious. No, I mean these guys get paid. Back when when I hired Snoop, he did like 20 songs for me. It was unbelievable. He did like a two or three hour show. 300 city success because he forgot he was there. Yeah, he had a great time. Oh my God, man, he was blowing this joint that was so powerful that I was 10 feet away and I got stoned. It mean, it was like, I remember he walked in and was like, I remember there was like 20 Super Bowl shows. Good stuff. Alright, everybody. Love you, besties. Love you, Brad. Let your winners ride. Rain Man David Sasha. We open sources to the fans and they've just gone crazy with it. Besties? My dog thinking it was your driveway. Ohh man. We should all just get a room and just have one big huge **** because they're always useless. It's like this, like sexual tension that they just need to release stuff out there. Let your feet. We need to get merchants.