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.

E81: All-In Summit: Bill Gurley & Brad Gerstner on markets, downturns & investment cycles

E81: All-In Summit: Bill Gurley & Brad Gerstner on markets, downturns & investment cycles

Mon, 23 May 2022 04:51

This conversation was recorded LIVE at the All-In Summit in Miami and included slides. To watch on YouTube, check out our All-In Summit playlist:

0:00 Bill Gurley & Brad Gerstner break down the state and historical significance of 2022's market downturn

12:27 How VCs will handle capital commitments from LPs, underwriting startups in the new reality

24:14 Bull run mistakes, why VCs don't underwrite lower valuations, handling distributions

33:52 Gurley's take on WeCrashed & Super Pumped TV series, how sophisticated investors got "gaslit" by the market, influx of capital creating consumer-surplus businesses

47:54 Brad predicts the market for next year, Bill gives post-Benchmark plans

Follow the besties:

Follow the pod:

Intro Music Credit:

Intro Video Credit:

Listen to Episode

Copyright © <> - all rights reserved

Read Episode Transcript

BG Square, this is our BG squared panel. Everybody knows friends of the pod. Brad Gerstner and Bill Gurley give it up for our yes. Let your winners ride. Man David's actions. We open sources to the fans and they've just gone crazy. Queen. Bill, you predicted five of the last three recessions. A broken clock is still right twice a day. I mean, here we are again. You you've sounded the alarm bell. And of course you're right. And you've seen this movie before for all of us younger capital allocators. Who are experiencing it for the second or third time, but you've experienced it a couple more times? That's how. I mean, it's pretty old. How does it, how does this one measure up to bust, you know, 87 and the and the mini ones we've seen in between? You know, one thing that I think it's super important to put this into context. I'll try and tell this quick. I had a meeting once with Howard Marks, who I'd wanted to meet for a long period of time. He's a famous bond investor that does a lot of writing. And for 15 minutes he asked me questions about the venture industry, a lot of structural questions, and I told him. My answer is best I could. And he said, man, that's a really ****** industry. And I said, well why do you say that? What do you mean he says, he says, you know cyclical collapse is built into the structure and so we have funds that you know are taken you know committed to that have 10 to 15 year life. So you have low barriers to entry, but you have very high barriers to action. And so he felt that it was just systematically set up to to rise and. Crash, rise and crash. And one thing that that I realized coming out of that is that it it doesn't happen like a sign curve, which is what we all imagine when we think of a cyclical business. It's more like a sawtooth. It risk risk on is a very slow process and it and it's it's reflective. So it grows and grows and grows and grows and then risk off tends to be very abrupt and we've seen that here, right this, this cycle risk on was from O 9. That's also two, five months ago. That's really well and risk off is 5 months. And and the thing that that that's really tough about that is it requires a mental adjustment very quickly like because it it didn't gradually change, it abruptly changed. And so, you know CAP charts might have, you know, systematic issues that are stuck because too much like pref relative to the new reality valuations have shifted the cost. Capital of radically different you may have you know on the way up as risk got people took more risk you tried crazier things you you're willing to to take take make investments in businesses you might not. If the cost of capital is a lot lower. You name a stadium for five years as a crypto company you might do that and then but then all of a sudden it's gone and now the commitment to naming the stadium is greater than the market gap. Well, I assume you're referring that may not be true for FTX, but. Well, I mean, just as an example, it might be a disproportionate value of your. Yeah. Yeah. So anyway, it's it's tough and and in this particular case because that's what you asked, so it turns out O 9 wasn't that bad. If we, if we have an O nine, that would be pretty good. Things got turned around pretty quickly. 01 was very abrupt and we didn't, you know, really start to see liquidity again until with a few exceptions, Elon mentioned PayPal. But like. 0506, you know, it was a long walk in the desert. I mean a lot of great companies were started, but a lot of founders gave up at that time, right? Yeah. And and and look, I mean I think to the, if you're an early stage investor or if you're an early stage founder that's just getting going or even an early stage company because if you haven't scaled out yet, there's probably hasn't affected you. It could be, it could be wonderful, like your access to talent, it's going to be a lot easier. People are going to be more pragmatic and rational, but it's a, it's usually a long window. On the other side, the other, the other challenge you have here is in 20, you mean we basically had a mini pullback in March of 2020, but then the Fed hit so hard that things just blasted off again and now and now you guys have talked about this, but that tool's not in toolbox anymore. So one of the things I, I was talking to somebody last night and this audience is amazing, talking to somebody last night and they said, you know, so how does it work? You just get together and talk. And I said, you know what? I'm what I love about this group is there are hundreds of hours of like data and research that we're constantly challenged with. We all know where we are. We know what just happened. And I think grounding ourselves in just a few facts to try to figure out what the next six months are going to be because we have founders here trying to run their businesses. Can I raise capital? Are we bouncing straight back from where we were so very quickly? This chart just tells us, you know, the iron law of investing is interest rates. A 1% change in rates leads to a 15 or 20% change in a multiple. And so the reason multiples have collapsed here for all these businesses is because expectations as to inflation and rates has changed dramatically. I hear a lot of talk about 1999 two thousand. So if it's all about rates, let's just look at those two things. We plotted them here together. This is 19 to 22 on the bottom. It shows what rates did. We took them to to 0. the Fed is now saying our neutral rate is 2 to 3% and people are hyperventilating. Look at where we were in 2000. Look at what the cost of capital was in 2000, right, right. And so this, this 1% mortgage away, that delta there. Yeah, right. We went from just above 5 up to 6 1/2, right. So we're talking about going from 2 1/2 back to 2 1/2 or three. But the big question is, are we going back to 2 1/2 or three or are they behind the curve, lost in the weeds and we're going to have to go to four to five to kill inflation. Well, everybody was saying inflation, you know, inflation is here. Stay forever. Remember when when we report on core CPI, it's what happened last month. It is not a forward-looking indicator. So we peaked in core CPI consumer price index. Explain what it is. Consumer price is the basket of goods and services that we all go out and spend money on. So the Fed is focused on the demand side of the equation. They know they hopped us up on a bunch of Red Bull and cocaine to survive the pandemic. And now and you're talking about last night for facts, but keep going. You still haven't said a word all day. Looking at OK, buddy. You're so gonna get through socks. I'm gonna get through it together. OK? You are so erect. So, so this chart, this chart, we deconstructed 20 bank models to say what are the components of CPI? How do they differ? The red lines where Goldman thinks we're going, the green line is UBS. I just told you the Fed thinks will exit the you're at four. We just decelerated significantly. And when they look at 8:00 or when they look at May in June, it's going to be down yet further and here's why it's going to be down. When the Fed stimulated the economy, all the prices we pay for everything went haywire. OK? The price for a used car was 20,000 bucks for 10 years, and then just coincidentally, they give us a bunch of Red Bull and the price goes to $29,000 for two months in a row. We've had sequential declines. You tell me, is the price of the used car this time next year higher than 29 or lower than 29? It's going to be lower? Because we're destroying demand by raising interest rates. Same for home prices. So what's plotted here is the home affordability index. Somebody who can afford to pay $1200 a month in December could afford a $350,000 home today can afford a $240,000 home. You tell me, are the number of new home searches on Zillow going up or down? Go run your Google trends. They're going down because people's ability to buy homes is going down. And then finally, airline tickets. Same deal, right. And so when you put that all together you say, OK, sequentially, month over month, forward-looking this stuff starting to tip over. If you look at what consumer confidence is, it's the lowest in 10 years. Right. Consumer confidence is a leading indicator of slowing down. So again, everybody on television is telling us about what just happened. It's like the nightly news, big Red Arrows, inflation going up. This is what's going to happen, and what we all care about is what's going to happen. We destroyed 15 trillion. You said this on pod 80. We destroyed 15 trillion of household net worth in the last five months. So the expected path of household networth would have taken us from 110 trillion to 125 trillion over the course of the last two years. That was the trend we were on. Instead, we got all hopped up and went from 1:10 to 1:42. But now we're all the way back to 127. That's what I call on path. On trend. So the Fed has done exactly what it wanted to do. It ruined all the spacks. It ruined every. It took all the juice. Sorry, sorry, sorry. I did one too. OK, so it took the juice out of the system. That and consumer confidence tells me forward-looking inflation is rolling. Finally Bernanke says this morning or over the weekend. He said ignore what you everybody else is saying. Follow the tips. No, we've been saying this since May of last year, so this is the break. And this is the bond market. When that goes positive, that means the bond market is saying that inflation is rolling over because this is the 10 year less inflation. And so now we have anecdotal information about cars, about houses, about we have our common sense, we know that those prices are not sustainable and we have the bond market telling us the same thing. That's why I don't think you should believe the hyperinflation narrative. Got it. Any thoughts on NFT's? I mean, here's the thing about my board app. What will happen to that? No. And when you're going through this and you start to understand the logic of it, you, you realize what a mirage we were in that certain assets that had no underlying value, you know, they weren't cars, airline tickets or homes were also being exacerbated during all of this. And and I think that was probably one of the things that made this less fun in the cycle. Bill, you're a fundamental investor. You really think about consumers, should think about the total addressable market you. Give a lot of thoughts to that. What was the last couple of years like when you were saying three or four years ago, hey, this is kind of disconnecting from reality. You know back when back when I had that conversation with Howard, I I started doing some more research. I went back and I talked to some of our fund of funds that have data over a very long period of time. And I mean it sounds ridiculous, but what what I realized was that the the IR numbers in the ROI numbers on the venture capital category were heavily dependent on performance in the in the hottest part of the cycle and so in the tip of that. Talk to and that's when we came up with this phrase that the best way to protect yourself against the downside is to enjoy every last bit of the upside. So while you get anxious about the rollover you actually can't afford as a venture capital firm, and maybe this contributes to the to the collapse as fast as it does. You can't afford not to play the game because it's too hard to predict when it's going to change the $250 billion of committed capital unallocated. To companies, what happens in the cycle over the next five years, if there is this expectation that we're not going to be in the good part of the, the risk on part of the curve that capital needs to be deployed at this point in the cycle? And do we end up having these like crazy bifurcations in the market where high quality companies get 10X evaluation of the mean and all the money plows into a few companies that that are kind of out or what's the dynamic? And I know Brad has some too, because we were talking about this this morning, first of all. I I've never ever felt as a as a venture investor that I have to invest money like like and if you remember most of it's committed but not drawn down, right. And so you're going to have to go ask for it. If you're, if you're if you you know, deployed 2/3 of your fund into crypto assets with no board seat in the past 12 months. Are you going to call Harvard and Penn and say, hey, I need some more right now? I don't think you're gonna make that call and I would. No. You're saying they let the capital sit there and never call it well, here. What you guys were talking about this on one of the recent pods, you know, in, in 01, a lot of people actually returned the commitment and it was actually an act of greed. Not not an act. It came across like they were being nice, but they were getting out. I call it the burnt waffle theory. They were killing the fun and getting out of the overhang and starting fresh, just like I guess it was Melvin that attempted to do. It was a version. Yeah well they just wanna get started without the overhang of of the look back they deployed 200 and 300 million. I I think one thing you know Bill not to interrupt you know the, the, the. The assumption of the question was will they be forced to deploy capital into a really bad vintage, right. I actually think the upcoming vintage is gonna start getting real. It's going to be a good vintage. I think that what that was Bill's point. I think we both feel that way. I think the vintage of the last 18 months will be lousy. So the capital deployed over the last 18 months won't have a lot of return. All of our LP's know it, right? I just just sitting with an LP, you know, one of my investors at lunch today. Right, imagine this. They have 50 investments like benchmark and altimeter, right? All of them are going down. And now you're gonna call them up and say, I want all this money right now to go invest in a bunch of stuff that still may not yet have corrected enough. These are partnerships. Partnership means a partnership with me and my partners, all of the people who gave me the money. We're not gonna put our partners in a headlock and drag their money into the market and put it into things that we don't think accurately reflect the new world order. If you go back to that first chart, you can underwrite to the five year average, the 10 year average where we've been. I think we're going back to trend, but you cannot underwrite to where we were last year. Disabuse yourself, one of the bill tweeted this last week. It's spot on. The biggest mistake we will all make is to anchor ourselves to prices that we saw in the world over the last 18 months. Pretend you never saw them. Not in venture, not in the stock market, because that is a delusional place to think we're getting back there. We're not unless we have another pandemic or a nuclear war and rates go to zero and then we have bigger problems. So re underwrite and underwrite to the five year average denovo for all your businesses. That's how you survive. Through this and ultimately come out winning and and the other the other point I would make David is that the, the, the new reality is apparent to all of us because of public comps. So like you just have a new world order and so it's very hard. I don't think I mean there might be someone so sloppy that they just keep investing headstrong, but I think most of them look at where things are in the type of business that you're investing in and and then they feel like they want to make a return. I think I think you're using the right word. It is borderline. It was definitely unprofessional and it's borderline idiotic. For anybody with organized capital right now to be ripping money in because you don't know what the terminal valuation of a business is like at the end of the day, investing is like a line. It starts here with guys like Jason and it ends here with guys like me and Brad say. And in the middle are these guys that are helping along the way and it's all hot potato. But by the time the hot potato gets to us, there is, there is a price and that price has alternatives. Meaning if you come to me and say this thing is worth $10 and I and I say. Actually know it's worth 2 because that other thing which is better than you is actually worth 5. And that's what's happened in the stock market. You get the potato, you put it on the scale there is there is a terminal endpoint to valuation. Right at the end of the day, there is a buyer of last resort and that is the public market investor and he and she has said no mass. That's what this chart says, no mas. You don't tell me that your thing is worth 50 * 80 * 90 times. It's worth 5.6 times. I saw something this morning from Morgan Stanley that said. If however, you're a massive grower, 50% plus grower, there's 30 companies in the SASS index that grow, but only 30 in the entire world that grow above 50%. You know what that multiple is? Just take a wild guess. 8.5, I mean we're not talking 50 times, we're talking 5.6 or 8.6. So all of a sudden the band is this. To be clear, this is so those games to your point are over, I mean growing by 50% a year for those of you guys have that built businesses that do it, that is still very hard. You know, that's massive compounding. So the game is over. And the idea that there's a quarter trillion, I think that that's a fallacy. What do you think ultimately gets deployed to the quarter trillion? Just pick a number? What do you say? Over the next three years. Of the quarter trillion, I think you're probably counting 50% of that is private equity or more maybe 70% traditional private equity. Leveraged buyout firms are going to have a field day, field day, I mean, so Toma, Bravo and all these guys that they will spend all of that. So you tell me what percentage of these, OK, so let's. Over 300 billion of VC. How much does 2020 billion goes in the next three years? 25 or 30% twenty things on price adjust. I wish we I wish we had the numbers from one and cause cause you had similar things where the raise that's freaking tiny, right. I mean if you're saying 25 million / 3 years that's like 8 billion of total VC dollars deployed a year which you know to your trend line thing. It's tiny wonderful went back six years where that number was. Let's begin. Number of people at these companies is necessary to run them. We're looking at a Twitter with 8000, you're looking at a Google and even some of the startups, they got fat, I think, I think and they had huge salaries and and there's no essential by the way, they're like we just talked, we just talked about a whole CapEx cycle and a need for hardware and a need for capital equipment. There's a whole semiconductor space, there's biotech. I mean a huge segment of that venture market chasing is not software, it's it's very capital intensive businesses, which by the way are really critical in this, but in this economic cycle have been living high on the hog. Let's be honest, yeah, no, but like I like for example like our investing focus, we've moved in the last 18 months to focus a lot on these things. Lithium mines. I mean the stuff that we're doing seems insane. If you had asked me would you be sweating a a mine in India, you know and sending our CFO and a partner to go and make sure the mine exists. I never would have thought that it's possible. But the reason is because of this chart, because those trade-offs on dollars make so much more sense to put money into an overgrown like an over bloated software business. Comes with a lot of baggage valuation, baggage team baggage, technical craft and all of these things have to get balanced. And so if you get a really cheap deal, you do it. Super interesting. Bill you, I mean, you're like the software guru. I mean, like, do you feel the same way? I mean, yeah, we'll call it. Yeah, actually, I want to make a quick comment on, especially with this slide on SAS multiples. So obviously, it's a price to revenue, multiple slide and and price to revenue is like this really crude evaluation tool. It's like the crude issue could possibly have. I published A blog post once where I took all the Internet stocks and laid him beginning to end on the price to revenue multiple and it was like just a massive diversion. There is no such thing. And So what really values companies, you know it's typically a discounted cash flows. And so now all of a sudden the buy side's asking SAS companies about net dollar retention, about long term operating margin, about whether their free cash flow is greater or less than their net income, about SBC as a percentage. Free cash flow stock, stock based comp yeah and all so all of a sudden the you know everyone's brought out the microscope on how they're evaluating these companies and and these crude tools that maybe the only like they're entrepreneurs who probably think the only way you measure sensory then by the way you're you're you know the companies that you know in your example were all of a sudden run away with it and get all the money. Think about the problem they have their growth is going to slow. Nobody grows at 500% when you're at a billion dollars. You're lucky to grow at 2530%, right? OK. So when your growth is slowing and your valuation is outsized like you're gonna get to $5 billion, how do they attract more capital, right? This is, This is why this whole game is very complicated right now there. There was also something that that took hold over the course of the last two years specifically with respect to software that this was an easy business. You just send us your data, I pop out of term sheet, it's formulaic as though all software companies are created equal. And you guys asked a question last week on the pod. How many software companies are actually over a billion dollars in revenue? How many are over 2 billion? Well, we actually went and counted ohh good, right, public software companies, over 2 billion in revenue, we got to 21. OK. There are only 21 that are worth more than $25 billion in all the public markets of all the millions of software companies that have been started. But what happened last year was you could be making dog walking software. OK. And somebody looked at your multiple and slapped 100X on it and said you were worth that, as though that was the equivalent of building a database that would disrupt the entire database market. So the thing that is returning to markets is something that we all do for a living called dispersion. Some ****** going to be really great and the rest is going to be below the mean. And if you look at software, the history of software, right? Is that there are very, very few companies that ever get to a billion dollars in revenue. And so if you were slapping 100X R revenue or multiple on a company doing 50 million in revenue, it's highly likely that they will never see that price again, whatever you paid for that asset. Because the dilution and the deceleration in their growth rate will absolutely eviscerate any return you have as an investor. And so when you're looking at this, back to your point. You know, not only are we looking at revenue multiples, but we're also looking at something like Snowflake and saying now they're doing 15% free cash flow and expanding those months. All that stuff is critical. Girly, girly. Do you think it's weird that VC's don't? Try to underwrite lower valuations like the incentive is always to up your valuation even if the company's performing plan, you don't generally do these like market driven value. It's like, oh you're worth 500 million last round. We'll give you a billion dollars this around and are we going to see more VC's do down around? I just think that when companies that they're in, there's no, there's no VC club where they get together and discuss how you're gonna behave. Yeah, but you're looking at it. The price fixing, but keep in mind as as that as that risk going goes slowly up and up and up and you know and and especially in Silicon Valley, we've had a systematic shift of power from the investor to the founder over a very long period of time. People are friendly because they want deep flow. So nobody, nobody does it, nobody. Let's talk about that. So interesting, you've seen deals happen where you know one term sheet seems great for all shareholders and then this term sheet includes some secondary. For the founders and no, governance seems pretty great for the founders. And somehow this one magically wins and and somebody wins the deal by not taking a board seat. You know, in the three decades you've been doing this now, I think it's three or four going into the four. Wow. I mean, well, it was in the third decade. Yes, he's in the 4th decade. You know, when you, when you look at governance, what, what is the mistake we've made over this last bull run? Well, once again, what should it be? I think, well, I think, I mean it's the right partnership. I think what it should be is that the market gets to decide. So if, you know, if someone wants, if someone can raise, you know, 100 million with no board seat and no rights and they want that, I think they should be able to do that. Like, right. But what's in the best interest of our industry of all shareholders, the employees that the the. I'm not dodging the question. It's just super complicated. We we put money behind Rich Barton and so both of us did and he had super voting and but he also I think is very honorable about his duty to shareholders. And so there's a track record there. Yeah. And and it wasn't it never, it never was an issue in the entire. History of the company and so you know, but you know if there's a first time founder that's doing that like you know, who knows, who knows what the motivation is and. But, but once again it's a market, it's a free market. And I think that there are certain people or founders that decide, hey, you bring something to the table that I want and I understand there's a government requirement to it and we'll opt into that. And you know willing buyer meets willing seller early. What are you guys brought? What is your attitude when you guys actually have a win? You do the job, company goes public. And you have the chance to distribute to your LP's. There's been a movement in Silicon Valley where some firms have said, you know what, guys, I'm gonna hold this forever. I'm gonna create permanent capital structures, Evergreen funds. You know, if you know you foundation want a distribution from me, just tell me and I'll give you money magically, somehow, etcetera, etcetera. What do you guys think about that versus just distributing and walking away, booking the win. And if you want to hold the stock, you just hold it in your own private. Let me just start by saying that. Investing is really ******* hard and there's, there's a lot of ways you can lose, you know. And when you guys started the podcast this I was listening to one of the episodes today and it really hit me in the in the song that you put together, David says let your renters ride. And I Remember Remember that. So from the brief history of the podcast, you've gone from talking about that as a strategy to this question that you posed to me, which is. Review on the opposite might defense ohh hang it up this year? He talks. He talks. He's appeared. Well, he's awake. Yes. He's alive. He's alive. We have, we have all these great minds here. So I figured I'd give him a chance to talk like like some of the people on the pod who like to hear themselves talk a little bit too much, resting his eyes. He was resting his eyes. Alright. Now in fairness, when we had that conversation, as I recall, the context was that way back when, like for example, when I got when I had Facebook and Facebook went public, the urge was just to sell it all. And so I think where we landed on that was don't sell 100% keep. 20% keep 50%, but that was you personal schmuck insurance, basically. Yeah, but that was for you personally as an investment. What about you as a fund manager? Yeah, I think for me as a fund manager. So I think we, I think we did a pretty good job over the last six months distributing out a some gains, some realizations. We actually pay back our whole first fund, but in our second fund, we had about 120 million of a firm stock and we were sitting on it because we believe in the company and still do and we're still sitting on it. And that was that was like $100 million mistake. So, right, so I think you know what's not true from now on, my honestly, my answer from now on is probably gonna be distributed. So my first chance to actually return any real money to our LP's. Was when Slack did our direct listening. And it was like, you know, there are three or four of us on the board, me, Andrew, Bratchett, Excel, John O'farrell, from Andreessen to independents and Stewart and. They had gone through a couple of direct listings before bringing our bankers, and they go through this whole rigamarole and I remember being so amped up in the whole thing and I thought, oh, I believe in this company, I believe in all of this blah, blah, blah. Long story short, the point is I held the stock, I didn't distribute it, the pandemic hit I then distributed in sheer panic and we left a lot of money on the table that I could have just booked the win for the LP's and then from that point I said never again. I'll hold it for myself, but the minute that I get a distribution, if I'm in the business of managing money for other people, it's out the door when it's liquid and I'm not going to take, I'll take, I'll be happy to take a point of view from my own shares, but God, I felt so. I felt so stupid. I took a 50% loss trying to be a hero, I mean, and then also we we have the issue of selling and secondary when those opportunities arise and we all just watched the we crashed documentary. Which one of your partners plays a role in? I don't know, obviously it's probably 5. Present reality but. Benchmark did make a pretty amazing trade in selling Wework shares early in booking. An enormous win. Correct though, correct. OK. So, so just an alternative. Let me just wait, what's the answer to the question? Yes, I was gonna give you, it's gonna actually answer secondary option. So, so the to me the most important thing is tell your partners what you're going to do and then do it because you're making a deal up front. So for us the deal was if we invest in something in our venture fund and it's real. And it's realized, it goes public. If we see venture like returns which we define and they with them as two to three X / A three-year time horizon, we will hold. If we don't, we distributed. Last year we distributed over $6 billion which was more than all the venture we raised in our first five funds. Why not because I didn't like unity or I didn't like Snowflake. Everybody knows how we feel about these businesses, but because we realized that according to the deal we had made. With our partners the framework was triggered and the second thing I would argue is because people are talking about permanent funds now and all this that I'm not sure that's the deal people made. Yeah for me if you're an investor or limited partner in our fund and you want to hold on to it then also invest in my hedge fund because there we haven't sold a share of snowflake. But that is a different liquidity profile in a different what I was getting to Bill and just let's put work on the side just in general when the opportunities. I'm pretty firm to do. A secondary arises. What's the right rear? I mean that's rare for for, I mean for an Angel, I think it's very different. But it's rare for a venture firm to meet a secondary that has the the firepower to absorb the type that was Massa. I mean that was very unique situation. We typically distribute over three to six quarters following the lockup release unless there's something systematically. Yeah, yeah. Dollar cost average, yeah. There there were many, few exceptions. We took OpenTable Republican 09 at a very low value knowingly at a low valuation and I held that until we sold it to booking but because I felt the network effect was there and it was gonna keep compounding and that kind of thing. And look if you I mean look clearly you know with Bezos has done or Zuckerberg like if you think you're sitting on one of those and you I mean you have to ask well those are two. Yeah well I know I know but if you think you are like you know. Maybe. Maybe the Coleson brothers or another one? It if it's gonna play out the way those did, you're gonna wanna hold it. Google. But they're very rare. Have you and your partners watched both? We crashed and the dropped out. I can't speak for all. I've watched both of you. Watch both. Umm. I think that, well, I don't know about accurate because I I only, I don't the we super pump was not accurate just because they made-up a lot of scenes like Drummond wasn't very active at all, but he's in a lot of the scenes so a lot of them were made-up. I think Leto did a better job of showing you who Adam Newman is and really got into the character. Incredible. He's so good as an actor. Yeah. And accurate. Yeah. To your. I mean, having met. Yeah. And and equally on the other side, I think that Travis and you know him well, is is way more nuanced. Is is one of the Grittiest hardest working investors. I mean founders I've ever worked with. He's super intelligent. He can be really charming. And those dimensions weren't explored. And the characters. Right. Which I think is unfortunate. I remember you telling me this was, I don't know, in the height of we work. You said chamath. This is the single greatest salesman I've ever met. Him. Yeah, you told me. You told me also about Adam Newman. You said the first time Adam Newman came in, you and your partners, he left the room and you guys looked at each other. You guys were like, we just have to invest in this guy because he can. I said when he comes, we should never invest in real estate and we have to do this deal. Yeah. What? What, what? Let's let's ask Brad a question. No. Well. I watched the Jane and I were watching. We crashed. I watched the first two episodes and the only thing I could think of Bill was what's Adam Newman's next company and where do I send the check? Because I think he already. Well, I don't know. Yeah, he's got something brilliant. I have a question for Brad. So, so let's I wanted to go back. You know, I've been up here for like 8 hours today, Jake. I don't know how much more you want me to do. I'm exhausted after an hour of these things. I honestly don't know how you do it. You have a round before. We've been hearing people for like 10 hours. I'm like done after an hour and a half anyway, Brad. So let's go back to the 100 times AR multiple. So people are paying last year because these investors, you know, with the benefit of 2020 hindsight, they may look kind of sheepish, but we know these investors and the pace car setting, the evaluations for the whole industry, you know, as these big giant hedge funds, we all know who I'm talking about. They're super sophisticated people. I mean, you know, they're. Been very successful investors for a long period of time. You know, what's the word used when we talked about it privately was gaslight. Gaslight that. You know the market was sort of gaslighting all of us into thinking that the public comps for these companies was were much higher than they were. Is that why it is that behind the psychology of why these very sophisticated investors made these big mistakes or how do you explain that? Yeah, well, I I think there's. A massive amount of research that's been done that Buffett and Marx and many others have quoted that your ability to calculate risk goes down when you see a bunch of other people doing that thing, right. Because your body, your mind's telling you, well, I won't die because I'm just doing what those other hundred people are. That's why there's herd mentality. That's why the lemming effect, confirmation bias. Confirmation bias. And so it's not that, I mean, you know? You didn't name them, but tiger, right? We know them, they're great investors, et cetera, but you had to understand they were playing a different game. Right. And so when people who were building portfolios of 20 names, we're trying to play the same game as a firm building a portfolio of 400 names, right. It was like trying to follow, you know, SoftBank in 2017. So I'm not, I mean, listen, we all thought Masa SoftBank was going to be a Wipeout in vision one. It wasn't right now. I know he just had a huge recent mark. We'll see where it ultimately settles out. So I mean I think from my perspective. You know, like Bill said, you get forced onto the field. There's a certain amount you have to do to stay in the game to have the conversation. But listen, as far back as you know, last April we were sitting around the table on Thursday, Thursday at your place saying this can't continue, right? And then in the fall it was Bezos's selling, Musk is selling, like all the signals were going off, right? And so I think you have to know the game that you're playing if you're a seed investor. An early stage investor doesn't matter what everybody else is doing. You you have an obligation to play a differentiated game. And what I would say today is if somebody calls me up tomorrow and says, hey, Tigers doing this deal at 75 times, AR do you want to do it? They would have to pry the dollar out of my ******* hand with a crowbar. I'm not risking my money or my partner's money doing something that we're not underwriting. You know to no, I'm willing to underwrite, David, to that five year average. I think what you have in the market now is a huge opportunity because people are in a fetal position under their desks, scared that the world is forever changed because the CEO's of big banks go on CNBC and start hyperventilating about deglobalization and hyperinflation and all this stuff. And not one of them is actually build a model and, you know, deconstructed the components of CPI. I think they're much more likely explanation is that the trends that existed for 20 years still exist. They were interrupted temporarily by us saving ourselves from a catastrophe with COVID. The transient thing that everybody has come to make fun of, right, transient can be a year, two years, three years. We will look back at this graph and that inflation will roll over and I suspect that those trends will continue. So I'm willing to underwrite to that. But have you told me you thought inflation was going to be 5% for the next decade and the tenure was going to 7%? I would say short every tech company, every company in the market. No, no, short everything, short everything in the market. And don't invest a dollar in venture until you have line of sight and the market is repriced it. That's what the market is wrestling with right now. We have some people who are saying, you know, it's markets abhor uncertainty and you have peak uncertainty. We have a war. We have. This is the hardest forecasting job in my career. I'll shut up. You have filibustering, but you know like that is you know, I think that is the ultimately the question if if you're a founder or you're an investor, what are you willing to underwrite? Yeah. And Bell, what, what are your thoughts in terms of early stage? And yeah, that's exactly what I was thinking, like me too, he said, he said don't take it like if if we, we, we love to invest in two people in a PowerPoint. Like if if that investment can happen today and all, it doesn't matter, it doesn't matter if the inflation pops or interest rates go up, it won't affect, it might work, it might help, yes, because you're hiring people at town half price, right? And and there's less. Competition. I mean, my biggest problem of the past six years was hyper competition. Like finding a CFO? No, just not just talking. I'm talking about like, ohh about Uber and Lyft and like hundreds of billions of dollars of money raised in the private market and shot onto the playing field out of a cannon. That's brutal. That's that's not happening if inflation's going up. It doesn't. It doesn't allow the market to really sort out the winners and losers properly because the the companies that should contract get propped up for a little bit longer. There's some talented people in those companies that don't then end up in the right home. You know, I said this last week, the most transformational moment in our company's history at Facebook history was during the GFC because of the fact that there weren't any other alternatives to go and work. But by the way, I found and and I shared this with my partners other day. I found through my career which wasn't. For decades. But OK over the the window after the correction is the calmest where there's at least anxiety, for me at least. Like everything slows down. People talk rationally, people aren't doing silly things like a walk on the beach. There's a lot more. There's a lot more communication that seems rational and pragmatic. Well, and you can also maybe get to know a founder, understand the business over three 4-5 weeks and make a decision as opposed to three 4-5 hours. And they tell you, hey. Term sheets, when people think more unit, like, think about unit economics in a more reasonable way and you're not, you know, this is This is why I mean the two of you invested in Uber. I know because we've had this conversation. Well he mentions it pretty you're too humble to take credit. I do get it for $25 million valuation. But, you know, Bill's talked about, you know, benchmarks legendary for investing in eBay. And it was winner take all all, winner take all. And I suspect that when you invested in Uber, you saw similar network effects. You said, Oh my God, an even bigger market. This is going to, this is going to be winner take all. Unfortunately, what you didn't plan on was Massa. Grading Saudi Arabia getting $100 billion of free money and then blowing it out of a cannon into the market so lifting everybody else could do dis economic things and literally for did not foresee that for seven years. The confetti cake. So the entire profit margin of Uber was competed away by stupidity. And you tweeted last week, and I noticed it because Jason and I may have a little something on the line here, you know, with respect to Uber. The first time you tweeted after their quarterly earnings, maybe we're starting to see network effects show up at Uber. Because if you listen to the Lyft call, it was a train wreck. Decade. What what that money did was it made those businesses what we call the consumer surplus. Meaning what is a consumer surplus business? It's when all you win, nobody else wins. The employees don't win. The shareholders don't win, the investors don't win. Consumers win. You're getting subsidized rides you're getting. Edited food delivery. You're getting some subsidized form of content and there are these consumer surplus businesses that abound right now that's still exist, which are propped up by dollars that aren't being that they're not being allocated because they're competitive. That's just because they had to leave negative unit economics to drive growth. I mean, live said on their call that they were going to continue subsidizing, in fact, they're gonna increase, increase their coupons. Well, the plane, yeah. To his mountain. Yeah. Sorry, Bill, I just wanna ask you, the negative unit economics and drive growth trend was a big one for the last eight years and it certainly seemed to have played out at Uber, but a lot of other delivery companies. Do you think that as a strategy, assuming capital availability, negative unit economics to drive growth and then once you have the network and once you grab the market, you make money is a reasonable strategy? It all depends on whether you can rein it back in or not. And, you know, I think DoorDash did an incredible job. I think Jeff Bezos did an incredible job back in 01. I think if, if if 50 entrepreneurs try that trick, 49 are gonna order by the way you want. That's by the way that's the best. That's. I think that's such a key take away. Well, there's another, there's another part about it. You can only pull it off as well as if in that moment you have an effective monopoly, which Bezos effectively did and Tony did in those markets where he was operating. Nobody else was competing in Palo Alto, CA, and you know, well, they weren't competing the way he was. They weren't. Yeah, for sure. I have a, I have a question for the two of you guys. What do you guys think about something like Instacart in a moment like this? So 40 odd billion dollar valuation maybe gets reset to 24. Who knows how to go public. They filed to go public confidentially. Are you guys investors? I'm, I'm not. I'm not, no. So candidly, what are you, what's going on here? I mean I think it's a provocative question because you have a business that's raised a ton of capital that was born of the air that we're talking about that probably did things that were unnatural. It were if they weren't negative, you know economics, they were close and they talked about it because they would say. Obviously we're gonna roll in advertising and then that's gonna bring us. I got. I got in trouble once I was, it says on Bloomberg. So I think you can find this clip, but I was I was talking to Emily Chang and she said something to the effect of. What, did you just see this latest Sequoia around? And I said, and I made this joke. It was a complete joke. It's not true. I was like, yeah, I went to Instacart. I bought 1 Mango, had it delivered for free. Then I bought a second mango. I sent an e-mail to Doug Leone. Thanks for the second mango. What a douche. I bought 4 grapes and I said I, I consumer surplus. I would say get 4 grapes whenever you want. It's hard to, it's hard to judge a company from the outside because you can't look at the financials. But from the product experience has evolved over a very long period of time. It's actually. Pretty good. And I I suspect there's an asset value there and whether that can match up with what someone can afford to pay it, right. We got, but I think we got we gotta wrap. Bill, just final question here. Wait, wait, wait. Hold on. You want to know where the profile is this year, which is where the markets are? Alright, Brad, where's the market going to be at this time next year? With that, we will be higher for growth stocks this time next year, but we may very well get there by way of lower and potentially meaningfully lower because the counterfactual to the hyperinflation argument is not. You can't deliver the counterfactual for at least four to five months. The facts don't exist until we actually see the facts play out, but my suspicion is we return to trend. Things become more predictable and investable again and we bounce back up to the five year average. Alright, back now for you Bill's final question. I don't get that one. No, too easy. You can't answer it if you like, but I got a more important .385% higher, OK? I know you're not going to answer it, so I got a better one for you. You you're not in the next benchmark fund. Essentially, that means retirement of the Spurs. Now the markets down. You seem like you're a little bit bored. Are you going to get back into early stage investing, yes or no, and are you missing it? I think I don't know what that was. I I think I I I might get intrigued with doing Angel stuff the way Bezos did. I don't think I want to practice the art taking board seats. I'm still on 10 that that I'm serving dutifully and and I've played that game. You know, maybe similar to what David said about operating a business founder. They got a good idea. You vibe you put in a 500K check? Yeah. I'd be open to that. You wanna, you wanna tell, you know, I'm very excited. Public stocks here, actually. Really? Yeah. Continues right about what public stuff like like the valuations are creating super in such great deals. Super interesting. Yeah. You wanna do your bill Gurley imitation? Oh yeah. You guys gotta hear this. Poker at the poker table. Jay cat. Jacob. It's a great question. I have to stay out here for this. Yeah. I've been investing for the better part of three or four decades, including the four and ten boards I dutifully served on. The time I shove it all in with kings chamath sucks out on me with a 910 suited, and that's just my luck right now, so maybe I'll just look at the public market. I'll just have the liquid. I'll be liquid. Ladies and gentlemen, BG squared. She squared babies. Let your winners ride Rain Man David Saxton. We open source it to the fans and they've just gone crazy with it. Thank you. Besties are gone. My dog's driveway. Ohh man. We should all just get a room and just have one big huge order because they're all just useless. It's like this, like sexual tension that they just need to release somehow. Beep. Beep. What? Where did you get mercies? I'm going.