What's up, everyone? This is Anthony Pompeo. Know most of you know me as pomp. You're listening to the pump podcast. Simply the best podcast out there. Now. Let's kick this thing off. David Sachs is a world-renowned entrepreneur and investor. It's part of the PayPal Mafia. He started and sold Yammer for over a billion dollars. And he also is now, one of the cofounders of crap ventures, in this conversation. We talked about everything going on in the world, from the macro, economic landscape,
to the Federal Reserve
interest rates inflation.
Free Speech, the importance of technology industry, Bitcoin and much more. I really enjoyed this conversation with David and I hope you guys enjoy it as well. Before we get into this episode though. I first want to talk about our sponsors. Today's episode is brought to you by copper since 2018, copper has been at the Forefront of institutional digital asset development from award-winning custody solutions to creating the first truly off-exchange settlement function, copper Pioneers technology products and services in lockstep with the rapidly changing.
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Alright guys, welcome back to the best business show. I'm super excited today, special episode. We have David Sachs world-renowned entrepreneur, investor everything from founding CEO of PayPal founder of Yammer where CEOs. And if it's for a while, founded craft Ventures where I think it's what you spend most of your time doing today. And just you've got a bucket load of experience, both as an investor and a founder and very excited to have you here.
They start great to be here joining us. You're here in Miami because the all ends Summit. I guess. My first question is you've got your three, maybe knucklehead friends who you guys start a podcast. And now it's one of the most popular podcast in the world. Did you expect the all in podcast to be what it
became? No, definitely not. I mean, it's been a huge surprise to all of us and I mean, I didn't even set out consciously to create the Pod, what happened is to Martha and Jake L started doing the Pod and then Freiburg. And I were the first to guess.
Yes, and then I think by the third or fourth show we did up so at the four of us and the chemistry felt good. So we ended up kind of that became the foursome. And yeah, it turned out to be this sort of sensation. I even realized how much people are into it till we did this event. It was pretty incredibly had 700 people come from all over the world to be with
us. Wow, and at the event it seems like there was both what you would expect at a Tech Conference of kind of hey tech technology optimism and kind of this stuff can help improve the world. But also at times there was like
Contentious debate and respectful debate, but talk a little bit about like why is that so important? I guess at an event like the Olin Summit and even on the podcast sometimes, you know, you guys go back and forth and definitely different viewpoints on some of these topics.
Yeah. I think, one of the things, I think, one of the reasons for the success of the Pod is that we're friends the, it's the conversation is civil, but we're able to disagree with each other and frequently, we do disagree. We have political debates and they don't necessarily break down into easy categories.
Freeze, I mean, Jake. Al and I are usually an opposite sides but we're free. Bergamot will come out. Will vary quite a bit depending on the issue. So it's unpredictable, but it's a debate and, but it's civil. We're all friends. And that's a model. You just don't see anymore. If you turn on cable news, there are no debate shows anymore. I mean, 20 years ago, all the political shows were debates, you know, but you don't see that anymore. It's basically people talking to their Echo chamber and I think, you know, seeing the return of that kind of civil discourse.
Important. Why did the cable news all become non debate or kind of echo chamber based, right? Like and I think I'll keep you to this is like you've been talking about the same stuff for 30 years, right? If if people go back and you can read books, you can go look at some of the things that you and many of the people in the PayPal Mafia wrote even talks that you gave early on in your career. Why has the world changed so much? But many of you have stayed just so steadfast in. Like, this is our message.
It's good question. It may be some of it.
It has to do with the economic model of this news media where they've kind of moved to this subscriber model. And so the goal seems to be to give subscribers more of what they want. More of, what sort of flutters, their prejudices or the preconceptions. Their biases not to challenge, you know, the world view that the scrubbers already have. And I think you saw this for example, with the New York Times and a lot of these traditional Publications were really struggling until Donald Trump came along. And then they kind of
They themselves as the resistance and whether you're for or against Trump is sort of beside the point. The point is that the media chose this sort of activist model, that was designed around, trying to appeal to certain kind of, subscriber base. And, and in the process, I think they sort of gave up their objectivity or at least or pretense of neutrality. But certainly, yeah, you just don't see the type of debate anymore that you used to see, you know, when I grew up, I mean, Gore Vidal's.
All versus William F, Buckley was sort of before my time, but you had shows like firing line with Pat Buchanan versus Michael Kinsley. You had McLaughlin group, you had like, all these shows where people will debate each other and it was relatively civil. Now, you don't have the debate and it's certainly not
civil. Yeah, when you think about something like the all in podcast, I don't think any of you would position yourself as a journalist, but obviously there's a lot of people who consume that context. They want to learn, they want to actually get information as to what's happening in current events. How different is that, actually? Then some of these
Companies where people are, you know, hiding behind or kind of position themselves as journalists? Because it now, everyone on the Internet is a content creator. Or is there still a big difference in your
opinion? Well, I think we have this epidemic a fake experts, you know, people who claim some sort of expert status as but really, as a way to shut down the debate like, oh, you don't know what you're talking about. I'm an expert. So just listen to me. I think if you're an entrepreneurial type of person that sort of appeal to Authority has never worked, you know, founder.
Hers, always start from having an idea. That's either contrarian, or no one's really thought of before. And this idea that, oh, I need to listen to what somebody else says, automatically without consulting. You know, my own, my own ideas, my own worldview, because there's some sort of expert. I think that's never been compelling to people in our world and but that's kind of what you get, a lot of in the traditional media. Now, I don't purport to be an expert. I'm just a consumer of information.
But what I try to do is go out and research the topics that we're going to talk about on the Pod and formulate, my own View and synthesize material from people who I find compelling or convincing and then I repackage it in my own way and then sort of, you know, sort of talk about that. So and then people either like it or they don't. But yeah, that's that's why I try to do
and how important is that you actually have skin in the game. I think another piece of this is like, you know, a
list or a blogger whoever on the internet opinion, whether it's right or wrong, kind of there's no feedback loop. There's no accountability. Just move on to the next, you know, hot take or prediction versus the market participant, whether it's not printer or an investor if you're wrong and you put money behind it, you lose money, right? Then there is that kind of feedback loop. And so is that play an important role as well? In terms of the way that you think about the content that you guys are
producing? Yeah, certainly when it comes to all the business topics. We do actually
Skin of the game where participants the ecosystem were discussing business strategies that we ourselves are implementing. And so there is Market feedback on that and if we're wrong, then we will pay a penalty. You just don't see that, you know, in the in general in the news media and there seems to be no penalty for being wrong. It just seems like we just move on to the next topic and there's never a comeuppance for the people who are so tragically wrong, about what the last issue was. You know, where was the comeuppance?
For example, for the foreign policy establishment that got us into the Iraq War and got us into a losing effort in Afghanistan for 20 years. I mean, these people are still in the government. There's just, no, no heads of rolled. Even the Bosch withdrawal from Afghanistan. No heads, rolled for that. There's no accountability. So there's so many issues like that the the lockdown. So he pursued during covid. Now, everybody, I think has sort of admitted that they're wrong. There's a video going around of Bill Gates, basically saying they didn't work.
So even the people who are advocating for them at the time now, admit, they were just tragically wrong. Basically crater our economy didn't, stop the virus. Where's the comeuppance for the people who promoted those policies? I think there will eventually will be hopefully at The Ballot Box, but certainly in the media. They're not holding everybody
accountable. Yeah. Well and I would even argue that many of the people in the media, don't believe that they didn't work, right? They still would Advocate that there were important and in some ways that we should still have some form of these things. When you talk about this, like,
Like fake expertise or this appeal to expertise. It just makes me think of the time when thought she was doing an interview and he basically said, like I represent science, right? And and that's one example of many, I think in society, put like it is important. I think to have people who are not Market participants commentating Etc, but it does feel like podcast Twitter, and many other forms have. Let the market participants not, have a voice and in some cases, you know, if you look at Elon and some of these folks who have tens of millions of followers on these platforms.
Your voice then. Even some of the media companies. I think I saw when Ilan went to go buy Twitter. I went and looked and he'll on has double the number of followers on Twitter that the New York Times has and Twitter, does you know much more Revenue than the New York Times does and so, like, in some way, do you get the New York Times is now a competitor with Twitter? And if he'll on owns Twitter, like are you just a billionaire? You know, are you employing people at the New York Times as a billionaire to attack other billionaires and like vice versa? Like, how do you think about
that? Well, I think that the
traditional media has had a huge animus towards social networking for years because social networking has not only stolen all these page views and all this attention and engagement away from them and thereby turn their analog dial dollars into digital pennies. Remember that? That old saying so dramatically impacted therapist, small for the worst, but also is disintermediated them. I mean, the only time I ever go to the New York Times is if somebody who I like tweet something that's interesting that
to a New York Times article, so the power and influence of these Publications been dramatically reduced by social networking and that's why you've seen basically this war on social networking and the form it takes is basically these claims that you know was primarily Facebook last year, you know, creates all these harms on society and therefore we need to regulate and restrict and some sort of them and you know, it's pretty striking that you see Publications who
Who were are supposed to be champions of the First Amendment? Because that's the principle on which their whole businesses build. Now advocating for some stringers and restricting these
platforms. Yeah, talk to me about the members of the Alden podcast. And the last thing we'll talk about you and Jason like each other. Are you exactly friends? All right. I think a lot of people think your friends but the middle. So the podcast like man, they're always at each other's throat to some degree.
Yeah. We also agree on a lot of issues and
The way I kind of see it. So whenever there's an issue that Jason can see with his own eyes and hear with his own ears. So for example, San Francisco, we agree about like everything that's gone wrong in San Francisco. We probably vote the exact same way, you know, in elections and so on. But when it comes to things that are far away, Jason relies, I think to a great extent on the traditional news media for his views and so on the Pod, he's going to represent, you know, like the
Ryan, Stelzer opinion or something. And so this is why we end up getting in disputes is. I'm like dude, you just repeating the same bullshit narrative that, you know, we get in all these other places. I have to correct you on that. And then that starts a debate. So we do agree on a lot but that's where things go off the
rails and obviously, you're incredibly kind to him the entire time as well. When when you think about somebody, the people that you grew up in your career, right? As I was pronounced an investor, they've gone on to do amazing things. And and
Them are still very publicly known and even participate in the podcast all that, but many of them also, just are busy building companies and people know about them, but they don't necessarily go in the media all time. What's your relationship like with that? I think a lot of people say like, hey, there's this group of folks from the PayPal Mafia that are all super, super successful. Like, do you guys have a secret chat? Where you're all did constantly talking to each other. Is it just as normal friends? As anybody else would have liked, what does that relationship look
like? Well, there were pre-existing friendships before the PayPal Mafia that brought the team together.
Either, you know, one people the one misconception about the PayPal Mafia is, people think it was like some sort of very exclusive club. And the reality is we recruited our friends because nobody else would work at the company. Yeah. This is go back to 1999. It was like much harder than 2000. After the.com crash. It was much harder to convince somebody to leave a safe well-paying job at an investment bank or management, consulting firm or a law firm to come work at a startup that was still seen as incredibly risky thing to do when I joined PayPal.
Everyone try to talk me out of it, including your mind from my parents on down. If I had known Peter teal and then friends with him. I never would have taken that risk and so on down the line. So, Peter recruited people he knew from Stanford, Max recruited people. He knew from U of I. So, yeah, I mean, so there are a lot of pre existing friendships and then the experience of going through these PayPal wars together, you know, I'd say generally
Those friendships even more. Now. It's not like we hang out with each other all the time and it's not like one monolithic group, but we do tend to see each other from time to time in various
contexts. Yeah, catch up. And why is it that you all were friends before? Like, is it just you happen to all end up at Stanford or U of I, or was there some common threat late? Like, what brought you all together? Because I think a lot of people look around at their friend Circle and saying, college. And they're like, man, I don't think Elon Musk is hanging out here, right? I don't think whatever like what
What brought you all together? What was like, the selection mechanism that you kind of would attribute how you all ended up together?
Well, so max recruited his engineering friends of U of I. So I think that was pretty straightforward and then Peter recruited a number of the people he was friends with. And, you know, Peter had started had founded the Stanford view, which is sort of the conservative libertarian student newspaper on campus. And I had gone on to become an editor of that paper. Several years later. So, that's how we met. So, there was this libertarian
Strand to the founding team. And so we were all and that was sort of like this contrarian Libertarians tend to be, not just contrarian, but also sort of free market. And so there was a certain sense in which everybody was cut from this sort of entrepreneurial cloth. Now, it's not universally true, you know, like Reid Hoffman was not part of the Stanford review in
Fact he was sort of On The Other Extreme, it more liberal and he still is to this day, but he and Peter used to have political debates or discussions in college. And then that's how read, you know, end up being recruited by Peter. So it's not universally true. But there was something to that that the founding team were, you know, like given the sort of the prevailing College, the prevailing culture on college campuses at that time, which was sort of this whole political correctness thing. We were
Balls against that and I think that Rebel mentality translated well into becoming Founders and entrepreneurs. Once we
graduated. Yeah. My last question for Jason current events is let's say that liberal libertarian conservative Viewpoint in the 90s. Would you consider yourself a Libertarian, a republican? How do you kind of label yourself? If you had your put yourself in a box today and like, did that change over time? Or is it always been kind of the same box. You put yourself in throughout your life.
Yeah, I guess when I was in college, you sort of figure out.
Where your political views are and how you would categorize them? And yeah, I would say I was more on the libertarian and of the, the Spectrum, you know, during the like, let's say the Reagan Era. The the conservative movement was sort of an uneasy Alliance of a few different groups. You had sort of free market types. Allah like Milton Friedman, you had social conservatives and then you had sort of anti-communist, you know cold warrior.
Oops, and and I guess the group that I identified myth with the most would have been more on the free market economics. I but I also agree with kind of the reaganite approach to peace through strength, but in any event and then, you know, after the Cold War ended, I think the political category is got reshuffled a little bit and and so, I would say, you know, My Views today have evolved and they're probably a little bit more in a populist.
Ian and we can delve more into
that. I will explain a little bit more. Well,
so if you look at what the big political divide is in America, if you're actually pull people about their political views, the number one predictor of where someone's going to fall in the political spectrum is whether they have a college degree or not interesting. And so if you actually look at the views of people who are in the professional class, IE people have a college degree is radically different than the views.
By and large of the working class, which is people. But just say a high school education and that is the fundamental division in this country. Now, it's not universally true. There are plenty of people at the college degree like me, who have more, let's say working class views and then vice versa. So, but by and large that's the division. And there's a whole host of issues where the professional class is very much out of touch with what the working class things and the
The political scientists who actually I think has developed this. The most is a guy named Roy to Shara who everyone should really check out his sub stack of your instant this. But he's been doing work over the last couple of years for of documenting this and showing the polling and so forth. He remember, he is the author back in the early tooth, like 2002 of a book called The coming or Democratic majority may be emerging Democratic majority, in which he predicted that demographic Trends would result in.
The election of democratic presidents as far as the eye could see. And he was then pretty much considered a prophet because Obama then got elected in 2008 building the type of Coalition that to share a describes in his book. Interesting. So something but lately over the last couple of years and to sure as a Democrat wants Democrats to win. He's been warning. The party you have gotten way, too far left on socio-cultural issues, like, for example,
Censorship. But as one of many and the reason is because you stopping at working class party, you are now a professional Class party. You cater to the views of professional Elites. And but but, but you're speaking to yourselves your speaking increasing to an echo chamber because you are out of touch with the rest of the country. And so, for example, he very much predicted, something like the election of Glen Duncan in Virginia. Remember this estate.
That is pretty much a blue State now, Virginia Biden, won the state by 10 points and 2020, and one year later, young can wins by two or three points, 0 12, 13 points Wing. Why on issues like schools, you know CRT, you know, wanting to provide putting the parents back in charge and providing kids with a high-quality non-ideological education, you know, this is the type of issue that really sets off most Americans, but
You know, the elites, the professional class is deeply invested in this idea of CRT, just take like one example where there's like a very big class divide on that issue. So to share our has been warning about the way in which the Democratic party. He calls a professional class of Germany has been co-opted by the professional class. Now, what's happening in the Republican party is really interesting. The Republican party is in the process of transforming itself into a working class party, very different.
Then what historically? Been historically, Republican party was more like a chamber of commerce type of party. Now you what you see with this more populist Edge to it is, is trying to appeal to the working class. Now a lot of you would say it's fake, you know, it's not real but that's kind of what's in the process of happening. Now, you know my theory about why there is so much contention and divisiveness in the country. What we all Feel The Strife is because
If you look at just numbers thirty, something like 37 percent of the country has a college degree as professional class. 63 percent is working class. Okay. So the working class has the numbers in a democracy, their views should Prevail. Yes. And yet the elites run every institution from The Prestige media to Hollywood to Wall Street, to the Fortune, 500 to the foundation's, the nonprofit's, the think tanks, the big, you know, even the big funds.
Obviously those are all run by people with college degrees. And so the professional class had Germany that to share a talks about the Democratic party. Also exist across the board in all these institutions and so by and large, you have this phenomenon of institutions in this country being out of step with what most people believe and trying to push an agenda on them that the rest of the country doesn't support. That is finally The Divide and the friction in this country now,
You I think what I've described is just objectively, the case of what's going on. You could still be a member of the professional class, and still think it's a good thing that the Fortune 500 is pushing. Whoa, capitalism, or Twitter is pushing for censorship of ideas. They don't like and so on, and they do. But I think fundamentally, this is the tension, is that the leadership of the country, not just the political leadership in Washington, but really much more deeply across the board of all of our institutions. They have users are out of Step.
Most of the country and I think how we resolve that tension is the, that's the political issue of our
time. Yeah, one of the things that, as you're talking immediately, jumps to mind, is you've probably seen the the phrase of the meme of Good Times. Create weak men, weak men, create bad times right back time to create strong men. And when I think about this there is this like bifurcation, I think economically as well where we have a country with 45% of Americans have no investable assets. Inflation, obviously, right now is
A 40-year high. And if you were to talk to that professional class, I think most of the people would say. Hey, the last 10-15 years have been amazing, right? Pretty much since the global financial crisis, like everyone's gotten richer and richer, but at the same time we've actually seen is that that working class hasn't kind of been along for that ride in the same way and really they've actually gone the opposite direction. So you kind of get this widening divide, how much of the economic situation plays into some of these thought processes and the transitions between the way that the
You know, kind of parties are actually transitioning. Is that a fair
way to? Yeah, I think they're it plays into it. Hugely. And I think one of the big issues are lost 20 years is the way that our trade policy basically hollowed out the industrial base of the country. You know, this is the the phenomenon of we brought China into the WTO and we gave them, you know, permanent, you know, basically mfn status. And as a result, we exported millions and millions of sort of middle-class.
Class working class jobs where people made things with their hands as opposed to knowledge worker type jobs, overseas to China and so forth that created or normous discontent in the country. And that basically is one of the main reasons why Trump got elected in 2016. Remember the, the Democrats thought they had this, what they call it the blue, the blue wall. Yeah. In the midwest, the industrial Midwest, the the Rust Belt and fell apart. It fell apart from absolutely shattered.
That wall. And one of the main ways, he did, it was appealing to the fact that really bipartisan trade policy or last 20 years destroyed, these Factory towns all over the Midwest. Now, I think that when you lose an election to a total political novice an outsider, who has so many characteristics that you would think would be disqualifying that the elite would basically start having second thoughts and asking itself tougher.
Questions about the way. They've been ruling the country and yet they haven't, I mean, the reaction 2016. Basically, was this hysteria that this TDS. And again, I'm not like in saying this trying to advocate for Trump or something. I'm just advocating for. When you lose an election. You need to have some sense of introspection and asking why that happened and how your policies might have contributed to it. I mean, the other big issue that Trump ran on were all these stupid Wars that America has gotten itself into it.
Last twenty years. And remember, this was a critique as much of the Republican party as the Democratic party. Remember, when Trump said no more bushes, what he meant, was no more stupid wars in the Middle East. We got ourselves into Iraq, Afghanistan, Syria, Libya, we spent over six trillion dollars on nation building in the Middle East and what we have to show for it. Nothing. They just hate us even more. The problem is worse than all these countries. You know, Afghanistan is back in the hands of the Taliban Iraq is basically now in a row.
Ronnie and proxy State, Libya is in chaos, and Civil War, Syria, Assad still running it. So all these efforts were for naught and but I think they along with our trade policy created, tremendous discontent in the country. Imagine if we had spent that six trillion dollars back here at home fixing some of the problems you're talking about. Maybe we wouldn't be at each other's throats quite so much as we are today. So you had these huge issues in the country over which discontent was bubbling over.
And, you know, instead of basically holding itself accountable, the elites of the country and its really again, bipartisan Elise who set these policies for two decades, rather, than having any introspection. They would blame. They blame the election on like Russian disinformation that somehow the Russians cause Trump to be elected that, you know, or somehow the country was shot through with white supremacy. That was the reason Trump elected. They never were willing to look in the mirror and understand the real causes. And what's happened since 2016. Is that these mythologies?
I have really only grown and so this is now what basically somehow has morphed into this, the censorship Crusade where, you know, started with this again, this idea that somehow, the Russians were responsible for Trump's election rather than these deep-seated issues in the country and that has now blossomed and grown into this full-fledged, the sort of content moderation movement in which we're going to take down and censor anything. We consider to be just for mation, which is basically anything that
People, the elites running Twitter. Think this is an idea. They just
agree with you probably didn't see it yet because it happened right before we get started this conversation, but there's now a report out that says the disinformation board is being paused and and may actually be permanently disbanded. And this
is on the Homeland Security
Department, correct? And so I think a huge piece of this. What, like to me and I'd love to get your reaction to. This is it feels like there's a sentiment shift underway and part of the sentiment shift is Free Speech, capitalism.
And kind of the building movement is coming back. And I think you see this with Jeff Bezos, all of a sudden now, he's tweeting and he's going pretty hard at the present United States. And he kind of to me was like, oh Michael Jordan. Hey Republicans and Democrats both buy goods. And, you know, I do my political views are nearly as
important speakers. Yeah.
And so, when you kind of think about this, it does feel like, you know, one of the worst nightmares for politicians is to have the best entrepreneurs of Our Generation armed. With Twitter accounts, willing to speak their mind and
To your point earlier about kind of the media. It used to be. You had to go through the media to get your voice heard. Now, if you can go directly to the people, it feels like sentiment will shift. It's almost like a pendulum has swung too far to the kind of woke capital and a lot of those things. And now it's coming back. And again, I don't think many people would Advocate like, let's swing to the Other Extreme. Right? But more of this Century, as view of, hey, businesses are put on, you know, in existence to solve problems, right? Like that's actually probably a pretty important part of the United States,
right? Look,
I absolutely agree that the whole country is red pulling right now because I think that the the censorship has gone way too far, the the way that the the far left sort of progressive left has hijacked, the vitamin istration people thought they were voting for some sort of centrism instead. We've gotten this like very far left agenda and then you have it again. You have this, this suggests this sort of cancel culture that people are really reacting to that. They're sick of, but you're right, so many people are red pilling. You've got Jeff Bezos.
Easily attack the administration elon's become so much more political on Twitter. He basically said it at the on some of the other day that he's going to vote Republican. He's never voted Republican before, but he's doing it. He's only voted Democratic because he said the Democratic party has been hijacked by a bunch of radicals. You've got, you know, like guys like Rogan who was a Bernie Sanders supporter, but you know, he's been read out of the democratic party because he is willing to interview people who have a differing view on that.
Vaccines for example, that's why they read them out and all of a sudden he was being accused of racism and so forth. So it's you have this very intolerant movement on the far left that keeps basically kicking people out. I don't know how they're going to win many elections with this philosophy. They have, but they're absolutely red pulling, you know, huge numbers of people. Now the Republicans could still blow this. Like you said, they could go too far. But yeah, absolutely. There's a huge backlash underway.
Yeah. The last thing I want is I dropped from a political standpoint is also. There's this like,
Label. Now, as long as you say something is right wing, you basically get to excuse the attack, right? Oh, we have to fear the right wing attack and and I don't think anyone thinks that right-wing extremism. Is any better than left-wing extremism, right? It's kind of again that this kind of centralized view. How do you think about what I would almost argue as either propaganda or marketing coming from these labels? Like, is this something that's always existed in public discourse and in the United States? Or is this definitely social media, kind of
Ting it and it's becoming more
obvious. Well, so we had a panel at the all in Summit that I moderated with Glenn Greenwald. Oh, Matt. Taibbi, and it was about this very topic. We're in the grew out of a remark that Jason had made on our pod that that he was actually having trouble. Recruiting left-wing people to speak because they would they saw these right-wingers on the program, right? Wingers like Glenn Greenwald and Matt Taibbi, and I was kind of laughing at this saying, you don't know who these guys are, you know, Glenn Greenwald broke the Snowden story. He's been a
System critic of the surveillance State. And the way it infringes our civil liberties, historically that was always a liberal position. Matt Taibbi was the the political writer at Rolling Stone who has basically a left-wing Firebrand who back in 2009 was writing, Y is knowing on to jail for the, you know, Global financial crisis that was caused by all these mortgage scams. You know, he basically laid some of the intellectual groundwork for the Bernie Sanders movement, the Occupy Wall Street movement. And somehow, he is now this like far, right?
Winger. Why? Because he doesn't agree with the narrative Orthodoxy. If you're willing to dissent in any way with whatever the current thing is today, then you get branded as being a far-right person and
have Ruben. I think is another one like this, right? He was a Democrat who eventually just transitioned over and said, I don't agree with this anymore.
If you disagree with whatever the current Orthodoxy is, you get labeled as being this like far-right lunatic, you know, Rogen's in that camp to Broken. Its this, an independent curious guy. But again, if you dare to have a thought,
That's unconventional or does interview the wrong person, then your branded this way. And look the common denominator is that these people on this sort of far left Fringe, but and it is a fringe but they hold tremendous institutional power because the dynamic we were talking about they want to end the debate. They do not want to have a debate. I think their views are very unpopular in the country and that's why so they would rather sensitive the debate. They want to have the right to declare that the other
Has engaged in disinformation. They don't want to just have a debate where they say. No. Listen, I think you're wrong. I think you're an idiot. Here's why. Here are the receipts yours. Bunch of fact, they don't have that kind of debate. They basically want the power to say. Oh, that other side is disinformation. We know the truth from on high. And so we are basically going to shut down the debate and say we can't have this discussion anymore. And you know, these labels are another way of doing it as a course of tactic, to basically try and punish people by ostracizing.
In order to shut down the debate and I think you always have to ask yourself. The question when someone is trying to use tactics to end the debate, why are they doing that? You know, if they can win the debate, if they have intellectual confidence want, they just have the debate.
How much of this falls back on this idea of there's a critical thinking crisis in America, like people literally don't know how to do critical thinking. They don't know how to do the introspection. Is it rooted? In our education, system is just the factory in just hey go through get the stamp and move on.
On or is it know, people actually have these skill sets. They could be a first principles think or they could be a critical thinker but they're choosing not to because they've already done the exercise and realize that they don't have the kind of intellectual, you know, accuracy to stand on.
I think I think the critical thinking problem is real and I think it stems from the education system. And the reality is we've indulged too much of this nonsense. That if you are required to encounter a view, you don't like that's somehow a threat to your safety. You know, that your psychological safety, if you have your
Expanded by a view that you initially were surprised by or disagreed with that is now forbidden. And, you know, we've seen professors all over the country basically get punished, you know, suspended and so forth or they, you know, they, you know, they have their their Podium taken away because they've got a few students in the class. You don't like some of you they heard. And then they complained the ministration about it and they say that their safety is being threatened.
Look, we heard the same thing. We hear the same thing on social media with the Rogan debate. You know, that Spotify said that. Well, fortunately they didn't kick Rogan off, but they said that, you know, we were very concerned about user safety. As if Joe Rogan was somehow, you know, somehow breaking into people's living rooms or something and turning on their sound system to his podcast and making them listen and and even the act of listening which somehow endanger them. You know, the whole idea is silly, but this is a type of
Language that is used again to silence the debate. They want to end the debate. That's the point of
it. Joe Rogan is a guy who smokes weed and ask people questions, which makes him the most dangerous man in America, right? Let's talk about the market economics and some of what's going on in Venture Capital 40-year, High inflation. I think right now the Federal Reserve is probably the most important institution when it comes to markets and they've kind of in control. It seems like over the last decade or so. It's just whatever the FED tells you to do. Do they tell you to go long and they're going to pump a
Prices like do it and shut up. If they say, hey, we're going to tighten just basically get out of Market or go short and let them do their thing is that healthy for markets to have the Federal Reserve basically being the driver of good times and bad times.
If the Federal Reserve did a better job baby. Okay, but I think they've done a horrible job in recent years. And so first of all, you had the the I mean does anyone at this point doubt that the reaction to covid was more damaging to the country than covid itself? Both?
Economically. And also, in terms of the restrictions that were imposed. I think there's abundant evidence. Now, for example, we talked about in the lockdown front that they just didn't work. They didn't stop the virus. They didn't do anything except plunge us into a very deep recession. And then what are the government do in reaction to that? They printed 10 trillion dollars. And so they flooded The Zone with money over the past few years, and then that eventually led to an inflation Spike Last Summer.
The FED in reaction to that. I remember the 5.1 percent inflation print last summer. Everyone was stunned by it, because we've gone for years and years with very low inflation. And the talk was always about whether we're in a deflationary spiral and that kind of stuff. And but the FED said that it was transitory, they didn't react to it. Instead. They kept interest rates low and they kept QE going to we didn't stop till the end of q1. We were still the Fed was intervening in capital markets to buy bonds to artificially, keep the price down as soon as we got that fire.
1% print, they should stop the QE right away, maybe take a little bit of time to assess whether you're going to raise rates. But the QE, why would you do that? You know, we clearly didn't eqe at that
point. I think it got to the point from where the data correctly. At one point, the Federal Reserve via all these actions owned like one in four Residential Mortgages in America. Well, I mean, just like crazy crazy stats, right? And if that's not the exact set, its directionally just such a ridiculous thing that you had a persistent buyer in the market and they weren't going to stop until
You know, eventually get over 8% and they're like, oh, maybe we should stop now,
right? Exactly. So, because the FED waited so long to react to inflation, it got worse, or now. It went like eight point, three percent or whatever. It'll come down just by virtue of lapping last year's Compass effect on a year-over-year basis, but it's still going to be there, but they reacted way too slowly. And now, the fear I think is, you know, pal just said a couple weeks ago that he doesn't see a risk of recession on the horizon.
I'm like, what are you smoking? You know pal? I mean for me, I really believe what they're saying. I don't know. But you know from where I'm sitting in Silicon Valley, we're ready in a recession, you know, and people are starting to act like that. And so I think we're headed for now for you know, pretty serious recession by virtue of the fact that again the FED left the punch bowl out way too long and then yanked it back. So violently that it's causing the real economy now to convulse and contract.
So yeah, I think that you know, the problem is that the FED just has gone all these decisions wrong and look the federal government hasn't been much better. I mean, it was about this time a year ago when the, the by demonstration on straight party-line vote passed. That last two trillion dollars of covid. Reliefs that / stimulus. The American Rescue plan and it was totally unnecessary. I mean, the economy was already coming back strongly from covid you had famed.
Investors like Stanley druckenmiller saying, look, retail is already 15% above Trend, meaning the consumer is fully back and spending their money. You don't need to pump and you had Democratic Economist Like Larry Summers, warning them. Don't do it. This poses, a huge risk of inflation and they said, Larry Summers, you're crazy. Didn't listen, they, you know, and that was basically the final straw that broke the camel's
back to be just a little basil. This, what basis has been
basically exactly a business is right, so, it's ridiculous to somehow now.
This inflation on Putin, you know, like the the Putin price hike, I don't think one's buying it, but it's not because of something Putin's doing over in Eastern Europe. It's because the fed and Congress the administration pumped, 10 trillion dollars. Now, this problem started before Biden to be sure, it's a bipartisan problem, but that last two trillion and and the FEDS actions last year magnified, this problem made it much worse. And as a result, you're going to get a much more severe correction to the to
What's happened in the form of a deeper
recession. It brings a good question of how independent is the Federal Reserve and I think if you look backwards, we had Trump tweeting at them about, you know, devaluing the currency. We obviously saw last summer, they continue this and how much of that was politically motivated versus, you know, economic analysis. And also going into the midterm elections are the political class going to be applying pressure to increase interest rates. Cut interest rates, you know, what can they do to kind of get a soft Landing going into this midterm election? Like how independent do you think that?
It is at this
point, you know, it's hard for me to know. I don't really have Insight on like how the inner workings work. The thing that just strikes me is that they seem very out of touch and, you know, it's like, I don't know, I don't have access to the data, they have access to, but I have access to sentiment. And I feel like the sentiment that I come in contact with. And for my opinions based on somehow. It seems more reliable than whatever they're looking at, you know.
Well, this makes a really important question. So we've ad nauseam over last year looked at all of the CPI data and things like, you know, take rent Index, right? There's CPI, rent index and it was showing that it was up to 34 percent year over year, but Zillow was at 9 or 10% apartments.com was up, you know, 13 14 percent. And so we started looking more like well, zillow's indexing methodology. They have access to, you know, 100 million data points or whatever in real-time and they're watching around the country as the stuff is moving versus the methodology for the sea.
Guys, like they just call hate thousand people a month, and his, hey, what's your rent? Right. And then we saw the tweet from Jack Dorsey, a couple months ago where he basically said, you know, hey High inflation is here or hyperinflation will happen or whatever language you use. People got very worked up about, but if you think about a company like square, like there's a strong argument that square has better data than the US government when measuring things like inflation. Because he not only has the consumer purchasing Behavior, but he also has payroll data. He's got point of sale system data Etc. Like is there an argument for us to take?
Take the data methodology and the analysis out of the hands of the government and have these private companies either open source, their data or somehow, you know, put out a helping hand in. Or are we? Okay still having Bureau of Labor Statistics, have people go to the grocery store or the pad and paper, or a tablet. Mike manually input the prices.
I mean, it's a good point. You're right. That Jack, as the leader of square, must have excellent data based on consumer purchases, but I would assume though that the FED has access to very similar.
So I think the issue was that they saw inflation is transitory. And that was the official party line that we heard starting last summer and it wasn't just the FED. It was also, you know, yelling the administration, basically saying it, but they were all out there with this line. You I never heard the word transitory use, so much until last year and then it took him. They never got religion about the nature of the problem, till the end of the year. So I don't the question is like, what was their basis for believing you?
Would be transitory as a because that delayed their. That was their excuse for delaying the reaction. And so we needed this medicine that they're doing now, but if the medicine could have been delivered more gradually sooner than you, it would have been the the asset bubble though. We had wouldn't have grown so much. So remember the fra theist time that I can remember in Venture Capital. Since basically, 1999 was the second half of of last year.
Really have 20 21 and that's when we saw like, for example, the SAS valuations go up to 100 times AR are and so forth. And I mean everybody will basically tell you that is that second half of last year was like it was incredibly frothy. Pasted appointment went really high for all venture funds valuations were really high around size of a really high. Look. If you're a Founder was a fantastic time to raise, but imagine if the FED had simply taken the position in the summer of last year.
That not immediately dismissing this inflation report and saying, okay, wait a second. This is going to be concerned about. We're going to wait and see what happens on interest rates, but we're going to pause QE. I don't think would have had this, like, huge asset bubble and the second half last year. And therefore, we wouldn't have the stock market crash that we've now had over the last few months. And again, I think this is the beginning of something of a, basically a recession because there are going to be more shoes to drop, right? This is the way it works. Is he sings Cascade out?
You can't have, you know, Charles had a stat which he read on the Pod. 14 percent of global wealth has been wiped out already this year from the stock market crashed 14%. You know, that the GFC, the global financial crisis in 2008 was only 18 percent and that was massive, right? So that gives you some idea of how much wealth has been vaporized. And, you know, my view on it is that when that much wealth gets vaporized so quickly that must have Downstream consequences in the
economy. Yeah. I'm ready.
To read you a stat. I didn't know this this our Wall Street Journal article that came out May 10th, and there's a woman Rachel wulff who went and she looks she said, how do they calculate the inflation? And so your comment about I would assume they have the same data. I assume that as well. There's 477 government workers, that literally every morning get a printout that says go to x grocery store and go get the, you know, tomato soup with low sodium. And there's in some cases, eight, nine, ten eleven page documents to make sure that the soup.
You pick up and make sure it's the right, low-sodium soup, the right brand, all the stuff, and then you put into a tablet and they literally go all around the country and do this.
Well, I think I can save a lot of time. We have a portfolio company called the data sembly and literally its it. Does this an automated way where if you want to know like the prices of milk or bread grocery prices and any like grocery store in the country. You just go online and you can see it. So I don't know why they're not using data sembly, we take them up.
A lot of times you get them more than 400 data points to. But beyond that. I mean, why not look it like credit card like card associations. Go talk to Visa, Mastercard, get some sort of data feed from them. And there are definitely data sources that provide that, yeah, that's nutty that they're still doing that in the pencil. And paper
when I read the article twice because I was like, this literally can't be true. But pretty incredible. Let's talk about Bitcoin. Bitcoin is a very interesting asset. I think in that there's people who make the argument it's the most macro a set out there as kind of the free market.
There's people who would argue that. It's an inflation hedge and it served as a great inflation is because a hundreds of percent since the start of the pandemic but it's down 50 plus percent over the last couple of months. Like, what are your views on bitcoin? And how do you think of that asset given kind of the macro backdrop?
Well, the thing that's interesting about Bitcoin it I've been in some Bitcoin since I think I first bought it in 2012 may be okay, and we invested in a number of, we're not a crypto investor, but we.
Did Express a thesis back in 2017. 2018 that we thought that crypto would graduate from being interbeing and a institutional asset class from being really more of a consumer retail phenomena. And so we ended up investing in institutional custody through a company called bit go. And we also invested in multi where the seed investor multi-point Capital, which was a crypto focused hedge fund. We basically believe that you know, that as crypto matured into an asset class you would need specialized fun.
Integers of which we were not really. I'm SAS investor. So but I'm like, but let's invest in these guys because they're focused on the problem. So we express a number of these views, and it generally has worked out very well for us. But any event. So, I'm interested in Bitcoin for a while and I think the transformational part of Bitcoin is this idea that we could have non Fiat money, right? We just as we're talking about what the FED. There is a huge risk of currency debasement when the government is in control and particularly, when you have the world.
Reserve currency, there's just such an enormous temptation to print money to finance your budget and you to rack up loans that become unpayable. We're at what like 130 percent of GDP. Now we own, we owe so we owe an amount of money greater than the size of our entire economy or our economic output. That sounds very hard to repay to me. So the Temptation will eventually be to monetize the debt away. Basically to debase the currency to pay for this debt.
That's always been a risk throughout history. And now, what Bitcoin offers is a different kind of currency where it's not backed by a government is backed by math, its back by encryption. And so you don't have to trust the government that there will only be 21 million Bitcoins. It's in the it's in the code. And so you just have to trust that that the that Bitcoin effectively won't be cracked. You know, you just have to believe.
That the system is secure, and I think a lot of people might over time gradually think that's a better form of money. Yeah,
and people did you guys start out trying to build kind of a separate currency, like a new currency? Or did you always want to go after kind of more of the payment system?
Yeah. So we is finally back in 1999. We had this t-shirt that had the PayPal logo on. It said, PayPal, the new world currency, but what we really meant, we were very much bootstrapped on top of dollars and
There were at that time, rival currencies. There's one called beans one called flus or whatever. Like will be. Goldberg was a spokesman for anyway, these, these companies have all died. No one remembers them anymore, but we competed against them in the late 90s. And the way that we want is we were like, look, we don't need another currency. We have the dollar. The dollar is the world's Reserve currency. We seem to make it more accessible. And so what we meant by the world, the new world currency is creating a dollar base system, that was accessible.
Oil anywhere in the world online and, you know, one of the things we did very early on was was open the site up to other we internationalized. And so people could basically start moving their net worth and to USD, kind of the way they move. Their net worth individual coin today. So but there were some similarities to the, the Bitcoin Vision, you know, Elon always called PayPal that database of money that we're trying to create this, you know, because because if you can get all the money into one database, then
Me transferring, your money would just be moving, you know, electrons around or what. You know, it's be Ledger entries in the database and you could do it instantly and basically costlessly that basically describes the blockchain, you know, that's basically what the blockchain is, right? So if it's not a centralized database of money as a decentralized database of money, so it's interesting the way that some of these ideas have played out but in a different way than we could have
anticipated. Yeah. Peter teal has told the story where I guess some of the folks from
Pal went to Antigua. I believe it is. And there was some sort of like, encryption and money conference and his thought processes that Satoshi must have been there. One. Did you go to the conference and to any any thoughts in terms of that theory?
Yeah, I wasn't. So I wasn't that one. I think at that conference, the state of the art in this crypto world was sort of e gold and the idea I guess was that you would get certificates that were redeemable for gold and you can move around online.
And, you know, the PayPal was sort of a reaction against that saying, no, these systems are too complicated. They don't really make sense again, like, dollars work just fine. We weren't trying to upend the currency itself. We're just trying to make it more convenient. But yeah, it's it's interesting. How there were these predecessors to
bitcoin. Yeah, but I think it's one of the key pieces, right? Like there's 40 Years of R&D that went into the creation of Bitcoins. The people always held the first one, never works, and they always jump to the aol's or the my spaces, but you know, it's probably under no the 15th or
20th, Persian and seems to seems to be working two other questions around Bitcoin. I guess one is like do you think it could rise to become the global Reserve currency? And whether that's 50? 100, even 500 years from now, like, is the expectation that there would be decentralized money as the core unit of account, and come store, value globally. Or do you think that will just get more and more fragmentation? And we Fiat, currencies will be decentralized currency like Bitcoin. Maybe there's even these private currencies that some of these companies have tried to create, like, how do you think this plays out?
Out. It's Sergeant. No, I mean balls. He's got this framework where there's basically only three currencies that have scale. One is the USD sort of the USDA American Empire. Then there's China, the remember B, and then there's Bitcoin in the and sort of crypto World anything. So those are the only three currencies that can get to sufficient scale to be some sort of world Reserve currency. I don't know what happens. I mean, I think that I think the question is, can you get to something?
Bitcoin is widely used without there being like basically a u.s. Dollar collapse or something catastrophic happening. I don't know the answer to that. I think there are sort of middle scenarios where, you know, if you're in a country that had that with like a totalitarian government or something like that or how to export controls or was extremely repressive or is being invaded going through a war. You'd want to move as much your net worth into Bitcoins. You could
despite the price volatility because it's portable, you can take it with you. So in that, you know, it's the new diamonds, new gold bars, whatever. So there's sort of that store value argument even short of it being a fiat currency, but I think it's I think it's interesting. You know, it's what we're talking about. I didn't coin this phrase but the separation of money and state, you know, we and if that happens that would be as big an event as a separation of church and state, you know, the Church of State used to be.
Intrinsically linked and combined. You can really think about the to without them being together. Now, we think about them being separate, I think money and stays kind of like that. We can't really think of money without the state, but Bitcoin, it's sort of this, like, sci-fi future where you could maybe have these two things decoupled, you know, I don't know how long that takes. I don't, you know, and it's also it's very hard to know like what price you should put on that, you know, which is why
I don't like actively speculate on it because I just don't know what the price level should be.
Yeah, do you still buy Bitcoin that over time? Just as like, hey, I'm just dollar cost averaging or is this something where he bought some early on? That's what I got. And, you know, I'm going to go focus on SAS investing or like how do you think about?
Yeah, so I have a position and and my view is kind of set it, forget it. I've seen so many ups and downs at this point that I'm just like luck. I'm going to put this amount of money in Bitcoin and it's some percentage of my net worth. I was going to
Leave it alone, and maybe it'll be worth nothing. But maybe this will become new money over the next 20 years. And in which case I'll feel really stupid if I didn't buy in at a much earlier stage. So I've kind of got like a little piece there and just I just leave it alone and don't try to figure out you know, like these price moves.
Last thing on bitcoin is there's a very large portion of people in the Bitcoin crypto world that are Bitcoin maximalist. And so they believe hey, Bitcoin is the only thing, everything else is a shit coin. It's all going.
Zero, I don't think you're in that category, given some of the investment under that you've made. What is your argument for, or against kind of that maximal, istic view, when it comes to something like, moneyed. Is it something that you understand what you're like, hey, I'm an investor and I want to go. Also, find Productive assets is something really, I don't understand that view of the world. Just talk to me about that.
Yeah. I mean, I wouldn't say my maximalist. I think that the case for Bitcoin is probably the strongest of all the cryptos and the price and relative stability reflects that. But
Look, you have in the process of creating Bitcoin. You have these new other new technologies. Arise like the Block Chain itself and why couldn't you use that to support other Innovations? And so the most obvious one being, you know, the idea of a smart contract platform. And so now you have kind of these other cryptos that function is gas to, basically by computing power on a smart contract platform. Like, you know, like a theory, I'm
Solana, that's the space. And then there's all the various applications that potentially could be run on a blockchain, which mainly you've seen in terms of ones that have scale is mostly just defy, you know, it's mostly Financial contracts are various kinds and financial speculation. I think what remains to to be seen is, what is the breadth of the applications? That can ultimately be built on top of blockchains, but I think part of it in the
Suberin. So, over these types of platforms. I think, there's like too many things that actually don't really make a lot of sense. We're now you're just better off using a centralized database. So the breath Still Remains to be seen, but I think what's interesting is just the financial contracts, the settlement system, the way that you could do derivatives things like that. It's so much more transparent than what you could get on Wall Street, where they're giving you these, like OTC, derivatives where you don't really understand what they are, at least with
The blockchain with defy, you can inspect the code. So it does seem like a better way to do trading and we'll see where it involves two from here. But I guess the thing I'm not totally sure about is the range of applications that are ultimately going to
emerge. Yeah, it feels like obviously a blockchain in terms of what Bitcoin is built on top of it's all about decentralisation, it security, right? And like one big question that seems to be unanswered, is okay. If there is a separation of money and States probably pretty,
Important of decentralization and security against nation state level attack, what other applications do you need that level of security and maybe there are some there aren't. But there's a trade-off, right performance versus the security to some degree. And one of the things that I see young Founders, especially, just over and over and over again. Learning is like, hey, I want high performance. If you want high performance, like, there's a reason why Amazon is a centralized hierarchical company, right? Is, they are incredibly efficient and centralization isn't good or bad. It's just, what do you optimizing for? And I
What you're talking about here of, like, sure, maybe some transparency stuff, or whatever. But if you want a high performance thing, like centralization has been the key to building, you know, products, pretty much for the last, you know, couple centuries,
right? Yeah, I agree with that. That's that's a big question that people talk about what we need to run social networks in the blockchains kind of like why although, you know, censorship does provide an argument for it. But yeah, I'm not sure exactly how wide the number of applications is the the issue with Bitcoin maximalist.
They believe there's precisely one application to be run on top of block chains, which is just, you know, Bitcoin, which is money. Although I guess I do believe in layered. We've made a number of layer 2 investment. He's
made other Bitcoin ultimate and
selecting labs, for example, so, yeah, I guess the just to give the Maximus argument. It's do it just be there. Everything will be built on top of Bitcoin. And so it's not to say there won't be other things, but they've got lightning laughs layer or two. We were seeing investor in lightning
lives, but lady Labs, I think I said voltage as well, write in terms of lightning nodes. And, you know,
Of the things that I talked to a lot of folks in Bitcoin Community about is like, look, lightning Labs just recently, put out a new proposal for this tarot protocol, which is kind of like a layer 3, which would allow for multi-asset issuance on top of the lightning Network. And so in some way to your point, right? It's not so much like, hey, none of these use cases are available. It's just they're not being built on top of a decentralized, you know, thing like Bitcoin, right? And so what? We'll see, how it plays out. Yeah. I want to talk about market conditions right now and that you
You recently put out about an hour long presentation, which I think kudos to you guys for just one calling all your Founders together and kind of State of the Union. Hey, here's how these Market things play on. Here's what you need to do. But then going ahead and Publishing it. It seems like things are bad already. Do you feel like they can get worse in terms of public markets going down? Founder starting to feel the pain over the next, you know, six twelve months in the private market, like what's kind of your general sentiment right now, in terms of like how bad this could get from from a reaction to the feds?
Actions except right? Well, I think there's still potentially more shoes drop. So I think the most important thing to realize about the stock market crash that has already occurred, is that it's been primarily because of multiple contraction. And so, if you look at multiples like, for example, in SAS companies, which is where we invest his. The current multiple is about five point. Six times are are our next 12 months. If you go back about five years.
That's what it was. So but during this sort of hyperinflationary bubbly period during covid where the FED Congress prints, a lot of money that multiple got all the way up to 15 times. And if you were a high-growth SAS company, which meant basically 40% growth, as opposed to 20% for the average you got up to 35 times and that 35 number has gone all the way down to eight. So the high-growth lab has gone down from 35 times 28 times and the mean has gone down from
Teen 25.6. So that's mostly been multiple contraction. And the reason is, it's been essentially mean reversion. It's just going back to the way, things used to be. Before we had ten trillion dollars pumped into the system. And this is a thing that I think a lot of Founders may not understand is that you'll hear them say things like, well we need to get through this period and then things will go back to normal. So I know you don't understand, this may be the normal period, the last two years were the
Abnormality that's wasted. We all got gas lit by the FED into thinking. We'd have these conditions of zero interest rates and tons of liquidity sauce around the system and that caused prices to go through the roof of all Financial assets, but especially growth stocks and now things have returned to Earth little
bit. So there's a number of different groups that are infected by this. Let's take maybe investors. First of your venture capitalist. You were investing in companies at 15 to 35 times multiples.
Another multiples contract Dia just hold like, do you have any other thing that you can do dollar cost average down? If there's down rounds, like how do you guys think about in the investor seat? As this is a current you change anything about the strategy?
Well, I think prices in the public markets are actually getting cheap enough for a number of good companies that it is a buying opportunity. It's just that most people don't have liquidity to buy because they just see in their portfolio. Get slot 50%. This is always a tough part by the way of, you know, the Buffett aphorism about
Be greedy when others are fearful and be fearful when others are greedy, the problem is no one has any money by the time that it by the time it except for him. He's not exactly 30 billion dollars. Yet the moments where you should be greedy or portfolios down 50%. So this is hard to you know, double down. But look there I think there are some buying opportunities now in the public markets, not to say that it can't keep going down for reasons. We can discuss in a second, but some of these companies are starting to look pretty attractive. And is there like a
framework? So one of the companies that I know because we were
I sure didn't still have a little bit of public stock is coinbase. And at one point I think was trading at like 1 times basically Revenue plus their cash. Right? So you look at something like that. You're like man, you know, maybe it could go down more but like that sounds like a pretty good, you know, multiple based on historical cops. Like do you have some framework where you're like, okay with a company that has a certain growth rate hit sex. It's basically like a screaming by opportunity and we look to deploy Capital.
Well the thing that's tricky about I agree that by historical
Well, standard certainly coinbase. Now seems cheap. The, the hard thing about valuing company, like coin basis. Obviously. It's totally derivative. What's happening in the crypto world. Use a different? Yeah. So if there's like a crypto crash, it's like, well, that was quite a bit. So, yeah, but like, SAS companies, for example, these are strong companies where, you know, you look at their amount of air are these are the, these are be to be subscription businesses. You want to look at their net dollar attention, you know, good for a public company, usually starts from 120 percent. So on January,
First they're typically starting with 120 percent of last year's Revenue just from their existing customers and then they're going to be stacking you courts on top of that due to new sales. We think those are very attractive businesses. They also tend to be more insulated in a recession because they're B to B, not B to C. And it's usually the consumer who gets impacted first in a recession. There's a number of like, very fast-growing SAS Public's, ask companies that are doing, you know, billion ish in Revenue growing.
Forty percent year-over-year like 80% Grossman 7080, percent, gross, margins really high, gross margin businesses. These are for like, you know, with very strong franchises big moats at this point. Those are I think attractive companies to own for the long term. Now, you know, if you are in one of those stocks has gone down 80%. The hard part is just gonna take a long time for them to grow into their old valuations. If you can buy, now, you're obviously the entry price is much more
attractive.
Four Founders. Same exact problem, right? So, hey, if you went out, you raise money to 35 times, multiple, or
200 times or 100 times or yeah, what are the
numbers were a lot of its just undisciplined investing some of those. Just hey, I felt film a big fun to have to deploy the capital. What do you do there? If you're the founder who basically has this huge thing? I guess there's kind of two two components. One is like how do you ensure that your investors end up coming out on top, right? And do you just try to grow into the valuation as quickly as you can and then to is like, how do you take care of the employees who now, maybe
Are options or underwater or whatever on that? Like, how do you kind of Mentor Founders in that situation?
Yeah. So here's the good news. If you're an early stage startup is if you're a public company, for example, and you're growing 20% year-over-year, and you your values, calm down 80% because of this correction, you have to basically, now grow 5x. What's that like five hundred percent to get back to where you were during 20% a year like this and take you forever.
However, let's say that you are a start-up that's tripling your over a year. And there's like quite a few of those, right? You raise a hundred times last year Well in just one year, it's going to be about 30 30 times 3, 3 times because you've now tripled your are our and the year after that. If you triple again, you're going to be at roughly 10 times ARR and now you're starting to look pretty cheap. So you so it's much easier to grow into what was perhaps an inflated evaluation last year as an early stage company.
It's roughly tripling or even say growing two-and-a-half times year-over-year what you want to make sure of is that you give yourself the time because where you don't want to be is need to fund raise every 12 to 18 months, like people were doing during the frothy times. You want to be in a position where you don't have to raise four, two, two and a half three years, and now you actually have the time to grow into your evaluation. You won't get as big an up round, as you thought you were going to, but you have the chance. If you grow, you know, six to ten times over a two-year period to now.
And up round.
I want to ask you a couple of scenario-based, kind of just tactical things that I've heard Founders ask me, or talk about when I've been at dinners or kind of gatherings. The first is, if you want to cut your burn, how do you evaluate cost? And if you Center on, okay, I'm gonna have to cut staff. Like who do you cut you cut your high salaries? Do you cut the people who you think are the least productive D? Cut the people, you don't like, like what? Like, what is the Tactical way to actually evaluate? Hey, I have to cut, you know, my
I caught my head count by 30%, like, who do I cut?
Yeah, I think so. I think, first of all, you have to figure out how much you need to cut. And one thing you need to do is ask the question. Am I capable of fundraising in the current environment? Because fundraising right now is very tough, but not impossible. If you have great metrics in the presentation that you mentioned that we just sort of published. We have a slide that defines what good looks like, what? Sorry, what great looks like, what good looks like and then what bad or we call it danger zone.
Looks like and what we've said is look, if you have all great metrics, there's like five main ones, it's, you know, it's your are our growth rate and a dollar attention kak Capital, efficiency, stuff like that. If it's all great, you're gonna be able to raise, I would still be cautious how you spend, but it's not like, you know, you're not going to get a raise. If you're merely in the good column, you might have trouble. If you're great on three variables and good on to, you'll probably get a raise. If you have any danger zone variables, you probably will not be able to raise.
So the first thing you should do is assess. Do you any danger zones? Do you really think you're able to raise? And then the question it? So let's say that you most arms have some problem. They need to fix could be a gross margin problem. Could be an excess burn problem, could be a growth problem. But if they're in the danger zone, you now know that I'm not going to raise when I run out of money I'm dead. So I need to know to make this money lasts long enough to fix my problems to get out of the danger zone and into good to Great metrics.
So then the question is, well, how long do you need to do that? And in my experience, it takes, you know, two years, you know, minimum really to fix big problems in a business. It's hard right? Doing starts, its art and you need to give yourself the luxury of time to fix those problems. The, the other thing you have to remember, is when you think about how much time you need, if you give yourself two years, Runway, you haven't because you got to go out and fundraise, six months nine months before you run out of money. So, if you say I'm
I'm I have two years Runway. You've really only given yourself five maybe six quarters to make effective changes in the business. And you know, people want to cvc's want to see that after you've made the changes that they're working. So, you know, this is why we say, give yourself two and a half years. So you have two years to work on the business, then you can go fundraise and even give yourself 3, so much, the better. You just don't know what market conditions are going to be like when you don't want your company to go out of business because of something that's happening.
the mockery, you know, economic environment,
when you think about
The founder who could raise more than a good. Maybe then the great, how much of this is like, just go get the money and the economic kind of structure of the deal is less important than actually getting the money versus you guys. Advise Founders to still hold on to do good fundraising deals. Don't take down rounds and kind of what is the weight of importance between money? Maybe verse terms of the deal at this
point. I think you want to get the money, you don't mess around as my view on this. Look, I
I've always believed that the market sets the price and it's better not to like, monkey around with that. Don't try to do tricks or whatever. It's like, look just run an efficient process, get all of your materials together, go out to enough firms. And then whatever the price is, that's the price. I mean, we're all price takers in this market. I mean, VCS are price takers to people. Always think that somehow when I give this like, bad news, and I'm like, talking my books. I'm trying to drive down prices. I don't set the price.
Has you know what happens is a bunch of different firms, prefer term sheets or not. And then you kind of shakes out where it shakes out. And then Founders here from other Founders who have gone through a process recently and they hero like, prices aren't 100 times any more like last year there. 20 times, you know, so word gets out the price levels. Adjust and so, VCS, like our philosophy is, we just choose a deal to want to be in and then we try to pay the prevailing prices and you know last year price.
Hide this year at their lower, but we just pay the prevailing prices. I would urge Founders to have that mentality as well, which is, look, you're just out there raising this money because you need this money to survive and to grow your business, like, you know, making deals with VCS, not the point of your business. It's just something you do because you want to fund it. So go out there, raising money. You need run a type process, run a good process. And where the valuation shakes out. It shakes out. And by the way, if that means a Down Round,
Then, so be it. I mean look, I don't think there is a public company on Earth, no matter how good Amazon Tesla, you know, Microsoft so far that hasn't had huge down days in the stock market. It hasn't all been one way up, but yet Founders, always think that live gotta get like huge up around just like sometimes the world doesn't work that way.
Yeah, I found are called uses David. How do I run an efficient fundraising process in this environment? Is it get the materials in the data room? Go out to 50 firms. Just set up zooms back.
Back to back and see where term sheets come in. Or is it something more
complicated? No, I think that's basically it. I mean, maybe not 50, maybe start with 10. But yeah, like get all of your materials together, you know, it's, you know, what questions you're going to get asked, you know, what materials you're going to need. I don't understand why Founders have fundraising conversations without getting all their materials together. First, you know, as long as they think, oh, it's not while I'm having coffee with a VC or no. It's like look any conversation that we see is
The fundraising conversations. Sorry, it's the way I did. So get all your shit together. You're not getting to know each other. Well that matters to, but it's, but it's still a fundraising conversation. Like there's no point going out and having those conversations. If you don't have your materials together, so get them together, create your data room, have all the metrics ready. Again, you know, in the SAS world is very obvious, what you're going to be asked. And so if we start stumping you with questions that like it just shows your disorder.
Nice, so it's an easy way to put your best foot forward as a Founder. It's just get all your stuff together. And then you probably are going to need to create a longer list than usual affirms to go talk to and you can do it in waves. Sometimes you'll get some feedback on the first set of pitches you did. And then you can adjust your deck. Sometimes you'll hear the same concern over and over again. You might want to add a slide to address
it. Do you tell Founders go to the best firms first or
or maybe the firm's that they're not as excited about getting so they get the feedback and then go to the best verbs.
Yeah. I think you just want to go to the list of firms that you think are the best fit for your business and some of them are more prestigious names than others, but I wouldn't stress too much about that place of employment. Yeah, you know, just go to the the VCS who expressed the most interest in your type of
business. Another topic that is
Become way more popular than I ever thought. It would is founder. Secondaries and one. I guess, just like, what's your perspective from the investor? See. But also having built businesses, when founders should take s areas or when it's a red flag that they're taking secondaries and kind of how to structure them. And then to is Founders now who have taken secondaries have a pot of money and most Founders didn't have a pot of money before now, they do, and they're asking themselves, like, am I a VC? Now, if I just go Angel Investing all my friends companies. Should I just stick in the S&P 500? And, you know, forget about and work on my company like, how do
You advised
Founders there. Yeah, so on on Founders, taking secondaries, I think that it's so the way secondary started, you know, way back when is that? You would have a company that was doing well, that maybe got an acquisition offer, and there's a feeling on the board, especially on the part of VCS at this company could be much bigger if they just kept going, but the founder had all their eggs in one basket, and would be very tempted to take this offer. And so creating liquidity for
If partial liquidity for our founder was a great way to align everyone to go for the big long term win. And so I'm very supportive of that idea. And you know, I've been a founder of had all my eggs in one basket, it's nice. If you can if you've earned the right to take some secondary because you've created a great business and you want to take a few tips off the table, then go for a bigger win.
You think he's that like, 5% of your position or like 50%,
Like how do you think if a person would be way too much? Okay, you know, I think
What I've seen is Founders taking a few percent, you know, off the table. That kind of idea. Okay, you know if you see 50 percents, like we'll just sell the whole company. I mean, that's just but I think what happened is that in the boom times you started seeing secondary has become almost a matter of course because there's so much funding that was trying to get into companies and look I think it became acceptable as well in an environment in which companies were potentially overfunded. And investors were trying to get to a certain ownership level.
They're like, hey, can we buy some secondary from the founders? And I don't really have a problem with that either but where I would you know, caution is in a much more difficult fundraising environment is irresponsible for Founders to be seeking to take chips off the table when that money could be going into the corporate treasury. In other words, into Primary in the company. And if there's any concern about the company, not being adequately funded enough and the founders seeking to put money in their own pocket, that's a conflict of interest. And, you know, it's not
Not in keeping with their duty of loyalty to the company, but the company first. So I think in the current environment, a Founder seeking to take chips off the table would be an incredibly negative signal. I would probably sabotage your funding round. So I would not do that. If somehow you're one of the few companies in this environment, in which people are literally throwing more money at you, than you could possibly need and you and the board decide together, like, look, this is more money than we need. Then maybe the found architecture is off the table.
But I wouldn't go seeking to do that in this environment.
Yeah, I think basically tents and then, for those who either already have our in the fortunate position where they've built such a great business that people are throwing money at them. What's been your advice to people in terms of how you're a Founder? You now have a pot of money, whether it's a million dollars or more bigger sums, put an SMP Angel, invests it in cash. Give it to a fund manager.
Like, well, yeah, what I would say, so, I think, typically, what makes sense for a lot of
People like Founders is to have a kind of a barbell strategy. So you've already got most of your net worth is tied up in the form of equity in this. Highly risky startup, you know, let's say over here on the distribution. So the question is, what do you do with the rest of the money and I think what probably makes sense is to the barbell. Is you put that money in the safest thing? Possible basically because you already have so much exposure to Market, uncertainty and risk through the bulk of your net worth, which is in your
Me and you want to avoid like excessive correlation to like let's say like a depression or recession, or something like that. I mean, think about what would have happened. Let's say that you are, founder did a big secondary last year and you took all that money and you put it in crypto or you put it in the NASDAQ. Well, now you're down, 50%, you know, and you already had enough exposure to start up risk, and sort of macro economic risk through.
Your company. So I would, I would advocate for a barbell strategy.
Yeah, makes sense. One of the most fascinated by as you've been very successful. Both in entrepreneur and investor. We actually have a tweet. You tweeted this a while ago and I saw it and then mentally said to myself, if I ever have them on the podcast, I have to ask about that. Sweet. It was Jeff Lewis talking about the Midas list. Okay, and he said, time, our kids were boys like to be on the nice list this year, that hasn't been on it for the past, two to three years. Speaks volumes about their methodology and you followed up and said I had
It easier to eat exit scene in the companies, but none of them count because it was my own money. So I kept 100% instead of 20, which they don't like whatever and forget, the Midas list of any kind of debate there for a second. Those eight companies, exiting your the individual investor. It's your money. Whatever. The math is. They were started small, they ended up being big. How do you manage your own money? Like? Are you just all in startups? And that's like, pretty much what you're doing. Do you have stocks? Do you do real estate? Do you buy?
Bye, you know local businesses and David Sachs is funding, you know, the gas station down the street. Like what do you do? Or what's your approach?
So I mean, I generally do it myself and I mean there's an old saying which is concentrate to get rich Diversified to stay Rich. So we are all. If you're doing a start-up, you're highly concentrated. Like I'm saying in this Venture and I think what you want to do is if you're lucky enough to be successful, you want to diversify so that, you know,
Go down with the market, but you're not in position to lose everything, you know, and so I don't do anything exotic. You know, it's a short answer is I'm pretty Diversified
in that's like diversification is just like you're buying a low-cost index type stuff for our
yeah. I mean, I tried it. Yeah. I mean, I'm not like a huge Public Market stock picker. I generally just by indices for the most like Vanguard fund type stuff. I do some commercial real estate investing probably because, you know, I like it's fun.
But remember, you know, most of the investing I do is actually through crafts, you know, and I also write large GP checks to craft. So I'm doing, I'm getting that exposure a ready? And so I'm not trying to do anything like overly aggressive in my own portfolio because I'm really just focused on, you know, investing the right
startups. Yeah. It's, it's always fascinating to me, right? Like the amount of risk, it takes to build companies and then two, then basically turn that off in terms of managing the rest.
Goes counter to, you know, the DNA of many of these people. And so hearing, you know, imagining you buying low cost indexes, and then the famous story of Elon be like, well, I had 180 million dollars and I basically spent it. All right? Like it is very
interesting. Well, part of it is that it's part of it is time and attention as well as risk. So I want my time and attention to be. We're actually hopefully I have like an advantage as an investor which is the star of ecosystem and is very time consuming to
To work with these companies to be picking, all that kind of stuff. I don't want to be spending my time, trying to figure out an active strategy. You know, I'm saying on like I don't want to read the quarterly reports of all these companies. Yeah. I'm not saying there's anything wrong with doing that. It's just I personally don't want to spend the time to do it. So I want to implement easy
strategies. I'm imagining you sitting there day trading from your
desk. Not experiment. Never been a day trader. So yeah, I mean,
Yeah, got it. My last question is one of our sponsors is eight sleep and they've got the thermal regulated bed. Walk us just threw like a day in your life / like Diet sleep. Like just how do you try to optimize your life to be able to do all the things that you're
doing? Yeah. I'm an investor in a superscript
product really like so am I yeah, so you sleep on one then? Yeah just make it so
yeah, no. No, I think it's great. I love the the data it gives me on whether I had a good night's sleep or whatever and then you can like program the the temperature.
To get very precise with that. So no, I like it. So the question is kind of around routines.
Yeah, just like how do you try to optimize your day? The you've got a ton of stuff going on, but you're obviously very focused on investing. You also have one of the top podcast in the world. So, you know, that obviously is a huge drain on your time. Just what do you do to optimize to be happy and get it all
done. Yeah. I mean so my schedule gets kind of filled up with with meetings and a lot of it is
Responsive in a way that it's basically a portfolio company is having a board meeting or needs advice or someone on the team wants me to take a look at potential portfolio company. And so the calendar kind of gets filled up with that stuff. And you know, when I was a CEO and I was actually running companies. I had a little bit more control over my own schedule. Like I would decide what I want to do. What I want to focus on that day when your VC. It's a little bit more reactive because
It's other people, whether it's prospective new companies or portfolio companies are kind of coming to you and want to meet and that's fine. And so there's a lot of that stuff and then you know, I'll do media podcast and so on we only do they all empowered once a week. So it's not a huge amount of time for me. Okey? But yeah, but yeah, so, you know that I tend to be a little bit of a night owl and I'll stay up late and like read stuff.
If and catch up on,
do you have any weird diets or anything like that?
No, you know, I did, I did lose a bunch. Well, I gained a lot of weight during covid like everybody else like the quarantine 15 or whatever and then I managed to lose it. And so I did like a modified, it wasn't keto diet but more like Mediterranean diet for a while and now it's just more normal, but I try to stay low carb and then another product that I actually use it.
Are they free Burke's products called me unique? Okay, what happened? Mu and IQ? Okay, it's basically a powder that you just pour into water and it becomes like a shake. You can get different flavors like chocolate shake and it's like a Prebiotic fiber and it keeps your blood sugar more stable throughout the day and it reduces your appetite interesting. So I found that to be helpful, you
know, awesome. This has been fantastic where
Where can we send people to find you on the internet? Or if there's Founders who want to talk to craft? Where's
but yeah, so yeah contacts across Ventures. I'm afraid to give my email on right now. But yeah, but well, let's put it this way. If you know, it should be easy to get to us, you know, use your skills to find someone in our Network, shouldn't be that hard and you can reach out to craft Ventures.
Awesome. We had somebody come on, they gave their email and they said I'll Give All mail. You a free book and Suppose there were 6,000 people that emailed them and they spent the next week.
Trying to get a read the email. So please don't do that. I hope that you guys, I'll join you can follow David on the on Twitter at David Sachs. But this was fantastic. I really enjoyed it and we'll definitely again,
yeah, thanks for having me. That's great.
Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you're subscribed on Apple Spotify or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin of crypto industry, we've got you covered head over to Pomp's. Crypto course.com., We've developed a curriculum with the top teams across the industry. It's a three week, intensive training program with over 50 events. Packed into that three week time, period. Go to Palm scripto, course.com to learn more. And I'll meet you guys for the next.
Dode.
