E118: AI FOMO frenzy, macro update, Fox vs Dominion, US vs China & more with Brad Gerstner

Chamath Palihapitiya 0:00 You wanna run a marathon at 57 years old?

Jason Calacanis 0:02 52. 51, 2, 52.

Chamath Palihapitiya 0:06 (laughs) I'll be honest, I miss you. Can you come back to the United States please? I miss you.

Jason Calacanis 0:10 I will, I will. I miss you too. I mean, the poker game can't, by definition, be as much fun if I'm not there.

Chamath Palihapitiya 0:15 It plays at bigger states and it's more challenging, but it's not as much fun.

Jason Calacanis 0:20 There's not as much laughing. What's on the menu tonight for austerity 2023?

Chamath Palihapitiya 0:23 The amuse-bouche is a madeleine with, like, a terrine of foie gras.

Jason Calacanis 0:27 Fantastic. Uh, in honor of Friedberg?

Chamath Palihapitiya 0:30 And then rutabaga, rutabaga salad, and then some duck thing, duck breast.

Jason Calacanis 0:34 Ah, you know I love duck.

Chamath Palihapitiya 0:35 And then, and then butterscotch panna cotta.

Jason Calacanis 0:37 Wow, that is great lineup. And it, you know what? I like the idea we're doing some poultry.

Chamath Palihapitiya 0:43 Chef Sean is firing on all cylinders these days.

Jason Calacanis 0:45 Uh, he feels very, like, uh, engaged. He was very engaged. Yeah, he's, he's kinda goin' for it.

Chamath Palihapitiya 0:50 He's been on.

Jason Calacanis 0:51 Yeah, that was quite nice the other day, Brad, because it's austerity measures, we had this incredible dish-

Chamath Palihapitiya 0:57 (laughs)

Jason Calacanis 0:57 ... and we're eating it and then he said, "The caviar's on the bottom."

Chamath Palihapitiya 1:01 (laughs)

Jason Calacanis 1:01 And I was like, "Oh." So we just, we don't put the caviar on top. We just, just put it on the bottom.

David Sacks 1:08 No, no. I get it. No.

Jason Calacanis 1:08 Shh, the market's down. Put the caviar on the bottom.

David Sacks 1:10 That's Chabais style austerity. Caviar on the bottom.

Jason Calacanis 1:14 (laughs)

Chamath Palihapitiya 1:14 (laughs)

Jason Calacanis 1:14 I'm not lying. Am I lying?

David Sacks 1:15 Oh my God.

Chamath Palihapitiya 1:16 No, he did say, "Guys, the caviar is on the bottom, not the top this week."

Narrator 1:20 Let your winner slide. Rain Man, David Sachs. I'm going all in. And I said- We open sourced it to the fans and they've just gone crazy with it.

Chamath Palihapitiya 1:31 Love you, S.I.D.

Narrator 1:32 Queen of quinoa. I'm going all in.

Jason Calacanis 1:36 All right, Sachs is here everybody, so that means we have a quorum. Hopefully the sultan of science who is, uh, on Wall Street today, uh, taking a company public, so congrats to our bestie, Friedberg.

David Sacks 1:49 Ding, ding.

Jason Calacanis 1:50 He couldn't make it. He's at a dinner. So with us, the fifth Beatle as it were, Brad Gerstner is here to talk all things macro. Welcome back to the pod. How's life been-

David Sacks 2:00 Good to be back.

Jason Calacanis 2:01 ... for you, Brad?

David Sacks 2:01 A little domo arigato to you, Jason-

Jason Calacanis 2:04 Yes.

David Sacks 2:04 ... as you eat your way through Japan.

Jason Calacanis 2:06 Yes, I am on my culinary tour. I'll be back Sunday, but I am having the time of my life here.

Chamath Palihapitiya 2:13 Are you running AdWords on your food blog or no?

David Sacks 2:15 (laughs)

Chamath Palihapitiya 2:15 Exactly.

Jason Calacanis 2:16 That's what it's come back to. I'm back to the Weblogs Inc. days. I'm just trying to make $2600 a day.

Chamath Palihapitiya 2:21 I noticed your TikTok got 22 likes.

Jason Calacanis 2:23 Yeah, you know, I'm trying to figure out TikTok. I'm gonna b- you know, b- right as they shut it down-

Chamath Palihapitiya 2:27 (laughs)

Jason Calacanis 2:28 ... that's when I'll figure it out.

Chamath Palihapitiya 2:29 Will that rev share buy you another Japanese pancake or no?

Jason Calacanis 2:32 Those pancakes, man, are next level. Pa- the fluffy pancakes there, oof. Everything actually with the exchange rate, coming to Japan is so affordable it's nuts. And this is a crazy week 'cause it's the, it's the Tokyo Marathon, but everything is so affordable. The people are amazing.

Chamath Palihapitiya 2:48 It's the best country to visit in the world, I think.

Jason Calacanis 2:50 For me, it's Italy, Spain-

Chamath Palihapitiya 2:52 Yeah, y- I mean Italy's right up there too.

Jason Calacanis 2:54 ... and Japan.

Chamath Palihapitiya 2:54 But I would say Japan is, like, it's definitely top two or three.

Jason Calacanis 2:57 What do you love about it?

Chamath Palihapitiya 2:58 Best food. You know, I went there, I took the, I took the kids, like, five years ago f- uh, the older three at the time, but they were younger. And, you know, there's, there's a negative birth rate in Japan, and so number one, when you have any kid but frankly multiple kids, the, the Japanese embrace you with so much love because they love seeing these big families.

Jason Calacanis 3:19 Yeah.

Chamath Palihapitiya 3:20 They're unbelievably kind. We went to Kyoto, did the Professors' Walk, saw the Cherry Blossom Festival, basically ate our way through Japan. That was my, that was my only vacation trip. I d- I've done, like, 10 or 12 trips for work. Once we, I went with Reid Hoffman, and Reid set up this thing where we went through all these different parts of Tokyo and ate at this incredible sushi place. You have to go with somebody who can dial it in-

Jason Calacanis 3:47 Yes.

Chamath Palihapitiya 3:47 ... and, and have all the hookups.

Jason Calacanis 3:49 Brad, you spend much time in Tokyo and Japan?

David Sacks 3:51 Um, I haven't. I've, uh, been there only twice, and that was when I was poor and I stayed in a really small room and ate really shitty food.

Chamath Palihapitiya 3:59 (laughs)

Jason Calacanis 3:59 Oh, all right. So, uh, you're saying in 20, in 2022 when you became poor again?

David Sacks 4:03 (laughs)

Jason Calacanis 4:03 Okay, great. (laughs) It's like Brad Cozier's-

David Sacks 4:06 Exactly.

Jason Calacanis 4:06 ... like, "I own the La Mano hotel, we have rooms."

David Sacks 4:08 Yeah.

Jason Calacanis 4:08 He's like, "Is there a hostel?" (laughs)

David Sacks 4:10 Yeah.

Jason Calacanis 4:11 All right, and with us, of course, the, uh, next department, uh, what, what, what cabinet position are you going for, Sachs? What, what, which, where should we start floating here?

David Sacks 4:19 Oh my God, here you are with the disinformation starting already.

Jason Calacanis 4:22 (laughs) He's, I had to compliment. Secretary of Sass is with us.

Chamath Palihapitiya 4:26 DeSantis had a pretty great article in The Wall Street Journal.

David Sacks 4:29 Oh, really? I missed that. What did it, uh-

Chamath Palihapitiya 4:31 When they revoked the special administrative status for Disney. He wrote an article-

Jason Calacanis 4:35 Ooh.

Chamath Palihapitiya 4:35 I think it was Wednesday.

Jason Calacanis 4:36 Hmm.

Chamath Palihapitiya 4:37 Tuesday or Wednesday in the, in The Wall Street op-ed.

Jason Calacanis 4:39 What was his, uh, premise? That they, was it corporate or is it culture?

Chamath Palihapitiya 4:42 That wokeism is basically modern Marxism and we have to defeat it, this is his language, not mine, at every turn. And Disney needs to just be business people and not feed the vocal minorities inside of their company like every other company should. They should be subject to shareholder concerns that apply to the majority of shareholders.

David Sacks 5:05 Well, I think this is why I think DeSantis is doing well with the Republican base and, you know, if you see polling of the Republican primary is he understands that it's not good enough just to have this sort of Reagan-esque totally hands-off government approach because the radical left is advancing its agenda not just legislatively but through corporations, through ESG, really through taking over key private sector institutions. And so he's willing to use government to push back on that agenda on behalf of parents or on behalf of, you know, what he sees as the majority of the country. And so it's a very different approach than, you know, the Republican Party would've been 30 or 40 years ago. This is why, you know, in the parlance of the base, he understands what time it is. And what's required here is not, again, this totally laissez-faire approach, but rather, a much more energetic, aggressive approach towards checking...... these bad ideas, wherever they come from.

Jason Calacanis 6:05 Yeah, he's not the only one. Uh, I don't know if you saw this week, Bill Maher went on a bit of a press tour, and he was on with Jake Tapper and, uh, he made a very interesting, I think, point about liberalism versus wokeism. And it was quite articulate. He, you know, he's, he's a pretty good observer of culture. He said they're kind of casting out the liberals in the party for this wokeism and the intolerant nature of the woke movement versus the, the liberal movement, specifically under the lens of trans rights. But let's put that aside for now. We got a full docket before we get into the culture wars and the (laughs) presidential elections. Let's start with, uh, we'll go private markets to public markets, because they obviously dovetail so nicely.

Jason Calacanis 6:47 Item one on the, uh, docket today, there is just a massive AI FOMO frenzy going on. Economist published a piece this week, uh, about the insane fundraising in the generative AI space. Uh, this is stuff like ChatGPT, Stable Diffusion, you've heard these names. And, uh, there are now 500 generative AI startups according to this report, that tracks with what I'm seeing in the early stage, and not counting the OpenAI 10 billy from Microsoft investment, donation, rev share, round trip, whatever that is. They have so far collectively raised more than $11 billion. The article included this chart, uh, which you can see if you're on our YouTube channel, and just tons of folks working in audio, image, and text. So we're basically looking at the multimedia basically revolution of PCs in the '90s occurring again, and a complete platform, platform shift. Doug Leone from Sequoia, one of the greatest investors in history of Silicon Valley, had this to say, and we will comment on the other side of this 50-second clip from Doug.

Brad Gerstner 7:54 I actually think that AI is the next platform shift, in the same way that mobile was the one before, internet was the one before. So I think AI is real. But I said earlier, we are going to overestimate it in the short term. We're gonna invest in everything in the same way that in 1999 we invested in everything, but then Google came out of that, or Facebook came out of that. So I think you have to have a good head on your shoulder where you don't practice FOMO, where you don't chase every company. AI is real. AI is the next platform. But how do we not invest in everything that walks? How do we make certain investments based on market maps, based on thought processes that are more rational and not do every investment just because every other venture firm is doing every investment?

Jason Calacanis 8:45 All right, Chamath, what do you think of this massive influx?

Chamath Palihapitiya 8:48 I think it's important to think about what the incentives are. As Charlie Munger says, sh- "Show me the incentive, and I'll show you the outcome." I posted it into our group chat. Credit Suisse sent all their private banking customers an offer. They are now offering 6.5% for a three-month T-bill. 6.5%. And if you go back to what we talked about before, when the risk-free rate is somewhere north of 5 or 5.5%, and banks are willing to give you 6.5% i- in the short term, you have to generate more than three times that to make an investment make sense when you're investing in the long term. So if three-month money is gonna pay you 6.5 or 7, if you're gonna invest for 10, 15 years, which is what you need to do typically for a startup, you need to get 20 to 25%. So there's gonna be a lot of pressure for venture investors to put the money to work, because otherwise their LPs, their limited partners, the people that give them the money, will have this attitude that goes somewhere along the following lines, "Okay, I've committed to you, why aren't you investing? Because otherwise I can get paid 6.5% on the front end, and so this is becoming very problematic. What am I paying you for? What am I paying you 2% a year in management fee for?" So I think what happens, unfortunately, is the opposite of what Doug says. I think good investors will try to follow Doug's feedback and advice, and the ones that have a track record of distributions, of DPI, can do more of it than not. But I think most people will be under pressure to deploy the capital, and so the 500 odd companies, Jason, you mentioned, will get a lot of it, and it'll get torched because most of them probably won't amount to much of anything in the short term. You will create way too much correlation, and you will have zero time diversity, which as we've learned is a recipe for terrible returns.

Jason Calacanis 10:52 Time diversity being, hey, you deployed all this Web2 capital, Web3 capital, sorry, crypto, whatever, in this very short period of time, you overpaid, you just fired.

Chamath Palihapitiya 11:00 Lit it on fire.

Jason Calacanis 11:00 Lit it on fire.

Chamath Palihapitiya 11:01 Lit it on fire.

Jason Calacanis 11:01 Brad, uh, when you hear Chamath talk about the 6.5% and then you look at private markets, you, uh, invest across the lifecycle of companies, obviously you're in some private companies we all know very well, famously Snowflake, uh, I think your biggest win ever, correct me if I'm wrong, uh, in terms of a private, how do you look at this, (laughs) w- when you as steward of capital, public markets, private markets, and then just YOLO, just put it into, you know, some tr- T-bills or, yeah, bonds or whatever?

Brad Gerstner 11:32 I mean, first, let's just frame, right, the chart that you showed. I think you sh- it said, you know, X, OpenAI, I don't know, something like $10 or $11 billion have, have, has been invested into some 500 AI companies. I mean, I happen to agree with Doug that this is a platform shift on the same magnitude as the internet or mobile itself. In fact, it may be bigger than both of those. But, you know, when I look at $10 or $11 billion, you know, let's put it in context. Meta is gonna spend 20 billion in one year alone on AR/VR, and this is on an entire platform-So I, I don't know. I, I, I, I think whenever you have something as tectonic as mobile or internet, it deserves a lot of investment. And yes, it's gonna be messy and yes, Chamath's right. The cost of capital frankly is limiting the amount of money going into these businesses already. So we see a lot of dry powder sitting on the sideline that's chasing new ideas. I think one way, one way to frame it as well is, like, think about in 2000. We all knew that the internet was gonna be big. We may have been lucky enough to conclude that search was gonna be big. But if you invested in Yahoo! or Infoseek or AOL or Excite-

Jason Calacanis 12:50 Excite, Lycos.

Brad Gerstner 12:51 You know, you, you tore it. All that money went to zero, right? So now think about just these large language models, right? The foundation models which are driving and enabling all of it. OpenAI. You've got OpenAI, you've got Anthropic, you've got Cohere, you've got Character, you've got Stability, you've got LaMDA. It is almost impossible to know with any certainty, much like it was with the search engines in '99, 2000, who's going to emerge, where the value capture's going to be. It may all end up with Microsoft and Google. I mean, this may end up looking like iOS and Android at the foundation model level. And so, you know, I think as investors, for example, on the foundation model side, I think it's very difficult to choose just one, particularly when the largest one is frankly captive in a proxy to Microsoft and they're capping your upside return. So, like, those are difficult investment decisions. That doesn't detract from the fact that I think it is as big as Doug suggests, and I do think there are gonna be applications and tooling layer to come out of this that's gonna produce really big winners. I would say that we are spending an extraordinary amount of time in this space. We haven't made a lot of investments. I think you have to study, you have to get deep. I mean, Chamath certainly, and I have been investing in this space for at least a decade, maybe 15 years. But don't underestimate that the transformer model really did change the game here, and we're now producing impacts much larger.

Jason Calacanis 14:25 Sax, uh, last week you said web three and crypto didn't kinda stick with you. You didn't see the use cases and you, in the first inning here, or first at bat, you rattled off three or four really compelling use cases from summaries to, you know, the, the assistant, uh, guide on your side concept. Is this akin, in your mind, 'cause Brad just said it could be bigger than mobile, internet, mobile, AI revolution. If you were to look at those three, do you think it's bigger than actually mobile? And then we'll get into return profiles of 6.5% on cash versus what are VCs gonna be able to do in this kinda market?

David Sacks 15:03 Yeah, I mean, so I, I agree with Brad and, and Doug that this is the next big platform shift, whether it's as big as mobile or it's more, like, social or cloud. I mean, those have been the big platform shifts over the last decade or two, and I think this is definitely on par with those. I think Brad's right. We don't know where the value capture's gonna be. Maybe it just all ends up accreting to the big companies who can make massive investments in this space. You know, one difference between the internet ecosystem today and 20 years ago is you do have these giant companies who are not totally incompetent, right? I mean, they are, they do have lots of talented engineers. And, you know, like 20 years ago, you'd have company, you know, the big companies would just sit on their hands in the face of a platform shift and they'd just be sitting ducks who get disrupted. They're not, that's not gonna happen today. That being said, I do think that any new platform shifts creates opportunities for startups, and it may not be efficient the way that these opportunities get pursued in the sense that, yeah, Doug's right, that there's gonna be a lot of spray and pray, but I think that it is kind of efficient for the ecosystem as a whole, right? Because, like any smart engineer with a half-decent idea ends up getting funded, and out of all of that you get kind of a pre-Cambrian explosion where, you know, the ecosystem evolves, a lot of different types of businesses. Most of them don't work. They get wiped out, they go extinct, but there'll be some good things that get funded. So we're more like, I think Doug in how we see it, we don't wanna spray and pray. We wanna be very selective. We wanna put more money behind fewer opportunities that we think are, are better. And Doug Leone, uh, you know, I think he generally gives good advice of the tough love variety and this is of a piece with that, and so I, I agree with him. That being said, there is a certain value to the ecosystem in having all these seed funds just spray and pray, right? Because this gets a lot of plants and a lot of flowers and then you see what blooms.

Jason Calacanis 16:57 I would say, uh, to build on that, Sax, this is a, a perfect inefficiency. You know, when you see it from the outside you're like, "Well, this is super inefficient. Why so many companies?" If you free your mind and just say they're experiments, two or three-person experiments, 500K to a million and a half in that first stage when I invest, right before you do when you do your series As at five or 10 million, milestone-based funding is back in the tech industry. And that was something, Chamath, that we lost for a little while there. People would just come out and they would raise a series B out of the gate. No product market fit, et cetera. Now what we're seeing is people are raising that 12 to 18 months, they got their backs up against the wall. Speaking of tough love, which you referenced, Sax, that tough love of, "Hey, you have to hit the next milestone. What did you accomplish with the 1.5 million in order to get the 10 million in order to get the 30 million?" That 500's gonna go 10X. There'll be 5,000 of these startups, but it'll quickly whittle down, won't it, Chamath, as people go through this milestone-based funding system in Silicon Valley? We haven't given enough time for a logical framework of investing to develop, which also is tied to a logical framework for entrepreneurship to emerge. We're just way, way, way too early. So the thing with all of these language models is that they are grist for the mill. And we talked about this before. If it was a highly proprietary asset-

Chamath Palihapitiya 18:20 You would have never sold 49% of it to Microsoft for $10 billion because you would assume that it was worth a trillion dollars. So it's a huge tell on the part of OpenAI, their deep understanding, and they understand it better than anybody else, that it's a bit of a capped upside. So what is uncapped, I guess is maybe the better question? Well, if you look at the 1849 Gold Rush as an example, the people panning for gold, in my opinion, are the people building language models today. They're gonna come and they're gonna go, but who's gonna win? Well, the pick and shovel providers won, Levi Strauss won, so what is the equivalent of that today? I think it's at the silicon layer because you need to really rearchitect how compute will actually work in a world of all of these models. Those folks will get paid. If you look at AMD and NVIDIA, they've been getting paid for years. They continue to get paid. They probably will continue to get paid even more. And so folks that actually take a step into doing something hard and difficult in AI, like custom silicon, could get rewarded. And then there's what I call the white truffles. What are these unique Alba white truffles? These singular sources of data that when used in reinforcement learning make your output just zing. And that's where I think Facebook is an obvious white truffle, Quora's a white truffle, but there are a lot of startups that could become white truffles if they gather enough data, and that's, like, a pretty reasonable framework. And so in that framework, if you apply it to today, there's way few silicon startups and there's way few white truffles. Instead it's everything is the baloney in the middle, which is random people talking about some random model that's just gonna, again, become highly commoditized. You have to remember, all these models are open source and none of them mean anything in the absence of the data you give it to train on.

Jason Calacanis 20:19 100%. Brad, hey-

David Sacks 20:20 Can I-

Jason Calacanis 20:20 Okay, it's actually Adam. Yeah. Go ahead.

David Sacks 20:22 Well, I want to add one other piece of news that we saw this week, which is OpenAI announced that its developer AI, they were cutting the, uh, tax on that, or basically the metered rate they charge to use it by 90%. So I think this is gonna be a, a game changer. I think this is based on the ChatGPT 3.5 API and, of course, they're coming out with 4.0 later this year. I've already had-

Jason Calacanis 20:46 Explain to the audience what an API is and why this is important, for those people who don't know.

David Sacks 20:51 Just application programming interface, it allows a, a developer of some other application to build on top of you. So in other words, like, a developer wouldn't have to use this chat interface to get access to the large language model. You could just submit your request through the API, and so...

Jason Calacanis 21:07 Give an example of what... Of, like, a, a popular app and how they might use the ChatGPT API.

David Sacks 21:13 Okay. Yeah. So, so I think, like, Notion actually had a demo that they published where-

Jason Calacanis 21:16 Incredible.

David Sacks 21:17 ... it was a pretty incredible demo. Maybe we can find it. And it would do things. They added actions in the demo, like generate a task list. So you could take, like, a document or a meeting summary and it would spit out recommendations for next steps or tasks. It could, you know, spit out a table. Basically, it's like autocomplete for everything that we talked about, right? So now Notion doesn't need to build their own LLM expertise, they just buil- use the API. And they can-

Jason Calacanis 21:46 So when the Notion app, you say, "Hey, I'm, I'm building a marketing plan," and you say, "Well, okay, give me a list of things that should be on my marketing plan for my new app," it sends a signal-

David Sacks 21:56 Right.

Jason Calacanis 21:56 ... to the ChatGPT API, which will be on Azure, Microsoft's platform, and then it gives you the data back. You don't have to build the language model.

David Sacks 22:01 Yeah, No-

Jason Calacanis 22:02 Incredibly powerful.

David Sacks 22:03 ... tion ha- Notion has all the content that they need, but they don't have the AI expertise. Now they don't have to generate or, or create AI expertise in-house, they just use the API.

Jason Calacanis 22:13 I wonder-

David Sacks 22:13 That's really powerful. And I... But, but just to finish the thought here, I think that one of the things that's probably misleading about these stats around funding and, uh, that there's like almost 600 startups already that are AI startups is that, you know, what happens when there's a new wave is that founders are smart, right? And they know how to market themselves in the way that is most compelling to VCs. And they know that, like, VCs, frankly, are a little bit lemming-like in terms of their migration to the next wave and wanting to glom on to the next big wave. So VCs are now looking for AI. If you're a founder and you're, you build one feature on top of the, you know, OpenAI API, now all of a sudden you're going to market yourself as a AI company. You're not gonna market yourself as just a SaaS company. And so-

Jason Calacanis 22:57 And that's valid. Yeah, I mean-

David Sacks 22:59 So it's gonna-

Jason Calacanis 22:59 ... it could be gamed or it could be, like, a great pivot, you know?

David Sacks 23:02 Yeah, and it's not, it's not totally one or the other. I mean, it's just that if you have a plausible connection to AI as a founder, you're going to start marketing yourself as an AI company. And so that's how all of a sudden you can have 600 of these companies, you know, that are all of a sudden out there in the wake of, of this sort of ChatGPT is I think a lot of companies are recategorizing themselves.

Jason Calacanis 23:26 I literally had this experience not three weeks ago, right before I went to Japan. A serial founder and team that we've backed before that had an exit said, "Can I show you something?" I said, "Yep." Got on the Zoom, showed me a little proof of concept using ChatGPT, and, uh, he said, "This is my idea. This is the vertical." And I just said, "Okay, what do you want?" He said, "500K for 10%." I said, "Okay, done. Great. Let's learn." And it's a easy bet for us to make because we know it's a serial team.

Chamath Palihapitiya 23:53 For OpenAI, the way that it could become a trillion-dollar company is actually by cutting the cost to such a low degree that nobody else can effectively compete with it. And then at that point, they can become a small, small, small tax. You'd rather just pay it than try to compete with it. And I think for OpenAI, that's actually a very brilliant strategy. So that's how they, they could get to become very, very large in valuation, would be to become so pervasively relied upon and where they take such a minuscule...... take rate of their participation in you building a company, that could be really effective for them.

Jason Calacanis 24:26 Like cloud computing, right? Like, we're gonna just take such a small tax.

Chamath Palihapitiya 24:29 Yeah. Well, that's not a small tax, that's a large tax.

David Sacks 24:31 That's a picks and shovels play in a way to create the developer ecosystem for AI. And Chamath, to, to your point, I mean, I think you raise a good point that, you know, what was their motivation to take such a dilutive round, you know, the $10 billion at... What was the valuation at 30?

Jason Calacanis 24:46 30, yeah.

David Sacks 24:46 Yeah, and does that imply that they're not confident? I mean, the, the flip side of it could be maybe they know they wanna compete on the basis of rapidly, you know, becoming the developer platform. And so they're gonna subsidize that developer platform, you know, with negative gross margins for some period of time, and maybe that's why they need a lot of capital.

Chamath Palihapitiya 25:04 And they were in kind of a reflexive loop of just cost of getting better versus the amount of money they had to get better, and so maybe they were forced to do it. And then in that point, how would you justify... You would say, "Well, the other 50% is still hugely valuable, so that's enough for us." And I think that that's, that's very logical as well.

Jason Calacanis 25:22 Brad, uh, you have your finger on the pulse of LPs, uh, limited partners who back funds, like Chamath's, Sax's mind, and yours. We heard 6.5% on your money for no risk. Well, you and Chamath's position is, hey, you have to triple that if you wanna be a private market investor. That's about 20%. 20%, rule of 72, that means every three and a half years you gotta double. If you're doing that for a 10-year fund, you're looking at a 5X fund is kinda table stakes then, I think, just back of the envelope math. What are LPs thinking right now? Are they looking at this world and saying, "I should just be all in cash," or are they saying, "Yeah, everybody thinks we should be all be in cash, therefore there's not gonna be enough money in private, therefore there's an opportunity there. We know the 6.5% rate, you know, that's not gonna be here forever, it may be here for a little while, but we need to, we need to keep investing in venture." Uh, or are they just cutthroat about it? Like, "Let's pause venture investing, private market investing"?

Brad Gerstner 26:18 Uh, it's a great question. First, when I look at the three-year treasury bill, it's like 4.7. Not to quibble here. So I think Chamath's getting a little goosey-goosey on his 6.5, but the, the fact of the matter is these got-

Chamath Palihapitiya 26:31 What does that mean, goosey-goosey? What does that mean?

Brad Gerstner 26:33 (laughs) You know, you get a little-

Jason Calacanis 26:34 Oh, when they're goosey-goosey, it's a little excited?

Brad Gerstner 26:36 You're super special. You're VIP. JP

Narrator 26:38 (laughs)

Chamath Palihapitiya 26:39 Oh. Oh.

David Sacks 26:40 Maybe there's some sort of, like, uh, bond rate that included corporates or something. Maybe it was just T-bill.

Jason Calacanis 26:44 I'm getting like 5.2 from Robinhood, on my Robinhood account for J Trading, so it's, it's right, it's right there.

Brad Gerstner 26:48 What is in that? What is in that, Jason? They probably got some junk bonds in there ripping you off.

David Sacks 26:52 Yeah.

Brad Gerstner 26:53 (laughs)

Jason Calacanis 26:53 Whatever, whatever it is, I'm getting five points. It sounds pretty good to me.

Brad Gerstner 26:56 Well, you are until you're not. You are until you're not. But at any rate-

David Sacks 26:59 It's 100% T-bill, parentheses, and junk bond fund.

Brad Gerstner 27:02 (laughs)

Jason Calacanis 27:02 (laughs)

David Sacks 27:04 Look at the fine print, Jay Kalanick.

Brad Gerstner 27:05 You know, uh, LPs have a 10-year view. They understand, like most people... I mean, li- listen, if you look out at the 10-year, the reason the 10-year is, you know, that we have real interest rates at about 1.5%, so that's the 10-year less expet- expected inflation when you look out, is because it... people expect inflation to come down and they expect rates to come down. So if you were an LP and you said, "I'm not gonna invest in venture in the next two vintages," which may be the best two vintages we've seen in a long time, because prices are adjusting, et cetera, "and I'm gonna move it all into some rate bet." First, it's just very difficult to do. They don't move the, their allocations around that quickly. Now, a wealthy family as an LP could move their allocations around really quickly, but if you're Texas or you're Ohio, or you're a sovereign wealth fund, you're betting on the arc of value creation. I would say this, the consequence is they're narrowing their aperture as to the venture funds they wanna allocate capital to. So-

Jason Calacanis 28:07 Okay, explain that. Unpack who they are narrowing the aperture term to.

Brad Gerstner 28:10 Well, we've talked a lot on this pod about, uh, the power law. And the truth of the matter is, whether we're talking about AI or software or anything else that, you know, people are, are gonna be funding, it's 10% of the investments that are gonna yield 90% of the returns.

Jason Calacanis 28:28 Yeah.

Brad Gerstner 28:28 And so they're looking at that and saying, "Who are the top 10 firms in Silicon Valley? I either wanna get allocation to those firms who are seeing the best deals, converting the best deals, and are, are selective," like Sax talked about, "or we just don't wanna allocate." And so I think, you know, what we saw over the last two years, Jason, was an explosion of new funds.

Jason Calacanis 28:48 Yeah.

Brad Gerstner 28:48 An explosion of new, uh, you know, first-time, second-time funds. I think subscale small funds with no DPI, uh, they're gonna find a really, really tough time, to Chamath's point about DPI raising capital.

Jason Calacanis 29:04 Okay.

Brad Gerstner 29:04 And you're gonna see the scale players scale.

Jason Calacanis 29:06 So part of that, uh, is clearing out the inventory from the last cycle. Two new stories this week about companies, you know, maybe struggling. Sequoia got off the board of Citizen. If you don't know Citizen, that's that app that tells you where crimes are happening in your city. Very popular in San Francisco. Uh, it's literally goes off every 90 seconds. (laughs) It's pretty dystopian. Uh, that company, Citizen, uh, which is a pretty cool app, uh, has raised $130 million to date. Sequoia led the Series A in 2017. Uh, they did a pay-to-play round. If you don't know what that is, um, basically, if you don't invest, you get crammed down. How does the cramdown work? Well, your shares in the company went down 10 to one, and you probably got moved to, uh, common shares as oppor- as opposed to preferred, which has a series of protections. They get their money out first, yada yada. But Sequoia, uh, refused to participate. According to this FT story, again, Sequoia did not comment on this. It's, it's kind of something you don't do at as a VC when something goes bad at a company and you leave the board. You generally don't wanna say, uh, bad things or taint the company, uh, any more than leaving the board does. So a bunch of cramdowns happening, and then dovetailing with that, Instacart, according to the Wall Street Journal, had a big Q4 as it prepares to go public.Instacart, if you remember, we talked about it on the show, cut its internal valuation 75% last year from $39 billion to $10 billion. According to sources, Instacart's Q4 results, uh, according to the Wall Street Journal, up more than 50%, even though order volume grew only 16%. Why? They turned advertising (laughs) on the app, just like Uber and Amazon. Uh, a lot of these commerce ferks- uh, folks are building ad business inside of theirs. Uh, so what do you think about what's happening as we clear out this private? Uh, anybody have thoughts on Instacart or the cram down rounds? We can go either way with this, and then we'll go to public.

David Sacks 31:05 I, I wouldn't focus too much on those two companies. I think what we're gonna see in the second half of '23 and all of '24 is a lot of medicine being taken, a lot of s- down rounds, a lot of structure. It's gonna be A Tale of Two Cities. The hot area, you know, AI is gonna continue to receive new investment. And all these companies that, you know, rece- that receive peak valuations in 2021 are gonna have a day of reckoning, either, you know, if they're lucky, maybe they have a flat round or mod- modestly up round, but a lot of them are gonna have down rounds or restructurings. And, uh, this is gonna be going on for the next year and a half.

Jason Calacanis 31:39 What's your philosophy, Sacks, on leaving a board? This is a really dicey issue. When you give up on a company, h- what's the best practice there? How do you do it without damaging the company? Obviously, the founder relationship is gonna be hard. What, what have you learned about this as a, as a private market investor?

David Sacks 31:54 Well, I, I think l- I think that... S- sometimes we, like, flip, uh, board members internally at Craft just because people have different amounts of capacity. That's not a statement at all about the way Craft feels about the company. It's just a reflection of our individual bandwidths, uh, or whose expertise are needed at that time. But when the firm itself quits a board, I think there's no way to read that other than, j- you know, a statement of protest. And I don't know what happened with that company, but it seems to me that, you know, again, it could be a sign that, uh, the venture firm isn't happy with the way that they're being treated.

Jason Calacanis 32:29 The cram down, uh, Chamath, that's, that's a bitter pill to swallow. Why would founders do this cram down instead of just adding a little more to the top? Uh, and is there a way to do this without, you know, going scorched earth or poisoning the well, as it were? We, I mean, again, putting this app and Sequoia aside, this, this is happening all over the ecosystem. So is there a way to do this gracefully or is it just gonna be messy?

Chamath Palihapitiya 32:55 I think it's gonna be really messy. I mean, to state the obvious, no, no venture capital investor ever quits the board voluntarily of a great company that's doing well. That would be dumb. So as David said, sort of, like, the proof is in the pudding there. And at the same time, there are a lot of in- companies who don't want to see the writing on the wall and will do all kinds of gymnastics to try to stick a landing on a contorted financing. And sometimes those things have real consequences to other investors who just don't think it's the right thing to do. I wouldn't read too much into this, except that good founders have a responsibility to do what's right for themselves and their employees, nobody else. And the thing to keep in mind-

Jason Calacanis 33:50 Not the investors? Really? They're not supposed to-

Chamath Palihapitiya 33:51 No, I think you, I think you absolutely have to prioritize the people doing the actual work. And if y- and if you actually did prioritize them, what you would probably say to yourself is, "Oh my gosh, there are people who I work with, who I look in the eye every day..." Because investors you'll see once a quarter. "But I, I have my fellow employees that I, as a founder, that I look in the eyes every day, who've been toiling with me for umpteen hours a day, every day for years, and they are now totally underwater."

Jason Calacanis 34:21 Hmm.

Chamath Palihapitiya 34:22 "What is the right thing to do for them?" And I think if you just answer that question, you wouldn't do all these contorted things. You would just reset the valuation, you would refresh the equity pool, you would issue options back out to those employees, and you would move on.

Jason Calacanis 34:38 Hmm.

Chamath Palihapitiya 34:38 It's all these other things that get in the way-

David Sacks 34:40 Right, I agree with that.

Chamath Palihapitiya 34:41 ... of answering that simple, simple question where people fuck it up.

David Sacks 34:45 I've, and I've done that before.

Jason Calacanis 34:47 Sacks, if you don't have a team and you don't have a motivated team, you have nothing. Is that right?

David Sacks 34:50 I've done that before. I don't want to rehash one of my more miserable experiences, but I was dealing with a company that had a grossly inflated valuation. It was a total problem case. We voluntarily slashed the valuation in half and reissued options to the employees to keep them motivated.

Jason Calacanis 35:05 No big deal.

David Sacks 35:06 So yeah. Yeah, exactly. And-

Chamath Palihapitiya 35:07 It's not that it's no big deal, but it requires some amount of fortitude and, like, you know, understanding your priorities, I guess.

Brad Gerstner 35:16 But, Chamath, that's a-

Jason Calacanis 35:17 Barbara, what do you think? Yeah.

Brad Gerstner 35:18 ... you know, like, first, I think it's revealing that we think what happened here is so out of the ordinary. I mean, you flash back to 2001 to 2004, Sequoia, I don't think, funded a single loser in their portfolio. Right? Like, that's a time where you walked away from the ones that weren't winning and you fed the ones that were because you have limited capital and you don't know when you're going to raise your next capital. This idea that you have unlimited capital, you can give money to anybody no matter what they're doing with respect to their plan, I think is a, a function of the last 10 years. But to Chamath's point, the idea of tough talk, uh, you know, either out of CEOs or out of board members, has been in short supply in Silicon Valley. This idea that saying the truth, just speaking the words about needing to get fit or needing to lower the valuation, that somehow that is founder unfriendly is nonsensical. The truth is founder friendly by definition. And I think to Chamath's point, the less complicated you make this, right, you reset the valuation, you re-up the option pool, and then everybody has a choice to make.... and if the people who are on the board and backing the company choose not to re-up for whatever reason, they no longer believe in the path forward for the company, that's incumbent upon the founder to go find people who will.

Jason Calacanis 36:38 That's not abandonment, as it's being framed in this story. It is a trade. And I think maybe if you look at public market investors, Brad, nobody gets upset by a trade. A trade's a trade. But in the-

Brad Gerstner 36:50 Well-

Jason Calacanis 36:50 ... private markets, there's a lot more emotion involved, a lot more relationship material, and this founder-friendly concept of like, you're abandoning me. It's like, no, the trade here, it makes no sense for this firm and for this fund and for these LPs, right? You, at a certain point-

Brad Gerstner 37:05 Well, and sometimes, sometimes the founder needs to have the courage to look in the mirror and say, "What I'm doing is not working. I had a plan. I missed the plan by 70%. I'm lighting capital on fire. This is a charity, not a business." It's best to say, "It didn't work," shut it down and move on and do something else.

Jason Calacanis 37:23 Okay, so of course you're referencing Salesforce, so we'll pivot to that. (laughs) I'm joking. Uh, it's not that bad. Uh, but I think this is a good time to maybe talk about the public markets and inflation and what we're seeing in macro, so...

David Sacks 37:35 Can I set up a question for Brad, actually?

Jason Calacanis 37:37 Sure. Go ahead, yes.

David Sacks 37:38 Yeah.

Jason Calacanis 37:38 Lovely.

David Sacks 37:39 So, so on a previous podcast, I laid out my theory of how you could just use the two-year bond rate, relative to the fed funds rate, to understand where the bond market's sort of prediction market about inflation is going. And a month ago, the two-year bond rate was at 4.1% relative to 4.5% fed funds rates. In other words, the bond market was betting that interest rates would go down between now and two years from now, relative to where the Fed had it. So therefore, it believed that inflation had been conquered. Now, fast forward just one month later, and the two-year bond rate's at about 4.9%. You know, the fed funds rate's about 4.5%. That is a massive swing, basically 80 basis point swing in the, I guess, the two-year bond rate. And so the market seemed to be saying, all of a sudden, not just that they expect rates to be higher longer but also that the Fed needs to keep raising. And that is a big change. So Brad, what is the basis for that? And what do we now believe about inflation? I think just a few weeks ago, we were thinking that this problem was licked and the market took off like a rocket. It ripped. Now all of a sudden, it seems like investors are really worried that inflation is not over. So where, where does this stand right now?

Brad Gerstner 39:02 Well, I think when we started the year, you know, the, the 10-year was close to 3.2, where now we're closer to 4%. The 10 minus 2 is, is negative as it's, it's been in the last probably 10 years. So the market is clearly saying, you know, we saw some inflation prints that came in hotter. I think it's now consensus, what you guys have been saying on the pod, that, you know, although the second derivative is slowing, but we're ... it's, it's sticky, right? We're gonna get stuck at this four, four and a half, three and a half, and it's the slope of the curve downward is gonna be slower. Um, we've gone from thinking we were gonna have two 25s to now thinking we'll have three or four, you know? And so I think everybody is now bracing for more inflation. But remember, when we started the year on January 1st, the consensus wisdom was we were gonna retest the S&P at 3200, we were gonna have an earnings recession, and that inflation was gonna continue to run hotter. The only surprise in my mind so far this year is how well the equity markets have held up in the face of a 10-year that's gone parabolic, right?

Chamath Palihapitiya 40:07 And-

Brad Gerstner 40:07 It's a-

Chamath Palihapitiya 40:07 ... a natural earnings recession.

Brad Gerstner 40:09 Right, and you, you know, you sh- you posted, you know, in our thread, Chamath, about just quality of earnings. You know, even the earnings beats are pretty low quality. And so I think, you know, we now are going to have a couple inflation prints coming up over the course of the next couple weeks that are gonna be important. My hunch is, you know, everybody has tilted again on, you know, what we saw (laughs) in the last couple prints. My suspicion, if you look at Morgan Stanley and Goldman Sachs, the consensus view is that we're still heading in the direction of 4% faster than I think people emotionally think. So I would say there's maximum uncertainty in the world. The fear that inflation is uncapped the way Larry Summers was articulating November and December is less today than it was. But what's emerged is this idea that we're going to have higher rates for longer, and we're gonna have higher inflation for longer. Now, the question I'd throw back at you is, the market abhors uncertainty. The market's done totally fine during periods where we had 3% inflation and 5.5% rates, right? When, when the internet boom that was, you know, 2000 to 2005, rates were a hell of a lot higher than the rates are today. So I don't think that higher rates and higher inflation means that we can't, you know, invest in venture-backed companies that have huge secular growth curves.

Jason Calacanis 41:35 The world doesn't end-

Brad Gerstner 41:37 But what I do think-

Jason Calacanis 41:37 ... at that level.

Brad Gerstner 41:38 ... it means is, like, if there's massive uncertainty in the world, if allocators of capital don't know whether rates are gonna double again, whether inflation's gonna double again, then everything just shuts down. And that's really bad for the economy. I don't see that happening right now, but I do think that the prints over the course of the next eight weeks are gonna be important.

Jason Calacanis 41:59 Chamath, do you have any macro thoughts here? At the same time this is happening, we saw rents broke in the last month, so rents got cheaper, yeah.

Chamath Palihapitiya 42:06 A governing principle, I think I've probably said it too many times, but I'll say it again, rates are gonna be higher than we like and they'll stay here longer than we want. So if you use that as a principle, whenever the consensus thinks we're done, it's been pretty profitable to be on the other side of consensus. And so I still kind of maintain that we're probably gonna have a 5.5% fed funds rate.... which means that, I mean, I don't know, maybe Credit Suisse will offer me 7.5% soon on three-month T-bills. But we're gonna have higher rates. And I do think Brad's right though, in the sense that as long as we know that then that's it and we can forecast it into the future without it changing too much, it'll be okay. But right now, what you're seeing is a lot of make-believe going on in, in the stock market. So Nick, if you wanna just throw up that image. So this is a really interesting thing.

Jason Calacanis 43:04 This is the chart of, uh, cash flow versus earnings.

Chamath Palihapitiya 43:07 Yeah. So this is something that I saw in Bloomberg, which I thought was really interesting. And if you focus on the period of 2020 to 2024, what you see is the white line, which is net income adjusted for depreciation and amortization, and the blue line is cash flows from operations. So what does that mean?

Jason Calacanis 43:24 And this is for, uh, S&P 500 firms.

Chamath Palihapitiya 43:28 This is the best 500 companies in the world.

Jason Calacanis 43:30 Yeah.

Chamath Palihapitiya 43:31 And the white line is what you tell Wall Street in terms of what you make on paper. The blue line is what actually appears in the bank account. So why could there be a gap between what you tell somebody you made, "I made a dollar," versus what's in the bank, 50 cents? Well, the reason is that there's all kinds of accounting tricks that you can use, accruals, inventories. And all of these things allow you to present a healthier earnings report than is actually true. And so right now, we have the worst earnings situation, so the worst gap between what we are telling people versus what is actually in the bank account, that we've had for 30 years, since 1990. And so it just brings into focus the fact that we may be in the last few innings of trying to make sure this all looks okay. In which case, one faction of the investing world who thinks that this earnings recession is actually at hand would be kind of right. And then what they would say is that once we all realize that these earnings are fake and you reset down 15%, that's where you get to the mid 3000 in, in the S&P 500. Right now, it's around 4000. I don't know if that's true or not, but there's more and more evidence that would support that the way that they see the world could be credible. The other side says, "Hey, listen, this is a bump in the road. We're getting a handle on things and it's stabilizing. So even though it's higher than we'd like, it's not gonna change that much. So now just think about 10, 15 years from now and let's go."

Jason Calacanis 45:15 How, how does, uh-

Chamath Palihapitiya 45:15 And those are the folks that wanna rip the money into growth stocks and tech stocks again.

Jason Calacanis 45:19 How does the consumer play into all this? Record low unemployment, like it's 1% in Utah, 3.5% for the country, two and a half jobs for every American who's unemployed, and then these rents coming down. But consumers have seemed to have burned off all that extra money they had. So Brad, when you look at the consumer-driven economy that the world lives in-

Chamath Palihapitiya 45:40 That's not true because you have to understand, stimulus is still entering the economy. It's just harder to measure. So for example, take Social Security. You have cost of living adjustments in Social Security that's lifting payments by 10 and 15% because it's backdated for what was going on last year. And remember, last year, we had two, three, four, five percent inflation rates. So there is more and more money coming into people's pockets that we don't realize, and we're all on the hook for that as US taxpayers. So I think it's very dangerous to kind of look at one data point and try to pick off what's happening in consumer land, because there's all kinds of hidden ways in which money gets back to people.

Jason Calacanis 46:18 Hmm. Brad, do you have thoughts on the consumer? Because, you know, uh, I tasked, it does seem like consumers are still mon- spending money, but the cost of goods, in some cases, is coming down. I mean, h- how do you look at the consumer and try to make sense of what's going on here? Because it does seem the United States is in its own little bubble here, a world of just overemployment still, even though we're seeing these layoffs in tech.

Brad Gerstner 46:42 Well, the, uh, I would say, number one, uh, that the pop we've seen in rates, which impacts consumers by way of higher mortgages, higher variable expenses on their credit cards, was offset over the last few months by lower energy costs, so their cost of gasoline went down. Add in the things that Chamath's talking about, and I'm not sure you took a lot of money out of people's pockets. I would say this, that again, what we're talking about here, retail sales have continued to do really well. E-commerce sales in January were, were, were quite strong. That would all be consistent with the soft landing, but here we are, you know, again, talking about macro. I think when you spend this much time talking about macro, doing what we do, you know, like last year, I'll be the first to raise my hand and say, you know, like our friend Bill Gurley would say, "It leads you in the wrong direction." The fact of the, uh, matter is, it's totally unknown and unknowable where we're gonna go over the course of the next three or four months. I think there's a better ability to predict maybe over the course of the next couple of years. Um, but the fact is, if you would have told any... I was just with a bunch of, uh, investors who probably represent a trillion dollars of public market demand, 10, uh, or so long-only investors. If you would have told any of them that the tenure was gonna be at 396, they would have told you that the Nasdaq would be down 10% to start the year, and it did just the opposite. So I think you got, uh, you know, you're, uh, you have a bunch better chance, particularly if you're playing at home, right, than trying to, to guess the direction of that. Find five companies that you think are gonna grow, uh, and earn more money irrespective of the direction of rates and inflation, own those, uh, and enjoy your life.

Jason Calacanis 48:18 Uh, I'm looking at the world and going, "Sachs, my Lord, I'm seeing great founders, great companies, and $5 to $10 million valuations, and I can buy 5%, 10%, 15% of these companies. Uh, this feels like the best, uh, it's been for me as an angel investor, seed investor, or seed fund for a long time. This is fantastic."... a great deal flow. The deals are taking six weeks to close, we're having very thoughtful discussions. People are taking a real focused approach to how they deploy the capital, it is not YOLO. People are building models again, people are showing their CAC, they're being thoughtful about how they spend the money, they're being thoughtful about salaries and hiring. So what- what's your, you seem to think that, you know, what we're seeing here is challenging or a problem. What are your thoughts on how it's affecting your day-to-day business as somebody who's a company builder?

David Sacks 49:12 Well, let's separate two things.

Jason Calacanis 49:13 Yeah.

David Sacks 49:13 So, there's the tech ecosystem and then there's the economy as a whole. The fact of the matter is that tech already had its bubble in 2021. It had its crash in 2022. And now we're largely on the other side of that, there's still a lot of companies, like we talked about, that are gonna need to restructure, who raised during the bubble and may not have come to grips with that. But if you're talking about new investment, new rounds, new companies that are starting with a clean sheet of paper and a blank slate, you're right, things seem good and normal, right? People are making intelligent investments and obviously the innovation cycle doesn't have anything to do with the macro picture. I mean, technology wants to evolve and it's great engineers and product people who drive those ideas forward, and they're not thinking about interest rates. I never thought about the Fed funds rate at all when I was a founder running companies. So, let's just put that aside and acknowledge that-

Jason Calacanis 50:07 Great, that's a great ...

David Sacks 50:07 ... innovation's gonna keep happening no matter what the macroeconomic picture looks like. That being said, I mean, just for the, you know, listeners of the show who aren't startup founders, I tend to be a little bit gloomy about the macro picture right now because, yeah, it's true that what Brad said that we've had good economies with 5% rates before, but I think you also have to look at the pace of change or the rate at which the- the Fed funds rate has been going up. And if you look at the chart of rate increases, it is a very steep chart of rate increases and I just think that for the last decade or so, we've been operating in this, like, zero interest rate r- reserve environment with lots of monetary stimulus and I think a lot of companies, a lot of parts of the economy got addicted to that stimulus. They got hooked on drugs. Now all of a sudden, you're putting 'em through withdrawal very, very quickly and obviously the withdrawal pains are gonna be worse if you can't taper off slowly. So, it looked like just a few weeks ago that the Fed was done raising rates, now we know that they're not. We don't really know when they're gonna stop, so I tend to be a little bit gloomy with respect to the- the big macro picture because I just don't see how you can change rates this fast and n- I mean, look at like real estate for example. We just saw the first year over year decrease in the housing market in a while. And again, that's all driven by rates, the cost of mortgages going up.

Jason Calacanis 51:41 And two big defaults in the first two big defaults.

David Sacks 51:44 Yeah. So I- I think that there's gonna be some pain ahead. Now, you know, ironically from the standpoint of the tech ecosystem we may have already taken our medicine and we may already be on the other side of it.

Jason Calacanis 51:55 It feels like actually that is a good way to- to look at it, is we took the medicine, it's painful and here we

Jason Calacanis 52:01 are.

Brad Gerstner 52:01 Jason, m- maybe- maybe that's the segue to, uh, talking about Benioff. I would say we haven't took it, we're taking it. We're starting to take our medicine.

Jason Calacanis 52:10 Well, it makes sense that Benioff with his, you know, very loving family kind of approach to running the company might actually, it might take him a little while to become a bit cutthroat so as everybody knows, Benioff and Salesforce have had a lot of turnover, a lot of senior executives have left, voluntary or involuntary, but shares were up 11% on Thursday after reporting their Q4 earnings. They're up 14% year over year, small net loss, but the company bought back $2.3 billion, uh, worth of its stock. We're gonna see more of that for sure, and they're going to be increasing its share bu- buyback program to $20 billion going forward and like Meta, which suddenly got fit and got religion, Benioff is now basically with all these activists, I guess, on- on his ass, he says, uh, and this is the quote from the earnings call, "We're more closely scrutinizing every dollar of investment and resource and very focused on driving operational excellence and automation across our business, focusing on 4 key areas, ... expense restructuring, employee productivity," huh, there it is, "product innovation and building relationships with shareholders. Profitability is our, truly our number one strategy," and that's my number one strategy, that's the number one thing we talked about at the start of every meeting we have in this company." Quite a turnaround. Your thoughts, Brad?

Brad Gerstner 53:43 I don't think the story is th- you know, that Benioff, you know, made these cuts and that activists are around the rim. What was significant was his comments, uh, that he made, and I tweeted about it today, you know. He said, "Every CEO in Silicon Valley has looked at what Elon Musk has done and asked themselves, do they need to unleash their own Elon within them?" And, you know, listen, we've been talking about this for nine months. The reality is if you look at the employee count at Salesforce, in 2015 they had 19,000 employees. As of last year they had 80,000. In seven years they 4X'd the number of employees. They were a mature company by 2015, their employee's CAGR at 23%. You know, we don't talk about it in this way but these large companies, these employee bases, they're not unions but they may as well be-... right? They-

Jason Calacanis 54:41 Un- unpack that. Wh- why would there be unions?

Brad Gerstner 54:43 I just think there's, uh, there, there is, during this age of excess, where it was just easy for people to hire more people and build more things, not to make tough choices, et cetera, right? We just had an explosion like we've never seen in Silicon Valley, in the number of employees in these businesses. Meta went from 10,000 to 80 thou- 85,000. Google went to 185,000 and at those levels, it's very difficult to govern them. And when the CEOs went to make decisions in the businesses, there would be protests, revolts within the business, 30 or 40,000 people would sign a petition-

Jason Calacanis 55:23 Petitions even. Apple had petitions. (laughs)

Brad Gerstner 55:25 ... saying, "No, we're not coming back to the office. No, we're not going to work three days a week. No, you can't name our AI bot, uh, what you wanna name it because it offends us." And so, to me, what's more significant is over the last six months, we've seen courage gain momentum in Silicon Valley, right? What's deeply underappreciated about Meta, uh, and the changes they made, it would be one thing if it was just window dressing, "We cut 10% of the workforce, kinda tighten our bel- belt a little bit." But Zuckerberg got on his call and he said, "We only have two priorities in 2023. One is efficiency." And he went into depth about once they started cutting people, how the company got faster, the product release cycle sped up, the employees got happier. And now it's an end in of itself to delayer the business. That's what we're hearing out of Benioff as well and I think it's, uh, you know, people can quibble with how Elon went about the change, which you and, you and, uh, David are very familiar with at Twitter, but the reality is, he lit a fuse in Silicon Valley that is giving courage I want. Whether it's private companies, series B companies, pre-IPO companies, public companies, I've had that conversation more times, uh, than, than you can imagine over the course of the ni- last six months. And I think it's a really important change, because I think it breathes new productivity into all these businesses and importantly, it unleashes these engineers back into the ecosystem to start the next wave of companies.

David Sacks 57:00 Yeah, so Jason-

Jason Calacanis 57:01 Yes.

David Sacks 57:01 ... I mean, y- you and I got to tag along with Elon during that transition phase at Twitter and the thing that I took away from it was just how much agency, you know, CEOs have that they're not using. I mean, Elon went in there and he basically changed whatever he saw that he didn't like. I mean, unsentimentally t- and quickly and, you know, and so you look at all these other companies, you talk to CEOs sometimes, and they act like they're prisoners of their companies. Like, "I can't change this, I can't change that."

Jason Calacanis 57:34 Stockholm Syndrome, yeah.

David Sacks 57:35 Yeah, it's like, "You know, I've got all these employees and all these layers and, but I can't... You know, there's always some reason, I'm afraid of the bad PR or, you know, wha- whatever it is." And I, you know, the thing I came away realizing is just how much agency particularly found our CEOs have that they just don't use. You know, they're always like hemming and hawing and wringing their hands and acting like they're tied down by this or that, and the reality is they can do whatever they want just about, um, you know, within the bounds of what's, what's legal and, and I think they're starting to realize, "Oh wait a second, like, I actually can do that. You know, I can walk into my company one day and if there's a team that's not performing, that's giving me answers that don't make any sense-"

Jason Calacanis 58:17 "I could start over."

David Sacks 58:18 "... I'm just gonna start over."

Jason Calacanis 58:20 Reboot. Yeah, reboot.

David Sacks 58:20 Yeah.

Jason Calacanis 58:20 I mean, if you can't get it done-

David Sacks 58:22 Yeah.

Jason Calacanis 58:22 ... then we need to have somebody who can do it." And it's, it's incredible. Like we were doing an analysis on This Week in Startups of the, you know, employees per company and the revenue per employee per headcount and I got roasted for having this con- even having this conversation. And now here we are, Chamath, people are looking at efficiency, we're looking at, you know, really, uh, how efficient can these companies, uh, be run? Is there a limit to where this is going? And, and if we were to look at this as a process, where are the FAANGs, the Amazons, the Googles, Facebooks, where are they at in terms of percentage to being at Elon? (laughs) If you, if you were to put Twitter and Elon as the, the goal, where are these companies? And I don't know that that is the goal. Maybe, maybe he's cut too much. Who knows? We'll find out. I think it's a, it's a, it's a pretty radical exper- experiment he's doing there. Yeah.

Brad Gerstner 59:16 Yeah, I don't think that's a reasonable or an achievable goal for a public company.

Jason Calacanis 59:23 Okay.

Brad Gerstner 59:23 I mean, I think the thing we have to keep in mind is Elon's also capable of doing that because he paid $44 billion of his own money to buy something that he owns outright that no longer has revenue pressure to outside stakeholders.

Jason Calacanis 59:37 Different se- circumstance.

Brad Gerstner 59:38 Revenue went down 70% at Twitter. Well, that only affects him and, and his ability to pay whatever he borrowed in order to buy that company and as long as he's willing to fund that somehow, he's literally allowed to do whatever he wants. That's no longer the case when you're borrowing money from other people to build your business, which is what every other capital market participant does, public market participant does and private market participant. So I think that that distinction is just a little bit important because it probably means that there is a shadow of what Elon is doing that's probably the threshold of what's possible and it's probably, you know, sort of 50% headcount reduction. That's probably the, the bound in which things break because I think the thing to keep in mind is that over time, this stuff is like collagen in the body. It just like, it creates these interconnected webs of just very difficult stuff that you, sinew that you cannot tease apart-

Jason Calacanis 1:00:38 Blockages.

Brad Gerstner 1:00:39 ... so even if you try to go in...

Chamath Palihapitiya 1:00:42 ... and cut 50% of a company like Facebook or Google or Microsoft or Apple or Amazon, it would be so difficult because all of a sudden the coordination that happens at that scale I think would get lost. So, I'm not sure if it's possible. You kind of have to do what they're doing, which is cut 5%, then cut 10%, then cut 5%, then cut 5%. And I know it frustrates people on the outside looking in, but I think it's the- it's probably the only way it can be done without torpedoing the company.

Jason Calacanis 1:01:12 What does that say on a culture basis then? Because that is the big critique. Hey, you're creating now this culture of fear. I guess the opposite of that is you're creating a culture of performance and expectation. So, how do you think about it on a culture basis? 'Cause that keeps coming up from founders, to David's point.

Chamath Palihapitiya 1:01:25 It depends, because I think companies when they're smaller, I mean, I can tell you, when I was a part of the Facebook senior management team, we would rank all the employees. So, we had a very good sense of who was the best and the most performant, all the way down to who was not. And we were able to do that probably up to two or three thousand employees. That's not possible at 50,000 and nor is it fair. So, because you don't know who these folks are, the real contributors are, you have to do what Elon did, which is literally go person to person and say, "Who is unbelievably performant or critical?"

Jason Calacanis 1:02:03 Yeah.

Chamath Palihapitiya 1:02:05 In the absence of doing that, you just don't know who to let go, and so you have no choice except to bleed down. The question that I have, and Brad, maybe there's a smart analyst on your team that can do it is, right, and it's more of a statement as well. Can you imagine the totality of stock-based comp that's been given out by all these companies since 2015 when they were CAGRing their employee bases by 25% a year? I bet you, it's a trillion and a half dollars at least. You think it's that- you think it's in that order, management?

Brad Gerstner 1:02:36 100%. This has been the greatest grift in the history of Silicon Valley, for sure.

Jason Calacanis 1:02:42 Let's pause for a second. Can you explain what we're talking about here? Stock-based compensation obviously is the stock given to employees. It's generally not counted-

Chamath Palihapitiya 1:02:50 Well, let's do it this way-

Jason Calacanis 1:02:51 ... in the accounting, right?

Chamath Palihapitiya 1:02:52 Let's do it this way. Let's just say that you believe in capitalism, okay?

Jason Calacanis 1:02:56 Yep, we all do.

Chamath Palihapitiya 1:02:56 So if you, if you believe in capitalism, let's say the, the four of us start a company and there's a dollar of profit and we each own 25% of the company.

Jason Calacanis 1:03:06 Got it.

Chamath Palihapitiya 1:03:08 Normally, what you would say is each of us get 25 cents, right?

Jason Calacanis 1:03:13 Reasonable.

Chamath Palihapitiya 1:03:14 We own 25% each. There's a dollar of profit. We each have 20.

Jason Calacanis 1:03:18 Sure.

Chamath Palihapitiya 1:03:18 So, that means that in four years, right, we each will have made a dollar. 'Cause so, let, let's just say it costs a dollar to get off the ground, or four dollars to get off the ground.

Jason Calacanis 1:03:25 All in summit budget .

Chamath Palihapitiya 1:03:26 We all would have been made whole, we all would feel great, and then now every year afterwards, that 25 cents we get as profit. Now, let's say that, Jason, you add a fifth person and Brad and David and I can't say anything about it.

Jason Calacanis 1:03:40 Okay.

Chamath Palihapitiya 1:03:41 And that fifth person now gets a fifth of it, right? And so now all of a sudden, our 25 cents goes down to 20 cents. Then let's say you add five more people. Now all of a sudden our 25 cents went to 20 and then it went to-

Jason Calacanis 1:03:57 10 cents.

Chamath Palihapitiya 1:03:57 ... 10. Yeah. And at some point, Brad and David and I raise their hand and say, "Hey, this is not the deal we signed up for." And you say, "Well, too bad because revenue would not be what it is and profits would not be what it is without these extra six people." And that's effectively what everybody debates when they own a stock. The shareholders want that number to be as small as possible. And I think what Brad is observing is that in Silicon Valley, what has happened is there's been poor accountability for what all of those extra people do. And profits haven't written- risen fast enough to make the existing three people on the cap table feel okay about it. And that, instead of talking about three people and six and a dollar, you're talking about (laughs) trillions of dollars and hundreds of thousands of extra shareholders.

Jason Calacanis 1:04:50 Uh, Brad-

Chamath Palihapitiya 1:04:51 Millions of extra shareholders.

Jason Calacanis 1:04:52 I, I know we have some charts here, so we can do some fun with numbers.

Brad Gerstner 1:04:55 I think taking a step back, I think it's very important to realize that stock as a form of compensation to create alignment, excitement in the early stage of venture capital is part of the true magic of Silicon Valley. You know, you're starting a company, you ask somebody to go on this adventure, take a bunch of risks. They often have to cut their pay, they could get at Google by half to join your adventure. It's only fair that you give them stock in the company and they share in the ups. And if the company smokes it, uh, they get rich for taking that incremental risk on their behalf and on their family's behalf. What's happened over the last 15 years is something totally different, which is this stock as a form of early stage compensation, right, continued. And there's a feature in Silicon Valley as companies came public, one way to kind of hide an expense in a business is to bury it in SBC. So, let's say Google wanted to hire somebody for four million dollars, which they're doing today in AI. But instead of paying them four million in cash, which would all count against their operating profit, they give them 500,000 in cash and three and a half million dollars in stock. And let's say they make all that stock investable immediately, Jason, in this year. It's obvious to you and I, that's just cash, the person turns around and sells it, it's a real expense of the business, real expense to the shareholders. But when they report their earnings and they report adjusted EBITDA, they adjust out the three and a half million dollars that they gave by way of SBC.

Jason Calacanis 1:06:33 Why did stock-based comp, SBC, get excluded from accounting? What is the history of that? And is that gonna change now? Are people going to say, and shareholders demand in this new economy, in this new, you know, sort of reality, "Hey, you know what? You, you can't play fun with numbers here. Stock-based comp-"... has to come out. What, what would you like to see, Brad?

Brad Gerstner 1:06:54 It's fairly esoteric, but there, back in the mid-2000s, 2004, 2005, there was a, an accounting, there was a big debate about this. Warren Buffett was famously saying, "Listen, it doesn't matter whether you pay in stock, whether you pay in cash, whether you pay in cans of beers, like it all costs the same."

Jason Calacanis 1:07:13 He's right.

Brad Gerstner 1:07:14 And s- and so there was a debate. We had a statement, an accounting statement, FASB 123, and in that statement it said, "GAAP EBITDA must include the cost of stock, uh, based compensation." So all of a sudden, if I'm reporting GAAP EBITDA, I gotta include the cost of stock comp, which it does today. But what-

Jason Calacanis 1:07:34 But, but- (laughs)

Brad Gerstner 1:07:35 ... but, but, but what-

Jason Calacanis 1:07:36 Whoa. Whoa.

Brad Gerstner 1:07:36 ... what did everybody do?

Jason Calacanis 1:07:38 Whoa. Oh. Oh. (laughs) But what happened?

Brad Gerstner 1:07:40 They started adjusting it out.

Jason Calacanis 1:07:41 (laughs) (claps)

Brad Gerstner 1:07:43 Right? Because they said, "Hey, this is a real expense."

Jason Calacanis 1:07:46 (laughs) .

Brad Gerstner 1:07:46 Right? Because we're not, it's not cash we're giving out the door. So-

Jason Calacanis 1:07:49 What did they call it? Did they come up with a term for this, adjusted EBITDA? Yeah. No. They just called it adjusted-

Brad Gerstner 1:07:52 So, the EBITDA calculation-

Jason Calacanis 1:07:52 No. They just called it adjusted EBITDA. That was the joke. (laughs)

Brad Gerstner 1:07:55 ... adjusted EBITDA. And the crime-

Jason Calacanis 1:07:56 Thank you. (laughs) I keep forgetting the joke.

Brad Gerstner 1:07:57 The crime y- the crime here is that when rates fell to zero and everybody was making money on tech stocks, nobody wanted to rock this boat. And everybody just said, you know, like adjusted EBITDA, kind of ignore it. I can, I can model it into my future dilution. So we model a share count, uh, over the course of the next three years. But this literally over the last five years went parabolic because, I just shared with you, the number of employees exploded, the amount of share-based compensation exploded. I think c-

Jason Calacanis 1:08:31 Because of competition for those employees, we would assume?

Brad Gerstner 1:08:33 Coinbase, I think just reported SBC, which ho- ho- hold your hat, Sachs, was 70% of revenue, not 70% of their earnings. 70% of their revenue.

Jason Calacanis 1:08:48 This from Coinbase we're talking about here?

Brad Gerstner 1:08:49 That's for Coinbase. And so, you know, last week there was something that I thought was pretty brave. Booking.com on their earnings call really called this out. And what they said is, "Listen, we've been playing by the rules. We understand that stock-based comp is cash." And they say every, every metric we report includes the impact of stock-based compensation. And if you look over the last 15 years, if I'm an owner of Booking.com, I was only diluted by about 5%. If I was an owner of Salesforce or Expedia, I was diluted by about 25%. That's 25 of m- percent of my ups were given away, right? But yet those things were adjusted out when they reported earnings. And so, you know, what's become en vogue today is CFOs get on their calls and they say, "No, no, no, no, don't worry. We're gonna buy back a lot of shares so we won't have much dilution." Okay? But if you take my two billion of profits that Chamath just talked about, and it goes right out the door just to buy back the shares you just issued, you're effectively round tripping that money, then it just proves the point. It's cash. It's an expense to shareholders. And my biggest problem with it is it's led to the bloat because if companies actually had to account for this as cash, right? As opposed to-

Jason Calacanis 1:10:20 They wouldn't do it. They wouldn't do it. Yeah.

Brad Gerstner 1:10:21 ... being able to do it, they wouldn't hire as many people. They wouldn't-

Jason Calacanis 1:10:25 Mm-hmm.

Brad Gerstner 1:10:25 ... pay as much in stock comp. And I, I, I'll end with this because I wanna end with a solution. Every comp committee on every board, frankly, their heads spin when you start talking about this subject. They bring in a comp consultant and the comp consultant, they, I- is really the CYA for the comp committee because they want to approve a comp plan that's been recommended by the management team and they just wanna know, is this what everybody else is doing? Okay? So everybody's doing it. So the comp consultant looks around and says, "Yeah, all your peers are doing this." This is why Charlie Munger said, "I'd rather throw a pit viper down the front of my shirt than hire a comp consultant." Right? What is going on on these comp committees? If you give bonuses to anybody in your business that are, that is based on an adjusted EBITDA metric rather than free cash flow per share, per share is the key here, it's negligence. It's negligence. So if comp committees just walk in and they say, "The gold standard as a public company is 50 basis points annual dilution," that's Apple, that's Booking.com, Visa, Mastercard, or even below that, that's the gold standard once you're in the public markets and we will never incentivize our empl- uh, our employees on the basis of anything that excludes stock comp, and it has to be on a per share basis, that would be a massive leap forward for public company accounts.

Jason Calacanis 1:11:54 Seems reasonable. Anybody have any other thoughts on that? Stock-based comp? No.

Jason Calacanis 1:11:59 All right. Sachs, where do you wanna go? You wanna go Fox?

David Sacks 1:12:01 I'm willing to do Fox.

Jason Calacanis 1:12:02 Yes, let's do Fox.

David Sacks 1:12:03 Yeah, let's do Fox.

Jason Calacanis 1:12:03 I mean, Fox is kind of crazy. Uh, okay, so Rupert Murdoch had been, uh, deposed here with this Dominion Voting system lawsuit. They're suing Fox for 1.6 billion in damages over claims made on air, uh, that we all know around technology-enabled election fraud. We remember this wild period at the end of the last election cycle with this incredibly false claim that the election was stolen. Something, you know, both sides of the aisle said did not happen. However, it seems that the hosts on Fox knew it wasn't happening, knew it wasn't true, but were engaging, uh, in entertainment of allowing these people to come on air and say the election was stolen. So Murdoch said, "I would have liked us to be stronger in denouncing it in hindsight."And when asked if he could have stopped the host from highlighting these allega- these false allegations on air that were obvious to everybody, he said, "I could have, but I didn't."

Chamath Palihapitiya 1:13:03 He said the truth. He's not allowed to lie in court.

Jason Calacanis 1:13:06 Yeah. So- (laughs)

Chamath Palihapitiya 1:13:06 Just on air, but not in court.

Jason Calacanis 1:13:07 I mean, just, I mean, uh, Stacks, to be fair, like, um, you, uh-

David Sacks 1:13:11 Yeah.

Jason Calacanis 1:13:11 ... really care about freedom of speech, you really care about the libel laws, you really care about the GOP, obviously, you bring it up every week here. So, when you looked at ... And, but you were very clear, you were not happy about the election denial, all that, like, false claims that Trump made and these insane people he put around himself. So, how do you look at these Fox hosts - and listen, you've been on Tucker and other things - knowingly spreading lies about something as important as the election, and then doing it in the most cynical ways? We, we sit here and every week we roast the media, the mainstream media, you particularly go after the Dems and the left and the media elites. How do you feel about these media elites, who are part of the GOP machine, lying incessantly, uh, about something as important as the election integrity-

David Sacks 1:14:03 All right.

Jason Calacanis 1:14:03 ... of the United States of America?

David Sacks 1:14:05 First of all, you're trying to tee this up as some giant dunk on me, J-CAL. I- You-

Jason Calacanis 1:14:08 No, I'm not. No, I'm not. You said from the beginning-

David Sacks 1:14:10 I need to remind the audience-

Jason Calacanis 1:14:11 You said from the beginning you didn't believe in this.

David Sacks 1:14:13 Exactly. Let's go back-

Jason Calacanis 1:14:14 Yes, I just said that. Yep.

David Sacks 1:14:15 ... to November of 2020 on this show-

Jason Calacanis 1:14:16 Yep.

David Sacks 1:14:16 ... because there may be a lot of, uh, parts of the audience that weren't watching back then-

Jason Calacanis 1:14:20 Sure, that's true.

David Sacks 1:14:20 I was really clear that I said Sidney Powell and Lin Wood-

Jason Calacanis 1:14:23 100%.

David Sacks 1:14:24 ... and Rudy Giuliani, I thought they were wackos, and this whole idea that the Dominion voting machines had somehow been rigged and somehow it involved Hugo Chavez was a wild conspiracy theory. So, I said it at the time-

Jason Calacanis 1:14:38 100%.

David Sacks 1:14:39 That I also-

Jason Calacanis 1:14:39 You did.

David Sacks 1:14:39 ... said that I thought that once the Supreme Court, uh, denied certiorari to Trump, I, I said that he had a, his right to have his day in court and to challenge the election in court. But once that the court threw out his claims and the Supreme Court denied certiorari, that that whole thing needed to stop. And it didn't stop, and that's why the Republicans lost that, uh, Purdue runoff seat in Georgia on January 5th. And then you add January 6th. So, you know, I've been warning against this for a long time, J-CAL. Now, with respect to, to Fox, I think you need to basically get a little bit more nuanced in, in what you're saying there, because I think within Fox, there were actually two groups of hosts. So, there was one group of hosts that I think you could say were Trump loyalists, and they basically not only platformed the Sidney Powell lies, but also endorsed them. And Rupert Murdoch admitted that they went too far and actually endorsed. And so you had Hannity and a couple other hosts do that, even though Hannity had some text messages that indicated he didn't believe it, so I think he came across the worst. However, there were, within Fox, skeptics of the Sidney Powell theory. And so I put Tucker Carlson in that camp, I put Laura Ingraham in that camp. And Tucker had Sidney Powell on his show on, I think it was November 19th, I think this was 16 days after the election, it was a 20-minute interview in which he grilled her, and he kept coming back to, "What is your evidence? What is your proof?" And if you were paying attention, he demolished her. I mean-

Jason Calacanis 1:16:07 I remember that. Notable.

David Sacks 1:16:08 Yeah, exactly. So, t- I mean, honestly, no one looks great when all of your text messages come out and you can nitpick about this or that text, but the bottom line is, I think Tucker did his job. You know, yes, he platformed Sidney Powell, but he platformed her in order to dismantle her. And you kind of have to be pretty dopey not to s- to see that she was dismantled after the appearance on Tucker.

Jason Calacanis 1:16:28 Should Fox be liable for knowingly platforming these people and endorsing them in some way? Or is it their freedom of speech, in your mind, as an attorney here, uh, or somebody with that, uh, you know, legal degree, where does it stand? Like, put aside, if this was, if this was CNN doing it, MSNBC-

David Sacks 1:16:49 Yeah.

Jason Calacanis 1:16:49 ... which what publication? If this was the New York Times and they knowingly lied, knowingly platformed some kooks with-

David Sacks 1:16:56 Yeah.

Jason Calacanis 1:16:56 ... a conspiracy theory, what should the price they pay for? And, and then how does that affect the freedom of speech that we all think, I think universally on this podcast especially, and in Silicon Valley, or at least we used to, that freedom of speech is really important. Do you have the freedom-

David Sacks 1:17:10 Yeah.

Jason Calacanis 1:17:10 ... to lie and platform kooks like this?

David Sacks 1:17:13 Let me answer you directly, Jason. I think this would be a better world if Fox were liable, but I don't think they're gonna be, because that's not the legal standard. I believe that if a television network knowingly spreads and endorses, uh, baseless accusations against somebody which they know or should know is basically untrue, I think they should absolutely be liable, uh, for libel or defamation. But that is not what the law requires. Under New York Times versus Sullivan, you're required to show that, that they knowingly spread misinformation, but in addition, you have to show that they had actual malice, which is that their intent was malicious. And I think, you know, Rupert Murdoch is a wily old dog, because he admitted on the stand everything but the thing that was most important f- for the plaintiffs to prove, which is actual malice. He admitted that they platformed things that they, you know, k- knew or should have known were false. He admitted that he should have put a lid on it sooner. He admitted that he knew it wasn't true. But he said the reason they did it is because they're afraid of their audience or a portion of their audience going to-

Jason Calacanis 1:18:14 Yeah.

David Sacks 1:18:15 ... some rival network. So basically, what he said is, in not so many words, is that his motivation was greed. (laughs) And in our system of law, that is a complete defense against claims of defamation. Now, I think what we need here is to rewrite the defamation laws. I think the Supreme Court needs to overturn New York versus Sullivan. Clarence Thomas has basically, uh, intimated that he would support that. I think that would be a great thing to do. I think actual malice should not be the requirement for libel. I think if a television network or a publication puts out information they know is false, they should absolutely be liable for it, and that is enough to show. And if we did that, by the way, it wouldn't just be Fox in this particular case. It'd be CNN and MSNBC would have to completely revise their coverage. And all of these