All-In PodcastE123: Trump indictment, de-dollarization, should VCs back Chinese AI? RIP Bob Lee
EVERY SPOKEN WORD
155 min read · 30,656 words- 0:00 – 4:12
Bestie intros!
- JCJason Calacanis
I can't see what's on your hat. What does it say? Super Gut?
- DFDavid Friedberg
One of my most exciting companies. It's called Ohalo.
- JCJason Calacanis
Oh, Mahalo. I still have mahalo.com.
- DFDavid Friedberg
No, not Mahalo. Unrelated.
- JCJason Calacanis
Ah.
- DFDavid Friedberg
Completely unrelated, nothing whatsoever to do with Mahalo. I remember Mahalo, great product. Sorry it didn't become like a-
- JCJason Calacanis
I went up against, you know, we were making $10 million in revenue, uh, at the peak.
- DFDavid Friedberg
Yeah.
- JCJason Calacanis
Had a hundred people writing, like, human curated search result pages.
- DFDavid Friedberg
I remember that.
- JCJason Calacanis
And it was doing so well-
- DFDavid Friedberg
Look at ChatGPT, you're, you're a great guy to reference the ChatGPT thing coming out of that.
- JCJason Calacanis
Well, then what happened was, they did the Panda update and we went from 10 million down to, uh, 500,000 in revenue overnight.
- DFDavid Friedberg
What was the Panda update?
- JCJason Calacanis
They looked at who the top sites were, eHow, Mahalo-
- DFDavid Friedberg
Yeah, yeah.
- JCJason Calacanis
... et cetera, and they just said, "Nobody can get any more than this amount of traffic." And they literally throttled the number of unique users they would send to you. And, uh, that was it. Game over. And, um, then everybody I knew at Google wouldn't return my emails and they were like, "We don't have partnerships with anybody." That's what Matt Cutts told me.
- CPChamath Palihapitiya
Are you saying that Mahalo's lack of success had nothing to do with the poor product and (beep) execution? It was Google's malfeasance?
- JCJason Calacanis
It got really rave reviews. It was backed by Sequoia then, um-
- CPChamath Palihapitiya
So did the movie (beep) but it sucked (beep) .
- JCJason Calacanis
You know, when you build a company that gets to 10 million in revenue in 18 months, you can talk, Chamath. But basically, looking at your resume here, I see that you've created nothing in your entire career.
- CPChamath Palihapitiya
(laughs)
- JCJason Calacanis
When you get in the arena, the arena, and you actually build a product, then you can talk to me. I had the number one blog in the world, one of the top five tech magazines in the world.
- CPChamath Palihapitiya
Ugh.
- JCJason Calacanis
And this is the number one tech and business podcast in the world.
- CPChamath Palihapitiya
This is so good. I touched a soft spot. I got to the warm underbelly there. (laughs)
- DFDavid Friedberg
Jake Hellis so rarely goes after Chamath. When he does, it's just gold. It's like-
- CPChamath Palihapitiya
Oh, it's, uh, it's incredible.
- JCJason Calacanis
You're talking to three founders here, Chamath. You're the odd person out.
- CPChamath Palihapitiya
Mm, I like that.
- 4:12 – 16:52
Trump indictment
- JCJason Calacanis
linen shirt. I guess let's just get this out of the way. Trump was, uh, arraigned, I guess is the term. He was charged in New York with 34 felony counts of falsifying business records. Alvin Bragg alleged Trump orchestrated a catch and kill scheme as well, to suppress damaging information before the 2016 election. Of course, Trump pleaded not guilty and did a, uh, feisty press conference or speech, rally at Mar-a-Lago. After that, prosecutors say the scheme involved falsifying business records to conceal payments to Stormy Daniels. We know all that. Same thing Michael Cohen went to jail for. The indictment wasn't a speaking indictment where it explained all the details. So Alvin Bragg hasn't tipped his cards by explaining in detail what the legal theories are and which information he has. And he was pretty clear about that, that he was not going to tip his cards, which makes this even more hard to understand what's going on and creates even more divisiveness. Predictably, the right is framing this as a witch hunt. But surprisingly, many on the left, including former SDNY head, Preet Bharara of the amazing podcast, Stay Tuned with Preet, which I love, he felt this was the weakest of the four major investigations that Trump is under. And he expressed some concerns, uh, on his podcast that it was light and not detailed. And he might have not actually pursued this unless he had a 99% or something like that chance because it is the president's sacks. I guess everybody's expecting us to fight over this. But to just be a little preemptive here, as much as I think Trump is, like, the most eth- unethical person to ever hold the office, this does seem a little light.
- CPChamath Palihapitiya
Yeah.
- JCJason Calacanis
And I'm hoping Bragg has the goods on him because why bring a misdemeanor case? You know, and these are all, I guess, misdemeanors that are being elevated to felonies because of tax evasion possibly or election interference. So-What, what are you ... Steel Man or just generally speak about the, the case here, 'cause I know that you are a man-
- DSDavid Sacks
Yeah.
- JCJason Calacanis
... of law and order.
- DSDavid Sacks
Well, many people on the left are criticizing this case. Uh, Jonathan Chait, who's a liberal writer for the New York Magazine, wrote a good column about it. And look, here are the reasons why. Number one, the underlying behavior here is that Trump engaged in a private settlement with Stormy Daniels. That's not illegal. Even if it is, you know, so-called hush money, that is legal. You're allowed to do that. Number two is that he used personal funds to do it. He did not use campaign funds. And this is why Alvin Bragg has had to make this kind of distorted, ridiculous claim that he should have used campaign funds to do it. But does anyone believe that if Trump had used campaign funds, that wouldn't be alleged as the crime? So he's kinda damned if he does, damned if he doesn't here. I think that, you know, what the law is trying to do with these rules around campaign funds is protect donors from candidates misappropriating them. And Trump had every right to use personal funds to engage in this settlement. It's a major distortion of campaign finance rules. Third, these campaign finance rules are federal laws. They're not state laws. So it's not up to Alvin Bragg to enforce them. And in fact, the feds looked at this and decided not to prosecute it because i- if they did, they'd have to enforce similar laws against Hillary Clinton. Recall that Hillary Clinton had a problem where she used campaign funds to fund the payment to Christopher Steele to write the Steele dossier. And that was a real problem and it was miscategorized as legal fees and she had to pay a fine for that, but no one talked about locking her up over it and no one was talking about, you know, indicting her and sending her to jail. And so part of the reason on why I think the feds didn't wanna look at this is because they'd have to look at similar cases that are even more egregious. And then finally, the last thing is that we're well past the statute of limitations on this whole matter. So Alvin Bragg is really out here on a limb. He's past the statute of limitations. He's enforcing laws that are not his business to enforce. They're distorted interpretations of those laws, and the underlying conduct here is fully legal. So I think everybody is kind of, like, wondering why he's doing this and I think there's two theories. Either Alvin Bragg is incredibly stupid-
- JCJason Calacanis
Which he's not.
- DSDavid Sacks
... or he's incredibly smart.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
And the, the sort of three-dimensional chess explanation that Ann Coulter has is that this is all a giant honey pot for Republicans because they're all rallying around Trump here because they perceive, I think correctly, that he's being railroaded and he's being ... He is the victim of a political prosecution. But in rallying around him to defend him, you see that Trump's poll ratings among Republicans in the primary are going through the roof, DeSantises are going down. And so what Ann Coulter fears is that this is all an elaborate ruse to make Trump the nominee because Biden would much rather face a re-election against Trump than against a young, youthful, vigorous governor like a DeSantis.
- JCJason Calacanis
Do you think Bragg has a bunch of more information and maybe that tax evasion is the issue he'll go after? Because that seems to be the other theory here, is he's not-
- CPChamath Palihapitiya
Mm-hmm.
- JCJason Calacanis
... gonna do the federal, you know, election stuff. He's gonna go after the tax evasion, which is what they already got the Trump Organization on when Weissel, I guess the CFO, was gone to jail for six months.
- CPChamath Palihapitiya
It's gonna be hard to connect the dots on this.
- JCJason Calacanis
And they did a 1.6 million fine for that company. Go ahead, Chamath.
- CPChamath Palihapitiya
These are misdemeanor crimes and to convert them to a felony, the crime needs to have been done in the process of aiding and abetting another crime. And-
- JCJason Calacanis
Right. Tax evasion is the concept here. Chamath.
- CPChamath Palihapitiya
When he listed the bullet point list of all of the reasons that, or all of his evidence, it seemed to point to what David said, which was just he's campaign finance violations.
- JCJason Calacanis
Yeah.
- CPChamath Palihapitiya
This whole thing just seems like such an enormous waste of time.
- JCJason Calacanis
Mm.
- CPChamath Palihapitiya
Just think about the amount of money that will have to be spent on just securing New York City every time he shows up. The five-car motorcades, the Secret Service, the police, the this, the that, the disruption to people for what really ultimately I think is right. It's kind of like, you know, it's a bit of like, man, this case shoulda been brought years ago or not at all.
- JCJason Calacanis
Well, in relation to that, they were told to stand down from doing that because of the you can't indict a sitting president and that's paused. So that's another legal theory that's gonna have to be tested.
- DSDavid Sacks
Jason, the feds looked at this years ago and they decided not to press charges.
- JCJason Calacanis
They were told to not do it because he was a sitting president.
- DSDavid Sacks
Not told. They-
- JCJason Calacanis
No, they were.
- DSDavid Sacks
No.
- JCJason Calacanis
That's come out.
- DSDavid Sacks
He's been outta office now for a couple of years. Why didn't they move forward?
- 16:52 – 39:35
De-dollarization: What's real and what's overblown?
- DFDavid Friedberg
Uh, let's move on.
- JCJason Calacanis
All right. So there's been a lot of Twitter back and forth about the de-dollarization and if it's real, if it's happening, if it's not. Last week, China and Brazil struck a deal to trade in their own currencies. Uh, the Brazilian government announced the two countries will no longer use the US dollar as an intermediary. I don't know if that's for everything they trade or for certain things they're trading, it'll be a straight won for reais trade. China is the top US rival, obviously, and Brazil is one of the largest economies in Latin America. What are your thoughts, generally speaking, Friedberg, I know that you have some, uh, exposure here, you know, with your company that I think you SPACed recently, and you have some knowledge of this space, right?
- DFDavid Friedberg
Well, I mean, China and Brazil are pretty sizable trade partners. I think it's around $150 billion a year of bilateral trade. So China historically has made a lot of investments through their companies in railways, infrastructure, waterways, ports and infrastructure to support the agriculture, manufacturing economies in Brazil, and it's a very deep tie. Obviously, the closeness of that relationship, China became a bigger trading partner for Brazil in 2009, surpassing the US. By the way, China has had similar trading strategies in Africa, in Australia. They've bought several companies in Australia.They've made massive infrastructure investments. The currency of trade is one element of a broader intertwining that China has kind of enabled by using its resources to invest in infrastructure development and then participating in the economic value and gain that arises from that. It still also supports the local country, the local population, the local economies in a meaningful way. I think it's worth noting that the anti-globalization moment that we're having in the US, and it may be a longer term trend, doesn't mean that globalization and global trade is gonna slow down between China and other really important well-resourced nations around the world. So the Brazil-China summit that happened a week ago, where a lot of Brazilian executives went to China and had a very deep set of dialogues, but they also signed a ton of agreements on trade, and also in some of those cases, the trade being done in non-US dollar denominated currency, is worth noting as being that if the US does continue to push for de-globalization, we can only leverage our side of those relationships. China will continue to make investments, continue to develop trade, and continue to develop really deep tie-ins with countries around the world from a resource perspective, from an economic perspective, and ultimately the leverage will sit with them on what currency folks are gonna trade in. So, you know, what we're seeing with the China-Saudi discussion around the petro yuan, which doesn't seem to be really a standard thing yet, but we're starting to see inklings of some deals happening in yuan, but it's more related to the depth of the Chinese trade relationship with all these nations around the world. So, the more we kind of, as the US think we want to de-globalize and reduce our trade relationships with other nations, the more, you know, we're out of the way in allowing China to do that. I think it's worth observing that the Chinese economy will grow, the depth of their relationships will grow, potentially the strength and importance of their currency will continue to mount as they build these really deep infrastructure and investment tie-ins a- around the world.
- JCJason Calacanis
Chamath, what does a party trading in yuan do with the yuan? Do they buy a bunch of stuff-
- CPChamath Palihapitiya
Nothing.
- JCJason Calacanis
... from China?
- CPChamath Palihapitiya
Nothing.
- JCJason Calacanis
What happens to the yuan?
- CPChamath Palihapitiya
Nothing.
- JCJason Calacanis
(laughs) Yeah.
- CPChamath Palihapitiya
This whole thing is a huge nothing burger. This is the third deal that, that China has done. The other two countries are Pakistan and Brazil. And the reason why is I've seen like people on Twitter now breathlessly rambling on about de-dollarization and all of this stuff, and I think n- if any of these people would think from first principles, the first thing that you would know is that the yuan is pegged to the US dollar. And so as long as it's pegged, whether you trade through the US dollar or you don't and you directly go to yuan, you're indexed to the US dollar, and then you use a dollar swap to convert it into the currency you need. So, I don't know, I think this is kind of like a lot of folks who don't really know what's going on.
- DFDavid Friedberg
What do you think about the, the depth of China's trade relationship? So forget about the denomination of the currency, but the fact that, um, the statistic now-
- CPChamath Palihapitiya
You can't, you can't forget it.
- DFDavid Friedberg
... is that China is the top trading partner with 120 countries. You know, they surpassed the US with many of these countries over the last, you know, decade or two in particular, and continue to increase the, the scale relative to the US where we're kind of decreasing our dependence on, on, on nations and reducing our trading.
- CPChamath Palihapitiya
The reason why China has had so much dominance as a trading partner, and the reason why China's central bank has the largest amount of foreign US dollar reserves, about three and a half trillion dollars, is exactly because of the thing that you want to ignore in order to have this highfalutin intellectual conversation. It is pegged to the US dollar. And until it is unpegged in a free floating currency, we will never know what the real market clearing price is. And just-
- JCJason Calacanis
And just to be clear-
- CPChamath Palihapitiya
So China has been able to... In fact, hold on. China has been very effectively able to manipulate this currency since they were brought into the WTO, in order to engender that trading partner status. They were able to artificially suppress the value of their currency so that exports from China could gain traction in countries all around the world. You have to take into account this currency peg, and you have to ask the question, where would the currency be if it wasn't free floating? And then what would the incentives be for folks to replace the dollar? And I think that there's a lot of interesting questions there that are worth asking, but I think you have to be a little bit more intellectually honest to have the discussion.
- JCJason Calacanis
And just for clarity, Chamath, you said they already have these deals with Pakistan and-
- CPChamath Palihapitiya
Pakistan-
- JCJason Calacanis
... Brazil.
- CPChamath Palihapitiya
... and Russia.
- JCJason Calacanis
You meant Pakistan and Russia, I think. They already have those deals with those two.
- CPChamath Palihapitiya
Pakistan and Russia.
- JCJason Calacanis
Right, okay, good. I just want to make sure it's clear there. Sax, do you have any thoughts on this? Is, is this an example of people just maybe taking the Ray Dalio book and it fits a certain narrative and overhyping it, or do you think this is an actual real trend in the world to be concerned about?
- DSDavid Sacks
I think de-dollarization hasn't happened yet, but I think it's a risk, and I think there's a bunch of reasons why the risk is growing. So first of all, we have $32 trillion in debt. Someone has to finance that debt. And the bigger that number gets, the more unattractive our debt is, because they're- they have to be concerned that we're eventually going to monetize the debt, pay it back by printing a bunch of new dollars. So that's point number one, is we have the- these massive deficits and debts. Number two is that we have, I think in the last couple of years, really weaponized the dollar. So if you look at like what we've done with Ukraine and, and Russia, we basically seized hundreds of billions of dollars of Russian reserves that were held in dollars, we've excluded them from the Swift banking system, we've imposed massive sanctions on them, and in fact, we now have sanctions.... on a huge number of countries all over the world. So we're very sanction happy. All of which makes these countries view the dollar as an unreliable store of value. Why would you store your money in something that can be taken away by the US and s- specifically by the State Department? So I think this is a major change in the way that we view the dollar over the last couple of years, is we're going to use it as a weapon that again, that makes it viewed-
- JCJason Calacanis
Well, that's not the first time we've ever done that, right? We've done sanctions against many different dictators. Yeah.
- DSDavid Sacks
We've done sanctions, but as far as I know, we've never seized foreign currency reserves and excluded a country from SWIFT, which is the banking system, so as, as an instrument of US foreign policy. So, I mean, I could be wrong about that. But this was a major event when it happened. Remember, we also did stuff like seize the, the yachts and the, the foreign holdings of Russian oligarchs. Remember their ill-gotten-
- JCJason Calacanis
Yeah.
- DSDavid Sacks
... gains? We suddenly decided they were ill-gotten. Let me tell you, we didn't think they were ill-gotten when those Russian billionaires were buying those yachts or buying New York real estate or London real estate or-
- JCJason Calacanis
Or investing in Facebook.
- 39:35 – 56:36
Debt ceiling vote predictions
- JCJason Calacanis
- DSDavid Sacks
Yes.
- CPChamath Palihapitiya
You guys wanna make a bet, a friendly wager for charity?
- JCJason Calacanis
Oh, here we go.
- CPChamath Palihapitiya
About what happens in June? I'll make a bet with you guys.
- JCJason Calacanis
June? You mean the debt ceiling?
- CPChamath Palihapitiya
Yeah. What, what do you guys think happened? Do you think this is gonna be a fractious, chaotic thing where the markets get roiled?
- DFDavid Friedberg
No, I think it's gonna be a pretty-
- JCJason Calacanis
Rubber stamp.
- DFDavid Friedberg
... straightforward deal where they're gonna, it's gonna come down to the wire. But my guess is no one's gonna wanna default on the debt.
- JCJason Calacanis
Yep.
- DFDavid Friedberg
And there's gonna be some concessions on spending, and ultimately the debt ceiling will get extended and that those concessions on spending will allow the Republican Party to save face with their voters and say, "Look, we, we got some concessions here." I'm not sure they're gonna be enough to really address any of the major problems that the US is facing over the longer term. But, you know, certainly letting the debt ceiling hit and defaulting is catastrophic. Everyone knows that.
- JCJason Calacanis
I'm with Friedberg. I think the majority of the case is a bunch of hand-wringing and then they make a concession.
- CPChamath Palihapitiya
For all the people that are interested in this topic, I would go use the Wayback Machine and go and read all of the articles in the '80s where you could replace China with Japan. And what happened with Japan is that Japan just hit a demographic wall, not dissimilar to what China's about to hit in the next 15 or 20 years.
- DFDavid Friedberg
Right. It's a good counterargument. Yeah, that's a really good point. And I think that there is this element of, you know, China as the primary threat. But I think the bi- the bigger problem, Chamath, is that we have voted ourselves into a stupor. We have allowed ourselves to accrue these liabilities that are, in many cases, not on the balance sheet that we simply cannot afford to pay. And the social unrest that will arise w- if and when we don't pay them or the economic cost of us actually paying them, ei- either of those are gonna be pretty significant. But that's under... That's water under the bridge and it has nothing to do with China. It has just everything to do with how the US is spending.
- CPChamath Palihapitiya
Thank you for being intellectually honest. This is my point. I agree with you about the importance of these unfunded liabilities. I just completely disagree with you that this argument about these things being so hyper-connected or that all of a sudden we're at the cliff of de-dollarization. I don't think it's rooted in facts. And I think, again, it ignores this unbelievably important piece of logic that all of you guys that say this tend to ignore, and it's still an- and it's not even well addressed in Dalio's book, which is, it is a pegged currency. And the minute you unpeg it, none of you know what happens to it, except that it probably isn't where it's trading today. And if you actually then have to factor in dollar reserves that everybody holds, that thing would skyrocket in value and it would crush the export value of the yuan. And it happens to all currencies. And this is this funny thing that has happened to the United States, which is that it ran forward and it transitioned its economy to a service-led economy faster than other countries and other economies and other currencies did. And nobody wants to just talk about that, except it's the facts-
- JCJason Calacanis
Except for what we're talking about here.
- CPChamath Palihapitiya
... and that's what sort of drives this.
- JCJason Calacanis
Go ahead, Sax.
- DSDavid Sacks
I don't think the big risk is that all of a sudden the dollar gets replaced by the yuan as the world's reserve currency. I think Friedberg lays out a more intermediate path, which is people start to hedge.... their dollar exposure. And decisions that used to be automatic, like trading oil and dollars, you know, the so-called petrodollar, now becomes a little bit, you know, more of a decision. So, you know, the Saudis-
- DFDavid Friedberg
And that's what happened, that's what happened with the pound sterling. It was a similar story, and it was not an overnight collapse. I mean, there were certainly these kind of punctuated moments where there were hits, but, you know, the history is that there was a slow devaluation over time and the, you know, as a result of, obviously, the economic pressure and the uncertainty ... Actually, no. What happened to pound sterling was that it was pegged to the US dollar and then it became unpegged. So exactly what I'm talking about.
- DSDavid Sacks
Even post that. No, even post that, Chamath.
- DFDavid Friedberg
Even post that, if it's a free-floating currency-
- DSDavid Sacks
Post-Bretton Woods. Post-Bretton Woods.
- DFDavid Friedberg
Yeah, you're pro- you're proving my point. No, dude, you're proving my point. When Soros broke the back of the US dollar, what he forced George Brown... Or what he forced the chancellor of the exchequer to do-
- DSDavid Sacks
The pound.
- DFDavid Friedberg
... was to basically de-peg the pound. And then-
- DSDavid Sacks
Yes.
- DFDavid Friedberg
Yes, you're right, it's been like this ever since.
- DSDavid Sacks
Yeah. It- it was-
- 56:36 – 1:10:02
US investors indirectly backing Chinese AI startups: should it be allowed? Saudi Arabia discloses VC investments as institutional US LPs cycle out of venture
- DSDavid Sacks
we don't have a choice.
- JCJason Calacanis
Another perfect segue.
- CPChamath Palihapitiya
We don't have a choice.
- JCJason Calacanis
Two major stories this week that we need to discuss. The first is Saudi Arabia's public investment VC arm took a very interesting PR step of listing their funds that they have backed, and it's a significant list. Everybody from Andreessen Horowitz to Coatue, uh, not surprising there. And Marc Andreessen and Ben Horowitz and Adam Neumann had a major keynote at a Saudi startup conference. I was actually asked to keynote the next one in Riyadh, which I'm debating doing. And then in sync with that happening, at the same time, there's been a debate of should LPs in America be backing firms like Sequoia China, Matrix China, et cetera, because those fir- firms are now backing OpenAI competitors. And a, if a, if we believe AI is the big race here, uh, should we as a country... We don't, we're not allowed to, to back military stuff, obviously, in these countries, but how do we on this global chessboard decide? Should we be taking money from Saudi? Should we be investing money in AI startups in China? So I think, Chamath, you've got a big perspective here globally. Let's start with you. Two separate issues. Any surprises here by Saudi, the kingdom, actually releasing the list of who they're backing and why would they do that at this point in time? And then us investing in China, because we are at a moment here, a crossroads, I think, of should we be engaging or not engaging and building bridges with China and Saudi, you know, for obvious reasons.
- CPChamath Palihapitiya
Look, Saudi Arabia, Abu Dhabi, all of the UAE, these are countries that are really important on the world stage, and increasingly so because they manage peace and prosperity regionally now, right? They have huge balance sheets that can accelerate all kinds of projects all around the world. And so they have to be taken seriously. And so this is a very smart marketing move by the PIF, which is to essentially say, "Look, we are an established blue-chip LP of the blue-chip organizations that you're used to hearing about and celebrating." And I think that's very smart of them because what it does is it reinforces the feedback loop that other great firms should be going to them to raise capital when it comes time for them to raise their N+ First fund. And so I suspect, especially now, it makes even more sense because everything we've heard, Friedberg mentioned it a couple of episodes ago, the United States limited partner market is essentially closed for business. They have huge misallocation problems. The endowments are sort of closed. The universities are closed. A lot of the family offices are licking their wounds. And so this is a perfect time for folks in Saudi Arabia and the UAE to basically put the foot on the gas and basically tell everybody, "Hey, we are open for business." So I think that, that makes a lot of sense. And I think that it'll be successful. It'll work, especially in a moment now where US dollar flows from US dollar limited partners are very difficult and harder to come by.
- JCJason Calacanis
Well, and we're also selling billions of dollars in weapons to the kingdom, and we are a major partner of theirs.
- CPChamath Palihapitiya
They're a partner of ours. They're a valuable, they're a valuable security partner of the United States. They're a valuable economic partner of the United States. It's no different than doing business with any other country. I think it's smart by the PIF. On the other thing, though, with US firms investing in China's AI, it should not be allowed, and I do think that the folks that are responsible for CFIUS need to get a handle on this. Look, I've done a bunch of tr- deals where I have had to jump through a bunch of CFIUS hoops where-
- JCJason Calacanis
Explain CFIUS, please.
- CPChamath Palihapitiya
So basically, CFIUS is the Committee on Foreign Investment in the United States. Now, what that means is if folks want to invest in certain things that are on a list of things, and I'll, and I'll tell you the things that I've been involved with that, that came under CFIUS. Rocketry and certain chip technologies are so advanced that the United States has very specific rules that limit the ability for foreign actors to invest in those businesses. And in those situations where a few folks invested beside me in some of these companies, we had to go through a process to get CFIUS approval before that investment was allowed.Now, what's interesting about that is that's about money coming in. But I do think that the reverse now becomes important because if US dollars are going to go and seed these extremely complicated advanced technologies abroad, especially into the hands of countries that are frenemies, at best, of the United States, I think we have a responsibility to have a point of view on that. And so, I think Keith Raboy was the one that was very definitive and said this should not be allowed. I do think it is so early. Jason, we talked about this. We're on this curve of fuck around and find out, which means there will be some crazy examples of stuff that are very uncomfortable.
- JCJason Calacanis
Yep.
- CPChamath Palihapitiya
I don't think we want US fingerprints on this stuff being perfected outside of US borders.
- JCJason Calacanis
Sachs, when we look at the history of engagement with China, maybe we can take a, a multi-decade globalization perspective here. When you look back on it, the engagement with China created so much prosperity, so much intertwined dependency, iPhones being the, the best example possibly, we're selling them in China, we're making them in China. Uh, China loses Apple as a customer, that would be absolutely devastating for them and it would obviously be devastating for Apple as well. So, when we look back on that as a general rubric here, do you think we enabled a competitor or we avoided future conflict because of the interdependency? And where do you sit in terms of thinking about engagement versus maybe isolation or something in between those two, frenemies, best of frenemies, et cetera?
- DSDavid Sacks
The policy of constructive engagement, as it was called 20-something years ago, the, the idea behind it was that if we engaged with China economically and helped make them rich, then th- they would become more like us. They would somehow turn into a democracy and they would have tremendous gratitude towards us and we'd become friends. It's not the way it worked out. There were people who warned that this was a foolish approach, so most notably the realist scholar John Mearsheimer at the University of Chicago warned back in 2002 that that was not the way this was gonna play out. If we made China rich, they would seek to convert that wealth into political power and then they would act the way that all other great powers have behaved throughout human history, which is they wanna dominate their region and they would seek to push the United States out of Asia. And the future that he predicted 20 years ago is the future that's come true. And I think the, you know, all the constructive engagers, I think, have some egg on their face. Now, I understand where they're coming from. This is a fundamental difference between whether you see the world in economic terms, which is about creating positive sum games, basically trade, or whether you see the world fundamentally in geopolitical terms, which is about the balance of power, which is more of a zero-sum game. And I think that both views, they're both extremely important. We want to engage in positive sum relationships that generate more trade and more wealth for the United States. At the same time, we have to be aware and concerned about the balance of power. We do not want a number two country in the world who can rival the United States in terms of power who basically could win a security competition with us. And we certainly don't want a country in the world to be more powerful than us. So, I think this is sort of the yin and the yang is geopolitics versus economics and I think what's happened with China over the last several years is it's flipped. I think we used to see the relationship primarily in positive sum economic terms and now we see it in geopolitical terms. And I think there's a lot of firms now in the United States who haven't embraced this new reality. And to go back to your question about, you know, when should a venture capital firm take money from a foreign country and when it shouldn't, I think there's a very simple rule for this which is, if the country's a US ally, I think it's fair game because the US has said, "This is a partner of ours, so why can't you do business with them?" But if the United States government has said, "This is an adversary," you're putting yourself in a really difficult precarious spot by doing business with them.
- JCJason Calacanis
'Cause then you have to explain yourself to the US government, yeah.
- DSDavid Sacks
This is the very simple rule we would use is I, we would never consider taking money from Russia or China.
- JCJason Calacanis
North Korea. (laughs)
- DSDavid Sacks
Any country that the US government-
- JCJason Calacanis
Iran.
- DSDavid Sacks
... says is an adversary of ours. But if the US government says this is a partner and an ally, then I think you could consider it.
- JCJason Calacanis
Do you think there's a way, Sachs, to salvage the, the relationship with China and make it productive or do you think it's a far gone conclusion at this point? Because one might argue, and I've heard people argue this, maybe China would have invaded Taiwan already if it wasn't for the interdependency. So, I, I know we're dealing with, you know, a lot of, we're doing a lot of predictions here, but d- do you think it can be salvaged and do you think it would have been a worse relationship if we hadn't had this interdependency that's been built up?
- DSDavid Sacks
I'm not quite sure that the economic interdependence theory preventing war has been definitively proven. If you go back to War I, for example, it was the case that Britain and Germany actually were each other's number one trading partners and they still got in War I, for reasons that, in hindsight, seem really silly. So, I'm not sure that economic interdependence can prevent... it certainly doesn't prevent security competitions from arising and, and therefore I don't think it can necessarily prevent a war. Although, you know, having business ties can lead to positive interactions.
- JCJason Calacanis
Yes.
- DSDavid Sacks
Y- so, I, I'm just saying the jury's still out on that theory.
- JCJason Calacanis
Jury's still out, okay.
- DSDavid Sacks
But I think that, like I said, I think once you're in a security competition the way that we are with China, I think geopolitics rather than economics is in the driver's seat and that's what happening right now.
- JCJason Calacanis
Super easy, uh, Freeburg, intellectually way, I think, to process this, you would never invest in a North Korean AI company, a Russian AI company, or an Iranian AI company. How do you think about China and then just generally this topic of when to engage?... when venture capitalists, when start-ups, uh, you know, a- and trade partners should engage with various countries. How do you think about it, Friedberg?
- DFDavid Friedberg
In what role? As an investor?
- JCJason Calacanis
Well, we could, we could take multiple roles here. Founder, investor would be the top two for this program, I think. O- or taking money from. Any of those three possibilities.
- DFDavid Friedberg
I, I think we have, we have very few portfolio companies that don't benefit some way from the trade relationship with China. So, you know, to Sax's point, I'm not sure you can really say China is a true and complete adversary in the sense that we're on opposite sides. There's obviously deep inter- interdependencies, so, you know, it's, it's hard to kind of say, "I draw the line at this kind of technology investing there, but I benefit from their technology investing that's going on there in other ways with some of my other businesses." Right? I think that that's really where you kind of run into a, a bit of a conundrum that we do have a deep interdependency. So, you know, like with respect to, like, investing in China, I, I don't know, I think the investing in China thing is pretty difficult given that there is a single power that gets to decide what does or doesn't happen. I mean, look at what happened with Alibaba. A lot of shareholders got pretty wiped out there. These, uh, these governments where you have, like, the op- the, the potential of getting completely wiped out by government action is a pretty scary place to invest in general. I'd be more oriented as an investor around those concerns than I am about, you know, it's, it's really hard to do the calculus on, on am I helping or hurting America versus China, you know, y- y- you could argue 100 ways each of those sides.
- JCJason Calacanis
But what do you think of Sax's framework? If we're partners, you know, fair game. If not partners, not a good idea to put your neck out.
- 1:10:02 – 1:17:34
RIP Bob Lee, fixing San Francisco
- JCJason Calacanis
days. Cash App creator Bob Lee, AKA Crazy Bob on Twitter, that was his Twitter handle, was stabbed to death tragically in San Francisco earlier this week. He was Square's first CTO. He worked at Google on Android. He was the chief product officer at MobileCoin, also an angel investor in a ton of companies, Figma, Space X, Clubhouse, well-known in the industry. Officers responded at about 2:35 AM to a report of a stabbing on the 300 block of Main Street and arrived to find Lee, who had been taken to hospital and succumbed to his injuries there. No arrest has been made. A lot of, uh, San Francisco politicians are sending their thoughts and prayers, but obviously San Francisco is still very dangerous place, it seems. Any thoughts on this and how it might act as some sort of a crossroads or not? And thoughts and prayers, obviously, to his family and friends.
- DFDavid Friedberg
Look, I think this, um, this was a pretty tragic event. There's a lot of people who I knew that were pretty close with him. I got several messages on his passing. He was... Uh, I didn't know him, uh, personally. I think we met maybe once or twice. He worked on Android at Google and obviously had a key role at Square in the early days and was a pretty, uh, impactful and important person, but also supposedly... Uh, I didn't know him very well, again, but, uh, everyone says just such an incredibly kind and generous person, so a tragic loss. Um, I used to live two blocks from, uh, where the, uh, the event happened. I'll, I'll zoom out.
- JCJason Calacanis
Where, where is it, Friedberg? Is it a bad place?
- DFDavid Friedberg
It's in SoMa at Rincon Center, right by the big condo towers there, and it's right where the Salesforce, uh, offices used to be. And, you know, a block from the waterfront-
- JCJason Calacanis
Is it-
- DFDavid Friedberg
... a block from the Embarcadero.
- JCJason Calacanis
Is it part... Is it... Is it part of all that drug craziness? No, so not Tenderloin.
- DFDavid Friedberg
Not necessarily, no. It's, it's not in the heart of the camping district. It's just a nice area in SoMa, quiet area, right? So at night, there's no one there. I went to San Francisco a few weeks ago. I told you guys I pulled up to a restaurant on the Embarcadero and I joked with my buddy in the car, I'm like, "Oh, my car is gonna get broken into while we're at dinner 'cause I'm parking on the street." We went to dinner, 90 minutes later came out, of course my car had been broken into, the trunk had been popped up, and it's just, like, you know, 100% certain to get hit.
- JCJason Calacanis
This is the fancy area of SoMa, Chamath. Very fancy area of SoMa.
- DFDavid Friedberg
Look, here's the thing. If you park at a parking meter in San Francisco for eight minutes too long, you get a $60 to $100 parking ticket. And San Francisco has become an upside-down town. What I mean by that is I think that, like, so much of the response that we've had in the last couple of years to power dynamics and concerns about the powerful having too much influence over those who are less powerful, who have less influence, and who suffer as a result of their demeaned influence, the, the response has been to turn things upside down, which is to give those who are lacking in the power structure everything and to try and take everything away from those who are at the top of the power structure. So if you want to deal drugs in the open air, if you wanna walk into Walgreens and steal thousands of dollars of goods and walk out, nothing will happen to you because you were embedded with this powerless kind of...... position in life. But if you have a car and you park at a parking meter and you stay at the parking meter for more than 10 minutes, you get a ticket. And the consequences of responding to power dynamics by flipping the power structure upside down is obviously... can be more negative as we're kind of experiencing, I think acutely in San Francisco, but also around the nation. And by the way, I think that this applies in a lot of other ways in terms of how we're doing college admissions, um, in terms of how we're selecting people for jobs, in terms of, you know, recent applications for pilots, for doctors, where the assessment is less about did the person who was disadvantaged at the beginning of their life or career or trajectory or educational path be given greater opportunity and greater resources to catch up and to get there, or did we just flip the power dynamic upside down and just give them the end point? And as a result, there's a massive kind of detriment that I think can arise. And it's not necessarily always the case that it will arise. It is not necessarily the case that selecting someone based on some demographic profiling to be an airline pilot necessarily means that that airline is more likely to have airplane crashes. But in certain cases, when you don't prosecute certain crimes like robberies or people walking into stores or breaking windows or dealing drugs in the middle of the street or camping on the street and you fast-forward a couple of years, that power dynamic, the flip of that power dynamic causes the whole town to go upside down, and everyone who's sitting on the bottom ends up becoming a victim themselves. And I think we're starting to see inklings of this in San Francisco. We certainly have for years. Sachs has ranted on about this with respect to some of the non-prosecution that's happened historically, and I totally agree with him on those points. And I think that it's come to a breaking point in San Francisco, but that's really a beacon for what else is going on. And, you know, some people call it wokeism. I, I think maybe this notion of wokeism is one small element or segment of the broader issue with how we are tackling with and dealing with embedded power structure issues in this world today. And the flipping of those power structures upside down doesn't necessarily yield the outcome we all want. And I think we're starting to see reasons why.
- JCJason Calacanis
Sachs, any thoughts here?
- DFDavid Friedberg
That's my rant.
- JCJason Calacanis
I can't disagree with you.
- DSDavid Sacks
Yeah. So, s- similar to Friedberg, I, I didn't know Bob Lee, but I, I know many people who knew him, and I was getting texts and obviously we feel really bad for him, his whole family, his kids, his father, his coworkers, friends. We don't know exactly what happened yet, but I think we suspect, and I would bet dollars to dimes that the story is very similar to a case we had in LA recently, the Brianna Kupfer case, where a young woman was basically stabbed for no reason by a psychotic homeless person who had been through the revolving door of the jail and criminal justice system, who could have been locked up, who was arrested multiple times, but was not kept locked up because of this push for decarceration. And you can argue that maybe it'd be better for that person to be in mandatory treatment or in a, even a, maybe a, a mental asylum. But this idea of just releasing these people onto the street I just think is an outrageous abdication of responsibility by our elected officials who run the criminal justice system, who pass our laws. And the thing I just wish is that I could lock for 24 hours the, the people like our supervisors or our governor or the people who basically make these laws or the people who are pushing for decarceration of these violent offenders by these nonprofits, I wish I could lock them up in a room for 24 hours with the people that they think are safe to release on our streets. Let's see if they really would take that test. Because it seems to me that these, these elected leaders and these nonprofits who are pushing for these outcomes, they are setting loose on us a predatory criminal or psychotic element that jeopardizes our safety and makes these cities unlivable. And we should not tolerate that. And quite frankly, the responsibility goes beyond those elected leaders. It goes to all the voters as well, because we keep putting up with this. And where was our governor when this happened? He was in Florida doing some singalong at some high school where he was trolling Ron DeSantis because DeSantis had taken on DEI at that school. So that's where Newsom was. And he's extremely popular in California.
Episode duration: 1:27:13
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