E141: State of Series A's, VC dry powder, IPO window opens + more with Bill Gurley & Brad Gerstner

David Friedberg 0:00 I'm recording, yeah. How's my hair, Nick? Do I look ridiculous? I shoulda wore a hat.

Chamath Palihapitiya 0:03 (laughs)

David Friedberg 0:03 Oh, my God. I went to the (beep) teaching salon in (beep) for a haircut a few days ago.

Chamath Palihapitiya 0:09 The teaching salon?

David Friedberg 0:11 Ten dollars.

Chamath Palihapitiya 0:12 You got ten dollars worth of value.

Jason Calacanis 0:13 (laughs)

David Friedberg 0:13 Dude, my neck was literally bleeding. The guy cut my neck, like six places.

Jason Calacanis 0:18 (laughs)

Chamath Palihapitiya 0:18 (laughs)

David Friedberg 0:18 It's diagonal on the back. 2021.

Jason Calacanis 0:21 (laughs)

Chamath Palihapitiya 0:21 (laughs) Oh, get off me.

David Friedberg 0:23 A- a- and he was stoned the whole time. I walk in, he's like, "What do you want?" I'm like, "I booked this thing." He's like, "Shit. Okay, sit down."

Chamath Palihapitiya 0:30 He spit out my coffee. (laughs)

Jason Calacanis 0:31 (laughs)

David Friedberg 0:31 I thought, I thought I was, like, in a barber shop candid camera thing.

Chamath Palihapitiya 0:33 Why would you possibly do that?

Jason Calacanis 0:35 (laughs)

David Friedberg 0:35 There was nothing available. I told my wife, I'm like, "Get me any hair appointment, anything. I just gotta get my hair cut. It was so long." And then she's like, "Oh, I got you an appointment at the (beep) teaching school." Oh, I'm like, "That's high-end. All the hair salon stylists go there. Must be awesome."

Jason Calacanis 0:47 (laughs)

David Friedberg 0:47 This guy fucking butchered me.

Chamath Palihapitiya 0:49 Guy's worth over 100 million, he got a ten-dollar haircut.

David Friedberg 0:52 Fucking ten dollars. And then he's like, "What would you like to tip?"

Chamath Palihapitiya 0:55 (laughs)

Jason Calacanis 0:55 (laughs)

David Friedberg 0:55 I'm like, "Here's a tip, here's a tip."

Chamath Palihapitiya 0:56 "Here's a tip, get a new career." (laughs)

David Friedberg 0:56 You shouldn't be a fucking barber. Yeah, yeah.

Jason Calacanis 0:59 (laughs)

Narrator 0:59 I'm going all in.

David Sacks 1:02 Don't let your winner slide.

Jason Calacanis 1:05 Rain Man David Satterfield.

Narrator 1:07 I'm going all in.

Bill Gurley 1:09 And I said-

David Sacks 1:10 We open sourced it to the fans and they've just gone crazy with it. Love you, West Side Queen of Quinoa.

Narrator 1:15 I'm going all

Narrator 1:17 in.

Jason Calacanis 1:18 All right, everybody. Welcome back to the All In podcast, episode 141. Chamath Palihapitiya has gone missing somewhere in the Mediterranean. We've sent some search crews out. We got some beacons. We're trying to find him, but he is not here today. There will be no conspicuous consumption or discussion of truffle season or wine. But instead we went to the BG squared, if you got to come to All In Summit 2022. One of the highlights of the event was having two BGs, Brad Gerstner and Bill Gurley on the pod. So we thought for All Star Summer, we would bring in some all stars here. Welcome back to the pod, fifth bestie, Brad Gerstner and Bill Gurley. How are you, sir?

Bill Gurley 2:00 I'm doing great. Thanks for having me on.

Jason Calacanis 2:02 Bill, you, you don't do a lot of press. You don't do a lot of pods. And, uh, I know you're on a lot of boards, but you're not part of Benchmark's next fund. So people are wondering, are you retiring? What are you up to? I know you're still got all these boards you're on, but w- what's Bill Gurley up to these days?

Bill Gurley 2:19 Yeah, appreciate that. Um, I, as you mentioned, I'm on nine benchmark boards still, so I'm working with those and, and doing the classic work that I've been doing my whole career. Second thing is I've, I've started, I'd done a handful of angel deals, about 1/100th the, um, the frequency of J-CAL here, but, but a few.

Jason Calacanis 2:40 (laughs)

Bill Gurley 2:40 So dipping my, dipping my toe in the water. And then third, I've been working hard on a, on a book. I've got a co-writer, we've been doing a ton of research. We've got a proposal ready to go and an agent. We're gonna go out to publisher soon.

Jason Calacanis 2:54 Oh, well, you should just do Harper Business. I'll put you in touch with Hollis.

Bill Gurley 2:57 Okay.

Jason Calacanis 2:57 That's the, the winning publisher. That's the best business publisher in the world. And, uh ...

Bill Gurley 3:01 Perfect.

Jason Calacanis 3:02 Y- No, no. Harper, HarperCollins Business is number one.

Chamath Palihapitiya 3:04 World's greatest publisher. (laughs)

Jason Calacanis 3:05 World's greatest publisher. Um, and, uh, you don't need-

David Sacks 3:08 Bill, can you tell us what the, what the thesis is?

Bill Gurley 3:11 Yeah, it's a- it's, it's a further development of a, of a speech I gave at University of Texas Business School about, um, how to chase and succeed in your dream job.

David Sacks 3:22 Oh, nice.

Jason Calacanis 3:23 Oh, so like career advice. Letter to a younger Gurley?

Bill Gurley 3:26 Yeah.

Jason Calacanis 3:26 Is that what this is? A letter to a younger Bill Gurley?

Bill Gurley 3:27 Yeah, I didn't wanna do like, "Oh, here's my, you know, thoughts on venture capital." That didn't feel right. This is something I'm more passionate about and I... Something I, I hope will be impactful to a lot of people. I've already gotten quite a bit of feedback from people that have been moved by the, the, the shorter version on the, uh, on the presentation.

Jason Calacanis 3:46 When you, when you look-

Bill Gurley 3:47 It's all good.

Jason Calacanis 3:47 ... back on your career, unpack it for a minute, um, what, what do you think the things you got right were or the things, you know, you might change in terms of your career and, and being happy and finding your passion in life?

Bill Gurley 3:59 Yeah, I do feel super fortunate that I was able to do, you know, my, my dream job for over two decades. And I love innovation, I love betting and gambling. And I love the combination of being able to think through markets and disruptions and, and to be able to place bets and all those things are super exciting. Things I got right. Um, studying history, which is something I talk a lot about and we'll be talking about in the, in the book, like knowing who the, the patriarchs were of your industry and knowing what they thought I think is super powerful in any endeavor. And then networking, you know, just like crazy, which I think is actually easier today. So those are a couple of the themes that, that we developed.

Jason Calacanis 4:44 Networking and studying hi- history, specifically you and I have had many conversations about biographies. Uh, we both share a passion for those. Top biographies, not of business people, but that had an impact on you and then I'll go around the horn. Top biographies that had an impact on you, preferably ones that aren't business, but if it is business, I guess it's okay.

Bill Gurley 5:03 One that, that actually led to me developing this theme was, was learning more about Danny Meyer's journey, who is the renowned restaurant owner in New York City and the founder of Shake Shack. But he had a career where he was in sales, he was about to go to law school and his, hi- I think his uncle told him, "What are you doing? You know you wanna be a, a restaurant owner." And he stopped that day, took a job at 10K a month or 10K a year. He took like a-

Jason Calacanis 5:34 Wow.

Bill Gurley 5:34 ... 90% pay cut and started studying and that gets into the history part, but he just started studying and obviously the rest is history-

Jason Calacanis 5:42 Yeah.

Bill Gurley 5:42 ... for those of you that know about Danny Meyer.

Jason Calacanis 5:45 Setti- Setting the Table is the book.

Bill Gurley 5:47 Yeah, that is the book.

Jason Calacanis 5:47 And, uh, that is the book. Union Square Cafe, Gramercy Tavern, amongst some of his great restaurants. Going around the horn here, Friedberg. You have a favorite biography you read or something that impacted you young, uh, in your career? And then...... do you feel like you, you figured it out and, and what did you f- what would you change about the early part of your career? So the same two questions.

David Friedberg 6:08 Well, that's, uh, three very loaded questions. I don't know how to-

Jason Calacanis 6:11 Okay.

David Friedberg 6:11 ... Pick which one you want to answer. I will tell you, when I was running my company in 2011, I read the-

Jason Calacanis 6:19 Climate.com.

David Friedberg 6:19 Yeah. Uh, The Climate Corporation. I read the Walter Isaacson, uh, biography of, of Steve Jobs.

Jason Calacanis 6:24 Yeah.

David Friedberg 6:24 And he actually profiled a number of Jobs' management techniques. My only operating role prior to that was working at Google, so that was the only management experience or exposure I had had. And then reading about how Jobs ran his management team, it actually changed my behavior going into the office. I, I took a very different approach and I saw the results almost immediately.

Jason Calacanis 6:48 What was the primary thing that impacted you?

David Friedberg 6:51 Well, first of all, like, having the cadence and the, and the directness with the team, engaging the team fully in discourse, immediately making decisions, getting everyone to commit, moving forward very quickly. I was a first-time CEO, so I never had a good mentor. And reading those segments of Jobs' management style in his, uh, biography was just a really great tool to add to my emerging toolkit on how to be a manager and how to be a CEO and how to run a company. Uh, that was big for me. I could rehash everything about early on in my life. I don't think that's a good use of time, but yeah.

Jason Calacanis 7:26 So Walter Isaacson's book on Elon coming out in a couple of weeks.

David Friedberg 7:30 Yeah.

Jason Calacanis 7:30 Which should be interesting. I, I, I sat for an interview with Walter for that one, so I'm interested to see how that turns out.

Brad Gerstner 7:36 Yeah, I did too.

Jason Calacanis 7:37 I, I was asked to. I didn't ... Uh, yeah, we were asked to.

David Friedberg 7:40 You didn't do it?

Jason Calacanis 7:41 No, I did it, I did it. I, you know, I don't, I, I didn't ask to do it. I got asked, you know, if I would-

Brad Gerstner 7:46 Right.

Jason Calacanis 7:46 ... give some anecdotes. I think Sacks also got asked if he would do some anecdotes, so I think it's gonna be pretty good. And, and Walter was hanging around the, uh, Twitter-

David Friedberg 7:53 He's been putting passages out on Twitter, right?

Jason Calacanis 7:55 Yeah, I mean, he's such a good writer and just watching him. You know, David and I were at Twitter for a little bit and, you know, just being, uh-

Brad Gerstner 8:01 He was hanging out. He was like, you know, in the corner of the room, like participating in a lot of these meetings.

Jason Calacanis 8:08 Yeah.

Brad Gerstner 8:08 So he was there basically during the whole transition.

Jason Calacanis 8:11 And-

Brad Gerstner 8:11 I think that was gonna be the ending of the book is, you know, he had to cut it off at some point, but he was there for the first month of the transition.

Jason Calacanis 8:18 Yeah.

Brad Gerstner 8:18 Of the Twitter takeover.

Jason Calacanis 8:19 And for rocket launches and everything in between. So he, he, I mean, watching his biography technique is, uh, it's pretty intense. I mean, he spends a long time with the subjects and, you know, just taking notes and talking to everybody around him. So he would, you know, peel off Sacks or peel me off, "Hey, uh, could I ask you a question about this or ask you a question about that?"

Brad Gerstner 8:38 Can I ask you about this?

Jason Calacanis 8:38 "What do you think of this?"

Brad Gerstner 8:39 Well, JCal, speaking of books-

Jason Calacanis 8:40 Yeah.

Brad Gerstner 8:41 ... I'm in the rare position of needing your advice.

Jason Calacanis 8:44 Oh, okay. (laughs)

Brad Gerstner 8:45 (laughs)

Jason Calacanis 8:45 There we go. Wow.

Brad Gerstner 8:46 And maybe Bill too.

Jason Calacanis 8:46 I think that's compliment maybe.

Brad Gerstner 8:49 Yes. Yes.

Jason Calacanis 8:49 Sort of a compliment. Okay. You-

Brad Gerstner 8:50 So-

Jason Calacanis 8:51 You with HarperCollins tell us.

Brad Gerstner 8:52 ... I decided I'm gonna do a book about-

Jason Calacanis 8:54 Okay.

Brad Gerstner 8:54 ... how to create, run, scale, operate software companies.

Jason Calacanis 8:58 Amazing.

Brad Gerstner 8:58 Which will be an extension of the blog I've been running for a couple of years.

Jason Calacanis 9:02 Great idea.

Brad Gerstner 9:02 Which I haven't been that active on, mainly because it's, I've been using that time for this pod, but-

Jason Calacanis 9:06 Mm-hmm.

Brad Gerstner 9:07 ... I was writing at a pretty good clip until we started doing All-In Pod.

Jason Calacanis 9:10 Yeah.

Brad Gerstner 9:10 So I wanna get back to putting that together.

Jason Calacanis 9:12 Yes.

Brad Gerstner 9:13 And I could go chapter by chapter, you know, "Here's how you should think about marketing. Here's how you should think about sales. Here's how you should think about finance metrics," and so on, but I'm not sure that's the best way to present the material. So-

Jason Calacanis 9:25 Yeah.

Brad Gerstner 9:25 ... do I just write the book that I think it should be or do I work with a publisher on what the business book should be and they-

Jason Calacanis 9:33 Okay.

Brad Gerstner 9:33 ... kind of give me the guidance?

Jason Calacanis 9:35 So it's a great question. You are in a unique position where, you know, you're successful and you have an audience for the book and success for you is for, you know, great founders to read the book and for it to have impact. As opposed to somebody who's an author who just wants to be published, right? So you have a different reason to do this. I think you should write the book, you should decide who you want the audience to be and what you want to get out of the book, and you should forget about publishers in the whole grand scheme of things. Then when you write the treatment, you write the first five chapters or so, then you can bring it to a select group of publishers. You can get an agent, I can introduce it to two or three agents. There, there's, you know, a top two or three in this field. And, um, I think what you should do is, the business advice is out there, right? And the techniques are out there. But what you have is you have war stories. So the technique I used in my book, Angel, was to, you know, talk about techniques in investing that I had learned from other folks, including Bill Gurley and Michael Moritz or whatever. But then I would give my anecdotes, things I had experienced personally. And what that does is it makes the examples let people really get some narrative out of the book. And so the lesson combined with the actual practical experience, that's kind of the magic of these business books, I think. Do you have a favorite biography yourself, Sacks, either business or non-business?

Brad Gerstner 10:56 I don't think I, I read a lot of business biographies.

Jason Calacanis 10:58 Really? That's shocking to me.

Brad Gerstner 10:59 You know, I read, uh, I read one business how-to book-

Jason Calacanis 11:02 Hmm.

Brad Gerstner 11:03 ... back in the PayPal days. You know, I didn't have any real business education.

Jason Calacanis 11:08 Good to Great. Do you remember what it was?

Brad Gerstner 11:09 It was Good to Great. Do you remember that book?

Jason Calacanis 11:10 Yeah. I mean, that was the seminal book at the time.

Brad Gerstner 11:13 So I read this book. And literally one chapter was on how you should stick to your core idea and then the next chapter was about how you should be flexible.

Jason Calacanis 11:23 Yes.

Brad Gerstner 11:24 So I'm like, well, both of these ideas are right situationally.

Jason Calacanis 11:27 Yes.

Brad Gerstner 11:28 But, so how do you decide?

Jason Calacanis 11:29 Right.

Brad Gerstner 11:30 So I came away from the book thinking, "This isn't really gonna help me because it doesn't give you what you really need, which is what are the specific situations in which you should apply a given principle."

Jason Calacanis 11:39 Hmm. Yes.

Brad Gerstner 11:41 And I kind of-

Jason Calacanis 11:42 Yeah.

Brad Gerstner 11:42 ... came away from, like, thinking that business self-help books just weren't that ... They were too theoretical and weren't that helpful.

Jason Calacanis 11:48 Well, the, and this is where biographies really become helpful, because you actually get to see why the, you know, technique was deployed. Brad, do you have any business bios that you, uh, love?

David Friedberg 11:57 You know, related to that about Sacks, Sacks do not write a how-to book.

Brad Gerstner 12:01 Yeah.

David Friedberg 12:01 Right? Write a book about your visceral experiences, right? That, that just you happen to teach people how to along the way, right? You have a lot of...... you know, I, I, I just think the story is, is, is powerful.

12:14 (laughs)

Jason Calacanis 12:14 Holy shit, what? What? Unbelievable.

Chamath Palihapitiya 12:19 I, I was just gonna Zoom bomb ... Is it called Zoom bombing when you just Zoom?

David Friedberg 12:23 Wait a second. Who just Zoom bombed him? Hold on, hold on. Hold on a second, I gotta get this.

Jason Calacanis 12:31 Okay, this guy fell off a boat in the Mediterranean.

Chamath Palihapitiya 12:35 Thanks again to the Starlink team. Thank you to the Starlink team, yet again, coming to the rescue.

Jason Calacanis 12:38 What is this?

Chamath Palihapitiya 12:39 Oh.

Jason Calacanis 12:40 Now we got six of you-

Chamath Palihapitiya 12:40 No, no, I just wanted to come and say hi.

Jason Calacanis 12:41 ... it's like the All Star game.

Chamath Palihapitiya 12:42 No, no. No, I just wanted to come and say hi. It's funny, I love you guys.

David Friedberg 12:45 Are you drunk? You have, you have to hang.

12:46 This is the Black Mirror version of The Brady Bunch right here.

Jason Calacanis 12:50 What, what happened? Are you lost at sea? We tried to get you.

Chamath Palihapitiya 12:53 No, no.

Jason Calacanis 12:53 We couldn't find you. The yacht was missing, the dinghy's missing. We sent out search crews.

David Friedberg 12:58 Hold on. Your camera angle, you look like Tiger Woods in this shot.

Chamath Palihapitiya 13:02 A guy, a guy that I work with said, "Shamov, you're the Michael Bridges of the All-In podcast in that you haven't missed a podcast since the beginning." So then, that's the only reason why I've co- I'm, I'm dying, I'm coming into this.

Jason Calacanis 13:12 Oh, it's in your head. It's in your head.

Chamath Palihapitiya 13:12 Yeah, yeah, it's in my head. I just wanted to .......................... Anyways, I just wanted to say love you guys. Uh, enjoy the pod. I'll talk to you later. I'll watch.

David Friedberg 13:19 Bye-bye.

Jason Calacanis 13:19 Oh, look at that. The Ironman streak continues.

David Friedberg 13:21 Bye-bye. Bye-bye.

Jason Calacanis 13:22 He, he didn't want to give up his ... Bye-bye. Love you, besties. He's drunk. He thought it was a drunk Zoomed on.

Chamath Palihapitiya 13:28 (laughs)

David Sacks 13:28 Yeah, remember, he's nine hours ahead.

David Friedberg 13:29 Jay Cal, to answer your question ...

Jason Calacanis 13:31 Yes, please.

David Friedberg 13:33 Teddy Roosevelt, Man in the Arena, Phil Knight, Alexander Hamilton.

Jason Calacanis 13:38 Oh.

David Friedberg 13:38 Those three, for me, the, like, the takeaway, the, the, the red thread that connects them is do shit that matters.

Jason Calacanis 13:44 Hm.

David Friedberg 13:44 Do stuff that matters. Your life is short. Get in the arena, major in the majors, but do stuff that matters. So they all were inspirations for me, both in terms of how I organize my own life-

Jason Calacanis 13:55 Mm-hmm.

David Friedberg 13:55 ... but also how I think about investing.

Jason Calacanis 13:57 Fantastic. And I'll give you a couple of ones that you may not have thought of. Something Like An Autobiography, the biography of Akira Kurosawa, the famous film director. Absolutely outstanding.

David Friedberg 14:07 Great recommendation. I'm gonna ... I actually wanna read that. That's a great recommendation.

Jason Calacanis 14:12 Incredible.

David Friedberg 14:12 I'll read that. Who wrote it?

Jason Calacanis 14:13 Akira Kurosawa. It's an autobiography.

David Friedberg 14:14 Oh, it's his autobiography.

Jason Calacanis 14:16 Autobiography.

David Sacks 14:16 Oh, wow.

Jason Calacanis 14:16 Born Standing Up, Steve Martin. Bill Gurley talked about this one and it, it really is-

David Sacks 14:22 Cute.

Jason Calacanis 14:23 ... fantastic. I, I've actually listened to it twice. Um, and that's one of the great things about these biographies, you listen to them a second time. Here's another one. Sacks, this is critical for you. On Writing.

David Sacks 14:34 Oh, I've listened to that.

Jason Calacanis 14:34 Stephen King's biography.

David Sacks 14:36 Yeah.

Jason Calacanis 14:36 You've listened to it?

David Sacks 14:37 Whose biography?

David Friedberg 14:38 Yeah, fantastic.

Jason Calacanis 14:38 Stephen King.

David Sacks 14:40 Oh, Stephen King, huh?

Jason Calacanis 14:41 On Writing might be top five for me of all time.

David Friedberg 14:44 Wow.

Jason Calacanis 14:44 And he really goes into, like, the story of Carrie. He wrote, like, a small treatment of Carrie. He was a math teacher. He threw it in the garbage because he was so frustrated with it. His wife sees it in the garbage, she reads it, she says, "This is incredible. You should keep writing it." He writes it, he sells the book for $10,000. He's getting paid, like, $9,000 as a teacher. He can't quit his job. And back in the day, they used to sell your hardcover rights and your paperback rights separately. If your hardcover went well, then you would do a, a paperback and go mass market. He gets a call. They sold the rights to the mass market book for $400,000, the paperback. And his agent gets on the phone and says, "It's $40,000." And he thinks he hears 40,000. He says, "Whoa, $40,000? That's incredible. That's four years. I might be able to quit my job as a teacher." He goes, "No, no, it's $400,000." He says, "Okay, so $40,000 divided by nine, it's like, it's like maybe it's even closer to five years." He says, "No, you're, you're getting $400,000." He can't believe it. And that was basically the story about Stephen King.

David Sacks 15:43 But it'd be great, great to listen to prior to writing a book. He's, uh ...

Jason Calacanis 15:46 Absolutely.

David Sacks 15:47 It's, it's, it's super amazing. Though most people don't know this fact, but King wrote the novella that became Shawshank.

David Friedberg 15:54 That's right.

Jason Calacanis 15:54 Absolutely, yes.

David Sacks 15:55 Oh, yeah.

David Friedberg 15:56 That's right.

Jason Calacanis 15:57 He's got a lot of those, you didn't know it. And then the Malcolm X biography is amazing too, if you haven't read it. So those are just non-traditional ones of people following their passion. One of the things about it is the extreme effort and the decades of perfecting craft that I found super appealing about these. Nothing happens, uh, easily.

David Friedberg 16:14 In your honor, J Cal, the rest of the episode, Kurosawa.

Jason Calacanis 16:17 Oh, Seven Samurai. There's Toshiro Mifune.

David Friedberg 16:19 Seven Samurai, by the way, if you're a startup founder-

Jason Calacanis 16:21 Mm.

David Friedberg 16:21 ... entrepreneur, CEO, best film to watch.

Jason Calacanis 16:24 Because? Teamwork?

David Friedberg 16:26 Well, yeah. I mean, there is no-

Jason Calacanis 16:28 Common goals?

David Friedberg 16:29 There is no giving up. There is ... You do what it takes.

Jason Calacanis 16:33 Yeah.

David Friedberg 16:33 And you persist. I think persistence is one of the biggest ... I've talked about this, one of the biggest predictors for success. And there's a, a character that emerges once you're facing challenge. This film does such an incredible job of demonstrating the essence of that character.

Jason Calacanis 16:50 Yeah.

David Friedberg 16:50 Um, I think he's also-

Jason Calacanis 16:51 That's very great.

David Friedberg 16:51 ... a similar character that's needed in building a successful business.

Jason Calacanis 16:53 Well, if you read Kurosawa's biography, you'll see that a number of the actors in that film occur in other films by Kurosawa, uh, including-

David Sacks 17:03 And do you know who, who that star is? The ...

Jason Calacanis 17:05 Toshiro Mifune.

David Sacks 17:06 Yeah, exactly.

Jason Calacanis 17:07 Yeah. Uh, who is, uh-

David Sacks 17:08 What she's in all of ... He's just about in all of ...

Jason Calacanis 17:09 Oh, he was his muse. He was, he was-

David Sacks 17:11 Yeah.

Jason Calacanis 17:11 ... to De Niro to Scorsese.

David Sacks 17:13 Yes, yes.

Jason Calacanis 17:14 Scorsese sort of modeled his relationship with De Niro after Kurosawa. And George Lucas, Kurosawa, Francis Ford Coppola were all disciples of Kurosawa's, you know-

David Sacks 17:24 Right.

Jason Calacanis 17:24 ... incredible ...

David Sacks 17:26 Well, The, um, Seven Samurai was remade as a Western-

Jason Calacanis 17:29 Yep.

David Sacks 17:29 ... The Magnificent Seven with, I think-

Jason Calacanis 17:31 Magnificent Seven.

David Sacks 17:31 ... Steve McQueen and Yul Brynner.

Jason Calacanis 17:33 Yep.

David Sacks 17:34 A lot of Kurosawa's movies were remade as Westerns.

David Friedberg 17:37 Yep.

Jason Calacanis 17:37 Uh-

David Sacks 17:37 It just works pretty well.

David Friedberg 17:38 And they were, they were all scored by Ennio Morricone.

Jason Calacanis 17:42 A lot of them by Ennio Morricone, which I was listening to in the cold plunge. I started doing the cold plunge.

David Friedberg 17:46 (laughs)

Jason Calacanis 17:46 Oh, my God. I, it's ... I would just like to say, just a hearty fuck you to you, too.

David Friedberg 17:49 This is such a random show. We have not ... (laughs)

Jason Calacanis 17:52 Well, we'll get there.

David Sacks 17:52 (laughs)

Jason Calacanis 17:52 But, I mean, I just wanna sa- start the podcast by saying fuck you to Tim Ferriss-

David Friedberg 17:55 Girlie's like, "Is there anything else that's gonna be talked about on the show?" I'm like, "I don't think so."

Jason Calacanis 17:58 Google Maps, Joe Rogan, and all these assholes who said in order to be, like, successful, you have to jump in a cold plunge. Because now I've done it four times out of the last, like ... I'm doing it every other day. And they're right. I feel like a superhero after I do this. Anybody doing cold plunge here besides me and Shamov?... nobody.

David Friedberg 18:16 I've been-

Bill Gurley 18:17 Occasionally.

David Friedberg 18:17 Well, I mean, we, I was in Mexico a few weeks ago-

Jason Calacanis 18:19 Oh, Bill's occasionally?

David Friedberg 18:20 And they had this, this, this cold plunge thing. And I, we did it every day that we were there at the, the hotel. But then we came back-

Jason Calacanis 18:27 And it packed a bang.

David Friedberg 18:27 Well, it, it, it's you get this endorphin runch- uh, rush afterwards.

Jason Calacanis 18:30 Yeah.

David Friedberg 18:30 It's incredible. And then afterwards, now when I go to the gym, I only do like, a 10-minute ice cold shower afterwards.

Jason Calacanis 18:36 (laughs)

David Friedberg 18:36 Like, it's critical to like ... And it feels amazing. You feel like, so relaxed after you, you

Jason Calacanis 18:40 I did, I did six-

David Friedberg 18:41 ... done with that.

Jason Calacanis 18:41 I did six, I did five or six minutes at 58 degrees. I've been lowering it two degrees a day, but the first day I-

David Friedberg 18:46 Oh, that's legit.

Jason Calacanis 18:46 ... did it at 43 or 44 for like, 45 seconds and my body started shaking. I got hypothermia instantly. Bill, you've done it? You've done this nonsense?

Bill Gurley 18:54 Occasionally. Occasionally. I'm still not convinced there's any medical uh-

Jason Calacanis 18:58 (laughs)

Bill Gurley 18:58 ... benefit to it. But you guys have sent around-

Jason Calacanis 19:01 But yet we do it.

Bill Gurley 19:02 You've sent around shoot. It's very trendy.

Jason Calacanis 19:05 It's very trendy. (laughs)

Bill Gurley 19:06 Especially at high-end resort.

Jason Calacanis 19:07 I have an infrared sauna too.

Bill Gurley 19:08 That and pickleball.

Jason Calacanis 19:10 So I'm doing infrared sauna.

David Friedberg 19:11 (laughs)

Jason Calacanis 19:11 I haven't started pickleball but I'm do-

David Friedberg 19:12 And motorcycle bikes, right?

Bill Gurley 19:14 Exactly.

Jason Calacanis 19:14 And motorcycle bikes. I'm converting-

Bill Gurley 19:15 You buy into pickleball, you buy into cold plunge-

Jason Calacanis 19:18 And we ... why-

David Friedberg 19:18 It's literally what my last week has been, Bill. Your-

Jason Calacanis 19:22 (laughs)

Bill Gurley 19:22 (laughs)

David Friedberg 19:22 (laughs)

Jason Calacanis 19:22 You, you take your, you take your bike into the cold plunge.

David Friedberg 19:25 Yeah.

Jason Calacanis 19:25 And then you ride it into the infrared sauna.

Bill Gurley 19:27 Yeah.

Jason Calacanis 19:27 And then you go play pickleball.

David Friedberg 19:29 Yeah.

Jason Calacanis 19:29 Uh, okay. And you're wondering why everybody hates us. Um ...

David Friedberg 19:32 (laughs)

Jason Calacanis 19:33 Lifestyles of the abhorrent 1%. All right, listen, speaking of-

Brad Gerstner 19:39 By the way, there's a couple other-

Jason Calacanis 19:40 Okay.

Brad Gerstner 19:40 ... Reynolds or Kurosawa films that are worth watching. Actually, he did, he did versions of Shakespeare, which I think is really interesting.

Jason Calacanis 19:47 Absolutely.

Brad Gerstner 19:48 So Kurosawa took on Shakespeare, and then Hollywood kind of adapted Kurosawa. But a couple of really good ones, Throne of Blood was Kurosawa's adaptation of Macbeth, and then Ran was his adaptation of King Lear, two of my favorites, worth checking out.

Jason Calacanis 20:02 Hidden Fortress, also great.

Brad Gerstner 20:04 Hidden Fortress became the basis for Star Wars.

Jason Calacanis 20:06 Yes.

Brad Gerstner 20:06 Or was a big influence.

Jason Calacanis 20:08 Yeah, the R2D2 and C3P characters, C- C-3PO characters who are like, sort of telling the story are in The Hidden Fortress. You can see the direct descendancy. But for me, the genre I love for Kurosawa is his film noir era, Stray Dog, High and Low. I mean, these are exceptional films. And High and Low I wanted to remake when I was thinking about being a, a film director and it turns out Spielberg owns the rights to High and Low. An incredible story but m- we digress here. Let's get to the 9-

David Friedberg 20:37 You guys, you got, you, just one, one last anecdote-

Brad Gerstner 20:39 Oh, go ahead.

David Friedberg 20:39 ... about the TV show Breaking Bad-

Brad Gerstner 20:41 Yes.

David Friedberg 20:41 ... was inspired by Ikiru, the Kurosawa film-

Jason Calacanis 20:44 Yes.

David Friedberg 20:44 ... about a guy who finds out he's gonna die, and when he finds out he's gonna die, suddenly he becomes his-

Jason Calacanis 20:49 One of my favorites.

David Friedberg 20:49 ... true self. Like, with this true like, nature comes out.

Jason Calacanis 20:52 So, yeah.

David Friedberg 20:53 An incredibly poignant film that obviously-

Jason Calacanis 20:56 That's a deep cut.

David Friedberg 20:56 ... inspired the extraordinary, uh, TV show Breaking Bad.

Jason Calacanis 20:59 T- yeah. Ikiru is, um, means "to live" in Japanese, and this is a story of, uh, somebody who's basically lived a modest, a mid. It's somebody who lived a mid life, but then at the end decides he wants to do something meaningful with his little pittance of money and to make an impact on the world. And so he decides he's gonna take a, a parking lot that's disgusting and filled with garbage and make it into a kids' playground so people can enjoy their life. It is an extraordinary-

Brad Gerstner 21:27 Yeah. Yeah.

Jason Calacanis 21:27 And it's also, uh, it's um, Toshiro Mifune as an old man.

Brad Gerstner 21:31 Yeah.

Jason Calacanis 21:31 So in a way, this parallels their careers and trying to do something important. There's another one, I Live in Fear. So those two, To Live and I Live in Fear are about aging and getting old. Uh, the genre, if you don't know Akira Kurosawa, you know, just, you're gonna need to be a little patient 'cause it doesn't have 1,000 cuts per minute (laughs) like modern films. It's not Transformers or a Marvel film, but it's well worth it if you can get your ADHD under control.

Brad Gerstner 21:57 I would start with the Samurai movies.

Jason Calacanis 21:59 Right. I think they're the-

Brad Gerstner 22:00 I think they're the-

David Friedberg 22:00 Samurai, Seven Samurai. Yeah.

Brad Gerstner 22:02 Seven Samurai, Throne of Blood, and, and Ran.

David Friedberg 22:04 Right on.

Jason Calacanis 22:04 Yeah, you go there. And then there's, I mean, if you wanna go super intellectual, Rashomon.

Brad Gerstner 22:09 Yeah.

Jason Calacanis 22:09 Which is about truth and people's different perspectives on truth.

David Friedberg 22:12 Every, every film the- every film theory class starts with Rashomon.

Jason Calacanis 22:15 Yeah, so, uh, there, there's your, uh, USC, uh, film school divergence.

David Friedberg 22:22 Save a hundred grand, okay, go ahead.

Jason Calacanis 22:23 (laughs)

David Friedberg 22:23 We just saved a hundred grand.

Brad Gerstner 22:25 (laughs)

Jason Calacanis 22:25 We'll see you all at UCLA.

David Friedberg 22:26 Yeah.

Jason Calacanis 22:26 Okay,

Jason Calacanis 22:27 VC market update, Carta has released a Series A funding map covering the first half of 2023, but the data is what's interesting. They covered, and Carta basically manages cap tables and, and stuff like that for folks. Original company was E-Shares, I think. This is a funding map, which just shows like, how much money was raised, nothing really too consequential in there, but what's really interesting is the data on Series A rounds. Series A rounds are typically the f- rounds when a Benchmark, a Sequoia, a Craft come in and, you know, join the board and put in a, a significant check. Before that, you have angels and seed investors, and after that you have growth funds. But the Series A is considered like, a seminal moment in the history of startup. Median round is now seven million raised. That's down 26% year over year, and this is all data from the first half of the year. So first half of 2023 versus 2022, which was a really crummy year. We're down from the crummy year 26% on the dollars raised, seven million. And the pre-money valuation, 40 million down 17%, so last year it was 11 million raised on 48. I don't have the 2021 data here, but it would be even more. So just right off the bat, reactions, I'll start with you, Bill Gurley, to what we're seeing in the Series A space. Is it a return to normalcy? I mean, the Series A's back in the, you know, Uber days and Airbnb days were, what, five, 10 million bucks on a 30 million? So this is return to normalcy?

Bill Gurley 24:01 Yeah, I don't, I don't think you've gone quite back to that line, right? And so I think there's still a significant amount of competition at that level.

Jason Calacanis 24:10 Mm-hmm.

Bill Gurley 24:10 And, um, I, the fact that it's off a little bit is, is noteworthy, but it's not like, off 50%, right? I think that market remains competitive.I think there's a number of great people out there investing at that level. And I, and of course, the AI deals, like one thing that might be interesting is if you pull the AI deals out, I bet those numbers-

Jason Calacanis 24:31 Mm.

Bill Gurley 24:31 ... would, would be more akin to what they were two or three years ago, because those are being done at 200.

Jason Calacanis 24:37 Is the reason you went to angel investing or C investing, let's call it, because it's so crowded and competitive at the Series A level, and what C investing is now is what Series A investing was for the 20 years of your career?

Bill Gurley 24:52 No. (laughs) I- I didn't-

Jason Calacanis 24:54 Okay.

Bill Gurley 24:56 I think if I were practicing institutionally, I would, I would stay at the Series A level and take board seats and try and get as much ownership as possible, which has, uh, been the benchmark strategy. I, I, um, this is more of a hobby thing for me.

Jason Calacanis 25:11 Got it.

Bill Gurley 25:12 And I don't want board seats anymore. (laughs)

Jason Calacanis 25:15 But it's super, super crowded at Series A still to this day, yeah?

Bill Gurley 25:19 I said it was competitive. I don't know that it's super crowded. I think a lot of people realize that if you can get 2.5 or 3% management fee investing $300 million at a pop, that's an easier lifestyle than actually taking board seats and doing work. And so I think a lot of money and activity got pulled into the late-stage market. Nearly every firm started doing that. And, and once the, once the center of gravity goes there in a firm, you know, and you're investing 200 million a clip, can you imagine the Monday meetings? Like, who's paying attention to the person that's putting 5 million out at a time? Like, it'd be hard for that to-

Jason Calacanis 26:00 It's like going to playing high-stakes cards, and then you get invited to a, you're playing, you know, 200, 400, 100, 200.

Bill Gurley 26:05 Exactly. It's exactly like that. Yeah, I mean-

Jason Calacanis 26:06 And you go to five, 10 game, it's like-

Bill Gurley 26:07 Except they're the team. And who's paying attention to the person playing in the little game? And so I actually think the number of people that practice at that level has actually gone down.

Jason Calacanis 26:17 Huh.

Bill Gurley 26:18 But that doesn't mean... You know, the business since I got in only got more competitive. And so there's still enough. And, and, and, and the other thing is the founders have learned how to play the, uh... However, if there's 10 people doing it, they know how to play them off of one another. They're very skilled-

Jason Calacanis 26:36 Yeah.

Bill Gurley 26:37 ... at it.

Jason Calacanis 26:37 Yeah. (laughs) That's a, that's a weird thing that happened is like the playbook because of podcasts, because of blog posts, I mean, just-

Bill Gurley 26:44 Absolutely.

Jason Calacanis 26:44 ... how to, how to run a company and then, you know, how to, you know, negotiate with VCs is, it's all been unpacked. Sacks, what are you seeing? Uh, you're a Series A investor. You compete with the Sequoias, the Benchmarks, uh, heads up for these Series As. What are you seeing in the Series A? And what do you take from this data being down 26% year over year? Which probably actually means probably 50% down from the peak. Uh, what are your thoughts?

Brad Gerstner 27:09 Well, yeah, the, the venture capital market peaked in Q4 of 2021 in terms of both valuations and the amount of money that was being deployed. And it kept going down throughout all of 2022. And I think it bottomed out in Q1 of 2023, basically in the last several months. And I think now the pace of deployment has sort of stabilized, and it's kind of stabilized at a pre-pandemic level. So, you know, maybe a 2019 level. Now, I think that probably masks some big differences by round. So like you're saying, Series A rounds are more competitive. There's relatively more action there. I think the late-stage rounds, Brad can speak to this, the capital there has dried up, I think considerably more.

Jason Calacanis 27:56 Hm.

Brad Gerstner 27:57 And those rounds are much harder to get. And the reason I think is because that when you have more operating history, then it's harder to raise a round based on narrative. Whereas when you're at a very early stage, you can basically just raise money based on a dream and a story.

Jason Calacanis 28:12 Yeah. The way I frame it to people is when I'm... And part of this is my fault, because I'm training people in our accelerators and pre-accelerators. I tell them, "You're either selling promise or performance." And, you know, once you start having customers and numbers and retention, you know, someone like Sacks is gonna be like, "Give me the data," and they're gonna look at churn and say, "Yeah, this business has too much churn. It's a leaky bucket, whatever." But when you're selling promise-

Brad Gerstner 28:33 Right.

Jason Calacanis 28:33 ... hm, it's a lot easier than selling performance.

David Friedberg 28:35 I'll tell you guys-

Jason Calacanis 28:36 Go ahead.

David Friedberg 28:36 ... a CEO that is a well-known CEO, public company now, he told me, and I think earlier I think you guys were investors. (laughs) Um, he said as, as soon as we started having revenue, our valuation felt like it went down. As soon as we started making profit, our valuation went down. Because at that point, you're, you know, you're judged on the quality of that stage of the business. Whereas before, you could paint a picture with 1,000 words about the different paths you might walk. And everyone wants to believe the optimistic path will be walked, and so you can boost your valuation, boost investor interest. But once those numbers start to come through, it, it really changes the investor criteria for how they assess the value of the business.

Bill Gurley 29:16 That's why a lot of people will state, if, if they have a product launch coming, they'll, they'll tell you to raise money before you launch.

Jason Calacanis 29:24 Yeah, sell the promise-

Brad Gerstner 29:25 Well-

Jason Calacanis 29:25 ... of that launch.

Brad Gerstner 29:26 Yes. Old saying, it's better to raise on the sizzle than on the steak.

David Friedberg 29:29 Hm.

Bill Gurley 29:30 Yeah.

Jason Calacanis 29:30 Unless the steak is pretty high grade.

Brad Gerstner 29:32 Yeah, obviously if the steak is great-

David Friedberg 29:34 (laughs)

Brad Gerstner 29:35 ... then yes, that's the best time, but-

David Friedberg 29:36 You take that risk off the table, yeah.

Brad Gerstner 29:38 Yeah, but, but just to recap, I think where we are, I think the venture capital markets have stabilized for funding new companies. I think there's a mania going on with AI, both in terms of the size of these rounds and the valuations. It's like 2021 for a lot of AI companies. We're not participating in that craziness. We are doing some seed checks, I would say, in early stage-

Jason Calacanis 29:59 Yeah.

Brad Gerstner 29:59 ... AI companies. We're kind of calibrating the size of the check with the stage and amount of risk, and I think that's appropriate.

Jason Calacanis 30:07 So you are going pre-Series A seed putting in, that's a 500K, $1 million check?

Brad Gerstner 30:12 Seed is what makes the most sense, I think, for AI startups-

David Friedberg 30:16 Hm.

Brad Gerstner 30:16 ... because if you wait for a later round, then they're not being priced based on fundamentals at all.

Jason Calacanis 30:22 Logic. Yeah, yeah.

Brad Gerstner 30:23 Yeah, so it's, it's-

Jason Calacanis 30:23 So what check size is that, 500K, million?

Brad Gerstner 30:26 We just did-

Jason Calacanis 30:26 For your fund?

Brad Gerstner 30:27 ... we just did one of a, of $4 million check where we led-

Jason Calacanis 30:29 Ah.

Brad Gerstner 30:29 ... kind of a bigger seed round.

Jason Calacanis 30:31 Got it.... fantastic.

David Friedberg 30:32 I love that those are called seed rounds today. (laughs)

Jason Calacanis 30:34 I mean, it used to be-

Brad Gerstner 30:36 (clears throat)

Jason Calacanis 30:36 ... three to five million was your series A, but yeah, sure, seed round, three to five.

David Friedberg 30:39 I still don't understand the term pre-seed.

Brad Gerstner 30:41 So just to finish the thought, I think where we're at, and, you know, Brad can, can chime in on this, is I think the venture capital market has stabilized for-

Jason Calacanis 30:48 Yeah.

Brad Gerstner 30:48 ... new companies, new fundraising. However, I think there's gonna be a one- to two-year period of distress for all these companies that raised in the peak-

Jason Calacanis 30:56 Yep.

Brad Gerstner 30:56 ... 2020, 2021, and are now running out of money and they don't have enough revenue, they're not growing fast enough, and/or their burn is too high, and all those companies are gonna be facing down rounds or restructurings, or they're not gonna be able to raise, and so-

Jason Calacanis 31:11 Well, and people are also marking their books now. We're starting to see them marking other books-

Brad Gerstner 31:14 They're gonna get marked down.

Jason Calacanis 31:16 ... ever getting marked down.

Brad Gerstner 31:16 So we're gonna have probably a one- to two-year period of distress for all those bubble companies-

Jason Calacanis 31:21 Mm.

Brad Gerstner 31:21 ... while we have a little bit of a resurgence for new companies.

Jason Calacanis 31:26 I got another topic I'm gonna go to here, uh, related, but Brad, I just wanted to let you chime in on the late stage there, 'cause you operate in the VC stage. Yeah.

David Friedberg 31:33 I think, uh, and this is related to the topic I suspect we're gonna transition to, but listen, there is a lot of activity in venture today. Right?

Jason Calacanis 31:43 Mm.

David Friedberg 31:44 And we're very reflective to the stock market. People were really scared in Q3 and Q4 of 2022. Started in 2021, but Q2... Uh, 2022 was scary to people because public market valuations for growth companies were down over 50%. So we really saw, you know, IPO markets, venture, all, all, all start to slow down. Coming out of that, we've seen, you know, stock market within, uh, you know, 10% of all-time highs. We see, you know, this wave of AI occurring. What I would tell you is under 500 million, maybe under 600 million, right, series B and C rounds are as hot as I've ever seen them in data-

Jason Calacanis 32:23 Hmm.

David Friedberg 32:23 ... infrastructure and AI and software, et cetera. Um, so there is a lot of competition there. The later-stage stuff, which as you know I call quasi-public, so if a company is over a billion dollars, right now you're, n- n- you're very reflective relative to what's happening in the public markets. We're starting to see activity. I just read Wiz raised more money. It's got $200 million ARR, raised it 10 billion. So those markets are definitely-

Jason Calacanis 32:49 50 times revenue.

David Friedberg 32:50 Yeah. We did not participate. Um, but-

Jason Calacanis 32:53 50 times revenue.

David Friedberg 32:55 You know, so there is definitely activity. I know a deal we got called on yesterday, raising 2.5 billion at 100 billion. There is a lot of activity. However, Saks is right. There is... You know, remember, we had a thousand unicorns at the end of 2021. And I've said 100% of those are gonna do a down round. And we're still in the early stages of that reset to occur. There was some... You know, there's a report out this week that lots of people commented on Twitter where public markets were down 50% and private markets were down, I don't know, 5 to 10%. Like, that will all normalize. It's all gonna be down, you know, the same. So that's the only place I don't see activity. Underperforming companies that were valued over a billion dollars, those are dead on arrival until you get to a market clearing price, and we're not there yet.

Jason Calacanis 33:43 Okay. So the other big issue here is a lot of money was raised by VCs, uh, you know, commonly known as dry powder in the industry, but there are some misconceptions about this dry powder. People are saying, "Oh my god, all this money's gonna come flowing into the ecosystem, kumbaya, it's gonna be the roaring '20s again." However, uh, Bill, you did a little tweet storm. What people don't realize is when we refer to dry powder at VC firms, the VCs do not have that $250 billion or whatever it is, quarter trillion dollars sitting in their bank accounts. That money is sitting in another person's bank account, LPs, Harvard's endowment, CalPERS, sovereign wealth funds, et cetera. It has not been drawn down by the VCs yet. So, Bill, why is this an important fact for people to understand and what are the dynamics that LPs are dealing with?

Bill Gurley 34:38 Yeah, and th- and there's a ton of dynamics between the GPs at the venture capitalist and the LPs at those endowments that Brad, Brad started to hit on one of those, which is the marks aren't in the right place. And, and so, so the thing you just explained is critical, Jason, which is you don't actually have the money. There's no, there's no venture firm sitting around with, you know, all of the money that they've got committed to their fund in a bank account that's just ticking-

Jason Calacanis 35:06 Why not? Why does that not actually occur? 'Cause people would say, "Oh, you raised a billion from these folks. They gave you the billion," right? "Why do you not take it down?"

Bill Gurley 35:13 Which one of, one of, one, one of the, the brilliant realities of the way that a LP agreement works with a venture fund is they're not on the IRR clock until they actually pull the money down. So they-

Jason Calacanis 35:24 Explain what that means, yeah.

Bill Gurley 35:26 They charge fees based on the total committed amount, but they don't actually draw the money down and get gauged on the performance of their investment until they need it. And so a classic venture firm will do five, six drawdowns over a 10-year period of a fund. And so they don't ha- they literally don't have the money. A couple of other things worth noting. So, and some of that I didn't put in the tweet, but the marks aren't right. And ev- everyone kind of quietly knows that the marks aren't right, but there's actually no incentive to get the marks right. Here, here's what it looks-

Jason Calacanis 35:59 Explain what a mark is to folks.

Bill Gurley 36:01 So private companies have a valuation that's assessed either by the GP (laughs) themselves in most cases, which gets a bit of a conflict of interest. Sometimes by your auditor, E&Y or whoever's auditing your venture fund. But of course, the techniques they have for assessing valuation are extremely crude 'cause they're not market-based. They're just, you know-

Jason Calacanis 36:22 They're not public companies.

Bill Gurley 36:24 Yeah.

Jason Calacanis 36:24 Yeah.

Bill Gurley 36:24 So there's, there's actually not a way to know. They have extremely complicated cap tables. The other thing is m- many LPs...... are actually bonused on the paper mark. And this is something that-

Jason Calacanis 36:39 Ooh.

Bill Gurley 36:40 ... a lot of people don't realize. And so they don't have an incentive to dial around to the GPs and say, "Get your marks right," because it's actually (laughs) gonna reflect poorly on them if they were to roll those up.

Jason Calacanis 36:51 So the both of them are, bo- both of the LP and the GP are in a dance there. "Hey, we know that Stripe is not worth 100 billion right now, it's worth 50 billion. But if you mark it down, I don't get my bonus. I'm the person who's giving you money for your next fund. And so when we're assessing, 'Hey, how much are we going to give you for your next fund?' we're going to look at the performance of previous funds as an indicator-"

Bill Gurley 37:11 The only thing I push back on what you just said-

Jason Calacanis 37:13 Yeah.

Bill Gurley 37:13 ... I agree with what you just said, except ther- th- no one has the explicit conversation.

Jason Calacanis 37:18 No. It's just-

Bill Gurley 37:18 It's, it's an emergent, it's an emergent (laughs) behavior-

Jason Calacanis 37:21 It's emergent. See-

Bill Gurley 37:21 ... of the dynamic system. Yeah.

Jason Calacanis 37:23 Show me an incentive, I'll show you an outcome kind of situation.

Bill Gurley 37:26 But there's no, I've never heard of an LP like, browbeating GPs to get their marks right. Like, especially on the downside. Never heard of that-

Jason Calacanis 37:34 And can-

Bill Gurley 37:34 ... ever.

Jason Calacanis 37:34 Those marks can be done by an audit, like you said, they could be done by a round of financing. And then there's-

Bill Gurley 37:41 And sometimes you have this-

Jason Calacanis 37:41 ... a secondary market, weird secondary market, uh, where-

Bill Gurley 37:44 Secondary market can do it, and sometimes LPs have this weird situation where different venture firms are marking companies at radically different prices.

Jason Calacanis 37:52 Oh.

Bill Gurley 37:53 Which creates some interesting (laughs) dynamics as well.

Jason Calacanis 37:55 Okay, so I did the serie- I did the seed round of Stripe, where I'm Y Combinator, and I say, "You know what? 50 billion is fine, we're going to market at 50 billion because we (laughs) we invested at two million in Stripe." But then whoever did the, you know, series G or whatever it's up to, who did the $100 billion mark is like, "Ah, we'll mark it down to 90." But, you know, somebody, CalPERS or Harvard has two, has the same share class-

Bill Gurley 38:19 Exactly.

Jason Calacanis 38:19 ... in two different funds, at two different prices. So then you could really triangulate on reality, huh?

Bill Gurley 38:24 Another dynamic that, uh, that makes the powder less, less dry, that I, that I didn't mention in the tweet storm, imagine you're on your first or second venture fund.

Jason Calacanis 38:35 Mm-hmm.

Bill Gurley 38:35 Or imagine you're a fund that used to just have a, one fund, but they've expanded to four funds.

Jason Calacanis 38:41 Mm-hmm.

Bill Gurley 38:41 Okay? Now, imagine you don't have a lot of liquidity proof points on those funds.

Jason Calacanis 38:47 Mm-hmm.

Bill Gurley 38:47 Do you really want to run out of money and go test whether or not you can raise your third fund or your second fund?

Jason Calacanis 38:55 Huh.

Bill Gurley 38:55 Or do you kind of want to wait and see if you can develop some track record so that... 'Cause, 'cause you may be facing the imminent death of your firm if you run out too quickly and, and go back to market and there is no market.

Jason Calacanis 39:09 So I have a hun- I have $100 million fund as my third fund. Okay, what pace am I gonna do this? Am I gonna do it in 24 months or 18 months like maniacs were doing during the peak? Or am I gonna take a 36-month approach, a more traditional three-year deployment? If I even, if I take a 40-month deployment, hey, I got time to work out all these issues in the previous portfolio. Sacks, you've heard this sort of dynamic. Wh- wh- what are your thoughts on the dry powder issue? You, yourself have a lot of dry powder, I understand. So how do you think about it?

Brad Gerstner 39:36 We do have a lot of dry powder, and we're going really slow. I mean, there's no feeling that-

Jason Calacanis 39:39 Okay.

Brad Gerstner 39:39 ... we have to rush out and deploy this capital. And one of the things that's interesting about the period we've been in that's been surprising to me is that our metrics actually haven't changed. I mean, the, the things that we're looking for in a software company haven't really changed. We look for a certain amount of ARR, certain growth rate, certain amount of net dollar retention, a certain CAC, a certain capital efficiency. That bar hasn't changed for us, but the number of companies meeting that bar has gone down considerably.

Jason Calacanis 40:06 'Cause they have headwinds, because customers are in austerity measures or companies are going out of business and saying, "Hey, let me consolidate my SaaS tools."

Brad Gerstner 40:13 Enterprise buyers are sharpening their pencils.

Jason Calacanis 40:15 Mm-hmm.

Brad Gerstner 40:15 They are trying to consolidate vendors. There's a lot of headwinds in the buying cycle right now.

Jason Calacanis 40:20 Yeah.

Brad Gerstner 40:21 And it's a little bit like, I don't know if you remember in the dot-com crash 20 something years ago?

Jason Calacanis 40:27 Oh, I remember it.

Brad Gerstner 40:28 Yeah. So back in '99, 2000, the conventional wisdom was that the company you wanted to be in was Yahoo because Yahoo was profitable, and when all these startups went out of business, Yahoo would be the way that you could own a piece of the future of the internet, but you wouldn't have to take all the startup risk. And then it turned out that all of Yahoo's revenues went away because their revenues were coming from banner advertisements bought-

Jason Calacanis 40:53 (laughs)

Brad Gerstner 40:53 ... by startups-

Jason Calacanis 40:54 Yes.

Brad Gerstner 40:54 ... which were funded by VC dollars. So when you had the whole dot-com crash, Yahoo's business dried up.

Jason Calacanis 41:00 Yep.

Brad Gerstner 41:00 So then Yahoo lost whatever it was.

Jason Calacanis 41:02 The tide went out, it turned out a lot of people weren't wearing swim trunks. It was-

Brad Gerstner 41:05 Yeah, so-

Jason Calacanis 41:06 Yeah.

Brad Gerstner 41:06 ... so Yahoo's business was actually highly correlated with startup funding.

Jason Calacanis 41:10 Mm-hmm. Yeah.

Brad Gerstner 41:10 And I think there's been an aspect of that with a lot of these companies, where you would think that they're pretty insulated from the business cycle, even like, especially the enterprise software companies. There's a lot of-

Jason Calacanis 41:24 Hmm.

Brad Gerstner 41:26 ... software companies that were selling to other startups, that was pretty obvious they're gonna be impacted. But even the ones selling to enterprise companies have been affected in subtle ways. And, uh, there just aren't that many startups right now hitting that same bar that they were hitting just a couple years ago.

Jason Calacanis 41:41 Freyberg, your thoughts on this LP/GP dynamics and, and dry powder?

David Friedberg 41:50 I mean, I think, I mean, one aspect on the same front of, uh, VCs being somewhat reticent to deploy more capital, it's flowing through to the LP space, and Goerdli can probably opine on this, or Sack can probably opine on this too, but, and y- all of you guys obviously could, but it's been apparent in the last year that LPs are wondering, what do they have?

Jason Calacanis 42:17 Hmm.

David Friedberg 42:18 What are these portfolios ultimately really gonna be worth? What's the actual cash distributions? And I think there's these new rules, right, Goerdli, where you gotta distribute 5% of your assets each year to the institution that you're meant to represent with your endowment?

Jason Calacanis 42:28 Yeah. Bill, explain this. You're an endowment, you're obligated to not just grow your endowment-

Bill Gurley 42:34 Both either from the board of the, like, the endowment or the board of trustees of the university, or I think there was a tax...... provision put in that if you're not distributing 5%, then you're exposed to tax on the returns. And so there's a, there's a unquestionable potential issue with LPs around their own liquidity. So they've all followed the Dave Swenson model, where they've all got 50% or even more in illiquid assets. You move into a cyclical decline, where the number of IPOs and liquidity events, both for VCs and PE ... Remember, PE is way bigger than VCs.

Jason Calacanis 43:15 Private equity, yep.

Bill Gurley 43:16 Aren't coming, and then the drawdowns keep coming. And so you have to meet the drawdowns, you're not getting any liquidity, your constituent needs 5% liquidity, and-

Jason Calacanis 43:28 And now you've got a cash crunch.

Bill Gurley 43:30 Now you, you have a cash crunch as an LP. And I think GPs are aware of this issue, so, you know ... (laughs) do you want to provoke that or not? (laughs)

David Friedberg 43:39 Right, so I'll, I'll just-

Bill Gurley 43:40 Maybe you'll run quick. You run early or you run late. You don't want to be in the middle. (laughs)

David Friedberg 43:44 So I'll, I'll just say, like, anecdotally, it, it seems LPs are more reticent. I've heard several folks talk about how they're reducing commitments by 50%, two-thirds, or in some cases, 100%. Particularly after the, the mad rush for capital over the last couple of years, or capital commitments, I would say, for the last couple of years. And so the downstream effect of that ultimately, as the current funds get deployed, there are fewer new funds and less new capital being committed from these LPs into new funds and, you know-

Jason Calacanis 44:19 Love it.

David Friedberg 44:19 ... fast-forward two or three years and there's gonna be less capital available, and so it keeps the bar high. Uh, you know, so while there's-

Jason Calacanis 44:26 No, this is-

David Friedberg 44:26 You know.

Jason Calacanis 44:26 Yeah.

David Friedberg 44:26 And s- and so the bar, I think, is only gonna get higher over the next couple of years as that capital cycle moves its way through the system. It's probably worth ex- explaining what Friedberg was talking about in terms of a commitment. So you may have a, a, let's just say, University X has committed $25 million to funds three through five for Venture Fund Z.

Jason Calacanis 44:51 Yeah.

Bill Gurley 44:51 And now they're saying, "In the next fund, we're gonna be at 10 instead of 25."

David Friedberg 44:57 Yeah. When they say they're making that commitment, that capital gets deployed by the venture investor over the next, on average, call it five years. So the reduction in a commitment this year means that there's less capital to invest over the next three to five years. And so that gets played out. As we fast-forward, we're s- you know, we're still sitting on funds from the last couple of years. As those funds get invested, the new funds are gonna be smaller. There's gonna be fewer of them.

Jason Calacanis 45:23 Yeah. Which-

David Friedberg 45:24 And that's when the market gets much tighter-

Jason Calacanis 45:25 I mean, I-

David Friedberg 45:25 ... is in the next couple of years.

Jason Calacanis 45:26 You know, Brad-

David Friedberg 45:27 Theoretically.

Jason Calacanis 45:27 Look, this seems like the greatest setup ever. Feels like the setup last year, buying equities, when everybody was scared. If everybody has tightened their belts, if VC funds are not going to deploy, this feels like the time to be deploying. So maybe you could talk a little bit about this austerity measures coming or just belt-tightening or some people maybe getting out of the venture business who shouldn't have been in it to begin with. All of this seems like a great setup for more discipline and more disciplined founders. If the VCs have to be disciplined, doesn't that trickle down to the portfolio companies?

David Friedberg 46:00 100%, but it, it ... And while this might happen-

Jason Calacanis 46:04 Hmm.

David Friedberg 46:04 While this might happen, I'm gonna take the other side. I don't think-

Jason Calacanis 46:07 Okay.

David Friedberg 46:07 ... that's what the lived experiences of most VCs in Silicon Valley today on series A, series B, series C is certainly not in the area we're competing. We're seeing four or five $600 million deals get done on zero revenue, two, three million dollars in revenue. And so let me just throw out perhaps an alternative view as to why this might look a little different than the world of austerity that we saw in 2002, 2003, 2009, '10 and '11. The first is, right, the stock market is near an all-time high, and we know that th- you know, the venture markets are reflexive to the stock market. We talked about that. The second reason, which I think is interesting, is most firms, on average, are a lot bigger. Okay? That creates two issues. We have a situation where younger partners and principals who all did deals that were overvalued over the last few years, they wanna put some points on the board in a repriced deal because they have to have some winners. So you have this principal-agent problem. The people who used to check them were the senior partners, right, the, the investment committee, but now they have a lot of mouths to feed. So when you put money to work, you pull down more fee. And so, you know, these funds now, I mean, if you're Tiger or some of these big funds, you have giant cost bases that you've created because of the, the size of the firm that you created. The third is the nature of LPs. And Bill mentioned, you know, Dave Swenson. In 2002, MIT, Yale, Harvard, they would cau- you know, who were the early backers of venture firms, they would call these venture guys up and say, "Listen, we're hurting. There were a lot of markdowns. We need to slow down the pace of deployment." Right? And so, uh, uh, they were a factor. LPs said, "Slow it down." I'm not hearing that out of LPs today.

Jason Calacanis 47:57 Hmm.

David Friedberg 47:57 Okay? And I think one of these change- I certainly am hearing it out of traditional LPs, some family offices, some endowments. But pensions, sovereign wealth funds, et cetera, who now represent a much bigger percentage of the total capital base of venture, they have money coming out of the ground every day that they need to deploy like they did in private equity. And so again, I'm not saying this for certain, and certainly there are more discerning sovereign wealth funds than others who are saying, "Don't speed up the pace of deployment," but I'm wondering if that nature, uh, that change in the nature of the LP base is also contributing to this, you know, as, as Sachs called, AI mania?

Jason Calacanis 48:39 Yeah, I mean, we see it in Hollywood. Some new, uh, actors come in, they wanna-... build a brand, we, we saw the Russians do it, we saw the Japanese do it, and we've seen China do it. People come in, new entrants at the table, they get splashy cashy, they wanna place a lot of bets, they wanna make a name for themselves, build a brand. So that's an interesting counterpoint.

Jason Calacanis 48:57 Our entire business, of course, is based on exits. The highest form of exit, I guess, is an IPO. An overpriced acquisition would be the second, and a, uh, secondary market for shares as a distant third. Though it looks like the IPO window might be cracking open a bit and, uh, some people are being forced the guns to the head. Arm, owned by SoftBank, Masayoshi-san, looking to raise $10 billion at a 50, 60, $70 billion valuation, could be the largest IPO of the year. Instacart, looking at a $12 billion, uh, valuation. Reddit kind of went dark. They had a couple of problems with their community, but they were in line. Stripe obviously in line. Klaviyo's got a $5 billion valuation. And then we saw a couple of, uh, what I'll say are nontraditional companies going public, something called SharkNinja I saw (laughs) in public. We had a little conversation about this, Brad. Kirshner, they have a market cap of $4.3 billion. They had a pop of 40%. Cava, a Greek food chain, Oupa, they went public and have a market cap of $5 billion. Surfair, a company I'd passed on investing in but was intrigued by, they do Pilates, uh, shuttles between places on the West Coast here, little short runs, they did a direct listing in July, market cap of $85 million, didn't go well. Bill Gurley, is, uh, the IPO window opening or are people kind of on the ledge who have no choice but to jump and hope for the best?

Bill Gurley 50:27 One thing we didn't probably spend enough time on in the last topic, which I'll just hit on briefly, is the-

Jason Calacanis 50:33 Sure.

Bill Gurley 50:33 ... complexity of those unicorns. So Brad mentioned... I, I saw a deck that said there were more, um, private unicorns than public tech companies over a billion dollars-

Jason Calacanis 50:43 (laughs)

Bill Gurley 50:43 ... at one point in time, um, which is shocking.

Jason Calacanis 50:46 That's hilarious.

Bill Gurley 50:46 But th- those, because those companies grew up in the tw- 99, 22, 21 timeframe where you could raise money at excessive valuation, their cap charts are very complex and rigid. They have different liq preferences at different places and, and, and they've got board members who all have different marks and are all very worried about whether this thing-

Jason Calacanis 51:07 Mm-hmm.

Bill Gurley 51:07 ... can get to a certain place or not. And so it's very difficult to come in and do another private round in those situations. You might have to, you, you might have to put the return in a guaranteed pick dividend, uh, IPO, or some complex derivative, and a lot of people, and I think Brad would agree with this, a lot of people just say, they opt out and say, "No, this is too hard. I'm not gonna go in there and negotiate with five different constituencies on how to do..." It's, you can't just do a simple investment because of that.

Jason Calacanis 51:37 Okay. So it's gotten too complex, which then if the buyers of those shares do not want to be involved in that crazy, okay, is Stripe worth, we'll just pick Stripe as an example, 50 billion or 100 billion and the last investors are at 100. YC in a two million structure go public.

Bill Gurley 51:54 Yeah, Stripe may be a bad example just because-

Jason Calacanis 51:56 Yeah.

Bill Gurley 51:56 ... their total liq pref stack may still be a fraction of their market cap for-

Jason Calacanis 52:00 Huh. Got it.

Bill Gurley 52:00 A lot of these unicorns, the liq pref stack can be very close to their market cap or their, today's valuation, and that's what creates-

Jason Calacanis 52:07 Got it.

Bill Gurley 52:08 ... real structural problems.

Jason Calacanis 52:08 So you have a billion... You, you got a billion dollars in investment in the company and liquidation, money that has to come out to pay those investors, but the company's only worth two billion or a billion. And now it's, yeah.

Bill Gurley 52:19 And when you... When you get to that place, sometimes going public is just the easiest way to clean it all up and-

Jason Calacanis 52:24 Because everybody converts to common and we just, the company starts trading and reality is reality. It's kind of like taking the medicine.

Bill Gurley 52:32 Yeah. And, and I think that happened, o- one good example was Square at one point had done a derivative financing on top that was somewhat problematic, and they just felt like they had to get out.

Jason Calacanis 52:43 Hmm.

Bill Gurley 52:44 And they did, and it cleaned up the cap chart. And one thing I've been waiting on, we'll see if it happens, but because of hyper competition in investing in '99, 2000, 20, 2021, there was a term removed from most term sheets that gave investors the right to protect their liq pref on an IPO. That's gone in most of these cases.

Jason Calacanis 53:06 Got it.

Bill Gurley 53:06 So you could convert liq pref under, which for a founder or an early stage angel investor would be a huge win.

Jason Calacanis 53:15 Got it.

Bill Gurley 53:15 Whereas if you sold a company in M&A, the liq pref would play. Does that make sense?

Jason Calacanis 53:21 Got it. Yes. So the last investor comes in, they're getting a multiple of their money back, except in an IPO.

Bill Gurley 53:27 Right. And I suspect-

Jason Calacanis 53:27 And so if the IPO happens, you know, yeah.

Bill Gurley 53:30 And I suspect most of those late stage investors keep, assume that their investment has a debt-like floor on liq pref, and if this were to start to happen, or recaps, which can also be done, self-in- self-inflicted recaps I have seen many times, just to get past the structural complexity. Either one of those things could wipe out that liq pref.

Jason Calacanis 53:53 So net-net, Gurley, more IPOs are gonna happen-

Bill Gurley 53:57 I think you will see-

Jason Calacanis 53:58 ... in the second half of this year?

Bill Gurley 53:58 ... there, there's two things here. I think that comple- cleaning up complexity is a great reason (laughs) to, for the public market. And Brad already said, we've seen a massive recovery in, in software stocks. Like the marks are better than they were-

Jason Calacanis 54:14 Hmm.

Bill Gurley 54:14 ... two years ago.

Jason Calacanis 54:15 So Brad or Sax, uh, just M&A-wise, we've seen Lina Khan, we've discussed it many times, seems to be saying all business equals bad. (laughs) Any merger equals bad. She's gonna, you know, attempt to throw cold water on any merger that's happening. So M&A seems to be being taken off the plate by not just Lina Khan but also the EU is, is, seems to be turning the screws. So if we don't have an M&A market, then that means there's only an IPO market.

David Friedberg 54:46 Correct. And I mean, that's just another one of the reasons that is pressuring these companies. These companies need to raise capital. So just to double-click on what Bill said and put some numbers around it, right? Because we read a lot of stats about how many IPOs there were, so I had the team pull some figures, 480 IPOs, US IPOs, in 2020, 1,035, so a huge bubble in '21, 181 in '22, and 100 in '23. Okay? But I think that overstates, right? Because we had a lot of SPACs and crappy IPOs. So it really overstates the quality IPOs. So, you know, we're one of the major buyers in tech IPOs so I just went to the team and said, "How many IPOs were we tracking and did we consider participating in during these years?" So that was 46 in 2020, 100 in 2021, three in 2022, (laughs) and zero year-to-date in 2023. Okay?

Jason Calacanis 55:45 Don't, don't wanna be in the Greek food, uh, caskado.

David Friedberg 55:47 So but what I would say is I just returned from Deer Valley this week where Morgan Stanley's putting on a conference, talking to their big potential IPO buyers. We are now queued up, as you and I, we had this tweet exchange, Jason, this week, and I said, you know, in that exchange, "The world's normalized, fear of COVID's past, hyperinflation's past, et cetera. First-class IPOs are coming and a bunch of down round IPOs are coming." So let me just explain really quickly on that, right? You mentioned Instacart, right? Super high-quality company, I think its last private round was 50 or 60 billion in the bubble, and now it's rumored to be going public at somewhere b- around $10 billion. Okay? So that represents the reset that will have to happen, and as Bill said, if you were a investor in that last round of Instacart and you were buying preferred shares and thought you were protected, that preference is washed, right? So you're gonna be down 50, 60, 70% on those preferred shares because you're gonna be converted into common in that IPO. It's the right thing for the company to do. It's the right thing for the investors to do. It cleans up the cap table. So that is an example of, you know, the down round IPOs of high-quality companies that you're gonna see come public. Then you're gonna have folks like ARM, like ByteDance, Databricks would be ano- another one of these, I think that it, you know, Snyk, that would be more in that Instacart camp, you know, like, there will be some discount relative perhaps to their fully diluted last round's valuation, but these, make no mistake about it, are high-quality companies that will lubricate, and Altimeter will compete for those IPOs because these bankers are hellbent on pricing these IPOs at a discount to fair value. They need them to work. They need to bring buyers back into-

Jason Calacanis 57:33 Got it.

David Friedberg 57:33 ... the IPO market because these companies need liquidity.

Jason Calacanis 57:35 So suddenly, the banks need to get wins for the people buying these shares-

David Friedberg 57:41 100%.

Jason Calacanis 57:41 ... as opposed to in the past, they were like, "Yeah, we're just selling a security at the market rate," whatever that famous, that famous monologue (laughs) from, what was the movie with D- was that Jeremy Irons who gives that monologue, "We're selling securities to informed buyers and that's it"? (laughs) I mean, it was a pretty dark scene.

David Friedberg 58:01 So it won't be a light switch, Jason, but I do-

Jason Calacanis 58:03 Yeah.

David Friedberg 58:04 Margin Call.

Jason Calacanis 58:04 Margin Call. Thank you.

David Friedberg 58:05 It was Jeremy Irons.

58:07 I don't think it'll look like a light switch, but it will be, I think we're gonna see five, six, seven IPOs, good-sized IPOs in Q4. We'll probably see closer to 10 in Q1, and then it will start opening up in the back half of next year, in part because boards of directors will begin to realize, "You know what? We have to go public. If it's down round, who cares? It's acceptable." And this is really healthy. We need these companies. And by the way, I'm in the Bill Gurley camp. You should not stay private forever, you should get your company ... If you have 100 or 200 million in revenue, get your company public, innovate and grow in the public markets with the discipline and cadence of the public markets. And if it's, if it's a ... You should expect the prices lower because the world was out of their mind in '20 and '21 and multiples have reset.

Jason Calacanis 58:55 Uh, Sachs, you shared a, a news story with me just about some of the incredible returns in the golden hour (laughs) of venture capital, Washington University, Duke University, the, some of these endowments just exploded in value, yeah?

Brad Gerstner 59:09 I remember when this article came out, it was September 29th, 2021, less than two years ago.

Jason Calacanis 59:14 Yeah.

Brad Gerstner 59:14 And we were all feeling really good-

Jason Calacanis 59:16 Yep.

Brad Gerstner 59:16 ... about our industry.

Jason Calacanis 59:18 Yeah. (laughs)

Brad Gerstner 59:18 But as it turns out, the whole thing was inflated by all the-

Jason Calacanis 59:22 Hmm.

Brad Gerstner 59:22 ... free money that the Fed had airdropped.

Jason Calacanis 59:25 Mm-hmm.

Brad Gerstner 59:26 So, you know, the public markets were really frothy.

Jason Calacanis 59:29 Yeah.

Brad Gerstner 59:29 It was basically very bubbly, especially for growth stocks. You had all these new IPOs and SPACs and so forth, and they were super bubbly. And the result was that the returns, both realized returns and on paper for these endowments, were massive. So if you think about the LP, the LP community, if they're making commitments in 2021, the way they do that is they look at the total value of their endowments and then they allocate a certain percentage t- by asset class. So they'll allocate a certain percentage to public markets, certain percentage to real estate, private equity, and then VC. So if the overall value of the endowment is really big, then that percentage that goes to VC's gonna be really big too. And then what happened is you had this huge correction over the next couple of years, and so one of the things we heard from the LP community last year is a problem they called the denominator effect where-

Jason Calacanis 1:00:25 Explain. Yep.

Brad Gerstner 1:00:26 ... well, the value of their portfolios had gone down a lot because the public markets were down, what was it, something like 15-

Jason Calacanis 1:00:33 50% in some cases, yeah.

Brad Gerstner 1:00:35 ... for growth stocks and like 15-

Jason Calacanis 1:00:36 Yeah.

Brad Gerstner 1:00:36 ... 20% for the entire market.

Jason Calacanis 1:00:38 Right.

Brad Gerstner 1:00:38 So the value of the portfolio was down, but the venture capital part of that was not down, both because of the, the lag in getting fresh marks-

Jason Calacanis 1:00:47 Yeah.

Brad Gerstner 1:00:47 ... and then also because they had already made commitments-... to new VC funds at the peak of the market. So all of a sudden, the percentage of their portfolio that was VC-related roughly doubled.

Jason Calacanis 1:00:59 Hmm.

Brad Gerstner 1:01:00 And so that's why all of a sudden the LP commitments have dried up, is because they're-

Jason Calacanis 1:01:04 Yeah.

Brad Gerstner 1:01:04 ... overallocated to VC.

Jason Calacanis 1:01:07 Yeah. All right.

Brad Gerstner 1:01:08 Now, as the public markets have come back this year, then that problem mitigates to some degree, but-

Jason Calacanis 1:01:13 Yes.

Brad Gerstner 1:01:13 ... I think it's still out there. And I think this is why you're seeing certainly domestic LPs really slow their allocations to venture capitals. They still have the denominator problem. Now, I think that's less of an issue overseas. I think, J-Cal, you observe that the, the four seasons of th- th- the bar at the Dubai-

Jason Calacanis 1:01:32 Abu Dhabi bar-

Brad Gerstner 1:01:33 ... Four Seasons (laughs)

Jason Calacanis 1:01:33 ... looked like The Rosewood to Brad and I when we were there.

Brad Gerstner 1:01:37 (laughs)

Jason Calacanis 1:01:37 I literally got stopped four times from the elevator to the front door. I am not kidding. Four people stopped me. That's two more than would stop me at The Rosewood going to the front door. It was bonkers.

Bill Gurley 1:01:48 You should recognize that as a hyper attractor for where available money was-

Jason Calacanis 1:01:55 Yes.

Bill Gurley 1:01:55 ... relative to the US dollars-

Jason Calacanis 1:01:58 Yeah.

Bill Gurley 1:01:58 ... and whether they were available or not. (laughs)

Brad Gerstner 1:02:00 Yeah. I think we're in for a period here of just continued distress and, and pain, even though the market has sort of normalized or stabilized now. Again, I just think y- we've been in a huge software recession for the last year.

Jason Calacanis 1:02:13 Yeah, I mean-

Brad Gerstner 1:02:13 I think that it, it's been masked by the fact that the rest of the economy seems to be okay. But this is the worst software recession we've been in, I think, since the dot-com crash. I mean, the buyers have been laying off employees by the thousands. And since software is bought on a per-seat basis-

Jason Calacanis 1:02:29 Yep.

Brad Gerstner 1:02:30 ... the, the market has really condensed. We had one startup that was selling to Twitter, and they got a renewal, and the, uh, th- I think their contract was-

Jason Calacanis 1:02:39 80% off. (laughs)

Brad Gerstner 1:02:40 80% off because Elon's laid off 80% of the employees.

Jason Calacanis 1:02:43 Yeah.

Brad Gerstner 1:02:43 And I told them they did-

Jason Calacanis 1:02:43 And that's before negotiating the last 20%, which you could negotiate 50% off that.

Brad Gerstner 1:02:48 I told them they did a great job just getting that 20% because Elon's canceling-

Jason Calacanis 1:02:51 Yes.

Bill Gurley 1:02:51 (laughs)

Brad Gerstner 1:02:51 ... everything.

Jason Calacanis 1:02:53 Yeah. I-

Brad Gerstner 1:02:53 I was, like, really impressed they were able to renew at 20% of last year's value.

Jason Calacanis 1:02:57 You know what? We, we had-

Brad Gerstner 1:02:58 But we're seeing a lot of that.

Jason Calacanis 1:02:58 ... a bender. We had, we had a bender, and this bender went on for far too long. And you know what? I- if you go out, you know, two or three nights in a row until 4:00 or 5:00 in the morning, that next week is gonna be painful and suffering. That's what the industry's going through. It's just gonna take a lot of cold plunges (laughs) in infrared and pickleball (laughs) and-

Bill Gurley 1:03:17 Well, one thing I-

Jason Calacanis 1:03:17 ... you know, salads to, to feel good again in this industry.

Bill Gurley 1:03:19 One thing I would, like, in wri- in retrospect that I think is super interesting about the venture capital cycle, one, I think it's inherently cyclical, and it's always gonna be that way unless we fundamentally change the structure of the industry, 'cause it just invites competition, and there's no barriers to entry. But I went and talked to some LPs that have been in the business for a very long period of time, and a vast majority of the reason venture outperforms other asset classes has to do with these tiny windows when you have a super crowded market. And if you don't, if you aren't around for that part, you know, if you strip those years out of-

Jason Calacanis 1:04:00 Yes.

Bill Gurley 1:04:00 ... a 40-year assessment, it's actually not that interesting an asset class, which-

Jason Calacanis 1:04:04 Hmm.

Bill Gurley 1:04:04 ... highlights the need for venture funds to get liquidity at the peak. Yes, right when we are at the peak is when people get the most brazen, the most confident, and they start talking about how we're gonna hold forever. And so-

Jason Calacanis 1:04:19 Yeah.

Bill Gurley 1:04:19 ... you had venture firms with the biggest positions they've ever had in their entire life go over the waterfall and, and basically evaporate what could have been return.

Jason Calacanis 1:04:31 Yeah, I mean, diamond, diamond hands can come back and bite you, and you've said famously, you can't... What was the, the line you had? You can't beat IRR? Or you can't-

Bill Gurley 1:04:39 Yeah.

Jason Calacanis 1:04:39 Yeah.

Bill Gurley 1:04:40 I don't think I said it, but it's been said. (laughs)

Brad Gerstner 1:04:41 (laughs)

Jason Calacanis 1:04:41 Yeah. Yeah, yeah. Since we're on our movie bender here, for those of you who haven't seen Margin Call, just one of the great scenes ever.

David Friedberg 1:04:48 This is the best scene... The whole scene, by the way, is like the best scene I think of modern finance films, so...

Jason Calacanis 1:04:55 Look at this murderous raffle.

Narrator 1:04:57 Who are we selling this to?

Brad Gerstner 1:04:59 Same people we've been selling it to for the last two years and whoever else will buy it.

Narrator 1:05:03 But John, if you do this, you will kill the market for years. It's over. And you're selling something that you know has no value.

Brad Gerstner 1:05:13 We are selling to willing buyers at the current fair market price so that we may survive.

David Friedberg 1:05:22 (laughs)

Jason Calacanis 1:05:22 (laughs)

Bill Gurley 1:05:25 (laughs)

Jason Calacanis 1:05:25 Oh, man. You can rationalize a lot on Wall Street, man. But-

Brad Gerstner 1:05:29 Yeah, but-

Jason Calacanis 1:05:29 You, to the point of-

Brad Gerstner 1:05:30 ... there's been a lot... But what, what Bill is saying is that the opposite took place, which is VCs drank the Kool-Aid and didn't sell when th- we were at the peak of the market.

Bill Gurley 1:05:39 They also got caught up in a competition of trying to, to, uh, appeal to the founder community as saying, "Hey, we're in it forever. We're gonna hold forever. We're your best friend forever."

Jason Calacanis 1:05:51 Yeah.

David Friedberg 1:05:51 But Bill, there, there was also this element that drove that strategic rationale, this dataset, which is the best performers in tech generated most of the value after they went public. I mean, you know, there's a trillion dollars of market value generated in NVIDIA, in Apple, in Google, in Amazon, all over the many years post going public. And, you know, if you read Sequoia's notes when they kind of made the transition that they made, they said, "We don't wanna, you know, walk away from the power law, that the power law continues to accumulate and accrue even in the public markets. And we wanna continue to participate in that because there's another 100x upside coming from here. In the ones that we select, we wanna stay with."

Jason Calacanis 1:06:35 Yes.

David Friedberg 1:06:35 "Not necessarily we wanna stay in all of them, but-"

Jason Calacanis 1:06:38 You have to be discerning is the key. Yeah.

David Friedberg 1:06:39 "... there are some that we believe are still-"

Jason Calacanis 1:06:41 Sure.

David Friedberg 1:06:41 "... 100x upside from here. And just because there's an IPO doesn't mean that we wanna exit the position, that there's now more capital available to them, more public currency they can use to do transactions, to hire, et cetera, and we wanna participate in that value creation."

Bill Gurley 1:06:54 Totally. I think the-

Jason Calacanis 1:06:54 And the last double could be the biggest, right, Bill?

Bill Gurley 1:06:56 I think the total-

David Friedberg 1:06:57 Any-

Bill Gurley 1:06:57 ... number of companies that meet that criteria in the history of the venture industry is like 10 or 15.

Jason Calacanis 1:07:03 Yes.

Bill Gurley 1:07:04 And, and you named many of them. And the problem is that...... the rhetoric becomes common narrative and it becomes part of the ethos of the firm. And people want to apply it to every single company in their portfolio.

David Friedberg 1:07:16 To everything, that's right. Right, totally.

Bill Gurley 1:07:17 And that's not true. (laughs)

David Friedberg 1:07:19 And it doesn't apply.

Jason Calacanis 1:07:19 Well, I mean, I- I- I don't wanna get too specific here, but you had a com- you had, you know, you had, you have some, let's say, uh, seasoned vets, yourself included, Bill, who, when given the opportunity to get liquidity on an incredible investment, will do so. Fred Wilson sold, I think, all of Coinbase when it goes public. He, he just clears the position when things go public. That's been his philosophy. Kind of the antithesis of what Sequoia and Rudolf are, are doing with some of their holdings. And then we've seen, uh, WeWork as an existential crisis. They don't think this might be a viable conc- uh, concern anymore, but famously, Benchmark was able to sell shares at a very high valuation at some point and lock in an incredible return, yeah?

Bill Gurley 1:08:04 Yeah. (laughs)

Jason Calacanis 1:08:05 Okay. There it is, folks. That's a- that's a yes.

David Friedberg 1:08:07 (laughs)

Jason Calacanis 1:08:08 Okay. Uh, so-

David Friedberg 1:08:11 (laughs) .

Jason Calacanis 1:08:11 ... let me ask you a question, Bill, about getting older.

David Friedberg 1:08:14 Well, let me ask Sax the question. Sorry, S-

Bill Gurley 1:08:16 (laughs) .

Jason Calacanis 1:08:17 Let me ask you a question about getting older and wiser. (laughs) Well, Sax- Sax- Sax, like, Sax, like, you're, you're gonna invest- Sax, like, Sax, you're gonna invest- Sax, like, Sax, you're, you're gonna invest-

David Friedberg 1:08:23 ... Sax, you, you have an investment in SpaceX, right? I mean, there's been a lot of secondary action at SpaceX. Why would you not sell SpaceX at this valuation today or would you-

Jason Calacanis 1:08:31 ... or maybe did he?

David Friedberg 1:08:32 ... as you kind of think about this? Yeah.

Brad Gerstner 1:08:33 I think we were gonna wait till the company IPOs. I think that would be our default.

David Friedberg 1:08:38 When it goes public, Sax, do you then think what's the upside from here, or do you think my job is done as a private investor manager?

Brad Gerstner 1:08:44 I think my job is done. Yeah, I think my job is done. I think what we would do is just distribute the shares, and then each LP can make their own decision-

David Friedberg 1:08:51 That's what we do.

Brad Gerstner 1:08:51 ... about whether they wanna hold it or not. And you as the GP can decide what you wanna do with your share.

David Friedberg 1:08:55 And you as the GP can decide when you wanna do with your share.

Brad Gerstner 1:08:56 Yeah. One of the nice things about distributions is that nobody has to sell. So everyone can make their own decision about whether to hold or not.

Jason Calacanis 1:09:04 Yeah.

Brad Gerstner 1:09:05 Once the company is public and the public has all the information through disclosures, the odds that I know something special that a seasoned public market investor doesn't is probably pretty low.

Jason Calacanis 1:09:18 I mean, the great paradox of what we all do, uh, and Brad, you have both a public and a private portfolio. I started trading public market equities to get better at my private behavior. Bill, you've done that forever, is public markets, you can't trade on inside information. Private companies, that's all you're trading on. Maybe you could speak to a little bit about being, what do they call it when you do both, crossover investors, that make you a crossover investor? Is that the proper term?

David Friedberg 1:09:47 Well, Bill Gurley's the original crossover investor. He's been trading public stocks since, you know, and, and-

Jason Calacanis 1:09:52 And he'd been doing that personally.

David Friedberg 1:09:53 ... rese- yeah, researching them, you know. But, you know, the fact of the matter, as, as Warren Buffett and, you know, who would laugh at the idea of a crossover fund, he's been running one of the world's largest public portfolios and private portfolios forever. He would say, "I invest in great companies that are mispriced." There are moments in the market cycle where late-stage venture is mispriced to the downside, and there are moments in the cycle where the public markets are mispriced to the downside. What we saw in 2021 is the pri- private markets were crazily overvalued. In 2022, we had this massive correction in the public markets. We believed that they overshot, in part, we believe that because we didn't think we were gonna have hyperinflation forever, et cetera. And so you and I invested in, you know, Meta and a lot of other things that were on their ass. You've got to buy in the public market when there's blood in the streets, right? As, as War- as Buffett says, "Buy when there are blood in the streets and sell when there's trumpets in the air." And, you know, there are definitely blood in the streets when you saw things down 60, 70, 80, 90%. Meta was-

Jason Calacanis 1:10:58 Is it trumpets now? Does it feel like trumpets to you now, or does it feel like trumpets next quarter or the quarter after?

David Friedberg 1:11:04 If you look at like how about-

Jason Calacanis 1:11:04 It does feel like people are polishing those trumpets right now.

David Friedberg 1:11:07 Yeah, I mean, a lot of it obviously depends on your view on what's gonna happen in the economy fundamentally, and I'm happy to shift to that. But what I would say is this. Remember the chart that I've showed many time about software internet valuations, we were, you know, 70% above normal, and then we were 30% below normal, and now we're closer, uh, to the trailing 10-year average of internet and software valuations. There are always outliers on both sides of this. But I would say a lot of the positive arbitrage that we saw in '22 has been squeezed out of the public markets and we're close to fair value. So now if you wanna generate alpha, this is gonna be about picking individual winners versus individual losers. This is going to, you know, like, like the beta trade on ma- on global macro, I think has largely played out, you know, the catch-up back to kind of fair value. And now I think there's a debate between kind of hard landing, soft landing, are we gonna have a re-acceleration inflation or not have a re-acceleration. Where you come down on these major issues, I think dictates whether or not, you know, now is a good time to buy.

Jason Calacanis 1:12:10 Like a pivot point for us now, I mean-

Brad Gerstner 1:12:11 Oh, uh, wait, can I, can I correct something you said, J-CAL?

Jason Calacanis 1:12:14 Yeah, please.

Brad Gerstner 1:12:14 All right. All right. So you said that public markets inside information isn't allowed, whereas private markets, it's all inside information. I think that could give viewers a misleading impression of what we do as VCs.

Jason Calacanis 1:12:27 Okay.

Brad Gerstner 1:12:28 The way that around typically comes together, it's not like we get tipped off by some insider at the company in some, you know, nefarious way. What happens is that the company chooses to engage with us or a select number of firms in a process and then gives us their metrics and, you know, gives us the business plan, it gives us the forecast. And it's all done in a very aboveboard way. It's not like we're being tipped. However, the part of it that I guess is true is that a private company does not necessarily engage with everyone in the world. You might contact them and warn them, yes.

Jason Calacanis 1:13:05 Yes, they don't put on a website a quarterly report and say, "Here's what our revenue and our costs were and here's our earnings." Although some private companies-

Brad Gerstner 1:13:11 Right.

Jason Calacanis 1:13:11 ... do start that process.... like, before their IPO. But by and large, they don't. Yes.

Brad Gerstner 1:13:15 By, by and large, by and large they're s- by and large, they're selective about who they want to be on their cap table, and that's the big difference between public and private.

Jason Calacanis 1:13:20 And who they want to share benefits. Yeah.

Brad Gerstner 1:13:22 A public company doesn't care who's on its cap table.

Jason Calacanis 1:13:26 Right.

Brad Gerstner 1:13:26 It doesn't really know who's got ... You know, Apple doesn't know every shareholder and who's got-

Jason Calacanis 1:13:31 No.

Brad Gerstner 1:13:31 ... accounts at E-Trade or whatever, Charles Schwab. I mean, they may care who their biggest shareholders are, but they don't care who the average shareholder is. Whereas a private company really does care, and part of the reason why they care is because these startups are highly risky-

Jason Calacanis 1:13:46 Yeah.

Brad Gerstner 1:13:46 ... and they want to have investors who have a track record of behavior where they don't have to worry about being sued-

Jason Calacanis 1:13:53 Yeah, they don't lose their minds.

Brad Gerstner 1:13:53 ... every time something doesn't work out, which is most of the time. So I think there's good reasons why startups want to control who their investors are. By the way, there's also the issue of value add, right? I mean, other things being equal, founders and startups would rather have investors who can help them-

Jason Calacanis 1:14:11 Yes.

Brad Gerstner 1:14:11 ... as opposed to simply, you know, John Q. Public.

Jason Calacanis 1:14:15 Yeah, I mean, you mentioned both scenarios. You don't want somebody who's a neophyte who's going to cause chaos and be upset when revenue goes down or things are swinging up and down. And yeah, if you're public, yeah, buy the share if you want or sell the share if you want. It's a marketplace.

David Friedberg 1:14:28 Sorry, just pull up this, this image I, I just posted. This is from, you know ... You guys know Gokul Rajaram? Gokul's a great human. We used to work together at Google. Then he worked with Jack at Square. He's at DoorDash today, and he