E146: Did the Fed break the VC model? Plus IPOs, M&A, revaluing unicorns & more

1. 0:00 – 3:05

   Bestie intros!

   1. JCJason Calacanis0:00

      Did you just finish a good cry? 'Cause you have this wetness right here on your eye.

   2. CPChamath Palihapitiya0:04

      Oh, sorry, I just got out of my cold plunge and my sauna 'cause, you know, I hit a new record low weight, 169 this week.

   3. DFDavid Friedberg0:09

      Oh, hold on.

   4. JCJason Calacanis0:10

      Oh, nice.

   5. CPChamath Palihapitiya0:10

      I gotta get in my weight.

   6. JCJason Calacanis0:11

      What's your temperature on-

   7. CPChamath Palihapitiya0:13

      Uh, I don't wanna say.

   8. JCJason Calacanis0:14

      ... the cold plunge?

   9. CPChamath Palihapitiya0:15

      It's embarrassing. It's embarrassing. I don't wanna say.

   10. DFDavid Friedberg0:16

       No, what is it?

   11. CPChamath Palihapitiya0:17

       I've been doing like 56, 58.

   12. JCJason Calacanis0:20

       That's great.

   13. CPChamath Palihapitiya0:21

       It's okay. I mean, I... All these lunatics, like, I don't know, they're at 45 degrees, 48 degrees. I think it's unnecessary. You get the same value, I think, at 50.

   14. JCJason Calacanis0:28

       No, my two-year-old does 56. It's good. It's really impressive.

   15. DFDavid Friedberg0:31

       (laughs)

   16. DSDavid Sacks0:32

       I consider an 80-degree pool to be a cold plunge.

   17. CPChamath Palihapitiya0:35

       (laughs)

   18. DSDavid Sacks0:36

       I don't get in unless it's like 85.

   19. CPChamath Palihapitiya0:38

       That's actually... I've been to pool parties-

   20. DFDavid Friedberg0:41

       Oh, yeah.

   21. CPChamath Palihapitiya0:41

       ... at Sax's house. There's no difference between the hot tub-

   22. JCJason Calacanis0:45

       No, it's like a schvitz.

   23. CPChamath Palihapitiya0:45

       ... and the pool.

   24. JCJason Calacanis0:46

       It's a schvitz. It's a schvitz.

   25. CPChamath Palihapitiya0:46

       It's a full-on schvitz.

   26. DSDavid Sacks0:47

       It's a schvitz. If it's not the temperature of the bathwater, I don't get in.

   27. NANarrator0:51

       We're going all in. Let your winners ride. Rain man, David Sachs. We're going all in. And I said- We open sourced it to the fans and they've just gone crazy with it.

   28. JCJason Calacanis1:04

       Love you,

   29. NANarrator1:04

       ... question. Queen of quinoa. We're going all in.

   30. JCJason Calacanis1:08

       Yeah, it's a sch- schvitz. It's crazy.
2. 3:05 – 11:56

   GOP Primary update: polling, acceptable candidates, tentpole issues

   1. CPChamath Palihapitiya3:05

   2. DFDavid Friedberg3:05

      Is he gonna be president?

   3. DSDavid Sacks3:07

      (laughs)

   4. CPChamath Palihapitiya3:08

      I mean, if you had your choice right now between Bezos-

   5. JCJason Calacanis3:12

      And Bob Iger, who would you pick? (laughs)

   6. CPChamath Palihapitiya3:14

      ... Trump and Biden-

   7. DFDavid Friedberg3:15

      (laughs)

   8. CPChamath Palihapitiya3:15

      ... I think we know who you'd pick. I mean, listen, I was talking to some affluent people and they... Everybody's going Vivek.

   9. DFDavid Friedberg3:22

      (laughs) I was talking to some affluent people.

   10. CPChamath Palihapitiya3:24

       I don't wanna say who, but, uh, V- Vivek is... Now people are starting to talk Vivek.

   11. DFDavid Friedberg3:28

       I think he's hitting the right chords, man.

   12. JCJason Calacanis3:30

       Vivek is about to pass DeSantis. He will be, I think, if you look at the polling right now-

   13. CPChamath Palihapitiya3:37

       New Hampshire.

   14. JCJason Calacanis3:37

       ... he'll be the clear number two in about four... between four and eight weeks from now.

   15. CPChamath Palihapitiya3:44

       That's crazy.

   16. JCJason Calacanis3:45

       That's crazy. And so I think if he becomes the clear number two, the, the... Think of this, it's like then all of a sudden all these MAGA supporters are given Trump, and then Trump with some small feature improvements that are actually pretty meaningful.

   17. DFDavid Friedberg4:01

       Right.

   18. JCJason Calacanis4:02

       And then they're like, "Well, do I want the 80-year-old Trump or do I want the 38-year-old Trump?"

   19. CPChamath Palihapitiya4:06

       Yeah, it's like the super upgrade.

   20. JCJason Calacanis4:08

       With like the super features, you know.

   21. DFDavid Friedberg4:10

       I can forgive all of his other issues. When he tells me that he's gonna cut the government, the federal government by 75%-

   22. CPChamath Palihapitiya4:16

       Ah, fucking sold.

   23. JCJason Calacanis4:16

       75%. My gosh.

   24. DFDavid Friedberg4:18

       Sold.

   25. JCJason Calacanis4:19

       So you're on... So you're on team Vivek?

   26. DFDavid Friedberg4:20

       I wanna continue to gather a little data. There's no rush to make a dec- declaration right now. Give me a little bit of time. Chamath, are you with Vivek?

   27. JCJason Calacanis4:27

       Yes. I... And, and the reason is I would love for it to be RFK and Biden in a debate and then Trump and Vivek in a debate so-

   28. DFDavid Friedberg4:36

       Hm.

   29. JCJason Calacanis4:36

       ... that I could really figure out between RFK and Vivek who I would like to vote for. But I think it's been pretty clear that the Democrats have chosen to railroad RFK's candidacy. It's unfortunate because I don't think we're given a real fair shake in really being able to evaluate him.

   30. DFDavid Friedberg4:53

       Yeah.
3. 11:56 – 24:12

   All-In Summit 2023 recap

   1. CPChamath Palihapitiya11:56

      I think we gotta give some flowers here. Last year, the Sultan of Science, the Prince of Panic Attacks, the Queen of Quinoa was an absolute terror when I did the All In Summit 2022. And then this year, he was an absolute all star and delight.What an amazing job you did on the content. People are saying the content at All In Summit 2023 is the best conference ever held. Bill Gurley had a four-minute ovation. That talk is on YouTube. Elon Musk, star LinkedIn from, uh, 40,000 feet. He crushed it. Toby was fantastic. Ray Dalio, Larry Summers, Mr. Beeth, Beast, Gwyneth Paltrow, the Botez sisters, which we did a pretty good showing, I have to say. A great job to Sax and Friedberg, uh, who, who held the line with the Botez sisters in our group chats. Bryan Armstrong. Who am I missing here? I mean, what an incredible lineup. Chamath were you in-

   2. JCJason Calacanis12:53

      The Fugit Panel, Nicole Polk, Rob Henderson-

   3. CPChamath Palihapitiya12:56

      God.

   4. JCJason Calacanis12:56

      Jenny Just, Rob Henderson.

   5. CPChamath Palihapitiya12:58

      I mean, extraordinary.

   6. JCJason Calacanis13:00

      Yeah.

   7. CPChamath Palihapitiya13:00

      L- Let me just go around the horn. Chamath, your ... What, what, what, um, discussion or moment, pick, pick your choice there, for you was the most intellectually engaging and important at the summit? You can mention two or three if you like.

   8. JCJason Calacanis13:17

      I thought number one were my outfits.

   9. DSDavid Sacks13:20

      (laughs)

   10. CPChamath Palihapitiya13:21

       Pretty great. I mean, you did do an outfit change twice a day, so congrats on that. I like that jacket.

   11. JCJason Calacanis13:26

       Safaria really good job with that.

   12. CPChamath Palihapitiya13:27

       I do agree. I agree.

   13. DSDavid Sacks13:29

       Did you guys get the special shoes from Loro Piana?

   14. CPChamath Palihapitiya13:32

       Oh my God.

   15. JCJason Calacanis13:33

       The king's cashmere loafers? Yeah, those are ridiculous.

   16. DSDavid Sacks13:36

       (laughs)

   17. JCJason Calacanis13:36

       I'm wearing them as we speak actually.

   18. CPChamath Palihapitiya13:37

       I wore them the other night.

   19. JCJason Calacanis13:39

       They're incredible.

   20. CPChamath Palihapitiya13:39

       And I came into the -

   21. JCJason Calacanis13:40

       Did you wear them yet, Sax?

   22. DSDavid Sacks13:41

       Yeah, yeah.

   23. CPChamath Palihapitiya13:43

       I mean, it's like walking on clouds.

   24. JCJason Calacanis13:43

       Those are the most incredible shoes. They're the most incredible shoes.

   25. DSDavid Sacks13:46

       They said they made like ten pairs or something.

   26. JCJason Calacanis13:48

       Yeah.

   27. CPChamath Palihapitiya13:48

       And we got four of them.

   28. DSDavid Sacks13:49

       And they're, they're special for us, yeah.

   29. CPChamath Palihapitiya13:50

       Then I get back to the Beverly Hills Hotel, the suite that Friedberg booked me, a beautiful suite. Thank you, Friedberg. And there is a Loro Piana box.

   30. JCJason Calacanis13:58

       Oh, Friedberg shafted me on my room.
4. 24:12 – 42:34

   IPOs and M&A heat up: Arm, Instacart, and Klaviyo go public, Cisco acquires Splunk for $28B, but did the "great reopening" fall short?

   1. CPChamath Palihapitiya24:12

      IPOs and I- M&A on fire. We've had a ridiculous week. Six quarters of down market has suddenly turned into a bunch of green chutes on the M&A front. Cisco announced it acquired Splunk for $28 billion in an all cash deal, if the notes are correct here. It's about 10% of Cisco's market value. Somebody did a trade where they, they, they bought a bunch of options and, uh, so that looked a little fugazi. Congratulations to Nancy Pelosi on that trade, possibly.

   2. GUGuest24:44

      (laughs)

   3. JCJason Calacanis24:46

      Allegedly, don't forget your favorite word, allegedly.

   4. CPChamath Palihapitiya24:49

      Allegedly. Allegedly. Perhaps. I don't know. She's good at trades, so if somebody's gonna make money on that trade, (laughs) or somebody's going to jail. So congrats to Shkreli. Instacart, Klaviyo, and Arm all IPO'd in the past week and, you know, they've fallen back to earth. Just crazy stat, 21 months since the last significant venture-backed company went public. I'll leave out like the, uh, Middle Eastern food company, was that Cava that went public, and then the vacuum company (laughs) that went public, but that's just in the past seven days. So we talked about this on the program. We discussed, "Hey, we'll know when the markets are back if some of these companies are forced to walk the plank/get public, you know, and, and fix their cap tables," and sure enough, Instacart really kind of represents that most. Most of the late stage investors in Instacart are underwater. The early stage folks absolutely crushed it. Chamath, listen, you're, you're a, a market expert here. You've taken a lot of companies public. What do you think the last week means for the greater technology industry?

   5. JCJason Calacanis25:57

      I don't think that this was the great reopening that we all were hoping for. I think it's important to understand the dynamics of bank-led traditional IPOs in America, and the best way to understand them is to contrast and compare to how that same company would go public in Europe or Asia, because it'll explain what, what happened. And I think unfortunately, what has happened is not good for the market. So typically, what happens is when you construct an IPO, you're selling 15 to 20% of the company. And when you do that, you go and you call hedge funds and you call these mutual funds, what, what are called long onlys, right, meaning they don't short, they just go long, these big mutual fund companies, and you try to find a handful of people to anchor the IPO, so they take a huge piece of that 15 to 20%. And in Europe and Asia, the securities law says that when you get such a big allocation, you have to hold it for six months, which means you're treated exactly the same as the employees who are typically locked up in an IPO for at least six months. And so what happens is these firms do all kinds of diligence, and when they buy something, it's because they really believe in it, and then they go long it for, you know, what is at least half a year. So it's a, it's a non-trivial amount of time. So that's what happens in Europe and Asia. 15 to 20% of the company is sold, a handful of people anchor, and you're locked up for six months. Now you need to look at how American IPOs are done, which is why people have experimented with direct listings, we've experimented with SPACs, it's because the fundamental architecture of IPOs are broken. They're set up in a dynamic where it's a heads I win, tails you lose situation for the bankers that run the IPO. Now, what happened in these three IPOs? Number one, it was less than 10% of the float, so highly, highly, highly concentrated small amount of the, of the company was made available for sale. Number two, there really weren't anchors. What happened was the allocation of that less than 10% was smeared across 50 or 60 different organizations. And then number three, there was no lockup, which meant that people could sell right away. And so what you saw with all of these companies was the exact same dynamic, which was it opened, because there was such a small amount of supply, it traded up, and the minute that retail, which typically tends to be late to the game 'cause they don't have access to these things, right, when they started buying, what was unique this time around is all of the mutual funds just dumped everything.

   6. CPChamath Palihapitiya28:41

      Hmm.

   7. JCJason Calacanis28:43

      And the hedge funds were like, "Well, we don't have a real allocation." Our friend said in the group chat, he got a five or $10 million allocation in these IPOs. These are 20 and $30 billion hedge funds. Five and $10 million allocations don't move the needle. So the hedge funds sold right away and got on the sidelines and said, "I don't care about this." The long onlys bought just enough to make the stock go up because of such a small supply. Then when retail stepped in, they just dumped it all, and so unfortunately, what's happened is all three IPOs within a few days have breached their issue price. Now, they're at the same issue price, maybe slightly higher, but that is an unsuccessful dynamic. What could have been different? The banks could have forced these companies to sell up to 20%. The banks could have found a few anchor buyers. The banks could have created a lockup structure for these anchor buyers. They did none of it, and so the result is a lot of downward pressure in a moment where the overhang of rates has, have come back and are forcing all of us to realize, and we'll talk about it in a second, that these rates are gonna be higher for longer, which completely changes how you value these tech companies. So net-net, very poor IPO construction by the banks, and this, the grand reopening was a grand closing, I think.

   8. CPChamath Palihapitiya30:03

      Okay, so just to put some numbers on that, Instacart's float was 6.7% and Klaviyo's float, 7.6. Arm's float almost hit the 10%, 9.4, but certainly less than the 20% that you would expect, so then I guess the follow-up question here at Sacks is why did these companies go out and-... do, will we see the, the other big ones go out, the Stripes, uh, and, and some of the other backed-up inventory? What's, what's the back channel in our industry about the viability of other IPOs? Is this gonna push a lot more people out to get liquidity even at discounted prices, even with the ch- the headwinds that Chamath points out, or is this gonna have a chilling effect and people are gonna say, "You know what? Let me wait till 2025"?

   9. DSDavid Sacks30:43

      So I think they went out because investors and others need liquidity and there's no point holding on and waiting for evaluation that's never gonna come back. I mean, so you take Instacart, for example, their last private round was at 39 billion.

   10. CPChamath Palihapitiya30:57

       Yeah.

   11. DSDavid Sacks30:57

       What's the market cap now? Around 10?

   12. CPChamath Palihapitiya30:58

       Nine.

   13. DSDavid Sacks30:59

       Nine. So it's great that they got out. I, I think that it's-

   14. CPChamath Palihapitiya31:03

       And now it's at eight today.

   15. DSDavid Sacks31:04

       It's at eight. I mean-

   16. CPChamath Palihapitiya31:05

       Yeah.

   17. DSDavid Sacks31:05

       ... look, it's sort of a green shoot that they got out, but we're never going back to the valuation levels that we had a couple years ago during a giant ZIRP-created asset bubble. So I just think there's no reason to wait, and you look at SoftBank, they needed the liquidity from the ARM IPO.

   18. CPChamath Palihapitiya31:21

       Yeah.

   19. DSDavid Sacks31:22

       So I think that's why these companies are going out is, is we're, we're kind of getting back to business as usual. Just to broaden out the question a little bit, what I think is interesting is that for the past year or so, we've been in a software recession. And there was a huge correction in valuations that happened in especially the first half of 2022. But then about a year ago, so starting in mid-'22 and continuing through Q2 of this year, you saw a reduction in growth forecasts. Everybody started forecasting down. There wasn't a single board meeting that I was in in private companies that wasn't missing their numbers and reforecasting down. And you saw it in the public companies as well. I think Jeremy Ball's Substack showed that the average growth forecast for SaaS companies for next 12 months have been cut roughly in half. So for the last year, year and a half, we've been in a software recession. You could bro- say a B2B recession. We saw companies like Meta, Google, and so on cut thousands of jobs, get very-

   20. CPChamath Palihapitiya32:29

       Tens of thousands.

   21. DSDavid Sacks32:30

       Tens of thousands of jobs, you know, get much more efficient.

   22. CPChamath Palihapitiya32:33

       Each, yeah.

   23. DSDavid Sacks32:33

       Each. That meant they were buying a lot less software on a per-seat basis. So I think we've been through, call it a B2B or enterprise recession, but the thing that's held up stronger than I think people might have expected over the past year has been the consumer. Consumer spending has kept the economy afloat. So the B2C part of the economy has been strong, whereas B2B has been very weak. What I wonder about next is whether that's gonna flip. I wonder if the consumer is on their last legs here. You see-

   24. CPChamath Palihapitiya33:04

       They are. Yeah.

   25. DSDavid Sacks33:04

       ... that credit card debt is at an all-time high, interest payments on credit card debt, all-time high, mortgages, the rate now is approaching 8%. So no one can afford to sell their house which has a 3% mortgage and then buy a new one at 8%. So real estate transactions have cratered. The commercial real estate industry is, you know, on its last legs. I think they're starting to throw the keys back to the bank and start forfeiting buildings because they can't refi at a attractive rate. So I just wonder if the consumer now is about to go through the type of pain and restructuring of their personal balance sheets the way that the enterprise segment of the economy did over the past year.

   26. CPChamath Palihapitiya33:44

       Freeberg, your thoughts on what we're seeing here in terms of the IPO window, companies getting out, and, and the impact that'll have maybe on how limited partners look at venture funds? That's been frozen for 18 months, limited partners, and I'm raising a fund right now publicly under 506 (c) so I can talk about it. And it's going great, but man, it's a lot of meetings. And I'd say two-thirds of the meetings I'm having, people are saying, "We're not adding managers, we're cutting managers, and we're cutting commitments to managers, but we'd love to meet, you know, just to start the relationship," you know. So what do you think this means overall for the limited partner GPs and the startup market? Start of a turnaround or maybe just sideways for more...

   27. DFDavid Friedberg34:32

       I guess we should just put the volume in context. If you look at the slide, this is from Ernst & Young showing the, uh, IPO activity by year, and this was through June 30th. So if you see in kind of a steady state, you probably are gonna come in at a volume that's less than '22 and, and perhaps even less than going back all the way to 2019 with less than 1,200 IPOs during the year compared to the peak of 2,400 which happened in 2021. And if you go to the next slide, we can just look at the total dollar volume raised. So the IPO proceeds thus far through June 30th of this year is just around 60 billion.

   28. CPChamath Palihapitiya35:12

       Hmm.

   29. DFDavid Friedberg35:12

       Uh, compare that to a total of about, uh, 180 billion all of last year, 450 billion in 2021. And the IPOs we're talking about today, Instacart, Klaviyo, ARM, in total raised about five and a half billion dollars. So, you know, that kind of doesn't have a huge consequence on this dollar volume for the year. And then if you look at what's in the pipeline right now in terms of what's publicly filed as S-1s, there's basically nothing right now. So I think everyone's kind of sitting around waiting to see how these transactions go before they decide to put other stuff. I think the big mistake is that we continue to treat IPOs as this big yardstick. The real yardstick for a business is the performance of the business. And the valuation you get when you raise capital at some point in time is largely driven by market conditions, not necessarily by the performance of the business, and the value of the business over time, the market will do its job and rightly value that company. We've talked at length about how much value has accrued as a public company for Apple, for Microsoft, for Google, 99.9% of their total market value-... was realized post-IPO. So the, the IPO transaction, I think, gets a little too much weight and gets a little too much attention in terms of determining success or failure of a business and success or failure of the investors in that business. So I really hate this whole thing about does the IPO price go up on a day? It's this really weirdly engineered thing that they try and do to drive psychology and marketing by banks to go out and-

   30. JCJason Calacanis36:53

       Who's they? They?
5. 42:34 – 50:45

   Did the Fed break the VC model? How LPs will evaluate fund managers going forward

   1. JCJason Calacanis42:34

      of Instacart then.

   2. DFDavid Friedberg42:34

      Were any of you guys investors in Instacart?

   3. JCJason Calacanis42:37

      No.

   4. DFDavid Friedberg42:37

      There any ?

   5. JCJason Calacanis42:38

      I am in a fund that's in Instacart.

   6. CPChamath Palihapitiya42:41

      ... from the seed round. So, I will do, I think, very well because of that (beep) . Uh, let's bleep that out. Thank you. Uh-

   7. DSDavid Sacks42:49

      (laughs)

   8. JCJason Calacanis42:49

      (laughs)

   9. CPChamath Palihapitiya42:50

      But that's ... That will be a, that'll be a yum-yum for J-Cal. Le- but let's just talk about revenue and-

   10. DSDavid Sacks42:55

       Yeah. But actually, J-Cal, when it, when it trickles down all the way to you as an LP, what's the real multiple?

   11. CPChamath Palihapitiya43:02

       I guess, you know, if you take out the carry, 25 or 30% less than, uh, what looks like to be, um, I'll tell you-

   12. DSDavid Sacks43:09

       Right. But you gotta pay back the whole fund first. So ...

   13. CPChamath Palihapitiya43:11

       Yeah. That, that fund's been paid back many times over already. So that will be-

   14. JCJason Calacanis43:14

       Do you know what the multiple is on that fund for you?

   15. CPChamath Palihapitiya43:16

       Yeah. It'll ... It was eight million invested and, uh-

   16. DSDavid Sacks43:21

       No, that's their investment. That's not your investment.

   17. JCJason Calacanis43:24

       Yeah. What ... If, if you look at your-

   18. CPChamath Palihapitiya43:24

       No, no, I know, I know, I know.

   19. JCJason Calacanis43:25

       If you look at your investment, what multiple have you gotten back? Yeah.

   20. CPChamath Palihapitiya43:27

       My understanding is that investment's gonna be, uh, 200X. 100 or 200X, somewhere a- somewhere in that range. I'll, I'll, uh, I will report back, but I think the seed round investors are gonna be-

   21. DSDavid Sacks43:36

       Wait, wait, wait. Okay. So hold on. So, so you're saying eight million will become 1.6 billion?

   22. CPChamath Palihapitiya43:40

       I think it's, uh, over a billion. We, we can actually have a chart here. Let's take a look at, uh-

   23. DSDavid Sacks43:44

       Let, let's, let's assume it's a billion. 1.6 seems a little high. Let's say a billion.

   24. CPChamath Palihapitiya43:47

       Mm-hmm.

   25. DSDavid Sacks43:48

       But let's say the fund was what? Five, 600 million? So-

   26. CPChamath Palihapitiya43:52

       400 million maybe.

   27. DSDavid Sacks43:52

       ... for the LP, it's like a 2X.

   28. CPChamath Palihapitiya43:55

       Hmm.

   29. DSDavid Sacks43:56

       I'm just saying that, yeah, for the fund it was 100X, but for the LP it's a 2X.

   30. CPChamath Palihapitiya44:00

       I think that fund's already in-
6. 50:45 – 1:01:12

   Breaking down Instacart and Klaviyo's businesses

   1. CPChamath Palihapitiya50:45

   2. JCJason Calacanis50:45

      I have a question for all of you guys.

   3. CPChamath Palihapitiya50:46

      Yeah.

   4. JCJason Calacanis50:46

      You had a wonderful question which we never touched. Guys, what do you guys think about the Arm business model or the Klaviyo business model or the Instacart-

   5. CPChamath Palihapitiya50:52

      Let's go to Instacart first.

   6. JCJason Calacanis50:53

      Have you guys had a chance to look at any-

   7. CPChamath Palihapitiya50:54

      Yeah.

   8. JCJason Calacanis50:55

      ... of those companies and think about that?

   9. CPChamath Palihapitiya50:56

      Yeah. Let me tee up the facts, and then you guys respond. Their revenue is up 15% year over year, 716 million. Ad revenue is 206 million. That's on pace to make up 28% of their revenue. This is just the last quarter, I'm talking about it right here, ended June 30th. Net income, 114 million. They have 600,000 Instacart shoppers. Those are like, um, the drivers. You can think of them like Doordashers or Uber drivers. 7.7 million monthly active orders. The red flags is that their gross transaction volume, which is the value of all of the groceries in the, in the bags, uh, is flat, but ad revenue is growing, which means ad revenue is, uh, just a massively larger percentage of the total revenue. They think they can... You know, they're on track for 800 million in ad revenue. So this is starting to look not like a e-commerce business, but more like a, an advertising business. Your thoughts, Freyberg or Sachs, on the actual core business?

   10. DSDavid Sacks51:47

       Amazon, by the way, has that dynamic too now. Have you seen the charts showing advertising on Amazon compared to-

   11. CPChamath Palihapitiya51:53

       Huge.

   12. DSDavid Sacks51:53

       ... the entire internet?

   13. JCJason Calacanis51:54

       Yes. It's huge.

   14. CPChamath Palihapitiya51:55

       And also Uber's blown past a billion, I believe.

   15. JCJason Calacanis51:58

       Here's what we know. We know that advertising multiples, broadly speaking, have contracted, right? So I think that the market in general doesn't love that revenue quality because it's too levered to interest rates and the economy. So when the economy does well, more companies advertise. When the economy doesn't do well, companies advertise less. That's number one. And number two, the ones that can systematically drive advertising more broadly, the Facebooks and the Googles of the world tend to get an increasing share. So advertising as a revenue stream I think is, is good and complementary. Unfortunately, the markets don't necessarily love it. And then the second thing, generally speaking, for these businesses that drive huge GTVs, gross transaction values, is I think most people when they try to find what they're worth, are very sensitive to the take rate. And what they typically do is they assume a falling take rate, which means what percentage of the transaction can you get. And the reason why most people do that is that history has shown that these kinds of businesses cannot defend take rate for a very long period of time. Whether it's for competitive pressure or whether it's because their suppliers actually develop more pricing power, take rate tends to decay. So said in, you know, in grocery land, I think it's because Walmart and Amazon will try to do it for much, much cheaper and/or charge... just be more aggressive in how much they, they want to keep, which means it's less that you can maybe necessarily pass through. I don't know the Instacart business at all, but if I were starting to look at it, that's where I would focus, is, what are the assumptions on take rate? And if the take rate is going up, head- it would be a little bit of a head-scratcher. I think that you have to model the health of the business with a declining take rate and growing share.

   16. CPChamath Palihapitiya53:51

       I can actually... Yeah, I can actually build on that pretty easily, having spent a long time in the advertising market. I- if this was very profitable advertising, Chamath, it would get a 25X, uh, multiple on earnings. Let's take that 800 million, you put it at 400 million in profits, like if the other business didn't exist, so you have 400 million in profits of advertising, you times that by 20, you get eight billion. That's exactly their market cap. So i- perhaps what you're saying is exactly what the market is, is actually penciling out. Uh, Google, which obviously has a lot of other technologies, I think a 28X PE, and Facebook is, crushed it, at like a 35 PE. But these are much different scale, and scale matters. This is not one or two billion in, you know, little extra revenue on top of your business. That's the entirety, 90, 95% of their revenue.

   17. JCJason Calacanis54:42

       I think what's working in favor of Instacart is that if you compare it to probably Uber and Doordash or Airbnb at least, Airbnb, Dash, I'm gonna guess...... that it looks pretty cheap. Now, I think of all the three businesses, Dash probably has the biggest upside. Quite, just like, again, arm's length. I don't, I don't own any of these three stocks. I'm just saying business model quality, Dash seems infinitely scalable. Airbnb, I think, probably has long-term issues with take because of this exact reason. Just competitive dynamics and pressure, regulatory capture. You're seeing that in New York for Airbnb. And then the question is, what does the business outside the United States look like for Instacart? I don't know. But th- if th- if I had to figure out what to pay for it, that's how I would kind of try to break the problem down.

   18. CPChamath Palihapitiya55:32

       Sacks, any of your thoughts on the, on the actual business here or do you wanna jump over to Klaviyo?

   19. DSDavid Sacks55:36

       Yeah, I think, uh, Klaviyo is the, the really interesting one, at least from my standpoint, 'cause it's a software business. I think Jason Lemkin had the take here. He said that, "Klaviyo's IPO will be the ultimate yardstick for SaaS in '23 and '24. Top growth, top margins, top founders, gonna cruise past a billion in ARR. Whatever multiple they end up trading at, you're almost certainly worth less." I think it's trading at about 12 times forward revenue.

   20. CPChamath Palihapitiya56:03

       Hm.

   21. DSDavid Sacks56:03

       So just, uh-

   22. CPChamath Palihapitiya56:04

       Revenue or ARR? Last quarter they did 165 billion. Uh, 165 million, sorry.

   23. DSDavid Sacks56:09

       Yeah, so they're at 650 million in ARR, growing 56%. That's amazing. So-

   24. CPChamath Palihapitiya56:15

       Well, year over year, 51% year over year, yeah.

   25. DSDavid Sacks56:17

       Year over year. So, you know, project that forward, they're probably gonna be at a billion in ARR next year. 119% NRR, which is very good, especially considering that it's from-

   26. CPChamath Palihapitiya56:27

       Explain that to folks, yeah.

   27. DSDavid Sacks56:29

       ... SMBs. It's not revenue or retention. It's-

   28. CPChamath Palihapitiya56:30

       Yeah.

   29. DSDavid Sacks56:31

       The way to think about that is if you just look at your existing customers, going into next year what percent of that subscription base is gonna be there? And if it was 80%, it wou- would mean 20% of your customers are churning away. If it's 119%, it means you have expansion from your customer base. In other words, your customers are buying more and there, there will be some who churn, but the ones who are expanding more than make up for that. And then they've been very capital efficient. Apparently, they've only burned 15 million to date. That does not mean they've only raised 15 million. They've raised several hundred million in various growth rounds, but they've still got that money in the bank. So I assume-

   30. CPChamath Palihapitiya57:10

       And-
7. 1:01:12 – 1:13:14

   Revaluing Airtable and the path forward for ZIRP-era unicorns

   1. CPChamath Palihapitiya1:01:12

      Let's talk about Airtable for a second. Um, this also trended on Twitter with a tweet storm. If you don't know what Airtable is, it's kind of like-

   2. JCJason Calacanis1:01:20

      What is it?

   3. CPChamath Palihapitiya1:01:21

      It's like Excel meets a database and it's more programmable. So if you wanted to have a bunch of data-

   4. JCJason Calacanis1:01:26

      Who uses it?

   5. CPChamath Palihapitiya1:01:27

      A lot of small businesses use it, medium-sized businesses, and they use it to, let's say, instead of hiring somebody to build a database system, uh, or-

   6. DFDavid Friedberg1:01:37

      It's like Google Sheets on steroids. It's actually a really good product.

   7. CPChamath Palihapitiya1:01:40

      Exactly.

   8. DFDavid Friedberg1:01:40

      And I've seen it used.

   9. CPChamath Palihapitiya1:01:40

      It's, it's a really sick product, yeah.

   10. DFDavid Friedberg1:01:42

       I've seen it used like 10 different ways. Some people use it for tracking, uh, product feature requests, uh, and, you know, task lists. Some people use it for contact database. Some people use it for complex project management. It's super extensible, super easy to use, and a great collaborative tool. Uh, it's a kind of a-

   11. DSDavid Sacks1:02:00

       Yeah. Think about it like a... It's like a spreadsheet for words instead of numbers.

   12. DFDavid Friedberg1:02:03

       Yeah.

   13. CPChamath Palihapitiya1:02:03

       Yeah. But you can also do numbers. So-

   14. DSDavid Sacks1:02:05

       Yeah.

   15. DFDavid Friedberg1:02:05

       With a lot of great features that you can do really dynamic things within the spreadsheet. It's pretty powerful.

   16. JCJason Calacanis1:02:09

       Do you guys believe in this Swiss army knife approach of building these kinds of things or do you believe-

   17. CPChamath Palihapitiya1:02:14

       I do.

   18. JCJason Calacanis1:02:14

       ... that it's just cheaper and simpler to build best-in-class versions of each of those use cases, Friedberg, that you just mentioned?

   19. DFDavid Friedberg1:02:20

       Well, I think it allows certain businesses to have a very specific tunable version of what they need from, call it a project management tool. So if you use a traditional project management tool, it may be too overbuilt or it may be too specific, whereas this tool allows you to build something unique for your platform. So that's where I've seen a lot of teams use it instead of other tools like Jira or whatever for tracking projects and whatnot.

   20. JCJason Calacanis1:02:42

       Well, I... Well, this is the point. I just wonder that you get these small, non-scalable use cases because then if a company is successful, don't they then just migrate to Jira, for example?

   21. DFDavid Friedberg1:02:54

       No. I view it a lot like spreadsheets. Basically, the reason people use spreadsheets for so many different things is because everyone's got their own representation of data and utilization of a spreadsheet. And I think this is just an extension of that. It's a cal-... Think about it as more, a more feature-rich spreadsheet tool.

   22. DSDavid Sacks1:03:08

       I actually think that Thomas' question is, is an excellent one. I, I tweeted many years ago that the way I saw Excel was the long tail of use cases that hadn't moved into a dedicated SaaS app yet.

   23. DFDavid Friedberg1:03:20

       That's interesting.

   24. CPChamath Palihapitiya1:03:21

       Yeah, yeah.

   25. DSDavid Sacks1:03:21

       And that, the way that if you wanted to be a SaaS founder, you're trying to come up with ideas, find some really complicated s- uh, Excel spreadsheet that's used across-

   26. CPChamath Palihapitiya1:03:30

       A template, yeah.

   27. DSDavid Sacks1:03:30

       ... many different businesses and just figure out if you can move that into a SaaS app. So for example, think about Carta. You know, before Carta, people just used a spreadsheet for the cap table.

   28. CPChamath Palihapitiya1:03:39

       Totally. Totally.

   29. DSDavid Sacks1:03:39

       And every company-

   30. CPChamath Palihapitiya1:03:41

       Totally.

Episode duration: 1:42:43