All-In PodcastE156: Ivy League antisemitism, macro, SaaS recovery, Gemini, Figma deal delay + big Friedberg update
EVERY SPOKEN WORD
150 min read · 30,292 words- 0:00 – 3:12
Bestie intro!
- JCJason Calacanis
Sacks, how are you doing with your Tucker afterglow-
- DSDavid Sacks
Afterglow. (laughs)
- JCJason Calacanis
... after an amazing episode? The feedback's been great.
- DSDavid Sacks
Great episode.
- JCJason Calacanis
It's the number one episode of the year, after Vivek, I think, and trending to be, maybe, a million views on YouTube. So, how's the afterglow? Tell me.
- DSDavid Sacks
Yeah, I did notice there's one particular clip that's going viral where he calls you stupid.
- JCJason Calacanis
Yes, there's that one. (laughs)
- DSDavid Sacks
(laughs) Did you see that one?
- CPChamath Palihapitiya
I thought Tucker was incredible. I found him so intellectually interesting. And it's not always the case that great moderators and interviewers make great guests, but he is so intellectually curious and has unique points of view that you wanna hear them out. And his style of talking, I find, also, like, very easy to listen to. I thought he was really impressive. Really, really impressive. You don't have to agree with everything he says, quite honestly. And some people probably won't, but I found him really compelling.
- JCJason Calacanis
I don't agree with half of stuff he said, or maybe a third, but I, too, enjoyed it very much. I thought he was great. Sacks, I got, uh, you know, as the person people believe has Trump derangement syndrome, (laughs) thank you for your tweet, uh, you know, or the person people consider, like, the far left, they're like, "Why aren't you pushing back? Why aren't you pushing back?" And this has become a MAGA takeover. You had Jared Kushner, he didn't get pushback, you didn't get pushback to Tucker. You know, one of the things we're trying to do here, I'm speaking for myself, is to let people talk. Let them put out their position and if you do that, and we did that with the presidential candidates, exceptionally, I think, then you can decide for yourself. And yes, we'll ask a hard question here or there, or maybe, you know, push them a little bit, but we don't wanna make it uncomfortable to come here and make it like they come here and we take the 10 worst things about the person or the 10 criticisms and run through them. You can get that on cable news, you can get that on either side of the aisle. What I wanna do is let them talk and then actually interesting things come up.
- DSDavid Sacks
Why do you always get this feedback?
- JCJason Calacanis
Because people perceive me, because you say I have Trump derangement syndrome, as the token left guy. That's all. And I'm a moderate, and I try to keep saying that, but people keep wanting to say I'm like far left.
- CPChamath Palihapitiya
I just want folks to realize, like, we're gonna go and have more guests, especially if we can learn from those folks and especially if hearing them out can expand how we think about what's going on in the world. So, get over it, and it's about learning and being curious.
- JCJason Calacanis
Hard conversations will be the norm here on the pod. We're gonna have any guests we damn well please. And some people will choose to not ask hard questions. I will choose to ask hard questions, but I won't hijack the show. And so please don't email me and tell me I didn't do my job fighting for the left or whatever. That's not my job. I'm gonna ask a hard question when I want to on the show, but I'm not gonna hijack the show with 20 of them.
- CPChamath Palihapitiya
Bravo to you.
- DSDavid Sacks
I suspect you're getting a lot of pressure from the private equity wives. (laughs)
- JCJason Calacanis
(laughs) Yes, absolutely.
- DSDavid Sacks
Totally.
- JCJason Calacanis
I mean, (laughs) what a great moment. What a great moment.
- CPChamath Palihapitiya
People on SSRIs, Jason, are blowing up your inbox.
- DSDavid Sacks
(laughs)
- CPChamath Palihapitiya
(laughs)
- DSDavid Sacks
Let your winners ride.
- JCJason Calacanis
Rain Man, David Sachs.
- DSDavid Sacks
What's going on? And they said we open source it to the fans and they've just gone crazy with it.
- JCJason Calacanis
Love you, man. Nice.
- DSDavid Sacks
Queen of Quinoa. What's going on?
- 3:12 – 21:55
Ivy League antisemitism hearings
- JCJason Calacanis
Well, the conversation that everybody's going wild with, so let's just get into it, is these college antisemitism hearings. On Tuesday, the House Education Committee spoke with the presidents of Harvard, Penn, MIT, uh, and they faced a lot of tough questions. Many of the videos went viral, and I guess the- the part that specifically went most viral was the presidents of these organizations refusing to specify whether or not the calls for mass murder of a particular group, genocide, uh, of students were or were not against the codes of conduct against bullying and harassment at places like Harvard. Claudine Gay specifically was asked over and over again whether chants of "Intifada" were violations of Harvard's code of conduct. She didn't give a great answer. I'm just curious, Sacks. Obviously, you're Jewish, you went to the Ivy League, passionate about free speech, and you've talked about surplus leads-
- CPChamath Palihapitiya
Sacks, you're Jewish.
- JCJason Calacanis
... in politics. He is. (laughs) What's your take here? Should students be, uh, allowed to march around campus, chanting, "From the river to the sea," "Intifada," et cetera, because of free speech? Or, you know, do these code of conducts come into play and what was your reaction when you saw their answers? 'Cause obviously, this is a nuanced issue.
- DSDavid Sacks
Well, look, I mean, I have a very high bar for free speech, so I would allow, you know, almost everything. The problem that these university presidents have is that's not their position. They're trying to wrap themselves in the cloak of freedom of speech and academic freedom, but that has not been their practice on campus for many years. On a previous program, we talked about that FIRE survey which polled students about how free they feel to express opinions on campus. The results were dismal for the Ivy League. The Ivy League scored way worse than state schools. And in fact, remember, that Harvard got the Blue Tarski, a 0.0.
- CPChamath Palihapitiya
(laughs)
- JCJason Calacanis
(laughs) Yes.
- DSDavid Sacks
(laughs)
- CPChamath Palihapitiya
They were last place. (laughs)
- JCJason Calacanis
(laughs)
- DSDavid Sacks
The students there reported that speakers were shouted down, they weren't even invited, they weren't allowed to- to continue and finish their speeches, so Harvard has an abysmal record on freedom of speech. So it's hard to believe the president of Harvard when she claims that she's standing up for freedom of speech. And in fact, if you were to apply that same standard to other groups, do you really believe... I mean, imagine if the representatives at that hearing had said to the president of Harvard, you know, "Are you allowed to advocate for genocide of Black people or trans people?" I mean, would the answer have been the same? I don't think so.
- JCJason Calacanis
I agree.
- DSDavid Sacks
I think a- absolutely not. So, the question is why are Jews being treated differently than these other groups? And I think this all goes back to kind of woke identity politics, where-... in the woke ideology, there are certain groups that are victim groups and there are certain groups that are oppressor groups. And if you're in a victim group, then you get special protections, and if you're in an oppressor group, then it's just assumed that you can't really suffer discrimination or, you know, in- injustice in that same way. And I think that Jews have basically been put in an oppressor group. They basically are being put in the same group as- as- as all white people. And I think this has come as a great surprise to a lot of donors to these university campuses, who, I think, were okay with woke identity politics to some degree when they believed that Jewish people were a potential victim group, and that, uh, antisemitism was being treated as real. And lo and behold, they have found out that, no, they're in a presser group and they're not protected, and even very explicit cases of antisemitism are not being recognized by these universities because, again, it doesn't match up with this woke ideology. I think it would have been a lot better for a lot of these donors to realize that woke identity politics was a cul-de-sac. It was something that they should not have wanted to participate in. But I think they're now waking up to r- the realization that in this, again, oppressor-oppressed dichotomy, they're on the wrong side of that.
- JCJason Calacanis
I- I think you're exactly right, yeah.
- DSDavid Sacks
And they don't like that realization.
- JCJason Calacanis
Exactly correct. Identity politics, road to nowhere. Friedberg, you gave a passionate speech here about being forced to pick a side when we're talking about the conflict in the Middle East. And I guess there's underpinnings here of your discussion, anti-Zionism, antisemitism, and where's the line between you just caring about humans and children being killed versus maybe harassment, et cetera. I'm curious, when you saw these answers, what was your reaction? And, yeah, how do you feel about it?
- DFDavid Friedberg
I was surprised that the congresspeople didn't ask the university presidents, "What would your reaction be if they started to burn crosses and say something about white supremacy, Black people don't belong in the U.S., immigrants don't belong in the U.S.? If you picked another ethnic group and made statements that have traditionally been deemed threatening and harassing, would they have made a difference of judgment? And if so, what's the difference between what's gone on this week, or in recent weeks, and what's gone on in other civil rights actions that have taken place in educational institutions?" And I think that would have been, like, a really kind of telling understanding of the discernment that's- that's being made on campus today versus in the past. It is interesting to see that there's clearly a sense of being torn with respect to allowing the freedom of expression about groups that feel oppressed to be allowed to happen on campus, because that is probably a majority opinion, and that's why I think this is particularly difficult for these presidents to handle the situation. And I'm not excusing their behavior, or their actions, or their comments yesterday, but there's clearly something underlying this that I think we need to just acknowledge, which is that there is a large number of people, perhaps the majority of people, that feel that there is some oppression going on, and that that oppression, uh, has a right to be spoken for, and that this behavior is the only way. The Boston Tea Party did not follow convention. The Boston Tea Party was a rebellion against an institution that was oppressive, and the Boston Tea Party was the only action that was gonna make a change, that could have driven a change. And rebellion against an institution or an establishment that causes oppression isn't supposed to have rules. It isn't supposed to follow convention. It isn't supposed to be a discourse. And so I think that that sentiment is where a lot of this conflict is coming from for the presidents in making these decisions, that they see that the majority of people truly believe that there is oppression, that this is the course to speak up for that oppression, and that they can't step on that, because if they did, they would be causing more disruption to more people than allowing it, and it's a very difficult situation that they find themselves in. So I'm not excusing it, but I'm trying to frame up why I think-
- JCJason Calacanis
Yeah. I think that's well said.
- DFDavid Friedberg
... uh, otherwise smart people might be acting this way. Frankly, I think it's worth asking what would be the case if this were other ethnic groups or other people that were being kind of, you know, told, "Hey, we're gonna have an intifada against X or Y or Z," would the actions have been the same?
- JCJason Calacanis
Shamit, if they were asked that same question, is calling for the genocide of Black Americans, Asian-Americans, Indian-Americans, trans Americans harassment or bullying, what do you think their answers would have been, and then where do you think this is going?
- CPChamath Palihapitiya
I don't know what their answers would have been, but obviously, it's morally unacceptable. As best as I can tell, they were coached by lawyers before they appeared in front of Congress, and they found some verbal gymnastics, maybe, to try to defend their point of view, and in it, they lost all moral clarity, because to your point, Jason, if, and to Friedberg's point, if you just replaced the Jewish people with any other-... cohort of people. Maybe in this moment it was harder to see, but it's like, th- these, these should not be debatable difficult moral questions. So, how did we get here? I think that over the last 40 years, and to be honest it started when the US News & World Report started to rank universities, they gamified the desire for these universities to get at the top of the list, which allowed them to theoretically get better recruits. But really what it did was allow them to build massive asset management businesses that ultimately consumed these schools. And now what you find is that the learning process has gotten totally perverted, because it became a second order priority to being able to raise money and to manage assets. I think Harvard Management Company at one point was one of the largest owners of forestry in America. You know, the other large owner was John Malone, a rapacious capitalist. So, what this shows you is that the mission of these universities, which is to actually celebrate free speech and to teach kids to think critically, has been lost. And I think that this was a very simple way of seeing it, and it should be disturbing to people that this happened. That the places where you send our 18 and 19 and 20-year-old kids cannot, at a very simple level, teach the moral clarity to say teaching or supporting even the concept of genocide should b- is wrong. Can you teach it in a historical context? Obviously, but that's not what they even said there, right? So they got into a level of verbal gymnastics which I think is really... I- it should be viewed by everybody as pretty morally unacceptable.
- JCJason Calacanis
I think it's well said, and it's clearly bullying or harassment (laughs) if you're gonna chase Jewish students around campus, and I think that's what we saw. Now, if you were to, Chamath or Sacks, or maybe Sacks best since you're super, have a super high benchmark for freedom of speech, if these were students in a debate club or in a lecture hall, giving their position, taking hard questions, people opting into it, it wouldn't feel like bullying or harassment. Yet, the hypocrisy is so thick that they, you know, they chased people like Ben Shapiro off campus, et cetera, when they had something controversial to say at many of these schools. But I think we can all agree, chanting about genocide and chasing students around campus and disrupting the campus, that feels like bullying and harassment. I don't know that, and I agree with you, Chamath, this mental gymnastics that they went through with these statements, it's just very easy to say, "Yes, that's harassment. Yes, that's bullying." Now if you did it in a lecture hall and you, or you wrote a paper, Sacks maybe doesn't feel like bullying or harassment, feels like freedom of speech, yeah?
- DSDavid Sacks
Yeah. Look, I mean, we can, uh, uh, you can always debate the, the hard cases in, in free speech and where the line should be. And again, I would draw the lines in a way that makes m- most speech permissible. But when you're talking about chasing students around campus to yell in their face, that clearly is bullying or harassment and there's no reason to ever allow something like that. But again, the point I would make is that what you're gonna see in the wake of this is that a lot of Jewish people are realizing that they don't have a home on the left anymore, and I expect that many Jews are gonna start shifting right and into the Republican Party, to a place where I've been for a while. And, and I think this goes back a long way. So if you go all the way back to the original Civil Rights Movement in the 1960s, I think that many Jews were an integral part of that movement and they felt a great solidarity with the original Civil Rights Movement, civil rights leaders, because they felt like they had a shared history of persecution, that Blacks in America had suffered from racism, Jews around the world felt like they had suffered from antisemitism, and they basically believed that all people should be t- treated equally, that we should have individual rights, and, and basically, they were advocating for a colorblind standard, right, a colorblind treatment of all people. And so I think that Jews historically have wanted to be on the left for that reason. But I think what's happened over the last few decades is that the Civil Rights Movement in particular and the left have moved to this woke ideology where it's no longer about colorblindness. It's more about identity groups. And instead of trying to get past racial differences, it's been about accentuating them. And so we've had this whole equity agenda, which is really defined as redistribution from one racial group to another racial group. I think that, for whatever reason, a lot of Jews just hadn't confronted the reality that the left had really changed in this way. And again, I think it goes back to the fact that they thought that, "Oh, well, if we're gonna be defining identity groups in this, you know, woke way, you know, Jews obviously should be one of these victim groups." But they're waking up to the fact that Jews are not, you know? Jews are just, in the, in the minds of kinda woke ideology, Jews are just white people, okay?
- JCJason Calacanis
Yeah. Successful white people with too much power.
- DSDavid Sacks
Successful white people with a Jewish background, and as a result, they're part of an oppressor class. And I think that for a lot of Jewish people who are waking up to this, they're realizing, "Wait a second, this is actually a very destructive ideology, and it makes us the bad guys." And so I would expect that, again, a lot of Jewish people are waking up to the ways in which the left has changed, and they're realizing that that is not a hospitable place in the political spectrum for them to be. And I would expect there to be kind of a, a pilgrimage now-... of more Jews in America towards the right, as opposed to remaining on the left where they've always been.
- JCJason Calacanis
Yeah, the left needs to remember people should be judged not by the color of their skin or their ethnicity, but the content of their character. Uh, it's like quoting MLK, could get you canceled right now (laughs) I think, to actually say that people should be judged by their character.
- DSDavid Sacks
Yeah, colorblindness is considered, you know, a lot of people call that racism now. That's like every- Th- th- that, by the way, that, that is the mainstream conservative view on civil rights-related issues, is that colorblindness should be the standard, right? We wanna treat everyone-
- JCJason Calacanis
Used to be the liberal point of view too.
- DSDavid Sacks
... the same as individuals. Yes, exactly, but that-
- JCJason Calacanis
It was the liberal point of view. This was the civil rights movement's basic tenet.
- DSDavid Sacks
Yeah.
- 21:55 – 34:55
State of the economy for consumers
- CPChamath Palihapitiya
take shape.
- JCJason Calacanis
All right, let's get into the state of the economy. There's a really interesting story I sent to the group chat from the Financial Times about tribalism now impacting how people view the economy. It's called expressive responding. Basically, how you feel about the economy is based on which tribe you're in. Here's a, a quick snapshot of what's going on. If you're Republican (laughs) and, uh, you were doing really well under Biden, you're gonna say things are terrible in the economy. During Trump, Dems were doing awesome, like everybody else, but because they hated Trump, they said the economy was trash. Here's the chart that explains that and then I'll give you a couple quick bullet points of where the economy is. But you see the divergent there in the charts and based on the different administrations being in power. And if you look at the second chart, it's pretty telling. This isn't happening, this tribalism is not happening in other countries. You can see France, Germany, UK, people feel about the economy, how (laughs) the economy is actually doing. Pretty wild data and I'll let you respond to that in just a second. I'm just gonna give you eight quick hits on what's going on in the economy. Credit card debt is reaching all-time highs. We surpassed one trillion back in July. Keeps rising. People are taking money out of their 401 (k) s. Hardship distributions increased 13% between Q2 and Q3. Superspending just collapsed in October, growing only 0.2% last month versus 7% in September. But November year over year increases in Black Friday and Cyber Monday spending. So maybe that's a head fake. I don't know. Maybe people are bargain hunting, hunting. Consumer prices rose just 3.2% year over year in October versus 9.1% in June of 2022. Home sales, 13-year low in October. Most folks are betting interest rate increases are over and some are betting interest rate cuts will start as early as Q1. Kalish's forecasts say we should expect to see, and that's a prediction market, two quarter point cuts by July. Sachs, you've been bearish on consumers and all this crazy debt. Is this the beginning of the end? Is this the end? Where are we at in the consumer spending cycle?
- DSDavid Sacks
It's hard to know because there's so many mixed signals. Kobeissi Letter had a great tweet on this. There's a lot of mixed economic data right now, but I mean, the economy seems to be doing fairly well, but the electorate doesn't feel it. And you're seeing-In recent weeks, you're seeing a lot of commentary by pundits trying to convince the American people that the economy is better than the people evidently feel that it is. And I think that one of the big reasons for this gap is that over the last few years, we've had a lot of inflation and the rise in price levels has not been matched by the rise in people's incomes. So people simply feel worse off because their spending power's diminished. Now, it's true that the current inflation rate is going down, but all that means is that the price level now is growing at, call it 3%-ish a year. It's still growing. It's not like prices have come down, they're just rising at a slower rate. So, you know, last year we had a 9% in- inflation and inflation's been high the last couple of years. The rate of increase is slowing down, but people's wages, if you're working class, have simply not kept up with the price of goods and services. And so I think people feel worse off than they did a few years ago. And you can try to convince them till you're blue in the face that actually the economic data is great, but if you're somebody whose wages have not kept pace with price levels, you're not gonna feel better off.
- JCJason Calacanis
Chamath?
- CPChamath Palihapitiya
On your first point, I think that there is this thing that we've grown accustomed to, which is how you feel about what's happening versus what the data may say. And I think that the press and journalists, in a pretty untrustworthy way, amplify this separation. So we hear about the economy doing well, maybe it's not doing well. We hear how the economy is not doing well and it actually is doing well. Nobody wants to write about the data, people want to write about their feelings, and their feelings largely are more defined by the people around them and what they feel. So simple example, Nick, if you just want to throw this up, but there was a... This is the Federal Reserve's data, this is not anybody else's data, but you would think that the wealth gap is being exacerbated and you would think that wealth gains are going to a few. And again, without having an opinion, the data shows something truly incredible, which is that the American dream is not hanging on by a lifeline, but more and more American families are achieving it. You know, 12% of American families are now considered millionaire households, 8% are considered multimillionaire households. That's incredible, but what's even more impressive is that even as they do well, the cohort underneath them, the folks that make 150 to 250K a year are the ones that are absolutely crushing and they're making more than the top 10% of all families. So I think, Jason, the, the broader economic takeaway I have is unless you're willing to look at the raw data, the risk is high that you will be fed an emotional perspective that amplifies your bias or causes you to reject that view because it just seems so untrustworthy and it doesn't map to what you're seeing. It's very, very hard to tell the truth. That is Federal Reserve data that tells the truth about the US economy, and it turns out that, you know, the economy is pretty good and doing a lot for a lot of people.
- JCJason Calacanis
Friedberg, where do you sit? You've brought up the issue of credit card debt as a leading indicator. It s- continues to surge, but there is some inkling that consumers may be tapped out, i.e. tapping their 401 (k) s. So what's your take on the consumer and this tribalism that we're seeing in the interpretation of data and how people feel about the economy?
- DFDavid Friedberg
No, I mean, I think if, if people don't feel like they're progressing on the order of 10% a year in terms of income adjusted for purchasing power, they're generally gonna be unhappy and they're gonna project that as a general statement about, quote, "the economy." And so the more people that that's the case, the more you see that happening. And so while there may be, you know, a minority of people that are seeing great economic mobility, if a large enough percentage of people don't see a, roughly call it 10% increase in lifestyle ability year to year, that's gonna, you know, catch up to these overall scores of consumer sentiment. I think the way that economists measure the economy is a lot different than the average person measures the economy, which is really their own, you know, purchasing power and income.
- JCJason Calacanis
Sachs, your thoughts?
- DSDavid Sacks
Look, at the end of the day, the question that people ask themselves, which is the question that Ronald Reagan asked voters in 1980 is, "Are you better off than you were four years ago?" And I think that a lot of people, particularly working class people, don't feel better off because mainly their wages have not kept pace with the overall inflation level, not just measured on a one-year basis, but over a four-year basis. And I do think this could explain some of the tribalism, Jason, is that... We've talked about this before, that the biggest gap in the electorate is between professional class and working class. If you're a professional class, meaning you have a, at least one college degree, by more than 30 points, you're likely to be a Democrat. And if you're working class, which just means, you know, no college degree, let's say high school educated, you're much more likely to be a Republican. The parties have sort of flipped. The Republican Party is now a working class party. I think a lot of people find that very surprising. It's not the party of, you know, fat cat bankers anymore and, and, you know, the Fortune 500. It... So the parties have really flipped, and I do think that working class people are most impacted by inflation. If you're kind of in lower to mid-income and your wages, the wages of labor have not gone up and prices have, then-... you're gonna be worse off. I do think that is a big part of it. And I think the media is sort of working on overdrive right now to convince people that they should think that their circumstances are better than they actually are. And, um, and may- look, maybe the overall economic data right now is mixed to positive, I'll certainly concede that, but I think for the average person, what they care about is their pocketbook, and it's far from clear that they're better off now than they were four years ago. Jason, what do you think?
- JCJason Calacanis
I think this is a very important segment because you're correct, Sacks, in, in a very nuanced point, multiple things true at once here, there is still sticker shock from inflation. I went to buy a birthday cake, it was $47 for a cake. I was shocked, because how does a birthday cake cost $47?
- CPChamath Palihapitiya
(laughs) Is it made of cocaine?
- DSDavid Sacks
(laughs)
- JCJason Calacanis
Well, no, no, I just put the cocaine all over the top, but-
- CPChamath Palihapitiya
(laughs)
- JCJason Calacanis
... yeah, that's, you know.
- DSDavid Sacks
I think it got truffles shaved on it.
- JCJason Calacanis
I really thought I got white truffle cake. And this was a small cake. It was nuts.
- DSDavid Sacks
(laughs)
- JCJason Calacanis
Anyway, there is sticker shock. The truth is, though, wages are very strong right now, and wages are slightly outpacing inflation, but that is a new phenomenon. Correct, Sacks, that is a new phenomenon. So people are still feeling the sticker shock. But at the same time, unemployment and wages drive how people feel. And people are feeling obviously very confident, as you see in the credit card debt. When you're confident, to Chamath's point about just follow the money and look at the actual numbers, people would not be taking out credit card debt, they wouldn't tap their 401 (k) if they felt they've got great job prospects, they have options for jobs, it's a 50-year low in unemployment, which is unbelievable that that's continued, and wages are increasing. Uber drivers are now making $34, $36. And listen, I've been tracking how much they make from the beginning, it was $15, then $20, then $25. So wages are increasing massively. The GDP is 5% or something like that. And unemployment is low, so the economy is actually doing extraordinary. That's just the fact. But the sticker shock is very, very real. So I think we can wrap it there, unless anybody wants to add anything to this.
- DSDavid Sacks
Well, by the way, this, over the last month, there's been a huge rally in stocks, especially growth stocks. Bitcoin has now rallied to 44,000.
- JCJason Calacanis
What?
- DSDavid Sacks
Yeah.
- JCJason Calacanis
That's nuts.
- DSDavid Sacks
Affirm is up, like, 20% today. That's, you know, the buy now, pay later company.
- JCJason Calacanis
Interesting.
- DSDavid Sacks
Becau- on strong Christmas spending, like you're saying.
- CPChamath Palihapitiya
All the stocks, Sacks, that bottomed because of interest rates have now just started to massively rally.
- DSDavid Sacks
Right.
- CPChamath Palihapitiya
Massively. So all the secular.
- DSDavid Sacks
This is all based on expectations of rate cuts coming sooner than people thought. And I think Bill Ackman has really led this trade, and he timed it perfectly apparently, by basically going long the bond market, like, a month ago.
- 34:55 – 44:59
Signs of life in SaaS, VC shutdowns, and more
- JCJason Calacanis
Yeah. And let's segue here. Great segment, by the way, gentlemen. Because in our backyard, what we do every day in terms of capital allocation and building companies, the cleanup work continues. It was a rager, folks. People partied well into the next day, and we're still seeing, seeing the cleanup. Carta, uh, has some great data. And this is data amongst Carta users which is a subset of users willing to pay, uh, an expensive price to manage their cap tables. The number of companies that shut down after raising 10 million, which is a very high benchmark, that's up 238% in 2023, from 47 companies last year to 112 this year. Also, VC firms, and I'm seeing this very quietly happening, this isn't reported on, VC firms are very opaque about laying people off or reshuffling the deck, but a, a firm called OpenView, out of, uh, Boston just abruptly shut down. They had 70 plus employees, they just raised about 600 million of an $800 million target for their fund. There were reports about Greycroft not hitting their target and reshuffling a bit. That might have been overstated, to be honest. But on the bright side, we're seeing some rebounding in ARR of the public SaaS companies that started to rebound in Q3. Here's the chart from Altimeter. Looks like we hit bottom in Q1 of 2023. Another bright spot, public firms that are continuing to downsize are getting rewarded by the public market. Spotify just did a third layoff, 17%, it's around 1500 employees, so...I guess, Saks, everybody was thinking SaaS was over, it was the end of days. We talked about not a d- a re- a recession in SaaS, but a depression, and I think that was accurate. How are you feeling about the private company market and maybe stabilization or the return of growth i- in SaaS companies?
- DSDavid Sacks
Well, what I've been saying for the past year, year and a half is that we've been in a software recession. The overall economy may not have been in a recession because the consumer has stayed strong, as you said. Consumer spending has stayed strong. So, the B2C part has held up the economy, but I think in B2B and particularly in software, there has absolutely been a recession. It started in the first half of 2022 with rate hikes. There was a huge revaluation of growth stocks, and you saw multiples come down on SaaS valuations from, in the public markets, as high as 35 down to seven or eight, something like that. In private VC world, we saw valuations go from, call it 100 times ARR to something more like 30 times ARR. So, the first half of 2022, we saw a valuation correction, but then around mid-2022, what I started seeing in all my board meetings was every startup started missing its sales forecast and they started reforecasting down. And that process really continued for a year, and we saw the exact same thing in the public markets and public SaaS companies as well. And it's really remarkable how the data from the public stocks that our friend, Jamin Bahl from Altimeter has been publishing, you know, regularly, how that has matched up with what I've seen kind of anecdotally in board meetings and, you know, in conversations-
- JCJason Calacanis
That's super healthy, correct, Saks?
- DSDavid Sacks
... in the VC space.
- JCJason Calacanis
That the, the CEOs and the boards understand, hey, these private market valuations have to, in some way, be informed by public. This is a very healthy thing.
- DSDavid Sacks
Sure. Because the public stocks are the exit comps.
- JCJason Calacanis
Right.
- DSDavid Sacks
So, you know, if the public stocks are worth, I don't know, a third of what they used to be, then private valuations have to reflect that. But in any event, I want to go beyond just talking about valuations here. I wanna talk about the business results. And again, f- for this time period, from call it mid-2022 to mid-2023, there was a software recession. Software companies were cutting jobs, they were reforecasting down, they were growing slower. In many cases, they were actually shrinking. I mean, some companies lost ARR because of churn. You know, a lot of their customers were shutting down or sharpening their pencils, they were consolidating vendors. The last year has been a really, really tough time in the software space. But I think now we've turned a corner. I started seeing, in the last couple of months, I started seeing green shoots in some of my board meetings, and now here we have this chart from Jamin. Can you just put this on the screen again? Where we saw that finally in Q3, we went from four quarters of negative growth in net new ARR to finally a quarter of positive growth. Now, 2% is not a great number, but at least we are finally positive as opposed to negative, which means that net new ARR was shrinking. I think, again, the, the software recession, I'm calling an end to the software recession and, uh-
- JCJason Calacanis
Officially. Is it an official breaking, breaking news?
- DSDavid Sacks
... officially, yes. (laughs)
- JCJason Calacanis
Saks has called an end, so let, let the party begin.
- CPChamath Palihapitiya
I think software revenues are gonna rebound. I think the open question that's remaining then is will valuations rebound or will you have to grow into the last valuation or some truncated valuation? And this is where, you know, even if rates go to 2%, are people going to be as excited again to bring the public markets back to 15 and 20 times forward ARR? And that's an open question. I think the market says no, which means that even as growth comes back, you still have a valuation reset. That may actually explain why startups are shutting down, why venture firms that, you know, if you looked at that firm in, in Boston that shut down, they had some seemingly very good companies in their portfolio, so there should be nothing stopping them from continuing to raise capital and invest. But I just suspect the, the end market that they operate in is gonna be value constrained if they paid top dollar for things that are now just worth a lot less, even if they double revenue. I'll give you an example. We talk to the private equity guys a lot just 'cause we try to understand where they are buyers, right?
- JCJason Calacanis
Why is that important, Chamath? Explain why private equity versus public markets and how they think about businesses, because I think it's a very important point that you've made to me privately.
- CPChamath Palihapitiya
I think that when you look at the ecosystem, the ecosystem doesn't work if you never get liquidity to your employees and to your s- shareholders. So, liquidity happens in one of two ways. It can go into public markets or you can transact to private equity. Why? Because they have almost as much money, and frankly, more in many cases to pay than a public market can give you via a traditional IPO. So, I think that they are a pretty rational buyer, and they do a very good job because they are a concentrated buyer of finding a very fair price. What is the real honest market clearing price? And so if you don't want to look at the market through rose-colored glasses and you want sobriety, ask a private equity investor what they would buy your position for. That's why I spend a lot of time talking to them, because I want to know what this stuff is really worth.
- JCJason Calacanis
Hmm.
- CPChamath Palihapitiya
And what I would tell you is that even for companies that are in the hundreds of millions of ARR, the premiums that they're willing to pay are between three and five times ARR at the high end, and that a lot of deals get transacted between one and three times ARR. That may not be what people want to hear, but that's because when you look at the underlying ability to generate cash flow, many of these businesses haven't proved it yet.And so they want to buy things in a margin of safety where they can come in and cut certain expenses while still helping to grow in certain markets. All of that used to be a 10X multiple in the public markets. So if private equity is buying for three to five times and really one to three times, it's gonna be hard for the public market buyer to be paying a lot more than that.
- JCJason Calacanis
Got it.
- DSDavid Sacks
Can I build on that? This is a chart that was published on December 1st by Jamin at Altimeter, and I do think it speaks to the valuation question quite well. You can see here that there's this line at 7.8 times-
- JCJason Calacanis
Hmm.
- DSDavid Sacks
... which I think refers to 7.8 times next 12 months revenue. Uh, that is the long-term pre-COVID average, so that is where the average SaaS stock has traded over a long period of time.
- JCJason Calacanis
Eight years.
- DSDavid Sacks
We're currently, as of December 1st, we're at 5.8. I think it's probably a little higher now because the markets pretty much rallied over the last five days. But you can see that we're still trading below the long-term average in terms of multiples, and part of that is because interest to tenure is still at 4.3%, although it's come down quite a bit. It was... You can see a peak there around 5%. Now it's at 4.3. If you believe that the tenure is gonna go back down to, I don't know, this 2.5, 3% range, and if you believe that growth is re-accelerating, then I think there is room, you know, for this number, the 5.8 number, to at least grow into the long-term average, which is 7.8. So there, there is room there. I think that as these stocks are priced today, it doesn't feel like they're overpriced. Let's put it that way.
- JCJason Calacanis
Well said.
- DSDavid Sacks
And I never wanna tell anyone what to buy, but you can see here that we are still trending below the long-term average.
- CPChamath Palihapitiya
He should pull this number back to 2010.
- JCJason Calacanis
Oh, interesting, so at the start of the supercycle-
- CPChamath Palihapitiya
Yeah.
- JCJason Calacanis
... after the Great Recession.
- CPChamath Palihapitiya
Yeah.
- JCJason Calacanis
Yeah, it's not a bad point.
- 44:59 – 1:01:07
Why Friedberg chose to take the role of CEO at Ohalo, and the dearth of great leadership talent in tech
- JCJason Calacanis
I'll ask Brad to do that. Freeburg, switching to you, you have been a capital allocator and company formation executive for the last, uh, close, getting close to a decade, and you made big news this week. Instead of doing more funds, which I know you had a lot of people interested in backing your funds, you decided you're going all in and that you are choosing to take the highest performer, most promising company in your portfolio and become CEO of that company. Explain your decision, because I think it does relate exactly because you're, got skin in the game here, the most skin possible, which is your time. You've decided to go the CEO route, put all your eggs in one basket. Explain your thinking.
- DFDavid Friedberg
We started a business at The Production Board, which is my firm, four years ago with Judd Ward, who's the CTO and co-founder of this business, who came up with some pretty novel ideas on how we could use gene editing to make m- incredible transformations in agriculture a reality. The conversation originally started from a paper I read in January of 2019. I reached out to Judd and said, "Hey, we should talk about this paper," and we started brainstorming, and Judd came up with this concept for this business. And it was really a, you know, call it a moonshot that they undertook, and we've put tens of millions of dollars of capital into this project over the last four years and been operating it in stealth. And the team had some pretty significant breakthroughs this year that make the whole thing a reality now. The potential of the business is so significant that I really don't have a choice (laughs) but to go all in on this. It's a no-brainer, as, as I said in the tweet I put out. I could spend a bunch of my time, as you said, like, starting other businesses or making investments, but at the end of the day, you know, investing accrues to a, a power law, where if you have something that's gonna be transformative, it could be many multiples on all the other stuff you do. And so it only made sense for me to say, "Look, I've, I've got to dedicate my time, attention, and energy to making sure that this business realizes its potential. I'm gonna go in full-time as CEO." So it's pretty exciting. You know, gene editing, I'll, I'll talk a little bit about it, but I can't share too many details. Gene editing, as you guys know, was discovered... It's controversial whether it was discovered first by George Church and the group at the, at the Broad in Harvard or Jennifer Doudna and her group at Berkeley. But CRISPR-Cas9 is the system that allowed us for the first time ever to go in and make specific edits to DNA. Uh, historically, any work we've done in the genome has been, you know, very ad hoc, haphazard, throwing large amounts of DNA into a cell to try and get that cell to do something. But CRISPR really unlocked this, call it search-and-replace function in DNA, and that capability has allowed researchers to make novel therapeutics, to create, uh, have new discoveries in biology, and has really unlocked an entirely new era in biology. One application of gene editing is in agriculture, where we can look specifically at the genes in plants and what they do to the plant, and if we can make specific changes that you would otherwise see in nature through traditional plant breeding and mutations happen over time through plant breeding, can you accelerate those changes, and can you make a set of changes? Rather than spend millennia breeding plants, can you make a specific set of changes that will cause the plant to do something very novel, and as a result, get the plant to be more successful? And by editing the DNA of the plant to make it more successful, its yield goes up, it can generate more food with less water, more food with less land, more food with less labor, et cetera, et cetera.That's the general premise on how we can use gene editing, to drive productivity in agriculture.
- JCJason Calacanis
Amazing. And you could, I assume, make the strawberries taste more delicious like those ones from Hokkaido in Japan, as opposed to just making them giant flavorless softballs.
- DFDavid Friedberg
The way gene editing has been thought about in agriculture over the last decade has been exactly what you're saying, which is to make a specific trait edit, which is one edit in one gene that does one specific thing to the plant. And what Judd and the team came up with was starting with the problem rather than starting with this, you know, kind of very specific thing that we could do, and they said, "How do we get yield to go up significantly in plants?" And they came up with this creative idea, which is doing a series of edits, which is called multiplex editing, multiple edits across multiple genes, that would actually change the biology of a plant in a fundamentally understandable way, but that would ultimately drive such a transformative increase in yield, it would open up entirely new opportunities in agriculture. And so that was the moonshot, was the series of edits that could, you know, change how plants, you know, do a specific set of things that makes their yields go up significantly. And we weren't sure if it would work. First of all, we weren't sure if it was possible to do the edits. Editing plants is very hard. The cell wall of plants has to be dissolved, and then you have to get the editing machinery into the plant, into the cell, and then you have to get that cell to edit the right gene and not have other edits, and then you have to get the cell to grow back into a plant. There's so many complicated difficult steps. You have to get all of them to work. And then we weren't even sure if making all those edits would cause the outcome that we expected, and it turns out that, that it does. And that happened as of a few weeks ago at this company, and that's why I decided to step in 'cause suddenly-
- JCJason Calacanis
Fantastic.
- DFDavid Friedberg
... it's like, oh my gosh, the moonshot is working. We put in a lot of capital. We spent years funding the exercise. It's real, uh, and now we're gonna take off. Um, and so that's why I'm going all in on this. I, so I, I'm being a little cagey with respect to the details.
- JCJason Calacanis
Yeah, no, no, no. Uh, as I understand, it's top secret stuff, that's fine.
- DFDavid Friedberg
I definitely wanna talk more specifically about what the team's done and, and what we're gonna do with the business, which I will happily do in a few months once some, some things become public. But in the meantime, I'm excited to do it. I gotta tell you, the last se- it's been seven years since I've been an operating CEO, and, you know, to some degree, there's always been a, a piece missing for me in what I do every day, that-
- JCJason Calacanis
Mm-hmm.
- DFDavid Friedberg
... I haven't felt like I've had the ability to have the influence and make the decisions that I think need to be made. You're advising the CEO. You're sitting in a board seat, kind of encouraging them to do certain things. But then sometimes they listen and sometimes they don't. (laughs) So to actually be in the seat feels to me like the right place. It's the right place where I can have the influence and drive the change that I wanna see, and I haven't done that in a very long time. And so it's also personally, I think, the right decision for me to find, you know, satisfaction in the work I'm doing, not to mention the excitement I get out of the business.
- JCJason Calacanis
And you and I have talked about this privately, you know, the, the world has too much capital. There's just tons of money. There's too many problems to be solved. The real issue, especially when you're running an incubator or a, a stu- you know, a startup studio, like some of these startup studios, is who is going to pilot this very fast jet fighter? And the number of people who are ambitious and technically know how to fly one of these planes and do it at high speed and, you know, want to take on that dangerous cockpit is very low. And so I, I think it's very courageous of you to jump on and do this, so congratulations.
- DFDavid Friedberg
The point you're making is a really good one worth talking about just for a second. There's been this criticism in Silicon Valley, and I'd love your guys' point of view on this too, Chamath and Sax, but like... and, and J Cal, but like, there's been this criticism in Silicon Valley, which is that, you know, we do too much of the easy stuff and t- all the capital goes into the apps and stuff, you know, things that are the path of least resistance to making money, not into the hard things that are low probability require a lot of capital. It's not universally true, but it's generally true with respect to how capital is allocated. And, you know, I was kinda talking with a bunch of people last week about this, and I, I kind of realized that like there's only... if you're gonna ne- do a, a difficult project that requires a lot of capital, you're gonna wanna entrust that capital to someone that has proven themselves. Someone who's proven themselves is generally gonna have the choice of things they're gonna wanna (laughs) do with their life. And if they've proven themselves, it usually means they've had some exit event or some liquidity event that-
- JCJason Calacanis
Absolutely.
- DFDavid Friedberg
... discourages them from doing a very difficult thing and taking on a lot of risk and burning themselves to death again, when they've already made it. And the people that have made it usually make it in software the first time around, because software creates a path of least resistance to generating returns, and then the challenging question for them is do you do it again and you make easy money, you know how to do it? Or do you take a 5% shot or a 2% shot of success, 98% chance of failure, going after a very hard project that takes a very long period of time? So I think that the challenge with difficult technology being developed in Silicon Valley is less about a dearth of capital or a dearth of ideas or a dearth of opportunities, it's more about a dearth of talent, that finding the right folks who have the capabilities and have done this before to wanna step back into the saddle and take on a very large low probability problem is really the challenge that I see a lot of in, in getting a lot of these things kind of going and funded.
- JCJason Calacanis
Hard to get people to be in the arena. Yes, Chamath? You, you've seen this in your portfolio?
- DFDavid Friedberg
And a hard problem is what I'm saying.
- JCJason Calacanis
And a hard problem, yes. Yeah.
- DFDavid Friedberg
Like, like a 2% chance of success kind of problem, like why would I do that when I can go do something that I'm 60% likely to succeed at and do really well doing it?
- CPChamath Palihapitiya
I find that most companies are very undermanaged and underexperienced, and it's surprising for me. It, it lacks a level of sophistication that I just assumed existed, and I guess that's because my last experience was when I was helping to build a company that frankly-... coming out of the great financial crisis. We were recruiting people at Facebook from Google, for the most part, and then building an entire core of young people and grooming from within. It was... We had a pretty good go of it. Fast forward to 2023, and I must admit that the companies that I interact with when I get into the weeds, I think the real talent, to Friedberg's point, is spread too thin across too many businesses. And so there are pockets of greatness in every company, but there's no real gravitational pull for any of them as a result of that.
- JCJason Calacanis
This is an excellent point as well. When we had a ZIRP environment, so many companies got funded, th- a- an amazing CMO, CTO, VP of ops started their own company, and they were just, their natural position was the sixth man on the bench, you know, on the Knicks or the Warriors, not the primary scorer. They weren't Steph Curry. They shouldn't be in that position. They should be coming off the bench and being an amazing contributor. This is, I've concluded, the best time in the world to start a new company. I, I am, uh, absolutely amazed by the companies coming and applying for funding for us.
- CPChamath Palihapitiya
I understand-
- JCJason Calacanis
Yeah.
- CPChamath Palihapitiya
... because that's your business model. But what about encouraging people to actually join a good company and learn-
- DSDavid Sacks
Right.
- CPChamath Palihapitiya
... how to be a good manager?
- JCJason Calacanis
Absolutely.
- DSDavid Sacks
Right.
- JCJason Calacanis
These are two, the two best options, I think. If you have two or three really great builders, you actually know how to build, and the two or three of you who have a great idea and you want to do it, I encourage you to start a startup. If you don't have a great idea, you don't have two or three co-founders, you don't wanna lead the thing, find somebody who's just getting onto the launchpad or just getting a little escape velocity in their rocket, which would be defined as 10 to 30 employees, maybe having raised two to $20 million. That's an ideal time to get on the rocket. And just any seat you can get. As Sheryl Sandberg said, famously, "Any seat on the rocket ship is a seat on the rocket ship." You just wanna get on board. Yeah, Chamath?
- CPChamath Palihapitiya
I disagree with the first part of what you said.
- JCJason Calacanis
Oh, okay. Explain why.
- 1:01:07 – 1:11:50
Google announces Gemini: Why this is a notable moment for Google, industry impact, and more
- JCJason Calacanis
could be wrong.
- DFDavid Friedberg
We should talk about the Google Gemini launch.
- JCJason Calacanis
Google just dropped their ChatGPT killer, and, uh, from my perspective, it's often- awesome. Just two quick videos here. It does have very strong multimodal mode. If you don't know what that is, just means you can use images, videos, text, input, and output. In this demo that you're seeing on the screen if you're watching the show, they take a picture of a physics test that somebody took in handwriting. They find which answers are wrong. They explain it. Lots of reasoning going on in here. A- and obviously, the multimodal means you're seeing an image and you're getting text back. Second video they showed, and they, and they, they launched a lot of stuff today with this Gemini brand. They're using-
- CPChamath Palihapitiya
Oh.
- JCJason Calacanis
... the classic example of doing a party, uh, planning a party.
- CPChamath Palihapitiya
They used my likeness in the Google video. Wait, what's going on?
- JCJason Calacanis
And here it is. There's, uh, there's, uh, Chubby Chamoth.
- CPChamath Palihapitiya
(laughs)
- JCJason Calacanis
Oh, sorry. I can't body shame people. Sorry about that, folks. Uh, there's Chubby Chamoth. (laughs) I can... Please strike that. Oh my God, I shouldn't have said that.
- DSDavid Sacks
I thought Vinny Lingham was Fat Chamoth.
- CPChamath Palihapitiya
(laughs)
- JCJason Calacanis
Vinny Lingham has claimed Fat Chamoth. That was, that's why I went for Chubby. I didn't want to infringe on his IP.
- DFDavid Friedberg
Huh.
- JCJason Calacanis
But any... (laughs) Oh no, I'm gonna get canceled. So in this video, the person asked to do a kid's party. What's very unique here is that it does the follow-up questions, which is, you know, really interesting and understands reasoning and context. But it built a dynamic interface for this use case, and it did like a pin board and a kind of, um, Google-esque task list and KPIs and all this other nonsense. Uh, but behind all of this in the Gemini exceptionalism, I think, is that they did all these benchmarks against a bunch of... There's a bunch of tests and batteries of tests that, uh, language models use to prove how strong they are. And Google says Gemini beat GPT-4, the latest from OpenAI, in 30 out of 32 benchmarks. This is gonna come in three flavors: ultra, pro, and nano. That's basically cost and strength. And there's a lot more behind this, but based on what I'm seeing, in my opinion, I've been looking at this stuff every week with Sandeep and looking at all of the latest and greatest, this feels like it is a leapfrog by about 20 or 30% if this is true. But Friedberg, you looked at the original papers. What are your thoughts on the underpinnings? I talked about the UX and some of the reasoning. What are you seeing? And, and we'll consider this a, a flash, on-the-fly science corner for all those Friedberg stans out there.
- DFDavid Friedberg
I haven't read the whole 60 pages, but I looked at the performance charts and it's pretty damn impressive. I feel... I used the, the demo a bit. I feel like you're interacting with Data from Star Trek. Do you guys ever watch Star Trek: Next Generation?
- JCJason Calacanis
Look at the smile on your face.
- DFDavid Friedberg
It was so cool.
- JCJason Calacanis
You are so happy. Your dream has come true from your childhood.
- DFDavid Friedberg
I mean, I was like, "This is a lifelong dream. I can finally-"
- JCJason Calacanis
Yeah.
- DFDavid Friedberg
"... have a chat with Data." It's like, uh, conversational. It's, um, predictable in s- in the sense that it kind of predicts the i- the details that I might ask or might otherwise forget to ask, fills them in. There's some, I think, really smart features of it, and I think it says a lot that Google truly does have the muscle to compete and now is showing the huevos to do so.
- JCJason Calacanis
Mm.
- DFDavid Friedberg
That they're actually putting this out there, that they're willing to disrupt themselves, cannibalize their own search business potentially in a way that everyone's been worried they wouldn't be willing or able to do. They'll figure out a way to monetize it later, but they really are showing that they're willing to try and make the best product for users, which has always been a core mantra for Google from, you know, the, the origins of the business. Focus on the user and all else will follow. And they, everyone's been saying the last couple years, they're too focused on profit. They're squeezing every nickel and dime out of every click. And showing that they're willing to put this out there says a lot about the strategic imperative of the board and the leadership there. So that, that makes a big difference. The product seems really good. The scoring data seems incredible, uh, against GPT-4, which is, I think, the key benchmark. As we know, OpenAI has some new models that are coming to market. Um, here, let's pull up the table of results. But this shows Gemini's performance against GPT-4 using a number of well-known metrics. I'll say that there, there is no business on Earth that has more data than Google. YouTube is the richest data repository, digital data repository on Earth. The YouTube dataset gives Google an extraordinary advantage in training. And clearly, we're seeing that in the results they're getting on imaging and video here. So, you know, big, big, big announcement for Google. I think it's definitely worth saying that they're in the game, and it's gonna be pretty powerful to watch. Pretty big, I think pretty important to watch.
- JCJason Calacanis
Sacks, as Friedberg said, the cajones are on the table now. Sundar has dropped the huevos. What's your take?
- DSDavid Sacks
I think it's pretty clear that Google's gonna be a major player in AI. But the question is, are they gonna be dominant in AI? And I think one of the points that our friend Brad Gerstner makes that's well-taken about Google's market position is that if you look at their position in search, which is gradually being replaced by AI, they're absolutely dominant in search. So even if they turn out to be good or great in AI, their AI franchise is just never gonna be as dominant as their search franchise was in that market. And so to the extent that AI is replacing search, and I think we're seeing that more and more, right? If you can get the AI just to give you the answer instead of a list of 10 blue links, that's a better user experience. So I think as more and more searches get replaced with AI, it's just impossible that they're gonna maintain that same dominant share. Moreover, it's really unclear how you monetize those, let's call them AI searches, where it just gives you the answer, because nobody wants to get three ad links up at the top of their answer. No one's gonna click on those. So I think, look, Google is gonna be a player in AI, but as AI displaces search, it's gonna be a real challenge for them as a company, I think.
- JCJason Calacanis
I have the opposite position. I'll explain, Sacks. While I do think you're right...... their dominance will be the same. Having used the Google Flights AI integration, Google Shopping AI integration, that's in Bard right now, which is very, like, 1.0 or even 0.1, I think the number of searches or the number of interactions, the number of queries, let's call them, questions asked, is gonna go, like, 10, 20, 50, 100X. I think people are gonna be talking to their AIs all day long. And where I think you might be wrong is, I think, actually, the clicks are gonna fit in certain categories perfectly into the response. So in this birthday one, if you had a bunch of ideas of what you could click on to purchase, if it said, "Hey, great idea for the birthday. Did you think about these hats? Did you think about these pinatas? Did you think about these places to get cake?" And those were all paid, and AI informed them because you wanted to do an animal-based jungle party and it showed you those, it's going to make unbelievable ad targeting that is right into your planning. "Hey, get these hats here, get this, g- get this flight here, book this restaurant." I think it could be a goldmine and I think the- the- the click stream and the- and the ad network is gonna fit perfectly into it. Same thing with those questions being asked and, uh, you know, "Hey, do you wanna get a math tutor? Do you wanna buy this book?" Et cetera. So, I- I- I am gonna take the other side of it. Chamath, where do you land? Are you short, long, or neutral on Google, based on this?
- CPChamath Palihapitiya
I think that there's two important things to notice about this. The first is who is in charge of this project? And this is, I think, after they did that reorg, the most important person in all of this is Jeff Dean, who, if you look back, is the m- one of the most preeminent technical lights, frankly, of the internet. But within Google is just a giant, right? So, Tensorflow, MapReduce, BigTable, Spanner, the guy is just an absolute animal. He's proven an ability to not just conceptualize big ideas, but then get them to market in a way that can work at scale, right? That's the first thing. The second thing is that this Gemini is a collaboration between DeepMind for the first time and Google Research and a bunch of other people at Google. So, I think Freeberg mentioned this before, the test for Google is not their technical capacity, but their ability to organize everybody and get them to row in the same direction. So, I think that that's- that's really important. My takeaway is what I kind of put out on Twitter, which is that I think all of this is one more brick in the wall on this theme of commoditization. So, we have all of these really interesting foundational models. If you just look back a little bit, Llama 2's advances have been pretty amazing. Out of the UAE, Abu Dhabi, the government-
- JCJason Calacanis
Falcon.
- CPChamath Palihapitiya
... there showed some... Falcon, which showed some really interesting promise. Obviously, OpenAI is doing some great work with GPT-4 and GPT-5. Now you see Gemini and- and the results that they're generating. There's gonna be a proliferation of foundational models. The cost of those models will go to zero. And so, why is- why is that an important thing? Well, one, it's good for the ecosystem, two, it's really good for developers, and three, it allows us to then figure out where the real value is gonna be made. And I think the value is in taking these models and wrapping them with cheap abstracted hardware, right? You can't have an economy get built in AI when you have year-long waiting lists for H100s and A100s from NVIDIA. That's not possible. So, that entire layer as well will get commoditized. So, the folks that are the AWSs, the Azures, and the GCPS of the world, or these next-generation entrants who are building AI clouds, those folks, I think, will make money, and then the apps will make money. So, I think it's a very good thing. I think that you don't want a lot of the lock-in that NVIDIA was trying to create. They were trying to create essentially a walled garden where you had to use CUDA in order to basically compile to these- uh, these miles to their chips. It's gonna break all of that. So, I'm generally quite constructive. I think that this is a really good step in democratizing this whole thing and letting the value accrete to the ends. It's a barbell. Infrastructure providers and app builders, that's my best guess of where money gets made here.
- 1:11:50 – 1:22:41
Adobe's $20B Figma acquisition has stalled out due to the UK's CMA
- JCJason Calacanis
All right, Adobe's $20 billion acquisition of Figma is stalled right now. UK's CMA, stands for Competition and Markets Authority, has effectively blocked this acquisition for a couple of obvious reasons. One, reduces innovation, two, it eliminates competition between two top competitors in product design, and three, removes Figma as a threat to Adobe's Photoshop and Illustrator products. CMA mentions some potential remedies, divesting of overlapping operations in each market where the deal could cause less competition, or just prohibiting the merger entirely. Feels like that's what's gonna happen. And also-
- DSDavid Sacks
Actually, I have to take issue with-
- JCJason Calacanis
... that was a peak ZIRP, right? That was a peak ZIRP deal, so you have prices on that.
- DSDavid Sacks
No, hold on. I have to take issue with, you said that they are doing this for obvious reasons. I don't think these reasons are obvious in the sense-
- JCJason Calacanis
Okay.
- DSDavid Sacks
... that I don't thi- I don't think-
- JCJason Calacanis
Fine.
- DSDavid Sacks
... they speak for themselves. I think they have to be defended. And I- I don't think these are good reasons.
- JCJason Calacanis
Oh, yeah, no, I- the obv- I'm- when I say obvious reasons, I- I'm not endorsing them. I'm just saying the- the standard reasons of lack of competition and consolidation of competitors. So, but yeah, e- expand on your point and you think it should not be stopped, this merger?
- DSDavid Sacks
Well, first of all, this merger was originally announced, I think, back on September 15th of 2022, over a year ago. What is that? That's, uh-... for almost-
- JCJason Calacanis
15 months.
- DSDavid Sacks
... 15 months ago?
- JCJason Calacanis
Yeah.
- DSDavid Sacks
Yeah. So this is a ridiculous amount of time for regulators to take to figure out whether they're gonna approve the deal. That's no good for anybody. I think businesses, whether you're Adobe or whether you're Figma, have a right to have these questions answered much more quickly. So what are the regulators doing? So that's point number one. Point number two is that it's mostly the UK regulator, which is called the CMA or Competition and Markets Authority, they're the ones who are dragging their feet and holding this up. So Figma and Adobe have to get the approval of three different regulatory bodies. They have to get approval in the United States from, I think, the DOJ. They have to get approval from the EU with Brussels. And now, because of- thanks to Brexit, they also have to get approved by the UK. And to me, it's a little crazy that one country's, you know, competition authority, the UK, which is not, in the grand scheme of things, that big a market, can hold up this entire deal. You know, if-
- JCJason Calacanis
It should be faster, of course, right? They should have a-
- DSDavid Sacks
Well, not just faster.
- JCJason Calacanis
... certain number of days, yeah.
- DSDavid Sacks
I question whether, like, one country, the UK, should be able to hold up a deal if the US and the EU approve it. And one thing I would say to startups is if the CMA is gonna start holding up deals for a bunch of novel reasons, meaning, you know, reasons that haven't previously been articulated before in antitrust law, why in the world do you- would you want to create nexus with the UK? I think this pertains to all the startup ecosystem, because look, I remember when I was doing Amber, we decided to open an office in Europe, and we decided to settle in London, and we created a pretty big office in London. We thought that was the best place for a startup to locate. If you had told me at the time that that would subject our acquisition by Microsoft to the CMA over there, and that they would take some novel interpretation and could hold up my deal, there's no way I would have wanted to open an office in the UK. So let's be clear about that. Now, I want to move on just quickly to the argument that the CMA is making. And I do think it's a novel argument. They're not saying that Adobe and Figma are competitive today. And actually, I think they are operating in different markets. Figma is a product for web designers and web developers, and the end state of a Figma design is code. If you look at Adobe's products like Photoshop, the end state is marketing collateral. It's- it's a marketing design product. Nobody uses Figma to create marketing collateral. They use Photoshop. And nobody who's using Photoshop is using that to, uh, build websites. Okay? These are, in practice, pretty distinct markets, and I think the CMA has conceded that they're distinct and separate markets. But what the CMA is trying to say is that at some point in the future, if we block this deal, Figma might compete.
- JCJason Calacanis
Um, 100-
- DSDavid Sacks
Might compete with Adobe. They might create a competitor to Photoshop. And that is a bogus rationale for blocking a deal, because first of all, I think we all know that Figma has no interest in competing with Photoshop. They're not gonna compete. They- they're much more interested in AI. They're much more interested in doing things like prompt to design to code. They're not interested in building, you know, a Photoshop competitor. And there's no reason to believe that they would do that. Moreover, that is not an objective standard. Think about it. If you can block a deal on the grounds that these two companies don't compete today, but might one day compete in the future, it gives the regulators a veto over any deal. And that is not the way antitrust is supposed to work. The way that antitrust has historically worked is you define what market these companies are in, and you add their market share together if they're both in the same market to see if it would create an undue monopoly or oligopoly, something- some dynamic like that. It was a market share test, which is an objective test. This is not an objective test. This is a regulator saying, "Hmm, you know, we know you don't compete today, but like, one day in the future, you might." That is bogus. So if you allow the CMA to block this deal on that ground, they can block any deal for any reason. And then on top of it, they've taken 15 months to come down with this opinion. I think this is gonna have a very chilling effect on M&A activity w- for- for not a good reason. For not a good reason. And that is the last thing the startup ecosystem needs right now.
- JCJason Calacanis
I'm gonna agree about the time. I'm gonna agree that we should let a little more M&A happen. I'll disagree Adobe has a product, XD, competes directly with Figma. And then I've gotten multiple designers who have included me in Figma designs for things that are other than interfaces. They're using it for decks, they're using it for marketing collateral. And if you go look at Figma's templates offering, they are all Photoshop, Illustrator key functions. So in the market, even though the products were not designed as competitors, designers are starting with Figma for many design projects, in my direct experience and by looking at the templates. So I'll disagree on that third point. Chamath, your take.
- DSDavid Sacks
Well, h- hold on. I gotta do a fact check on one thing. You're right that Adobe had a competitive product to Figma called XD.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
They shut it down. They shut it down.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
It- it was a failure. So they are out of the market for a web design tool. They're out. So that argument no longer exists. And I don't know if they shut it down because of this deal or because it was failing anyway, but they solved that problem. Now, with respect to these use cases where, okay, yeah, you're- you're talking anecdotally, Jason, about you've seen some web designer use Figma-
- JCJason Calacanis
No, I'm talking factual. Go look at the templates. I just put the link in there.
- DSDavid Sacks
It's still anecdotal. It's not based on a market share test. If you want to make this argument that Figma and Photoshop are competitive products, break it down in terms of market share. That's my point. Add up Figma's market share in the market for marketing collateral and see if that would create undue concentration.
- JCJason Calacanis
Fair enough.
- DSDavid Sacks
My objection is that they're not basing this decision, if it can even be called a decision, I think it's more like just concerns and dragging their feet, but they are basing their concerns on something that's unquantifiable. And I do think that antitrust decisions should be quantifiable.
Episode duration: 1:32:28
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