E164: Zuck’s Senate apology, Elon's comp package voided, crony capitalism, Reddit IPO, drone attack

Jason Calacanis 0:00 All right, everybody. Welcome back to your favorite podcast, the All-In Podcast. It's episode 164. I'm down here in Miami. With me, again, of course, the dictator chairman himself, Chamath Palihapitiya, and the Rain Man, yeah, Burn Baby, David Sacks. Unfortunately, we had a little bit of a challenge this week. We don't know where Friedberg is. He's somewhere lost in his Apple Vision Pros, but he'll be back next week. As you guys know, I'm incredibly generous with my friends, so I sent all the besties the Apple Pro Goggles. And so these Apple Pro Goggles are amazing but, uh, Friedberg-

Chamath Palihapitiya 0:39 Wait, you did? You bought me a pair of the Apple Pro Vision Pro Goggles?

Jason Calacanis 0:41 Yeah, yeah. We talked about this already. Yeah, go... There are... You guys, actually you were using them, you just forgot. But, uh, Friedberg has been using them. Nobody can find Friedberg right now because apparently-

Chamath Palihapitiya 0:51 (laughs)

Jason Calacanis 0:51 ... he went to Uranus (laughs) . I recorded in all of these, Sacks, what's happening inside each of our Apple Goggles. The Vision Pro.

Chamath Palihapitiya 1:00 Oh, my God. Oh, my God.

Jason Calacanis 1:01 Yeah. And so... But, uh, yeah, Chamath, here they are. We actually took a picture. I had Nat take a picture of you wearing them.

Chamath Palihapitiya 1:06 Okay.

Jason Calacanis 1:06 Do you want to... Hey, Sacks, you want to see what Chamath was doing in his goggles?

David Sacks 1:09 Yeah, let's see.

Jason Calacanis 1:10 I recorded it. There he is.

Chamath Palihapitiya 1:12 (laughs)

David Sacks 1:12 Oh, wow.

Jason Calacanis 1:12 Yeah, look at that. See? He, he imagined that he did leg day. Look at those legs.

Chamath Palihapitiya 1:17 (laughs)

David Sacks 1:17 (laughs)

Jason Calacanis 1:17 He imagined he did leg day.

Chamath Palihapitiya 1:19 Oh, my God.

David Sacks 1:19 He's still reveling, he's still reveling in that, uh, thirst trap that he posted, isn't he?

Jason Calacanis 1:23 I know. But you see those legs? Uh, the Apple Vision Pro. Tim Cook-

Chamath Palihapitiya 1:27 Can I... Sorry. Can I say-

David Sacks 1:28 Oh, yeah. Look at that.

Chamath Palihapitiya 1:28 Can I say-

Jason Calacanis 1:29 Yeah.

Chamath Palihapitiya 1:29 ... something funny about this? Which is that my legs are actually darker than my torso and my upper body. It's the weirdest thing. And so you have it in reverse, but it is true that my, my legs are a different shade than my, my trunk and my arms and my body.

Jason Calacanis 1:43 Okay. Well, here's Sacks. By the way, Sacks, you know, he loves his goggles. Yeah, Chamath, do you have any interest in seeing what Sacks was doing with his goggles?

Chamath Palihapitiya 1:50 Oh, my God. I can't imagine.

Jason Calacanis 1:52 There it is.

David Sacks 1:53 (laughs)

Chamath Palihapitiya 1:53 (laughs)

Jason Calacanis 1:53 Sacks was speed running. He was doing the speed run on DJ.

David Sacks 1:57 (laughs)

Jason Calacanis 1:58 Absolutely getting in there.

David Sacks 1:59 That's, uh, Saving Private Ryan, right?

Jason Calacanis 2:01 Yeah. That's you, that's you. You were speed running Saving Private Ryan there. Oh, I got them too. Yes. I... But I didn't record myself. I didn't record myself. I maybe nicked it. Oh, I was in there. Oh, look.

Chamath Palihapitiya 2:10 (laughs)

Jason Calacanis 2:10 What am I doing?

Chamath Palihapitiya 2:12 (laughs)

Jason Calacanis 2:12 Oh, drinking the Mountain View Rye Beer.

David Sacks 2:16 Let your winners ride.

Jason Calacanis 2:19 Rain Man David Sacks.

David Sacks 2:23 And I said we open source it to the fans and they've just gone crazy with it.

Jason Calacanis 2:27 Love you, man. Nice.

David Sacks 2:28 Queen of quinoa. Wait, you're telling me that they didn't have the third or fourth investor in Uber-

Jason Calacanis 2:35 Hmm.

David Sacks 2:35 ... up, uh, ringing the bell with them at the original moment?

Jason Calacanis 2:38 I could tell you the backstory. I was invited by TK to come to the, the ringing of the bell. TK was dis-invited so he was there on the floor. It was very awkward. And then they didn't have him go up and ring the bell or be even there when Dara ran, rang the bell. It was because it was so controversial. They didn't... They banned him.

David Sacks 3:00 Oh, that's sad.

Jason Calacanis 3:00 It was really, it was really sad. It was super sad. Uh, but anyway, everybody, I hope you're enjoying your, your goggles.

David Sacks 3:06 Sorry. And so you were there or not?

Jason Calacanis 3:08 I didn't go 'cause-

David Sacks 3:09 Oh, okay.

Jason Calacanis 3:10 He was like, "I'm... We're gonna have a party, but we're not gonna be able to ring the bell." And it was just all, like, very-

David Sacks 3:16 Did you go to the party?

Jason Calacanis 3:17 I didn't. I should have.

David Sacks 3:18 Oh, okay.

Jason Calacanis 3:19 I regret not going. But it was unclear if there was even gonna be a party or if TK was gonna go because of all the drama. And I don't know if you remember, on CNBC they were like, "TK's in the building, but he's not on the thing." And da, da, da, became a big brouhaha. But yeah, so I missed my window.

David Sacks 3:32 I mean, if you had known that this was gonna be the big exit in your life, really the only one-

Jason Calacanis 3:38 (laughs)

David Sacks 3:38 ... then you would have made every effort-

Jason Calacanis 3:40 (laughs)

David Sacks 3:41 ... to attend everything, right?

Jason Calacanis 3:42 Absolutely. Absolutely. Yeah.

David Sacks 3:44 (laughs)

Jason Calacanis 3:44 I mean, you're still riding on that yammer in PayPal. (laughs)

David Sacks 3:46 (laughs) Yeah.

Jason Calacanis 3:47 Oh, my... He got it-

David Sacks 3:48 You know, I was, I was talking to somebody about this the other day. Most people's careers, you have like... You know, it's not like a smooth upter- upward trajectory. There's like-

Jason Calacanis 3:58 Yeah.

David Sacks 3:58 ... maybe a few pops that you get. You're lucky actually if you get a few, because most people only have one or maybe two.

Jason Calacanis 4:04 Yes. Yeah.

David Sacks 4:05 It's like a power law. It's like anything else in venture, right?

Jason Calacanis 4:08 Absolutely.

David Sacks 4:08 Like I'm sure if you think back on like the big outcomes in your life, it's not like there's one every year in like some sort of smooth-

Jason Calacanis 4:14 No.

David Sacks 4:14 ... gradient. It's basically-

Jason Calacanis 4:15 Exactly.

David Sacks 4:15 ... there's like one, two or three over the course of your entire career that you remember.

Chamath Palihapitiya 4:20 Right.

Jason Calacanis 4:21 Yeah. Absolutely. Yeah. I mean, it's, it's good, it's good to consider that, uh, because you have to enjoy every sandwich. You have to enjoy every day what you're doing because those pops are out of your control. You don't know when they're gonna happen, how they're gonna manifest, so. But you guys didn't get these, you didn't get the goggles. But these goggles came out this week. I don't know if you saw it.

Chamath Palihapitiya 4:42 What I will say is at the poker game, three of the guys-

Jason Calacanis 4:45 Uh-huh.

Chamath Palihapitiya 4:45 ... they were talking about these goggles.

Jason Calacanis 4:47 Ah.

Chamath Palihapitiya 4:48 Sammy woke up at 5:00 in the morning on the first day.

Jason Calacanis 4:51 Mm.

Chamath Palihapitiya 4:51 He was... He got them. And then Koon and Wrobel were telling me that they just like bought them randomly in the next couple of days and it was easy.

Jason Calacanis 4:59 So those are civilians.

Chamath Palihapitiya 5:00 There was no like waiting in line. They were able to just order them. It's what they did.

Jason Calacanis 5:03 Yes. But they're civilians. So just to be clear, like, in Silicon Valley we're kind of like, "Ah, whatever." You know? We, we play with Oculus for so long. But now these are out and there's a bunch of demos going around. This one I thought was interesting. I don't know if you saw this, but watching a basketball game, it actually is quite compelling to have all the stats on the screen with you and you can kinda move them around. I maybe could see myself doing this. I don't know. Do you think you would do this watching a game maybe?

David Sacks 5:28 So wait, are you actually watching the TV through the goggles? Like what part is-

Jason Calacanis 5:33 Yes.

David Sacks 5:33 ... real world and what part is augmented? Obviously all the stats are augmented reality.

Jason Calacanis 5:38 Yeah.

David Sacks 5:38 But the TV itself-

Jason Calacanis 5:39 This is all-

David Sacks 5:40 ... is, is that-

Jason Calacanis 5:41 That's a stream. That's a stream-

David Sacks 5:42 That's a stream. Okay.

Jason Calacanis 5:42 ... coming into the goggles. Yeah, it's not your actual TV.

David Sacks 5:45 Oh, okay.

Jason Calacanis 5:45 So, you know, I think he's just putting it on the TV there. But you could literally be outside on your deck. You could be on an airplane and do this. So that's like-

David Sacks 5:53 But you can see through the goggles, right? Is that the idea? It's...

Jason Calacanis 5:56 You can if you want to.

Chamath Palihapitiya 5:57 Yeah, you can still-

David Sacks 5:57 Yeah.

Chamath Palihapitiya 5:57 I think you can still see through the goggles.

Jason Calacanis 5:59 Yeah. Is the idea, yeah.

Chamath Palihapitiya 6:00 You know, that you can, you can see the fact that you live in a tattered apartment-

Jason Calacanis 6:04 (laughs)

Chamath Palihapitiya 6:04 ... without a girlfriend, dressed poorly-

Jason Calacanis 6:07 (laughs) You can see the dishes-

Chamath Palihapitiya 6:08 ... at all times.

Jason Calacanis 6:08 ... in your sink. You can see the...... cupboard being ba- bare. You could see the spoiled milk in your refrigerator.

Chamath Palihapitiya 6:14 Your half-used bong that you use to soothe yourself to sleep at night.

Jason Calacanis 6:18 (laughs)

Chamath Palihapitiya 6:18 Whatever all of these 20 and 30-year-olds do to cope, you'll see all of that while still being in an immersive environment. It's amazing.

Jason Calacanis 6:24 Yes. I mean-

Chamath Palihapitiya 6:26 (laughs)

Jason Calacanis 6:27 ... (laughs) and it is so dystopian. I just think, like, if you take out your phone, your spouse is like, "What are you doing on your phone?" I, can you imagine the audacity of being with your spouse or your family and being like, "Uh, hey, guys, I'll be right back." And you put the (laughs) goggles on to watch the Knicks game or the Warriors? I mean, I think that's a snap divorce. I don't know.

Chamath Palihapitiya 6:44 You said it very well, about the, the Oculus one, which is, you had a turn of phrase which I really like, but basically it's, like, you were very quick to try it, and then y- there was-

Jason Calacanis 6:55 Yeah.

Chamath Palihapitiya 6:55 ... like, a period, and then you lost interest. I think that's just gonna be the key thing with this. And the fact that it costs $3,500, they have to get the price down fast enough for average folks to want and be able to buy it, right?

Jason Calacanis 7:08 Yeah, I call this experience try, the Try, Oh My, Goodbye. (laughs)

Chamath Palihapitiya 7:12 Right.

Jason Calacanis 7:12 You try it, you're like, "Oh, my God, this is incredible." And then you're like, you put it in your drawer, you never use it again, 'cause there's not an application.

David Sacks 7:19 It's really a proof of concept. Look, I think it's a great thing for innovation that they're starting with this, you know, like you said, expensive headset that maybe is not that ergonomic, but eventually it'll come down and the form factor will be glasses or sunglasses. Facebook, I don't know if the product's out yet, but did you see their product where it has-

Jason Calacanis 7:37 The Ray-Ban?

David Sacks 7:38 ... yeah, it has the AI-

Jason Calacanis 7:39 Yes.

David Sacks 7:39 ... built into it, and you can ask it questions, and it will do computer vision and give you answers based on what it's seeing. It was a phenomenal-

Jason Calacanis 7:47 Yeah.

David Sacks 7:47 ... demo. I don't know if that's actually real yet, but did you see that demo?

Jason Calacanis 7:51 Yeah, these are the Facebook Ray-Ban glasses, and I, I do think these are Meta's smart glasses. They work particularly well taking pictures and sharing them on, uh, Instagram, so they're kind of single function. He, you know how Zuckerberg is. He, he cribbed what, uh, Evan Spiegel did a couple years ago with the Snapchat spectacles.

David Sacks 8:08 Right, but he, he put out a demo that was a little different. The demo was-

Jason Calacanis 8:10 Yeah.

David Sacks 8:11 ... like, he was in his closet. He was wearing this, and he had picked out a shirt or something and then said, "Give me, you know, tell me what I should match this with." And-

Jason Calacanis 8:19 "Yeah, what goes with the gray shirt that I've worn (laughs) for the last 14 years?"

David Sacks 8:24 (laughs)

Chamath Palihapitiya 8:24 Did you guys see this thing where they all had to testify in front of the Senate?

Jason Calacanis 8:28 Yeah. We might as well. I guess we'll just jump right to that.

Chamath Palihapitiya 8:30 It was like a public flogging.

David Sacks 8:32 Yeah.

Jason Calacanis 8:33 Uh, uh, once again, a public, public flogging. We'll just jump to it real quick, since we didn't want to go too deep on that one, but-

Chamath Palihapitiya 8:38 Josh Hawley made Zuck (laughs) turn around and apologize to, to people in the audience. It was really intense.

Jason Calacanis 8:44 Yeah. So this is, the name of this hearing was Big Tech and Online Child Sexual Exploitation Crisis. Zuckerberg, he was questioned, along with the CEO of TikTok, Discord, X, and Snap. But obviously, this is all around kids' online safety and also Section 230, which I think the senators are... This is one of the few bipartisan moments, I think.

Chamath Palihapitiya 9:08 They're honing in on it.

Jason Calacanis 9:09 Yeah. They, they realized this is kind of like a winning-

Chamath Palihapitiya 9:11 They're gonna take a run at this.

Jason Calacanis 9:13 They're taking a run at it, for sure. They realize it's a winning ticket. But let, let's just play the clip, and then I'll get your thoughts, Sax and, and Chamath.

Sen. Josh Hawley 9:19 Let me ask you this. There's families of victims here today. Have you apologized to the victims?

Mark Zuckerberg 9:24 I-

Sen. Josh Hawley 9:25 Would you like to do so now?

Mark Zuckerberg 9:27 Well-

Sen. Josh Hawley 9:27 They're here. You're on national television. Would you like now to apologize to the victims who have been harmed by your product? Show him the pictures. (audience clapping) Would you like to apologize for what you've done to these good people?

Mark Zuckerberg 9:40 I, I, I, I'm sorry for everything that you have all gone through. It's terrible. No one should have to go through the things that your families have, have suffered. And this is why we invest so much and are going to continue doing industry-leading efforts to, uh, to make sure that no one has to go through the types of things that your families have had to suffer.

Jason Calacanis 10:01 Sax, um, what a powerful moment. And for Zuckerberg to get up and actually face the parents, he turned around, he faced his parents. This is a very dramatic moment, and he apologized. Ned, Ned, do you, do you respect him for, for doing that? And, and do you think that was, like, a, uh, powerful moment as well? And, and where does this all wind up?

David Sacks 10:18 This was a kangaroo court. I mean, this was basically all theatrics. This is basically a bipartisan moral panic, where all of these senators are basically grandstanding. And these are the same types of accusations that we've been hearing for years. Remember, this goes back to the whole Frances Haugen claims, where she says that Facebook wasn't doing enough to prevent various kinds of online harms. And I think that we're gonna regret where this all leads, because where it's gonna lead if they do repeal Section 230 is towards greater censorship. All these companies are gonna spend even more resources restricting what we can say and hear online, which is not the right direction. Listen, do some harms occur online? Yes. Do I believe that Facebook is taking substantial measures to stop them? Yes. I mean, but edge cases are always gonna get through. When you're operating at that kind of scale, there are, are gonna be these edge cases of kids who got harassed or content that shouldn't have getting through. It's just part of the fact that the internet operates at gigantic scale. And these harms have always been out there. I think that these companies do their best to try and stop 'em, but they're always gonna get through. And you can't make every aspect of our society perfectly safe and harm-free. Somehow, we have this expectation that we can eliminate 100% of every harm that occurs, and I do think that these online companies have been unfairly picked on in a sense. I mean, if you're gonna talk about these types of harms, why aren't you targeting the music industry for all their incendiary lyrics that basically encourage all sorts of violent or sexist behavior? Why don't you target the advertising industry for creating unrealistic body image expectations? Why don't you target the Kardashians for setting unrealistic expectations around image? And you could go on down the list. I mean, why don't you target Hollywood for releasing a show like Euphoria, which is a hit? It seems to me that the problem in our culture is not coming from the edge cases; it's coming from...... the mainstream entertainment that is fully allowed and is popular and is our hit shows and hit records and hit products. I mean, that's where the toxic pollution is coming from in our culture. So to turn around and now blame the online companies for creating all of this, I think, is just... And I think basically they're being scapegoated. I mean, again, this is a moral panic.

Jason Calacanis 12:40 Chamath, do you think it's a moral panic or... You know, there have been statistics and studies done about what is viral on social media, the algorithms targeting users, the addictive nature of it. You spoke earlier about the addictive nature of just gamification on watches. Social media is a little bit different than music and some of these other things, because they have these algorithms to increase watch time and engagement. So I think that's what the other side would say. Wh- where do you say... Where do you say, Chamath? Where do you stand on this?

Chamath Palihapitiya 13:07 Let me just give a coda to a couple of things that Sax said. It is true that we've taken turns attacking other forms of media when they were ascending in their popularity. So in the 1990s, if you guys remember, politicians and their censorship attempts around gangster rap and-

Jason Calacanis 13:24 Yeah.

Chamath Palihapitiya 13:24 ... NWA and 2 Live Crew and certain songs.

Jason Calacanis 13:28 Al Gore's wife, right? Wh- what was her name? Tipper Gore?

Chamath Palihapitiya 13:30 Tipper Gore. Yeah.

David Sacks 13:30 Tipper Gore had a whole ti- tirade against rap lyrics.

Chamath Palihapitiya 13:33 What was the NWA song, you know, " (beep) the police"?

Jason Calacanis 13:36 Yeah.

Chamath Palihapitiya 13:36 That whole thing just set off a huge furor about people potentially, David, being motivated to kill cops or something, right?

David Sacks 13:43 In the '80s, there was a trial. Judas Priest went on trial-

Chamath Palihapitiya 13:46 Right.

David Sacks 13:47 ... because if you played one of their records backwards, supposedly it promoted devil worshiping.

Chamath Palihapitiya 13:51 Supposedly. Exactly, devil worship, Satan.

David Sacks 13:52 And I don't know who's playing records backwards, but if you did, then it promoted devil worship. And I think a kid committed suicide, and so they-

Chamath Palihapitiya 13:59 Right.

David Sacks 13:59 ... basically prosecuted Judas Priest for it.

Chamath Palihapitiya 14:01 So that's comment number one, which is, this is not new. And the reason why social media is in the crosshairs is because instead of having this really diverse ecosystem of many small players, you have three or four folks, and so it's easier to bring them up on stage and sort of pillory them. Second is, I actually thought that Zuck had a lot of moral clarity because it's like, that's a tough position to be in, and the fact that he had the courage to turn around and actually apologize to those people shows he's trying to do the right thing. But the reality is, and Sax is right, if you apply a very, very small error rate to an incredibly large number, so they have a network of three and a half billion people monthly, right, or daily or whatever the thing is-

Jason Calacanis 14:44 Yes.

Chamath Palihapitiya 14:45 ... even if you say that there's one-tenth of 1% of an error rate, meaning things that are unintended, well, that's three million unintended consequences, right? That's a lot of-

Jason Calacanis 14:56 Yeah. Well, big numbers. Yeah.

Chamath Palihapitiya 14:56 ... unintended consequences. And so there is this massive law of large numbers at play. So what, what do we do, I guess, is the question. And I think that there is enough knowledge that we have to know that the ability for a 35-year-old to use certain products today is very different than the ability for a 12-year-old to use that same product because of where they are physiologically, right?

Jason Calacanis 15:26 Yeah.

Chamath Palihapitiya 15:26 I think we all know that to be scientifically true on the dimension of many products. And I think what we need to decide as a society is whether software and electronic products fall into that categorization. And if so, what does it mean? So in the case of China, they mandate top-down what products can be used and how many hours you can use them for.

Jason Calacanis 15:47 Specifically video games, you're referring to, yeah.

Chamath Palihapitiya 15:50 Yeah. And David's right, which is that if we go there and we rewrite the law, then there's gonna be a different set of unintended consequences that's gonna create, I think, a much poorer business landscape, frankly, to innovate and a bunch of other things.

Jason Calacanis 16:06 And building on your comments, there's clearly an age at which kids can... shouldn't be on these systems and an age where, you know, maybe with some guidance, they can... Yeah, you wanted to add something, Chamath? Yeah.

Chamath Palihapitiya 16:18 And then I think the third thing is around the Section 230 thing itself. I think that, Sax, I'll give you a slightly different take. I don't think that the Section 230 rewrite is gonna be broad and sweeping. What I noticed from a bipartisan perspective by both the Democrats and the Republicans is that the one single narrow issue that they all seem to align on is not necessarily about all of the different rules around censorship, but that the lack of liability for these folks should be relieved. And I think that if you were to write a narrow amendment to Section 230 that said that these social media companies or other organizations that had certain characteristics were more liable, where today they have no liability, I'm not saying that it's right, but my read of the temperature in that room was that that is the very narrow change in Section 230 that I think they all seem to want to make. And so that seems like a very likely thing that will happen in the next two or three years.

Jason Calacanis 17:25 Unpack that for the audience who, who might not know how they would do that. Section 230 says, "If you're a publisher, you're a common carrier, you're not responsible for what people post on your, your system, blog, web host, or social media company." But where the social media companies move from being just a common carrier, you know, like paper might be, or a website hosting company like WordPress or Squarespace, is when they flip over and they have an algorithm, and then they start picking and choosing. So once you start doing editorial, like The New York Times, and you have editors, then you're liable. If you're CNN, you're liable. If you're Fox, as we saw in the Dominion case, that's where the liability comes in. So I guess the question to you, Sax, is, you know, at the end of the day, now that we've seen these things at scale, is there not an argument that when you start editorializing through an algorithm and you start promoting certain content, that you have some level of responsibility, like Fox News, CNN, or The New York Times has? Where would you stand on that issue, some liability if you're picking winners and losers in terms of what gets...

Chamath Palihapitiya 18:25 ... promote it in the system.

David Sacks 18:27 Well, a- apparently I'm the last person in America who thinks that Section 230 was a good idea and a visionary piece of legislation that actually enabled the creation of user-generated content platforms. Just to kind of slightly modify your description of how it works, I would analogize it to a newsstand, where there's magazines on the newsstand, there are publishers, and then there's the newsstand itself, which is a distributor. If a, a magazine engages in defamation, they're liable for it, but the newsstand is not. The newsstand can't be sued. So the question is, when you have these massive user-generated content platforms, are they operating as a publisher or as a distributor? And I think what Section 230 made clear is, look, if you don't write the content, if the content is generated by users, you're a distributor. And that is, I believe, the better analogy to make for these huge UGC platforms. Now at the same time, what Section 230 said is that if you take Good Samaritan actions to reduce things like sex and violence on your platforms, then we won't make you liable. Because what happens in a lot of cases is that you can waive your protection legally by basically-

Chamath Palihapitiya 19:36 Mm.

David Sacks 19:37 ... getting involved. And so the legislation didn't want to deter these platforms for taking, again, Good Samaritan steps. I think it's a pretty good combination of legislation, and that's what you see right now is that Zuckerberg doesn't want to let these edge cases through. I actually believe that they are taking huge efforts at scale.

Chamath Palihapitiya 19:55 They have 40,000 people t- to give him some credit. There's 40,000 people moderating stuff. That's a big number.

David Sacks 20:00 Yeah, these are edge cases that get through. And by the way, you have to wonder, where were the parents when all this stuff happened? I mean, they're acting like there are victims in the audience, and I'm sorry for their particular cases. But at the end of the day, we do need the parents to step up here. If we wanna have social media at scale at all, the parents have to play a more active role. But in any event, to go back to Section 230, I just think that Republicans in particular are gonna re- really regret getting rid of Section 230 because it's only gonna lead to more censorship.

Chamath Palihapitiya 20:28 I think what they're going to do, if I had to bet, is that they're going to write a very narrow amendment to that law, and during some budget process or some other thing where you have a big Christmas tree bill, this will get in there. And I think it will have bipartisan support that effectively removes the liability protection that these companies have. I, I have a-

David Sacks 20:51 That's not a small change. That's the entirety of Section 230.

Chamath Palihapitiya 20:54 I think, like, these companies will not be able to use that.

David Sacks 20:58 That's a massive change. Listen, there are plaintiffs lawyers. The, the plaintiffs lawyers bar, you know, the trial lawyers bar is salivating over the possibility that would happen.

Chamath Palihapitiya 21:08 That's why this is gonna happen. You know the way, this is how America works.

David Sacks 21:11 They have personal injury ... Hold on. They have personal injury lawsuits-

Chamath Palihapitiya 21:13 Of course.

David Sacks 21:14 ... and tort lawsuits lined up in every jurisdiction in the United States. And here's the thing is because Facebook and all of these other sites operate, you know, across the entire nation and across the entire world, they can be sued in every single jurisdiction if you allow these types of lawsuits.

Chamath Palihapitiya 21:31 Okay, Chamath, you go, then I'm gonna give my position and we'll, we'll move on. Go ahead, yeah. I'm gonna say this in as unopinionated as a way as possible. Whether we like it or not, there is an element of American capitalism that takes companies through seasons, and there are seasons where you're growing, and then there are seasons where you're over-earning, and then there are seasons where, if it is possible, the machinery, if you see that you are being, you are over-earning for a long time, the machinery of the economy comes and kinda pulls you back down to Earth. You've won too much and you're, you're perceived as too powerful, yeah. And I'm not saying this whether or not it's right. I'm just saying that if you look back in history, these chapters have been written umpteen times. And I, and I think, David, what you said is the absolute single most important thing if you had to figure out where this was gonna go is exactly that. The plaintiffs lawyers, the class action lawsuits, the amount of money that they think they can extract, and they compare it to the amount of money that they were able to extract in two different kinds of cases. One was tobacco, and then the second was pharma. And I think that they look at this class of app and the lack of empathy or the lack of popularity that the leaders of these companies have in Washington as a reason why they will probably be able to get this done to create this. Again, I'm not saying I think that's good. I'm saying that I think it's likely. And I think when that does happen, you will see a replay. Again, it'll be slightly different in terms of how it plays out, but exactly the kinds of plaintiffs lawsuits that we saw in pharma and in tobacco, and I think it's gonna play out here. And David, you are right. That hearing, to me, was a setup for that. Yeah, and if you, if you look at this through that lens, there will be some sort of negotiation, and, and it might be age. 'Cause when you look at this, really what Americans are upset about is the impact this is having on kids. We have a limit for the age of smoking, vaping, et cetera, and when these things happen, I think a- an easy concession that Zuckerberg and others will make is, "Hey, these products will be for 16 years old and up." That's my ... That's the age I think it's appropriate. 15 or 16 seems to be- Well, he also said, by the way, Jason- Yeah. ... to, to your point, Lindsey Graham was the one that brought this up, and Lindsey Graham made the connection to tobacco and also to firearms. Yup. And then Mark at some point in there basically said, "Well, listen, like, let's look at Apple and Google. We should expect them to do the actual age verification, not us." Right, 'cause they have the devices and they have- Right. ... the credit cards, et cetera. That, that's actually a very reasonable thing for, for Americans to come to. The only thing that breaks down a little bit, Sax, in your argument, and listen to this, no perfect analogies here, but if there was a repeated offense of a magazine on a newsstand, for example-

Jason Calacanis 24:26 ... if there was some magazine that had underage, you know, an adult magazine that had underage kids in it and people knew that, and a newsstand continued to publish it, they would have liability for trafficking in child pornography or, or whatever it happens to be. And so, the, the newsstand does get some liability. So, there's no, again, no perfect analogies here. But I think-

David Sacks 24:46 But Facebook and all these other sites are trying to remove the child porn or whatever. I don't think much-

Jason Calacanis 24:49 Right.

David Sacks 24:49 ... that gets through at all. You know, I think-

Jason Calacanis 24:52 Yeah.

David Sacks 24:52 ... maybe you have a better argument, and, and there is the argument that people make, is that because of the feed, that they're making editorial judgments, and that's-

Jason Calacanis 24:59 They are.

David Sacks 24:59 ... publishing not distributing.

Jason Calacanis 25:00 Yeah.

David Sacks 25:00 However, my counterargument to that is that the feed just gives you more of what you want. I mean, it just looks at what you're clicking on, what you're viewing, the time you're spending, and they just give you more of that. I don't think it's editorializing. Now, back to Chamath's point about this is the way things are headed, that may well be right, but I think we're gonna regret it. I mean, first of all, the Democrats' interest, one of their biggest donors is the Trial Lawyers Bar, and they generally will support any legislation that opens up the causes of actions, and that's where this is headed. And what's gonna happen is, if they get rid of Section 230, is that every time there's an alleged harm that occurs, every time a kid gets bullied or beat up in school, every time something goes wrong in their life, they're gonna try and pin it on social media and, and try and show that they imbibed something on social media that led them down this dark path. And these types of companies are gonna get sued in every jurisdiction in America. Recently, we've seen huge judgments related to defamation, where if you have, say, a red, politically red defendant in a blue jurisdiction, huge awards, I think we could probably see the opposite as well, that basically you'll start seeing blue defendants taken on in red jurisdictions. We've seen completely disproportionate judgments in, again, around defamation, disproportionate relative to the harm that w- actually took place. You're gonna see that on steroids if we get rid of Section 230. Now, historically, it was the job of Republicans to oppose Democrats on this stuff, because they knew that Democrats were shilling for the plaintiff's bar. Republicans have not done that, because they're so mad at these social media companies for censorship. So, remember when I talked about Good Samaritan liability? These companies created content moderation to basically try and remove the violent material, the pornographic material, the sexual material, and the harassing material. But in the process of doing that, they started making political judgments and they started engaging in political censorship, and that has made the Republicans so angry that they have now turned against these companies and they are willing to remove Section 230. My point is, I think Republicans at the end of the day are gonna regret that, because if you remove Section 230, it's gonna open up this flood of litigation.

Jason Calacanis 27:15 It's gonna be a free-for-all.

David Sacks 27:15 It'll be a free-for-all, and what's gonna happen is that these companies, just driven by simple corporate risk aversion, are gonna clamp down even more. I mean, the content moderation is gonna be even stricter.

Jason Calacanis 27:29 Hmm.

David Sacks 27:29 And because the content moderators of these companies basically are, are liberals, if you empower them to take down even more content, they're gonna take down Republican stuff even more.

Jason Calacanis 27:38 The, um-

David Sacks 27:39 And it'll be very e- it'll be very easy for the plaintiffs to target that type of content. They'll say that, "Oh, that, you know, all of that, uh, Republican or conservative content, that influenced people in a very negative direction, that created all of these harms." There'll be lawsuits targeting that sort of content, and Facebook and others will respond in the economically rational way, which is to shut it down completely. So, I think senators like Josh Hawley are not gonna get what they want.

Jason Calacanis 28:04 They're not thinking straight. Yeah, Chamath-

David Sacks 28:05 It's gonna backfire, yeah.

Jason Calacanis 28:06 Yeah, it's gonna backfire. Chamath?

Chamath Palihapitiya 28:07 The reason why this is gonna happen, if it does happen, and, and you wanted to try to be probabilistic about it, is because when you look back at the tobacco settlement, the original settlement in today's dollars is about 370 billion dollars.

David Sacks 28:21 Whew.

Chamath Palihapitiya 28:22 If you, if you were the trial lawyers and you're looking at a combination of Facebook and TikTok and all of the, all of that money, I suspect that they probably think that the potential that they can extract from these companies is going to be multiples of that number. And then as a result, their fees will be between 20 and 50% of that. So, you're talking about hundreds of billions of dollars of revenue potential that will motivate, I think, these folks to get the law changed, and then the byproduct will not be framed in terms of dollars. It's, these are highly kinetic issues when you're talking about sexual exploitation in young people and mental health and suicide and bullying. These, these are very kinetic issues, right? And so bringing these to jury trials all across the United States, I think that they probably think that they're on the right side of history in winning those things. So-

Jason Calacanis 29:28 Yeah.

Chamath Palihapitiya 29:28 ... you know, again, I'm not saying it's right.

David Sacks 29:29 But they're highly emotional.

Chamath Palihapitiya 29:30 I'm not saying... Yeah. Yeah, yeah. And I'm not saying-

David Sacks 29:31 It's highly emotional. I mean, listen.

Chamath Palihapitiya 29:33 It's gonna win.

Jason Calacanis 29:33 Well, it's people's kids.

Chamath Palihapitiya 29:34 This stuff is gonna win.

Jason Calacanis 29:35 Yeah.

Chamath Palihapitiya 29:35 Stuff's gonna win.

David Sacks 29:35 You bring a case of, say, t- teen suicide, okay? Horrible that it happens, but there's gonna, every time something like that happens, there's gonna be a huge temptation, I'm sure there'll be trial lawyers who specialize in this, to bring a case against Facebook or some other social media company and they're gonna scour through the, these accounts and try to point to examples that could have led to this result. And the truth of the matter is that maybe social media contributed a little, but what about popular culture and popular entertainment? What about all the messages?

Chamath Palihapitiya 30:09 I'm not debating any of that.

David Sacks 30:10 I know, I know, I'm just, I'm pointing out what's gonna happen. What about all the messages they received, not, not through the edge cases that got through on social media, but through the mainstream entertainment? I mean, all the shows they're watching on television, all the music they're listening to, the things that happened in their schools and day-to-day conversations with other kids. But you can't really sue any of those other things, but you can sue...

Chamath Palihapitiya 30:29 ... by the way-

David Sacks 30:29 ... social media.

Chamath Palihapitiya 30:30 ... the, the crazy thing about all of this is that all of these lawsuits are funded in part by these hedge funds who will do litigation finance, and part of putting together a well-performing litigation finance fund is underwriting the probability of success. And I think when you flow through the probabilities, and you apply it to these companies, largely because of their profitability and their ability to over-earn and generate profits, I suspect that Wall Street is probably already involved, if, uh, and if not, they'll probably get involved in due course. But it's, it's an unfortunate thing, David, I agree, because this is sort of like, hey, the rules on the field were X, and folks operated by those, and they are clear, they are trying to do their best. But again, this is where capitalism, the part of capitalism that can be awkward and uncomfortable is when industries over-earn for long periods of time, other folks say, "I'm gonna compete away those returns somehow, and I want a share of those profits." And I think that that's going to be the large motivator. And it's just going to result in, I think, these things changing and a plethora of lawsuits.

David Sacks 31:37 And at the end of the day, this is about children and protecting children, so the obvious solution here is society has to come up with a number-

Chamath Palihapitiya 31:44 Well, sadly, I think that could be a veneer, Jason.

David Sacks 31:47 ... of what the age is.

Chamath Palihapitiya 31:47 You know what I mean?

David Sacks 31:48 Well, hold on, let me finish my thought here. It, uh, uh, the, the key thing is, there's some age in which we all agree it's reasonable for kids to be using social media, and there's a certain age where we think it's not reasonable. And back to capitalism, I think a very good point you made, Chamath, these companies are gonna have to say, "Well, if we lose the 12 to 15 year olds, is that better for society and better for our business?" And we just all agree that social media should start at 15 or 16, and then the handset manufacturers and the o- and the social sites all have, you have to get permission from your parents to use them, period, full stop. And that's it. And that may be where this all winds up, I think. And then also explaining the algorithms, I think is the next thing that's gonna happen. People are gonna have to disclose how these algorithms work.

Chamath Palihapitiya 32:28 I think you're making a very good point, which is, that is the right conversation to have. My point was that-

David Sacks 32:32 Yeah.

Chamath Palihapitiya 32:32 ... instead of having that conversation, which is more societal, it involves per- uh, David's right, parental responsibility. What is our role-

David Sacks 32:39 Absolutely.

Chamath Palihapitiya 32:40 ... by being-

David Sacks 32:40 Yes.

Chamath Palihapitiya 32:40 ... actively involved? And by the way, the trends around family formation and the fact that there's way more single parent families make this problem even harder, because now there's only one person to check in and not two people to check in.

David Sacks 32:52 Mm-hmm.

Chamath Palihapitiya 32:53 So all these things societally build on itself. Jason, that is the absolute right conversation to have. My point is, that's not gonna be why th- the rules need to get rewritten. The rules will get rewritten because there's an economic argument by a different sector of the economy, in this case, the trial lawyers and other folks, that say there's a trillion dollars to be had if we get this law changed, and they are motivated enough to do that.

David Sacks 33:16 Yeah. A parasitic sector. So, there is a bill right now working its way through the California Assembly that would go to Gavin Newsom, that would prohibit the use of social media by under-16 year olds. So that is actually happening.

Chamath Palihapitiya 33:29 Yeah.

David Sacks 33:30 I agree with you, that's a better debate to have than changing Section 230 in a way that's gonna lead to more censorship. By the way, just, just on that point, I think Republicans need to understand this in particular, is that the anger towards these companies is bipartisan. The, the outrage is bipartisan. The moral panic is bipartisan. You saw it on, in that hearing, you couldn't really tell the difference between Republicans and Democrats, okay? So... Bold display. ... I wouldn't be surprised if they agreed, like Chamath said, on some sort of change to Section 230. But here's the catch, is that Republicans and Democrats have fundamentally different objectives. Fundamentally, Democrats want there to be more censorship. They say this all the time, "We want you taking down more content-" Yeah. "... not less." Republicans want there to be less censorship, okay? So, if they agree on the same piece of legislation, only one of them can be right, okay? Hmm. And the question is, who's gonna be right? My guess is that if Democrats and Republicans agree on a Section 230 modification, the Democrats know what they're doing, and the Republicans, generally being the stupid party who get outsmarted all the time by Democrats, are going to agree to something that they later regret. So, at the end of the day, I don't think that bipartisan legislation should be possible. The anger is bipartisan, but the objectives are not. And if something gets through, it's gonna be because Republicans make a huge mistake. And just to give a tangible example of this, okay, take the Second Amendment, okay? Do you think that in this world where there's no Section 230 that Republicans are still gonna be able to have conversations online about, say, gun enthusiasm? No way. No. Because every time some harm happens, every time there's a shooting of some kind, a plaintiff's lawyer- A lawsuit, yeah. ... a plaintiff's lawyer is gonna sue not the person who posted the content talking about how much they love their guns and, you know, and it, look, it could be- Yeah. ... totally innocuous, okay? It could be a, a forum on Facebook or Reddit where people are just having conversations about gun safety. Or gun reviews.

Chamath Palihapitiya 35:24 Or gun reviews.

David Sacks 35:25 Gun reviews. Reviews. Yeah. Could be totally innocuous conversations, okay? People having the right kind of conversations about guns, okay? But you know that every one of those websites that hosts those conversations will be targeted in relation to any harm that occurs in the real world. And very soon, Reddit and Facebook and all the rest will feel compelled to ban any conversation- Yeah. ... related to even Second Amendment rights, okay? Yep. This is where it will lead if Republicans get rid of Section 230. You will be the ones targeted, not, not liberals. All right. Great discussion. Uh, you know, it's important to have the right discussion. This reminds me of the abortion discussion where nobody would ever talk about the number of weeks. Like, that's at the core of the issue. If we could agree on the number of weeks, if we can agree on the age here, you know, for, for kids to, to use these things, maybe we can move forward. Let's move forward on the docket here. We got so much to talk about, and I think

David Sacks 36:19 the number one story of the week was Elon's pay package and this ruling that occurred in Delaware. Let me just tee this up here. Many of you probably know about this already, but in 2018, Tesla's board approved a performance-based compensation package for Elon.

Jason Calacanis 36:35 It was approved by 73% of shareholders. Elon and his brother, Kimbal, would have put that at 80%, but they were excluded obviously. This is lower than maybe some other support levels. According to Reuters, you typically see s- 95% for a executive compensation packet. But this one was very unique. It was all stock. There's no cash bonus, no salary. 12 tranches of stock. It was very creative in, in how this was put together because Elon got nothing if he doubled the value of Tesla, but then if he, you know, increased the value of the top line revenue and the market cap increased by $50 billion, he got 1% more of the outstanding shares, which is an amazing deal (laughs) for shareholders obviously, because the market cap on the company went up 50 billion. The initial plan was on- only worth about 2.6 billion, but since Tesla crushed it from 2018 to 2023, we'll throw up a chart here, it's one of the great runs in the history of capitalism, how revenue ha- and sales grew at this company. So, it made it the largest comp package in the history of public markets. And if you compare Tesla to Apple, the second highest increase in stock price during that same time period, Apple went up 345%. Tesla went up 800%. In 2018, a Tesla shareholder sued Elon and Tesla's board, claiming the pay package was unfair. The guy had nine shares, a full nine shares, not 10, nine, worth $2,500. His stake went 10X in those six years, so he made a fortune on that bet. And then on Tuesday, a Delaware judge voided Elon's pay package, siding with the investor. Elon can appeal it to the Delaware Supreme Court. Sax, your thoughts on this ruling? I teed it up. I think I got all the details in there.

David Sacks 38:16 Yeah.

Jason Calacanis 38:16 If I missed any, please add them.

David Sacks 38:19 Well, I think i- in order to reach this ruling, the judge had to find three things, and all of them had to be the case in, in her opinion. Number one, that the pay package was excessive. Number two, that the process by which they came up with the pay package was not fair, meaning it was not sufficiently adversarial enough that the directors, in her opinion, had too many ties to Elon, and didn't, again, take enough of a antagonistic role in negotiating that package. And number three, and I think most importantly, that the shareholder vote was invalid, because even if the first two had been true, the shareholders approved it, and that would have been good enough, but she said that the shareholders weren't sufficiently informed. And specifically, I think this argument hung on a few internal emails where people said that they thought that they could hit the numbers. I think that of the three legs of this, well, all three have been challenged by opponents to this verdict. I mean, number one, yes, the pay package ended up being a gargantuan amount, but you have to look at it ex-ante, not ex-post. Nobody thought Elon could hit all these numbers, uh, back at the time this package was negotiated.

Jason Calacanis 39:28 Let's be frank, it was absurd, the idea that he would 10X. It was crazy.

David Sacks 39:33 There's a great clip with Andrew Ross Sorkin where they're all laughing at the idea that he's gonna hit these numbers. Remember, this was at a time when Elon was going through what was called production hell, where he was sleeping on the floor of the factory.

Jason Calacanis 39:42 Model 3. Yeah, I was there. (laughs)

David Sacks 39:43 The Model 3 hadn't come out yet and nobody, nobody believed that the Model 3 was gonna be the hit that it was. In fact, all the stories were pooh-poohing that idea and basically saying that Tesla is basically screwed because they can't get the production line working correctly.

Jason Calacanis 39:56 Yeah.

David Sacks 39:56 You want to play this?

Narrator 39:57 Tesla now announcing a radical new compensation plan. It could be, perhaps, the most radical compensation plan, uh, in history. The executive will receive no guaranteed compensation of any ti- of any kind at all. He gets no salary, cash bonus, equity. Uh, he only gets equity that, that vests over time, but only if he reaches, uh, these hurdle rates, which are, dare I say, crazy.

David Sacks 40:19 The only part of it that I think is really relevant is where Sorkin says that the milestones are crazy, meaning that everyone thought it was a pipe dream that the company would ever hit these numbers. Okay? So, that's point number one on, on magnitude. On the second part of the ruling about the process, it is true that like in most venture-backed startups, there's a longstanding relationship between the founder and the investors because they work collaboratively to try and make the company a success. There were emails that came out where Elon shows that, "I'm not trying to go for the maximum here." So, you know, did, did the investors go in with a hostile, antagonistic attitude that, "We're going to try and pay you the least?" No. But did Elon go in with the attitude that, "I'm going to try and take the most"? No. The e- the email showed that.

Jason Calacanis 41:06 Yes.

David Sacks 41:06 What they tried to do was come up with something that they thought was fair, that would fairly reward him for outsized performance. And if he had merely increased the cu- the value of Tesla from 59 billion to 100 billion, he would have gotten nothing. Let's just keep that in mind. So, they tried to come up with something that would reward him for outsized performance and give him absolutely nothing for merely decent or good performance. The third point about the shareholder vote, I don't think that there was anything about the shareholder vote that the shareholders didn't know. I don't think that the company didn't release a f- Elon always said, "Yeah, we're gonna do this. We're gonna be one of the most valuable companies in the world." He's always been super optimistic about their ability to reach these targets. But if you looked at all the Wall Street analysts, including Sorkin there, they thought that these targets were unreachable.

Jason Calacanis 41:58 Well, also to add to that, Sax, (laughs) this had the largest short position, I believe, at that time of any company ever. People were betting with their dollars that this company was going to zero. There were a ton of people who the narrative was this, they'll never deliver the Model 3. It was two years late, right? Or something in that range. It was... They, they kept trying to get the Model 3 out. It was taking forever. So, yeah, it's, it, it's absurd. Also, in that case, Sorkin said in that same clip, "There's been a lot of speculation of Elon stepping down after the Model 3 is in production." In the judge's ruling, she said the exact opposite. "There is no reason to believe Elon will leave." Except that he was running (laughs) like two or three other companies. There w- it was actually quite possible that he would leave. He never wanted to be CEO of Tesla. People fo- forget that too. He had tried three CEOs of Tesla and he only took over Tesla...And I remember it was because he said, "Jason, this thing's gonna fail if I don't take it over." He, he tried three different CEO- E- CEOs in the beginning. People forget that fact.

David Sacks 42:53 And there was scuttlebutt that he would hire somebody. I remember there was, like, rumors about Sheryl Sandberg maybe getting offered-

Jason Calacanis 42:58 Yeah.

David Sacks 42:58 ... the job or something like that. I remember he was, he was going through production hell. He was sleeping on the factory floor.

Jason Calacanis 43:04 Yeah.

David Sacks 43:04 And he was talking in interviews about how miserable his life was at that time. I mean-

Jason Calacanis 43:07 Can confirm.

David Sacks 43:08 Yeah, exactly. So look, did he have leverage to basically say, "You know what? Let's just hire a CEO"? Yeah, absolutely.

Jason Calacanis 43:15 Okay, Chamath, any, uh, steel man you can do of the other side here? Like, as an investor, public market investor sometimes, when you saw that pay package, what did you think? And I, I, I don't know if you were a shareholder of Tesla at the time or not.

Chamath Palihapitiya 43:27 In the mid teens, I started investing in public s- stocks as well as private tech companies. And I got invited to give a presentation at the Ira Sohn Conference, which is, like, the most pre- prestigious conference of public market investors. You, in May, you show up at, um, Lincoln Center, and everybody in the audience is paying, like, 10,000 bucks a ticket or something. And all the proceeds go to, uh, uh, a foundation in support of this gentleman, Ira Sohn, who passed away. But in any event, it's like Ackman, Tepper, Einhorn, and I picked Tesla. And I was a very big supporter in many ways, and still am. And I think that I knew the company, frankly, better than most people, except for him obviously. But I think that I studied this company quite deeply. When I s- And, and I'm just setting the context. When I saw the pay package, I thought, "He's making a mistake. This is unachievable." I thought the probabilities were in the low single digits, and then he did it, which just kinds of sh- shows how incredibly adept he is as a CEO and a manager and an executor. So then, you know, to go back five or six years later, after he actually does something that so massively disproportionately positively impacted investors, and then to just rescind it and unwind it, I think is really un-American and unfair. And I think it sets a very poor standard for why anybody should actually build a company governed in Delaware. It makes no sense anymore. And just to give you that example, he, he and I have both now done this, but, like, these incremental companies that I've started are in Nevada. They're in different places because I find the Delaware court slightly and increasingly unpredictable and acting with other mandates that they weren't ever given. So you had-

Jason Calacanis 45:33 What do you think that mandate is?

Chamath Palihapitiya 45:35 You had a place where there was highly predictable governance, and they had very narrow ways in which they would act and opine. And I think in a situation like this, where you had every opportunity to actually vote this thing down, and what little of the documentation that I saw about the communication back and forth doesn't seem to support this theory that he rammed it through. Nobody rams anything through over nine months, where he takes month-long breaks and he tells the GC, "This is actually more than I wanted." (laughs) Nobody does that-

Jason Calacanis 46:11 Yeah.

Chamath Palihapitiya 46:11 ... if you're ram- It's the opposite of ramming something through.

Jason Calacanis 46:14 Right.

Chamath Palihapitiya 46:15 It was, and, and I suspect if you really asked him, and I haven't but I would, he probably thought it was, like, largely crazy. And so I think a lot of people thought that we, that we were, as shareholders, and I'll tell you that I felt this way, getting his hard work and that he may have just mathematically been mistaken. So yes, he got 55 or he- that package is worth 55.8 billion, but you're missing the point where every other investor made $500 billion. Right?

Jason Calacanis 46:45 Yeah.

David Sacks 46:46 And the investors-

Chamath Palihapitiya 46:46 And so-

David Sacks 46:46 ... the investors did approve it.

Chamath Palihapitiya 46:48 It will have a chilling effect, I think, in how people think about compensation. It will cause companies to be even more constipated and sclerotic and unimaginative as a result of this. Because the most talented individual entrepreneurs now have even more of an incentive for incorporating in other places and also staying private. And I think what that deprives is the broader shareholders, including this gentleman. Look, we live in America. He had the right to sue. He had nine shares, and he was able to bring this lawsuit. Nine shares.

Jason Calacanis 47:26 I mean, David and Goliath, yeah. I mean, the idea that someone with nine shares could 10X their money could do this is-

Chamath Palihapitiya 47:30 But what he doesn't-

Jason Calacanis 47:31 ... unimaginable. Yeah.

Chamath Palihapitiya 47:32 But, you know, I, I don't, I don't know if he remained a shareholder through this whole period, but even those nine shares 10Xed in value.

Jason Calacanis 47:40 Yes. (laughs) Yes.

Chamath Palihapitiya 47:41 But he would now be deprived of that in this next iteration of Elon Musks, because why would they ever go through this? To put that much work into something, to be so at risk personally, your own mental and physical health, we saw him in those periods, and then to have it taken away, I think is deeply, deeply unfair.

Jason Calacanis 48:02 Sacks.

David Sacks 48:03 You're right. This, this deal was a win-win. I mean, if Elon could achieve these numbers, it was good for him and it was great for shareholders. And that's why I think the key point is that 73 or 80%, depending on how you wanna count it, approved this deal. I think they knew everything relevant that they needed to know and they approved it. This is the deal that most shareholders in most companies would want for the CEO. The deal is you get nothing unless you deliver an outsized return for shareholders. Most CEOs won't sign up for this deal.

Jason Calacanis 48:36 Hm.

David Sacks 48:36 Most CEOs work their way up through the corporate ladder, they get into the CEO chair, and then they pay themselves huge amounts of money regardless of whether the company succeeds or fails.And that's the deal they want because they don't really have confidence in themselves to deliver what Sorkin called the crazy outcome. Elon had the confidence in himself to deliver the crazy outcome, and nobody was really complaining about this until, like you said, this small shareholder who's really basically just, you know, a name plaintiff for the trial lawyers bar or somebody-

Jason Calacanis 49:08 Yeah.

David Sacks 49:08 ... who wants to get Elon br- to bring this suit.

Jason Calacanis 49:12 6% to create 600 billion in value. I mean, (laughs) it's quite a bargain, folks. And I think if you went to Ford or GM and said, "Hey, would you like Elon to be your CEO?" I think they'd offer him half the company.

David Sacks 49:24 Mary Barra doesn't want this deal.

Chamath Palihapitiya 49:25 Yeah, no, J Cal Sacks said something really important that you just mentioned as well, which is that if you actually look at the average compensation plan of most public company CEOs, it actually is very much counter to shareholder value. I'll give you one simple example. If you look at the number of, of CEO comp packages that are tied to earnings per share growth, but then if you actually look at how these CEOs achieve their EPS targets-

Jason Calacanis 49:50 (laughs) Yeah.

Chamath Palihapitiya 49:51 ... they do it by raising debt, so indebting the company, right, increasing the enterprise value by, by loading the company up with debt, and then driving repurchase plans.

Jason Calacanis 50:01 Yeah.

Chamath Palihapitiya 50:01 And what, what do those do? I mean, look, if you look at Disney, where do their repurchases come from? From debt. So does debt help an equity shareholder? It categorically does not. Under no world does it do that. However, for the CEO and for the handful of investors that, that can hold on for long periods of time, what have you, they benefit from a lower share count, they benefit from increased EPS, and then the CEO gets compensated. And so to say that tacitly, what you disapprove of are performance incentives, and what you are actually approving of are mechanics that saddle a company with debt and allow basically gaming of numbers is what you've implicitly also said. And this is where I think the Delaware court used to be known for a level of intellectual clarity that would have prevented that implicit assumption. But that's now what's left on the table, and I think it will have a ripple effect across how so many other companies-

Jason Calacanis 51:02 Oh, 100%.

Chamath Palihapitiya 51:02 ... design, design their compensation plans, how CEOs think about risk. No CEO, as Sacks said, will ever want an incentive-laden plan like this, ever. They will want to get-

David Sacks 51:13 Right. Because 10 years later, you could do all the work, and then it gets canceled.

Chamath Palihapitiya 51:16 Canceled.

Jason Calacanis 51:16 So why would you take the risk? It's completely unfair, yeah.

Chamath Palihapitiya 51:17 They will want something that is totally gameable, right, where you'll have 90-plus percent support and approval because of how vanilla and benign it is on the surface, but it will actually be quite a terrible plan underneath the surface, and what I mean specifically are these EPS targets for CEOs. So Elon did the one thing that was crazy, which was, "I'm just gonna do it based on pure profitability and performance," and he gets punished, and all these CEOs in this other class who were like, "Let me saddle these companies with debt that actually undermine shareholders" have been rewarded.

Jason Calacanis 51:54 There is already a mechanism for somebody who disagrees with a comp package. This person who owned the nine shares could have sold their shares. It's a liquid market. At any point in time, that person could say, "I don't agree with this. I'm taking my nine shares and $2,500. I'm gonna put it in Apple. I'm gonna put it into..." "I like Tim Cook's pay package better. I like Benioff's package better, and I'll make my bet there."

David Sacks 52:13 Yeah, yeah.

Jason Calacanis 52:13 The person had choice, yeah, Sacks? This person was not a victim. He's not a victim because he could have sold the shares and bought other shares, and he's not a victim because he 10Xed his shares and beat the market.

David Sacks 52:22 Yeah. I mean, look, I, I don't place the blame on the shareholder per se, because this is really about a judge's interpretation of Delaware law and what companies are allowed to do. So whether the shareholder was harmed or not or had one share or a million shares, that's just the way that this case gets into court. The question is the interpretation of Delaware law. And again, the part of this that I would go back to that, that I think was the mistake is that I think the shareholder v- vote was valid. Um, I think the process was valid as well. I don't know that the process has to be this extremely adversarial process where one side's pulling for the most and one side's pulling for the least. I don't think either side operated that way. But again, I think shareholders knew what they needed to know, and the evidence of that is in all of the public coverage at that time, nobody thought Elon was getting a good deal, right? No one thought he was getting an excessively good. They thought he was getting a delusional deal, meaning delusional for him. And everybody seemed to be okay with the idea that if somehow Elon could pull off this miracle, that he would be entitled to this compensation, and he would get nothing if he didn't. Now, again, I would go back to do you think Mary Barra would have wanted this deal? While Elon was spending the last five, six years making Tesla go 10X, let's look at GM. GM's stock price was trading more or less in a flat range. I don't even think the share price doubled. (laughs)

Jason Calacanis 53:53 Yeah, put compare to. You see the Compare To button there? Put compare to, and then put Tesla in there.

David Sacks 53:58 Right. So if Mary Barra at GM had signed up for that comp package, she would have gotten absolutely nothing, which is why I'm sure that the thought never even crossed her mind of having an all incentive-based comp package that doesn't even start until you at least double the value of the company. By the way, on those milestones, it wasn't just the share price. It was share price and revenue or profit targets being met. So in other words, if the stock just rallied because of macroeconomic conditions, like for example, interest rates go down, and then all of a sudden, the whole stock market goes up, that was not good enough. It was also tied to the combination of stock value increases with revenue and profit targets being met. It was a comp package that couldn't be gamed. I mean, you have to hit the numbers in order to get the, the comp package, and that's what she got. And I don't wanna pick too much on Mary Barra here. I guess I'm picking her out because Joe Biden said that she created the EV revolution.

Jason Calacanis 54:54 Yeah, well done.

Chamath Palihapitiya 54:55 (laughs)

Jason Calacanis 54:55 They sold 17 cars. I think they canceled the car.

Chamath Palihapitiya 54:59 Yeah.

Jason Calacanis 54:59 Congratulations.

Chamath Palihapitiya 55:00 I mean, by the way, there was, there was a remarkable article in The Wall Street Journal just in December where they finally admitted that this whole idea that GM had been leading any kind of revolution or had been a transformational company was revealed as basically a ruse. But look, you have to wonder how much of this is political. I mean, Delaware is Joe Biden's state, he's the senator.

Jason Calacanis 55:23 Uh-oh.

Chamath Palihapitiya 55:23 There were articles describing how this judge was connected to a law firm that had helped Joe Biden get elected, and you just kinda wonder whether Biden's directive from the White House podium that, "We gotta get this guy," or, "We gotta look into this guy, that he's an enemy," which has been reflected through all of these different administrative agencies' sudden actions against Elon's companies, for the glass house-

Jason Calacanis 55:50 Starlink and the FCC.

Chamath Palihapitiya 55:52 Yeah, there's been a whole bunch of these issues and you just wonder, is this another manifestation of that?

Jason Calacanis 55:58 Yeah. I, I mean, the, the, the conspiracy theories are quickly becoming closer to reality, uh, and, uh, we definitely need to investigate that, uh, for sure, because the FCC thing is crazy. Spending $15,000 putting fiber into people's homes when you could spend $1,500 giving them Starlink makes no sense. And then the same people who have to wait for fiber, talked about this on a previous episode, they're just gonna get Starlink anyway. They're gonna buy Starlink while they're waiting for the government fiber for 10 years. It's absurd.

Chamath Palihapitiya 56:27 I do wanna up-level this just back to what I was saying.

Jason Calacanis 56:29 Yeah.

Chamath Palihapitiya 56:29 And I, and I'll try to, I'll try to make the point better. I think, I think it's really, really unfair what's happening to Elon, but I, I wanna take a step back and think about just the bigger picture. If we want an economy of vibrant companies that do great things, we're gonna need to reward people to work at those companies. And in order for the United States to sort of continue to exert some amount of dominance in the areas that we think are important, we need to be economically vibrant, right?

Jason Calacanis 57:04 And fair.

Chamath Palihapitiya 57:05 And fair. And the problem is that this really perverts incentives and it's gonna exacerbate a trend that I think has actually held a bunch of our companies back. So, the first thing I just wanted to show you guys was just this little thing that, it's just a pie chart that shows, okay, how do CEOs get paid, right? So-

Jason Calacanis 57:22 Hmm.

Chamath Palihapitiya 57:23 ... we want CEOs to go and run really important companies, right?

Jason Calacanis 57:28 Mm-hmm.

Chamath Palihapitiya 57:28 We want those companies to do great things in the world. We want these CEOs to be deeply motivated to go and push the boundaries of what's possible, right? We want all that. And so we wanna compensate them to do those things. This is just a representation of how CEOs have structured their pay packages. And you'd say-

Jason Calacanis 57:44 Okay.

Chamath Palihapitiya 57:45 ... "Wow, all of these numbers seem reasonable." Return on capital, total shareholder return, earnings per share. So, what you need to do then is double-click into this, right? So this is how CEO pay packages are made, but the problem is, and Jason, this is my problem with a bunch of these companies-

Jason Calacanis 58:02 Yeah.

Chamath Palihapitiya 58:03 ... that all of the returns, all that shareholder return that you saw, the return, it's all driven by share buybacks.

Jason Calacanis 58:09 Yep.

Chamath Palihapitiya 58:10 This is an artificial gamesmanship of performance. This is not companies pushing the boundaries, you know? This is not Disney figuring out how to-

Jason Calacanis 58:17 It's not innovation.

Chamath Palihapitiya 58:19 This is, this is Disney-

Jason Calacanis 58:20 It's not M&A. Yeah.

Chamath Palihapitiya 58:21 This is Disney creating foot faults and falling into potholes of their own making. But you can drive great compensation because you can game the way that you are paid. This doesn't make America great. It doesn't create American exceptionalism. In fact, it just creates a bunch of financial engineering that results in marginal companies, and David just gave an example of one that could be considered that. So the point is that when you have one person that tries to buck this trend, I just think it has a huge impact by basically saying, "Hey, play the game like everybody else. Just game it. Just dial it in from your country club. Make sure that you become a member of Augusta. That's more important to us than actually sleeping on the factory floor."

Jason Calacanis 59:10 And don't take risk. I mean, if you think about what do you do if you're Apple, you're Google, you're Microsoft, you're sitting on tons of cash. The safe thing to do-

Chamath Palihapitiya 59:18 You see what they do.

Jason Calacanis 59:19 ... you just buy back the shares.

Chamath Palihapitiya 59:21 Wait, hold on.

Jason Calacanis 59:21 Just buy back the shares. You can't do M&A.

Chamath Palihapitiya 59:23 You issue debt.

Jason Calacanis 59:24 Yes.

Chamath Palihapitiya 59:25 And then you buy back the shares.

Jason Calacanis 59:26 Arbitrage.

Chamath Palihapitiya 59:27 You encumber the shareholders with debt and then you artificially inflate total shareholder return and earnings per share and the return on invested capital because of how we can play these games in America. So, right now, what we are doing is we are not motivating CEOs to run great companies. We're motivating CEOs-

Jason Calacanis 59:47 And to take risks, to innovate.

Chamath Palihapitiya 59:48 ... to understand financial arbitrage. The result will be crappier companies that diminish American exceptionalism. That is the only outcome.

Jason Calacanis 59:58 Perfectly said, and there, and there really are two caveats there. Number one, we have to let M&A occur as well because that's a better thing to do in some cases with this, um, with this excess capital, profits people have sitting there. And the only time really to buy shares back is when you think they're undervalued. You would agree, Sharma-

Chamath Palihapitiya 1:00:12 Well, to your point.

Jason Calacanis 1:00:13 Yeah.

Chamath Palihapitiya 1:00:13 I actually think you're absolutely right. If you have a bunch of CEOs that don't know what they're doing, which is what these charts kind of show, let them buy whatever they want 'cause you're gonna screw it up, and that's fine for us anyways. Well, so we-

Jason Calacanis 1:00:22 Yeah, it's great for fluid marketplace.

Chamath Palihapitiya 1:00:25 The CEO that you don't wanna have be able to buy companies is the actually motivated one (laughs) to get paid-

Jason Calacanis 1:00:31 (laughs) .

Chamath Palihapitiya 1:00:31 ... when things go really well and to be, you know, to be more profitable, so that would be the CEO where you would be scared, "Oh, my gosh. More M&A for that person may be bad."

Jason Calacanis 1:00:39 Yes.

Chamath Palihapitiya 1:00:40 But more M&A for these CEOs is, who cares?

Jason Calacanis 1:00:42 Yeah. Microsoft starts buying a bunch of stuff, Google starts buying of stuff at their primes. Man, that's scary, right? When Bill Gates went on a heater, he bought, I think he bought PowerPoint, a bunch of the suite was bought, not created. And then Google and Facebook, man, they went on heaters. YouTube, Instagram, WhatsApp, and that was the golden age of M&A. All right, we got a couple more things on the docket I wanted to touch on.

Chamath Palihapitiya 1:01:03 Oh, can I just... I just found these stats.

Jason Calacanis 1:01:04 Yeah, of course. Go ahead, Sax. Great conversation.

Chamath Palihapitiya 1:01:06 So just while we were talking, I just looked up what Mary Barra's compensation was over the past-

Jason Calacanis 1:01:11 Oh, okay.

Chamath Palihapitiya 1:01:11 ... several years.

David Sacks 1:01:13 And according to the source, she was paid $167 million for four years. So while-

Jason Calacanis 1:01:19 Okay.

David Sacks 1:01:19 ... Elon got zero, thanks to the judge's decision, Mary Barra, basically if you add in probably the fifth year, let's call it roughly $200 million of compensation over the last five years. Now look at the stock chart of GM. Literally the s-... It is the same price today as it was five years ago. It's $38-

Jason Calacanis 1:01:38 (laughs)

David Sacks 1:01:38 ... a share today. It was $38-

Jason Calacanis 1:01:40 (laughs)

David Sacks 1:01:40 ... a share five years ago.

Jason Calacanis 1:01:41 No, but it's worse. It's probably worse because they've issued options since then, so there's dilution. You have to take into account.

David Sacks 1:01:45 Right.

Jason Calacanis 1:01:46 So it's, it's worse than that, actually.

David Sacks 1:01:48 But at best, the stock price is flat, and-

Jason Calacanis 1:01:50 Yeah.

David Sacks 1:01:51 ... the stock basically fluctuated in line with market trends. When there was an asset bubble in 2021, the, the share price went up about 50%, and she got even more stock and options during that time. But it was, it was a no-lose proposition basically. She got paid regardless of how the stock did. And then when there was simply market volatility, she did even better. One of the nice things about Elon's package is that unless Tesla at least doubled in value, he would get nothing, and it was tied to milestones around revenue and profit. So he couldn't just ride market volatility-

Jason Calacanis 1:02:25 No.

David Sacks 1:02:26 ... to getting more comp.

Jason Calacanis 1:02:27 If you gave this executive the same deal as Elon, she would have had to double 38, so, you know, she would have had to get to $76.

David Sacks 1:02:37 About $80.

Jason Calacanis 1:02:37 Yeah.

David Sacks 1:02:37 Call it roughly 80 bucks a share.

Jason Calacanis 1:02:38 Yeah. She, she would have to get to 80 bucks a share before she got anything. I bet you if she got zero, she got paid $1 and her healthcare and she had to get to $80 a share, I bet you that would be an $80 stock price.

David Sacks 1:02:48 Well, I don't, I don't know if she has the ability to engineer that outcome, but I doubt, I doubt-

Jason Calacanis 1:02:54 Oh, oh, so she's... you're saying she's unqualified?

David Sacks 1:02:57 No. Well, the Wall Street Journal said it. The Wall Street Journal just had this-

Jason Calacanis 1:03:00 Yeah.

David Sacks 1:03:00 ... ten-year look-back-

Jason Calacanis 1:03:00 No, that's my point. This-

David Sacks 1:03:01 ... where they said that she failed.

Jason Calacanis 1:03:03 They, they're, they're hiding the incompetence then.

David Sacks 1:03:06 But the point is-

Jason Calacanis 1:03:06 Yeah.

David Sacks 1:03:06 Well, look. I mean, I don't wanna say she's incompetent. I just wanna say that the stock price is the same. The Wall Street Journal had an article talking about all her-

Jason Calacanis 1:03:12 And she swept $200 million.

David Sacks 1:03:13 All her transfer... All of her transformation initiatives have failed. She swept roughly $200 million over just the last five years. I think she's been there ten.

Jason Calacanis 1:03:19 So how is she in charge?

David Sacks 1:03:20 So she's probably made several hundred million dollars, and the company hasn't created any value for shareholders.

Jason Calacanis 1:03:27 So how is she still in charge?

David Sacks 1:03:28 Because Jason, this is the way the Fortune 500 works. It's a country club, okay? Who gets appointed to these companies? These companies are not run by founders. They're not even run by VCs who have serious skin in the game, the kind of directors that this judge didn't like, okay? It's run by people who play the game. They basically are on other boards, and it's basically a back-scratching club. And they choose the CEO. They choose someone who's politically savvy, who's worked their way up through the system-

Jason Calacanis 1:03:58 Hmm.

David Sacks 1:03:58 ... who donates to the right people, who can get Joe Biden to come to a factory and talk about how-

Jason Calacanis 1:04:03 Hmm.

David Sacks 1:04:03 ... great they are, and, and hold an EV summit at the White House and invent this, this fiction that they were responsible for this innovation. This is basically how the system works.

Jason Calacanis 1:04:12 So corrupt.

David Sacks 1:04:13 I'm glad that women have been admitted to this country club. It is still a country club. It is still a back-scratching club. It is-

Jason Calacanis 1:04:21 Hmm.

David Sacks 1:04:21 ... basically a collection of people who don't create any value, but pay themselves enormous amounts of money, hobnob with the right people, and work their way in with the powers that be at the White House, who then talk about how great they are while actually accomplishing nothing.

Jason Calacanis 1:04:35 Nothing. 0.0.

Chamath Palihapitiya 1:04:36 I think the common through line in these two conversations we've had this morning is about just how capitalism can be perverted, if you will, by a small group of actors. In the first example, I think what we were talking about is the Trial Lawyers Association and their ability to impact and influence what is gonna happen around Section 230. And in this example, I think what it speaks to is the influence that a small group of consultants can have in having built a very thriving business in designing these compensation plans for CEOs. And it reminds me of a, of a clip of Buffett and Munger. And Nick-

Jason Calacanis 1:05:18 Yeah. (laughs)

Chamath Palihapitiya 1:05:18 ... if you just wanna play it. I think they say it in very clear, plain English. And not to debate their opinion, just to state it, but Nick, if you wanna play it.

Warren Buffett 1:05:24 We do not bring in compensation consultants. We don't have a human relations department that... We don't have a... We don't... At, at headquarters, as you can see, we don't have any human relations department. We don't have a legal department. We don't have a public relations department. We don't have an investor relations department. We don't have those things, uh, 'cause they make life way more complicated, and everybody gets a vested interest in going to conferences and calling in other consultants, and it takes on a life of its own.

Charlie Munger 1:05:48 Well, I would rather throw a viper down my shirt front than hire a compensation consultant. Um...

Narrator 1:05:58 (laughs)

David Sacks 1:05:59 (laughs)

Chamath Palihapitiya 1:06:00 (laughs)

Warren Buffett 1:06:00 Tell me which kind of consultants you actually like, Charlie (laughs) .

Narrator 1:06:04 (laughs)

Chamath Palihapitiya 1:06:04 Oh, man. Waldorf and Statler, you know, from, uh, The Muppet Sachs. (laughs) They remind me of-

David Sacks 1:06:10 Yeah.

Chamath Palihapitiya 1:06:10 ... Statler and Waldorf.

David Sacks 1:06:11 Well-

Chamath Palihapitiya 1:06:12 Hilarious.

David Sacks 1:06:12 Yeah. Well, you mentioned-

Chamath Palihapitiya 1:06:14 Grumpy. (laughs)

David Sacks 1:06:15 You mentioned this is a problem in capitalism. I think there's two kinds of capitalism, broadly speaking.

Chamath Palihapitiya 1:06:19 Hmm.

David Sacks 1:06:19 There's crony capitalism and there's risk capitalism. Risk capitalism is the founder who starts with nothing but an idea along with the investors who are willing to write a check, knowing that nine times out of ten, it's gonna be a zero. But maybe in that one out of ten chance, it's gonna be an outsized return. That is true risk capitalism. Everyone has skin in the game. They work together, entrepreneur, board members, to try and create a great outcome, and they work out an arrangement where everyone benefits. It's a win-win-

Chamath Palihapitiya 1:06:50 Hmm.

David Sacks 1:06:50 ... situation. Okay? That is risk capitalism. That's the part of our economy that drives all the innovation, all of the progress, all of the job creation. Then you got crony capitalism. You got these companies, they've been around for 100 years. The value was created by people long dead, and it is now managed by both directors and professional managers who work their way up through... They go to, like, the right business schools, and they join the right organizations, and they donate to the right politicians. And they-... somehow engineer a situation where they get in control, and then they pay themselves as much comp as they can possibly justify, whether or not they create any value for the shareholder. That's what we saw at GM.

Jason Calacanis 1:07:31 Hmm.

David Sacks 1:07:31 And that's crony capitalism. And, you know-

Jason Calacanis 1:07:34 Yeah.

David Sacks 1:07:34 ... while they're doing it, the president's son is probably gonna figure out a way to take a nice big chunk out of it too.

Jason Calacanis 1:07:40 Hmm.

David Sacks 1:07:40 Okay?

Jason Calacanis 1:07:41 Uh-oh.

David Sacks 1:07:41 That's, that's the system that we have.

Jason Calacanis 1:07:43 Cain Ko the Great, here we go. (laughs)

David Sacks 1:07:45 Now, which of these two systems receives the brunt of the criticism by the mainstream media? Who is attacked and who is-

Jason Calacanis 1:07:55 Yeah.

David Sacks 1:07:55 ... celebrated? Okay?

Jason Calacanis 1:07:58 Yeah. Here we go. There's your rant.

David Sacks 1:07:59 I've seen a zillion attacks on Elon Musk. I saw one article pointing out that all of Mary Barra's transformation at General Motors was a failure, created no value for shareholders, and the whole thing was basically a fraud.

Jason Calacanis 1:08:12 Yeah. But how's the union doing, and how did the union vote?

David Sacks 1:08:14 One article. And I'm f- frankly shocked that The Wall Street Journal even ran that article.

Jason Calacanis 1:08:19 Yeah. Okay. Yeah. And how did the union do, and, and who did the union get behind and vote for? Yeah. Let's, maybe we double-click on a couple of items there and

Jason Calacanis 1:08:26 see. All right, listen, I wanted to go over one more thing. We're, we're cooking with oil here, and, uh, I just wanted to talk a little bit about IPOs possibly coming back. Uh, I just interviewed, uh, Alexis Ohanian, the founder of Reddit, which according to Bloomberg, they've been advised by potential IPO investors to target a $5 billion valuation. They're gonna go public possibly in March, which is wild. That's only a couple of weeks away. In peak ZIRP, Reddit had raised at a $10 billion valuation. That was back in 2021. They were valued at 15 billion in the secondary market. That's where people, like previous employees, angel investors, et cetera, might trade their shares. And so if it goes out at five, it's gonna be between a 50% to their tear cut, and it is trading at 4.5 billion. Chamath, we talked about this a bunch, uh, the down run, IPOs, Instacart, I think, being the, uh, best example. They got out, but they've been hovering at a really low number for a long time, and people have been talking about them possibly being a takeout candidate by DoorDash or Amazon or Uber. So, your thoughts on the, the Reddit IPO news?

Chamath Palihapitiya 1:09:30 I think that if I had to price the IPO, I would be modeling two important levers in the business. The first is, what is the actual attainable revenue from my audience? And so-

Jason Calacanis 1:09:46 Mm-hmm.

Chamath Palihapitiya 1:09:47 ... what is the ARPU of the average Reddit user? And-

Jason Calacanis 1:09:52 Hmm.

Chamath Palihapitiya 1:09:52 ... you can model it as a distribution, and I think Facebook has the best data because they've been publishing it w- in their quarterly returns for a very long time now, for over a decade, which is, there is a distribution of value of a Facebook user economically, right? At the upper end, you have the folks that are on Facebook proper in America, in a certain age band, in certain states, that are probably like 30, 40, $50 ARPUs, all the way down to, in div- in developing countries, those users are worth low single digit dollars economically. And I think that people will have to very much understand what is the average Reddit user and what is the distribution of economic value that they represent? That's the first thing. And I think that that's really the thing that will determine whether it's worth five billion or 10 billion or frankly two billion. And then the second key lever, i- it will be the risk factors in the IPO, because where the shareholder lawsuits will come from, which will really dictate if, if the, how the hedge fund community buys this thing, is gonna be the potential for my ad ran against content that is deeply offensive to me, that whole construct. And I think that they are going to have to very carefully ring fence that liability to get this IPO to be successful, but also for them to execute a scaled ad revenue business.

Jason Calacanis 1:11:20 Hmm.

Chamath Palihapitiya 1:11:20 And not spending enough time on Reddit, I don't know how bad of a problem this is. I don't think it's 4chan or 8chan as an example, but I also don't think it's Facebook and Instagram. And so it's-

Jason Calacanis 1:11:32 Yeah.

Chamath Palihapitiya 1:11:32 ... kind of somewhere in the middle. And I think that those risks are really what's gonna determine its terminal valuation.

Jason Calacanis 1:11:37 You nailed it. They, they have always been under-monetized. $800 million in revenue reportedly and 400 million monthly active users, so two bucks a user compared to (laughs) you know, 20, 30, 40 for the prime users in, uh, on Facebook's network, so it's totally under-utilized. Part of it is, it's a little bit of spicy content. Part of it is that that's the number including all the international u- users. Of course, Sax, there is this concept that Reddit has the greatest pool of data for large language models and, um, you know, a lot with something like, say, Quora, maybe YouTube amongst the great pools of data. So I think there's a play here with that. They have talked about they wanna get paid for licensing, and that if you wanna use their data for your language model, you gotta get permission. Your thoughts, Sax?

David Sacks 1:12:25 Sure. I mean, that's gonna be an incremental revenue source for sure. It's hard to know exactly how valuable that is, 'cause we're still in the early innings, but, um, I mean, they can definitely do something with that data. Grok's whole competitive advantage is having exclusive access to Twitter's data, which is updated in real time basically by hundreds of millions of users, so yeah, look, that data is, is valuable. We don't know how much. I guess the numbers I saw were that they're doing about 800 million of revenue, growing about 20% a year. The $5 billion valuation seems, I think, pretty good. I mean, is it down from 10 at the peak in 2021? Sure, but everything is down since that peak. I mean, that was definitely a bubble. I mean, I can tell you, we, we bought some shares as a late stage investment, I think in 2018 at a $2 billion valuation.

Jason Calacanis 1:13:10 Okay.

David Sacks 1:13:10 So, you know, at two and a half X in five years, I mean, it's not setting the world on fire, but it's not a bad outcome.

Jason Calacanis 1:13:16 Yeah.

David Sacks 1:13:17 And, you know, the investment bankers will n- know how to price this to take it out and make it successful.

Jason Calacanis 1:13:21 Yeah. And if it had a, if it was a, if it becomes a billion dollars in revenue and they have a 20% profit margin, 200 million-You could, you could start doing your back of the envelope math there for a 25 EBITDA, you know, 20 times price earnings ratio. So, it, it doesn't seem outrageous. It does seem like such a valuable and under- under-monetized, uh, asset. Do you think there is a likely acquirer here if you were to think about somebody who might wanna own this? Do you think it's a Microsoft for the data, Google for the data?

David Sacks 1:13:49 Yeah, I think there's probably people who would like to own this, but the problem is that... Well, two problems. One is they just can't get it through. We've talked about this before. The M&A window is even more closed than the IPO window, I would say.

Jason Calacanis 1:14:02 Yeah.

David Sacks 1:14:02 And the other thing is just because of the raunchy content and all of the brand issues that come with that, it's not clear to me that, let's say, a Microsoft would wanna own that headache. You know?

Jason Calacanis 1:14:14 Yeah.

David Sacks 1:14:14 They might not want to be hauled up in front of these congressional hearings that we talked about, these kangaroo courts, where it's very easy to go on Reddit and pick out, "Well, what about this post? What- what about that post?"

Jason Calacanis 1:14:23 Yeah. I see.

David Sacks 1:14:24 "Why did you let that one through? Why'd you let that one through?" Well, because it's a-

Jason Calacanis 1:14:27 Yeah.

David Sacks 1:14:27 ... it's a platform of user-generated content where hundreds of millions of people post, what, billions of items? And you can have the best content moderation policy in the world, there's always gonna be edge cases that get through.

Chamath Palihapitiya 1:14:37 I think that Reddit is the honeypot of, of edge cases.

David Sacks 1:14:40 (laughs)

Chamath Palihapitiya 1:14:40 It is the place you go-

Jason Calacanis 1:14:41 Yeah.

Chamath Palihapitiya 1:14:42 ... when you're just so disaffected that you can just let loose anonymously (laughs) . It's not-

David Sacks 1:14:46 Right. I mean, at a certain point, you have to, you have to realize that when people cherry-pick those edge cases, what they're really saying is, "A platform like this shouldn't exist."

Jason Calacanis 1:14:55 Yeah.

David Sacks 1:14:56 Right? Because there's no way to eliminate every-

Jason Calacanis 1:14:58 Yeah.

David Sacks 1:14:58 ... single one.

Jason Calacanis 1:14:59 Well, uh, which is basically like saying if you just take platform, you just take conversation, you're saying this conversation shouldn't be allowed to exist, and it's like-

David Sacks 1:15:05 They don't want user-generated content to exist. They don't want un- what... Remember what the New York Times called? Unfettered conversations.

Jason Calacanis 1:15:12 Unfettered conversations, yes.

David Sacks 1:15:13 They want controlled conversations.

Jason Calacanis 1:15:15 Yeah. Mm-hmm. Yeah. Pretty dangerous. Uh, uh, y- it just reminds me of... Remember that Bob Iger for, like, 10 seconds was actually considering Disney buying Twitter (laughs) ? Can you imagine-

David Sacks 1:15:26 Right.

Jason Calacanis 1:15:26 ... if they actually bought it, what would have happened (laughs) ? I mean, it would have been chaos.

David Sacks 1:15:32 Well, it would have been, it would have been content moderation on steroids, where-

Jason Calacanis 1:15:36 Yeah.

David Sacks 1:15:36 ... they would have massively empowered and scaled up content moderation even more than what Jack Dorsey's Twitter was doing, 'cause I think Jack actually... He was unable to operationalize his principles, but he did have principles in favor of free speech-

Jason Calacanis 1:15:47 Absolutely. Yeah, yeah.

David Sacks 1:15:49 ... to some degree. Whereas Disney, I don't even think has those principles, so-

Jason Calacanis 1:15:53 Uh, no, I mean they're-

David Sacks 1:15:54 ...