All-In PodcastE62: Elizabeth Holmes verdict, fraud origins & takeaways, navigating "The Great Markdown" & more
EVERY SPOKEN WORD
145 min read · 29,149 words- 0:00 – 3:14
Bestie intro and poker recap
- CPChamath Palihapitiya
Happy New Year.
- JCJason Calacanis
Happy New Year.
- CPChamath Palihapitiya
Happy New Year. Guys, listen. Look at- look at this.
- JCJason Calacanis
Happy New Year.
- CPChamath Palihapitiya
It's now, it's candle season.
- JCJason Calacanis
Oh, God. Look at the equanimity.
- CPChamath Palihapitiya
This is-
- JCJason Calacanis
Look at his equanimity.
- CPChamath Palihapitiya
This candle costs $24,000. It is an-
- JCJason Calacanis
(laughs)
- CPChamath Palihapitiya
... extremely rare Brazilian sandalwood. You literally have to go into the Amazon.
- JCJason Calacanis
(laughs)
- CPChamath Palihapitiya
And like, you know, you, you basically have to, like, I mean-
- JCJason Calacanis
Find distinct trees.
- CPChamath Palihapitiya
No, bro, you gotta, you gotta tear out, like, two acres of rainforest, and then you find this one tree completely, you know-
- JCJason Calacanis
Yeah.
- CPChamath Palihapitiya
... sacred.
- JCJason Calacanis
Mm-hmm.
- CPChamath Palihapitiya
Uh, and then you chop it down. You make this delicious, decendente scent.
- JCJason Calacanis
Then you produce it and, and it lasts for a full 45 minutes.
- CPChamath Palihapitiya
How do you like that sweater, Karen? Happy New Year.
- JCJason Calacanis
(laughs) Candle Karens are gonna be calling you.
- CPChamath Palihapitiya
Candle Karen.
- JCJason Calacanis
Candle Karens are calling you right now. The DMs are coming.
- DFDavid Friedberg
You guys wanna hear about poker last night?
- JCJason Calacanis
Oh, did you go?
- DFDavid Friedberg
So I go down, I take my eight-hour drive down south to Chamath's house.
- JCJason Calacanis
(laughs)
- DFDavid Friedberg
And I pull in and, uh, you know, the security guard greets me nicely as always. I walk in, and I walk towards the poker room, and everyone's in there with the door open like someone just got shot, masks on, freaking out, and Chamath is inside the house and I wave and he's like, "Get in here." And then I go in and he's like-
- JCJason Calacanis
Who, uh-oh, who was positive?
- 3:14 – 17:51
Elizabeth Holmes verdict, origins of the fraud, breakdown of the Theranos promise
- JCJason Calacanis
Elizabeth Holmes has been found guilty on four counts of fraud, faces 20 years in prison for each guilty, uh, count. They would be, I understand, served concurrently. Uh, most people, I hear, are speculating four to 10 years, um, and then I think you can get 15% off for good behavior. Again, I'm no expert on that, but that's what I read. Uh, guilty counts were two counts of wire fraud and two counts of conspiracy to commit fraud. She was originally charged with a total of 11 counts of fraud. Uh, four were guilty, four were not guilty, three were a split verdict. The jury said they were unable to come to a unanous- unanimous verdict on three of the counts after more than 45 hours of deliberation. Quote, from the Wall Street Journal article, "Juries were persuaded that Ms. Holmes conspired to defraud investors. This outcome could be significant because it means hundreds of millions of dollars of Theranos investors... that Theranos investors' loss could be taken into consideration during her sentencing." That's big numbers. The jury was split, however, on which of the six investors who testified were defrauded. The jurors convicted Ms. Holmes on three counts. These included $100 million from the family office of former educary- ed- education secretary, Benny-
- CPChamath Palihapitiya
We know the details, J Cal, stop ...
... later.
- JCJason Calacanis
I was, like, doing it for the audience. So, anyway, um, thoughts on, uh, the legal, uh, technicalities of the case, Counselor Sachs.
- CPChamath Palihapitiya
Well, we've talked about this before. I mean, I think, so at the end of the day, she was convicted on the counts related to deceiving investors. She was not on the counts related to patients. I think that makes sense in that her obligations to investors are very clear, whereas I think the- the patient-related duties are... I mean, she had them, but it's a little bit less clear. So I mean, look, it's- it's what we've always said here. As a founder, you can be as messianic as you want to be. You can promise, you know, anything about your vision and what you intend to do into the future, but what you must do is be accurate about the current state of your business. You cannot lie about the deals that you've made, about the current capabilities of your product. And she was putting, uh, you know, logos of customers she didn't have in her deck, she was lying about the military being a customer. So she simply- Exactly. ... misrepresented where she was at that time, at the, uh, when these investors invested. And that was the red line she should not have crossed. And I think in that sense, it's a pretty simple case. I think, you know, the- the- the part of this, again, you know, the- the- this, the- the piece of this that's interesting is not the case itself but really the media coverage. Because the media wants to portray this case as an indictment of Silicon Valley. And the thing you keep hearing over and over again- None of us were involved. (laughs) Well, uh, just factually, yes, exactly. We weren't involved. But what- what- wh- what you've- Like, sil- th- there's not a single person in Silicon Valley, I think, who put in a single shekel into this thing.
- DSDavid Sacks
... who actually does this as a real job.
- DFDavid Friedberg
Tim Draper.
- JCJason Calacanis
Well, he, he does this investment-
- DSDavid Sacks
No, Tim Draper put in a little bit money as an angel and then he, he didn't put a single dollar in after that. I'm saying, you know, you didn't come to Social Capital or to Graph Ventures or to Sequoia or to TPB or to Google to raise money for this thing. None of that happened. You know, Sacks is right, like, the, the summary of, uh, The Wall Street Journal, Nick, you can post it 'cause I, I put it in the group chat, basically summarized the fraud and it's exactly what Sacks said. She affixed the logo of specifically, I think it was Pfizer, that had not validated Theranos' technology in materials she presented to investors. So she's basically like, "Pfizer said this is a go," and apparently that wasn't true. She gave the false impression that the devices were used by the US military. That's what got all these military folks to sign on board and support it. That wasn't true. And then, uh, and then she ... A- the biggest coup was that she signed a deal with Walgreens and Safeway to include its devices in hundreds of stores, and then many investors saw these contracts as an endorsement of the technology and growth potential. But basically, those folks did no diligence and bought the hype, and so it was just a whole cycle of this thing that basically fell apart because the tests didn't work.
- JCJason Calacanis
Freeberg, what are your thoughts as our life science guru?
- DFDavid Friedberg
What, what's most interesting to me is how does this get to this point? If you're Elizabeth Holmes, you're 19 years old, and you start telling your story, and the more grandiose the story you tell is, the better the reaction you get is, it becomes reinforcing and the behavior extends a little bit further and a little bit further. Every time she told a story about how incredible this tech was, "It's just one drop. You take one drop, it can measure everything," when she simplified it and reduced it to that and it was such an incredible statement, and she saw the reaction from people, she's like, "Wow, that works. Let me repeat it." It's like any good salesperson, they figure out what sells and then they sell it and then they repeat. And what's interesting to me that, you know, you talk about the media, but when she went out and told her story and got incredible press coverage because she was a young female doing something that was gonna save lives, there was this altruistic Steve Jobs-esque kind of combination here, the media wrote a, a glowing review of her. And then she said, "Wow, look, they said something great. Let me go do that again." And she got a bigger media piece written and a bigger media piece. And the more she said, the bigger she said it, the more she claimed she could do, the bigger the story got, the more coverage she got. And the whole thing became this kind of reinforcing cycle. And I do think that the press coverage that she got as she was building this business, which helped her raise capital, helped her attract employees, helped her get Walgreens and Safeway to the table, allowed her to-
- DSDavid Sacks
That was her downfall. Yeah.
- DFDavid Friedberg
I- i- it allowed her to build the business, but it's exactly what created the narrative that wasn't true, and so the coverage that the press gave her... And we see this every day. You guys all see these top 50 companies, and we all know, having met a lot of these companies, as you go down that list, this, this 20 companies are total scam companies, they're fraud, they're not gonna work, they're grifters, all the stuff that you guys might say about the quality of those businesses. But the press reporter isn't doing diligence. They're not a, you know-
- JCJason Calacanis
No.
- DFDavid Friedberg
It turns out all the diligence was done after the fact. And then it's like, "Well, maybe we should go do some diligence. Oh, wait a second." Because this, the press coverage has now created this hyped story about who and what she is, the, the diligence actually pays off because you have something to take apart. If she was just a nobody startup that raised $30 million and then still trying to figure out their way, there would be no value in any reporter doing diligence on her and trying to figure out what was actually there. It was because the story got big that it gave everyone, including John Carreyrou, an incentive, he's The Wall Street Journal reporter who broke all this, an incentive to go in and take this thing apart. And so I think it's, it's really unfortunate-
- JCJason Calacanis
So let me ask you a question, Freeberg.
- DFDavid Friedberg
... and it's really self-reinforcing that the press coverage-
- JCJason Calacanis
Yeah.
- DFDavid Friedberg
... that created the circumstance here ultimately also enabled them, the press, to take the thing apart and, you know, land, land this woman in jail. And I'm not saying she did nothing wrong, but I'm just saying that there's a system here and the system is set up in such a way that-
- JCJason Calacanis
Yeah, but she manipulated the press. She manipulated the press-
Yeah. She, let me a- let me ask one question to you, Freeberg, and then I, I got a question for Sacks and Chamath. Her basic premise that one drop of blood could get you hundreds of results, let me just ask you a question, Freeberg. At what point would one drop of blood or so, a nanotube, uh, be able to, at our current technological, um, you know, ramp, be able to give us 100 different data points on a person?
- DFDavid Friedberg
Every time you're generating a data point, you're running what's called an assay, which is a, a measurement of something. The question is, how much of a molecule are you measuring against what volume? Is there enough of that molecule in that volume to give you a statistically good reading? And that is a function of how precisely you can measure that thing. So there are, there are great advances happening right now in a, in a domain in life sciences of, of, of hardware technology called microfluidics. This is the manipulation of picoliter, you know, very, very small volumes of liquid, and then being able to run chemical assays using biochemical techniques, which we now have all these amazing new kind of tools like CRISPR and other things that would allow us to gre- get a much more precise measurement with a much smaller volume than has ever been possible. So we can manipulate small fluids. We can measure them. So there's nothing today that would physically say we cannot do many of the things that she claims to have been able to do, but there are, there's a stacking of technology assets that need to be done to make that happen in reality.
- JCJason Calacanis
Take a guess.
- DFDavid Friedberg
A- and, and each of those assets are very different. So look, you could do it with cholesterol right now. You could do it with blood sugar right now.
- JCJason Calacanis
But you couldn't do both?
- DFDavid Friedberg
You could theoretically. You could put them into a device and do that.
- DSDavid Sacks
No, the reason, the reason why lipids work-
- DFDavid Friedberg
Can you do 400 things with, you know-
- DSDavid Sacks
No, you cannot.
- 17:51 – 26:09
Lessons for founders and investors from the Theranos debacle, bad behavior a sign of the top
- DSDavid Sacks
It's really, really crazy.
- CPChamath Palihapitiya
So, look, I mean, I th- I think the moral of the story for entrepreneurs, I mean, I think there's a couple of takeaways here. Number one, you gotta be really clear with the present state of your business. It's okay to talk about your grand vision of what you're gonna do in the future, but you cannot be inaccurate in any way with respect to your current numbers and partnerships and deals and current capabilities. I think, number two, I think...... when you start working with the media in this way to promote your company, you're playing with fire because the media really has two kinds of stories. They build up and they tear down. And when they're done building you up, they're gonna tear you down because that's the only story left to write. So if you're gonna go court the media in that way f- to try and get publicity, you better be really careful how you do it, and you better be really accurate, and you better not give them cause to later regret pumping you up because they will tear you down even harder if you do that.
- DSDavid Sacks
I think, I think the more important danger that I'd just like to speak generally too for a second is to not let other people do your thinking for you. The investors that came into this business came in under the assumption that this was a real business because the press had written about it, and the press wrote about it because The General had joined the board. And The General joined the board because his buddy, George Shultz, said, "Hey, you should meet this lady." And the whole thing ended up becoming this roundabout where no one actually did any original thinking and no one did any-
Stop. Stop.
... actual diligence.
Stop. Stop.
And the whole thing ended up being this-
I'm sorry-
... you know?
... but now you're talking about actually how Silicon Valley works, so that's fucking bullshit.
- CPChamath Palihapitiya
(laughs)
- JCJason Calacanis
Yeah.
- DSDavid Sacks
Okay? You don't think these dopes run around thinking, "Oh, Sequoia, Benchmark Social Capital, Craft Invest, I'm just plowing the money in"? Of course they do. They don't even think.
- CPChamath Palihapitiya
Social proof.
- JCJason Calacanis
They assume that we've done our diligence.
- DSDavid Sacks
No, Chamath, I'm not saying-
You think, you think they're doing principal diligences sc- like the, the Silicon Valley ecosystem?
And by the way, I'll also say this is also how the Bernie Madoff scandal, you know, um, got so far ahead of itself. No one actually went in and did the-
Why-
... audits of those financials.
... the only-
Everyone assumed that because someone else has, is in this thing, and because someone else is involved or someone else, something nice has been written about it or said about it, it's worth backing. And, like, the lack of original thinking in business, in life in general, I think is, you know, one of the biggest, you know, risks that each of us takes, and it's why it's really important to learn how to think for yourself.
I, I have deep respect for early stage investors because they have to get in and make some critical decisions. Some people make those decisions about the team, right? The psychology of the co-founders. Sometimes it's about the end market, and sometimes it's about a deep analysis of, um, the traction. But you have to honest- you know, let's be honest, there is a valley of funding between the Series A and maybe the D or the E where I really think a lot of folks just look for signaling value-
Totally.
... based on who the Series A investors were.
Sure. They make blind bets.
So I'm not sure, they're making bli- I'm not sure that those family offices were any worse or any better. Like, maybe the DeVos family looked at Rupert Murdoch and said, "He's smart, so I'm in."
Yeah.
- JCJason Calacanis
Totally.
- CPChamath Palihapitiya
That's exactly what happens. Totally.
- 26:09 – 45:56
Implications of "The Great Markdown" on public and private markets, confusing FED decisions
- DSDavid Sacks
This stuff is always at the peak of when there's a correction, right?
- JCJason Calacanis
Correct.
- DSDavid Sacks
I mean, this may be a good segue to talk about-
- CPChamath Palihapitiya
Yeah. (laughs)
- DSDavid Sacks
... what's going on.
- JCJason Calacanis
It's a great segue.
- CPChamath Palihapitiya
(laughs)
- DSDavid Sacks
But it's like that level of grift happens right before, you know, basically, we have to re-rate valuations-
- JCJason Calacanis
No.
- DSDavid Sacks
... you know, to solve the problem. By the way, Dana-
- CPChamath Palihapitiya
Because entrepreneurs, entrepreneurs just take so much... Well, there's just a small, small percentage of them, but they just take so much leeway in pushing the boundary, and, you know-
- JCJason Calacanis
And sometimes it's other board members who are acting in their own interest, but I, I solved this problem really easy. I called the CEO of the public company that was buying them and explained the situation. He's like, "Talk to my CFO, a friend of the pod," whatever, and I, they said, "How do we solve this with you?" I said, "Well, this is how much money I have in, this is the value of your company. How would you like me to be an advisor to your company for the same amount of that value in shares?"
- DSDavid Sacks
Oh, so you grifted?
- JCJason Calacanis
So, no.
- CPChamath Palihapitiya
(laughs)
- DSDavid Sacks
That's great. So basically-
- JCJason Calacanis
No.
- DSDavid Sacks
... you got bamboozled and so you bamboozled everybody else by letting them be the bag holder.
- JCJason Calacanis
I used my leverage.
- CPChamath Palihapitiya
(laughs)
- JCJason Calacanis
And then they said, "Okay, we'll make you an advisor." Then I took the advisor shares and I wrote a letter and pledged them to my investors. And my investors are now 3X their original investment. And I said, "I'm not letting it go. I'm not signing the paper until I get the 250K that my investors put in, period." And then they, they did it and now I'm, I'm up. All right. Let's segue. Crazy market pullback, the great write-down has occurred. Charts from Altimeter, uh, our friend Brett Gerson in, I assume, uh, show a major regression to the mean for tech stocks, SaaS index, median enterprise value, next 12 months expected revenue, yada yada. This includes people like Adobe, Datadog, Shopify, Twilio, Workday, and as you can see here on the chart, which we'll pull up, Saks. Explain to us what's happening here.
- CPChamath Palihapitiya
Well, it's a major regression to the mean on value, on public company valuations in both SaaS, but also more generally. The, the high growth stocks have corrected more than the indices, so that would imply that there might be more correction to come against the indexes. I think the growth stocks have already taken the bulk of the hit, but what triggered it this week i- you know, I predicted, and you guys had similar predictions on the, just a few weeks ago, that this would be, that 2022 would be the year of the correction, and it really began in November. You had the, the Fed, you had Fed governors make some hawkish statements about the, about inflation not being transitory, about the need to raise rates. Then we had the, um, the Fed Open Market Committee meeting. This was in, I think around December 15th. And they announced what they were gonna do on rates, and now this week, the minutes of that meeting were released and it basically sh- it said something that was completely different than what they announced to us just three weeks ago. And so the market basically just seized up and went into convulsions. And specifically, what they said, you know, in, in mid-December was that they were gonna taper faster, they were gonna end Q1... Sorry, they were gonna end QE at the end of Q1 instead of Q2, and then we're gonna have quarter point rate hikes in Q2, Q3, Q4. That was the plan for 2022, and then there was additional guidance that they were expecting three more quarter point rate hikes in 2023 and two in 2024. So that was sort of the three-year plan that was laid out. Then we find out from these minutes, and I guess these minutes weren't leaked or anything, they published them after a, like, a three-week revise and extend remarks-type period. But what we find out is that they, what they were talking about was having a rate hike as soon as Q1 and not just ending QE, but actually shedding assets, which is like the opposite of QE. So instead of basically going out there and creating money-
- JCJason Calacanis
Shrinking the balance sheet.
- CPChamath Palihapitiya
Yeah, yeah.
- DSDavid Sacks
Yeah.
- CPChamath Palihapitiya
Shrinking their balance sheet, so instead of going out and buying bonds, they're gonna sell their bonds, which will reduce the money supply. So look, if that was their view three weeks ago, why didn't they announce it? I mean, my problem with this is it makes the Fed look like they don't know what they're doing, because they announced something just three, three and a half weeks ago that's completely at odds with the statement they just put out. So either something changed in the last three weeks and there's been no data or they don't know what they're doing.
- DSDavid Sacks
Just so you know, they, they, they have a little bit of a track record of this. So in 2018, it looked like there was going to be inflation-... and Powell tried to get ahead of it, and he raised rates, and the a- the market completely collapsed, and they were looking, I think, at Chinese data at the time, and it looked like, you know, China was turning... you know, going crazy. Then China completely turned over. It was a complete head fake. The economy wasn't rip-roaring, inflation didn't exist, and, um, they basically just curtailed a lot of investment and destroyed a bunch of value. So, this time around, I think they're very sensitive to not correcting too quickly, but then the opposite thing happened, which is they probably waited a little too long, and now, you know, we're correcting too slowly, too late. Into the cycle. And we're just sort of digesting that reality. And so, I think that, you know, we're probably, to be honest with you, like, actually, like, we've puked it all out for the most part, in my opinion. You have to remember, right, like, the big difference between now and even 10, and frankly, more importantly, 20, 30, 40, 50 years ago, is how many computers are involved that trade, how much passive money is involved that owns assets, and how much of this stuff is sitting on the sidelines still in money market accounts and munis. So, if you look at those markets, there is a ton, trillions of dollars, waiting to find a home, and what we've now done, and Brad's ch- charts show this, is we've basically chopped the head off of all of these fast-growing growth multipl-... The underlying companies have not changed one scintilla, right? These companies are still growing by crazy amounts. Like, Snowflake is still an incredible business.
- JCJason Calacanis
Unbelievable.
- DSDavid Sacks
But the multiple that one was willing to pay has been, uh, has, has been very much re-rated, as has a bunch of other companies like it.
- JCJason Calacanis
So, let me ask you a question, Chamath. If we've gone from these 50, 60, 70 multiples times sales, and now it goes back down to 20, is that, dare I say, a buy signal?
- 45:56 – 1:00:01
Advice for founders on navigating a downturn
- CPChamath Palihapitiya
- JCJason Calacanis
Best advice for founders private companies in this turmoil? What's your best advice, fam? You're a founder you got, I don't know, 18 months of runway right now. You're going into this, you know, slush and you wanna know, "What should I do? What should I do?"
- DSDavid Sacks
I think Paul Graham's advice makes the most sense here, you need to focus on being default alive. Um...
- JCJason Calacanis
Define what that is just for people who don't-
- DSDavid Sacks
Yeah, so, you know, Paul Graham wrote this great essay, uh, as part... Well, he's the founder of Y Combinator and, you know, he has this very simple, you know, framework of looking at companies, which is your default dead or your default alive and when you're losing money as a company and you're burning enormous amounts of cash, you're default dead. Now, if you're growing fast enough, default dead is a great strategy for value creation but at some point everybody around you will expect you to be default alive and what that means is that the cost of what you do are less than the revenues you bring in when the result are profits, and even then that's not good enough. I don't know if you guys saw but, you know, if you look inside of big tech I was shocked to find out that, you know, for example, you know, companies like Microsoft specifically and Apple, you know, these guys traded huge forward multiples, right, for enormous profitability but companies like Facebook and Google for the same level of profitability, you know, trade almost a third less in terms of multiple. So even when you're that good it's not good enough to be default alive. That's how hard this game is over very long periods of time and so when you have a moment to really understand how to be default alive and you don't take it, I think it's a huge disservice because we don't do enough of that kind of coaching that really inf- inflicts that kind of discipline and expectation setting. I remember I ha- I have a large climate investment. It's actually the single largest investment I've ever done, and so I swept the details pretty significantly and, you know, I was with the team in, uh, uh, in November, December for a board meeting and setting up 2022 and my whole thing was, "Guys, you have to get default alive. You have to get contribution margins to be in a certain band. You, we're, we are gonna target this level of free cashflow generation this year and there's no ifs, ands or buts about it." And what's great is the entire team embraced it and were marching towards that. But if they didn't and they're like, "No, we're just gonna grow at all costs again,"... oh, my God, I would be freaking out right now.
- JCJason Calacanis
Freeberg, what do you got to-
- DSDavid Sacks
Freaking out.
- JCJason Calacanis
... add to that as advice to founders who have not been through this before?
- DFDavid Friedberg
I built my business, my, uh, uh, Climate Corp, uh, ver- we raised a round in November of 2007. We raised $12.5 million, and then the financial crisis hit in 2008. And, um, I'd say two things were really important. Uh, number one was just keep building. (laughs) So if you're building a great business, it doesn't matter what the market perturbations are. Uh, you know, the, the market will value you at what they're gonna value you at, and if you're a good business, there's gonna be money available, uh, to you. Th- the second piece of advice is one that I know has been said over and over again, but, you know, never raise at a valuation beyond, you know, what you're reasonably gonna be able to kind of deliver returns on at some point in the future, 'cause otherwise those nasty dynamics emerge. You know, you could raise money at some crazy high valuation. That's not always the best thing to do because then the expectation of the investors coming in at that valuation are they wanna make three times that money or four times that money, and it pushes you to do something unhealthy like spend more than you otherwise would, stretch for a bigger outcome, and put your entire company at risk. So, you know, two things, to me, have always been just stay focused on building your business. Don't let, you know, kind of market conditions drive your decision-making. And second is, um...
- JCJason Calacanis
Define what for you is the best practice of staying focused on your business, because that is a very general term. What is, Freeberg, if you're gonna say the three- top three things of focused on your business tactically means?
- DFDavid Friedberg
I have a simple rubric for value creation in a business. You know, number one is, can you make a product? Number two is, do people wanna buy your product? Number three is, can you make a positive gross margin selling that product to those people? Number four is, can you make a return on the marketing dollars you have to spend to generate that growth profit? Meaning, you know, can LTV exceed CAC? And number five is, can you scale the amount of money you deploy to grow your business, such that as you grow, the return goes up, not down? If those are the five kind of things you can accomplish in that order, you can build the next Google. And so... And then the sixth thing is, can you be a platform, which is mean- meaning can you transition to being a multi-product company that gets leverage out of the, the user base or the technology that you've built?
- JCJason Calacanis
Got it.
- DFDavid Friedberg
And so, you know, if you kind of think about-
- JCJason Calacanis
Multiple revenue streams, more of a <|agent|><|en|>
- DFDavid Friedberg
... multiple revenue streams using the same customer base or multiple products or, you know, whatever. Um, and so if you can achieve those six things, um, in that order, every step of the way, every increment you can make across that spectrum drives significant value as a business. Ultimately, what the multiple on your business will be is purely gonna be a function of what else is going on in the world, things that you cannot control. And so if you're driving your decisions about building your business using that first rubric, good for you, you're gonna succeed, you're gonna have money available to you, awesome. If you're driving your decisions based on what the market is telling you to do and what the market is saying is available to you and money and all that sort of stuff, you know, you're setting yourself up to basically be, you know, blown out of the water.
- DSDavid Sacks
But are, are you also saying to be independent of, of valuation?
- DFDavid Friedberg
Yeah, I, I, I'm always of the opinion that you shouldn't raise money beyond your, um... into evaluation that you're not comfortable saying, "In different market conditions or what have you, I can return multiple -
- DSDavid Sacks
Well, I don't think any founder has ever, you know... Lo- most of these founders were not around in 2000, and they-
- DFDavid Friedberg
Or 2008.
- DSDavid Sacks
Or two- but even 2008 was less important in my mind-
- DFDavid Friedberg
Yeah, yeah.
- DSDavid Sacks
... because it was, it was, it was fast, and again, we had government stimulus. So, you know, like, I think 2008 was an aberrational moment. I was, I was i- in the middle, you know, inside of Facebook when... and I was like, "What the hell is going on here? The government's gonna step in and..." You know, with TARP printing a trillion dollars or whatever it was.
- DFDavid Friedberg
But it didn't affect your... It didn't affect you guys.
- DSDavid Sacks
It didn't affect us at all.
- JCJason Calacanis
Yeah, but you were the most powerful company or startup at the time.
- DSDavid Sacks
No, no, not at that time. Not in 2008.
- JCJason Calacanis
Wow. I mean, you guys were surging on a lot of cash, right?
- DSDavid Sacks
We were not... In 2007, we were not... No, no, but we were profitable. We were-
- JCJason Calacanis
I think - yeah, cash and shares.
- DSDavid Sacks
Here's the thing with that people don't realize with Facebook. And a-
- 1:00:01 – 1:06:38
a16z's new mega funds; should they go public? How does that change partner dynamics?
- DFDavid Friedberg
$9 billion or something today across a bunch of funds?
- JCJason Calacanis
Yeah.
- DSDavid Sacks
Incredible. Congratulations to those guys.
- JCJason Calacanis
On the back of all those memes.
- DSDavid Sacks
They're building a colossus.
- DFDavid Friedberg
Yeah. I mean, there's gonna-
- DSDavid Sacks
My lord and colossus.
- DFDavid Friedberg
Silicon Valley, in terms of capital is, um, you know, seeing kind of power returns itself, right? There's gonna be a few firms that are gonna, you know, control 80% of the capital.
- DSDavid Sacks
Andreessen should go public.
- DFDavid Friedberg
Andreessen, Tiger-
- JCJason Calacanis
I think they're, they're thinking about that.
- DFDavid Friedberg
Tiger Global, you know, whatever happens, I don't know if Softbank reaches in too.
- DSDavid Sacks
Tiger should go public. Yeah.
- DFDavid Friedberg
I mean, there's a few of these-
- JCJason Calacanis
That's a mark- that's a market top side, right, Sean?
- DFDavid Friedberg
I don't know about them going public, but I'm just saying, like, if you look at the aggregate capital that's being deployed into private markets right now, in a, in probably two years, 80% of it's gonna come from three firms or four firms.
- DSDavid Sacks
The problem is, if you're running that much money-... you're insane to not take your GP public because it's the only way... Like, no, you're not really generating carry at that point because you're generating a market beta return. So you'll do okay, but when you're sitting on 20, 30, 40 billion of imputed wealth by being the owner of the GP of Tiger or Andreessen, you'd be insane to not go public.
- DFDavid Friedberg
I think the odds are gonna be pretty high that Andreessen will go public, right? I mean, they're certainly setting themselves up to be a lot more than just a capital allocator.
- JCJason Calacanis
It's never happened though, right? It's never happened.
- DSDavid Sacks
Well, TPG just filed to go public.
- DFDavid Friedberg
No, I mean, TPG, yeah.
- DSDavid Sacks
They're going up.
- DFDavid Friedberg
KKR.
- DSDavid Sacks
KKR is public, Apollo's public, Blackstone's public.
- JCJason Calacanis
Okay, um, I'm talking about Venture though. I'm talking about-
- DFDavid Friedberg
No, but I mean, like, uh, Venture has never scaled up to the point that private equity has until now. And now that they have-
- DSDavid Sacks
Until now. They should.
- DFDavid Friedberg
... it's very likely, it's very likely that you'll see Andreessen be the first... I don't know them, you know, very well, but-
- JCJason Calacanis
Sacks, you were gonna say something.
- DFDavid Friedberg
Yeah.
Episode duration: 1:06:38
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