E73: Late-stage VC markdowns and mistakes, market strategy, Ukraine/Russia update with Brad Gerstner

1. 0:00 – 1:34

   Bestie Guestie Brad Gerstner is filling in for Friedberg

   1. JCJason Calacanis0:00

      Hey, everybody. Hey, everybody. Welcome to another episode of the All-In Podcast. We have a new bestie-yesti filling in for the Prince of Panic Attacks.

   2. DSDavid Sacks0:09

      (laughs)

   3. BGBrad Gerstner0:10

      (laughs)

   4. JCJason Calacanis0:10

      The Queen of Quinoa. The Sultan of Science can't make it this week-

   5. DSDavid Sacks0:14

      Ugh.

   6. BGBrad Gerstner0:14

      (laughs)

   7. JCJason Calacanis0:14

      ... I think. After his incredible performance last week, and him trending on TikTok with his incredible, uh, insights over, uh, sadly the, the potential famine that could come after this Ukraine war, uh, he decided he would take a week off. I think it's just a little too much attention for him. So we have a bestie-guestie today. Yes, the Shaman of Stocks is with us.

   8. DSDavid Sacks0:34

      (laughs)

   9. JCJason Calacanis0:35

      He brings the equanimity to equities. You know him. He'll bring that namaste to your payday. His predictions are the anti-Galloway. Brad Gerstner, welcome back to the program.

   10. BGBrad Gerstner0:46

       Thanks for having me.

   11. JCJason Calacanis0:47

       Namaste. Uh, and also with us, of course, the Rain Man- Man himself, he's bitter on Twitter, he's brawling on calling-

   12. DSDavid Sacks0:55

       (laughs)

   13. JCJason Calacanis0:56

       ... he's the Bill of Rights from Pack Heights.

   14. DSDavid Sacks0:58

       (laughs)

   15. JCJason Calacanis0:59

       David Sacks.

   16. DSDavid Sacks1:01

       Boy, you've really outdone yourself today.

   17. BGBrad Gerstner1:03

       Wow.

   18. JCJason Calacanis1:03

       And the Prince of Palo Alto, the Overlord of the Overton Window-

   19. BGBrad Gerstner1:08

       (laughs)

   20. JCJason Calacanis1:08

       ... Chamath Palihapitiya.

   21. DSDavid Sacks1:11

       Jake L, are you the stinker of stonks?

   22. JCJason Calacanis1:13

       Oh, God, relax. Y- you know, leave the comedy to me.

   23. DSDavid Sacks1:16

       (laughs)

   24. BGBrad Gerstner1:16

       (laughs)

   25. DSDavid Sacks1:16

       All right.

   26. CPChamath Palihapitiya1:18

       I'm going all in.

   27. DSDavid Sacks1:19

       To let your winners ride.

   28. CPChamath Palihapitiya1:22

       Don't you stop.

   29. JCJason Calacanis1:22

       Rain Man, David Sacks.

   30. CPChamath Palihapitiya1:26

       I'm going all in.
2. 1:34 – 21:52

   Understanding public SaaS and Internet multiples, Instacart's cuts its valuation by 40%, understanding reality of overvalued late-stage companies

   1. JCJason Calacanis1:34

      It's been a pretty, pretty crazy couple of weeks here. Uh, we are not a political show here, but obviously when world affairs become acute, as they have, we cannot ignore, uh, the war, uh, that is occurring in Ukraine. Uh, we're gonna talk a little bit about markets. I think we'll start with those, uh, with Brad Gerstner here. Uh, the SaaS market and the index, uh, why don't you walk us through this chart here because everybody's wondering what's happening with the markets given the war, given interest rate hikes, uh, and the repricing of stocks. I don't know how you would look at what happened in November, December, January, Brad. How do you contextualize?

   2. BGBrad Gerstner2:14

      Well, certainly a repricing. There's certainly a repricing, but I, I, I think of it more as normalization.

   3. JCJason Calacanis2:19

      Okay.

   4. BGBrad Gerstner2:19

      Right? Chamath was saying it in November, I was, I was on CNBC talking about the fact that when, when we got to a post-COVID world, rates were gonna normalize, go back to where they were in January 2020, that was around 2%. And the growth multiples would have to come off of this historic red bull high that we were on during most of 2020 and 2021. So, we were 30% to 50%, depending upon the index, above the five-year average growth multiple pre-COVID. So that just needed to happen. Like, we should be celebrating in one sense that that happened, because that means that we overcame a global pandemic. The downside is we couldn't play with artificial money, 0% rates, trillions of dollars, you know, of, of, of congressional and Fed injection in order to prop up valuations. And when it happened, in and of itself, that was gonna be extraordinarily painful. What I didn't anticipate, and what most people didn't anticipate, is that on top of that, we're gonna have increasing fears of hyperinflation, not just getting back to normal rates, and that we were going to find ourselves in the middle of an incredibly devastating war in Ukraine. Those two things added to the uncertainty, the risk premiums, um, added to uncertainty around future inflation. The dot plot exploded higher and expectations of forward rates went higher. Now, why the hell does this matter? It matters because when you take, you know, if you're looking at that chart, the five-year average, the 10-year was 2.5%. Like, we all got comfortable investing in this period of time. The markets hate uncertainty. We had a predictable way for us to estimate where we thought our wax should be in our discounted cash flow models. All of a sudden, that was thrown into, uh, thrown into the air. Oh my God, look what we got going on.

   5. JCJason Calacanis4:11

      (laughs)

   6. BGBrad Gerstner4:11

      I can't handle it.

   7. DSDavid Sacks4:12

      Look at that.

   8. JCJason Calacanis4:12

      Baby.

   9. BGBrad Gerstner4:12

      Look at this.

   10. JCJason Calacanis4:13

       Oh, yeah.

   11. DSDavid Sacks4:13

       Yeah.

   12. JCJason Calacanis4:13

       Never compete with babies or animals. Yeah.

   13. BGBrad Gerstner4:15

       No chance.

   14. JCJason Calacanis4:17

       No chance. Hey, baby.

   15. DSDavid Sacks4:18

       This is Talita.

   16. JCJason Calacanis4:19

       Talita.

   17. DSDavid Sacks4:20

       Look at this little... Look at this little butter ball.

   18. BGBrad Gerstner4:22

       Oh my goodness.

   19. JCJason Calacanis4:23

       Oh my Lord, look at that.

   20. BGBrad Gerstner4:24

       So, so good.

   21. JCJason Calacanis4:25

       Sacks, that's called a child. It's a... You have three of them.

   22. DSDavid Sacks4:27

       (laughs)

   23. JCJason Calacanis4:28

       Those are babies. And what you're seeing there is affection from a father and a child.

   24. DSDavid Sacks4:32

       Look at how cute this little baby is.

   25. BGBrad Gerstner4:34

       Oh my goodness.

   26. DSDavid Sacks4:34

       I just wanna eat him.

   27. JCJason Calacanis4:35

       Sacks is like, "Uh, uh, this is taking from my time." (laughs) "Get that baby out of here."

   28. BGBrad Gerstner4:40

       Well...

   29. JCJason Calacanis4:41

       Ah, so cute. So Brad, I guess what everybody wants to know now that we see this repricing occur, is what do you think is gonna happen in 2022, uh, and then into 2023?

   30. BGBrad Gerstner4:53

       So, we're now, multiples are now below the five-year average. For, for, for software, we're about at the five-year average. For internet, we're well below the five-year average. I said on Twitter that the rate path last week became a lot more certain. The Fed said something last week that I think is still not well reported, well understood. The Fed said, "At the end of the year, we're going to have 2% negative real rates." They said, "We expect inflation exiting the year to be 4.3 and we expect the 10-year to be around 2.3." The reason the market exploded higher is because under the Fed's prior protocol, a 4%, uh, a 4% inflationary rate would mean that rates would have to go to 4.5%. And if you take rates to 4.5%, then growth multiples need to be about 30% below the five-year average. Okay? So, as investors, whether we're investing in mid-stage venture, late-stage venture, whether we're investing in the public markets, like, we need to know what exit multiples are.And it was bad enough that we had to bear the drawdown coming off of, you know, this, this red bull high of 2020 and '21. But if you think we're durably going to an inflation rate of 3% or 4%, and an interest rate environment of 3% or 4%, then you simply have to adjust what you're willing to pay for growth assets. And so as I look ahead, right, we don't, uh, we don't know with certainty. The question is, what's the distribution of probabilities? And, you know, just this morning, Citi, Goldman Sachs raised their exit year, uh, their, their exit tenure for 2022 (microphone crackles) to 2.7%, and took it as high as 3.5% for 2023. I think it's gonna ... This period is gonna be marked by a lot of uncertainty around inflation and rates till we have more clarity. And what that means is allocators of capital are gonna allocate less to risk assets, and they're gonna pay less for risk assets. Um, but, you know, listen, if I look out over the, the five, 10-year horizon, I don't believe in global stagflation. I don't believe that we're in this new hyperinflation environment. Um, but we're gonna have to get through this next, uh, 6, 12, 18 months, and it's gonna be filled with a lot of volatility and a lot of uncertainty.
3. 21:52 – 40:37

   Capital allocators at fault, how crossover funds are reacting, late-stage price discovery, investor and founder behavioral psychology

   1. JCJason Calacanis21:52

      are. This to me seems like the fault of poor judgment by capital allocator, Sacks. Are there too many venture funds chasi- chasing too few deals and not thinking through what investing in the 10th, 11th or 12th player in a market is gonna be able to do? Is it too much-

   2. DSDavid Sacks22:11

      Potentially, I think part-

   3. JCJason Calacanis22:12

      ... venture?

   4. DSDavid Sacks22:12

      ... I think part of what's going on with the companies you mentioned is that they're physical world companies. They are very capital-intensive. They burn-

   5. JCJason Calacanis22:18

      Right.

   6. DSDavid Sacks22:18

      ... a lot of money. They're operationally intensive. I have sort of soured... I soured on those businesses years ago and that's why I just focus on SaaS because they are basically perfect gross margin businesses. Um, they're very... they can be very capital-efficient if the founders want to run them that way. Um, so what we're doing now is telling founders, "Lengthen your runway, be more capital efficient." You need to understand that, you know, multiples... If you raised last year at 100 times ARR, you need to understand that the next time you raise, it may be at 20 times ARR. So now you can grow into that, right? If you're tripling and then triple again the next year, you'll be able to grow into that valuation, but, you know, make your money last two, three, four years instead of, you know, burning it in 12 to 18 months, um, unless you want a down round.

   7. BGBrad Gerstner23:05

      I think this is, this is the point that now allocators, venture capitalists are gonna spend the next six months thinking about: what's in bucket one, low-quality companies burning a lot of cash that may very well not make it across the chasm.

   8. JCJason Calacanis23:21

      No path to profitability.

   9. BGBrad Gerstner23:23

      What are the high-quality companies that, yeah, the multiple's down because public market multiples are down, risk premiums have changed, inflation changed, but they have plenty of cash on the balance sheet. And think about it this way: Snowflake became a p- a poster child in the public markets of a high-priced, uh, SaaS business. Snowflake this year will grow its free cash flow at over 100% a year. Next year, probably, you know, 80 or 90%. Free cash flow, not just revenue, free cash flow. In Q4, I think they booked 1.4 billion of revenue, Q4, on a business that entirely in last year did 1.2 billion in revenue, right? You think about that. The incremental was more than what they had generated in the prior many years. That business... So let's say we reduce the multiple by 50%.... but the company's growing top line and free cash flow by 100%. Doesn't take you very long to grow through the multiple compression. So Snowflake's multiple is plummeting for two reasons; one, because the stock price came down, number two, because, right, their growth rate and free cash flow growth is so high. And so now if you look at the multiple, it's similar to what we'd expect of a regression of the five-year analysis.

   10. CPChamath Palihapitiya24:35

       Unless these companies, unless these private companies are, wanna go dark for the next three to five years, meaning not, you know, no sophisticated late-stage investor doing a round or going public, they'll be okay. But otherwise, they're gonna have to reckon with a version of what Brad just said, which is the high, the flight-to-quality problem. You know, when in moments of uncertainty and high volatility, it's just more straightforward to, um, go to the things that are reliable. And so, you know, when you think in the public tech markets, what is a reliable, must-own company? Well, I would put Snowflake in the list of these must-own, um, high-growth software businesses, right? You know, the FAANGs tend to be in the must-own category. But then there are all these other businesses that then get orphaned because they're kind of nice to own, would love to own, would be great in any other circumstance, and that gets even more exacerbated in the, in the private markets. You have to remember, right now, like, the private markets cannot really exist without an incremental buyer of equity, right? You need-

   11. JCJason Calacanis25:42

       AKA bag holder. Somebody has to buy the stock after you.

   12. CPChamath Palihapitiya25:46

       Somebody needs to be the bag holder. Somebody needs to be the bag holder after you. And the problem right now is that those folks have a lot more credible, safe, durable assets that they can own and not have to deal with all the crazy anxiety that comes with owning something that's, that's high volatility like this.

   13. JCJason Calacanis26:05

       Or Chamath, correct me if I'm wrong, or Brad, if they don't want to even be involved in this mashugana, they could just be in cash and the interest rates are going up, so maybe they could say, "You know what, I'll just sit this out for a year." Is that also happening with those folks?

   14. CPChamath Palihapitiya26:18

       Well, I think-

   15. JCJason Calacanis26:18

       Or is that too hard to do because of inflation?

   16. CPChamath Palihapitiya26:20

       Brad actually knows a bunch of these folks but like, take for example, D1, you know, it's, uh, Dan Sundheim's great investor. I mean, my understanding is that they are sort of off privates completely because why invest in a private company at X times ARR when you can invest in a public SaaS company for six times? So, I, they've substituted. I think Tiger is still in market with a gigantic fund for privates, but the valuations have come down, so they're essentially re-pricing everything. I think those are probably the two broad reactions you could have, right, Brad?

   17. BGBrad Gerstner26:53

       Certainly. I, I, I would say this. Broadly speaking, the late-stage private financing market in venture is closed, um, because there hasn't been, right, we're in this, w- this buyer-seller standoff. Sellers aren't to the point where they're willing to accept that a new rate, uh, a new regime of multiples exist, right? It's painful. We saw, you know, the Instacart news here recently but I think, you know, like listen, we're not even 10 or 20% of the way into the cyclic reset that needs to occur in order for us to see real price discovery. That's not going to occur until these companies need money or wanna go public.

   18. JCJason Calacanis27:32

       That's right.

   19. BGBrad Gerstner27:32

       This fall is when we'll start to see real price discovery. You couldn't pry a late-stage dollar out of my hand right now, um, because I don't think that we have real price discovery going on. Early-stage venture, if we're investing in an incredible, you know, software business at 300 million, 400 million, 500 billion we think could be worth tens of billions, you can withstand a little inflation. But the later you get in the lifecycle of a business, it's about IRRs and IRRs in late stage at last year's valuations relative today's public market valuations, that is a negative arbitrage.

   20. JCJason Calacanis28:05

       E- explain IRR and why that matters. Yeah, just for the layperson who's watching.

   21. BGBrad Gerstner28:07

       Well, we're just, you know, uh, we expect, uh, our hurdle rate in the public markets is a 20% risk-adjusted rate of return so if I'm, you know, like, uh, you know, (laughs) you look at these late-stage private valuations from last year, I mean, uh, you know, Sax just talked about companies repricing down 40 or 50 or 60%, so if they haven't done that-

   22. CPChamath Palihapitiya28:28

       Now just to, just to-

   23. BGBrad Gerstner28:28

       ... then you can't even have a conversation.

   24. CPChamath Palihapitiya28:30

       Just to up-level this, what Brad is saying is the following, Jason. Any person can wake up tomorrow and buy the S&P index, right, what Buffett would tell you to do, just buy the S&P 500 index. That historically has compounded at around 8% a year if you reinvest the dividends. So you can do nothing, right? Get a basket of the 500 best companies in the world that are automatically selected for you based on revenue and profitability, you don't have to do anything, and that'll compound at 8%. That is effectively the risk-free rate if you wanna own an equity. So if you're gonna step into the late-stage private markets and, you know, buy some shares in, you know, DingDong.com, you gotta be rewarded for that, which typically-

   25. JCJason Calacanis29:12

       Right.

   26. CPChamath Palihapitiya29:12

       ... means that there is a premium above the 8%. And what Brad is saying, like, you know, it's, it's actually more than double. In his case, what he's saying is it's two and a half times. You know, you've got to-

   27. JCJason Calacanis29:21

       Right.

   28. CPChamath Palihapitiya29:21

       ... clear 20% to you, otherwise you're better off on a risk-adjusted basis-

   29. JCJason Calacanis29:25

       And the opposite is what's likely to happen. I'm looking here at a list. Gopuff at 40 billion, Canva at 40 billion, Klarna at 45 billion, Discord at 15 billion, Ripple at 15 billion, is Gramaly at 13 billion, these don't make sense given that if they were public, they would be trading at 50% of that?

   30. CPChamath Palihapitiya29:41

       Well here's, here's what you can say. I think, here's what you can say. If, if everything is held equal, just with the rise of rates, you have to reset those valuations between probably 15 and 40%, okay, at a minimum.
4. 40:37 – 53:58

   Sacks' burn multiple, managing growth spend, new VC qualifications, lessons from the COVID bubble

   1. DSDavid Sacks40:37

      the, the things you guys are saying are making me feel great about our portfolio.

   2. JCJason Calacanis40:40

      Explain.

   3. DSDavid Sacks40:41

      Um, not, not because we won't get hit with the same valuation corrections that everybody else is gonna suffer, but because, you know, a few years ago, we decided we were only gonna invest in a certain kind of company. I mean, high margin, SaaS and marketplace businesses that were not capital-intensive. We defined a new metric that didn't exist called burn multiple, which is the amount of money you burn for every dollar of incremental ARR that you generate, incremental, uh, subscription revenue. And you know, we turned down investments that were growing fast, but they had a horrible burn multiple. And, um, so, and I, and I do think most of our companies raised last year when, you know, they made hay while the sun shined. So there's gonna be... Th- they need to manage their cash flow so they don't have to raise too quickly, but, um, as long as they do that and they keep growing, they're gonna weather the storm.

   4. JCJason Calacanis41:33

      What's the right number? Spend $3 to make $1, spend $2-

   5. DSDavid Sacks41:36

      No, uh-

   6. JCJason Calacanis41:37

      ... to add one. What's, what's your ratio?

   7. DSDavid Sacks41:39

      So what I've said is that if you can spend a dollar or less to generate an incremental dollar of ARR, you're doing amazing, and, uh, between one and two is good. So in other words, if you're burning 20 million in a year to add an incremental 10 million of ARR, you're doing quite well in startup land. And then when you start getting into two and a half, three, that's a problem, and then above three is just bad. Horrible.

   8. JCJason Calacanis42:03

      So you're spent- you're spending 30 million to add 10 million in ARR.

   9. DSDavid Sacks42:06

      Yeah.

   10. JCJason Calacanis42:06

       It means it takes three years or probably four or five because you'll have turn to get that money back.

   11. DSDavid Sacks42:11

       Yeah.

   12. JCJason Calacanis42:11

       And that's just a lack of discipline and how many VCs are we on the boards, uh, or, you know, other investors are we on the board and having that nuance of a discussion. It's always just top line, top line, top line-

   13. CPChamath Palihapitiya42:21

       Well, it's gonna be the next bag holder. I think it's very difficult because I think the number of qualified investors have gone way down as the surface area of investing has gone way up. So again, just going back to this conversation, this woman is staffing most of these venture firms with their junior and mid-level partners, and again, the qualification to become a venture capitalist at this point is not that you have-... a, an ability to pick or, you know, in David's case, have operated and actually run a business and then actually have developed a, a methodical framework. Or Ba- Brad's business, which is Brad had to start from literally zero in the public markets and work his way backwards to end up with 15 or 20 billion of assets. It's, it's none of that. It's, are you a VP at an XYZ unicorn that may also be poorly run?

   14. JCJason Calacanis43:03

       Mm.

   15. CPChamath Palihapitiya43:04

       And all of a sudden, that, you know, gives you the qualification to go into a job where... And it's not their fault. Where what they are told is, uh, "What you want is what we're gonna give you, which is the ability to write, you know, X number of checks per year." That is insanity. That's not what makes a good investor. And then your ability to then give advice, I don't know, it's probably zero, or less than zero.

   16. JCJason Calacanis43:27

       Y- your ability to give advice is, uh, I think we have to qualify, bad advice is being given. (laughs) So, y- the ability to give quality advice, is, is what's missing in this formula.

   17. CPChamath Palihapitiya43:36

       I just think these people are really naive. Like, you know?

   18. JCJason Calacanis43:39

       Yeah.

   19. CPChamath Palihapitiya43:39

       And it's not their fault, but, you know, they're given way too much rope to hang themselves with, and they're... And, and the, the, the unfortunate byproduct is gonna be the, uh, the companies who gets bad advice or the bad businesses that get funded. Um, and that's not what, you know, an efficient capital market should do.

   20. DSDavid Sacks43:56

       So one, one of the things I'm seeing our portfolio companies do is use burn multiple as a governor for how fast they're gonna grow. So for example, they will say that the burn multiple should not exceed two in the next quarter, so, you know, we want to... So, the, the old way of doing it would be that the company would just have a forecast and say, "We're gonna grow 3X this year. We're gonna grow ARR from 10 million to 30 million," and whatever that costs, it costs, right? That was basically how companies did it. Now, what I'm seeing from some of our portfolio companies is, they are saying, "Yeah, our goal is to grow from 10 to 30, but we will not spend, um, so much money that our burn multiple exceeds two."

   21. CPChamath Palihapitiya44:38

       Got it.

   22. DSDavid Sacks44:38

       So, you know, if, if it turns out that there's a trade-off here between growth and burn, burn is gonna win. We're not gonna exceed that level of that ratio of spending. And that's actually a good... I mean, I've, I've seen a few companies implement that already, and it's probably something they should all be doing.

   23. JCJason Calacanis44:55

       I mean, if these are pilots, they basically created a rule to not stall the plane, right? You gotta keep a certain altitude, a certain speed. Uh, so what is the opportunity here then? If we're gonna have too many companies, too high evaluations, if we're gonna hang around the rim and try to get some rebounds here and try to find opportunities, what are the opportunities? What are the layups here for capital allocators and for founders if we have-

   24. BGBrad Gerstner45:17

       There are no layups.

   25. JCJason Calacanis45:18

       ... great advice for them? There's nothing. (laughs)

   26. DSDavid Sacks45:20

       (laughs)

   27. CPChamath Palihapitiya45:20

       The- th- th- there, there have never been layups. And the problem is, um, you know, in, in up markets, whenever we think that there are, um, it ends up being what causes our downfall later because we, we just take the wrong signal away. I, I, I don't think that there are... I don't wanna be investing incremental capital into a late-stage startup that's poorly run, that doesn't have their margins in line, and then having to work it out. Why do that? Again, I can just go in the S&P 500 and get 8%, and yeah, it's not 30%, but it's 8%, and I don't have to deal with all this nonsense, like-

   28. DSDavid Sacks45:53

       Well-

   29. CPChamath Palihapitiya45:53

       ... a bunch of people who don't necessarily-

   30. DSDavid Sacks45:54

       No, 'cause you're a crossover investor, right? I mean, you have the ability to choose between public, privates, or wherever you wanna play.
5. 53:58 – 1:08:58

   Russia/Ukraine: US potential non-ceasefire strategy, Zelenskyy's revelations in CNN interview, rhetoric getting more aggressive

   1. JCJason Calacanis53:58

      Uh, we are now here and I think this is the fourth or fifth episode where we've been discussing the war. And we flipped it today just to do markets first, uh, for a little change of pace. And since we had Brad here, where are we at with the war? A- and what are your, what is your expectation of it wrapping up or it escalating?

   2. DSDavid Sacks54:15

      Well, actually, there's a tweet storm this morning, um, that Chamathis sent to the group that, um, from a Russian official, and it seemed to indicate, well, it, it indicated what we've kind of known for a few weeks now, which is what the broad contours of what a peace deal would look like, which is there's three main pieces. Uh, neutrality for Ukraine. The Russians insist that it not be part of NATO. They get to keep Crimea, which they annexed in 2014. That's been a fait accompli. And then some version of independence for these, um, sort of breakaway territories.... in the Eastern Ukraine, the- in the Donbas region. Everyone kind of knows that's the- the- the broad strokes of the deal. Then there's, you know, a lot of details are gonna matter a lot to the people who live there, like is there this land bridge from Crimea to Donbas? But frankly, don't matter as much to all of us in the United States of America. So, the question is, you know, what- what is the administration going to do about it? Biden just went to Europe and, you know, my concern is that no one in Washington, I talked about this last week, seems to be pushing s- for a ceasefire. It seems like their preferred position is for Russia to bleed out as- as long as possible in Ukraine for the US to fund an insurgency ala Afghanistan, where, you know, these fighters in eastern Ukraine are sort of like the Mujahideen-

   3. JCJason Calacanis55:40

      Insurgency, is that the right word?

   4. DSDavid Sacks55:41

      Well, sure. Because, you know, if the- I-

   5. JCJason Calacanis55:43

      They're defending their own land.

   6. DSDavid Sacks55:45

      S- and so are the Mujahideen. I mean, the-

   7. JCJason Calacanis55:47

      I know, but why would you call it an insurgency?

   8. DSDavid Sacks55:50

      Well, because if-

   9. JCJason Calacanis55:50

      They're defending their land.

   10. DSDavid Sacks55:51

       If- if the government of Ukraine falls, then it becomes an insurgency. So the point is that the administration... The- the question is, what's the administration's endgame here? Do they want to lead the world to a ceasefire or do they want to protract the conflict to impose on the Russian state-

   11. JCJason Calacanis56:07

       Got it.

   12. DSDavid Sacks56:07

       ... a Afghan-style, uh, you know, d- debilitating defeat to destabilize the Russian regime? Niall Ferguson had a column this week in, um, it's his Bloomberg Column.

   13. JCJason Calacanis56:19

       He's from the Brooking Institute at Stanford?

   14. DSDavid Sacks56:20

       No, he's from- he's from Hoover, um...

   15. JCJason Calacanis56:22

       Oh, Hoover, rather. Sorry. Yeah.

   16. DSDavid Sacks56:23

       Yeah. So I'll read, I'll read this part. He- I think he's-

   17. JCJason Calacanis56:25

       Hoover is at... Uh, w- w- could you just explain to people what the Hoover Institute is and how that leans?

   18. DSDavid Sacks56:29

       Hoover Institution for War and Peace.

   19. JCJason Calacanis56:30

       Just so they have the context.

   20. DSDavid Sacks56:30

       I would say it sort of leans, um, i- idealistic in foreign policy. I would describe Niall as sort of the most realistic idealist.

   21. JCJason Calacanis56:40

       Got it. Okay.

   22. DSDavid Sacks56:40

       Um, so-

   23. JCJason Calacanis56:41

       Thanks for the context.

   24. DSDavid Sacks56:41

       But he's quite well-sourced, I think, uh, with, you know, in- in- with, you know, various people in Washington and Europe, and he, what he wrote is, "The US intends to keep this war going. The administration will continue to supply the Ukrainians with anti-aircraft stingers, anti-tank Javelins, explosive switchblade drones. It will k- uh, keep trying to persuade other NATO governments to supply heavier defensive weaponry and so on." Uh, he says, "Washington will revert to the Afghanistan after 1979 playbook of supplying an insurgency only if the Ukrainian government loses the conventional war." So, the concern here is that the US government has an incentive actually, that Ru- they- they don't want a quick end to this war, is basically the theory, is they want the Russian state to bleed out and be destabilized.

   25. JCJason Calacanis57:30

       Let's say, in- in a way it's the, uh, one chance we have for like regime change there without us actually starting a war is that they have this self-inflicted wound. That is the theory.

   26. DSDavid Sacks57:39

       Yeah, and I think a lot of people are saying that. That is what a lot of people want in Washington. I don't, you know, this is not like conspiracy theory. People are saying this is our chance to topple the Russian state, uh, destabilize it. There was a RAND Corporation-

   27. JCJason Calacanis57:52

       H- how do you feel about that? Is that a...

   28. DSDavid Sacks57:53

       ... survey done a few years ago... Hold on, there's a-

   29. JCJason Calacanis57:55

       Yeah.

   30. DSDavid Sacks57:55

       RAND Corporation study done a few years ago that was commissioned by somebody, probably in our State Department or someone like that, where they talked about this, that if we wanted to destabilize the Russian regime, Ukraine is the way to do it.
6. 1:08:58 – 1:24:18

   How will Putin withdraw without redacting the sanctions? What is the offramp? Zelenskyy's posture on global war

   1. JCJason Calacanis1:08:58

      agreement.

   2. BGBrad Gerstner1:08:58

      Sacks, let me, can I ask you a question? Um, so how is Putin gonna withdraw without 100% lifting of the sanctions? And how is the West possibly going to trust him to withdraw, right, whi- whi- while taking all the sanctions off? That seems to me like wh- when I try to construct the golden bridge in my mind, it comes down to, you know, like, how do we, h- wha- how do we whack up the sanctions? Do we take some of them off, say, "Prove to us, be out for X period of time and then we'll roll the other ones off"? Because these sanctions are not gonna be rolled back in the next three months based on some ceasefire.

   3. DSDavid Sacks1:09:39

      I, I agree with that. I, I don't know that Putin can expect the sanctions to be lifted or that he can effectively negotiate for that. I think, again, where I think the, the, the peace deal is, is that, w- we've known all along what it's gonna be. Ukraine will agree to neutrality in exchange for some security guarantees from the West. Uh, Th- uh, Russia will get to keep Crimea, because that's been a fait accompli since the annexation of 2014, and there will be some sort of regional autonomy for these sort of Russian-speaking areas in the Donbas, which by the way, we could have had that too. There was a, a deal called Minsk II since 2015 that simply hasn't been implemented. So, you know, I think that, those are the broad strokes of the deal. And then there's questions about, well, is there a land bridge from Crimea to the Donbas, and, you know, what weapons exactly does Ukraine get to get from the United States or get to keep? I mean, so look, those details matter a lot to the people who live there, but the broad strokes of this, I think, are pretty well understood.

   4. BGBrad Gerstner1:10:43

      I'm not betting this way with w- with our book, but if I had to guess, we are going to have a period of significant escalation on both sides before they both get to the table. Macron said this week that we still have, the Europeans have not made a decision about the embargo of Russian oil that will collapse the Russian economy and oil will go to $180 or $200 a barrel. I think that's a real likelihood. Um, and the second one is I think the Russians will amp up military aggression, um, uh, in some face-saving measure and to have more to negotiate with. Um, so maybe to answer th- my own question is if there is an oil embargo, then you'd take the oil embargo off, right, as part of the economic sanction, whacking up of the sanctions, um, because that's really the nuclear option, uh, against the Russians economically. But it's a, you know, unfortunately, I think we have to be prepared for this to get worse before it gets better, because it makes sense from just a game theory for both sides to grab as much as they can right before-

   5. JCJason Calacanis1:11:50

      Yup.

   6. BGBrad Gerstner1:11:50

      ... they sit down at the table-

   7. DSDavid Sacks1:11:51

      Right.

   8. BGBrad Gerstner1:11:51

      ... so they have more shit to give to each other.

   9. DSDavid Sacks1:11:53

      Right, a- but the problem is, if both sides keep esca- I agree with that fundamental analysis, is that neither Putin nor Zelensky can be trusted on their own (laughs) , uh, to basically make peace because they want to push their advantage. If either one believes that they're winning on the battlefield, they're gonna push their advantage to grab as much as they can to then negotiate from a position of greater strength. The problem is that they're in an escalatory spiral where if, you know, one or both of them miscalculate, we never get that deal, and I think the longer the war drags on, the harder it is to make a deal, not easier. O- one, one of the, I, I have to say, one of the disturbing things that came out over the past week was in that interview that I mentioned, uh, where Fareed Zakaria interviewed Zelensky, Zelensky said, he said that it's eith- we're either gonna get a peace deal or World War III. And I'm listening to this thinking, wait a second, um, you know, that, th- that is a pretty scary posture for him to be taking, and furthermore, who appointed him leader of the free world, you know? The decision to have World War III is not his decision. He is not the president of the United States. We did not vote for him. We may think he's heroic, we may think he deserves our support, but he does not get to turn this into World War III for us. The American people did not choose that.And this is where I go back to Biden and the administration and their leadership. What are they pushing for? Are they pushing for a protracted, never-ending, Afghan-style war in Ukraine or are they gonna lead the situation to some sort of negotiation or ceasefire? And I just think if we're considering the interests of the United States, we would not let this decision purely be Zelensky's. This guy's willing to entertain War III. That can't be acceptable to us.

   10. DFDavid Friedberg1:13:38

       Well, he is, he-

   11. CPChamath Palihapitiya1:13:38

       But what, what, what i- what is his worst alternative? I mean, like, he's losing his country so of course he wants to say the thing that would scare us into action potentially, right? So, he has nothing to lose. So his incentive-

   12. DSDavid Sacks1:13:50

       Right. But that's why, but that's why we can't let him-

   13. CPChamath Palihapitiya1:13:51

       He has the right to defend-

   14. DSDavid Sacks1:13:51

       ... we can't let him decide for us.

   15. CPChamath Palihapitiya1:13:54

       ... he's not deciding for us.

   16. JCJason Calacanis1:13:54

       I don't think he is. He's using, he's re- he's using rhetoric to get us to talk about it, which he just won. Like, he, y- y- you can see that, what he's saying is working-

   17. DSDavid Sacks1:14:01

       Right.

   18. BGBrad Gerstner1:14:01

       Yeah.

   19. JCJason Calacanis1:14:02

       ... uh, because you're talking about it. (alarm sounds) So, uh, I think the, I think the bigger question in all of this is when, uh, is the United States willing to draw a really hard line? So there was a- another thing that happened which is that, you know, Biden essentially said, like, you know, if they use chemical weapons, we will react sort of in kind. Right? There was some, some version of that statement.

   20. BGBrad Gerstner1:14:22

       It's a red line basically, he said. Yes. And-

   21. JCJason Calacanis1:14:25

       And then he also said, you know, depending on, uh, you know, how they use nuclear weapons, we could theoretically respond. So just the, the rhetoric is ratcheting way, way up. And that is surprising to me because I would've thought we had a deal in sight, just get it done. Be pragmatic and get-

   22. DSDavid Sacks1:14:43

       Right. And what's, aside from all this, what's the upside?

   23. JCJason Calacanis1:14:43

       ... okay, but you're assuming, David, you're, you're assuming that we have the influence- You assume, David, that we have the influence to actually cut a deal. You were saying yourself-

   24. DSDavid Sacks1:14:52

       Yes, we do.

   25. JCJason Calacanis1:14:52

       ... for the last couple of months that the US power has waned and that we don't have influence. So which is it? I think you're just blaming Biden.

   26. DSDavid Sacks1:14:59

       I believe, I believe, I believe we have the influence to, to ge- facilitate a deal-

   27. JCJason Calacanis1:15:02

       You were saying, like, last couple weeks that we lost our influence.

   28. DSDavid Sacks1:15:05

       No, I never said anything to the contrary. Listen, le- let me give you an example. We are giving Zelensky and the Ukrainians all these incredible weapons. What are the conditions on that? If Zelensky is unwilling to make a reasonable peace deal, do we, do we have any conditions and are giving him these weapons? Why wouldn't we insist, "Zelensky, listen. We support you. We basically are against this Russian aggression. You should have the right to def- defend your homeland and drive them out, but we also want you to take a reasonable peace deal if one is available and we need you to specify what that is."

   29. JCJason Calacanis1:15:36

       You're assuming-

   30. DSDavid Sacks1:15:37

       Are we, are we exercising that kind of discretion? I don't think so.

Episode duration: 1:36:17