E85: SBF's crypto bailout, Zendesk sells for ~$10B, buyout targets, US diplomacy, AlphaFold & more

1. 0:00 – 4:09

   Bestie intros

   1. CPChamath Palihapitiya0:00

      Let's go, Jason start. Let's go. Do you have any intros? Let's go. Let's go. Let's go. Let's go.

   2. JCJason Calacanis0:03

      All right, if you want intros.

   3. DSDavid Sacks0:04

      (laughs)

   4. DFDavid Friedberg0:06

      We're not willing to pay for them, so don't even go there.

   5. DSDavid Sacks0:09

      (laughs) Sax is awake.

   6. JCJason Calacanis0:11

      All right, well then (laughs) we'll start with you Sax.

   7. DFDavid Friedberg0:13

      If you wanna do your job, you'll do the intros-

   8. DSDavid Sacks0:15

      (laughs)

   9. JCJason Calacanis0:16

      Here.

   10. DFDavid Friedberg0:16

       ... but if you wanna, if you wanna slow roll your effort because you think you're negotiating with us-

   11. DSDavid Sacks0:20

       (laughs)

   12. DFDavid Friedberg0:20

       ... don't. We don't give a shit.

   13. JCJason Calacanis0:22

       Listen, I'm doing all the projects outside of here.

   14. DFDavid Friedberg0:23

       You think we care about your intros?

   15. DSDavid Sacks0:25

       (laughs)

   16. DFDavid Friedberg0:25

       Do a bad job, we don't care.

   17. DSDavid Sacks0:26

       (laughs)

   18. DFDavid Friedberg0:29

       (laughs)

   19. DSDavid Sacks0:29

       It's so true. (beep) waiting in the wings. All we need is-

   20. JCJason Calacanis0:31

       All right, then I'll just do three Sax intros in a row.

   21. DSDavid Sacks0:34

       ... three of four. (laughs) Oh my God, it's so true. Do, could you do a couple of bad jobs so that we can boot you off the show. Oh, that would be so cool.

   22. DFDavid Friedberg0:39

       (laughs)

   23. JCJason Calacanis0:39

       All right. Here we go.

   24. NANarrator0:41

       Don't let your winner slide. Rain Man David Sax. And I said. We open sourced it to the fans and they've just gone crazy with it. Love you Betsy. Queen of Kinwa. I'm going all in.

   25. JCJason Calacanis0:57

       All In Summit, I packed the joint. But Sax won't give me an extra point. His crypto holdings, they can't find a floor. Going to have him flying commercial for the first time since 2004. Welcome David Sax back to the program, the Rain Man.

   26. DFDavid Friedberg1:11

       Good to be here.

   27. JCJason Calacanis1:12

       Ah, now Friedberg, I never wanted to see him go. But you gotta show up for work, you can't do every other show. The Sultan of Science, he's certainly not a fad. Then again, did you see those ratings with Brad? Welcome back the Sultan of Science.

   28. DSDavid Sacks1:25

       (laughs)

   29. DFDavid Friedberg1:26

       (laughs)

   30. CPChamath Palihapitiya1:26

       By the way, our show beat Brad's ratings. So thank you very much, J-Cal.
2. 4:09 – 18:24

   Assessing SBF bailing out major crypto players & the state of the market

   1. CPChamath Palihapitiya4:09

      ho.

   2. JCJason Calacanis4:09

      Hey ho. All right, let's get started with, um, I think what's going on in crypto, because people do want to hear about that, and it's been quite stunning. A British Virgin Island court ordered the liquidation of Three Arrows Capital, 3AC, after creditors sued the crypto hedge fund for failing to repay its debt. They had three billion in assets under management. They had a huge position in the now defunct, uh, stable coin Terra and its token Luna and they were trading on some massive amount of margin. Uh, how much and what deposits they were using to do this, uh, we will find out. Um, now they're being forced to liquidated, to be liquidated. 3AC owed Voyager Digital $650 million, could not pay it which sent Voyager's stock down 60% and caused them to need a bailout from Sam Bankman-Fried, which has led to, uh, SBF, as he's known in the industry, bailing out a couple of other major folks in crypto. He provided a $200 million credit line to Voyager Digital. This is a Canadian crypto lender. Uh, they'll lend you money against your crypto. Uh, and FTX provided a $250 million credit line to BlockFi. Uh, FTX is obviously SBF's company. And according to early BlockFi investors, the FTX credit line would wipe out all existing shareholders. So we're starting to see the really, uh, onerous term sheets to keep these things alive. This is, of course, in the face of entire crypto collapse, with many crypto coins seeing what we saw in growth stocks. Is this the end of crypto? Uh, is it going to rebound again? What are your thoughts? Chamath, Sax, Friedberg, who wants to start on crypto?

   3. CPChamath Palihapitiya5:50

      Did you guys see the chart that I posted into the group chat that showed Bitcoin activity as a function of year and value? Nick, can you just put that up just so that we can look at that together? The crazy thing about this chart when you look at it is, it, and it's pretty obvious, is that we are collectively in one way, shape, or form basically trading up, uh, ever since 2018, really with all the stimulus. Because if you look at, you know, the mean price of Bitcoin-

   4. DSDavid Sacks6:18

      ... of 2018, it was a nothing burger. You know, what we were talking about was, you know, a price that was sort of between a few $1000, two, 3000-

   5. JCJason Calacanis6:27

      10,000.

   6. DSDavid Sacks6:27

      ... and then 3000. You know, and then all of a sudden, when all of this stimulus money hit the market, look what happened to it.

   7. JCJason Calacanis6:34

      Yeah.

   8. DSDavid Sacks6:34

      But I think something unique also happened, which is that people really understood how to run these very complicated off-chain Bitcoin arbs. And I think we should explain what those are, because those are what's behind the Three Arrows Capital. It's behind, you know, I think Sam had this kind of, um, oblique tweet that said, you know, some of these exchanges are actually already insolvent. They're already the walking dead. So the first thing to keep in mind is that, you know, this is a completely unregulated market. Right? There are no middle maker, uh, market makers per se that actually have reporting requirements to any regulatory authority. There aren't any clearing houses. There isn't a way for us to understand systemic risks as it builds in the crypto market. So what happened starting in 2018 and '19 is people realized the following things were true. It's sort of what we talked about last week. You go and do some crazy round, you, uh, you know, mark up some phantom equity in a company. That company then issues tokens. You then list the tokens, not on, you know, a blockchain per se, obviously, but, uh, in a place where trades can happen off chain, right? And there's a bunch of exchanges where these things happen off chain, because it's one, you know, uh, company, and then they have a bunch of segregated sub-accounts. And what happens is when these things initially get listed, retail goes crazy, the price goes up, folks basically dump on retail. Um, and, you know, you spin that loop as fast as you can, and you can extract an enormous amount of money. Along the way, all these things like DeFi all of a sudden popped out of nowhere, and it's like, "Hey, you can earn 15, 16, 17, 18%. Just deposit the Bitcoin." And so folks would deposit Bitcoin. But then what would happen is, like the places where those deposits were held would then need to obviously find places to make that 11, 12, or 13%, and so then they would go off chain to some other random person who was offering to pay them even more than that, and they would try to arb the difference. But it all catches up with you, because when something like a Terra goes to zero, all the Bitcoin that was used to basically, you know, uh, run that DeFi process around Terra vanishes. You know, and then all of a sudden, you, the lender, are like, "Hey, can I have my, uh, Bitcoin back?" And the broker is like, "Well, actually I don't have it. I lent it to somebody else. Let me go ask that someone else." And they're like, "I'm sorry, I don't have it, but I have these Terra coins," you know, (laughs) 'cause I was running some arb, and now it went to zero. And that's essentially what we're seeing right now. So we have two big problems, and then I think we have a third that's kind of funny. The, the first big problem is like, obviously, in the absence of any regulatory oversight, this stuff is gonna happen. Systemic risks are gonna build up. That's what we're facing right now, is an enormous amount of systemic risk, largely around Bitcoin. A bunch of this money, I think, has been essentially just vaporized. And so all these people that try to find their deposits, especially in custodial accounts in off-chain brokers, may be SOL at some point, and I think that's just gonna be a huge shit show if that actually happens.

   9. JCJason Calacanis9:48

      And to be clear, Chamath, they don't have the keys to their own Bitcoin. They gave money to a custodial account. They then did this lending, went out to get them the 15%, and they don't have any recourse here. They can't get their Bitcoin.

   10. DSDavid Sacks10:04

       Well, look at this article now. Does anybody, does anybody-

   11. JCJason Calacanis10:04

       This is why real Bitcoin owners put them in a wallet and own the keys.

   12. DSDavid Sacks10:08

       Does anybody have recourse to this Three Arrows Capital and all of this other interrelated parties that are now, you know, gone completely bankrupt because of this scam? The answer is absolutely not. Um, so that, that's the first problem. You have absolutely zero oversight, which means systemic risk has been built up in the system. Um, the second thing is that, exactly what you just said, Jason, is that people don't even understand chain of custody here, which is that you thought that you owned this Bitcoin. It turns out you actually may not actually own them at all. You thought that you were properly lending them out. You actually don't. There is no enforceable contract, it turns out. And so I think that's gonna be an entire set of different legal issues that are now gonna come to the surface, because people who actually legitimately lent this stuff out... For example, like if you short a stock and you go and borrow stock from any one of us, there are really tight guardrails, you know? If you wanted to go and put a credit derivative swap on against debt, there's a central clearing house that makes sure you're not over levered. You know, you have to go and get audited by a bank to even get an ac- the kind of account that allows you to put these derivatives on. None of that was possible in crypto. And then the last thing, which I think is kind of funny, is that we've had to listen to every Millennial and Gen Z market observer in crypto tout how this is not like Boomers, and they turned out to be the same, same, same, same. (laughs) I mean, this is the funniest thing of all. It's like of all of the fu- times you've had to hear how it's so different, it turns out it is entirely the same. Entirely, entirely the same. In fact, worse.

   13. JCJason Calacanis11:39

       The custodian issue is definitely a major one. Sacks, what do you think is happening in crypto right now?

   14. DSDavid Sacks11:44

       The price is obviously going down a lot. I don't really have a new point of view on it. I'm mainly pissed off that SBF is trying to raise my taxes in California.

   15. JCJason Calacanis11:54

       (laughs) Explain that.

   16. DSDavid Sacks11:56

       Sam Bankman-Fried, he runs FTX, and his company, he lives in the Bahamas, okay? And there are probably reasons for that related to liability or taxes or something like that.

   17. JCJason Calacanis12:07

       Can you tell us what e- what FTX does?

   18. DSDavid Sacks12:08

       They're like a Coinbase competitor, but they obviously think it's beneficial to be offshore and not under US jurisdiction.

   19. JCJason Calacanis12:14

       And they're very profitable, right?

   20. DSDavid Sacks12:16

       Su- yeah, supposedly they're super profitable. I mean, he's worth like 10 or $15 billion, is my understanding.So, he's been very successful at this. I don't know why they're in the Bahamas. I think either they're in there for securities regulation reasons or for tax reasons, but... It's one of those two. In any event, he doesn't live in California and yet he is sponsoring a ballot initiative here that would add a 0.75% tax on incomes over five million to finance a pandemic prevention institute of his design. He's doing this with Dustin Moskovitz, another billionaire who doesn't know what to do with his money. He was... You may remember that Dustin was the guy funding Chesa Boudin. In any event, this would be... This pandemic prevention institute would be governed by an unaccountable board, as opposed to something like the University of California. This is like them using the ballot initiative system to fund their pet philanthropic projects. I mean, there's really no need for this. I mean, first of all, this is-

   21. JCJason Calacanis13:15

       Sounds like something that should be done federally.

   22. DSDavid Sacks13:17

       Yeah, exactly. It's... Well, first of all, it's looking in the rearview mirror in terms of, like, a, a budgetary priority, but even if you believe this was a priority, I don't know why it'd be the responsibility of California taxpayers exclusively. And even if it was, you'd wanna do it under, say, the UC system, some sort of accountable board as opposed to having it report to, you know, Sam and Dustin. So it makes no sense, and this is really gonna hurt the California tax base because if you start raising taxes on, you know, California millionaires, th- more of them are gonna leave the state, and then that tax revenue leaves the state. And so it actually hurts the general budget. And that's why, you know, California Teachers Association, for example, opposes this, is because they know that this is gonna have a negative impact on core services.

   23. JCJason Calacanis14:05

       What is i-

   24. DSDavid Sacks14:06

       But what's offensive to me is... I mean, so first of all, this is just a, a stupid idea in, like, every possible way. But what is a guy who lives in the Bahamas doing funding ballot initiatives in California to raise our taxes, thereby worsening the California fiscal situation, to fund his pat- philanthropic projects? If you're worth ten billion, just fund it on your own, you know? Do it through your family foundation. I don't know why you need to raise the taxes on all of us.

   25. JCJason Calacanis14:32

       Yeah. Th- that's very bizarre.

   26. DSDavid Sacks14:34

       I, I think I-

   27. JCJason Calacanis14:34

       Why is he giving-

   28. DSDavid Sacks14:35

       Well, the simple answer is because I think it helps curry favor with politicians that he needs for other things.

   29. This is, this is currying-

   30. That's why, that's why, that's why you would do it, that's why I would do it.
3. 18:24 – 34:17

   Classifying crypto assets, high-yield crypto lending

   1. JCJason Calacanis18:24

      there a real technology here, and how much of what we just witnessed with this crypto collapse and the crypto boom-bust cycle, how much is this based on what you would perceive as real technology that is going to advance (laughs) the human species forward, and how much of this was hype, if you were to put a percentage on it? You know, trillions of dollars in assets, you know, created and then wiped out. How much of this was actually real technology? How much of it was a complete utter waste of fucking time and a grift?

   2. CPChamath Palihapitiya18:52

      I'm no crypto expert, and I've not been an investor in cryptocurrencies. I read the original Bitcoin white paper. Makes sense. Bitcoin itself, to me, makes sense as a potential... Uh, initially, it was kind of interesting as a potential alternative currency, but the transaction fees were very high. And so it never really seemed to make sense as a replacement for traditional financial networks until those transaction fees dropped below those of the traditional financial networks. Um, and the, the biggest concern I've always had, which I've mentioned multiple times on this show, is that whenever anyone talks about a cr- quote, cryptocurrency, they talk about the price of it in dollars. And if it really is meant to be an alternative to the US dollar, why are you talking about it in the price of US dollars, and it's up and it's down, relative to dollars? And that implies, ultimately, that the intention would be to transact back to US dollars, which implies that the intent is not to be a replacement for the US dollar, which was a lot of the early prognostication of Bitcoin, was it was gonna be a replacement for the US dollar, it's gonna be an alternative to traditional monetary systems. But ultimately, if you're just measuring this in dollars, and it's up and it's down, everyone's freaking out every day about crypto's up, crypto's down, that means it really is more like a security. Except securities, definitionally, are supposed to have a secured interest in some underlying set of assets. And there's no underlying asset. It's not actually a security because it doesn't provide you a secured interest in anything. So it is effectively a bet on some systems of computers that are meant to facilitate some set of activities that, you know, ultimately people really only seem to value in US dollars. So, um, so I, I don't know. I mean, like, where does it all go? It seems like I mentioned, uh, at our predictions, uh, episode last year, that all of these smaller things are gonna get blown out, these quote/unquote "cryptocurrencies," even though many of them don't really act like a currency, and, you know, maybe Bitcoin itself persists, and it seems to me like that's always gonna have good staying power, as an observer. I'm not a participant. And, uh, you know, any time someone telling you something's in dollars and it's going up and it's going down and you're betting on whether it's gonna go up or go down and your intention is to transact back to dollars, you know, and, and there's no one, there's, there, there's, there's-

   3. JCJason Calacanis21:16

      These have been securities the whole time.

   4. CPChamath Palihapitiya21:17

      Yeah, there's no-

   5. JCJason Calacanis21:18

      I mean, this is the problem-

   6. CPChamath Palihapitiya21:18

      ... there's no underlying-

   7. JCJason Calacanis21:19

      This is the problem I have with it. This has been, you know, a shadow securities stack that was created in parallel to the existing one with a lot of, you know, oversight. And what did we think would happen if you created-

   8. CPChamath Palihapitiya21:32

      Well, other securities Jake, uh-

   9. JCJason Calacanis21:33

      ... a, a global casino with no rules?

   10. CPChamath Palihapitiya21:35

       Other securities have an underlying interest in something. This has an underlying-

   11. JCJason Calacanis21:38

       Sure.

   12. CPChamath Palihapitiya21:39

       ... interest in some line on the blockchain of that-

   13. JCJason Calacanis21:42

       Yes.

   14. CPChamath Palihapitiya21:42

       ... particular network.

   15. DSDavid Sacks21:44

       That's exa-

   16. CPChamath Palihapitiya21:44

       Um-

   17. DSDavid Sacks21:44

       That's exactly what it does.

   18. CPChamath Palihapitiya21:46

       Yeah, it's a secured interest in a line of code in, on a distributed-

   19. DSDavid Sacks21:49

       No, it's a, it's a, it's, it has a secure-

   20. CPChamath Palihapitiya21:52

       ... database.

   21. DSDavid Sacks21:52

       A, a Bitcoin has a legitimate, uh, non-fungible entry in a blockchain that says it and only it represents that thing. And I think that that, you know, is, is I guess the, the, the link-

   22. CPChamath Palihapitiya22:04

       It's a secured interest.

   23. DSDavid Sacks22:05

       ... some, some may call it tenuous, but I, I mean, I tend to think at this point, Bitcoin probably has to be regulated like a security, even, even if it is not and it's more of a commodity only because of the, the volume and the sheer size of both the market and the secondary markets-

   24. JCJason Calacanis22:23

       The potential fallout is the way you're saying it, right? The potential fallout when things go off the rails is so great, you kinda need to have some rails.

   25. DSDavid Sacks22:30

       Yeah, I mean, I mean, like, like, again, as I've said, like, look, if you're a, a market participant trying to trade, you know, very sophisticated, you know, derivatives of any kind, for example, in the credit markets, we have to go and we create these things called ISDAs, they're called ISDAs, you know, and it's basically a kind of an account that allows us to go and, you know, take risk in some of these very esoteric, -teric markets, but the, the underlying principle around that is a common set of parameters, a clearinghouse, the ability to monitor risk. None of those things exist here, and I think that's really what folks have to solve for now. Secondarily is, what were all these kind of, like, shadow activities, you know, it just, it turn- you know, it w- it seemed too good to be true when you would hear, "Wow, this DeFi protocol will yield you 24%." And you're just like-

   26. JCJason Calacanis23:20

       Who was paying the 24%?

   27. DSDavid Sacks23:21

       How is it... It never made sense, really, but then none of us really questioned it enough.

   28. JCJason Calacanis23:25

       I, you know, I had people on This Week in Startups, I questioned it all the time, and they could never explain it to me, and then now the explanation was, "Well, we were giving you, uh, we were giving short-term loans to other people who basically wanted a margin loan." You know, they wanna, they don't want, they wanna HODL their Bitcoin, but that was only 4 or 5%. What they were also doing was giving you tokens in some other cryptocurrencies, um, that they were basically originating, so they basically were like, "We'll give you 4% on your Bitcoin loan. Somebody else will pay that. Uh, you'll pay that. But then the other 11% is coming from some tokens we're giving you that actually, you know-

   29. DSDavid Sacks24:00

       Well, you have to-

   30. JCJason Calacanis24:01

       ... were airline miles."
4. 34:17 – 1:01:24

   Zendesk sells for $10B, accounting for stock-based comp, evergreen standard in tech

   1. JCJason Calacanis34:17

      to go. One thing that I thought was an interesting sign of potentially bouncing along the bottom, um, Zendesk has agreed to be acquired by an investor group in an all cash transaction. They're basically going private here, uh, for around 10.2 billion. Uh, if you don't know, Zendesk is a helpdesk software company. It's a SaaS software company. They turned down a similar acquisition of 17 billion earlier this year. Their market cap is 9.1 billion in the public markets. It's, it's gone up, obviously, since it's announced, this was announced, but, um, they have, uh, a billion three in revenue. They're up 30% year over year. So this is a strong company, but the acquisition price is 7.7 times their 2021 multiple.

   2. DSDavid Sacks34:57

      Sorry, did you say they're up 30%?

   3. JCJason Calacanis35:00

      Year over year.

   4. DSDavid Sacks35:00

      Oh, the rev- the revenue's up 30%.

   5. JCJason Calacanis35:01

      Revenue is up 30% year over year. They have $1.5 billion in cash and securities, uh, that are, you know, marketable securities. So they, they're cash rich. Small loss, 223 million for the year in 2021. So they have six years of runway if nothing were to change. Yeah, what do you make of this, Sax? Is... why would they do this? They don't have to. So... And is this to you like the sign of a bottom if we start seeing a bunch of these companies that went public that are seemingly strong start to go private and to go maybe clean up their balance sheet and go public again in three years? What's going on here?

   6. DSDavid Sacks35:36

      Well, I mean, this isn't a horrible outcome. And by the way, I mean, I remember we shared, uh, when I was doing Yammer a decade ago, we shared a floor in, uh, our, an office building at 410 Townsend with, um, with Zendesk. And they had-

   7. JCJason Calacanis35:50

      They launched at TechCrunch 50. Yeah.

   8. DSDavid Sacks35:51

      Yeah, exactly. So we had, I think, 5,000 square feet, and they had the other 5,000 square feet, and we were in a standoff. Both of us were expanding, and we needed the other half of the floor.

   9. JCJason Calacanis36:00

      (laughs)

   10. DSDavid Sacks36:00

       And it was like, who would move first, basically. And, and anyway, they ended up moving, and we took over their space. But, so, I mean, look, this is a company that, you know, was worth 100 million bucks 10 years ago. So whatever it was, I mean, they were still, you know, they were very early stage. So this is still a great outcome. Should they have taken the 17 billion? Sure. With 20/20 hindsight, that would have been better. Uh, but look, you're seeing the valuations here being roughly reflected. The SaaS index is now down to about five and a half times revenue, I think next 12 months revenue, for the, for the median SaaS company. And the median SaaS company is growing about 20%. If...... you're a high growth company, which starts at 40%. You're trading at about eight times next 12 months revenue. So Dene- Zendesk is sort of in there. I mean, that is what they're trading for. And SaaS founders need-

   11. JCJason Calacanis36:49

       But why go, why would the founders, the board-

   12. DSDavid Sacks36:51

       I'll tell you why.

   13. JCJason Calacanis36:52

       ... want to go private, is the question on people's minds?

   14. DSDavid Sacks36:55

       It's not, it's not that they wanted to go private. I think that they wanted to stay public, and they wanted to build a large business. But this is where the law of large numbers catches up with every company. That's why it's so rare to have an Apple or a Google or a Microsoft or a Facebook or Netflix, where you can grow for 20 years at 25 plus percent, because at some point, 25% growth over last year just becomes too hard of amount to climb.

   15. JCJason Calacanis37:20

       It's a big number.

   16. DSDavid Sacks37:22

       And so what Zendesk suffered from is what most of these SaaS companies, not, and I'm not trying to disparage them, just calling it out, will have to go through, which is the following. The easiest kind of SaaS company to start, and the one that folks, you know, really talented investors like Sachs will fund overwhelmingly over others, are what's called bottoms-up SaaS, right? Things that sell to the low end of the market, things that sell into, you know, SMBs.

   17. JCJason Calacanis37:48

       Individuals can buy them in a corporation, as opposed to the CIO.

   18. DSDavid Sacks37:52

       Yeah. The, the unfortunate part of that growth curve is that it's pretty terminal within seven to 10 years. And after that, you're forced to go to the mid-market, and then eventually you're forced to go enterprise. But when you go to the mid-market and you're selling to 500 and, you know, 1000, 2000 person companies, and then eventually even enterprise, you're talking about massive investments of OPEX. People, engineers, product managers, salespeople, and all of that stuff costs money, and it's not clear that your product is any good. So in the Zendesk example, it's not to say their products were bad, but all of a sudden they were going up in selling a CRM tool, a Salesforce automation tool, and now you're going head-to-head against companies like Salesforce who are going down market. And all of a sudden, Salesforce and Microsoft and all these companies can play very aggressive pricing games with their products. They can bundle all kinds of other things in for free. They can give you discounts, and it's very hard to compete as a single individual company. So your growth starts to stall. So I suspect what happened at Zendesk is they said, "We can make it, and we believe in ourselves." And they found that it was hard. Then instead of organically growing, that's when they turned down the $17 billion offer, they tried to grow inorganically. They looked at SurveyMonkey, right, which our friend Zander runs, and said, "We're gonna try to buy that for $4.1 billion." And the market said, "Uh-uh. No." And then the market basically contracts, and now they're like, "Well, if we go and now torch our EBITDA goals and tell the market we're going to go and spend all that billion dollars we have to try to go up against Salesforce and Microsoft with a product that we don't know is gonna work, our stock's gonna be at a dollar." And so I think that that's sort of the, the parade of terribles that happened for them. But it's a little bit of a warning sign for how difficult it is to get big. Like, what Salesforce pulled off, right, and what Workday is starting to pull off, what ServiceNow has pulled off, I mean, it, you can't underestimate the quality of those teams and those CEOs to pull that off.

   19. JCJason Calacanis39:52

       I mean Google, Apple, Facebook, yeah. Yeah.

   20. DSDavid Sacks39:53

       No, no, I'm saying, I'm saying specifically enterprise SaaS.

   21. JCJason Calacanis39:55

       And SaaS, yes, yes.

   22. DSDavid Sacks39:56

       Those companies, ServiceNow probably being the last one that's really did it, incredible. So difficult. Palo Alto Networks is probably the next closest one now, Nicatiora-

   23. JCJason Calacanis40:05

       And Salesforce did two acquisitions, let's be clear, right?

   24. DSDavid Sacks40:08

       ... amazing CEO.

   25. JCJason Calacanis40:08

       Salesforce kept adding-

   26. DSDavid Sacks40:09

       It doesn't matter how you get there.

   27. JCJason Calacanis40:10

       Yeah.

   28. DSDavid Sacks40:10

       Organically, inorganically, it doesn't matter. The point is, it's very hard, rare M- most CEOs fail, nobody accomplishes it.

   29. JCJason Calacanis40:16

       So is this going, but okay, so my original question is, is this the bouncing along the bottom moment?

   30. DSDavid Sacks40:20

       No.
5. 1:01:24 – 1:08:21

   Buyout targets, public market "regime change"

   1. JCJason Calacanis1:01:24

      and hanging out. There's gonna be a bunch of companies in this position, so look for this as a trend. Peloton, 964 million last quarter in revenue lost, 757 million in the quarter. They have a $3.1 billion market cap. They've only got $879 million worth of cash. I'm just looking at these numbers, hopefully they're, they're tight. Um, and they have a billion foreign inventory. That company's gonna get taken out. Uh, BuzzFeed, I don't know why that even went public, they're down 84%. They had 91 million d- a media company, $91 million in Q1 revenue, they lost 45 million. Their market cap is down to 210 million, and they've only got 74 million in cash or so, with some, you know, maybe 100 millions in accounts receivable. So there's a bunch of companies right now that are public that are about to hit, in a couple of quarters, running out of cash going into a recession. Are we gonna see some big flame-outs do you think? And are, are you watching specific companies because the private equity folks must be salivating watching this.

   2. DSDavid Sacks1:02:21

      Well, I mean, look, J- J- Jkal, you asked what the takeaway was around this.

   3. JCJason Calacanis1:02:25

      Yeah.

   4. DSDavid Sacks1:02:25

      And I think the takeaway is there's been a regime change in the public markets. The way that investors look at these companies is changing. It's not about growth at all costs anymore. They're not just looking at revenues. It's also about margins and cash flow. And, you know, we talked about it on the last pod how I think a lot of founders understand intellectually that we're headed for a downturn, uh, if not a recession, but they weren't taking the medicine of basically reducing their burn. Well, this is an indication of what investors are valuing. If the only way for Zendesk to create value as a public company is to sell to a private equity firm who's gonna not-

   5. JCJason Calacanis1:03:03

      And cut half the staff.

   6. DSDavid Sacks1:03:03

      ... is gonna cut half th- or, or some huge number of staff to run it for free cash flow, that's just an indication of the regime change. So, you know, we need founders to start internalizing this information so they can run their businesses more efficiently. You know, what investors want right now, they still want growth, but they want it with low burn. High burn operations are gonna get punished.

   7. I've transitioned most of my public markets time to focus m- on debt. Um, and I've been looking at these-

   8. JCJason Calacanis1:03:31

      On debt?

   9. DSDavid Sacks1:03:31

      ... companies because, yeah, because there's a lot of these really interesting tech companies with a lot of ill- because what David said, I think, is 100,000% right, what Sax just said. There is a massive, massive regime change here. And-

   10. JCJason Calacanis1:03:45

       Yeah, th- and shocking if you don't take the medicine.

   11. DSDavid Sacks1:03:48

       And, and what, what's funny is like so many of these companies have been left for dead, but what is really juicy is the few companies that you think will survive, and specifically making sure you're protected in the capital structure, which means to own the debt because the debt is always senior to the equity. And there's some really, really interesting companies out there that are in that situation, and it's just like, it's a much better risk/reward in a moment where again, you know, we talked about this, but why would you give up your liquidity today? I don't know the answer. Why? Why? You, you-

   12. JCJason Calacanis1:04:22

       Let's go around the horn. Yeah, I just had one.

   13. DSDavid Sacks1:04:24

       You've used this term, Jason, before, like skipping along the bottom. I just think it's like psychological wishful thinking as opposed to sort of like a rational summation of the actual. Jerome Powell just said, "I will tank the economy in order to beat inflation." He just said it in The Wall Street Journal.

   14. JCJason Calacanis1:04:40

       Uh, but people believe inflation might be turning over. Do you buy that or not?

   15. DSDavid Sacks1:04:44

       No. As I've said, I think you're gonna see 8 and 9% inflation prints for at least the next three or four months minimum. I think that things could get, um, marginally better after that, but I think the thing we don't know, and again, it just touches, and I don't care what the fucking audience thinks, touches Russia and Ukraine, so sorry to bring up politics, but-

   16. JCJason Calacanis1:05:05

       No, we hav- we have- yeah, okay.

   17. DSDavid Sacks1:05:06

       ... these things are inexorably intertwined, and if people want to go and venture and gamble in the stock market, you might as well understand this because I think, you know, many of the scenarios will trade because of what's gonna happen with Putin.

   18. JCJason Calacanis1:05:20

       Let me, let me ask the question here. How many quarters will this recession be if we had to pick a range, pick a two-quarter range? I'm thinking three to five. What, what do you think?

   19. DSDavid Sacks1:05:29

       I have no idea.

   20. JCJason Calacanis1:05:30

       Okay. Friedberg, you got a... if, if this is the second-

   21. CPChamath Palihapitiya1:05:34

       What's the question?

   22. JCJason Calacanis1:05:34

       How many quarters, plus or minus two let's say, uh, is this recession gonna be? So five plus or minus two, four plus or minus two, plus or minus one? What, what are you thinking will be the bottom out point if, you know-

   23. CPChamath Palihapitiya1:05:46

       I don't like the term. I've told you guys I don't like the term, quote, recession as if it's some absolute negative thing. I mean, negative GDP growth coming off of inflated GDP doesn't feel to me as, uh, systemically challenging to the economy as, uh, you know, some other circumstance where, for example, there was a global financial crisis or, uh, 9/11 or, or some other kind of factor that, that, that drove things, uh, that, that really affected the core economy. We're certainly... we, we had m- we had something that, that affected the core economy in COVID, then we had massive stimulus. So I, I, I don't... I think there's this unfortunate general characterization of quote/unquote recession being an absolute negative, and I think that there's relative growth, and if you're gr- if your relative growth is negative off of an inflated number but over a-

   24. JCJason Calacanis1:06:41

       Okay, let me give you-

   25. CPChamath Palihapitiya1:06:41

       ... historic three-year-

   26. JCJason Calacanis1:06:42

       Yeah.

   27. CPChamath Palihapitiya1:06:42

       Let me just finish. But over-

   28. JCJason Calacanis1:06:43

       Yeah.

   29. CPChamath Palihapitiya1:06:43

       ... a historic two or three year period, you're still growing the economy considerably because jobs, uh, jobs are growing and pr- production is growing. Uh, it's not as negative as it's being made out to be. So I, I, I'm not gonna-

   30. JCJason Calacanis1:06:55

       Okay, I get you.
6. 1:08:21 – 1:28:35

   Russia/Ukraine impact on markets, could US diplomacy have prevented the war?

   1. JCJason Calacanis1:08:21

      of... And then we'll go to some of the political stuff that affects markets after this.

   2. DSDavid Sacks1:08:24

      Well, I mean, I think it's all related. So there's three things going on here right now economically, or three underlying causes. One is rate expectations have changed massively. Interest rates have gone up and rate expectations are going up even more, fueled by inflation. And until we see where we're at on inflation, whether that gets controlled, that issue is not going away. The second big issue is economic slowdown, the recession. So the first one was Wall Street, this is Main Street, and these two things are related because companies are slamming on the brakes because they're seeing that the capital availability is greatly getting reduced by this re-rating, this regime change in markets. So we're seeing an economic slowdown that threatens to turn into a recession, and consumer confidence is part of that, right? When your wages don't buy you as much because food and gas prices are through the roof, that reduces consumer confidence, and that also plays into that. So that's the second big issue, and I don't think we're gonna know about recession, it's gonna take, you know, potentially through the rest of the year before we figure out what's happening there. And then the third part of this is the overhang of this war in Europe, the Ukraine war, which is now threatening to become a forever war. There was a pretty stunning article in The Washington Post this week in which the administration officials were quoted as saying that they would effectively prefer, or countenance was their word, a global recession and famine over letting Russia keep the Donbas region. So they are committed now to basically prying Russia out of the Donbas even if it means global recession. Not to mention-

   3. JCJason Calacanis1:10:03

      Did they say specifically the Donbas or specifically standing up to Putin?

   4. DSDavid Sacks1:10:07

      Well, no, that's-

   5. JCJason Calacanis1:10:07

      'Cause that's kind of minimizing the-

   6. DSDavid Sacks1:10:08

      No, what we're talking about is, is the Donbas region.

   7. JCJason Calacanis1:10:11

      Yeah.

   8. DSDavid Sacks1:10:11

      What's happened is, look, the Russians lost the first few weeks of the war in which they tried to strike... They, they basically went for a knockout blow to take over Kyiv, topple Zelenskyy. I think we accomplished something in preventing that. But since then, they have achieved their objective of taking over this eastern portion of the country, this Donbas region, in which, this is where most of the ethnic Russians live, and these Ukrainian separatists who are ethnically Russian, they've been fighting alongside the Russian troops, and the Russians have basically won that part of the war. And so the question is, what do we do now? And what you had is you had administration officials saying that they would not accept the status quo, that they are willing to fight on for years. You know, the same geniuses who gave us the forever wars of the Middle East are now giving us a forever war in Eastern Europe, and they are saying that they are willing to basically continue this fight even if it means global recession. Now, I don't think the American people ever voted for this, but this is what the administration is pursuing. And, you know, you gotta remember that there's always the risk that this war spins out of control, that we get a nuclear escalation. So I think that this is a huge overhang on markets, that's a- it's the third big problem that we have. So I don't see how we get out of this bear market until you get clarity and resolution of inflation and rates, number one, slowdown or recession, number two, and basically this war in Europe, number three.

   9. It's... And it's reflexive because, uh, these next three months as I, as I kind of indicated last week, I think we're gonna see inflation, uh, prints that are really high in part because things like rents which haven't, you know, which are on a lag will get folded back in. So we're gonna be printing 8% and 9%. And then guess what, Jason? It's the fall. It starts to get colder. You know, uh, Russia's depriving Europe of nat gas. Um, where's the oil gonna come from? OPEC is basically still stiff-arming the United States with respect to expanded production capacity. Why? Because they didn't like the way that we were strong-arming them and a whole bunch of other topics is in, in... you know. And so w- where do we stand? You could have $180 a barrel oil by November, December when it's cold, not just here but in continental Europe. Now all of a sudden inflation gets... kicks right back up again. It could be 7%, 8%, 9% again. And so I just think all of these things are now so inextricably intertwined, and I think David's right. We need to put this war to bed and the unfortunate consequence is that right now if we wanna fight a proxy war, there is no e- elegant off-ramp that I see. So-

Episode duration: 1:35:25