All-In PodcastE96: Adobe acquires Figma for $20B, TPB SPAC, FedEx CEO's recession warning, macro picture & more
EVERY SPOKEN WORD
150 min read · 30,380 words- 0:00 – 0:59
Bestie intro!
- JCJason Calacanis
I literally don't want to talk about brigading guys, though, only because it's getting crazy and I had to, like, mod my stuff, so-
- DSDavid Sacks
Start the recording, please. Start the recording.
- JCJason Calacanis
I'm gonna strike it.
- DSDavid Sacks
By brigades, do you mean like MAGA brigades?
- JCJason Calacanis
All right, listen, it-
- DSDavid Sacks
No, I'm serious. You think... 'cause I can call them off.
- JCJason Calacanis
I'm gonna strike this.
- DSDavid Sacks
You want me to call them off?
- CPChamath Palihapitiya
(laughs)
- JCJason Calacanis
I'll let you go in.
- DSDavid Sacks
Hold on. Hold on. Hold on. Hold on. Hey, Donny? Hey, Donny?
- CPChamath Palihapitiya
Yeah. (laughs)
- DSDavid Sacks
Jake Hall said he's being brigaded by MAGA. Yeah, yeah, yeah.
- CPChamath Palihapitiya
(laughs)
- DSDavid Sacks
He can't handle it. He's tapping out.
- JCJason Calacanis
I tap out. I tap out. (laughs) I tap out.
- DSDavid Sacks
Can you call some dogs?
- CPChamath Palihapitiya
(laughs) Yeah.
- JCJason Calacanis
Please.
- DSDavid Sacks
Okay. All right. It's all good. It's all good. They're- they're-
- JCJason Calacanis
You talked to the dog?
- DSDavid Sacks
It's, it's over.
- JCJason Calacanis
(laughs)
- DSDavid Sacks
They're not gonna, they're not gonna brigade you anymore. The psyop is over.
- CPChamath Palihapitiya
(laughs)
- JCJason Calacanis
Thank you. Thank you.
- DSDavid Sacks
(laughs)
- CPChamath Palihapitiya
It was getting pretty a- it was getting pretty acute there.
- DSDavid Sacks
Yeah, it's done. Don't worry about it.
- NANarrator
What's going on? Let your winners ride. Rain man David Sachs. What's going on? And I said we open source it to the fans and they've just gone crazy with it. Love you guys. Queen of quinoa. What's
- 0:59 – 19:21
Adobe agrees to acquire Figma for $20B
- NANarrator
going on?
- JCJason Calacanis
All right, everybody. Welcome to episode 96 of The All In podcast. We had a bomb drop just yesterday, uh, with Adobe agreeing to acquire Figma, uh, the design tool, we'll get into that in a minute, what it actually does, for $20 billion. This is just astounding for this to happen, period, full stop. It's the largest private company purchase, uh, I believe in history. This company, if you don't know, it helps you design web apps, uh, or user interfaces, so if you're a designer, we used to make mock-ups, we'd send them around in the industry as images or PDFs, and then, like Google Docs, where you can put comments on somebody else's words and you can collaborate in real time, we call it multiplayer mode, Figma is multiplayer mode. The, the company is just a juggernaut. If you work in startups, you get Figma designs all day, uh, and Adobe stock got crushed because of this, so it's down as much as 18% on Thursday. Uh, Figma's most recent valuation was $10 billion in June of 2021, their Series E, so peak market, they had raised $200 million at that time. There's a lot of details to get into here, but, uh, you know, listen, let's, uh, ask the sultan of SaaS here what you think of this, because it's double what was an incredible, uh, market last year that was overheated. So what does this say about the market, Figma, you know, Figma itself, or maybe Adobe's, you know, jumping the fence or being skittish? Uh, wh- how do we reconcile this, Sachs?
- DSDavid Sacks
Uh, if you judge Adobe's stock price the other day, the market hated the deal. I mean, the, uh, Adobe stock price went down, like, 15% and that's a $150 billion company roughly, so they lost almost the entire purchase price in their market capitalization of Figma. I think that's, that's basically an overreaction. I, you know, I, I know all the news is basically on how Adobe is paying 50 times and that's no longer the multiple, the multiple is more like, you know, eight, nine, ten times for high growth SaaS companies. There is truth to that, but, but I think it misses some important details about how fast Figma's growing. Could we actually throw up on the, the screen the ARR history of this company? So-
- JCJason Calacanis
And for people who know, the multiple is the multiple times top line revenue. So SaaS is-
- DSDavid Sacks
Times ARR really. So it's-
- JCJason Calacanis
Oh, yeah. Okay. So expl- explain that to folks. Yeah.
- DSDavid Sacks
Well, ARR is just the annually recurring revenue. It's subscription revenue. The- sometimes people will look at next 12 months revenue, which is a similar concept, not quite the same, but sort of in the ballpark. So, you know, what's interesting about this company, I think it was founded 2011, 2012. It had a very long wilderness period, that's what I call the period where the, the founders are trying to figure out what the product's gonna be. Uh, really, for almost five years, they finally launched a private beta in 2015, they then opened it up to public launch in 2016, and they didn't turn on monetization until 2017. So five years into the company, they hadn't made a dime, so, you know, it's roughly a 10-year-old company and for the first five years didn't make any money, and then they started to make money five years ago. And then in 2018, I think they turned on the enterprise tier, uh, and then it's been kind of off to the races. Uh-
- JCJason Calacanis
That's incredible. Look at those numbers. Wow.
- DSDavid Sacks
Yeah, what I, what I can tell you, looking at these numbers... By the way, so I don't know if these numbers are perfectly correct. This is sort of, I would call this scuttlebutt numbers. These are numbers that, um, I believe to be true, but it's not like these are numbers that the company's confirmed or anything like that. This is just me gathering, you know, intelligence from talking to people in Silicon Valley. So this is what I believe to be the case.
- JCJason Calacanis
Sachs, can you, can you, can you read the numbers for people that-
- DSDavid Sacks
Yeah.
- JCJason Calacanis
... aren't on YouTube watching this?
- DSDavid Sacks
Yeah. So in 2017, again, the first year they monetized, they did 700,000... They ended the year with 700,000 of, of ARR. Remember that ARR is kind of a point in time metric, it's the amount of subscription revenue, your annual run rate subscription revenue at that time. So they ended 2017 with 700,000; 2018, they ended with four million; 2019, they ended with 23 million; 2020, they ended with 77 million; 2021, 210 million; and then the estimated number for this year is 450. So you've seen in the press, I think it has been publicly reported, a $400 million ARR number is currently where they're at. I've heard that they're gonna end with something more like 450 this year and then the- their forecast for next year is or was, at some point in time when somebody heard this, 800 million, you know, forecast for 2023. So my point is, I've seen a lot of SaaS metrics, and I can tell you that this ARR ramp is phenomenal. You know, I'm sure people have kinda heard about the triple triple double double, that's kinda what VCs want you to do. They want you to triple two years in a row, then they want you to double two years in a row, and so forth. This company did way better than that. I mean, 700K to 4 million is a really fast ramp, and then 4 million to 23 million is incredible. That's like, you know, over a 5X. And then they did over-... a 3X, going from 23 to 77 million. I can tell you that is super hard. I think most companies, even the ones that hit, you know, low 20s, tripling year over year, they tend to decelerate to two and a half times or something like that. This company was still growing over 3X. Then they roughly tripled again to get to 210 and then since they-
- DFDavid Friedberg
Sats, I have question.
- DSDavid Sacks
Yeah. So now they're double that.
- DFDavid Friedberg
Do you think the triple in 2020 was a COVID pull forward?
- DSDavid Sacks
Yeah.
- DFDavid Friedberg
Or do you think that that was a natural... Like a Zoom or not?
- CPChamath Palihapitiya
That's what I was gonna ask.
- DSDavid Sacks
I mean, uh, it's possible but, um-
- CPChamath Palihapitiya
'Cause people were collaborating
- NANarrator
I know, right?
- DSDavid Sacks
I'm not... I don't see... I mean, so far in the numbers, I don't see a huge slowdown here. Um, I mean, look, once the numbers get into the hundreds of millions, it's really hard to maintain the same growth rate. You're compounding off such a large base that it's just inevitable. You can't keep growing 3X year over year once you're at, you know, 200 million of ARR. But the fact they got first from 23 to 77 and then 77 to 210, and now 210. They're at... Let's say they're at 400 now and they're gonna be at 450 by the end of the year plus. It's, um... It's pretty amazing. And so... Okay, so yeah, so Adobe's paying 50 times current ARR, but if you believe this, b- they're only paying... Divide by 2, they're paying 25 times end of next year, so like 18 months from now. And then you figure, you know, within say two years after that, they're gonna be, you know, at somewhere between one and a half and two billion-
- DFDavid Friedberg
Yeah.
- DSDavid Sacks
... of ARR. And there... As, as you guys know, there just aren't that many SaaS companies that even get to a billion of ARR, so... So I- I don't think-
- CPChamath Palihapitiya
Next.
- DSDavid Sacks
... Adobe is making a bad deal here. There... I think there's a question about is there any point at which this product hits some sort of market saturation? But Adobe's in a good position to know that 'cause they understand this market. They are in this market.
- CPChamath Palihapitiya
It feels to me like... I don't know, I've been using Adobe Photoshop right around when it first came out, like 1992. And this product, I've used it... It was built web first, it was built for collaborative use. And Photoshop, over the years, they've really tried to take what is a desktop installed software application and then try and create cloud-based features. And it's a terrible, terrible user experience, at least from my perspective, having grown up on using Adobe Photoshop. But what's most important, I think, is a lot of people think about this on, is it the right price to pay for the company? But at the end of the day, the right price to pay for the company is what Adobe views to be the risk and reward for their business, and they effectively, um, paid roughly 12% dilution of their company to do this deal. So they're saying, "Let's take 12% of our company and effectively de-risk the biggest risk to our business, take out the biggest threat to our business for 12% of our company."
- DFDavid Friedberg
Uh, 12%.
- CPChamath Palihapitiya
Was it 12%?
- 19:21 – 38:59
How Adobe might bundle Figma, regulatory implications
- DFDavid Friedberg
company.
- JCJason Calacanis
Sax, would you bundle, if you were the CEO of Figma, would you now- I'm sorry, CEO of, uh, Adobe, would you bundle Figma into the creative cloud and then just make it one subscription? Would you Microsoft Teams it?
- DSDavid Sacks
Yeah, maybe. I don't know. I'm not sure about that. I- I do think that Microsoft is a little bit, uh, unique, uh, in its ability to bundle. So what M- so Chamath is right about the power of the bundling. Uh, what they do is, I think it's called the E5 bundle, they have all these products that virtually all enterprises use, from Office to, you know, active directory to, you know, there's like a whole long list of them. And so what they've done is they've created one price for all of those products that they sell as a bundle under a wall-to-wall enterprise license. And what they do is, when they see a new competitor come along, whether it's Slack or Zoom or, uh, or Okta, is they'll basically just clone it, create a worse version of that product, and throw it into the bundle. And so now, every single enterprise is getting the Slack clone or the Zoom clone or whatever for free, and that has a huge material impact on, you know, it pulls the rug out from under those startups. So, now that's not to say that Microsoft's product is anywhere near as good as those- those competitors, but, you know, now all of a sudden the- the Microsoft product is, on a marginal basis, free. But then what Microsoft does is, you know, every year or two, they go raise the price of the bundle. So basically, you know, they get you hooked on the bundle, they then use it to systematically kill or undermine a competitor, and then they know you're stuck, and then they raise the price. They basically have inflation of the price of the whole bundle. I think it's very anti-competitive, actually. I think it's, um, it's akin to dumping. Um, I- I'm not sure what the logical stopping point of it is. Like, I don't know if we can have a healthy SaaS market if Microsoft is allowed to keep doing this forever. Because think about it, I mean, they will just, every year, they will take the hot SaaS company du jour, clone it, it'll be a shitty version, they'll throw it into their bundle, and now they're dumping, they're dumping the product in the market. It's basically free. It's free until they basically drive-
- JCJason Calacanis
And-
- DSDavid Sacks
... they drive out the competitor or destroy it or basically undermine its market cap to the point where it can no longer make the kinds of investments it needs-
- JCJason Calacanis
That's right.
- DSDavid Sacks
... to pose a real threat to the Microsoft larger entity, right?
- JCJason Calacanis
Yeah.
- DSDavid Sacks
So think about how anti-competitive this is, and you don't hear a word about this from Lina Khan or Washington. They're only focused on social networks.
- DFDavid Friedberg
No, it's- it's so funny. It's like she's more focused on, you know, making sure Amazon doesn't buy Roomba, that, you know, this stuff that's happening-
- JCJason Calacanis
(laughs) Or Facebook doesn't buy one VR app.
- DFDavid Friedberg
...
- CPChamath Palihapitiya
underground.
- JCJason Calacanis
Yeah, she- it's not a very sophisticated approach, you're right.
- DFDavid Friedberg
This is the kind of stuff that actually really matters. I really think you nailed it on the head, Sax. It's a- it's an impossible strategy to defend against. The- the other thing that is interesting, by the way, about all of this is, you know, if you think that the valuation, the takeout premium was basically 2X post to post, what that means is that if Figma was last valued at 10, is now worth 20, you know, does that mean that Canva, which was last priced at 40, is worth 80? Well, potentially to, well, potentially to Adobe, right? And if you add those two together now, you know, what you really have is basically the- the entire totality of the creative cloud for Adobe is basically embedded now in these two businesses at an- an- an- an extreme premium. And so it makes it very difficult now, I think as well, for Adobe to execute a strategy here without it being forced to do some more expensive, um, diluted M&A.
- JCJason Calacanis
Well, and the other problem, Chamath, is this is going to ring bells. So when I said before there were two existential threats, Canva is the other one, and that is the other paradigm shift that's occurred in computing, is that making things radically simple you talked about it, Freeberg. Photoshop is complex and it's single player. Canva is how people create, you know, any kind of marketing materials today, and they don't hire a designer anymore. The job of graphic designer is now everybody's job. Everybody can make something on Canva. But then I think Sax or- or- or- or Freeberg, maybe you have thoughts on this, if you're a Lina Khan and they do make a run at Canva, Adobe, now are you saying like, "Hey, wait a second, you now run the table on all design tools. You can't buy it."
- CPChamath Palihapitiya
It's a weird classification. It's only called design tools because it was sold to someone that was called a designer before, and that's not the case anymore. Now it's a tool that anyone can use in the enterprise setting or in a small- small business setting or in an individual setting to create stuff. And that wasn't the case with Photoshop. And I think that's what makes this, um, arguably a very different business, a bigger business, a more transformative business, and a farther reaching business. And I don't think that there's necessarily a, speaking of the Figma deal, right, um, a case to be made here that they're preventing the, uh, extinction of their monopoly. They're buying what looks like a very different business, and- and it's really additive. It's, uh, it's a business that can turn anyone into a creator. It's really cool.
- DSDavid Sacks
Well, yeah, but you're kind of- you're kind of speaking out both sides of your mouth now, because on the one hand, you're saying it's a different business, but on the other hand, you said that this is basically protecting them against an existential disruption to their core business.So if it's an existential disruption to their core business, how could it not be in the same market? Of course, it's in the same market.
- JCJason Calacanis
Well, there are new entrants, competitors, right?
- DSDavid Sacks
Yeah. There are new entrants and there are, you know, different underlying, you know, technology trends. This is all about cloud. But nonetheless, I don't see how these things aren't competitors with each other to some degree. So I don't know how this doesn't get seriously reviewed-
- JCJason Calacanis
Yeah. I- it feels so-
- DSDavid Sacks
... by antitrust authorities.
- CPChamath Palihapitiya
It feels so similar to Facebook, Instagram, and Google, YouTube. And by the way, it's similar in both those examples in a number of ways. Both, um, Facebook... Instagram was not competing in the same product as Facebook at the time with the newsfeed or whatever. It was a photo sharing service that, uh, clearly created a broader addressable market that got more people to use a social network. And, um, YouTube, people- and people thought they were overpaying, right? And then YouTube, everyone thought it was crazy they paid a billion six for that business, and it's probably the greatest acquisition of all time. It's been the greatest managed acquisition of all time, I should say. Um, and that business, similarly, I think Google recognized that people were going to move to video content as an alternative to text-based web content, and that it was a bigger picture opportunity than what they were pursuing and in the lane that they operated in at that time, and they were right. And in both cases, it was more about paying whatever it took to get the deal done than, you know, "Hey, how many users do you have? How much revenue? How much EBITDA? What's your ARR?" All that stuff goes out the window when you're sitting in that strategic driver's seat at that big company and you're saying, "This is a bigger market. These guys are transforming the market, and ultimately over time that will eclipse us." And you can say, hey, you're protecting your business, but really you're protecting your market. I mean, the market is gonna go away is what the vision is. Like, the market that you exist in today isn't gonna exist in the same way in five, 10 years, and that's what you're trying to buy your way into.
- DFDavid Friedberg
I have a question and a- and a- and a statement. The statement is, I think Canva should absolutely go public versus sell because it seems like they'll have a much easier time competing against whomever that they compete with. I do think that, David, you're right, that there is a lot here for regulatory review because if you go back and think about Visa Plaid, you know, it's not dissimilar. Meaning you have a young startup that has this really credible and viable technology potentially being acquired by, in that case it was, you know, one of a duopoly. But here you could make a very credible claim that it's- it's in a market where it's roughly a monopoly, because there aren't really that- that many meaningful alternatives. So I think Sacks is right that there's- that there's some, you know, bonus here-
- JCJason Calacanis
Oh, there's a case here. Yeah.
- DFDavid Friedberg
There's a case here where-
- JCJason Calacanis
Well, I'll-
- DFDavid Friedberg
... it- it just depends whether the-
- DSDavid Sacks
Yeah.
- JCJason Calacanis
That was literally my question. Yeah.
- 38:59 – 49:33
Analyzing Google's "one off" acquisition of YouTube
- DFDavid Friedberg
Freyberg, how did YouTube do it so well, uh, in terms-
- CPChamath Palihapitiya
YouTube was a very different situation, they were-
- DFDavid Friedberg
Yes.
- CPChamath Palihapitiya
Google basically took a team of, of, you know, two dozen people and their infrastructure was terrible, and they basically rebuilt the entire company. So, it was the complete opposite. They... Think about them taking the, the front end shell of YouTube, and then they rebuilt everything underneath it, ran it, and then they actually put their own people in to optimize the front end. They put their own ad sales team on top of it. I mean, they just bought-
- DFDavid Friedberg
A logo.
- CPChamath Palihapitiya
... a skeleton of a growth engine, and they built everything. Um, and so it was a very different story. And the one thing that YouTube, th- the one thing that Google did so well with that acquisition was the conviction bet that they made on the business, and they made billions and billions of dollars (laughs) of investments into that business for years before it started to make money. Um, and that is a very hard thing to do, 'cause to Chamath's point, you often have this question of, where are your free cash flows? Where's your dividends? Where's your buybacks? As a business gets to a certain point of maturity. But what Google had that many businesses of that scale have never had before is their extraordinary growth rate that continued even as they were of that scale. So the, um, the leeway that Google's executives and board were given by shareholders was extraordinary, not to mention the dual voting where Larry and Sergey could decide to do whatever the heck they wanted. But they really were able to take advantage of their high growth rate to take all this cash they were generating and reinvest it into this, uh, YouTube platform, as well as many other things, many of which haven't worked out. But when they do work out, you have a business that I think YouTube is probably worth, what, 300, 400, 500 billion dollars at this point? And, uh, and it's really paid back multiple. So, YouTube's really a one-off, 'cause it's a one-off acquirer, and it was a one-off kind of acquisition integration scenario that, that we haven't seen before.
- DSDavid Sacks
What Google in effect got when they acquired YouTube was a flywheel. I mean, it was a brand and it was a network effect-
- CPChamath Palihapitiya
Network-
- DSDavid Sacks
And that-
- CPChamath Palihapitiya
A network effect, yeah.
- DSDavid Sacks
Yeah, the network effect was massive. It was off to the races. And I remember Google had Google Videos, but they just couldn't come close to catching YouTube, because the flywheel of creators wanting to be where all the viewers were and viewers wanting to be where the most content was, it was just impossible to catch. But that organization was relatively tiny at the time it was acquired, and it didn't have any monetization.
- DFDavid Friedberg
Okay, let's-
- DSDavid Sacks
And it was being deluged, it was being deluged by legal problems that, that Google Legal could solve.
- DFDavid Friedberg
Very unique situation, yeah. That, that was one of the bold acquisitions of all time.
- CPChamath Palihapitiya
But what was incredible is right after the acquisition and Google started to scale this thing, most of the content being watched on YouTube was copyright content. And I was at a conference and I remember Philippe Daumon, the, uh, CEO of Viacom stood up, and, and Larry Page and, uh, Eric or Larry and Sergey or someone was on stage wi-... And he yelled at them and he was like, "You guys are making all this money and growing this YouTube business off of the back of our content." And, you know, the DMCA, uh, the Digital Millennium cop- Copyright Act says that, um, someone can file a takedown notice and then the platform has a period of time to respond and to deal with it. And the amount of time it was taking them to deal with it, new content was being uploaded and then they'd have to file another takedown notice, so it created this insurmountable, you know-
- DFDavid Friedberg
Cat and mouse game.
- CPChamath Palihapitiya
... copyright, copyright thing, and, um, and then what did Google do that YouTube would have never been able to do, to Sax's point? They built an engine that could automatically recognize copyright content and pull it down before it was made publicly available-
- DFDavid Friedberg
The fingerprint.
- CPChamath Palihapitiya
... without ruining the user experience of instant upload and availability of content for other content.
- DFDavid Friedberg
Well, the fingerprint system was even more nuanced than that. The fingerprint system not only told them, "Hey, this is an SNL skit," or, "This is a music video from Prince," it said, "What would you like to do?" And it put the power in their hands and said, "Turn it off, claim it, and we get the money from it," and then it was like, "Well, we're telling you before you even know about it." And what all these people did was they'd say, "Okay, yeah, you can make a remix of my Prince song or this episode of a TV show."
- JCJason Calacanis
... we'll collect the money. And, and that was just-
- CPChamath Palihapitiya
Revenue share. Yeah.
- JCJason Calacanis
... the revenue share was the brilliant part about it, because you put the power-
- CPChamath Palihapitiya
And, and by the way-
- JCJason Calacanis
... in the copyright holder's names.
- CPChamath Palihapitiya
This just speaks to how singularly, how singular and unique that deal was because I don't think any other company at that time, maybe Microsoft, would have been able to develop technology to do this and do it at this scale, and do it with this low latency and high speed for users and so on. Uh, it really was a singular transaction.
- JCJason Calacanis
Which, Freyberg, I think speaks to their accumulation of talent, especially in those early years where they were just like, "Hire smart people, we'll figure out what to do with them later." They actually had those people sitting around who could just go jump on the YouTube team.
- CPChamath Palihapitiya
Oh my God. S- Salar Kamangar went and ran YouTube-
- JCJason Calacanis
Incredible.
- CPChamath Palihapitiya
... and absolutely crushed it. Probably one of the best CEO runs that's never talked about in the history of tech. He stepped in and he ran YouTube. And now Susan runs it, you know, another incredible run in monetizing that thing since. But, I mean, and these were people... By the way, both Salar and Susan were, um, sub-30 employee people, uh, at Google. So yeah, good point.
- 49:33 – 1:00:37
Friedberg breaks down the latest TPB SPAC news
- JCJason Calacanis
SPACs are back. I don't know if you saw on the news, but Friedberg launched a SPAC. Friedberg, you wanna-
- DFDavid Friedberg
Way to go. No, no, no. He, he, he announced a target and a merger agreement.
- JCJason Calacanis
Incredible.
- DFDavid Friedberg
So now he goes into the de-SPAC process.
- JCJason Calacanis
Now we have two out of four besties have SPACed. Uh, Friedberg, you want to tell us about, uh, what you SPACed?
- CPChamath Palihapitiya
Well, I mean, we announced that we're merging, uh, the production board SPAC, which is, uh, TPB Acquisition Corp with Livrā, which is the largest agricultural inputs retailer in Brazil and operates across Latin America. You know, we've got a good slide in the presentation that I think echoes some of the points I've talked about on our podcast here, about the importance of having resiliency and redundancy in global food supply chains and increasing, um, uh, famine risk. So we've got a slide that shows for about 30 years, you know, we've reduced the number of people globally that have been undernourished down to about 600 million as of about three or four years ago. And in the last three years, we've seen that number spike back up to 800 million, which we thought we were done with global famine, and now here we are facing these issues again. Climate change, the lockdown, supply chain disruption, the Ukraine war, and all the other geopolitical tension issues. So that's been a big thesis of mine individually. You guys know we've talked offline about some investments I've made and, and my strong interest in the area. Brazil and Latin America is the largest ag export market in the world. So they produce calories for the rest of the world, and farmers there largely lag in terms of technology adoption. I've got a nice Brazilian farm as my background today, but technology adoption doesn't look like it does in the US. There's a huge opportunity to influence and drive productivity up in that region. Uh, and so we partnered with the largest ag retailer. Ag retail is the local locations that work with farmers. They have these teams called agronomists. They meet with the farmers typically weekly, help them make decisions about what products to use, what to do, how to do it. And so with the footprint and the reach that they have, I think we can really drive up productivity per acre, um, across the region, increase total global calorie production. Uh, and that's why I'm so excited about it. Fundamentally, it's also great business. It's, uh, all, all the financials are presented in the, um, in, in the investor presentation and will be published with the SEC here in the next couple days. But, uh, it's a, it's a scaled business, it's a profitable business, and it's growing pretty significantly. So it's got great tailwinds, it's a great base business. But for me, there's huge opportunity to continue to drive what they're, uh, drive technology through the platform that they've built. Uh, and that's why, um, you know, we're also making $100 million investment off our balance sheet into the company. And, uh, so.
- JCJason Calacanis
So that's big skin in the game.
- CPChamath Palihapitiya
Big skin in the game.
- JCJason Calacanis
Big skin in the game. Big skin in the game.
- CPChamath Palihapitiya
And, and, you know, we, we put two thirds of our, these founder promote shares. They're, you know, they only vest if we can hit the stock price of 12.50 and 15 over the next three years. Otherwise, we lose them. So we've really tried to align ourselves as shareholders and really put our money where our mouth is on this and show people that, you know, that, that this is a real strategic partnership for us. It's not just, you know, uh, an investment that we intend to kinda, you know, hold for, for a short period of time. Uh, this is a key platform for me, for our, for our TPB business, and for many of the companies that we operate at TPB. So I'm super excited. It's been a long time coming. It's been a very hard process as, uh, Chamath can attest. And as we all talk about, capital markets are very difficult right now. Uh, getting a transaction announced is, is the first step. Now there's a bigger step of, of getting it closed. But, uh, yeah, a lot of work, but I'm, I'm, I'm super excited about this. And, uh, yeah.
Congrats.
Thanks for letting me talk about it. Yeah.
- JCJason Calacanis
Well, and, and the other thing I just want to double-click on there, uh, Chamath, this idea that two thirds of the s- the sponsor promote have to hit certain hurdles. I think that's probably a, a pretty good thing for folks who maybe want to invest to just say, "Hey, yeah, this is great." Where, where the, there's some alignment in how these shares get distributed, yes?
- DFDavid Friedberg
I mean, I think it's a good feature.
- JCJason Calacanis
Yeah.
- DFDavid Friedberg
Um, I think the, the, the thing with SPACs in general in a moment like this is that it's, um, it actually performs better in periods of high volatility, and the reason is because, you know, you have this, uh, redemption feature, which essentially allows you to get back your, your basis. And so meanwhile, while, you know, Friedberg was hunting for a deal or whatever, that cash, you know, that y- you've contributed into the SPAC sits in a savings account that then actually is generating some, you know, reasonable interest as rates go up. So the whole combination of all of this stuff actually makes the SPAC a pretty good risk-adjusted vehicle when the markets are highly volatile, because if at any point you don't like how you feel, even if you love the deal, you just vote to redeem, get your $10 back, and effectively when the market, right? Let's say the market goes down 30% from here to March of next year when Friedberg's deal closes. Well, an investor could theoretically just say, "You know what? I just want my $10 back." Now all of a sudden they've gotten zero, they felt zero percentage of that drawdown. And that's what's so interesting about this structure in a moment like this. So I think there's a lot of really interesting features that, um, that SPACs in the future, I think will have to incorporate in order to, in order to be a successful tool in the toolbox.
- JCJason Calacanis
One thing I learned from, I guess, the Pattern AG company that I think you incubated as well? Or was that-
- CPChamath Palihapitiya
Yeah.
- JCJason Calacanis
... a comp- Yeah, you incubated it as well.
- CPChamath Palihapitiya
Yeah, and you-
- JCJason Calacanis
When-
- CPChamath Palihapitiya
You guys invested through the, through your Launched platform, right?
- JCJason Calacanis
Yeah, so we, we in- invested with the syndicate, is that the way this retail works is you have farmers, but then there are these retailers or these sales reps, I guess they call them in the industry, that service the farmers.
- CPChamath Palihapitiya
That's right.
- JCJason Calacanis
And so that's what this-
- CPChamath Palihapitiya
So farmers, yeah.
- JCJason Calacanis
Yeah.
- CPChamath Palihapitiya
That's exactly-
- JCJason Calacanis
The farmers don't have this technology, yeah.
- CPChamath Palihapitiya
That's right. They don't, they don't know h- how else is a farmer supposed to know what to buy and what to do? So ag retail, the local retail store, the people that work there are called agronomists.And so the agronomists are like technical salespeople. They understand the science and the technology of farming, they understand what the farmers have done in the past, and then they partner with them to help them decide what to do going forward, what products to buy, how to use them, how to get the most out of their land. Um, and so when new technology, when new ag technology comes to market, it's the retailer that can influence the farmer to make a decision on making a switch, or using a new tool, or using some software, uh, you know, to, to drive that decision. And so that's why ag retail is so important and why it's critical for any new technology to get adopted in farming, it has to go through retail. You know, there's the big ag input companies. There are the seed companies, and the chemistry companies, and the protection companies, and the software companies. They all don't sell direct to farmers typically, they're going through these retailers. Um, and so yeah-
- 1:00:37 – 1:05:07
Pfizer sued for Title VI violation, substantial legislation change in 2022
- JCJason Calacanis
for another.
- DFDavid Friedberg
Did you guys see that there was a, a Title VI lawsuit filed against Pfizer for some, um... You know, in the, in the Civil Rights Act, there's something called Title VI, which means that if you take federal funds of any kind, you can't discriminate. And Pfizer has a program to recruit African American and Latino people into the company and they're now being sued because, you know, Pfizer takes NIH grants, they, you know, work with the US government, they work with Medicare, they work with Medicaid. And so as a result of that, um, it's, it's really happening one month before something else that we talked about, which is, there's the affirmative action case, uh, that's going to the Supreme Court where, I, I think it's Harvard actually, you know, push, people pushing back on Harvard's ability to have some form of race-based admissions.So, I just don't know if you guys were, were monitoring this. For me, I just took a step back and I thought, "Look at what has happened legislatively in 2022." We basically repealed Roe V. Wade. The Supreme Court also went after concealed carry in New York and said that New York cannot legislate against concealed carry, which had pretty big ramifications with respect to gun laws. The consensus opinion is that we're going to repeal affirmative action in the next month, or the u- the Supreme Court is gonna do that. These are three pieces of an enormous change in the United States civil society that, that has happened in a really small, condensed period of time. So, I have these thoughts on affirmative action, but my other thought is like, it's incredible how conservatives have been able to organize and how disorganized, you know, progressive have been in order to create a, a co- a counter maneuver against them. Because this has been a systematic effort since Karl Rove literally wrote about it in (laughs) the mid-2000s, said, "Here's what we're gonna do. We're gonna raise a bunch of money, we're gonna redistrict everything, we're gonna get the state legislators on our side, we're gonna basically, you know, fund the Federalist Society, we're gonna..." And they did it. Uh, and in 20 years, they've, they've created an enormous amount of change that I'm not sure all Americans agree with. Meanwhile, the progressives are just kind of like naval gazing at each other.
- JCJason Calacanis
I mean, and then you left off this past week, uh, Chamath, that, um, it seems like the gay marriage bill is gonna be put to a vote, uh, and-
- DFDavid Friedberg
What?
- JCJason Calacanis
... that they're not gonna be able to find-
- DFDavid Friedberg
I didn't see that. What?
- JCJason Calacanis
Yeah, yeah. Uh, and Ted Cruz said he's not gonna vote for it because it's attacking religious freedom, so... We had talked on a previous episode, and I think it was actually you who said you didn't think gay marriage would come up and-
- DSDavid Sacks
Well, no. If I had to guess what the political gamesmanship is here, because they think it's not gonna pass, they wanna bring it up for a vote because it preserves the issue, it intensifies the wedge issue. When it looked like they had enough votes, they weren't gonna put it up for a vote. So, I don't know. I think there's a lot of gamesmanship here. Look, I think enough Republicans should vote for this just to pass it. I don't think that-
- JCJason Calacanis
Yeah, why wouldn't they? Yeah.
- DSDavid Sacks
Well, I, I think there- I think there's some issues with the way the bill is written in terms of maybe requiring religious organizations to perform gay marriages. I think that somebody should just make an amendment to clarify that's not the case to solve this religious freedom issue. I think if that happened, then you'd get more Republicans on board, or at least they wouldn't have an excuse. But yeah, look, I would like to see enough Republicans vote for this to take it off the issue. I don't think gay marriage is in, at any risk of being overturned by the Supreme Court. Remember, it was Gorsuch who wrote that opinion, so... I think this is a scare tactic that progressives are able to use to fundraise off, you know, their, their base. Nonetheless, it'd be nice if enough Republicans would vote to canonize, you know, marriage equality so that they wouldn't be able to do that. That's the smart play here for Republicans.
- JCJason Calacanis
Yeah. It looks like either... By the way, breaking news, um, in The Washington Post. Democrats have postponed the same-sex marriage vote until after the midterms, so...
- DSDavid Sacks
(laughs)
- JCJason Calacanis
But, I mean, you can understand why people are going to be nervous about this after, um, Roe V. Wade had been turned over.
- DSDavid Sacks
Well, maybe they're doing that 'cause they wanna, they wanna run on it as an issue. They wanna have it as an issue.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
I mean, Republican-
- JCJason Calacanis
It's a smart move. Force it, though. 70% of people are in favor, right? 80% are in favor?
- DSDavid Sacks
Look, if, if Republicans wanna be smart, find 10 Republicans in the Senate who can support this, announce now that you're gonna support it. Come on, Republicans, have a brain. Don't let them change the issue from this economy that's spiraling out of control. I mean, the Republicans
- 1:05:07 – 1:13:54
FedEx drops after CEO says we're in a global recession, Russia/Ukraine update, UN chimes in on global famine
- DSDavid Sacks
are clueless-
- DFDavid Friedberg
I mean, I see the FedEx earnings. What do you guys think is going on there? Holy mother of God.
- JCJason Calacanis
Right, yeah. So, FedEx stock has dropped 25- as much as 25%, uh, as we're taping this. This is Friday after the CEO, um, after a little... I don't know if you saw the video I sent to the group chat, but Cramer, Jim Cramer was kind of pushing him, "Do you think there's a recession? Do you think there's a recession?" He finally said, "Yes, I think there's a global recession." They missed on, uh, revenue, and they have cut their predictions for next year severely, uh, and the stock's way down. I think based on what I heard on CNBC from a- and reading some stories right before this breaking news was happening, some people think this is 60-40 market versus management. But either way, I think the Fed's interest rates are doing their job and less packages are being shipped because people are, Chamath, you would think, spending less money? And that was the whole point of this exercise was to slow the economy down. Freeburg?
- DFDavid Friedberg
I think this is a little bit of a head-scratcher. This is a new CEO, so I think the game theory on this is that it made a lot of sense for him to reset expectations. I get that, and I think that that's a, that's a reasonably smart thing to do when you're an incoming, you know, leader of a very complicated organization that really is at the end of the bullwhip, so to speak, on, on consumer demand. The problem is there's just so much conflicting data. Um, you know, retail sales was pretty reasonable. You know, China actually looked a little bit stronger than people expected just this past week on some data that came out there. It looks like Europe is going to really draw a hard line and make sure that they spend whatever it takes to have enough energy so that their productivity doesn't fall off a cliff. All of those signals would say that, you know, we're not at the precipice of this kind of, like, cratering of demand. And then you have Powell basically saying, "Yeah, we're gonna go another 75 and, you know, we're gonna take rates to probably somewhere between 4 and 5%." So, the, the FedEx datapoint was pretty starkly in contrast with at least some of the data that we've seen over the last few weeks. So, I don't know. It was a bit of a head-scratcher.
- CPChamath Palihapitiya
They got three things working against them. Number one, Amazon just continues to build out local delivery infrastructure at an incredible pace. At the end of 2020, Amazon was already up to 25% market share, um, which put them ahead of both FedEx and UPS.And FedEx has seen their market share decline for the past eight or nine years now, um, so that's kind of, you know, a- a key point. Number two is people are just shipping less stuff, doing more stuff digitally. And number three is this recession impact, where they obviously have key economic indicators that allow them to do a better job forecasting deliveries than most companies, I would imagine. And so they can see order volume and trading volume and use that as a predictor for, um, you know, for what volume for shipping is gonna be in the future. And I would guess that all three continue to work against them. It's not like they have a lot of diversify- diversification in the business and other ways to expand out into. So you've got a key vertically integrated player, namely Amazon, that is investing heavily, uh, to replace whatever they use you for. I think as of a few years ago, Amazon was only, like, 2% or 3% of FedEx's revenue anyway, but still I- I would imagine Amazon is playing a- a key role here.
- DFDavid Friedberg
Your first- your first comment to me is- is now- that sounds like the most credible explanation. And, you know, to blame a recession is sort of a little bit of hiding the cheese. It's probably fair to say that their lunch is getting (laughs) eaten by Amazon, so I can understand why FedEx is under a lot of pressure because of that. But if you just compare it to just all the other data, it doesn't seem like this whole thing makes any sense. What you just said about competition makes, to me, a lot more sense.
- CPChamath Palihapitiya
And yeah, competition with digital and- and A- I mean digital, like, how much do you guys sign letters today versus e-sign? I mean, there's just a lot... And- and, you know, I'm giving an example. Maybe that's a 1% impact and there's probably a few more things, and these things all layer up and stack up.
- JCJason Calacanis
Well, they could be losing market share while still growing because e-commerce is growing so violently in the world. But Sax, what do you think? Any thoughts there?
- DSDavid Sacks
I think what's going on here is that whatever the issues at FedEx, and no matter how overstated these warnings may have been, I think they're directionally correct. It's- he's saying that the world's headed for a global recession, and directionally he appears to be right. I mean, things look really grim. We just had this inflation report that was much worse than what people were expecting. Um, it was- inflation was supposed to go down to, uh, 8.0% and actually it was 8.3%. That's why the stock market cratered, uh, a few days ago. It was, like, the worst day in the stock market, I think maybe all year or certainly since June. We're almost towards the June lows. Uh, now this, uh, FedEx executive is saying we're headed for a global recession. So it seems to me that- that the economic news is just pretty grim here. And we're in a- we're in stagflation. The Fed has to keep raising interest rates at the same time that we have persistent high chronic inflation. And you have to wonder, you know, um, I tweeted a few months ago that the White House economic advisor, Brian Deese, he said that, in this interview with CNN, that the Biden administration was willing to endure a global recession in order to keep Russia from controlling the Donbas region in Ukraine. Well, mission accomplished. It looks like it's getting its wish. The administration has made some progress in the Donbas, but we are also having a global recession. So this is a trade-off.
- JCJason Calacanis
What percentage of this rec- what- what percent of the recession and inflation has to do with the Russian invasion of Ukraine? Do you think-
- DSDavid Sacks
I think it's meaningful. It's meaningful.
- JCJason Calacanis
10%? 20%?
- DSDavid Sacks
We- we know it's a huge exacerbator of all these problems.
- JCJason Calacanis
What- what percent, if you were gonna put a number on it?
- DSDavid Sacks
Listen, I don't think the economy's gonna get better with the risk of War III hanging over our heads. How does that work?
- JCJason Calacanis
Yeah, but what percent of the e- economic issue do you think is- percentage wise impacting this?
- DFDavid Friedberg
I don't think we're in a recession.
- JCJason Calacanis
Or Chamath, maybe you answer. Yeah.
- DFDavid Friedberg
I don't think we're in a recession yet. Um, you know, retail sales are still quite strong. There's just a lot of signals that tell us that people are still consuming a lot of things and that GP-
- JCJason Calacanis
Jobs too.
- DFDavid Friedberg
... and that GDP is pretty reasonable and that jobs and wages, you know, are pretty much, you know, quite full. So I think Sax you are right, that we will be there, because you can only bring rates up so high until you break things.
- DSDavid Sacks
Did you see there's a tweet by, uh, I think a Charles Schwab analyst today about that issue of wages and, um, she was tweeting, I'll have to find it, that for the second year in a row, we now have, uh, because of inflation, we now have, uh, real wage decreases. So you may be right about, like, where things stand today, but this is about the trajectory right now of the economy, and the trajectory is not good. Inflation is not coming down as fast as people were anticipating. It's worse than expected. Um, you have the situation in Ukraine where, listen, we can all cheer on Ukrainians for this counter-offensive that appeared to be successful, but we are playing with fire over there. I mean, I- I don't recall a time during the Cold War where we did anything remotely this risky. You have Amer- Listen, we have American generals, American generals were taking credit for this counter-offensive. Do you see this New York Times story where they talk about the inside moment of this Ukraine counter-offensive? So you now have America- America is now giving Ukraine more and more advanced weapons, okay, this sort of the- the, um, long range artillery. They're telling them where to point the weapons. They're giving them the intelligence for it. Um, they're training them on how to use it. They've got commanders on the ground there, and, um, and they actually are hand correcting the battle plans. The Ukrainians had a counter-offensive plan. The Americans said, "That's not good enough," and they rewrote it. So the Americans are now doing everything in this war except pulling the triggers and taking the bullets, and I don't want to minimize the sacrifice the Ukrainians are making because they are dying in huge numbers and, you know, we can all respect and admire the sacrifice they're making for their own country, but this is a very risky strategy for the United States of America to be pursuing. I mean, we are- we are basically playing with fire and we are, you know, this close to being at war with a nuclear armed Russia, and we never came close to this type of behavior during the Cold War. And I don't understand what's changed so much that we have to take this kind of risk. Now, at the beginning of this conflict, I said that I was open to arming the Ukrainians under Cold War rules. Cold War rules, meaning covertly like we did in Afghanistan. We now have multiple examples of the administration boasting and taking credit, taking credit for the counter-offensive, for the sinking of the Moskva, for killing Russian generals. This seems very risky to me.
Episode duration: 1:31:30
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