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Brad Gerstner on Tech Investing · Masters in Business

0:02
Speaker 1: This is Master's in Business with Barry rid Holds on
0:06
Speaker 1: Bloomberg Radio.
0:09
Speaker 2: This week on the podcasts, What can I say once again?
0:13
Speaker 2: I have an extra special guest. Brad Gersner is a
0:17
Speaker 2: founder and investor in technology startups. His firm, Altimeter Capital
0:23
Speaker 2: runs over ten billion dollars. That's after returning a big
0:27
Speaker 2: chunk of capital and profits to their investors. He's been
0:32
Speaker 2: doing this for about twenty years. They invest primarily in
0:37
Speaker 2: private and public companies. They're no longer very much of
0:40
Speaker 2: a seed investor. Although Brad himself was a very successful entrepreneur.
0:46
Speaker 2: He either started or co founded, or came in to
0:50
Speaker 2: various startups, four of which have had substantial exits, to
0:55
Speaker 2: say nothing of the companies that he's invested in either
0:59
Speaker 2: late stage, private or early IPO and has done exceedingly
1:04
Speaker 2: well with. He has been involved in more than one
1:07
Speaker 2: hundred IPOs. This is really a fascinating conversation, not just
1:12
Speaker 2: because of his acumen as a venture investor, but one
1:17
Speaker 2: of the things that Brad is passionate about is making
1:21
Speaker 2: every child in America feel like they have a stake
1:24
Speaker 2: in the country, they have some skin in the game.
1:27
Speaker 2: And his idea for starting every newborn in the country
1:32
Speaker 2: with a thousand dollars investment in the S and P
1:35
Speaker 2: five hundred, or as he calls it, invest America is
1:39
Speaker 2: gaining traction not just amongst venture capitalists and corporate America,
1:44
Speaker 2: but on both sides of the isle in Washington, DC,
1:48
Speaker 2: and this may actually become a real thing. I thought
1:52
Speaker 2: this conversation was absolutely fascinating. I think you will also
1:56
Speaker 2: with no further ado my discussion without times brad Gersner.
2:02
Speaker 1: It's great to be here, Barry, it's great to have you.
2:05
Speaker 2: I'm kind of fascinated by your backgrounds, and before we
2:09
Speaker 2: get into what you do, we have to talk a
2:11
Speaker 2: little bit about how you got to where you are today,
2:14
Speaker 2: because it's a pretty wild ride. Starting with you're working
2:18
Speaker 2: with Peter Leegal of Forest River that's later sold to
2:22
Speaker 2: Warren Buffett and Berkshire Hathaways, but you're operating as his
2:27
Speaker 2: chief of staff. Tell us what you were doing with
2:31
Speaker 2: Forest River.
2:31
Speaker 1: Well, thanks for having me. I'm a big fan of
2:33
Speaker 1: the show, and you know, I grew up in rural Indiana.
2:38
Speaker 1: I'm fifty two years old, so it is nineteen, you know,
2:41
Speaker 1: early eighties. My dad was first generation college became an
2:47
Speaker 1: entrepreneur started an auto parts manufacturing business. He chose a
2:53
Speaker 1: challenging time. There are double digit interest rates in America,
2:57
Speaker 1: double digit inflation. The Japanese were attacking our auto industry,
3:02
Speaker 1: and as you remember, that part of the world was
3:03
Speaker 1: known as the rust Belt, yep. So it was tough
3:05
Speaker 1: times in America. You know, growing up where I did
3:08
Speaker 1: in Northwest Indiana. But you know, when I got to
3:12
Speaker 1: high school, I realized my dad's business didn't make it.
3:15
Speaker 1: I had to find my way out of this town.
3:17
Speaker 1: I was going to have to pay for college. So
3:19
Speaker 1: I had a job. And you know, Elkhart, Indiana happens
3:23
Speaker 1: to be the r V capital of the world. And
3:26
Speaker 1: there was a gentleman I got introduced to named Pete Legal.
3:31
Speaker 1: Pete Legal had built an RV company called Cobra, sold
3:34
Speaker 1: it or partnered with private equity, had a bad experience,
3:37
Speaker 1: left that and said I'm going to do it over again,
3:40
Speaker 1: and he had a little startup RV company called Forest River.
3:44
Speaker 1: Pete's an absolute force in nature, and you know, so
3:48
Speaker 1: when he asked me if i'd come be his right
3:50
Speaker 1: hand guy, I had no idea what that meant, but
3:52
Speaker 1: I knew i'd learn a lot. So I worked there
3:55
Speaker 1: the summers of my junior and senior year, and then
3:58
Speaker 1: I'd worked throughout the year a bit, and I learned
4:01
Speaker 1: so much from Pete. But Pete was one of these guys.
4:04
Speaker 1: He didn't spend a lot of time analyzing right the
4:07
Speaker 1: way an entrepreneur does. It is the ab test. They're
4:11
Speaker 1: prone to action, right, right, So Pete would say that,
4:14
Speaker 1: you know, jump in the car with me and we
4:16
Speaker 1: go to a competitor's lot and he'd be measuring, you know,
4:19
Speaker 1: the dimensions on the new RVs out from the competitors
4:22
Speaker 1: on their lot. He's like, we don't need to waste
4:24
Speaker 1: money on expensive architects. We can just you know, do
4:27
Speaker 1: this ourselves run a better, lower cost operation. He knew
4:31
Speaker 1: about competitive modes, Like I say, Pete knew about Michael
4:34
Speaker 1: Porter's five forces, all the stuff you learn at Harvard
4:37
Speaker 1: Business School, but he learned it by ab testing it
4:40
Speaker 1: in the real world. And so it was a real
4:42
Speaker 1: pleasure to work for him. And yeah, he went on
4:44
Speaker 1: to that became the biggest RV company in the world,
4:46
Speaker 1: would later sell it to Warren Buffett, and Warren writes
4:50
Speaker 1: about him extensively in his letters.
4:52
Speaker 2: So eventually you get your jd. From the University of Indiana,
4:58
Speaker 2: you don't really strike me as a lawyer. Not only that,
5:02
Speaker 2: two years later you become Deputy Secretary of State for Indiana.
5:07
Speaker 1: So so that happened. So you know, you're you're you're
5:10
Speaker 1: highlighting a random background. And we'll come back to this.
5:13
Speaker 1: I do think when I look for analysts today, I
5:16
Speaker 1: look for interesting backgrounds. You know, all of these things.
5:19
Speaker 1: I would say, the thing that connects them is just
5:22
Speaker 1: voracious curiosity about the world of politics and you know,
5:25
Speaker 1: economies and trying to make sense out of it. But
5:28
Speaker 1: because my dad went broke, I have three siblings, so
5:31
Speaker 1: there were four of us his father, so my grandfather,
5:34
Speaker 1: he came to the grandkids. He sacrificed everything. This was
5:38
Speaker 1: a self taught man. I remember his bookshelf. He had
5:41
Speaker 1: physics textbooks and biology textbooks, you know, and and he
5:45
Speaker 1: would just read them. He couldn't afford to go to college,
5:48
Speaker 1: and so he came to the grandkids and he said,
5:50
Speaker 1: you can't be entrepreneurs. You have to become professionals, law school,
5:55
Speaker 1: medical school, become an architect. But we got to get
5:57
Speaker 1: the family back on track, right, And so really to
6:00
Speaker 1: honor his wish, I went to law school. As it
6:03
Speaker 1: turns out, it's incredible training in just how to think analytically.
6:07
Speaker 2: I love that take. That was my experience as well.
6:10
Speaker 2: But you kept going. You said, Hey, if law school
6:13
Speaker 2: is good, what about business school? And off to Harvard
6:15
Speaker 2: Business School you go. What was the career path? What
6:18
Speaker 2: were you thinking about? From politics to law school to
6:23
Speaker 2: business school.
6:23
Speaker 1: Well, the truth of the matter is I was lucky
6:25
Speaker 1: enough one I came back from studying overseas to work
6:28
Speaker 1: for an incredible statesman, Indiana Senator Dick Lueger. He was
6:32
Speaker 1: nineteen ninety ninety one. He and Sam Nunn were denuclearizing
6:35
Speaker 1: the world with the Sam Nun Bill. This was post
6:38
Speaker 1: the fall of the Wall, the end of the Cold War.
6:40
Speaker 1: It was exciting times. And I just hit it off
6:44
Speaker 1: with this incredible man. And so when I graduated from
6:47
Speaker 1: law school, he pings me one day and he said, hey,
6:50
Speaker 1: I would like for you to accept an appointment as
6:52
Speaker 1: deputy secretary of state. And it was really a launching
6:56
Speaker 1: pad in Indiana for higher political office by who became
7:00
Speaker 1: our governor and a US senator had been deputy secretary
7:03
Speaker 1: of state. So I knew what it meant, but I
7:06
Speaker 1: took the job. I got there. I think it paid
7:09
Speaker 1: sixty thousand dollars a year, and I realized, you know
7:13
Speaker 1: how poor I was, and I had grown up poor,
7:16
Speaker 1: and I didn't want to spend the rest of my
7:18
Speaker 1: life begging for money. So the truth is, I thought
7:20
Speaker 1: to myself, if I could get into one of these
7:22
Speaker 1: fancy business schools, I'll go there, I'll figure out how
7:25
Speaker 1: to make a million bucks, and I'll come back and
7:28
Speaker 1: I'll run for governor. And that was twenty five years ago.
7:30
Speaker 2: Well, if you ever get to the million dollars, you
7:33
Speaker 2: can run for governor.
7:34
Speaker 1: Right So, Harvard Business School, it was a transformative time
7:38
Speaker 1: nineteen ninety nine two thousand. The Internet was blowing up
7:42
Speaker 1: and that would change really everything.
7:44
Speaker 2: So you joined General Catalyst right out at a business school,
7:48
Speaker 2: and then par Capital Management. Tell us a little bit
7:51
Speaker 2: about both of those experiences at fairly established venture funds.
7:55
Speaker 1: Well, at the time, there was no General Catalyst. It
7:58
Speaker 1: was nineteen ninety nine, was going wild. There were some
8:01
Speaker 1: established venture capital firms in Boston, Matrix, Charles River, Graylock,
8:06
Speaker 1: High Highlands, et cetera.
8:07
Speaker 2: Bain.
8:08
Speaker 1: But there are these two enterprising young guys, David Fialco
8:12
Speaker 1: and Joel Cutler, forces of nature, and they wanted to
8:15
Speaker 1: start a venture firm, and so we knew we had
8:17
Speaker 1: to put together a launch deal in order to launch
8:19
Speaker 1: this venture capital firm. I help them put together that
8:22
Speaker 1: launch deal.
8:23
Speaker 2: Wait, so when you joined General Catalyst, it wasn't already established.
8:27
Speaker 1: No, in fact that in fact, I think they were
8:29
Speaker 1: still investing money off their balance sheet called FC Capital.
8:32
Speaker 1: Fialco Cutler Capital gotcha.
8:34
Speaker 2: Okay, all right, now that may that chronology.
8:37
Speaker 1: Makes This was an early online travel company that we started.
8:41
Speaker 1: We would eventually not only eventually. So that was nineteen
8:44
Speaker 1: ninety nine. I was still in business school helping them
8:46
Speaker 1: incubate it. I became co CEO of the business and
8:49
Speaker 1: we sold our stake in the business to Barry Diller
8:51
Speaker 1: in two thousand and one. You know, the Internet had crashed,
8:55
Speaker 1: but our business was working really well. It was fortuitous
8:59
Speaker 1: and on that succes well launch deal they were able
9:01
Speaker 1: then to go raise General Catalyst one. I learned a
9:04
Speaker 1: tremendous amount from them. They're both still dear friends. But
9:07
Speaker 1: one of the things I learned in that first startup,
9:11
Speaker 1: I had two guys on the two investors who were
9:13
Speaker 1: not traditional venture capitalists. One was Seth Clarmen, the founder
9:17
Speaker 1: of bow Post Sure, and the other one was Paul Reader,
9:19
Speaker 1: the founder of Park Capital. So these guys would be
9:22
Speaker 1: bucketed as hedge fund guys.
9:24
Speaker 2: Okay, not traditional vcs.
9:26
Speaker 1: But the truth of the matter is, if you think
9:28
Speaker 1: about Warren Buffett's hedge fund, Seth Klarman's hedge fund, Paul
9:32
Speaker 1: Reader's hedge fund, they never quarantined themselves to just public investments.
9:37
Speaker 1: They just made great investments. Sometimes they were private, sometimes
9:40
Speaker 1: they were public. And so I was really a believer
9:44
Speaker 1: that this was going to be the future of venture capital.
9:47
Speaker 1: The companies were going to scale faster, that there was
9:49
Speaker 1: going to be a lot of information flow that you
9:51
Speaker 1: could extract out a venture into the public markets and
9:54
Speaker 1: vice versa. I had an appetite for both the public
9:57
Speaker 1: markets and the venture markets. So I went to Paul,
10:00
Speaker 1: who was the founder of Park Capital, and I said, Hey,
10:05
Speaker 1: how about if I build your technology practice, I'll run
10:07
Speaker 1: a public sleeve and I'll also run a venture sleeve
10:11
Speaker 1: in technology. Paul was crazy enough to invite me on board.
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Speaker 2: So wait, at this time, you really didn't have a
10:17
Speaker 2: whole lot of investing experience. You were both a lawyer
10:20
Speaker 2: and a business school graduate, so you had a lot
10:23
Speaker 2: of academic knowledge. What was that transition like once you're
10:28
Speaker 2: in the trenches and actually deploying real capital.
10:30
Speaker 1: Yeah, so what I mentioned my grandfather, you know, he
10:34
Speaker 1: sacrificed everything. So it was a surprise when he passed
10:37
Speaker 1: away that we learned that he left one hundred thousand
10:41
Speaker 1: dollars twenty five thousand to each of the four grandchildren.
10:45
Speaker 1: And you know, I vowed on that day that I'm
10:47
Speaker 1: going to I'm going to multiply this money. Like this
10:50
Speaker 1: guy sacrificed everything, I'm not wasting it. And you know,
10:54
Speaker 1: so in law school, I went and got my Series
10:56
Speaker 1: seven and sixty three. I started plotting stocks. I started
11:00
Speaker 1: thinking about public market investing. I started doing some of
11:03
Speaker 1: my own public market investing. And you have to understand
11:06
Speaker 1: what this felt like for a kid on the outside
11:09
Speaker 1: looking in who never had money for the first time
11:11
Speaker 1: to buy a stock, to make some money, to sell
11:14
Speaker 1: a stock. And so I would say I had an
11:16
Speaker 1: appetite for the public markets. When Paul met me, I
11:21
Speaker 1: was modeling companies like Priceline in my spare time and
11:26
Speaker 1: investing out of my you know, probably Fidelity account at
11:29
Speaker 1: the time, and Paul said, hey, I think you would
11:31
Speaker 1: be good in this hedge fund business. And I said, Paul,
11:33
Speaker 1: I don't know anything about managing a public portfolio. But
11:37
Speaker 1: the deal we made with each other, I actually said
11:39
Speaker 1: to him, I'll come work for free. I said, you
11:42
Speaker 1: just have to agree to have lunch with me every day.
11:44
Speaker 1: If I love the business, I'll probably start my own.
11:47
Speaker 1: Because by this time I had started and sold a
11:48
Speaker 1: couple companies and I knew I was an entrepreneur. And
11:52
Speaker 1: you know, I will tell you I still talk to
11:54
Speaker 1: Paul every week. He's an incredible friend, an incredible mentor,
11:58
Speaker 1: and a super investor.
12:00
Speaker 2: You have one of the wildest backgrounds. It's really quite
12:02
Speaker 2: amazing to me seeing how you were driven and you
12:07
Speaker 2: were running pretty fast and you really didn't know in
12:10
Speaker 2: what direction you wanted to go, and once that came
12:12
Speaker 2: into focus, lots of pieces fell in quickly. Now you're
12:16
Speaker 2: running Altimeter Capital. You launched it at a really fortuitous
12:21
Speaker 2: time fifteen years any second thoughts that was this what
12:26
Speaker 2: you were born to do? How does it feel having
12:30
Speaker 2: spent so much time not knowing exactly what direction you
12:33
Speaker 2: want to go, and then suddenly it's all falling into place.
12:36
Speaker 1: You know, you always have to contextualize those moments in
12:40
Speaker 1: your life. So I had started a third company called
12:44
Speaker 1: Room seventy seven that we had end up selling to Google.
12:48
Speaker 1: I had just gotten married in the fall of two
12:51
Speaker 1: thousand and seven. I had my first child in June
12:53
Speaker 1: of two thousand and eight, and I told my you know,
12:58
Speaker 1: you know, very pregnant wife at the time. You know,
13:01
Speaker 1: we didn't have a lot of money, that I was
13:02
Speaker 1: going to leave this secure job. Now the first half
13:05
Speaker 1: of two thousand and eight, I was doing pretty well
13:07
Speaker 1: in the fund. I think I was up twenty or
13:08
Speaker 1: twenty five percent, and so I was feeling pretty good
13:11
Speaker 1: about things. I said, you know, now I've been thinking
13:14
Speaker 1: about starting my own firm. Now's the time I had
13:17
Speaker 1: soft circled a couple hundred million dollars from some endowments.
13:21
Speaker 1: These are folks who said, we'll give you money, we
13:23
Speaker 1: think you're good at this, we want to help you
13:24
Speaker 1: launch your own firm. And explicitly what I was going
13:27
Speaker 1: to do is move to Silicon Valley and start a
13:30
Speaker 1: crossover firm by a founder so I had started three companies.
13:34
Speaker 1: This was somebody who was venture first, public market second,
13:37
Speaker 1: and I thought that was a really unique wedge into
13:40
Speaker 1: the venture community in public investing. But of course I
13:45
Speaker 1: didn't know the world was going to melt down in
13:46
Speaker 1: two thousand and eight. So by August the world started
13:49
Speaker 1: melting down. Remember I've got a three month old child,
13:53
Speaker 1: and September rolls around every morning. Every morning, I'm on
13:59
Speaker 1: you know, watching NBC. It's gapping down five percent, six percent.
14:03
Speaker 1: Advisors were calling me saying, don't leave your firm. The
14:06
Speaker 1: world's ending. This is a terrible time. But what I
14:09
Speaker 1: had was having started three other companies on the back
14:12
Speaker 1: of a napkin. I knew what it felt like to
14:15
Speaker 1: be in a windowless office on the back of a
14:18
Speaker 1: napkin by yourself. And I just said to him, the
14:20
Speaker 1: horse has left the barn, like I'm doing this and
14:23
Speaker 1: I'll have whatever money I'll have. And I knew that
14:25
Speaker 1: Seth Klarman had started with very little money in eighty one.
14:29
Speaker 1: Paul Readers started, I think with less than five million dollars.
14:32
Speaker 1: In nineteen ninety one, the SNL crisis, Tiger Chase had started,
14:36
Speaker 1: you know, in the wake of the Internet melting down
14:40
Speaker 1: in two thousand, so a lot of folks who I
14:42
Speaker 1: knew and respected had to stress ERA firms. So I
14:45
Speaker 1: started with less than five million bucks. My first trade
14:48
Speaker 1: I bought price Line on November one, two thousand and eight.
14:52
Speaker 1: Last week we celebrated our fifteenth anniversary, and I would
14:56
Speaker 1: own price Line. I bought it when I was at
14:58
Speaker 1: par We bought it, you know, at I think it
15:04
Speaker 1: was ten bucks a share. We would own it when
15:06
Speaker 1: it was over two thousand dollars a year.
15:08
Speaker 2: Unbelievable. So you start three separate companies. NLG eventually gets
15:15
Speaker 2: sold to Dillar's ic open Lists, which goes to march X,
15:19
Speaker 2: and then Faircast gets sold to Microsoft. Am I missing anything? Well?
15:25
Speaker 1: The third company I starts, Room seventy seven that Google bought, Faircast,
15:29
Speaker 1: was an investment, a Series B investment we made in
15:32
Speaker 1: two thousand and five. I believe, in fact, we backed
15:36
Speaker 1: the head of artificial intelligence. Listen to this very yeah,
15:39
Speaker 1: two thousand and five we backed the head of artificial intelligence.
15:42
Speaker 2: People don't realize AI has been here for.
15:44
Speaker 1: That was my first AI investment. Two thousand and five.
15:47
Speaker 1: We back it. He was out of the University of Washington.
15:50
Speaker 1: He had an idea for being able to build predictive
15:54
Speaker 1: analytics into the future movement of airline ticket pricing using
15:58
Speaker 1: early AI technique, and we would go on to sell
16:02
Speaker 1: that business to Microsoft in two thousand and eight. Now
16:05
Speaker 1: here's the interesting part of the story. The person who
16:07
Speaker 1: bought Faircast in two thousand and eight for Microsoft was
16:10
Speaker 1: Sacha Nadela.
16:11
Speaker 2: Oh really, he.
16:13
Speaker 1: Was running bing at the time, right, and he was
16:15
Speaker 1: buying this as a search business into the search platform.
16:18
Speaker 1: And I said, I had dinner with him the other night,
16:20
Speaker 1: and I said, do you remember the conversation we had
16:23
Speaker 1: when you bought fair Cast And he said, yes. What
16:26
Speaker 1: I said was, we'll never beat Google with ten blue links.
16:29
Speaker 1: We have to get to answers. They think about that.
16:33
Speaker 1: Fifteen years before chat gpt started producing answers, Sacha knew
16:38
Speaker 1: that that's where they had to get to if they
16:40
Speaker 1: were going to leap for all Google. Such a fascinating and.
16:43
Speaker 2: Here we are, and they really put fear gun to
16:46
Speaker 2: Google with chat GPT. It was incredibly disruptive.
16:50
Speaker 1: I think, you know, I've had the true luxury of
16:54
Speaker 1: investing into what we call four super cycles. You know,
16:59
Speaker 1: I think Sacha calls them platform disruptions Internet, mobile, cloud,
17:04
Speaker 1: and now AI. And I've said in several places I
17:08
Speaker 1: think that the platform disruption around augmented intelligence is going
17:13
Speaker 1: to be bigger than the Internet itself. Now follow me
17:16
Speaker 1: on this. If you think about what AI is already
17:19
Speaker 1: doing for the enterprise, we're seeing thirty to fifty percent
17:23
Speaker 1: productivity improvements in engineers. There's never been a technology in
17:28
Speaker 1: the history of technology. There's never been a tool that
17:31
Speaker 1: increases productivity almost instantaneously by thirty to fifty percent. Call
17:37
Speaker 1: centers are now fifty percent more productive, So you're seeing
17:40
Speaker 1: margins explode as people are able to run their call
17:42
Speaker 1: centers more effectively. Sales centers are more productive. So you
17:46
Speaker 1: want to know why Meta doesn't have to cager its
17:50
Speaker 1: employee head count at forty percent anymore. You want to
17:52
Speaker 1: know why Dara reported for Uber that again their number
17:55
Speaker 1: of employees was down quarter over quarter. I wrote this
17:58
Speaker 1: letter a year ago, Time to get Fit. It was
18:01
Speaker 1: an open letter I published ta Meta. You know Mark
18:04
Speaker 1: would go on to write his letter Year of Efficiency.
18:07
Speaker 1: This is what we're seeing. The power of AI is
18:11
Speaker 1: unleashing incredible potential within the enterprise. And then look at consumers.
18:15
Speaker 1: I was speaking at the Javit Center, two thousand people
18:18
Speaker 1: in the audience. I asked, how many of you have
18:21
Speaker 1: used chat GPT in the last two days as a
18:23
Speaker 1: replacement to Google. Half the hands in the room went up.
18:27
Speaker 1: That is the first time in twenty years there's been
18:30
Speaker 1: a challenge to Google search monopoly. And Google search monopoly
18:34
Speaker 1: represents over one hundred percent of the profits of the business.
18:37
Speaker 1: So this is one of the most fascinating times I've
18:40
Speaker 1: seen in my twenty five year career. And we're just
18:42
Speaker 1: getting started. The irony of.
18:44
Speaker 2: What's going on with Google is, and I'll use a
18:48
Speaker 2: dirty word, a lot of the big tech companies having
18:52
Speaker 2: going through a process that Corey doctor calls and notification
18:57
Speaker 2: and Google search results have become worse and worse. It's
19:01
Speaker 2: festudent with ads. Pick a company, Amazon, Apple, Microsoft, any
19:06
Speaker 2: large tech company. At a certain point they kind of
19:09
Speaker 2: lose touch with what made them so successful in the
19:12
Speaker 2: first place. So I don't use Google half as much
19:15
Speaker 2: as I used to. And before I start the research process,
19:18
Speaker 2: I use a little app called Perplexity, which is a
19:21
Speaker 2: pretty decent AI And who is Brad Gersner in upcomes
19:26
Speaker 2: like pages and pages of information organized in such a
19:29
Speaker 2: useful way. It's not different than what I would have
19:33
Speaker 2: found from Google, but it saves me ten steps in between.
19:36
Speaker 1: At the end of the day, you know, a lot
19:40
Speaker 1: of the information on Google you could have also found
19:42
Speaker 1: in a card catalog in a library, but you would
19:44
Speaker 1: have to drive there, you would have to open the
19:46
Speaker 1: card catalog, you would have to go find the periodicals,
19:49
Speaker 1: you would have to find the books, you'd have to
19:51
Speaker 1: read them yourself. So really, when you think about it,
19:54
Speaker 1: I described Google, it's the largest card catalog in the
19:56
Speaker 1: history of the world. Right, it's ten blue links, but
19:58
Speaker 1: it's an infinite number of blue links. But you have
20:00
Speaker 1: to open the blue link, you have to read the
20:02
Speaker 1: information yourself. And you know, So I did this experiment
20:06
Speaker 1: the other day. I was lucky enough to be having
20:08
Speaker 1: dinner in Omaha with Paul Reader, you know, and Paul
20:11
Speaker 1: and I were flying back to New York, and I
20:14
Speaker 1: needed to know the answer to the question what is
20:17
Speaker 1: and we'll talk about invest America in a bit. So
20:18
Speaker 1: as related to that, I wanted to know what was
20:21
Speaker 1: the aggregate amount of corporate matching dollars for four oh
20:25
Speaker 1: one k's on an annual basis. I said to Paul,
20:28
Speaker 1: you use Google and I'll use I'll use chat GPT.
20:32
Speaker 1: I got the answer instantaneously. It took him three or
20:36
Speaker 1: four minutes of hunting and pecking around. It was full
20:39
Speaker 1: of ads about four oh one K providers and everything else.
20:42
Speaker 1: And the reality is this is a was a better
20:45
Speaker 1: tool simply because it made us more productive. In the moment.
20:49
Speaker 1: Google is an extraordinary business. A healthy Google is good
20:54
Speaker 1: for Silicon Valley. The challenge is they are facing a
20:58
Speaker 1: massive innovator's dilemma. The organizing philosophy principle for the Internet
21:04
Speaker 1: for twenty plus years has been Internet search, and it's changing.
21:09
Speaker 1: So I said to somebody the other day. They said, yeah,
21:11
Speaker 1: but Google's got AI. You know, they've got Barre, They've
21:14
Speaker 1: got this and that. I said, I will stipulate. I
21:18
Speaker 1: will stipulate they'll be successful in AI. But do you
21:21
Speaker 1: think they can cross the chasm? And on the other
21:24
Speaker 1: side of this chasm, knowing they have to compete with METAAI,
21:29
Speaker 1: with chat GPT, with Copilot, with claud at Anthropic, with
21:35
Speaker 1: you know whatever the post AI to series going to
21:38
Speaker 1: be at Apple. Do you think they're going to be
21:40
Speaker 1: able to replicate the same dominant monopoly in this new
21:44
Speaker 1: world that they were over here. Now I know your answer.
21:47
Speaker 1: As an investor, you would say, well, Brad, it's possible,
21:50
Speaker 1: but I'd apply a high discount rate to that. And
21:52
Speaker 1: that's the truth. And yet if you look at it today,
21:54
Speaker 1: it shouldn't be like when I say this, it's not
21:56
Speaker 1: attacking Google. It seems to me to be a statement
21:59
Speaker 1: of the that you know, we are ten years from now,
22:03
Speaker 1: We're not going to be using a card catalog called
22:05
Speaker 1: ten blue links to find information. My son came in
22:08
Speaker 1: the other day, fifteen years old. His name's Lincoln. He said, Dad,
22:12
Speaker 1: you know it's funny. All my friends at school they
22:14
Speaker 1: think chat GPT is just good for writing essays. He goes,
22:17
Speaker 1: I now use it for everything. When people say stuff
22:21
Speaker 1: like that. When I go to the Javit Center, they
22:23
Speaker 1: all raise their hands when I'm speaking to groups of
22:26
Speaker 1: founders and they all tell me they're using as a replacement.
22:28
Speaker 1: When I watched the Open AI dev day yesterday and
22:32
Speaker 1: I realize the pace of innovation is faster than any
22:36
Speaker 1: innovation I ever saw with the Internet, Faster than any
22:39
Speaker 1: innovation I ever saw with mobile faster than any innovation
22:42
Speaker 1: I ever saw with the cloud. Okay, so whatever it
22:46
Speaker 1: is today, which already is I poppingly good, whatever it
22:52
Speaker 1: is today, you have no idea how good this is
22:54
Speaker 1: going to be in three to five years.
22:56
Speaker 2: And the amazing thing is markets are mostly kind of
23:00
Speaker 2: sort of efficient, and even if this is obvious now,
23:04
Speaker 2: it's still gonna take a while to work its way
23:06
Speaker 2: into the prices because people just aren't going to believe
23:11
Speaker 2: that a company like Google can be dethroned. I have
23:14
Speaker 2: a vivid recollection of the news coming out about Enron
23:17
Speaker 2: being a fraud. The first big article, I think it
23:19
Speaker 2: was Fortune magazine Bethany McLain. Took a year for the
23:23
Speaker 2: stock to collapse, a full year. No one wanted to
23:25
Speaker 2: believe it. People look at at the Magnificent Seven, they
23:29
Speaker 2: look at these big, great tech companies. There's a hesitancy
23:34
Speaker 2: to believe that the winners are eventually gonna tumble. Thank
23:38
Speaker 2: goodness for books like The Innovator's Dilemma.
23:40
Speaker 1: Yeah, I mean, and listen, I've also said I think
23:44
Speaker 1: what is different? So if you say, well, Brad, are
23:46
Speaker 1: you excited about AI and venture capital? You know, given
23:50
Speaker 1: you know this new super cycle, and you know, these
23:52
Speaker 1: are going to be the disruptors against the incumbents, you know,
23:56
Speaker 1: and that was true. If you think back to two thousand,
23:58
Speaker 1: Amazon was the disruptor to Walmart, to May Season. If
24:01
Speaker 1: you think about it, mobile, the iPhone was the disruptor
24:04
Speaker 1: to your black barrier, to Nikia or to you know,
24:07
Speaker 1: the palm pilots of the world, or in cloud Snowflake
24:10
Speaker 1: was the disruptor to Tarra Data and to Oracle, et cetera.
24:13
Speaker 1: But when you think about AI, what are the primitives
24:17
Speaker 1: to AI? The first primitive is massive amounts of data.
24:20
Speaker 1: The second primitive is massive amounts of compute. Those things
24:24
Speaker 1: take scale, and they take money, massive amounts of money,
24:29
Speaker 1: tens of billions of dollars, you know, in order to
24:32
Speaker 1: build the infrastructure to do what chat GPT is doing.
24:35
Speaker 1: So this is not your typical venture domain where you
24:39
Speaker 1: put five million bucks in and you wake up in
24:41
Speaker 1: ten years and they've disrupted you know, Google or Microsoft.
24:44
Speaker 1: The incumbents are not asleep at the switch. Satchya new
24:48
Speaker 1: fifteen years ago answers, not ten blue links. He is
24:52
Speaker 1: in front of this. He was prescient with open ai
24:56
Speaker 1: co pilot in the enterprise is the fastest adopted in
25:00
Speaker 1: the history of Microsoft. So I think eighty percent of
25:03
Speaker 1: the benefits of AI over the course of the next
25:06
Speaker 1: three to four years are going to inure to the
25:08
Speaker 1: benefit of the incumbents to the larger platforms that are
25:12
Speaker 1: already pro public today, whose businesses will get better, their
25:16
Speaker 1: bottom line margins will expand, their top lines will reaccelerate,
25:21
Speaker 1: and so it's not just going to be the you know,
25:23
Speaker 1: the gold rush for venture, though venture will do just fine.
25:26
Speaker 1: I think it will be a great time for venture
25:28
Speaker 1: as well, but I do think that the incumbents here
25:31
Speaker 1: are going to compete very vigorously.
25:33
Speaker 2: So let's stick with the topic of AI. What sort
25:37
Speaker 2: of companies are you looking at in that space? Are
25:39
Speaker 2: you only focusing on the incumbents that you think are
25:43
Speaker 2: going to do really well and find a way to
25:45
Speaker 2: integrate this in this business, or are you looking at
25:47
Speaker 2: startups or private companies that have been for around for
25:51
Speaker 2: a while that are potential disruptive.
25:53
Speaker 1: So you know, as you know, twenty twenty two was
25:57
Speaker 1: a tech recession. It was a challenging hear for all
25:59
Speaker 1: of us who are investing in tech, and yet we
26:01
Speaker 1: bounce back in twenty twenty three with one of our
26:03
Speaker 1: best years in the history of the firm, and what
26:07
Speaker 1: we recognized in the fall of twenty two, In fact,
26:11
Speaker 1: we had our investor day for all of our LPs,
26:14
Speaker 1: and our investor Day was in October on the age
26:17
Speaker 1: of Ai, before chat GPT entered the public consciousness, and
26:22
Speaker 1: what we were already hearing throughout twenty twenty two was
26:26
Speaker 1: the voracious appetite people had for Nvidia GPUs. We were
26:31
Speaker 1: hearing about the moves that Microsoft was making. So we
26:36
Speaker 1: repositioned our portfolio at the end of twenty two, recognizing
26:40
Speaker 1: that there had been too many dollars that went into
26:43
Speaker 1: safety trades, too many dollars that went into bonds right
26:47
Speaker 1: before bonds collapse, too many dollars that went into cyclicals
26:51
Speaker 1: that were trading at twenty five times earnings despite the
26:54
Speaker 1: fact that they had five or seven percent growth and
26:57
Speaker 1: everybody had vacated the scene ontoechnology. Remember in December of
27:02
Speaker 1: last year, in videos trading at one hundred and twenty
27:05
Speaker 1: five dollars a share and the consensus sell side expectation
27:09
Speaker 1: for data center growth this year was negative six percent.
27:13
Speaker 1: So don't give me this craziness about efficient markets. In
27:16
Speaker 1: the short run, markets are voting machines, they're not weighing machines.
27:20
Speaker 1: And the consensus estimates were radically wrong. At the end
27:23
Speaker 1: of last year, we loaded the boat. We shrugged off
27:26
Speaker 1: the Mike Wilson hard landing consensus bet that everybody had on.
27:30
Speaker 1: At the start of the year. We were ninety three
27:32
Speaker 1: percent net long at the start of the year. We're
27:35
Speaker 1: sixty percent today. Okay. And if you look at what
27:39
Speaker 1: we owned, excuse me, we owned in Nvidia, we owned Meta,
27:47
Speaker 1: we owned Uber. Those are three of the top four
27:50
Speaker 1: performing Nasdaq one hundred companies I think this year. We
27:55
Speaker 1: also owned companies like Snowflake. So remember data and data
27:59
Speaker 1: infant structure. That is the number one primitive to AI.
28:04
Speaker 1: There is no AI without data and ten thousand or
28:08
Speaker 1: so customers. The biggest companies in the world like Apple, JP, Morgan,
28:13
Speaker 1: et cetera, have entrusted their mission critical data with Snowflake. Okay, now,
28:18
Speaker 1: a lot of people, In fact, I heard Kramer say
28:20
Speaker 1: on CNBC yesterday, well, Snowflake's not really an AI company.
28:23
Speaker 3: You know.
28:24
Speaker 1: I love public commentary like that because that allows me
28:26
Speaker 1: to generate alpha. The truth of the matter is that
28:30
Speaker 1: Snowflake has seen record increases in their data science and
28:35
Speaker 1: AI workloads because no enterprise wants to port all their
28:40
Speaker 1: data out of one system and into open AI and
28:43
Speaker 1: worry about whether open AI is using this data to
28:46
Speaker 1: train models or anything else. You can't do that. You
28:48
Speaker 1: have privacy and governance requirements, HIPPA requirements, whatever they are
28:52
Speaker 1: if you're these big enterprises. So instead the data has gravity,
28:57
Speaker 1: it stays put, and you bring the compute to the data,
29:00
Speaker 1: you bring the AI workloads to the data, you bring
29:03
Speaker 1: the predictive modeling workloads to the data, the data science
29:06
Speaker 1: workloads to them, and that's what Snowflake's doing in space.
29:09
Speaker 2: So what I'm hearing from you is there's a lot
29:11
Speaker 2: of chatter out there about the market is too top heavy.
29:14
Speaker 2: It's just the big legacy companies. But you're big into Meta, Microsoft, Uber,
29:21
Speaker 2: go down the list of the companies. You don't think
29:24
Speaker 2: this market apparently is too top heavy in the tech space.
29:28
Speaker 2: You think these companies are big for a reason. Am
29:31
Speaker 2: I putting words in your mouth?
29:32
Speaker 1: Or No? I think that's right. I mean there's a
29:35
Speaker 1: reason they've gone up Barry right, Remember I said in
29:39
Speaker 1: Vidia the expectation was they're going to have negative six
29:41
Speaker 1: percent data center growth and that we're going to have
29:43
Speaker 1: anemic growth in their earnings for the year. Instead, it's
29:47
Speaker 1: exploded higher. The multiple today for in Vidia or at
29:50
Speaker 1: least at four hundred bucks. Where the stock was last week,
29:53
Speaker 1: the multiple was somewhere around twenty five times next year's
29:57
Speaker 1: consensus earnings. We started the year at four times. The
30:01
Speaker 1: multiple is compressed. Meta is still trading below twenty times earnings.
30:05
Speaker 1: That's below Levi's, that's below Coca Cola companies that are
30:08
Speaker 1: growing at a fraction of the rate with nowhere close
30:11
Speaker 1: to the incremental EBITDAH margins produced by a company like Meta.
30:15
Speaker 1: You know, Meta has is going to have a big
30:17
Speaker 1: role to play in AI, so it has all of
30:20
Speaker 1: these growth vectors these other companies don't have. So yes,
30:23
Speaker 1: I do think those big companies are placed to play.
30:25
Speaker 1: But we also in our hedge fund at the start
30:28
Speaker 1: of the year were shorting some of the companies that
30:31
Speaker 1: we thought were COVID beneficiaries that wouldn't be sustainable, and
30:35
Speaker 1: we've seen those companies go down.
30:36
Speaker 2: Give us a few examples.
30:38
Speaker 1: If you look at the SMP this year, the SMP
30:40
Speaker 1: is up fifteen to sixteen percent through through today. If
30:44
Speaker 1: you take technology companies out of the SMP, the SMPS
30:47
Speaker 1: down on the air. The Russell two thousand is down
30:50
Speaker 1: on the year.
30:50
Speaker 2: Just down period without even correct taking tech company correct.
30:53
Speaker 1: So we were shorting the components of those indexes that
30:58
Speaker 1: we thought had gotten too bold up as safety trades
31:01
Speaker 1: in twenty twenty two. You had a reversion to the
31:03
Speaker 1: mean this year. And so I know, I think in
31:06
Speaker 1: this business, I've been doing this for a long time,
31:09
Speaker 1: probably you know, twenty years now. In the public markets,
31:13
Speaker 1: technology by its very essence is about disruption. If you
31:17
Speaker 1: ever think you can go to sleep on a technology company,
31:21
Speaker 1: you know it's a sure way to get carried out
31:23
Speaker 1: on a stretcher. It requires agility, it requires intensity. That's
31:27
Speaker 1: why I think being in Silicon Valley, investing and talking
31:31
Speaker 1: every day with venture capital companies, founders, et cetera, is
31:34
Speaker 1: a huge competitive advantage test because we see the disruption
31:38
Speaker 1: coming years in advance.
31:40
Speaker 2: So let's stick with that concept of disruption. You invest
31:43
Speaker 2: in startups, you invest in public companies, you invest in privates.
31:47
Speaker 2: Where is your sweet spot on the private side early stage,
31:51
Speaker 2: later stage? How do you think about that?
31:53
Speaker 1: Yeah, great question. You know, so when I started these companies,
31:57
Speaker 1: I started literally on the back of a napkin. So
31:59
Speaker 1: that would you know, we would call that seed stage
32:01
Speaker 1: in the parlance. You know, that's where you're asking your
32:03
Speaker 1: friends and your family for money. You're trying to establish
32:06
Speaker 1: product market fit. Altimeter generally doesn't invest in seed stage
32:10
Speaker 1: companies or early Series A companies because those companies are
32:14
Speaker 1: what we call in the business pre product market fit.
32:18
Speaker 1: You have an idea, you're trying to build a product.
32:21
Speaker 1: There are world class partners of ours in Silicon Valley,
32:25
Speaker 1: you know, I think of like a Mike Spiser at
32:27
Speaker 1: Suttery Hill, you know a Martine Casado and Andreas and
32:31
Speaker 1: you know Gurley when he was at Benchmark but now
32:34
Speaker 1: Chathin or Eric Vishria or you know my friends at
32:38
Speaker 1: you know Sequoia. That's what they do. The firms are built,
32:41
Speaker 1: purpose built, founder's fund to do those early stage gestations
32:47
Speaker 1: where we've really carved out our you know, our brand
32:51
Speaker 1: and our niche is we we still you know, we
32:54
Speaker 1: wear the black T shirts. We're in Silicon Valley. We
32:56
Speaker 1: have the sensibilities of venture capitalists, right, I've started the companies,
32:59
Speaker 1: I've stood in their shoes, I've hired, i've fired, I've
33:02
Speaker 1: done all the challenging stuff. But I also, you know,
33:06
Speaker 1: very familiar with New York, with CNBC, with IPOs, with
33:09
Speaker 1: scaling to the public markets. So we usually take the
33:12
Speaker 1: handoff right when they discover product market fit. Okay, So
33:16
Speaker 1: that's usually a couple of years into a business, you know,
33:20
Speaker 1: a Series B, you know, a company maybe somewhere between
33:23
Speaker 1: fifty and two hundred million dollars. In that first round
33:26
Speaker 1: of Funny Snowflake, which was one of our you know, uh,
33:29
Speaker 1: you know, Hall of fame, uh, you know moments. We
33:33
Speaker 1: invested in that first round. It was pre revenue, they
33:36
Speaker 1: had about ten beta customers of the product. It was
33:40
Speaker 1: about one hundred and seventy million dollar valuation. And we
33:44
Speaker 1: would invest in every subsequent round, and I think owned
33:47
Speaker 1: seventeen percent of the company when they went public.
33:50
Speaker 2: Seventeen percent. That's a big uh, that's a big chunk
33:53
Speaker 2: of a company. Are you still long Snowflake or have
33:56
Speaker 2: you paired back a little bit?
33:57
Speaker 1: How you make Yeah? So I remember we have different fund,
34:00
Speaker 1: so we're investing out of our sixth venture capital fund.
34:02
Speaker 1: We just had our first clothes on our seventh venture
34:04
Speaker 1: capital fund. So in those funds where we invest in
34:08
Speaker 1: those very early rounds in Snowflake, yes, you know, I
34:11
Speaker 1: mean our journey with Snowflake started a decade ago. So
34:14
Speaker 1: for those investors, we've returned capital and you know, Altimeters
34:19
Speaker 1: Fund one will probably be in the top five all
34:21
Speaker 1: time returns, you know, for Silicon Valley because of the
34:25
Speaker 1: likes of Snowflake and Mango and other great names that
34:29
Speaker 1: we had in that portfolio. In our hedge fund, right
34:32
Speaker 1: where we're focused on annual returns, just like you, we
34:36
Speaker 1: start every year and we say, okay, what's going to
34:38
Speaker 1: power a twenty percent you know, risk adjusted return in
34:41
Speaker 1: this portfolio? And so yes, we still own Snowflake because
34:44
Speaker 1: we see it compounding on the top line, you know,
34:47
Speaker 1: in this thirty plus percent range, and it's still expanding margins.
34:51
Speaker 1: So this is one of those unique and rare software
34:53
Speaker 1: businesses that's going to have over thirty percent free cash
34:56
Speaker 1: flow margins. Has a massive market all this AI stuff
35:00
Speaker 1: that we're talking about, the entire database market. Do you
35:03
Speaker 1: know in the year two thousand, the database market was
35:06
Speaker 1: worth a trillion dollars, right, It's the single largest market
35:11
Speaker 1: in all of software, and it should be. Think what
35:13
Speaker 1: is the primitive to every you know, everything we do
35:16
Speaker 1: in our lives. It's data. Data isn't oil, Data is oxygen.
35:21
Speaker 2: Huh, that's really interesting. You mentioned meta. I know you're
35:25
Speaker 2: a fan of Twitter, or at least the way Twitter
35:28
Speaker 2: used to be. What's going on over there? Is this
35:31
Speaker 2: doing the full friends to MySpace circling the drain? Is
35:34
Speaker 2: there any hope for Twitter becoming what it once was
35:37
Speaker 2: or is it mutating into something unrecognized?
35:40
Speaker 1: Oh well, call me outside of consensus on this. Yea.
35:44
Speaker 1: You know, I know it's not popular today, but I'm
35:46
Speaker 1: in camp Elon. I think Twitter was pretty broken before.
35:50
Speaker 1: I think, you know, what we what we've learned about
35:52
Speaker 1: Twitter was they may have had a lot of advertisers,
35:55
Speaker 1: but I'm not sure how well it was actually working
35:58
Speaker 1: for users.
35:59
Speaker 2: You know.
36:00
Speaker 1: So I'm on Twitter. I find it probably my most
36:03
Speaker 1: most valuable source of information. Bloomberg's right up there, Barry,
36:07
Speaker 1: but I would say that my newsfeed in Twitter is extraordinary.
36:12
Speaker 1: And Elon came in there. Think about this, He let
36:16
Speaker 1: go eighty percent of the people at Twitter, and I
36:19
Speaker 1: know everybody on the East coast flip their lids. How
36:22
Speaker 1: can he do this? You know, mean spirited, you know,
36:25
Speaker 1: et cetera. But you know, the cultures at a lot
36:28
Speaker 1: of these places in Silicon Valley were broken, they were bloated,
36:32
Speaker 1: and they were entitled. What I've seen out of Twitter
36:36
Speaker 1: is a ten x increase in product velocity. Okay, I'm
36:40
Speaker 1: talking you.
36:41
Speaker 2: How do you define product velocity?
36:42
Speaker 1: Think about the things that they're now doing on Twitter,
36:45
Speaker 1: everything from virtual and fully encrypted private messaging calls, fully
36:51
Speaker 1: hosted videos, short form videos, long form videos, subscription business
36:57
Speaker 1: that empowers content creators to share in the upside of
37:01
Speaker 1: those subscriptions. There's payments coming. I mean like this is.
37:04
Speaker 1: And now we have x dot ai where you know,
37:08
Speaker 1: he launched groc last week. It's rumored that, you know,
37:11
Speaker 1: twenty people working for about three months have produced a
37:15
Speaker 1: very credible AI. Remember Elon was also the founder of
37:19
Speaker 1: open ai. Okay, so to underestimate him. He's the first
37:24
Speaker 1: to raise his hand. He said, I overpaid for the asset.
37:27
Speaker 1: I did it because I wanted to protect free speech.
37:29
Speaker 1: You can quibble about that one way or the other.
37:31
Speaker 1: It's a longer debate.
37:32
Speaker 2: But what I would say, free speech his definition of
37:35
Speaker 2: free speech is kind of off kilter. Free speech is
37:39
Speaker 2: about not having the government coming in and telling people
37:42
Speaker 2: what they can and can't say. But if you own
37:44
Speaker 2: a company, you're free to say, Hey, Nazis are bad
37:47
Speaker 2: for my business. So I'm going to keep Nazis out
37:50
Speaker 2: of my out of my public business because I like
37:55
Speaker 2: Procter and Gamble. I like these big advertisers, but they
37:58
Speaker 2: don't want to be associated with that. So his definition
38:01
Speaker 2: of free speech kind of perplexes those of us who
38:06
Speaker 2: have been to law school or who like to open
38:10
Speaker 2: our feed and not see a stream of anti Semitic vitriol.
38:14
Speaker 2: And that's the perplexing part. And I don't think that's
38:17
Speaker 2: an East Coast or a West Coast thing. I think
38:19
Speaker 2: it's a dude. It was toxic. Social media in general
38:25
Speaker 2: has this toxicity problem, but opening the floodgates. So I
38:30
Speaker 2: really want to hear your thoughts on this.
38:33
Speaker 1: Well. I mean, I want to take two angles on
38:35
Speaker 1: I want to talk about respond to that, and then
38:37
Speaker 1: give you the business angle.
38:39
Speaker 3: You know.
38:40
Speaker 1: The truth of the matter is, the public square has
38:43
Speaker 1: been a pretty brutal place for two hundred and fifty
38:45
Speaker 1: years of American history. Whether you're standing in the halls
38:49
Speaker 1: of Congress or you're in the public square. People always
38:52
Speaker 1: said things that people disagreed with, and that's the beauty
38:55
Speaker 1: of this country. Right. So if you do work on Twitter,
38:58
Speaker 1: you can tailor your feet in a way that will
39:01
Speaker 1: be more productive for you. Right. I imagine with AI,
39:05
Speaker 1: they'll tailor the feed in a way that it can
39:07
Speaker 1: be more productive to you. They don't want to alienate users.
39:10
Speaker 1: In fact, the user volume or the user and engagement
39:13
Speaker 1: studies that I'm seeing are higher, not lower, over the
39:17
Speaker 1: course of the past four or five months. But I
39:20
Speaker 1: agree with you and stipulate that a lot of the
39:22
Speaker 1: advertisers that were there have left. I think that Elon
39:26
Speaker 1: is trying to get them back. But more importantly, Elon
39:29
Speaker 1: wants this platform to be something totally different. He thinks
39:33
Speaker 1: there's an opportunity for this to really live at the intersection,
39:37
Speaker 1: you know, to harness the power of our collective brain
39:41
Speaker 1: and provide a great AI build on the back of Twitter,
39:45
Speaker 1: to open up the public square to discussion. So when
39:47
Speaker 1: you think about it as a business, I you know,
39:50
Speaker 1: like when I look at Elon building reusable rockets, electric cars,
39:55
Speaker 1: changing the world, you might you might say this was
39:58
Speaker 1: not the highest and best use of his time or energy,
40:01
Speaker 1: But having had that conversation with him, he's deeply passionate
40:05
Speaker 1: about it. He believes in it. I would never bet
40:07
Speaker 1: against the guy.
40:08
Speaker 2: Yeah, No, he's a tough guy to bet against. I
40:10
Speaker 2: will say if anybody thinks the public square, as we've
40:14
Speaker 2: traditionally known it is what people go to social media for, well,
40:18
Speaker 2: they completely don't understand what that technology is about. It's
40:22
Speaker 2: not where you're can have long form, intelligent discussions. It's
40:26
Speaker 2: where people throw tomatoes at each other. Yeah, and it's
40:28
Speaker 2: fun and it's amusing, and we listen.
40:30
Speaker 1: I Twitter spaces. I think is some of the most
40:34
Speaker 1: interesting dialogue that's happening anywhere in media today. Okay, and
40:39
Speaker 1: so again, I think there's a spot moment in time
40:43
Speaker 1: where there's some fair criticisms, and I think Elon himself
40:46
Speaker 1: has said, we've made some mistakes. But I'm just saying
40:49
Speaker 1: the consensus view that you know, and I've heard it
40:53
Speaker 1: every time this guy starts a business. I love the
40:57
Speaker 1: consensus view that a guy who's created trillions of dollars
41:01
Speaker 1: in value, okay, dating back twenty five years across I
41:06
Speaker 1: don't know ten companies. He's probably never done a down
41:09
Speaker 1: round of financing in the last ten years. And yet
41:12
Speaker 1: we have all these people who've never started a single
41:14
Speaker 1: business who like to, you know, lecture him and say,
41:18
Speaker 1: you know that he has no idea what he's doing.
41:20
Speaker 1: He's running the business into the ground. All I would
41:22
Speaker 1: say is weight watch and see, I don't know. Business
41:25
Speaker 1: is hard, right that changing the culture at Twitter is hard.
41:29
Speaker 1: Rebuilding the business is hard. But if anybody can do it,
41:32
Speaker 1: if anybody's gonna work twenty hour days to pull it off,
41:34
Speaker 1: it's Elon Musk.
41:35
Speaker 2: So Brad tell us about invest America.
41:38
Speaker 1: Well, you know, Barry, we talked at the start of
41:42
Speaker 1: the pod about my childhood. I was on the outside
41:45
Speaker 1: looking in, didn't have any money, like a lot of
41:48
Speaker 1: rural kids in America. And you know, it seems to me,
41:53
Speaker 1: over the course of the last twenty years, we've experienced
41:56
Speaker 1: perhaps the greatest explosion in the history of modern capitalism.
42:02
Speaker 1: Massive amounts of wealth have been created, We've seen extraordinary
42:06
Speaker 1: leaps forward in human progress. But the problem with it
42:10
Speaker 1: is seventy percent of the people in this country will
42:12
Speaker 1: never have a savings or investment account. They feel left
42:15
Speaker 1: out of the system, and it's part of the reason
42:17
Speaker 1: that under the age of forty less than half of
42:20
Speaker 1: the people believe in capitalism. Ray Dalio tells us that
42:23
Speaker 1: it's a threat to democracy. In the Rise and Fall
42:26
Speaker 1: of Nations, he says, this is where it starts. Wealth inequality.
42:30
Speaker 1: People lose confidence in the organizing principles of society, and
42:34
Speaker 1: it leads to strife. We see this in some of
42:37
Speaker 1: the populist movements. We have right that you know, whether
42:41
Speaker 1: it's occupy Wall Street or whether it's charging the White House,
42:45
Speaker 1: and so to me, we have agency and there's a fix.
42:49
Speaker 1: This idea is a bipartisan piece of legislation where the
42:54
Speaker 1: federal government will seed a private investment account for every
42:58
Speaker 1: child born in America. So think about this, three point
43:01
Speaker 1: seven million children born a year. When you're born, you're
43:04
Speaker 1: issued a Social Security number and you're going to be
43:07
Speaker 1: issued an invest America account. The invest America account will
43:10
Speaker 1: have a one thousand dollars in it invested in the
43:12
Speaker 1: S and P five hundred. You own it. You'll be
43:14
Speaker 1: able to open it up on your mobile device. At eighteen.
43:18
Speaker 1: You'll be able to take out up to twenty percent
43:20
Speaker 1: for a qualified purchase college, first time home. Otherwise it's
43:26
Speaker 1: got to compound until you're fifty. Now here's where it
43:28
Speaker 1: gets interesting.
43:29
Speaker 2: Hold on, let me just stop right there, fifty years
43:32
Speaker 2: of compounding. People are very bad at recognizing what that
43:37
Speaker 2: looks like. The rule of seventy two isn't very intuitive.
43:41
Speaker 2: If on average markets gained let's use a conservative number
43:45
Speaker 2: eight percent. That means that pile of money is doubling
43:49
Speaker 2: every nine years. So by the time you're fifty four,
43:54
Speaker 2: that's doubled quite a few times.
43:56
Speaker 1: Right, Yeah, So what we envision is think of a
43:58
Speaker 1: four to h one k from birth. So the federal
44:01
Speaker 1: government seeds it. It's a tiny investment by the federal
44:04
Speaker 1: government three point seven billion a year. That's less than
44:06
Speaker 1: one one hundredth of one percent of the annual budget
44:10
Speaker 1: around Okay, so they seed it and then get out
44:13
Speaker 1: of the way. Now private industry comes in and like
44:17
Speaker 1: four oh one K matches. Dara at Uber will say, hey,
44:20
Speaker 1: I'll give this to the kids of my of my employees.
44:24
Speaker 1: Rich Barton at Zillo says, I'll give this to the
44:26
Speaker 1: kids of my employees. United Airlines, Microsoft. Go down the list.
44:30
Speaker 1: You've gotten commitments from various commitments already for various So
44:33
Speaker 1: if you see.
44:34
Speaker 2: This account will match our employees' children on a certain.
44:38
Speaker 1: Yeah, we'll give them a thousand bucks an account. So
44:40
Speaker 1: here's the math, Barry. If you start with one thousand,
44:43
Speaker 1: and you only have an addition of seven hundred and
44:46
Speaker 1: fifty dollars a year, okay, families can contribute to that.
44:50
Speaker 1: Your quacks free, you're correctation can contribute to it. If
44:54
Speaker 1: you have seve hundred fifty dollars incremental year. Then every
44:56
Speaker 1: ten year old in America when they enter into the
44:59
Speaker 1: fifth they're sixth grade, and the teacher says, hey, today
45:02
Speaker 1: we're going to talk about math, or compounding, or stocks
45:05
Speaker 1: or capitalism. They'll say open up. You all have phones,
45:08
Speaker 1: get out your phone and open up your invest America account.
45:11
Speaker 1: Those kids are going to have over ten thousand dollars
45:14
Speaker 1: their ownership in America, their slice of America. They'll see
45:18
Speaker 1: their the amount at the top, twelve thousand, five hundred dollars,
45:21
Speaker 1: and they'll see their top five holdings, their slice of Apple,
45:25
Speaker 1: their slice of Microsoft, their slice of United Health. Okay,
45:29
Speaker 1: by the age of thirty, they'll have over one hundred
45:31
Speaker 1: and fifty thousand dollars in that account. And if you
45:33
Speaker 1: take one thousand dollars at seven hundred and fifty bucks
45:36
Speaker 1: a year, and it compounds at the exact same rate
45:38
Speaker 1: as the S and P five hundred for the last
45:40
Speaker 1: fifty years of a million dollars in their account. This
45:44
Speaker 1: is a way we get people to believe in capitalism again,
45:47
Speaker 1: this is a way we teach financial literacy. This is
45:50
Speaker 1: a way we give people hope, the people who feel
45:53
Speaker 1: like they're left out of the system. You give everybody's
45:55
Speaker 1: skin in the game. And if we can afford to
45:58
Speaker 1: send five billion year in foreign aid to our top
46:02
Speaker 1: fifteen countries that we send foreign aid to, then we
46:06
Speaker 1: can spend three point seven billion dollars a year to
46:09
Speaker 1: seed every American child with upside in American enterprise and capitalism.
46:14
Speaker 2: What's the appetite on the hill on amongst the Democrats
46:18
Speaker 2: and Republicans for a program like this.
46:21
Speaker 1: Well, I can tell you you know. I mentioned I've
46:24
Speaker 1: been a four time founder and the number one thing
46:26
Speaker 1: you got to do when you're starting a company is
46:28
Speaker 1: called product market fit. Do the dogs want to eat
46:31
Speaker 1: the dog food?
46:32
Speaker 2: Right?
46:32
Speaker 1: And so for two years now I've been funding this
46:35
Speaker 1: and bootstrapping and going out and talking to everybody from
46:39
Speaker 1: the Clintons to the Cookes. A giant tent, okay, And
46:43
Speaker 1: I'm happy to say that now we have bipartisan authors
46:46
Speaker 1: and co sponsors lining up in the House and the Senate.
46:49
Speaker 1: We hope to introduce it in the spring. I think
46:52
Speaker 1: there's going to be massive support for this. This is
46:55
Speaker 1: one thing that all both political parties in a highly
46:58
Speaker 1: divisive country can agree on that every kid not to
47:02
Speaker 1: This is not a big entitlement program to guarantee anybody anything.
47:06
Speaker 1: What this is is a seed program by the federal
47:09
Speaker 1: government that partners with the power of the private sector
47:12
Speaker 1: to give everybody a shot, to give everybody hope, to
47:16
Speaker 1: teach everybody what it means to participate in American capitalists.
47:20
Speaker 2: So we've heard a couple of variations of this over
47:23
Speaker 2: the years, Baby bonds. Senator Booker had had a couple
47:27
Speaker 2: of programs. How does this compare to various you know,
47:31
Speaker 2: opportunity accounts type things that are out there, so.
47:35
Speaker 1: You know, and and by the way, I think a
47:37
Speaker 1: lot of them have great motivations and so there's no
47:41
Speaker 1: pride of authorship here. The more people who want to
47:44
Speaker 1: work on this issue together. And I have some of
47:47
Speaker 1: the greats, the investing greats, who are excited to participate,
47:50
Speaker 1: who've offered to write the financial literacy, give us a
47:53
Speaker 1: namel components like this. You know, I'm not going to
47:57
Speaker 1: drop all those names right now because I want to
48:00
Speaker 1: have a big splash when we do, Barry, I'll come
48:02
Speaker 1: to you, I promise. But all the people who are
48:05
Speaker 1: my friends, who I talk to, who run these big firms,
48:08
Speaker 1: they believe in this, right they because they it is
48:12
Speaker 1: their life experience. So think about this versus a baby bond.
48:15
Speaker 1: You know, bonds don't appreciate very much. They don't compound
48:18
Speaker 1: very much. It's not very exciting for a kid. They
48:20
Speaker 1: don't own part of a company, you know, and and
48:23
Speaker 1: so you don't achieve the same things. On top of that,
48:27
Speaker 1: this program needs to be universal. If you're a poor
48:31
Speaker 1: white kid in Indiana, right, or you're a black kid
48:34
Speaker 1: in Trenton, or you're you know, if you are a
48:39
Speaker 1: Latino kid living in East pal Aato. This is an
48:43
Speaker 1: opportunity to unite America. We are all on team America, okay.
48:48
Speaker 1: And so that's the other thing. We're not gonna pick
48:51
Speaker 1: and choose right, And we're not gonna pick and choose companies.
48:54
Speaker 1: All goes into the S and P five hundred, five
48:56
Speaker 1: hundred of the best companies in America. If it's good
48:58
Speaker 1: enough for everybody else to index off of, it's good
49:00
Speaker 1: enough for these kids. And so I would say in
49:03
Speaker 1: addition to that, there have been other attempts previously. I
49:07
Speaker 1: think a lot of those attempts were also tied to
49:09
Speaker 1: Social Security, and I think it's a big mistake.
49:11
Speaker 2: You anticipated my next question, because does this eventually set
49:16
Speaker 2: up a method for people to say, all right, now
49:19
Speaker 2: everybody has an invest in American account, we could stop
49:21
Speaker 2: funding socials now.
49:23
Speaker 1: In fact, we need to fully fund social security. Right.
49:26
Speaker 1: We made a commitment to seniors. We need to keep
49:29
Speaker 1: our commitment. We need to do the things we need
49:31
Speaker 1: to do around financial discipline in this country. We have
49:35
Speaker 1: a two trillion dollar deficit. We spend a trillion dollars
49:37
Speaker 1: more today than we did in twenty nineteen. COVID's over
49:41
Speaker 1: the extenuating circumstances that COVID are over, So the extenuated
49:46
Speaker 1: circumstances of our spending increase should also come back to normal.
49:50
Speaker 1: So we got to deal with our debt. We got
49:52
Speaker 1: to deal with our deficit, and we can solve social
49:55
Speaker 1: security in the context of that. But we all know Barry,
50:00
Speaker 1: sacrifics are going to have to be made. But that
50:02
Speaker 1: is a separate and a distinct problem. This is much
50:06
Speaker 1: more fundamental. I want to give every child hope for
50:09
Speaker 1: their entire life about my opportunity to participate in the game,
50:14
Speaker 1: in the system, to know what it feels like to
50:16
Speaker 1: own something. Most of these families and kids will never
50:20
Speaker 1: know what it feels like to own something. And we
50:22
Speaker 1: talked a lot today about AI. My prediction is that
50:26
Speaker 1: artificial intelligence will lead to some of the biggest labor
50:29
Speaker 1: dislocations in the history of capitalism. Okay, so if we
50:33
Speaker 1: already have people who disbelieve in capitalism, they feel like
50:36
Speaker 1: the system's rigged against them. Now, imagine you're one of
50:39
Speaker 1: those people right in a sales center or a call center. Right,
50:44
Speaker 1: You've done everything that was asked of you, Right, you
50:46
Speaker 1: worked really hard, and now you lose your job. It's
50:49
Speaker 1: going to take a while to integrate integrate those folks
50:52
Speaker 1: back into other parts of the economy. And so we
50:55
Speaker 1: need people to understand that human progress is not always
50:59
Speaker 1: distributed equally. But one of the dividends, one of the
51:02
Speaker 1: birthrights of being part of this great system is you
51:06
Speaker 1: ought to have a little skin in the game. And
51:08
Speaker 1: it's you know, Warren Buffett said it best. Compounding is
51:11
Speaker 1: the eighth wonder of the world. He said, give me
51:14
Speaker 1: a really small snowball and a really long hill, Barry.
51:19
Speaker 1: There's no longer hill than starting at birth.
51:22
Speaker 2: All right, So I have a couple of questions around
51:25
Speaker 2: what you've described. I just want to make sure I
51:28
Speaker 2: understand this money's locked up for fifty years. You can
51:32
Speaker 2: either borrow against it or draw against it to pay
51:35
Speaker 2: for college or the first purchase of a house. But
51:38
Speaker 2: other than that, it's there. It can't be a touch
51:40
Speaker 2: by creditors. You can be forced to sign it away.
51:45
Speaker 2: It's locked up and nothing can happen.
51:47
Speaker 1: Correct, and you own personal title to it. Now, of
51:50
Speaker 1: course we know that saviors save. What do I expect's
51:53
Speaker 1: going to happen? Right, They're gonna open adjacent accounts. They're gonna,
51:57
Speaker 1: you know, they're gonna learn the power of compounding.
51:59
Speaker 3: Who can contribute to one babies two thousand dollars is
52:07
Speaker 3: the proposal can be contributed to those accounts.
52:09
Speaker 1: Annually like like an ira, and that can come from anyone,
52:14
Speaker 1: can come from family, can.
52:15
Speaker 2: Come frozen and appreciate. Correct, you take it out text
52:19
Speaker 2: free as well. That's right the thinking, And why the
52:23
Speaker 2: S and P five hundred? Why not a broader index?
52:27
Speaker 2: Off the top of my head, the Vanguard total market
52:29
Speaker 2: is two thousand stocks. It's a little less volatile, and
52:33
Speaker 2: it has the S and P five hundred in it.
52:35
Speaker 1: So you know, I'm sure there'll be plenty of debate
52:38
Speaker 1: about this, you know, when when you know the rubber
52:41
Speaker 1: meets the road, five hundred of the biggest, best, safest
52:45
Speaker 1: companies constantly rebalanced, that represent the best of America benchmark
52:50
Speaker 1: to be right. And then you just look at the
52:52
Speaker 1: fifty hundred year history of that index. We've got so
52:55
Speaker 1: much data over that period of time. It's compounded at
52:58
Speaker 1: ten point two percent. Right, And so to me, let's
53:01
Speaker 1: not let perfection be the enemy of the good. Let's
53:04
Speaker 1: get started.
53:05
Speaker 2: I love it. I love it all right, So put
53:06
Speaker 2: on your AI hat a second. You've been working on
53:10
Speaker 2: this for two years. In the beginning, even though it
53:13
Speaker 2: was a great idea, not a lot of traction from
53:16
Speaker 2: my sense of doing a little homework on this. It
53:19
Speaker 2: seems to be getting a little bit of attraction. There's
53:22
Speaker 2: a little more lift to how broadly both sides of
53:26
Speaker 2: the aisle looking at it. What are the odds that
53:28
Speaker 2: this gets done next year?
53:30
Speaker 1: You know, I've recruited a great guy, Matt Lera, to
53:35
Speaker 1: run this day to day in Washington. He helped push through
53:38
Speaker 1: opportunity zones, another one, another great bipartisan you know, piece
53:43
Speaker 1: of legislation. Washington is tricky. It's a long putt to
53:48
Speaker 1: get anything done right. But I will tell you we're
53:50
Speaker 1: gonna spend the money we got to. Nobody's gonna work
53:53
Speaker 1: harder to make this happen. And the goodwill of people
53:57
Speaker 1: on both sides. It's this has made me so optimistic
54:01
Speaker 1: on America because you know, if you read Twitter like
54:06
Speaker 1: you were saying, you may think that people on the
54:09
Speaker 1: left are people on the right, you know you radically
54:11
Speaker 1: disagree with them. They must be bad people. You know,
54:15
Speaker 1: this has given me the opportunity to canvass everybody right
54:19
Speaker 1: across the political spectrum. And I'll tell you, they all
54:22
Speaker 1: believe in America. They all believe it can be improved.
54:25
Speaker 1: And you know, people are climbing on board, So I
54:27
Speaker 1: think this can be one of those big tent movements.
54:30
Speaker 1: I hope that, you know, it enters the fray of
54:32
Speaker 1: presidential politics. I would love to see both presidential candidates
54:36
Speaker 1: endorse it. You know, it's tough to get anything done
54:38
Speaker 1: in a presidential year, Barry, but I'm not stopping. You know,
54:41
Speaker 1: I'm not stopping next year. I think we're gonna put
54:44
Speaker 1: it on the agenda next year. Hopefully magically we can
54:47
Speaker 1: get it through. But if we don't, we're coming back
54:49
Speaker 1: the next year, and we're gonna come back the year
54:51
Speaker 1: after that.
54:52
Speaker 2: Well, Brad, really good on you for this. This is
54:54
Speaker 2: so fascinating and just such an obvious and hindsight way
55:01
Speaker 2: to bring everybody in. It's always nice to see somebody
55:06
Speaker 2: do more than just write a check, come up with
55:08
Speaker 2: a great idea that's disruptive and innovative and just makes
55:13
Speaker 2: so much sense. Congrats to you to getting it this far.
55:17
Speaker 2: I hope you get over the goal line. But even
55:20
Speaker 2: taking it as far as you have, you should really
55:22
Speaker 2: be proud.
55:22
Speaker 1: Of what I can. I tell you one quick Stu,
55:25
Speaker 1: and before I.
55:25
Speaker 2: Forget at invest America twenty four is the Twitter handle right?
55:29
Speaker 1: Yes? At invest America twenty four follow it. We need followers.
55:33
Speaker 1: We need you to build the movement. We need you
55:35
Speaker 1: to tell your friends, talk to your congress people about it. Right, really,
55:38
Speaker 1: let me tell you a quick story about go ahead.
55:40
Speaker 1: You know, I'm a four time founder. I live in
55:42
Speaker 1: Silicon Valley.
55:44
Speaker 2: Right.
55:44
Speaker 1: Human progress is people who take risk to push the
55:48
Speaker 1: whole system forward. That's not just starting a company. Right.
55:52
Speaker 1: My son and I were on Capitol Hill this summer.
55:55
Speaker 1: My son, Lincoln's fifteen years old. I've taken him into
55:57
Speaker 1: all these meetings with me to meet the to meet
56:00
Speaker 1: Congress people, and to have this conversation. And we're walking
56:03
Speaker 1: out of McCarthy's office and we had been in there
56:05
Speaker 1: for sixty minutes. It was a great meeting. And we're
56:10
Speaker 1: walking down the hallway. The capital, you know, just has
56:13
Speaker 1: the power of the Capitol. And I look at him
56:15
Speaker 1: and he just said, Wow, that was amazing. I said, dude,
56:19
Speaker 1: For two hundred and fifty years, there's not a single
56:23
Speaker 1: thing that got done in this country without it starting
56:26
Speaker 1: with a conversation between two people like that. Every piece
56:30
Speaker 1: of legislation, every idea is the back of a napkin.
56:34
Speaker 1: And somebody who's tenacious enough not to give up.
56:37
Speaker 2: Really fascinating stuff. Let's talk a little bit about the
56:41
Speaker 2: state of the IPO environment currently. For a while it
56:46
Speaker 2: looked like the IPO window reopened a bit, then it
56:49
Speaker 2: seemed to have closed. What does the IPO market look
56:53
Speaker 2: like to you?
56:54
Speaker 1: Well, I tweeted something the other day and I said,
56:56
Speaker 1: the IPO market is always open, right, It's just question
57:00
Speaker 1: of whether or not the sellers want to sell at
57:02
Speaker 1: the price the buyers are willing to buy. And it's
57:05
Speaker 1: really true. What I mean by this is, so we
57:08
Speaker 1: had three IPOs, right, we had Armclavyo, and Instacart. We
57:11
Speaker 1: participated in each of those IPOs, Okay, you know, and
57:16
Speaker 1: if you think about the opening that we had that
57:19
Speaker 1: was in June of this year, the ten year was
57:22
Speaker 1: closer to four, right, the Nasdaq was doing well. What
57:26
Speaker 1: happened between July and October of this year, the ten
57:31
Speaker 1: year bond moved twenty five percent, Okay, so went down
57:34
Speaker 1: twenty five percent, and you had the nasdak off twelve percent.
57:37
Speaker 1: So of course, when you have that level of volatility
57:40
Speaker 1: in the market, it's going to put a little chill
57:42
Speaker 1: into people's plans.
57:43
Speaker 2: But look at that that was last month.
57:45
Speaker 1: Now let me tell you this. Let me tell you this.
57:47
Speaker 1: We have a thousand unicorns just in technology that need
57:52
Speaker 1: to get public. These are companies that are valued in
57:55
Speaker 1: the private market. Last valued at over a billion dollars.
57:59
Speaker 1: And what I say said in that tweet is if
58:01
Speaker 1: you were valued at over two to three billion bucks,
58:04
Speaker 1: if you have a decent amount of revenue, it's time
58:06
Speaker 1: to get public. You cannot anchor yourself to some delusional
58:10
Speaker 1: price you got in twenty twenty or twenty twenty one.
58:14
Speaker 1: Anybody who's in the stock market will tell you gross
58:17
Speaker 1: stocks are down fifty to seventy percent during that period
58:19
Speaker 1: of time. So it's reasonable to assume that these late
58:23
Speaker 1: stage venture capital companies also lost that value. We see
58:26
Speaker 1: it with great coming to think about Stripe. You know,
58:30
Speaker 1: Patrick and John Collison have built one of the premier
58:33
Speaker 1: companies in Silicon Valley. At its peak, I think they
58:36
Speaker 1: did around at one hundred and twenty billion. Its most
58:38
Speaker 1: recent round was at sixty billion. Right, you see Odden
58:41
Speaker 1: in some of these companies getting you know, really getting
58:44
Speaker 1: crushed in the public markets. The clearing price will be
58:48
Speaker 1: the clearing price. If you're a great business Okay, think
58:52
Speaker 1: back to the day when you and I watched the
58:55
Speaker 1: Sales Force ipo, the Google IPO, the Apple I go
58:58
Speaker 1: through the list. You get into the public markets. You
59:01
Speaker 1: can innovate plenty in the public markets. Public markets exact
59:05
Speaker 1: a discipline which is good for companies. They keep companies fit.
59:09
Speaker 1: And the reality is your price is your price. It
59:11
Speaker 1: will go up and down depending upon factors in your
59:14
Speaker 1: control and many factors beyond your control. But hiding in
59:17
Speaker 1: the private markets, like you know, Bill Gurley uses this,
59:20
Speaker 1: it's you know, this is like a college a great
59:22
Speaker 1: college player who's too afraid to play in the NFL. Right, No,
59:26
Speaker 1: you got to enter the draft. You're gonna get picked.
59:28
Speaker 1: You may get picked lower than you think you deserve.
59:30
Speaker 1: Then you step on the field and you prove. It
59:33
Speaker 1: shows the power of the public market.
59:34
Speaker 2: So in late twenty one twenty twenty two, valuations had
59:39
Speaker 2: gotten a touch frothy in both the public and the
59:43
Speaker 2: private markets. When you see that sort of reset that
59:47
Speaker 2: takes place in the public markets, how long does it
59:50
Speaker 2: take for the private markets to similarly adjust? What's the
59:54
Speaker 2: lag from when the NAZAC is down thirty percent? How
59:58
Speaker 2: long does it take for private stocks to get that
1:00:00
Speaker 2: big of a whist.
1:00:00
Speaker 1: You know, we've been doing some study on this. It's
1:00:02
Speaker 1: pretty fascinating. So I would say over most of my
1:00:05
Speaker 1: venture career, which is now over two decades, I would
1:00:08
Speaker 1: say that was like nine to twelve months, right. And
1:00:10
Speaker 1: the reason that they adjusted that timeframe is most companies
1:00:14
Speaker 1: needed to raise money in nine to twelve months. So
1:00:17
Speaker 1: you know, when you discover what you're worth when you
1:00:19
Speaker 1: have to go raise more money. Okay, but what happened
1:00:22
Speaker 1: in twenty and twenty one was so unique. We were
1:00:25
Speaker 1: so aw wash in money because of the ZERP environment
1:00:29
Speaker 1: that startups were raising gobs of money way more and
1:00:33
Speaker 1: putting it on their balance sheet than they normally raise.
1:00:36
Speaker 1: So they have not needed to go raise money in
1:00:39
Speaker 1: that nine to twelve month window. Instead, they need to
1:00:42
Speaker 1: raise money more like in a twenty four or a
1:00:44
Speaker 1: thirty month window. Well, now we're starting to come up
1:00:47
Speaker 1: on that period. So twenty twenty four, particularly the back
1:00:50
Speaker 1: half of twenty four, that's when real price discovery is
1:00:54
Speaker 1: going to occur. I will tell you, though we've been
1:00:56
Speaker 1: talking about late stage venture in the IPO market, early
1:00:59
Speaker 1: stage market has already reset pricing. Okay, we have a
1:01:03
Speaker 1: little bit of an AI bubble and some things, and
1:01:05
Speaker 1: we can chat about that. But normal venture these are
1:01:08
Speaker 1: companies that raise the series A now have to go
1:01:10
Speaker 1: raise the series B or they're coming to market for
1:01:12
Speaker 1: the first time. Prices are already back to what I
1:01:15
Speaker 1: would call like twenty thirteen levels.
1:01:17
Speaker 2: All right, So you mentioned the AI bubble. Is it
1:01:20
Speaker 2: a bubble? Is there just a lot of interest because
1:01:22
Speaker 2: everybody's figured out, hey, this is a game changer, this
1:01:25
Speaker 2: is another one of those platform or supercycles. Or is
1:01:31
Speaker 2: it just too much money chasing too few ideas and
1:01:33
Speaker 2: it's a bubble?
1:01:34
Speaker 1: Yeah? No, I think I think there's a moment that
1:01:38
Speaker 1: you have to hold two simultaneous truths. Intention it is true,
1:01:44
Speaker 1: all right, believe it to be true that this is
1:01:46
Speaker 1: going to be bigger than the Internet itself. It's having
1:01:48
Speaker 1: massive impact already on every enterprise and you know, most consumers, right,
1:01:53
Speaker 1: And so I don't think in fact, if anything, I
1:01:56
Speaker 1: think we're likely overestimating it a little bit in the
1:01:59
Speaker 1: short term and underestimating it in the two to five
1:02:02
Speaker 1: year range.
1:02:03
Speaker 2: The famous Bill Gates, Right.
1:02:04
Speaker 1: But with that said, remember nineteen ninety eight, vividly we
1:02:09
Speaker 1: all knew. We all knew the Internet was going to
1:02:11
Speaker 1: change the world forever, and a lot of us knew
1:02:14
Speaker 1: that internet search was going to be one of the
1:02:17
Speaker 1: biggest businesses to come out of it because it was
1:02:19
Speaker 1: the tollkeeper, it was organizing all the world's information. In
1:02:22
Speaker 1: nineteen ninety eight, there's mad scramble was on among venture capitalists.
1:02:25
Speaker 1: They got to get a search logo, so they went out.
1:02:27
Speaker 1: They invested in Alta Vista, in Infoseek, do in Licos,
1:02:32
Speaker 1: in Dogpile, you know, go through the list, Yes, Jeeves, ash, Jeeves,
1:02:37
Speaker 1: et cetera. All of those companies right a few years
1:02:42
Speaker 1: later would basically be where zero. You could have waited
1:02:45
Speaker 1: to invest in Google in two thousand and four in
1:02:47
Speaker 1: their IPO, and you would have captured ninety plus percent
1:02:50
Speaker 1: of all the profits ever generated in Internet search. Okay,
1:02:54
Speaker 1: So my point there is sometimes in venture capital, right,
1:02:57
Speaker 1: you've got to be in the trenches. You've got to
1:02:59
Speaker 1: be studying, you've got to be researching, you've got to
1:03:01
Speaker 1: be preparing your mind, developing conviction. But as Warren Buffett
1:03:05
Speaker 1: has said, the hardest thing investing is to do all
1:03:07
Speaker 1: the work and then do nothing right right and right now,
1:03:11
Speaker 1: I think this has been one of those times where
1:03:13
Speaker 1: we've passed on over fifty AI companies. We've made some
1:03:16
Speaker 1: select investments, but it's been easier to invest in AI
1:03:19
Speaker 1: in the public markets because we already see the fruits
1:03:23
Speaker 1: of Microsoft's labors of snowflakes, labors of Nvidia's labors, et cetera.
1:03:28
Speaker 1: The private markets, it's hard to know which assets are
1:03:31
Speaker 1: going to have durable value. I mean, think about it.
1:03:33
Speaker 1: Open Ai just dropped its prices ninety percent again. Okay,
1:03:38
Speaker 1: So if you're trying to build a model barry like
1:03:40
Speaker 1: you and I do, for one of these you know,
1:03:42
Speaker 1: for Mistral or Anthropic or cohere, any one of these
1:03:46
Speaker 1: companies that are in the model space, it's very, very difficult.
1:03:50
Speaker 1: So I think you know, study a lot, but tread lightly.
1:03:53
Speaker 2: Huh really interesting. Before I ask you all of our
1:03:57
Speaker 2: favorite questions we ask all of our guests, I have
1:03:59
Speaker 2: to throw a little curveball at you. You have what
1:04:02
Speaker 2: has to be the best job title I've ever seen
1:04:06
Speaker 2: from anyone in tech. Founder and chief boat washer. Tell
1:04:11
Speaker 2: us a little bit about your first entrepreneurial gig where
1:04:15
Speaker 2: you were washing boats.
1:04:16
Speaker 1: Well, you know, my dad moved us to a small
1:04:21
Speaker 1: town in northwest Indiana because he thought it would provide
1:04:23
Speaker 1: He didn't have a lot of money, but he thought
1:04:25
Speaker 1: it was a nice town, provide a better life for
1:04:27
Speaker 1: his kids. What this town had was a really beautiful,
1:04:30
Speaker 1: big lake in it. It's called Lake Wawasee, and you know,
1:04:33
Speaker 1: about twelve miles long, a couple miles wide. Everybody had
1:04:36
Speaker 1: a dock out front and a boat. All the boats
1:04:39
Speaker 1: had to be cleaned, and I had to make money,
1:04:41
Speaker 1: and so I partner with my friend Jimmy Koshnik, and
1:04:45
Speaker 1: we co founded Wawasee Boat Care and we ran the
1:04:48
Speaker 1: table on boat cleaning on the lake. We had a
1:04:51
Speaker 1: lot of fun. We probably spent all the money before
1:04:54
Speaker 1: the summer was over.
1:04:55
Speaker 2: But how much did that affect that experience effect how
1:04:59
Speaker 2: you approach being an entrepreneur? How seminal was that for you?
1:05:02
Speaker 1: You know, I think those moments working for guys like
1:05:05
Speaker 1: Pete legal omer Krupp at Supreme Industries, I was always working.
1:05:10
Speaker 1: I was always a student of the game. I was
1:05:12
Speaker 1: always studying. I was always curious, like how does businesses
1:05:15
Speaker 1: get built? And you know the reason, Barry, I think,
1:05:17
Speaker 1: if you really boil it all down, my dad went.
1:05:19
Speaker 1: My dad was kind of my hero mm hmm, you know,
1:05:22
Speaker 1: and I saw him give everything and his business go
1:05:27
Speaker 1: under right, and it affected his health, his marriage, lost
1:05:31
Speaker 1: the house. And so I think, if you're the son,
1:05:33
Speaker 1: the youngest son of a guy who's like your hero,
1:05:36
Speaker 1: you see him go through that trauma, you kind of
1:05:38
Speaker 1: spend the rest of your life trying to figure it out,
1:05:41
Speaker 1: like why didn't it work out? And really, you know,
1:05:45
Speaker 1: doing it for him, avenging what the dream you know
1:05:48
Speaker 1: that he didn't have. And so from an early age,
1:05:50
Speaker 1: I knew I had to put it on my own
1:05:51
Speaker 1: back and get it done. And here we.
1:05:53
Speaker 2: Are, Here we are, So we have you for four
1:05:56
Speaker 2: and a half minutes. Let's let's turn this into a
1:05:58
Speaker 2: speed round and I'm going to ask you the questions
1:06:01
Speaker 2: that we ask all of our guests, starting with are
1:06:04
Speaker 2: you streaming anything, listen to anything? What's keeping you entertained
1:06:06
Speaker 2: these days?
1:06:08
Speaker 1: The Diplomat I was watching so good, so good, so terrific.
1:06:13
Speaker 1: You know, watch a lot of docs, listen to a
1:06:15
Speaker 1: lot of pods, and listen to a lot of books
1:06:18
Speaker 1: on tape.
1:06:19
Speaker 2: By the way, I enjoy you on the oil in
1:06:21
Speaker 2: pod with a Chamatha and company. That that's a hell
1:06:24
Speaker 2: of a podcast.
1:06:25
Speaker 1: You know, what I'll tell you about that group is
1:06:29
Speaker 1: authentic friends. Right. You could tell they've all known each
1:06:33
Speaker 1: other in some capacity. You could tell a long time.
1:06:36
Speaker 1: We do play poker, uh, you know pretty much every
1:06:39
Speaker 1: week we're in town on Thursday nights. We like to
1:06:42
Speaker 1: give it to each other. But importantly, you know, we
1:06:44
Speaker 1: have a we have a thread with one another throughout
1:06:47
Speaker 1: the week. We are all analysts, We're all I mean,
1:06:50
Speaker 1: it's like a Bloomberg stream constantly sharing news, analysis, politics, economics,
1:06:57
Speaker 1: company specific venture capital because we care. And so to
1:07:01
Speaker 1: have friends that you get to play a game with,
1:07:03
Speaker 1: you get to debate with. You don't always agree on everything,
1:07:07
Speaker 1: but at the end of the day, you know, you
1:07:09
Speaker 1: learn a lot with you know, it's a real privilege.
1:07:11
Speaker 2: You've already mentioned some of your early mentors. Who else
1:07:14
Speaker 2: helped shape your career?
1:07:16
Speaker 1: You know, I think you know Dick Luger clearly as
1:07:20
Speaker 1: a statesman. I think in life, you know, we talk
1:07:23
Speaker 1: about compounding, right, and in compounding, you know, you got
1:07:27
Speaker 1: your principal p times your rate are you know for
1:07:31
Speaker 1: duration T right, And I think you can apply that
1:07:34
Speaker 1: same formula to life. But your principle is your purpose,
1:07:38
Speaker 1: it's your passion, right, And I was lucky enough to
1:07:42
Speaker 1: find that. I just like to be a student and
1:07:44
Speaker 1: study the world, be an anthropologist and try to make
1:07:46
Speaker 1: sense out of it. You know, if I was a
1:07:48
Speaker 1: college professor, I'd do all the same studying, but then
1:07:50
Speaker 1: i'd teach a class. Right. If I was a host,
1:07:52
Speaker 1: I would do all the same studying, and then I'd
1:07:54
Speaker 1: do a TV show. I happen to be an investor,
1:07:57
Speaker 1: so I do all the studying and then I get
1:07:58
Speaker 1: to place bets. You know, the r I think of
1:08:01
Speaker 1: as the Raid accelerators. Who are the people in your life?
1:08:04
Speaker 1: The Paul Readers, you know, the the David Fialco and
1:08:07
Speaker 1: Joel Cutler's, the Pete legals of the world, right, who
1:08:11
Speaker 1: Rich Barton, Bill Gurley. You know, when you find those people,
1:08:14
Speaker 1: collect them, and you need to make yourself collectible. And
1:08:18
Speaker 1: the way you make yourself collectible, right is you have
1:08:21
Speaker 1: to invest in them. You have to you have to
1:08:24
Speaker 1: be you know, insightful to them, right. And I tell
1:08:28
Speaker 1: my kids all the time, you got to invest in friendships, right,
1:08:31
Speaker 1: And you know, so that's been really the the byproduct
1:08:35
Speaker 1: of that has been a lot of fun, a lot
1:08:37
Speaker 1: of learning, and a few good investments.
1:08:39
Speaker 2: H really good answer.
1:08:41
Speaker 1: What about books?
1:08:42
Speaker 2: What are some of your favorites? What are you reading
1:08:44
Speaker 2: right now?
1:08:44
Speaker 1: Well, I'm going to tell you one. You know, there's
1:08:49
Speaker 1: a lot of stuff I'm listening to on audible. You know,
1:08:52
Speaker 1: Chama said something the other day. Somebody was talking about
1:08:54
Speaker 1: a book in our thread that he needs to read,
1:08:56
Speaker 1: and you know, within fifteen seconds he snapp called it.
1:08:59
Speaker 1: He put the GPT summary in there. He's like, I'm done,
1:09:03
Speaker 1: which I thought was was pretty funny but actually quite true.
1:09:07
Speaker 1: Essentialism by Greg mchun the art of doing less better.
1:09:12
Speaker 1: So for me, my design philosophy is minimalism and my
1:09:16
Speaker 1: life philosophy is essentialism. And that's also really how we
1:09:21
Speaker 1: run the business. We don't have to do everything, we
1:09:23
Speaker 1: don't have a lot of fomo. We're happy being students.
1:09:27
Speaker 1: But when we develop deep conviction, we put a lot
1:09:30
Speaker 1: of wood behind the bat, and that leads to enduring relationships,
1:09:37
Speaker 1: enduring investments, and the ability to compound over a really
1:09:40
Speaker 1: long period of time.
1:09:41
Speaker 2: Really again, really good answer. Our final two questions, what
1:09:45
Speaker 2: sort of advice would you give to a recent college
1:09:48
Speaker 2: grad who is interested in either startups, entrepreneurism or venture capitalism.
1:09:56
Speaker 1: You know, I'll tell you where I go to look
1:09:58
Speaker 1: for analysts in my firm. I go to Twitter. I
1:10:02
Speaker 1: want to see what they're saying. Right. And so if
1:10:06
Speaker 1: you want to break through, if you want to get noticed, right,
1:10:10
Speaker 1: then do research study something. If you come in and
1:10:13
Speaker 1: tell me you're super passionate about something, but then I
1:10:15
Speaker 1: asked you a couple questions, it's pretty clear to me
1:10:17
Speaker 1: you've never really done any work on it, right, It's
1:10:20
Speaker 1: not very convincing. But you know, jam And Ball one
1:10:23
Speaker 1: of my partners in the firm, he was a young
1:10:26
Speaker 1: a young partner at Redpoint venture capital firm in Silicon Valley.
1:10:30
Speaker 1: He had seventy five thousand followers on his substack called
1:10:33
Speaker 1: Clouded Judgment. This guy's twenty nine thirty years old.
1:10:36
Speaker 2: Right.
1:10:36
Speaker 1: How did Bill Gurley break through in Silicon Valley? He
1:10:38
Speaker 1: started I think he was twenty eight years old. He
1:10:40
Speaker 1: started sending out a facts called above the Crowd every
1:10:43
Speaker 1: Thursday night at five o'clock, telling people what he had
1:10:46
Speaker 1: learned that week in Silicon Valley. That is the type
1:10:49
Speaker 1: of hack that shows people your passion. It shows them
1:10:52
Speaker 1: your insights, your capability to process information. So I mean
1:10:56
Speaker 1: you got to earn it, nobody's handing it to you.
1:10:58
Speaker 2: Love that. And finally, what do you know about the
1:11:01
Speaker 2: world of venture investing today? You wish you knew twenty
1:11:05
Speaker 2: plus years or so ago when you were first getting started.
1:11:08
Speaker 1: Power law, power law, power law.
1:11:10
Speaker 2: It's all about company.
1:11:11
Speaker 1: The first ten years of my of my venture career,
1:11:15
Speaker 1: I would see something as a founder, I'd say, oh, yeah,
1:11:18
Speaker 1: I can help make that work if we just change
1:11:20
Speaker 1: this and this and this, and you know, I could
1:11:22
Speaker 1: earn a three X on this, a four x, a
1:11:24
Speaker 1: five x. Right. The truth is in venture you have
1:11:27
Speaker 1: to play for spectacular outcomes. So we don't invest in
1:11:31
Speaker 1: a software company if we think it can be a
1:11:33
Speaker 1: nice little company with thirty or forty million dollars in revenue.
1:11:36
Speaker 1: We want to go after the biggest market with the
1:11:38
Speaker 1: most audacious founders, Founders that want to change the world,
1:11:42
Speaker 1: that want to do things. Palmer Lucky, what he's doing
1:11:45
Speaker 1: at Anderill Right, Mark Zuckerberg, what do he wanted to
1:11:50
Speaker 1: do in social you know, Sam what he wants to
1:11:53
Speaker 1: do you know at open ai, Elon in electrification. Those
1:11:56
Speaker 1: are the people, right, who do in fact change, you know,
1:12:01
Speaker 1: bend the universe, and you know you want to back them.
1:12:05
Speaker 1: It's not gonna happen fast. There won't be a lot
1:12:07
Speaker 1: of people who agree with you at the start. You know,
1:12:09
Speaker 1: when we when we invest in Snowflake, that first round,
1:12:12
Speaker 1: it was backing the founders out of Oracle that we're
1:12:15
Speaker 1: going to rebuild the Oracle database in the cloud, separate
1:12:18
Speaker 1: storage and compute. Most of the smart enterprise software investors
1:12:22
Speaker 1: in Silicon Valley past. Okay, really and so like, you know,
1:12:27
Speaker 1: because the cloud in twenty twelve, twenty thirteen was out
1:12:31
Speaker 1: of favor, it was out of consensus. People were like,
1:12:33
Speaker 1: it's not as secure, it's not as fast, it costs more.
1:12:37
Speaker 1: So you had to see a future where it was
1:12:39
Speaker 1: going to cost less, it was going to be faster,
1:12:41
Speaker 1: and there's going to be more secure, which we did.
1:12:43
Speaker 1: And so that only comes from study, only comes from study.
1:12:46
Speaker 1: So study hard, look for the really big outcomes, find
1:12:51
Speaker 1: people who are undeniable outliers working in those areas, and
1:12:55
Speaker 1: back them.
1:12:56
Speaker 2: Brad, thank you for being so generous with your time.
1:12:59
Speaker 2: This was just we have been speaking with Brad Gersner.
1:13:03
Speaker 2: He is the founder and CEO of altiminer Capital. If
1:13:08
Speaker 2: you enjoy this conversation, well, be sure and check out
1:13:11
Speaker 2: any of the previous five hundred such discussions we've had
1:13:14
Speaker 2: over the past nine and a half years. You can
1:13:18
Speaker 2: find those on Apple Podcast, Bloomberg, YouTube, Spotify, or wherever
1:13:24
Speaker 2: you get your favorite podcasts. Follow my daily reads at
1:13:29
Speaker 2: Ridolts dot com. Follow me on Twitter at Ridholts. Follow
1:13:34
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1:13:39
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1:13:41
Speaker 2: staff that helps put these conversations together each week. Sarah
1:13:46
Speaker 2: Livesey is my audio engineer. Attika Valbroun is my project manager.
1:13:51
Speaker 2: Anna Luke is my producer. Sean Russo is my researcher.
1:13:55
Speaker 2: I'm Barry Ridholts. You've been listening to Masters in Business
1:14:00
Speaker 2: on Bloomberg Radio.