Latest / trading places / Iran Tanks IPOs | 2026 VC Outlook with PitchBook & CB Insights | ByteDance @ $550B | Ep26

Transcript

Iran Tanks IPOs | 2026 VC Outlook with PitchBook & CB Insights | ByteDance @ $550B | Ep26 · trading places

• 0:00
  I think my bold prediction is that LP Appetite will not come
• 0:04
  back fully this year. If you try to play this out
• 0:07
  based on the current distribution of players in any
• 0:10
  given AI agent market, there are certain markets that see higher
• 0:13
  competition, probably higher labor displacement because of
• 0:16
  it. Do you feel like we made the
• 0:18
  wrong choice jumping into the secondary market 5-6 years ago
• 0:20
  or you feeling pretty good about that choice these days?
• 0:23
  Well, I think when we did it, we were just a little bit ahead of
• 0:25
  the game, but it feels like it's one of the three ways to get
• 0:28
  liquidity now. Welcome to another week of
• 0:55
  Trading Places, the world's worst, horrible, most terrible
• 0:58
  DC podcast. Except, according to my mom, she
• 1:01
  thinks it's great. Yeah, mine does too.
• 1:04
  We took a look at Augment's Power 20 list when we first
• 1:07
  started the show, maybe back about six months ago, but I
• 1:09
  think we're going to start looking at it a little bit more
• 1:11
  frequently. Augment compiles this list from
• 1:14
  a bunch of other services. So it's it's not exactly, you
• 1:17
  know, the most traded or the most valuable, but a combination
• 1:20
  of all those things. That top six or seven list seems
• 1:24
  about right. SpaceX Anthropic Open AI Androl
• 1:29
  maybe kind of coming up with a Bullet Danrix and Stripe again,
• 1:33
  XAI now part of SpaceX so that that one of we come merged with
• 1:36
  SpaceX and then, you know, ramp I could see being on that top
• 1:40
  seven list as well. Some people might put Byte
• 1:42
  dancer Canva in the top seven list.
• 1:46
  Well, let's let's move on to the news about Andro and I'm on this
• 1:52
  is kind of one of your favourites, right?
• 1:53
  We actually have this in our portfolio and it's been moving
• 1:57
  pretty aggressively, right. It is.
• 1:59
  We actually invested out of our third fund at the $14 billion
• 2:03
  evaluation round market up to 28 at the end of last year.
• 2:06
  It looks like they've now closed on a $60 billion evaluation.
• 2:10
  They are, they're a defense contractor, they're a weapons
• 2:13
  supplier of the US and, and a few other governments.
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  Now we've covered them before in valuation corners.
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  They we highlighted this before. They've doubled the revenue to 4
• 2:22
  billion. And so tremendous forward
• 2:24
  progress on, on their contracts, on their revenues, they're
• 2:27
  losing money about a billion dollars.
• 2:29
  So I guess that's, but that's not, that's not surprising what
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  they've said before and recent and Thrive capital are leading
• 2:35
  the round. So there's, there's new
• 2:36
  investors and new capital coming in.
• 2:38
  This is a kind of founders fund baby.
• 2:39
  It started with Founders Fund and has some founders fund DNA
• 2:43
  and at the at the company. So it's one that we followed a
• 2:46
  long time and it's interesting that's in the it's in the top
• 2:48
  three on that list of augment companies.
• 2:51
  Now, they haven't raised that much money, so you wouldn't
• 2:53
  think they would necessarily be the top three, but definitely a
• 2:54
  lot of momentum, a lot of excitement to run this company.
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  Palmer Luckey sort of fits this profile of very sort of
• 3:01
  charismatic out there, you know, CEO definitely storytelling and
• 3:05
  fundraising, you know, in the same day.
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  And as maybe Sam Altman and Elon Musk, he's got a larger than
• 3:10
  life personality. Do you think that helps from a
• 3:13
  fundraising standpoint? He is controversial, I guess, in
• 3:17
  in ways that are maybe different or maybe not as healthy.
• 3:19
  I guess Sam Altman and Elon Musk are also controversial.
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  So maybe that's not the maybe that's not the determining
• 3:25
  thing. He's had some successes before,
• 3:26
  but he seems to pick fights with people and and maybe that's a
• 3:29
  little bit of a a distraction. I actually think Brian Schimpf
• 3:32
  was the Co founder and and Co CEO is a good compliments.
• 3:37
  So I think having someone like Palmer at the, you know, at the
• 3:39
  top of the race money and set the vision, but someone like
• 3:41
  Brian and the team around him who are also very capable are
• 3:46
  that's kind of the combination you you look for.
• 3:48
  And so I think he's I think he is definitely a a a positive for
• 3:51
  a lot of folks. Palmer's definitely, you know,
• 3:53
  he's he's able to raise money. He knows who to talk to.
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  He's been very successful with the founders fund group as as
• 3:58
  has Brian who's from founders fund.
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  So I think he's just part of a great team over there.
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  Well, maybe in contrast to those folks, Dario Amadi not not known
• 4:07
  for being maybe as out there and, and storytelling as Sam and
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  Elon and others. But he had done an internal memo
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  that I guess was talking about he hadn't done enough ass
• 4:18
  kissing with Trump and dictator style praise.
• 4:21
  And that memo was leaked. And maybe that wasn't the best
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  move for them while they had just been designated as a supply
• 4:28
  chain rescue. And now, you know, Dario's back
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  cuddling a little bit, still saying that they're going to
• 4:34
  challenge that ruling in court. And is Anthropic a woke company?
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  Aman, do you think their stance in, you know, trying to push
• 4:40
  back on some of the AI for directing autonomous weapons and
• 4:44
  mass surveillance? Right.
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  Yes. On U.S. citizens.
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  And those were the the 2 red lines that Dario had drawn and
• 4:51
  said if we're going to sell you AI, we don't want them to use.
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  We don't want them to use for these purposes, which I think is
• 4:57
  a company you've got, you know, you have a, you have every right
• 5:00
  to say how you want your technology to be used or not.
• 5:02
  And typically the Pentagon would say, well, if you don't want to
• 5:04
  play by your rules, then we, we, we, we wish you well and we'll
• 5:08
  part ways and we'll go with other suppliers like open AII.
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  Think what what was interesting about that, that TIF is it, it
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  actually began with, and this was kind of underreported, but
• 5:18
  Hexif initially tried to invoke the Defense Production Act,
• 5:21
  which essentially allows them to say, if you don't want to sell
• 5:24
  this for technology, we can take it for natural security
• 5:28
  purposes. And then kind of, and then he
• 5:30
  kind of backpedaled and went on to, well, we'll designate you a
• 5:33
  supply chain risk, which means you can't work with the US
• 5:36
  government. And if if anyone working with us
• 5:39
  is working with you, then they'll get suspended as well.
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  That is a very unusual move and one which is heretofore has only
• 5:46
  been applied to foreign companies.
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  It's just, it's never been applied to U.S. companies.
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  Wasn't it's never been applied to U.S. companies.
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  So I, I actually think Anthropic is, you know, this is back to do
• 5:56
  you want to be controversial as ACEO or not Palmer?
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  I just Ding Palmer lucky for being controversial as a
• 6:03
  criticism and I guess Dario's being controversial, but I
• 6:06
  actually see both of them as, you know, principal doing what
• 6:08
  they think is the right thing for the company to shareholders.
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  I think the US government is probably reacting a bit here
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  and, and I think there'll be some sympathy for Anthropic and
• 6:15
  you know, I think they'll be fine in the long run.
• 6:21
  Respond. Officer Alex Murphy, Detroit
• 6:27
  Police Department. That won't do.
• 6:30
  Aman, what do you see going on in the IPO market?
• 6:32
  We we have a couple of IPO stories this week.
• 6:34
  We're going to talk about Medtronic and a few others.
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  It's a bit of a a tough week as a reference up up front.
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  So let's start with going back to February 26th.
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  So when we were taping our last podcast last week, the NASDAQ
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  was sitting at about 22,809 hundred.
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  There were military activities in in Iran with the US and
• 6:52
  Israel LED invasion. The overall NASDAQ only dropped
• 6:55
  about 2% over the course of the week.
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  So that doesn't seem that doesn't seem like a lot in terms
• 7:00
  of a downdraft in the market. The market's actually holding up
• 7:02
  pretty well. Oil prices started off when we
• 7:04
  were filming last week, only up about 3 or 4%, which in the
• 7:08
  grand scheme of things is is really nothing.
• 7:11
  I I wonder if that's going to change though.
• 7:13
  I I would guess in the next few weeks, if the Strait of Hormuz
• 7:16
  is still blockaded for a few more weeks, we're going to see
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  oil prices skyrocket. Let's talk about what the what
• 7:22
  the last week showed and then we can hypothesize about the
• 7:25
  future. But the NASDAQ did go through a
• 7:29
  lot of daily gyrations. So these are the daily lows and
• 7:33
  highs in each on each day in the markets.
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  Let's take as an example the March 3rd, Wednesday, March 3rd.
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  The NASDAQ opened that day or at close to prior to 22,700.
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  It dropped over 700 points at the open and then it bounced
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  back so that the overall loss didn't look to be as bad.
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  But the intraday volatility you can see was about 700 points.
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  And so when you get these three 4% moves in the NASDAQ in a
• 7:57
  given day, the fact that the overall market is down only 2%
• 8:00
  for the week is a little bit misleading because it suggested
• 8:03
  volatility has gone way up. And when volatility goes up, I
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  think the IPO market is really suffered.
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  So let's talk about oil prices. So at your point, Wendy's film
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  last week, oil prices had only gone up about 5%.
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  As of today, they're up about 30%.
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  We're actually seeing close to $90.00 a barrel on Brent crude.
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  And so I guess the question is, well, how long does this go for
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  this volatility which effects IPO markets?
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  Is that a week's thing? Is it a month's thing?
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  If it listen to the Trump administration, they began with
• 8:31
  this is going to be weeks, 4 to 8 weeks.
• 8:34
  Now it feels like months, Hexus has said the right thing, which
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  is we're going to be there as long as it takes to achieve our
• 8:39
  objectives, which makes sense. But we don't know how long this
• 8:42
  goes. Well, one, one way to figure out
• 8:45
  what the market thinks about how long this goes and high how high
• 8:49
  the price goes, just like the futures markets, which price in
• 8:51
  all kinds of information about the market and then figure out
• 8:54
  what forward contracts that'll look like, look like.
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  And you can see what the price of Brent crude right now looks
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  like in the futures market. It's a very unusual forward
• 9:01
  curve. So the short term may contracts
• 9:04
  are over $85 a barrel, but if you go out the next 369 months
• 9:08
  it drops back to $70 a barrel. You almost never see this in
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  futures markets. It's called something something
• 9:14
  called backwardation. Here's a little lesson in
• 9:17
  commodities future trading or options trading if you will, so
• 9:20
  our listeners can learn something.
• 9:22
  Backwardation is a situation in futures markets where the price
• 9:26
  of the near term options is higher than the then the price
• 9:29
  of the longer dated option is very, very rare.
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  Like this is like the yield curve being inverted or
• 9:34
  something. And the fact that we're seeing
• 9:35
  this backwardation means that the market thinks at least we're
• 9:38
  probably in this for the next three months at least $80 plus
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  in terms of Brent crude, so higher oil prices.
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  But by the end of the year we'll be back down to the 70s.
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  That's at least the you know what the what the so the
• 9:49
  markets. Think so.
• 9:49
  The market thinks this war isn't going to last very long, or at
• 9:53
  least the impacts of it are going to last very long.
• 9:55
  Is that? Is that what that's saying?
• 9:57
  Yeah, it is saying that the price of oil, which I guess you
• 9:59
  can think of as a proxy for the the length of the conflict.
• 10:02
  Yeah, that's going to be, that's going to be a three to six month
• 10:05
  thing. So not not weeks, but also not
• 10:08
  years. And the result has been, you
• 10:10
  know, now the IPO markets are pushing back because this short
• 10:14
  term volatility is making it really hard to price an IPO.
• 10:17
  Like you price it at 10X sales, 15X sales, 20X sales.
• 10:21
  When you see your comps moving around by 456 percent a day,
• 10:23
  it's hard to do that. So 1 casualty was pay pay a
• 10:27
  Japanese IPO owned by SoftBank. They were going to raise a
• 10:30
  billion dollars. They've now said they're going
• 10:32
  to suspend the roadshow and, and, and week, week to week.
• 10:35
  Two other IP OS, not as big, but also just, you know, telling, I
• 10:39
  guess clear St. and lift off lift offs and mobile company.
• 10:43
  Both of those were interestingly sized IP OS.
• 10:45
  Both of them delayed indefinitely now and then one
• 10:48
  IPO got done, which is I guess that's the good news.
• 10:51
  Mini Med, which is a Medtronic unit, but they dropped 8% on
• 10:55
  Friday, just picked a tough day to price and dropped 8%.
• 10:58
  They're only valued at about 2X revenues, 5.3 billion in in
• 11:03
  total market cap. So they raised less than they
• 11:05
  thought, they were valued less than they thought and they
• 11:07
  dropped at the open. And so those are all, you know,
• 11:09
  negative signals on the IPO market.
• 11:11
  So I kind of think those big IP OS under under top 7 or whatever
• 11:14
  list are are probably still fine.
• 11:17
  But anyone who's kind of a weak IPO, non USIPO challenge
• 11:20
  category, any kind of hair on the story, I think those are
• 11:23
  probably out of favor for at least the next few weeks and
• 11:26
  maybe few months. I think one other IPO that had
• 11:29
  been off again on again which is on the horizon is the Cerebrus
• 11:33
  IPO. And I guess this was sort of
• 11:36
  notable that they had tried to do an IPO offering last year.
• 11:40
  There was some questions about interactions with I believe it
• 11:45
  was the UAE company that was backing their IPO and those are
• 11:50
  finally settled. And it sounds like Cerebrus is
• 11:53
  listing. They, they just done a recent
• 11:55
  raise at $23 billion valuation and now look like they're going
• 11:59
  to tap another 2 billion from the IPO market.
• 12:01
  Do you think this gets done? Aman, do you think this is on
• 12:04
  track? You know, I'd be kind of
• 12:07
  surprised to be honest. This is a company where they had
• 12:10
  initially gone to market in October of last year.
• 12:12
  And the issue with them was just that 87% of their revenue comes
• 12:17
  from one company. And it doesn't, it doesn't
• 12:19
  really matter, you know, the any kind of revenue concentration is
• 12:23
  a problem. It's it also happens to be true,
• 12:25
  I guess as you pointed out that that one company was G42, which
• 12:28
  is a Abu Dhabi, Abu Dhabi. Firm.
• 12:31
  Which I guess at this particular point in time isn't the most
• 12:33
  stable region in the world, but 87% revenues from 87% of your
• 12:38
  revenues from anyone company is enough I think to kill most IP
• 12:42
  OS in a typical IPO environment. The good news for Cerebrus is
• 12:46
  they pulled their IPO, they raised a billion dollars at a
• 12:49
  $23 billion evaluation and and now they're back with different
• 12:52
  investment bankers. They're going with Morgan
• 12:53
  Stanley this time, not Citi and and Barclays who were in the
• 12:57
  book last time. I think it's a good sign for
• 12:59
  them that they can be back in the market.
• 13:00
  The fact they could raise money in the private markets is really
• 13:02
  good. I'd be a little bit surprised
• 13:04
  just given the current environment and that revenue
• 13:06
  concentration from that region if they if they can actually
• 13:09
  pull this off. What are you?
• 13:17
  RoboCop Crime Prevention Unit OCP.
• 13:24
  Better, much better. Well, I guess there's another
• 13:28
  public listing which isn't exactly public listing, and
• 13:32
  that's the Robin Hood RVI fund, which launched.
• 13:36
  So this is a public market vehicle for private companies.
• 13:40
  It's down a little bit from the listing, down 11%, but still
• 13:44
  this is a collection of private companies which is packaged in a
• 13:49
  venture fund that is publicly listed under the ticker RVI
• 13:53
  Aman. Do you think that the public
• 13:55
  market presentation of private companies is now a retail
• 13:58
  phenomena? Yeah, I think it's, it's an
• 14:01
  interesting idea, right? It's the, the idea is that it's
• 14:04
  a it's a closed end fund. You raise money from non
• 14:09
  accredited investors to invest in this fund and then the fund
• 14:12
  goes out and raises, spends that money on the top 81015 venture
• 14:17
  backed companies that are at the discretion of Robin Hood.
• 14:20
  So you're trusting their managers to make good bets.
• 14:23
  That's a little bit different than maybe a, an index fund
• 14:26
  where they actually index into the, you know, the augment 20,
• 14:29
  for instance. There is discretion here because
• 14:31
  they can't get on get on on every deal.
• 14:34
  I think it's an interesting idea.
• 14:35
  They I think they've picked a bit of a tough week to price,
• 14:39
  but at the same time they didn't do great, right?
• 14:41
  They were targeting a billion dollar raise.
• 14:43
  They only raised about 658 at at last call.
• 14:46
  So they were a little bit under, under the mark they were going
• 14:49
  for. I think one of the problems or
• 14:51
  one one of the challenges maybe with the fund is the, these are
• 14:54
  the companies that they have said they're they're targeting.
• 14:57
  So they've decided to go after a couple of interesting names that
• 15:00
  are on our list. I mean, if you are a fund
• 15:02
  manager, Dave, and you are and you're selling to consumers, so
• 15:06
  not too sophisticated financial investors, institutions, but
• 15:08
  you're selling it to your mom and my mom who love our podcast
• 15:12
  and you told our moms, hey, we're gonna have, you know, ramp
• 15:16
  and Mercor and Aura Airwallex. Boom.
• 15:20
  I think my mom would be like, I don't know, where's SpaceX?
• 15:22
  Where's open AI? Where's the infropic start those
• 15:26
  and something with consumer, something with consumer cache,
• 15:29
  you know, Byte dance. Byte Dance is a weird one, but
• 15:32
  TikTok, give me TikTok, give me those companies.
• 15:34
  These ones that they've chosen may be great companies, but I
• 15:36
  don't know. And we love, we love Databricks,
• 15:39
  we love ramp. We've, you know, we love Stripe.
• 15:40
  We've talked about them in our pod.
• 15:42
  Revolut's interesting. I just don't know that this is
• 15:44
  the best way to lead with retail.
• 15:47
  And so I think that plus just pricing last week maybe means
• 15:50
  that the fund underwhelmed. Well, I think one thing that
• 15:53
  we're sort of seeing is that even though everybody's really
• 15:56
  optimistic about the IPO market in 2026, random events can throw
• 16:01
  that off base, whether that's, you know, tariffs or wars or
• 16:04
  other macro of, you know, shocks that might change whether those
• 16:07
  companies go public or not. I, I probably agree with you.
• 16:11
  I think SpaceX will happen. Elon wanting to have a birthday
• 16:15
  present in June and you know, all the stories about SpaceX
• 16:18
  seem like that's not going to derail it.
• 16:20
  And probably open AI and anthropic, you know, if they
• 16:23
  happen this year or early next year, these those seem more
• 16:26
  likely given all the retail awareness of those companies as
• 16:29
  well. But I agree with you, the rest
• 16:31
  of them, but it's not quite clear.
• 16:33
  You know, even data bricks and Canva, which I think and Stripe,
• 16:36
  which are on a lot of people's radar may or may not happen.
• 16:39
  But I guess regardless of whether all these IP OS happen,
• 16:42
  the secondary market keeps marching forward.
• 16:47
  And I guess 2 records that were set this week, 1, if we're
• 16:52
  talking about Venture Secondary specifically, Pitch Book came
• 16:56
  out with their report for 2025 S Pitch Book basically said that
• 17:01
  the BC secondary market exceeded 100 billion in 2025.
• 17:05
  I think it was 106 billion according to their numbers.
• 17:09
  And then Evercore also released a report about the larger
• 17:12
  secondary market, not just the venture secondary, but this is
• 17:15
  includes private equity as well as other categories and that was
• 17:19
  listed at 226 billion. So both of those were records
• 17:23
  whether we're talking about the larger secondary market or the
• 17:25
  venture secondary market. Seems like secondary markets
• 17:29
  continue to expand, doesn't seem like that's going to be ending
• 17:32
  anytime soon. Aman, do you, do you feel like
• 17:35
  we made the wrong choice jumping into the secondary market 5-6
• 17:38
  years ago or you feeling pretty good about that, that choice
• 17:40
  these days? Well, I think when we did it, we
• 17:43
  were just a little bit ahead of the game, but it feels like it's
• 17:46
  one of the one of the three ways to get liquidity now and IP, OS
• 17:50
  and M&A being the other two. It's very clear that those
• 17:53
  markets are growing and we'll keep growing for a while.
• 17:55
  And I think the concentration we're seeing, the concentration
• 17:57
  with the top 7 or 8 continue. But if a couple of big companies
• 18:01
  get out this year, SpaceX and let's say open AI or Anthropic
• 18:05
  or one, one or two, I guess it also means that concentration
• 18:08
  that on the top seven will diminish in the secondary
• 18:11
  markets and other companies will have to rise to take their
• 18:13
  place. And so I think it's going to be
• 18:16
  AI. Think the IPO market being a
• 18:17
  little bit on hold is just, you know, reinforcing secondary is a
• 18:20
  real tool. And if a couple of those big
• 18:21
  guys get out, I think it's going to bring a lot of capital back
• 18:23
  into the venture system and that'll fuel additional
• 18:26
  secondary interest. So I'm I'm forecasting a really
• 18:28
  big year for secondary this year.
• 18:30
  A brief commercial advertisement here.
• 18:32
  If you think about our strategy for secondaries, I guess where
• 18:36
  we're in line with the rest of the market is, hey, this is, you
• 18:38
  know, a way to skip the early volatility of the first five to
• 18:41
  seven years of investing, whether we're talking about
• 18:43
  companies or funds that leads to sort of faster liquidity,
• 18:48
  hopefully better returns as well.
• 18:49
  But you know, we, we show some of the graphs from our website
• 18:52
  that talk about getting earlier DPI and ideally we want to get,
• 18:56
  you know, significant DPI in the first five years.
• 18:58
  That's not common for most other venture funds, but let's say .5
• 19:01
  to 1X back. But I think this is where we
• 19:04
  kind of diverge from the rest of people's, you know, secondary
• 19:06
  strategies, this idea of secret stallions and really talking
• 19:10
  about companies that maybe aren't on everybody's radar, but
• 19:13
  are more likely to, you know, sort of generate positive
• 19:15
  returns. And, you know, we're we're not
• 19:18
  saying the private mag 7 and premium deck accords aren't
• 19:20
  going to be good bats. Those, those are amazing
• 19:22
  companies, But your ability to get access to those companies at
• 19:26
  any kind of discount is probably limited.
• 19:28
  Unless you're, you know, really close to those companies.
• 19:30
  You're probably going to be hitting a premium.
• 19:32
  You're probably going to be investing in maybe, you know,
• 19:35
  possibly one or two levels of an SPV.
• 19:38
  But if you go past that top 3040 companies, that's where we think
• 19:42
  there's a lot of value because these companies aren't on
• 19:44
  everybody's radar. They, they are doing well, 50 to
• 19:46
  200 million in revenue, maybe market cap between half a
• 19:50
  billion to 5 billion. But they're, they're just more
• 19:53
  available. There's more of a buyer's
• 19:55
  market. There's not quite as much of A
• 19:57
  seller's market as, you know, the top private Meg 7 and maybe
• 20:00
  the rest of that market. Clarence Bodiger, you are under
• 20:07
  arrest. You have the right to remain
• 20:10
  silent. So one part of the secondary
• 20:18
  market that maybe not everyone understands is this thing that
• 20:21
  we call a tender offer. And this is where the company
• 20:25
  arranges A secondary offer on behalf of either employees or
• 20:29
  early investors or both. Aman, you want to explain kind
• 20:32
  of how tender offers work? The general idea is that the,
• 20:36
  the company will bring in new investors into the company and
• 20:39
  they will tell those new investors, we'd like you to make
• 20:42
  an offer to any of the existing employees or shareholders that
• 20:46
  meet our qualification list. Typically a company will put
• 20:49
  some rules around who can participate in a, in an offer
• 20:51
  like that. So you have to be an employee in
• 20:53
  good standing, You have to be there for, you know, more than a
• 20:55
  year. I was one of the first CFOs who
• 20:58
  did this when I was at Sonos. This is back in 2000, oh, 2012.
• 21:02
  We did a a employee tender offer and we'd set the qualification
• 21:06
  at employees who were there for two years or longer.
• 21:08
  So you have to have vested shares or Rsus or vested
• 21:11
  options. You have to be there for two
• 21:13
  years or longer. And then the investor comes in
• 21:15
  and, and sets a price for the company, let's say $9 a share.
• 21:18
  Any employee who wants to sell can sell at that $9 a share
• 21:22
  price. If there's more sellers than
• 21:24
  buyers, there'll be some kind of matching or pro rata allocation
• 21:28
  so that all the employees who want to sell get taken out at
• 21:30
  the typically at the same price. It's a very controlled process,
• 21:33
  typically by the company with new money and allows employees
• 21:36
  to get some liquidity before the IPO or or before the shares that
• 21:40
  they have become liquid. So it's a great retention tool
• 21:43
  for recruiting and a great way for employees to get some
• 21:45
  compensation. Isn't this, I guess a little bit
• 21:47
  different than how the market used to view this kind of sale
• 21:50
  maybe 5-10 years ago? I, I think probably most
• 21:53
  management CEOs would have viewed employee secondary offers
• 21:57
  is not a good thing. Maybe you know, people get their
• 21:59
  money before the work is done to get the company, you know,
• 22:02
  public and that seems to be shifting now.
• 22:05
  Why? Why do you think that, you know
• 22:06
  market shift has happened? Is that related to just how long
• 22:10
  IP OS are taking or is that retention thing that you're
• 22:12
  talking about more important now?
• 22:14
  I think it is really the latter. So when I was at Sonos, the
• 22:17
  argument I made to our board was, hey, Sonos was founded in
• 22:20
  2002. So we've been private for 10
• 22:22
  years and we've got key employees and in the company
• 22:26
  who've been illiquid for 10 years, including our COO and
• 22:29
  just people who are working for a salary that's way below what
• 22:31
  they get in the in the market. This is a real part of the
• 22:34
  compensation at PayPal. You and I could take money off
• 22:36
  the table every quarter if you wanted to Imagine being locked
• 22:39
  up for 10 years. SpaceX was founded in 2002,
• 22:42
  2003. So they've been illiquid for 24
• 22:44
  years. No one's no one's going to be a
• 22:46
  motivated employee getting paid once every 20-4 years.
• 22:49
  So you can sort of understand why SpaceX and Sonos and some of
• 22:52
  these companies that aren't liquid or creating liquidity for
• 22:55
  their employees. This is a way to retain people,
• 22:56
  recruit people. What's interesting about
• 22:59
  Decagon, which is doing it now, they're a three-year old
• 23:01
  company, so they're not even. Most investing schedules are
• 23:04
  four years. Really early.
• 23:07
  Very early, but they're on, I think they're on the right
• 23:10
  track, which is if I'm going to hire an employee and I and I
• 23:13
  give you something that is valuable but illiquid, the first
• 23:17
  question the employee's going to ask is, well, what is it really
• 23:19
  worth? You're telling me it's worth,
• 23:21
  you know, $100,000 on paper. I can't use these options to put
• 23:25
  my kid through school or to buy a house.
• 23:27
  A four year investing schedule, I get it.
• 23:29
  I want to be here for four years.
• 23:30
  You're going to lock me up for four years for the majority of
• 23:32
  what I earn in terms of equity? Give me something.
• 23:35
  Give me something every year where I can enhance my income
• 23:37
  and actually pay bills. And I think this is just the
• 23:40
  right way to manage employees. My investors at Accel were very
• 23:44
  supportive back in 2012. Most of the investors on our
• 23:46
  board were not. They were like, we don't want to
• 23:48
  allow secondary sales. We why is your CEO selling?
• 23:52
  I'm like, dude, he's selling because he wants to put a down
• 23:54
  payer on the House in Santa Barbara.
• 23:55
  OK. And now I think investors, Axel
• 23:59
  was again ahead of the game. Now I think all investors are
• 24:01
  much more comfortable with these secondary structures.
• 24:03
  Would you understand a little bit of pricing control is good,
• 24:07
  letting employees participate on terms of the company sets,
• 24:10
  that's good. Allowing employees to take some
• 24:12
  amount of money off the table on a annual basis, that's just good
• 24:16
  for retention, recruiting and for employee morale.
• 24:20
  And they they understand. And the motivation behind it now
• 24:22
  much better than five years ago. Well, I don't think this is the
• 24:26
  only company that's been doing employee tenders that seems very
• 24:28
  popular with other AI start-ups. So 11 Labs, Linear and Clay have
• 24:32
  all done employee tenders. Clay's actually done 2 employee
• 24:35
  tenders in less than 12 months. And I think we're seeing other
• 24:39
  companies, Stripe and Databricks and Canva do somewhat regular
• 24:43
  employee tender offers at least maybe on an annual basis.
• 24:46
  Seems like that's becoming much more the trend, at least for
• 24:48
  these larger companies that are, you know, pre IPO and
• 24:52
  potentially for even younger companies that are AI centric
• 24:55
  and really having to compete for their employees that you know,
• 24:58
  as you said, maybe you know, somewhat semi liquid shares is
• 25:02
  an important part of their, you know, offer package and
• 25:05
  retention package for their employees.
• 25:08
  Yeah. Our last story today will be a
• 25:10
  crypto story and I guess a company that's been in the news
• 25:14
  previously and might be an IPO later this year is Kraken.
• 25:18
  Kraken is one of the first crypto companies to win access
• 25:21
  to the Fed score payment systems.
• 25:22
  I guess a master account Mon. Could you explain what this is
• 25:25
  all about and why is this important for the crypto
• 25:28
  industry? Well, it feels like a a
• 25:30
  milestone for the crypto industry because it's for the
• 25:33
  first time along a digital asset company to have access to the
• 25:37
  the Fed payment system, Fed wire.
• 25:40
  The biggest advantage, I guess is that they can move money in
• 25:43
  and out of crypto digital systems much more efficiently
• 25:46
  than before. If you're trying to send money
• 25:48
  through a from a bank wire transfer here in the US, you're
• 25:52
  using Fedwire, which is the most established, most efficient
• 25:56
  payment rail. If I'm sending you money through
• 25:58
  an alternate private network, let's say what you know, Bitcoin
• 26:01
  or something else decentralized network, I'm using the different
• 26:04
  set of rails. That's also efficient, but it's
• 26:07
  it's efficient Bitcoin to Bitcoin if I'm trying to use if
• 26:10
  I'm trying to send money in and out of the system.
• 26:12
  So using Fedwire now Kraken, that's something that Kraken can
• 26:15
  do. They can send money through
• 26:16
  Fedwire to connect digital asset networks and infrastructure
• 26:20
  systems. That's just enabling it to all
• 26:23
  work more efficiently so you don't have different isolated
• 26:25
  payment rails. I think it's a big vote of
• 26:28
  confidence in Kraken. I know some of the banks are
• 26:30
  concerned that these crypto digital asset companies don't
• 26:34
  have the same regulation or controls on money laundering
• 26:36
  that banks have to put up with. And that's a legitimate push
• 26:39
  back from banks. But allowing these companies
• 26:41
  access to the most efficient payment rails that we have in
• 26:44
  this country, I think it's a really good thing.
• 26:46
  The government's been much, this government's been much more
• 26:48
  supportive of crypto assets, whereas I think the Biden
• 26:50
  administration saw it is a bit more of a threat to the US
• 26:53
  currency and the monopoly of the currency plus controls over, you
• 26:56
  know, money laundering or, or AML, They took that a lot more
• 27:00
  seriously. But I think this is a, this is a
• 27:02
  signal that this government is allowing digital asset companies
• 27:05
  to have access to the most efficient payment rails and, and
• 27:08
  we'll probably have some compliance issues that they'll
• 27:10
  have to deal with, but that they're willing to, you know,
• 27:11
  work with the companies on that. So I think overall a very, you
• 27:14
  know, a very positive, all the crypto companies ought to be
• 27:17
  very excited about this, that they can, they can now move
• 27:19
  money in and out of their systems across Fedwire.
• 27:22
  And if Kraken is the is the first, that's a really good
• 27:24
  signal from the industry. All right.
• 27:25
  Well, it's been another interesting week in the
• 27:28
  secondary market and the public market.
• 27:29
  I guess we'll wait to see what happens with IP OS next week.
• 27:34
  Yeah, indeed. We have with us 2 amazingly
• 27:49
  insightful venture capital data nerds, Jason Saltzman from CB
• 27:54
  Insights and Emily Zhang from Pitch Book.
• 27:56
  Emily's been with us several times before.
• 27:58
  Welcome back, Emily and Jason. Thanks for joining us.
• 28:01
  Thanks for having us. Right, kind of a slow Newsweek.
• 28:05
  Hardly anything happened last week.
• 28:07
  I, I don't know, we'll have to make something up here, but both
• 28:10
  of you guys have come out with 2025 reports.
• 28:14
  Anything, anything new to note, any, anything surprising this
• 28:17
  year that we haven't heard from, you know, all the folks in the
• 28:22
  market? Yeah, I would say a big theme in
• 28:25
  2026 has been these mega IP OS that everyone's been talking
• 28:29
  about with opening eyes, SpaceX, Anthropic potentially going
• 28:32
  public this year and how that would impact the secondary
• 28:36
  market because it is incredibly top heavy.
• 28:39
  Like on Hive, the top five names have garnered over half of the
• 28:44
  trading volume in Q4 of 2025. And what I ultimately think is
• 28:49
  going to happen if one or all these companies go public is we
• 28:53
  are going to see a huge dip in volume in the secondary market.
• 28:57
  That's inevitable because so many dollars are going to the
• 29:00
  top. But I also think that this will
• 29:03
  be temporary and overall will expand the overall universe of
• 29:08
  companies that can be traded and will eventually be a good for
• 29:12
  the secondary market. But I would say don't panic if
• 29:16
  things suddenly drop off a Cliff in 2026.
• 29:20
  It's just par for the course for something greater in the coming
• 29:23
  years. Yeah.
• 29:25
  I'm, I'm looking at your report and this graph shows the
• 29:29
  quarterly share VC secondary market by the number of
• 29:32
  companies that I guess guess this means at least in Q4, the
• 29:35
  top five companies were half the overall Market Volume.
• 29:39
  The next 15 companies we're another 30% of the Market
• 29:43
  Volume. So you're correct, Emily, that
• 29:45
  is incredibly concentrated. And what happens if three of
• 29:49
  those five companies go off the trading floor, private trading
• 29:52
  floor, I guess onto the public trading floor?
• 29:54
  Will that will that collapse our secondary trading volume?
• 29:56
  We do think people will just keep trading with the next most
• 29:59
  popular companies. I think eventually people will
• 30:03
  trade with the next most popular companies, especially in like
• 30:06
  similar sectors like AI, which have experienced a lot of
• 30:09
  tailwinds in recent years. And it's just right now like
• 30:13
  everyone wants a share of these biggest names because they're
• 30:16
  household names and just have a lot of growth conviction.
• 30:21
  And so once they are in the public markets, I think
• 30:24
  attention will be shifted elsewhere.
• 30:27
  It just depends on how those are those perform, right?
• 30:30
  Like if they do well, I guess if they, let's say one goes,
• 30:33
  probably not all the three go together, but let's say one
• 30:35
  goes, it performs well. All of a sudden you think all
• 30:38
  the secondary buyers had died in a year ago, two years ago are
• 30:40
  now ahead. They're making money.
• 30:42
  It's like proof, proof of concepts.
• 30:44
  And there's like another 20 companies.
• 30:46
  I know they're not big right now, but it seems like there's
• 30:48
  another, There's a long list of companies you have on that list,
• 30:50
  whether it's Databricks, Canva or others that strike that might
• 30:55
  step into that or strike that might step into that breach.
• 30:57
  But I guess if the IPO doesn't go well, right, like if it
• 31:00
  trades down during lock up and everyone's underwater, maybe
• 31:04
  that's that's what we should be concerned about.
• 31:05
  Is that fair? That is fair.
• 31:07
  That's what we've also been seeing like recently, like a lot
• 31:10
  of the IP OS that happened in 2025 are underwater or like much
• 31:15
  lower than their debut price. So that also brings up the
• 31:19
  question like what are we seeing right now with it hasn't been a
• 31:21
  lot of IPO activity, but I think the IPO window did and is like
• 31:27
  currently like partially open. We'll just have to rely on more
• 31:30
  like certainty and less volatility in the market, which
• 31:33
  we also aren't seeing right now. Jason, you guys also came out
• 31:38
  with a report and I'm looking at the TLDR for that report right
• 31:42
  now. What do you think are highlights
• 31:44
  that we should be watching in 26 and anything you took away from
• 31:47
  what happened in 25? And the biggest takeaways, and
• 31:51
  this is going to be no surprise to anyone, is that AI has
• 31:54
  consumed everything in what used to.
• 31:58
  I've never heard of that before. It's a crazy thought, and to use
• 32:02
  a very big word, right, it's become qua quaversal, and I
• 32:06
  don't even know that I pronounced that correctly.
• 32:08
  Quaversal. Yeah.
• 32:11
  It's at the point where it's sort of subsumed everything,
• 32:14
  right? You know, at this point,
• 32:16
  creating a taxonomy around what is AI and what is not is very
• 32:20
  hard. And so for us to look at this
• 32:22
  right, we're now starting to look at where in vertical
• 32:25
  applications at the infrastructure layer and at the
• 32:28
  different sort of horizontal outlets for AI are we seeing the
• 32:33
  most attention and most user what comes after the
• 32:36
  foundational models, right. To the point on what happens if
• 32:40
  I guess now three of those companies including XAI under
• 32:44
  SpaceX all go out to IPO. What is next?
• 32:48
  What sustains the Grammy? You can look here at the most
• 32:52
  funding companies in 2025 and see that, you know, the top
• 32:56
  three, right, will put scale in whatever print, you know, air
• 33:00
  quotes are asterisk needs to get put on that deal in the
• 33:03
  structure of it. The remaining three are the
• 33:06
  foundational model developers. And So what fills that void to
• 33:10
  the question that you were asking, right?
• 33:12
  I think there's a lot to happen in physical AI.
• 33:15
  There's a lot to happen at what the next layer of infrastructure
• 33:18
  is that enables these companies to probably reach a little bit
• 33:23
  more of the profitability that they will be, will be demanded
• 33:27
  of them or that you meet at least the path to profitability
• 33:30
  that will be demanded of them in the public markets, right.
• 33:32
  So what comes in underneath them to fill that gap is a lot of
• 33:37
  where we're seeing the next wave of attention.
• 33:41
  Well, I think from your own report, the thing that seems to
• 33:44
  be coming next, robotics is a big story.
• 33:48
  Whether that's really different from AI, I'm not quite sure, but
• 33:51
  I guess it's the hardware version of kind of, you know,
• 33:54
  what AI does to software, robotics is doing to hardware.
• 33:58
  We're also seeing some crazy numbers there.
• 34:01
  And I don't know, do you think these valuations make sense?
• 34:05
  I, I, I sometimes wonder whether, you know, hardware
• 34:08
  evaluations are expecting market share revenue that's not quite
• 34:12
  there yet. I mean, I think the issue slash
• 34:16
  promise of hardware is that is a longer time horizon rate.
• 34:19
  You know anything deep deck is a longer time horizon to actually
• 34:22
  get out into the world used and proliferated.
• 34:27
  And So what we're going to see is a lot of these are bets that
• 34:30
  won't be realized for years to come and the promise, right.
• 34:35
  You know, if you go and you look at manufacturing and you look at
• 34:37
  the fact that 85% of warehouses in the US still have 0
• 34:41
  automation, you know, that's the promise.
• 34:44
  But that's a very, very hard thing to go and flip a switch
• 34:48
  on, especially with a lot of those warehouses that aren't
• 34:51
  Amazon or Walmart or pick your other major retailer owned
• 34:55
  warehouses. You know, they they don't have
• 34:58
  quite the same incentive to go out and immediately jump on
• 35:03
  detectors. They're not operating at a scale
• 35:05
  out past their current operating ability.
• 35:11
  I'm protected, man. I've got protection.
• 35:13
  You have the right to an attorney.
• 35:15
  What is a shit? Somewhat different than the
• 35:21
  software AI frontier model is. I'm not sure the US is ahead on
• 35:26
  robotics, and I wonder if a lot of that value is going to be
• 35:29
  captured by Chinese robotics companies, not US robotics
• 35:33
  companies. Do we think that valuations have
• 35:36
  now settled post Zerp and post 22 or they're still under corns
• 35:43
  or busted unicorns out there that are maybe held in
• 35:46
  valuations that are not realistic these days?
• 35:50
  Yeah. A lot of companies haven't
• 35:52
  raised since the pandemic era and we recently launched our
• 35:56
  valuation estimates which is on our platform that uses AI to
• 36:01
  provide a more up to date valuation for a lot of these
• 36:04
  companies that have a raise. In past couple years, we saw
• 36:08
  that a lot of these unicorns or so-called unicorns have fallen
• 36:13
  below the $1 billion threshold. And I think that's really
• 36:16
  important to note because we've seen the number of down round
• 36:20
  and flat rounds increased over the last few years.
• 36:23
  And I think that is going to continue.
• 36:25
  And that is for companies that actually raise the round.
• 36:29
  And there's so many companies that haven't raised in the last
• 36:32
  few years. So this is a really big issue.
• 36:35
  I think that is going to continue.
• 36:37
  But I would say that valuation resets or just a reset to more
• 36:42
  like fundamentals is a good thing for the market because
• 36:47
  there are golden handcuffs that come with these really steep,
• 36:51
  these really steep prices that can't be justified anymore.
• 36:54
  And being able to move forward with extra opportunities, more
• 36:57
  deals and such will be a good thing for the market overall.
• 37:02
  And it says in your pitch book report about 222 of the almost
• 37:07
  900 unicorns, so maybe about 1/4 of the market have seen market
• 37:12
  values drop below a billion. I wonder how many that haven't
• 37:15
  dropped below a billion actually have dropped, but just haven't
• 37:19
  been reported. Do you guys think that there's
• 37:22
  still going to be more down rounds and more repricing that
• 37:26
  is yet to happen? How much longer do you think
• 37:29
  before reality really sets in on the valuations of those
• 37:33
  companies? Largely, we're already seeing
• 37:35
  it, right? You know, if you take that
• 37:36
  number right, we, we have our predictive score for every
• 37:40
  company. And when you look at the 1300
• 37:43
  plus unicorns that we track checking year over year movement
• 37:46
  in Mosaic race of the company's success probability, right, 53%
• 37:51
  of all of those unicorns are worse off than they were a year
• 37:54
  ago. And so looking at that, if a
• 37:57
  quarter I've already seen or roughly 1/4 have already seen
• 38:00
  their valuations drop below a billion, right?
• 38:03
  Whether that's realized or sort of a little bit more ethereal.
• 38:07
  The the path we're on is sort of a great separation of I'll use
• 38:12
  the phrase zombie corns from the, you know, the, the the
• 38:15
  unicorns that are going to continue to see their momentum
• 38:19
  realized and, you know, sort of head on that continued Unicorn
• 38:23
  to Deca corn to exit at a Unicorn valuation path.
• 38:29
  Do do you guys feel like valuations are just
• 38:32
  fundamentally momentum driven or are there still people using
• 38:36
  traditional valuation analysis to price the market?
• 38:40
  At what stage and for and for what companies?
• 38:42
  I mean, right, I can, you can go and look at any of the companies
• 38:46
  that have been founded by the hottest names in AI and we can
• 38:52
  talk about safe super Intelligence or World Labs or
• 38:57
  whoever else and. Cursor recently I guess.
• 39:00
  Cursor, right? I mean cursor, Cursor.
• 39:02
  Actually, I think you could look at it on fundamentals.
• 39:04
  They have products in market, they're making revenue and
• 39:08
  they're not these completely unknown bets on someone figuring
• 39:13
  out what a world model is and how it interacts and how it has
• 39:17
  implications for everything from enterprise to robotics to
• 39:21
  consumer to I mean, you can't price those based on financials.
• 39:27
  We're, we're, we're all guessing.
• 39:29
  We're also seeing that time, time between rounds for AI
• 39:32
  versus non AI companies is starting to diverge rapidly,
• 39:36
  right. So non AI companies are sort of
• 39:39
  far past the 18 to 24 month time frame at every stage.
• 39:44
  And AI companies are, you know, sort of compressing.
• 39:49
  The last time I looked at the data we you have about 1/4 of AI
• 39:52
  companies that are raising multiple rounds within a 12
• 39:55
  month period. Yes, exactly.
• 39:58
  And as you can see here, the step ups for AI companies are
• 40:03
  much higher than non A A companies across the board from
• 40:07
  pre C to serious D plus. And I think that's just really
• 40:10
  showing that the growth of non AI company valuations, even if
• 40:15
  they are technically a step up, isn't stepping up quite as much.
• 40:21
  Yeah, it looks like at least 2030% premium on the average
• 40:25
  step up from round to round for AI companies versus non AI you.
• 40:29
  Know and a lot of that is reflected in the commercial
• 40:32
  maturity of these companies, right?
• 40:35
  We're seeing them land larger deals with larger clients faster
• 40:39
  than non AI peers or previous cohorts of you know, even if you
• 40:45
  just look at new unicorns born, right, previous cohorts of new
• 40:48
  unicorns, right, New unicorns are born more commercially
• 40:52
  mature at this point than they were in the in the Zerp era or
• 40:57
  even in previous era eras earlier than Zerp.
• 41:03
  Anything you say may be used against you.
• 41:06
  It's danger. Emily, there's a chart that you
• 41:14
  guys have seen the three different paths to liquidity and
• 41:18
  on the left side we have secondaries, I guess that's
• 41:21
  split between direct and GP LED secondaries.
• 41:23
  This didn't used to be as big as the other two and now it's
• 41:26
  almost the same size as the other two.
• 41:29
  I'm expecting we'll probably see a much larger public listing
• 41:33
  amounts this year at least if one or two of those big
• 41:36
  companies goes public, it'll probably distort that
• 41:38
  completely. But I, I think maybe the untold
• 41:42
  part of this graph is these numbers don't really look the
• 41:45
  same for early stage VCs versus late stage VCs.
• 41:49
  And you know, at least from my own experience, it's as an
• 41:52
  emerging manager running 500, you know, very few of our
• 41:56
  companies we, we held until IPO. We usually were participating in
• 42:00
  some kind of secondary sale along the way.
• 42:03
  We, we might you know, hold all the way to IPO, but we, we, we
• 42:05
  probably got some liquidity via secondaries.
• 42:08
  Do you think that that's skewed more, more than before now?
• 42:12
  Are we going to see more early stage fund managers, more Angel
• 42:16
  investors seeing their exits from secondaries than from other
• 42:20
  methods? I would say yes, secondaries
• 42:24
  have really solidified themselves as like a viable
• 42:27
  liquidity source and a dependable 1.
• 42:30
  And I think this growth is really a testament to that.
• 42:33
  And the question will be more of like will startups be more like
• 42:39
  accepting of these secondary sales and also will more market
• 42:44
  participants be able to benefit? Because right now, as we
• 42:47
  mentioned earlier, it is so top heavy.
• 42:49
  And you know, if you're an investor in SpaceX, like great,
• 42:53
  you won the lottery, right? But what about everyone else,
• 42:56
  right? So I think overall like this
• 43:00
  will become like a more ingrained part of just like the
• 43:02
  liquidity cycle and fund managers also will look to
• 43:06
  secondaries to see, OK, like this is a great company, like
• 43:10
  the IT has a great business model, but it's not growing at
• 43:13
  the venture scale that we need. So why don't we sell this in the
• 43:16
  secondary market and get some liquidity and reinvest in our
• 43:19
  biggest winners? Because as like deal sizes grow,
• 43:23
  like it's changing the venture game like slowly but surely.
• 43:27
  And that is another reason why I think secondaries are becoming a
• 43:30
  more solid part of the overall venture ecosystem.
• 43:34
  I'll pop my screen up for a second here.
• 43:35
  When we look at the participation of companies in
• 43:39
  either tender offers or shareholder liquidity rounds,
• 43:42
  sort of outside of the growing wave of marketplaces that are
• 43:47
  the hives and that cohort, but official rounds, right?
• 43:51
  You're seeing growing participation across a broad
• 43:54
  swath of private companies, including the youngest cohort of
• 43:58
  companies. And so to me that signals that
• 44:02
  there's a lot of opportunity for sort of emerging managers or
• 44:07
  early stage VCs to find that liquidity and not have to hold
• 44:12
  for quite as long, right? You can start to participate in
• 44:15
  these rounds early on, let that step up, happen to the data that
• 44:18
  Emily shared earlier, and then get maybe not the same absolute
• 44:25
  return, but you know, a meaningful return that then can
• 44:28
  be reinvested into later rounds in the companies you have the
• 44:32
  most conviction in. Yeah.
• 44:34
  This even brings up a bigger question about like VC funds and
• 44:37
  like the tenure timeline that has been talked about quite a
• 44:40
  bit in the venture space. And if VC funds end up becoming
• 44:45
  more like 15 years, then not every LP will want to hold a
• 44:50
  position for that long and they will look to the secondary
• 44:53
  market either to get access to companies or to sell their
• 44:57
  positions earlier and just get some lock in some returns.
• 45:01
  I guess if I think about secondaries, you know, happening
• 45:04
  at around Series C companies doing at least, you know, 50
• 45:06
  million a year in revenue. My, my guess is that somewhere
• 45:10
  around year 7 to 10. So I, I don't think it's maybe
• 45:14
  15 years to get any kind of secondary liquidity, but I think
• 45:18
  Emily's point before, you know, if EC funds were only 10 + 2
• 45:21
  vehicles, you're, you're not really hitting the IPO window
• 45:25
  for a lot of the investments that you made in early stages.
• 45:28
  You may be seeing, you know, secondary opportunities at least
• 45:31
  when you're halfway through your fund.
• 45:33
  Do you guys have any data on when people are starting to see
• 45:37
  material DPI happen in their funds?
• 45:39
  And let's just say that that's anywhere from .5 to 1X.
• 45:44
  What's kind of the time frame that you think or you expect to
• 45:46
  see DPI coming back from early stage funds these days?
• 45:52
  We do have pulled VC fund DPI by like age and vintage year.
• 45:56
  It's not published yet though. So I I can only share like
• 45:59
  pretty high level. But basically it seems that
• 46:04
  let's see if like 1X it's it's tough like I think like 20 2015
• 46:10
  like vintages like the like older ones are doing a lot
• 46:15
  better than like 2020 vintages are doing pretty poor.
• 46:20
  I would guess. So I think we don't, we don't
• 46:23
  need the like actual numbers to understand that like narrative,
• 46:27
  like it's, it's been rough and like the, the market has been at
• 46:31
  a deficit since like 2022 was contribution contributions for
• 46:36
  outweighing distributions. And that has been a reason why
• 46:40
  fundraising has been so tough and why so many eyes are on
• 46:44
  liquidity right now, because that's what is really needed to
• 46:47
  restart the venture flywheel. And I mean, I think, I think to
• 46:50
  the broader exit landscape and the broader liquidity of the
• 46:53
  landscape, we just there aren't enough exits to sustain
• 46:58
  liquidity and returns for the majority of funds that aren't in
• 47:02
  the biggest names as that sort of shrinks down, right, we're
• 47:06
  starting to see a good wave of AIM&A and AI exits.
• 47:11
  But again, I think most of that ends up being concentrated in
• 47:15
  well call the top tier funds. You're not seeing as much of
• 47:18
  that spread in the way that it might have been a little bit
• 47:22
  more evenly in prior generations.
• 47:24
  I think also on the other side of the tail and as well like for
• 47:27
  M&A, like a lot of smaller companies are getting bought as
• 47:30
  well and there's a lot of no disclosure on the total
• 47:35
  acquisition amount, which really brings to question like, OK, if
• 47:38
  this was really a windfall for investors, they would have
• 47:41
  disclosed the amount, but there was probably a significant
• 47:44
  markdown. So that's another.
• 47:46
  And a lot of these new Aqua higher style deals are done as
• 47:52
  pure equity deals. And so they're not exactly
• 47:57
  returning money to investors if there are any investors, right?
• 48:02
  I mean, you take the ultimate example of open claw recently,
• 48:05
  right? Peter had no investors, right?
• 48:08
  He's one is 1 dude in a garage in Austria figuring out to break
• 48:12
  the Internet forever more. Every dollar that Open AI gave
• 48:17
  him in equity or paid him in cash went to him.
• 48:21
  There's a nice payday I'm pretty sure.
• 48:23
  No, no dilution there. Not too shabby.
• 48:27
  The capital that is flowing into the physical AI space continues
• 48:34
  to be massive. And so again, I don't know that
• 48:36
  we're going to see the outcomes or the impact of that
• 48:40
  immediately, but it's where the bets that are three, five plus
• 48:45
  years out are being made now. And I don't know that there's an
• 48:48
  expectation for returns immediately or even commercial
• 48:53
  traction immediately there, right.
• 48:55
  You look at figure as the canonical example here that was
• 48:58
  on the chart that you up earlier, right?
• 49:02
  They famously don't have something a product in market
• 49:04
  and they're raising billions. The same with most of these
• 49:07
  world model companies. There is so much promise that is
• 49:12
  being funded that won't be realized.
• 49:15
  Do you feel like there's a different set of requirements
• 49:18
  for companies going public now than had been the case in the
• 49:21
  past few years? Right.
• 49:22
  I guess, you know, is it, is it just a revenue number that's
• 49:25
  much higher or just have to be a completely different story for
• 49:27
  these companies to get out the door?
• 49:29
  A lot of it is the story. Yeah.
• 49:30
  And for what we're saying is that a lot of the policy
• 49:34
  tailwinds that have been coming from the Trump administration
• 49:37
  and certain sectors like defense and aerospace, like crypto, like
• 49:41
  that window has opened. Yeah, I do see a like, you know,
• 49:45
  some other companies that aren't shiny objects and don't have,
• 49:49
  you know, either AI at the end of their name or some kind of
• 49:52
  space or defense tech angle. These companies are doing, you
• 49:55
  know, fine. They're continuing to generate
• 49:57
  revenue, but they're being crushed by the lack of a vibe or
• 50:01
  lack of story in their in their markets.
• 50:04
  And I think we've seen at least the threat or concern about AI
• 50:07
  crushing SAS and crushing insurance and crushing wealth
• 50:10
  management companies. You know, Anthropic comes out
• 50:13
  with a new plug in and all of a sudden you see, you know,
• 50:16
  compression by 10 twenty, 30% in public company valuations as a
• 50:19
  result of, you know, a product release by Anthropic.
• 50:24
  Just seems like it's tough market for companies that are
• 50:26
  just doing normal software revenue.
• 50:29
  Profitable growth hit the gas, Murphy.
• 50:35
  The posted limit is 35. We should set an example and
• 50:44
  your hair looks lovely. Well, one of the things that
• 50:48
  Aman and I try and do every week is go through evaluation,
• 50:51
  analysis of a company. And, you know, usually I would
• 50:55
  say we start from a fundamental approach on those companies, but
• 50:58
  that's becoming harder and harder when some of those
• 51:01
  fundamentals are, you know, 40 times revenue, 50 times revenue
• 51:04
  even even more in a few cases. I I guess I wonder if the Vibe
• 51:08
  story has more legitimacy in the public market than actual
• 51:12
  fundamental evaluations these days.
• 51:15
  I mean, at this point, right, you know, we can take the SpaceX
• 51:18
  example. How do the two of you value
• 51:20
  SpaceX at this point, right? Is it, is it a sum?
• 51:23
  Is it, is it a sum of parts? Is it a Well, they're sort of
• 51:26
  the only people doing this, so. I have to.
• 51:28
  It's not a sum of the current parts for sure.
• 51:30
  I think, you know, that's a really interesting example
• 51:33
  because in the space of maybe less than a year it's gone for
• 51:37
  the company that we looked at as a fundamental valuation based on
• 51:40
  Starlink revenue and commercial space launches to now a company
• 51:44
  based on either data centers in space or the colonization of
• 51:48
  Mars, terraforming of Mars. And Aman even went back in time
• 51:53
  to look at, you know, historical examples of exploration, the
• 51:56
  East India Company and, you know, other, you know, really
• 52:00
  expensive stories that were the only parallels we could think of
• 52:04
  for, you know, how SpaceX is being valued in the future.
• 52:08
  I I admit, Aman who gave us some creative examples for how to
• 52:11
  like value and think about SpaceX, but they're literally
• 52:16
  being, you know, guessed at 10 year in the future sort of
• 52:19
  product revenue opportunities, I I would say.
• 52:23
  Yeah. And this, of course, the Elon
• 52:24
  Premium. I think it's hard to say it is
• 52:27
  Sam Alton, maybe not at the level of Elon, but Sam Sam is a
• 52:31
  pretty phenomenal fundraiser storyteller.
• 52:34
  That seems like a lot of what's happening in open AI is the
• 52:36
  imagination on what he can do in the hands of the right CEO can
• 52:39
  be really interesting. Do you feel like in the private
• 52:42
  sector, in the private markets, are you seeing that you know,
• 52:45
  certain CE OS are are able to generate that kind of momentum,
• 52:48
  that kind of fundraising buzz? Do you feel like that's that?
• 52:51
  Is that something you guys look at or something you try to far
• 52:55
  to isolate for and and the work that you do?
• 52:58
  Yes, we look at the management caliber.
• 53:01
  Of. All the companies that we
• 53:03
  evaluate and have codified in our data science that feeds into
• 53:08
  Mosaic a score for management teams.
• 53:12
  The reality at Sam or Elon scale is we're talking about one, one
• 53:19
  of one or one of handful type individuals that are operating
• 53:26
  on a game they're inventing to to make it as opaque as
• 53:32
  possible. In that comment, well said.
• 53:36
  Yeah, but I I don't know that Dario Amadei fits into that
• 53:39
  mold. In fact, I would say almost the
• 53:42
  opposite. You know, he's not this
• 53:44
  expensive storyteller. I would argue the company has
• 53:48
  really somewhat been undervalued historically.
• 53:51
  And you know, now based on actual growth and actual numbers
• 53:56
  seems to be gaining ground on open EI at least up until last
• 54:01
  week, I guess maybe maybe after, well, I mean being declared a
• 54:04
  national security risk. Well, but if you if I I was
• 54:09
  going to say if you look at if you look at the Anthropic or
• 54:12
  Claw downloads in the last week, right, you know they it is not
• 54:17
  inherently the worst decision from a commercial viability that
• 54:20
  he could have made. Yeah, you lose out on massive
• 54:23
  government Rep contracts and revenue from that.
• 54:26
  But in terms of faith, Brownie points won.
• 54:30
  Do you think the downloads were result of them being rejected by
• 54:33
  DoD or just organic adoption that was happening anyway?
• 54:37
  No, I, I mean, I think this is a reactive, right?
• 54:41
  You're going to get people that are.
• 54:44
  People hadn't heard of N drops before and then because the
• 54:46
  Defense Department banned. No, it's not even that.
• 54:48
  It's. That who's getting banned?
• 54:49
  They don't get a download that they took.
• 54:51
  No, it's that they took a stance.
• 54:53
  I mean, there's a there's like a morality, right?
• 54:55
  There's like a techno morality to this of if I have to as a
• 54:58
  consumer, choose a side. Yeah.
• 55:01
  One one of these, you know, I mean, like it's almost like
• 55:04
  identity politics. It's identity technology
• 55:06
  adoption. I think this was also reading
• 55:10
  the wave of opening AI including ads into chat, 2BT and Anthropic
• 55:15
  really coming out against that, so this was just more fuel to
• 55:18
  the fire. I don't know.
• 55:22
  I wonder whether I I don't think of Anthropic being an explicitly
• 55:26
  woke company, but, you know, rejecting the Defense
• 55:30
  Department's usage guidelines might put them in that category.
• 55:33
  Just based on the data, the number downloads definitely
• 55:35
  spiked last week. So there's something to the
• 55:38
  kerfuffle with the Defense Department that seem that they
• 55:40
  seem to have been able to capitalize in their favor.
• 55:42
  And it seems like there's one step short of being woke, which
• 55:45
  is I don't, I don't have to believe in all those, all the
• 55:49
  left wing values that that connotes.
• 55:51
  But if you're being told by the Defense Department that, you
• 55:54
  know, you you got God bless some product and they're telling you
• 55:56
  what to do. And I'm simply to that as kind
• 55:58
  of a moderate or centrist or somebody non ideological.
• 56:01
  But I like your technology. I like the fact that you will
• 56:03
  protect your technology, that you want to make sure it's being
• 56:05
  used in the right way. Yeah, maybe, you know, maybe
• 56:07
  that's a that's a favorable marketing benefit that they that
• 56:12
  they got. And, and I guess that we'll see
• 56:15
  if that sustains, but it's quite possible that this goes away and
• 56:18
  this is just a negotiation. And you know, maybe they find
• 56:20
  some deal with the government and they have the best of both
• 56:22
  worlds. So like this take a stand at the
• 56:24
  same time maybe they still win back some of that government
• 56:27
  business and some of the contractor business.
• 56:29
  Well, I, I know we've covered a lot of topics today, but what
• 56:33
  did it ask you guys for sort of one bold prediction for the
• 56:36
  coming year and. I think my bold prediction is
• 56:39
  that LP Appetite will not come back fully this year.
• 56:43
  Honestly, the market has been too uncertain and liquidity has
• 56:47
  been too uncertain. And with the geopolitical events
• 56:49
  going on, I don't think that is going away anytime soon.
• 56:54
  And I think that will also tie into like mega funds like
• 56:58
  maintaining their dominance, like emerging managers and
• 57:02
  smaller managers do have a lot of value.
• 57:04
  But right now, with all the volatility and all the exposure
• 57:08
  that L BS can get from these mega funds, the dollars that
• 57:12
  will be deployed will favor them quite a bit more.
• 57:16
  So the rich get richer and the middle class and emerging class
• 57:20
  get poorer. So Emily, you think it's going
• 57:23
  to be worse this year for for micro funds, for outside of the
• 57:27
  mega funds, you think it'll be less LP money, less fundraising?
• 57:30
  It'll be worse, worse this year than last year?
• 57:33
  Same. Same as last year.
• 57:35
  I think fundraising has bottomed out.
• 57:37
  Not sure a. Little bit better, no, I think.
• 57:39
  It will be better than last year, but that's also like a low
• 57:42
  bar. You can't bounce back until you
• 57:46
  hit the ground. Yeah, there we go.
• 57:48
  Jason, how about you? Anything controversial we can
• 57:51
  drag out of you here today. I mean, I think the biggest 1 is
• 57:54
  going to be the continued labor displacement from AI adoption.
• 57:58
  And I don't know that that's truly controversial at this
• 58:02
  point. I think we would all like to or
• 58:04
  many people would like to sit around and say that it won't
• 58:06
  happen, but it will. I mean, and you can see it, I'm
• 58:10
  sure all of us see it in our day-to-day lives in the work
• 58:13
  that we do. The even just something like Co
• 58:17
  work or whatever else makes life that much faster and that much
• 58:22
  easier that I mean, I I'll, I'll say there there were there were
• 58:26
  charts I threw up today that in 20 minutes of playing with
• 58:31
  Claude Co work, it would have taken me 20 minutes to explain
• 58:33
  to our incredible, incredible design team exactly what I
• 58:37
  wanted. And the, you know, sort of the
• 58:40
  ability to as basic as or as fundamental as something like
• 58:45
  Quad Co work or as specific as, you know, this new era of
• 58:50
  vertical AI agents and tools that have now reached, you know,
• 58:55
  a certain adoption level. The Jack Dorsey slashing hat, or
• 59:00
  40% of block is not the last of that.
• 59:02
  That we will see this year. I.
• 59:04
  Think Jack's out in front of that change, but I, I wouldn't
• 59:06
  be surprised to see at least a lot of tech companies making
• 59:10
  2030% cuts this coming year. And, and I would expect even
• 59:14
  traditional non tech companies to start making cuts.
• 59:17
  I don't know if that'll happen this year.
• 59:18
  I still feel like those that way it will be maybe another year or
• 59:21
  two out. But I, I completely agree with
• 59:24
  you. I think we're going to see
• 59:26
  pretty substantial cuts in job, job workforce across the board.
• 59:30
  Really, if you try to play this out based on the current
• 59:32
  distribution of players in any given AI agent market, right,
• 59:37
  there are certain markets that are going to be that see higher
• 59:41
  competition, higher adoption and probably higher labor
• 59:46
  displacement because of it already ramming.
• 59:49
  Customer success is probably going to be the canonical
• 59:51
  example of that to start. And then you see certain sectors
• 59:58
  that are either hard, harder to solve for, or haven't quite
• 1:00:02
  gotten the enterprise adoption that, you know, when.
• 1:00:06
  Yeah. I don't think we're going to see
• 1:00:07
  this like massive upheaval of manufacturing jobs yet, but I do
• 1:00:13
  think it's coming. Well, I, I hope both of you get
• 1:00:17
  to keep your jobs ahead of the robots and ahead of the agents
• 1:00:22
  and in the coming year. But you too.
• 1:00:24
  Thanks. Thanks for joining us.
• 1:00:25
  Yes, I, I think I'm going to be put out to pasture very quickly.
• 1:00:28
  Aman's already told me my work isn't measuring up and Claude's
• 1:00:31
  kid kicking my ass. So we'll, we'll see how long
• 1:00:34
  that lasts. But thank you guys for joining
• 1:00:36
  us today and appreciate all the data and insights.
• 1:00:39
  Thank you for having us. Absolutely.
• 1:00:40
  Thanks for having us. Thank you for your cooperation.
• 1:00:48
  Good night. I'm going to do this without my
• 1:00:58
  partner Dave McClure, so I'm going to be a solo GP today.
• 1:01:02
  He is traveling in Boston, so we're going to cover Byte Dance
• 1:01:06
  2.0. They are doing a tender offer at
• 1:01:08
  a $550 billion valuation this month.
• 1:01:12
  The seller is General Atlantic, one of their primary
• 1:01:14
  institutional shareholders. We've covered them in October of
• 1:01:17
  last year at a $330 billion evaluation.
• 1:01:20
  When they're doing an employee secondary tender offer.
• 1:01:23
  We thought they were a great bargain at $330 billion.
• 1:01:26
  We thought that this we did at some parts on the company.
• 1:01:29
  You can see the pie chart on the bottom left, 65% of the business
• 1:01:33
  in is in China. There's about 15% of their
• 1:01:37
  revenue related to TikTok, part of which is in the US, but also
• 1:01:41
  a big part of it is outside of the US.
• 1:01:44
  And then they have some other properties as well that are
• 1:01:46
  valuable. We had looked at all those
• 1:01:48
  properties. We'd gone, we'd gone deep on
• 1:01:51
  each of them, did the sum of parts and thought that anyone
• 1:01:53
  buying in at the offer price of $330 billion last fall would do
• 1:01:58
  great. And indeed, the company's done
• 1:02:00
  well. And now it's a 60% step up from
• 1:02:02
  last time. So the question is, do we think
• 1:02:04
  that the new valuation of 550 billion is too high, too low or
• 1:02:09
  right on the pin? But it's actually what I think
• 1:02:11
  it is. Let's go through some metrics
• 1:02:13
  for the company. So they did 186 billion in
• 1:02:15
  revenue in 2025. That's up 20% year over year,
• 1:02:19
  very profitable company. Now they're showing $50 billion
• 1:02:23
  in net income, net profit, so a net income margin of 27%, which
• 1:02:28
  is a little bit of a change than where they were over the past
• 1:02:31
  couple of years. Definitely improved
• 1:02:32
  profitability. You can see here their valuation
• 1:02:35
  history from 2020 to 22. They had a valuation of 180
• 1:02:40
  billion and they held there for three years even as the market
• 1:02:42
  was crashing around them. And you can see the the black
• 1:02:48
  dotted line is where the secondary market has priced the
• 1:02:50
  shares. In 2021, the secondary trades
• 1:02:54
  were at about $300 billion plus and then the secondary market
• 1:02:58
  around the company corrected to the low 2 hundreds.
• 1:03:02
  But they never really did a down round.
• 1:03:04
  Every time by dances raise money, they've been able to
• 1:03:06
  successfully raise up into the right, which is a good signal
• 1:03:10
  for them and it just shows that they've been able to make steady
• 1:03:12
  business progress. Now you see the big jump from
• 1:03:15
  330 billion at the beginning of last year to $550 billion today.
• 1:03:19
  It's the first really big jump in the company's valuation.
• 1:03:23
  So here's how I would do a sum of parts for the company to see
• 1:03:26
  if this valuation seems right. They have a large China property
• 1:03:30
  which is as we said, 2/3 of their sales, over 700 million
• 1:03:33
  users. The name of the property in
• 1:03:35
  China in in Mandarin is DOI Yin. I think I pronounced that
• 1:03:39
  correctly. My my younger daughter studies
• 1:03:41
  Mandarin Chinese in school. I'm sure she can correct my
• 1:03:43
  pronunciation. The question really is for DOI
• 1:03:45
  Yin and there's 700 million users.
• 1:03:47
  What do you put as a sales multiple on a company like this?
• 1:03:52
  Well, you have a couple of options using social media
• 1:03:54
  comps. 1 is the best in class, which would be Meta, which
• 1:03:57
  trades at about 8 times sales here in the US.
• 1:04:00
  That's a pretty generous multiple to put on any social
• 1:04:03
  media company. Meta is the leading property
• 1:04:06
  here in the US They've got the most stable, the most cash flow
• 1:04:08
  generative business of all the social media properties.
• 1:04:11
  They also have a different very diverse set of revenues from
• 1:04:15
  from properties like Instagram and a little bit of WhatsApp as
• 1:04:19
  well as their Facebook main page.
• 1:04:22
  So that's probably a generous multiple to put on though in the
• 1:04:25
  worst case, I think would be Snap, which is subscale not
• 1:04:30
  growing very quickly. 10% year over year have struggled to make
• 1:04:34
  profits at all. I think Snap is just, you know,
• 1:04:38
  probably not the right comp because it's just too
• 1:04:40
  pessimistic. Mehta might be too optimistic.
• 1:04:43
  I'm going to pick a number right in the middle and just say 4
• 1:04:45
  times revenues. I'm sure Dave can argue with me
• 1:04:48
  on whether that's too high, too low or just right.
• 1:04:50
  But let's just let's just put that as a stake in the ground
• 1:04:53
  and see what that takes us to four times revenues for Doyen.
• 1:04:56
  Not best in class like Meta, even though they're growing as
• 1:04:58
  fast as Meta, they're as profitable as Meta.
• 1:05:01
  There is a bit of a China discount in here as well.
• 1:05:03
  So maybe that's one reason why they shouldn't be getting 8X,
• 1:05:06
  but it's certainly think it's it's north of 2X.
• 1:05:09
  OK, let's talk about their non-us business now, which is
• 1:05:11
  TikTok. There are 700 million users of
• 1:05:15
  TikTok worldwide. They are not just AUS company.
• 1:05:18
  Only 15% of TikTok users are in North America.
• 1:05:21
  There's a whole lot of them in Asia Pacific, primarily in
• 1:05:24
  Indonesia, Pakistan and a bit of Japan.
• 1:05:27
  They're not operating in India, but they are banned.
• 1:05:30
  There's a lot of European users of TikTok.
• 1:05:32
  The UK, Germany and France all have 30 million or more users of
• 1:05:36
  TikTok. Italy and France are right
• 1:05:38
  behind and then in Latin America, principally Brazil and
• 1:05:41
  Mexico, there's another 15 or so percent of users.
• 1:05:43
  So this is a global business and should be treated as such.
• 1:05:46
  You can see the growth in their user count across all regions
• 1:05:49
  has been very, very high, very attractively for demographics,
• 1:05:54
  74% of the users are below the age of 34, which is a prime
• 1:05:59
  advertising demographic. New advertisers released to pay
• 1:06:02
  up for younger and then more active users.
• 1:06:06
  From look at the activity, the average minutes spent per day on
• 1:06:09
  TikTok. If you have a, if you have a
• 1:06:11
  daughter like I do who loves TikTok, you know this to be
• 1:06:13
  true. TikTok has on average 70 minutes
• 1:06:15
  per day being used on their social media platform.
• 1:06:17
  That's twice as much as what Facebook or WhatsApp or
• 1:06:21
  Instagram have. So very, very engaged, young,
• 1:06:25
  energetic, attractive audience that you want to go after if
• 1:06:28
  you're an advertiser. So now let's think about what a
• 1:06:31
  multiple on TikTok revenues might be given that they have
• 1:06:34
  this fast growing base and it's a very active engaged base.
• 1:06:37
  Again, we have some choices. You could go with the best in
• 1:06:40
  class Meta multiple 8 times sales.
• 1:06:44
  Again, maybe generous for the reasons we said before.
• 1:06:46
  It's certainly this is a bigger property and more engaged and
• 1:06:50
  probably more ad friendly than Snapchat.
• 1:06:52
  So I think 8X is probably optimistic, 2X definitely
• 1:06:55
  pessimistic. The profitability of a company
• 1:06:58
  like TikTok isn't quite where Meta is, at least not yet.
• 1:07:01
  I'm going to just pick a number here and say 6X as a as a
• 1:07:04
  multiple in revenues is about right.
• 1:07:06
  So let's assume that that's correct and see where that what
• 1:07:10
  that implies for the overall evaluation.
• 1:07:11
  So again, billion, $480 billion evaluation, that's four times
• 1:07:15
  their current revenues. If you're going to be a
• 1:07:18
  curmudgeon and don't give me the credit for a sales multiple or
• 1:07:22
  multiple in revenues and you want to stick to something more
• 1:07:25
  traditional like profits or cash flows, we can do that too.
• 1:07:28
  Going in would be at 12 times profits, OK?
• 1:07:31
  TikTok in this valuation framework is about 6 times their
• 1:07:34
  last year's revenues, $138 billion or if you will, 20 * 25
• 1:07:38
  times profits. So right in line with the S&P
• 1:07:40
  500, which is 22 times profits right now.
• 1:07:43
  So that's sort of the value of the company, right?
• 1:07:45
  That's the China business. That's a non China business.
• 1:07:47
  One thing you've got to do is you have to remember now there's
• 1:07:50
  been a restructuring since we last spoke.
• 1:07:53
  Their TikTok business in the US has been restructured.
• 1:07:56
  So let's just do another sum of parts and break that breakdown.
• 1:07:59
  TikTok non-us value that at $60 billion by Dance continues to
• 1:08:04
  own that TikTok US valued at around $80 billion.
• 1:08:08
  Let's say 8X on, you know, their current revenues just to use
• 1:08:12
  Meta as the comp there about 3 times profits.
• 1:08:15
  Rite Dance no longer owns the entirety of that TikTok U.S.
• 1:08:18
  business. They only own 20% of that
• 1:08:21
  business. The other pieces that business
• 1:08:24
  got sold off the Sliver Lake and MGX, which now own 15% each.
• 1:08:27
  Oracle owns 15% of it. And then other investors
• 1:08:30
  including Michael Dale's family office and Susquehanna and
• 1:08:34
  Fidelity and a few others own the remainder.
• 1:08:37
  So you have to attribute that, you know that 80, that $80
• 1:08:40
  billion value of TikTok US and make it only about 20% credit to
• 1:08:45
  Bike Dance. So those really become the sum
• 1:08:47
  of parts for what the company is worth.
• 1:08:50
  So let's add it up. You got 4080 billion from
• 1:08:52
  billion, you've got 60 billion from TikTok International, and
• 1:08:57
  then you've got 16 billion from TikTok US.
• 1:08:59
  That to me is a pretty good way to value the company and it
• 1:09:02
  lands us right on top of where their current valuation is of
• 1:09:05
  550 billion. So I feel like at the current
• 1:09:08
  valuation that's now close to the PIN.
• 1:09:11
  I might also add there were other properties and assets that
• 1:09:15
  we haven't included in Bytedance in China.
• 1:09:19
  They have a, they have the dominant news service in China,
• 1:09:22
  Tutiao. It's sort of like BuzzFeed
• 1:09:25
  buddies are generated content in there.
• 1:09:27
  It's been established a leadership position in China
• 1:09:29
  with about 15 to $20 billion in revenue not growing very
• 1:09:32
  quickly. News in China is obviously a
• 1:09:35
  heavily regulated industry to say the least.
• 1:09:38
  So there were issues with it, but it's not worth 0.
• 1:09:40
  There are other properties too. My daughter loves cap cut and
• 1:09:43
  there are a few other properties that TikTok owns and that
• 1:09:46
  Bytedance owns that are worth something.
• 1:09:48
  I'll also remind you that as a condition of the license
• 1:09:50
  agreement that Bytedance signed last year, they retain 20% of
• 1:09:55
  TikTok US. But they also have a license
• 1:09:57
  agreement to collect 20% of the revenue generated by the new US
• 1:10:01
  entity as long as it's using their algorithm, their special
• 1:10:04
  sauce algorithm. So that is an annual payment
• 1:10:07
  stream, an annual revenue stream from Tiktok US to byte dance of
• 1:10:11
  about current course and speed 4 billion five billion annually,
• 1:10:15
  20% of current revenues growing by 30 forty 50% a year, whatever
• 1:10:19
  the revenue rate is in in TikTok.
• 1:10:21
  So that's again a non zero asset that I haven't really counted
• 1:10:24
  into this valuation. One final way, just to do a
• 1:10:27
  sanity check, I think on the overall evaluation to see if it
• 1:10:30
  feels right. Let's take a look at this graph.
• 1:10:33
  This is the this is a graph showing on the Y axis the sales
• 1:10:36
  multiple. You've got the growth rate on
• 1:10:39
  the X axis. You can see there are some slow
• 1:10:42
  growing properties in in China like Alibaba, Baidu, They're
• 1:10:47
  both, you know, growing at sub 5% a year, so less than the GDP
• 1:10:52
  growth of those countries and they're valued at about two
• 1:10:55
  times sales. You've got Snapchat here in the
• 1:10:57
  US on the on the page as well, growing at about 10% a year, but
• 1:11:01
  unprofitable, struggling to show any kind of any kind of return
• 1:11:04
  on capital at all, valued at 2X sales.
• 1:11:07
  You have someone like Pinterest who's growing at 15 to 17% of
• 1:11:11
  year. They're able to achieve growth
• 1:11:12
  and profitability. They're somewhere around 3 to 4X
• 1:11:14
  sales. I think Bytedance is coming out
• 1:11:16
  a little bit north of Pinterest in terms of the, the multiple
• 1:11:19
  that feels right. They're far more profitable than
• 1:11:22
  than Pinterest or that any, any of these other properties,
• 1:11:25
  they're growing in the high teens or maybe low 20s.
• 1:11:29
  So they are a growing company, very profitable.
• 1:11:31
  They're using AI as a competitive advantage and they
• 1:11:34
  have a tremendous lead in the markets that they are dominant
• 1:11:37
  in, in particular in in China and some of those other markets.
• 1:11:39
  We talked about 10 cent has a multiple a little bit higher
• 1:11:44
  than by Dan's growing at a similar rate, maybe a little bit
• 1:11:46
  slower. So just based on that
• 1:11:48
  comparable, you know, based on other China comparables by Dan,
• 1:11:51
  seems like it's pricing below the line, meaning the multiple
• 1:11:54
  is favorable, meaning it's it's probably a buy for the company.
• 1:11:56
  You can see Meta pricing at or maybe above this line of best
• 1:12:00
  fit. I think that's legitimate.
• 1:12:02
  Meta is probably the best company out there in terms of
• 1:12:04
  social media presence, the greatest global scale, probably
• 1:12:07
  they got the highest profit margins, the most diverse
• 1:12:09
  revenues with different properties that they're in.
• 1:12:11
  And then way off from the right, you've got Reddit, which is a
• 1:12:14
  very fast growing 70% year over year based on last year's
• 1:12:17
  numbers. And then and the multiple proves
• 1:12:19
  it out. So Reddit is kind of at or above
• 1:12:21
  the line. Meta is the best in class.
• 1:12:23
  And I think Byte Dance is sort of proving itself to be right,
• 1:12:25
  right in line with what you'd expect given those, given those
• 1:12:28
  comparable. So my conclusion, I don't know
• 1:12:31
  if Dave would agree or not. I guess we can ask him any
• 1:12:34
  returns is that I think Bytedance at the current
• 1:12:35
  valuation is it was a bargain last fall.
• 1:12:38
  It's kind of right where it should be this spring.
• 1:12:41
  Thank you for listening in. Appreciate you guys tuning into
• 1:12:43
  our pod and we'll see you. See you next week.