Welcome, silicon salad. Hey everybody.
Welcome to Dead cat. Eric newcomer here, very
excited. I have Jeremy Levine an investor
partner at best summer on the board of what Pinterest Shopify
are you still on the board of Yelp.
Also, not, not anymore. You stepped off on run button.
14, 14 years years time but you still Pinterest and Shopify,
right? I'm getting that right, chaos?
Best summer. Last year announced 4.6 billion
sort of sweet of funds including 780 million dollar buyout funds.
So we'll be interested to talk about that later.
The downturn but really have Jeremy on because I feel like
you know, someone who's been at Bessemer for over two decades or
real sort of VC who's willing to be honest in skeptic sort of
Nails, the, the line between skeptical about some of the
Euphoria while being sort of a long-term optimists in the
technology industry. Do you think?
Is that a fair characterization Jeremy?
Yeah, I like that a lot, actually, I think that I'm a
semi borrow that, so I just, I just wanted to start off since
you're sort of, you've seen it all, could you?
And this is like a, I don't know, business school type
question, but could you just sort of chart out from the view
of, like, the It markets, like the 2000, 2008, 2008 to this
moment sort of, because, you know, we're going to be
searching for metaphors in what this moment is.
But can you just sort of chart out sort of the startup hype
cycles that we've experienced starting with the 2000?
Boom. Well that's like trying to teach
a history course without having prepared any lecture notes not
you don't have to hit every you know this sort of you live
through it. Yeah I so well I joined
Bessemer. In 2001, and really, chew
bubbles. I guess had burst within a year
of each other. Just before I became a venture
capitalist or actually, what happened?
Just before what happened, just after the first was the internet
bubble, people refer to that, as the.com crash of the.com, boom.
And that were less came to an end in April 2000, precipitated
by a massive fall in the Nasdaq, all of a sudden.
And then a little more than a year later.
There was a second. One that Two men, a lot less but
it was essentially the end of a telecom boom.
And so those two Trends, the development of the consumer
internet and this massive Telecom boom, which was actually
driven largely by a regulatory change in 1996.
The Telecom deregulation. Act in 1986 create two huge
trends, that Venture capitalists and entrepreneurs capitalized on
by funding for the Reese's and building to the entrepreneurs,
all these great companies. But it got in both instances.
Euphoric, as you said, and people started you Crazy things
build companies that had no, no Traer had a gravity's invest in
companies at crazy valuations, despite the fact that there is
no prayer having revenues in both the internet, boom, and the
Telethon being. And eventually as happens over
and over and over history, people came to their senses and
said, wait a minute. There's some really great stuff
here but there's a lotta stuff that isn't so.
Great, was there a key trigger to people coming to their
senses? You know, it's funny, it's I
don't having lived here. I'm not sure what the trigger
was. It was sort of like somebody
woke up and said, wait a minute and then everyone else like, oh
yeah, wait a minute. And it's there wasn't a sudden
interest rate pipe or the beginning of some interest rate
hikes like there were in 2021 2022.
So I'm honestly not sure I think eventually maybe some fatigue,
finally, enter the picture but I don't know.
Good question. Okay.
So then.com this sort of double And boom sort of unwinds and
people really like there are questions of whether the
technology industry is really a thing, or what was this sense of
pessimism at the bottom of that bus?
I mean, it was it was wild. It really shuang dramatically
the other way to the point where they were at, it won't take more
than two seconds of Google searching, but there were
multiple cover stories of like Amazon being a sham, right?
And that the thing was going to go to zero and by the way, at
some point I can't do the math in my head on, like a split
adjusted basis, but the stock is trading at like $2 a share and
that's tree splits, that would be relative to like several
thousand dollars or shared today.
I think the people just basically threw in the towel or
the proverbial baby with the bathwater and no one wanted to
touch anything. It was kind of funny.
Actually, there's this, you know, there's there's virtue
signaling all over the place and as the.com build-up was
increasing, people literally started adding.com to the end of
a random. And that's some had doubled
evaluation. I think, at one point, even
like, Barnes & Noble became barnesandnoble.com.
And then as the bubble bursts people did the opposite, they
just remove.com from all the names.
It was like the most she would obvious kind of Shameless thing.
I one day I'm in a company or what am not the next.
I am in the next. I'm not again.
Well that's like with crypto today as the x-rays.
He really thought XYZ it was it was it was really hot sure the
minutes but I will say after when the despair Are got got
deep, that's when the real, that's who the true art of
nerves began to merge, they didn't give up on it at a out of
the ashes of the.com implosion came three really valuable and
important companies. One was Amazon one was eBay and
then one was Yahoo which quickly got eclipsed by Google, they all
all existence so maybe good for now.
Obviously, Google remains important today.
Yahoo not so much but then a whole bunch.
Bodybuilders who were truly passionate about building
something new capitalizing on these new Talons and trends,
like the fact is millions and millions of consumers in the
United States, were not connected to the internet.
That wasn't true in 1996. I was sure in 2001 the speed of
these connections use increasing dramatically the power of these
web applications also proved like in the early days of the
internet, you could just get kind of checks and basic images
on your website. There was no interactivity this
Was about Ajax which allowed a little bit of interactivity.
Inside the web browser came and that allow all these new
applications of like true entrepreneurs despite the affair
started building things. I remember in 2001 2002 and my
first year, so Adventure Capital, there was not a lot of
activity and the pace of new Investments and engage meet with
conduct charges quite slow, right?
But those who were doing it back then, like boy, oh boy, they
were really serious. And really passionate because
they were not deterred. By all the naysayers and it was
very unpopular to be an entrepreneur particularly the
internet in 2002 2003 2004 and then 2008.
So then what I guess what? 2003-2004 people start to regain
their confidence and then 2008-2009 is sort of the next
dip. Yeah, I think let's show it a
true except that the 2000-2001 crashes, you know, until a
couple. But we're really tech industry,
specific issues and then Then slowly things started to build
from 2002, to 2007, you know, TechCrunch emerged, I think in
2005. Hmm, and we start to meet really
compelling entrepreneurs, folks like Jeremy, stoppelman who
would have dropped out of business school in 2004 to build
Yelp, that was a very unpopular thing to do.
That's some serious guts. And obviously, he was, he was
passion driven to do it, but by 2007, 2008, funding had started
to increase. These companies are getting
publicity notoriety and fame through New Media.
Outlets like TechCrunch that emerge.
I should replace predecessors shower gel.
It offline things like, you know, Fast Company magazine and
Wired Magazine which were at, like 300 Pages, thick mostly ads
at the peak of the.com bubble, and then became 15 pages if I
change the name, right? Non-existent so funny Chris but
there are no exits literally, no exits.
I think the only notable exit during that period in the
consumer, internet was Maybe YouTube, I can remember exactly.
They are. Which appeared is this?
This is from 2001 to 2007 2008. Yeah.
And so the funding and those startups, the creation of
startups, in the willingness, should people to take chances
and be entrepreneurs and build something steadily increased
during that period. But there wasn't yet a lot of
evidence that he was working, right?
Companies were starting to work. Consumers were engaging,
software was a version but there are no exits.
The Venture industry in general had very few compelling exits.
When you sold a company to the company public, And generated
three or four extra turn, that was noteworthy.
Wow, you know, congratulations that's impressive.
There wasn't a lot of it. And then the financial crisis
happened and everything kind of pause for a brief moment and
those who were building companies, kept building
companies really smart acquirers like Google got aggressive and
said, wow, like everything is cheap.
Maybe we can buy a bunch of great stuff and they made
overtures and try to do things. Like they dance with the up
further to get, trying to buy you.
Hmm. Each didn't ultimately work out
but it just sort of put a pause on things, but it was kind of
had nothing to do with the tech industry.
Like nothing had changed inside Russia.
Had kept by me so he's like a reset because everyone's like
wait a minute is my bank account?
Even gonna allow me to withdraw cash tomorrow.
Money market funds started locking up, the government
intervened and came in with these, you'd rescue packages,
right? I mean, it's sort of, this is a
very easy simplification, but 2000.
There were real valuation questions.
Like what is the opportunity for the tech markets?
It was 2008. It's like what happens if we
have a recession and just you know there's less consumer
spending on what's the effect on the technology industry and I'm
going to skip ahead. You know, I think that is sort
of a big question now where some people are worried about
valuations and some people are worried about the recession.
I'll let you respond to that in a bit, but I want to, I want to
get there. So we have this 2008.
Not specific to Tech but you know, the markets generally are
pessimistic. We dip a little bit and then we
sort of enter You know, in this is where, you know, Facebook's,
you know, emerges and everything like that.
Sort of bull period up to like 2015 2016.
Or yeah, get us there. Yeah.
Well, so the financial crisis, I view as a pause and basically
the public market prices dropped precipitously, things started to
walk up. And that was on after seven
years of slowly gradually building confidence, building,
valuations, building Ontario, activity and building d.c.
investment. It's a during that pause
basically because the public market price is adjusted,
tyrannically entrepreneurs and investors were like, we're not
sure what you do entrepreneurs, like, hey, is going to bounce
back up at best destroy. Hey, we're not so sure.
And so, it was just kind of waited for a little bit.
In the meantime, those who are out there building folks, like,
you know, Jeremy stop my Yelp or rehab, but I like to damaged
building and they're like, you know what?
This is a bomber. Maybe we can't raise Capital the
same price as we thought we could.
It's okay. They just kept building and the
ucg kept increasing and no quality business kept
increasing. NG but they weren't affected so
much directly by the financial crisis and the very brief
recession except that they realized they couldn't spend
quite as freely because money wasn't as available.
But within almost 18 months, that kind of reversed, I think
government, Regulators did a politicians even did a really
nice job, preventing a total tailspin and injecting a bunch
of money into the economy. Not too much money, and it picks
back up again. And so if you almost ignore In
2009 time period and just take it out its history, you could
probably just draw a straight and steady line and then 2010
came people relax a little bit and even more her company.
So you get started folks. Like I think Geoff Lawson, truly
was 2009. Toby hiki.
Started shop, quite like in the middle of all that nonsense.
He was unable to raise much money.
I think he Factory favor sir, is he you went to Silicon Valley
from Ottawa Canada, raised money, he was Is so Scrappy that
and bowed, there's no boober, yeah, in 2 thousand, drag
whatever a when he went. There is no, it's impossible to
get a taxi and how out to, he bought a bicycle on Craigslist
and he bites up and down Santo Rey's to meet with Venture
firms. And everyone told him no, no
Ray, no way, no chance. He went back to aw that are to
keep doing it the hard way folks, I just started to notice
him in 2010 and start investing is so who's a lot of building
going on? And then I think a breakthrough
moment happened. I think it was two Thousand
Eleven when LinkedIn went public and that was a like, oh, my and
Linkedin had a it was a multi-billion dollar market cap,
but it was it was definitely south of 10, but that was a huge
deal, the most notable internet BC exit.
Before that, I think, like I said before, was YouTube to
Google, that was maybe one and a half billion dollars.
This is a multiple of that. And people like wow, maybe this
internet thing, is it thing? And it just took a little while
it means I'm Amazon, you know, it recovered.
It was a two dollar stock and was bacteria.
Significant business eBay, continue to generate massive
profits and I kind of skipped a Google story but they also what
public you know I appreciate the best more portfolio.
Are the main. It was in my Milestone.
Those are my markers, totally fair, just flagging.
That twilio. LinkedIn Shopify.
Yeah. I mean in the sort of Bull Run,
I guess I got to live through covering Silicon Valley.
It feels like we were incorrectly worried or what's
been amazing about this period? Is that it was actually a very
long period. Of optimism, right?
Or, you know, you think like, whatever skepticism in 2015,
2016 was just sort of missed place.
Now, where I was just looking back at my old stories and I
had, you know, the fuzzy insane math of valuations basically
warning about, you know, preferred shareholder perks,
which is much more relevant today than it was.
Then I think Bill girly, tweeted out an old blog post of his,
it's sort of flagged, you know, some warnings that weren't
really app then but now No matter about debt and sort of
the risks of the debt. I mean, do you think we were
just worried in that period because it seemed about time or
do you think we saw sort of behavior that led to today?
I think two different things happen, they're interrelated.
The first is that historically, the economic cycle is between 5
and 10 years over and over and over again and while there's
that blip it with 08-09, like I said, if you took it out, you
could just keep drawing a straight line where I wouldn't
say there was like enthusiasm and Demelza minnow fiber or six
or seven, but it was starting to build from the despair of 2001
by 2010 or 11. We're kind of back to normal.
Now we're seeing really significant exits.
Like I said, linked in public. I think he'll probably likes
your Facebook was emerging and growing it eventually and
public. And so we're starting to see
like the fruits of the labor while these hard-working
entrepreneurs and lucky BC is it just kept going and by 2015 2016
it's like oh my yes, there was this blip of the financial
crisis, which is More or less independent check, but it's now
been like 14 or 15 years, right? Everything is moved up into the
right year after year, after year.
And so I think some people were just freaking out.
Saying, I, of course, it's coming because it's come every
time in history once these cyclists get Beyond five or six
years, and then other people were just looking at
fundamentals and saying, wow, in the despair of 01:02.
We thought everything was worth nothing including amazing
businesses, like Amazon, and we've gained increasing copies
every year since then, some It were by 2015, 2016 things were
valued really well and you saw multiples for software companies
and other companies, get you a really healthy levels.
They were massively higher than what they were in 2002 but a
bathing in hindsight would benefit has it.
They were probably about rights. Hmm.
And then from 2015 to 2020 one, they just kept going up by 20 or
25 percent every year. And as things get bigger and
bigger and bigger, it encourages more people to start building
it. Hers is working and start
investing and by 2021, it had gone so far beyond rational that
you eventually, when the first sign of a, oh my goodness, maybe
there's something else you can use your money.
But speculate happens, which was the initial interest rate, jack
up everyone freaked out, right? And I think if you look at where
we are today, in the sort of post adjusted world, I think is
kind of back to where it was in 2015-16.
I have actually gone to run the bat but I suspect Multiples that
people are willing to pay the wiki or value companies.
Today is about where was that. And so those, you were freaked
out that it had kind of started to get too hot were probably
right in 2015, 2016, because now that we have a bit more
perspectives, I think we're more or less right back to where we
were right. 20:21 was sort of a uniquely insane.
You're right. I mean, we had, we sort of
skipped over the covid head fake, where people thought,
okay? Maybe it's all going to unwind
and covid you saucer? Okoye warning, people.
But then because of covid, you know, the bank's lowered
interest rates and people were working from home, all of a
sudden, it was a boon to Tech. So then that helped actually
fuel growth and then we really sort of saw everything on wine
starting maybe, you know, December 20, 21, and onward, did
you as sort of as an investment firm?
Try to do anything different in 2021.
I mean, like a phenomenon. I see specifically is just like,
you know, firms return so much too good.
You know, if you were a good investor, I think you were
quoted in the information. Basically saying, like anybody
who is anybody should have returned in this bull market.
The thing is, people would return a ton of money but then
they're like, well, if I'm returning it, I'm also going to
deploy a similar amount of money in 2021.
So the question is, you know, how did you play it and do you
think it was a mistake for people who sort of basically
tried to deploy as much as they were returning to investors?
So there's no doubt that I think that are very Very few
Investments that will have been made in 2021 that weren't very
early stage companies that people want with hindsight from
rent. Because they paid such a crazy
price, there will be exceptions for sure.
But up until from 2015, to 2020 one, the winner of the game.
So to speak from an Investor's perspective, was he who invested
the most is when things go up by 25% a year, you just want to get
as much of everything as you can and a bunch of folks, literally
Embrace that trying to do as much as I could.
This was like the and Model then the SoftBank model and the tiger
model. You know, there's sort of a game
of who can be sort of the top price sticker.
I mean, I don't think anyone was out there trying to pay the
highest price possible. But a lot of people are like, oh
wow, these Trends are amazing. They're powerful.
We want to get as much of these Trends as we possibly can.
And so people got really aggressive and there's nobody
who didn't get aggressive because it was impossible to
invest if you weren't going to be really aggressive.
When that changes, all of a sudden, like I said, I think
people regret a lot of the decisions they made in 2020 or
2021 because the pricing would have been objectives besides it
was really really high and so I think might my simple rubric is
that valuations for a she takes a somebody's as an example,
they're down about 75%. So insane.
If you are a 10 million dollar Revenue SAS company, in 2021 you
can raise money at a 500 million dollar valuation.
Growing very quickly today. I think you could raise money at
about 100 billion dollar valuation so that's actually
80%. So in order to get if you did
raise money at a 500 million dollar valuation, in order to
get back to that level, you need to grow your business almost
five times and so that will just take time.
If your SAS company and you you had 10 million dollar of Revenue
under management. In 2021, you could raise money
at a 500 million dollar valuation and many did today.
Assuming you're growing really quickly and have a high quality
business, you're probably raising Capital at.
We're like 100 million dollar valuation.
So to get back to the 500 million dollar valuation that
you had in 2021, you roughly have to increase in size of your
business. By fivefold, get from about 10
billion, dollars Revenue, 250 and there are a lot of really
high quality companies that will in fact, do that and that when
they go to raise Capital, next when there are 50 or 60 million
dollar Revenue business, there is nice up rounds and the folks
who invested even at these Really aggressive valuations in
2021, will feel good about themselves on average?
However, it's really hard to do that, not that many companies
grow their businesses by 5x in relatively short periods of
time. So I think most will regret the
prices that they paid, but we'll get a boon to the other peers.
You were smart enough to raise a capital and they can get it.
And now if they invest it wisely, even if it takes a while
to get to a larger scale. It's okay, they have the cats to
get there and in park has a raise so much money. 20, Anyone,
I mean, there's a flip side to this, which is people also
needed to seize the bull market, right?
Or it was a time to harvest wins.
I mean, I look back you know, I did it in a big profile of best
summer while the boom times were going.
I think I gave you guys a little bit of a hard time, just how big
Shopify and twilio are. And it was the moment when, you
know, Sequoia was out there sort of beating his chest about
holding public stocks and then With the benefit of hindsight.
It's like, okay. Yeah.
Makes sense to sort of sell down your position in cash and
winners. Even if you have these
generational companies, I mean at the same time, what author
zero was a big one of yours, right?
That you they got sold when things were way up.
So, yeah, I don't know with a little bit of distance from it.
How would you score yourself on sort of getting the most out of
the bull market, while being sort of, well, situated for the
downturn? We've made every mistake?
Possible. But we've also got some things,
right? And so with the benefit of
hindsight, we distributed our stock and Shopify way too early.
And the same time, we held onto some stocks in 2021, a bit too
long. I think, if you're were not all
that focused on getting that exactly right, of course, we're
always trying to do better, but the real win, if you will.
And the excitement of what motivates us is to invest in a
company, like Shopify or 0, 0, when it's really small and
nurture, it and help that, Company become really big.
And if you manage to top ticket and exit your position, exactly.
When the market cap is really all the power to you, that's
just not that interesting of a game and made a sure.
It might improve your returns a bit, but the real energy if you
will the real effort into generating investment returns.
And finally, the reward of playing in The Venture game is
going to work with the entrepreneurs when they got
something really compelling and small and Healthcare dozen or
less focus on. Like, how do we get out at
exactly the right time. And in fact, We invested in
Shopify had 2010, I'm still in the board in 2022. 12 years
later, we're even though Bessemer doesn't own a
significant position. It's incredibly rewarding to
partnering these entrepreneurs when they have a mission and
stick with it for a really long time.
So, okay in our search of, you know, this downturn, what's the
right metaphor and you know what can we learn from the past?
What's Your Gut read on the percent of like bullshit right
now or like I In judging whether we're similar to.com or not, it
just like we had all these companies that got out via spax,
you know, on demand. When crazy, there's a lot of
stuff outside of like pure SAS. That to me, looks questionable,
but I guess from your read, just like how much bullshit is there
out there? How many companies are there
that? That have no path.
I know that's hard to calibrate. Yeah, I don't.
So I think it's really different from the.com explosion in the
sense that one when that was over.
As I mentioned before, there are like three or four really strong
internet companies left standing and they've all endured even
Yahoo is still worth billions of dollars.
Generates, lots of Revenue, I believe Apollo owns it today but
only three or four atoms hundreds.
I mean hundreds as a brief aside.
So why and I'll come back to what I think of today in a
moment. But when I joined the Venture
industry in 2001, I looked at these entrepreneurs and
businesses and these venture capitalist who funded them from
96 to 2000 and I was jealous. Oh my Lord.
Like they generated enormous value and enormous wealth in
such a short time and I said, to myself, the world is never going
to get this crazy again, right? Like, like that the entire world
smoked a giant joints and I was high as a kite like what fun, it
would have been to be part of that, but I and I missed the
party but I thought you know, it's really rewarding and fun
and challenging to find compelling entrepreneurs, invest
in startups. So even though it's never going
to get as good as it was in 2000 again, I'm gonna try to make
this my career because I think I'll find it fun and well holds
20 years later it happened again like they someone passed a joint
around the party a second time and no one remembered what
happened the first time and things got crazy.
So in that sense it's really similar and enormous wealth was
created, enormous companies are created, but the difference is
when that party ended at the end of 20 21, it wasn't three or
four companies left standing, it was dozens and dozens of strong
public companies. And hundreds of religion in
private companies. Now not every unicorn and not
every company that raised a lot of money will be successful, but
the industry is I don't say two orders of magnitude larger than
it was. Yeah, 2008.
Obviously I'm not saying that this period could be a total
invalidation of like technology, right?
And in the way that the.com bust was.
So I feel like, you know, you do sort of have to distort the
metaphor slightly and that it's not everything but it's just, I
guess to me, the question is Was there so much optimism that you
know, the next round will be higher than the last that sort
of any sort of cash flow modeling or real rigor was
thrown out the door and therefore we can't really trust,
you know, even like Deca core and level valuations.
There were granted in 2021. Yes and no I think clearly the
valuations are often. You can see it in the public
markets. The public valuations are down
by three quarters, not every single company but we're less
across the board. So, you can basically apply that
to the private companies, just the same.
And so, if you had a private company valuation of 10 billion,
a rule of thumb is assume it's two and a half billion today.
Yeah, I come in. Yeah.
But that, and that doesn't mean you won't get back to 10 billion
that just means you got to grow the business is essentially two
doubles, if you can double your size this year and double
yourselves. Again next year, I'm not that
good at math, but two times, two is four I believe four times two
and a half million, you're right back to 10, right?
So the best case scenario or I should say that there's probably
Better case. But a really good case scenario,
is, you still have a great company still growing quickly.
You can double two more times and in Chu, here's your back to
a ten billion dollar renovation. No one is crying for those
writer, printers are investors. That's a pretty table album.
And by the way, if you fall short of that and because you're
trying to be a little bit more conservative with your Capital,
you don't have access to quite so much and therefore, you can't
be as aggressive in your growth. Maybe you grow your business, 40
percent this year, And forty percent next year.
Well, 40 percent growth followed by 40 percent growth will make
you about twice as big as you are today.
And so if you translate that to the value in the mock exercise,
you're doing here. That turns a two and a half
billion dollar company. 25 billion, is it a decade Corner
know there's 25 billion dollar Equity that's pretty amazing.
I was dunking on lift for being exactly like four to five
billion dollars and somebody I think it was Jason lemkin
tweeted at me like that. There was a time where it was
cool to be a four or five billion dollar company and to
some degree we've just totally lost perspective, like lots of
people get rich at a four to five billion dollar company.
It's not, it's not the end of the world, it can still be a
good return for VCS if they got in at the right price.
So some of it is just resetting how much wealth is supposed to
be created and in a win scenario.
That's right. And I'd argue.
It's not just a good, it's a phenomenal outcome, it's a
phenomenal. Come to be part of something
earlier, even in the middle stages, up becomes worth.
Two or three or four five billion dollars.
It's about it doesn't happen that often but what's amazing is
that there are actually hundreds of examples that we can point
to. But it's still his hundreds out
of tens of thousands or more attempts and so it still is so
long odds. Do you have a view on what 2023
will look like here? So in the end of 20 21, I was
optimistic about 2023 and I felt like the imbalance in the system
will start to work itself out. Now, there were in 2023 I'm a
little bit less optimistic as to how quickly that imbalance work
itself out. But we're still seeing a lot of
really interesting entrepreneurs much like we did in 2002 and
2003, say, forget, I don't care about the capital markets, like,
I have an idea, I have a vision for what I want to build, and I
want to build it. Now, I don't want to wait five
years before it's trendy again, right?
And many ways, I think they're playing to an advantage because
I think today, Google announced it was laying off. 12,000
people, you know? Was understand, significant
Cuts. Stripe, has none to give me a
call at ShopRite and significant has, these are all really great
companies with phenomenal people and teams.
And I'm certain that not everybody.
They've let go is an amazing, you know, wildly, talented
person, but many of them are. And if you were trying to build
a company over the last five years, you couldn't get access
to those people because they had these amazing jobs that
fantastic companies. Now, all of a sudden you can
recruit and build teams at a quality level for a really young
company, that was fun. Heard about five years ago.
I'm so while yes, it's much harder to raise capital and
there's just less of it out there.
It's also much easier to find great people and I'd argue and
now that big you might even be able to recruit them and lower
the mature company and pay them. Less rice means, you don't
actually need as much capital and so the - stop me really
helpful. Sure company formation and idea
generation. And it's also the case that, you
know, maybe the mood at a company like Google or Facebook
Isn't So cheery. So, But out to people who were
just having a blast for a few years now like, hey, this isn't
so much fun anymore. Much more fun to go.
Start something were to go build something.
Part of being a successful investor is you have to have a
sort of Divergent thesis or it just feels to me like right now,
like every VC is evoking, this sort of metaphor that great
companies were built out of the aftermath of a bust and that
it's like a good time to start and some of what we're seeing
there. N is that seed in series a
prices, just haven't fallen, any certainly anywhere near the
super late stage yet. And so I guess my question is
like are those rounds priced appropriately given the risk and
like isn't it? If, you know, even a coat or
whatever with all this money is rushing to series a because they
need to do something. Are there really going to be
great deals and series a this year?
If it's so competitive? Because a lot of people have a
similar intuition. Yeah, I think it's AI mean.
I think when you're making a seed or a series a, or even a
series be investment. What's most important is that
you're filing a great company, great entrepreneur, great idea
that can grow for a while. If you overpay, and by the way,
like, I'll go back to our LinkedIn invest in, which was a
series C investment in 2006. At the time we wildly overpaid
Lincoln was maybe a ten billion dollar Dollar Revenue company we
invested at a 225 ish million dollars hundred thirty million
dollar valuation that was unheard of AG.
Nobody paid 25 times Revenue to invest in coming 2006 so much so
that linkedin's existing investors both invested zeroing
a financing. They thought we had overpaid by
such a dramatic amount but it was a phenomenal company and
maybe we did overpay relative to what the court Market was or we
should have paid by 20 or 30 or 50 percent but the company still
grew to the point. Where I think our position was,
right at 100 x by the to a company.
And they said, and so, when you're investing at a relatively
early stage, there's so many ways to get bailed out.
If you've caught a tiger by the tail and of back, somebody truly
phenomenal, as you get to a later later, stage, your
opportunity to get bailed out, shrink dramatically and so I
think that's why we're seeing the price adjustments at the
later stage in today's market, have been much more dramatic of
the earlier stage. That said, I think there's
another shoe to drop. I don't think it will be as
dramatic, I think will happen. In in some slow motion.
But there's another challenge that the whole industry is
facing, as everybody gets a little bit more conservative and
a little bit more concerned and the challenges as an investor.
When I see someone else's series, a investment become a
series be company or someone else's Series, be investing
become a serious C company and I may have an opportunity to
invest in it. I want to feel like I'm
investing in a phenomenal company.
I'll stretch really aggressively, but I also like
understand there's a market and I Don't Want to Be Wild.
Out of line with the market, I want to be sort of at the full
end of the market. If you want to make sure
everyone feels like they got a good deal, right?
And what is happening is that if there are no opportunities to do
that and I'm a little bit more skeptical or a little bit more
cynical. The existing ambassadors will
feel like we need to support our company because it's hard to
find a lots of right outside interest.
And then when they do that, they realize that wait a minute.
We can't be aggressive in investing in someone else's
portfolio company, right? Because we need to save more
money for our own portfolio. This is super real.
Anon if you like, yeah, everybody's doubling down on
their own, but it become self-fulfilling because if you
feel like you need a reserve or Capital to your own companies
even more tight, right, what it comes to evaluating some new
company, which means those investors have to be even
tighter with their Capital because the end and so just
Aspire. And so I think we're in a little
bit of a spiral. And so I think what will end up
happening is if you've invested in a series a and price of Acts
today in a year you might say, gosh given how hard it is to
raise a serious me. Should be investing in a price
of each point 7 x naught X. So I anticipate it will continue
to slip back inside down rounds. Basically, I don't even know
that they'll be down rounds because it's it down.
Roads are really hard and really destructive for private
companies. Yes.
Can you explain that? That was my next question.
So, as part of why is it that a series, a company, just can't
just raise at a lower Sirius, B, if everybody's doing it.
So the reason why the math is so tricky is because of the
structure of a typical Venture Capital deal.
And so the way it typical been Your deal worse.
Let's say someone invests in let's say a venture capitalist
leads the series a investment invests, five million dollars
and a 20 million dollar pre-money valuation, which is a
25 million-dollar post-money valuation.
And the investor essentially owns five twenty fifths or 20%
of the company. That's like a down the middle of
the Fairway, series a deal. Let's say 18 months go by and
there's still promise for the company, maybe the market
feedback is like, hey, that's interesting at a Two million
dollar pre-money valuation today.
Not a 25, let alone 50 million dollar, pre-money valuation.
Why is it so hard to like, comment just accept that they
shouldn't raise money to 15 million dollar valuation.
The reason is because number one, there's five million of
preferences in the company from the previous investors
investment and to almost every gaudio comes with what's called
a weighted average Auntie dilution protection.
And so if the company raised five million is initial
financing, And now needs access to ten.
First of all, if you were to raise 10 million out of 15
billion dollar pre-money valuation, you're selling 40% of
the company because it becomes ten twenty fifths of the of the
company's value. Take the 10 of new capital, you
added to the 15 million dollar valuation.
We get your 25 post 1020 business for yourself.
That's a huge chunk of the company to be selling and the
previous investor is going to get into delusion protection,
which means they're automatically issued more shares
to compensate for the fact that Sit down.
And so, in addition to the 40 %, UB Sally to a new investor, you
also have to give up more Equity ownership to the previous
investor because of the terms of the security.
And so you could suddenly find out that you've sold 50 or 60
percent of the company in a financing and it just doesn't
work like you still longer interesting for an entrepreneur
who just got recruited so dramatically.
And so, it's really hard. And then on top of that, you
have a massive communication challenge for all of your
employees. What are you telling all your
place? Like if they worked at the This
for two years and their stock is now worth less than when they
join two years ago. That's really depressing and
it's it's hard to maintain momentum in enthusiasm.
Intermission if ass that ship is slowly sinking but this logic
pushes Founders to pursue debt and structured Equity or
basically structures that allow them to maintain the illusion of
their valuation. While putting the company at
Great risk, if they cannot continue to sort of justify it,
would you agree? That articulation.
And what what's your view on is for the, some of these structure
Equity proposals being floated. I would agree that it's kicking,
the can of taking painful medicine, down the road, and
there's a chance that it all works out, just fine.
But there's a bigger chance that the company does well.
And the financing starts to become a serious problem or the
financing eats into all the equity value.
Subtly of all the founders in the employees because it has all
sorts of crazy. And suddenly you realize that
you own very little of the company because you sold all
these graphs each term to be some investor to maintain a
headline price that seems good. So it's sort of like a wave.
Hiding the problems under the rug, eventually someone's going
to lift up the rug and see all the problems there and so it's
treacherous. What should happen is that you
should have an honest investor. Who says he I invested a year
ago at a 25 million-dollar valuation.
I got it. The company is worth $25
anymore. And so, let's own up to where we
are. Let's work something out where,
you know, I made a bad investment, it shouldn't be the
entrepreneur that has to suffer all the pain.
Let's figure out together. Like we're business partners.
And so maybe I give up some of my ownership, maybe you give up
to me or ownership. Let's start this company off on
a clean slate and a 15 million dollar valuation.
If that's what we believe is sensible and we still believe in
the vision and that the opportunity so forth.
But it turns out that that's like having a Really tough
conversation. You have to be really honest.
It's like no, you're great, you're great.
And then one comes to you and says, you're not as great as you
think you are. Like, nobody wants to have to be
the one to do that, even if the other board members, secretly
agree, and also, nobody wants to like concede some of their
rights rise, like I bought something, I don't want to give
something up for nothing but guess what?
In the spirit of what's best for the company you need to or there
is no company and people are remarkably short side, he
better. So, the other way to do is Like
to kick the can down the road you pretend and to create all
these other structural issues that can come back to haunt you
later. Have you done this?
Like are you have you done this with a startup?
Like reset the cap structure, yeah?
Bessemer yeah absolutely. In the in this period.
Yeah in fact just in fact just yesterday I was on the bed on
the phone with with the not prove who had seated and the
company had raised maybe a total of four million dollars and she
was a working and so has up to attend her.
I'm not going to name a company because I don't wanna embarrass
him but he cut costs dramatically.
It had been up to 30 or 35. People was trying to do a really
aggressive lie. It didn't work.
Took us dramatically. But it is a still doing three
hundred thousand dollars or so a, what the revenue and with a
much thinner staff. Then I mix a little bit of
profit and so it's never unless the team invent something while
they knew, I don't know where which is always possible.
It's never going to be a multi-billion dollar company.
It probably won't be a multimillion-dollar company and
so we could insist that we just keep going to Bro, said by
admitting what, you've got and right-sizing it accepting your
current fate. You go from being on defense and
worrying about running out of money or getting your team to
being an offense. Now, it's okay, we have d66
person company. It generates just enough regular
every month to wash its own face.
Is that washing his cash? Cows, go down, and down, and
down. And now, the founders can sit
back and say, what do we want to do, do you want to sell this
little company and try to move on to something else?
Or do you want to show you invent something new with what
we have as a company as a base and what I've sent name is
Ursula. In order to keep it interesting,
while you cogitate and brainstorm ideas, every penny of
extra cash. You generate, why don't you keep
80% of it? Just pay yourself really nicely
and set it and 20% of it back to the investors.
That's not the deal we have. In fact, the deal we have here
of preferred stock and turned Theory, the first four million
dollars as to all come back to the Avengers.
Let's not lie. I mean we can insist on that.
Let us say that's really short sighted and it's not very
partner. Like and so I would rather use
them. They just say we don't care
about the company more. We're going to do something
else. Yeah, exactly.
And by there's bitterness and they spent years of their life
honestly, yes, we lost the money.
That's a bummer. But they lost time.
Maybe that's an even bigger bomb.
And so you have to acknowledge everyone's position, you're all
business partner. See, I have to acknowledge
what's good day for everybody. Our employees, the ones getting
screwed in these deals or I mean, there's just like an
inherent there to the one, not at the table when these things
are being reset right? Or how do you think employees
should I don't know what's good news when they hear their
founder sort of announced some changes and what's bad news or
what do you think about the employee position here?
Look, it's really across the board.
Some Founders and leaders are great about taking care of their
teams and some are less great. An example I was just
describing. There were 32 people who had
been recruited to the company who are working really hard.
There are all these six now and so 26 of them, no longer have a
job or they're working somewhere else where they screw and I
don't know. What does that mean?
Like they worked hard, they were paid Market rates and then the
job ended, that's a bummer. Like nobody likes to be in that
position but that's the nature aged entrepreneurial startups.
Like I don't always work, we hoped, but no one stole from
now. No one took anything away,
right? It just didn't work out like if
that's always a potential outcome and and argue Luck plays
quite a bit of character and maybe those boys got unlucky.
Just like the employee happen, to joined Shopify, and you guys
intend as opposed to joining, you know, some other random
company got really lucky hmmm and I'm sure they contribute it
important things that company. But like, you know, all of a
sudden, they're making millions and millions diuretic.
Do they deserve? Yeah, I don't know.
So, look worked with words. But yeah, that but I'm not, I'm
not anyway, anti layoff or anything like that.
I'm just asking when they're these.
Relations where it's like, okay employees got their shares under
an old regime and now there's like a new regime.
It's clear the negotiation sort of happening without them, for
sure. And then but it's much like a
Founder will negotiate an ambassador with the Venture
capitalists. Once that is done then the
founder has to decide. Okay, how do I want to apply
this to all my team? And some Founders are really
generous and issue. Lots of equity and bonuses, and
so forth to team, particularly when there's great performance
and others are a little bit, Tighter about it but they're
building a culture and every country has a different culture.
Some company called Jews. Are you get nothing until you
are in it. Other company cultures are you
going to lat until you prove that you don't deserve it and
everything in between. And so in this instance, if this
coming Swardson have to start to grow, its revenues and start to
generate your profits founder could family.
Keep it all for myself or he could say, I'm going to share
with my team, my guess, knowing this one is going to show you
the seem right. And so I'm not going to I can't
negotiate with all six people. It's his company.
I like company but we'll set up a structure together and then
history had a role Or probably part of what happened in 2021,
you know, we saw the entrance of like hedge funds, private Equity
Funds, VC funds, do you think like the incentives of hedge
fund compensation and just some of how these managers made money
outside of just like maximizing returns for the, LPS was a major
contributor of the environment. We saw in 2021, I think.
Are you asking those are really bad behavior by investors to
help themselves to these? Spence of others.
Just like if I'm a hedge fund and I get paid on some of my
investments based on the performance in a year.
I have a strong incentive just to Mark things up and go wild in
a year and make some returns. That's not the Venture model but
there's also a I don't I'm just trying to maybe it's too big of
a question but the disconnect between how like investors are
compensated versus how funds flow to their LPS.
Like, do you think there have been any like poorly set up
compensation structures? That incentivize sort of
irrational, Behavior humans are remarkably creative and
inventive and it comes to their own compensation.
I've learned that and I think the holds back phenomenon had
some really interesting combination Dynamics to it where
I suspect sponsor would get a significant chunk of the
combined company, they make even more money, if the company
traded above the dese packing price, but even the Tres Beau,
Hello, they still walk away with a good chunk of the company and
so there's no profit generated and yet the spectrometer makes
much money. That's, that's not well aligned
incentives, and I think it's no surprise that as more and more.
These stock companies have fallen below, their stock prices
were seeing the stock market drives up entirely big.
All right, now is not great alignment here, let's not, let's
not do it. In terms of people investing in
tech companies that are in the broader bencher Tech ecosystem.
I haven't seen much of that. I think most of the firm's that
were In any meaningful amounts of private capital and private
companies had separate private funds.
That worked exactly the way better Fun Works.
And look, I, I joke with my wife from time to time.
She also works in business, but not in the investing world and
she has a family of academics, and so I get it working to make
money is somewhat some unappealing or distasteful.
But as I joke with early venture capital is the noblest of the
finance professions because you can't really make any money as a
venture capitalist. Unless you're part of creating
something that creates value in the World's.
Right? Because we generally get paid
when the investments in which determines, which we've invested
become worth more. And then we return profits of
those companies back to our LPS and we keep a piece of it.
And so there's there's really good alignment between us now
Tanner, we do better as they do better and they're really good
on. But, you know, self is and
whereas in most other investing businesses, you can trade, you
can buy something when it's cheap and sell it when it's high
or sell it. Designed by ownership and your
nest security, any value Europe, making smart raids and there's
not a lot of that that happens in Venture Capital.
Yeah, so it's a noble assertiveness hangers.
I mean, I think a lot of the companies you mentioned our are
safe but there are lots of cyclical plays and Venture where
people do make a ton of money career-making exits on companies
that don't sustain, I don't want to.
Yeah, it happens. It look at it happened even more
over the past several years, right?
With all these crypto currencies, like the number of
people who made lots of money, Buying a new cryptocurrency at,
you know, for a penny and red spiked up to something huge.
It was never used in any material way in any application
and then it fell wildly back down to earth like that's and
trying to that was a little bit. What happened in the internet
bubble? All these companies went public
with big values, until they weren't worth anything.
And so yes, it's not, it's not perfect, but it's generally hard
to do really well financially unless you create something of
value that is durable. Not impossible, but it's hard.
I wanted to shift gears a little to some of the themes that
you've been a big investor and I mean like consumer and Market
places, particularly and just take stock of where they've been
and you're, like level of optimism about finding new bets
in those areas and they're very, very poorly defined categories
and maybe yeah, but I mean, I don't know, let's actually start
with marketplaces. Like, what's your scorecard on
the Success of marketplaces, are you still bullish on like
chasing Marketplace businesses? And I think the underlying
question is just like are there that many great Marketplace
outcomes to justify how much of a category of pursuit.
It is been for the Venture Capital industry.
Yes and yes. And so I remain very exciting
and I think there have been tons of successful companies and I
think there's tons of opportunities still for growth.
I think it's not as easy. There's more Petition and the
remaining categories are smaller, but many of our best
investments, historically have been marketplaces and I think
that will continue for some time and we have some great and
sizable Market places in our portfolio.
Today on StubHub was the example and that's going to existed for
the better part of 20 years. Now, we sell flake.
There's fantastic opportunities for it to continue to grow and
expand into adjacent another areas.
The challenge though, is how do you one get something going?
From scratch, there's the classic chicken and egg problem,
and you need to really creative and innovative ways of
circumventing that challenge. And then to particularly outside
of China, which is where I focus my investing.
There are small number of companies that really control
the consumer internet, both on your desktop and on your phone
and you start almost everything you do at Google Facebook, apple
or Amazon and their massive companies with enormous
resources. And huge lovers of control and
it's very hard to get something in front of a consumer with
going through one of those companies, right?
And in the earlier days of the internet, they would let you get
access to your their consumers sugar-free and as they've gotten
more sophisticated, and what I'll call less evil or more
evil, they have been based, they stuck their hand out of put up
more toll booths, which make it harder for you to get to get his
room without paying. And so I can classic example, is
in the early. Days, you could generate lots of
free traffic from Google. And now in order to find a free
link on Google, you got a scroll way down past the fold to find
the free links. Right?
All the ones at the top, someone's paying for that wasn't
the case and the rest of your go-to just like Google gives you
the answer and you don't even have to leave Google.
Yeah, even worse they push all the results back and they favor
their own services or the his of Apple you know in the beginning
you'd find lots of stuff in the App Store.
Now a lot of the App Store placement is paid.
So, he won't admit there's a way for us to make more money.
So and they've all done this more and more and more Chi their
market caps and their own Revenue growth, and so it's just
harder. And so in fact, there's a good
write-up about the forget. It's called temu, they're
spending a ton on advertise right there, sort of running The
Tick-Tock playbook for Tick-Tock spent billions and advertising
to just force their way into the consumer.
If you think of the great internet companies that emerged
up until 2015, none of them spent money on marketing.
None of them they built. Massive you Your base to have
doing it. Yeah.
Companies like LinkedIn TripAdvisor, and Yelp and
Facebook, and YouTube and so forth, Snapchat Pinterest, but
since around you guys and 15 as the, what I call the oligopolist
started to get more aggressive about monetizing, everything and
limits redistribution. The only way that you could
reliably get in trying to passive consumers is to buy your
way. And the problem with buying your
way is that often times you have to pay the toll collectors say
Two dollars to your consumer that you could only monetize to
the junos 2005 sense, right? Worse.
A dollar fifty and if you're only getting backed a little bit
more than you paid or even worse less than you paid, you just
can't sustain. And of course, the complicating
factor is startups are telling a story about their lifetime value
that they haven't validated yet. So there's also just the mystery
of what the actual lifetime value is, and how much investors
are going to trust them in that bull market, environment that we
just experienced exactly. And during the Daisy Market.
People said, yeah, sure. Now is everyone's done a bit
more consideration for their cash.
You're saying, wait a minute, but even if you believe it, if
the way you get to, if you spend $2 see, a consumer that
generates six dollars in lifetime value.
The way you get there is, you spend that you dollars today.
Over the course of the next year, you get the two dollars
back. And in the next year, you get
another two dollars next year. Another $2 you do in fact have a
positive Unity comic equation but to get 100 million
consumers, you got to spend two hundred billion dollars and you
want actually even get that money back for a whole year.
And in the meantime you have all your employees and your
internship knows other costs that you're spending.
So to get to scale requires enormous amounts of money.
None of the companies I mentioned Pinterest LinkedIn
Yelp, they all built real user bases with less than 10 million
dollars. And so the costs to go after
large, consumers has gone up by 12 Erza by G.
And so far, there are two examples of really cash-rich.
Chinese companies, not startups, there are large, Chinese
companies have said, oh, we see the game, this is amazing is
great, trust is starts, can't do it.
These came instead of go and do what I saw Tick-Tock spending
$60 to acquire a user. I thought they're off their
rocker on righty but in hindsight he's brilliant and
they built the massive user visiting.
You got a 4.6 billion dollar fund advertising is cheaper than
ever. This would be true.
Kareem is Amar, you should consumer investors, come to you
and say, hey, I have a plan to blow five hundred million
dollars. And at that point, I will be a
legit consumers, start up, or is this A playbook?
You're willing to run with your own money?
I'm not sure I'm comfortable with that.
Just yet, that would take, you know, risk gods in part.
Because even spending a lot of money, that chances aren't that
great, right? And so, I had soft to chip both
within Jojo. And, and by dance, or doing it
in the u.s. from is Courageous and like there once or two may
be heading two two for two and so maybe that Playbook become
more mature, but I'm obsessed with our Founders who are way
more creative than that. It doesn't take a great tivity
to spend a billion dollars. It takes good execution, and a
big piggy bank but not that much inventiveness.
And when I'm much more interested in is the inventive
founder, who says, despite the fact that is a small number of
really large internet companies, that incredible control over it.
Vision. I'm going to find a way to get
my product to Consumers and they obsess about it.
They don't just obsess about the product itself but also how
they're going to get it to Consumers.
And, you know, my my favorite kind of modern era example, is
Discord and we're really proud to be very small advisors and
just great. I wish we were more significant
investors and Discord Jason and cheap bills such a compelling
service or utility that they got influencers makers.
Streamers He's called them super humans, should embrace the
service and use it to communicate with their fans and
followers to the point where Discord has never spent any
material money on marketing and hands, hundreds of millions of
users. And so, while it's much harder
to do that and if to be more creative and inventive today,
and you did in 2005 to build massive distribution, it is
still possible. And those are the kinds of
companies. I'm obsessed with anyone.
Who's doing anything like that. You please call me.
Do you have any takes on the, the gas acquisition?
You know, I feel free if not but Discord, you know, just bought,
you know, a very rocket ship. You know, Zeitgeist e lightning
in a bottle teen app that I don't know questionable how long
it'll sustain Nikita, the founder, you know, sold a
similar company to Facebook. I don't just just an interesting
model, I guess of a Founder who is like, okay I can achieve
virality and then I'll just like dive into the big consumer
company the day or any observations.
Yeah. Well they look the story.
He is not yet rigging, but I think it's really smart a
Discord because as you put it, capturing lightning in a bottle
is very hard to do. And it happens very infrequently
and when you see that happening, it's much smarter to buy it.
And co-opt the wildly, inventive and creative founder than it is
to try to bring yourself. And I think that's what Discord
is saying, like by their just, where did it itself create a
lighting about for its own app and everyone is costly trying to
recreate that of create more of it.
And now they're saying, but let's try We can leverage some
of the power of what, as we create a gas that Discord, I'm
not sure what the plans are, or how it's going to work, but it's
exciting, the average. And I'm saying, average, and
median VC did better since 2008 if they were in sort of SAS
Enterprise World versus consumer world.
Do you agree with that? I think the hit rate is much
higher. So the adage is the most giant
outcomes come from consumer companies and that's no
surprise. You know, but three of the four
trillion dollar companies. So that's Apple Google
Microsoft, and who am I forgetting?
Amazon Amazon? Thank you through the for our
consumer companies and one of them is a little bit more
Enterprise but also consumer that, of course, being
Microsoft. So, if you want to go for
trillion dollars, you gotta go for a consumer company, but the
number of really high-quality Cloud software businesses,
outstrips the number of impressive consumer companies,
but At least a healthy multiple. And so if you're going for in
baseball terms, you're going to church or slugging percentage,
you go for Consumer companies. If you're going for batting
average, you go for software companies.
Yeah. Safer way to make a bunch of
money, a bed in bed on SAS companies.
The generative a, I like the buzz you things of the moment,
like, what are you looking at it?
The moment are you optimistic personally about generative Ai?
And what are the things that in 2023?
You think you'll be looking at, I know you like to keep you like
to keep some, you got mad. To me because I think I skipped
one of your Investments. You added me.
Yeah, that was cambly other. There are doing great.
So now you can talk about it as much as you want, but yeah, I
liked it, I liked to see young companies, get your certain
scale where they can handle the attention, the competitive
pressures. And at a really small stage is
no reason to embrace those things until you have to.
So, the short answer to your question is I got so we as you
might imagine in the in the Venture business we get to see
lots and lots of product demos and in fact we get some somehow
Almost done namjoo product demos because we were previously get
to see them all the time and it's really rare that we see a
product demo or that I've seen your product demo in 20 plus
years, doing this for my jaw, literally hits the table and
when we had the Jasper team come present to us my jaw.
Literally at the table in part because I was so impressed by
what they built. But also I was like an oh shit.
Moment like the machines are coming to our me too.
Right. So for a while, I thought like
I'm pretty safe. I have a Sophisticated
complicated job that requires high-level thinking it's the
folks who are driving a car for a living that need to be
worried. Because like we're going to
driverless cars and like the machines are coming from now.
But I'm relatively safe and then I saw Jasper and I said oh my
none of us is safe. There's a text generator, right?
Chad gbt competitor? Yeah, so the founders came in
and they basically said, what do you want Jasper to write about
and I can't remember who said it, but I think someone said
write an essay about why Hilton And is a good place to go on
vacation if you like golf, huh? Like okay.
That's kind of and they literally type that into Jasper.
And within a moment, Jasper spit back that back the past, that's
a spit and Jasper produced, eight paragraph essay, and we
all proceeded to read it and I, my reaction was like, holy cow.
I can write that and I could probably even write something
that's better than that, but not by much.
Much and it would take me a few hours, right?
And that's when I realized this thing is real.
And so of course we begin best version Jasper and are super
excited about it. But yeah.
So I think the power egg, these large language models in
generating, artificial intelligence that is
indistinguishable and perhaps even better than human
intelligence is Ramekin. I thought it would not happen in
my lifetime, I thought, when I heard about open a.i. several
years ago, as a non-profit, I thought, hey, that's a cute.
Experiment and it'll be relevant to my children perhaps but not
me and now I'm realizing no no it's here.
I'm super excited about that but you're someone you ate like
bullshit and I feel like the text generators are very good at
it, right? I mean they, they say with
confidence a lot of stuff, you know?
And if they get maybe 90% of it right or do you worry that sort
of just the self-driving cars have struggled with sort of
perfection, the lack of perfection on accuracy for text
generators will be in sort of a barrier to widespread.
Widespread adoption in the short chain for sure but it's a
problem be worked on so gradually, I believe it will get
solved until it solves, they're a bunch of uses that you can't
really take advantage of with these Technologies and or it
creates purpose for humans. And so at a minimum like the
human has to be to proofread her and just because the machine put
it in the story doesn't mean you have to leave it there.
You got to go fix it and that maybe the role of humans and
I'll make us wild and more productive right.
Eventually when they figure out how to create ground trees for
These large language models, you will need the humans anymore and
that is kind of scary, but I'll give you an anecdote with young
professional in our office, who was relatively new to excel, who
is working on a financial model and this person wasn't that
familiar with how to transform some data in Excel.
And so they asked chat GPT, they describe the situation said, can
you write a macro Edge For Me, Right?
A chat gbt produced the back row in text, they copied it from
Japanese GP T, paste it into Excel and it worked, yum.
I said, wow, this is a mate like dry productivity benefits from
these tools are just incredible. Yeah, it's amazing.
I wanted to because you have this buyout fund and I was
curious, we haven't talked about that, what this strategy will
be. Yeah.
So what you're referencing is? We launched something new called
DVP Forge, which is about fund. Yeah.
And at a high level, like, we believe, the way we succeeded by
being in great service to entrepreneurs and the
entrepreneurs that Everyone likes to talk about The
entrepreneur is you end up building?
Massey businesses, they become household names and they quote
unquote, go all the way with them.
And so these are like the Jeremy, stoppelman, he's still
running Yelp, you know almost 20 years.
After you started here, Toby looky who's still running
Shopify, almost 20 years after he started or Geoff Lawson and
not on. And I, by the way, we love
partnering with it goes out of burgers.
At it's a lot of fun. It's really rewarding and we
think we do a pretty well but they're not the only types of
entrepreneurs out there. And so, as we thought about our
mission to serve, Entrepreneurs, we realize there any types.
And now there's some types that were not yet ready or willing to
partner with. And so another type of
entrepreneur is the one who opens up the Taco Bell franchise
the Nogales franchise and they're also entrepreneurs are
not going to be the next to be geeky but they could go from one
chai's. Tajiri stores to five stores and
it's a really great business and there are other sources of
capital or partners that they can work with to do that.
But there's this other entrepreneur that we started to
come across more and more often in the course of our day jobs.
And those aren't murderers, who might Say a cloud software
company and we might have had a chance to meet them when they
were a two billion dollar Cloud software company for one reason
or another, it just wasn't a great fit and they're very
quickly and maybe there will be strapped or maybe there is a
little bit of money. And what we check back in with
them or they reach out to us two or three or four years later,
it's a fifteen million dollar Revenue business which is like
amazing. Like to grow your business from
two million to 15 million. Like that is no small
achievement but by the time it gets to 15 million in Revenue.
It's now growing a year, right? And so if you do the math and
even if 06 up a little bit, it takes forever to compound.
A business, at 20 percent per year from 15 billion Revenue to
get to what I'll call a venture scale outcome.
And so we tend to rule those out as potential fits for our
Venture Capital business because they can't have the kind of
Outsiders outcomes that were generally looking for.
But that doesn't mean you're not great businesses.
And in some instances, those Founders want a different set of
services and the ones that we offer as Venture capitalists.
As Venture capitalists were almost always a minute.
Ready investor. We provide all sorts of help
access to other Executives and a we know.
But as a minority shareholder where we think of it as invited
guests phenomenal it's your house entrepreneur.
We have all these things that we can bring over a chair, might
help you take your pick from them, will give you ideas and so
forth but were a guest in your house.
Hmm. Other entrepeneurs when they
enter certain size they may not walk to be the host anymore and
they may say gosh I built a business from nothing to 15
billion of Revenue. If I could put 10 or 20 or 30 or
40 million dollars in my pocket, that's the as a fortune, right?
I don't need to go for the billion-dollar outcome or I
might like to go for it with your help.
So, you best were, you take over and I want to stay involved or
maybe I don't want to stay involved and I and and maybe
I'll sell most of my stock or some of my stuff.
And that, if it, if you can help turn this into a billion dollar
Venture, I'll benefit even more, but I don't want to make it my
only, you're my main thing necessarily any More or maybe
you can help me recruit a new team or whatever.
And so, there's a whole bunch of entrepeneurs are in that
category. It's not the Venture model of
all that is essentially a software by, oh, and you'll
bring in operators, or your, we will, we will we have internal
folks, you have expertise in different domains.
They'll get deeply involved even more so than we will in a
venture business because we will own the company where were their
rent rolling shareholders? You will.
And by the way, I think it's really interesting to be a
controlling shareholder in one business went in Other business,
you're a minority shareholder because you know how a majority
shareholder wants to be treated, right?
If that's how you are all the time.
And so I think whether it's new, so I can't say we're necessarily
proven to be great at it. I'm really optimistic.
I think we understand. How would you treat a minority
shareholder? Is your partner because we're
usually wearing that pair of shoes, the biker.
She's and so it's a new initiative, we're really excited
about it because we frankly, the number of companies and
entrepreneurs who fit that sort of characteristics actually out
numbers. The number of companies fit the
classic denture characteristics. I want to build something
really, really big and take it all the way to the finish line
and we didn't want to just turn them away and say, Ray, sorry,
nothing for you. Here, we wanted to be able to
work with them to I wanted to end with an introspective
personality question. I'm a reporter.
Who's a dispositional e, skeptical and overtime, trying
to shed a little bit of that. I watched the bull market in
2021 and I laughed. People they you know next Bull
Run. I need to just be like sort of
Shameless like there are so many people who made a bunch of money
just like forgetting their Scruples like go even if crypto
implodes you could have made a ton of money there.
You could have made a ton of money on spax, just like being
like the booster in the good times.
Like, how did I sit that out? I was right there.
You know, I've seen Bitcoin so long, but disposition Ali.
It's like everything I'm against, and obviously, I care
about things, you know, beyond money.
But, you know, I did sort of set up in the beginning.
And this idea that you're someone who's optimistic about
technology, but sort of skeptical of some of the hype
and I'm curious. Yeah.
How do you keep your head when other people are losing theirs
or what sort of the practice of? How does one actually maintain
sort of both sensibilities at the same time?
It's not easy. And I honestly it's I think the
benefit of working with Partners is significant here because
there are so many things one Keep get excited about and my
personal style, or my personal taste is to try to find the
stuff. I have high conditioner
competition. The most people don't care
about. I don't like to go where all the
cool kids are or all the popular kids are.
I like to kind of go off in a corner of the playground and
find someone who's doing something over there.
That's really compelling that most people are prepared to
dismiss or aren't that. Excited about Partners, who are
much more interested in like like what everyone's talking
about and want to compete. Eat and chase after the most
exciting, things are conventionally exciting.
And for me, like the challenge is, how do you find something
that today? Nobody thinks is all that
interesting, but in three or four years, they will and you
managed to find an entrepreneur or get excited about an idea
before. And it's really rewarding when
you're Vindicated or validated in that way and actually think
most impressive results are returned.
Your companies are Founded when there's someone out of favor and
funded. When there's someone out of
favor and go back to your analogy about like wow I wish I
didn't have his Scruples and I are so loaded up on Bitcoin.
In 2021. The truth is that would have
worked well not interested. Why do you know I was writing
about it in 2014. Super skeptical.
Yeah that would work that would work and so but it's in some
sense. It's easier to jump on the
bandwagon for something in 2021 like everyone's doing right
hard. So it's not so it's also
honestly all a really useful exercise.
You guys is to write down what you really think at a point in
time. So if you wrote down what you
really thought about good for in 2014, it could look back on it,
I assure you, it would be different from what you think
about. We thought about Bitcoin in 2020
and today and that we tend to alter our memories, right?
Because it's like it's like I self-preservation check me to
have liked the thing early that we know is great today and to
have not like something early that we go.
Isn't so great today and is really hard to be truthful about
what you really thought. And so, one of the ways that we
do it is at best result. When we invest in companies, we
each specify how much money week personally, would want to invest
in a company. So that five years later when it
becomes really big, we can look back and like, oh my gosh, I
only read a five hundred dollar check, I wish I wrote a five
hundred thousand dollar check, right?
And you can't miss A Rambler that that shows up on like a
financial state, right? But having some way of keeping
yourself honest allows you to, in theory get better at these
over time because you're not working, you're marrying the way
most people do. Thank you.
Jeremy Levine. Thanks for coming on the
podcast. I really appreciate it.
Such a pleasure thanks for having me here.
Goodbye. Goodbye.
Goodbye, goodbye, goodbye. Goodbye.
Goodbye.
Goodbye, goodbye, goodbye. Goodbye.