科技业裁员潮涌、巨头冻结招聘、转向盈利与中期选举前瞻

David Friedberg (00:00:00): What the what are you wearing, Jason? Jason Calacanis (00:00:03): What? Oh, Uber had a big week. So this is the Uber Moncler crossover hat. David Friedberg (00:00:06): Oh, look at that. Jason Calacanis (00:00:07): And I also bought a Moncler shirt. David Friedberg (00:00:09): You bought that or I sent it to you? Oh, what? You got the watch and the mug? Jason Calacanis (00:00:13): Oh, you don't know about the Apple Moncler? Watch. Or the commemorative mug or the new tap. I don't know about the new neck tats that are coming from Montclair. Chamath Palihapitiya (00:00:26): It's actually a neck tat. Oh my god. David Friedberg (00:00:30): Oh, so good. Jason Calacanis (00:00:31): let's just say somebody got their be quit. I'm not saying that I got a David Friedberg (00:00:35): $100,000 Jason Calacanis (00:00:36): sponsorship, but we don't have a rule in the agreement about logo placement, do we? David Friedberg (00:00:43): Listen, Jake Hallif, anyone who's willing to sponsor you, every square inch your clothing will be covered in ads like a race car driver. Jason Calacanis (00:00:50): It is. Look. David Friedberg (00:00:51): You'd be, like, wearing a jumpsuit everyday. Jason Calacanis (00:00:53): These these, you know, Moncler sponsorships are great. David Friedberg (00:00:55): This is David Friedberg (00:00:55): $55 Jason Calacanis (00:00:57): plus $17 of shipping from France on its Etsy. I'm ready to go. David Friedberg (00:01:03): What Warner's ride. Rainman David Sanders. David Friedberg (00:01:09): And it said We open David Friedberg (00:01:18): How was everyone's week? What'd you guys do this week? Jason Calacanis (00:01:21): Just busy working. Try to be helpful where I can. And that'll be the extent of my comments today. Chamath Palihapitiya (00:01:27): How is Market Street this time of year? David Friedberg (00:01:29): Look. There's all sorts of wild I've gotten all sorts of inbound from people asking me if I'm, like, leaving Craft Ventures to do something at Twitter. No. It's not true. We're just Jason and I are just pitching in and helping out while Elon establishes his permanent team at that company. Elon's the CEO. He's running it. He's the decider. He's making the decisions. And some of us are just kinda helping out in any way we can, and that's really the extent of it. It's a, you know, very much part time thing. We're just helping a friend. But it's been, like, blown up by the media to something much more than it actually is. Jason Calacanis (00:02:01): It is a 100% accurate. I am still doing my day job. podcasting, investing in a 100 companies a year, just helping out on the margins. That's it. The end. David Friedberg (00:02:10): I do wanna try talking about one issue that's already public. because it's already been tweeted. So Elon had a tweet this morning about how there's now like an advertiser boycott going on. And this falls on the heels of a bunch of reports that came out over the last couple of days. That's supposedly there's been a big influx of, like, racist tweets. And Jason I actually saw what was really going on, which was it it's all not true. I mean, what happened is that within hours of Elon, taking over the company on Friday, there was a 4 channel attack where basically people from this message board created bots to post 100 of 1000 of spam messages that contain racist words and epithets. And within hours, this has been detected and Yoel, who runs the the trust and safety implementation. He met with me and Jason, and Elon directed him to shut it down. and he you all actually posted a tweet somewhere about it. That's the only reason I feel comfortable talking about it is because you you all already most of the Tweet storm, but maybe people don't haven't seen it or they haven't connected all the dots here. But what's really, I think, unfair about this is that as you've have you seen, it's not like your feed was all of a sudden filled with racist things. These were spam accounts or bot accounts. that we're posting to 0 followers. They generally have 0 followers or if they do have followers, it's other bot accounts. Right? So they're posting racist tweets into the ether so to speak. It's not degrading anyone's experience. It was shut down promptly. But then what happens is these activist groups they're monitoring the fire hose. Right? And so they published a report saying that racist tweets have gone up 500% since Elon took over Twitter. The truth is Elon hasn't even had a chance to change anything about the content moderation policies. He's posted that. Like, I guys, I haven't even I haven't changed anything about content moderation. David Friedberg (00:03:59): Whatever the rules are, they're the same rules that existed prior to him taking over. And this is just an organized operation by people who want to create that report. So then these activist groups basically publish this report. They feed it to news outlets. And then somebody then takes those reports and then feeds them to advertisers, and you get a boycott. But I think the the point here is that Elon didn't do this. This is being manufactured by people who are not operating in good faith. They are trying to manufacture an incident that they can then use to hurt the company. Jason Calacanis (00:04:32): Yeah. And it was thwarted immediately and fixed. Chamath Palihapitiya (00:04:34): Have you guys seen episode David Friedberg (00:04:36): 333 Chamath Palihapitiya (00:04:37): of The Lux Freeman podcast? He he interviews Andre Carpathi who is really I mean, one of the great minds of our of our time, particularly around AI and ML. And the question that Lex asked which Andre expounded on which I think is really interesting is what is the next generation of bots look like? And I think where the problem gets very hard for all platforms, so this is not a Twitter specific discussion is that you can now generate such real life like human images that are unique And you can also generate high quality text to things like GPT 3 that's also you know, that can essentially push the boundaries of, you know, a low level Turing test. I think the real problem over time for bots for spam, for coordinated attacks on any platform is that when you use these tools, you're gonna have to become very sophisticated in how you try to detect them and then to block them. It's a really interesting discussion between, you know, 2 pretty meaningfully smart people. Jason Calacanis (00:05:47): Koprafi was the head of Autopilot at Tesla. Right? Autopilot vision. Yeah. So he's really smart. Yeah. David Friedberg (00:05:53): I have no doubt that Elon is going to do a much better job stopping bots on Twitter once he has a chance to do it because he's got this amazing team of AI engineers and and he's just gonna be more focused on it. David Friedberg (00:06:08): You know what I like the most about about what I heard this week is the idea that you can do either micro payments or subscription to 3rd party content providers because I think so much of my news feed is delivered to me through the Twitter app. and then I click on a on an article, and then it's like a paywall, or it's some sort of difficulty in kind of accessing the content. Having some integration there or some ability to kind of make micro purchase to read an article is gonna be, I think, a super feature. Chamath Palihapitiya (00:06:35): The other thing that I would love Twitter to experiment with is if you have a micro payments model to publishers, It will be great if you could publish content without a byline. I'll add The Economist and see what that does to information quality. Right. You know, if you if you if you do not get any credit to your individual name for writing stuff, but instead it goes to the masthead publication, whatever it is, the times the post, I think it could have a really important behavior change in how journalists cover the news. worth experimenting with at least. And if you're paying them enough money, I think that you could probably demand that. Facebook could probably demand that today. you know, strip the byline away and just it just says New York Times. Just like today, it just says The Economist. Jason Calacanis (00:07:17): Yeah. It is a the Economist is a very polarizing gig in journalism for that reason. There are going to be actually a lot of journalists who would prefer to have their byline taken off. One of the problems with journalism today is even if you're doing reporting in good faith, Jamal, and you put your byline on there, harassment, you know, threats, etcetera, can become very cute if you're just covering certain topics. And so I actually think a lot of you know, writers and journals would opt into this. They might prefer it. Chamath Palihapitiya (00:07:47): I think they should because I think the two ends of the spectrum are better than this you know, gross middle that we have. The end of the one end of the spectrum is you have the New York Times, The Washington Post, and The Economist with no byline and no attribution to reporters. The other end is if you wanna build a brand that's based on your name, go start a substack. Yeah. And I think that there's a very good balance there. And and the New York Times could syndicate that as well. But if you separate the 2 all of a sudden, the news becomes more likely to be truthful news versus, you know, well disguised opinion. Jason Calacanis (00:08:19): The the other issue is, you know, for readers, if you do choose to do a no byline publication, you really get any time to build trust and for people to understand what you're doing. because they will think you're taking the byline off in order to pursue a certain agenda. Right? So that is the the that is the suspicion that can build up. The Economist has been able Chamath Palihapitiya (00:08:36): to do this over decades with trusted reporting. Yeah. And substAC proves that you can have no reputation whatsoever. And if you're publishing great content, you can build a great business from scratch. So, you know, you don't need to you don't need to pay your dues, quote unquote, by getting a byline at The New York Times to be a clever writer. You can start that business today and get paid. So I think the New York Times should just focus on being the New York Times. And Substack should focus on individual people. And I think if you could clean up the middle. That would be much better for all of us. Anyways, I'm excited for you guys to help out and pitch in. I hope you guys do some good with it. I'd love to come back and use Twitter more often. David Friedberg (00:09:12): Can we talk about the reporting that happened with the two guys that trolled the journalists and pretended to be fired employees because I actually thought that was such an interesting moment this week that all the journalists immediately parroted it because it fed their narrative, Chamath Palihapitiya (00:09:28): but there was no back David Friedberg (00:09:29): checking done. There was no reporting done. And then several of them, including, I think, Dear Grabosa from CNBC came out and publicly apologized for that report. I mean, folks listening aren't familiar with what happened. These two guys came out. They pretended to be fired Twitter employees on Monday, walked out with a box, held one's funnier, a And they were like, hey. Like, we just got fired. It's terrible. Like, it's awful. Chamath Palihapitiya (00:09:51): No. It's even worse. David Friedberg (00:09:52): -- David Friedberg (00:09:52): husband and wife. You know? Chamath Palihapitiya (00:09:54): The guy's name was one guy's name is Rahul Ligma, And the other guy's name was like Mike Johnson. So the whole thing was Ligma Johnson. So I now here's what's so funny about due diligence. Hold on. I read this story without giving away that punch line to my kids. All my kids immediately started howling. They're like, dad. If you say these two names are Ligma Johnson, and I was like, oh my god. And so, you know, when when, like, you know, pre teens can figure this out, But the journalism industry could not. It's kind of a very telling sign. David Friedberg (00:10:27): Freeport made the key observation, which is they didn't figure it out because they didn't want to because it fit their narrative. Jason Calacanis (00:10:31): So they David Friedberg (00:10:32): don't they don't fact check things that fit their narrative. David Friedberg (00:10:35): This was my point about journalism. I it just it was so poignant to me this week when this happened. particularly as it relates to Twitter and the importance of, call it, open journalism or citizen journalism and the integrity of kind of, you know, of the voices that we all kind of trust as our our kind of journalistic authorities that these guys came out, and they were conned right outside Twitter's offices into telling a story that fit their sensational narrative, and it was really a kind of poignant moment for me. David Friedberg (00:11:02): Would you remember that story? I think it was originally in Rolling Stone, and then Rachel Maddow amplified it where it was in Oklahoma City where supposedly all these MAGA Republicans were eating horse pace because Trump told them to. And they were and this is basically they thought it was like a COVID therapy. And then they were going to the emergency rooms of all the hospitals. And then they were turning away, heart attack victims because there are so many of these these people going to the emergency room. Anyway, it all turned out to be, like, a made up story like a hoax, but the media reported it because the story was too good. Right? It just it fit too many of their preconceptions. to me -- Well, Jason Calacanis (00:11:34): there's also one there's another vector sex, which is live coverage is you know, you really have to be careful because when doing live, people will in and say, oh, they're at the scene of an accident. And then they will do a babababui or whatever, you know, kind of charades. And so without fact checking and without saying, hey, we haven't confirmed this yet, but these 2 employees are claiming this. People want to get real time coverage. it's fine to do real time coverage. I think everybody in the audience has -- -- giving them Chamath Palihapitiya (00:12:03): so much credit. What about the company editor? There was a picture, and it said Ligma Johnson the copy editor. Jason Calacanis (00:12:09): When was the worst one made? Chamath Palihapitiya (00:12:11): No. That is so lazy. David Friedberg (00:12:13): Why are you covering for these people? Jason Calacanis (00:12:14): I'm not covering. I'm just trying to the David Friedberg (00:12:16): point at no. You're gonna see the point. -- Jason Calacanis (00:12:18): unpack the whole point. Let me unpack the whole point. There's also David Friedberg (00:12:20): -- You interrupted me. Jason Calacanis (00:12:21): Well, here's the thing. There there is a different standard for live news coverage, and then there we've ripped out fact checking from a lot of these publications. And basic fact checking and a little bit of time, I'm explaining why they make this mistake. I'm not protecting them. David Friedberg (00:12:33): You wanna know Jason Calacanis (00:12:33): what reason they make it That that's part of it, but they've also ripped out fact checking, and then they are in such a race to get the clicks on social media. David Friedberg (00:12:41): No. No. Here's what's going on. If the story fits their priors, they run with it immediately and they don't do any fact checking because they don't wanna know that it's not true. That's what's going on. There is Jason Calacanis (00:12:51): an element of that. Yes. David Friedberg (00:12:52): -- check a story if it's a narrative they don't like because they're gonna make they're gonna try and make sure it's not true. Jason Calacanis (00:12:57): Yeah. That's true of both sides. And they'll use proxies as well. David Friedberg (00:12:59): this thing. There's only one mainstream media. This is the mainstream media. Who's the alternative? What's the alternative? Jason Calacanis (00:13:06): Fox is the the the number one you want network. David Friedberg (00:13:09): The alternative to the number one networks -- -- by the way. -- the number one. You think substack journalists do this? Tell me the writer on tell me the writer on Sub Stack -- Well, then there's a there's Jason Calacanis (00:13:18): a lot of different ones there. So I'd -- Who David Friedberg (00:13:19): got fooled? What substACK writer got fooled by Ligma Johnson? Jason Calacanis (00:13:22): I'm not David Friedberg (00:13:25): defending it. I'm not defending it. Jason Calacanis (00:13:26): I'm not defending it. David Friedberg (00:13:27): I'm explaining it. Jason Calacanis (00:13:27): I'm explaining. David Friedberg (00:13:28): Matt Taidebi gets fooled by Ligma John and I don't Jason Calacanis (00:13:30): think so. I'm not defending it. Don't make me defend Legma. I'm not defending Legma. David Friedberg (00:13:36): We're post siding it. Jason Calacanis (00:13:37): I'm not criticizing it. I'm telling you what is happening in journalism today. They have ripped out fact checking, and they are in a race to beat each other because the first person to get the story up gets a click. They tried to create a story. David Friedberg (00:13:48): They tried to create a story when there was no story there. Jason Calacanis (00:13:51): They agree with that as well. They went and David Friedberg (00:13:53): camped out outside of an office, mid market street -- Yes. David Friedberg (00:13:55): -- David Friedberg (00:13:56): and they said, hey. There's this sensational thing happening, and there was no sensational thing happening. Correct. And so the little drop that fell into their laps, the little thing that fell into their laps became the story David Friedberg (00:14:06): -- David Friedberg (00:14:06): Yes. -- because that's the story they wanted to see created. There was no story beforehand that then that there were all these people being fired walking out with boxes, and then they said, let's go send live TV producers down there. sent the live TV producers down there. They they did the same thing with Manifin. Jason Calacanis (00:14:20): They they did the same thing in New York at Baiercer than David Friedberg (00:14:23): -- -- Jason Calacanis (00:14:23): the cover. When they had other major layoffs that bear serens and stuff like that during the financial crisis, of course, they're saying people to do life coverage there. Not defending it. I'm just explaining to you what's going on in the background as well with live TV and and the gutting of newsrooms and having no fact checking. A lot of these stories go out. Chamath Palihapitiya (00:14:38): But what about the copiers? David Friedberg (00:14:39): -- Chamath Palihapitiya (00:14:39): ago, they used to have pocket checking. My seven year olds and ten year Jason Calacanis (00:14:42): old kid are some better Chamath Palihapitiya (00:14:44): copi editors than these adults at these David Friedberg (00:14:46): -- Chamath Palihapitiya (00:14:47): It's crazy. -- incredible publications. My kids started howling they were like, dad, do you understand what you just said? It'll lick my jaw. Jason Calacanis (00:14:54): I mean, also, I mean, Chamath Palihapitiya (00:14:55): come on. This is, like, prepubescent humor that these people fell for. It's a -- Yeah. It's ridiculous. It's embarrassing. It's certainly embarrassing. A David Friedberg (00:15:03): 100%. It is embarrassing. And this connects with a 4 chan board. It's the same problem. This is a grievance industrial complex. Right? They're manufacturing grievances. It's funny in the case of Lakeman Johnson. It's not funny in the case of the 4chan board. But these are people who are inventing stories because they there's a certain narrative. Yeah. To manipulate media because they know it's so easy to manipulate the media. Chamath Palihapitiya (00:15:25): Right. Anyways, big shout out to Rahul Ligma. That was a great stunt. Well played serve. -- to be Jason Calacanis (00:15:30): a huge fan of the all in podcast, apparently. Well Chamath Palihapitiya (00:15:32): played serve. David Friedberg (00:15:33): Well, come on as a bestie guestie anytime he wants. Jason Calacanis (00:15:35): Oh, no. Chamath Palihapitiya (00:15:36): Well -- Definitely not, please. -- well played. Jason Calacanis (00:15:38): Alright. We should talk about layoffs and tech lift 13% RIFF 700 employees like our yesterday. Stripe, 14% RIFF, a 1000 employees, Opendoor Chime, Dapper Labs, all hundreds of employees, Open Door are the most significant. They're David Friedberg (00:15:53): 550, 18%, Jason Calacanis (00:15:56): Dapper 22% in Twitter, we'll see what the riff winds up being, but that's occurring as we're taping here. So Chamath Palihapitiya (00:16:02): And then Jason, Apple did a pause. Amazon did a pause. Right. Jason Calacanis (00:16:07): And Google and Facebook have David Friedberg (00:16:10): -- Chamath Palihapitiya (00:16:10): I think possibly. Jason Calacanis (00:16:11): Yeah. Maybe trying maybe signaling a pause, but haven't. They've been hiring like in absolutely at an crazy pace, and we'll pull up the chart here, actually. It's instructive to look at Facebook and Google because they have not slowed down by any stretch of the imagination. Just by the raw numbers, this all started to peak in June, and now it's starting up again. So There's a website layoffs.fyi that's been tracking all these layoffs. You can see the number of layoffs, these are kind of major layoffs, and the number of employees impacted. Been pretty consistent in the 3rd quarter. It started to die down in September. from the peak in May June. And now -- Well, this is gonna spike this month. Chamath Palihapitiya (00:16:55): Right? Jason Calacanis (00:16:56): Yeah. It feels like this is the double dip we were talking about. Chamath Palihapitiya (00:16:58): I think this is the beginning. This is not even -- Unpack it. Well, I think that we had if you take a very balanced view of what happened this week, you have to start, I think, with the Federal Reserve and really what they said is rates will probably be higher than all of you think and they'll be higher for longer than all of you want. And again without debating whether, you know, that's gonna come to pass or not, the thing that you can do is you can build a little sensitivity model to understand the mathematical implication of it and basically what it means is that the dollar that's right in front of you is now meaningfully more important than the dollar that's far far away from you. So let's just assume that, you know, the fed funds rate goes to 5 a half percent or so, even 5. Let's let's let's go to the optimists and say it's only gonna go to 5. Tech Companies have to achieve 500 basis points above that minimum. So we all have to generate 10% to 11% returns for us to be on a risk adjusted basis better than a government bond. The problem with that is all of a sudden, you know, if you're trying to generate cash even 3 or 4 years from now, it's not worth that much. You need to generate dollars today. And so you know, they are really reprioritizing the value of short term profits. And that's gonna affect how companies get money, the cost of capital, so how much dilution you have to take. So I think this is what companies are now bearing down for. They're realizing, oh, man. I need to get my cost structure way in line. It is way better now just to think about this contrast. It's way better to grow at 20% and be profitable than it is to grow at a 100% and burn money because it's not clear where that second company is gonna get the incremental dollars they need for growth. And that's just a mathematical realization when rates are David Friedberg (00:18:53): 5%, Chamath Palihapitiya (00:18:54): risk free rates are 5%. Yeah. I think David Friedberg (00:18:55): this is this is that moment where you see that pivot from David Friedberg (00:18:58): -- David Friedberg (00:18:58): Pivot. -- growth to profit. Yep. Jason Calacanis (00:19:01): Yep. You know, we've talk David Friedberg (00:19:02): we've been talking about it for 6 months, but This is this is this is how it is manifest in Silicon Valley Companies is of scale is through layoffs and cost reductions and and cost savings. So the investments in future growth are reduced and the timeline to drive greater profits. is improved. I think what if what Elon is gonna do at Twitter or what is reported, so this has nothing to do with anything anyone told me just what I've read in the reporting is accurate that he's gonna cut so deep. He's gonna cut David Friedberg (00:19:35): 30, 40, 50% David Friedberg (00:19:37): potentially of the employee base. it really sets a new standard for how profitable a tech company can get. And, again, I'll give credit to a a Twitter poster named post market who I didn't give credit to a few weeks ago. When I read this tweet, which I think was a good one, which was that Elon's really gonna show everyone just how profitable these tech companies can be, just how lean they can be run. And, you know, when you're doing a 10% riff or a David Friedberg (00:20:03): 13% David Friedberg (00:20:04): riff, you may or may not even be getting to profitability with that riff. When you cut 30, 40, 50 percent deep and you can actually turn a real profit on a business and enterprise scale business like a Twitter or like many other enterprise software companies that are out there right now, it really kind of sets a new standard that a lot of folks might then end up saying, you know, what maybe we should go deeper. And there could be the case that private equity firms take a look at this, and there's a lot of these distressed mid cap and small cap software companies out there. that private Equity Firms now realize, wow. You don't actually need 50% of the workforce in order to keep the product running and to drive to profitability. and you could see a bit of a flurry of buyout activity as more folks come in and maybe try and mimic the Elon playbook. So, you know, that's one kind of prediction I think may arise. If Elon is successful in making Twitter a much more profitable enterprise, it could set a new model that catalyzes a lot of other m and a activity, a lot of other buyout activity of these distressed small and mid cap companies. by by other actors. Chamath Palihapitiya (00:21:08): Can I build on what you're saying? Nick, could you please just throw up that tweet that I sent just for all of these guys to look at? because I think it's incredible. So to your point David Friedberg (00:21:16): -- David Friedberg (00:21:16): This is an incredible Chamath Palihapitiya (00:21:18): slide. This is an incredible slide. And, essentially, what it shows for those folks that are not watching this on YouTube is It essentially shows the private software universe and then the public software universe at different levels of valuation. So as an example, right now, there are David Friedberg (00:21:35): 15 Chamath Palihapitiya (00:21:36): companies, private companies that are valued greater than David Friedberg (00:21:39): $10,000,000,000. Chamath Palihapitiya (00:21:41): And there are 40 public ones that are valued greater than 10,000,000,000. There are 50 companies between, you know, more than 5,000,000,000, but only 60 that are public that are valued more than David Friedberg (00:21:53): 5. Chamath Palihapitiya (00:21:54): And here's what's crazy. There are 400 companies who have an average valuation of 3,000,000,000. And then there are already 70 companies in the public markets where they have a 1,000,000,000 dollars of next 12 months of revenue. And it just goes to show you to your point, Friedberg. If these folks have to generate an 11% hurdle rate, their cost of capital is David Friedberg (00:22:19): 11%. Chamath Palihapitiya (00:22:21): The companies on the left will have to go through a lot of very difficult cost cutting, potentially headcount reductions. you know, repricing of the product, all kinds of things. And many of them have. Yeah. No. Not none of them have. Jason Calacanis (00:22:37): Oh, of these? I and many of these are in the playoff tracker. Yeah. On the left. Chamath Palihapitiya (00:22:40): Right? 400 there there there's almost 500 companies here that have to do an enormous amount of work so that they have a chance to be on the right hand side of this chart. The the the point is that you didn't have to do this when rates were 0. There was just an abundance of free money and risk seeking and duration that is now out of the market. David Friedberg (00:22:58): Jamath, I think there's also a story that of the 200 companies that are software public software companies that you see on the right. Some number of them will need to go pry it in order to do the restructuring that the market is demanding that they do in order to get rightly valued. Chamath Palihapitiya (00:23:12): And to your point, it will happen at meaningfully lower valuations than where they probably went public or their last drive around. Which would -- So what do David Friedberg (00:23:20): you guys as you guys see enormous pressure -- Yeah. Chamath Palihapitiya (00:23:22): Yeah. David Friedberg (00:23:22): As you guys look at these David Friedberg (00:23:23): 200 David Friedberg (00:23:23): companies on the How many of them do you think go private over the next 18 months to get restructured? I'll what Elon is doing everyone is possible with Twitter. David Friedberg (00:23:33): 18 Chamath Palihapitiya (00:23:33): is 18 months is hard to predict, but to your point, Friedberg, I think if you look at the number of them that are unprofitable, At least half of them will have difficulty. And about so I think about 2 thirds of these companies really have no line of sight to profitability in the next 2 to 3 years. And again, if you if you layer in this cost of capital argument, all of those companies, David, will have to raise money at very egregious terms in order to keep themselves going as a public business. In which case, their alternative is to go private in a PE transaction. So it's probably at least half these businesses. I mean, it's a lot. Do you David Friedberg (00:24:12): think there's a 100 PE deals to be done? Yeah. A 100 by wow. Saks, what do Chamath Palihapitiya (00:24:16): you think? David Friedberg (00:24:17): because you know these businesses and the models. I mean, some of them, it's hard to get profitable if you're scaling SaaS business. Right? Like, You have to get to a certain scale before it's possible. David Friedberg (00:24:26): Well, I I don't I don't that's like a very specific question of, like, how many of them are gonna get acquired by PE Firms versus going public or going private after being public. That's that's like a very specific question. I think the larger point is just that it feels to me like the economy's headed off a cliff right now. I mean, I can tell you within our larger portfolio of companies, like, I can see the trajectory. So after q 1 board meetings, I would say about 2 thirds of portfolio companies were hitting their numbers and 1 third were missing, and it still appeared to be, like, problems related to those specific companies, not a macro trend. I would say after q 2 board meetings, 2 thirds were missing, and 1 third were hitting their numbers, and it you could start to feel, okay, maybe there's like a macro trend here. And I would say after q 3 board meetings, like, now, the the entire portfolio is is reforecasting. Maybe there's, like, a handful of companies here or there that aren't if you're one of those, congratulations. But, like, even the best companies in our portfolio now are seeing major headwinds. And this is just, I think, an economy wide slowdown. David Friedberg (00:25:31): Do you think there's restructuring possible? I mean, can these companies David Friedberg (00:25:33): -- Well, they're gonna have yeah. Because -- David Friedberg (00:25:35): Let me let me just ask in the public markets. Do you think those public companies can get restructured as public companies in order to -- Yeah. David Friedberg (00:25:42): It just takes a will. Yes. Chamath Palihapitiya (00:25:43): Of course. It just takes a will. -- expensive. Well, it's expensive. I don't even think it's will. I think it's just expensive. Yeah. Like, look at Coinbase as an example. Like, look, take Coinbase versus Carvana. Right? These are both businesses that issued convertible debt sort of right before things got very, very hard. And if you look at where their convertible debt trades, it's trading basically at an implied yield of about 12 or 13 percent, both companies. Now one is probably, you know, a legitimate bankruptcy risk, which is Carvana. That's what the market would think. Whereas the other one, you know, I think it has a very fortified balance sheet and could weather the storm, Coinbase. But, unfortunately, in a moment where, you know, rates are again, the risk free rate goes to 5, 5a half, our cost of capital to do business goes to 10 or 11. These guys have to pay 12 or 13%. My gosh. It's really, really dilutive to be in business right now. So it just goes to show you that you can stay public, but if you wanna get incremental money to cover your burn, the only way you can do it without really blowing up your cap table and doing a massive recap will be through convertible debt, but it has a huge overhang and you risk turning the keys over to the debt holders of the company. So the alternative for that business is to go into the hands of private equity. and get out of the spotlight of these public markets. But public private equity is very smart And the thing that's happened to them is they can't raise debt. Right? David Friedberg (00:27:17): Right. Chamath Palihapitiya (00:27:17): So what do you think they do? They just have to pay 50% less than what they would be willing to pay before because they have to write You know, a 100% equity check. So David Friedberg (00:27:24): -- Chamath Palihapitiya (00:27:25): Right. David Friedberg (00:27:25): -- Chamath Palihapitiya (00:27:25): there is no free lunch anymore. I think is the big is the big point to to to point out anywhere in the market right now. David Friedberg (00:27:32): think one of the things I'm most concerned about or would be is I was talking with a friend who works at a private, you know, unicorn software company And he we talked about the the numbers of the business, and I was like, oh, that company's probably worth x, and I gave him a number. And then I asked him how much money they've raised, and they've raised more than x. So I was like, dude, your options are worthless. Like, you know, this is a real problem, I think, that's probably gonna become very systemic. for scaled unicorn software companies, what happens to these businesses, Saxx, in the market? You know, as they kind of need another round, but the value of the company is now less than the total cash that they've raised that all is sitting as preferred stock. David Friedberg (00:28:12): Listen. It's it's survival of quickest, those who are most willing to adapt the most quickly are gonna survive and the ones that are stubborn and refuse to accept the new regime the market regime are gonna die. We showed that chart. Remember that chart from Sequoia months ago on this podcast? Remember that where It basically showed what happens. If you're a company that doesn't cut burn until the very end, then you're still gonna run a money and die. But if you make the cut right away, quickly, you could you have enough runway to weather the storm. And I think that what we've seen is, you know, at my firm craft, yeah, this is exactly it. Yeah. We should this months ago, we've been begging our founders to embrace this. We did a a review with our entire set of founders of our portfolio companies. We did one in February when we felt the markets were changing, and we did another one in May, and we showed the slide. And this is the most important thing for founders to internalize is you have to make the changes quickly. You know, one way for them to think about it is let's say you're a unicorn company. Okay? and you raised at the peak, let's say, second half of twenty twenty one, you raised a $100,000,000 at a $1,000,000,000 valuation. And let's say you've got 50,000,000 left in the bank. Right? So you burned 50,000,000. A lot of these founders are thinking that 50,000,000 they've got left is only 5% dilution, but that's what it was historically. If you were to raise a new round today, you might only be valued at 250. So that 50,000,000 you have left is actually 20% dilution. And that's if you could even raise, which might be very, very hard. The most important thing founders can do is forget about the historical terms on which you raise that money Forget about how much money you were burning in the past. Just think about how much money you have in the bank today, impute evaluation to it so you really internalize how much dilution, that money represents and then create a new plan moving forward to preserve that cash as long as possible. Chamath Palihapitiya (00:30:04): Can I say something else quickly on top of that? That's I think that's really good advice. The thing that again people should do is you should just build a little spreadsheet for yourself to understand what the alternative financing options are for people who are in the business of investing. So David, to your point, the current 3 month table rate is 4%. You know, you can buy munis now between 4 5% that are that that are triple tax advantaged. Right? You can buy high quality corporate bonds that are David Friedberg (00:30:36): 6, 7, 8%. Chamath Palihapitiya (00:30:38): And so by stocks David Friedberg (00:30:39): that are that have a dividend yield of 5% of growth growing market leading companies. Chamath Palihapitiya (00:30:44): And so all of a sudden -- -- dividend yield. Exactly. And so all of a sudden, like, turning around and giving it to a company where there is no end in sight in terms of it doesn't get you to profitability is a really, really hard thing to do. I was talking to an entrepreneur David Solaf just yesterday and he said it really well. He's like listen, you know, I'm not a macro economist, I'm not trying to forecast but he's like what I Understood yesterday, this is David talking about the Fed, as an entrepreneur. The angle of attack has changed. The Fed has said This is not gonna be some triangle sawtooth. It's not gonna go up sharply and then come back down sharply, which is what we would all want if we wanted things to get back to normal sooner. The angle of attack is now a little bit slower, which means it's gonna take longer to get where we need to be we're going to stay there for a lot longer than we want. And when you roll those two things together, a lot of companies may run out of money. And so, if you can't get to default to live, you have to look at your cost structure and figure out how to right size this thing because the cost of capital is just gonna be really, really expensive. Jason Calacanis (00:31:55): And this was the Fed's goal. Right? They they wanted to take away this free capital. They want to slow the economy down, and it's seems like they're making progress. They did the 75 basis point hike this week, but we're adding jobs to the economy. We have more job openings and we had 2.6 percent GDP growth. So I guess my question to the to everybody here is, what is the Fed gonna have to do? Or can they stop this consumer and this growth? Chamath Palihapitiya (00:32:22): It's very strange. Right? Powell Powell said he'd rather overcorrect and break things because he has a toolbox to fix the broken bones, but he doesn't have a toolbox to fix if they under correct and they have rampant inflation. Me not more explicit you can't get, Jason. So he's gonna take rates until demand is destroyed and enough demand is destroyed such that inflation is tamed, but that has huge implications to all of us because we all have to do our job, trying to build a company, trying to raise money, trying to invest money, it's just getting much, much, much harder than I even thought. So, like, you know, for me, I'm like, wow. I thought that we could get through the worst of this by mid 23, but now you have to plan for the worst which means, okay. Now I'm thinking that, man, rates could be higher, for much longer, which means, you know, we could be in this market till early 25. And you may say, hey. That's way too Conservative. Yeah. But you have to plan for conservatism in this point. So how do I invest money right now? Honestly, I'm like, I should just put it more into t bills. Isn't that crazy if a company like HMO can have another 10, 15, 20,000,000 bucks? I'm like, wow. I mean, I don't think that that gets you anywhere. and, oh, by the way, that 10 or $20,000,000, I can generate David Friedberg (00:33:39): 4%. Chamath Palihapitiya (00:33:40): What a what a tough trade off. Right? Jason Calacanis (00:33:42): For well, for somebody who has access to private markets, which should be high growth companies to take the guaranteed 4 over the 50 x, 25 x, 10 x, whatever we're trying to bet on here, Yeah. David Friedberg (00:33:54): Well, it's not it's not just the guaranteed 4. But if you wanna take tech risk, then you could go buy the corporate bonds of some high quality companies for the 10 or 11%. So you take moderate risk. you're also competing with that, not to 0 risk. Jason Calacanis (00:34:05): Can you explain that for the listeners what that corporate debt is and why it, you know, pays more money? David Friedberg (00:34:09): There are there are you know, high quality public companies, tech companies that have bonds, and that's corporate debt. And they obviously have to pay a higher rate than what the treasury pays because the treasury is is risk free, and corporations could default. So there is some risk to it. It's not zero risk, but You know, it's like if you're willing to take tech risk, then why wouldn't you buy a bond at 10%. Meaning, the equity always has to beat that threshold return. But but hey, can we just go back to the jobs report for a second? David Friedberg (00:34:38): I mean, the US government could default, but it's considered the least likely to default of all issuers of debt in the world. And that's why -- Yeah. Chamath Palihapitiya (00:34:45): I mean, they David Friedberg (00:34:46): they they control the printing press. David Friedberg (00:34:47): So -- Yeah. That's why people call it the risk free rate. because it is the least risky. David Friedberg (00:34:51): The US can always repay its debt because the debt is denominated in dollars, and the treasury can always at the end of the day print more money. That would just be monetizing the debt. Other countries that owe money in dollars and obviously don't control the US Mint, they can't do that. So they could actually default. But Since we're the world's reserve currency, we're never gonna default. However, the dollars that you get paid back by the US government might be worth a lot less in the future because of inflation and that's the real risk you have to think about. But there's no default risk. Right? Whereas with corporate debt, there is. But let let's just go back to this the the Jaws picture for a second. Jason, you asked about this. So there is news this morning that we added 261,000 jobs in October and obviously given that there's an election. in a few days, then, you know, the administration is eager to point to this. But if you dig a little deeper in the report, I just posted the link there. you see in the raw numbers that there's actually 328,000 fewer employed Americans. And the number of unemployed Americans actually increased during 1000. So and the labor force participation rate declined for the 3rd consecutive month to 62.2%. So Like, I don't really understand, like, how all these numbers add up. But the point is, like, the data is very mixed, our new and it and this -- Very -- -- definitely negativity in there. And it just feels to me like the last gasp of the bull market where there's, like, this residual job creation. But you look at, like, just what's happened in the last week where it's Stripe cutting. I mean, Stripe's probably the single highest quality. I think it's probably the most valuable private companies Chamath Palihapitiya (00:36:26): Silicon Valley. No SpaceXs. David Friedberg (00:36:28): Oh. Well, SpaceX. Okay. But but like software pure software company, they had a 14% cut. You're starting to see now the rifts really start to pile up. So I think we're at the beginning now of a long cycle of the unemployment rate going up. I mean, it just feels like the economy is slowing so fast. The markets are you know, they've been puking now for 6 months. It just feels like this is the beginning of a, like, really serious recession. Jason Calacanis (00:36:54): Yet we had GDP growth. Yet we had job openings increased. David Friedberg (00:36:58): -- we quarters we had 2 quarters of net negative GDP growth. This is when we had the debate about what our recession is. It it was true that if you looked at growth in nominal terms, it appeared strong and then it was net negative once you subtracted the inflation rate. You know, we said several months ago, or my prediction was a double different session where you had this shallow technical recession, then it bounced back in q 3. But now I think we're headed into the second part of it, which is the real recession. A recession characterized by joblessness. And you're starting to see economists say we're gonna go from 3 point something percent unemployment rate to say 5 or 6 percent unemployment next year. So I think we're just beginning to see the the drop cuts start to add up. Chamath Palihapitiya (00:37:40): This is I think this is what Palomot, which is, you know, he'll take it as far as takes, and then he can fix it on the back end by reintroducing, you know, quantitative easing and reintroducing lower interest rates to stimulate demand. But there David Friedberg (00:37:56): is What are the odds he gets this right? It seems to me that the Fed has a habit of reacting too slowly. They were too slow to react to inflation. My guess is that they'll be too slow to react to the recession. So we'll end up with a period of rates being higher than they showed too long And then they will correct. They'll drop rates, but that could be 2 years from now. And meanwhile, we could be in a pretty deep recession. Chamath Palihapitiya (00:38:18): I think Jason Calacanis (00:38:18): you're probably right. -- charts. free to look at the GDP by quarter, and then after that, the labor participation rate. So there's your GDP. q 1, q 2 being negative, q 3 bouncing back. We'll see what happens in q 4. Not the mile. Here's your Fred Force participation rate for labor as we discussed. Chamath Palihapitiya (00:38:35): The thing with the labor participation rate that we're still not sort of, like, truly factoring in is, like, you know, we had a 1,000,000 Americans die because of COVID. And you know, starting in that Trump presidency, we lost like 7 or 8,000,000 immigrants. So those 8,000,000 people have a huge effect on this number. Yeah. Right? And it's not properly really factored in because if if if you see that at the start of the Trump presidency, it's just it's it just fell off a cliff, basically. Jason Calacanis (00:39:00): And you also have people who retired early. That was a big trend. And this all peaked in 2000 labor participation hitting that, like, 67, 68%, I think is the peak. and just slowly going down as boomers retire early because they made so much on their 401 k's and homes. And then you're you're right, Shamalff, we've had negative. We we've really cut immigration in the last, whatever, 5, 6 years. David Friedberg (00:39:23): I think there's an element in here that's missing on how much people individually are finding other ways to earn income. That doesn't qualify and show up in the labor force numbers, people have set up Etsy stores, Shopify stores have tripled since COVID. People are making more money on YouTube, on Instagram, on TikTok, than ever before, there's a whole new class of work that revolves around the individual creating their own business, creating their own income stream, that simply taken off. And that's taken off, it was it was kind of a trend pre COVID, but it really took off during COVID. And there's an element of this that's really more about the transition of how people work and how they earn that isn't reflected in these numbers. I don't think that the idea that everyone should go be an employee at a company is necessarily the right way to think about labor going forward. The the amount of money that individuals are earning is probably the better way to frame this to up going forward and as really thinking about their earning power and the economic health of this country. Jason Calacanis (00:40:25): This is something important you're bringing up here. Gig Workers are about 9% of the workforce. And Uber and Dara had they they grew over 70% this year, but I think the big number that I watched for was Drivers are making $36 an hour in the United States working for Uber. So you're exactly right. People are finding other options whether it's DoorDash, Uber, David Friedberg (00:40:46): And that doesn't qualify in labor force. Right? Because they're Jason Calacanis (00:40:49): independent contractors. Independent contractors are counted. David Friedberg (00:40:51): Yeah. They are counted. Jason Calacanis (00:40:53): I that's based on my preliminary research. If somebody wants to fact check us, that'd be great. But I my understanding is independent contractors, which is what gig workers are classified under are counted in labor participation. I don't know how they're counted. So we'll we'll look that up and figure that out. David Friedberg (00:41:09): There was a story in BBC that the Bank of England has now warned that the UK is facing its longest recession since records began. Some of this is getting to be fear porn. Yeah. But, look, here's what I think is scary about going into a recession is number 1, you don't really know how long it's gonna to get out. We know the average recession lasts about 18 months, but the truth is once it starts, you just don't know. And the second thing is you don't really know who's been stress tested. People claim that they can weather at the storm. But the truth is that there's no there's no way to simulate truly simulate a stress test. They claim they can. But the only way is to really subject, you know, an institution to that pressure and that stress. And then you see if they come out the other side. So that's the issue is you just going into this, it's there's there's all there's a lot of unknown unknowns. And and this is why I would just urge founders to be cautious is because if the recession ends up being shallow and shorter than people expect, great. You'll be surprise to the upside. But if the recession ends up being deeper and and longer than expected, you don't wanna go out of business. You wanna be protected against that. So Again, you know, we've been saying this since February May, but, again, I just reiterate. I think it really makes sense for founders to be conservative prioritize your survival above all else. You know, this recession probably will last about 2 years. You wanna make sure you survive it. And to Shamaz point, If you survive it with lower growth, that's fine. You can keep growing on the other end of this thing. But if you go out of business because you grew too fast, then you're not gonna get the chance to fix that problem when the recession is over. Chamath Palihapitiya (00:42:44): I just don't see anybody rewarding hyper growth that is burning a ton of cash where you have to be back in market every year because it's it's just very hard to feel comfortable that the conditions on the field aren't gonna be drastically different a year from now. Right? It's not like we know that it's gonna be better or worse. And I think that that uncertainty is actually really bad for companies. So to your point, it's just like a lot of folks have tried to shy away David from actually revisiting their valuations. They've done these complicated converts and they've they've tried to basically, you know It's I think it's sort of like managing their ego or the board's ego. And I think, like, the next shoe to drop has to be these founders and these boards just saying, okay. Let's just take the hard medicine. What's the real market clearing price and valuation. Let's get a third party to price it. And let's get new fresh equity and then move forward. Because if you don't do that, and you wait until everybody's trying to do it, then it's gonna be a really tough scenario. So better to your point, you know, this is why like Stripe It's so smart, better to cut now. Again, it's always hard to let people go, but it's better to do that now than 18 months from now. because you just have no idea how much more expensive or hard it's gonna be then and who's gonna even be in the business of lending money or investing money in 18 months. And, you know, that that sounds pretty crazy, but it's it's like I think that that's that's the moment that we're in. Jason Calacanis (00:44:15): To your point, Friedberg, I did a little research here and According to the Fed of Saint Louis, if you counted casual workers informal workers Over doing over 20 hours a week of informal work aka gig work, you would increase labor participation between a half point and a point, if you counted all of them, maybe even slightly more than 2 percentage points higher. So probably about a point seems like a realistic way to look at labor participation. And of the key points or maybe now the 6 or 7 points, the 10% it would then account for 10 to 20 percent of the 10% drop in labor participation. David Friedberg (00:44:56): It's just alarming statistics because if most people have most of their Personal net worth tied up in their home asset, and their home values are declining or gonna decline. And we're seeing this dramatic spike in consumer credit in the US, it paints a really ugly picture for the next 2 years. David Friedberg (00:45:16): Wow, guys. I'm just looking at I'm just looking at the markets today. GitLab's down 15%, Snowflake's down 13%, Monday is down 14%. David Friedberg (00:45:26): Atlassian's down David Friedberg (00:45:27): 30%. Jason Calacanis (00:45:28): In one day? David Friedberg (00:45:29): Yelp is down 17%. These are protesting. -- is down 16%. So it's just a horror. Oh my gosh. The cloud computing index, WCLD has hit a new low for the year. It's down to 23 bucks. I think the previous lowest 25 is down almost 8% today. And this is on a day in which the Nasdaq is down less than 1%. So The point is -- Chamath Palihapitiya (00:45:50): People are rotating out of growth stocks. David Friedberg (00:45:53): Yeah. It's just brutal. And so listen. If you're a startup founder, you gotta realize these are, like, some of the highest quality public Chamath Palihapitiya (00:46:00): Twilio's down 40% today. Jason Calacanis (00:46:02): Twilio is down 37% in a day. Today. Woah. Chamath Palihapitiya (00:46:07): But, guys, this is this is just math. You know? It's not a judgment on any of these companies. It's just pure math. This is why I think you have to be utterly unemotional in this moment. And if you're a if you're a CEO running a company, particularly a SaaS business, you have to really figure out how to how to right size your cost basis and make this David Friedberg (00:46:29): money last. Profitable industrial companies are David Friedberg (00:46:31): Bill Gurnley had a tweet a tweet about this a few months ago about how the biggest mistake people make in riffs is they just do like a tepid riff, like a 10% ish riff they have to come back and they do it again, and they do it again. David Friedberg (00:46:43): This is what I think the the Elon action this week really sets a standard. He shows the entirety of Silicon Valley that you can cut deep and you can turn a profit and you can do it fast, and it could set a new standard for how folks are managing this. Jack Welch used to, in his management principles, recommend dropping the bottom 10% of people every year. And so, you know, the 10, 13% cuts don't really pass muster as a public market investor kind of looks at the the management across these different companies to turn a profit gonna say the folks that are making the deepest cuts, the fastest are the ones that are gonna get valued. It's unfortunate, and it's a difficult circumstance for everyone in Silicon Valley to deal with from the employees to the investors, to the public and private shareholders, it's really brutal. Jason Calacanis (00:47:25): One quick question David Friedberg (00:47:26): for you guys. Jason Calacanis (00:47:26): It's really David Friedberg (00:47:26): it's really just this kind of market motivation that's underway right now. Jason Calacanis (00:47:30): Here's the chart. And then my question for you is when do Google and Facebook stop this? I mean, if you look at the number of employees being added, It is truly extraordinary. Here's the chart, and this includes the latest quarter. So they are Not turning off hiring yet. What do you think you want? David Friedberg (00:47:49): Hold on. Didn't they announce a hiring freeze? Jason Calacanis (00:47:52): They announced that they were at Google, they announced that they were gonna hold people accountable to better performance, and they were gonna go do more with less, and then they added more people. Facebook said they would do a hiring freeze. David Friedberg (00:48:03): -- David Friedberg (00:48:03): percent today. Jason Calacanis (00:48:04): Yeah. Now Facebook said David Friedberg (00:48:05): it would do a hiring freeze. Can they address -- -- Apple? Well, Whatever. Jason Calacanis (00:48:09): They had a job last quarter. Yeah. David Friedberg (00:48:11): Well, you're right. They just announced a hiring freeze. You look at Apple. Apple just announced in non r and d functions of hiring freeze. This is Apple, like, the most valuable, most profitable company in the world. So if Apple basically is putting the brakes on non engineering hiring -- Yeah. -- that tells you something about how fast the economy is slowing down. I think that was a huge signal. Yeah. The point Friedberg makes is so correct which is If you're doing a riff, obviously, there's a reason why. But I think we we're seeing too many rifts where the details of the riff and the magnitude of the riff don't match up with what the objective of the riff is. The objective of the riff for a lot of these companies should be to get them cash flow positive or at least to put them on a runway or a trajectory where they can get cash flow positive with their existing cash on the balance sheet. Right? They won't need to raise money again. And we're seeing a lot of companies where they don't achieve that, and they have to come back again and again and hit it again, and that creates more more turmoil for the company, and it's more unfair for the employees. David Friedberg (00:49:14): By by the way, Sax, to that point, I'll just say how deep these companies are cutting and how quickly management is expressing to their shareholders how they're gonna turn a profit. becomes a signal for those shareholders on whether or not they wanna stay in that stock. And the companies that are doing it fast and are doing it deep, The investors and the shareholders say you do actually have a path that makes sense here. I'm gonna stay in the stock. Chamath Palihapitiya (00:49:35): Cash today versus cash in the future. Jason Calacanis (00:49:37): So Ralph, let me ask you a question in terms strategy for one of these companies, let's say, faith the Facebook corporation or perhaps even Google or Apple even. If they were to cut their expenses, which might take obviously a risk. And then because their stock prices are so depressed right now, maybe even a mid cap 1 like a a Twilio or an Uber or an Airbnb, they were cut costs and then start buying back their shares, which some companies have been doing. What would that do in terms of the market's appreciation of those stocks or management teams? Chamath Palihapitiya (00:50:08): I think it's hard to tell. I think that the if you have not lost investor trust, I think it would be really well rewarded. if you have become unreliable and undisciplined, even those cuts I think would be met with some amount of excitement, but but probably not a broad based support. So you know, then it just goes to narrative. Meaning, if Google did it, I think that people really trust Sundar and Ruth. And I think the stock would go bonkers. They would they would probably move very quickly into the echelon of Apple, and Apple is sort of a first among equals. Like, they're just they're just in a different class unto themselves. Facebook, I think, is a little bit harder because I think folks have gotten burned and you know, they would have to make some really, really deep cuts, but then, you know, where do you do it? You can't capitulate on this meta strategy. But then the other part is where you make all the money. And so you have this huge morale issue that you have to manage. So it's just a really hard game to play. David Friedberg (00:51:17): Just one more thought on on on the riff stuff. I think one thought experiment for founders is to think about what was your planned at the end of 2019. Why do I say that? Because 2020 2021 were 2 of the most distorted years ever in the history of financial markets and the economy because we had COVID. And then we had the reaction to COVID. Right? And so you saw there was this, you know, Zoom's market cap hit a 100,000,000,000, all the ecommerce companies. were doing extremely well. You've you know, you had all this money printing. You know, you had zero interest rates and so on. You had companies hitting all time highs at the end of 2021. So we live through this incredibly distorted time. So as a thought experiment, go look at what your plan for 2020 was supposed to be when you created it at the end of 2019 because that was the last time that you were thinking without any distortions you know -- Right. -- that were then created. And I think if you were to go back and look at your 2020 plan, again, created at at the end of 2019, you'd probably see that you could get by with half the headcount you have now because probably you doubled your headcount during the last 2 years during these heady, heady times. And yet, I think founders start thinking, oh, I can't go back to operating you know, I can't operate at half the level of headcount, but you were you were operating with half the level of headcount. By definition, that's some earlier point. Chamath Palihapitiya (00:52:38): I also think sometimes I think what founders say is what will people think if I cut 50%. Meaning, all of a sudden, the perceived success of my business would be different. And I think that this is where you have to realize no. Like, there's a lot of ego tied up in these things which slows people down from doing the thing that they need to do. Yes. It's a really it's a really David Friedberg (00:52:59): -- Jason Calacanis (00:52:59): It's hard to do. I mean, look at Airbnb as an example. I mean, they did the ginormous risk during COVID because they had no choice. I mean, their their revenue went essentially to 0, and Now the business is incredibly strong. It's throwing off massive amounts of free cash flow, and stock market seems to really love what Airbnb has done. and a similar story over at Uber in terms of having done significant rifts and probably could do significant You David Friedberg (00:53:24): haven't checked out the clear, Airbnb is still down almost 75% off its high. Right. Jason Calacanis (00:53:29): So when David Friedberg (00:53:30): you say the stock market love it so they're they're up to day 3%. So meaning they're not down 30 than in one day, but they've have gone down with the rest of the market. Jason Calacanis (00:53:38): They have gone down with the rest of the market, but it feels like the business I'm talking about the fundamentals when you're throwing off almost a billion mile free cash flow. Yeah. Now you're gonna start people are gonna perceive that business maybe as of this cohort, the flight to safety. Right? or same thing with Uber throwing off free cash flow now. I think a lot of these names are gonna I don't know in air Airbnb right now, but I do on Uber. I think the people throwing off the free cash flow are gonna look pretty attractive. and be able to buy their stock back maybe. Right, Andrew. Let's talk about the midterms A lot of big senate races and, obviously, governors, Pennsylvania, Georgia, Arizona, Wisconsin, Ohio, all really important races. Sachs, what do you think? David Friedberg (00:54:20): Well, it looks to me like there's gonna be a Republican wave. There was a interesting article actually on CNN where they it's called 5 scary numbers for Democrats. And what they point to is that Biden right now has a 42% approval rating 61% of the American people say he hasn't focused on the key problems, so this is called the out of touch index. 51% say economies no one issued compared to only 15% for abortion. And then 78% say we're on the wrong track. I don't think I've seen a right track, wrong track index that was so negative. And 75% of the country says we're in a recession. So, you know, when you look at polling numbers like that, it must translate, I think, into a Republican wave. And you have now real clear politics currently has the GOP gaining 4 Senate seats. So winning in Arizona, Nevada, Georgia, and New Hampshire. That's a big change from just a couple weeks ago and winning 31 house seats. So This is this is kinda what it's looking like right now. But look, the the the margin is still within the within the margin of error on the polling. So Nate Silvers pointed out that within one standard deviation, you could either have a Republican wave or you could have basically the Republicans fizzle out. So It's gonna be very close, but ultimately, I think this breaks Republican. Chamath Palihapitiya (00:55:40): Yeah. The to me, the way that I've I'm I'm looking at it right now is that it seems like most scenarios, the Republicans will have the majority in the house. And the real question is what happens in the senate. It's really, really kind of a coin flip, and that's gonna be really interesting to see. So you know, things where I thought would break Republican in the Senate like Pennsylvania are now back to almost a, you know, a statistical dead heat So it's a really interesting moment actually. It's but most scenarios David, I think you would agree, is that the Republicans win the house And then there's a non there's a plurality of scenarios where they also win the senate. David Friedberg (00:56:20): The house will almost certainly go Republican. But I think the senate now the the official percentages are 55% likely to tip Republican. But I I just think that in a wave year like this where the wrong track sentiment is so high, I think all these races that are a dead heat they're more likely to break in one direction as opposed to, like, a random distribution, Chamath Palihapitiya (00:56:41): which David Friedberg (00:56:41): is why I think you could just as easily end up with and, you know, instead of it being a 5149¢, and it could be 5545. because all these things could break the same way. So right now so I I I would slightly disagree in Pennsylvania. I think Oz has improved as a candidate. Federman did that debate. And since he suffered that stroke, he kinda came across as Jason Calacanis (00:57:03): some fight. do we feel about that? That I I I had very very hard to watch that happen and yeah. David Friedberg (00:57:09): I mean, the guy the guy has suffered a stroke and has said, but he, you know, he doesn't present as someone who can be a senator right now. I think Oz -- Jason Calacanis (00:57:16): What does the science say about that? Like, a re as a society, is this a good idea to have somebody post stroke be in office? I'm not picking any political side here. I'm just talking about the the medical issue. David Friedberg (00:57:26): Oz is actually doing the right thing right now, which is he's not actually focusing on that issue because it's so obvious. He doesn't wanna be seen as beating up on federal men. And instead, Jason Calacanis (00:57:34): he's focusing on -- -- human. Yeah. David Friedberg (00:57:36): He's focusing on the issues. And actually, a federal man's issues are very unpopular in the state like Pennsylvania. So I actually think for both reasons Oz is gonna win that. I think Federins manifestly unqualified, but also I think his positions are fairly unpopular. So I think Pennsylvania will will will almost certainly tip. Jason Calacanis (00:57:54): So Let me pull up the chart here just so people can see. David Friedberg (00:57:56): Ohio is going Republican. And then Arizona, I think, is really the interesting one where Blake Masters is now tied after being behind Mark Kelly throughout this campaign. He is now tied in New Poland at 47. Jason Calacanis (00:58:09): Yes. so unpopular. Your guy is really unpopular. And now he's tied. It's -- He was never the David Friedberg (00:58:14): unpopular JK. That was your interpretation. Chamath Palihapitiya (00:58:17): It's the Peter 208. He was Jason Calacanis (00:58:18): he was doing really poorly, I think, because he was David Friedberg (00:58:20): -- Are they anti choice? I think listen. I think that I think that Arizona is probably gonna be the closest race in the country. think it's gonna be a nail biter, but I think Blake's gonna pull that out. David Friedberg (00:58:29): Sacks, what do you think are the biggest policy shifts that take place in this country host this predicted red wave. Is there anything that changes? So just, you know, talk to folks about what's on the docket from a legislative point of view going into the next congress with all these new candidates. David Friedberg (00:58:48): The reality is we have a separation of powers in this country, and you're gonna have to divide a government. The Republicans will will control congress, the Democrats will control the presidency. And so as a result, you're gonna be largely in a gridlock situation. But gridlock may be a lot better than what we've had over the last couple of years. So, you know, you've had basically this orgie of spending and money printing and I think that's gonna stop obviously. The other thing that's going to happen is Republicans may not be able to pass much legislation, but they're going to be able to do investigations. And there's a lot of questions that need to be answered, I think, about still about COVID, you know, these lockdown policies that we had that started at the top in NIH. Why did they happen? We need to start having accountability for some of these horrible decisions that were made during COVID, and there's been no willingness in Washington to hold anyone accountable. At a minimum, they need to have some congressional investigations. and find out why we pursued such bad policies over the last couple of years. Chamath Palihapitiya (00:59:41): By the way, did you see did you see what happened this week where the CDC you know, after this entire opioid epidemic and all of these lawsuits, the CDC came out and actually said, hey. Listen. We need to really make sure that we're getting access, putting opioids in the hands of Americans who are really suffering with pain management and whatnot. And I didn't read the article to really understand the details, but I just thought it was an incredible headline where it's like, it's just it's so counter to the narrative of what we've been told is happening, which is, like, over prescription and misprescription. Jason Calacanis (01:00:14): If we learned anything during COVID is to question every organization, everybody, and to really collect your own information, while, you know, looking at these organizations, we trust it over time. I I know I look at the world differently now that you couldn't say COVID was possibly a lab leak without having your podcast taken down or being banned on YouTube. And now ProPublica has done an investigation, and they're saying, along with and they're gonna win a Pulitzer for this, I bet, that this conspiracy theory from 2 years ago is probably actually the leading theory and that that -- Well, who's gonna David Friedberg (01:00:48): -- Jason Calacanis (01:00:48): The Wuhan lab lab was showing if you didn't see it reporting an incident in late November of last year before COVID broke. David Friedberg (01:00:57): 2019. Chamath Palihapitiya (01:00:58): It's really it's really incredible. David Friedberg (01:00:59): There was a article in the Atlantic that came out over the past week called Let's declare a pandemic amnesty. Jason Calacanis (01:01:05): No. Yeah. Let's do a pandemic investigation. David Friedberg (01:01:09): Right. So, basically -- Investigate everything. Yes. All the experts who told us Jason, that we weren't allowed to have an opinion because we weren't expert enough that if we raise any questions about the origin, the virus that it might have come from a lab, that that basically needs to be censored. people who said we had to do lockdowns and implemented all these authoritarian tactics. Now they're saying that they need an amnesty. Now what that really means no. Lauren's looking no one's looking to currently prosecute them. What we're looking to do is have some accountability around the public policy. What they want is they wanna pull the expert card to say that they're the only ones who get to have an opinion and make a decision. But then when it all goes horribly awry, they basically wanna be completely insulated and unaccountable from their decisions. No way. No way. We're not gonna give you -- Jason Calacanis (01:01:51): Full investigations. David Friedberg (01:01:52): We're we're Jason Calacanis (01:01:53): in alignment on this act. David Friedberg (01:01:53): That's why Chamath Palihapitiya (01:01:54): can I just it's not gonna hold on. Jason Calacanis (01:01:55): I just wanna say, sex, we're in alignment on this. for a rare moment of peace on this podcast. The same thing after 911, don't shouldn't all Americans understand what happened after 911? and what the failures were in our intelligence just so we can get better? I'm not picking a political horse here, but it's kinda crazy that you could people said to our podcast and other people who were questioning it, forget about what political party you're in. Just wanna understand how the world works. What are the chances that this breaks out in the 1 or 2 places where they're studying the coronavirus that you have a lab leak? It was so obvious to everybody. Chamath Palihapitiya (01:02:29): The other reason why you need to have accountability for this is that there is still a long tail especially around the damage that we did to our kids educationally David Friedberg (01:02:37): -- Jason Calacanis (01:02:37): Yes. David Friedberg (01:02:38): -- Chamath Palihapitiya (01:02:38): and now and now the over prescription of stimulants. And so if you don't have answers, you can't go after these problems. Like, there is a there is like, stimulant prescription is now the single biggest epidemic in children. It is now twice as prescribed as contraceptives and asthma drugs. Jason Calacanis (01:02:58): And why, Chamath? Why are we doing this? To to get them to score higher on the test to be more attentive in school? Chamath Palihapitiya (01:03:03): Well, it's it's actually this negative feedback loop where these children were mis educated during COVID. it had huge psychological and academic damage to them Our test scores have fallen off of a cliff relative to how we used to do relative to other countries. I think the teachers' unions have found a way to try to explain it to basically shield themselves from any sort of critique. And so the loop and then part of that loop is then to look at a bunch of kids that are underperforming in school. And instead of saying, well, maybe these lockdowns and masking and all of these things that we implemented actually had a huge impact. They say, you know, you're misbehaving, so let's put you on a stimulant. Jason Calacanis (01:03:50): Yeah. It's crazy. Chamath Palihapitiya (01:03:51): We're in that loop right now just so you guys know the data is outrageous. twice as many prescriptions for stimulants as the sum of contraceptives and asthma drugs for all American kids. Jason Calacanis (01:04:03): Yeah. It's not that suddenly everybody's got ADHD. So we failed them. We failed our children, and and we're gonna use stimulants to have Chamath Palihapitiya (01:04:11): them catch up weeks. Jason Calacanis (01:04:12): But we Chamath Palihapitiya (01:04:12): should be doing summer schools average school programs, weekends, whatever. We failed them because of our response to COVID. That is why we need answers to all that stuff because you need to link these things together to have some real accountability. Jason Calacanis (01:04:24): Absolutely. Here is the just so we have the people see the numbers. Here's the 538 poll of how Joe Biden's popularity has switched. This is 6 54 days into his presidency. Started out really strong. 54% and now little rebound since the summer. Obviously, that dip started with the economy. It's the economy stupid. And if we go down a little bit, on this same page and you zoom in on the left there, you can see compared to Donald Trump. He started out much more popular than Donald Trump day by day, and now he's just as unpopular as Donald Trump was at this point in his presidency. Chamath Palihapitiya (01:04:59): Well, look. I mean, look. The setup is really interesting for 2024 because it's probably going to be the case that we're in the middle of a session going into that election cycle. Maybe we'll be sort of like getting ourselves out of it, but there'll be a lot of economic damage, high unemployment, And, you know, typically folks in power will have to sort of be held accountable for that. It's a really interesting setup that both Gavin Newsom and Ron DeSantis have to figure out now and navigate if they're gonna get the nomination on each side. Jason Calacanis (01:05:28): And breaking news today, Saxx would love to get your thoughts on this. Axio says and we'll go to science corner next that Trump's gonna announce on November 14th that he is running for president. David Friedberg (01:05:40): Look. I I kinda have the Joe Rogan flaw fee on this, which is why give it oxygen. Let's just wait and see. There's certainly no need to talk about it before it happens. You know, we're not we're not even past this election yet, but But hey. I wanna go back to the the the Biden popularity because I think part of the issue here is what are the arguments that Biden is making to the country? about why people should vote Democratic. And he gave another speech on Wednesday night where he basically claimed that if you vote for a different party that that is a threat to democracy. In other words, the perpetuation of single party rule is what you must do if you care about democracy. That is a sales pitch that's not gonna appeal to anybody outside of the viewers of MSNBC. It's just not. He's not talking about the issues that really matter to the country. You know, what the country wants to know is that he's focused on the economy. He's focused on inflation. He's focused on crime. He's focused on the schools and fixing this learning loss that Jamal was just talking about. He's not doing those things. Instead, he's basically saying that the Democrats should be kept in power forever because there was a riot at the capital on January 6. And, look, that was a stain on the country. Okay? It was terrible that that happened. Jason Calacanis (01:06:50): Disgusting it. David Friedberg (01:06:50): That is not a reason. Hold on a second. That is not a reason to keep Democrats in power forever. And, actually, there's a a liberal guy a liberal democrat named Josh Barrow who wrote a pretty good blog about this. And what he said is the message is that there's only one party contesting this election that is committed to democracy and therefore only one real choice available. If voters reject Democrats' agenda or their record on issues including inflation, crime, and immigration, they have no recourse to the ballot box. They simply must vote for Democrats anyway. And that argument is just not flying. And and actually, he's a a Democrat who is pointing this out. but I don't think that Democrats are getting the message on this, but I think they will after this election, and they're gonna have to find a new sales pitch to the Chamath Palihapitiya (01:07:35): Well, you Jason Calacanis (01:07:35): know and he he does have a good sales pitch. He does an HMoth with these major bipartisan wins. He had the infrastructure deal got done, the technology bill, and the chips. You got gas prices going down. Chamath Palihapitiya (01:07:46): The problem. Jason Calacanis (01:07:46): You got GDP growth. You got job growth. Chamath Palihapitiya (01:07:49): The problem is that those things happened frankly too early in his presidency, and things are getting materially worse. So I just sent you a link. Can you just throw this up here for a second? You know, Jason, you mentioned this cheaper gas thing. Yeah. But the the reality is, if you look at this, we have now depleted our strategic oil reserve by almost 50%. Yep. So we are running out of oil that we can introduce into the market at effectively zero cost to bring the price down. And because we've lost our relationships with folks like Saudi Arabia, there's no way to influence them in order to produce more. In fact, they're gonna cut supply so that they can control the prices that they have which that they can sell into the market. And so now what are we left with? Well, the only three places where you can have incremental supply of energy which the country still needs is from Russia, Iran, and Venezuela. And so, you know, all of these things, Jason, I think, come back and really put Biden in a tough place because as Saks says, he does have to answer to all of these things because these are his decisions. Look, I still believe in the Democrats. You know, I am hoping I gave a million bucks to the senate pack trying to sort of tip the Senate. I really think it's important that we have a split government because I've kinda I gave up on the house. I think it's clear that the Republicans are gonna win. But the senate is still is still up for grabs. And the reason is because I think that we need to sort of have stasis so that nothing bad happens between now 2024 because I think the economic conditions on the ground are going to be bad in and of themselves. For the last and then just the one last thing I'll say is the instructive thing that I think we should look at is what happened in Germany. Chamath Palihapitiya (01:09:34): Because what happened in Germany is really interesting when the economy turns and inflation is out of control and energy is out of control What they basically did was they sidelined the European Central Bank. They stepped in with their own balance sheet and said you know what? We're going to nationalize assets And I know that this sounds crazy to say, but if it can happen in a place like Germany, I know most people would say it'll never happen in America. But I'm not so sure. And I think that you wanna make sure that there's a split government so that these things are never possible. And so hopefully, there's some common ground in a Democratic senate and a Republican house, and we just kinda get through 24 and see where the chips land. And I still think it's gonna be DeSantis versus newsome. Jason Calacanis (01:10:20): Friedberg, any final thoughts here on politics in relation? David Friedberg (01:10:23): My first observation is that I think it's funny that Shamoff and Saks are funding opposite sides of the electoral cycle. Jason Calacanis (01:10:31): Yeah. Why don't you just guys just give the money to me in Friedberg to get a plane? David Friedberg (01:10:34): -- David Friedberg (01:10:34): each other's money up. Yeah. could think of other Jason Calacanis (01:10:37): ways for David Friedberg (01:10:37): you guys to use that money. Chamath Palihapitiya (01:10:38): But -- David and I may have canceled each other out. You're right. I mean -- Yeah. David Friedberg (01:10:41): -- Chamath Palihapitiya (01:10:41): so far, Peter Teal made the better trade. He's it's it looks like the Teal wave in the senate. David Friedberg (01:10:45): So look, I I would say my very broad statement is democracies evolve in a cyclical nature over time right you often see swings from one political party to the other, and it's just the nature that once someone's been in office, they form the new establishment, And then folks on the next election cycle wanna vote against that establishment because there are things that they want that they aren't being given today, and therefore, the democracy forces a change from what is the current establishment back to the other side. And generally, political parties seem to kind of adopt whatever the other side is. and that's how the cyclical evolution of democracy seems to play out. The recent trend that has been more alarming, which I think we can kind of take pause to notice is the the rise of populism, where populism is this really kind of vehement die hard opposition to elitism and it's the establishments that everyone feels kept down by and everyone feels taken advantage of by. And the the rise of Trump, the rise of Bolsonaro, the rise of Boris Johnson, And I would argue even the rise of AOC, Bernie Sanders, and Elizabeth Warren, all similarly speak to the the the crying voice of the of the Democratic populations that they want to see these establishments taken apart. They don't feel like they're fair. They don't feel like they're just. They don't feel like the institutions that oversee us and are meant to service us are servicing us. And so there was this big rise. The problem is, like a normal pendulum would swing back and forth between one side and the other, With the rise of populism, you get such a strong push of that pendulum, it can knock through a wall. And I think we saw that on January 6th, and I think it gave a lot of people pause. we saw the the the motion of Brexit knocking through a wall. And we saw these kind of very radical outcomes, and then the cost of those outcomes blow up in our face. And as a result, I think we're seeing a bit of a receding of the tides right now away from populism during this current electoral cycle where folks are saying, you know what? Maybe we just need to have some sort of an establishment. David Friedberg (01:12:53): So and feel safe and secure less than the volatile volatility that I've experienced of late. David Friedberg (01:12:58): Look. I think you you look at the economic mess we're in. Okay. Populous did not cause that. Okay. Populous did not cause $10,000,000,000,000 of money printing. It was modern monetary theory and the experts of the fed who did that. It wasn't populous who created the great financial crisis of 2008 that caused the zerp, and we're still living with all the downstream effects of that. It was the experts on Wall Street who said they could manage all these derivatives and the collateralized mortgage obligations and all that stuff that that they lost control over are you And hold on then on COVID. It wasn't popular. The CDC David Friedberg (01:13:29): are the experts. Yeah. The CDC are David Friedberg (01:13:31): the experts that crossed it. And it and on COVID, it was not populous who caused the horrible handling of that pandemic even though they were blamed for it. Remember, we were told it was a pandemic of the unvaccinated, then it turns out the vaccine doesn't stop it. it was not populous who caused the reaction to the pandemic. It was the experts of the CDC and Fauci and people like that who shut down our economy who caused the learning loss. It was those experts. So, Friedberg, listen. You may not like this populous waiver that we have in the country, and I get that. But it's in reaction to something real, which is the failure of this expert class. And if you wanna stop having this populous wave rise up, we need to start having experts in position of power who actually know what they're doing. Jason Calacanis (01:14:13): Well, I don't have one way to say that. David Friedberg (01:14:15): Sorry, Jake. Al, hang on one second. I don't have any opposition to the populous way. I'm making the observation that the the effects of some of the populist movements have started to become too volatile for people to feel like they should continue forward with that electoral path. That was my observation. Okay? I'm not kind of criticizing the populist movement. I'm just saying that events like January 6th And the conditions in the UK, for example, are making people say, wait a second. Maybe I need to take pause on the extreme. David Friedberg (01:14:42): The bond market basically fired Liz Truss. I mean, she's not populist. And -- Yeah. -- you know, in Bolsonar Bolsonaro in Brazil, he actually just lost, and there was this big narrative that somehow he was gonna not relinquish power, and he just announced that he will relinquish power. David Friedberg (01:14:57): Right. David Friedberg (01:14:57): So, you know, some of this stuff is about how Populous pose this great danger, I think, is threat inflation and that the threat is magnified by elites who wanna stay in power. And the truth of the matter is we need accountability for the people in power. And when they set the wrong policies and decisions, they need to be replaced. No more no more unaccountability. Jason Calacanis (01:15:17): Yeah. I mean, David Friedberg (01:15:18): I I I a 100 just just to my my personal belief, 100% agree. Accountability is what's lacking most. across all of these institutions. 100 percent agree. Jason Calacanis (01:15:26): Accountability may be competence and also transparency and accountability. Like, I think that's what the public wants. David Friedberg (01:15:31): I mean, you can -- -- competence will ultimately Chamath Palihapitiya (01:15:32): be measured by through. If you wanna hear David Friedberg (01:15:34): -- Jason Calacanis (01:15:34): But but there's no -- -- water. One second. Hold on a second. There's no way to perfectly react to the pandemic. But in your mistake, owning them and explaining them, would it be much better than trying to obscureify it and asking for amnesty Chamath, your name. Chamath Palihapitiya (01:15:47): If you wanna hear an Fredibly interesting interview because it's very thought provoking of a modern progressive but with a very different mindset or sorry. You know, may maybe you don't wanna call him a progressive, but is the president of El Salvador, Naib Bukkelly, and he did this incredible interview with Tucker Carlson on Fox News, I encourage everybody to watch it on both sides of the political spectrum. That man is impressive. Wait. David Friedberg (01:16:16): Do we just get an admission that Jamal watches Tucker? Chamath Palihapitiya (01:16:18): I want I watched that interview. You watched the Tucker? Jason Calacanis (01:16:21): Oh my lord. David Friedberg (01:16:22): Jason's heads explode Chamath Palihapitiya (01:16:23): right now. Because I I try not to be a -- Just a moment. -- take neuramis. Jason Calacanis (01:16:26): It's an entertainer. Chamath Palihapitiya (01:16:27): I like to watch things on both sides, but that interview is incredible. He is unbelievably impressive, and it's a It double clicks into the skepticism that smart people like him, the outsider class, has with the insider expert class. In a nutshell, if you wanna see it, I would encourage you to watch this interview because it's it's incredible. Incredible. really, really David Friedberg (01:16:49): depressing. The peasants with pitchforks are rising up against this elite class who've put themselves up. They've set themselves up as lords. They want exclusive control over their blue checks, and we're about to overturn this establishment because it is corrupt and it is incompetent. Jason Calacanis (01:17:07): It would be great if the people who worked for us were confident. David Friedberg (01:17:10): -- David Friedberg (01:17:10): back on Megan Kelly. Jason Calacanis (01:17:11): Owned and were transparent. You know? I think that's why people are opting out of this is they don't feel that there's a level of confidence in these institutions nor ownership. and transparency. And and it really is frustrating whether it's education or it's health or or, you know, and any of these topics we've talked about here on the show. Let's go to science corner, and we can wrap. What do you got, Friedberg, for us? Too much. David Friedberg (01:17:36): I think we were gonna cover the Facebook meta announcement that their AI research team had generated the physical structure of David Friedberg (01:17:46): 617,000,000 David Friedberg (01:17:48): proteins from these metagenomic datasets. And so remember, AlphaFold made this big announcement that they had highly accurate predictions of protein structure, the three-dimensional shape of proteins. And remember, proteins are kind of the machines of biology that do everything from catalysis to enzymes where they break stuff down, and they're like, you know, they have all this structure that allows them to do specific physical things. And proteins are coded in DNA. Every three letters of DNA codes for an amino acid, a string of amino acids makes a protein. And so, you know, we have about a 1,000,000 species where we've sequenced the entire genome of those species, only about 3000 animals, by the way, including humans. half a million from bacterial species and then a bunch of viruses and other stuff. But but call it about a million species that we've sequenced. And so you know, earlier this year, Google's alpha fold project published the 3 d structure of 200,000,000 proteins. that they had derived from the whole genome databases that existed where we've gone through and figured out what's the full DNA sequence of all these different species. Now when you look at the DNA in the environment around us, you were just to take the DNA out. it turns out that we have seen very little of that DNA. The vast majority of DNA that you would find in a teaspoon of soil, for example, We've never classified. It's not part of a species that we've actually built the whole genome around. We may not even know what species that DNA is from. And so when you take a teaspoon of soil, you'll get about a 100,000,000,000 microorganisms in that soil from about a million unique species. But you don't see those species because the way DNA sequencing or shotgun sequencing works is DNA has chopped up into little David Friedberg (01:19:31): 250 David Friedberg (01:19:33): base pair likes, little 250 strands. And those 250 letters are read at a time, and then statistically bioinformatics puts together all of that little DNA segments and tries to create long strands of DNA to figure out what the genes are or what the whole genome is. And so shotgun sequencing gives us kind of a snapshot of the DNA, but until we've done the hard work of figuring out the whole genome, we don't know what species that DNA comes from. So when you take a sample of soil or you take a sample of human poop and you sequence it or even a a teaspoon of ocean water and you just sequence the DNA in it, You get all of these little segments of DNA that we've never seen before, and you can string them together statistically because you get lots and lots of copies of them. and you can figure out the overlap, and then you can create these genes. And a gene is a segment of DNA that codes for a protein. And those genes make up the meta genome. or the combination of all the genes that we find in a in a piece of of of the environment. And that metagenome comes from millions of species that we've never seen before. So what alpha what what they did at Meta is they took all of those genes that we'd pull out of the soil or we'd pull out of the ocean, and they they picked a bunch of random samples. and they then predicted the physical structure of the proteins from just those genes without knowing what organism they came from. And this gives us a whole new universe of proteins that we've never classified before or never seen before. Now I will just kind of speak a little bit critically about it. Number 1, they didn't do what Alphafold did. What Alphafold did is they took 3 d structures from typically x-ray crystallography. then they took the the DNA code, and they built machine learn models to figure out the 3 d structure from the DNA code. What these guys did at Meta is they took the 3 d structures and the code, and they basically did a fill in the blank. They found all the metagenome data out of these samples, and a lot of it was missing. and they filled in the missing blanks using kind of common protein structure that existed out there in the wild that we already knew from the alpha fold data. And so they kinda did a fill in the blank. David Friedberg (01:21:36): And as a result, it allowed them to very quickly build these 3 d models versus doing the hard and rigorous work that AlphaFold had to do. So they claim that it was 60 times faster, but it's actually an entirely different technique. And the second thing is that they represent that only about a third of it is high quality. meaning only about a third of the proteins that they've created structure for are really useful or or that could be kind of applied in terms of this is the real representation. Now why is this interesting and important? Proteins can form the basis of new medicines. So, you know, we can find proteins in the soil a genomes in the soil and proteins in the soil that can kill certain fungal pathogens that can kill bacteria, and those can be turned into fungicides. They can be turned into antibiotics. we can find proteins that bind to specific things. We can find proteins that fix nitrogen from the atmosphere, and those proteins can be turned into new types of fertilizer. So, you know, searching through this universe of proteins that exist in the meta genome will allow us to find new molecules to do new and interesting things with in the applied engineering world. And I will say, like, this is David Friedberg (01:22:39): -- Jason Calacanis (01:22:39): What would the output of these be is what everybody's gonna be thinking? David Friedberg (01:22:42): -- David Friedberg (01:22:43): antibiotics, fertilizers. I mean, the idea of the metagenome is rather than start with the species and then take the genes out of it, just go get the genes. The genes are already there. They're in this they're in the ocean. They're in the soil. And there's millions of genes, 100 of 1,000,000,000 of genes that we've never seen before. Therefore, there's billions of proteins. Now we could randomly create proteins But the number of proteins that could exist is more than the number of atoms in the universe. because remember, there's 20 amino acids. So 20 to the 200th power or David Friedberg (01:23:09): 20 David Friedberg (01:23:10): to the 300 power or 20 to the 1000 power, meaning how many different combinations of amino acids can you make? That's more than there are atoms in the universe. So the best place to start is what evolution has already given us, all the proteins that exist in the environment. So let's go find those proteins in the environment, And then let's figure out what do we think they can be used for? Can they be used in industrial applications, in medicine? Can they be David Friedberg (01:23:31): -- Jason Calacanis (01:23:31): Doing them in material science, you're saying. Correct. David Friedberg (01:23:33): -- David Friedberg (01:23:33): science And so, you know, a lot of drug discovery mines proteins. It tries to find proteins and figure out what can these proteins be used for. And now we have all these new datasets of proteins that are being generated from these metagenomes. And so it's amazing. I mean, you know, look at the world around you. Look everywhere up and down on the walls, on the ground below you. There are billions of species of organisms that we've never classified before that are making billions of unique proteins that we've never classified before, and any one of them could unlock an amazing commercial opportunity for industry. So and for medicine and Chamath Palihapitiya (01:24:09): for human health care. David Friedberg (01:24:10): So that's what's really exciting about this ability to kinda mine the g the metagenome. Jason Calacanis (01:24:14): Silly question for you or maybe not silly. We have gotten the precursors to DNA for meteorites. If I understand correctly, what do they call them, nucleobases? Chamath Palihapitiya (01:24:26): The clayic acids? Jason Calacanis (01:24:27): Yeah. The clayic acid? Yeah. The the yeah. I mean, etcetera. Like, things that exist in DNA that are precursors. We've never had DNA from space, obviously, but We could at some point start to find DNA out there in space, and this could have an even crazier impact on what we built here. Is that the next card to turn over after we David Friedberg (01:24:47): -- Jason Calacanis (01:24:48): I'm doing a few routine home. What's here? David Friedberg (01:24:50): No. I wouldn't say so. I, like, I think look. If if there's DNA that's coming to us for meteorites, call it a couple 100 genes. You could pick up a piece of of soil and find over a 1,000,000,000 genes in that piece of the soil. Right? So we have far more to mine here on Earth. And the low cost of DNA sequencing and shotgun sequencing, coupled with bioinformatics where we take all that just to give you guys a sense, when you take a teaspoon of soil and you get the DNA out and you read the DNA out of it, sequence the DNA, that's potentially tens of gigabytes of data. And then you could do that millions of times over, and then you statistically can find genes and then statistically estimate what they physically look like, what those proteins look like, and then you can start to build models around which ones do we wanna try and use for drug applications. which ones do we want it? So there's so much work to do just in terms of what we have here on Earth, and the tools are getting so cheap and so available there are labs that are all over the world starting to kinda spring up to do this work. It's super exciting. Jason Calacanis (01:25:46): Tarath any dots? Chamath Palihapitiya (01:25:48): It's kind of you know, just to put two ideas together. I've said before, like, the 2 big investable themes that I'm orienting my organization around is this. 1 is that the marginal cost of energy goes to 0. And the second is that the marginal cost of compute goes to 0. And the second one is really about shifting compute to more parallelism on GPUs and ASICS and FPGAs, but that's why all of this stuff is possible. The fact that, you know, Meta can do this and Google can do alpha fold is largely because the cost of all of this stuff is, you know, trivial for these kinds of companies. So it's really exciting. It's going to move science in my opinion, out of this in vivo in vitro experimentation model into silica. And so those who can actually build learning machines will solve some of the most important biological problem. So I I'm a real believer in this stuff. I think it's super exciting. Jason Calacanis (01:26:40): When do you think this stuff actually hits Friedberg, our life. That's always when people talk about these discoveries. Yeah. David Friedberg (01:26:47): A lot of people don't realize it, but so many molecules that that are used in agriculture like fungicides to to kill fungus in the fields, those are derived from this sort of work. A lot of antibiotics A lot of medicines are already derived from mining genomes, finding new proteins, and seeing what those proteins can do because these proteins didn't evolve in the environment randomly. they evolve to do something. And in many cases, we can take that thing that they do and then harness it into a product. And that's what's so exciting. And this this affects everything in material science, you know, agriculture, human health, it's it's a food, it's it's really profound. Jason Calacanis (01:27:25): Also, Alright, everybody. There you have it. That's another all in podcast in the can. So by the Chamath Palihapitiya (01:27:30): way, so many so many of Freeport Stans were afraid, Jake, how that you and I were gonna make some joke And we didn't. No. We didn't. And so for all these scans, I just I hope you guys can exhale. Jason Calacanis (01:27:40): Take a deep breath, man. Chamath Palihapitiya (01:27:42): Have some, you know, eggless mayo and enjoy your weekend. Jason Calacanis (01:27:46): Enjoy your week. Bye bye, everybody. See you next David Friedberg (01:27:48): time. Love your besties. Jason Calacanis (01:27:49): Love you, guys. Love you, besties. David Friedberg (01:27:52): will let your winners ride. Jason Calacanis (01:27:54): Rainman, David Saffes. David Friedberg (01:27:57): I'm going home. David Friedberg (01:27:59): And it said -- We open store sit to the fans and they've just gone crazy lately. David Friedberg (01:28:08): what everyone is trying. Besty's our best. That is my dog's we should all just Jason Calacanis (01:28:23): get a have one big huge order because they're all just useless. It's like this, like, sexual friendship that they just need to release somehow. David Friedberg (01:28:30): What? You're the b p. Jason Calacanis (01:28:35): We need to get mercies are back.