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Chamath Palihapitiya (00:00:00): It's optimizing the view. David Sacks (00:00:01): No. I'm optimizing for shade, actually. I'm trying to get out of the Jason Calacanis (00:00:07): Oh, fucking Christ. You look like a moron. Look at this fucking silly glass. Chamath Palihapitiya (00:00:11): This dipshit showed up. He showed up to my beach club yesterday. And it was basically like someone had taken a mummy and then wrapped a mummy inside of a white sheet and then presented him at the at this place. Jason Calacanis (00:00:23): Oh, you see Lathered in his, like, SPF Chamath Palihapitiya (00:00:26): 500? Jason Calacanis (00:00:27): And so I left at one point I said at one point, let's go for a walk. Chamath Palihapitiya (00:00:31): And this asshole had the nerve to grab his cell phone and a battery pack for the cell phone. I forced him to leave the phone. He felt naked. Then I made him take off his shoes and socks, and then I tried to get him to take a shirt off. We got almost all the way there. Yeah. Speaker 4 (00:00:45): That that makes sense. Jason Calacanis (00:00:46): Alright, everybody. Here we go. Chamath Palihapitiya (00:00:47): 3 2. David Friedberg (00:00:49): The weather winner's wide. Rainman, Speaker 6 (00:00:53): David Saffens. We David Sacks (00:00:57): open source it to Speaker 7 (00:00:58): the fans and make discoveries. Jason Calacanis (00:01:05): Hey, everybody. Hey, everybody. Welcome to everybody's favorite game show. Guess who's not in Italy. With us today, David Sachs, wearing sunglasses, with the view of an ocean clearly on a nautical vessel, and I'm in an old apartment in the center of Florence, and Chamath is at his hideaway somewhere in the countryside. And Friedberg is in front of a abstract piece of art. Chamath Palihapitiya (00:01:43): two people high on Crystal Meth trying to break into his car in San Francisco. David Friedberg (00:01:49): I'm no I'm no longer a San Francisco resident. I'm proud and sad to say after 20 years of living in the city, I have relocated still in and up to a nondescript location still in California. But Chamath Palihapitiya (00:02:02): -- Speaker 8 (00:02:02): We're in the Bay Area. Chamath Palihapitiya (00:02:03): -- Speaker 4 (00:02:03): enough set. David Friedberg (00:02:04): I'm in the Bay Area. Jason Calacanis (00:02:05): So with us again, obviously, rain man, the dictator, and back from a week off, the queen of Kinois What tell us, Queen, you had a big week. You had some nice ink come out, some breath about the production board raising some monster round. and you took the week off? Give us the feedback. What what what was it like taking a week off from the pod and now you're getting press and you're becoming a public figure. What's it been like for you the past week and and tell everybody what went down with this new fund. David Friedberg (00:02:35): You know, my strategy was to take a week off from the pod and then have the ratings go up, and then I could quietly and nicely exit as the as a member of the cast But, unfortunately, I've been drawn, as Alpacino said, just when I thought I was out, I am back in. So it's I missed you guys. I actually listened to the all in pod for the first time ever last week. You guys did a a great job. Chamath Palihapitiya (00:02:57): -- been complaining these other last forty one times without even listening to it. David Friedberg (00:03:02): You know, I will say I listened to it while we're on it, but this was actually really interesting because I've Chamath Palihapitiya (00:03:08): I've never actually seen it. Jason Calacanis (00:03:09): That's big of you. You're actually listening while we're taping. David Friedberg (00:03:13): we we do it ourselves. I hear the whole freaking thing in real life. So listening to it, I found it really entertaining. And I I think I have a better appreciation it's less about some of the points in fact we make, which I've been bitching and complaining about the topics and, you know, where we go with the conversation and stuff. But it's just generally just the next day just hear everyone, you know, kinda shoot the shit. Anyway, good job. David Sacks (00:03:35): So you're saying you're a fan of of the all in pod? David Friedberg (00:03:38): I might get a wet your beep mug from one of our -- I Chamath Palihapitiya (00:03:41): have one. I have I actually have 3. I use it. So you sent me a Jason Calacanis (00:03:45): whole gift basket from the kid who's paying for college, based on our IP. Chamath Palihapitiya (00:03:50): That's all good. Yes, ma'am. David Friedberg (00:03:53): No. So we yeah. We announced our TPB funding last week too, which I I have been running the production board for 4 years now, a little over 4 years. It's been my primary vehicle where I've been primarily incubating new businesses and make some investments from the balance sheet. You know, we've raised several rounds of capital over the last few years. We've never talked about it publicly. We've never done press around it, but As you guys know, the the primary reason for going public with it was really just to gain recruit interest in the work that we're doing. So we really wanna see great people, be made aware of the work we're doing at the production board at each of our individual businesses so we could start to, you know, at least get get folks knowledgeable and aware of us. So when we reach out and and folks are interested in thinking about what else they might wanna do with their careers and their lives, you know, we're hopefully there for that. So, you know, it was great. I mean, it's nice to kinda share what we're doing. We also shared 5 of our businesses that we've incubated, several of which have been stealth up until now. you know, one of which Jason, I think you've kind of referenced in the past, our molecular beverage printing company, Cana. So that one's kind of starting to emerge a little bit more now after several years of r and d and work. So we're kind of making progress now. And I'll hopefully have more to share over time in terms of what we're doing, but we're excited. And it's great to great investors, man. Yeah. Jason Calacanis (00:05:11): It's a great piece in CNBC by Ari Levy. I guess you gave him. He's a great journalist, by the way, like old school legit journalist. David Sacks (00:05:19): Yep. Jason Calacanis (00:05:19): And I think fan of the pod, how did you pick Ari to be the the vehicle for this? Use a PR firm where you just decided, I'm gonna share it with this one person. David Friedberg (00:05:27): we had a mutual person who's NPR who introduced us. I I didn't wanna go do a broad PR thing, so I was just kinda like, let's get you know, I was gonna do my my medium post, which I wrote as, like, a blog post, and that that was primary content. And then it was like, let's just find someone good who can kind of at least, you know, push people to that content that that can speak well to our business and, you know, he was recommended. I've never met him before. Great So, you know, we just wanted to kinda get that one piece done. Anyway, he did a great job. He said he I think he's been on your show. Right? What's your your question? Chamath Palihapitiya (00:05:54): -- Jason Calacanis (00:05:54): show my show. He's been on this week in startups. Yeah. And I when I used to go to CNBC, I would you you walk down at one market. You used to go there trim off too, and you walk down like a row of journalists. And as you go to get on set, I don't know if it's time to Youchimov, 1 or 2 of the journals will intercept you and try to get a story. he would always stop me, hey. I heard that Travis at Uber was this or whatever. But great job on the ink. It's great to see you you know, raised 300,000,000. There was a lot of references to Larry and Sergey and Google. Maybe you could tell us what how much who who led the round, this $300,000,000 round, and What's Google's involvement? David Friedberg (00:06:31): When I first started the production board, it was my I had made personal investments with my own money and started some businesses with my own money. And I had a series of dinners and conversations, Larry Page, about, like, doing something together with Alphabet. I knew Larry from my Google days, obviously, And, you know, we we ended up kind of after a bunch of conversations with folks at the level below kind of saying, let's I didn't wanna manage a fund, and I didn't wanna go work at alphabet. So the idea was I would set up a holding company, kind of a permanent company that like any business has a balance sheet with cash on it and can do stuff with that money. And Alphabet invested in the holding company, and they put some cash in. And this was 4 years ago. and they became a minority shareholder and had a board seat, and I set up a board. And so that's the work. And then we've raised another round since then, and then we just raised this round we announced last week. And so our you know, the round was I think I don't know if we announced, but it was kinda co led by BlackRock. We had, you know, Morgan Stanley, Coke Industries, Bailey Gifford, Allen And Company, Foxhaven, Aeromark, just a bunch of really high quality long term institutional investors. Alphabet put more money in. The the Gates Chamath office called cascade has been an investor with us for a while. So they all put money in into the round, and, you know, it's it's great because we can use that capital to build new businesses and support some of our existing businesses. So some of our businesses are really hard deep tech companies. We don't wanna have to go rush out and raise venture money or we don't wanna have an incentive to try and mark the asset up and, you know, get a good mark on it. So, really, we can use some of our money now to support some of our businesses until they're ready to go commercial or until they're ready to raise outside capital, if that makes sense for them, not always gonna make sense. And so we have a lot Jason Calacanis (00:08:10): of flexibility going. -- and you own a 100% of every business that comes out of here that you find a management team as we discussed and then spin them out chamuff. What do you think of this venture studio approach? which has only really worked for Bill Gross from Idealab and maybe John Borthwick with beta works in New York and, I guess, science maybe worked as well. with Dollar Shave Club. But here you have, you know, I think, Friedberg, a great entrepreneur as well doing this. What are your thoughts on this studio model going long in in building companies in a studio system. Chamath Palihapitiya (00:08:43): Well, I think it means a lot of different things to different people. So I'm not sure, honestly, what a venture studio is that's different in somebody else's view than what Friedberg is doing, but what I will say is that the difference thing that he's doing, which I believe in, is you have to become extremely hyper focused. You know, I think that there was a moment where if you look at when Idealab was really successful or when beta works was really successful, In the case of Ideal Labs, they had a very specific prototypical web 1.0 business. Dataworks had a very prototypical web 2.0 kind of social business. they all work because these guys were experts in those things. And so I'm pretty bullish on what Friedberg doing just because he's not trying to boil the ocean. He's being very specific around, you know, synthetic biology, and I think that that is probably what got other people excited because then not only from Friedberg execution capability, which I really believe in, but then now think about it if you're an investor. I don't wanna put my money into something that all of a sudden looks like 9 other things where all of a sudden it creates a lot of correlation that I didn't really know existed. especially when I'm investing 100 of 1,000,000 of dollars, it's a very big deal that a lot of investors have. And so when Friedberg can very legitimately say, look, I'm, you know, explicitly focused in this thing. And then he also said and Friedberg, you may wanna talk about this. And this is the only thing I'm gonna focus on It gives an investor a lot of confidence because he's like, here's a really smart guy who's done this before. He's gonna stay in the swim lane and do something really specific here now I can understand how it fits into the rest of my portfolio. So I think that there is a lot of value for investors in a bunch of different ways. So I don't know. Chamath Palihapitiya (00:10:24): I'm I'm I'm super excited. David Friedberg (00:10:26): I appreciate that, Shamal. I mean, I think, like, one of the things that matter to me, Jason, and the way I kinda frame it, like, a lot of people think, oh, Venture Studio. It's about how many things you crank That's, like, Y Combinator's model. For me, it's not about how many businesses you start. It's about absolute value creation. So, you know, you have to do the the the things that you have the sourcing to do with the objective being to drive business value as a whole. So that means doing one thing, doing three things, doing things. It's not about how many thing you know, whatever the right balance is. It's not about just cranking out businesses. because each one of these things, we have to continue to be active and we need to continue to build. And when we start a business, we reserve a a good chunk of the business as equity for the team that works on it. So it's not like we're a 100% owners. Right? We we've gotta get the right people. They've gotta feel like and act like owners in that business with us. Jason Calacanis (00:11:12): You wind up owning 50% or ballpark, 40%. What do you think? David Friedberg (00:11:16): It actually varies quite a bit. So, you know, without getting into too many details, I mean, you know, when we start the business, we're the majority owner. And in and in many cases, when we've brought in other investors over time, we get diluted debt as we come party owner. Jason Calacanis (00:11:27): So -- So 30% or something like that, like, as if you did the series a or something? David Friedberg (00:11:31): But in but in many cases, we end up being you know, we wanna continuously fund some of these businesses because it may not make sense to bring in outside investors, and and we'll continue to be the majority owner, but we create an independent board. We make sure that the the the team feels like it's an independent business, and we give them a lot of infrastructure and tooling, finance, HR, legal, facilities, support, recruiting support, etcetera, and, obviously, templates for how to succeed and and playbooks and so on. So that's a lot of what I would call our platform value. Jason Calacanis (00:12:00): Amazing. Another bestie housekeeping. Speaker 4 (00:12:04): Saks is David Friedberg (00:12:04): an investor in TPV. I don't know if you guys need that. We've left it a round ago. So good job, Saxx. Jason Calacanis (00:12:10): Good job, Saxx. David Sacks (00:12:11): Is that another unicorn for me? Jason Calacanis (00:12:13): Technically, yes. Look at you. Well, in other news, Saxx, Chamath Palihapitiya (00:12:20): this is like the victory lap episode. Jason Calacanis (00:12:24): Sachs, you announced you're closing Chamath Palihapitiya (00:12:26): $1,100,000,000 Jason Calacanis (00:12:29): with a b in Craft's 3rd fund and explicitly talking about focus to Chamount's point, explicit focus on marketplaces and SaaS. Maybe you could explain how long it took you to raise the 1,100,000,000. I think the first one was 300,000,000. The second was 600,000,000. So you're basically doubling each time? David Sacks (00:12:48): almost. I mean, the first one was 3.50. 2nd fund was 510. This one is Chamath Palihapitiya (00:12:52): 1,120,000,000. David Sacks (00:12:56): It's gonna be 612,000,000 for Venture, which is c series a, series b, and 510 for growth. And, yeah, we are focused on SaaS and marketplaces. I kinda run the SaaS practice, and my thesis is really the same as it was when I was doing Yammer, which is apply consumer growth tactics to enterprise software, make it go viral inside companies, sort of sell it bottom up through the average employee as opposed to top down through the CIO. And then the other GP in the fund, Jeff Flor, is focused on marketplaces. He was the founder CEO of StubHub, which was one of the original ecommerce marketplaces on the web. And so he leads the marketplace practice and Those are also, you know, I would say along with SaaS, Marketplaces are the best kind of Internet businesses to to create. And so we just decide to focus on those two areas, and that's kind of enough for the world for us. Jason Calacanis (00:13:53): And in related news, your project call in, which is a podcasting plus casual audio application has been doing great in beta. Yeah. And I am proud to announce that we had a small allocation for our syndicate the syndicate dot com, which is syndicate. And then the all in syndicate, which we created as a lark, between those two syndicates, My syndicate had 900 requests to invest over, I think, $7,000,000. We had a small Chamath Palihapitiya (00:14:23): $1,000,000 Jason Calacanis (00:14:24): allocation And we did basically did a lottery. So something like 1 in, I don't know, 7 or 6 got in. And then the all in syndicate also filled up and then the all in syndicate, no carry, no fees. Everybody gets a free ride thanks to David Sachs, and that's our first all in syndicate. chipping away at my core business and eating my lunch. Thank you. David Sacks (00:14:47): And that the all in's the the all in syndicated is is gonna be 250,000 is Chamath Palihapitiya (00:14:53): 251,000 David Sacks (00:14:54): checks with no fee, no carry, and where the company is paying the administrative expense of that. We just wanna let, you know, 250 of our listeners wet their beaks. Yep. So and Chamath Palihapitiya (00:15:06): -- David Friedberg (00:15:06): Is it open yet, Zach? Like, can anyone download the app and use it yet? David Sacks (00:15:10): No. It's still in private beta. We're gonna open up soon. You know, we'll certainly Jason Calacanis (00:15:13): have to sign your file. I I was looking at it the other day, it's getting really tight. I mean, can I talk a little bit about it, or do you not wanna keep it lasting? David Sacks (00:15:19): Go for it. Yeah. Jason Calacanis (00:15:20): Well, I mean, here's the here's the genius of it. and I mean that sincerely, not just because you gave me an allocation. But clubhouse, when you go to clubhouse, If you miss the great conversation, it's gone. And Clubhouse has really bad audio, quality, and the rooms, And there's really you know, there's clubs as a concept. But in call in, everybody creates a show. Then the show is syndicated to an RSS feed like a podcast So you can basically start your own podcast with no staff, no post production. You just talk, And then it goes out to an RSS feed. So we're thinking David and I of doing, like, a post show after all in, like, 2 days after just to talk to the fans and do like, a little private group thing, but it's kind of like a really nice overlap of podcasting and yeah. Well, Speaker 4 (00:16:11): I was David Sacks (00:16:12): gonna say it's it's it's basically long tail podcasting. using social audio as the gateway drug to, you know, to long tail podcasting. Jason Calacanis (00:16:21): The it's a company worth 4,000,000,000 yet. Have we have we internally marked up the round four times, like in Jason Horowitz? David Clubhouse? Let me get Shamont in the conversation. Shamont, what do you think of a venture firm making a seed investment at a 100,000,000, then a 1,000,000,000, then at Chamath Palihapitiya (00:16:39): 4,000,000,000. Jason Calacanis (00:16:41): for a product that, you know, it's largely sideways. This is like internal 3 bets and marking it up 10 x and then 4 x. So 40 x lift over three rounds. What do we think of this? Chamath Palihapitiya (00:16:54): I think the best venture firms shouldn't give a shit about any company, and I don't think that they really do. Because if they're very savvy They should be doing exactly what Andreessen you've seen the articles about Tiger. You've seen all these other folks. The real question is maybe if you want, can you please explain what they're doing? And what they're doing is, to me, if you understand The investing landscape makes a ton of sense, which is technology used to be the small niche And so we used to only get you know, when I started social capital, there was probably $25,000,000,000 to $30,000,000,000 a year flowing into Venture just in 2011. Fast forward a decade, we have like a $120,000,000,000 a year going into tech, and it's going up like crazy. And if you're the best brands, you're gonna get the overwhelming amount of interest from people who want to get into the asset class as the asset class expands. Right? So if all of a sudden, you know, you decided to invest in private equity when private equity was going bonkers. you're not gonna take as much of a shot on an emerging manager. You're gonna wanna take a shot on Blackstone or KKR. Right? And that's what's allowed those folks, Carlisle, to scale AUM just unbelievably. Blackstone, I think, is fast Jason Calacanis (00:18:17): after. -- management. Chamath Palihapitiya (00:18:19): exactly half a $1,000,000,000,000 now at Blackstone. Similarly, there are these indelible brands in Venture. And when everybody realizes they need to be long tech, they jump in. Now when they do that, you have to understand who these people are. there are 2 things that matter. 1, they are people like pension funds, and their hurdle rate, meaning you know, what are they trying to do better than in terms of a rate of return is in the low to mid single digits? That's really important to know. 9%, 10%. Not even. Not even. Speaker 4 (00:18:53): Not even. Chamath Palihapitiya (00:18:53): Not even. 5%, 6%. Okay? And then the second thing you need to know is that these guys have so much money that they would rather when they spend an hour meeting with you, they'd rather give you a $50,000,000 check than a $5,000,000 check. A $5,000,000 check just compounds their problems. So if you put these two things together, it makes a ton of sense for companies that can't reason to now focus on the velocity of money. Raise a fund, put the money to work, raise a new fund in a very systematic way that everybody can understand and can predict so that Andreessen can tell their LPs on a calendar, guys, I'm gonna be back to you in 18 months. Guys, I'm gonna be back to you in a year. and be able to scale the capital. And I think if you if you look at it in that framework, it explains and recent. It explains Excel. It explains sequoia. And by the way, it's a brilliant strategy because these guys still make 2 a half percent on the money. They end up returning the market beta, meaning what the average market would do anyways plus a little bit of alpha. Right? So they'll still do a little bit better than the market, which means they'll be able to raise money infinitely. So if I'm Jason Calacanis (00:20:00): being the public market or the venture venture mark Chamath Palihapitiya (00:20:06): No. But that'll decay. Right? So that'll decay down to the to to 10% or 12%. But my point is it's still better than the 5 or 6 percent these pension funds and other folks need to earn. So today, the goal of every fund that success that has a brand David's included should be do good deals. Make sure you're in things that that can work. And the thing that David has, which other folks know, is David can help make things work when they're not necessarily obvious, but then pound the money in and then raise more money as fast as you can because then, you know, it helps the investor. That's what they want, and they're happy to pay you. And then for you, the GP, you start to make enormous fees and the whole cycle works. So for end reason, I think that's the calculus. It's like, shit. If I can put a 100,000,000 in, that's a 100,000,000 less I have in my fund. Now I can go I'm a 100,000,000 closer to raising the new fund. Jason Calacanis (00:21:00): Okay. Now the criticism has been, Friedberg, I'll go to you. it's bad hygiene for the same firm to mark up the same product 3 times, in this case, you know Chamath Palihapitiya (00:21:13): -- David Sacks (00:21:14): Clubhouse. Jason Calacanis (00:21:14): What's in it? Clubhouse. So is that a warning sign for you that it's a bubble or it's kind of the the worst case I've heard is, like, marking up your own book, self dealing, whatever. How do you look at that issue, Friedberg? And then I'll go to you, Saks. David Friedberg (00:21:28): Well, if it were SpaceX, you would look like a genius. So, you know, I think we can criticize Chamath Palihapitiya (00:21:36): it until we David Friedberg (00:21:38): know or WhatsApp. And Sequoia has done this many times where they've been the lead in multiple rounds in the company, and they have conviction and the quality of a business, and they don't wanna bring other investors in. And when you have high conviction and you can continuously buy more of the stock and buy more of the company and be a bigger owner, and then it works out, you look like a freaking genius. And so I don't wanna criticize the investing style of these guys. I mean, time will tell if they made good bets or not as a whole, you can kind of make the case maybe that they're trying to be asset managers and drive assets under management up and gain more fees. But I think LPs are a little rooter than that. We'll kinda take a smarter look at that. At the end of the day, the guys that are known for doing this like Sequoia and founders fund and others have had incredible returns by doing exactly this. So the strategy does work. And, you know, you just have to have to do it with the right businesses, and that I think that will you know, demonstrate the quality of your investing acumen. Jason Calacanis (00:22:33): Alright, Saxony. For the thoughts on that, the marking up your own book, is that something you plan on doing? with this new fund and having the growth? And how would you look at, hey, calling starts getting some traction. Does that mean your growth fund is gonna go mark it up and take that those shares, or do you think that it's better hygiene to have the market price it? David Sacks (00:22:53): Well, I guess it just depends. I mean, the growth fund does give us the ability to double down at a later stage on our own early stage companies, but you do have to be really sure when you do that because it does you know, it it certainly raises questions if you're wrong, right, that you wouldn't have with any other investment. So it just it definitely raises the stakes, you have to be really certain, I guess. But, you know, if Colin's a big hit, do we go raise, you know, a growth round? Yeah. And Now I think what we might do in that case because we incubated it is we'd let somebody else lead the round, and then we would participate. So you have some third party saying the price because we incubated the company. And frankly, that's what we did with the round that you just participated in is craft participated, but we do set the terms. It was actually Goldcrest and Sequoia cola the round with Kraft. Jason Calacanis (00:23:44): When you incubate a company like that, Let me ask another technical question. because the audience last week or and the week before really responded well to us talking about this as opposed to COVID and delta variant. which we'll talk about at the end of the show. For those people, you can basically turn off the show at 50 minutes or 75 minutes when we talk about the impact of the pandemic. But and I and I'm hoping you're thinking right now about who's not in Italy. I hope we'll get back to that again. When you incubate a company like that, who owns the original founder shares? Craft, the organization, David Saxie, individual came up with it? What's the inside baseball there? David Sacks (00:24:21): So it's sort of all of the above, and we meaning craft have a deal with our LPs. That's called an LPA, limited partner agreement. And one of the things that was negotiated when I founded craft 4 years ago was the terms on which craft would incubate deals. And And so it's all predetermined. What I get as a founder, what what our funds get, what the LPs get so there can be no argument about it later. And this is this I call it well, we we've actually done now we have a few incubations in development. You know, for me, it's really important to to scratch that product itch. You know, I'm originally a product guy, and And I, you know, I I love investing in helping companies, but occasionally, about, I'd say, maybe once a year, I get a a product idea that I think is worth developing. And so This gives us the ability to incubate it. So we did it a few years ago with a crypto company called Harbor. We ended up selling that company to BitGo, which just announced the largest acquisition of a crypto company, Galaxy's acquiring it for something like 1,200,000,000. So anyway, so Harbor, I think, will work out, you know, once the deal closes. And Collins, the second one, there's a couple other things that are still you know, they're too early to talk about. But but I think Colin will be the the second one to to launch. Jason Calacanis (00:25:45): Shamoff has an LP and a lot of fun. what do you think when somebody comes to you and says, I want to, in my LPA, my limited partner agreement, have the ability to incubate these companies. Is that a good trend, bad trend? How do you think about it? Chamath Palihapitiya (00:25:58): I think it's great. I mean, I don't really, you know, push back on a single term in any LPA because I'm only doing it mostly to support people. And so whatever terms they want they get for me and, you know, kind of just like let them go and hope they get lucky. You know? I have a very different approach to to these kinds of things because I'm not necessarily trying to compound my capital. I'm just there to sort of enable folks and you know, take 1% of the fund or sometimes a little bit more if I really have an asymmetric view on a specific thing that they're doing. But otherwise, I just take 1% sign the thing and, you know, wish them wish them the best and then try to support them. big and that's all I'm trying to do. If I believe in what how they're investing and the deals they've done, you know, however they do it is up is fine with me. I wanna go back to something which I actually think it's not a question of hygiene. It's really a question of governance because when you do these things and you mark these companies up, the real question, if a company stops working is they tend to have too much money, and then they tend to not have enough governance. And the reason is because governance typically comes with board diversity, and board diversity comes with more and different investors who have different, you know, puts and takes at any given point in time. That diversity is very helpful to keep everybody on the same page and to actually get a decent outcome when things aren't working as much. Now when things are working, Obviously, nobody cares. You know? because, like, you can just have Jim Getz on the board of WhatsApp with Jan, and it's all kind of said and done. Jason Calacanis (00:27:33): It's not been to the right. So as we're saying, when things are When things are good, nobody complains. Yeah. Chamath Palihapitiya (00:27:38): No. And, you know, this may be a good jumping off point for you know, we wanted to talk about Zymurgen today. David Sacks (00:27:44): Can I say one thing before we get Zymurgen which is just -- Yeah. Chamath Palihapitiya (00:27:46): -- David Sacks (00:27:46): look, I think there's all sorts of new models now with with this sort of tech and the money going into tech, the venture capital exploding There's all these innovative new models, and I think it's all for the good. A studio that I think is great is what Jack Abraham's done with Atomic. you know, they produced multiple unicorns out of there because Jack is just a phenomenal idea guy. He's like a 10 x idea guy. So he then as part of Atomic, comes up with the idea and then brings on a operating partner, and that model works for them. And then, you know, he just partnered with Keith Raboy on Open Store And Keith decided to become the CEO, and Keith is still a G p F Founders Fund. So we're seeing like the blending of these models, you know, it used to be that you made the decision to become a VC, and your career as a founder was just over, it was like this line that could ever be crossed again. And now you're seeing the blurring of these lines. And look, I think it's good for everybody because frankly when, you know, Keith or what I'm doing with Collin, we remind people that we're still founders and product people and, you know, not just sort of semi retired guys. And frankly, it's like it's good for what we do as investors. David Friedberg (00:28:59): I mean, we we saw it with Mike Spicer who is a partner at Sutter Hill. He incubated started and was the original head of Snowflake, which was a massive Chamath Palihapitiya (00:29:08): -- And before that, he's this is his third. So, you know -- Right. -- he did pure storage. He did Snowflake. I think he did LaceWorks. Incredible. He's incredible. He's just fucking money. David Friedberg (00:29:18): And just just just folks that don't know, Snowflake you know, it's an enterprise software company. They make software. So he's a venture capitalist. He started this company while working as a venture capitalist. they brought on a great CEO. It's an incredible guy later who's who's Frank Luchman, who's who's a legend. And the company just went public last year, I think, or the year before, and they're worth $82,000,000,000 today. And so it really highlights it while this guy is still operating as a venture capitalist and a GPU has been able to generate incredible returns for his fund and and build amazing businesses at the same time. Chamath Palihapitiya (00:29:50): So -- I mean, Spicer Spicer is a perfect example because I I've known him since, like, the early 2000. And at one point, Spicer started this consumer company called Bix and I was like, we were like an investor. It was a small investor in Bix. And and it got a I think it got acquired by Yahoo. And it was always curious because like Spicer was clearly the smartest one in the room, and it's like he was kinda grinding this consumer thing. And then he left Yahoo, went to Sutter Hill, and he basically said, you know what? Fuck this. I'm going back to my roots. before that, he was a pretty traditional enterprise guy, and he just crushed it. It's kinda like Michael Jordan was finally like a fuck baseball. I'm going back to basketball. Speaker 8 (00:30:30): And -- But it's like David Friedberg (00:30:31): it's like Reed Hoffman and an illusory at Greylock. Right? I mean, these guys are the incredible operator. It's business builders, and they continue to to do that work while while being partners of the Venture. Jason Calacanis (00:30:41): We have 3 directions we can go moving on. Xymragen. Xymragen is so interesting. I think we should do it. Okay. Let's do Xymragen. I agree. Alright. So for people who don't know, Xiimer Jim went public, $31 a share in April traded as high as $48 shortly after that. I had the CEO on my podcast. And I was confounded trying to understand the business. You had told me I had asked you for some questions, Friedberg. You gave me some choice statements of what to ask, which I can I say? David Friedberg (00:31:12): No. I don't think so, Chamath Palihapitiya (00:31:13): but Okay. Jason Calacanis (00:31:14): Anyway, you gave me some choice. chins. I didn't ask them exactly the way you said them. But here is the quote of what happened on Tuesday. Zymogen stated the following. Zymogen recently became aware issues with its commercial product pipeline that will impact the company's delivery timeline and revenue projections. Accordingly, the company no longer expects product revenue in 2021 and expects product revenue to be immaterial in 20 22, they also announced that the founding CEO, Josh Hoffman, who was on this week in startups to maybe a month ago, Stepping down as CEO will be replaced, and XiIMrogen stock then dropped 70% on the news. I don't know if this was a spec or not. SoftBank hyped up. David Friedberg (00:31:58): So it was a straight IPO and a stoshopped Chamath Palihapitiya (00:32:00): 80% David Friedberg (00:32:00): yesterday, 80% a day after going public Chamath Palihapitiya (00:32:03): 3 David Friedberg (00:32:03): months ago. Yeah. Jason Calacanis (00:32:04): So I think, Freberg, a good way to start would be what did they say they were gonna do, and then why has this happened? David Friedberg (00:32:12): So Xiimergen and a couple companies like them started around the same time, which is around Chamath Palihapitiya (00:32:17): 2014, 2013, 2012, David Friedberg (00:32:19): that era, 2015 even. And the the promise of these companies is truly to be everyone wants to be this platform for synthetic biology. And what that means is they can take cells. And in a smart way, edit the cells and get those cells to make things that humans need. And so you can kind of think about making materials like silk and leather and plastics. And you can think about making food like egg proteins and milk proteins and so on. And you can think about making industrial products, you know, enzymes and things that might be used in in laundry detergent and other applications. And so for yours, you know, we've gotten DNA sequencing cheaper. We now have DNA writing and editing cheaper. We've now got other tools to basically screen cells. So we have these the set of tools where the synthetic biology platform companies popped up and said, you know what? We're gonna put all these tools together. and build a platform for editing cells and doing a better job of making things, and we're gonna get into all these markets. And Zymergen, when they first started, were, like several other companies like them, a services business. So they would go to big partners like DuPont and say, hey. Let us make a new enzyme for you. Pay us $25,000,000 up front. and then we'll get a royalty on the back end when that product eventually goes to market. And they did that for years. They went after insecticidal products. They went after plastics and materials and all sorts of stuff. And as is the case with a lot of deep tech, it turns out it's really freaking hard. you know, these tools might be there. But like we saw with the clean tech era where everyone thought they could make oil from sugarcane, you know, 20 years ago using a same sort of approach, To get the unit economics, meaning can you make the product cheap enough, it's really, really hard. That means you gotta get these cells to be just perfect, and you gotta get the systems to be perfect. David Friedberg (00:34:00): And so at the end of the day, they went through a lot of customers at Zymurgen that paid them tens of 1,000,000 of dollars, and Zymurgen didn't have anything at the end of the projects to say Here's something that works that you guys are willing to pay for that you're gonna go take to market because it really wasn't that compelling. The the unit economics weren't good enough, and it didn't really have big breakthroughs for any big industry. And so Zymogen, like other companies in the space, pivoted and said, you know what? We're gonna now be a products company. So we're gonna make our own products instead of just being a services company. as they started to get into that, they decided that their first big product would be this kind of, you know, plastic for for for cell phones or what have you, a protective film. And in the meantime, what happened is it takes so much money to do all this r and d to run all these labs, to have all these robotic arms that they have that are moving test tubes around. hundreds of people building and running these labs. And and so they've had to raise money. And in order to raise money, as you guys know, you have to kind of hype the story. You say, look. We're gonna change the world. We're reinventing everything. We're using synthetic biology to rebuild everything yadayadayada. And the story resonates with me because truly do believe that the potential is there, but the timing and the sequencing of these things is hard. As is the case with a lot of deep tech companies, when you get too far ahead of the curve, And you start saying, I'm gonna do x, y, and z, but you can really only do a, b, and c today. You raise money saying, I'm worth 1,000,000,000 of dollars. You raise 100 of 1,000,000 of dollars. and the hype has to keep stepping up. And they eventually got into the trap that a lot of companies got into, which is taking money from SoftBank. David Friedberg (00:35:25): And SoftBank said, here's Chamath Palihapitiya (00:35:26): $400,000,000 $3,000,000,000 David Friedberg (00:35:28): valuation a few years ago. And they said, great. Let's run at it. Let's be a products company. And they burnt through a lot of that money, and suddenly they didn't have any products to show because Deep it's hard. It took a lot longer than anyone thought. And what will you know, we better try and craft a narrative and get public. And so they did that. They got public. And, you know, a lot of what they had been telling people was coming was coming. It's gonna be here soon. Didn't really work. So they had to pivot the business. They had to become company. They kept telling folks they were gonna be x, y, and z months away, and they were gonna be able to hit these targets on the product. And it turns out it was always a little bit little bit further away, little bit further away, And then boom. They have a big board review recently, and they look at the product pipeline, and they look at where they are, and they're like, uh-oh. This really isn't gonna work. And the whole thing, you know, falls apart. because everyone was banking on this massive return. And everyone missed the story, which is that they've been doing this for many years and had to eventually and pivot away from their business because no one was willing to pay them for it. So, truly, they never found product markets fit in their 1st generation of their business, and they never found product markets fit in the second generation of the business. And it's really worth taking a watchful eye based on this this learning, which is just a fundamental basic premise for starting a company. Do you have product market fit? And can you make money from your product? And if you can't answer those 2 things, there isn't a business. And then the third thing is how valuable the company is a function of how much you can grow. And so, you know, they really hadn't even gotten past phase 1, and everyone kinda wanted to believe the hype. So it's a bit disappointing to see, but it's it's really gonna impact the industry broadly. now people are gonna say a lot of synthetic biology companies are smoke and mirrors, and they're really not there yet. David Friedberg (00:37:02): So a lot of folks in the industry are really concerned right Jason Calacanis (00:37:05): now. So to dovetail this with the previous discussion, Saks, funding your own company over funding of companies. We talked about, hey, if it goes well, like WhatsApp did, well, you're a genius. But if it doesn't go well and you get ahead of your skis, you don't have product market fit and you've raised a bunch of money, then somebody becomes the bag holder. Chamath Palihapitiya (00:37:24): No. Jason, it's it's even it's even bigger than that. It's it's not just that it happened just in the private markets, and then you had JPMorgan and Goldman Sachs take them public. And then they raised, you know, another half a $1,000,000,000 in the public markets and then they shat the bit. Jason Calacanis (00:37:41): Right. and we see the same thing. This is the same week that Nikola's founder who went out by stack and was gonna compete with Tesla and Ford There, he's now under indictment for lying and selling shares also known as security fraud. probably gonna go to jail. I had him on the podcast. That was underwhelming. So, Sax, when we look at these, which is it? Should we, on a hygiene basis, be throttling these companies and have milestone based financing? Or are is this the sign of a top in the market that people are able to go public People are being given large amounts of money by SoftBank, and these things probably people should pump the brakes. David Sacks (00:38:20): Yeah. Look. SoftBank is engaged in style of investing that we would never engage in is absolutely antithetical to the way that we invest. Right? They're making $500,000,000 seed investments and massively overvalued companies. You know, we we are one of the reasons why we like SAS and marketplace set craft is they're very milestone based. I mean, we you know, if we invest before you have a functional product, it's gonna be at a seed valuation, you know, like a 10 cap, $10,000,000 valuation, not in the billions. like, you know, like Zymurgen. And, you know, we're gonna in order to do a series a, by and large, we need to see some revenue. You know? And then, you know, if we're gonna do a growth round, we need to see more revenue and more customers. And so, you know, you you you show incremental progress. You know, we're we're engaged in milestone based investing where the amount of money you raise and the valuation you're able to get scales with the amount of proof that you have delivered, you know, to investors about the company. And the crazy thing about these, like, spectacular implosions, and they're usually around deep tech is because these entrepreneurs can tell a story, and people just seem to suspend belief and don't demand any proof for years years. So it was Theranos. It was Nicola and Alex Zymergen. David Friedberg (00:39:39): And I think by by the way, deep deep tech is it's it's not that we should dismiss technically difficult problems. We should engage and fund and build great businesses that are technically difficult. Jason Calacanis (00:39:50): How much should we fund them? For how many months or course. Yeah. David Friedberg (00:39:53): But or, I mean, really, what's what's important what's important is, you know, what is the representation that's being made? And I think there's only one hype man on planet earth that is good enough to pull this off and actually deliver the goods at the end of the day. It's probably Elon, like, because, you know, he funded these businesses that were deep tech businesses, Tesla and SpaceX. For many, many years, he was able to get investors excited. He he funded them himself Jason Calacanis (00:40:18): further funded itself. Chamath Palihapitiya (00:40:19): -- David Friedberg (00:40:19): itself for but remember, most of the capital. I mean, he put in sub capital. But the vast majority, Billy,000,000 -- Tesla, Jason Calacanis (00:40:24): he put in 50,000,000 and went bankrupt. He went bankrupt. He was living off a $200,000 loan from a billionaire friend of ours. Yeah. David Sacks (00:40:33): Yeah. Jason Calacanis (00:40:33): No. No. No. No. Speaker 4 (00:40:34): No. I'm Jason Calacanis (00:40:34): sorry. Beep that part out. You're not allowed to say who -- Sorry. Chamath Palihapitiya (00:40:37): Sorry. Sorry. Sorry. Jason Calacanis (00:40:37): It's not public. David Sacks (00:40:38): Elon only self funded the first couple 100,000,000 in these companies. He delivered revenue very early on. You remember at Tesla, he first of the sports car, the roadster. And that was real that Speaker 4 (00:40:48): new house. Chamath Palihapitiya (00:40:49): $150,000. Jason Calacanis (00:40:50): He sold a 100 in advance, not dissimilar to Virgin Galactic's Playbook. David Friedberg (00:40:56): Right. And maybe that's an important lesson. Right? Like, in deep tech, you can't just say I'm going from 0 to 1. with 1,000,000,000 of dollars over decades. You know? That that's a government funded program. Chamath Palihapitiya (00:41:06): Well, or or you can if it's your own, and that's what that's what Branson did. David Friedberg (00:41:11): So at Bezos. Chamath Palihapitiya (00:41:12): When I showed up, Richard had spent 1.1 or 1,200,000,000 of his own money. And I thought, I mean, at at some point -- -- game. That's that's skin of the game. Okay. David Friedberg (00:41:23): Bezos has been funding Blue Origin for 20 years. Right? Jason Calacanis (00:41:25): I think they take Nektar and Mosquito Island if he if that doesn't work out. I Speaker 4 (00:41:29): mean, he's just David Sacks (00:41:30): There was also Quibi. David Friedberg (00:41:32): It's another story. David Sacks (00:41:33): Yeah. Quibi didn't even involve DeepTech. It didn't require any scientific breakthrough. It just required some marketing proof that people were interested in that format. And they just blew it really in Chamath Palihapitiya (00:41:43): dollars. -- checks? David Friedberg (00:41:43): Just describe it. David Sacks (00:41:44): Well, they they basically, Katzenberg, along with Meg Whitman, with was kind of a weird choice to be a cofounder because she's more of like the like the late stage CEO you bring on to take the company public once it's already working. She's not really like a Chamath Palihapitiya (00:41:57): -- Jason Calacanis (00:41:57): She's not a product innovator? No. She's not like -- Exactly. David Sacks (00:42:00): But but Katzenberg Katzenberg is, though. Right? Katzenberg is obviously very creative. And so the idea He knows talents, they came with this idea to build a studio that put a $1,000,000,000 into creating short 10 minute videos. The problem was there is no proof that the market was wanted that format, they should have spent 5 or 10,000,000, proving that the format made sense and then spent a $1,000,000,000 if it worked. And You know, I just I I I don't understand why why founders or really investors kinda put up with these types of stories Chamath Palihapitiya (00:42:34): -- Look at WeWork. Same thing. David Sacks (00:42:36): Yeah. Chamath Palihapitiya (00:42:37): There is not a shredder -- We work like -- -- shred evidence that there was an economically viable model there, and yet 1,000,000,000 and 1,000,000,000 of dollars went into that company before the buyback -- Jason Calacanis (00:42:46): It acts infamous. I disagree David Friedberg (00:42:48): I disagree on that one too, Mark, because, like, Speaker 4 (00:42:49): we were couple Jason Calacanis (00:42:50): of years was economic viable. It just wasn't a software business. David Friedberg (00:42:53): They had great gross margins. It just wasn't scalable like soft exactly. There's no leverage in the model. It was just purely, like, go lease something for x dollars and then sublet it for x plus y, you know, x plus y dollars. And and it worked. It just like, how do you scale that? And then they got ahead of their skis and did all sorts of crazy stuff to get the tech valuation. Chamath Palihapitiya (00:43:09): Hold on a second. But they they sound like you can just go to the store and buy it off the shelf. Like, there's a tech valuation thing you can buy. other people had to believe it as well and feels other people were also pretty credible smart people. Jason Calacanis (00:43:22): Were they the later stage people? David Friedberg (00:43:24): Did you read the WeWork book? Jason Calacanis (00:43:25): The later stage ones? I think we're Chamath Palihapitiya (00:43:27): like we're like evading the thing that that we're not saying, which is that As much as we all wanna believe that we're all doing incredibly, incredibly diligent work, there are a lot of examples where belief Trump's logic and even the smartest people just look past the obvious. And we just talked about 4 pretty obvious examples. In no world should a credible tech investor not be able to do a simple valuation or see a business model and brazenly believe a real estate business is a tech business. At the same time, there should be no world where, you know, you're a pitch something that is just so incredibly grandiose from a technical perspective and be and the reason you invest is actually because you don't understand it. Because if you did, you'd be more critical. That's fucking insane. Jason Calacanis (00:44:21): Well, you this is the thing. Chipotle are Chamath Palihapitiya (00:44:23): suspending due to these examples of using passports. Exactly that. Jason Calacanis (00:44:27): Yes. They're suspending disability. I'm sorry. -- greed, and they're not doing the basic tenants of investing, which is milestones, talking to the customer. These are blocking and tackling. Chamath Palihapitiya (00:44:38): I think it's more agreed, Jason. It's greed. There's fraud too. It's criminal. It's fraud. Jason Calacanis (00:44:44): Let's be honest. It's fraud. David Sacks (00:44:45): Some is fraud. So re read the quote read the quote from the US attorney of Manhattan who said Milton with respect to Nikola lied about nearly every aspect of the business. People like that need to go to jail. Okay? Jason Calacanis (00:44:56): Jail. Big time. David Sacks (00:44:57): Jail. Big time. the startup world, the investing world only works if investors can trust the information and the financial statements are being given by operators because we have to make decisions quickly. And if they give us bogus numbers, how are we supposed to make educated decisions? Jason Calacanis (00:45:12): Well, people don't wanna do diligent, Saxx. People don't wanna do diligence and things Speaker 4 (00:45:16): like that. Chamath Palihapitiya (00:45:16): -- David Sacks (00:45:16): look at metrics. We always look at metrics. Okay? We look at look. We can get we can do the metrics in one day. Jason Calacanis (00:45:22): Churn. David Sacks (00:45:23): We we look. We look at ARR. We look at net revenue retention. We look at churn. We look at CAC, and we look at your financials. We can do it in one day. Okay? It's not an invasive process, we can decide very, very quickly because we know what numbers we're looking for and how to read the statements we're given. Jason Calacanis (00:45:38): But question for you. when the founders say have a competitive process, we don't wanna do all that. Has that been happening in today's crazy market where people say the train's leaving the station? and we can't do diligence. We don't have time for this. Are you into -- Yeah. Yeah. Yeah. Yeah. Chamath Palihapitiya (00:45:52): -- Jason Calacanis (00:45:52): happened to you? Has that happened to you in the last 6 months? David Sacks (00:45:55): In a sense, but we say to them, listen. Here's what we need. And if you give us these numbers today, we can make a decision within 24 hours. So and there's no reason we can. by the way, they have those numbers. And if they say they don't have those numbers, they're too incompetent to be funded because these are all the core SaaS metrics that you should have to be tracking your business. So we would never make an investment without seeing the SaaS metrics for a SaaS business. Jason Calacanis (00:46:16): Same. Yeah. David Friedberg (00:46:16): Let me just step in for a second because I think there's 2 camps. 1 is businesses. companies that are operate a business, and what you're talking about makes a lot of sense. You could have looked at the business metrics of WeWork and made an assessment of of that business. Jason Calacanis (00:46:29): Or Nikola? David Friedberg (00:46:30): Or Nikola. Well, on the other hand, you have this on the other hand, you have companies I'm I'm saying not their notes and not Nikola, because those are not businesses yet. Those are still in technology development. They're deep tech. So what happens is the founder, the CEO, the management team, they put together their own representation of the metrics that they believe should matter, and then they try and show how those metrics translate into value over time. So there's no revenue. There's no customers. There's no profits. What they're saying is we can in the case of Zymergen, we've got x number of experiments we can run per day. And as a result, those experiments should translate into y discoveries per year, and those discoveries should translate into z dollars of revenue per year. And that's where the pyramid gets built. And the same was true of Nikola, the same was true of a lot of these companies where they say, we can do x. Therefore, we're worth y. And it's that sort of narrative that investors then say, my god. The story is so compelling if you're right. I wanna believe it. I wanna put the money in. and I want this thing to work, and therefore, I'll fund this thing. And I think and I think that's what we've seen continuously. It started with the clean tech industry And now we're seeing it increasingly with all these other key tech companies. Jason Calacanis (00:47:41): Verano. Magic David Friedberg (00:47:42): Leap. And in a lot of these cases, by the way, I will also say Chamath Palihapitiya (00:47:44): -- Nicola. -- David Friedberg (00:47:45): it's you know, it's easy to do that but it shouldn't be a representation that the entire set of opportunities is a false narrative. Jason Calacanis (00:47:52): Absolutely. Speaker 4 (00:47:53): There are David Friedberg (00:47:53): many great businesses in biotech that actually do deliver the goods they turn into incredible companies. Chamath Palihapitiya (00:47:58): There's a synthetic biology competitor, DeSimergen, who I spent a bunch of time with. I'm not gonna say the name of the company. And they and and I and I asked them what gross revenue growth. Jason Calacanis (00:48:10): Simple question. Chamath Palihapitiya (00:48:11): What's your gross margin? What's your revenue? What are your COGS? What's gross margin? And I got an asterisk laden answer. Jason Calacanis (00:48:19): What does it mean? Asterisk's laden answer. Chamath Palihapitiya (00:48:20): It's kind of like adjusted EBITDA. Adjusted for what? Speak English. Jason Calacanis (00:48:26): That's what you gotta tell them. Speak talking English. Chamath Palihapitiya (00:48:29): This is like when Jason Calacanis (00:48:30): I would come home, my dad say, where's your report card? I'd say, you know, that's interesting. my report card? Yeah. I don't have it. So where is it? I passed. And then Chamath Palihapitiya (00:48:39): I you know, again, it's still shocking to see the number of people that will still do these deals and look, maybe it all works out in the end. But I tend to think like if you can't present things simply, and you can't explain things simply, that's on you, however. If then you still do that, and you still have good intentions, maybe you don't. But then investors toe the line. The problem is there's this momentum thing that happens among investors as where the FOMO kicks in, and some of the smartest people become some of the dumbest fucking people. Jason Calacanis (00:49:13): It no. They are suspending disbelief like you would not believe in the Right? Chamath Palihapitiya (00:49:17): Well, because it's out there money. I mean, look, at the end of the day, why does it happen? Meaning, how can a Zymbridgein IPO happen like this? Or Nikola, Like meaning, if you look under the hood in the s 1, I was trying to find it in the s 1. Was there somebody that I actually did like some due diligence into high line? Clearly not. Was there was there a synthetic chemist or a synthetic biologist that basically helped clearly not. Did everybody say that that was okay? Clearly yes. You know? Did I don't know. Anybody get under the hood of Nikola and actually, like, look at the engine, make sure the thing worked. I don't know. David Friedberg (00:49:57): By the way, people did. There just were enough people that didn't. they were able to get a financing done. Right? I I and I think that that's the important point is there's enough people who are -- I'm Chamath Palihapitiya (00:50:06): talking about 2 public market examples. You're not allowed to have sequester diligence when you're going through an IPO. David Friedberg (00:50:11): Yeah. Chamath Palihapitiya (00:50:12): So how it works? David Friedberg (00:50:13): By the way, I I I like, do you guys know the difference between humans and animals? There's one there's one distinguishing characteristic that that that that I think Chamath Palihapitiya (00:50:22): -- Jason Calacanis (00:50:22): Making toys. Making toys. Chamath Palihapitiya (00:50:24): -- David Sacks (00:50:24): narratives. narratives. Chamath Palihapitiya (00:50:25): -- stories. Yeah. Speaker 4 (00:50:26): It does. David Friedberg (00:50:27): It all comes down to narratives. Like, there are dolphins that can communicate with one another. There are monkeys that sit in a tree, and they can warn each other about approaching predators. meaning that there are other species that can communicate. What humans can do that no other species can do is create a narrative, to create an ethereal belief in something, that does not exist and get others to believe Jason Calacanis (00:50:46): in that thing. David Friedberg (00:50:47): Religion, democracy, the financial institutions, the monetary system, a business like this, they're all the same. It's all the same. Chamath Palihapitiya (00:50:56): Hyalized, Nicola. Yeah. Exactly. David Friedberg (00:51:00): And I think in all these cases, Jason Calacanis (00:51:02): By the way, this is the Cliff Notes version of Sapiens, everybody. David Sacks (00:51:05): Yes. Yes. Speaker 4 (00:51:06): That's it. Jason Calacanis (00:51:06): Cliff Notes version of Sapiens. Chamath Palihapitiya (00:51:08): I have a funny Theranos story. if you guys wanna hear it. Jason Calacanis (00:51:11): Let me just finish David Friedberg (00:51:12): this one point. Like, there's a fundamental premise, which is humans want to believe. And so when you have a Bardum type person show up when you have a, you know, a compelling narrative and a compelling deliverer of that narrative, whether it's a religious leader or a or a a presidential or a a government leader or a business leader. And you wanna see what they're selling. Come to reality, you wanna write a check. You wanna put your time or your money into seeing that thing come reality. Chamath Palihapitiya (00:51:39): No. No. I I fundamentally look at you're you're missing a key point. It's not their money, so stop saying that. David Friedberg (00:51:47): Go ahead. Chamath Palihapitiya (00:51:47): They would not put their children's fucking education account into these companies. Jason Calacanis (00:51:51): They're putting other Chamath Palihapitiya (00:51:52): people's money. They're putting other people's money. This is the key David Friedberg (00:51:56): Not enough, Skip. -- put their time into these companies for the same reason. People Chamath Palihapitiya (00:52:00): join WeWork. -- their money. People trade off money and time all Speaker 4 (00:52:05): the time. My my David Friedberg (00:52:06): my pointed people will take their time. They're giving up the opportunity cost of working somewhere else to go work at these companies. Chamath Palihapitiya (00:52:12): David David, honestly, I really fucking disagree with you here. The reason why somebody goes and works at this company because they believe there's positive signaling from a softbank. Okay? So these people are smart, they think. this money must mean it's real. They think I'm now gonna commit my reputation and my time to get options because, obviously, these folks must have done their work how I'm not making the mistake, and that's the lie because those folks are not doing the work. Jason Calacanis (00:52:37): You're both making there's a group of people no. Speaker 4 (00:52:39): No. There's a Jason Calacanis (00:52:40): group of people placing bets who are placing bets of other people's money and they're doing it with our diligence. I agree. Chamath Palihapitiya (00:52:46): You would do different diligence. Let's be honest. The Zibrogen IPO, the traditional IPO would have been entirely different if they had to write if the underwriters were at risk for their own net worth. It would be And Jason Calacanis (00:53:01): if their stock was locked up of the management teams for 5 years or 10 years Chamath Palihapitiya (00:53:05): -- David Friedberg (00:53:05): I do agree with that point tomorrow. I I do agree with the point you're making Speaker 4 (00:53:08): for sure. Chamath Palihapitiya (00:53:08): -- Jason Calacanis (00:53:08): Saks. Go. Sachs. Go. Sacks from a boat. Go. David Sacks (00:53:12): Yeah. I'm not I'm not disagreeing with Tramath, but the the point the point that resonates with me, that Friedberg said is actually book, Sapiens really did impact my thinking as a VC, which is, you know, Yuval Harari makes this point that it's narratives that kinda define you know, humans, and that's what binds us together in societies, and frankly, the vast majority of narratives throughout human history have just been wrong. but they still worked as -- Good stories. Chamath Palihapitiya (00:53:37): -- David Sacks (00:53:37): finding people together. And I kind of and I kind of applied that to VC, which is the VC process revolves around a pitch. it's a narrative session where the entrepreneur goes up there, yeah, and presents a narrative. And then everyone debates the narrative and decides where they buy into it. And, you know, after reading Sapiens, I'm like, this whole process, like, is stupid. How do I get out of a narrative driven investing philosophy? And that's where I'm back to. Look. I understand SaaS. I know what the metrics are supposed to be. Also listen to the pitch. I wanna hear it, but to show me the numbers first, And at least I can get to a decision that's somewhat grounded in reality because I think most of what the VC process does is just measure a founder's ability to tell narratives. And that may be correlated with their ability to do marketing, but it's not correlated with whether their idea is firmly correct or not. Jason Calacanis (00:54:28): It's fine in the seeds. It's fine in the seed stage, I think. Yeah. Chamath Palihapitiya (00:54:32): I think there will be the least amount of fraud when you either have irrefutable metrics or the investor has to invest their own money. Yep. That's the gold standard. Everything else is just, you know, catches catch can, and you're just gonna have a bunch of trash. Yeah. Jason Calacanis (00:54:49): Here's how I'm handled at the early stage, Saks. You because you get to meet my companies. I have told them to craft their narratives around their traction now because I know that all this performative stuff is nonsense. So when you meet those companies, they do a 3 minute pitch, it's the majority of it is, here's the product, here's the traction. And I accept people based on traction, and then I give them more money as the traction goes up, and we bet 4 or five times on the same company based on metrics. And I tell them all, you're coming to the accelerator. Here's a 100 k. If you want more money from we'll keep giving you money if you can grow 10% or more per month on real metrics, period. And we will keep giving you money forever. David Sacks (00:55:29): Right. And I like these launch, like, demo sessions that you do with us because now you force them to base their presentation around a chart. So at least I can see some metrics. And the other thing we do similar to you is I always start with the product demo. Our motto is show me the product not a PowerPoint. Because the same PowerPoint can describe Chamath Palihapitiya (00:55:49): 10 David Sacks (00:55:49): or a 100 different products. It could describe a product that might be great and it can describe a product sucks. Chamath Palihapitiya (00:55:54): Totally. David Sacks (00:55:54): So show me the product, and now at least I'm grounded in what you're doing, and I'm not just listening to some story. Chamath Palihapitiya (00:55:59): By the way, I I'll I'll go back to this still think that funding narratives makes a ton of sense in the early stage. c, a, I rip I rip in 50 k to $5,000,000 checks all the time. I could care less if it sounds reasonable I take a punt at it. Speaker 4 (00:56:12): Right. Chamath Palihapitiya (00:56:13): But the minute that I'm writing a 100 or 200 or $500,000,000 check, I pay fucking attention. Yes. Because it's my money. It's my money. And and go back to this. When it's not their money, you're gonna see this thing riddled with fraud, you're gonna see cases like this stuff constantly. And the person that pays the price where I do agree with Friedberg is the employee because they mistakenly think that these folks must know what they're doing. But the reality is it's not it's somebody else's money. They don't really care. They're just doing a job. They wanna get paid themselves. And so this is how these things happen. David Friedberg (00:56:43): Do you guys let let me just give you some specifics on the Zymergen scenario. So they're gonna go public, right, leading up to their IPO. The stock's at 31 bucks in the IPO. if you're an employee and you have stock options in Xymergen, you have the option to exercise your stock options anytime, which means you buy the stock at your strike price. And then you can sell the stock later when the IPO's over. So a lot of employees, you know, exercise their stock options, meaning they put their own money up to buy the stock at 10, five bucks, four bucks, whatever it is. And they actually owe taxes on the difference between their exercise price and the fair market value at the time that they exercised. So if the stock goes public at 30 in the exercise, they gotta pay taxes as if the stock was at 30 bucks. And then they end up in a situation where they can't actually get liquid. And so there was a lot of employees that got screwed on this transaction when when ZymriGen went public because they thought the company was gonna be worth, you know, Chamath Palihapitiya (00:57:43): 10, 20, 30, $40, $50. David Friedberg (00:57:46): And now the stock's at 8 bucks, and they're gonna actually owe money to the IRS, and they paid for their stock option. So it's a it's a it's a brutal scenario when it plays out employees, and I just feel really bad for a lot of really, really great, you know, smart people that work there that that take a massive hit on this thing. Jason Calacanis (00:58:02): I I hired 2 more researchers on my team just to do diligence at the syndicate. And I say between 20 30 percent of deals that look great when we get under the covers and look at the diligence, we look at the table. We look at the revenue. We look at the accounting. We ask them who's doing their accounting. We ask them for bank statements. We ask them for incorporation docs. We ask them for IP assignments. This is like the basic blocking tackling. 20 to 30 percent do not pass diligence, and we find stuff that is crazy. I had one founder give themselves a loan, and then we didn't know about it. And then we find out about it later. They they did a loan, and the company owes them 100 of Chamath Palihapitiya (00:58:43): 1000 Jason Calacanis (00:58:43): of dollars, had another one. where they were presented their revenue as reoccurring, and it was a a it was accrual based it wasn't accrual based county. It was cash based accounting. And I'm like, yeah. What is going on here? You you're basically lying and you're misrepresenting your company. Don't do that. It's called securities fraud. When you make a representation, don't ever bend it or exaggerate it, just tell the truth. Period, what's the Theranos story? Shamalff, I need the Theranos story, and then I'll give you a follow-up story. Chamath Palihapitiya (00:59:19): The Theranos story is so I had I had a cup I had a very famous investor. Tell me, this is like 2015, 2016. And I said, guys, you know, we were just talking. I said, but what do you like? What do you like? Like, you know, we all kind of talk like that. at some point whenever we interact. You know? And he said, this company, Theranos, you have and maybe it was 2014. Anyways, 2015. theranos. Theranos. Theranos. And I I said, are you an investor? And he said, no. But I wish I was. It's incredible. And I tried to get an introduction. I thought, okay. This is this is gonna be very interesting. I couldn't get an introduction. But then I find out who the board is and instantly I get turned off So in my mind, I had a very negative impression because the board was literally not all ninety year olds. And I thought, what do ninety year olds know about you know, blood testing and, you know, basically building a tricorder. And at that time, you know, I think I told this story before, but I had burned about maybe 50, 75,000,000 bucks on 6 different startups trying to do this, like, you know, in situ kind of like, you know, finger prick blood testing, blah blah blah. So I was really fascinated with the space. A year and a half later, a guy that I worked with at Facebook, a very senior guy says to me, I'm thinking and I was trying to recruit him to come work at one of my companies as CEO. I'm thinking of going to Theranos. And I said, just go to the interview and tell me what happens before I, you know, try to convince you to not go. He goes into the to the interview to be COO of this fucking company. They don't let him past reception. They interview him in a makeshift room outside of the meeting And he said, well, can I, you know, go inside? And, you know, when do we have a follow-up interview? You know, I'd like to meet some of the team. I wanna see what it is. And they said, no. Chamath Palihapitiya (01:01:20): No. No. We're good. Here's your offer letter. Do you wanna join? Well, can I see the device? Can I try it? No. No. No. No. We're good. Let's go. And I said to this guy, I said, how can you fucking join this company? I mean, it's not like you're you're coming in as like a junior flunky. You know, you're coming in as the 2nd or third most important person in this business. You haven't been past reception. You don't even know what's reception. You don't even know what your office will look like. You don't even know if you like the office furniture. At that basic level, think about everything else that comes after that. And then, you know, what happened happened. So yeah. -- disaster. Speaker 4 (01:01:53): William Perry Former Head of Cyber Defense, Jason Calacanis (01:01:54): Henry Kissinger. We did just It was like It David Sacks (01:02:01): was a bunch of grand poo bah types. That's how you knew. It was a red flag. If you got one Chamath Palihapitiya (01:02:05): -- Jason Calacanis (01:02:06): Red flag. Chamath Palihapitiya (01:02:06): -- David Sacks (01:02:06): of those guys. You got one guy like Kissinger on your board. It's okay. If they're all like that, it's a problem. Jason Calacanis (01:02:12): Problem. Huge. So I I go on CNBC. I just had John Carrie Rou from The Wall Street Journal who broke this thing wide open on my podcast. And I start getting all these inside tips about Derenos. And one of them was that Elizabeth Holmes and Balwani who is the COO were in a relationship together. They lived at the same address all this nonsense. And I checked with Karru, and I'm like, hey. Is this true? And he's like, yeah. That's true. Yeah. I was like, why don't you report? He's like, I'm just chasing it down, whatever. It'll be in the next story. So I go on CBC. And I was like, listen. When they're smoked as fire, if they had the device, my game theory is, if you have the device, you show it. If you don't have the goods, you don't show it. period end of story, I think my gut tells me this is a total fraud. It'll be Chamath Palihapitiya (01:02:56): 0. Jason Calacanis (01:02:57): And they're like, oh, and I was like, yeah. And, you know, when the COO and the CEO are in a relationship, that's bad. And they're like, what? And they didn't know this. And I like, they're like, are you sure? And I'm like, yeah. That's what people are telling me. I don't know if it's true or not, but I don't know, firsthand knowledge, but that's what I think is going So this holding blows up. Callicana says this, Speaker 4 (01:03:13): blah blah blah, c n b c. That night, Jason Calacanis (01:03:13): I got invited to beep's house in the Valley for movie night. We've all been to that movie. Chamath Palihapitiya (01:03:24): Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Jason Calacanis (01:03:25): I walk in. There, Zach. There's this famous person. There's this Googler, that person. It's, you know, it's fifty people, and the celebrities who are in the blockbuster movie are there. I think it was the movie arrival, but I'm not gonna make any I don't wanna give away whose house it was. I go to this secret movie night, I walk in, I get greeted, and I kid you not fifteen feet in front of me looking directly at me is Elizabeth Holmes. And I get with a, like, 10 feeter, and she just looks at me snarls and walks away. It's, like, the most uncomfortable moment of my life. Clearly, a giant scam and fraud. And I she's gonna go to jail too, by the way. She's going on trial this month, August, I believe, She'll be on trial. David Sacks (01:04:12): It's taking way too long. And I Jason Calacanis (01:04:13): hope she goes. Yeah. I mean, the justice system's a little bit screwed. Okay. Where do we gotta wrap up David Sacks (01:04:17): with one more story. You have a pretty good you have a pretty good track record of calling these frauds. Yeah. I think it's a service to the community. Chamath Palihapitiya (01:04:24): Yeah. I agree. David Sacks (01:04:25): You're one of the few who actually does it. Chamath Palihapitiya (01:04:26): You got any other budding frauds -- Jason Calacanis (01:04:28): Well, reputable, David Sacks (01:04:28): you know ripple. Right? Jason Calacanis (01:04:29): Oh, yeah. Let's not go let's go easy on the ripple. Just some people who are friends with repo. Well, I think right now Chamath Palihapitiya (01:04:35): -- Jason Calacanis (01:04:35): You're back it off? I'm not backing off. I just don't wanna lose a member of our little quartet here, but I will say that my my fraud of the moment the one that's making my Spidey sense go crazy is Speaker 4 (01:04:48): Tethr, USDT. Jason Calacanis (01:04:48): These these guys are I mean, this feels like it is going to Speaker 4 (01:04:56): be a Chamath Palihapitiya (01:04:57): 60,000,000,000 -- Oh, oh, the crypto thing. The stable coin. Yeah. Yeah. There's a crypto stable coin. Jason Calacanis (01:05:02): The idea is they said it's $1 In US currency, $1 per Tethr, always. And then over time we find out, maybe they don't have a dollar in their bank account for each one. New York attorney general finds an $18,000,000 says you can't work with anybody in New York. They say we're not a fraud, and I'm like, well, what about the attorney general who said you were a fucking fraud? they're like, yeah. Yeah. No. No. That was a misunderstanding. Yada yada. I'm like, there's no misunderstandings. Chamath Palihapitiya (01:05:27): You know David Sacks (01:05:28): what we should do? Period. You know what we should do? We should get all the fancy all in pod. We're gonna declare a certain time and date where and we encourage everyone who's in Tethr to pull out of Tethr to stress the system and see what happens. Chamath Palihapitiya (01:05:40): -- Jason Calacanis (01:05:40): stress test. Well, the problem is you don't actually own your Tethers. That's the other scam. It's like 8 or 9 of these offshore unregulated crypto exchanges, not the ones in the United States that are highly regulated like Coinbase. This is offshore, and there are white what I've been told is you can create an change yourself with white label software and pop up your own Chamath Palihapitiya (01:06:02): casino. You're like a bullhound. I mean, like, you just gotta sniff Speaker 6 (01:06:05): this shit out. Jason Calacanis (01:06:05): I don't think else in my life. When I find this out, I kinda I like it. I love it. It's like one of my -- He's a he's David Friedberg (01:06:10): a Bronx brawler. He's roaming the streets looking for a fight. Jason Calacanis (01:06:13): Brooklyn. I mean -- Exactly. Love a fight. David Friedberg (01:06:15): I love a fight. -- going on right now. Yeah. David Sacks (01:06:18): There's some other people I wanna call out. There's some other people I wanna call out. So let's let's move on to it. Jason Calacanis (01:06:23): Oh, Scott Galloway? dip shit? David Sacks (01:06:26): No. No. For he's small potatoes. But Chamath Palihapitiya (01:06:28): -- Jason Calacanis (01:06:28): He's he's small potato irrelevant. Doesn't Saks look David Friedberg (01:06:31): like Thurston held the 3rd on his Chamath Palihapitiya (01:06:33): -- Jason Calacanis (01:06:33): He does. He dies on a yacht. Yeah. Alright. So Jason's in Florence, Chama Chamath is at his I state. David Sacks (01:06:40): I'll tell you where I am. Actually, Jake, I really appreciate this. I'm on a boat outside Elba, which is the Chamath Palihapitiya (01:06:48): -- He's a redelba. He's a redelba. Yeah. David Sacks (01:06:49): It's where Napoleon was imprisoned. I'll actually I'll show you the the prison where he was where he was kept. I think you can see it. I mean, if I get to the right spot. Jason Calacanis (01:06:58): You know what? We put the Nikola founder in there, and we'll put Elizabeth Helms in there. Same place. Speaker 4 (01:07:02): Let's go. David Sacks (01:07:03): Can you see the the -- Just Chamath Palihapitiya (01:07:05): see your fucking ugly face. David Sacks (01:07:06): There. Whatever. Jason Calacanis (01:07:07): And you're beautiful young. How much Speaker 4 (01:07:08): are people gonna hate us? Chamath Palihapitiya (01:07:09): 3 Jason Calacanis (01:07:14): of us in Italy in August, and it's like the stereotypical -- Work hard Chamath Palihapitiya (01:07:18): and you'll be an easily liable too. Jason Calacanis (01:07:20): Of course. Of course. I'm staying in an Airbnb cost me €350 a night for four bedrooms. I feel pretty good about myself. I'm the center of Florence. I think it's you you're spending about the same amount on your boat. Right? pay I just €5400 a night per room? David Sacks (01:07:34): Yeah. I got I got the Airbnb deal. Chamath Palihapitiya (01:07:36): Talk talk to us about afterpay Saks tells Speaker 4 (01:07:38): us. David Sacks (01:07:38): So, well, first, I mean, if we're gonna call somebody out, first, I call out PayPal. Okay? What's going on there? I actually wrote a blog post about it called the no buy list. Basically, PayPal is creating the equivalent of a no fly list with respect to their services. Well, for anybody who they put they deem as deplorable or undesirable. Basically, they're working with the ADL, the anti defamation league, and the southern poverty law center, SPLC, to create lists of people and groups who they are gonna ban their accounts. Now, let me I gotta say this. The ADL and the SPLC are stored in institutions that did great work combating both antisemitism and racism, but they are now under new management and new leadership, and they have greatly expanded their missions. The ADL was originally about stopping antisemitism. Now it's about basically opposing extremism or white supremacy in, you know, in any of the places they find it. And so, for example, They've taken positions on US supreme court nominations. I mean, it's like they've gone very, very far a field. of their original mission. Chamath Palihapitiya (01:08:48): -- Jason Calacanis (01:08:48): SPLC has gotten sued a number of times for putting people on these lists. They put Sam Harris at some point on the list. They put another human rights person on this. Anybody who challenges any or has any guest on their podcast that they the southern poverty law center doesn't like, they -- Right. Chamath Palihapitiya (01:09:02): -- Jason Calacanis (01:09:02): they basically blacklist them. David Sacks (01:09:04): Right. Right. And the list become very expansive. They they become very expansive. So so here here's the problem is you now have look, before this was just some ivory tower you know, a non 501 type thing where they would basically it was hyperbolic rhetoric. They would basically call these people and groups names But now PayPal is operationalizing these Band lists. They're turning it into a no buy list. They're saying we're gonna cut off your account. And that's very dangerous because we've already seen the precedent with speech online that we had a bunch of social media companies banning people from participating in online speech. Now what PayPal is potentially doing is banning people from from financial access. And losing your right to speech is bad, but losing your right to make a livelihood is even worse. And I think Republicans in Congress need to say to Dan Schulman. First of all, it'd be great for them to haul him up there and honor congress to a hearing. Like they did with Jack and Zuck and Sundar call him up there and say to him in no uncertain terms. We see what you're doing. We don't like it. We oppose it. We're gonna get on our hind legs and fight this If you try to deny Americans their right to access the new economy, we see no reason for your company to get any bigger We're gonna oppose every acquisition you ever do. And we may not be in power today, but one day, the tide will turn. We will get control of congress And at that point, you know you know, elephants have long memories. So, you know, we're watching you. And, you know, it's been a long time since Republicans thought of their role this way that for the last few decades, they've been very laser affair with respect to the economy. But there's a very successful Republican president on Mount Rushmore Teddy Roosevelt, and he's on Mount Rushmore because he busted up the cartels and the oligarchs of his era, and he fought for the right of the of the common American to make a living. That is the playbook that Republicans need to follow right now. Jason Calacanis (01:11:01): Okay. Henry Belcaster, you got that. Tap it right here. Let's get some animations Speaker 4 (01:11:05): on top Jason Calacanis (01:11:05): of it. Let's go. Alright. Square has bought Afterpay for 30,000,000,000, which represents a large portion of their outstanding equity. It's an equity based deal. What do we think, Freeburn? David Friedberg (01:11:15): They issued a third of their stock to buy this company. So, basically, Square is a public company. They they you issued shares to afterpay shareholders. And afterpay only represents about 4% of Square's revenue. So they gave away a third of their company to increase their revenue by 4%. That that's the pessimist view of the business. Now if you kinda think about Square, they've got 2 businesses that are equally sides. Chamath Palihapitiya (01:11:41): 1 David Friedberg (01:11:41): is, like, a consumer business. This cat -- And they Speaker 4 (01:11:43): cat cat Jason Calacanis (01:11:44): cat. Yep. David Friedberg (01:11:44): Yeah. And they do a bunch of stuff including crypto in there. And then they have another app, another set of tools for merchants, which is businesses on the other side. So it's a it's becoming more of a marketplace business. And the idea is that this afterpay deal can solidify their ability to basically be a lender to their consumers. and provide a tool to merchants to increase sales because the way Afterpay works, it's a buy now pay later product. These have been around for a long time. And you could basically make a purchase online without having to put down a credit card or to pay for it, and they instantly run a credit check on you and instantly offer you credit to buy that thing, and then you pay in installments over time. And so it allows peep it allows websites and businesses to to get more consumers to buy stuff because it's really easy for them to buy stuff if they don't have the money Chamath Palihapitiya (01:12:30): to earn today. Right. David Friedberg (01:12:31): And by the way, this this yeah. This business this business concept has been around for a long time. They're the company called Bill Me Later that was bought by PayPal in 2008 for a $1,000,000,000, And it was a similar thesis. Right? So the thesis you know, what what's old is new again. The thesis is if you can provide these tools to merchants, they will get more sales, and PayPal on the other side would make more money because consumers would spend more through the system. And and I think that's the same model with Square. But most important so we're seeing Square can accelerate the marketplace dynamics in their business, they're also effectively stepping up and competing and making sure they're locking in the the of advantage they have with having this 2 sided marketplace against emerging competitors like a firm and so forth. Speaker 4 (01:13:10): Corna was the original yeah. The Jason Calacanis (01:13:11): public capital Chamath Palihapitiya (01:13:14): markets will always reward great growth strategies. The minute that they announced to steal this, the bark a cap of square went up by almost 25%. The deal is free. Free. I I repeat. They just acquired a $30,000,000,000 company for fucking free. Jason Calacanis (01:13:32): which is what happened with Whole Foods and Amazon. Chamath Palihapitiya (01:13:35): Here is the secret hiding in plain sight that in not enough CEOs understand about the public markets and so for the CEOs out there listening. There are two ways for you to get constantly rewarded by the public markets. Number 1 is what Square did, which is to incrementally acquire feature after feature after feature. The thing with buy now pay later is that it is not a company. It has always been a feature. And it's a feature of a much larger financial services platform, and I think Square is proving that and everybody else over time will realize that Goldman Sachs and Apple are about to do something there with out pay later as well for themselves. They already Apple already does it for the phones. So the idea is that this is just a credit feature that should be on every single major network. I wouldn't be surprised if WhatsApp and Facebook had a buy now pay later feature. Amazon. Over time. Everybody needs to have this feature. You can't build a company around it. And so if if Square can basically continue to acquire or build adjacent features that consolidates the financial services stack for their consumers. The stock market will reward these guys. They'll be able to grow and buy things for free for the next 5 or 10 years. The second way that corporate that companies can can get rewarded in the public markets is if you look at your costs and you flip them from a cost or an expense into revenue. And the gold standard is Amazon. So if you guys look back, I'll just give you a very quick example because it's incredible. In 2005, year end 2005 Amazon, They had 8 and a half 1,000,000,000 of sales, 2,000,000,000 of net profit. Their two biggest costs there was product and shipping. So what did they do? They started Amazon Kindle. They started Amazon Basics. They started Amazon Fire. Chamath Palihapitiya (01:15:25): They started Amazon Echo. And all of a sudden, that whole thing shrank their gross margins went up. Then on the operating expense side, Amazon was spending 6 percent of revenue on fulfillment. They started a fulfillment business. They were spending 5 percent of revenue on technology. They started AWS. They were spending 2 percent of revenue on marketing. They started Amazon Prime. They started they were spending 2% on payment processing. They started Amazon payments. So if you look at any company like this, Square. I think Stripe is another part of me. Shopify is another great example where you can see the path to growth If you can see folks acquiring adjacent features or if you can see folks taking expense lines and turning them into revenue lines, these are, in my opinion, sure bet companies that compound forever in the public Speaker 4 (01:16:16): world because Chamath Palihapitiya (01:16:16): -- David Friedberg (01:16:16): There's great network effects. If you think about financial services for consumers, I would argue there's 5 general categories. There's banking, lending, trading, crypto, and insurance. And I think in order of retention, meaning how long a customer is likely to stick with a service provider, it's banking, then lending, then trading, then crypto, then insurance. And in terms of profit generation per customer per year, it's trading then crypto, then lending, then insurance, and then banking. And so what we're seeing is a lot of these financial services providers to consumers in the digital world replacing the old school world by starting to consolidate these categories in a smarter way than the old school offline companies have been able to do. banks need to make money through overdraft fees. They make $30,000,000,000 a year in overdraft fees. So if you make banking entirely online and make it free, you retain a customer, and then you can make money by offering them lending, trading, crypto, some of these other services. And that's certainly the trend. I have a big thesis and a big belief that over the decade, we're gonna see those 5 categories start to merge, and you're gonna have 3 to 5 superpowers that are gonna offer a consolidated stack of services and the unit economic are gonna change because they're gonna focus on getting the high retention products to be cheap and free, and then they're gonna make money on the high margin products. Chamath Palihapitiya (01:17:34): The canary I completely agree with you and the canary in the coal mine is who will be given a federal banking license because that is the only gate that the authorities have to king make who those consolidators will be. And that's an easy thing that can be unemotionally assess. -- Jason Calacanis (01:17:51): or Amazon just buy one of the things that Chamath Palihapitiya (01:17:53): -- -- apply? No. You have to this is an incredibly arduous process to get a federal banking license to be cleared by the Federal Reserve to be -- Jason Calacanis (01:17:59): What if Amazon bought a bank? Chamath Palihapitiya (01:18:02): You have to get it approved, Jason. You're not listening Jason Calacanis (01:18:04): to him. Chamath Palihapitiya (01:18:04): These are regulatory voices. -- Jason Calacanis (01:18:06): a question for the audience. You cannot act as well by research. -- applying. Okay. So even if you want to, you can't just buy a company like you bought Whole Foods. Speaker 4 (01:18:14): Got Chamath Palihapitiya (01:18:14): it. For example, I think Square now is a federally licensed bank. And I believe that at at that the Federal Reserve recognizes these guys they can borrow win they can borrow money at the discount window, at the discount rate. As startups get more successful and can get there, those will be the ones that will do what David said because It doesn't matter how many users or how much momentum you have. If you cannot get a federal license to operate, you can't consolidate So you can be a vertically specific great business, but eventually you have to sell E*TRADE Morgan Stanley is a great example where, you know, in the absence and an inability to expand, you have to sell yourself because the cost of capital eats you up. The the the the comment on this, by the way, the most obvious one here, which I think is interesting, is the Shopify Stripe debate. Because if you look inside the p and l of Shopify, an enormous line item now about 350,000,000 bucks a year is what they're paying to Stripe. And, you know, there's gonna be a lot of pressure over time to figure out what these big businesses wanna do with respect to their payment strategies and and do it themselves because they may be able to save a lot of money, unclear. Speaker 4 (01:19:24): Can I David Sacks (01:19:24): be like the loan voice of descent on this Afterpay thing? Jason Calacanis (01:19:28): Oh, go ahead. David Sacks (01:19:28): Yeah. Well, look. It's clear the market loved it. Jamath is right about that. It's sending a signal to everybody in the in the industry, in the finance industry. that consolidation's gonna be rewarded. It seems like finance is gonna go the same way that media did where you start to see studios in Hollywood all get gobbled up by Big Tech players, sort of the final convergence of digital analog You're clearly gonna see that in banking now too. So as a as a business person and as an entrepreneur, I respect and admire what Jack Dorsey has done with Square. But as an American, I'm definitely concerned about this accumulation of power. And we now see Jack as the first person. I don't think it's there's ever been anyone in American history who holds in his hands the right to deny people speech on a on a major speech platform and the ability to deny them access to a major consumer payments platform. Now, he doesn't have dominant market share in either one of Jason Calacanis (01:20:28): those -- In either. No. He's got less than 10% in each. David Sacks (01:20:32): But but he's an influencer, and we saw that Twitter was the first site to kick off Trump, and then in the wake of that, every other tech platform did it. And Square after January Chamath Palihapitiya (01:20:42): 6 David Sacks (01:20:42): cut off the accounts of everybody who was involved connected to whatever that means, and a bunch of other players in the fintech stack did it. So we now have this issue of financial deplatforming. PayPal is already well down that road. What will Jack Dorsey do? I don't know. I mean, on the one Jason Calacanis (01:20:59): Okay, Shane. Why don't you start Why don't you buy or start or incubate your own? That's protection free. You're not gonna ban people from calling, so you win. Just fucking start your own square competitors, Saxx, and stop complaining. David Sacks (01:21:11): Jason, look. These companies have gigantic network effects. PayPal is over a Chamath Palihapitiya (01:21:15): $300,000,000,000 David Sacks (01:21:16): mark company. If all of the Chamath Palihapitiya (01:21:18): -- Jason Calacanis (01:21:18): If they back those 10 per if they knock 10% of people off, you get them. Now you got your now you got your beachhead. Stop complaining and building. Chamath Palihapitiya (01:21:25): -- David Sacks (01:21:25): not it it it is it is a nonargument to claim that a cartel of gigantic fintech companies that have monopoly scale monopoly network effects acting together that is not a threat to people's rights to have a likely life. Jason Calacanis (01:21:40): It's not. I'm talking about how you can make money from it. I'm just talking your book. David Sacks (01:21:43): Like, you know, this is not about these competitors. Chamath Palihapitiya (01:21:45): -- David Sacks (01:21:45): for me. It's not about making money for me. This is -- No. Speaker 4 (01:21:47): I know. It is Jason Calacanis (01:21:48): an opportunity. Like, who's to stop somebody from create isn't parlor back And isn't there some other, like, right wing or more conservative Twitter that's booming right now? I heard there's another one Cara Swisher was talking Speaker 4 (01:22:01): about. David Sacks (01:22:02): predicting right now that financial deplatforming is gonna be the big hot potato, political hot potato over the next year. This is the next wave of censorship And what -- I Chamath Palihapitiya (01:22:11): agree with you. -- Republicans on the FTC what David Sacks (01:22:14): the Republicans on the FTC on that board need to ask Jack Dorsey right now is Will you import the Twitter block list over to Square? Or will you keep those things separate? Jason Calacanis (01:22:26): Besty Gasty Jack. Chamath Palihapitiya (01:22:28): Can I just say something sexy pew? I think you're right. But if you just wanna make a lot of money and you have to have some financial stock ownership over the next few years. I think the the way to do it is just to kind of, like, figure out which of these emerging companies have or are about to get or have disclosed in their earnings that they're filing for licensure. David Sacks (01:22:48): And I think you wanna Chamath Palihapitiya (01:22:49): own those things because the The key thing is, like, when you get these licenses, you just get a cheaper cost of capital. It just allows you to outcompete and out maneuver. And then all of a sudden, you're competing with these big lumbering incumbents who just don't have the access to the same flexible technology and they're running code that's, you know, forty, fifty years old. then the policy edition becomes much more complicated because I do agree with you that there's gonna be platforming or deplatforming issues that happened. The good thing about this that it is highly fragmented and that there is in no clear path at least that I see for 2 or 3 folks to have 25 to 30 to 35% ownership. That already happened sort of in credit cards, and I think we've learned or lesson from that. It hasn't happened since. David Sacks (01:23:32): I hope it remains that decentralized. But what what I think the the reaction of the stock market to Square buying Afterpay is now everyone's gonna be looking at that and going, wait a second. I can spend, you know, a quarter of the mark cap my company and have the acquisition Speaker 4 (01:23:46): be free. Chamath Palihapitiya (01:23:47): My point No. But, David, my point, that's not what they're saying. What they're saying is hold on a second. These companies are features, and we want to have folks who are licensed and capable to consolidate what Friedbrook said these 5 categories. And if you you look inside a Square, they have an incredible lending business They have incredible merchant services business. They have a, you know, a pretty decent and emerging crypto and trading business. David Sacks (01:24:09): Right. Chamath Palihapitiya (01:24:09): So they're putting all the pieces together. That's what they saw and they're licensed. David Sacks (01:24:14): Right. But who are the big winners in this way of a consolidation gonna be at the end of the day? It's gonna be square. It's gonna be Stripe. It might be it's gonna be PayPal. it's gonna be the big online companies, not the offline legacy banks. It's the same same thing that happened in Hollywood. The only studio that didn't get gobbled up by a tech company is Disney. Right? So it's gone Chamath Palihapitiya (01:24:34): 80% Jason Calacanis (01:24:35): by tech. They became a tech company, and they become a tech company. David Sacks (01:24:37): They became a tech company. So I Jason Calacanis (01:24:39): their whole business. They they're gonna they're gonna catch up to Netflix, and then they're gonna roll Netflix. They're gonna roll right over Netflix. David Sacks (01:24:45): The reality is that there is something about Big Tech that wants to deploy form people. The legacy analog offline companies were never this moralistic towards their customer base. They never de deplatformed and banned people the way that these online Jason Calacanis (01:25:00): companies are doing. They limited their moralizations and their high horse to the Oscar Awards and the Emmy's. You're correct. Chamath Palihapitiya (01:25:07): Jay Kal. Jay Kal. Yes. I'm gonna do a I'm gonna do a a crazy wine dinner tomorrow night, and it's about 45 minutes from you. You should take a car. Yeah. Have them wait, eat dinner, and then drive back. Speaker 4 (01:25:21): Alright. Jason Calacanis (01:25:22): I'll try. I got I I'm I'm I'm doing I'm just going to see David, which, you know, for me is a lifelong dream because you every time I I'm gonna go see David because not David Sachs, David, you know, the the statue of David, which to me is, like, looking in Amira. My whole life, I looked at that Chamath Palihapitiya (01:25:37): Yeah. You fucking small, stubby schlong. I get it. But why Speaker 4 (01:25:41): don't you Chamath Palihapitiya (01:25:42): -- David Friedberg (01:25:43): Why don't Speaker 4 (01:25:43): you -- Why don't Jason Calacanis (01:25:43): you -- I have so many tours I'm doing in Florence. Maybe I'll zip out. Let's see. Maybe I'll zip out. But I'm gonna see you next week. It's 45 -- The question is Friedberg. What are you fucking doing? Get on a plane and come see your besties. You're the only person not in Italy. You come for 3 or 4 days. I know you got a pregnant wife. I know you gotta let you moving, all this stuff. You gave me one second. Just let David Friedberg (01:26:04): me let me go talk Speaker 4 (01:26:04): to her. Jason Calacanis (01:26:05): Just come for 3 days. 3 days. Get her some present and maybe get some help with that. Speaker 4 (01:26:10): What are David Friedberg (01:26:11): all your pilots doing? They're all just sitting there in in Italy hanging out might Chamath Palihapitiya (01:26:14): are literally having the best time, but they're living their best lives right now. They're like, oh, we're gonna take a tour of Venice. Jason Calacanis (01:26:18): Did you wanna get some did you David Friedberg (01:26:19): wanna get some hours in? I mean no. Jason Calacanis (01:26:22): Okay. I'll send my plane. It's United. Speaker 4 (01:26:24): I'll send United for you. David Sacks (01:26:25): Take out. Why don't you come visit me tomorrow? You don't need to see a museum know you don't wanna spend time using them. That's not why I'm having Jason Calacanis (01:26:32): a great time with both of you and Florence. I'll see you all next week. Relax. It's gonna Chamath Palihapitiya (01:26:36): be fun. Jake Hall. I'm only going for I'm I'm coming to drop the yeah. Yeah. Yeah. I'm I I my my mom's here, you know, like, I have a lot of people here. -- Speaker 4 (01:26:45): for 2 days and hang out for 2 days with us. What are you doing? The 48 hours. It's not a Chamath Palihapitiya (01:26:49): big deal. Bring everybody. Alright. I love you, guys. Jason Calacanis (01:26:52): Love you, Basties. Alright. Y'all, congratulations to your calendar on rock. Congratulations on Robinhood. Okay. Yeah. Thanks, guys. Oh, yeah. Jacob, I'm congratulations David Sacks (01:26:59): on Robinhood. -- on Robinhood. Jacob. Speaker 4 (01:27:01): All I'm Jason Calacanis (01:27:02): gonna say is is my first fund, my little $11,000,000 fund right now. You know, we'll see what happens a long way to go. Once again, I'll have a top 5% 1% fund. The first fund I did with Sequoia with the scouts was, like, a 150 cash on cash. Who knows? This first fund I did with you guys backing me. Thank you for supporting me. That $11,000,000 fund could be Chamath Palihapitiya (01:27:25): -- Jay Cal. -- 56 -- Jay Cal. -- Jason Calacanis (01:27:27): 67x. Could be. Who knows? We'll see. Chamath Palihapitiya (01:27:29): Go big boy. Jason Calacanis (01:27:30): Cash on cash. Yeah. You know, it's a good feeling. It's a good feeling. Yeah. Thank you for the support, Dave. Chamath Palihapitiya (01:27:33): -- Jason Calacanis (01:27:33): for you, Ashby Chamath Palihapitiya (01:27:34): poo, proud of you, sexy poo, proud of Jason Calacanis (01:27:35): you guys. every every wait. Did you have any wins this week aside from spending a lot of money on wine Shamap? Is there any spectacular news that we need to know? Chamath Palihapitiya (01:27:42): Well, I think Dave David can confirm, but I think I probably made a $1,000,000,000 this week. Alright. There you go. Jason Calacanis (01:27:49): Oh, something's going on. Okay. So there must be a snack coming. Praise No. No. No. No. No. No. No. No. Speaker 4 (01:27:54): No. No. No. No. No. No. No. No. No. No. No. No. Chamath Palihapitiya (01:27:55): No. No. No. Speaker 4 (01:27:55): No. No. No. No. No. No. No. No. No. No. No. No. No. No. Not back. Not back. No. Oh. Jason Calacanis (01:27:57): Oh, something gets sold. Alright. We'll find out next week. We'll see you all next week. Alright. Bye bye. Chamath Palihapitiya (01:28:02): Love you, guys. David Friedberg (01:28:02): Bye. Jason Calacanis (01:28:03): Love you, guys. Love you, Basties. Speaker 4 (01:28:04): Love you, Italy. Of course, Jason Calacanis (01:28:04): everybody's favorite. The Queen of Kenwa the science conductor himself, David Freeman. Speaker 6 (01:28:13): All the data, all the science says, go Jason Calacanis (01:28:14): do whatever you wanna do. David Friedberg (01:28:15): Go into a nightclub sweaty, rubbing beads, and Speaker 8 (01:28:20): you go into it, rubbing rig. Speaker 4 (01:28:22): Go into it. Nothing else matters. Go into David Friedberg (01:28:26): it, loving Rave. But I think understanding what the other counterpoints and counterargument might be Speaker 7 (01:28:33): is critical to get people to actually get Speaker 6 (01:28:35): to that opinion themselves as opposed to just telling them this is a single point that you should believe Speaker 8 (01:28:40): in ropping ring. Speaker 6 (01:28:46): Nothing else matters. Speaker 8 (01:28:49): Travis. Nothing Speaker 6 (01:28:54): else matters. Speaker 7 (01:28:57): me. So much Speaker 4 (01:28:58): is all about, like, the good and evil, them and us. And we don't recognize that in moments where there Speaker 9 (01:28:59): are shared values, we're just sitting on both sides of the same coin. Speaker 7 (01:29:06): recognizing that sometimes having different values doesn't necessarily make someone evil. Speaker 8 (01:29:10): Go into a rubbing rig. Speaker 4 (01:29:16): Nothing else matters. Speaker 6 (01:29:17): Nothing else matters. Speaker 9 (01:29:28): At this point, I'm, like, Chamath Palihapitiya (01:29:29): 7 Speaker 4 (01:29:29): tequila watermelon tequila there. So I'm, like, oh, my, like, Speaker 9 (01:29:29): he's got some extra flavor. Speaker 4 (01:29:34): and I'm like, what's up, Julio? Oh my god. This is like a dream Speaker 9 (01:29:37): come true. He's like hugging me. His face is thanks to my face. I didn't know what to say, and I'm like, I'm I'm I'm hella with tequila. And I look and I whisper in Colia's ear. Oh, no. I appreciate I appreciate you. I try David Friedberg (01:30:02): kind of elevate the conversation a little bit and why I care so much about this point. Go into it, throbbing Reef. Of course, everybody's favorite. The queen of Kenwa, the sign Jason Calacanis (01:30:12): antsconductor himself, David Friedberg. Speaker 4 (01:30:14): The quality of the show, he calls it the Friedberg Index. If Friedberg talks a lot, Jason Calacanis (01:30:20): It's a great episode. Speaker 8 (01:30:22): Go into it, throbbing Ray. David Friedberg (01:30:24): All the data, all the science, Jason Calacanis (01:30:25): and do whatever you wanna do. David Friedberg (01:30:26): Introduming Ray. Go into it. Nightclub. Speaker 8 (01:30:29): Go into it. Robin man. Speaker 6 (01:30:31): Sweety. Next in April. Go into it. Nothing else matters. Speaker 8 (01:30:35): Go into it. rubbing rig. Nothing else matters. Speaker 7 (01:30:37): Easily rubbing rig. Speaker 6 (01:30:48): Nothing else matters. Nothing else matters. Nothing matters.