Ep7. The Great IPO Debate, Tesla Robotaxi v Uber, Tech Check | BG2 with Bill Gurley & Brad Gerstner

0:00 If you're public with a 100 million in revenue and a 10% growth rate, your valuation's not going to be all that great. But, guess what? If you're private at a 100 million revenue with a 10% growth rate, it's not like you're better off. Like like you're just fooling yourself.

0:31 Hey, man. Good to see you. Good to see you, Brad. How have you been? I've been well. How was the eclipse? Didn't you have an eclipse party down there? We did. We had a lot of people out to to a location that had a total eclipse and we got super lucky. About 30 minutes prior to the total, it had been cloudy and the clouds parted, blue sky, bright sun on everyone and then a miraculous event. It's kind of strange to see grown humans applauding at the sky. for for you? It really was for a lot of people.

1:05 It felt that I you know that's a that's a loaded term, but yes, it felt it felt let's use the word spiritual. It felt spiritual. Wow. Wow. And certainly our our our forefathers, you know, equated it with something religious. Well, well, I was sorry to miss it. My my mother told me, she's 88 and she said she was in tears. and you know, I I honestly I was I was skiing with my 13-year-old son and so we missed it. but you know, the rest of my family saw it and they said it was incredible.

1:40 Well, lots of tensions in the world, Bill. you know, it's interesting. Oh, no. I I tweeted last week that on the one side, you know, I really see a lot of great things happening in the markets. you know, M&A I think is going pretty bonkers right now and liquidity is definitely heating up. You saw the rumors about the Salesforce Informatica deal, the Google HubSpot deal. I think I know at least six other deals over a billion dollars that, you know, are actively being courted and in the in the in the M&A pipeline. So they you got that on the one hand. on the other hand, you know, we had inflation come in hotter.

2:22 We have the 10-year kind of back at 4.7% so up a lot for the year. And and we have these geopolitical concerns that are not only tragic, you know, human events, but the backdrop is getting I think more challenging for the markets at the same time that the markets have been done pretty well for the year. So that always gets me concerned. You know, I was with a a legend investor over the weekend and I I said, "What what was your net exposure at the beginning of '23?" And he said, "80%." I said, "What about the beginning of '24?" He said, "40%." I said, "What about now?" He said, "Zero." Right? And so whenever you have that sort of, I think, reaction, it always, you know, you have to slow down and think about it. So I I definitely think there's a lot of increasing volatility we're heading into this election here in November that most people aren't even yet thinking about, but we know that's going to lead to a lot more volatility. So I'm feeling, you know, looking at our own portfolios, I'm feeling that tension. On the one hand, really excited. On the other hand, increasingly nervous.

3:28 Well, as you know, I've I've I've often sworn off the notion of macro analysis, primarily because I think the best investors of all time have sworn it off. And through immense pressure from you, I've started paying attention to these things. which which which I don't like because I think it's quite clear that right now risk seems to be on the rise. Like just the term risk, you know, across a bunch of different vectors, which is unfortunate. It'd be nice to see it start moving in the other way, but with the election coming and these different conflicts around the world, it's it's hard to have confidence that something like that can happen.

4:10 Yeah, no no no doubt about it. Well, speaking of the markets, maybe we just jump right into our first topic here, which is, you know, there's been a lot of debate over the course of the past few weeks on the IPO markets, the size you need to go public, why we have so few public companies in the US. so maybe just kick off with looking at a little FRED data to normalize where we are. Right, the number of public companies has gone in the US has gone from 6,500 or so down to about 4,000 over the last 20 years. This is you know, a cause and concern for many because on the one hand, we have more innovation, we have more startups, and so you'd think you would have more public companies, not less. And if you look around the world, that's in fact what you see. And and and and what you saw for a long time in the history of public markets in the US up until this recent period. But this is a big number.

5:04 It's it's like over 40%. Yes. Like significant Right, over prob- arguably the most prolific period of innovation in the history of the United States. So, now of course, Jamie Dimon in his annual letter just last week said, "Yeah, well, that is true and and perhaps concerning, the number of private equity-backed companies has skyrocketed from 1900 to over 11,000." So, you know, I started you and I started kicking around like, what are some of the, you know, first, you know, are these is this bad? What are some of the causes of this? And of course, there was a tweet last week about Philippe Laffont, who I think was speaking at the information event in New York where Philippe said, "Listen, the markets have structurally changed. It used to be you could go public with 50 or 100 million dollars in revenue." And he said, "Today, you have to have a billion dollars in revenue in order to go public."

6:02 Gokul was tweeted something similar at first looking at some Meritech data. He said he it looks like unless you have 700 million in revenue, then you'll probably underperform in the public markets. so here's his here's his tweet there. And then Jamin Jamin Ball on our team, you know, responded to that and showed some data that we'll show here that says, "No, in fact, if you look at the you know, the last 10 years, the average software IPO has been about 185 in in median in median revenue over the last 12 months and it has over 50% growth.

6:45 And so there's this real debate, right? Like how big do you have to be to go public? What is that profile look like? So maybe you could just weigh in a little bit with your thoughts on, you know, that debate online between Philippe and Gokul and Jamin about kind of what's the revenue profile that one needs in order to get out the door today. I'll make some very quick comments about what I kind of fundamentally believe in my in my heart of hearts, but then I think we do need to address some of the realities that are out there. So personally, you know, I think I I was on the board of OpenTable when we went public and we did on a 10 million dollar quarter. So that's a 40 million run rate, very far shy of where where we are. And if I bring that up, some will say, "Well, that was 20 years ago." And it was.

7:35 I I have always believed and I'm not the only one. There there's there's a assortment of other people in our industry that being public is great for companies. It raises the bar in terms of their performance. It causes them to to to I think achieve more than they would otherwise. so I think it's very positive for our ecosystem. I also think it's positive for the US financial markets for companies to feel comfortable coming public sooner. You you will hear the SEC and others worried that mom and pop investors don't have exposure to these names or don't have exposure to these trends or to these companies. And the the the more that that you know they don't go public until they're billion dollars, a lot of those gains will be gone. and but but but people will miss out on this. So I I don't think it's healthy. Now that we started with a data point that the number of public companies has shrunk. and so like there is something going on. And we could talk about it. Is there something that could happen that would change that or something that that has caused this to happen? It it's interesting to me because I think there is in the boardroom in Silicon Valley today among founders, there is a lot of question like what do I what's the profile of the company need to be in order to get public? And you know, GoGo came back and responded to Jammin in a way that I thought was interesting. He said, "Well, okay. You don't have to be at 700 million in revenue in order to get public, but you have to get to a billion within 5 years of being public." You know, I I called the heads of all the major banks who run the capital market groups because I wanted to get their opinion. Like you know, they're the ones who actually advise. So what do you what do you all think it needs to look like?

9:26 And and the heads of one of the head of capital market said to me and and and I'll just read it here. He said, "I feel the bar for size is somewhere between 200 million and 300 million of revenues, premium growth rates to peers. So, the median growth rate has been around 50%. and attractive unit economics. I think you need to net out at greater than 2 billion. So, 2 to 2 and 1/2 billion in terms of market cap on average. That generates an IPO of at least 200 million to 250 million dollars, which has enough float to make it reasonable position for investors.

10:03 he said, "To me, the IPO market is slow in volume terms for lack of supply, not lack of demand. And I've been making this case that the IPO window is wide open. It's just a matter of price. Certainly, Altimeter and Coatue and others would like to buy companies at the size that we think can compound at 50% or higher for the next 5 years, right? the those are terrific companies to back so long as the point of entry is at a price that reflects what current market multiples is." So, you know, he's kind of taken the other side of the argument saying, "This is not a demand problem. This isn't that you can't get it into the market. It's a supply problem that's for some reason companies just don't want to come into the market at that size."

10:47 That becomes a circular argument, right? Because if people start saying that, you know, externally, "Oh, you got to be at 100 or you got to be at 200 or you got to be at 700." Then people hear that and then they think they can't go. And so, you know, but let's talk about some things that have led to this, you know, what on one hand there's immense capital availability that I had suspected might go away with a market reset, but it clearly didn't. or with interest rates going up. And so, companies that don't want to be public don't have to be. because they can get access to private capital. And at least today, that private capital will let them do secondaries, which solves one of the that that historically has brought them to the public market. Second, you know, I think structurally those people you called have built their Wall Street businesses to cater to these larger companies. And so they prefer to work on a bigger IPO. Way back when there was a group of bankers known as the Four Horsemen that took a ton of companies in Silicon Valley public. And I am I I found some data which which we can put up, but like the vast majority of IPOs are being underwritten by like four or five firms. And one thing that I think would be helpful is if some of the other firms were kind of more dedicated to a smaller IPO where everyone knew they were the go-to for that. but but that doesn't I I don't think anyone's filling that role today. And so those are two big things. And then the third one that could contributed to it is just regulation. And I throw the cost of being public in with regulation. So that could include litigation cost, you know, you know, the the insurance you have to buy for your board, all those things. Like is the cost of being public probably two to five million a year?

12:47 just to be public. So let's break those down a little bit because I think, you know, it's a combination of factors, right? So let's just normalize around around one. So if you pull up this chart on the Instacart valuation, right, over the course of the last several years. So Instacart was one of these companies that got you know, really high valuations during the pull forward that we saw in the ZIRP COVID period. You know, it hit a valuation of almost $40 billion.

13:19 they went on to raise subsequent rounds of private financing at a lot lower. They then went public at at just around, I think, six thou- or six billion dollars. So, here's the IPO performance chart. And here's the valuation trajectory of that business over the course of the last several years. So, I think one of the obstacles, right? So, it's performed incredibly well off of the bottom. It's performed really well since the IPO. But, it took a board that had the courage to say, you know, we're going to ignore what the prior valuations were. And we're going to focus on getting the the company public.

13:58 Now, in the case of Instacart, I think you had you you know, the branding benefits of when they went public. I think they, you know, had access to you know, to the cash that they needed to invest and grow in the business. But, you know, this seems to undermine this argument that, you know, that companies can't do well if they're on the smaller side, you know, post going public. So, this is an early indication, but I think that there are a lot of companies in the venture capital pipeline, Bill, that look like this.

14:29 That had these really high marks in '20 and '21, and they need boards and founders and CEOs who have the courage to enter the public market and just accept the new set of marks. And I think this is one of the big psychic or behavioral hurdles to these companies getting out and getting into the public markets. Yeah. Yeah, and and and look, I mean, there are smaller companies. I you know, like even in the SPAC space, look at Him Him & Hers or look at SoFi and Anthony Noto. Like, they've they've actually done well over the past six months.

15:04 Like, like, numbers up into the right, stock up into the right. And much smaller than Instacart. So, it is doable. Yeah, I think you're you're absolutely right that the structural blocker that comes from having a previous private round is always a problem in these situations and there are narrow ways around that that can be negotiated around. People just need to kind of bite the bullet and take care of that. There's another thing that happens that relates to that, which is there's this presumption that oh well you're not you know you're not in a good place to be public or or the other thing I hear is oh imagine if you get out and you're too small and you're public how horrible that is. And to me that's just this indication that there's this ostrich mentality. What I mean by ostrich mentality is someone willing to stick their hand head in the dirt and not see anything and therefore feel better about themselves. So where where I'm going with that is if you're public with a 100 million in revenue and a 10% growth rate your valuation's not going to be all that great. But guess what? If you're private at a 100 million revenue with a 10% growth rate, it's not like you're better off. Like like you're just fooling yourself, right? In fact, like because of a lack of liquidity premium, you're probably worth less than that public company and structurally your cap chart's more rigid and so you have less flexibility. You can't do any acquisition. I mean there's all kind of reasons why that's a worse place to be, but people have this belief that if I can see that price and it says $2.33, oh my god I'm in this horrible place.

16:54 Well, you know, so people have recovered from this. So so I think you know we've talked about this before. Here's a chart that we put together that looks at you know the the valuations, the multiples that companies were coming out in different cohorts by year. So you can see that the multiples of the companies that came out, not surprisingly, in '20 and '21 were really high multiples. And then you can see that the companies that have come out in more recent cohorts are at these much lower multiples.

17:30 And so, I really do think it comes down like this is one of the big hurdles that we have. That and I and we saw this after 2006, 2007, we had companies funded at really high multiples, right? I'm thinking you know, even about Zillow or Kayak that were funded then. And it they waited a much longer period of time coming out of 2008, 2009 in order to go public because it took them a while to grow above those multiples. And I think that, you know, in that case, there were actually ratchets that were in those prior preferred rounds. Can Right? That prevented those companies from coming public. That's not the case to most of these deals that were done in '20 and '21. And so, you know, it seems to me when you look at this chart, the multiples that persist in the public market today, they kind of are the multiples. And so, a lot of these companies will be forced into the They're either going to have to take a down round in the private markets to have access to cash. Or they're going to have to accept access it by way of the public market. It gets back to your point. There's no hiding from whatever fair value is for these businesses. And now we're talking about businesses here that are doing a couple hundred million in revenue that probably still haven't hit profitability, where growth maybe has started to slow below that 50%, you know, annual growth rate.

18:53 And, you know, I think we have over a thousand of these companies that are marked over a billion dollars that still have to get worked through the system. Now, I'm seeing some more M&A that's happening. So, larger strategics coming in and buying these companies. I think that will be the answer for some. but to me, it you know, we're starting to see the IPO pipeline fill with these companies that I think will be on the smaller side, that will have growth rates that are still 30, 40, 50% superior to public market growth rates.

19:23 but the but the valuations will be below in many cases their last big round of of private financing. And by the way, I I hope you're right. I mean, I hope we see that. I I we we do have a situation where at least the big guys have been pushed away from M&A by regulatory, which is another reason why you need to be more serious about the public option because there are fewer relative to history, I guess, fewer options on the M&A side. and and this gets back to the the point I was making about late There's no there's no hiding place in being private. Like like And I've I've often said like the minute you took stock options and started handing them to your employees, you're in the game, you're on the field. And it's a tough game. And and the number of people that make it to the next tier always drops exponentially. So, like we we often talk in in Silicon Valley about the Googles and the Facebooks of the world, but most people don't make it there. And so, it's a hard steep climb, and you need to have realism about what's available to you. One thing quickly that I wanted to highlight Gokul referred to this Marimekko Yeah. report. I don't know if that's public. You were able to get a copy that I was able to read. you mentioned unit economics. I think being honest with yourself about your own unit economics is super important, and at least for SaaS companies, they had a ton of great data in that report that could help one figure out where you are and what your real multiples very, very likely to be. I don't I it has to be a guessing game. What what often happens in Silicon Valley is everyone looks at the top one or two data points and tries to equate themselves with that. If you look deep in this in this research report, you shouldn't be doing that. But that does happen. And I think the number one thing if you're a smaller company coming public is it's about growth, right? You can't have a your unit economics have to be working.

21:29 So your net dollar retention, if you're a software company, needs to be in a range that shows that your customers love the product, that they're sticky to the product, etc. But, you know, these companies that, you know, have waited a little bit too long, Bill. Now their growth rate is 20%, they're marginally profitable, you know, they have two 200 million in revenue. Unfortunately, that is not a profile that can come public. So this question, this debate, like what's the magical number, Felipe, is it a billion or is it 700 million? The answer is for those of us who are underwriting these businesses, what we're saying is this a fantastic business with great unit economics that can grow at above-market rates for a long period of time and expand margins.

22:13 If the answer to that is yes, then the public markets are wide open. But guess what? The private markets are wide open for those companies as well. And that brings me to this point. I think the biggest thing that has changed over the last 20 years, you know, back to, you know, if we think about the companies that went public in in in those early vintages, the Microsofts, the Apples, the Googles, the Salesforces, etc. What was one What was one commonality, Bill?

22:42 They needed access to capital to grow. Right? And if you look at the private market alternatives for them for capital, we didn't have sovereign wealth funds that were writing multi-billion dollar checks at that point in time. We didn't have deep pools of liquidity and growth equity and late-stage venture that were writing multi-billion dollar checks at that time. And I think that is a huge difference today. So, I talked to the CEO of a very, very large company that many are speculating is the one that you know, they will go public. And they you know, they said, "We just don't need to go public. Markets are not a consideration at all. Employees get liquidity. We have access to capital. There's just no need." And so, that you know, then I read the Jamie Dimon letter.

23:27 And if if you know, I'm going to I'm going to read a part of his letter because he talks about us going from 1,900 companies to 11,000 companies. And he talks about the liquidity in the private markets, how deep it is for these companies to be able to grow. And he said, "There are good reasons for private markets and some good outcomes result from them. For example, companies can stay private longer if they wish and raise more and different types of capital without going to the public markets. However, taking a wider view, I fear we may be driving companies from the public market. The reasons are complex and may include factors such as intensified reporting requirements, including investors' growing needs for environmental, social, and governance information, higher litigation expenses, costly regulations, cookie-cutter board governance, shareholder activism, less compensation flexibility, less capital flexibility, heightened public scrutiny, and relentless pressure on quarterly earnings." So, going back to this company, right? If you're one of these companies, you're cash flow positive like this company is, you're growing fast, you have access to all the capital you need, you know, you think of you know, the SpaceX's, the ByteDance, the Databricks, the Stripes of the world, all the companies people are waiting to see when they're going to come public, they all fit that profile. They don't need the public markets to provide the liquidity. And given all of the headwinds that Jamie Dimon talks about, all the reasons not to come public, you know, it may very well be that the very best companies choose to stay private.

25:08 Right? Which we may even see some adverse selection into the public markets. And it's only the companies that can't raise private financing that try to get into the public markets. What do you think about both this idea that we have deeper and more liquid capital markets, private capital markets, and we've created all of these government burdens, litigation burdens for the public company. Yeah. Obviously, my first reaction is I if he's right, if those are all the reasons, the vast majority of them relate to this kind of cost of being public. And if you if you separate his list between what might have changed recently from the past to say what would what might have caused this these changes recently, you know, it's mostly the litigation, the the ESG stuff, the compensation flexibility, it's the activist stuff, and you know, you and I already had a long discussion about SBC, but I find that the it would take if the if the SEC were generally worried about why more companies aren't going public, I think and I don't even know if they have the wherewithal to do this cuz some of it may live at the judge level, but it would take a reevaluation of of why the cost of being public or the regulatory burden of being public has grown. And is there anything we can do to take it in the other direction?

26:32 I I'm particularly worried about things like derivative lawsuits where you have a very ambulance chaser mindset. They going back to the Elon compensation thing, someone with nine shares who made money can bring that kind of legal case against a company where the stock went up. That's really bad. Like that's not what I would call a a a fish in capital market. I would call that an inefficient broken capital market. And so I I do hope we can look at some of those things. The second thing I would say is if you're right and if this becomes some kind of permanent state, I think it's going to be really tough on limited partners because you're going to have a bigger and bigger part of your assets and things that where we really don't know what the what the price is. And if you have large positions, despite the fact that there may be trades for employees, you probably don't have a trade at the size that would allow you to get out.

27:39 let let let let's hit let's hit on that. That's a super important point, Bill, because I, you know, we've been talking about why do we have fewer public companies than we had 20 years ago. We've been talking about this for a long time. And people have thought, well, maybe it's just part of the market cycle. I'm evolving my own thinking to say this is permanent and this is structural. Right? Because the government regulatory burdens are at least semi-permanent. And the and and the markets have responded by the private capital markets stepping in and providing the liquidity where companies, you know, can get the cash they need, can get the secondaries for employees they need without having to go public.

28:17 At least the best companies, right? So, Yeah. If you think about that, you made a good point that employees, so if you're an employee of SpaceX or you're an employee of Stripe or you're an employee of of ByteDance or these other companies, you could you probably have quarterly or bi-annual liquidity events. They raise a secondary tender and those employees can sell up to a certain amount within those tenders, right? But in those in those same companies, you have massive LP gains that are locked up.

28:50 Right? And it's very difficult. You can't sell easily a billion or a two billion-dollar position in ByteDance, or sell a multi-billion-dollar position. So, all of the endowments, foundations, you know, pension funds, they're in a a different position than they've been in the past. They perhaps have Even if you did, it would be a trade by appointment pink sheet kind of with a likely with a banker grabbing 5% or 10% along the way. Like, it wouldn't be an efficient transfer of the Right. So, that that to me is if you said, "What's the ultimate you know, what's the ultimate cause of these companies to go public?"

29:28 The ultimate cause would seem to me that at some point the LPs, the people who put up the first money into the business, need to get liquidity, right? But But two structural changes that we've seen there, right? One is it just seems companies with the best companies will stay stay private longer, right? And we've seen this trend over the course of the last 15 years. You know, now Although I will remind you that Zuckerberg said he should have gone public 2 years sooner than he did.

29:56 Right. And think about how how early he went public relative to the companies the late-stage private companies that exist today. So, I I I would say I do see that these companies will eventually come public. you know, because they need to get liquidity back to those LPs who provided that first capital, unless the private market again responds and provides some vehicle, you know, for these companies to to come public. You know, it's interesting. I was talking By the way, by the way, another another negative impact of this I I mean, I think it's it if you're right, I I think it's structurally disadvantageous to the venture capital world at large or as a as a asset class in an industry because one of the things that happens if the best ones aren't doing it is there's no pressure on the next level to do it and and it kind of trickles on down and and or or or just the common belief as you've said comes to be that oh well you're not eligible for that.

31:01 Right. Right? And so and and then you're going to have even more companies that kind of rot in place I hate to use such a dramatic term but they're just going to sit there and and and exist and probably dilute 5 7 8% a year on new equity and never get closer to the finish. Well remember we're we're the companies that can stay private Bill are only the very best companies. The vast majority of these companies don't get to cash flow break even or they just barely get there they need access to the cash you know in order to keep funding the business.

31:42 They can they can get recap they can get rolled up in PE. There's a lot of things that can happen that don't necessarily equate to gains for for VCs and LPs. Well that well that's true and I do think like I said we're going to see a lot I think this was the point of Gokul's tweet actually. He's saying hey listen a lot of these software companies no longer have the profile that that allows them to ever get public and so they're going to have to sell to private equity or do something else they need to get real about their situation.

32:13 And and and and and and we are unquestionably in a place where because of over funding over the past four or five years I remember the one slide where there were more private unicorns and public unicorns like that there's a lot to clean up and so unquestionably that's true. The the last thing I would mention on this topic is I mentioned it quickly earlier but there are a number of people and you'll hear people talk about that are worried that mom and pop or the average investor doesn't have exposure to these names.

32:46 And if you're right and this is more permanent, some rather than back up and fix the regulatory costs that put us in this place, they'll try and fix it from the other side. They'll try and create ETFs for private so they'll try and, you know, mandate that firms like yourself take on individual investors. And I think that's a complete rat's nest. We don't have to We don't have to go into why, but like it's it's not fixing the real problem like which is having a functional capital market that's open and inviting to more companies.

33:22 it's an interesting debate and one that is also evolving. So this is the question of does the little guy get access to the best companies in technology except you know, for example. And if those companies are in the public markets, then clearly all retail investors can buy those companies. But it's very difficult for retail investor to get access perhaps to a SpaceX or, you know, a data bricks, a stripe, etc. The best of the of the private companies. but when you look at the evolution bill of who is providing the ultimate capital.

34:01 Right? Increasingly pension funds. Right? Which represent firefighters and teachers and, you know, police officers in the city of New York or the city of San Francisco or the state of Texas. Right? In increasingly they're LPs in these growth equity funds, the later stage funds like ours. you know, so they are gaining access the retail investor by virtue of being, you know, a participant in that 401k or or that pension. So I do think that there's probably more retail exposure to these late-stage big companies than appears at first blush, but I will also agree with you. It's much less egalitarian than being able to open a Robinhood account and have access to those companies. Yes. Yeah, and and I and I my my history of reading and watching the regulators, that argument won't be good enough for them and they'll try and create what is in essence a new public cuz when when you want to have a market where everyone can trade and it's all fair, you need the rules that exist in the public market. So, trying to have your cake and eat it, too, doesn't really work.

35:12 Well, I Yeah, yeah, and then a couple other points that that I would make. One is as we saw in 2021, there were a lot of companies that were just walking under the assumption that private market capital would always be available to them. Right? And so, you don't go public because you because you say, "Oh, you know, Masa will always be there. SoftBank will always be there to provide my next round of financing." And I think what people are starting to see as they burn through the capital that they raised during this period is that private markets are less liquid, right?

35:43 Granted, the liquidity has gotten way deeper for the best companies. But for the average company in the private markets, that is not that's not the same story. The negative reflexivity, the drawdown, the tightening up of those private markets can have draconian consequences on these businesses. So, again, I think that there is for the vast majority of companies, I still, you know, I would conclude by saying I'm in kind of the the the the jam and you know, go-go camp that if you're a software company, you have $250 million in revenue, you're growing at 50%, you're approaching break even, you think you're going to compound at 30, 40, 50% for the next 5 years, expand those margins, the public markets are a good place to innovate, to grow, to build your brand, you know, to gain credibility. I do think we're going to see some acceleration. All those heads of capital markets that I talked to, they all told me their pipelines are filling. I know this because my team is is spending more time on road shows.

36:44 Yeah, that's I think I think there's also some some off-the-beaten-path companies with pretty good numbers that are going to come as well. Ironically, not in Silicon Valley. Cuz I think this the these memes and rules and this kind of negativity about how big you have to be, I think those things echo much louder in Silicon Valley than they do externally. One thing that we have done and I've encouraged LPs like endowments to think about is we used to have these two buckets, right? Venture and public.

37:19 when I talked to technology investors, and you know, then they would have everything in their venture bucket all the way from, you know, a series A all the way through Stripe or or or or or ByteDance, which obviously makes no sense. Those companies are over $50 billion in enterprise value, you know, all the way up. So, what we talk about internally is there's a venture market. Think of that as a market with less than $100 million in revenues, less than a billion dollars in EV. There's a lot of mortality risk associated with these businesses.

37:53 there's a lot of volatility associated with them. Then, for companies that have a couple hundred million dollars in revenue and are well over that billion dollars in EV, we call those quasi public, right? There's more liquidity associated with those businesses, there's less mortality associated with those businesses. These are often times companies that could be public and are choosing to stay private, right? And so, and and it has a whole different set of investors that that in those comp- companies, family offices, sovereign wealth funds, foundations and endowments, obviously big growth equity funds, private equity funds, and venture capital funds that are multi-stage. And then of course you have the the the public markets. And they also have different characteristics in that the VC bucket, obviously the VC chooses you.

38:42 Right? The quasi public bucket, that's not everybody can participate, but there are 10 to 50 firms probably that show up around those you know, like party rounds and have an opportunity to participate. And then of course everybody can participate in the public market. So I think that at different points of the market cycle, we'll see different appetites for going public. But these underlying dynamics, I do think the structural changes are here to stay and that there will be a category of excellent companies that can choose to stay private a lot longer and I don't necessarily think that's a bad thing.

39:18 Yeah, and I I would push back on that a little bit. I I think you will I think history will show and unfortunately we we may all be in our graves by the time the window you need to evaluate this, but that that staying private forever has consequences and and unfortunately the way it'll show up is some people will have kept some private marks in their very large positions in very large portfolios for a very long time and then they'll be corrected all at once and and the learning window on that is so long that that that that there's there's not a self-correcting mechanism not not in the near term for sure.

40:06 Well, I would say the single greatest input to valuation technology is growth. And number two, right, is margin. And the danger in technology, which is a highly disruptive industry, is that you stay private, your LPs and your investors don't get liquid, and during that period of time where you have ultimate confidence, a structural change occurs in the market dynamics such that your growth rate goes down, maybe you have to spend a lot more money to defend your market position, and so the multiple for the business goes down a lot. You and I remember this. There were companies in 2010, you know, this is really pre-mobile taking off in the search industry that had vertical search engines that had really high multiples that were demolished by the transition to mobile.

40:55 And when that happens, those things represent permanent capital loss to the investors. So I do think that giving getting people liquid, performing and competing in the public markets, it's certainly a a terrific choice, but I think Jamie Dimon's right. We we've got way more liquid private markets, and the government through all of these regulations, allowing this excess litigation. It has mucked up and made it less attractive to be a public company today. But let's move on.

41:26 Let's move on. So So the next thing we're going to talk about I want to I want to kick it off. So we're going to talk about autonomous vehicles and and whether or not and how they would compete with ride-sharing services. And the thing that I think's bringing this topic to the forefront, obviously you and I have talked about this for I don't know how long now, many many many many many years as both being earlier investors in Uber.

41:58 But but I think the thing that's bringing it to the forefront are twofold. One, Tesla has had some breakthroughs with FSD 12, and our they've already announced they're going to start talking about their robo-taxi initiative in a more public way and then Waymo is open and available in more cities and people are riding in them and so they're having experiences. So, I'll just stop there like as as a kickoff and let you go next. Great. Well, I mean, I was up in the city I was up in the city last night. I was shocked by the number of Waymos I saw.

42:34 Saw them everywhere. And you know, it it it reminded me like they were none of them had I saw wait none of them had drivers. None of them had anybody in the front seat. They had riders in the car and you know, I think in the city of San Francisco and these other cities I mean, that was just mind-boggling when you saw it the first time and I there was at one point I had three cars around me and they were all Waymos, right? And people have a eclipse-like experiences when they get in them.

43:02 you know, I listen, I think part of the setup here is it's been a you know, it's been a tough tough week for Tesla. They're laying off 14,000 people about 10% of their workforce. Car demand is clearly weak, right? That's on the one hand. On the other hand, there's some transformative things going on that you and I've talked about, right? These imitation models are are clearly better than expected at scale. They're having a larger rollout of FSD. So now I think they pushed FSD out to everybody who has the technical capability on their Tesla in order to receive it. They've talked about dramatically lowering the cost of FSD to 99 bucks a month. I think they hit over a billion miles driven now with FSD and by our estimates, they're adding over a billion miles a month. So I think that their confidence that their data advantage is increasing dramatically is going up. So there's some speculation out there, oh you know, Elon's throwing the long ball on robo taxi and all this.

43:59 I don't believe any of that, right? I think that that the conditions that get the company re-excited about robo taxi is that FSD is going way, way better than they expected it would 18 months ago in terms of the technology, Bill, in terms of the technology that they have available. So, they've re-prioritized robo-taxi. They said we're going to move it to the top of our priority list. And you know, and and I think Elon announced that they're going to have an announcement in August. Now, of course, immediately after he does that, analysts dig in and and they call the regulators in a couple different states and the regular regulators said, "We haven't heard from Tesla." And of course, there were tweets that went out and said that, you know, a couple states' regulators had not heard from this. I don't think that really means anything but because of course, they could launch this in any city on the planet, right? they get from Abu Dhabi to you know, to South America. And certainly there's a city on the planet that wants to be first to have Tesla robo-taxis. So, So, go ahead. I I thought I thought for the Because I know you and I have talked about this, there are a number of topics that I think are important to consider and discuss that live beyond the technical feasibility. So, I know there are people that would say, "Okay, even if they're at four nines, they're not enough. It's got to be six nines." Or will it work in snow and all that kind of thing? But but I would say for this discussion, let's put that aside. Let's assume Waymo and Tesla have both achieved the the quality it for the vehicle to move around by itself.

45:38 what are the other things that these companies need to think about in order to have a successful robo fleet, if you will? Yeah. Well, I'm going to touch on the technical thing real briefly, but and and then go to go to go to the the the other elements required to have a successful robo fleet. Because I think, you know, if you think about the way Waymo, Waymo, you know, we you and I did this breakdown on FSD 12. And we said one of the bad downsides of Waymo and Cruise is they have these deterministic models, right? That they have hundreds of thousands of lines of code and they all you know are a rule about how they expect the car to behave. Well, Right.

46:15 it turns out in ride-sharing, cities, airports impose a lot of specific rules on the ride-sharing companies. They tell them where you can drop off, where you can pick up, how those cars have to behave in certain circumstances. So, that would seem to lend itself to a deterministic model where you could just write a line of code that says, "Here's what you do at an airport in San Francisco." You know, so one of the things I I I had a question on is just can an imitation model, right, that's imitating five-star drivers, can it easily, you know, have these deterministic components to it? And so, I talked to some friends, you know, who who are working on this, and they said, "You know, think of it you know, once the user inputs I'm going from, you know, San Francisco to the San Francisco Airport, that they would drop that information into the prompt, right? So, that would tune the general model." So, that they actually have been thinking about, right, how to solve that technical problem. because I, you know, it certainly was one of the things on my mind. but okay, let's let's assume that they both have this cracked and that that this becomes standard and ubiquitous that these cars can drive around. Well, one of the reasons you invested in Uber is that as Uber grows, the power of the network effects gets even bigger, right? And so, they they they have more more riders, which leads to more drivers, which reduces wait times, you know, which creates better experience, which leads to more riders.

47:52 And you have this virtuous cycle that's created by that. Obviously, that's made it very difficult on Uber's competitors and they're achieving the natural market leadership economics and share position that you would expect vis-a-vis Lyft. yeah, you know, particularly now that access to capital to Lyft, you know, got a lot harder. So, there's you know, so we can start by just asking the question, how do we think Tesla will go to market with its robo-taxi, right? In the case of Waymo, they've chosen to go chosen to go to market both directly, you can book it on a Waymo app, or in Phoenix, for example, you can book it on the Uber app. So, you can book your Waymo on the Uber app. And and so, in that case, Waymo recognizes it's a very small fleet, right? In that case, Waymo owns the fleet, so huge costs of of ownership there for Waymo.

48:45 They want to drive utility of that fleet, so they're using Uber as third-party demand generation into that, and they have an economic revenue sharing relationship between those two companies. Now, of course, that's not the way it you know, I would think that Elon might approach it, right? He has the he has the potential to be much bigger. Tesla's a much better-known brand. There are millions of people with the app already on their phone. So, I think most of people I talked to, Bill, suggest in the first instance that he'll build an owned and operated fleet, right? Where he may have outside financiers or rental car companies that take ownership of the car, but insofar as booking that fleet, you would go through the Tesla app. so, you know, we can talk about it. I throw it back to you. let's just say that that that's the approach that they take. What is his chance What are Tesla's chances of breaking into the you know, breaking down the network effects that Uber currently has on ride-share demand?

49:50 Well, I think you you've you've hit on a key point, which is I think you have to separate Tesla from everybody else. Waymo, and I don't know if Cruise and Aurora still aspire to compete with Waymo or not, but they all have this very high-tech infrastructure with lidar that we've talked about, and they're all here today working on a model where they own and operate all the cars, which we should get into in a little bit cuz financially I think that's a complete disaster. Tesla has the benefit that they they can utilize, theoretically, the cars that are already owned by their customers, and not have to front the capital for each and every vehicle.

50:37 If you look at the data we already have, Cruise was losing what? $3 billion? Aurora's public lost $2 billion 2 years ago, a billion last year, and virtually no revenue. I have zero to reason to believe, zero reason to believe, and if anyone wants to share data with us to correct this, that Waymo's financials don't look exactly like both of the ones What do you think Waymo's worth today? they did it we can look up I mean it's a private company I'm asking you. Like like they did it up is what it traded for last time.

51:15 Well, even Aurora's trading at what? $4 billion here with no revenue and a billion dollars a year of losses. So, there's there's the Wall Street speculating that the IP has value. So, keep going on Waymo. So, so that Yeah, but but but but here here's the thing. It I think it really comes down to supply and demand. there is a beautiful emergent quality of the Uber model where supply and demand are matched, and and it's and it's and it's enhanced with price, through through through surcharges. but there are plenty of people who want to make incremental money that know when to get on the road.

51:57 I have a chart which we can put up which shows at one point in time the weekly pattern of ride sharing and it's remarkably, non-linear, right? It it peaks in the morning, it peaks in the evening, it really peaks on Friday and Saturday. And I way more anyone like them with an owned fleet has here here's a huge conundrum. Are you going to build the fleet to average or peak? And by the way, you lose whatever your answer is. If you build it to average, you're not going to be able to serve your customers during the peak at all.

52:34 Like they're only going to be disappointed. And if you build it to peak, you're going to have a bunch of very very very expensive capex sitting around doing nothing most of the Okay, so the I think this is the most critical point. Right? Because this is the same challenge that Amazon faced which led to the creation of AWS. you know, this is the same challenge that you know, most businesses face which is they have very spiky demand periods and if you want to be an incredible customer experience, you have to have something that is can regulate to those higher periods of demand.

53:10 Like you said with Uber, they have a natural thing. They can just charge a little bit of peak pricing. They got more people who get out of their houses, drive their cars, pick you up. Wait times don't go up that much and they benefit from that and as the network expands, it gets even better. So, Well, and you remember it goes back to what was that word when Airbnb first came out? It was asset sharing. There's a different word that was used.

53:35 but but there's a huge like amount of cars, especially in the US, that are sitting mostly idle. Correct. And so Uber gets to take advantage of that and utilize that CapEx. Anyone that's And And Tesla may have a similar advantage just because they have enough customers. Someone trying to build a completely separate fleet, I just don't think it works. Like And I would encourage anyone that believes in it or anyone that's a Let's call them a Waymo advocate. Let's build a public Google Sheet of the 20-year financial statements for this thing and let's put it out there in the public. You're going to need hundreds and hundreds of billions of dollars and I don't know how you answer this peak versus average.

54:19 So, let me say I don't know how you do it. let's let's talk about some of the ways that might happen, right? You know, as a Tesla owner, you know, if if I had the opportunity to put my Tesla in a pool, right, and allow it to be, you know, pulled out during peak periods of time, you know, for ride share, I'd have a problem with that because I need my car during those periods of time.

54:41 Well, it's very likely It Here's another way of saying what you're saying, which is it's very likely that the average Tesla owner's usage map is similar Of course. to the Uber map that we just put on the screen. That's my point. So, here's my Here would be a straw man. Tesla launches with an owned and operated fleet to to prove the models, start building, right, the customer affinity with the product, the customer truck Which would Which would Which would unfortunately work because there's so many Tesla fans Correct. that would want to do it just to be supportive of the company.

55:19 And by the And by the way, it's a great product. It feels great. You probably already have a Tesla, so you feel good about FSD. So, my hunch is they launch an own You might even You might even launch it at first with only allowing Tesla owners or something like that because of the loyalty. Interesting. Like it's almost It's almost like a benefit of ownership. So, then I think what they do is my hunch is that they will open it up and partner with Uber.

55:47 I think Uber would like that. I think Tesla will like would like it. And here's my here's my argument for that. The only way you solve the peak demand problem, Bill, is that you have to basically have high utilization at lower periods of demand. You have to reduce the delta between your trough and your peak. And the way you do that is you pull in the Uber demand when your demand is lower, right? And so, an example of that would be if you think about in the city of New York, McDonald's has an app.

56:23 You can go on the McDonald's app and you can order a burger, right? Or you can go on the Uber Eats app or the DoorDash app and order a burger. And so, McDonald's recognizes that they want to try to flatten that demand out over the course of the day. And so, they can yield manage that by having both a 3:00 p.m. and a 1:00 p.m. strategy. So, it seems to me that the only way you really crack this is have a 3:00 p.m. and 1:00 p.m.

56:51 strategy. And the the upside to that in addition, right? Is that now you have a flywheel of Uber drivers, right? Potentially building some mini fleets of their own, right? You could imagine somebody who says, "Hey, this is pretty accretive." We saw this with black cars, I know in the early days, where you had one operator that may, you know, have two or three or four black cars. You could imagine somebody who says, "Listen, I can make money by arbing this system and by having multiple multiple Teslas in that fleet." So, I think they probably launch it you know, you know, on a stand-alone basis. They get a lot of excitement, a lot of customer love for it. But my sense is by the time you scale this, it probably does have to be an open system. We'll see. Yeah, and I I mean that's clearly up to the powers that be at Tesla to make that decision. The The two companies have partnered today already. they have quite a number of initiatives including like free charging for people that buy them and put them on it. So there's a there's a close partnership already, but you know, and as as this plays out, we may see, you know, reasons why they may not want to do that.

58:05 bit just about the unit economics? you know, of of these different businesses. Yeah, there's one thing I want to bring up specifically that that'll be interesting to see how it plays out, and that's insurance. And so Last time I had specific knowledge, and it's been four or five years, but I doubt it's changed that much. The cost per mile of insurance for Uber in the US is dramatically higher than the rest of the world. And if you look at just the cost of consumer car insurance, the same thing's true, way higher in the US, which gets to another problem with Regus story.

58:46 Cost. that our government should try and fix. But anyway, It strikes me and and I would be worried about this as as an investor, it strikes me that the that a particularly aggressive litigator lawyer would chomp at the bit to get in front of a jury on a robot killing a human, and maybe even create more litigation costs and a higher cost of insurance for a robotaxi than a driver.

59:21 Now, I know how people are listeners are going to react to that. They are convinced in their heart of hearts and in their brain that these are safer than than human drivers. And I am saying this even with that potentially being true. We may have just such a broken litigation situation in the US that that the the the actual cost of underwriting the insurance for a robo-taxi may be higher than a real car.

59:52 And time will tell. And and and as we know, Tesla's already brought some of their insurance operations internally. And if they're willing to underwrite it themselves and fight it themselves, maybe that's something they'll do as a part of this rolling out. I I I got to take a tangent here for a second and then I'll I'll I'll come back to these unit economics. You know, I was with a certain investor group of investors in the Midwest, let's just say, over the weekend that are very big investors in the insurance business. And I asked them the question, I said, "What's up with car insurance being up 22% in the CPI on a year-over-year basis?" I mean, it was crazy. Car insurance up 22%. And he said, "Here's Here's how it works, Bill.

60:33 In 20 and 21, then the you you we have very predictable and very steady number of miles driven in this country on a year-over-year basis, and the accident rate remains very steady. So, the cost of our auto insurance has largely been, you know, pretty flat, growing with with GDP. What happened in 20 and 21, the number of miles driven fell a lot. Okay? And so, it fell so much that you know, those companies were prone to over-earn, right? Because there were just there was less chance of an accident with fewer people driving, or at least that was the assumption. But what turned out to be true is that the miles that came off the road, for some reason, were safe miles, and the mile the accidents per mile driven actually spiked a lot. So much so that the insurance companies lost a lot of money during this period of time. So, they went to the state regulators who control insurance pricing and they said, "Hey, we got to raise the price of insurance because we're losing money." Now, remember, auto insurance companies try to price the insurance to make about, you know, 3, 4, 5% on the insurance and the rest of the money they make is on the float.

61:41 Okay? But, in those years they were losing 5 to 10% on the insurance, right? So, the companies were actually losing money even with the float. How long do you think it takes the California state regulator to pass along an insurance increase? Right? You have to threaten them that you're going to leave the state and all this other stuff and then eventually they do it. So, now they passed on this insurance increase and it just kicked in, which is what you saw in the CPI.

62:07 Right? And and ironically and not surprisingly, the patterns of driving have now returned to pre-COVID levels. So, we went from a period where the auto insurance were not charging enough because they had to beg the state regulators and they were slow and now they're charging too much. But, set that aside for a second. Let's come back to the unit economic And by the way, I think this cost This is a lot of guesswork. I apologize. People should treat it as such, but I think in the Uber case in the US, about 5% of gross revenue goes to insurance.

62:38 Yeah. So, it's a It's an expensive It's It's an expensive input and we took a crack, okay? So, let's just say at the high level, most people think that taking the driver out of the Uber model will lead to an explosion in profit margins because it represents 70% or 75% of the cost, you know, of the ride. But, we actually took a took a crack at these unit economics. And what I think that fails to understand is a couple things. Number one, if you just break this down per car, we estimate that there's about $140,000 of revenue per car driven on the Uber network. Now, of course, this is blended off across tons of different markets, tons of different cars, etc. So, 140,000 of GBV when you do that in self-driving, we think it goes down to about 100,000.

63:27 Why? Well, you have actually more rides in the self-driven car, right? But, it actually comes in at a lower cost because you put so many cars on the on the road that the that that the charge to the consumer gets shared back with the consumer, right? Margins come down as you as you have more competition because you have more cars on the road. Next up, the revenue per car. Well, of course, you take out 70% of the cost, the driver cost on on the the the driver-driven car. So, at a revenue level, we think that if you were comparing apples for apples, in the case of the person the the the the one with a driver, they make about $40,000 a car. Without the driver, they would make about $90,000 per car.

64:13 This is just revenue. So, about double the revenue. But, the costs are way higher in the full self-driving case. Obviously, you first up is you have to pay for the car, right? There massive costs associated with that, maintaining the car, the insurance on the car, all the things the driver currently does now is dropped upon Well, just Yeah, and just on that first one, like because I can go buy a 2-year-old used car for 25K, 30K and get on the road.

64:46 Like, and then you add in the cost of the human. Like, like you need the fully autonomous car to be really cheap in order cuz cuz if it And And I don't think anyone thinks the current Waymo when you were surrounded by the other days anywhere close car cost probably 150,000 bucks. Like it like it's not it's it's not viable. would need That car would need to get down towards this 30k number for that disruption to matter. If it's in the 45-50k and it's an alternative to 30k plus a driver, you have no d- But again, where Tesla has an advantage, they probably can put a car on the road at those lower price points. So, when we shake it all out and I'm happy to you know But by the way, there's other things that driver does. I mean, the driver maintains the car. So, once again, this is in in in the Tesla case, if if it's not an owned fleet, it's a customer owned fleet, they can clean it and that'll just be a cost of putting your car out on the road. But in the case of a Waymo, like that car has to home come back to headquarters at some point. Someone's got to get in it.

65:55 Someone's got to clean it. Th- there's eyes that are going to be needed. So, there's going to be a customer service staff that's going to have a camera because you're going to have to settle disputes. You're going to have to deal with customers and that d- the human does that in the case. So, there are going to be other costs the point the point is you have to take the 70% that you save on the driver and then you have to add all these new costs that you're going to incur. We still think that the margin goes up from let's call it 7% of g- of gross bookings to something like 12 or 14% of gross bookings, even taken into account all of that bill. But that's what we're all trying to do.

66:35 We're all trying to build a forecast and understand, you know, assuming that this could work, assuming that regulators pass it, assuming you could build the 25 or $30,000 car, assuming that you could enter into a commercial relationship with Uber and yield manage the peak and you know, demand. All of that is to say, there are a lot of needles that have to be threaded in order for this to work at scale. and I think if it does work at scale, I don't you know, obviously talking our book a little bit here. I don't think this is much of a a threat to Uber. In fact, I think if it if it works for Tesla, I think there's an opportunity for both companies.

67:15 And by the way, it like another way I'd state what you just said, which is it's not going to be financially disruptive at the beginning or in the middle. It might theoretically be financially disruptive at the very end, but but but there's way too much capital that and the price of the car has to come down. There's too much that has to happen. There's no way for someone's not going to come out tomorrow with a robo fleet and underprice Uber by 50%.

67:46 and and let's let's put one final point here. remember this deal that Tesla entered into with Hertz where Hertz bought a bunch of Teslas? it turned out that the resale value on those cars was dramatically less than they had forecast. And the CEO lost his job over this. I think the write-down for Hertz was like a billion dollars. over this mis- misforecast. So, if you're in the business of buying and maintaining that fleet on behalf of Tesla, you're doing so with full knowledge that all of this is hard to forecast. So, you're going to bake into your model a huge margin of safety, right? So, that you don't you're not going to have the problem that Hertz just ran into. I would say based on everything I know and and we're not, you know, in the in the in the boardroom with these guys, but like letting the customers own the Teslas that own the fleet is a better alternative. Much much much better. And I will say this, you know, the fact that we're even talking about a robo taxi fleet shows you the incredible progress that Tesla has made. And you know, and and what we talked about on the show a few weeks ago, the month-to-month improvement in the model, the data that they're collecting, and you know, just the anecdote I you know, I shared from last night. I am more convinced than I ever have that we're going to see tons of cars on the roads with no drivers, you know, in the years ahead. You know, you and I are just speculating as to how the business model might come together. But, by the way, one one last thing, I'm so sorry. I do think there's an argument that you might see this be prolific in a different country soon.

69:25 course. the both China and India have much higher road deaths per mile. So, you could see the government wanting it to happen. China being more autocratic could just wave their hand and change insurance rates, mandates. They could just make it a reality. whereas we in the US with the way our litigation and regulation work are very unlikely to clear the decks Right. and make way for something I also think, you know, as I mentioned earlier, Tesla and Uber coexist in a in in a ton of markets around the world.

70:02 And there are a lot of markets that frankly are more innovative than the United States, have less regulatory headwinds. I could see this happening in Abu Dhabi or Dubai. I could see this happening in in Singapore. I could see this happening in South America. I could see this happening in Mexico. Like, there are a ton of jurisdictions where I expect this, unfortunately, before I expect it in the US, you know, at scale. All right, before we wrap up, let's check in on markets since we talked last. What do you What are you seeing out there, Brad? What do we need to be worried about?

70:36 you know, if you telescope way out, we're about ready to to to enter earning season, right? Ne- next week we have we have Tesla report, we have Facebook reports, Microsoft reports, Google reports. So, you know, thinking about the setup heading into earnings. If you telescope way out, the S&P and the Nasdaq are about up about 6% year-to-date, Bill. The small caps are down about 3%. And and it really comes down to a lot of those the companies that are up in tech have beat their numbers, right? Nvidia's beat their numbers, Microsoft's beat their numbers, Google's beat their numbers.

71:15 And the companies that are down, Tesla and Apple have largely disappointed. You know, but against this backdrop of the NASDAQ being up 6%, we've had a huge move in the 10-year, right? We've talked ad nauseam over the course of last couple years about how interest rates are the economic law of gravity for the financial markets. And since the start of the year, the cost of that 10-year is up 20%. We've gone from 3.9 to now 4.7 today. So just all else being equal, right? You would expect that growth company multiples would be down 10 to 15% because the because the 10-year is up a lot. So I think the the reason the thing that's making a bunch of people nervous is usually you have this inverse relationship. As rates are going up, you know, that's a headwind for tech. You you might expect that the NASDAQ would actually be down a little bit on the year in you know, relationship to to to the cost of the 10-year going up. So if you dig in a little bit to you know, to these businesses and say what has to happen in order for these stocks to work next week, it really comes down to this. The margin in 2023, all you had to do is be less bad, right?

72:33 It was that reversion to the mean trade. But now if you the only way your stock's going up is you got to beat numbers, right? Your numbers have to get revised us upward. And if you miss numbers, it'll be brutal to the downside. You know, the team's made a chart on an interesting chart on cloud acceleration. So what might be driving that acceleration? We've talked a lot on the show about AI. But check out this chart.

72:57 So you can see for hyperscalers, you can see that COVID bump. So this is absolute dollars that were added to the three large clouds over the course of the past several years. So you see how that really bumped up during COVID and ZIRP. And then you can see the belt-tightening period as interest rates went up, people got a lot more nervous about the economy. These are CapEx numbers? Right. These No, these are the absolute dollars of revenue that were added to those companies, right? So this is Think of this as year-over-year revenue growth. And so Got you. we dipped, it started to go up over the course of the last couple quarters, and now consensus is is forecasting that it continues to go up, you know, above trend line. So those companies are going to have to deliver. That's AWS, that's Microsoft, that's Google, and you know, our belief is that they will. We think they will beat those forecast, because we do see that real acceleration coming out of AI. Now look at this chart.

73:59 This is that same chart, Bill, for Datadog, Confluent, Elastic. Think of it as the the data infrastructure companies. They got a much bigger benefit during COVID, but they also had a much bigger pullback. Now look here what the consensus is forecasting. Unlike for the hyperscalers, the consensus is saying, "No, we don't buy that they're going to reaccelerate and get back above trend line. We think they still have, you know, they they have some challenges ahead, and they're not going to get back up to those COVID levels of absolute revenue dollars that were added on a year-over-year basis." So I think that's an interesting divergence, you know, that you'll have to keep your eye on when when Snowflake and report.

74:41 We actually think a bunch of those companies are seeing the flow through out of AI as more enterprises are moving more of their data into the cloud, but there's clearly tension in the market about that. You know, one other thing that is really interesting to me is we universally see companies holding the line on expenses, right? And so, think of this as, you know, we had a real questions was the age of efficiency going to be a you know, a moment in time or were companies going to continue to do that.

75:15 I was talking to the CEO of a major company the other day and you know, with tens of thousands of employees. And he said, "Over the course of next 3 years, we'll grow our top line 50% and we'll reduce our personnel cost by 10 to 20%." Right? That's extraordinary. Like, I don't think we've had a moment like the moment we have today in terms of margin expansion, right? In in in any time frame that I can remember where it was voluntary.

75:47 It's not because we're in a recession, it's not but it's because companies really do see the opportunity. Both they had some you know, they have room to cut because they got excessive in 20 and 21 and because they now have these tools, co-pilots, soon to be co-workers in engineering that enable them to be more productive, more efficient in engineering and also allow them to be much more efficient. And that and that includes Slack and and Zoom and things that allow people to have more employees outside of the Bay Area. I mean, that every one of these CEOs I talked to are are intentionally trying to get head count out of the Bay Well, which In response to our SBC pod that we did, I had a you know, a CEO of a of a major company call me and say, "Hey, we're rebalancing how we're thinking about SBC, you know, across the business." and I said, "Doesn't that make you nervous that you'll lose your best engineers, you know, if the total cost of SBC comes down?" And he said, "No, because we don't need as many engineers. The labor market for engineers is softening. It's easy for us to keep and retain the best talent. And so now is exactly the time to get our comp plan reset for the next 5 to 7 years." So net net, I I I would say that I'm really excited about both the reaccelerating top line for some of these businesses. Again, this is very unique to tech.

77:17 And you know, I see other pockets in the economy, like we just talked about autos. I mean, it's a tough story out there. Higher interest rates, less consumer demand. people have burnt through their stimmy checks. They have less savings. And so I think it is a tale of these two worlds, but I think one of the key drivers over the course of the next several years in tech is going to be these expanding margins caused by you know, the tool set that they're investing in around AI.

77:47 Well, here's the good news. You've now set the stage for earnings. So when we get back together in 2 weeks and this stuff starts coming through, we'll have a a lens and a framework from what to talk about. And I'll get a report card. Okay, fair enough. Great seeing you, man. A lot of fun. Good to see you. Take care. Bye-bye.

78:18 As a reminder to everybody, just our opinions, not investment advice.