Ep11. Coatue Conference Recap, Tesla & ISS Controversy | BG2 with Bill Gurley & Brad Gerstner

0:00 he implied you tell me if I got this wrong he implied that in the modern era you need to be1 10 billion dollar to go public yeah market cap yes which if it's 10 billion or bus that's a bit man hey man how you doing it's good it's

0:30 good to be here it's like a a destination podcast here in Santa Barbara this this is our first destination podcast we're coming to you live from k2's East Meets West 2024 conference indeed were you up or down last night I did okay okay okay you it was a good night it was a good night hopefully they don't think we were the ringers you know the well tell it tell the audience a little bit about what is east meets west it's really

0:59 gracious invitation you know we've been doing this for years with kotou down here why don't you to tell us a little bit about it yeah so Philipe and and Thomas lefant who run CO2 started a conference I'm going to guess about eight or nine years ago title e Meets West and at the time it was really about bringing together entrepreneurs from Silicon Valley in the west with entrepreneurs from China and some of my best relationships with some of the the

1:28 smartest coolest typ Chinese entrepreneurs came here and and the access was just unbelievable it was literally once in A- lifetime opportunity and they've kept the conference up on it's on my list of must attends yeah you get a combination of incredible Founders some great CEOs sat nadell is here Dar is Here Andrew from EA is here and it's one of those conferences like when I entered the industry years ago at Agenda the agenda

1:59 conference which steuart alsa ran you know Larry Allison and Bill Gates and Scott McNeely would stay through the conference so they're around incredible today most conferences the Keynotes come in and go out here everyone stays and so you it's more intimate you learn more you get to talk to more people they do a lot of these one-on ones right where they they set it up so that you can maximize individual connection it's just incredible anyway I'm super you know

2:28 thankful to them for for having us down and for letting us it's a big investment it's it's a big investment by them and I think one of the things that's underappreciated outside of Silicon Valley is there's this view that that that this is all Zero Sum right that I win you lose you know we're all very competitive we all like to win whether we're playing poker whether we're playing Hoops whether whether we're doing this but really I think it like

2:52 this is a demonstration of positive sum the fact of the matter is we're all analysts we're trying to figure out the future and what I deeply appreciate you know with you with the guys at all in when you come to an event like this it's a lot of conversation about this future about the consequence on the economy we're going to be talking to Larry Summers tonight about you know about that question about the consequence on society from AI which we're going to be

3:17 talking about a little bit today you know but when you really telescope out over the last 20 years that you and I have been doing this Technology's gone from 5% to 15% of global GDP right right and and we're going to talk about public markets and Venture markets but the reality is there's a very big pie you know and we can all participate in that together and so you know to me this is a reflection I see a lot of old friends

3:43 you know this place is full of GPS it's full of venture capitalist you know a lot of people would think of altimer as a competitor to CTO but the fact of the matter is you and I collaborate with them on a ton of stuff some of it works some of it doesn't work but we trust each other we have a Shand with one another so it's great to be back down here and and like I said thanks to

4:02 you know Philipe and Thomas for encouraging us to do the Pod down here I think it's I think it's a a perfect setting but you know I thought one of the things we could do is set up for people like what goes on here and just kind of take them through it a little bit right sounds so as you said there's a couple hundred Founders CEOs and and GPS you know the first morning which was this morning we always telescope out

4:26 and Philip kind of takes us through you know the view of the public markets if if you will and then Thomas takes us through this view of the Venture markets and so maybe we could just start in a sense like I mean it's it's a it's a presentation I look forward to every year and I think they said they threw out a 100 slides so they right they put they didn't it's not falling off a log they're putting in an immense

4:49 amount of work to put this together and by the time this podcast is is released I believe their PowerPoints will be released so perhaps people can follow as we talk about whated you know they captured a little of that zeist remember the older slides you know that everybody you know waited to see Mary slides and I think they do a lot of really great content and Daniel sent also you know they gave thanks to him and his team for putting these things

5:18 together so a lot of great content but they started you know I always like to get a read on on where they are both as you know were co-conspirators in the public markets and the public markets really set the stage for the V markets and he said you know his his first slide you know he put up this slide he said two big questions in 2024 number one are we in an AI bubble in the public

5:40 markets and then number two we talked about last week is software dead Okay and what was interesting is we do these live polls so I don't know there may be 100 150 seats out here we do these live polls they flashed up the poll we did this time last year and this time last year 56% of people people here said we're in an AI bubble in the public markets remember Nvidia had gone from $120 a share maybe at that time to $250

6:09 a share and people were already saying we're in a bubble now since then Nvidia is up 200% okay and I was watching CNBC this morning so far this year Nvidia is responsible for 5% of the S&P 500 returns the other mag 6 are responsible for 5% and then the other 400 93 companies in the S&P 500 are responsible for 4% of the 14% year-to-date returns if you looked at the S&P equal weighted okay so you just

6:41 everybody's in at the same amount it's only up 4% this year so that all LED I think Philipe to say you know we've got three3 trillion companies now is this sustainable are we in a bubble what was surprising to me was knowing phelip the the way we do is he he showed a slide of the earnings growth of Nvidia right comparing it to Cisco from from the 99200 period in the case of Cisco

7:12 the earnings multiple more than tripled during that period of time but in this case because of the earnings growth of Nvidia the earnings multiple has been flat despite the fact that the stock is up nearly 10x so he seemed to suggest Bill that we're not in an AI bubble in fact he showed an s-curve saying kot's view is that's going to be even bigger than people currently think was that convincing to you because I know you've

7:37 been a a a voice of pragmatism this at certainly at the end of his presentation it was hard not to be believe I felt I felt a little bit like I was at church and and he he went on to to say I believe that and and I think they were somewhat liberal in tagging AI companies but they said AI companies were responsible for 90 % yeah of the gains in the public markets I think they're including some energy stocks

8:04 that have traded up as a result of this but yeah he he he pointed out that if you go to the past and start to notice one to three companies just materially blowing out numbers above everyone's estimates over several quarters right there may be something happening that you should pay attention to which is you know a valid argument right and and listen he I love you know the self-deprecating nature he says in

8:35 2022 right it was all about macro what's happening with inflation what's happening with interest rates right macro dominated 2022 we get Chad GPT at the end of 22 okay and we enter 2023 and so you have this post-traumatic stress and he's saying that postraumatic stress kept a lot of people out of the market despite all of our suspicion that this was an important phase shift 2023 you have this liftoff and what has happened is as more cards got turned over by the

9:07 end of the presentation he said macro has shifted to the back seat right that now he's kind of in the camp which I found a huge relief cuz you know I don't so you know macro shifted to the back seat you know from his perspective that we're kind of headed toward this no Landing soft Landing you know that maybe inflation really was was an anomaly of the covid period and if that's the case then you know this new super cycle

9:37 which you know again they described as transforming all these different parts of society you know is allowed to shine and so that to me was a significant change I think by kotou in terms of the positioning of those two I'd add one thing to it just from dinner last night you know I get to see people that I may only see once or twice a year they might be Executives at some of the mag or other VCS at other firms and one

10:04 thing that was congruent across them all is they all feel a bit like a kid in a candy store with AI it's like there's a new toy to go play with and I think from a from a intellectual curiosity standpoint like I see smiles and excitement and like so it's clear to me that that the the vast majority of people here not just not just the team at CO2 who believes this is a mega wave that is is kind of everyone's got to be

10:35 all in on yeah that is I mean I think if there's one surprise you know one answer on that I you know I'd love to get your reaction to so on the question of how much would it you know and I hear this 200 billion of capex going into the ground this year how much return do companies need to see so we had Sacha present to us one answer we had phip give us another answer today phip what

10:58 he called his Monkey Math was that it was going to take $1.8 trillion in order to provide a 25% return on investing capital okay and of that 1.8 trillion he went and said if we got a 5% Improvement in the labor force right so you I I think what he was saying is we effectively take 5% out of the labor force that that would be enough cost savings to justify the $200 billion investment Sacha tackled it from

11:26 a slightly different way you know just here in at lunch he said if if we we currently have a global GDP growing at 1 to 2% he said if we could get that up to 3 to 4% the incremental gain you know coming from that would be enough to compensate again for this because it would more than double the amount of money spent on technology convincing or not convincing seems like it answers the question for the S one I buy more than

11:50 the than the than the first one the problem I have with the first one is simply that you know my entire time in in in technology like these tools are competitive weapons but if I get armed with them and my competitor gets armed with them it doesn't necessarily increase it doesn't create like free net income you might die if you don't do it but you got to keep it's the Red Queen effect you got to keep running just to

12:16 keep up yes so capitalism ultimately competes away margin yeah down down at the level benefits humans yeah yeah yeah that's why I buy the GDP argument better right but anyway look the the other thing that would say that that reinforces the super cycle is now that all the VCS are convinced and all the big comp tech companies are convinc they're all plowing money into llm research now llm might not be the best tool for every problem but we're going

12:45 to find out we're sure going to find out all edge cases possible yes because they're just they're going to stack stuff on top of it they're going to prop it up we're going to go try I should include the cios I think all cios are doing this one thing he did mention was software stocks are down and I do think that this wave is being promoted at such a level that it sucks air from other things for sure at the CIO

13:13 level at the purchasing level even even at just the attention of the buy side level yes I think it's important to point out that I think both phelip and SAA believe SAA even talked about it he said you we have to prepare the company that there's going to be a mismatch in timing here between investment and return these are nonlinear events and just like we saw on the Internet you may you may go like this draw down 30% on your way to a

13:40 higher high but I think from an investment perspective whether you're a venture capitalist or whether you're Public Market investor or whether you're a Founder one of the founders in the audience you have to assume that there is going to be an AI winter at some point in time that zone of disillusionment you and I have talked about before that doesn't mean that it's not going to be bigger than we all think but it does mean that resilience through

14:01 that period is going to be really important if you run out of money during that period it's all over yeah and he he made such made me think of something that I hadn't really considered before but but because all AI tools are being delivered as a service in the cloud there's just a massive amount of capex happening and if you go back to the internet wave you know people were buying Cisco products you know maybe Worldcom you know was putting putting

14:27 capex into the ground at when X was putting CX into the ground but it wasn't like Microsoft or or Netscape or whoever you know the the Yahoo they weren't really plowing this into the ground and I think the risk of the the the type of things that could happen with a reset are higher when you're putting all this into the ground and Sacha very quickly said this is a supply driven wave and I think up to date that is true we're

14:57 building ahead of the a lot of the a lot of the startups and cios qualify the current AI work as experimental right not all of it so I mean the coding stuff we've been through this like there's a lot of it is real but some of it still experimental so if there were any hesitancy or whatever or if we get this you know if we build too much capex or whatever it could be you know there could be there could be cost

15:21 you know back to the GDP thing you know I thought it was really interesting Sasha you know said think about how a global company had to do you know simply had to be do their annual planning right pre-personal computer pre pre-s spreadsheet right pre- internet and it it's no wonder that massive productivity was Unleashed in the 80s and '90s I mean the productivity gains in the 90s were so great that the US government ran a surplus if you remember

15:51 at the remember you know at the end of the '90s you remember because it lasted about 10 seconds well also because Clinton cut taxes in front and the market was up 30% sure sure but the the productivity gains to come out of that are undeniable and I think there's reason to believe that the productivity gains we're going to see here are at least as big I think that's what these folks you know who are making these Investments believe but it was

16:16 interesting that Sacha said here we are I'm a you know I'm a software business and I'm investing more in capex than industrial companies and he spent a lot of time talking about what it meant to be a lean operator when you're investing at that level of capex 50 billion a year I think right yeah that's a lot one other thing that that Philipe said that that really caught my eye and maybe he was trying to be provocative but he implied you tell

16:41 me if I got this wrong he implied that in the modern air you need to be1 billion to go public yeah market cap yes which if it's 10 billion or bust that's a bit man well so so so so let's dig into that I mean you know we went through the public market stuff I think the punchline at the end of it was the Market's up a lot in 23 and 24 you know we haven't multiples have not

17:07 expanded that much but it does assume that Revenue continues to grow right he said Nvidia is not expensive on earnings basis so if if it's going to miss it's because either Revenue growth is going to stop or margins could collapse and price and the second you know it seemed to be they were we suggested last week the smart money was beginning to nibble on software the software is not dead you know he seemed to suggest it's

17:31 just the last thing to benefit from AI and so I've talked to a bunch of folks here and I would say the number one thing that I hear people buying are not the semis stocks that have worked so well over the course of last year but everybody's interested in buying software at 5 and a half times Revenue forward Revenue which is as we've said 20% below the 10-year average they may be early but I think people are

17:56 really interested they don't think software is dead and and they think that you know software starts to look interesting I think I think there's a there we'd have to dig in it later but I think there are certain types of software companies that people think are more under threat from llms more workflow than than who's the data repository there's questions about you know whether LMS replace queries and and who sits in the stack where and so and

18:21 there are some people that still take you know I I view the the the width of what people are willing to believe about AI is really wide and the Skeptics are like lolms are topping out but the people on the opposite end are like oh this is just going to replace all the software I have right and the truth is probably in the middle it's and like as analyst our job is to figure out you know you know exactly where that is

18:45 so you started to reference you know after we did the Deep dive this morning on public markets then we talked about Venture markets you know Thomas took us through that and you know I'll lead up to the conversation on IPOs which I think is really interesting we've talked a lot but he basically started by saying VC is normalizing you know if you look at 2021 he showed a slide we had 715 billion of venture that went into

19:10 the ground in 2021 we've talked a fair bit about that this year they're forecasting about 250 billion into the ground in Venture so that's about onethird of the levels we were in 2024 however I think Venture as they measured has become to mean non PE private invest correct correct I think it's all technology investing that's not public and that's not private Equity yeah and then they they looked at the culdesac of of AI year-to date I

19:43 think 200 deals 22 billion of investment average valuation waight for it $1 billion right average round size $1 120 million yeah the round size in the valuation were 5 to 6X the Noni company correct five to six correct and that was I thought what was so interesting about way the way they teed up the presentation on Venture right was he then took us through almost a bit of admonishment for some or at least

20:13 encouragement strong encouragement for the founders in the crowd that may have raised money between 2020 and 2022 he took he here's a slide where he said you know outside of the AI unicorns the other 1,400 unicorns are not raising any money right and he said there's too many competing opportunities in the public market risk-free rate of 5% umin yeah Bitcoin said we sell too many unicorns at, 1400 here he showed a slide

20:47 of the LinkedIn employee growth within those 1,400 unicorns has gone from 75% to 10% mhm and that the revenue growth has also decelerated dramatically now you and I've been talking about this no no left AIS on that one but correct down to the right and shockingly IPOs in two in 2024 2021 through 2024 are fewer than during the great financial crisis in 2008 no IPOs 1,400 private unicorns most

21:20 of which have not had a funding round since the majority of which he and he has a slide on that have not had a funding round since this quote reset in 2023 and so maybe hasn't haven't faced the taken their medicine as to what their real valuation is and then he showed a slide that where they I don't know how they I maybe it was in their own portfolio but where secondaries are happening and they're happening at the

21:45 exact same M as the the the public companies and so so just to just to put it the secondary sales in the Venture Market are 50 to 75% off the highs just like the public markets retrace non Max 7 companies that are public correct and so I I do think I I often hear people on a board say something like oh good thing we we didn't go public or good thing we aren't public exactly but but they're

22:13 sitting on the board of a private company that's at 150 million in revenue and growing 10% right like right you you just have your head in in a hole in the ground like an austr you're not better off you there's only one reason you might be better off you might be able to persuade your employees that things aren't as bad whereas if you're public you're looking at a $4 stock I would actually say build that you're worse off

22:37 and here's the argument I agree for why you're worse I mean when the public markets gives you a sign right like it did meta or Facebook in the fall of 2022 and the stock goes to $90 a share right there's nowhere there's nowhere to hide you confront the brutal truth you confront the reality Public Market investors you know it's the collective wisdom of that crowd and I think it motivates the company to do the things they should do and they do them faster

23:04 than they would otherwise do and Zuckerberg led the charge on this and his stock is quintupled I could I could not agree more and so I just see I see you know the irony there is you have a company that went from 86,000 employees to 69,000 employees at a faster rate than I've watched most of these private unicorns move you know the private unicorns hid in the Cocoon of the fact that they didn't have to get marked

23:28 daily and that's why I would you know I really don't like the stay private forever idea it works for some companies where you have an Elon Musk R running SpaceX and you know the intrinsic motivation and experience will lead to a good outcome it doesn't work well for 1350 bless you of the other unicorns that are out there yeah and and and to play Devil's Advocate I think some people are going to make the argument that you don't want to be a a micro cap

23:56 public company and that no one will pay attention to you and no one will cover you yeah I still say like if you're liquid you know that's better off you you've converted away your lick pref stack that's better off you want you want me to tell you why I don't believe that okay yeah because investors are greedy right greedy investors will find you if your company is growing really fast in his great margins look at Sam

24:20 Sara okay Sam Sara went public and everybody said too small not enough coverage Stock's not working that that company has been Grand Slam home run in the public markets okay the fact of the matter is if you're only growing 10% and you're marginally profitable or not profitable I don't care if you're in the Venture markets or you're in the public markets you got to fix your business model cuz that's never going to fetch a big multiple but let's get to the

24:44 question on the table IPOs okay so what to do about it what to do about it you know and I think there's this question that we've debated amongst ourselves with our friends with Thomas and Philipe about how big you need to be I think he was speaking at a conference in New York and he reiterated it here he thought you needed to be $10 billion okay in total market cap in order to go public okay you've

25:13 been at this for 25 years tell me tell tell us your response to this question of whether or not because that implies if you're a software company you need to have like a billion in Revenue to go public do you think that's true well I don't but but let me tell you let me take a quick aside and let's say that is true if you have to if you have to be at a billion in revenue and growing yes

25:36 like if you want a 10x multiple you got be growing 30 35% 30% and and if that if every company is going to raise 500 million to a billion dollars and if that's the only way they succeed if they get to that level yes this game just got a lot harder like this is massive risk on like like like and I even wonder if part of the reason that you have this 1400 sitting there is we forced the so

26:04 much capital on these companies that that they had to grow up so fast and they had to do things that weren't kind of the normal way that you would grow a company right where you stay close to the unit economics and and and you learn as you go like if you have to just be all on and you know we we talked about it last week There's four companies in the coding AI space that raised over 400

26:30 million each you think there'll be another round behind that like they're they're all going to pull out the the huge guns and point them at one another and you're going to execute in a way that's more risk on and so if if that's the new world order it's it's a form of capital competition and gamesmanship that is much different from classic Venture Capital I hope it's not true but if it is this is a this is a different

27:00 game yeah I mean listen like heavyweight fighting I think it's I think it's a good provocation Thomas presented other paths to liquidity m&a you know PE Partnerships he you know he put up on the screen but here's what what what I see okay we've recently sold two companies in our portfolio one was reported by The Wall Street Journal for a billion to2 billion dollar a data brce called tabular we have companies that have

27:30 gotten fit and that are re accelerating re accelerating their growth rates and then we have two companies in the IPO pipeline right like I just think this has taken longer than any of us think out of that 1,400 I suspect that 60 to 70% of those companies are never going to go public okay so these are companies that are either going to have to get sold off they you know they pass the peak in terms of their growth rates

27:56 they don't have enough Revenue scale in order to get public but I think that there are going to be 30 to 40% of those that certainly could get public they may have to accept like instacart did by the way look at instacart they accepted a big down round from their last private round they went public the stock traded down tra didn't trade that well and I think the stock is up well over 50% now because they've executed in the

28:20 public markets and so I can't I can't you know I can't reinforce enough Amazon since they went public I think they've had four periods where they were down over 60% I understand and so and a company I mentioned from the previous wave equinex went went from 200 down to two and today is at 778 in 80 billion market cap so it can happen I thought we would see way more IPOs I thought people would come public to to kind of close

28:50 their cap chart and wipe out the lick prep maybe we still will the I I would I would encourage The Regulators to do anything they can to make sure we don't have a systematic problem that's causing being public to be too expensive and I know that that the reality we talked about on the last podcast if that comes to be true where just way fewer companies go public and all the growth is in the private markets

29:19 that the guinsler types are going to come out and say that's bad for the retail investor and they're going to want to fix it I hope the way they try and fix it is to look through the cost of being public all the cost of being public and say what can we do as Regulators to improve that situation that's what I hope the second thing I would like to do on on this podcast assuming that we have some a really good

29:42 set of listeners out there if there is a banker out there that thinks like the four horsemen did who says I don't need you to be 10 billion to go public I would love to take you public at 100 million in Revenue come see see me call me I will connect you to companies I will promote you I we need someone willing to do that I get the sense that the three big guys JP Morgan Morgan

30:09 and and Goldman just aren't that interested you know and so I I think I I I do think some percentage of the 1400 should go public and I don't think that waiting is is helping them at all and so I'd love to help find the people that can be their steward let me let me crystallize a question for you okay so it was rumored last week that open AI is run rating3 and. half 4 billion do in Revenue which is you and I

30:41 it's extraordinary right and I think it's pretty evenly split between a consumer business and an Enterprise business I think that's even more EXT I have I have some potential data on that and on on top of that I think that that team right through the teeth of so much noise in the market right like has withstood incredible turbulence they have to execute the way they have okay like I faster than any other company I've ever seen delivering great products

31:12 in the market right they have Greg Brockman in the basement churning Out product no matter what happens in that business they have the big announcement at WWDC at Apple last week which I think was you know another master class in Deal making and brand building by by by Sam and team okay so you got 4 billion in Revenue you're growing well over 100% a year marked it up a little bit three three and a half billion whatever you

31:37 whatever you want to call it would you go public if you were if you could do a conversion to a for-profit company would you take open there's a there's a lot in that second part by by the way just to to fill in some of this I and I I could be wrong about math but I went into one of these credit card survey things and I looked at at open the eye and assuming that people don't pay for the API with a

31:58 credit card so the credit card pool just represents and I compared it to a company where I knew the revenue it would imply that there about 2.1 of the 34 is the consumer business at $20 a pop so 2/3 the consumer business put me in it and I love it well there's one other thing that I could look at in the in in the credit card data at least for the cohorts that are old enough the turns

32:23 about 65% annually so they only 35% raining which had hinted at on all in and maybe the reason that I think Sam at one point said he didn't really see the $20 thing as his future right but would I encourage him to go public I I well they they just hired a very reputable CFO so maybe they're thinking about it the reason I think they would do it is if they they first of all they're very good at at self-promotion

32:54 and and they're very good at promoting the company yeah they're very good at at Enterprise sales they've convinced Apple but many many others and so if they thought they'd get a premium multiple right and could get out there and have access to Capital at a much cheaper price and liquidity for the employees which are now having to range I I could see it I I fear the I fear that the kind of current wisdom of the

33:23 entrepreneurs to not do it right well this is my we have an opportunity to make a cas and here's here's here's a bit of the case that I would make for him number one I think this is you know when you build AI I think it's going to be about trust and sa safety and I think being a public company right being exposed to public disclosures the scrutiny of the SEC all the things that come with

33:47 that from public market investors you know I think is a good thing for that business I think it would force them to tighten everything up no I'm not talking today but if I were on that board you know and maybe we'll tell this to Larry tonight I would say you know let's start moving the company in a direction as though we were public right let's do the conversion to a for-profit business enough of this funky by the way I don't

34:11 think that's trivial F funky I agree I'm not I'm just telling you like it's doable and the second thing I would say I think it's only doable by putting a significant chunk of the company in the non yes like a share base in the nonprofit not this thing where they get it at the end and by the way you can't take public thatb structure so here's here's here's what I don't like I don't like the idea that you could have a

34:36 company that could theoretically go to a trillion dollars in Enterprise Value could theoretically develop AGI and a retail investor never has a shot to invest in that company I just don't think that's good for the structure of our markets I think for I think it's better for the company I think it's better for the markets and frankly I think it solves one of Microsoft's problems as well and we've seen all of the the corporate you know

35:02 some of the chaos around this business I actually think it would be good for Sam and Greg and Brad and team right to do that now of course you got to put it on a path this probably takes a couple years to get there but I mean to me that is the iconic question if 4 billion isn't enough bill you know with a 90 billion private Market valuation then what is and I I I just don't think it's

35:24 going to be looked on that well if all of the sudden all the best companies in the world right are only available to the guy to the folks at this conference and not available to and they may want to do positions and getting the cap chart in a more traditional state would make that easier public or private so so maybe maybe maybe we'll see that happen I do think that the thing that may help us unlock this IPO

35:51 problem if you will is is a couple of a AI companies going out so it it and and and maybe that will even make it easier on the others just so that we start to prime the pump a little bit so I think you'll start to hear chatter on who are going to be the first you know AI first companies to go public there's rumors out there about core weave there's articles about cerebrus so it'll be

36:15 interesting to see I think it would be very helpful for the ecosystem to get a couple of those under our belt who others talk that that oh Mr lefon himself would you like to join us I you just come come on up here and join us for a minute we're live right now phip we're just talk first thank you yeah this is you know one of our favorite if not our favorite you know conference in the investing business and

36:39 what I said to start is you are positive some you have all your you the folks that most people would think of as your competitors you know you invite them here you collaborate you build partnership I'm thinking about changing my mind so we were just talking about the $10 billion to IPO right which implies something around a billion dollars in Revenue to go public right like what and I was saying I would encourage open AI to go public today

37:09 right we think more I think and Bill agrees more of these companies should go public we think they can go public smaller we understand if you're a micro cap and you don't have great margins and you're not growing fast you can't go public but aren't there a lot of companies that could be public today yeah I mean if you look at some of the big unicorns yeah they could definitely go public but I think there's two criterias one is can you get to a

37:32 billion of Revenue open AI would be check check check the box but the second one is do you have a sort of a break even or path to break even and the only thing I don't know the specifics of open AI is but what if you had a billion in Revenue but like an enormous cash burn and bar that cash R is really smart it helps them consolidate as a clear number one but will the public markets be

37:58 scared if the cash burn is disproportionate but the private markets the investors they know that there's a bit of a win or take all and they might me more patient now that's just on open AI SpaceX amazing company yeah it's sort of Quasi public but why don't you give retail investors a chance to invest in SpaceX they should have that right that's a l might happen if if if you're right about the billion though like if

38:23 you have to have a billion in revenue and and be growing right you got to be at what 30% growth 25 like if if that's the hurdle rate then how many VC companies are ever going to make it to that level like like that' be my question listen I was speaking to your former colleague Eric yeah at The Benchmark and he's like this is a problem for the Venture business yeah this is a problem for our portfolio

38:51 there's going to be less exits and bigger exits so it's going to make the business that much more risky and do we need to adapt in ways that maybe you have to reinvest behind your best companies because there's not going to be as many of them do you need to provide companies the ability to win in other ways what's weird to me is that the government by trying to protect small companies and not allowing big companies to buy small companies so big

39:19 companies get bigger I think it's got the reverse effect where now small companies have oness chance of winning and thus the public market is even less willing to all a small company because it's less willing that it gets bought right and so why bother with small companies when you can just own big guys I love you and I hope you reinvite me reinvite me on this amazing podcast but I to go with some other people thank you

39:44 thank you brother that's great I mean by the way he's also just one-of a kind human I agree with you know and so it's it's it's fun to see him I'm glad he jumped in here you know bill I think it's a you know one of the things he was talking about got me thinking about something you know Boards of directors you know they have influence over whether these companies go public okay and it starts early you

40:11 know in the boardroom about setting the conditions and building the company in a way it's built to go public and I think one of the problems you know here we talk about it reflexively I think we're going to look back at this I happen to be more optimistic on this I think we're I think we're going to look at this period it's going to be a product of the Age of Excess this is going to be like

40:30 all these companies rais too much money at too high a valuation during the Zer period and therefore they couldn't go public and frankly too many boards bought into this stay private forever business I think there is a whole new category of company coming that I hope that you lead the charge I lead the charge and they lead the charge there is no reason these companies if we set the conditions early in the business stay fit get profitable you know you don't

40:57 have to grow at all cost don't raise too much Capital don't set the valuations too high you know they can get public but you know it's going to be an interesting before we transition to our last topic I would point out one irony from all that we heard today and what you just said which is if the 14400 number of private unicorns that are the result of the age of access is a problem it's not clear to me that we're doing

41:26 anything different in AI aren't we doing the exact same thing so couldn't we end up with the exact same you know we just said 5x and 6X higher valuation you said something to me a few weeks ago that I think is spot on right I think 15 years ago not a lot of people talked about the power law right maybe there was a small Cadre a small membership you know on sandill road that talked about power law but

41:49 today everybody knows about power law distributions and Venture returns right and so if there is any sniff that a company in AI land agre is going to be the winner they get $400 million the amount of capital that chases it so you know I think that's an interesting question I think it's very difficult for Founders to resist the urge to take the money I think it's very difficult for Founders to resist the urge to take the

42:16 highest valuation I encourage them to reverse engineer from the outcome the liquidity outcome they hope to achieve if you take a lot of money at a valuation well over a billion the probability of you getting sold or you getting public is just a lot harder that's just the truth before we move off of the Venture section one of the things I love a bunch of Founders running around here you and I you know met with one or two of them earlier and just

42:43 a few of the anecdotes that I'm you know that I'm seeing and I'm hearing you know I spent some time with Scott woo I'm an angel investor in cognition and you know Scott is building you know Sacha referenced him while on stage say you know co-pilot is building effectively autocomplete allowing Engineers to become more productive you know cognition is building engineers and I asked Scott how I said how many employees do you have because I think he

43:08 has tens of thousands of Enterprise customers already and he said 18 I said how do you do all this work with only 18 people he said we have 100 devans we have a 100 agentic Engineers that are helping us write code that's a theme I've heard from glean I heard from distill I heard from cognition this idea that we're going to have and SAA referenced it a Workforce of people right in the not so distant future

43:37 that are going to be able to take these multi-step functions go build me a website right no longer just complete a line of code but complete an entire task you know we were just with you know our friend from glean and who's building a great Enterprise search product but you know you don't have to squint that hard to think that that could be your Enterprise assistant right that could go perform tasks on your behalf so put me in the camp again I

44:06 don't know the time series but I do think that we're on a path toward human replacement not just augmentation now I think those folks in this period of dislocation will get consumed in other tasks so I don't think this is a net negative for society but I do think you'll have dislocation before you necessarily have that grow on the other side I'll just say one thing real quick which I gave a speech 20 years ago or so about how we evolve with our tools

44:35 yeah you know and you wouldn't you wouldn't try and you know run a high production Farm without a tractor you wouldn't do it with a plow and oxin and that just always has been true in our society and so if you are a programmer who's worried about this the best thing you can do is run at it like go hang out yes play with cognition get into GitHub co-pilot like that and learn you know SAA said it that the ordering

45:07 of the workflow of writing code is changing as a result of this you won't know that totally unless you're in it 100% 100% And and a lot of the talk here is not just about who the winners are it's who the losers are right the losers in the public market you know companies that are slow think about if you were a company slow to adopt the internet in 2000 if you were a retail Enterprise you said I don't need an

45:32 e-commerce capability right right you were that was a very bad decision I think in 2024 if you're any company and you say I'm going to be you know I don't need to do all this AI stuff I don't need you need to be there even if you choose not to adopt it because I think failure to learn how to reinvent your business I you have to worry about this I think most of them are they they're on

45:53 it they're on it well another topic I think that you know we've talked about on this pod we had some developments on this week you know and I wanted to dig deeper and and this is to the shareholder vote as it pertains to Tesla so we know now that Elon has won the vote for a second time retail investors I think voted 9010 in favor institutional investors something like 7030 in favor and even the passive ETF Vanguard voted in favor of

46:24 the package okay but there was a big reveal here this week I think I think some tectonic plates started moving on something that you and I have identified as an issue for a long time and it relates to ISS institutional shareholder services and glass Lewis so both of those organizations recommended a no Vote or a vote against the shareholder package okay now that in and of itself is not that unusual although I don't think it made sense because it was

46:55 clearly in the best interest of shareholders right stock would go up it did go up and you know so I started looking in again and I know you and I started talking about the background of ISS and just as a reminder you know ISS was founded in 1985 and the mission of the company was to provide advisory services to institutional investors supposedly to do research and governance on their performance and to help shareholders make informed decisions as to what would

47:23 maximize their own value in the business and while all this sounds benign enough many of us have argued over the years that ISS veered off course right and that this started becoming kind of this cudle to you know to coer board Behavior into ways that they deemed right in maybe societal best interest or in their perceived best interest as opposed to the corporate best interest you and I have both served on boards where board

47:54 members have said well I can't do this or I can't do that because of ISS we know some of the best boards in the world like Netflix takes it on the chin from ISS all the time because they don't do the things that ISS sanctions as worthy in fact this got so bad that at the end of or at the beginning of 2023 21 state attorney generals right wrote a letter to ISS demanding that they explain and glass Lewis to explain

48:21 their advocacy objectives right so in this instance I think the fact at Vanguard right which is passive these are not active investors that they came out and they voted in the opposite direction of glass Lewis and ISS I think it just it laid bare some of the nonsense associated with these recommendations and I really wonder whether this is going to cause a ripple effect right where people start pushing back now on ISS and glass Lewis right

48:53 because if a passive investor can do it certainly and active investors from retail institutional they rejected ISS and glass Lewis straight out so what do you any thoughts yeah well a couple things so one I actually spoke to some people at ISS in their research group prior to our SBC conversation and it became clear to me from talking to them that they're mostly backward-looking they talk to investors after the fact and say do they appreciate this

49:21 particular thing or not and they're not doing first principal thinking around share holder alignment and you know and you say they lost their way I mean it became a network effect right they they they charged both the company and of shareholder and like C I mean if there's a duopoly we should worry about in this country is probably ISS and GL Lewis seen every board to follow their marching and the number and the number one the number one reason I hear very

49:49 valid reason for companies to have super voting is so they don't get held up by these in their attempt to do the right thing and Implement a compensation page that is aligned with shold correct and as I said to you back then and I believe even more today and I've seen more copycats of it the Elon package is the most shareholder aligned comp CEO compensation package I've ever seen I would be thrilled if all of my hired

50:21 CEOs had a very similar package right I'd be thrilled yeah I think most of them wouldn't take it yes because it requires outsized performance I think it's excellent I think that it's ridiculous that Netflix would ever get a no vote on anything because they've had incredible stock performance and and Industry leading low dilution yes with their very Innovative approach to compensation it would it would be fun to look at a distribution I actually had a

50:53 chance to talk with the co- CEOs recently and and they were still getting pushed back because I was applauding them on their structure and one of their board members says well they're they are even considering change because ISF won't leave them alone and it's just it's horrific but yeah anyway there's one other thing you know that I would highlight about this that relates more to the Delaware situation so it's my belief that the that many of the

51:23 attorneys and lawyers that live in the Delaware ecosystem we're very eager for Tesla to appeal this thing and push it to the Delaware Supreme Court and has been wildly discussed here in other places the reason that people chose Delaware is a hundred years I went back and looked up to over a hundred years of practice of being business friendly obviously all these companies aren't located in Delaware right they're just choosing

51:53 this this and they're choosing this this place because of its history of precedent and its history of of of how they adjudicate different things and people felt that it was in the company's best interest here today with the Tesla situation we have a a company whose stock performed incredibly well and was brought to heal by a lawyer and and a laaw firm with a contingent you know

52:25 derivative law suit their their one customer had nine shares of stock nine shares they went up yes so if you consider the fact that oh I could be a public company in Delaware my stock could go up yes I can be and then they ask for $5 billion of compensation the lawyer for they're still asking for it and and and and they had one customer in nine shares like how do you ask for five billion if I I will say this

52:54 first of all I think that these these people that live in Delaware are very fearful that there won't actually be an appeal because then this thing just stands out there yes and I think it's horrible for the entire Delaware because if I were the governor of Delaware I would be scared shitless scared shitless about what might be happened if this judge hands out any penalty anywhere close yes that has that that has there over 100 million even yes

53:27 I think companies need to consider leaving Delaware as fast as possible I mean first it's such a bad you you know case law right in the state of Delaware I mean your point the various States AC vigilante lawyers chasing any company with high performance or a big market cap and just trying to get them on a gotcha and see if they can get a judge to give them this typ corporate the corporate code that exists in various

53:56 states around this country is very similar there's a model corporate code and most of them adopt it that's predicated on Delaware's corporate code what makes Delaware so different is a 100 Years of precedent of case law which is very supportive of a lot of issues which were important to companies that predictability LED companies to incorporate there now we've thrown predictability out the out the window right and now we're talking about despite two shareholder votes that both

54:23 voted in favor of giving Elon this package both before in contemporaneous and now that they're going to go back if they award I'm not not $100 million bill if they award $1 right I think you're going to see companies in the state of Delaware that leave the state of Delaware and by the way I think we should be encouraging them to leave the state of Delaware if that's the case because I would like to see a lot more

54:46 jurisdictions develop a lot more friendly corporate codes friendly president you know for these companies the reality is if we can't support a performance-based compan compensation package for a company then what are we doing look at the garbage packages that that people get paid tens of millions of dollars on stock goes down companies are terrible ISS is cheering that that's a good compensation package problem in the state of Delaware not to pick on one person but people have highlighted that

55:14 the CEO of GM has made tens and tens of millions of dollars stock hasn't gone anywhere that's who if they want to chase somebody they should be chasing that situation but I couldn't agree with you more I think this is is a very serious topic I think that the you know even I think like the Wall Street Journal in New York times they missed this point and and and as you said if if it's not about shareholder alignment

55:38 what's the point like right and then the last thing I would say is we started by talking about the dirt of IPOs and why aren't companies going public if this is the type of thing you expose yourself to by being public then I understand why there are less public companies and I I actually think in addition to the fact that that everyone in Delaware should be afraid of this I think the SEC should be afraid of it like you shouldn't want

56:05 this type of activity this type of derivative suit to come to the table because with nine shareholders in an ass for $4 billion it's clearly a Shakedown like you you wouldn't want that in your public market ecos how do how do we give assurances to other companies that are reincorporated in Nevada reincorporating in Texas you know Tesla's move to you know was approved to move to Texas how do we give them comfort you know that they're going to be protected there

56:35 against these type of I I I have work to do I need to go learn more and I you know as much as I would say the the governor of Delaware should be afraid the governor of Nevada and the governor of Texas should be putting together a task force to take advantage of this and to answer the question that you posed like what needs to be in place can you borrow borrow some of the precedent case law I don't I don't know how it

56:59 works but like it's a it's a I I'm shocked based on everything I've been told my whole life about why you know you say why are all these companies incorporating Delaware oh it's the most business friendly state from a from a a Judicial standpoint this blows that up well I mean one of the things I again I'll go you know call my corporate law buddies up as well why can't the state of Texas say you know because you can't

57:25 just make precedent up precedent has to be the byproduct of somebody bringing a lawsuit that just takes time but you can draft it into your corporate code provision like you could simply say that you know we're not going to allow these type of derivative lawsuits with you know that that are totally you know a farce with nine shares to be brought in5 billion doar of you know of awards given I suspect I suspect you could take a industry-leading llm and

57:50 scan through the case precedent and help codify law you know for sure so tonight you and I and Philip have you know we're going to do a panel with Larry Summers and we're going to talk a little bit about you know what the world looks like in 10 to 15 years as a byproduct Ai and some of the consequences you know that we may see and when you abstract away the next 5 years you know because who knows how

58:17 long this is going to take and whether we bump up against scaling laws and and all these other things when you look out 10 to 15 what you know any thoughts about you know what you want to hear maybe from Larry or or you know big picture thoughts that that you have do you think the world is over at skis again bill or do you think this is is this is this 2000 where we're going to

58:38 go through perhaps a little bit of a rough patch here but when we look back 10 or 15 years it's going to be way bigger and way more consequential than we thought I didn't know you were going to ask me this question but I'll tell you the one thing that that's on my mind and then I I'll ask you the same question but I I really don't believe in the Del globalization push that's coming from either of these presidential I just

59:01 don't believe in it I believe in Ricardo's comparative advantage I believe in lifting all people out of poverty not just people that happen to be born in the same country as you are and that happens through globalization and I just think more people are like the most people that are ever been made better off by one person was in China when ding Xiao ping brought half a billion people out of poverty and that happened by introducing capital and I I

59:28 just hope we can find a way to stop vilifying China and to stop thinking that you're going to Reon Shure a whole bunch of manufact I don't think we'll be competitive globally yeah any that's what's on my I mean it's it's an interesting question if you if you flipped it back around I'm really interested in the productivity gains you know that I think we can achieve like the big unlock here I'm interested if if he sees those same level of

59:56 productivity gains that perhaps we saw in the 80s and 90s I'm really interested in how he thinks about our national competitive Advantage right like the United States if you just look at the performance over the last right the last 10 years has been a byproduct of a lot of this globalization but I also see the Flywheel spinning like you just look around here we have a system of risk Capital that's better than any anywhere in the world we have a

60:21 system of risk-taking and Entrepreneurship that's better than anywhere in the world the rate of innovation better than anywhere in the world and so to me it also let's open up that skilled immigration Gap yeah no I mean like that's you know absolutely one and I was not to go you know off piece here but I was talking with you know the president of a major you know fintech company last night public company who was at the

60:46 business Round Table you know with Trump and he said you know they were all shocked their jaws were on the ground Trump walks into the room starts talking about immigration you know and while he he says we got an illegal immigrant problem we got to you know we got to tighten the borders they said it was the first time they ever heard him say and I got to solve the problem for everybody in this room how I get you more talented

61:07 workers and he proposed something apparently at the round table he said anybody who comes here for a four-year education completes their degree in the United States we're going to give them a green card I like okay like if that's true this is one of our huge issues right this is the best place on the planet to start these businesses you know because of ecosystems like this but ultimately you look at you know Elon cir right Larry and Sergey you me you know

61:35 so great to be with you to see I look forward to chatting more tonight and thanks for having us as a reminder to everybody just our opinions not investment advice