Speaker 1: From the heart of where innovation, money and power collive
Speaker 1: in Silicon Valley and beyond. This is Bloomberg Technology with
Speaker 1: Emily Jay. I'm Emily Check in San Francisco and this
Speaker 1: is Bloomberg Technology coming up in the next hour. Stocks
Speaker 1: plunge after FED chair J Paul warrens there is war
Speaker 1: pain to come for the economy, the NAZAC and the
Speaker 1: SMP posting their biggest one day loss in two months.
Speaker 1: We're gonna get to read on how a hawk ish
Speaker 1: FED will impact tech, venture capital and more. Plus what
Speaker 1: does it mean for buy now, pay later? I'll ask
Speaker 1: a firm CEO max selection. With America's credit card debt
Speaker 1: nearing highs not seen since the financial crisis and flying
Speaker 1: taxis might not just be fodder for sci fi and more.
Speaker 1: We're going to show you a company with hopes to
Speaker 1: get them in the air and soon like kind of soon.
Speaker 1: Want to dig deeper into what this means for tech
Speaker 1: and investing and bringing Steve Sarah Sino, founder and general
Speaker 1: partner at Active in Capital, a growth stage from that
Speaker 1: focuses on commerce. So Steve, just what was your reaction
Speaker 1: to these comments from j Pal and how do you
Speaker 1: think it's going to impact markets more broadly. Yeah, well,
Speaker 1: if you listen to his comments, uh during his last speech,
Speaker 1: it's pretty clear that they weren't going to move off
Speaker 1: rate hikes anytime soon, even though there was a lot
Speaker 1: of wishful thinking on behalf of people like me other investors.
Speaker 1: I think this is a good desk reality that happened
Speaker 1: just as people are returning from vacation, getting kids back
Speaker 1: into school. Investors are paying attention again. And I'm not
Speaker 1: surprised by how much market was down. I think, look,
Speaker 1: the four trajectory here doesn't look great. Um. And there's
Speaker 1: some interesting things when you look at the overall public
Speaker 1: market versus private markets. You predicted there would be millions
Speaker 1: of layoffs in tech specifically the last time we spoke,
Speaker 1: that was just a couple of months ago. What do
Speaker 1: you think now? I did so that was back in May.
Speaker 1: Also at at that time of restimation was the market
Speaker 1: was going to pull back. I think the layoffs has
Speaker 1: just begun. Um. It's happening across almost everyone's portfolio and
Speaker 1: probably eating their companies. And what's interesting is even though
Speaker 1: the overall markets are down more than particularly on the
Speaker 1: growth side, growth tech stocks are down much more than
Speaker 1: what we're hearing from the bigger consultants, meaning the allocators
Speaker 1: of capital to investors. The Q two numbers are gonna
Speaker 1: come in down four to six percent. So what does
Speaker 1: that mean. That means that investors gps haven't taken their
Speaker 1: medicine and there is going to be more pain in
Speaker 1: our market. And that pain is in the form of layoffs.
Speaker 1: It's going to be the form of something like twenty
Speaker 1: of all venture back companies going out of business. Of
Speaker 1: venture back companies aren't going to survive this absolutely, like
Speaker 1: we saw this in two thousand, two thousand one, two
Speaker 1: thousand two. And what happens when the market pulls back,
Speaker 1: Investors start taking their time to invest, we're more patient
Speaker 1: with capital. LPs pulled back as well, and there's just
Speaker 1: less capital go around. We're seeing it also less company creation.
Speaker 1: So the pace of company creation last year was much
Speaker 1: faster than this year. And what you're gonna have to
Speaker 1: do as an investors rationalize your companies um and every
Speaker 1: investor is going through that right now. So hang on,
Speaker 1: are you saying you think this is gonna be as
Speaker 1: bad as the dot com bust? I don't know. That's
Speaker 1: a question. I'm like, that's a question. I think this
Speaker 1: could if this is a prolonged period. What what's really
Speaker 1: painful for tech investors and growth investors generally is prolonged
Speaker 1: market malay's prolonged volatility because it's a lot easier to
Speaker 1: come in and invest behind and market that's a little
Speaker 1: bit more stable or market they were, you know, interest
Speaker 1: rates or continue to go down when they're going up
Speaker 1: like this. This hasn't happened a long time, and I
Speaker 1: think when the pace slows, you have to rationalize where
Speaker 1: you put your cap at all. So if this last
Speaker 1: for two or three years, you could see more than
Speaker 1: of the company's about a business it will last for
Speaker 1: a year or two. The market rebound much faster. And again,
Speaker 1: you know, this is tied into what Pal did today
Speaker 1: with regards to inflation. Growth stocks are very very sensitive
Speaker 1: to interest rates, and interest rates at three per cents
Speaker 1: one thing, it's going to five six percent is going
Speaker 1: to be another. And that's what we're waiting for because
Speaker 1: we can invest in these valuations if rates are going
Speaker 1: much higher. So are you estimating a one, two or
Speaker 1: a three year downturn? And how is that impacting your
Speaker 1: investment strategy. Yeah, right now, we're expecting a two to
Speaker 1: three year malays, so meaning our companies need to have
Speaker 1: capital for at least two and a half to three years. Man, i'mum,
Speaker 1: what is that like? What companies are We looking at?
Speaker 1: Two types? So one is these companies being created in
Speaker 1: this environment and this happened back in two thousand, Better
Speaker 1: DNA very strong culture around protecting capital, and they're just
Speaker 1: growing up in a different way. Those companies are rising
Speaker 1: from the ashes of this mass. They're gonna be very strong.
Speaker 1: We're very interested in the earlier stage. You also have
Speaker 1: companies at the much leader stage, meaning they've got hundred
Speaker 1: hundreds of millions of revenue. And what's happened is a
Speaker 1: lot of the late station investors have actually pulled out
Speaker 1: of the market, and there's a lot of reasons for that,
Speaker 1: but because they're not there, other investors now can step
Speaker 1: in at reasonable valuation. So it's really a barbell. Some
Speaker 1: of these very large companies with proven business models, high
Speaker 1: gross profit, they're going to do great. Um, two of
Speaker 1: our companies, Saloonas and Triads just raised capital. And then
Speaker 1: these earlier stage businesses that are coming out rising out
Speaker 1: of the ashes are probably going to do really well.
Speaker 1: They're going to prove their business model, they're going to
Speaker 1: prove their unit economics, and that's when people like me
Speaker 1: come in and put capital onto supercharged growth. So there
Speaker 1: are opportunities, but there will be pain. Let's talk a
Speaker 1: little bit more about that pain. What does that mean
Speaker 1: from a labor market perspective. I mean, there's been some
Speaker 1: really interesting swings in the labor market. You know, you're
Speaker 1: saying layoffs while we've got unemployment at historic lows. Yeah,
Speaker 1: the data is really hard to wrap our head around
Speaker 1: because it's not what we're seeing in the market generally.
Speaker 1: So I you know, I can't vouch for the government data,
Speaker 1: but we will see layoffs in tech and there's some
Speaker 1: interesting things, um that are happening when you start laying
Speaker 1: people off. You know, we're seeing salaries and just general
Speaker 1: inflation around the cost of hiring really good people starting
Speaker 1: to slow a little bit. This is typically what you
Speaker 1: would see in a down market, but it's not being
Speaker 1: reflected in the data. The interesting thing is our companies
Speaker 1: with B two B exposure are doing very well. Some
Speaker 1: of them have re accelerated growth. Our companies with more
Speaker 1: B two C exposure. On the converse side are having
Speaker 1: a harder time, and this is more recent, and this
Speaker 1: could be because inflation is really affecting people's pocketbooks. But
Speaker 1: when you look at this, this is why this market
Speaker 1: is so difficult to parse, is that there are companies
Speaker 1: performing really well, but right now we see more on
Speaker 1: the B two B side than the B two C side.
Speaker 1: All right, Steve, thanks for giving it to a straight
Speaker 1: activate founder and general partner, Steve Saraceno, We're gonna let
Speaker 1: you get on with your weekend, hopefully put some of
Speaker 1: this doom and gloom out of your head for a while.
Speaker 1: A firm fat expectations in its latest earnings report, except
Speaker 1: for a lower than expected forecast, siting macro economic uncertainty
Speaker 1: ahead that sent shares tumbling. This as we heard from
Speaker 1: FED chair, your own pal that taming inflation will likely
Speaker 1: require restrictive monetary policy for some time. Let's talk about
Speaker 1: it all with the firm CEO and co founder, Max
Speaker 1: Option himself. Max, great to have you back with us.
Speaker 1: So listening to your call, you said, the economy is
Speaker 1: more than likely in the beginning stage of a downturn.
Speaker 1: Now that we see and hear what j Pal has
Speaker 1: to say. The FED is going to stay hawkish. Do
Speaker 1: you think a recession is inevitable? You know, I'm no
Speaker 1: macro economists, so I'm glad uh. You know Mr Powell
Speaker 1: is uh is in charge, not me. UM. I do
Speaker 1: think that the need for by out pay leader goes up.
Speaker 1: Both in a case of recession, we go folks are
Speaker 1: trying to make sure that their cash flow is impacted
Speaker 1: a little as possible, and in the inflation, which is
Speaker 1: where we are right now, the pocketbook is hit harder
Speaker 1: because everything is a little bit more expensive, so we
Speaker 1: are seeing more demand for the product. But because of
Speaker 1: the uncertainty in the macroeconomic events ahead, it seems very
Speaker 1: pertinent to be very very focused on credit outcomes and
Speaker 1: that that's reflecting our guide. Can you give us some
Speaker 1: color on what you're seeing in consumer spending habits. You know,
Speaker 1: obviously consumers are under pressure. Everything is more expensive, from
Speaker 1: gas to groceries. How is that reflected in your data?
Speaker 1: So there's definitely the great rotation. We've talked about this before,
Speaker 1: but the you know, sometimes it may a tremendous number
Speaker 1: of goods were replaced with services, and I think It
Speaker 1: corresponds more than anything to this idea that we've all
Speaker 1: been cooped up for a long time because of the pandemic.
Speaker 1: But over the fourth of July weekend, we saw unbelievable
Speaker 1: growth in travel, um experiences, tickets, all the sort of
Speaker 1: standard things that you would expect people sort of jump
Speaker 1: back onto after COVID. They're all still doing really really well,
Speaker 1: and the demand is very very strong. There's definitely real
Speaker 1: weakness relative to last year and even the year before,
Speaker 1: and things like homewears, um and uh, quite a lot
Speaker 1: of other things that just what we pre purchased during
Speaker 1: the pandemic, if you will. Now our point of view
Speaker 1: is actually a little bit skewed because we're still growing
Speaker 1: really really quickly. We saw, you know, over growth in
Speaker 1: general merchandise, which is just the growth we're seeing within
Speaker 1: our partners like Walmart and Target and Amazon. Folks are
Speaker 1: buying commodities because that you know, that's something that you
Speaker 1: buy all the time anyway, and so we're seeing short
Speaker 1: and growth within the merchants that we have. But I
Speaker 1: think very broadly, e commerce grew only seven percent last year,
Speaker 1: which is probably the lowest number in a very long
Speaker 1: time for comparison, Affirm grew eleven fold that much, but
Speaker 1: perhaps in a better year would have growing an investor.
Speaker 1: So we're seeing credit Americans, credit at you know, has
Speaker 1: not seen since the financial crisis. I'm wondering if the
Speaker 1: economy is in a more difficult position and consumers are
Speaker 1: under pressure, does that mean more business for by now
Speaker 1: pay later and Affirm? But is that not good for
Speaker 1: the economy. You know, it's a careful balance. Um, it
Speaker 1: is definitely good for us so long as we're good
Speaker 1: at our job, which is managing risk and underwriting, and
Speaker 1: we are. We are very confident in our ability, and
Speaker 1: our latest numbers proved that pretty decisively. So you know,
Speaker 1: I think that that's we continue to deliver on that promise. Obviously,
Speaker 1: over extending the consumer is a terrible idea. Nothing stays
Speaker 1: more than looking at something you purchased and realizing that
Speaker 1: you can't pay off over time, and so we are
Speaker 1: very careful not to extend credit where we think the
Speaker 1: consumer will not be able to carry the burden. Um.
Speaker 1: It does help that we don't charge late fees, we
Speaker 1: don't have compounding interest. All the things that we build
Speaker 1: in the product from the very beginning to fully align
Speaker 1: ourselves with our end consumer help us be motivated to
Speaker 1: make the right decisions, and so we feel good about
Speaker 1: our position, our ability to help consumers. UM. I think
Speaker 1: America will have to borrow more because the prices are
Speaker 1: going up, and we're here to do our part, but
Speaker 1: world also gonna have to be careful with how we
Speaker 1: use credits. The delinquency rate rose more than two for
Speaker 1: the first time this year in July and August. Is
Speaker 1: that an alarming sign for you? I think it was
Speaker 1: more like one percent about a year ago. And how
Speaker 1: are you addressing that beyond beyond you know, changing or
Speaker 1: tightening the criteria for underwriting a great question. UM. Credit
Speaker 1: performance is generally very, very seasonal. So if you sort
Speaker 1: of look at the charts that we put in our
Speaker 1: supplement as we file all of our filings, you'll see
Speaker 1: that it really is mimicking the patterns of annual performance.
Speaker 1: Going back to for example, twenty and twenty one, we're
Speaker 1: just very, very weird years. On the one hand, there
Speaker 1: was tons of buying. On the other hand, of the
Speaker 1: government was literally handing out money to consumers. Delinquencies were
Speaker 1: repressed artificially, if you will. The Guard rails we use
Speaker 1: when you run our business is return on assets, which
Speaker 1: is basically gargon for yield. What are investors are capital
Speaker 1: partners get from the loans that we generate and absolute
Speaker 1: adjusted charge offs or basically losses that we're willing to
Speaker 1: take on. Obviously, our capital partners would worry if those
Speaker 1: losses ticked up more than various covenants and groups that
Speaker 1: we have. And if you look at all of our metrics,
Speaker 1: certainly the metrics I look at and the metrics that
Speaker 1: we filed publicly, we have managed to both of those
Speaker 1: guard rails exceedingly well. If you look at our for example,
Speaker 1: allowance for loss provision, and it's been taking down every
Speaker 1: quarter for the last three So we are managing credit
Speaker 1: better than we have given any much more benign credit climate.
Speaker 1: Now what it actually means practically, the cool thing about
Speaker 1: a firm is because we're integrated so deeply into the
Speaker 1: Emergen ecosystem, we have a lot more interactive tools beyond
Speaker 1: just your basic We're so sorry your card has been declined.
Speaker 1: That's an awful experience. Somebody wants to have that. In fact,
Speaker 1: if you actually look at our approvals quoted on quarter,
Speaker 1: I think we added three points of incremental approvals across
Speaker 1: the hire portfolio. Doesn't mean that everybody on average gets
Speaker 1: three percent more likely to say yes. Is that we
Speaker 1: figured out ways to say yes even when we think
Speaker 1: the consumer is seeking on too much risk for them.
Speaker 1: For example, we can say, hey, we need to verify
Speaker 1: your income because we think you're overburdening yourself. Now, if
Speaker 1: we're convinced that your income is different from what we
Speaker 1: estimated it to be, it would be wonderful to extend
Speaker 1: the credit to you. Or for example, we can say, hey,
Speaker 1: we think you should make it down payment on this
Speaker 1: couch or on this bicycle, because once you do that,
Speaker 1: it's a lot easier for you to carry the burden
Speaker 1: of this particular So we've really been deploying a lot
Speaker 1: of those tools all across the last six nine months,
Speaker 1: and we would see increased demand, increase approvals, and better
Speaker 1: credit outcomes. You know, our firm shares obviously had a
Speaker 1: pretty big downward move today. There is a broader market
Speaker 1: sell off. Your CFO said, you're approaching the next fiscal
Speaker 1: year prudently. I mean, what's your reaction to the affirm
Speaker 1: stack drop, the broader tech sell off and you know,
Speaker 1: the possibility weren't for this kind of volatility for the
Speaker 1: foreseeable future. You know, I think, I think, and I
Speaker 1: don't even have to try. I definitely think of a
Speaker 1: firm in measures of years and quarters is not a
Speaker 1: it's an artificial marker that I think, Uh, we have
Speaker 1: messed for ourselves. It is far better to worry about
Speaker 1: how we'll do next year and the year after in
Speaker 1: a decade from now than what the stock price will
Speaker 1: do for us tomorrow afternoon. Certainly, in a day like today,
Speaker 1: I think we are a footnote to a footnotes to
Speaker 1: a broader sell up thanks to the Hawkers policy statements
Speaker 1: that we just heard. Um, that's it. You know, I've
Speaker 1: never been more excited to show up to work as
Speaker 1: I am today. We have a ton of stuff to build.
Speaker 1: We bragged a lot about really amazing engagement metrics and
Speaker 1: debit plus the card that we've been working on for
Speaker 1: so long. You know, it's definitely and you know, my
Speaker 1: heart goes out for our team. And obviously the investors
Speaker 1: that look at the stock price always want to see
Speaker 1: it go up. I would encourage them to look to
Speaker 1: the future. The product that we're building really makes a difference.
Speaker 1: We see so much positive consumer sentiment. We know what
Speaker 1: we're doing managing credit. We've done really well and we'll
Speaker 1: continue to do so. Over time, the market will catch
Speaker 1: up and the share price will do what it always does.
Speaker 1: I am very, very focused to leading the company to
Speaker 1: a long term, successful business of permanent value. So let's
Speaker 1: talk about the lot term. On the call, you talked
Speaker 1: about the pursuit of growth, the possibility of buying up
Speaker 1: other players, given you know that the you know, the
Speaker 1: broader macro environment, some of these other players may be struggling.
Speaker 1: We've seen some other players go through you know, other
Speaker 1: BNPL players go through some pretty big layoffs. What are
Speaker 1: you looking at? What kind of companies are you looking at?
Speaker 1: And could we see you know, a big deal or
Speaker 1: an acquisition spree um. Definitely nothing to report today. I
Speaker 1: want to make sure that there's no no speculation in
Speaker 1: embedded in my answers here. But you're totally right. The
Speaker 1: thing that the way I think about potential targets, and
Speaker 1: we're definitely looking quite actively now. We have shown to
Speaker 1: be really really good at credit management, and obviously the
Speaker 1: economic realities uncertain will continue. Having book hands and the
Speaker 1: wheel will continue to need credits and approvals and all that,
Speaker 1: but we know what we're doing. We we've shown this
Speaker 1: to ourselves and much more importantly frankly, to our credit
Speaker 1: investors capital market partners. There are companies that have had
Speaker 1: amazing ideas, They built great products, so the beginnings of
Speaker 1: something really wonderful, but they're just not good at underwriting.
Speaker 1: And you get better at it with scale and time.
Speaker 1: We've been at it for eleven years, with a lot
Speaker 1: of data, with a lot of experience. We know how
Speaker 1: to manage it. It would be great to find some
Speaker 1: of these ideas and teams. Really, really, the most important
Speaker 1: thing about any company is the people running it. And
Speaker 1: when you find these teams and they're missing that credit
Speaker 1: management muscle or actually capital markets which we've also built
Speaker 1: up over the years, you know that those kind of
Speaker 1: acquisitions are fantastic because you know, you you love what
Speaker 1: they've built and you want to make it go faster
Speaker 1: and get bigger, and so that that is what we're
Speaker 1: looking for. The filter for me, I learned I didn't
Speaker 1: invent this one. This was something one of my investors
Speaker 1: told me. You know, is this acid better off owned
Speaker 1: by a firm and if the answer is yes, you
Speaker 1: should look. And if the answer is I'm not sure,
Speaker 1: stop looking now. So we apply that filter judiciously. All right,
Speaker 1: appreciate that little nugget of advice. Max Lapchin, co founder
Speaker 1: and CEO of from Great to have you back, Max
Speaker 1: is appreciate the time. Thank you. Some other stories we're watching,
Speaker 1: Apple facing a potential anti trust suit from the Department
Speaker 1: of Justice. Shares dropped after Political reported the lawyers are
Speaker 1: in the early stages of drafting a complaint against Apple.
Speaker 1: The DJ hopes to file it by the end of
Speaker 1: the year. California is the first government in the world
Speaker 1: to effectively ban gas powered car sales. By California Air
Speaker 1: Resources Board voted unanimously to adopt a plan that mandates
Speaker 1: zero mission and hybrid plug in vehicle sales. The rule
Speaker 1: will likely be adopted by fifteen other states currently signed
Speaker 1: on to California's existing zero mission vehicle program. And Mark
Speaker 1: Zuckerberg vented to Joe Rogan about the pains of content moderation.
Speaker 1: The medicineo says it's simply quote sucks, but he's more
Speaker 1: pleased with his company methodology then rival twitters. Here's what
Speaker 1: he had to say on the Joe Rogan experience. One
Speaker 1: theme in my world view around this stuff, and when
Speaker 1: it gets to some of the stuff that we talked
Speaker 1: about before, is like, I don't think that this stuff
Speaker 1: is black and white, or that you're ever going to
Speaker 1: have like a perfect AI system. UM. I think it's
Speaker 1: all trade offs all the way down, because this whole
Speaker 1: thing that's like arbitrating what is okay and what is not.
Speaker 1: I obviously have to be involved in that because this
Speaker 1: is at some levels, you know, I run the company
Speaker 1: and um, and I can't just abdicate that. But but
Speaker 1: I also don't think that as a matter of governance,
Speaker 1: you want all of that decision making vested in one individual.
Speaker 1: Welcome back to Bloomberg Technology. I'm emily changing san from Cisco.
Speaker 1: Let's get back to the markets and the Texel off.
Speaker 1: I want to bring in four Runner managing partner Ury
Speaker 1: Kim for more on this uh eerie. Obviously, there are
Speaker 1: big questions about what a more hawk ish FED and
Speaker 1: high interest rates means for venture capital. What's your reaction
Speaker 1: to what j Powell had to say? Well, I don't
Speaker 1: know that anyone's really surprised, because we've all been we've
Speaker 1: all been thinking about how things were going to pan
Speaker 1: out with inflation and how to manage it. It's just
Speaker 1: been a very volatile few years, a total roller coaster
Speaker 1: from pre COVID, post COVID being a run up and
Speaker 1: now a huge market corrections. So, you know, I think
Speaker 1: that never before of private markets then as connected to
Speaker 1: public markets. Um, usually we'd say, hey, these companies are young,
Speaker 1: they've got time. We don't need to worry about what's
Speaker 1: happening out there. I think ultimately investors see what's happening
Speaker 1: to private to public companies and they say, hey, if
Speaker 1: this is how the valuation is going to look, then
Speaker 1: I need to moderate my entry point and the valuation
Speaker 1: that I'm going to pay right now because there might
Speaker 1: not be a uh a top end of the market
Speaker 1: when we go public. So I think there are a
Speaker 1: lot of open questions about that. And you know, today
Speaker 1: no one wants to price a deal. That's the that's
Speaker 1: the sort of freezing of the market, and everyone's trying
Speaker 1: to figure out what's happening in the market to see
Speaker 1: if that means that they can start, you know, investing
Speaker 1: in a cautious way. Um, But what it does mean
Speaker 1: is that companies have to get back to unit economics,
Speaker 1: good business fundamentals, um, and just realize if you want
Speaker 1: to build a business that's gonna last, it's gonna make sense,
Speaker 1: and the valuations will come and go as they do
Speaker 1: in the public markets. You know, we heard from an
Speaker 1: investor earlier in the show, so you sirs, you know
Speaker 1: of Active in Capital. He had some pretty gloomy things
Speaker 1: to say. He said he thinks there's gonna be millions
Speaker 1: of layoffs in tech and that they've only just begun,
Speaker 1: that potentially more than twenty of venture backed companies will fold,
Speaker 1: and that the downturn is going to last two to
Speaker 1: three years. What do you think? Do you agree with that?
Speaker 1: It's a pretty grim picture. I don't want to agree
Speaker 1: with that. We have to we have to realize that
Speaker 1: that's a possibility for for sure. Um. What would I
Speaker 1: say to that? I think that you know, it would
Speaker 1: be imprudent if companies today didn't take the opportunity to
Speaker 1: right size their teams and to be thoughtful about if
Speaker 1: markets stay volatile and funding and capital resources are limited
Speaker 1: going forward, you just want to be able to have
Speaker 1: optionality and maybe you don't need to grow to year
Speaker 1: over year. Maybe you can grow a little bit slower,
Speaker 1: but continue to build a business that people can look
Speaker 1: at and say, hey, there's a real company here. It
Speaker 1: makes sense over time, it will continue to generate profitability.
Speaker 1: Profitability was not something people were looking at for the
Speaker 1: last handful of years, maybe even the last decade. So
Speaker 1: you know, will the recession happen and stick around longer?
Speaker 1: Who knows? I mean reading tea leaves. Maybe, but ultimately,
Speaker 1: great businesses are made in recessions as well. And it
Speaker 1: it just it creates constraints that the best companies continue
Speaker 1: to do well because they're the only game in town.
Speaker 1: And yes, that might mean that twenty percent of companies
Speaker 1: are going to go out of business, And candidly, maybe
Speaker 1: that's okay. You know, maybe in a bull market you
Speaker 1: see too many businesses being funded that ultimately don't have
Speaker 1: the right economic structure to be real companies over time. Um. So,
Speaker 1: you know, I'm a glass half bull sort of person.
Speaker 1: Uh so, you know, we're cautiously optimistic and we're just
Speaker 1: gonna do do our jobs, continue to do it through
Speaker 1: uptimes and down times. Meantime, there are new rules from
Speaker 1: the NASDAK requiring listed companies to have more diverse wards
Speaker 1: that are being challenged and challenged in federal court starting
Speaker 1: next week. I know you've been thinking a lot about this. Uh,
Speaker 1: you know, what do you make of the fact that
Speaker 1: there's a challenge to something that to others would seem
Speaker 1: so obvious. You know, it's it's hard to see just
Speaker 1: because I am a diverse board member, both female and Asian.
Speaker 1: And the number of women who have um been appointed
Speaker 1: to boards Fortune five hundred boards of the last year
Speaker 1: has actually, over the last three years has doubled. Um.
Speaker 1: There was a stat that said women comprised of all
Speaker 1: the Fortune five hundred board appointments last year. That's amazing.
Speaker 1: You know, black directors were of new appointees that would
Speaker 1: never have happened if all this light weren't shone down
Speaker 1: on the fact that there wasn't any diversity before. And
Speaker 1: so when you have these mandates put out there, Yes
Speaker 1: it's challenging, Yes it's a quota, and and maybe that's
Speaker 1: not the right way to manage the process, but what
Speaker 1: it resulted in was real action and we were filling
Speaker 1: the pipeline with new people. Um. The record number of
Speaker 1: appointees that were new appointees that had never been board members.
Speaker 1: Was that that's the lynch fan because if you would
Speaker 1: have always had to have board experience to get another
Speaker 1: board role, the look, not many of us have that
Speaker 1: um and so what's that first moment that a woman
Speaker 1: or a person of color can get that experience? Uh?
Speaker 1: And and so I think that these sorts of rules
Speaker 1: or at least guidelines does put pressure on boards to
Speaker 1: prioritize diversity. And I think it's better for the company,
Speaker 1: it's better for management to have a more variable viewpoint
Speaker 1: around the table. And ultimately, you know, it may not
Speaker 1: be a law that we have to comply with, but
Speaker 1: it's certainly going to be something that shareholders, customers, employees,
Speaker 1: leadership all want. And so whether there's a rule or not,
Speaker 1: I certainly hope to continue champion that it doesn't always work.
Speaker 1: I mean, sometimes you know, you have needs and if
Speaker 1: there isn't a female or person of color who has
Speaker 1: that experience, I get it. But then how can we
Speaker 1: fill the pipeline. How can we make sure to get
Speaker 1: other ways of getting that experience into the hands of
Speaker 1: people that are you know, important to have as a
Speaker 1: voice around the table. Use me the point that a
Speaker 1: very hot venture capital investing environment over the last year
Speaker 1: meant a lot of people taking a lot of board
Speaker 1: seats as these companies were raising new rounds and expanding
Speaker 1: their boards. But that that also meant Um, I believe
Speaker 1: the term you used is shotgun weddings and that that
Speaker 1: hasn't always been a good thing. Can you explain what
Speaker 1: you mean by that and how that's played out? Yeah,
Speaker 1: I think in certainly, and there's been plenty of other
Speaker 1: years in the last decade where there's a real exuberance
Speaker 1: in the investing market and the founders have a choice
Speaker 1: of the people to get to work with. But a
Speaker 1: lot of times you end up picking the person who
Speaker 1: bid the highest, and that's not always the best decision
Speaker 1: because that person is gonna be an investor on your
Speaker 1: cap table for a very long time, in fact, maybe
Speaker 1: into verptuity and um. If they take a board seat,
Speaker 1: they're going to be on your board for a long time.
Speaker 1: You know, we talk around our table that says many
Speaker 1: of these investor board members stay on your board longer
Speaker 1: than marriages last, and that's like seven or eight years.
Speaker 1: So if you're not aligned with the vision and the
Speaker 1: values and the communication and the partnership style of the
Speaker 1: person that's investing in your company as a majority investor. UH.
Speaker 1: And then as such, joining the board, you are stuck
Speaker 1: working with this person and dealing with this person for
Speaker 1: a really long time. And the job of a board
Speaker 1: member it's a to do share responsibility to do what's
Speaker 1: in the best interest of shareholders. And that's not always
Speaker 1: going to be aligned with what the CEO wants to
Speaker 1: do or feels like they want to do. UM. So
Speaker 1: the relationship is meant to have tension. There's an appropriate
Speaker 1: push pull, but ultimately the board members have to stand
Speaker 1: up for the shareholder value and UM and and that
Speaker 1: is just a voice that you definitely want to make
Speaker 1: sure you're aligned with. I'd love to get your reaction
Speaker 1: to the big Solica Valley controversy over the last couple
Speaker 1: of weeks, which has been andreason horror it's writing its
Speaker 1: biggest check ever to Adam Newman. UM. You know a
Speaker 1: controversial founder. Uh, residential real estate idea. Some people, Uh,
Speaker 1: I think it's a good thing. Some people don't like it.
Speaker 1: What do you think. I don't know that I have
Speaker 1: a say in that one. You know, really, when investors
Speaker 1: have founders they've worked with before, they back them again.
Speaker 1: And you know, there are a lot of things that
Speaker 1: happen in companies that are not portrayed actually in market
Speaker 1: or with press, and so nobody knows except for the
Speaker 1: management team and the board, um, what happened. Uh. And
Speaker 1: so if Andreason continues to have faith in Adam, that's great,
Speaker 1: they should back them. It Really it shouldn't be that
Speaker 1: if you have a company that you know goes under
Speaker 1: or doesn't go as planned, that you can never work again.
Speaker 1: It's just the investor has to decide, I still trust you,
Speaker 1: I still believe in you as a founder, and I
Speaker 1: want to back you again. And that's kind of the
Speaker 1: end of it. So I don't know enough of what
Speaker 1: happened in that company, like what really happened in that
Speaker 1: company and ultimately what led to the ups and downs,
Speaker 1: and no one really does, so I don't, you know,
Speaker 1: chop from the cheap seats over here. Um, But I
Speaker 1: understand the intention of when you back somebody you've worked
Speaker 1: with and you've been in the trenches with. So perhaps
Speaker 1: that is what is driving that investment decision. You're not
Speaker 1: sitting in the cheap seats you're but I appreciate you
Speaker 1: taking a swing at that ere Kim flour runner managing
Speaker 1: partner um and speaking from some very valuable real estates.
Speaker 1: If I could describe those seats myself, thank you. Okay. Meantime,
Speaker 1: the US and China are nearing a deal to avoid
Speaker 1: mass delistings. The agreement would allow American auditors to go
Speaker 1: to Hong Kong to check the records of Chinese but
Speaker 1: he's listed in New York. Bloombergs David Weston spoke with
Speaker 1: one of the architects of the deal, US Public Company
Speaker 1: Accounting Oversight Board Chair Erica Williams. Take a listen. So
Speaker 1: the agreement, as Chair Ginsler mentioned, is the most detailed
Speaker 1: and prescriptive that we've ever had with the Chinese, and
Speaker 1: it provides for us to have complete access to the
Speaker 1: audit work papers in China with no loopholes and no exceptions.
Speaker 1: There are three key provisions. First, the p c o
Speaker 1: B and the p c o B alone has the
Speaker 1: authority to select which firms and audit engagements we inspect
Speaker 1: and investigate. Second, there are procedures that allow us to
Speaker 1: view the audit work papers completely with no redactions. And third,
Speaker 1: we have direct access to interview and to take testimony
Speaker 1: of any of the individuals who are involved in the
Speaker 1: audits that the pco B chooses. How does this compare
Speaker 1: with arrangements with other countries? They have public and traded
Speaker 1: companies who are traded our exchanges, So we are able
Speaker 1: to access the audit work papers of more than fifty countries.
Speaker 1: Every country where the p c o B has registered
Speaker 1: entities we accept China, we've been able to have complete access.
Speaker 1: This agreement allows us that complete access that we demand
Speaker 1: so that we can audit the auditors in China. And
Speaker 1: it is, though um more detailed and prescriptive than any
Speaker 1: agreement we've ever had with the Chinese. Does it go
Speaker 1: any farther than your arrangements of other countries or does
Speaker 1: it go any less far? And by the way, are
Speaker 1: there any special provisions with respect of sensitive data, because
Speaker 1: as I understand the Chinese card was saying, we're worried
Speaker 1: about national security. There are no special arrangements with China.
Speaker 1: We are not providing them anything that we don't provide
Speaker 1: other regular regulators and entities around the world. So this
Speaker 1: is just an agreement that's very detailed, so that there
Speaker 1: are no questions that the p c o B is
Speaker 1: going to be able to have full complete access as
Speaker 1: is required under the Holding Foreign Companies Accountable Act that
Speaker 1: can was passed and we are very hopeful UM that
Speaker 1: this first step in reaching the agreement will allow us
Speaker 1: once we get our inspectors and investigators on the ground
Speaker 1: in China to have complete access as it's written in
Speaker 1: paper UM in the agreement. Matter. Sure you just said
Speaker 1: the critical phrase their first step. I mean we all
Speaker 1: know that's one thing to get an agreement. And by
Speaker 1: the way, congratulations, I know you've been working on it
Speaker 1: a long time, but then you have to actually get
Speaker 1: it implemented. What are the next steps in implementation? So
Speaker 1: I have instructed our inspectors and investigators to be able
Speaker 1: to be on the ground in China in mid September. UM.
Speaker 1: We are actually going to be conducting the inspections and
Speaker 1: investigations in Hong Kong because the health and safety of
Speaker 1: our staff is of critical importance. We are though going
Speaker 1: to be able to have full and complete access to
Speaker 1: the Chinese work papers UM in Hong Kong that we
Speaker 1: need in order to conduct our inspections and investigations. How
Speaker 1: big a job is this, I guess one of the
Speaker 1: things I'm asking is how many people are gonna have
Speaker 1: to send over there? And how long is it going
Speaker 1: to take them? So inspections and investigations, David, they take
Speaker 1: as long as they take. UM, I can't predict that.
Speaker 1: Right now, we have a team of talented, dedicated pc
Speaker 1: O B staff that are ready in their bags, are
Speaker 1: packed and ready to go. UM. And whether or not
Speaker 1: we are able to complete the inspections and investigations really
Speaker 1: will determine be determined on whether or not the Chinese
Speaker 1: provide us with complete access as is required under the
Speaker 1: agreement that we signed today. All right, Erica Williams, their
Speaker 1: US public company Accounting Oversight board chair. I don't necessarily
Speaker 1: think move to proof of stake is a great thing
Speaker 1: for Ethereum in the short run. I mean, essentially, Bitcoin
Speaker 1: and ether are the only proof of work networks still alive,
Speaker 1: and we haven't seen any issue on the other proof
Speaker 1: of steak networks. We think that Ethereum very well could
Speaker 1: get back to a thousand or even lower if the
Speaker 1: merge doesn't go well. If the merge goes well, basically
Speaker 1: that's going to allow the concept of staking happen and
Speaker 1: in individuals institutions can earn eight nine and I think
Speaker 1: proof of steak will be just fine on rooting as
Speaker 1: an operator for Ethereum Merge to be smooth and to
Speaker 1: happen in September fifte very well. Ethereum has been promising
Speaker 1: proof of steak since basically they started wake me up
Speaker 1: when the transition happens. Time now for a crypto report,
Speaker 1: And just heard from some of our of our guests
Speaker 1: there and what they think of the upcoming Ethereum merge,
Speaker 1: both bowls and bears alike. Let's talk about this more
Speaker 1: now with our own David Pan who has been covering
Speaker 1: the merge. So, David a lot of writing on this,
Speaker 1: and a lot depends on whether it happens smoothly or not. Right, So,
Speaker 1: I was seeing a lot of discussion around the whether
Speaker 1: the margin will be successful. We have been seeing growing
Speaker 1: concern among some of the investors saying, yeah, you know,
Speaker 1: like the there there will be more awareness of the
Speaker 1: potential security risks um during and after the merge. Uh
Speaker 1: They Basically one argument from the investors is that the
Speaker 1: merge basically has been simulated uh in on a serious
Speaker 1: test nets but not in the real environment, so nobody
Speaker 1: knows what really happened during the merge and after the merge.
Speaker 1: Another reason is that you know, hackers are not incentivized
Speaker 1: the initiative attack against the network um UM during the
Speaker 1: merge on the test nets UM, so you know, like
Speaker 1: it is a really it is a really really big
Speaker 1: question mark UM around the merging and whether it's going
Speaker 1: to be successful or not. Theory recently raised bug bounties basically,
Speaker 1: as I understand it, paying people to find flaws in
Speaker 1: the system. How much will that help UM that would
Speaker 1: have only help you know, A has been increased from
Speaker 1: two hundred and fifty thousand dollars to one million dollars.
Speaker 1: That kind of reflects the growing concern over the security
Speaker 1: risks potentially UM. But UM in terms of UM whether
Speaker 1: that will actually be effective in preventing any potential attacks
Speaker 1: and we we don't know because we have seen UM
Speaker 1: attacks that have cost the investors losing billions of dollars,
Speaker 1: So UM who knows, you know, what will happen after
Speaker 1: the emerge and like we would certainly see a more
Speaker 1: vulnerable state of the network during and after the emerge,
Speaker 1: and UM UH that will be. Everybody is actually expecting
Speaker 1: to see, you know, how this would unfold, and some
Speaker 1: of them are saying it's going to be successful, but
Speaker 1: successful by some of the others who are more skeptical
Speaker 1: of the transition. They're saying, you know, um, the risks,
Speaker 1: risks are are bigger and bigger over time, you know,
Speaker 1: as we get closer to the merch. Al right, lots
Speaker 1: to continue to watch as we get towards mid September. Bloomberg,
Speaker 1: David Pan, thank you. Well, it might sound like the
Speaker 1: stuff of sci fi, but the reality of flying taxis
Speaker 1: maybe closer than you think. Bloomberg's on a Rug Kataki explains,
Speaker 1: if you had the option of skipping traffic while coming
Speaker 1: from point A to B, will you take it? What
Speaker 1: if it wasn't the sky? Electric flying taxis are a
Speaker 1: lot closer to reality than what we think. But the
Speaker 1: big question is how will people perceived this flying objects?
Speaker 1: And that is why Volo Poplar is showcasing its aircraft
Speaker 1: here in Singapore. The Vola City is a fully electric
Speaker 1: aircraft which is designed for the inner city mission. It's
Speaker 1: caters for the highest safety, for low noise and for
Speaker 1: a fully electric flight. One big obstacle is that not
Speaker 1: a single electric flying taxi has regulatory approvals in place.
Speaker 1: Companies like Bullock Opter do believe that they will get
Speaker 1: it pretty soon enough, just in time for the four
Speaker 1: Paris Olympics, but regulators will take their time to ensure
Speaker 1: these flying vehicles are actually safe enough. We have eighteen
Speaker 1: fully electric motors, and if we lose one or two motors,
Speaker 1: or if they're not working, we can still safely perform
Speaker 1: our mission. Airlines have an ambitious target of turning carbon
Speaker 1: neutral by twenty fifty, while electric flying taxis are not
Speaker 1: expected to replace Airbus eight twenties or boiling seventy sevens
Speaker 1: in the near term. This is definitely a forest step
Speaker 1: in that direction. We're sitting inside the Velocity and as
Speaker 1: you can see, it's very comfortable. You have a lot
Speaker 1: of leg space which you nobody don't have at the
Speaker 1: conventional helicopter. Well, you also can see it's a two
Speaker 1: seater and this is the autonomous version. In the starting
Speaker 1: configuration we will have a pilot sitting here and the passenger,
Speaker 1: and in the autonomy version you don't need that anymore.
Speaker 1: The big question is how much artist things going to cost.
Speaker 1: Bono Coopter says it will be forty percent cheaper than
Speaker 1: helicopters could begin which and eventually it will be at
Speaker 1: par which premium taxis That means anybody who can afford
Speaker 1: a taxi can afford a flying taxi. This is how
Speaker 1: we move. I'm on aratogy for more stories like this,
Speaker 1: please follow us on your favorite platforms. And finally, a
Speaker 1: billion dollar action may be coming from one of Silicon
Speaker 1: Valley's most prolific art collectors. Around one fifty artworks from
Speaker 1: the collection of the late Microsoft co founder Paul Allen
Speaker 1: are set to be auctioned at Christie's in New York
Speaker 1: this fall. Christie and Allen's estate expect to bring in
Speaker 1: more than a billion dollars. Christie says all proceeds will
Speaker 1: go to philanthropy, and that does it. For the sedition
Speaker 1: of Bloomberg Technology Monday, we're gonna hear from the CEO
Speaker 1: of Cube, Christina Ross, about the challenges for startups when
Speaker 1: it comes to funding in a downturn. And don't forget
Speaker 1: to check out our podcast wherever you get your podcast.
Speaker 1: I'm Emily Chang in San Francisco. Have a wonderful weekend, everyone.
Speaker 1: This is Bloomberg,