Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. Tracy, you know,
Speaker 1: I was thinking something with the Silicon Valley bank crisis
Speaker 1: that you know, it's funny when we think of tech,
Speaker 1: we think of like these companies that are growing like
Speaker 1: super fast, shooting for the moon, trying to be like
Speaker 1: the next Amazon or Google or Open Air Eye or whatever.
Speaker 1: And when we think of banks, we think of these
Speaker 1: companies that really should be about like protecting downside, like conservatism.
Speaker 1: There's sort of like just first, steady, predictable deposit growth. First,
Speaker 1: do not lose money. And I do think I wonder
Speaker 1: if there's just like this inherent tension between like tech
Speaker 1: and banking. It's so funny you mentioned that because I
Speaker 1: was thinking about this, because if you think about the
Speaker 1: venture capital model, it's basically throw a bunch of money
Speaker 1: at different company as you kind of assume that some
Speaker 1: of them are going to fail, but maybe one of
Speaker 1: them will be the next Amazon or Google. And that
Speaker 1: seems to be almost the polar opposite of the banking model,
Speaker 1: which is you have a diversified portfolio, but you're really
Speaker 1: hoping that all of them eventually pay you back. Yeah, No,
Speaker 1: it's very it's a very different model. So here you
Speaker 1: have this bank that you know, obviously was the chief
Speaker 1: bank to startups and even in the best of times, right,
Speaker 1: not in a rate hiking cycle. Now that you imagine
Speaker 1: that like the majority of your clients are going to fail,
Speaker 1: because most startups fail, it is sort of an interesting
Speaker 1: tension that emerges, and it's like, well, how do you
Speaker 1: like responsibly bank the tech industry is kind of an
Speaker 1: interesting question even outside of right now. I think it's
Speaker 1: a fascinating one. And I guess the other question that
Speaker 1: goes right alongside that is our tech company is particularly
Speaker 1: good at managing their own money. Yeah, that's also an
Speaker 1: interesting question because you have a lot of companies like
Speaker 1: start with some hacker or coder and they have three
Speaker 1: people or five people. You know, if they don't have
Speaker 1: they're not going to have a big like finance group,
Speaker 1: And it is it unrealistic that they would even have
Speaker 1: someone doing like treasury management. After they get their first
Speaker 1: like seed check from like Sequoia or whoever. Everyone figured
Speaker 1: out how to put their crypto in cold storage, but
Speaker 1: not how to buy t bills. Through Schwab or Treasury Direct. Yeah,
Speaker 1: that if only they had, then we wouldn't be talking
Speaker 1: about this anyway. I do think there's some interesting questions here,
Speaker 1: and I'm very excited about our guest because we're going
Speaker 1: to be speaking to someone who's been involved in tech
Speaker 1: finance for quite a while. It's sort of like pioneer
Speaker 1: in sort of many aspects of whether it's like spacks
Speaker 1: IPOs providing financial services to tech companies more generally fintech companies.
Speaker 1: We're going to be speaking with Betsy Cohen. She is
Speaker 1: the co founder and chairman of Cohen Circle and Investment Group,
Speaker 1: and she founded a bank and done much more. So, Betsy,
Speaker 1: thank you so much for coming on odd lots really
Speaker 1: excited to have you here. Well, I'm delighted to be
Speaker 1: here and thank you for inviting me before this whole crisis.
Speaker 1: With this, you must have had numerous partners and clients
Speaker 1: who have worked with Silicon Valley Bank for a long time.
Speaker 1: How would you have characterized them? What didn't your view
Speaker 1: made it so that they were so sort of like
Speaker 1: influential throughout the valley and really throughout the entire industry. Well,
Speaker 1: I think that's an interesting question. I think that they
Speaker 1: were well located, certainly early on in terms of being
Speaker 1: in San Francisco, which at the time was the only
Speaker 1: of tech development, but that since changed. I think that
Speaker 1: they had a deep knowledge of the industry, which made
Speaker 1: them good lending partners for tech companies because you didn't
Speaker 1: have to go through a whole description of what was technology,
Speaker 1: what was a platform, etc. Etc. So having that expertise
Speaker 1: was certainly helpful. I think somewhere along the line the
Speaker 1: opportunity to move from simply being a traditional bank as
Speaker 1: was described, slow moving one thing at a time, let's
Speaker 1: not grow too fast, to seeing the opportunity because both
Speaker 1: health tech and biotech and fintech we're all growing very quickly.
Speaker 1: To take advantage of that opportunity to actually grow the
Speaker 1: bank that quickly, it meant that they took their eye.
Speaker 1: I think of what we're banking fundamentals, forget the tech fundamentals,
Speaker 1: because within a portfolio alone, portfolio you do expect losses,
Speaker 1: and whether they're due to a mortgage to an individual
Speaker 1: who dies and there's no nothing to do about it,
Speaker 1: or some other personal and probable event. It's why banks
Speaker 1: do have provisions for loan laws. So it's not that
Speaker 1: every tech company had to be successful, but they had
Speaker 1: to have within their portfolio the appropriate provision. I think
Speaker 1: what they really really didn't do as well as they
Speaker 1: might have is, or are two things, and they're really
Speaker 1: both banking one oh one. One is that they had
Speaker 1: a concentration of industry. It should have given them. I
Speaker 1: would have thought a better understanding of the current situation
Speaker 1: of technology companies, that they were having difficulty raising money
Speaker 1: and therefore would lean on their deposits more, but apparently
Speaker 1: it didn't. And the other is really asset management, asset
Speaker 1: liability management, and not so much in terms of the
Speaker 1: quality of the underlying bonds that they made or the
Speaker 1: underlying loans, because the both the loan and the and
Speaker 1: the quality of the securities in their portfolio is pretty good.
Speaker 1: But they had eighteen months during which interest rates were
Speaker 1: rising at a very quick pace, and not to adjust
Speaker 1: the portfolio, not to take on a duration basis of
Speaker 1: the appropriate steps is just to me mind blowing. Yeah,
Speaker 1: an asset liability duration mismatch. I was going to ask
Speaker 1: you what you thought caused the collapse, but since you
Speaker 1: already answered that, can you maybe just talk about I
Speaker 1: should mention, we're recording this on March fifteenth, what's been
Speaker 1: the experience or the mood in Silicon Valley over the
Speaker 1: past week or so. You know, I assume that you're
Speaker 1: talking to your various partners. What are they telling you.
Speaker 1: I mean, it's your panic, and it's surprise, and it's disappointment,
Speaker 1: and it's all of the things that go with having
Speaker 1: a trusted partner not perform. I think that there are
Speaker 1: companies that had credit lines. Let's just take a number
Speaker 1: at random, one hundred million dollars credit line. They had
Speaker 1: drawn sixty million dollars. They knew that they had forty
Speaker 1: million dollars let's put this in quotation marks in the
Speaker 1: bank in order to cover what was their ongoing period
Speaker 1: of negative cash flow. So they felt pretty good about
Speaker 1: themselves because they could see at the end of that
Speaker 1: period they would be in a cash flow positive situation.
Speaker 1: As is the case when a bank is taken over
Speaker 1: by the FDIC, all loans are frozen, so that forty
Speaker 1: million dollars is no longer available to them in our example.
Speaker 1: Add that to the fact that whatever money they had raised,
Speaker 1: and it's not true of all tech companies, but the
Speaker 1: majority of them had a very comfortable feeling that Silicon
Speaker 1: Valley Bank, at two hundred and nine billion dollars, was
Speaker 1: the sixteenth largest bank in the country, was a very
Speaker 1: safe place to put their deposits. You know, both it
Speaker 1: looked like earlier in the week that both they were
Speaker 1: not going to have access to their money through the
Speaker 1: loan mechanism and they were not going to have the
Speaker 1: uninsured deposits. So one piece of that has been resolved,
Speaker 1: but the second piece has not, so there's a lot
Speaker 1: of panic. I haven't heard as much about that line
Speaker 1: of credit or evolving line of credit issues. So even
Speaker 1: so it's like, okay, relief, you get your deposits back,
Speaker 1: But that must mean that for a lot of companies now,
Speaker 1: they're financial security is still impaired by this, simply because
Speaker 1: I don't know, it's hard for me to I don't know,
Speaker 1: it's hard for me to imagine some other bank right
Speaker 1: now jumping up and start getting excited about offering startups
Speaker 1: lines of credit in this environment. Well remember it's not
Speaker 1: only started right, right, Yeah, So startups make a part
Speaker 1: of it. And certainly customer loyalty was reinforced by the
Speaker 1: willingness of the bank to make loans perhaps to earlier
Speaker 1: stage companies than maybe other banks might see fit to do.
Speaker 1: But it's really beyond that and the opportunity to have
Speaker 1: another because everyone is swooping in, I mean, from hedge
Speaker 1: funds to other banking institutions, and I'm sure that some
Speaker 1: portion of the credit lines will then become available, but
Speaker 1: that's not going to happen tomorrow. You know, we started
Speaker 1: in the intro talking about how should tech companies or
Speaker 1: startups be banked, and there's an implicit assumption there, which
Speaker 1: is that that industry is somehow different to others. You
Speaker 1: anticipated the next question. I'm sorry, So A, do you
Speaker 1: agree with that? And B if that is true, if
Speaker 1: there are some idiosyncrasies or some peculiarities around tech slash startups,
Speaker 1: what is the ideal way that they should be banked
Speaker 1: in finance? Well, and if I could just add on
Speaker 1: a little bit to the question, I mean you were
Speaker 1: early on this, I mean you started your career. You
Speaker 1: were like one of the first like financial service at
Speaker 1: partners like PayPal and so forth. So it presumably you
Speaker 1: identified a gap in the existing banking infrastructure for us.
Speaker 1: Certain type of like fast growing company and so what
Speaker 1: is it that yeah, what is it that makes that distinct?
Speaker 1: That we were not traditionally a lender to those companies.
Speaker 1: We were providing a service what we call a bank
Speaker 1: rapper for non bank fintech companies, so that they could
Speaker 1: offer their customers a deposit service. PayPal is not a bank,
Speaker 1: and so it needs to have a way and a
Speaker 1: place to have access to the banking system. So we
Speaker 1: were the window into the banking system. It's why today
Speaker 1: I can say very proudly the banking model of Bankcorp
Speaker 1: is as valid as it was twenty five years ago
Speaker 1: when we started. That being said, we did do a
Speaker 1: significant amount of due diligence on the companies with whom
Speaker 1: we were going to partner on the bank rapper side.
Speaker 1: So they were not only companies that had a product
Speaker 1: that they were going to develop that might work, but
Speaker 1: there was a great deal more depth of understanding of
Speaker 1: where they were in their process. We didn't care whether
Speaker 1: they grew to be a very large company or not,
Speaker 1: as long as they could service their particular needs. That's
Speaker 1: a very different position to be in than being a
Speaker 1: lender to these companies where you're putting out your money
Speaker 1: up front, and you are looking at the potential viability
Speaker 1: of particular platform. It's sort of the middle ground between
Speaker 1: equity and debt, or let me say equity and traditional debt.
Speaker 1: Can you explain that what is it? Like? What is
Speaker 1: it then? And so talking about like, Okay, it's not
Speaker 1: quite equity, it's not quite dead. How should we think
Speaker 1: about I guess venture dead or lending to these fast
Speaker 1: growing companies, and that how why it doesn't quite fit
Speaker 1: in your view into either category. I think that equity
Speaker 1: is clearly a bet, maybe a good bet. It may
Speaker 1: be a well researched bet. It may be a bet
Speaker 1: based on prior performance of a particular company. But when
Speaker 1: you make an investment, you're making a bet that a
Speaker 1: product will be successful, that the management will be able
Speaker 1: to manage through a variety of changes in the marketplace.
Speaker 1: All of those things are in the nature of betting,
Speaker 1: not gambling with a bad connotation, but bets with a
Speaker 1: good connotation and with deep knowledge. You know, lending is
Speaker 1: more akin to having predictability, and many of these companies
Speaker 1: did not yet have the predictability that being said, a
Speaker 1: bank like Silicon Valley bank which had deep knowledge of
Speaker 1: the tech industry might make that judgment better than somebody else.
Speaker 1: So Bangkor was providing private label banking services, but also
Speaker 1: the underlying payments technology or additional payments technology as well.
Speaker 1: What was it like doing that as a competitor to
Speaker 1: traditional banks at that period of time? Was it? I
Speaker 1: can imagine maybe to some extent it was a competitive
Speaker 1: advantage because a lot of those larger banks tend to
Speaker 1: move very slowly, especially on the payments portion of things.
Speaker 1: But on the other hand, you know, you're talking about
Speaker 1: giants of traditional financial services, and when they decide that
Speaker 1: they care about something, they can throw a lot of
Speaker 1: money at it. Yeah, the I remember we started in
Speaker 1: two thousand. Nobody understood what we were doing, so that
Speaker 1: was an advantage. We then had an advantage for a
Speaker 1: couple of years because the big banks didn't think it mattered.
Speaker 1: I mean, I remember attending a conference and I was
Speaker 1: placed opposite I don't know a banker from a big bank,
Speaker 1: and he was very clear that we would certainly fail
Speaker 1: within the next period of time because we were not
Speaker 1: offering the services that a big bank could offer. We
Speaker 1: didn't have to, so we evolved into the dominant platform
Speaker 1: with the deepest knowledge of how to do this, and
Speaker 1: the banquet remains that in that position. Today there are
Speaker 1: many who have tried to model themselves after the business
Speaker 1: model that we developed, but nobody has had the length
Speaker 1: of time, the relationships, the predictability, the depth of knowledge, etc.
Speaker 1: That the Bancorp was hid. I want to sort of
Speaker 1: zoom forward and bring to the present day for a second.
Speaker 1: You were an innovator and early I don't know, sponsor
Speaker 1: or active in SPACs for years. So we saw this
Speaker 1: SPAC boom that started in twenty twenty, really like summer
Speaker 1: of twenty twenty, right after the pandemic. Maybe it's there
Speaker 1: are a few in the year before. I think like
Speaker 1: Virgin Galactic was the year before, but you were like
Speaker 1: several years before everyone else, and I think you've done
Speaker 1: more than anyone else. Or maybe it's closed. Maybe it's
Speaker 1: a time I'm not sure you can correct me. Then
Speaker 1: a bunch of them collapsed and it did terribly Like
Speaker 1: right now, like what is it? Just sort of your
Speaker 1: sense of I don't know, investment appetite, Like how frozen
Speaker 1: are things? I think very frozen is the short answer.
Speaker 1: But remember that a SPACK is just a league legal
Speaker 1: villa vehicle. It is designed to provide capital to an
Speaker 1: industry that can't get capital through a straight on IPO
Speaker 1: because there is some either gap in the development of
Speaker 1: the company, so they don't have numbers from prior years.
Speaker 1: If you look back, what you see is really the
Speaker 1: beginnings of a company, and there was no way under
Speaker 1: the traditional IPO to talk to investors about what might
Speaker 1: come in the future. Having come out of the Bankcorp
Speaker 1: fifteen years with all these fintech companies, I recognize that
Speaker 1: some of them had reached a level at which they
Speaker 1: could be predictable. They did have recurring income, they had
Speaker 1: an opportunity to make acquisitions, and therefore they could use
Speaker 1: a public currency. This was not for the whole portfolio,
Speaker 1: but at the time the IPO market was open, which
Speaker 1: it is not today. The IPO market, therefore, as a whole,
Speaker 1: was receptive to a vehicle which provided capital to what
Speaker 1: should be a public or could be a good public company.
Speaker 1: And we always emphasize it's why our basket of spec
Speaker 1: companies that are still trading that haven't been sold or
Speaker 1: some other disposition are all trading very well. It's really
Speaker 1: the discipline that we brought to and the deep knowledge
Speaker 1: that we brought to the area that enabled us to
Speaker 1: make these good decisions. Will there be I mean, if
Speaker 1: we look back at the history of specs, they were
Speaker 1: begun in the nineties when steel companies and other such
Speaker 1: companies coming we were coming right out of a depression
Speaker 1: in ninety two, did not have access to the capital
Speaker 1: markets but needed capital. That was the first round. The
Speaker 1: second round might have been for real estate companies following
Speaker 1: two thousand and eight, where they were cut off from
Speaker 1: the public markets but actually needed the capital. And the
Speaker 1: third round was really in the tech area. I think
Speaker 1: one of the things that happened is that people maybe
Speaker 1: confused companies that either had a path to profitability which
Speaker 1: was highly predictable, or had were in fact modestly profitable,
Speaker 1: which had very experienced executives that were attached to the
Speaker 1: company and could navigate and had differentiable products. I mean,
Speaker 1: I think if you look at the electric vehicle area
Speaker 1: or the biotech area, those are two areas in which
Speaker 1: the predictability of performance is at the very nader. So
Speaker 1: you know, the public markets are all about predictability, They're
Speaker 1: all about reporting. Next this quarters and hopefully next quarters earnings,
Speaker 1: and that's what the market responds to. Could you launch
Speaker 1: a spack in the current environment or is the window
Speaker 1: just closed? I think in the next couple of months
Speaker 1: I would have said, prior to this upheaval in the
Speaker 1: in the banking area, I would have said one Ndita,
Speaker 1: I would say so today that one could launch a spack, absolutely,
Speaker 1: but it would have slightly different characteristics. This spack is
Speaker 1: not sitting there and out of space, It's sitting in
Speaker 1: a spacks in space. Does have a good ring to it? Yeah?
Speaker 1: It does? It does you know, just the next three
Speaker 1: But in fact they are responsive to the current public market.
Speaker 1: So would they be constructed differently probably so. Would there
Speaker 1: be elements that were not needed in the prior iteration
Speaker 1: of specs that wouldn't be inducive to the investor? Probably so,
Speaker 1: so they would take a different shape, But it's a
Speaker 1: shape that is responsive to external factors rather than to
Speaker 1: the legal structure itself. Let me ask a broader question
Speaker 1: on investing, and I think you did an interview last
Speaker 1: year where you were talking about how tech valuations had
Speaker 1: gone down quite a lot, and that meant it was
Speaker 1: probably a better time to invest. There were a lot
Speaker 1: of opportunities. Presumably, as we sit here today, valuations have
Speaker 1: gone down even further. How are you feeling about the
Speaker 1: investment landscape in general? I think valuation is only one
Speaker 1: component of making a decision. Remember, since the time that
Speaker 1: I probably gave that interview, the war in Ukraine evolved,
Speaker 1: the several other large unnerving occurrences. Certainly the banking issues
Speaker 1: of today give investors pause. You know, it's a matter
Speaker 1: of looking at the whole package. I do think that
Speaker 1: there are opportunities today. I think they're good opportunities, not
Speaker 1: only because valuations are really rolled back in ten years,
Speaker 1: but because there are companies that have reached a level
Speaker 1: of both scaling and differentiation and have good executive and
Speaker 1: internal corporate elements at place in place to be good
Speaker 1: public companies or be good investments on the private basis.
Speaker 1: You know, I'm not moving away from that. Looking at
Speaker 1: it from the investor point of view, everybody is nervous.
Speaker 1: You know. It's interesting sometimes when you talk to investors
Speaker 1: in the background, I'm still excited, I'm still investing. We're
Speaker 1: like excited about AI or I'm really excited about There's
Speaker 1: still many opportunities. Do you think like that in terms
Speaker 1: of like sectoral opportunities or because it sounds like what
Speaker 1: you're describing is less about sectors per se and more
Speaker 1: about patterns that you like to see among management teams
Speaker 1: and financial operations regardless of the industry. I would say
Speaker 1: it's the latter. That I think that there are elements
Speaker 1: that are necessary in order to make a private company
Speaker 1: a successful public company, and that has less to do
Speaker 1: with the sector than it does have to do with
Speaker 1: the business model and corporate profile of the company. That
Speaker 1: being said, there is more opportunity to grow in certain sectors.
Speaker 1: So that is a component of what you look at,
Speaker 1: but it's not the only component. But it also did
Speaker 1: sound in your one of your previous nistors to Tracy,
Speaker 1: which I found interesting. The types of companies that came
Speaker 1: public during the twenty twenty one spack boom. To your view,
Speaker 1: many of them were just not appropriate for public markets
Speaker 1: by dint of their extreme profitability uncertainty. So like an
Speaker 1: early stage electric battery company, an early stage biotech a
Speaker 1: company that makes you know, electric trucks, but it's still
Speaker 1: never manufactured one. In your view, these were just like
Speaker 1: never appropriate for like public market infestors. Absolutely, they weren't
Speaker 1: appropriate at the time that they were brought to the
Speaker 1: public markets. Maybe they will be in twenty four, twenty
Speaker 1: five when they have actual contracts, actual manufacturing facilities, actual sales,
Speaker 1: actual customers. But indeed, when brought to the public markets,
Speaker 1: they were not appropriate. So one of the things about
Speaker 1: tech is it's always evolving. It's always trying to solve
Speaker 1: new challenges. And within your fintech expertise in particular, talk
Speaker 1: to us about how you see that evolving now, not
Speaker 1: just in response to the current interest rate environment and inflation,
Speaker 1: but also maybe in response to some of what we
Speaker 1: saw with SVP. I think that technology is evolving, and
Speaker 1: we're at a crossroads in financial technology where we're moving
Speaker 1: from one level to another level. We call it embedded finance,
Speaker 1: but it's not a standalone phenomenal. It requires a partner.
Speaker 1: One of the reasons that the financial technology industry was
Speaker 1: slow to scale at the beginning of the two thousands
Speaker 1: was really that there was nobody on the other side,
Speaker 1: or there were fewer people on the other side. Consumers
Speaker 1: were not sophisticated and knowledgeable about how to use their computers, effectively,
Speaker 1: most of the computing work Internet work that they done
Speaker 1: did was done it at work. Small businesses and enterprises
Speaker 1: were not sophisticated about how to run their businesses on
Speaker 1: the Internet. Today you have both elements crossing. You have
Speaker 1: a more sophisticated technology capacity and you have a more
Speaker 1: sophisticated and knowledgeable user. You know. One of the things
Speaker 1: again going back to like that twenty twenty one, the
Speaker 1: boom the boom years. In addition to taking companies public
Speaker 1: that probably were not appropriate to public markets, which we
Speaker 1: saw quite a bit of another phenomenon that existed in
Speaker 1: a few years in the last few years is like
Speaker 1: vcs in tech investors like talking to the public in
Speaker 1: a way they never did before. A lot of like
Speaker 1: promotion on Twitter and trying to get people into cryptocurrencies, etc.
Speaker 1: Like do you think that tech investors in generally sort
Speaker 1: of like need a little bit of a gut check
Speaker 1: about what they're promoting publicly when it's public retail money
Speaker 1: and getting people, Oh you should get excited about this,
Speaker 1: or if you're not in this, you're missing out. How
Speaker 1: reckless was that? And how much shaming should people have?
Speaker 1: What's your what's your gut view of all that. I
Speaker 1: don't know that it's shaming. Remember that social media, which
Speaker 1: is what you're really talking about, and communication flattened the
Speaker 1: kind of communication that was done. That was not limited
Speaker 1: to technology companies. It's really right across the board. It's
Speaker 1: what is driving meta to rethink their algorithms. You know,
Speaker 1: it's all of those elements that have changed the way
Speaker 1: in which in which we communicate. A company like Reddit
Speaker 1: could not have existed ten years ago because there weren't
Speaker 1: enough people who were interested and there were not enough
Speaker 1: people who could access it easily, but not limited in
Speaker 1: any way to tech promoters. I think part of this
Speaker 1: back issue was that it always looked easy. It definitely did,
Speaker 1: but it really was very hard. And so you know,
Speaker 1: if you take our own group, where we have a
Speaker 1: group of people who been in the public markets forever
Speaker 1: through many many cycles and are disciplined in the way
Speaker 1: that they approach companies and knowledgeable in their field. You know,
Speaker 1: there were a dozen of those, you know, throughout the industry.
Speaker 1: But most people who thought they could do a spec
Speaker 1: because their brother in law had done a spec or
Speaker 1: the guy at the country club had done a spec.
Speaker 1: You know, it wasn't as easy as it looked. I
Speaker 1: take the point about social media, but I just want
Speaker 1: to issue one fact check, which is, I think Reddit
Speaker 1: did exist ten years ago, because I'm pretty sure my
Speaker 1: account was like thirteen. When I say it existed, it
Speaker 1: did not have the prominence. True, that is very absolutely so.
Speaker 1: I mean, Joe kind of asked you about should Silicon
Speaker 1: Valley feel bad about fermenting fomo among a particular public
Speaker 1: or retail investor base, and I guess I want to
Speaker 1: ask you what you think the future of Silicon Valley
Speaker 1: in general is. Now that it feels like we are
Speaker 1: starting to see some of the excesses of recent years
Speaker 1: of the low interest rate environment start to wash away,
Speaker 1: I think it will be less fulsome the kind of
Speaker 1: advice that was very easily given to start up companies
Speaker 1: by very prominent people, very successful people that spend now
Speaker 1: and grow now and then see where the chips full
Speaker 1: will be less prominent. I think this is a moment
Speaker 1: in which good management groups with a good product who
Speaker 1: are willing to restrain themselves and grow it at a
Speaker 1: moderated not necessarily moderate, but moderated base, will have success.
Speaker 1: But if the organizational elements underlying the good product. They're
Speaker 1: not there. I think they're going to be a lot
Speaker 1: more failures. I want to actually go back to a
Speaker 1: line you said about someone's brother in law at the
Speaker 1: country club did a spack and made about Trainey. No, No,
Speaker 1: there was no. I was fascinating that because we actually
Speaker 1: did an episode during the spack Boom. We're talking to
Speaker 1: Howard Lindzen, who had done at least one spack and
Speaker 1: he like told I was like, we're this whole story.
Speaker 1: He's like, oh, well we had a no remember you
Speaker 1: said there was like oh, in twenty nineteen, we had
Speaker 1: dinner with some folks at Your Bone and Moth was
Speaker 1: doing a spack and everyone got excited. Can you talk
Speaker 1: a little bit about how that dynamic works? Because I
Speaker 1: find that fascinating. It's like you you see all the
Speaker 1: fomo on social media, but like you're actually in those
Speaker 1: in those rooms and you hear it. Like, can you
Speaker 1: talk a little bit about your firsthand experience of like
Speaker 1: the Foamo cycle and people hearing about your success and
Speaker 1: what they do then and how they're like I gotta
Speaker 1: get mine. Look, the Silicon Valley Mafia is one might
Speaker 1: refer to them was from many years, because remember the
Speaker 1: whole cycles only a twenty years cycle, and said, we'll
Speaker 1: call it for many years. Was an in grown self
Speaker 1: involved measuring your success by what the guy down the
Speaker 1: street did. Environment. It's why maybe five years ago people
Speaker 1: began to look for companies that were in Minnesota, that
Speaker 1: we're in Kansas City, that you know, we're in places
Speaker 1: that were more isolated. It's why John Templeton early on
Speaker 1: moved from New York to Well this was not the
Speaker 1: only reason to the Bahamas, because he didn't want to
Speaker 1: hear the same stuff all the time. He wanted to
Speaker 1: be able to think for himself. So there are cycles,
Speaker 1: maybe the initial cycle and the stimulation of having a
Speaker 1: one industree town, which is what it was. I guess
Speaker 1: it would be like talking about Wheaton, Minnesota when General
Speaker 1: Mills was there. You know that this is what happens.
Speaker 1: I mean, the people that you're talking about, Howard and etc.
Speaker 1: Are very smart, very knowledgeable folks, and wool Street, wider
Speaker 1: than just the tech industry is really in many respects
Speaker 1: like a group of sheep, if you'll excuse me, and
Speaker 1: the tech community was no different. So you described earlier
Speaker 1: the mood in Silicon Valley as want a panic, and
Speaker 1: you know, maybe there isn't necessarily moral soul searching at
Speaker 1: the moment, at least on some people's part, but there
Speaker 1: is a general discussion over what to do from here.
Speaker 1: What would be your best piece of advice for either
Speaker 1: someone who is investing in the industry or perhaps running
Speaker 1: a startup investing in the tech industry or the banking industry,
Speaker 1: oh either, but I was thinking specifically of tech. I
Speaker 1: think if you're talking about a public market investor, then
Speaker 1: I think that this may be a time to take
Speaker 1: a pause until one can see more clearly what the
Speaker 1: general mood of the market is. I think in terms
Speaker 1: of investing in tech, there are a number of ways.
Speaker 1: They're all deeply infused with risk. So one of the
Speaker 1: things that one might ask oneself is how much risk
Speaker 1: am I willing to take? You know, thinking back over
Speaker 1: the last few decades, I feel like right now, obviously
Speaker 1: tech Silicon Valley isn't a slump, but it's been in
Speaker 1: many slumps before, and so it's not like that itself
Speaker 1: is not anything new, And it seems like the slumps
Speaker 1: end in part when some like iconic company of the
Speaker 1: era goes public. So, you know, you mentioned the recession
Speaker 1: of the early nineties, and then I guess it was
Speaker 1: ninety four there was the Netscape IPO, and it was
Speaker 1: a little early, but that was sort of like a
Speaker 1: turning point, I would say, And then we several years
Speaker 1: later we got tons of tech IPOs, and then you know,
Speaker 1: coming out of the dot com crash, I would say,
Speaker 1: the Google IPO in two thousand and four, I think
Speaker 1: it was was like a pretty big moment of like, okay,
Speaker 1: tech is kind of back. There were some you know,
Speaker 1: reasonably big IPOs of companies in the twenty tens, I
Speaker 1: I guess, like nothing like Google quality, except we got Facebook,
Speaker 1: which was obviously become one of the biggest companies. Do
Speaker 1: you think it'll sort of be similar that? Like something
Speaker 1: to watch for is when one of the I don't know,
Speaker 1: like a Stripe or something, one of these companies that
Speaker 1: people considered to be a sort of blue chip private
Speaker 1: company decides, yes, we're gonna go for it's time for
Speaker 1: us to make the jump to public markets. Is that
Speaker 1: something to watch for? Absolutely lutely. I mean you take
Speaker 1: a look at where Stripe is today, and they've had
Speaker 1: a couple of opportunities to go public which they didn't
Speaker 1: take and decided to raise this path, this current round privately.
Speaker 1: If and I'm just using Stripe as an example because
Speaker 1: you just used it, if the management of that company
Speaker 1: were to decide that there is enough stability in the
Speaker 1: market to go forward and do an IPO, it would
Speaker 1: in fact take a specter off the market. But remember
Speaker 1: you are talking about a series of events which occurred
Speaker 1: three and five years apart, So maybe there is a
Speaker 1: three to five year period before we get back to
Speaker 1: what we thought about as being a normal I think
Speaker 1: that's a great place to leave it. Let's see Cohen think.
Speaker 1: Thank you so much for coming on odd lots. It's
Speaker 1: my pleasure, and thank you for your good questions. Thank you,
Speaker 1: thank you so much. Yeah, I was lovely having you, Tracy.
Speaker 1: I thought that was a fascinating conversation. I really appreciate, appreciate,
Speaker 1: like in a sort of crisis moment, getting to like
Speaker 1: zoom out and talk a little bit of a broader history,
Speaker 1: broader sweep. Oh absolutely, And I think Betsy was really
Speaker 1: the perfect person to have that conversation with. I can't
Speaker 1: believe I completely forgot about that, you know, starting spacks
Speaker 1: with celebrity endorsers over dinner at Carbone moment. But I
Speaker 1: do think, you know, when you look back on that
Speaker 1: sort of low interest rate environment, those types of moments
Speaker 1: are really going to be emblematic of some of the excesses.
Speaker 1: I thought that was really interesting too, how it's like,
Speaker 1: you know, intuitively, like part of the way some people
Speaker 1: talked about spacks and the boom back then was that, well,
Speaker 1: people want to be invested in like venture type companies
Speaker 1: or something like that, or like this is a chance
Speaker 1: to let the public in on earlier stage companies, and
Speaker 1: maybe there is an opportunity, But that doesn't necessarily mean
Speaker 1: that companies with incredibly uncertain outlook profiles and remember there
Speaker 1: were tons of like alternative vehicle companies YEA with a
Speaker 1: huge financing needs and highly uncertain path to like product
Speaker 1: market fit or anything like that. Even an environment where
Speaker 1: people want to take risks, etc. It doesn't necessarily mean
Speaker 1: that they're ever really appropriate, like that they're ever going
Speaker 1: to make sense for public investors, right, like the vehicle
Speaker 1: doesn't automatically lend itself. Yeah to that, But I also,
Speaker 1: I mean I took her point also about silicon Valley
Speaker 1: kind of being inherently cyclical, but also sometimes just having
Speaker 1: to stand back and wait for the uncertainty to kind
Speaker 1: of play out well. And to her point, like Betsy,
Speaker 1: I forget which words she used, but she said something
Speaker 1: about how a stripe IPO would like lift something off
Speaker 1: the market that might reopen capital markets. So I do
Speaker 1: think that's like an interesting thing to watch for. Like,
Speaker 1: will there be some moment in which suddenly, Okay, it's
Speaker 1: like it's safe to go back in the water because
Speaker 1: some company went and did it saved by the stripe. Yeah,
Speaker 1: I guess we'll see. It can either be a good
Speaker 1: thing or go badly, right, I mean, it seems like
Speaker 1: the options right now are like pretty binary. But yeah, okay,
Speaker 1: on that happy note, shall we leave it there. Let's
Speaker 1: leave it there. This has been another episode of the
Speaker 1: Odd Thoughts podcast. I'm Tracy Alloway. You can follow me
Speaker 1: on Twitter at Tracy Alloway, and I'm Joe Wisenthal. You
Speaker 1: can follow me on Twitter at the Stalwart. Follow our
Speaker 1: producers on Twitter Kerman Rodriguez at Kerman Arman, and dash
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