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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.

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Speaker 2: I'm Jill Wisenthal.

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Speaker 3: And I'm Tracy Alloway.

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Speaker 2: Tracy, it feels like twenty twenty six could be a

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Speaker 2: big year for some mega IPOs that have been private

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Speaker 2: for a while. There's talk about a SpaceX IPO possibly

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Speaker 2: maybe some of the big AI labs, like some pretty

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Speaker 2: massive companies that might be hitting the market soon.

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Speaker 3: Someone recently gave me a Facebook ipo, yeah, from JP

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Speaker 3: Mortgane and they worked on it. Like, I'm very proud.

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Speaker 3: I need to start wearing it around the office. Yeah,

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Speaker 3: but that was like that was a mega Yeah, that

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Speaker 3: was a mega ipo at the time, and there was

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Speaker 3: so much hype about it and then like technical difficulty, Yes,

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Speaker 3: so many people eager to get in on that.

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Speaker 2: It's so many funny people called that a flop, I

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Speaker 2: guess because the technical difficulties and it didn't do that

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Speaker 2: great for a little bit. That would have been a

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Speaker 2: great time to buy it.

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Speaker 4: Yeah.

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Speaker 2: And the interesting thing about the market, or one of

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Speaker 2: the interesting things about the market is you have these

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Speaker 2: companies that are gonna IPO when they're already gigantic. So

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Speaker 2: like people point out that in earlier eras they might

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Speaker 2: have I piled when they're like billion dollar companies, and

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Speaker 2: now they're like Octacorons or whatever. And then you have

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Speaker 2: other companies that are also enormous, and there's no it's

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Speaker 2: not clear that they're going to ipo it up at

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Speaker 2: all at all.

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Speaker 3: You know.

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Speaker 2: I saw a headline about Stripe perhaps raising more money

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Speaker 2: people they could have probably iPod years ago. And one

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Speaker 2: of the questions I have is our companies choosing not

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Speaker 2: to IPO or delaying IPO because the public market is

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Speaker 2: not that fun, or because the private market has gotten

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Speaker 2: so much richer, so much more liquid, et cetera, that

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Speaker 2: that impulse to go public just isn't the same way

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Speaker 2: as it might have been in a different generation.

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Speaker 3: Yeah, this has kind of been a long running question

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Speaker 3: in the market for a while now. But one thing

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Speaker 3: I would just point out on the last point, it

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Speaker 3: feels to me like companies in the private market, even

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Speaker 3: though they're in the private market where presumably the pool

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Speaker 3: of capital is smaller, Yeah, it feels like they're always fundraising.

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Speaker 2: This is the only thing too, that like it used

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Speaker 2: to be when I started covering tech companies is like

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Speaker 2: your Series A round and Series B round and c.

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Speaker 2: And now it just seems like this permanent round, especially

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Speaker 2: with some of the AI can always be raising, always raising. Anyway,

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Speaker 2: we need to learn more about how giant companies are

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Speaker 2: thinking about capital markets, both public and private. And I'm

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Speaker 2: really excited to say we do, in fact, absolutely have

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Speaker 2: the perfect guest. We're gonna be speaking with David George.

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Speaker 2: He is the head of the Growth Fund and in

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Speaker 2: dres and Horowitz, a sixteen Z someone perfectly situated to

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Speaker 2: explain of all these things that's going on. So, David,

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Speaker 2: thank you so much for coming on.

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Speaker 4: Odd lots, Hey, great to be with you all.

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Speaker 2: What is a growth fund?

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Speaker 1: What is that?

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Speaker 2: I thought all VC was growth. What does it mean

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Speaker 2: when we talk about a growth fund or a growth

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Speaker 2: round when we're talking about private markets.

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Speaker 4: Yeah, so our first of all, great to be with

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Speaker 4: you all, Thanks for having me, excited to have this conversation.

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Speaker 4: So our early stage funds invest in companies that are

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Speaker 4: growing fast too, So if that's not clear, that is

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Speaker 4: what we seek to do across Allipole's capital for us.

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Speaker 4: The Growth Fund is a fund that invest in companies

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Speaker 4: at the later stage of their life cycles, so typically

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Speaker 4: once they found product market fit, and our early stage

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Speaker 4: funds investing companies early stage when they're kind of trying

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Speaker 4: to find product market fit, we invest in companies once

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Speaker 4: they have found product market fit. So that's the delineation.

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Speaker 4: Right now. We're investing out of our fifth growth fund.

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Speaker 4: It's about a seven billion dollar fund. If you combine

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Speaker 4: the committed capital of our five funds, it's about twenty

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Speaker 4: two billion dollars in overall committed capital.

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Speaker 3: What percentage of the Growth fund is sort of directly

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Speaker 3: obtained from the early stage funds because I imagine that's like,

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Speaker 3: that's a good pipeline for you guys, right, Yeah, it's.

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Speaker 4: A great pipeline for us. We do both. So we

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Speaker 4: have examples of investments out of the early stage and

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Speaker 4: in companies that, for whatever reason, we were not early

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Speaker 4: stage investors. So some of our largest investments in the

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Speaker 4: Growth fund are companies like Data Bricks and Stripe that

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Speaker 4: we were early stage investors in. And then some of

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Speaker 4: the largest investments are companies like SpaceX and open Ai

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Speaker 4: and Waimo and Roadblocks and Pigma that we were not

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Speaker 4: early stage investors in. And The first time that we

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Speaker 4: invested was in the growth fund, so it's about fifty

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Speaker 4: to fifty. We love to invest in companies where we

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Speaker 4: know the founders really well. One of the things we

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Speaker 4: talked about all the time is game film. This is

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Speaker 4: something that public market investors are very familiar with. They

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Speaker 4: look for game film. They want to back CEOs management

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Speaker 4: teams that have demonstrated continued success, and we seek to

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Speaker 4: do the same thing the private markets.

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Speaker 2: I like how Andrisian Horowitz is so influential and dominant

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Speaker 2: that if you just name a bunch of random, big

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Speaker 2: companies that are all sort of like the most important,

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Speaker 2: like growing tech companies, they're actually just going to all

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Speaker 2: be you know, like when I said SpaceX, Data, Bricks, Stripe, etc.

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Speaker 2: I didn't purposely say they try to name a bunch

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Speaker 2: of by sixteen Ze family companies. They just incidentally happened

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Speaker 2: to me.

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Speaker 1: What are you like?

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Speaker 2: Let's start big picture with this question of companies staying

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Speaker 2: private for longer, especially thriving companies, companies that are doing

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Speaker 2: very well, ipoling if at all, much later in their

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Speaker 2: life cycle. There are a lot of specific questions, but

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Speaker 2: big picture, what's the story, what's the main cause of this,

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Speaker 2: the evolution of this trend.

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Speaker 4: Yeah, absolutely, Well, first, I would love to just set

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Speaker 4: the stage with what the what the data actually is, like,

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Speaker 4: what's actually happened.

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Speaker 2: If I'm totally wrong, that's also interesting.

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Speaker 4: No, no, no, you're not totally wrong. I have a

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Speaker 4: bunch of supporting facts to your statement. But the numbers

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Speaker 4: are pretty eye popping. So if you look at the

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Speaker 4: private market's highly value technology companies represent about five trillion

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Speaker 4: dollars of market cap in the private markets, that's almost

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Speaker 4: a quarter of the S and P five hundred. Wow,

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Speaker 4: it's fifteen percent of Nasdaq. It's forty percent if you

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Speaker 4: exclude the MAG seven. So it's just staggering numbers. To

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Speaker 4: your point about some of the biggest and best companies

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Speaker 4: in the world being in the private markets, the ten

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Speaker 4: largest private companies represent forty percent of that five trillion

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Speaker 4: of market cap. So this is a massive power law game,

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Speaker 4: and the best of the best companies at that stage

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Speaker 4: of their life cycle just happened to be in the

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Speaker 4: private markets and not in the public markets. Right now,

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Speaker 4: that private market kind of five trillion of market cap,

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Speaker 4: that sector of the economy has grown ten x in

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Speaker 4: ten years. At the same time, the number of public companies.

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Speaker 4: You guys have probably covered this before. The number of

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Speaker 4: public companies has been cut in half over the last

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Speaker 4: twenty years. So this is just a massive shift in

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Speaker 4: the composition of the public markets and the private markets,

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Speaker 4: and the best of the best companies, as you said,

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Speaker 4: largely are sitting in the private markets today. The other

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Speaker 4: thing that we look for, you know, we're a growth fund,

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Speaker 4: but growth means a lot of things. We look for

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Speaker 4: companies that are growing, you know, sort of hyper growth.

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Speaker 4: We call it hyper growth, growing very very fast. You know,

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Speaker 4: the average investment in our growth fund has grown about

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Speaker 4: one hundred percent. If you look at the public markets today,

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Speaker 4: there's only three companies in our universe that are growing

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Speaker 4: over thirty percent. So if you actually want to invest

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Speaker 4: in the highest growth, most promising companies that could be

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Speaker 4: that next mag seven, chances are they're in the private market.

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Speaker 4: So this is this is just a big shift in

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Speaker 4: the dynamics. You know, certainly in the last twenty years,

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Speaker 4: but even the last ten or fifteen. So that's the

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Speaker 4: numbers behind the trend. The question is why, and you know,

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Speaker 4: there's there's lots of reasons why this is the case.

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Speaker 4: I mean, you mentioned it right at the outset. There

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Speaker 4: are structural reasons in the public markets that make it

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Speaker 4: harder to be a public company now than it was

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Speaker 4: twenty years ago. I think the biggest thing is the

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Speaker 4: private capital markets are deeper and more liquid than before,

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Speaker 4: so there's less of a need for a company to

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Speaker 4: go public until they need much, much, much much more

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Speaker 4: capital In the private markets. For the best of the

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Speaker 4: best companies, they kind of have the access to the

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Speaker 4: capital that they need. It's a pretty compelling pitch for

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Speaker 4: the founder to be able to stay in the private markets,

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Speaker 4: have liquidity over time, if you're one of a select

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Speaker 4: few can access capital, you know, in the private markets cheaply,

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Speaker 4: you can kind of steadily control the stock price movements,

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Speaker 4: you can regularly run tender offers, and you know, for

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Speaker 4: a company, probably the hardest thing aside from access to

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Speaker 4: capital is employee management. And if you can get pretty

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Speaker 4: close to the dynamics that you get in the public

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Speaker 4: markets without volatility, it's pretty compelling to remain in the

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Speaker 4: private markets.

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Speaker 3: So I have a bunch of questions on just the

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Speaker 3: growth of private capital. But before we get to that,

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Speaker 3: you said there are structural challenges in going public, and

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Speaker 3: I guess the one we always hear is like, oh,

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Speaker 3: you have to file quarterly paperwork. Like not the paperwork,

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Speaker 3: which I actually sympathize with because I hate filling out

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Speaker 3: forms and things like that, but like, what are the

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Speaker 3: reasons that the public market is perceived to be so

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Speaker 3: much more difficult or so much more of an operational

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Speaker 3: headache I guess than private.

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Speaker 4: Well, there is a cost. So you know, for a

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Speaker 4: company the size of SpaceX or Data Bricks or open

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Speaker 4: aer Strike, you know, it's not hugely meaningful, but for

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Speaker 4: a smaller company, you know, it could be ten to

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Speaker 4: twenty million bucks. And you know, if you're a company

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Speaker 4: that would have gone public fifteen years ago, you know,

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Speaker 4: five years into your life doing one hundred million bucks

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Speaker 4: of revenue, that's pretty meaningful. Like that's a major change,

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Speaker 4: and so you'll want to wait longer. Public markets, investors,

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Speaker 4: investment banks, research organizations are tilted much more toward large

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Speaker 4: cap companies or at least mid sized companies today and

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Speaker 4: less so towards small cap. So if you're a small

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Speaker 4: cap company, it's just very hard to get the attention

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Speaker 4: of investors. You know, they can't write very large checks

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Speaker 4: and build huge positions in you. You know, it may

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Speaker 4: not be worth the investment banks time or the research

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Speaker 4: analyst time to cover you. And so you know, if

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Speaker 4: that's the case, it's hard to get the attention of

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Speaker 4: good investors and make your stock price grow over time.

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Speaker 4: So those are a couple examples of the structural challenges.

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Speaker 3: You know.

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Speaker 4: The other one is just volatility. You know, this generation

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Speaker 4: of founders has seen the twenty twenty one run up

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Speaker 4: and then the certainly in the technology market, and then

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Speaker 4: the falloff in twenty two twenty three, and some of

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Speaker 4: them have reset their stock prices in the private markets.

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Speaker 4: But that was a volatile time. Like if you were

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Speaker 4: issuing stock to an employee at the peak and then

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Speaker 4: you know that employee was looking at their stock grants

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Speaker 4: and saying, oh my gosh, these are down seventy percent,

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Speaker 4: Like my comp just got cut by seventy percent. That's

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Speaker 4: a hard dynamic for a founder to have to deal with.

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Speaker 4: And if you can minimize some of that volatility in

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Speaker 4: the private markets as a founder, I understand why you

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Speaker 4: would do it.

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Speaker 2: Talk to us about employee retention, employee management. Employees, you know,

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Speaker 2: they love an IPO, they love liquidity, and okay, now

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Speaker 2: you can have tender offers where they sell some of

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Speaker 2: their stock to new investors. And then there's other dynamics too,

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Speaker 2: like because there's all the SPVs out there, and maybe

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Speaker 2: like tokens where someone can hedge their holdings in a

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Speaker 2: private market on hyper liquid or something like that. Talk

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Speaker 2: to us a little bit about the sort of the

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Speaker 2: plethora of options that employees have now in private companies

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Speaker 2: and getting that liquid and so they actually get some

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Speaker 2: real money.

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Speaker 4: Let me start by just explaining the way it works

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Speaker 4: in the public markets, and you know, we can contrast

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Speaker 4: the private markets with that. If you're a public market

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Speaker 4: employee and you have RSU grants, this is basically the

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Speaker 4: way it works. You get a quarterly deposit of net

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Speaker 4: stock net of taxes in your account every quarter. And

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Speaker 4: so if you're a highly paid employee at Meta or

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Speaker 4: Alphabet or Apple, it's like clockwork you can get these grants.

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Speaker 4: They hit your account. You have for some of the

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Speaker 4: highest paid people, you know, hundreds of thousands or millions

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Speaker 4: of dollars that hit you hit your account every quarter,

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Speaker 4: and that's liquid. It's already netted of tax and so

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Speaker 4: you can turn around and sell it and it's like

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Speaker 4: cash comp or in the case of those companies, they've

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Speaker 4: appreciated tremendously in value over the last ten years, and

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Speaker 4: so the employees you know, who help the stock have

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Speaker 4: been handsomely rewarded. Then they get RSU grants stacked on

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Speaker 4: top of those, so you kind of have this like

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Speaker 4: waterfall of RSU grants over time and increasingly, you know,

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Speaker 4: over time, your orderly net deposit can go up. And

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Speaker 4: so if you're a private CEO competing for talent, that's

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Speaker 4: what you're competing with. And those companies are flushed with cash,

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Speaker 4: and so they're able to pay a lot in stock

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Speaker 4: based comp to their employees, and so that's a difficult

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Speaker 4: dynamic to compete with. That's one of the strongest forms

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Speaker 4: of the argument for telling a private company CEO that

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Speaker 4: they should go public, because that is a very compelling

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Speaker 4: financial reward for your employees in that public market situation.

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Speaker 4: In the private markets, the way it typically works is

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Speaker 4: you get you know, you get these RSU grants. Sometimes

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Speaker 4: they stock up over time, but generally they're ill liquid

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Speaker 4: until you go public. Now, what's happened over the last

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Speaker 4: I'd say six or eight years. Is companies will do

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Speaker 4: tender offers in the private markets where they offer to

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Speaker 4: buy a certain percentage of employees vested stock in the

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Speaker 4: private markets, so they'll set the price, they'll work with

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Speaker 4: somebody like us, and they'll say something like, hey, you

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Speaker 4: can sell twenty five percent of your vesteds doc that

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Speaker 4: you have in this tender offer, and you know, we'll

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Speaker 4: do it once a year. And so that's a decent

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Speaker 4: substitute for what I described in the public markets. It's

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Speaker 4: not a perfect substitute, but for you know, the employees

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Speaker 4: or potential new hires who are true believers, I think

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Speaker 4: it's enough to combat that RSU public market dynamic in

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Speaker 4: compensation scheme. And you know, it's worked pretty well. SpaceX has,

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Speaker 4: you know, famously done a really good job running twice

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Speaker 4: a year tender offers for their employees, and you know

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Speaker 4: they've had tremendous employee satisfaction, ability to hire, retention, et cetera.

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Speaker 4: And some of the biggest tech companies have followed suit.

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Speaker 4: And I would argue that there's a trade off that

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Speaker 4: the founders and the private markets are making, where often

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Speaker 4: if they were public, they probably would have a higher

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Speaker 4: stock price, so maybe they're taking a little bit more dilution,

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Speaker 4: and so maybe employees would benefit a little bit more

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Speaker 4: in valuation in the public markets. But it's not a

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Speaker 4: massive gap, and it's a it's a pretty compelling.

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Speaker 3: Alternative just culturally out in San Francisco. Do people still

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Speaker 3: expect like the default exit to be an IPO or

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Speaker 3: has that mindset kind of gone away?

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Speaker 4: The best of the best companies want to IPM and

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Speaker 4: I think you mentioned some of the big name companies

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Speaker 4: out there who may stay private for a really long time.

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Speaker 4: You know, I think the ambition for most founders is still,

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Speaker 4: you know, to have an IPO and to be a large, established,

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Speaker 4: important public company. You know, we talked about the pools

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Speaker 4: of private capital and how they've grown over the last

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Speaker 4: ten years. The pools of capital and the public markets

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Speaker 4: are still much deeper. So if you need to raise

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Speaker 4: fifty one hundred, two hundred billion dollars like some of

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Speaker 4: the big big companies may want to do to pursue

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Speaker 4: some of their goals, chances are they'll end up in

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Speaker 4: the public markets.

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Speaker 2: The reason we wanted to have this conversation a few

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Speaker 2: months ago, Tracy and I interviewed the Perplexity CEO, and

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Speaker 2: he was talking about the rise of SPVs and wanting

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Speaker 2: to say no to money. You know, people come to

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Speaker 2: him with investment opportunities and then it's clear that they

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Speaker 2: just want to package up that equity in some way

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Speaker 2: and create a secondary instrument. And I know, you know,

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Speaker 2: someone messaged me recently and they're like, I could get

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Speaker 2: you some pre ipo anthropic shares and like that. I

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Speaker 2: don't do that, but like, I know that there's a

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Speaker 2: lot of interest in there. And you mentioned that if

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Speaker 2: you really want massive growth at this level, that it's

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Speaker 2: the only ones that are growing super big are the

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Speaker 2: private companies. Talk to us about the emergence of SPVs

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Speaker 2: and these third party entities, and you don't even know

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Speaker 2: who's on your cap table and how founders are thinking

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Speaker 2: about this phenomenon.

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Speaker 4: I think founders for the most part, really don't like it, okay,

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Speaker 4: because they want to know who is on their cap table.

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Speaker 4: And there are certain types of investors who will come

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Speaker 4: to the founders and misrepresent I think, what what vehicle

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Speaker 4: or where the capital is actually going to come from.

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Speaker 4: In our case, we don't do those. What we do

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Speaker 4: is we invest directly out of our funds. You know,

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Speaker 4: we make that a point of pride with the founders

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Speaker 4: to say, hey, you know exactly what you're getting. We're

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Speaker 4: going to shoot you straight for the SPB industry, you know. Look,

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Speaker 4: it works when you know times are good, and it

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Speaker 4: can be horrendous and bad. You know when times are bad.

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Speaker 4: You know, Androl is one of our companies very close

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Speaker 4: with we're one of the largest investors, and they have famously,

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Speaker 4: you know, gone to war with some of the SPV

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Speaker 4: hucksters who are trying to assemble capital to do a

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Speaker 4: deal through some obfuscated way around them, and they say, look,

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Speaker 4: we want to know exactly who's on our cap table.

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Speaker 4: You know, we want to make sure that we're doing

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Speaker 4: right by our shareholders. And so it's a risky maneuver.

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Speaker 4: You know. It's not to say that there's not some

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Speaker 4: that are good, but we try to avoid it and

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Speaker 4: we try to counsel our founders to stay away from

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Speaker 4: it as much as possible.

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Speaker 2: So you mentioned Anderill, and can founders completely lock them

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Speaker 2: out or like, how how does it work such that

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Speaker 2: the founder doesn't want to have these vehicles get access

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Speaker 2: to their equity and yet somehow they do. Anyway, what

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Speaker 2: is the path into the company that these entities are taking.

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Speaker 4: The example would be a fund shows up to the

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Speaker 4: founder and says, yeah, we're going to invest out of

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Speaker 4: this fund, and they have some legal entity name that

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Speaker 4: they have is the fund, and then it's not fully

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Speaker 4: clear to the founder that that legal entity actually will

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Speaker 4: just be an assembly of a bunch of new investors

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Speaker 4: that are only investing in that single vehicle. I would

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Speaker 4: say the SPV interests is one other you know, sort

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Speaker 4: of additional risk that comes with it. You know, our

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Speaker 4: large investors are LPs. There's some of the largest institutions

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Speaker 4: in the world. They trust us to make investments, and

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Speaker 4: they actually like the fact that they're investing in a

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Speaker 4: fund that has some degree of diversification. SPVs are inherently

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Speaker 4: risky because they're they're single company and so you know,

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Speaker 4: if that company happens to not go well and you

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Speaker 4: invest in a sixteen ZES funds, you can live to

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Speaker 4: fight another day because we have a number of other

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Speaker 4: companies that are going to do really well at the

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Speaker 4: fun level of returns will be good in an SPV.

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Speaker 4: If that happens to not work for whatever reason, it

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Speaker 4: could be devastating if you put a large amount of

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Speaker 4: capital into it.

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Speaker 3: Talk to us a little bit about pricing, because something

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Speaker 3: you tend to hear is that, well, if you go

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Speaker 3: to the private market, there are some benefits to that,

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Speaker 3: but on the other hand, you're probably going to pay

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Speaker 3: you a little bit more in terms of cost of capital.

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Speaker 3: And then the other thing you hear is that, well,

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Speaker 3: if everything is private, it's not necessarily being marked to

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Speaker 3: market as often as the public market. So maybe there's

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Speaker 3: some concern around pricing. You're not getting that wisdom of

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Speaker 3: the crowds effect. You're just getting a bunch of tech

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Speaker 3: bros investing in tech bros, and that can kind of

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Speaker 3: be a self reinforcing cycle.

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Speaker 2: Yeah.

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Speaker 4: Look, I can always speak to our own business that

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Speaker 4: we're in. I'd make two observations. One, I feel pretty

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Speaker 4: strongly that if you took our portfolio and put it

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Speaker 4: in the public markets, it would trade higher than the

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Speaker 4: private markets, and so that speaks to the cost of

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Speaker 4: capital trade off that the founders are making. It's benefited

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Speaker 4: us tremendously because we've been able to invest in companies

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Speaker 4: that we think are some of the best companies in

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Speaker 4: the world. Later into their life cycle, then you know,

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Speaker 4: we would have been able to ten years or so ago.

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Speaker 4: Interesting data point if you look at the returns generated

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Speaker 4: by dollars in the private markets historically over the last

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Speaker 4: call it like seven years of good IPOs. About fifty

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Speaker 4: percent of the dollars of gain in an IPO come

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Speaker 4: from the seed through series B, and then fifty percent

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Speaker 4: of the dollars of gain come from the series C

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Speaker 4: and later. As companies have stayed private longer, that will

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Speaker 4: massively shift to the series C and later, and the

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Speaker 4: seed through B will be you know, a smaller proportion

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Speaker 4: of the dollars of gain. Similarly, if you go back

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Speaker 4: ten years and you look at all the companies that

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Speaker 4: have gone public, there's a little bit of like time

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Speaker 4: lag in this. So just with me, the best companies

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Speaker 4: that were going public ten years ago generated eighty eight

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Speaker 4: percent of their overall dollars of return in the public markets.

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Speaker 4: So if you just took total market cap creation, only

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Speaker 4: twelve percent of it was happening in the private markets.

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Speaker 4: If you look at the recent crop of IPOs in

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Speaker 4: the last five years, fifty five percent of their market

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Speaker 4: cap creation happened in the private markets. Forty five percent

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Speaker 4: happened in the public markets. So there is a massive

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Speaker 4: shift that's taken place in terms of where value creation happens.

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Speaker 4: That's benefited us in terms of pricing. We've invested in

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Speaker 4: a portfolio of great companies. I've listed all the some

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Speaker 4: of our investments of our biggest investments, our companies like

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Speaker 4: Data Bricks and SpaceX and Waymow and open Ai and Andoral,

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Speaker 4: you know, Strike and Flock Safety and companies like that.

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Speaker 4: If you take our portfolio on average, it's growing one

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Speaker 4: hundred percent and we invested at twenty one times revenue.

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Speaker 4: Now I've recognized their flaws with revenue multiples and all that,

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Speaker 4: but I would say, if you could let me have

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Speaker 4: a career, an entire career of investing in market leading,

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Speaker 4: great technology companies where we could buy them at twenty

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Speaker 4: one times revenue and they're growing one hundred percent, that

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Speaker 4: would be an incredible trade or an incredible investment opportunity.

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Speaker 4: And so in terms of valuations, I feel like there

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Speaker 4: is a discount to being in the private markets, and

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Speaker 4: you know, founders, I think understand that for the most

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Speaker 4: part and make that trade off. But it's definitely a

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Speaker 4: dynamic that we see. There's one more thing that I

437
00:21:29,960 --> 00:21:33,119
Speaker 4: would call out. You know, I mentioned earlier that only

438
00:21:33,200 --> 00:21:35,359
Speaker 4: three companies in our universe and the public markets are

439
00:21:35,400 --> 00:21:39,480
Speaker 4: actually growing greater than thirty percent. There is a dynamic

440
00:21:40,040 --> 00:21:43,480
Speaker 4: where I do think it's hard for public market investors

441
00:21:43,640 --> 00:21:48,040
Speaker 4: even to grock really really high growth rates. So if

442
00:21:48,040 --> 00:21:53,439
Speaker 4: you're growing like sixty percent, I think automatically a public

443
00:21:53,480 --> 00:21:55,760
Speaker 4: market investor is going to build a financial model that

444
00:21:55,840 --> 00:22:01,440
Speaker 4: says sixty fifty forty, thirty eight percent, and then they're

445
00:22:01,440 --> 00:22:03,400
Speaker 4: going to value you as such, and then they'll pick

446
00:22:03,400 --> 00:22:06,159
Speaker 4: an exit multiple at year five, and they'll apply it

447
00:22:06,160 --> 00:22:08,240
Speaker 4: to twenty percent growth, and they'll probably say at that

448
00:22:08,320 --> 00:22:11,639
Speaker 4: point you'll be twenty percent margins, and they'll be happy,

449
00:22:11,840 --> 00:22:14,000
Speaker 4: and they'll call it a day, and they'll have your

450
00:22:14,000 --> 00:22:16,840
Speaker 4: stock price be that when in reality, you know, if

451
00:22:16,880 --> 00:22:19,600
Speaker 4: you're a great company, you know, like Data Bricks that's

452
00:22:19,600 --> 00:22:23,080
Speaker 4: still growing north of sixty percent, like you're worth probably

453
00:22:23,080 --> 00:22:25,760
Speaker 4: three to four x difference in value. If you grow

454
00:22:26,320 --> 00:22:30,800
Speaker 4: sixty percent, fifty five percent, fifty two percent, forty eight percent,

455
00:22:30,840 --> 00:22:33,240
Speaker 4: forty five percent, like it's it's probably like a three

456
00:22:33,359 --> 00:22:35,960
Speaker 4: x or four difference in how you're valued and so

457
00:22:36,640 --> 00:22:39,120
Speaker 4: I do think people like us with a longer time

458
00:22:39,160 --> 00:22:41,600
Speaker 4: horizon in the private markets may have an easier time

459
00:22:41,640 --> 00:22:44,560
Speaker 4: of actually grocking that very high growth rate. You know,

460
00:22:44,640 --> 00:22:46,640
Speaker 4: Data Bricks is growing sixty five percent. If you look

461
00:22:46,680 --> 00:22:50,600
Speaker 4: at the public markets, you know, really only Palenteer is

462
00:22:50,960 --> 00:22:52,840
Speaker 4: you know a software company that's growing that fast. I

463
00:22:52,880 --> 00:22:55,280
Speaker 4: think they're growing seventy percent. They're about the same size

464
00:22:55,280 --> 00:22:59,240
Speaker 4: as Data Bricks, and their valuation multiple is thirty five

465
00:22:59,240 --> 00:23:02,280
Speaker 4: times or something like that. And so that's the one

466
00:23:02,280 --> 00:23:05,280
Speaker 4: example where maybe public market investors are attributing a really

467
00:23:05,320 --> 00:23:08,439
Speaker 4: high valuation to very high kind of hyper growth. But

468
00:23:08,480 --> 00:23:09,919
Speaker 4: for the most part, I think it's pretty hard for

469
00:23:09,960 --> 00:23:12,800
Speaker 4: them to grop that. And so again, you know, we

470
00:23:12,880 --> 00:23:15,320
Speaker 4: have conversations with the founders of these companies in the

471
00:23:15,600 --> 00:23:17,960
Speaker 4: private markets. You know, I think we understand it. I

472
00:23:17,960 --> 00:23:21,240
Speaker 4: think we understand multi product and you're less likely to find,

473
00:23:21,359 --> 00:23:23,520
Speaker 4: you know, a full public market of folks who will

474
00:23:23,520 --> 00:23:25,000
Speaker 4: give you credit for that hyper growth.

475
00:23:25,280 --> 00:23:28,120
Speaker 2: I find this to be a very interesting observation. I mean,

476
00:23:28,200 --> 00:23:32,600
Speaker 2: just generally public or private, it does seem like several

477
00:23:32,640 --> 00:23:36,000
Speaker 2: generations ago, you assume, Okay, here's a really big company.

478
00:23:36,960 --> 00:23:38,640
Speaker 2: It's not going to be one of the fastest growing

479
00:23:38,680 --> 00:23:40,720
Speaker 2: companies in the world, and you apply that sort of

480
00:23:40,760 --> 00:23:43,800
Speaker 2: model mindset we marked on their growth expectations. I mean

481
00:23:43,800 --> 00:23:47,679
Speaker 2: even Alphabet I think in its latest quarter I actually

482
00:23:47,720 --> 00:23:51,080
Speaker 2: had faster top line growth than it had in the

483
00:23:51,200 --> 00:23:54,159
Speaker 2: quarter before, like on a year over year basis. So

484
00:23:54,200 --> 00:23:57,800
Speaker 2: sitting aside public or private, it does feel like there's

485
00:23:58,000 --> 00:24:03,679
Speaker 2: just this phenomenon where really gigantic companies grow at shocking,

486
00:24:04,000 --> 00:24:07,600
Speaker 2: shocking top line rates year after year in a way

487
00:24:07,640 --> 00:24:10,399
Speaker 2: that maybe even still investors might not appreciate. I have

488
00:24:10,400 --> 00:24:13,320
Speaker 2: a question for you something I've always wondered. Okay, let's

489
00:24:13,359 --> 00:24:16,160
Speaker 2: say one of your big portfolio companies goes public eventually,

490
00:24:16,240 --> 00:24:18,760
Speaker 2: you know, Stripe or something like that. How does a

491
00:24:18,880 --> 00:24:23,120
Speaker 2: GP or how do how does the firm think about

492
00:24:23,160 --> 00:24:26,119
Speaker 2: selling at that point? Is it okay? You're you're private

493
00:24:26,160 --> 00:24:28,200
Speaker 2: market investors, so you get out fairly soon. You know,

494
00:24:28,280 --> 00:24:30,560
Speaker 2: on a whole dead do they get distributed and then

495
00:24:30,600 --> 00:24:32,719
Speaker 2: it's up to the LPs to think about it? What

496
00:24:32,840 --> 00:24:35,800
Speaker 2: is the cell decision like once a company is no

497
00:24:35,880 --> 00:24:37,280
Speaker 2: longer private.

498
00:24:37,600 --> 00:24:39,560
Speaker 4: Yeah, it's a great question. And by the way, to

499
00:24:39,600 --> 00:24:43,520
Speaker 4: your point on these large cast high growth companies, it's

500
00:24:43,560 --> 00:24:44,879
Speaker 4: a really good learning for all of us that the

501
00:24:45,000 --> 00:24:47,320
Speaker 4: very best companies can you know, sort of to fire

502
00:24:47,320 --> 00:24:49,640
Speaker 4: your expectations and still grow fast even though they're big.

503
00:24:49,880 --> 00:24:51,480
Speaker 4: Like it's sort of the breaking of the law of

504
00:24:51,520 --> 00:24:55,040
Speaker 4: the absolution. Yeah, eyes of a company like Meta accelerated

505
00:24:55,080 --> 00:24:58,480
Speaker 4: revenue growth to thirty percent last quarter, right, Like that's shocking.

506
00:24:58,800 --> 00:25:02,040
Speaker 4: Like that company it's worth almost two trillion dollars going

507
00:25:02,080 --> 00:25:04,320
Speaker 4: to accelerate to thirty percent growth. Same with Google, north

508
00:25:04,359 --> 00:25:08,359
Speaker 4: of twenty percent growth. So if you can find those opportunities,

509
00:25:08,600 --> 00:25:10,239
Speaker 4: I would say Stripe is a good example of this.

510
00:25:10,680 --> 00:25:14,000
Speaker 4: Previous generations of this would be like Visen MasterCard, Like

511
00:25:14,040 --> 00:25:16,560
Speaker 4: if you had a strong thesis that those would grow

512
00:25:16,760 --> 00:25:20,120
Speaker 4: at north of twenty percent for fifteen years, you would

513
00:25:20,160 --> 00:25:22,520
Speaker 4: value it a very different way than if you thought

514
00:25:22,520 --> 00:25:25,160
Speaker 4: that that growth would tail off over time. So, yeah,

515
00:25:25,160 --> 00:25:26,639
Speaker 4: I think it's great that you brought up Google, and

516
00:25:27,119 --> 00:25:28,720
Speaker 4: you know, we think about the large cap companies to

517
00:25:28,760 --> 00:25:31,920
Speaker 4: try and inform what could go right with the best

518
00:25:31,920 --> 00:25:33,600
Speaker 4: of the best of the companies and the private markets

519
00:25:33,600 --> 00:25:35,600
Speaker 4: for us to not just over five years, but over

520
00:25:35,840 --> 00:25:40,240
Speaker 4: ten plus years. So to your question about distributions are

521
00:25:40,280 --> 00:25:43,760
Speaker 4: selling when our companies go public, our LPs, our investors

522
00:25:43,800 --> 00:25:46,879
Speaker 4: tend to like to have distributions as opposed to us selling.

523
00:25:47,400 --> 00:25:49,720
Speaker 4: You know, many of them have public desks or public

524
00:25:49,720 --> 00:25:51,560
Speaker 4: operations on their own, and they would prefer to take

525
00:25:51,560 --> 00:25:54,600
Speaker 4: the stock and you know, manage tax consequences on their own,

526
00:25:54,800 --> 00:25:56,840
Speaker 4: or maybe they have a long book that wants to

527
00:25:56,840 --> 00:26:00,520
Speaker 4: hold it, and so, you know, we tend to distribute companies.

528
00:26:00,600 --> 00:26:03,080
Speaker 4: I would say, for the most part, when our companies

529
00:26:03,119 --> 00:26:05,320
Speaker 4: go public, I'll speak from the growth fund, you know,

530
00:26:05,560 --> 00:26:08,040
Speaker 4: where we're coming in at a more mature stage at

531
00:26:08,080 --> 00:26:11,160
Speaker 4: the company. Just because the company goes public doesn't mean

532
00:26:11,200 --> 00:26:14,359
Speaker 4: that we will exit. Now. We always seek to return

533
00:26:14,400 --> 00:26:16,160
Speaker 4: capital to our LPs, and we want to make sure

534
00:26:16,160 --> 00:26:19,080
Speaker 4: that we're doing that on appropriate time horizon. But often,

535
00:26:19,240 --> 00:26:21,600
Speaker 4: you know, we'll find situations in the public markets where

536
00:26:22,080 --> 00:26:24,920
Speaker 4: we think our companies are massively undervalued. You know, I'll

537
00:26:24,920 --> 00:26:27,800
Speaker 4: give you an example. One of our best companies was

538
00:26:27,800 --> 00:26:31,720
Speaker 4: a company called Samsara, which does fleet management video tracking

539
00:26:31,760 --> 00:26:35,080
Speaker 4: for drivers. They're the market leader. Second time founders. They

540
00:26:35,080 --> 00:26:37,760
Speaker 4: were the founders of Moroki, which sold the Cisco So

541
00:26:37,760 --> 00:26:42,080
Speaker 4: they're an exceptional team doing great. They went public right

542
00:26:42,119 --> 00:26:46,199
Speaker 4: at the tail end of twenty twenty one, and the

543
00:26:46,600 --> 00:26:49,280
Speaker 4: IPO market was starting to freeze and they were the

544
00:26:49,359 --> 00:26:53,560
Speaker 4: last IPO and so we ended up being the largest

545
00:26:53,560 --> 00:26:57,120
Speaker 4: buyer in their IPO. So all of the public funds,

546
00:26:57,200 --> 00:27:00,199
Speaker 4: you know, Fidelity, TROW, some of them invested, but we

547
00:27:00,280 --> 00:27:02,040
Speaker 4: ended up actually being the biggest buyer and then we

548
00:27:02,080 --> 00:27:04,120
Speaker 4: held that for a long period of time even though

549
00:27:04,119 --> 00:27:05,560
Speaker 4: it was in the public market. So we'd like to

550
00:27:05,600 --> 00:27:07,679
Speaker 4: think about, you know, what is the future of the

551
00:27:07,680 --> 00:27:10,320
Speaker 4: company even if they're in the public markets, and we

552
00:27:10,359 --> 00:27:12,199
Speaker 4: would buy us to hold it a little bit longer

553
00:27:12,640 --> 00:27:15,000
Speaker 4: if the founder's still running the company. We place a

554
00:27:15,040 --> 00:27:19,160
Speaker 4: tremendous amount of value in founders running companies, which I'm

555
00:27:19,160 --> 00:27:21,879
Speaker 4: happy to talk about. And if we think the growth

556
00:27:21,880 --> 00:27:24,360
Speaker 4: prospects are really bright, you know, will tend to sort

557
00:27:24,359 --> 00:27:25,760
Speaker 4: of buy us to hold a little bit longer.

558
00:27:26,160 --> 00:27:29,320
Speaker 3: What's the actual catalyst for going public then, because if

559
00:27:29,320 --> 00:27:32,240
Speaker 3: we think there's plenty of capital in the private markets,

560
00:27:32,359 --> 00:27:36,960
Speaker 3: employees are you know, generally pretty happy with their compensation.

561
00:27:37,920 --> 00:27:41,879
Speaker 3: People can live with the capital cost. Why would you

562
00:27:41,920 --> 00:27:44,440
Speaker 3: go public or like, what's the most common reason in

563
00:27:44,560 --> 00:27:45,320
Speaker 3: terms of timing.

564
00:27:45,960 --> 00:27:49,000
Speaker 4: Yeah, the biggest thing would be access to larger pools

565
00:27:49,040 --> 00:27:52,000
Speaker 4: of capital, and you know, you finally feel like you're

566
00:27:52,000 --> 00:27:55,919
Speaker 4: making that trade off where the cost of capital in

567
00:27:55,960 --> 00:27:58,600
Speaker 4: the public markets would just be much more attractive, and

568
00:27:58,640 --> 00:28:01,000
Speaker 4: so you want to go do it there. So in

569
00:28:01,040 --> 00:28:04,800
Speaker 4: the case of building, for example, data centers in space

570
00:28:05,359 --> 00:28:07,720
Speaker 4: that will require a tremendous amount of capital over time,

571
00:28:08,320 --> 00:28:09,679
Speaker 4: you know, you can get a lot of that capital

572
00:28:09,680 --> 00:28:11,439
Speaker 4: in the private markets, and you know, maybe at some

573
00:28:11,440 --> 00:28:13,399
Speaker 4: point it makes sense to tap the public markets to

574
00:28:13,400 --> 00:28:16,000
Speaker 4: get that. You know, if you have huge ambitions, sometimes

575
00:28:16,000 --> 00:28:19,200
Speaker 4: it's easier to get debt and alternative forms of financing

576
00:28:19,359 --> 00:28:22,480
Speaker 4: in the public markets as well. And then lastly, you know,

577
00:28:22,520 --> 00:28:24,760
Speaker 4: if you feel like the competition is really fierce for

578
00:28:24,840 --> 00:28:28,280
Speaker 4: your employees, and you know, I described that dynamic of

579
00:28:28,840 --> 00:28:32,399
Speaker 4: you know, quarterly RSUs and you know stock currency that

580
00:28:32,640 --> 00:28:35,040
Speaker 4: might be a little bit easier to manage in the

581
00:28:35,040 --> 00:28:38,080
Speaker 4: public markets. That would be another reason. It's not just employees,

582
00:28:38,120 --> 00:28:40,560
Speaker 4: it's also if you want to do meaningful m and A.

583
00:28:41,200 --> 00:28:42,880
Speaker 4: You know, there's probably a little bit of a benefit

584
00:28:42,880 --> 00:28:44,520
Speaker 4: to being in the public markets and having a public

585
00:28:44,560 --> 00:28:47,240
Speaker 4: currency that you can use where you know, you don't

586
00:28:47,240 --> 00:28:49,080
Speaker 4: have to debate with the sellers what the value of

587
00:28:49,120 --> 00:28:51,960
Speaker 4: your equity is because it's in the public markets. You know,

588
00:28:52,000 --> 00:28:54,239
Speaker 4: there's a there's a daily stock price. So those are

589
00:28:54,240 --> 00:28:55,280
Speaker 4: a few of the dynamics.

590
00:29:11,560 --> 00:29:15,440
Speaker 3: Does the private market trend does that hold? As we

591
00:29:15,720 --> 00:29:18,400
Speaker 3: see you know, more and more tech is just about AI, right,

592
00:29:18,440 --> 00:29:20,760
Speaker 3: And if there's one thing we know about AI, it's

593
00:29:20,840 --> 00:29:24,880
Speaker 3: that it requires quite a lot of capital investment. So

594
00:29:25,080 --> 00:29:27,560
Speaker 3: does that start to change the dynamics or the balance

595
00:29:27,560 --> 00:29:30,960
Speaker 3: of power between private and public? In your mind, it goes.

596
00:29:30,760 --> 00:29:32,880
Speaker 4: Back to the same point, which is, at some point,

597
00:29:33,240 --> 00:29:35,960
Speaker 4: you know, the amount of capital required, it probably makes sense,

598
00:29:36,240 --> 00:29:38,080
Speaker 4: you know, to be in the public markets. You know,

599
00:29:38,120 --> 00:29:41,720
Speaker 4: I do think for large scale consumer businesses, I think

600
00:29:41,720 --> 00:29:44,800
Speaker 4: there's some value in being in the public markets, you know,

601
00:29:45,120 --> 00:29:48,880
Speaker 4: letting retail take part in the ownership of your stock,

602
00:29:49,280 --> 00:29:52,320
Speaker 4: you know, having greater brand recognition. You know, we saw

603
00:29:52,360 --> 00:29:54,080
Speaker 4: this recently on the B to B side as well

604
00:29:54,400 --> 00:29:57,719
Speaker 4: with one of our public companies. And after going public,

605
00:29:57,840 --> 00:30:00,560
Speaker 4: you know, sometimes there's sort of a brand benefit that

606
00:30:00,640 --> 00:30:03,760
Speaker 4: you get brand halo, you're better known, you know, an

607
00:30:03,800 --> 00:30:06,040
Speaker 4: IT buyer trusts a little bit more in your future.

608
00:30:06,120 --> 00:30:08,480
Speaker 4: So there are some of those dynamics that exist. You

609
00:30:08,480 --> 00:30:11,480
Speaker 4: know AI. First of all, I think these have the

610
00:30:11,480 --> 00:30:13,720
Speaker 4: potential to be some of the best businesses ever created.

611
00:30:14,120 --> 00:30:17,520
Speaker 4: They're run by exceptional founders. They're building products that have

612
00:30:17,600 --> 00:30:20,480
Speaker 4: grown at rates that we've never ever seen before. So

613
00:30:21,200 --> 00:30:23,640
Speaker 4: you know, they're kind of speed running the process of

614
00:30:23,680 --> 00:30:26,760
Speaker 4: company growth in a way, getting to be bigger and

615
00:30:26,800 --> 00:30:30,640
Speaker 4: more consequential, much much faster than the previous generation of companies.

616
00:30:30,760 --> 00:30:32,280
Speaker 4: So you know, maybe that means they should be in

617
00:30:32,280 --> 00:30:33,920
Speaker 4: the public markets a little bit faster too.

618
00:30:34,240 --> 00:30:36,880
Speaker 2: Maybe last year at some point open Ai had a

619
00:30:36,880 --> 00:30:39,760
Speaker 2: big tender and then suddenly no one could afford to

620
00:30:39,760 --> 00:30:42,200
Speaker 2: buy a house again in San Francisco because all that

621
00:30:42,240 --> 00:30:45,400
Speaker 2: money went into real estate. But there's a serious question, actually,

622
00:30:45,640 --> 00:30:48,720
Speaker 2: and it's particularly cute at the AI companies. Is there

623
00:30:48,720 --> 00:30:51,400
Speaker 2: any stigma of being an employee who sells some of

624
00:30:51,440 --> 00:30:54,200
Speaker 2: their shares. It's like, all right, you could sell twenty

625
00:30:54,200 --> 00:30:56,040
Speaker 2: five percent of your shares, and then there's like I

626
00:30:56,080 --> 00:30:57,720
Speaker 2: want to sell. It's like, what, you don't believe in

627
00:30:57,760 --> 00:31:00,480
Speaker 2: the simularity. You don't believe that we're on the path

628
00:31:00,480 --> 00:31:02,720
Speaker 2: to Adrian. You don't think you think we're done with

629
00:31:02,760 --> 00:31:04,479
Speaker 2: our you think we're almost at the end of our

630
00:31:04,520 --> 00:31:06,760
Speaker 2: mission and that our value won't be ten Is that like?

631
00:31:07,160 --> 00:31:09,959
Speaker 2: Is there any anxiety on the part of employees at

632
00:31:10,000 --> 00:31:12,880
Speaker 2: a real like mission driven fast growth companies of like

633
00:31:13,040 --> 00:31:14,240
Speaker 2: I want to dip my too in the water. I

634
00:31:14,280 --> 00:31:15,760
Speaker 2: want to hedge a little bit. I want to hedge

635
00:31:15,800 --> 00:31:17,680
Speaker 2: my own company. I want to diversify away from my

636
00:31:17,720 --> 00:31:18,200
Speaker 2: own company.

637
00:31:18,520 --> 00:31:23,040
Speaker 3: Suddenly, the factor isn't playing ping pong with you exactly exactly.

638
00:31:23,080 --> 00:31:24,400
Speaker 4: Yeah, you're not allowed to have lunch.

639
00:31:24,400 --> 00:31:28,480
Speaker 2: In a real phenomenon, I would be anxious about raising

640
00:31:28,520 --> 00:31:28,960
Speaker 2: my hand.

641
00:31:29,120 --> 00:31:32,160
Speaker 4: Yeah, I think everything in moderation. Most of the time,

642
00:31:32,200 --> 00:31:34,360
Speaker 4: there's not like a stigma, and most of the time

643
00:31:34,400 --> 00:31:37,880
Speaker 4: it's not, you know, an opportunity to sell so much

644
00:31:37,960 --> 00:31:41,000
Speaker 4: stock that it would be a vote of lack of

645
00:31:41,040 --> 00:31:43,360
Speaker 4: confidence if you will right. You know, if it's twenty

646
00:31:43,360 --> 00:31:45,160
Speaker 4: five percent of your vested stock and you've been there

647
00:31:45,160 --> 00:31:47,400
Speaker 4: for two years, that means you probably have a ton

648
00:31:47,400 --> 00:31:49,960
Speaker 4: of unvested stock, and so you're talking about a small

649
00:31:49,960 --> 00:31:52,920
Speaker 4: proportion of your overall buildings. You know, we never really

650
00:31:52,920 --> 00:31:55,880
Speaker 4: see a chance for employees to send a design that

651
00:31:55,920 --> 00:31:58,200
Speaker 4: way where employees say, oh my gosh, I'm out, I

652
00:31:58,280 --> 00:32:00,360
Speaker 4: want to sell one hundred percent of my stock. In fact,

653
00:32:00,360 --> 00:32:01,480
Speaker 4: you know, we don't have data on this, but I

654
00:32:01,480 --> 00:32:04,080
Speaker 4: would suspect that in the public markets, you know, employees

655
00:32:04,120 --> 00:32:07,840
Speaker 4: are probably selling out of their stock grants at a

656
00:32:07,880 --> 00:32:10,000
Speaker 4: higher rate than in the private markets. Yeah, and I

657
00:32:10,040 --> 00:32:11,360
Speaker 4: think you know, if you're if you're at one of

658
00:32:11,360 --> 00:32:13,360
Speaker 4: these companies in the private markets, you probably have a

659
00:32:13,360 --> 00:32:16,200
Speaker 4: greater degree of confidence. You know, if you're a good employee,

660
00:32:16,200 --> 00:32:18,240
Speaker 4: you could you could always go to Google or Facebook

661
00:32:18,360 --> 00:32:21,200
Speaker 4: or Meta and click coupons. But I think that most

662
00:32:21,240 --> 00:32:22,960
Speaker 4: of the time the good ones are are true believers.

663
00:32:23,280 --> 00:32:25,440
Speaker 4: We do have companies where the founders. One of my

664
00:32:25,440 --> 00:32:27,760
Speaker 4: favorite things is when the founders just say I'm not

665
00:32:27,800 --> 00:32:30,320
Speaker 4: selling a share, and you know, that is like the

666
00:32:30,400 --> 00:32:35,440
Speaker 4: ultimate extreme point of confidence. We spend time with a

667
00:32:35,760 --> 00:32:39,160
Speaker 4: very high profile internet CEO of the previous generation. It's

668
00:32:39,200 --> 00:32:41,440
Speaker 4: now a public company, and one of the meetings we

669
00:32:41,480 --> 00:32:44,800
Speaker 4: were talking to him about secondary and he was so resolute.

670
00:32:44,880 --> 00:32:46,680
Speaker 4: He was like, I'm not selling a share, Like why

671
00:32:46,680 --> 00:32:49,400
Speaker 4: would I sell a single share? Like I'm so confident

672
00:32:49,400 --> 00:32:50,640
Speaker 4: it's going to go up. I don't want to do

673
00:32:50,680 --> 00:32:53,160
Speaker 4: that at all. And that's a pretty strong signal of

674
00:32:53,160 --> 00:32:55,640
Speaker 4: confidence in the future of the company. So we look

675
00:32:55,720 --> 00:32:59,160
Speaker 4: for some of those signals when we invest. You know,

676
00:32:59,200 --> 00:33:02,280
Speaker 4: my my partner, Exter Impel, wrote a good piece many

677
00:33:02,320 --> 00:33:05,920
Speaker 4: years ago to your point on real estate and buying

678
00:33:05,960 --> 00:33:10,720
Speaker 4: a house and affordability that showed Bay Area stock prices,

679
00:33:11,200 --> 00:33:14,920
Speaker 4: you know, of like the megacap stocks index against home

680
00:33:15,000 --> 00:33:19,600
Speaker 4: values and it's like perfectly correlated. So you know, home

681
00:33:19,640 --> 00:33:23,600
Speaker 4: price appreciation is kind of tethered to the local economy

682
00:33:23,800 --> 00:33:26,160
Speaker 4: in a way, and so you know, it's not totally

683
00:33:26,160 --> 00:33:28,520
Speaker 4: surprising that you see you see it move in that direction.

684
00:33:28,720 --> 00:33:30,000
Speaker 3: Yeah, I think it's fair to say there are a

685
00:33:30,000 --> 00:33:31,920
Speaker 3: lot of people in San Francisco right now who are

686
00:33:31,960 --> 00:33:34,880
Speaker 3: excited about making money off of AI, and some of

687
00:33:34,920 --> 00:33:37,720
Speaker 3: them have been doing so already. But on that note,

688
00:33:37,880 --> 00:33:42,120
Speaker 3: how are you actually differentiating between AI models? I guess

689
00:33:42,200 --> 00:33:44,240
Speaker 3: like this is a way of asking, how are you

690
00:33:44,280 --> 00:33:47,600
Speaker 3: cutting through the hype? Because we see all these new

691
00:33:47,640 --> 00:33:52,240
Speaker 3: companies launching, a lot of them use similar language. We

692
00:33:52,280 --> 00:33:56,200
Speaker 3: see total available market TAM being thrown around quite a

693
00:33:56,200 --> 00:33:59,520
Speaker 3: lot nowadays. How do you decide this is actually like

694
00:33:59,560 --> 00:34:02,200
Speaker 3: a good business model versus this is just something that

695
00:34:02,240 --> 00:34:05,000
Speaker 3: has AI in the name and is getting some attention.

696
00:34:05,920 --> 00:34:09,120
Speaker 4: Yeah, So we're we're investors in We're probably the largest

697
00:34:09,120 --> 00:34:12,480
Speaker 4: investor in the AI industry as a firm. I think

698
00:34:12,520 --> 00:34:18,960
Speaker 4: we're investors in two thirds of the aggregate AI revenue.

699
00:34:19,000 --> 00:34:20,840
Speaker 4: So if you were to just sum together all of

700
00:34:20,880 --> 00:34:23,480
Speaker 4: the AI revenue of the companies in the private markets,

701
00:34:23,880 --> 00:34:26,080
Speaker 4: we're investors in about two thirds of it. So I

702
00:34:26,080 --> 00:34:27,960
Speaker 4: think we have a front row seat to it. You know,

703
00:34:28,040 --> 00:34:30,000
Speaker 4: first of all, I'll just start with the demand side.

704
00:34:30,400 --> 00:34:32,320
Speaker 4: This is the biggest thing that we look to. There's

705
00:34:32,480 --> 00:34:37,640
Speaker 4: a billion people plus using this technology getting extremely large

706
00:34:37,880 --> 00:34:40,960
Speaker 4: surplus or value out of it. The companies are the

707
00:34:40,960 --> 00:34:43,920
Speaker 4: fastest growing that we've ever seen. You know, active users

708
00:34:43,920 --> 00:34:46,680
Speaker 4: spends something like thirty minutes a day on it, and

709
00:34:47,280 --> 00:34:49,279
Speaker 4: you know there's a tremendous amount of surplus that comes

710
00:34:49,320 --> 00:34:52,200
Speaker 4: with that, even if you're paying as a subscriber for

711
00:34:52,320 --> 00:34:55,880
Speaker 4: those So on the consumer side, you know, I think

712
00:34:56,239 --> 00:35:00,480
Speaker 4: the capabilities are extreme. They're very, very good, just now

713
00:35:00,560 --> 00:35:04,719
Speaker 4: starting to scratch the surface on the capabilities of you know,

714
00:35:04,760 --> 00:35:08,080
Speaker 4: sort of doing work on your behalf. And so I

715
00:35:08,080 --> 00:35:09,880
Speaker 4: think we're going to see a ton of progress on

716
00:35:09,920 --> 00:35:12,880
Speaker 4: that front over the next year. But the demand signals

717
00:35:13,239 --> 00:35:17,200
Speaker 4: that we see are probably not. Probably, they are definitively

718
00:35:17,239 --> 00:35:20,000
Speaker 4: the best that we've ever seen in my career, you know,

719
00:35:20,120 --> 00:35:22,759
Speaker 4: certainly much faster than you know, the Internet phase or

720
00:35:22,840 --> 00:35:26,439
Speaker 4: mobile social, you know, cloud SaaS, e commerce, any of those,

721
00:35:26,719 --> 00:35:30,359
Speaker 4: so tremendous amount of value on the demand side, that's

722
00:35:30,400 --> 00:35:33,360
Speaker 4: the biggest thing we look for. On the supply side,

723
00:35:33,719 --> 00:35:35,520
Speaker 4: you know, look the build out. There's there's there's a

724
00:35:35,520 --> 00:35:38,560
Speaker 4: ton written about the buildout of infrastructure that's required. It's

725
00:35:38,600 --> 00:35:41,000
Speaker 4: you know, it's larger than you know, the US highway

726
00:35:41,040 --> 00:35:43,759
Speaker 4: system overall, you know, five trillion dollars over the next

727
00:35:43,800 --> 00:35:46,880
Speaker 4: five to seven years. The thing that I say about

728
00:35:46,920 --> 00:35:49,799
Speaker 4: the supply side is we don't need to make the

729
00:35:49,840 --> 00:35:52,880
Speaker 4: decision on investing every single one of those dollars. As

730
00:35:52,920 --> 00:35:57,080
Speaker 4: an industry today, the industry can monitor demand and we

731
00:35:57,120 --> 00:36:00,359
Speaker 4: can make decisions about capex as we go. Cycles are

732
00:36:00,400 --> 00:36:03,480
Speaker 4: not five years long. Cycle times are more like twelve months,

733
00:36:03,520 --> 00:36:07,160
Speaker 4: and so if we see a weakening of demand or

734
00:36:07,160 --> 00:36:09,719
Speaker 4: a lack of payback in some of this infrastructure build out,

735
00:36:10,400 --> 00:36:12,760
Speaker 4: then you know, that's fine, we can we can adjust course.

736
00:36:12,960 --> 00:36:15,839
Speaker 4: The people who are I think there's probably a misconception

737
00:36:15,920 --> 00:36:17,919
Speaker 4: about the people who are in charge of these these

738
00:36:17,920 --> 00:36:19,880
Speaker 4: companies and you know, at the center of all this

739
00:36:20,000 --> 00:36:22,719
Speaker 4: like us, like we, and they are all sort of

740
00:36:22,880 --> 00:36:25,640
Speaker 4: ROI C or return on capital minded people like We're

741
00:36:25,680 --> 00:36:28,200
Speaker 4: not gonna, you know, invest a bunch of capital if

742
00:36:28,239 --> 00:36:29,680
Speaker 4: we think there's not going to be a high return

743
00:36:29,719 --> 00:36:32,120
Speaker 4: from it. So, you know, to the extent that there

744
00:36:32,239 --> 00:36:35,319
Speaker 4: is some overbuild or you know, signs of a lack

745
00:36:35,520 --> 00:36:38,560
Speaker 4: of demand to meet the supply, I think the industry

746
00:36:38,560 --> 00:36:42,239
Speaker 4: will adjust. You know, we've written about this before. You know,

747
00:36:42,280 --> 00:36:44,480
Speaker 4: if you can trast this build out with the fiber

748
00:36:44,480 --> 00:36:48,400
Speaker 4: build out so far, if you put a GPU or

749
00:36:48,440 --> 00:36:53,040
Speaker 4: a TPU online, it immediately gets used. And this holds

750
00:36:53,040 --> 00:36:56,440
Speaker 4: for actually very old GPUs and TPUs. Google's disclose this

751
00:36:56,520 --> 00:36:58,799
Speaker 4: about their TPUs. They are ten years old. You can

752
00:36:58,840 --> 00:37:02,160
Speaker 4: pretty easily find pricing of two generations to go GPUs

753
00:37:02,200 --> 00:37:04,280
Speaker 4: on the market, and the price of these have all held.

754
00:37:04,680 --> 00:37:07,520
Speaker 4: So there are no dark GPUs. No one is building

755
00:37:07,600 --> 00:37:10,040
Speaker 4: data centers that aren't being fully utilized right out of

756
00:37:10,080 --> 00:37:12,600
Speaker 4: the gate. You know, contrast that with the Internet build out.

757
00:37:13,239 --> 00:37:15,920
Speaker 4: The Internet build out was characterized by dark fiber, and

758
00:37:16,000 --> 00:37:17,960
Speaker 4: so you know, you had to lay all this groundwork

759
00:37:18,000 --> 00:37:20,520
Speaker 4: before you actually had any signs of demand, and so

760
00:37:20,560 --> 00:37:22,920
Speaker 4: obviously there was there's a mismatch in supplying demand. So

761
00:37:23,400 --> 00:37:26,800
Speaker 4: that's the sort of overall kind of view on supplied

762
00:37:26,840 --> 00:37:30,400
Speaker 4: demand dynamics. I'm very, very optimistic. I think we're in

763
00:37:30,440 --> 00:37:33,759
Speaker 4: the early days of figuring out really interesting applications to

764
00:37:33,840 --> 00:37:36,520
Speaker 4: build on top of this technology. And you know, in

765
00:37:36,600 --> 00:37:42,600
Speaker 4: terms of model capabilities, models are improving at a like

766
00:37:43,000 --> 00:37:45,520
Speaker 4: eye popping rate. You know, they can basically double their

767
00:37:45,560 --> 00:37:49,400
Speaker 4: ability to complete long form tasks over six to seven months.

768
00:37:49,920 --> 00:37:51,840
Speaker 4: And so you know, if you were to just arrest

769
00:37:51,920 --> 00:37:55,279
Speaker 4: model development today, I think we would have the chance

770
00:37:55,320 --> 00:37:58,239
Speaker 4: to build ten to twenty years of really interesting applications

771
00:37:58,280 --> 00:37:58,879
Speaker 4: on top of it.

772
00:37:59,400 --> 00:38:01,520
Speaker 2: The big thing that happened in public markets so far

773
00:38:01,600 --> 00:38:05,120
Speaker 2: this year is the absolute slaughtering of sort of non

774
00:38:05,160 --> 00:38:08,759
Speaker 2: AI companies and legacy software companies of various sorts and

775
00:38:08,800 --> 00:38:12,120
Speaker 2: so forth. How are you thinking about companies that don't

776
00:38:12,239 --> 00:38:17,440
Speaker 2: own a model, that maybe have to buy intelligence from

777
00:38:17,480 --> 00:38:20,120
Speaker 2: another company or so forth. Who in your view, and

778
00:38:20,160 --> 00:38:24,080
Speaker 2: you're thinking about private or public companies who that's not

779
00:38:24,239 --> 00:38:28,120
Speaker 2: an AI lab, What types of businesses survive and which

780
00:38:28,200 --> 00:38:31,400
Speaker 2: ones are not going to survive if they don't own

781
00:38:31,640 --> 00:38:32,839
Speaker 2: intelligence in the raw.

782
00:38:33,480 --> 00:38:36,040
Speaker 4: Yeah, so I will cover both of these topics because

783
00:38:36,040 --> 00:38:37,960
Speaker 4: I have pretty strong views on what's happening in the

784
00:38:38,000 --> 00:38:40,840
Speaker 4: software market, and then we can talk about what the

785
00:38:40,920 --> 00:38:43,440
Speaker 4: sort of future of companies that don't own a model is.

786
00:38:44,160 --> 00:38:47,200
Speaker 4: On the latter point, we can cover that one. First look,

787
00:38:47,320 --> 00:38:51,200
Speaker 4: companies buy solutions, right, and so you know, context is

788
00:38:51,239 --> 00:38:54,560
Speaker 4: still king in most industries. There will be companies that

789
00:38:54,600 --> 00:38:59,520
Speaker 4: compound their knowledge of industry specific workflows, industry specific data

790
00:38:59,560 --> 00:39:03,440
Speaker 4: that they attatched to, and so oftentimes that won't be

791
00:39:04,080 --> 00:39:07,600
Speaker 4: what the model companies choose to pursue. You know, customers

792
00:39:07,640 --> 00:39:10,840
Speaker 4: buy solutions, they don't buy some discrete workflow or just

793
00:39:10,880 --> 00:39:13,360
Speaker 4: a database or a system to take action. So the

794
00:39:13,400 --> 00:39:16,480
Speaker 4: most important thing is industry context. You also need a

795
00:39:16,480 --> 00:39:18,000
Speaker 4: throat to choke, right. I think that's going to be

796
00:39:18,040 --> 00:39:22,560
Speaker 4: increasingly important for customers. You know, So support, maintenance, integrations,

797
00:39:23,000 --> 00:39:27,200
Speaker 4: data partnerships, user community I think are all important things

798
00:39:27,239 --> 00:39:31,080
Speaker 4: for companies that are building applications that are not model owners.

799
00:39:31,400 --> 00:39:34,000
Speaker 4: And I think in most verticals and many of the

800
00:39:34,040 --> 00:39:37,719
Speaker 4: functions in an organization, there will be independent companies that

801
00:39:37,800 --> 00:39:39,839
Speaker 4: do that. Model companies are going to be an arms

802
00:39:39,880 --> 00:39:43,640
Speaker 4: dealer to most industries for some tasks or work that

803
00:39:43,840 --> 00:39:49,640
Speaker 4: are highly horizontal or general, so something like general knowledge

804
00:39:49,719 --> 00:39:54,360
Speaker 4: management inside of a corporation. The model companies are probably

805
00:39:54,360 --> 00:39:57,239
Speaker 4: pre well positioned for that. But you know, things like

806
00:39:57,920 --> 00:40:01,840
Speaker 4: legal work, medical work, customer support tasks, you know a

807
00:40:01,840 --> 00:40:06,080
Speaker 4: lot of stuff that will happen in sales, accounting, finance

808
00:40:06,320 --> 00:40:07,520
Speaker 4: like those are. I think those are going to be

809
00:40:07,520 --> 00:40:10,040
Speaker 4: independent vendors, and the model companies are going to be

810
00:40:10,120 --> 00:40:13,080
Speaker 4: arms dealers to those. So that I think is the

811
00:40:13,120 --> 00:40:16,680
Speaker 4: future of applications for companies that do not own models.

812
00:40:16,719 --> 00:40:18,840
Speaker 4: I think it's a very bright future. We've invested a

813
00:40:18,840 --> 00:40:21,239
Speaker 4: lot in some of these leading companies, but I think

814
00:40:21,400 --> 00:40:23,680
Speaker 4: both the model companies and those companies will be big

815
00:40:23,719 --> 00:40:28,359
Speaker 4: and successful. On the software side, yeah, I mean, look,

816
00:40:28,400 --> 00:40:31,960
Speaker 4: the software industry has been crushed in the public markets.

817
00:40:32,040 --> 00:40:34,759
Speaker 4: We could debate whether it's overblown or not, but I'll

818
00:40:34,800 --> 00:40:37,279
Speaker 4: give you my diagnosis of the situation. You know, not

819
00:40:37,719 --> 00:40:41,120
Speaker 4: particularly on valuations of specific companies, but here's what's going

820
00:40:41,160 --> 00:40:43,320
Speaker 4: to happen with the software companies and the public markets.

821
00:40:43,920 --> 00:40:47,120
Speaker 4: I think the issue is not that there's going to

822
00:40:47,200 --> 00:40:49,719
Speaker 4: be a ton of new software in the future, there

823
00:40:49,760 --> 00:40:51,000
Speaker 4: is going to be a ton of new software in

824
00:40:51,000 --> 00:40:53,840
Speaker 4: the future. The whole story of SaaS and cloud was

825
00:40:53,840 --> 00:40:56,640
Speaker 4: that the market grew seven x in size, and some

826
00:40:56,719 --> 00:40:59,200
Speaker 4: of that was captured by incumbents, some of it was

827
00:40:59,239 --> 00:41:03,799
Speaker 4: captured by startups. The issue is, are the incumbents that

828
00:41:03,800 --> 00:41:05,279
Speaker 4: are in the public market it's going to actually be

829
00:41:05,360 --> 00:41:07,600
Speaker 4: the ones that capture that And by the way, I

830
00:41:07,640 --> 00:41:09,359
Speaker 4: think it'll be much bigger than seven x this time.

831
00:41:09,719 --> 00:41:13,440
Speaker 4: So why is it, you know, sort of a question

832
00:41:13,719 --> 00:41:16,480
Speaker 4: of whether those incumbents have the chance to do it.

833
00:41:17,000 --> 00:41:19,200
Speaker 4: First of all, it's probably going to be much harder

834
00:41:19,239 --> 00:41:22,960
Speaker 4: for them to grow right all the new budget Basically

835
00:41:23,200 --> 00:41:26,839
Speaker 4: in any buyer organization is going toward AI initiatives right

836
00:41:26,840 --> 00:41:29,600
Speaker 4: now now. It doesn't mean that they're ripping out their

837
00:41:29,640 --> 00:41:33,640
Speaker 4: software systems. Gross dollar retention remains extremely high for these

838
00:41:33,640 --> 00:41:36,480
Speaker 4: incumbent software systems, and I think it will for a while.

839
00:41:36,800 --> 00:41:40,120
Speaker 4: But if you look since twenty twenty one, net dollar

840
00:41:40,160 --> 00:41:44,680
Speaker 4: retention of these companies has steadily declined. If you look

841
00:41:44,840 --> 00:41:48,920
Speaker 4: at the amount of revenue that the entire software industry

842
00:41:50,080 --> 00:41:54,040
Speaker 4: is adding in twenty twenty six, the amount of revenue

843
00:41:54,360 --> 00:41:57,920
Speaker 4: that open Ay Andthropic alone will add is going to

844
00:41:57,960 --> 00:42:00,720
Speaker 4: be greater than the amount of the total revenue added

845
00:42:00,760 --> 00:42:04,640
Speaker 4: by all of the software market. Like that's SAP into

846
00:42:04,719 --> 00:42:08,120
Speaker 4: a salesforce workday service, now all those vendors, So the

847
00:42:08,120 --> 00:42:12,360
Speaker 4: growth is actually going toward AI initiatives, and so you know, yes,

848
00:42:12,440 --> 00:42:15,600
Speaker 4: they may not be getting ripped out, those incumbent vendors,

849
00:42:15,920 --> 00:42:18,080
Speaker 4: but it's going to be much harder for them to

850
00:42:18,239 --> 00:42:22,439
Speaker 4: find growth. So you know, from a product standpoint, they're

851
00:42:22,440 --> 00:42:24,359
Speaker 4: not going to get torn out, but they really run

852
00:42:24,400 --> 00:42:27,560
Speaker 4: the risk of value getting built on top of them.

853
00:42:27,920 --> 00:42:30,239
Speaker 4: So those are going to be systems of record, but

854
00:42:30,800 --> 00:42:34,480
Speaker 4: you just build new vendors, build new products that can

855
00:42:34,520 --> 00:42:37,520
Speaker 4: take action on top of those. And I think that's

856
00:42:37,560 --> 00:42:41,160
Speaker 4: a real risk for the software industry right now. If

857
00:42:41,680 --> 00:42:45,080
Speaker 4: building software, the process of building software becomes much faster,

858
00:42:45,640 --> 00:42:50,480
Speaker 4: there's another dynamic where every vendor can basically increase the

859
00:42:50,520 --> 00:42:54,480
Speaker 4: amount of skews they offer rapidly massively. And so if

860
00:42:54,520 --> 00:42:57,440
Speaker 4: you are a platform vendor of choice and you sell

861
00:42:57,760 --> 00:43:00,920
Speaker 4: a bunch of software in this domain, are everyone in

862
00:43:00,960 --> 00:43:03,400
Speaker 4: the in the nearby domains will also have those products,

863
00:43:03,400 --> 00:43:05,520
Speaker 4: and they'll all try to sell those new products, and

864
00:43:05,600 --> 00:43:09,000
Speaker 4: it'll get more competitive, So I think that's a dynamic

865
00:43:09,080 --> 00:43:11,920
Speaker 4: that's that's really a risk for them. The most powerful

866
00:43:12,040 --> 00:43:13,879
Speaker 4: change that I think is going to happen, which we're

867
00:43:13,920 --> 00:43:17,920
Speaker 4: only seeing early signals of, is a business model shift.

868
00:43:18,320 --> 00:43:22,400
Speaker 4: So when these technology shifts happen, you know, new user interface,

869
00:43:22,480 --> 00:43:26,920
Speaker 4: new workflows, new data that you access that favors you know, newcomers,

870
00:43:27,080 --> 00:43:29,640
Speaker 4: you know over incumbents. When you pair it with a

871
00:43:29,680 --> 00:43:33,640
Speaker 4: business model shift, that massively favors the newcomers, right because

872
00:43:33,680 --> 00:43:36,600
Speaker 4: it's so hard to react if you're one of the incumbents.

873
00:43:36,600 --> 00:43:38,680
Speaker 4: And so the big shift if you if you just

874
00:43:38,719 --> 00:43:41,640
Speaker 4: take a spectrum of business models that's happened. You know,

875
00:43:41,640 --> 00:43:45,640
Speaker 4: we used to sell license maintenance software. We move that

876
00:43:45,800 --> 00:43:49,040
Speaker 4: to you know, seat based subscription. Then with the clouds,

877
00:43:49,080 --> 00:43:51,680
Speaker 4: a lot of companies have become consumption based pricing models.

878
00:43:52,120 --> 00:43:54,640
Speaker 4: And in the future with AI and a lot of domains,

879
00:43:54,719 --> 00:43:57,000
Speaker 4: is going to be outcome based pricing. You can see

880
00:43:57,000 --> 00:44:00,560
Speaker 4: this first in the customer support industry because they're sort

881
00:44:00,560 --> 00:44:04,000
Speaker 4: of verifiable tasks that those companies have to complete. But

882
00:44:04,120 --> 00:44:06,040
Speaker 4: to the extent that we actually get to the point

883
00:44:06,080 --> 00:44:09,840
Speaker 4: where the predominant way that that enterprises want to buy

884
00:44:10,480 --> 00:44:13,920
Speaker 4: is via outcomes and they can measure those results. I

885
00:44:13,920 --> 00:44:15,120
Speaker 4: think it's gonna be really tough for.

886
00:44:15,080 --> 00:44:19,040
Speaker 2: The incoming David, George, Andrews, and Horwitz. Thank you so

887
00:44:19,120 --> 00:44:21,640
Speaker 2: much for coming on odd Laws. That was a fascinating

888
00:44:21,760 --> 00:44:23,920
Speaker 2: learned a ton and really appreciate you taking your time.

889
00:44:24,080 --> 00:44:25,920
Speaker 4: Thanks so much, David, great to be with you all.

890
00:44:25,920 --> 00:44:26,720
Speaker 4: Thanks for having me.

891
00:44:39,080 --> 00:44:42,040
Speaker 2: Tracy. I thought that was a fascinating conversation. So much there,

892
00:44:42,160 --> 00:44:44,240
Speaker 2: and you know, it's fun to talk tech but also

893
00:44:44,239 --> 00:44:47,080
Speaker 2: have it be such a capital markets heavy conversation.

894
00:44:47,320 --> 00:44:51,719
Speaker 3: Yeah, I kind of the idea of software companies their

895
00:44:51,800 --> 00:44:54,839
Speaker 3: value resting in the fact that they're like convenient scapegoats

896
00:44:54,880 --> 00:44:57,959
Speaker 3: for management. Yeah, it's kind of funny in a dystopian way.

897
00:44:58,000 --> 00:45:00,359
Speaker 2: But I remember Steve Bohmer said that yours go when

898
00:45:00,400 --> 00:45:02,480
Speaker 2: he was talking about why Linux wouldn't take off. Yeah,

899
00:45:02,480 --> 00:45:04,040
Speaker 2: because you're like, no, what are you going to just like,

900
00:45:04,080 --> 00:45:05,720
Speaker 2: who are you going to get upset with your Linux

901
00:45:05,760 --> 00:45:08,680
Speaker 2: goes down? Other than companies? Did you know Redhead grew

902
00:45:08,760 --> 00:45:12,320
Speaker 2: up to like professionally service. I thought that was really interesting,

903
00:45:12,360 --> 00:45:15,319
Speaker 2: the idea of like outcome based pricing, but just also

904
00:45:15,400 --> 00:45:18,760
Speaker 2: some of the numbers are staggering, just like how big

905
00:45:19,000 --> 00:45:21,040
Speaker 2: you know this is. I've thought about this with like

906
00:45:21,840 --> 00:45:25,200
Speaker 2: when people look at the public markets and they say, well, yeah,

907
00:45:25,480 --> 00:45:28,279
Speaker 2: it's not that overvalued because you know, most of the

908
00:45:28,280 --> 00:45:30,440
Speaker 2: public companies are making a lot of money. If you

909
00:45:30,480 --> 00:45:32,799
Speaker 2: were to sort of like build one index of big

910
00:45:32,840 --> 00:45:36,160
Speaker 2: private and public companies, you'd have a lot of market

911
00:45:36,200 --> 00:45:39,000
Speaker 2: cap on companies that aren't making money yet, and that

912
00:45:39,040 --> 00:45:41,719
Speaker 2: would very much like sort of skew your view of

913
00:45:41,760 --> 00:45:44,520
Speaker 2: this sort of like total valuation of the universe of tech.

914
00:45:44,360 --> 00:45:47,120
Speaker 3: Companies absolutely Well. The other thing I was thinking is

915
00:45:47,160 --> 00:45:49,200
Speaker 3: just that question of whether or not that kind of

916
00:45:49,360 --> 00:45:51,960
Speaker 3: the balance between private and public starts to reverse. But

917
00:45:52,000 --> 00:45:55,320
Speaker 3: because so much of the excitement right now is about AI,

918
00:45:55,840 --> 00:45:59,040
Speaker 3: which you know, is capital billions and billions and needs

919
00:45:59,120 --> 00:46:02,440
Speaker 3: huge polls of capital, I guess the counterpoint to that is,

920
00:46:02,480 --> 00:46:06,720
Speaker 3: like there's a self reinforcing trend in the private market,

921
00:46:06,800 --> 00:46:08,799
Speaker 3: which is like, if that's where all the growth is,

922
00:46:08,840 --> 00:46:10,840
Speaker 3: if that's where people are making all the money, it

923
00:46:10,960 --> 00:46:14,719
Speaker 3: tends to attract even more capital. So I don't know,

924
00:46:14,800 --> 00:46:18,360
Speaker 3: maybe maybe AI means that private capital grows even more

925
00:46:18,440 --> 00:46:20,120
Speaker 3: and so AI can keep tapping it.

926
00:46:20,280 --> 00:46:22,799
Speaker 2: There seems to just be an endless amount of money. Yeah,

927
00:46:22,800 --> 00:46:25,040
Speaker 2: in the middle least. I mean specifically, you know, it's

928
00:46:25,080 --> 00:46:28,520
Speaker 2: like raising more from the UAE or Saudi or whatever

929
00:46:28,640 --> 00:46:32,200
Speaker 2: that just keeps these companies private. If I were at

930
00:46:32,239 --> 00:46:34,880
Speaker 2: like Open Air, I would be really anxious about selling

931
00:46:34,880 --> 00:46:36,480
Speaker 2: it a tender. I would be like, I don't want to.

932
00:46:37,080 --> 00:46:39,520
Speaker 2: I believe, I believe, I swear I believe that I

933
00:46:39,560 --> 00:46:41,640
Speaker 2: believe we're going to get there to ASI or whatever.

934
00:46:41,719 --> 00:46:44,960
Speaker 2: I would be really uncomfortable about it. Tapping out hedging

935
00:46:45,040 --> 00:46:45,799
Speaker 2: my portfolio.

936
00:46:45,960 --> 00:46:48,200
Speaker 3: Joe, You'd have to be very, very important for the

937
00:46:48,239 --> 00:46:50,799
Speaker 3: founder to actually care to care about what you're doing

938
00:46:50,840 --> 00:46:53,799
Speaker 3: with your shares. But I'm sure you would be all right.

939
00:46:53,800 --> 00:46:54,480
Speaker 3: Shall we leave it there?

940
00:46:54,560 --> 00:46:55,200
Speaker 2: Let's leave it there.

941
00:46:55,400 --> 00:46:57,800
Speaker 3: This has been another episode of the ad Thoughts podcast.

942
00:46:57,920 --> 00:47:01,160
Speaker 3: I'm Tracy Alloway. You can follow me at Ty Alloway.

943
00:47:00,920 --> 00:47:03,840
Speaker 2: And I'm Joe Wisenthal. You can follow me at the Stalwart.

944
00:47:04,120 --> 00:47:07,319
Speaker 2: Follow our guest David George. He's at David George eighty three.

945
00:47:07,480 --> 00:47:11,080
Speaker 2: Follow our producers Carmen Rodriguez at Carman armand Dashel Bennett

946
00:47:11,120 --> 00:47:14,200
Speaker 2: at Dashbot and Kilbrooks at Kilbrooks and for more odd

947
00:47:14,239 --> 00:47:16,799
Speaker 2: laws content. Go to Bloomberg dot com, slash odd lots

948
00:47:16,840 --> 00:47:19,360
Speaker 2: or the daily newsletter and all of our episodes, and

949
00:47:19,400 --> 00:47:21,239
Speaker 2: you can chat about all of these topics twenty four

950
00:47:21,239 --> 00:47:24,879
Speaker 2: to seven in our discord Discord dot gg slash.

951
00:47:24,520 --> 00:47:26,920
Speaker 3: Od lots And if you enjoy odd lots, if you

952
00:47:27,120 --> 00:47:29,840
Speaker 3: like it when we talk about private versus public markets,

953
00:47:29,880 --> 00:47:32,440
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954
00:47:32,480 --> 00:47:36,040
Speaker 3: podcast platform. And remember, if you are a Bloomberg subscriber,

955
00:47:36,120 --> 00:47:39,400
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956
00:47:39,560 --> 00:47:41,840
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Speaker 3: on Apple Podcasts and follow the instructions there. Thanks for listening.

958
00:48:02,280 --> 00:48:11,440
Speaker 1: In an a