Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.
Speaker 2: I'm Jill Wisenthal.
Speaker 3: And I'm Tracy Alloway.
Speaker 2: Tracy, it feels like twenty twenty six could be a
Speaker 2: big year for some mega IPOs that have been private
Speaker 2: for a while. There's talk about a SpaceX IPO possibly
Speaker 2: maybe some of the big AI labs, like some pretty
Speaker 2: massive companies that might be hitting the market soon.
Speaker 3: Someone recently gave me a Facebook ipo, yeah, from JP
Speaker 3: Mortgane and they worked on it. Like, I'm very proud.
Speaker 3: I need to start wearing it around the office. Yeah,
Speaker 3: but that was like that was a mega Yeah, that
Speaker 3: was a mega ipo at the time, and there was
Speaker 3: so much hype about it and then like technical difficulty, Yes,
Speaker 3: so many people eager to get in on that.
Speaker 2: It's so many funny people called that a flop, I
Speaker 2: guess because the technical difficulties and it didn't do that
Speaker 2: great for a little bit. That would have been a
Speaker 2: great time to buy it.
Speaker 4: Yeah.
Speaker 2: And the interesting thing about the market, or one of
Speaker 2: the interesting things about the market is you have these
Speaker 2: companies that are gonna IPO when they're already gigantic. So
Speaker 2: like people point out that in earlier eras they might
Speaker 2: have I piled when they're like billion dollar companies, and
Speaker 2: now they're like Octacorons or whatever. And then you have
Speaker 2: other companies that are also enormous, and there's no it's
Speaker 2: not clear that they're going to ipo it up at
Speaker 2: all at all.
Speaker 3: You know.
Speaker 2: I saw a headline about Stripe perhaps raising more money
Speaker 2: people they could have probably iPod years ago. And one
Speaker 2: of the questions I have is our companies choosing not
Speaker 2: to IPO or delaying IPO because the public market is
Speaker 2: not that fun, or because the private market has gotten
Speaker 2: so much richer, so much more liquid, et cetera, that
Speaker 2: that impulse to go public just isn't the same way
Speaker 2: as it might have been in a different generation.
Speaker 3: Yeah, this has kind of been a long running question
Speaker 3: in the market for a while now. But one thing
Speaker 3: I would just point out on the last point, it
Speaker 3: feels to me like companies in the private market, even
Speaker 3: though they're in the private market where presumably the pool
Speaker 3: of capital is smaller, Yeah, it feels like they're always fundraising.
Speaker 2: This is the only thing too, that like it used
Speaker 2: to be when I started covering tech companies is like
Speaker 2: your Series A round and Series B round and c.
Speaker 2: And now it just seems like this permanent round, especially
Speaker 2: with some of the AI can always be raising, always raising. Anyway,
Speaker 2: we need to learn more about how giant companies are
Speaker 2: thinking about capital markets, both public and private. And I'm
Speaker 2: really excited to say we do, in fact, absolutely have
Speaker 2: the perfect guest. We're gonna be speaking with David George.
Speaker 2: He is the head of the Growth Fund and in
Speaker 2: dres and Horowitz, a sixteen Z someone perfectly situated to
Speaker 2: explain of all these things that's going on. So, David,
Speaker 2: thank you so much for coming on.
Speaker 4: Odd lots, Hey, great to be with you all.
Speaker 2: What is a growth fund?
Speaker 1: What is that?
Speaker 2: I thought all VC was growth. What does it mean
Speaker 2: when we talk about a growth fund or a growth
Speaker 2: round when we're talking about private markets.
Speaker 4: Yeah, so our first of all, great to be with
Speaker 4: you all, Thanks for having me, excited to have this conversation.
Speaker 4: So our early stage funds invest in companies that are
Speaker 4: growing fast too, So if that's not clear, that is
Speaker 4: what we seek to do across Allipole's capital for us.
Speaker 4: The Growth Fund is a fund that invest in companies
Speaker 4: at the later stage of their life cycles, so typically
Speaker 4: once they found product market fit, and our early stage
Speaker 4: funds investing companies early stage when they're kind of trying
Speaker 4: to find product market fit, we invest in companies once
Speaker 4: they have found product market fit. So that's the delineation.
Speaker 4: Right now. We're investing out of our fifth growth fund.
Speaker 4: It's about a seven billion dollar fund. If you combine
Speaker 4: the committed capital of our five funds, it's about twenty
Speaker 4: two billion dollars in overall committed capital.
Speaker 3: What percentage of the Growth fund is sort of directly
Speaker 3: obtained from the early stage funds because I imagine that's like,
Speaker 3: that's a good pipeline for you guys, right, Yeah, it's.
Speaker 4: A great pipeline for us. We do both. So we
Speaker 4: have examples of investments out of the early stage and
Speaker 4: in companies that, for whatever reason, we were not early
Speaker 4: stage investors. So some of our largest investments in the
Speaker 4: Growth fund are companies like Data Bricks and Stripe that
Speaker 4: we were early stage investors in. And then some of
Speaker 4: the largest investments are companies like SpaceX and open Ai
Speaker 4: and Waimo and Roadblocks and Pigma that we were not
Speaker 4: early stage investors in. And The first time that we
Speaker 4: invested was in the growth fund, so it's about fifty
Speaker 4: to fifty. We love to invest in companies where we
Speaker 4: know the founders really well. One of the things we
Speaker 4: talked about all the time is game film. This is
Speaker 4: something that public market investors are very familiar with. They
Speaker 4: look for game film. They want to back CEOs management
Speaker 4: teams that have demonstrated continued success, and we seek to
Speaker 4: do the same thing the private markets.
Speaker 2: I like how Andrisian Horowitz is so influential and dominant
Speaker 2: that if you just name a bunch of random, big
Speaker 2: companies that are all sort of like the most important,
Speaker 2: like growing tech companies, they're actually just going to all
Speaker 2: be you know, like when I said SpaceX, Data, Bricks, Stripe, etc.
Speaker 2: I didn't purposely say they try to name a bunch
Speaker 2: of by sixteen Ze family companies. They just incidentally happened
Speaker 2: to me.
Speaker 1: What are you like?
Speaker 2: Let's start big picture with this question of companies staying
Speaker 2: private for longer, especially thriving companies, companies that are doing
Speaker 2: very well, ipoling if at all, much later in their
Speaker 2: life cycle. There are a lot of specific questions, but
Speaker 2: big picture, what's the story, what's the main cause of this,
Speaker 2: the evolution of this trend.
Speaker 4: Yeah, absolutely, Well, first, I would love to just set
Speaker 4: the stage with what the what the data actually is, like,
Speaker 4: what's actually happened.
Speaker 2: If I'm totally wrong, that's also interesting.
Speaker 4: No, no, no, you're not totally wrong. I have a
Speaker 4: bunch of supporting facts to your statement. But the numbers
Speaker 4: are pretty eye popping. So if you look at the
Speaker 4: private market's highly value technology companies represent about five trillion
Speaker 4: dollars of market cap in the private markets, that's almost
Speaker 4: a quarter of the S and P five hundred. Wow,
Speaker 4: it's fifteen percent of Nasdaq. It's forty percent if you
Speaker 4: exclude the MAG seven. So it's just staggering numbers. To
Speaker 4: your point about some of the biggest and best companies
Speaker 4: in the world being in the private markets, the ten
Speaker 4: largest private companies represent forty percent of that five trillion
Speaker 4: of market cap. So this is a massive power law game,
Speaker 4: and the best of the best companies at that stage
Speaker 4: of their life cycle just happened to be in the
Speaker 4: private markets and not in the public markets. Right now,
Speaker 4: that private market kind of five trillion of market cap,
Speaker 4: that sector of the economy has grown ten x in
Speaker 4: ten years. At the same time, the number of public companies.
Speaker 4: You guys have probably covered this before. The number of
Speaker 4: public companies has been cut in half over the last
Speaker 4: twenty years. So this is just a massive shift in
Speaker 4: the composition of the public markets and the private markets,
Speaker 4: and the best of the best companies, as you said,
Speaker 4: largely are sitting in the private markets today. The other
Speaker 4: thing that we look for, you know, we're a growth fund,
Speaker 4: but growth means a lot of things. We look for
Speaker 4: companies that are growing, you know, sort of hyper growth.
Speaker 4: We call it hyper growth, growing very very fast. You know,
Speaker 4: the average investment in our growth fund has grown about
Speaker 4: one hundred percent. If you look at the public markets today,
Speaker 4: there's only three companies in our universe that are growing
Speaker 4: over thirty percent. So if you actually want to invest
Speaker 4: in the highest growth, most promising companies that could be
Speaker 4: that next mag seven, chances are they're in the private market.
Speaker 4: So this is this is just a big shift in
Speaker 4: the dynamics. You know, certainly in the last twenty years,
Speaker 4: but even the last ten or fifteen. So that's the
Speaker 4: numbers behind the trend. The question is why, and you know,
Speaker 4: there's there's lots of reasons why this is the case.
Speaker 4: I mean, you mentioned it right at the outset. There
Speaker 4: are structural reasons in the public markets that make it
Speaker 4: harder to be a public company now than it was
Speaker 4: twenty years ago. I think the biggest thing is the
Speaker 4: private capital markets are deeper and more liquid than before,
Speaker 4: so there's less of a need for a company to
Speaker 4: go public until they need much, much, much much more
Speaker 4: capital In the private markets. For the best of the
Speaker 4: best companies, they kind of have the access to the
Speaker 4: capital that they need. It's a pretty compelling pitch for
Speaker 4: the founder to be able to stay in the private markets,
Speaker 4: have liquidity over time, if you're one of a select
Speaker 4: few can access capital, you know, in the private markets cheaply,
Speaker 4: you can kind of steadily control the stock price movements,
Speaker 4: you can regularly run tender offers, and you know, for
Speaker 4: a company, probably the hardest thing aside from access to
Speaker 4: capital is employee management. And if you can get pretty
Speaker 4: close to the dynamics that you get in the public
Speaker 4: markets without volatility, it's pretty compelling to remain in the
Speaker 4: private markets.
Speaker 3: So I have a bunch of questions on just the
Speaker 3: growth of private capital. But before we get to that,
Speaker 3: you said there are structural challenges in going public, and
Speaker 3: I guess the one we always hear is like, oh,
Speaker 3: you have to file quarterly paperwork. Like not the paperwork,
Speaker 3: which I actually sympathize with because I hate filling out
Speaker 3: forms and things like that, but like, what are the
Speaker 3: reasons that the public market is perceived to be so
Speaker 3: much more difficult or so much more of an operational
Speaker 3: headache I guess than private.
Speaker 4: Well, there is a cost. So you know, for a
Speaker 4: company the size of SpaceX or Data Bricks or open
Speaker 4: aer Strike, you know, it's not hugely meaningful, but for
Speaker 4: a smaller company, you know, it could be ten to
Speaker 4: twenty million bucks. And you know, if you're a company
Speaker 4: that would have gone public fifteen years ago, you know,
Speaker 4: five years into your life doing one hundred million bucks
Speaker 4: of revenue, that's pretty meaningful. Like that's a major change,
Speaker 4: and so you'll want to wait longer. Public markets, investors,
Speaker 4: investment banks, research organizations are tilted much more toward large
Speaker 4: cap companies or at least mid sized companies today and
Speaker 4: less so towards small cap. So if you're a small
Speaker 4: cap company, it's just very hard to get the attention
Speaker 4: of investors. You know, they can't write very large checks
Speaker 4: and build huge positions in you. You know, it may
Speaker 4: not be worth the investment banks time or the research
Speaker 4: analyst time to cover you. And so you know, if
Speaker 4: that's the case, it's hard to get the attention of
Speaker 4: good investors and make your stock price grow over time.
Speaker 4: So those are a couple examples of the structural challenges.
Speaker 3: You know.
Speaker 4: The other one is just volatility. You know, this generation
Speaker 4: of founders has seen the twenty twenty one run up
Speaker 4: and then the certainly in the technology market, and then
Speaker 4: the falloff in twenty two twenty three, and some of
Speaker 4: them have reset their stock prices in the private markets.
Speaker 4: But that was a volatile time. Like if you were
Speaker 4: issuing stock to an employee at the peak and then
Speaker 4: you know that employee was looking at their stock grants
Speaker 4: and saying, oh my gosh, these are down seventy percent,
Speaker 4: Like my comp just got cut by seventy percent. That's
Speaker 4: a hard dynamic for a founder to have to deal with.
Speaker 4: And if you can minimize some of that volatility in
Speaker 4: the private markets as a founder, I understand why you
Speaker 4: would do it.
Speaker 2: Talk to us about employee retention, employee management. Employees, you know,
Speaker 2: they love an IPO, they love liquidity, and okay, now
Speaker 2: you can have tender offers where they sell some of
Speaker 2: their stock to new investors. And then there's other dynamics too,
Speaker 2: like because there's all the SPVs out there, and maybe
Speaker 2: like tokens where someone can hedge their holdings in a
Speaker 2: private market on hyper liquid or something like that. Talk
Speaker 2: to us a little bit about the sort of the
Speaker 2: plethora of options that employees have now in private companies
Speaker 2: and getting that liquid and so they actually get some
Speaker 2: real money.
Speaker 4: Let me start by just explaining the way it works
Speaker 4: in the public markets, and you know, we can contrast
Speaker 4: the private markets with that. If you're a public market
Speaker 4: employee and you have RSU grants, this is basically the
Speaker 4: way it works. You get a quarterly deposit of net
Speaker 4: stock net of taxes in your account every quarter. And
Speaker 4: so if you're a highly paid employee at Meta or
Speaker 4: Alphabet or Apple, it's like clockwork you can get these grants.
Speaker 4: They hit your account. You have for some of the
Speaker 4: highest paid people, you know, hundreds of thousands or millions
Speaker 4: of dollars that hit you hit your account every quarter,
Speaker 4: and that's liquid. It's already netted of tax and so
Speaker 4: you can turn around and sell it and it's like
Speaker 4: cash comp or in the case of those companies, they've
Speaker 4: appreciated tremendously in value over the last ten years, and
Speaker 4: so the employees you know, who help the stock have
Speaker 4: been handsomely rewarded. Then they get RSU grants stacked on
Speaker 4: top of those, so you kind of have this like
Speaker 4: waterfall of RSU grants over time and increasingly, you know,
Speaker 4: over time, your orderly net deposit can go up. And
Speaker 4: so if you're a private CEO competing for talent, that's
Speaker 4: what you're competing with. And those companies are flushed with cash,
Speaker 4: and so they're able to pay a lot in stock
Speaker 4: based comp to their employees, and so that's a difficult
Speaker 4: dynamic to compete with. That's one of the strongest forms
Speaker 4: of the argument for telling a private company CEO that
Speaker 4: they should go public, because that is a very compelling
Speaker 4: financial reward for your employees in that public market situation.
Speaker 4: In the private markets, the way it typically works is
Speaker 4: you get you know, you get these RSU grants. Sometimes
Speaker 4: they stock up over time, but generally they're ill liquid
Speaker 4: until you go public. Now, what's happened over the last
Speaker 4: I'd say six or eight years. Is companies will do
Speaker 4: tender offers in the private markets where they offer to
Speaker 4: buy a certain percentage of employees vested stock in the
Speaker 4: private markets, so they'll set the price, they'll work with
Speaker 4: somebody like us, and they'll say something like, hey, you
Speaker 4: can sell twenty five percent of your vesteds doc that
Speaker 4: you have in this tender offer, and you know, we'll
Speaker 4: do it once a year. And so that's a decent
Speaker 4: substitute for what I described in the public markets. It's
Speaker 4: not a perfect substitute, but for you know, the employees
Speaker 4: or potential new hires who are true believers, I think
Speaker 4: it's enough to combat that RSU public market dynamic in
Speaker 4: compensation scheme. And you know, it's worked pretty well. SpaceX has,
Speaker 4: you know, famously done a really good job running twice
Speaker 4: a year tender offers for their employees, and you know
Speaker 4: they've had tremendous employee satisfaction, ability to hire, retention, et cetera.
Speaker 4: And some of the biggest tech companies have followed suit.
Speaker 4: And I would argue that there's a trade off that
Speaker 4: the founders and the private markets are making, where often
Speaker 4: if they were public, they probably would have a higher
Speaker 4: stock price, so maybe they're taking a little bit more dilution,
Speaker 4: and so maybe employees would benefit a little bit more
Speaker 4: in valuation in the public markets. But it's not a
Speaker 4: massive gap, and it's a it's a pretty compelling.
Speaker 3: Alternative just culturally out in San Francisco. Do people still
Speaker 3: expect like the default exit to be an IPO or
Speaker 3: has that mindset kind of gone away?
Speaker 4: The best of the best companies want to IPM and
Speaker 4: I think you mentioned some of the big name companies
Speaker 4: out there who may stay private for a really long time.
Speaker 4: You know, I think the ambition for most founders is still,
Speaker 4: you know, to have an IPO and to be a large, established,
Speaker 4: important public company. You know, we talked about the pools
Speaker 4: of private capital and how they've grown over the last
Speaker 4: ten years. The pools of capital and the public markets
Speaker 4: are still much deeper. So if you need to raise
Speaker 4: fifty one hundred, two hundred billion dollars like some of
Speaker 4: the big big companies may want to do to pursue
Speaker 4: some of their goals, chances are they'll end up in
Speaker 4: the public markets.
Speaker 2: The reason we wanted to have this conversation a few
Speaker 2: months ago, Tracy and I interviewed the Perplexity CEO, and
Speaker 2: he was talking about the rise of SPVs and wanting
Speaker 2: to say no to money. You know, people come to
Speaker 2: him with investment opportunities and then it's clear that they
Speaker 2: just want to package up that equity in some way
Speaker 2: and create a secondary instrument. And I know, you know,
Speaker 2: someone messaged me recently and they're like, I could get
Speaker 2: you some pre ipo anthropic shares and like that. I
Speaker 2: don't do that, but like, I know that there's a
Speaker 2: lot of interest in there. And you mentioned that if
Speaker 2: you really want massive growth at this level, that it's
Speaker 2: the only ones that are growing super big are the
Speaker 2: private companies. Talk to us about the emergence of SPVs
Speaker 2: and these third party entities, and you don't even know
Speaker 2: who's on your cap table and how founders are thinking
Speaker 2: about this phenomenon.
Speaker 4: I think founders for the most part, really don't like it, okay,
Speaker 4: because they want to know who is on their cap table.
Speaker 4: And there are certain types of investors who will come
Speaker 4: to the founders and misrepresent I think, what what vehicle
Speaker 4: or where the capital is actually going to come from.
Speaker 4: In our case, we don't do those. What we do
Speaker 4: is we invest directly out of our funds. You know,
Speaker 4: we make that a point of pride with the founders
Speaker 4: to say, hey, you know exactly what you're getting. We're
Speaker 4: going to shoot you straight for the SPB industry, you know. Look,
Speaker 4: it works when you know times are good, and it
Speaker 4: can be horrendous and bad. You know when times are bad.
Speaker 4: You know, Androl is one of our companies very close
Speaker 4: with we're one of the largest investors, and they have famously,
Speaker 4: you know, gone to war with some of the SPV
Speaker 4: hucksters who are trying to assemble capital to do a
Speaker 4: deal through some obfuscated way around them, and they say, look,
Speaker 4: we want to know exactly who's on our cap table.
Speaker 4: You know, we want to make sure that we're doing
Speaker 4: right by our shareholders. And so it's a risky maneuver.
Speaker 4: You know. It's not to say that there's not some
Speaker 4: that are good, but we try to avoid it and
Speaker 4: we try to counsel our founders to stay away from
Speaker 4: it as much as possible.
Speaker 2: So you mentioned Anderill, and can founders completely lock them
Speaker 2: out or like, how how does it work such that
Speaker 2: the founder doesn't want to have these vehicles get access
Speaker 2: to their equity and yet somehow they do. Anyway, what
Speaker 2: is the path into the company that these entities are taking.
Speaker 4: The example would be a fund shows up to the
Speaker 4: founder and says, yeah, we're going to invest out of
Speaker 4: this fund, and they have some legal entity name that
Speaker 4: they have is the fund, and then it's not fully
Speaker 4: clear to the founder that that legal entity actually will
Speaker 4: just be an assembly of a bunch of new investors
Speaker 4: that are only investing in that single vehicle. I would
Speaker 4: say the SPV interests is one other you know, sort
Speaker 4: of additional risk that comes with it. You know, our
Speaker 4: large investors are LPs. There's some of the largest institutions
Speaker 4: in the world. They trust us to make investments, and
Speaker 4: they actually like the fact that they're investing in a
Speaker 4: fund that has some degree of diversification. SPVs are inherently
Speaker 4: risky because they're they're single company and so you know,
Speaker 4: if that company happens to not go well and you
Speaker 4: invest in a sixteen ZES funds, you can live to
Speaker 4: fight another day because we have a number of other
Speaker 4: companies that are going to do really well at the
Speaker 4: fun level of returns will be good in an SPV.
Speaker 4: If that happens to not work for whatever reason, it
Speaker 4: could be devastating if you put a large amount of
Speaker 4: capital into it.
Speaker 3: Talk to us a little bit about pricing, because something
Speaker 3: you tend to hear is that, well, if you go
Speaker 3: to the private market, there are some benefits to that,
Speaker 3: but on the other hand, you're probably going to pay
Speaker 3: you a little bit more in terms of cost of capital.
Speaker 3: And then the other thing you hear is that, well,
Speaker 3: if everything is private, it's not necessarily being marked to
Speaker 3: market as often as the public market. So maybe there's
Speaker 3: some concern around pricing. You're not getting that wisdom of
Speaker 3: the crowds effect. You're just getting a bunch of tech
Speaker 3: bros investing in tech bros, and that can kind of
Speaker 3: be a self reinforcing cycle.
Speaker 2: Yeah.
Speaker 4: Look, I can always speak to our own business that
Speaker 4: we're in. I'd make two observations. One, I feel pretty
Speaker 4: strongly that if you took our portfolio and put it
Speaker 4: in the public markets, it would trade higher than the
Speaker 4: private markets, and so that speaks to the cost of
Speaker 4: capital trade off that the founders are making. It's benefited
Speaker 4: us tremendously because we've been able to invest in companies
Speaker 4: that we think are some of the best companies in
Speaker 4: the world. Later into their life cycle, then you know,
Speaker 4: we would have been able to ten years or so ago.
Speaker 4: Interesting data point if you look at the returns generated
Speaker 4: by dollars in the private markets historically over the last
Speaker 4: call it like seven years of good IPOs. About fifty
Speaker 4: percent of the dollars of gain in an IPO come
Speaker 4: from the seed through series B, and then fifty percent
Speaker 4: of the dollars of gain come from the series C
Speaker 4: and later. As companies have stayed private longer, that will
Speaker 4: massively shift to the series C and later, and the
Speaker 4: seed through B will be you know, a smaller proportion
Speaker 4: of the dollars of gain. Similarly, if you go back
Speaker 4: ten years and you look at all the companies that
Speaker 4: have gone public, there's a little bit of like time
Speaker 4: lag in this. So just with me, the best companies
Speaker 4: that were going public ten years ago generated eighty eight
Speaker 4: percent of their overall dollars of return in the public markets.
Speaker 4: So if you just took total market cap creation, only
Speaker 4: twelve percent of it was happening in the private markets.
Speaker 4: If you look at the recent crop of IPOs in
Speaker 4: the last five years, fifty five percent of their market
Speaker 4: cap creation happened in the private markets. Forty five percent
Speaker 4: happened in the public markets. So there is a massive
Speaker 4: shift that's taken place in terms of where value creation happens.
Speaker 4: That's benefited us in terms of pricing. We've invested in
Speaker 4: a portfolio of great companies. I've listed all the some
Speaker 4: of our investments of our biggest investments, our companies like
Speaker 4: Data Bricks and SpaceX and Waymow and open Ai and Andoral,
Speaker 4: you know, Strike and Flock Safety and companies like that.
Speaker 4: If you take our portfolio on average, it's growing one
Speaker 4: hundred percent and we invested at twenty one times revenue.
Speaker 4: Now I've recognized their flaws with revenue multiples and all that,
Speaker 4: but I would say, if you could let me have
Speaker 4: a career, an entire career of investing in market leading,
Speaker 4: great technology companies where we could buy them at twenty
Speaker 4: one times revenue and they're growing one hundred percent, that
Speaker 4: would be an incredible trade or an incredible investment opportunity.
Speaker 4: And so in terms of valuations, I feel like there
Speaker 4: is a discount to being in the private markets, and
Speaker 4: you know, founders, I think understand that for the most
Speaker 4: part and make that trade off. But it's definitely a
Speaker 4: dynamic that we see. There's one more thing that I
Speaker 4: would call out. You know, I mentioned earlier that only
Speaker 4: three companies in our universe and the public markets are
Speaker 4: actually growing greater than thirty percent. There is a dynamic
Speaker 4: where I do think it's hard for public market investors
Speaker 4: even to grock really really high growth rates. So if
Speaker 4: you're growing like sixty percent, I think automatically a public
Speaker 4: market investor is going to build a financial model that
Speaker 4: says sixty fifty forty, thirty eight percent, and then they're
Speaker 4: going to value you as such, and then they'll pick
Speaker 4: an exit multiple at year five, and they'll apply it
Speaker 4: to twenty percent growth, and they'll probably say at that
Speaker 4: point you'll be twenty percent margins, and they'll be happy,
Speaker 4: and they'll call it a day, and they'll have your
Speaker 4: stock price be that when in reality, you know, if
Speaker 4: you're a great company, you know, like Data Bricks that's
Speaker 4: still growing north of sixty percent, like you're worth probably
Speaker 4: three to four x difference in value. If you grow
Speaker 4: sixty percent, fifty five percent, fifty two percent, forty eight percent,
Speaker 4: forty five percent, like it's it's probably like a three
Speaker 4: x or four difference in how you're valued and so
Speaker 4: I do think people like us with a longer time
Speaker 4: horizon in the private markets may have an easier time
Speaker 4: of actually grocking that very high growth rate. You know,
Speaker 4: Data Bricks is growing sixty five percent. If you look
Speaker 4: at the public markets, you know, really only Palenteer is
Speaker 4: you know a software company that's growing that fast. I
Speaker 4: think they're growing seventy percent. They're about the same size
Speaker 4: as Data Bricks, and their valuation multiple is thirty five
Speaker 4: times or something like that. And so that's the one
Speaker 4: example where maybe public market investors are attributing a really
Speaker 4: high valuation to very high kind of hyper growth. But
Speaker 4: for the most part, I think it's pretty hard for
Speaker 4: them to grop that. And so again, you know, we
Speaker 4: have conversations with the founders of these companies in the
Speaker 4: private markets. You know, I think we understand it. I
Speaker 4: think we understand multi product and you're less likely to find,
Speaker 4: you know, a full public market of folks who will
Speaker 4: give you credit for that hyper growth.
Speaker 2: I find this to be a very interesting observation. I mean,
Speaker 2: just generally public or private, it does seem like several
Speaker 2: generations ago, you assume, Okay, here's a really big company.
Speaker 2: It's not going to be one of the fastest growing
Speaker 2: companies in the world, and you apply that sort of
Speaker 2: model mindset we marked on their growth expectations. I mean
Speaker 2: even Alphabet I think in its latest quarter I actually
Speaker 2: had faster top line growth than it had in the
Speaker 2: quarter before, like on a year over year basis. So
Speaker 2: sitting aside public or private, it does feel like there's
Speaker 2: just this phenomenon where really gigantic companies grow at shocking,
Speaker 2: shocking top line rates year after year in a way
Speaker 2: that maybe even still investors might not appreciate. I have
Speaker 2: a question for you something I've always wondered. Okay, let's
Speaker 2: say one of your big portfolio companies goes public eventually,
Speaker 2: you know, Stripe or something like that. How does a
Speaker 2: GP or how do how does the firm think about
Speaker 2: selling at that point? Is it okay? You're you're private
Speaker 2: market investors, so you get out fairly soon. You know,
Speaker 2: on a whole dead do they get distributed and then
Speaker 2: it's up to the LPs to think about it? What
Speaker 2: is the cell decision like once a company is no
Speaker 2: longer private.
Speaker 4: Yeah, it's a great question. And by the way, to
Speaker 4: your point on these large cast high growth companies, it's
Speaker 4: a really good learning for all of us that the
Speaker 4: very best companies can you know, sort of to fire
Speaker 4: your expectations and still grow fast even though they're big.
Speaker 4: Like it's sort of the breaking of the law of
Speaker 4: the absolution. Yeah, eyes of a company like Meta accelerated
Speaker 4: revenue growth to thirty percent last quarter, right, Like that's shocking.
Speaker 4: Like that company it's worth almost two trillion dollars going
Speaker 4: to accelerate to thirty percent growth. Same with Google, north
Speaker 4: of twenty percent growth. So if you can find those opportunities,
Speaker 4: I would say Stripe is a good example of this.
Speaker 4: Previous generations of this would be like Visen MasterCard, Like
Speaker 4: if you had a strong thesis that those would grow
Speaker 4: at north of twenty percent for fifteen years, you would
Speaker 4: value it a very different way than if you thought
Speaker 4: that that growth would tail off over time. So, yeah,
Speaker 4: I think it's great that you brought up Google, and
Speaker 4: you know, we think about the large cap companies to
Speaker 4: try and inform what could go right with the best
Speaker 4: of the best of the companies and the private markets
Speaker 4: for us to not just over five years, but over
Speaker 4: ten plus years. So to your question about distributions are
Speaker 4: selling when our companies go public, our LPs, our investors
Speaker 4: tend to like to have distributions as opposed to us selling.
Speaker 4: You know, many of them have public desks or public
Speaker 4: operations on their own, and they would prefer to take
Speaker 4: the stock and you know, manage tax consequences on their own,
Speaker 4: or maybe they have a long book that wants to
Speaker 4: hold it, and so, you know, we tend to distribute companies.
Speaker 4: I would say, for the most part, when our companies
Speaker 4: go public, I'll speak from the growth fund, you know,
Speaker 4: where we're coming in at a more mature stage at
Speaker 4: the company. Just because the company goes public doesn't mean
Speaker 4: that we will exit. Now. We always seek to return
Speaker 4: capital to our LPs, and we want to make sure
Speaker 4: that we're doing that on appropriate time horizon. But often,
Speaker 4: you know, we'll find situations in the public markets where
Speaker 4: we think our companies are massively undervalued. You know, I'll
Speaker 4: give you an example. One of our best companies was
Speaker 4: a company called Samsara, which does fleet management video tracking
Speaker 4: for drivers. They're the market leader. Second time founders. They
Speaker 4: were the founders of Moroki, which sold the Cisco So
Speaker 4: they're an exceptional team doing great. They went public right
Speaker 4: at the tail end of twenty twenty one, and the
Speaker 4: IPO market was starting to freeze and they were the
Speaker 4: last IPO and so we ended up being the largest
Speaker 4: buyer in their IPO. So all of the public funds,
Speaker 4: you know, Fidelity, TROW, some of them invested, but we
Speaker 4: ended up actually being the biggest buyer and then we
Speaker 4: held that for a long period of time even though
Speaker 4: it was in the public market. So we'd like to
Speaker 4: think about, you know, what is the future of the
Speaker 4: company even if they're in the public markets, and we
Speaker 4: would buy us to hold it a little bit longer
Speaker 4: if the founder's still running the company. We place a
Speaker 4: tremendous amount of value in founders running companies, which I'm
Speaker 4: happy to talk about. And if we think the growth
Speaker 4: prospects are really bright, you know, will tend to sort
Speaker 4: of buy us to hold a little bit longer.
Speaker 3: What's the actual catalyst for going public then, because if
Speaker 3: we think there's plenty of capital in the private markets,
Speaker 3: employees are you know, generally pretty happy with their compensation.
Speaker 3: People can live with the capital cost. Why would you
Speaker 3: go public or like, what's the most common reason in
Speaker 3: terms of timing.
Speaker 4: Yeah, the biggest thing would be access to larger pools
Speaker 4: of capital, and you know, you finally feel like you're
Speaker 4: making that trade off where the cost of capital in
Speaker 4: the public markets would just be much more attractive, and
Speaker 4: so you want to go do it there. So in
Speaker 4: the case of building, for example, data centers in space
Speaker 4: that will require a tremendous amount of capital over time,
Speaker 4: you know, you can get a lot of that capital
Speaker 4: in the private markets, and you know, maybe at some
Speaker 4: point it makes sense to tap the public markets to
Speaker 4: get that. You know, if you have huge ambitions, sometimes
Speaker 4: it's easier to get debt and alternative forms of financing
Speaker 4: in the public markets as well. And then lastly, you know,
Speaker 4: if you feel like the competition is really fierce for
Speaker 4: your employees, and you know, I described that dynamic of
Speaker 4: you know, quarterly RSUs and you know stock currency that
Speaker 4: might be a little bit easier to manage in the
Speaker 4: public markets. That would be another reason. It's not just employees,
Speaker 4: it's also if you want to do meaningful m and A.
Speaker 4: You know, there's probably a little bit of a benefit
Speaker 4: to being in the public markets and having a public
Speaker 4: currency that you can use where you know, you don't
Speaker 4: have to debate with the sellers what the value of
Speaker 4: your equity is because it's in the public markets. You know,
Speaker 4: there's a there's a daily stock price. So those are
Speaker 4: a few of the dynamics.
Speaker 3: Does the private market trend does that hold? As we
Speaker 3: see you know, more and more tech is just about AI, right,
Speaker 3: And if there's one thing we know about AI, it's
Speaker 3: that it requires quite a lot of capital investment. So
Speaker 3: does that start to change the dynamics or the balance
Speaker 3: of power between private and public? In your mind, it goes.
Speaker 4: Back to the same point, which is, at some point,
Speaker 4: you know, the amount of capital required, it probably makes sense,
Speaker 4: you know, to be in the public markets. You know,
Speaker 4: I do think for large scale consumer businesses, I think
Speaker 4: there's some value in being in the public markets, you know,
Speaker 4: letting retail take part in the ownership of your stock,
Speaker 4: you know, having greater brand recognition. You know, we saw
Speaker 4: this recently on the B to B side as well
Speaker 4: with one of our public companies. And after going public,
Speaker 4: you know, sometimes there's sort of a brand benefit that
Speaker 4: you get brand halo, you're better known, you know, an
Speaker 4: IT buyer trusts a little bit more in your future.
Speaker 4: So there are some of those dynamics that exist. You
Speaker 4: know AI. First of all, I think these have the
Speaker 4: potential to be some of the best businesses ever created.
Speaker 4: They're run by exceptional founders. They're building products that have
Speaker 4: grown at rates that we've never ever seen before. So
Speaker 4: you know, they're kind of speed running the process of
Speaker 4: company growth in a way, getting to be bigger and
Speaker 4: more consequential, much much faster than the previous generation of companies.
Speaker 4: So you know, maybe that means they should be in
Speaker 4: the public markets a little bit faster too.
Speaker 2: Maybe last year at some point open Ai had a
Speaker 2: big tender and then suddenly no one could afford to
Speaker 2: buy a house again in San Francisco because all that
Speaker 2: money went into real estate. But there's a serious question, actually,
Speaker 2: and it's particularly cute at the AI companies. Is there
Speaker 2: any stigma of being an employee who sells some of
Speaker 2: their shares. It's like, all right, you could sell twenty
Speaker 2: five percent of your shares, and then there's like I
Speaker 2: want to sell. It's like, what, you don't believe in
Speaker 2: the simularity. You don't believe that we're on the path
Speaker 2: to Adrian. You don't think you think we're done with
Speaker 2: our you think we're almost at the end of our
Speaker 2: mission and that our value won't be ten Is that like?
Speaker 2: Is there any anxiety on the part of employees at
Speaker 2: a real like mission driven fast growth companies of like
Speaker 2: I want to dip my too in the water. I
Speaker 2: want to hedge a little bit. I want to hedge
Speaker 2: my own company. I want to diversify away from my
Speaker 2: own company.
Speaker 3: Suddenly, the factor isn't playing ping pong with you exactly exactly.
Speaker 4: Yeah, you're not allowed to have lunch.
Speaker 2: In a real phenomenon, I would be anxious about raising
Speaker 2: my hand.
Speaker 4: Yeah, I think everything in moderation. Most of the time,
Speaker 4: there's not like a stigma, and most of the time
Speaker 4: it's not, you know, an opportunity to sell so much
Speaker 4: stock that it would be a vote of lack of
Speaker 4: confidence if you will right. You know, if it's twenty
Speaker 4: five percent of your vested stock and you've been there
Speaker 4: for two years, that means you probably have a ton
Speaker 4: of unvested stock, and so you're talking about a small
Speaker 4: proportion of your overall buildings. You know, we never really
Speaker 4: see a chance for employees to send a design that
Speaker 4: way where employees say, oh my gosh, I'm out, I
Speaker 4: want to sell one hundred percent of my stock. In fact,
Speaker 4: you know, we don't have data on this, but I
Speaker 4: would suspect that in the public markets, you know, employees
Speaker 4: are probably selling out of their stock grants at a
Speaker 4: higher rate than in the private markets. Yeah, and I
Speaker 4: think you know, if you're if you're at one of
Speaker 4: these companies in the private markets, you probably have a
Speaker 4: greater degree of confidence. You know, if you're a good employee,
Speaker 4: you could you could always go to Google or Facebook
Speaker 4: or Meta and click coupons. But I think that most
Speaker 4: of the time the good ones are are true believers.
Speaker 4: We do have companies where the founders. One of my
Speaker 4: favorite things is when the founders just say I'm not
Speaker 4: selling a share, and you know, that is like the
Speaker 4: ultimate extreme point of confidence. We spend time with a
Speaker 4: very high profile internet CEO of the previous generation. It's
Speaker 4: now a public company, and one of the meetings we
Speaker 4: were talking to him about secondary and he was so resolute.
Speaker 4: He was like, I'm not selling a share, Like why
Speaker 4: would I sell a single share? Like I'm so confident
Speaker 4: it's going to go up. I don't want to do
Speaker 4: that at all. And that's a pretty strong signal of
Speaker 4: confidence in the future of the company. So we look
Speaker 4: for some of those signals when we invest. You know,
Speaker 4: my my partner, Exter Impel, wrote a good piece many
Speaker 4: years ago to your point on real estate and buying
Speaker 4: a house and affordability that showed Bay Area stock prices,
Speaker 4: you know, of like the megacap stocks index against home
Speaker 4: values and it's like perfectly correlated. So you know, home
Speaker 4: price appreciation is kind of tethered to the local economy
Speaker 4: in a way, and so you know, it's not totally
Speaker 4: surprising that you see you see it move in that direction.
Speaker 3: Yeah, I think it's fair to say there are a
Speaker 3: lot of people in San Francisco right now who are
Speaker 3: excited about making money off of AI, and some of
Speaker 3: them have been doing so already. But on that note,
Speaker 3: how are you actually differentiating between AI models? I guess
Speaker 3: like this is a way of asking, how are you
Speaker 3: cutting through the hype? Because we see all these new
Speaker 3: companies launching, a lot of them use similar language. We
Speaker 3: see total available market TAM being thrown around quite a
Speaker 3: lot nowadays. How do you decide this is actually like
Speaker 3: a good business model versus this is just something that
Speaker 3: has AI in the name and is getting some attention.
Speaker 4: Yeah, So we're we're investors in We're probably the largest
Speaker 4: investor in the AI industry as a firm. I think
Speaker 4: we're investors in two thirds of the aggregate AI revenue.
Speaker 4: So if you were to just sum together all of
Speaker 4: the AI revenue of the companies in the private markets,
Speaker 4: we're investors in about two thirds of it. So I
Speaker 4: think we have a front row seat to it. You know,
Speaker 4: first of all, I'll just start with the demand side.
Speaker 4: This is the biggest thing that we look to. There's
Speaker 4: a billion people plus using this technology getting extremely large
Speaker 4: surplus or value out of it. The companies are the
Speaker 4: fastest growing that we've ever seen. You know, active users
Speaker 4: spends something like thirty minutes a day on it, and
Speaker 4: you know there's a tremendous amount of surplus that comes
Speaker 4: with that, even if you're paying as a subscriber for
Speaker 4: those So on the consumer side, you know, I think
Speaker 4: the capabilities are extreme. They're very, very good, just now
Speaker 4: starting to scratch the surface on the capabilities of you know,
Speaker 4: sort of doing work on your behalf. And so I
Speaker 4: think we're going to see a ton of progress on
Speaker 4: that front over the next year. But the demand signals
Speaker 4: that we see are probably not. Probably, they are definitively
Speaker 4: the best that we've ever seen in my career, you know,
Speaker 4: certainly much faster than you know, the Internet phase or
Speaker 4: mobile social, you know, cloud SaaS, e commerce, any of those,
Speaker 4: so tremendous amount of value on the demand side, that's
Speaker 4: the biggest thing we look for. On the supply side,
Speaker 4: you know, look the build out. There's there's there's a
Speaker 4: ton written about the buildout of infrastructure that's required. It's
Speaker 4: you know, it's larger than you know, the US highway
Speaker 4: system overall, you know, five trillion dollars over the next
Speaker 4: five to seven years. The thing that I say about
Speaker 4: the supply side is we don't need to make the
Speaker 4: decision on investing every single one of those dollars. As
Speaker 4: an industry today, the industry can monitor demand and we
Speaker 4: can make decisions about capex as we go. Cycles are
Speaker 4: not five years long. Cycle times are more like twelve months,
Speaker 4: and so if we see a weakening of demand or
Speaker 4: a lack of payback in some of this infrastructure build out,
Speaker 4: then you know, that's fine, we can we can adjust course.
Speaker 4: The people who are I think there's probably a misconception
Speaker 4: about the people who are in charge of these these
Speaker 4: companies and you know, at the center of all this
Speaker 4: like us, like we, and they are all sort of
Speaker 4: ROI C or return on capital minded people like We're
Speaker 4: not gonna, you know, invest a bunch of capital if
Speaker 4: we think there's not going to be a high return
Speaker 4: from it. So, you know, to the extent that there
Speaker 4: is some overbuild or you know, signs of a lack
Speaker 4: of demand to meet the supply, I think the industry
Speaker 4: will adjust. You know, we've written about this before. You know,
Speaker 4: if you can trast this build out with the fiber
Speaker 4: build out so far, if you put a GPU or
Speaker 4: a TPU online, it immediately gets used. And this holds
Speaker 4: for actually very old GPUs and TPUs. Google's disclose this
Speaker 4: about their TPUs. They are ten years old. You can
Speaker 4: pretty easily find pricing of two generations to go GPUs
Speaker 4: on the market, and the price of these have all held.
Speaker 4: So there are no dark GPUs. No one is building
Speaker 4: data centers that aren't being fully utilized right out of
Speaker 4: the gate. You know, contrast that with the Internet build out.
Speaker 4: The Internet build out was characterized by dark fiber, and
Speaker 4: so you know, you had to lay all this groundwork
Speaker 4: before you actually had any signs of demand, and so
Speaker 4: obviously there was there's a mismatch in supplying demand. So
Speaker 4: that's the sort of overall kind of view on supplied
Speaker 4: demand dynamics. I'm very, very optimistic. I think we're in
Speaker 4: the early days of figuring out really interesting applications to
Speaker 4: build on top of this technology. And you know, in
Speaker 4: terms of model capabilities, models are improving at a like
Speaker 4: eye popping rate. You know, they can basically double their
Speaker 4: ability to complete long form tasks over six to seven months.
Speaker 4: And so you know, if you were to just arrest
Speaker 4: model development today, I think we would have the chance
Speaker 4: to build ten to twenty years of really interesting applications
Speaker 4: on top of it.
Speaker 2: The big thing that happened in public markets so far
Speaker 2: this year is the absolute slaughtering of sort of non
Speaker 2: AI companies and legacy software companies of various sorts and
Speaker 2: so forth. How are you thinking about companies that don't
Speaker 2: own a model, that maybe have to buy intelligence from
Speaker 2: another company or so forth. Who in your view, and
Speaker 2: you're thinking about private or public companies who that's not
Speaker 2: an AI lab, What types of businesses survive and which
Speaker 2: ones are not going to survive if they don't own
Speaker 2: intelligence in the raw.
Speaker 4: Yeah, so I will cover both of these topics because
Speaker 4: I have pretty strong views on what's happening in the
Speaker 4: software market, and then we can talk about what the
Speaker 4: sort of future of companies that don't own a model is.
Speaker 4: On the latter point, we can cover that one. First look,
Speaker 4: companies buy solutions, right, and so you know, context is
Speaker 4: still king in most industries. There will be companies that
Speaker 4: compound their knowledge of industry specific workflows, industry specific data
Speaker 4: that they attatched to, and so oftentimes that won't be
Speaker 4: what the model companies choose to pursue. You know, customers
Speaker 4: buy solutions, they don't buy some discrete workflow or just
Speaker 4: a database or a system to take action. So the
Speaker 4: most important thing is industry context. You also need a
Speaker 4: throat to choke, right. I think that's going to be
Speaker 4: increasingly important for customers. You know, So support, maintenance, integrations,
Speaker 4: data partnerships, user community I think are all important things
Speaker 4: for companies that are building applications that are not model owners.
Speaker 4: And I think in most verticals and many of the
Speaker 4: functions in an organization, there will be independent companies that
Speaker 4: do that. Model companies are going to be an arms
Speaker 4: dealer to most industries for some tasks or work that
Speaker 4: are highly horizontal or general, so something like general knowledge
Speaker 4: management inside of a corporation. The model companies are probably
Speaker 4: pre well positioned for that. But you know, things like
Speaker 4: legal work, medical work, customer support tasks, you know a
Speaker 4: lot of stuff that will happen in sales, accounting, finance
Speaker 4: like those are. I think those are going to be
Speaker 4: independent vendors, and the model companies are going to be
Speaker 4: arms dealers to those. So that I think is the
Speaker 4: future of applications for companies that do not own models.
Speaker 4: I think it's a very bright future. We've invested a
Speaker 4: lot in some of these leading companies, but I think
Speaker 4: both the model companies and those companies will be big
Speaker 4: and successful. On the software side, yeah, I mean, look,
Speaker 4: the software industry has been crushed in the public markets.
Speaker 4: We could debate whether it's overblown or not, but I'll
Speaker 4: give you my diagnosis of the situation. You know, not
Speaker 4: particularly on valuations of specific companies, but here's what's going
Speaker 4: to happen with the software companies and the public markets.
Speaker 4: I think the issue is not that there's going to
Speaker 4: be a ton of new software in the future, there
Speaker 4: is going to be a ton of new software in
Speaker 4: the future. The whole story of SaaS and cloud was
Speaker 4: that the market grew seven x in size, and some
Speaker 4: of that was captured by incumbents, some of it was
Speaker 4: captured by startups. The issue is, are the incumbents that
Speaker 4: are in the public market it's going to actually be
Speaker 4: the ones that capture that And by the way, I
Speaker 4: think it'll be much bigger than seven x this time.
Speaker 4: So why is it, you know, sort of a question
Speaker 4: of whether those incumbents have the chance to do it.
Speaker 4: First of all, it's probably going to be much harder
Speaker 4: for them to grow right all the new budget Basically
Speaker 4: in any buyer organization is going toward AI initiatives right
Speaker 4: now now. It doesn't mean that they're ripping out their
Speaker 4: software systems. Gross dollar retention remains extremely high for these
Speaker 4: incumbent software systems, and I think it will for a while.
Speaker 4: But if you look since twenty twenty one, net dollar
Speaker 4: retention of these companies has steadily declined. If you look
Speaker 4: at the amount of revenue that the entire software industry
Speaker 4: is adding in twenty twenty six, the amount of revenue
Speaker 4: that open Ay Andthropic alone will add is going to
Speaker 4: be greater than the amount of the total revenue added
Speaker 4: by all of the software market. Like that's SAP into
Speaker 4: a salesforce workday service, now all those vendors, So the
Speaker 4: growth is actually going toward AI initiatives, and so you know, yes,
Speaker 4: they may not be getting ripped out, those incumbent vendors,
Speaker 4: but it's going to be much harder for them to
Speaker 4: find growth. So you know, from a product standpoint, they're
Speaker 4: not going to get torn out, but they really run
Speaker 4: the risk of value getting built on top of them.
Speaker 4: So those are going to be systems of record, but
Speaker 4: you just build new vendors, build new products that can
Speaker 4: take action on top of those. And I think that's
Speaker 4: a real risk for the software industry right now. If
Speaker 4: building software, the process of building software becomes much faster,
Speaker 4: there's another dynamic where every vendor can basically increase the
Speaker 4: amount of skews they offer rapidly massively. And so if
Speaker 4: you are a platform vendor of choice and you sell
Speaker 4: a bunch of software in this domain, are everyone in
Speaker 4: the in the nearby domains will also have those products,
Speaker 4: and they'll all try to sell those new products, and
Speaker 4: it'll get more competitive, So I think that's a dynamic
Speaker 4: that's that's really a risk for them. The most powerful
Speaker 4: change that I think is going to happen, which we're
Speaker 4: only seeing early signals of, is a business model shift.
Speaker 4: So when these technology shifts happen, you know, new user interface,
Speaker 4: new workflows, new data that you access that favors you know, newcomers,
Speaker 4: you know over incumbents. When you pair it with a
Speaker 4: business model shift, that massively favors the newcomers, right because
Speaker 4: it's so hard to react if you're one of the incumbents.
Speaker 4: And so the big shift if you if you just
Speaker 4: take a spectrum of business models that's happened. You know,
Speaker 4: we used to sell license maintenance software. We move that
Speaker 4: to you know, seat based subscription. Then with the clouds,
Speaker 4: a lot of companies have become consumption based pricing models.
Speaker 4: And in the future with AI and a lot of domains,
Speaker 4: is going to be outcome based pricing. You can see
Speaker 4: this first in the customer support industry because they're sort
Speaker 4: of verifiable tasks that those companies have to complete. But
Speaker 4: to the extent that we actually get to the point
Speaker 4: where the predominant way that that enterprises want to buy
Speaker 4: is via outcomes and they can measure those results. I
Speaker 4: think it's gonna be really tough for.
Speaker 2: The incoming David, George, Andrews, and Horwitz. Thank you so
Speaker 2: much for coming on odd Laws. That was a fascinating
Speaker 2: learned a ton and really appreciate you taking your time.
Speaker 4: Thanks so much, David, great to be with you all.
Speaker 4: Thanks for having me.
Speaker 2: Tracy. I thought that was a fascinating conversation. So much there,
Speaker 2: and you know, it's fun to talk tech but also
Speaker 2: have it be such a capital markets heavy conversation.
Speaker 3: Yeah, I kind of the idea of software companies their
Speaker 3: value resting in the fact that they're like convenient scapegoats
Speaker 3: for management. Yeah, it's kind of funny in a dystopian way.
Speaker 2: But I remember Steve Bohmer said that yours go when
Speaker 2: he was talking about why Linux wouldn't take off. Yeah,
Speaker 2: because you're like, no, what are you going to just like,
Speaker 2: who are you going to get upset with your Linux
Speaker 2: goes down? Other than companies? Did you know Redhead grew
Speaker 2: up to like professionally service. I thought that was really interesting,
Speaker 2: the idea of like outcome based pricing, but just also
Speaker 2: some of the numbers are staggering, just like how big
Speaker 2: you know this is. I've thought about this with like
Speaker 2: when people look at the public markets and they say, well, yeah,
Speaker 2: it's not that overvalued because you know, most of the
Speaker 2: public companies are making a lot of money. If you
Speaker 2: were to sort of like build one index of big
Speaker 2: private and public companies, you'd have a lot of market
Speaker 2: cap on companies that aren't making money yet, and that
Speaker 2: would very much like sort of skew your view of
Speaker 2: this sort of like total valuation of the universe of tech.
Speaker 3: Companies absolutely Well. The other thing I was thinking is
Speaker 3: just that question of whether or not that kind of
Speaker 3: the balance between private and public starts to reverse. But
Speaker 3: because so much of the excitement right now is about AI,
Speaker 3: which you know, is capital billions and billions and needs
Speaker 3: huge polls of capital, I guess the counterpoint to that is,
Speaker 3: like there's a self reinforcing trend in the private market,
Speaker 3: which is like, if that's where all the growth is,
Speaker 3: if that's where people are making all the money, it
Speaker 3: tends to attract even more capital. So I don't know,
Speaker 3: maybe maybe AI means that private capital grows even more
Speaker 3: and so AI can keep tapping it.
Speaker 2: There seems to just be an endless amount of money. Yeah,
Speaker 2: in the middle least. I mean specifically, you know, it's
Speaker 2: like raising more from the UAE or Saudi or whatever
Speaker 2: that just keeps these companies private. If I were at
Speaker 2: like Open Air, I would be really anxious about selling
Speaker 2: it a tender. I would be like, I don't want to.
Speaker 2: I believe, I believe, I swear I believe that I
Speaker 2: believe we're going to get there to ASI or whatever.
Speaker 2: I would be really uncomfortable about it. Tapping out hedging
Speaker 2: my portfolio.
Speaker 3: Joe, You'd have to be very, very important for the
Speaker 3: founder to actually care to care about what you're doing
Speaker 3: with your shares. But I'm sure you would be all right.
Speaker 3: Shall we leave it there?
Speaker 2: Let's leave it there.
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Speaker 1: In an a