Speaker 1: I'm Caroline Hana Blue Mugs World headquarters in New York
Speaker 1: and Mad Love though in San Francisco. This is bloom
Speaker 1: Bug Technology. Coming up this hour, the FTC is front
Speaker 1: and center. Federal regulators looking to block Microsoft's sixty billion
Speaker 1: dollar acquisition of Activision Blizzard, saying the tie up between
Speaker 1: the Xbox maker and the game publisher would harm competition. Plus,
Speaker 1: the FTC has opened its campaign to block Metters acquisition
Speaker 1: of a virtual reality company. We had the story straight
Speaker 1: from the San Jose Federal courtroom, and Russia builds on
Speaker 1: Elon Musk and his bankers. That's as they consider providing
Speaker 1: him with new margin loans backed by Tesla Stock to
Speaker 1: replace the riskiest Twitter debt. We've got details of that later.
Speaker 1: But first the FTC did what we thought the FTC
Speaker 1: might do. They've stuck to the promise they're going tougher
Speaker 1: on Big M and A, particularly in the text space.
Speaker 1: Lena Carna Coles promised that and she follows through. And
Speaker 1: let's dig into all of this in d C. I
Speaker 1: want to follow the news. You want to get to
Speaker 1: where the regulators are looking to block that. So it's
Speaker 1: seen nine billion dollar deal and of course, it's all
Speaker 1: about a question of competition, whether or not it would
Speaker 1: be harmed by this deal. Lea. Nilan has been breaking this.
Speaker 1: You had the scoop Leah and back before we got
Speaker 1: the announcement from the FTC. Just talk to us about
Speaker 1: the reasoning behind this decision. Yeah, it's really interesting. I mean,
Speaker 1: a lot of the focus in the Microsoft Activision deal
Speaker 1: has been on the console market, but the FTC said
Speaker 1: that it's actually not as worried about the console market
Speaker 1: as it is about where gaming might be going in
Speaker 1: the future, which is into subscriptions and the cloud. UM.
Speaker 1: And they said that's a major reason why they have
Speaker 1: concerns about this deal is acquiring Activision is going to
Speaker 1: give Microsoft a great library of games that will give
Speaker 1: it sort of an insurmountable lead in these two sort
Speaker 1: of emerging markets. UM. Given that Microsoft also already has
Speaker 1: some advantages with its you know, cloud based um cloud
Speaker 1: based service, making it a little bit cheaper for it
Speaker 1: than other gaming companies to offer this kind of a service.
Speaker 1: And yet, and yet Microsoft had been trying to get
Speaker 1: ahead of this, been trying to do deals a decade
Speaker 1: deal done of course just yesterday with Nintendo for access
Speaker 1: to cool of duty. UM. We understand that they sat
Speaker 1: down with Lena Khan yesterday to trying to explain the reasoning.
Speaker 1: It seemingly hasn't landed. No. I mean, the FTC, particularly
Speaker 1: under Lena Khan, has been very, very worried about the
Speaker 1: sort of deals that the tech giants are doing. As
Speaker 1: you mentioned, you know, today the FTC started its lawsuit
Speaker 1: against Meta over the acquisition of a virtual reality startup. UM.
Speaker 1: You know, the Microsoft folks came to d C. They
Speaker 1: had offered a lot of concessions, I mean, not just
Speaker 1: these ten year deals with the other console makers. They
Speaker 1: had reached an agreement with the Communication Workers of America
Speaker 1: to offer labor neutrality if any of the gaming studios
Speaker 1: wanted to unionize, which they thought, you know, FTC would
Speaker 1: look kindly upon. Um. They had also offered some uh
Speaker 1: conditions related to employment noncompetes that they thought that FTC
Speaker 1: would like, and that was not quite enough to do
Speaker 1: it for in the end. I guess Leah, those conditions
Speaker 1: or offers that Microsoft made are academic, right, they weren't enough.
Speaker 1: What's the timeline from this point? Just because the FTC
Speaker 1: has voted in this direction, it doesn't mean the deal
Speaker 1: is dead. No, No, this is UM. They voted for
Speaker 1: an administrative complaint. That means that from here it goes
Speaker 1: to a trial within the FTC before the FTC's in
Speaker 1: house UM administrative law judge. That sort of a process
Speaker 1: is going to take several months. You know, probably we
Speaker 1: would not have a decision, an initial decision, until next summer,
Speaker 1: next fall, UM. And from there, you know, Microsoft can
Speaker 1: still appeal several times. So this is by no means
Speaker 1: the end. And Microsoft says it intends to litigate UM
Speaker 1: there is this is not the only regulatory approval they need.
Speaker 1: They still need approval in the UK and also in
Speaker 1: the EU are the two main other ones, and UM,
Speaker 1: neither of those jurisdictions we're going to make a ruling
Speaker 1: on on this deal until at least the spring March
Speaker 1: or April. So Microsoft is still going to keep forward
Speaker 1: with moving towards regulatory approval there as it tries to
Speaker 1: litigate here in the US. I kind of love this
Speaker 1: story because there's a process that happens, but there's also
Speaker 1: fighting talk. I saw headlines crossing the Bloomberg from Activision CEO,
Speaker 1: for example, what is their public position the companies about
Speaker 1: what they want out this. Yeah, I mean both companies
Speaker 1: have said, we want this deal to close. We want
Speaker 1: this deal. We think it's good for consumers because it
Speaker 1: expands access to gaming UM in ways that they wouldn't
Speaker 1: have now through these cloud and subscription based products UM.
Speaker 1: Right now, Activision does not have any its games on
Speaker 1: any of these subscription uh subscription based products, and you know,
Speaker 1: so obviously this would expand access UM and both of
Speaker 1: them say that they are committed to fighting. Now. You know,
Speaker 1: the deadline for the deal isn't until next summer, so
Speaker 1: they'll probably have to look at it extending it because
Speaker 1: of the length of the FTC's process, but you know
Speaker 1: they might be willing to do that. Bloomberg's lead Nylon
Speaker 1: Carrol said it fantastic reporting. Thank you. All right, let's
Speaker 1: move on to San Jose, where federal regulators are opening
Speaker 1: their campaign to block Metas acquisition of the virtual reality
Speaker 1: company within Bloomberg's Alex Brinka is down at the courthouse.
Speaker 1: She's been there all day long. What was the story
Speaker 1: of the day and how did things play out? Yeah,
Speaker 1: so they started opening statements. Witnesses are starting right now,
Speaker 1: and the big story of the day is the FDC
Speaker 1: is trying to kind of push this novel argument uphill
Speaker 1: to prove that this deal could hurt future competition in
Speaker 1: the virtuality fitness space. You're just talking about the Microsoft
Speaker 1: activision also looking at future competition. This is kind of
Speaker 1: a torch that FDC chair Um has been taking saying, Look,
Speaker 1: we need to get the regulations um right now before
Speaker 1: a company has a monopoly. So they tried to make
Speaker 1: that argument. The FDC also laid out some really interesting
Speaker 1: evidence showing their case Um that Meta has been was
Speaker 1: building a VR fitness app internally and they scrapped that. Actually,
Speaker 1: when Apple had some interest in the company they ended
Speaker 1: up acquiring, they scrapped that instead to acquire the company
Speaker 1: called Within, and in doing so, they basically took a
Speaker 1: potential future rival, that internal potential UM app that Meta
Speaker 1: would build off the table, and that's what hurt competition.
Speaker 1: So some back and forth there on both sides in
Speaker 1: terms of what the two litigants are pushing for. Talk
Speaker 1: to us about the back and forth from metas perspective,
Speaker 1: how are they trying to argue that, look, they weren't
Speaker 1: actually building something internally. Uh, there was charts and there
Speaker 1: were words. They basically threw up an organ chart saying,
Speaker 1: look from Mark Zuckerberg all the way down the chain,
Speaker 1: it was a no at every step In terms of
Speaker 1: the effort to build this internally. It was only a
Speaker 1: brainstorming exercise. And then they realized that actually building this
Speaker 1: app internally there were too many obstacles. It was too
Speaker 1: hard to do, so the best course of action was
Speaker 1: to go out and acquire. We also heard metas Council
Speaker 1: more Hanson come out and say, look, this this nascent
Speaker 1: competition argument the FTC is making. They think that they
Speaker 1: have no evidence here and that it could have a
Speaker 1: chilling effect on any vertical deals in the future because
Speaker 1: companies might be afraid to go out and buy companies
Speaker 1: they don't compete with just because they're big, because the
Speaker 1: FDC might then get involved. So some real pushback. They're saying, look,
Speaker 1: the core of of the FTCs argument is not true
Speaker 1: in terms of what they layout over the next eight days.
Speaker 1: I think that's so important that you really bring the
Speaker 1: context more broadly here, Alex, because this isn't just also
Speaker 1: about the nacency of this particular type of technology, but
Speaker 1: also the nacency of Meta zone pivot into the Meta BHUs.
Speaker 1: What does it mean for them the fact that they
Speaker 1: pegged everything on this space and then being stopped from
Speaker 1: doing in organic growth in it, and Met as a
Speaker 1: company who has pushed into new spaces through acquisition. We
Speaker 1: saw that with Instagram, we saw that with with WhatsApp,
Speaker 1: So you can imagine that them going out inquiring an
Speaker 1: app like this is meant to layer on top of
Speaker 1: their oculus, which was also an active position headset to
Speaker 1: move into this space. They are a year in to
Speaker 1: being renamed Meta after the Metaverse, which is the virtual
Speaker 1: reality world that they're working on building. It is a
Speaker 1: strategy that Mark Zuckerberg has caught a lot of detractors
Speaker 1: UM coming his way. The stock is way down because
Speaker 1: of the money they're pouring into this, so this kind
Speaker 1: of test for them in this court. They say, if
Speaker 1: the judge blocks this, if they award the injunction, they're
Speaker 1: gonna walk away from this transaction. So pretty high stakes
Speaker 1: here for Meta in terms of what they're trying to
Speaker 1: build in virtual reality, which they say is not only
Speaker 1: the future of Meta, but the future of computing in general.
Speaker 1: UM in the next generation of the computing era and
Speaker 1: exploring care. It has been so good to have you
Speaker 1: on the ground there in San Jose. We thank you
Speaker 1: so much. And and we've got to break it down.
Speaker 1: We've got to go throughout the FTCs focus on M
Speaker 1: and A. And we can do that with the perfect guest,
Speaker 1: American Antrtrust Institute President Diana Moss down in d C,
Speaker 1: Diana today just is emblematic of what currently it feels
Speaker 1: like the administration's focus on M and A, particularly within technology.
Speaker 1: We shouldn't be surprised, Nakanist did us this direction. What
Speaker 1: do you make of the doubling down from the FTC
Speaker 1: at the moment, I think this is very much in
Speaker 1: keeping with the chairs promises, UH and the Assistant Attorney
Speaker 1: General's promises to really take a hard look at the
Speaker 1: digital sector. And for good reason. You know, the digital
Speaker 1: sector is um has grown dramatically in the last twenty years. UH.
Speaker 1: They are coming off an acquisition spree that peaked in
Speaker 1: about It is absolutely a growth by acquisition model as
Speaker 1: opposed to a in our get a do it yourself model.
Speaker 1: It's sort of the buyer build question. So with the
Speaker 1: digital business ecosystems that is the name of the game.
Speaker 1: It is to acquire and grow largely through ocquisition, and
Speaker 1: both the Microsoft Activision and the Metal within are really
Speaker 1: really good leading examples of this growth by acquisition strategy
Speaker 1: and the competition problems that they raised because they are
Speaker 1: very large companies with dominant positions. Diana, that word competition,
Speaker 1: That's the bit that I think consumers, investors struggle to
Speaker 1: understand or at least struggle to sympathize with the FTC with, Right,
Speaker 1: Is the FTC doing this because it wants to foster competition?
Speaker 1: In other words, have many players in the metaverse, which,
Speaker 1: let's be honest, isn't a real thing yet, or they
Speaker 1: want to prevent monopolies or is it the same idea?
Speaker 1: I think it's they're the same idea, right. The antitrust
Speaker 1: laws in the United States are designed to promote and
Speaker 1: preserve and protect competition for the benefit of consumers and
Speaker 1: workers and smaller businesses that might be trying to get
Speaker 1: a foothold in markets or expand in markets. Um of course,
Speaker 1: that rationale, which is very consumer facing and worker facing
Speaker 1: and smaller business facing, can run up against rationales for
Speaker 1: why companies might need think they need to be bigger,
Speaker 1: to innovate more or innovate more quickly, and be more
Speaker 1: dynamic to ultimately bring new products to market and serve
Speaker 1: consumer demands. So there is a very strong tension there.
Speaker 1: But in the digital sector, I think the balances have tipped,
Speaker 1: as we've seen in these two cases, but also UH
Speaker 1: the d o j's case in Google, the FTCs case
Speaker 1: in in Facebook, and and several state cases that uh,
Speaker 1: there is a significant dominance problem in in some of
Speaker 1: the leading digital tech players and that competition really needs
Speaker 1: to be scrutinized very carefully. And M and A of
Speaker 1: course is one of the leading ways that these companies grow. DIN.
Speaker 1: Do you have any sympathy for within in this in
Speaker 1: this instance would matter in the startup within? You know,
Speaker 1: one thing we've learned is, of course that the metaverse
Speaker 1: is a nascent idea. It needs capital, access to talent
Speaker 1: to grow and to continue. You worried that there would
Speaker 1: be an over stifling of innovation if bigger tech companies
Speaker 1: aren't allowed to go out and acquire smaller companies. So
Speaker 1: that's a that's a really good question, and it comes
Speaker 1: up a lot in like discourse. UM, but what is
Speaker 1: the better pathway to innovation. Is it to encourage competition
Speaker 1: by smaller rivals, independent market players, and have them grow
Speaker 1: into significant market players that could then challenge these incumbent
Speaker 1: companies right the large digital text um? Or is it
Speaker 1: and we do that through promoting antitrust enforcement? Or is
Speaker 1: it to provide a pipeline or a feed of these
Speaker 1: startups and smaller companies into the big digital ecosystems knowing
Speaker 1: that they will be acquired and uh and claiming that
Speaker 1: that somehow will increase the ability of companies to increase innovation.
Speaker 1: There's a real tension there. Um. But again I think
Speaker 1: the balances have tipped. And and for example, in the
Speaker 1: meadow Within case, the purchase of Within, which has this
Speaker 1: leading VR fitness app supernatural um takes out a really
Speaker 1: important source of competition in a market that is all
Speaker 1: that that already does not have very much competition. So
Speaker 1: we worry about that when you eliminate competition in an
Speaker 1: already concentrated market. In the Microsoft Activision case, that also
Speaker 1: that acquisition also eliminates important competition on the outside of
Speaker 1: a digital business ecosystem, and we worry about those acquisitions
Speaker 1: when there isn't already a lot of competitions. So if
Speaker 1: you're in the camp where competition serves the interests of innovation,
Speaker 1: or in the other camp, which is we need big
Speaker 1: companies to acquire smaller companies to continue to innovate, that
Speaker 1: really frames out the debate. It's also an interesting debate
Speaker 1: to be having as we head towards basically a real
Speaker 1: pullback already upon us in terms of VC funding, real
Speaker 1: pullback in terms of the free money that we're also
Speaker 1: used to. And I'm wondering what ways do we tend
Speaker 1: to see big companies that are sitting on a ton
Speaker 1: of cash be able to foster innovation in the space
Speaker 1: they want to see grow if it isn't just by
Speaker 1: trying to do deals and actually acquire them out right right,
Speaker 1: the very good question, and again the growth by acquisition
Speaker 1: model really serves as a as a funnel for a
Speaker 1: lot of a lot of the free cash that companies have.
Speaker 1: But I think you have to look a little bit
Speaker 1: deeper at the culture of the companies, at the way
Speaker 1: the digital ecosystems are structured with with a platform with
Speaker 1: lots of cloud technology, where we've seen lots of acquisitions
Speaker 1: in the last many years, but also these constellation of
Speaker 1: apps that exists in the ecosystem. That's a complex business
Speaker 1: model and it's the value proposition, and it's really supercharged.
Speaker 1: So if you have market power in a platform or
Speaker 1: in cloud technology, all of those pieces of the ecosystem
Speaker 1: work together where where um um uh market power can
Speaker 1: be leveraged throughout the ecosystem. And so that complicates the
Speaker 1: innovation story as well. And in fact, my charge supercharge
Speaker 1: incentives to buy smaller rivals because by buying a new
Speaker 1: application like a like gaming content or VR app content,
Speaker 1: fitness app content, you're able then to connect that content
Speaker 1: to um to the platform a platform, and to supercharge
Speaker 1: it with value with cloud technology. So it's a very
Speaker 1: complex business proposition. It's a value proposition, but also poses
Speaker 1: really complicated problem strand I trust enforcers in crafting complaints.
Speaker 1: But the ultimate concern, I'm sure as you know, is
Speaker 1: that all of all of this gets locked up in
Speaker 1: a single ecosystem, which makes it very difficult for for
Speaker 1: small arrivals to get into those markets. I think, Diana,
Speaker 1: we're just starting this conversation and will certainly continue it
Speaker 1: in the weeks and months to come. American Anti Trust
Speaker 1: Institute President Diana Moss, thank you coming up. Elon Musk
Speaker 1: under pressure as bankers struggle to find buyers for the
Speaker 1: Twitter debt used for the purchase of the company after
Speaker 1: the billionaire promised to turn around its finances. This is Bloomberg,
Speaker 1: So Elon Musk's bankers and considering replacing some of the
Speaker 1: riskiest and level the costliest debt that he led on
Speaker 1: Twitter with new margin loans back by Tesla stock that
Speaker 1: he'd personally be responsible for repaying. Is actually but one
Speaker 1: of three pretty big bloomberg scoop surrounding Tesla today and Ed,
Speaker 1: as always, you were behind a couple of them. Just
Speaker 1: run us through some of the other stories that play
Speaker 1: when it comes to you. Yeah, I mean the debt
Speaker 1: burdens important, right, one point two billion dollars of payments
Speaker 1: and least they something had to give there. The other
Speaker 1: two are the testers cutting production as in Shanghai, so
Speaker 1: the market's a bit worried about demand in China, which
Speaker 1: is the biggest TV market currently and the second. As
Speaker 1: we reported, the China chief at Tessa has moved to
Speaker 1: Austin to kind of get things going there, which is
Speaker 1: a really interesting time when everyone's questioning what is Elon
Speaker 1: Musk doing any given day with which company? Yeah, and
Speaker 1: rumors swirl as to his leadership at all these various companies.
Speaker 1: And we want to get back to the reason that
Speaker 1: people think is distracted, which of course is Twitter. And
Speaker 1: Shini Vassa was one of the by lines on this
Speaker 1: scoop that came out last night and just has continued
Speaker 1: to fascinate us today of the debt. Talk to us
Speaker 1: a little bit about how much pressure this shows that
Speaker 1: all of them are under at the moment. Listen, the
Speaker 1: unsecured part of this debt is the part that the
Speaker 1: banks are most worried about. They had promising interest rate
Speaker 1: of eleven point seven per cent, and we know that
Speaker 1: junkie debt, risky debt, junk debt here has really gotten
Speaker 1: much more expensive for the banks to be carrying, so
Speaker 1: they could take real losses here because of that promised
Speaker 1: rate there. Remember, there's a benefit here potentially, and this
Speaker 1: is just a discussion that the bankers are really having
Speaker 1: here four musques to be doing this, and that one
Speaker 1: benefit would be to really start to lower that burden
Speaker 1: of that one point two billion dollars worth of interest payments.
Speaker 1: He would have to make Twitter revenue right even that
Speaker 1: last year. Absolutely, So you know, if you're paying more
Speaker 1: than you're essentially making, it is a very difficult burden
Speaker 1: to be taking on as you're trying to turn the
Speaker 1: ship around. Now, I want to like shadow this a
Speaker 1: little bit with the scuttle butt that's going on in
Speaker 1: Wall Street right now. Why this matters so much because
Speaker 1: as the banks trying to offload this debt, you have
Speaker 1: the by side really negotiating just so hard to bring
Speaker 1: the cost of that debt down because a lot of
Speaker 1: big firms would love to be buying this debt cheaply
Speaker 1: sixty cents on the dollar maybe last the banks are like,
Speaker 1: no way, is that happening in our lifetimes hopefully, but
Speaker 1: because if they did that, they would have to take
Speaker 1: bigger and bigger losses. But the negotiation, if they were
Speaker 1: to sell this debt below par, which might happen, is
Speaker 1: one option. But the other option here could be these
Speaker 1: martinal laws. Yeah, well the markets changed since April. Don't
Speaker 1: ask me what it's going to look like throughout my lifetime.
Speaker 1: Bloomberg Shonali Bassek. Let's get to Disney streaming service Disney Plus,
Speaker 1: which is debuted. It's ad supported service, coming with strict rules,
Speaker 1: no alcohol commercials, no political spots, no ads from competitors
Speaker 1: Carrot Interesting, isn't it because it's about a month on
Speaker 1: from Netflix's ads sponsored one, and they do have a
Speaker 1: beer ad ed right, But they've learned from the experience
Speaker 1: with Hulu where they already have ads just half as
Speaker 1: much now on Disney Plus. We'll be right back. This
Speaker 1: is Bloomberg against almost any measure. It was a record year,
Speaker 1: not in terms of the amount of funding going to
Speaker 1: private companies, but the number of deals that were actually done.
Speaker 1: So we were moving at a pace of almost a
Speaker 1: hundred companies being funded every day. In a lot of ways,
Speaker 1: it felt like there were there was too much money
Speaker 1: chasing despite the fact that it was so many deals,
Speaker 1: too few deals. Oh where we were in CB insights
Speaker 1: Brian Lee there and interestingly, actually, as we keep talking
Speaker 1: about the slowdown in BC funding at the moment, amid
Speaker 1: all the concerns, we actually that learned that phone paid
Speaker 1: today and some Walmart owned digital payments Bran is actually
Speaker 1: seeing as much as one billion dollars from the likes
Speaker 1: of General Atlantic and Tiger Global, Catter Investment Authority and Microsoft.
Speaker 1: So it seems that some deals potentially still getting done
Speaker 1: if you're the right size, right space. Yeah, the headline
Speaker 1: is that the value overall globally VC value deals down right,
Speaker 1: But actually what we learned from the Prequeen data we
Speaker 1: learned from CB Insights in the last twenty four hours
Speaker 1: is that it does depend on geography. So in that
Speaker 1: case that deals in India in China the dollar value
Speaker 1: is down fift twenty two year on year in USA
Speaker 1: it's according to greet Queen. But those are just two markets.
Speaker 1: So the question I guess is where is money still flowing?
Speaker 1: Where is the opportunity which subsectors? And luckily, you know,
Speaker 1: we can talk about this a week long if you're like, yeah,
Speaker 1: we're going to keep on talking about until the year
Speaker 1: is done, until the next year is through. But what
Speaker 1: the perfect guests to talk about it in the here
Speaker 1: and the now. It's needed to Horney. Here's with us,
Speaker 1: director of research at pitchbook for more and just talk
Speaker 1: to us about what you're learning at pitch but what
Speaker 1: you're seeing in terms of the great highs that we
Speaker 1: came from what two and now looking into twenty three
Speaker 1: is going to look like for VC checks. Yeah, I mean,
Speaker 1: it's been truly astonishing a couple of years, and I
Speaker 1: think as you look forward over the next eighteen months,
Speaker 1: I think the most important thing to do is actually
Speaker 1: look backwards and get a sense of what's happening over
Speaker 1: the past couple of years in the venture markets, which
Speaker 1: is in a lot of ways led us to worry
Speaker 1: out today. And so if you think about the dry
Speaker 1: powder number, so money that hasn't been invested in the
Speaker 1: end vehicles, there's five and sixty plus billion dollars globally,
Speaker 1: and I think the narrative over the past couple of
Speaker 1: years was that even in the case of a downturn,
Speaker 1: you're gonna end up in a world where there was
Speaker 1: enough money to help supplement the industry and prop it up.
Speaker 1: If you you pull that layer back a little bit
Speaker 1: and you take a look at what's happening under the
Speaker 1: hood of the fundraising numbers, well, you see as the
Speaker 1: majority that has actually in late stage vehicles, you know,
Speaker 1: we've raised a trillion five right over the last five years,
Speaker 1: and that's more money than we raised in the twenty
Speaker 1: years before that. And so you've had this enormous run
Speaker 1: of capital that's really bottlenecked. And so I think the
Speaker 1: story of the venture today it's actually a story of concentration.
Speaker 1: So when you have money raised in the late stage
Speaker 1: of that capacity, if you if you think about where
Speaker 1: it's gonna go, it's gonna have to flow into larger
Speaker 1: check sizes. And so over the last call it, six
Speaker 1: or seven years, you've seen the medium check size and
Speaker 1: the average check size literally triple. And then if you
Speaker 1: think about where that money is flowing from a company
Speaker 1: size perspective, you've seen forty six percent of the entire
Speaker 1: market cap of venture capital effectively um sit in unicornpanies.
Speaker 1: And that's relative to sixteen percent just a decade ago.
Speaker 1: And one of the things I think it's really interesting
Speaker 1: is if you take the total value of unicorn companies
Speaker 1: and you run that against net asset values of the
Speaker 1: entire global venture market, that value is actually twice the
Speaker 1: size of the entire net asset value of venture. So
Speaker 1: what that tells you is that the market, the money
Speaker 1: that's been flowing into these companies, it's not even coming
Speaker 1: from the venture ecosystem. And so what you've seen is
Speaker 1: that you've got corporates that are actually buoying UM a
Speaker 1: lot of these transactions and nontraditional investors. And I think
Speaker 1: today on a global basis, close to half of venture
Speaker 1: capital use of the late stage are being led by
Speaker 1: by corporation like phone playing Walmart backed company Microsoft is
Speaker 1: getting in there alongside traditional vcs like General Atlantic just
Speaker 1: talk us. Therefore, where all this money that is sitting
Speaker 1: there looking for a home is going to go? Are
Speaker 1: they going to start to spread out more than there?
Speaker 1: Are they going to get more excited about the seed
Speaker 1: rounds once again, or are they going to have to
Speaker 1: look for bigger, more assured deals in this of nervous
Speaker 1: So what I think is most interesting about the dynamic
Speaker 1: today is that it's not like there's an incredible amount
Speaker 1: of money that's ready to be deployed. I think the
Speaker 1: pace of investments in the venture ecosystem was masked a
Speaker 1: bit by capital that was coming from non traditional ventures
Speaker 1: and corporate balance sheets. And so I think today what
Speaker 1: you're gonna see is a shift, probably not in terms
Speaker 1: of opportunity sets in terms of how fast money gets
Speaker 1: deployed to the ecosystem, but I think you're gonna see
Speaker 1: people look for complete different dynamics within the balance sheets
Speaker 1: and the capital structures of the management teams that they're
Speaker 1: investing in. And so you might still have early stage
Speaker 1: rounds and midstage rounds, late stage rounds, but that capital
Speaker 1: is not going to come to market unless those companies
Speaker 1: can actually put that money to work efficiently, and they're
Speaker 1: gonna look for signs of that. So I actually don't
Speaker 1: think over the next twelve eighteen months you're gonna find
Speaker 1: people shifting their investment strategy, deploying to different sectors or areas.
Speaker 1: I think it's going to be shifting in the operational
Speaker 1: capacity of the teams and the ability to manage capital
Speaker 1: at scale. Needs are One of the questions we've been
Speaker 1: asking is that about valuations, right, And there's a lot
Speaker 1: that's top of mind right now, higher rates, costs of capital.
Speaker 1: How do you justify evaluations for private companies? They've come down?
Speaker 1: But I guess that when you're Avenge captist and you
Speaker 1: look at them as that one hundred for for example,
Speaker 1: and you see that then as that one hundred performance
Speaker 1: here to day and some of the piers of these
Speaker 1: private companies, how are we valuing growth companies? How are
Speaker 1: we valuing and benchmarking what's out there in those companies
Speaker 1: they're still yet to go public. Yeah, I think it's
Speaker 1: a great question and one that a lot of people
Speaker 1: are trying to figure out right now, because I think
Speaker 1: the pace at which private companies are marked down tends
Speaker 1: to lack what we're seeing in the public markets right now.
Speaker 1: I think that creates a lot of noise for the
Speaker 1: limited partners that are trying to invest in net new
Speaker 1: funds because they're trying to get a sense of truly
Speaker 1: what those marks look like relative to the public markets.
Speaker 1: You know, one of the things we talked about a
Speaker 1: pitchwork quite a bit is that in times of market distortions,
Speaker 1: um or or of excess what we've seen our last
Speaker 1: couple of years, every sleeve of the market tends to
Speaker 1: operate in its own little silo, whether it's series A, seed,
Speaker 1: late stage, etcetera. And I think what you're seeing today
Speaker 1: is that the markets are actually operating relatively similar and
Speaker 1: they're taking their cues from each other. And so the
Speaker 1: chart you just held up, you look at our venture
Speaker 1: back TYPO index down sixty plus percent relative to a
Speaker 1: NAZEX down. If you were to pull our pull out
Speaker 1: the sas companies of that index, for example, and you
Speaker 1: were to run a sales number for each of the
Speaker 1: aggregate of those companies in that index, and then look
Speaker 1: at the price of sales multiple. You would have seen
Speaker 1: that gone from fifty three times to three times today.
Speaker 1: And then if you were to look at that index
Speaker 1: for companies that actually had any free cash flow and
Speaker 1: ran the same exact metric of price of sales, you
Speaker 1: would see those companies straighting at twenty two times. And
Speaker 1: so the market is telling you, effectively that we need
Speaker 1: profitable growth and a unit of a r R is
Speaker 1: not worth the same without free cashual to justify it.
Speaker 1: And I think what you're gonna see is that those
Speaker 1: companies are gonna end up getting following on funding and
Speaker 1: their marks are going to be higher on a relative
Speaker 1: basis um. And then those who don't have that, I
Speaker 1: think you're gonna see the valuations declined precipitously. So, going
Speaker 1: back to what Caro and I were discussing at the
Speaker 1: beginning of the segment, right, the high bar set in
Speaker 1: one and that not all markets are created equally. We
Speaker 1: actually asked our audience, what is T three look like
Speaker 1: for startups in terms of fundraising. These are the results
Speaker 1: for almost fifty bleak. Almost fifty depends on sector and size.
Speaker 1: Needs are bleak or depends on sector and size. I
Speaker 1: think it depends on sector and size, and I think
Speaker 1: the gap between bleak and man bleak is going to
Speaker 1: be a lot wider for a lot of companies. All right, needs,
Speaker 1: I'll tell any director of research at pitch book, thank
Speaker 1: you very much. So here's another story we're watching, Peter
Speaker 1: tile placing a two and fifty million dollar bet on
Speaker 1: a venture debt fund. The venture debt firm to Cora
Speaker 1: Capital was started this year by Kerry Finley, a former
Speaker 1: partner at well known Third Point. Its targets private companies
Speaker 1: industry in industries like property, technology and fintech with predictable
Speaker 1: cash flows and assets that too, Cora can used to
Speaker 1: actually underwrite the risk. It is un usually large investment
Speaker 1: by Peter Shills standards, the size of which has not
Speaker 1: yet been previously reported. I think what's interesting about this
Speaker 1: carries I've come across venture debt in the past. I've
Speaker 1: done a few stories over the years where it's included
Speaker 1: alongside the traditional venture equity investment. But usually what happens
Speaker 1: is the venture debt party were saying, Oh, we're confidently
Speaker 1: lending this money to you based on the money you
Speaker 1: raise in the future to pay us back. Role right now, Look,
Speaker 1: think about what we've just spoken about. That seems a
Speaker 1: little bit of a hairy proposition. Yeah, And I think
Speaker 1: a lot of people are being attractible. The companies are
Speaker 1: being attracted if they need money to go the debt
Speaker 1: route because they don't want to be having to mark
Speaker 1: down what the valuations are from an equity perspective. And
Speaker 1: I think this is really speaking to pitch books entire
Speaker 1: point and the idea that perhaps people are just going
Speaker 1: to have to think that much more creatively in the
Speaker 1: ways in which they want to invest. Yes, it's like
Speaker 1: what different ways in which is the money going to
Speaker 1: be operationally used? But also which bit of the capital
Speaker 1: structure do you want to be in, and just more
Speaker 1: thoughtful about the way in which you're gonna put your
Speaker 1: money to work in this space. I think it's really
Speaker 1: interesting that what is it you fifty million coming from
Speaker 1: Peter Teal, but there's a hundred a million alongside that,
Speaker 1: and clearly carry she's got a lot of experience in
Speaker 1: this space. Yeah, and also global look around the world,
Speaker 1: not just US and China. I think that's the story
Speaker 1: of this week. Yeah, I was hoping. Sadly, I'm not
Speaker 1: hearing all that much about being deployed in Europe right here,
Speaker 1: right now. But let's talk about some other areas and
Speaker 1: which perhaps the money has actually been driving drying up
Speaker 1: a little bit. And remember and how excited we got
Speaker 1: in the world of e sports, how much he thought
Speaker 1: the industry was going to boom, how much celebrities and
Speaker 1: and people were really diverting some of their funding towards
Speaker 1: the space. And now actually the sources we understand are
Speaker 1: actually dwindling. The signs pretty abound that athletic competition via
Speaker 1: video games doesn't really have anywhere near the earnings potential
Speaker 1: that investors are originally anticipated. And we want to therefore
Speaker 1: go to a great story on the Terminal dot com
Speaker 1: that you can read today done by Cecilia. Does that
Speaker 1: Antarsio of course, who is here with the insight, and
Speaker 1: Cecilia talked to us about the deep dive you've done,
Speaker 1: the money, the share more of money that went towards
Speaker 1: this space pre COVID then COVID suddenly sort of shut
Speaker 1: down all these gatherings of together away. You'd watch the
Speaker 1: E sports unfold, then it take back up what's sort
Speaker 1: of going wrong in this space at the moment. Sure,
Speaker 1: so four point five billion was invested in the sports
Speaker 1: in two thousand and eighteen, a lot of which was
Speaker 1: from sports business billionaires who believed that the sports could
Speaker 1: one day scale on the level of maybe the National
Speaker 1: Basketball Association. But over the last couple of years, E
Speaker 1: sports organizations who field teams for these competitive leagues have
Speaker 1: had trouble becoming as profitable as money had hoped. Part
Speaker 1: of that was due to COVID due to lockdown restrictions
Speaker 1: that prevented fans from watching the sports live at a stadiums,
Speaker 1: But some analysts say that actually this is something that's
Speaker 1: masking a greater problem in E sports, which is the
Speaker 1: challenge of structuring a business allows a company to turn
Speaker 1: a money, to turn a profit off of I P
Speaker 1: that publishers ultimately own. Talk to us about where perhaps
Speaker 1: money is still from a fledgling perspective going what people
Speaker 1: are still seeing opportunities in these sports, but fees it
Speaker 1: feels like it's more individuals right, rather than teams. Sure,
Speaker 1: so players are the sports players are learning are earning
Speaker 1: large salaries um playing competitive gaming a very small percentage though,
Speaker 1: So if your kids are thinking about it, tell them
Speaker 1: that there are slim chances fix and seven figures are
Speaker 1: going to top the sports players in games like League
Speaker 1: of Legends. Gaming publishers are also earning some amount of
Speaker 1: money from the sports ventures um through franchise fee. So
Speaker 1: teams that do decide to feel the sports teams in
Speaker 1: their leagues might offer payments as large as twenty million
Speaker 1: dollars to participate. Cecilia is a brilliant read, and we've
Speaker 1: loved being able to dissect a little bit more with you, Cecilia.
Speaker 1: To Anastasia, there we thank you. Meanwhile, coming up, we've
Speaker 1: got to do it F t X. The drama it
Speaker 1: continues to unfold, of course, is the new CEO and
Speaker 1: the bankruptcy lawyers. They're said to be meeting with federal prosecutors.
Speaker 1: What's interesting, though, is someday will seeing some money to
Speaker 1: be made in the space. Sylvia Jablonsky is among us
Speaker 1: defiance E t S has talked about how short E
Speaker 1: t F that she's developed as a bloom Bag, well
Speaker 1: f t X, and many other frankly crypto related companies
Speaker 1: are feeling the heat. Defiance. C ETFs has been benefiting
Speaker 1: from turmoil in the cryptocurrency industry, with its daily Short
Speaker 1: Digital Economy e t F staring more than twenty since
Speaker 1: his inception this September. Definance TTS CEO and c O
Speaker 1: and please to say, Sylvia Jablonsky joins us now to discuss.
Speaker 1: Can we start with the basics, what is the e
Speaker 1: t F and then we'll get onto why is it benefiting? Sure,
Speaker 1: thank you so much for having me. So what are
Speaker 1: et F does? I bit is it gives investors access
Speaker 1: to the inverse performance of some of the stocks that
Speaker 1: are correlated to or best represent the crypto ecosystem, So
Speaker 1: for example, stock side coin based, Galaxy, micro Strategy, Block
Speaker 1: robin Hood. These are names that are highly correlated to
Speaker 1: the price of bitcoin, for example, and and really popped
Speaker 1: when bitcoint bitcoin popped over the past year. But since
Speaker 1: bitcoin has fallen from seventy seventy thousand to where it
Speaker 1: is now, these names have fallen in tandem along with
Speaker 1: the overhang of macro risks. So a lot of trainers
Speaker 1: out there know about short currency bitcoin funds and they
Speaker 1: get their exposure that way. But at a fight, we thought, well,
Speaker 1: there's a much bigger picture here actually, because there's so
Speaker 1: much contagion between equities that are related to crypto and
Speaker 1: really benefit from and generated revenues from crypto as it rises.
Speaker 1: So if that's going any other way, you know, there's
Speaker 1: got to be a product to capture the short there,
Speaker 1: and that's what we're trying to do. Okay, So what
Speaker 1: happens if the market takes a pause and we, over
Speaker 1: a longer term period start to see both crypto related
Speaker 1: equities and just more broadly digital assets rebound. Yeah, yeah,
Speaker 1: So in that case, so what you want to do
Speaker 1: is you want to look at a fun like IBIT
Speaker 1: when you have the view that markets are going to fall,
Speaker 1: or when you're looking to the head your position. So
Speaker 1: if crypto starts to rebound, you can think about it
Speaker 1: as the hedge to having a portfolio, or you can
Speaker 1: transition to another e t F like a n f
Speaker 1: TC for example, that is long all of those types
Speaker 1: of companies as well. So there are a few crypto
Speaker 1: et F products out there. There are single stocks out there, obviously,
Speaker 1: the investors can get back into like coin based in
Speaker 1: the robinhood whatever they sort of like if their view
Speaker 1: is changing. But the point is that, you know, you
Speaker 1: sort of have tools that represent both sides of the trade,
Speaker 1: and that's really what we're striving to do, is to
Speaker 1: give investors access to those products. And you know, they're
Speaker 1: typically hedge fun types of products, so it really democratizes this.
Speaker 1: The average retail trader who we know is highly interested
Speaker 1: in crypto and luckily a lot of these and the
Speaker 1: publicly traded companies probabicly regulated companies. And I'm interested, though, Sylvia,
Speaker 1: what demand has been like a full long the sector.
Speaker 1: You're someone who speaks much about well where assets currently
Speaker 1: or trading where they should be trading. You can often
Speaker 1: take a view from the all perspective, all people gone
Speaker 1: about to expect some sort of pop back in some way. Yeah, Caroline,
Speaker 1: And actually you just made a really great point there.
Speaker 1: So the other, you know, benefit of looking at shorting
Speaker 1: equities versus just shorting a cryptocurrency itself is that it's
Speaker 1: going to take a lot of these companies a while
Speaker 1: to recover. So even if crypto starts to inch up
Speaker 1: until the broader market recovers and tech recovers. Companies like
Speaker 1: coin based, robin Hood, Galaxy, the companies you mentioned before.
Speaker 1: They're probably gonna have a lag to crypto itself too,
Speaker 1: just because of the overhang of inflation and raising things
Speaker 1: like that. So I think we have some time on
Speaker 1: this trade um in terms of investors coming in, you know,
Speaker 1: absolutely right. I mean, the time for value creation is
Speaker 1: when markets are dismal. But I think that because of
Speaker 1: f t X and these started this, you know, in
Speaker 1: the intro there, because of f t X, there's so
Speaker 1: much sort of apprehension to get back into into the
Speaker 1: sector for some of the retail traders that dove in heavily,
Speaker 1: until we get some regulation, until we get some clarity
Speaker 1: around you know, crypto and how the end investors protected.
Speaker 1: So I do think that it's going to be a
Speaker 1: slow role on this um longer term. You know, I'm
Speaker 1: fully bullish on blockchain technology, digital assets and tokenization, but
Speaker 1: I do think in the short term that it's going
Speaker 1: to be a little bit tough and you might benefit
Speaker 1: more on the short side than you will on the
Speaker 1: long side. So we are a bit worried about the
Speaker 1: lack of new ways in which to gain exposure from
Speaker 1: a regulator perspective, you know, I'm not There are actually
Speaker 1: a lot of good ways to gain exposure, but they're
Speaker 1: not all costs efficient. So I think the looking at
Speaker 1: a short equity fund is a good way to do it.
Speaker 1: Obviously the way we're kind of going about it, because
Speaker 1: you just buy an ETF long in your account, right,
Speaker 1: It's is as easy as can be in terms of
Speaker 1: the short futures funds. You know, as long as there's
Speaker 1: sort of enough supply to build the fund and rebounds
Speaker 1: and on a daily aces, and you have clarity and
Speaker 1: transparency on what's in the actual fund, how much of
Speaker 1: it is actually sure bitcoin, and how much of it
Speaker 1: is you know, sort of filled with something else. You
Speaker 1: want to make sure you're getting pure exposure. I think
Speaker 1: that's important, and there are two really great options out there.
Speaker 1: And then I think investors can also short single name
Speaker 1: stocks if they'd like to. But I think you know
Speaker 1: the broader picture about will you know products be approved
Speaker 1: in terms of um an ethery TF for you know,
Speaker 1: some of the different types of cryptocurrencies out there. I
Speaker 1: think that this is just my sense that regulators might
Speaker 1: take some pause just because of what's going on sort
Speaker 1: of the f TX issue, and they might seek to
Speaker 1: kind of come up with some rules and stabilize the
Speaker 1: industry before you know, kind of approving the more nuanced products.
Speaker 1: Sylvia's always said, great to get your perspective, Sylvia define
Speaker 1: CTFC saying, this is a day we've worked toward for
Speaker 1: a long time. We ever start pushing for her release.
Speaker 1: It took painstaking, the intense negotiations, and I want to
Speaker 1: thank all the hard working public servants across my administration
Speaker 1: who worked tirelessly to secure her release. President Biden, they're
Speaker 1: on the release of Britney Grinder. Now. This is a
Speaker 1: course going viral wherever you look at the w NBA
Speaker 1: start being released from detention in Russia. After the US
Speaker 1: swapped for Victor about the so called Merchant of Death,
Speaker 1: an arms dealer that Russia has been working for years
Speaker 1: to free. Now Grinder has been sent to nine years
Speaker 1: and moved to a penal colony. Last month, the Phoenix
Speaker 1: Mercury basketball star who played in Russia during the off season,
Speaker 1: pleaded guilty to drug smuggling in July after customs officials
Speaker 1: were found vape cartridges containing cannabis or in her luggage
Speaker 1: at Moscow Airport back in February. It has been a
Speaker 1: long journey ad and there really reminded everyone how important
Speaker 1: this story is. No matter where you were on social
Speaker 1: look to hammer home the point. I've got Google trends
Speaker 1: up on my screen. Brittney Grinder is number one by
Speaker 1: a sack of millions in terms of what people are
Speaker 1: searching for this Thursday. Everyone around the globe has been
Speaker 1: tracking this case, and it's not the first time I
Speaker 1: think that she's actually been high up the charts on Google. Carry. Yeah,
Speaker 1: what is the seventh most sought after or searched for athletes? Two?
Speaker 1: I think the numbers say. And also there was a
Speaker 1: great video I think that you sought out from well
Speaker 1: a local sports team near you. Yeah, Steve Kerr. Yeah,
Speaker 1: everyone's talking about it. That's what matters. It does that
Speaker 1: does it? Of course? For this edition of Bloomberg Technology,
Speaker 1: go talk about us. Huh. Yeah, don't forget to check
Speaker 1: out our podcast wherever you get your podcast, Apple, I
Speaker 1: Heeart and Spotify. This is Bloomberg