1 00:00:10,760 --> 00:00:14,120 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,160 --> 00:00:18,479 Speaker 1: I'm Joe Wistful and I'm Tracy Allaway. So, Tracy, the 3 00:00:18,560 --> 00:00:22,600 Speaker 1: last month in markets has been pretty interesting, wouldn't you say? Uh, 4 00:00:24,040 --> 00:00:26,840 Speaker 1: interesting is definitely one way of putting it. It's been 5 00:00:27,160 --> 00:00:31,280 Speaker 1: massively volatile, and I'm sure quite stressful for quite a 6 00:00:31,280 --> 00:00:35,960 Speaker 1: few investors. Definitely stressful for several investors. But also I 7 00:00:36,000 --> 00:00:39,200 Speaker 1: would say, you know, as it often is, unfortunately good 8 00:00:39,240 --> 00:00:42,199 Speaker 1: for us in the financial media business, because some very 9 00:00:42,240 --> 00:00:46,639 Speaker 1: good stories to write about, talk about and dive into. Right, 10 00:00:46,720 --> 00:00:49,760 Speaker 1: there's been no shortage of headlines, that's for sure. One 11 00:00:49,800 --> 00:00:52,080 Speaker 1: of the big things that we've been writing about has, 12 00:00:52,080 --> 00:00:54,480 Speaker 1: of course been the massive sell off that we saw 13 00:00:54,600 --> 00:00:58,000 Speaker 1: in technology stocks. Yeah, that's exactly right. Like lots of 14 00:00:58,040 --> 00:01:02,000 Speaker 1: things have happened in the last month and really all year, 15 00:01:02,120 --> 00:01:05,160 Speaker 1: with many global markets selling off. But I do think 16 00:01:05,200 --> 00:01:09,600 Speaker 1: what's really striking and what felt different about this past 17 00:01:09,680 --> 00:01:12,920 Speaker 1: month is how violent some of the selling has been 18 00:01:12,959 --> 00:01:18,080 Speaker 1: in technology companies that heretofore have seemed really maybe bulletproof. 19 00:01:18,120 --> 00:01:21,320 Speaker 1: And you know, I'm thinking of companies like Amazon, which 20 00:01:21,680 --> 00:01:24,200 Speaker 1: was at one point of worth over a trillion dollars 21 00:01:24,240 --> 00:01:26,960 Speaker 1: and then very quickly lost about a quarter of its 22 00:01:27,000 --> 00:01:33,399 Speaker 1: market cap. Others like Netflix and Google and Facebook, which 23 00:01:33,440 --> 00:01:37,080 Speaker 1: had been struggling since the summer. Very much a different 24 00:01:37,800 --> 00:01:40,280 Speaker 1: tone to the trading of these companies, And of course 25 00:01:40,319 --> 00:01:42,880 Speaker 1: it might just be a blip, but maybe it's a 26 00:01:42,959 --> 00:01:46,240 Speaker 1: sign that just sort of that pure optimism that people 27 00:01:46,280 --> 00:01:49,560 Speaker 1: felt towards these companies have started to fade, right. And 28 00:01:49,600 --> 00:01:52,600 Speaker 1: I think that's one reason why the month felt so stressful, 29 00:01:52,680 --> 00:01:56,120 Speaker 1: because you saw these stalwarts not just of the technology sector, 30 00:01:56,480 --> 00:02:01,360 Speaker 1: but really of the entire market, uh suffer during this downturn. 31 00:02:01,560 --> 00:02:04,240 Speaker 1: So you know, think about the major components in the 32 00:02:04,280 --> 00:02:08,040 Speaker 1: SMP five hundred the thing stocks like Facebook and Amazon 33 00:02:08,200 --> 00:02:11,640 Speaker 1: and Google really make up a big proportion of that. Yeah, 34 00:02:11,680 --> 00:02:14,000 Speaker 1: exactly right. And and and you know, not to be 35 00:02:14,080 --> 00:02:17,920 Speaker 1: labor this point, but these were also incredibly important stocks 36 00:02:17,960 --> 00:02:21,680 Speaker 1: for hedge funds, and many of the successful long short 37 00:02:21,800 --> 00:02:26,040 Speaker 1: managers were successful because they made big bets, concentrated bets 38 00:02:26,080 --> 00:02:29,160 Speaker 1: on these companies. So when they fell apart, or when 39 00:02:29,200 --> 00:02:32,360 Speaker 1: the stocks fell apart, is really wreaked havoc. Now, the 40 00:02:32,360 --> 00:02:35,600 Speaker 1: other thing that's interesting to me is we live in 41 00:02:35,639 --> 00:02:37,960 Speaker 1: a time where there are a lot of really big 42 00:02:38,000 --> 00:02:41,880 Speaker 1: tech companies that are not public or their tech ish companies. 43 00:02:41,880 --> 00:02:46,040 Speaker 1: So whether it's Uber, Airbnb, we work a lot of 44 00:02:46,040 --> 00:02:50,120 Speaker 1: these tech or tech adjacent companies that are gigantic, much 45 00:02:50,160 --> 00:02:53,600 Speaker 1: bigger than many of the public companies out there, that 46 00:02:53,639 --> 00:02:57,480 Speaker 1: have sort of feasted on, you know, incredible growth and 47 00:02:57,560 --> 00:03:01,400 Speaker 1: incredible access to private market money. And of course, one 48 00:03:01,440 --> 00:03:03,880 Speaker 1: of the questions that rises in light of the tech 49 00:03:03,960 --> 00:03:06,839 Speaker 1: sell off is if the public market is turning more 50 00:03:06,880 --> 00:03:08,839 Speaker 1: negative on tech, then what does it mean for these 51 00:03:08,880 --> 00:03:12,040 Speaker 1: companies that people are very obsessed with, but that you know, 52 00:03:12,120 --> 00:03:16,160 Speaker 1: haven't really proven themselves to be durable businesses yet, right, 53 00:03:16,200 --> 00:03:18,240 Speaker 1: because they've all been sort of lining up with the 54 00:03:18,280 --> 00:03:21,040 Speaker 1: expectation that if they wanted to I p O there 55 00:03:21,040 --> 00:03:23,840 Speaker 1: would be this huge amount of demand, and then suddenly 56 00:03:24,000 --> 00:03:29,640 Speaker 1: the recent market route kind of puts that into question. Although, well, 57 00:03:30,160 --> 00:03:31,880 Speaker 1: I have a lot of thoughts about this, so I'm 58 00:03:31,919 --> 00:03:35,280 Speaker 1: sure whatever we're about to discuss it'll be a good conversation. 59 00:03:35,360 --> 00:03:38,000 Speaker 1: Joe Great, I think it will be too. So all 60 00:03:38,120 --> 00:03:41,360 Speaker 1: that being said, I wanted to introduce our guest for 61 00:03:41,360 --> 00:03:45,200 Speaker 1: this week's episode. We're going to be speaking with Bill Janeway, 62 00:03:45,320 --> 00:03:50,400 Speaker 1: the legendary economist Himond Minsky characterized him as a theorist practitioner. 63 00:03:50,440 --> 00:03:54,480 Speaker 1: He spent thirty five years in venture capital affiliated with 64 00:03:54,520 --> 00:03:58,200 Speaker 1: Warburg Pinkus, and he is affiliated member of faculty at 65 00:03:58,280 --> 00:04:02,880 Speaker 1: Cambridge University. And I recently read his book Doing Capitalism 66 00:04:02,920 --> 00:04:06,640 Speaker 1: in the Innovation Age, which really speaks to what I 67 00:04:06,680 --> 00:04:08,680 Speaker 1: think is the sort of question of the moment about 68 00:04:08,720 --> 00:04:13,920 Speaker 1: the relationship between entrepreneurship and financial markets and speculative activity. 69 00:04:14,480 --> 00:04:18,680 Speaker 1: He's a rare voice that can sort of combine firsthand 70 00:04:18,720 --> 00:04:21,880 Speaker 1: experience with how the investing world actually works with a 71 00:04:21,920 --> 00:04:27,000 Speaker 1: sort of economists academic perspective. So in light of that, 72 00:04:27,240 --> 00:04:29,720 Speaker 1: and in light of his experience, I want to bring 73 00:04:29,760 --> 00:04:32,080 Speaker 1: in Bill, Bill Janeway, thank you very much, Joe, it's 74 00:04:32,120 --> 00:04:35,000 Speaker 1: great to be here. And Tracy, good to meet you. Yeah. 75 00:04:35,040 --> 00:04:39,600 Speaker 1: The unicorn bubble is an extraordinary phenomenon, So let's let's 76 00:04:39,600 --> 00:04:43,360 Speaker 1: first put it into a more general context. One part 77 00:04:43,360 --> 00:04:46,800 Speaker 1: of that context, of course, is the maturation of the 78 00:04:46,800 --> 00:04:51,840 Speaker 1: digital revolution. The fact that, as Facebook and Google have demonstrated, 79 00:04:52,240 --> 00:04:56,040 Speaker 1: it is possible to adjust markets numbered in the billions 80 00:04:56,120 --> 00:05:01,320 Speaker 1: of users with extraordinarily little friction, little expense. So the 81 00:05:01,360 --> 00:05:05,800 Speaker 1: notion that limitless growth may be available for other digital 82 00:05:05,800 --> 00:05:10,440 Speaker 1: service businesses is plausible. But second, there's also a more 83 00:05:10,520 --> 00:05:15,240 Speaker 1: narrow context, and that is that for nine years from 84 00:05:15,240 --> 00:05:19,640 Speaker 1: the global financial crisis until just within the last twelve months, 85 00:05:20,320 --> 00:05:25,560 Speaker 1: the financial markets, the financial system, and investors but operating 86 00:05:25,720 --> 00:05:30,200 Speaker 1: in an unprecedented environment, an environment in which the risk 87 00:05:30,279 --> 00:05:34,279 Speaker 1: free real rate of interest has been effectively zero or 88 00:05:34,279 --> 00:05:41,719 Speaker 1: even less. That has pushed institutional investors principally mandated and 89 00:05:41,839 --> 00:05:46,040 Speaker 1: chartered to invest in liquid public markets to behave in 90 00:05:46,040 --> 00:05:50,520 Speaker 1: a way that my view is fundamentally unsustainable. They have 91 00:05:50,560 --> 00:05:55,120 Speaker 1: been paying premium valuations relative to what's available in the 92 00:05:55,160 --> 00:05:58,520 Speaker 1: public market to buy and this is the key to 93 00:05:58,640 --> 00:06:03,560 Speaker 1: buy illiquid secureties, securities they can't sell. Now. I'm not 94 00:06:03,600 --> 00:06:07,120 Speaker 1: a great fan of business schools, but finance one on 95 00:06:07,200 --> 00:06:09,680 Speaker 1: one at any business school in the world will tell 96 00:06:09,760 --> 00:06:13,480 Speaker 1: you that there is a value to liquidity for an 97 00:06:13,480 --> 00:06:17,280 Speaker 1: investor to be able to change her mind when she 98 00:06:17,360 --> 00:06:22,200 Speaker 1: believes that circumstances have changed. But these investors from the 99 00:06:22,240 --> 00:06:26,599 Speaker 1: public market world who have been piling into the new 100 00:06:26,880 --> 00:06:31,719 Speaker 1: unicorn want to be digital giants, have been have been, 101 00:06:31,760 --> 00:06:36,400 Speaker 1: as I say, paying premium values to buy illiquidity now 102 00:06:36,440 --> 00:06:39,960 Speaker 1: before we dive further into that. And I love that 103 00:06:40,120 --> 00:06:43,200 Speaker 1: sort of framing of that in the central tension there, 104 00:06:43,240 --> 00:06:45,839 Speaker 1: because you put it much better than I was. I 105 00:06:45,920 --> 00:06:48,640 Speaker 1: just want to take a quick step back because I 106 00:06:48,760 --> 00:06:52,000 Speaker 1: characterized you, or it wasn't actually me, but I you're 107 00:06:52,080 --> 00:06:56,440 Speaker 1: characterized as a theorist practitioner, so you spent several decades 108 00:06:56,520 --> 00:07:01,279 Speaker 1: in tech venture capital. We're also an academic economists, and 109 00:07:01,320 --> 00:07:03,640 Speaker 1: I think that's rare because you often hear, you know, 110 00:07:03,720 --> 00:07:07,600 Speaker 1: sort of investors claim that economists don't really understand how 111 00:07:07,640 --> 00:07:10,960 Speaker 1: their world works, and maybe that's true in many cases. 112 00:07:11,280 --> 00:07:15,760 Speaker 1: Tell us a little bit about your academic background and 113 00:07:15,800 --> 00:07:19,880 Speaker 1: how it has informed your view of the investing game. 114 00:07:20,040 --> 00:07:23,520 Speaker 1: Delighted to so, I I took a martial scholarship to 115 00:07:23,600 --> 00:07:27,040 Speaker 1: Cambridge way way back back in the mid sixties, and 116 00:07:27,120 --> 00:07:30,320 Speaker 1: I did a doctorate in economics under the students of 117 00:07:30,400 --> 00:07:34,120 Speaker 1: John Maynard Keynes, and I I, how shall I say, 118 00:07:34,280 --> 00:07:38,480 Speaker 1: I internalized a set of pretty fundamental lessons, one of 119 00:07:38,480 --> 00:07:42,440 Speaker 1: which is that in the world of finance and of economics, 120 00:07:42,680 --> 00:07:46,800 Speaker 1: we are all doomed to be making decisions under conditions 121 00:07:47,320 --> 00:07:51,960 Speaker 1: of uncertainty. We cannot know the full consequences of the 122 00:07:52,040 --> 00:07:58,840 Speaker 1: decisions that we make that involve investing money, resources, time, energy, 123 00:07:59,040 --> 00:08:03,560 Speaker 1: and therefore there is an in powerful incentive to construct hedges, 124 00:08:04,200 --> 00:08:08,080 Speaker 1: ways to protect ourselves when what we hoped wouldn't happen 125 00:08:08,440 --> 00:08:11,600 Speaker 1: does happen. This is where it links to my life 126 00:08:11,640 --> 00:08:16,200 Speaker 1: as a practitioner. I learned in the trenches of venture 127 00:08:16,240 --> 00:08:19,920 Speaker 1: capital investing in I t at the frontier from the 128 00:08:19,960 --> 00:08:23,000 Speaker 1: late nineteen seventies right through the great tech book bubble 129 00:08:23,320 --> 00:08:28,240 Speaker 1: that peaked in two thousand. I learned two basic lessons. 130 00:08:28,680 --> 00:08:32,400 Speaker 1: I call them the two fundamental theorems of venture capital. 131 00:08:33,000 --> 00:08:38,520 Speaker 1: The first is corporate happiness is positive cash flow. A 132 00:08:38,720 --> 00:08:43,720 Speaker 1: business that is generating more cash because it's customers give 133 00:08:43,760 --> 00:08:46,120 Speaker 1: it more cash than it costs to deliver them, the 134 00:08:46,160 --> 00:08:51,320 Speaker 1: product and service has achieved a kind of liberation from 135 00:08:51,360 --> 00:08:56,080 Speaker 1: dependence on the problematic access to external capital when needed. 136 00:08:56,520 --> 00:08:58,600 Speaker 1: That's from the point of view, if you like, of 137 00:08:59,320 --> 00:09:03,560 Speaker 1: the how shall I put it, the rational, practical, common 138 00:09:03,600 --> 00:09:09,000 Speaker 1: sensical entrepreneur, which not all entrepreneurs are. The other the 139 00:09:09,120 --> 00:09:11,880 Speaker 1: other lesson is from the point of view of the investor. 140 00:09:12,160 --> 00:09:15,960 Speaker 1: It's what I call cash and control. The only joint 141 00:09:16,040 --> 00:09:21,040 Speaker 1: hedge against the fundamental uncertainty of investing in early stage 142 00:09:21,040 --> 00:09:25,880 Speaker 1: companies at the frontier of technology. Cash means you have 143 00:09:26,480 --> 00:09:31,560 Speaker 1: unequivocally access to enough cash to buy the time to 144 00:09:31,720 --> 00:09:35,000 Speaker 1: find out what's going on when what is going on 145 00:09:35,240 --> 00:09:40,280 Speaker 1: is bad, and control means you have enough control to 146 00:09:40,480 --> 00:09:44,000 Speaker 1: shift the parameters of the problem. In my personal experience, 147 00:09:44,400 --> 00:09:49,840 Speaker 1: that usually not always, usually began by firing the CEO. Okay, 148 00:09:49,920 --> 00:09:54,280 Speaker 1: let's switch back to the unicorn bubble. Here we have 149 00:09:54,760 --> 00:09:58,040 Speaker 1: a set and there are many, I think globally now 150 00:09:58,120 --> 00:10:01,120 Speaker 1: it's considered there's something like to hundred and fifty to 151 00:10:01,240 --> 00:10:07,040 Speaker 1: three hundred unicorns who are characterized by burning billions of 152 00:10:07,120 --> 00:10:11,520 Speaker 1: dollars of cash per year in pursuit of limitless growth. 153 00:10:12,040 --> 00:10:17,000 Speaker 1: The notion of actually working to deliver positive cash flow 154 00:10:17,600 --> 00:10:22,199 Speaker 1: from operations is seen as a kind of needless constraint 155 00:10:22,640 --> 00:10:26,720 Speaker 1: on the pursuit of that limitless growth. And on the 156 00:10:26,760 --> 00:10:30,680 Speaker 1: other hand, the investors, motivated as we all know by 157 00:10:30,720 --> 00:10:34,880 Speaker 1: that famous phrase fomo fear of missing out, have have 158 00:10:35,280 --> 00:10:40,880 Speaker 1: not just been providing the cash on extraordinarily attractive financial terms. 159 00:10:41,040 --> 00:10:46,560 Speaker 1: In many cases, they've been yielding control, governance ownership to 160 00:10:46,679 --> 00:10:49,400 Speaker 1: the founders of the company, no matter how much money 161 00:10:49,440 --> 00:10:53,920 Speaker 1: those founders raise from investors. So, Bill, I already have 162 00:10:53,960 --> 00:10:56,480 Speaker 1: a bunch of questions, but I guess my main ones. 163 00:10:56,600 --> 00:11:00,480 Speaker 1: You were talking about liquidity earlier and this idea that 164 00:11:00,559 --> 00:11:06,240 Speaker 1: investors maybe under paying for illiquid assets that they're assuming. Um, 165 00:11:06,280 --> 00:11:08,960 Speaker 1: I guess that means you think that they might have 166 00:11:09,080 --> 00:11:13,400 Speaker 1: difficulty exiting their tech investments. And then secondly you're talking 167 00:11:13,400 --> 00:11:16,800 Speaker 1: about the value of cash flow in a company, and 168 00:11:16,840 --> 00:11:20,439 Speaker 1: I guess my question is why are investors so comfortable 169 00:11:20,920 --> 00:11:27,439 Speaker 1: continuously pouring more money into unprofitable unicorns uh such as uber. 170 00:11:27,640 --> 00:11:30,040 Speaker 1: You know you mentioned the fear of missing out, but 171 00:11:30,440 --> 00:11:33,360 Speaker 1: I guess the question is, at what point does the 172 00:11:33,400 --> 00:11:37,520 Speaker 1: fear of missing out transform into the fear of not 173 00:11:37,840 --> 00:11:41,640 Speaker 1: making any money ever, So, just to be clear, Tracy, 174 00:11:41,640 --> 00:11:44,720 Speaker 1: I was saying that these public market oriented investors have 175 00:11:44,800 --> 00:11:51,320 Speaker 1: been overpaying for ill liquid securities and that consequently they 176 00:11:51,360 --> 00:11:54,280 Speaker 1: don't have the opportunity to change their minds if they 177 00:11:54,280 --> 00:11:58,000 Speaker 1: decide that maybe the future isn't quite as bright as 178 00:11:58,040 --> 00:12:00,120 Speaker 1: it's supposed to be or as they hoped it would be. 179 00:12:00,760 --> 00:12:04,840 Speaker 1: I do think that it's not just the existence proof 180 00:12:05,240 --> 00:12:09,840 Speaker 1: of the facts of this enormous potential for establishing global 181 00:12:09,960 --> 00:12:15,239 Speaker 1: or near ex China global franchises, particularly in the consumer 182 00:12:15,320 --> 00:12:18,720 Speaker 1: the digital consumer economy. As I said at the beginning, 183 00:12:18,800 --> 00:12:24,240 Speaker 1: I also think the broader financial context really matters, with 184 00:12:24,400 --> 00:12:28,400 Speaker 1: risk free real rates of interest essentially at zero and 185 00:12:28,400 --> 00:12:31,840 Speaker 1: and even going out on the both the credit spread 186 00:12:31,960 --> 00:12:36,640 Speaker 1: and term spread in pursuit of greater returns. Having had 187 00:12:36,840 --> 00:12:41,680 Speaker 1: since two thousand and eight very marginal opportunity to make 188 00:12:41,840 --> 00:12:45,840 Speaker 1: any kind of positive real return, I think investors have 189 00:12:45,960 --> 00:12:48,440 Speaker 1: been reaching for risk. They've been able, they've been going 190 00:12:48,600 --> 00:12:52,960 Speaker 1: further out onto the risk spectrum, which when it comes 191 00:12:53,000 --> 00:12:57,680 Speaker 1: to the to the unicorns, has to be extreme uncertainty 192 00:12:57,720 --> 00:13:01,800 Speaker 1: about what the outcome will be for whether it's it's 193 00:13:01,880 --> 00:13:05,640 Speaker 1: it's Uber, which has challengers in many markets, which is 194 00:13:05,679 --> 00:13:11,840 Speaker 1: facing regulatory frictions, which has the opportunity to see how 195 00:13:11,880 --> 00:13:16,600 Speaker 1: the same social media that enables Uber to grow extraordinarily 196 00:13:16,920 --> 00:13:22,480 Speaker 1: also enables the drivers to establish some countervailing market power 197 00:13:22,920 --> 00:13:26,120 Speaker 1: in terms of the the conditions under which they work. 198 00:13:26,800 --> 00:13:30,440 Speaker 1: These are really big economic uncertainties which the investors have 199 00:13:30,559 --> 00:13:35,840 Speaker 1: chosen to ignore. If there's any catalyst for shifting that mindset, 200 00:13:36,400 --> 00:13:39,080 Speaker 1: I expect it will be the same catalyst that has 201 00:13:39,160 --> 00:13:44,480 Speaker 1: had such an impact on the broad public tech stocks, 202 00:13:44,559 --> 00:13:49,760 Speaker 1: and that begins with the return of access to real 203 00:13:50,200 --> 00:13:55,920 Speaker 1: positive rates of interest, as treasuries move up, as the 204 00:13:56,080 --> 00:13:58,880 Speaker 1: tenure I think is now up around three point two percent, 205 00:13:59,320 --> 00:14:04,440 Speaker 1: as we see credit spreads open up for liquid junk bonds, 206 00:14:04,640 --> 00:14:07,520 Speaker 1: and you know typically they sell in double digits. If 207 00:14:07,559 --> 00:14:11,680 Speaker 1: you have ten twelve percent available in a liquid more 208 00:14:11,760 --> 00:14:14,679 Speaker 1: or less liquid junk bond market, I think that's likely 209 00:14:14,720 --> 00:14:18,640 Speaker 1: to dampen then perceived need to go way out on 210 00:14:18,679 --> 00:14:21,320 Speaker 1: the risk spectrum and behave in the way they have 211 00:14:21,440 --> 00:14:25,920 Speaker 1: been so Ultimately, just to clarify, now, if the if 212 00:14:25,960 --> 00:14:28,360 Speaker 1: what we've seen in the month of October turns out 213 00:14:28,360 --> 00:14:31,200 Speaker 1: to be just a blip and tech stocks continue to rally, 214 00:14:31,280 --> 00:14:34,239 Speaker 1: then maybe this is all sort of an academic discussion. 215 00:14:34,600 --> 00:14:38,160 Speaker 1: But at some point, the divergence between what public markets 216 00:14:38,160 --> 00:14:40,840 Speaker 1: are telling us and the kind of access to capital 217 00:14:40,960 --> 00:14:44,800 Speaker 1: that private markets depend on, it can't last for too long. 218 00:14:44,840 --> 00:14:47,480 Speaker 1: Eventually there has to be some convergence. Yeah, look, the 219 00:14:47,520 --> 00:14:50,600 Speaker 1: definition of a bubble and this is some really great 220 00:14:50,680 --> 00:14:52,840 Speaker 1: academic work. This is where I love to move back 221 00:14:52,840 --> 00:14:56,160 Speaker 1: and forth from the world of the practitioner to the academic, 222 00:14:56,440 --> 00:15:01,280 Speaker 1: there's some great work to first world class economists Jose 223 00:15:01,480 --> 00:15:04,880 Speaker 1: Shankman at Columbia un Shin at the Bank for International 224 00:15:04,960 --> 00:15:08,400 Speaker 1: Settlements have have defined in a way a signature of 225 00:15:08,400 --> 00:15:12,160 Speaker 1: a bubble. That's when the price rises, demand goes up. 226 00:15:12,640 --> 00:15:15,800 Speaker 1: When prices rise, demands supposed to fall. Right. But when 227 00:15:16,040 --> 00:15:19,200 Speaker 1: in a financial bubble, when the price of the securities 228 00:15:19,240 --> 00:15:22,560 Speaker 1: go up, demand increases, and we've certainly seen that in 229 00:15:22,560 --> 00:15:25,400 Speaker 1: the world of the unicorns. What that means is that 230 00:15:25,800 --> 00:15:29,760 Speaker 1: the price of the securities are being decoupled from any 231 00:15:29,800 --> 00:15:35,320 Speaker 1: concern with cash flow past, present or future. Sooner or later, 232 00:15:35,760 --> 00:15:40,680 Speaker 1: all bubbles burst sometime. They leave behind really productive assets 233 00:15:40,680 --> 00:15:46,200 Speaker 1: like railroad railway lines, or electricity grids or internet fiber. 234 00:15:46,680 --> 00:15:50,080 Speaker 1: But they all bust. Now, the good news about this 235 00:15:50,200 --> 00:15:54,680 Speaker 1: unicorn bubble is first, as it when it busts, there's 236 00:15:54,720 --> 00:15:59,480 Speaker 1: no leverage. The economic consequences are going to be very limited. Second, 237 00:16:00,120 --> 00:16:02,600 Speaker 1: no doubt out of these two hundred and fifty or 238 00:16:02,720 --> 00:16:06,720 Speaker 1: three hundred wanna be fangs, there will be several that 239 00:16:07,120 --> 00:16:14,640 Speaker 1: established themselves as long term, sustainable, valuable businesses. You know, 240 00:16:15,400 --> 00:16:19,200 Speaker 1: back at the in the tech bubble, Amazon raised five 241 00:16:19,600 --> 00:16:22,280 Speaker 1: and sixty million bucks in the end of the first 242 00:16:22,360 --> 00:16:26,680 Speaker 1: quarter of two thousand, about two weeks before the then 243 00:16:26,680 --> 00:16:29,480 Speaker 1: old time peak of the nastac. If it hadn't raised 244 00:16:29,560 --> 00:16:33,720 Speaker 1: that money under bubble conditions, it would have gone bankrupt 245 00:16:33,760 --> 00:16:37,520 Speaker 1: within six months. Jeff Bezos learned the lesson. He's got 246 00:16:37,680 --> 00:16:42,400 Speaker 1: multiple levers for forcing gobs and gobs of positive cash 247 00:16:42,400 --> 00:16:45,600 Speaker 1: flow whenever he wants to, whenever the market tells him 248 00:16:45,600 --> 00:16:48,400 Speaker 1: he needs to. In the meantime, he can invest for 249 00:16:48,640 --> 00:16:53,520 Speaker 1: maximum continued growth. Given that he has, he can generate 250 00:16:53,720 --> 00:16:58,040 Speaker 1: positive cash flow whenever he chooses. My view is that 251 00:16:58,480 --> 00:17:02,960 Speaker 1: the Unicorn boards and their entrepreneurs are going to be 252 00:17:03,120 --> 00:17:08,360 Speaker 1: challenged to demonstrate that, like Jeff bezas, they have plausible 253 00:17:08,840 --> 00:17:13,679 Speaker 1: path to positive cash flow that are within their own control, 254 00:17:14,240 --> 00:17:19,000 Speaker 1: that don't depend on limitless access to the kind of 255 00:17:19,040 --> 00:17:24,439 Speaker 1: capital that for a time has been available. So is 256 00:17:24,480 --> 00:17:28,719 Speaker 1: there anything special about tech in particular that makes it 257 00:17:28,800 --> 00:17:32,040 Speaker 1: more of a target for easy money or for capital 258 00:17:32,200 --> 00:17:35,439 Speaker 1: just you know, trying to find anything to invest in. 259 00:17:35,560 --> 00:17:38,840 Speaker 1: Because this easy money story, the search for yield, We've 260 00:17:38,840 --> 00:17:43,240 Speaker 1: heard people talk about it across a variety of financial assets, 261 00:17:43,400 --> 00:17:47,320 Speaker 1: right corporate bonds, being um. Probably the most prevalent example. 262 00:17:47,880 --> 00:17:51,000 Speaker 1: People talked a lot about the shale oil story is 263 00:17:51,000 --> 00:17:54,639 Speaker 1: actually a capital market story. Is there something about tech 264 00:17:54,720 --> 00:17:58,640 Speaker 1: here that makes it unique? Sure, it's growth, And the 265 00:17:58,720 --> 00:18:03,120 Speaker 1: thing that makes it un in this environment is that 266 00:18:03,240 --> 00:18:06,600 Speaker 1: when you're investing in growth, the rate at which you 267 00:18:06,760 --> 00:18:12,480 Speaker 1: discount the future really really matters. And when you can 268 00:18:12,600 --> 00:18:18,320 Speaker 1: discount the future at rates that reflect the FED and 269 00:18:18,400 --> 00:18:21,000 Speaker 1: for that matter, the Bank of England's the European central 270 00:18:21,000 --> 00:18:25,720 Speaker 1: banks commitment to very very very very low to negative 271 00:18:25,840 --> 00:18:30,119 Speaker 1: interest rates in the nine ten years after the global 272 00:18:30,160 --> 00:18:34,600 Speaker 1: financial crisis, it means that that future value, however speculative, 273 00:18:34,720 --> 00:18:39,399 Speaker 1: it may be just as much much larger. And you know, 274 00:18:39,440 --> 00:18:42,440 Speaker 1: it's exponential. This is not a kind of linear exercise 275 00:18:42,440 --> 00:18:45,359 Speaker 1: and arithmetic. If the rate at which you're discounting the 276 00:18:45,400 --> 00:18:49,359 Speaker 1: future rises by one percent ten years from now, the 277 00:18:49,440 --> 00:18:51,600 Speaker 1: value of something of a buck ten years from now 278 00:18:51,960 --> 00:18:57,520 Speaker 1: declines by a lot. And that's the biggest threat I think. 279 00:18:58,000 --> 00:19:00,320 Speaker 1: I think there are two threats. Actually, One is this 280 00:19:00,400 --> 00:19:06,680 Speaker 1: financial threat, this shift in the financial environment that differentially 281 00:19:07,320 --> 00:19:14,200 Speaker 1: penalizes high growth investment opportunities. The second is the growing 282 00:19:15,000 --> 00:19:21,760 Speaker 1: recognition or the increasing inability to ignore the frictions that 283 00:19:21,960 --> 00:19:29,320 Speaker 1: do affect even these extraordinary new companies with their potentially 284 00:19:29,840 --> 00:19:35,919 Speaker 1: billion user markets. I mean the regulatory frictions, the political 285 00:19:36,000 --> 00:19:39,679 Speaker 1: frictions which have been emerging around the world, not just 286 00:19:39,800 --> 00:19:43,560 Speaker 1: in the United States, city by city, country by country 287 00:19:43,600 --> 00:19:46,439 Speaker 1: over the last year or two. Before we go too 288 00:19:46,560 --> 00:19:48,520 Speaker 1: much further, I want to go back something I've been 289 00:19:48,560 --> 00:19:51,600 Speaker 1: thinking about listening to when you talked about um your 290 00:19:51,640 --> 00:19:55,240 Speaker 1: sort of academic history and having studied under the students 291 00:19:55,280 --> 00:19:58,760 Speaker 1: of Canes, when you talk about the lessons you've internalized, 292 00:19:58,880 --> 00:20:02,560 Speaker 1: I have to say, in a way they seem obvious. Okay, 293 00:20:02,600 --> 00:20:06,120 Speaker 1: companies should have access to positive cash flo I mean 294 00:20:06,320 --> 00:20:10,320 Speaker 1: I think that that would not surprise people. Control matters, 295 00:20:10,680 --> 00:20:14,080 Speaker 1: the future is uncertain. None of these things strike me 296 00:20:14,119 --> 00:20:18,320 Speaker 1: as being particularly controversial. But how in your view do 297 00:20:18,400 --> 00:20:23,840 Speaker 1: these insights differ from, say, what economists elsewhere may have thought. 298 00:20:24,080 --> 00:20:26,800 Speaker 1: Well here that that's a great question, Joe, because the 299 00:20:26,840 --> 00:20:29,439 Speaker 1: fact is I went on my thirty five years sabbatical 300 00:20:29,600 --> 00:20:33,520 Speaker 1: from the academy because in the early nineteen seventies it 301 00:20:33,600 --> 00:20:40,359 Speaker 1: became clear that mainstream academic economics and mainstream academic finance 302 00:20:40,920 --> 00:20:44,200 Speaker 1: had kind of drunk the kool aid, the kool aid 303 00:20:44,480 --> 00:20:49,080 Speaker 1: of the where the building mathematical models that could be 304 00:20:49,119 --> 00:20:53,440 Speaker 1: solved logically, and they were based on in both areas, 305 00:20:53,440 --> 00:20:58,160 Speaker 1: both fields based on the concept the fantasy of what 306 00:20:58,440 --> 00:21:02,160 Speaker 1: has been called in the literature too much, the rational 307 00:21:02,280 --> 00:21:07,880 Speaker 1: representative agent, the agent in the market who has an 308 00:21:07,880 --> 00:21:11,679 Speaker 1: omniscient view of the future, not just of what's going 309 00:21:11,680 --> 00:21:15,399 Speaker 1: to be the result of her actions, but of the model, 310 00:21:15,520 --> 00:21:20,840 Speaker 1: a model which accurately explains how her and remember she's 311 00:21:20,880 --> 00:21:26,600 Speaker 1: the representative agent. She represents all investors, all consumers, all firms, 312 00:21:27,119 --> 00:21:30,639 Speaker 1: how those decisions will play out. This came to be 313 00:21:30,720 --> 00:21:37,359 Speaker 1: known as the rational expectations hypothesis. It was dominant, it 314 00:21:37,440 --> 00:21:41,280 Speaker 1: has been dominant for generation, with the models in the 315 00:21:41,359 --> 00:21:44,359 Speaker 1: central banks and the treasuries of the world, not just 316 00:21:44,440 --> 00:21:47,560 Speaker 1: in academia, based on this view. Now, there are a 317 00:21:47,600 --> 00:21:50,120 Speaker 1: couple of aspects of this that are pretty obvious when 318 00:21:50,119 --> 00:21:53,360 Speaker 1: you stand back and assert that the power of that 319 00:21:53,520 --> 00:21:57,480 Speaker 1: most rare resource common sense. First of all, if you 320 00:21:57,520 --> 00:22:01,160 Speaker 1: have one rational agent, one represent of of agent, that 321 00:22:01,200 --> 00:22:04,440 Speaker 1: means that she is her own creditor and debtor. You've 322 00:22:04,520 --> 00:22:09,880 Speaker 1: just excluded a financial system by construction. Nothing that happens 323 00:22:09,920 --> 00:22:12,400 Speaker 1: in the stock market, the bond market, or the banking 324 00:22:12,440 --> 00:22:15,960 Speaker 1: system can have any effect on the real economy. That 325 00:22:16,200 --> 00:22:22,240 Speaker 1: is the central reason why all of the authorities were 326 00:22:22,280 --> 00:22:26,879 Speaker 1: so caught by surprise in two thousand and eight. It 327 00:22:26,960 --> 00:22:30,720 Speaker 1: does sound like common sense, as you say, to put 328 00:22:30,760 --> 00:22:35,120 Speaker 1: it the way I put it, in terms of uncertainty 329 00:22:35,160 --> 00:22:39,600 Speaker 1: about the future, need for ability to provide effective hedges 330 00:22:39,680 --> 00:22:43,919 Speaker 1: against that uncertainty. But as I say, for a generation, 331 00:22:44,119 --> 00:22:47,720 Speaker 1: and not just from the University of Chicago, the doctrine 332 00:22:47,720 --> 00:22:52,640 Speaker 1: the dogma that markets will be self correcting as rational 333 00:22:52,720 --> 00:22:58,200 Speaker 1: agents exercise their omniscient knowledge in a world that they 334 00:22:58,280 --> 00:23:02,320 Speaker 1: fully understand you. It was it was Alan Greenspan in 335 00:23:02,359 --> 00:23:05,080 Speaker 1: the hero in the Hearings in two thousand and nine, 336 00:23:05,119 --> 00:23:08,440 Speaker 1: after Lehman went bust in the World pros, who said 337 00:23:08,480 --> 00:23:11,760 Speaker 1: that he found a flaw in his thinking. The floor 338 00:23:11,800 --> 00:23:15,600 Speaker 1: in his thinking was his belief that those rational, self 339 00:23:15,680 --> 00:23:22,719 Speaker 1: interested bank bosses and private investors would all behave for 340 00:23:22,760 --> 00:23:25,680 Speaker 1: their own best interests, as if they knew what their 341 00:23:25,680 --> 00:23:29,640 Speaker 1: own best interests actually would be. And instead, of course, 342 00:23:29,680 --> 00:23:32,480 Speaker 1: what we saw was everybody running for the exit to 343 00:23:32,520 --> 00:23:37,159 Speaker 1: protect themselves, with a consequence that was catastrophic for the world. 344 00:23:38,280 --> 00:23:42,320 Speaker 1: The good news. The good news is that for those 345 00:23:42,359 --> 00:23:47,240 Speaker 1: academic disciplines of economics and finance, two thousand and eight 346 00:23:47,400 --> 00:23:50,480 Speaker 1: and the great recession that followed are the gifts that 347 00:23:50,680 --> 00:23:56,400 Speaker 1: keep on giving. They have motivated a return to empirical 348 00:23:56,560 --> 00:24:00,840 Speaker 1: study of markets, of economies of finance, a chuill systems 349 00:24:01,400 --> 00:24:06,040 Speaker 1: with a much more realistic view, which is beginning to 350 00:24:06,119 --> 00:24:10,119 Speaker 1: emerge in the literature. And you know, it took a 351 00:24:10,160 --> 00:24:14,679 Speaker 1: generation for the economics that failed us so badly in 352 00:24:14,720 --> 00:24:18,480 Speaker 1: two thousand and eight to become dogma. It'll take a 353 00:24:18,560 --> 00:24:21,520 Speaker 1: generation to undo it. It It won't happen overnight. But there 354 00:24:21,600 --> 00:24:24,080 Speaker 1: is good news out there for the for the longer 355 00:24:24,240 --> 00:24:26,640 Speaker 1: term and how we think about this world we're all 356 00:24:26,680 --> 00:24:29,840 Speaker 1: trying to survive in So we're talking a lot about 357 00:24:29,840 --> 00:24:32,560 Speaker 1: two thousand and eight. If we fast forward to now, 358 00:24:32,640 --> 00:24:35,000 Speaker 1: as Joe and I were discussing in the intro, over 359 00:24:35,000 --> 00:24:37,040 Speaker 1: the past month or so, we've seen a lot of 360 00:24:37,080 --> 00:24:42,640 Speaker 1: angst amid the tech stocks and amongst tech investors. Does 361 00:24:42,680 --> 00:24:45,840 Speaker 1: the wobble in the public market in particular, does that 362 00:24:45,960 --> 00:24:49,560 Speaker 1: suggest that the whole edifice of tech funding starts to 363 00:24:49,680 --> 00:24:53,240 Speaker 1: fall down, that the vcs and the private markets aren't 364 00:24:53,280 --> 00:24:56,520 Speaker 1: going to be able to depend on an exit through 365 00:24:56,720 --> 00:24:59,280 Speaker 1: I p O s and that begins to sort of 366 00:24:59,320 --> 00:25:04,000 Speaker 1: create a downward spiral invaluations. Do you see that happening? Well, 367 00:25:04,040 --> 00:25:06,880 Speaker 1: I certainly see exposure to it now. You know, as 368 00:25:06,920 --> 00:25:09,800 Speaker 1: we all know, it's very hard to predict, especially the future, 369 00:25:10,400 --> 00:25:13,119 Speaker 1: but I think we can see that there's a link 370 00:25:13,800 --> 00:25:20,600 Speaker 1: from the movement towards quote normalizing interest rates to feedback 371 00:25:20,640 --> 00:25:26,560 Speaker 1: and impact on the value of assets whose future returns 372 00:25:26,680 --> 00:25:29,760 Speaker 1: dominate their current returns. And of course there's no set 373 00:25:29,800 --> 00:25:35,720 Speaker 1: of assets more of that category than the unicorns. Second, 374 00:25:36,080 --> 00:25:41,400 Speaker 1: institutional investors will find that there are adequate returns available 375 00:25:41,520 --> 00:25:47,720 Speaker 1: at much lower risk than buying into the digital wannabes 376 00:25:47,880 --> 00:25:52,840 Speaker 1: at at super supervaluations with no guarantee of an exit 377 00:25:52,920 --> 00:25:55,960 Speaker 1: path through a public market or any other way. So 378 00:25:56,040 --> 00:25:58,399 Speaker 1: I think we have to expect that the world is 379 00:25:58,400 --> 00:26:01,200 Speaker 1: going to look a lot more fragile over the next 380 00:26:01,240 --> 00:26:04,320 Speaker 1: period of months and years going forward. And as a 381 00:26:04,400 --> 00:26:09,879 Speaker 1: final point, um, you know, my work is very definitely 382 00:26:10,040 --> 00:26:14,520 Speaker 1: deeply involved at the interface between the financial and economic 383 00:26:14,640 --> 00:26:17,359 Speaker 1: markets on the one hand and the political process on 384 00:26:17,400 --> 00:26:21,320 Speaker 1: the other and the other lesson Another long lesson that 385 00:26:21,400 --> 00:26:25,919 Speaker 1: goes way back in our history is that markets ultimately 386 00:26:26,000 --> 00:26:31,800 Speaker 1: depend on the credibility and plausibility of the political underwriting 387 00:26:32,080 --> 00:26:35,480 Speaker 1: as and when bad things happen. We sure learned that 388 00:26:35,520 --> 00:26:39,480 Speaker 1: in two thousand and eight, and I think we I 389 00:26:39,480 --> 00:26:42,720 Speaker 1: think it's legitimate to have a concern going forward about 390 00:26:42,720 --> 00:26:46,960 Speaker 1: the quality of political underwriting in the United States today. 391 00:26:47,080 --> 00:26:50,000 Speaker 1: I'm glad you brought this up because I before we go, 392 00:26:50,040 --> 00:26:53,000 Speaker 1: I want to hit on sort of another major theme 393 00:26:53,359 --> 00:26:56,040 Speaker 1: of your writing, which we haven't talked about at all. 394 00:26:56,480 --> 00:27:00,159 Speaker 1: And again I suspect it's another area where uh lot 395 00:27:00,200 --> 00:27:02,720 Speaker 1: of investors might bristle at this. But something you point 396 00:27:02,720 --> 00:27:06,760 Speaker 1: out is that the areas where venture capitalists have been 397 00:27:06,800 --> 00:27:10,040 Speaker 1: most successful have all been areas in which there has 398 00:27:10,080 --> 00:27:14,639 Speaker 1: been an extraordinary amount of government spending to invest in 399 00:27:14,720 --> 00:27:18,960 Speaker 1: basic research, the sort of expensive capital investment that often 400 00:27:19,080 --> 00:27:22,800 Speaker 1: early stage private money isn't forthcoming for. And you point 401 00:27:22,800 --> 00:27:26,480 Speaker 1: out examples throughout history. So I'm curious, like a can 402 00:27:26,560 --> 00:27:30,560 Speaker 1: you sort of clarify that point? But be these days 403 00:27:30,720 --> 00:27:33,560 Speaker 1: we seem to have this sort of extreme dichotomy in 404 00:27:33,560 --> 00:27:37,400 Speaker 1: which everybody wants to invest in VC, from soft bank 405 00:27:37,480 --> 00:27:39,959 Speaker 1: to universities. I saw an ad on the subway this 406 00:27:40,040 --> 00:27:43,000 Speaker 1: week saying invest in startups for as little as ten 407 00:27:43,040 --> 00:27:47,680 Speaker 1: dollars like it's at the same time as government, particularly 408 00:27:47,720 --> 00:27:51,600 Speaker 1: in developed economies, don't seem to be very good at 409 00:27:51,680 --> 00:27:54,840 Speaker 1: marshaling the resources for that core, core investment. So I'm 410 00:27:54,880 --> 00:27:58,360 Speaker 1: curious if you can talk about this an incredible interest 411 00:27:58,400 --> 00:28:02,040 Speaker 1: in investing in VC at the same time, according to you, 412 00:28:02,520 --> 00:28:06,240 Speaker 1: a crucial component of VC's success, and not forthcoring. Let's 413 00:28:06,320 --> 00:28:09,160 Speaker 1: let's bring this real down down to the real direct. 414 00:28:09,320 --> 00:28:12,320 Speaker 1: My my personal experience was that in the course of 415 00:28:12,359 --> 00:28:15,600 Speaker 1: the nineties, seventies, eighties, I realized that I had all 416 00:28:15,680 --> 00:28:19,199 Speaker 1: my peers as investors, adventure guys, and the entrepreneurs we 417 00:28:19,200 --> 00:28:21,480 Speaker 1: were backing. We were all dancing on a platform that 418 00:28:21,520 --> 00:28:24,400 Speaker 1: had been constructed by the United States Department of Defense, 419 00:28:24,840 --> 00:28:28,359 Speaker 1: from silicon to software and onto the Internet. It was 420 00:28:28,480 --> 00:28:31,560 Speaker 1: the not just funding research there was the d D 421 00:28:31,640 --> 00:28:34,560 Speaker 1: was the first customer for the stuff that wasn't ready 422 00:28:34,560 --> 00:28:37,840 Speaker 1: for commercial prime time, and for the biotech guys. The 423 00:28:37,920 --> 00:28:41,360 Speaker 1: National Institute's of Health was doing the same thing. When 424 00:28:41,360 --> 00:28:44,440 Speaker 1: you got outside of those two sectors, there's been no 425 00:28:44,680 --> 00:28:49,360 Speaker 1: record ever a venture capital success, investing in the products 426 00:28:49,400 --> 00:28:55,200 Speaker 1: of material science for example, nanotechnology for example, for that matter, 427 00:28:56,000 --> 00:28:59,160 Speaker 1: outside outside of silicon where the government was underwriting it 428 00:28:59,680 --> 00:29:04,680 Speaker 1: to a the digital revolution doesn't need government subsidy and support. 429 00:29:04,720 --> 00:29:07,240 Speaker 1: On the contrary, it's matured to the stage where it's 430 00:29:07,240 --> 00:29:10,920 Speaker 1: it's attacking the authority of the government, from from cryptocurrencies 431 00:29:10,960 --> 00:29:13,960 Speaker 1: at the at the global level to uber at the 432 00:29:14,160 --> 00:29:17,480 Speaker 1: at the city level. But the next revolution, the next 433 00:29:17,560 --> 00:29:21,720 Speaker 1: needed technological revolution, the clean tech green tech response to 434 00:29:21,760 --> 00:29:25,680 Speaker 1: climate change US is nowhere. We haven't invested anything like 435 00:29:26,240 --> 00:29:29,640 Speaker 1: the kind of resources that we did in computing or 436 00:29:29,640 --> 00:29:33,200 Speaker 1: that we did in biotech in order to be able 437 00:29:33,520 --> 00:29:37,080 Speaker 1: to convert this economy and shift the demand and supply 438 00:29:37,200 --> 00:29:41,240 Speaker 1: curves for carbon. China's doing it, for sure, and this 439 00:29:41,360 --> 00:29:44,240 Speaker 1: is the biggest open question in my mind as to 440 00:29:44,760 --> 00:29:50,280 Speaker 1: whether and how China might succeed in this phenomenally difficult 441 00:29:50,280 --> 00:29:55,280 Speaker 1: transition from being an effective follower to the frontier of 442 00:29:55,360 --> 00:29:59,080 Speaker 1: technology to become an innovative leader there. The U s 443 00:29:59,080 --> 00:30:01,520 Speaker 1: did it in the twenty century. It did take two 444 00:30:01,560 --> 00:30:07,040 Speaker 1: World wars and inspired political leadership, genuine political entrepreneurship, which 445 00:30:07,080 --> 00:30:10,040 Speaker 1: we seem to have run out of over the last generation, 446 00:30:11,080 --> 00:30:13,920 Speaker 1: Phil Janeway, fascinating stuff. Thank you very much for joining 447 00:30:13,960 --> 00:30:16,920 Speaker 1: the Outlaws. I couldn't be happy to be here. Maybe 448 00:30:16,920 --> 00:30:19,520 Speaker 1: even the return visit would be more than welcome on 449 00:30:19,560 --> 00:30:37,520 Speaker 1: my side, definitely, Tracy. I really enjoyed that conversation when 450 00:30:37,560 --> 00:30:41,280 Speaker 1: I read Bill's book recently, Doing Capitalism in the Innovation Economy. 451 00:30:41,680 --> 00:30:45,480 Speaker 1: That was prior to the volatility that we had seen 452 00:30:45,760 --> 00:30:49,240 Speaker 1: in October. But in addition to, of course the volatility 453 00:30:49,280 --> 00:30:53,680 Speaker 1: that we saw um, we also saw concerns around Saudi Arabia, 454 00:30:53,760 --> 00:30:57,240 Speaker 1: which is of course a major funder of tech companies 455 00:30:57,280 --> 00:31:00,120 Speaker 1: and tech investors like soft Bank. So I really thought 456 00:31:00,120 --> 00:31:03,520 Speaker 1: there was an incredibly timely conversation because it feels like 457 00:31:03,800 --> 00:31:05,720 Speaker 1: a lot of these companies really are at a crossroads, 458 00:31:06,640 --> 00:31:09,280 Speaker 1: right And if you want to think about an example 459 00:31:09,560 --> 00:31:14,760 Speaker 1: of the importance I guess of of reliable financing when 460 00:31:14,800 --> 00:31:18,040 Speaker 1: it comes to unicorns and various tech start of Saudi 461 00:31:18,080 --> 00:31:22,200 Speaker 1: Arabia is a really really good sort of microcosm of that. Because, 462 00:31:22,200 --> 00:31:26,160 Speaker 1: of course, with all the drama and controversy surrounding the 463 00:31:26,240 --> 00:31:30,040 Speaker 1: murder of the journalist Jamal Kashachi, people are talking about 464 00:31:30,040 --> 00:31:32,720 Speaker 1: whether or not Saudi is still going to be spending 465 00:31:32,760 --> 00:31:36,040 Speaker 1: money as freely on tech investments. And if the Saudi 466 00:31:36,080 --> 00:31:39,040 Speaker 1: money goes, there are some crazy estimates out there saying 467 00:31:39,080 --> 00:31:43,080 Speaker 1: that hundreds of startups could be affected. Yeah, I wouldn't 468 00:31:43,120 --> 00:31:46,880 Speaker 1: be surprised at all about that. And just in general, 469 00:31:46,960 --> 00:31:50,640 Speaker 1: I do think that this link between what we see 470 00:31:50,760 --> 00:31:54,920 Speaker 1: in public markets and the volatility that we see between 471 00:31:54,960 --> 00:31:58,360 Speaker 1: public markets and private markets is probably not appreciated enough, 472 00:31:58,360 --> 00:32:01,640 Speaker 1: and that at some level you can't just do business 473 00:32:02,200 --> 00:32:05,040 Speaker 1: ignorant of what's going on in the markets that we 474 00:32:05,080 --> 00:32:07,000 Speaker 1: see quoted every day. And I think that's a really 475 00:32:07,000 --> 00:32:10,480 Speaker 1: powerful point. And I suspect that a lot of these uh, 476 00:32:10,520 --> 00:32:12,400 Speaker 1: you know, a lot of these unicorn c e O 477 00:32:12,520 --> 00:32:16,800 Speaker 1: s will be surprised when they realize the degree to which, okay, 478 00:32:16,800 --> 00:32:19,160 Speaker 1: maybe they're private, but they're not as insulated as they 479 00:32:19,240 --> 00:32:21,600 Speaker 1: might think, right. And it sort of gets back to 480 00:32:21,640 --> 00:32:25,480 Speaker 1: that expectation point, right, like, what exactly are your original 481 00:32:25,520 --> 00:32:31,000 Speaker 1: investors expecting from their original investment, And usually there are 482 00:32:31,040 --> 00:32:35,200 Speaker 1: a lot of assumptions impeded in those expectations, many of 483 00:32:35,240 --> 00:32:38,920 Speaker 1: which might not actually come to fruition, right, Exactly many 484 00:32:38,960 --> 00:32:41,760 Speaker 1: of them won't because, as Bill pointed, out. We live 485 00:32:41,920 --> 00:32:44,720 Speaker 1: in a permanent state of extreme uncertainty, and we might 486 00:32:44,800 --> 00:32:47,000 Speaker 1: have a guess about something that's going to happen in 487 00:32:47,040 --> 00:32:50,320 Speaker 1: the future, but we really have no idea. And when uh, 488 00:32:50,680 --> 00:32:54,720 Speaker 1: the future starts to deviate from any expectation which will 489 00:32:54,720 --> 00:32:57,280 Speaker 1: happen one day, whether it's now or in the future, 490 00:32:57,720 --> 00:33:00,880 Speaker 1: people are going to want actual cash to hold onto. Yeah, 491 00:33:01,120 --> 00:33:03,600 Speaker 1: it's all about the cash, All about the cash, all right. 492 00:33:04,000 --> 00:33:07,160 Speaker 1: This has been another edition of the Odd Lots Podcast. 493 00:33:07,200 --> 00:33:09,760 Speaker 1: I'm Tracy Alloway. You could follow me on Twitter at 494 00:33:09,800 --> 00:33:13,000 Speaker 1: Tracy Alloway, and I'm Joe Wisenthal. You can follow me 495 00:33:13,120 --> 00:33:16,400 Speaker 1: on Twitter at the Stalwart. And you should follow Bill 496 00:33:16,520 --> 00:33:20,320 Speaker 1: on Twitter. He's at Bill Janeway and be sure to 497 00:33:20,360 --> 00:33:24,160 Speaker 1: follow our producer on Twitter tofur Foreheads He's at foreheads 498 00:33:24,240 --> 00:33:27,440 Speaker 1: t as well as the Bloomberg head of podcast, Francesco 499 00:33:27,520 --> 00:33:30,719 Speaker 1: Levie at Francesca Today. Thanks for listening.