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Speaker 2: Last week, New York state authorities sued the prediction markets
Speaker 2: company Calshi for allegedly running an illegal, unlicensed gambling operation
Speaker 2: in the state, marking another legal hurdle for an industry
Speaker 2: that's one support from the Trump administration.
Speaker 3: That's right. That suit, filed Friday and State Court in Manhattan,
Speaker 3: alleges that Calshi's prediction market exposes state residents, including those
Speaker 3: under the legal gambling age of twenty one, to quote
Speaker 3: serious personal and financial risk. This is coming from the
Speaker 3: New York Attorney General, Letitia James, putting that out in
Speaker 3: a statement.
Speaker 2: We've got with us Robert Denaald's head of enforcement and
Speaker 2: legal counsel at Calshe. He joins us here in the
Speaker 2: Bloomberg Business Week Studio. Bobby, welcome. I want to jump
Speaker 2: right in to this suit because Letitia James, the Attorney General, says, quote,
Speaker 2: no matter what they call themselves, prediction markets like calshe
Speaker 2: are gambling platforms, plain and simple. By ignoring our laws,
Speaker 2: cal she is running an illegal operation and harming New
Speaker 2: Yorkers in the process. What is your response to this
Speaker 2: claim that cal she is running an illegal gambling operation.
Speaker 4: I mean, as both a New Yorker and a lawyer,
Speaker 4: I'm alarmed by the overreaching sentiment that's coming from the
Speaker 4: Attorney General's office. So CALSH is a licensed, federally regulated exchange.
Speaker 4: By her logic, any federally regulated exchange that's operating with
Speaker 4: a federal license and overseen by a federal regulator can
Speaker 4: suddenly be subject to the whims of state criminal enforcement
Speaker 4: if the Attorney general of a particular state wakes up
Speaker 4: and decides one day that these contracts actually come within
Speaker 4: New York state gambling law. That's not how any exchange
Speaker 4: in US history has ever operated. Right, So we have
Speaker 4: we're here at Bloomberg. You guys talk about the New
Speaker 4: York Stock Exchange NASDAQ, other exchanges, all of them could
Speaker 4: be potentially affected by the breath and scope of the
Speaker 4: New York Attorney General's approach and legal theory in terms
Speaker 4: of how she believes she can regulate and bring to
Speaker 4: heal federally licensed exchanges here in New York State.
Speaker 3: Bobby, are you saying you're the exact same things as
Speaker 3: the New York Stock Exchange or the NASDAK markets. That
Speaker 3: you're saying you're the exact same thing apples to apples.
Speaker 4: Then what I am saying is that federal law dictates
Speaker 4: that that is the case. When a federal law like
Speaker 4: the Commodity Exchange Act exists and provides for a way
Speaker 4: for an entity to get licensed by something like the
Speaker 4: Commodity Futures Trading Commission or the Securities Exchange Commission, that
Speaker 4: licensure and that federal regulation is what governs that marketplace. Now,
Speaker 4: if states want to litigate with that regulator on a
Speaker 4: case by case basis about what types of contracts might
Speaker 4: imply some state laws, that's one question, and that's some
Speaker 4: of the lawsuits we've seen over the last year on sports.
Speaker 4: But this is much more far reaching. This is claiming
Speaker 4: that that license means nothing, and if you don't hold
Speaker 4: a New York license, you're running a criminal operation. And
Speaker 4: you need to be run out of the state. And
Speaker 4: I think it's important to ground this sort of in
Speaker 4: history of disruptive sort of new players in marketplaces. Right,
Speaker 4: call She's new, but this sort of licensed to regime
Speaker 4: has existed for many decades. We've seen similar playbooks used
Speaker 4: against companies like Uber and Airbnb, where states try to
Speaker 4: throw their weight around and bring crazy cases to block
Speaker 4: what customers want as a reasonable alternative. We think that
Speaker 4: that's a pretty similar playbook to what the Attorney General
Speaker 4: is following here.
Speaker 2: So why shouldn't Kyle she seek a license from the
Speaker 2: New York State Gaming Commission? Why wouldn't you do that?
Speaker 4: So it really goes to the way that the business operates.
Speaker 4: We are a federally licensed exchange that requires us to
Speaker 4: run open markets that are available nationwide. Our users set
Speaker 4: the price, traders set the price. We match in an
Speaker 4: open marketplace with one another. We are not on the
Speaker 4: other side of individuals trading. We don't run a casino
Speaker 4: where people can come in and drink and play card games.
Speaker 4: We don't run a sports book where we profit when
Speaker 4: people lose. What we do is run open marketplaces where
Speaker 4: users define the price point, and that type of financial product.
Speaker 4: Even if it touches on topics that is similar to
Speaker 4: a topic touched on by a sportsbook, the way that
Speaker 4: that product operates is typically what governs what regulations apply.
Speaker 3: So even though people keep coming at you and say gambling, gambling, gambling,
Speaker 3: that's why you're not gambling.
Speaker 4: So I think it's important to define exactly what they
Speaker 4: mean when they say gambling. To me, gambling is when
Speaker 4: you go up against the house, when you go to
Speaker 4: a place that controls whether you're going to win or lose.
Speaker 4: They're going to chase losers, they're going to maximize their
Speaker 4: ability to limit winners. They're not going to run like
Speaker 4: a true business. But where in exchange exists and individuals
Speaker 4: are setting price with one another, I think that it
Speaker 4: operates under a different regulatory framework. And it's not to
Speaker 4: say that a whole panoply of different topics can be
Speaker 4: touched on by different regulated products. So we see concerns
Speaker 4: in options trading or leverage trading, retail traders moving into
Speaker 4: markets that are traditionally regulated markets at the federal level.
Speaker 4: I think some of the same concerns exist for those markets.
Speaker 4: And if you read the lawsuit closely, a ton of
Speaker 4: the definitions and the language and the descriptions that Attorney
Speaker 4: General James's office uses could easily be transposed onto Robinhood,
Speaker 4: crypto trading, derivatives trading, any sort of trading activity that
Speaker 4: the Attorney General suddenly decides poses a customer threat to
Speaker 4: individuals who want to participate in.
Speaker 2: I mean there is In April she did sue coinbase
Speaker 2: and Gemini for running illegal gambling platforms. There were some
Speaker 2: like why do you think call she was signaled out
Speaker 2: in this typical or this this iteration of the lawsuit.
Speaker 4: You'd have to ask the Governor's office why you know
Speaker 4: call She's was signal signaled out. I think the truth
Speaker 4: is there are a number of prediction markets that would
Speaker 4: be affected by this approach. There's a number of other
Speaker 4: exchanges that would be affected. There are a number of
Speaker 4: like robin Hood's based in New York, right, no big polymarket,
Speaker 4: they're all based in New York, none of whom have
Speaker 4: been subject to the Attorney General's focused So I don't
Speaker 4: know if that's coming. I don't know if you'd have
Speaker 4: to ask her office, but certainly, you know, we're a
Speaker 4: bit alarmed that the Attorney general is seeing the scope
Speaker 4: of New York gambling law applying to potentially federal derivatives exchanges.
Speaker 3: But I do think about exchanges. Do you think about
Speaker 3: the composition of the bets that are on? Like if
Speaker 3: we're going to use the gambling analogy, that keeps getting
Speaker 3: kind of lobbied at you. I mean, if I think
Speaker 3: about exchange, there is incredible oversight, you know, and there's
Speaker 3: rules and so that there isn't you know, trades that
Speaker 3: are happening that are not legit are fair or right?
Speaker 3: You know, if if gambling is as you say, there
Speaker 3: is no house right, it's just two parties figuring out something.
Speaker 3: Where is the oversight and concern about the composition of
Speaker 3: the bets being made and making sure that they are true?
Speaker 3: Because I think that's where you get into gambling. If
Speaker 3: anybody can kind of put up a bet and another
Speaker 3: person can take the side, and who knows if those
Speaker 3: two sides didn't get together to figure out this bet,
Speaker 3: like you know what I'm saying. So for that to
Speaker 3: me is where you get into the gambling. It's a
Speaker 3: little it feels a little loose.
Speaker 4: Sure, I don't think it's loose at all. So I
Speaker 4: think that when you're just to sort of zero in
Speaker 4: on some of the nuance that you just said. Gambling
Speaker 4: is when there is the house. What you do on
Speaker 4: an exchange is where there is no house. There are
Speaker 4: two counterparties in a particular market agreeing on a price
Speaker 4: together and executing what we characterize as a swap, what
Speaker 4: the CEA qualifies as a swap. Those types of trades
Speaker 4: are heavily regulated under CFTC regulation. There are hundreds of regulations.
Speaker 3: You're saying, all the trades that are happening on Kowshi
Speaker 3: will be heavily regulated and over set, and we understand
Speaker 3: the two sides.
Speaker 4: They are currently heavily regulated and being overseen. I meet
Speaker 4: with the CFTC's Enforcement division. That's my line of work
Speaker 4: at Kaushi. I lead our exchange enforcement. I meet with
Speaker 4: their Enforcement division multiple times a week. But separately, they
Speaker 4: have other divisions division Market Oversight, other divisions that oversee
Speaker 4: the implementation of markets so that they are structurally fair
Speaker 4: for the participants operating in them, and that oversight requires calls.
Speaker 4: She as an exchange, but all prediction market exchanges to
Speaker 4: work very closely with the CFTC on the products that
Speaker 4: they offer, they have to self certify them to the CFDC,
Speaker 4: who can revoke approval for those products. And the CFTC
Speaker 4: recently came out with a two hundred and sixty seven
Speaker 4: page rule making that was specific toward prediction market contracts.
Speaker 4: So I think you know it isn't correct to say
Speaker 4: these aren't currently heavily regulated.
Speaker 2: We're speaking with Bobby Denald. He's head of enforcement and
Speaker 2: legal counsel at Kalsh. He joins us here in the
Speaker 2: Bloomberg BusinessWeek studio. I want to shift gears and talk
Speaker 2: about some other recent news. It seems like you're really
Speaker 2: playing whack a mole at this point with these lawsuits,
Speaker 2: Like obviously it's keeping you busy. Also keeping you busy
Speaker 2: as enforcement and former Congressman George Santos agreed to pay
Speaker 2: more than thirty five thousand dollars to settle allegations that
Speaker 2: he manipulated a wager on your platform about whether he'd
Speaker 2: attend the twenty twenty six State of the Union. Isn't
Speaker 2: your responsibility to police that? Or are you the one
Speaker 2: who recognized that and flagged it?
Speaker 4: Yes, it is our responsibility to police that.
Speaker 2: Do you have the resources? Like this is one example,
Speaker 2: but do you have the resources to find every single
Speaker 2: one of them that allegedly has insider information?
Speaker 4: So I pause there and say, that's not our standard
Speaker 4: at the New York Stock Exchange, and that's not our
Speaker 4: standard in the securities and equities markets. What we expect
Speaker 4: our federally regulated exchanges to do is to have reasonable
Speaker 4: procedures to detect insider trading, market manipulation, et cetera. Calls
Speaker 4: she has very robust and in fact, more robust than
Speaker 4: stock exchanges policing measures to prevent and detect insider trade.
Speaker 4: We do have twenty four to seven market surveillance. We
Speaker 4: use a surveillance vendor, but also in the coming days
Speaker 4: are going to announce an expansion of our surveillance systems.
Speaker 4: And we police these markets both in real time and
Speaker 4: in retrospect, and we work with the CFTC to investigate
Speaker 4: specific markets and detect anomalous activity in those markets. We
Speaker 4: did detect the trading activity by mister Santos. We conducted
Speaker 4: an investigation that involved an interview with mister Santos, and
Speaker 4: we referred the entire matter and the evidence that we
Speaker 4: collected to the CFTC, which allowed them to pursue enforcement
Speaker 4: but separately in the derivatives and commodities space. These exchanges,
Speaker 4: like ours, have a responsibility to also bring enforcement actions
Speaker 4: directly against the users who participate on them. And so
Speaker 4: we pursue direct exchange enforcement in areas where individuals come
Speaker 4: on and violate our CFTC approved exchange rules.
Speaker 3: And how since that's happening, and how many investigations are
Speaker 3: you triggering, like on a daily basis or a weekly.
Speaker 4: Basis, So we sort of estimate quarterly, and volumes upticked
Speaker 4: quite a bit. So the investigations have upticked quite a bit,
Speaker 4: but somewhere between one hundred and fifty and two hundred
Speaker 4: and fifty a quarter become material investigations. We make a
Speaker 4: number of referrals. I think a year to date we've
Speaker 4: probably made about forty or fifty referrals to the CFTC.
Speaker 4: These matters take time, though the legal process. Everybody deserves
Speaker 4: due process rights, yep. So we afford people do process.
Speaker 4: We've settled or brought disciplinary actions in a number of cases.
Speaker 4: We were going to continue to do so. By the
Speaker 4: end of the year, you'll see a meaningful number of actions.
Speaker 4: I put for context, the sec in the last year
Speaker 4: of the Biden administration bought thirty five insider trading actions,
Speaker 4: So you know, I think the expectation somewhere in the
Speaker 4: ballpark of that number.
Speaker 2: Do you think that there's some markets that are listed
Speaker 2: on KYSHI that are more susceptible to manipulation than others?
Speaker 4: I think, much like insider trading in the traditional securities
Speaker 4: and equities markets, there are certain paradigms that exist that
Speaker 4: create more likelihood for insider or manipulation risk.
Speaker 2: Like mentioned markets.
Speaker 4: Perhaps you know, I think mentioned markets are a unique category.
Speaker 4: I don't know that they're necessarily more susceptible to insider risk,
Speaker 4: but I can see the context or argument for saying
Speaker 4: they maybe are more susceptible to manipulation. Where one person
Speaker 4: controls what word they say. On the counter of that,
Speaker 4: there's a small pool of people who could possibly be
Speaker 4: capable of manipulating that market. Because we're in exchange that
Speaker 4: collects user information, we follow KYC know your customer rules
Speaker 4: for every single individual trading on the exchange, we have
Speaker 4: a pretty good idea of who's taking positions in certain
Speaker 4: markets that allows us to police mention markets just like
Speaker 4: we police allmark.
Speaker 3: You're talking about calshy public companies, right, I just are no.
Speaker 5: I mean, yeah, that's part of it.
Speaker 3: I mean it's the new just ye sixty seconds, I
Speaker 3: know we've got to run it's interesting earnings updates, KPI forecasts, earnings.
Speaker 2: Comments, what you feel I do?
Speaker 3: And I'm thinking, God, does this replace ultimately the earnings
Speaker 3: estimates that we follow? Is that the goal? Just quickly?
Speaker 4: I think there's two goals. I think the first goal
Speaker 4: is what we find is so many people are using
Speaker 4: Kashi as a resource just to obtain information. Seventy five
Speaker 4: percent of people who visit the platform are there just
Speaker 4: to look to learn. They're not there to trade. And
Speaker 4: so this is a resource for people who might be
Speaker 4: on a trading desk, people who might be in a
Speaker 4: financial position where they want to analyze these really subtopic
Speaker 4: financial questions about a particular KPI. But you know, of course,
Speaker 4: we are seeing academic research that shows these are somehow
Speaker 4: and sometimes more accurate than our traditional metrics and financial markets,
Speaker 4: and so it's exciting to develop further in that space.
Speaker 3: Please come back and talk more about this, because I
Speaker 3: am fascinated about kind of where this goes and who
Speaker 3: will all be on it, Bobby, Thank you so much.
Speaker 2: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 2: up after this.
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Speaker 5: Hey.
Speaker 3: G Square raised two point three billion dollars for its
Speaker 3: seventh flagship fund. It is targeting investments in growth stage
Speaker 3: technology firms, as founder Larry Ashbrook predicts a coming reset
Speaker 3: in valuations, which is something we want to dig into.
Speaker 2: Yeah, the firm has started building out the fund with
Speaker 2: stakes and companies that we talk about all the time, anthropic,
Speaker 2: polymarket and scale and more.
Speaker 3: Yeah, let's get to it. We welcome Larry Ashbrook. He's
Speaker 3: founder and managing partner of g Square. He is out
Speaker 3: there in our Bloomberg New Chicago bureau. Welcome. Welcome. Also,
Speaker 3: excuse me with us is our Bloomberg News senior IPO
Speaker 3: reporter Bailly Lips Shelties here in studio. Hey, Larry, want
Speaker 3: to kick it off with you. First of all, welcome,
Speaker 3: So great to have you here on Bloomberg tell Us
Speaker 3: about this fun the companies you are targeting the strategy,
Speaker 3: and I'm also curious are there more new names to
Speaker 3: come or do you just want to double down on
Speaker 3: some of the investments you've already made.
Speaker 6: Well, first of all, thanks for having me. It's honored
Speaker 6: to be here on behalf of our fifty employees around
Speaker 6: the world. We're humbled that you included us today in
Speaker 6: your broadcast.
Speaker 3: Thank you.
Speaker 6: Yeah, it's exciting for us. It's exciting for us to
Speaker 6: be here. The two point three billion, it's the latest
Speaker 6: of our flagship vehicles really to do the same thing
Speaker 6: we've been doing for the past fifteen years, which is
Speaker 6: support great companies in their growth stage, mostly through secondary
Speaker 6: transactions and saving some capital to help with primary in
Speaker 6: their growth phase, and really helping them manage their cap
Speaker 6: tables as they stay private longer. And we're excited about
Speaker 6: the companies we have in the portfolio and the opportunities
Speaker 6: set in front of us.
Speaker 7: Yeah, Larry, just walk us through if you can quickly
Speaker 7: kind of the notion of this growth in the secondary
Speaker 7: market and what that actually means when G squared can
Speaker 7: partner with a company like an anthropic and are you
Speaker 7: providing access to employees to see some liquidity or is
Speaker 7: it early stage investors who's selling what you're buying.
Speaker 6: Yeah, it's all the above, really, and that's changed over
Speaker 6: fifteen years. Early days, it was heavy focused on employee shares.
Speaker 6: I think as the market has evolved and secondaries have
Speaker 6: become a global asset class with the companies staying private longer,
Speaker 6: more and more of what we're doing is helping other
Speaker 6: managers and other gps manage their liquidity by taking stakes
Speaker 6: in their portfolio companies to help them return capital to
Speaker 6: investors and help the company stay private longer. And so
Speaker 6: it's a combination of those things. It's everything from one
Speaker 6: off individual secondaries when the companies have a need to
Speaker 6: change a life scenario to keep that employee engaged and
Speaker 6: involved so they don't leave to go to another business,
Speaker 6: all the way through broad employee tenders where you're making
Speaker 6: a bona fide offer at one time and a lot
Speaker 6: of capital upfront and the shares are bought in that way,
Speaker 6: all the way through to preferred managers buying the stakes
Speaker 6: that they invested early. And what we've seen is a
Speaker 6: trend since twenty twenty is actually about seventy percent of
Speaker 6: the deployment on the secondary market has been in preferred shares,
Speaker 6: So that's been a fundamental shift in the marketplace as
Speaker 6: companies stay private longer and the stress on the GPLP
Speaker 6: relationship is amplified with funds getting to late in life
Speaker 6: with little capital returned. Other managers need to return capital.
Speaker 6: So we've been there to support their portfolio companies and
Speaker 6: it's the sport. What they need to do is GPS,
Speaker 6: and we're lucky to be where we're at and excited
Speaker 6: about what's to come.
Speaker 2: Well before the deployment of money comes, the fundraising comes,
Speaker 2: and you just closed your seventh round two point three
Speaker 2: or seventh fund rather two point three billion dollars in
Speaker 2: that fund, Larry, compared to the other funds that you've raised,
Speaker 2: What was it like raising money in this environment?
Speaker 5: Was it easy? Was it hard?
Speaker 2: I know people say it's never easy to raise money,
Speaker 2: but there is a lot of money out there right now.
Speaker 6: I think broadly in secondaries, the broader market has woken
Speaker 6: up a bit. It's it's now a bona fide asset
Speaker 6: class that's covered. Companies see the validity of it. Other managers,
Speaker 6: primary focused managers see the validity of it, and LPs
Speaker 6: around the world have a desire to be involved in
Speaker 6: secondaries because it provides a bit of a margin of
Speaker 6: safety in growth investments by the way the capital is
Speaker 6: deployed and this fundraise for us, anytime you set off
Speaker 6: to raise capital, it's hard. I like to tell our
Speaker 6: team all the time, Raising money's hard, deploying it's easy,
Speaker 6: and selling it's hard. A year in it's the quickest
Speaker 6: we've raised capital. Our target was just you know, for
Speaker 6: us in this scale and size and the contrary to
Speaker 6: portfolio we need about a billion dollars per fund, plus
Speaker 6: our SMAs and co investments to be meaningful to a
Speaker 6: certain set of companies getting very large stakes here, we
Speaker 6: were able to kind of get twice the size and
Speaker 6: half the time it took us in the prior vintages.
Speaker 6: And I think it's a lot of things, but mostly
Speaker 6: a testament to our portfolio management team that did a
Speaker 6: fantastic job coming out of the COVID environment we were
Speaker 6: in and the pullback, and when everybody was running out
Speaker 6: the front door, we were running in sort of speaking,
Speaker 6: deploying money at really really great prices, and that those
Speaker 6: historical funds have done well and raising capital at scale
Speaker 6: has gotten easier for us.
Speaker 7: But Larry, walk us through how you're thinking about this
Speaker 7: current market already deploying in the seventh fund. You have anthropic,
Speaker 7: poly market and scale three companies that when I talk
Speaker 7: to folks in the private ecosystem, are quite pricey and
Speaker 7: there's a lot of competition for access to that. How
Speaker 7: are you thinking about whether or not this is a
Speaker 7: market that's maybe run too far, too fast, and how
Speaker 7: you're thinking about deploying capital now and what that means
Speaker 7: through the end of this year and into next. Yeah.
Speaker 6: I like to tell our LPs our job is to
Speaker 6: get involved in the stars of tomorrow today and do
Speaker 6: that before their household names, and when they become household names,
Speaker 6: we know we've done our job right. And I think
Speaker 6: in those three examples we took contrarying views, got involved early,
Speaker 6: they have grown to fantastic levels and valuation. I think
Speaker 6: the way we were thinking about the next chapter of
Speaker 6: deployment in our seventh fund is we expect some macro
Speaker 6: headwinds in the fall and into the winter months and
Speaker 6: maybe early spring, going through some midterm election cycles in
Speaker 6: the US, and some volatility and we're watching the macro
Speaker 6: indicators very closely, and we think that there's a higher
Speaker 6: likelihood than not that we see some interest rate hikes,
Speaker 6: which on the secondary market, the fundamental drivers are the
Speaker 6: ten year yield and the federal funds rate along with
Speaker 6: the equity risk premiums in the public market.
Speaker 8: So as you have an.
Speaker 6: Elevated interest rate environment in a low equity risk premium,
Speaker 6: secondaries tend to do well. And we think we're going
Speaker 6: to enter a market that's more similar to the twenty
Speaker 6: twenty three time period than what we've experienced in the
Speaker 6: past year or so, and we're going to be prepared
Speaker 6: to do the best work we can for our LPs.
Speaker 3: You speak of stars, and I feel like with AI
Speaker 3: there's lots of shiny new things out there, to say
Speaker 3: the least. Larry in the story that Bailey wrote, and
Speaker 3: I highly recommend everybody check it out. On the TERMO,
Speaker 3: it's all about you, guys. He quotes you, or he
Speaker 3: points out how you argue that the market has become overheated.
Speaker 3: His competitors are chasing every hot AI name, which has
Speaker 3: driven valuations to become expensive. Just really briefly, I mean,
Speaker 3: what kind of correction are you looking for and what
Speaker 3: names do you think are going to be maybe taken
Speaker 3: down just quickly.
Speaker 6: Yeah, Well, I think the specific names of inflated valuations
Speaker 6: that we view internally will leave out of it. What
Speaker 6: I would say broadly in the market is when everyone's
Speaker 6: hopping on, it tends to not end well. And there
Speaker 6: was a period of time where it was very difficult
Speaker 6: for AI companies to raise money. We were a large investor,
Speaker 6: and if you look at the cybersecurity AI business Whiz
Speaker 6: it raised capital at a point time post COVID. It
Speaker 6: was very difficult to put together money at a ten
Speaker 6: billion dollar valuation that goes on to sell to Google
Speaker 6: a couple of years later at thirty two billion. The
Speaker 6: time to make the two, three, four, five x's in
Speaker 6: these businesses, in our opinion, for the most part, of
Speaker 6: the names that you're all reporting on have kind of
Speaker 6: were there, and we're looking for the next chapter and
Speaker 6: the next businesses for what we think will be coming
Speaker 6: over the next few years to get involved with today,
Speaker 6: and so I think it's natural. It's cyclical. Valuations rise
Speaker 6: and fall, and deploying capital you need to be very
Speaker 6: careful right now, just given the multiples that deals are
Speaker 6: getting done at and the FOMO picking up. Being in Chicago,
Speaker 6: we're able to be a little bit a mean to that.
Speaker 6: I think that's one of the benefits.
Speaker 3: It's a Midwestern sensibility. We feel it, we feel it
Speaker 3: and appreciate it.
Speaker 2: Of a New York office.
Speaker 5: Come on, Having said that, Yeah.
Speaker 2: I do wonder about SpaceX because that was one of
Speaker 2: your investments. What is the status of that investment now?
Speaker 2: Do you still own SpaceX?
Speaker 6: Yeah? We don't comment on our dispositions, but what I
Speaker 6: would say about SpaceX is, first of all, betting against
Speaker 6: Elon is a good way to lose money typically, and
Speaker 6: I think they'll go on to even greater things than today.
Speaker 6: I think fundamentally there's an issue with the IPO market
Speaker 6: that's being played out right now real time, with how
Speaker 6: you see SpaceX trading. I think there needs to be
Speaker 6: some change on how and when options are allowed to
Speaker 6: come in. You have a massive business that's a fantastic
Speaker 6: business and shareholder creation event that's taking place, but you
Speaker 6: have a very small float into ses force buying options
Speaker 6: coming online. You have a high push on the stock
Speaker 6: price on the upside, and then you have a massive
Speaker 6: amount of float coming to market. So it's just a
Speaker 6: supply and demand situation where you're going to see these
Speaker 6: companies be stressed even with positive results like you saw
Speaker 6: come out of the business today. So I think it
Speaker 6: takes some time to work that out. You need to
Speaker 6: get the float working properly globally in a massive business
Speaker 6: that raised a small amount of money compared to its
Speaker 6: market private market cap. And I think SpaceX is an
Speaker 6: illustration of what's likely to come with many companies that
Speaker 6: will seek IPOs in the near term. We need to
Speaker 6: address the way that IPOs are done. It's going to
Speaker 6: continue to be an issue for the world's best, fastest growing,
Speaker 6: most dynamic, largest businesses.
Speaker 7: Larry, we have about twenty seconds here or their seconds here.
Speaker 7: Just walk us through how you're thinking though about deploying
Speaker 7: capital and how you're thinking about the exit environment. Are
Speaker 7: you looking for some of the bigger positions to go
Speaker 7: public later this year and into next and would you
Speaker 7: try to sell before that IPO or immediately.
Speaker 3: After really quickly if you could, please, yeah, really quickly.
Speaker 6: Look, we have a job to do for our LPs.
Speaker 6: We look at harvesting our positions as they meet our profile.
Speaker 6: And we'll continue to do that work, which has allowed
Speaker 6: us to raise the capital in which we've been able to.
Speaker 6: I think that the next group of companies we work
Speaker 6: on are going to be from the same fundamental kind
Speaker 6: of thought process, which is we want to partner with businesses,
Speaker 6: help them manage their cap table, help them work through
Speaker 6: the difficult issues, and stay private as long as they'd
Speaker 6: like so they don't have to live their day in
Speaker 6: ninety day increments and have you all talking about the
Speaker 6: pros and cons of their public report.
Speaker 3: Listen, when we leave in a guest and we have
Speaker 3: a million more questions, means you've got to come back,
Speaker 3: so please come back.
Speaker 6: I'd love to Thanks for having me and look forward
Speaker 6: to it.
Speaker 3: All right, Larry, thank you so much.
Speaker 2: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 2: up after this.
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Speaker 2: Shares of Neutron Holdings, better known as the Lime ticker
Speaker 2: line lam He hit a new high today this after
Speaker 2: the company reported its first financial since going public earlier
Speaker 2: this summer, revenue for the one point seven billion market
Speaker 2: cap company increased to three hundred and four million. That
Speaker 2: was up twenty four percent year over year. And the
Speaker 2: guidance too has investors excited.
Speaker 3: Yeah, for the third quarter guidance revenue in the range
Speaker 3: of three hundred and forty million to three hundred and
Speaker 3: sixty million, adjusted EBITDA in the range of one hundred
Speaker 3: and twenty two one hundred and thirty million. And we
Speaker 3: should point out that after the report, Key Bank Capital
Speaker 3: Markets allis justin Patterson raised the target on the company
Speaker 3: to thirty seven from thirty three a share, So the
Speaker 3: stock right now just below thirty six dollars.
Speaker 2: This year, we got with us Wayne Tang, the CEO
Speaker 2: of Lime. He joins us from San Francisco. Wayne, good
Speaker 2: to have you on the program. We went through some
Speaker 2: of the numbers here. As I mentioned the company's first
Speaker 2: report since going public, I'm just wondering before we get
Speaker 2: to sort of the nitty gritty, what is the what
Speaker 2: is the strategy or the difference between communicating with a
Speaker 2: group of private investors ahead of the IPO and now
Speaker 2: communicating with this wider audience of public market investors.
Speaker 5: I would say, I mean, I think the heart of
Speaker 5: the strategy doesn't change, like we want to continue to
Speaker 5: deliver great growth on top line and bottom line, which
Speaker 5: is what you saw in our Q two results. I
Speaker 5: do think the immediate reaction that we can get on
Speaker 5: a day like this right after earnings, that's certainly new
Speaker 5: to me as a CEO who manage a private company historically.
Speaker 5: But I think what investors are looking for is strong growth,
Speaker 5: strong growth in top line, strong growth in profits, continue
Speaker 5: momentum in the business, which is if you look at
Speaker 5: our Q two results, exactly what we delivered.
Speaker 2: Go ahead, So I want to talk a little bit.
Speaker 2: You know, here in New York, I don't have access
Speaker 2: to line bikes. There are some line scooters in parts
Speaker 2: of the city, right.
Speaker 5: You're correct. We do operate in the Eastern brawls in
Speaker 5: Western Queens, but we're not in Manhattan.
Speaker 2: So City Bike dominates on the bike side here. I'm
Speaker 2: just wondering, like, is our markets big enough for more
Speaker 2: than one micro mobility provider?
Speaker 5: Definitely, and in fact most of them markets were in
Speaker 5: line is in two hundred and thirty cities around the world,
Speaker 5: twenty nine countries. In the vast majority of our markets
Speaker 5: there are multiple operators. In fact, I would say competition
Speaker 5: improves all of us, and I know in New York
Speaker 5: oftentimes I hear New Yorkers talk about the fact that
Speaker 5: City Bike isn't super it could there could be improvements
Speaker 5: to price, to reliability, to quality, And I think introducing
Speaker 5: more competition helps the consumers, it helps the city, it
Speaker 5: helps improve service. So absolutely, I think New York there
Speaker 5: can be multiple operators. In fact, I think that people
Speaker 5: who'll benefit will be the consumers and the citizens of
Speaker 5: New York.
Speaker 2: Yeah, I think the comments you made about city by
Speaker 2: anyone who's used City by here in New York can
Speaker 2: relate to those Does that mean you have plans to
Speaker 2: launch the bike service in New York City?
Speaker 5: So we are tim as you point out, we're already
Speaker 5: in New York City and the.
Speaker 2: Department expand, I guess expand it.
Speaker 5: Has been so we have to work with the city
Speaker 5: to scale the operations to more boroughs. And we're certainly
Speaker 5: very interested to bring Lime service to more boroughs across
Speaker 5: Greater New York. And Lime is the global leader and
Speaker 5: shared microability by far, and we are the global leader
Speaker 5: because we have the best hardware. We're vertically integrated in software, hardware, operations,
Speaker 5: and government relations. And I would love to bring that
Speaker 5: level of service and quality to more New Yorkers and
Speaker 5: more more neighborhoods.
Speaker 3: Hey, I want to ask you specifically, Wayne about the
Speaker 3: Uber partnership and the Uber relationship. You were backed by Uber,
Speaker 3: they were expected to can I have to look. I'm
Speaker 3: meant to look at holdings. More than twenty percent of
Speaker 3: the outstanding shares following the IPO and then at twenty
Speaker 3: twenty five, fourteen and a half percent of Lines revenue
Speaker 3: came through the Uber partnership. The remainder generated directly on
Speaker 3: the Line app. Tell me about the Uber partnership and
Speaker 3: relationship today.
Speaker 5: Sure so, Uber is an incredibly important and strategic partner
Speaker 5: for us. Anywhere Linemen Uber both operate. You can access
Speaker 5: a Line bike and scooter directly into Uber app. And
Speaker 5: as everyone know, Uber is the biggest transportation platform out
Speaker 5: there and it's a great new user discovery partnership for us.
Speaker 5: And when we launch a new city, Uber also allows
Speaker 5: us to scale faster and get to reliability faster because
Speaker 5: day one, when Line launches millions of users won't be
Speaker 5: able to access line directly into Uber app. So that
Speaker 5: partnership remains very strong, and it's a long term partnership.
Speaker 5: Back are our our two way exclusive contract lasts for
Speaker 5: several more years, and our expectation is we're going to
Speaker 5: continue to invest and scale up that partnership over time.
Speaker 3: So remain on their app as well, yes, okay, okay,
Speaker 3: for the long term, or for at least a few
Speaker 3: more years, or maybe even longer.
Speaker 5: Hopefully even longer.
Speaker 2: Okay, Yeah, and at least here in New York again,
Speaker 2: Lyft has the city Bike partnership, so you know to
Speaker 2: actually in lift owned city bike. So that's one thing
Speaker 2: to keep in mind. From the competitive landscape. In terms
Speaker 2: of the actual modes of transportation, you offer the e scooter,
Speaker 2: the e bike, the seated e scooter. Which form are
Speaker 2: you most bullish on? Which form has quicker adoption, higher adoption?
Speaker 2: Which form would you rather somebody take when they're faced
Speaker 2: with a choice.
Speaker 5: I would say I'm agnostic to the various we are.
Speaker 5: We do have. We're the biggest operator of e scooters
Speaker 5: and e bikes, and we recently introduced the sit down
Speaker 5: form factor called Lime glider and actually one Time Magazine's
Speaker 5: Best invention of twenty twenty five. What I want people
Speaker 5: to do is to drive less. Help us solve some
Speaker 5: of the transportation challenges that we see in cities all
Speaker 5: over the world. Congestion is a problem, Parking is always
Speaker 5: there's not never enough parking. Sustainability is a problem all
Speaker 5: over the world. And the number one source of carbon
Speaker 5: pollution in the United States and in Europe is from transportation.
Speaker 5: And any mode online you're being offered a reliable, more affordable,
Speaker 5: and far more green alternative to driving. And so I
Speaker 5: would say any mode I would be great, and it's
Speaker 5: better than the congestion affordability challenge from cars that we
Speaker 5: see as a problem in urban transportation everywhere.
Speaker 2: What's the break even on any bike when you make
Speaker 2: that initial investment anyvibe, how long does somebody have to
Speaker 2: ride it hours wise for that to make sense for
Speaker 2: that from an investment perspective.
Speaker 5: So we have a really good payback and we turn
Speaker 5: on invested capital. So the average e by scooter that
Speaker 5: we buy is roughly thirteen hundred dollars in terms of
Speaker 5: a fully landed costs, and we typically payback that initial
Speaker 5: investment in less than twelve months, and these vehicles last
Speaker 5: five years plus, so our total cash and cash return
Speaker 5: is four to five times our initial investment. And we
Speaker 5: continue to improve our cost to serve and improve the
Speaker 5: utilization of our vehicle. So I feel like there's even
Speaker 5: upside to that payback that I just described over the
Speaker 5: long run.
Speaker 2: Wait, Wayne, thanks so much for joining us. Wayne Tang,
Speaker 2: CEO of Line, joining us from San Francisco. Stay with us.
Speaker 2: More from Bloomberg Business Week Daily coming up after this.
Speaker 1: You're listening to the Bloomberg Business Week Daily Pod. Catch
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Speaker 2: I want to talk a little bit about defense technology,
Speaker 2: specifically personal defense. Burnet Technologies makes non lethal alternatives to firearms.
Speaker 2: Thinks co two powered gun like devices that shoot projectiles.
Speaker 2: We've got with us Con Davis, the CEO of Burnet Technologies.
Speaker 2: The firm as a market cap of around one hundred
Speaker 2: and six million dollars. Con joins us from Tampa, Florida.
Speaker 2: Con good to have you on the program. So you
Speaker 2: sell to law enforcement security. Can anyone buy one of
Speaker 2: these are what you call launchers.
Speaker 8: Absolutely, our primary customer is actually the consumer, and they
Speaker 8: are legal in all fifty stakes, so anyone can purchase
Speaker 8: one of these devices, and they really are a great
Speaker 8: option for people looking for a personal protection device.
Speaker 2: How do you make sure they're non lethal?
Speaker 8: So we do a lot of testing to make sure
Speaker 8: these products are non lethal. It's really about the velocity
Speaker 8: and the type of round that we use. So there
Speaker 8: is a hard plastic round that's quite large. It hurts,
Speaker 8: but it does not penetrate the skin. The other option
Speaker 8: is a chemical irritant round made of powderized pepper and
Speaker 8: tear gas that can incapacitate someone for about forty minutes.
Speaker 3: Talk to us about the financials. The stock's been under
Speaker 3: a ton of pressure, and you did report earnings back
Speaker 3: in July. I think you talked about fiscal twenty twenty
Speaker 3: six would not be a revenue growth year, but you
Speaker 3: did expect improvement in the second half of the year
Speaker 3: compared with the first half as retailers get ready for
Speaker 3: the holidays and you're doing some other I guess internal
Speaker 3: marketing and so on and so forth. But why aren't
Speaker 3: people Why do you think it's so tough you do
Speaker 3: direct to sell, You've got retailers, but why is it
Speaker 3: the numbers aren't better?
Speaker 6: Right?
Speaker 8: Well, right now where we are is we need to
Speaker 8: get the message out about the product. Everyone we talk
Speaker 8: to and understands what this product does, gets really excited
Speaker 8: about it, and frankly, those turn into cells pretty quickly.
Speaker 8: Where we are today, though, is there have been historic
Speaker 8: advertising restrictions on things that look like a weapon. So
Speaker 8: we are in the middle of a marketing shift and
Speaker 8: a pivot in order to get the message out much
Speaker 8: broader into a wider audience. So that's what we're doing.
Speaker 8: We're expanding our sam by about ten times over the
Speaker 8: next six to nine months as we really reach that
Speaker 8: new new consumer audience.
Speaker 2: Yeah, we're going to talk about supply chain in a
Speaker 2: second and sort of how you're dealing with tariffs and
Speaker 2: component costs and plastics as a result of oil volatility.
Speaker 2: I'm curious though about the market for law enforcement because
Speaker 2: when we think about non lethal devices for law enforcement,
Speaker 2: it really seems like Taser owns the mind share and
Speaker 2: own owns much of the market. How do you compete
Speaker 2: with that?
Speaker 8: So really you compete with that in the law enforcement
Speaker 8: market by effectiveness and the differences betwe the taser product
Speaker 8: in ours. So the taser product has a range of
Speaker 8: about twenty to twenty five feet, so it's a pretty
Speaker 8: close end product. Additionally, you have to be pretty accurate
Speaker 8: with it given the fact that you have to get
Speaker 8: two electrodes into an individual. For us, we have a
Speaker 8: range that's much further, about sixty feet, and when our
Speaker 8: projectiles hit they create a six foot cloud of gas,
Speaker 8: which really will impact an individual even if you don't
Speaker 8: directly strike them.
Speaker 3: So interesting, and we may come back to talking a
Speaker 3: little bit more about the business and the outlook. But
Speaker 3: one of the things that we like talking here at
Speaker 3: Bloomberg business Week daily smaller companies, companies with a different footprint,
Speaker 3: is what so much of our economy is small business?
Speaker 3: Right We know that we talk about it all the time.
Speaker 3: It's the backbone of the US economy. I am curious,
Speaker 3: what are some of your pain points right now in
Speaker 3: terms of supply chains, tariffs. We have a president who
Speaker 3: you know, continues to make some comments about different types
Speaker 3: of teriffts right now. Earlier we had mentioned President Trump
Speaker 3: writing tariff's price floors to boost US polysilicon. There's a
Speaker 3: lot of different dynamics what a large company can deal
Speaker 3: with in their massive supply chains. They often have leveraged
Speaker 3: smaller companies that could be trickier. Talk to us about
Speaker 3: your supply.
Speaker 8: Chain, it can be trickier and frankly, you know, businesses
Speaker 8: are looking for stability, especially smaller businesses, so that we
Speaker 8: can plan and grow going forward. Where Berna is uniquely
Speaker 8: positioned is several years ago we made a pivot from
Speaker 8: pivoting from manufacturing overseas to producing all of our products
Speaker 8: domestically here in the US.
Speaker 5: And you were in South Africa before we were.
Speaker 8: We were in South Africa before from a manufacturing point
Speaker 8: of view. We moved all of that to Indiana. Over
Speaker 8: the past five years, and even more than that, we
Speaker 8: started moving our components and other pieces of our supply
Speaker 8: chain to domestic use US sources, which that has proved
Speaker 8: a real benefit for US. As you've seen energy prices
Speaker 8: become volatile and shipping prices go up and down with that.
Speaker 3: That's interesting, So financially it was a smarter move. I'm
Speaker 3: just curious about labor costs or is it all automated
Speaker 3: like things We always talk about being so much more
Speaker 3: expensive to do in the US, but that has not
Speaker 3: been the case for you.
Speaker 8: That has not been the case for us. I will
Speaker 8: tell you that we pay a little bit higher of
Speaker 8: a labor cost obviously here in the US than we
Speaker 8: would overseas. However, we make that up in quality. So
Speaker 8: the quality of the manufacturing that we can do when
Speaker 8: we control it ourselves, and when you're talking about a
Speaker 8: life saving device, having a quality manufacturing process is really important. Additionally,
Speaker 8: if you think about the shorter supply lines and supply
Speaker 8: chains that you have there, you can pull a lot
Speaker 8: of money out of your inventory when you are manufacturing domestically.
Speaker 2: How much did prices go up when you started manufacturing domestically,
Speaker 2: they went.
Speaker 8: Up zero dollars. We did not increase price.
Speaker 5: How much?
Speaker 2: How much did you absorb?
Speaker 8: Understood? We understore absorbed about five hundred basis points on
Speaker 8: the costline that we've now worked through from a manufacturing
Speaker 8: efficiency point of view, So at this point I would
Speaker 8: call it neutral.
Speaker 2: When you hear about the onshoing conversation that we've been
Speaker 2: having over the last well, I mean, it really goes
Speaker 2: back to twenty seventeen, but I think at least in
Speaker 2: this term, since you know January of last year, do
Speaker 2: you think, like, like, we talked to the former CFO
Speaker 2: of Levi's, for example, and he says, we're never going
Speaker 2: to make Levi's genes in the US. I mean, Apple
Speaker 2: is not going to be making iPhones here. Yeah, they're
Speaker 2: going to make more and more in India, but they're
Speaker 2: still making them in China. Like, what takeaways do you
Speaker 2: have for other small businesses about the how realistic it
Speaker 2: is to onshore in an environment where manufacturing is so
Speaker 2: specialized globally and where costs very so much.
Speaker 8: So, I think it really comes down to how much
Speaker 8: labor is in your cost stack. The more that you
Speaker 8: can drive an efficient manufacturing process and pull individual labor out,
Speaker 8: the more you're going to be able to manufacture in
Speaker 8: the US. Additionally, when you're a small business, you know,
Speaker 8: the ability to reduce the amount of money that you
Speaker 8: have in working capital from an overseas exposure point of
Speaker 8: view is massive. We can ramp up and ramp down
Speaker 8: manufacturing much faster than we can if we had a
Speaker 8: large supply chain. That really gives us much more flexibility
Speaker 8: and it allows us to be nimbled of what the
Speaker 8: consumer demand actually is.
Speaker 3: So again, you know, one of the things you certainly
Speaker 3: play into the consumer market, right, your director consumer. You
Speaker 3: also sell to retailers, right, who sell to consumers based
Speaker 3: on that who is your consumer typically? And I'm curious
Speaker 3: kind of where are the markets or the stores that
Speaker 3: you are selling the most and what are you seeing
Speaker 3: about kind of the health of the consumer.
Speaker 8: Yeah, absolutely, I will tell you that. You know, our
Speaker 8: view is that the consumer is definitely under pressure and
Speaker 8: they're making trade offs and what they're choosing to purchase
Speaker 8: and the events and things that they're trying to do
Speaker 8: in their lives. You know, we still see really strong
Speaker 8: sell through in our channels that are you know, sporting
Speaker 8: goods and outdoor stores, so think best Pro, Cabella's, Sportsman's
Speaker 8: warehouse stores along those lines. Still definitely see strong sell
Speaker 8: through to that consumer again, more of that enthusiast outdoors
Speaker 8: oriented consumer. You know, where our opportunity is going forward
Speaker 8: is to expand beyond what has really been a pretty
Speaker 8: narrow early adopting audience to now reach that wider mass audience.
Speaker 3: Yeah, it does sound like, you know, going back to
Speaker 3: the product itself, I mean some of this stuff you
Speaker 3: have to kind of inform right in order to sell.
Speaker 3: There's an educational aspect to this, and I guess it
Speaker 3: sounds like that's what you guys are figuring out to
Speaker 3: some extent.
Speaker 8: That is that's where we're focused right now. And we're
Speaker 8: doing a lot of partnerships both with people online but
Speaker 8: also with local community organizers to help get the word
Speaker 8: out about the product and to train people.
Speaker 2: So what about the product pipeline? In ways you can
Speaker 2: ways you can expand the products that are offered. When
Speaker 2: the people in your company who are in charge of
Speaker 2: that pipeline come to you with pitches, what are they pitching?
Speaker 8: So I will tell you we have a great R
Speaker 8: and D organization based just outside of Boston, Massachusetts, and
Speaker 8: we're pitching and looking at a couple of different things.
Speaker 8: One it's how do you reduce the complexity of the
Speaker 8: product category we have now so that we can lower
Speaker 8: those manufacturing costs as I discussed. Second, beyond that is
Speaker 8: starting to talk about how we develop more form factors
Speaker 8: so that people that aren't comfortable with something that looks
Speaker 8: like a firearm or looks like a gun, that they
Speaker 8: still have an option to protect themselves in an active
Speaker 8: way versus just a passive way.
Speaker 3: Hey, one last thing. You know, we talked supply chains,
Speaker 3: and I'm just thinking about policy. We mentioned the president,
Speaker 3: you know, different times coming out tariffs and different policies
Speaker 3: that impact large business, medium size, small. What else could
Speaker 3: this administration do as we get ready for midterms to
Speaker 3: help out smaller businesses? And just got about thirty seconds.
Speaker 8: Yeah, So again it comes back down to really laying
Speaker 8: out a policy framework and just being consistent. The biggest
Speaker 8: thing for small businesses is the volatility. That volatility really
Speaker 8: creates uncertainty, both with the consumer and with investments that
Speaker 8: we're trying to make as an organization.
Speaker 3: Are you saying this administration isn't consistent.
Speaker 8: I'm saying we need more consistency. Okay, okay, You've had
Speaker 8: a lot of back and forth and up and down
Speaker 8: in tariff policy and in oil and gas prices. The
Speaker 8: more we can be consistent there.
Speaker 5: The better.
Speaker 3: Yeah. That certainly is being felt in some days differently
Speaker 3: than others. Con Davis, thank you so much. Covered a
Speaker 3: lot of ground. CEO of Burner Technologies joining us there
Speaker 3: from Florida on this Wednesday.
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