Dan talks with GGV Capital Managing Director Jeff Richards about the tech scene in San Francisco and the Bay Area (1:10), the rise of “quiet quitting” and workplace demands from younger people (4:50), why Jeff thinks it’s still a great time to be a founder (18:18), the current megatrends in tech (21:58), Jeff’s bullishness on SaaS companies (24:46), finding the right time and sweet spot for an IPO (29:01), Jeff’s approach to investing in public markets (41:02), why many small businesses are showing resilience (46:58), and how the 2022 midterm elections may impact the market’s outlook (50:18).
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NewsTranscript
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00:37 Welcome to OK Computer. I'm Dan Nathan.
00:40 It's getting cold open. That's as cold as it gets.
00:42 The guy laughing at me is Jeff Richards, managing partner of GGV Capital.
00:46 I think OK Computer listeners have gotten familiar with him.
00:49 You probably also know Jeff. He does CNBC's Tech Check.
00:53 You have your own video podcast called Unscripted, which drops every couple of weeks.
00:58 I try to do it every week, but it's probably twice a month.
01:01 Great pod. You've got to check it out. Jeff, welcome. IRL to OK Computer.
01:06 Hey, thanks for inviting me. I feel like I'm in the Yankee Stadium of podcasts.
01:09 Yeah, well, I mean, this is kind of the way most people feel right about here.
01:13 All right, talk to me a little bit. You spent the day traveling yesterday,
01:16 coming from the Bay Area to New York City.
01:19 You left this horrible hellscape that is San Francisco.
01:23 And I'm joking a little bit because it's interesting.
01:25 You probably saw this on Twitter. I think it was over the weekend.
01:28 Kara Swisher had like a tweet thread as she's walking around San Francisco.
01:32 It sounds like she hadn't been back in a while. It was her former home.
01:35 And she was sarcastically taking shots, tweeting them, saying the hellscape that is.
01:40 Is it as bad as everyone thinks, Jeff?
01:42 No. So a couple of thoughts. One, first of all, New York, beautiful. It's hot.
01:46 It is hot. It's humid. I have to keep my hair short when I'm here, otherwise it blows up.
01:50 I don't think San Francisco was ever as active as New York was, right?
01:54 In New York, you have the theater district. You have a big nightlife culture.
01:58 We never really had that in San Francisco. It was a tech scene.
02:01 But even if you took like the corporate scene in San Francisco, it was real estate,
02:04 a little bit of banking, a little bit of consulting.
02:06 It wasn't really ever like New York. So I just think the comparison is a little unfair.
02:10 The other thing that's different about San Francisco is when I first moved to San Francisco in the '90s,
02:15 there was a downtown corridor, but nobody lived there.
02:18 So you would live up in Pacific Heights or wherever,
02:21 even people live in Marin and take the ferry over, you'd go downtown to work and then you'd leave.
02:26 So when people walk around downtown and like, it's empty, I'm like, it's kind of always been empty.
02:30 It had a period where it got built out and SOMA, you know-
02:34 Right before the pandemic.
02:35 Right before the pandemic. It was kind of peak.
02:37 And then I think when people realized they could do the same job and live elsewhere,
02:40 they decided to live elsewhere.
02:41 All right, but let's take a step back there because, you know, I spent a lot of time in San Francisco,
02:45 probably about once a month in the lead up to the pandemic for the few years before it.
02:50 And it just seemed like downtown, it was humming.
02:53 It was booming.
02:54 And everybody, all these young people that had either been working at VC or startups in the Valley,
03:01 if you will, wanted to be in the city and therefore firms like Twitter,
03:05 they had to like start making offices, VC firms.
03:08 You guys probably had to have seats up in San Francisco.
03:11 How does that not come back?
03:13 I'm just saying in general, because to me, it seemed like there was a great buzz building.
03:17 I agree with you.
03:18 It's interesting if you wind back the clock, Silicon Valley was like HP,
03:22 it was kind of Stanford and south of Stanford was Silicon Valley.
03:25 And then really what kicked off San Francisco, the kind of the tech scene was like Zynga, Twitter,
03:31 Facebook opened an office, and then you had some of the emerging hot companies like Dropbox
03:35 and others who built offices in San Francisco.
03:37 And it became cool to have an office in San Francisco and live in San Francisco.
03:40 And you're right, it was definitely hopping right before the pandemic, but it changed.
03:45 It's an expensive place to live.
03:47 A lot of the people who moved out of the city moved to Marin.
03:49 They moved to the East Bay.
03:50 They moved to the South Bay.
03:51 And then, of course, you have folks that moved to other places like Miami, New York, et cetera.
03:55 But it ebbs and flows.
03:56 I think that folks who are feeling pain right now are the folks that own commercial real estate.
03:59 I've heard the vacancy rate is over 40%.
04:02 I think that folks actually took space that was vacant.
04:05 I think right now it's listed at like 24 or 25.
04:08 But if you think about the space that is technically available, it's just not listed.
04:11 It's higher.
04:12 I think those folks are probably having a hard time.
04:14 But most of them have owned those buildings forever, and it came back after '08, '09,
04:17 and they're probably thinking it will come back again now.
04:19 It speaks a little bit to a culture.
04:21 You heard Apple spent billions of dollars to create whatever they're calling it.
04:25 What were they calling it?
04:26 A spaceship or whatever.
04:27 And now young workers who probably get treated really well there, they have to work hard,
04:31 and they don't want to go back there, which is kind of interesting.
04:33 You as an operator in your past life, as a VC, as someone who advises dozens of portfolio companies,
04:40 I mean helped hire probably hundreds of thousands, right?
04:44 So talk to me a little bit about some of these themes here because they're kind of related.
04:48 It's just this empowerment of the young worker.
04:51 So this story about quiet quitting, it almost fell off my chair.
04:55 And then the New York Post has a story today by a woman named Lydia Moynihan, who I know is a good reporter.
05:01 Wave of Goldman Sachs workers quit en masse at toxic Wall Street giant.
05:06 Okay, that's from sources.
05:07 So six first-year health care bankers left the firm en masse, and they have other jobs because they don't like the culture.
05:14 Now, I will tell you this.
05:15 Guy and I interviewed David Solomon a few months ago, and we spent a lot of time talking about some of these worker issues.
05:22 And half of their employees are like under the age of 30.
05:25 You know, they have a really interesting, I think, entrepreneurial culture for a bank.
05:30 How do you take all these headlines and how do you think about them?
05:32 Because obviously workforce, workplace, everything about it has changed a lot in the last few years.
05:37 A hundred percent.
05:38 I think we're in, I've said this many times, I think we're in the early days of like a pretty big shift in our country.
05:43 You look at towns that have been overrun by people moving in to buy real estate, right?
05:47 A friend of mine was telling me that.
05:48 Blackstone.
05:49 Yeah, we'll catch it.
05:50 Well, not only that, but like areas like Salt Lake and Park City and Ketchum, Idaho, and these areas that nobody could really live in and actually have a real job,
05:58 suddenly the real estate market went through the roof and it squeezed out locals, and now they have labor shortages in those markets because there's nowhere for the locals to live.
06:05 So I just think we're in the early days of this really interesting shift in our country that isn't well understood yet.
06:11 But back to your question about this next generation workforce, I host a group of CEOs up in Tahoe every summer.
06:16 That was the number one topic.
06:18 We talked about financing and valuations and a bunch of other things, but everybody sort of said, "Hey, we're having this real issue where folks who are in their 40s and 50s are used to a certain mode of working and authority and accountability, and our younger folks are just not going for it."
06:32 And so trying to figure out how to mesh those cultural dynamics is a really hard thing for startup CEOs right now.
06:38 And I think what you're seeing is some of them be more aggressive on return to work and saying, "Hey, we want you back in the office two to three days a week,"
06:44 because they want people feeling like they're working their butts off and being accountable.
06:48 I mean, I graduated from college in 1994. I had a lot of friends that worked at Goldman.
06:51 I even knew people who quit.
06:53 I'm not sure it was a headline, but it's not for everybody, right?
06:56 I mean, if you want the highest paying jobs in the world, guess what?
06:58 You have to work your ass off.
06:59 You probably would have the same reaction I do.
07:01 I think since our parents' generation, the people who work their ass off tend to get rewarded.
07:06 If I'm going to work harder than you are doing something, whether it's investing or starting a company,
07:11 I just don't know that that plays out well for folks in the long run if they're really just doing it because they want to work four days a week.
07:16 I don't think that works in the long run.
07:17 Yeah, I say you and I, we both speak to a lot of young people who are interested in what we do or interested in things similar,
07:23 and they want to hear your story and how you made your way.
07:26 And I think consistent hard work, mentorship, I mean, these are things that the way hard work is being redefined,
07:32 I think is important in a hybrid work environment because you're going to have to find your own productivity.
07:37 But the biggest issue is the lack of mentorship, the lack of peer review, if you will, that's going to be really hard.
07:44 And I just think that we're going to actually have a generation of people who felt empowered by the environment that they were in,
07:49 by the tools in which they were given to do this sort of stuff, who are going to look up someday and be like, you know what?
07:55 Good old-fashioned, rolling up your sleeve, hard work, paying your dues.
07:59 You know what?
08:00 I wish I had done that.
08:01 And let me tell you something, people, it is really hard to kind of, I guess, reinvent yourself at different stages of your career.
08:08 And so, again, you better possess a very special set of skills.
08:12 And I think that it's never been easier to craft a brand, to create content, to put yourself out there.
08:18 I just had lunch with an associate we recently hired, Princeton undergrad, Harvard Business School.
08:23 She's working her butt off.
08:24 Yeah.
08:25 And she took a red eye here last night to be here today.
08:27 There's a big cohort of people who are going to work their ass off, and they are going to beat the people that don't.
08:32 And I just think it will take time to play out.
08:33 All right.
08:34 Let's talk about this because, again, you had this group of CEOs and employment or retention or the way that you kind of motivate your employees is obviously a big one.
08:42 And it's interesting to me that we broaden out a little bit for the macro.
08:46 And you and I have talked about this on the pod, and we're going to hit private markets.
08:49 We're going to hit public markets here.
08:51 But I just want to kind of focus on this one issue for a second.
08:54 Like one of the things that seems to be lacking from this kind of malaise as we're thinking about it from an economic standpoint, and we clearly are in one here in the U.S.
09:03 And it looks different globally is that anyone who will point to you and who are really bullish on the economy and our ability to come out of what we're in right now in some sort of quicker fashion than, let's say, bears think, is that they point to the unemployment rate at 3.5%, which is the pre-pandemic low.
09:20 And it's also like 40-year lows.
09:22 There's really weird things going on in the employment.
09:25 Just any thoughts on that because wage gains, which we could all agree, unless you're focused on managing to a margin if you're a C-level executive, are great for American workers.
09:36 De-globalization, great for American workers and wage growth.
09:40 But it really has the potential to create a very difficult situation near term.
09:44 And if we do find these companies, and even the larger ones, and we've started to see some layoffs, if we see mass layoffs at some of the biggest companies, and they primarily are tech companies now, we're going to see the unemployment rate go up pretty quickly.
09:58 And that could have a really negative effect on a very fragile economy right here.
10:02 Yeah.
10:03 Well, I'll tell you, in tech in the private market, I would bet that 60% to 75% of our companies have already done some kind of a riff.
10:12 Most of them did 10% to 15% in Q2.
10:15 Some are still doing that now.
10:17 Everybody, I tweeted this out at some point a few months ago, everybody raised money at too high a valuation last year, and everybody realized they hired too many people.
10:24 And it just was kind of on trend.
10:26 It was like taking steroids in baseball 15 years ago.
10:29 Everybody did it, just depending on who got caught.
10:32 And we're sort of going through the working that out phase now of, hey, I need to right-size my team, and I need to get to a capitalization structure for my business that makes sense.
10:41 If I was a private software company with a valuation that was 75 times ARR, that wasn't going to hold up.
10:48 I either have to grow into that, which means I need a lot of cash for several years, or I've got to raise it at a price that is going to be more rational.
10:53 And so you've just seen this disconnect in the funding market as well, where founders have been out trying to raise capital unsuccessfully for many months now because their valuation expectations, usually from their prior round, were just too high.
11:04 And we're starting to see those deals get done.
11:06 Term sheets are coming in at half the price or two-thirds of the price.
11:10 And in some cases, they're getting done flat.
11:12 The company is doing really well.
11:13 It turns out that valuation wasn't crazy if the company is growing at 100% or 150% a year.
11:18 But I think the broader question of, what does our workforce look like?
11:22 If you were here for the 2000 recession or the '08-'09 recession, there were a lot of people looking for jobs.
11:28 And that was the big thing that typically signified a recession, was people couldn't find jobs.
11:32 Today, when most of these folks are being let go at these tech companies, if they want a job, they're finding another one very quickly.
11:38 We still have way more openings than we do.
11:40 I've seen a bunch of people say, oh, some of those are phantom openings.
11:42 The companies won't actually hire the people.
11:44 Maybe that's how it will play out over the next year.
11:46 I've read a ton about this, and maybe you have as well.
11:48 It feels like we had people leave the workforce.
11:51 We've really curtailed immigration.
11:54 And that doesn't seem like it's changed under Biden.
11:56 I know it was an issue under Trump.
11:57 It doesn't really seem like immigration has gotten better.
12:00 Why we wouldn't let every engineer into our country who possibly could from India and other countries who have proven to be amazing founders and entrepreneurs and very successful in Silicon Valley and tech is obviously a big political issue that is beyond me.
12:13 But just to be really fair, I think the pandemic really created -- I mean, the Trump administration set forth a policy very strictly focused on immigration.
12:22 I think the Biden administration has been hampered by the fact that there's still a lot of --
12:25 But it's clearly a factor.
12:26 Yeah.
12:27 Right?
12:28 It's clearly a factor in some of this worker shortage.
12:29 And then you've got this whole labor economy.
12:31 I have a friend of mine who owns hotels, and he was telling me when they couldn't get workers, they just shut down the number of rooms in half and doubled the price.
12:40 Well, guess what?
12:41 That's where your inflation comes from, when there's a labor shortage and people have to double the price of their restaurant or their hotel.
12:46 And so hopefully we start to work through some of that in the next few months.
12:49 But otherwise, it's been -- other than gas prices, it doesn't feel like things have really let up.
12:53 Yeah, it seems that there's been a lot of publicly traded companies, especially in tech, who have been laying people off -- Microsoft, Coinbase, slowing hiring, that sort of thing.
13:02 And you mentioned a bunch of the companies that you are invested in, portfolio companies, that they've done 10%, 15%, 20% rifts.
13:09 I know that you have been very emphatic.
13:11 Just your experience through past cycles has kind of hit it hard early.
13:15 Hit it at the beginning of it, 100%.
13:17 And do you feel like when they did 10%, 15%, are they feeling like that was the right number?
13:21 Or -- because it seems that if you are a cash-constrained private company, that should be a bit more of a focus.
13:28 I mean, the public markets, the capital markets are still wide open, even though the cost of funding has gone up fairly dramatically over the last few months.
13:35 But think about the biggest tech behemoths.
13:37 They have so much cash.
13:39 It really is about defending margins, especially at a time where the dollar is making 20-year highs versus the euro.
13:45 So I think there's a lot of stealing from Peter to pay Paul as it relates to that.
13:49 100%. And the other thing I would say is people learned from the '08-'09 crash.
13:53 Those who pulled back ended up on a slower growth curve for the next decade.
13:58 And the folks at Morgan Stanley gave us a great presentation the other day, which I'll see if I can share with you.
14:02 But it showed, hey, here are the companies that accelerated out of '08-'09, and here's what happened in the next decade.
14:07 I mean, these are the iconic companies of today, right?
14:09 Your Salesforce, your Adobe.
14:11 Salesforce's market cap in 2008 was $2 billion.
14:14 In 2009, it was $3 billion.
14:16 Today, it's what, $180?
14:18 Yeah, well, it's going down by the day.
14:20 It's about $160.
14:23 But I think companies that have the cash are sort of saying, gosh, on the one hand, yeah, we're probably overstaffed.
14:29 We probably need to make some changes.
14:30 But if the markets that we're going after are as big and as lucrative as we think they are, do we really want to pull back right now?
14:36 Where do you think those areas are?
14:37 Because you've read reams about the convergence between cloud, mobile, and social.
14:43 That was the trade on the way out of the financial crisis.
14:46 Some people like you and many of your peers in Silicon Valley identified that, and then public markets, people got hip to it.
14:53 What do you think that next trend is right now?
14:56 You had a tweet the other day, and I thought this was pretty fascinating.
14:59 I've made this point without the data because that's what I do.
15:01 But it was an anecdotal comment about almost every major tech company that's gone public is down.
15:09 And your tweet, I think you had some data about it.
15:11 And I was really mapping it back to, let's say, Snapchat because I remember when Snapchat went public in March of 2017.
15:19 I remember the first quarter out of the gate, the stock was down like 25% or something like that.
15:24 And then I think back to that was a single-digit stock at IPO, doubled probably right out of the gate, ripped as they all do for the next month or two until they report that first quarter.
15:34 And then that seems to be the way of it over the last five years or so.
15:38 Is that correct?
15:39 Yeah, so the stat I tweeted out August 23rd, "Crazy stat of tech IPO has valued over $10 billion since 2017."
15:45 So price at offering was $10 billion or greater.
15:48 Just 18% have generated positive returns, and the average return for that class is -32.5%.
15:56 So that's over five years.
15:58 We went back five years because I said, "Look, I just don't want to take 2021-22 because that was sort of like peak of the market.
16:03 Let's go back to 2017."
16:05 Now, that includes companies like Uber and DoorDash and others.
16:08 But I think what happened was you had companies coming public at very aggressive valuations.
16:15 You can't blame the company.
16:17 I mean, if somebody wants to give you a billion dollars at a $10 billion valuation, you're not going to say, "Gosh, we'd rather take $500 million at $5 billion."
16:24 A CEO is just not going to do that.
16:25 You can't do that.
16:26 So they came forward at inflated valuations.
16:29 And then when the market changed and multiples changed, they're now underwater.
16:33 Some of those will go on to become legendary companies.
16:36 Your next Salesforce, your next Microsoft, we just don't know which ones.
16:39 We do.
16:40 Subscribe to our very special OK Computer feed because we'll tell you.
16:43 And this tweet was a lead-in because I'm writing an article with our team about this.
16:47 But it turns out, I won't bury the lead, the best companies in that class of that five-year window came out at a billion to five billion.
16:55 Now, it kind of makes sense.
16:56 Like, oh, yeah, well, intrinsically, if you come out lower, of course, you've got more headroom.
16:59 But those tended to be companies that were going public earlier in their life cycle, had raised less capital as private companies, were more well-run, and didn't have inflated expectations.
17:09 You know who we can blame?
17:10 We can blame SoftBank.
17:11 Think about it.
17:12 WeWork is a great way to think about a book ending of the 19 to 22 sort of period in a way with Adam Neumann raising whatever he's raising for flow.
17:22 I don't even know what the company is.
17:23 But he's raising a lot of money at a billion-dollar valuation.
17:26 And what did you just say?
17:28 The best companies in the public markets were the ones that went public through a billion and five billion.
17:33 He's got Vaporware.
17:35 He just raised it a billion dollars and then go back to what happened in 2019 and to the lead up to their IPO.
17:42 I just think that's obviously pretty instructive there.
17:44 We didn't look at that investment opportunity.
17:45 And Andreessen Horowitz is a very big firm in Silicon Valley.
17:48 And Mark and Ben can, to some degree, do what they want to do.
17:51 Sure.
17:52 Right?
17:53 So, I can't comment on that particular investment.
17:54 I don't think it's emblematic of the market.
17:56 There are not other founders going out and raising $350 million at a billion for something that's a brand new idea right now.
18:01 In fact, it's as hard as it's been ever to raise capital in the private markets if you're a company valued over $50 million.
18:08 Sub $50 million, there's a lot of people that want to fund great ideas.
18:11 That market, seed market, Series A market.
18:12 So, let's talk about that because that seems like a real bright spot right now.
18:15 Amazing.
18:16 And so, again, you are betting on founders.
18:18 You're betting on ideas.
18:19 So, really, the valuation under $50 million is not something that should be a hindrance no matter what the market market is.
18:25 It's a great time to be a founder.
18:26 I mean, I think there's two things to think about.
18:28 One, the tools that you have at your disposal as a founder in terms of AWS and the App Store and everything else to spin up a company, attract talent, who, by the way, are now disillusioned with that great post-IPO company that they're working for.
18:40 So, we're seeing a ton of recent IPO talent flock to our private companies.
18:44 Great time to be an early-stage founder.
18:46 I think if you're a growth-stage founder, sort of $100 to $1 billion, you're just playing a little bit different game right now where you need to work through this right sizing of your cap structure and your team.
18:56 It's still a great time to be building a company, and then you can be a company that goes public at $1 billion or $2 billion or $3 billion.
19:01 Just don't wait until you're $10 billion.
19:03 That's been our advice generally is go public earlier.
19:05 It builds discipline for the company.
19:07 You build a much better finance organization, which is key to running a great public company anyways.
19:11 You put an audit chair in place.
19:13 The founders I work with, if they listen to this, will laugh because they'll be like, "Oh, God, here he is beating the IPO train."
19:17 Yeah, but what do you do in an environment like this where, let's say, the IPO market is not open and will not be open for a bit?
19:23 No, it's not open right now.
19:24 Okay.
19:25 So, what do you do with the portfolio companies that you're advising to do just that?
19:30 And the window's closed, so now they probably are going to have to raise some more capital.
19:36 Are you guys seeing creative sort of funding ways where companies don't have to take a negative mark in a meaningful manner to their equity?
19:44 So, one, to your question, what do you do when you get ready to go public?
19:48 So, you put together your audit committee.
19:50 You get your IPO process going.
19:52 I just kicked off three with private companies and said, "Guys, let's target middle of next year."
19:57 I don't know whether the market will be open or not, but if it is, let's be ready because there's a good 12- to 18-month process if you want to do it right to do that.
20:05 So, it's a great time to plan and take the time to plan because you're not hiring.
20:09 You were spending 30% of your time hiring people 12 months ago.
20:12 Today, you have that 30% back.
20:14 You've been able to recruit talent at more realistic comp levels.
20:18 Now, you kind of know what you need to look like as a public company as well.
20:21 I think one of the challenges the last two years, you mentioned sort of the soft bank effect, other late-stage capital that was coming in.
20:26 It wasn't totally clear to founders what I needed to look like as a company to be a successful public company because there was such a broad array of things that were getting public.
20:34 In a tighter market, you know as well as I do, the market tends to be more discerning.
20:38 The feedback cycle from public investors and analysts to the companies tends to be more direct.
20:42 "You need this. We need rule of 40. Guess what? That'll make a comeback."
20:46 Suddenly, that'll come into vogue that your free cash flow needs to sort of be in line with your growth.
20:51 So, I just think it's a great time for founders to take a deep breath, make sure you have the right people on your team.
20:56 Yes, there is some painful components of right-sizing the team and also raising capital at different prices.
21:02 Then to your question, several of the banks, J.P. Morgan, Silicon Valley Bank, Goldman, Morgan, are creating different types of capital structures.
21:10 Traditionally, if you went public and you were a $1 billion or $2 billion public company, you could borrow capital, $200 million or $300 million with a convert, very easily, particularly in the last couple of years.
21:19 That was not available to private companies. There was no convert market.
21:22 There was really a venture debt market, or you were public and you did converts.
21:26 What we're seeing is those banks introducing sort of a public convert-style debt instrument for these late-stage private companies.
21:33 You're starting to see a few of them.
21:35 I just read today in the journal that said that GoPuff is trying to raise several hundred million.
21:38 We're not involved. I have no inside information.
21:40 But I imagine that's probably that type of structure.
21:43 A convertible debt instrument can be great for investors and it'd be great for the company.
21:47 I think you'll see a bunch of that.
21:48 Yeah. Well, people who, in the public markets, were raising zero-coupon debt, converting up 30%, 40% right before the bottom fell out.
21:55 That feels like free money, right?
21:56 It's very cheap money.
21:57 Yeah. I probably cut you off a little bit.
21:59 So you were talking about some of these mega trends that really were incubated, if you will, in the late aughts and just exploded after the financial crisis.
22:09 Yeah.
22:10 Web 2.0 was obviously a huge beneficiary.
22:13 Are you going to mention Web 3?
22:14 Let's put a bow on the conversation about the workforce and people flexing and leaving big institutions.
22:20 It seems like Web 3 was an option, moving to Austin, Miami.
22:24 I always used to say that Miami is great for bachelor parties and Super Bowls, but I wouldn't want to live there and certainly wouldn't want to be doing a Web 3 startup in July down in Miami.
22:33 It seems like all those people dispersed a little bit.
22:35 So curious thoughts on Web 3.
22:37 You were an early investor in Coinbase, correct?
22:40 And so I always thought Coinbase was really interesting from a standpoint.
22:43 It was just an easy on-ramp to something that 99% of the people who are going to be attracted to that market have no idea what they're doing and you better make it easy.
22:52 You know what I mean?
22:53 I know that was obviously the success of OpenSea also, but you see what's going on with Coinbase is that you're seeing huge fee compression.
23:01 There's huge regulatory overhang.
23:03 I mean, again, I think they built a great company.
23:05 I use it.
23:06 When I think about OpenSea, it was the first platform that I ever bought and sold NFTs on.
23:11 There was an article the other day.
23:12 I guess it was like the 1st of May to a date, and they just cherry-picked a date in August, that the volumes were down 99% during that period.
23:21 And I don't know about you, but I have a bunch of NFTs that I'd love to unload on OpenSea.
23:27 I'd love to pay them that fat fee, but I don't think they'll ever get to a price in which I originally paid for.
23:32 Well, there's two parts to your question.
23:34 One is what are the megatrends that we're seeing and other folks are betting on?
23:38 And I agree with you.
23:39 If you wind back the clock and look at the intersection of things that came together, AWS launched in 2005, the iPhone launched in 2008, the App Store launched in 2010.
23:49 Cloud computing, as we know it, sort of took off in that era.
23:53 The only public SaaS company prior to that that was notable was Salesforce, and then a whole bunch came out, Workday and Zendesk and others.
24:01 And you also had the integration of digital payments, so a lot of people don't realize Stripe and Braintree were founded in '08, '09, '10 as well.
24:07 And so, this amazing intersection of technologies that came together.
24:11 And you can remember back in 2010, smartphone penetration around the world was a couple hundred million users, and over the next five to ten years, it went to billions.
24:20 I mean, one of the greatest technology tailwinds we'll ever see in our lifetime.
24:24 Same with cloud.
24:25 The only thing I would say about cloud is it's still early.
24:28 Smartphone pretty well penetrated.
24:30 The innovation there is now largely large companies, Apple, Google, Facebook own distribution, makes it really hard for smaller companies to get access to the end users.
24:40 But cloud computing, if you look at the Fortune 1000 today, still only 30%, 35% penetrated with cloud computing.
24:46 They're still running a ton of their technology infrastructure on premise.
24:50 And so, as you know, I'm bullish on SaaS, I'm bullish on infrastructure, I'm long companies like Snowflake and GitLab and others because I believe that we're still early in that trend.
24:58 And there is absolutely no way to build or run a multinational company today unless you have a killer CIO and CTO and you are finding ways to invest in technology.
25:08 That wasn't the case 20 years ago.
25:09 You could run a company and say, "Hey, we're not big in the cloud, we're not big in software."
25:13 But today, I mean, even I think Goldman Sachs, something like 40% of the employee base is developers.
25:18 You look at a company like Domino's Pizza, what, $15 billion market cap?
25:21 It isn't because the pizza got better.
25:23 They shifted their entire strategy to digital, made it so that people would order on mobile.
25:27 And mobile orders went from zero to something like 60% or 70%.
25:30 So, there are still these big tailwinds around cloud that I think that people are excited about.
25:34 And then the other one that I think is on the tip of people's tongues is AI.
25:38 What is AI going to do for us?
25:39 Self-driving is kind of the most visual expression of that.
25:42 But we're seeing a lot of innovation in AI and accounting and finance and predictive analytics and a whole bunch of areas where I just think it's super early.
25:49 I have a startup I'm involved with called Vic.AI that's doing AI for accounting and bill payment.
25:54 Sounds like a not very sexy part of the universe, but guess what?
25:58 People pay a lot of invoices, billions and billions every day.
26:01 And so, if we can remove a lot of the manual and error-prone friction that's in those functions, we can make the companies more efficient.
26:08 And those technologies are going to do very well over the next 5 to 10 years.
26:11 You just mentioned something that doesn't sound sexy, but I know that you think the CEO is very sexy and you love the company, Snowflake.
26:17 So, I'm reading the description of Snowflake.
26:21 "Snowflake provides software solutions. The company develops database architecture, data warehouses, query optimization, and parallelization solutions."
26:29 Okay, not sexy.
26:31 It's pretty sexy.
26:32 Okay, well, I want you to tell me why it's really sexy and why our listener needs to – okay, the stock's down 60% from its all-time highs.
26:40 It went public in 2021.
26:41 It has a $58 billion market cap.
26:44 It trades at about 30 times this year's sales, about 20 times next.
26:52 And they're growing those sales 30%, 40% or something like that, right?
26:56 I think it's more like 70.
26:58 It was over 100.
26:59 It's the fastest-growing software company in history.
27:01 So, how does a company like this that on a gap basis is still losing money, how do they grow into this valuation?
27:08 Maybe this is my bias as a private investor, which is so much of the bet that we make is on the team.
27:14 If you find the best CEO in a category, you will win that category.
27:18 This is arguably the best CEO in software paired with arguably the best CFO in software, Frank Slootman and Mike Scarpelli, who did this at ServiceNow.
27:26 ServiceNow today is – check the market cap of ServiceNow.
27:29 But they first did it at Data Domain, sold Data Domain for I think $3.5 billion.
27:33 Then they went to ServiceNow early before it was public, took that public, built that up to a fairly large multibillion-dollar company as well.
27:42 And then now they're doing it again at Snowflake.
27:45 So, one, I would argue you have one of the top five to ten teams in software, period, end of story.
27:50 I don't think anybody would argue with that.
27:52 Two, if you look at the TAM that these companies are going after, I mean, Microsoft was a $60 billion company at one point.
27:59 And somebody had the same conversation and said, "Good God, how does Microsoft ever get out of the –"
28:05 But it wasn't trading at that valuation. It never was.
28:08 Part of this also is your timeline, right?
28:10 I'm an investor, not a trader.
28:12 So, my timeline – I've owned Salesforce since it was $3 a share.
28:15 I've never sold it.
28:16 And I'm sure there's so many points in time where somebody said, "Oh, it's at 10. You've tripled your money. Sell it."
28:21 Well, I just wrote it to where it is today, which is up 60x.
28:25 I don't know what the number is today. I don't have it in front of me.
28:29 But I personally believe that if you invest in great teams for a long time horizon –
28:34 Now, is Snowflake going to go up 10x? I don't know.
28:37 But could it go up two or three? I think so.
28:39 I could have a similar valuation to Salesforce.
28:41 Yeah, two or three, though, would be where it was trading last year when it was 50 times sales.
28:45 Well, I didn't buy it there.
28:46 No, I know. But so my question was, how does it grow into it?
28:48 You just mentioned ServiceNow, where Slootman did this before.
28:51 $87 billion market cap company, going to do a little over $7 billion in sales.
28:56 Great company.
28:57 So that's 3.2x that of Snowflake.
28:59 And it trades about 12x sales, 10x next. Sales are growing 25%, and it's wildly profitable.
29:07 Right. So Snowflake's growing three times faster.
29:09 Three times faster, but a tiny –
29:11 In a better market.
29:12 And by the way, ServiceNow is an amazing company.
29:14 No, I'm just trying to tease this out a little bit, because we get asked this question all the time about valuations.
29:20 You know what I mean?
29:21 Well, is Snowflake my top pick?
29:22 Like if you said, "Jeff, I need to take all your money in your wallet and put it on something today," would I put it there?
29:26 Probably not.
29:27 What is it?
29:28 I want to – inquiring minds want to know, Jeff.
29:32 It's funny. I'm diversified, right?
29:34 I know you are.
29:35 My largest position is Blackstone.
29:36 I know. We've talked about it. That's why I took a crack at Blackstone earlier.
29:39 I just added some more in the '90s.
29:41 I mean, I'll give you one name that I love.
29:43 We are a large shareholder in a company called HashiCorp.
29:46 So I won't comment on HashiCorp, but if you look at players in that space, GitLab is already up 2x from the bottom.
29:52 I think that was a screaming buy at the bottom.
29:55 Confluent is already up –
29:56 You said "the bottom," though.
29:58 The bottom we've seen so far.
30:00 I don't know whether we've hit the bottom or not.
30:02 But from their low, that was the time to jump into GitLab was at about $30, $33 a share.
30:08 I personally think, back to my point that I made earlier about when companies go public,
30:13 these are all companies that went public with market caps between $2 and $10 billion.
30:17 So if you just looked at the historical data from the last five years and said, "Where am I going to make the most money?"
30:22 It's buying high-growth cloud software names at "reasonable valuations," which I think we saw some of in May and June.
30:30 Will we see them again? Maybe.
30:32 But over the next five years, can you make 10x your money on those?
30:35 I think you can.
30:36 So this is really important right now.
30:38 As our listeners hear, the Nasdaq is in the throes of a sell-off that's almost 10% from its recent highs.
30:44 And its lows, it was down in June 30% or so, a little more.
30:49 Now, many of the stocks that Jeff and I are talking about here were down 50%, 60%, 70%.
30:54 So GitLab just doubled off of the lows.
30:57 It's still down 29% on the year, a $9 billion market cap.
31:01 But here's one thing that's really interesting.
31:04 There are stocks acting particularly well relative to the market right here.
31:09 And so I think this is important.
31:10 This stock has barely budged over the last week relative to the Nasdaq.
31:15 So for me, as somebody who's a public markets guy, and again, you just said, "I don't stare at the markets," you know, this and that, whatever.
31:20 I've done that for 25 years.
31:21 Relative strength is really important.
31:24 So maybe the weak hands just were like, "Get me the hell out," May and June, down 70%, 80%, not caring.
31:31 So maybe you had an investor-based turnover.
31:33 You also think about this, and we talk to a lot of VCs on this podcast, and I know you speak to them every day.
31:39 I mean some VCs just don't particularly have any edge in the public markets.
31:43 It seems like you guys stick around with some of those companies that you invested in very early and you love to see this.
31:49 How do you make those sorts of decisions to kind of not take the gains after you've already done the thing that you were there to do, bring them to the public markets?
31:58 So back to your point about relative strength.
32:00 One point I just want to make is the other thing that's interesting about a lot of these companies that went public in the last two or three years, they're very small float.
32:08 So when insiders who are liquidating their positions, and in some cases you have folks who are very early investors in these companies at, let's say, $1 a share, and it's sitting at 65, well, guess what?
32:19 They are distributing those positions to their LPs, and so you have this downward pressure that tends to accelerate the downward for recent IPOs.
32:27 But you also had this interesting confluence where a lot of the momentum tech hedge funds that you and I both know got killed last year, and they were getting killed in the first half of the year.
32:38 So they couldn't really be a buyer, and then all of a sudden you started watching inflows of capital going back into Cathie Wood's ARK fund.
32:47 There was demand for those tech hedge funds.
32:49 Now they could go back in and buy these relatively thinly traded cloud software names that they love and we love, and you saw them show that relative strength.
32:57 But again, you're talking about a $9 billion market cap company.
32:59 I don't know how much of the market cap trades, but it's probably not more than 20% or 30%.
33:05 It's publicly floated.
33:06 That's a great point you make about the public float, and when you look at a company, you look at the holders of that company in the first year or so after they went public, you're going to see tons of VCs.
33:17 You're going to see a bunch of insiders, and then you're going to see Fidelity, Wellington, and then some crossover funds that were buying late stage.
33:24 And so to your point, the VCs distribute.
33:27 Most of them get out of the way.
33:29 You see those lockups come, and they sell into them, and they own them at low single digits or whatever the hell they are.
33:35 And then the LP distributions, they get out and they move on to the next thing, and then it really is about the insiders and then those huge capital pools that are supposedly in there for the long term.
33:45 I think when the 13F comes out for this quarter, you'll see a bunch of folks piled into these names.
33:50 Because they're going to say, "Gosh, I can buy the next great software company.
33:54 It's going to be worth $20, $30, $40, $50 billion.
33:56 I have a chance to buy it at $4. It went public at $8.
33:59 Now it's at $4. Yes, I may have already owned it at $8. I may have even gotten out of it.
34:04 Now I'm doubling down at $8, and now I'm going to ride it up."
34:06 And so they're already seeing some gains there.
34:08 I just think Q2 was peak worry.
34:12 We all worried we're not going to be able to get inflation under control.
34:14 The market moves with retail and hedge funds.
34:16 Both of them were on their heels.
34:18 I looked at a Schwab money market fund because I was trying to find a place to park some cash,
34:22 and I was looking at the inflows and outflows.
34:25 It was all inflows in that money market fund in Q2.
34:28 And then all of a sudden in Q3, it started reversing and there were some outflows,
34:31 which means there's people taking cash and putting it in other assets.
34:33 Kline: Well, I'll tell you one thing that could change that narrative in the next few months, though, is housing.
34:37 In the housing market, you're seeing the data weaken dramatically.
34:40 And if that starts to roll over with the stock market, let's call it down 15% or 20%,
34:45 the negative wealth effect that you have in that situation,
34:48 and then also if you start to see unemployment tick up, which it will,
34:52 that combination makes for a dicey situation where even if inflation readings peaked,
34:58 even if gas at the pump is no longer $5 but it's like $3.80 or something like that--
35:03 Brokamp: Well, it's still over $5 where we live in California.
35:06 Kline: But it's coming down in a lot of different places.
35:08 Brokamp: Yeah, and the point is we're kind of not there yet.
35:10 I get what you mean.
35:11 It seemed like peak fear, indiscriminate selling at least in the stock market,
35:14 and I think what you were seeing in the public markets,
35:16 there was no bid for stuff that was really exciting about a year ago
35:20 because the valuation just didn't make any sense anymore.
35:22 Kline: And I also tweeted out several times in the spring,
35:24 "We're going to see a wave of good news in August and September."
35:27 Guess what? There's an election in November.
35:29 And there will be a lot of folks that want to tell a very positive narrative.
35:34 I mean, look at the forgiveness of student loan.
35:36 That timing was not an accident.
35:38 So the housing thing is an interesting one to me.
35:40 I was tweeting with someone today about it.
35:42 I'm still confused as to why everybody's talking about the housing market cratering,
35:46 and yet I still see homes near me listed for 2 or 3x what somebody bought for them two years ago.
35:51 Until that is out of the market, we have a long way to go.
35:54 Brokamp: So it's one thing.
35:55 Anybody can offer what they want.
35:56 Kline: The Redfin data is saying, "Oh, they're not selling."
35:58 Well, of course they're not selling.
35:59 You're listing a house for $5 million you bought for $2.5 million two years ago.
36:03 Brokamp: But there should be cash buyers in those neighborhoods of those homes.
36:07 You know what I mean?
36:08 Kline: I just think it's the same thing like we've seen in the private market,
36:10 where we have to have that capitulation mode, where the home price has to come back down to--
36:14 if you're going to tell me that a home that was $1 million two years ago is going to sell for $1.1 million,
36:19 that's believable.
36:20 Okay, a 10% increase.
36:21 But when you're seeing people try to double it in two years, I think it's just a little egregious.
36:25 And I just think we have--
36:26 Let's also remember, this is sort of Kashkari's comment over the last few days.
36:31 We actually want the housing market to crater.
36:33 We want that.
36:34 It's going to be painful, but we need that to get inflation under control.
36:37 Kline: It's so funny.
36:38 I mean, too bad Guy's not here because he's been pretty hot on the Kashkari stuff
36:43 because Kashkari was notoriously the biggest dove in the Fed,
36:48 the only one dissenting any time there was anything hawkish,
36:51 right up until points in last year where some people were like,
36:54 "Listen, I think we have to pay attention to inflation."
36:57 And so the fact that he said, "We wanted this to happen," or--
37:01 Fed Chair Powell used the word "pain," and he used it specifically.
37:05 And that's something that I think that Americans, for the most part,
37:08 we have very select memory thinking about.
37:10 There were a lot of people who felt a lot of pain when the housing turned down.
37:14 O'Reilly was very painful.
37:16 But again, what came after that was 12 years of very, very easy monetary policy.
37:22 So if you had assets, you could throw a dart,
37:25 and you were going to make money off of putting it to work, right?
37:28 I agree. I have a lot of friends who are asking me, "So what do you do?"
37:31 If you believe that we've still got some headwinds in front of us
37:34 with unemployment and inflation, who knows what's going to happen in the election.
37:37 What do you do with your money? You just leave it in cash?
37:40 What are you telling folks?
37:41 Let's go back to the stock market because, listen, I am of the belief--
37:44 people label me on CNBC's Fast Money as the perma-bear.
37:47 I started doing that show or doing shows on CNBC--
37:50 you're ready for this--in April 2009, and I had this epiphany.
37:54 I had watched CNBC like anybody in the business from the day I started in the late '90s.
38:00 But here's the big difference--the volume's never on on trading floors,
38:03 so you just see a lot of pretty people like me.
38:06 It would be hard to take your eyes off that screen,
38:09 but you don't have to listen to this dumb voice, right?
38:12 So the point that I made is, "So finally I'm listening to these people
38:15 because I'm on the shows, and they're all bullish, every single one,
38:18 no matter what happens in the market that day, what the headline is, they're bullish."
38:23 So I started kind of playing the heel a little bit because I thought it'd be fun,
38:26 and frankly, I didn't think I'd be doing it for very long.
38:28 I figured they'd get sick of me and boot me out.
38:30 So 13 years later, I'm still doing it.
38:32 So I guess my point is this--I try to be constructive.
38:35 So where I think I have an edge is just kind of figuring out, I guess, sentiment,
38:40 like really thinking about from a behavioral standpoint.
38:43 And I started working with some of the smartest guys in the business--
38:46 I just happened to--I was the youngest guy on the desk.
38:48 It would be like you seated next to Bill Gurley when you're like 25 years old
38:52 and watching him operate.
38:54 I was at SAC Capital. I saw how this worked.
38:56 And so if I have one skill set, it's trying to figure out
38:59 when everybody's going to one side of the ship, usually it's a good time to do others.
39:03 So in the spring, in May and June--and you and I talked about this in our pods--
39:06 I was like, "I think you're starting to have some opportunities.
39:09 Now you're really into this stuff." I'm more like consumer web-focused.
39:13 I was like, "Some of these stocks look like they're potential for generational buys
39:19 or VC returns if you could take a 3-5 year outlook."
39:23 All that being said--and I bought a bunch of them, but I sold most of them, Jeff,
39:26 over the last couple of months because they went up too far too fast
39:30 and the data's not getting better.
39:32 Hey, Dan. What up, guy?
39:35 You're into this fintech. What's all this I'm hearing about Current?
39:38 You're going to like this, guy.
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39:44 Wait a second. Does that mean I don't have to drive to the bank anymore?
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39:54 Well, I've got to get this app, but where can I learn more?
39:56 It's super easy. Just go to Current.com/ok, O-K-A-Y, and download the app.
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41:53 So this is what I want to throw back to you for a second.
41:58 So I'm really concerned about the consumer in the near term.
42:01 So I think consumer-focused businesses are going to have a hard time,
42:04 and I think you're going to have an opportunity to buy some of these stocks lower.
42:07 When I think about the SaaS market, ServiceNow, Bill McDermott, remember back in June,
42:12 he kind of like laid out the gauntlet and said we're starting to see a pullback in enterprise demand.
42:19 You know, Brett Taylor on Salesforce's call the other day, Dell said it,
42:22 Hewlett by the time you're listening to this are going to speak tonight.
42:25 I think Microsoft is going to start piecing it out little by little.
42:29 We saw the cloud results from Google, Amazon, and Microsoft all decelerate.
42:35 So I think that's coming to a theater near you in the back half of the year.
42:39 So I just think you got to think about longer-term time horizons.
42:43 You got to think about dollar cost averaging because no one's going to be able to kind of pick the bottom.
42:47 Does that make sense?
42:48 Yeah. No, I agree 100%. I think the headwinds on enterprise spending are real.
42:51 We've definitely seen sales cycles get longer.
42:53 A founder told me the other day, he said, I'm seeing CFOs more often in the buying process,
42:57 which is a dead giveaway that people are watching their dollars.
43:00 I think that's real. I just don't think it slows it down in the long run.
43:03 So if you're talking about what's your edge, my edge is duration, patience and duration.
43:07 You know, when the market cratered, it's my capital.
43:10 And so I can say, gosh, it doesn't feel great watching my name, your stock go down.
43:17 But if I really like it, I can buy more. If I don't like it, I'll sell it.
43:20 I'll take the loss and trade into something else.
43:22 But I just I've missed more upsides getting out of things over the last 20 years than I have.
43:29 So two questions for you. Diversification. So how do you think about that?
43:32 Do you put a percentage of the investable assets or the portfolio as a limit?
43:37 And some just do so well, they kind of blow through those targets.
43:40 And then on the flip side, how much pain, if you were sizing things correctly,
43:45 how much pain are you willing to take?
43:47 Because, again, I'm looking at you could have been the biggest Mark Zuckerberg fan in the world
43:51 and say this is going to be the next $2 trillion market cap company a year ago.
43:55 And it was $900 billion. And now it's $400 billion.
43:59 You know what I mean? Like sooner or later, you got to know when to pull the ripcord, right?
44:02 Yeah. My general advice to people on Twitter and elsewhere is if you have a really strong thesis
44:08 or insight on a particular company, it's OK to be long that name.
44:11 But otherwise, you should just own the S&P 500 or the Qs.
44:15 I don't understand why the average retail investor trading Bed Bath & Beyond or AMC--
44:21 You know why? Because it's become culture.
44:23 I know it's become culture.
44:24 And that's an interesting thing for people like you and me because I don't think of it that way.
44:29 These people that have #Tesla in their Twitter bio--
44:34 No, it's the same with John DraftKings and FanDuel.
44:36 People enjoy the action, right? They want the up and down volatility.
44:39 They want the volatility.
44:40 I just, for me personally, having grown up investing since I was 12 years old,
44:45 the biggest friend you have is compounding in time.
44:48 And so if you just stay in the market with good names--
44:51 And look at happy birthday Warren Buffett today, by the way.
44:53 Yeah, '92.
44:54 The legend. Most people should have just given all their money to him.
44:56 Yeah.
44:57 So I think that that's generally practical advice for folks is,
45:00 "Look, unless you have some really strong insider thesis on a particular name,"
45:03 I would argue in some cases falsely that we have an edge and an insight
45:08 because we know these companies from when they're private.
45:10 We see demand on the customer side.
45:12 We're doing surveys of CTOs and CIOs so we know what they're buying and why.
45:16 So I can say, "Gosh, I really like that team.
45:19 I've watched them for five years and I believe they still have venture-type returns as a public company."
45:23 And then I take a bunch of my non-tech risk capital--
45:27 and by the way, I'm unique in that 90-plus percent of my capital is tied up in venture capital
45:31 because we invest a lot of our own money in our own funds,
45:34 so we're very aligned with our LPs--
45:36 and I put it in Blackstone.
45:37 I bought some Chesapeake.
45:38 I bought some Devon Energy.
45:40 Do you do this sort of work on those names that you would on a tech stock that you are familiar with,
45:45 or do you have to do more work on those names?
45:48 Probably have to do more work because I have to kind of get educated,
45:51 but I've got access to the banking portals and I'll do a bunch of research.
45:54 And you use the same framework, though, generally, like the same investment?
45:57 I know the businesses are different.
45:58 Yeah, I mean, there in some cases I'm just looking at dividend income
46:01 and potential returns over the next five years.
46:04 That's just about diversification, though, away from tech.
46:07 Yeah, yeah, and I'm just so overweight tech.
46:09 I mean, if a typical financial advisor looked at my balance sheet, they'd say,
46:12 "Jeff, why do you have any money in public tech?"
46:15 But I enjoy it.
46:16 I'm a junkie. I love it.
46:17 I love the company.
46:18 I'm sure you learn from it, and the sentiment that you're gauging from the public markets
46:23 is probably hugely helpful.
46:24 And also, so much of what we do--I believe, going back to your point earlier,
46:29 a lot of what we invest in in the private market is correlated to the public market.
46:32 They're selling to the same customers.
46:34 We're watching the same trends.
46:35 And then we can see--I do a lot in SMB tech, so we love following companies like RingCentral
46:40 and Toast and Shopify and Zendesk that sell into small businesses and saying to our private companies,
46:46 "Hey, let's learn from the models. Let's learn from the metrics.
46:49 Let's learn from the analyst feedback."
46:51 I literally send the analyst reports for Toast.
46:53 I just sent it out to about eight different founders last week.
46:56 And I'm like, "Hey, guys, look at the data.
46:58 Look at the way they're analyzing this company.
46:59 Look at the surveys they're doing about the market."
47:01 Because for our SMB tech founders, it's a little preview as to what their life is going to be like
47:05 as a public company, so it's very valuable to us.
47:07 All right. You've got to drill down for one second, if you don't mind,
47:10 on what you said you're starting to see as far as enterprise demand.
47:13 And I think this is really important.
47:15 I actually think this point--and it's not resting on your shoulders, okay?
47:19 The NASDAQ is not resting on your shoulders, Jeff Richards.
47:22 But I think this point determines whether the NASDAQ, the next 20%, is up or down.
47:29 And I really do.
47:30 I think we're entering the last month of the third quarter here.
47:35 And don't forget, Microsoft, a few weeks ago in the second quarter, they preannounced.
47:39 They don't preannounce often.
47:41 They did on the strength of the dollar.
47:42 Well, let me tell you something.
47:43 The dollar is higher than where it was in June.
47:46 Some of the trends that they said they didn't see that some of their competitors were seeing,
47:50 as far as decreased demand, have only increased here.
47:54 So my question to you is, how does it all happen in Q3?
47:59 Do you see some kind of come-to-Jesus sort of situations by some major players,
48:03 or do they continue to just piece it out little by little?
48:06 I think it's probably more the latter.
48:08 I could be wrong.
48:09 But if I go back to '08-'09, we saw a very rapid decline in customer spend happen quickly.
48:15 And you saw it across the board--SMB, large enterprise, mid-market.
48:18 And you saw that probably in early 2020.
48:20 And we saw it in early 2020, exactly.
48:22 And we very quickly did a survey of our portfolio as well as customers to try and understand the landscape.
48:27 The interesting thing about 2020 was things bounced back in such an interesting way that was advantageous to a lot of companies.
48:33 It was advantageous to DoorDash.
48:35 It was advantageous to Toast.
48:36 It was advantageous to these companies that had the technology to enable businesses to survive,
48:41 all the telemedicine providers, enable them to survive through that pandemic.
48:45 And then, of course, the whole market rebounded.
48:47 I think it's going to be more piecemeal.
48:48 And if you look at Microsoft's business today, it's a pretty diversified business.
48:53 They've got Azure, obviously, which has been a real growth engine for the company, but they're in gaming.
48:57 They're in a whole bunch of different parts of tech.
49:00 I just don't think we have not seen, at least from our data points, we have not seen that precipitous drop-off across the board.
49:06 And I'll tell you, in our SMB tech portfolio, they're showing a lot of resiliency because in 2020 and '21, they almost went out of business.
49:14 So it's like, "Hey, is there less consumer spending?"
49:17 Sure, but it's not less than 2020.
49:20 So if you're an SMB, you might have gone out of business in '20 or '21, but if you survived or if you're a new SMB that started --
49:27 and by the way, this is 40% of the U.S. GDP.
49:30 It's 55% of our workforce in America works for a small business.
49:34 That's a crazy stat.
49:35 They're thriving right now, and we just did a home base.
49:37 One of our companies just did a survey.
49:39 92% of the SMBs they surveyed -- and by the way, this is tens of thousands of SMBs -- 92% said they were planning to hire people in the second half of the year.
49:47 So until you see that precipitous across-the-board drop-off, I think it's going to be more of the piecemeal scenario.
49:52 All right.
49:53 You and I are kind of sharing a brain right now.
49:54 I literally pulled up Shopify and I pulled up PayPal.
49:57 Okay, so these were two stocks that I bought in May and June, and they were down 60%, 70%, 80%.
50:04 So let's just talk about this because I think this is some of that relative strength that I'm starting to see here.
50:09 So Shopify rallied off of its lows when it was down 80%, 40%.
50:14 It's right back towards those lows.
50:16 It feels like it's about to make a new low, and it probably is a headline away from doing that.
50:20 PayPal -- so that's a $40 billion market cap company that's down 80% in the year.
50:24 PayPal is a $106 billion market cap company down 50 or so percent, and it's up -- you ready for this?
50:32 It's up 35% from its lows.
50:33 At its highs just two weeks ago, it was up 45%.
50:35 So do you see what I'm talking about?
50:37 What's PayPal at right now?
50:38 It is $93 or something like that, so $106 billion market cap, and it's still up 35% from its lows.
50:44 But again, it's still down a whole heck of a lot from those all-time highs.
50:48 So my point is we're seeing relative strength in PayPal.
50:53 We're seeing poor relative strength in Shopify.
50:56 Both of these companies are huge service providers to SMB, if you think about it that way.
51:02 So how do you think about some of these?
51:04 Am I thinking about it right?
51:05 I still own both.
51:06 I want to add to them.
51:08 I'm less inclined to add to PayPal, which has not come back.
51:11 So I want to buy the one that acts worse, and I don't want to buy the one that acts better.
51:16 Help me with that, Jeff.
51:17 Well, by the way, if you like PayPal, I think I've mentioned on your pod before, but Delo is one of my favorite names.
51:23 That bounced down to about $16, and now it's back up to about $29.
51:26 So that one's come back.
51:27 So I own Adyen.
51:28 I own PayPal.
51:29 I've owned PayPal since it went public.
51:31 I own Delo.
51:32 I love emerging market fintech.
51:34 I think it's a great way to play the emerging market tech economy.
51:37 And if you're in PayPal, you should be in Delo.
51:40 It makes no sense to why you wouldn't be.
51:42 But if you look at the market value of Delo today, it's still early in the market sort of understanding that company, its growth story, why it's important.
51:50 I'm sure there's a lot of people that don't want to own emerging markets tech.
51:53 They have concerns about it that it's too risky.
51:56 Again, back to my point earlier about why I like buying the GitLabs and Delos.
52:01 If you can get these companies at $3, $4, $5, $6 billion market caps, and I just go back to the Salesforce in 2008 at $2 billion, you're going to hit some venture-type returns if you pick the right companies in the right categories.
52:13 I'm on the board of BigCommerce, which is in the same space as Shopify, so I'll refrain from commenting on Shopify.
52:18 But that market is still early on a global basis.
52:22 I just think you had Shopify showing exceptional growth the past few years, and folks are probably wondering whether they're going to in the future.
52:29 All right, one last question before we get out of here, Jeff.
52:31 Thoughts?
52:32 You mentioned the election coming up.
52:34 You mentioned in your snarky tweet, I think it was.
52:36 That was not snarky.
52:38 Somebody should ask Jack if we could get a snark font on Twitter here.
52:42 But it was like, oh, I think you're going to start seeing a lot of good news being pumped out as we get towards the end of August into what is a very important midterm election.
52:50 So thoughts here about how that kind of shakes out?
52:53 I mean, Dems looked like it was going to be a washout not too long ago, and we don't have to get into the reasons why it's changed.
52:58 It looks like, if anything, they're probably going to hold the Senate, and maybe they lose the House, and it's pretty narrow there.
53:04 What does that do, in your opinion, just to kind of the investment landscape?
53:08 And I think if you go back to the last election, late 2020 or November 2020, it also coincided with the vaccine news, and there was a level of optimism after a long period of pessimism that I think just turned on its head.
53:20 Well, the best thing for the economy is balance.
53:22 You want as much check and balance as you can have, and we'll see what happens on that front.
53:27 I talked to a couple of friends who run hedge funds in the last few months.
53:32 They're very nervous that the election could be a strong signal one way or the other, but a lot of them took advantage of buying opportunities that we were talking about earlier in May and June.
53:42 And so people are sort of sitting on gains.
53:45 Do I get out of those gains when I've got this looming thing that signals instability?
53:49 I don't know.
53:50 You've been doing this longer than I have, but it's a really tough time to be a public market investor managing other people's money, I would think.
53:57 I don't manage other people's money, and I make plenty of mistakes with my own.
54:01 I would say this is that trying to game elections over my 25-year career history, it's not a sound investment.
54:07 Is there volatility in and around some of these events?
54:10 Surely, into and out of, but making monumental shifts in your portfolio and your investment outlook, I don't think it makes a lot of sense.
54:17 And I think you just kind of hinted to the fact that I think there's a lot of data that suggests when one party doesn't have the White House, the House, and the Senate, that markets generally do better.
54:27 Since you're Dr. Doom, though, what's your prognosis for next year?
54:30 Where do you think we go next year?
54:31 I'm not particularly Dr. Doom.
54:33 I actually see a lot of opportunities in individual names and individual sectors.
54:37 I'm worried about a consumer that was already propped up but weakening into a black swan event, which was the pandemic.
54:45 I think people forget that the economy in 2019 was weakening.
54:50 I think people also forget that the average GDP growth prior to the pandemic for 10 years was 2.2%.
54:58 It was nothing.
54:59 So then when Trump came in, the Trump economy, the tax cuts, all the growth, we never got over 3% GDP growth.
55:07 And that's even with a $2 trillion tax cut to corporates and everything.
55:11 So my point is, get ready for low growth.
55:15 Get ready for inflation that's higher than what we're used to.
55:18 It might get measured differently because, again, I've said this on many occasions.
55:22 Guy Dami, for years on Fast Money, was saying inflation is much higher than those 2% rates.
55:28 The Fed was dying to get inflation up to 2%.
55:31 It was just miscalculated.
55:33 And now they're dying to get it down there, which they're never going to get to.
55:36 So I think we're in for a stagflationary environment.
55:39 And again, I think public equities in many sectors have priced that.
55:43 I don't have too many private investments or in funds, that sort of thing.
55:47 So I don't have any feel for it.
55:48 But you tell me what the lag would be if the NASDAQ and the S&P were, let's say, in a protracted bear market.
55:54 I don't mean down 50%, which the S&P did go down in '08 and '09.
55:58 It did go down 50% in 2000 to 2002 or so.
56:03 But the private markets, I think there's a lot of capital that went there looking for the sort of outsized returns that don't exist in public markets.
56:10 And that might be a problem.
56:12 Is that fair to say?
56:13 I think it's fair.
56:14 I think, though, I think there are something like 1,200 companies that are valued at over a billion dollars.
56:18 And I think what you're going to see is a huge dispersion.
56:21 There's going to be 10%, 20% of those that are the kind of companies that you want to be in and you want to own for the next decade.
56:27 They're terrific private companies that are well run, well capitalized.
56:32 They're going to do great as public companies.
56:34 There's a middle ground that's kind of unknown, and then there's a bunch that just raised money at ridiculous valuations and sort of conflated the market.
56:41 And so I think I'm sure this is an old mantra, but it'll be a stock picker's market.
56:46 Like, don't buy all the IPOs.
56:48 Buy the ones that are high-quality companies that are well run and have the right metrics and you think have great leadership teams that can run them for the next five years.
56:54 There's some fantastic private companies.
56:56 I mean, everybody loves to use the WeWork example, but that was an outlier.
57:00 I mean, there were some other softbank companies, but for the most part, a lot of these companies are really -- by the way, multi-hundreds of millions of revenue, right, that thought they were going to go public this year and will now go public next year.
57:12 We'll see where they go out in terms of market cap.
57:14 Well, here's one thing.
57:15 I'll just leave you with this.
57:16 I have a lot of friends like you who are just brilliant investors in the private tech markets, and I think that core competency is that duration like you just mentioned.
57:24 You'd be surprised how many people in our business, the majority of their non-venture capital dollars are in QQQ, they're in SPX, they're not in high-risk public assets.
57:36 Most of them aren't even spending time on it.
57:38 For us, because we want to be in these companies for a long time and own them while a lot of that value gets created, we think that there's a lot to learn from -- my S&B tech example earlier, we learn a ton from Toast and Shopify and Zendesk and Square and others.
57:53 That we're able to then share with our private companies who want to be public in 12, 24, 36 months.
57:58 So when somebody asks me, "Why do you spend time following these companies?"
58:01 Well, that's a big part of it.
58:02 My private founder that I work with isn't going to be doing that.
58:04 They don't have time for that.
58:05 No.
58:06 You don't only do this for the Como's tequila, right?
58:08 You do it, you like the conversation, everything like that.
58:11 I will tell you this.
58:12 So Guy and I now have talked with you on OK Computer and on the tape a handful of times over the last year and a half.
58:17 And I mean this quite sincerely.
58:18 There are very few people that I have come across in my 25 years in the business who have this sort of command over public and private markets that you do.
58:26 And it's literally -- we've gotten great feedback every time you've been on.
58:30 So Jeff Richards of GGV Capital, we really appreciate you coming here.
58:33 We did it in person.
58:34 I hope we continue to do it.
58:35 Thank you very much.
58:36 Thanks, man.
58:37 Appreciate it.
58:38 Thank you.
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