The Venture Wreckage

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I've got sunshine on a cloudy day When it's cold outside, I've got the month of May. Everybody say, I guess you say, What can make me feel this way? It's my girl, I'm talking about my girl. I've got sunshine on a cloudy day When it's cold outside, I've got the month

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of May.

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Everybody say, I guess you say, What can make me feel this way?

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I've got sunshine on a cloudy day When it's cold outside, I've got the month Everybody say, I guess you say, What can make me feel this way? It's my girl, I've got the month of May. Everybody say, What can make me feel this way?

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It's my girl, I've got the month of May. Everybody say, What can make me feel this way? It's my girl, I've got the month of May. Everybody say, What can make me feel this way?

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It's my girl, I've got the month of May. Everybody say, What can make me feel this way? It's my girl, I've got the month of May.

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It's my girl, I've got the month of May.

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The pilot that I depict on the front page is an expression of how when money goes away, every stage suffers. By the way, the vision for people just watching is three cars on top of one another and none of them are electric vehicles. They're all gas cars. So as long as you own a Tesla, you're going to be okay with it. And we'll get on to that later. It's interesting because two weird things are happening simultaneously, Keith, as your newsletter notes. You have some stuff on BlackRock, the world's largest asset manager with $9 trillion invested. They're more and more in tech, Apple, NVIDIA, Google, and so on. So on the one hand, all these tech VCs are in crisis. There's this big smash up. On the other hand, there's more and more value in tech. How are these two things happening simultaneously?

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Well, the best way to think of it is as a train with lots of carriages where the ones nearest the engine are public companies and the ones at the back are newly funded startups. And what's really happened is some of the carriages, the pre-IPO section, if you like, has come off the rails. If you're a public company focused on innovation, and NVIDIA is a great example, there's a massive demand for your product. Right. They're a trillion dollar company now because of their AI chips. But your metaphor of the train doesn't work, Keith, because if the carriages at the back are coming off, they'll pull off the ones at the front. But the reverse is happening. Well, the reverse did happen. The public market impact was the first thing that happened. But that's largely gone away now. If you go and look at almost any tech stocks in the last six months, they're up sometimes more than 100%. Tesla, for example, is up more than 100% in the last six months. So if you're like me and you took your money out of the market late last year and you haven't gone back in, you've missed a pretty large and quite spectacular turnaround, but only in about 10 stocks. It's about 10 stocks. The rest is still down in the dumps. So the public markets are not where the action is anymore. It's the impact of that. It's almost like the public market's disconnected from the rest of the trucks now, and the rest of the trucks are lying all over the tracks. The public markets are fine, or at least better. Everyone's always known this is a winner-take-all economy in tech. I mean, Microsoft proved it in the 90s. Google, Amazon, Apple, and so on. What's changed? Why have investors soured so much on tech stock out of the top 10? Or maybe rephrasing the question, why did they ever believe in tech stocks out of the top 10? Well, they believed in them because the multiples of revenue that they were priced at grew very fast and were super attractive. So take an example like Snowflake. Snowflake revenues were growing 200% a year, and the multiples of revenue were getting up to over 100x because of the rate of growth. And suddenly, as the public markets corrected, those companies corrected even more, and their stocks were crushed. Sometimes 90% of the value was lost in those stocks. Peloton is a great example of that. So it's all time sensitive, and it's all about emotion. It's so surreal. I mean, take a company like PayPal. I mean, their stock was up to 300 probably two years ago. Now it's at 60. The company hasn't changed. Nothing's changed. Everyone's still... I mean, OK, COVID had some impact, but people are still buying stuff online. Crypto is still full of potential. So as you say, the stock price reflects emotion rather than economic reality. Correct. And that emotion changes quite rapidly sometimes. Other times, it's very stable. We're currently in a deeply pessimistic phase. Money is available but not being deployed. And when money isn't deployed, every stage of innovation suffers due to lack of fuel. And I think that is definitely happening right now. There's no way of avoiding it. I did a show earlier today, a keen-on show on the Amazon-Walgreens rivalry. And it was clear from the author of the new book on Walgreens and Amazon is that they also compete in the acquisitions merger area. They're both very interested in buying startups in medical technology. Isn't that a reason why the derailment at the back of the train goes against reason? Because the strong companies at the front, the Googles, the Amazons, the Walgreens, the Apples, they're going to have to acquire these companies. And that's always the nature of this economy. Yeah. I think the clever people with money understand that reason is not the driving operating system of investing. It's emotion. So a bubble and a crash are the same thing. Just different emotions come to work. And people who make money do the opposite. So at times when everyone else is buying, you sell. And at times when everyone else is selling, you buy. You've got to have strong nerves. I mean, one of your headlines today, one of the pieces that I thought was interesting was from TechCrunch about Andreessen Horowitz creating a perennial evergreen fund amid the market slowdown. And I'm guessing that you may not like Marc Andreessen, but he's certainly a gutsy guy and counterintuitive in many ways. This is the perfect opportunity for him to counterinvest, isn't it? Yeah. I mean, a perennial evergreen fund. I put it in there because it's the opposite of the way venture capital works. Venture capital is short-term funds that exit. So they're neither perennial and they exit. They're not very liquid either. A perennial evergreen fund means it's forever. And the money it makes will go back into it. And by the way, this is mainly the money of the partners at Andreessen, their personal money doing this. And they're smart enough to realize that if you take a bunch of money, invest it and then reinvest it and then reinvest it again, it will do something called compounding. And if it compounds, that's going to be very good for you. That's what SignalRank does, by the way. That's the core of SignalRank, which is my interest in that. So it's the opposite of venture capital. It's protected from the short term and it's liquid as well, by the way, because you have a single entity with a single unit and you can buy and sell those shares anytime you want. If it was public, it's even more liquid, which is the right thing to do, I think. So what that triggers for me is a conversation really about what's the best way to manage money focused on innovation? And I think historically, venture capital, structured as it is, is actually almost the worst answer to that question. There's a fundamental structural problem in venture capital that the scenes we're seeing there are symptomatic of. And I think they're fixable. And I think Andreessen and Sequoia and hopefully SignalRank, we're all smelling a fix. And I think it's got some common characteristics. But also, I mean, are venture people losing their nerve? Are they panicking? I mean, you have some stuff on this situation with Molton Investments in the UK, the Tiger people. Are they panicking? Are they losing their nerve, Keith? You'd think if the one thing that they would understand and learn is never lose your nerve. I suspect they're not panicking. I think panic is more likely to be at the next layer up in what are known as limited partners, that is to say the investors in the funds,

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because typically their endowments or pension funds or high net worth individuals, they rely on liquidity to fund the next phase. And the key characteristic of this moment is lack of liquidity. Therefore, the train can't get back on the track. The other thing I don't know, I mean, you haven't got anything on AI for this week. You usually have an AI section. You said not much has happened this week. But whilst there is this venture wreckage, huge amounts of money, billions of dollars are pouring into AI. So how are those two things compatible? Well, actually, less money than you think is flowing into AI. Almost $8 out of every $10 flowing to AI is going to one company, OpenAI. The rest is all small dollars going to a large number of smaller companies. And that's mostly Microsoft money anyway, isn't it? Yeah. And a lot of it is investment in order to drive usage of infrastructure. So Google are investing, Microsoft are investing, probably Amazon are quietly investing. They have to be, or not so quietly. I mean, this is only going to compound the winner-take-all arrangement.

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The BlackRock equity holdings, if anything, these are going to get even more exaggerated as Google and Microsoft, which is essentially OpenAI, and Amazon and Apple dominate AI. Yeah. And I think the interesting thing is there's still a lot of growth in that map. If you put that map back up and look at, for example, Tesla, Tesla in the last month has done deals with General Motors, Ford, Rivian, to use Tesla's charging stations as the native charging infrastructure on other branded cars. And Tesla is a pretty small company today. I wouldn't bet against it being the biggest of all of those 10 years from now. The biggest of the big startups. We don't want to give away a startup of the week. We'll get to that. It was an interesting, your video of the week was of Ian Bremmer. I know Ian quite well. We've done debates and stuff. Very smart guy. He gets it. He understands that a new world is emerging. It's not the world that any of us expected. What did Bremmer lay out at TED? What is this new tech-heavy world, Keith, which is, in a sense, a post-nation-state world, the world that you've always imagined and relished, although I'm not entirely sure you relish what's happening? Well, it's a very good talk. And it appealed to me for the reasons you just said. But what he goes through is we really don't live in a world where nations can any longer assume there's going to be one leading nation as the kind of policeman or operating system of the whole world. And he doesn't believe the United States will be replaced by another nation, for example, China. He believes that already in front of our eyes, the global order is being reorganized around companies and technology. And, you know, we've talked a lot, not recently but a few years ago, you and I talked about Facebook as a nation. It has 2.7 billion monthly users. So there is no nation on earth bigger than it. And it controls money flows around the world. It controls information flows around the world. So Bremmer talked about that, the emerging technology layer that is truly global. Obviously, Web3 and blockchain would be part of that. But money crossing borders without states even knowing is part of that. And there's a good article this week about cross-border money flows and how those are growing. So he really says, look, we're already in a post-nation-state world, but the nation-states don't know it. They can't stop it, but they can slow it down. And actually, from the human point of view, nation-states become, you know, kind of archaeological relics. Well, yes and no. Because the other piece that you lead with in this week's newsletter is one I recommended that I thought was excellent from Gideon Rackman, who's been on Keynote a few times, the political columnist from the FT about Europe falling behind America. So maybe Bremmer's right in a sense. And yet, on the other hand, as Gideon shows, there's an increasing disparity between the economic strength of the US, at least in terms of its aggregated tech companies in Europe. Yeah, I think what he points to is symptomatic of the dampening and crushing impact of the EU on innovation. The EU as a government is entirely, you know, its main goal is to control American companies inside its borders. Yeah, and as he says, it's a really excellent piece. But as he notes in the piece, the only European contribution to innovation is supposedly government innovation in controlling big American tech. But it doesn't actually benefit Europe in any way. Exactly. So, you know, the role of governments in crushing the human spirit is an interesting topic. That's really at the core of what he talks about. That's your libertarian reading, either. I just read it as the fact that America has a stronger and stronger economy and Europe is more and more peripheral. That's also true. But I think both elements are at play in there. It is explanation of why he focuses on the role of government. And I don't think that's wrong. I think, by contrast, however, in China, even though there's a much stronger government, kind of a top-down authoritarian government, innovation is unhindered by it. And that's because it doesn't seek to regulate things that it shouldn't regulate. And I think that's a theme in this era we're going through. Yeah, I wonder, Keith, a couple of the other pieces you link to, your old friend Lina Khan is back in the news. She's going after Amazon now on their Prime stuff. And she's also going after the Figma Adobe deal. At some point, I'm guessing, maybe it's already the penny has dropped, American policymakers are going to understand that the American economy is driven by tech. And the idea of allowing Lina Khan to nix big deals like the Adobe Figma deal or undermine Amazon is going to be seen as increasingly absurd. Yeah, I mean, look, if that Figma deal is blocked, $20 billion worth of Adobe cash will not flow back to venture funds and then through the venture funds to the investors in the venture funds, which are pension funds and endowments. So I don't know what role she serves by blocking that deal. But it's certainly not a concern from the point of view of monopoly because there's a great company called Sketch that's almost an exact copy of Figma that is even better than Figma. So it's not as if Figma represents a monopoly position of any kind. Yeah, yeah. I mean, you can't stand Lina Khan. If she says red, if she says black, you'll say white. But I tend to agree with you on some of this stuff. The idea that the best she's got against Amazon is going after Prime seems utterly absurd. It's the one thing about Amazon that consumers love. Right. She claims that it's increasingly hard to close your Prime account, if you want. And I was talking to my daughter this morning, who did indeed close her Prime account because she didn't want to spend the money anymore. And I said, was it difficult? She said, no, it's really easy. Yeah. So it's fictitious. I'm sure that they have a case. But if that's as good as Lina Khan has on Amazon, then she's holding a very weak hand. Yeah. And for what it's worth, I am not a kind of ideological libertarian. I'm a common sense libertarian. You're certainly more of one than I am. Well, I think I'm mostly common sense. I'm fine with government for lots of things. Health, schools, roads, even sometimes technology like the Internet itself. What about AI? I mean, you had an interesting piece about the UK considering a new law to label all AI-generated content. I can see the point of this in terms of distinguishing human-made and AI content, although I think they'll be increasingly hard to distinguish. I think they'll be impossible to distinguish, to be honest. I don't know if you've started watching the new season of Black Mirror. No, I heard it wasn't very good. Is it good? I've only watched episode one, which is about a woman who is awful. Awful Joan, I think it's called, or something like that. Is she a fictional version of Lina Khan? So I don't want to spoil it for anyone, so I won't tell you, but suffice it to say that it's impossible to distinguish between computer-generated and real life in this particular episode. And that's going to be more and more true. And how are they going to police? It's like they say, you know, if the SEC says Bitcoin is illegal, good luck stopping it. I mean, it's a point of view without a remedy. Yeah, it's like any AI content that's, any content that is helped by Alexa, is that AI-generated? I tend to agree, although maybe there's some ways around. There's an interesting piece you also linked about Silicon Valley VCs rushing into defense technology startups. Doesn't that go against your nation-state argument? A lot of these American companies are investing in American defense companies, and I'm guessing there'll be huge complications when it comes to China. Yeah, you know, I think there's going to be a bifurcation, which there already is, actually. I don't know if you listened to the All In podcast with David Sachs and that crowd, but they're becoming super nationalistic, jingoistic almost, patriarchal. You mean Calacanis? Yeah, that layer of America firstness and caring about the future of the U.S. government and state in the world context, that to me is not a Silicon Valley point of view. But there are companies that focus on helping the U.S. state preserve its position in the world by selling things to it, and that is a growing trend. Sequoia this week announced that they'd made an investment in that space, and others have too. So the article is pretty timely, capturing a moment. I do think that there's going to be people on both sides of that equation, a bit like Einstein with nuclear technology, didn't want it to be used in the way it was, but couldn't really stop it. Other people, also scientists, were quite happy to make a nuclear bomb that could blow up parts of Japan. And I think we're going to see the same. As nation-states struggle in a world that's increasingly less national, there are going to be desperate moves by nation-states to preserve their authority, and military moves will be part of that. And supporting them is sadly going to become a trend. I'm not part of that trend, but it is a trend. Well, it's good. The Oppenheimer movie is out next week, next month, so that will be good on that. That was the week without some Twitter news. They're rolling out 25,000 character tweets for Twitter Blue subscribers. I'm a Twitter Blue subscriber. So that means you can just basically fill up Twitter with all your crap if you're a Blue subscriber. So I saw one this week by Chamath Palihipitaya, where I just saw a small tweet, but when I clicked on it, it opened up a long essay. It was actually rather well done. I'm thinking of putting today's newsletter in there. Yeah, does it make, I mean, with your friends at Substack, are they going to be nervous about this? Are they treading into the Substack? I don't think so, because I think Substack is more about distribution and money, and Twitter, at least for now, it's a destination with limited money. They're kind of adjacent, though. I mean, it's an interesting thing to keep an eye on. And then an interesting piece on Spotify, lots of news about the Royal Family or Prince Harry and getting cancelled by Spotify or him cancelling Spotify. Is this surprising that Spotify's podcast plan is going off the rails? They massively overinvested in podcasts. That's happened time and time before, not necessarily with podcasts, but whenever these companies get too much money, they overinvest in content. Yeah, I think the real story here is that podcasting is not a subscription business. And the Spotify headline, in a way, is disguising the real story, that podcasts are only viable if they're advertiser-supported, because there aren't enough people to pay subscriptions, even for good content. And so it isn't going to work. Even in the Substack model of individual creators and audience working together? I think even there, there's going to be a kind of a power law. There's going to be some people on Substack that earn a lot of money and others that don't. Interestingly, I mean, I'm experimenting with Substack myself. I have about 3,000 subscribers to the newsletter who read it via Substack. There's another 60,000 that get it on Twitter or Facebook or LinkedIn. And the ones on Substack, I put them on a six-month free trial. And that six-month mark, they have to decide whether to pay or not. And in the last two weeks, the first triggers have happened where people have to make that decision. And I've gone from zero revenue to $600 a year revenue in, like, two weeks, from about 300 people having to make that decision. What are they paying, $50 a year? It's $7 a month or $60 a year. In other words, you've got, like, what, six subscribers? I don't know how much it is because some of them are monthly. But it's not very many because it starts with zero. So, you know, let's see. A year from now, everyone will have gone through the process. And what happens is when they say no, they revert back to free. But because I'm generous, I don't put any kind of a paywall on that week. So they really just get the same content for free. So am I going to get a cut of that $600? Definitely not, unless I get a cut of your Lit Hub revenue. That's a good point. So, Spotify, let's move on to the two best features of the show, as always. It's the startup of the week, and we touched on it earlier, the Tesla Supercharger Network. Gas station for EVs in the future. As a Tesla owner myself who relies on some of the network when I drive around the country, it's always seemed a no-brainer to me. Why is this suddenly dawning on other people, too? It seems obvious. Yeah, I mean, once again, Musk is ahead of the curve because he's building for 2050. And by 2050, there will be almost no gas cars left. By 2030, there'll be no new gas cars. And so he really is building, and I thought Alan Chang framed it very nicely, the gas station of the future. And good for her. And now everybody, at least in North America, is bowing to his tune. What will be interesting is whether Musk is clever enough outside of North America to use the standards in those regions. Why don't the GMs of the world build their own network? I mean, they're in competition with Tesla. Why would they rely on the Tesla network? I think it's super expensive from a standing start to build them out. There aren't enough cars to justify the investment right now. Tesla is doing between one and two million new cars a year. The next biggest new cars per year number is in the tens of thousands from any of the other guys. So they don't have the scale to build out the charging network. As everybody knows, it's inevitable and unavoidable that suddenly the scale is going to be there. Yeah. The biggest interesting thing is ChargePoint and Electrify America who have their own networks, they've also announced that they're going to support the Tesla standard. And what about that Israeli scheme? I remember the name of it, to put charging stations all over America. Did that go bust? Don't know. Good question. Well, Musk is Startup of the Week and he's also Tweet of the Week. Although, is this a real tweet? Elon Musk says he's down for a cage fight with Mark Zuckerberg. Why is he wasting his time fighting Mark Zuckerberg? They have some kind of a spat and somebody suggested a cage fight. Apparently, Zuckerberg, who I don't know if you remember, but got a medal for Jiu-Jitsu recently, said he'd be up for it. And Musk tweeted that he's up for it too. And now it quite possibly could become a real thing. I don't know if you've been following, but all these YouTube channel owners who have large followings have been doing boxing or kickboxing matches to huge audiences earning hundreds of millions of dollars. So I wouldn't be shocked if the two of them put on some televised show that they sold TV rights to and end up making a very large amount of money. I would be astonished if Zuckerberg participated in that. Maybe Musk might as a sort of wrestling farce. But do you really think Mark Zuckerberg is going to get into a ring with Elon Musk? I can't tell if it's real, but it sounds real. Based on what I've seen in the last 24 hours, I think they're both sufficiently out there to be seriously considering doing this. Maybe we should do a challenge to other podcasters. Maybe we can challenge Jason Calacanis or Steve Gilmore. Steve, I would probably be okay. Although he's a big guy, if he hit me, I'd be down. Calacanis, I think he's too young. I'd be the loser very fast as well. Well, that was the week, an interesting week. A week of car crashes, but a week also which promised the future is one of supercharger networks. Lots of cars, Keith. Next week, we will talk just before July 4th. Have a great week, everyone, and we'll see you next week. Bye, everyone.