Thomas Laffont | All-In Summit 2024
Table of contents
- Exceptional companies understand that sales and product are two sides of the same coin.
- Restricting big companies from acquiring small ones may protect the little guys, but it also stifles their growth and value, creating a less dynamic ecosystem.
- The tech landscape is shifting dramatically; while the NASDAQ soars, many once-promising companies are struggling to keep up, revealing a stark divide between public market giants and the rest.
- In today's market, young companies are thriving while traditional giants age, proving that technology is the ultimate game changer.
- The tech industry is thriving with younger founders leading the charge, and innovation is just getting started.
- Investing in venture capital is a gamble on the future, but with tech giants dominating the landscape, the path to outsized returns is less clear than ever.
- The longer companies stay private without accountability, the more we risk creating a generation of weaker businesses that ultimately fail to deliver value.
- The key to thriving in the tech industry is embracing public accountability and governance, rather than viewing investors as enemies.
- The public market has changed, and founders need to adapt by engaging retail investors and educating the public about their businesses, rather than relying solely on traditional institutional investors.
- In a world where valuations are treated like a status symbol, remember: real growth comes from embracing the ups and downs, not just chasing the highs.
Exceptional companies understand that sales and product are two sides of the same coin.
Kotou is one of the most successful hedge funds of the last two decades and is currently the largest startup fund in the world. They started with $50 million and are now managing roughly $50 billion. According to Thomas, what separates the truly exceptional companies is the realization that sales and product are different sides of the same coin. There was a confluence of trends that made them feel the need to be present in Silicon Valley. The reason they decided to enter this business is to find great entrepreneurs and discover great companies.
Thank you, everybody. My name is Thomas, and I work at Kotou. I have been a day one listener of the All-In Podcast, so when they called me and asked if I would be willing to present, I said, “Absolutely, tell me when.” They informed me that I would have the graveyard shift, the absolute last slot. I responded, “I can handle it, no problem.” Then they mentioned that I would be following Mark Benioff, the goat of enterprise software, along with the return of TK and some guy who figured out how to fix aging.
Despite the lineup, I still feel confident. The reason is that I know the besties are like a band. They have what all great bands possess: talent and chemistry. You can't teach either, but you need both to be great, and they are great. However, like all bands, they enjoy releasing new albums and experimenting with new producers and sounds. While we've heard a lot about the new sound—be it geopolitics or free speech—I love the old album. The first tracks we ever heard are the ones that will go on the greatest hits album. I knew that if I came, I would bring you back to the old days.
I love the new stuff too, don’t get me wrong, but it’s fun to play some of the classics. What I enjoy most is listening to each bestie give their point of view about venture capital, IPOs, and technology. My aim here is to level set the conversation before they join me afterward. Lucky me, I get to jam with the band for a bit.
So, let’s dive in. I hope this presentation informs you about what we see in the Unicorn economy. Let’s start at the top and look at funding. From this slide, we can see that funding is still actually pretty healthy. It has normalized post-COVID bubble, but if you compare it to historical averages, it remains quite healthy. However, if we look at exits, which define the cash that is returned, we see a different story. We are currently at pre-levels without any substantial increases since all of the capital that went in during COVID.
One of the main reasons for this is that the three traditional exits for companies are blocked today. For example, private equity is very sensitive to interest rates, resulting in fewer buyouts despite record amounts of dry powder for that asset class. When we look at IPOs, we will dig deeper into that shortly. Given that political issues have been so present, we know that regulation has had a major impact on companies' ability to buy other companies. Ironically, one of the byproducts of constraining big companies from buying small companies is that it hurts small companies.
First, it makes them less valuable. If an investor thinks that big companies can't buy small companies anymore, they may adjust their valuation of that company. More importantly, small companies can create a true sense of urgency in big companies. If you are at Amazon or Google and meeting these small companies, you no longer have to worry about your competitor buying that company because you know that the government will make it really hard. This gives you time, and we believe that urgency is really important. Therefore, we certainly hope that whoever wins the election will address these issues.
Restricting big companies from acquiring small ones may protect the little guys, but it also stifles their growth and value, creating a less dynamic ecosystem.
The byproducts of constraining big companies from buying small companies is that it hurts small companies. First of all, it makes them less valuable. If you are an investor and you think that big companies can't buy small companies anymore, you may adjust what you think that company's worth. However, to me, even more importantly, small companies can create a true sense of urgency in big companies. If you're sitting at Amazon or Google and you're meeting these small companies, now you don't have to worry about your competitor buying that company because you know that the government will make it really hard. This situation gives you time, and we think that urgency is really important.
We certainly hope that whoever wins the election will rethink this strategy because we believe it's really important to have a healthy ecosystem, and M&A is a really big part of that. If you put all of that together, you see that, in fact, you wouldn't be surprised by this chart which shows that the distributions from VCs back to their investors are essentially at all-time lows, almost back to financial crisis levels. If you think about our industry as a business and we looked at the cash flow statement of the venture capital industry, it probably wouldn't look too good. We've raised a lot of money, and we've given very little back; we are bleeding cash as an industry.
It's ironic because many of us as investors have told companies they need to get fit and generate cash, but we as an industry haven't done that yet. So what's left? Well, what's left is still a very substantial economy, what we call the Unicorn economy. There are about 1,500 companies, by our count, that are private companies with a last round of greater than a billion. Gavin Baker, another great investor whom I follow, actually came out with a statistic that said there are more private companies in tech that are worth more than a billion than public ones, which is kind of an incredible statement to think about.
On top of that, if we look at employee growth, which I think is a decent proxy for how this ecosystem is doing, we can see that there has been a significant slowdown post the digital transformation. You can see that employee growth is at the lowest levels for this cohort in almost 15 years. This obviously impacts their financing as well. If you look at the average company in a pre-CO era, they would tend to raise around generally less than 600 days, and bridge rounds and down rounds were about 30% of the total rounds.
In today's market, however, you can see something very different: it is now greater than 100 days, and the mix of down rounds and bridge rounds as a percent of total rounds is up to almost 63%. Even when they do get financing, it looks very different. If you look at what that means on a cohort basis, this is one of my favorite charts because I think it tells the story of this era in one slide. You can see that the 2016 cohort (the top slide) shows that after about 13 quarters, 80% had either raised a new round or exited. In contrast, the 2021 cohort shows that number is down almost in half, significantly below.
If you see the 2022 cohort, which is the most recent cohort that we track (because obviously, you need to give companies at least a year to make the analysis useful), you can see that those companies are tracking even below the 2021 cohort. Now, we can't blame the public markets; the NASDAQ is at almost an all-time high and has had a massive performance. However, the index doesn't tell the whole story, and I think we need to go one layer below to really understand what's going on. If you look at the recovery, which is the piece that I focus on since the transformation, you can see that the index...
The tech landscape is shifting dramatically; while the NASDAQ soars, many once-promising companies are struggling to keep up, revealing a stark divide between public market giants and the rest.
The current market landscape shows that that number is down almost in half, which is significantly below previous expectations. If you examine the 2022 cohort, which is the most recent cohort we track, you can see that those companies are tracking even below the 2021 cohort. We cannot blame the public markets for this situation; the NASDAQ is at almost an all-time high and has experienced massive performance. However, the index does not tell the whole story. We need to delve one layer deeper to truly understand what is happening.
Looking at the recovery since COVID, the index has shown very strong performance, rising almost 122% since 2019. Yet, if we analyze the two buckets I have highlighted—unprofitable tech and SaaS—we find that these sectors are down the most from their highs and have recovered the least since 2019, significantly trailing the index. One might argue that this reflects a bunch of really bad companies, but I contend that there are incredible companies in this cohort. For instance, let's consider DoorDash, Block, and Shopify. These companies, led by remarkable entrepreneurs—Tony from DoorDash, Jack from Block, and Toby from Shopify—have achieved significant scale.
When we look at their GMV and revenues over time, we can see that they have become significantly more profitable. However, on a P/E basis, the multiples have shrunk significantly, and the growth has not been fast enough to offset the lower multiples.
Now, if we turn our attention to IPOs, we can analyze the value created or destroyed since 2020. As a cohort, we have destroyed almost $225 billion in market cap, offset by the value creation of $84 billion, resulting in a net negative as a cohort. This slide is shocking; every time I look at it, I still can't believe what it says. We had to quadruple the facts, but the reality is that since 2022, both in 2022, 2023, and 2024, we have had fewer IPOs than in 2008 and 2009, during the depths of the financial crisis, as well as in 2001 and 2002, post the greatest bubble in tech history. I remember sitting at my desk in 2008, receiving reports that Morgan Stanley and Goldman Sachs were going out of business—that’s how dire those times were. Yet, there were still more IPOs in that environment than in today’s market.
Recently, I spoke with a late-stage founder of a very large valuation company who was curious about the difference between private and public investors. I explained that, by and large, private investors tend to compare their companies to others that are very similar to theirs. For example, if you are a venture investor, you might look at a Silicon Valley-backed company and compare it to another company backed by a similar fund. However, the public markets operate quite differently, and it is crucial for CEOs to understand this.
Public market investors have options; they may consider the risk-free rate of 5%, which offers returns with literally no risk whatsoever. They might also evaluate the Magnificent 6 or 7, which are the largest companies in the world, featuring incredible businesses led by CEOs like Mark Zuckerberg. Investors can own shares in this cohort at a pretty cheap earnings multiple for companies that, even at a trillion-dollar scale, are growing in excess of 15%—which is quite remarkable. Additionally, there is a new type of company emerging: the AI company, which is also experiencing substantial growth.
In today's market, young companies are thriving while traditional giants age, proving that technology is the ultimate game changer.
It is really important for CEOs to understand that public markets have options. Investors may look at the risk-free rate of 5% to earn with literally no risk whatsoever. Depending on how you want to bucket it, they may consider the Magnificent 6 or 7, which are the largest companies in the world. These are incredible businesses with leaders like Mark Zuckerberg, and you get to own that cohort at a pretty cheap earnings multiple. Even at the trillion-dollar scale, these companies are growing in excess of 15%, which is pretty amazing.
On top of that, there is a new type of company emerging: the AI company. These companies are growing at incredible scales, sometimes at 50%, 60%, or even 100%. You have the opportunity to back a founder like Jensen at Nvidia, who many people don't know but is the longest-tenured founder CEO in Silicon Valley. Additionally, you can buy these companies at pretty reasonable earnings multiples.
Just in case you think I am only talking about big companies, you can also invest in an incredible set of smaller companies. We just had Travis from Uber on, but whether it’s DoorDash, Instacart, or Block, you can see that even great new companies like those are available at pretty reasonable multiples.
Thus, it is crucial for CEOs to understand who the competition is for the capital that they are trying to raise. The public market can be tough, especially in this moment, because what the public market is essentially telling you is that we want it all. They want you to be profitable, which we have already discussed. They also want you to grow, so you have to be in a big market and have a big trend. Furthermore, they want you to have scale. That is a lot to ask for.
However, the good news is that within this cohort of unicorns, we have already identified a good list of companies. We are fortunate to be investors in about eight or nine of them that match that criteria. I believe all of these companies will one day make for incredible public companies.
To summarize, I wanted to end with a chart from Andrew McAfee, who has an incredible Substack that I encourage all of you to follow. This chart looks at the average age of the top 50 US public companies weighted by market cap. It spans from 1926 to almost the late 80s, showing that the biggest companies were the oldest companies, which kept getting older. This indicates that the biggest chance of becoming a big company was to have been a big company in the past.
However, something interesting happens in the mid-90s: the average age starts to reverse. What caused this? Technology. Technology is the great resetter of the business world; it can take an incredible company and turn it into dust. Just ask Blackberry or Nokia, or other companies that have been on the wrong side of a trend.
The past 25 years have been really good for young companies, which is why another inverse way of looking at it is to consider the average founder year of that cohort of companies. You can see that this cohort is getting younger. This is why I remain an incredible optimist about our industry and about technology. Technology is still the most disruptive force, and we haven’t even talked about AI and robots and all of the incredible things that are happening.
In conclusion, I wanted to put it all together using concrete examples. This is one of my favorite charts, which shows the valuation of two companies that are...
The tech industry is thriving with younger founders leading the charge, and innovation is just getting started.
The trend observed in the past 25 years has been particularly favorable for young companies. An interesting way to analyze this is by looking at the average founder year of that cohort of companies, which indicates that this cohort is getting younger. This observation fuels my optimism about our industry and technology as a whole. Technology remains the most disruptive force, and we have yet to fully explore the potential of AI and robots, along with other incredible advancements that are currently unfolding.
To illustrate these points, I want to share one of my favorite charts. This chart depicts the valuation of two companies that are competing in the enterprise data sector, specifically in cloud data storage. The blue line represents Snowflake, a public company, while the red line represents Databricks. Analyzing this chart reveals a lot of volatility in the public markets, with valuations rising and falling, alongside a notable increase in the private market.
There are various interpretations we can draw from this data. For instance, Databricks has been frequently discussed in the context of being a founder-led company, while Snowflake has been characterized as more of a managerial-led company. This distinction might explain some of the differences in their performance. Additionally, being a public company necessitates profitability for shareholders, which can create challenges when competing against a private company that can afford to operate at a loss.
When I mentioned to Ali, the co-founder of Databricks, that I was using this chart, he emphasized that he is growing in excess of 60%. He pointed out that, despite burning money, he is becoming much more efficient. He also shared a non-public data point regarding his cloud business, which has now reached $500 million in ARR, a significant increase from almost zero just a few years ago. This highlights the dynamic nature of technology and markets, where complacency is not an option.
I appreciate the opportunity to engage in discussions that challenge my assumptions, and I am grateful to the besties for fostering this environment. With that said, I look forward to chatting about this and any other topics you wish to explore.
In a lighter moment, I want to thank my brother for an amazing conversation. There was a humorous incident involving Sax and a wine selection at a poker game. Sax poured a wine that was not well-received, leading to a memorable moment where Troth poured his glass on the floor in protest. This incident took place in Sax's living room, not outside on the lawn as some might think. To clarify, it was in his basement poker room, which is not your typical basement—it features a marble floor.
After that incident, there was a humorous follow-up where they raided my wine cellar and discovered some Latash. It was quite the adventure!
On a more serious note, if you had invested in the NASDAQ and held your investment for 10 years, you would have seen a return of 7.5x. If you had invested in the top 10 companies by market cap within the NASDAQ, your return would be 8.7x, or nearly 9x. Investing in the S&P 500 over the same period would yield similar impressive returns.
Investing in venture capital is a gamble on the future, but with tech giants dominating the landscape, the path to outsized returns is less clear than ever.
To clarify, there was no rug; this was a marble floor. It was not true that it could be clean. It was more like, "Okay, Thomas, let me ask you a question."
After that, oh my God, what happened? Guys, we got on Jam, raided my wine cellar, and found all the latash. Oh, he did, that's right! Oh my God, that is true. And then I... yeah, CU, you hit it. I think they went through a case lash.
Yeah, let's start to come out. Don't stop on my behalf; sit here all day. Let's talk. Let’s talk to Tom. Just so you know, if you invested in the Q's in the NASDAQ and held it for 10 years, you would make 7.5x. This is a couple of months old. If you invest in the top 10 by market cap companies in the Q's, you would make 8.7x, so 9x. If you invest in the S&P over 10 years, you would make 3.2x.
Sorry, sorry, if you invested in the top 10 of the Q's, you would make 8.7x, and if you invest in the Q's, you would make 5.2x, so 5x and 9x. Why would I invest in Venture at all as an institutional investor? Is that going to shift? Because you have to be in basically the top two or five funds to beat the returns you make just by buying an index of the NASDAQ.
How do institutional investors rationalize investing in Venture funds at all, given how much value is accruing to public companies in technology versus the private companies? Have you tried the mtet?
Thomas just teed up a softy for me right to tee me off. First, I ask myself that question all the time, right? Because we sit in both public and private markets, we have this unique ability to look at both and try to use one to make better decisions than the other. I think what's implicit in your question is: Is what has happened over the next decade going to happen over the next one? Yes, right?
Because I also remember a time where, and I think this was roughly around the 2010 period, where Google was flat for seven or eight years, right? From like 2007 to I think the next seven or eight years, right? And that's how the market was digesting Facebook and kind of things like that. So I think the question you have to ask yourself is: We now have multiple multi-trillion dollar companies, right? Three trillion dollar companies with Apple and Nvidia. Are those companies going to reach 10 trillion?
To me, it's not necessarily as obvious as maybe it was obvious ten years ago. We all should not have invested in Venture ten years ago because we should have just owned Apple, Google, Meta, and others. The question is, as investors, we get paid to think about the next decade, right? So I think the question for all of us is: Well, what do we think is going to happen in the next decade?
To me, it's not as clear just because those big companies are so big now, right? Are we going to see the same pattern occur? I mean, sometimes the law of large numbers and other things like that would say no. There’s another part of this, which is when you invest, you have to get some risk premium for where you're investing.
The complicated thing with Venture is that when I started my business, I think when David and Jason started theirs, actually also when you started your investment business, we typically thought 7 to 10 years were going to get out of these businesses and return capital to shareholders. Then all of a sudden, it's doubled. Now, to your point, you have wars in Europe, you have wars in the Middle East, and you have this potential thing, sort of Damocles, hanging over us in China and Taiwan. There’s risk everywhere.
Theoretically, what is supposed to happen is you're supposed to get paid a risk premium to be illiquid and not be able to get out over periods of time where any of that stuff could happen, right? So how does that start to play into the mindset of the investor that was giving all this money in the first place? How does that change?
You know, it's a great question. I was talking to one of the partners of a leading Series A firm, a brand name that all of you would know. What was interesting about their business is that, by and large, their average funds were doing the same, but the problem is that at the time, liquidity had doubled. So if you just think about it on an IRR basis, all of a sudden, I'm down half, right? Yeah, so that's a huge problem.
I think part of the reason I kind of wanted to bring this up is...
The longer companies stay private without accountability, the more we risk creating a generation of weaker businesses that ultimately fail to deliver value.
In the current investment landscape, there is a growing concern about the risk premium associated with being illiquid. Investors are increasingly aware that they may not be able to exit their investments during critical periods, which raises important questions about their mindset. This issue was highlighted in a conversation I had with one of the partners at a leading Series A firm, a well-known name in the industry. Interestingly, while their average funds were performing similarly, the problem arose when liquidity had doubled. This change significantly impacted the internal rate of return (IRR), effectively cutting it in half, which presents a substantial challenge.
I believe this is a problem that our industry needs to address, starting with boards, founders, and investors. In a discussion with Bill Gurley, he pointed out that we, as investors, are part of the problem. He mentioned that by providing liquidity to secondaries and founders, we enable companies that should be public to remain private longer, exacerbating the issue. I acknowledged his point but also emphasized that the boards, including those he is part of, are complicit in allowing this situation to persist.
The IPO chart represents an existential challenge for our industry. If we fail to facilitate the transition of these companies to public status, we will face tough questions from the ultimate funders of our industry—namely, the investors in our funds. These investors, who are not just faceless entities, include individuals from sovereign wealth funds and pension funds. These citizens will eventually need their money back, especially given the existential issues they are facing. As pension systems strive to justify their strategies, they may find it increasingly difficult to explain why they have paid 2% a year for 13 years without significant returns, leading to a potential reckoning.
Moreover, I fear that we are inadvertently creating a worst cohort of companies due to these dynamics. Many of you sit on numerous boards, and I believe that part of the popularity of the All-In Podcast stems from its candid discussions about the fears and realities that many in the industry face but are reluctant to voice publicly. It can be challenging to challenge a founder or CEO and propose alternative paths, especially in board settings.
Reflecting on my own experiences, I recall a sign from my high school in Brooklyn that read, "The truth shall make you free." This sentiment is crucial for our industry. We must recognize that allowing founders to remain private for too long, while also providing them with excessive secondary liquidity, is detrimental. It fosters a culture where governance is undervalued, as exemplified by figures like Paul Graham, who suggests that VCs are the enemies. Many companies that I have invested in, which ultimately failed due to a lack of governance, often express a desire for guidance. When I propose starting quarterly board meetings, they are receptive, indicating a need for support and structure.
The key to thriving in the tech industry is embracing public accountability and governance, rather than viewing investors as enemies.
In the current industry landscape, it is crucial to recognize the importance of staying private while also providing founders with massive amounts of secondary funding, rather than just modest amounts. We all agree that keeping private equity companies public for too long, or conversely, private for too long, is simply bad hygiene and bad discipline. There is a troubling narrative that suggests founders should view VCs as enemies, a sentiment echoed by figures like Paul Graham, who claims that governance isn't cool.
From my experience, most companies I've invested in that ultimately fail often express a desire for support, stating, "if only somebody cared enough to help us solve our problems." When I propose the idea of starting quarterly board meetings, they typically respond positively, acknowledging the value of guidance. However, we must recognize that at some point, discipline is necessary, and we need to accept the truth of our situation. On a societal level, 40% of the country does not own equities, leading to a belief that they are being left behind while others grow wealthy. This disenfranchisement is reflected in their political choices, such as voting for socialism or opposing company mergers and growth, which ultimately freezes the system.
The current political climate, influenced by figures like Lina Khan—who was appointed based on political motives and holds an anti-tech stance—compounds the issue. We must address the disenfranchised problem while simultaneously creating jobs and fostering the next wave of companies. I urge those who may be anti-tech or anti-capitalism to envision a world devoid of major tech companies like Google, Apple, Tesla, Facebook, Microsoft, Uber, and DoorDash. Such a scenario resembles Europe, characterized by incredibly slow growth, where most advancements stem from government initiatives.
As we navigate these challenges, we must engage in honest discussions. I would like to pose a question to Thomas: how do we collectively identify a set of solutions to address these cultural issues? It seems we have a cultural problem that needs resolution. While I empathize with the origins of this issue, it is essential for companies, whether they are traditional or newer entities like Social Capital or Andreessen Horowitz, to determine how they will disrupt the status quo without spiraling out of control.
One clear solution is to take our companies public. As Jason pointed out, the public market serves as a great disinfectant. Unlike private markets, the public market does not prioritize personal relationships or past affiliations; it evaluates businesses on their merits. Therefore, encouraging entrepreneurs to pursue public offerings is vital.
To clarify, the traditional model for going public is through an IPO, where companies raise capital while simultaneously listing their shares. These are two distinct activities that many do not fully understand. In contrast, a direct listing allows shares to start trading without raising capital upfront. While this model has seen some success, there is a notable aversion to direct listings within Silicon Valley. This reluctance often stems from either business failures or instances where companies are such outliers in success that they opt for direct listings without concern.
Should direct listings become the preferred model? Otherwise, we risk stagnation, as many institutional investors who typically support IPOs are currently sitting on the sidelines, hesitant to invest in new opportunities.
The public market has changed, and founders need to adapt by engaging retail investors and educating the public about their businesses, rather than relying solely on traditional institutional investors.
As soon as it hits the market, it goes down, then it goes up. However, the market values the company once it has been valued, and when the market stabilizes, maybe then you can raise capital at whatever the market tells you the valuation is. There is, however, a very big aversion to direct listings in Silicon Valley. It seems like there are either failures of the business or instances where the businesses are such outliers of success that it doesn’t matter; they think, “I don’t care, I’ll just direct list.”
Should direct listings become the kind of de facto model? Otherwise, everyone talks about the IPO window being closed. The big institutional investors that build the IPO book are all sitting on the sidelines right now, saying, “I’m not investing in any new stuff for a quarter or two quarters,” which means the IPO window is closed, and you can’t go public. Should we not push all of Silicon Valley to consider that this direct listing might be a better model? I know some have tried to motivate this transition, but the question remains: why hasn’t it gained traction, and is it indeed a better way?
What I would say to that, and Trath, you kind of hit on this with some of the work that you’ve done here, is that I do think the recipe to go public is different now. First of all, I can tell you that we’ve looked at buying IPOs over 20 years—probably thousands of them—and we couldn’t care less whether it’s a traditional IPO or a direct listing; we care about the business and the price. The mechanics are completely irrelevant to us.
However, I do think founders have to understand that the public market itself has changed. Being an active investor in the public market over 20 years has been a really bad business. We are fighting the machines, first of all. Companies like Ken Griff’s Citadel and Renaissance, along with all of these quants and algorithms, are part of this challenge. Additionally, we are fighting the indices, with a massive move away from active investing to passive. Being in the so-called money management business has not been great; just look at the chart of T. Rowe Price and others—it’s not been a great business.
This change in the public business is relevant to founders because there is another big constituency that is really important: retail investors. If you can tap into a retail investor base and convince them that your business is worthwhile, that’s something that 20 years ago you might have dismissed as not a good use of time. However, I think this year is a really good use of time for that. Engaging with the public through podcasts, going on CNBC, and educating them about your business is crucial. You cannot just rely on a frankly shrinking pool of investors in the public market.
I remember when I started in the late '90s and early 2000s; there were small-cap mutual funds in Kansas City and other places whose whole business was taking small companies and bringing them to the public market. Those funds are gone today—there are none left. We need to adapt, and I think those are the conversations we need to be having. I hope that some of the companies that we listed—companies you know and are investors in—are generational opportunities. I hope some of those go public, and we can get the do.
I just want to build on this point: it is one of the most systematically broken things. To be more specific, what happens in Silicon Valley boardrooms is that you have folks playing a very establishment insider game. Whenever I see that, I get offended at a core level. It revolves around a certain set of banks, privileges, and conferences—a cabal of insiders. This is what convinces impressionable people to accept all kinds of spurious data to say what they want, which is not whether the company goes public or not, but that they have control to influence that decision. That’s the game, and you can look at all the major investment banks to see how it’s played. Every time there’s been an attempt at innovation, people push back severely.
The most impressive attempt I remember was just a few years ago when I was part of one version of that. The banks had a very checkered set of outcomes, but it was courageous to try. I remember working with Credit Suisse when I was launching this first one. The reason I picked Credit Suisse was...
In a world where valuations are treated like a status symbol, remember: real growth comes from embracing the ups and downs, not just chasing the highs.
In today's discussion, we delve into the complexities of the investment landscape and the challenges faced by companies in navigating their public offerings. This is what convinces these very impressionable people: all kinds of spurious data to say what it is that they want, which is not merely whether the company goes public or remains private, but rather that they have ball control to help them influence that decision. This is the game, and one can observe how all the major investment banks operate under this premise.
Historically, every attempt at innovation has faced severe pushback. One of the most impressive instances I recall was my involvement with Credit Suisse during the launch of a significant project a few years ago. Credit Suisse had a very checkered set of outcomes, yet it was courageous to try. I chose to work with them because they were the ones totally blackballed in 2004 for doing the Google listing. Google had completely pushed back on the IPO, restructuring it from first principles and deciding how to proceed. When I reviewed the filing documents, I thought it was courageous and incredible because if others followed this model, it could unlock substantial funding. However, the infrastructure ultimately pushed back against this model, leading to a lack of acceptance.
To move forward, we need to help people realize that direct listings work. For example, I went through a direct listing with Slack, and one critical lesson we learned was that the best price is the day one price. If there is investor pressure, it can lead to significant mistakes. In my case, I distributed shares too late, which resulted in a $1.2 billion mistake. This reflects a broader issue: there exists a system of weird incentives tied to what Barry Weiss referred to as prestige, rather than focusing on simply allowing a business to succeed or fail.
Moreover, it is essential for CEOs to understand that it's okay for their valuation to go down. In Silicon Valley, there is a pervasive belief that if a company's valuation drops by 10 or 15%, it signifies the end of the world. This notion is absurd; public stocks do not always rise. The immaturity of this mindset perpetuates a cycle where individuals maintain ball control over the narrative. Relationships, whether personal or professional, experience fluctuations; businesses are no different.
As we wrap up, I want to emphasize the significance of the points raised today. The Venture Capital industry is currently grappling with the aftermath of the massive bubble that occurred in 2020 and 2021, particularly during the second half of 2021. The Federal Reserve cut interest rates to zero and the federal government injected trillions into the economy, leading to what many consider the biggest bubble since the dot-com era. Now, as we navigate through 2022, 2023, and 2024, we are dealing with the fallout and the hangover from that bubble.
Despite the challenges, there are emerging tech trends that could lead to significant advancements. As noted by industry leaders, such as Benioff and Elon Musk, we are on the brink of potentially the biggest technological shifts we have ever seen. While the tech industry is currently experiencing a hangover, there are upward trends that could yield remarkable outcomes.
In discussing the 2022 cohort, it was suggested that the best companies are likely to emerge from this environment due to the heightened risks they face. This perspective aligns with the belief that markets have a natural tendency to self-correct. I firmly believe in our market's ability to adapt and evolve, which is why I wanted to highlight the age of companies and how technology fundamentally changes the business landscape.
In conclusion, as we navigate these turbulent times, it is crucial to avoid repeating past mistakes. My role as an investor is akin to a hypocratic oath: to do no harm and not exacerbate existing issues. We must focus on the incredible value creation that technology can bring, allowing this process to unfold naturally. Thank you all for your attention, and I appreciate your engagement in this vital conversation.