# ? Transcript: @Chamath At StrictlyVC’s Insider Series (archive) Pour la pérennité des contenus liés. Non-indexé, retrait sur simple email.

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(This is the transcript from last night’s chat at Connie’s StrictlyVC Insider Series with Chamath from Social+Capital. I wasn’t on Twitter today but checked in the afternoon and saw that tons of people were talking about it. It must have struck a chord, so I talked to Connie and got someone to transcribe the Periscope. It is definitely worth a read. Chamath not only candidly says what most others would be too nervous to say publicly, he does so in a way that demonstrates he is a truly big thinker and pushing forward the model and conception of what a technology investor can and should be.)

@SEMIL Intro: Thanks everyone for coming. Connie organizes these events, they’re something I really look forward to, and in particular this one. A lot of you here mentioned me on email that you were looking forward to this event with Chamath, you probably follow him on Twitter, listen to what he says, maybe you don’t agree with everything, but what I find really unique about Chamath, is that when he says something you know he’s thought about it and you know he means what he says. To be fair to Chamath I emailed him twice before the event and I said, “what do you want to talk, plug, you tell me.. and he says just adlib, make it interesting. So, we’re going to rely on Chamath to make it interesting.

Which Becomes A Trillion-Dollar Company First: Facebook or Uber?

@CHAMATH: Facebook. And it really comes down to a very simple thing, which is, the principle of N of 1 vs. 1 of N. This is something I think about a lot, which is, when you look at a company, they become these foundational layers in society, to me what’s interesting is they always start where they’re a set of many, they’re 1 of N companies, and somewhere along the way what happens is a bunch of them fall off. There’s these periods of real, either misunderstanding, or discontent, or frustration, and then they develop something discontinuous. When you put those things together, that allows a company to separate themselves from the pack, and eventually, everything falls away, and they’re an N of 1 company. Then they scale and are effectively a monopoly.

If you think of companies that multi-generationally have done that well, Microsoft did that, I think Google did that, Apple will become a trillion dollar company, even though they didn’t start off as an N of 1 path, and Facebook has done that.

But when you compare that to Uber, it’s interesting, people want to value the company as if it’s an N of 1, but it’s fundamentally a 1 of N. And I think that doesn’t.. it basically limits the rate at which it can grow, and the violent market effects it can have, and I think what you see is probably business features sprawl in order to generate revenue to justify valuation.

So you know, at Facebook, for five years, all we talked about was user growth. Like there’s only one thing that matters: user growth, user growth, user growth. Why? Because at a certain point, it basically becomes this canonical definitional service in the world, by language which they will not use, but is like, you are the de facto standard, and that’s how you become worth a trillion dollars, because you have market effects, pricing effects, the ability to attract talent, that is just completely unique and differentiated.

But if you’re an N of 1 company, you’re competing with different folks, and that’s the problem with Uber is that it has to compete with a bunch of folks here, both private and public, capitalized and not. In china it has a completely different set of competitors, in India, it has a completely different set of competitors, each of them are funded to billions and billions of dollars, so what happens with market dynamics, is basically driving things to commodification, driving things to basically price discovery where you don’t have pricing power, you don’t have the effects that make you monopolistic, and the problem is markets will not deny you that at massive multiples.

The way that they value things that are fundamentally unique and not easily recreatable.. So, that turn of capital, those 3 or 4 multiples of P/E that makes something a 40 X vs. a 12 X is a difference between grossing $150B and a trillion dollars, and it’s beyond a shadow of a doubt that Facebook will be a trillion dollar company, it’s just you’re talking about the delta: T which is probably sub-15 years. In my opinion. Uber’s not there. Great company. But not anywhere near the path of being an N of 1 company.

Semil: One follow up on that, do you see any similarities from your time at Facebook with Facebook platform and connect, and how Uber may supercharge their platform.

Chamath: Neither of them are platforms. They’re both kind of like these comical endeavors that do you as an Nth priority. I was in charge of Facebook platform. We trumpeted it out like it was some hot shit big deal. And I remember when we raised money from Bill Gates, 3 or 4 months after.. like our funding history was $5M, $83 M, $500M, and then $15B. When that 15B happened around literally a few months after Facebook platform and Gates said something along the lines of, “That’s a crock of shit. This isn’t a platform. A platform is when the economic value of everybody that uses it, exceeds the value of the company that creates it. Then it’s a platform.”

If you apply that simple methodology to any company that says they’re a platform, there are only 3 platforms in the world! You know? Windows is a quasi-platform, decaying, but still, iOS is platform, and Android is platform, but that’s easy because the denominator is 0. So, I think, that these aren’t “platforms”, these are APIs, these are developer tools, which is good, and it’s a bridge to something, but it’s not a platform, so let’s stop calling it a platform, let’s call it what it is, which is a bunch of endpoints.

Discuss The State Of Professional Sports In The Bay Area

Chamath: I think the Warriors are an example of basically applying traditional management to sports, which is like a really unique kind of thing, which hasn’t been done before. Take a step back.. we teach our kids basically, don’t listen to anybody. We just don’t want them to be programmed.. (this is when Chamath’s son, who was sitting in the front row, just left the talk and walked out), so if he he can take an Uber home I guess.

I think the Giants are pretty well run, I think there’s a really interesting opportunity to do something around the Raiders. I’ll leave it at that.

Assessing The Health Of The SF Bay Area Tech Startup Ecosystem

Chamath: These are all really interconnected, but if you think about it, there’s way too much money, in the system, ultimately still chasing few really great companies. The problem with that is that you have a bunch of imposter companies that get funded for a lot longer than traditional cycles.

So if you had 1/10 the capital, the mortality rates would be higher, faster, the curves are sharp, and instead of what happens is the decay is longer, and in the long decay, what essentially happens is that you are feeding capital to companies that should really not exist anymore, and those companies then use that capital to take up space. They use that capital to hire other employees, and all these other people spend a lot more time wasting their time. And that’s problematic, and if you don’t get that churn, then the few that have the ability to really get to escape velocity, are forced to figure out for themselves, how to get that sooner?

So what do they do? They start to pay people more, they start to spend more on these things that think will attract all these people, and that has this negative byproduct, which is everything goes up, the cost of everything starts to rise, and you have this really vicious cycle where at some point then that N + first young engineer, can’t afford to come here in the first place, because he can’t even afford a 1 bedroom out of 5 bedrooms because it’s $2000, and all of a sudden a first year engineer is making $170K, and it’s like this violent vicious cycle that helps nobody.

Semil: So a lot of people think the solution to that is just more housing, more affordable housing, sounds like what you’re saying, even if they do that, it still wouldn’t stop the core problem.

Chamath: I mean you need to do a couple of things. If we’re really going to bet on SF, and if we’re really going to bet on startups. In Silicon Valley, you have to do a bunch of stuff privately and you have to do a bunch of stuff publically.

So at the public level, you have to invest in what the city is doing, and I think you could debate on some level, how much work the city should be doing around transportation, around housing, you have to basically get rid of the nimbyism and you have to decide to build up. You need to quadruple the amount of housing, quintuple amount of housing. You need to tell every young engineer from University of Michigan that they can afford to live here on $80K a year. All the other ancillary surfaces you need to be able to do that, as an example, we look at our startups and we’re like, the minute that they start to spend 15% of their burn, money that we give them, good money, on rent?? Huge red flag goes up. It’s like, there’s all of these other simple signals, when you, on a per headcount basis, are spending so much, and we start to look at like, the productivity of the technical team, and it’s like good but not great and they’re spending the same amount of money as a team in Redwood city, we start to ask ourselves, are you so convinced that success is going to happen in this city at 1.5X of cost.

For every dollar that someone in Redwood City or Mountain View is raising, you have to raise 1.5 times or 2 times that. Just to get to the same point in time. So you’re cutting you half-life in half. To prove what?? That you can take an Uber from some shitty bar to another shitty bar? I don’t understand. These are like the things that I start to think about, these constraints that need to get fixed.

So, at the public level, you need to have an approach that kind of creates the attractive incentives, for people to come and be able to survive on a living wage. Then at a private level we need to hold our companies to a higher standards where they’re not just burning money on useless stuff that is window dressing. That’s fundamentally getting in the way of building something useful.

Semil: When you mentioned the rate of churn, is slower, as that churn slows, what’s the effect of that? Is it clogging up resources? Are people sticking in at roles where companies are going nowhere..

Chamath: I actually think it’s more insidious than that, it’s like telling somebody.. startups are this really delicate compact that an employer has with a bunch of employees, these employees are a highly productive, extremely well intentioned, people who want to do something really productive, they’re willing to make huge sacrifices, in order to do something that changes the world, that to use a slightly overused phrase.

But when you suck them in, and now you don’t pay off that contract, yet they’ve been working 20 hrs/day for months and months, what are you doing to that person’s psyche/ what you’re really doing is you betray that compact that they made with you. Now it’s fine to fail, and in fact it’s great to fail, but if you fail because you didn’t have the courage to move to Oakland, and instead you burn 30% of your cash on Kind bars in the office and exposed brick walls? You’re a fucking moron. Do you know what I’m saying?

On Companies Staying Private Versus Going Public

Chamath: I don’t understand why public is a bad thing. I think it’s the most rationalizing thing in the word. Because you cannot hide behind bravado and nonsense. You are forced to show that you have articulated a strategy, and a gameplan, and a set of metrics, and narrative, and you have to explain that to people who may not necessarily care emotionally. That’s not a bad thing. That is like an act of discipline. So as an example, you look at a company like Amazon, they barely generated a dollar of profit, but Bezos has created a envelop of trust in the public markets, which are extremely fickle, which are extremely judgmental, we claim them to be extremely short-sighted. Yet they’ve taken a 20-year multi-decade bet on this guy.

So I think that line of reasoning is just wad. It’s an excuse that prevents you from being held accountable in ways that make you fundamentally uncomfortable, cause you’re afraid of what it means to build a real business. Build a real business. Be around for decades. You have a compact with employees, financial source of capital, and you have an opportunity to have market leverage, if you’re good, give you a currency that you can use, so that you can get to N of 1. So why wouldn’t you do it?!

The people that don’t do it, is the people that can’t do it. And the people that can’t do it, will, say all this stuff about waiting, waiting, cause the markets don’t understand.. is just a false trade off, it’s just an immature understanding of your own business. And what it tells me, is that you don’t know your business. Jeff Bezos knows his business. Indisputable. He never grew it 100%. But he grew it 20% per year for 15 straight years. Bang, bang, bang, etc… That guy knows his business.

Trump As A Media Sensation

Chamath: I think he’s, whether you agree with him or not, he is his authentic self. I think that people are starved for average, approachable people, that are themselves. And some of us like it because it’s like watching a train wreck, other people like it because it represents their beliefs and values, it doesn’t matter if there’s authenticity there, and I think the problem is, if you’re part of a system and your entire life has been created by getting these small signals that system matters, you’ll always live by the rules of the system and eventually you become part of the system, you become co-opted, you know you’re not yourself anymore. That’s basically all politicians.

Then every now and then you have this window into the humanity of a person, and it’s really intoxicating. All the people that for once in their life were like, Biden’s the best were simply because of a handful of questions that he answered on Colbert, where he was actually honest and authentic, so I just think authenticity is just the thing that’s truly missing, and I think that’s what people are attracted to.

Audience Q1: Getting Sucked Into A Bigger Money Round Frenzy

Chamath: We were doing some work, and I think the data point that saw was that the largest series A of a very successful public company, if you go back and look at every company that’s ever gone public, and you look at the largest market caps all the way to the smallest, and you look at your series A, and how much they raised, the largest was Google. $25M raise. So this idea that you need all this money is a false trade off. Ben just talked about Fitbit. It’s an amazing example of what a company can do on what people thought was probably, “Oh my god, they must of raised billions of dollars” and it turns out that they didn’t, they were just really good at what they did. So, again, I think that if you looked at a company and how they’re spending money today, we probably would be shocked, relative to historic levels, how much of it’s going into Kind bars and exposed brick and how much is going to the per individual basis, which is great for that person, but again it’s emblematic if that person then takes all that money that they’re making..

Like when I came here, my first job, I made $55K. In 2000. I was a product manager. How do you go from $55K to $175K in fifteen years? So it’s great, but if I were taking that $175K and still having less than that $55K of net effective income, because 2/3 of that goes to rent, and another 1/3 goes to transportation, am I really that better off? I have a higher W2, but I don’t feel richer.

So who’s making the money? Cushman & Wakefield, who owns this building makes the money? That makes no sense to me. So the way we react to this is, we’re like, we try to see who’s willing to do the hard work of business building, and who’s acting. And there are very simple ways. We just ask, let me see how you’re spending your cash. The actors just jump off the page. The company builders are just cheap, they’re just grimy, and just, shitty office space, and they’ve got to keep it under 8 or 9% of their total burn, and they find people who really really believe in the thing they’re making, and they decide to just live in Oakland and pay for Lyft, and it’s still cheaper.. They do all kinds of creative things that deserve capital so they can build. So it forces us to ask those questions, “How are you really company building?” And that’s how we get the truth on who’s going to stand the test of time.

Audience Q2: Cite Examples Of Public And Private Initiatives The Region Needs

Chamath: I can answer this question in the context of Social Capital. So we made a really big transition in the last month, where we decided we’re going to build an organization that looks different than a venture firm. That organization is going to be this hybrid, bastard-stepchild of Berkshire Hathaway and Blackstone and Blackrock.

What I mean by this is, we want to have a large permanent capital base and we want to basically take really long discontinuous bets on companies and sectors and trends. One of the things we said we needed to do as part of that is we need to start really thinking through, having almost like a real estate fund. The reason we said that to ourselves was we owe it to our companies to alleviate some of these problems where nobody else is going to.. If we went and built one million square feet somewhere of mixed-use work and live, and we completely conceptualized what it means to have a modular living environment for a millennial cohort of like, folks who want to work at companies who don’t necessarily have kids, etc. We can do that in a way, and give that back to our CEOs, as a benefit of working with us.

You can probably make all the economics work, because frankly we only really care about the employee of the company anyways, and the equity in the long-term appreciation of real estate will take care of itself, if you take the 30-year view. So, we’re at that point now where we’re like, “Wow! We should probably just go raise a couple billion dollars and actually go get into the real estate business and solve this problem systematically for our companies.”

Maybe in that, it becomes a blueprint for how others should do it. So that’s an example of a private solution to what would otherwise be a public solution that’s probably not going to happen. So, we’re just basically going to act as our own little city-state, and decide how to do it ourselves. In order to do that, companies will have to have the courage to be in San Mateo or San Carlos, and oh, by the way, every major $100M company has never been created north of Palo Alto, in case you’re curious.

Quick Thoughts On Today’s Seed Environment

Chamath: I think it’s really amazing that there’s so many people that.. I feel I have the same version of what all these other people feel, which is we all feel somewhere along the way we were a bit of an accidental tourist, we got lucky, there’s degrees of how lucky we all got, but we’re all then willing to pay it forward, and I see a lot of people, e.g. there’s a bunch of Facebook groups of ex-Facebook employees and the number of these people who are writing these really big checks into companies, and it’s not the amount of money that matters, it’s just that they’re willing to pay it forward.

So, whether they’re doing it with the profit motive or not, I think seed stage right now is very healthy. It’s robust. I think the institutionalized efforts around it, people are a little frustrated because they used to have so much proprietary deal flow and now all of a sudden, you can raise $2 million dollars from 10-15 folks who worked at WhatsApp or Facebook, or whatever.

I think that’s fantastic. I hope there’s more of it. Frankly, as some number of us continue to feel out and be in this ecosystem, and be fortunate enough, you have a responsibility to plow back. Somewhere along the way, it’s our responsibilities as institutions, to actually do a better job at enforcing discipline so that these guys can actually get a chance to get to this stage, and I think that that’s probably another thing where we’re not doing a great job. There’s a lot of sheepish, “follow me” mentality.

Series A & B Investors Need To Enforce Discipline

Chamath: The problem right now, is that venture is completely undifferentiated. Everybody’s the same. Everybody’s the same. Everybody has a set of services that every other person has. So, when everybody’s theoretically different but the same, nobody has a backbone. There’s fundamentally no authenticity in the marketplace. So as a result, nobody will ask these kinds of questions. Nobody will be disciplined. In a company that’s not working, what they’re not thinking to themselves, is “Wow, maybe if we actually return $2M back, and actually capitalize these three other people with a different idea, or fund that young woman who I kicked out the door because I didn’t understand what she was saying.”

So the discipline is important. Why? Because we have a responsibility to get the best ideas to market. We have the responsibility where we should be taking good capital risk. If at the end of this cycle, whenever this ends, we look at who made all the money, and it’s not Benchmark or Sequoia, or Social Capital or Andreesen, but it’s Pushman & Wakefield, WeWork, and ZeroCater, something’s wrong! Honestly guys, something’s wrong.

So, that’s what I think about.. we have to start.. you don’t have to prognosticate doom and gloom and RIP good times, you don’t need to do that, but you do need to go in and say, let’s just dissect how we’re spending money, and none of this idiotic window-dressing nonsense. And see how they react, because if the people don’t have the courage to make hard decisions, you’re probably wasting your money.

Now, not only are you doing a disservice to yourself and your and your own case, you’re really doing a disservice to all the employees who believe that CEO has the courage and the balls to make it happen, when really what they’re fucking doing is acting. They’re really just a walking failure just waiting for the last shoe to drop. And that’s a disservice to them. So you confront that person, give them a chance to change, and if they can’t change, then you better do something. That’s the hard work of building great companies. Not enough people are willing to do that.