Imran Khan
speaker
171 appearances
1 recordings
1 series
first heard Aug 2024
last heard Aug 2024
Imran Khan’s voice in public audio — every appearance, attributed to the second.
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Appearances
Number one, all these institutions who gave money to privates, they are not getting their DPI. So they will be much slower allocating more capital to private. And some of the privates... Story has not been told yet, right? So I think those are bad investment. People didn't write it down to zero or near zero, and that will happen over time.
And then people will realize that it's not only a DPI issue, it's also permanent loss of capital. I don't think people are realizing that they have permanent loss of capital in many of their private investment, and that will happen. And third is that we lived in a historically low interest rate environment.
So the private was great, but as the interest rate goes up, you can get better return or decent return in public securities or fixed income and things like that. I actually think even with interest rate going down, we're not going back to 0% interest rate environment. anytime soon. And then the fourth issue is that technology, and I think this is a really important problem.
A lot of people forgot about that. And I think people have to realize that as an investor perspective, and we can talk a lot more why from a founder's and employee perspective, it's also important for companies to go public, but why it's really bad from an investor perspective to encourage companies to stay private very long, is this technology landscape shift every 15 years.
So if you look at late 70s, early 80s, it was a microcomputer. Mid 60s was mainframe computer. If you go back in, go after in mid 90s was it's all about internet. 15 years later, it was all about mobile app. Now we're talking about AI. You might invest in a business based on a thesis, but 15 years later, that thesis is completely changed based on the world around you.
The key thing with the public market is public market gives you daily feedback. It's like, you know, having a child. I know I have a 10 years old and 14 years old. When they live in your home and mom and dad shelter them, it's great. But when you go to college and you go to real life, you are not that special. You're like another boy or another girl, and you got to fight it out in the world.
And when you go to a public market,
you know you are not sheltered by three or four venture capitalists you are in a public market everyday investors saying either you are doing great or you are doing bad and that force you to make right decisions and if you're a great ceo you are seeing what's changing around you it gives you currency to make acquisitions it helps you to pivot your business in a public market and i think some of the
Greatest success stories in public market is these guys that pivoted. I always tell people, people always say that, oh, I cannot do great things in private market. And I look at it, okay, let's look at some of the best thing happened in last 25 years. And that was done by the public market companies. AWS was created by a public market company, the entire cloud business.
The three biggest cloud providers were public company when they started it. If you look at iPhone, that fundamentally changed that, was created by a public company. If you're talking about AI, GPU, it was created by a public company. So everybody says that, oh, I need to be a private company to do great thing. I call it a complete BS.
Amazing business. So great founders bring great team and great team can execute. Stock goes up, stock goes down, they execute.
But the thing is that I think if you talk to all the CEOs that I know who are public market CEOs and historically private market CEOs, if they come to your show, they will say they became a better company for being a public company because public market investors think about the business Because there's so many players.
When there's so many players care about your business, they are looking at your business in so many different ways. They're telling you things that you're not going to see.
No, revenue multiple is a BS multiple, right? Like, why would somebody give a shit about revenue multiple? Why do we spend so much time on it then? And why is it a BS multiple? So when I look at a business, so let's say a business does $100 revenue and they're losing money. If I look at the business and say that, okay, they have a sustainable growth path of, let's say, 25%.
So over a decade, that $100 will become $1,000. Because if you grow 25% in a decade, it's 10x return. And we think that the incremental margins are 50, 60% of that business. So that business in a decade will do $500 million profit. Then I know that market trades at 17 times earnings. Let's say this business trades 17 times earnings or 20 times earnings.
So then that business is worth, you know, 500 times 20 is $10,000. So now I have to look at it. What is my required rate of return to invest in that business? And I'm willing to underwrite a revenue multiple based on that. And that's why we look at revenue multiple. But the challenge is very few businesses.
And this is why I think one of the most important thing to look at it, what is the gross margins of that businesses? Because if a business has 20% gross margins, you know, giving them revenue multiple is a crazy thing to do. You can, but it has to be very, very low revenue multiple because when you start with 20% gross margins, ultimately gross margins is very hard to control. It is what it is.
You know, maybe you can get 100 basis point, 200 basis point improvement in a cost, but the people cost is very easy to manage. So when a business that starts with a low gross margins, it's really hard to give high multiple on a business. When I was an IPO analyst at Google, I had a buy rating on the stock. Google had a very high incremental margins.
so you can look at the business so what we didn't know at that time how big that search business could be and can them maintain the search market share like i was thrown out of it's a true story uh google went public and i had a buy rating and i went to blackrock new jersey office and they These investors were a big Yahoo shareholders and I was catching Google and they got really mad at me.
They said, you don't know anything because people will come to Yahoo for content and they will end up searching. Why do I need to go to a webpage that doesn't have any other content only for search? They're going to lose search market share and look at the capex they're doing. They're spending like a drunken sailor. Why would you?
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