Chapter 1: What is the significance of the upcoming IPO race?
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Today's number 49. That's the percentage of billboards in the Bay Area that are advertising AI. Ed, true story. I went into my doctor's office with a shoulder problem. And he said, well, I need you to pee in a cup. And then we have our AI look at it. And the AI looked at it and said, your labrum's damaged. You need to take this medicine.
And then when you come back, you're going to pee in another cup. And the AI is going to tell you how you're doing. So I came back. And he said, you're not taking your meds. The AI is pissed off at you. Take your meds. And I started to get pissed off. So I went home. And I had my wife pee in a cup. And also, and I'm not proud of this, I jerked off into the cup.
And I came back, and they gave it to the AI, and the doctor came back and said, your wife is pregnant, and the father is your friend Brett, and if you don't stop masturbating, your arm's never gonna get better.
Welcome to Prachi Markets Live. It never, ever gets old. It is so good to be here in the global capital of technology, the capital of venture capital as well. And I'm really excited to get into this show. But before we start the show here, Scott, I just want to read you a couple of quotes that I've collected over the years that you have said about the venture capital community.
Because I know there are probably a lot of venture capitalists in the room right now. So I just want to make sure that we're all on the same page, and I just want to hear what you have to say about this. So I found this from a podcast we did a couple of years ago. You said, quote, I've worked with a ton of venture capitalists.
They're not the sort of loving, caring people that are depicted on the website. You later said that there are, quote, very few cohorts less pleasant, more self-absorbed, and more convinced they're changing the world than venture capitalists. And then a few months later, you said that venture capitalists are, quote, generally speaking, awful people.
And then you later clarified in the same episode that actually they are, quote, the absolute worst fucking people in the world. So, Scott. Just before we start, I just want to ask you, what do you mean by these statements? What do you mean venture capitalists are the worst people in the world?
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Chapter 2: How do current valuations compare to historical trends?
If you meet a guy in a blazer and he brightens up a room by leaving it, chances are he's a venture capitalist. They're already leaving out the doors.
I see them now. This is 70% VCs.
So just another thing about the Bay Area, and I love so many things, but there's a few things I don't love about the Bay Area. One, venture capitalists. But two, and this isn't in the script, I am so done with this optimization bullshit of men my age trying to optimize for their health. This is how you optimize, bitches. What? And I'm being very serious here.
So the fastest zero to a billion dollar companies in history, I think everything in life reverse engineers to essentially biology and astrology, which is manifested in business. So I think there's a lot of life lessons in business. Fastest zero to billion dollar retailer in history was Old Navy. And it's got a very powerful axiom. It's 80% of the gap. but for 50% of the price.
The fastest zero to billion dollar revenue airline, Southwest, 80% of the market leaders for 50% of the price. And I think, and I'm being serious now, that these guys who are trying, it's mostly guys, trying to optimize to 97% with all these cold plunges and red light bullshit and measuring their sleep, which would just stress me out so I couldn't sleep. This is, trust me on this.
I'm looking for all the people who do that in this audience.
I think it's most of them.
This is the axiom. Optimize to 80%. And I'm serious. And that is, all right, we all know you're supposed to be healthy. You're supposed to eat well. Manage your sleep. Be fit. But manage to 80%. And the other 20%, fucking enjoy your life. Have dessert. Drink a little bit. Approach strangers and make an ass of yourself. Hang up the condom you never used. Just like have the right, go to 80.
Anything above that, trust me on this, it's not about lifespan. It's not about health span. It's about fun span. 80%, Old Navy or life. I'm sorry, back to the original program.
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Chapter 3: Why might humans be cheaper than AI in some contexts?
But before we do that, we have this QR code that was supposed to be, there it is. So if you want to ask a question at the end of the show, you can scan that QR code, write out your question, then we will try to get to as many as possible at the end of the show. But without further ado, let's start with our first story.
So it has been a sleepy few years for the IPO market, but it is about to come roaring back. SpaceX, OpenAI, and Anthropic are all set to go public this year at a combined valuation of roughly $4 trillion. Just for context, that is more than every dot-com IPO put together, inflation adjusted, and also equal to half of the combined value of every IPO in the 50 years before it.
So the last time that we saw an IPO frenzy this dramatic was in 1999, which made a lot of Silicon Valley investors a lot richer right before it made them actually a lot poorer. IPO mania was in many ways the beginning of the end. The NASDAQ began its collapse in March of 2000, and it eventually lost 78% of its value in two years. So we sit here tonight in San Francisco on the eve of
of the next IPO mania. And the question that I will pose to you, Scott, is will it look like 1999?
There's some similarities, but there's also some pretty stark differences, right? So there was a confusion around how this is all gonna manifest or play out. So there's a digression to investing in the technology and infrastructure layer. We did it with Global Crossing and Cisco, which lost 90% of its value. There was momentum, euphoria, a certain techno-narcissism.
Back then, it was the internet's going to change everything. Now it's AI is going to replace everyone. But there was a certain belief that this region and these companies were going to be the operating system for the world moving forward. There's some pretty stark differences, though, and that is
While you had about 60% of GDP growth was from infrastructure spending back then, or growth or investment in internet companies, it's now up about 90% of GDP growth is from the infrastructure build-out. So it's even scarier.
And typically, whenever you get over 3% of GDP is being invested in any infrastructure, railroads, electricity, electrification, the highways, again, telco in the 90s, within 24 months, there's a crash. But where it's different is I don't think there'll be a crash this time. I think there'll be a pretty vicious re-correction or price recalibration.
But where things are different is the following. The companies now are cash juggernauts. They're incredibly profitable. Whereas in 99, it was just, I don't know if any of you remember this, the globe went up eightfold on its IPO, pets.com, I mean, Lycos. There was just all of these ridiculous companies. And- Red envelope.
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Chapter 4: What are the implications of AI costs for companies?
eBay was considered a really powerful company. It was making money selling shit to people in Ohio. And probably the most important tech media company, maybe even the most important media company in the world at that time, was a company called Yahoo. which bought a company called Broadcast.com from Mark Cuban for $5.4 billion. So I love Mark. I think he's very smart.
He's also one of the luckiest people ever. And then you had just a ton of companies that got swept off the planet. So it feels as if this time it's similar, but different. But what is the same is a group of young men who are socially awkward, who are self-absorbed and think they're gonna change the world and have a totally inflated sense of self.
So I think that there's a certain kind of narcissism that infects this type of movement. Whereas back then it was gonna change everything, now the kind of narrative is that AI is so impressive and powerful that it's gonna replace all of us. And in 99, To their credit, they got it right around the internet. They just got the arc or the time span wrong. And I think the same thing is true here.
I think AI will in fact replace a lot of costs and increase productivity. But again, I think we got the time or the arc. I don't think it's gonna happen as quickly as everybody thinks. But more importantly, back to me. In 99, this guy named Frank Quattrone from Credit Suisse First Boston was gonna take the company I'd started public. red envelope.
And I remember a bunch of internet CEOs, we were flown to an airfield to look at Bombardier jets because they said they would take stock in a private company exchange for jet. And it was a bunch of 30-something-year-olds, speaking of self-absorbed people who couldn't get dates to the prom. We were all out looking at these jets and picking out our jets.
And even then, I had enough mindfulness to know this is not right. This doesn't feel right. And within three or four months, we were no longer looking at jets. And I remember I was in a board meeting, my company, Red Envelope, and I accused the chairman of our company, and it's been a long time, so I don't hold any grudges, Mike Moritz. And
And I said to Mike, you're using Red Envelope as a dumping ground for the failed products of your portfolio companies. And on the way to the airport, they called me and said, we're kicking you off the board. And so I got kicked out of the band I'd started. And I remember being at SFO and I had this flashback tonight and getting out of the car we used to rent cars back then.
And I remember just being frozen. Like I had never in my life, I was 34 at the time, I'd never in my life like had that kind of professional punch in the face. And I remember getting out of the car and like just being paralyzed for a good five or seven minutes. Like I literally, I just didn't know what to do. I just didn't, do I call a lawyer? Like, what do I do?
I remember just sitting outside of my car and finally the lady who gives you checks in the cars came out and said, sir, are you all right? And then just to be serious for a second, for those of you who, I don't know how many of you are here living in the 90s, but it wasn't the internet that was the most dramatic thing.
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Chapter 5: How do venture capitalists influence market valuations?
At least for me, it wasn't in terms of what I think of as being the thing I remember most about San Francisco in the 90s that really is like stuck with me. Does anyone want to guess what it is? It's not, this is not light at all. AIDS. It was, if you're under the age of 45, you probably think of COVID as being hopefully what will be the most dramatic health scare.
You were literally walking around this neighborhood. And there were these beautiful young men everywhere, dying. I mean, it was catastrophic. And fortunately, the warm hand of science pulled us out of that. But if you lived here in the 90s, I mean, it really was a plague. And it was like the best and the worst of American science in terms of how we responded to it.
But that's how I think of San Francisco. That's like what I remember most. Get me out of this, Ed.
I have all of these numbers and all of these notes, and now I'm not sure what to talk about. I still hate Mike Moritz. Well, I am going to talk about numbers. Yeah, go ahead. Go for it. Because that's what we're here to talk about. So when we think about what are some of the differences to today, I think that you make a lot of good points.
One thing that we should point out, though, is that we have these three companies that that are literally combined, they're gonna be worth $4 trillion. I mentioned some of those stats. It's gonna be 6% of the global public equity markets is these three companies. And you talk about profitability, which for the longest time,
I wasn't so worried about myself either because I looked at these companies like Google, like Meta, like Amazon, which are these cash juggernauts. They're spending unbelievable amounts of money building these data centers, setting up AI. And everyone was saying the AI bubble is going to happen because they're spending so much money. We haven't seen the ROI and we'll get to that in a moment.
But I think something that you and I were saying was, well, they have the cash to do it. And they've been saving up this cash for years. And now is their moment. And here they are, they're doing it. However, let's look at these three companies that are going public.
Let's look at SpaceX, which is going to go public supposedly at a $2 trillion valuation, which is going to be a more than 100 times price to sales multiple. The most expensive stock in the S&P today is Palantir, which is way out over its skis, and it's trading at 64 times sales. This is trading at 107 times sales if it goes public at $2 trillion. Its losses grew 700% last quarter.
It's on track to lose $20 billion this year. So I look at that, I say, okay, well, that's not really a great business. By the way, its revenue grew 15% last quarter. And some would say, okay, that's fine. Actually, if you're an AI company, which they claim they are, that's not fine. That's six times lower than NVIDIA's growth rate.
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Chapter 6: What are the potential geopolitical ramifications of AI advancements?
And also, it's half the growth rate of this podcast. So we're growing faster than SpaceX. Just get out there. So the idea that you're going to have this company and then you're going to have OpenAI, which is expected to burn $25 billion this year.
These are all, again, we don't know these financials because they say this to reporters, and then we hear people who are familiar with the matter who tell us, this is what the financials look like. All I can tell you is whatever's going on at OpenAI, it probably ain't that good.
And we also know that because we saw this article from Ronan Farrow who came on the podcast and told us that Sam Altman is, quote, unconstrained by the truth. That was according to a board member. So I'm a little worried about that too. And then you've got Anthropic, which supposedly is about to hit operating profits this quarter.
So maybe that's a little bit safer, but still it's losing a lot of money and supposedly paying billions of dollars to SpaceX. Okay, those companies are now going to be a part of the market. And not only that, the NASDAQ is changing its rules. It used to be that you had to wait 12 months after you go public to join the NASDAQ to one of the most popular passive index funds in the world.
They've changed the rules. They said, you only have to be public for 15 days if you are a mega cap company, if you are, i.e., SpaceX, OpenAI, or Anthropic. They have literally changed what it means to be part of the market for these three companies, none of which are profitable. That part makes me a little bit more worried.
And I wonder if that feels more similar to 99, when you saw a lot of these companies that were losing billions of dollars. These ones are going to be worth 6% of the global stock market.
Yeah, well, oftentimes the technology survives evaluations.
And I would say, I mean, if you look at, for example, SpaceX, three companies, a rocket company, a satellite company, and an AI company that's playing catch-up, if you price each of those three companies at a similar ratio at the high end of the market leaders in those respective categories, you get to about a $700 to $800 billion market valuation.
There's an Elon effect, absolutely, so we even double it to $1.6 trillion.
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Chapter 7: How can professionals navigate job security in an AI-driven market?
There does appear to be a lot of smart people saying we're going to get dramatic efficiencies, and we've all probably seen hints of that, right? We're not sending stuff to our lawyers often, customer service, et cetera. But if you think in America, there's 155 million people who actually work.
assume half of them are AI vulnerable, that's 75 million, say $100,000 per employee, $5 trillion, that means you would need somewhere around five to seven million layoffs across the 85 million that are in fact AI vulnerable. So you would have in certain in those industries about a 10% labor destruction in the next two to three years. that would be chaos in labor markets.
So one of two things is going to happen. Either the valuations of AI are going to come down by 50 or 70%, or we're going to have labor chaos in these industries. And I think it's going to be the former. I think that you're not going to see nearly the job apocalypse. This way I would describe it as apocalypse no.
And that is just as you were trying to raise money back in the 90s on changing the world, Now they're basically catastrophizing and fear is the product and capital is the outcome. And unfortunately for them, I don't think the job apocalypse is gonna come as quickly as they're predicting.
And so if it's either gonna be labor chaos or valuations coming down by 50, 60, 70%, I absolutely think it's the latter. In addition, if you just look at the biggest companies now that we're all so intoxicated with, whether it's Meta or Alphabet, just in the last five or seven years, all of them have gone peak to trough down 40, 50. Meta was down 72% in 2022.
So it just wouldn't be unusual for these companies to have that kind of drawdown. In addition, I think this is effectively the end of the IPO markets as we know it. Because the way I look at it is the IPO market is now the last stop on the chump train.
And that is, what they're saying is there's no reason to go public because if the VCs still thought there was juice to squeeze, you used to have to go public to raise the 10 or $15 billion you needed. Now these private VCs, if they still see upside, they can find the capital.
So effectively, when these companies go public, it's effectively the smartest people in the room who know the company the best are saying, We've squeezed as much juice out of this as we can. We got to find people stupider than us to invest at this valuation. I think retail investors are going to figure this out in a painful way over the next two years. Tokenization of private companies.
I think this effectively might be the end of the traditional IPO market as we know it.
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Chapter 8: What advice is given for young people entering the workforce today?
And there's always gonna be pressure from the VCs and your managers. Aren't you in it to win it? Yeah, fuck you, I need a house, bitch. Sell everything. Sell. And I hope I'm wrong. Come back to me and tell me you only made $11 million on your shares as a junior product manager, and now they're worth 15. But there's going to be some really interesting second-order effects.
11,000 people of these three companies go public at their valuations. It's going to mint 11,000 new millionaires just in the Bay Area, 60% of whom are under the age of 40. Last month, you saw rents on a one-bedroom in San Francisco increase 24%. Pending sales of luxury homes in the U.S. were up 4% last quarter. They're up 48% in the Bay Area. It's not all bad.
You're also gonna see philanthropy absolutely surge in the next three to six months with these people, especially the bigger shareholders who will start their own foundations and things like that. You're also gonna see, I think, a baby boomlet in the Bay Area, because what people generally do is they move houses and they think, okay, let's start having kids.
But there's going to be, I mean, the second order effects of this type of wealth are going to be dramatic.
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Hi, I'm Maria Sharapova, host of The Pretty Tough Podcast. Each episode, I sit down with high-achieving women to discuss the pursuit of excellence without apology. This week on the show, clinical psychologist and founder Dr. Becky Kennedy and I unpack what it really means to raise kids today.
I think parenting is the most important job in the world and the one that has the most impact on your world and the world. It is... non-stop check out pretty tough new episodes on wednesdays you can watch it on youtube or listen in your favorite podcast app
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