- Decent JCal intros
- SBF Crypto Bailout
- Bails out BlockFI and Voyager
- $200M LOC to Voyager
- $250M to BlockFI
- BTC went up with stimulus money and low interest rates
- People also learnt to run off chain Bitcoin arbitrage
- You put your money in BlockFI, they will give you 10% interest, they put that in Terra, they give them 20% interest, so when Terra dies everyone wants their bitcoin back and so everything crashes
- Lot of systemic risk largely around Bitcoin
- If you have crypto in custodial accounts in off-chain brokers
- 3AC bankrupted
- Zero oversight so systemic risk
- People don’t even understand chain of custody - you might not own the BTC at all
- After crapping on boomers, these people are worse than existing finance industry
- SBF, his brother Gabe and Dustin Moskovitz are spending their money on increasing taxes in CA for Pandemic Preventiveness
- The work will report to these guys, not to UCs or some accountable entity
- These guys live in Bahamas and are funding ballot initiatives in CA, worsening our financial situation
- So he wants to curry favor with politicians to fund his work later
- Teachers association also doesn’t want this - this will definitely drive down state’s tax base - 13.3% is highest tax rate in nation - we had budget surplus because of boom cycle last year and this year it will be worse
- His parents are law professors at Stanford
- He has thoughtful specific strategy about who they need and what they care about and how to influence what they want
- If he wants to curry favor - he will not see the red wave coming in November
- Why do people talk about crypto in USD value - so you want to transact in USD ultimately
- So its a security - with no underlying actual asset to secure - there is no underlying interest - its a secured interest in an entry on a blockchain - each bitcoin is non-fungible
- $1.7T was torched in ETFs alone
- People have escaped with billions of dollars
- Most of it was not on chain - it was off chain
- HFSP and OK Boomer is not funny anymore
- BTC went up because not of USD debasing but more liquidity - Fed created asset bubble
- All this activity built on principles of openness and can’t debase it or devalue it - coz it was violated from the beginning
- The exchanges are the honey pot of all of this activity
- So you can’t buy airbnb shares when its private but you can buy a crappy crypto token
- Zendesk sells for $10.5B in private equity
- Turned down $17B offer earlier
- $1.3B revenue
- Up 30% YoY
- $1.5B in cash and securities
- $223M loss in 2021 so they have 6 years of runway if nothing were to change
- Sacks shared floor at 410 Townsend with Zendesk while he was at Yammer
- They were worth $100M 10 years ago
- SaaS index is at 5.5 times next 12 months revenue
- Medium SaaS is 20%
- Fast growth 40% is trading at 8x revenue
- They wanted to go private?
- No they wanted to go public but law of large numbers catches up with you - how can you keep growing at 25% when you are so big
- Sacks will fund bottom up SaaS - individuals buy it - but that gets hard to scale with bigger businesses
- So now how do they go head to head against Salesforce or Microsoft if you’re doing CRM automation, etc?
- They tried to grow inorganically by buying SurveyMonkey for $4.1B but it was rejected
- What Salesforce did, what WorkDay is doing it now, and now ServiceNow - what these companies are able to do - its incredible - CEOs, teams at these places are incredible
- Warning sign - to all companies - you cannot go into a massive investment cycle without being able to grow really well
- Private Equity companies are not trying to make $10B go to $25B but they only care about their $2B into $3B - its a 50% return, $1B return, which is hard - but they will do it by cutting costs, etc
- People sell good businesses because of management burnout usually - you can conclude this when they sell if company is doing well
- PE guys will restructure business to deliver cash flow - these sw businesses are great to own
- Its a different kind of management challenge
- They are diluting their business because of issuing stock based comp to employees at 2.5% per year
- Google can do this because they have 30-40% EBITDA margins - their situation is not dilutive because they buy back stocks also
- Hard for them to show momentum as they try to upsell into Enterprise accounts
- Standard in SV when company goes IPO is to have evergreen stock plan - so 4% new shares issued every year - so 4% dilution every year - portfolio managers are paying attention to this closely - its a contentious topic - so cash salaries might go up as a result - engineers might get challenged on $400K per year which engineers have gotten used to when they’re good
- Jana was trying to pressure the board to sell the company
- Do you want $100M cash flow every year + 2.5% dilution OR do you want cash burn every year?
- People prefer former - so thats why stock based comp is the normal
- Lot of financial engineering going on right now with these businesses - even more so when PE buyers snap up businesses
- We need exits to justify early stage risk capital
- Comp in stock based comp needs to be more tied to milestones and targets - everyone should rise and fall with the company performance - people are too entitled
- Buyout targets
- Peloton?
- Buzzfeed?
- Some of these companies are going to run out of cash soon and will be snapped up
- There has been a regime change in the public markets - its not just about revenue, its also about margins and cash growth
- Founders were not taking medicine by reducing their burn
- Investors want growth with low burn - high burn operations are going to be punished
- Why would you give up your equity today?
- Jerome Powell said he will tank the economy to beat inflation
- 8-9% inflation prints for next 3-4 months minimum
- Equities - long term they are weighing machine, short term they are voting machine
- Try to buy high quality businesses now - hold for long term
- Rate expectations are going up fueled by inflation - wall street
- Economic slowdown is happening - main street
- Consumer confidence is part of this
- Russian/Ukraine war effect on markets and economy
- US officials are OK with war and famine to protect Donbass
- Russia tried to go for knockout punch to begin, didn’t do it - but now have strengthened in eastern Ukraine with separatists
- Hard to see how to get out of bear markets without clarity on interest rates, recession and war situation
- Could have $180 barrel oil by winter and inflation and recession can get worse
- Need to put war to bed - consequences are too bad for us
- Russia’s demands
- Ukraine out of NATO
- Ukraine separatists’ demands to be met
- Russia keeps Crimea
- These above demands are where we will end up but because of war Ukraine will get destroyed - this plan could have been agreed through negotiation
- US has started QE tightening - ECB, Japan have not stopped yet
- Russia has been saying since 2008 that pt #1 is a red line - even non-Putin russian executives have been against Ukraine NATO induction
- Even US wasn’t OK with Cuba to join any military alliance - how will we be OK with them having other nukes there?
- US has also warned China against expanding into Solomon Islands
- This doctrine that Ukraine is free to join NATO is against US doctrine that Solomon Islands and Cuba can’t be
- EU’s GDP is 10x Russia
- What are you willing to do to end the war?
- The deal that would end this war is the same deal that was on the table last year - does the whole country have to be destroyed in the process and the world has to go through a famine and recession?
- Chinese deputy foreign minister got demoted - seems like maybe its because he is very pro-russia and Xi Jinping is not
- AlphaFold
- Recent paper made 3D pore model of cell
- Theory is that diseases happen because of dysfunction in transfer of molecules into and out of nucleus of cells
- Nuclear pore complex is like a fence around the nucleus - there might be openings and “closings” - things open and close
- How DNA can be over-expressed and under-expressed which might cause underlying diseases
- So now AlphaFold is helping us do real cool research!
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