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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