August 12 2022
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Chamath at Island of Sardinia, JCal at Lake Tahoe
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Softbank
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$59B gain over 2 vision funds, $21B loss
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Tokugawa Ieyasu
- 1st Shogun of Tokugawa Shogunate
- $6T yen loss in past 6 months - needs to remind himself
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Embarrassed and remorseful
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Amount of capital being put in dropping a lot
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Made $125B off of Alibaba by putting in $25-$30M
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Saudi Arabia and Abu Dhabi have been smart about their investment in SoftBank
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There was downside protection built in for the LPs
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He has an amazing track record over 50 years - he will land on his feet - he admits he made his mistake
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Sure they should have cashed their chips earlier but its OK - he will learn
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Its not clear that only Softbank caused this bubble, even Tiger put in, there were cross over funds - sovereign wealth funds and liquidity ($10T over the last couple of years) - many billions came into tech - and VC is not that scalable and the attempt was made to make it scalable, it didn’t work
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Masa’s model - you ask for $25M, he will give $150M, you ask for $100M, he will give you $400M - problem became that capital became primary asset - that’s a problem, capital should accelerate, not become primary asset
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He put oversized checks in, with too much money to deploy, their fundamental profitability and unit economics was ruined
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This strategy could help - Blitzscaling with Reid Hoffman, Peter Thiel with monopoly - if asset cannot handle the capital
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The rate at which you can deploy capital does not flex - cannot flex beyond natural condition of business
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Kingmaker strategy didn’t go down well - shows VCs can be helpful but they can’t make winning companies become the winner
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Tiger improved on this model - they would be passive, non dilutive rounds, they don’t want to influence you too much - they don’t want to be king maker
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They wrote multi-$100M checks into companies at seed stage
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$500M seed checks into robotics companies
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The VC does not have the thesis, the Founder has the thesis
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Craft Ventures does growth investing milestone based
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SoftBank is good at doing SaaS deals, they are easy to work with - they should do more deals like that
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Their 1 mistake could be - they made it a 10 year fund - so their investment period is only 5 years - can only put money in the first 5 years and next 5 years is new fund
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$10B in 5 years is $2B/year - so putting in too much
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Blackstone, Silverlake came in after Softbank and started 15 year life or so
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The quality of the diligence was zero basically - so they had to have a broad and large and diffuse investing team
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Investing is not a team sport - its like Basketball, you’re Steph Curry or you’re not
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Benchmark, etc are following that strategy - coz there are amazing investment people
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Hard to pare down a position when company is private because companies don’t want you to
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Seems like SoftBank had a lot of public positions and debt and they could have paid it off
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Hindsight is 20/20
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1999 and 2021 bubbles are very powerful psychological
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When conversations are about valuations vs quality of earnings, you’re more likely in a bubble
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Sacks will pay attention to public valuations, to see how they trickle down to private markets
- Also will look at interest rate policies - we are all massively impacted by macro economic policy
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Interesting comparison between Softbank and Sequoia and Insight
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US Macroeconomic Picture
- Overall economic data is mixed - but some good data points
- Inflation 9.1 to 8.5
- Inflation was YoY, now its MoM
- Recession used to mean 2 quarters of -ve growth, now we can’t know until mysterious economics board comes back with decision
- Keep redefining terms instead of admit what the data is
- Jobs picture is good
- Technically in recession
- Wouldn’t be surprised with +ve GDP growth in Q3 and Q4
- But next year rate hikes will drop - construction industry has been hit - home prices are at a 40 year low
- This industry is bellwether for recession
- Significant risk that we are back in recession next year
- Credit card debt is high - rising consumer credit balance in rising rate environment is concerning
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Household debt rising to $16T - variable rates is bad
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Consumer debt rise could outpace Asset valuation growth
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This means we could have a bad crunch
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President is passing an inflation reduction act to cure 0% inflation to cure a recession that doesn’t exist - this is the posture of the administration
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2 sides of equation are:
- How does increasing rates reduce inflation
- How does increasing rates affect recession
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- Overall economic data is mixed - but some good data points
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Trump Mar a Lago FBI raid
- 30 FBI agents, carrying AR-15s, with body armor raid
- Andrew Cuomo and Andrew Yang were intellectually honest when they criticized the raid
- The case for Biden to get elected was to move past Trump and get past partisan warfare
- It seems we’re right back in this thing - the media is obsessed with TDS - they have to produce nuclear documents first
- The last time the FBI did this - they manufactured a warrant to the FISA court
- They were political since their inception - they lied to the press to get Trump (55m)
- An FBI lawyer pled guilty to falsifying documents - so its in their history
- The lack of trust isn’t earned - we don’t know what Trump did or didn’t do - you can’t just accept at face value leaked comments by the FBI
- In their earliest days they engaged in corruption - they defended the KKK
- Trump was elected on platform that there is institutional corruption in the deep state
- When Trump was in office the FBI leaked texts
- FBI has polarized the outcomes - they will send him to Big House or White House
- Biden had historians in the White House - they said conditions in US are just like they were before the Civil War
- Leak seems selective leak
- Whatever the outcome is, it will not be good - both extremes will be further inflamed
- They didn’t let Trump’s lawyers watch them
- This way you won’t be accused of planting stuff
- The inflammatory index is too high
- Trump has been pulled right back into the main stage
- The people inside for 6-7 hours or 9 hours - told Trump’s people to leave, turn their cameras off
- They went through Melania’s stuff
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