All In Podcast Episode 91 Notes August 12 2022

 August 12 2022

• Chamath at Island of Sardinia, JCal at Lake Tahoe

• Softbank

  • $59B gain over 2 vision funds, $21B loss

  • Tokugawa Ieyasu

    • 1st Shogun of Tokugawa Shogunate
    • $6T yen loss in past 6 months - needs to remind himself

  • Embarrassed and remorseful

    
    
    
    
    
    

    
    

  • Amount of capital being put in dropping a lot

  • Made $125B off of Alibaba by putting in $25-$30M

  • Saudi Arabia and Abu Dhabi have been smart about their investment in SoftBank

    
    
    

    
    

  • There was downside protection built in for the LPs

  • He has an amazing track record over 50 years - he will land on his feet - he admits he made his mistake

  • Sure they should have cashed their chips earlier but its OK - he will learn

  • 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

  • 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

  • He put oversized checks in, with too much money to deploy, their fundamental profitability and unit economics was ruined

  • This strategy could help - Blitzscaling with Reid Hoffman, Peter Thiel with monopoly - if asset cannot handle the capital

  • The rate at which you can deploy capital does not flex - cannot flex beyond natural condition of business

  • Kingmaker strategy didn’t go down well - shows VCs can be helpful but they can’t make winning companies become the winner

  • 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

  • They wrote multi-$100M checks into companies at seed stage

  • $500M seed checks into robotics companies

  • The VC does not have the thesis, the Founder has the thesis

  • Craft Ventures does growth investing milestone based

  • SoftBank is good at doing SaaS deals, they are easy to work with - they should do more deals like that

  • 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

  • $10B in 5 years is $2B/year - so putting in too much

  • Blackstone, Silverlake came in after Softbank and started 15 year life or so

  • The quality of the diligence was zero basically - so they had to have a broad and large and diffuse investing team

  • Investing is not a team sport - its like Basketball, you’re Steph Curry or you’re not

  • Benchmark, etc are following that strategy - coz there are amazing investment people

  • Hard to pare down a position when company is private because companies don’t want you to

  • Seems like SoftBank had a lot of public positions and debt and they could have paid it off

  • Hindsight is 20/20

  • 1999 and 2021 bubbles are very powerful psychological

  • When conversations are about valuations vs quality of earnings, you’re more likely in a bubble

  • 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

  • Interesting comparison between Softbank and Sequoia and Insight

    
    
    

    
    

• 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

    • Household debt rising to $16T - variable rates is bad

    • Consumer debt rise could outpace Asset valuation growth

    • This means we could have a bad crunch

      
      
      

      
      

    • 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

    • 2 sides of equation are:

      • How does increasing rates reduce inflation
      • How does increasing rates affect recession

• 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