Howard Lindzon on What’s Really Going on in the Tech Plunge

this on February seven. Uh, And apparently I missed a massive sell off in tech and then a little bit of a rebound. Is that what happened? Yeah, I think that. I think that's fair to say. I think he was last Monday. I'm started losing track of the days. We've had some really brutal sessions, and we had weakness in I think it was like two Mondays ago or something like that textor just got killed anyway, but we've had

some brutal sessions. Everything that's sort of like growthy, like people like betting on the future Big Time got hammered. Also had some specific names like Netflix really got wrecked after earning his Facebook and a lot of trouble like and a striking fact that I saw from Bank of America is that in January, like so called value stocks had their best outperformance relative to growth since two thousand and one. So we're talking like two decades, a two

decade historical reversal here. Yeah. So the thing I find weird about all of this is this is kind of what everyone predicted would happen. Right, For many, many years, everyone complained about valuation of tex stalks, and once interest rates start going up, you know the air is going to get kicked out of their tires. And that seems to be exactly what's been happening. But part of me

also thinks the explanation can't be that simple. Well, the other thing is like, okay, you can predict it, because it doesn't you know good. You could say like, oh, look at all these overvalued text talks and look at the multiples, etcetera. But meanwhile you're like stuck in value for three years and all your clients have deserted you, and then finally January two comes across. But what good did that do you? And I don't think anyone has some like great way of like timing these things, So

what good did these predictions? Absolutely right? So anyway I'm very interested in what exactly happened, whether this is the end of a sort of era like for years, anything cloud, anything, software as a service, anything, growth just absolutely crushed it.

So hey, I'm curious whether this is the end of that for the time being, or whether it was a blip and be what is happening on the private side, because we know that you know, it's like would you pay as much for a late stage round or or even in early stage round if the I p O window is much worse? And we know that recent I p O s got killed, We got a lot of SPACs that de spac one got killed. And so also what is I mean for private markets in growth and VC,

etcetera when we see such ructions in the public market. Yeah, it might be a situation where you know, an ill liquid asset like a private share turns out being like a better bet in this environment, just because it's harder to get out of whereas you can press a button and sell down you know Google or Facebook, Slash Meta or whatever, but it's harder to get out of a private company. So yeah, I'm curious to see what's going

on with valuations there. I love that and It's totally true, this idea of like the illiquidity premium, because you can't, you can't. The psychology, the psychological impulse to sell doesn't exist. Anyway. I'm very excited about our guest. He is an active investor in public markets and private markets. He's an entrepreneur. We've had them on before, and he knows everything that's going on this world. He's all the all the conversations with all the movers and shakers and can tell us

what's up. We're gonna be speaking with Howard Linson, who is the general partner at Social Leverage. He's the fun or of stock Twits, a crossover investor of public and private market. Always has a finger on the pulse. Howard, thank you for coming back on oud. Luck Hey kids, how are you? We're doing great? So what happened Let's start like what happened over the last month. What happened in January? In your view, what happened in January is

obviously prices went down. But what like what Tracy was saying, this is the most other than two designated the most predicted hold back in history, right, I mean, if we really look, it's easy in hindsight and I play an incredible corp dead person on Twitter. Three. I do free corporate deav work for every tech company. I think there's a couple of private market let's call him big Bang.

And in the first one was obviously that we work soft Pink Big Bang And you know, you know, it's kind of like the in Ron thing, like when you work in soft Bank. When that imploded, right, I think a lot of us, including myself, if I'm gonna made one prediction, it would have been, Okay, that is the that's the end. People will will take stock. You know. It's kind of like a warning like our end run, you know what I mean. It was like no one's really watching. It is a great idea, and I still

pick it up what went on. You know, we know soft Bank has been slopping in the past, and so if you had asked me, if you had told me there'd be twenty soft Banks as a result of soft Bank we work, that's just not wouldn't have been on my Bingo card. And so you've got from Andresen to Tiger to co to two D one to soft Bank.

Everybody now is in a race to index the private markets, not at the seed level, but you know, if you can take two and twenty and hoard all the money at the late stage market, I mean that's a pretty good market to corral versus Vanguard charge and quarter basis point right. So you know the macro environment of money printing, the the tech mantra, Look, if you're not in tech,

you're stupid. Combined with then COVID, which like just push forward this digital everything's digital, Like oh my god, like we you know, you're in an accident, you touch yourself. I've been in bike accidents. You touch your stuff. I can't believe I lived. And I think that's the way we were in May and June and July of everybody called their companies. You know, I was calling all our companies and we were like going remote. People were laying up of their staff no matter what in the in

the because because you were allowed to. And things started going upward to the right if you were a digital first business, from healthcare to to finance. Obviously with the Robin Hoods and crypto and so everybody just as we do, started projecting things in this new ramp. You know, here we are November of last year, right, start creeping up and valuations now are coming down. The difference this time is a supply and I've been writing about the supply

for the last year. You covered it with SPACs, you know, and we covered it with I p o s and direct listings. You have all this supply coming at a time where no where you're going to dump it. And we've seen what's happened in the public markets with anything

new there's just no bid. And so if you're a public company that is not index in February of there's no bid because there's too much supply coming into time when all the all the crossover funds went left into private markets the public markets, if you're not index, just there's no natural buyers, it seems right now, especially in a rising interest rate environments, you kind of had a perfect storm. You can't look at one thing you have, but this perfect storm that led to the last four months.

We hear that term perfect storm quite a lot on the show, I feel like recently. But if I could ask a really basic question, because I think it's one of those things we all assume but we don't necessarily think that much about the mechanics of it. But can you walk us through why exactly are rising interest rates bad for text stocks, and you know, particularly text stalks at very very high valuations. You can probably blame it

on Excel. I mean, if everybody was still it would take a few months for people to update their spreadsheets. You know, there's no textbooks for crypto. There's a textbook for for stocks, and then the stock textbook world. You plug in a higher interest right, and you pulled back cash flows and their lower and that's basically it. I mean, we can argue about everything else, but there's a textbook, Joe. Does that make sense to you? Trace? I don't know

another reason, Tracy, what's your answering? I mean, I guess like cash flows, opportunity cost maybe. I just think it's we have a system of analysts. Obviously spreadsheets. It's easy to update spreadsheets, send them around. People look at the numbers and go slap, and they slap you know, a discount on it, and then look at the sector and go, you know, we're taking this from sixty times sales to

thirty times sales. That's really and it's just one person tips and then slowly tips and it's the way markets work. I mean, this is a complete evaluation adjustment. I don't like. I just don't see the software stocks not growing. They're just not much has changed other than just how people are feeling about the future. And in the public markets, this happens really quick. I used to think it would

happen much quicker in the private markets. The private markets are very crowded, and I can sit on my hands as a scene investor. Now we have a large sheet funds and we've been doing this a long time. But if I sit on my hands, the best companies are still going to get funded. They'll get funded at higher evaluations and the and the returns won't be as good along the line for all the people writing those checks.

But you know, that is what's created this private market that seems to be ignoring for now what's happening in the public markets. Used to be Sequoia would write a letter or somebody would write a letter saying, after the stock market movement, say winter rest in peace. Private markets here we are in two thousand two. No one's writing that letter, but the letters being written by the public market. You know, I want to go back to how you characterize the and recent Horwitz is the code twos and

the soft banks. I thought that and the Tiger globals. I thought that that was really fascinating. This character is ation is essentially like, how can we become the index

fund so to speak, of private markets? And if you can capture that late stage market at at enough breadth, you can more or less kind of have a public portfolio, but with much better fees than anyone can for an actual public Talk a little bit more about that, because I don't know, like I don't think I like appreciated the degree to which that is what they've been aiming to accomplish. But that feels like very interesting. Talk a little bit more about like what you see as their

real goal here. I mean these are opinions, strongly strong opinions loosely how but you can see it happening, right, Like it goes back to we work, like the fact that they didn't die and the tigers looked at themselves like those idiots can do this. We can do this, and we can do it with like a better research. You know, soft Bank was made fun of at the time for like going you know, it was a mess, and everybody I called I wrote about it because everybody

had soft Bank in their in their funds. Right, we were in a company called Wag. We write the first child dog walking app, which is now doing this back. But we invest in the company at a four million valuation, which is what seed investors supposed to do in like two fifteen. Right. It's a hard idea of the uber of dog walker. You know everything the way it works at this age level. But that made sense. You take risk. You know you've got Google Maps, you've got all the

app developers. You can build a dog walking app, no problem. But then shot Bank comes in like a year later and goes, we'll give you three hundred million at whatever valuation, and if you don't take it, won't give it to Rover down the street. Right, and that and people already forget that, But that was going on. Soft Bank was just trying to take the market. It was genius, evil

and flawed, Right, depends if your moss. It's not flawed at all because you know the end game, but it's it's flawed for guys like us or people of gus at the seed stage, who now are locked into a cap table that's got a buying areau comes. So if a young company takes three million very early on in their valuation, the steed investors only outcome if they're not allowed to sell it, and we weren't at that price because that's what they do, They lock up the cap table.

Is I p O or zero? And so for seed investors, I hated it. I wrote about it. I hated the whole idea that we were being held hostage, right, and I wrote stuff like there should be a softbag clause and we see uh deals that says the SoftBank comes under your cap table later we get to sell right, Like this stuff wasn't doesn't get talked about because the press doesn't want to cover it. But those are the things that we're blogging about and talking about, like what

did they do to our cap table? Where we were going along nicely building a business. SoftBank comes in and slaps three hundred million with like an ultimatum that if you don't take it, it it goes to the competitor, and now I'm locked in to this company forever or ride it back down to zero. And so it's very rare that a company like WAG can then go clean it

up like they bought out soft Bank. They fired a bunch of management after they pissed through a lot of the money So if you had told me that there'll be twenty of these now invading cap tables, this is what I warned about or other people like Fred I'm sure talked about quietly, but just weren't writing about it because you don't want to piss off the late stage investors, right and you don't want your entrepreneurs to hate you because you're telling the truth. But there was no real

risk to SoftBank and doing this. So if soft Bank, so everybody copying the same playbook, and what's the real risk to Tiger um if they're wrong on ten of these that they put a hundred or two hundred million in two not really much risk. Here's why. If I'm Tiger and a company goes sideways for a few years and then needs capital later, they're going to rewrite the

cap tables, So who loses the early investors? So I think, and not enough speed investors have really thought through the mechanics of what could happen even if you take this late stage money from a code to do you one soft Bank of what could happen in five years even though your company is doing well when they need more money. So that's why I've been sitting on my hands just trying to figure out which founders really can appreciate that.

And so there's gonna be a lot of great companies that take money from these index late stage bcs that that that they're good business. It's not, but they're not good enough. And maybe the public market isn't ready for these not good enough businesses, as we're seeing from All Birds to nerd Wallet. Are they really meant to be public so young? And so you have this perfect strom of a lot of supply high valuations and the private

markets are liquid, but only at certain levels. Can you talk to us a little bit about how the dynamic that you just described actually impacts valuations of private companies because I imagine, I mean, you have the big players out there, like a soft bank, basically a big whale. They come in make a big injection at a large valuation, and that squeezes prices higher, and I guess they're able

to book higher prices as well. But maybe just walk us through like the details of that process and what does it take to actually get a knock back on private valuations when you have these big players squeezing things higher. Yeah, it's good, and it's the ultimate question that I have to think about because when we write a seed check.

When I was a kid, seed stage was one of three, you know, and Joe knows this because we were seed investors and Alley Insider and and and Henry Blodgett at the time got a good valuation which was like a six million pre money at the time. That was like double what was normal. But that was a great entrepreneur

was like, you know, the world was different. So the biggest the biggest thing I can think of, and this is just from my own eyes and ears, Tracy and and Joe's in two thousand seven running around the text stars and why Combinator, and there were a hundred seed funds, you know, from Jeff clad Fred Wilson, Rob Ehremberg, Patrickoff.

There was like you knew the seed investor right, and there were a thousand companies a year, let's say, and you flash forward too, there's a thousand seed funds out raising capital right now and a hundred thousand companies a year.

So really, you know, the tech booms just you know, the cloud and software, you know, the in the deflation and starting a company has created this this market where you have and then you have COVID, which distributes all the talent around the world in different weird ways that will be feeling forever. And so you have and then you have sub stack, which create everybody thinks they can

be a venture capitalist. And then you have market and greesm Uh and all these smart people that have been in the industry for so long working the system, and you have this incredible change in the market where the seed investors are the new startups right, And and we've what we've done, and I can only tell you what we've done. I can't tell you factually what's going on.

The data is in my in our eyes and years of social leverage what we've done and said we were good seat investors, and maybe maybe we weren't so good. It was just there wasn't a lot of supply. The network, though big was contained. You read Fred Wilson's blogger, you read tech Meme and you read tech Crunch, and you were in the know and everything with Silicon Valley or New York or maybe Berlin, uh and Beijing was still working back then, so you could you could structure your

business in that way. Along comes covid and all this money and now and some stack and Twitter and TikTok, and everybody wants to be a venture capitals. You know, there's thousands of employees that have there's thousands of employees that have left Uber, Pinterest, Snap, Twitter, Postmates, you know like door Dash, that have experience, that have five million in the bank. They don't want to go work for

another startup because of COVID. They set up a sub steck, they use the network, they go raise three to four million dollars, they set up an angel list syndicate, and they're in business as a fund manager and no one's they've had no mentoring, they've had no idea what cap tables look like, or they know what cap tables look like from their from their very narrow experience of Uber

or wherever they were at. And they think there's infinite growth, and they write checks that make no sense because you're you know, seaed investors are holding for for ten years. Robin Hood did great and it was eight years to get public. So so I don't and so an interest rates just take up a little bit. In the old world, when they were only a hundred of US seed investors, we could call each other and go uh, not collued, but just say these prices are silly, and now who

are you gonna call? Everybody's right and checks from every corner of the earth at every angle, whether you've left Plaid or all these fintech companies now Square and PayPal, there's just thousands of people that think they can write check. And by the way, maybe they should. I'm just saying, so the end has not been written here. It's just we have this new private market that's not digesting the

public market information. There's a lot of young people in the private markets that have never traded a stock, and so they don't even care what the multiples are in the public markets. They're not thinking about that because they've never had to connect the dots. I find it's totally fair. There are already so many like interesting dynamics that you've

teased out for us. So obviously there is the incredible like supply boom on public markets last year with all the I p O S inspects, including yours, which I wanna get to and find out what's going on there. There's the dominance of the late stage funds that are essentially trying to create index funds more or less for private markets. And then as you've just described this explosion of people who are ready to write seed checks and

you just see them on Twitter. I feel like everyone I follow in the last year and a half became an angel investor. I was like, I didn't even know. We were disappointed an odd lots stuffesn't have a seed fund that I already would have written the check one day, one day, one day. So I want to like, there's so many different angles here that I want to explore.

But one thing I'm very curious about it is like when COVID hit in March and then very soon there after stocks started going up into the right, but people were talking about like these so called like COVID winners,

like these things. Okay, the world is going to change and there are some winners, and like Zoom Video, for example, was a COVID winner and its stock went to the moon, and we're like all gonna be working from all around the world and people are going to use zoom and it's gonna except the Zoom video is now like it's gave up, given up all of it. Right, It's not just like giving up a bunch, it's given up all of it. And for whatever reason, despite all the work

from home, etcetera. Would have been to like the COVID winners thesis, because it turns out that in retrospect a lot of these like so called winners, the stocks actually are now like acting like COVID never happened. And some of the big winners are actually like brick and mortar places that we were sort of gave up for. What happened to that trade? Yeah, I call it the great

round trip. I've been writing about this for a couple of months where I've just been plotting slowly all these companies are doing what we this crazy thing on a chart, you know that the analysts quickly we're describing as a new mobile digital revolution. Everything was pulled forward. That was the famous term. And by twenty everything was pulled forward. And so from Shopify to PayPal, to Square to robin Hood to all the clones, to docusigned to Zoom to Peloton.

And now we've got to go back and look at those humps or those sell it right and up in the quick getbacks. We've gone up and come right back down. And this is how markets work. But there are companies like Zoom. You and I were all the three of us around a Zoom right now there are companies that have those margins because business will not go and the stark just got ahead of itself. And there are those businesses like Peloton who started to believe their own or

whatever we want to call it. And they were great founders and great teams that saw growth that was just like and even I rominant like. There was just this growth that they had to deal with. And you also had this moment of growth where companies that were built in the physical world had to go remote. And now that's becoming a pain because they piled on all this growth and all these new people by zoom. But they weren't built for a remote world. They were built for

a trans They were built for this transition. And now that growth may not be there and one of all these people on these distributed zoom chains supposed to be doing all day. So now you're going to have to see which companies. And that's the way the markets work. They overshoot to the upside and do the downside. And I think from this great rotate left from this great giftback that I talked about, there will be some winners. Peloton, No,

we'll not go back to one six people. Let's not kid ourselves, but Kozoom hit all time highs if they can solve dealing with Microsoft and Google. Yes, so you've got to find the brands and the margins and the companies and and the growth that will you know, get back on you know, some kind of semblance. And so there will be future winners here. And you're seeing traders lean against certain things because they're new at this or they're having fun and they think everything's going to zero.

And you see it with Snapchat, where not every stock is the same and not every management's the same, and some companies will do fine going forward. So there's from

the from this volatility comes great opportunity. Not all these all the charts that look the same, Square, PayPal, Docu, sign Zoom, robin Hood, they all look the same, but they won't look the same going forward because everything is being lumped together because by the way, we're doing this at a time where analysts have been cut to bare bones too at the bank, so there's no uncovering these stuff.

So that's another part of this perfect storm is wall streets thin, and they love having profits, and no one likes the research anyways, so onto doing research. So this was going to be my next question. Actually you mentioned the idea of all the stocks sort of getting or a bunch of the tech stocks getting ahead of themselves in and all kind of moving together as one. But can you dig into that a little bit more? Why why did that happen? Did did people actually believe these

valuations were justified? I've never heard anyone actually say that, but you know, and if if they didn't, like why was everyone comfortable with the run up last year and they're not comfortable this year? Was it purely getting on board with momentum? Yeah, I think when there's group think and everybody's you know, watching the same thing or listening to the same people in watching the same stocks, Definitely, it's just herd mentality in a different way of digital

heard mentality. The first time we've seen it and then you had I don't want to overthink it because you can just look at the charts in Hindsteining. That's what happened. I know that what happened and what's going to look. You've now got to go back through the the squares and paypals and robin hoods in docu signs and zooms and all the round trippers from COVID and say, wait a minute, Okay, now there's opportunity here. There's some of these that will be around for thirty years with reasonable

growth rates that are being thrown out. The people that do the work here will make some some money. But it was kind of like everybody was given money at the same time with the same apps, with the same voice, and it worked. It was a lot of fun, and you couldn't have predicted when it would end. But you know,

in hindsight they all look the same. So it's very much sounding like you're talking in past tense, like something has changed, but I want yeah, so let's I woant have drilled into that more, and like what actually you're seeing private markets because okay, we have the public market sell off that it implicitly is going to affect the late stage index funds, and soft Bank has publicly traded. We've seen what happened to their stock, and we know that I think it was Tiger had a pretty awful

last three months. Of course, none of it surprising. And then you've all these employees and you mentioned like this new wave of angels or seeds seed check writers who came out of the shopifyes and squares and etcetera. They're all have seen a big wealth hit, especially if they're

still employed or still on a lot of stock. So what are you seeing today at the early stage level, and what is or what isn't filtering through from those public markets to like writing checks right now here in February two, Well, I started seeing this in t I mean, I just look at our data. I can only tell you a social coverage. So Gary, Tom and I have been writing a check a month for ten years, twelve years, and we'd always say we can't, you know, in the

private markets. You know, I can only tell you what we do. We would paddle and we would talk to smart people, and we have smart LPs from Fred Wilson to Roger Ainburg to Christian Like, we have smart LPs that we can call on. And you know, I always used to say, you know, you can at the seed stage level at five great founders walk into your office or you get pitched in a row. You can't like time the market. You can't just say well, we just

wrote three checks, can't write two more. That's not the way investing works, if you're even on the trend space. This is why all stocks started looking the same if you're a trend investor just got aboard and worried about it later and use your money management to get you out. In the private markets, you can't use money management. You're in for ten years. So so I think that's what we've lost. So we would always huddle every week and go, man, shouldn't we slow down? But after ten years they just

always looked the same. We'd write twelve checks a year, they'd come in batches or you know, equally distributed, and then by like mid like when COVID hit, I was like, I'm not writing to check pencils down like zoom on, pencils down. I don't even know what. How do you invest in a company without having met the founder? But people started doing it. And as uncomfortable as I was because I didn't write check through the first year of COVID or the first six months, my partner Gary was

very comfortable doing it. He's younger and more native to the web, and his network was such that he was seeing stuff in the price that he was comfortable within, companies that he was comfortable with, and he wrote a bunch of checks and you to be incredible at the early stages of COVID along came one when everybody felt comfortable writing on Zoom, and the prices were such that every time I got a call from a founder, I

was just sitting out. You know. We went from like y CE ten million dollar valuations to like non y C twenty and thirty million dollar valuations and just saying no didn't mean a deal wouldn't get done. Deals are getting done. So I look back at our numbers from one and we wrote two checks. So there's a data point from twelve years of It's not like I'm scared, and it's not like I'm not looking as hard and my network isn't as big. It's just nothing was lining

up for us. But that didn't mean deals weren't getting done. It was a record year in venture capital. But so I don't think we know yet. The long term repercussions were just and I see it. If any Tiger check infintech that was written last year's down, they may not say that, but like, look at Square, look at PayPal, look at Robin Hood, if YouTube, look at Tiger, look at anything. So they're sitting on whatever. Vintage one was

a disaster right now, but it's early. But I think the return is now going forward from all that, even if these companies recover, you have to make back of your money into these valuations. And this is what I go to earlier. Maybe Tiger doesn't have to make it back because they can put in more money later and

change the cap table, whereas the seat investors can. So I don't think we've seen the true problem in private markets, and that will be LPs finally saying, man, you know what, concorder letters for four years and nothing's working, and so could take a couple of years for LPs to finally say I'm stuck here and I haven't seen any markups or any returns of capital. So the lack could be huge at the seeds. And you know, that's what I have to worry about, what my partners and I have

to tell my helps. This is why we're not writing checks. Just to writing checks just because you can. Is not the business. You write checks into great founders with great teams and good TAM just because of TAM's big is not good enough. And I think we're seeing a lot of investors in best on TAM. So two things here.

You sort of teased it just then, but like one, how do you think venture capital behavior could change in the future given this experience, and to how patient our LPs when it comes to sitting out of the market for you know, a year or part possibly a couple of years. You know, Joe mentioned in the intro this idea that well, everyone knew that publicly traded tech stocks were overvalued and they would probably get hit when interest

rates started to rise. But on the other hand, you're sort of forced into them because if you didn't buy, then you missed out on years of performance. So is it a similar story for venture capital or are people more willing to um kind of wait it out. It's a coyote in the road running right. The legs are spinning over the cliff. We don't know if the cliff

how far, how far the clip is. It took forever to get family offices and people comfortable, and then you have the incredible angelist product, and you have some like I said, you have Twitter and all these people networking and thinking their deals are the best. People are the best. So so it took an incredible amount of ton to onboard all these people. It will take much longer than people think for people to look at their statement and

say wait, Matt, this is stupid. I could have just bought the q q Q or the spy and have the quidity. I don't think what people are factored in because they weren't public market investors until is how hard it is to get q q Q type returns that we've had the last ten years. Like the y Q cues. You know, the triple cues have returned like twenty percent a year for the last ten years. I mean, what

is wrong with that? Why are people like shutting that at a time when I'm not saying make sure rushing the QQQ, But I've always said, like, what's wrong with twenty percent a year even with the volatility, because you get the liquidity. Now people are like chasing twenty percent a year in the private markets where you're locked up for ten years. I mean, that just makes no sense

to me. And so I think it makes sense for Tiger, who is saying, listen, we can go to our pensions and offer them eighteen or twenty three percent a year, you know what I mean to get latest and I get that pitch, and that's the pitch. They're just going. Look at the q q ques. If we could have got you all the q q q s before they went public, all these companies before they went public. By two three years, isn't that end? You know, you can sell them on the unsuspecting public and get liquidity in

two years. So you're only gonna be locked up for two three years instead of ten. Everybody signed up for that, and that will take a while for it to filter back too, because it's not it's not like, Okay, so I'm sitting on my hands because I've done well enough and I've seen enough markets, but not enough people are sitting on their hands and saying, guys, you've got to pay me for this ten years that I'm your partner. I'm not just tweeting about you. I'm I'm helping you hire,

I'm helping you recruit. I'm taking huge risk. I'm not going to invest in your seed stage company unless I have ten or fifteen percent. In two thousand and six, it was like thirty percent to bc as we're taking and now here we are in two and seed deals are getting done for four percent, five percent, and that's just too far the other way. So the pendulum's got to swing back somewhere closer to you know, seed investors get fifteen to twenty percent of the company, and we're

not close to that. You know, we've been talking a lot about valuations and the behavior of markets and investors. We haven't talked much about fundamentals. But I am curious, like you know, all these cloud companies, how much has the has their growth essentially or in part been essentially

their revenue is another startups costs. So it's like you have the tons of new companies flooding the market all the time, flush with cash from all these seed stage checks and all these companies they launched, and then they have to go out and like buy their like suite of cloud products to operate the business. I think it's sort of well known that like Y combinator companies, for example, often otherwy combinator companies are their first set of customers.

Are you concerned that a sort of slowdown in market, slowdown in financing actually does translate into a real world You know what our tam or our trajectory of revenue is not going to be what we what we thought it was in this environment of a cooler activity. You know, it's the question, right, you're trying to projective this is that's right, that's right, um, and so we're all should be thinking like that. But no, I mean, obviously it can happen again. So I'm not saying, you know, take

my advice. I'm just saying I'm super bullish on the cloud. Here's why, because you do have real effects from cold, you do have distribution out of Silicon Valley and founders moving across the globe, and they are not scared by failure. That failure, that that that failure mentality to Silicon Valley is something right, there is less shame and a startup that fails as there should be, like we need progress.

So I'm not buying the scenario even if rates doubled from here, I am buying valuation retracement because there's more supply. You know, if you go from a hundred angel investors to a thousand angel investors, is that just putting money out there? So you're gonna have startups? I think, what would you have to ask a question, what's gonna what's gonna take for a bunch of Howard wins and social leverages to sit on their hands? I don't know that yet.

Right right now, I'd like prices to come down, but just because I would want them to come down doesn't mean they will, you know, which is why we're investing in other funds and social leverage, and we launched an emerging manager fund in case we're wrong. Right, Like in my religion, we called schmuck insurance. And in schmuck insurance language, the hedges to the upside, meaning I'm trying to hedge

in case I'm wrong and too conservative. Right. Whereas you in the old days with in a non cloud world, in a land based world, hedges made more sense because there wasn't infinite growth. Right To get your customers around the world took a lot of phone calls, took a lot of travel, took a lot of set up right, just to set up an office. Today you're up and arounding in forty countries overnight. If there's demand, the product market fit so so you have to factor that stuff

in as well. So I don't think we're I think we're in a place where there's just a lot of good businesses. They're just priced wrong. Beyond clouds, where do you see opportunities At the moment, there's opportunities everywhere. Stuff is priced right. You have to you have to get investors that say, okay, I can make money if you're not new in the corn, meaning you know in the

old days. You know, we your investors in LifeLock, which sounds like a great company, but in the end it was bought for two billion dollars, but it was still a home run for us. Or golf Now or or or Buddy Media or Alley Insider, which were sold for way less than a billion dollars but would help people

return their funds, you know. And now because of pricing, you need decacorn for some of these seed funds, mathe Matt and they're not doing the math, but I'm doing the math for because I've seen the math in my

own portfolio for people to return their funds. So this is still, like I said, going to come down to LPs opening their statement and saying, well, I couldn't just bought the q q Q or the slide, just like investment buyers get fired now weekly because there's so many r A s and there's so many people that can offer indexing and asset allocation that people are moving their accounts all the time, and that will venture and that can't You can't just move your account if you're in

a fun seed fund you're stuck with the person, and so that's going to create a lot of bad will and a lot of tension that no one's really talking about. Howard, last time we had you on, I think it was like last summer, summer or maybe spring, and you were doing a spec and we've seen every spec, most of them anyway, get obliterated when the sell off. What's happening with yours? What's what's what's happened, what happened with the social leverage is what's the give us an update? I

don't think I can tell you. I mean, I'm really glad we have a great team. When we sat on our hand, we were just like, hey, you know, as I talked about it on your show at the time, it was so did you ever buy a company? We had done a few offers, We've learned the route, and I'm very excited about our team and what we're doing.

We have not won a deal in the past. We still have a year ago, and we feel really good about where the markets are because everybody, like I said, it is excited to just sell spacts just because the previous batch have been a disaster. So so the short sellers are in control there's no bids. Just like I said, if you're not index and you have a bad reputation and people, you know, the mob has has no turned

against facts, you have a seller's market. So I think part of our just like with our seed funds and social leverage, we just sat on our hands last year and we're very excited that the power has shifted. Right if you're if you're a company that's growing, that needs to be public, you know, to tell your story and

to raise capital in a different way. Now the market switches, so those three billion dollar valuations become one billion because you know, as much as we make fun of spacts, now the spacts, you know, the good spacts have some power. So I just think you're going to see some interesting deals out of the rubble, is what I would say. And not everybody should have a spact, just like not everybody should have a seed fund, just like not everybody

should have a venture capital fund. I mean, it does feel like much in the same way that very high tech valuations have come down as everyone predicted. It does seem like a lot of the criticism about SPACs over the past year or two seems to have been born out at least looking at, you know, the share price. What do you say to two critics of SPACs or people who say that, well, you know, the past year kind of proves that these things are opportunist market vehicles

that are taking advantage of investors. Well, taking advantage of investors is a bit of a comedy, you know. And I'll say this because I'm on every side of the table here and watching sports this weekend, and we can't trade crypto in New York. You can't, you don't have nobody can get a crypto license in New York. But like DraftKings and Famduel are on all day talking about thirty to one yolos to your college kids. So we

can't protect everybody. People at some point have to be adults in this country, and we can't just fire everybody and shame everybody and stop allowing people to invest. In some cases, unfortunately blow the family nest egg. So I'm very pro stack. It's a feature, not a bug. It has become a bug because guess what COVID people were Board banks needed to make their numbers. There's a thousand reasons.

It's not just Chamas fault or this person's fault. There's bad behavior on every different leve from investors to syndicates, to bankers to promoters, and the market just got too much supply. That's facts will be around for a hundred years.

But we're definitely in a world where crypto now exists and the new promoter sits in the discord room and a person with a great network and monitorze with a great financial network and monetized their network without doing this back right, it just comes down to the economics, and good deals will get done with great teams of great companies, and these are the times they get done when no one wants to do a deal, like good luck trying

to get a pipe done today. But that's when you're supposed to do deals, because now prices come down to a point where both sides of the tables sit down and go as if we want to get this deal done and we wanted to trade the above ten, why are we having this discussion unless we are all allowing to do that. So I think that that is needed to happen, And there's always gonna be a certain percentage of facts, a low percentage that work because to every

company can be a winner. Are you I mean you said you bid for some deals, you didn't win them. You're probably happy, huh that the winners cursed. I'm guessing you have your price. The bid goes in and you're like so far away, You're like, I don't even know why we're doing this, and so you sit on your hands and you risk losing this again. But people don't understand the risk here, like we risk losing our eight to ten million dollars that we put up as a syndicate.

Some people rushed because they're so want to save their eight million or turn their eight million into fifty and to do any deal. That's what happen. Those are the incentives, but there is risk and hundreds of millions of dollars could be lost if deals aren't done. And what investors should do is talk to management. Look see the s ones A man, how hard is this? You know what's so funny is everybody's complaining, but there's never been an

easier time to do due diligence. So at the same time as everybody's up on arms and want someone to pay the price for all their mistakes, let's be honest, Like Tracy, you and I can get on the phone on Twitter on a zoom and really narrow in on some things and then go do our due diligence and get better due diligence and golden stacked. So there's no reason why someone has to buy it. No one told you to buy us back. And if that person told you to buy us back, I mean, be careful of

that person. You were a pre I p O investor in robin Hood and have talked about a long time another I p O that's done. Uh, it was terribly It's also like, you know, part of the zeitgeist in a very big way over the last two years in terms of retail investors, and so many retail investors have now actually seen in a bear market in a way that man for a while they hadn't seen a lot

of money. What is the future in your view? A just real quickly, do you still own robin Hood since we've been talking about it, But more importantly, what it's going to become of this movement like or this this this meme or this thing of like the retail mania, Like where do you see it going now after the pain of the last year basis? I mean, how much time do you have you have to three hours? You know you could you know you could take a few minutes like what's going to happen or do you do

you own robin Hood still? Yeah, of course, so you know, let me do full discover your seat ambassadors. Huge, huge, This is everything that we wanted to see happen in o A. You know, the goal was to disrupt with Twitter and start to its because I always thought that the trays and shrubs, we're going to be disrupted with better. Uy. This is a UY thing. Right when the iPhone came along,

it took forever for robin Hood two fourteen. People like, like, people need to realize Intact List is seven years behind. Still KRYPTI was like a joke and even today you can still call it a joke about most people do not me. But so you it took seven years for robin Hood to exist in an iPhone world, right, and so we're at the beginning of the beginning of the beginning.

I'm not saying robin Hood is gonna win, but I do own schmock Insurance, meaning I don't run the company, not on the board, and no insights that are that are going to blow people's minds here other than it's still a twelve billion dollar company that was started in two thousand and fourteen, and we can argue whether it's worth twelve billion. I'm long so at twelve billion, I know my consurances to the upside. But in full disclosure, when it got to one bit, you know, we invested

a ten million valuation post money. When it got to one billion, it was not hard for me to sell some, and I think I stupid. I feel for that. And then I got to five billion and we sold something. It got to fifteen billion, and we sold some because we're seed investors, right. And the great thing about this bowl market is their liquidity down the food chain now, but it's not being used properly and people are are actually making mistakes with all this opportunity. But Social Leverage

was a seller into those rounds on the way up. Okay, So we treated the product of markets like the public markets. When you can sell, you should sell some, and when the founders sell, you should definitely sell some. Literally, but you know what I mean, and and so, and that's why I get mad at the soft banks of the world. Now they pay the founders out some money, and the

and the sea investors can sell. So there's all these like tricks that the later state vcs now have that I think screwed the seat investor, and we've gotta be really careful about that. So it's a public company. Was Robin Herd worth fifty billion? I mean that should have just been the discussion, Not like I hate Robin and their evil. It's not their fault, it's the stuck with fifty billion. That's the media fault, the public's fault, lack

of competition. But you know, we're an investor in a company called Alpaco which is now powering the next Robin Hoods, and I can tell you from their numbers that I'm not going to share that there was going to be a thousand Robin Hoods, right, just like there's a thousand gambling apps. And in the next warm Buffet could be in Eastern Asia or it could be in Brazil because they're going to have access to the same markets that warm Buffett had access to. So this is not a

not at all. Over the question is who's the winner? And for me it's more a question is it with Robin hood I always loved their attack on you know, Gray means stop like the sec you know in China, like Gray means go like, worry about it later. Guess what, now they're worrying about it. In the US, Robin had did what I think is the right thing and god

approval by the SEC. Now the SEC is showing how awful it is because I can't make decisions and they're holding out the one example whereas crypto doesn't ask for a permission right and we'll beg for forgiveness. So if you told me that it was easier for coin based or f t X to become robin Hood than it was for robin Hood to become Crypto, I wouldn't have

taken that bet three years ago. Today, my only thought is coin base and ftx have done a much better job in a world where it's easier for them to become brokerages and it is for robin Hood to become crypto. So that's the only change in my thinking is that you know Base and that's why I owned some coin based and some f t x is that it's easier for them in a world of api s to become robin and then vice versa, and so that is affecting valuation.

Howard is always a treat to speak to you, and once again I feel like because you have your you know so many different parts of the market is uh unique insight, and uh, thank you so much for coming back on odd Loves. I read about this every day and bits and pieces, including about my cross statea on my blog. But hopefully I won't get canceled. I think I said a lot of I don't think I said anything too crazy, didn't you didn't say anything bad? Thanks Howard,

Thank you Howard. That was great, all right, Thanks Tracy, Thanks Joe, Tracy. Do it a lot there, you know, just to start one thing is like I thought Howard's point about how the trickle down effect from public markets will probably hit, but it might take maybe even years as LPs sort of slowly realized they're not getting the return as they expected from a liquid investment. I thought

that was like a really interesting point. You sort of like walk through the mechanics of like, you know, how long the late stage investors can sort of keep things afloat, but the you know, there's not that sort of like instant feedback that would cause the selling. Kind of interesting perspective on private markets that I hadn't really thought of before totally, And I mean it is one of those times when liquidity can actually be quite beneficial in some senses.

The other thing that struck me was the idea of um or the impact of the big players coming in and kind of squeezing the entire capital structure and valuations, because again, that can be a source of strength for a while if you have these big players like a soft bank or a Tiger who are able to hold on indefinitely at these really high valuations. But I guess the big question mark is if something happens to one

of them, then things can change very very quickly. It feels like no, exactly right, And you know some of the things you pointed out about how like you know they can create liquidity for the founder while not creating

liquidity for the seed stage investor. Super interesting just in general, like also like I haven't really thought about that, even though it's obvious in retrospect, like just the sheer number of people like writing seed stage text and you do see them like on Twitter subject, like so many people there are investors in the way that I hadn't seen,

especially like pre covid totally. And I guess, well, we know quite a few people, especially in the crypto space, who keep getting offers and almost have to like fight investors off. At this point, we should start an adjacent fund somehow. Maybe a lot seed money coming soon. Yeah. No, it's always great talking to uh Howard, great perspective and um I learned a lot. Shall we leave it there, Let's leave it there. This has been another episode of

the All Thoughts Podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe Why Isn't All? You can follow me on Twitter at the Stalwart. Be sure to follow our guest Howard Lindson. He's on Twitter at Howard Lindson. Follow our producer Laura Carlson at Laura. I'm Carlson, the Bloomberg head of podcast for Francesca Leavy at Princestera Today, and check out all of our podcasts on Twitter under the handle at podcasts. Thanks for listening.