Understanding Financial Bubbles: Lessons from History with Venture Capitalist Aman Verjee

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In part.

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These are the principles of the
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The principles of the game.
Oh, these are the principles of

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the game.
OK, welcome back to the

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Compassionate Capitalist Show,
where we showcase keen insights

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of industry leaders that help to
guide your journey to wealth as

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an entrepreneur or an investor
in entrepreneurs and

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entrepreneur companies.
Today's conversation is

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especially timely if you've ever
wondered why markets seem to

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swing from euphoria to panic,
why fortunes are made and lost

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in waves, and whether you're
living through yet another

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bubble.
You're going to love this

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episode.
My guest today, Aman Virgie, is

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a Silicon Valley venture
capitalist with an extraordinary

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career.
A Manhatt was an early PayPal

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employee, served as a CFO at
Sonos and eBay in North America,

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worked at Lehman Brothers, and
today he's a general partner at

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Practical Venture capital.
He's also the author of the

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upcoming book A Brief History of
Financial Bubbles, where he

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breaks down the centuries of
speculation from Tulip mania to

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tech and AI.
So we can understand not just

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what happened, but why it keeps
happening.

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And then when you know why it
keeps happening, knowledge is

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power.
You have the ability and

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hopefully through the course of
this conversation, I'm going to

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have with Aman how to
potentially avoid a bubble or at

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least go slow, Ted lightly as
you start to enter into a bubble

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so that you can anticipate and
make good financial decisions.

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Not only as the founder of a
company or an executive in a

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company that might be in the
space or being impacted, but

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also as investors investing
across the board from private to

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public in the things that might
ultimately become part of a

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bubble.
So, so it's Aman.

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Welcome to the show.
Thank you, Karen.

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Great to great to see you.
Great to be on the show.

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OK, so before we dive into
specific examples, the start of

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the big picture, what originally
motivated you to write the Brief

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History of Financial bubbles?
Why do you think understanding

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bubbles is so important right
now?

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Well, I have been in markets for
a long time now, I said.

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I started my career as a bond
trader at Lehman Brothers.

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So I've been in and around
financial markets probably for

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about 25 years now.
And in the, in the last couple

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of years as I've been running my
venture capital fund, we had a

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lot of investment opportunities
in 2000, 2020.

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One just as we were getting
started where we had a whole

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avalanche of companies that were
pitching a certain type of

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business that was really
predicated on remote work and

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the, the post COVID downturn.
And there was a lot of

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excitement and a lot of a lot of
energy around crypto and

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decentralized web and finance.
And my partner and I took a very

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slow approach.
We had been around, I guess

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luckily for us, we'd been around
in 2008 and 9 and saw one epic

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run up in the market and then a
crash.

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And then we were kind of young
entrepreneurs at PayPal, as you

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said, in 2001.
So I kind of had some

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recollection to have that all
played out.

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And just that pattern
recognition made me think we

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should be really slow and, and
thoughtful in how we deploy

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capital because this feels like
the third bubble of my lifetime.

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And my partner was like, well,
we're not supposed to hold

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capital, man.
We just raised a fund.

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We're calling capital.
We get paid management fees.

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Surely we're supposed to put
that money to work.

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What are we going to tell our
our investors?

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I just told them, look, I think
we have to hold, hold our money

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until we think the asset prices
have normalized.

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How long will that be?
He asked.

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I mean, are we going to go on
the beach for 18 months, a year

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or two years?
So I began researching bubbles

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just out of curiosity, thinking
like, how long do these typical

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cycles last?
Why do they happen?

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Why do they recur?
And the more I learned about it,

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I got kind of a, a template in
mind for how these things

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typically play out and why and
how long it takes.

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So a lot of it was just figuring
out how to be a successful

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investor in what I thought was a
market where I'd seen some stuff

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before.
A lot of the funds in the space

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were jumping in because they
hadn't seen, you know, these are

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2530 year old fund managers.
So they hadn't been through the

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last bubble and didn't really
know quite what to do.

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But in addition to that
education, I just found it

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interesting.
I thought the research was

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fascinating.
They kept looking back in

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history to find some of these
recurring themes.

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And, and I hope it's a it's a
entertaining and fun as well as

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educational book for for a lot
of folks.

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Well, you know, I'm sort of like
an economics junkie, you know,

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in a way that was my training,
my educational, my first

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educational background from
college.

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And I, and it's, I think it's
really always interesting to

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sort of anticipate or try to
like analyze what the bubbles

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are.
So when you, you know, approach

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me about being a guest on the
show, I thought, oh, this is

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going to be fun because it is.
You know, oftentimes there's

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indicators that we're leading
into it.

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You know, we talked previously
and we'll get into it about the

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cheap money as part of that.
But is it fair to say that

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bubbles aren't just financial
events, but also social and

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psychological ones as well?
I certainly think so.

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You know, I'm also an economics
junkie.

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It's been, it's been my passion
all my life.

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It was my favorite subject in
high school and that's what I

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studied at at Stanford undergrad
and I now teach that at at

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Harvard Business School.
So I'm, I'm biased to say that

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it's the economics around it is
sort of where I, where my head

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goes.
But you'll see in the book that

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I go through the political
context, the social context.

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Why did, why do bubbles happen,
for instance, in Amsterdam, 1636

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around tulips?
What did happen around, you

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know, or tobacco or why didn't
happen in London?

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It could happen in Paris, it
could happen in 1626, not 1636.

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That has nothing to do with
economics.

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All those factors are politics,
religion, the role of the church

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and society at the time.
And so I incorporate all that

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stuff into the, the narratives.
I think there's a lot to be said

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about these, these qualitative
or societal factors and

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political factors, and they keep
recurring over and over again,

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which is also one of the one of
the telltale signs.

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Yeah, well, let's talk about the
Tulip mania of Amsterdam,

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because you know that even
though it was so long ago, it

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still pops up as a relevant
example.

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And obviously you covered it in
your book.

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So what does that story teach us
today?

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Well, I'll give you just a quick
encapsulation of what what

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happened.
So the Dutch at the time were

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the wealthiest country in the
world.

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And one thing I've I've
recognized in this bubble is

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that they typically happen in
the country that is the

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wealthiest 1 and maybe in the
most financially successful city

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in the richest country in the
world.

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So that was true of the
Netherlands and in particular

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Amsterdam in 1636.
They had just become the global

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reserve currency.
The guilder was the currency in

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which everyone transacted.
They were a seafaring nation.

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They became, as a result, they
opened up trade to the West

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Indies and became the wealthiest
country in Europe.

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So there's a lot of money
floating around.

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Also true of Paris.
Also true of London, but not

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quite to the same degree in
Paris at the time.

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This is one of the social
factors.

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Now in Paris at the time,
there's a lot of places where

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you can spend money.
If you're in the wealthy

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aristocracy, you can buy land,
you can buy clothes, there's

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fine silts, they're very fashion
forward.

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There's furniture for the
houses.

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There's a lot of places where
you could spend your money as a

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wealthy Parisian in the 1630s.
Not so much in Amsterdam.

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It's a puritan country.
The society looks down upon the

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ostentatious displays of wealth.
Lots of stories about travelers

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who come to the Netherlands from
London in the 16th and they

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cannot tell the richest merchant
from the poorest member of the

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working class because the
clothes all look the same.

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There's no distinction in terms
of their, their upward

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presentment.
And they're not, you know,

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spending the money on lavish
stuff, unlike Paris or the

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summits of London.
So where does all the money go?

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Well, it goes into houses,
country houses, country houses

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have gardens, gardens have
flowers.

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The Tulip is a very beautiful
flower.

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And all of a sudden there
becomes a huge bid around the,

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the florists.
And so that industry expands in

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the 1620s and 30s.
It's, it becomes socially

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acceptable.
There's some horticulture and

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science behind it.
People begin to take that as

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like a, as a real serious
endeavor and then the prices

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begin to increase and the
limited supply of tulips and

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just the, the form, the variety
of the varietals become very

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coveted.
In some cases, the top of the

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bubble in 16361637, you can buy
a house on the river, the Amstel

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River in Amsterdam for a, a
couple of tulips.

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That's how, that's how valuable
these things got really six

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times the average salary of a of
a merchant.

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And then very quickly in
February of 1637, the bust

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happens.
And it's not entirely clear, you

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know, why the bust happens when
it did.

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There was a market swarm that
just drove up the price.

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A lot of psychology.
And then the, the, the frenzy

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just rolls away in early 1637
and the market goes dead and

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prices of tulips are down by
90%.

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And, and that whole episode is
just what what you learned about

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it is, you know, it's one, one
bit, one bit economy, a lot of

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psychology, people just rush to
a new commodity and new products

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and they bid up the price.
If something is in limited

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supply, it becomes coveted.
And also you can't produce it.

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But in the case of tulips, there
was a whole flurry of new

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varieties and new tulips in the
16361637 and they flooded the

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markets.
You know, you'll learn about the

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scarcity of a commodity and just
the the whim of a people.

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Yeah, OK, So it was there.
So this kind of creates a sort

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of interesting, you know,
there's speculation where people

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are playing options or futures
and thinking.

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But then there's sometimes a
social signaling.

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You know, people might say, oh,
it's like almost like a lemming,

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you know, we're like everybody
else is doing it, so I need to

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do it too, without really
understanding what it is they're

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doing.
Or just, you know, in this case,

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it was a product.
So even though they weren't

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trying to show off their wealth,
did tulips become the signal of

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wealth or had it spread wide
enough around because it got

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started there and then?
People like you, used in Paris

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for as an example, wanted to
have tulips too.

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00:11:01,040 --> 00:11:03,960
Yeah, it became a acceptable
social signal.

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There are always ways that you
can signal your status, your

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knowledge, your sophistication.
In Paris, it was really done in

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a more ostentatious way.
It was you have to be part of

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the, if you're part of the
aristocracy and you have land

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and you have a house and you
then you have the right

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00:11:16,600 --> 00:11:18,800
furniture.
They were, they were the

227
00:11:18,800 --> 00:11:21,120
inventors of fashion in the
1600s.

228
00:11:21,120 --> 00:11:24,160
So they're they're dresses and
their gowns and their silks and

229
00:11:24,160 --> 00:11:26,520
the latest fashion that these
are all the ways that you signal

230
00:11:27,000 --> 00:11:29,840
being part of that elite group.
I guess like AI don't know a

231
00:11:29,840 --> 00:11:31,920
Hollywood star today.
You know, they're always

232
00:11:31,920 --> 00:11:33,600
dressing in the latest fashion
suit.

233
00:11:33,600 --> 00:11:36,120
The question you get on the on
the red carpet at the Academy

234
00:11:36,120 --> 00:11:39,520
Awards is it's very rarely tell
me about the artistic influences

235
00:11:39,520 --> 00:11:40,720
of your movie.
It's like, Hey, who are you

236
00:11:40,720 --> 00:11:42,120
wearing?
And if you can bring your

237
00:11:42,120 --> 00:11:44,880
fashion designer with you, then,
you know, that becomes a signal.

238
00:11:44,920 --> 00:11:48,000
Interestingly, the Puritans in
in the Netherlands, as a

239
00:11:48,000 --> 00:11:51,120
distinct from the Catholics in
France, they didn't they didn't

240
00:11:51,360 --> 00:11:55,120
they were very austere and what
in terms of clothes, in terms of

241
00:11:55,120 --> 00:11:58,520
that ostentatious presentment,
but houses and gardens and you

242
00:11:58,520 --> 00:12:01,680
know, flowers in the garden and
the beauty that that has was

243
00:12:01,720 --> 00:12:04,520
socially acceptable.
It became the envy.

244
00:12:04,520 --> 00:12:06,600
It became the object of envious
desire.

245
00:12:06,800 --> 00:12:09,600
We see it here in the Bay Area
at least we see crypto and

246
00:12:09,600 --> 00:12:12,480
Bitcoin and you know, four or
five years ago, everybody was

247
00:12:12,480 --> 00:12:15,800
trying to get into Bitcoin.
Nobody was thinking about buying

248
00:12:15,800 --> 00:12:18,480
gold for sure.
And a lot of my colleagues here

249
00:12:18,480 --> 00:12:20,480
in the Bay Area weren't even
thinking about buying stocks

250
00:12:20,480 --> 00:12:22,360
that paid dividends and
generated returns.

251
00:12:22,360 --> 00:12:25,560
They were thinking about what is
the latest altcoin, you know,

252
00:12:25,560 --> 00:12:27,360
how do I signal that I'm with
it?

253
00:12:27,400 --> 00:12:30,360
Because I know and I'm have
information about and now I'm

254
00:12:30,360 --> 00:12:33,680
buying some of these new meme
coins, which, you know, that

255
00:12:33,680 --> 00:12:36,480
strikes me as an unhealthy
destructive bubble, but that

256
00:12:36,480 --> 00:12:38,920
that has certainly happens.
Yeah, OK.

257
00:12:39,560 --> 00:12:43,520
So you also talk about the
railroad boom of the 1800s.

258
00:12:44,240 --> 00:12:47,680
What similarities do you see
between that era and the more

259
00:12:47,680 --> 00:12:51,840
modern bubbles in particular
that you outline reoccurring

260
00:12:51,840 --> 00:12:54,880
patterns?
So is that do they show up again

261
00:12:54,880 --> 00:12:57,440
and again?
And do we learn from that in the

262
00:12:57,440 --> 00:13:00,240
past, like the railroad bubble?
Yeah, that one, that one is an

263
00:13:00,240 --> 00:13:03,240
interesting one because it did,
they did fall into some some bad

264
00:13:03,240 --> 00:13:07,360
habits in the 1840s that.
So we'll learn from some of it,

265
00:13:07,360 --> 00:13:09,800
but I don't think we've
perfected that lesson yet.

266
00:13:10,480 --> 00:13:13,880
That was the technology that was
developed in the 1830s and 40s

267
00:13:13,880 --> 00:13:17,160
primarily in England as a result
of the Industrial Revolution.

268
00:13:17,600 --> 00:13:20,200
And there was an understanding
that it was going to change the

269
00:13:20,200 --> 00:13:23,080
world, that it was going to
connect England in a way that

270
00:13:23,080 --> 00:13:25,160
had never happened before.
It was going to make

271
00:13:25,160 --> 00:13:29,400
transportation a lot easier.
As an example, back in the 1820s

272
00:13:29,400 --> 00:13:33,160
and 30s, London, the difference
between like London and Norwich,

273
00:13:33,160 --> 00:13:36,520
which is a city a couple 100
miles away was like a six day,

274
00:13:36,800 --> 00:13:39,440
seven day ride on a horse and a
buggy.

275
00:13:39,440 --> 00:13:42,800
It was very inconvenient and you
could be from London to Paris in

276
00:13:42,800 --> 00:13:45,080
maybe a couple of days with this
a channel process.

277
00:13:45,080 --> 00:13:48,200
So London as a result is a lot
more connected in its economy to

278
00:13:48,200 --> 00:13:50,760
Paris than to parts of the the
north of London.

279
00:13:51,320 --> 00:13:53,400
But railroads changed all that
because they were going to

280
00:13:53,400 --> 00:13:55,560
connect the country and make
commerce work a lot better and

281
00:13:55,560 --> 00:13:57,800
that would connect the national
market and just make everyone,

282
00:13:57,920 --> 00:14:00,320
everyone richer.
So there's a flood of investment

283
00:14:00,320 --> 00:14:02,600
and interest in this brand new
technology, this

284
00:14:03,000 --> 00:14:08,560
transformational technology.
But by 18441845, at that point

285
00:14:08,600 --> 00:14:11,440
when the when the investment
boom starts, the business plans

286
00:14:11,440 --> 00:14:14,320
began mounting up and everyone's
doing it thinking if I just

287
00:14:14,320 --> 00:14:19,400
build the track, the demand will
come Between 1845 and 1849,

288
00:14:19,400 --> 00:14:23,720
which is the period that I
cover, something like 3500 miles

289
00:14:23,720 --> 00:14:27,960
of track gets authorized by the
English government, which is 15

290
00:14:27,960 --> 00:14:30,920
times what had been built in
England's history.

291
00:14:31,440 --> 00:14:33,120
So a lot of track in a very
short amount of time.

292
00:14:33,120 --> 00:14:35,640
And if I add up all the
assumptions in the business

293
00:14:35,640 --> 00:14:38,960
cases, in those in that boom,
they were planning on building

294
00:14:38,960 --> 00:14:42,520
24,000 miles of track.
So 10 times what actually got

295
00:14:42,520 --> 00:14:45,920
greenlit by the government.
So the revenue from railroads

296
00:14:45,960 --> 00:14:47,800
was real.
The revenue from railroads

297
00:14:47,960 --> 00:14:51,400
doubled between 1845 and 1849.
It doubled again in the late

298
00:14:51,400 --> 00:14:54,000
1850s.
But they invested so much and

299
00:14:54,000 --> 00:14:56,760
built so much supply that demand
never caught up.

300
00:14:57,840 --> 00:14:59,920
And the exact same thing
happened in the 1990s when the

301
00:14:59,920 --> 00:15:01,600
Internet came, changed
everything.

302
00:15:01,600 --> 00:15:04,080
Everyone knew it was going to be
transformational technology, but

303
00:15:04,640 --> 00:15:06,600
all the Internet traffic, even
though it was doubling and

304
00:15:06,600 --> 00:15:09,600
doubling and doubling every year
for a period, it got outstripped

305
00:15:09,600 --> 00:15:12,600
by the telecom, the dark fiber
that was being laid by the

306
00:15:12,600 --> 00:15:14,520
telecom companies in the late
1990s.

307
00:15:14,800 --> 00:15:17,320
And so they, they just thought
the demand would explode.

308
00:15:17,320 --> 00:15:19,280
And somehow all that if you
build it, it will come.

309
00:15:19,280 --> 00:15:22,320
And what you see in those two
cases that a number of others

310
00:15:22,320 --> 00:15:25,120
that I cover is just a
technology, a new technology

311
00:15:25,120 --> 00:15:28,600
that gets a a rapid build out
and gets overbuilt and then the

312
00:15:28,600 --> 00:15:35,680
market has to has to catch up.
Sothe.com bubble was partially

313
00:15:35,680 --> 00:15:38,960
triggered by the overbuilding of
Internet access.

314
00:15:39,120 --> 00:15:43,720
Yeah, in 1995, it really gets.
It starts off with Netscape,

315
00:15:44,320 --> 00:15:47,160
which is the first browser that
like you or I could use.

316
00:15:47,160 --> 00:15:49,520
Before that, the Internet wasn't
wasn't really a thing.

317
00:15:49,800 --> 00:15:52,080
It was the thing, but it was a
bunch of college professors and

318
00:15:52,080 --> 00:15:54,160
government officials who had
built stuff that, frankly,

319
00:15:54,480 --> 00:15:56,120
nobody could use unless you had
an advanced degree in

320
00:15:56,120 --> 00:15:58,560
programming.
And then Marc Andreessen at 95

321
00:15:58,560 --> 00:16:02,280
comes up with a browser that you
or I or, you know, my daughter

322
00:16:02,280 --> 00:16:04,360
could use.
And now everyone is on the

323
00:16:04,360 --> 00:16:06,400
Internet.
And so there's a huge demand for

324
00:16:06,520 --> 00:16:09,000
Internet companies, the telecom
companies.

325
00:16:09,000 --> 00:16:11,360
The telecom industry gets
deregulated in 1996.

326
00:16:11,360 --> 00:16:13,760
And now the telecom companies
are like, well, if we can

327
00:16:13,760 --> 00:16:16,720
provide broadband to our
Internet customers who can then

328
00:16:16,720 --> 00:16:19,200
use it to, you know, do
everything from shopping to

329
00:16:19,200 --> 00:16:21,920
collaborating online and all the
other use cases of the Internet,

330
00:16:22,480 --> 00:16:24,680
we can make a lot of money.
But you have to build fiber

331
00:16:24,680 --> 00:16:27,280
optic cable to provide that
broadband to all those

332
00:16:27,280 --> 00:16:29,320
households.
And the expectation was that the

333
00:16:29,320 --> 00:16:33,000
Internet usage would be so much
that the demand for all that

334
00:16:33,000 --> 00:16:37,320
fiber optic, fiber optic cable
between 96 and 99 would require

335
00:16:37,360 --> 00:16:39,600
hundreds of billions of dollars
of investment.

336
00:16:40,000 --> 00:16:42,280
And then the telecom companies
start jumping in to build that.

337
00:16:42,520 --> 00:16:43,800
They would do that a lot with
debt.

338
00:16:43,800 --> 00:16:45,440
They didn't do it with equity.
They took debt.

339
00:16:45,800 --> 00:16:47,480
These companies weren't very
profitable.

340
00:16:47,480 --> 00:16:51,120
They they had free cash flow
negative margins during that

341
00:16:51,120 --> 00:16:53,480
period that they were able to
borrow on the promise of the

342
00:16:53,480 --> 00:16:55,960
Internet.
And so they built out that that

343
00:16:55,960 --> 00:17:00,240
fiber optic cable network, well
at the peak of the bubble in 99

344
00:17:00,240 --> 00:17:05,359
two, 1097% of the fiber they
laid was dark, meaning it wasn't

345
00:17:05,720 --> 00:17:08,280
wasn't being used.
And even a decade later, only

346
00:17:08,280 --> 00:17:11,720
about 2/3, about 1/3 of it was
used and 2/3 of it was still

347
00:17:11,720 --> 00:17:13,400
dark.
So they built basically in

348
00:17:13,400 --> 00:17:15,760
anticipation of demand
happening, but they built so

349
00:17:15,760 --> 00:17:19,240
fast and so much that for the
next 10-15 years, most of what

350
00:17:19,240 --> 00:17:21,079
they built didn't even didn't
even get used.

351
00:17:21,079 --> 00:17:22,960
And so a lot of money got wasted
on that build out.

352
00:17:23,119 --> 00:17:27,640
OK, so I have, you know, like
this might bring us into the

353
00:17:27,640 --> 00:17:30,160
conversation of cheap money.
I had been, you know, we

354
00:17:30,200 --> 00:17:33,880
previously talked about the
skyscraper, you know, theory,

355
00:17:33,880 --> 00:17:37,280
whatever about real over
building real estate when

356
00:17:37,280 --> 00:17:40,840
there's cheap money, which was,
you know, I, I guess with our

357
00:17:41,000 --> 00:17:43,040
real estate bubble that we had
in the Great Recession,

358
00:17:43,360 --> 00:17:49,400
butduringthe.com, what I saw
sort of happening was cheap

359
00:17:49,400 --> 00:17:54,800
money in venture capital, money
competing for deals because

360
00:17:54,800 --> 00:17:57,520
they've sort of keeping up with
the Joneses sort of a thing.

361
00:17:57,520 --> 00:18:01,240
So you ended up having because I
guess what you're talking about,

362
00:18:01,240 --> 00:18:05,320
the promise of all this Internet
usage, all these new business

363
00:18:05,320 --> 00:18:09,960
models, you know, e-commerce,
But I like the example of online

364
00:18:09,960 --> 00:18:13,800
pet stores, you know, and you
know, pet, you know, and, and

365
00:18:13,800 --> 00:18:16,520
not all of them could survive,
But there was so much money

366
00:18:16,520 --> 00:18:20,640
being thrown in because when you
create a market for an exit,

367
00:18:21,280 --> 00:18:23,600
right?
And you and you, you manufacture

368
00:18:23,600 --> 00:18:26,720
the exit because there's a buzz
of people, public stockholders

369
00:18:26,720 --> 00:18:29,840
want to buy this new hot and
there's so many of them

370
00:18:29,840 --> 00:18:32,200
happening, but they can't
sustain that.

371
00:18:32,200 --> 00:18:36,280
It just it starts to implode on,
on itself, hence the bubble.

372
00:18:36,640 --> 00:18:40,000
And I always interpreted the.com
bubble as the fact that these

373
00:18:40,000 --> 00:18:44,080
IPOs couldn't sustain because
they had been throwing to sort

374
00:18:44,080 --> 00:18:47,120
of kind of like what we're
experiencing and we see sort of

375
00:18:47,120 --> 00:18:50,400
manifesting itself now with
unicorns, right?

376
00:18:50,400 --> 00:18:53,520
A lot of money going in to
create these, but their business

377
00:18:53,520 --> 00:18:57,600
model doesn't support it.
So they either delay, you know,

378
00:18:57,600 --> 00:19:00,360
precariously to go public
because they can't support.

379
00:19:00,360 --> 00:19:03,080
They've learned their lesson in
a way of not putting a public

380
00:19:03,080 --> 00:19:04,880
company out there.
They can't sustain the value

381
00:19:04,880 --> 00:19:08,800
proposition or the valuation,
the market cap and then, you

382
00:19:08,800 --> 00:19:13,200
know, having and then, you know,
market corrections on those.

383
00:19:14,000 --> 00:19:17,520
But then you, you risk missing
the mark because other

384
00:19:17,520 --> 00:19:20,280
technology might leap you or
other value propositions of

385
00:19:20,280 --> 00:19:23,720
another company might leap in
that process because they're the

386
00:19:23,720 --> 00:19:25,240
new thing that's getting
capitals.

387
00:19:26,280 --> 00:19:28,440
Talk a little bit about your
experience because out of

388
00:19:28,440 --> 00:19:31,040
Silicon Valley, you're right.
And some of the companies that

389
00:19:31,040 --> 00:19:32,960
you were part of, you were
living and breathing that at the

390
00:19:32,960 --> 00:19:35,640
time.
So was there as any kind of

391
00:19:35,640 --> 00:19:40,240
perception that, I mean, I, I
look back to Guy Kawasaki

392
00:19:40,240 --> 00:19:44,200
talking about at garage.com at
the time where they were not

393
00:19:44,200 --> 00:19:47,080
really doing due diligence on
someofthese.com companies.

394
00:19:47,080 --> 00:19:50,400
They were just trying to find
another one to invest in because

395
00:19:50,520 --> 00:19:54,400
one of their peer VC companies
had invested in ABC.

396
00:19:54,400 --> 00:19:58,800
So they needed to find, you
know, DEF company and see which

397
00:19:58,800 --> 00:20:01,520
one could, could win in the
public marketplace.

398
00:20:01,880 --> 00:20:04,400
Was was is that just outside
looking in or was that really

399
00:20:04,400 --> 00:20:07,960
happening?
Yeah, I think the the lesson of

400
00:20:07,960 --> 00:20:10,840
the late 1990s for sure where
it's a tail end.

401
00:20:11,120 --> 00:20:13,880
I think you've described
accurately that market

402
00:20:13,880 --> 00:20:17,720
psychology what what tends to
happen and there's just a just a

403
00:20:18,200 --> 00:20:21,560
recap some of the major events.
So in 9596, the market after

404
00:20:21,560 --> 00:20:25,080
Netscape goes public, which is a
unprofitable money losing

405
00:20:25,080 --> 00:20:28,080
company, but it seems to have
the promise of great fortune.

406
00:20:28,640 --> 00:20:31,240
Then you get a whole bunch of
competition of a bunch of mostly

407
00:20:31,240 --> 00:20:34,720
consumer Internet companies.
The example of the you know

408
00:20:34,760 --> 00:20:38,600
pets, PetSmart and pets.com and
Amazon is also selling or

409
00:20:38,720 --> 00:20:42,240
signaling wants to go into pets
and say you get 3456 companies

410
00:20:42,600 --> 00:20:44,760
doing the same thing.
None of them are profitable.

411
00:20:44,760 --> 00:20:47,400
None of them are even
prospectively profitable, but

412
00:20:47,400 --> 00:20:50,560
all of them are able to raise a
venture, a bunch of venture

413
00:20:50,560 --> 00:20:52,680
money.
That was definitely happening in

414
00:20:52,800 --> 00:20:57,160
959697.
Up until that point, though, it

415
00:20:57,160 --> 00:20:59,160
seemed like the balance
unbalanced.

416
00:20:59,160 --> 00:21:01,720
Most of those business models
were good.

417
00:21:01,800 --> 00:21:05,120
There were companies like Amazon
or Yahoo that were able to go

418
00:21:05,120 --> 00:21:08,080
public. eBay, where where I
worked was another public

419
00:21:08,080 --> 00:21:10,360
company at the time.
You also had real technology

420
00:21:10,360 --> 00:21:13,760
happening, TDMA adoption, like
real people using the Internet

421
00:21:13,760 --> 00:21:17,240
and using it for business cases.
And then in 19, at the end of

422
00:21:17,240 --> 00:21:20,320
1996, Ellen Greenspan is the
chairman of the Fed at the time,

423
00:21:20,880 --> 00:21:22,480
gives a big speech in
Washington, DC.

424
00:21:22,520 --> 00:21:25,600
And he basically says, hey,
look, it's a rational exuberance

425
00:21:25,600 --> 00:21:28,920
speech where he basically says,
look, we should be thoughtful

426
00:21:28,920 --> 00:21:31,080
about where valuations are right
now.

427
00:21:31,080 --> 00:21:32,440
Are they?
He didn't say that they are

428
00:21:32,440 --> 00:21:35,280
irrational, but he basically
asked it like a question.

429
00:21:35,280 --> 00:21:37,800
I am observing that there is
this big run up in valuations in

430
00:21:37,800 --> 00:21:39,680
a short amount of time, a lot of
money being spent.

431
00:21:40,240 --> 00:21:43,200
I am prone to wonder whether
it's rational or not.

432
00:21:43,200 --> 00:21:45,600
And when the central banker says
that, he's sort of signaling,

433
00:21:45,600 --> 00:21:48,440
hey, maybe we got to take some
of the air out of the balloon

434
00:21:48,440 --> 00:21:50,520
because this is getting
potentially unhealthy.

435
00:21:50,600 --> 00:21:52,800
And he references Japan in his
speech, which was another

436
00:21:52,800 --> 00:21:55,200
example of a bubble that went
bust with really negative

437
00:21:55,200 --> 00:21:57,800
consequences.
Well, Greenspan was a very free

438
00:21:57,800 --> 00:21:59,400
market guy.
I don't think he had any

439
00:21:59,400 --> 00:22:02,720
intention of telling the market
how it should be pricing things.

440
00:22:02,720 --> 00:22:05,440
But the tone of the speech, and
I've read it, it reminds me of

441
00:22:05,440 --> 00:22:07,760
me telling my older daughter
maybe, hey look, I'm thinking

442
00:22:07,760 --> 00:22:09,920
about separating you and your
sister because you 2 are

443
00:22:09,920 --> 00:22:12,320
fighting a lot and I don't want
to tell you what to do and you

444
00:22:12,320 --> 00:22:13,920
have to work it out.
But you're, it seems like you're

445
00:22:13,920 --> 00:22:16,000
about to set your sister's hair
on fire.

446
00:22:16,280 --> 00:22:19,120
Like at what point do I father
intervene and now begin to

447
00:22:19,120 --> 00:22:21,800
separate you 2 idiots?
But he doesn't actually do it.

448
00:22:21,960 --> 00:22:25,040
And so the market takes a little
bit of a pause in 9097.

449
00:22:25,040 --> 00:22:27,520
There's a draw down and then
Amazon goes public and all of a

450
00:22:27,520 --> 00:22:29,800
sudden it's game on and the
market is another big year.

451
00:22:30,240 --> 00:22:33,720
And then in in 97 and through
1998, there's a Asian financial

452
00:22:33,720 --> 00:22:35,800
crisis rolls through the global
markets.

453
00:22:36,400 --> 00:22:39,120
But you might remember, but very
few people remember now in the

454
00:22:39,120 --> 00:22:42,040
context of the the.com boom.
But it's important because in

455
00:22:42,040 --> 00:22:44,480
the middle of 98, just as the,
as the financial crisis is

456
00:22:44,480 --> 00:22:47,760
rolling through, there's a 20%
drawdown in the market.

457
00:22:47,760 --> 00:22:51,080
So the kind of a mini bear
market in the middle of 1998.

458
00:22:51,640 --> 00:22:53,640
And all of a sudden investors
have got to be thinking at that

459
00:22:53,640 --> 00:22:54,800
point.
Like to me, that's just a

460
00:22:54,800 --> 00:22:57,480
healthy correction because now
investors who were wanting to

461
00:22:57,480 --> 00:23:00,280
invest in the 3rd, 4th of the
6th unprofitable pets company,

462
00:23:00,480 --> 00:23:02,960
Ron noticed that, hey, this,
maybe this is, this is too good

463
00:23:02,960 --> 00:23:04,760
to be true.
Maybe we should be wary.

464
00:23:04,760 --> 00:23:07,040
Maybe we should be doing
diligence on our tech companies

465
00:23:07,040 --> 00:23:09,520
and the pressure is going to be
on for returns and real cash

466
00:23:09,520 --> 00:23:11,720
flows as opposed to just getting
in on the next deal, which I

467
00:23:11,720 --> 00:23:14,840
think is a healthy correction.
Unfortunately, right in the

468
00:23:14,840 --> 00:23:19,800
middle of that 1998 drawdown or
correction, the the long term

469
00:23:19,880 --> 00:23:22,440
hedge fund called Long Term
Capital Management gets caught

470
00:23:22,760 --> 00:23:24,760
offside by the Asian financial
crisis.

471
00:23:25,240 --> 00:23:28,440
It's not a big hedge fund.
It's 5 billion in equity, 125

472
00:23:28,440 --> 00:23:31,440
billion in debt, not big by
today's standards, but over a

473
00:23:31,440 --> 00:23:34,880
trillion dollars in notional
swaps and derivatives.

474
00:23:34,880 --> 00:23:37,320
So they are a counterparty for
all kinds of banks in Wall

475
00:23:37,320 --> 00:23:39,640
Street.
And as the as the market begins

476
00:23:39,640 --> 00:23:41,880
to trade off and the risk
spreads begin to increase,

477
00:23:42,360 --> 00:23:43,720
they're basically going to go
insolvent.

478
00:23:43,880 --> 00:23:45,880
And a lot of the banks are now
concerned that, hey, one of our

479
00:23:45,880 --> 00:23:47,960
big counterparties might be
insolvent.

480
00:23:48,240 --> 00:23:50,400
That's going to create ripples
in the banking system.

481
00:23:50,840 --> 00:23:53,440
Fed steps in and they make sure
long term Capital Management

482
00:23:53,440 --> 00:23:55,440
gets bought out by a consortium
of banks.

483
00:23:55,840 --> 00:23:58,320
And then they cut interest rates
to make sure that those assets

484
00:23:58,320 --> 00:24:01,000
retain their value while they
get worked out or increase their

485
00:24:01,000 --> 00:24:02,880
value.
And so the Fed in the middle of

486
00:24:02,880 --> 00:24:06,120
this booming economy with the
market at very high valuations,

487
00:24:06,400 --> 00:24:09,520
they cut rates not once, not
twice, but three times in the

488
00:24:09,960 --> 00:24:12,920
fall of 1998.
And when you make money cheap

489
00:24:12,920 --> 00:24:14,480
like that, that's back to the
cheap money point.

490
00:24:14,480 --> 00:24:17,920
This seems to happen in a lot of
bubbles when you then make risk

491
00:24:17,920 --> 00:24:20,080
free rates go down and you
increase liquidity in the

492
00:24:20,080 --> 00:24:22,680
system.
You give investors like the guy

493
00:24:22,680 --> 00:24:25,640
Kawasaki example, now they have
they're you're re arming them

494
00:24:25,640 --> 00:24:28,160
with more bullets to go out and
find more companies and you're

495
00:24:28,160 --> 00:24:31,160
fueling that unhealthy dynamic.
And stocks basically doubled

496
00:24:31,160 --> 00:24:33,760
from the from late 1998 to March
of 2000.

497
00:24:34,120 --> 00:24:36,680
They doubled and then and then
the bubble pops and then they

498
00:24:36,680 --> 00:24:38,520
give back all those gains and
then some.

499
00:24:38,520 --> 00:24:41,080
And it's a difficult work out,
but all the bubbles that I

500
00:24:41,080 --> 00:24:43,920
looked at had some event like
this where either the Fed cut

501
00:24:43,920 --> 00:24:46,440
rates, there was a central bank
that was involved in lowering

502
00:24:46,440 --> 00:24:49,640
interest rates in the 1845
bubble, the UK bubble.

503
00:24:49,920 --> 00:24:53,160
It followed the 1844 rate cut by
the Bank of England, which at

504
00:24:53,160 --> 00:24:56,080
the time brought rates down to
the lowest point in 150 years.

505
00:24:56,560 --> 00:24:58,440
So on and on again.
But it definitely, it definitely

506
00:24:58,440 --> 00:25:01,200
fuels that cycle of unhealthy
valuations when there's too easy

507
00:25:01,200 --> 00:25:02,800
money at play.
Yeah.

508
00:25:03,440 --> 00:25:06,600
OK.
So you now part of your bank, I

509
00:25:06,600 --> 00:25:07,800
mean part of your book.
Oh, wait.

510
00:25:07,800 --> 00:25:10,520
Let me just say this for folks
that are listening at this

511
00:25:10,520 --> 00:25:13,560
point, you want to go no more
get on.

512
00:25:13,880 --> 00:25:16,120
By the time this comes out, it
may or may not.

513
00:25:16,600 --> 00:25:18,960
The book may or may not be out,
but where you can get either.

514
00:25:18,960 --> 00:25:21,800
If it's not out yet, you can go
get on the list to know what it

515
00:25:21,800 --> 00:25:22,760
is.
And that's at

516
00:25:22,760 --> 00:25:28,840
www.bigbubbletrouble.com.
And make sure you put your WS in

517
00:25:28,840 --> 00:25:32,040
there and go get on the list or
go get the book because I'm I'm

518
00:25:32,040 --> 00:25:33,880
certain it's going to be a
fascinating read.

519
00:25:33,920 --> 00:25:39,200
And you talk about the idea of
productive and destructive

520
00:25:39,200 --> 00:25:45,200
bubbles. 1 distinction is the
the well, let me the idea of

521
00:25:45,200 --> 00:25:48,360
productive and bubbles and
destructive bubbles. butthe.com

522
00:25:48,520 --> 00:25:52,360
bubble that we just were talking
about was a productive bubble, I

523
00:25:52,360 --> 00:25:54,680
guess, right, largely.
So can you explain the

524
00:25:54,680 --> 00:25:57,520
difference?
Yeah, I think so.

525
00:25:57,560 --> 00:25:59,800
Yes, I can.
So when most people think about

526
00:25:59,800 --> 00:26:02,440
bubble, there's just a negative
connotation around that, right?

527
00:26:02,440 --> 00:26:05,400
Like there's a big run up in
valuations, it's unsustainable,

528
00:26:05,400 --> 00:26:09,000
it's irrational, it blows up,
people lose money and then, you

529
00:26:09,000 --> 00:26:11,720
know, it's just it's bad.
All hell breaks loose.

530
00:26:12,040 --> 00:26:14,800
But the one thing I'd point out
in and look, think of the

531
00:26:14,800 --> 00:26:16,480
economic consequences for the
different bubbles.

532
00:26:16,480 --> 00:26:18,160
So what happened duringthe.com
bubble?

533
00:26:18,160 --> 00:26:20,320
A lot of investment came into a
new technology.

534
00:26:20,640 --> 00:26:22,520
The technology was real.
It was life changing for a lot

535
00:26:22,520 --> 00:26:24,640
of us.
A lot of companies that created

536
00:26:24,640 --> 00:26:28,600
in that, in that bubble, like
NVIDIA is founded in 93, PayPal

537
00:26:28,600 --> 00:26:32,160
where I work was 98.
You had Amazon founded in 94,

538
00:26:32,160 --> 00:26:36,600
Yahoo in 95, Salesforce in 1999,
what else?

539
00:26:36,600 --> 00:26:39,880
But Google kind of is founded in
98, Broadcom, which is spins out

540
00:26:39,880 --> 00:26:45,280
of a an HP affiliate IN992000,
so on and on and on.

541
00:26:45,280 --> 00:26:47,640
And so there's a lot of value
created in all those companies.

542
00:26:47,960 --> 00:26:51,720
And even after the bubble pops,
out of the detritus of the

543
00:26:51,720 --> 00:26:54,520
bubble, you have like Peter
Thiel and Elon Musk were the

544
00:26:54,520 --> 00:26:57,040
founders of PayPal where I
worked for 10 years.

545
00:26:57,480 --> 00:27:00,880
Peter takes his profits and goes
and funds Facebook and Elon goes

546
00:27:00,880 --> 00:27:04,600
on to start, you know, Tesla and
SpaceX and he buys x.com.

547
00:27:05,160 --> 00:27:07,400
So there's a lot of value
created out of that out of that

548
00:27:07,640 --> 00:27:09,320
whole experience.
In fact, if you'd bought the

549
00:27:09,320 --> 00:27:12,440
basket of Internet stocks in
1999, you probably would have

550
00:27:12,440 --> 00:27:14,400
made money today.
You would have had a lot of good

551
00:27:14,400 --> 00:27:15,920
years and then some really bad
years.

552
00:27:16,080 --> 00:27:18,480
But if you'd held through that
whole period, you would have

553
00:27:18,480 --> 00:27:20,680
made money.
And what happens to the US

554
00:27:20,680 --> 00:27:23,120
economy?
We have a mini recession in in 2

555
00:27:23,120 --> 00:27:26,880
thousand 2001, but it's not a
it's not a bad one.

556
00:27:26,880 --> 00:27:29,560
And then now over the last 20
years, the US has continued to

557
00:27:29,560 --> 00:27:32,920
grow and has now become the the
global leader in terms of GDP

558
00:27:32,920 --> 00:27:35,680
per capita and the economic
superpower.

559
00:27:35,960 --> 00:27:38,040
And all that is based on the
technology that was built in

560
00:27:38,040 --> 00:27:41,240
large part because of that that
bubble similar in the 1840s in

561
00:27:41,240 --> 00:27:44,200
the UK, the the railway boom,
although it created a lot of

562
00:27:45,040 --> 00:27:48,680
investors who had a very, very
poor run in 18495051.

563
00:27:49,040 --> 00:27:52,640
The economy has a mini recession
in 184950 and then the next 20

564
00:27:52,640 --> 00:27:55,200
years is what they call the long
Victorian boom, which is a

565
00:27:55,200 --> 00:27:56,840
period of rapidly expanding
incomes.

566
00:27:56,840 --> 00:27:58,240
It's broadly felt in the
country.

567
00:27:58,440 --> 00:28:01,120
It's driven by the tail end of
the industrial revolution and

568
00:28:01,120 --> 00:28:03,720
the locomotive and steam engines
are a big part of that.

569
00:28:04,160 --> 00:28:06,600
So those are very, those are
very positive bubbles, although

570
00:28:06,600 --> 00:28:09,480
there are creative destruction,
winners and losers and the

571
00:28:09,480 --> 00:28:11,000
negative ones.
You've already talked about the

572
00:28:11,000 --> 00:28:14,720
2008 Nine that was a -1 big, a
big recession, a lot of workout

573
00:28:14,720 --> 00:28:18,120
and the economy goes through a
A2 year recession, a big spike

574
00:28:18,120 --> 00:28:21,640
in unemployment, Australia in
the 1880's, the Great Depression

575
00:28:21,640 --> 00:28:24,680
came after the 1929 bubble,
Japan in the 1980s.

576
00:28:24,680 --> 00:28:26,920
So I draw the distinction
between ones that create

577
00:28:26,920 --> 00:28:29,320
economic value and long term
growth even though there's short

578
00:28:29,320 --> 00:28:32,040
term pain and then bubbles where
that's negative are.

579
00:28:33,280 --> 00:28:35,240
There any purely speculative
bubbles?

580
00:28:35,360 --> 00:28:39,040
Yeah, I think, I think the Tulip
bubble counts as just a lot of

581
00:28:39,680 --> 00:28:42,880
speculation of the sense of
people buying just for the sake

582
00:28:42,880 --> 00:28:45,640
of reselling at a higher price.
That probably happens across

583
00:28:46,160 --> 00:28:48,960
across the board, but that's an
example where you you it went

584
00:28:48,960 --> 00:28:53,040
from florists and people who
really appreciated tulips to all

585
00:28:53,040 --> 00:28:55,040
of a sudden people who wanted to
trade for a profit.

586
00:28:55,520 --> 00:28:58,080
A lot of the land bubbles I
think fit that pattern as well.

587
00:28:58,080 --> 00:29:00,080
People buying and flipping
properties and then waiting for

588
00:29:00,080 --> 00:29:02,360
the the higher price.
So that definitely is a

589
00:29:02,360 --> 00:29:06,880
recurring theme as well.
So when you mentioned the role

590
00:29:06,880 --> 00:29:13,560
of long term Capital Management
and monetary policy is there, I

591
00:29:13,600 --> 00:29:16,880
mean, I would think that there
are lessons learned, but there's

592
00:29:16,880 --> 00:29:19,960
still so many variables, right?
Even when you went through that

593
00:29:19,960 --> 00:29:23,520
history, there's a variable of
things that are happening.

594
00:29:23,640 --> 00:29:25,800
You know, the world is is flat,
right?

595
00:29:25,880 --> 00:29:28,440
I mean, things that happened in
other countries impact us here.

596
00:29:28,440 --> 00:29:30,280
Things that happen here impact
other countries.

597
00:29:30,560 --> 00:29:38,480
We see that all the times, you
know, we're how, what, how do

598
00:29:38,720 --> 00:29:42,560
people are these monetary policy
set, you know, people that said

599
00:29:42,560 --> 00:29:46,880
it, do they forget or do they
not anticipate?

600
00:29:46,920 --> 00:29:51,360
Or is the predictive analysis
that we do because we have

601
00:29:51,440 --> 00:29:55,240
better tools, AI tools perhaps
that might predict some

602
00:29:55,320 --> 00:29:59,160
behavior?
Do they, do they react to that

603
00:29:59,160 --> 00:30:02,640
without really thinking about
the ripple effect of, of how it

604
00:30:02,640 --> 00:30:06,840
might might be back in, you
know, whatever economic policy

605
00:30:06,840 --> 00:30:10,640
is set and the impact it has on,
you know, we're living through

606
00:30:10,640 --> 00:30:13,920
some of this stuff right now
here with our job situation and

607
00:30:13,920 --> 00:30:17,600
our lack of skills for the jobs
that are that are available and

608
00:30:17,600 --> 00:30:19,360
we're and the companies that
want to hire people.

609
00:30:19,680 --> 00:30:24,000
So talk a little bit about the
lessons learned, learning from

610
00:30:24,000 --> 00:30:26,840
lessons, forgetting lessons, and
how that fits into fiscal

611
00:30:26,840 --> 00:30:30,280
policy.
Yes, that's a great question.

612
00:30:30,280 --> 00:30:33,160
It is amazing to me that we are
still having this debate on

613
00:30:33,720 --> 00:30:36,840
monetary policy.
So think about how monetary

614
00:30:36,840 --> 00:30:39,280
policy gets set in the US right
now.

615
00:30:39,280 --> 00:30:43,120
You talked about the value of
lessons and history and AI, but

616
00:30:43,120 --> 00:30:46,680
none of that, none of that is a
factor in how we currently set

617
00:30:46,880 --> 00:30:49,680
interest rates.
We don't have AAI generating the

618
00:30:49,680 --> 00:30:52,800
machine that sets rates, you
know, day-to-day based on market

619
00:30:52,800 --> 00:30:56,400
conditions and supply demand
dynamics. the Fed meets once

620
00:30:56,400 --> 00:30:58,520
every month, sometimes once
every two months.

621
00:30:59,080 --> 00:31:01,920
These are 12 people who then
take a vote and they move

622
00:31:01,920 --> 00:31:05,360
interest rates up or down.
So that is how we set policy in

623
00:31:05,360 --> 00:31:07,800
the US today.
It seems kind of insane that

624
00:31:07,800 --> 00:31:10,520
we're not, we're not using it.
We're not setting rate policy

625
00:31:10,520 --> 00:31:12,560
based on, you know, I mean,
there are hedge funds that are

626
00:31:12,560 --> 00:31:15,320
out that are reallocating the
resources every day, every

627
00:31:15,320 --> 00:31:17,840
minute based on trading
algorithms and based on all the

628
00:31:17,840 --> 00:31:20,440
stuff you're talking about.
That's not how we set rate

629
00:31:20,440 --> 00:31:22,760
policy today.
So one, that's one observation.

630
00:31:23,000 --> 00:31:24,960
But think about today.
We've got a an example where

631
00:31:24,960 --> 00:31:29,200
we've got a economy growing at 3
to 4% year over year GDP growth.

632
00:31:29,880 --> 00:31:33,040
We have valuations that are at
historically high levels and

633
00:31:33,040 --> 00:31:35,400
there's still political pressure
because of jobs, because of

634
00:31:35,400 --> 00:31:39,320
whatever to cut interest rates.
And the rates right now are in

635
00:31:39,320 --> 00:31:41,080
the mid threes for the Fed funds
rate.

636
00:31:41,080 --> 00:31:44,680
The inflation rate's 3%, right.
So it's a half a percent real

637
00:31:44,680 --> 00:31:48,240
inflation adjusted interest rate
on the Fed funds rate right now.

638
00:31:48,880 --> 00:31:51,520
How what kind of sense does it
make to continue to push rates

639
00:31:51,520 --> 00:31:54,320
lower than half a percent in
terms of real rates when the

640
00:31:54,320 --> 00:31:57,480
economy is expanding?
I know, I know there's a job

641
00:31:57,480 --> 00:32:00,520
situation, but we have a full,
we have a 4.6% unemployment

642
00:32:00,520 --> 00:32:02,160
rate.
That's historically very low.

643
00:32:02,920 --> 00:32:05,200
So, but why, why?
So why is there still a push to

644
00:32:05,200 --> 00:32:07,280
cut rates?
Well, you know, there's

645
00:32:07,280 --> 00:32:09,720
political pressure to do it that
that comes up over and over

646
00:32:09,720 --> 00:32:11,360
again.
Politicians are pushing the Fed

647
00:32:11,360 --> 00:32:13,760
to lower interest rates when
they when they shouldn't.

648
00:32:15,080 --> 00:32:17,240
And maybe that's a short term
political gain, but the long

649
00:32:17,240 --> 00:32:20,960
term issue with that is then you
fuel valuations and you fuel the

650
00:32:21,160 --> 00:32:23,080
easy money, then fuels
destructive behavior.

651
00:32:23,200 --> 00:32:25,480
You know, that's that seems to
be, unfortunately a lesson we

652
00:32:25,480 --> 00:32:27,480
haven't been able to shake yet.
Yeah, money.

653
00:32:27,640 --> 00:32:32,080
Might be, I'm sorry, might need
to reform the Fed to do that.

654
00:32:32,240 --> 00:32:35,240
Yeah, Yeah.
Well, I don't know if adjusting

655
00:32:35,240 --> 00:32:38,200
interest rates are daily or
dynamically there would be, I

656
00:32:38,200 --> 00:32:40,320
think it would, might, might
create more chaos.

657
00:32:40,320 --> 00:32:43,360
There is a certain amount of
stability for predictability on

658
00:32:43,360 --> 00:32:46,960
cost of money and planning for
businesses to plan and and know

659
00:32:46,960 --> 00:32:49,600
what they can invest in,
particularly for infrastructure,

660
00:32:49,600 --> 00:32:52,400
but definitely not just 12
people in a room making a

661
00:32:52,600 --> 00:32:56,800
decision.
Right, you know the prime

662
00:32:56,800 --> 00:32:59,440
investment the rates for two
years get set by the market

663
00:32:59,440 --> 00:33:01,240
every day, right?
Like your your your your

664
00:33:01,240 --> 00:33:02,920
mortgage rate is cooked on the
10 year bond.

665
00:33:02,920 --> 00:33:06,120
The 10 year doesn't have a 12
men in a room or women in a room

666
00:33:06,120 --> 00:33:07,320
setting.
The price, the 10 year trades

667
00:33:07,320 --> 00:33:10,080
every day, rates go up, rates go
down and and people base

668
00:33:10,080 --> 00:33:12,320
mortgages and credit card debt
off of that.

669
00:33:12,320 --> 00:33:15,200
So there are market, there are
areas where the markets work and

670
00:33:15,200 --> 00:33:16,720
Mark, you know, work pretty
fluidly.

671
00:33:16,760 --> 00:33:19,160
And then the Fed, rather than
being the one that sets the

672
00:33:19,160 --> 00:33:22,040
price, just kind of comes in to
control things like, hey,

673
00:33:22,040 --> 00:33:25,200
there's a liquidity crisis here
or there's a there's a shock

674
00:33:25,200 --> 00:33:26,360
here.
We can, you know, we can

675
00:33:26,360 --> 00:33:27,720
counteract some of those big
moves.

676
00:33:27,760 --> 00:33:31,320
The monetary stabilizer is the,
is the term in economics, but we

677
00:33:31,320 --> 00:33:33,400
don't seem to, we have not
embraced that kind of a

678
00:33:33,400 --> 00:33:34,160
philosophy yet.
Sure.

679
00:33:35,680 --> 00:33:39,480
So let's jump jump in on the AI
bubble that it seems to be all

680
00:33:39,480 --> 00:33:43,040
in the news and in this stuff
like, so is there any historical

681
00:33:43,040 --> 00:33:46,040
bubble that what we're
experiencing with AI might

682
00:33:46,040 --> 00:33:47,760
resemble?
I would assume that it's

683
00:33:47,760 --> 00:33:50,400
productive because we are
solving a lot of problems, but

684
00:33:50,400 --> 00:33:52,160
there's also a lot of fluff out
there.

685
00:33:53,520 --> 00:33:55,280
I think there's a lot of froth
and excitement.

686
00:33:55,320 --> 00:33:57,280
Yeah.
I think on a high level, I'm not

687
00:33:57,280 --> 00:34:00,880
as concerned about the
valuations of AII.

688
00:34:00,880 --> 00:34:03,120
See we see in the private
markets a lot of companies that

689
00:34:03,120 --> 00:34:05,880
are getting AI type valuations
that are concerning like in the

690
00:34:05,880 --> 00:34:08,000
public markets.
If I just compare this to 1999

691
00:34:08,000 --> 00:34:10,800
for instance and the tech, the
last tech bubble which was the

692
00:34:11,239 --> 00:34:13,880
maybe the most recent example,
the company in the middle of

693
00:34:13,880 --> 00:34:16,480
everything right now is NVIDIA.
They are building most of their

694
00:34:16,480 --> 00:34:20,679
AI infrastructure with GPU's,
unlike the telecom boom.

695
00:34:20,760 --> 00:34:24,080
Every time they build AGPU and
roll it off their assembly line,

696
00:34:24,080 --> 00:34:26,719
so to speak, it lights up
because there's demand for it.

697
00:34:26,800 --> 00:34:29,480
And the demand is coming from
hyper scalers like Amazon and

698
00:34:29,480 --> 00:34:33,400
Apple and Meta and Microsoft.
Those are the four big customers

699
00:34:33,719 --> 00:34:35,960
and they need or they need that
technology today.

700
00:34:35,960 --> 00:34:37,199
So they're not.
They're not.

701
00:34:37,400 --> 00:34:40,960
We're not laying dark fiber like
we were in 1999 or building

702
00:34:41,880 --> 00:34:44,719
railways that don't get used for
50 years like the British did in

703
00:34:44,719 --> 00:34:47,800
the 1840s.
I guess that's one bit of good

704
00:34:47,800 --> 00:34:49,840
news.
And then NVIDIA is trading at 23

705
00:34:49,840 --> 00:34:52,560
to 25 times fully taxed earnings
next year.

706
00:34:53,000 --> 00:34:55,360
At the height of the.com boom,
the company in the middle of it

707
00:34:55,360 --> 00:34:57,200
all was Cisco.
They were the ones building the

708
00:34:57,200 --> 00:35:00,200
Internet and selling the routers
and switches to companies that

709
00:35:00,200 --> 00:35:04,000
would then the telecoms and
Cisco's at 200 times earnings.

710
00:35:04,000 --> 00:35:06,960
Cisco, IT was not a tremendously
profitable company.

711
00:35:06,960 --> 00:35:08,720
They did fine.
But in their in their biggest

712
00:35:08,720 --> 00:35:11,400
year, they made $3 billion in
profit in 2000.

713
00:35:12,160 --> 00:35:16,120
NVIDIA spent $112 billion buying
back stock over the past five

714
00:35:16,120 --> 00:35:17,960
years.
So they're profitable, free cash

715
00:35:17,960 --> 00:35:20,080
flow positive.
Their valuation is nowhere near

716
00:35:20,080 --> 00:35:23,640
where what we saw in 1999.
And their customers are the

717
00:35:23,720 --> 00:35:25,760
hyperscalers like those big
Internet companies, which are

718
00:35:25,760 --> 00:35:28,120
also profitable, free cash flow
positive, buying back stock or

719
00:35:28,120 --> 00:35:29,720
paying dividends.
That wasn't true.

720
00:35:29,720 --> 00:35:32,040
The telecoms back in the 90s,
they were, they were indebted

721
00:35:32,360 --> 00:35:34,600
and were not, you know, paying
back, buying back stock or

722
00:35:34,600 --> 00:35:36,840
paying dividends.
So I think this is a much more

723
00:35:36,840 --> 00:35:39,600
real technology revolution.
I'm sure there's going to be ups

724
00:35:39,600 --> 00:35:41,080
and downs.
I'm sure a lot of us will lose

725
00:35:41,080 --> 00:35:43,480
money on AI.
There might be another 20%

726
00:35:43,480 --> 00:35:45,800
drawdown in the market next year
because growth never happens in

727
00:35:45,800 --> 00:35:47,840
straight lines.
But I feel much better about

728
00:35:47,840 --> 00:35:49,880
where we're at, where we're at
now than, say, 99.

729
00:35:50,720 --> 00:35:53,200
Okay, good, good, good.
That's why I was going to, you

730
00:35:53,200 --> 00:35:55,720
know, follow up with that
because and the reason why you

731
00:35:55,720 --> 00:35:57,880
feel so have people learned a
lesson?

732
00:35:57,880 --> 00:36:01,080
Have the venture capitalist, the
money people learn the lessons

733
00:36:01,080 --> 00:36:05,800
and they're being more
discretionary to look to not buy

734
00:36:05,800 --> 00:36:09,200
it and and looking for real
business models, real problems

735
00:36:09,200 --> 00:36:14,840
being solved kind of a thing or
you know, is it how is this

736
00:36:14,880 --> 00:36:18,000
different than not?
Even I think I think so.

737
00:36:18,040 --> 00:36:24,160
So I would say 959697 felt to me
like some of this is my own

738
00:36:24,160 --> 00:36:26,440
memory of it and I was very
young back then.

739
00:36:26,440 --> 00:36:30,320
And so it'll be, it'll be a
imperfect recollection, but I've

740
00:36:30,320 --> 00:36:32,240
done research and followed
valuations as well.

741
00:36:32,560 --> 00:36:36,080
It seems like before the Amazon
IPO, there was a fair amount of

742
00:36:36,080 --> 00:36:38,360
discipline on the money being
invested in that.

743
00:36:38,960 --> 00:36:41,000
In that bubble, people were
looking at profits and cash

744
00:36:41,000 --> 00:36:43,600
flows and returns and reasonable
returns and how big can this

745
00:36:43,600 --> 00:36:45,960
market be and what are your
sales going to be in the next

746
00:36:45,960 --> 00:36:48,680
three to five years?
After Amazon went public, it did

747
00:36:48,680 --> 00:36:52,160
sort of change the tone and made
it a lot more optimistic.

748
00:36:52,520 --> 00:36:56,480
And what I see now looks feels a
lot more like 97 time that pre

749
00:36:56,480 --> 00:37:00,600
Amazon exuberance where there's
a lot of optimism, but there's a

750
00:37:00,600 --> 00:37:03,280
lot of there's a lot of
questions about what will this

751
00:37:03,280 --> 00:37:05,760
do to your business?
What is the return on AI spend?

752
00:37:06,040 --> 00:37:09,160
A lot of the money is coming
from these BIG4 hyper scalers.

753
00:37:09,360 --> 00:37:12,080
So it's profitable companies
which care with cash on their

754
00:37:12,080 --> 00:37:14,000
balance sheet, putting money
into it with equity.

755
00:37:14,760 --> 00:37:18,200
You get into 9899, you get like
smaller companies start-ups

756
00:37:18,240 --> 00:37:21,320
building a lot of the technology
that were then raising money.

757
00:37:21,320 --> 00:37:23,960
There were there telecoms were
doing it with debt, not equity.

758
00:37:24,440 --> 00:37:26,920
Those are all red flags,
dangerous signals that I don't

759
00:37:27,160 --> 00:37:28,840
see it yet.
Now some of the data centers

760
00:37:28,840 --> 00:37:31,440
that are being built now are
being debt financed, not equity

761
00:37:31,440 --> 00:37:34,040
financed.
So that's beginning to now we're

762
00:37:34,040 --> 00:37:36,760
beginning to verge into, OK,
that's a that's a yellow flag.

763
00:37:36,760 --> 00:37:39,880
Maybe there's the circularity is
now the big talk in the valley.

764
00:37:39,880 --> 00:37:40,920
It's good.
It's actually great that we're

765
00:37:40,920 --> 00:37:42,680
talking about it because it
shows that people are

766
00:37:42,880 --> 00:37:44,800
scrutinizing this stuff.
But there's a discussion about

767
00:37:44,800 --> 00:37:47,040
circularity like, hey, I'm going
to invest in you and you're

768
00:37:47,040 --> 00:37:48,960
going to invest in that company,
but they're your customers.

769
00:37:48,960 --> 00:37:51,920
It's a form of vendor financing.
If you didn't invest in them,

770
00:37:51,920 --> 00:37:54,000
could they really afford the the
bills they're going to pay?

771
00:37:54,000 --> 00:37:55,760
Like all the right questions
being asked.

772
00:37:56,160 --> 00:37:58,480
So I feel like the level of
scrutiny even now in the venture

773
00:37:58,480 --> 00:38:01,400
community with my, you know, my
colleagues, myself is still

774
00:38:01,880 --> 00:38:04,040
reasonably high despite, you
know, obviously a lot of

775
00:38:04,200 --> 00:38:06,080
optimism and a lot of
excitement, but I think still

776
00:38:06,080 --> 00:38:08,320
fairly disciplined right now.
OK, good.

777
00:38:08,320 --> 00:38:12,000
So discipline is one of those
fat, you know, a key element,

778
00:38:12,000 --> 00:38:14,240
right?
In some cases it's watching,

779
00:38:14,240 --> 00:38:16,560
some cases it's putting a
little, putting your toe in the

780
00:38:16,560 --> 00:38:19,400
water, seeing what happens and
then follow up with your full

781
00:38:19,400 --> 00:38:23,000
foot, so to speak, right.
So is there anything else as far

782
00:38:23,000 --> 00:38:26,320
as risk or timing that goes
along with that that investors

783
00:38:26,840 --> 00:38:29,520
should be and thinking about
when they're looking at a

784
00:38:29,520 --> 00:38:32,800
breakthrough new technology?
I mean, and as you know, because

785
00:38:32,800 --> 00:38:36,280
you've been around this a long
time and right in the mix, you

786
00:38:36,280 --> 00:38:39,240
know any technology that we
think is breakthrough now or the

787
00:38:39,240 --> 00:38:41,760
public thinks it's breakthrough
has been worked on and invested

788
00:38:41,760 --> 00:38:45,120
in for 20 plus years prior to
it, it becoming something that

789
00:38:45,480 --> 00:38:48,120
you know the everyday person
becomes aware of and uses,

790
00:38:48,600 --> 00:38:51,120
right.
So is there is there anything as

791
00:38:51,120 --> 00:38:54,400
far as that goes on, on those
factors risk, timing, discipline

792
00:38:54,520 --> 00:38:56,960
that investors should that you
would recommend investors

793
00:38:57,320 --> 00:38:59,480
consider?
Yes.

794
00:38:59,480 --> 00:39:03,600
Well, as a venture capitalist,
my partner especially is very

795
00:39:03,600 --> 00:39:06,160
good at this.
He's made over 2000 investments

796
00:39:06,160 --> 00:39:10,440
in seed and Series A stage
companies between he and I.

797
00:39:10,440 --> 00:39:13,000
We have a lot of experience, a
lot of, you know, a lot of

798
00:39:13,000 --> 00:39:14,480
training.
Now in terms of just doing the

799
00:39:14,480 --> 00:39:17,200
diligence, I think the biggest
thing that I've been that I push

800
00:39:17,200 --> 00:39:20,200
with our investments and our
founders is the technology that

801
00:39:20,200 --> 00:39:23,480
you're building.
As great as it is, what problem

802
00:39:23,480 --> 00:39:25,800
is it solving?
And when that when that problem

803
00:39:25,800 --> 00:39:29,120
gets solved, how do you how do
you make money doing that?

804
00:39:29,520 --> 00:39:33,280
And if and if and surprisingly 4
to 5 founders really struggle

805
00:39:33,560 --> 00:39:35,360
with that answer, which is that
hey, what problem are you

806
00:39:35,360 --> 00:39:38,320
solving answer.
I think we did have a recent

807
00:39:38,640 --> 00:39:43,400
experience in Twitter in
21/20/2021 and I never got a

808
00:39:43,400 --> 00:39:45,600
straight answer to that question
for one of the big asset classes

809
00:39:45,600 --> 00:39:49,480
that that got created and then
dissipated but still around

810
00:39:50,160 --> 00:39:52,200
crypto.
A lot of people were pitching

811
00:39:52,200 --> 00:39:55,160
web 3 dot O decentralized
finance, crypto, altcoin

812
00:39:55,440 --> 00:39:58,440
wallets, Bitcoin.
And I kept asking, what problem?

813
00:39:58,600 --> 00:40:00,320
Why do we need?
Why do we need Bitcoin?

814
00:40:00,320 --> 00:40:02,720
What problem are you solving?
If the technology didn't exist

815
00:40:02,720 --> 00:40:04,920
tomorrow, what you know, what
would be different?

816
00:40:04,920 --> 00:40:07,920
And I never got a good answer
from a founder about why the

817
00:40:07,920 --> 00:40:11,040
world needs crypto.
And so we never, we never really

818
00:40:11,040 --> 00:40:12,840
invested in it.
And some people did great in

819
00:40:12,840 --> 00:40:15,160
that space.
But that is a very speculative

820
00:40:15,160 --> 00:40:17,640
technology that I think is going
to be much more challenged.

821
00:40:17,800 --> 00:40:20,680
AI is the and the answers are a
lot more clear now about AI than

822
00:40:20,680 --> 00:40:21,920
they were, you know, a few years
ago.

823
00:40:21,920 --> 00:40:24,200
And I think they're very
generally very good about what

824
00:40:24,200 --> 00:40:27,680
problem they're solving.
Well, OK, to on the to me, and

825
00:40:27,680 --> 00:40:32,360
this is AI guess AI don't know.
I don't think I'm trying to look

826
00:40:32,360 --> 00:40:35,440
for the right word, but one of
the things that I have tried to

827
00:40:35,440 --> 00:40:39,360
steer people in their
conversation is to separate

828
00:40:39,600 --> 00:40:43,080
blockchain from crypto and
crypto being an app on

829
00:40:43,120 --> 00:40:45,880
blockchain, A solute, you know,
one solution.

830
00:40:45,880 --> 00:40:48,720
But when you get to, I really
would like to see a lot more

831
00:40:48,720 --> 00:40:52,280
done on blockchain in the supply
chain, right?

832
00:40:52,520 --> 00:40:57,440
Or even when you get into the
validation of assets using, you

833
00:40:57,440 --> 00:41:00,640
know, NFT type of concept on the
blockchain.

834
00:41:01,080 --> 00:41:04,120
There's, you know, goofy stuff
that people like verifying, you

835
00:41:04,120 --> 00:41:06,120
know, bourbon or something like
that.

836
00:41:06,120 --> 00:41:10,600
But there's real, there's real
need for it when it comes to,

837
00:41:11,040 --> 00:41:14,080
you know, what is being brought
into the country.

838
00:41:14,080 --> 00:41:16,320
Is it really what it says it is,
right?

839
00:41:16,320 --> 00:41:18,960
Things like that, some of our
supply chain, human trafficking

840
00:41:18,960 --> 00:41:21,160
solving.
So a lot of that stuff of what's

841
00:41:21,160 --> 00:41:24,480
on the manifest and is it really
what's in the container that

842
00:41:24,480 --> 00:41:27,560
blockchain can solve that.
I don't real, I don't see people

843
00:41:27,560 --> 00:41:30,560
moving towards that.
And even smart contracts or, or

844
00:41:30,560 --> 00:41:33,400
like we have natural, natural
disasters.

845
00:41:33,400 --> 00:41:36,400
We've gotten better since
Katrina, but it's like, you

846
00:41:36,400 --> 00:41:42,000
know, entire entire history of,
of who owned what or anything

847
00:41:42,000 --> 00:41:44,080
can be wiped out in a natural
disaster.

848
00:41:44,080 --> 00:41:46,280
If we had it on the blockchain,
it would be protected.

849
00:41:47,600 --> 00:41:49,840
Yes, I think in Weller
circulated like what can

850
00:41:49,840 --> 00:41:52,000
blockchain be used for?
So if you were building a

851
00:41:52,000 --> 00:41:55,160
blockchain startup and he said,
look, I'm going to record land

852
00:41:55,160 --> 00:41:58,840
that's been owned in California
on a decentralized Ledger that

853
00:41:58,840 --> 00:42:01,240
cannot be wiped out or destroyed
in a fire.

854
00:42:01,280 --> 00:42:03,560
And if I want to look it up
because I'm trying to sell you a

855
00:42:03,560 --> 00:42:06,040
piece of land and you want to
know that I own it, we can look

856
00:42:06,040 --> 00:42:07,720
it up right now on a on a
blockchain.

857
00:42:07,720 --> 00:42:10,520
You don't have to go to the
registrar, the county records in

858
00:42:10,520 --> 00:42:11,800
Sacramento and look up the
thing.

859
00:42:11,800 --> 00:42:14,440
And then, you know, God forbid
it's a Sunday and it's closed.

860
00:42:14,440 --> 00:42:16,240
You can't get in until the
Monday morning and it's a

861
00:42:16,240 --> 00:42:18,000
holiday.
Like you can look the stuff up

862
00:42:18,000 --> 00:42:20,760
in real time and validate
ownership, validate assets,

863
00:42:20,760 --> 00:42:24,000
validate things like identity.
Who knows, maybe even voting one

864
00:42:24,000 --> 00:42:25,480
day that that kind of scares me.
But.

865
00:42:26,080 --> 00:42:29,040
That would be.
Nice, but those are all good

866
00:42:29,040 --> 00:42:30,800
ideas.
The hard part is, you know, if

867
00:42:30,800 --> 00:42:35,400
my mom asks me why do I why do
you own Bitcoin or why do you

868
00:42:35,400 --> 00:42:36,920
know why do you own the
Dogecoin?

869
00:42:37,240 --> 00:42:38,840
Like what good is it?
You can't spend it.

870
00:42:38,840 --> 00:42:41,160
It's not a medium of change.
I can't use it to buy Starbucks.

871
00:42:41,360 --> 00:42:43,480
Why do I need this thing again?
Like if I struggled with that

872
00:42:43,480 --> 00:42:46,440
answer, I think that's a real
problem for any for any

873
00:42:46,440 --> 00:42:48,560
entrepreneur.
So my lesson to entrepreneurs,

874
00:42:48,560 --> 00:42:50,800
discovered the problem and the
solution and then tell me about

875
00:42:50,800 --> 00:42:52,000
the technology and how cool it
is.

876
00:42:52,000 --> 00:42:53,640
But always go back to your
customer, your problem or

877
00:42:53,640 --> 00:42:55,720
solution.
Yeah, absolutely.

878
00:42:55,720 --> 00:42:58,920
And at the end, the buying and
selling of it, everything about

879
00:42:58,920 --> 00:43:04,520
it is created an industry that
just there's a lot of issues it

880
00:43:04,560 --> 00:43:08,440
comes to crypto and all of the
things that how it's how the

881
00:43:08,680 --> 00:43:11,720
impact it has, the environmental
impact, just all kinds of stuff

882
00:43:11,720 --> 00:43:14,520
on on that.
So anyway, let's get back into.

883
00:43:14,720 --> 00:43:18,560
So you know, I I want to tell
folks too, because, you know,

884
00:43:18,560 --> 00:43:20,560
it's fascinating.
You can learn more about you

885
00:43:20,560 --> 00:43:24,800
also at your website, which is
Aman Virgie that's spelled AM

886
00:43:24,920 --> 00:43:32,440
ANVERJ EE, and we've covered a
lot of ground on your book on

887
00:43:32,440 --> 00:43:36,320
all and the different you know,
what factors are that are that

888
00:43:36,320 --> 00:43:39,280
you that we're, you know,
different factors that lead into

889
00:43:39,280 --> 00:43:40,440
a bubble.
And I think you pretty much

890
00:43:40,440 --> 00:43:44,080
establish that you don't really
see us in an AI bubble, even

891
00:43:44,080 --> 00:43:47,000
though the press keeps keeps
talking about that.

892
00:43:47,240 --> 00:43:51,000
Is there Is there anything else
that you want to share that we

893
00:43:51,000 --> 00:43:53,320
may not have covered at this
point in time?

894
00:43:53,320 --> 00:43:56,280
That's anticipating from
entrepreneurs and investors?

895
00:43:56,360 --> 00:44:00,080
You know, we have this phrase
that in the eco entrepreneurs is

896
00:44:00,080 --> 00:44:04,400
like skate to the puck.
So is there a puck that you

897
00:44:04,400 --> 00:44:07,880
could see people to skate to
that would get them to the other

898
00:44:07,880 --> 00:44:10,920
side or get them into something
before a bubble happens or

899
00:44:11,000 --> 00:44:13,320
speculate that way?
Yeah, I think if you're that's a

900
00:44:13,320 --> 00:44:17,440
Wayne Gretzky quote, the the
puck, which I, I'm a big sports

901
00:44:17,440 --> 00:44:19,800
fan and a hockey player and, and
love that.

902
00:44:19,800 --> 00:44:23,760
I think it's very easy to see
that AI is it's here to stay.

903
00:44:23,760 --> 00:44:25,880
It's going to transform
virtually every industry.

904
00:44:25,880 --> 00:44:29,960
There are great businesses that
will be built and destroyed as a

905
00:44:29,960 --> 00:44:33,000
result of it.
With the thing that does happen

906
00:44:33,000 --> 00:44:35,960
when you get these investment
cycles and the hype cycles, I

907
00:44:35,960 --> 00:44:37,960
wouldn't quite call this a
bubble for the reasons I said.

908
00:44:37,960 --> 00:44:40,200
But let's let's concede there's
a lot of money going in and a

909
00:44:40,200 --> 00:44:42,720
lot of excitement.
And what tends to happen is you

910
00:44:42,720 --> 00:44:45,160
get easy money.
It's not necessarily true. the

911
00:44:45,160 --> 00:44:46,840
Fed doesn't have to cut rates to
0%.

912
00:44:46,840 --> 00:44:49,200
We don't have to, we don't have
to go back, you know, to another

913
00:44:49,200 --> 00:44:52,280
infusion of capital for just
money to to be ready and

914
00:44:52,280 --> 00:44:54,760
available to entrepreneurs who
want to fix the technology.

915
00:44:55,520 --> 00:44:57,800
The question then is what
happens when that money rolls

916
00:44:57,800 --> 00:45:00,320
back out and if the business
you're looking at or investing

917
00:45:00,320 --> 00:45:03,080
in needs to continue to raise
money to higher and higher

918
00:45:03,080 --> 00:45:05,760
valuations in order to feed a
product or business cycle for

919
00:45:05,760 --> 00:45:08,440
more than like a year.
To me, that's like a big red

920
00:45:08,440 --> 00:45:10,040
flag.
That's just generally, if we saw

921
00:45:10,080 --> 00:45:13,040
this in 20/20/21, a lot of
companies raised money and had

922
00:45:13,360 --> 00:45:16,000
enough runway to kind of get to
the next financing, but couldn't

923
00:45:16,000 --> 00:45:18,040
quite turn the corner and become
profitable.

924
00:45:18,040 --> 00:45:21,000
And then when the money dried
up, they all kind of went by the

925
00:45:21,000 --> 00:45:22,720
wayside and some of them went
out.

926
00:45:22,720 --> 00:45:25,240
Some of them are just illiquid
now and are are don't really

927
00:45:25,240 --> 00:45:27,920
have a clear exit plan.
So the thing that I just would

928
00:45:27,920 --> 00:45:31,240
always remind investors is just
pretend the money went away.

929
00:45:31,480 --> 00:45:33,200
Do you have a path to
profitability or at least

930
00:45:33,280 --> 00:45:35,360
self-sustaining a
self-sustaining cycle?

931
00:45:35,800 --> 00:45:37,840
And if you're, if you're, if you
have a real problem, you're

932
00:45:37,840 --> 00:45:40,520
solving with the real technology
and can get to a point where

933
00:45:40,720 --> 00:45:44,880
you're not sucking in money as a
result of the beneficiency of

934
00:45:44,880 --> 00:45:47,360
investors, which comes and goes,
right?

935
00:45:47,360 --> 00:45:50,000
Investors get very excited and
the kind of moves are heard.

936
00:45:50,760 --> 00:45:53,480
My industry does that and then
they get very unexcited and they

937
00:45:53,480 --> 00:45:55,720
move out as a herd.
And we've seen great

938
00:45:55,760 --> 00:45:59,120
technologies, whether it's
fintech, whether it's SAS, even

939
00:45:59,120 --> 00:46:01,760
crypto for a while.
The money comes, the money goes

940
00:46:01,760 --> 00:46:03,840
and then then we know what do
you do as an entrepreneur?

941
00:46:04,320 --> 00:46:06,560
So that's the thing we always
going to work on in the business

942
00:46:06,560 --> 00:46:07,520
plans.
It's how do you get this thing

943
00:46:07,520 --> 00:46:09,400
to, to break even?
How do you get it to that when

944
00:46:09,400 --> 00:46:12,240
the money goes away, which it
will during the next five years,

945
00:46:12,240 --> 00:46:14,920
whether it's next year or 2029,
I don't know.

946
00:46:14,920 --> 00:46:17,320
I don't predict.
My crystal ball doesn't doesn't

947
00:46:17,320 --> 00:46:20,320
have that precision filter on
it, but it happens.

948
00:46:20,320 --> 00:46:22,200
What are you going to do then?
And that's the only thing I'll

949
00:46:22,200 --> 00:46:24,960
leave you with.
Yeah, absolutely.

950
00:46:24,960 --> 00:46:29,600
And it's, I think it's really
healthy for the money investors

951
00:46:29,600 --> 00:46:33,640
out there, wherever they are in
the capital stack to ask that

952
00:46:33,640 --> 00:46:37,320
question as part of their own
filter system when they're

953
00:46:37,320 --> 00:46:39,800
looking at investment.
You know, one of the biggest,

954
00:46:40,000 --> 00:46:43,280
you know, I talk about it in my
2 books, you know, and on the

955
00:46:43,320 --> 00:46:46,240
podcast with other people and on
the other content I created is

956
00:46:46,240 --> 00:46:50,080
that, you know, investing on
emotion is one of the kiss

957
00:46:50,080 --> 00:46:53,520
deaths of, you know, making a
private and particularly a

958
00:46:53,520 --> 00:46:55,560
private investment.
It always has to be what is the

959
00:46:55,560 --> 00:46:58,120
problem that a company is
solving and do they know how

960
00:46:58,120 --> 00:47:01,440
they're going to make money?
And even if it slows down,

961
00:47:01,440 --> 00:47:04,360
they're making money because
they don't have X outside

962
00:47:04,360 --> 00:47:06,880
capital to accelerate the
process of getting, you know,

963
00:47:06,880 --> 00:47:10,040
getting customers or things like
that, they still know how to

964
00:47:10,040 --> 00:47:13,440
make money on it, right?
That is to me fundamentally

965
00:47:13,440 --> 00:47:15,120
core.
And for the mistakes get made

966
00:47:15,120 --> 00:47:19,920
when we let a a motion, the
subjective criteria or the

967
00:47:19,920 --> 00:47:24,400
charisma of a of a founder
outweigh the objective.

968
00:47:24,600 --> 00:47:27,480
You know sensible things of you
know, what is the value

969
00:47:27,480 --> 00:47:29,400
proposition and how do they put
money in the bank?

970
00:47:29,480 --> 00:47:32,440
That's very well said, yeah.
So all right, thank you

971
00:47:32,680 --> 00:47:35,480
everybody for tuning in to
listen to the Compassionate

972
00:47:35,480 --> 00:47:40,080
Capitalist show again.
Go get the book Big bubble.

973
00:47:40,080 --> 00:47:45,080
Trouble is the the website and
the book is why don't you say?

974
00:47:45,080 --> 00:47:46,800
Because I'm scrolling to get all
the words right.

975
00:47:47,600 --> 00:47:50,640
Yes, it's called A Brief History
of Financial Bubbles.

976
00:47:50,920 --> 00:47:53,200
You can get that at
bigbubbletrouble.com.

977
00:47:53,200 --> 00:47:55,240
Get your pre-orders now.
It should come out in late

978
00:47:55,240 --> 00:47:57,320
January, maybe early February.
I'm coming back and forth with

979
00:47:57,320 --> 00:48:01,240
the editors now and getting all
getting it all done and unlike

980
00:48:01,240 --> 00:48:03,360
you haven't, like haven't
written books and print them

981
00:48:03,360 --> 00:48:05,120
out.
So I'm now appreciating how long

982
00:48:05,200 --> 00:48:08,520
it takes to get from the 98 yard
line into the end zone.

983
00:48:08,520 --> 00:48:11,000
But we're I feel like we're on
the 98 yard line somehow.

984
00:48:11,000 --> 00:48:12,120
This is going to take a few.
It might.

985
00:48:12,160 --> 00:48:13,960
It might be February before the
book hits the shelves.

986
00:48:14,440 --> 00:48:17,280
And then then when it's out,
they'll be able to get it on all

987
00:48:17,280 --> 00:48:20,720
the places that you normally get
books, all your different book.

988
00:48:20,760 --> 00:48:23,800
It'll be, you know, bookstores
as well as, you know, Amazon and

989
00:48:23,800 --> 00:48:25,760
all that stuff, right?
That's right.

990
00:48:25,800 --> 00:48:28,600
That's correct.
Okay, great and if you've

991
00:48:28,600 --> 00:48:33,080
enjoyed this show, listeners,
please, please go and you know,

992
00:48:33,080 --> 00:48:35,560
give us a ring, give them a 5
give us a five star throw a

993
00:48:35,560 --> 00:48:38,320
comment.
The simplest thing is just a

994
00:48:38,440 --> 00:48:41,600
thumbs up or whatever is on your
particular platform that you're

995
00:48:41,600 --> 00:48:45,160
listening to because you cannot
imagine how important that is

996
00:48:45,160 --> 00:48:49,920
for other people to find This
show is that the the platforms

997
00:48:50,000 --> 00:48:52,960
recognize that somebody else
listened to it and liked it.

998
00:48:52,960 --> 00:48:55,520
So it's really is really
important to do that.

999
00:48:55,520 --> 00:48:57,720
So thank you very much in
advance for doing that.

1000
00:48:58,000 --> 00:49:01,360
Onwards and upwards and and have
a great day.

1001
00:49:01,520 --> 00:49:04,760
Thank you.
Thank you for listening to this

1002
00:49:04,760 --> 00:49:07,640
podcast, The Compassionate
Capitalist Show, brought to you

1003
00:49:07,640 --> 00:49:12,680
by Cougar and Capital Holdings
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1004
00:49:15,120 --> 00:49:19,160
You are encouraged to visit the
website kugarand.com to learn

1005
00:49:19,160 --> 00:49:23,600
more about how Karen and her
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1006
00:49:23,600 --> 00:49:27,520
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1007
00:49:27,920 --> 00:49:31,360
And how the Kugarand Capital
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1008
00:49:31,640 --> 00:49:35,160
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1009
00:49:35,160 --> 00:49:37,560
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1010
00:49:37,560 --> 00:49:41,960
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1011
00:49:42,400 --> 00:49:46,360
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1012
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1014
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1015
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1016
00:49:59,320 --> 00:50:03,720
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1017
00:50:03,720 --> 00:50:06,800
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1018
00:50:06,800 --> 00:50:10,040
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1020
00:50:13,720 --> 00:50:17,040
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1021
00:50:17,400 --> 00:50:20,360
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1022
00:50:20,360 --> 00:50:23,360
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1023
00:50:23,360 --> 00:50:28,000
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1024
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1025
00:50:31,440 --> 00:50:34,680
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1026
00:50:34,680 --> 00:50:36,880
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Inside Secrets to Angel

1027
00:50:36,880 --> 00:50:40,040
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A step by step strategies to

1028
00:50:40,040 --> 00:50:43,120
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1029
00:50:43,120 --> 00:50:46,400
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