The Exchanges

Q And then, and then they set the price with that bid?

A So the way the pricing works, you know, there's three kind of different IPOs, right? Traditional IPO, uh, auction IPO that Google did, and I think somebody else did, uh, and then direct listing that few companies did. But let's talk about traditional IPO because that's the vast majority of it. So once you file it, you know, based on the comps, based on some of the public feedback that you hear, The company with the partnership with the banks, you know, set the price range, and then you go to the roadshow, and then based on the demand, either you hopefully raise the price range, uh, because if the price range is going down, that's a bad thing. Uh, uh, so you start with the price that you have a 98% conviction that you can price it at that range, and then you go up from there, and that depends on the demand and the feedback you get from the investors. And basically you ask them what is their price target on that company is, right? And if the, and this is a little, little game happens. Nobody really, you know, sometimes they share a price target that's way too high. Sometimes they share a price target that's way too low, depending on who has the power. But that's how you come up with a price target based on the demand you see in the market. If the book is 10 times covered by high quality investors, 10 times covered, let's say you're selling a hundred shares, there's a thousand You…

AI assessment note: “that's how you come up with a price target based on the demand you see”

Q What Yahoo's lack of spend versus Google's spend?

A Yeah, people are loving Yahoo because they don't spend that kind of money. 60% of the EBITDA was translating into cash flow, but Google was spending so much money on CapEx, you know, and people just couldn't figure out, like, why is the ROI? But 20 years later, we see the ROI, you know. So, so same thing, you know, you know, like when I worked on Google IPO, we had this analyst meeting. As part of this, uh, IPO, you go meet the CEO, so there were like, 20 analysts, you know, who, from different banks. Uh, we went to see Larry, Sarge, Eric Schmidt, and I remember one thing that really stood out along the ride, like, listen, this is 20 years ago, so I don't, I can't say word by word, but basically, Larry said that the most transformative thing Google did was the AOL deal. Because AOL, they gave them a 95% revenue share when AOL search box was powered by Google. You know, that's what, AOL search, you know, was powered by Google. They'll sign, and all the Google powered the search on the back, and Google gave them 95% of the rev share, and I think five percent of the companies weren't. And Yahoo walked away from it because saying that this Google is never going to make money. But Larry said, one or the other at that meeting, that that was the most transformative deal. Because that put Google on the map. People saw Google name and build Google's brand, and then people went to google…

AI assessment note: “Yahoo because they don't spend that kind of money. 60% of the EBITDA”

Q When you reflect back on your time, you mentioned some incredible, uh, product additions, improvements. What did you do that you wish you hadn't done?

A At Snap? One of the things, I think we grew too fast, too quickly. You know, I think, you know, if you look at, in January one, we did zero revenue. You know, uh, January one, 2015. Uh, Q four of 2018, so four years later, our annualized revenue was 1.6 billion. Today, SNAP will do, what, five billion plus minus revenue. You know, it's, uh, so in 14, they had almost no revenue. So in 10 years, their revenue went from zero to five billion plus. So the challenge is, and this is actually a good lesson for all the CEOs, and again, I think, I don't think I wish, but that it created a lot of stress, you know, so I, I don't regret of doing it growing so fast, but the thing is that when you grow really fast, a couple of things happen. Expectation goes out of hand. Everybody always expect you to grow that way. Uh, second is, it's like when you run really fast, you know, At some point, you know, it start hurting, right? So, so when you grow a little bit more deliberately, you can control those pains.

AI assessment note: “I don't regret of doing it growing so fast”

Q of large institutions and endowments to privates. We mentioned that kind of the reduction of volatility that comes with that. The thing that also comes with that is a lot of illiquidity. Which is a big challenge. How do we solve the problem of illiquidity in private markets with the extension of private capital, meaning IPOs are so much further off, and the removal of M&As? There's just no liquidity.

A So I think that will change because what happened in last decade, there were a lot of liquidity. In 2021, 20 20, there was a lot of liquidity, and, and people thought, and by the way, last decade between 2011 to 2021 was great return for private equities. However, I think going forward it's going to be very, very tough for a couple of reasons. Number one, all these institutions who gave money to privates, they are not getting their DPI, you know, so they will be much slower allocating more capital to private, and I think some of the privates story has not been told yet, right? So I think those are bad investment. People didn't write it down to zero or near zero, And that will happen over time, and then people will realize that it's not only a DPI issue, it's also permanent loss of capital. I don't think people are realizing that they have permanent loss of capital in many of their private investment, and that will happen. And third is we lived in a historically low interest rate environment, so the private was great, but as the interest rate goes up, You can get better return in, you know, or decent return in public securities, you know, or fixed income and things like that. I actually think even with interest rate going down, we're not going back to zero percent interest rate environment anytime soon. And then the fourth issue is that technology, and I think this is a really i…

AI assessment note: “I think that will change because what happened in last decade, there were a lot”

Q So the alternative to that is, you can also sell the business. Yeah, you can sell the business. M&A is pretty much shut. Lina Khan seems to have really put an iron fist on the M&A market. Do you agree that the M&A market is shut in a Lina Khan environment?

A Listen, I am not super fan of Lena Khand, and, you know, I fundamentally believe over-regulation is bad, uh, because I think America became a great country because it empowered entrepreneurship. It empires small businesses, and people do that, and, and the thing is that, at the end of the day, you know, when you give the decision-making or capital allocation, and this is, you know, For the people who are allocating the capital or running the business, taking it away from them and giving it to a bunch of people who never built a business, never run a company, but they're more of a bureaucrat, you know, government officials for a long time only lived in Washington DC. America is a big country and a bunch of people in Washington DC making the decision. I don't think that's a good outcome for the country, and that's not the way the country was meant to be created. So I fundamentally disagree with over regulations and some of the things that Lena Kahn has done and the potential. I, I think is, is flawed. But saying that, I actually don't think the M&A market, you can blame, I think people has a reason to blame everything, and right now there is, and I look at it on Twitter all the time, they like to blame on everything. I think the problem in M&A market is also the same thing. This, and it's changing, the seller expectation is too high. When a public company is trading 20 to 30 time…

AI assessment note: “I actually don't think the M&A market, you can blame... seller expectation is too high”

Q of large institutions and endowments to privates. We mentioned that kind of the reduction of volatility that comes with that. The thing that also comes with that is a lot of illiquidity. Which is a big challenge. How do we solve the problem of illiquidity in private markets with the extension of private capital, meaning IPOs are so much further off, and the removal of M&As? There's just no liquidity.

A So I think that will change because what happened in last decade, there were a lot of liquidity. In 2021, 20 20, there was a lot of liquidity, and, and people thought, and by the way, last decade between 2011 to 2021 was great return for private equities. However, I think going forward it's going to be very, very tough for a couple of reasons. Number one, all these institutions who gave money to privates, they are not getting their DPI, you know, so they will be much slower allocating more capital to private, and I think some of the privates story has not been told yet, right? So I think those are bad investment. People didn't write it down to zero or near zero, And that will happen over time, and then people will realize that it's not only a DPI issue, it's also permanent loss of capital. I don't think people are realizing that they have permanent loss of capital in many of their private investment, and that will happen. And third is we lived in a historically low interest rate environment, so the private was great, but as the interest rate goes up, You can get better return in, you know, or decent return in public securities, you know, or fixed income and things like that. I actually think even with interest rate going down, we're not going back to zero percent interest rate environment anytime soon. And then the fourth issue is that technology, and I think this is a really i…

AI assessment note: “I think going forward it's going to be very, very tough for a couple of reasons.”

Q So the alternative to that is, you can also sell the business. Yeah, you can sell the business. M&A is pretty much shut. Lina Khan seems to have really put an iron fist on the M&A market. Do you agree that the M&A market is shut in a Lina Khan environment?

A Listen, I am not super fan of Lena Khand, and, you know, I fundamentally believe over-regulation is bad, uh, because I think America became a great country because it empowered entrepreneurship. It empires small businesses, and people do that, and, and the thing is that, at the end of the day, you know, when you give the decision-making or capital allocation, and this is, you know, For the people who are allocating the capital or running the business, taking it away from them and giving it to a bunch of people who never built a business, never run a company, but they're more of a bureaucrat, you know, government officials for a long time only lived in Washington DC. America is a big country and a bunch of people in Washington DC making the decision. I don't think that's a good outcome for the country, and that's not the way the country was meant to be created. So I fundamentally disagree with over regulations and some of the things that Lena Kahn has done and the potential. I, I think is, is flawed. But saying that, I actually don't think the M&A market, you can blame, I think people has a reason to blame everything, and right now there is, and I look at it on Twitter all the time, they like to blame on everything. I think the problem in M&A market is also the same thing. This, and it's changing, the seller expectation is too high. When a public company is trading 20 to 30 time…

AI assessment note: “I actually don't think the M&A market, you can blame”

Q It absolutely does have value. I completely agree with you. You've taken many great companies public. Can you be a public company today without an AI story?

A Yeah, it's all about valuation, right? You know, uh, you know, I think if you have an AI story, you know, and it can translate into cashflow, obviously. I think, again, valuation is a snapshot. You gotta think about the long-term sustainability of the business. So if you don't have an AI story, trying to tell a story, you, you open yourself a lot of risk, you know. At the end, if I were a CEO, I would just manage expectations, right? Tell the business what it is today, and if you do AI, great, your start gonna do well. But ultimately, it's all about the valuation, and if you have a great group of, valuation doesn't matter, you know, it only matters when you sell. You know, so if you're not selling your business because you have a good business that you believe in, you have an employee base who are missionaries, you know, who believes in the company's cause and gonna build a good business, and if you continue to execute, valuation will take care of itself. So why focus on day-to-day valuation?

AI assessment note: “if you don't have an AI story, trying to tell a story, you open yourself a lot of risk”

Q don't know, but are maybe too afraid to admit they don't know. How does the process actually work? So say I am the founder of Wiz, and I want to go public in 24 months. I say I want to go public, and I go and see a load of big institutions. How does that buy book building work? And who sets the price? And just take me through that.

A At the end of the day, the entire capital market in the United States, and globally probably, but in the United States, was built on trust, right? You know, people give you money when they trust you. When they give you money, they give you their trust. Because they don't, no matter what you disclose, they don't know everything about your business. They don't understand every risk about their business. At the end of the day, they read all the documents, which you, they believe that you disclose everything, and they trust you. That's why they're giving you capital. And that's why when the trust breaks, you know, it, Jamie Dimon, you know, in 2007, when I became JP Morgan, managing director, he said, you know, that there was a time the financial crisis was happening. The two bears turned A hedge fund went bankrupt, you know. And I was a young MD. I didn't really understand the consequences of that two hedge fund going bankrupt that ultimately triggered a lot of different things. And he said something very good. It takes a hundred years to build a trust, but one year, one day to destroy all the trust that you built. And stays with me. So, so the reality is, you know, if you think you're going to go public, you should go build relationship, tell your story, show your performance over the years. That, hey, I said that I did that. That builds trust, and that's a good business practice…

AI assessment note: “that has little to do with IPO. The IPO process is you go through”

Q You said Google before. You said Amazon before. Both are protecting incredible cloud businesses. They have to spend to protect their cloud business. Zark, and that's their cash cow. Zark has a cash cow in, you know, Instagram and newsfeed, which is not a cloud-based cash cow. How does Zuck not having a cloud-based cash cow change how he can behave?

A So if you look at AI, current cash cow is obviously cloud because all these guys are using the cloud businesses, and by the way, they're making great money. If you're Amazon, if you're Google, if I were running those businesses, my biggest concern would be now that, hey, I know the demand is not a problem, that I have the demand, so I should be building it. You know, it's a, uh, but the risk I'm taking Is that this demand is not sustainable. So right now that five years later, this demand going to diminish dramatically, and then I'm going to get stuck with all this capacity I built, you know, and look, that happened with Amazon in 2020, right? They built massive capacity thinking that the COVID buying patterns is the patterns going to sustain post COVID. It didn't. And they had huge margins pressure. So there is more than You know, reasonable chance that this could happen, that we are seeing pretty significant demand, and at some point demand going to stabilize or flatten. I don't know if it will or not, only time will set, you know, I'm not saying that, but that's the risk they are taking, and that's the risk you have to analyze, that all my customers who are asking for this demand, do they have the power to pay me in a long term? On Meta's case, you know, Uh, and for others, I, I look at AI, I think, you know, people focus too much on LLM, but I think, okay, what are the area…

AI assessment note: “On Meta's case, you know, Uh, and for others, I, I look at AI”

Q Could the changes to unrealized cap gains actually happen?

A It makes me laugh that when people talk about unrealized cap gain in the private market context, you know, the, the entire, the entire venture capital world is so small. It doesn't really matter what it, but people are not realizing that, think about it, like, okay, what happens to the farmland? Are you going to tax the farmers? What happens to the real estates? People who own all this real estate, they are illiquid. Are you going to charge them an unrealized gap gain? So they have to sell the real estate. You're going to destroy the real estate market. Honestly, Taxing on unrealized cap gain on Amazon is least of our problem. Unrealized cap gain tax on a headline is not a good idea. Just some of the example I got with. So nothing to do with tech, nothing to do with Jeff Bezos or Elon Musk. It's, there's a vast amount of wealth is owned by average American. So you cannot go to this vast amount of Americans and charge them unrealized cap gain to a farmer or to a, or, or, or a retiree. You know, so, so then you have to say, okay, that's not the intention. We're going to exclude all these things. And then also ask that, are you setting up a dangerous precedence? Now we are doing that to go after a small group of people. And, you know, and then we'll say, okay, let's say, you know, it sounds very popular that we're going after this 20 people who are ungodly rich. You know what? Pop…

AI assessment note: “Unrealized cap gain tax on a headline is not a good idea.”

Q You said Google before. You said Amazon before. Both are protecting incredible cloud businesses. They have to spend to protect their cloud business. Zark, and that's their cash cow. Zark has a cash cow in, you know, Instagram and newsfeed, which is not a cloud-based cash cow. How does Zuck not having a cloud-based cash cow change how he can behave?

A So if you look at AI, current cash cow is obviously cloud because all these guys are using the cloud businesses, and by the way, they're making great money. If you're Amazon, if you're Google, if I were running those businesses, my biggest concern would be now that, hey, I know the demand is not a problem, that I have the demand, so I should be building it. You know, it's a, uh, but the risk I'm taking Is that this demand is not sustainable. So right now that five years later, this demand going to diminish dramatically, and then I'm going to get stuck with all this capacity I built, you know, and look, that happened with Amazon in 2020, right? They built massive capacity thinking that the COVID buying patterns is the patterns going to sustain post COVID. It didn't. And they had huge margins pressure. So there is more than You know, reasonable chance that this could happen, that we are seeing pretty significant demand, and at some point demand going to stabilize or flatten. I don't know if it will or not, only time will set, you know, I'm not saying that, but that's the risk they are taking, and that's the risk you have to analyze, that all my customers who are asking for this demand, do they have the power to pay me in a long term? On Meta's case, you know, Uh, and for others, I, I look at AI, I think, you know, people focus too much on LLM, but I think, okay, what are the area…

AI assessment note: “On Meta's case, you know, Uh, and for others, I, I look at AI”

Q Could the changes to unrealized cap gains actually happen?

A It makes me laugh that when people talk about unrealized cap gain in the private market context, you know, the, the entire, the entire venture capital world is so small. It doesn't really matter what it, but people are not realizing that, think about it, like, okay, what happens to the farmland? Are you going to tax the farmers? What happens to the real estates? People who own all this real estate, they are illiquid. Are you going to charge them an unrealized gap gain? So they have to sell the real estate. You're going to destroy the real estate market. Honestly, Taxing on unrealized cap gain on Amazon is least of our problem. Unrealized cap gain tax on a headline is not a good idea. Just some of the example I got with. So nothing to do with tech, nothing to do with Jeff Bezos or Elon Musk. It's, there's a vast amount of wealth is owned by average American. So you cannot go to this vast amount of Americans and charge them unrealized cap gain to a farmer or to a, or, or, or a retiree. You know, so, so then you have to say, okay, that's not the intention. We're going to exclude all these things. And then also ask that, are you setting up a dangerous precedence? Now we are doing that to go after a small group of people. And, you know, and then we'll say, okay, let's say, you know, it sounds very popular that we're going after this 20 people who are ungodly rich. You know what? Pop…

AI assessment note: “Unrealized cap gain tax on a headline is not a good idea.”

Q What have you changed your mind on in the last 12 months?

A You know, I'm looking at the world. I'm a big believer in AI, you know, and, uh, and so I really looking at each businesses, you know, are they beneficial of AI? Or they're, they will be challenged by AI, you know, and that's probably one way of changing. And then I'm also the companies that will be beneficial of AI. I also need to trying to get this context window right, right? Because some companies might be beneficiaries of AI, but that may not be in two years, in four years. So you have to think about those businesses differently than the companies that will be benefited immediately. So you got to get that context window right. But I think, you know, I think AI is as important as internet.

AI assessment note: “and that's probably one way of changing”