The Exchanges

Q That's a pretty transformative IPO to be part of. What were the biggest lessons for you from being part of that?

A I think the biggest lesson is simplify the story. So one of the things that Jack and Joe did, they simplify the stories, right? Because, you know, the challenge for the global investors is they don't use Alibaba. They don't know Alibaba, like what is Taobao, Tmall, all this thing is, right? And so, but, you know, the story was positioned very simply that, hey, it's the China consumer play, and they are the eBay plus Amazon plus PayPal of China. So it's a, you know, one of the biggest thing that a lot of the founders makes, or CEOs makes, they use a lot of jargon. And, and if it takes a portfolio manager more than 30 seconds to understand the story, They will never gonna work, do work on that.

AI assessment note: “I think the biggest lesson is simplify the story.”

Q I do want to touch on, you mentioned Google quite a few times, but you also took Alibaba public. How did that come to be? I know this was earlier in your career, but how, how did you come to take Alibaba public?

A So Alibaba is after Google, you know, so, um, you know, It's a funny story. So, you know, I'm an immigrant. I came to this country, uh, uh, as an immigrant, and I believed early days that, you know, I lived in, you know, I came from Bangladesh, and I saw this internet thing is not a U.S. thing. Ultimately, you know, it's going to empower everybody, you know. It empowers people in the rural areas that we are saying that. That was my belief in 2002, 2003. And so to me, At that point was number of people and what's the revenue per person you can generate on the internet transaction that gonna create your internet economy. So I was really interested about the global opportunities of these internet companies. So in 2004, I go to China because they have a billion P plus people and internet is very nascent. So I took a group of investors to my clients, uh, public market investors to go visit all these Chinese companies. And Uh, Alibaba was one of the company, but that was private at that time. The only reason we wanted to meet with them, because Yahoo made that investment, and all of my clients were interested in Yahoo, and so I met Joe Chai, who's the co-founder and now chairman of Alibaba, uh, in Shanghai, and we really hit it off, and over time we became friends, and in 2010, I became very bored with my research job. You know, it was the same day, you covered the same companies, ta…

AI assessment note: “Joe's like, no, why don't you go become a banker and help these companies?”

Q information. I hear that and I understand that logic, but I also think they've understood that company in a environment which is private and in public markets where you have activist investors, where you have shorts, where you have a huge additional amount of variance, which make it a very different environment. You do not actually have asymmetric information because of the changing landscape. Which side do you sit on?

A I think they're both right, you know, depending on your duration, right? Because they do have, you know, if you have a management company that you have 10 years of history, and you understand that how their ability to execute in difficult environment, if you have that understanding, that ability to pivot, you know, great founders are great, are very good at pivoting. Because if you think about it, all the great business, where they started and where they became is very different business. Google started as an enterprise search business. Netflix started selling DVDs online, not even rental. You know, Amazon started as a bookstore business. So now look at all these businesses where they generate most of their money. It's completely different businesses. So, and so I think the great founders are great at pivoting. And so the, the, the risk with the business is any businesses is not either. Obviously you have a near term risk, which everybody knows. The, Asymmetric understanding about the business that helps you to create long-term return is that, that is, you cannot quantify financially, is that a group of people's, their ability to navigate difficult environment. And that's very powerful, but that's not going to pay any dividends in the short term. So I think Sequoia is right that they have that information and they, if they want to take a 10 years view, I think that's totally fi…

AI assessment note: “I think they're both right, you know, depending on your duration, right?”

Q That's a pretty transformative IPO to be part of. What were the biggest lessons for you from being part of that?

A I think the biggest lesson is simplify the story. So one of the things that Jack and Joe did, they simplify the stories, right? Because, you know, the challenge for the global investors is they don't use Alibaba. They don't know Alibaba, like what is Taobao, Tmall, all this thing is, right? And so, but, you know, the story was positioned very simply that, hey, it's the China consumer play, and they are the eBay plus Amazon plus PayPal of China. So it's a, you know, one of the biggest thing that a lot of the founders makes, or CEOs makes, they use a lot of jargon. And, and if it takes a portfolio manager more than 30 seconds to understand the story, They will never gonna work, do work on that.

AI assessment note: “I think the biggest lesson is simplify the story.”

Q Dude, it is so nice to do this in person, but I want to start, like, right in the meat of it, which is, like, we look at the IPO windows today, and everyone continues to moan, they are closed, they are closed, everyone said H.I.P.O. they would open. It seems that was not right. How do you analyze the closed IPO window that we have today, Imran?

A So I don't think IPO market is closed, so I will take that view. I think the issue is companies don't want to go public because they have, ah, their expectations are too high. You know, I think what happened in, a few things happened, right? So when, in 2020, interest rate was very low during COVID and 2021, All these companies raised money at a valuation that didn't make sense. If you look at in public market, you know, outside the big cap names, a lot of those names valuation has corrected. In the private market, that valuation didn't really correct, and so they want to go up public at a valuation that just doesn't make sense in a public market, right? I can buy, you know, companies that generate a tremendous amount of cash flow at 20 to 25 times earnings. Gap earnings, not BS, non-gap earnings. Gap earnings. So, why should I pay for a company 50 times revenue multiple? So, I think a lot of These private companies, their numbers are not there to justify the valuation that they raised the last round. So that's problem number one. And so they're not setting, resetting their valuation expectations. I think the second problem is more systemic problem in market. You know, I think if you look at allocators, so that's like universities and pension funds and endowment, they are allocated, allocating a lot of money, and now it will change, and I think it's changing slowly. A lot of mo…

AI assessment note: “I don't think IPO market is closed, so I will take that view.”

Q and he's spoken quite strongly about how we leave too much on the table with the pricing of the IPOs. And actually the pop shows that actually employees and early ambassadors didn't optimize And actually left money on the table. How do you think about pricing below to leave room for a pop versus pricing to perfection to make sure full value extraction for the early investors and early employees?

A So I have great respect for Bill Gurley. He's a very, very smart guy, um, incredibly talented, but this one thing I think he, I don't agree with him, you know, uh, I think he's over-focused on One day stock pricing. Ah, now listen, if the stock doubles, that's obviously bad, but between 20% and 50%, you know, and just over focusing on that, ah, I think it's misguided, and I'll tell you why. So number one, My guiding principle is whenever you bring a new investors, you want them to make money. You never do create a situation that, you know, they come in and they lose money because you're building new relationships. You know, I think any times you're trying to build a new relationship, my philosophy is give them more because it's the start of a relationship. So when you're going to a public market, you are building a new relationship with a new group of investors who doesn't really know you that well, and they're getting to know you. And, ah, so fine, you give them a little bit more offside, so, so be it, because you're building goodwill, because at one day, you know, as in your public life, you're gonna have a bad day, and you want that, build that goodwill. So that's how relationship builds, and that's the way I think about life in general. Don't be over transactional. The second reason is, the reason I call it misguided, I think people don't necessarily understand how public m…

AI assessment note: “I think he's over-focused on One day stock pricing”

Q information. I hear that and I understand that logic, but I also think they've understood that company in a environment which is private and in public markets where you have activist investors, where you have shorts, where you have a huge additional amount of variance, which make it a very different environment. You do not actually have asymmetric information because of the changing landscape. Which side do you sit on?

A I think they're both right, you know, depending on your duration, right? Because they do have, you know, if you have a management company that you have 10 years of history, and you understand that how their ability to execute in difficult environment, if you have that understanding, that ability to pivot, you know, great founders are great, are very good at pivoting. Because if you think about it, all the great business, where they started and where they became is very different business. Google started as an enterprise search business. Netflix started selling DVDs online, not even rental. You know, Amazon started as a bookstore business. So now look at all these businesses where they generate most of their money. It's completely different businesses. So, and so I think the great founders are great at pivoting. And so the, the, the risk with the business is any businesses is not either. Obviously you have a near term risk, which everybody knows. The, Asymmetric understanding about the business that helps you to create long-term return is that, that is, you cannot quantify financially, is that a group of people's, their ability to navigate difficult environment. And that's very powerful, but that's not going to pay any dividends in the short term. So I think Sequoia is right that they have that information and they, if they want to take a 10 years view, I think that's totally fi…

AI assessment note: “I think they're both right, you know, depending on your duration”

Q public markets for the prices that they want to go out at. So what would you do if you're the founders? Should they bite the bullet and accept that actually they will go out and they should go out and it should just be at a lower price than they'd like? Or should they consume the capital that is there in private markets and continue to stay private for longer?

A I think the valuation is a snapshot of a company's life, right? If you're building a company for a long period of time, you will, and you have a good business and you generate cash flow, you will create value. So what is your IPO prices? It doesn't matter. You know, I think if you think about it, all these companies that are public, their stock goes up, goes down every day. Sometimes your stock goes up or goes down for the things that you do. Sometimes your stock goes up or down for the things that you don't do, right? Interest rate goes up, your stock goes down. Interest rate goes down, your stock might go up. That has nothing to do with what you have done. So the reality is, you know, Over obsessing about the valuation of your business is not the right thing to do, because at the end of the day, a founder job is to create business. What is the value of the business? That's the job of an investor. So a founder who obsessed with valuation, they're not doing their day job, which is building a business. So I think, you know, if you're a founder, and I think you should go public, I'm a big proponent that companies should go public earlier than later, and we can talk about it.

AI assessment note: “I think you should go public, I'm a big proponent that companies should go public earlier”

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: “So the way the pricing works... The company with the partnership with the banks”

Q and he's spoken quite strongly about how we leave too much on the table with the pricing of the IPOs. And actually the pop shows that actually employees and early ambassadors didn't optimize And actually left money on the table. How do you think about pricing below to leave room for a pop versus pricing to perfection to make sure full value extraction for the early investors and early employees?

A So I have great respect for Bill Gurley. He's a very, very smart guy, um, incredibly talented, but this one thing I think he, I don't agree with him, you know, uh, I think he's over-focused on One day stock pricing. Ah, now listen, if the stock doubles, that's obviously bad, but between 20% and 50%, you know, and just over focusing on that, ah, I think it's misguided, and I'll tell you why. So number one, My guiding principle is whenever you bring a new investors, you want them to make money. You never do create a situation that, you know, they come in and they lose money because you're building new relationships. You know, I think any times you're trying to build a new relationship, my philosophy is give them more because it's the start of a relationship. So when you're going to a public market, you are building a new relationship with a new group of investors who doesn't really know you that well, and they're getting to know you. And, ah, so fine, you give them a little bit more offside, so, so be it, because you're building goodwill, because at one day, you know, as in your public life, you're gonna have a bad day, and you want that, build that goodwill. So that's how relationship builds, and that's the way I think about life in general. Don't be over transactional. The second reason is, the reason I call it misguided, I think people don't necessarily understand how public m…

AI assessment note: “between 20% and 50%, you know, and just over focusing on that, ah, I think it's misguided”

Q I remember when Instacart IPO'd, people said actually, uh, the distribution of the buy book Showed that it wasn't an in-demand IPO. There wasn't a concentration of one or two great names with larger concentrated positions, and that distribution across several names suggested that it wasn't a hot or in-demand IPO. Is that a true characteristic? Is concentration a characteristic of quality?

A Yes, because you, it's, the thing is that the concentration comes from Like, if you give Fidelity a million dollar allocation, they will dump the stock, you know. They might disagree with that, but, you know, a million dollar, you know, ultimately, if you have to think about it, if you're a portfolio manager, right, you're owning 30 names, 40 names, 50 names, 60 names, whatever the number is, right, and you are managing a lot of money and large, these large funds, so if you give them a small, very, very small allocation, it doesn't move the needle, so then either they have to buy more, So that it moves the needle, or you have to sell it out. That's just because there's so many names you can track and so many names. You don't want to own a bunch of names that then you're buying, running an index fund, right? But if you're really an active portfolio manager and you're trying to generate return, you have to size them and you have to have an understanding, okay, is this stock's going to go X amount and it will generate X and Y amount of return for my fund. So they have to get a certain amount of size For them to care about that position so that they can add more. And that's why the pricing mechanism comes into the play.

AI assessment note: “Yes, because you, it's, the thing is that the concentration comes from”

Q I'm so enjoying this. So we said about kind of the M&A versus the IPO optionality in terms of liquidity. The thing that people forget there is the lockup period. And there's different lengths of lockup period, correct? What determines the different length of lockup period first?

A So the standard lockup is 180 days. And the reason they do that, they want to manage the oversupply. You know, in the market. Second, it also protects the banks that, hey, insider knows something. You know, you, you want market to season out, right? The company reports two quarter numbers. They show that, you know, that helps educate the market and things like that. A lot of the VCs, you know, I, I never like it, but a lot of the VCs, uh, push hard to, uh, shorter lockup. Hey, the stock goes up a lot and stays up For a certain period of time, then we can sell. But I think that's, if I were like an operator, you know, or a banker, I would push back strongly against it, because it sends a very bad message to the investors, because you're basically saying that you think the stock gonna go up in a shorter term, and it not gonna stay there, and that's why your existing investors wanna get out. What's the rush?

AI assessment note: “a lot of the VCs push hard to shorter lockup”

Q I do want to touch on, you mentioned Google quite a few times, but you also took Alibaba public. How did that come to be? I know this was earlier in your career, but how, how did you come to take Alibaba public?

A So Alibaba is after Google, you know, so, um, you know, It's a funny story. So, you know, I'm an immigrant. I came to this country, uh, uh, as an immigrant, and I believed early days that, you know, I lived in, you know, I came from Bangladesh, and I saw this internet thing is not a U.S. thing. Ultimately, you know, it's going to empower everybody, you know. It empowers people in the rural areas that we are saying that. That was my belief in 2002, 2003. And so to me, At that point was number of people and what's the revenue per person you can generate on the internet transaction that gonna create your internet economy. So I was really interested about the global opportunities of these internet companies. So in 2004, I go to China because they have a billion P plus people and internet is very nascent. So I took a group of investors to my clients, uh, public market investors to go visit all these Chinese companies. And Uh, Alibaba was one of the company, but that was private at that time. The only reason we wanted to meet with them, because Yahoo made that investment, and all of my clients were interested in Yahoo, and so I met Joe Chai, who's the co-founder and now chairman of Alibaba, uh, in Shanghai, and we really hit it off, and over time we became friends, and in 2010, I became very bored with my research job. You know, it was the same day, you covered the same companies, ta…

AI assessment note: “Joe's like, no, why don't you go become a banker and help these companies?”

Q public markets for the prices that they want to go out at. So what would you do if you're the founders? Should they bite the bullet and accept that actually they will go out and they should go out and it should just be at a lower price than they'd like? Or should they consume the capital that is there in private markets and continue to stay private for longer?

A I think the valuation is a snapshot of a company's life, right? If you're building a company for a long period of time, you will, and you have a good business and you generate cash flow, you will create value. So what is your IPO prices? It doesn't matter. You know, I think if you think about it, all these companies that are public, their stock goes up, goes down every day. Sometimes your stock goes up or goes down for the things that you do. Sometimes your stock goes up or down for the things that you don't do, right? Interest rate goes up, your stock goes down. Interest rate goes down, your stock might go up. That has nothing to do with what you have done. So the reality is, you know, Over obsessing about the valuation of your business is not the right thing to do, because at the end of the day, a founder job is to create business. What is the value of the business? That's the job of an investor. So a founder who obsessed with valuation, they're not doing their day job, which is building a business. So I think, you know, if you're a founder, and I think you should go public, I'm a big proponent that companies should go public earlier than later, and we can talk about it.

AI assessment note: “I'm a big proponent that companies should go public earlier than later”

Q look at those two, there's this generation of companies that are actually a real question mark, which is your Dropbox, your Box, your Twilio. I'm not selecting them out deliberately or maliciously, but just the generation of Fastly, Of SaaS companies that are in that low, low growth slash flat growth and not actually as good SaaS margins as SaaS ideally has. What happens to this plethora of SaaS companies?

A So first of all, staying with the theme, I think it was the right thing for those guys to go public. And the reason I said that it's the right thing for them to go public was because number one, I think if you ask them, they will tell the company became stronger, you know, Because they were a public company, and they adopted their business many ways. Like, I don't think the margins that Box and Dropbox is generating, if they could have generated, if they would just stay private. Because the growth was slowing, they were forced to look at the business and run the business better. And I don't think if it looks, and if you have a look, there is absolutely nothing wrong with a business that's growing slower, you know, and, you know, probably the market size is small. Not everything gonna be Google and Facebook, that's totally okay. But If you have a business that is growing slower, but relatively steady, I think you should focus on improving your margins, be more cautious on cost, drive more efficiency in the businesses, return capital to the investors, right? Because if you, if you're generating profit and you can't deploy the capital, you should return capital to the shareholders.

AI assessment note: “focus on improving your margins, be more cautious on cost, drive more efficiency”

Q And how does that change then if you're public versus private?

A So from a private investor perspective, it's great because you get your liquidity and you move on. And from a public market perspective, I think the key thing with the public market is public market gives you daily feedback. It's like, you know, having a child. I know I have a 10 years old and 14 years old. When they live in your home and mom and dad shelter them, it's great. But when you go to college and you go to real life, you know, you are not that special. You're like another boy or another girl, and you gotta fight it out in the world. And when you go to a public market, you know, you are not sheltered by three or four venture capitalists. You are in a public market, everyday investor saying either you are doing great or you are doing bad. And that force you to make right decisions. And if you're a great CEO, you know what? You are, you are seeing what's changing around you. It gives you currency to make acquisitions. It helps you to pivot your business in a public market. And I think some of the greatest success stories in public market is these guys, they pivoted. You know, I, I always tell people, you know, people always say that, oh, I cannot do great things in private market. And I look at it, okay, let's look at some of the best thing happened in last 25 years. And that was done by the public market companies. AWS was created by a public market company, the entire …

AI assessment note: “from a private investor perspective, it's great because you get your liquidity and you move on.”

Q I'm so enjoying this. So we said about kind of the M&A versus the IPO optionality in terms of liquidity. The thing that people forget there is the lockup period. And there's different lengths of lockup period, correct? What determines the different length of lockup period first?

A So the standard lockup is 180 days. And the reason they do that, they want to manage the oversupply. You know, in the market. Second, it also protects the banks that, hey, insider knows something. You know, you, you want market to season out, right? The company reports two quarter numbers. They show that, you know, that helps educate the market and things like that. A lot of the VCs, you know, I, I never like it, but a lot of the VCs, uh, push hard to, uh, shorter lockup. Hey, the stock goes up a lot and stays up For a certain period of time, then we can sell. But I think that's, if I were like an operator, you know, or a banker, I would push back strongly against it, because it sends a very bad message to the investors, because you're basically saying that you think the stock gonna go up in a shorter term, and it not gonna stay there, and that's why your existing investors wanna get out. What's the rush?

AI assessment note: “a lot of the VCs... push hard to... shorter lockup”

Q Zero to 1.6 billion in revenue is enormous. What did you do very well that allowed you to grow revenue as successfully as quickly?

A I think the decision where I probably contributed is hiring sales team and ramping and good people and ramping them quickly and empowering our sales team. To go take those meetings that everybody who wanted to meet Snap and educate them. So that was the first part, right? Educate people. Because most people didn't even know how Snap works. They saw their children use Snap. They didn't know how Snap works, you know. Just educating the world, because when you're not telling your story, somebody else is telling your story. And so there's a lot of misinformation. There's a lot of misunderstanding. So we had to build a team who went and educated the world. So that was the first two years. And that probably took us from zero to 400. So in 22,004, I think we did two or three million. 2015, we did 52,016, we did four hundred million dollar annualized revenue. And it's not a full year revenue. And, and from there, we need to automate the business. And this is where we need to build self-service advertising platform. This is where we need to build attribution. This is when, and a lot of the things that's still happening. And that's just, you know, it takes time. So, uh, So the, one of the challenge was, you know, hindsight, because I went from zero to 50, 50 to 400, it was so intoxicating that, you know, if I were to go back, I would do the exact same thing, but probably start investing …

AI assessment note: “hiring sales team and ramping and good people and ramping them quickly and empowering”

Q look at those two, there's this generation of companies that are actually a real question mark, which is your Dropbox, your Box, your Twilio. I'm not selecting them out deliberately or maliciously, but just the generation of Fastly, Of SaaS companies that are in that low, low growth slash flat growth and not actually as good SaaS margins as SaaS ideally has. What happens to this plethora of SaaS companies?

A So first of all, staying with the theme, I think it was the right thing for those guys to go public. And the reason I said that it's the right thing for them to go public was because number one, I think if you ask them, they will tell the company became stronger, you know, Because they were a public company, and they adopted their business many ways. Like, I don't think the margins that Box and Dropbox is generating, if they could have generated, if they would just stay private. Because the growth was slowing, they were forced to look at the business and run the business better. And I don't think if it looks, and if you have a look, there is absolutely nothing wrong with a business that's growing slower, you know, and, you know, probably the market size is small. Not everything gonna be Google and Facebook, that's totally okay. But If you have a business that is growing slower, but relatively steady, I think you should focus on improving your margins, be more cautious on cost, drive more efficiency in the businesses, return capital to the investors, right? Because if you, if you're generating profit and you can't deploy the capital, you should return capital to the shareholders.

AI assessment note: “you should focus on improving your margins... return capital to the investors”

Q And then in terms of the Snap IPO process, how was that? Because Snap is a unique beast in terms of the story of the public markets that I always think, you know, you need to understand your audience when you're selling a story. It's a different audience to a venture investor audience when you're selling Snap to public markets investors. How did that go down in the IPO process?

A It's relatively easy because number one, you know, we had developed relationship with public market investors in advance. You know, they were in our cap table. So Fidelity invested, Tiro invested. So they knew the story. They knew our numbers. They saw the ramping. So, so it's not like they were not familiar with that. So that's One thing. And second thing with Snap, you know, while many of them didn't use the product, their children used it. Hundred percent of their children used it. You know, the true story is when the day I got the call to go meet Evan for the job, you know, ah, I was not a Snap user. True story. I was 35, I think, at that time. To be 2014, yeah, so I was 37.

AI assessment note: “It's relatively easy because number one, you know, we had developed relationship with public market”

Q And how does that change then if you're public versus private?

A So from a private investor perspective, it's great because you get your liquidity and you move on. And from a public market perspective, I think the key thing with the public market is public market gives you daily feedback. It's like, you know, having a child. I know I have a 10 years old and 14 years old. When they live in your home and mom and dad shelter them, it's great. But when you go to college and you go to real life, you know, you are not that special. You're like another boy or another girl, and you gotta fight it out in the world. And when you go to a public market, you know, you are not sheltered by three or four venture capitalists. You are in a public market, everyday investor saying either you are doing great or you are doing bad. And that force you to make right decisions. And if you're a great CEO, you know what? You are, you are seeing what's changing around you. It gives you currency to make acquisitions. It helps you to pivot your business in a public market. And I think some of the greatest success stories in public market is these guys, they pivoted. You know, I, I always tell people, you know, people always say that, oh, I cannot do great things in private market. And I look at it, okay, let's look at some of the best thing happened in last 25 years. And that was done by the public market companies. AWS was created by a public market company, the entire …

AI assessment note: “when you go to a public market, you know, you are not sheltered”

Q macro landscape, and a lot of them are saying, oh my god, look at the revenue multiples that we're getting. I mean, this is, this is impossible to make our business work. And my question to you is, is this, Actually just a reversion back to what normal was, and we lived in a grossly inflated, maladjusted time, or actually will we see revenue multiples reflate and happiness could return?

A No, revenue multiple is a BS multiple, right? Like, why would somebody give a shit about revenue multiple? So when I look at a business, so let's say a business does a hundred dollars revenue, and they're losing money. If I look at that business and say that, okay, they, uh, have a Sustainable growth path of, let's say, 25%. So over a decade, that hundred bucks will become thousand dollars, because if you grow 25% in a decade, it's ten-x return. And we think that the incremental margins are 50, 60% of that business, so that business in a decade will do five hundred million dollar profit. Then I know that market trades at 17 times earnings. Let's say this business trades 17 times earnings or 20 times earnings. So then that business is worth, you know, 500 times 20 is 10,000 dollars, you know. So now I have to look at it, what is my required rate of return? To invest in that business. And I'm willing to underwrite a revenue multiple based on that. And that's why we look at revenue multiple. But the challenge is not all very few businesses, and this is why I think one of the most important thing to look at it, what is the gross margins of that businesses? Because if a business has 20% gross margins, you know, giving them revenue multiple is a crazy thing to do. You can, but it has to be very, very low revenue multiple, because when you start with 20% gross margins, you know, ultim…

AI assessment note: “revenue multiple is a BS multiple, right? Like, why would somebody give a shit”

Q I remember when Instacart IPO'd, people said actually, uh, the distribution of the buy book Showed that it wasn't an in-demand IPO. There wasn't a concentration of one or two great names with larger concentrated positions, and that distribution across several names suggested that it wasn't a hot or in-demand IPO. Is that a true characteristic? Is concentration a characteristic of quality?

A Yes, because you, it's, the thing is that the concentration comes from Like, if you give Fidelity a million dollar allocation, they will dump the stock, you know. They might disagree with that, but, you know, a million dollar, you know, ultimately, if you have to think about it, if you're a portfolio manager, right, you're owning 30 names, 40 names, 50 names, 60 names, whatever the number is, right, and you are managing a lot of money and large, these large funds, so if you give them a small, very, very small allocation, it doesn't move the needle, so then either they have to buy more, So that it moves the needle, or you have to sell it out. That's just because there's so many names you can track and so many names. You don't want to own a bunch of names that then you're buying, running an index fund, right? But if you're really an active portfolio manager and you're trying to generate return, you have to size them and you have to have an understanding, okay, is this stock's going to go X amount and it will generate X and Y amount of return for my fund. So they have to get a certain amount of size For them to care about that position so that they can add more. And that's why the pricing mechanism comes into the play.

AI assessment note: “Yes, because you, it's, the thing is that the concentration comes from”

Q Ah, you're not a VC. If you're a VC, you'd say it was all me. Um, the question is for me from that. First off, actually, one, working with Av, Av's a hailed product mind, what are your biggest lessons from working with Av? What makes him so good?

A He has deep understanding about his customers. Very, very deep understanding of his customers, uh, and, uh, and that makes him so special. Uh, so he understanding customers very well, and, and then the second and third thing, I think this is actually true for every great CEO. One, they understand their customers. Number two, they have deep conviction, because the reality is return is a function of, you know, uh, quote unquote risk, you know, and, you know, and the reason I say quote unquote risk is that everybody thinks it's risky, but you don't because you have the conviction, and that's why you can underwrite that. And the most people don't do it makes you special. So Evan from a day one had a very deep conviction on his product and, you know, like the lenses, acquisitions that we acquired, you know, Evan looked at the product and he knew exactly how people are going to use the product. You know, we finance guys. I'm like, why are we paying so much money for this deal? But he had a very good hack or with maps or with stories, like, you know, when snap Evan launched stories, you know, like everybody was like, why are you even creating stories? Isn't that the, like, Anti you are trying to do, but he had a deep understanding how his consumers, how his customers, you know, use the product, and, and, and he was able to build the product, and he has a very deep conviction on it, an…

AI assessment note: “He has deep understanding about his customers. Very, very deep understanding of his customers”

Q Ah, you're not a VC. If you're a VC, you'd say it was all me. Um, the question is for me from that. First off, actually, one, working with Av, Av's a hailed product mind, what are your biggest lessons from working with Av? What makes him so good?

A He has deep understanding about his customers. Very, very deep understanding of his customers, uh, and, uh, and that makes him so special. Uh, so he understanding customers very well, and, and then the second and third thing, I think this is actually true for every great CEO. One, they understand their customers. Number two, they have deep conviction, because the reality is return is a function of, you know, uh, quote unquote risk, you know, and, you know, and the reason I say quote unquote risk is that everybody thinks it's risky, but you don't because you have the conviction, and that's why you can underwrite that. And the most people don't do it makes you special. So Evan from a day one had a very deep conviction on his product and, you know, like the lenses, acquisitions that we acquired, you know, Evan looked at the product and he knew exactly how people are going to use the product. You know, we finance guys. I'm like, why are we paying so much money for this deal? But he had a very good hack or with maps or with stories, like, you know, when snap Evan launched stories, you know, like everybody was like, why are you even creating stories? Isn't that the, like, Anti you are trying to do, but he had a deep understanding how his consumers, how his customers, you know, use the product, and, and, and he was able to build the product, and he has a very deep conviction on it, an…

AI assessment note: “He has deep understanding about his customers... Number two, they have deep conviction”

Q which is vast now. I mean, I had David Kahn on the show from Sequoia, who you actually kind of quote tweeted one of his, uh, and it's the six hundred billion dollar question in AI he references. How do you feel about the large chasm between capex spend by incumbents? Now, Supposedly, six hundred billion, and the lagging revenue that we see, which is very, very significant and widening.

A Listen, I think one of the things that happened with internet, you know, or tech in general, is that people always underestimate how big these businesses can be. Not for the companies, but how it will change the economy. I think people get too focused on technology cuteness, you know, how cool this tech is. I think what's important is not how cool the tech is, What's important is, is this technology improved productivity or not? Because at the end of the day, what is a GDP? GDP is number of people who are producing inside your, you know, map, right, in your country. So ultimately, the higher productivity will drive higher GDP growth. So if the technology improved productivity, that has incredible an opportunity to unleash value. So US GDP is what, 25 trillion or something like that, or 30 trillion. So, five percent improvement is 1.5 trillion of economic value creation. So, so the big question to really ask is that, is AI going to create five percent, 10%, 15% productivity improvement in the economy that can unleash so much the value? I would, sitting here, you know, I don't have, you know, I would say that's reasonable because how much productivity was created by internet? Definitely more than five percent, 10% to the society.

AI assessment note: “five percent improvement is 1.5 trillion of economic value creation”

Q which is vast now. I mean, I had David Kahn on the show from Sequoia, who you actually kind of quote tweeted one of his, uh, and it's the six hundred billion dollar question in AI he references. How do you feel about the large chasm between capex spend by incumbents? Now, Supposedly, six hundred billion, and the lagging revenue that we see, which is very, very significant and widening.

A Listen, I think one of the things that happened with internet, you know, or tech in general, is that people always underestimate how big these businesses can be. Not for the companies, but how it will change the economy. I think people get too focused on technology cuteness, you know, how cool this tech is. I think what's important is not how cool the tech is, What's important is, is this technology improved productivity or not? Because at the end of the day, what is a GDP? GDP is number of people who are producing inside your, you know, map, right, in your country. So ultimately, the higher productivity will drive higher GDP growth. So if the technology improved productivity, that has incredible an opportunity to unleash value. So US GDP is what, 25 trillion or something like that, or 30 trillion. So, five percent improvement is 1.5 trillion of economic value creation. So, so the big question to really ask is that, is AI going to create five percent, 10%, 15% productivity improvement in the economy that can unleash so much the value? I would, sitting here, you know, I don't have, you know, I would say that's reasonable because how much productivity was created by internet? Definitely more than five percent, 10% to the society.

AI assessment note: “five percent improvement is 1.5 trillion of economic value creation”

Q macro landscape, and a lot of them are saying, oh my god, look at the revenue multiples that we're getting. I mean, this is, this is impossible to make our business work. And my question to you is, is this, Actually just a reversion back to what normal was, and we lived in a grossly inflated, maladjusted time, or actually will we see revenue multiples reflate and happiness could return?

A No, revenue multiple is a BS multiple, right? Like, why would somebody give a shit about revenue multiple? So when I look at a business, so let's say a business does a hundred dollars revenue, and they're losing money. If I look at that business and say that, okay, they, uh, have a Sustainable growth path of, let's say, 25%. So over a decade, that hundred bucks will become thousand dollars, because if you grow 25% in a decade, it's ten-x return. And we think that the incremental margins are 50, 60% of that business, so that business in a decade will do five hundred million dollar profit. Then I know that market trades at 17 times earnings. Let's say this business trades 17 times earnings or 20 times earnings. So then that business is worth, you know, 500 times 20 is 10,000 dollars, you know. So now I have to look at it, what is my required rate of return? To invest in that business. And I'm willing to underwrite a revenue multiple based on that. And that's why we look at revenue multiple. But the challenge is not all very few businesses, and this is why I think one of the most important thing to look at it, what is the gross margins of that businesses? Because if a business has 20% gross margins, you know, giving them revenue multiple is a crazy thing to do. You can, but it has to be very, very low revenue multiple, because when you start with 20% gross margins, you know, ultim…

AI assessment note: “No, revenue multiple is a BS multiple, right?”

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: “One of the things, I think we grew too fast, too quickly.”

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”