The Exchanges, every show

Q Dragons in every Sunday. Brad, you're, uh, sorry. Brad, you're an investor in this company. Is this virtue signaling or is it reality? Is this a good move by them to not release this model and be thoughtful, give it to a handful of people, and just find all the bugs it can before releasing it to the public? And we've got a lot more issues to discuss about this.

A I mean, I, I, I actually think they deserve A ton of credit here, and let me walk you through why, right? They, the company could have just released Mythos, broken a lot of core things on the internet. Oftentimes in Silicon Valley, we say move fast and break things. In this case, it means just releasing the model to move further ahead of your competition, but here the company realized it would wreak havoc. They ran their own vulnerability testing. They saw that it would allow offensive hacking and people to expose browsers and browser history, expose credit cards, you know, on, on the internet. You know, what I like about this is they didn't need government to hold their hand on this. We have plenty of government regulations. They know it's in the best long-term interest of the company and the industry, you know, so they set up Project Glasswing. It's an AI-driven, you know, kind of cyber coalition. Apple, Microsoft, Google, Amazon, JP Morgan, 40 of the most important companies, and their goal is very simple. Let's spend a hundred days, use advanced AI, To find and to fix and to harden these software vulnerabilities before hackers exploit them. Now, what I think this represents, Jason, is a threshold that we're crossing. Mythos and Spud, which is going to be out from OpenAI any day now, which is the first Blackwell-trained model at OpenAI, they represent the beginning of what I…

AI assessment note: “I actually think they deserve A ton of credit here, and let me walk you through why”

Q do over the last few years, and Brad, me and you both know the dirty truth, which is, it is a fucking lucrative game if you want to do it and do it right, and some people have, absolutely, but you will, I think, obviously see a damage to, like, Multiples. So how do you think about this misalignment between fee collection and maximizing multiples on smaller pools of capital?

A Again, you know, you're right. It's structural. Um, one of the ways, like if I'm an LP and I'm allocating to somebody, I need to think about their economic alignment. Okay. So I think at altimeter, I'm 20% of the capital in altimeter. Okay. So the return to me of an incremental turn on the multiple Is a lot more important and dramatically more important on an after tax basis than return to me from fee, from management fee. Okay. And so I'm very well aligned with my partners that I'm going to size our funds in a way that I think balances maximizing return and building the firm. Um, and so like, for example, our fund started off at a hundred million, our first VC fund, VC six was closer to a billion and a half. We could have raised a lot more than a billion and a half. Why did we choose billion and a half? I think where the space we occupy at Altimeter, which is sitting in between the best seed and A investors in the world and the public markets and really helping invest in those companies like Snowflake, like Modern Treasury, like DBT pre-revenue and growing with them all the way to public markets. We need scale to do that, right? And so how much is enough scale But not so much as it becomes hugely dilutive or even meaningfully dilutive to our returns. Deploying a ten billion dollar fund or, God forbid, a fifty billion or a hundred billion dollar fund like Masa tried to do, righ…

AI assessment note: “return to me of an incremental turn on the multiple Is a lot more important”

Q We'll see, but I'm thinking very similarly to you. But it is, and I think there's, you know, the market is seasonal. Yes. I think there's real, real concerns around inflation and rates. What was CPI this morning?

A It was a 4.2. I think we added core came in at like .2 versus .3. So a little bit better. Um, but you know, clearly we're, we're above four again and, um, and, and there's short term pressure on, you know, core PCE, et cetera. Um, and we have some unknown unknowns, but the market, I mean, if I had told you the fact pattern for this year, that we're going to be in a war with Iran, that, you know, oil was going to be at a hundred bucks, that, CPI was going to be creeping back up. The internet was going to be down 15%. Software is going to be down eight percent. You would have said, I want nothing to do with that market, right?

AI assessment note: “It was a 4.2. I think we added core came in at like .2”

Q Can you, by the way, before you get to your counterpoints, what is the hawkishness that the market is specifically?

A The idea of hawkishness is that you're going to do quantitative tightening. That means you're going to pull money out of, out of the system, right? By allowing debt to roll off and not repurchasing. You know, mortgages or other things. Number two, it's that you won't lower rates as much as other people might have lowered rates. So that's what the market is kind of fearful of because he's been very critical in the past as we were on this podcast, right? Of Jerome Powell in June of 21, it was obvious to everybody in the world that inflation was skyrocketing and the fed sat on its hands. So, but let me give you a couple of thoughts. Number one, They've said very clearly, and he said clearly, that he really thinks that Greenspan got it right in the nineties, right? That sometimes you can have really high rates of growth without inflation. That comes from productivity in the nineties. That was driven by the internet. Today it's driven by AI. He thinks AI will be very deflationary. And so he's more likely to let the economy run so that we can have these four or five percent You know, GDP prints without panicking and saying, oh my gosh, I gotta, I gotta raise rates. Number two, when you look at the balance sheet, the Fed's balance sheet peaked at nine trillion dollars in 22. It's already rolled off to six and a half trillion. We've had quantitative tightening to the tune of two and a …

AI assessment note: “The idea of hawkishness is that you're going to do quantitative tightening.”

Q Went to Harvard Business School, graduated debt free, got involved in the tech world, and you started your own fund in 2008 with three million dollars from friends and family, is that right?

A Correct. So, the journey really began in 99, 1999. I was hell-bent to get to Silicon Valley, like a lot of other students at, at that point in time. I had come out and met with some startup companies at the time. One that sticks in my mind is tell me. Another one was a little search engine called Google. Um, my classmate who became my wife decided we were going to stay in Boston. I'd met David Fialco and Joel Cutler. They were thinking about starting their own venture capital firm. Um, and I partnered up with them to help them launch their first business, which was a company called NLG. An early, uh, online travel company that we had sold to Barry Diller in 2001. I became the co-CEO of that business. Um, and so it was really helping them start GC starting that first company. We had two more companies. I started open list. We sold to a public company in Seattle room. 77 sold to Google, um, got back to the investing side of the business, knew I wanted to start my own business. And the idea really Um, was to build a crossover fund that was venture first based in Silicon Valley by a founder. Um, you know, that invested in kind of early venture all the way through the public markets. Um, and so that's what, you know, that's what drove me down that path.

AI assessment note: “Correct. So, the journey really began in 99, 1999.”

Q publics and privates within LPs books, which is meaning they're going, whoa, I'm not allocating anything to venture for a while because it's so out of kilter. And it's because managers aren't either doing it at all or doing it aggressively enough. How do you think about the right way for managers to think about marking down books? How would you advise me on it? I'd love your genuine thoughts.

A Well, so we have a, you know, I think our policy is pretty standard with, with most managers, which is we don't spend a lot of time marking up our books when the NASDAQ's going up and we don't spend a lot of time marking down our books when the NASDAQ's going down, when the facts change or new rounds intervene or down rounds occur, obviously we will make changes to the portfolio. But again, What's so important is I have that very clear expectation with my LPs. So I was having a conversation with the CIO of Harvard, and he asked me early this year, what do you, how do you think we ought to think about valuations? And I said, I would take everything in your portfolio that received a valuation over the last two years, over five hundred million dollars, and I'd mark it down by 50%. What do you mean? And I said, well, if I look at the average gross stock in the NASDAQ, it's down 50%. So, like, I think every LP needs to assess for themselves how they carry it, right? So, I don't think it's just a GP issue, right? Ultimately, I have different LPs. Some are longer duration. Some are shorter duration. Some have the denominator problem that you described because they're running an endowment model. Some don't because they're families and they want to double down. And so I think it's just important to talk clearly with your LPs about what your approach is. And then if you get the question,…

AI assessment note: “we don't spend a lot of time marking down our books when the NASDAQ's going down”

Q own family too, in terms of like losing the house, losing family money, and it really instilled this like downside protection in me and risk aversion, where I'm very scared even now of losing everything, and that still very much pervades my mind. How did seeing that and seeing, you know, your father lose the majority of, you know, his money, how did that impact your mindset, do you think?

A Well, I mean, my dad didn't lose the majority of his money because that presupposes he had money to begin with. Um, you know, as my grandfather used to say, he said, we don't have money problems. We have lack of money problems. Um, you know, that was, that was the environment in my family. So he had borrowed everything from these banks. And, um, I would, I would say for me, my grandfather made the grandkids promise that we would not be entrepreneurs. That we would be professionals. And the reason I went to law school is because I had to choose between law school and medical school. And I, I, I wanted to be a doctor, but really couldn't stand the sight of blood. So I decided to go to law school as an insurance policy, really to honor my grandfather and the commitment I made to him. And once I got the insurance policy, then I felt like I checked the box and then I could go be an entrepreneur, which is in some ways wanting to finish my dad's journey, I guess. Um, but yeah, profoundly impacts you as a kid. I think there are a lot of people in Silicon Valley, uh, you know, and elsewhere as entrepreneurs that grew up, whether, you know, they're first generation, whether immigrant, whether they grew up poor, that chip on the shoulder, uh, puts chips in pockets, as they say, you know.

AI assessment note: “I decided to go to law school as an insurance policy”

Q So we have this, um, uh, medic who's scared of blood, uh, turned lawyer. Um, how does that lead to bossing the financial world and founding Altimeter, Brad?

A Yeah, I, I, I, I know. I never connected the dots. Well, I mean, so I'm in rural Indiana. I'm growing up. My dad's growing broke. So I start reading a bunch of biographies Um, to try to understand the world, really. Um, I come across Buffett Munger. This is probably, um, middle school, early high school. Um, now I'm, I'm, I don't want to give this impression that I didn't have fun. I mean, I was partying. I was playing sports. I was doing all these things, but I would show up at school early. Um, and I started, you know, on graph paper, like charting stocks. Because I was absolutely in, you know, enthralled with this idea that people who kind of looked like me, Buffett was in Omaha, right, and, and seemed to live a kind of normal life like the life I lived, I would really want to understand these markets and these things called stocks and, and, and how companies work, perhaps in a way to help explain to me why it didn't work for my dad. Um, and so I, you know, like fast forward Right. Go to law school because I said, uh, you know, I had to get that insurance policy. Um, I actually did a stint in politics, thought I was going to run for office. That's a whole nother vector of trying to live a life of purpose and have impact on the world. But I realized I was poor, went back to business school, um, in law school in 1995. Right. I had gathered all of my friends around this compute…

AI assessment note: “I come across Buffett Munger... Go to law school... went back to business school”

Q analysis, we can look at, I don't know, enterprise compliance, massive freaking markets, but actually completely category creation markets and massive expansionary markets, you know, so many of these examples From your Airbnbs and your Ubers to your Twilios of the world in enterprise. They weren't big markets at the time. How do you factor in market creation and massive market expansion into that? It needs to be big enough.

A I think you have to be careful of commingling markets and what I describe as super cycles. Ok, so in my investing career, there have been three what I would describe as super cycles. The first was the internet, right? Everybody coming online. It was very clear even by 2000 that we were going to have hundreds of millions or billions of people online. So the question was who were going to be the biggest beneficiaries of that? And so I would describe that period of time for me investing or me founding companies. I concluded that search, making sense out of all this chaos, and e-commerce, which was really search for products, were going to be the two biggest areas of category creation. So seeing through that lens, Airbnb, which was making sense out of all the world's long tail inventory, right, in the way that Craigslist had done, for all properties that were not on bookie.com, like it actually fit, it wasn't a new market at all. That was a business prosecuting a strategy in a massive super cycle with massive tailwinds. Okay. I would say the second super cycle in my career was the move from search and e-commerce to mobile and, you know, and, and, and, um, applications that sit on top of mobile. And so what led us to Facebook in 2012 or what led us to ByteDance early was this idea That this device was going to be the principle and replacement mechanism for entertainment, for communi…

AI assessment note: “I think you have to be careful of commingling markets and what I describe as super cycles.”

Q There's a couple of points I have to pick up on. You said about the rate of change there of interest rates being so important. Talk to me, how does the rate of change of interest rates impact our jobs so profoundly?

A So if you think about it, in 2002 1001, 2002, rates were at six or seven percent and there was a tremendous amount of value creation between 2002 1005, right? Because we had this massive secular tailwind in the internet, but the rate was fairly stable during this period of time and was moving, the market believed, directionally lower, okay? When you have a period where we just went through something that is a major standard deviation event, which is going from basically 50 basis points to 400 basis points on the tenure, it leads to a state of paralysis because our job is to predict the future. We got to forecast the future for the company, but we also have to forecast what is the multiple the world's going to be willing to pay at a point in time in the future. And so I think when people see a huge rate of change, now we have Larry Summers saying we may go to six or seven percent. Well, your cost of capital is going up. You need to have some predictability about that cost of capital. Let me take it to its logical extreme, Harry. Let me tell you that you could earn 20% a year in a risk-free investment. Okay. How many fewer investments would you make?

AI assessment note: “it leads to a state of paralysis because our job is to predict the future”

Q publics and privates within LPs books, which is meaning they're going, whoa, I'm not allocating anything to venture for a while because it's so out of kilter. And it's because managers aren't either doing it at all or doing it aggressively enough. How do you think about the right way for managers to think about marking down books? How would you advise me on it? I'd love your genuine thoughts.

A Well, so we have a, you know, I think our policy is pretty standard with, with most managers, which is we don't spend a lot of time marking up our books when the NASDAQ's going up and we don't spend a lot of time marking down our books when the NASDAQ's going down, when the facts change or new rounds intervene or down rounds occur, obviously we will make changes to the portfolio. But again, What's so important is I have that very clear expectation with my LPs. So I was having a conversation with the CIO of Harvard, and he asked me early this year, what do you, how do you think we ought to think about valuations? And I said, I would take everything in your portfolio that received a valuation over the last two years, over five hundred million dollars, and I'd mark it down by 50%. What do you mean? And I said, well, if I look at the average gross stock in the NASDAQ, it's down 50%. So, like, I think every LP needs to assess for themselves how they carry it, right? So, I don't think it's just a GP issue, right? Ultimately, I have different LPs. Some are longer duration. Some are shorter duration. Some have the denominator problem that you described because they're running an endowment model. Some don't because they're families and they want to double down. And so I think it's just important to talk clearly with your LPs about what your approach is. And then if you get the question,…

AI assessment note: “we don't spend a lot of time marking down our books when the NASDAQ's going down”

Q do over the last few years, and Brad, me and you both know the dirty truth, which is, it is a fucking lucrative game if you want to do it and do it right, and some people have, absolutely, but you will, I think, obviously see a damage to, like, Multiples. So how do you think about this misalignment between fee collection and maximizing multiples on smaller pools of capital?

A Again, you know, you're right. It's structural. Um, one of the ways, like if I'm an LP and I'm allocating to somebody, I need to think about their economic alignment. Okay. So I think at altimeter, I'm 20% of the capital in altimeter. Okay. So the return to me of an incremental turn on the multiple Is a lot more important and dramatically more important on an after tax basis than return to me from fee, from management fee. Okay. And so I'm very well aligned with my partners that I'm going to size our funds in a way that I think balances maximizing return and building the firm. Um, and so like, for example, our fund started off at a hundred million, our first VC fund, VC six was closer to a billion and a half. We could have raised a lot more than a billion and a half. Why did we choose billion and a half? I think where the space we occupy at Altimeter, which is sitting in between the best seed and A investors in the world and the public markets and really helping invest in those companies like Snowflake, like Modern Treasury, like DBT pre-revenue and growing with them all the way to public markets. We need scale to do that, right? And so how much is enough scale But not so much as it becomes hugely dilutive or even meaningfully dilutive to our returns. Deploying a ten billion dollar fund or, God forbid, a fifty billion or a hundred billion dollar fund like Masa tried to do, righ…

AI assessment note: “I'm 20% of the capital in altimeter... return of an incremental turn on the multiple”

Q Do you see the structural, like, problem with LPs yourself?

A Of course. I mean, but I won't describe it as a problem. I'll describe it as just a reality in the world. So for example, when I got started in this business with David and Joel, sovereign wealth funds were not allocating to venture. Pension funds weren't allocating in any real way to venture, right? I mean, Swenson and Yale were in the vanguard. Of allocating to venture, right? So it's important for GPs to understand the world has structurally changed. I'm getting cold called from Middle East sovereigns who want to invest. Okay. This is going to mean that we have a permanent increase In the amount of capital that exists in venture capital, a permanent increase and pension funds went in. And by the way, their hurdle rate, what they need to make on that money is much lower than what MIT expected to make. And so, you know, now if you're, if you're Yale or MIT, you may say these guys are ruining the party. And to some extent they are. The industry is going from highly fragmented to much more industrial scale. Returns are going to compress. But you want to, the reason I still remain so optimistic, where we started, it's a power law industry. It doesn't matter that you're in 200 deals. Hell, you don't want to be in 200 deals. The question is, is the best founder, right? Is Mike Spicer and, you know, and Bob Muglia going to do that deal with Altimeter, or are they going to do it with…

AI assessment note: “Of course. I mean, but I won't describe it as a problem.”

Q Do you worry that hustle can get in the way of loyalty and discipline and loyalty and discipline? Like if you're so intent on that, you said that money making that, that hustle, that drive, then do they maintain the discipline when times are crazy? Do they maintain the loyalty to you, Brad and Altimeter when someone says, Hey, there's a shiny new toy over here.

A I would say a couple of things. Number one, um, Having figured out a way that you personally can build alpha is a condition required though not sufficient first, right? Like I know plenty of people have a good hustle, but they're actually not great thinkers. I know plenty of people have good hustle who don't have great discernment. So all I'm saying is when you're looking at recruiting somebody, is it plausible? Right? That they have alpha that makes them different from everybody else in the world. Number two, what I would say is, listen, my philosophy about people who work at Altimeter is that, you know, this place is not indentured servitude. You're all free agents. I say to everybody who comes to work here, you may work here a year, you may work here the rest of your career. The only thing I really care about is that it's an incredible experience for you and an incredible experience for us, right? I've had three analysts, including my first analyst, Dennis Hong, who, you know, um, Dennis, the day he agreed to come work for me, he said, listen, I want to work there three years. I want you to help me get into Harvard Business School, and I want to learn everything I can so I can start my own fund. And I said, deal. And we kept that deal. Went to Harvard Business School, he dropped out and he started his own fund and I'm an LP, uh, from day one in his own fund. And so, you know…

AI assessment note: “I don't view that as a breach of loyalty.”

Q I totally agree. What's the biggest challenge in firm building for you then?

A I would say saying no. Saying no to all of the, you know, I, I mentioned SPACs last year. Um, saying no to a Middle East sovereign who calls me up and says, Brad, you ought to set up a structured convert fund. We'll sponsor it with a billion dollars because KOTU is doing one and so-and-so is doing one. And, you know, we're gonna, all these deals are gonna be written down. We think you're really good at it. Like the, the opportunity for product proliferation, people proliferation, deal proliferation, I mean, it is incessant, right? And so for me, If I didn't have the conviction and the clarity that I do around essentialism, right, and practicing that every day, it would be a total distraction. But it's the same as Johnny Ive or Steve Jobs when somebody walking, hey, I got a new product feature. You ought to add this, add that, add this button on the home screen, add this. Like, they got shit every day. And you need to build a culture where people are afraid to suggest new things unless they've actually thought about it. Right? If you are an analyst who walks into my office with an idea a day because, you know, Johnny Mac down the street did the deal, like, you will be fired. Right? You better come in prepared, not with Dribbble, but you better have done your work because we're going to have a conversation.

AI assessment note: “I would say saying no. Saying no to all of the”

Q money. How do you think about your own ego and ego management? It's so easy, you know, you're top of the industry. Everyone will praise you. Everyone will tell you how brilliant you are. You have Saudi LPs wanting to give you a billion dollars. You think you're freaking great, naturally. It's a human response. How do you think about ego management, and how would you advise me on that?

A First, um, the number of people in life who surround themselves with sycophantic others, uh, who are their yes people. Right tell them what they want to hear afraid of speaking truth to them. Um, like, it's almost everybody at a certain level. Right, because you can afford to do that. You can fire the people who say mean things to you and. Or disagreeable things to you and you surround yourself with people who all agree with you. Um, listen, I, it starts with, I have three siblings and an 86 year old mother. And we have a culture in our family of speaking truth. So, you know, my sister, um, calls me fancy pants because I don't come back and visit her enough. Right. Um, you know, so there's a lot of, you know, siblings, dear friendships. Right. And, you know, you talk to, uh, some folks, you know, I, I, I know Lexi Reese, um, who's a dear friend. I mean, I get out of line on something or I, you know, I'm going to hear from Lexi. Right. Um, and she's going to remind me of my priorities. And so having friends in your life. Who remind you of those priorities, um, and then children. Right. My kids, the things that you think are important, your kids probably won't. And, you know, and I have kids now, um, I do, we do a service, a family service trip every year, uh, uh, with give power, an incredible organization that uses solar micro grids to light up schools and health clinics around…

AI assessment note: “having friends in your life. Who remind you of those priorities, um, and then children.”

Q Why are the, um, Futures markets still trading up one and a half points, and why are things still ready?

A You know, I, I think that, listen, The, the, the stock markets ripped the last two days, assuming that Biden's going to win. And I think what the markets are starting to price in is that this is not going to be a blue wave. There's no mandate here for massive tax reform. There's going to be a divided Senate. It's going to be hard to pass legislation. That's going to be overly onerous. That the stimulus package is going to be smaller, not larger, which is why the, the rates are backing up. So I think from a, I think from a public markets perspective, the idea that we're going to have some checks and balances in place, it can live with either the, the devil we know, uh, or it can live with Biden, but it doesn't want Biden with Elizabeth Warren as treasury secretary.

AI assessment note: “what the markets are starting to price in is that this is not going to be a blue wave”

Q actually make it like two or three or four times as productive. That means you have businesses that are worth billions of dollars, where if you fix them, the margins go from 15% to 50, 60, 70%. Some of this stuff looks pretty interesting to us that could actually happen in the next few years. Are you, are you guys thinking about services businesses with AI or all that stuff?

A Absolutely. I mean, and by the way, I remember talking to you early in your, in your journey at Palantir. And you guys were way ahead of your time. Um, and Palantir is in many ways just coming into its own, right, in terms of the significant, um, you know, transformations that it can have on businesses leveraging AI. And so, I think that, you know, I was in Omaha recently having dinner, and you look at the Berkshire portfolio. Its entire portfolio is already being transformed with AI. This is not something that's going to be You know, discreetly preserved in the tech community, right? This is going to remake how United Airlines interacts with customers. It's going to remake how, you know, furniture manufacturers, uh, finish their goods in the US. So I think this is probably the single most important, um, step function we've seen in productivity in this country since the internet. So, and I can give you a couple examples on that.

AI assessment note: “Absolutely. I mean, and by the way, I remember talking to you”

Q about it and touched on it a little bit. You've spoken before about being sufficiently concentrated. What does that look like in your mind in terms of the optimal concentration? Because I think I struggle more with it. I don't think people are that good pickers, and I think diversification is more needed, and you, I think, think concentration is needed. So help me understand why sufficiently concentrated is better.

A Yeah, I mean, when I think about concentration, you gotta know, again, I, I, uh, you know, I come out of this Buffett school, and I think, uh, you know, as, as Buffett has said, you know, diversification is a great way to preserve wealth, but a terrible way to create it. Right. And so I think diversification in many ways is the greatest myth perpetrated on the investing public. The idea that risk mitigation is the equivalent of diversification. Anybody who lived through 2008 knows that all asset and all pricing was correlated. Hell, look at a chart on the, on any technology company over the course of the last nine months. How much did diversification help you? Right? And so what I want to do and what people should pay me for or choose not to pay me for, right? Like they either believe or they don't believe, is can you, are you in a position intellectually, network, conversion, et cetera, to generate alpha? And if you are, right, if I find a company where I have a level of conviction, like I did in Booking.com and Priceline in 2004, Google in 2005 or Snowflake, Uh, you know, in 2000 and, and, and, uh, 14, if we find those opportunities and we re-underwrite them at every phase, mentally flexible, stay open to the idea that you're wrong, but I want maximum dollars. Again, it's my money. I'm taking my partners along for the ride. I want maximum dollars behind our best ideas. Why th…

AI assessment note: “Why the hell would I put an incremental dollar in my 10th best idea”

Q Final one. This is episode 7850. 10 years time, Brad. Me and you are sitting down again. What does Altimeter look like then? Where are we?

A Well, I think it's going to be a lot more of the same. You know, we may, we may be five or 10 people bigger. Um, The incredible partners and young people around here will have even more responsible responsibility, uh, doing all the things that we do today. I mean, in the fullness of time, I want to see Altimeter have an incredible generational transfer. They're going to end up owning most of the place. My money, I'm going to ultimately, uh, give away. We've started, you know, uh, uh, fast down that journey. Um, but to me, it's, you know, I will have done my job. If the altimeter 10 years from now looks very recognizable, Culturally, it's values around impact, around radical candor, around intellectual honesty, thought leadership, partnership first. If all of that is still pervasive here, and I think if we were a 500 person organization and look like the Blackstone of venture capital, I think we probably would have failed in that journey. That's not, that's not our North Star. It's not where we're headed. Other people may do it. They may make a lot more money than us. They'll certainly end up on the covers of magazines and whatnot. But knowing who we are and prosecuting that strategy and having a lot of fun along the way, um, if I don't do that, shame on me.

AI assessment note: “I think it's going to be a lot more of the same.”

Q own family too, in terms of like losing the house, losing family money, and it really instilled this like downside protection in me and risk aversion, where I'm very scared even now of losing everything, and that still very much pervades my mind. How did seeing that and seeing, you know, your father lose the majority of, you know, his money, how did that impact your mindset, do you think?

A Well, I mean, my dad didn't lose the majority of his money because that presupposes he had money to begin with. Um, you know, as my grandfather used to say, he said, we don't have money problems. We have lack of money problems. Um, you know, that was, that was the environment in my family. So he had borrowed everything from these banks. And, um, I would, I would say for me, my grandfather made the grandkids promise that we would not be entrepreneurs. That we would be professionals. And the reason I went to law school is because I had to choose between law school and medical school. And I, I, I wanted to be a doctor, but really couldn't stand the sight of blood. So I decided to go to law school as an insurance policy, really to honor my grandfather and the commitment I made to him. And once I got the insurance policy, then I felt like I checked the box and then I could go be an entrepreneur, which is in some ways wanting to finish my dad's journey, I guess. Um, but yeah, profoundly impacts you as a kid. I think there are a lot of people in Silicon Valley, uh, you know, and elsewhere as entrepreneurs that grew up, whether, you know, they're first generation, whether immigrant, whether they grew up poor, that chip on the shoulder, uh, puts chips in pockets, as they say, you know.

AI assessment note: “profoundly impacts you as a kid... that chip on the shoulder, puts chips in pockets”

Q There's a couple of points I have to pick up on. You said about the rate of change there of interest rates being so important. Talk to me, how does the rate of change of interest rates impact our jobs so profoundly?

A So if you think about it, in 2002 1001, 2002, rates were at six or seven percent and there was a tremendous amount of value creation between 2002 1005, right? Because we had this massive secular tailwind in the internet, but the rate was fairly stable during this period of time and was moving, the market believed, directionally lower, okay? When you have a period where we just went through something that is a major standard deviation event, which is going from basically 50 basis points to 400 basis points on the tenure, it leads to a state of paralysis because our job is to predict the future. We got to forecast the future for the company, but we also have to forecast what is the multiple the world's going to be willing to pay at a point in time in the future. And so I think when people see a huge rate of change, now we have Larry Summers saying we may go to six or seven percent. Well, your cost of capital is going up. You need to have some predictability about that cost of capital. Let me take it to its logical extreme, Harry. Let me tell you that you could earn 20% a year in a risk-free investment. Okay. How many fewer investments would you make?

AI assessment note: “it leads to a state of paralysis because our job is to predict the future”

Q Do you see the structural, like, problem with LPs yourself?

A Of course. I mean, but I won't describe it as a problem. I'll describe it as just a reality in the world. So for example, when I got started in this business with David and Joel, sovereign wealth funds were not allocating to venture. Pension funds weren't allocating in any real way to venture, right? I mean, Swenson and Yale were in the vanguard. Of allocating to venture, right? So it's important for GPs to understand the world has structurally changed. I'm getting cold called from Middle East sovereigns who want to invest. Okay. This is going to mean that we have a permanent increase In the amount of capital that exists in venture capital, a permanent increase and pension funds went in. And by the way, their hurdle rate, what they need to make on that money is much lower than what MIT expected to make. And so, you know, now if you're, if you're Yale or MIT, you may say these guys are ruining the party. And to some extent they are. The industry is going from highly fragmented to much more industrial scale. Returns are going to compress. But you want to, the reason I still remain so optimistic, where we started, it's a power law industry. It doesn't matter that you're in 200 deals. Hell, you don't want to be in 200 deals. The question is, is the best founder, right? Is Mike Spicer and, you know, and Bob Muglia going to do that deal with Altimeter, or are they going to do it with…

AI assessment note: “I won't describe it as a problem. I'll describe it as just a reality”

Q What is so special about Burning Man for you, Brad?

A Uh, we could make it, we could make a whole show on this. Maybe we should get Rich and Bob will do a whole show on this. No, listen, I think there's this, there's this view in the world that Bernie man is, uh, you know, some hedonistic exercise of, you know, of, of drugs and orgies and, and, and whatnot. And, you know, that's fine because it, it just means there's a lot of self selection. Not everybody's going to go and not everybody should go for me. It's core value is no judgment. Like, truly going to a place where you suspend judgment about what you see, the things going on around you, the people, et cetera, and you see the art of the possible. It is a great open source experiment in humanity. It's an open source festival of 75,000 people that could not possibly exist the way it does. If it had a CEO or a head developer or architect who tried to micromanage what that event looked like. And so I think, you know, not only do I see great friends, not only do I have fun and I'm not saying crazy shit doesn't happen. It does. Right. But for me, I think it's embodies a real spirit that we could bring into our daily lives, which is suspend judgment about, uh, or people are quick to get to judgment about people or the way they do things. Um, you know, have an open mind and realize that that open design can lead to a lot of really incredible creativity.

AI assessment note: “For me, it's core value is no judgment.”

Q about it and touched on it a little bit. You've spoken before about being sufficiently concentrated. What does that look like in your mind in terms of the optimal concentration? Because I think I struggle more with it. I don't think people are that good pickers, and I think diversification is more needed, and you, I think, think concentration is needed. So help me understand why sufficiently concentrated is better.

A Yeah, I mean, when I think about concentration, you gotta know, again, I, I, uh, you know, I come out of this Buffett school, and I think, uh, you know, as, as Buffett has said, you know, diversification is a great way to preserve wealth, but a terrible way to create it. Right. And so I think diversification in many ways is the greatest myth perpetrated on the investing public. The idea that risk mitigation is the equivalent of diversification. Anybody who lived through 2008 knows that all asset and all pricing was correlated. Hell, look at a chart on the, on any technology company over the course of the last nine months. How much did diversification help you? Right? And so what I want to do and what people should pay me for or choose not to pay me for, right? Like they either believe or they don't believe, is can you, are you in a position intellectually, network, conversion, et cetera, to generate alpha? And if you are, right, if I find a company where I have a level of conviction, like I did in Booking.com and Priceline in 2004, Google in 2005 or Snowflake, Uh, you know, in 2000 and, and, and, uh, 14, if we find those opportunities and we re-underwrite them at every phase, mentally flexible, stay open to the idea that you're wrong, but I want maximum dollars. Again, it's my money. I'm taking my partners along for the ride. I want maximum dollars behind our best ideas. Why th…

AI assessment note: “Why the hell would I put an incremental dollar in my 10th best idea”

Q Is it difficult giving them the perspective? I mean, this respectfully given, you know, you do have a lot of money and you've earned it and it's very well earned, but they are brought up in a different life than you had. Is it difficult providing that perspective to them as a parent?

A It is the most difficult. And I've discussed this with, you know, lots and lots of people on the topic. Um, and here's what I've concluded from wisdom from whether it's, you know, from Buffett to reader is it's not what you say to your kids. Like you can say, oh, be humble. And then you go, you know, into your 18,000 square foot home. Right. It's not what you say. It's what you do. It's the life you live. It's how they see you treating others. It's the choices that they see you making. And so, you know, I ended up, you know, saying that my life is different. I live in a small house. In fact, I had a, a founder, um, of a Decacorn, you know, who had visited other investors' homes and he came over to my house and he, he was so floored by it. He said, can I take a video of this? We're sitting around the fire in the back, you know, fire pit in the backyard. He said, I've got to show this to my wife. She won't believe that you live here. And, um, you know, and so for me, my children know that we could afford a much different home, but they know that we choose to live there. And, you know, and now my son says to me, dad, I love that we live here. My He's like, because I'm not embarrassed to bring any of my friends here. Like I love this house. Right. So, you know, I think there's something that we're doing right. Um, but yeah, I think it's about how you live your life every day. And l…

AI assessment note: “It is the most difficult. And I've discussed this with, you know, lots and lots”

Q Yes. If enough people, though, do what you're saying, Brad, and they just retreat to quality at some point that quality, those quality companies would then become fully valued, maybe even overvalued. And thus the cycle begins again or not. So how long does that take?

A No, you nailed it. What happened last year, 20, 21 dispersion collapsed. Go check out Jam and Ball, who does incredible software analysis on our team. Dispersion collapsed between the best cohort and the worst cohort of software companies last year. The first thing that happened is dispersion returns. We pay a higher price for the best shit, and we pay a lower price for the low quality stuff, right? Then when we start to recover, when there's more predictability in the world, when we resolve the war, when we understand the path of inflation, Right? The stuff close in on the risk curve, that'll start being fully valued. So then we will be brave enough to walk a little further out on the ice on the lake, testing it. Is it safe to walk here? And then you walk out a little further and sadly, right? Eventually we're in the exact same pattern we've been before, which is we'll know we're at a market top five or six or seven years from now. When we repeat the same asinine behavior that we just went through, when everybody becomes complacent again, And overbidding this stuff way out on the risk curve. I'm just suggesting to you the number one question I get from GPs, venture capitalists, and others right now is when are we going to bounce back? Let me be absolutely clear. There is no bouncing back to where we were the last 18 months. That was the outlier. That was the make-believe. What…

AI assessment note: “we'll know we're at a market top five or six or seven years from now”

Q In a typical acquired episode, or a typical tech story, it's like, this is the hero's journey, and, like, he wins, right? And, like, you grow up in this, like, amazing, you know, entrepreneurial journey, and you're like, this is awesome. I'm gonna go do the same for that.

A That's not what happens, right? I wish, I wish the story ended that way, um, you know, for his sake. I mean, he borrowed money from the bank, mortgaged the house, mortgaged the car, and the punchline is there are moments in time where the deck is so stacked against you, notwithstanding all your best effort, notwithstanding all the extraordinary sacrifice of the team, or maybe even the brilliance of the idea, it's not meant to be at that moment. And, um, in venture capital, if you fail, the risk is largely on the venture capitalist. I mean, in Silicon Valley, failure is on the part of the founder, so long as you conduct yourself in a way that's honorable, it's a badge of courage that you gave it a go. And we have an institutional structure where the venture capitalists can withstand that loss because they have a portfolio that they can, you know, cushion that with. So I often, you know, young founders will come in and say, well, I just don't know if I can take the risk. You know, they just graduated from Stanford. They have no student debt.

AI assessment note: “That's not what happens, right? I wish, I wish the story ended that way”

Q And just on the day trading for a second, because I think probably the average person shouldn't be day trading is my guess. Like, how do you figure out how to do that? Like, what was the, what was the theory at the time?

A Well, I, you know, I had a fascination in, in high school. I was already, you know, going in before school, pulling open the newspaper, plotting stocks. So, you know, mathematically inclined and had a orientation in this regard. And frankly, it was just my hack. It was my way of trying to figure out a way to make money. I can't say that intellectually I had done a lot of studying that this was a refined way, uh, to make money, but It seemed to me that I could study a company, I could study stock patterns, and I could figure out mispricings, and I have to say the first time I bought a stock, right, it was not the best reason for buying it, but I bought IBM, and they had just, ah, they had just, um, put a new CEO in charge, and the CEO's name was Lou Gerstner, and, um, And I, you know, no relation, but I was immediately, like, attracted to the fact that, okay, there's somebody whose name I recognize, and he was, um, you know, would eventually write the book Elephants Can Dance. Um, you know, and he really remade IBM, and at that point in time, um, they were kind of having their second, uh, second wave, and so made some money on that first stock. Um, and then I remember sitting in business school in 1999, I would sit in the back of the classroom because we had Bloomberg terminals outside of our classrooms, and so I could sneak out, pretend I was going to the restroom, and I could …

AI assessment note: “I could study a company, I could study stock patterns, and I could figure out mispricings”

Q I mean, this show is just the biggest combination of ballers. Now I'm so excited to hand over to the one and only Brad Gerstner at Altimeter. What is your relationship?

A Wow, this is deep, and I've done a lot of reflection on this. If you would have told me I have, was going to have what I have, let's say when I was 20, and then you would have said, describe to me the house you're gonna live in, the car you're gonna drive, the life that you're gonna live. I would have described to you a life totally different than the life I'm living. From as early as I can remember, sixth grade, I was like, I have to make a million dollars by the time I'm 30. It was a dragon in my life, because it destroyed our lives. When my dad went broke, destroyed his health, his marriage. So when you grow up in that, like, that is a real dragon. That's a beast you have to slay. Fortunately, because Fiocco and Cutler gave me a shot, I was able with NLG to slay that beast right at 30. Shortly thereafter, Bajal Samaya and I, Bajal's now running Lightspeed. We co-founded my second company, or our second company together, called OpenList, and we sold that. Another little base hit, double, and I'll tell you, when I had a few million bucks, I was like, good to go. Like, I had slayed the dragon. Because I didn't come from a life of accoutrement. Remember, when I started Altimeter, I started with less than five million bucks. I couldn't even convince my friends from HBS to contemplate being my partner in this thing. They're like, dude, you're embarrassing yourself. Go back to par.…

AI assessment note: “so to me, I slayed the dragon around money. My life and priorities totally shifted.”