Super big picture from Ronald Reagan in the 1980s until today the
2012 period something like that
Declining interest rates. That was almost a guarantee
So folks that were heavily debt oriented private equity firms real estate firms people who are investing
Saying assuming that the next year they could borrow for cheaper
Which one great. There was this incredible rising tide or you might called it?
The tide was going out on interest rates things were going down and then quantitative easing
Ramp that up on steroids. So lots of money was super easy to get money. And so things were very capital-intensive and
Faced a lot of debt had a pretty easy road for three decades
Now it's different
That twenty of easing at least in the United States is been stymied and probably reversing Europe and Japan are sticking with it
I don't know why I think they're mistaken, but that not a central banker
What's what we're doing in Silicon Valley is real growth
Growth by real product sales new innovation. It's disrupting some markets. You have the cheapest money in the world and they're still gonna decline
We're trying to build businesses for the future and these businesses are
Much less capital intensive. They're much more d materialized. They're much more software based
They're based on data sources that were never available even five years ago
Using AI that was never available five ten years ago on hardware
that was never available or if it started Nvidia started gaming and things like that and now it's found a wonderful home and
Empowering algorithms for AI and even in crypto so we have this confluence of these wonderful technological
spurs or
accelerators plus an environment in the macroeconomics that says
Yeah, that's probably not gonna get a lot cheaper. It might go up
Yield is low. I better find some real assets that are gonna grow. So that's why I'm so bullish on this economy and we're seeing
Companies very young startup companies get come in get customers that are fortune 100
Right out of the box. That was not really possible
1020 years ago now the scale of the cloud as a base. It gives you a foundation
the credibility of the VC is behind you is a
Thumb of assurance on the scale and the innovation that they're able to show and demonstrate, you know
10x performance better or safer or faster? It says to the big customers
Hey, I should try this and if you're not selling to big customers
You can now sell to SMBs on a distributed basis at low cost of customer acquisition
For relatively good LTV long-term value of that customer. So the
acceleration of disruption I would say is happening and a funny statistic I think in
1955 till today only about 10% of the same Fortune 500 companies are
Extent, there's been a big turnover. Some of them have consolidated but some have completely been wiped out and
New ones are being created and if you notice many of them are data companies, they're building new data barriers. The Google's the Facebook's
Etc. They're building new franchises. And that's the kind of thing that we think is so exciting in FinTech
We're seeing a unbundling and then rebounding of services adding financial services to marketplaces
A lot of things can be done so much more efficiently
By these new folks and they can partner with large companies. We love that we would like
Large companies in our LP base. We'd like to work with them and partner with them because it's a it's not a zero-sum game
there's in some starts will become the next Fortune 100 themselves, but many will partner with or be sold to
the existing large companies today, let's talk about how
Capital is moving into more risky parts of the market risk
Softbank, can you talk about
How much the vision fund affects the venture capital ecosystem?
I know you're on the earlier stages and they're on the latter stages. But how does that affect the whole ecosystem?
Let me start with one of my favorite analogies for this business early stage and of estimate of sports analogy
early stage investors
Our sport is really going to be compared to like scuba diving. I'll explain why in a moment
Late stage investor their sport is surfing it's catch the wave it's the trend. It's maybe
high-priced waves
It's the latest thing and it can shift around with wind and ocean conditions and so on
so that's the late stage investors and part of that is driven by the fact that the
Until recently. The IPO market was put into a
Trauma by sarbanes-oxley some other regulatory issues and some changes in Wall Street
decimals trading and number of things the ending of
Really buy-side research that was able to be traded for soft currency
That has caused the IPO market which used to start much earlier to retreat back
So a lot of can we stay private a lot longer?
There were also a lot of tort lawsuits against young companies so they were would stumble in the first couple quarters
They'd get sued a lot of people didn't want that. So but economies stayed away from the IPO market
Now what that did is it allowed and it required the investor class that wanted access to those high-growth
companies to jump in while they were private
so a number of big institutions that used to only participate and I'll pick zero prices one that I used to work for we only
Used to participate in public companies now they come in to the later stage. So soft pink is kind of a
Hybrid of that they're coming in with very large checks in late stage companies pre public because they want part of that growth
and
I think it's a interesting phenomenon. It is caused inflation at the higher end of the market doesn't affect us so much again
We're scuba divers. We're worried about long-term currents that are consistent like that. What's that?
The Gulfstream it's always going to the Northeast on a regular basis
you want to watch out for big coral reefs and not to hit those make sure you have enough oxygen our
risk factors are very different from those people who are surfing and looking for waves and wind so it's a little bit more like
investment banking versus and transaction-oriented
long-term
growth oriented and we're starting with perhaps a riskier place and maybe riskier to scuba dive than surf, but the
Risk factors are very different. So I think it's nice that they're coming into the market
They don't disrupt us so much. They cause inflation the series CDE
That's okay
Sometimes they'll be up. Sometimes it'll be down ours is more steady. I
Think the market needs both. So it's it's it's good that everyone's around the table, but
Doesn't hurt the small stage, I would say the one thing that has
happened in this early stage you didn't mention but it's important to note is a
Lot of new small funds and angel groups. The angel market has really developed into a force in the last 20 years
Very successful entrepreneurs have sold their company
And they can add value and they know people and they can open doors and they can put a limited amount of money
We work very well with them. We like the angel market
We like the smaller VCS and as a bigger VC, we can work with them to help lead around they might find it first
But we are able to put together the right syndicate and the amount of money that they need
As an example
So maybe Softbank is doing that in the pre public markets where companies need another 100 200 million before they go public
I guess the average retail invest
investor needs money where they're normally, you know, buying your your mutual fund or your ETF and now that you know,
You saw lyft go public and sold off a little bit, you know a variety of others
Do you think that they're gonna want to get in on the earlier stages now?
Is that is this gonna end in like a euphoria on the venture side of things or will?
That capital just stay there and kind of turn out yield like how you see that playing out over the next couple years
Okay, I probably would not want to forecast day trading psychology. That's not an area that I think I know much about
Here's what I would say
Water finds its own level
Investors want to have options all across the stack when the regulatory environment or some other external
change has a big impact as sarbanes-oxley did to cause
VCS and entrepreneurs to hold back from IPOs and other chains that I mentioned before that
Caused again a gap in the capital structure, which has been filled by the large late stage
investors that come in with mezzanine or late stage pre IPO
funding
Down now you're talking about down at the earlier market
The change that has happened where individuals can play in venture capital is because of they've seen things like crowdfunding
Opportunities they've seen the angel rise the angel community now that's concentrated in certain cities typically like the Bay Area and New York
Chicago etc, LA but it's happening. So people have more exposure
It's still very hard to play VC as an individual and I don't
See that happening much except through groups like an angel list or our crowd and there people can get a certain amount of exposure
But remember venture is still risky and it shouldn't be a big part of one's portfolio
And so if you only have a small portfolio then venture is a tiny section
You're not gonna have impact on the company. You're not gonna probably have a diversified portfolio
So it's hard to play it as a day trader in unlimited means it's more of an institutional
Game or for very wealthy family offices and groups like that and it's also long-term and doesn't have a lot of liquidity
So those are risk issues that the individuals has to contend with if they're considering venture very exciting
And a lot of people find that they enjoy being an angel clubs
Where they see the deal flow they can talk about things they can learn about stuff
It may not be a key part of their portfolio in terms of return
But it can provide some intellectual stimulation and exposure maybe inform them even into their public
investments as well
You