thank you everybody and for downloading

this is the first event we're co-hosting

at SEMA and Technology Business Group

after the transition to the virtual

learning environment I'm really excited

to welcome Gavin Baker to this far side

chat and what we'll do is to sort of

have a moderated discussion for the

first call it 30 to 45 minutes and open

up the Q&A for everyone after if I could

just ask everyone to direct their

questions over private message to

Danielle and she will be sort of

moderating the Q&A section after that

would be great

no before begin I'd love to introduce

Gavin as the co fat as the founder of

CIO of the tradies management prior to

founding Atreides in 2019 Gavin was at

fidelity investments to 2017 most

recently as the portfolio manager of the

fidelity OTC portfolio he also

spearheaded helped spearhead

fidelity's venture capital investing

from 2013 to 2017 I came across Gavin as

I mentioned during an investment to best

podcast late last year when he shared a

lot of insights about technology and

investing his Twitter feed is also

pulled in size and we encourage you all

to follow him to learn more about its

thoughts real time we're really grateful

to have him share his time and insight

with respect to the markets technology

business landscape especially so during

the Cova 19 crisis yeah Ben thank you

again for your time and you know hope

you're well and doing well with the

social distancing at home yeah thanks

David and thank you for all the kind

words that was a very nice introduction

of course at least we could do so you

know obviously kovat 19 has been the

topic of mind and we'd love to talk

about what we look like on the other

side but before we get there's love to

really just start with how and when did

you realize this was gonna be as bad it

is and what did you do to get there and

what did you do to prepare sure so first

I should say I am I I'm prone to

conspiracy theories you know and I've

read all of Nicolas Nassim Taleb

so kind of always looking for black

swans so I think that that was an

advantage and I was certainly early to

Cove it but you know I think I'm

probably 115 on worrying about black

swans in other words have been a lot of

things that I'm worried about that

didn't happen

so I don't think you know if if I was

early to Cove it I don't think it's a

sign of an unusual ability to you know

forecast or anticipate black swans it's

more just you know kind of a even a

broken clock is Right what once a day I

just have a proclivity for I guess

worrying about things like this but i

according to according to our trader and

i guess it's a in one of the minutes of

one of our investment team meetings I

said and January that I thought kovat

could be the biggest Black Swan I'd seen

in my career and I would say that I

think Twitter was actually super super

helpful to to forming that view and

being early too early to worry about it

there are a lot of people in the tech

community and Twitter I kind of think of

myself I follow finance Twitter

technology Twitter picture capital

Twitter politics Twitter and video game

Twitter you know there's kind of five

distinct sub Twitter's that I follow but

I'd say technology and venture capital

Twitter were very early to be worried

about kovin and then I just started to

think about what China was doing

relative to what they were saying and

it's one of the more extreme actions any

government has ever taken during

peacetime in the last hundred years so I

started to think about that the market

was at all-time highs and then my my

birthday is February 21st my wife's

birthday is February 22nd and

weekend of my birthday we have a kind of

a big joint birthday party so we had a

lot of friends in town but the weekend

of my birthday for whatever reason a lot

of things just clicked someone on

Twitter named super Mugatu

whose real name is Dan McMurtry had

written a thread that was incredibly

prescient I think some time and he was

one of the people in January in February

his very early to be I'm worried about

this he runs a hedge fund that he

started and founded called Tyra Capital

Partners I believe he wrote a thread

that really resonated me on the risks

from the coronavirus and he actually

recommended that I just seem couple of

epidemiologists who are world class were

saying on Twitter and it's really

amazing that weekend all they all and

this is you know I guess Scott Gottlieb

is not an epidemiologist but there's I

only know their Twitter handles and

Lipschitz

I think it's Marc Lipschitz who's an

epidemiologist who runs a Center at

Harvard

Tommy Inglesby who I believe runs the

Center for Epidemiology Johns Hopkins

someone whose handle is a mesh double-a

they all basically started saying this

is over you know we are past containment

this is going to be a pandemic and now

we need to focus on mitigation and that

was incredible and I looked at what they

were saying relative to what was being

discounted in the market and then

coincidentally a good friend of mine

who's a very prominent venture

capitalist messaged me to say hey that

they're seeing big supply chain

disruptions and he thought that it was

going to be a really big deal and then I

have I'm lucky enough to be friends with

an older gentleman who I think is one of

the world's great macro investors and we

made a deal where he can always call me

and ask me anything about technology

anything about growth stocks and in

return he will just tell me when he

whenever he gets worried

and so he called me on Sunday and just

said that he was worried to cancer all

those things kind of click yeah I kind

of I owe I owe Twitter a lot and I'm

happy to give you loads of examples of

all the other black swans I worried

about that did not come to pass so

please don't think that I have it all

unusually prescient with things like

this so over the sort of course of this

crisis what surprised you the most

prized me the most and I alluded to it

on Patrick's podcast is the extent to

which you got paid for doing really

obvious things you know just you in this

in probably some point in the second

week of March you just thought wow

hotels and cruise lines and casinos they

just can't and Airlines they just can't

go down anymore and at the same time you

thought wow Walmart Kroger Amazon

Netflix the stay-at-home zoom the stay

at home work from home beneficiaries

Clorox they can't go up and just long

after it felt like it was super obvious

like that to me was probably became

super obvious sometime in the first week

of March if not sooner you could

generate almost a lifetime's worth I

mean you could have generated a

lifetime's worth worth of alpha by doing

the most obvious thing imaginable which

was hard for me because I think as an

investor you know sorry if ever people

some of the things I said oh Patrick's

podcast you were really trained to never

do obvious things to assume that if it's

obvious it's discounted and it just

wasn't and it was the crazy thing

because that was the same observation I

had an eight oh nine we're doing the

really really obvious thing just selling

all of your financials really really

paid yeah that was

I guess it's a lesson that I'll have to

learn

than once that was by far the most

surprising thing to me of everything in

the market so far right and you know

certainly you sort of talked about the

wide range of outcomes that we can

possibly have and so we've been really

lucky to have a lot of investors come

through and talk about what their views

are on the barkins and the opinions

range from this is the best buying

opportunity in a generation - this is

arm again and can you maybe sort of talk

about that in sort of relation to the

idea that you sort of mentioned about

how sensitive we are to initial

conditions and in terms of how we come

out the other end

yeah I mean I guess you know I am sure

there are many there are many paths to

being a great investor but for me

humility and kind of flexibility are

really important so I don't have a high

conviction view I think that this is a

low conviction time with a really wide

range of outcomes and I'm trying not I

think what think it's dangerous one

reason that one thing that I was nervous

about before I started tweeting more I

was worried that any time you give an

opinion you become biased and less

open-minded so I am trying to stay open

to all possibilities so I don't think

this is a high conviction time I mean we

can say that statistical evaluation

spreads maybe ten days ago reach levels

that have all only been seen during the

Great Depression in oh eight oh nine so

statistically just has it from a long

short opportunity set you were literally

at a you know once in a 30-year

environment so but a rich opportunity

set to me does not translate to having a

really high conviction view on what's

going to happen and I think the reasons

to be flexible and humble and recognize

there are a wide range of outcomes are

first this is unprecedented in a 8:09

everybody could read The Forgotten man

by a MIDI Shui is everybody read the

panic of 1907 you could read the Carmen

Reinhart book there were analogues in

2000 there had been lots of other

bubbles before like that was just a

really classic stock market bubble and

you know we have good records of the

tulip to a bubble and the South Sea

Bubble and you know a railroad bubble so

there were kind of road maps that we

could use in Oh 809 in 2000 but nothing

like this has ever happened before we've

we haven't had a global pandemic and a

network you know social media internet

driven economy we have and the economy

has never just stopped like this so

there is no historical analogue that we

can look to to guide our thinking and we

don't know a lot about the virus right

now so I think what do you put that all

of that together we are in a time of

high uncertainty you know uncertainty

for versus risk we we just flat-out

don't know what the outcomes are there

are large numbers of unknown unknowns so

I am trying to be open to a lot of

different scenarios and think about what

I would do in each scenario you know a

snapback where everybody you know men

you know maybe there's one scenario

where you know we've had more stimulus

than has ever been applied to economy in

history and more stimulus applied and a

faster more concentrated and not re

probably more intelligent way than I've

ever seen both monetary and fiscal you

know so if it turns out that warm

weather is gonna really slow this virus

down and America goes back to work Wow

there could be you know the the snapback

rally of all snapback rallies and it

makes what we've seen seem like nothing

on the other hand you know the virus

it's like it it is currently mutating at

one-third the rate of the flu if that

rate of mutation accelerates if warm

weather doesn't slow it down

warm weather will slow it down because

it's aerosol born and it's just a matter

of physics that droplets crowd travel

this far in humid weather but if you

know if we don't have improved

treatments if if ultraviolet radiation

doesn't kill them IRS if it comes back

really quickly as soon as we relax

social distancing then we could be in

for a much more dire scenario where we

really need to wait till a vaccine which

is probably gonna be 15 to 21 months

away so I think it's this is a time for

humility and flexibility not conviction

I am happy to have conviction on

earnings power and free cash flow

generation power for companies looking

out five to seven years and invest based

upon that and but that goes to those

long short you know valuation spread

opportunities as opposed to having a

really high conviction view on something

where we have no historical analogues

and we still don't have a lot of

important information that that that

feels that feels better to me but you

know there are many there are many paths

many paths to investing success and

everybody has to find what works for

them right and so maybe to follow up on

that what are their what are some of the

key signposts you're looking for to

inform you of which one of these many

iterations and paths we could take sure

well so so a few things if I i I've

talked a lot internally about how this

was a three body problem in late

February and early March the Chinese

science fiction series is one of my

all-time favorite works of science

fiction and and a three body problem

just means that you know you have three

planetary bodies exerting gravitational

influences on each other and there's no

way to model it although I do have a

good friend

was very good at physics who assures me

that that is true although that I look

it up on Wikipedia and apparently it is

a classic physics problem but it is we

had a three body problem in late

February early March with politics the

virus in the economy and I was very

worried and this is not meant to be a

political statement at all but I think

most people can agree that a Sanders

presidency would not have been positive

for the US or global stock markets you

know maybe it would have been great for

the world in America who knows but it

would not have been good for markets

particularly at the beginning so I was

very worried about the interaction of

the virus the economy and presidential

politics and I thought there was a

scenario where Sanders could easily be

the nominee and then we had Super

Tuesday and that kind of eliminated the

political risk and so now we have a

two-body problem and I think at one

level in some ways maybe the most

important thing we need to have happen

in the near term is new cases of the

virus to durably peak we've had an

enormous rally in the market over the

last week and that's basically the fact

that it looks like cases in the

northeast of the United States and the

west coast of the United States have

peaked you know I'm sure everybody's

seen the charts on hospitalizations and

ICU

utilization just collapsing in new york

city new cases rolling over i mean the

stock market is it sounds very strange

but the stock market is always unusually

sensitive to of its in new york city

because so many people who set prices

live there on the other hand new cases

in kind of the interior and south of the

united states are still accelerating

and i would say one thing that is a

little concerning is the degree to which

new cases come back in singapore once

you relax social distancing and a region

of china is already in its second

lockdown but i think we do need new

cases to peak or much better treatment

right

and it is a lot of clinical trials are

going to read out over the next kind of

4-6 weeks and if those treatment

regimens really impact the mortality

rate of the virus then new cases matter

less but we do need to go from you know

a two-body problem now the virus down to

a one body problem which is just the

market in the economy in there everybody

is different checklists kind of I have

kind of a different check you know I

have my own checklist for a bear market

having lived through six of them you

know you want a valuation to compress

we've certainly seen that you need a lot

of stimulus we've seen massive stimulus

the VIX needs to go down volatility has

to abate markets just cannot bottom with

you know the VIX at historically high

levels you need positioning to be

cleaned up

whether it's gross leverage net whether

it's cash pile call ratios and

positioning a sentiment needs to improve

market internals always consistently

approve you know this is just cyclical

first defensives value versus growth

small versus large caps and we've we

have certainly seen that in the last

week you know every anything you could

have met you know we've had historical

historic levels of performance for three

to four days for you know kind of a

variety of factors but we do the big

missing factor is realistic numbers from

companies I think in a world where so

much investing and trading is done

quantitatively it is hard to get a true

market price until companies give

guidance because the algorithms do

heavily depend on forward-looking

numbers I thought it was very

interesting rich Bernstein was

interviewed in Barron's I believe last

Saturday rich Bernstein what wrote one

of the all-time a great book about

investing called style investing which

left a lasting impression on me

but he basically said I run money

quantitatively and we're on the

sidelines until kid companies give

guidance because our models won't know

what to do until we have accurate

forward numbers so I think we will get a

true market price when companies begin

reporting and guiding and so far all

they've been doing is saying hey here's

what happened in the last two weeks of

March they haven't actually given

guidance and the sell side has not

probably taken you know some people on

the sell side have you'll come out with

very brave forecasts that are you know

highly likely some of those will be

right but I think by and large the sell

side is waiting for companies to give

guidance just because you don't want to

take a really strong stance and be

horribly wrong if you're an equity

research if you're in sell side equity

research that's not to say they're

they're people who have done great work

and have you'll come out with really not

consensus views but you know do you

really want to be the person to you know

make a call on the virus and when the

shutdown's gonna be in in because that's

actually what's gonna drive the second

quarter whether it's down ninety seventy

sixty or thirty do you really you know

if so I don't think the market has

accurate numbers yet so that's that's

the last thing the market needs and then

I've been thinking a lot about how

markets bottom and just kind of

experiencing it in real time real time

and at some level markets bottoming is

just a process of rebuilding loss

aversion you know it goes back to

prospect theory and regret minimization

and you know now there's all these

stocks that are up a hundred to two

hundred percent off the lows everybody

all professional investors they feel

intense regret that they didn't pull the

trigger at the loan and so that is how

markets bottom because you know it's

generally a process and you do you know

you generally have kind of bare market

rallies and then you have retests and

it's a process that's how markets bottom

it gets back there and you're like wow

I'm so regretful that I didn't buy it

and I'm already beginning to feel maybe

at some level of my own

internal loss aversion shift from gosh

I'm really upset I didn't sell that at

this price - wow I'm really upset I

didn't buy this at that price but it is

that's those are kind of some of the

things I'm looking for David oh it's

great and we'll get to sort of your the

the decision-making things later but you

know maybe sort of switching gears a bit

to the other side of this so we clearly

have some industries that are highly

highly impacted but maybe focusing on

technology you know we all saw the

Airbnb release of the paper they raised

so how does the technology industry look

like on the other end how does this

shakeout sort of reset the playing field

when is it beneficial to incumbent or is

it actually beneficial to startups I

think it is most beneficial to companies

that have decisive CEOs and I talked

about this on Patrick's podcast but you

know about I love all things fantasy in

science fiction I read Game of Thrones I

believe for the first time more than 20

years ago it was when I was in college

and I would reread the entire series

every time a new book came out but I did

talk about this summer vers winter

analogy and you know Game of Thrones the

you know the you know the nights of

summer are very different from the

nights of winter you know the kings of

summer are very different from the kings

of winter the queen of some are very

different from the queens of winter and

I think we're gonna see who is a summer

CEO and who is a winter CEO the last 10

years have been very unusual because

it's some way almost everything

everything that happened in technology

over the last 10 years as a result of to

really kind of foundational innovations

one is the iPhone which was launched two

no.9 and that was a location aware of

presence where I did to be aware

supercomputer that was in everyone's

pocket all the time gathering all sorts

of data about the world but visual

and connected to cloud computing because

cloud computing was also really kind of

invented around the same time used to be

called utility computing you know I

think the first we have some people out

here you're gonna go work at Google but

I believe it's hers

host lay who kind of ran infrastructure

at Google and the first YouTube videos

of him talking about utility computing

income and cloud computing her from Oh

nine and 2010 and that's where Google

who really at some level even probably

more so than Amazon invented cloud

computing started to talk about

planetary scale computing and then you

could put all the data from these smart

phones process it in the cloud and that

revitalized artificial intelligence

because all AI was missing you know all

of AI is been driven by very old

algorithms maybe there's been a little

bit about rhythmic innovation over the

last five years but basically all the

old algorithms worked they just needed

way more data than anyone realized and

way more computing power than anyone

realized but so you have those three

kind of connected biological revolutions

with the cloud and the iPhone really

kicking things off in kind of 2009 that

almost exactly coincided with kind of

the bottom in the market and the bottom

of an economic cycle so you know there's

all these apps that were built off the

iPhone uber Airbnb door - huge numbers

of apps and come great companies that

were built off the iPhone yeah this huge

the all of SAS was basically the second

and third generation SAS companies were

built you know on top of AWS or TCP and

so you have these CEOs who in some cases

now are running 30 50 60 billion dollar

kind of market cap companies actually

never gone through a recession we've

never gone through a hard time you can

so nothing like this has ever happened

before you know generally you know you

have a recession I don't know every five

to ten years and it's you know it's it's

not that it's not that often that they

line up perfectly was such a huge

technological discontinuity has the

iPhone yep

you always read oh wow you know great

companies are kind of you know born in

darkness and during difficult times but

more you know more companies than ever

were born in Oh eight oh nine and that's

just because that are oh nine in two

thousand it's just because that's what

the iPhone happened to be invented

generally the reason great companies are

kind of born in dark economic times is

because that works to the favor of the

best ideas and the best entrepreneurs

only the best could get funding in OH -

oh three oh four you know who is able to

go public in oh three oh four three

little tech companies called Google

Netflix and Salesforce so only the best

of the best can get funded in a tough

environment but that was really

amplified in oh nine to ten because you

had this huge discontinuity during a

dark economic time and now we've had an

unusually long expansion in ten years so

I think it may be that a lot of these

technology companies that are 10 or 11

years old are run by summer CEOs who

can't make tough decisions and so I

would say the companies that are gonna

be most advantaged are the companies

that are decisive and early so that

would be kind of my first order answer

your question David and happy to talk

through different industries and you

know would love to sort of hear your

thoughts in the video gaming industry

because I know that's something you

spend a bit of time on yeah sorry I I

play games the way a lot of my peers

play golf I'm not super into sports but

I do love playing video games you know

and they've been very real for me and

they particularly kind of probably more

gotten really back into them I always

had a so long ago in the year 2000 I was

the essentially a very funny

story in the year 2000 I was the Nvidia

analyst at fidelity and the what Nvidia

really had going for it in in 2000 and

stock went up 200% to the Nasdaq one

time 80% but their chip had been

designed into the Xbox the first Xbox it

all said powered by Nvidia on the

outside of it and that was a huge really

important to kind of you know Nvidia

becoming the company they are today

although there are lots of things there

Jennsen the scene you know there's

absolutely top 5 technology CEO of all

time

another little aside is most

semiconductor CEOs CFOs and CEOs have

owned stock and gotten hugely wealthy in

by owning stock in Nvidia for the last

20 years because they've always been

like hey I I just want to bet on Jensen

he is exceptional so anyways I don't

mean to say his video is all about the

Xbox but um I had not played video games

until then and I was like hey I need to

actually understand if the Xbox a the

PlayStation is is a better platform so I

set them up and they set them up in a

conference room at fidelity and I'm sure

well I will I have thought better of

telling the story but let's just say

that a very senior executive walked by

late at night at 9:00 p.m. in US and I

was playing video games and she's like

wow what are you doing over here playing

video games at this you know kind of

open conference room and I was like I

see it if the Xbox to the PlayStation is

better like hey would you come in and

tell me which one you think the graphics

are better on anyways that she came in

and then we played video games for for a

while together but so that got me back

into video games and that I covered a

bunch of different industries that kind

of always touched on video games in one

shape or another so would always go to

e3 and always felt like it was a big

advantage investing lies to actually

play the games I sometimes say that um

imagine a world in which you know

there's a bunch of retail investors

and most of them have never been to a

store they've actually never been to

amazon.com all they will do is sometimes

they'll watch videos of other people

walking through stores and shopping on

Amazon that is what video investigate

video games is like the vast majority of

professional investors because in some

ways I think one of the biggest class

divides in America today is high income

people by and large don't play video

game video games and investors are by

and large high income people so very few

people who invest in games actually play

them so I gets a big advantage I would

say beginning something that really

changed the way I thought about video

games but it been an idea for a long

time but there we're gonna have a better

versus isn't snow crash it's in ready

player one you know it's called the

Oasis and ready player one if you've

read the book or you've seen the movie

but just that a lot of people were going

to spend a majority of their time in

virtual worlds which kind of from a

first principles perspective makes a lot

of sense if you just think about Moore's

Law on the radar which you know kind of

graphics power is compounding at some

point we're going to get to a point

where virtual worlds are

indistinguishable from the real world

and then eventually you're gonna have

brain computer interface interfaces and

you know even from smell and touch

everything is going to be

indistinguishable from the real world so

this has kind of been a big idea in

science fiction for a long time one that

I thought was very logical from a first

principles perspective and so kind of

what's always fascinated fascinated by

this idea and by the way that same

principle is why so many people with

technology and physics believe in

simulation theory but we won't we won't

go down that rabbit hole simulation

Theory meeting just we're living in a

simulation rather than a real world

which is actually shockingly difficult

to disprove but so I had always been

kind of fascinated with this idea the

Metaverse in the Oasis and then you know

and this is I think very consensus

thinking in Silicon Valley when you hear

Mark Zuckerberg say he wants to own the

next platform this is what he is talking

about

the Metaverse the Oasis you know

whatever you're going to call it and you

know this is why they bought oculus this

is why they bought the BCI company you

this is why Google and everyone is so

focused like Microsoft bought minecraft

so I all the big platform players are so

focused on our materiality virtual

reality you know there's a thought that

you know the if you can own the identity

in the payments layer you can owe the

avatar store but then something happened

watching and I'm embarrassed that like I

didn't think of this first because

playing video games I can tell you they

are social networks the other not hit

driven businesses you know you play

games with your friends and it's really

hard to get all your friends to play a

new game and you know some of some of

the most some of my best friends are

people I only know them has you know by

their gamertag and maybe I know that you

know they live in England and they work

the night shift at you know at a

warehouse but that's all I that's all I

know about them in terms of kind of a

real world identity perspective but um

so I was I always thought games were

social networks but then when

marshmallow had that concert in

fortnight kind of everything really

clicked for me

and it was just wow video games are

going to be the platform for the

personal Metaverse yeah the personal

metaphors like you know forget about the

professional members but the personal

Metaverse you know I think in 20 to 30

years at the end of this I will be able

to close my eyes and pilot a starship

through a nebula or close my eyes and

walk the streets of ancient Rome close

my eyes have a you know climbed at the

top of Mount Everest you know and then

our the argument in reality part of the

Metaverse nobody's gonna be able to lie

like we're all gonna have this is going

to become you know kind of edge server

powering personal AI and ambient

computing and you're not going to be

able to lie because

if you're I'm talking to someone my

onboard AI will in real time be

realizing you know analyzing their skin

temperature their perspiration their

micro-expressions

their pulse and it will become impolite

you won't be able to have a real

conversation with someone while you're

wearing your AR glasses

anyways it just became really obvious to

me as soon as I saw that marshmallow

concert and fortnight that Wow

video games are social networks they are

going to be the platforms for the

personal Metaverse you know the

Assassin's Creed franchise it is going

to dominate the historic Metaverse and

you're already seeing this at the

request of educators they made what they

called an explorer move Explorer mode

first asset screen origins and

Assassin's Creed Odyssey so because it's

a great way for kids to learn about

ancient Greece and ancient Egypt you

know we can speculate who's going to

dominate kind of the military Metaverse

Bobby Connick the CEO of Activision

another truly great executive once told

me that video games just fulfilled

universal fantasies soldier fantasies

rockstar fantasies athlete fantasies

living in a different time fantasy

living in a different world fantasy

living in the future fantasy living in

the past fantasy

so these videogames that already exist

today with all the players built in the

social networks built in they are going

to be kind of the foundational platform

layer for the personal Metaverse and I

think one of the most ironic things is

you know Zuckerberg has been all over

this for a long time in second Bertie's

another truly great CEO but you know if

you read the memo that leaked in

2015-2016 advocating for why you know

the pros and cons of buying unity it was

fascinating you know he was so focused

on the infrastructure layer the tooling

because what becomes a platform is

something that becomes an abstraction

layer and other apps are written to it

and I just think because he clearly did

not personally play video games it's

almost like marks are

Burt was not nerdy enough to appreciate

this and in some ways you know epic with

fortnight is one of the more strategic

assets and all of video gaming and all

of technology that was before house

party blew up but I think it's endlessly

ironic you know Zuckerberg he bought

oculus which I don't think it's gonna

end up being that important as a

platform for the personal Metaverse but

it's just endlessly ironic to me that

Mark Zuckerberg who you know often gets

caricatured is being a nerdy guy he's

actually extremely engaging in person

was not nerdy enough to understand video

games would be the platform for the

personal Metaverse so on that sort of

Metaverse construct video games who are

gonna be in your mind the winners here

are they gonna be the existing

developers like Activision or they are

you know the distributors who are you

know in that current landscape I think

both I think that the so a couple of

things I think for sure the developer is

the people who own the IP will be

winners you know I think the platform's

you know Xbox Sony steam now the epic

store are likely to be winners but I

think it's I have less confidence about

that that I do about the underlying

content owners and the reason is a lot

has been written about what the rise of

cloud gaming where you can stream a game

the way you can stream a movie is going

to do to the industry and a lot of

people have conflated a technological

delivery mechanism streaming with a

business model and that's just because

of Spotify in Netflix content is always

king the reason content wasn't King to

begin with with music and movies and TV

is there such a long tail the you know

there's you know there's billions of

songs billions of movie and TV episodes

there's such a long tail and you could

combine that long tail of cotton

wasn't it all valuable before Netflix

Spotify streaming with really

sophisticated algorithms to figure out

that oh you know if you like Madonna

Madonna which is head content here's

seven other artists that you've never

heard of that you're probably gonna like

and really increase the value of that

long tail deliver it in a subscription

and that created a midst value for

Spotify and Netflix but it does not

necessarily follow that streaming and

subscriptions you know go together like

peanut butter and jelly and with video

games you know a lot of people looked at

cloud gave me and Google Stadium I

thought oh wow this is gonna be just

like Netflix not at all because there is

not the same long tail of content in

video games the degree to which the top

ten video games utterly dominated

engagement day in and day out is nothing

like music or movies so the underlying

content owners the owner of you know the

historic Metaverse the soldier Metaverse

the science-fiction Metaverse the

fantasy Metaverse the action-adventure

Metaverse they have way more leverage

and all of these new distribution

options are only increasing their

leverage now it is you know I think it

was interesting the degree to which

Google stadia scared Sony and to a

lesser degree Microsoft that they

basically said hey we're going to share

infrastructure but I think the fact that

did the Sony cloud streaming service in

Microsoft both are both gonna run and

Azure means that pry technically they

will be at parity with with Google and

then the fact that they have all the

existing relationships they already have

all the content if you're gamer you can

just port your library they're your

friends list is there so I am reasonably

optimistic on the existing gaming

platforms in addition to the publishers

but I think the publishers are kind of

to me the simplest first-order winner in

this meta first thesis right and before

we open out of the queue

just one last question for me it is

you've mentioned sort of you want to be

at the top 1% of knowledge in a

particular industry so fast four or five

to ten years how do we know or how do we

assess ourselves in that landscape and

you know regardless of its investing

technology whatever we do how do we sort

of get to that or how do we know we got

there I would I would put someone on

Twitter this was this is pretty

controversial kind of what I when I said

it on Patrick's first podcast but

somebody on Twitter of journalists for

Bloomberg now take him actually just

said when you know you know and I would

say it takes a long time you know we've

all you know the 10,000 hours rule it

takes a long time to achieve kind of

true mastery in top 1% and it's a very

competitive world so I would never be

able to look at a stock or an industry

for you know three years or five years

and think wow I'm in the top 1% it

really takes a long time I wrote an

article on medium talking about the

investing in the name of the rose which

is a great book some level that's about

the search for truth which I think

investing is all about is ultimately the

search for truth and having finding a

finding an investment style or

philosophy that meshes with your

emotional makeups such that you can kind

of find two truths and seek it but I

wrote a lot more than that if anybody

wants to read it but you know after 1012

years you do just start to know and that

it is a little bit you know what I

probably should have said on the

Patrick's first podcast so I didn't come

across as arrogant is like I have been

doing this at 20 years for longer than

almost all other public equity investors

in tech you know so many people walked

away or washed out with the bubble so

many people walked away or washed out

nine more people who've been doing tech

for ten years than any other sector but

far fewer who've been doing it for 20

years

Tech is you know probably second in

complexity only to healthcare

specifically therapeutics and biotech

where cumulative knowledge accumulating

advantage like just the the years and

the miles they really matter and there's

no substitute for them but I wish it

were I wish I could give you a metric

but um I think kind of you know you know

but it's also really important to not

think you're in the top 1% when you are

not so you always have to stay humble

and kind of pressure test because the

most dangerous situation of all is you

thinking that you're in the top 1% and

you're actually not at the top 50%

that's how you lose vast amounts of

money and that goes to the importance of

you know this is also kind of a lot of

it is kind of woven through the the book

the name Rose which is by Umberto Eco

one of my favorite favorite authors but

just you always have to vow balance

conviction and flexibility when you were

searching for truth he is kind of

searching for truth I think in a

religious and philosophical way the hero

of that Lima Baskerville and then he's

searching for truth in being a detective

and trying to unravel kind of a murder

mystery in another but in both of those

you have to balance conviction and

flexibility and investing is the same

way and you always have to even its

sectors even in an area where you're in

the top 1% of the top ten basis points

of knowledge you have to always be

balancing conviction and flexibility has

you kind of search for truth right and

I'm not dunning-kruger in fact no I'll

pass it over to Danielle to moderate the

Q&A

thank you again Gavin and we look

forward to everybody's questions again

thanks David

great job thank you thank you please the

first time doing this please send your

questions to Danielle and she will

moderate the Q&A segment great thank you

so given social distancing we have quite

a few questions on tick-tock too

particularly from Ronald and John so

Gavin how do you see tick-tock growing

bigger in coming years and how do you

think they can change the landscape of

the tech world I think it might be one

of the most important things happening

in the world of technology today I had

you know I've invested in large internet

companies for many years so really

thought had been probably tick-tock for

a long time and you know there's

obviously a thesis that it was you know

it might be disruptive to current social

networks you know there's another thesis

that every generation is gonna have its

own social network because nobody wants

to be on the same social network as

their parents you know snapchat the fact

that it's hard to use for a lot of

people you know as a feature not a bug

you know and so maybe it's kind of like

snapchat was kind of the social network

for Millennials maybe tick tock will be

the social network for you know kind of

teenagers today and there's a lot of

kind of first principles differences

between to talk and other social

networks

well it's purely algorithmic it's

totally meritocratic in the window other

social network is it's not based on

popularity

you know just if if I mean looking at

kim kardashian post something on

tick-tock it's highly likely to go viral

but if another celebrity posts something

that does it go viral you know it's

somebody who's totally unknown post

something that begins to go viral the

algorithms will catch it so it's a

meritocratic algorithmic social network

in a very new way new way it also hides

likes because it's not on it not hides

likes likes are not important you know

because it is algorithmic you know you

don't have this phenomenon of you know

taking down an Instagram post if it's

not at 75 likes in 15 minutes or

whatever you know everybody's filter is

mine as I take down a post if I'm not at

3 likes after you know a year I've

actually never taken down a post but

obviously a lot of people you know are

very sensitive to likes so it it's like

snapchat in that way a little bit

you don't have to create a you I think

in some ways one of the most innovative

things they did from a business model

perspective was you don't have to sign

on you don't have to be a registered

user to consume all the content which

just took out so much friction and it's

something that I think some of the big

American internet companies they Twitter

closely watching but their sue was

always watching it but ultimately you

have to be guided by the data you know

it's open to the possibility but you did

sorry you did begin to see Instagram

slow down in a very significant way in

February now everything in coronavirus

was having with coronavirus and working

from home I think makes the March data a

little bit noisy but you know it's kind

of like tick tock to me was a big threat

everybody's worried about it and then

often often in uh in markets you know

people it's like everybody knows there's

a wolf outside and gets so worried about

it and writes about it and thinks about

it and then kind of forgets about it and

then the wolf come in you know actually

does finally come inside the door like

the risk finally materializes so all

this work had been done on tick tock and

its potential impact you kept looking at

the data and no impact no impact no

impact to them so big impact in February

and a lot of measurable ways on

Instagram and I think that's probably

been lost a little bit in coronavirus

but yeah

tick tock has a tech investor it's

really important to stay young to stay

open-minded be open to new ideas IPOs

and a lot of times things that seem you

know kind of like silly little toys end

up changing the world you know Facebook

started out as a you know a site for

college students to rate each other's

attractiveness Netflix you know started

out as a way to avoid DVD rental fees so

you kind of have to be very open-minded

and really be open to things like

tick-tock which you know when it first

started maybe seemed a little silly

seemed a little bit like a toy that some

of these things end up really changing

the world and it's one reason yeah so

I've tried to be very open to talk even

though personally it doesn't appeal to

me but you know I try to be I try to be

open-minded we joke at the off so some

of the people the office shook we're

gonna make it tick tock we'll see that's

part of this but yeah

tick tock I think is one of the most

fascinating things happening in

technology right now I think moving from

I guess one of our newer companies

tik-tok to thinking about role wants us

think about our non stay-at-home tech

company CEOs such as Expedia uber Airbnb

and what steps in your opinion can the

CEOs take to boost their cast positions

cash positions in light of the demand

decline and you know expectations of

limited spending by users in the near

future

yeah a huge the earlier you've cut

expenses the less expenses you have to

cut because this is an area under the

curve problem so if you cut early you

you know you have a shallower curve and

you preserve more cash

if you cut late you end up having to cut

a lot deeper because you have to get to

the same area under the curve and what

they I just like to pause on you guys

are all gonna be investors I think it's

really important to acknowledge when you

say cut expenses you're actually talking

about firing people and you're talking

about firing people who are real people

they have real hopes and dreams they

have real families you know they have

real financial obligations so just I

hear a lot of you know investors bandy

around Oh cut expenses and like it's

kind of some you know like you're just

closing an office or you're cutting

travel the end of the day people are the

biggest expense for almost every

business so when you say

companies need to cut expenses you're

about firing people and that is a really

hard thing to do and just I would just

encourage everybody for your for your

careers to always keep that in mind

because you will be talking to CEOs and

CFOs and I promise you if you are not a

jiton and being a good human being

recognized what cutting expenses is and

never say lightly or casually but be

understand that you're not gonna have to

do that and when you're telling a CEO or

CFO to do that you're telling them to

fire people people that he knows people

that he likes people that she likes and

that's a really hard thing to do so just

be sensitive about it but yeah you know

sorry for sorry for saying that it's

just always really frost me when you

know I see you know some investor you

know beating a CEO up for not cutting

expenses more acting like it's easy it's

a really hard thing to do

but it is something that has to be done

you know and you know the good of the

many outweighs that could have could

have the one I always think about that

awesome scene at the end of Star Trek

the Wrath of Khan between Kirk and Spock

um I won't go into it but basically Spa

sacrifices himself to save the

enterprise and if you don't cut expenses

the company may go to zero and you're

gonna fire everyone so you have to do it

and good CEOs winter CEOs cut early

where's the bad CEOs cut late and then

not only do you have to fire more people

but you are firing those people into the

depths of the recession you know if your

company cuts expenses early your odds of

getting a job are so much higher than if

your company cuts expenses later so in

addition to you owing it has a CEO to

make hard decisions because at the end

of the day you have to think about all

the employees not just the people who

are losing their jobs

it is a compassionate thing to do

because it is going to happen

at one point or another it will happen

and it's just much more compassionate to

do it earlier and it is the right thing

for the business so those are all the

reasons you know it's the right thing

morally you have to cut fewer expenses

which means you're firing less people

you're letting them go into a stronger

economy where they have better odds of

finding a job but because you cut less

because you cut early you don't have to

cut muscle so then you come out of the

recession in a stronger position so I

think those companies you know they're

they are all going through you know

they're going through winter like a

severe winter and because nobody knows

exactly what's gonna happen with the

virus they don't know how long it's

going to last booking just said

yesterday that their revenue is down 85

percent they might run out of cash in

2020 one of the stock went up I should

not build Gurley had a great tweet about

it you know for anyone who thinks the

stock market is really short-term focus

like here's an object lesson it's

actually very long-term focused but yeah

you those companies and those CEOs are

gonna have to do hard things you know

there's a lot of there are a lot of

decisions that a lot of companies need

to make and we're gonna see who is the

summer CEO and who's a winter CEO I'm

just sorry to jump in real quick here

but do you feel that's widely

appreciated by CEOs you know well if

you've been through a recession it is

but that's why we're living through such

a unique time where you have so many

CEOs of so many big companies who've

never you know in some cases they

weren't even an adult during the last

recession are they or in you know

college are they're in grad school so

it's a very unique time that I think we

are going to really sort the winners

from the losers and it is who is

decisive who is a winter CEO who can do

hard things you know a mentor of mine

who is whose mentor and really good

friend of mine this is his first name

starts with an A but he is a very

private person he likes to say hard

people build great companies Steve Jobs

Jeff Bezos the Bill Gates they were all

really hard it made a lot of hard

decisions in their own ways they were

all ruthless so we're gonna see who's a

summer CEO who's a winter CEO and

gingely enough you would much rather be

at a company run by a winter CEO because

if you're an employee at a company run

by a summer CEO a company might not

survive be chances are you are going to

get fired along with a lot more people

at the worst possible time because your

CEO is a summer CEO and can't make

difficult decisions but it's

particularly dangerous is the last thing

I'll say not only do you have a lot of

CEOs who have never been through a

recession and are running huge companies

so don't have the experience they need

but you have CEOs who are in that

position and are effectively post

economic because they've sold hundreds

of millions of dollars worth of

secondary so actually what they care

about now is their reputation and

getting lionized and articles on

TechCrunch in the New York Times and

they're not willing to make these tough

decisions because they don't care about

money they don't care about the value of

their company they do a little bit only

insofar as it impacts their reputation

but I think you put all that together

and it's a very dangerous kind of

triangle for some of these really big

unicorns run by post economic CEOs

definitely agreed

and given the last question about uber

indirectly we have a question from Ming

Ming about DC and private funding that

has kind of quickly come into the

industry in areas such as you know food

delivery and shared economy and you know

do you think that there's a sustainable

kind of an advantage in these tech

companies that have huge scale but they

operate in industries with really low

barriers to entry for sure so one of the

strange things about the Internet is

barriers to entry are too low or very

low but barriers to scale are really

high and because we're in such a bull

market for so long and marketplaces are

great businesses you know after search

they're probably the best businesses in

the world or you're just taking a cut of

transactions that happen on the

marketplace on the platform bill Gurley

wrote a great blog post about this

everybody if you were all interested in

technology venture investing anything

everybody should read every blog post

Booker Lee has ever written um I think

the two things that when we look back in

20 years will be kind of regarded the

same way that Warren Buffett's letters

to his shareholders the way they're

regarded today are Girly's blog posts

and Amazon's

shareholder letters which are the Amazon

shareholder letters I I reread them a

lot the same way I read Buffett in the

same way I reread bills blog posts but

um yeah so there

businesses and usually you know anybody

can start a marketplace I could start a

right here I could start a right healing

app I bet in less than ninety I bet it

would take me I don't know I was gonna

say ninety minutes it'll take me one day

to start a ride hailing app okay but

then getting supply-and-demand on that

app that's the hard thing that's

barriers to scale and what happened

because you know you have this huge

explosion in venture funding it's like

the Tier one entrepreneurs got funded by

the Tier one VCS to build marketplaces

you know this is uber this is whoever

else and then this is not to say that

somebody who's a number two is tier two

or those pcs or tier two is because some

of them are great but people like oh wow

let's go fund a marketplace there so

these marketplaces are actually kind of

natural monopolies but so many of them

because there was so much funding ended

up with a lot of competitors and because

it is a little bit of a winner-take-all

winner take most business you can

justify spending and losing almost

infinite amounts of money to get you

know kind of the the you know whatever

the brass ring the gold crown whatever

you know the gold medal at the end and

so that is distorted a lot of these

businesses you know imagine what a great

business uber would be if it did not

have lift and DD and all of these other

ride-sharing businesses to contend with

imagine how much better you know door -

or GrubHub would be if they didn't have

all these food delivery marketplaces to

contend with so I do think that once it

sorts itself out it settles either into

into a stable market structure and

there's all sorts of really cool work

and thinking you can do around what the

stable level of share is in different

markets then will be great businesses

they will I think be sustainable but

it's just because I mean we're talking

about businesses with incredibly high

terms of capital really high barriers to

scale for those high barriers to scale

end up being enduring competitive

advantages because at the end of the day

scale is the most durable competitive

advantage a book that's been very

formative to me was written by Bruce

Greenwald who's another Columbia

professor I always think is called

competition demystified but he goes

through and really statistically

accesses how durable different

competitive advantages are I think Mike

I think Mike Mohsen has done some work

on this to an ultimately scale is the

most durable competitive advantage

awesome thank you and we have quite a

few questions regarding a recurring

revenue based on you know your podcast

with Patrick and some of your tweets

about video games specifically in your

tweets you spoke about the transition

from free-to-play in to monetizing with

in-app purchases so you know how

recurring are these purchases and you

know what similarities and differences

compared to recurring revenues for SAS

companies are you seeing and it's lastly

sorry um what are the trends that you're

seeing in regards to in-app purchases

now sure so first they're not recurring

revenue because it's not gonna track so

I mean I think at the end of the day

either if we're gonna call something

recurring we should be precise and it is

a subscription so in in fact it in

theory they aren't recurring but in

practice they are all these video game

companies they you know they don't have

economists they have psychologists they

think about the in-game economy they can

kind of you know manipulate that and

game economy in different ways so I

think in practice they are really

recurring and I think the point I was

trying to make which clearly did not

come through well and on Twitter is

software had to transition they had to

get away from the drug of up front

license sales where you know you collect

$100 up front

and it's super high margin and instead

it's better to collect twenty dollars a

year for five years you know or whatever

twenty five dollars a year for five

years that's ultimately a more valuable

business and when you go through all the

ways that SAS is better than on-premise

you know you eliminate you know the end

of quarter

you know rush to discount it's more

predictable there's less piracy you know

a little bit Navy piracy might have been

in some ways the greatest SAS value out

of all you know look no further than

Adobe for the power of that but you know

so you had you know used to what

companies would do a SAS transition the

stocks would implode because their

revenues would go down eighty percent or

whatever it is because you're trading a

hundred dollars upfront for twenty

dollars a year one the video game

companies today that sells $60 games

that cost $60 to buy if they're all

gonna have to slowly move towards a free

to pick free-to-play model and the

reason is and that means that's risky

and maybe your revenue will go down

maybe it won't I think there's a way

they can manage the transition and I'll

speak to that but the reason is what

drives value in these virtual economies

is persistence and Eugene Way wrote a

great blog post about status as a

service and that's how all social

networks

we're ultimately driving value but the

reason you spend money on a dance or a

skin or a gun or an emoji in a game is

it some level for staffs you know we are

all Eugene ways what was we are all stop

seeking monkeys at one level or another

you know luxury goods everybody is

always trying to convey their identity

in some way you know even if you hate

luxury goods whatever you were wearing

it is a choice that in some ways confers

status upon you this is you know the

entire business of fashion and apparel

and it is difficult for virtual goods to

have value in a videogame when their

value get

destroyed every year so in a game where

it's on an every year release cycle you

are destroying the value of those

virtual goods annually so those virtual

goods don't have high value and this is

why all the world's biggest video games

are free to play because in a

free-to-play game where you don't have

to come out with a new game every year

you maintain the value of those Goods

for longer so people ascribe more value

to them so the revenues from all these

in-app purchases micro transactions

whatever we call them are significantly

higher I think there is a way that the

video game companies can have their cake

and eat it too

and that is kind of migrating you know a

game I play a lot destiny has gone to a

model where your status is never

destroyed you're gonna kind of get to

keep your emojis and emblems and guns

and achievements and swords or whatever

else matters to you dances all those

things matter a lot to me but every

three years you're gonna pay $40 for a

new version of the game that brings with

it new PvE that's player versus enemy

content and new pvp maps and new items

and I think that is probably a way that

they can have their cake and eat it too

and racially transition into this model

but it is important just you know

whatever you get worried about oh what's

gonna happen to that $60 per gamer of

revenue well all the world's biggest

games are free to play it's just a

inherently superior business model and

god forbid you can marry it with paying

forty to sixty dollars every two to

three years because then it's almost

like a something that marries the best

of free-to-play and a subscription game

like World of Warcraft but that's what I

was kind of trying to get at and

hopefully that is a clearer answer than

I was able to give on Twitter oh and

thank you for that clarification we have

a question from Manas about data

consumption so given the increase in

data consumption you know is this well

this is a watershed moment for

computing companies and content delivery

networks or do you think the sector is

gonna have a lot of consolidation and

then the weaker players will be gone I

don't think it's a watershed moment for

CD ends look I mean at some point no

later than 18 to 24 months and we have a

vaccine the world will go back to normal

it seems very likely to me we'll have a

vaccine obviously there's an implicit

assumption in that

all the big cloud companies have their

own CD ends I don't really see this as a

true watershed moment for CD ends you

know something interesting that I think

and this is just kind of a natural

extension of the way cloud computing was

already evolving edge computing you know

like entropy like this is gonna be an

edge server it's gonna drive my personal

AI but we're also gonna need latency is

the speed of light problem it cannot be

solved since speed of light is kind of a

you know fundamental physics constraint

that exists in the universe we're never

to saw the speed of light problem so

latency is always going to be with it so

you're going to continuously be pushing

you know compute closer and closer to

users you know the cloud companies are

doing this you know Google Amazon and

ash or there are always you know trying

to push compute out you know they'll be

huge you almost have this tributary

system you have the huge core center

data centers then you have more

distributed computing that's less

powerful and these kind of concentric

circles something that I think is

fascinating and I don't think it's going

to be accelerating it has a result of

this but you know this clearly Amazon is

correct with their Amazon go store and

you're gonna have a lot more technology

in every store and when you when you

walk into a store in five or ten years

you know it's gonna identify you by your

face it's gonna pull up a profile it's

gonna know everything about you you know

what were the last things you bought

there you're gonna get personalized

advertisements and you're a hourglasses

as you walk through the aisles you you

know shrink is gonna be a thing of the

past you're gonna pay my face you're

just gonna walk out of the store all of

that has already happened we just need

like another I don't know two to four

revs of Moore's Law and no more one

thing that is interesting about that is

that means there's going to be a lot of

compute power in those stores because

you're not going to be able to go to the

cloud to do all of that in real

and it won't be efficient to do it in

the clouds you're gonna have a lot of

compute power in those stores you know a

lot of the companies that are deploying

you know AI based loss prevention and

check out technologies in stores today

you know they'll put in you know a local

cluster of nvidia gpus in the store to

do this but that means you know part of

the cloud story was driving up

utilization which drives down compute

and this means that you're gonna have

these huge basically data centers and

not huge you can have very small edge

focus data centers in every store and

what can you do with that compute power

you know like and luckily that will be

those stores you know not a lot of

people shop at night but people do use

the internet at night so is that kind of

where edge compute is gonna go to stores

and restaurants that have a lot of local

compute power to power the AI algorithms

that they used to deliver personalized

inshore stoping experiences that is

something that I am thinking a lot about

and then I think eventually we will all

be able to you know right now you can if

you have a powerful enough GPU if you're

a gamer like me you can actually earn

money the entire time you're not playing

a game on your gaming laptop or your

gaming desktop by mining cryptocurrency

like in the future you are going to be

able to you know let AWS Azure or Google

use the compute power on your on every

computer and computing device that you

own while you're not there then there

will be some algorithm about you know

what they're willing to pay relative to

what electricity costs you and you'll

make a little bit of money and we will

all eventually every processor in the

world will be utilized 80 to 85 percent

of the time you know this is utilized

you know I'm not gonna tell everybody

what my Apple screen time report is but

I spent way more time than I should on

my iPhone but like at most I'm using 20%

the cycles on this super powerful CPU in

here eventually all computing devices

will be utilized a hundred percent of

the time an AWS Google and Azure will

pay you money for the right to read this

so I think that'll be something really

cool and those are kind of the that's

kind of the waterfall I see for edge

computing stores and restaurants first

followed by multiple our own devices it

sounds almost like an episode of uh

Silicon Valley with Pied Piper haha I

think we have time for two more so

quickly we'll just pivot into looking at

VC and and given the large amount of

money in VC and the fallout from the

vision Fund do you think that there is

anything broken with the current VC

model

yeah I think it's broken at all with the

current VC model I mean I do think the

vision fund model broke like you cannot

create winners with capital at some

level that was the fundamental

underlying thesis of the vision fund and

it looks like it was wrong

now maybe maybe in a different world

where you know the vision fund had gone

slow or had been more mindful of vintage

risk and had made different investment

decisions they could have but I don't

think anyone is going to repeat that

experiment in the near future

but the vision fund did have a very

distorting negative effect on the

ecosystem

you also had I think a lot of people who

decided they needed to be in venture you

know random hedge funds trying to you

know outbid and you know they got

there's a lot of thinking you needed

logo see other logos there's this crazy

thing in 2018 and 2019 we have the

vision fund but on top of that you had

new players who wanted to get into the

business and either thought

to get into the business by either

outbidding the vision fund or marking up

the vision fund

whoopsie-daisy look I've made a lot of

horrible venture mistakes I was lucky

enough to make those mistakes anymore

forgiving environment in 2013 2014 2015

but there are a lot of if you're a

public equity investor there are a lot

of lessons you need to learn when you go

to venture a mistake and I'm not going

to see names but a mistake an

astonishing number of sophisticated

public equity market participants made

was you know they get this forecast from

this you know venture funded SAS company

doing elite stage financing and they

look at the 2023 number for revenue and

then they do

Evita sales for that and then they'd

compared it to Evita sales for the best

public ops eBay Wow the venture company

is so cheap I'm getting a visit you know

half the value of the public up or you

know in some cases you know less than

half well

vit your forecasts are not public equity

forecasts if you miss a forecast as a

public equity company there are horrible

consequences your stock goes down a lot

if you're the CEO or CFO you might get

fired it is accepted in venture that all

companies are going to miss 80% of

companies miss the quarter during which

their fundraising 90 percent of them I

think missed the first year estimate

often by a huge amount so you're

comparing a public equity forecast

that's been heavily D rest and I'm just

gonna make it up but let's say the

public equity SAS forecast goes 40

percent revenue growth 20 percent

revenue growth 15 percent revenue growth

and you're looking at a vinter forecast

that goes a hundred 90 80 well probably

something should look wrong about that

100 90 80 but the real number is they're

not going to grow a hundred they're

gonna grow 70 and if they weren't

burning cash they'd be growing 40

so like the first thing you have to do

is really haircut the numbers and when

you compound that out generally means

like the year three actual for your

average venture funded company is

probably something like fifty to maybe

even forty percent of what's in their

model so it's a massive miss when you

compound it out and then these aren't

public companies that care about

dilution instead of having annual share

dilution of you know whatever it is five

percent eight percent if you're in a new

more aggressive public equity SAS

company or you know shrinkage if you're

in a more mature company like Microsoft

that shrinky its share count every year

instead the share counts gonna grow ten

to fifteen percent a year and so if you

compound that out three years you have

revenues that are forty to fifty percent

of what you underwrote and the share

count is you know forty five to fifty

percent higher which means the true evie

to sales if you're looking at that kind

of silly metric is you're off by a

factor of three and so i think the good

news for venture is everybody has now

learned all those lessons well a lot of

mistakes have been made I think the

world is sorting itself out it doesn't

look like we're gonna have a vision fund

to which really works to the

disadvantage of kind of the best VC's

the best VC's returns are more

persistent and venture than any other

for the top decile of a venture than any

other asset class and the reason for

that is the best entrepreneurs want the

stamp of approval from the best BC's so

they go to the best species first so the

best VC is there's all this path

dependency and it's really tough to

break into that Club you need to get

really lucky because if the best species

always see the best deals so everybody

else is getting the deals that they are

passing on and this is why returns are

so persistent for you know the

benchmarks the Sequoia is the general

catalysts you know the valor is the

you know who whoever of the world.they

is dollars more of a growth equity firm

but yeah so that so that uh I think the

world is sorting itself out and

returning to normal in venture capital

so just visit capital your city works to

the advantage of good feces and good

entrepreneurs capital abundance works to

the advantage of bad entrepreneurs and

less established PCs and thank you so

much I want to be respectful your time

but very quickly a lot of people have

been asking what are your favorite books

and podcasts you have a lot of people on

this call who only know banking for

example or people like myself who come

from you know IT infrastructure and

vendor selection so how can we learn

about the other side that we don't know

yeah gosh I mean favorite books you know

I love Hemingway Tolstoy and Dostoevsky

but I think is a technology investor

we're talking about two things about

technology what's important for

technology and then what's important for

investing and if you're gonna be a

technology investor both of these are

important and I a part I'm embarrassed

to say apart from Patrick's podcast I'm

generally a reader not a listener so

technology wise I actually think if

you're gonna be in tech at all has an

investor or an operator it is critical

to read science fiction so much of what

has happened in the world over the last

20 and 30 years you know was written

about eloquently 40 50 years ago it's

amazing how many things Isaac Asimov

predict predicted so I think it's really

critical to actually read science

fiction because I think it will open

your mind to how wide rate what a wide

range of possibilities there are for the

future in some cases it can help you

predict and understand the future I

always think about that great I believe

it's Alan Alan Kate quote the best way I

know to predict the future is to admit

the future I'm not smart enough to

invent the future

so I have to spend a lot of time

thinking about different scenarios but

yeah everybody should read dune

everybody should read Isaac Asimov's

foundation trilogy everybody should read

the culture series by Ian banks which

starts with a consider fleebus which is

reference to TS Eliot poem The Waste

Land but the culture is in some ways I

think one of the most powerful visions

for the future I've ever read everybody

should read Hyperion so science-fiction

I think is really really important and

has been important to me personally it's

been important to me as an investor it's

important to me if somebody tries to

understand technology and I think it's

one reason I have a lot of close

relationships with people who are CEOs

or founders or VCS and I think one

reason I've been able to bond with them

is I don't really watch sports I play

video games I read science fiction

there's no nerdy reference they can make

that I can't immediately at least like

nerd compete with them if not outward

them so I read science fiction I think

is very important if you're gonna be in

technology has it investor I think it's

really important in terms of books to

read you know you want to be steeped and

all of the you know the great books

about investing you want to reread read

and reread Warren Buffett's shareholders

letters you want to either joke in the

English language you know Shakespeare

had 90% of the great quotes Churchill

had the other tip percent in investing

it's like Warren Buffett as the

overwhelming majority in Peter Lynch who

you know I'm lucky enough to have spent

a lot of time with him and he is a truly

great investor from whom I've learned a

lot along with a couple of other fund

managers of fidelity who were very

important mentors to me

but for investing in addition to reading

everything about investing in the

mechanics of it I would encourage you to

read read books that help you be

comfortable with being wrong

with managing your ego because when I

used to interview for fidelity and I

would interview college kids or MBAs

like yourselves you know and I think it

talked about this a little bit on

Patrick's the first podcast but just in

almost any profession other than

professional investing you can multiply

intellect times work ethic times

charisma modified by luck which is the

most important variable and get to

abandoned outcomes that equation does

not work at all has an investor because

the missing the dark matter of being an

investor is can you be rational when you

are wrong all of our lives will talk to

being wrong is shameful and so a lot of

people find it very difficult to be

rational when they are wrong so find and

I recommend a book find find ways to

deal with your own ego because I think