00:00hi everyone welcome to the Asics insi
00:02podcast I'm sonal and I'm here today
00:04with Michael and we are talking to bill
00:06Janeway bill is a senior advisor at
00:08Warburg Pincus where he had headed up
00:10its high tech investment efforts
00:12starting in the late 80s so he was
00:13actually one of the early venture
00:14capitalists and he is also a visiting
00:17lecturer today in economics at Cambridge
00:19where he also received his doctorate in
00:21economics so the best way to probably
00:23describe him is as a theorist
00:25practitioner of financial economics a
00:27couple years ago bill wrote the
00:29definitive and award-winning book on
00:31doing capitalism in the innovation
00:33economy and he has a really unique
00:36perspective having tracked the history
00:38and evolution of venture capital so we
00:39thought it'd be great to have him on the
00:40a 6mv podcast to share his perspective
00:43on the industry today welcome bill thank
00:48so we want to you know tap into your
00:50brain if we can today and and and talk
00:53to you about what's top of mind and I
00:55know you've been you write a lot about
00:57innovation you talked about it you've
00:59had some tweet storm battles with our
01:01own Marc Andreessen around the subject
01:03of unicorns and and how to think about
01:06it so maybe we can jump in there well
01:08sure we can start there the my tweet
01:11storm conversations with Marc have
01:15actually begun with what I think was a
01:17misunderstanding but I think clarifying
01:20this particular issue helps understand
01:23where the unicorns come from though not
01:27necessarily where they're going uh-huh
01:29so my thesis is that like electricity in
01:33the 1920s from the point of view of the
01:37user not the engineer not the guys
01:41behind the scenes or under the table but
01:44from the point of view of the user IT is
01:47in the process of disappearing now that
01:50comes in the context of open source
01:54software web services from the cloud
01:57which means that the cost in terms of
02:02time and money of launching a new
02:05service has declined asymptotically to
02:09zero right not building it out into a
02:13launching it back in the 20s when you
02:16could plug into the wall into a standard
02:20socket instead of worrying about cycles
02:24and impedance all of a sudden you had an
02:28explosion in applications they were
02:30called household appliances from
02:32toasters to washing machines to
02:35today we're having the same kind of
02:38thing in the web services economy now
02:43what also goes with IT disappearing as I
02:48say not under the hood it's really hard
02:51to run cloud services it's really hard
02:54to provision mobile applications that
02:57capture real transactions but from the
03:00point of view of the user it's as if you
03:04no longer worried about what was going
03:06on behind the scenes and what is
03:10distinctive about the web economy is the
03:14extraordinarily low friction in bringing
03:17new services out and people signing on
03:19to those new services and starting to
03:21use them this means on the one hand a
03:25step function increase in the number of
03:28startups and the number of Darwinian
03:31hopeful monsters right most of which
03:34will fail most of which will fail pretty
03:38fast and without costing an enormous
03:40amount of money so that at the front end
03:44of funding these the spray-and-pray
03:47style of investing is rational and
03:53practical when one or more of these
03:58services actually quote gets traction
04:01we're in an environment which is not
04:04going to stay like this forever we're in
04:06an environment of extraordinarily low
04:08interest rates of enormous quantities of
04:10liquidity looking for return there is
04:14the phenomenon you guys out here know a
04:17lot more about then I still have to
04:19explain it back east let alone in
04:21Cambridge England the phenomenon of FOMO
04:24fear of missing out right on the next
04:27book the next Twitter whatever it may be
04:29although the next Twitter maybe the last
04:31Twitter I'd don't have an opinion about
04:33that so we're now seeing and this is
04:39where Mark and I are in complete
04:40agreement and we're in agreement with
04:44people like Bill Gurley that the
04:49provision of large amounts of capital at
04:53premium valuations to private companies
04:57by investors who historically and
05:00culturally our public market investors
05:03are enabling both these private
05:07companies to stay private much longer
05:09and also to fund losses to have no
05:17concern for what at some point in the
05:21not terribly distant future is going to
05:24become a very very different environment
05:27I grew up in the world where my original
05:32mentor and how to understand the
05:35business used to say corporate happiness
05:37is positive cash flow positive cash flow
05:41from operations means that you the
05:44entrepreneur the venture capitalists own
05:48options you own the options about
05:52whether to sell or not sell whether to
05:56raise more money or not raise moment
05:58you're not a prisoner of the capital
05:59markets now when you see investors hedge
06:03funds mutual funds paying premium prices
06:07to buy illiquidity to buy securities
06:12with no liquidity and with no governance
06:14rights in the private market and the
06:16private marks the only thing you know is
06:17it when it ends it will end painfully
06:20now there's a last piece of this which I
06:23don't my own view is that the common
06:26opinion is misses a critical point and
06:29that is well what about the IPO market
06:32that's one thing to say right if I have
06:36Wellington and tiro and fidelity and the
06:39Russians throw in hundreds of
06:41dollars at me at multi-billion dollar
06:43valuations why would I go public the
06:45answer is of course you would right
06:46money's available and it's and it's
06:48cheap right it's very cheap but on the
06:52other side if I wanted to go public on
06:54the way up it is much much much harder
06:57to do that this is one of my that now
06:59I'm wearing my my academic my theorist
07:03hat if you like there's been a huge
07:04amount of work that's been done on the
07:07returns to venture capital going back to
07:10when there began to be a venture capital
07:13industry which is roughly nineteen
07:15eighty it's always been very closely
07:18correlated with the state of the public
07:20markets and particularly with access to
07:22the public markets from nineteen eighty
07:25this is my own data's data published in
07:27peer-reviewed journals from 1980 to 2005
07:30the average number of venture backed
07:34IPOs per quarter was about thirty with a
07:38standard deviation of 10 so you were
07:41capturing most of the IPOs that were 20
07:43to 40 per quarter what it was more than
07:4540 you were in a hot market right when
07:48was more than 40 and most of the
07:50companies weren't yet profitable then
07:53you were in the bubble you were in the
07:54dot-com telecom internet bubble of the
07:56late 90s since then we've had all of
08:00about four quarters in 15 years when
08:05there have been as many as 20 venture
08:09capital backed IPOs that's at the bottom
08:12end of the normal range most of them
08:15have been below more than a standard
08:17deviation from the average over the
08:19previous generation and increasingly the
08:24IPOs that have taken place have taken
08:27place for guess what biotech and life
08:29science companies because now you're
08:32speculating not just on as you used to
08:34about biotech well the molecule get
08:37through clinicals you're speculating on
08:39well Big Pharma whose productivity of
08:42research has collapsed by them before we
08:45have to find out whether the molecule
08:46gets through phase 3 clinical so the
08:49number of venture backed IT companies
08:53which historically was
08:56two-thirds of the total from quarter to
08:59quarter to quarter has plummeted and the
09:02total number has plummeted so what's
09:04going on there one clue is that the mean
09:09and median value of an IPO has more than
09:14tripled since the dot-com in real terms
09:16right you have to do a deal that's over
09:19a hundred maybe 150 million I'm not
09:22talking about Facebook but you had those
09:25the the mean and median are way up from
09:28where they were well why is that well
09:30it's actually important that you're
09:31pointing out the median as well because
09:33that's nicely it's not absolutely right
09:37it's really the median that I look at
09:39the institutional change that most
09:43people who think about the IPO market
09:46are not taking into account is the
09:48incredible consolidation of the
09:51investment banking business what that
09:53means is that there is a hole in the
09:55capital raising process and the to get
10:01the attention of the global major dealer
10:05banks you've got to be offering them a
10:07transaction on which they can make at
10:09least five million dollars and you start
10:12doing the arithmetic on the economics of
10:15an IPO and you're up in the nine figures
10:17to do an IPO now why does that matter
10:21what matters because the value of being
10:26able to go public is having liquidity
10:30for your early investors there is no
10:34more important world in the world of
10:36finance word in the world of finance
10:38than liquidity because again it's the
10:41flipside of positive cash flow from
10:44it's your control over your situation
10:48you change your minds and you there's a
10:52price that you pay but the price gets
10:54you back to cash on your own so we come
10:58all the way back around to the unicorns
11:0085 or so companies private companies
11:03with valuations above a billion dollars
11:06no pressure to generate positive cash
11:08flow from operations because they're
11:10being funded at very very very low cost
11:13of capital by people who after they've
11:16made the investment they're there they
11:19are stuck and they have no control no
11:21control whatsoever over what to do if
11:26something goes wrong so how does this
11:29then play out and how does that also
11:31relate to venture capital returns the
11:34first way I think this plays out is that
11:35the relatively narrow band of companies
11:39that are creating disruptive web-based
11:43services are being able to explore the
11:49new economic space that's been created
11:50in a much more rapid way than they
11:53otherwise would that's a good thing
11:54right that's a good thing but as you do
11:58see IPOs for these companies at prices
12:03materially below the last private rounds
12:08that's going to feed back up straight
12:10it's one thing to say well I've got some
12:11anti-dilution protection if it goes out
12:14I get a few more shares but you're still
12:16trying to explain to your boss to your
12:20public market investors to your limited
12:25partners just tell me again why you did
12:28that deal tell me again why you paid
12:31that price for the privilege of owning a
12:34high-risk business which has
12:37demonstrated no ability to make money
12:38and which is dependent on there being
12:41more people like you to continue to feed
12:44it capital without discipline and
12:47without control I mean is it is that
12:50without discipline them without control
12:52or and/or is it mutual funds and other
12:57of these players coming into the private
12:59market looking for growth well they're
13:00looking they're looking they're they're
13:03looking for super growth and they're
13:07taking to acquire access to that growth
13:12they're making they're taking investment
13:15positions which are irreversible even if
13:17the price could be modestly adjust
13:19after the fact right it's a category
13:22error when one or more of these
13:27companies actually fails when it finds
13:31that there is no way to get to positive
13:33cash flow when it finds that it is
13:36dependent perpetually on influx of cheap
13:42capital and they fail then the message
13:46will come back and by the way as long as
13:49this capital is available there will be
13:51more and more companies coming to buy
13:54that capital right again the people on
13:56the on the other side of the market
13:58aren't morons so the quality inevitably
14:01will decline inevitably so how do you
14:04actually get into evaluating that
14:06quality though because one of the
14:08conundrums of VC obviously is that we're
14:10in early but it's it's you have to
14:13figure out ways of assessing if a
14:15business and be successful but yet at
14:16the same time you really don't know
14:18because it's a good innovation it is
14:19right well clearly the classic place
14:23where you're making decisions under
14:25conditions of radical uncertainty is
14:27when you're funding a start-up so you
14:30think about how do you evaluate a
14:32start-up well the first way I actually
14:34begin is by looking at the biographies
14:39of course I have I have a heavy
14:41propensity for people who have survived
14:43failed startups near-death experiences
14:45of big companies and along the way have
14:48demonstrated some degree of creative
14:50discipline in and and had some
14:53experience in helping to build a real
14:55business and buy a real business I mean
14:58a business that is self-sustaining from
15:00positive cash flow from operations I'll
15:03keep coming back to that but the second
15:05thing I'm really interested in is how do
15:08they read the market particularly today
15:12when we're talking about SAS IT enabled
15:18businesses delivering value whether to
15:21consumers or to enterprise customers how
15:26good are they how compelling and
15:33Clara clear is their evaluation the
15:36market they're trying to address it
15:37doesn't mean that that market they're
15:39gonna wind up addressing but it tells
15:41you an awful lot about how they think I
15:42think that definitely helps with
15:44understanding the cases where you know
15:47what you don't know but there are a
15:49plenty of cases where we don't know what
15:51we don't know and a give you an example
15:52if you really think about the biggest
15:53outlier hits and successes of the past
15:55ten years they're actually first-time
15:56entrepreneurs right with no track record
15:58that's correct categories that we don't
16:00we don't know even how to think about
16:02SATs when Marc Benioff came up with the
16:04concept of Salesforce people were just
16:06like what the hell is that we have to be
16:08very careful about survivor's bias yes
16:11as I said one of the really interesting
16:14maybe the most important phenomenon of
16:16the startup universe is the combination
16:19of open-source software and cloud
16:22computing services it used to be that
16:25whether you were addressing consumer or
16:28business markets it took twenty million
16:31dollars to produce whether it was
16:35something that went out and retailed
16:36through a disk or whether it went out on
16:39a tape in a truck to a big company
16:41because you had to buy the hardware you
16:43had to buy the software licenses I tell
16:46my the kids in my class you know you do
16:48is your startup guys you don't even need
16:50your parent's credit card you can do it
16:51on your own that means so many more
16:55startups so we really have to be careful
16:58about survivors bias and as I say I
17:01think if if what you want to do is be
17:05investing in the next Facebook then you
17:08got to be kissing an awful lot of frogs
17:09and hope that none of them are going to
17:12leave you with warts because most of
17:15them are gonna die and it's a way of it
17:17but it's not the way I temper mentally
17:18you need a particular kind of
17:20temperament for that kind of investing
17:22it's not temperament that I share so I
17:25can't go much further down the road with
17:28you on those I have myself historically
17:31very much been an investor at Warburg
17:35Pincus and before into business into new
17:40companies delivering innovative
17:43functionality to business customers
17:46increasingly where it's an intersection
17:48of a functional capability and
17:53information that previously could not be
17:57aggregated analyzed and used to drive
17:59decisions given what you described given
18:02the money that that is sort of this
18:05constant flow of money that's needed to
18:06fund some of these as you said unicorns
18:08but also given the fact that there are
18:11so many companies that are started that
18:12some of them will you know follow
18:15through and become what they you know
18:17everybody wants them to become do things
18:19end differently and and or does the
18:22money that's flowing in and that's not
18:24used to sort of being in the private
18:26market kind of freak out and you know
18:29run away and go back to what it does I
18:30have no doubt that sooner or later that
18:32money will disappear right no doubt so
18:35and what happens then well my question
18:37so here's the real point I want to make
18:39here in an environment where the IPO
18:43market is very hard to reach and you
18:45have to build a business under
18:47conventional valuation metrics of more
18:50than 100 million dollars to be able to
18:51go public to have the five hundred
18:53million dollar valuation that lets you
18:55do the hundred and twenty hundred and
18:57forty million dollar IPO which will get
18:59Goldman or JPM interested right under
19:01those conditions from the entrepreneurs
19:05point of view and from the venture Fein
19:09and Sears point of view the rational
19:12strategy is to keep asking the question
19:16at each stage at each round of
19:18investment do we sell now to think about
19:23what is an honorable and economically
19:26useful function for venture capital
19:30startups which is funding research and
19:33development for big companies now that
19:35shifts the terms for the innovation
19:37economy at large and this is kind of
19:40what's evolved I wrote about this a
19:42little bit in my book doing capitalism I
19:45would I would emphasize it more today
19:47that the rational approach is to be
19:51thinking from the beginning not the
19:55default option as we build this business
19:57to an IPO the default is the
19:59we sell after we've a plugged it in and
20:04it lit up we proved that it works B I'm
20:08doing this in terms of venture rounds B
20:11we have two or three customers who will
20:15stand up and say I paid real money for
20:17this stuff I'm talking about enterprise
20:19not retail I paid real money for this
20:22stuff it works and I'll buy some more do
20:24we sell now or do we then take on the
20:27much bigger risk of actually trying to
20:30build that self-sustaining cash positive
20:33business which over time has the
20:36potential to generate 10 times the
20:39returns but you're taking on orders of
20:41magnitude more risk right now coming
20:44back to uncertainty the central theme of
20:47the whole first half of my book is that
20:50there's only one way to hedge against
20:55uncertainty in venture startups you
20:58don't have credit default swaps you know
21:01you you don't have instruments that you
21:04can buy to head your position it's two
21:07words cash and control enough cash
21:11unequivocal access to enough cash so
21:15that when something goes wrong you can
21:19buy the time to find out what it is and
21:22to assess what you can do about it and
21:25then enough control not necessarily 51%
21:30ownership or a majority of the board
21:31enough strategic influence so that you
21:35can mobilize the team that can shift
21:40gears and restart so that you can
21:43actually have the space in which to sell
21:46the business sooner than you hope to
21:48sell it in which and this of course is
21:50something that venture capitalists do
21:52you can change management and have
21:55another go at the original business plan
21:56because it was a failure of execution
21:58but cash in control is the only it's the
22:02retrospective hedge against the
22:06inevitable uncertainty of playing this
22:09game in the early stages you can
22:11diversify across the poor
22:13Folio but you know there's a there's a a
22:17non there's a systematic risk across all
22:20of our early stage portfolios and the
22:23risk is it's really execution if you
22:26can't diversify away that risk but you
22:29can hedge against it by holding back
22:32more cash by being very careful about
22:35what the governance structure is and you
22:42when we were building the businesses we
22:44built in the 1990s like Veritas and B EA
22:47we were in a position where we could
22:49have sufficient ownership so that we
22:52could help support and guide but also
22:56respond in real-time to the inevitable
23:00uncertainties of this way of life so
23:04does what you describe then do you
23:05expect and this is something that our
23:07managing partner Scott Cooper has
23:09written about do you expect to see more
23:10M&A sooner rather than later when you
23:12talk about at each stage you need to
23:14sort of step back and think about do I
23:16sell right and if you look at the data
23:18look at the NVC a data the the
23:22proportion and the and the value and the
23:25value per transaction of M&A has kind of
23:27gone up as the number of IPOs for
23:31venture backed companies has gone down
23:33and stayed down so that's that's the
23:35flip side if you and it does create
23:37another issue and this is an issue which
23:39I think is is systemically important for
23:42our economy the constraint on
23:45successfully bringing this kind of
23:47innovation to the marketplace where it
23:50will make a real difference to the
23:51economy the constraint becomes the
23:53absorptive capacity of the acquiring
23:56companies it's really easy and we have
23:59so much experience of the big company
24:02the big stagnant company buying the hot
24:05startup and burying it smothering it I'm
24:10very I have to say I'm extraordinarily
24:12impressed by Google style of being able
24:15to acquire and support and create space
24:18now if you're as rich as Google is you
24:20can afford to do that but it's a
24:21cultural phenomenon right and we have
24:23many other examples including a number
24:26of big companies that have proven to be
24:28terrible acquires learning how to
24:31acquire protect honors support and then
24:34build out innovation from the outside is
24:37a huge challenge and it's one that's
24:40really important for the whole economy
24:42not just for our little segment of it so
24:44bill one question in your notion about
24:46the role that VC plays in R&D
24:48I mean basically you're saying that VC
24:49is distributed R&D and I'm curious to
24:52hear some of your takeaways based on
24:54that yeah well what I'm saying is that
24:56because getting public is so difficult
24:59and so rare for venture-backed tech
25:03companies that practically speaking we
25:07should be thinking about that what we're
25:08doing is funding distributive research
25:11and development for big companies and
25:12the big companies typically have have
25:17lost much of the capacity for innovation
25:19and they have to learn how to acquire
25:22innovation from the outside and not kill
25:24it in biotech that's kind of the model
25:27because big farmers productivity of
25:30research has declined there'd been
25:33decades now through which they've been
25:35acquiring early-stage biotech companies
25:37and they're doing it earlier and earlier
25:39and it's relatively easy for them
25:41because they're just buying a molecule
25:42and they've got all of the machinery
25:46from toxicology to sales and marketing
25:49by way of compliance and regulatory
25:51stuff and clinical trials management
25:54it's much harder in the world of IT for
25:58big companies to be able to acquire and
26:01not kill but with respect to what the B
26:04C's are doing the danger the danger can
26:06be going too far upstream
26:09I mean funding science rather than
26:12funding funding the commercialization of
26:15technology and finding commercially
26:18valuable new innovative applications of
26:22technology back in the mid Audis some
26:27billions of dollars were wasted in
26:29venture guys investing in nano
26:32technology venture guys investing in
26:35science for ultimately
26:39clean tech opportunities but that were
26:43way upstream that took much too long
26:45much too much money and had a kind of
26:48scientific risk not just technology risk
26:50this is where there really is a role for
26:53big companies and if they're not gonna
26:56play it nobody is so you're saying
26:59basically that the science that's
27:01fundamental science funding fundamental
27:03science VC's doing that is a category
27:05error correct whereas commercial science
27:07that's may be accelerated by well
27:09commercializing technology science to
27:12technology to commercial application
27:14where VC successfully has intersected
27:19that is somewhere between
27:21proof-of-concept in the lab and defining
27:26the applications that have immediate
27:30commercial commercial opportunity for
27:33success you know we only have three to
27:35five years to demonstrate that we've
27:37done something smart when we've made a
27:39startup investment yeah and it's been
27:41you know to your point about nanotech
27:44it's been whatever 15 years and we're
27:46starting to sort of see it creep out
27:47there except that nobody really calls it
27:49nanotech anymore it's just there
27:51it begins yeah it's beginning to emerge
27:54as features and functions but building a
27:59business you know there's a lot of
28:00history here lasers right okay the first
28:03laser was it took 10 years to replicate
28:07the lazing phenomenon but it took 20
28:09years to discover what the hell the
28:11killer app was yeah and who would have
28:13believed that the killer app was at the
28:16supermarket checkout counter right and
28:18then consumer electronics right CD
28:21players right I thought it was laser
28:23rock shows but apparently that was a
28:27laser printer came along after the
28:30supermarket but you're right so back on
28:33the theme of just you know this notion
28:35of experiments you know one of the
28:37things that's interesting about your
28:38background as an economist is that
28:39you're sort of an outlier in that
28:41industry because you're talking about
28:42trial and error as a philosophy well
28:44that's absolutely right that's
28:46absolutely right and and you know I did
28:48my doctorate in economics at Cambridge
28:52left academia I left academia because
28:55frankly I found it impossible to teach
28:58bright young kids that the way to think
29:02about how the economy worked was through
29:05a model that said resources are
29:09allocated efficiently to their highest
29:11return uses because I'd already begun to
29:15appreciate what I then really learned as
29:17a working venture capitalist that we
29:20advanced by trial and error and error
29:23and error that waste necessary waste is
29:27built into the system that virtue is not
29:30efficiency efficiency is the enemy of
29:32innovation then post 2008 all of a
29:38sudden the recognition that maybe the
29:41markets aren't that efficient you know
29:43maybe if we've had a global financial
29:45crisis and a world-class economic freeze
29:48it's time to start thinking about
29:50markets in a different way
29:51so it's just been a tremendously
29:53exciting and stimulus stimulating and
29:57youth youth enhancing experience there's
30:00a completely okay there's been plenty of
30:01stimulus lately but that - that - what
30:04what we have and by the way we've we've
30:08seen something like this before
30:10what we have now is a an environment in
30:14which exactly it's designed for
30:16experimentation and that's why I say
30:19back in the 20s that was the case with
30:21electricity back 50 years before that
30:24after we built out the railroad networks
30:27we had the opportunity we I say
30:30metaphorically had the opportunity to
30:31discover the killer app for the railroad
30:34it couldn't work until you had railroads
30:37everywhere it was called retail mail
30:39order it was called Montgomery Ward and
30:42Sears Roebuck in 1970 every town in
30:45America had a shoemaker by 1920 all the
30:48shoes in America were made in Brockton
30:50Massachusetts right when the railroads
30:52were built out we could have the kind of
30:54experimentation that when the
30:56electricity grid was deployed we could
30:58have now we're having the same thing in
31:00the digital world and it's fascinating
31:03how does trial and error get vennett so
31:05when you've got so much uncertainty up
31:08front you know that there are only two
31:10sources of capital that can invest
31:13without regard for the immediate
31:15economic value that they can define one
31:18is the government when it's got a
31:19mission whether it's national security
31:21or the war on cancer and the other
31:23speculators financial speculators now
31:26wherever wherever you have markets in
31:29assets you're gonna have bubbles bubbles
31:31are by now the object of speculation
31:35everything from tulip bulbs to beach
31:38houses in the Nevada desert by way of
31:41gold mines and silver mines and
31:43commodities occasionally every once in a
31:46while the object of speculation is one
31:48of those technological innovations which
31:51if it's deployed at large scale changes
31:54the world and creates a new economy
31:55canals and railroads electricity
31:59aviation wireless aka radio and yeah the
32:04so the way to think about financial
32:08speculation is to recognize that bubbles
32:11are banal but every once in a while
32:14they're not only necessary they're
32:16productive because they bring together
32:19the magnitude of capital you need to
32:22build out the new network infrastructure
32:25and to finance the exploration of the
32:28new economic space that's being created
32:31so you think about the difference
32:33between 2000 when the bubble was limited
32:38to the public capital markets so when it
32:40burst the damage wasn't that great yeah
32:45the people who were invested lost their
32:46money but they weren't leveraged and it
32:48didn't infect the whole system when the
32:51bubble infects the credit system the
32:54banking system and when the object of
32:56speculation of those beach houses in the
32:58Nevada desert when a burst it's
33:01catastrophic it freezes the whole
33:02economy so good bubbles bad bubbles
33:05productive bubbles ugly bubbles
33:08productive bubbles if it's only in the
33:11liquid markets in the stock market the
33:13junk bond market and the object of
33:15speculation is some promising technology
33:17let it run for a while so to be clear mm
33:21good bubble yep 2008 bad bubble bad
33:27so the didn't it was the bubble was was
33:29located in the core of the credit system
33:32of the world and the object of
33:34speculation was real estate that was
33:37never going to increase the production
33:40capabilities of the global economy or
33:42make those production capabilities less
33:46damaging well so which brings us to 2015
33:50right microbubble micro bubble and
33:54limited scope focused understand every
33:58bubble every bubble begins with a
34:00plausible story the plausible story
34:03today as we've discussed is zero cost of
34:08launching a new web-based service zero
34:11almost zero friction in the explosion of
34:15that service if it hits a need and
34:19consequently the potential for almost
34:22limitless growth in an incredibly short
34:24time so there's always a plausible story
34:26why do you say this is a micro bubble
34:28it's micro this is micro because the
34:30scope of the bubble is much narrower the
34:33scope of the bullet on the one hand the
34:35scope is narrow but what's weird and
34:37different is that it's actually taking
34:39place in the private right it's being
34:41funded differently now the good news
34:43about that is that when a purse the some
34:47of these companies that have learned
34:48nothing about business discipline will
34:52disappear and the people who've invested
34:54in them will lose their money maybe
34:56their jobs that usually happens as well
34:58but it's not going to implicate the
35:03entire economic system it's not even
35:05going to implicate the remarkable
35:08dynamics of the economic system known as
35:10San Francisco Silicon Valley Bay Area it
35:14will be looked back upon and and people
35:16will say on the one hand what will be
35:20thinking and on the other hand say wait
35:22a second out of those 85 unicorns there
35:24are five great companies right right and
35:27by the way that's the necessary waste of
35:30and error well it sounds like there is
35:32pain ahead and yet there is much
35:34progress ahead - so bill Jen we thanks
35:37so much for joining us
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