00:00hi there this is Scott Cooper and I'm
00:01here with a Morgan bender and Benedict
00:03Evans and we want to talk to you a
00:04little bit about the bubble the
00:07environment what's happening in
00:08technology and maybe we'll kick it off
00:10in Benedict maybe you can start with we
00:12put out this slide deck on Monday I
00:14think and would love to kind of just
00:17hear from you I guess it started off
00:18like what was the you're thinking of
00:19behind why this is important information
00:21why did it make sense to actually spend
00:22the time to go pull this together well I
00:25felt like I'd seen a lot of people
00:27cherry-picking numbers almost at random
00:30and making assertions about where we
00:33were right now again without actually
00:35sitting and running the data and I felt
00:38like you know we're in this progression
00:40particularly over growth of seed funds
00:42and a growth of late stage investing and
00:45I wanted to just sort of sit and see
00:47okay what looks what does a venture
00:49investing in tech look like what is
00:51investing in tech look like since 1950
00:55or 1960 or 1970 with venture funding an
01:00IPO funding stacked on top of each other
01:02and adjusted for inflation and actually
01:04done properly and let's go and see
01:06what's happened and then let's go in and
01:07dig into all of these different trends
01:09and actually see what the numbers are
01:10because it's anyone you actually know
01:12what the numbers look like over time you
01:14can then work out what you think about
01:15them yeah it's easy right it's easy to
01:17read the 50 billion dollar uber
01:19headlines right and conclude that we've
01:22all gone mad right but exactly and I
01:25wanted to just you know I mean I think
01:27you and I both kind of lived through the
01:28last bubble and I you know I remember
01:30floating a company for which a Middle
01:34Eastern sovereign wealth fund put in an
01:35order for the whole of the free float
01:37with us and each of the two other banks
01:39on the deal so they ordered three times
01:40the entire number of shares on offer and
01:43now I remember thinking oh that was
01:44that's not what's happening now right so
01:46let's actually sit in lay down what was
01:48happening then and what's happening now
01:49and you know the sort of date that the
01:51tagline of the presentation is well this
01:53time it's different but it's always
01:54different yeah you know it's kind of
01:55easy to say this is not the bubble again
01:57we kind of know that but what is going
01:59on because it's never you know it was
02:00different in 99 as well yeah yeah no
02:03that's right Morgan you know as you were
02:04you you certainly pulled together a lot
02:07of this data here I mean what are if you
02:08look back like what are some of the
02:09limitations around what was hard about
02:11this so why why was this not just
02:13fairly straightforward process of you
02:15know going to whatever Universal
02:16database there is out there and how to
02:17pull those together yes so I mean the
02:19initial problems we're just trying to
02:21figure out what actually do we have to
02:23use so there are a lot of different
02:25databases out there there are a lot of
02:26different sources for this information
02:28so the first real question that we had
02:30to answer was you know what type of
02:31structured data do we have access to
02:33that is reliable so that involved really
02:35just scouring public databases private
02:38databases federal government information
02:40anything we could really get our hands
02:41on academic information academic
02:44databases and really just trying to say
02:46okay what questions can we answer this
02:48data so once we had that you know we
02:49kind of had something to work with and
02:50we were able to sit back and put things
02:52together and draw different thresholds
02:54and see how the story can come together
02:55yeah and probably you know not shocking
02:57for people to realize that actually
02:58trying to figure out the number of tech
03:00IPOs it happened you know 10 years ago
03:02is actually not that straightforward and
03:03you can get three different data sources
03:05that probably give you you know five
03:06different numbers exactly recent data is
03:09is somewhat accurate but as you go
03:10further back into the historical numbers
03:13things start to change different
03:14databases are omitting certain results
03:17that are important to include so it
03:19really involved just understanding and
03:21kind of coming up with a master data set
03:23that we think is most accurate and then
03:24kind of comparing these for each source
03:26to that yeah interesting and we put a
03:28slide in the back of the presentation
03:30that just sort of outlines well you know
03:31these are the assumptions you've made if
03:33you think they're wrong tell us and kind
03:36of run the data again or Morgan can run
03:38I think there's another point in here as
03:40well and it kind of comes back to the
03:42growth round which is you know you try
03:43and analyze this stuff it's quite easy
03:45to analyze public companies but because
03:46all the data is public by definition and
03:48so you want to know what p/e ratios have
03:50done you want to know what revenues were
03:51you don't know you know average
03:53profitability at IPO or any of that kind
03:55of analysis you if you want to do that
03:56is that if you want to analyze private
03:58companies like that including of course
03:59new venture backed companies that data
04:01is in there and so you have to start
04:02thinking creatively about well how do we
04:04do we look by ground size do we look at
04:06the age of the company what can we look
04:08at I mean I think there's a border point
04:10in there which is you know if a company
04:12doesn't IPO at a billion dollars then
04:14you can go and look at the financials
04:15and say well it had to did 300 million
04:16dollars of revenue and that was up 50
04:18percent and the profit was this and so
04:20you can take a view as to whether it was
04:21really worth a billion dollars or not
04:22but if a company does a private round
04:25evaluation of a billion dollars you
04:27don't know what any of the financials
04:28look like and so it's too easy sitting
04:31on the outside to say well that's a good
04:32run but that's a bad number you're
04:33actually to be mean correct you don't
04:36know whether it's a good valuation or
04:38not because you don't know what the
04:39valuation is you don't want a multiple
04:40it's you know what the prophet saw yeah
04:42so part of this exercise I think was to
04:43you know what proxies are there out
04:45there from which we can you know at
04:46least make some reasonable
04:47interpretations as to what's happening
04:48in environment right so maybe we don't
04:50we jump right in which is so you know
04:51kind of the the way the deck is laid out
04:53is it's kind of you know we tackled a
04:55bubble question first and you know you
04:57know maybe you can you know lead us off
04:59but so give us kind of your view as to
05:01what's the summary and you've heard you
05:03say this before which is it's kind of
05:04easy to win the argument that it's not a
05:05bubble so what is it that's so
05:07dispositive to you when you look at the
05:08data that says you know that's kind of
05:10that's not really the real question here
05:11and why that's a fairly dismissive
05:13question yeah so you know there were 400
05:16million people online in 2000 and there
05:19are 3 billion people online now in fact
05:21there were I think 40 million online in
05:2395 when the Netscape or 38 million with
05:25an escape IPO happened and revenue in
05:28the u.s. from online advertising and
05:30from e-commerce has gone from I think
05:34something like 50 billion adjusted for
05:37inflation in 99 to 350 billion now so
05:41about 15 times although perhaps and so
05:44the market science is just completely
05:46transformed on the one hand and on the
05:48other hand you haven't had any sort of
05:51spike in the PP multiples that people
05:54pay in the proportion that tech makes up
05:56of the S&P in the amount of money that's
05:59being raised by venture capitalists so
06:01any of the kind of high level numbers so
06:03on the one in the market size is way
06:04bigger on the other hand high level
06:06numbers as to how much is going into
06:08tech how much is being invested how much
06:10of the IPO is you know what are the p/e
06:12ratios none of those numbers have can't
06:13I've done ah at all never mind
06:15you know relative to where we were in
06:16the past so you look at all of these
06:18charts and what you basically see is an
06:19EKG you know you see this kind of flat
06:22you kind of this straight line going
06:23very very gently upwards over the last
06:2530 years and you see this enormous spike
06:26in 99 and 2000 then it kind of went back
06:28to trade went down a bit and there came
06:29back on the trend and we're basically
06:31back on the trendline and you see that I
06:34mean really in all public companies
06:35so the whole public market side of
06:37things just hasn't happened there is no
06:39there's no valuation there's no inflated
06:40valuations in public companies and so
06:43you just kind of have to put that there
06:44and say okay fine that's it we're done
06:45you know there is no repeat of what
06:47happened in 99 2000 with these crazy
06:49reach her IPOs and crazy retail demand
06:51and crazy multiples and companies going
06:53out seven times on their IPO none of
06:55that's happening now okay fine that's
06:56easy to win right the question is fine
06:57okay so it's different now but yeah it's
06:59always different it was different in 99
07:01- so what is it that is actually going
07:03on now and are there areas to be
07:05concerned about what are the dynamics
07:07going on within funding of companies and
07:08I think we've kind of pulled out two
07:10things within there one is this trend of
07:12very large late stage grace rounds and
07:14then the other one is the development of
07:16sort of the seed right there they're the
07:17kind of emergence of this enormous seed
07:19stage sector right so in some respects I
07:22at least maybe one way to think about it
07:23is technology in terms of kind of its
07:27overall contribution to the economy and
07:28you know things like you know you cite
07:30for example you know you converse
07:31revenue growing significantly you know
07:32market size is growing from old
07:34perspective technology has you know
07:36increased its importance and certainly
07:38increased its market share in the
07:39economy yet when you look at kind of you
07:42know to your point public market
07:43valuations when you look at everything
07:44else you know we haven't seen you know
07:46the trend lines actually kind of respect
07:48that increase without actually showing
07:50that you know things are out of whack
07:51relative for the overall contribution I
07:52mean technology is you know the internet
07:55economy is now much bigger than it was
07:57in 2009 but in effect the valuations
08:00today sort of reflect how big it is in
08:02the economy whereas the valuations in 99
08:06reflected was though the next 30 years
08:08of growth it all happened today yeah so
08:11it was all about all of this stuff is
08:13gonna happen and it's gonna happen right
08:14now and it's gonna be amazing
08:16whereas today it's much more you know
08:19these companies you know if you look at
08:20Apple or Cisco Google any of those
08:22companies they're valued like real
08:23companies I mean there's Amazon off to
08:25one side which we had a conversation
08:26about last year but otherwise these
08:28companies are you know valued on kind of
08:30moderate expectations of what they can
08:31do indeed you know for a company like
08:33Apple you could argue that a p/e of 15
08:34or whatever it is it's kind of to you
08:36low so you can kind of take that whole
08:38section and just kind of put it off to
08:39one side you know there's a lot of
08:41people online there's a huge amount of
08:42real business there these companies are
08:44working okay fine now what now let's
08:48talk about what options
08:49right because clearly yeah there's there
08:51is something else going on here right
08:52which is to your point but you know it
08:53doesn't really that doesn't really tell
08:54the whole story so Scott I think having
08:56kind of laid the the public market
08:58bubble sort of myth to rest it is I
09:02think really interesting to dig into
09:03what's happening in late stage and in
09:06gray surrounds where you have these new
09:08kinds of investors coming in and you
09:10have what appear to be very large rounds
09:12relative to what we've seen in the past
09:13for private capital going into tech
09:14companies can you talk a little bit
09:16about you know how you see that
09:18environment changing or what you think
09:20yeah I think there's a couple things
09:21going on there and you know first its
09:23kind of the question which is why why do
09:25we why are we seeing a lot of this money
09:26coming into this end of the market
09:28because you know historically as you
09:29know we would have seen a lot of these
09:30companies going public and you know
09:32we've looked at a bunch of the data
09:33around you know time to IPO and kind of
09:36you know maturity of companies at IPO
09:37and it's certainly the case that by
09:39anybody's you know data companies are
09:41staying private longer and I think the
09:43the real interesting piece of that
09:45though is what's causing then public
09:47investors to think about why private
09:48deals are interesting and I think it's a
09:51combination of a couple things number
09:52one as we talked about is time to IPO is
09:55longer so therefore if you just do the
09:56math and you say hey I'm a growth
09:57investor and I'm looking for
09:58appreciation it you know by definition
10:00you have to go earlier into the private
10:02markets to even be able to take
10:03advantage of that appreciation because
10:05by time these companies go public and
10:06the graces were gone the growth is all
10:07gone or it certainly is it's you've got
10:10a company that's growing on an S on a
10:11curve that's right it used to be they go
10:13public earlier on the curve and there's
10:14way more growth to come and now they're
10:16going public when they're almost at the
10:17end of the curve and so if you buy it in
10:18the IPO well you kind of got it all its
10:21yeah yeah yeah now hopefully it's not
10:23all that it's ever gonna be well it's a
10:25relative appreciation between public
10:27markets and private markets it certainly
10:28feels like you know things have tipped
10:30in the favor of private markets but I
10:32think the other more interesting thing
10:33that that you know we didn't actually
10:34cover in this deck but that's also you
10:35know kind of part of this is when you
10:37think about a public investor they
10:39obviously have alternatives right so
10:40they could invest in these public come
10:41in private companies or they could
10:42invest certainly in the universe they're
10:44used to investing which is in the public
10:45universe and the biggest thing that you
10:47know we've seen and we've published
10:48about this a little bit you know at
10:49other times is when you look at kind of
10:51the growth opportunities as a public
10:53investor in the public markets those are
10:55fairly limited because you've got this
10:57tremendous amount of you know what we've
10:58been calling an incumbent market cap you
11:00Microsoft or IBM or EMC or Cisco you
11:03know very large companies but that
11:05basically are you know kind of not
11:06growing at any in any significant rate
11:08certainly not on their top-line
11:10businesses so you know companies like
11:11IBM for example that have had you know
11:13nearly three years worth of you know
11:15effectively flat to down revenues in
11:16their business and so you've got a lot
11:19of market cap that's tied up in very
11:21large incumbent companies that are not
11:23growing and we have not had that much
11:25new company creation in the form of IPOs
11:27despite kind of all the excitement
11:28around IPOs and indeed you know they've
11:30been better in the last couple years and
11:31they have been over the last fourteen
11:32years but you're still talking about you
11:34know kind of relatively small number of
11:36you know new market cap creation from
11:37IPOs so you've got this problem which is
11:40on fidelity or I'm Wellington or I'm you
11:42know T rowe price I've got to be able to
11:43beat my sp500 benchmark I can't do that
11:46by buying you know kind of large cap
11:48incumbents in the public market and so
11:50an option for me to actually buy growth
11:52is go deeper into the private markets to
11:54actually look for that growth and I
11:55think that you know at least you know is
11:57one significant reason why we see kind
11:58of both the increase in the size of
12:00rounds in the private side but also the
12:02increase in kind of what would be
12:04considered non-traditional investors
12:06otherwise in these late stage private
12:07rounds so to follow on Scott's point
12:09about late stage private financing we're
12:12really kind of defining these late stage
12:14rounds as quasi IPOs and the reason
12:17we're doing that and and kind of marking
12:18the forty million dollar mark as that
12:20that transition or that cutoff point is
12:23because historically the lower bound of
12:26what come what technology companies of
12:27IPO des with regarding to transaction
12:30size is roughly you know thirty five to
12:32forty million dollars so we really think
12:33that that's the cutoff point where these
12:34companies would have historically IPO in
12:36the past now they are raising private
12:38dollars and the rounds obviously range
12:40much higher than forty million dollars
12:41but we just think that that's a the best
12:42cutoff point for our analysis so one of
12:45the issues with this kind of analysis
12:46and it's always kind of you know there's
12:48always kind of the tyranny of data is
12:49you kind of get a threshold issue so you
12:51can say well you know somebody who would
12:53have raised thirty five million five
12:55years ago is now raising 50 million and
12:57that isn't necessarily a different deal
12:59it's just price inflation so how do you
13:01think we can we capture that I think
13:04because obviously there's always going
13:05to be you know this arbitrary threshold
13:07because like you could say the same
13:08thing about 50 million dollar razors or
13:1060 million dollar razors there's always
13:11going to be some threshold where some
13:13you know would have raised a small
13:14around is our gonna bump over that so
13:15that's always gonna be a problem
13:17you know we personally think that forty
13:19million dollars the forty million dollar
13:21mark is the most kind of telling I guess
13:24threshold and we think that's the the
13:26best mark that we pegged at because you
13:27know we looked at fifty million dollars
13:29we looked at sixty million dollars and
13:30we just saw you know it when we use
13:33thirty million dollars for instance that
13:35that did change the numbers a lot like
13:36for instance if he if we if we set the
13:40threshold at thirty million dollars the
13:41the note the numbers changed
13:42significantly but not such for that was
13:44not such when we went from forty to
13:45fifty to sixty etc so forty million
13:47dollars is really kind of the lower
13:48bound of what we thought as the
13:50threshold I think the other way to think
13:52about this is and the reason we did it
13:53this way in the deck is it kind of it's
13:56somewhat doesn't matter in the sense
13:57that you got to look at all these things
13:59you got out so you we've got a chart
14:00here that right shows how public and
14:01private tech funding have merged right
14:03and we've got where we show kind of zero
14:05to forty million we show forty plus in
14:06the private side and then we show IPOs
14:07stacked on top of that and to me I think
14:09that's probably that's more telling and
14:11kind of it strips out a little bit of
14:12definitional issues which is to say it's
14:15almost irrelevant where you cut the line
14:16the point is when you look at this on a
14:18relative historical basis you're at
14:20relatively healthy numbers so I would be
14:21more worried for example if we
14:23arbitrarily cut the line at forty and
14:24then we also have this massive IPO spike
14:26that we weren't figuring out but the
14:28fact of the matter is we're looking at
14:29funding holistically which is I think
14:31the way to do it and you know in some
14:32respects it's an arbitrary line as to
14:34whether these are public companies or
14:35not yeah I think that's right i mean the
14:36other strand that we did of course is to
14:38look at company age and i think that's
14:40where you see something that's really
14:42very telling this is a great shot in the
14:43presentation that just looks at funding
14:45by age cohorts so how much money did one
14:48to two year old companies get in 98 99
14:502000 2001 and what you see which i
14:53frankly wasn't really aware of at the
14:55time is this enormous surge in funding
14:58in not 1 2 year old companies in the
15:02bubble that just hasn't been repeated at
15:05all and so in fact when you run the
15:07numbers 55 percent of all the money in
15:09the bubble was going to companies they
15:10were less than 2 years old and today it
15:13is what 10 15 20 % about 20 percent and
15:16so you had this in not really a huge
15:19part of the bubble was just his money
15:20being funneled into very young companies
15:22now of course you can say quite rightly
15:23well there were no 10 Ewald in
15:25Anette companies in 99 just as there are
15:28nobody with 15 years experience in
15:30coding Swift right now the point I was
15:38gonna make is yes they will want to
15:40year-old companies then that was where
15:42all the funny was but in a sense that's
15:43actually the point right in there now
15:46the companies that are getting all of
15:48the investment all the companies that
15:49have been able to mature that have
15:51actually you know that have been around
15:52three four or five years have actually
15:53you know by implication built much more
15:56sustain much more you know much built
15:58out a lot more have got a lot more
15:59numbers to show people and whereas in
16:01the past you know because you could only
16:02invest in people who hadn't built
16:04anything yet that was well the money
16:05went right today you can invest in
16:07people who haven't built much yet and
16:08you can invest in people who build
16:09something and you can invest in people
16:10you've got a lot and the investment is
16:11kind of evenly spread around all of
16:13those in a much more rational way
16:14whereas I heard kind of in the bubble
16:16well you know companies that haven't
16:18done anything yet all there was right so
16:20that was where the money went right and
16:21well so I would add two things to that I
16:23think that's I agree with everything you
16:24said and and we've got the data in here
16:26which is number one is huge
16:28proliferation of seed financings right
16:29it's number of deals happening which is
16:31the good news is relatively small
16:33amounts of capital going to a large
16:35number of companies that at least in the
16:36context of overall VC funding still is
16:38something like three four or five
16:39percent of venture capital financing so
16:41not catastrophic if you if it turns out
16:43that there's some over financing there
16:45but a good way to actually get
16:46experimentation going and then you know
16:48the second piece to me that's that's
16:49interesting you know what you've said
16:51but it's but it's but we should be
16:52explicit about is effectively we're
16:53using age as a proxy for risk here yeah
16:56and and one of the hard things that we
16:57talked about this before certainly as we
16:58were putting this data together it's
17:00very hard for us to get actual financial
17:02information about any of these companies
17:03with any degree of confidence and be
17:05able to say great okay if this is this
17:07billion dollar company on a revenue
17:08multiple basis properly valued or not so
17:10the best thing we can do is think about
17:12age as a proxy for ultimate risk and
17:14maturity of these businesses and and I
17:16think to me that's the other thing that
17:17gives us a lot more confidence is you
17:18had bubble you know fifty five percent
17:20of funding going to less than
17:21two-year-old companies coupled with four
17:23and a half year time to IPO for a
17:25company so you've got kind of massive
17:27risk both on the public markets and the
17:28private markets whereas now at least we
17:30have kind of much better distribution of
17:32funding as you talked about kind of only
17:3320% of the funding going to fewer than
17:35two year old companies couple
17:37the fact that time to IPO has elongated
17:38so much so that at IPO these companies
17:41are now 150 plus million dollars in
17:43revenue not you know 12 million dollar
17:45revenue businesses so all those at least
17:47give you some confidence about the kind
17:48of proxy around risk yeah exactly I mean
17:50I turning that you know you sort of
17:51reshaping that to look again at the sort
17:53of seed issue so one of the numbers we
17:55came out with is the number of one to
17:57two million dollar rounds has gone up by
17:59over seven times in the last decade but
18:01actually the amount of money has gone up
18:04much less so it's still only about a
18:06billion dollars in 2014 went into one to
18:08one so one to two million dollar rounds
18:11which is only about 5% of all of the
18:13money raised under 40 million so you
18:16have this surge in you know three guys
18:18getting a hundred grand to build
18:20something in an apartment somewhere in
18:22summer but when you actually and it
18:24feels oh my god soma is full of kids
18:26talking about their startups or kids
18:29talking about talking about pitching and
18:30recent but when you actually add it all
18:33up it turns out that the plural of
18:35anecdote is actually five percent of the
18:37market right right whereas certainly as
18:39we know right in the prior bubble period
18:41you know those companies that the the
18:43kind of the shrapnel from fallout from
18:45those companies you know spread a lot
18:47wider given obviously that we're also in
18:48public market it's actually I was
18:49actually on I was on a talking to
18:52somebody about this this morning we kind
18:53of was talking about this with Jason
18:55Calacanis and the analogy he used was
18:57that the craters are a lot smaller now
18:59right so you know you know pickax my
19:02third product in 2000 if that failed
19:05that was 50 to 100 people and twenty
19:07thirty forty million dollars gone today
19:09exactly the same product is a hundred
19:12grand five hundred grand a million
19:14dollars three four five people who are
19:16out trying to get it good job at Google
19:17and Facebook right yeah no that makes it
19:19makes makes 10 cents one things I want
19:21to come back to because we started
19:22talking about kind of this concept of
19:23you know public dollars shifting into
19:25the private markets and we've got a
19:27couple of these graphs here about you
19:29know what happens in terms of price
19:31appreciation between public investors
19:32and private investors so we have kind of
19:34a series of graphs where we talked about
19:35you know if you look at the total market
19:37cap of a company how much of that market
19:40cap what percentage was created in the
19:41public markets versus the private
19:43markets we looked at it also on a
19:44multiple spaces and said okay you know
19:46what what is the multiple return the
19:48cash on cash return for a public force'
19:50and it's striking when you look at the
19:51data although not surprising when you
19:53talk about some of the things we've
19:54talked about that effectively you've had
19:56value accretion shifting from public
19:58market investors to private market
20:00investors meaning that companies are
20:02going private public longer therefore
20:04they are obviously more mature to your
20:06point they're not growing as much and so
20:07the opportunity for public market
20:09investors to you know achieve and gain
20:11in that appreciation is more muted
20:14relative to what the kind of private
20:15guys were able to get and you know we
20:18what we tried to tease apart was how
20:20much of that is a function of time right
20:22which is just gee these public companies
20:24like Facebook and others haven't been
20:25out for that long and so therefore if
20:27you just wait over time it'll catch up
20:29and one of the striking pieces of data I
20:31think that we have in here is if you
20:33actually took Facebook and said could it
20:35grow at the same pace in the public
20:36markets as Microsoft did just as kind of
20:39you know an example you know Facebook
20:41would be something like close to you
20:42know a 50 trillion dollar company in the
20:44next twenty nine years which you know
20:46personally as Facebook investors
20:47probably would be a wonderful thing but
20:49you know from a comparative perspective
20:50would basically mean that Facebook is no
20:52more than the entire like forecast US
20:54GDP I couldn't resist talking about it
20:59but but it's a you know it's a you know
21:02in it's a in fairness you know look it's
21:04an extreme point but it does illustrate
21:05I think a longer-term structural change
21:07which is that the returns to many of
21:09these companies you know to extent there
21:11are returns I can be much more likely
21:12concentrated among the private investor
21:14class versus the public investor class
21:16do you have a different view on that
21:18right and it is the consequence of it is
21:21that you get people hunting for those
21:23returns in private markets so there's
21:26another strand that's worth pulling in
21:27as a sidebar maybe when we talk about
21:29the valuations of these some of these
21:31growth rounds which is it's not quite
21:33the same as a valuation that you get on
21:35the stock market because you go to the
21:37stock market with a few exceptions the
21:39prices surprise to share as a share and
21:41they're traded by anybody when you put
21:43money into a private company on the
21:45other hand particularly at these lates
21:46with these low stage deals you have a
21:48bunch of what 10z for mystically to be
21:50called a structure around it which means
21:53you have things like liquidity
21:54preferences and so liquidation
21:56preferences and so on and that means you
21:58can't quite take the number that's
22:01the press release said to speak as a
22:03real twice at that company might trade
22:04for on exactly the same numbers in a
22:07public market yeah I think that's right
22:08I agree with you these things never get
22:10it doesn't never gets reported with kind
22:12of these these structural changes but I
22:14think it's agree it's a very important
22:15point and and it does really it really
22:18does kind of you know there's probably
22:20an implied valuation that's probably a
22:21different than the headline number that
22:23you're seeing when you actually account
22:24for some of these structural changes in
22:25these term sheets yeah I mean in the
22:27several parts is that one is somebody
22:28puts in a hundred million dollars at one
22:32percent it doesn't and so you see really
22:34you can do the math and say well that's
22:35what it's worth but actually that's not
22:37what they'd have paid if they bought ten
22:38percent or fifty percent but the other
22:40thing is they put that money in but they
22:42have a contract that says well before
22:43anybody else gets their money out we get
22:45three times our money and so as far as
22:47they're concerned that you know
22:48fundamentally changes its evaluation
22:50that they're willing to pay and the real
22:51meaning of the percentage of they've got
22:53yeah I think that's right I think the
22:55other thing also that you know is
22:56important is we have to remember right
22:58private markets are discontinuous right
23:00which is there are you know unlike a
23:02trade a public trading market where
23:03there is a price obviously that's
23:05published on a you know entirely
23:06throughout the day and overnight part of
23:08what people are doing when they invest
23:10in these private companies is they're
23:11saying okay I'm forecasting what I
23:13believe the value of this companies
23:14going to be over a three to five year
23:15period but I'm also trying to understand
23:17when is the next opportunity to invest
23:20in this company and what do I think is
23:21the progress that they may accomplish in
23:23that time period relative to the risk
23:24I'm taking by coming in today versus
23:26eighteen months or two years from now
23:28and if you had that debt discontinuity
23:30the market also does to your point also
23:32sometimes tend to you know exacerbate or
23:34change kind of what the real market
23:36price would be other than if other than
23:38if you were trading in a you know a
23:39purely kind of you know discrete ongoing
23:41market so I think there's another strand
23:44point here which we kind of talked
23:45earlier about mobile about market size
23:48and how the kind of the kind of
23:50environment is expanded and how you've
23:52got real customers in real revving you
23:53know there's another thing going on in
23:55tech at the moment which is we're going
23:56through a kind of generational shift
23:58from the PC being the dominant computing
23:59platform to mobile being the dominant
24:01computing platform and that comes with
24:04it a shift from there being about one
24:07and a half billion pcs on earth to four
24:10or five billion smartphones on earth
24:12depending on what estimates you make and
24:15therefore the internet goes from being
24:17in a box on a table in somewhere some
24:20room somewhere to being in every single
24:23person's pocket all the time with all of
24:26the sensors and the camera and the
24:28payment and the API is and all the
24:29capabilities that make mobile actually
24:31much more sophisticated internet
24:32platform than the PC ever walls because
24:34a PC was basically just a web browser
24:35and a mouse in a keyboard sorry mark so
24:39you have this kind of generational
24:41change in what the platform is and that
24:42comes with it generate come what comes
24:44with that as a generational change in
24:45the scale of the opportunity and in the
24:47addressable market and you see that in
24:48kind of sort of radical things like you
24:51know what's at going to seven or eight
24:53hundred million users with a team of 30
24:54or 40 people and whatsapp doing 50% more
24:59sms's in the entire global telecom
25:01system 50% more messages than the entire
25:04global SMS system with 30 or 40 people
25:07and so you have this fundamental change
25:08in scale which repeats kind of the
25:11fundamental of generational change that
25:12we went through in 99 with the internet
25:14and then the generational change we went
25:16to it went through a decade or two
25:17earlier with the arrival of the PC and
25:18so that means that you know people are
25:20looking at that market size and say well
25:22that's not we're not finished yet we're
25:24going to have another fundamental change
25:25and that's just not not just the
25:28Internet but it's also things like
25:29Airbnb or lyft or all sorts of other
25:32companies that are using mobile and
25:34software to transform other industries
25:35so when you look at a company like uber
25:38or lyft which are not really competing
25:39with the taxi market is fundamentally
25:41changing what it means it's during a car
25:42or air B&B which is fundamentally
25:45changing what it means to be a hotel
25:46again you have this change in
25:48opportunity and I think that's driving a
25:50lot of people's willingness to invest in
25:52these companies because you know they're
25:54not just another technology company
25:56there are sort of fundamental
25:57transformation of how people do part of
25:59their life right yeah so the market as
26:02fascinating and so in may respects you
26:04know which is what you stayed here the
26:06market size is tremendously bigger the
26:08winners can be tremendously bigger than
26:09they have been in Prior generations and
26:10I don't know about this but I think it
26:12also I think that's part of why also you
26:14see companies having a desire to stay
26:16private longer because it gives them the
26:17kind of flexibility and willingness to
26:18actually invest from an R&D perspective
26:20to take advantage of the opportunities I
26:22mean coming back to the analogy we gave
26:23earlier of the curve
26:25you know I think a lot of companies now
26:27feel like you know the opportunity that
26:29would have topped out at a half billion
26:31dollar company 15 years ago is now
26:33topping out at a 50 billion dollar
26:35company you know the scale of the
26:37business that it's possible to raise is
26:39so much bigger and therefore the hyper
26:41growth period is much much much bigger
26:44the period at which you are still going
26:46up 30 40 50 percent a year every year
26:49doesn't stop when you get to a hundred
26:51million dollars of revenue or a billion
26:53dollars of revenue it starts when you
26:54get five or ten or twenty times bigger
26:56than that and it says that again shifts
26:58people's attitude to going public shift
27:00people's attitude to what kind of
27:01investors they want right yeah I think
27:03that's right the growth period is much
27:05longer and more extended period that has
27:07been exactly yeah why don't we talk a
27:09little bit about kind of you know real
27:11quickly limitations as well as kind of
27:12what we really didn't cover here and and
27:14you know we've talked a little bit about
27:16and people have raised the question
27:17about great there's this phenomenal
27:19opportunity the markets fantastic we
27:21have all these companies staying private
27:22longer lots of dollars going into the
27:23private market but you know what gives
27:25from a liquidity perspective you know
27:27what we're does the money actually come
27:29out ultimately on the other end yeah
27:30this is a bit like the Amazon argument
27:32that says well it's getting bigger and
27:33bigger and bigger and bigger but you
27:35never actually gave you money in 2010
27:38right there was a small yeah but someone
27:43in the controllers office got fired for
27:44making a profit right I think yes so
27:47there is this question okay it's fine to
27:49say that now you've expanded the
27:50investor base but at some point you've
27:53got to get to the point that this is a
27:54liquid investment and you can sell as a
27:56venture capitalists our purpose is not
27:58to own an asset that appreciates in
28:00value indefinitely our asset is to
28:01produce cash that we give back to our
28:03LPS and so there is that question if you
28:06can't do an IPO of IPOs are much much of
28:08error and the funnel gets smaller or
28:10where does where do we get our cash
28:12returns from yeah yeah so I think you
28:15know it's one of the areas that I know
28:16we were going to spend some more time
28:17from a from a data perspective you know
28:20the quick the quick thoughts I have on
28:22that or number one is you know I would
28:25have expected at this stage of the cycle
28:26to have a more robust M&A environment
28:28which you know we've talked about in
28:29Prior post others about you know whether
28:31it's activist shareholders or other
28:32things that potentially are making it
28:34more difficult for some of these large
28:35incumbents just might
28:36cash balances to be able to do this
28:37stuff I think the other thing that you
28:40know is potentially likely to happen
28:41over the next several years is
28:43potentially the establishment of a more
28:45you know fundamental secondary trading
28:47market for not just employees which we
28:49see today but potentially also early
28:51investors so it could be that you just
28:53literally have a new intermediary market
28:55that comes in and really becomes kind of
28:57the primary liquidity market you know
29:00and you have new investors who have
29:01lower cost of capital and different time
29:03horizons potentially they decide it's
29:05attractive for them to provide that
29:06liquidity at that point in time so it's
29:08possible that that maybe that this
29:10liquidity this change in the liquidity
29:11environment may actually drive a whole
29:12new trading market as well what you
29:14could then do is you could have some
29:16sort of standardized exchange system
29:18whereby you could buy and sell stock at
29:20like a standard quoted price that would
29:22be remarkable innovation all right well
29:27I think we should probably wrap but
29:29hopefully this was a helpful in terms of
29:31covering some of the areas we talked
29:32about we are definitely going to
29:34continue to dig into this data further
29:36and look for a more few more things
29:38coming out the other end
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