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Silicon Valley is still for future billionaires (with Elad Gil, legendary investor) - YouTube
Channel: Garry Tan
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so what the heck's gonna happen to san
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francisco and silicon valley
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as we know it is it over and is there
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too much venture capital
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what's going on with these mega rounds
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and ipos well those are just a few of
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the things we talked about last week
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at web summit with my friend and
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legendary investor
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alad gill and bloomberg tech reporter
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katie roof
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let's get into it
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[Music]
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2020 has been an unusual year uh it's
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something that vcs were talking about
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for years is that remote work was going
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to be a trend and it finally happened
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this year
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so is remote work here to stay i
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actually really think that
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hybrid the hybrid model is probably here
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for big cos but
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small companies i think will still get a
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lot of benefit from being in one place
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i mean my cynical reviews the larger
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orgs post product market fit are really
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about slicing up the pie so you know one
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of the things that people were really
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worried about when it came to remote
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work was how are people going to get
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promoted which is a very important thing
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in bigger organizations
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when you're actually making the pie
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pre-product market fit you've got to
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move way faster than everyone else
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you're going to need every advantage you
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can get
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the earliest possible stage startup will
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still see a lot of benefit from being in
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one place in one room a one pizza team
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as jeff bezos would say and i think that
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bodes really well for san francisco
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hopefully yeah i agree with gary and
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that i think
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remote work was dramatically overstated
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before covid and if you looked at the
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number of companies that had scaled to
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many hundreds of
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employees as remote only companies there
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was only i think three or four of them
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it was git lab it was zapier it's
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automatic
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there's very few companies that ever
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made that transition and now because it
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covered obviously everybody's forced to
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do it
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but i've been hearing increasingly from
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companies quite a bit of unhappiness in
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terms of
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the way that they onboard employees the
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ways that people have to interact with
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each other
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and i think that if a company is large
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and self-sustaining
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and it has a lot of momentum it's easier
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to go remote if you're at the earlier
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stages you're just figuring out the very
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first aspects of the product
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um there's a lot of benefits to having
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everybody together and so i think
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for larger companies probably what we'll
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see is more flexibility
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that didn't exist before in terms of
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remote so for example
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uh facebook and twitter and others have
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said that they're
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um willing to have a large chunk to most
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of their employee-based working remote
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but in many cases
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that means synchronized days so every
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wednesday friday people can work from
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home but the rest of the week
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they're going to be in the office or
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there's other sort of hybrid schemes
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that may emerge but
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um i do think that you know we're in a
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moment right now where everybody's stuck
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at home due to covet
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there's no pottery class at five o'clock
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there's no going to the gym there's no
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meeting friends for drinks
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and so i think a lot of companies that
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i'm involved with at least are seeing um
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their employee base be incredibly
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productive as remote workers but i think
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it's because everybody's stuck at home
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and all they can do is work
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and so i think that once covid has
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passed
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we'll see some companies continue to do
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it but i think many will either snap
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back or to gary's point be a bit more of
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a hybrid model
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so what does this mean for vc dollars
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are they still
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going to be funding companies
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headquartered in san francisco
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or is it not going to matter anymore
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when when we look at 2021
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yeah i mean i guess on my side i think
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there's uh incredible amount of
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diversity out there and it's really sort
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of one global
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software market at this point you know
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in this year
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for the first time we did two
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investments in europe and um those are
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pure software companies so they
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uh you know don't have a link to just
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europe they have they sell to companies
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worldwide in e-commerce and
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other spaces that um are all connected
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it's it's all
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um the same market and we've been doing
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that for crypto for some time we were
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first investors in coinbase and that
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taught us that crypto is software eating
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money
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and uh that software is totally global i
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think that that trend will continue
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what i think might happen is that the
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bay area becomes
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a second renaissance so rents are down
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30 percent
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tech workers when we say tech workers we
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generally actually mean
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facebook workers google workers sort of
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like the tech
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giants and those workers are leaving
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they're taking their half a million
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dollar a year salaries with them
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the scrappy founder that raises a
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million dollars
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and pays themselves you know fifty
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thousand dollars
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a year uh you know me from 15 20 years
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ago i guess
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um they can come to san francisco again
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and they'll find
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other people who are like-minded and uh
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there will
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you know be magic that happens that way
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but at the same time
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because the internet culture of startups
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has gone global
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things like youtube is now i realize i
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think that is teaching people how to
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start businesses everywhere web summit
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this event right now
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um the other people in this audience
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right now that are
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thinking about starting a company and
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that's why you're watching us right now
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and i want to tell you the water is fine
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you know so san francisco is still a
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great place to come to i encourage you
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to come meet us here
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but it's also happening in your local uh
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in your closest you know metropolitan
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area too
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i think there's two things that are kind
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of uh at odds at each other that are
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sort of going to drive where
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startups will exist in the future i
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think on the one hand startup markets
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are bigger than they've ever been
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and online markets are bigger so if you
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look at time spent online
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number of people participating in the
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internet penetration of wi-fi and access
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at work et cetera
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internet markets are literally 10 times
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bigger than they were 10 years ago maybe
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20 times bigger
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and that means you see companies that
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used to have 10 or 20 million dollars in
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revenue there would be a niche company
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that wouldn't matter that much
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end up with hundreds of millions of
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dollars and therefore be a you know a
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billion dollar plus company or what
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people call a unicorn
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and so that's driven the behavior where
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you've seen many more unicorns
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distributed globally in terms of lots of
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cities will have one
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on the other hand if you actually ask
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where is all the tech market cap
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aggregating
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um at least over the last 15 months and
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again covet may be real that
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of the 187 unicorns that have been
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created in the last 15 months about half
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of them were in the us and about a
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quarter of them were in silicon valley
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which is consistent with historical
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trends for silicon valley and so
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i do think that we're going to continue
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to have a cluster
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um in the bay area we'll continue to
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have a you know a cluster in beijing
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you'll continue to have a cluster in
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london et cetera
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and then you'll see this sort of fine
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distribution of
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um fewer but still great companies who
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are distributed around the world
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it's kind of funny because if you were
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in any other industry that can do
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everything remote and digitally
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finance is a great example if you want
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to set up a hedge fund you could raise
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money from anywhere you could hire
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people anywhere
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you could do trading from anywhere but
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everybody sets up their hedge funds in a
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small number of cities and the same
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thing is true for hollywood and movie
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making right you can digitally edit a
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film you can shoot anywhere you can
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write a script from anywhere
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but the reality is if if you told
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somebody even today i want to go into
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movies where should i go people would
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say you should go to hollywood
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and that's because these industry
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clusters have very strong network
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effects
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that accelerate companies and people
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working in those industries and so
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i don't think that sort of basic human
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behavior goes away after covet
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maybe silicon valley loses a piece of
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the people that normally would be here
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because they set up shop during covered
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elsewhere
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but i do think you know there are a
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small handful of places where people
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will go to
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to to start things and then you'll have
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this fine distribution of startups
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everywhere else
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elon you mentioned beijing and i have to
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ask because in the past few years there
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hasn't been as much
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cross-border investing from u.s
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investing into
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china and a little bit vice versa like
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do you think that's going to change
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or do you think that those are going to
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be separate ecosystems going forward
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interwoven ecosystems where to your
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point there are large local
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brands in china that are the predominant
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early
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stage investors but if you look at it
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some of the biggest investors in china
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are things like sequoia capital which is
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headquartered here largely um there's
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international firms like co2 or dst or
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others who for a long time been doing
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you know let me let me invest in any
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great um technology company anywhere
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tiger global has been doing that for a
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long time so
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i think uh in every market we're going
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to have the local players who are going
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to be dominating or
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participating heavily in certain stages
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and then you're going to have
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either people who sort of set up new
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offices locally sequoia or matrix or
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other in china would be an example
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or these global firms that are
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effectively just trying to index tech
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at the later stages globally so there's
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been a lot
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of capital raised in the united states
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in the last few years
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actually a record amount uh there and
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it's not just with the big
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venture funds uh we're seeing small
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venture firms
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springing up everywhere what do you
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think do you think there's too much
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capital being raised or do you think
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that it's the right amount
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oh man i think we're just getting
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started honestly on the ipo
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side in 2016 there were about you know
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four billion dollars worth of
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backed ipo proceeds and 2019 it was 28
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billion
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so it's ramping it's continuing and
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what's interesting is like it's a six
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year gap so if you look at
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uh venture funding for you know 2011
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2010 that was about
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50 billion dollars in venture capital in
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for instance and that scaled up to 77 so
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the exits are actually getting
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bigger you know in 2016 there were 42 in
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2019 i believe they're 80. so
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you know i think the numbers are going
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up the size of the exits are going up
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and
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i actually think that the public markets
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are leading the private markets at this
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point because
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the public markets are starting to say
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if you're an incumbent business and you
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don't have software or technology as a
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key part of your business the public
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markets are starting to say we're
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worried that
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you might not have future cash flows i
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think it's probably overblown i think
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the you know mr market is getting a
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little ahead of itself
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on the other hand there are clear market
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power dynamics to
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the top five tech companies when google
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first started we said it was a search
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engine
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how is it ever going to make money in
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2020 it's very easy for us to say the
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reverse which is how is anyone else
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going to make money other than google
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their second price auction is going to
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suck all the value out of the economic
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system it's interesting because if they
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look at every decade
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um at interviews a venture capitalist in
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that decade they're always complaining
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about how there's too much money coming
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into the system
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and it it's not like the good old days
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that happened in the 80s and 90s and
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2000s
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2010s and so it's a very consistent
[603]
trend that um every generation complains
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about how now there's too much money in
[606]
the system
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um but to gary's point if you look at
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valuations if you do believe that online
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markets are 10x bigger
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one could even argue that maybe uh
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there's too little capital yeah i mean i
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think
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one of the most investable things i'm
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most excited about right now is actually
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this sort of anti-amazon strategy you
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know we funded
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instacart very very early ex-amazon
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engineer apoorva meta
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had just this idea about and he was a
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supply chain engineer at amazon and
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what's funny is you know this past
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year jeff bezos used apoorva's name and
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instacart's name
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in his annual letter to try to slip the
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grip of uh
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you know the congressional hearings
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about antitrust so
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i think that this is a very real if the
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tech giants are the empire well we
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really like to fund the jedis i i think
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that that's something that
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is actually really fun for a lot and i
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so it sounds like you're not too
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concerned about valuations
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getting too high because the stock
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market has been pretty strong but
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what do you think is that going to
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continue are we going to still see
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this many ipos i mean the last few
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months of 2020 we saw
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a record amount of ipos particularly big
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ipos
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is that going to continue into 2021 i
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think uh there's two separable things
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first off i think on the valuation side
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i think the best companies always look
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expensive at the time and cheap in
[682]
hindsight so when facebook was funded at
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a 500 million
[685]
valuation everybody said that was insane
[687]
and then at a billion oh my gosh who
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could fund them at a billion dollars and
[690]
then
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yuri milner and dst came in and i think
[693]
they bought into facebook somewhere
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between five and
[695]
seven billion and people said they're
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nuts you know how could facebook be
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worth five billion dollars
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and now it's you know a 400 billion or
[702]
whatever it is company the flip side of
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it is most companies are not facebook
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and so i think with valuation you end up
[706]
with sort of two humps you have the
[708]
really great companies that are always
[710]
overpriced at the time and then six
[711]
months later you're like my gosh that
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was very inexpensive
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and then there's all the other companies
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many of which really don't deserve
[717]
the market caps they have so i do think
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that probably half of the so-called
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unicorns or billion dollar plus
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companies
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are dramatically overvalued and then a
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subset of them are probably dramatically
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undervalued
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on the public market side i mean there's
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lots of great companies that are still
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private today that have expressed
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intention of staying private for some
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time strike would be a great example
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there's a variety of others instacart et
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cetera so i think there's some great
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companies out there that are still
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private aren't going public this year
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think in general there's so much of
[743]
different markets to gary's point being
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consumed by tech that it's a big wave
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but which ones are overvalued
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that's the question it's tough to know
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you'd have to look at their financials
[753]
and that's part of the problem right
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these private unicorns
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don't open their books and so sort of
[758]
the worst possible scenario for
[760]
founders for i mean early stage people
[763]
like you know
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i mean like that's actually a problem
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for us that it's private valuations
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and mr market has its flaws but mr
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market is
[771]
has so many players that is often far
[774]
smarter
[774]
than uh you know a small oligopoly of
[778]
capital allocators which is very
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interesting and we're very much in the
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grips of that
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i found this amazing video that i'll
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post on my youtube channel on um
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it was arrington in i think 2009
[788]
interviewing
[789]
yuri milner at davos and he he you know
[792]
point blank was asked like why did you
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do facebook yuri says
[796]
we did an analysis of all the ipos for
[798]
the you know the 10 years proceeding
[800]
and every single i tech ipo at that time
[802]
in 2009
[803]
had a 10 to 20 x left in it it's funny
[806]
to hear that
[807]
and you know hindsight is obviously 2020
[809]
but it was prescient and it sort of
[810]
explains the whole
[811]
the whole private bubble that i think we
[813]
bounced off of with softbank vision
[815]
and that was a very extreme version of
[817]
people are desperate for yield you know
[819]
sovereign wealth are desperate for yield
[821]
and this is a very pure asset class for
[823]
yield there's the same time negative
[825]
interest rates what does that mean like
[827]
people will pay you to hold on to that
[829]
cash because people are so lacking in
[831]
ideas
[832]
and that's very strange for me because
[834]
we get to meet founders every single day
[836]
who like show us some crazy problem and
[839]
once or twice every single year we find
[841]
a company that turns into unicorns so
[844]
that i mean that what kind of miracle is
[846]
that i'm i'm very excited about what we
[848]
get to do
[849]
and what tech is able to do actually so
[851]
between all the ipos and spax happening
[854]
this year
[855]
do you think these are going to spawn
[856]
new startups and
[858]
what sectors do you think these startups
[860]
will be in what
[861]
what sectors are you excited about to
[863]
invest in inside companies you almost
[865]
see this generational wave
[866]
of employees and often people will leave
[869]
at different sort of marks in the
[870]
company's lifetime
[871]
and so often you see a wave somewhere
[873]
between six or seven years into a
[874]
company and then you see a second wave
[876]
around eight to ten years and so you saw
[877]
that at google you sell that at facebook
[878]
you see this pretty consistently
[880]
so for example i feel in the context of
[883]
silicon valley a lot of the core
[884]
networks right now are things like you
[886]
know there's a lot of people from stripe
[887]
starting companies there's a lot of
[888]
people from open door starting companies
[890]
and so in some cases it's the pre-ipo
[892]
companies where you see the activity
[893]
in some cases a company has been public
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for a long time and people are leaving
[896]
to start things so
[898]
google and facebook and square all have
[900]
these strong alumni networks as well
[901]
um and you know that's just a subset of
[903]
the list but those are examples of i
[905]
think some of the core networks where
[906]
people are starting companies out of
[907]
yeah
[908]
i think it's really hard to ask a vc
[910]
what's hot because if you i
[911]
go by what we say is hot it's like it
[913]
was actually hot and
[915]
investable like 9 or 12 months ago
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probably when we first met
[919]
companies doing that so it's really
[921]
tricky i mean the more
[922]
subtle and really interesting thing that
[924]
i think happens for unicorns and
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companies that become very very valuable
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is they actually just start off as toys
[930]
and they start off very weird you know i
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mean when brian armstrong quit
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airbnb uh you know to last point it is
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uh often the networks that sort of make
[938]
this happen
[939]
um you know he read the satoshi nakamoto
[941]
white paper and nobody believed that
[943]
uh crypto was going to be a thing then
[945]
but he believed and then he quit a job
[947]
that was a guaranteed
[948]
like you know bill airbnb had just
[951]
become a billion dollar startup and so
[953]
that got my attention i mean that that
[955]
was very very powerful
[957]
i think it goes back to that it's like
[958]
what is the fringe what is you know what
[960]
is the thing
[961]
what is the hobby what is the thing that
[963]
consumes people
[964]
especially builders especially early
[966]
engineers and designers and product
[968]
people
[968]
and that's that's what ends up teaching
[970]
us what the next unicorns really will be
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well thank you and back to lisbon
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