E146: Did the Fed break the VC model? Plus IPOs, M&A, revaluing unicorns & more

two-thirds of the meetings I'm having, people are saying we're not adding managers, we're cutting managers, and we're cutting commitments to managers

when people do the calculations on what the true alpha of venture capital is, they're going to come back with answers like this, which is it's not that great ... because the alternative universe is more liquid, it's less volatile, and it has roughly the same amount of return

On a day-to-day basis, it means there's going to be less companies that are going to get funded, but more importantly, there's going to be less LP money going into venture

the auto companies are facing what you'd expect to be reduced demand because no one can afford a car payment at these higher interest rates, the unions are going on strike demanding

I think that the labor deal is an existential risk to the unionized auto industry in America. ... If the deal as announced happens and you sensitize Stellantis, GM and Ford's P&L to these new terms ... it's going to be very difficult for the established auto industry to survive

They work, I looked it up, 58 to 64 hours a week, factory workers. The US factory workers want to work 32 hours a week. ... I mean, they're just going to move these factories to Mexico or

Shopify actually owns like 11% of this company ... if you do some of the parts on Shopify, their cash and cash equivalents are only valued at like 2 or 3 billion. So I feel like there's a ton of upside there just for free.

for these businesses that drive huge GTVs, gross transaction values, is I think most people, when they try to find what they're worth, are very sensitive to the take rate ... take rate tends to decay. So said in, you know, in grocery land, I think it's because Walmart and Amazon will try to do it for much, much cheaper ... I think that you have to model the health of the business with a declining take rate and growing share.

I told my CEOs, guys, let's get enough cash to last through the middle of 25 Remember, I was pretty clear about that to folks. ... I think that that was wrong. ... I think now you got to be Q1 of 26 and maybe even mid 26 ... So I was wrong by at least a year, Jason, because of this. I think I got the words right, but I got the timing wrong.

They're going to skip an iPhone cycle. Instead of going from 13 to 14 or 14 to 15, they're going to go 13 to 16, 14 to 17 ... They're going to skip upgrading their car.

some of these industries where you have these large ticket purchases that drive consumer consumption, their backs are against the wall ... I do think that you're going to just have a little bit of belt tightening in the consumer.

Meaning everyone's talking about a soft landing. Everyone's banking on a soft landing. But soft landings are actually exceedingly rare. ... When you have very fast rate tightening cycles, it generally has a very predictable effect on the economy. There's a lag, but the effect is very predictable, which is it causes recessions. ... But I think the consumer hasn't been hit yet.

When I bought my Model Y long range, I think I paid 72 for it. ... That car is now 53 That's down 20 percent, a $13,000 savings. The Model Y long range, I think, is the greatest vehicle ever made.

The best car. And, yeah, that'll be a $40,000 car in the next three years.

I think most of these unicorns are worth less than their total press stack.

I think their only hope is to go public, because that wipes out the pref stack and everyone basically just owns their percentage of the company.

My understanding of some of these late rounds during peak ZERP 2021 from talking to Bill Gurley was people did not negotiate those rights

when prevailing rates are at five or six percent, and you can own those things or you can own structured credit for 11 to 13 percent, our business, unfortunately, does not look so good

You've got to beat 5%, 6%, 7%, or whatever people are going to get on those other instruments, corporate debt, you know, 10%, 11%, 12%. You've got a really hard bogey to beat here.

I think of all the three businesses, Dash probably has the biggest upside ... I don't own any of these three stocks. I'm just saying business model quality, Dash seems infinitely scalable.

They're cutting two funds out of their 20, and then they're cutting their commitments to the weaker ones of the other 18

the forcing function will be the debt service costs, which has just crossed a trillion dollars a year just to pay the interest and it's mounting. 30% of our debt, I think, is coming up for refinancing in the next 12 months. And it's going to refinance at a 5% rate

The federal budget will get naturally constrained at some point here.

we're running almost $2 trillion deficits in peacetime ... Do long-term rates keep going up based on the debt financing needs of the federal government?

the markets were really trying to force Jerome Powell to start the cutting cycle. And now they had to move the date at which they could expect cuts out by a year. ... You're going to have to reprice a lot of risk assets.

And the reason is because the market had started to price in rate cuts next year. ... So as a result of that, interest rates are going to stay higher longer, which means that risk capital will be less available.

they're kind of the ceiling, you know? So I think founders still have maybe unrealistic expectations from the days when SaaS businesses were being valued at 100 times ARR

If you look at the Ford price to sales multiple, 78X for an $11.7 billion valuation at $150 million ARR ... Mondays at 12X plus, Asana 66X, and Smartsheet's at just around 8X

So unfortunately, that's going to hurt everything that's not the top seven tech companies. ... So it's really good for the magnificent seven. I think it's really bad for everything else.

I think Jeremy Ball's substacks showed that the average growth forecast for SaaS companies for the next 12 months had been cut roughly in half. ... That meant they were buying a lot less software on a per-seat basis. So I think we've been through, call it a B2B or enterprise recession.

Mortgages, the rate now is approaching 8%. So no one can afford to sell their house, which has a 3% mortgage, and then buy a new one at 8%. So real estate transactions have cratered.

I asked him about hiring and the size of the company said, I'm not hiring anybody in the next year or two because all my developers are 30 or 40% better ... I got senior developers who are turning into 10x developers. We're not hiring. We're just going to have increased margin.

both Republicans and Democrats want more military spending. I don't hear anybody really argue for cutting military spending ... but the Democrats are completely on board with war now

The commercial real estate industry is on its last legs. I think they're starting to throw the keys back to the bank and start forfeiting buildings because they can't refight an attractive rate.

Six quarters of down market has suddenly turned into a bunch of green shoots.

I don't think that this was the great reopening that we all were hoping for. ... net-net, very poor IPO construction by the banks, and the grand reopening was a grand closing, I think.

it's sort of a green shoot that they got out, but we're never going back to the valuation levels that we had a couple of years ago during a giant ZERP-created asset bubble

New options are issued and a round is done at a significant discount. And there's a huge recap and a pay to play and all this other sort of stuff starts to play out that the original founders in the company get wiped out. ... I think that's the scary scenario that's likely going to play out