Transcript: Chamath Palihapitiya @ Post Seed 2016

(Below is the full transcript from my fireside chat with Chamath on Dec 1, 2016 in San Francisco. Below is the full transcript, including audience questions. We covered topics related to the election, how the Bay Area may be treated by a new administration, changes in healthcare, the impact of social media and our elections, and much more. Enjoy!)

Semil: Yeah, so this is going to be a treat and Chamath, thanks for making the time to spend with us today. Happy Holidays.

Chamath: Thanks.

Semil: Until Christmas comes.

Chamath: I’m going to make myself comfortable.

Semil: Yeah, make yourself comfortable. It’s a fireside chat. I’ve had the pleasure of having a public conversation with Chamath a few times, and I try the technique every time where I… I’ll sort of feed him in advance, maybe want to talk about something, each time he’ll say, “No, let’s just go.” And so I actually created a little list of things, so I’ll let you, Chamath, pick.

Chamath: You should talk about hard things.

Semil: What we’re going to talk about first. I’ve got six topics. You choose first.

Chamath: Election date news, globalization, trade immigration, role of Silicon Valley, filter bubble, and tech news, Twitter, etc., sports and athletes. Well, I feel like one, two, four, and five are the same.

Semil: Here, I’ll start out with a more specific one.

Chamath: These are shitty topics. These are not hard.

Semil: Okay, let’s start out with… so I’ve listened to your podcast about the election. In as dispassionate view as you can, which I know is hard, is the election good or bad or neutral for Silicon Valley and tech?

Chamath: I think it’s a multi-faceted answer. I think in… well, I think broad based, I would say, it’s actually quite good. It’s probably the best thing that probably could have happened to us for the following reason, which is there’s a type of conversation that I think that’s happening now that probably wouldn’t have happened if Hillary had won. Part of it, I think, centers around this idea that we have cocooned ourselves into this nice, beautiful, little existence that’s frankly just detached from reality.

Then separately, we were never forced to really understand the scope of the problems that we should have been working on. The real implication of that is I think you’re going to see this probably in two or three years where when the capital cycles start to change. There’s just been so many really poorly constructed businesses and business models that are going to be under pressure. So I think all of those conversations can now happen because of the election.

So in many ways, I think it’s probably the most useful thing that could have happened. At a more moral and ethical level for a lot of people, I think it creates a lot of doubt and fear, and that’s unfortunate. But I think the net balances can be positive if you look at it that way.

Semil: And what do you think the new… what’s your view on the new administration’s relationship either with Silicon Valley or with the technology industry in general? Is there a role for The Valley practically to play?

Chamath: Yeah, I mean I look… I mean I think you can look at the President Elect’s tax plan. I mean it’s nothing but good news. If you actually are somebody… well, let me actually take a step back and talk about sort of the roles I see.

My big kind of like clarifying moment that’s happened sort of in the last few months along the following dimension. We do these really intensive portfolio reviews inside Social Capital where we go very deep inside of our companies, and part of that is because over the last five years we took a lot of these capabilities that we had at Facebook, which is where I and a bunch of my partners come from, and we built it into frameworks.

At first, we were worried that those only applied to Facebook. That all the things we did in machine learning, all the things we did in data science, all the things we did around data acquisition. But over time, we found that they applied to all these companies. We deployed in all those companies that we work with, companies at Slack and Intercom, companies you know, and we collect these artifacts. Now these artifacts have been building up over years, okay?

Incrementally what we did was we did..this is a long-winded answer, but I’m getting there…Incrementally what we did was we took all those capabilities and we stuck it on the Web. We built this thing called a “magic 8-ball” framework that we said, “Founders, get your shit together. Get your head out of your ass and understand your business.” So you come to our website, it’s like three or four clicks deep. But the point is, since we put these series of blog posts out, we’ve had, as of this morning, I looked, 3,400 companies run a magic 8-ball. The magic 8-ball is effectively GAAP for a startup, right, generally accepted accounting principles.

So if you’re a public company, how could you compare, for example, a public company in healthcare with a public company in oil and gas? Well, there are rules, and it’s called GAAP, and it’s how you basically report out your earnings, create balance sheets, and it allows you to make an apples-to-apples comparison across industries.

Similarly, we felt that that would be possible in startup time. What is the difference between an enterprise software company and a consumer network of that business? Well, today the easy answer is everything. They’re all different. Our perspective is actually they’re all quite similar. You just don’t know what to look at. So we tried to create this framework.

So the long story is we’ve collected this entire corpus of information. In a quarter, we’re going to actually release a benchmarking tool out to founders that will allow you to understand how you measure on these very deep nuanced metrics across thousands of companies. So how are you doing on LTV to cap? Is that important? Maybe it is. How are you doing on fixed-mount retention? Is that important? Maybe it isn’t. What about if you’re in the top 8%, 90th percentile in a certain category, and the bottom fifth in another category? To know that is really powerful because you can now start to fix your business in there.

So first thing in a portfolio review, and I’ve been thinking that something is amiss, and what I see is degrading sales efficiency in some of our enterprise SaaS businesses. This thing clicks and I go off, and I’ve been thinking about it, and I will come back to the following framework, which is there are really only three kinds of companies that get created in Silicon Valley. Two are valuable. One is a category of complete dog shit.

Category one is what I would call “bits to atoms.” So you’re building something in software that then gets translated and manifested in the real world, in physical atoms, right? So what are examples of … let’s use scaled companies, okay? Amazon is a fantastic bits to atoms company. It started off as completely virtual e-commerce, but now they build more things in the physical world. They’re buying boats and planes. They’re building robots. They’re building fulfillment centers.

Tesla. Another bits to atoms company. They have fantastic software and capability, but it manifests in batteries and engines and cars. Literally raw material comes in the front of the Gigafactory. Model X’s come out the back. Apple, for better or worse, translates really great software into a fantastic, physical product. SpaceX. And we’ve done a lot of these bits to atoms companies and what I’ll tell you about these companies is they’re fundamentally defensible because they are hard, they’re not obvious, and most founders don’t have the patience or the wherewithal, or the sources of capital caps to go build them. And so, as a result, they’re quite bleak.

Those businesses in this new administration will absolutely thrive because you’re going to have the administration that is going to be very pro-United States. They’re going to seek out companies and markets and businesses that basically promote Americans’ excellence in things. If you are building physical things… so for example, we have a company in Los Angeles that is constructing what will be the biggest, high-precision 3-D printer in the world. We’re using it to actually print the stage two rocket. So what is like a 65,000-part build will get reduced literally to two or three parts, which is preposterous, okay, but it’s happening.

But what I say is even if that works or doesn’t work, the point is we can create a renaissance in 3-D manufacturing in the United States. Airplanes, fuselages, wings, all kinds of things, propellers for windmills. You name it. To think that the current administration will not be all over that business is naïve. Of course, they would.

So the fact that technology businesses can actually create a renaissance of things that can build this stratification of job growth, right, not just $200,000 software engineers, but all the way up and down the stack, is a really powerful concept. That will win.

There’s another kind of category of business that I think is fantastic, which is what I call “sticky bits companies.” So what are those? Those are marketplaces. Those are network effects, and specifically in enterprise, those are top-down system of record sales companies, okay? So what are examples of those? Facebook is an obvious one. Snapchat is one. Slack is another one. Those are really, really interesting kinds of businesses. Why? Because they’re very hard to disrupt once they get going. There’s an inherent flywheel and momentum that creates a usability mode, or an acquisition mode, or some kind of a mode that we can’t necessarily just overcome with capital.

Then, quite honestly, there’s everything in the middle, which is everything else. What you realize is that’s a lot of companies. Some prior enterprise companies fall into that category and they haven’t realized it. I thought that they were fantastic because their revenue traction was like this, and I thought, “My gosh! This is great.”

Chamath: A million of ARR. $3 million of ARR. $5 million of ARR.

Semil: How does that change the strategy when you’re doing a portfolio review and have… do you communicate that to… how do you communicate that to the founders?

Chamath: I’ll get to that in one second.

Semil: Okay.

Chamath: So you hit a wall, and I think the reason is because those companies benefited from the fact that you could sell software with a credit card right? But it was naïve for us to think that all of a sudden somebody else could come in behind us with the same strategy to disrupt us. Before you had 10, 15 years to build a business. Now you have four or five years to build a business. That’s not enough time and you have to load your business up with sales and marketing, and HR, and PR, and product marketing and customer success. All this infrastructure that is secondary of what you really have to do, which is the fundamental core product market thing.

Those businesses, I think, are in real trouble and the reason why that’s in real trouble is, again, I think it’s somewhat related to what’s going to happen over the next five or six years. This administration has made clear, which I think is a fantastic thing, they are going to pump trillions of dollars, trillions of dollars. Literally with a T. Infrastructure spending, massive capital projects. That is going to be a renaissance of, I think, middle income job growth. But what it’s also going to do is going to inflate equities to a degree we probably haven’t seen in a while.

And so if you can get 15%, 16%, 17% IRR in the public market, why would you ever put your money into 10-year, illiquid venture capital for the same IRR? It doesn’t make sense. So I think what actually happens is the following. Bits to atoms companies thrive because there’s a manufacturing and US-first message that works. Sticky bits companies, because they’re capital light, highly sticky. The businesses in the middle must get very precise very quick because those companies will need to go and raise capital, but they will be faced with the following capital dynamic, which is that the public markets… like we have as much public market exposure as we do privates. I struggle everyday now to think about how I deploy incremental dollar into privates for the same effective return when I shouldn’t really just put it into the publics because I know the publics are going to riff. Because when President-Elect Trump forced $2 trillion of money into the public markets, I’m telling you the Dow is going to go like this. The S&P 500 is going to go like this, and it’s liquid.

So those dynamics, I think, need to be understood, and we typically don’t even think about that. We don’t technically think about what does Washington do or what could New York do to affect us? But that is what it’s going to do. It is going to change the capital cycle because it is going to change the risk reward. The last seven years have been that money is free, the public markets gyrate sideways plus or minus, and the only return – perceived return – had been in private, illiquid investing.

The public markets are quickly catching up. Debt is going to catch up because we’re going to see interest rates rise. All of these things have an effect in the real rate of return you can generate in your asset class, which, by the way, is not going up. It’s actually flat to going down, and the reason is because for the last eight years we have all this money flood in and what used to be a $5 million rate is now a $10 million rate. What do you think happens with that? It’s not as if the outcomes are also doubling. The outcomes stay the same. The prices go up, which means the return shrinks.

So these dynamics, I think, are now going to come to the fore and the next four to five years is how all of this stuff goes up. But that’s a very long-winded answer. But that’s why I think… that’s why I think Trump needs the Silicon Valley. It is a wakeup call, a sobriety check, on rational company building, thoughtful business model construction, strategic operational guidance of the business, and that is in short supply.

Semil: So… and that is a very interesting take and this topic is going to pique as interesting, but I was curious from your experience at Facebook, and in all the results and sort of, I guess you can call, controversy around Facebook, and filter bubbles, and stake views. What’s your point of view on that controversy? Is there anything Facebook shouldn’t do?

Chamath: So I don’t want to talk about Facebook, but I will talk generally about social media.

Semil: Sure.

Chamath: I owe everything to Facebook. I’m low to those guys. Let’s just call a spade a spade. They have a difficult job, almost impossible job, but let’s take a step back and not talk about that. Let’s talk about…

Semil: Let’s take it in feeds. So, Twitter, Reddit.

Chamath: Well, let’s actually talk about social media jobs.

Semil: Sure.

Chamath: It is fair to say… and I think you can always… you can actually put Google in this category as well. Social media, we’re using generated content, is modern feudalism, okay? So let’s call it that. You have 1.8 billion Internet-connected individuals all around the world that are fastidiously doing the work, doing the hard work for companies that now are tens of thousands of employees deep, not much more, to then monetize and then share that within themselves.

Okay, so for example, let’s look at Google. That’s a $517 billion market cap company. The core escape velocity was page rank, but how did page rank work? Page rank didn’t work because Google all of a sudden judged the quality of the search index. You did that work, and Google was just able to harvest that signal, right? So, you did the work. They built the $517 billion system.

Most social media UGC companies, you upload the content, you annotate it, you create great, brilliant experiences, you don’t get paid. The company that owns it gets paid. So the first thing we have to acknowledge is that there is a compact that has existed for a while that we probably didn’t anticipate. In that compact were some expectations, and now it’s all coming home to roost.

There was theoretically an expectation that us, as a consumer, was owed some amount of truthiness, quality, and SLA. That was never in the SLA. That was never in the compact. The compact was you’re going to do the work and we’re going to make the money, and that happened. All the incentive systems, and this is not a company-specific thing. This is an entire industry classification thing. That is just the truth of what happened.

When we look at what’s happening now, I think what we have to realize is those companies are in the job of making money. When you look at how products are constructed, so now let’s talk about feeds in general and let’s compare it to newspapers. So let’s take media of the past, newspapers or television.

They were time bounded or physical space bounded, right? So in the case of television, you had a 30-minute window. A show started. A show ended. There were blocks of time that were sellable. There was a message that it has to get truncated in a fixed-period of time.

Let’s take a newspaper. You sat down. You opened the paper on page one and it would end on page 10. So my point is there was scarcity in old media. So you have to now actually have an SLA around the quality of the content because it had a direct correlation to engagement, which then had a direct correlation to modernization.

We divorced ourselves from that expectation in new media because the first thing we did was we eliminated scarcity, right? There’s a reason why feeds are infinite scroll, guys. There’s a reason you can’t get to the end of YouTube, right? And the reason is because it’s directly correlated with modernization, right? There is one single economic formula that guides all of social media, which is clicks times ECPC. That’s it.

So I think we just need to be really intellectually honest about what that compact is. We should have never have been expecting truthiness. But if you do want truthiness, now I think is the time to demand it. But then the question is: What are willing to do if you don’t get it? That’s also a very… that’s a really difficult question that I don’t think we also don’t know how to answer right now.

So I think social media in general has been constructed in a model that is purely about the feudalistic modernization in capitalism. This modern form of something or other, that is just a fantastical business model of all times, right? If you add up the entire market capital of all UGC companies, a trillion, $2 trillion, right, globally. How many total employees? Less than 300,000, 400,000. That’s preposterous. Two billion people generating $2 trillion in value shared by 200,000, 300,000 people.

b>Semil: Do you think anything changes in either how any of the companies present content or how users behave or this is all just sort of…?

Chamath: So that’s what I’m saying. So now I think we have to now shift and say let’s have a more first principles conversation about what we now know is actually happening. There is a modernization formula that dominates, and we have to ask ourselves, “Are we willing to compromise usability and quality of the product as it is today in order to get some of these other things?”

So as an example, there’s a person that I think, for me, I follow a lot because he gives me the most truthiness of my network, which is Joe Lonsdale. Joe Lonsdale, to me, is my sort of like keystone of truthiness. That guy finds unbelievably clear, clean, thoughtful content and he shares it both on Facebook and on Twitter.

Does it change the usability of my product because I now don’t look at my feed as much? Instead I can just search for Lonsdale, see what he’s posted, and read that stuff. I do that. Does it mean I miss a bunch of stuff? Yes. Does it make me more detached from the people around me because they’re like, “Hey, did you see my great, awesome cat dressed as Luke Skywalker for Halloween?” I’m like, “No, motherfucker. I could care less about your cat. I was reading about whatever Slate Star Codex had to say because Joe Lonsdale thought it was important and I trust Joe Lonsdale’s filter.”

So I have changed my mental expectation of what these channels should give me. It makes me less superficially connected to the people around me. It makes me more introspective and thoughtful about my worldview. That’s not necessarily a fantastic formula for friendship. So how many people are willing to make that tradeoff? Are you going to make that tradeoff? Do you expect the services you use to make that tradeoff for you? That’s a very slippery slope.

So I have no clear-cut answers, but I do think another solution to this is that there needs to be some of these products or sites – both offline or online – that need to be more operated for public trust. I think the most simple way to get back to a model of scarcity and content value that relies on a SLA is to basically remove this primary driver, which is eCPC times number of impressions, which means if it was funded to not have to make money, now it could theoretically, theoretically at least focus on not generating clicks and views, but theoretically relaying content. There should be sources like that.

ProPublica maybe is one of those things. Slate Star Codex actually is quite good, and there’s a bunch of these things, but they’re hard to find, and they’re really super long-tail, and there’s no efficient way to share it once you do find it.

Semil: So now to get you in a more insular topic, I spent a couple days in New York after the election, and I talked to a lot of old friends and folks in the industry. They’re all reading The New York Times, and they all seemed very, very shocked. So I started to think about well, even in Silicon Valley or media, there is an echo chamber. It might be on Twitter. It might be in the various blogs. Is there something that’s analogous to what happened… on The Coast, for example, in early November, so what may happen in terms of the technology media landscape? Is our information filtered to a point where we don’t see what’s happening?

Chamath: Yeah, of course. Oh, our heads are so far up our own asses it’s unreal. Yeah I mean it’s not good, but it’s the truth. I mean, for example, let’s go back to how I started. There are three kinds of companies, right? Bits to atoms companies, sticky bits companies, and everything else. If you actually go back and if we tried to run a classifier on the last eight years, and last quarter of a trillion dollars of invested capital, what do we think we’d find quite honestly? We’d find very few of those bucket one and bucket two companies, and we’d find a tremendous amount of things in this bucket three company.

Part of what that speaks to is the fact that when things are easy, we pursue them because there’s a fast feedback loop. Part of what… why that’s happened is because we love fast feedback. It’s no longer okay to win in 10 or 15 years. For most people now, in this perverse way, that seems like the end of life as we know it, the idea that one could work for 15 years on something. It’s crazy. How could that be? It has to happen in three years.

Instead, I think to myself, “Doesn’t it seem plausible that if you can build $5 billion in value in two years?” Value, okay. “That could also just get destroyed in the same in the next two years?” Doesn’t that stand to reason? If it was that easy for you, wouldn’t it be that easy for somebody else to come in behind you? Of course.

So the thing is we’ve gotten trapped in this culture, this iterative feedback loop of now, now, now, now, now. So this is a fantastic moment in time where we can actually say, “Man, we have to divorce ourselves from this stuff.” The world needs us to help do things that are hard. But too much of our time gets unfortunately redirected into the things that are easy and obvious. The reason is because there’s an entire infrastructure of people that want to basically congratulate you and reward you for short-term, fake progress. None of it is sustainable ultimately, and especially when there is a capital cycle.

Most entrepreneurs right now, in just the volume, didn’t even go through 2007, ’08, and ’09, let alone 2000, 2001 and ’02. I’ve been through both of those cycles, and I’m telling you I don’t think we really appreciate what it’s going to take to survive when the risk premium adventure doesn’t justify the capital. I’m telling you guys we’re headed in that direction.

Semil: This is a good counterpoint to that. I’ve heard for maybe the last three years, really smart market observers and professors, saying, “The capital is starting to dry up, dry up,” and you do feel it in certain following rounds, but it seems like at the same time there’s more and more money coming in. So if that continues to happen, does that mean that what you’re predicting maybe will take longer to play?

Chamath: No, no. This is… look. I think you’re going to have probably two years of market highs in the U.S. equities. But things are lagging, right? All of… money is always a lagging indicator. With respect to revenue, it’s always a lagging indicator of value, and inflows are always a lagging indicator of risk allocation. The thing is you’re going to look back and in these next 18 months, it may be the case that that $100 billion fund that SoftBank was able to cobble together is the top. You don’t know in the moment. You only know in hindsight.

All I’m saying is this is not meant to depress you. It’s meant to clarify what you’re doing. The problem is two-fold. One is the courage and the instincts to do things that may not necessarily go like this. But, my gosh, I’m telling you. If you can compound 20% a year for 20 years, I’d take that 100 times out of 100 than this little thing. Okay, because this thing, honestly, as fast as it works, it can just die.

The other thing, though, is that then you need to find sources of capital who also understand that. At least what I’m trying to vocalize to you is that there are some places out there of people who realize that working on hard things is better than working on easy things. Working on things that are sticky that are not obvious, that may take years and years may be okay, because once they get going, they’ll get going forever. Oh, by the way, the ability for you to actually feel like you have the social capital to work on something for 15 years and it be okay is absolutely okay. And you to not live… like the filter bubble you need to break is the one in San Francisco, which is like, “Oh, everything happens in three to four years.”

Semil: Do you think that there’s more…

Chamath: By the way… I’m sorry. By the way, if you’re not quick, look at the last group of people you recruited and go and ask them how long they were there in last few jobs they were at. I bet you it’s two to four years max.

Semil: Real quick. If you have questions, just line up here. We’ll ask questions.

Chamath: The reason is because we conditioned people to think about this. It’s like, “Oh, everything has to happen in two to four years. Otherwise, I’m out. I’m going to go to the next company. Then I’m going to go to the next company. Then I’m going to go to the next company.”
This kind of mercenary approach to either being founder or raising capital, or being an employee is a destructive thing, but it also is a path for us to be completely out of touch with what really needs to happen. There’s a reason why SpaceX is going to be a $100 billion company. But, guys, it’s taken them 14 years. I mean because it’s hard.

Semil: Do you think that is a local mindset that gives an opportunity to other locations? Is that specific to this area?

Chamath: It’s a decision. It is a decision. It’s a decision to listen to what Gurley has said a lot, who, I mean he and I are quite aligned on this generally. What I’m maybe saying now, for whatever its of value, is to make hard decisions and then take the time to find the source of capital that it needs. I think that really matters. Then separately, that’s at this high level. But then practically speaking, to use metrics, to use data, to use things like our magic 8-ball to just show you the way. Then to be thoughtful about experimenting.

Here’s an experiment that we’re currently running. As an outcome of this view, what I said to the team is, “Can you please go and figure out how we could maybe abstract all the sales and marketing from all of our big-tier SaaS companies and we will stand up a company and embed it into our growth team?”

Initially I get the same feedback. “It’s not possible. Only I can sell my thing.” I’m like, “Really? I mean it seems to me Salesforce is selling 90 things better today than they did 10 years ago when they were selling one thing.” IBM sells 150 things.

Chamath: Microsoft sells 9,000 things, and they just seem to be getting bigger and bigger and bigger and bigger. “So you are fucking bullshitting.” So what if we could actually just take all of the sales motions and generalize them and abstract them so that now a company can be even more leveraged and focused on their voting market. Now we can have best-in-class people and we can actually staff those people all over the country. They can be in Ohio. They can be in Michigan. They can be in the Central Valley.

You can’t staff a sales organization here, guys. 200,000 fully-loaded OTE for a startup trying to sell a product for a few thousand-dollar ACV. That dog doesn’t hunt, okay? You don’t need to be a magician of Excel to figure that out. So these are basic unit economic-level discussions are not happening in upscale.

So what happens? You get some ARR growth and you raise more money, and then you unprofitably acquire more customers, generate more ARR growth, raise more money. That’s not sustainable.
I think the thing we have to realize is there has to be different, more creative, thoughtful ways of company building. There needs to be more practical, quantitative incentives, and you have to break this relationship with this theoretical, romanticized notion of how success works in terms of time. It doesn’t take four years. It may take eight and it probably takes 12, so buckle in. Capital. Doing more with less is always the better way. Sobriety around all of the things that matter versus the things that don’t. I mean, this is the last time we talked about it. kind bars and exposed brick walls walls don’t matter. It will not be correlated to your success.

Then, working on hard things. Because the fast feedback loop, while it feels good, because there’s a dopamine rush initially, you must internalize that it creates equal and offsetting risk that somebody else can compete with you to do the same thing, but their motivation will be to do it cheaper, faster, and better because that was your motivation to beat the incumbent that first allowed you to get that momentum in the first place, right?

Semil: Great. So we… we’re going to take some questions. If you have a question, just step up to one of the mics, introduce yourself, and a brief question, please.

Audience Member: Hi, Chamath. Victor from care.coach. You talked a lot about looking at hard problems, Trump as well. I’m just curious what your views are on healthcare given all that’s happening.

Chamath: There’s been a couple of things that have been really negative tailwinds. Sorry, negative… there were some massive tailwinds in healthcare that have now become massive headwinds, and I’ll explain a couple of them. One is at a state level and one is at a federal level.
So at the state level, there were a lot of businesses that theoretically could have existed, but we’ve had California enact two things that are actually constructively quite negative. I’m not here to debate whether you agree with them or not. I’m just temporarily relating some facts.
Number one is around licensure of certain parties and business models that are in the periphery of healthcare. Not the hospitals themselves, but whether it’s a school nursing facility, whether it’s like the at-home care, there’s a whole bunch of downstream things that are involved in the healthcare lifecycle and keeping people well that are now more regulated than they were.

Secondly, there’s been also some very specific rules around compensation, minimum wage increases, and the way they do account for overtime and overtime payment. What that’s done, unfortunately, is a practical matter in California is there’s a bunch of healthcare businesses that frankly now cannot exist. As a result, what’s happened is a bunch of black market activity on Craigslist.

Second is I think the… I think not knowing what the President is going to do around Obamacare and the ACA has slowed down and caused Medicare and CMS, things that are related to it, whether they’re insurance kinds of businesses, whether they’re reimbursement-related businesses, I think are also now in deep, deep trouble.

Now let’s talk about some tailwinds. But there are still some structural tailwinds that exist. Number one, theoretically people are actually going to have more money in their pocket. There’s a direct correlation with chronic disease and people having more money. So whether we… obviously, we don’t like this, but the reality is as we have more money through the tax cuts and everything else, diabetes will go up. Cancer will go up. Asthma will go up. Obesity will go up. So those diseases will still, unfortunately, continue to compound its deleterious effects on society.

Number two, there are just these massive personnel shortages that exist within the healthcare system that are not well serviced today. Nursing being probably the most important one. So that’s my kind of like short-term view is that we’re quite nervous about what the impacts to reversing some of the Obamacare policies are, but the good news is we actually had very little exposure to the Medicare and Medicaid type of businesses, and we still are in businesses that have some reasonably good tailwinds, particularly around chronic disease, that we still think has tremendous value, no matter what.

Audience Member: Love your insights get me super fired up as an entrepreneur, so I appreciate it. So I’m a San Diego company and we raised… we just raised a round of capital, and one of the things that helped us closed is we really communicated to our investors that we want to build a sustainable business. We reached cash positive this summer. We’re now trying to shoot for a series A or shoot for these crazy evaluations. Are you seeing companies here in The Valley just holding chase to valuations versus companies outside in markets that kind of get lots of attention?

Chamath: Yeah, I mean I think that what’s happening is that there has been this culture where people… like look, you know how they say there’s this… one goes this phrase like history is written by winners. But the real thing is there’s a narrative fallacy, which is bullshit version of history, which is history is written by [losers?]. The thing is if you’re going to write a story in hindsight, obviously, you’re going to project yourself as this strapping, muscular winner, good-looking, I can dance, I can dunk, I did everything right, right? You romanticize it. You bullshit. The problem is the end plus, first person that hears that thinks, “Oh, my gosh! They must be telling the truth.”

So the effect of all of this is that you have had people chasing valuation because they think, “Oh, valuation means something.” It means nothing. There’s a fantastic investor who told me, which I love this idea. Haven’t you ever wanted your company value at billions of dollars ever? He’s like, “I want it valued at zero until the last possible moment before we get liquid.”

He’s right. Why? Your employees make more money. You make more money. You take my solution. You’re more sober in your application. All of those things are good things.

So to your point, yes, I do think we’ve kind of been chasing these wrong value metrics. We use to chase registered users. Then we realized it was now. Then we realized it was down now. We’ve been chasing valuation, and we chased the post and we think it means something.

Guys, there’s been less liquidity in the last five years than ever. None of these valuations mean a goddamn thing. They mean nothing, and we take them so seriously, and we pat ourselves on the back and we think something real is happening. It’s the blind leads the blind until these things get out, and the way to get out is to get profitable. There is no way to get out. So, yeah. Get to profitability. That’s just awesome. I wish you the best of luck.

Audience Member: Okay, so it seems that what you’re attacking or being contrarian about is, in fact, all the people in this room and the start an ecosystem that is attempting to scale entrepreneurism. The thing about pursuing things that are hard is that that many less people are going to be able to do that. That most of these ideas about these little schmati, stupid ideas and y-combinator loves that shit.

Chamath: Well, wait a second. Hold on. I think that that’s not fair and I’ll say this. So I saw Sam yesterday. That’s not true. Those guys… for example, like this space printing company was out of YC. The reason we’re involved and the reason why… he actually will tell you. He had to create a separate path for those companies because it is so hard for them to get any attention. It just… all I’m saying is it takes a different capital cycle. What I’m telling you is there are actually more profits in those hard businesses than in these businesses.

So what we need is actually a reframe of how we think about value. If you did that, there isn’t… it doesn’t take a $100 million to print this robotic arm business. The 3-D printing business we’re in was at a $7 million check. It’s no different than any enterprise Series A company.

We just did this fleet of autonomous drones in Alameda. Those drones that are in the water circumnavigating all the oceans, measuring fish stocks, oil spills, climate change, was an $8 million A. My point is their go-to markets are different. The way they construct the business is different and it takes a different kind of investing lens, and I think it is possible to have, and we just have to create incentives that celebrate those people so that, to use your language, it’s not just the shamatzy stuff that we pump up and we say is what… because the person far away that’s not here, when TechCrunch gives 50,000 page views to the schmutz and one page view to the drone company, guess what they’re going to have? More schmutz.

That same person can probably build the next fleet of drones or cure cancer, and there are capital sources that can fund it. I’ve got… we have a lot of money that we can deploy of hardship.

Audience Member: All right. Typically might need expertise and experience, and I don’t have to tell you the people who are over 35 probably can’t even get in the front door. That there’s…

Chamath: Yeah, that’s so true. Totally, dude. I totally agree with you. Look. Listen, my whole thing is for every person that drops out, which is fine and good, there is so much value in working at a company. I worked at AOL. I worked at Facebook before I started my startup, and I felt way more prepared. I was a 36-year-old founder/CEO. I’m glad I waited till I was 36. I had so much more knowledge because I learned from the side gig. I learned from people that were better than me. I also learned from people that were not as good as me about all the things that I shouldn’t be doing.

So to your point, I agree with you. This is what I’m saying. We need to divorce ourselves from this romanticized narrative… like fallacy that we’ve created that is this two dudes, 22 years old, dropped out of school, coded some schmatzy thing. That’s not what success is about necessarily. There are some great examples of that where they’re creating real value, but there’s all of these other things. There’s 40 year olds. There’s 50 year olds. There’s 35 year olds. There’s men and women. There’s people doing all kinds of things that are not easy, and we have to find a way of telling the world that this also exists, and this stuff is worthwhile because I suspect that the long-term solution for us being less tone deaf and for us to actually be a constructive part of the solution is to celebrate with these people.

Audience Member: Right, and so my own life, my own experience has been that software, the purpose of software is to actually change the world, and if you can make some money along the way, great. Unfortunately, in this world, you’re only as good as your last IPO and how much money you made, and a lot more money was made off my company than I made. A lot of people made a lot of money, but in fact, we wouldn’t have multimedia if I hadn’t started that company.

So at the end of the day, software is… it shouldn’t be about waking up in the morning saying, “How much money can I make?” It should be these hard issues that I’m trying to solve, and yeah, I’ll make some money along the way. That’s kind of been my philosophy.

Chamath: Fair point. Absolutely, absolutely.

Semil: Last question here.

Audience Member: Hey, Chamath. Josh Venga Airspace Systems. So you talked about solving our problems, hardware, software, high-speed physics. This drone is in very high speed.

Chamath: Bits to atoms.

Audience Member: Yeah, you got it. So one of our challenges is it’s all about talent, right? My #1 job is to see if the best of the best talent we can get on board. Having a lot of challenges in that because you’re fighting the Teslas of the world, the Facebooks of the world, the Googles of the world, and we’re going to Canada. We had a lot of great talent from Waterloo. You’ve been talking about it.

And so the problem is that we’re worried about the immigration. A lot of these engineers and professors that we’re grabbing from Canada are worried about this new administration, all the talk about yanking green cards, and things like that, and what are you hearing about struggling Visas and…?

Chamath: To be honest, I haven’t really… I haven’t heard anything yet, but I think what’s fair to say is I think that there’s a view of the American exceptionalism, which I think is actually quite constructive, and at the end of the day, it seems… I could be wrong, that Donald Trump is quite pragmatic and wants to winner.

I’ll just use a sports analogy like… if we want to talk about sports for a sec… When sports teams win is when they recruit the best. What’s amazing is I can get these people in. They come from all different backgrounds, and you get them organized. You get them running on the same strategy and they win championships. If they’re really good, they win multiple championships.

At some very basic level, our America has the ability to be unlike any other country in the world. It’s the literally sharing with the best of the best. I think that’ll be a decision that the government will probably make constructively because I think if you take American exceptionalism to be extreme, why wouldn’t we want to be the best? If that includes people who want to legitimately be here, contribute their intellectual capital and monetary capital, we should find a mechanism and a way to do that. So I suspect that he’s going to be pragmatic about that stuff.

Semil: Well, as predicted, that was great. Thank you very much, Chamath. Thanks, everyone, for watching and we’ll do it again some time.

Chamath: Happy Holidays!

Haystack is written by Semil Shah, and is published under a Creative Commons BY-NC-SA license. Copyright © 2017 Semil Shah.

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