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Episode 50, the atomic number of 10 are 50 states in the United States of America. When I turned 50, I started no joke lying about my age. I'd ask, Do you love me? Don't judge me.
Go, go, go. Welcome to the fiftieth episode of the produce show and today's episode, we speak with him on Taneja, managing director of General Catalyst and the founder of the firm Silicon Valley Operations. We discuss with him on the venture capital space his thesis around economies of scale and the innovations he wants to see in the health care sector. All right. What's happening? What's happening? What's the deal? Let's take a look at the luxury brand market and start off with the big news luxury brand giant LVMH, which stands for Moet Hennessy.
Louis Vuitton has purchased a 50 percent stake in Jezus Champagne brand. Armand, they. I'm not sure if I'm staying that correctly. By the way, something about getting older, the part of my brain where I can have some sort of accent or pronounce something, it's just literally going away anyways. Or better known as the ace of spades for an undisclosed amount. The Wall Street Journal reported that the investment is aimed at growing Jezus Champagne brand through. LVMH is global distribution network for the Financial Times.
Ace of Spades sold a half a million bottles in twenty nineteen and are typically priced between three hundred to nine hundred and fifty dollars. Oh my gosh. OK, ok. So why is this a good deal?
It's both inclusive and maintains the exclusive and aspirational attributes of the brand. LVMH, the world's largest luxury goods company, has a third of a trillion dollar market cap, almost big tech like. And although annual revenue dropped by a third in 2020 to just under six billion, shares have jumped roughly 20 percent since January twenty twenty. The company also recently acquired Tiffany and Co. for 16 billion. Bernarda know the wealthiest man in Europe who has been leading the seventy five brand conglomerate for the past thirty two years, is a visionary CEO and is considered the sons of luxury.
Unless you want to annihilate your competition, you must give them an escape. I love that book. It's just so like, I don't know, just a fucking Mocho. Just like, OK, the art of war.
So. So what are we going to have here? Think about what's about to happen. Think about why LVMH is about to be a champagne and cocaine party. By the way, huge news this week. This professor for Columbia dropped that as a part of his lifestyle of a responsible guy with what appears to be a very functioning family. He rose out of crushes up some heroin and snorts a few rails of heroin on a regular basis to maintain work life balance.
Ha, ha. And on this show, I've talked about the fact that occasionally I partake in Scoppa a lot. Love, loved Z, love the lzzy.
Anyways, anyways, occasionally I like to think that I'm sophisticated and I get diplomatic go, which is initially a Venezuelan rum. I know a little too much about rum and I love the packaging. I love the bottle. It's a little sweet for me, but I still absolutely love it. I love the ceremony. Champagne for me. I love champagne. I absolutely love champagne, although it maxes out at about thirty or forty bucks a bottle. But the rest for me, I just don't have the power to discern between I can discern between a five dollar bottle of champagne and a thirty bottle, but then that's it.
Anything above that, it just all tastes pretty, pretty good for the dog, pretty good for the lap, that shit up. But when I say shit I mean champagne. Anyways I'll go to 80 or 90 bucks and I'll buy ruina signaling. I want to signal to my friends and people that I'm successful. I realized how insecure that sounds, by the way, that insecurity drives the majority of our consumer economy. But but what's going to happen? Why is LVMH probably still Abai?
Why are they buying champagne? All My gosh, let's talk about the Niekro, the Niarchos, the amount of money consumers have right now. We pumped a trillion dollars into the economy, into consumers hands, 50 billion net destruction and compensation, meaning they've got about a trillion dollars more in their pockets than they had. And and consumers have saved five hundred billion dollars in incremental cash because they're not going to the Olive Garden or to Disney. So we have a trillion dollars waiting on the sideline.
And and if you're like me and I know you are and I know there's three hundred and fifty five million of you out there like me, minus the anger, the erectile dysfunction and the predisposition for a and edibles.
Anyways, anyways, you're going to see the fucking Roaring Twenties. It is going to be crazy from September of twenty, twenty one to the end of twenty, twenty two, you are going to see a consumer orgy, the likes of which we haven't seen since since the Roaring Twenties. And I think Bernard Arnault, who is the Jeff Bezos of the consumer sector and his ability to see around corners, sees that it's just going to be nuts. And when he can take a high end champagne with awareness and then flush it out across his distribution and network, people are going to need something to wash down that cocaine with.
And it's going to be Armaan the Brainiac. I think this is a great acquisition and you're going to see LVMH, in my opinion, is going to continue to outperform. What happens after that? I don't know. I don't know. The Roaring Twenties didn't end well and I get the sense that we're due. For the mother of all corrections, but let's enjoy it, let's enjoy it while we can. All right. All right. When we're talking about luxury brands, we typically refer to companies such as Apple or Tesla because of their ability to capture our attention and drive home a narrative when it comes to Western luxury.
They have historically been late to the game when it comes to innovation in the digital commerce space. However, however, they are making progress here and have plenty of opportunities to innovate. A report by McKinsey expects luxury ecommerce sales to reach around 90 billion in twenty twenty five, meaning one fifth of luxury sales will be done online. Think about that 20 percent of luxury sales will be online and those who over index, those who get to 30 or 40 percent will traded a higher multiple, which will give them access to cheap capital, which will give them the ability to build more robust innovation.
Wash, rinse, repeat. That's what I called the jump to light speed, a narrative backed up by performance resulting in cheaper capital and use the cheaper capital to build that narrative. A further pull away and Vogue business has pointed out an interesting intersection between luxury fashion brands and gaming, specifically with WeChat, many games and its 500 million Chinese consumers. Think about that. A half a billion consumers on which had many games didn't sound to many. To me, they should call Wiecek monster fucking games 500 million Chinese consumers.
Oh my God. Vogue Business reported the transaction volume through WeChat. Many programs for the apparel industry tripled in twenty twenty compared to twenty nineteen, and luxury fashion brands including Burberry, Dior and Fendi have begun testing ways to integrate their products within the games. Wow, talk about gamification. That's going to be crazy. We already know that China outpaces the US when it comes to adopting retail innovation. And Fast Company reported that the country is set to become the first country in history that will have more than half its retail sales take place online.
Think about that 50 percent. I think we're at somewhere like twenty eight and it depends if you exclude grocery or gasoline. But China, 50 percent online on top of that. And on top of that, a global personal luxury goods market report by Bain and company anticipates that Chinese consumers will account for nearly half of all luxury purchases worldwide by twenty twenty five. So basically, in the world of luxury, there's China and the seven dwarves, the seven dwarves being the rest of the world.
OK, let's go to The Root. Let's do a little bit. Let's let's go to school. What is luxury?
We talk a lot about innovation as it relates to technology. But the real innovators, the gangster innovators here of the modern business era are artisans specifically in luxury, whether it was Louis Vuitton hiking tens of miles barefoot into the city because he understood that luggage should be flat top, so it could be more easily stacked on the back of a horse and carriage, or that the rubber inside the leather inside the bag should be treated with a special chemical such that it did mildew or whether it was L'Oreal that collided chemistry with agriculture and figured out a way to take the poppies in the southern France region and capture that smell and then distribute it beyond southern France.
This was these guys were always the original innovators. In addition to innovation, they collapsed it with artisanship.
And that is a pure love of beautiful things, a willingness to take time and materials and bring art to something. Now, what is the core? At the end of the day, any big consumer brand, any company you want to grow to, tens of billions of dollars at some point has to foot to a specific instinct. Google is God, right? What is prayer? You put a query into the universe, some sort of divine intervention spits back an answer you trust more than any advice you get from a rabbi, priest, mentor, boss, coach, etc.
. And as we become less reliant on a Superman, Google fills that void. Google has got our brain. Our instincts need to have questions answered. That curiosity, right.
Facebook is love, right? Choosy moms choose Jeff. Most CPG programs play on your maternal instincts. Well, you're not a good mom if you don't use this detergent right. That really hits to your relationships in your heart. Amazon more for less. That's the gut survival. My God, I have two dogs. They are so food driven. Why? Because it makes sense. Because a lot of wild dogs, millions of years dogs, we're in real risk every day of dying.
If they didn't get enough food and becoming weak and get eaten by some other animal predator or just starving. So dogs are very food driven. Survival more for less is always a gangster business strategy. It's the strategy of Dell. It's the strategy of Wal-Mart. It's the strategy of China as an economy more for less than gut survival instinct. And then. And then where does luxury go? Luxury go? Luxury goes to places.
It does go to God. We are used to for hundreds of years, if not thousands. We're used to seeing the most beautiful things from artisans in places of worships, the frescoes in mosques, the beautiful music in churches. Right. The incredible sounds and costumery in temples. We were used to seeing the most beautiful things and to a certain extent, religious organizations have manipulated us into believing this is probably where God hangs out. If you go into Saint Peter's Cathedral, you think, wow, there's a good chance to God rolls in here every once in a while.
It is just so beautiful and so breathtaking. So our desire to be closer to God has been captured by luxury institutions. And that is we are trained to believe that the slope on the back of a 9/11 or the mesh on a bootleg Benetta bag makes us feel more holy, makes us feel closer to God. In addition, in addition, it goes after the second most powerful instinct right behind survival. And what is it? It's propagation. A lot of people say propagations number one.
No, it's not. You can be ready to get down with Tom Brady or whoever Tom Brady's hot equivalent is. And if you smell fire, you're pretty soon not interested. You're leaving that house or that hotel room. Doesn't matter how hot the person is with you. If your life is under threat, you are out of there. Survival is a distinct No. One, but in a modern society, ninety nine point ninety nine percent of us get up every morning and we're not worried about our survival, which takes us to a modern day kind of number one.
And that is propagation. And that is our need to spread our genes to the four corners of the earth. That's primarily what men think about. And then women have a much finer filter and want to attract the most inbound opportunities for genetics such that they can use their much finer filter. And let's be honest, it's much finer than most men to pick the smartest, strongest and fastest. If that sounds wildly sexist, it is. And generally speaking, generally speaking, the sexes are different when it comes to their approach towards procreation and their criteria.
Women want men for three reasons. Typically, typically one, they want resources. I know that it sounds so bad, but the bottom line is if you partner with someone who has resources, your children are more likely to survive to. They want someone who's intelligent, someone who is intelligent is if you partner with someone who is intelligent, you again are more likely to survive. And they want someone who is kind, someone who has resources and is intelligent.
It really doesn't matter if they're in abusive, difficult person. So those three things, those three things, there's chocolate and peanut butter combination around propagation in the way we demonstrate resources. One of the ways we signal artisanship and close to God, the way we signal power is through material items. So when you buy that 9/11, OK, maybe you're into cars, maybe you're into cars, but you're really just signaling, you're really just signaling, I would argue the next signal or the new signal.
The new ultimate luxury brand is Tesla. It used to be Apple that said, I think different. I'm groovy. Have sex with me. Tesla basically says I care about the planet, but I can also afford one hundred and twenty thousand car luxury taps into our need for a super bank, our desire to be closer to God and our desire. And I need to be more attractive to mates. Even if you're in a monogamous relationship, even if you have no desire to meet random strangers or to propagate, if you will, at this point in your life, those instincts don't die.
You want to be closer to God.
You want to be attractive to strangers, luxury God and sex. Stay with us. We'll be right back for our conversation with Gaumont Taneja. OK, so life is fragile and it goes faster than you think on that note, it makes sense why people get life insurance, especially term coverage, which is surprisingly affordable. Why not pay a bit each month to protect the ones you love? If you're asking yourself this question, choose latter. Latter makes an impressively fast and easy to get covered.
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Welcome back, here's our conversation with Hemant Taneja, a managing director at General Catalyst and author of Unhealth Care A Manifesto for Health Insurance and Upscaled How I and a New Generation of Upstarts are Creating the economy of the Future.
Hey, man, what is this podcast find you? I'm sitting at my home in Los Altos Hills.
Nice Herlitz Ground Zero Venture Capital. Let's talk about give us the state of play in the venture capital ecosystem valuations, trends. What is your cliff notes on the industry, if you will? Yes, this is an incredibly active time. It feels like this is the golden age of venture capital right now. And I say that because lots of companies are getting started, we're busier than ever. And when you think about the kinds of businesses that have been built over the last decade and they're all scaling to be much bigger than we ever thought.
So this are the idea that you can actually have 50 hundred billion dollars of companies and so many of them all at the same time. It's unprecedented. Markets are rewarding that and more capital flowing into space. It's it's it's exploding everywhere I look.
Yeah, I think in the late 90s, I started a company called Red Envelope that was backed by, amongst others, western Presidio. Secoya, I mean, just a ton of Ron with and often I remember a guy was on my board, Mike Moritz, and I remember everyone congratulating them because they had sold PayPal for like nine hundred million dollars and we were just all blown away that a private company could grow to be worth a billion dollars. That just seemed staggering to us.
And that was such an enormous kind of watershed moment. And now I'm an investor in a company go public. They just raise money at a billion dollar valuation. I mean, it just seems as if the numbers, the scale of the numbers has gone parabolic.
And I don't know, it strikes me that well, let me say, I feel as if I have been here before. And every time I'm here, I think I'll be smarter this time and diversify and recognize this can't go on forever. Where do you think we are in the cycle? I mean, no one knows, but it just feels it does feel kind of frothy right now. What are your thoughts?
Look, it's it's frothy and the ideas are bigger. I think both of these things are true. Like when I got into business twenty years ago, the math was you had a three or four hundred billion dollars fund. And if you got lucky and sold something for a billion bucks and you turned to fund irreligion, right now you can invest that a billion dollars and have a thesis of why something can be 10 billion or 100 billion dollar a company. I mean, there's so many data points in that zone that you can actually have to return in terms of the performance, even at that price.
Why is that? It's because the sheer size of the markets is much bigger. When you when you're building a health care delivery system, you're not selling software to health care. You're building a new new bank. You're not selling financial software to these companies, selected paradigms. And so that is flowing capital into this industry in unprecedented ways. What do you think about all the major firms? They're all changing to adapt to this this market dynamic. Our job is different.
Our job is not to go. I let a billion dollars, as you said. Our job is to say, can you go create help create a company that's going to endure and be worth one hundred billion bucks and actually invest along the way because you have the most insight into those businesses? Yeah, it strikes me whenever you speak to a quote unquote, Tier one venture capital firm, one of their criteria is how much capital they can put to work because they've been able to raise such extraordinary funds in terms of size.
So one of their criteria is how much capital they can put to work over the course of the lifetime of the company.
If you think about the life cycle of a company and you think about the different investment stages, you have seed size slash angel, then venture, then growth, then pre-IPO, then public markets, then mature company, then distressed and every point of the value chain seeds and it creates power. And I'll put forward a thesis non-responder. My sense is seed is difficult right now because there's a lot of companies that get started that it's just very it's just a very risky part of the ecosystem.
The infant mortality rate is really high still with startups and then ventures amazing growth a little bit is being replaced by sparks would seem to be reaching into gross turf and saying, no, you're you can skip your series DNA and just go public. It's great to be a public growth company. It's awful to be a mature public company. And distressed was offers, in my opinion, opportunities because people people like the just as if people the same reason that we discriminate against old people, people have a tendency to avoid troubled companies.
And I always thought that that's not an invested asset class. Tell me where you think in the life cycle and the investment cycle, there has been advantage seated in a created.
Yeah. So I actually think our view is if you think about. Each of those stages, you can have a high multiple investment opportunity in a cluster of companies. And so the change is happening in the industry is our job is to catch these companies as early as possible, preferably as the seed. In some cases, we actually incubate like we did 20 years ago with the bongo and continue to invest across inflection points because I mean, look at some of the companies that have gone public in the last few years.
They've got a 10, 20 X return even from public markets aside from seed. So our perspective is we need to learn to invest across all these stages with great regard for finding teams, market dynamics and business models that actually can keep inflecting. So you've got this interesting dynamic where folks like us are saying, hey, let's bring our builder's mindset to differentiate and be part of these enduring companies. And then you've got the public market. Investors are coming and thinking this commodities early and early and investing essentially fled the market with the capital and they catch on, will continue to concentrate in in the public markets.
And where do you see when we talk? I've always thought the market dynamics or sector dynamics will trump individual performance, that it's better to be good and a growing great sector than great in a sector that doesn't you know, I'd rather be good and A.I. right now than great in wearables. As an example, what sectors do you do you as an investor want to put the most would behind?
Right now I'm focusing a lot on health care, obviously going to a major transformation. And I know you've spoken and written about that a bunch as well. I think FinTech still has a lot on a global basis that's going to continue to happen. That is quite interesting. You one sector where I know you talk a lot about it, which is education, I haven't quite figured out how to capture large amounts of value in there in terms of the transformation.
But theoretically, there should be. And I got to tell you, like the intersection of software and biology is very interesting to me. It transforms the pharmaceutical industry in massive ways, withstand changes how we think about health care and health care services. And I also think some of the cryptocurrency stuff with its premise around decentralization is really quite interesting. And I think the quality of founders are getting into that space now seems to be very promising. So we're I mean, as I said in the beginning, we're busier than ever because these are all massive transformations.
And as a multi-stage, multi-sector firm, we obviously can't afford to miss these. And so we're all working very hard to get our arms around someone change all at the same time.
So talk about why you're excited about fintech. We use the term decentralization, but what is it about decentralization of finance or printing money or central banks? What is it that makes FinTech such an interesting space right now?
Well, fintech in general is an interesting space because the consumer experience around banking and access to capital across the different segments and then also, you know, small business and enterprise experience has a lot that's going to change. I think there are two separate elements. One is just how does the stack get modernized? You're seeing that with whether it's in banking or lending. A lot of U.S. companies scaling my decentralization comment is about how how do we get money to be on the Internet, just like packet's do, and transform the business models in that regard.
I mean, every country there are interesting new banks emerging. We're sort of tracking that on a global basis. You know, if you look at companies like Stripe, which were investors from about a decade ago, you know what they're trying to do in sort of rethinking the entire e-commerce stack, trading the solutions payments, lending Shopify Square. And that's those are massive trends. And these companies have a long headroom ahead of that of that transformation. You talk a lot about the term uses economies of scale.
What do you mean? Yeah, so look, in the in the 20th century scale was the word that we were obsessed with, but we scale the skilled health systems, the scale of schools, we scaled banks, the scale corporation and all the systems started collapsing under their own weight. And if you think about the last 40 years, banks failed school system. We know it's quite broken health system. We just saw what a colossal failure we just dealt with.
It was on its way to bankrupting us and we just saw what happened with the pandemic. So all these systems are collapsing. And I think it's because it was all about mass production to provide these services to society that were good enough. And as we have gone to this platform, ization of the vertically integrated stack, distribution, manufacturing, customer access, computing, and you can start draining all these core services, the ability to build businesses that would have been subscale by service things, sort of small niches of customers, mass personalization just wasn't there before.
Now it is. And so any idea you can actually rent all aspects of scale and service that segment of consumers doesn't matter how big or small. So it just it just transforms. And I think economies of scale is that power of mass personalization that is taking share from the inertia of mass production of the 20th century.
So apply that you said you weren't entirely sure how you capture value in the, you know, the coming disruption in education. But it sounds like you're more or you have more visibility into the how to capture value in health care. You try and break down for us 70 percent of the US economy, a big industry. But what are your major themes around investing in health care and why do you think it presents such an opportunity?
Yeah, so, look, the the biggest thing that's happening in healthcare is the reorienting from a geographic health system to the Internet, just like we organize content community commerce on the Internet over the last 20 years. We're now doing that with care and the core premises we're trying to reorient in the context of consumer personas. So over the last seven years, we built this company called the Congo, which basically focused on the thirty two million consumers with chronic conditions like diabetes and said, how do we give them a phenomenal consumer experience that is focused first and foremost on keeping them healthy, on getting them to disengage from their diseases, as opposed to engaging, which is just a design principle and sort of doing that in a way that actually bend the cost curve.
I think health care is one of those areas, as we said, is 17 percent of GDP. We want to reduce it so that there's more resources available for better living. And then in order to accomplish that vision, which I think will take us the next in a better part of the next decade, we need a whole new software stack. We need distribution models that bring these services to market. And then finally, we also need to figure out how to align the various stakeholders.
One of the big areas noise is pays. Who decides who benefits different stakeholders? How do we actually bring rational economic behavior? The last thing I would say is the workforce needs to be heavily transformed into space. We have two million people in these hospitals that are working on building codes so they can get paid and not enough people taking care of people that have mental health issues in the field there. There's some where software should go play a role, a much deeper role and how are you going to create a dislocation and workforce?
But then there's other places the workforce needs to be created, like mental health or elderly care and so on.
Mm hmm. You founded or co-founded the Advanced Energy Economy, an organisation focused on transforming energy policy in America. Why does our energy policy need transformation?
So if you and I were staring at the very first internal combustion engine hundred and fifty years ago. Mm hmm. And somebody said that this is going to transform society, but it's also going to create climate change. How would we have used that technology differently? Just ponder that for a second. We did not do that. And we ended up creating a whole inertia in our energy and power systems over the last hundred years, didn't know the unintended consequence was going to happen.
And then before you know it, you've got this deep amount of inertia and sort of energy and power consumption sources that are powering society. What we're trying to do now is figure out a way to unwind all that and move towards what we call advanced was as clean, affordable, secure power. And and how do we actually create an interesting market opportunity to move the industry towards, again, advanced energy and, you know, it's a complicated task because, you know, nobody wants to pay more for power.
Mm hmm. We need new sources of demand. Ironically, I would say Elon and Tesla have had the most impact in chipping away at this problem because they've actually made the transportation system or at least demonstrated that in the in the car as part of it, an application on the power system, because we had two different energy systems in the country, transportation and power, by making one an apple and the other on the grid, we created all this demand that now we can service with these advanced sources of energy.
And innovation is the only answer we got to get us onto these modern sources of energy that are low carbon, affordable and then secure. So you talk about Tesla. What else do you think is. I mean, I have a difficult time. I have a difficult time wrapping my head around Bitcoin. I also have a difficult time wrapping my head around the valuation of Tesla.
And a lot of bulls will say it's an energy company.
How explain to explain to our listeners and the host here, how is Tesla an energy company and not an automobile company?
Yeah, look, I have a I have a hard time wrapping my head around the valuation as well, because at the end of the day, you've got a certain amount of manufacturing capacity and you can only sell so many cars and Tesla to this value that multiple of all the auto industry combined. But the thing they have done, and this is an important point that is perhaps sector is they have transformed the experience that the consumers have expected to embrace. People love that car.
And so what that has done is it has forced every other automaker. Off their ass to essentially acknowledge that they need to move in this industry. Yeah, all my policy was going to do that. The consumer demand and the consumer expectation is doing that. So the fact that the whole industry is moving towards transportation and application of the grid reduces the task at hand of transforming the overall energy mix. It's not it's not like burning coal on the other side of doing electric cars.
That's maybe not necessarily as good for the environment as marketed. But what it does is it does create this new demand and change energy mix. So that's why I find Tesla very interesting. It's like all the hype in the stock price. That to me is it's tremendously overvalued in my opinion, but everybody has been proven wrong. Don't short it. Yeah, I know. I said that when it was over 50 bucks a share. By the way, be careful when you say that Tesla is undervalued.
I've got my eyebrows and my face blown off or ripped off there.
So let's let's I want to shift to the venture capital community, the gestalt, if you will, the complexion or the character of the community and and region. And I'm about to make some stereotypes here. So forgive me. I find that the tech community and specifically the tech community in the Bay Area is infected with what I would call a third base virus, and that is they conflate luck with talent and that there is a general expectance and a general viewpoint amongst people in tech.
And I think I'm somewhat affected by this, too, that we're the innovators, we should play by a different set of rules, we should pay lower taxes, we're doing God's work and tend to forget just how fortunate they are and that there is a, I don't know, an ugliness to the viewpoint in Silicon Valley. Feel free to push back on that. Well, how what is your response to that?
Yeah, look, first thing is they're bad apples in venture, just like they're bad apples in every other way. I mean, this is so humanity specific comments. So there's definitely some of that. And and you see that in the companies that blow up that were just fundamentally fraudulent. I have a view that what happens to these companies where you go from being lucky and humble to invincible, know these folks weren't bad people, then you get atrophied in this business model of scale and success and you say your your your decisioning starts to be compromised.
You remember in the case of. Exactly. Want to go public and now you're on the advertising juice and you're going to monetize everything. So I think this just happens along the way. And the reason this happens is we don't have a framework for building these companies with regard to unintended consequences. And once we're faced with those unintended consequences, then profitable, there's these companies find themselves at odds between are we building for profitability and return or societal good. And one of our core focuses is we think about the digital transformation of society over the next decade is figure out a way for the company building process, both from the investor perspective and the entrepreneur perspective, so that there's a clear alignment between having financial return and societal return.
I I'm not going to disagree with you or your blanket statement. I'm just trying to understand why we get there and how we actually have a better set of company building processes to avoid those those scenarios. Do you think that some of it is that government isn't doing its job, that we haven't elected people who will hold tech companies and innovators to the same standards, they hold other industries in our tax policy, whether it's Toivo to or capital gains, that everything is has been sort of tilted, I don't say rigged the tilted towards the innovation class that the innovators and Facebook, whether it's Section 230, whether it's tax policy, just get to play by a different set of standards in any industry that's allowed to play by better rules or more favorable rules would take advantage of that, that it's really a failure when you talk when I hear you talk about externalities, isn't isn't isn't that government's role?
So there's a massive lack of impedance match between government policy and technology. Today, when Microsoft got hit by its antitrust, they sent regulators on campus to actually watch what business practices were being done to. If you if you think about doing that to Facebook or Google and what are you going to do, going to send people to these servers where the stuff is actually algorithmically being done. The idea of regulating the business practices should also be a softening of the idea.
So I think there's a major overall the Commerce Department that needs to happen where you start to create these software watchdogs and actually understanding what is happening. They can be measuring for the unintended consequences that are emerging out of these things as well. The policy is to get created in a retrospective way. And it was it was OK because these businesses weren't getting that fast and you had the benefit of years and sort of problems emerging and you got to solve them along the way with policy.
Now, that's not what happens. We organize all of society online like a decade. And next thing you know, the blowing of democracy because you never have a chance to understand what is going to go wrong, let alone intervene and mitigate it. So how do you how does the government become more software adept in understanding how these companies, digital businesses operate, how they use machine learning and data, how the decisions are being made? The answer is yes in terms of the government needs to play a better role.
But, boy, they are so far away from being able to play that role.
Is it a lot of it, too, though, that. The feelings of Washington has been overrun, and then until there's a perp walk, you know, people are angry that we keep setting up systemic financial risk because there was never a perp walk. No one was sent to jail for the financial crisis. I mean, at some point when these tech companies just their fines are just kind of a function of doing business. And the numbers, as you referenced, are just so enormous.
I mean, don't at some point at some point, don't these investigations or these penalties have to be criminal or this this regulation lobbyists, it just becomes a price of doing business?
Yeah. Look, first of all, this idea that there are tech companies doesn't make any sense. And their banks and their health care institutions and their schools, you know, I mean, I, I really think getting this next crop of entrepreneurs to take this responsibility very seriously needs to be done. I think that this really has to be just laws and sticks and also carrots. It's also like how do we weaken governance at least how are we asking the right kinds of questions in diligence and in board meetings and sort of pushing for this level of intentionality in terms of this business that is doing really well in the short term, also fundamentally aligned with long term interests of society?
That question gets asked is always whether they get big enough that something is broken. That's a good position to be in, right? That's the traditional mindset that we take in terms of company building. I so all stakeholders have to think differently if we're going to continue to work on digital transformation successfully and not have these unintended consequences like we just had in the media. Like, can you imagine what that could be in health care if we make the wrong decisions and how we bring these services and therapies to populations this fast?
With Moore's Law, we hung at it. Right? I mean, so much can go wrong. And so in every one of these sectors, we just have to be careful in how we approach the act of company building.
So in every podcast, I like to take pause when I hear something that strikes me as exceptionally or important or really insightful. And the comment you just made really struck me.
And that is what if what if we let the same things happen that we've allowed to happen in media with algorithms of amplification that divide us and enrage rage and rage us?
What if those same negative outcomes or externalities infiltrated our health care system? I mean, that is I have never thought about that before. And simply put, that is fucking terrifying to think that we might foster a new generation of entrepreneurs that some people would say blyde scale or you know, I would argue that it's sociopaths and it's what happens when you replace civics courses with computer science. But what if some of the the negative attributes that did become natural meets glycerin with processing power were to permeate or infiltrate our health care system?
I think that is terrifying. I'd never really never really thought of it that way. Do you think we can prevent that? Just with I always feel as if we're imposing or hoping that the next generation is going to be more noble, that they're we're going to instill in them a set of qualities or a code that is better than previous generations. And granted, this is cynical, but it doesn't mean I'm wrong. I've always thought that in a capitalist society, when it's raining money, your vision gets blurred and there's a core group of people that will always be principled.
But for the most part, people make incremental decisions to get wealthier. That might lead them down the path to help the people. At Altria, where we're good people, the people have running Exxon are good people. You know what? Let's talk about that. Is there does there need to be an oversight body? Does there need to be more regulatory scrutiny? How do we get to the starting gate and ensure that health care that we don't have the Mark Zuckerberg of health care, where they can't be removed from office to a class shareholder, creates hundreds of billions of dollars, has a PR department that's bigger than the newsroom at The Washington Post and basically overruns Washington and continues to kind of and I apologize for being very aggressive here, levee damage.
What what can we do at the outset around the flood of venture that is going to health care?
Yeah. So, look, first of all, every stakeholder has to treat this sector with a sense of responsibility. The capital providers, the entrepreneurs, the policy makers, the FDA, everybody, because it is scary as to what we could be creating on the other side. You know, I can tell you a way to formulate the. Nirvana in terms of what should come out on the other side of this, you know, I always use this example whether it was a diabetes coach, Anthony Van Gogh, or a primary care physician that Teladoc Rambow had or or a specialist at Mayo in person, they should have all the data and the intelligence required to serve that consumer in the safest, most cost effective way.
That's to think about dad and the business practices required to actually enable that kind of a world as opposed to what happened and what happened in Health Tech 1.0 siloed data with Charles. And it's our property. And you're not going to understand this particular thing about this consumer, even though that might have saved their life. Right? I mean, that's the way this industry was structured. And we have to somehow get this next generation of entrepreneurs to understand that the responsibility of keeping people healthy on the other side requires a set of collaboration and business, partnership, mindset and orientations that it will be natural to if you were trying to be just purely capitalist and of create your own mode.
And so as as an ecosystem builder in this industry ourselves, we're trying to do is we're trying to get our founders together to try to realize that vision, trying to make sure that they can reinforce their understanding of the consumers across each other and service them better service and more cost effectively reduce the GDP of health care, as I said, and keep people healthy versus spending money on sicker. So so I do I do think there's a huge amount of focus that has to go into rethinking the design principles of doing business in the sector to set this up in the right way.
Haima Teenager is a managing director at General Catalyst and the founder of the firm Silicon Valley Operations, who's also the author of On Health Care A Manifesto for Health Insurance and Unskilled How I and a New Generation of Upstarts are creating the Economy of the Future. He joins us from his home in Los Altos. Himmat, stay well. We'll be right back. Throughout history and today, organizations need to keep up with the speed of business in order to seize new opportunities, having the right platform to power, how your team wants to work is just as important as having the right strategy.
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OK, it's time for office hours. My favorite part of the show, based on the show Frasier, which I used to watch with my mother, and one of my favorite shows, the part of the show where we answer your questions about the business world, big tech, higher education and whatever else is on your mind. If you'd like to submit a question, please email a voice recording to officers at Section four dotcom question number one.
Hi, Scott Troyes from Melbourne, Australia. As I'm sure you're aware, Facebook just blocked all news media from appearing on its platform in Australia without any warning as a response to the new media bargaining card that's coming into effect. And there's a bunch of background as to how this came to be in the Murdoch empire squirrel grip on the Australian political landscape. But at the end of the day, it forces Google and Facebook to pay up for news media appearing on their platforms.
Google's responded with and what they call the news showcase, which is paying publishers for their content in that feature. And Facebook just really threw the toys out of the pram. Question for you is, do you see this as a watershed moment for other governments around the world to get their revenge and force to wrestle back some control from Facebook? Will the removal of news from Facebook spread globally? And if so, will it be appropriately relegated back to just the cute baby videos and motivational quotes, therefore dramatically reducing its engagement liquidity for advertising?
And will that, in parallel with Apple's punch to the throat, to the advertising model, start to actually spell the end for Facebook long term? I'd love to hear your thoughts and love the show thinks it.
Really thoughtful question, Troy from Melbourne. And I think Sydney is the most beautiful city in the world, but I think that Melbourne is the most soulful city in the world. I think if I move to Australia and I've actually thought about it and I'm considering and considering, I'm just so glad we get to talk about me. I'm thinking about I don't like I live in Florida and I don't like the idea of raising my sons as teenagers in Florida. I just think there's something in the water here that creates a certain element of batshit crazy.
When you read about some guy who, you know, killed his entire family and his neighbors and then took his dog for a long walk, it's usually usually OK. That guy's from Florida. And there's something about teenage boys in Florida that kind of scares me. So I am contemplating I said, if the world is our oyster and time is going fast and I think a lot about how fast time is going and the fact that I'm going to be sitting on my deathbed before I know it or lying on my deathbed.
Well, that's cheery, isn't it? Anyways, it's motivating for me.
And one of the things I want to do is I want to move and I'm kind it's kind of come down to London for me or Australia. And I think if we did move to Australia, I'd want to live in Melbourne anyways.
We soon may be neighbours, but that's not why you called in it. OK, the whole Facebook Australia.
First off, the first off, first lesson. Don't fuck with Australia. Don't fuck with Australia. Australia is America with backbone when it comes to big tech. And think about it. Australia gets all the weaponization of their elections, gets all the tax avoidance, gets all the monopoly abuse, gets all the division and gets all the rage but gets a fraction of the upside. We could you could argue that in the US. So I think you would argue that we're a net gain or some big tech.
The problem is where the word net, and that is we get a lot of prosperity, we get a lot of stock market value, we get a lot of hiring. Amazon is the largest recruit out of my class at NYU. I would argue that Facebook is actually among all of them the only net negative. I think the world would probably be a better place if the earth opened up and swallowed Facebook. By the way, I wouldn't want anyone to be heard in the tremor like Earth opening end of days kind of activity I'm envisioning here.
I would just want the company in the corporation to disappear.
So what happens? I actually believe that the Internet should be open and you should be able to circulate links to a media property and then it's up to the media property if they want to put a gate on it. I think that Facebook's concerns have real legitimacy here. And also, let's be clear, the individual, the wizard behind the curtain here in the curtain being this legislative action is Rupert Murdoch, who is Uncle Satan to Zuckerberg, Satan. So if there's a war between Mr Zuckerberg and Mr Murdoch, which this is, I'm rooting for the bullets.
And so let's be clear, this is not a clean issue. Having said that, having said that, when you're Facebook and you continue to lie and you continue to do damage when you show up Cygwin, Jeffrey Dahmer shows up to a picnic with egg salad. And who doesn't love egg salad? Maybe he just wants to bring maybe he just wants to make the picnic a brighter place with that dead buttery, yet sublime picnic treat known as egg salad.
But no one wants Jeffrey Dahmer at their fucking picnic because they don't trust the guy because guess what? His activities in his history speak louder than any intentions or any arguments. So I would argue. Facebook has a very strong argument here, but it just doesn't matter, everyone is fed up, it indicates something larger to Troy and that is the communities are starting to kick in against Facebook. I predicted two years ago that Facebook would be banned by a northern European or Latin American country.
And I got it wrong. I think it's going to happen in Australia. And this is sort of the first incremental step towards banning Facebook. Supposedly they've come to some sort of agreement. And Facebook's VP of communications, Campbell Brown, who I think is a interesting, thoughtful and competent person. You know, everyone gets everyone should be allowed an opportunity to sell out and go make bank. I don't resent her for that. But I'm disappointed because I thought she was a great journalist.
But she said that she put out this bullshit quote that we support journalism in Australia, as we always have for journalists globally. Oh, my God. Yeah, right.
Anyway, I like what's going on here. I like the pushback, even at the pushback, quite frankly, is sponsored by the original Satan, Rupert Murdoch. I think it indicates that the world is fed up with Facebook. I think this is slowly but surely going to result in a country effectively banning Facebook. So I think this is going to be interesting. I think there's some larger trends at play here. Another feature to be thought about here. Another thing that we can think about are learn from is what Google's done.
Google's backed off and said, now we're going to solve this problem. We're going to reach into our pockets and we're going to solve it with cash. Why? Why?
Google is trying to call an Apple. They're trying to disarticulated from Facebook, as we often do. It's easier to stereotype companies or group people and companies into one general assumption. And we I do it all the time. We call them big tech. The bottom line is Apple is not Facebook. Google is not Facebook. And I think Google saw an opportunity, a they wanted to solve the problem. It's going to cost him a couple hundred million dollars.
Fine. They they can't start there. How wide here. But they can make it a lot less black, if you will. However, however, what they really want to do is they want to separate from Facebook. I think Facebook did not handle this well, did not handle this well. I think that they have a legitimate argument. They want to be indignant. They want to play power. You know, they want to they want to pull a power move, take their advertising ball and go home.
And then what do you know, a bunch of public service information and health information goes dark. Oh, I wonder if that was an accident. A lot like Chris Christie deciding for political reasons to increase traffic in residential neighborhoods in New Jersey. How'd that work out? Former Governor Christie, who's on the road pitching opportunity zones, I think, anyway. Yeah, I don't think Facebook's handled this well. And Google saw an opportunity to pull an Apple and disarticulated away from from the nephew saying to Murdoch saying, and that is Mark Zuckerberg and Facebook.
Next question. Hey, Scott.
Michael here from Phoenix, one company I haven't heard you talk too much about a strike. And I wanted to get your thoughts and reaction on reports this week. The strike was raising their next round at one hundred dollars billion valuation and the shares were being sold on the secondary market for one hundred and fifteen billion. Most recent reports from two thousand nineteen suggest that Stripe was processing transactions in the area of two hundred and fifty to three hundred and fifty billion. Do you feel like the company's overvalued and what tips and tricks would you have a person like me interested in buying shares of privately held companies on the secondary market?
Look forward, your insight and thoughts. Thanks very much.
Thanks for the thoughtful question. Michael from Phoenix. My dad lived in Paradise Valley in Phoenix when my mom and dad split up when I was eight, he moved to Ohio with his third wife to take a job with promotion with OEM's. Scott, the fertilizer to my dad literally sold shit, literally sold shit, metaphorically and actually physically. I remember people coming over to our house again and again and bringing like a crock pot or bringing, like, I don't know, cutlery or pans and barter.
And my dad would give them bags of fertilizer. Anyway, moved to Columbus, Ohio, Worthington, Ohio, essentially abandoned me.
But that's an entirely different issue to go to work for Scott and then began a slow wind down of his career as he was part of what I'll call the reengineering generation, or remember reengineering, which was basically land for fire. Everybody back in the 80s and slowly but surely worked his way down the corporate ladder and ended up in Arizona, Paradise Valley. But I used to the thing I remember about it was how beautiful the sunsets were. And that's where my dad got me into running one of the one of the wonderful things my dad got me into at a very young age with physical fitness.
Anyway, that's not what you see. That's not what you asked.
OK, so Strib, the payment space in Bitcoin is just or more or loosely speaking, the payment space is one of the many spaces I just can't wrap my head around. I, I will say I think Stripe is a juggernaut, whether it's undervalued or overvalued. I don't know what I will tell you. What I would tell you is about investing through these secondary markets. Things like. Forge SecondMarket, I think there's another one called Micro Ventures, and there's a few of them, a couple of things.
One, they are typically fee laden. You have to spend between four and 10 percent on fees.
And I would argue if you were going to do that, I mean, a couple of things. I think the algorithm or the algebra of wealth is fine. Sectors that you think are growth sectors, payments qualifies. Right. Bring discipline and focus, and that is focus on making more money than you spend stoicism, live below your means, live below your means. Such so you can start putting money into investments. It sounds like you've done both those things.
Then it's time. Don't buy stocks you don't want to hold for years and then it's diversification. Make sure you're not more than 30 or 40 percent if you can help it, or 50 percent if you're younger in any one sector and try not to be more than 10 or 15 percent in any one stock or more than five percent when you get to my age. So anyways, payments, you sound like a responsible guy. It sounds like you're doing all of this.
What I would suggest is if you're going to do this, do your homework, find out where shares are available and try and see where you can get the lowest fees, if you will, fees or eat up returns and to diversify. If you're going to do this, if you're going to buy shares in the secondary market. As a retail investor, I know you're playing at a disadvantage versus the institutional guys. You have to pay higher fees and to create a basket.
Don't just do strive to do others, whether it's know Space X has an active secondary market. If you like payments, try and find a few others. Again, the key.
The key, the algebra of wealth, algebra, wealth, focus, focus on something to your grade out such you can make money, stoicism. Always spend less than you make live below your means. Time's diversification times time in the market. Thanks for the question. Good luck. OK, algebra of happiness, the biggest story, the biggest story of the year so far is that reportedly data out of Israel shows shows that your transmissibility post vaccine is reduced by 89 percent.
This is enormous. This is so exciting, so exciting, because there were there was real doubt around, right, OK, I get a vaccine and I'm protected, but I can still transmit it or that was the fear. Right. So so there's less of a reason to get a vaccine. If you're 30 years old and healthy and of a certain demographic specifically, you're thin and white and have ļoti blood. Your odds of having your odds of mortality from this thing are, you know, probably no greater than pneumonia or flu.
So that led to a narrative I kept hearing among a cohort that I know that I'm going to wait. And that is I'm not in a high risk group, I'm in a low risk group and I'm going to wait and my view is, well, OK, boss, it's not about you. It's about not being a note of transmission. It's not it's about not being a web of fiber in the web of death. It's snaring people across our nation.
We can figure out the exact attribution of who's a node of transmission. There's a piece, by some estimates, somewhere between a third and two thirds of people who add this thing and transmit it may not have even known that had it when they transmitted it.
Anyway, we now know we now know that that it appears it appears your transmissibility goes way down. So the question the question we need to ask ourselves when it comes to the vaccine is not are you afraid of getting covid? It's are you afraid of someone you love getting covid? And let's talk about that. Do you love other Americans? Do you love seniors? Right.
We all we all want to love our brothers and sisters across the nation. So this is a way to express empathy. This isn't just about you. This isn't about you. This is about others. And now there's proof that you don't need to be a fiber in this web of death. We need more empathy.
I say this a lot and I'm trying to practice it and it's important to say it out loud, but Twitter, Facebook tree you to be more terse and more of an asshole.
They treat you to dunk on other people dispersion, regressing or reverting or retreating to our homes and distancing less interaction, less empathy. We don't see the homeless vet. We don't see the single mother. We don't see people of different income groups at the mall or at the restaurant or at the movie theater.
We have to practice empathy. We have to we have to say out loud, how do I love the Americans? How do I express that sort of, you know, what is love? No, I don't think anyone really knows love until they have kids. And I define love as something you care more about their well-being than your own. I never felt that in the remotest sense in the world until I had kids and then that Jesus Christ, it's no longer about me.
And it's just funny when I sit with my kids, I sit with my boys, I eat with them, and we talk about their homework. And, you know, you have those moments as a father and as a parent where your heart just wells up. I was thinking the other day that my thirteen year old, he's two thirds gone. I got him for another third in his first thirteen years have gone so fast. I got another third, I got another six years with them and time keeps going faster and he's gone.
He's out. And I was so my heart was so heavy and and I remember thinking, you know, I wanted to express to him, you know, how much we're going to miss you when when when you leave for college. And it's going so fast. And, you know, I just sort of gave up. There's no way anyone can understand it. There's no way anyone can understand it until you love something for the first time. And for me, that was when I had kids.
And as I've gotten older, I've realized, OK, love is not just something that happens naturally. Love is something you need to practice. And it just strikes me that to say out loud, to think out loud, I'm going to love other Americans. I am going to make sacrifice. I'm going to insert a function into this equation, into this algebra of concern for other people, regardless of the inconvenience or regardless of the calculus I've done around my life.
Get vaccinated, express love to our brothers and sisters across the nation. Our producers are Caroline Chagrinned, Andrew Burrows, if you like what you heard, please follow, download and subscribe. Thank you for listening. We'll catch you next week with another episode of the show from Section four in the Westwood One podcast network.