? Will A Recession Crush Venture Capital in 2020? | Recession Watch

Josh finally we get together because always Mike Greenlee get to see you so we get together because I Have this hypothesis that I’m testing out on a lot of people that I respect to see Whether the US or the world, it is potentially going to recession. I have a feeling that it is I’m not 100% certain I know it’s getting weak and I know that you see the world in different way and you’re quite unique because you look at Public markets private markets and you look at you’re under some macro cuz you hang around with little macro people So what’s your take on? where things going how things are on any of the kind of flags that you’re seeing so I think about this as Illiquidity which is a word they use often. Yeah, which is the opposite of liquidity. You’ve got the yield curve You’ve got 13 trillion dollars of negative yielding interest rates, which I think is unprecedented in four millennia You’ve got an enormous amount of people that in the US I think 60 percent of buyers of government debt are retail which is about double what it was You know a few years ago. And by the way that 13 trillion dollars of negative yielding debt was zero five years ago Yeah, so people are pushed out on the yield curve. You have a lot of people that are Aging population and what do people historically do the narrative is let me buy debt, you know Typically the percentage of my portfolio that should be allocated to To fixed income should be roughly proportionate to my age. So your 60-year old you got 60 plus percent in debt fixed income 40% maybe in inequities in mutual funds the portion that’s in debt is at record low historic yields So you had a million dollars or two million dollars and savings as a retiree? And you were making fifty or sixty thousand dollars a year now you’re making ten So what do you do you go out on the yield curve? So maybe you’re in fixed income instruments or mutual funds or ETFs? That have some slightly higher yield and you think your principal protected so you were looking for your return on principal? The probability is grown that the return of principal is actually not there Yeah, why you might have stuff mixed in just like you did with the subprime, you know going back 10 years ago That is not actually investment. Great Things might have been rated as investment grade But they’re not and all of a sudden you see a 10% decline and you see this in Europe That’s this is happening. Now HT of h2. Oh, yeah ironically named completely illiquid I think the private portion of this was 9% of assets that they had marked at And then it dropped down to 2% which means probably it’s really 50 basis points Yeah And so significant value impairment and then you have the human behavioral reaction which is to start pulling funds Funds out of these funds So if you have that in the fixed income world where the liquid is a mismatch because you’d get money out for a while before It stops you have the illusion of liquidity because you have daily trading and and and ETFs and you know They’re marked on a daily basis, but the underlyings suddenly might be a liquid And so I think that there’s a real risk of permanent impairment which is the true measure of risk of principal So if that happens and retirees start saying wait a second, you know what let me go to cash Let me get out of these bond funds that I thought was safe. You know that creates a problem Well, they also might need to sell out of equity funds now in both asset classes You’ve had a shift from passive from active to passive So I actually think it’s a great time probably for active managers who can actually do security selection and determine because the simple algorithm for all of these things was dollar in by and now it’s gonna be dollar out sell which means some of the good stuff is Going to be sold indiscriminately. So people are pushed out on the yield curve They’re taking more and more illiquidity risk and they don’t realize it now you think about who the marginal buyer is? on the equity side, you’ve also had record amount of corporations that are buying back stock the last time that corporate buybacks Eclipsed corporate capex was two thousand eight ten years ago and that’s happening again now and that was right before Crisis and then hitting the March 2009 lows now Are we in a setup for you know history were repeating if it doesn’t rhyme, I don’t know, but it certainly You know peak valuations that you’ve seen over the past ten years and you to argue well relative to interest rates You’ve got you know S&P île that Four point six percent ten year to you know, maybe the values there Maybe it’s not but then you look at the illiquid side and I and not just on the bonds and not just on equities and people selling but My world it’s as venture capital And here you have, you know, a marginal buyer on the public equities who maybe was the corporation buying back its own stock Yeah in my world. The marginal buyer is two kinds one You’ve got soft Bank, which is setting a you know, irrational price They have an enormous amount of money to put to work and have put to work Pricing up their own stock and we’ve talked on real vision before about this in the past with Mike And so I think that they have created irrational Comps that other people have referenced to that have said artificially high prices that are almost equivalent to leverage because a 10% or 20% down round wipes out everybody in that capital structure stack The second thing that I think you have is looking at some of the marginal buyers which were foreigners now if you take life sciences and biotech a year ago you had about a billion six a billion seven of Chinese money that went into u.s Biotech companies out of a total about twenty billion dollars of life science money that went in first six months of this year You have about 700 million dollars So about half a billion dollars of capital that compared to last year is not there So suddenly VCS are looking around and saying okay who’s gonna be pricing out my series? BCD pre-ipo rounds you have a handful of people who potentially are bag holders Maybe these are the Bailey Giffords or the Fidelity’s that are doing these pre IPO. Rounds. Why are they doing that? Because the returns were in the pre IPO financings but then you look at the pre IPO companies that are now going IPO so uber and lyft and Potentially we work, you know, these are the darling unicorns and many of these have not held up Well, some have zoom has done very well, others have been disasters, but you look again at Softbank and you say okay They’ve got these illiquid stakes through the vision fund And they try to do what after these things went public rather than just selling the stock They tried to issue debt have issued dead Four billion dollars secured by the garden stake or the uber stake to retail investors And then the underlying we work originally we’re gonna put 16 billion dollars in they put a few billion dollars in and they priced up Their own paper, you know valuation I’ve got my own tinfoil hat theory about why they’re doing that to serve as collateral against mothership indebtedness We work now Going IPO gonna issue four billion dollars of debt before they go public because there’s nothing more that people love than a more indebted company Before they go public now The biggest counter is people will say well compare this moment to the 2000 bubble when you had all these you know phony Valuations at least companies now have revenue which is true because a lot of back then you just had eyeballs you had no dollars No revenue, but the problem is in spite of all of this revenue. You still have no profits so if you have all of this revenue growth But it’s unprofitable and it’s really driven by Kindness of strangers who are the providers of the capital. I think a lot of people are overestimating the potential profitability these companies So so one of the other very interesting things, of course is you have this mismatch between capex and buybacks But capex is a good measure of corporate investment activity and so buybacks now eclipsing corporate capex capex Potentially declining at a time when interest rates are as low as they’ve been in many many years it doesn’t bode well for the economy and it comports with your view of recession it also ports with your view which I think is an excellent one of Real volatility and risk amongst the European banks. I’m just looking at the situation we talked about on the on the corporate side the amount of trip will be debt, you know, it’s it’s it’s so enormous now and it’s basically five companies that 800 billion dollars is five companies. That’s AT&T Dell GM Ford and GE and by the way, every one of those companies is not a company that a cutting-edge Early-stage entrepreneur engineer would ever want to go and work for no now the amount of indebtedness, right? Has served asset growth and you can argue as fuelling operations But look at GE now in my world GE I predicted Was going to divest of their corporate venture portfolio because whenever you see corporate venture activity It’s almost always counter cyclical indicator, right when peak corporate VC starts happening. They feel like they’re late to the game They look at their brethren. They see that money is being made at least in paper marks CEO says, you know, I think we should be doing corporate VC activity. The board says yay Then all of a sudden they see one of their brethren and say wait a second These guys haven’t had any liquidity their divest in their portfolio The secondary funds come in they buy things. That’s 70 80 cents on the dollar The day that GE announced that they were going to divest their VC portfolio We got contacted by a very large prominent buyout fund that said Hey, do you want a team and take a look at this? and I think that there’s going to be portfolio after portfolio of Corporate venture that starts getting divested so that they can free up cash for liquidity But to your point all that trip will be indebtedness. I mean, these are companies that are dinosaurs. Yeah, there’s real Structural risk that they’re going to be disrupted by the next car and it’ll be dead My fear with this as well as it is anybody gets downgraded which they will in the next recession? They’ll get downgraded and the junk bonds here. There’s two different owners So it’s the pension system that owns the triple because it’s still investment great as soon as it goes out It’s not owned by them at all, but jump on guys So there’s no liquidity through say the sellers and there’s basically no ability to buy and that much Downgrade stuff and I fear it knocks on into your world because a liquid lip knocks on into a liquid and we saw this in 2008 his Hedge funds became the cash machine where they could be so they all had to gate then all the private equity guys were trading at I remember I was helping out a family office and they were Selling out of stuff at 30 cents on the dollar which was good stuff, but they just desperate for liquidity Well, this was again going back, you know, just like 2008 was the time relative today when corporate buybacks exceeded capex 2008 was when BMP Gated those three hedge funds exactly and now was the start of the catalyst and that’s what I saw with this h2o And yeah and Neal Woodford is like okay. This is interesting because You’re sarsens to see liquidity issues and that’s what it was and that’s why I thought if you mean like that I’ve got to get Josh about this because there’s a liquidity event going on and people are saying that Isolated and they were isolated with BMP and then it was the money market funds and it just started moving around tells you there’s not enough dollars in the system and in front of over time from a simple macro standpoint even to the layman If you’re pushed out on the yield curve and money is being printed and money’s available and you go into this higher illiquid stuff now You’ve taken cash that was meant to help bail system promote growth. You’ve put it into a liquid stuff and now it’s trapped That’s right. The question is who is the incremental buyer and all of these things? So in my world, who is the incremental buyer, is it the crossover hedge fund? Is it the growth equity investor? Are that the Tigers and coaches and you know, the tiger cubs that are doing private companies Is it soft Bank when that capital starts to dry up? We have a liquidity crisis now, so massive illiquidity in the case of the bond funds You know that the allah quiddity comes when you have these Things that you think are investment grade that turn out not to be in the case of the mutual funds You have a liquidity when suddenly everybody starts selling and people think that the underlying that they’re able to get out of so I agree with you. I think that is a substantially underreported under-recognized risk And I’m also interesting because VC is very different to private equity because private equity they can have a hundred cent ownership, right? So then yes, then have funding issues so debt roll up and stuff that will become an issue but in VC You’re at the mercy of other people’s liquidity. Yes, so you may have all the liquidity in the world But if everybody it needs out or the underlying business needs to raise more caps on the can’t raise capital They’re gonna go bust right? So there’s two players here that matter of the underlying LPS and you have the denominator effect in oh seven Oh eight And then the GP is the other funds that your co invested within your syndicate and you’re constantly looking around and saying Where is this company that your co invested with them in this fund of theirs? Now if they’re in fun five and they’re going out and raising fund six and that fund is tapped They have no reserves to invest incremental dollars You have real liquidity risk from that investor ability to support their company on an ongoing basis Yeah if they’re investing out of a fresh new fund and it’s a brand new company inside of that fund because you know each fund is Every two or three years you ready to pool capital It’s a different story. But that’s a dimension of risk, which is idiosyncratic. It is different from the underlying company It’s about who’s in the cap table. Now, we’ve always said because we do different styles of investing we do special situations Can you invest in the late stage business at an early stage price? The only way to invest in the late stage business at an early stage of prices because something is not impaired on the balance sheet Or the income statement but on the cap table So I actually think there’s an opportunity for secondary players to come in and basically be liquidity providers So and so if liquidity is scarce that is how you get value, you know, anything that scarce tends to be valuable And so so I think that there will be situations where funds will be at the end of their life and not have the ability to invest in a company, but you also have situations where a fund might have a winner and My winner might be somebody else’s loser or vice versa and so how I’m prioritizing in my fund versus how they’re prioritizing and their fund and depending on what Vintage the fund is all that kind of stuff starts to matter because it becomes like a Mexican standoff. You’re looking and saying You know, we’ll wait a second who’s got money to pony up here into the next financing we need to bridge this company to an exit or sale and That’s when it’s sort of classic Carl Icahn. You are priced my terms Because the valuations which are in some case was set by these artificial, you know Soft or others what really matters are the preferences and the liquidation in the waterfall about who gets paid? Yeah, somebody might put in a five million each company could’ve raised five hundred million dollars But somebody could put in a 5 million dollar bridge loan With liquidation preferences on top and they can clear all the money that gets made in an ultimate sale And so a lot of the stuff is is very illusory. And I think at all is about liquid I mean most of it the enormous growth from VC over this cycle Concerns me because there’s a lot of people who haven’t run cycles or don’t understand the macro so people don’t understand this thing is cyclical everyone puts a linear trend always on everything and the problem is is How do you manage risk in a VC business? outside of a diversified portfolio Because you’ve got so many other factors of risk It’s very difficult. And none of them are set up to trade macro of which they should do, right? Some of them should be able to be able to buy some illiquidity Insurance by whatever format that is whether you want a short junk bond index or whatever it may be none of them even think about it and it I just don’t understand because they’ve basically bought a built a Portfolio of options and the rule no the gamma of options being they go up a lot They go down very quickly as well right and I don’t think a lot of people are ready for I think I think that kind of risk management tends to be at the LP level right whether it’s an endowment deciding what their allocation is can beat a venture as an asset class, right? And I think the best risk protection if you’re an allocator Yeah, it’s just hard to do what Dave Swenson did I think he did in 2000 he did in 2007 cio Yale And and he basically said give me your hand to heart valuation Now what you’re holding at the mark not what faz 157 not what the auditors say You have to do based on a comp analysis. What hand to your heart? Would you be a buyer of this company had today? and he got a very Different set of answers from his GPS and the GPS gave him those honest answers because they valued him as an LP And so I think that set up a situation where he said wait a second the Marc’s relative to what these guys are saying my hand to my heart valuation is there’s a big discrepancy and That created a different allocation scheme for him, you know in incremental dollars to private equity or to real estate in that case So I think that that’s from an alligator standpoint the way to have, you know, risk management from our standpoint you call risks Yeah The risks are our LP is gonna meet capital calls when we call the capital one of the questions that we never asked in our early funds and we started asking three funds ago is What is your target allocation to venture and where you got today? And we had LPS and we’re on our sixth fun now and our third fund We had LPS where we said which target allocation. They said 5% and were actually at 12 now And we came out of the meeting and we you know we were in his portion situation to be oversubscribed and I turned to my head of IR and I said This is not an LP that we can take And we can’t take them because the risk that we end up on a list to a secondary Buyer was very high. Yeah, and so I think that you’re gonna have that denominator effect without peas You’re gonna have some over investment from illiquid VC GPS Yeah I think you’re gonna have some undercapitalized companies who basically raised money at ever-higher evaluations and have to keep the thing going and It’s you know this classic, you know, when the music stops, you know Who’s gonna be left out without the what stops the music in your world? Is it Softbank? Cuz I’ve I just looks at me It’s kind of magnetic in its Enormity. Yeah, it’s the second most indebted company in the world, which most people they realize 160 hundred $85 after AT&T. Yeah It’s it’s a you know, soft mink is not saying the price for everybody, right? So there’s a silo over the market and you’re at a very nice area as well Yeah, we do some pretty cutting-edge stuff. But you know, look they’re in the satellite business, right? They’re significant player in one web and we have assets and satellite antennas and a company called Chi Mehta. I mean they touch Many parts of the market, right? And and they have influence and leverage and I’ve set themselves up that way in an intelligent way arguably to try to affect You know being able to get negative gross margin products from one company to be able to help something else in the Softbank ecosystem So it’ll be interesting how that shakes out But I I think the thing that that really the catalyst that breaks the, you know strongly breaks The camel’s back is ultimately to be a narrative change, you know when somebody starts Universally talking about the need for profitable growth Versus just equity funded growth and suddenly people start shifting and they feel embarrassed to go to LPS and be like, oh, yeah We’re funny of these companies and they’ll be lost leaders for a while But then they’ll you know turn on the spigot I did turn on it, you know turn the knob and then suddenly be profitable. So so I think it’s a narrative change Now what causes that narrative change are you sensing than the other narrative change? No, you know today and and I get more and more nervous with every day Right because more and more capital is being put out. You have a handful of giant IPOs that are going out Some of them are fairing Okay, so I’m not so well, you know we’ve talked about this in the past but You’ve had one end of the spectrum which build early who I think is one of the great investors in venture history Who’s a real investor right? He was a sell side analysts He’s very smart very savvy and he’s very grounded and has an appreciation for the history of markets He has been trying to talk money out of the system for many many years He’s been appealing to greed and fear and particularly the fear side and he’s been totally unsuccessful Lp’s keep putting money to work and he keeps saying look you guys are gonna mess up a good thing Right and they say yeah But we need the returns why same thing we going out on the on the on the end of the earth? and and and trying to hit 7% plus you know benchmarks and and and at the other end of the spectrum you have people that are raising ever larger funds and Sometimes they say this as a justification well We need to be able to control the fate of our own companies and compete with the Softbank and so Sequoia has raised You know ten twelve million dollar funds and other people are just doing it because geez the money is available and we can get you Know these huge mega funds and have multi-billion dollar funds and have fees and it’s easier to write 150 million dollar cheque as a growth Investor, you know from a pied-à-terre than it is you know to write a five million dollar series a cheque and so the truth lies somewhere in between, you know, greed and fear and Eventually lp’s will say we’ve got all these paper marks. We’re not gonna put any incremental capital until we start seeing returns you’re gonna have a flood of VCS who had a fear of not being able to raise money will come to market at the same time That I think you’re starting to see right and when everybody’s coming to market at the same time People are gonna say geez just on a simple math basis I’m over allocated and that could be one of the catalysts that People go out to raise money when everybody else right because what the individual does rationally everybody collectively does irrationally Yeah, an LPS are like geez. I’m being hit by 10 funds. I’d love to be in all of them I got to pick one or two and you start to get a natural Discrimination based on either actual performance personalities process whatever it is or LPS have to turn down Some of the GPS that are coming out to market and that could be one of the catalysts. Hmm And so that yeah, that’s a that’s an itself a function of liquidity So I guess if you’re starting to see that because if I look at the economy overall, there’s clearly signs of liquidity issues. I mean Just as a simple level credit card interest rates at the house of all-time Yeah extraordinary yet considering where interest rates are but then when you look at the knock-on effective of the tightening of interest rates over the last two years We’ve seen house prices for housing fall, obviously capsule good shipments full we’ve seen, you know, and then the trade Tariffs and the Trump stuff is slowing down enormous amounts of capex globally now as a corporation, and this is nothing I think it’s a tipping point is if you think of behavioral economics within the trade tariffs situation I’m almost indifferent whether the trades house go on or not. The point being corporate America In fact, the corporate multinational world all has to reassess supply chains So how did the corporates go about doing that they either two things? They’re even the weights out Trump and hope he doesn’t get reelected, right? okay, but that means no capex right for another two years year and a half or They are McKinsey and do all the work about rebuilding supply chains and do they go to Mexico? We don’t know blah blah blah. So it’s gonna take them two or three years of no capex So I’m looking at this and I’m seeing everywhere bsut BASF came out today saying similar things. It’s like kind of like the world suddenly been stopped and it’s because of what Trump did with Mexico that kind of backwards and Paul’s yes-no yes-no. They’re like shit We can’t trust any of this and with the China we’re going to get a deal. Of course, we’ve got deal. There’s no deal They’re like, well, we can’t trust our own administration. Then we’re gonna have to rebuild our supply to the whole thing I just think that’s a really interesting thing I think you’re dead-on and the net result whether it is deliberate waiting or deliberate analysis. It’s still the same thing You’re waiting a year or two, but you are delaying Expenditures that’s right. And again, this is why you know, you sit around a boardroom big corporation public company And what do you decide to do you say let’s buy back our stock. Let stock has continued to appreciate appreciate now They’re you know, there’s a big debate about buybacks right buyback spurts dividends There’s a time to buy back stock But it isn’t necessarily at all-time highs of your stock price Know when will you know got record amounts of debt on your balance sheet as well right now You know as you rightly said venture capital is effectively buying call options on the future, right? That’s call option that you can have as a corporation is cash Yeah, and I think there will be a discrimination when things start to shake out when you go from that algorithmic You know dollar in buy equities dollar out sell equities Discriminating companies corporations you will see true capital allocation again And whether that are the active managers whether those are great corporate chieftains, you know sort of the the classic you know value dies that are the outsiders And those will emerge right from the time as it, you know, but you must be sensing an opportunity So well this national situation side I am very excited because I have joked that when the cost of capital is as low as it is as it has been It’s like a tractor beam for the future right take these far 20-year out ideas and they suddenly become these 20 month frenzy frenzy projects But when the cost of capital is that low every company is special because crappy companies can raise a lot of money for me That’s problem because the labor pool gets thinned out and since perished because instead of having one company that everybody goes to you have five Companies that are all competing with each other and everybody is getting paid more So again what the individual company does rationally collectively becomes irrational So I think you have a phenomenon where if capital get scarce at a time when interest rates are falling Which is this illiquidity issue? Yeah, because the incremental buyer the marginal buyer is drying up then you will start to see a rationalization some of these companies fail They get absorbed you’ll see GPS taking one company merging it in with another creating some false rationalization for why this is happening But it will have a normalizing effect So as I think about this Talking to you the same thing that led people in right pushing people out on the yield curve going into more liquid things Entrepreneurs seeing the availability capital starting businesses spreading capital and labor thin raising the price of labor all that on the upside I think that the catalysts could be the over allocation to the asset class LP Singh will we have a lot of these unicorns? We don’t have liquidity yet. We need to wait GPS getting nervous and coming to market saying we got to raise our fun before shit hits the fan A lot of GPS coming out at the same time LP is having to suddenly discriminate. We’d love to be in all of these guys But 20 of these guys just came back to market We can only pick four so suddenly somebody say oh my god We just lost one of our key LPS now maybe that LP was a significant portion of their capital base And it’s a negative signal to the rest So that starts to retrench people and maybe they had a billion dollar fund or 700 million dollar fund they’re going back out to market with a 250 or 300 dollar fund the size of the checks that they write the number of partners that they have that’s what starts to devolve within the venture side and The incremental buyers of all these companies for the price setters whether it is the soft thing Or the crossover fund those guys start to peel back as well. And suddenly you have this liquidity crunch in my private markets Yeah, and it’s also marginal right just a small shift at the margin that creates that the other one that could do That is I still think there’s something in you know These unicorns that have gone public and seeing that if they start all losing money Yeah, in terms of you know, the public investors Yeah on the stock market if they stop going trading below IPO price that gives a very big signal to all of VC Firms the big ones that everything’s miss marks and again in the quest for yield in the quest for growth you know people were fidelity or Tiro or Morgan Stanley that we’re buying pre IPO Shares of companies because that’s where the kicker was and then the IPO happens if those guys were the buyers and they’ve come pre IPO Then the incremental buyers are you mutual funds a handful of people that didn’t get the allocation beforehand Maybe some of the retail investors and you actually are seeing that right you’re seeing this rise of these Millennials that are these Robin Hood investors that are buying into these story stocks they will by the way learn very painful lessons because Generationally, they weren’t here for the dot-com bust Like literally they have no idea as you said that you can have a down market that a company actually needs to have profits or cash flow or a Endless supply of capital which for the past ten years has been what existed but but, you know, you’ve talked about the European banks Yeah, and that to me also, I think you know whether it’s a UBS or an a, Texas I just think that we don’t know what the reach of their holdings are and in the same way that you have these marginal things on the end You know with the LP cutting back on a GPU then has to cut back on an entrepreneur and the whole cycle III worry about the European banks Yeah, you know, yeah, that’s interesting. What’s fascinating. I wrote that tweeters really blow up and it was just me thinking through Okay, all the charts saying listen, there is something going on here. Yeah still everybody writes back. Well Deutsche Bank What it is is a profitability problem and you get it back I’m like, okay that may be the case. But look at the holes the whole sector It looks to me that but you know, of course they’ve got profitability problems, but there’s something bigger going on I don’t know what that is Well, we kind of know what it is but how it’s going to manifest itself with what’s going to turn out but you’re if I think of the private wealth management business Yes, so don’t you might have been involved in that but particularly UBS and Credit Suisse? Yes They’re huge suppliers of capital to your space. Yes, and to all the other marginal spaces. Yes, that’s how they got an edge They crowd get you into those deals exactly. They create pools of capital now, we don’t actually have fund of fund managers I’ve you know from these wealth managers, but but yes, they have formed pools capital. They have done late stage rounds in illiquid companies They have done pulls capital. They go into funds to provide access exactly. You become a client here We can get you privileged access so that whole area of asset managers and the European banks is one that I think probably has very broad reach that. It could have very negative implications It’s another thing that I picked up went out for dinner with a friend one who was working at UBS. He claimed that the average ultra high-net-worth customer from UBS Page was 82 years old. Mmm I just think of the risk aversion that is inherently an 82 year old even if he is a sign of a big dynasty there is that there there pain tolerance in a cycle at 82 is very different to that pain tolerance in cycle at 72 or 62 the the last time around yeah, I mean I would imagine that the vast majority of that capital is into you know fixed income and then you know They do all these crazy structured products where they get very high fees on that’s right And it’s the structured products that I think even ten years ago or one of the early catalysts Now who’s the main supplier of capsule in your space? These are the pension funds pensions endowments universities And then large families because again, one of the things that I’ve been thinking through over time is the retirement crisis. Yes I can I spend a lot of time to guess about Basically, as far as I can see pretty much all the capital for everything that we’ve ever grown up with in our financial Industries have all been supplied by the baby boomers savings And it’s coming out and look I mean the hedge fund she’s shrinking a table shrink Fraction when there’s more hedge fund managers and more Taco Bell managers up until recently and so that has to change I kind of feel like VCS going the same way. We’ve probably got another whole cycle to come out of VC Well, I think the number of VC managers will be cut in half Yeah, but there’s probably got a quadruple again. You know, this is something also Bill Gurley I think who I have enormous respect for her said was that Time when you realize that the crisis is happening If you were to stop investing at that point is the time that you made the most amount of money So like, you know He would say you realized in 98 99 or 2000 that like the music Was ending right the chair you ever find the chair, but it was the next six months where people had like this now You know, that’s a fool’s errand to try to play that game, right? I mean at the end of the day you want to invest in singular companies? It has singular companies that have some technological edge that there’s no alternative so you have acquisition value and then you want to find good fundamental businesses that can actually generate revenue and profits so that you actually have real eggs of value and The vast majority the companies that are being funded today in many cases have neither that either are one of many technological paths Which means ultimately they have no leverage in a sale or they’re horrible businesses Again, we talked about this where the difference between today and 20 years ago is that all these unicorns have revenue but it’s really Unprofitable revenue and I think people are massively overestimating the idea that you’re just gonna turn the knob and these things you’re gonna become profitable Just look. Thank you very much. I just wanted to pick your brain. See what you think. I seem to be with you it’s just I just think it’s interesting to see how these things cross over because your world has grown so much larger and is a Lot much larger part and it’s kind of eating the hedge fund world Which was my old world and it’s gonna face similar problems that we’ve seen that the contraction expansion Liquidity to manage is really difficult in itself and just want to see what signals you will see and I think it’s you know Everything is interconnected. It is not always obvious until in hindsight, but these large five indebted Corporations are at vulnerable risk of disruption from upstarts who might be unprofitable Who in turn are being funded by this marginal price center that is massively indebted Who’s trying to price up these paper assets to serve as collateral? Everything is connected and we won’t know until it all in No, but we do know that I think That this liquidity monster has really ahead. It’s something that you’ve talked about I talks about Mike’s talked about and a whole bunch of people have talked about and it feels like The genies out of the bottle now and that something is happening and that tends have a knock-on effect It tends to be it’s like a disease or it’s like a virus and it spreads and grows and feeds on itself well The one signal there, which is the contrarian indicator and sometimes it’ll true most the time I want is when somebody says oh no No, it’s contained. We don’t have an issue and that was the case with h2o It is the case with Deutsche Bank and it’s almost be in hindsight and never the case that it’s actually contained Perfect. Time to stop brilliant Josh. Thanks so much for you see me

28 thoughts on “? Will A Recession Crush Venture Capital in 2020? | Recession Watch”

  1. I'm a historian, never had anything to do with economics, because every time i talked with business guys i thought: "They got no idea what they are talking about." This is the first channel, that made me comfortable to invest money.

  2. the marginal buyer on the surface is the corporate buyback. i would argue that in the end its really the taxpayer that funds the buybacks, meaning the taxpayer is indirectly the marginal buyer and doesnt know it. fed keeps rates at 0 inducing corporates to borrow (funded by pension demand for high yileding debt) and they spend the pension money on buybacks.. taxes raised and instead of education and infrastructure those funds are overwhelmingly allocated to pension funding. thanks baby boomers for being so dumb. you bought the lies your whole life. and now the entire economy is held hostage to you and your pensions. say goodbye to economic growth or price discovery – the pension beast must be fed its 8 percent yield so that the dumbest most spoiled generation in history can shoulder zero risk in retirement. and the best part is – you just blame it on those darn millennials! you know.. the ones who's futures look pretty bleak thanks to your inability to keep america great. terrible terrible parents you are. you should be ashamed of yourselves.

  3. "Let me get out of these bond funds that I thought >>was<< safe." <? It should be "were safe". Subject-verb agreement, folks.

  4. Information is power as we all know and the video you put up here reveals that as well. Bitcoin has been the trend of late and many people are still ignorant of this wealth creation technique. I was trading for loss previously because I was not having the required knowledge, skills, and experience on how to trade. It was a devastating experience but I was not relented because I am a great believer of the Bitcoin movement and trading at loss should not be what will weigh me down. My effort was rewarded when I met Mr. Michael Wagster a trader popularly known as TradeMaster. He has been mentioned to several traders and most Youtuber because his trading strategies always provide guaranteed profit and I was happy to lay my hands on his strategies that he used to trade. He provided me with basic and advanced trading strategies on how I will make a profit just like a rinse and repeat process to do every day and following this I was able to recover all that I have lost due to my wrong trading strategies implemented before. Now I see profit pouring in daily and I will be pleased to share it with this awesome community that his strategies work and if you are looking to change your portfolio status you can take the step by contacting Mr. Michael today through (Michaelwagster100 @ Gmail.com)

  5. There is no recession looming. This is just a trick by the Democrats and their corrupt news media. The unemployment rate is a lowest in 60 years. More Americans working now than ever before.

  6. The question posed would make sense only if there still were capital around to invest.

    At the risk of a tautology, I submit the observation that it is difficult to have Capitalism without capital.

    That’s why the economy is tanking. But maybe Trump will come up with something….

Leave a Reply

Your email address will not be published. Required fields are marked *